GCap surges on promise of bigger cost savings

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The Independent Online

Shares in GCap Media surged 14 per cent yesterday after its chief executive, Ralph Bernard, revealed cost savings and synergy benefits from May's merger of GWR and Capital Radio would be substantially higher. He said they would be £25m than the previously predicted £7.5m, producing an £18m uplift in pre-tax profits next year.

The company, which owns the Classic FM and Capital radio stations group, has played down stock market expectations that it will hand back large amounts of cash to investors.

The company said in a trading update"some" of the savings would be reinvested in its analogue radio stations, raising the market's hopes the rest would be handed back to shareholders.

But Mr Bernard said the company was far from certain about what it would do with its cash. "We have only completed the first part of our strategy review," he said. "The second phase is being worked on and when it's complete it will be given to staff and announced to the stock market at our interim results [in November]. Don't forget this is still a company that's geared. We are not sitting on a great big cash pile. The company has £70m of net debt."

Investors are hopeful of some capital return and believe the improvement in GCap's financial position will at least underpin future dividend payments. But the company may opt to pay off some of its borrowings.

Mr Bernard said 11 per cent of the £25m in additional merger benefits will come from cutting out duplication between the head offices of GWR and Capital. Combining the companies' national sales operations will produce 19 per cent of the £25m, while 20 per cent will come from central services. The rest will come from savings at the radio stations.

Mr Bernard warned shareholders that poor advertising conditions would mean revenues for the three months to the end of September would be 8 per cent lower than the same period last year, having already fallen 11 per cent year-on-year in the previous quarter.

Taking the two quarters together, GCap expects revenues to be down 9 per cent. It said trading was in line with expectations.

Having recently ejected David Mansfield, the former chief executive of Capital Radio, from the enlarged GCap management, the company has made further changes to streamline its decision-making, announcing the departure of Linda Smith and Paul Davies as commercial and operations director respectively.