Capital sounds fresh alert over radio advertising

Capital Radio predicted a 4 per cent drop in revenues this year, seeing only "limited signs of improvement" in the advertising environment.

The leading radio player offered the most bleak assessment of the three media companies that reported trading yesterday. Rival GWR said it has seen "strong growth" in revenues from its local radio stations. Outdoor advertising group Maiden said demand was strengthening and forward visibility had improved, though margins have continued to come under pressure.

Capital, in a trading update, said "it is still too early to tell when the UK advertising sector will recover". A spokesperson for the company said Capital had "always been cautious" and that the continued difficulties in the national radio market, which accounts for three-quarters of the company's revenues, had been to blame for the gloomy outlook.

Richard Menzies-Gow, an analyst at Dresdner Kleinwort Wasserstein, said Capital had been "more cautious than some of its peers" and he added that it was "too early to start factoring in more positive assumptions for 2004".

Capital has the added uncertainty surrounding the future of its star breakfast DJ, Chris Tarrant, with most expecting Mr Tarrant to leave the station in November.

GWR also reported difficult trading at its flagship national station, Classic FM, although it did forecast strong results for its local operations. It predicted that local stations, making up about two-thirds of its total revenues, would increase turnover by 10.4 per cent for the six months to 30 September but that this would be offset by a 12 per cent fall at Classic FM, leaving total group revenues "broadly comparable with the same period last year".

The company said it was "beginning to see improved short-term visibility of revenues" but that the trading outlook for the group "remains unchanged".

Mr Menzies-Gow said he felt that although GWR "forecasts will be increased by most analysts", its "dependence on big lumpy contracts" made the situation for Classic "overly volatile". He added that "the big question remains as to what value to attach to the group's digital assets". GWR said a recent decision by Sony to begin manufacturing portable digital radio receivers "confirms the view that mass market consumer uptake of digital radio in the UK is inevitable and will accelerate".