Daily Mail forced to prune profit forecast as advertising sales tumble

The Daily Mail's parent company yesterday warned that profits would be lower than last year after its newspapers suffered from falling advertising and failed attempts to target News of the World readers.

Martin Morgan, the chief executive of Daily Mail & General Trust (DMGT), said: "Despite our continued focus on operational efficiency, the weak consumer advertising environment means that full-year group operating profit will be lower than last year." The group posted profits of £301m in 2010. Analysts expect this year will see closer to £293m.

One analyst added that the company had received a "bloody nose" as it discounted The Mail on Sunday from £1.50 to £1 and offered a series of discounts to tempt readers in the wake of the closure of rival News of the World. "The company spent money and it didn't especially work; that's money they won't be getting back."

Mr Morgan would not comment on rumours that the group was looking to launch a Sunday tabloid title to target former readers of the News of the World. He said: "We're watching the Sunday market very closely, but at the moment our priority is investing in and promoting The Mail on Sunday."

DMGT released an update yesterday covering the 11 months to the end of August, which showed revenue grew only 1 per cent, driven by its business-to-business operations rather than the newspaper titles.

It added that the results for the full year would be at the lower end of the range of market expectations. Mr Morgan dubbed the performance "solid".

The Mail titles are part of DMGT's Associated Newspapers division, which saw revenues retreat 2 per cent during the 11 months. While the Mail titles have improved their market share, circulation revenues fell 3 per cent year-on-year. Despite digital advertising revenues increasing by half, print fell 4 per cent, contributing to a total 2 per cent decline over the period.

The group said the advertising trend had improved in recent weeks at the Daily Mail, adding there had been a "particularly strong performance" from Metro. Yet discounting at The Mail on Sunday led to revenue falls, despite the increase in cover price at the Daily Mail to 55p. There was even more woe for the group's regional newspaper arm Northcliffe Media, whose revenues in the 11 months to the end of August were a tenth lower than those from a year earlier.

Advertising revenue also tumbled 10 per cent, hit especially by a drop in recruitment ad revenues by almost a third. Further pressure was heaped on the beleaguered division as circulation revenues fell 7 per cent. DMGT has slashed staff in the division by 17 per cent to 2,600 and cut distribution spending as costs were driven "to be well below prior year levels".

The group's standout division was the business-to-business, where revenues were 8 per cent higher than in the corresponding period a year earlier. The arm includes its risk management arm, data and events operations.

DMGT also expects some of the profit decline to be offset by lower financing costs. While its debts have been reduced to below £750m after disposals, Investec predicted the pension deficit "looks likely to rise given bond-market conditions". Its analyst Gareth Davies added that it was difficult to pinpoint factors that would boost the stock, "although the disposal of Northcliffe offers one possibility".