Radio groups warn of bleak advertising outlook

Capital Radio, Britain's biggest radio group, yesterday cast a shadow over the sector, warning of further falls in advertising revenues and ruling out any signs of growth next year.

Capital's bleak outlook for radio advertising was echoed by rival GWR radio, owner of Classic FM, and, to a lesser extent, by Scottish Radio Holdings.

Radio groups are suffering from what is shaping up to be the worst advertising market for at least 10 years. Analysts are bearish about the prospect of a recovery, ruling out any chance of a bounce until the fourth-quarter of 2002.

Capital, which first flagged the declining advertising market last November, said in a trading statement it expected comparable full-year radio revenues to fall 6 per cent in the year to end September.

This compared with a 3.5 per cent decline in first-half like-for-like revenues at GWR and a 3 per cent slide in radio revenues at SRH. Emap, which also publishes magazines, on Wednesday said first-half revenues from its radio operations would fall 6 per cent.

David Mansfield, Capital's chief executive, said: "History says the first thing to be hit [in a recession] is advertising. That's what is happening. We are taking a prudent view that things will get worse. We are not planning for any growth next year."

However, shares in the group rallied 12.5p to 510p. This was on relief that Capital, which in May slashed 25 per cent off its pre-tax profit forecast to £30m, looked on course to hit its revised target, beating analysts expectations by £2m.

One analyst, who did not wish to be named, said: "People had been looking for a change in tone from Capital. When they didn't get it they were relieved."

SRH shares close down 5p at 587p, while GWR declined nearly 4 per cent to 166p.

While all three radio groups declined to predict what impact this month's terrorist attacks in the US would have on advertising revenues, all reiterated the need for extra caution.

GWR's chief executive, Patrick Taylor, said: "In the short-term we are looking into an uncertain future." The company said a return to sustainable revenue growth "will happen only when confidence on the political and economic fronts returns."

GWR, which announces its interim results in November, said it expected comparable national advertising revenues to have declined 8 per cent in the first six months compared to a 3 per cent fall in comparable local advertising revenues. However, the 15 per cent decline GWR saw in first-quarter national revenues is expected to have flattened out in the second-quarter. "There is no reason to panic," said Mr Taylor. "We have just got to manage the business prudently."

SRH, which expects group revenues to increase by 13 per cent to £81m when it reports full-year results in November, was cushioned by its smaller exposure to national advertising revenue.

John Bowman, SRH's finance director, said: "We saw a healthy increase in local advertising revenues which offset a decline in national revenues." Two-thirds of SRH's radio revenues are from local sources in Scotland and Ireland. SRH, which broadcasts mainly in Scotland and Ireland, also has a press division and an outdoor poster division. Total group revenue, excluding acquisitions, is expected to rise 1 per cent to £70m.