RNS Number:8291T
Capital Radio PLC
9 November 2000
Part 1
CAPITAL RADIO PLC
PRELIMINARY RESULTS TO 30 SEPTEMBER 2000
Capital Radio plc today announces preliminary results for the year to 30
September 2000.
Financial Highlights
* Radio revenue including acquisitions up by 17.8% to #123.9m (#105.2m)
* Total analogue radio profit up by 14.3% to #45.4m (#39.7m)
* Underlying group profit before tax up 9.5% to #41.3million (#37.7m)
* Underlying group earnings per share up 11.6% to 39.3p (35.2p)
* Net cash inflow from operating activities of #44.4m (#45.0m)
* Dividend for the year up 11.1% to 18.5p (16.65p)
Operational Highlights
* Acquisitions of Border and Beat
- Potential analogue audience increased by 74% to 28 million adults
- Weekly reach increased by 30% to 7.9 million adults
- Listening hours increased to 84 million, up 24%
* Coverage of every major metropolitan area in the UK
* Balanced portfolio of established and new stations
* Improved revenue performance relative to market
* Largest UK digital network
* Websites launched for 3 power brands and the Network Chart
David Mansfield, Chief Executive of Capital Radio, commented:
"2000 has been a significant year for Capital Radio. The company has put in
an excellent performance and our acquisitions of the four regional Century
and Beat stations will enable us to drive our national revenues faster. We
have a clear strategy for the future which puts us in a strong position to
continue to deliver significant growth over the coming years."
Enquiries:
Capital Radio plc 020-7766-6240
David Mansfield, Chief Executive
Peter Harris, Finance Director
Finsbury Ltd 020-7251-3801
Rupert Younger
James Leviton
Introduction
2000 has been a significant year for Capital Radio. Through our acquisitions
of the Century stations and Beat we have made substantial progress with our
strategy of building a national presence, increasing our potential audience
by 74%. We have continued to build our digital radio network and have
launched digital stations in London, Manchester, Birmingham, Glasgow,
Cardiff and on the national multiplex, with further stations launching over
the coming months. We have also launched new music based websites for
Capital Online, Gold Online and Xfm Online which will shortly feature
narrowcast radio stations, and for the Network Chart.
Financial Review
Trading conditions have been buoyant for most of the year and we have grown
our radio revenues by 13.9% on a like for like basis. The addition of the
Century and Beat stations, with their greater potential for growth, takes
our overall revenue growth to 17.8%. Operating profit from our analogue
radio business increased by 14.3% to #45.4 million, and total radio profit
grew by 11.2% to #44.1 million.
During the year we invested #4.2 million in Capital Interactive, which
generated advertising revenues of #1 million. #1.7 million was invested in
Xfm, and a further #1.3 million in digital radio transmission costs. All
these investments were in line with our expectations.
Towards the end of the financial year we closed our remaining Radio Cafes
and we have reached agreement to dispose of all of them. Trading for these
outlets has been treated as a discontinued activity, and an exceptional
write off including goodwill of #5 million has been made.
During the year we acquired Border Television plc for a total consideration
including costs of acquisition of #159 million. We have entered into a put
and call arrangement for the sale of Border's television business to Granada
Media Group Limited for #50.5 million. We also acquired Beat 106 Limited for
#33.7 million, financed by issuing new Capital shares at 1500p each. 1.85
million Capital shares were placed with institutional shareholders and a
further 400,000 Capital shares were retained by Beat shareholders. In
addition, a further 2 million Capital shares were issued to institutional
shareholders for cash, raising #30 million for future acquisitions.
Exceptional restructuring costs of #1.7 million were incurred in relation to
the Border and Beat acquisitions.
Radio revenue for the five months to September for the Century radio
stations was #4.4 million and the radio stations made an operating profit of
#0.1 million. We expect revenue at these stations to grow considerably in
excess of the market in 2001. Border Television, which is ring-fenced from
the radio stations, generated revenue for the five months to September of
#5.1 million, resulting in an operating profit of #1.5 million.
Our associated companies, principally Wildstar and IRN, have contributed
#2.3 million to group profitability this year, well ahead of expectations.
Underlying group profit before tax from continuing operations increased by
9.5% to #41.3 million, and underlying group earnings per share from
continuing operations increased by 11.6% to 39.3p.
The acquisitions of Border and Beat, and the purchase of the outstanding 43%
of the equity in First Oxfordshire Radio, generated goodwill of #199
million. The goodwill charge in the year was #4.2 million.
We generated a net cash inflow of #44.4 million from operating activities.
We incurred #5.6 million of capital expenditure, net of disposals, of which
#4.1 million related to the radio business and #1.5 million related to the
interactive business.
We paid #12.4 million of corporation tax and #13.2 million of dividends
during the year. This leaves us at the year end with approximately #100
million debt within the radio business, of which #50.5 million is covered by
the sale of the Border television assets referred to above, and allows us
significant financial headroom for further investment in radio. Our interest
charge for the year was #2.4 million.
Dividend
The Directors have recommended a final dividend of 12.5p per share to be
paid on 31 January 2001 to shareholders on the register on 17 November 2000
(ex dividend date 20 November 2000). With the interim dividend of 6.0p per
share, our total dividend for the year is up 11.1% to 18.5p.
Operating and Strategic Review
Core Business
Overview
We remain the UK market leader in terms of revenue and profit and operate
market leading stations in London, Birmingham, Hampshire, Sussex, Kent,
Cardiff and Oxford, a position we intend to build on. Over the last 10 years
Capital Radio has delivered a total shareholder return of nearly 700%, a
highly competitive performance compared to the FTSE 350 index at 260% and
even the Media and Photography index at 340%.
Audiences
Commercial radio in the UK competes for audiences with the BBC's radio
stations. As the commercial radio industry has developed it has gradually
won audience share from the BBC, and across the UK it now accounts for 47%
of all listening hours. In more competitive markets, however, commercial
listening share is much higher - 56% in London. This transfer of listening
from the BBC to the commercial sector is likely to continue as the industry
develops further, providing more listening hours and a larger audience to
offer to advertisers.
There is evidence that radio listening as a whole is increasing. Since the
beginning of 1999 the number of adults radio reaches each week has increased
from 89% to 90%, and listening hours have increased from 956 million to
1,046 million (Rajar Wave 1:99 and Wave 3:00). There is a strong
relationship between internet usage and the radio which has increased
listening both at home and at work.
Although we have faced strong competition in London and Birmingham this
year, our stations in both these areas have continued to perform well and
remain significantly ahead of the competition. In London, Capital Radio
stations are listened to by 3.6 million adults and 733,000 children each
week, compared to 2.6 million adults and 536,000 children for our nearest
commercial competitor there. Birmingham remains a particularly competitive
market for us but our FM station there, BRMB, reaches nearly 100,000 more
adults every week than its nearest rival, Heart. (Rajar Wave 3:00 - BRMB
TSA).
Capital Radio's stations along the South Coast and in Oxford have continued
to perform well against gradually increasing competition, while audiences at
Red Dragon in Wales are still showing significant growth following our
acquisition of the station in 1997 - now 32% weekly reach and 20% share of
listening hours (Rajar Wave 3:00). We are pleased with the progress that has
been made at Red Dragon FM which was this year awarded CRCA/ntl Commercial
Radio Station of the Year.
Marketing
Capital Radio has a portfolio of strong brands which appeal to consumers and
their development remains our priority. Our marketing strategy is formulated
according to each station's target audience, format and the competitiveness
of its market. Events form a key part of our marketing activity, and most
stations hold a "Party in the Park" - an open air concert every summer to
promote the station and build audiences. At 95.8 Capital FM, a new logo and
marketing strategy have recently been launched, and the marketing team took
the CRCA/ntl Award for Marketing Excellence this year. As markets become
more competitive, strategic marketing is a cost-effective way to protect and
build market share, and we anticipate an additional spend of #2 million on
marketing in 2001.
Revenue
Advertising revenue has again grown strongly this year. The radio market as
a whole saw 10 new station launches across the year and grew by 15.5%, while
Capital Radio grew its airtime revenues by 14.6%, an improvement on our
relative position last year.
Industry growth is being driven by national advertising which has increased
by over 27% in the year to September 2000, while local advertising has
declined by 6.5%. Capital Radio has particularly benefited from this growth
because 74% of our revenue is national, higher than the industry average.
Radio as a medium is still developing, attracting new advertisers and
categories of advertising. This year has seen dot.com advertising peak at
around 10% of our total revenue in May, with sustainable brands now
stabilising at around 5% by the end of the year. Several other categories
are growing strongly:
Food +35%
Pharmaceutical +22%
Travel and Transport +17%
Finance +12%
Household Equipment +11%
(Source: MMS - Capital Group)
Radio is particularly effective at reaching audiences under 45 and remains
highly cost effective when compared to television advertising. A recent
Radio Advertising Bureau study conducted amongst 16-44 year olds by Millward
Brown and Universal McCann found that on average radio was four times as
cost effective as television.
Capital Radio Advertising remains the market leading radio sales
organisation with 31% of national advertising revenue. After winning the
Media Week Media Sales Team of the Year award last year, it recently won the
CRCA/ntl award for National Sales Team of the Year, confirming its position
as the leading sales organisation in the radio industry.
Acquisitions
Our primary strategic objective has been to strengthen our position as
Britain's leading commercial radio group by building a national analogue
radio presence, and this year we have made excellent progress by acquiring
four new regional stations - three Century stations in the Midlands and
North of England with access to a total potential audience of 9.2 million
adults and Beat in Scotland broadcasting to a potential audience of 2.6
million adults.
These increase our potential analogue coverage from 34% to over 58% of UK
adults and increase our adult listening hours by 24% (Rajar Wave 3:00).
We are now in a position to offer customers a national advertising presence
which includes nearly every major metropolitan area across the UK, a
key to future growth.
All the stations have good potential for growth, enabling us to utilise our
expertise in programming, sales and marketing. Weekly reach for the new
stations is 21% (Century North East), 14% (Century North West), 14% (Century
East Midlands) and 15% (Beat) (Rajar Wave 3:00). Taking these stations up to
the Capital FM Network average weekly reach would increase our audiences by
another 1.8 million adults, or a further 23%. We have already demonstrated
our ability to integrate and strengthen brands, increase audiences and grow
revenue with acquisitions such as Invicta, BRMB, and more recently Red
Dragon and Xfm.
The new stations will give us more opportunities to extend our digital
network and enhance our internet offering by providing access to more
customers across the UK and more cross-promotional opportunities.
We have appointed new management at all the stations using our own talent
from within the group, which has enabled us to fast-track the introduction
of core skills, systems and group culture. An analysis has been carried out
of the key strengths and weaknesses of the stations and how they compare
with their competitors in each market. Improvements are being made to the
output of the stations and the Century stations have been branded more
clearly with new logos.
Although we do not expect these stations to achieve their full potential for
around three years, initial results have been encouraging. The new stations
have shown overall improvements in their audiences in the latest Rajar
survey, and we have already improved revenues significantly. Like for like
revenue for the Century stations for the five months was up 22%, while
Beat's revenues for August and September were the highest months in the
station's short history. By continuing to apply our programming, marketing
and sales skills to these stations we can develop them into significant
assets.
Xfm
Work continues at Xfm to develop the station's audiences and revenue and we
have achieved a year on year revenue increase of nearly 90% with breakeven
forecast for 2002. Our vision for the brand is to build it into "the
reference point for credible new music in the UK" by developing the London
analogue station, extending our radio presence nationally through digital
radio, developing Xfm Online into a leading music destination site and
developing new brand extensions.
Over the past year listening hours for the station have grown from 2.2
million to 3.2 million, and the average hours listened to each week have
increased from 5.8 to 8.1 as listeners become more loyal. Xfm is a niche
station whose strength lies in reaching ABC1 men who are particularly
valuable to advertisers and it is improving its bias towards its target
market - 65% of its listeners are male and 72% are in the 15-34 age group
(Rajar Wave 3:00). Investment in the station for 2001 is budgeted at #1.7
million.
Digital Radio
The UK has led the world in the introduction of digital radio and Capital
has taken a leading position with 23 stations in the UK to date covering 41
million adults. In January Capital Radio launched its national digital
station, Life, becoming a national broadcaster for the first time. This has
been followed by the launch of local digital stations in London, Manchester,
Birmingham, Glasgow and Cardiff during the year, and further stations will
launch over the coming months as our digital network rolls out. Our digital
licences give us the opportunity to build a national network for our new
music station Xfm as well as simulcasting our existing stations in CD
quality sound. Investment in digital radio is budgeted to be around #3.2
million for 2001, consisting mainly of transmission costs.
Capital Radio will continue to apply for digital licences as they are
advertised. We have joined forces with Chrysalis Group, Jazz FM, Guardian
Media Group and Ford UK to apply for regional digital multiplexes covering
the North East, North West, Severn Estuary/North Wales, West Midlands,
Yorkshire and the third London multiplex. Members of this MXR consortium
hold analogue licences in all five areas, putting it in a strong position to
win these digital licences.
The multiplexes will feature a new teen brand to be provided by Capital
Radio, with the working title Fun, targeted at 10-16 year olds. A Fun
website is also being developed, and content for both channels will be
provided by our online team.
Commitment to digital radio is growing, with the price of receivers now down
to around #300 for a digital tuner. The BBC is to launch five new digital
radio stations and will work with the commercial sector to drive digital
take-up through the newly formed Digital Radio Marketing Bureau. As part of
its commitment to the MXR consortium, Ford intends to fit digital radios
into all new cars by 2004. Psion InfoMedia has recently announced the launch
of Wavefinder, a digital radio receiver that connects easily to a PC
allowing the transmission of text, pictures, hyperlinks and even whole
websites as well as sound. Just as importantly, it provides a return path
via an internet enabled PC. Lastly, Dixons has announced that it will stock
digital receivers in the run up to Christmas and will bundle Wavefinders
with sales of all multimedia PCs.
Capital Interactive
Capital Radio is committed to developing leading music sites online. The
last year has reinforced our belief that our powerful brands are the key to
developing a successful web business. Our stations give us access to
constantly changing music content and to 8 million listeners a week, and we
are learning how to use cross promotion and editorial synergy to drive those
listeners to our websites. Furthermore, our partnerships with the music
industry have enabled us to take a pioneering approach to providing music
entertainment online.
Over the last year we have made good progress with the development of our
web business. We have built and launched new websites for Capital Online,
Gold Online, Xfm Online and the Network Chart, and we are testing our first
web-only radio station, code-named Diva. We have achieved these things by
putting a sustainable, cost-effective infrastructure in place. We have also
created an online shop, digitally encoded over 19,000 music tracks and built
the capability to produce large numbers of web radio stations at low cost.
We were the first to acquire online music rights covering two thirds of all
albums sold in the UK.
For the month of October 2000 we delivered 2.4 million page impressions
across all our sites to around 107,000 unique users each week. Both of these
figures are substantially ahead of our business plan. By applying our
advertising sales expertise we have been able to achieve good conversion of
users to revenue, at a total of just under #1 million this year. We have
been encouraged by the number of advertising customers who are rebooking
with us, such as BT Cellnet, Microsoft and Guinness.
During the year the market for music online has become clearer. Internet
usage at 32% of the population for 2000 (Jupiter Research) is considerably
higher than the 25% we had anticipated, and similarly the value of the
online music market, now forecast by Jupiter at #32 million in the UK for
2000, is 40% higher than in our business plan. Although the market remains
competitive, many of the start-ups and heavy discounters have fallen by the
wayside.
Over the next year we will continue to work towards delivering the UK's
leading music sites. An investment of #4 million is anticipated over the
next 12 months.
Wildstar
This year we have concentrated on two acts, Craig David and the Dum Dums.
Craig David in particular has proved extremely successful, giving Wildstar
its first two number one UK singles with Fill Me In and Seven Days, which
have also topped the charts across Europe. His album, Born To Do It, went
straight to the top of the album charts with the highest ever first week
sales for a debut album, and he recently won three Mobo awards for Best UK
Newcomer, Best R&B Act and Best Single. Although revenue in this business is
always unpredictable, we are estimating a contribution of around #1 million
from Wildstar in 2001.
Investment Summary
2000
Xfm #1.7 million
Digital Radio #1.3 million
Capital Interactive #4.2 million
2001
Strategic marketing #2 million
Xfm #1.7 million
Digital Radio #3.2 million
Capital Interactive #4 million
Future Strategy
It is our intention to build further on our UK presence over the coming
years. We anticipate that new broadcasting legislation in 2002 will relax
the current radio ownership restrictions so that further consolidation
within the industry can take place. In the meantime, Capital Radio has
headroom under the current ownership points system for one further regional
licence, and we will be applying for a new regional licence in Yorkshire to
be awarded by the Radio Authority in Spring 2001. We will also review other
opportunities for acquisitions and partnerships which are possible within
existing regulations and continue to develop our digital radio and web
businesses.
Part of our strategy is to develop Capital Radio as a branded, music based
entertainment company. Our brand portfolio is centred around five key brands
- Xfm, the Capital FM Network, Life, Century and Capital Gold.
Historically the distribution network for our brands has been analogue radio
and this will continue to be our primary means of distribution for some time
to come. However, over the coming years we will focus on leveraging our
brands and content across different platforms such as digital radio, digital
television, satellite and the web. Xfm is a good example of this, with an
analogue station in London extending to a network of digital licences,
playout on Sky Digital, a website, a "fanzine" and an Xfm Christmas CD.
Other extensions may include masthead television and a magazine.
Digital radio gives us the ability to broadcast multimedia services to large
audiences who will not have to pay to receive them. Once these digital
signals are receivable by portable devices and a return path can be provided
over the web there will be significant opportunities which we intend to
exploit fully.
We are in the process of building relationships with key players outside the
UK. We intend to establish a significant presence in Europe but it is
important that we find the right opportunities, where we can export our core
skills in partnership with local operators.
Prospects
Capital Radio's core businesses are performing well and our development
businesses are on target to deliver strong profits in the future.
Although the advertising environment is uncertain in the short term, our
established and new stations give us a balanced portfolio which will provide
strong growth. Like-for-like revenues for the current quarter are in line
with our expectations. We will be increasing investment in our brands to
improve performance and build future value, and we expect to see the
benefits of this investment impact positively on revenues and profits in the
second half.
We have a clear strategy that will enable us to continue to deliver
significant growth over the coming years. We remain extremely confident
about the prospects for radio in the longer term.
The financial information referred to above does not constitute the
company's statutory accounts for the years ended 30 September 2000 or 1999
but is derived from those accounts. Statutory accounts for 1999 have been
delivered to the registrar of companies, and those for 2000 will be
delivered following the company's Annual General Meeting. The auditors have
reported on those accounts; their reports were unqualified and did not
contain statements under section 237(2) or (3) of the Companies Act 1985.
More to follow
FR EAAFNEDPEFEE
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