CAP Clean Air

RNS Number:1612N
Capital Radio PLC
15 November 2001



PART 1
                                                              15 November 2001

                              CAPITAL RADIO PLC

           PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2001

Capital Radio plc, the UK's leading commercial radio group, today announces
preliminary results for the year to 30 September 2001.

Financial Highlights

  * Group underlying profit of #30.1m (down 27%)
  * Group revenue from continuing operations of #123.2m (down 1%)
  * Analogue radio operating profit of #36.5m (down 20%)
  * Revenue from development stations of #15.3m (up 27% on like for like
    basis)
  * Underlying EPS of 26.3p (down 33%)
  * Total dividend unchanged at 18.5p
  * Strong cash generation: over 100% of operating profit converted into
    cash
  * Interest cover on continuing business of 13x

Operating Highlights

  * Record Group audiences - 8.3m adult listeners (up 5% year on year)
  * Record adult listening hours of 85.5m (up 2% year on year)
  * Increased reach and hours amongst key 15-44 year old audience in London
  * Audience growth at all five of our development stations
  * Improved second half revenue performance versus the industry
  * Post-year end acquisition of 19% stake in Choice FM

David Mansfield, Chief Executive, commenting on the year's performance, said:

"This year has been challenging for Capital Radio as the media industry faced
difficult trading conditions resulting from the economic slowdown. Though the
current market conditions may continue for some time, with our strong brands,
healthy balance sheet and focused management team we will weather the
downturn. We are confident of the long-term prospects for radio advertising
and retain our belief in the importance of aggressively expanding our national
presence."

Enquiries:
Capital Radio plc                                              020-7766-6240

David Mansfield, Chief Executive                               020-7766-6257

Peter Harris, Finance Director                                 020-7766-6194

Dorothy Colling, Head of Corporate Communications
Finsbury Group

Rupert Younger                                                 020-7251-3801

James Leviton

This document is available via the Internet at http://
www.capitalradiogroup.com.

Introduction

This year has been challenging for Capital Radio as the media industry faced
difficult trading conditions resulting from the economic slow down. Our
revenues came under pressure as advertising demand fell and we felt it
appropriate to issue more regular trading updates to keep the market informed.

In spite of the tough market conditions we have continued to invest in our
products, which has resulted in record audiences around the Group. Capital
Radio has emerged from the 2001 financial year in a strong strategic and
financial position.

Financial Review

Total revenue of #123.2m was down 1% on the previous year (down 6% on a like
for like basis).

Underlying Group profit before tax was #30.1m, down 27%, in line with the
guidance we gave to shareholders at the end of September. The tax charge on
our underlying profitability for the year was 28.5% (2000: 26.3%) and our
underlying earnings per share was down 33% at 26.3p. Our underlying earnings
per share has declined due to a combination of the difficult trading
conditions and the planned short term diluting impact of the acquisitions of
Century Radio and Beat.

Revenue from our established stations was #106.8m, down 9%, which resulted in
the operating profit from our established stations being down 16% at #39.6m.

During the year we took appropriate measures to manage the cost base once it
became apparent that our revenues were going to be less than we had budgeted.
This allowed us to limit the decline in the operating margin for our
established stations to 37% from the record 40% that we achieved last year.

Established stations profitability was also impacted by our decision to invest
#1.5m more in the marketing of these stations, which we highlighted last
November.

Our portfolio of development stations (Xfm, the Century Group and Beat)
achieved very strong like for like revenue growth of 27% to #15.3m, benefiting
from growing audiences and being represented by our national sales house,
Capital Radio Advertising.

Development stations losses were #3.0m compared to a #1.9m charge in the
previous financial year when the majority of these stations were acquired. The
losses are #1m less than we indicated in May due to a better than anticipated
revenue performance and cost efficiencies. We currently anticipate our
development stations moving closer to break-even in the new financial year.

Total radio revenue of #122.3m, was down 1% for the year and we generated an
operating profit of #33.6m from our radio activities, down 24%.

We invested #3.0m (2000: #1.3m) in our digital radio operations -
predominantly transmission costs - as more of our digital licences started
broadcasting. Our interactive business incurred an operating loss before
restructuring costs of #3.6m (2000: #4.2m). Both were in line with our
expectations.

Our associated companies, principally Wildstar and IRN contributed #2.6m
(2000: #2.3m) to the Group's profitability.

The interest charge relating to our radio business was #2.5m (2000: #1.0m).

On 31 July 2001, we disposed of the television business, Border TV, to Granada
for the previously agreed #50.5m in cash. For the ten months to 31 July 2001,
Border TV generated a profit of #2.7m on revenue of #11.4m. If we had received
the #50.5m proceeds at the beginning of our financial year we would have saved
#2.8m in bank interest charges for the ten months to 31 July 2001. In
compliance with best accounting practice, we have separately disclosed the
operating profit of #2.7m and the #2.8m of interest paid as relating to a
discontinued operation.

The following exceptional items occurred during the year:

  * Exceptional gain on disposal of investments. In addition to Border TV,
    we disposed of a number of our smaller non-core radio investments, which
    generated a profit of #10.2m.
  * International development costs. We have written off the #1.5m costs
    incurred on international development activities. These principally relate
    to an investment in an Indian radio joint venture and due diligence costs
    in relation to a potential acquisition opportunity in Europe.
  * Interactive restructuring costs. We incurred restructuring costs of #
    1.2m in realigning our Interactive business within our key radio brands.

We have continued to be highly cash generative with the conversion of more
than 100% of our operating profit into cash. The net cash inflow from
operating activities was #34.8m. After dividend payments of #15.1m, tax
payments of #8.9m and net cash outflows of #8.1m relating to investment
activity, our free cashflow was #2.7m. In addition, we raised #65.1m from the
disposal of Border TV and our non-core radio assets, which in total allowed us
to reduce our net debt by #67.8m.

With net debt at the end of September reduced to #32.9m and with interest
cover on our continuing radio business of 13x we are well placed financially
to take advantage of any appropriate acquisition and investment opportunities.

Dividend

Our healthy cashflow position allows us to maintain our dividend level despite
tough operating conditions. The Directors have, therefore, recommended a final
dividend of 12.5p per share to be paid on 28 January 2002 to shareholders on
the register on 30 November 2001 (ex dividend date 28 November 2001). With the
interim dividend of 6.0p per share, our total dividend per share for the year
is unchanged at 18.5p.

The Board

Ian Irvine, who has been a Director of the Company since 1982 except for a
short period from 1990 to 1991 and Chairman of the Board since 1992, will be
retiring at the Annual General Meeting in January 2002. He will be succeeded
as Chairman by Peter Cawdron, the Deputy Chairman.

Operating Review

Analogue Radio - Audiences

In the latest audience data for the three months to September 2001, Capital
Radio Group's 19 analogue radio stations achieved a record audience of 8.3m
adults, up 5% on the previous year, who listened for a total of 85.5m hours
each week, up 2%.

Radio listening in the UK is continuing to increase and now reaches 44.1m
adults each week - 91% of the adult population - and adult listening hours
have increased to 1,092m per week. Across the UK, commercial radio now
accounts for 47% of all radio listening hours.

At the beginning of our financial year we announced the investment of an
additional #1.5m in marketing to strengthen the position of our London
station, 95.8 Capital FM, within the more commercially attractive 15-44 year
old audience. We created a new logo, revised the station's music content,
refreshed the presenter line-up and launched a new advertising campaign.

Over the last 12 months this investment has resulted in 95.8 Capital FM's
audience reach in the key 15-44 age demographic increasing from just under
2.2m listeners to over 2.3m. Over this period the amount of listening in the
15-44 age demographic has also increased, from 19.7m hours per week to 20.2m.
80% of 95.8 Capital FM's audience and 81% of its listening hours are now in
the 15-44 age group.

Xfm, our new music station in London, increased its number of adult listeners
by 12% year on year to 445,000 and the number of adult hours listened by 11%
to 3.5m.

Over the last five years, a key strategic objective for the Group has been to
build a national presence for our business thereby lessening the dependency on
the London marketplace. 57% of Capital Radio's Group adult audience and 58% of
its adult listening hours are now generated from outside of London reflecting
the increasing strength and importance of our regional stations.

Our established contemporary hit music stations outside London continue to be
market leaders. Capital Radio's stations in Birmingham, 96.4FM BRMB and
Capital Gold, increased their combined reach of adult listeners to 36%, 2
percentage points ahead of the nearest commercial competitor.

Beat 106, Scotland's newest radio station aimed at 15-34 year olds, which we
acquired in July 2000, has recorded an impressive performance with 15-34
listener reach increasing every quarter during the year to a record 41% in the
last survey and 15-34 share rising year on year from 16.9% to 19.1%.

Since acquiring the Century Group of stations in May 2000 we have increased
their audiences. In the last audience data the Century group achieved a reach
of 1.6m adult listeners, up 11% on twelve months ago and a combined adult
audience share of 6.9% compared with 6.4% for the same period the previous
year.

(All comparatives are year on year. Source of all data: Rajar Waves 3:00 to 
3:01)



Analogue Radio - Revenue

During the first half of our financial year our spot advertising revenues grew
by 1% year on year which was 5 percentage points behind the growth in the
radio industry as a whole. This recognised the disproportional benefit we
received last year from the dot.com boom.

Our performance relative to the market is improving and in the second half we
closed the gap to 2 percentage points with our spot advertising revenue
declining by 13% year on year compared with total radio market's decline of
11%. This improved performance was led by a 29% growth achieved by our
development stations in this six-month period.

Over the last financial year Capital Radio has seen a varied performance
across different categories of advertising.

The top three growth categories accounted for 24% of our total revenue.
"Government/Social/Political Organisations" was up 54% largely reflecting an
increased proportion of Central Office of Information advertising on radio.

"Finance" grew 34% mainly by spending from the high street banks. We have
targeted the finance sector as a significant growth category for a number of
years and it is pleasing to see progress, which was aided by the removal of a
number of the "Wealth Warning" restrictions that affected the sector's
advertising spend on radio. "Motors", up 26%, reflected the sector's recovery
from a depressed UK car market the year before.

The three categories showing the greatest decline, were "Computers", "Retail"
and "Entertainment/Media", which accounted for 33% of our total revenue for
the year. "Computers" was down 44% with 14 of the prior year's top 25 category
advertisers no longer active. "Retail", down 20%, showed declines in a variety
of advertisers across the sector. "Entertainment/Media", down 18%, largely
reflected declines in newspaper and TV advertising.

In 2001 our National sales team, Capital Radio Advertising, was awarded the
coveted "ntl National Sales Team of the Year" title, for the second year
running. This reputation for excellence also extends to Capital Radio's local
sales teams, with Beat 106 collecting the "ntl Local Sales Team of the Year
2001" award.

We are seeing many examples of national advertisers switching a proportion of
their advertising spend from television to radio. Advertisers are finding that
radio can deliver the key 15- 44 audience more cost effectively with
relatively low wastage and, by being able to offer advertisers short lead
times, radio advertising has also benefited from the strong short-term
tactical advertising market.

In the year ended 30 September 2001, ITV revenues declined by 13% whilst
radio's spot advertising revenues declined by 3%.

Digital Radio

In 2001 Capital Radio was awarded 8 new digital service licences and the MXR
consortium, in which we have a 14% stake, was awarded four regional digital
multiplexes. We plan to continue building our portfolio of digital stations
and will apply for appropriate new licences as they are advertised.

We are also using our new digital services to produce two digital only brands.
Life, our first national licence, is a stylish, upbeat music-led radio station
with a target audience of 25-44 year old females. Cube, with coverage in key
areas including London, the North West and West Midlands, is an interactive
digital radio station, targeting pre-teens and teenagers aged 10 to 16,
featuring new music and speech.

The UK continues to lead the world in the introduction of digital radio.
Capital Radio has a leading position with 31 stations across the UK and
broadcasts to a potential audience of 37m adults.

Wildstar

Capital Radio's record label, Wildstar, was set up as a joint venture with
Telstar Records at the end of 1996. We use our experience to select music that
will appeal to our audiences and to identify new and exciting artists who can
confidently be added to our stations' play lists.

Wildstar's most successful act is Craig David whose album "Born To Do It" went
straight to number one in the album charts and has sold around 5m copies
world-wide. At last week's 2001 MTV Europe Awards Craig won the trophies for
Best R&B Act and Best UK and Ireland Act.

Investment costs

During the new financial year we anticipate incurring the following investment
costs:
                                                  2002                     2001
                                                   #'m                      #'m

Digital radio                                      4.0                      3.0
Interactive                                        2.5                      3.6
                                                   6.5                      6.6


Strategy for strong future growth

Building a national presence

We anticipate that the new broadcasting legislation, which we now do not
expect to become law before mid/late 2003, will relax the current media
ownership rules, allowing consolidation to take place within the media
industry.

The Radio Authority has agreed a set of new ownership rules that would allow
Capital Radio to own up to 45% of the licences in a local market, subject to
competition regulations. This gives us the opportunity, for example, to own up
to 6 FM licences in London and 3 FM licences in Manchester.

In anticipation of the changes in legislation, we are positioning the Group to
ensure that it will be a key player in the consolidation process. In October
2001 we bought a 19% share in Choice FM in a deal that allows us to acquire
the remaining 81%, assuming the ownership rules change so as to permit it.

We continue to evaluate radio licences in the UK that would fit strategically
with our portfolio of complementary radio brands. We still have headroom,
under the current broadcasting ownership points system, which would enable us
to own the equivalent of one further regional licence.

Strong brands for commercially attractive audiences

Our leading brands are our most valuable assets in a crowded media
marketplace. Strong brands, with a reputation for creating a high quality
product, help attract and retain a loyal audience.

In 2001 we began the process of reorganising our management structure along
the lines of our 4 branded radio networks: The Capital FM Network, which will
act as the umbrella brand for our FM contemporary hit music stations; the
Capital Gold Network (classic hits); the Century Network (music, fun and
football) and the Xfm Network (new music). The activities of Capital
Interactive have been realigned within these brands.

The Capital FM Network is a high profile industry brand consisting of nine
radio stations each with a strong local identity. The music content across the
network has been more closely aligned and, where appropriate and in
consultation with our regulator, high quality programming will increasingly be
shared across the network.

The Capital Gold Network already has a high degree of consistency through the
sharing of the majority of its programming and the Century Network has
consistency of format and a common identity and brand image.

Managing the brands in key markets

Our strategic objective is to own a portfolio of complementary music formats
in each of our key markets. This will allow our stations to compete for
additional listeners without competing directly against each other.

In London, Capital Radio is the only commercial radio group with a balanced
portfolio of complementary stations that aims to entertain a wide cross
section of age groups and tastes in the popular music marketplace.

Exploiting the brands

We aim to extend and build on the power of our brands by exploiting their
audience, revenue and marketing opportunities beyond the analogue radio
stations they are generally associated with today. Over the last twelve
months, for example, we have launched the Capital Gold Legends CD, which has
to date sold over 360,000 copies, the Pepsi Chart CD which has sold over
197,000 copies and the Party in the Park CD which has sold over 100,000
copies. We co-promoted 6 Party in the Park concerts, which were attended by
over 300,000 people. We have also launched 5 branded web-only radio stations.

Prospects

The early months of our new financial year continue to reflect the very tough
advertising market. Our combined October/November radio revenues are likely to
show a year on year decline of approximately 7%. At present we are unable to
forecast with any degree of accuracy for December and beyond. We will continue
to manage the cost base of our business on the assumption that the advertising
market continues to be under pressure for the remainder of our financial year.

We are confident that radio will continue to outperform other broadcast media
and retain our belief in the importance of aggressively expanding our national
presence. As the leading commercial radio group in the UK, with record
audiences, sound profits, good cash flow and a healthy balance sheet, we are
in an excellent position to take advantage of any appropriate acquisition or
investment opportunities.

The financial information referred to herein does not constitute the company's
statutory accounts for the years ended 30 September 2001 or 2000 but is
derived from those accounts. Statutory accounts for 2000 have been delivered
to the registrar of companies, and those for 2001 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.

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