SMG’s Profits Tumble As Advertising Decline Bites
The advertising recovery is gaining momentum according to SMG, but this could not prevent the Glasgow-based media group from posting poorer than expected profits for the full year 2003.
The group this morning reported pre-tax profits down by 27.7% from £24.2 million in 2002 to £17.5 million last year. Analysts had expected profits to be in the range of £18.2 million to £19.5 million. Turnover for the group’s continuing operations was also down, by 6.2% to £188.2 million.
SMG’s activities encompass radio, outdoor advertising and television, in which it holds the Scottish and Grampian ITV franchise licences. During the course of the year it sold its 27.8% stake in Scottish Radio Holdings to Emap and its newspaper publishing division to Gannett.
The company says that the end of 2003 seems to have marked the conclusion of one of the toughest episodes in the history of the UK advertising market. For SMG this was a period of reshaping and refocusing, as evidenced by the disposals during the year.
Lower advertising revenues and the sale of the newspaper publishing division both contributed to a decline in overall group turnover from £278.4 million to £209.2 million.
Television and radio In television, the group’s Scottish and Grampian TV underperformed in terms of advertising revenue. The two franchises saw ad revenues decline by 5%, whilst ITV as a whole was down by only 3%. In radio, the company’s Virgin Radio station felt the continued pinch of weak national revenues, although SMG did not specify the magnitude of the decline.
Outdoor and cinema The company’s outdoor advertising operation, Primesight, performed strongly, with revenues up by 17%. Cinema was weaker and sales house Pearl & Dean saw revenues dip by 13%. This was blamed partly on the loss of the Showcase circuit contract and partly on a lower audience turnout in 2003 than 2002.
However, Pearl & Dean did win the contract for the Vue circuit of cinemas, which was created by last year’s merger of Warner Village and Spean Bridge. In addition to underpinning Pearl & Dean’s market share of nearly 40%, this has secured an important contract for a further five years.
Outlook Commenting on today’s results, SMG’s chief executive Andrew Flanagan said: “Not only did 2003 appear to mark the end of the advertising downturn, but it was also an important year for SMG as we reshaped and refocused the business in preparation for the upturn.
“The quality and consistency of bookings for the first four months of 2004 are encouraging and we are seeing growth in each media sector. With our balance sheet issues resolved we look forward with confidence to the year ahead.”
The company says that its confidence in the advertising recovery being sustained is based on the quality and consistency of advertising bookings, as well as the level of activity of advertisers and agencies.
However, in 2004 the market remains relatively short term, partly as a consequence of the Contract Rights Renewal remedy imposed on ITV, which is impacting SMG’s ability to measure the strength of growth levels much beyond Easter.
For the first four months of the year, television advertising revenues look to be up by 5% and radio revenues by 7%. Outdoor is showing growth of around 20%, but overall is being held back by cinema where the better films are being released from the second quarter onwards rather than in the first quarter as in 2003.
Shares in SMG were down by 1.0% at 125.5p by 11.30am today.
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