Expansion Of Metro Eats Into Profit At DMGT

Investment costs reached £69 million across the period, compared to just £20 million last year, as the group expanded its morning free newspaper Metro across Britain and spent heavily on digital projects. Operating profit at the national newspaper division, which publishes the Daily Mail and the Mail On Sunday, fell 15% to £73.3m as a result. Nevertheles, the two papers both continued to increase their share in falling markets. The Evening Standard achieved an average circulation of 441,000, 1.6% down on last year. Advertising remained strong in all three titles, with an increase of 12% on last year.

Northcliffe NewspapersÂ’ operating profit, including acquisitions, was up 26% to a record £93.0 million. The underlying increase was 11%.

The group is bracing itself for a further downturn next year as “higher newsprint prices…and increased competition” hit the national titles. The predicted fallout of dotcom advertising and a general softening of the advertising market will also effect revenues. High level of investment will continue during 2001, however. In particular, costs at Teletext are expected to increase as it rolls out across other platforms.

The group’s digital division, Associated New Media, which houses This is London and This is Money, had a good year with revenues more than double at £5m. The digital arm is planning a closer working relationship with the group’s printed titles in the coming year.

Reaction

Stock fall sharply following the results, despite what was an essentially positive statement. Analysts had clearly expected more.

The Daily Telegraph notes that whilst everyone thinks that newspapers publishing is a dying industry, including the papers themselves, advertisers clearly donÂ’t as DMGT paper underlying revenues are up 14%. The paper says that advertisers are too bothered by circulation when what matters is profitability. It believes that the fall in stock is caused in part by DMGTÂ’s failure to secure its mid-market rival – Express Newspapers – and partly because of regulatory strangleholds preventing the group from expanding significantly into other areas like radio, the internet and television. Given the promised relaxation in regulation by the Government, DMGT shares are a Buy, says the Telegraph. The fact that no-one knows when these regulatory changes may come into force makes the stock a little bit more of a gamble.

Daily Telegraph: Buy, but a gamble

Times: Buy

SG Securities: Hold

UBS: Buy