Insight Analysis: 2002 Financial Year Review
January
The radio sector offered little solace with GWR announcing that revenues for the previous three months had fallen by more than 10% year on year while a trading update from Capital blamed the “continuing tough advertising market” for a 9% decline in the final quarter of 2001. At Scottish Radio Holdings, it was reported that like for like advertising revenues for the October to December period were slightly down year on year.
It was rumoured that Reed Elsevier was considering a merger with its closest rival Wolters Kluwer in a move that would result in the creation of one of the largest publishing groups in the world.
February
BSkyB was encouraged by interim results which showed a 22% rise in revenues to £1.3 billion. However there was a stark warning to all European broadcasters when the Kirch media empire hit the rocks after overspending on sports rights and Rupert Murdoch withdrew his investment in the group. A storm was also brewing in the UK market with Carlton Communications and Granada admitting that their joint pay-TV venture ITV Digital was in financial difficulty. The companies also called off merger talks for the time being.
Chrysalis announced that advertising revenue fell by 11.8% in the three months to December but the radio group said that the early months of 2002 were looking more positive. JC Decaux revealed revenue growth of 8.9%, “comfortably” ahead of both the outdoor and overall advertising markets. Other firms to exceed expectations were WPP and Reed Elsevier which saw profits rise by 23% and 29% respectively.
Signs were less promising in the press sector with News Corp stating that advertising revenues were weak at all of its newspaper divisions, particularly in the UK. However, Trinity Mirror defied market conditions and was able to post full-year profits of £155.5 million.
March
Pearson chief executive Marjorie Scardino blamed the recession in advertising and technology markets for the lack of growth in the past year. The company said that profits had fallen by 12% to £294 million and its strategy for 2002 was to be based on a “flat advertising market”. RTL announced losses of E2.5 billion for 2001 with revenues at Channel 5 down 9% to E213 million. United Business Media also slipped into the red to the tune of £500 million and Granada said that ITV advertising income had fallen by 12% in the past six months. However, Ulster TV managed to outperform the network and announced a small increase in operating profit to £13.6 million for 2001.
Johnston Press announced that it had agreed to purchase Regional Independent Media (RIM) in a deal worth £560 million. Emap said that healthy growth in its consumer magazine division had helped to drive up revenues by 1% in the past year although radio advertising remained in the doldrums. Jazz FM bucked the trend by reporting a 9% rise in revenues for the second half of 2001, despite the market as a whole experiencing a 9% drop. Maiden announced that outdoor sales revenue had totalled £80.3 million in 2001 and looked forward to “a gradual and measured recovery” in conditions. Research company Taylor Nelson Sofres disclosed profits of £43.5 million, slightly ahead of expectations.
On the international front, Havas revealed losses of £35.3 million and claimed that the advertising sector would remain “weak” in 2002. Publicis, the world’s sixth largest advertising group, stated that profits were up 18% and expressed confidence that it would continue to prosper. VNU was also upbeat with full-year results showing a 14% increase in operating income to £516 million.
April
Carlton and Granada finally bowed to the inevitable and pulled the plug on ITV Digital. The pay-TV platform was unable to fulfil its £315 million contract with the Football League but the broadcasters refused to accept liability for the remaining two years of the deal.
Further evidence of the advertising downturn was provided by Channel 4 which revealed losses of £20.6 million for 2001. This came in spite of an increase in turnover and at a time when the station’s share of the ad market was up to 23.5%.
Preliminary results from Independent News & Media showed pre-tax profits of £38 million, compared to £95 million in 2000. Nonetheless, the company maintained that it had managed “robust operating performances across all divisions in testing market conditions.” It was a similar story at SMG where profits for the year were down 39% to £36 million while the Wireless Group expressed optimism despite posting losses of more than £10 million.
May
The draft legislation of the forthcoming Communications Bill was published with proposed changes that will allow the long-anticipated consolidation of ITV and pave the way for large newspaper companies, such as Rupert Murdoch’s News Corporation, to buy television and radio stations.
A $4 billion write-off of News Corp‘s stake in Gemstar TV left the corporation with a post-tax loss of $4.2 billion for the three months to the end of March. However, BSkyB saw revenues rise by 21% and News International reported flat operating income. Elsewhere both Carlton and Granada admitted that earnings had plunged as a result of the ad slowdown and the failure of ITV Digital. There was also bad news for DMGT which saw profits slip by 9% to £65.2 million in the half-year to March.
Capital turned in disappointing six monthly results which showed group revenue down 8% at £60 million, whilst underlying pre-tax profits fell by a fifth to £14.2 million. Similarly, GWR said that it had been a “brutally difficult” year with revenues down 5.4% and announced that it would be selling its overseas radio interests in a bid to remain competitive in the UK. The falloff in radio advertising also hit profits at Emap and Scottish Radio Holdings prompting the latter to sell Score Outdoor to Clear Channel UK for a minimum of £33.5 million.
June
The radio and television sectors received a timely boost as a result of England’s progress in the World Cup and SMG argued that there were signs that the advertising market was stabilising. This view was not shared by WPP which issued a profits warning and said that there were “few, if any, signs of recovery in the advertising and marketing services industry.” United Business Media was equally downbeat but asserted that its businesses were showing a “robust performance” given the overall picture.
Cordiant claimed that results for the first five months of the year were in line with expectations but said that it did not expect its markets to return to growth until 2003. Trinity Mirror saw little visibility and stated that national and regional incomes had fallen in the first half of 2002. There was more encouraging news from Johnston Press which asserted that advertising revenues were up 2% in the year to date. Guardian Media Group (GMG) agreed to pay £44.5 million for Jazz FM.
The troubled cable operator Telewest Communications said that it faced a possible “funding gap” if its operating performance failed to meet certain standards. The company had begun a restructuring process in a bid to save costs after amassing debts of more than £5 billion.
July
RTL said that full-year results were in line with analysts’ expectations and claimed that there were “tentative” signs of a revival in the UK advertising market. Nonetheless, there was continued speculation over the future of Channel 5 which could fall into foreign hands when media ownership laws are relaxed in the next year.
The downturn in financial advertising continued to affect revenues at the FT but its parent group Pearson was able to post a small profit for the first half of 2002 due to the strength of its education and consumer publishing businesses. The outlook was less promising for Reuters which reported a pre-tax loss of £88 million.
Shares in Pace Micro Technology plunged when the set-top box manufacturer announced a 70% fall in profits. This reflected falling demand in the digital TV market but BSkyB was able to ride out the decline and announced that revenues had increased by 20% to £20.8 billion in the past year. As expected, Trinity Mirror released figures showing a fall in revenues and profits slipped to £78.4 million in the first half of the year.
August
The month began with more negative sentiment as United Business Media announced a 43% fall in profits. Chief executive Clive Hollick said that there had been “no let-up in the difficult market conditions”. This view was echoed by GMG and Telegraph Group which blamed the ailing recruitment market for a fall in advertising income. More ominously, WPP, which is something of a barometer of the ad climate, warned that there was unlikely to be any marked improvement for the rest of the year. Pre-tax profits at the advertising network were down by almost 30% in the six months to June.
Write downs saw losses at News Corp climb to $1.7 billion in the fourth quarter but its problems were as nothing compared to Vivendi Universal. The Franco-American giant saw its share price fall 50% after it revealed losses of E12.3 billion for the first half of 2002. The company, already some E19 billion in debt, subsequently announced that it would be selling a number of subsidiaries.
Back in the UK, Reed Elsevier expressed confidence that it would reach full-year targets of above market revenue growth despite interim results revealing a dip in profits. Johnston Press was already outperforming the market and reported that advertising revenues rose by 1.2% on a like for like basis during the first six months of the year. Hachette Filipacchi completed the purchase of Attic Futura in a deal worth £40 million.
September
After much speculation, SMG announced that it intended to sell its newspaper and magazine publishing business in order to reduce debt and concentrate on television and radio. Future Network, which endured losses of £120 million in 2001, said that it had moved back into the black in the first half of the year and emphasised that the £0.9 million profit represented “important progress”.
Things were less rosy elsewhere with DMGT describing the press display advertising market in the UK as “volatile and unpredictable”. The group said that revenue in this sector would remain pretty much flat in the second half, resulting in a full year decline of around 9%. Meanwhile, Independent News & Media announced that profits were down by 10% in the six months to June.
As expected, first half results at Cordiant showed that profits had virtually halved and before the month was out, both the chairman and chief executive had announced their decision to quit. NTL was cleared by a US Bankruptcy Court to begin the financial and organisational restructure of the business, which previously sat on top of a £12 billion debt mountain. The company said it hoped to emerge from Chapter 11 bankruptcy protection in the near future.
October
ITV powerhouses Carlton and Granada agreed to a merger which could shake up the face of the UK television market. The two companies hope to generate around £50 million in savings if the move goes ahead but concerns have been voiced over the impact that a single ITV could have on the market for airtime sales and the plans are yet to be scrutinized by the competition authorities.
Channel 4 announced details of the most radical restructure in its twenty year history, including proposals for up to 200 job losses and a major shake-up of its senior management. Telewest followed the lead taken by its cable rival NTL and agreed to restructure its finances in a bid to eradicate £3.5 billion of debts. News Corp concluded a deal to buy Telepiù, the Italian pay-TV operator, from Vivendi for £580 million.
Interpublic shocked the markets by issuing an earnings warning but Aegis, Europe’s largest advertising media buyer, said that it expected full-year profits to surpass 2001’s figure of £63.3 million. JCDecaux played down the prospects for recovery, saying it believed advertising conditions would remain “tight” in the New Year. Sales at the outdoor media group were down nearly 1% at £224.5 million with the 9/11 effect continuing to impact on transport advertising.
November
The high profile price war between the country’s two leading daily tabloids was shown to have had a detrimental effect on income at News International. The Sun lost more than £20 million in revenues after cutting its cover price nationwide in a bid to compete with the revamped Daily Mirror. This could not disguise the fact that News Corp revenues were up 12% to $38 billion in the three months to September and BSkyB returned to profit after attracting 217,000 new subscribers. However, Rupert Murdoch ruled out a move for Channel 5 which had already lost its chief executive Dawn Airey to Sky Networks.
Emap posted a strong set of first half financial results which showed profits up by 23% to £86 million. It said consumer magazine advertising was “buoyant” but radio revenues remained flat in a difficult market. In radio trading statements, Capital, GWR and Scottish Radio all reported losses and only UBC and Chrysalis had reason for cheer. The latter stated that revenues had risen by 11.7% in the past year and chairman Chris Wright went as far as to describe 2002 as the most successful in the company’s history.
The same could not be said for Carlton and Granada which both announced full-year losses in excess of £150 million. These were largely attributed to costs accruing from the closure of ITV Digital and both companies indicated that advertising conditions were improving. Preliminary results from DMGT at the end of the month showed yearly profits up 3% at £182.5 million although losses totalled £75.1 million.
December
The appointment of Sly Bailey as chief executive of Trinity Mirror led to renewed speculation over the future of the group’s national titles. The company said that advertising sales were showing slight growth of 0.3% after a 2.5% decline in the third quarter. There was less encouraging news for Pearson which announced that advertising revenues at the FT were down 11% in the second half of 2002. However, there was evidence of continued, modest growth at Johnston Press with ad revenues up by 2.8% in the five months to November. Gannett outbid a number of regional media groups to obtain the publishing division of SMG for £216 million.
United Business Media said that it was on target to match second half revenue expectations as a result of “generally robust trading” in its UK, European and Asian businesses. In addition, Highbury House Communications declared it was on target to improve profits, which totalled £6.9 million in 2001, despite the poor conditions in the business advertising market.
Channel 4 confirmed that it was set to report a profit for 2002 following a raft of job losses and stringent cost-cutting. However, shares in Cable & Wireless plummetted after the ailing telecoms group was downgraded to junk status. AOL Time Warner remained cirumspect on the state of the advertising market and warned that sales at its internet division were set to fall by up to 50% in 2003.