SMG Profits Stung By Ad Slowdown
Profits at SMG have been heavily impacted by the slowdown in the advertising market and an increase in the group’s ITV licence fees, the interim results released this morning have shown. Pre-tax profit was down by 33.7% to £19.9 million for the six months to 30 June, whilst operating profit fell by 12% £32 million. Turnover was also down, by 8.5% to £139.7 million.
Television The downturn in television advertising revenues affecting ITV specifically, and commercial television in general, resulted in an 11% drop in airtime revenues, against a 15% decline for ITV as a whole. Television operating profits were down from £19.4 million to £12.9 million, a fall of 34%.
SMG says that a principle objective of this year was to restore the group’s share of net advertising revenue (NAR) for its ITV franchises to above the 6% mark. This has just been achieved with a 6.1% share of NAR.
In April, SMG renewed the licences for its Scottish TV and Grampian TV franchises, guaranteeing a further 10 years of broadcasting for the company. However, the resultant £9.0 million annualised increase in costs has hit profitability.
Radio SMG has been hit particularly hard as underlying radio revenues at the group declined by 20% in the first half and 32% in Q2. This compares very badly to Chrysalis Radio, which yesterday said that it expects its radio revenues to be up by 16.6% for the year to 31 August (see New Media Write-Offs Cost Chrysalis ). SMG’s Virgin Radio faces very tough comparables, as for the same period last year its revenues rose by 44%.
Newspapers Newspaper advertising revenues at the group’s publishing division were fairly steady, with a growth of 3%. However, the impact of the foot and mouth disease and increased newsprint costs saw overall publishing operating profits fall by 12% to £8.0 million.
Recruitment and property advertising started the year well, reflecting the apparent ongoing health of the local economy. However, classified motoring remains weak and the London display market has clearly been affected by the caution of national advertisers, the company said.
New media Concerning new media investments, SMG says that its strategy in Scotland focuses on the establishment of a family of web-sites aimed at Scottish-based consumers. “Using content already captured elsewhere within the Group and targeting Scottish-based audiences has created very competitive sites at a low cost. In response to the advertising downturn, we have slowed the pace of our investment in this venture, but good progress continues to be made.”
This contrasts with Chrysalis’ announcement yesterday, which stated that all new media investments bar Rivals.net will be written off at a cost of £9.6 million (see New Media Write-Offs Cost Chrysalis ).
Outlook The outlook for SMG is for continued difficulties in the second half, with neither television nor radio advertising expected to pick up until well into next year. ABN Amro has cut its profit forecasts 25.7% to £34.3 million for 2001 and by 20.1% to £39.8 million for 2002.
By mid-morning shares in SMG were down 10p at 141½p, a four year low for the company’s stock.
