Despite an operating loss of over 2m, The Local Radio Company has reported an encouraging start to the new financial year. The latest preliminary results show a slight increase in group turnover, the sale of two unprofitable stations and the closing of the group's Enterprise Division.
TLRC has sold The Rocket and Win FM, and launched two new stations Durham FM and Brunel FM. One more station, set to launch in 2007 is in the Northallerton area but this will share some resources with Minster FM in York.
Graham Parrott, Chairman of The Local Radio Company Plc, said:
“The combination of concerted management action and the recent fund raising means we have entered the new financial year in better shape to succeed against a market backdrop that remains challenging.
“Current trading has improved and we are optimistic about continuing that trend into 2007.”
The full Chairman's Statement is provided below:
[b]
It has been a challenging year for The Local Radio Company (“TLRC” or the “Company”) as the Company has sought to improve the structure and performance of its operations against a severe market backdrop for the UK’s commercial radio sector.
During the year under review the commercial radio industry has experienced a 5% fall in overall advertising revenues with five of the last six quarters down year-on-year. Against this backdrop, TLRC’s total revenues increased by 2%, with like-for-like revenues down 4%.
In the Company’s interim statement we stated that a number of strategic options were being pursued to increase shareholder value.
Since then, two stations — Win and Rocket — that had not responded to management action plans and had shown no clear route through to profitability in a reasonable timeframe, have been sold.
As reported in the Trading Statement issued on 4 0ctober, TLRC’s Enterprise Division was closed in September and Simon Cooke left the Board on 30 September. The division reported a loss of over £250,000 during the year under review.
These disposals, together with restructuring at Head Office and the benchmarking of costs across all stations has enabled the Company to reduce its overheads by £600,000 on an annualised basis which will benefit the year ahead.
Upward trend in audience figures
Radio audience listening in the UK is measured by Radio Joint Audience Research Limited (“RAJAR”) which issues listener numbers on a quarterly basis. It is encouraging to note that the number of TLRC listeners has grown for the last two RAJAR surveys, from 849,000 listeners per week in Q1 2006 to 891,000 listeners per week in Q3 2006, a new record for the Group.
Based on the latest RAJAR survey for Q3 2006, 19 of our 28 radio stations were the No. 1 or No. 2 commercial radio station in their particular geographical survey area.
First Radio Sales
First Radio Sales (“FRS”) has had a good first year under its new joint ownership despite operating in a very competitive market place. Trading revenues are up 14% like for like. Whilst trading is challenging, new clients have been won throughout the period. In the year ahead we are confident that FRS will continue to outperform the national market on behalf of its clients. At 30 September 2006 FRS represented 128 stations.
Station Launches
Durham FM was launched in December 2005 and TLRC is pleased with its progress. Brunel FM was launched in September 2006, so is only three months old. These two launches resulted in initial operating losses for these stations of just under £300,000 in the financial year. Durham FM is trading ahead of forecast. The Company will only have one new licence launch, Northallerton, in the forthcoming year. It is a much smaller scale licence and is expected to incur initial operating losses of less than £50,000.
Post Balance Sheet Events
On 29 November 2006, the Company completed a £3 million fundraising which introduced a significant new shareholder, Hallwood Investments, and was well supported by certain existing shareholders who subscribed for approximately £1 million worth of new shares. At this time the Board was strengthened by the appointment of Anthony Gumbiner who has wide international business experience and Rhys Davies who has valuable media investment experience.
FINANCIAL REVIEW
Group turnover
Total Group turnover increased by £321,000 (2%) to £20.15 million. Excluding the effects of disposals, Group turnover decreased slightly from £18.72 million to £18.69 million, with underlying radio sales down 4% like for like.
Gross profit
Gross profit for the year of £13.34 million decreased by £1.47 million against gross profit achieved in 2005. The gross profit margin also declined from 75% to 70% due to the significant effects of the Enterprises division which operated on a lower gross margin than the radio business.
Group operating loss
The Group’s reported operating loss for 2006 was £21.05 million. However, this loss includes charges of £18.51 million for impairment and amortisation of goodwill and other intangibles. The normalised operating loss which is the operating loss excluding goodwill impairment, amortisation and exceptional costs, and including the share of operating profit in the joint venture, was £2.17 million.
Cash
There was a net decrease in cash of £1.55 million during the year. However, since the year end new finance of £3 million (£2.8 million net of expenses), has been raised through a share placing. For more details see Note 7 ‘Post Balance Sheet Events’. The Group has substantial cash balances and expects to begin generating cash towards the end of the new financial year.
FUTURE STRATEGY AND OUTLOOK
TLRC’s objective is to grow its business by increasing the revenues, profits and audiences from its existing portfolio of stations and by adding further stations to the Group.
The commercial radio market remains difficult and sales for the quarter to December are at levels below last year.
However, due to the management actions taken, TLRC’s local sales have increased month on month from September through to November and our bottom line performance in October and November is the best this calendar year.
Although visibility in the market remains limited, the steps that the Company has taken this year have enabled it to improve performance and we are optimistic about continuing that trend into 2007.[/b]