SMG to spin off Virgin Radio as earnings fall

SCOTTISH media operator SMG said today it would spin off its Virgin Radio unit and base its future strategy on its core television business as it reported a sharp slide in annual profit.

The company also temporarily pulled the plug on the planned disposal of its outdoor advertising arm Primesight, saying the prices offered had been too low, but said its cinema advertising division, Pearl & Dean, was still for sale.

On the financial side, SMG said operating profit from its continuing operations had fallen by 46 per cent to 9.7 million over its latest trading year, a plunge in earnings which the City had been expecting. Group revenue fell by eight per cent to 147.3m "as network television advertising sales revenues were further impacted by reduced audience levels".

The strategy announcement was the first under the group's new management, and signals its future intent.

SMG, which owns the STV and Grampian franchises and is behind series such as Rebus & Taggart, said it would reveal further details of its TV focus in June.

But it said it intended to seek a separate listing for Virgin Radio, which holds one of the UK's three national radio licences and has 2.5 million listeners across the UK.

Recently installed SMG chairman Richard Findlay said: "This is the right strategic decision for SMG, increasing our focus on TV whilst reducing debt.

"Virgin Radio is one of the great brand names in media with an attractive national audience, strong relationships with advertisers and a clear growth strategy. As a quoted company it will have the best management and capital structure to support its future growth, and will make for an attractive pure radio investment opportunity."

Summarising the poor financial performance, Mr Findlay, said SMG had suffered from "a weak strategy weakly executed", which led to excess debt, a lack of focus, instability in the leadership, dissatisfaction amongst the shareholders and poor staff morale.

SMG said advertising markets had been varied in the early part of 2007, with TV revenues down five per cent while radio revenues were up by eight per cent over the first quarter. At Pearl & Dean they were up 13 per cent, while Primesight grew by 15 per cent.

"We see these trends broadly continuing into April and, as a result, the board views advertising markets for the year ahead with cautious optimism," the group said.

Activist SMG investor Hanover Investments - which owns 12.6 per cent of SMG - forced a boardroom coup which led to six board members, including then chairman Chris Masters, heading out of the door following a revolt over plans to merge the business with UTV. That was followed yesterday by the departure of Donald Emslie, who had taken on the role of acting chief executive in the wake of the departure of Andrew Flanagan last summer. The boardroom shake-up brought in Rob Woodward, the former commercial director of Channel 4, as chief executive, and Mr Findlay, former chief executive of Scottish Radio Holdings, as chairman.

Mr Woodward said the sale of the company's Primesight advertising business had been put on hold. He said current offers for the billboard division had been too low, but added that it still planned to restart the sale process.

He said the sale of its cinema advertising unit Pearl & Dean "continues", with the company applying "a similar rationale" to the sale as it had with Primesight.