GODDARD October 2005

The departure this week of former Capital Radio executives Paul Davies and Linda Smith from the GCap Media plc senior management team has completed the apparent GWR 'takeover' of the merged company that has placed former GWR Group executives in most of the key directorships. While commercial director Smith and operations director Davies will exit the company, GWR veteran Steve Orchard will now assume responsibility “for all operational aspects of the business, including content and commercial areas.” Former GWR/Opus managing director Duncan George will now report directly to Orchard as managing director of national sales. Ironically, only two weeks ago, GCap issued a financial statement explaining that, under new European accounting regulations, the 'merger' that had created the new company would henceforth “be accounted for as an acquisition” of GWR Group plc by Capital Radio Group plc. Asked if these latest management changes, following swiftly on the sudden departure of former Capital chief executive David Mansfield, represented a GWR 'takeover', GCap chief executive Ralph Bernard replied: "No, absolutely not. We have been GCap since May. This is the best team which has been chosen from both previous companies to drive the implementation and new strategy we're announcing today. What's happened as a consequence of the departures is that there's a terrific opportunity to review the structure of the management team." Asked if Davies' and Smith’s departures were connected to Mansfield’s exit, Bernard said: "Yes, obviously it's related. It's happened within a week. It was a decision made entirely on their own. They made the decision to leave. It was disappointing in some respects that they decided to do that. But it's been an entirely amicable process." One financial commentator suggested that the Daily Mail & General Trust [DGMT], which holds a 15% stake in GCap, was behind the putsch, after Lord Rothermere “let it be known that he wasn’t prepared to see his investment wither on the vine.” DGMT had been a long-term investor in GWR’s expansion strategy and could have been expected to support Bernard over Mansfield. GCap also announced that it had identified £25m in savings from the merger that would be realised from “staff costs” by March 2007, a substantial increase over the £7.5m savings that had initially been projected. Finance director Wendy Pallot said that half the savings would come from radio station operations, while the other half would derive from cuts at the head office and national sales teams. She said “less than 100 jobs” would be lost, which accounted for only “a single digit percentage” of the company’s total workforce. This would be in addition to the 200 jobs already lost in the merger, and would reduce the staff complement to below 1,400. Bernard referred to the cuts as "adjusting the cost base to reflect the realities of a depressed market". GCap explained that some of the savings will be reinvested “primarily on improving the quality of our analogue assets”, the company’s first public acknowledgement that steadily declining audiences for its local FM and AM
News: Radio Group GCap Media plc Announces 100 Further Staff Cuts And £25m In Savings ©2005 Grant Goddard Page 2

station could undermine its core business. £2m will be re-invested in the current year, and a further £7m in 2007, though no indication was given as to whether this would be largely marketing spend or genuine product improvement. Steve Orchard commented: "We accept that the merger was a distraction for our sales staff and a distraction for our management. We want a management structure that is fleet of foot, that gives the best customer service in the industry." Bernard added: "At the moment, it’s important we get the business firing on all cylinders and get into steady growth before deciding what we’re going to do with the cash." Bernard tried to make amends for the lack of information offered to shareholders and the City. "We have done nothing differently to what we said we'd do," he said. "We said we would have a strategic review and we have given out full information on the declining revenue market. This is, I hope, the first stage in giving confidence ... that this business has got a grip of itself and is very clear about its direction." There was no mention of any possible sales of under-performing local radio operations. "We have only completed the first part of our strategy review," Bernard explained. "The second phase is being worked on and, when it's complete, it will be given to staff and announced to the stock market at our interim results [in November]. Don't forget this is still a company that's geared. We are not sitting on a great big cash pile. The company has £70m of net debt." The advertising market continues to be a problem, with GCap predicting an 8% year-on-year fall in quarterly revenues, compared to an 11% fall the previous quarter. Revenues for the six months ended September 2005 will be down 9% on a like-for-like basis. The statement said that “visibility remains limited” and that GCap remains “cautious” about the critical fourth quarter leading up to Christmas. Bernard said: “Although current trading conditions remain difficult, we are taking the right steps to counter this and to position the business in the best way for the future.” GCap is now looking to appoint a managing director of its London and national stations, as well as another unnamed senior management post. After the announcement, GCap’s share price immediately soared by 16%, as the City expressed relief that the promised 18.5p dividend might still be forthcoming as a result of the operational savings. Analysts at Numis said they were “extremely pleased” that GCap had plans to invest some of the savings back into local analogue stations. Investment in

News: Radio Group GCap Media plc Announces 100 Further Staff Cuts And £25m In Savings ©2005 Grant Goddard

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digital stations continues to prove expensive and, according to one analyst, is giving GCap “75% less audience than its rivals”. Howard Bareham, managing partner at media buyer Mindshare, commented: "I think there has been a little bit of drift in terms of focus. We want to see that new commitment in customer service, in programming and in marketing their digital stations in particular." Richard Menzies-Gow, analyst at Dresdner Kleinwort Wasserstein, said: "The good news is that you now have three people at the top who are in charge and accountable. Mainly Capital people have gone, but at least we have got clarity on who is running GCap." Commenting on the projected £25m savings, he added: "It is a big, big number. I am astonished that they can get that high. Is there really that much duplication across the board?" Within only the first few months of GCap Media’s existence, the 32-year legacy of Capital Radio has been largely stripped away. As one media commentator pointed out: “Who could have foreseen this five years ago, when Capital was the nation's pre-eminent commercial station? A once great company is now buried within a competitor that was once a fraction of its size, and, in corporate terms, has ceased to exist.”

[First published in 'The Radio Magazine' as 'GCap To Lose 100 Staff And Save £25m', #704, 5 October 2005]

Grant Goddard is a media analyst / radio specialist / radio consultant with thirty years of experience in the broadcasting industry, having held senior management and consultancy roles within the commercial media sector in the United Kingdom, Europe and Asia. Details at

News: Radio Group GCap Media plc Announces 100 Further Staff Cuts And £25m In Savings ©2005 Grant Goddard

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