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GCap aims to double profit amid digital pullback

LONDON (Reuters) - GCap Media GCAP.L, the country's largest commercial radio company, is to pull back from digital radio to help double profits as part of an overhaul by its new chief executive designed to maintain its independence.

GCap plans to close digital radio brands such as theJazz and Planet Rock, it said on Monday, and sell its Digital One multiplex, the pipework of transmission technology that broadcasts commercial stations nationally in Britain.

GCap said although there are longer-term opportunities in mobile telephony and broadcasting its stations via digital television, it sees better prospects in FM and broadband radio.

New Chief Executive Fru Hazlitt said her measures would leave GCap focused on five key brands across FM and broadband: Capital, Xfm in London, Choice, Classic and the One Network of local stations.

The digital pullback is part of a strategic review by Hazlitt unveiled two months after CCap rejected a preliminary approach from privately owned Global Radio, pitched at 190p per share and valuing it at around 313 million pounds.

GCap shares were down 1.2 percent at 187-1/2p at 10:20 a.m..

Hazlitt said digital radio was too expensive and had not been embraced by consumers in the way GCap anticipated.

“In the short term and without massive investment and improbable changes in government policy it is not a platform on which we can grow. We would like to get out of (digital radio) but we can’t,” she said. This is due to contractual and regulatory rules.

LOW DEMAND

According to industry data, listening to digital-only stations accounts for less than 4 percent of all radio listening in Britain.

The radio group has also decided to ditch its policy of playing no more than two consecutive advertisements in favour of what it describes as a flexible policy with no more than nine ads per hour -- in line with commercial radio norms.

Hazlitt said her measures would double profits to around 24 million pounds and lead to annual cost savings of 8.8 million before any closure and disposal charges.

As part of the revamp, which she has been working on since becoming CEO on December 20, GCap has agreed to sell Digital One to media transmission company Arqiva for a nominal sum as well as terminate at no charge transmission costs for all its capacity on Digital One except Classic FM.

GCap said it will target an underlying operating profit margin of 12 to 14 percent in the year ending March 2009 and 17 to 19 percent the following year. Numis noted this compares with a current margin around 7 percent and that some of its peers already deliver margins above 20 percent.

The company plans to sell its Xfm regional analogue licences in Scotland, South Wales and Manchester, northern England.

Altium Securities analyst Roddy Davidson said Hazlitt’s measures looked sensible if the cost cuts succeed in creating a more profitable business. He said a further offer from Global is likely and other players could also express an interest.

Hazlitt’s plan will be scrutinised by those already invested in the group, as well as supporters of Global Radio, whose approach for GCap came just days before Hazlitt became CEO.

“To match the value of our offer of 190 pence a share, she has to present to shareholders a plan to treble profits, not just double them,” Global Chairman Charles Allen was quoted as saying in the Financial Times on Monday.

Britain’s Takeover Panel has given Global until March 5 to either make a bid or walk away.

Editing by Louise Ireland and David Holmes

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