Chrysalis searches for next profits hit

Anyone looking in the diary of Chrysalis’ new group managing director, Richard Huntingford, should not be surprised to find the entry for August 31 2000 heavily underlined. That is when the group reports its full year results, and the moment when he hopes to announce Chrysalis is in profit for the first time in years.

Huntingford says: “My key focus is to move the group back into profitability. This year will be our last year of losses.”

Earlier this month, the group reported reduced pre-tax losses at the interim stage of 642,000, compared with 894,000 last year. Over the same period, turnover rose by less than two per cent from 60m to 62m. These figures led to the sudden departure of managing director Philip McDanell, who joined from MTV Europe in 1996, where he was finance and operations director.

Chrysalis chairman and founder Chris Wright left no one in any doubt that he expected more from the group. At the time he said: “Philip’s contribution has been valued over the past two years, but we need to put our foot on the pedal more.”

This is where Huntingford comes in. Despite what colleagues describe as a relaxed manner, he can put his foot down when he has to.

Huntingford was previously chief executive of the group’s radio division. In 1992, he convinced Wright that radio revenues were rising and the group should invest in it. Six years later Chrysalis owns seven radio stations, under the Heart and Galaxy brands, with a turnover of about 18.4m. The division is regarded in the City as the most dynamic part of the company.

Huntingford certainly has his admirers in the Square Mile. One analyst says: “McDanell was brought in to bring financial control to the group. But he lacked the vision to take the company further. The work Huntingford did on radio was always well thought out. He has a creative sense, but his accountancy background should help him keep his feet on the ground. He is a good choice.”

Others in the City find the company frankly exasperating. One analyst says: “It has interesting operations that have value, like Heart FM and its radio brands. But as a company it still needs to unlock value for its shareholders. It has the potential to do so.”

The entertainment group has only returned profit a couple of times since in was floated in 1985. This was when it sold its recording division, Chrysalis Records, in 1991 to EMI for 85m; and after the disposal of its 19.5 per cent stake in radio station, Metro, to EMAP in 1995 for 19m. Chrysalis has been pregnant with disappointing potential for the past 15 years.

Chrysalis is spilt into three major divisions and a smaller fourth unit. The TV production arm, called Visual Entertainment, makes everything from drama to sport, including ITV’s Midsomer Murders, Channel 4’s Football Italia and the BBC’s Clarkson.

One senior director says: “This unit does well but it needs a long running hit. At the moment it gets a lot of short-term commissions, and it works almost on a job-by-job basis. But a long-term commission is what we need. For example, Pearson TV’s The Bill for ITV is on three times a week. That is nirvana in terms of independent TV production. The show must make millions for Pearson.”

The Chrysalis music division has shown mixed performance. The publishing division – which owns songs performed by artists like Billie, B*Witched and former EastEnders star Martine McCutcheon – has done well. However, its own label, Echo, has yet to establish itself or break new talent. As one company insider comments: “Echo is still finding its feet. We had hoped it would have found them by now.”

Radio is the other major division. The final unit is the media products division, which distributes books, videos and magazines.

The music division, and in particular the Echo label, is the most problematic part of the company. One analyst says: “This area hasn’t really worked up to now. I believe the group will be profitable next year. But if cuts need to be made, then they will be at Echo.”

The group is about to spend 1.5m setting up an Internet infrastructure for the various divisions in the group.

One commercial director in the group thinks extra revenue can be extracted by harmonising group operations. He says: “We need to be more cohesive. I want to see us looking at more synergies across the group.”

Zenith Media head of radio Yvonne Scullion backs this. She says: “EMAP, for example, is always pushing its youth magazines alongside its radio stations.”

Most observers believe that Chrysalis will break into profit next year. Huntingford claims Chrysalis can double its market capitalisation of 250m within five years through radio expansion, the Internet and new partnerships exploiting the content it owns.

He may have to. Otherwise acquisitive rivals like EMAP or Carlton may look to pick off parts of the company which has had “must do better” stamped on its report for the past decade.


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