Source : Globe & Mail

Cites higher TV programming costs, taxes for eroding increase in revenue

CHUM Ltd. yesterday reported flat first-quarter profit compared with a year ago, blaming higher television programming costs and taxes for eroding much of the 4.3-per-cent revenue increase.

TV costs rose by $4.8-million to improve "the quality and competitiveness" of programs because of increased competition in the Toronto market, said Jay Switzer, CHUM's chief executive officer.

CHUM's CITY-TV station is in a battle in its market against two new rival stations launched in 2003, including Craig Media Inc.'s Toronto 1 station and Rogers Communication's Omni 2.

CHUM, meanwhile, announced yesterday that it has purchased two Victoria radio stations --- C-FAX AM and CHBE FM -- for $7.5-million from Victoria-based Seacoast Communications Group Inc.

The transaction is still subject to regulatory approval.

CHUM, a Toronto-based television and radio broadcaster, posted a profit of $13.6-million or 50 cents a share for the period ended Nov. 30, compared with $13.6-million or 58 cents a year earlier.

The difference in the share profit stems from last year's issuance of 2.1 million non-voting class B shares.

CHUM, which owns and operates 29 radio stations, eight television stations and 18 specialty channels, saw its revenue climb by $6.4-million to $155.5-million for the latest quarter, but that increase was trimmed by $6.4-million, or a 4.3-per-cent jump in operating expenses.

Revenue from CITY-TV and other stations in the television group rose 5.7 per cent to $119.6-million. Radio revenue was flat at $33.1-million, compared with $32.9-million a year earlier.

"We have modest expectations for radio revenue increases this year given CHUM radio's very strong first-quarter performance last year," Mr. Switzer told an analysts' conference call.

CHUM's profit was also affected by a one-time, non-cash charge of $1-million related to an increase in Ontario's corporate tax rate to 14 per cent from 12.5 per cent beginning Jan. 1 by the newly elected Liberal government.

The charge reduced first-quarter profit by about $3.50 a share, the company said.

Mr. Switzer added that CHUM expects to meet its annual sales budgets for fiscal 2004 but "in the face of potential revenue softness in both radio and television, all stations are reviewing their operational costs with a review to reduce and control expenses."

David McFadgen, an analyst at Sprott Securities Ltd., said CHUM's profit came in below his expectation of 60 cents a share, which does not include the impact of the one-time adjustment for the increase in Ontario's corporate tax rate.

Mr. McFadgen, who had a one-year, $36 target on CHUM stock before the profit results were announced, said the cost of new television programs came in higher than he expected.

He added that CHUM is really "bulking up to compete with Toronto 1."

CHUM said it expects a decision early this year from the Canadian Radio-television and Telecommunications Commission on its application to start up conventional television stations in Edmonton and Calgary, and a new FM radio station in Edmonton.

CHUM's non-voting B shares closed unchanged at $31 on the Toronto Stock Exchange yesterday.

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