Music Festivals struggling with cost controls

Music Festivals, the group which runs the huge Benicassim and Hop Farm festivals, has struggled to control operational costs although tickets sales have been encouraging.

The company began trading on the AIM exchange at the end of June last year after spending £10.7m buying up a group of five separate festival companies.

Turnover for the 12 months to the end of December 2011 was £13m, against expectations of £16.4m. Profits before tax came in at £0.8m, falling short of the consensus forecast of £1.43m, although the group's broker and nominated adviser (nomad), Merchant Securities, said the figures were in line with its expectations.

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Benicassim saw ticket sales double between 2010 and 2011, while Hop Farm welcomed 34.4% more paying customers, but as the annual results show: "due to increased costs, the gross margin and profitability was lower than expected."

The firm adds: "We are looking to improve performance in 2012 by increasing ticket sales and tighter cost control, although the festival market remains highly competitive."

Merchant Securities has adjusted its forecasts to include two additional one-day concerts scheduled for September 2012 at The Hop Farm venue and changes to this year's ticket prices.

"We have raised our 2012 revenues by 7% from £16.4m to £17.5m (c.35% of the revised revenue estimate is underpinned by advanced ticket sales and sponsorships), but reduced our PBT [profit before tax] and EPS [earnings per share] by 10% to £1.3m and 6.6p respectively," Merchant Securities said.

"With a majority of the key events taking place in less than two months, the uncertainty surrounding ticket sales and the number of attendees encourages us to move from a buy to a hold and reduce our target price from 71p to 43p," the broker said.

BS