FRESH signs of volatility in the radio advertising market took the gloss off a sharp improvement in annual results at media group Chrysalis yesterday.

The company, which operates Galaxy-branded radio stations and Heart 106.2 in London, said it had adopted a more prudent view on growth at its radio division following a weaker than expected start to the new financial year.

Galaxy network, which is the commercial market leader in its two largest markets of the North-East and Yorkshire, maintained its hold on the youth market.

However, the update from the UK's fourth-largest radio group sent shares six per cent lower, despite a four-fold increase in annual operating profits to £8.3m as the radio and music divisions achieved record levels of profitability.

The recent performance in radio was affected by a softer national market last month, and although this month indicated a return to growth, the company said it expected revenues for the first quarter to be flat.

Despite the caution, the division produced a year of significant industry outperformance in the period to August 31 as revenues increased 21 per cent to £67.7m and underlying earnings by 48 per cent to £14m.

Investment in digital broadcasting had increased over the period to £2.8m, with the figure expected to remain at about £3m for the foreseeable future.

In the music publishing division, which features artists including Feeder and David Gray, Chrysalis said it was confident that it would beat market expectations for the current financial year.