Shares in Capital Radio fell more than 12 per cent after the group revealed it was suffering from weakness in the advertising market.

The London-based commercial operator said it had suffered a testing time this month and last with group revenues likely to be down eight per cent.

The fall compares with a four per cent rise over the second half of the group's recent financial year and surprised analysts hoping for a better performance.

Capital, which owns Sussex broadcaster Southern FM, said given the outlook it would continue to run the business on the basis there was no material improvement in trading conditions.

The group generates the bulk of its cash from advertising over the airwaves. Its revenues fell two per cent to £120 million during the year to September 30.

The drop meant underlying profits fell eight per cent to £27.8 million while one-off costs meant bottom-line pre-tax profits dropped 47 per cent to £14.7 million.

Analysts said the showing in October and November meant targets for the current financial year to September 2003 were now likely to be lowered.

Mia Ackerman, media analyst at Investec, said: "The eight per cent fall is worse than we forecast and Capital don't expect revenues to be up in the financial year."

The group said revenues from established stations were down five per cent in the recent year at £101 million with operating margins dropping from 37 per cent to 34 per cent.

But development stations such as Xfm, aimed indie music fans, and dance station Beat had achieved strong revenue growth in the year.

Chief executive David Mansfield said: "Despite a tough advertising market, Capital has improved its performance relative to the sector."

Capital plans to pump an extra £2 million into marketing next year to promote new show f ormats and new DJs.

Its 20 radio stations attracted an audience of 7.9 million adults aged 15 and over in the three months to September 30.