Bottom Line: Acquisitions add strength to Emap's advance

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The Independent Online
FEW company chairmen would feel the need to apologise for increasing dividends by 9 per cent. But few companies can match the 23 per cent rise in earnings, before non-operating exceptionals, achieved by Emap.

The recession may be keeping advertisers out of everything from Architects Journal to the Scarborough Evening News, but Emap's operating profits in the year to 3 April rose 24 per cent to pounds 40.7m. At pre-tax level the increase was 56 per cent to pounds 42.3m, by courtesy of a pounds 1.1m profit on the sale of fixed assets and an interest charge more than halved at pounds 1m.

FRS3 earnings per share jumped 40 per cent to 17p, which left the group able to rebuild dividend cover from 1.7 to 2.2 times despite the rise to 7.9p.

The growth was fuelled by acquisitions - particularly the business magazines acquired from Maxwell Business Communications - which contributed about pounds 4m overall. Emap also took full advantage of acquisition accounting by utilising pounds 6.9m of provisions - up from pounds 1.1m last time - in arriving at the figures.

Stripping out these factors, trading profits dropped pounds 3m to pounds 29.8m. That makes Emap look less superhuman than the market likes to think, but it is still a more than respectable performance in poor markets, particularly when it managed to generate pounds 45.6m of operating cash flow.

The consumer titles were once again the driving force, increasing profits by 17 per cent to pounds 24.2m as they pushed through a 9 per cent rise in prices and still managing to increase circulation by 1 per cent. Advertising revenue rose 7 per cent in a generally flat market.

Unfortunately, it has not been able to transfer that skill to the other divisions and advertising in local newspapers and business publications fell by 1 and 3 per cent respectively.

The group expects little help from the economy this year, although continued rationalisation, and expansion, of recent acquisitions mean profits should advance to about pounds 49m.

But the final outcome will depend partly on spending on new launches - and the two big launches planned, in music and motors, could cost upwards of pounds 6m.

At more than 19 times and a yield of less than 3 per cent, both at least a fifth better than the market, there is little reason to chase the shares.

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