Johnston put its name on the map by buying Emap's 65 regional titles for pounds 213m. The deal looks well timed. The strong economy has caused revenues to take off across the industry last year, driven by a sharp rise in advertising income.
Johnston's like-for-like advertising revenue rose 8 per cent thanks to a 30 per cent rise in recruitment commercials. Economies of scale from the Emap deal and a fall in newsprint prices saw margins jump from 16 to 21 per cent. Together these led to a 44 per cent rise in pre-tax profits to pounds 34.6m in 1997.
The slowdown in the economy raises concerns that Johnston will be hard pressed to continue growing at this sort of rate and the group acknowledges that advertising growth is bound to slow. But analysts predict it is still likely to grow at 5 per cent this year. And there is still plenty of scope to cut costs. The margins at the Emap business are still only 21 per cent compared to 27 per cent at the existing Johnston titles.
The pounds 52m acquisition of Home Counties Newspapers has been held up by an MMC enquiry. Even so the rationalisation of the industry is bound to provide Johnston with further buying opportunities. And as the group expands so does its buying power which will reduce costs further.
Johnston is also working hard to clear out the worst performing bits of its business. Its troubled book binding has gone and the stationery wholesaling business will probably be next.
Johnston's shares rose another 3.5p to 231.5p on the results. Analysts forecast full year profits of around pounds 43m, putting the shares on a prospective PE ratio of 16. The shares remain good value.