This page is quite old hence its rather spartan appearance.
Why not check out our Latest Stories page for our newest articles or search our site for anything.
QUALIPORT
By
Emap (LSE: EMA) is the Qualiport's longest held share. Bought originally in April 1998 at a racy 1,150p, the subsequent five years have been a roller coaster for the media group. The TMT bubble in 2000 (share price high: 1,773p) and the unravelling of the £900m Petersen purchase in 2001 (share price low: 480p) form a volatile story (the Qualiport archive tells the full tale). Still, Emap remains an appealing business for buy and hold investors. Published yesterday, final results for the year to March 2003 re-emphasised the company's inherent attractions. To provide some background, you may wish to read this review of the business and this assessment of the group's interim results. Five-year record Emap's five-year financial record is shown in the table below: Ignoring discontinued operations (notably Petersen, sold in 2001), turnover increased 3% to £948m while operating profits improved 14% to £191m. The divisional breakdown went like this: In terms of UK magazines, good performances from heat, MaxPower and New Woman improved domestic sales, though launch costs for Closer and the poor progress of certain music titles held back profits. French magazines generally did well, as did the US version of FHM. UK 'Business to business' publications endured a 'tough trading environment' and witnessed underlying recruitment advertising down 2%. Meanwhile, increased launch costs and 'revenue pressures across higher margin operations' affected Emap's domestic radio subsidiary. Notably, the fledgling television and Internet operations put in sound performances. It's worth recognising that the group profit improvement stemmed largely from the Emap Digital turnaround. High quality Overall, Emap retains many high quality characteristics: * Margins: Being more susceptible to new entrants, readership fads and so on, consumer magazines admittedly offer one of the weaker 'franchises' within the media sector. Yet the average UK and French Emap publication produces a 17-18% margin, which does highlight a certain amount of competitive strength. Emap's specialist commercial titles tend to have more of a moat around them; domestic trade magazines and exhibitions combine to generate margins of 27%. In the UK, Emap is the number two magazine publisher (with 17% of market sales), behind IPC (23%). In France, Emap is the number three (11% of market sales), following Hachette (16%) and Prisma (12%). * Subscriptions: One attraction to magazine publishing is the annual subscription. Paid upfront, subscriptions provide a certain amount of operational and cash flow predictability. At the end of March 2002 for instance, Emap benefited from £120m of 'accruals and deferred income' (i.e. monies paid but not yet 'earned'). It's worth noting too that 40% of group revenues are traditionally generated by circulation (i.e. cover price) income, which is generally less volatile than advertising income. * Radio: Emap is one of the UK's leading commercial radio broadcasters. This industry has many attractions to the long-term investor, not least the requirement to own a licence and the desire by regulators to encourage diversity. Read more. Cash flow The 2003 annual results showed Emap's earnings are genuinely backed up by cash: The past five years have seen just 1% of operating profit diverted into working capital. And since 1999, expenditure on tangible assets has exceeded the depreciation charge by only 2%. And get this: in 1993, Emap produced an operating profit of £41m on tangible assets of £31m; ten years on, tangible assets are £32m, but operating profits are £191m. This business relies firmly on difficult-to-replicate intangible assets. Down from £277m to £211m, it was nice to see net debt reduced during the year. Interest payments were covered a very comfortable 11 times and a generally strong cash flow performance allowed the full-year dividend to be raised 11% to 21.6p per share. Something absent from the preliminary statement though was a FRS17 pension update -- bad form, really. That said, the 2002 deficit was only £13m, so 2003 earnings of £125m should be able to cope with any further shortfall. Valuation and summary With many media companies stumbling at present, shareholders should be pleased with Emap's resilient performance. At 3% though, underlying sales and profit growth was pedestrian. Judging by the company's outlook, investors can expect a similar performance in the current year. As with all media firms, the biggest investor worry concerns daft corporate activity. Prompted no doubt by the forthcoming relaxation of media ownership rules, Emap's results presentation referred to 'creating value from radio consolidation' in the year ahead. Hopefully new chief executive Tom Moloney has learnt from others how damaging 'transforming' acquisitions can be. Applying a 30% tax charge, Emap generated 46.0p of free cash in the year to March 2003. Demanding a 7.5% historic free cash flow yield would require a share price of 613p, some 26% below today's 829p. More: Emap discussion board(to 31st March) 1999 2000 2001 2002 2003
Turnover (£m) 880 1,103 1,153 1,029 967
Operating Profit* (£m) 171 223 234 198 191
Exceptional Items (£m) 13 68 (626) (16) 13
Pre-tax Profit (£m) 174 252 (429) 116 188
Earnings per share* (p) 48.7 53.7 56.8 45.6 49.0
Dividend per share (p) 16.6 18.3 19.5 19.5 21.6
(*adjusted for goodwill, exceptional items, and write downs)
Division Sales Operating Profit
2003 2002 2003 2002
(£m) (£m) (£m) (£m)
Consumer Magazines -- UK 340 327 61 63
Consumer Magazines -- France 272 262 47 43
Consumer Magazines -- Other 45 38 (1) (10)
Business to Business 180 192 50 51
Radio 89 90 25 33
TV 22 10 6 3
Digital 19 19 3 (16)
Total 967 938 191 167
(to 31st March) 1999 2000 2001 2002 2003
Operating Profit (£m) 171 223 234 198 191
Working capital change (£m) (13) (9) 1 (8) 16
Depreciation (£m) 13 14 15 14 12
Capital Expenditure (£m) (12) (12) (19) (10) (16)