EMI Group Reports 14% Rise in Earnings

Despite the distraction of two doomed merger attempts, British music giant EMI Group on Tuesday posted a 14% surge in operating profit for its latest fiscal year.

EMI said profit rose to $474 million as its music and music-publishing divisions posted gains amid essentially flat worldwide record sales.

The results come at the end of a tense period in which the company was left at the altar twice after European antitrust regulators scuttled its attempted mergers with music conglomerates Warner Music Group and Bertelsmann.

EMI Music Chief Executive Ken Berry said he may cut costs by restructuring the company’s worldwide manufacturing operation and its U.S. and European sales divisions.

Those potential savings--in the “low tens” of millions of dollars--contrast with an estimated $400 million in savings the company would have received from the Warner Music deal.

Berry downplayed the likelihood that a conglomerate from outside the record industry would seek to purchase EMI. “Those synergies don’t exist if [the buyer isn’t] another music company,” Berry said.

A closer look at EMI’s annual numbers shows how much the company has been cushioned by its strong catalog during a time when it failed to break many new U.S. acts.

The company’s two biggest sellers last year were compilations from established artists, the Beatles’ “1” and Lenny Kravitz’s “Greatest Hits,” which was aided by a new single. The two albums accounted for more than half of the company’s 1.6% increase in global market share, the company said.

While it ranks last in sales of current albums in the U.S. among the five major record conglomerates, EMI held its position as the No. 3-ranked music company internationally and reported increased sales from its massive music-publishing division, which licenses songs including the James Bond theme and compositions by Sting.

The good news could only partially offset some colossal blows to EMI’s bottom line. The company’s net income for the fiscal year ended March 31 fell 48%.

The company said its attempted merger with AOL Time Warner Inc.’s Warner Music, which fell apart in October, cost it $61.2 million. EMI Group Chairman Eric Nicoli said the company’s more recent attempt to merge with Bertelsmann of Germany didn’t result in any major new costs.

Also missing from this year’s earnings was any major bonus from investments. Last year, the company sold its stake in GWR Group, a British radio company and realized a quick $60 million. EMI, which owns the Capitol, Priority and Virgin labels, also last year made $40 million in profit by selling 10% of its stake in online company Musicmaker.com at the height of Wall Street’s dot-com frenzy. The first-day-of-trading transaction generated four times the amount EMI had earned from selling CDs in the U.S. in the previous six months.

The company booked the money as licensing income, and executives said at the time that the company was counting on piling up additional profit by flipping shares in other Web ventures.

In fact, although EMI has cut deals with dozens of other Internet companies, none resulted in such a huge gain. Still, EMI said about half the profit growth in its music-publishing division came from new media, including “profits on new-media investments.” The new-media earnings also included revenue EMI obtained from settling a copyright infringement lawsuit it had filed against online music company MP3.com Inc.

After being jilted twice in less than a year, Berry said, “My only expectation is that you’ll have an independent EMI. We’ve got a very good business here. We have no need to do anything foolish or radical to the business.”