Global record and entertainment group Polygram posted a 13% increase in profits and its eighth consecutive year of sales growth in 1992, despite the European recession and increased investment in its film business.

In the year ended Dec. 31, Polygram’s net sales were up 5% to $ 3.656 billion from $ 3.495 billion in 1991. If not for the negative impact of currency fluctuations — notably the weakening of the U.S. dollar, U.K. sterling and the Italian lira in the second half — sales growth would have been 9% during 1992, according to Polygram.

Income from operations was up 7% to $ 436 million, reflecting improved operating efficiency. Profits in North America grew from $ 7.2 million to $ 28.7 million.

Net income increased 13% to $ 280 million ($ 1.65/share) from $ 246 million ( $ 1.45).

The company is proposing to pay a full-year gross dividend of 36 cents per share, an 8% increase over the 1991 payout. Subject to shareholder approval, dividend is payable in May.

Alain Levy, president and chief executive officer, said Polygram made significant progress toward expansion, boosting in-house manufacturing capabilities and building its film business.

Levy noted that Polygram’s revenues in North America, long the company’s weakest major market, increased by 26% over 1991 to $ 792.8 million and now represent 22% of Polygram’s worldwide sales vs. 18% in 1991.

Levy estimates that Polygram labels account for about 13% of the North American market and its distribution operation captures about 14.5% of the market.

However, Levy said growth and the strong performance of some Far Eastern subsidiaries were mitigated by economic decline throughout most of Europe and in Japan and Brazil.

“Considering they had such low sales growth for the year, a 13% increase in net income is quite impressive,” said Smith Barney analyst Susan Passoni.

Polygram’s pop sales increased by 3%, with 24 albums selling more than 1 million copies each, led by Billy Ray Cyrus’ “Some Gave All.” His Mercury debut album sold more than 7 million copies worldwide. He also gave Polygram its two best-selling videos of 1992.

Other best-selling albums included Def Leppard’s “Adrenalize,” which sold over 5 million units in 1992, and “Abba Gold” with more than 3.5 million units.

In Japan, Polygram invested another $ 24.8 million to acquire the outstanding 35% stake in Nippon Phonogram and to increase its holding in Polydor from 74.6% to 89.6%. It also acquired a 60% stake in Taiwan’s second largest record company , Linfair, to complement existing operations there.

Polygram is implementing an aggressive review of its Latin American business and has established a regional office in Miami.

“We also want to secure our in-house manufacturing in order to access the associated profits when volume warrants it,” Levy said. To that end, Polygram acquired an American CD factory from Philips (which owns 80% of Polygram) for $ 31.5 million. This and Polygram’s existing CD plants in France and Germany together manufactured approximately 70% of the group’s CDs in 1992 and made a significant contribution to its gross margin, which improved to 47.1% from 46.4% in 1991.

The company also established the world’s first digital compact cassette plant in the Netherlands, which supplied the record industry’s initial launch catalog of 500 DCC titles to seven launch territories in the last quarter of 1992.

“Our third area of growth,” Levy said, “is the film business, in which we have significantly increased our production capabilities and in which we are expanding in a controlled and creative manner.”

Last July, L.A.-based Polygram Filmed Entertainment (PFE) paid $ 35 million for a 51% stake in independent producer Interscope (“Three Men and a Baby,””The Hand That Rocks the Cradle”). It also entered into a three-year agreement with Jodie Foster’s Egg Pictures to fund productions starting in 1993.

In film distribution, PFE has joined forces with Universal Pictures to form Gramercy Pictures, which handles North American marketing and distribution of movies supplied by both partners.

Polygram said the first year of operation of PFE progressed according to plan , with the division creating moderate after-tax losses.

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