EMI takes a tumble

Annual sales & earnings declines sock stock

Shares of U.K.-based EMI Group lost nearly 12% of their value Monday after the music major reported fiscal year-end earnings and sales down despite an improvement in its worldwide market share in recorded music and music publishing.

Proving there are still no easy fixes to the endemic declines in recorded music sales, group’s sales dipped 2.5% to £2.12 billion ($3.79 billion) for the year ended March 31, 2004, compared with $3.81 billion the previous year. Operating profit fell 2.1% to $526.2 million ($455.6 million last year). A continued program of cost-cutting helped margins grow slightly, with return on sales climbing to 11.8%, compared with 11.7% 12 months previously.

The company says rapid growth in revenues from new sources, e.g. DVD, downloads and ringtones, are among the reasons to be optimistic for the music industry looking forward. It reveals that Internet outlets such as Apple’s iTunes Music Store helped EMI treble revenues from legitimate digital music deals to $26.8 million during the year.

Company did gain a full market share point in the U.S., where sales rose 6.2% overall. But total music sales at EMI still fell 2% excluding currency declines.

Cautious forecast

EMI’s share price had enjoyed a hefty 75% increase in the last 12 months as many U.S. investors ran up the pure-play music company amid signs of improvement in the U.S. market. But some of that exuberance quickly wore off as the full extent of continued sales declines in key markets like France and Germany took their toll on EMI sales. EMI was conservative in terms of its current fiscal year and predicted flat earning levels for the first half of the year.

One analyst was particularly disappointed by EMI’s relatively flat operating margins, especially given the company’s aggressive efforts to restructure and reduce costs through extensive layoffs.

Digital music sales, meanwhile, from services like iTunes still constitute less than 1% of EMI’s total sales

Group chairman Eric Nicoli put a positive spin on the company’s situation, noting that EMI “delivered full-year sales and operating profit close to last year’s level while the global market declined by almost 6% in the same period. This achievement demonstrates the strength of both our recorded music and music publishing businesses.”