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EMI EARNINGS STABLE AT THE FISCAL HALF

Sales Flat, Margins up Slightly as Company Awaits Decision on WMG Bid
On the eve of the Time Warner board deciding whether to pursue EMI Group’s offer for the Warner Music Group labels, the English company announced today that operating profit for its first fiscal six months ending Sept. 30 grew slightly to GBP 70.7 million, compared to GBP 79.0 million last year—an increase of 0.9%.

Revenue was largely flat for the period, down 0.1% to GBP 960.3 million, but overall margin, or return on sales, increased to 8.3% from 8.2% a year earlier. Adjusted earnings per share rose to 3.6 pence per share compared to 2.9 pence per share last year at this time.

EMI reported that profit before tax, amoritzation and exceptional items fell to GBP 39.4 million from GBP 42.2 million last year, thanks to increased interest charges resulting from a move to longer-term debt and a credit-rating downgrade six months ago.

The company said performance in North America improved substantially to a “sizeable profit” this year compared to first-half loss last year.

Of EMI’s bid for WMG, Chairman, Eric Nicoli said in a statement, “We announced on September 22 that EMI had entered non-exclusive discussions with Time Warner Inc. about a possible transaction involving the recorded music division of the Warner Music Group. Those discussions have progressed well and are at an advanced stage. We have made a firm proposal to Time Warner which, we believe, would create substantial value for the shareholders of both companies. As soon as we are able, we will make a further announcement. It would be inappropriate to say more at this time.”

EMI’s Recorded Music division saw EBITA grow from GBP 35.2 million to GBP 36.7 million, reflecting marketshare growth in both the U.S. and the world as a whole, against an overall industry decline of 10.4% in the period, according to EMI. Profitability was aided by cost reductions implemented over that last year.

Music Publishing also delivered strong results in a difficult environment, the company said. Sales for the six months decreased 0.2% compared to last year, to GBP 201.7 million. The decrease was partially attributed to adverse currency exchange rates.

Publishing EBITA, however, grew from GBP 52.5 million to GBP 53.3 million. Operating margin for the fiscal half was 26.4%, compared to 26% last year.

Commented Nicoli, "In business development, we continue to make progress in two areas. Firstly, through intensive investment in technology, we are transforming the ways we manage our music and do business. Secondly, we are continuing to make strides in developing our digital distribution platform.

"Both physical and online piracy continue to be a major problem for the industry. A flood of blank CDRs, mainly coming from Asia, has fueled physical piracy in many parts of the world and is contributing to industry declines. In the online world, even though the U.S. industry has shown a small decline in illegal file sharing as a result of industry action, online piracy continues to do massive damage."

EMI releases scheduled for the company’s second fiscal half include albums from Janet Jackson, Norah Jones, The Beatles, Coldplay and Kylie Minogue, among others.

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