UMG Posts Major Gains

Universal Music Group posted a big financial rebound in 2004, driven by improved album sales and effective cost-management strategies.

Universal Music Group posted a big financial rebound in 2004, driven by improved album sales and effective cost-management strategies.

Operating income for the year increased five-fold to €338 million ($452 million), vs. €70 million in 2003. UMG's revenues reached €4.9 billion ($6.6 billion) in 2004, up 5% from the previous year on a constant-currency basis.

Cash flow from operations improved 63% to €755 million ($1.01 billion), while earnings before interest, taxes, depreciation and amortization jumped 75% to €742 million ($993 million) -- matching performance levels not seen since 2000.

UMG chairman/CEO Doug Morris credits performance gains by the company to better creative and more savvy handling of its expenses. "We made a significant amount of cost-cutting," Morris tells "It basically came out of marketing."

The company slashed its costs in areas such as co-op advertising, radio promotion, video expenses and inventory management, and it plowed more money into A&R.

Meanwhile, UMG claims to have had 10 albums with worldwide sales exceeding 3 million units in 2004 -- twice as many as it had in 2003.

In a statement, parent Vivendi Universal says UMG's figures "reflected the better than market sales performance, lower marketing expenses and other results of the company's cost-reduction program." It adds that "the excellent operating performance was partly offset by higher amortization costs."

This is primarily due to a reduction from 20 to 15 years in the amortization period of recorded music and publishing catalogs. It also reflect what VU describes as "an impairment charge in respect of UMG's Music Clubs in the United Kingdom and France in December."

The company says it suffered from reduced revenues from its Asian operations, while business rebounded in both Latin America and Australasia. Sales of digitized music, including downloads and ringtones, represented approximately 2% of total revenues.

VU, meanwhile, reports total operating income for 2004 of €3.4 billion ($4.6 billion), vs. €3.3 billion ($4.4 billion) in 2003. Consolidated revenues were €21.428 billion ($28.6 billion), down from €25.4 billion ($34.1 billion) in 2003.

Financial net debt stood at Û3.1 billion ($4.1 billion) as of Dec. 31, 2004, vs. Û11.5 billion ($15.4 billion) in the previous year.

Chairman/CEO Jean-Rene Fourtou says in a statement, "VU is entering a new phase in its development. All of our businesses -- including games in the fourth quarter of 2004 -- now contribute to the group's strong performance."

Analysts at Lehman Brothers said VU's 2004 results "look pretty solid," pointing to the gains at UMG and pay television business Canal+.


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