EMI to fine-tune its rejected £2.2bn offer for Warner Music

Reporting a sharp rise in annual profits, the company, whose initial $4.2bn (£2.2bn) takeover bid was rebuffed by the privately-owned Warner Music earlier this month, said it still believed a deal "would be very attractive to both sets of shareholders".

"We think this strong set of results shows that EMI is thriving in its own right, and I believe we've created a strong platform to pursue the possible acquisition of Warner Music Group," said Eric Nicoli, EMI's chief executive.

"The industrial logic is compelling and the synergies would unlock considerable additional value."

A combined EMI-Warner Music would be roughly on a par with the other music majors, Universal Music and Sony-BMG. EMI's attempts to merge with Warner have been scuppered in the past by regulatory hurdles.

Analysts at Numis Securities pointed out that the volatility in capital markets would add further complications.

Numis said: "We believe there is a chance that EMI will revisit with a slightly higher price than the original $28.5 [a share] offer, although we highlight that such a deal would be likely to require a substantial fundraising which may prove challenging given the current level of equity market uncertainty."

Asked about the company's ability to raise money for acquisitions, Mr Nicoli said: "There is usually capital available for excellent ideas."

He added that he would not propose a deal unless it was "fully supported by synergies, fully financeable and [likely to] receive regulatory approval".

EMI added in a statement that it "will only pursue a transaction that delivers enhanced value and earnings accretion to our shareholders".

EMI's performance for the 2005-6 financial year saw the first rise in its annual sales for five years, driven by the success of its artists such as Coldplay.

Total revenue increased 3.9 per cent to £2.1bn, with recorded music up 1.9 per cent against an industry decline of 0.9 per cent - meaning the company gained market share.

Digital music sales surged to £112.1m from £46.9m the previous year. The underlying pre-tax profit was up 13 per cent to £159.3m.

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