15-01-2007 @ 12:52
LONDON (Reuters) - EMI Group ousted its two top music executives and announced plans to cut costs, after poor Christmas sales prompted a profit warning which sent its shares down over 10 percent.
EMI, which had been pinning its hopes on new releases such as the Beatles' "Love" album and "Rudebox" by Robbie Williams, said on Friday january 12th that annual revenues at its music business were likely to fall between 6 percent and 10 percent on a constant- currency basis.
Global music sales have been hit in recent years due to piracy and competition for consumer spending, despite the growing popularity of digital music.
The firm said Alain Levy, chairman and chief executive of EMI Music since October 2001, and David Munns, vice chairman of EMI Music, would leave with immediate effect.
Eric Nicoli, who has been executive chairman of EMI Group since July 1999, becomes group chief executive officer and will take direct responsibility for managing EMI Music.
"We have now had seven consecutive years of decline in the recorded music market," Nicoli told a conference call, adding that his appointment was a permanent arrangement as the firm looks to strengthen its position in the digital music sales.
Shares in the world's third-biggest music group, which were boosted throughout 2006 by regular takeover speculation, fell over 10 percent in early trading to 237-3/4 before it improved slightly to 245-1/4 at 10:42 a.m.
"EMI Music's second-half performance to date, in terms of revenues and profits, has been below prior expectations," EMI said. The company also unveiled plans for 110 million pounds of annual cost savings, including an unspecified number of job cuts.
"This has resulted from weak market conditions, particularly over the Christmas period, and lower-than-expected sales from EMI Music's portfolio of second-half releases to date," EMI said.
Nicoli said 85 percent of the cost savings would come from its recorded music business with the rest from publishing and the vast majority coming from the "non creative end" of the business. He said the company did not expect to change its dividend policy.
EMI, which is also home to Coldplay and holds the Beatles catalogue, rejected a bid approach in December that a source familiar with the situation said was from private equity group Permira, and has been locked in a takeover battle with rival Warner Music on and off for the past six years.
Nicoli said the approach had never resulted in a firm offer.
"Yet again the company has embarked on a restructuring programme, despite reassurances over the autumn that the business was strong and that the group felt sufficiently confident to reject a private equity bid for the business rumoured to be in excess of the Warner offer of 310 pence over the summer," said Bridgewell Securities analyst Patrick Yau.
"These valuations now look like wishful thinking and leave management struggling for a plausible strategy," he said, slashing his full-year pre-tax profit forecast to 112.8 million pounds from 160 million.
Numis analyst Richard Hitchcock said the announcement highlighted the risky nature of the recorded music industry.
"You invest a lot of money in developing and marketing an album and you hope that they sell and if they don't ... you get these big swings in profits. It's inherently a risky business".
EMI said over half the 110 million pounds of planned annual cost savings would be delivered in the year ending March 31, 2008, and the full amount in the following financial year.
The savings would cost no more than 150 million pounds to deliver, EMI said.