News sent stock plummeting.
EMI Group PLC said Wednesday (Oct. 25) that it uncovered accounting fraud at its Brazilian recorded music business that incorrectly boosted revenues and operating profits, news that sent its stock plummeting.
Shares in EMI plunged almost 11 percent after the world's third-largest music company revealed that the fraud resulted in an overstatement of EMI Music's revenue by around 12 million pounds ($22.5 million) and its operating profits by around 9 million pounds ($17 million).
The London-based company -- home to Coldplay, Paul McCartney, Keith Urban and the Rolling Stones -- said the revenue and profit impact would be reflected in its financial results for the six months ended Sep. 30, which are due to be released on Nov. 15.
EMI said it is conducting a full investigation and has suspended some of its senior management in Brazil.
The company declined to say what proportion of its sales come from Brazil. However, the International Federation of the Phonographic Industry said earlier this year that Brazil accounted for around 1 percent of the world's total recorded music sales in 2005 and that it is the world's tenth-largest music market.
Bridgewell Securities cut its full-year pretax profit forecasts for EMI on the announcement by just under 10 million pounds ($18.8 million) to 164 million pounds ($307.8 million). Bridgewell said that the fact the fraud was identified internally by EMI should help mitigate negative sentiment.
The company's shares were trading at 270 pence ($5.06), down 10.8 percent, after the announcement.
EMI said last week that it expected first-half revenues to decline and pretax profit to be almost one-third lower than last year, as it held on to major new album releases for the second half of the year.
The company predicted a 3 percent drop in first-half revenue and a 34 percent decline in underlying profit before taxes to 27 million pounds ($50 million).
However, EMI said then that it was confident it would still meet full-year expectations despite the anticipated first-half decline, thanks to new albums scheduled for release from artists including Robbie Williams and Norah Jones.
The company did not immediately return a call seeking information about revised earnings forecasts for the six months.
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