EMI Increases Revenue, Narrows Loss

EMI Group has reported increases in revenue and EBITDA for the six-months ending Sept. 30, 2008.

Group revenue was up 10% to £737 million ($1.06 billion) from £667 million ($960.9 million) in the period ending Sept. 30, 2007, while group EBITDA earnings were up 202% to £130 million ($187.3 million) compared to £43 million ($61.9 million) in the same period last year. The group figures benefit from year-end exchange rates rather than average rates used in the divisional results.

EMI Music turned a £12 million ($17.3 million) EBITDA loss in the six months ending Sept. 30, 2007 into EBITDA of £59 million ($85.1 million) for the same period in 2008. EMI Music Publishing increased EBITDA 7% from £57 million ($82.2 million) to £61 million ($88 million) in the same period.

Digital revenues at EMI Music have increased and now represent 21% of total sales, compared with 16% in the same 2007 period. CEO Elio Leoni-Sceti uses the report to predict that CD sales will account for less than 40% of sales in five years, compared to 62% now.

Digital sales over the six months increased 38% to £102 million ($147.2 million) from £74 million ($106.8 million) the previous year. Physical sales fell 8% from £324 million ($467.5 million) to £298 million ($430 million) over the same period. A 5% increase in synchs and licensing revenue, from £78 million ($112.5 million) to £82 million ($118.3 million), helped EMI Music achieve total revenue of £482 million ($695.3 million). The total is up 1% from £476 million ($687.7 million) the previous year.

"EMI music is starting the process of recovery and has made some important strides forward on its route to success," writes Leoni-Sceti, who joined EMI in September 2008. After a relatively quiet release schedule - the report only singles out artist albums by Coldplay and Katy Perry as major global successes - he states that the major's new A&R strategy (including cutting back artist advances) will flow through this year following signings such as Depeche Mode, Hockey, the Postelles, Trevor Andrew, Adelitas Way, Priscilla Renea and Willie Nelson.

EMI Music's gross margin as a percentage of sales improved from 32.2% in the six months to September 2007 to 43.9% in the latest results.

The group still recorded a six-month loss of £155 million ($223.9 million) after restructuring charges, amortisation, interest charges and tax, but that's an improvement on the £324 million ($468.3 million) loss in the same period in 2007. Profit from operations was £6 million ($8.7 million) compared with a loss of £200 million ($289 million) a year earlier.

The figures will provide some sense of vindication for chairman Guy Hands, amid speculation last year that EMI might breach its debt covenant with Citigroup. EMI has introduced restructuring of the recorded music division, cutting costs and merging support activities under unified global leadership.

The interim report was prepared by Maltby Capital, the Terra Firma Investment vehicle used to acquire EMI Group in August 2007 for £2.4 billion ($4.89 billion at August 2007 rates). It states that of Maltby's £250 million ($361.4 million) injection for restructuring costs, only £68 million ($98.3 million) has been used. An equity cure of £16 million ($23.1 million) was injected into EMI Music to ensure the group complied with its banking covenant test on Sept. 30.

It follows an eye-watering annual report in October 2008, which reported a loss of £757 million ($1.2 billion at Oct. 24 2008 rates) for the year ending March 31, 2008, compared to a loss of £287 million ($454.5 million at Oct. 24 rates) for the previous year.

That huge loss covered just over seven months of Terra Firma ownership and the October report said there had been significant improvements in operational performance throughout 2008. However, today's report makes clear that the impact of restructuring costs and financing charges will still result in a loss after tax for the year ending March 2009.

Maltby chairman Lord Birt writes that the six-month figures give "grounds for qualified optimism about the progress EMI is making." Birt said the company's cost base had been significantly reduced following the restructuring, and a new management team is in place.

"EMI Music itself is still only part way on the path to recovery," Birt writes. "However, the initial cost cuts of £100 million [$143.4 million] which we announced after the acquisition have been largely achieved (though it will take time for all the benefits to flow through)."

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