EMI reports losses of $1.2b for year one under Guy Hand’s leadership

Just when you start believing that the industry might have a chance to enter a path that leads to a recovery, in comes EMI and spoils the party. The British major (who likes to think of itself it’s gone indie after having been sold to Terra Firma) today reported yearly figures for the fiscal twelve months that ended March 31, i.e. the first year under the leadership of Terra Firma and Guy Hands. 

Call it a rude awakening or a continued nightmare: bottom line is a net loss of £757 million ($1.202 billion or €949 million) at revenues of £1.45 billion ($2.3b/€1.82b), down 19 percent. How did that happen, you ask? First, the good news: EMI managed to eke out underlying profits (aka adjusted EBITDA) of £164 million, down 5 percent year-over-year. But that was easily eaten up by some nasty charges: £192m for re-valuation of assets and liabilities on the balance sheet; £123m for restructuring costs (= laying off 1,500 staffers); £109m depreciation; and £520m for net financing costs. Wow. Big numbers. 

This Annual Review 2008 was presented by Lord Birt, former Director General of the BBC and now Chairman of Terra Firma-controlled investment vehicle Maltby which had bought EMI for £2.1 billion in August 2007. Birt did give some explanations for the company’s bad performance: 

 

“The main factor behind the very large loss was continued operational poor performance, but more particularly accounting factors, in particular the revaluation of the balance sheet and the requirement to mark assets and liabilities to fair values. While interest charges will recur annually and we anticipate a restructuring charge in the next financial year, we do not expect to see other costs and charges recur at the same level. Operating performance for the full year continued to be poor and this reflected long-term weaknesses in EMI Music which we discuss in this report.” 

Okay … so does that mean EMI is doomed? Not quite, says Birt, who also sees some positives: 

 

“EMI’s operational performance has improved significantly during the first seven and a half months of Maltby ownership and we expect the six months results ended September 30 2008 to show year-on-year improvement. EMI now has a stronger balance sheet and team with which to start a new era. We have got costs under control, and introduced compensation policies in line with general business norms,” he adds, noting that plans to cut the number of employees by 1,500 is on track and a new organisational structure is in place. “The numbers presented here today tell you clearly that this is the first year in the radical turnaround of a company culture, a business model and perhaps even a market. It will not be a quick fix. We are in the process of taking EMI back to business basics: understanding customers, sourcing an excellent product, finding the right channels to market, and packaging and marketing music in an appealing way. These basics will take us a long way. Keeping close to today’s demanding customers, while thinking constantly of artist profitability, will concentrate EMI on finding outstanding new music, and fresh, imaginative ways of getting it to listeners. This is the only way we can succeed for our artists and all our stakeholders.” 

What could that upswing in the second half of calendar 2008 look like? Remember the figures Guy Hands presented in mid-July? He said first fiscal quarter (three months through June) revenues were up 61 percent to £288.1 million. Q1 EBITDA was £59.2 million, compared to a loss of £45.1 million the year before. However, it remains to be seen who will carry that load for EMI. Coldplay’s “Viva La Vida” won’t be enough, I guess. But what other EMI product is selling? Will they have to wait for the new Depeche Mode album to drop? That is scheduled to hit retail in late April 2009, which means it’ll be too late to save EMI’s numbers. But hey, if all fails there is still the grandest of all EMI plans.