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EMI Group PLC (EMI)

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Wednesday 31 March, 2004

EMI Group PLC

Statement re Outsourcing Manufacturing & Re...


EMI ANNOUNCES STEPS TO FURTHER STRENGTHEN ITS BUSINESS

£50 MILLION IN ANNUALISED SAVINGS EXPECTED FROM:

  * OUTSOURCING MANUFACTURING IN EUROPE AND THE UNITED STATES
   
  * ADDITIONAL RESTRUCTURING OF ITS LABELS AND ARTIST ROSTER, PARTICULARLY IN
    CONTINENTAL EUROPE
   
LONDON, 31 MARCH 2004: EMI Group plc today comments on trading as it ends its
financial year and announces further steps in its continuing drive to maximise
efficiency and effectiveness in the changing global music marketplace:

  * full-year sales in recorded music close to previous year's level and solid
    performance in music publishing;
   
  * outsourcing manufacturing in Europe and the United States through
    third-party supply arrangements at substantially lower costs;
   
  * restructuring some of its record labels and artist roster, particularly in
    Continental Europe, to ensure that resources are applied where they will
    generate the greatest success.
   
The steps being taken will further improve the company's financial performance
and enable it to continue to succeed in the physical world whilst fully
capitalising on the opportunities presented by its rapidly growing digital
business.

As a result of these changes, EMI's headcount in its recorded music division
will be reduced by approximately 20% (1,500), of which approximately 900 are
related to the outsourcing of manufacturing.

EMI expects these initiatives to deliver total cost savings to the group of at
least £50 million per annum. £25 million of these savings will be delivered in
the financial year ending 31 March 2005, with the full annualised savings
realised in the following financial year.

The one-off cash cost of delivering these initiatives will be approximately £75
million. There will be a non-cash charge associated with the write-down of
assets due to the outsourcing of manufacturing in Europe and the United States
of approximately £30 million. Subject to further review, there will be a
non-cash charge of approximately £50 million pertaining to the impairment of
goodwill, advances and other intangibles, to recognise the reduction in the
artist roster as well as the declines in the music industry. These amounts are
expected to be reflected as exceptional charges for the financial year ending
31 March 2004.

Eric Nicoli, Chairman of EMI Group, said: "Over the past two and a half years,
against the backdrop of tough market conditions, we have transformed our
recorded music business. Since their arrival in 2001, Alain Levy and David
Munns have taken vital steps to improve our competitive position and the
financial performance of the business. They have delivered over £100 million of
fixed-cost savings so far and have also managed a dramatic turnaround in the
performance of our US operations. By strengthening our management capability
and investing in artist development worldwide, they have established a momentum
in the business which we are determined to maintain.

The actions announced today represent another major step forward. EMI will
continue to be an agile and progressive music content company that fully
embraces and profits from changes in technology and consumer trends. Whilst we
remain optimistic that the market will return to growth in due course, we are
committed to being in the best possible shape to compete in all conditions and
to take advantage of improving trends."

Alain Levy, Chairman & CEO of EMI Music said: "The time is right to further
reposition EMI Music. Exiting manufacturing in our two primary regions of
Europe and the US will allow us to lower our costs while flexibly meeting our
supply needs in the future. These additional steps will more closely align us
with the evolution we are seeing in our markets. We believe that by
concentrating our efforts on a tightened roster of artists we will increase our
revenue-generating potential while reducing our costs, even as we continue to
invest in artists worldwide and in developing our digital capabilities."

Commenting on full-year trading, Eric Nicoli also said "In the financial year
just ending, we have outperformed the industry on the most important measures.
In recorded music, we have enjoyed market share gains, with sales for the full
year close to last year's level. While our investment in IT systems and in
developing new revenue streams - both of which will generate significant
benefits in the future - has modestly constrained the overall margin, our
underlying operating margins have strengthened. Furthermore, Marty Bandier has
continued to drive our music publishing business to deliver another solid
performance for the year."

Outsourcing manufacturing in Europe and the United States

EMI is announcing today that it will shortly cease self-manufacturing its CDs
and DVDs in Europe and the United States. EMI will transfer its manufacturing
facility and its associated assets in Uden, The Netherlands to MediaMotion (a
member of the Dutch ECF Group) subject to obtaining the advice of the works
council for the Uden manufacturing plant. The agreement entails the employees
presently employed by EMI at the Uden manufacturing plant transferring to
MediaMotion. EMI will also be closing its manufacturing facility in
Jacksonville, Illinois, USA and has given notice to the employees who will be
affected. However, EMI intends to maintain its supply group, physical warehouse
and distribution facilities and functions at both locations.

Simultaneously, EMI has entered into long-term supply agreements with
MediaMotion and Cinram International Inc. for the supply of CDs and DVDs.
MediaMotion will manufacture product for those EMI entities currently serviced
from EMI's Uden facility, whilst Cinram will manufacture for EMI companies who
currently receive product from the Jacksonville facility.

EMI will be meeting the vast majority of its music product requirements through
these two market-priced supply agreements. These agreements have been
structured to deliver the lowest possible unit cost to EMI over their full
term. As a result of these transactions, EMI's manufacturing costs will not
only be reduced but will also become fully variable, insulating the business
from the effects of changing volumes. The sales proceeds for the Uden transfer
are nominal and there are no upfront proceeds in respect of these supply
agreements.

EMI will retain its two joint-venture facilities, one in Japan (part of the
Toshiba-EMI joint-venture company) and one in Australia (a joint venture with
Warner Music), as well as a small facility in Canada. It is currently
anticipated that the Uden transfer and the Jacksonville manufacturing plant
closure will both be completed by the end of the summer of 2004.

Restructuring some of its labels and artist roster

To maximise its ability to develop the careers of its artists, EMI is refining
the structure and the way that some of its labels operate, particularly in
Continental Europe. EMI is reducing its global roster by approximately 20%,
affecting largely niche and under-performing artists. The roster is being
rebalanced to focus resources and efforts more effectively on the artists who
have the greatest potential on both a global and local level.

In a number of smaller countries, EMI is consolidating its marketing through a
single department in each country. This new structure will focus the best
marketing executives on servicing the releases from both Capitol and Virgin.
EMI is also merging several smaller niche labels into larger label groups to
increase the efficiency of its repertoire management. In particular, within the
US, the new age label Higher Octave is being combined with Narada and the
Christian music labels Sparrow and Forefront are becoming one label group.

As the traditional music retail environment becomes more concentrated and the
digital channel expands, EMI is continuing to realign its selling resources to
best meet the demands of its changing customer base.

EMI is expanding its use of shared services for its back office functions,
particularly within North America and Continental Europe, and further reducing
administrative workload by eliminating duplication and streamlining processes
even in advance of the full roll out of its Technology Change programme.

Other initiatives

As previously announced, EMI is investing in a three-year Technology Change
programme, upgrading and expanding its systems, to make the recorded music
division increasingly digital in the way that it operates both internally and
externally. Once fully implemented, EMI expects that this technology effort
will deliver further annualised benefits, in excess of £20 million. Given the
phasing of the investment, EMI has incurred costs for the financial year ending
31 March 2004 and savings will only start to build in the latter half of the
next financial year. This initiative is distinct from the costs and savings
outlined in today's announced actions.

Also as previously announced, EMI's music publishing division is proceeding
with a restructuring initiative which is anticipated to incur an exceptional
charge of approximately £6.5 million, £4.9 million of which was taken in the
first half. Through this effort, the music publishing business is reducing its
staff by approximately 5% and replacing and upgrading its systems to improve
efficiencies. It is expected that this programme will deliver savings of
approximately £2.7 million in the financial year ending 31 March 2004. This
initiative is also distinct from today's announced actions.

As previously indicated, EMI expects to acquire the final 20% stake in the
Jobete song catalogue, taking its shareholding to 100%. The cash price will be
approximately US$80 million and the transaction should be completed in the next
few days. Jobete is one of the world's premier music publishing catalogues,
containing over 15,000 Motown standards such as I Heard it Through the
Grapevine, My Girl, I Just Called to Say I Love You and I'll Be There. EMI
bought an initial 50% stake in Jobete in 1997 and a further 30% stake a year
ago.

The Group will make its preliminary results announcement on 24 May 2004.

Enquiries

EMI Group plc

Amanda Conroy         Corporate Communications     +44 20 7795 7529            
                                                                               
Claudia Palmer        Investor Relations           +44 20 7795 7635            
                                                                               
Susie Bell                                         +44 20 7795 7971            

Brunswick Group LLP

Patrick Handley                                    +44 20 7404 5959