12 January 2007
EMI GROUP plc
EMI today announces:
* A restructuring programme which will generate £110m of incremental annual
* Board and senior management changes
* An update on current trading
* A revised outlook for the Group reflecting both current trading and the
impact of these new initiatives
The global music market remains highly dynamic but also continues to prove to
be a challenging environment in which to operate. The Company remains positive
on the long term trends for the industry and in particular that there will be
continued strong demand for digital music. However, to secure sustainable
growth in underlying profits and cash flow, EMI will re-align its investment
priorities and focus its resources in areas where it is positioned to make the
best and most certain returns.
This will include:
* De-layering the Group's management structure to allow a more streamlined
approach, particularly within the developing digital landscape
* Investing and operating in territories and business areas where superior,
secure returns can be generated, and reducing exposure to territories and
business areas in which these conditions are not satisfied
* Continuing expansion of the Group's presence across the music value chain
* Extracting revenue and cost synergies between recorded music and music
* Strengthening EMI's digital and consumer marketing capabilities
* Pursuing partnerships which allow EMI to extract further leverage from its
operating infrastructure (e.g. distribution and administration
The Company believes that this will align EMI's business more closely to its
operating environment, allow a continuing strong focus on artist and songwriter
development, re-allocate resources to attractive growth areas, increase the
level and certainty of overall return on investment, and significantly improve
margins and the generation of free cash flow.
Board and senior management changes
Alain Levy, who has been Chairman and Chief Executive Officer of EMI Music
since October 2001, is stepping down from the Board and both he and David
Munns, Vice Chairman of EMI Music, will be leaving the Company with immediate
effect. The Board thanks them both for their contribution to the business over
the past five years.
Eric Nicoli, who has been Executive Chairman of EMI Group since July 1999,
becomes Chief Executive Officer of EMI Group and, as part of this role, takes
direct responsibility for the management of EMI Music, the Group's recorded
John Gildersleeve, currently Non-executive Deputy Chairman of EMI Group and
Senior Non-executive director, becomes Non-executive Chairman of EMI Group.
Martin Stewart continues as Chief Financial Officer of EMI Group and, as part
of this role, takes direct responsibility for the management of the finance
function of EMI Music.
As part of its focus on delivering higher and more certain returns on
investment, the Group will significantly reduce the size of its cost base. This
cost saving plan is expected to deliver £110m of annual savings across the
Group (incremental to previously announced cost saving initiatives), with over
half of these savings being reflected in the financial results for the year to
31 March 2008 and the full £110m reflected in the financial results for the
year to 31 March 2009.
The significant majority of these cost savings will be achieved through the
elimination of fixed costs with a small proportion resulting from a permanent
reduction in the variable cost base. The initiatives will impact all regions in
which EMI operates. The cost savings will be generated largely from EMI Music,
with the remainder from EMI Music Publishing.
Specific fixed cost saving initiatives will include the reduction of front and
back-office overhead and an increase in shared services in both divisions and
across all regions. In addition there will be a significant reduction in
central overheads at EMI Music and EMI Group.
The one-off cash cost of implementing the restructuring is expected to be no
more than £150m. EMI has secured bank financing commitments with respect to
both this entire amount and the recently announced purchase of the outstanding
45 percent minority interest in its Japanese subsidiary Toshiba-EMI.
In the context of these restructuring initiatives, the Company is reviewing its
balance sheet. This will be completed by 31 March 2007 and it is expected to
result in a non-cash charge being reported separately in the Group's 2006/07
The cash flow generation of the business is expected to strengthen
significantly when the gains from the cost savings are fully realised. In this
context, the Board will continue to review the optimal capital structure for
EMI Music's second half performance to date, in terms of revenues and profits,
has been below prior expectations. 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 Music Publishing continues to perform in line with expectations.
EMI Music's second half financial performance to date combined with the
expectation of continuing weak market conditions, and the expected significant
disruption to the business from the implementation of the restructuring
initiatives outlined above, has led to a change in the outlook for the Group
for the financial year ended 31 March 2007. As a result, EMI Music's full year
revenues could decline, year on year, by approximately 6% to 10% on a constant
The Group expects that disruption from the restructuring initiatives will
continue into the early months of the following financial year, constraining
revenue at EMI Music in the year to 31 March 2008, but expects to see a
significant improvement in margins as cost savings are delivered.
EMI Group plc
Amanda Conroy Corporate Communications +44 20 7795 7529
Susie Bell Investor Relations +44 20 7795 7971
Brunswick Group LLP
Patrick Handley +44 20 7404 5959