EMI Loses £757M
Writedowns and restructuring costs contributed to EMI losing £757 million in the year Terra Firma took over, although the balance sheet also shows the company is still a profligate spender.
The losses are almost triple the £287 million the company lost the previous year.
The Mayfair hideaway reserved for the top brass has been put on the market and the company no longer spends £200,000 per annum on fruit and flowers for the London offices, but Terra Firma chairman Lord Birt appeared a little shocked to reveal that the music division spent £700,000 on taxis.
The poor results were accompanied by a “no holds barred” review of the year written by Birt, a former BBC director-general, who said EMI “cannot be turned around overnight.”
“It will take time to build a new EMI, fully equipped to meet the radical challenges of a wholly new and different modern media and entertainment environment,” he said.
According to an annual report published Oct. 24, EMI, the U.K.’s only major music company, lost £123 million in restructuring costs as 1,500 staffers lost their jobs.
It also took a £192 million writedown on the value of its assets, lost £125 million on new releases and financial charges relating to currency movements totaled £250 million.
An underlying trading profit of £164 million was wiped by the £165 million the company paid to cover loans and interest.
Birt’s review is remarkably frank, and says, “The readers of this report may well be struck by the forthright presentation of problems and the absence of rosy assurances about the futures.”
He said the main factor for the very large loss was continued poor operational 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.
He said market issues such as piracy and declining CD sales had hit EMI’s profits in recent times, but the company also had a culture of high expenditure that was at odds with the challenges it faces. Birt says the company needs to “go back to business basics.”
He criticises its artist relations and says EMI group’s internal reporting methods provided too little detail, even to the point that they don’t provide information on each act’s profitability.
Although it’s now a private company, Terra Firma has been forced to publish EMI’s results on the back of the Walker Code, which requires private equity-owned businesses to release annual accounts.
Birt’s review also says the credit crisis has meant the banks are having difficulty syndicating their current investment, which has made it near impossible for EMI to raise further cash for such bolt-on acquisitions as Chrysalis Music, which is why the company pulled out of this year’s takeover talks.
Terra Firma chief Guy Hands is still believed to be keen to expand the company’s publishing business, which is understandable, as it’s the one section of EMI that produces good news. Its annual result shows underlying profits 3 percent up, to £116 million. Sales were also three 3 up, at £411 million.