Terra Firma’s Equity Cure

EMI’s losses for the six months to Sept. 30 narrowed to £155 million ($221 million), although the company still had to inject £84 million ($119.9 million) cash because the recorded music division didn’t make enough profit.

The upside is that a year of rigorous cost-cutting and the loss of 1,500 employees have seen losses tumble from £324 million ($468 million).

“While sales in our business are volatile, the fact that they have grown during a period of change, cost-cutting and long-term decline in the traditional market is remarkable,” said EMI Music chief exec Elio Leoni-Sceti. “However, we cannot yet say if this upward trend is sustainable over the longer term.”

He said the business mix will shift significantly away from CDs toward new revenue streams from licensing and synch – which makes money by selling music for advertising and TV – brand partnerships and new services.

Revenues in the music publishing division were flat at £205 million while earnings before interest, taxes, depreciation and amortization (EBITDA) rose 7 percent to £61 million.

Lord Birt, former BBC director general and now chairman of EMI’s holding company Maltby, said the half-year report “gives grounds for qualified optimism about the progress EMI is making.”

He also expressed concerns about the future availability of music retail space following the collapse of Woolworths and Zavvi.

In addition to the cost cuts, Lord Birt highlighted the impending launch of a Beatles video game and T-shirts sold in Sainsbury’s with lyrics from songs written by EMI writers as examples of how the company can grow revenues beyond CD and download sales.

Revenues for the six-month period were up 10 percent to £737 million ($1.05 billion). EMI Music saw physical sales dip 8 percent to £298 million. Digital sales grew 38 percent to £102 million.

The underlying profits for the group, including its successful music publishing division, weren’t enough to cover the £150 million (US$ 214 million) cost of borrowing.

About £16 million of the Terra Firma money, referred to as “equity cure,” was to help EMI Music meet its bank covenants September 30. The interest payments over a six-month period are around £125 million (US$178.3 million) on a net debt of £2.4 billion (US$ 3.42 billion).