EMI misses holiday sales beat
Issues profit warning; Nicoli adds duties in restructureWeaker-than-hoped-for holiday season sales prompted music major EMI Group to issue a profit warning Friday, detailing its latest restructuring to cut costs and announcing the departure of its two top recorded music executives.
As expected after market talk late Thursday, the company said Alain Levy, who served as chairman and CEO of recorded music arm EMI Music since 2001, and EMI Music vice chairman David Munns are leaving, effective immediately.
Longtime EMI executive chairman Eric Nicoli will take over the new role of CEO and in that position be responsible for EMI Music. John Gildersleeve, who so far has served as nonexecutive deputy chairman of EMI Group, takes on the title of nonexecutive chairman.
EMI also said that revenue for the company's fiscal year, which ends March 31, likely will decline 6%-10% assuming constant currencies. In October, the music firm predicted a strong second half thanks in part to releases from such artists as Robbie Williams, Norah Jones and Joss Stone that would make up for a sluggish first half.
As a result, EMI announced a restructuring, following several other phases of cost reductions in recent years. It calls for £110 million ($213 million) in annual cost savings and includes an unspecified number of job cuts.
"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," the company said. "In addition, there will be a significant reduction in central overheads at EMI Music and EMI Group."
Nicoli said Friday that about 85% of the savings will come from EMI's recorded music business. More than half of them are expected to be reached by the end of the fiscal year ending March 31, 2008, with the rest to materialize the following year.
The London-traded shares of the company fell 7.3% on Friday.
UBS analyst Ian Whittaker called the update on the weak business trends "disappointing," arguing that things will be just fine for EMI in the longer term. "The downside from weak trading should be more than offset by cost savings — if you assume that the full amount of cost savings fall through to the bottom line, it could lead to double-digit upgrades in 2009."
Whittaker also said the sluggish market trends could "perhaps suggest that the company could become more attractive to trade buyers."
Led by chairman and CEO Edgar Bronfman Jr., Warner Music Group has widely been seen as a strong contender for acquiring EMI. Regulatory uncertainties more recently made EMI focus on a potential sale to private-equity groups. However, talks with private-equity firm Permira didn't lead to a deal late last year, forcing EMI to concentrate on maximizing its performance without a transaction.