UPDATED: Levy & Munns Out At EMI. More Cuts Ahead.
UPDATED – EMI has announced the dismissal of Alain Levy and David Munns,
two of its most senior executives in an attempt to restructure the
faltering record company
. Levy was the chief executive of EMI’s music division and Munns was the vice-chairman.
Their departure was accompanied by a profits warning and the announcement of a broader restructuring plan by newly re-named CEO Eric Nicoli which will include major layoffs. John Gildersleeve is upped to Non-Executive Chairman of
EMI Group. Read the full public announcement by EMI here.
I
nsiders say that Nicoli was spared the axe because the board felt that he had little to do with running the day to day operation of the label. But the spotlight clearly falls on him now as he tries to turnaround a troubled label in a troubled industry. It is possible that we will see other such moves in 2007 as executives fail to meet their numbers.
Today’s announcements could also open the door for another buyout attempt by private investment groups or a merger with WMG. Both groups have been circling the publicly traded EMI for more than a year.
READ THE ENTIRE EMI PRESS RELEASE AFTER THE JUMP.
EMI today
announces:
– A restructuring programme which will
generate £110m of incremental annual cost savings
– 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
publishing
– 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
arrangements)
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 music business.
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.
Restructuring
programme
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 income statement.
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 the Group.
Current
trading
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.
Outlook
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
currency basis.
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.
