EMI is the world’s leading independent music company. It operates directly in 50 countries, with licensees in a further 20 and employs around 5,500 people. For the year ended 31 March 2007, EMI Group reported revenue of £1,751.5 million and £62.7 million in underlying profit before tax. In August 2007 EMI was acquired by private equity firm Terra Firma.

The company comprises two divisions – EMI Music, one of the top global recorded music companies, and EMI Music Publishing, one of the world’s leading music publishers.

Chairman’s statement:

While the global music market remains highly dynamic, it also continues to be a challenging environment in which to operate.

Group revenue for the year to 31 March 2007 was £1,751.5m compared to £2,079.9m in the previous year, which largely reflects a declining recorded music market. Despite this, EMI Music Publishing has once again outperformed the recorded music market with its revenues declining by less than 1% at constant currency to £401.3m.

In January 2007, we announced a restructuring programme to re-align EMI’s structure and investment priorities as well as focus our resources on where we can make the best returns. In April 2007, the Board announced that, in view of EMI’s current funding requirements, it would suspend future dividend payments until the benefits of the restructuring process have been fully realised.

The breadth and depth of our recorded music and music publishing catalogues continues to be a valuable asset and
we are maintaining our investment in expanding and exploiting these rights.

The recorded music industry is becoming increasingly digitised.

We continue to explore and invest in a large number of digital initiatives which includes entering into partnerships that will improve the consumer’s experience as well as enhancing both shareholder and artist value. In April 2007, EMI Music became the first major record company to offer consumers its entire digital download catalogue free from digital rights management (DRM) and with a significantly higher sound quality. This initiative will, we believe, enhance the consumer’s experience of digital music, enable true interoperability of music and video downloads between services and devices as well as removing a significant barrier to the realisation of the full potential of the digital music business.

Our artists, songwriters and employees continue to be key to EMI’s success. Talent is fundamental to EMI’s business and we believe that, by nurturing both our creative and executive talent, we will be able to develop EMI’s artists and their careers as well as our offering to them, to their fans and to our business partners.

Piracy, both organised and casual, continues to take a large proportion of potential earnings from the pockets of our
shareholders and artists. Protecting our intellectual property remains a top priority for EMI. We continue to press governments and industry bodies at the highest levels around the world to respect entertainment content by having in place and enforcing the right legislation. We believe that a dual approach of educating consumers and offering them a better proposition will also help to fight piracy.

It is important that we serve the communities in which we operate and that we behave in a way which is socially responsible. We sponsor many activities within the wider music community and support charities which aim to improve the provision of music.

The year has seen a number of changes to the Board. Kathleen O’Donovan stepped down in November and I would like to thank her for her nine years of service to the Board. Kevin Carton has replaced Kathleen as chairman of the Audit Committee. Looking forward, David Londoner will be stepping down from the Board at the AGM and I thank him for his contribution. Finally, I welcome the appointment of Sly Bailey to replace me as Senior Independent Director.

On 21 May 2007, it was announced that the Board of Directors is recommending a cash offer for EMI from Terra Firma at a price of 265p per share, valuing EMI on an enterprise value basis at approximately £3.2bn and valuing the entire issued and to be issued share capital of EMI at approximately £2.4bn. The Board believes that the combination of the value of Terra Firma’s offer, its deliverability and the minimum of operational risk to the business make the offer more attractive to EMI shareholders than the other proposals received and the range of other strategic options available to the Company.

John Gildersleeve
Non-executive Chairman

Read EMI Group Annual Report 2007 Online

We believe in music

We believe in nurturing talent

The long-term development of musicians and songwriters on a local and global level, dedication to working in collaboration with artists, and an emphasis on creative excellence and integrity are the principles that underpin everything that EMI does.

These principles have enabled us to build a roster of artists and writers, and a catalogue of recordings and songs, that span all key musical styles and genres. With this philosophy still at our core today, EMI has in the last year broken a number of major new artists and songwriters including EMI Music’s Corinne Bailey Rae, Lily Allen and 30 Seconds To Mars, and EMI Music Publishing’s The Fray, Panic! At The Disco and the Fratellis.

We believe in listening to consumers

EMI is committed to providing music fans with the best possible experience, and to anticipating and fulfiling consumer demand for compelling content. In the rapidly expanding digital market, it is essential that music companies foster change in order to develop products and services that music fans really want to purchase and use. It was this consumer focus that led to EMI’s groundbreaking launch of premium DRM-free higher sound quality downloads earlier this year, and which will continue to guide our thinking over the years ahead.

We believe in innovation

The music market is changing more quickly than at any point in its history, and EMI is working with new and existing partners to foster innovation and capture the imagination of the consumer through compelling services and products.

Over the last year, EMI Music and EMI Music Publishing have signed groundbreaking deals covering business models including advertisingsupported streams and videos, legal peer-to-peer, preloaded devices, mobile gaming, and of course premium DRM-free downloads.

We will continue to be collaborative, flexible and open to innovation in all its forms, and to work with our partners across the music value chain to drive new and exciting revenue streams across all areas of our business.

We believe in our people

In the last year, EMI has redefined both its leadership and its entire structure to align the business more closely with the developing digital landscape. This has made the Company a more effective and efficient organisation while maintaining the focus on creativity and artistic excellence which is at the heart of what EMI people do. At all levels of the business, we have creative, passionate and committed people with the necessary skills and experience to realise the opportunities that lie ahead of us.

Download EMI Group Annual Report 2007

PDF format, .3.4MB, 104Pages.

Chief Executive Officer’s statement:

The year to 31 March 2007 has been challenging for EMI Group primarily as a result of the worsening market conditions which affected the entire recorded music industry and saw every major music market across the world decline in revenue terms. We estimate that the value of the global market was down by 7.6%. The 13.6% decline in physical sales was only partly offset by strong digital sales growth of 68.3%.

Despite the current environment, EMI Music Publishing delivered another solid performance by outperforming the recorded music market in the year; revenues declined by less than 1% at constant currency and operating margin was up from 25.1% to 26.3%.

This achievement is testament to the strength, breadth and depth of our music publishing catalogue – arguably the finest collection of songs in the world – and is also a credit to the talented team at EMI Music Publishing whose strategy of diversifying revenue streams and driving new business models has enabled them to thrive in rapidly changing markets. Notable successes during the year included songs by Beyoncé, Jay-Z, Amy Winehouse, Arctic Monkeys, My Chemical Romance, the Fratellis and The Feeling.

EMI Music experienced a difficult year with revenues declining by 15.0% at constant currency. This was a function of the general decline in the recorded music market but was also due, in particular, to EMI Music’s disappointing Christmas sales, which resulted in the division losing market share in all territories except Japan.

Despite the challenges of the physical retail market, our recorded music division delivered a number of creative and commercial successes. A total of 17 albums, from artists including Norah Jones, The Beatles, Keith Urban, Corinne Bailey Rae, Joss Stone, Lily Allen and The Kooks, sold over 1m units each in the year. EMI Music also saw strong growth in its digital revenues, which increased by 58.9% at constant currency and accounted for 10.4% of the division’s total revenue in the year. Artists who enjoyed particular digital success included MIMS, 30 Seconds To Mars and OK Go. EMI Music was also successful in breaking new talent in the UK and US markets, for example, Lily Allen, Corinne Bailey Rae and The Good, The Bad and The Queen.

EMI and Virgin Classics also had a good year with particular successes from Sarah Brightman, Sir Simon Rattle and the critically acclaimed soprano, Natalie Dessay. Local repertoire successes in other countries included RBD in Mexico, Utada Hikaru in Japan and Herbert Grönemeyer in Germany.

In spite of what has been a disappointing year, we remain confident about our long-term future; while current trading conditions are difficult, consumers’ appetite for music has never been greater. Although fewer CDs are being purchased, people are consuming more music, in more ways, than ever before. We are positioning ourselves to capture these new and expanding retail opportunities by accelerating our transition into a progressive music business which is truly consumer led and well equipped for the digital age.

To that end, we have taken a number of significant measures and adopted a new strategic focus to make our business more consumer orientated and better aligned with our operating conditions. These initiatives will fundamentally change the way we do business.

In January 2007, we announced a far-reaching restructuring programme which will generate £110m of annual cost savings – a significant reduction in our cost base. Over £76m of these savings will be reflected in the financial results for the year to 31 March 2008 with the full £110m expected to be realised in the following financial year. The cost savings will be achieved largely through the elimination of fixed costs across all of the regions in which EMI operates. The majority of the savings will come from EMI Music with the remainder from EMI Music Publishing and central functions. Specific initiatives include the reduction of front and back office overhead and an increase in shared services within both divisions and across most regions - for example, the merging of the Capitol and Virgin labels in North America.

In December 2006, we entered into an agreement to purchase Toshiba’s 45% minority interest in our Japanese subsidiary, Toshiba-EMI, giving ourselves full strategic flexibility in this market.

EMI has secured additional bank financing commitments for the ‘one off’ cash cost of implementing the restructuring, which will be in the region of £110m, and for the purchase of Toshiba’s 45% interest in Toshiba-EMI.

Eric Nicoli
Chief Executive Officer

Comments (0)

Show/Hide comments

Name

Email

Website

Title

Comment

smaller | bigger

Add Comment