EMI’s glittering roster of recording artists, from Mariah Carey to the Rolling Stones, failed to save the music giant from a dismal year, but investors are pinning hopes on new recruit Alain Levy to bring sparkle back to the balance sheet.
In an industry facing its worst ever year, EMI is reeling from two failed mergers and a lack of big hits. Jaded investors are eager to hear Levy’s plans as the new head of recorded music when the group reports an expected sharp fall in first half profits Monday.
EMI warned in September that full-year profits would slide 20 percent as the group floundered in the world’s biggest market, the United States, and all eyes will be on how business is faring ahead of the all-important Christmas period.
Already suffering low growth as CD replacement sales wane and piracy eats into the profits, the economic slowdown and Sept. 11 attacks in the United States have hit the industry hard, battering majors that also include Warner Music, BMG, Sony Music and Universal.
Analysts are forecasting a fall in EMI’s operating profit to between $62 million and $67 million for the six months to end September, from a previous $161 million, on revenues of around $1.58 billion, down some four percent.
The group is also expected to post a sharp fall at a pretax level, with forecasts ranging between break-even and a loss of $!3.7 million compared to a previous profit of $85.6 million.
“We’ll want to hear Monday just how bad the industry is right now as well as Levy’s first impressions of the business and what actions he might take to improve it,” said Helen Snell, music analyst at ABN Amro in London.
DIVIDEND UNDER THREAT?
Recorded music sales in the industry as a whole are expected to shrink more than 10 percent this year and the outlook is not much better, with sales seen down three percent next year.
“We expect 2001 to be the worst year in music history,” Merrill Lynch said in a report this week.
In such a climate, some analysts say EMI’s pledge not to cut its dividend this year, based on what it predicts will be a better second half, could come under threat.
“There is scope for them to fall a little short of where they are currently expecting to be,” said Snell.
“My concerns are that we haven’t seen any improvement in the global music industry and if anything we’ve seen a continued decline and I think they may simply find it hard to outperform given the state of the industry overall,” she added.
The key will be the Christmas period when EMI is releasing some big albums. EMI’s Pink Floyd “Echoes” album has already debuted at number two in Britain and the United States but its roster could struggle to match the success of last year’s Beatles No.1 album.
“If they don’t sell well through Christmas, we could get to the second week of January and perhaps they might warn again on profits,” said one analyst.
REVIVING THE U.S.
The United States has been a big problem for EMI.
Under its former head of recorded music Ken Berry, EMI watched its market share dwindle to 10 percent, ranking it last among the five majors.
Under Levy, investors hope things will be different. As head of Universal’s PolyGram, Levy built the strongest company in the business and he has already been doing the global rounds at EMI.
In the meantime, analysts are not getting too excited.
EMI’s shares have lost 50 percent of their value so far this year to around $4.40 pence and predators are still not circling.
“There’s little to be positive about. If they do ramp up profits in the short term, it could be at the expense of longer term growth. This is a weak company in a weak market at the moment,” said Simon Baker, analyst at SG Securities.