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EMI trading update

EMI Group provides trading update for the financial year ended 31 March 2007 ahead of the announcement of its preliminary results on 23 May 2007

  • EMI Music sales at constant currency in line with guidance
  • EMI Music Publishing operating margin improvement
  • Underlying EBITDA of £174m
  • Restructuring progressing ahead of plan
  • Net debt of £910m
  • EMI examining potential securitisation of its Music Publishing assets
  • Dividend payments suspended pending completion of restructuring progamme

EMI announces that, in line with its guidance of 14 February 2007, EMI Music’s revenue for the year ended 31 March 2007 is expected to have declined by 15% at constant currency. Digital revenue in the division is expected to have increased by 59% and will represent approximately 10% of revenue. This is set against market trends which, as we anticipated, continued to be very challenging.

EMI Music Publishing’s revenue is expected to be broadly flat at constant currency, with digital revenue increasing by 28% and representing approximately 8% of total sales.

EMI expects to report underlying Group EBITDA before exceptional items of approximately £174m which is ahead of consensus market expectations. Exceptional items will include previously announced restructuring spend, the net gain on property disposals reported in the first half, certain net exceptional settlement income and one-off balance sheet write-offs arising from the review referred to in our announcement on 12 January. The operating margin for EMI Music is expected to decline in the year to 31 March 2007, as indicated in February, primarily as a result of the negative flow through on the sales decline and higher than expected returns in the post Christmas period. Music Publishing’s operating margin has continued to improve as a result of reductions in that division’s cost base.

EMI has made good progress with its cost saving programmes. With respect to the £110m restructuring programme announced on 12 January 2007, EMI confirms that it has already executed the vast majority of the actions envisaged in the plan. As a result, the Company now expects at least £70m of the savings will be achieved by 31 March 2008 with the remainder being reflected in the results for the year ending 31 March 2009. EMI also announces that the cash cost of this programme will now be no more than £125m rather than the £150m we had previously announced. The implementation of the programme announced in April 2006, designed to reduce costs by £30m, is now complete. Of the £30m, EMI has delivered savings for the year to 31 March 2007 of £17m and the remaining £13m will be achieved by 31 March 2008.

Net debt at 31 March 2007 is expected to be approximately £910m. On 12 January, EMI also announced that it had secured bank commitments to finance the costs of restructuring and the acquisition of Toshiba’s 45% interest in TOEMI. The Group has recently completed a full refinancing of its revolving credit facilities to allow for these payments. Additionally, as part of its objective to optimise its balance sheet, the Group has been examining a potential securitisation of its Music Publishing assets which EMI hopes to complete by the end of this financial year. The Company has appointed Deutsche Bank and the Royal Bank of Scotland as Lead Arrangers of the potential securitisation.

In view of the Company’s funding requirements, the Board has decided to suspend dividend payments until the benefits of the restructuring process have been fully realised (the interim dividend of 2p per share has already been paid). The Board will keep the situation under review.

Eric Nicoli, CEO of EMI Group, said, “Our industry is changing at an unprecedented pace and we are committed to accelerating the transformation of our business to realise the opportunities before us. We have launched a number of significant digital initiatives – most recently the introduction of DRM-free superior sound quality downloads across our entire digital repertoire – which reflect our optimism about the digital environment. Such initiatives, coupled with tough management actions, position the Group to make good progress in the future.”

The figures shown are unaudited and hence may vary from the final numbers that will be reported. Underlying EBITDA refers to EBITDA pre exceptional items, remeasurements and amortisation of music copyrights and intangibles.

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