City news anyone? Go on, you know you want it really. The EMI Group yesterday confirmed it was looking into essentially mortgaging its publishing assets in order to raise funds that would help it knock £20 million a year off its current debt servicing costs.
The announcement came in a trading update to the London Stock Exchange, which follows admissions at the start of the year that all was not well at the major music firm, and precedes full end of financial year reporting which will give a better insight into the major's current financial situation.
The update said that revenues in its recorded music division were down 15% in the current financial year (which ends 31 Mar, of course), but that revenues on the publishing side were broadly flat on last year. Digital revenues are up, of course, 59% in recordings and 28% in publishing, meaning that digital now accounts for 10% of recorded revenues and 8% of publishing. A trend which, coupled with the major restructuring that has gone on since the start of the year, EMI presumably hope will restore confidence in the long term future of the group.
Overall EMI says it expects pre-tax earnings of around £174 million, though that is before "exceptional costs" are taken into account, which include the £110 million costs of the recent restructuring. However, the major says that as a result of the restructure, savings in excess of £70 million should be made in the next twelve months alone, so that the benefits of the overhaul should be seen quite quickly on the balance sheet. The company's board has also said it intends to suspend dividend payments until the benefits of the restructuring process have been fully realised.
The proposed 'securitisation' of its publishing assets (because that's what they call it) would also aim to cut the major's operating costs. The move would mean that anyone lending the company money secured on its publishing catalogue would be taking less of a risk (for reasons I won't even begin to explain, you don't want to know) which means, in turn, EMI would get lower interest rates from its lenders. The major has appointed Deutsche Bank and the Royal Bank of Scotland to look into the securitisation proposals, and if they decide to go that route they would look to have the process underway by the end of the year (though, that said, some finance types have said that timescale is somewhat optimistic).
Aside from the cost cutting benefits of securitisation, such a move would have an interesting side effect, in that it would impact on any potential acquisition of EMI by Warner, with some saying an EMI purchase would become less attractive to Warner's financial backers if and when any securitisation took place. Given EMI chief Eric Nicoli has been resistant to Warner's various takeover approaches in the last year, any move that has the happy side effect of lessened the chances of future takeover approaches (which might eventually get hostile) is going to be welcomed by the major's top guard. Though some analysts have said that considering the securitisation at all "smacks of desperation" which means some shareholders may become more affable to approaches from prospective merger partners, especially following the dividend payment freeze. Though having said that, a number of key EMI shareholders were yesterday saying the Group's latest update did not come as a shock or surprise, and that for the time being they remained confident in the company's current management. So there you go.
Commenting on the financial update, and looking to the future (though not making any mention of possible takeovers or shareholder revolts) Nicoli said yesterday: "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".