Delays in new albums send EMI into a spin

EMI SHARES plunged 16 per cent yesterday after the music company admitted that profits would be hit by weak sales and delays to two key album releases. The news set off renewed speculation that the company will be forced to merge with Warner Music, one of the other music majors. EMI has unsuccessfully tried to pull off this deal at least twice in recent years.

EMI said that two major albums by acclaimed British bands, one from Coldplay and the other by Gorillaz, the band formed by the former Blur frontman, Damon Albarn, would no longer meet their original release dates, which fell into the current financial year, ending on 31 March.

In addition, sales of music, particularly through re-orders from retailers, had been slower than anticipated by the company in January. EMI said it expected this weakness to continue in February and March.

Analysts said yesterday's profits warning was all the more shocking because EMI had sounded so confident about its prospects as recently as November, when it announced its half-year results. At the time, the company had boasted that it would improve on the 7.2 per cent decline in underlying sales seen in the first six months in its dominant recorded music division. It said in November that it was more positive about the outlook than at any point over the preceding three years.

EMI revealed yesterday that it now expected sales to be 8 or 9 per cent down for the second half, pointing to a 10 or 11 per cent drop for the second half. The City had been expecting a drop of just 2 per cent in full-year sales. The new figure will mean that EMI will lose global market share, as the industry as a whole is forecast to decline by no more than 4 per cent.

The recorded music industry as a whole has been in steep decline for years, with sales down some by a quarter over the past five years.

Anthony de Larrinaga, an analyst at SG Securities, said: "We were surprised by the level of confidence shown [by EMI] in November, given the limited visibility in [future] sales."

EMI said that underlying group profits for the current financial year would be pounds 138m, around 17 per cent lower than City expectations. Analysts also slashed 2006 profit forecasts, with Numis Securities coming down from pounds 203m to pounds 170m. Richard Hitchcock, of Numis, said that EMI shares would have fallen even further yesterday, were it not for the speculation that the US-based Warner Music might make a bid for the British company.

EMI again sounded resolutely upbeat about longer-term prospects. Eric Nicoli, its chairman, said: "`We remain positive about the overall industry trends and EMI's prospects. Global music market conditions today are significantly stronger than in recent years and digital music is presenting a very attractive growth opportunity." EMI added that trading in its smaller music publishing division were in line with expectations.

It is thought that a little more than half the downgrade seen yesterday was due to the album delays. Coldplay's last album, A Rush of Blood to the Head, sold more than 9 million units, while the self-titled debut from Gorillaz sold 4 million.

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