EMI blames sales downturn on Far East financial turmoil
According to EMI, music sales in the Far East have fallen by up to 10 per cent in the last few months as the economic turmoil has brought financial ruin to thousands and caused consumer spending to slump.
EMI warned yesterday that Asian trading troubles would knock pounds 25m off profits for the year to March. Part of this hit comes from writing off the advances paid to local artists which the group will now struggle to recover.
Simon Duffy, EMI's finance director, said yesterday: "This has taken us and everybody else by surprise. The market in Asia is still declining at the moment. There are no obvious signs of recovery and it could get worse." EMI has also been forced to merge some of its recording labels in the area which will bring local redundancies.
EMI's shares fell 48.75p to 430p as analysts rushed to cut forecasts on growing concerns about the long-term impact of the Far East crisis Dresdner Kleinwort Benson has cut its pre-tax forecast from pounds 332m to pounds 305m for the year to March and to pounds 315m from pounds 342m for the following year. "EMI already warned of problems in the Far East last year but this is much worse than expected," said one industry analyst.
There was better news from EMI in the UK and America where it claims to have had a good year despite a slow down in sales across the industry. It had the number one Christmas album both sides of the Atlantic with The Verve top of the pops in the UK and country and western star Garth Brooks heading the chart in the US. EMI also dismissed suggestions that the Spice Girls had seen their best days. "They have had another outstanding year and reports that suggest their demise are unfair and misleading."
However, Mr Duffy acknowledged that the growth in the worldwide music industry would slow over the next few years. This slowdown and the sharp fall in EMI's share price over the last few months has re-ignited rumours that the group could prove an attractive bid target. "The more EMI's share price falls the more it becomes a much more attractive bid target. As the market slows the big music groups must be having a closer look at cutting costs and joining forces."
EMI also confirmed yesterday it was close to securing the acquisition of Waterstone's book chain from WH Smith in a deal thought to be worth between pounds 250m and pounds 300m. The group plans to inject its HMV music shops and Dillons book chain into a new company with Waterstone's, which will eventually be floated on the Stock Exchange. EMI have teamed up with Tim Waterstone, the founder of the book selling empire, and Advent International, the US venture capitalists. Mr Duffy confirmed that EMI would take a minority stake in the new music and book retailer and receive a net cash sum for injecting HMV and Dillons.
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