EMI slumps on profit warning

EMI, THE UK music group that turned down a pounds 5bn takeover approach from Seagram in May, delivered a further blow to investors yesterday when it issued its second profits warning of the year which forced the shares 18 per cent lower.

EMI shares closed down 61p at 335p when the company, whose roster of artists includes the Spice Girls, The Verve and Radiohead, warned that operating profits for the first half would be 20 per cent lower than last year. The shares have now lost almost half their value since Seagram offered an estimated 620p per share in the spring. They stood at 738p when the group was de-merged from the Thorn rentals business two years' ago.

EMI blamed the latest setback on a "significant deterioration of some major music markets in recent months". Key problem areas have been South- East Asia and Brazil, where the music market has fallen by 25 per cent in the past few months, compared to growth of 30 per cent last year.

It said some markets in Europe had also been disappointing and that its release schedule would not match last year's strong performance when sales were enhanced by new releases from top bands such as The Verve and Chumbawumba.

Sales of the recent Smashing Pumpkins album have reached only half the expected level, the company said, while profits have been further affected by a change in the mix of sales that will result in lower margins.

As analysts cut their full year profits' forecasts by about pounds 45m to pounds 242m before exceptionals, some music industry experts said that EMI was developing an unfortunate habit of disappointing City expectations: "Profit forecasts had been a bit on the high side but this is another straw on the camel's back. The company is testing investor patience," one said.

The warning comes just days after EMI announced it was pulling out of the running to buy Polygram Filmed entertainment, which has been put up for sale by Seagram. "The surprise is that they considered bidding for it at all," one analyst said.

Others said EMI was the victim of an industry-wide malaise that is seeing a slowdown in global music sales and fewer blockbusting acts capable of producing a strong, profitable back catalogue of original recorded music. "In this sort of market, you really need the hot products to generate sales," the company said.

Sir Colin Southgate, EMI's chairman, said the company was continuing its search for a new chief executive but denied that it was a mistake to snub Seagram. "They never put in an official bid. You can't regret something you never had."

EMI's warning was echoed by a profits warning from Philips, the Dutch electronics group which agreed to sell its stake in PolyGram to Seagram earlier this year. The company said it expected 1998 profits, excluding PolyGram, to be roughly the same as the previous year's, compared to earlier forecasts of double digit earnings growth.

Outlook, page 17

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