EMI cuts losses but warns of debt pressure
Wednesday 18 August 2010
Music group EMI today slashed annual losses by two-thirds but said it needs millions more in the years ahead to stay out of the hands of lenders.
Pre-tax losses at the group - whose artists include Coldplay, Katy Perry and Lady Antebellum - fell 64% to £624 million in the year to March 31.
EMI wrote off £602 million on items such as its back catalogue to reflect weaker prospects, although revenues rose 5% to £1.65 billion after successes included the release of the remastered Beatles catalogue, which has now sold more than 13 million albums.
Terra Firma - the private equity owned by Guy Hands who bought EMI for £4.2 billion in 2007 - was forced to raise £105 million earlier this year to help the group meet covenant tests from its lender, US bank Citigroup.
EMI's annual report added today that up to £26.9 million would be needed to meet tests over the quarters to June 30, September 30 and December 31 with a further "significant shortfall" for the March 31 test.
"The directors also recognise that existing forecasts indicate further significant shortfalls in respect of the covenant test periods to the end of March in each year until the facilities expire in 2014 and 2015," the report added.
Stephen Alexander, chairman of EMI's holding company Maltby Capital, said the group faced "considerable financial challenges" - with more than £3 billion in debt due for repayment between 2014 and 2017.
"Even though EMI generates more than enough cash to service the interest payments on its current borrowings, we need to address a set of banking covenants that tighten steadily over the coming years," said.
Although EMI could push for a renegotiation of its lending terms with Citigroup, Terra Firma is currently locked in a legal battle with the same bank over the original deal three years ago before the credit crunch struck.
Terra Firma alleges the bank "misrepresented fundamental facts" over the sale of EMI - claiming that Citi falsely said there were other bidders for the record company, to prompt a higher bid. Citi denies the claims.
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