EMI heightens fears of dividend cut after issuing second profits warning

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The Independent Online

EMI, Britain's biggest music group, raised the prospect of a dividend cut yesterday as it issued its second profits warning in six months because of a poor performance by its recorded music division. The struggling company has also replaced its finance director as it seeks to boost management and introduce a more rigorous approach to costs.

EMI, Britain's biggest music group, raised the prospect of a dividend cut yesterday as it issued its second profits warning in six months because of a poor performance by its recorded music division. The struggling company has also replaced its finance director as it seeks to boost management and introduce a more rigorous approach to costs.

EMI shares fell 6.5 per cent to 305p as the group said full-year profits for the year to March would be about £150m, compared with analysts' forecasts of £160m to £207m. It said the shortfall was due to lower sales at its recorded music operation, which has acts such as Robbie Williams and Radiohead as well as The Beatles back catalogue. Other factors include currency fluctuations and one-off costs. These were mostly severance payments to former directors. In addition to this, EMI last month agreed to pay Mariah Carey £19.6m to sever her contract after the flop of her Glitter album.

EMI's music sales have been hit by the economic downturn in Latin America and Asia as well as a continued underperformance in the US and the delay of some important album releases in Japan.

Alain Levy, the new head of recorded music at EMI, also blamed some of the group's problems on outdated music industry practices. In an analysts' briefing yesterday he said these included salaries that were not performance-related, artists' contracts which made no economic sense and over-staffing.

EMI's statement yesterday hinted at a possible cut in the final divided, which will not now be covered by earnings. It said: "The final dividend will be determined by the board at the end of the fiscal year in the context of the full-year trading outcome, our assessment for the prospects of the next year and future years and our investment plans for both EMI recorded music and EMI music publishing."

One of the group's major institutional investors said yesterday that a cut "might be prudent".

Analysts said the latest profits warning was not a surprise as the company undergoes a major restructuring with Mr Levy due to unveil his strategic review of the recorded music division on 20 March.

Paul Richards, a media analyst at SG Securities, said: "The big bet is what Alain Levy says in March about his vision about EMI going forward. 2002 has been written off by investors. People are looking through that to 2003 and beyond."

One senior fund manager agreed, saying: "We have some expectation that the management will be improved – we are looking forward to that in the future. To some extent we are seeing the clearing up of history and the development of a more commercially run business."

Tony Bates is leaving as finance director after two years in the post. He received a total pay of £732,000 last year as well as £220,000 of shares through a long-term incentive scheme. He was on a two-year contract.

He will be replaced by Roger Faxon, 53, who was previously the head of finance at EMI's music publishing division in New York. His pay has not been disclosed. But he has been granted 500,000 share options at yesterday's closing price. He will be granted a further 250,000 share options each May.

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