EMI predicts further music market fall

EMI shares were sold off yesterday after the company said that the recorded music market would contract by up to 8 per cent this year.

Analysts warned that the music major has been through its major restructuring programme and, in the absence of more significant cost-cutting, profits and revenues would be hard hit this year by that market decline. EMI shares closed nearly 10 per cent down at 122p.

For the financial year just ended, to 31 March, turnover shrank 11.1 per cent, or £270m, to £2.18bn. However, cost savings in the year and a doubling of margins in its recorded music division meant underlying pre-tax profit jumped 38 per cent to £178.1m. During the period, 1,900 jobs were axed and £100m of cuts were made to the fixed cost base.

Eric Nicoli, EMI's chairman, declared the company had delivered a "step change" in its performance, despite a 9 per cent drop in the global recorded music market last year. The company's artists include Robbie Williams and Norah Jones.

"These are the results of a company managed in a very different way from the past, a way that works in tough market conditions," Mr Nicoli said.

Analysts praised the operational performance but said the market was focusing on the outlook and here the company surprised investors. In spite of saying it is "making progress" against piracy, including the illegal digital copying of music, Mr Nicoli pointed to an overall recorded music market set to drop between 5 and 8 per cent in 2003. He indicated EMI's sales would be in line with that fall. Analysts had been expecting a less severe contraction.

Sarah Simon, an analyst at Morgan Stanley, said: "The market was hoping for another big cost-savings programme, to offset the revenue decline."

For the current financial year, only about £10m of savings to the fixed cost base are so far expected. It is estimated that leaves the company looking at a further revenue fall of more than £100m this year.

On the constant merger and takeover speculation that surrounds EMI, Mr Nicoli refused to comment on whether there were any current talks. "A merger has never been pressing ... it has always in theory been a good idea," he said.