EMI's new music chief Levy looks to 'spectacular' Christmas pick-up

EMI, Britain's biggest music group, plunged into a first-half loss yesterday after profits slumped at its recorded music division. But the company attempted to put a positive gloss on the figures by pointing to initial signs of a better Christmas trading period.

Alain Levy, the chairman and chief executive of recorded music who last month replaced ousted Ken Berry, said market conditions in September and October had been poor but November and December looked "absolutely spectacular". The remarks prompted a 5 per cent rally in EMI shares to 317.75p.

The world's third-biggest music group, which issued a shock profits warning in September, is relying on a better second half driven by a stronger release schedule led by artists such as Pink Floyd, Robbie Williams, Garth Brooks and Kylie Minogue. Eric Nicoli, EMI's chairman, said its full-year profits target was "not out of reach" but depended on the crucial Christmas trading weeks.

EMI held the interim dividend at 4.25p but Mr Nicoli did not rule out cutting the final dividend. Last year the payout was 11.75p making a total for the year of 16p. Although this is just covered at the headline level, analysts believe the group will come under further pressure next year. There is scope for further cost-cutting and EMI said a strategic review of its recorded music division will be announced next February.

EMI blamed deteriorating economic conditions in Latin America and the US for a 7 per cent fall in turnover to £1.07bn for the six months to 30 September. Recorded music sales declined 9 per cent prompting an operating loss of £8.1m, which compared with an operating profit of £59.9m last year.

The pre-tax loss before exceptional items was £56.6m compared with a profit of £73.2m last year. Group operating profit halved to £43.1m from £110.9m. Its music publishing division, which manages the copyrights to songs, provided the mainstay, reporting a 4 per cent increase in sales to £200m and flat operating profits of £51.2m.

Analysts welcomed Mr Levy's commitment to his predecessor's target of keeping the second-half operating profit from recorded music in line with last year. "This suggests that the scope for cost savings within the division is clearly enormous. EMI has become a margin transformation story rather than something being driven by external factors," said Jason Streets at UBS Warburg.

Mr Levy is expected to achieve greater savings than the £65m of annualised benefits indicated earlier with scope coming from combining some back office functions of Virgin, EMI and Capitol Records in the US. To achieve this, the group will have to take a higher exceptional charge than the £100m previously announced.

Analysts expect further job cuts to accompany the results of Mr Levy's review. Since the September profits warning, 500 jobs worldwide have been culled from a total staff of about 10,000. None of these have come from Europe.