EMI reported losses of £757 million ($1.22 billion) for the year ended March 31 as the new owners revealed a radical revaluation of the company on Friday.
John Birt, chairman of Maltby Capital — the investment vehicle used by venture capitalist firm Terra Firma to buy EMI — blamed the massive losses on accounting factors and the “continued operational poor performance” of the previous management.
The group reported revenues of $265 million, down 5% on the previous year, due to various charges that sent losses spiraling.
These included $841.4 million of net financing costs, $310.7 million to revalue the balance sheet, $199 million restructuring costs and $176.4 million in depreciation.
There was some good news, however, with EMI Music Publishing increasing revenues 2% to $665 million, but the recorded music, EMI Music, saw its revenues decline 23% to $1.69 billion.
In his letter to stakeholders, Birt admitted: “This report is not a typical company report. Listed company reports tend to minimize challenges and highlight successes in order to manage their reputations in the marketplace. Readers of this report, therefore, may well be struck by the forthright presentation of problems and the absence of rosy assurances about the future.”
Pulling no punches, he cited three reasons for the record company’s dismal performance.
“Firstly, EMI Music had a culture where high expenditure at odds with the challenges it faced was widely accepted,” writes Birt. “This meant the company accepted as normal costs that which should have been substantially cut back.
“Secondly, EMI Music’s traditional way of working with artists — highly successful in the days of booming CD sales and a significantly simpler and less fragmented market — had become less fit for purpose. As a result, EMI Music’s creative performance, as well as its financial performance, had begun to slide.
“Thirdly, the company’s internal reporting, while data-rich, focused on traditional measures which could tell the company little about the major changes in its marketplace as they evolved. It provided insufficient information for fundamental metrics — such as artist profitability.”
But Birt said that with the new management team in place, EMI Group has now turned the corner and an interim report covering the six months to the end of September should show improved operational performance.
“This is the first year in the radical turnaround of a company culture, a business model and perhaps even a market. It will not be a quick fix.”