Analysts: 'profits Warning' Reflects Deeper Emi Woes

The EMI Group's share price took a tumble on the London stock exchange following the company's Jan. 23 profits warning (Billboard Bulletin, Jan. 26), losing 10.5% on the day and closing at an all-time low.
Analysts immediately downgraded profits forecasts for EMI's March year-end to 300 million-310 million pounds ($495 million-$512 million)--the latest in a series of downgrades from an initial peak expectation of some 450 million pounds ($743 million).
The company's share price had almost recovered the lost ground by press time. But analysts feel that EMI's troubles have now fully surfaced and are not going to go away. The strength of EMI's reporting currency, sterling, and difficult markets in the Asia-Pacific region--stated reasons for the latest provisions--are not unique to the company. Analysts now say that doubts about the management of EMI are a greater cause for concern.
'The price recovery is just 'dead-cat bounce,' ' says Anthony de Larrinaga, media analyst at London stockbroker Panmure Gordon. 'The share price has collapsed, and the management
doesn't seem to have any ideas. If (chairman) Sir Colin Southgate becomes embroiled in the Royal Opera House, then EMI doesn't have any rabbits to pull out of the hat to provide growth.'
Southgate's recent acceptance of the chairmanship of London's financially troubled Royal Opera House (ROH) (Billboard, Jan. 24) has led to speculation that he intends to move to a non-executive role at the major. Far from a sinecure, the ROH job, a long-running political hot potato in the U.K., is widely accepted to be a major challenge.
EMI's board meets Feb. 20, and Southgate's role is believed to be on the agenda. A company spokeswoman would not confirm Southgate's plans but described the move as 'a natural evolution' of his role as executive chairman following the 1996 demerger of Thorn EMI into Thorn plc and the EMI Group. 'The strongest hand on the tiller has always been (EMI Music Worldwide president/CEO) Jim Fifield,' she adds.
EMI's latest woes have also rekindled earlier speculation about a possible merger with Seagram's Universal unit. 'It's getting harder to see what they can do without such a move,' says de Larrinaga.
The spokeswoman repeats earlier assertions that EMI has never received a bid from any suitor.
Southgate prefaced his profits warning with an expectation that full-year sales for the group, at constant exchange rates, will be 5% up from the previous year's, helped along by Christmas successes in the U.S. and U.K. He cited poor trading in Japan and the Asia-Pacific for the latest round of provisions.
'Recognizing the well-publicized difficulties and consequently poor outlook for consumer spending in these markets, we have decided to make additional provisions against a number of artist deals and to rationalize some of our operations in the region,' warned Southgate. 'Together with the effect of softer trading in the Asia-Pacific markets, (this) will in aggregate result in operating profits being about 25 million pounds ($41.25 million) lower than planned.'
The company has now launched a review of its operations in Japan and other Asia-Pacific territories. 'We need to look at back-office restructuring, to see what efficiencies can be gained,' the company spokeswoman tells Billboard.

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