Hands hails EMI progress

12:35 | Monday July 14, 2008

Hands sent an email to EMI staff today outlining the company’s positive Q1 financial performance that included the recorded music business achieved positive ebitda of £59.2m, compared to a loss of £45.1m in Q1 2007.

Total revenue was £288.1m, an increase of 61% on the same quarter last year.

In his note, Hands, whose Terra Firma bought EMI last summer, says that it is “early days”, noting that “the recorded music business is extremely volatile and we cannot count on future quarters always being this good”.

“Nevertheless,” he adds, “I believe these numbers are a demonstration of EMI Music’s significant progress and all your enormous efforts to transform this business.”

Hands also notes that the result only includes a modest contribution from Coldplay’s Viva La Vida, which was released towards the end of the quarter, and does not include the impact of recent job cuts.

Instead, Hands says that the improvement is due to “the transformation we have been carrying through in the way we work”.

“We now have in place a reshaped organisational structure, with clearer accountability for profit and loss,” he writes.

“We have introduced and now mainly implemented the previously announced changes and improvements to the way we run our business, and are on target to achieve significant cost savings. And there has been a massive reduction in waste.”

One specific area singled out was over-shipment, which Hands previously identified as a problem. Now, he says, EMI is “starting to get to grips with the over-shipment problem”.

“A year ago, returns in quarter one totalled 42% of our gross physical sales. In the last three months we have reduced the returns to less than 16% of gross sales; and there have been further savings throughout the group’s supply chain.”

“We have come a long way this year but, of course, there is still much to do,” he concludes. “The problems facing the music industry cannot be solved in a few months.

“However, it is already clear to me that what is emerging at EMI is not only a far leaner organisation, but a more focussed and effective one as well, and better aligned with the interests of our artists. An organisation that is becoming much better placed to serve artists and customers alike, and to give our talented people the opportunity and the tools to produce their best work.”