March 3rd, 2009 by Warren Moore

Despite a seemingly bright fiscal year that saw EMI cut costs, slow losses and improve revenues, private equity group Terra Firma have announced a decision to take an estimated £1.15bn impairment charge on their record label investment.

Recently published annual reports from Terra Firma (March 2) describe how earnings at EMI’s recorded music division have risen sharply over the last financial year. For the nine months to December, earnings before interest, tax, depreciation and amortisation rose from £12m to £104m at EMI’s record music division while earnings from the EMI music publishing increased from £81m to £91m.

However despite signs of recovery after years of turmoil for the label, it has been reported that Terra Firma is to take a 50% impairment charge based on re-estimated market values. Effectively writing down £1.15bn of Terra Firma’s original for £2.3bn EMI investment.

Prior to Terra Firma’s acquisition, cost-cutting under the previous management had led to market share losses to rivals Universal Music and Sony BMG. Terra Firma have continued along the cost cutting path reducing staff number by 2,000 in the past 12 months and reportedly on track to make its targeted £200m savings from EMI’s £700m cost base.

It would seem after significant staff reductions the next avenue of cost cutting to be explored will be EMI’s roster of artists following Terra Firma’s declaration that EMI will be ‘more selective’ with its artist relationships.

EMI currently has 14,000 artists on its roster. of which just 200 account for 50% of revenues. EMI reported a 40 per cent fall in new music sales in the year to March but has had success with American pop sensation Katy Perry and the world wide dominance of Coldplay’s Viva La Vida which has been the year’s biggest-selling album.

Source: Tixdaq – Ticket Intelligence