LONDON (Reuters) - British music giant EMI said on Wednesday it was slashing 1,800 jobs and axing faded stars from its roster in a drive to cut costs and revive its fortunes in the down-and-out music industry.
After making a splash earlier this year by ditching costly pop star Mariah Carey, EMI said it would also halve its dividend as it outlined a sweeping makeover aimed at reaching almost $142 million of annualized savings.
Desperate to reverse its decline, EMI brought industry guru Alain Levy on board last year to turn around the group. Levy has spent the last six months trawling the business for savings and said he would slash nearly 20 percent of EMI's staff of 9,388.
But his restructuring comes at a cost.
EMI, home to Kylie Minogue, Robbie Williams and Mick Jagger, said the revamp would involve an exceptional charge of 110 million pounds while other write-offs and charges would take its total exceptional charge to a whopping 240 million pounds.
The world's top music groups have been under severe pressure to drive down costs and restructure after one of the industry's worst years on record as the economic downturn compounded the effects of waning CD sales and rampant piracy.
"Many executives have forgotten this industry is all about artists and music," Levy told an analysts' presentation.
"We have streamlined the artist roster which I found fairly bloated. For example, we had 49 artists in Finland and I don't think there are 49 Finns that can sing," he joked.
EMI shares climbed 2.3 percent to 354 pence by 1140 GMT on higher-than-expected savings from the revamp. The pan-European DJ Stoxx media index was 0.4 percent down.
CALMING DEBT FEARS
EMI has been hit more than most in the music industry after seeing major mergers with rivals Warner Music and BMG fall through, while some of its multi-million dollar stars fail to score hits.
EMI, the worlds third biggest music company, soothed concerns over the group's mounting debt, saying it had agreed a refinancing package with banks, made up of an 800 million pound three-year facility and a 500 million pound bridge facility.
EMI's new Chief Financial Officer, Roger Faxon, said he expected the group to end the year with net debt of 1.1-1.2 billion pounds.
However, bankers said the loan had become more expensive since it was first discussed earlier this year as the group's troubles intensified, forcing EMI to issue two profit warnings in the space of six months.
EMI stuck to its 2001 pre-tax profit forecast of 150 million pounds on Wednesday. Levy said the majority of the job cuts would be made by the end of this month while the dividend for 2001 would fall to eight pence from 16 pence last year.
"Cost savings are coming through 33.5 million pounds ahead of the original target, but at a significant (initial) cost," said Simon Baker, media analyst at SG Securities. "The bigger concern is that this will just be a short-term benefit."
ASSET SALES
Levy is on a big bonus to resuscitate EMI, but analysts said that cost cutting would only bring short-term relief and EMI still faces fundamental long-term industry problems.
One of those problems is unearthing a new format to replace the CD and stem widespread piracy which is eating into profits. A merger with another major player could have kept EMI going in the meantime but regulators have made clear they will not accept further consolidation among the top five music groups.
In the meantime, EMI said it was still working toward selling off non-core assets such as manufacturing and distribution. However, Levy said he wanted to spruce up those particular divisions first to improve their efficiency.
Faxon also said the group would consider offers for its stake in retailer HMV Media.
In his presentation to analysts, Levy said he was working on the assumption that sales growth would be between zero and three percent in the financial year 2002/03, and between three and five percent in the following two years.
Levy also set an operating margin goal for EMI's recorded music division of 11 percent to 13 percent within three years.
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