Music Ally

As Terra Firma fights to convince investors to pump another £120 million into EMI to prevent the company falling into the hands of bank Citigroup, EMI Music CEO Elio Leoni-Sceti has been talking about planned changes in the coming months.

According to the Telegraph, it’s aiming to save tens of millions of pounds by investing in new systems, and reducing the company’s headcount further. “We will present a compelling new five-year business plan with particular focus on the coming year,” says Leoni-Sceti.

“It will involve both an acceleration in revenues coming from product innovation at EMI Music Services and some cost reductions from the introduction of new systems and technology and the elimination of some duplication. This will confirm our vision to evolve into a digitally-led music company”.

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Private equity firm Terra Firma has launched a lawsuit against Citigroup, the bank that financed its acquisition of EMI in 2007.

It’s accusing the bank of misrepresenting “fundamental facts” about the process leading up to the sale – including the existence of other bidders and how much they would have paid. The news comes weeks after Terra Firma tried to convince Citigroup to write off £1 billion of loads in exchange for Terra Firma injecting a similar sum in new equity.

The stakes are high: yesterday, the Observer described “fears within Terra Firma that EMI could default on interest repayments to Citigroup”, which could lead to the bank being forced to take over the business.

Terra Firma’s annual report reveals that earnings have risen sharply at EMI’s recorded music division – up to £104 million for the nine months to December, compared to £12 million in the same period for 2007.

Meanwhile, earnings for EMI’s publishing division rose from £81 million to £91 million in the same period. However, EMI has reported a 40 per cent fall in new music sales in the year to March, and says just 200 of its 14,000 artists account for half of its revenues.

The same report reveals that Terra Firma has written off half its €2.6 billion investment in EMI, with the company accounting for the majority of a €1.37 billion impairment charge in Terra Firma’s annual review.

Terra Firma has revealed just how large a task it’s facing turning EMI around, releasing a report showing pro forma losses grew from £287 million to £757 million in the year to 31 March 2008, due to financing costs, asset writedowns and restructuring costs.

The report takes aim at recorded music division EMI Music in particular, claiming that 88% of artists signed to EMI made no money for the company, and that the label had lost £125 million on new music during the year. Oh, and EMI spent £700,000 on London taxis during the year, too.

The report also says, however, that EMI’s operational performance has “improved significantly” in the last seven and a half months. It’ll be interesting to see just how big that improvement is next time Terra Firma releases some figures…