EMI Suspends Dividend, Unveils Plans To Borrow Against Publishing Arm

LONDON (CelebrityAccess MediaWire) — EMI Group has reportedly said it will pay no more dividends until 2009 as it unveiled a long-awaited plan to borrow against its back catalogue of hit songs.

The company, which has issued two profit warnings since the start of 2007, said it hopes to issue debt secured against revenues from its music publishing arm before the end of the current fiscal year, ending in March 2008, according to AFX News Limited.

The home to Arctic Monkeys and Coldplay will also suspend dividend payments until it completes a cost-cutting program in 2009.

Like the rest of the record industry, EMI was hit hard by the rise of file sharing websites at the turn of the decade, which triggered a sharp fall in CD sales. So far, the burgeoning legal download market has failed to make up the shortfall.

In a trading statement this morning, EMI confirmed the dire trading conditions it flagged up in its two profit warnings earlier this year.

Revenues at the recorded music division plunged 15 percent over the fiscal year due to poor sales of new material from key artists like Robbie Williams and the Beatles over Christmas. Turnover at the music publishing division was 'broadly flat' with the previous year, said the group.

EMI's publishing arm receives a fee each time one of its catalogue tracks is played on the radio or used in a commercial, and has steadier cash flows than the recorded music unit.

In theory, borrowing against the unit should help EMI slash the cost of servicing its debt mountain. “This would be a sensible and probably necessary move and could significantly reduce interest payments,” said Numis Securities in a research note, according to AFX News Limited.

However, another analyst, who asked to speak off the record, said the move “smacked of desperation” and showed that EMI was 'running out of financing options'.

There is also no guarantee that securitisation will reduce EMI's overall debt servicing costs. A similar move by Chrysalis in 2003 actually increased the cost of capital for its smaller rival when factoring in the initial set-up costs for the facility, according to Patrick Yau at Bridgewell.

Raising money off the back of its catalogue could also complicate any future takeover by US rival Warner Music, which had a 260-pence-a-share bid turned down last year, according to Yau.

The two companies have been locked in a protracted merger saga since 2000, but further moves are unlikely until the European Commission publishes its verdict on a probe into the 2004 Sony-Bertelsmann recorded music merger later this year. –by CelebrityAccess Staff Writers

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