Terra Firma Takes €1.36 Billion Write-Down On EMI Investment
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As the post-credit bubble world adjusts to deal with pre-bubble deals, Terra Firma has written off half the value of its €2.6 billion (£2.3 billion) investment in music group EMI. The private equity giant revealed in its 2008 annual report that EMI accounts for most of a €1.36 billion (£1.22 billion) non-cash impairment charge on Terra Firma’s 2008 balance sheet. Terra Firma insists it is merely being honest and “prudent” about the value of the company and that private equity-funded companies suffer worse than public companies in the downturn because of the high leverage involved. Plus, the low valuation of the pound versus the Euro hasn’t helped either.
SEE ALSO: EMI’s Finishing Touches: Allen, Non-Exec Chairman, EMI Music; Alexander Top Non-Exec Publishing
In his executive statement, CEO Guy Hands squarely criticises banking executives, regulators and politicians for investing too much faith in credit during the boom: they should have seen it was “merely a very large bubble waiting to burst”, he says. But companies like Terra Firma were very much part of that boom—though when he claims the real test of an investment is when the company is restructured and sold on for profit, the speculation and confidence of the pre-credit crunch days now feels like a long time ago. Terra Firma’s overall portfolio dropped in value from €7.79 billion (£6.97 billion) to €4.49 billion last year (£4 billion), though overall earnings before tax and depreciations rose 11 percent. More after the jump…
Annual report (pdf)
—EMI results: The radical restructuring of EMI continues unabated, but its earnings are holding up well: both its Recorded Music and Music Publishing divisions increased revenue, helped by digital sales of £21 million, a 13.3 percent increase on 2007. Recorded made sales of £250.4 million in sales, a 30.5 percent improvement year on year, helped by higher digital and physical sales. The Publishing division’s revenues were 1.6 percent “below budget” but 0.4 percent year on year, though there were good performances in the US, UK, Latin America and Spain. Profits before tax and depreciation were €221 million (£197.86 million), a 146 percent rise on 2007’s €90 million (£80.57 million)
—EMI cuts: Meanwhile, Terra Firma is getting on with what it does best: cutting costs. The company is cutting between 1,500 and 2,000 EMI jobs in the aim of saving £200 million a year. EMI has more than 14,000 artists on its books, but half of revenue is generated by 200 successful artists like Coldplay and last year’s big breakthrough Katy Perry, who sold 10 million tracks. Terra Firma says “only a small number of these relationships are profitable” and it will be more selective in future.
@psmith
Mar 3, 2009 4:11 AM ET
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