Universal Plans €400M Cost Cuts
By Tim Burt and Jo Johnson
March 18, 2004
Paris (Financial Times) -- Universal Music Group, the world's leading record company, plans to cut up to €400m (US$ 468m) from its cost base by 2005 in a move that signals the blood-letting in the beleaguered industry is far from over.
Another large asset impairment charge at the music group pushed Vivendi Universal, the French media and communications group that has owned UMG since December 2000, into its third straight year of losses.
After setting the record for the largest loss in French corporate history for two years in a row, Vivendi Universal last year saw its net loss pared to €1.1bn from the €23.3bn deficit of 2002 and the €13.6bn lost in 2001.
UMG cited industry-wide contraction and cost-cutting for the €1.37bn goodwill write-down at its music arm.
Operating profits at UMG fell by 87 per cent last year to just €70m, giving the record company behind Sheryl Crow and Eminem a margin of just 1.6 per cent on revenues that plunged 21 per cent to just under €5bn.
Far from fulfilling former Vivendi boss Jean-Marie Messier's projections that the music industry would more than double in size to US$100bn by 2010, sales have fallen for the past four years to about US$30bn last year.
Since last spring about 1,500 people have lost their jobs at UMG, which yesterday predicted further declines in sales.
The write-downs follow cutbacks in back-office functions among Universal labels including MCA Records, Motown and Island; lower royalty payments to artists; and a "jump start" strategy designed to revive US sales by cutting wholesale prices.
The French group said that, after a debt reduction programme, it would resume dividend payments in 2005, yet left little indication of the strategic direction in which the group is heading.
Jean-Rene Fourtou, chairman and chief executive, said: "In 2004, I expect Vivendi Universal to deliver strong growth in its profit, to reach a level of debt below €5bn at year-end and be in a position to distribute dividends in 2005."
Insisting that Vivendi Universal will remain both a media and a telecoms company, he refused to discuss the possibility of Vodafone launching a takeover bid for the French group in order to get its hands on their jointly-owned SFR mobile business.
Vivendi Universal's other black spot in 2003 was its games division, which lost €201m on sales down 28 per cent to €571m. But Canal Plus returned to the black and the company's results were further buoyed by SFR, where operating profits rose 32 per cent to €1.9bn.
By Tim Burt and Jo Johnson
March 18, 2004
Paris (Financial Times) -- Universal Music Group, the world's leading record company, plans to cut up to €400m (US$ 468m) from its cost base by 2005 in a move that signals the blood-letting in the beleaguered industry is far from over.
Another large asset impairment charge at the music group pushed Vivendi Universal, the French media and communications group that has owned UMG since December 2000, into its third straight year of losses.
After setting the record for the largest loss in French corporate history for two years in a row, Vivendi Universal last year saw its net loss pared to €1.1bn from the €23.3bn deficit of 2002 and the €13.6bn lost in 2001.
UMG cited industry-wide contraction and cost-cutting for the €1.37bn goodwill write-down at its music arm.
Operating profits at UMG fell by 87 per cent last year to just €70m, giving the record company behind Sheryl Crow and Eminem a margin of just 1.6 per cent on revenues that plunged 21 per cent to just under €5bn.
Far from fulfilling former Vivendi boss Jean-Marie Messier's projections that the music industry would more than double in size to US$100bn by 2010, sales have fallen for the past four years to about US$30bn last year.
Since last spring about 1,500 people have lost their jobs at UMG, which yesterday predicted further declines in sales.
The write-downs follow cutbacks in back-office functions among Universal labels including MCA Records, Motown and Island; lower royalty payments to artists; and a "jump start" strategy designed to revive US sales by cutting wholesale prices.
The French group said that, after a debt reduction programme, it would resume dividend payments in 2005, yet left little indication of the strategic direction in which the group is heading.
Jean-Rene Fourtou, chairman and chief executive, said: "In 2004, I expect Vivendi Universal to deliver strong growth in its profit, to reach a level of debt below €5bn at year-end and be in a position to distribute dividends in 2005."
Insisting that Vivendi Universal will remain both a media and a telecoms company, he refused to discuss the possibility of Vodafone launching a takeover bid for the French group in order to get its hands on their jointly-owned SFR mobile business.
Vivendi Universal's other black spot in 2003 was its games division, which lost €201m on sales down 28 per cent to €571m. But Canal Plus returned to the black and the company's results were further buoyed by SFR, where operating profits rose 32 per cent to €1.9bn.
