EMI chiefs forfeited £41m in bonuses after collapse into administration

Generous incentive schemes for executives were cancelled before a single pound was paid out, accounts show

The collapse of EMI Group, the world’s fourth largest music major, into administration last year saw its managers, including chief executive Roger Faxon, forced to share the financial pain by forfeiting an estimated £41m in bonuses.

Faxon and other senior colleagues signed up to generous incentive schemes after the company was taken private by Guy Hands in 2007, but annual accounts published on Wednesday show those schemes were cancelled before a single pound was paid out.

EMI was seized by its bank, Citigroup, in February last year after struggling to manage its £3.2bn debt burden. Terra Firma and Hands lost £1.75bn.

Filings with Companies House show the three bonus schemes Hands set up to motivate senior managers could have paid up to £41m in cash and shares had all gone to plan, according to accounting estimates published with the latest accounts, which cover the period to 31 March 2011. They were due to pay out by 2014 or earlier if the group was sold or publicly listed, but Citi cancelled the payments upon acquiring EMI because “the sale proceeds did not exceed the relevant amount”.

The incentive plan beneficiaries have never been named but are believed to have included Faxon, the recorded music division boss Elio Leoni-Sceti and chief operating officer Leo Corbett.

Also disclosed for the first time in the accounts is the appointment to EMI’s board of a Citigroup employee whose email predicting a huge loss on the deal made headlines last year.

Ian Cockerill was brought in to help untangle the financial mess by being made a director on 1 February, upon the change of control. Cockerill wrote to colleagues in 2007 upon news that his bank was extending the terms of its £2.5bn loans to Terra Firma, saying: “Oh dear, Oh dear! These must be very valuable relationships for us to have extended again. I can see us taking a huge loss on this deal.”

After taking control, Citi sustained heavy losses on its loans to EMI, one of its biggest clients in Europe. As part of the deal the value of Citi’s loans to EMI were cut from £3.2bn to £1.2bn.

EMI revenues fell to £1.45bn in the year to 31 March, down from £1.651bn in 2010, and a little below the £1.569bn achieved in 2009.

The accounts attribute the fall in part to success the previous year with re-released Beatles classics, stating: “A significant contributor to this decline is in Recorded Music due to the success of the Beatles Remastered in the prior year.”

In 2011, the group’s biggest albums were Katy Perry’s Teenage Dream, with more than 5m units sold in the year and over 20m singles, tracks, videos and mobile products. Another EMI artist, Tinie Tempah, sold more singles than any other British artist in the UK during the period, winning two Brit awards including breakthrough act in November 2010.

The Beatles continue to generate major sales, after becoming available for the first time on the iTunes store, with more than 450,000 albums and two million songs sold in the first week.

Ebitda (earnings before interest, tax depreciation and amortisation) fell to £306m from £333m, but remained higher than the 2009 total of £298m.

Both recorded music and music publishing, traditionally considered the less volatile half of the company, suffered a drop in earnings in 2011. Recorded music fell from £185m to £169m, while music publishing slid from £148m to £137m.

Losses including write-downs on the value of the assets narrowed, to £324m from £487m in 2010, and over £1bn in 2009.

Source: The Guardian