business - kronemyer.com group ar 2001.pdfopportunity as we give music fans the greatest possible...

75

Upload: phamxuyen

Post on 25-Mar-2018

217 views

Category:

Documents


1 download

TRANSCRIPT

Page 1: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz
Page 2: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

Contents2 Highlights4 Chairman’s Statement6 Recorded Music

16 Music Publishing24 Financial Review28 Social Responsibility30 Board of Directors32 Directors’ Report33 Corporate Governance36 Remuneration Report

Financial Contents41 Auditor’s Report42 Consolidated Profit and Loss Account44 Balance Sheets45 Statement of Total Recognised Gains and Losses45 Reconciliation of Movements in Shareholders’ Funds46 Consolidated Cash Flow Statement48 Accounting Policies50 Notes to the Financial Statements

Additional Information74 Five Year Summary76 Investor Information77 Subject Index

EMI Group Annual Report 2001

Page 3: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

1

business

Page 4: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

2

Financial SummaryYear ended Year ended

31 March 2001 31 March 2000 Change£m £m %

Group turnover 2,672.7 2,386.5 12.0EBITDA (i) 389.5 348.4 11.8Group operating profit before operating exceptional items and amortisation 332.5 290.6 14.4 Profit before taxation, exceptional items and amortisation (ii) 259.5 245.4 5.7Adjusted diluted earnings per share (iii) 22.3p 19.2p 16.1Dividends per share 16.0p 16.0p –Return on sales (iv) 12.4% 12.2%Interest cover (v) 5.2x 6.9x

(i) EBITDA is Group operating profit before operating exceptional items, depreciation and amortisation of goodwill and music copyrights.(ii) Profit before taxation, exceptional items and amortisation is before both operating and non-operating exceptional items and amortisation of goodwill and music copyrights.(iii) Adjusted diluted earnings per share is before both operating and non-operating exceptional items and amortisation of goodwill and music copyrights.(iv) Return on sales is defined as Group operating profit before operating exceptional items and amortisation of goodwill and music copyrights as a percentage of turnover.(v) Interest cover is defined as the number of times Group EBITDA is greater than Group finance charges.

EMI Recorded MusicEMI Recorded Music’s market sharerose 1.6 points to 14.1%.

31 albums sold 1m copies or more.

The Beatles 1 became the fastestselling album ever. It has now sold over 21m units.

Turnover£2,282.0m

Operating profit£227.5m

EMI Music PublishingEMI Music Publishing remains the world’s biggest and best musicpublisher.

Synchronisation revenues increased11.1%, led by deals as diverse as theJames Bond theme for Playstation, and Singin’ in the Rai for VISA.

Turnover£390.7m

Operating profit£105.0m

Highlights

1

Singin’ in the Rain

2nd proof for pdf 12/6/01 10:20 pm Page 5

Page 5: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

3

2,672.7332.5results22.316.0

Group turnover(£m)

Group operating profit (£m)

Adjusted dilutedearnings per share(pence)

Dividends per share (pence)

Page 6: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

4

Chairman’s Statement

EMI Group produced strong full-yearresults after an excellent second-halfperformance. Group turnover in theyear increased by 12.0% to £2,672.7m,from £2,386.5m, and group operatingprofit improved by 14.4% to £332.5m,from £290.6m.

Profit before tax, amortisation andexceptional items grew to £259.5m in 2001 from £245.4m in 2000. Thegrowth was restricted to 5.7% byincreased interest charges which were largely the result of higher global interest rates and exchange rate movements.

Adjusted diluted earnings per sharewere 16.1% higher at 22.3p. The Boardis recommending a final dividend of11.75p per share, giving a total for theyear of 16.0p per share. This level isunchanged from the previous year,allowing dividend cover to improve to1.4 times from 1.2 times.

These results, achieved in the context of a weak worldwide music market and in spite of the potential distractionof our merger discussions with bothWarner Music Group and BertelsmannMusic Group, demonstrate thefundamental strength and quality of EMI’s businesses.

Eric NicoliChairman, EMI Group

2nd proof for pdf 12/6/01 10:25 pm Page 7

Page 7: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

5

As previously announced, an exceptional charge of £42.9mhas been made in the year, relating to our proposed mergerwith Warner Music Group, which we terminated in October.This charge reflects full formal shareholder and regulatoryapproval processes, and covers advisory fees incurred over a12-month period. There were no significant costs resultingfrom our exploratory discussions with BertelsmannMusic Group.

Both our Recorded Music and Music Publishing divisionscontributed to these encouraging results.

EMI Recorded Music grew turnover by 12.3% and operatingprofit by 16.6%, driven by an increase in global market shareof 1.6 percentage points to 14.1%. We improved market sharein all regions except Japan, where our market share remainedsteady. Our North American business contributed to thisstronger position with a 1.8 point increase to 10.8%. While this trend is encouraging, there remains considerable roomfor improvement. We have taken a number of steps tostrengthen our US management team, most notably theappointment of Andy Slater as President of Capitol Records in April, and we look forward to continued growth in theworld’s most important music market.

EMI Music Publishing strengthened its position as the world’sleading music publisher with another very good performance.Turnover was up 10.4%, and operating profit 9.9%. Wesuccessfully integrated the two acquisitions made in theprevious year–Windswept Pacific and Hit & Run–and we made progress in all income categories.

This has been a challenging year, and my colleagues acrossthe group have worked tirelessly to deliver strong results in a time of significant corporate uncertainty. I am proud of the dedication and commitment shown by all EMI staff.

Now that it is clear that, in the current regulatory environment,a merger with another major music company cannot bepursued at acceptable cost and risk, we will proceed as an independent, music-focused group.

As the world’s largest music publisher and the third largestrecorded music company, we have the resources to competeeffectively in the global market. Our strategic priorities areclear, and we will pursue growth opportunities aggressively.

In Recorded Music, our aim is to produce and market theworld’s best music. We will give particular emphasis to NorthAmerica, where progress will provide disproportionate benefitas we exploit expanding US repertoire across our globalnetwork. In other geographic regions, our drive to increaseour share of local repertoire will continue. The recent signingof the superstar Mariah Carey is a timely demonstration of our commitment to building international repertoire and illustrates our attractiveness to the artist community. We intend to strengthen our already impressive artist roster by continuing to sign and develop new artists such asColdplay from the UK, Chihiro Onitsuka and Hitomi Yaida from Japan and Laam in France. At the same time, we willseek to maximise the full potential of our superb catalogue,epitomised by The Beatles 1 project.

In Music Publishing, our catalogue and our skills in exploitingit are second to none. Evidence can be found in our multiple‘Publisher of the Year’, Grammy and Brit awards, and thecontinued growth in all revenue categories–mechanical,performance and synchronisation. While further acquisitionswould not have been prudent during our merger discussions,we are now free to compete for available catalogues in the future.

Music is at the forefront of new media developments, and digital distribution represents a major long-term growthopportunity as we give music fans the greatest possibleaccess to our artists’ music. New media opportunitiesabound, and we have been quick to embrace the latesttechnologies and to engage partners who provide fast,seamless and legal distribution of music. Our investment and activity to date has been focused on enhancing ourtechnical and management capability. Our participation in the MusicNet partnership, announced in April, will result in the world’s largest online subscription music service, and, together with our many other new media dealstransacted at very modest cost, leaves us well placed to compete in this new arena.

EMI is already one of the world’s most efficient and profitablemusic companies. However, in order to fund the intendedinvestment in artists and repertoire, marketing and promotionand possible acquisitions, we will examine every opportunityto improve our operating efficiency.

In summary, I believe that EMI’s prospects as a stand-alonecompany are good. We have the management strength andcommitment to exploit the opportunities for value creationand to deal with the challenges that lie ahead.

Our performance in the past year was pleasing. Lookingforward, market conditions will remain highly competitive and somewhat unpredictable, but with the benefit of anothergood release schedule in both Recorded Music and MusicPublishing, and the impact of our continuing quest to improveoperating efficiencies, we are well placed to make furtherprogress in the current financial year.

Eric NicoliChairman

1

2nd proof for pdf 12/6/01 10:27 pm Page 8

Page 8: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

The Beatles

21.6m units sold 1

recorded music

Page 9: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

Lenny Kravitz

6.7m units sold Greatest Hits

Page 10: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

Robbie Williams

4.3m units soldSing When You’re Winning

Page 11: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

Utada Hikaru

3.6m units soldDistance

Page 12: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

Coldplay

3.2m units soldParachutes

Page 13: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

12

Recorded Music

The number of albums selling over a million copies increasedto 31 in 2001, compared with 30 in 2000 and 27 in 1999. TheBeatles 1 became the world’s fastest selling album ever, withalmost 22m copies sold around the world, Lenny Kravitz soldnearly 7m, Robbie Williams and Utada Hikaru each sold 4mand Coldplay’s debut album sold well over 3m copies.

In Europe, the size of the recorded music market decreasedby 0.2%, with gains in the UK, Greece and Hungary offset by falls in France, Germany, Sweden and Turkey. In thesechallenging conditions, we increased market share 1.9percentage points, from 17.2% to 19.1%. Reorganisations in France and Germany, coupled with a continued strongperformance from the UK, resulted in substantial increases in market share and profit. We successfully established anumber of new artists, including Coldplay, Melanie C andRichard Ashcroft. After the year end, we acquired two newindependent labels, Poko Rekords in Finland and Dino inHolland. We expect these acquisitions to be an importantlocal source of new artists and repertoire.

In North America, CD album sales increased by 1.6%. Themarket as a whole fell by 6.6%, principally as the result of achange in marketing strategy away from commercial singlesreleases towards more radio marketing. We are delighted with our improved North American operating profit and our1.8 percentage point increase in market share to 10.8%.

The Japanese market slowed its rate of decline, falling 5.7% in 2001 compared with 7.2% in 2000. Our market shareretained most of the gains from the previous year, decreasingmarginally to 11.2% from 11.4%. Utada Hikaru’s second album,Distance, was released on 27 March and sold 3.6m copiesbefore the end of the month, an excellent follow-up to hersuccessful debut in March 1999. We also had a continuedstrong performance from Ringo Sheena, and impressivedebuts by Chihiro Onitsuka and Hitomi Yaida.

The Asian market outside of Japan has fallen slightly, by 0.3%.EMI’s market share, however, has grown from 7.8% to 8.3%,reflecting the continued benefits of our long-term investmentin local repertoire, particularly Mandarin.

In Latin America, local repertoire drove our significant andcontinued improvement in market share, which rose to 16.1%,an increase of 3.4 percentage points. There were particularlystrong performances from Brazil, Mexico and Argentina.

Our classical music divisions also had an excellent year, with a 3.1% increase in worldwide sales. Sarah Brightman wasonce again our top classical seller; La Luna sold 1.4m copiesin the year. We also had substantial success with Maria Callas,whose recordings sold over 1m copies in total, including over0.5m for the recently released compilation album.

EMI Recorded Music had a very strongyear. In a challenging world musicmarket, which shrank by 3.9% in valueterms, EMI Recorded Music increasedsales by 12.3% to £2,282.0m, and grewoperating profit by 16.6% to £227.5m.Our global market share increased by 1.6 percentage points to 14.1% in2001 from 12.5% in 2000, significantlynarrowing the gap between EMI and its nearest competitor. New media contributed £30.7m turnover (2000: £8.8m) and £5.7m operatingprofit (2000: £23.6m) to these totals.

1

Distance

La Luna

Ken BerryCEO, EMI Recorded Music

2nd proof for pdf 12/6/01 10:28 pm Page 15

Page 14: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

EMI Recorded Musicturnover growth (£m)

Market changeby region – value (%)

EMI Recorded Musicoperating profit growth (£m)

North America

Source: EMI estimates on a financial year basis

2000

Europe Japan LatinAmerica

Asia ex.Japan

Rest of World

Total World

1999 2000 20010

2001

EMI market shareby region (%)

North America

2000

Europe Japan LatinAmerica

Asia ex.Japan

Rest of World

Total World

2001

0

9.0

10.8

17.2

19.1

11.4 11.2

7.88.3

12.7

16.116.8

18.6

12.5

14.1

2,057.0 2,032.5

2,282.0

1999 2000 20010

182.2195.1

227.5

0

12.7

-6.6

0.8

-0.2

-7.2

-5.7

6.2

-0.3

1.5

-7.0

-2.6-1.5

3.1

-3.9

13

Major new media deals

DX3European digitalservice provider

GigaMediaBroadbandinternet accessservice andcontent

IchooseTVLondon-based on-demandentertainmentnetwork

ImhotecMusicTabs, a web-basedsoftwareapplication formusic promotion

MusicBrigadeMusic videostreaming

MusicNetOnline musicsubscriptionservice

OD2European digitalservice provider

SoundbuzzAsian digital music distributor

StreamwavesInternet-basedsubscription music provider

TornadoEuropean digitalservice provider

VirtueBroadcastingStreaming and internetbroadcasting

Out at 22 May

Janet JacksonAll For You

Geri HalliwellScream if YouWant to Go Faster

Paul McCartneyWingspan

Emma BuntonA Girl Like Me

JT MoneyBlood Sweat & Years

Now 6

Still to come

AaliyahAirSarah BrightmanMariah CareyManu ChaoLenny KravitzLene MarlinMassive AttackPaul McCartneyChihiro OnitsukaPink FloydRadioheadRingo SheenaSnoop Dogg

Major releases 2001/02

All for You

Wingspan

A Girl Like Me

Blood Sweat& Years

Now 6Scream if YouWanna Go Faster

2nd proof for pdf 12/6/01 10:30 pm Page 16

Page 15: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

14

Recorded Music (continued)

This strong performance provides us with a solid base for further growth. We said in our interim announcement in November 2000 that improving our North Americanperformance was a priority, and since then we have takensome important steps. In April, Andy Slater joined EMI asPresident and CEO of Capitol Records. Andy is an extremelytalented producer and manager. His creative expertise andmanagement skills will enable us further to improve ourperformance in the important US market, particularly bydiscovering, developing and successfully breaking new artists.We are in the process of moving our global Recorded Musicheadquarters to New York from London, and expect to complete this by the end of the year.

New media, while still a relatively small part of our turnoverand profitability, is of great importance for the future ofrecorded music. The internet is transforming how music is marketed and distributed–a key factor in the success of 1 was The Beatles’ website. Similarly, we are promoting the current release, Wingspa , not only through traditionalmedia such as radio and television interviews, but alsothrough the internet, for example staging web-based chats with Sir Paul McCartney.

Our key goal with respect to new media continues to beachieving wide distribution of our music while ensuring that our new media activities generate revenue. In April 2001, we announced another major step towards this goal. We haveformed a joint venture with AOL Time Warner, BertelsmannMusic Group and Real Networks, to be called MusicNet, that will create a secure platform for the digital distribution of music through a variety of media, including internet portals,dedicated internet music sites, and other digital devices. We expect to launch the MusicNet service in the autumn in North America.

We plan to continue to acquire independent labels, andfurther increase our investment in artists and repertoire to generate sales growth. Our business is already highlyefficient and effective, but we are reviewing our operations, in particular manufacturing and distribution, to see if furtheropportunities exist to enhance performance.

Since our year end, we have had a number of notablesuccesses–Janet Jackson’s All For You has already sold over3m copies, and Wingspan, Geri Halliwell, and Now 6 are alsoperforming well. Looking ahead, the release schedule for the remainder of the year is strong, with albums from artistsincluding Aaliyah, Garth Brooks, Mariah Carey, Lenny Kravitz,Paul McCartney, Pink Floyd, Radiohead and Snoop Dogg.

The recorded music market as a whole is in transition, and we expect limited market growth in the current financial yearbefore strengthening in 2003. We are nevertheless confidentthat, with the strength of our release schedule, and ourconsistent focus on the cost base, EMI Recorded Music will be able to continue to outperform the market.

Top SellersPopThe Beatles 121.6m units sold

Lenny KravitzGreatest Hits6.7m units sold

Robbie WilliamsSing When you’re Winning4.3m units sold

Utada HikaruDistance3.6m units sold

ColdplayParachutes3.2m units sold

CompilationNow 472.0m units sold

Hit Mac 20001.8m units sold

McDonald’s Latin1.5m units sold

2001 Grammy PopNominees1.2m units sold

Now 461.2m units sold

Classical Sarah BrightmanLa Luna1.4m units sold

ScorpionsMoment of Glory0.6m units sold

Maria CallasCompilation 0.5m units sold

Helmut LottiOut of Africa 0.5m units sold

Helmut LottiLatino Classics 0.4m units sold

All For You

1Wingspan

Wingspan Now 6

1

Greatest Hits

Sing When You’re Winning

Distance

Parachutes

La Luna

Moment of Glory

Compilation

Out of Africa

Latino Classics

Now 46

Now 47

Hit Mac 2000

McDonald’s Latin

2001 Grammy PopNominees

2nd proof for pdf 12/6/01 10:31 pm Page 17

Page 16: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

15

Sarah BrightmanLa Luna1.4m units sold

Daft PunkDiscovery1.2m units sold

EverclearSongs From an American Movie Vol.11.2m units sold

RadioheadKid A2.6m units sold

Spice GirlsForever2.2m units sold

Snoop DoggTha Last Meal2.1m units sold

Ringo SheenaShoso Strip2.0m units sold

A Perfect CircleMer de Nom1.5m units sold

Melanie CNorthern Star1.4m units sold

UB40Best of…1.2m units sold

St GermainTourist1.1m units sold

Marisa MonteMemories, Chronicles and Declarations1.1m units sold

Tha Last Meal

Shoso Strip

Northern Star

La Luna Best of...

Tourist

Memories, Chroniclesand Declarations

Discovery

Songs From an American Movie Vol.1

Mer de Noms

Kid A

Forever

2nd proof for pdf 12/6/01 10:35 pm Page 18

Page 17: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

music publishing

StingBrand New Day

Reproduced by kind permission A&M Records.

Page 18: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

TexasGreatest Hits

Page 19: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

AerosmithJust Push Play

Page 20: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

20

Music Publishing

We performed well in every region, but especially in the US where sales grew in excess of 20%, and mechanical,performance and synchronisation royalties were each wellahead of last year. Artists such as Sting, matchbox twenty,blink-182 and Jay-Z, all contributed to strong growth in USmechanical revenues. Reflecting this success, our currentartists and writers, including Sting, Lenny Kravitz and FooFighters, won an impressive 11 Grammy awards. Our record of achievement in the US was again recognised by theindustry, with awards from Billboard Magazine (Pop and R&B Music Publisher of the Year), ASCAP (Publisher of the Year) and BMI (Publisher of the Year).

Our catalogue also drove gains in performance andsynchronisation royalties in the US, and our excellent showingin the ‘Songs of the Century’ poll, conducted by the RecordingIndustry Association of America and the National Endowmentfor the Arts, demonstrated its strength. EMI Music Publishingrepresents more than 60 of these songs, including thenumber one ‘Song of the Century’, Over the Rainbow.

Europe also performed well. In Italy, sales gains reflectedstrong mechanical receipts from local repertoire and thepopularity of European superstar Eros Ramazzotti. We again led the German Music Publisher Charts with a record-breaking 24% chart share. Local writers, including StefanRaab, Alex Christensen and Ayman, contributed significantly to this success. Following the continued strong performanceof Estopa, Camela and other local writers, we were namedMusic Publisher of the Year in Spain, and in the UK wereceived Music Week’s Major Music Publisher of the Year Award for the ninth consecutive year.

In Japan, in spite of continued market decline, we madeimpressive gains. Successful local signings coupled withfurther cost-saving initiatives generated substantially increasedoperating profit. In the rest of Asia, we also made importantstrides in growing our business, particularly in Taiwan andKorea, which are significant centres for repertoire development.

While difficult economic conditions persist in Argentina andBrazil, Latin American sales increased significantly, reflectingour ongoing investment and the benefit of our recentlyopened regional office in Miami.

Our success this year reflects the impact of our strategy for continued long-term growth. Over the past few years, we have increased substantially our investment in localrepertoire, reflecting its ever greater importance in the globalmusic market. Another important part of the strategy hasbeen to sign writer/producers, who not only represent a very versatile and prolific source of material, but also provideaccess to important recording artists. Examples includeJermaine Dupri (Jagged Edge, Lil’ Bow Wow, Ludacris), Jam and Lewis (Janet Jackson, Mya) and Rodney Jerkins(Destiny’s Child, Spice Girls, Toni Braxton).

EMI Music Publishing again deliveredexcellent results for the year, withturnover increasing by 10.4%, and netpublishers share by 11.3%. Operatingprofit grew 9.9% to £105.0m. Ourresults reflect a solid underlyingperformance, enhanced by a full-yearcontribution from the Windswept Pacificcatalogue, acquired in July 1999.

We achieved significant growth acrossall income types. Mechanical royaltiesincreased 8.4%, reflecting a substantialgain in market share counteracting the overall decrease in the worldwiderecorded music market. Performanceroyalties roseby12.9%,andsynchronisationrevenues also continued to makeimpressive gains, up 11.1% in the year.

Over the Rainbow.

Martin BandierCEO, EMI Music Publishing

2nd proof for pdf 12/6/01 10:42 pm Page 23

Page 21: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

Music PublishingTurnover growth (£m)Music PublishingTurnover growth (£m)

Music PublishingOperating profit/employee (£’000)Music PublishingOperating profit/employee (£’000)

Music PublishingSynchronisation income growth (£m)Music PublishingSynchronisation income growth (£m)

Music PublishingOperating profit growth (£m) Music PublishingOperating profit growth (£m)

1998 1999 2000 20011998 1999 2000 2001

298.4316.5

354.0

390.7

89.4 87.5

95.5

105.0

1998 1999 2000 2001

150.9

162.4172.7

152.0

1998 1999 2000 2001

29.5

33.8

44.6

49.6

Major new media deals

Peoplesound.comEMI MusicPublishing offerscontracts to thebest and mostpopular of theartists showcasedon thePeoplesound.compan-Europeanwebsite

NokiaUse of EMI MusicPublishing’scatalogue forcustomdownloadable ringtones (Europe)

YamahaUse of EMI MusicPublishing’scatalogue forcustomdownloadable ringtones (Asia)

ClickRadioCustomisedstreaming

EatSleepMusicOnline karaoke

MP3.comMy.MP3 lockers

Out at 22 May

Janet JacksonAll For You

Geri HalliwellScream if YouWant to Go Faster

AerosmithJust Push Play

Emma BuntonA Girl Like Me

Depeche ModeExciter

Vasco RossiStupido Hotel

Still to come

blink-182Enrique IglesiasJamiroquaiOzzy OsbourneStereo MCsStone TempleToolUsher

And Mamma Miacoming soon toBroadway

Major releases 2001/02

21

All for You A Girl Like Me

Exciter

Mamma Mia

Scream if YouWanna Go Faster

Just Push Play Stupido Hotel

Pilots

2nd proof for pdf 12/6/01 10:43 pm Page 24

Page 22: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

22

Music Publishing (continued)

We have also focused on increasing the use of our valuablecatalogue. Synchronisation is one particularly effectiveadditional revenue source, and over the past five years wehave generated compound annual growth in synchronisationincome of 18%. It now represents nearly 13% of our totalrevenue. This is the result of a carefully targeted programmeto promote our broad array of songs, spanning all genres anderas, to advertisers and film and television producers aroundthe world. Major deals this year include licensing Singin’ inthe Rain for VISA, Imagine for Credit Agricole, A Kind of Magic for Cathay Pacific and the James Bond theme tune for a SonyPlaystation game. Using a similar approach, we are increasingour representation on soundtracks and compilations, and in merchandise such as musical toys.

New media is another opportunity to enhance our existingbusiness and create new revenue streams. This past year we expanded our groundbreaking website to serve moreeffectively our licensing customers. We have launched aninnovative site for downloading our KPM production librarydirect to business customers, and have been leaders inlicensing songs for internet-specific uses, through agreementswith, for example, ClickRadio (customised streaming),MP3.com (My.MP3 digital lockers), EatSleepMusic (onlinekaraoke) and Net4Music (digital sheet music). We have alsoled the market in providing custom downloadable mobilephone ring tones through agreements with Nokia in Europeand Yamaha in Asia.

Digital technology is a vital means of providing music loverswith greater speed, access and convenience, and we arecommitted to developing further our new media publishingactivities. The technology also enables us to expand theopportunities for our writers to earn revenue from their work.We welcome recent moves in the legislative and businessenvironments recognising the rights of copyright owners, and look forward to working together with technologyproviders to enhance customers’ music experiences while safeguarding those rights.

With a strong release schedule for 2002, including albumsfrom Enrique Iglesias, Janet Jackson, Jamiroquai, Aerosmith,TLC, Geri Halliwell, blink-182 and Usher, an excellent roster of songwriters, an extensive catalogue and the right strategy in place, I feel confident that EMI Music Publishing is wellpositioned for future growth.

Mechanical royalties:royalties paid for eachphysical copy of a song (e.g.CD, cassette, musical toy)

Performance royalties:royalties paid for the right to perform a song

Synchronisation revenue:payment for musicsynchronised to a movingimage, for example the themeto a movie or a song used in a TV commercial

MajorSynchronisationDealsGetting BetterPhilips Electronics

Imagine – Credit Agricole

A Kind of MagicCathay Pacific

The James BondTheme Playstation

Wicked gardenNissan

Changes Novell OneNet

Baby I Need YourLoving Viagra

Singin’ in the RainVISA

Misirlou Heineken

You Got It AT&T

Top 10 TitlesImagine

James BondTheme

Have your self a Merry LittleChristmas

Genie in a Bottle

You Can’t HuryLove

Little Drummer Boy

Santa ClausisComing to Town

I Heard it Throughthe Grapevine

Sleigh Ride

BohemianRhapsody

Singin’ in the Rain Imagine A Kind of Magic

Imagine

Have Yourselfa Merry LittleChristmas

Genie in a Bottle

You Can’t HurryLove

Little Drummer Boy

Santa Claus isComing to Town

I Heard it Throughthe Grapevine

Sleigh Ride

Bohemian Rhapsody

Getting Better

Imagine

A Kind of Magic

The James BondTheme

The James BondTheme

Wicked Garden

Changes

Baby I Need YourLoving

Singin’ in the Rain

Misirlou

You Got It

2nd proof for pdf 12/6/01 10:44 pm Page 25

Page 23: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

23

Enrique IglesiasEnrique

OffspringConspiracy of One

Jay-ZThe dynasty Roc La Familia(2000–)

matchbox twentyMad Season

blink-182Enemy of the State

Martine McCutcheonWishing

Eros RamazzottiStilelibero

EstopaEstopa

PinkCan’t Take Me Home

Melanie CNorthern Star

Guano ApesDon’t Give Me Names

St GermainTourist

Enrique

Conspiracy of One

The DynastyRoc La Familia(2000–)

Mad Season

Enema of the State

Wishing

Stilelibero

Estopa

Can’t Take Me Home

Northern Star

Don’t Give Me Names

Tourist

2nd proof for pdf 12/6/01 10:54 pm Page 26

Page 24: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

financial review

Sir Simon Rattle

Page 25: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

26

Financial Review

Trading and profit before taxTurnover Operating profit*

2001 2000 Change 2001 2000 Change£m £m % £m £m %

Recorded Music 2,282.0 2,032.5 12.3 227.5 195.1 16.6Music Publishing 390.7 354.0 10.4 105.0 95.5 9.9Group total 2,672.7 2,386.5 12.0 332.5 290.6 14.4Return on sales 12.4% 12.2%Before operating exceptional items and amortisation.

Group turnover grew by £286.2m (12.0%) to £2,672.7m,including £101.4m from exchange on translation. Reportedturnover by region was materially distorted by exchange on translation, which depressed the results for Europe but enhanced results in both the US and Asia.

Group operating profit (EBITA) increased by £41.9m (14.4%) to £332.5m, reflecting underlying profit growth of 20.6% anda £13.1m decrease in new media earnings. These comprisee-commerce, licence and other realised new media revenues less related artist and infrastructure investmentcosts. Exchange on translation contributed £9.3m to profit. In Recorded Music, operating profit was £32.4m higher despite a £17.9m reduction in new media earnings. Excludingcurrency changes, profits improved in all regions, principallyas a result of higher sales. In Music Publishing, operatingprofit rose broadly in line with turnover.

A detailed explanation of trading performance is given in theBusiness Reviews on pages 6 to 23.

Group turnover for the second half rose by £222.2m (17.0%)to £1,528.6m, of which £63.8m was attributable to exchangeon translation. Recorded Music sales were up £219.1m (19.7%)with increases in every region and particularly strong growthin North America driven by The Beatles and Lenny Kravitz,and in Asia by Utada Hikaru. Music Publishing sales in thesecond half rose by £3.1m (1.6%), in line with world markets.

Group operating profit for the second half increased by£50.1m (29.2%) to £221.6m including £6.7m from exchangeon translation. Recorded Music profits were up £50.9m(43.6%) reflecting strong second-half sales in North Americaand Japan. In Music Publishing, second-half profits werebroadly flat.

EMI’s share of operating profit in associates fell from aprofit of £0.8m last year to a net loss of £3.8m. The net losswas mainly attributable to set-up costs in Blackground relating to albums that will be released in the early part of 2001/02.

Group finance charges of £74.3m were £24.0m higher than last year (2000: £50.3m). This increase was attributableto adverse exchange rate movements (£5.8m), higher marketinterest rates (£11.9m) and higher average debt levels (£6.3m).The rise in average debt reflects higher trade debtors, in line with improved sales, and costs relating to the proposedmerger with Warner Music Group (£1.8m).

EMI has a 42.65% investment in HMV Media Group thatyielded pre-tax profits of £5.1m, an increase of £0.8m. Within this result, the joint venture operating profitimproved by £6.7m to £34.4m driven primarily by growth from the HMV music stores and largely offset by an increase of £5.9m in joint venture finance charges to £29.3m.

Adjusted profit before tax (adjusted PBT) beforeamortisation and exceptional items increased by 5.7% to £259.5m (2000: £245.4m).

Other items affecting earningsThe group tax rate, before amortisation and exceptional items, and including HMV Media Group, fell to 25.4% from30.0% last year. The decrease is attributable to a substantialrepayment of Advance Corporation Tax as a result of payingForeign Income Dividends and to other non-recurring items.

Amortisation of copyrights acquired and goodwill onacquisitions increased by £19.2m to £53.8m. This increaseresults from the acquisitions last year of the WindsweptPacific and Hit & Run publishing catalogues and the urbanNorth American record label, Blackground, together with the acquisition this year of a 50% stake in the No Limit record label.

*

Tony BatesGroup Finance Director

2nd proof for pdf 12/6/01 10:56 pm Page 29

Page 26: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

27

The £42.9m operating exceptional charge this year consistsmainly of advisory fees arising from the proposed merger with Warner Music Group. Last year, the operating exceptionalcharge of £4.0m principally related to Windswept Pacificintegration costs. There was no tax credit recognised on the current year exceptional charge (2000: £0.6m credit).

Last year’s £42.5m non-operating exceptional gain includedthe profit on disposal of an investment in a non-core business,offset by the small net cost of selling EMI’s Italianmanufacturingand distribution operation and its German distribution operation.There was no tax charge attributed to the net gain.

The minority interest charge has fallen by £2.9m to £15.0m as a result of additional management charges in Japan.

The overall result was net earnings of £82.0m.

Adjusted diluted earnings per share were 22.3p (2000: 19.2p).The Board is recommending a final dividend of 11.75p tomaintain the total dividend for the year at 16.0p. Dividendcover has improved to 1.4 times (2000: 1.2 times).

Cash flow and net borrowingsThe net cash inflow from operating activities was £314.8m.After net new investment in fixed assets, copyrights and otheritems of £32.1m, acquisitions of £26.7m, tax paid of £48.5m,interest costs of £75.6m, equity dividends of £125.2m anddividends to minority interests of £25.2m, debt increased by £18.5m. Debt increased by a further £53.1m as a result of exchange rate movements, reaching £992.8m at year-end(2000: £921.2m).

Treasury managementTreasury policiesTreasury activities are carried out within a framework ofpolicies and guidelines approved by the Board, with controland monitoring delegated to the Treasury ManagementCommittee, which is chaired by the Group Finance Director.These policies ensure that adequate, cost-effective funding is available to the group at all times and that exposure tofinancial risks is minimised. Treasury policies have remainedunchanged throughout the financial year.

Financial instruments held by the group comprise derivatives,borrowings, cash and liquid resources and other financialassets and liabilities. Their purpose is to raise finance for the group’s operations. Treasury policies prohibit their use for speculative purposes.

Funding and interest rate riskFunding is managed via the use of short-term and medium-term committed and uncommitted bank facilities. In addition,EMI has raised US$500m via a 10-year Guaranteed Notesissue. Bank facilities have a broad range of maturities, whichare renegotiated as they fall due.

The group borrows in various currencies at fixed and floatingrates, and uses swaps, caps and collars to manage exposureto interest rate fluctuations. Treasury policy is to keep between25% and 75% of borrowings at fixed or capped rates. At the year-end, 72.5% of borrowings were fixed or capped.Financial instruments held at 31 March 2001 to manageinterest rate risk are disclosed in Note 19 (viii) on page 63.

Foreign currency riskThe group faces currency exposure from exchange ratefluctuation against sterling. Balance sheet exposures arehedged to the extent that overseas liabilities, includingborrowings, provide a natural hedge. Group policy is not to undertake additional balance sheet hedging measures, nor to hedge profit and loss account translation exposure.Transaction exposures are hedged, where appropriate, with the use of forward exchange rate contracts.

Forward rate contracts held at 31 March 2001 are disclosed in Note 19 (viii) on page 63.

Group turnover by originGroup turnover by origin

Group operating profit by originGroup operating profit by origin

Turnover(£m)

Operating profit beforeoperating exceptionalitems and amortisation(£m)

1,528.6

1,144.1

2001

171.5

119.1

2000

221.6

110.9

2001

%1 UK 12.62 Rest of Europe 28.23 North America 33.24 Asia 18.25 Other 7.8

%1 UK 13.02 Rest of Europe 34.23 North America 23.04 Asia 22.45 Other 7.4

1

2

3

45 1

2

3

45

1,306.4

1,080.1

2000

First and secondhalf analysis First half

Second half

2nd proof for pdf 12/6/01 10:57 pm Page 30

Page 27: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

28

EMI recognises that its responsibilities as a business extend to the community in which it operates. EMI’sStandards of Business Conduct policy identifies the widerange of stakeholders with a legitimate interest in its businesspractices, and sets out the basic values according to which it manages its business.

We are also aware that our interaction with society isattracting increasing attention, and that there is a trendtowards wider disclosure in areas of social impact such asemployment and community investment. We are taking stepsto ensure central collation of some common performanceindicators for future reports, including workplace data such asthe percentage of women in management, and health and safetyperformance data.

EmploymentThe group’s decentralised organisation empowers localmanagement. Responsibility for employment matterstherefore rests primarily with each business operation underthe umbrella of EMI Group’s policy and procedure guidelines.

EMIGroup companies arecommitted to a work environment that:

– is free of discrimination on the grounds of gender,nationality, ethnic or racial origin, non-job-related disabilityor marital status;

– encourages open and two-way communication at all levelson an individual and all-employee basis;

– maximises the well-being and productivity of all employeesby promoting the highest levels of safe and healthy workpractices.

Our employee grievance procedures were augmented thisyear with the introduction of a policy and procedures onpublic interest disclosure. This is intended to providesafeguards to enable employees to raise concerns inconnection with the company.

In the UK, we operate a Savings-Related Share OptionScheme for employees; information on share options grantedto employees is given in Note 25 (ii) on page 67.

Social Responsibility

1995 1996 1997 1998 1999 2000 2001 1995 1996 1997 1998 1999 2000 2001

48.8

43.245.1

50.3 48.9 47.8

38.9

Global warming potentialCO2 emitted due to energy use in buildings/factories (kilotonnes/year)

Global warming potentialCO2 emitted due to energy use in buildings/factories per unit turnover (tonnes/£m)

103.3

116.9 114.2121.8

115.0 114.0104.0

In December,100 Capitol Records andEMI employees gave a day to helpbuild affordable housing in a LosAngeles Habitat for Humanity project.

2nd proof for pdf 12/6/01 10:58 pm Page 31

Page 28: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

29

CommunityCharitable support at a group level continues to be focusedon The Music Sound Foundation (MSF), formed by EMI to mark the 1997 centenary of EMI Records and now anindependently operated UK-based charity. MSF’s mission is to improve music education. The majority of its funding is used to help schools secure Arts College status within theSpecialist Schools Programme, but it also grants bursaries to music colleges and provides funds to individual students,schools and music teachers. To date MSF has madedonations exceeding £1m and sponsored13 schools tobecome Arts Colleges.

EMI is also a strong supporter of the arts in the UK, and afounder sponsor of Japan 2001, a year-long programme ofarts and lifestyle events designed to celebrate and expand the links between Japan and the UK.

At a local level, our individual businesses decide how best to focus their support, whether financial, practical, or both. The main areas of support are youth initiatives and education,health and human services, arts and culture, and the localcommunity. Some current projects include:

– support by Virgin Records UK of the Ready-to-Work project of Business Action on Homelessness, through work placements, mentoring and training, and helping to raise awareness of the scheme across our industry;

– the EMI/Selena and EMI/Nat King Cole scholarship programmes, designed to support Latino and African-American students in their higher education in the US;

– a leading role taken by EMI Compact Disc in the Netherlandsin an initiative to help the long-term unemployed back into work, through training and, where appropriate, subsequent short-term and long-term employment.

The scale of our activity in the UK was recognised inDecember 2000 by the PerCent Club logo. This is acommunity investment benchmarking scheme run byBusiness in the Community; the logo is assigned to thosecompanies that invest, through a combination of cash, time and gifts in kind, 1% or more of their pre-tax profits in community initiatives.

EnvironmentOur ninth annual Environmental Report will be published thissummer, covering the full range of activities undertaken by ourindividual businesses and providing detailed performancedata across a range of indicators.

A highlight of the year was a switch to renewable energysources for our UK manufacturing and distribution facilities in Swindon and Leamington Spa. Renewable sources now satisfy 55% of our electricity demand in the UK – anachievement recognised when we were chosen as the winnerin the ‘Green Energy’ category of the Energy InformationCentre’s annual energy awards in May 2001.

Using renewable energy sources reduces our indirect CO2

emissions and our consequent contribution to global warming– something we have measured since the beginning of ourprogramme. This year’s reduction results from a combinationof our switch to renewables and the disposal of somemanufacturing operations. The significant reduction in solventuse this year has contributed to a 61% drop in consumptionper unit of output since 1995. Hazardous waste dropped by7%, but waste per unit of output rose slightly, due to lowervolumes at one plant and a delay in commissioning somewaste treatment equipment.

We remain certified to ISO 14001 at our manufacturing plants in the UK, the Netherlands and Japan, which togetheraccounted for 62% of our CD output this year. We are alsopleased that our manufacturing facility in the US has decidedto pursue certification. Once it achieves this goal, over 90% of our CD output will come from certified plants.

EMI retained its high ranking in the media sector in Business in the Environment’s 2000 ‘Index of Corporate EnvironmentalEngagement’, and is included in the 2000 Dow JonesSustainability Group Index.

More detailed information on our environmental programmeand The Music Sound Foundation can be found on ourwebsite, www.emigroup.com.

1995 1996 1997 1998 1999 2000 2001

220.4

141.8131.5

103.0110.5 106.9

81.3

1995 1996 1997 1998 1999 2000 2001

0.690.66

0.45

0.53

0.340.37 0.38

Solvent use(litres/million units output)

Hazardous waste(tonnes/million units output)

www.emigroup.com.

2nd proof for pdf 12/6/01 11:00 pm Page 32

Page 29: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

30

Board of Directorsfor the year ended 31 March 2001

Eric Nicoli (50)ChairmanEric Nicoli was appointed to the Boardin 1993 as a Non-executive Director,becoming executive Chairman in July1999. Until 30 April 1999, he was GroupChief Executive of United Biscuits(Holdings) plc (UB), which he joinedfrom Rowntree Mackintosh in 1980. He was appointed to the UB Board in 1989 as Chief Executive, EuropeanOperations and became Chief Executiveof UB in1991.

Mr Nicoli is Chairman of the PerCentClub, Deputy Chairman of Business inthe Community and a Director of HMVMedia Group plc, Caldicott Trust Ltd,Charity Projects, Comic Relief Ltd andThe Tussauds Group Ltd.

Tony Bates (45)Group Finance Director and Executive Vice President (EVP) andChief Financial Officer (CFO), EMI Recorded MusicTony Bates was appointed GroupFinance Director and joined the EMIBoard on 1 January 2000, combiningthis position with his previous role ofEVP and CFO of EMI Recorded Music.He joined EMI from Habitat UK in 1990,where he had been Finance Director. Mr Bates has worked in a number ofsenior positions in both the EMI andVirgin businesses and played anintegral role in the acquisition of thelatter business in 1992.

Martin Bandier (59)Chief Executive Officer, EMI Music PublishingMartin Bandier was appointed to theBoard in April 1998. He joined EMIMusic Publishing as its Vice-Chairman in 1989 upon the acquisition of SBKEntertainment World Inc. (SBK), inwhich he was a founding partner. He was appointed CEO of EMI MusicPublishing in 1991.

Mr Bandier entered the musicpublishing business in 1975 as afounding partner of the EntertainmentMusic Company and the EntertainmentTelevision Company and, together withhis partners, created SBK in 1986.

Mr Bandier is a Director of the NationalMusic Publishers’ Association, the BMIFoundation, the Songwriters’ Hall ofFame, the Rock and Roll Hall of Fameand the Syracuse University Board ofTrustees. He is also a member of theFriars Foundation and the NationalAcademy of Recording Arts and Sciences.

Ken Berry (49)Chief Executive Officer, EMI Recorded MusicKen Berry was appointed to the Boardin April 1998 and is responsible for theGroup’s recorded music operations. He joined EMI in 1992 as Chairman and CEO of Virgin Music, upon itsacquisition from the Virgin Group. In1994, he was promoted to the new post of President and CEO of EMIRecorded Music, responsible for EMI’srecorded music operations outsideNorth America, and was appointedCEO of EMI Recorded Music worldwidein June 1997. Mr Berry began his career in the music industry in 1973 with VirginGroup, where he became ManagingDirector of Virgin Music.

Executive Directors

2nd proof for pdf 12/6/01 11:07 pm Page 33

Page 30: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

31

Hugh Jenkins CBE (67)Hugh Jenkins joined the Board in 1995. He was appointed Chairman of Development Securities PLC in 1999.Until 1995, Mr Jenkins was Chairmanand Chief Executive of PrudentialPortfolio Managers and a Director of Prudential Corporation.

Mr Jenkins is a Director of JohnsonMatthey plc, Gartmore EuropeanInvestment Trust plc and SmithKlineBeecham Pension Fund Trustees Ltd.He is also an Advisory Director ofLondon Economics Ltd.

Sir Dominic Cadbury (61)Deputy Chairman and seniorindependent Non-executive DirectorSir Dominic joined the Board in 1998,becoming Deputy Chairman and seniorindependent Non-executive Director in July 1999. He is Chairman of theRemuneration and NominationCommittees.

Sir Dominic retired as Chairman ofCadbury Schweppes plc on 12 May2000 after seven years in that post,having joined the company in 1964 after graduation from StanfordUniversity. He joined the Board ofCadbury Schweppes in 1974 asManaging Director of its Foods Divisionand subsequently held a number of Board positions. Sir Dominic isChairman of The Economist Group and The Wellcome Trust. He is also a Director of the Teaching Awards Trust and Misys plc.

Dr Harald Einsmann (67)Harald Einsmann joined the Board in 1992. He retired as Executive Vice-President and a member of Procter & Gamble’s Main Board and ExecutiveCommittee in 1999.

Dr Einsmann is a Director of Tesco plc and British American Tobacco plc. He is also a member of the Boards ofFindus AB of Sweden and Stora-EnsoOY of Finland, a member company of the Swedish Wallenberg Group.

Michael Jackson (43)Michael Jackson was appointed to the Board in October 1999. He is ChiefExecutive of Channel Four TelevisionCorporation, which he joined in June1997. Mr Jackson started his career as an independent television producer,joining the BBC in 1987 as an editorand subsequently holding various posts, including Head of Music & Arts,Television, Controller BBC2, andDirector of Television and ControllerBBC1. He is also Chairman of ThePhotographers’ Gallery Ltd.

Kathleen O’Donovan (44)Kathleen O’Donovan joined the Board in 1997 and has chaired the AuditCommittee since 1999. She is FinanceDirector of Invensys plc, the globalengineering services company formedby the combination of BTR and Siebe in 1999. Ms O’Donovan joined BTR as Finance Director in 1991 from Ernst & Young, where she had been apartner; she is also a member of theCourt of the Bank of England.

Board Committees

Non-executive Directors

Audit Committee Chaired by Kathleen O’DonovanMembership: All Non-executiveDirectors. The Group Finance Director, the Headof Internal Audit and representatives ofthe Company's external auditor attendmeetings by invitation.

Remuneration CommitteeChaired by the Deputy ChairmanMembership: All Non-executiveDirectors. The Chairman and the Group’s Director,Human Resources, normally attendmeetings by invitation.

Nomination CommitteeChaired by the Deputy ChairmanMembership: All Non-executiveDirectors and the Chairman.

Executive CommitteeChaired by the ChairmanMembership: All Executive Directors. Senior Company executives may beinvited to attend meetings.

Finance CommitteeUsually chaired by the ChairmanMembership: The Chairman and the Group Finance Director. The Director, Tax and Treasury, may be invited to attend meetings.

Capex CommitteeChaired by the ChairmanMembership: The Chairman and the Group Finance Director. Other Directors, senior Companyexecutives and external advisers may be invited to attend meetings.

2nd proof for pdf 12/6/01 11:09 pm Page 34

Page 31: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

32

Directors’ Reportfor the year ended 31 March 2001

The Chairman’s Statement, the Business Reviews and the Financial Review in this Annual Report together contain detailsof the principal operations of the Group and their resultsduring the year as well as likely future developments.

DividendsAn interim dividend of 4.25p per Ordinary Share was paid on 1 March 2001. The Board is recommending a final dividend of 11.75p per Ordinary Share, making a total of 16.0p (2000:16.0p). The final dividend will be paid on Monday, 1 October2001 to Ordinary Shareholders on the register as at the closeof business on Friday, 7 September 2001, with the sharesgoing ex-dividend on Wednesday, 5 September 2001.

Substantial shareholdersAs at 17 May 2001 the Company had been notified of thefollowing interests of 3% or more in its Ordinary Shares:

% ofNo. of capitalshares held

Merrill Lynch & Co, Inc. group of companies including Mercury Asset Management Limited 50,888,273 6.45

Prudential plc group of companies 28,698,646 3.64Government of Singapore

Investment Corporation Pte. Ltd. 30,260,215 3.84

Share capitalChanges in the Company’s share capital during the year areset out in Note 25 on page 67.

Employment policiesInformation on the Group’s employment policies is given on page 28.

Supplier payment policyThe Company negotiates payment terms with its suppliers on an individual basis, with the normal spread being payment atthe end of the month following delivery plus 30 or 60 days. It is the Company’s policy to settle the terms of payment whenagreeing the terms of each transaction, to ensure that thesuppliers are made aware of the terms, and to abide by them.

The number of days’ purchases outstanding at 31 March 2001is calculated at 17 days (2000: 24 days).

Charitable and political contributionsCharitable, sponsorship and fund-raising activities carried outduring the year within the Group contributed some £1.3m (2000: £1.7m) to charitable organisations and communitiesaround the world. These included UK charitable donationsamounting to £0.4m (2000: £0.5m). No political contributionswere made (2000: £nil).

Research and developmentResearch and development is the responsibility of the Group’sbusinesses. During the year, Group expenditure on researchand development totalled £0.1m (2000: £0.1m).

DirectorsThe present Directors of the Company are named on pages30 and 31. All served as Directors throughout the year.

Mr M N Bandier, Mr K M Berry, Sir Dominic Cadbury and Ms K A O’Donovan all retire by rotation at the Annual GeneralMeeting pursuant to Article 112(A) and, being eligible, offerthemselves for re-election.

No Director had a material interest in any contract ofsignificance subsisting at the end of, or during, the yearinvolving any Group company, other than those who have a service contract and Mr Berry who has an option topurchase, at fair market value, the house in Los Angelesprovided to him rent-free by the Group. Details of Directors’interests in the shares of the Company are set out in theRemuneration Report on pages 39 and 40.

AuditorErnst & Young has stated that on 28 June 2001 it intends to transfer its business to a limited liability partnershipincorporated under the Limited Liability Partnerships Act 2000,to be called Ernst & Young LLP. The Directors have consentedto treating the appointment of Ernst & Young as auditor asextending to Ernst & Young LLP with effect from 28 June 2001.Resolutions to reappoint Ernst & Young LLP as the Company’sauditor (subject to, on the date of the Annual General Meeting,the transfer of Ernst & Young’s business having taken effect asplanned) and authorising the Directors to determine theirremuneration will be put to the forthcoming Annual GeneralMeeting.

Annual General MeetingThe 2001 Annual General Meeting of the Company will be held at 11.30am on Friday, 20 July 2001 at the Hotel Inter-Continental London, 1 Hamilton Place, Hyde Park Corner,London W1. The Notice of the Annual General Meetingaccompanies this Annual Report. In addition to the ordinary business of the meeting, resolutions will be put toshareholders giving authority to the Directors to allot shares, to disapply pre-emption rights and to purchase the Company’sown shares. Further explanations of these matters areprovided in the letter to shareholders that accompanies the Notice.

By Order of the Board

C P AshcroftSecretary

21 May 2001

2nd proof for pdf 12/6/01 11:11 pm Page 35

Page 32: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

The Board meets at least six times each year, with addit i o n a lm e etings or contact between mee tings as nece s sary. The programme for each year is approved by the Board and, cur re n tly, involves reviews of strategy, together with the operations and re sults of the two main business units, as well as the approval of annual budgets and mediu m-t e r mp l a n s. Act ual results for the Group and individual bu s i n e s su n its are re p orted to all Directors each month. At least onceeach year the Board meets at the premises of one of theG roup’s busin ess operations, to allow for presentations by, and more detailed di scussions with, local management.

These pro c e d u res, together with other regular and ad hocre p o rts, are intended to ensure that the Board is supplied in a timely manner with information app ropriate to thedi s c h a rge of its dut i e s.

The Board has delegated certain matters to standi n gc o m mittees, details of which are set out below. However, to ensure its overall control of the Company’s affairs, the B oard has res erved certain matters to itself for deci s i o n.These include the Gro u p’s stra t egic plans and annu a lo pera ting budgets, significant acqu i s itions or disposals ofcompanies, businesses or assets, and significant con t ract u a lc o m m itments or items of expendit u re, together with policiesrelating to the Group’s tre a s u ry function, pensions, majorl itigation, employee share schemes, and environmental and ethical issues.

All Directors have access to the services and advice of theCompany Secre t a ry, and there are also pro c e d u res forD i rectors, in appropriate circ u m s t a n c es, to obtain independentp rofessional advice at the cost of the Company.

The Executive Directors are permitted to take ext e r n a lappointments as non-executive directors, usually up to a maximum of two. They may retain the re m u n e ration from such appointments. All appointments must be approved by the Board to avoid conflicts of intere s t.

B o a rd committeesThe principal committees of the Board are the Audit ,R e m u n e ration, Nomination and Executive Commit t e e s.Reflecting the important role played by the independent N o n-executive Directors in ensuring high standards of corporate governance, the Audit and Remunera t i o nC o m m ittees comprise all the Non-executive Dire c t o r s. The Audit Committee is chaired by Kathleen O’Donovan, whilst the Remuneration Committee is chaired by Sir DominicC a d b u ry, the senior independent Non-executive Dire c t o r. The Nomination Committee comprises the Chairman, in addition to all the Non-executive Directors, and is also c h a i red by the senior independent Non-executive Dire c t o r. The Executive Committee comprises the Chairman, the G roup Finance Director and the Chief Executive Officers of the Company’s two main business unit s. Each committee has written terms of re f e rence and levels of authority and,except in the case of the Remuneration Committee, minutesof meetings are circulated to all Dire c t o r s.

EMI re mains committed to high standards of corpora t egov e rnance. The Board considers that the Company ha scomplied through out the year with the Code provisionsset out in Section 1 of the Combined Code, issued by theComm ittee on Corp o rate Governance, apart from tho s erelating to the length of Di rect o rs’ service con t racts, which are di scussed in the Remu n e ration Re p ort (on page 38) .

Ernst & Young have reviewed the Company’s statement as toits compliance with the Combined Code, in so far as it re l a t e sto those parts of the Co m bined Code which the UK Listin gA u t h ority specifies for their review, and their re p ort is set ou ton page 41.

The re mainder of this section pro v ides an explanation of howEMI applies the principles of good go v ern ance which are se tout in the Combined Co d e .

The BoardThe Board of EMI currently comprises four Ex ecutive Di rect o r sand five Non-ex ecutive Direct o r s. All of the No n-e x ecutiv eDirectors are con s i d e red to be independent of mana g e m e n tand free from any business or other relationship which couldmaterially interf e re with the exercise of their independentj u d g e m e n t. As re f lected in their biographies, which appear on pages 30 and 31, the Directors have a wide range of experi e nce in multinational and co n s u m e r-o r i e n t a t e db u sin e s s e s. The Board there f o re has a bal anced range of exp e r i ence .

E ric Nicoli is both Chair man and the senior executive officer of the Com p a n y. Day-t o-day executive re s p o n sib i lity for ther unning of the Comp a ny’s two main businesses lies with Ken Berry, as Chief Ex e c u tive Officer, EMI Reco rded Mu s i c ,and Martin Bandier as Chief Ex ecutive Officer, EMI Mu sicP u bli shing, who each re p o rt to Eric Nicoli. Given the roles of Ken Berry and Martin Bandier, the Board considers that the appointment of an executive Chairman, who bringsc o m p l e men t ary skills and experience, is the most effect i v estruct u re for EMI and is in the best interests of both theCompany and its share h o l d e r s. It also appropriately reco g n i s e sEMI’s position as a listed company whilst avoiding duplica t i o nof roles and a resulting diffusion of management re s p o n s i b i lity.The Board further considers that the nature and level ofm atters re s erved for decision, either to the Board as a wh o l eor to stan ding co m mittees of the Board, appro p r i a t ely lim it the aut h o rity of the Chairman and reflect the fact that theposts of chair man and senior executive officer are combinedin one person.

It is the Board’s policy that, so long as the Chairman is also the senior executive officer of the Company, the independentN o n-e x e c utive Directors should comprise a num e r i cal majorityof the Board and that the senior independent Non-e x e cutiv eD i rector should also be either sole or joint Deputy Chairm a n. Sir Dominic Cadbury is the senior independent Non-e x ecutiv eDirect o r.

The appointment of Directors and executive appointmentsw it hin the Board are co n s i d e red by the Board as a wholebased on re c ommendations from the Nomin ation Co m m itt e e .The Articles of Association include a re q u i rement that allDirectors should sub mit themselves for re-e l ect ion by thes h a reholders at least once every three year s.

Corporate Governance

33

Page 33: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

The role of the Remuneration Committee is described onpage 36. It meets at least three times each year. The mainresponsibilities and procedures of the other three principalCommittees are as follows:

Audit Committee – makes recommendations to the Boardregarding the appointment of the external auditor, and reviews their independence and objectivity. The Committeereviews the half-year and annual financial statements, withparticular reference to accounting policies and practices, and the scope and results of the audit. It also reviews theGroup’s system of internal control including the riskassessment and audit plan of the Internal Audit Departmentand other control procedures. The Committee meets three times each year, and its meetings are normally attendedby the Group Finance Director, the external auditor and theHead of Internal Audit. At least once each year the Committeemeets with the external auditor without the presence ofExecutive Directors or other management.

Nomination Committee–makes recommendations to theBoard on the appointment of Directors and the reappointmentof Non-executive Directors on the expiry of their three-yearterm of appointment. The Committee meets when required.

Executive Committee– is responsible for the approval ofacquisitions, divestments, capital expenditure and contractualcommitments below the level which the Board has reserved to itself for decision, and for certain operational, administrativeand other routine matters. The Committee also regularlyreviews and reports to the Board on the performance of theGroup’s businesses. The Committee meets at least six timeseach year.

Directors’ remunerationInformation about the Company’s remuneration policy andprocedures, together with the Directors’ remuneration, is givenin the Remuneration Report on pages 36 to 40.

Directors’ responsibilitiesUK company law requires the Directors to prepare financialstatements for each financial year, which give a true and fairview of the state of affairs of the Company and of the Groupand of the profit or loss of the Group for that period. Inpreparing those financial statements, the Directors arerequired to select suitable accounting policies and then applythem consistently, to make judgements and estimates that are reasonable and prudent, and to state whether applicableaccounting standards have been followed, subject to anymaterial departures disclosed and explained in the financialstatements. The Directors confirm that they have complied with these requirements in preparing the financial statementson pages 42 to 73.

The Directors are responsible for keeping proper accountingrecords which disclose, with reasonable accuracy at any time,the financial position of the Group and enable them to ensurethat the financial statements comply with the Companies Act1985. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for theprevention and detection of fraud and other irregularities.

34

Going concernThe Directors believe, after making inquiries that they considerto be appropriate, that the Group has adequate resources to continue in operational existence for the foreseeable future.For this reason, they continue to adopt the going concernbasis in preparing the financial statements.

Internal controlThe Board is responsible for the Group’s systems of internalcontrol and for reviewing their effectiveness. These can onlyprovide reasonable and not absolute assurance againstmaterial misstatement or loss.

The full Board meets regularly throughout the year and thematters specifically reserved for its approval ensure that theDirectors maintain control over significant strategic, financialand compliance matters.

The Group has an established organisational structure withclearly defined lines of responsibility and reporting. The Boardhas devolved to executive management the responsibility forthe implementation and maintenance of the Group’s system of internal control. Each business unit operates in accordancewith policies and procedures applicable, in common, to all of the Group’s units.

The Group operates comprehensive annual planning, financial reporting and forecasting processes. The Boardformally approves medium-term strategic plans, which focuson key business risks, and annual budgets. The Group’sperformance is monitored against budget on a monthly basis and all significant variances are investigated. There aredefined authorisation procedures in respect of certain matters,including capital expenditure, investments, the granting ofguarantees and the use of financial instruments. The Boardalso receives, twice yearly, a review of all material litigationundertaken by or against the Group’s companies andconsiders the associated risks.

The strength of an internal control system is dependent on the quality and integrity of management and staff. A routinecompliance certification process throughout the Group, underwhich key executives and managers confirm their compliancewith the Group’s policies and procedures, reinforces thisintegrity.

The internal audit function operates as one Group-widedepartment, which monitors and supports the internal controlsystem and reports both to the Audit Committee and theGroup’s senior management. The responsibilities of theinternal audit function include recommending improvements in the control environment and ensuring compliance with the Group’s procedures and policies. The Audit Committeereviews the risk assessment and audit plan prepared by the Internal Audit Department.

An ongoing process for identifying, evaluating and managingthe significant risks faced by the Group has been in place for the year under review and up to the date of this Report. This process is regularly reviewed by the Board and accordswith the guidance prepared by the ICAEW’s Internal ControlWorking Party contained in Internal Control: Guidance forDirectors on the Combined Code (the Turnbull Report).

Audit Committee

Nomination Committee

Executive Committee

A/W EMI A/R 2001_ B/S 22/5/1 12/6/01 11:17 pm Page 2

Page 34: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

35

During the year to 31 March 2001, significant potential risksfacing the Group have been assessed and graded in aprocess involving line and functional management throughoutthe Group, internal audit and Ernst & Young. The controls in place to manage or mitigate each risk were reviewed foradequacy, and the processes to monitor and to inform theBoard about control performance were confirmed. Thisassessment, which was reviewed by the Audit Committee and the Board, will be repeated annually.

The risk and control assessment is shared with seniormanagement throughout the Group, who are also informedabout their responsibilities in the maintenance of soundsystems of internal control and who certify annually thatcompliance with these has been achieved.

The Audit Committee receives additional assurance on the operation of internal control systems around the Group,primarily from internal audit who present the conclusions of their reviews twice a year. The external auditor also takesinternal financial control into consideration as part of its audit.In addition, incidences of control failure and the internalcontrol implications of significant business issues are recordedin a central register, from which a summary report is preparedfor the Audit Committee. Any significant new issues andmaterial changes to the risk environment are reported at each Board meeting.

The processes by which the Board receives assurance on the effectiveness of the control systems do not apply to HMV Media Group plc, in which the Group has a minorityinvestment. Potential risks to the Group are mitigated throughits representation on the Board of HMV Media and rightsunder shareholders’ agreements. During the year to 31 March2001, the Board of HMV Media has conducted a review of theinternal control systems in place.

Investor relationsThe Group is committed to regular and open dialogue with investors. The Executive Directors hold discussions withinstitutional shareholders and analysts and, in addition, there are general presentations after the announcement of the half-year and annual results. Individual shareholders have theopportunity to question the Chairman and other Directors at the AGM, and the Directors meet informally with theshareholders after the AGM. Results announcements andother press releases are made available on the Group’swebsite as soon as possible after their publication.

Corporate Governance (continued)

A/W EMI A/R 2001_ B/S 22/5/1 12/6/01 11:19 pm Page 3

Page 35: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

36

Remuneration policySuccess in the highly competitive worldwide music marketdepends critically upon the Company’s ability to compete for the management talent necessary to secure, develop andpromote recording artists, composers and songwriters. EMI’sremuneration policies therefore reflect the need to attract,retain and motivate top calibre international management in the context of remuneration levels and practices in theinternational music and entertainment industry, many of which are set in the US.

Remuneration packages for senior executives are designed to create a strong link between reward and performance and to connect incentives to objective measures ofperformance. Levels and forms of remuneration are tailored to the different marketplaces in which the Group competes,and recognise the importance of creative talent, as well as the fact that Music Publishing and Recorded Music are distinct marketplaces.

The remuneration packages of the Executive Directors aredesigned to help them attain, and encourage them to retain, long-term interests in the Company’s shares, and to align theirinterests with those of the shareholders. Performance-relatedelements represent a significant proportion, currently aboutone-half to two-thirds, of their total annual remunerationopportunity.

Remuneration CommitteeThe Board has delegated to the Remuneration Committeeapproval of the remuneration and employment terms of theExecutive Directors and other senior executives, includingpension rights and any compensation payments.

The Committee consists entirely of the Non-executiveDirectors. It is chaired by Sir Dominic Cadbury, the DeputyChairman and senior independent Non-executive Director. The names of the members of the Committee are listed onpage 31. The Chairman is invited to attend the Committee’smeetings on matters other than those concerning himself, and the Director, Human Resources, also attends.

The Committee has access to advice from internal sources and seeks external advice as and when it requires. In addition,to assist it in monitoring the level and mix of remunerationpackages, the Committee has access to a number of musicand general industry remuneration surveys, both local andinternational, covering a range of companies. The Committeetakes into account factors such as the nature, size, complexityand international profile of those companies relative to EMI.

Elements of remunerationBase salary and benefitsThe Executive Directors’ base salaries are set by theCommittee and are normally reviewed annually. Benefitstypically include car, life assurance, retirement, disability and healthcare plans.

In addition, following his relocation to the US, the Groupprovides Mr Berry with a house in Los Angeles rent-free. Mr Berry has the option to purchase the house at fair marketvalue at any time. He also receives tax equalisation paymentsrelating to service in California.

Details of the base salaries and benefits for individualExecutive Directors are set out on page 39.

Annual bonusAs participants in EMI’s Senior Executive Incentive Plan (SEIP),the Executive Directors and other senior executives are eligiblefor an annual bonus based on profit performance targets setby the Remuneration Committee for the Group or individualbusiness units. Performance is measured by reference to ademanding target profit level at which the target award isearned, and a maximum profit level at which the maximumaward is earned. Target and maximum awards are calculatedas a percentage of base salary or, in the case of Mr Berry andMr Bandier, as cash amounts. Any cash bonus earned is paidimmediately or, at the executive’s request, is made in the formof a deferred share award. During deferral, the shares do notearn dividends but, to encourage shares to be held, thenumber of shares is increased by one-third if deferred forthree years and by two-thirds if deferred for at least six years.These increases are included in reported remuneration only at the end of the applicable deferral period.

For the year to 31 March 2001, the bonus opportunity at target and maximum performance respectively was 40% and 80% of base salary for both Mr Nicoli and Mr Bates. Theperformance target for Mr Nicoli related to the Group’s profitafter tax. Reflecting Mr Bates’ dual roles, his performancetargets related in part to Recorded Music’s profit after interest and in part to Group profit after tax. Mr Berry’s bonusopportunity for the year was US$1.0m at target and US$2.0mat maximum performance, whilst Mr Bandier’s opportunity wasUS$0.9m at target and US$1.8m at maximum performance.Their performance targets related to the profit after interestachieved by Recorded Music and Music Publishingrespectively. Details of the bonuses achieved during the yearby individual Executive Directors are set out on page 39.

Long-term incentivesExecutive Directors and other senior executives are alsonormally eligible each year for performance-related shareawards under the SEIP, calculated as a percentage of basesalary. Each year’s award vests at the end of a three-yearperformance period, the number of shares releaseddepending upon Group or business unit performance against profit targets for the three-year period set by the Remuneration Committee. In certain circumstances, for example upon a change of control, awards may bereleased before the normal vesting date.

As with the annual bonus, to encourage long-term interests in the Company’s shares, executives may opt to defer theshare award for a further three-year period, with the number of shares being increased by one-third at the end of thedeferral period.

In the case of the Executive Directors, release of the shareaward is subject to a further performance requirement relatedto the Group’s Total Shareholder Return, i.e. share pricegrowth plus the value of dividends paid. For SEIP awardsgranted up to 31 March 2001 to be released, EMI’s TotalShareholder Return must have at least equalled the median of those companies that comprised the FTSE 100 at the startof the three-year performance cycle.

Share awards to the Executive Directors are noted in the tables on pages 39 and 40, but are included in reportedremuneration only on release at the end of the three-yearperformance cycle.

The current potential value of the performance-related shareawards at target and maximum performance respectively is60% and 120% of base salary for both Mr Nicoli and Mr Bates.

Remuneration Report for the year ended 31 March 2001

Base salary and benefits

Annual bonus

target profit levelmaximum profit level

Long-term incentives

Page 36: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

37

In place of the normal overlapping annual share awards basedon three-year performance cycles, Mr Berry and Mr Bandierhave been granted one-time share awards under the SEIP of up to 1,000,000 and 650,000 shares respectively. Theseawards will be released at the end of a four-year performanceperiod ending 31 March 2002, the number of shares releaseddepending upon the relevant business unit’s performanceagainst aggregate profit growth targets over the four-yearperformance period. Release of these share awards is alsosubject to the Total Shareholder Return test applicable toExecutive Directors. In certain circumstances the awards may be released before the vesting date, for example ontermination of the executive’s employment agreementbecause of breach by the Group or following a change of control. The awards lapse if, prior to the vesting date, theexecutive resigns voluntarily or his employment contract isterminated by the Group for cause (as defined in the contract).The Committee considers that these one-time share awardsreinforce the primary focus of the business units’ topmanagement to achieve growth in profits over the long run, as well as providing a strong incentive for them to remain with the Group.

While the Executive Directors now participate only in the SEIP,awards remain outstanding under former incentive plans asdetailed in previous years’ Annual Reports. The ExecutiveDirectors’ share interests arising from the SEIP and the formerincentive plans are noted on pages 39 and 40.

Restricted sharesMr Berry and Mr Bandier have been granted restricted shareawards under the SEIP of, respectively, 725,000 and 350,000shares. These shares will vest at the end of the four-yearperiod to 31 March 2002. The awards are in lieu of additionalbase salary and are not subject to performance requirements.The aim of the awards is to bring Mr Berry’s and Mr Bandier’sbasic annual remuneration into line with competitive practicein the US, where both executives are based, whilst aligningtheir interests more closely with those of the shareholders and providing them with a strong incentive to remain with the Group.

Mr Nicoli has been granted a restricted share award under theSEIP of 65,000 shares, which will vest on 31 March 2002. Theaward provides Mr Nicoli with a replacement for lost potentialvalue from employee share incentives operated by his previousemployer and is not subject to performance requirements.

Mr Bates has been granted a restricted share award under the SEIP of 129,161 shares, which will vest on 31 December2002. The award is in lieu of base salary and is not subject to performance requirements.

The restricted share awards of Mr Nicoli, Mr Berry and MrBandier will lapse if, prior to the vesting date, the executiveresigns voluntarily or his employment agreement is terminatedfor cause. All or part of the awards may also vest before theplanned vesting date in certain circumstances, including if the executive’s employment agreement is terminated withoutcause, or upon a change of control. Mr Bates’s restrictedshare award will vest pro rata to the number of monthselapsed between 1 January 2000 and 31 December 2002 if he ceases to be employed in the Group’s Recorded Musicbusiness.

Whilst in certain circumstances these restricted share awards may lapse or be released before the vesting date, a proportion of their value is included in reportedremuneration each year.

As described in Note 15 on page 58, entitlements toperformance-related and restricted share awards under theSEIP are met from shares purchased in the market and heldby the EMI Group General Employee Benefit Trust and,therefore, do not dilute shareholders’ equity.

Share optionsIn the year ended 31 March 2001, as in the previous threeyears, Executive Directors and other senior executives whoparticipate in the SEIP have received performance-relatedshare awards rather than grants of options under the ExecutiveShare Option Scheme. The UK-based Executive Directors areentitled, however, together with all other eligible employees, toapply for options, normally annually, under the Savings-RelatedShare Option Scheme (ShareSave).

The Executive Directors’ share options arising from grants in respect of previous years are noted on page 40. Executiveshare options are normally exercisable between three and ten years from the date of grant and, if granted on or after 25 August 1995, only if performance targets set by theRemuneration Committee are met. The target set for theseoptions relates to the Group’s Total Shareholder Return. Theaggregate exercise price of outstanding executive options over new issue shares is limited to four times annual earnings,with any excess being granted over shares purchased in themarket by the Employee Benefit Trust.

Retirement benefits and contributionsThe UK-based Executive Directors are executive members of the UK Pension Fund, which provides them, on normalretirement at age 60, with a pension of up to two-thirds ofbase salary. Members contribute 4% of base salary. On deaththere is a spouse’s pension of two-thirds of the member’spension (ignoring the impact of any exchange of pension for a lump sum on retirement), plus child allowances ifapplicable. An early retirement pension may be paid on leaving on or after age 50, but the pension is reduced by1/3% for each month that pension starts earlier than age 60.Subject to the Company’s consent, the reduction applied may be less.

Up to age 65, the whole of a pension in payment isguaranteed to increase by LPI (the lower of the previous year’sincrease in the Retail Prices Index and 5%). After age 65, thepension in excess of the Guaranteed Minimum Pension orGMP (that part of the pension which replaces the StateEarnings Related Pension) is guaranteed to increase by LPI,while that part of the GMP which built up since 6 April 1988 is guaranteed to increase by the lower of the previous year’sincrease in the Retail Prices Index and 3%.

Transfer values are calculated on a basis that assumes the pension would be drawn at the earliest date where noreduction would apply and with allowance for future pensionincreases (both before and after pension commences) toreflect the past practice of granting increases greater thanthose guaranteed.

For those joining the UK Pension Fund after 31 May 1989, the ‘Cap’ (as defined in the Finance Act 1989) limits salary for pension purposes to £95,400 from 6 April 2001 (2000: £91,800 ). The Company therefore makes contributionsto a separate defined contribution plan that provides additionalbenefits to those affected by the Cap. Executive Directorsaffected by the Cap and the after-tax value of contributions,expressed as a percentage of base salary in excess of theCap, which the Company paid to the defined contribution plan in respect of them, were:

Mr E L Nicoli 33.42%Mr A J Bates 33.90%

Restricted sharesRetirement benefits and contributions

Share options

Page 37: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

38

Mr Bandier participates in EMI Music’s US definedcontribution plans, which aim to provide a pension at normalretirement date of 50% of pay. Contributions to the plans were 14% and 31.45% of pay by Mr Bandier and the Grouprespectively. Consistent with US practice, pay for this purposeincludes the value of annual cash bonuses under the SEIP.

Executive Directors’ retirement benefits and contributions during the yearDefined benefit plan only

Accrued pension entitlement

Age as at Directors’ Company Total as at31 March contributions contributions Increase 31 March

2001 in year in yeara in yearb 2001c

Years £’000 £’000 £’000 pa £’000 pa

E L Nicoli 50 4 269d 2 3M N Bandier 59 386 583 – –A J Bates 44 4 222 d 2 26K M Berry 49 –e Nil 54 255a Company contributions shown are to defined contribution plans only. The comparative 2000 figure was £375,000. The Company made no contribution to the UK Pension Fund in respect

of the Executive Directors (due to a continuation of its suspension of contributions as a result of the Fund’s strong financial position).b The increase during the year, net of the effect of inflation, on the pension built up to 31 March 2000 to which each Director would be entitled from normal retirement age had he left

employment at 31 March 2001.c The total accrued pension entitlement to which each Director would be entitled from normal retirement age had he left employment at 31 March 2001.d Individual figures include an amount paid in respect of the tax charge arising from the Company’s contributions on base salary in excess of the Cap, as follows:

£E L Nicoli 107,448A J Bates 88,928Total 196,376 (2000: £150,062)

e Mr Berry’s contributions to the UK Pension Fund are currently suspended during an assignment to the US. On his return to the UK, Mr Berry will recommence contributions at a rate sufficient to recover any shortfall.

Service contractsThe Combined Code recommends that one-year noticeperiods or contract terms should be set as an objective for directors. However, fixed-term contracts of three or more years are the norm for senior executives in the globalentertainment industry. In the light of such competitivepractices, the Board considers that it is in the best interestsof the Company and its shareholders to retain the flexibilityto compete for top executive talent through the ability tooffer contract terms in excess of one year.

The Remuneration Committee endorses the principle ofmitigation of loss on early termination of a service contract. It also recognises the advantage of service contractsincluding an explicit calculation of compensation payableupon early termination, other than for misconduct or in othercircumstances justifying summary termination. However, it is the Committee’s policy that where a service contractprovides such a calculation, it should also normally includean explicit obligation to mitigate and to offset earnings from alternative employment against all or part of thecompensation payment.

Mr Nicoli has a service contract terminable on one year'snotice. Following a change of control of the Company, thenotice period from the Company will be two years. Anycompensation payable to Mr Nicoli on early termination of his service contract would be subject to a requirement to mitigate, except that in the case of termination following a change of control of the Company, the first year’scompensation would not be subject to this requirement.

In the light of competitive music industry practice, Mr Berry, Mr Bandier and Mr Bates have service contracts which allowthe employer to terminate the contract at any time withoutnotice, with a specified severance payment (broadly, base

salary, benefits and target bonus for two years) beingpayable on termination by the employer without cause (as defined in the contract). The executive may alsoterminate the contract at any time for good reason (asdefined in the contract), in which event a similar severancepayment is also payable. However, in each case, there is an express obligation on the executive to mitigate, and any earnings from alternative employment during the yearfollowing termination are offset against the severancepayment; for Mr Bates, this period of one year commences12 months after termination. In other circumstances, theexecutive must give one year’s notice of termination.Following a change of control of the Company, Mr Berry and Mr Bandier are entitled to terminate their servicecontracts after a one-year transitional period and to receive a severance payment as if they had terminated the contract with good reason. Mr Bandier’s contract alsoprovides for its automatic expiry on 31 March 2003.

Non-executive DirectorsFees for Non-executive Directors were increased by 5% during the year. Each Non-executive Director receives a basic fee, which is inclusive of all committee memberships. Sir Dominic Cadbury receives a further amount in respect of his additional duties and responsibilities in his capacity as Deputy Chairman and senior independent Non-executiveDirector. Kathleen O’Donovan also receives a further sum for chairing the Audit Committee. The level of these fees is set by the Board and the Non-executive Directors take no part in the discussion and do not vote on the matter. TheNon-executive Directors do not participate in the Company’sincentive, share option or retirement plans, nor do they haveservice contracts, but each appointment is subject to reviewat least every three years.

Remuneration Report (continued)

Page 38: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

39

Remuneration detailsBase Compensation 2001 2000

salary for loss Incentive Total Totalor fees of office Benefits remuneration in year in year

£’000 £’000 £’000 £’000 £’000 £’000

Executive Directors:E L Nicoli 573.7 – 33.6 302.1 909.4 921.7M N Bandier 1,530.6 – 44.3 1,064.9 2,639.8 2,468.6A J Bates 484.3 – 34.3 213.2 731.8 220.3K M Berry b 2,040.8 – 410.8 c 523.9 2,975.5 3,280.0Sir Colin Southgate (resigned 16 July 1999) – – 0.9 – 0.9 1,020.4S P Duffy (resigned 31 December 1999) – – – – – 259.4Non-executive Directors:Sir Dominic Cadbury 50.4 – – – 50.4 42.4H Einsmann 30.4 – – – 30.4 26.3M R Jackson 30.4 – – – 30.4 13.6H R Jenkins 30.4 – – – 30.4 26.3K A O’Donovan 35.4 – – – 35.4 28.7Sir Peter Walters (resigned 16 July 1999) – – – – – 15.5Total 2001 4,806.4 – 523.9 2,104.1 7,434.4 –

Total 2000 4,358.8 812.0 327.2 2,825.2 – 8,323.2a Excludes retirement contributions (see table on page 38) and the value of share awards ceasing to be contingent, as reported in the table shown below.b Highest-paid Director.c Includes value of housing provided by the Group in the US on a rent-free basis, and tax equalisation payments relating to service in California.

Remuneration from prior year share awards ceasing to be contingent 2001 2000Total Total

Awards valuea

Awards valuea

No. of shares £’000 No. of shares £’000

E L Nicoli 21,667 b 98.5 21,666b 95.4M N Bandier 87,500 b 397.7 87,500b 319.6A J Bates 48,443 b 220.2 17,181b 107.0K M Berry 181,250 b 823.8 181,250b 662.0Sir Colin Southgate (resigned 16 July 1999) 19,555 88.9 9,970 52.7S P Duffy (resigned 31 December 1999) – – 3,540 18.7Total 358,415 1,629.1 321,107 1,255.4a The value is based on the share price on the date the awards were granted.b As referred to on page 37, these include a proportion of restricted share awards in order to match remuneration costs more accurately to the time period in which the shares are earned, even

though in certain circumstances these awards could lapse or be released before the vesting date.

Directors’ interestsDirectors’ interests (all beneficial) in the Company’s Ordinary Shares of 14p eacha b c

As at As at31 March 2001 1 April 2000

Total shares Of which Total shares Of whichheld Other

dheld Other

d

E L Nicolie 71,610 67,722 3,794 –M N Bandier 155,060 – 155,060 –A J Batesf 176,294 84,548 115,442 41,344K M Berry 558,526 387,395 319,420 162,512Sir Dominic Cadbury 5,000 – 5,000 –H Einsmann 1,800 – 1,800 –M R Jackson 739 – 739 –H R Jenkins 1,101 – 1,101 –K A O’Donovan 2,000 – 0 –a The Company’s Register of Directors’ Interests is available for inspection in accordance with the provisions of the Companies Act 1985.b No Director had any interest in either shares or debentures of any subsidiary of the Company.c In this table and those below, Mr Berry’s share interests and awards include share interests and awards for Mrs N A Berry, his wife, who is also an employee of the Group.d ‘Other’ refers to non-contingent share awards under performance-related incentive plans (i.e. they have ceased to be dependent on future performance and/or are no longer subject to forfeiture).

The Executive Directors also have contingent share interests under performance-related incentive plans, as noted in the table shown below.e On 30 April 2001, Mr Nicoli’s interests in the Company’s shares increased by 30 shares on the reinvestment of dividends and tax credits received in respect of shares held by him and his wife

through EMI Corporate Personal Equity Plans.f On 23 May 2001, an award to Mr Bates vested under EMI Music’s former Long-Term Incentive Plan in respect of the three-year performance period from 1995 to 1998. Of this award, the

following dispositions were made:

Total Retained to meet Transferred toaward tax liabilities beneficial ownership

A J Bates 24,024 9,609 14,415

Annual remunerationa

Remuneration from prior-year share awards ceasing to be contingent

abcDirectors’ interests (all beneficial) in the Company’s Ordinary Shares of 14p each

Page 39: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

40

Directors’ contingent share awards under performance-related incentive plansa

RestrictedContingent share awards awards included in Total restricted

As at shares included in becoming As at remuneration and contingent1 April awarded remuneration non-contingent Lapsed 31 March for the years to share awards as

2001 in year in yearb in year in year 2001 31 March 2001b at 31 March 2001

E L Nicoli 234,243 211,198 (21,667) – – 423,774 43,333 467,107M N Bandier 1,117,251c – (87,500) – – 1,029,751 262,500 1,292,251A J Batesd 498,051 177,307 (43,054) (5,389) (142,489) 484,426 53,817 538,243K M Berry 1,876,650c 185,929 (181,250) (5,508) (19,410) 1,856,411 543,750 2,400,161a Contingent share awards are dependent on future performance and/or subject to forfeiture. The figures shown therefore reflect the maximum possible potential share interests.b As referred to on page 37, these include a proportion of restricted share awards to match remuneration costs more accurately to the time period in which the shares are earned, even though

in certain circumstances these awards could lapse or be released before the vesting date.c Includes potential awards of 650,000 Performance Shares and 175,000 Restricted Shares made to Mr Bandier, and 1,000,000 Performance Shares and 362,500 Restricted Shares made to

Mr Berry, under the terms of their service contracts, as detailed on page 37.d On 23 May 2001, an award to Mr Bates vested under EMI Music's former Long-Term Incentive Plan in respect of the three-year performance period from 1995 to 1998. Of this award, the

following dispositions were made:

Total Retained to meet Transferred toaward tax liabilities beneficial ownership

A J Bates 5,389 2,156 3,233

Directors’ share options over Ordinary Shares of 14p eacha b

As at As atDate Exercise 1 April Granted 31 March

granted price 2000 in year 2001

E L Nicoli 3 June 1999 440.000p 60,000 – 60,00021 December 2000 b 442.000p 0 3,817 3,817

Total 60,000 3,817 63,817M N Bandier 25 August 1995 590.315p 253,084 – 253,084

23 August 1996 734.500p 60,000 – 60,0006 June 1997 575.000p 52,144. – 52,144

Total 365,228 – 365,228A J Bates 23 August 1996 734.500p 67,500 – 67,500

27 March 1997 b 466.000p 3,700 – 3,7006 June 1997 575.000p 51,672 – 51,672

Total 122,872 – 122,872K M Berry 22 July 1994 534.000p 200,000 – 200,000

25 August 1995 747.000p 231,500 – 231,50023 August 1996 c par (14p) 54,146 – 54,14623 August 1996 c par (14p) 62,672 – 62,67223 August 1996 734.500p 430,000 – 430,000

6 June 1997 575.000p 206,778 – 206,7785 June 1998 531.500p 16,000 – 16,000

Total 1,201,096 – 1,201,096a No Directors’ share options were either exercised or lapsed in the year. Therefore, the total gain made on the exercise of share options was £nil (2000: £198,666.22). The closing mid-market share

price on 31 March 2001 was 454.5p. The range of closing mid-market share prices during the year was 427p to 691p. Executive share options are normally exercisable during the period commencing no earlier than three years and ending no later than ten years from the date granted; the exercise of all options granted on or after 25 August 1995 is normally subject to achievement of performance targets, as referred to on page 37.

b ShareSave options are normally exercisable for a six-month period following completion of savings to either a three-year or a five-year ShareSave contract.c Executive share option rights were amended at 23 August 1996 to reflect the demerger. For non-UK residents, an appropriate adjustment was made to each option but, as the Inland Revenue

would not permit such an adjustment to UK-approved options, no adjustment was made to the options of UK residents. Instead, in respect of each option, a special par value option was grantedintended to achieve broadly the same effect as if the adjustment had been made and which can only be exercised with, and on the same terms as, the original option to which it relates.

Directors’ share appreciation rightsaIndexedprice at As at As at

Price at 31 March 1 April Exercised Date of Share price 31 MarchDate granted grant 2001

b2000 in year exercise at exercise 2001

Sir Colin Southgatec 23 July 1993 368.655p 448p 45,554 (45,554) 25 July 2000 636p 07 December 1993 389.990p 472p 235,368 (235,368) 25 July 2000 636p 0

22 July 1994 421.995p 499p 381,398 (381,398) 25 July 2000 636p 0Total 662,320 (662,320) 0a Share appreciation rights (SARs)donot constitute notifiable interests in shares, although they are noted under Directors’ interests to reflect their similarity to share options.SARs are normally exercisable

no earlier than on the fourth, fifth and sixth anniversary of the date granted in three equal tranches, and no later than ten years from the date granted. No SARs were granted or lapsed in the year.b Under the applicable scheme rules the indexed price (being the price at grant indexed by the UK Retail Prices Index) is the price for the purposes of calculating the value of any appreciation by

comparison with the share price at the date of exercise of the SARs.c Resigned 16 July 1999; SARs remained outstanding until 31 July 2000.

Remuneration Report (continued)

abcDirectors’ restricted and contingent share awards under long-term incentive plans

aDirectors’ share options over Ordinary Shares of 14p each

Directors’ share appreciation rightsa

Total restricted share awardsContingent

Page 40: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

41

Report of the Auditor to the members of EMI Group plcWe have audited the financial statements on pages 42 to 73 which have been prepared under the historical costconvention and on the basis of the accounting policies set out on pages 48 and 49.

Respective responsibilities of Directors and AuditorEMI Group plc’s Directors are responsible for preparing the Annual Report. As described on page 34, this includesresponsibility for preparing the financial statements inaccordance with applicable United Kingdom law andaccounting standards. Our responsibilities, as independentauditor, are established in the United Kingdom by statute, the Auditing Practices Board, the Listing Rules of the UnitedKingdom Listing Authority and by our profession’s ethicalguidance.

We report to you our opinion as to whether the financialstatements give a true and fair view and are properly prepared in accordance with the Companies Act. We also report to you if, in our opinion, the Directors’ Report is not consistent with the financial statements, if the Company has not kept properaccounting records, if we have not received all the informationand explanations we require for our audit or if the informationspecified by law or the Listing Rules regarding Directors’remuneration and transactions with the Company is notdisclosed.

We review whether the Corporate Governance Statement on pages 33 to 35 reflects the Company’s compliance with the seven provisions of the Combined Code specified for ourreview by the United Kingdom Listing Authority, and we reportif it does not. We are not required to consider whether theBoard’s statements on internal control cover all risks andcontrols, or form an opinion on the effectiveness of either theCompany’s corporate governance procedures or its risk andcontrol procedures.

We read the other information contained in the Annual Report, including the Corporate Governance Statement, andconsider whether it is consistent with the audited financialstatements. We consider the implications for our report if we become aware of any apparent misstatements or materialinconsistencies with the financial statements.

Basis of audit opinionWe conducted our audit in accordance with AuditingStandards issued by the Auditing Practices Board. An auditincludes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accountingpolicies are appropriate to the Group’s circumstances,consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considerednecessary in order to provide us with sufficient evidence togive reasonable assurance that the financial statements arefree from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we alsoevaluated the overall adequacy of the presentation ofinformation in the financial statements.

OpinionIn our opinion the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 March 2001 and of the profit of the Group for the year thenended and have been properly prepared in accordance withthe Companies Act 1985.

Ernst & YoungRegistered AuditorLondon21 May 2001

Auditor’s Report

Page 41: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

Joint ventureHMV Media

Total Group plc

Notes £m £m

Turnover:Total (including joint venture) 3,335.3 662.6Less: joint venture turnover (662.6) (662.6)

Group turnover 1 2,672.7 –Cost of sales 2 (1,739.2) –Gross profit 933.5 –Distribution costs 2 (136.9) –Administration expenses 2 (608.5) –Other operating income, net 2 49.4 –Group operating profit 1&3 237.5 –Share of operating profit in joint venture 34.4 34.4Share of operating profits (losses) in associated undertakings (5.5) –Total operating profit 266.4 34.4Non-operating exceptional items:

Losses on businesses disposed of or terminated 9 – –Profit on disposal of fixed asset investment 9 – –

Profit before finance charges 266.4 34.4Finance charges:

Group (including associated undertakings) (74.3) –Joint venture (29.3) (29.3)

Total finance charges 6 (103.6) (29.3)Profit on ordinary activities before taxation 162.8 5.1Taxation on profit on ordinary activities 7 (65.8) (1.4)Profit on ordinary activities after taxation 97.0 3.7Minority interests (equity) (15.0) –Profit attributable to members of the Holding Company 82.0 3.7Dividends (equity) 8 (125.2)Transfer (from) to profit and loss reserve (43.2)

Note: Reconciliation of adjusted earnings

Notes

Earnings/basic EPS 10

Adjustments:Operating exceptional itemsNon-operating exceptional itemsAmortisation of goodwill and music copyrightsAttributable taxationMinority interest (re: music copyright amortisation)

Adjusted earnings/adjusted EPS 10

Adjusted dilution impactAdjusted earnings/adjusted diluted EPS 10

42

Consolidated Profit and Loss Accountfor the year ended 31 March 2001

Year ended 31 March 2001 Year ended 31 March 2000Joint ventureHMV Media

EMI Group (excluding HMV Media Group plc) EMI Group (excluding HMV Media Group plc) Group plc TotalBefore Before

Exceptional exceptional exceptional Exceptionalitems and items and items and items and

amortisation amortisation amortisation amortisation£m £m £m £m £m £m

– 2,672.7 2,386.5 – 578.5 2,965.0– – – – (578.5) (578.5)– 2,672.7 2,386.5 – – 2,386.5

(42.6) (1,696.6) (1,516.3) (33.5) – (1,549.8)(42.6) 976.1 870.2 (33.5) – 836.7

– (136.9) (124.7) – – (124.7)(52.4) (556.1) (526.9) (5.1) – (532.0)

– 49.4 72.0 – – 72.0(95.0) 332.5 290.6 (38.6) – 252.0

– – – – 27.7 27.7(1.7) (3.8) 0.8 – – 0.8

(96.7) 328.7 291.4 (38.6) 27.7 280.5

– – – (9.9) – (9.9)– – – 52.4 – 52.4

(96.7) 328.7 291.4 3.9 27.7 323.0

– (74.3) (50.3) – – (50.3)– – – – (23.4) (23.4)– (74.3) (50.3) – (23.4) (73.7)

(96.7) 254.4 241.1 3.9 4.3 249.3– (64.4) (71.0) 0.6 (2.6) (73.0)

(96.7) 190.0 170.1 4.5 1.7 176.34.1 (19.1) (21.7) 3.8 – (17.9)

(92.6) 170.9 148.4 8.3 1.7 158.4(125.1)

33.3

Year ended 31 March 2001 Year ended 31 March 2000£m Per share £m Per share

82.0 10.5p 158.4 20.3p

42.9 5.5p 4.0 0.5p– – (42.5) (5.4)p

53.8 6.8p 34.6 4.4p– – (0.6) (0.1)p

(4.1) (0.5)p (3.8) (0.5)p174.6 22.3p 150.1 19.2p

n/a – n/a –174.6 22.3p 150.1 19.2p

43

Page 42: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

44

Balance Sheetsat 31 March 2001

Group Company2001 2000 2001 2000

Notes £m £m £m £m

Fixed assetsMusic copyrights 11 546.8 521.0 – –Goodwill 12 61.1 26.7 – –Tangible fixed assets 13 306.8 337.2 17.2 26.0Investments: subsidiary undertakings 14 – – 2,316.5 1,995.6Investments: joint venture (HMV Media Group plc) 14 – – 96.5 96.5Investments: associated undertakings 14 26.0 18.0 0.6 0.6Other fixed asset investments 14 22.6 20.0 0.2 0.1Investments: own shares 15 14.4 18.4 14.4 18.4

977.7 941.3 2,445.4 2,137.2Current assetsStocks 16 46.1 39.9 – –Debtors: amounts falling due within one year 17 868.9 829.2 1,186.7 1,724.6Debtors: amounts falling due after more than one year 17 115.4 86.0 0.7 22.9Investments: liquid funds 18 0.7 1.3 – –Cash at bank and in hand and cash deposits 18 136.9 266.6 37.4 16.2

1,168.0 1,223.0 1,224.8 1,763.7Creditors: amounts falling due within one yearBorrowings 18 (662.9) (808.2) – –Other creditors 21 (1,334.1) (1,202.0) (117.5) (106.9)

(1,997.0) (2,010.2) (117.5) (106.9)Net current assets (liabilities) (829.0) (787.2) 1,107.3 1,656.8Total assets less current liabilities 148.7 154.1 3,552.7 3,794.0Creditors: amounts falling due after more than one yearBorrowings 18 (467.5) (380.9) – –Other creditors 22 (28.9) (37.6) (574.0) (754.0)

(496.4) (418.5) (574.0) (754.0)Provisions for liabilities and chargesDeferred taxation 23 (27.6) (27.8) (13.0) (13.0)Other provisions 24 (116.7) (130.2) (16.0) (16.9)Investments: joint venture (HMV Media Group plc) 14

Share of gross assets 191.9 196.5 – –Share of gross liabilities (360.2) (365.5) – –

(168.3) (169.0) – –(312.6) (327.0) (29.0) (29.9)(660.3) (591.4) 2,949.7 3,010.1

Capital and reservesCalled-up share capital 25 110.4 110.4 110.4 110.4Share premium account 25 445.6 444.6 445.6 444.6Capital redemption reserve 26 495.8 495.8 495.8 495.8Other reserves 26 256.0 256.0 456.9 502.2Profit and loss reserve (including goodwill previously written off) 26 (2,096.2) (2,034.4) 1,441.0 1,457.1Equity shareholders’ funds (788.4) (727.6) 2,949.7 3,010.1Minority interests (equity) 27 128.1 136.2 – –

(660.3) (591.4) 2,949.7 3,010.1

Eric NicoliTony Bates

Directors

21 May 2001

Page 43: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

45

Statement of Total Recognised Gains and Lossesfor the year ended 31 March 2001

Reconciliation of Movements in Shareholders’ Fundsfor the year ended 31 March 2001

2001 2000£m £m £m £m

Profit for the financial year 82.0 158.4Minority interest adjustment – 0.6Currency translation – Group* (11.2) 29.8Currency translation – joint venture (0.6) (1.1)Other recognised (losses) gains (11.8) 29.3Total recognised gains and losses relating to the year 70.2 187.7*Net currency gains of £13.6m (2000: £22.0m), which relate to foreign currency borrowings to finance investment overseas, and the related tax charge of £5.5m (2000: £nil), have been included within the Group currency translation movement on reserves.

2001 2000£m £m £m £m

Opening shareholders’ funds (727.6) (794.0)Profit for the financial year 82.0 158.4Dividends (equity) (125.2) (125.1)Other recognised (losses) gains (11.8) 29.3Goodwill adjustments (4.4) 0.2Share of joint venture reserves adjustment (2.4) –Shares issued 1.0 3.6Net (decrease) increase in shareholders’ funds for the year (60.8) 66.4Closing shareholders’ funds (788.4) (727.6)

Page 44: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

46

2001 2000Notes £m £m

Net cash inflow from operating activities 314.8 246.5Dividends received from associated undertakings 14 0.3 0.4Returns on investments and servicing of financeInterest received 15.4 29.0Interest paid (90.7) (76.1)Interest element of finance lease payments (0.3) (0.3)Dividends paid to minorities (25.2) (10.0)Net cash outflow from returns on investments and servicing of finance (100.8) (57.4)Tax paid (48.5) (100.5)Capital expenditure and financial investmentPurchase of music copyrights 11 (6.4) (15.7)Purchase of tangible fixed assets 13 (42.8) (37.8)Sale of tangible fixed assets 17.8 3.0Purchase of investments: own shares 15 (1.2) (0.2)Purchase of other fixed asset investments 14 (1.2) (1.7)Sale of other fixed asset investments 0.4 81.0Net cash (outflow) inflow from capital expenditure and financial investment (33.4) 28.6Acquisitions and disposalsPurchase of associated undertakings 14 (0.8) (9.6)Loans made to associated undertakings 14 (11.2) (4.2)Disposal of associated undertakings – 1.0Purchase of businesses net of cash acquired 31 (10.8) (149.1)Deferred consideration paid (3.9) (4.6)Disposal of businesses – (3.7)Net cash outflow from acquisitions and disposals (26.7) (170.2)Equity dividends paid (125.2) (158.1)Net cash outflow before management of liquid resources and financing (19.5) (210.7)Issue of Ordinary Share capital 1.0 3.6Management of liquid resources 20 38.9 (24.7)Financing:

New loans 20 240.1 834.0Loans repaid 20 (312.5) (516.3)Capital element of finance leases repaid 20 (1.2) (0.5)

Net cash (outflow) inflow from management of liquid resources and financing (33.7) 296.1(Decrease) increase in cash 20 (53.2) 85.4

Consolidated Cash Flow Statementfor the year ended 31 March 2001

Page 45: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

47

Reconciliation of Group operating profit to net cash inflow from operating activities2001 2000

Notes £m £m

Group operating profit 237.5 252.0Depreciation charge 13 57.0 57.8Amortisation charge:

Music copyrights 11 42.6 33.5Goodwill 12 9.5 1.1

Fixed asset write back 13 – (3.5)Amounts provided 24 14.1 19.2Provisions utilised:

Disposals and fundamental reorganisations 24 (7.4) (1.5)Other (23.6) (24.5)

(Increase) decrease in working capital:Stock (4.6) 5.1Debtors (104.6) (75.0)Creditors 94.3 (17.7)

Net cash inflow from operating activities 314.8 246.5

Page 46: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

48

Basis of preparationThe consolidated financial statements are prepared under the historical cost convention and in accordance withapplicable accounting standards. The results for the yearsended 31 March 2001 and 31 March 2000 representcontinuing operations.

Basis of consolidationThe consolidated financial statements comprise the accounts of the Company and its subsidiaries. The results of all subsidiaries are taken from their accounts made up to 31 March. The results of subsidiaries, joint ventures andassociated undertakings disposed of or acquired during theyear are included up to, or from, the date that control passes.

Foreign currenciesTransactions denominated in foreign currencies are recorded at the rates of exchange ruling at the date of the transaction.Monetary assets and liabilities denominated in foreigncurrencies are retranslated into sterling either at year-endrates or, where there are related forward foreign exchangecontracts, at contract rates. The resulting exchangedifferences are dealt with in the determination of profit for the financial year.

On consolidation, average exchange rates have been used to translate the results of overseas subsidiaries, joint venturesand associated undertakings. The assets and liabilities of overseas subsidiaries and associated undertakings aretranslated into sterling at year-end rates.

Exchange differences arising from the retranslation at year-end exchange rates of: (i) the opening net investment in overseas subsidiaries, joint

ventures and associated undertakings and foreign currencyborrowings in so far as they are matched by thoseoverseas investments; and

(ii) the results of overseas subsidiaries, joint ventures and associated undertakings,

are dealt with in Group reserves.

TurnoverTurnover represents the invoiced value or contracted amountof goods and services supplied by the Company and itssubsidiaries. Turnover excludes value added tax and similarsales-related taxes.

Pension costsPension costs, which are determined in accordance withStatement of Standard Accounting Practice 24 – Accounting for Pension Costs (SSAP 24), are charged to the profit andloss account so as to spread the cost of pensions over theworking lives of the employees within the Group. Valuationsurpluses or deficits are amortised over the expectedremaining working life within the Group of the relevantemployees (estimated to be eight years in respect of the UK). The amortisation of valuation surpluses is restricted to an amount equal to the regular pension cost. Accordingly,employer expense in respect of the main scheme, whichcovers employees in the UK, has been taken as nil for each of the two years ended 31 March 2001 for reasons of conservatism.

Joint ventures and associated undertakingsWhere the Group has an investment in an entity which is sufficient to give the Group a participating interest, and over which it is in a position to exercise significant influence, the entity is treated as an associated undertaking and isaccounted for using the equity method. Entities in which theGroup holds an interest on a long-term basis and which arejointly controlled by the Group and one or more other partiesunder a contractual arrangement, are treated as joint venturesand are accounted for using the gross equity method.

The results of joint ventures and associated undertakings are taken from their accounts made up to 31 March or suchearlier date (not prior to 31 December) which represents theirfinancial period end, as adjusted for material items that haveoccurred in the intervening period.

Goodwill and other intangiblesGoodwill and recorded catalogue intangibles arising onacquisitions made after 31 March 1998 are capitalised andamortised over their expected useful life, principally restricted to 20 years, in accordance with FRS10. They are reviewed forimpairment at the end of the first full financial year followingacquisition and in other periods if events or changes in circumstances indicate that the carrying value may not be recoverable.

Goodwill arising on acquisitions made before 31 March 1998 has been charged directly against shareholders’ funds in the year of acquisition and is included within the profit andloss reserve, yet separately identified within the reserves note. This goodwill will remain in reserves until, on the disposal or closure of any business, the profit and loss accountincludes a charge in respect of the goodwill previously written off against shareholders’ funds on the acquisition of the business.

Accounting Policies

Accounting g for Pension Costs

Page 47: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

Music copyrightsMusic copyrights purchased prior to 1 April 1989 were written off against shareholders’ funds on acquisition. Copyrightsacquired as a result of acquisitions on or after 1 April 1989are capitalised as intangible assets in the Group balancesheet, and are amortised by equal annual amounts over notmore than 20 years, other than in exceptional circumstanceswhen sufficient ongoing impairment tests can be performedto support a useful economic life of over 20 years. Where a useful economic life of up to 20 years has been adopted,copyrights are reviewed for impairment at the end of the firstfull financial year following acquisition and in other periods if events or changes in circumstances indicate that thecarrying value may not be recoverable.

Advances to artistsAdvances to artists and repertoire owners are assessed and the value of the unrecouped portion to be included indebtors is determined by the prospects of future recoupment,based on past sales performance, current popularity andprojected sales.

Leased assetsAssets held under finance leases are included as tangiblefixed assets at their estimated purchase cost and depreciatedover their expected useful lives, or over the primary leaseperiod, whichever is shorter. The obligations relating tofinance leases (net of finance charges allocated to futureperiods) are included under borrowings due within or afterone year, as appropriate. Operating lease rentals are chargedto the profit and loss account on a straight-line basis over the lease term.

Depreciation of tangible fixed assetsDepreciation of tangible fixed assets is calculated on cost at rates estimated to write off the cost, less the estimatedresidual value of the relevant assets, by equal annual amountsover their expected useful lives; effect is given, wherenecessary, to commercial and technical obsolescence.

The annual rates used are:Freehold buildings and long-term

leasehold property 2%Short-term leasehold property Period of leasePlant, equipment and vehicles 10–331/3%

The carrying values of tangible fixed assets are reviewed forimpairment in periods if events or changes in circumstancesindicate the carrying value may not be recoverable.

StocksStocks and work in progress are stated at the lower of cost and net realisable value, less progress payments onuncompleted contracts and provisions for expected losses.Cost includes manufacturing overheads where appropriate.

TaxationThe Company has undertaken to discharge the liability to corporation tax of the majority of its wholly owned UKsubsidiaries. Their UK tax liabilities are therefore dealt with in the accounts of the Company.

Deferred taxation is calculated using the liability method in respect of timing differences arising primarily from thedifference between the accounting and tax treatments of depreciation. Provision is made, or recovery anticipated,where timing differences are expected to reverse withoutreplacement in the foreseeable future.

Financial instrumentsAny premium or discount associated with the purchase of interest rate instruments is amortised over the life of the transaction. Interest receipts and payments are accrued to match the net income or cost with the related financeexpense. No amounts are recognised in respect of futureperiods.

New media holdingsHoldings in new media companies that arise as aconsequence of licensing, distribution and other similar deals with such companies, are carried at cost, which istypically minimal. Income from these holdings, net of costs, is only recognised when received as cash and is treated as other operating income. The costs relating to theseinvestments are held within debtors until they are recognisedwith the related income.

49

Page 48: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

1. Segmental analyses2001 2000

Operating Operating Average Operating Operating AverageTurnover profit assets employees Turnover profit assets employees

£m £m £m No. £m £m £m No.

By class of business:Recorded Music 2,282.0 227.5 224.4 9,388 2,032.5 195.1 215.7 9,620Music Publishing 390.7 105.0 516.9 608 354.0 95.5 502.1 588Other (HMV Media Group plc) n/a n/a (168.3) n/a n/a n/a (169.0) n/a

Group* 2,672.7 332.5 573.0 9,996 2,386.5 290.6 548.8 10,208Operating exceptional items and amortisation# (95.0) (38.6)Group operating profit* 237.5 252.0

By origin:United Kingdom 338.8 43.1 (53.2) 1,557 304.2 48.5 (21.7) 1,524Rest of Europe 753.4 113.6 6.6 2,790 724.8 98.5 (3.5) 3,010North America 886.5 76.5 486.3 3,138 726.3 60.9 451.9 3,105Asia 485.6 74.6 114.1 1,535 446.1 62.9 113.0 1,593Other 208.4 24.7 19.2 976 185.1 19.8 9.1 976

Group* 2,672.7 332.5 573.0 9,996 2,386.5 290.6 548.8 10,208

By destination:United Kingdom 356.3 314.4Rest of Europe 721.6 733.2North America 889.3 698.8Asia 485.9 449.0Other 219.6 191.1

Group* 2,672.7 2,386.5*Group turnover and operating profit excludes the Group’s share of amounts relating to the joint venture (HMV Media Group plc) and associated undertakings. Amounts relating to the joint venture

have been excluded due to non-coterminous period ends.#Comprises operating exceptional items of £(42.9)m (2000: £(4.0)m) and amortisation of goodwill and music copyrights of £(52.1)m (2000: £(34.6)m). The split of operating exceptional items andCamortisation of goodwill and music copyrights is as follows:

By class of business: 2001 2000 By origin: 2001 2000£m £m £m £m

Recorded Music (49.1) (1.6) United Kingdom (9.1) (1.8)Music Publishing (45.9) (37.0) Rest of Europe (15.4) (3.0)Other (HMV Media Group plc) n/a n/a North America (58.4) (31.8)Group (95.0) (38.6) Asia (8.3) (1.9)

Other (3.8) (0.1)Group (95.0) (38.6)

The reconciliation of operating assets to net liabilities is as follows:2001 2000

Note £m £m

Operating assets 573.0 548.8Tax, dividends and net interest payable (240.5) (219.0)Capital employed 332.5 329.8Net borrowings 18 (992.8) (921.2)Net liabilities (660.3) (591.4)

50

Notes to the Financial Statementsfor the year ended 31 March 2001

Page 49: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

51

2. Analysis of profit and loss account2001 2000

£m £m

Cost of sales 1,739.2 1,549.8Cost of sales is analysed as:

– normal 1,696.6 1,516.3– exceptional items and music copyright amortisation 42.6 33.5

Net operating expenses:Distribution costs 136.9 124.7Administration expenses 608.5 532.0Other operating income, net (49.4) (72.0)

696.0 584.7Net operating expenses are analysed as:

– normal 643.6 579.6– exceptional items and goodwill amortisation 52.4 5.1

Other operating income principally comprises the Group’s share of income from joint marketing arrangements, income fromentering into manufacturing and distribution arrangements, net patent income and income from new media investments,including musicmaker.com £1.8m (2000: £24.7m).

3. Group operating profit2001 2000

£m £m

Operating profit is stated after charging:Amortisation of music copyrights 42.6 33.5Amortisation of goodwill 9.5 1.1Depreciation of tangible fixed assets 57.0 57.8Operating lease rentals:

Property 20.0 15.5Plant, equipment and vehicles 6.7 5.9

Research and development expenditure 0.1 0.1

4. Fees to auditors2001 2000

£m £m

Audit fees paid to Ernst & Young 2.4 2.2Audit fees paid to other firms 0.2 0.2Other fees paid to Ernst & Young:

UK 3.5 0.3Non-UK 1.6 1.5

Total 7.7 4.2Other fees include £0.7m (2000: £0.9m) paid to Ernst & Young for tax consultancy, £0.2m (2000: £0.1m) for accountancy adviceand £3.7m in connection with the proposed merger with Warner Music Group (2000: £nil).

5. Directors’ and employees’ costs2001 2000

£m £m

Wages and salaries 383.4 359.9Social security costs 48.4 50.4Other pension costs (see Note 30) 14.5 14.0Total 446.3 424.3Details of each Director’s remuneration, compensation for loss of office, pension entitlements, long-term incentive schemeinterests and share options are included in the Remuneration Report on pages 36 to 40.

Page 50: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

52

6. Finance charges2001 2000

£m £m £m £m

Interest payable on:Bank overdrafts and loans 76.4 53.0Other 8.0 6.3

84.4 59.3Interest receivable on:

Bank balances (6.4) (6.3)Other (3.7) (2.7)

(10.1) (9.0)Group finance charges (including associated undertakings) 74.3 50.3Joint venture finance charges (HMV Media Group plc) 29.3 23.4Total finance charges 103.6 73.7The Group holds various financial instruments in order to manage interest rate risk. Details of those financial instruments heldat the year end are given in Note19 on page 60.

Finance charges for associates are £nil (2000: £nil).

7. Taxation2001 2000

£m £m

Taxation on profit on ordinary activities:United Kingdom:

Corporation tax 14.4 7.7Advance corporation tax written back (12.0) (8.0)Double taxation relief (7.5) (5.9)

(5.1) (6.2)Overseas taxation – current year charge 58.5 66.3Overseas taxation – prior year adjustment (4.2) 4.1Deferred taxation:

United Kingdom – –Overseas – current year charge (0.3) (4.7)Overseas – prior year adjustment (0.3) 0.1

Associated undertakings’ taxation:Overseas 0.2 0.1

Withholding taxes 15.6 10.7Group 64.4 70.4Joint venture taxation (HMV Media Group plc) 1.4 2.6Total 65.8 73.0Tax losses utilised to reduce the charge for taxation were £nil (2000: £0.1m).

There is no unprovided deferred taxation arising in the year.

There is no taxation charge or credit on exceptional items (2000: £0.6m credit).

Notes to the Financial Statements (continued)

Page 51: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

53

8. Dividends (equity)2001 2000 2001 2000

Per share Per share £m £m

Ordinary dividends (net):Interim 4.25p 4.25p 33.5 33.5Adjustment to 2001 and 2000 interim – – (0.3) (0.3)Proposed final 11.75p 11.75p 92.7 92.7Adjustment to 2000 and 1999 final – – (0.7) (0.8)

Total 16.00p 16.00p 125.2 125.1The final dividend of 11.75p per share will be paid on 1 October 2001 to shareholders on the register at the close of business on 7 September 2001.

9. Exceptional items(i) Operating exceptional items

2001 2000£m £m

Proposed merger with Warner Music Group – deal costs (42.9) –Integration costs – (4.0)Total operating exceptional items (42.9) (4.0)The attributable taxation credit relating to operating exceptional items is £nil (2000: £0.6m).

(ii) Non-operating exceptional items2001 2000

£m £m

Losses on businesses disposed of or terminated* – (9.9)Profit on disposal of fixed asset investment – GWR Group PLC – 52.4Total non-operating exceptional items – 42.5*Losses on businesses disposed of or terminated include £nil (2000: £nil) of goodwill written back in the year.

The attributable taxation charge relating to non-operating exceptional items is £nil (2000: £nil).

Page 52: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

54

10. Earnings per Ordinary Share2001 2000

Basic earnings per Ordinary Share is calculated as follows:Earnings £82.0m £158.4mWeighted average number of Ordinary Shares in issue 782.3m 780.9mEarnings per Ordinary Share 10.5p 20.3p

Diluted earnings per Ordinary Share is calculated as follows:Earnings £82.0m £158.4mAdjusted weighted average number of Ordinary Shares 783.1m 781.8mEarnings per Ordinary Share 10.5p 20.3p

Adjusted basic earnings per Ordinary Share is calculated as follows:Adjusted earnings £174.6m £150.1mWeighted average number of Ordinary Shares in issue 782.3m 780.9mAdjusted earnings per Ordinary Share 22.3p 19.2p

Adjusted diluted earnings per Ordinary Share is calculated as follows:Adjusted earnings £174.6m £150.1mAdjusted weighted average number of Ordinary Shares 783.1m 781.8mAdjusted earnings per Ordinary Share 22.3p 19.2p

Adjusted earnings per Ordinary Share calculations are based on earnings before the impact of both operating and non-operating exceptional items and amortisation of goodwill and music copyrights.They are included as they provide a betterunderstanding of the underlying trading performance of the Group on a normalised basis.

The adjusted weighted average number of Ordinary Shares used in the diluted earnings per share calculations, 783.1m (2000:781.8m), is the weighted average number of Ordinary Shares in issue, 782.3m (2000: 780.9m), plus adjustments for dilutive shareoptions, 0.8m (2000: 0.9m).

11. Music copyrightsGroup

£m

Cost at 31 March 2000 746.3Currency retranslation 82.4Acquisition of businesses (1.3)Additions 6.4Reclassification 14.5Cost at 31 March 2001 848.3Amortisation at 31 March 2000 225.3Currency retranslation 28.7Charge for year 42.6Reclassification 4.9Amortisation at 31 March 2001 301.5Net book values at 31 March 2001 546.8

31 March 2000 521.0

12. Goodwill (capitalised)Group

£m

Cost at 31 March 2000 28.2Currency retranslation 4.5Acquisition of businesses 39.8Cost at 31 March 2001 72.5Amortisation at 31 March 2000 1.5Currency retranslation 0.4Charge for year 9.5Amortisation at 31 March 2001 11.4Net book values at 31 March 2001 61.1

31 March 2000 26.7

Notes to the Financial Statements (continued)

Page 53: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

55

13. Tangible fixed assetsGroup

Plant,Freehold Leasehold equipmentproperty property and vehicles Total

£m £m £m £m

Cost at 31 March 2000 250.3 33.2 338.5 622.0Currency retranslation (5.4) 2.8 11.6 9.0Additions 4.7 3.1 35.0 42.8Disposals (28.8) (1.0) (34.9) (64.7)Reclassification (0.5) 0.3 (0.2) (0.4)Cost at 31 March 2001 220.3 38.4 350.0 608.7Depreciation at 31 March 2000 47.8 18.0 219.0 284.8Currency retranslation (0.4) 1.7 6.0 7.3Charge for year 5.3 3.7 48.0 57.0Disposals (13.4) (1.0) (32.5) (46.9)Reclassification (1.0) 0.6 0.1 (0.3)Depreciation at 31 March 2001 38.3 23.0 240.6 301.9Net book values at 31 March 2001 182.0 15.4 109.4 306.8

31 March 2000 202.5 15.2 119.5 337.2 Freehold property includes land having a cost of £86.3m (2000: £95.6m) which is not depreciated.

Group2001 2000

£m £m

The net book values shown above include the following:Long-term leasehold property 7.9 6.6Short-term leasehold property 7.5 8.6Finance lease assets 4.8 5.0Assets in the course of construction 11.9 7.7

CompanyPlant,

Freehold Leasehold equipmentproperty property and vehicles Total

£m £m £m £m

Cost at 31 March 2000 21.0 3.9 19.3 44.2Additions – – 1.9 1.9Disposals and transfers (10.2) – (2.7) (12.9)Cost at 31 March 2001 10.8 3.9 18.5 33.2Depreciation at 31 March 2000 4.3 1.3 12.6 18.2Charge for year 0.3 0.1 1.8 2.2Disposals and transfers (2.6) – (1.8) (4.4)Depreciation at 31 March 2001 2.0 1.4 12.6 16.0Net book values at 31 March 2001 8.8 2.5 5.9 17.2

31 March 2000 16.7 2.6 6.7 26.0

Page 54: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

56

Notes to the Financial Statements (continued)

14. Fixed asset investmentsGroup Company

2001 2000 2001 2000£m £m £m £m

Investments comprise:Subsidiary undertakings – – 2,316.5 1,995.6Joint venture (HMV Media Group plc) – – 96.5 96.5Associated undertakings 26.0 18.0 0.6 0.6Other fixed asset investments 22.6 20.0 0.2 0.1

48.6 38.0 2,413.8 2,092.8Joint venture (HMV Media Group plc) (168.3) (169.0) – –

(119.7) (131.0) 2,413.8 2,092.8Listed investments – – – –Unlisted investments (119.7) (131.0) 2,413.8 2,092.8

(119.7) (131.0) 2,413.8 2,092.8The market value of listed investments at 31 March 2001 was £nil (2000: £nil).

(i) Investments in subsidiary undertakingsCompany

Cost of Net bookshares Loans Provisions value

£m £m £m £m

At 31 March 2000 1,706.6 409.5 (120.5) 1,995.6Additions 1,277.1 5.3 – 1,282.4Disposals, transfers and other movements (952.9) (8.6) – (961.5)At 31 March 2001 2,030.8 406.2 (120.5) 2,316.5Details of significant subsidiary undertakings are set out in Note 33 on page 73.

(ii) Joint venture (HMV Media Group plc)Group

Net equity Goodwill Share of Net bookinvestment written off net assets Provisions* value

£m £m £m £m £m

At 31 March 2000 94.5 (262.5) (168.0) (1.0) (169.0)Prior year adjustment# (2.4) – (2.4) – (2.4)Net profit 3.7 – 3.7 – 3.7Exchange taken to reserves (0.6) – (0.6) – (0.6)At 31 March 2001 95.2 (262.5) (167.3) (1.0) (168.3)

CompanyCost of Net bookshares Loans Provisions value

£m £m £m £m

At 31 March 2000 96.5 – – 96.5At 31 March 2001 96.5 – – 96.5The Company holds investments at cost, less provisions for diminution in value.

*The provision of £1.0m represents the elimination of the Group’s share of unrealised profits in HMV Media Group plc’s stocks.#Represents the Group’s share of a prior-year adjustment made in HMV Media Group. This adjustment relates to a change in HMV Media Group’s accounting policy for store pre-opening costs

as a result of the adoption of UITF 24 – Accounting for Start-up Costs.Accounting for Start-up Costs.

Page 55: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

57

14. Fixed asset investments (continued)(ii) Joint venture (HMV Media Group plc) (continued)Share of net liabilitiesGroup

2001 2000£m £m

Fixed assets 73.1 72.7Current assets 118.8 123.8Total assets 191.9 196.5Short-term liabilities (170.2) (162.8)Long-term liabilities (190.0) (202.7)Total liabilities (360.2) (365.5)Share of net liabilities (168.3) (169.0)

(iii) Associated undertakingsGroup

Net equity Goodwill Share of Capitalised Net bookinvestment written off net assets goodwill Loans value

£m £m £m £m £m £m

At 31 March 2000 46.2 (43.4) 2.8 9.7 5.5 18.0Currency retranslation (0.1) – (0.1) 1.3 0.8 2.0Additions* and new loans (0.2) – (0.2) 1.0 11.2 12.0Net profits after tax (4.0) – (4.0) (1.7) – (5.7)Dividends (0.3) – (0.3) – – (0.3)At 31 March 2001 41.6 (43.4) (1.8) 10.3 17.5 26.0*Total consideration on purchase of associated undertakings comprises costs and loans totalling £0.8m (2000: £9.6m).

CompanyCost of Net bookshares Provisions value

£m £m £m

At 31 March 2000 0.7 (0.1) 0.6At 31 March 2001 0.7 (0.1) 0.6The Company holds investments at cost, less provisions for diminution in value.

(iv) Other fixed asset investmentsGroup Company

Cost of Net book Cost of Net bookshares Provisions value shares Provisions value

£m £m £m £m £m £m

At 31 March 2000 26.5 (6.5) 20.0 2.4 (2.3) 0.1Currency retranslation 2.2 (0.4) 1.8 – – –Additions 1.2 – 1.2 0.1 – 0.1Disposals and reclassifications (0.8) 0.4 (0.4) – – –At 31 March 2001 29.1 (6.5) 22.6 2.5 (2.3) 0.2

Page 56: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

58

15. Investments: own sharesThe EMI Group General Employee Benefit Trust (EBT) was established to hedge the future obligations of the Group in respectof shares awarded under the Senior Executive Incentive Plan (SEIP), the EMI Music Long-Term Incentive Plan and other share-based plans. The Trustee of the EBT, EMI Group Trustees (Guernsey) Limited, purchases the Company’s Ordinary Shares in the open market with financing provided by the Company, as required, on the basis of regular reviews of the anticipated shareliabilities of the Group. The EBT has, since December 1998, waived any entitlement to the receipt of dividends in respect of all of its holding of the Company’s Ordinary Shares. The EBT’s waiver of dividends may be revoked or varied at any time.

The cost of the shares expected to be awarded under each plan is amortised evenly over the period from the original grant of the particular award to the time of vesting. This is normally a period of not less than three years.

Group and CompanyShares held Nominal Net book

in trust value Cost Amortisation valueNo. £m £m £m £m

At 1 April 2000 6,471,356 0.9 29.7 (11.3) 18.4Shares purchased 199,127 – 1.2 – 1.2Awarded by the EBT (559,873) – (2.8) 2.8 –Amortisation in the period – – – (5.2) (5.2)At 31 March 2001 6,110,610 0.9 28.1 (13.7) 14.4At 31 March 2001, the outstanding loan by the Company to the EBT to finance the purchase of Ordinary Shares was £29.7m (2000: £31.2m). The market value at 31 March 2001 of the Ordinary Shares held in the EBT, which are listed in the UK, was£27.8m (2000: £44.1m).

16. StocksGroup Company

2001 2000 2001 2000£m £m £m £m

Raw materials and consumables 14.9 8.2 – –Work in progress 0.6 1.9 – –Finished goods 30.6 29.8 – –Total 46.1 39.9 – –

17. DebtorsGroup Company

2001 2000 2001 2000£m £m £m £m

Due within one year:Trade debtors 428.3 340.4 1.0 1.4Amounts owed by subsidiary undertakings – – 1,168.9 1,716.2Amounts owed by associated undertakings 0.1 0.9 – –Amounts owed by joint venture (HMV Media Group plc) 8.3 7.9 – –Corporate taxation recoverable 29.0 40.4 15.6 4.7Other debtors 115.9 96.1 0.6 2.0Prepayments and accrued income 287.3 343.5 0.6 0.3

868.9 829.2 1,186.7 1,724.6Due after more than one year:

Corporate taxation recoverable 2.2 23.0 – 22.9Other debtors 18.8 12.0 0.7 –Prepayments and accrued income 94.4 51.0 – –

115.4 86.0 0.7 22.9Total 984.3 915.2 1,187.4 1,747.5Other debtors due within one year includes £0.3m (2000: £3.9m) book value of listed investments with a market value of £4.8m (2000: £79.6m).

Notes to the Financial Statements (continued)

Page 57: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

59

18. BorrowingsGroup Company

2001 2000 2001 2000£m £m £m £m

Long-term borrowingsLoans 467.5 377.9 – –Finance leases 2.6 3.6 – –Less: repayable within one year (2.6) (0.6) – –Total long-term borrowings 467.5 380.9 – –Short-term borrowingsLoans and overdrafts 659.0 806.4 – –Finance leases 1.3 1.2 – –Short-term element of long-term loans 2.6 0.6 – –Total short-term borrowings 662.9 808.2 – –Total borrowings 1,130.4 1,189.1 – –Liquid funds:

Investments: liquid funds (0.7) (1.3) – –Cash at bank and in hand and cash deposits (136.9) (266.6) (37.4) (16.2)

Net borrowings 992.8 921.2 (37.4) (16.2)Long-term borrowings include £111.5m (2000: £62.6m) of borrowings repayable within one year, which are drawings under long-term committed facilities and, therefore, have been classified as such.

Under their banking arrangements, overdraft and cash balances of the Company and of certain subsidiaries are pooled or offset and cross-guaranteed. Such pooling and offsets are reflected in the Group balance sheet as appropriate.

Group borrowings includes £3.9m (2000: £4.8m) which is secured on assets held under finance leases.

Maturity analysis of long-term borrowingsGroup Company

2001 2000 2001 2000£m £m £m £m

Amounts falling due after more than one year are repayable as follows:Between one and two years 115.0 51.6 – –Between two and five years 1.9 17.6 – –After five years:

By instalments – 0.7 – – Other 350.6 311.0 – –

467.5 380.9 – –The amount of debt, any of which falls due for payment after more than five years, is £350.6m (2000: £314.2m).

Page 58: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

60

19. Derivatives and other financial instrumentsThe Group has excluded all short-term debtors and creditors from the following disclosures, other than currency exposures.

(i) Interest rate risk profile of the financial liabilities of the GroupAt 31 March 2001 At 31 March 2000

Financial FinancialFloating rate Fixed rate liabilities on Floating rate Fixed rate liabilities on

financial financial which no financial financial which noTotal* liabilities liabilities interest is paid Total* liabilities liabilities interest is paid

Currency £m £m £m £m £m £m £m £m

Sterling 10.0 0.1 – 9.9 12.2 3.1 – 9.1US dollar 563.3 518.3 – 45.0 521.4 470.0 – 51.4Yen 149.6 48.8 98.1 2.7# 174.4 63.8 107.3 3.3#

Euro 364.2 308.3 55.9 – 362.0 308.1 53.9 –Swedish krona 84.8 84.8 – – 90.8 90.8 – –Danish krone – – – – 51.5 51.5 – –Other 16.1 16.1 – – 40.6 40.6 – –Total 1,188.0 976.4 154.0 57.6 1,252.9 1,027.9 161.2 63.8*Excludes short-term creditors as permitted by FRS13.#Represents deposits from retailers. The deposits are repayable when trading ceases and therefore there is no fixed term to maturity.

At 31 March 2001 At 31 March 2000Financial Financial

liabilities on liabilities onwhich no which no

Fixed rate financial liabilities interest is paid Fixed rate financial liabilities interest is paid

Weighted average Weighted averageWeighted average period for which Weighted average Weighted average period for which Weighted average

interest rate rate is fixed period until maturity interest rate rate is fixed period until maturityCurrency % Years Years % Years Years

Sterling – – 3.4 – – 3.4US dollar – – 4.4 – – 4.0Yen 0.7 1.5 n/a* 0.7 2.5 n/a*

Euro 4.1 0.5 – 4.1 1.5 –*Represents deposits from retailers. The deposits are repayable when trading ceases and therefore there is no fixed term to maturity.

Floating rate financial liabilities comprise bank borrowings and the proceeds of the US$500m issue of 10-year GuaranteedNotes swapped to floating rate funding. All floating rate financial liabilities bear interest at rates fixed in advance by reference to the applicable bank reference rate in the relevant country for periods ranging from overnight to six months.

The figures shown in the tables above take into account various interest rate and currency swaps used to manage interest raterisk and the currency profile of financial liabilities. Further protection from interest rate movements is provided by interest ratecaps and collars. See Note 19 (viii) on page 63 for further details of interest rate collars and swaps held as at 31 March 2001.

(ii) Interest rate risk profile of the financial assets of the GroupAt 31 March 2001 At 31 March 2000

Financial FinancialFloating rate Fixed rate assets on Floating rate Fixed rate assets on

financial financial which no financial financial which noTotal* assets assets interest is paid# Total* assets assets interest is paid#

Currency £m £m £m £m £m £m £m £m

Sterling 49.8 17.2 – 32.6 95.5 54.3 – 41.2US dollar 77.0 9.3 – 67.7 37.4 31.2 – 6.2Yen 50.5 34.7 – 15.8 96.4 84.5 – 11.9Euro 45.4 36.6 – 8.8 56.8 49.2 – 7.6Swedish krona 1.4 0.1 – 1.3 2.2 0.2 – 2.0Danish krone 0.1 0.1 – – 1.0 0.8 – 0.2Other 50.6 39.6 – 11.0 58.1 47.7 – 10.4Total 274.8 137.6 – 137.2 347.4 267.9 – 79.5*Excludes short-term debtors as permitted by FRS13.#Financial assets on which no interest is paid represent mainly advances to artists and investments for which no meaningful average fixed period to maturity can be calculated.

Floating rate financial assets comprise cash at bank and deposits. All floating rate financial assets earn interest at rates fixed in advance by reference to the applicable bank reference rate in the relevant country for periods ranging from overnight to six months.

Notes to the Financial Statements (continued)

Page 59: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

61

19. Derivatives and other financial instruments (continued)(iii) Currency exposuresAs explained on page 27 in the Financial Review, the Group’s objective in managing currency exposures arising from its netinvestments overseas (its structural currency exposures) is to maintain appropriate levels of borrowings by currency to hedgepartially against currency depreciation. Gains and losses arising from these structural currency exposures are recognised in the statement of total recognised gains and losses.

The table below shows the Group’s currency exposures, being those trading assets and liabilities (or non-structural exposures)that give rise to the net currency gains and losses recognised in the profit and loss account. Such exposures comprise themonetary assets and monetary liabilities of the Group that are not denominated in the operating (or functional) currency of the operating unit involved, other than certain non-sterling borrowings treated as hedges of net investments in overseasoperations. These exposures were as follows:At 31 March 2001

Net foreign currency monetary assets (liabilities)Sterling US dollar Yen Euro Other

Functional currency of Group operation £m £m £m £m £m

Sterling n/a 4.5 31.2 28.2 62.1US dollar 0.7 n/a – 0.2 0.4Yen (0.3) (0.1) n/a – 0.5Euro 1.0 (2.0) 0.1 n/a 1.5Other (4.4) 3.9 0.2 0.3 1.1Total (3.0) 6.3 31.5 28.7 65.6

At 31 March 2000Net foreign currency monetary assets (liabilities)

Sterling US dollar Yen Euro OtherFunctional currency of Group operation £m £m £m £m £m

Sterling n/a 12.9 5.0 14.1 64.7US dollar (2.6) n/a – 0.1 0.7Yen (0.4) 0.2 n/a – 0.4Euro 5.3 (0.4) – n/a 1.1Other (3.9) 3.4 0.2 (0.6) (0.2)Total (1.6) 16.1 5.2 13.6 66.7

(iv) Maturity of financial liabilitiesThe maturity profile of the Group’s financial liabilities, other than short-term creditors such as trade creditors and accruals, was as follows:

2001 2000£m £m

In one year or less, or on demand 662.9 808.2In more than one year but not more than two years 124.7 66.0In more than two years but not more than five years 32.3 51.1In more than five years 368.1 327.6Total 1,188.0 1,252.9

Page 60: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

62

Notes to the Financial Statements (continued)

19. Derivatives and other financial instruments (continued)(v) Undrawn facilitiesThe Group has various borrowing facilities available to it. The undrawn committed facilities available at 31 March in respect ofwhich all conditions precedent had been met at that date were as follows:

2001 2000£m £m

Expiring in one year or less 320.8 423.3Expiring in more than one year but not more than two years 108.0 11.1 Expiring in more than two years 40.0 166.5Total 468.8 600.9

(vi) Fair values of financial assets (liabilities)2001 2000

Book value Fair value* Book value Fair value*£m £m £m £m

Primary financial instruments held or issued to finance the Group’s operations:Short-term borrowings and current portion of long-term borrowings (662.9) (662.9) (808.2) (808.2)Long-term borrowings (467.5) (503.2) (380.9) (391.7)Liquid funds 137.6 137.6 267.9 267.9Other financial liabilities (57.6) (57.6) (63.8) (63.8)

Derivative financial instruments held to manage the interest rate and currency profile:Interest rate swaps n/a 23.0 n/a 11.6Interest rate caps and collars – (1.5) (0.2) (0.8)Currency swaps and forward foreign currency contracts n/a 0.1 n/a 0.2

Financial assets:Financial assets – listed investments 0.3 4.8 3.9 79.6Financial assets – other 136.9 136.9 75.6 75.6

*Market rates have been used to determine fair values.

Long-term borrowings include a US$500m issue of 10-year Guaranteed Notes (book value £350.6m) with a fair value of £386.3m.The Group holds equivalent US dollar nominal value interest rate swaps matching the coupon on the notes, effectively convertingthe interest basis of the issue to floating rate. At 31 March 2001 these swaps had a fair value of £23.5m. The majority of otherborrowings and liquid funds are short-term in nature and book values approximate to fair values. The market value of listedinvestments is given above. For all other financial assets and liabilities, book values approximate to fair values. During the year a profit of £11.4m was made on the sale of current asset investments (2000: £41.7m).

(vii) Hedges As explained in the Financial Review on page 27, the Group’s policy is to hedge interest rate risk, using interest rate swaps, caps and collars. Unrecognised gains and losses on instruments used for hedging, and the movements therein, are as follows:

Total netGains Losses gains (losses)

£m £m £m

Unrecognised gains and losses on hedges at 1 April 2000 1.2 (0.4) 0.8Gains and losses arising in previous years that were recognised in 2001 – (0.1) (0.1)Gains and losses arising before 1 April 2000 that were not recognised in 2001 1.2 (0.3) 0.9Gains and losses arising in 2001 that were not recognised in 2001 0.2 (3.1) (2.9)Unrecognised gains and losses on hedges at 31 March 2001 1.4 (3.4) (2.0)Of which:

Gains and losses expected to be recognised in 2002 0.3 (0.8) (0.5)Gains and losses expected to be recognised in 2003 or later 1.1 (2.6) (1.5)

1.4 (3.4) (2.0)

Page 61: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

63

19. Derivatives and other financial instruments (continued)(viii) Financial instrumentsInterest rate agreementsTo manage interest rate risk, the Group has entered into certain interest rate collar and swap agreements, which as at 31 March 2001 were as follows:

Notional Terminationprincipal date

Interest rate collars:US dollar $600m October 2001 to February 2004Euro 490m March 2002 to April 2003

Notional Termination Fixedprincipal date rate

Interest rate swaps:Euro – pay fixed rate and receive floating rate 90m October 2001 4.11%Yen – pay fixed rate and receive floating rate ¥17.5bn October 2002 0.65%US dollar – pay floating rate and receive fixed rate $500m August 2009 8.38%

Exchange rate agreementsTo manage exchange rate risk on intra-group funding, the Group has entered into certain currency swaps and forward foreigncurrency contracts, which as at 31 March 2001 were as follows:

Gross notional Valueamount purchased date

Euro 164m April 2001Canadian dollar $15m April 2001US dollar $0.7m April 2001Yen ¥965bn April 2001

Page 62: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

64

20. Cash, liquid resources and financingThe following definitions have been used:Cash: Cash in hand and deposits repayable on demand if available within 24 hours without penalty, including overdrafts.Liquid resources: Investments and deposits, other than those included as cash, which are readily convertible into knownamounts of cash.Financing: Borrowings less overdrafts which have been treated as cash.

Analysis of movement in the Group’s net borrowings in the year ended 31 March 2001At Acquisitions/ Exchange At

1 April 2000 Cash flow disposals movement 31 March 2001£m £m £m £m £m

Cash at bank and in hand 221.7 (88.0) – (3.3) 130.4Overdrafts (55.3) 34.8 – (5.1) (25.6)Cash 166.4 (53.2) – (8.4) 104.8Debt due after more than one year (377.3) (48.4) – (39.2) (464.9)Debt due within one year (751.7) 120.8 – (5.1) (636.0)Finance leases (4.8) 1.2 – (0.3) (3.9)Financing (1,133.8) 73.6 – (44.6) (1,104.8)Investments: liquid funds 1.3 (0.5) – (0.1) 0.7Cash deposits 44.9 (38.4) – – 6.5Liquid resources 46.2 (38.9) – (0.1) 7.2Total (921.2) (18.5) – (53.1) (992.8)Cash flow on financing of £73.6m is split between new loans of £(240.1)m, loans repaid of £312.5m and the capital element offinance leases repaid of £1.2m.

Analysis of movement in the Group’s net borrowings in the year ended 31 March 2000At Acquisitions/ Exchange At

1 April 1999 Cash flow disposals movement 31 March 2000£m £m £m £m £m

Cash at bank and in hand 149.6 72.2 – (0.1) 221.7Overdrafts (69.2) 13.2 – 0.7 (55.3)Cash 80.4 85.4 – 0.6 166.4Debt due after more than one year (43.8) (334.8) – 1.3 (377.3)Debt due within one year (778.0) 17.1 (7.7) 16.9 (751.7)Finance leases (5.7) 0.5 – 0.4 (4.8)Financing (827.5) (317.2) (7.7) 18.6 (1,133.8)Investments: liquid funds 1.4 (0.1) – – 1.3Cash deposits 20.5 24.8 – (0.4) 44.9Liquid resources 21.9 24.7 – (0.4) 46.2Total (725.2) (207.1) (7.7) 18.8 (921.2)Cash flow on financing of £(317.2)m is split between new loans of £(834.0)m, loans repaid of £516.3m and the capital elementof finance leases repaid of £0.5m.

The Group’s net borrowings at 31 March 2001 comprised:Liquid

resources and NetCash financing borrowings

£m £m £m

Investments: liquid funds – 0.7 0.7Cash at bank and in hand and cash deposits 130.4 6.5 136.9Borrowings due within one year (25.6) (637.3) (662.9)Borrowings due after more than one year – (467.5) (467.5)At 31 March 2001 104.8 (1,097.6) (992.8)At 31 March 2000 166.4 (1,087.6) (921.2)

Notes to the Financial Statements (continued)

Page 63: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

65

21. Other creditors: amounts falling due within one yearGroup Company

2001 2000 2001 2000£m £m £m £m

Trade creditors 168.7 131.4 2.0 0.8Royalties and fees payable 672.6 561.9 – –Amounts owed to subsidiary undertakings – – 4.8 4.2Amounts owed to associated undertakings 0.6 0.6 0.6 0.6Corporate taxation 146.3 156.0 10.8 –Other taxes including VAT and social security costs 17.7 17.9 0.5 0.4Dividends payable 92.7 92.7 92.7 92.7Other creditors 97.9 81.6 1.1 1.1Accruals and deferred income 137.6 159.9 5.0 7.1Total 1,334.1 1,202.0 117.5 106.9

22. Other creditors: amounts falling due after more than one yearGroup Company

2001 2000 2001 2000£m £m £m £m

Amounts owed to subsidiary undertakings – – 574.0 754.0Corporate taxation – 0.1 – –Deferred consideration payable 9.8 9.8 – –Accruals and deferred income 19.1 27.7 – –Total 28.9 37.6 574.0 754.0

23. Deferred taxationGroup Company

2001 2000 2001 2000£m £m £m £m

Excess of accumulated taxation allowances overdepreciation provided against tangible fixed assets 13.0 13.0 – –

Other timing differences 14.6 14.8 13.0 13.027.6 27.8 13.0 13.0

Movements during the year:At 31 March 2000 27.8 13.0Currency retranslation 0.4 –Charged to profit on ordinary activities (0.6) –

At 31 March 2001 27.6 13.0No provision has been made for further taxes which could arise if subsidiary or associated undertakings are disposed of or if overseas companies were to remit dividends to the UK in excess of those anticipated in these accounts; it is consideredimpracticable to estimate the amount of such taxes.

The Company has undertaken to discharge the liability to corporation tax of the majority of its wholly owned UK subsidiaries;their deferred tax liabilities are therefore dealt with in the accounts of the Company.

There is no unprovided deferred tax liability as at 31 March 2001.

Page 64: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

66

24. Other provisions for liabilities and chargesGroup

Disposal andfundamental Acquisition and

Trading Pensions reorganisation integration Total£m £m £m £m £m

At 31 March 2000 26.2 44.6 23.8 35.6 130.2Currency retranslation 0.6 0.4 0.1 3.4 4.5Provisions utilised (7.9) (14.0) (7.4) (1.7) (31.0)Charged against:

Operating profit 8.1 6.0 – – 14.1Exceptional items – – – – –

Acquisition (disposal) of businesses – – – (0.5) (0.5)Reclassification (0.6) – – – (0.6)At 31 March 2001 26.4 37.0 16.5 36.8 116.7The pension provisions arise in overseas companies in respect of state schemes and employees covered by the Group’sunfunded schemes.

Trading provisions include royalty audit and other trading provisions charged through operating profit before exceptional items, and restructuring and reorganisation provisions charged through operating exceptional items.

Provisions utilised relating to disposals and fundamental reorganisations in the cash flow include £5.4m spent against thedisposal provision set up last year and £2.0m spent against disposal provisions set up in previous years.

CompanyDisposal andfundamental Acquisition and

Trading Pensions reorganisation integration Total£m £m £m £m £m

At 31 March 2000 3.2 – 13.7 – 16.9Provisions utilised (0.8) – (0.1) – (0.9)At 31 March 2001 2.4 – 13.6 – 16.0

Notes to the Financial Statements (continued)

Page 65: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

67

25. Share capital and share premium accountGroup and Company

Authorised Allotted, called-up & fully paid2001 2000 2001 2000

£m £m £m £m

Ordinary Shares of 14p each 158.8 158.8 110.4 110.4B Shares of 114.5p each 479.8 479.8 – –Deferred shares of 0.0005p each 17.5 17.5 – –

656.1 656.1 110.4 110.4

(i) Ordinary Shares in issueNominal

Number value Premium£m £m

At 31 March 2000 788,323,025 110.4 444.6Shares issued during the year on the exercise of options:

Executive Schemes 14,564 – –Savings-Related Scheme 216,162 – 1.0

At 31 March 2001 788,553,751 110.4 445.6

(ii) Share optionsOptions to subscribe for the Company’s Ordinary Shares were outstanding as follows (adjusted for the 1992 rights issue, the1996 demerger and the 1997 share capital reorganisation, where appropriate):

Savings-RelatedExecutive Share Option Schemes Share Option Scheme

1984 Scheme 1995 Scheme 1994 Scheme

At 31 March 2000 704,201 6,305,445 1,273,446Granted – 1,145,210 474,724Exercised (14,564) – (216,162)Lapsed – (635,669) (97,310)At 31 March 2001 689,637 6,814,986 1,434,698Option price per 14p share (range) 263.155p – 534p 14p – 747p 415p-Final exercise dates* 2004 July 2006

415p – 466pJuly 2004 December 2010

*Options granted under the 1984 Executive Share Option Scheme are normally exercisable no earlier than three years and no later than ten years following the date of grant, as are options granted under the 1995 Executive Share Option Scheme (which are, however, subject to the achievement of performance requirements that must be met before the options normally become exercisable).Options granted under the 1994 Savings-Related Share Option Scheme are normally exercisable for a six-month period following completion of savings to either a three-year or a five-year savings contract.

Page 66: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

68

Notes to the Financial Statements (continued)

25. Share capital and share premium account (continued)(iii) Share premium accountThe principal elements that make up the Company’s share premium account arose as follows:Group and Company

Years arising £m

Conversions to Ordinary Shares of 7% Convertible Redeemable Second 1989/90Cumulative Preference Shares 1992/99 of £1 each and1990/91 56.7

A placing of Ordinary Shares linked to the offer for Thames Television 1990/91 78.0Issue of Ordinary Shares on exercise of subscription rights of warrants originally

attached to 73/8% bonds due 1992; and 1991/92 67.1the transfer from other reserves in respect of amounts paid for the warrants exercised 1991/92 10.2

Issue of Ordinary Shares on conversion of Convertible Unsecured LoanStock to fund the acquisition of Virgin Music Group 1992/93 508.4

Issue of Ordinary Shares on conversion of 53/4% Guaranteed RedeemablePreference Shares 2004 of THORN EMI Capital NV 1993/94 126.0

Share capital reorganisation (including issue of Redeemable Preference B Shares) 1997/98 (501.2)Other issues of Ordinary Shares 100.4Balance at 31 March 2001 445.6

26. ReservesGroup Company

Capital Capitalredemption Other Profit and redemption Other Profit and

reserve reserves loss reserve reserve reserves loss reserve£m £m £m £m £m £m

At 31 March 2000 495.8 256.0 (2,034.4) 495.8 502.2 1,457.1Currency translation – – (11.8) – – (4.9)Goodwill adjustments:

Subsidiary undertakings – – (4.4) – – –Profit attributable to members of the

Holding Company – – 82.0 – – 68.7Equity dividend – – (125.2) – – (125.2)Share of joint venture reserves adjustment – – (2.4) – – –Transfer of realised reserves – – – – (45.3) 45.3At 31 March 2001 495.8 256.0 (2,096.2) 495.8 456.9 1,441.0Group reserves include £(9.2)m (2000: £(5.6)m) in respect of its share of post-acquisition retained losses of joint ventures andassociated undertakings.

Other reserves of the Company relate to a special reserve which reflects the share premium account reduction of July 1988 and unrealised profits on disposal of investments.

In accordance with the exemption permitted by S230(3) of the Companies Act 1985, the profit and loss account of theCompany is not separately presented. The profit attributable to shareholders, dealt with in the accounts of the Company, is £68.7m (2000: £739.4m).

The Group profit and loss reserve includes £1,458.9m (2000: £1,454.5m) in respect of goodwill previously written off.

27. Minority interests (equity)Group

2001 2000£m £m

Toshiba-EMI Ltd (Japan) 57.1 69.3Jobete Music Co., Inc. (USA) 69.3 64.3Other 1.7 2.6Total 128.1 136.2

Page 67: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

69

28. Financial commitmentsGroup

2001 2000£m £m

Capital expenditure: Contracted 28.2 12.4The Group has commitments, which are largely performance-related, to pay advances to artists and repertoire ownersamounting to £399.6m at 31 March 2001 (2000: £367.9m). Under the shareholders’ agreement relating to the Group’s 50%shareholdings in Jobete Music Co., Inc. and Stone Diamond Music Corporation, during the period of 10 years commencing on 1 July 2002, the other shareholder has the option to require EMI to purchase its shares for a consideration calculated by reference to the combined net publishers share of the two companies in the preceding year, with a minimum price ofUS$168m and a maximum price of US$250m. The option may be exercised earlier in certain circumstances.

Annual commitments under operating leases at 31 March were as follows:Group

2001 2000£m £m

Land and buildings:Expiring in the first year 5.8 4.2Expiring in the second to fifth years inclusive 11.2 11.9Expiring after the fifth year 5.7 4.2

Total 22.7 20.3

Plant, equipment and vehicles:Expiring in the first year 2.2 2.6Expiring in the second to fifth years inclusive 3.2 4.4Expiring after the fifth year – 0.1

Total 5.4 7.1The Company has no commitments.

29. Contingent liabilitiesCertain Group companies, along with other recorded music distributors, are subject to civil lawsuits in the United States allegingviolations of antitrust, unfair trade practices and consumer protection laws. These actions include (i) lawsuits brought by retailers,which are currently pending in federal court in California, alleging that the major record companies violated federal antitrust lawsin setting wholesale prices of CDs, (ii) 10 identical class action lawsuits filed in various state courts on behalf of consumers inthose states containing allegations similar to those in the California federal case, (iii) actions in federal court in Maine brought on behalf of consumers of 50 states by respective state attorneys general and by private attorneys, alleging violations of antitrust,unfair trade practices and consumer protection statutes in connection with the retail pricing of CDs, including, in particular, so-called minimum advertised price (MAP) policies, and (iv) numerous class action lawsuits, filed in various state courts, on behalf of consumers of those states, containing allegations similar to those in the Maine federal case. EMI management believes theGroup has legal and factual defences to these claims and intends to continue to defend all actions vigorously. Adverse verdictsin these matters, however, could result in material losses to EMI. Due to the lack of specificity of plaintiffs’ claims, the proceduralposition in the cases and other factors, a range of potential loss cannot yet be determined.

Virgin Holdings, Inc., a wholly owned subsidiary of the Group, is subject to several class action lawsuits in the US alleging that, as a result of allegedly false and misleading statements concerning the licensing agreement between Virgin Holdings, Inc. andmusicmaker.com, Inc. (musicmaker), the price of musicmaker’s stock was artificially high. A number of similar actions havesubsequently been filed and they are all being handled in a consolidated proceeding. EMI Group, EMI Recorded Music and EMIRecorded Music North America have also been named in these proceedings. On the basis of information presently available,management believes that these claims, which are being defended vigorously, are unlikely to result in material loss to the Group.However, adverse verdicts could result in material loss to the Group. As the cases are at an early stage, a range of potential loss cannot yet be determined.

The Group is also involved in various other legal proceedings, principally in the US and UK, arising out of the normal course of business. The Directors believe that the outcome of these other proceedings will not have a material effect on the Group’sfinancial position.

Guarantees and other contingent liabilities (other than those relating to HMV and HMV Media Group plc – see below) total£14.7m (2000: £14.8m) for the Group, of which £8.8m (2000: £8.7m) relate to certain contracts entered into by former Groupcompanies. There are several guarantees and other contingent liabilities in respect of HMV and HMV Media Group plc (seeNote 32 on page 72 for details).

Page 68: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

70

30. Pension arrangementsThe Group operates a number of pension schemes throughout the world. The main scheme, which covers employees in the UK, is the EMI Group Pension Fund (the Fund). Staff engaged outside the UK are covered by local arrangements which, in the case of the Group schemes, are largely of the defined contribution type. The assets of the Group’s pension schemes are held mainly in separate trustee-administered funds.

The Fund is based in the UK and is of the defined benefit type. The Fund is open to all permanent employees over the age of18 employed by the Company and certain subsidiaries in the UK. Benefits provided by the Fund are based on final pensionablepay. Pensions payable from the Fund are guaranteed to increase by 5% per annum, or by the cost of living if less. Memberscontribute to the Fund at the rate of 4% of pensionable pay.

The latest available actuarial valuation of the Fund was made by a qualified actuary as at 31 March 2000 using the projected unitmethod. At that date, the market value of the assets of the Fund was taken to be £1,079m. The market value of the assets wassufficient to cover 117% of the value of the benefits that had accrued to the members, after allowing for assumed increases inearnings, on the actuarial assumptions used, treating the Fund as an ongoing entity. Part of the above excess assets disclosedby the 2000 valuation has been used to finance a special increase of 3% to pensions in payment and part has been allocatedtowards a reduction of employer contributions below the long-term rate, with the balance being carried forward as a reserve in the Fund.

Employer expense in respect of the Fund has been calculated in accordance with Statement of Standard Accounting Practice24 – Accounting for Pension Costs (SSAP 24). On the basis of actuarial advice, it is calculated that the employer expense wouldrepresent a credit to the profit and loss account on full application of SSAP 24 principles. However, for reasons of conservatism,such expense has been taken as nil for the two years ended 31 March 2001. The long-term financial assumptions used tocalculate employer expense under SSAP 24 are shown below:

Growth relative to investment return

Rate of investment return 5% to 6% p.a.Rate of pay increases 5% p.a.Rate of pension increases 3% p.a.Rate of price inflation 3% p.a.These rates included allowance for the effects of the tax credit changes introduced by the Finance (No. 2) Act 1997.

Employer contributions of £14.4m (2000: £12.9m) were charged to the profit and loss account. These contributions primarilyrelated to overseas schemes and were determined in accordance with local practice. Other post-retirement benefit expenses of £0.1m (2000: £1.1m) were also charged to the profit and loss account.

Notes to the Financial Statements (continued)

Accounting for Pension Costs

Page 69: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

31. Purchase of businessesAcquisitions during the year include a 50% stake in the No Limit record label in the US, RelaxIn (a recorded music company in the Middle East) and the remaining minority interests in Monitor (a Czech Republic music company) and OctoArts (a Philippines recorded music company). The combined fair value to the Group is as follows:

Book value of Fair value toassets acquired Adjustments the Group

£m £m £m

Music copyrights – (1.3) (1.3)Debtors (27.5) 2.0 (25.5)Creditors (6.5) (1.2) (7.7)Minority interests 0.6 – 0.6Net assets acquired (before cash) (33.4) (0.5) (33.9)Goodwill capitalised 44.2Earnout liabilities – provisions utilised 3.4Provisions for future earnout liabilities (2.9)Net cash consideration 10.8Satisfied by:

Total consideration 13.8Future earnout provisions (2.9)Cash consideration 10.9Net cash acquired (0.1)

Net cash consideration 10.8The adjustments to book value of £(0.5)m were made to bring the valuation of the assets acquired in line with the Group’s accounting policies and to reflect revised estimates of consideration payable.

Goodwill arising on acquisitions in the year comprises: £m

Total consideration 13.8Net cash acquired (0.1)

13.7Fair value to the Group (before cash acquired) 33.9Earnout provisions utilised or written back (3.4)Goodwill 44.2The goodwill includes £39.8m of capitalised goodwill and goodwill which has been written back to reserves of £4.4m relating to prior-years’ acquisitions. Adjustments to goodwill written off to reserves arise on changes to estimated future earnoutliabilities for prior-years’ acquisitions and acquisitions of remaining minority interests associated with prior-years’ acquisitions.

All acquisitions have been accounted for using the acquisition method.

71

Page 70: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

72

32. Related party transactionsThe Company has taken advantage of the exemption under Financial Reporting Standard 8 – Related Party Disclosures not todisclose related party transactions between Group subsidiary undertakings. The Group had several transactions withother relatedparties during the year.

(i) HMV and HMV Media Group plcAs part of the sale in 1998 of the companies and assets comprising HMV to HMV Media Group plc (HMV Media Group) theCompany acquired a 45.2% equity stake, and 50% of the Junior Preference Shares in HMV Media Group, for £87.5m.

An additional £25m, in the form of deferred consideration, will be receivable on the earlier of a listing of any part of the sharecapital of HMV Media Group on any recognised stock exchange, the sale of at least 75% of the voting rights of HMV MediaGroup, or 28 March 2003. In addition, an amount of up to £25m further consideration is contingent and will be receivable if Advent International Corporation and related investors achieve a specified return on their investment in HMV Media Group on a listing or sale. Such deferred and contingent consideration is subordinated in right of payment to certain other liabilitiesand payments.

As a result of additional equity and preference share issues during 1999 by HMV Media Group, in which the Companysubscribed £9m for additional ordinary and preference shares, the Company now owns a 42.65% (39.90% fully diluted) equitystake in HMV Media Group, and 18.08% and 49.15% respectively of HMV Media Group’s Senior ‘A’ Preference Shares and Junior Preference Shares.

The Group has made available to HMV Media Group a £50m working capital revolving credit facility (the EMI Revolving CreditFacility). An initial £11m of this facility was drawn on 2 May 2000 and during the period 2 May 2000 to 10 November 2000, the facility was drawn in varying amounts, to a maximum of £42m, and for varying periods. The loan was fully repaid on 10 November 2000 and has not been drawn since. The facility carries an interest rate per annum equal to LIBOR plus a margin.

As part of the transaction, the Group also entered into an indemnity deed with HMV Media Group relating, among other things, to guarantees given by the Group of approximately 99 leases. Under the deed, HMV Media Group agreed to indemnify the Group against any payments made under those and certain other guarantees and indemnities. HMV Media Group hasundertaken to use reasonable efforts to arrange for the release of these guarantees. The aggregate annual rental paymentsunder guaranteed leases are approximately £27.5m, although they are subject to adjustment both up and down under certaincircumstances. The guaranteed leases have terms which expire in one to 25 years, and many of the leases expire in yearsbeyond 2011.

All of HMV Media Group’s obligations to the Group in respect of the EMI Revolving Credit Facility and indemnity deed aresecured under a debenture.

During the year ended 31 March 2001, companies within the Group made sales of £80.4m (2000: £73.4m) to companies withinHMV Media Group. At 31 March 2001, a total of £8.3m (2000: £7.9m) was due to companies within the Group from companiesin HMV Media Group.

(ii) OtherIn January 2001, the Group purchased the remaining 40% minority interest in OctoArts EMI Music, Inc., a Philippines company,from the minority partner for PP$1m (£15,000). As part of the transaction the Group also paid the minority partner PP$94m(£1.5m) for support in marketing Philippines repertoire to overseas Philippine communities. The minority partner’s brother wasthe Managing Director of OctoArts EMI Music, Inc.

In September 2000, the Group also purchased the remaining 49% minority interest in Monitor Records SRO, a Czech Republiccompany, from the minority partner for £1.2m.

The management buyout of the distribution operation in Butzweilerhof, Germany, (the financial effect of which was provided for in the Group’s accounts for the year ended 31 March 2000) was completed during the year. The transaction involved the sale of the assets of the Butzweilerhof operation to the management team for DM7m (£2.2m) and the continuation of distributionservices to the Group for a period.

Notes to the Financial Statements (continued)

Related Party Disclosures

Page 71: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

73

33. Significant investmentsThe businesses set out below are those which were part of the Group at 31 March 2001 and in the opinion of the Directorssignificantly affected the Group’s results and net assets during the year. Except where otherwise stated, the country of incorporation is England, the operations are within the United Kingdom, the shares are in equity share capital and thebusinesses are wholly owned.

Subsidiary undertakingsEMI Music CorporateCapitol-EMI Music, Inc. (USA) EMI Group Finance plcCapitol Records, Inc. (USA) EMI Group Holdings (UK) LtdChrysalis Records Ltd EMI Group International Holdings LtdEMI Electrola GmbH & Co. KG (Germany) EMI Group North America Holdings, Inc. (USA)EMI Entertainment World, Inc. (USA) EMI Group North America, Inc. (USA)EMI Music Australia Pty Ltd (Australia) EMI Group Worldwide LtdEMI Music France S.A. (France) Virgin Music Group Ltd*EMI Music Italy SpA (Italy)EMI Music Publishing LtdEMI Records LtdGroupe Virgin Disques S.A. (France)Jobete Music Co., Inc. (USA) (50% owned)#

Priority Records, LLC (USA)Toshiba-EMI Ltd (Japan) (55% owned)Virgin Records America, Inc. (USA)Virgin Records LtdVirgin Schallplatten GmbH (Germany)

*Held directly by the Company.#Jobete Music Co., Inc. has been consolidated as a subsidiary, even though it is only 50% owned, in accordance with section 258(4) of the Companies Act 1985.

Joint ventureThe principal investment of the Group (and the Company) in the equity share capital of joint ventures at 31 March 2001 was as follows:

Group & CompanyBusiness Location* equity holding

HMV Media Group plc Retail – books & recorded music England 42.65%*Country of incorporation. The UK and Canada are the principal countries of operation.

At 31 March 2001, the Group and Company held a 42.65% equity stake comprising: 41.10% of the Ordinary Shares; 100% of the ‘B’ Preferred Ordinary Shares and none of the ‘A’ Preferred Ordinary Shares; 18.08% of the Senior ‘A’ Preference Shares; and 49.15% of the Junior Preference Shares in HMV Media Group plc.

Page 72: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

74

EMI & HMV2001 2000 1999 1998 1997 1997

restated restated restated£m £m £m £m £m £m

ResultsTurnover:

EMI Music 2,672.7 2,386.5 2,373.5 2,413.5 2,532.4 2,532.4Elimination of sales to HMV n/a n/a n/a (60.8) (41.3) (41.3)

2,672.7 2,386.5 2,373.5 2,352.7 2,491.1 2,491.1Other businesses – – – – 20.4 20.4Continuing operations 2,672.7 2,386.5 2,373.5 2,352.7 2,511.5 2,511.5Discontinued operations – HMV – – – 956.7 878.5 878.5EMI & HMV 2,672.7 2,386.5 2,373.5 3,309.4 3,390.0 3,390.0Discontinued operations –

demerged business – – – – – 598.02,672.7 2,386.5 2,373.5 3,309.4 3,390.0 3,988.0

Operating profit:EMI Music 332.5 290.6 269.7 340.9 375.1 375.1Other businesses – – – – (0.3) (0.3)Continuing operations 332.5 290.6 269.7 340.9 374.8 374.8Discontinued operations – HMV – – – 29.6 25.1 25.1EMI & HMV 332.5 290.6 269.7 370.5 399.9 399.9Discontinued operations –

demerged business – – – – – 63.9Group operating profit before exceptional

items and amortisation 332.5 290.6 269.7 370.5 399.9 463.8Share of joint venture operating profit 34.4 27.7 30.1 – – –Share of associates’ operating profit (3.8) 0.8 (0.7) 0.9 (0.4) (0.4)Total operating profit before exceptional

items and amortisation 363.1 319.1 299.1 371.4 399.5 463.4Operating exceptional items (42.9) (4.0) – (135.9) (30.4) (30.4)Amortisation of goodwill and music copyrights (53.8) (34.6) (27.3) (27.0) (20.1) (20.1)

266.4 280.5 271.8 208.5 349.0 412.9Non-operating exceptional items:

Profits (losses) on businesses disposed ofor terminated – (9.9) 3.7 120.8 35.5 35.5

Profits (losses) on disposal of fixed assetsand investments – 52.4 – – (3.3) (1.0)

Profit before finance charges 266.4 323.0 275.5 329.3 381.2 447.4Finance charges (103.6) (73.7) (72.0) (64.3) (19.0) (25.5)Profit before taxation 162.8 249.3 203.5 265.0 362.2 421.9Taxation (65.8) (73.0) (71.7) (126.5) (156.4) (177.4)Profit after taxation 97.0 176.3 131.8 138.5 205.8 244.5Minority interests (15.0) (17.9) (9.2) (6.1) (11.2) (11.2)Profit attributable to members of the

Holding Company 82.0 158.4 122.6 132.4 194.6 233.3

Five Year Summary

Page 73: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

75

EMI & HMV2001 2000 1999 1998 1997 1997

restated restated restated£m £m £m £m £m £m

Operating assetsMusic copyrights 546.8 521.0 373.6 372.2 262.1 262.1Goodwill 61.1 26.7 11.6 – – –Property, plant, equipment and vehicles 306.8 337.2 348.7 356.1 510.5 510.5Fixed asset investments 48.6 38.0 58.2 56.2 51.4 51.4Investments: own shares 14.4 18.4 19.9 19.5 14.7 14.7Stock and debtors, excluding taxation

and interest 994.9 882.9 810.2 885.8 1,005.0 1,005.0Creditors and provisions, excluding taxation,

dividends and interest payable (1,231.3) (1,106.4) (1,126.6) (1,137.1) (1,312.7) (1,312.7)Investment in HMV Media Group plc (168.3) (169.0) (167.5) 8.4 – –Operating assets 573.0 548.8 328.1 561.1 531.0 531.0Key statisticsNet borrowings 992.8 921.2 725.2 953.5 307.2 307.2Net cash inflow from operating activities 314.8 246.5 330.3 297.7 294.3 520.3Capital expenditure:

Fixed assets (continuing operations) 42.8 37.8 44.7 63.5 73.2 73.2Fixed assets (discontinued operations) – – – 39.5 56.2 85.4Rental equipment – – – – – 160.8

Total capital expenditure 42.8 37.8 44.7 103.0 129.4 319.4Earnings per Ordinary Share:

Basic 10.5p 20.3p 15.7p 16.5p 22.8p 27.3pAdjusted diluted 22.3p 19.2p 18.5p 24.9p 26.9p 31.2p

Dividends per Ordinary Share 16.0p 16.0p 16.0p 16.0p 15.0p 15.0pReturn on sales:

EMI Music 12.4% 12.2% 11.4% 14.1% 14.8% 14.8%Effective tax rate (before exceptional

items and amortisation) 25.4% 30.0% 30.9% 31.7% 36.5% 36.3%Interest cover – excluding joint venture 5.2x 6.9x 7.3x 7.2x 26.1x 28.8xDividend cover 1.4x 1.2x 1.2x 1.6x 1.8x 2.1xSeveral new accounting standards have been adopted with effect from 1 April 1998 (FRS9 to FRS14) and, where appropriate, comparative results have been restated to reflect the resulting changes in accounting policies and presentation of information.

Significant changes were made to the financing structure of the Group as part of the 1996 demerger, making the Group results difficult to compare year on year as results for the Thorn business are included up to demerger in the year ended 31 March 1997, butexcluded post demerger. Comparative results for EMI & HMV excluding the Thorn business are given for 1997.

Following the disposal of HMV on 28 March 1998, in accordance with FRS3, discontinued operations includes HMV. Thorn is included as discontinued operations – demerged business.

The share capital reorganisation took place on 21 July 1997 and earnings per share and dividends per share for the year ended 31 March 1997 have been restated to reflect the preliminary reorganisation elements to enable meaningful comparisons to be made.

Page 74: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

Financial CalendarResults announcementsInterim to 30 September 2001:

20 November 2001*Final to 31 March 2002:

21 May 2002*

AGMs and Reports2001 Annual General Meeting:

20 July 20012001 Interim Report:

1 December 2001*2002 Report and Accounts:

14 June 2002*2002 Annual General Meeting:

19 July 2002*

Dividend payment dates2001 final: payable on 1 October 2001

to shareholders on the register of members at the close of business on 7 September 2001

2002 interim: payable on 1 March 2002*to shareholders on the registerof members at the close ofbusiness on 1 February 2002*

* Proposed dates

Lloyds TSB RegistrarsQuestions about shareholdings, orchanges of address or any otherparticulars, should be sent to: Lloyds TSBRegistrars, Shareholder Services, TheCauseway, Worthing, West Sussex BN996DA, UK. A helpline, available at local callrates in the UK only, operates duringnormal office hours on 0870 600 3984 (+44 121 433 8000 from outside the UK).

www.shareview.co.ukLloyds TSB Registrars have a website at:www.shareview.co.uk where share-holders can view information about theirshareholdings, as well as find informationon how to register a change of nameand what to do if a share certificate islost. There are also facilities to downloadchange of address, dividend mandateand stock transfer forms.

Multiple accountsIf shareholders receive more than oneset of the Group’s Annual or InterimReports, due to differing name andaddress details, they should write toLloyds TSB Registrars requesting thattheir accounts be amalgamated.

Payment of dividends to bank orbuilding society accountsShareholders who wish to have theirdividends paid directly into their UK bank or building society account, with the related tax voucher being sent totheir registered address, should requesta dividend mandate form from Lloyds TSB Registrars.

Low-cost share dealing service –NatWest StockbrokersAn execution-only service, for holders ofOrdinary Shares, is available for the saleand purchase of the Company’s sharesat an attractive commission rate. Detailsabout this service may be obtained from:NatWest Stockbrokers, Corporate &Employee Services, 55 Mansell Street,London E1 8AN, UK; Tel: 020 7895 5029;e-mail: [email protected]

This information has been approved for the purposes of section 57 of the Financial Services Act 1986 byNatWest Stockbrokers Limited, which is a member ofthe London Stock Exchange and is regulated by TheSecurities and Futures Authority.

SharegiftIf you have a small number of EMI Groupplc shares, with a value that makes ituneconomic to sell them, you maydonate the shares to charity through the Sharegift scheme operated by TheOrr Mackintosh Foundation. Furtherinformation on Sharegift can be obtainedfrom their website at www.sharegift.org orby calling 020 7337 0501

Individual Savings Accounts (ISAs) –Lloyds TSB Bank PlcLloyds TSB Bank Plc can provide a singlecompany ISA for EMI Group plc OrdinaryShares. Details of the EMI Group singlecompany ISA may be obtained fromLloyds TSB Registrars either by writing tothem at: The Causeway, Worthing, WestSussex BN99 6DA, or by calling their ISAhelpline on 0870 24 24 244.

The publication of this information has been approved,for the purposes of section 57 of the Financial ServicesAct 1986, by Lloyds TSB Bank Plc, part of the LloydsTSB Group, which is regulated by the InvestmentManagement Regulatory Organisation (IMRO).

American Depositary Receipts (ADRs)The Company’s ADRs trade on the Over-the-Counter market, with one AmericanDepositary Share (ADS) representing twoEMI Group plc Ordinary Shares. MorganGuaranty Trust Company of New York isthe Depositary for the Company’s ADSs.Enquiries should be directed to: MorganGuaranty Trust Company of New York,PO Box 842006, Boston, MA02284-2006,USA; Tel: 1-800 428 4237 (toll free in theUSA) or 1-781 575 4328. Websiteaddress: www.adr.com

Shareholder servicesServices available to shareholders,whether they are holders of OrdinaryShares or American Depositary Receipts,are summarised in a leaflet obtainablefrom the Company Secretary at theaddress shown in italics underWebsite/general enquiries.

UK capital gains tax informationFor the purposes of UK capital gains tax,the market value of the Ordinary Sharesof EMI Group plc (then known asTHORN EMI plc) held on 31 March 1982,as adjusted for subsequent capitalisationissues, was 408.15p per share.

For UK capital gains tax purposes, thebase cost of EMI Group plc OrdinaryShares acquired prior to the demerger of 19 August 1996 will need to beapportioned between EMI Group plcOrdinary Shares of 25p each and Thornplc Ordinary Shares of 25p in theproportion 78.8% to 21.2%.

The base cost of EMI Group plc OrdinaryShares of 25p each acquired or heldprior to the share capital reorganisationof 21 July 1997 will then need to beapportioned between the new OrdinaryShares of 14p each and the former BShares of 114.5p each in the proportion89.4% to 10.6%.

Share price informationThe market price of EMI Group plcOrdinary Shares is available on Ceefaxand Teletext, or by calling the FT Cityline service on 0906 843 4214 or 0906 003 4214 (calls charged at 60p per minute).

Unsolicited mailBy law, the EMI Group plc share registerhas to be available for public viewing. If you wish to avoid receiving unsolicitedmail from other organisations, pleasewrite to: Mailing Preference Service,Freepost 22, London WE1 7E or call0345 034599 ffor an application form.

Annual and Interim ReportsCopies of the Group’s previous Annualand Interim Reports are available from the Corporate CommunicationsDepartment at the address shown belowin italics, or, for 1997 onwards, on the EMIwebsite at the address shown below.

Environmental Reports andinformationThe full version of the Group’s 2001Environmental Report will be available later in the year on the EMI Groupwebsite at the address shown below; an abridged printed edition of the report will be published during the summer of 2001. For further information onenvironmental matters, please write to the Corporate CommunicationsDepartment at the address shown underWebsite/general enquiries below.

Website/general enquiriesThe EMI Group website provides newsand financial information about theGroup, as well as its Recorded Musicand Music Publishing businesses,together with links to its recorded music labels.

General enquiries may be addressed to the Corporate CommunicationsDepartment at: EMI Group plc, 4 Tenterden Street,Hanover Square, London W1A 2AY, UK; Tel: 020 7355 4848. Website: www.emigroup.com

76

Investor Information

Analysis of Ordinary Shareholdings at 17 May 2001Number of Ordinary

holdings % Shares held %

1 to 500 11,674 42.98 2,528,152 0.32501 to 1,000 6,556 24.14 4,819,470 0.611,001 to 10,000 7,620 28.06 17,552,937 2.2310,001 to 100,000 720 2.65 26,610,407 3.37100,001 to 1,000,000 459 1.69 139,325,185 17.671,000,001 and over 130 0.48 597,720,110 75.80

27,159 100.00 788,556,261 100.00

nnouncements

should be sento: Lloyds TSB

Worthing, West Sussex BN9

Stockbrokers, Corporate &e Services, 55 Mansell Street,E1 8AN, UK; Tel: 020 7895 5029;

[email protected]:

Website

Page 75: business - Kronemyer.com Group AR 2001.pdfopportunity as we give music fans the greatest possible ... Lenny Kravitz 6.7m units sold Greatest Hits. Robbie Williams ... Lenny Kravitz

Subject IndexPrincipal references

Accounting Policies 48–49Acquisitions and disposals 46,71Advances to artists 49American Depositary

Receipts (ADRs) 76Annual General Meeting 32,76Assets

current 44fixed 44,49,55leased 49operating 50,75

Associated undertakings 44,46,48,52,56–57

Auditbasis of opinion 41Committee 31,33–34

Auditorfees to 51Report 41

Balance Sheets 44Bertelsmann Music Group 4,5Board

committees 31,33–34of Directors 30–31,33

Borrowings 27,44,59,64Business Reviews

Music Publishing 16 –23Recorded Music 6–15

Capex Committee 31Capital

expenditure and financial investment 46

and reserves 44Cash 46–47

liquid resources andfinancing 64

Cash Flow Statement 46–47Chairman’s Statement 4 Charitable and political contributions 32Contingent liabilities 69Corporate Governance 33–35Creditors 44,65Debtors 44,58Depreciation 49,51Directors’

and employees’ costs 51interests 39–40remuneration 39Report 32responsibilities 34share options 37,40(see also: Executive Directors;Non-executive Directors)

Dividends 4,27,32,42–43,46,53,76Earnings per Ordinary Share

27,42–43,54Employee Benefit Trust (EBT) 37,58Employees 50Employment policies 28Environmental Report 29,76Equity

dividends paid 46shareholders’ funds 44,45

Exceptional items 27,53Executive Committee 31,34Executive Directors’ 30,33

annual bonus 36base salary and benefits 36long-term incentives 36–37remuneration 36,39restricted shares 37retirement benefits and

contributions 37–38service contracts 38share options 37,40

Finance charges 26,42–43,52Finance Committee 31Financial

calendar 76commitments 69instruments 49,60–63Review 24–27

Five Year Summary 74–75Foreign currencies 27,48,61Funding and interest rate risk 27General enquiries 76Goodwill 44,48,54,71HMV Media Group 26,44,50,56–57,72–73Individual Savings

Accounts (ISAs) 76Internal control 34–35Investments 44

fixed asset 44,56–57own shares 44,58significant 73

Investor Information 76relations 35

Joint venture 26,44,48,52,56–57,72–73 Key statistics 75Liabilities and charges,

provisions for 44,66Liquid resources and financing 46,64Minority interests 27,44,68Music copyrights 44,49,54,71Music Sound Foundation 29MusicNet 5,13–14New media deals (major) 13,21New media holdings 49Nomination Committee 31,34Non-executive Directors 31,33–34,38Operating profit 26,42–43,50,51Pensions 37–38,48,70Profit and Loss Account 42–43

analysis of 51reserve 44,68

Provisions 44,66Purchase of businesses 46,71Reconciliation of adjusted earnings 42–43Related party transactions 72Remuneration

Committee 31,33,36Report 36–40

Research & Development 32Reserves 44,68Results announcement 76

Segmental analyses 50Senior Executive Incentive Plan 36,37Share capital 32,44,67Share dealing service 76Share premium account 44,68Shareholders

funds 45substantial 32

Shareholdings, analysis of 76Social Responsibility 28–29Statement of Total

Recognised Gains and Losses 45Stocks 44,49,58Subsidiary undertakings 44,56,73Supplier payment policy 32Taxation 26,42–43,46,49,52

capital gains tax information 76deferred 65

Treasury management 27Turnbull Report 34Turnover 26,42–43,48,50Warner Music Group 4–5,27,53

Design SEAPrint Litho-TechBoard PhotographyRankin

Papers:Pages 1—32: Galerie Art Silk170gsm. Manufactured with100%chlorine-free pulp, biodegradable and recyclable. This paper has been awarded the Nordic SwanEnvironmental label for low emissionsduring production.

Pages 33 —76: Colorplan 120gsm.Fully recyclable stock made using elemental chlorine-free pulps frommanaged forests operating a strict reforestation programme.

77