[2] EMI Interim Results.

LONDON--(ENTERTAINMENT WIRE)--Nov. 23, 1999--

EMI Group

FINANCIAL

-- Sales Rose by 9 Per Cent to (Pound)1,080M

-- Pre-tax Profits:

- Up 10 Per Cent Excluding New Media Income And HMV

- Total Up 72 Per Cent to (Pound)86.5M

-- Dividend Unchanged At 4.25P

RECORDED MUSIC

-- Global Share Up by 0.6 Percentage Points to 12.8 Per Cent

-- Strong Gains in Japan, Latin America and South East Asia More

Than Offset Reduced Market Share in North America

-- Utada Hikaru has Best-selling Album in Japanese History

-- Five New Media Initiatives

MUSIC PUBLISHING

-- Sales and Profits Growth

-- Acquisition of Windswept Pacific and Hit & Run

EMI Group reported an increase in sales of 8.7 per cent to (pound)1,080.1m and a 71.6 per cent increase in pre-tax profits to (pound)86.5m. Included within pre-tax profit is a new stream of income from new media initiatives. In the first half, these initiatives contributed (pound)24.8m of licensing income. The remaining music operations, excluding HMV Media Group, generated pre-tax profits of (pound)75.4m, up 9.9 per cent, as indicated in our October statement. -0-

                 SUMMARY SIX MONTHS ENDED 30 SEPTEMBER
                                         1999               1998

TURNOVER                              (pound)1,080M     (pound)994M
EBITDA                                (pound)147.0M     (pound)118.2M
OPERATING PROFIT                      (pound)119.1M     (pound)91.2M
INTEREST(1)                           (pound)30.3M      (pound)36.8M
PRE-TAX PROFITS(1)                    (pound)86.5M      (pound)50.4M
EPS                                           6.2p              5.1p
DIVIDEND                                     4.25p              4.25p

(1)including HMV

Chairman's Statement

In my first results statement as Chairman of EMI Group, I am pleased to report steady progress for the first half of our fiscal year.

We indicated in our October statement that revenue and underlying profit before tax and exceptional items had grown by approximately 9 per cent during the six months to the end of September. The confirmed figures show revenues up 8.7 per cent and profit up 9.9 per cent, which represents a creditable performance in the context of low growth in the worldwide music market.

With the addition of (pound)24.8m of income from a licensing deal with musicmaker.com, and a reduced seasonal loss from HMV Media Group, overall Group profit before tax and exceptional items improved by 71.6 per cent to (pound)86.5m.

Revenue and profit improved in both our Recorded Music and Music Publishing divisions.

In Recorded Music, we have continued to strengthen both our regional and label management teams. We have expanded our Internet activities and invested heavily in the infrastructure that supports these activities. We are working on several strategic projects to reduce our back office cost base, improve the efficiency of the supply chain, prepare for the digital distribution of our product and adapt to a consolidating customer base across rapidly changing markets. Also, we are leveraging our impressive back catalogue in transactions with emerging new media companies in which we consequently own valuable equity stakes. We are already beginning to see the benefits of these efforts. Our half-year results in Japan, the world's second largest market, are considerably higher than last year driven by repertoire success, most notably Utada Hikaru's record breaking debut album First Love, which has sold 9m units. We have also achieved significant market share improvements in Latin America and South East Asia. However, there is still work to be done. Europe had flat sales and North American results were down due to a weak first-half release schedule.

We continued to exploit and expand our outstanding Music Publishing catalogue to generate growth and consolidate our position as the world's leading music publisher. Gains were made in a number of territories, with the US, Germany and Sweden making particularly strong contributions. We have made two significant acquisitions in recent months. In July, we acquired a substantial portion of the catalogue held by Windswept Pacific which has already been successfully integrated into our business. At the beginning of November, we acquired a 51 per cent stake in Hit & Run, the music publishing company that administers the songs of, among others, Phil Collins and Genesis.

The music industry is entering one of the most exciting phases in its history. The dawning of the new media age opens up a plethora of growth opportunities and challenges. Over the past six months we have forged alliances with a number of entrepreneurial Internet companies, to enable us to sell our music in new ways and to new consumers. In each case, using the value of our music content as currency, we have entered into deals that have consequently provided us with valuable holdings in these companies. These initiatives represent important steps as we position ourselves to exploit the power of the Internet and the rapid development of digital technology, whichever direction they may take. These transactions are becoming an integral part of our business and we expect to announce further similar developments in the months and years ahead. As income is realised from these sources, we are reinvesting it in further new media development and in our base business.

Music is a highly competitive industry. The EMI Group is well positioned to compete effectively in this market but we recognise that we must continue to raise our level of performance in all areas as our competitors do the same. Our strategic focus will continue to be solely on music and related new media initiatives. This focus will allow us to foster the development, marketing and delivery of excellent music in an environment that is attractive to both artists and management. It will also allow us to achieve further significant improvements in our operational efficiency to generate funds for driving growth in the future.

We have an extensive second-half release schedule with offerings from many of our established artists and we expect to make satisfactory progress in this year as a whole. The Board has decided to maintain the dividend for the first half at 4.25p.

Looking beyond the end of the year, and despite near-term challenges posed by the weakness of a number of music markets around the world, I am particularly encouraged both by the emerging release schedule for next year and by the actions that are being taken to strengthen our position for the longer term.

OPERATING AND FINANCIAL REVIEW

Commercial review

Turnover for the six months to 30 September 1999 increased by 8.7 per cent to (pound)1,080.1m. Recorded Music's revenues rose by (pound)74.2m (8.8 per cent) to (pound)921.4m and Music Publishing was (pound)11.9m higher (8.1 per cent) at (pound)158.7m. The worldwide recorded music market was flat in the first half, with significant variations between countries. Growth was largely driven by the US, which rose by nearly 7 per cent, a result of strong releases and a robust economy. EMI's seasonal share of the global recorded music market was 12.8 per cent, slightly higher than in the same period last year, maintaining our position as the third largest music company in the world.

Group operating profit, excluding exceptional items and amortisation, for the six months to 30 September 1999 increased by 30.6 per cent to (pound)119.1m. These profits include (pound)24.8m of operating income realised from a licensing deal with musicmaker.com, a bespoke Internet CD compilation business. As part of this deal, we have retained a 40 per cent interest in this company.

By leveraging our high quality music assets, we have entered into several licensing deals with other new media companies in which we consequently own equity stakes. As with musicmaker.com, we are carrying these holdings at the cost of entering into the licensing deals, which is typically minimal. These transactions have the potential to generate substantial future revenue streams.

RECORDED MUSIC

EMI Recorded Music enjoyed a particularly strong performance in Japan. Not only did Utada Hikaru's First Love become the best-selling album in Japanese history, but the company also enjoyed a number of successes from other artists such as Dreams Come True, Tomoyasu Hotei and Cubic U. As a result, sales in Toshiba-EMI (TOEMI), our Japanese subsidiary, were considerably ahead of last year. This success, combined with a declining market, resulted in a significant increase in market share. The increased sales flowed through to profits, which were also much higher.

EMI also saw a significant recovery in market share in both South East Asia and Latin America, although the music markets in both regions declined during the period. EMI's market share in Latin America rose due to the success of the Backstreet Boys and stronger local repertoire. This generated higher earnings, especially with profits depressed last year following the introduction of strict credit measures. EMI's market share also rose in South East Asia driven partly by sales of Utada Hikaru and Phil Chang in Taiwan. This had a positive impact on profits.

Overall, the European market and EMI's sales in the region were flat. Turnover in France rose, although this was offset by declines in the UK and Germany. Increased investment in artists and marketing resulted in reduced profits in the region overall.

For the second year running, the US has been the only major market showing strong growth, rising nearly 7 per cent in the first half, driven by strong releases and a robust economy. As expected, EMI's market share fell in the first half, reflecting the second-half bias of this year's release schedule. Our main US successes in the first six months included Lenny Kravitz, the Chemical Brothers and Fatboy Slim. Garth Brooks' album In the Life of Chris Gaines reached number two.

International successes came from the Chemical Brothers, Geri Halliwell, Lenny Kravitz and The Beatles, following the release of the reworked songtrack for Yellow Submarine. The Backstreet Boys and Britney Spears, licensed in certain territories, including Spain and Latin America, also sold well. In Japan, Utada Hikaru continued her tremendous success selling a further 4m copies of her debut album First Love, which also sold well in some South East Asian countries.

The Now series continued to sell well in the UK with Now 43 selling 1m units. We have also had significant success with the concept in the US. The US is not a territory traditionally associated with compilation albums, other than of soundtracks, but Now 2 has sold 2m units. This has created a solid brand foundation on which to build the series in the world's largest music market.

EMI Classics has recently enjoyed a notable run of successes. These included a new classical album from Sir Paul McCartney and a disc of Maori songs from Dame Kiri Te Kanawa. Her performance of this music is expected to reach a television audience of over a billion people on New Year's Day. Kennedy's Classic Kennedy went straight to the top of the UK Classical charts in its first week of release.

Three EMI conductors have recently each been appointed Musical Directors Designate of some of the most high-profile positions in the musical world: Sir Simon Rattle at the Berlin Philharmonic, Antonio Pappano at the Royal Opera House in Covent Garden and Franz Welser-Most in Cleveland.

MUSIC PUBLISHING

EMI Music Publishing saw its turnover rise by 8.1 per cent and operating profit by 2.5 per cent, reflecting a good underlying performance together with the impact of its recent acquisition of the major part of Windswept Pacific's catalogue. North American revenues grew by 7 per cent with strong mechanical contributions from artists including TLC, Dixie Chicks, Jennifer Lopez, 'N Sync and Whitney Houston. North America also benefited from significantly higher synchronization activity.

Despite a weak market, Germany reported an increased result over the prior year, due to solid mechanical revenues from the success of artists such as Guano Apes and ECHT. Sweden reported higher mechanical revenues due to strong sales from artists such as Emilia.

Sales in Europe were up almost 6 per cent for the period. Major improvements were seen across Asia and Japan, despite continuing difficulties in these markets.

FINANCIAL REVIEW

Investments

In the first half, EMI undertook a number of important transactions to ensure that it remains at the forefront of technological developments in the distribution of music. Particular focus has been placed on exploiting new media, as a result of which the Group now owns stakes in:

- musicmaker.com, an Internet-based custom compilation company;

- Liquid Audio, which supplies software for delivering music

online;

- Digital On-Demand, which is pioneering the use of retail kiosks

for the digital downloading of music onto CD;

- sanity.com, the Internet business of Australia's largest music

retailer; and

- Preview Systems, which is developing a secure method for the

digital distribution of music (completed after the first half).

In addition, Recorded Music also set up a rock/rap record label in the US, Immortal Records, in conjunction with the producer Happy Walters.

Music Publishing acquired a substantial portion of the copyrights of one of the largest remaining independent worldwide publishing companies, Windswept Pacific; extended its administration of the Diane Warren catalogue, Realsongs; and purchased the Italian catalogue, Pelago Edizioni Musicali, which includes copyrights of Eros Ramazzotti.

In November, EMI acquired a 51 per cent stake in Hit & Run Music Publishing, which administers works by Genesis and Phil Collins among others.

Return on Sales

Return on sales (ROS) for the Group rose to 11.0 per cent (1998/99: 9.2 per cent) of which 2.3 percentage points arose from the realised licence income on the musicmaker.com transaction.

Recorded Music's ROS, including musicmaker.com rose to 8.5 per cent from 6.1 per cent. Improved profitability in Japan this year and lower provisions in Brazil had a positive impact on ROS. However, the US, Germany and Virgin UK saw falls in ROS.

Music Publishing's ROS fell slightly to 25.6 per cent, primarily as a result of investment in infrastructure and new media.

Joint Venture

EMI maintains a 42.65 per cent share in HMV Media Group and accounts for this as a joint venture under FRS 9. In the six months to 30 September 1999, EMI's share of HMV Media Group's operating loss (after operating exceptional items) was (pound)2.8m (1998/99: (pound)3.1m loss). EMI's share of HMV Media Group's finance charges for the same period was (pound)10.9m (1998/99: (pound)15.1m).

Associates

EMI's share of associates' operating profits was (pound)0.5m (1998/99: (pound)0.9m loss). This turnaround is due to a smaller loss in Mosaic, the sale of loss-making MfP in 1998/99, the closure of loss-making Youmex in March, and higher profits at APM and Page.

Finance charges

Finance charges, including EMI's share of HMV Media Group's interest costs, were down (pound)6.5m at (pound)30.3m. This decrease was due to a (pound)4.2m fall in EMI's share of HMV Media Group's finance charges, a lower average interest rate ((pound)8.1m benefit) and higher average monthly cash flows from operations ((pound)1.4m benefit), partially offset by (pound)5.5m of net fees and interest received in the first half of 1998/99 from HMV Media Group and (pound)1.2m of additional interest in the period due to acquisitions.

Profit before taxation, amortisation and exceptional items

Profit before taxation, amortisation and exceptional items (PBEAT) was up 71.6 per cent at (pound)86.5m (1998/99: (pound)50.4m). PBEAT includes (pound)24.8m of realised licence income from the sale of musicmaker.com shares and the favourable impact of lower seasonal losses before tax from EMI's share in HMV Media Group.

Taxation

The Group taxation rate, before amortisation and exceptional items, was 30.0 per cent compared to 31.0 per cent in the same period last year. The reduction was mainly due to further benefits from paying foreign income dividends and other tax planning initiatives, despite the adverse tax impact of the geographic mix of profits.

Minority Interests

The profit attributable to minority interests of (pound)9.9m (1998/99: (pound)6.8m attributable loss) arose mainly as a result of higher profits at TOEMI, EMI's 55 per cent owned Japanese subsidiary. TOEMI was loss making in the first half of 1998/99.

Earnings per share

Adjusted diluted earnings per share for the first half of 1999/2000 were 6.2p, up 1.1p (21.6 per cent) on the same period last year. Increased after-tax profits, excluding exceptional items, more than offset the (pound)16.7m increase in the profits attributable to minority interests. The weighted average number of shares is in line with last year.

Dividend

The EMI Group plc Board has declared an interim dividend of 4.25p, the same as last year.

Amortisation

The amortisation charge in respect of goodwill and copyrights for the period was (pound)15.5m (1998/99: (pound)13.5m).

Exceptional items

Operating exceptional costs of (pound)3.7m have been charged in relation to integration and office closure costs associated with the Windswept Pacific catalogue acquisition. No operating exceptional items were charged in the first half of 1998/99.

Non-operating exceptional items of (pound)0.1m have been charged in 1999/2000. (pound)4.8m of non-exceptional gains on the disposal of HMV were credited in the same period last year.

Net borrowings and cash flow

Net borrowings have increased by (pound)203.7m since 31 March 1999 to (pound)928.9m. This was due to a net cash outflow before management of liquid resources and financing of (pound)226.1m for the period, which was partly offset by (pound)20.8m of exchange gains and (pound)1.6m of ordinary share capital issued.

The net cash outflow of (pound)226.1m (1998/99 inflow: (pound)162.4m) was (pound)388.5m adverse to the first half of 1998/99. This movement was driven by non-operating activities.

There was a net cash outflow of (pound)140.8m for acquisitions and disposals (1998/99 inflow: (pound)18.6m) mainly due to the purchase of the Windswept Pacific catalogue ((pound)128.0m, including the assumption of certain liabilities).

In the first half of 1998/99, there was a cash inflow from the repayment of a (pound)200m bridging loan by HMV Media Group, which was not repeated in the first half of 1999/2000. This was partially offset by the sale of current investments in 1999/2000 at (pound)32.3m (1998/99: (pound)nil).

In addition, there have been earlier payments of taxation and last year's interim dividend was, unusually, paid in the period in order to minimise ACT payments.

Net cash inflow from operating activities was marginally lower than last year at (pound)21.6m (1998/99: (pound)24.7m). Higher cash outflows on creditors and advances at the half year were partially offset by a lower spend against provisions. The high spend against provisions last year was for the closure of the corporate office in New York. In August, the Group financed the Windswept Pacific acquisition and replaced US bank borrowings with the proceeds of a US$500m private placement of 10-year Guaranteed Notes.

Shareholders' funds

Shareholders' funds improved by (pound)4.5m in the first half to negative (pound)789.5m. Profit for the first half of (pound)31.9m and unrealised exchange gains of (pound)7.1m, were partly offset by dividends of (pound)32.7m.

Year 2000

We have taken all possible precautions to ensure that our business will run effectively as we enter the year 2000 and we are optimistic that problems in the wider business community will be minimal.