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President’s Death Will Not Hold Back Nippon Columbia
August, 26 2002

Miki Shimogori

Strauss Zelnick, the chairman of Nippon Columbia Co Ltd <6791.T> -- Japan's oldest music label restructuring under the guidance of U.S. investment fund Ripplewood -- told Reuters that the sudden death of its president last week would not hold back the company's turnaround.

Last Tuesday, the label said its president and chief executive Katsumi "Jack" Matsumura, 49, had died of a heart attack, triggering a sell-off in the company's shares by investors who took the news as a setback for Ripplewood, which has been pushing for restructuring at the loss-making company.

The appointment of Matsumura last October was part of a broad strategic initiative crafted by Ripplewood and Zelnick, a former chief executive of German media group Bertelsmann AG's music division, BMG Entertainment.

"I think that apart from being very sad -- Jack was a close friend of mine -- as regards the business, there is no reason for anything to change. I was already a hands-on, active chairman," Zelnick, 45, told Reuters in an interview.

"We will have a strong, local president and the person will, when named by the board (on Tuesday), continue to pursue our strategy," said Zelnick, who took over as chief executive after Matsumura's death and will carry on in that position.

Last year, Ripplewood paid some 11 billion yen ($92.03 million) for a 42 percent stake in Nippon Columbia and Nippon's hardware division, which was spun off last October.

The deal came as foreign investors increasingly look to buy up shares in Japanese companies whose values have been weakened by a decade-long economic slump.

Ripplewood blazed a trail for other foreign buyers two years ago when it led a consortium that purchased failed Long-Term Credit Bank of Japan, later reborn as Shinsei Bank, becoming the first foreign firm to buy a Japanese bank.

Ripplewood's stake in Nippon Columbia fell slightly to 35 percent by August after the company conducted share offerings to raise 6.8 billion yen with the aim of eliminating negative net worth of 3.2 billion yen as of the end of March.

Nippon Columbia, to be renamed Columbia Music Entertainment Inc in October, is seen as a major test case for whether and how a foreign fund can steer a troubled Japanese firm back to health.

Shares in Nippon Columbia ended Monday's session up 1.33 percent at 152 yen, having lost some 37 percent from their 2002 peak of 240 yen marked in May.

PROSPECTS OF TURNAROUND Zelnick said Nippon Columbia was now in good shape with five billion yen in positive net worth -- clearing a proposed requirement for firms to maintain a listing on the Tokyo bourse -- and some 10 billion yen in cash and cash equivalents.

"We've projected a positive EBITDA (earnings before interest, taxes, depreciation and amortisation) cash flow and earnings for the year. We continue to track our estimates, and while the record music industry is now under pressure, our business is turning around," he said.

Nippon Columbia said in May it was heading back to profit on a group net basis for the first time in 12 years, forecasting a profit of 300 million yen for the year through March 2003.

"We feel it's all on track," Zelnick said. "I feel quite positive in the context of a very difficult market, both as regards the economy and the record music business."

Industry data show that audio recording output in Japan -- the world's second biggest music market after the United States -- fell by 11 percent in volume in 2001 from a year ago, a fourth successive year of decline. World audio record sales were down two percent in the same year.

Zelnick ruled out the need for Nippon Columbia to seek an additional capital injection. "The only way of issuing more shares will be through acquisition, I should say. But that's speculative right now," he added.

Established in 1910, Nippon Columbia is the nation's oldest record label, known for a strong presense in the area of enka, Japanese ballads that are popular with older people.

In the quest for profitability, Nippon Columbia aims to boost sales from Japanese pop and rock music segments which accounted for more than half of total sales in the nation's music industry, while ensuring more effective use of its hefty 140,000 titles. It also aims to reduce the number of new releases by 40 percent in 2002/03 from a year-ago level of around 1,500, while trying to raise total sales by 10 percent.

"We have said we will show pretty good results this year. But I think you are not going to see 'great' results until towards the end of next business year," said Zelnick.

"My experience of turnaround is that if you do a lot of work in the first six to 12 months, you typically don't begin to see results until the first 18 to 24 months," he said.

Asked about the chance of Nippon Columbia listing on the New York Stock Exchange, he said: "We are not quite ready to do that and we are most likely to do that in the next six to 12 months, but there is no particular need to do that right now." ($1=119.52 Yen)