By Andrew Cave and Helia Ebrahimi Published: 9:13PM GMT 06 Feb 2010  Terra Firma founder Guy Hands  EMI singer Lily Allen Photo: EPA  EMI Music is drawing up plans for radical cost cuts, including a further reduction in its 3,500-strong workforce, to persuade investors to stump up the £120m that private equity owner Terra Firma needs to retain control of the business.  The plan, which is being devised by a 12-strong executive team, was disclosed last night by EMI Music chief executive Elio Leoni-Sceti.  It also envisages dramatic growth in the business's digital operations, which currently account for only 25pc of revenues.  The cost reduction efforts, likely to be overseen by new finance director Shane Naughton, who arrives from United Business Media tomorrow, will amount to cuts of tens of millions of pounds in the division's cost base.  The cuts will centre on investment in new systems and a drive to rid the business of duplication.  There is also likely to be a further reduction in the directly-employed workforce, on top of the 3,000 jobs culled by Terra Firma founder Guy Hands in January 2008.  Those cuts followed Mr Hands's highly-leveraged £4.2bn takeover of EMI Group the previous year.  This time, most of the reduction is likely to come from outsourcing and organisational changes.  The revenue plans involve building up sales at EMI Music Services, the merchandising and licensing arm set up by EMI last year.  The division, which includes Loudclothing, a merchandising business bought at the end of last year, will supply services to artists on EMI's roster and also musicians with other labels.  The plans also envisage digital music sales growing to represent 75pc of total music sales within five years.  EMI Music, which expects to achieve underlying earnings of about £200m this year, needs an ambitious plan to convince Terra Firma's investors to inject new funds that would prevent a breach of its banking covenants.  The plan is expected to be finalised in the next six weeks before Mr Leoni-Sceti and his team fly to Guernsey to get Mr Hands's approval.  If it obtains his backing, briefings will be given to potential investors.  Mr Leoni-Sceti said: "We will present a compelling new five-year business plan with particular focus on the coming year.  "It will involve both an acceleration in revenues coming from product innovation at EMI Music Services and some cost reductions from the introduction of new systems and technology and the elimination of some duplication."  Mr Leoni-Sceti continued: "This will confirm our vision to evolve into a digitally-led music company.  "We have a strong business which is on the right track and that is our best guarantee of our future."  The importance of the new plan became clear this weekend as investors told The Sunday Telegraph of their increasing concern about injecting more cash into the embattled music group.  Those pension funds, which have already seen £2bn of their investment written down by 90pc, say they are not yet ready to part with the extra £120m needed to stave off lenders taking control.  "At some point you just have to draw a line in the sand," said one investor. "You can't just keep pouring good money after bad. And Guy Hands will never stop."  Another investor who has also ploughed millions into Terra's Fund III, said that injecting further cash didn't necessarily represent the best use of money.  Their reservations follow last week's revelation that EMI – which cost Terra Firma £4.2bn just before the credit crunch in 2007 – lost £1.8bn in its last financial year and needs further funding to prevent the debt default which would allow its bank Citigroup to take ownership.  Fund managers are eager to hear the details of EMI's strategic plan for its future, which needs 75pc approval before more cash can be drawn down from investors.  They are also keen to get further assurances about the prospects of Terra's increasingly bitter legal case with Citigroup, which it accuses of duping it into buying EMI.
Troubled music group is seeking more redundancies in an effort to persuade    investors to hand over a &pound;120m lifeline.