HMV Group PLC Interim Results -12-

For the purpose of the interim consolidated cash flow statement, cash and cash equivalents comprise the following:

 
                                   26 weeks      26 weeks    52 weeks 
                                         to            to          to 
                                 27 October    29 October    28 April 
                                       2012          2011        2012 
                                (Unaudited)   (Unaudited)   (Audited) 
                                       GBPm          GBPm        GBPm 
-----------------------------  ------------  ------------  ---------- 
 Cash at bank and in hand              27.6          40.2        18.0 
 Short-term deposits                    1.1           1.4         1.1 
                                       28.7          41.6        19.1 
-----------------------------  ------------  ------------  ---------- 
 Cash held in disposal group            1.5             -         9.6 
-----------------------------  ------------  ------------  ---------- 
                                       30.2          41.6        28.7 
-----------------------------  ------------  ------------  ---------- 
 

13. Loans and borrowings

On 7 August 2012 the Group amended its existing Bank Facility with its existing lenders and extended it to 30 September 2014 or, if certain conditions are satisfied, to 30 September 2015.

The GBP220m bank facility comprises a GBP70m term loan (Facility A), a GBP90m term loan (Facility B) and a GBP60m revolving credit facility (Facility C). The facility requires mandatory payment of GBP30m in January 2013 and a further GBP10m in January 2014.

An arrangement fee of 2% of the maximum facility amount (GBP4.4m) is payable in January 2013 with an ongoing obligation to pay commitment fees. Ongoing interest is payable at a margin of 4.0% over LIBOR. An exit fee is also payable on the amount outstanding under Facility B, which will be payable upon repayment of Facility B or 30 September 2014. The rate at which the exit fee accrues started at 5% per annum and increased on 1 April 2012 to 8%. It will increase again on 1 January 2013 to 14% to the extent that Facility B has not been repaid by that date. Any amounts not repaid in line with the voluntary repayment schedule incur interest at a margin of 8% over LIBOR and an exit fee of 10% from five months after non-repayment. The notional balance of the Facility B term loan to which the exit fee applies at any time, reduces following the application of the proceeds of any equity raising by the Group, which are required to be applied in part against that term loan balance. In addition, the Group has an obligation to prepay the facilities with the proceeds of any subordinated debt issues, certain disposals and from any excess cash flow generated.

The Amended Facility contains the same prohibitions on the payment of dividends and restrictions on capital expenditure as the previous Facility and the lenders maintain the warrants issued to them previously.

The Amended Facility is subject to financial covenants in respect of gearing and fixed charge cover (interest and rent). These are tested quarterly, with thresholds reset to reflect current trading and long term projections within the following ranges over the term of the facility:

- Gearing: Ratio of Average Consolidated Total Net Borrowings to Consolidated EBITDA not to exceed a range of 6.58 to 1.71 to 1.

- Interest and Rent Cover: Ratio of Consolidated EBITDAR (EBITDA before rent) to Consolidated Interest Plus Rent Payable to be not less than 1.58 to 1.19 to 1.

There is also a continuing obligation to ensure that the aggregate gross assets, revenue, and operating profits of the guarantors are at least 90% of the Group (excluding HMV Live) at all times. Finally, there is a clean-down requirement of 31 consecutive days per year, during which the Group cannot utilise GBP50m of the GBP60m Revolving Credit Facility.

At 27 October 2012, GBP207.0m had been drawn down from the facility (2011: GBP199.0m). Re-financing costs of GBP4.4m were capitalised at inception of the facility and a further fee of GBP4.4m (payable in January 2013) has also been capitalised. Both fees are being amortised over the life of the facility to September 2014. GBP0.4m of exceptional costs have been charged to interest in the 26 weeks ended 27 October 2012 (2011: GBP4.6m), all of which relates to the arrangement of the new facility (2011: GBP1.9m). In 2011 a further non-cash charge of GBP2.7m related to the write-off of financing fees incurred on the previous facility, which had been capitalised.

The Group's wholly owned subsidiary, Mean Fiddler Group Ltd, had a five year bank term loan, which was repaid during the period with the proceeds of the disposal of Hammersmith Apollo Limited.

The Company has also issued warrants to the lenders at closing representing 5% of the Company's total share capital (on the basis that all outstanding warrants or options have been exercised). The warrants are fully detachable and are convertible into Ordinary Shares at any time from 30 June 2012 until the tenth anniversary of the issue of the warrants (28 June 2021). The warrants, which are classified as a financial liability, were recognised at inception at their fair value of GBP2.2m. 4.4m warrants have been exercised during the period and the remaining 18.1m warrants have been revalued at 27 October at fair value of GBP0.3m (2011: GBP0.9m). The movement in fair value since 29 April 2012 of GBP0.2m has been recognised as other finance income in the income statement.

14. Provisions

 
                                 GBPm 
-----------------------------  ------ 
 As at 30 April 2011             13.7 
 Charged during the year          1.2 
 Disposed of with businesses    (4.4) 
 Provisions utilised            (3.7) 
 As at 29 October 2011            6.8 
-----------------------------  ------ 
 
 As at 28 April 2012             11.9 
 Charged during the year          2.7 
 Provisions utilised            (7.6) 
 As at 27 October 2012            7.0 
-----------------------------  ------ 
 Analysed as: 
 Current                          5.8 
 Non-current                      1.2 
-----------------------------  ------ 
                                  7.0 
-----------------------------  ------ 
 

Provisions consist of amounts in respect of store closures, restructuring costs and onerous leases. The GBP2.7m provision created during the period was largely in respect of restructuring costs and store closures. The utilisation of provisions in the current period mainly reflects the implementation of previously announced restructuring initiatives.

15. Share capital

 
                                       Number of 
                                        ordinary   Ordinary 
                                          shares     shares   Share premium     Total 
                                       Thousands       GBPm            GBPm      GBPm 
------------------------------------  ----------  ---------  --------------  -------- 
  As at 30 April 2011                    423,587        4.2           342.9     347.1 
 Share premium account cancellation            -          -         (342.9)   (342.9) 
------------------------------------  ----------  ---------  --------------  -------- 
 As at 29 October 2011                   423,587        4.2               -       4.2 
------------------------------------  ----------  ---------  --------------  -------- 
 
 As at 28 April 2012                     423,587        4.2               -       4.2 
 Ordinary shares issued                    3,147        0.1               -       0.1 
------------------------------------  ----------  ---------  --------------  -------- 
 As at 27 October 2012                   426,734        4.3               -       4.3 
------------------------------------  ----------  ---------  --------------  -------- 
 

16. Related party transactions

Payments of GBPnil (2011: GBP0.5m) have been made to non-controlling interests in the current period.

The Group did not acquire any services in the period under review from 7digital, a joint venture, (2011: GBP0.4m), There were no balances outstanding at 27 October 2012 (2011: GBP0.1m).

17. Seasonality

Retail sales of entertainment products are subject to seasonal fluctuations, with peak demand in the Christmas trading period, which falls in the second half of the financial year. For the 26 weeks ended 27 October 2012, the level of sales from continuing operations represented 33.0% (2011: 31.8%) of the annual level of sales in the 52 weeks ended 28 April 2012.

18. Post balance sheet event

On 3 December the Group announced the sale of MAMA Group Limited and its subsidiaries and its separately held interest in 50% of Mean Fiddler Group Limited ("MAMA") to Juno Newco Limited, a wholly owned subsidiary of Lloyds Development Capital Limited. The sale of MAMA does not include the sale of G-A-Y Group Limited and Heaven (London) Limited, which will be the subject of a separate transaction, discussions for which are ongoing.

The net cash consideration for the sale of MAMA is GBP7.3m of which GBP3.5m will be deferred for 12 months. The proceeds of sale will be used to reduce the Group's debt.

Statement of Directors' responsibilities

The Directors confirm that this interim condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

-- The interim management report includes a fair review of the important events during the first 26 weeks and a description of the principal risks and uncertainties for the remaining 26 weeks of the year; and

-- The interim management report includes a fair review of disclosure of related party transactions and changes therein.