HMV Group PLC Interim Results -2-

These interim results are for the 26 weeks ended 27 October 2012.

 
 Financial highlights                     26 weeks ended     26 weeks ended 
                                         27 October 2012    29 October 2011 
                                                                 (Restated) 
                                                    GBPm               GBPm 
-------------------------------------  -----------------  ----------------- 
 Continuing operations: 
 Sales                                             288.6              333.7 
 Like for like sales %                            (10.2)             (11.9) 
 Operating loss (before exceptional 
  items)                                          (24.1)             (33.2) 
 Exceptional items (operating 
  and financing)                                   (2.6)              (9.3) 
 Loss before tax (before exceptional 
  items)                                          (34.7)             (38.8) 
 Loss before tax                                  (37.3)             (48.1) 
-------------------------------------  -----------------  ----------------- 
 
 Discontinued operations profit 
  (loss) after tax 
  and exceptional items                              1.1              (2.2) 
-------------------------------------  -----------------  ----------------- 
 
 Adjusted loss per share (continuing 
  operations)                                     (8.1)p             (9.1)p 
 Basic loss per share (continuing 
  operations)                                     (8.8)p            (11.3)p 
 Dividend per share                                    -                  - 
-------------------------------------  -----------------  ----------------- 
 
 Underlying net debt                               176.1              163.7 
 Free cash outflow                                (33.5)             (28.4) 
-------------------------------------  -----------------  ----------------- 
 

Adjusted loss per share - continuing operations before exceptional items

Underlying net debt - cash and short-term deposits less external borrowings, before unamortised deferred financing fees

Free cash outflow - cash flow from operating activities after capital expenditure and net interest

The results of the Group are presented on the basis of continuing and discontinued operations. The continuing operations consist of HMV Retail (HMV UK & Ireland, HMV Hong Kong and HMV Singapore) and 7digital. The discontinued operation is HMV Live, which included the HMV Hammersmith Apollo for the first three months of the period until it was sold, and the remainder of the Live business for the whole of the period.

Total sales from continuing operations decreased by 13.5% compared with the same period last year, including a like for like decline of 10.2%. Total sales at HMV Live were down by 18.6%.

Continuing operations generated a seasonal operating loss of GBP24.1m (2011: GBP33.2m), reflecting improved gross margins and tight cost control offset by a decrease in sales. Net finance costs increased from GBP5.6m to GBP10.6m, due to higher average debt and higher interest rates. This resulted in a loss before tax and exceptional items from continuing operations of GBP34.7m (2011: GBP38.8m).

In addition, net exceptional charges from continuing operations of GBP2.2m (2011: GBP4.7m) were incurred in the period. This comprised charges in respect of restructuring the business, closing stores and relocating a distribution centre offset by a gain on the deemed disposal of the Group's holding in 7digital. Exceptional finance charges of GBP0.4m (2011: GBP4.6m) were incurred in relation to the amendment of the Group's banking facilities.

Discontinued operations contributed a trading profit after tax of GBP0.5m (2011: loss of GBP7.8m), exceptional charges in respect of restructuring of GBP0.6m and a net exceptional profit on disposal of GBP1.2m (2011: GBP5.6m).

Underlying net borrowings were GBP176.1m, GBP12.4m higher than last year, due to poor trading results and working capital outflows, offset by the receipt of proceeds from the sale of Hammersmith Apollo Limited. Free cash outflow of GBP33.5m (2011: GBP28.4m) resulted from the trading loss, capital expenditure, exceptional costs, a working capital outflow and interest payments.

The segmental results below, for the 26 weeks ended 29 October 2011, have been restated to reflect the reclassification of HMV Live and aNobii as discontinued operations. Discontinued operations for the 26 weeks ended 29 October 2011 also include two months of trading of Waterstone's and HMV Canada.

HMV Retail comprises HMV UK & Ireland, HMV Hong Kong and HMV Singapore.

 
 Sales                         26 weeks      26 weeks          Year      Constant          Like 
                                  ended         ended       on year      exchange           for 
                                                                       decline(2)          like 
                                                                                          sales 
                                                                                     decline(3) 
                             27 October    29 October    decline(1) 
                                   2012          2011 
                                           (Restated) 
                                   GBPm          GBPm             %             %             % 
-------------------------  ------------  ------------  ------------  ------------  ------------ 
 Continuing operations 
  - HMV Retail                    288.6         333.7        (13.5)        (13.1)        (10.2) 
 Discontinued operations           25.4         109.6        (76.8)        (76.8)             - 
-------------------------  ------------  ------------  ------------  ------------  ------------ 
 Total HMV Group                  314.0         443.3        (29.2)        (28.9)        (10.2) 
-------------------------  ------------  ------------  ------------  ------------  ------------ 
 
 
 Operating profit (loss)       26 weeks      26 weeks      26 weeks      26 weeks 
                                  ended         ended         ended         ended 
                             27 October    29 October    27 October    29 October 
                                   2012          2011          2012          2011 
                                           (Restated)                  (Restated) 
                                   GBPm          GBPm    % of sales    % of sales 
-------------------------  ------------  ------------  ------------  ------------ 
 Continuing operations 
  - HMV Retail                   (23.6)        (33.1)         (8.2)         (9.9) 
 Share of post-tax loss 
  of joint ventures               (0.5)         (0.1)             -             - 
 Discontinued operations            0.8         (7.4)             -             - 
 Total HMV Group                 (23.3)        (40.6)         (8.4)         (9.9) 
-------------------------  ------------  ------------  ------------  ------------ 
 

1 Year on year decline over the corresponding period last year is based on results translated at the actual exchange rates being the weighted average exchange rates for the 26 weeks ended 27 October 2012 and the 26 weeks ended 29 October 2011 respectively.

2 Constant exchange decline over the corresponding period last year is based on the weighted average exchange rates for the 26 weeks ended 29 October 2011.

3 Like for like sales decline over the corresponding period last year is based on the weighted average exchange rates for the 52 weeks ended 28 April 2012.

HMV Retail

HMV Retail total sales fell by 13.5% at statutory exchange rates, primarily due to a like for like decline of 10.2%. This reflected the continuing difficult economic conditions in the UK and a particularly poor release schedule across the summer months in our traditional product categories, as suppliers avoided the Diamond Jubilee, Euro 2012, Olympic and Paralympic periods.

All three UK entertainment markets declined in value terms over the period, with music down by 22%, visual down nearly 16% and games down by 23%, all reflecting continuing structural decline and the release schedule being heavily loaded towards the end of the period. Within all of these markets HMV's share marginally improved in the year to date. However, HMV Retail's sales performance in September and October improved significantly, albeit below expectations, when compared with the first four months of the period, with like for like sales down 6.7% in the last two months, compared with 12.2% in the first four months.

Other products, including technology, now make up 17% of the product mix, up from 14% last year, and the like for like sales increase over the period was 18%. This growth is expected to slow down in the second half as we annualise against the period when technology was introduced across the estate. However, this product category will continue to benefit from expanding ranges, better merchandising and an improved service proposition in stores.

The changes made to the nature of HMV UK's relationships with its key music and visual suppliers have delivered an improvement in gross margin whilst at the same time maintaining a relevant pricing strategy for the customer. The business is purchasing increasing amounts of back catalogue on a consignment basis, which enables it to provide a much broader offer with a lower impact on working capital. In addition, the benefits of previous restructuring activities are now being seen with reductions in central employment and other costs such as marketing and depreciation, compared with last year. These improvements partially offset the impact of the sales decline, resulting in an operating loss of GBP23.2m (2011: GBP32.9m)