HMV Group PLC Interim Results (4382T)

TIDMHMV

RNS Number : 4382T

HMV Group PLC

13 December 2012

HMV Group plc Interim Results

HMV Group plc, the UK's leading High Street entertainment retailer, today announces its interim financial results for the 26 weeks ended 27 October 2012.

Financial Summary for the 26 weeks

-- Total sales from continuing operations GBP288.6m (2011: GBP333.7m), down 13.5%. Like for like sales (from continuing operations) down 10.2% (2011: down 11.9%)

-- Operating loss before exceptional items from continuing operations of GBP24.1m (2011: loss of GBP33.2m)

-- Total Group loss after tax and exceptional items reduced to GBP36.1m (2011: loss of GBP50.1m)

-- Adjusted EPS from continuing operations(1) improved to loss of 8.1p (2011: loss of 9.1p). Basic EPS loss from continuing operations of 8.8p (2011: loss of 11.3p)

   --      Net cash outflows from operating activities GBP33.5m  (2011: outflow of GBP28.4m) 
   --      Underlying net debt(2) of GBP176.1m (2011: GBP163.7m) 

Business Update

   --      New CEO and CFO recruited in September 2012 
   --      Growing market share in all formats with suppliers continuing to provide strong support 

-- Disappointing release schedule in summer 2012 impacted sales but LFL trend improved in the second quarter

-- Current market trading conditions result in material uncertainties facing the business. Probable covenant breach at the end of January 2013

-- Constructive discussions with the Group's banks including keeping them fully informed in relation to current trading

Commenting, Chief Executive Trevor Moore said:

"HMV has had a difficult first half. However, the business has started to deliver a number of new initiatives which will help to maximise the seasonal sales opportunity and provide a platform for growth in 2013.

Additionally, as we trade through this period we will continue to develop further initiatives with our suppliers and I will provide updates at the appropriate time."

Enquiries

 
 HMV Group    Trevor Moore, Ian Kenyon      020 7404 5959 
                                             * 
 Brunswick    Helen Smith, Nick Cosgrove    020 7404 5959 
 

* All enquiries on 13 December should be directed via Brunswick.

Notes for editors

HMV Group is one of the world's leading High Street retailers of music, video and electronic games in terms of total sales. As of 27 October 2012, the HMV Retail division operated 238 HMV and 9 Fopp stores selling music, video and games in four countries. All of the Group's retail operations, both in the United Kingdom and internationally, are wholly owned.

Notes

1 Adjusted EPS - earnings from continuing operations before exceptional items

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

Chief Executive's Review

I am delighted to have been given the opportunity to lead HMV through a period of significant change in the entertainment industry. During the first half of the year the Group has continued to face a challenging set of market conditions but has made progress on the continued rationalisation of the Group and is now increasingly able to focus on the core UK retail business.

Retail business

Operationally the UK business has continued to innovate its proposition to provide customers with strong offers and provide suppliers with a return on their continued support. Many suppliers took the decision to avoid any significant product launches over the summer as they anticipated, correctly, the impact that the Olympics was going to have on consumers. Consequently, the business worked with the suppliers to introduce promotions such as "2 for GBP15" on CD chart products, "5 for GBP30" on Blu-Ray discs and "2 for GBP10" on CD's and DVD's. As a result of these strong offers, market shares in music and visual continued to increase but like for like sales fell by 16% due to the weakness in the market. At the end of the period the business had a 38% share of the physical music market and a 27% share of the physical visual market.

Like for like sales of games and technology products increased by 6% year over year with the business continuing to benefit from the reduced market presence of GAME Group stores and a continued demand by customers for technology products centred around tablets and headphones.

Whilst the performance of music and visual has been in line with expectations the growth in games and technology was not as strong as the business had believed it would be, which was disappointing. Consequently the UK business only managed to reduce its operating loss by GBP9.7m to GBP23.2m. However, the Group continues to enjoy significant support from its key suppliers and is working on developing a number of new opportunities with them.

The six stores in Hong Kong and two in Singapore performed in line with our expectations with a first half loss of GBP0.4m (2011: GBP0.2m)

Live business

Following the decision of the Board to undertake a strategic review of the Live business, the Board decided to dispose of the business. The Group completed the disposal of the Hammersmith Apollo in August, which resulted in a net cash inflow of GBP25.7m and also enabled the Group's existing GBP220m bank facility to be extended by a further year to September 2014. Progress has been made on the disposal of the remaining HMV Live business. The Group confirmed the sale of MAMA Group on 3 December 2012 for a cash consideration of GBP7.3m, which will allow the Group to reduce net debt further. This 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.

Looking ahead

Since I joined, alongside Ian Kenyon, our new Group CFO, I have spent my first few months meeting all of our key suppliers, our banks and key management. I have spent a lot of time visiting our stores, talking to our store colleagues and really understanding the business. I recognise that the Christmas trading opportunity is hugely significant to the business and I have concentrated my effort, and my management team's effort, on delivering a strong trading performance over this important period.

I joined the Group because I believe it has a strong future. HMV's UK stores attract more than 170 million visits a year and the website attracts over 50 million visits. The business has significant customer awareness and remains the leading entertainment retailer on the High Street. The business has a great history and a strong store portfolio and has access to entertainment franchises that are recognised worldwide. In the last few weeks I have sought to improve the level of in-store service rolling out a range of specific service initiatives including :

-- Actions that remove store administration tasks allowing managers to spend more time on the shop floor

-- Accelerating training in selling skills and product knowledge particularly on games and technology

   --      Introducing a store focused incentive scheme 
   --      Reviewing and amending communication between stores, suppliers and Head Office 

These are starting to show positive signs and can be built on in 2013.

I am encouraged by the support the business enjoys from the suppliers and believe there are opportunities to develop these relationships even further to the benefit of both HMV and the suppliers. This will be a key area of focus through 2013. Additionally I have also initiated a comprehensive review of the Group's cost base to reflect the simplification of the Group following the disposal of the Live business. At the appropriate time I will provide further updates on the secure future that I believe HMV can enjoy.

Whilst I can see many future opportunities it is clear to me that the current market conditions, and in particular the volatility in the Group's core music, visual and games markets, create uncertainty as to the level of trading results that can be achieved in the year ahead. In particular, the third quarter has a significant bearing on the profitability of the Group and given that the current trading performance is not in line with expectations, the Group is unlikely to achieve previous expectations for the full year. The next covenant test date under the banking facility is at the end of January 2013. In light of current trading performance, and market conditions, it is probable that the banking covenants will not be complied with at that time. However, the Group is currently operating within the terms of its banking facility and the Directors continue to maintain regular and constructive discussions with the Group's banks. The Directors believe that the Group will be able to meet their liabilities as they fall due, including the GBP30m amortisation payment due in January 2013, and will have adequate resources to continue in operational existence for the foreseeable future. The business and financial review (under the sub-heading material uncertainty) sets out further information in respect of this matter.

Business and financial review