6th Jul 2006 07:01
HMV Group PLC06 July 2006 ANNOUNCEMENT OF FULL YEAR RESULTS HMV Group plc, the UK's leading retailer of music, video and books, todayannounces its financial results for the 52 weeks ended 29 April 2006, andprovides an update on the Group's recent trading and progress on strategicinitiatives. Financial Highlights • Sales of £1,825.9m (down 2.0% on a comparable 52 week basis) including a 5.7% fall in like for like sales • Profit before tax and exceptional items of £98.2m (down 20.7% on a comparable 52 week basis) • Operating exceptional charges totalling £18.0m, in respect of asset impairments, restructuring costs and acquisition and bid defence costs • Adjusted earnings per share were 17.4p (down 20.9% on a comparable 52 week basis). Basic earnings per share were 14.0p. • Net debt of £15.6m (2005: £17.3m), after £18.6m of on-market share buy-backs and £11.8m investment in Ottakar's plc • Final dividend of 5.6p per share making a total dividend of 7.4p per share, an increase of 8.8% on last year Transforming HMV Group • Good progress on strategic initiatives: - rolling out simplified, lower pricing in HMV UK by September 2006 - ramping up our online channels; sales at hmv.co.uk over 100% up year on year and launch of waterstones.com in autumn 2006 - driving Waterstone's forward, including integrating the successful acquisition of Ottakar's with c.£10m of synergies in 2007/08 - capitalising on future games console launches, where we have seen strong sales and market share improvements - reducing our UK like for like controllable costs by £40m over two years, of which £25m was delivered in 2005/06 - adopting a more geared capital structure and enhancing dividend policy. Further return of capital to shareholders likely through share buybacks in 2007 (up to £100m by April 2008) Trading Update (for the 9 weeks ended 1 July 2006) . Group like for like sales fell by 10.1% (HMV UK & Ireland down 16.7%, Waterstone's down 6.1%) Alan Giles, Chief Executive Officer, said: "As we expected, trading conditions in the first few weeks of the new financialyear have remained difficult. However, we are making excellent progress with atwo-year programme of initiatives which we anticipate will begin to improveperformance during the crucial Christmas trading period and, ultimately,transform the Group into a world class multi-channel retailer." Enquiries HMV Group Alan Giles Group Chief Executive 01628 818355 * Neil Bright Group Finance Director 01628 818355 * Paul Barker Head of Corporate Communications 01628 818355 *Brunswick Susan Gilchrist / William Cullum / Eilis Murphy 020 7404 5959 * All enquiries on 6 July 2006 should be directed via Brunswick. Chairman's Statement HMV Group began a period of transition during 2005/06. In the UK market, towhich the Group has an overwhelming exposure through HMV UK & Ireland andWaterstone's, retail conditions were highly demanding. The most popularentertainment and book titles were impacted by rapidly growing competition fromsupermarkets, while a pronounced shift in consumer preference to buying onlineput pressure on the deeper range of product. As a result of these competitive inroads, statutory turnover for the 52-weekperiod decreased 2.0% to £1,825.9m and profit before tax and exceptional itemswas £98.2m, down 20.7%. Basic earnings per share were 14.0p and adjustedearnings per share were 17.4p. Despite these challenging conditions, the Group continues to be cash generative.Therefore, your Board is recommending that the total dividend be increased by8.8% to 7.4p per share. In responding to the competitive environment, it has been necessary to makeoperational and structural changes in our businesses. Throughout, the dedicationand passion of our people has been conspicuous. On behalf of the Board, I wouldlike to say how much we appreciate their unfailing commitment to our customersand to our business. The past months have not been uneventful. In February, we received a conditionaloffer from Permira Advisers Ltd, valuing the company at 210 pence per ordinaryshare. The Board fully explored this proposal on behalf of its shareholders, andwas unanimously of the view that it undervalued prospects for the business inthe medium and long term. We also received a proposal to buy Waterstone's fromLazard European Private Equity Partners, which was ultimately withdrawn. The UK retail environment remains challenging. However, your Board is confidentthat initiatives undertaken by management to revitalise the performance of theUK businesses will ultimately generate greater value. After a successful trial in six stores, we are now rolling out new lower pricesthroughout HMV UK. Sales from hmv.co.uk are running ahead of last year by over100%, following improvements made to the competitiveness, functionality andmarketing of the transactional website. During the new financial year, we willfurther develop this multi-channel approach by more closely integrating theInternet channel into our store-based business. Performance in games continuesto be very encouraging; we prepared thoroughly for an upturn in the market andhave been rewarded by increased market share. The HMV businesses in Asia Pacific and Canada had an excellent year. In both, wehave already demonstrated our ability to respond successfully to many of thechallenges now faced by our UK business. In Waterstone's, we are continuing to make progress on a number of initiativesto improve the operating and financial performance of the business, includingthe launch of waterstones.com in autumn 2006. The acquisition of Ottakar's plc was completed on 3 July 2006, and as a resultthe Waterstone's business is being enlarged to over 330 stores. This scale willenable us to respond better to competitive challenges. I would like to welcomeOttakar's employees to the Group. Their excellent bookselling skills are highlycomplementary to our own, and will ensure that we continue to offer customersthe best book buying experience on the high street. The acquisition for £62.9mon a fully diluted basis is being financed from existing cash resources.Although this will increase the Group's leverage, your Board believes the Groupcan operate on a higher level of financial gearing, and during the new financialyear we plan to resume a programme of on-market share buy backs. We believethis, combined with our enhanced dividend policy, will increase value forshareholders, and still enable the Group to pursue opportunities for organicgrowth. I am delighted to be the Group's new Non-Executive Chairman, following myappointment to the Board on 1 February 2006. The new financial year sees furtherchanges to your Board. David Kappler, who has been a member since the IPO andlast year became Chairman for an interim period, retires on 6 July 2006. We havebenefited greatly from David's extensive business experience, and will miss him. The Group's Chief Executive, Alan Giles, will retire at the end of 2006 afteralmost nine years. He successfully led the Group's formation in 1998, its stockmarket flotation in 2002 and, most recently, the acquisition of Ottakar's plc.The Board would like to express our appreciation to Alan for his manycontributions. The lead-time on Alan's departure allows us to plan thoughtfully for succession.While this process was somewhat slowed by earlier events, we are confident ofappointing in due course a high-calibre Chief Executive to lead the Group andthe experienced and proven retail management teams in our businesses. Competitive pressures will persist in the new financial year. However, with arobust balance sheet, two powerful retail brands, and highly-skilled andcommitted people, I am confident that we can successfully extend our excellencein store-based retailing to become a truly world-class, integrated multi-channelretailer. Carl SymonNon-Executive Chairman Performance Overview The 2005/06 financial year has been extremely challenging for the Group.Deteriorating conditions for UK retailing and a highly competitive marketplacewere reflected in the very poor trading performance of HMV UK & Ireland andWaterstone's, which together typically contribute around 75% of the Group'sannual sales and 90% of operating profit. The Group is responding to theseconditions by implementing a number of strategic initiatives designed torevitalise the performance of its UK businesses. In marked contrast to the UK,the financial performance in the Group's international businesses was strong. Financial Highlights The period under review is the 52 weeks ended 29 April 2006, whereas the priorperiod covers the 53 weeks to 30 April 2005. The following commentary, whereapplicable, excludes the benefit of the 53rd week in the prior year. ---------------------- ---------- ---------- ---------- 52 weeks 52 weeks 53 weeks 2006 2005 2005 £m £m £m---------------------- ---------- ---------- ----------Sales 1,825.9 1,862.5 1,885.6Like for like sales % (5.7)% 1.1% -Operating profit (before exceptional items) 102.6 132.2 139.1Operating exceptional items (18.0) - -Net finance charge (before exceptional items) (4.4) (8.4) (8.4)Exceptional finance charge - (2.7) (2.7)Profit before tax (before exceptional items) 98.2 123.8 130.7Profit before tax 80.2 121.1 128.0---------------------- ---------- ---------- ----------Adjusted basic earnings per share 17.4p 22.0p 23.2pBasic earnings per share 14.0p 21.5p 22.7pTotal dividend per share declared 7.4p 6.8p---------------------- ---------- ---------- ----------Underlying net borrowings 15.6 17.3Free cashflow 53.7 74.8---------------------- ---------- ---------- ----------Store numbers 591 588Average trading square footage 3.44m 3.35m---------------------- ---------- ---------- ---------- On a comparable 52-week basis, Group sales decreased by £36.6m or 2.0% to£1,825.9m. This included a like for like sales decline of 5.7% (HMV 5.6%,Waterstone's 5.8%). At constant exchange rates, sales on a 52-week basis fell by(3.0)%. Exchange rate movements had a favourable impact on the Group's results,benefiting sales by £19.5m and operating profit by £1.4m. The Group's operating profit before exceptional items decreased by £29.6m to£102.6m. In addition to the poor sales performance, both UK businesses alsosuffered a gross margin dilution due to the significantly increased level ofdiscounting in its markets. In response to the poor sales and marginperformance, the Group successfully reduced its variable cost base, such thatlike for like costs in the UK businesses fell by £19.4m or 5.3%, despite a £5.9mincrease in property costs from rent and rates reviews. The Group's operating result for the 52 weeks ended 29 April 2006 included£18.0m of exceptional charges. These include £11.3m of asset impairments, £4.3mof restructuring costs and £2.4m of acquisition and bid defence costs. In theprior period, net finance charges included an exceptional charge of £2.7mrelating to the refinancing completed in March 2005. Profit before taxation and exceptional items was £98.2m. On a comparable 52-weekbasis profit before taxation and exceptional items fell by £25.6m or 20.7%. Market and competitor trends The Group's businesses compete with other specialist chains, general retailersand a range of non-traditional channels, including the supermarkets and massmerchants, mail order and book clubs. The Internet, including digital delivery,has also become an increasingly important channel for retailing of all of theproduct categories sold by the Group. Whilst HMV and Waterstone's each operatewithin distinct product markets, the growing competitive pressure from thesupermarkets and the Internet had a marked effect on both our UK businesses. HMV UK & Ireland has, in previous years, been able to consistently increase itsmarket share, largely at the expense of its generalist and other specialistcompetitors. In autumn 2005, however, these trends reached a plateau, such thatthe competitive pressure from the supermarkets and Internet retailers led to aloss of market share for HMV for the first time. Similar competitive pressuresalso caused Waterstone's to record a loss of market share. In both HMV and Waterstone's, the distribution of sales is weighted towards themid and deep ranges, though the best-selling titles remain a key driver offootfall. Aggressive price competition from the supermarkets in the best-sellingpart of the market is an established feature of entertainment retailing and thisdid not change materially during the year. However, with the publication in July2005 of Harry Potter and the Half Blood Prince, which in some outlets was pricedas low as £4.99, well below the price at which any retailer was able to sourcethe title, supermarket price competition on books intensified and continuedthrough the year. Online retailing became a significantly more important part of the UK marketduring the year, underpinned by the very rapid consumer adoption of broadbandInternet in 2005. During this period, the Internet's share by value of physicalCD album sales grew in the UK from 8.9% to 11.0%, DVD increased from 12.0% to13.7% and games software grew from 9.9% to 10.8% (TNS). The Internet represented12% of the UK books market by value in 2005, up from 9% in the prior year (TNS,Nielsen Bookscan). Digital delivery of music to consumers via the Internet continued to grow apace,albeit from a very low base. At the end of 2005 the total market size was 2.2%of UK music sales (Informa Media), of which at least 70% is estimated to be forthe Apple system, whose proprietary technology standards, including the i-Poddigital music player, are incompatible with the rest of the market. Strategic response and outlook Over the next two years we intend to transform the Group into a world classmulti-channel retailer through a comprehensive programme of initiatives: • Simplified, lower pricing in HMV UK • Ramping up our online channels • Integrating the successful acquisition of Ottakar's • Exploiting continuing growth in the games market • Reduction of cost base • Adopting a more geared capital structure and enhanced dividend policy, thereby improving shareholder returns Simplified, lower pricing in HMV UK In HMV UK, a simplified, lower pricing strategy is being introduced tocomplement the proven strengths of the HMV brand, its unrivalled range authorityin store and excellent and knowledgeable staff. These are the unique sellingpoints of the business and it is the Board's belief, backed by detailed consumerresearch that, by combining these with lower prices, HMV UK & Ireland will beable to compete effectively against the supermarkets and other competitors,including the Internet. In March 2006, HMV UK & Ireland commenced a controlledtrial of this new proposition, featuring merchandising and layout changes and anew price architecture for chart and back catalogue music and DVDs in fivestores in South Wales and at Kingston-upon-Thames. This reduced and standardisedprices for both chart and back catalogue music and DVDs, making our offerstrongly competitive with the supermarkets and the Internet. As a result ofgross margin reinvestment of 200-250bps, sales improved by 8.4% (compared to therest of the chain) across all product categories, driven by increased share of astronger local market, particularly in the back catalogue. Ramping up our online channels Fulfillment for hmv.co.uk was relocated to Guernsey in November 2005, enablingit to improve prices relative to our Internet-based competitors, and atChristmas sales increased by 78% on the prior year. In March 2006, the site wasrelaunched with a new design and enhanced functionality, supported by increasedmarketing and promotional activity, including dedicated television advertising.The development of an integrated, multi-channel retailing approach also includedthe trial of a store-to-home delivery service in 20 branches, which will berolled out to the rest of the chain, and the launch of an innovativebuy-from-mobile text initiative. In autumn 2006, we will trial transactionalkiosks in 20 stores, leveraging our e-commerce platform, allowing consumers tobrowse and purchase from the entire HMV catalogue regardless of the size ofstore. In September 2005, we launched HMV Digital, which was subsequently included inMicrosoft Windows Media Player 10, making the service instantly accessible to PCusers in the UK & Ireland. In 2006, HMV Digital will launch a new digital storeat www.hmvdigital.com, allowing customers to browse and buy music without theneed to download any software. These initiatives will ensure that HMV Digital iswell placed to capitalise as and when the non-Apple part of the digital marketincreases. Waterstone's is also focusing on a multi-channel proposition and in the autumn2006 will launch a new online bookselling service at www.waterstones.com. Thewebsite will offer a choice of more than 3 million books and exclusive content,including streaming of author events and functionality for personal giftshopping serviced by knowledgeable booksellers. Integrating the successful acquisition of Ottakar's In response to intensifying competitive conditions, the Board concluded that acombination of Waterstone's and Ottakar's would create an exciting, qualitybookselling business which would be able to compete more effectively.Specifically, the Ottakar's stores will be able to improve their proposition tocustomers by applying Waterstone's proven stock management systems, and theenlarged business will leverage its increased scale from the addition ofOttakar's complementary store portfolio to significantly reduce its costs. The Board anticipates that, by exploiting the synergies from combiningWaterstone's and Ottakar's, which are expected to amount to c.£10m in 2007/08,the acquisition will be earnings enhancing (before integration costs) in 2006/07and that the return on capital will exceed the Group's cost of capital in 2007/08. Exploiting continuing growth in the games market Building on the success of the changes made to HMV UK & Ireland's computer gamesproposition in 2005/06, which resulted in a sales increase of 30% and improvedmarket share in this product category, we will continue to capitalise oncontinuing growth in the games market, which is expected to benefit from furtherhardware console launches later in 2006, including PlayStation 3 and NintendoWii. Furthermore, HMV Canada will be introducing games in 20 stores (including itsfour flagships) for Christmas 2006, with a national roll out in 2007. Reduction of cost base The Group demonstrated very tight management of variable costs throughout 2005/06, with £25m of UK like for like cost savings achieved. Further restructuringactivity was undertaken prior to the year end, which resulted in exceptionalcharges totalling £4.3m. These actions, together with further cost savinginitiatives, are expected to deliver a further £15m of cost savings in the newfinancial year. Adoption of a more geared capital structure and enhanced dividend policy,thereby improving shareholder returns The Group remains cash generative and, following a review of the Group's capitalstructure, the Board has concluded that it is appropriate to run the businesswith a higher level of financial leverage. This will be achieved by moving theGroup's adjusted net debt ratio to between 4.3 to 4.5 times Group EBITDAR, whichtakes into account the Group's leasehold property portfolio. On this basis, inthe short to medium term, the Board is comfortable with running at an averagelevel of net debt of c.£140m. Net debt will initially increase by theacquisition of Ottakar's for cash, the assumption of Ottakar's debt and the cashcosts of integration with Waterstone's. Going forward, the Board anticipates therecommencement of a programme of on-market share buybacks, primarily from cashflow, although given the timing of the acquisition of Ottakar's and the phasingof the Group's cash flow, this programme is likely to be weighted to the secondhalf of the financial year. This new capital structure is anticipated to allowfor the return of up to £100m by April 2008. Furthermore, the Board intends toenhance future dividends by moving the dividend cover to around 2.0 times overthe next few years. Group financial performance ------------ -------- -------- -------- -------- --------- ---------Sales 52 weeks Year on Constant 52 weeks 52 weeks 53 weeks Year exchange Like for like 2006 2005 2005 growth(1) growth(2) sales growth(3) £m £m £m % % %------------ -------- -------- -------- -------- --------- ---------HMV - UK & Ireland 937.2 986.0 999.4 (5.0) (4.9) (10.8) - Asia Pacific 275.5 278.2 279.3 (1.0) (0.4) 8.5 - Canada(4) 194.5 158.3 160.8 22.9 9.4 4.9------------ -------- -------- -------- -------- --------- ---------Total HMV 1,407.2 1,422.5 1,439.5 (1.1) (2.5) (5.6)------------ -------- -------- -------- -------- --------- ---------Waterstone's 418.7 440.0 446.1 (4.8) (4.8) (5.8)------------ -------- -------- -------- -------- --------- ---------Total Group 1,825.9 1,862.5 1,885.6 (2.0) (3.0) (5.7)------------ -------- -------- -------- -------- --------- --------- ------------ ------- -------- ------- ------- -------- ------- ------Operating profit (beforeexceptional 52 weeks 52 weeks Year on Constantitems) 52 weeks 52 weeks 53 weeks 2006 2005 year exchange 2006 2005 2005 % of % of growth(1) growth(2) £m £m £m sales sales % %----------- ------ -------- ------ -------- -------- ------- ------HMV - UK & Ireland 60.6 93.0 96.9 6.5 9.4 (34.7) (34.7) - Asia Pacific 8.6 6.6 6.9 3.1 2.4 30.2 29.8 - Canada(4) 12.5 7.4 7.8 6.4 4.7 68.6 49.6----------- ------ -------- ------ -------- -------- ------- ------Total HMV 81.7 107.0 111.6 5.8 7.5 (23.5) (24.8)----------- ------ -------- ------ -------- -------- ------- ------Waterstone's 20.9 25.2 27.5 5.0 5.8 (17.6) (17.6)----------- ------ -------- ------ -------- -------- ------- ------Total Group 102.6 132.2 139.1 5.6 7.1 (22.4) (23.4)----------- ------ -------- ------ -------- -------- ------- ------ 1. Year on year growth for the 52 week period compared with the corresponding period last year is based on results translated at the actual exchange rates being the weighted average exchange rates for the year ended 29 April 2006 and year ended 30 April 2005 respectively. 2. Constant exchange growth for the 52 week period compared with the corresponding period last year is based on the weighted average exchange rates for the year ended 30 April 2005. 3. HMV Group's like for like sales performance measures stores that were open at the beginning of the previous financial year (i.e. open at the beginning of May 2004) and that have not been expanded, closed or re-sited during that time. It includes sales from internet sites in the UK, Japan and Hong Kong. Like for like sales growth is calculated at constant exchange rates. Stores resized (up or down) are excluded from like for like sales performance. Sales are only ever the net amount received. 4. HMV Canada includes the results of HMV USA, where the last store closed on 3 November 2004. 5. The profit adjustment for the 53rd week in 2005 reflects gross margin on sales less directly attributable variable operating costs. HMV UK & Ireland The sales and operating profit performance in HMV UK & Ireland was very disappointing, reflecting the highly competitive environment and difficult music and DVD markets. As previously discussed, HMV UK& Ireland's market share began to come under pressure for the first time during autumn 2005. The strengthof HMV's brand, store format and operational skills helped to deliver a marked improvement during the key Christmas period, as sales and market share performance improved, albeit with some margin reinvestment. For the balance of the year, performance relative to the underlying market was unchanged from the first half. Total sales declined by 5.0% on a 52-week basis, including a 10.8% fall in like for like sales. The operating margin decreased by 290bps to 6.5% due to a fall in product margin of 90bps, underlying cost inflation and start-up costs of HMV Digital (£3.5m) and HMV Guernsey (£0.6m). Operating costs were tightly controlled throughreduced store and head office costs, with like for like costs down £11.2m (4.9%), after an increase in propertycosts of £3.8m (5.9%). The successful new store opening programme contributed £2.0m to total operating profit,which was down £32.4m on a 52-week basis to £60.6m. The ubiquity of Apple's proprietary technologies continued to constrain the remainder of the market for digitaldownloads, including HMV Digital. Exceptional charges include a £4.5m asset impairment charge following a review of the carrying value of the investment in HMV Digital. This reflects the Group's reduced expectations of the phasing of the growth of the embryonic, non-Apple part of the download market. However, we continue to developour digital delivery capability in anticipation of future growth. Reflecting the difficult trading environment, the UK music market fell by some 4% during the Group's financialyear, while growth levels in the DVD market slowed considerably. In HMV UK & Ireland, weaker promotional campaign and back catalogue performance contributed to a decline in music sales of 12%, with DVD down by 4%, reflecting the rapid slowdown of the format and a poor movie release schedule. In games, the in-store proposition was successfully enhanced to capitalise on new console launches, and sales increased 30% on the prior year. Despite a shortage of new hardware in the market at the peak Christmas period, HMV UK & Ireland's market share of games hardware and software increased, with share of new formats particularly strong. HMV's achievements were recognised by the games industry with the award of Most Improved Retailer at the MCV Industry Excellence Awards. 23 new stores, covering 88,000 square feet, were opened in the UK & Ireland during the period, two sites were resited and one was closed, bringing the portfolio to 223 stores. New store locations continued to deliver consistent, attractive returns, and this year included Durham, Hammersmith, Norwich Chapelfield and a 6,500square feet store at Harrods in London. The pipeline for new stores remains strong, and in the new financial year we expect to open up to 20 new stores. In response to the growing importance of the Internet channel, fulfilment for hmv.co.uk was successfully relocated to Guernsey in November at a capital cost of £2.4m. In March the website was relaunched, enabling more widespread marketing of the service to begin. HMV Asia Pacific HMV Asia Pacific, operating through 63 stores, including 57 in Japan, four in Hong Kong and two in Singapore, grew like for like store sales by 8.5% during the period. However, total sales fell by 1.0%, reflecting the disposal of HMV Australia on 28 September 2005. Excluding HMV Australia, total sales grew by 11.0%. The excellent growth in HMV Asia Pacific was driven by the roll out of best practice DVD merchandising and ranging techniques from the HMV 'Blueprint', and an improved music release schedule in HMV Japan. HMV Japan increased its share of both the music and DVD markets. Sales via the hmv.co.jp website increased by 46%, firmly establishing the channel as HMV Japan's largest storein terms of sales and contribution and, as a result, at the beginning of the new financial year the size of the Tokyo fulfilment centre was expanded to 41,500 square feet to meet future growth expectations.Investments in new stores in HMV Japan continued to deliver satisfactory returns, and during the period five new stores were opened. In HMV Hong Kong, one new store was opened. The Group completed the disposal of its 32-store HMV Australia subsidiary to Brazin Ltd on 28 September 2005 for a total cash consideration of A$4.0m (£1.7m), thereby enabling the Group to focus on its larger businesses.HMV Australia recorded an operating loss of £0.8m in the period to disposal (2005: full-year profit of £0.5m), with the disposal generating a profit of £0.3m. Excluding the results of HMV Australia, operating profit in HMV Asia Pacific on a 52-week basis increased to £9.1m from £6.1m a year ago. This reflected the benefit of strong sales growth offset, in part, by an adverse gross margin rate through increased sales of lower margin DVDs and the higher mix of online sales. Exceptional charges include £1.4m in respect of head office restructuring and store closure costs. HMV Canada HMV Canada recorded another year of strong sales and profit growth, with total sales for the period increasing by 22.9%. Adjusting for the benefit from exchange rate movements, total sales grew 9.4%. This was driven by new store openings, with 10 new stores successfully opened during the period, including three in the province of New Brunswick and a new 34,000 square foot flagship store in Vancouver, which replaced the Virgin Megastore there. Against increasingly strong prior year comparatives, like for like sales increased by 4.9%, reflecting the continuing progress made in establishing HMV Canada as a credible specialist DVD retailer. DVD sales grew by 23% in the period, reaching 45% of sales mix, and for the second consecutive year HMV Canada was awarded DVD Retailer of the Year by Canadian Entertainment Network. HMV Canada expanded its music leadership, despite the market's highly developed levels of broadband Internet penetration, illegal peer-to-peer file sharing and intense competition from mass merchants. Music sales grew by 4%, and market share in both music and DVD increased during the period. HMV Canada was recognised by the Canadian Music Industry Awards as Retail Chain of the Year for the 18th successive year. Operating profit increased by £5.1m on a 52-week basis to £12.5m, reflecting the strength of the sales performance and good cost control, offset in part by the adverse mix effect of lower margin DVD sales. Waterstone's Waterstone's total sales fell by 4.8%, including a 5.8% decline in like for like sales, impacted by a highly competitive book market in which the supermarkets and Internet increased their market share of the bestsellers and deep range respectively. Although the UK book market grew by 7.5% in volume (4.9% in value) during the period, this was driven by a small number of widely distributed and discounted titles, including Dan Brown's The Da VinciCode and Angels and Demons, Jamie's Italy by Jamie Oliver and JK Rowling's Harry Potter and the Half Blood Prince, which led to a fall in Waterstone's market share. Waterstone's trading strategy reflected this environment, and during the key Christmas period it successfully responded to these pricing pressures. The total number of discounted titles accounted for a higher proportion of the sales mix than in the prior year, offsetting an underlying trend of gross margin improvements. Operating profit fell by £4.3m, reflecting the sales performance combined with product margin decline of 30bps caused by the higher levels of discounting in the market. Operating costs were very tightly controlled and, despite a 4.0% increase in like for like property costs, total like for like costs fell by £9.2m or 6.0%. Exceptional charges include £9.7m in respect of Waterstone's. This is primarily due to an impairment charge of £6.8m following a review of the carrying value of assets in a small number of mainly Central London stores, reflecting current market trading conditions. In addition, a restructuring of the Waterstone's head office and the reorganisation of campus store management incurred an exceptional cost of £2.9m. Gerry Johnson was appointed as Managing Director of Waterstone's in September 2005, and under his leadership the business responded to the competitive environment through continuing operational and systems improvements, including a space optimisation trial, and by improving Waterstone's focus on range, customer appeal and supplier relationships. Since the end of the year, Waterstone's has announced the termination of its agreement with Amazon UK in the autumn of 2006, when it will launch a new online service at waterstones.com. Net finance charges Net finance charges before exceptional items fell by £4.0m to £4.4m (2005: £8.4m). This reflected the benefit of the refinancing undertaken in March 2005,together with efficiencies from a global cash pooling structure implemented from July 2005. As a result of the Group's refinancing in March 2005, £2.7m of deferred financing fees relating to the previous facility was charged as a non-cash exceptional item in the year ended 30 April 2005. Taxation The taxation charge for the financial year of £24.0m (2005: £36.3m) reflects the full-year effective tax rate of 29% applied to profit before taxation (2005:28%). The underlying tax rate in 2005 was lower than this year due to the utilisation of brought forward losses in HMV Canada. Earnings per share Adjusted basic earnings per share, excluding the effect of exceptional items, was 17.4p, a decrease of 25.0% on the prior period of 23.2p. Basic earnings per share was 14.0p (2005: 22.7p), while diluted earnings per share was 13.9p (2005:22.3p). Dividend The Board is recommending a final dividend of 5.6p per share in addition to the 1.8p per share interim dividendalready paid, bringing the total dividend for the year to 7.4p (2005: 6.8p). The 8.8% increase is in line with our progressive policy and reflects the Board's ongoing confidence in the strong cash flow of the business. The Board has announced that as part of this policy and its review of the Group's capital structure, dividend cover will move to around 2.0 times over the next few years. Subject to shareholder approval at the Annual General Meeting on 28 September 2006, the final dividend will bepaid on 13 October 2006 to shareholders on the register at the close of business on 15 September 2006. Shares will be quoted ex-dividend from 13 September 2006. Cash flow and net debt The Group continues to generate cash, with a free cash flow of £53.7m after capital investment of £46.8m. Underlying net debt at 29 April 2006 was £15.6m, £1.7m lower than the prior year despite £18.6m of on-market share buy-backs, £11.8m investment in Ottakar's plc, as discussed below, and the second of three £4.4m specialpension contributions. --------------------------- ------------ ------------ 2006 2005 £m £m--------------------------- ------------ ------------EBITDA 149.1 182.3Capital expenditure (46.8) (57.9)Working capital outflow (9.8) (4.3)Other (6.1) (0.4)Net interest paid (4.1) (8.0)Taxation (28.6) (36.9)--------------------------- ------------ ------------Free cashflow 53.7 74.8Net proceeds from issue of shares 8.7 -Shares purchased for cancellation (18.6) (4.9)Dividends paid (27.6) (25.0)Special pension contribution (4.4) (4.4)Purchase of Ottakar's plc shares and related costs (11.8) -Net proceeds from sale of HMV Australia 1.7 ---------------------------- ------------ ------------Net cash inflow 1.7 40.5Underlying opening net debt (17.3) (57.8)--------------------------- ------------ ------------Underlying closing net debt (15.6) (17.3)--------------------------- ------------ ------------ * EBITDA - Earnings Before Interest, Taxation, Interest, Depreciation, Amortisation and exceptional items. Working capital During the financial year, the Group's working capital requirements resulted ina cash outflow of £9.8m (2005: out flow of £4.3m). This reflected the impact ofthe challenging trading conditions in the UK, offset by tight working capitalmanagement in all businesses. Stockturn reduced to 6.2 times from 6.5 times, dueprimarily to the disappointing trading performance of HMV UK & Ireland. Capital expenditure Capital expenditure in the period was £46.8m compared with £57.9m last year.This included £19.6m on new stores and resites, while £9.8m was spent onrefitting the existing store portfolio. In addition, £2.4m was spent on therelocation of the hmv.co.uk fulfilment centre to Guernsey, and a further £3.6mon HMV Digital. Acquisition of Ottakar's plc On 31 May 2006, the Group announced the terms of a recommended cash offer forOttakar's of 285 pence per share, valuing Ottakar's at approximately £62.9m on afully diluted basis. This offer was declared unconditional on 3 July 2006. TheGroup had previously acquired for cash approximately 10% of the share capital ofOttakar's plc at 440 pence per share (£9.7m), in connection with a recommended440 pence per share cash offer for the company on 13 September 2005, whichlapsed on 6 December 2005 when the Office of Fair Trading referred it to theCompetition Commission. On 12 May 2005, the Competition Commission inquiryconcluded that a merger of Ottakar's and Waterstone's would not lead to asubstantial lessening of competition in the market for the retail sale of newbooks in any part of the UK. The reduction in the final acquisition price fromthe 440p offer reflects the deterioration in Ottakar's financial performance asa result of the intensifying competition in the book market. Through this acquisition the Group expects to deliver substantial improvementsto the combined Waterstone's and Ottakar's business, primarily through 'hard'cost synergies although there are also further potential revenue synergies fromimplementation of Waterstone's Phoenix inventory management system. These costsynergies will be achieved by the phased consolidation of back office functions,the optimisation of supplier terms and from improved financial control. TheGroup expects to generate total synergies of £3-4m in 2006/07, rising to around£10m in 2007/08 as the full synergy effects flow through. In order to deliverthese improvements there will be one-off costs of c.£11.5m and upfront capitalexpenditure investment of £10m in the roll out of Phoenix 9 and other storeinvestment. Return of capital In January 2005 the Group announced its intention to commence a programme ofon-market share buy-backs, with the first purchases made in April 2005 (2.0mshares at a cost of £4.9m). During the current financial year, a further 7.5mshares were bought back and cancelled at a cost of £18.6m. Hence, to date 9.5mshares have been bought back and cancelled (2.4% of issued share capital) at acost of £23.5m. Following the announcement of the cash offer for Ottakar's plc,the programme was suspended. As described earlier, the Board has now decided to run the business with ahigher level of financial leverage, which will be achieved by moving the Group'sadjusted net debt to EBITDAR ratio to between 4.3 to 4.5 times. The acquisitionof Ottakar's for cash, the assumption of Ottakar's debt and the cash costs ofintegration with Waterstone's will initially increase the Group's leverage.However, in addition, the Board expects a programme of on-market share buy-backsto recommence during the financial year, which is anticipated to return up to£100m to shareholders by April 2008. Return on capital employed The Group continues to operate with negligible average capital employed. Afteradjusting for the capitalisation of operating leases, the challenging tradingconditions contributed to a decline in the Group's pre-tax return on capitalemployed to 12.6% (2005: 16.1%). Operating leases All the Group's stores are held under operating leases. In HMV UK andWaterstone's the majority of leases are on typical institutional lease terms,now usually with a 15-year term subject to five year upwards only rent reviews.The majority of the Group's international stores and a minority of UK leasesoperate through turnover related leases, usually with minimum rent guarantees,and lease terms of five to 10 years. The Group's net operating lease rentals were £136.2m in the financial year(2005: £131.6m). The total future rental commitment at the balance sheet dateamounted to £1.1 billion, or £0.9 billion at net present value, while theexisting portfolio has an average remaining lease period of 10 years. Theavailability of good quality real estate, in prime retail areas, at commerciallyreasonable rates remains critical to the performance of the Group. A sufficientnumber of suitable locations continue to be identified to meet expansion goals.Where a store location becomes surplus to requirements, the Group's policy ofoccupying prime, highly marketable locations serves to limit any lease exposure. Pensions The Group has a number of pension schemes in operation. These primarily includedefined benefit arrangements for approximately 1,000 employees almost entirelyin the United Kingdom. The defined benefit scheme was closed to new joiners from1 January 2002 The most recently completed actuarial valuation of this scheme, as at 30 June2004, identified a deficit of £11.5m on assets of £43.9m. This deficit is beingfunded through three contributions of £4.4m each on 31 March 2005, 31 May 2005and 31 May 2006. Furthermore, the Group increased its contributions to a rate of14.9% of pensionable pay from 1 July 2005 (from 12.9%), while the members'contribution rate increased to 5% of pensionable salaries from 4%. Under IAS 19 'Employee Benefits', the HMV defined benefit scheme had a deficit,net of deferred tax, of £17.5m (2005: £21.3m) at 29 April 2006. Accounting policies The audited financial statements for the 52 weeks ended 29 April 2006 areproduced for the first time in line with International Financial ReportingStandards ('IFRS'). This has required the preparation of an opening balancesheet at 24 April 2004 to be prepared under IFRS, and a full income statement,balance sheet and cash flow statement for the 53 weeks ended 30 April 2005 forcomparative purposes. Trading update 9 weeks to 1 July 2006-------------------- ----------- ----------- Like for like Total sales sales growth growth* % %-------------------- ----------- ----------- HMV UK & Ireland (16.7) (12.1)HMV Asia 1.4 0.8HMV Canada (2.4) 6.4-------------------- ----------- ----------- Total HMV (11.2) (7.0)Waterstone's (6.1) (6.4)-------------------- ----------- ----------- HMV Group plc (10.1) (6.9)-------------------- ----------- ----------- Like for like sales growth and total sales growth are stated at constantexchange rates. * Total sales growth of HMV Asia, Total HMV and HMV Group plc is adjusted toexclude from the comparative period the sales of HMV Australia, which wasdisposed of on 28 September 2005. Whilst the first nine weeks of the new financial year are not the most importantin the Group's trading calendar, compared to the same period a year ago therehas been a significant weakening in the release schedule for both music and DVDas suppliers recognised that sales of entertainment products would fall duringthe World Cup. Consequently, the softening of the like for like trend since theGroup's previous disclosure reflects a disappointing UK entertainment market inwhich music declined by 13% against the same period last year, with the DVDmarket also down by 3%. This weak release schedule has also adversely impactedsales of international repertoire in our overseas businesses. Against this backdrop, HMV UK & Ireland has shown an improving trend in itsmarket share performance, particularly on chart music and DVD. In Waterstone's, the like for like sales trend improved during May to (2.9)%,compared to the previous run rate of (5.6)%, but here the more recentperformance has also been impacted by the lower footfall during the World Cup. Although the release schedule is not anticipated to improve until later in theyear, the anniversary of the London bombings a year ago means that the Group isnow about to trade against some of the weakest months of 2005/06. In addition, the programme of initiatives to transform the Group's prospectsdiscussed earlier, were not expected to impact the performance of the businessduring the first few weeks of the financial year, though the Board is confidentthat these will have gained sufficient traction to improve the Group'sperformance during the crucial Christmas trading period. Notes for editors HMV Group is one of the world's leading retailers of music and video and theleading retailer of books in the United Kingdom and Ireland in terms of totalsales. As of 29 April 2006 it operated 397 HMV stores selling music, video andgames in six countries and 194 Waterstone's stores, principally in the UnitedKingdom and Ireland. All of the Group's operations, both in the United Kingdomand internationally, are wholly owned. HMV Group web sites hmvgroup.comhmv.co.ukhmv.co.jphmv.com.hkhmv.comwaterstones.co.uk Supporting financial information Consolidated income statement Consolidated statement of recognised income and expense Consolidated balance sheet Consolidated cash flow statement Notes to the financial statements Consolidated income statement 52 weeks ended 29 April 2006 --------- --------- --------- Before Exceptional After exceptional items exceptional items items--------------------- ------ --------- --------- --------- Notes £m £m--------------------- ------ --------- --------- ---------Revenue 1,825.9 1,825.9Cost of sales (1,636.1) (12.9) (1,649.0)--------------------- ------ --------- --------- ---------Gross profit 189.8 (12.9) 176.9Administrative expenses (87.2) (5.1) (92.3)--------------------- ------ --------- --------- ---------Group operating profit 102.6 (18.0) 84.6Finance income 3 1.9 1.9Finance costs 3 (6.3) (6.3)--------------------- ------ --------- --------- ---------Profit before taxation 98.2 (18.0) 80.2Taxation 4 (28.5) 4.5 (24.0)--------------------- ------ --------- --------- ---------Profit for the periodattributable to shareholders 69.7 (13.5) 56.2--------------------- ------ --------- --------- --------- Earnings per share- Basic 6 17.4p 14.0p- Diluted 6 17.3p 13.9p--------------------- ------ --------- --------- --------- 53 weeks ended 30 April 2005 --------- --------- --------- Before Exceptional After exceptional items exceptional items items--------------------- ------ --------- --------- --------- Notes £m £m--------------------- ------ --------- --------- --------- Revenue 1,885.6 1,885.6Cost of sales (1,646.5) (1,646.5)--------------------- ------ --------- --------- ---------Gross profit 239.1 239.1Administrative expenses (100.0) (100.0)--------------------- ------ --------- --------- ---------Group operating profit 139.1 139.1Finance income 3 4.8 4.8Finance costs 3 (13.2) (2.7) (15.9)--------------------- ------ --------- --------- ---------Profit before taxation 130.7 (2.7) 128.0Taxation 4 (37.1) 0.8 (36.3)--------------------- ------ --------- --------- ---------Profit for the periodattributable toshareholders 93.6 (1.9) 91.7--------------------- ------ --------- --------- --------- Earnings per share- Basic 6 23.2p 22.7p- Diluted adjusted 6 22.8p 22.3p--------------------- ------ --------- --------- --------- For details of exceptional items, see note 2. Consolidated statement of recognised income and expense ------------------------------- --------- --------- 52 weeks 53 weeks ended ended 29 April 2006 30 April 2005------------------------------- --------- --------- £m £m------------------------------- --------- --------- Profit for the periodattributable to shareholders 56.2 91.7------------------------------- --------- --------- Foreign exchange translationdifferences (2.1) 4.3Transfers to the incomestatement on cash flow hedges 0.7 -Actuarial losses on definedbenefit pension schemes 2.2 (15.1)Change in fair value of equitysecurities available-for-sale (2.9) -Tax on items recogniseddirectly in equity (1.6) 5.1------------------------------- --------- ---------Net expense recogniseddirectly in equity (3.7) (5.7)------------------------------- --------- ---------Total recognised income andexpense for the period 52.5 86.0------------------------------- --------- ---------Effects of changes in accounting policy:------------------------------- --------- ---------Recognition of cash flowhedges at fair value for firsttime adoption of IAS 32 and 39 (0.7) -------------------------------- --------- --------- (0.7) - ------------------------------- --------- --------- Consolidated balance sheet ----------------------- ----------- --------- As at As at 29 April 2006 30 April 2005----------------------- ----------- --------- £m £m----------------------- ----------- --------- Assets-------- Non-current assetsProperty, plant and equipment 161.9 175.4Intangible assets 2.0 2.0Deferred income tax asset 26.6 32.4Trade and other receivables 8.2 8.4----------------------- ----------- --------- 198.7 218.2Current assetsInventories 174.1 157.9Trade and other receivables 59.2 53.5Current tax recoverable 0.3 0.4Other financial assets 6.8 -Cash and short term deposits 81.5 47.6----------------------- ----------- --------- 321.9 259.4----------------------- ----------- ---------Total assets 520.6 477.6----------------------- ----------- ---------Liabilities------------- Non-current liabilitiesDeferred income tax liabilities (0.1) (0.2)Retirement benefits liabilities (25.0) (30.0)Other non-current liabilities - (0.2)Provisions (1.0) (2.4)----------------------- ----------- --------- (26.1) (32.8)Current liabilitiesTrade and other payables (370.4) (356.6)Current income tax payable (23.8) (33.3)Interest bearing loans and borrowings (96.6) (64.2)Provisions (6.1) (5.1)----------------------- ----------- --------- (496.9) (459.2)----------------------- ----------- ---------Total liabilities (523.0) (492.0)----------------------- ----------- -------------------------------- ----------- ---------Net liabilities (2.4) (14.4)----------------------- ----------- --------- Equity--------Equity share capital 322.9 313.6Other reserve - own shares (2.9) (4.2)Foreign currency translation reserve 2.2 4.3Capital reserve 0.3 0.2Retained earnings (324.9) (328.3)----------------------- ----------- ---------Total equity (2.4) (14.4)----------------------- ----------- --------- Consolidated cash flow statement ----------------------------- ----------- ---------- 52 weeks ended 53 weeks ended 29 April 2006 30 April 2005 ----------------------------- ----------- ---------- £m £m----------------------------- ----------- ---------- Cash flows from operating activitiesOperating profit 84.6 139.1Depreciation 46.5 43.2Impairment charges 11.3 -Loss on disposal of property, plant andequipment 0.1 0.3Gain on disposal of subsidiary (0.3) -Equity settled share-based payment expense (2.3) 3.1Pension obligation adjustment (3.0) (2.7)----------------------------- ----------- ---------- 136.9 183.0Movement in inventories (18.0) (1.0)Movement in debtors (6.5) (9.7)Movement in creditors 14.7 6.4Movement in provisions (0.6) (2.9)----------------------------- ----------- ----------Cash generated from operations 126.5 175.8Tax paid (28.6) (36.9)----------------------------- ----------- ----------Net cash flows from operating activities 97.9 138.9----------------------------- ----------- ---------- Cash flows from investing activitiesPurchase of property, plant and equipment (46.8) (57.9)Purchase of intangible assets - (0.5)Proceeds from sale of property, plant andequipment 0.5 0.3Interest received 2.0 4.7Proceeds from sale of subsidiary 1.7 -Purchase of other financial assets (9.7) -Acquisition costs (2.1) ------------------------------ ----------- ----------Net cash flows from investing activities (54.4) (53.4)----------------------------- ----------- ---------- Cash flows from financing activitiesMovements in short-term facilities 31.9 59.7Proceeds of issue of equity shares 9.4 1.2Company shares purchased for cancellation (18.6) (4.9)Purchase of own shares (0.7) (2.3)Loan repayments - (225.0)Costs incurred in connection with the raisingof debt - (0.7)Interest paid (6.1) (12.7)Equity dividends paid to shareholders (27.6) (25.0)----------------------------- ----------- ----------Net cash flows from financing activities (11.7) (209.7)----------------------------- ----------- ---------- Net increase (decrease) in cash and cashequivalents 31.8 (124.2)Opening cash and cash equivalents 47.4 172.3Effect of exchange rate changes 0.9 (0.7)----------------------------- ----------- ----------Closing cash and cash equivalents 80.1 47.4----------------------------- ----------- ---------- Notes to the financial statements 1. Basis of preparation The Group's results for the 52 weeks ended 29 April 2006 are the first to beprepared under International Financial Reporting Standards (IFRS). Consequentlya number of the accounting policies adopted in the preparation of theseconsolidated results are different to those adopted in the annual financialstatements for the 53 weeks ended 30 April 2005 which were prepared under UKGenerally Accepted Accounting Practice (UK GAAP). Details of the changes in accounting policies arising from the adoption of IFRS,together with the restated financial information for the 53 weeks ended 30 April2005 were published on 28 September 2005 and are available on the HMV Group plcwebsite at www.hmvgroup.com. With the exception of financial instruments, the accounting policies set out inthat document have been consistently applied to all periods presented in theseconsolidated interim results. In accordance with IFRS 1 'First Time Adoption ofInternational Financial Reporting Standards', the Group has elected not torestate comparative information for the impact of IAS 32 'Financial Instruments:Disclosure and Presentation' and IAS 39 'Financial Instruments: Recognition andMeasurement'. The opening balance sheet at 1 May 2005 has been adjusted toreflect the adoption of these standards from that date and details of theseadjustments are set out in note 8 below. 2. Exceptional items------------------------------ ----------- --------- 52 weeks ended 53 weeks ended 29 April 2006 30 April 2005------------------------------ ----------- --------- £m £m ------------------------------ ----------- ---------Recognised in arriving at operating profit:Impairment of fixed assets 11.3 -Restructuring and store closure costs 4.3 -Acquisition and bid defence costs 2.4 ------------------------------- ----------- --------- 18.0 -Recognised within finance costs:Write-off of deferred financing fees - 2.7------------------------------ ----------- --------- 18.0 2.7------------------------------ ----------- --------- During the year the Group incurred exceptional operating costs of £18.0m. Thisincluded an £11.3m impairment charge within cost of sales following a review ofthe carrying value of certain retail assets based on current market tradingconditions. In addition, £4.3m was incurred in head office restructuring andstore closures predominantly in Waterstone's and HMV Asia Pacific, of which£1.6m is included in cost of sales and £2.7m is within administrative expenses.A further £2.4m was charged within administrative expenses in connection withcorporate activity, including acquisition and bid defence costs. A tax credit of£4.5m arose in respect of these costs. In the prior period, exceptional finance costs of £2.7m comprised the feesrelating to the Group's previous bank facility, which had been deferred and werebeing amortised over the five-year life of the term debt. These were written offwhen the Group completed the renegotiation of its facilities on 31 March 2005and all of the outstanding term debt was repaid. A tax credit of £0.8m arose inrespect of these costs. 3. Net finance charges------------------------------ ----------- --------- 52 weeks ended 53 weeks ended 29 April 2006 30 April 2005------------------------------ ----------- --------- £m £m------------------------------ ----------- ---------Interest payable on:Bank loans and overdrafts 6.0 11.3Amortisation of deferred financing fees 0.1 1.7Other finance expense - pensions 0.2 0.2------------------------------ ----------- --------- 6.3 13.2Bank interest receivable (1.9) (4.8)------------------------------ ----------- ---------Total net interest payable 4.4 8.4Exceptional finance charges (see note 2) - 2.7------------------------------ ----------- ---------Net finance charges 4.4 11.1------------------------------ ----------- --------- 4. Taxation------------------------------ ----------- --------- 52 weeks ended 53 weeks ended 29 April 2006 30 April 2005 ------------------------------ ----------- --------- £m £m ------------------------------ ----------- ---------Taxation recognised in the income statement:United Kingdom, current year:Corporation tax 17.8 36.4Over provision in priorperiods (0.7) ------------------------------- ----------- --------- 17.1 36.4Overseas tax, current year 4.8 2.9------------------------------ ----------- ---------Total current tax 21.9 39.3Deferred tax:United Kingdom 1.9 (1.2)Overseas 0.2 (1.8)------------------------------ ----------- ---------Total deferred tax 2.1 (3.0)------------------------------ ----------- ---------Total taxation expense in theincome statement 24.0 36.3------------------------------ ----------- --------- The tax expense in the current year includes a credit of £4.5m in relation tothe exceptional operating costs of £18.0m, details of which can be found in Note2. The effective tax rate on ordinary activities is 29% (2005: 28%). Theunderlying tax rate in 2005 was 29%, but the effective tax rate was reduced to28% by the first time recognition of a deferred tax asset in Canada. 5. Equity dividends------------------------------ ---------- --------- 52 weeks 53 weeks ended ended 29 April 2006 30 April 2005------------------------------ ----------- --------- £m £m------------------------------ ----------- --------- Ordinary final dividend of5.1p per share for 2005 (2004:4.5p) 20.4 18.2Ordinary interim dividend of 1.8p per share for 2006 (2005: 1.7p) 7.2 6.8------------------------------ ----------- --------- 27.6 25.0------------------------------ ----------- --------- The Directors have proposed a final dividend of 5.6p per share (2005: 5.1p),which, in line with the requirements of IAS 10 Events after the Balance SheetDate, has not been recognised within these results. This results in a full yeardividend for 2006 of 7.4p (2005: 6.8p). The proposed final dividend for 2006 of £22.5m (2005: £20.4m), subject toapproval by shareholders at the Annual General Meeting, will be paid on 13October 2006 to shareholders on the Register at the close of business on 15September 2006. Shares will be quoted ex-dividend from 13 September 2006. 6. Earnings per share ------------------------------ ----------- --------- 52 weeks 53 weeks ended ended 29 April 2006 30 April 2005 ------------------------------ ----------- --------- £m £m------------------------------ ----------- ---------Basic and diluted profitattributable to shareholders 56.2 91.7Exceptional items, less taxthereon 13.5 1.9------------------------------ ----------- ---------Adjusted basic and dilutedprofit 69.7 93.6------------------------------ ----------- --------- Number 'm Number 'm------------------------------ ----------- ---------Weighted average number ofOrdinary Shares - basic 400.6 403.4Dilutive share options 2.1 7.8------------------------------ ----------- ---------Weighted average number ofOrdinary Shares - diluted 402.7 411.2------------------------------ ----------- --------- Earnings per Ordinary Share is calculated as follows: 2006 2006 2005 2005 ----------------------- ---------- -------- ------- ------- Pence Pence Pence Pence Basic Diluted Basic Diluted ----------------------- ---------- -------- ------- -------Earnings per Ordinary Share 14.0 13.9 22.7 22.3Exceptional items, less tax credit thereon 3.4 3.4 0.5 0.5 ---------- -------- ------- ------------------------------Adjusted earnings per Ordinary Share 17.4 17.3 23.2 22.8----------------------- ---------- -------- ------- ------- 7. Reconciliation of equity------------------------------ ----------- --------- 52 weeks 53 weeks ended ended 29 April 2006 30 April 2005------------------------------ ----------- --------- £m £m ------------------------------ ----------- ---------Total recognised income andexpense 52.5 86.0Ordinary dividend (27.6) (25.0)Company shares purchased forcancellation (18.6) (4.9)Issue of equity shares 9.4 1.2Purchase of own shares (0.7) (2.3)Share-based payment (credit)charge (2.3) 3.1------------------------------ ----------- ---------Total movement during theperiod 12.7 58.1Opening total equity asrestated (see note 8) (15.1) (72.5)------------------------------ ----------- ---------Closing total equity (2.4) (14.4)------------------------------ ----------- --------- 8. Adoption of IAS 32 and IAS 39 The impact of adopting IAS 32 and IAS 39 on the opening balance sheet at 1 May2005 was to reduce net equity by £0.7m, as shown below: At 1 May 2005-------------------------------- -------- £m -------------------------------- --------Other financial assetsRecognition of foreign exchange derivatives at fair value 0.4Other financial liabilitiesRecognition of foreign exchange derivatives at fair value (1.1)-------------------------------- --------Opening balance sheet adjustment for adoption of IAS 32 andIAS 39 (0.7)Total equity under IFRS as previously stated (14.4)-------------------------------- --------Total equity after adoption of IAS 32 and IAS 39 (15.1)-------------------------------- -------- 9. Preliminary financial information The Directors of HMV Group plc are responsible, in accordance with the ListingRules of the Financial Services Authority and applicable International FinancialReporting Standards, for preparing and issuing this preliminary announcement,which was approved on 5 July 2006. The Group has prepared its condensed consolidated financial statements inaccordance with the IFRS accounting policies it has applied in its first IFRScompliant full year financial statements, and the provisions of IFRS 1. Theconsolidated income statement, consolidated statement of recognised income andexpense, consolidated balance sheet, consolidated cash flow statement and notesto the financial statements are extracted from the Group's full financialstatements for the 52 weeks ended 29 April 2006. The Group's full financialstatements were approved by the Directors on 5 July 2006 and received anunqualified audit report. This financial information is abridged and does notconstitute statutory accounts for the 52 weeks ended 29 April 2006 and 53 weeksended 30 April 2005. Full financial statements for the 52 weeks ended 29 April2006 will be filed with the Registrar of Companies in due course. The 2005Annual Report and Financial Statements on which the auditors gave an unqualifiedreport have been filed with the Registrar of Companies. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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