11th Jan 2007 07:01
HMV Group PLC11 January 2007 11 January 2007 HMV Group plc today announces its interim results for the 26 weeks ended 28October 2006 and provides an update on the Group's recent trading, includingChristmas. Christmas Trading (five weeks ended 6 January 2007) • Group total sales up 10.3%, including 0.8% like for like sales decline • In HMV UK & Ireland total sales up 3.7%, including like for like growth of 0.7% • Gross margins in HMV UK & Ireland are expected to be 30 basis points below previous expectations. • At Waterstone's total sales growth of 39.2%, benefiting from the acquisition of Ottakar's, with like for like sales down 2.0% Operational Highlights • Strong market share gains in HMV UK, following launch of simplified, lower prices • Accelerating growth of online, including 200% sales growth in hmv.co.uk and launch of waterstones.com • Successful integration of Ottakar's • Reduction of controllable costs Interim Financial Headlines (26 weeks ended 28 October 2006) • Group sales of £767.2m (2005: £759.7m) with growth from new stores and the acquisition of Ottakar's plc offsetting like for like sales decline of 5.5% • Operating loss before exceptional items of £24.5m (2005: profit of £2.8m), including £4.2m one-off costs associated with key strategic initiatives • Operating loss after exceptional items of £31.8m • Interim dividend maintained at 1.8p per share (2005: 1.8p per share) Commenting, Chief Executive Simon Fox said: "The markets in which we operate continue to be very difficult. However, wedelivered an improved performance at Christmas, particularly at HMV UK where weachieved strong gains in market share. The actions the Group has taken to improve its competitive position are yieldingbenefits, but these are not sufficient to offset the profound changes takingplace in our markets. We will do more to build upon the initiatives taken in2006 to drive the business forward, and we will be updating the market withthose plans in March." Enquiries HMV Group Simon Fox Group Chief Executive 01628 818355 * Neil Bright Group Finance Director 01628 818355 * Paul Barker Head of Corporate Communications 01628 818355 *Brunswick Susan Gilchrist 020 7404 5959 David Yelland Eilis Murphy * All enquiries on 11 January 2007 should be directed via Brunswick. The Group's next announcement will be a strategic update on 13 March 2007. Chief Executive's review At the beginning of this financial year, the Group planned a number ofinitiatives, which were designed to transform the business into a world-classmulti-channel retailer over the coming years. These measures, outlined below,were implemented during the first half of the year in market conditions thathave proven to be very difficult. However, the benefits of these actions arebeginning to be realised with improvements evident in the Christmas tradingperformance. Simplified, lower pricing in HMV UKFollowing the national launch of simplified, lower pricing on 6 September, HMVUK's competitive position has been vastly improved. At the end of the half-yearperiod our market share on CD albums increased by over two percentage pointscompared to a year ago, with DVD market share maintained. However, music and DVDmarket conditions were weak, with the value of the UK music market, includingdigital downloading, declining by some 13.0%, whilst the DVD market by value wasbroadly flat. Since the end of the first half, market share performance hasstrengthened, although market conditions remain challenging. Ramping up our online channelsThe growth of the hmv.co.uk e-commerce website has accelerated. Sales in thefirst half were up by 170% compared to a year ago, and have since been growingaround 200%. This progress was also demonstrated by the website's share ofonline traffic*, which in the 12 months to December 2006 doubled to 14%. The waterstones.com e-commerce website was successfully launched to consumers on28 September 2006, offering a choice of over two million book titles, freedelivery on orders above £15 and functionality including 'Ask A Bookseller' forpersonal book recommendations. Good progress has been made to date, withapproximately one million visitors to the website in the month of December. In HMV Japan, where sales from the hmv.co.jp e-commerce website now represent25% of our sales, a new mobile commerce site was launched during the period,which includes an interactive discussion forum for music, movies and gamesenthusiasts. A new digital downloading service containing over 1.5 milliontracks also launched via hmv.co.jp, making downloads instantly available to thewebsite's 2.1 million registered customers and beyond. Driving Waterstone's forward through the integration of Ottakar'sThe Board is delighted with the progress made in integrating Ottakar's,following the completion of the acquisition on 3 July 2006 and we remain ontrack to deliver synergies of £4 million in 2006/07 and at least £10 million in2008. The rebranding of 139 stores and the implementation of Waterstone'sinventory management systems was successfully completed shortly after the end ofthe first half. Key Ottakar's managers were retained and integrated into theWaterstone's structure and the Ottakar's intranet was retained and rolled outthroughout all Waterstone's stores. Two dual catchment stores were closed duringthe period and the final Ottakar's head office location was closed after theperiod end. Capitalising on future games console launchesHMV UK & Ireland's share of games software increased by over one percentagepoint, driven by strong sales of titles for new consoles, including MicrosoftXbox360, PlayStation Portable and Nintendo DS. This performance reflects HMV UK& Ireland's rapidly growing authority in games, which during the period resultedin official partnerships for the launch of high-profile titles, including ProEvolution Soccer 360 and Kingdom Hearts and, after the period end, the NintendoWii console. HMV Canada successfully introduced games software and hardware consoles into 22of its largest stores during the period and, prior to Christmas, the categoryhad already grown to 5% of the sales mix in these stores. Reducing our UK like for like controllable costsAt the half year, the Group remained firmly on track to deliver its target ofreducing controllable costs (operating costs excluding rent and rates) in the UKfor the full year by £15 million, and had delivered £8.0 million of like forlike cost savings in HMV UK & Ireland and £1.0m in Waterstone's in the firsthalf. * - Hitwise market share in 'shopping and classified - music', based on visits. TRADING UPDATE ------------------ Five weeks ended 10 weeks ended 6 January 2007 6 January 2007 Like for like Constant Like for like Constant sales exchange total sales exchange total (decline) sales (decline) sales growth2 (decline) growth2 (decline) % growth2 ---------- ---------- ---------- ----------HMVUK & Ireland 0.7 3.7 1.3 4.0Asia (5.8) (0.9) (6.0) (1.2)Canada (2.5) 0.1 (3.7) (1.1)------------------ ---------- ---------- ---------- ----------Total HMV (0.5) 2.7 (0.3) 2.6Waterstone's4 (2.0) 39.2 (2.7) 37.4------------------ ---------- ---------- ---------- ----------HMV Group (0.8) 10.3 (0.8) 10.0------------------ ---------- ---------- ---------- ---------- ------------------ ---------- ------------------------------------------ 36 weeks ended 6 January 2007 Like for like Constant Year on year sales exchange (decline) (decline) total growth3 growth2 sales (decline) % growth2 HMVUK & Ireland (4.0) (0.5) (0.5)Asia (2.9) (7.5) (14.4)Canada (2.5) 2.5 (1.3)------------------ ---------- ---------- ----------Total HMV (3.6) (1.4) (3.2)Waterstone's4 (3.1) 28.1 28.1------------------ ---------- ---------- ----------HMV Group (3.5) 5.4 4.0------------------ ---------- ---------- ---------- 1 The five week period ended 6 January 2007 reflects trading over the key Christmas period, while the 10 weeks ended 6 January 2007 covers trading since the half year. The corresponding periods last year are the five weeks and the 10 weeks ended 7 January 2006. 2 Like for like sales (decline) growth and constant exchange total sales (decline) growth are stated at constant exchange rates. 3 Year on year (decline) growth over the corresponding period last year (the 36 weeks ended 7 January 2006) is based on results translated at the actual weighted average exchange rates for the 36 week period. 4 Waterstone's total sales growth includes the effect of the Ottakar's acquisition. Like for like sales only relate to relevant Waterstone's stores. In the five weeks ended 6 January 2007 total sales for the Group rose by 10.3%,benefiting from the acquisition of Ottakar's. These results reflect difficult entertainment markets in all of our businesses.Product markets were particularly difficult in the UK, where the music and DVDmarkets deteriorated following the Group's AGM trading update on 28 September2006. Significant market share gains have been made by HMV UK in music, DVD andgames since the launch of simplified, lower pricing on 6 September and thiscontinued during the Christmas period. In the five weeks ended 6 January 2007like for like sales were up 0.7% including an almost 200% rise in sales inhmv.co.uk, and our share of the online market is continuing to grow rapidly.Gross margins are expected to be approximately 30 basis points belowexpectations due to higher mix of chart and games sales. Bestsellers overChristmas included CD albums by Take That and Oasis, Pirates of the Caribbean:Dead Man's Chest on DVD and Need for Speed Carbon and FIFA 07 on games. In Waterstone's like for like sales for the five week period fell by 2.0% asmarket share was impacted by continuing promotional activity. However, grossmargin was in line with market expectations and good progress has been madeonline following the launch of waterstones.com. Excellent progress made on theintegration of Ottakar's ensures that we remain firmly on track to deliver thesynergy benefits previously stated. Bestselling books over Christmas includedThe Sound of Laughter by Peter Kay, The God Delusion by Richard Dawkins and WhyDon't Penguins' Feet Freeze? by Mick O'Hare. In the Group's international businesses, market share also increased in bothmusic and DVD during the period. However, due to weak entertainment marketconditions, like for like sales declined by 5.8% in HMV Asia and 2.5% in HMVCanada. BUSINESS & FINANCIAL REVIEW The interim results are for the 26 weeks ended 28 October 2006. The markets inwhich the Group operates remained difficult during this period, although theperformance of our overseas businesses remained stronger than those in the UK. ---------------------------- ------------- ------------Financial Highlights 26 weeks ended 26 weeks ended 28 October 2006 29 October 2005 £m £m---------------------------- ------------- ------------ Sales 767.2 759.7Like for like sales % (5.5)% (6.1)%Operating (loss) profit (beforeexceptional items) (24.5) 2.8Operating exceptional items (7.3) -(Loss) profit before tax (beforeexceptional items) (29.1) 0.2(Loss) profit before tax (36.4) 0.2Adjusted basic earnings per share (5.1)p 0.0pBasic earnings per share (6.5)p 0.0pDividend per share 1.8p 1.8p---------------------------- ------------- ------------Underlying net borrowings 135.7 43.5Cash generated from operations 34.3 64.8Store numbers 736 579---------------------------- ------------- ------------ The Group's sales increased by 1.0% on last year, or 1.8% at constant exchangerates, including the benefit of the acquisition of Ottakar's, which wassuccessfully completed on 3 July 2006. Following its acquisition, Ottakar'scontributed an operating loss of £2.2m. The strategic actions launched in theperiod included one-off costs totalling £4.2m associated with the implementationof a simplified, lower pricing strategy in HMV UK, relaunching hmv.co.uk and thelaunch of waterstones.com. The Group's operating loss before exceptional itemswas £24.5m (2005: profit of £2.8m). As previously indicated, exceptional costsof the integration of Ottakar's, before store closures, are expected to bec.£11.5m for the full year, of which £7.3m was charged during the first half. Underlying net borrowings at 28 October 2006 were £135.7m, £92.2m higher thanlast year, resulting in higher net finance costs for the period of £4.6m (2005:£2.6m). The increased financial gearing reflected the completion of theacquisition of Ottakar's for £58.4m and the assumption of Ottakar's debt of£31.8m. The Board has declared an interim dividend of 1.8p per share, (2005: 1.8p pershare). Simon Fox was appointed as the Group's Chief Executive Officer, succeeding AlanGiles on 28 September 2006. He joined the Group on 4 September 2006 from Kesaplc, where he was Chief Operating Officer, with responsibility for Comet in theUK, Kesa's subsidiaries in Continental Europe and e-commerce developments. On 1October 2006, Christopher Rogers joined the Board as a Non-Executive Director.He is Finance Director of Whitbread plc and a former Group Finance Director ofWoolworths Group plc. Brian McLaughlin retired as a Non-Executive Director on 28September 2006. BUSINESS & FINANCIAL REVIEW (continued) -------------- --------- --------- -------- -------- ----------Sales Year on year Constant Like for like (decline) exchange sales H1 H1 growth1 (decline) (decline) 2006 2005 growth2 growth3 £m £m % % % -------------- --------- --------- -------- -------- ----------HMVUK & Ireland 348.9 365.9 (4.7) (4.7) (8.6)Asia4 114.9 137.6 (16.5) (10.0) (1.4)Canada 78.5 71.2 10.3 6.0 (1.4)-------------- --------- --------- -------- -------- ----------Total HMV 542.3 574.7 (5.6) (4.6) (6.2)Waterstone's5 224.9 185.0 21.6 21.6 (3.4)-------------- --------- --------- -------- -------- ----------HMV Group 767.2 759.7 1.0 1.8 (5.5)-------------- --------- --------- -------- -------- ---------- -------------- --------- --------- -------- -------- ----------Operating profit H1 H1 H1 H1(before exceptional 2006 2005 2006 2005items) £m £m % sales % sales-------------- --------- --------- --------- -------- ----------HMVUK & Ireland (18.1) (0.3) (5.2) (0.1)Asia4 0.5 1.6 0.4 1.1Canada 1.5 1.0 1.9 1.4-------------- -------- --------- -------- ----------Total HMV (16.1) 2.3 (3.0) 0.4Waterstone's5 (8.4) 0.5 (3.7) 0.3-------------- -------- --------- -------- ----------HMV Group (24.5) 2.8 (3.2) 0.4-------------- -------- --------- -------- ---------- 1 Year on year (decline) growth 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 28 October 2006 and the 26 weeks ended 29 October 2005 respectively. 2 Constant exchange (decline) growth over the corresponding period last year is based on the weighted average exchange rates for the 26 weeks ended 29 October 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 2005) and that have not been expanded, closed or resited during that time. It includes sales from internet sites. 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 The 26 weeks ended 29 October 2005 include the results of HMV Australia (sales £15.1m and operating loss of £0.8m) which was sold on 28 September 2005. 5 The 26 weeks ended 28 October 2006 include the results of Ottakar's since its acquisition on 3 July 2006. See note 10. HMV UK & Ireland HMV UK & Ireland's total sales declined by 4.7% in the first half, with like forlike sales down 8.6%, reflecting an extremely difficult market for entertainmentretailing. The operating loss for the period was £18.1m, compared to a loss of£0.3m in the prior year period. This variance almost entirely reflects theimpact of the sales decline in like for like stores and a 250 basis pointsreduction in gross margin, resulting from new pricing in HMV UK's stores, inline with previous guidance. The operating result was further impacted byincremental internet operating costs, including launch costs of £1.5m, and a£2.0m one-off cost of launching HMV UK's new pricing strategy, partially offsetby reduced HMV Digital losses. Non-like for like stores performed well, but theadditional profit generated by these stores is weighted towards the second half.This was partially offset by tight control of variable costs that fell by £8.0mor 10.0% in the period, more than compensating for rent and rates inflation of4.7% (£1.7m). HMV Asia HMV Asia's total sales at constant exchange rates increased by 1.1% (excludingHMV Australia in the prior period), including like for like sales down 1.4%. Thesales performance reflected the weak music and DVD markets in Japan. However,HMV Japan increased its market share of both music and DVD and the hmv.co.jpwebsite recorded strong sales growth. Operating profit in HMV Asia was £0.5m,compared to £1.6m a year ago. This reflected in part the movement in HMV Japan'ssales mix towards lower margin e-commerce sales and the costs and disruption ofre-siting two stores in HMV Hong Kong. BUSINESS & FINANCIAL REVIEW (continued) HMV Canada HMV Canada's financial performance remained strong during the first 26 weeks,with total sales at constant exchange rates up by 6.0% to £78.5m. Total salesgrowth was driven by six new stores that were opened since October 2005 offsetby a fall in like for like sales of 1.4%, reflecting very strong comparativesfor the prior year period. Market share increased in both music and DVD. HMVCanada's operating profit for the first half increased by £0.5m to £1.5m,reflecting the strong sales growth and continued tight cost management, with thegross margin rate consistent with the prior year despite a higher mix of DVDsales. Waterstone's Excluding the acquisition of the Ottakar's chain, Waterstone's total sales fellby 4.5%, including like for like sales decline of 3.4% during the first half,impacted by the highly competitive and promotional nature of the book market andthe growth of non-high street competitors. Waterstone's operating result for theperiod was a loss of £6.2m compared to a profit of £0.5m in the prior year. Thisreflected the fall in like for like sales, £0.7m of start up costs forwaterstones.com and a dilution in gross margin reflecting increased promotionalactivity. The acquisition of Ottakar's was completed on 3 July 2006. Exceptionalintegration costs of £7.3m were incurred during the first half, which isexpected to rise to £11.5m for the full year, before the store closure costs.Since the acquisition, Ottakar's sales were £48.3m with an operating loss of£2.2m. Further details of the acquisition are given in note 10. Consolidated income statement ----------------- ------ ------------------------ -------- 26 weeks ended 28 October 2006 26 weeks Unaudited ended Before 29 October exceptional Exceptional 2005 items items Total Unaudited ----------------- ------ --------- ---------- --------- -------- Notes £m £m £m £m----------------- ------ --------- ---------- --------- -------- Revenue 2 767.2 - 767.2 759.7Cost of sales (743.5) - (743.5) (710.0)----------------- ------ --------- ---------- --------- --------Gross profit 23.7 - 23.7 49.7Administrativeexpenses (48.2) (7.3) (55.5) (46.9)----------------- ------ --------- ---------- --------- --------Group operating(loss) profit 2 (24.5) (7.3) (31.8) 2.8Finance income 1.5 - 1.5 0.8Finance costs (6.1) - (6.1) (3.4)----------------- ------ --------- ---------- --------- --------(Loss) profitbefore taxation (29.1) (7.3) (36.4) 0.2Taxation 5 8.7 1.6 10.3 (0.1)----------------- ------ --------- ---------- --------- --------(Loss) profitfor the periodattributable toshareholders (20.4) (5.7) (26.1) 0.1----------------- ------ --------- ---------- --------- -------- Earnings per share- Basic 4 (5.1p) (1.4p) (6.5p) 0.0p- Diluted 4 (5.1p) (1.4p) (6.5p) 0.0p----------------- ------ --------- ---------- --------- -------- Dividend pershare 6 1.8p 1.8p----------------- ------ --------- ---------- --------- -------- 52 weeks ended 29 April 2006----------------- ------ --------------------------------------- -------- Before Exceptional exceptional items items Total Audited Audited Audited----------------- ------ ----------------- --------- -------- Notes £m £m £m----------------- ------ ----------------- --------- -------- Revenue 2 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 2 102.6 (18.0) 84.6Finance income 1.9 - 1.9Finance costs (6.3) - (6.3)----------------- ------ ----------------- --------- --------Profit before taxation 98.2 (18.0) 80.2Taxation 5 (28.5) 4.5 (24.0)----------------- ------ ----------------- --------- --------Profit for the periodattributableto shareholders 69.7 (13.5) 56.2----------------- ------ ----------------- --------- -------- Earnings per share- Basic 4 17.4p (3.4p) 14.0p- Diluted 4 17.3p (3.4p) 13.9p----------------- ------ ----------------- --------- -------- Dividend per share 6 7.4p----------------- ------ ----------------- --------- -------- For details of exceptional items see note 3. All results relate to continuing activities. There is no difference between the results stated above and their historicalcost equivalents. Consolidated statement of recognised income and expense ------------------------- ---------- ---------- ---------- 26 weeks ended 26 weeks ended 52 weeks ended 28 October 2006 29 October 2005 29 April 2006 Unaudited Unaudited Audited------------------------- ---------- ---------- ---------- £m £m £m------------------------- ---------- ---------- ---------- (Loss) profit for theperiod attributable toshareholders (26.1) 0.1 56.2------------------------- ---------- ---------- ---------- Foreign exchangetranslation differences (0.5) (2.1) (2.1)Transfers to the incomestatement on cash flowhedges - 0.9 0.7Actuarial gains (losses)on defined benefit pensionschemes (8.9) (1.8) 2.2Change in fair value ofequity securitiesavailable-for-sale 2.9 (0.7) (2.9)Tax on items recogniseddirectly in equity 2.9 - (1.6)------------------------- ---------- ---------- ----------Net expense recogniseddirectly in equity (3.6) (3.7) (3.7)------------------------- ---------- ---------- ----------------------------------- ---------- ---------- ----------Total recognised incomeand expense for the period (29.7) (3.6) 52.5------------------------- ---------- ---------- ---------- Consolidated balance sheet----------------------- ------ --------- --------- --------- As at As at As at 28 October 2006 29 October 2005 29 April 2006 Unaudited Unaudited Audited----------------------- ------ --------- --------- --------- Notes £m £m £m----------------------- ------ --------- --------- --------- Assets ------Non-current assetsProperty, plant andequipment 193.1 183.4 161.9Goodwill 58.4 - -Intangible assets 2.0 2.0 2.0Deferred income taxasset 26.5 32.9 26.6Trade and otherreceivables 7.9 7.7 8.2----------------------- ------ --------- --------- --------- 287.9 226.0 198.7 Current assetsInventories 265.0 202.7 174.1Trade and otherreceivables 57.4 54.6 59.2Current income taxrecoverable 0.5 0.6 0.3Other financial assets - 9.2 6.8Cash and short-termdeposits 100.4 113.9 81.5----------------------- ------ --------- --------- --------- 423.3 381.0 321.9----------------------- ------ --------- --------- ---------Total assets 711.2 607.0 520.6----------------------- ------ --------- --------- --------- Liabilities-----------Non-current liabilitiesDeferred income taxliabilities (0.1) (0.7) (0.1)Retirement benefitsliabilities (30.4) (28.2) (25.0)Provisions - (1.7) (1.0)----------------------- ------ --------- --------- --------- (30.5) (30.6) (26.1)Current liabilitiesTrade and otherpayables (490.7) (448.8) (370.4)Current income taxpayable (2.7) (16.7) (23.8)Interest bearing loansand borrowings (235.5) (156.6) (96.6)Provisions (5.6) (4.0) (6.1)----------------------- ------ --------- --------- --------- (734.5) (626.1) (496.9)----------------------- ------ --------- --------- ---------Total liabilities (765.0) (656.7) (523.0)----------------------- ------ --------- --------- -------------------------------- ------ --------- --------- ---------Net liabilities (53.8) (49.7) (2.4)----------------------- ------ --------- --------- --------- Equity--------Equity share capital 8 323.0 320.8 322.9Other reserve - ownshares 8 (2.6) (3.1) (2.9)Foreign currencytranslation reserve 8 1.7 (1.7) 2.2Capital reserve 8 0.3 0.3 0.3Retained earnings 8 (376.2) (366.0) (324.9)----------------------- ------ --------- --------- ---------Total equity 7 (53.8) (49.7) (2.4)----------------------- ------ --------- --------- --------- The consolidated interim results were approved by the Board of Directors on 10January 2007. Consolidated cash flow statement-------------------------- ---------- ---------- ----------- 26 weeks ended 26 weeks ended 52 weeks ended 28 October 2006 29 October 2005 29 April 2006 Unaudited Unaudited Audited-------------------------- ---------- ---------- ----------- £m £m £m-------------------------- ---------- ---------- ----------- Cash flows from operatingactivitiesOperating (loss) profit (31.8) 2.8 84.6Depreciation 23.1 23.0 46.5Impairment charges - - 11.3Loss on disposal of propertyplant and equipment - - 0.1Restructuring - non-cash items 1.5 - -Gain on disposal ofsubsidiary - (0.3) (0.3)Equity settled share basedpayment (credit) expense 0.7 1.5 (2.3)Pension contributions lessincome statement charge (3.3) (3.6) (3.0)-------------------------- ---------- ---------- ----------- (9.8) 23.4 136.9Movement in inventories (65.9) (46.8) (18.0)Movement in debtors 6.8 (1.8) (6.5)Movement in creditors 104.5 92.1 14.7Movement in provisions (1.3) (2.1) (0.6)-------------------------- ---------- ---------- -----------Cash generated fromoperations 34.3 64.8 126.5Income tax paid (8.8) (16.9) (28.6)-------------------------- ---------- ---------- -----------Net cash flows fromoperating activities 25.5 47.9 97.9-------------------------- ---------- ---------- ----------- Cash flows from investingactivitiesPurchase of property,plant and equipment (29.0) (33.3) (46.8)Proceeds from sale ofproperty, plant andequipment - 0.6 0.5Interest received 1.4 1.0 2.0Proceeds from sale ofsubsidiary - 1.7 1.7Purchase of otherfinancial assets - (9.7) (9.7)Acquisition costs (1.4) - (2.1)Acquisition of subsidiary (57.0) - -Net debt assumed andrepaid on acquisition ofsubsidiary (31.8) - --------------------------- ---------- ---------- -----------Net cash flows frominvesting activities (117.8) (39.7) (54.4)-------------------------- ---------- ---------- ----------- Cash flows from financingactivitiesMovements in short-termfacilities 60.3 78.7 31.9Drawdown of term debt 80.0 - -Proceeds of issue ofequity shares - 7.2 9.4Company shares purchasedfor cancellation - (18.6) (18.6)Purchase of own shares - (0.7) (0.7)Interest paid (5.1) (3.4) (6.1)Equity dividends paid toshareholders (22.5) (20.4) (27.6)Costs incurred in theraising of debt (0.1) - --------------------------- ---------- ---------- -----------Net cash flows fromfinancing activities 112.6 42.8 (11.7)-------------------------- ---------- ---------- ----------- Net increase in cash andcash equivalents 20.3 51.0 31.8Opening cash and cashequivalents 80.1 47.4 47.4Effect of exchange ratechanges - 1.7 0.9-------------------------- ---------- ---------- -----------Closing cash and cashequivalents 100.4 100.1 80.1-------------------------- ---------- ---------- ----------- Notes to the consolidated interim results 1. Basis of preparation The consolidated interim results for the 26 weeks ended 28 October 2006 havebeen prepared under International Financial Reporting Standards (IFRS) and onthe basis of the accounting policies adopted in the preparation of the annualfinancial statements for the 52 weeks ended 29 April 2006. The accountingpolicies set out in that document have been consistently applied to all periodspresented in these consolidated interim results. However, IAS 34 has not beenadopted in these interim financial statements. The consolidated interim resultsare unaudited and do not include all of the information required for full yearfinancial statements. The financial information set out in this report does notconstitute statutory accounts within the meaning of the Companies Act 1985. Fullstatutory accounts for the 52 weeks ended 29 April 2006, prepared under IFRS andon which the Group's auditors expressed an unqualified audit opinion, have beendelivered to the Registrar of Companies. 2. Segmental analysis ------------ -------- -------- -------- --------------------- Revenue Operating (loss) profit (before exceptional items) ------------ -------- -------- -------- --------------------- 26 weeks to 26 weeks to 52 weeks to 26 weeks to 26 weeks to 52 weeks to 28 October 29 October 29 April 28 October 29 October 29 April 2006 2005 2006 2006 2005 2006 ------------ -------- -------- -------- -------- -------- -------- £m £m £m £m £m £m ------------ -------- -------- -------- -------- -------- --------By class of business:HMVUK & Ireland 348.9 365.9 937.2 (18.1) (0.3) 60.6Asia1 114.9 137.6 275.5 0.5 1.6 8.6Canada 78.5 71.2 194.5 1.5 1.0 12.5------------ -------- -------- -------- -------- -------- --------Total HMV 542.3 574.7 1,407.2 (16.1) 2.3 81.7Waterstone's2 224.9 185.0 418.7 (8.4) 0.5 20.9------------ -------- -------- -------- -------- -------- --------Total 767.2 759.7 1,825.9 (24.5) 2.8 102.6 ------------ -------- -------- -------- -------- -------- -------- See note 3 for segmental allocation of exceptional items. 1 The 26 weeks ended 29 October 2005 include the results of HMV Australia (revenue £15.1m and operating loss of £0.8m) which was sold on 28 September 2005 2 Waterstone's revenue and operating profit for the 26 weeks to 28 October 2006 includes the results of Ottakar's, which was acquired on 3 July 2006. See note 10 for further details. 3. Exceptional items 26 weeks ended 26 weeks ended 52 weeks ended 28 October 2006 29 October 2005 29 April 2006 £m £m £m ------------------------- ----------- ---------- ---------- Costs of integration 7.3 - -Impairment of property,plant and equipment - - 11.3Restructuring and storeclosure costs - - 4.3Acquisitions and biddefence costs - - 2.4------------------------- ----------- ---------- ---------- 7.3 - 18.0------------------------- ----------- ---------- ---------- During the period the Group incurred exceptional operating costs of £7.3m (2005:£nil) relating to the integration of Ottakar's. These costs are whollyattributable to the Waterstone's operating segment. A tax credit of £1.6m arosein respect of these costs. In the 52 weeks ended 29 April 2006 the Group incurred exceptional operatingcosts of £18.0m. This included an £11.3m impairment charge within cost of salesfollowing a review of the carrying value of certain retail assets based oncurrent market trading conditions. Of this, £4.5m related to HMV UK & Irelandand £6.8m related to Waterstone's. In addition, £4.3m was incurred in headoffice restructuring and store closures predominantly in Waterstone's (£2.9m)and HMV Asia Pacific (£1.4m). Of this £4.3m, £1.6m is included in cost of salesand £2.7m is within administrative expenses. A further £2.4m was charged withinadministrative expenses in connection with corporate activity, includingacquisition and bid defence costs. A tax credit of £4.5m arose in respect ofthese costs. Notes to the consolidated interim results (continued) 4. Earnings per share -------------------------- ----------- --------- ---------- 26 weeks ended 26 weeks ended 52 weeks ended 28 October 2006 29 October 2005 29 April 2006-------------------------- ----------- --------- ---------- £m £m £m-------------------------- ----------- --------- ----------Basic and diluted (loss)profit attributable toshareholders (26.1) 0.1 56.2-------------------------- ----------- --------- ----------Exceptional items, lesstax thereon (see note 3) 5.7 - 13.5-------------------------- ----------- --------- ----------Adjusted basic and diluted(loss) profit (20.4) 0.1 69.7-------------------------- ----------- --------- ---------- -------------------------- ----------- --------- ---------- 26 weeks ended 26 weeks ended 52 weeks ended 28 October 2006 29 October 2005 29 April 2006 -------------------------- ----------- --------- ---------- Number 'm Number 'm Number 'm -------------------------- ----------- --------- ----------Weighted average number ofOrdinary Shares - basic 401.3 401.0 400.6Dilutive share options 0.7 5.5 2.1-------------------------- ----------- --------- ----------Weighted average number ofOrdinary Shares - diluted 402.0 406.5 402.7-------------------------- ----------- --------- ---------- Earnings per Ordinary Share is calculated as follows: -------------------- ---------- ---------- --------- --------- 26 weeks ended 26 weeks ended 26 weeks ended 26 weeks ended 28 October 28 October 29 October 29 October 2006 2006 2005 2005 -------------------- ---------- ---------- --------- --------- Pence Pence Pence Pence Basic Diluted Basic Diluted -------------------- ---------- ---------- --------- ---------Earnings perOrdinary Share (6.5) (6.5) 0.0 0.0Exceptional items, lesstax credit thereon 1.4 1.4 - -Adjusted earningsper Ordinary Share (5.1) (5.1) 0.0 0.0-------------------- ---------- ---------- --------- --------- -------------------- ---------- ---------- --------- --------- 52 weeks 52 weeks ended ended 29 April 2006 29 April 2006-------------------- ---------- ---------- --------- --------- Pence Pence Basic Diluted-------------------- --------- --------- --------- ---------Earnings per Ordinary Share 14.0 13.9Exceptional items, less tax credit thereon 3.4 3.4Adjusted earnings per Ordinary Share 17.4 17.3------------------------ --------- --------- 5. Taxation The tax credit (charge) is based on the estimated tax rate on pre-exceptionalprofits for the full year of 30% (2005: 31%) and 22% on exceptional items. 6. Dividends------------------------ --------- --------- --------- 26 weeks ended 26 weeks ended 52 weeks ended 28 October 2006 29 October 2005 29 April 2006------------------------ ---------- ---------- --------- £m £m £m------------------------ ---------- ---------- --------- Ordinary final dividend of5.6p per share (2005: 5.1p) 22.5 20.4 20.4Ordinary interim dividendof 1.8p per share (2005: 1.8p) - - 7.2------------------------ ---------- ---------- --------- 22.5 20.4 27.6------------------------ ---------- ---------- --------- The Directors have approved an interim dividend of 1.8p per share (2005: 1.8p),which, in line with the requirements of IAS 10 Events after the Balance SheetDate, has not been recognised within these results. This results in an interimdividend of £7.2m (2005: £7.2m) and will be paid on 16 February 2007 toshareholders on the Register at the close of business on 19 January 2007. Shareswill be quoted ex-dividend from 17 January 2007. Notes to the consolidated interim results (continued) 7. Changes in equity------------------------------ --------- -------- -------- 26 weeks 26 weeks ended 52 weeks ended ended 29 October 2005 29 April 28 October 2006 2006 -------------------------- ------ --------- -------- -------- Notes £m £m £m -------------------------- ------ --------- -------- -------- Opening equity (2.4) (15.1) (15.1) Total recognised income andexpense for the period (29.7) (3.6) 52.5Ordinary dividend 6 (22.5) (20.4) (27.6)Issue of equity shares 0.1 7.2 9.4Company shares purchasedfor cancellation - (18.6) (18.6)Purchase of own shares - (0.7) (0.7)Charge (credit) for sharebased payments 0.7 1.5 (2.3)-------------------------- ------ --------- -------- --------Net (decrease) increase inequity in the period (51.4) (34.6) 12.7-------------------------- ------ --------- -------- --------Closing equity (53.8) (49.7) (2.4)-------------------------- ------ --------- -------- -------- 8. Share capital and reserves-------------------------- Other Foreign Equity reserve - currency Capital Retained share own shares reserve reserve earnings capital -------- -------- ------- ------- ------- £m £m £m £m £m------------------------- -------- -------- ------- ------- ------- As at 29 April 2006 322.9 (2.9) 2.2 0.3 (324.9) Loss for the period - - - - (26.1)Ordinary divident - - - - (22.5)Foreign currency translation - - (0.5) - -Actuariallosses on defined benefit pension schemes - - - - (8.9)Tax recognised directly inreserves - - - - 2.9Issue of equity shares 0.1 - - - -Purchase of own shares - 0.3 - - (0.3)Charge for share based payments - - - - 0.7Change in fair value of equitysecurities available-for-sale - - - - 2.9 --------------------- -------- -------- ------- ------ -------As at 28 October 2006 323.0 (2.6) 1.7 0.3 (376.2)--------------------- -------- -------- ------- ------ ------- The balance classified as equity share capital includes the total net proceeds(both nominal value and share premium) on issue of the Company's equity sharecapital, comprising 1p Ordinary Shares. At 28 October 2006, equity share capitalincluded share premium of £319.0m (29 April 2006: 318.9m). The cumulative amount of goodwill eliminated against retained earnings at 28October 2006 is £645.5m (2005: £645.5m). Notes to the consolidated interim results (continued) 9. Reconciliation of net cash flow to movement in net debt -------------------------- ---------- ---------- ---------- 26 weeks ended 26 weeks ended 52 weeks ended 28 October 2006 29 October 2005 29 April 2006------------------------ ---------- ---------- ---------- £m £m £m------------------------ ---------- ---------- ---------- Net increase in cash andcash equivalents 20.3 51.0 31.8Cash movement from changesin bank financing (140.3) (78.7) (31.9)-------------------------- ---------- ---------- ----------Change in net debtresulting from cash flows (120.0) (27.7) (0.1)Effect of exchange ratechanges - 1.7 1.7Movement in deferredfinancing fees - (0.1) (0.1)-------------------------- ---------- ---------- ----------(Increase) decrease in net debt (120.0) (26.1) 1.5Opening net debt (15.1) (16.6) (16.6)-------------------------- ---------- ---------- ----------Closing net debt (135.1) (42.7) (15.1)-------------------------- ---------- ---------- ---------- 10. Acquisition of subsidiary On 3 July 2006 the Group acquired for cash the share capital of Ottakar's plc.Ottakar's is a chain of book stores which operated from 141 stores in the UK atthe date of acquisition. ---------------------------------- ------------------ Provisional fair value £m---------------------------------- ------------------ Net assets acquired 11.8---------------------------------- ------------------ 11.8Provisional goodwill arising on acquisition 58.4---------------------------------- ------------------Total consideration 70.2---------------------------------- ------------------ Consideration satisfied by cash 70.2---------------------------------- ------------------ Of the £70.2m consideration, £11.8m was paid in the 52 weeks ended 29 April 2006when the Group acquired for cash approximately 10% of the share capital for 440pper share. The remaining share capital was purchased at 285p per share. As a result of the acquisition provisional goodwill of £58.4m was recognised andhas been capitalised. Provisional fair values will be finalised in the secondhalf of the financial year. Ottakar's contributed £48.3m of revenue and made a loss before tax of £2.2m ofin the period between the date of acquisition and the interim balance sheetdate. In addition, exceptional items of £7.3m have been charged in the period(see note 3). If the acquisition had taken place at the beginning of the period, revenue forthe Group would have been £788.7m and the loss before tax before exceptionalitems would have been £32.5m. INDEPENDENT REVIEW REPORT TO HMV GROUP PLC Introduction We have been instructed by the Company to review the financial information forthe 26 week period ended 28 October 2006 which comprises the Consolidated IncomeStatement, Consolidated Statement of Recognised Income and Expense, ConsolidatedBalance Sheet, Consolidated Cash Flow Statement, and the related notes 1 to 10.We have read the other information contained in the interim report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report is made solely to the company in accordance with guidance containedin Bulletin 1999/4 'Review of interim financial information' issued by theAuditing Practices Board. To the fullest extent permitted by law, we do notaccept or assume responsibility to anyone other than the company, for our work,for this report, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the Directors. The Directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual accounts. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4'Review of interim financial information' issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of making enquiriesof group management and applying analytical procedures to the financialinformation and underlying financial data, and based thereon, assessing whetherthe accounting policies and presentation have been consistently applied, unlessotherwise disclosed. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It issubstantially less in scope than an audit performed in accordance withInternational Standards on Auditing (UK and Ireland) and therefore provides alower level of assurance than an audit. Accordingly we do not express an auditopinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the 26 weeks ended28 October 2006. Ernst & Young LLPLondon10 January 2007 Company Information Registered officeShelley House2-4 York RoadMaidenheadBerkshire SL6 1SR Registered number3412290 Corporate websitewww.hmvgroup.com Other websiteswww.hmv.co.ukwww.hmv.co.jpwww.hmv.comwww.hmv.com.hkwww.waterstones.co.uk AuditorsErnst & Young LLP1 More London PlaceLondon SE1 2AF Financial advisors and brokersUBS Limited2 Finsbury AvenueLondon EC2M 2PP CitigroupCitigroup Centre33 Canada SquareCanary WharfLondon E14 5LB Principal bankersThe Royal Bank of Scotland135 BishopsgateLondon EC2M 3UR LawyersSimmons & SimmonsCityPointOne Ropemaker StreetLondon EC2Y 9SS RegistrarsCapita RegistrarsThe Registry34 Beckenham RoadBeckenhamKent BR3 4TU Store Portfolio as at 28 October 2006 Store Square Store Square numbers footage numbers footage '000 sq ft '000 sq ft 2006 2006 2005 2005 HMVUK & Ireland 229 1,261 218 1,217Asia 65 447 57 414Canada 114 493 109 479Total HMV 408 2,201 384 2,110Waterstone's * 328 1,889 195 1,305HMV Group 736 4,090 579 3,415 * Includes 139 stores converted from Ottakar's stores during the period This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Hmv Group