12th Jan 2006 07:01
HMV Group PLC12 January 2006 12 January 2006 HMV Group plc today announces its interim results for the 26 weeks ended 29October 2005 and provides an update on the Group's recent trading, includingChristmas. Christmas Trading (five weeks ended 7 January 2006) • Group sales growth of 2.1%(1) including 2.7% like for like sales decline.• Total sales growth of 0.7% in HMV UK & Ireland inclusive of 5.5% like for like sales decline.• Total sales decline of 1.6% in Waterstone's inclusive of 2.4% fall in like for like sales.• Like for like sales growth of 6.9% in HMV Canada and 4.6% in HMV Asia Pacific.• Gross margin in UK businesses declined on last year reflecting increased levels of discounting. (1) Total sales growth is adjusted for the disposal of HMV Australia on 28 September 2005 Interim Highlights (26 weeks ended 29 October 2005) • Group sales of £759.7m (2004: £760.2m), with growth from new stores offsetting a like for like sales decline of 6.1%.• Operating profit of £2.8m (2004: £15.7m).• Earnings per share down 1.8p to 0.0p (2004: 1.8p).• The Board is declaring an interim dividend of 1.8p per share (2004: 1.7p per share). Commenting, Chief Executive Alan Giles said: "The competitive pressures faced by our UK businesses made trading verydifficult during the autumn period, but the strength of our brands, storeformats and operational skills helped to deliver a marked improvement atChristmas, when sales performance improved with some margin reinvestment.Trading in the UK was in contrast to our international HMV businesses, whichcontinued to perform very strongly." "Despite the improving trend at Christmas, the Group retains a cautious view ofthe outlook, and we remain very focused on maintaining tight control of ourcosts and on maximising our performance over the remainder of the year." An interview with Alan Giles, CEO, HMV Group in video/audio and text will beavailable from 7am on 12 January 2006 on: http://www.hmvgroup.com and on http://www.cantos.com 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 12 January 2006 should be directed via Brunswick. TRADING UPDATE Five weeks ended 10 weeks ended 7 January 2006 7 January 2006 % Constant Constant Like for like exchange total Like for like exchange total sales growth(2) sales growth(2) sales growth(2) sales growth(2)------------------ ---------- ---------- ---------- ----------HMVUK & Ireland (5.5) 0.7 (8.9) (2.8)Asia Pacific -adjusted(3) 4.6 6.9 7.9 10.5Canada(4) 6.9 14.1 5.5 12.4------------------ ---------- ---------- ---------- ----------Total HMV -adjusted(3) (2.7) 3.1 (5.2) 0.5Waterstone's (2.4) (1.6) (5.2) (4.1)------------------ ---------- ---------- ---------- ----------HMV Group -adjusted(3) (2.7) 2.1 (5.2) (0.5)------------------ ---------- ---------- ---------- ---------- 36 weeks ended 7 January 2006 % Constant Like for like exchange total Year on year sales growth(2) sales growth(2) growth(5)------------------ ---------- ---------- ----------HMVUK & Ireland (10.6) (4.8) (4.8)Asia Pacific(3) 7.9 0.9 0.9Canada(4) 6.6 9.1 21.0------------------ ---------- ---------- ----------Total HMV (5.6) (2.2) (0.8)Waterstone's (6.0) (4.6) (4.6)------------------ ---------- ---------- ----------HMV Group (5.7) (2.7) (1.7)------------------ ---------- ---------- ---------- (1) The five week period ended 7 January 2006 reflects trading over the key Christmas period, while the 10 weeks ended 7 January 2006 covers trading since the half year. The corresponding periods last year are the five weeks and the 10 weeks ended 8 January 2005.(2) Like for like sales growth and constant exchange total sales growth are stated at constant exchange rates.(3) Total sales growth for the five weeks ended 7 January 2006 and the 10 weeks ended 7 January 2006 has been adjusted to exclude the effect of the disposal of HMV Australia on 28 September 2005. Total sales growth for the 36 weeks ended 7 January 2006 is unadjusted.(4) The HMV Canada total sales comparative includes the results of HMV USA, where the last store closed on 3 November 2004.(5) Year on year growth over the corresponding period last year (the 36 weeks ended 8 January 2005) is based on results translated at the actual weighted average exchange rates for the 36 week period. In the five weeks ended 7 January 2006 the Group achieved total sales growth of2.1% inclusive of a fall in like for like sales of 2.7%. Before adjustment forthe disposal of HMV Australia, total sales were down was 0.1%. The Group's trading during the key Christmas period saw a continued contrastbetween the performance of its UK and international businesses, as was reportedin the AGM trading update on 28 September. However, both HMV UK & Ireland andWaterstone's delivered a marked improvement in trading over Christmas followingvery difficult conditions in the autumn. In the five weeks ended 7 January 2006, HMV UK & Ireland's like for like salesfell 5.5%. The improvement over previous months reflected better entertainmentmarkets combined with increased share of chart music and DVD following areinforcement of its value proposition on chart titles, although market share onback catalogue remained under pressure. Sales and market share on games werestrong, albeit affected by the limited availability of certain consoles. Theactions on chart pricing and the mix effect of lower margin games hardware salescontributed to a 200 basis point reduction in gross margin over Christmas. Best sellers over Christmas in HMV included CD albums by Eminem and Robbie Williams, on DVD Lee Evans - XL Tour 2005 Live and on games King Kong on Playstation 2. Similar trends were evident in Waterstone's, where the Christmas offer ensuredthat the business competed effectively in a highly competitive book market.Consequently, like for like sales over Christmas were down 2.4%, a significantimprovement on the trend of earlier months, although gross margin fell by 120basis points reflecting this promotional led activity. Bestselling booksincluded Jamie's Italy by Jamie Oliver, Sharon Osbourne's autobiography andUntold Stories by Alan Bennett. Both UK businesses remained highly focused on operational efficiency throughoutthe period, maintaining a tight control on costs, and managing stock such thatat the end of December, combined stock levels were £10m lower than the prioryear. HMV Canada continued to deliver record levels of performance, with a 6.9% likefor like sales increase achieved against growth of over 21% in the prior period.This was reflected in a record level of music and DVD market share for thebusiness. Growth in HMV Asia Pacific was driven by good progress in HMV Japan,with the region's total sales, after adjusting for the disposal of HMVAustralia, growing by 6.9%. The Group continues to take a cautious view of the outlook for the UK consumereconomy, and remains focused on maintaining a tight control of costs and onmaximising its performance during the fourth quarter. Despite increases in rentand rates, we expect like for like costs in our UK businesses for the full yearto be approximately 4% below last year. Board changes The Group has separately announced today the appointment of Carl Symon asnon-executive Chairman, effective 1 February 2006. He will succeed DavidKappler, who will remain a non-executive director on the Group's Board afterserving as Chairman for an interim period. In addition, the Group is announcingthat Alan Giles, Chief Executive Officer, will retire from the Company inDecember 2006. Operating review The Group experienced progressively more difficult trading during the 26 weeksended 29 October 2005, reflecting deteriorating conditions for UK high streetretailing. This is reflected in the results of HMV UK & Ireland andWaterstone's, which together typically contribute around 75% of the Group'sannual sales and 90% of the Group's annual operating profit. In marked contrastto the UK, the financial performance in the Group's international businesses wasstrong. Financial Highlights 26 weeks ended 26 weeks ended 29 October 2005 23 October 2004 £m £m----------------------------------- ------------- ------------Sales 759.7 760.2Like for like sales % (6.1)% 1.9%Operating profit 2.8 15.7Profit before tax 0.2 10.5Basic EPS 0.0p 1.8pDividend per share 1.8p 1.7p----------------------------------- ------------- ------------Underlying net borrowings 43.5 60.0Cash generated from operations 64.8 65.0Store numbers 579 571----------------------------------- ------------- ------------ The consolidated interim results for the 26 weeks ended 29 October 2005 are thefirst to be prepared under International Financial Reporting Standards (IFRS).The comparative results for the 26 weeks commencing 23 October 2004 have beenrestated in accordance with IFRS. Further details can be found below. In the first half the Group's total sales fell by 0.1% on last year, or 1.1% atconstant exchange rates, including like for like sales down by 6.1%. Operatingprofit was down to £2.8m from £15.7m last year. Underlying net borrowings at 29 October 2005 were £43.5m, £16.5m or 27.5% lowerthan the position at October 2004. Working capital was very effectively managed,with stock turn increasing to 6.5x (from 6.4x) despite the tough UK tradingconditions. The reduction in borrowings is after £23.4m of on-market sharebuy-backs, £9.7m investment in the share capital of Ottakar's plc in connectionwith cash offer discussed below and £8.8m in previously announced additionalpension contributions. The Group's new store openings continue to be successful and out of a totalcapital expenditure of £33.3m in the period (2004: £26.1m), £14.3m was investedin new stores. Improvements to the existing store portfolio continue to be madewhere necessary, and during the period the Group spent £9.2m on refits andresites. On 8th September 2005, the Group launched a cash offer, funded by existing bankfacilities, to acquire Ottakar's plc at 440 pence per share, valuing the entireissued share capital of Ottakar's at approximately £96.4m (£100.2m on a fullydiluted basis). This offer lapsed on 6 December 2005, following the decision ofThe Office of Fair Trading to refer the transaction to the CompetitionCommission. The Group was disappointed by this decision as it believes the offerwould have resulted in an enhanced proposition to customers and greater sales ofbooks, with no substantial lessening in competition. Therefore, the Groupintends to pursue vigorously its position before the Competition Commission. During the period, 7.5m of the Group's shares were bought back and cancelled aspart of the programme of share buy-backs commenced in April 2005. 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. Although this offer has now lapsed, anyrecommencement of the programme is unlikely until the outcome of the CompetitionCommission referral is known. The Board has declared an interim dividend of 1.8p per share, up from 1.7p inthe prior period. The 5.9% increase is in line with our progressive policy andreflects the Directors' confidence in the strong cash flow characteristics ofthe business. Sales Constant Like for like H1 H1 Year on year exchange sales 2005 2004 growth(1) growth(2) growth(3) £m £m % % %-------------- --------- --------- -------- -------- ----------HMVUK & Ireland 365.9 383.1 (4.5) (4.5) (12.1)Asia Pacific 137.6 124.0 11.0 9.7 8.1Canada(4) 71.2 61.2 16.4 6.3 7.6-------------- --------- --------- -------- -------- ----------Total HMV 574.7 568.3 1.1 (0.2) (6.0)Waterstone's 185.0 191.9 (3.6) (3.7) (6.4)-------------- --------- --------- -------- -------- ----------HMV Group 759.7 760.2 (0.1) (1.1) (6.1)-------------- --------- --------- -------- -------- ---------- -------------- --------- -------- --------- -------- ----------Operating profit H1 H1 H1 H1 Year on year 2005 2004 2005 2004 growth(1) £m £m % sales % sales %-------------- --------- -------- --------- -------- ----------HMVUK & Ireland (0.3) 13.5 (0.1) 3.5 (102.2)Asia Pacific 1.6 0.9 1.1 0.7 81.8Canada(4) 1.0 0.4 1.4 0.7 135.2-------------- --------- -------- --------- -------- ----------Total HMV 2.3 14.8 0.4 2.6 (84.5)Waterstone's 0.5 0.9 0.3 0.5 (50.8)-------------- --------- -------- --------- -------- ----------HMV Group 2.8 15.7 0.4 2.1 (82.5)-------------- --------- -------- --------- -------- ---------- (1) Year on year 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 29 October 2005 and the 26 weeks ended 23 October 2004 respectively.(2) Constant exchange growth over the corresponding period last year is based on the weighted average exchange rates for the 26 weeks ended 23 October 2004.(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 resited during that time. It includes sales from internet sites in the UK and Japan. 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. HMV UK & Ireland HMV UK & Ireland's total sales were down 4.5% in the first half, including likefor like sales down 12.1%, reflecting the weak UK high street retailingenvironment and a highly competitive market. Partially offsetting the like forlike sales decline, the new store opening programme continued with 17 new andtwo resited stores opened in the first half and a further six opened prior toChristmas, including Durham, Hammersmith, Norwich Chapelfield and a 6,500 squarefeet store at Harrods in London. Despite the tough trading conditions, the newstores continued to deliver excellent returns on investment. Early in the period, the music market benefited from CD album releases byColdplay and Gorillaz, among others. However, the market was then impacted bythe wider consumer slowdown, with volumes sold in the period ending down 3.8% onthe prior year. The poor trading environment and weak schedule for newlyreleased movies combined to produce DVD sales volume growth of only 3.8% in theperiod. When combined with the demise of the VHS market, this produced an 8.8%volume decline in total video sales. The highly competitive market and the shiftin footfall away from the high street contributed to a dilution in music andvideo share of between one and two percentage points in the period. In games, the in-store proposition was successfully enhanced to capitalise onnew console launches, including the Nintendo DS and the Sony PSP, which receivedits UK launch at HMV's flagship store on Oxford Street. Despite the shortage ofnew consoles in the market, our own market share progress in games was strong,particularly in hardware. On 5 September 2005, HMV UK successfully launched HMV Digital, a new serviceoffering music downloads, and new digital zones were opened in all stores.Towards the end of the period, HMV UK opened a new fulfillment operation inGuernsey, enabling its website hmv.co.uk to improve its competitiveness. The operating result for the period was a loss of £0.3m, compared to a profit of£13.5m last year. Of this variance, £2.0m related to start-up costs of HMVDigital and the Guernsey fulfillment operation. The balance almost entirelyreflects the impact of the sales decline in like for like stores and a 30 basispoints reduction in gross margin resulting from higher sales mix of low margingames hardware. Non-like for like stores performed well, but the additionalprofit contribution they generate is heavily weighted to the second half. Thiswas partially offset by a £2.7m reduction in like for like costs, with tightcontrol of variable operating costs that fell by £4.0m or 4.8% in the period,more than compensating for rent and rates inflation of 4.0% (£1.3m). HMV Asia Pacific HMV Asia Pacific produced a strong first half financial performance, with totalsales at constant exchange rates up by 9.7% to £137.6m, including like for likesales up by 8.1%. This growth was in a large part driven by the implementation of improved DVD merchandising and ranging techniques in HMV Japan. An improvedmusic release schedule also contributed, and HMV Japan strengthened marketshare in both music and DVD. Operating profit in HMV Asia Pacific increased to £1.6m from £0.9m a year ago.This reflected the benefit of the strong sales growth offset, in part, by anadverse gross margin rate through increased sales of lower margin DVD's and a revised pricing strategy within HMV Japan's rapidly growing online business. The Group completed the disposal of its 32-store HMV Australia subsidiary toBrazin Limited on 28 September 2005 for a total cash consideration of AUS$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 (2004:loss of £0.5m), with the disposal generating a profit of £0.3m. These amountsare included in the result of HMV Asia Pacific for the period. HMV Canada HMV Canada's recent excellent financial performance continued during the first26 weeks, with total sales at constant exchange rates up by 6.3% to £71.2m.Total sales growth was driven by new store openings, with seven new storesopened during the period and one further new store opened prior to Christmas,including a new 34,000 square foot flagship store in Vancouver. Like for like sales growth of 7.6% against tough comparatives reflectedcontinuing progress in establishing HMV Canada as a credible specialist DVDretailer. DVD sales grew by 22% in the period, reaching 39% of sales mix. Musicsales grew by 8%, despite the market's highly developed levels of broadbandInternet penetration, peer-to-peer file sharing and intense competition frommass merchants. Market share in both music and DVD increased during the period. HMV Canada's operating profit for the first half increased to £1.0m, from £0.4mlast year. This reflected the benefit of the strong sales growth offset, inpart, by the unfavourable impact on the gross margin rate of increased lower margin DVD sales. Waterstone's Waterstone's total sales fell by 3.6%, including like for sales down by 6.4%,during the first half, impacted by the generally lower levels of high streetfootfall and a highly competitive book market. The market grew by 8.3% in volume(5.6% value) during the period, but this was driven by a small number of widelydistributed titles (five of the six best-selling titles were by Dan Brown or JKRowling). Consequently, market share in Waterstone's fell. Waterstone's successfully opened four new stores in the first half, with afurther two new stores opened prior to Christmas, including Lincoln, Thanet,Darlington and Ballymena in Northern Ireland. Operating profit was £0.5m, down from £0.9m last year. This reflected the fallin like for like sales offset by the benefit of a 20 basis points improvementin gross margins, despite the dilutive impact of "Harry Potter and the Half-Blood Prince", and very tight control of operating costs, with like for likestore costs down 5.1% or £3.8m despite increased rent and rates. International Financial Reporting Standards The consolidated interim results for the 26 weeks ended 29 October 2005 are thefirst to be prepared under International Financial Reporting Standards (IFRS).Full details of the changes in accounting policies arising from the adoption ofIFRS were published on 28 September 2005 and are available on the HMV Group plcwebsite at www.hmvgroup.com. The adoption of IFRS represents an accounting change only and does not affectthe operations or cash flows of the Group. The accounting policy changes thathave the most significant impact are as follows: • The recognition in the income statement of operating lease incentives and capital contributions from landlords over the full life of the lease rather than a shorter period to the first rent review. This is therefore a timing difference that will reverse over the period of the lease; • The recognition of a fair value charge for share based payments over the three year vesting period of share options; • The inclusion on the balance sheet of the net deficit of the defined benefit section of the UK and Ireland pension plans; • The timing of the recognition of dividends; • Related tax adjustments that increased the effective tax rate for the 53 weeks ended 30 April 2005 from 27.8% to 28.4%. The overall effect of the accounting changes on the result of HMV Group plc isto reduce operating profit and profit before tax by £2.7m and £2.8m respectivelyfor the 26 weeks ended 23 October 2004 and by £5.3m and £5.5m respectively forthe 53 weeks ended 30 April 2005. Consolidated income statement 26 weeks ended 26 weeks ended 53 weeks ended 29 October 23 October 30 April 2005 2004 2005 Unaudited Unaudited Audited Restated Restated----------------------- ------ ---------- --------- -------- Notes £m £m £m----------------------- ------ ---------- --------- --------Revenue 2 759.7 760.2 1,885.6Cost of sales (710.0) (695.9) (1,646.5)----------------------- ------ ---------- --------- --------Gross profit 49.7 64.3 239.1Administrative expenses (46.9) (48.6) (100.0)----------------------- ------ ---------- --------- --------Group operating profit 2 2.8 15.7 139.1Finance income 0.8 2.1 4.8Finance costs (3.4) (7.3) (15.9)----------------------- ------ ---------- --------- --------Profit before taxation 0.2 10.5 128.0Taxation 4 (0.1) (3.3) (36.3)----------------------- ------ ---------- --------- --------Profit for the periodattributable toshareholders 0.1 7.2 91.7----------------------- ------ ---------- --------- --------Earnings per share- Basic 3 0.0p 1.8p 22.7p- Adjusted 22.8p- Diluted 3 0.0p 1.8p 22.3p- Diluted adjusted 22.4p----------------------- ------ ---------- --------- --------Dividend per share 5 1.8p 1.7p 6.8p----------------------- ------ ---------- --------- -------- 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 53 weeks ended 29 October 2005 23 October 2004 30 April 2005 Unaudited Unaudited Audited Restated Restated---------------------------- ---------- --------- -------- £m £m £m---------------------------- ---------- --------- --------Profit for the periodattributable toshareholders 0.1 7.2 91.7---------------------------- ---------- --------- --------Foreign exchangetranslation differences (1.1) 0.8 0.4Net (losses) gains on hedgeof net investment inforeign subsidiary (1.0) 2.2 3.9Movements on fair value ofcash flow hedges 0.9 - -Actuarial losses on definedbenefit pension schemes (1.8) (4.9) (15.1)Change in fair value ofequity securitiesavailable-for-sale (0.7) - -Tax on items recogniseddirectly in equity - (1.4) 5.1---------------------------- ---------- --------- -------- (3.7) (3.3) (5.7)Opening balance sheetadjustment for first timeadoption of IAS 32 and 39(see note 9) (0.7) - ----------------------------- ---------- --------- --------Total recognisedincome and expense forthe period (4.3) 3.9 86.0---------------------------- ---------- --------- -------- Consolidated balance sheet As at As at As at 29 October 2005 23 October 2004 30 April 2005 Unaudited Unaudited Audited Restated Restated----------------------- ------ --------- --------- --------- Notes £m £m £m----------------------- ------ --------- --------- --------- Assets------ Non-current assetsProperty, plant andequipment 183.4 167.7 175.4Intangible assets 2.0 2.0 2.0Deferred income taxasset 32.9 25.5 32.4Trade and otherreceivables 7.7 9.4 8.4----------------------- ------ --------- --------- --------- 226.0 204.6 218.2Current assetsInventories 202.7 200.4 157.9Trade and otherreceivables 54.6 46.8 53.5Current tax recoverable 0.6 0.3 0.4Other financial assets 9.2 - -Cash and short termdeposits 113.9 106.9 47.6----------------------- ------ --------- --------- --------- 381.0 354.4 259.4----------------------- ------ --------- --------- ---------Total Assets 607.0 559.0 477.6----------------------- ------ --------- --------- --------- Liabilities-----------Non-current liabilitiesInterest bearing loansand borrowings - (118.2) -Deferred income taxliabilities (0.7) (0.2) (0.2)Retirement benefitsliabilities (28.2) (23.2) (30.0)Other non-currentliabilities - (0.1) (0.2)Provisions (1.7) (3.2) (2.4)----------------------- ------ --------- --------- --------- (30.6) (144.9) (32.8)Current liabilitiesTrade and otherpayables (448.8) (431.1) (356.6)Current income taxpayable (16.7) (18.3) (33.3)Interest bearing loansand borrowings (156.6) (45.2) (64.2)Provisions (4.0) (4.9) (5.1)----------------------- ------ --------- --------- --------- (626.1) (499.5) (459.2)----------------------- ------ --------- --------- ---------Total Liabilities (656.7) (644.4) (492.0)----------------------- ------ --------- --------- -------------------------------- ------ --------- --------- ---------Net Liabilities (49.7) (85.4) (14.4)----------------------- ------ --------- --------- --------- Equity------Issued share capital 7 4.0 4.1 4.0Share premium account 7 316.8 309.3 309.6Other reserve - ownshares 7 (3.1) (3.0) (4.2)Foreign currencytranslation reserve 7 (1.7) 0.8 0.4Capital reserve 7 0.3 0.2 0.3Retained earnings 7 (366.0) (396.8) (324.5)----------------------- ------ --------- --------- ---------Total equity 6 (49.7) (85.4) (14.4)----------------------- ------ --------- --------- --------- The consolidated interim results were approved by the Board of Directors on 11January 2006. Consolidated cash flow statement 26 weeks ended 26 weeks ended 53 weeks ended 29 October 2005 23 October 2004 30 April 2005 Unaudited Unaudited Audited Restated Restated--------------------------- ---------- ---------- --------- £m £m £m--------------------------- ---------- ---------- ---------Cash flows from operatingactivitiesOperating profit 2.8 15.7 139.1Depreciation 23.0 20.6 43.2Loss on disposal ofproperty, plant andequipment - - 0.3Gain on disposal ofsubsidiary (0.3) - -Equity settled share basedpayment expense 1.5 1.6 3.1Pension obligationadjustment (3.6) 0.8 (2.8)--------------------------- ---------- ---------- --------- 23.4 38.7 182.9Movement in inventories (46.8) (42.4) (1.0)Movement in debtors (1.8) (3.9) (9.7)Movement in creditors 92.1 75.0 6.5Movement in provisions (2.1) (2.4) (2.9)--------------------------- ---------- ---------- ---------Cash generated fromoperations 64.8 65.0 175.8Tax paid (16.9) (18.2) (36.9)--------------------------- ---------- ---------- ---------Net cash flows fromoperating activities 47.9 46.8 138.9--------------------------- ---------- ---------- ---------Cash flows from investingactivitiesPurchase of property,plant and equipment (33.3) (26.1) (57.9)Purchase of intangibleassets - - (0.5)Proceeds from sale ofproperty, plant andequipment 0.6 - 0.3Proceeds from sale ofsubsidiary 1.7 - -Purchase of otherfinancial assets (9.7) - ---------------------------- ---------- ---------- ---------Net cash flows frominvesting activities (40.7) (26.1) (58.1)--------------------------- ---------- ---------- ---------Cash flows from financingactivitiesMovements in short-termfacilities 78.7 0.4 59.7Proceeds of issue ofequity shares 7.2 0.9 1.2Company shares purchasedfor cancellation (18.6) - (4.9)Purchase of own shares (0.7) (1.1) (2.3)Loan repayments - (65.0) (225.0)Costs incurred inconnection with theraising of debt - - (0.7)Interest received 1.0 2.3 4.7Interest paid (3.4) (6.8) (12.7)Equity dividends paid toshareholders (20.4) (18.2) (25.0)--------------------------- ---------- ---------- ---------Net cash flows fromfinancing activities 43.8 (87.5) (205.0)--------------------------- ---------- ---------- ---------Net increase (decrease) incash and cash equivalents 51.0 (66.8) (124.2)Opening cash and cashequivalents 47.4 172.3 172.3Effect of exchange ratechanges 1.7 - (0.7)--------------------------- ---------- ---------- ---------Closing cash and cashequivalents 100.1 105.5 47.4--------------------------- ---------- ---------- --------- Notes to the consolidated interim results 1. Basis of preparation The consolidated interim results for the 26 weeks ended 29 October 2005 are thefirst to be prepared under International Financial Reporting Standards (IFRS).Consequently a number of the accounting policies adopted in the preparation ofthese consolidated interim results are different to those adopted in the annualfinancial statements for the 53 weeks ended 30 April 2005 which were preparedunder UK Generally 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 26 weeks ended 23October 2004 and the 53 weeks ended 30 April 2005 were published on 28 September2005 and are available on the HMV Group plc website 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 and the revised accounting policies are set out in note 9 below. The Group has prepared its consolidated interim results in accordance with theIFRS accounting policies expected to be applied in the first IFRS compliant fullyear financial statements for the 52 weeks ending 29 April 2006 and theprovisions of IFRS 1. The consolidated interim results are unaudited and do notinclude all of the information required for full year financial statements. The financial information set out in this report does not constitute statutoryaccounts within the meaning of the Companies Act 1985. Full statutory accountsfor the 53 weeks ended 30 April 2005, prepared under UK GAAP and on which theGroup's auditors expressed an unqualified audit opinion, have been delivered tothe Registrar of Companies. 2. Segmental analysis Revenue Operating Profit 26 weeks to 26 weeks to 53 weeks to 26 weeks to 26 weeks to 53 weeks to 29 October 23 October 30 April 29 October 23 October 30 April 2005 2004 2005 2005 2004 2005------------ -------- -------- -------- --------- -------- -------- £m £m £m £m £m £m------------ -------- -------- -------- --------- -------- --------By class of business:HMVUK & Ireland 365.9 383.1 999.4 (0.3) 13.5 96.9Asia Pacific 137.6 124.0 279.3 1.6 0.9 6.9North America 71.2 61.2 160.8 1.0 0.4 7.8------------ -------- -------- -------- --------- -------- --------Total HMV 574.7 568.3 1,439.5 2.3 14.8 111.6Waterstone's 185.0 191.9 446.1 0.5 0.9 27.5------------ -------- -------- -------- --------- -------- --------Total 759.7 760.2 1,885.6 2.8 15.7 139.1------------ -------- -------- -------- --------- -------- --------By origin:United Kingdom 522.3 547.1 1,373.9 (2.0) 11.9 115.0Rest of Europe 28.6 27.9 71.6 2.2 2.5 9.4Asia Pacific 137.6 124.0 279.3 1.6 0.9 6.9North America 71.2 61.2 160.8 1.0 0.4 7.8------------ -------- -------- -------- --------- -------- --------Total 759.7 760.2 1,885.6 2.8 15.7 139.1------------ -------- -------- -------- --------- -------- -------- 3. Earnings per share 26 weeks ended 26 weeks ended 53 weeks ended 29 October 2005 23 October 2004 30 April 2005-------------------------- ---------- --------- --------- £m £m £m-------------------------- ---------- --------- ---------Profit for the periodattributable toshareholders 0.1 7.2 91.7-------------------------- ---------- --------- --------- 26 weeks ended 26 weeks ended 53 weeks ended 29 October 2005 23 October 2004 30 April 2005-------------------------- ---------- --------- --------- Number 'm Number 'm Number 'm--------------------------- ---------- --------- ---------Weighted average numberof OrdinaryShares - basic 401.0 403.4 403.4Dilutive share options 5.5 7.7 7.8--------------------------- ---------- --------- ---------Weighted average numberof Ordinary Shares -diluted 406.5 411.1 411.2--------------------------- ---------- --------- --------- Earnings per Ordinary Share is calculated as follows: 26 weeks ended 26 weeks ended 53 weeks ended 29 October 2005 23 October 2004 30 April 2005--------------------------- ---------- --------- --------- Pence Pence Pence--------------------------- ---------- --------- ---------Basic earnings per OrdinaryShare 0.0 1.8 22.7Diluted earnings perOrdinary Share 0.0 1.8 22.3--------------------------- ---------- --------- --------- 4. Taxation The tax charge is based on the estimated tax rate for the full year of 31%(2004: 31%). This is higher than the effective tax rate of 29% for the 53 weeksended 30 April 2005, which included the utilisation of brought forward lossesand the first time recognition of a deferred tax asset in HMV Canada. 5. Dividends 26 weeks ended 26 weeks ended 53 weeks ended 29 October 2005 23 October 2004 30 April 2005--------------------------- ---------- --------- --------- £m £m £m--------------------------- ---------- --------- ---------Ordinary final dividend of5.1p per share (2004: 4.5p) 20.4 18.2 18.2Ordinary interim dividend of 1.7p per share - - 6.8--------------------------- ---------- --------- --------- 20.4 18.2 25.0--------------------------- ---------- --------- --------- The Directors have approved an interim dividend of 1.8p per share (2004: 1.7p),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 (2004: £6.8m) and will be paid on 17 February 2006 toshareholders on the Register at the close of business on 20 January 2006. Shareswill be quoted ex-dividend from 18 January 2006. 6. Changes in equity 26 weeks ended 26 weeks ended 53 weeks ended 29 October 2005 23 October 2004 30 April 2005------------------------ ----- ---------- --------- --------- Notes £m £m £m------------------------ ----- ---------- --------- ---------Opening equity (14.4) (72.5) (72.5)First time adoption ofIAS 32 and 39(see note 9) (0.7) - ------------------------- ----- ---------- --------- ---------Restated opening equity (15.1) (72.5) (72.5) Profit for the periodattributable toshareholders 0.1 7.2 91.7Ordinary dividend 5 (20.4) (18.2) (25.0)Foreign currencytranslation (2.1) 3.0 4.3Movements on fair value of cash flow hedges 0.9 - -Actuarial losses ondefined benefitpension schemes (1.8) (4.9) (15.1)Issue of equity shares 7.2 0.9 1.2Company shares purchased for cancellation (18.6) - (4.9)Purchase of own shares (0.7) (1.1) (2.3)Charge for share basedpayments 1.5 1.6 3.1Change in fair value ofequity securitiesavailable-for-sale (0.7) - -Tax recognised directly in reserves - (1.4) 5.1------------------------ ----- ---------- --------- ---------Net (decrease) increase in equity in theperiod (34.6) (12.9) 58.1------------------------ ----- ---------- --------- ---------Closing equity (49.7) (85.4) (14.4)------------------------ ----- ---------- --------- --------- 7. Share capital and reserves Share Foreign Share premium Other reserve - currency Capital Retained capital account own shares reserve reserve earnings £m £m £m £m £m £m--------------------------- ------ ------- -------- ------- ------ -------As at 30 April 2005 4.0 309.6 (4.2) 0.4 0.3 (324.5)First time adoption ofIAS 32 and 39 (see note 9) - - - - - (0.7)--------------------------- ------ ------- -------- ------- ------ -------As at 1 May 2005 4.0 309.6 (4.2) 0.4 0.3 (325.2) Profit for the period - - - - - 0.1Ordinary dividend - - - - - (20.4)Foreign currency translation - - - (2.1) - -Movements on fair value of cash flow hedges - - - - - 0.9Actuarial losses on definedbenefit pension schemes - - - - - (1.8)Issue of equity shares - 7.2 1.8 - - (1.8)Company shares purchased forcancellation - - - - - (18.6)Purchase of own shares - - (0.7) - - -Charge for share based payments - - - - - 1.5Change in fair value ofequity securitiesavailable-for-sale - - - - - (0.7)--------------------------- ------ ------- -------- ------- ------ -------As at 29 October 2005 4.0 316.8 (3.1) (1.7) 0.3 (366.0)--------------------------- ------ ------- -------- ------- ------ ------- 8. Reconciliation of net cash flow to movement in net debt 26 weeks ended 26 weeks ended 53 weeks ended 29 October 2005 23 October 2004 30 April 2005 £m £m £m------------------------------- ---------- ---------- ---------Net increase (decrease) in cash and cash equivalents 51.0 (66.8) (124.2)Cash movement from financing(excluding movements in equity) (78.7) 64.6 165.3------------------------------- ---------- ---------- ---------Change in net debt resultingfrom cash flows (27.7) (2.2) 41.1Effect of exchange rate changes 1.7 - (0.7)Movement in deferred financing fees (0.1) (0.9) (3.7)------------------------------- ---------- ---------- ---------(Increase) decrease in net debt (26.1) (3.1) 36.7Opening net debt (16.6) (53.3) (53.3)------------------------------- ---------- ---------- ---------Closing net debt (42.7) (56.4) (16.6)------------------------------- ---------- ---------- --------- 9. Adoption of IAS 32 and IAS 39 Financial Instruments Derivative Financial Instruments The Group may from time to time use derivative financial instruments for hedgingpurposes, including cross-currency swaps, forward foreign exchange contracts,foreign currency options and interest rate contracts. The Group does not enterinto derivative financial instruments for speculative purposes. Derivative financial instruments are stated at their fair value. The fair valueof forward foreign exchange contracts and currency options is their quotedmarket value at the balance sheet date, being the present value of the quotedforward price. The fair value of interest rate swaps is the estimated amountthat the Group would receive or pay to terminate the swap at the balance sheetdate, taking into account current interest rates. Hedge Accounting Changes in the fair value of derivative financial instruments that aredesignated and effective as hedges of future cash flows are recognised directlyin equity and any ineffective portion is recognised immediately in the incomestatement. For these cash flow hedges, when the asset or liability for thehedged transaction is recognised in the balance sheet, the associated gains orlosses on the hedging instrument previously recognised in equity are included inthe carrying amount of the hedged asset or liability. Gains or losses realisedon cash flow hedges are therefore recognised in the income statement in the sameperiod as the hedged item. Hedge accounting is discontinued when the hedging instrument expires or is sold,terminated or exercised, or no longer qualifies for hedge accounting. At thattime any cumulative gain or loss on the hedging instrument previously recognisedin equity is retained in equity until the hedged transaction occurs. If thehedged transaction is no longer expected to occur, the net cumulative gain orloss recognised in equity is then transferred to the income statement. Changes in the fair value of derivative financial instruments that do notqualify for hedge accounting are recognised in the income statement as theyarise. 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, representing the recognition ofderivative financial instruments at fair value at the balance sheet date. Hedges of a Net Investment Hedges of a net investment in a foreign operation, including a hedge of amonetary item that is accounted for as part of the net investment, are accountedfor in a similar way to cash flow hedges. Gains or losses on the hedginginstrument relating to the effective portion of the hedge are recogniseddirectly in equity, while any gains or losses relating to the ineffectiveportion are recognised in profit or loss. On disposal of the foreign operation,the cumulative value of any such gains or losses recognised directly in equityis transferred to profit or loss. Available-for-sale Financial Assets Available-for-sale financial assets are those non-derivative financial assetsthat are designated as available-for-sale. After initial recognition,available-for-sale financial assets are measured at fair value with temporarygains or losses being recognised within equity until the investment isdetermined to be impaired, at which time the cumulative gain or loss previouslyreported in equity is included in the income statement. The fair value ofinvestments that are actively traded in organised financial markets isdetermined by reference to quoted market bid prices at the close of business onthe balance sheet date. 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 29 October 2005 which comprises the Consolidated IncomeStatement, Consolidated Balance Sheet, Consolidated Cash Flow Statement,Statement of recognised income and expense, and the related notes 1 to 9. Wehave read the other information contained in the interim report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe 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. As disclosed in note 1, the next annual financial statements of the group willbe prepared in accordance with those IFRSs adopted for use by the EuropeanUnion. The accounting policies are consistent with those that the directors intend touse in the next financial statements. 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 have been applied. A review excludes audit proceduressuch as tests of controls and verification of assets, liabilities andtransactions. It is substantially less in scope than an audit performed inaccordance with International Standards on Auditing (UK and Ireland) andtherefore provides a lower level of assurance than an audit. Accordingly we donot express an audit opinion 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 ended29 October 2005. Ernst & Young LLPLondon11 January 2006 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 29 October 2005 Square footage Square footage Store numbers '000 sq ft Store numbers '000 sq ft 2005 2005 2004 2004 HMVUK & Ireland 218 1,217 193 1,100Asia Pacific 57 414 87 503North America 109 479 102 446Total HMV 384 2,110 382 2,049Waterstone's 195 1,305 189 1,282HMV Group 579 3,415 571 3,330 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Hmv Group