Interim Results

Financial Summary for the 26 weeks

·; Total sales from continuing operations £364.9m (2010: £442.7m), down 17.6%. Like for like sales for the 26 weeks to 29 October 2011 (from continuing operations) down 11.6% (2010: down 15.5%)

·; HMV Retail total sales down 19.4%, including like for like sales down 11.9% (2010: down 15.8%)

·; HMV Live operating profit increased to £3.4m (2010: £1.5m)

·; Loss before tax before exceptional items from continuing operations of £36.4m (2010: loss of £27.4m)

·; Loss after tax before exceptional items from discontinued operations of £10.2m (2010: loss of £10.6m)

·; Total Group loss after tax and exceptional items of £50.1m (2010: loss of £30.9m)

·; Adjusted EPS from continuing operations down to loss of 8.7p (2010: loss of 5.0p). Basic EPS loss from continuing operations of 10.9p (2010: loss of 5.0p)

·; Net cash outflows from operating activities substantially reduced to £12.6m (2010: outflow of £56.8m)

·; Underlying net debt of £163.7m (2010: £151.6m)

Business Update

HMV Retail:

·; 144 stores refitted with an extended Technology range of portable digital products, resulting in like for like Technology sales in those stores up 42% since respective store refit dates; Like for like sales growth across headphones, speakerdocks, and tablets has been 147% since refits.

·; For the 7 weeks to 17 December 2011, total HMV Retail like for like sales down 13.2%. However, December to date excludes the significant additional Saturday trading day compared to last year, which is likely to make a materially positive impact to the eventual December like for like sales result.

HMV Live:

·; Successful summer festival season at HMV Live with attendance up 30% in total

·; Opening of 1500-capacity HMV Ritz in Manchester with strong launch line-up

Strategic Review & Outlook

·; On the platform of the summer's successful restructuring and refinancing, progress is continuing on a wide range of initiatives including improving the retail offer with refitted stores, better product pricing driving market share gains, support from suppliers on opportunities such as consignment stock, delivering a reshaped store portfolio as previously announced, and reducing costs.

·; The interim statements have been prepared on a going concern basis and this reflects the Board's confidence in its reasonable expectation that the Group will have adequate resources to continue in operation for the foreseeable future. However, the economic environment and trading circumstances create material uncertainties which may cast significant doubt on the Group's ability to continue as a going concern in the future. The Directors continue to maintain regular and constructive discussions with the Group's banks.

·; In addition, the Board has initiated a strategic review of HMV Live which may lead to its sale, the proceeds of which would strengthen the financial position of the Group.

Commenting, Chief Executive Simon Fox said:

"This has been a challenging start to the year. However, we have taken decisive action to restructure the business and are now seeing the benefits of this, particularly in our Technology products business. Like all consumer-facing companies we are facing tough trading conditions but we continue to push forwards through this period. We remain well prepared for the key trading days ahead."

Enquiries

·; All enquiries on 19 December should be directed via Brunswick. A Christmas trading update will be issued on 9 January 2012.

Slides to accompany this announcement are available for viewing or download at: http://www.hmvgroup.com/en/investors/presentation/financial-presentations/presentations-2011.aspx

Notes for editors

HMV Group is one of the world's leading retailers of music, video and electronic games in terms of total sales. As of 29 October 2011, the HMV Retail division operated 249 HMV and 9 Fopp stores selling music, video and games in four countries. All of the Group's retail operations, both in the United Kingdom and internationally, are wholly owned.

The HMV Live division comprises a diverse range of music-related businesses, including the operation of live music and entertainment venues, music festivals and artist management activities.

HMV Group websites

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tickets.hmv.com

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Note

Adjusted EPS - continuing operations before exceptional items

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

Chief Executive's Review

The first half of the financial year has been a challenging time for the Group, as we have concentrated on restructuring our business, allowing us to increase focus on turnaround opportunity in HMV Retail and HMV Live. This has comprised the disposal of Waterstone's and HMV Canada, the successful renegotiation of our bank facilities and the revitalisation of the continuing HMV Retail business.

Conditions in HMV Retail's core product markets remained difficult throughout the period, combined with a tough economic climate in the UK. Consequently our financial performance has reflected a balance of strong cash management in the context of reduced profit, despite actions taken to close underperforming stores and rebalance the product range towards faster growing entertainment-related products.

An update on our strategy is provided below. This discussion is comprised of firstly the rationalisation and refinancing of the Group and the repositioning of HMV Retail, and secondly the development of the Live business.

Rationalisation and refinancing of the Group

Management activity in the first quarter of the financial year was focused on the restructuring and refinancing of the Group. During that time, the Group agreed with its banks a revised, two-year £220m credit facility (the details of which are given in Note 13), which strengthens the capital structure of the Group and enables us now to refocus on the turnaround of the continuing businesses.

In addition, Waterstone's was sold for a total cash consideration of £53.0m on 28 June 2011, following the approval of shareholders, the pension trustee, pensions regulator and the Group's lending banks. In the same month, HMV Canada was also sold for £2.0m. These businesses have made significant contributions to the Group in the past but their separation at this time secures a future for them in challenging markets and leaves the remaining Group better placed to focus on the future for the core HMV business and our Live operations.

Repositioning of HMV Retail

Market conditions remained difficult in the first half with the structural declines in our core markets being additionally affected by the tough economic climate faced by the consumer. However in the second quarter of the year, our market share and like for like performance showed encouraging signs of improvement particularly in CD and DVD.

In order to offset the decline in our core product markets we have accelerated the evolution of our product mix towards technology with the roll-out of an enhanced technology offer to 144 stores by the end of October. The full benefit of these space changes is not apparent in the half year results, due to the timing of the refits towards the end of the period, but we are encouraged by the early performance of these refitted stores. In the first half technology and related products grew to 14% of sales (2010: 12%) and this is expected to be much higher in the second half.

In addition, we have taken further measures to address our cost base by closing 15 underperforming stores in the UK and Ireland during the period, leaving a portfolio of 252 stores. We have also continued to reduce our central costs where possible and focus on managing cash flows.

As well as the UK and Ireland stores, HMV Retail also includes six stores in Hong Kong and Singapore which have achieved like for like sales growth of 18.3% in the period and continue to be cash generative.

Strong development of Live business

HMV Live enjoyed a good summer festival season, with attendances up by over 20% on a like for like basis and by over 30% in total. Profitability of the festivals was also improved.

Our 13 live venues performed well during the period. Sales at like for like venues were down 1.5%, however, the number of events at like for like venues was up 5% and spend per head was up 10%. On 6 September we successfully re-opened the HMV Ritz, a new 1500-capacity venue in Manchester and trading has been in line with expectations up to the end of the period.

Our partnership with 7digital continues to offer exciting opportunities in the digital world, which combine well with the increased focus on technology in our stores.

Business and financial review

These interim results are for the 26 weeks ended 29 October 2011.

Adjusted loss per share - continuing operations before exceptional items

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

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

The results of the Group are presented on the basis of continuing and discontinued operations. The continuing operations consist of HMV Retail (HMV UK & Ireland, HMV Hong Kong and HMV Singapore) and HMV Live. Discontinued operations are Waterstone's and HMV Canada for the first two months of the current financial year until both businesses were sold.

Total sales from continuing operations decreased by 17.6% compared with the same period last year, including a like for like decline of 11.9% in HMV Retail. Total sales at HMV Live were up by 8.2%.

Continuing operations generated a seasonal operating loss of £30.4m (2010: £23.4m) and net finance costs increased from £4.0m to £6.0m, due to higher average debt and higher interest rates under the new facility. This resulted in a loss before tax and exceptional items from continuing operations of £36.4m (2010: £27.4m). In addition, exceptional charges of £4.7m were incurred in the period in respect of restructuring the ongoing business (2010: nil). Exceptional finance charges of £4.6m were incurred in relation to the extinguishment of the previous facility and charges incurred on inception of the new facility, while a further £4.4m of fees were capitalised.

Discontinued operations contributed a trading loss after tax of £10.2m (2010: £10.6m) and an exceptional profit on disposal of £5.6m (2010: nil).

Underlying net borrowings were £163.7m, £12.1m higher than last year, reflecting higher average net debt during the period due to depressed trading conditions, offset by the receipt of proceeds from the sale of businesses. Free cash outflow of £28.4m (2010: £79.1m) reflected the adverse trading performance, capital expenditure and exceptional spend, offset by a working capital inflow and tax repayments.

The segmental results below for the 26 weeks ended 23 October 2010 have been restated to reflect the reorganisation of the continuing operations of the business into two operating segments - HMV Retail (comprising HMV UK & Ireland, HMV Hong Kong and HMV Singapore) and HMV Live. Waterstone's and HMV Canada have been reclassified as discontinued operations as both were sold in the 26 weeks ended 29 October 2011.

1 Year on year growth (decline) over the corresponding period last year is based on results translated at the actual exchange rates being the weighted average exchange rates for the 26 weeks ended 29 October 2011 and the 26 weeks ended 23 October 2010 respectively.

2 Constant exchange growth (decline) over the corresponding period last year is based on the weighted average exchange rates for the 26 weeks ended 23 October 2010.

3 Like for like sales growth (decline) over the corresponding period last year is based on the weighted average exchange rates for the 53 weeks ended 30 April 2011.

HMV Retail

HMV Retail total sales fell by 19.4% at statutory exchange rates, primarily due to a like for like decline of 11.9%, as tough trading conditions reflected the difficult UK consumer environment and the structural decline in our core markets. The sales performance resulted in an operating loss of £33.1m, £8.8m higher than last year.

All three UK entertainment markets declined in value terms over the period, with music down nearly 20%, visual down 16% and games down 9.5%. Within all of these markets HMV's share declined against last year as a result of the ongoing store closure programme. However, HMV Retail's sales performance in September and October was markedly better than in the first four months of the period, with like for like sales down 7% in the last two months, compared with 15.1% in the first four months. This trend was also evidenced in the UK market share performance, which improved upwards in recent months. Other products, including technology, now make up 14% of the product mix, up from 12% last year, as the technology range roll-out progressed towards the end of the period.

HMV Hong Kong and Singapore traded well throughout the period, with like for like sales up 18.3% on last year. However, the closure of two stores in the period meant that total sales and operating profit declined on last year.

The loss before tax and exceptional items increased on prior year primarily as a result of the sales performance. Gross margin was broadly flat when compared to the prior year, with strategies to make our pricing more relevant being largely supported by suppliers, particularly later on in the period. Continuing focus has been given to reducing central costs and significant progress has been made in this area.

Exceptional costs of £4.7m (2010: nil) have been incurred due to restructuring the business.

In line with the programme already announced, HMV UK closed 15 stores and opened one in the period, HMV Hong Kong closed one store and opened one and HMV Singapore closed one store. The total retail estate stood at 258 stores at 29 October 2011.

HMV Live

Sales at HMV Live for the period were £31.2m, £2.4m up on the prior year and operating profit was £3.4m, £1.9m up on prior year. The venues business performed satisfactorily, with like for like sales at wholly owned venues down 1.5% and a contribution from two new venues, GAY Manchester and Manchester Ritz, which opened in April and September 2011 respectively. Utilisation and spend per head improved over the prior year.

Festivals performed in line with expectations, with operating profit £1.2m up on last year. The new Wilderness festival achieved critical acclaim in its first year while the more established festivals, including Lovebox, Global Gathering and High Voltage all improved their profit performance.

Discontinued operations

On 27 June 2011 the Company sold the entire share capital of HMV Canada Inc to Hilco UK for a total cash consideration of £2.0m. On 28 June 2011 the Company completed the sale of the Waterstone's group of companies to A&NN Capital Management Fund Limited for a total cash consideration of £53.0m, of which £40.0m was paid on completion and £13.0m was paid after the Interim balance sheet date on 31 October 2011. Prior to disposal, the two businesses reported total sales of £78.4m and made a combined loss before tax of £10.2m. The net profit on disposal was £5.6m.

The results of HMV Canada and Waterstone's have been presented in the income statement as discontinued operations and the comparative period has been restated accordingly. Further details are given in Note 7.

Joint ventures and associates

The Group's investments in joint ventures and associates accounted for using the equity method include the digital media company, 7digital, various investments in the Live division and aNobii, an eBook venture. The Group's share of joint venture and associate post tax losses was £0.7m (2010: £0.6m).

Net finance costs

Finance costs increased in the period to £7.4m from £4.0m due to higher average net debt as a result of higher working capital requirements and higher interest rates payable on the new facility. Partially offsetting this increase is non-cash income of £1.3m (2010: nil) representing the movement in the fair value of warrants issued as a component of the new bank facility (see Note 13).

Exceptional finance costs of £4.6m (2010: nil) have been charged relating to the write-off of previously deferred fees relating to the previous bank facility and the costs of refinancing in June 2011. In addition, fees of £4.4m have been deferred and are being amortised over the 27-month term of the new facility to September 2013.

Taxation

The taxation credit for the period of £0.2m reflects the impact on the deferred tax liability of the reduction in the UK corporate income tax rate from 26% to 25% with effect from 1 April 2012 (2010: £0.6m). No current tax credit has been recognised in the income statement for the period.

Earnings per share

Adjusted earnings per share from continuing operations, excluding the effect of exceptional items, were a loss of 8.7p, a decrease of 76% on last year. Basic earnings per share for continuing operations were a loss of 10.9p, compared with a loss of 5.0p last year. Adjusted earnings per share for the total group were a loss of 11.1p and basic earnings per share were a loss of 12.0p.

Dividend

In accordance with the terms of the revised bank facility, the Board has declared that no dividend will be paid (2010: 0.9p per share).

Cash flow and net debt

EBITDA - Earnings before interest, taxation, depreciation and amortisation

Free cashflow - Cashflow from operating activities after capital expenditure and net interest

Underlying net debt - Underlying net debt is stated before unamortised deferred financing fees

Closing net debt of £163.7m was £12.1m higher than at October last year. This includes the benefit of £36.6m net proceeds received from the disposal of Waterstone's and HMV Canada during the period. Underlying free cash outflow of £28.4m reflects the trading loss in the period, capital expenditure on refitting stores, venues and IT, combined with the impact of higher interest payments and spend on exceptional items to restructure the business. These outflows were offset by tax repayments and a net working capital inflow, partly due to the timing of the disposal of businesses.

On 28 June 2011 the Group entered into a new £220m bank facility comprising a £70.0m term loan (Facility A), a £90.0m term loan (Facility B) and a £60.0m revolving credit facility (Facility C) each with a final maturity date of 30 September 2013. Further details of the terms of the facility including margin payable, applicable exit fees and warrants issued are given in Note 13 to these financial statements.

Pensions

The Group has a number of pension schemes in operation. These primarily include various defined contribution arrangements and a defined benefit scheme which closed to future service accrual on 31 March 2011.

Under IAS 19 'Employee Benefits', the HMV defined benefit scheme had a deficit at 29 October 2011, net of deferred tax, of £20.8m (October 2010: £32.6m, April 2011: £26.7m). The most recently completed actuarial valuation was at 30 June 2010, where a funding deficit of £65.2m was identified (2007: £5.1m). This significant decline reflects adverse investment returns and major changes to actuarial assumptions. Finalisation of the funding valuation and an appropriate deficit recovery plan was dependant on the disposal of Waterstone's as a substantial proportion of the scheme liabilities relate to the Waterstone's business. On 6 June 2011 a scheme apportionment arrangement was entered into between the Company, Waterstone's and the scheme trustees, such that on Waterstone's ceasing to participate in the scheme, their share of the scheme's deficit (instead of becoming immediately payable) transferred to the Company. In return for agreeing for the deficit to be so apportioned, the trustees and the Company have agreed certain future payments to the scheme, primarily as follows:

£1.0m following completion of the Waterstone's disposal and £1.5m following receipt of the deferred consideration under the disposal agreement;

£5.0m per annum (payable monthly) from 1 July 2011 until the close of any agreed recovery plan;

£0.5m per annum from 1 May 2013 to 30 April 2021 and £3.0m on 1 January 2014; and an additional share of annual cash generation capped at £1.0m.

Principal risks and uncertainties

The Board has a policy of continuous identification and review of key business risks and uncertainties. After appropriate review the Board considers that the principal risks affecting the Group in respect of the current financial year together with the mitigating actions being taken, are summarised as follows;

·; future trading may not be in line with the Group's latest forecasts due to external factors such as consumer confidence in the UK economy. This is minimised through offering affordable price points which are more resilient in the face of a prolonged downturn;

·; product margins and commercial terms from suppliers may not be sufficient to meet financial obligations. Negotiations with suppliers to materially improve margins are anticipated in the quarter ended January 2012;

·; credit risk and liquidity risk are regularly reviewed to identify potential exposures and manage funding requirements. Regular covenant tests are performed and open discussions are maintained with the Group's bankers;

·; highly competitive markets for the Group's products necessitate continuing development of the retail offer and productive relationships with suppliers. The risk of failure of appropriate supply is managed through active engagement and strategic relationships with suppliers;

·; the growth of digital entertainment has introduced new products and methods of delivery of traditional products, which the Group is addressing through strategic investment plans, for example, our Fast Forward technology offering;

·; the highly seasonal nature of the business is mitigated through detailed forward planning;

·; potential damage to the reputation or brands of the Group is managed through staff training and regular review of policies and operating procedures;

·; the availability and retention of key personnel is managed through appropriate development programmes and reward structures;

·; exposure to a major external event, such as terrorism, is mitigated through contingency planning and appropriate insurance cover;

·; the store network is regularly reviewed and renegotiated as appropriate to maintain a good quality portfolio; and

·; the material uncertainties facing the business which combine to create circumstances representing a material uncertainty that may cast significant doubt upon the Company's and the Group's ability to continue as a going concern.

Forward-looking statements

Certain statements in this interim report are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Interim consolidated income statement

Notes 1 to 19 form an integral part of the interim condensed consolidated financial statements. See note 5 for a description of exceptional items.

Interim consolidated income statement

Notes 1 to 19 form an integral part of the interim condensed consolidated financial statements. See note 5 for a description of exceptional items.

Interim consolidated statement of comprehensive income

Notes 1 to 19 form an integral part of the interim condensed consolidated financial statements.

Interim consolidated balance sheet

Notes 1 to 19 form an integral part of the interim condensed consolidated financial statements.

Interim consolidated statement of changes in equity

Interim consolidated cash flow statement

Notes to the interim condensed consolidated financial statements

1. General information

The Company is a public limited company incorporated and domiciled in the UK. The address of its registered office is Shelley House, 2-4 York Road, Maidenhead, Berkshire, SL6 1SR.

The Company is listed on the London Stock Exchange.

The interim condensed consolidated financial statements of the Group were approved for issue on 18 December 2011.

These interim financial results do not comprise statutory accounts within the meaning of Section 435 of the Companies Act 2006 and are unaudited. The audited results for the 53 weeks ended 30 April 2011 have been restated as set out in note 2 Restatements. Statutory accounts for the 53 weeks ended 30 April 2011 were approved by the Board of Directors on 29 June 2011 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.

2. Basis of preparation

The interim condensed consolidated financial statements for the 26 weeks ended 29 October 2011 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, "Interim Financial Reporting" as adopted by the European Union. The interim condensed consolidated financial report should be read in conjunction with the annual financial statements for the year ended 30 April 2011, which have been prepared in accordance with IFRSs as adopted by the European Union.

Going concern

In determining the appropriate basis of preparation of financial statements, the Directors are required to consider whether the Group can continue in operational existence for the foreseeable future.

Following the successful disposal of Waterstone's and HMV Canada and the restructuring and refinancing of the group in the first quarter of the year, the group agreed with its banks a revised two-year £220m credit facility. The new facility contains financial covenants in respect of gearing and fixed charge cover. In addition, an exit fee will accrue on the amount outstanding under the £90m Facility B term loan, which will be repayable upon repayment of Facility B or final maturity, with rates between 5% to 14% depending on the repayment profile of this tranche of debt.

The current economic conditions and in particular the difficult consumer and retail environment create uncertainty as to the level of trading results that will be achieved in the year ahead. In particular, for HMV Retail, the December and January trading levels, which typically account for some 34% of the group's annual revenues, have a significant bearing on the profitability of the group.

Good progress has been made across a number of projects to mitigate the uncertainty. These have included the launch of the 'Fast Forward' initiative to refit stores for a wider technology offering, a greater move to consignment stock arrangements and greater activity in respect of core activity sales through working with suppliers to offer more competitive price points. The management team to execute these initiatives has also been strengthened. In the second quarter we have seen improving results with the decline in like for like sales improving. The launch of the fast forward initiative to increase the technology offering to 144 stores has resulted in technology like for like sales increasing by 42% driving up technology as a proportion of total sales.

However, the Directors are aware that there are material uncertainties facing the business which are as follows:

a) future trading may not be in line with the assumptions in the Group's latest forecasts the achievability of which is dependent upon the current economic environment, the rate of decline of core physical product markets, HMV's market share performance, the peak Christmas trading period and the continued success of our Fast Forward technology offering.

b) the Group may be unable to materially improve margins through securing more favourable commercial terms with its base of supportive suppliers through anticipated negotiations during the quarter ended January 2012.

If future trading, particularly across the Christmas period, and the commercial terms support from suppliers is not in line with forecasts then there is a risk that the Group may breach its banking covenants. These are next tested at the end of January 2012 and quarterly thereafter and a breach could trigger a recall of the Group's banking facilities.

c) the ability to successfully refinance the existing credit facility (maturing in September 2013) which may be dependent upon the factors above in sections (a) and (b), as well as driving operating cashflow and raising cash proceeds from future business disposals. In this regard the Board have initiated a strategic review of the HMV Live Business.

The Directors have concluded that the combination of these circumstances represents a material uncertainty which may cast significant doubt upon the Company's and the Group's ability to continue as a going concern and therefore the Company and the Group may be unable to continue to realise assets and discharge liabilities in the normal course of business.

However, the Directors continue to maintain regular discussions with the Group's banks and these discussions remain constructive.

In addition the Directors have reviewed current trading and cashflow projections as part of their assessment, and after making enquiries and carefully considering the matters described above, the Directors have a reasonable expectation that the Group and the Company will be able to meet their liabilities as they fall due and will have adequate resources to continue in operational existence for the foreseeable future. The financial statements therefore do not include the adjustments that would result if the Group were unable to continue as a going concern, which would include writing down the carrying value of assets, including goodwill, to their recoverable amount and providing for any further liabilities that might arise.

Restatements

The income statement for the comparative period, the 26 weeks ended 23 October 2010, has been restated to reclassify the results of Waterstone's and HMV Canada as discontinued operations. In addition the income statements, statements of comprehensive income, balance sheets, statements of changes in equity, cash flow statements and related notes for the 26 weeks ended 23 October 2010 and 53 weeks ended 30 April 2011 have been restated to reflect an error identified during the current period, where in a small number of stores output VAT had not initially been recorded on some transactions. Sales, trade and other payables and related corporation tax balances have been restated to correct this, based on best available information at this time. Any further adjustment considered necessary will be reflected in the second half of the financial year. Opening retained earnings and net assets at 24 April 2010 have been adjusted by £2.2m, the income statement for the 26 weeks ended 23 October 2010 has been adjusted by £0.4m and for the 52 weeks ended 30 April 2011 by £0.9m and the balance sheets at 23 October 2010 and 30 April 2011 have been restated by £2.6m and £3.1m respectively. The impact on earnings per share was 0.1p for the 26 weeks ended 23 October 2010 and 0.2p for the 53 weeks ended 30 April 2011.

3. Accounting policies

The accounting policies adopted are consistent with those of the annual financial statements for the 53 weeks ended 30 April 2011, as described in those annual financial statements.

The Group has additionally adopted the following new accounting standards, amendments to standards or interpretations which are mandatory for the first time for the financial year ending 29 April 2012. They are not expected to have a material impact on the Group's financial statements.

- IAS 24 Related Party Disclosures (Amendment) (1 January 2011)

- IFRIC 14 Prepayments of a minimum funding requirement (Amendment) (1 January 2011).

- IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (1 July 2010)

- Annual Improvements to IFRS (issued in May 2010)

The Group has not adopted early the requirements of the following accounting standards and interpretations, which have an effective date after the start of these interim financial statements.

- IAS 1 Presentation of Items of Other Comprehensive Income - Amendments to IAS 1 (1 July 2012)

- IAS 12 Income Taxes (Amendment) - Deferred Taxes: Recovery of Underlying Assets (1 January 2012)

- IAS 19 Employee Benefits (Revised) (1 January 2013)

- IFRS 7 Financial Instruments: Disclosures (Amendment) (1 July 2011)

- IFRS 9 Financial Instruments: Classification and Measurement (1 January 2013)

- IFRS 10 Consolidated Financial Statements (1 January 2013)

- IFRS 11 Joint Arrangements (1 January 2013)

- IFRS 12 Disclosure of Interests in Other Entities (1 January 2013)

- IFRS 13 Fair value measurement (1 January 2013)

4. Segmental information

The following tables present certain revenue and profit information regarding the Group's reportable segments. The segmental results below for the 53 weeks ended 30 April 2011 and the 26 weeks ended 23 October 2010 have been restated to reflect the reorganisation of the continuing operations of the business into two operating segments - HMV Retail (comprising HMV UK & Ireland, HMV Hong Kong and HMV Singapore) and HMV Live. Waterstone's and HMV Canada have been reclassified as discontinued operations as both were sold in the 26 weeks ended 29 October 2011. The comparative periods have also been restated to correct a prior year error, as described in Note 2.

The following table presents certain asset information regarding the Group's reportable segments:

Unallocated assets include balances relating to cash, taxation and investments in joint ventures, which are managed on a Group basis.

5. Exceptional items (before taxation)

In the 26 weeks to 29 October 2011 exceptional items comprised the following:

- Restructuring costs of £4.7m relating to redundancy costs of non-store employees, advisory fees and other costs;

- Net profit on disposal of businesses of £5.6m, comprising loss on disposal of HMV Canada of £5.9m and profit on disposal of Waterstone's of £11.5m, including transaction fees and foreign exchange recycled from the translation reserve (see Note 7);

- £4.6m of costs relating to the refinancing of the business. Of this, £1.9m comprised advisory fees for negotiation of the new facility and a non-cash charge of £2.7m comprised fees relating to the old facility, which had previously been deferred and were expensed on extinguishment of that facility in June 2011.

There were no exceptional items in the 26 weeks to 23 October 2010.

In the 53 weeks ended 30 April 2011, exceptional items comprised the following:

- Restructuring costs of £7.8m relating to redundancy costs of non-store employees, advisory fees and other costs;

- Store closure costs totalling £23.9m including fixed asset write-offs, redundancy costs, strip-out costs, stock obsolescence and property provisions;

- A £13.8m premium received on the disposal of leasehold interest in a store at 360 Oxford Street, London;

- Fixed asset impairment charges totalling £11.2m;

- An impairment charge of £111.5m on the reclassification of Waterstone's and HMV Canada as disposal groups held for sale;

- A net charge of £2.3m with regard to the defined benefit pension scheme;

- £1.9m of costs incurred with respect to the refinancing negotiations, which were concluded after the period end.

6. Taxation

The taxation credit for the period of £0.2m reflects the impact on the deferred tax liability of the reduction in the UK corporate income tax rate from 26% to 25% with effect from 1 April 2012 (2010: £0.6m). No current tax credit has been recognised in the income statement for the period (2010: £10.6m).

7. Discontinued operations

On 27 June 2011 the Group completed the disposal of HMV Canada to Hilco UK for total cash consideration of £2.0m.

On 28 June 2011 the Group completed the disposal of the Waterstone's group of companies to A&NN Capital Fund Management Limited. The total cash consideration payable for Waterstone's was £53.0m on a cash-free, debt-free basis, subject to certain closing adjustments. Of the total cash consideration, £40.0m was payable on completion and £13.0m payable on 31 October 2011. This was received subsequent to the end of the Interim period under review.

The results of Waterstone's and HMV Canada are as follows:

The tax credit all relates to ordinary activities.

The profit (loss) on disposal is calculated as follows:

Cash flows of the discontinued operations are as follows:

Cash flows on sales were as follows:

The major classes of assets and liabilities disposed of were as follows:

8. Earnings per share

Earnings per share attributable to shareholders of the Company arises as follows:

The adjusted earnings per Ordinary Share is shown in order to highlight the underlying performance of the Group.

Earnings per share for the discontinued operations is derived from the (loss)/profit attributable to equity shareholders of the Parent Company from discontinued operations of £10.2m (2010: £10.6m), divided by the weighted average number of ordinary shares in issue during the year, for both basic and diluted amounts as per the table above.

The weighted average number of shares excludes shares held by an Employee Benefit Trust and has been adjusted for the issue of shares during the period. There are 6.2m dilutive share options in issue (2010: nil). At the period end 1.0m anti-dilutive share awards were in issue (2010: 1.5m).

9. Dividends

The Board is not recommending the payment of an interim dividend.

10. Property, plant and equipment

During the 26 weeks ended 29 October 2011, the Group acquired assets with a cost of £11.6m (2010: £18.8m).

Assets with a net book value of £nil were disposed of by the Group during the 26 weeks ended 29 October 2011 (2010: £0.1m), resulting in a net loss on disposal of £nil (2010: £0.1m). Investments with a net book value of £nil (2010: £nil) were disposed of by the Group, resulting in a net profit on disposal of £0.4m (2010: £nil).

11. Inventories

During the period we have supplemented our inventory control procedures with additional measures and taken actions to sell through older inventory, partly funded by suppliers. These represent improved stock processes that have allowed us to reduce stock provision percentages. We have also progressed our initiative to purchase back catalogue inventory on a consignment basis. As a consequence of these actions, the result for the period has benefited by c.£2.0m reflecting inventory provisions being lower than as at 30 April 2011.

In keeping with prior periods, and as part of our normal processes, we have agreed with suppliers the resolution of old outstanding deductions due. Additional claims have resulted in £0.9m additional profit in the period in this regard.

12. Cash and cash equivalents

For the purpose of the interim consolidated cash flow statement, cash and cash equivalents comprise the following:

13. Loans and borrowings

A new £220m bank facility was entered into on 6 June 2011, becoming effective on the completion of the Waterstone's disposal on 28 June 2011 and with a final maturity date of 30 September 2013. The facilities provided under this agreement comprise:

(i) A £70m term loan facility (Facility A).

(ii) A £90m term loan facility (Facility B).

(iii) A £60m multicurrency revolving credit facility, of which £10m may be utilised by way of an overdraft facility (Facility C).

An arrangement fee of 2% of the maximum facility amount (£4.4m) was payable on draw-down, with ongoing interest payable at a margin of 4.0% over LIBOR. In addition, an exit fee will accrue on the amount outstanding under Facility B, which will be payable upon repayment of facility B or final maturity. The rate at which the exit fee accrues starts at 5% per annum and will ratchet upwards on 1 April 2012 to 8%, again on 1 January 2013 to 14% to the extent that Facility B has not been repaid by each date. The notional balance of the Facility B term loan to which the exit fee applies at any time, reduces following the application of the proceeds of any equity raising by the Company, which are required to be applied in part against that term loan balance. In addition, the Company has an obligation to prepay the facilities with the proceeds of any subordinated debt issues, certain disposals and from any excess cash flow generated.

The Company has also issued warrants to the lenders at closing representing 5% of the Company's total share capital (on the basis that all outstanding warrants or options have been exercised). The warrants are fully detachable and are convertible into Ordinary Shares at any time from 30 June 2012 until the tenth anniversary of the issue of the warrants (28 June 2021). The warrants, which are classified as a financial liability, were recognised at inception at their fair value of £2.2m and have been revalued at 29 October at fair value of £0.9m. The movement in fair value of £1.3m has been recognised as other finance income in the income statement.

The revised bank facility contains a prohibition on the payment of dividends by the Company at any time before Facility B is repaid in full. Following such repayment, dividends are permitted to be paid, subject to certain restrictions, primarily relating to the indebtedness of the Company and existing and forecast compliance with all other facility terms.

The facility contains standard financial covenants in respect of gearing and fixed charge cover, together with an obligation to ensure that the aggregate gross assets, revenue and operating profits of the guarantors are at least 90% of the Group (excluding HMV Live) at all times. In addition, the level of capital expenditure incurred by the Company during the life of the facility is restricted to certain agreed levels.

At 29 October 2011, £199.0m had been drawn down from the facility (2010: £151.0m). In the prior year, an additional £10.0m was drawn down from the Group's short-term money market facility, which was withdrawn on the re-financing. Re-financing costs of £4.4m were capitalised and are being amortised over the 27-month life of the facility. £4.6m of exceptional costs have been charged to interest in the 26 weeks ended 29 October 2011, of which £2.7m is non-cash and relates to the write-off of financing fees incurred on the previous facility which had been capitalised and £1.9m relates to the arrangement of the new facility.

The Group's wholly owned subsidiary, Mean Fiddler Group Ltd, has a five year bank term loan, with repayments of £0.2m quarterly and a final maturity in November 2014. Interest on this term loan is at a rate equal to three-month LIBOR plus a margin of 4.25%. At 29 October 2011, the outstanding balance was £7.6m (2010: £8.4m).

14. Provisions

Provisions consist of amounts in respect of store closures, restructuring costs and onerous leases. The £1.2m provision created during the period was in respect of restructuring costs. The utilisation of provisions in the current period largely reflects the implementation of previously announced restructuring initiatives.

15. Share capital

16. Other reserves

The special reserve was created on the cancellation of the share premium account.

17. Related party transactions

Payments of £0.5m (2010: £0.4m) have been made to non-controlling interests in the current period.

The Group acquired services in the period under review from 7digital, a joint venture, amounting to £0.4m (2010: £0.3m), of which £0.1m (2010: £0.2m) was outstanding at 29 October 2011. The Group did not enter into any transactions with associates during the period.

18. Seasonality

Retail sales of entertainment products are subject to seasonal fluctuations, with peak demand in the Christmas trading period, which falls in the second half of the financial year. For the 26 weeks ended 29 October 2011, the level of sales from continuing operations represented 31.8% (2010: 34.6%) of the annual level of sales in the 53 weeks ended 30 April 2011.

19. Post balance sheet event

HMV Group plc has today announced that it has initiated a strategic review of HMV Live which may lead to its sale. Further information in this respect will be published as it becomes available.

Statement of Directors' responsibilities

The Directors confirm that this interim condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

·; The interim management report includes a fair review of the important events during the first 26 weeks and a description of the principal risks and uncertainties for the remaining 26 weeks of the year; and

·; The interim management report includes a fair review of disclosure of related party transactions and changes therein.

The Directors of HMV Group plc are listed in the HMV Group plc Annual Report for the 53 weeks ended 30 April 2011. A list of current Directors is maintained on the HMV Group plc website www.hmvgroup.com.

By order of the Board

Simon Fox David Wolffe

Chief Executive Officer Group Finance Director

18 December 2011 18 December 2011

INDEPENDENT REVIEW REPORT TO HMV GROUP PLC

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the 26 week period ended 29 October 2011 which comprises the interim consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in equity, consolidated cash flow statement and related notes 1-19. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept 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 half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 29 October 2011 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Emphasis of matter - going concern

In forming our review opinion on the interim financial statements, which is not qualified, we have considered the adequacy of the disclosure made in Note 2, Basis of Preparation, concerning the Group's ability to continue as a going concern. These include the following material uncertainties:

(a) future trading may not be in line with the assumptions in the Group's latest forecasts, the achievability of which is dependent upon the current economic environment, the rate of decline of core physical product markets, HMV's market share performance, the peak Christmas trading period and the success of the Fast Forward technology offering,

 (b) the Group may be unable to materially improve margins through securing more favourable commercial terms with its base of suppliers during the quarter ended January 2012.

If future trading, particularly across the peak Christmas trading period, and the commercial terms support from suppliers is not in line with forecasts then there is a risk that the Group may breach its banking covenants. These are next tested at the end of January 2012 and quarterly thereafter and a breach could trigger a recall of the Group's banking facilities,

(c) the ability to successfully refinance the existing credit facility (maturing in September 2013), which may be dependent upon the factors above in sections (a) and (b), as well as driving operating cashflow and raising cash proceeds from future business disposals.

Ernst & Young LLP

Birmingham

18 December 2011