HMV Group PLC Interim Results -4-
December 13 2012 - 1:00AM
UK Regulatory
- the highly seasonal nature of the business, especially the
Christmas season which is the most important trading period in
terms of profitability and cashflows, is mitigated through detailed
forward planning and excellent operational practices to ensure peak
trading opportunities are maximised and unexpected events
managed;
- the growth of digital entertainment has introduced new
products and methods of delivery of traditional products. The Group
is addressing this through strategic investment plans to develop a
broader retail offering, embracing new technology products, which
have been successfully incorporated into stores on a limited basis;
the delivery of entertainment content to customers through multiple
channels in retail; and the diversification of the Group's business
to retail new and an extended range of products and in digital
media delivery;
Business and financial review (continued)
- the Group's product offer is sensitive to economic conditions
and would be impacted by a prolonged economic downturn. This is
minimised by strategic planning that allows for a range of economic
scenarios as well as the products being retailed at affordable
price points making them more resilient to reductions in
discretionary spend than higher value products;
- the Group operates in highly competitive markets where these
products are often sold at or below cost. The Group continues to
adapt and develop its retail offer to remain competitive; it
maximises its direct relationship with its suppliers to ensure the
widest ranges of core products; and ensures that its reputation as
a specialist retailer is maintained through compelling offers and
active customer relationship management;
- potential damage to the reputation or brands of the Group is
managed through staff training and regular review of policies and
operating procedures;
- the performance of the Group depends on its ability to
continue to attract, motivate and retain staff. This is managed
through appropriate development and training programmes and reward
structures;
- exposure to a major external event, such as terrorism or an
outbreak of a pandemic disease, as well as fires, floods or system
failures is mitigated through contingency planning and appropriate
insurance cover;
- retaining a portfolio of good quality real estate in prime
retail areas and at commercially reasonable rates remains critical
to the performance of the Group. The store network is regularly
reviewed and renegotiated as appropriate to maintain a good quality
portfolio with short flexible lease lengths, with rents linked to
turnover where possible; and
Material Uncertainty
In determining the appropriate basis of preparation of the
financial statements, the Directors are required to consider
whether the Group can continue in operational existence for the
foreseeable future.
Following the successful negotiation of improved supplier
commercial terms during the latter part of last year, the disposal
of Hammersmith Apollo and the extension of amended debt facilities
at the start of the current period, the Directors, when approving
the annual financial statements for the 52 weeks ended 28 April
2012, had a reasonable expectation that the Group would have
adequate resources to continue in operational existence for the
foreseeable future.
As part of the Group's funding arrangements with its banks it is
required to pass quarterly covenant tests in respect of gearing and
fixed charge cover. The tests in July and October 2012 have been
passed.
The current market conditions and, in particular, the volatility
in the Group's core music, visual and games markets driven by the
release schedule and the growth of the digital market, create
uncertainty as to the level of trading results that will be
achieved in the year ahead. The third quarter represents around 46%
of the Group's annual revenues and has a significant bearing on the
profitability of the Group. This year has seen a very late release
schedule as suppliers have tried to avoid release dates for new
products during the Olympics and Queen's Jubilee. As a consequence,
the third quarter results this year take on an even greater
significance.
As noted in the CEO's review good progress has been made on a
number of initiatives to mitigate this uncertainty. However, the
current level of Christmas trading has not been in line with the
level expected and the Directors have concluded that it is probable
that the January 2013 and April 2013 covenants will not be complied
with.
The Directors recognise that this represents a material
uncertainty which may cast doubt upon the Group's ability to
continue as a going concern and therefore the Group may be unable
to continue to realise assets and discharge liabilities in the
normal course of business. Note 2 to the interim statements sets
out further information in respect of this matter.
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, the Group 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.
The Group undertakes no obligation to update any forward-looking
statements whether as a result of new information, future events or
otherwise.
Interim consolidated income statement
26 weeks 26 weeks 26 weeks
to to to
27 October 27 October 27 October
2012 2012 2012
Before exceptional Exceptional
items items Total
Note GBPm GBPm GBPm
------------------------------------ ------ ------------------- ------------ ------------
Continuing operations:
Revenue 4 288.6 - 288.6
Cost of sales (297.1) (1.5) (298.6)
------------------------------------ ------ ------------------- ------------ ------------
Gross loss (8.5) (1.5) (10.0)
Administrative expenses (15.1) (1.8) (16.9)
------------------------------------ ------ ------------------- ------------ ------------
Trading loss 4 (23.6) (3.3) (26.9)
Share of post-tax (losses)
profit of investments accounted
for using the equity method (0.5) 1.1 0.6
------------------------------------ ------ ------------------- ------------ ------------
Operating loss (24.1) (2.2) (26.3)
Finance revenue 0.2 - 0.2
Finance costs (10.8) (0.4) (11.2)
------------------------------------ ------ ------------------- ------------ ------------
Loss before taxation (34.7) (2.6) (37.3)
Taxation 6 0.1 - 0.1
------------------------------------ ------ ------------------- ------------ ------------
Loss from continuing operations (34.6) (2.6) (37.2)
------------------------------------ ------ ------------------- ------------ ------------
Discontinued operations:
Profit after tax from discontinued
operations 7 0.5 0.6 1.1
------------------------------------ ------ ------------------- ------------ ------------
Loss for the period (34.1) (2.0) (36.1)
------------------------------------ ------ ------------------- ------------ ------------
Attributable to:
Shareholders of the parent
company (34.2) (2.0) (36.2)
Non-controlling interests 0.1 - 0.1
------------------------------------ ------ ------------------- ------------ ------------
(34.1) (2.0) (36.1)
------------------------------------ ------ ------------------- ------------ ------------
Loss per share for the period
attributable to shareholders
of the parent company:
Basic 8 (8.0)p (0.5)p (8.5)p
Diluted 8 (7.8)p (0.5)p (8.3)p
------------------------------------ ------ ------------------- ------------ ------------
Loss per share for the period
attributable to shareholders
of the parent company from
continuing operations:
Basic 8 (8.1)p (0.7)p (8.8)p
Diluted 8 (7.9)p (0.7)p (8.6)p
Dividend per share 9 - - -
------------------------------------ ------ ------------------- ------------ ------------
Notes 1 to 18 form an integral part of the interim condensed
consolidated financial statements. See note 5 for a description of
exceptional items.
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