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July 15, 2011
HMV Group has posted annual profits before tax and exceptional items of £28.9m for the 53 weeks to 30 April 2011 - a 61% drop from the £74.2m pre-tax profit reported for 2010. After tax and other financial charges from the disposal of assets are accounted for, HMV Group total losses amounted to £121.7m for the financial year 2011, in contrasted to the £49.2m after-tax profit generated in 2010.
The disposal of assets included the sale of the Waterstone's bookstore chain to existing HMV group investor A&NN Capital Fund Management, for a reported £53m. A&NN assumed sole ownership of Waterstone's 296 UK locations when the sale was finalised at the end of June 2011. As part of an overall financial restructuring, HMV Group also announced the sale of its Canadian subsidiary, HMV Canada, for £2.0m to Hilco UK.
HMV Group continues to own HMV retail locations in the UK and Ireland, Hong Kong and Singapore.
The recorded £170.9m decline in after-tax profits is largely a result of accountancy practices, which reclassified Waterstone's and HMV Canada as assets held for sale, rather than being a direct reflection of the macro-economic climate and the continued decline in physical video retail sales.
Nonetheless, when like-for-like sales across the Group's financial years 2010 and 2011 are compared - including the contributions from Waterstone's and HMV Canada - total HMV Group sales declined by 11%, a significantly worse performance than the 7.1% decline in value experienced by the total UK physical retail market during the same time period. HMV Group has stated that the Christmas period usually generates 40% of its annual sales, and our analysis of British Video Association data supports this, showing that in 2009 over 38% of total UK consumer spending was generated in November and December. However, in 2010 BVA data shows that the final two months of the year generated just 34% of UK retail video spending, underlining how great an impact the extreme weather conditions of late November 2010 in its core UK market had on the video market and thus on HMV Group's overall performance.
The sales of Waterstone's and HMV Canada permitted HMV Group to negotiate a revised £220m credit facility extended to 2013. This will enable the Group to concentrate on growth areas such as digital technology, hardware sales and live entertainment, as it continues to move towards offering a broader more diversified entertainment offering.
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