Hmv Group Regulatory News (HMV)

13 Mar 2007 07:03

HMV Group PLC13 March 2007 13 March 2007 HMV Group plc today announces a strategic and operational review, and providesan update on current trading. Commenting on the review, Simon Fox, Group Chief Executive said: "The markets in which we operate are undoubtedly very challenging. Waterstone'sand HMV are great brands, but have not adapted quickly enough to the waycustomers are now buying and consuming media. Our performance has suffered as aconsequence. "The three-year transformation plan which I will outline today is exciting,radical and far-reaching. There is a great deal to do and I have everyconfidence that this plan will turn the business around." Current Trading Since the Group's last trading update in January, trading conditions havedeteriorated further, particularly in our overseas markets and at Waterstone's. In HMV UK & Ireland, although sales have performed in line with the most recentdisclosure, with continued market share gains in all product categories, theplanned improvement of gross margin and some of the targeted cost savings havenot been delivered. Recognising this, further changes have been made to HMV UKmanagement and we are confident that these initiatives will now begin to gaintraction, although the improvements will not be evident until the new financialyear. The remaining seven weeks of the financial year include the UK launch of theSony PlayStation 3 games console and Easter. However, given the above factorsthe Board has taken a cautious view for the balance of the year and it nowexpects full year profits to be below the current range of market expectations. Strategic and Operational Review Simon Fox was appointed Chief Executive of HMV Group plc on 28 September 2006.Since then, the management team has undertaken a comprehensive review ofoperations to identify strategies for revitalising the Group's businesses overthe next three years, particularly relating to the UK. The results of this work,together with the financial impact for the Group and its capital structure, arecovered below. The Board expects the markets in which the Group operates to be subject tosignificant structural change, with the total music and DVD markets continuingto decline, and growth in the books market coming from the online channel. In addressing these issues, the Board has identified three key areas of focus: •Saving - driving cost efficiency •Protecting - revitalising the core business •Growing - establishing new channels Saving - driving cost efficiency Cost savings of £40m per annum will be achieved by 2009/10 by simplifying theHMV UK and Waterstone's supply chains, maximising Group purchasing and headoffice synergies and from the review of the UK store portfolio. Protecting - revitalising the core business • HMV UK will launch an enhanced range of portable digital products from suppliers including Apple, Bose, Samsung and Sony.• A new HMV store format of the future is being developed and will be trialled from autumn 2007.• Waterstone's will grow its children's book proposition and will offer a range of high quality gift stationery.• A loyalty card to drive spend across both brands and all channels will be rolled out during 2007/08. Growing - establishing new channels • HMV will launch a social networking site for music, film and games enthusiasts, providing revenue streams from advertising, sponsorship and paid-for content. Strategic content partnerships have been agreed with Universal Music and 20th Century Fox.• HMV UK is partnering with 3, the UK's leading mobile music retailer to provide content to 3's 3.75m subscribers. A number of HMV's larger UK stores will also host 3 in-store concessions.• Growth in HMV.co.uk and Waterstones.com will be accelerated by increased marketing, enhanced functionality and closer integration with stores.• HMV.co.uk will become 20% of HMV UK sales by 2010, and Waterstones.com 9% of Waterstone's sales. As over 80% of the Group's profit is made in the UK, today's strategic andoperational review will be focussed on our UK markets. However, a strategicreview of operations in Japan is underway. An update will be provided at theGroup's preliminary results in June. Cash flow, dividend and capital structure Capital expenditure will remain at £50-55m per year. Expenditure on newinitiatives will be financed by savings from reduced new store openings. The current market expectation for the full year dividend is currently coveredby earnings and free cash flow but at levels below previous guidance. The Boardintends to rebuild dividend cover to around 2.0x within three years. The Group's gearing levels are currently above existing guidance levels.However, it is the Board's intention to return to existing guidance levelswithin 2-3 years. Trading update ----------------------------------- ----------------- ------------- 9 weeks ended 10 March 2007 Like for like Constant sales (decline) exchange total growth sales (decline)% growth---------------------------------- ---------------- ------------HMV UK & Ireland 1.0 3.7 Asia (7.2) (3.0) Canada (7.6) (4.9)----------------------- ------------ ------------Total HMV (2.0) 1.0Waterstone's (6.1) 29.8----------------------- ------------ ------------HMV Group (3.0) 7.7----------------------- ------------ ------------ 1. Like for like sales (decline) growth and constant exchange total sales (decline) growth are stated at constant exchange rates. 2. Waterstone's total sales growth includes the effect of the Ottakar's acquisition. Like for like sales only relate to relevant Waterstone's stores. Enquiries HMV Group Simon Fox Group Chief Executive 01628 818355 * Paul Barker Head of Corporate Communications 01628 818355 * Brunswick Susan Gilchrist 020 7404 5959 Eilis Murphy * All enquiries on 13 March 2007 should be directed via Brunswick. This information is provided by RNS The company news service from the London Stock Exchange