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HMV Group plc
HMV Group plc
Annual report and accounts 2011
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Contents
Introduction
Overview
The Group had a challenging financial year against
a backdrop of changing product markets and a
progressively difficult macro-economic environment.
Consequently, our operating and financial performance
was adverse to expectations.
1
Chairman’s statement
Business and financial review:
3Business review
5 Financial review
Governance
11 Board of Directors
12 Corporate governance
16 Directors’ remuneration report
24 Corporate responsibility
30 Directors’ report
35Independent auditor’s report to the members
of HMV Group plc
Financial statements
36 Consolidated income statement
38 Statements of comprehensive income
39 Balance sheets
41 Statements of changes in equity
43 Cash flow statements
44 Notes to the financial statements
Decisive action was taken to restructure and refinance
the Group, and we now have a tightly focused and
clear strategy for delivering value from the highly
complementary HMV Retail and Live businesses.
HMV is a world-class brand, which is synonymous with
entertainment, and our focus is on maximising the links
between our activities in Live and Retail, and in future our
progress will be reported through these two divisions.
For the 12 months ended 30 April 2011, our continuing
operations were comprised of the following:
© Carl Fysh
90 Group financial record
Additional information
91 Store and venue directory
92 Shareholder information
92 Company information
HMV Retail
HMV Live
Leading specialist entertainment retailer,
with sales of £1.1bn and operating profit
of £25.4m
Operator of medium-size entertainment
venues and summer music festivals,
with sales of £46.9m and operating profit
of £3.0m
Visual, games and music specialist,
with rapidly evolving sales of personal
digital technology products
Over 1.8m Pure loyalty members and
ticketing platform a valuable source of
customer data
Front cover:
Jessie J performs at the HMV Next Big Thing Festival 2011.
14 venues, including HMV Hammersmith
Apollo, Institute (Birmingham), Picture
House (Edinburgh) and London’s Forum,
Relentless Garage and Jazz Café
Six summer festivals, including Lovebox,
Global Gathering and High Voltage,
and approx 30 overseas festivals under
Godskitchen and Global Gathering brands
12 months ended 30 April 2011. HMV Retail comprised of continuing businesses of HMV UK & Ireland and seven stores in Hong Kong and Singapore.
Design and production:
Radley Yeldar www.ry.com
273 stores, predominantly in the UK
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HMV Group plc
1
This has been, unquestionably, a difficult
and turbulent year for the Group, as we
experienced further changes in our core
product markets, particularly in HMV,
overlaid with a progressive deterioration
of the macro-economic environment.
These challenging conditions were
compounded by unprecedented weak
trading in our UK businesses at Christmas,
a period which typically accounts for
40% of the Group’s full year sales and a
significant proportion of annual profit.
The summary effect of these factors was
that the Group’s operating and financial
performance was significantly adverse
to the Board’s expectations, and we
confirmed that the Group did not expect
to meet certain of the covenant tests in its
existing bank facility when they fell due.
Group refinancing
We commenced discussions with
our lending banks regarding potential
changes to our existing bank facility
to ensure appropriateness for future
trading conditions and to support delivery
of the Group’s strategy. During the course
of these negotiations, the Board became
aware that the Group would need to reduce
leverage in the short term in order to
achieve a satisfactory refinancing, and
concluded that the most decisive way
to achieve this was through the disposal
of Waterstone’s.
After fully exploring all of the options
available to us for Waterstone’s, the
Group announced on 20 May 2011
that a conditional agreement had been
entered into to sell Waterstone’s to
A&NN Capital Fund Management for
a total cash consideration of £53.0m.
This transaction was successfully delivered
on 28 June 2011, following the approval
of shareholders, the pension trustee,
pensions regulator and the Group’s lending
banks. The restructuring of the Group was
completed in June 2011 with the disposal
of HMV Canada for £2.0m to Hilco UK Ltd.
The separation of HMV and Waterstone’s,
and the sale of HMV Canada, are the
right decisions at this time. The sale of
Waterstone’s, in particular, has enabled the
Group to agree with its banks a revised,
two‑year £220m credit facility (the details of
which are on page 88), which strengthens
the capital structure of the Group and
enables us to continue evolving our strategy
to deliver value from the HMV UK and Live
businesses. In turn, new ownership for
Waterstone’s and HMV Canada has secured
a future for these businesses in increasingly
challenging markets. On behalf of the Board,
I would like to convey my appreciation to the
teams at Waterstone’s and HMV Canada for
their contributions to our Group.
Financial performance
For the year ended 30 April 2011, the
Group’s pro forma profit before tax and
exceptional items declined by 61% to
£28.9m, on revenues which decreased
by 7% to £1,868.3m. Our adjusted earnings
per share from continuing operations fell by
67% to 3.8p. Given this level of performance,
combined with the indebtedness of the
Group at the year end, the Board has
decided not to recommend payment of a
final dividend. The interim dividend of 0.9p
per share is, therefore, also the total dividend
for the year, down from 7.4p in the prior year.
The Board has also agreed, within the terms
of the Group’s revised bank facility, not to pay
future dividends until part of the term loan
has been repaid.
Our operating and financial performance
this year has evidently been both
disappointing and unsatisfactory. However,
the Board has grounds to be optimistic
about our ability to improve the performance
of the continuing Group.
The sale of Waterstone’s has
enabled the Group to agree
with its banks a revised credit
facility, which strengthens our
capital structure
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HMV Group plc
2
Looking ahead
In summary
Since being appointed Chairman, much
time has been spent on the disposal of
Waterstone’s and HMV Canada, and in
renegotiating the bank facility. At the same
time the Company has been working hard
on its plans for the future. Whilst we operate
in rapidly changing markets, we believe that
there is a clear place for HMV as a specialist
retailer of entertainment products, and that
by rebalancing the space in many of our
stores away from declining categories to a
focused range of high-growth technology
products we will both enhance our offering
to our customers and strengthen our sales
base. In addition, as we evolve as a broaderbased entertainment business, we see
strong opportunities to combine under one
format a focused range of portable digital
products and accessories, visual, games and
music and, increasingly, access to live and
digital content.
The Group had a difficult year against a
backdrop of challenging markets and
continuing macro-economic uncertainty.
As we encountered increased financial
uncertainty during the final quarter, our
lending banks and suppliers remained
supportive of the Group and, through the
disposal of Waterstone’s to a good home,
we were able to secure a future for the
continuing business. Throughout the year,
we have retained a tight control over our
cost base, including a 9% reduction in HMV
UK & Ireland’s total store footage, and we will
increase our focus on cost reduction as part
of an overall strengthening of our financial
discipline. Our Group has been simplified
and our strategic agenda is tightly focused. We
must rebuild and do so quickly. At the heart of
our business is a world-class entertainment
brand, surrounded by high quality assets,
dedicated people and the support of
our business partners. With this strong
underpinning, our urgent priority on behalf
of all our stakeholders is to re-create value.
Now that we have put the Group on a
sounder financial footing, the management
team can refocus on running the business
and developing and executing effective
strategies for the future. We have a strong
management team, who are highly
motivated to succeed in this challenging
environment. I would like to thank Robert
Swannell for his contributions as Chairman
and support to me as I took over the role,
and welcome David Wolffe, who joined us as
Group Finance Director at such a critical
time for the business. The Board would also
like to express our appreciation to Neil Bright
for his many contributions as Group Finance
Director over the preceding 12 years.
Philip Rowley
Chairman
29 June 2011
HMV’s core product
markets for visual,
games and music
Visual
The market for packaged visual
software in the UK contracted in 2010
by around 3.5%, and is expected to do
so at a rate of 6%–8% per annum over
the next three years. By 2014, the total
packaged software market is forecast
to be worth £1.5bn.
Games
The market for games hardware and
software is driven by new console
releases, which over the last two years
has contracted significantly due to
the maturity of current consoles.
With the first next-generation console,
Nintendo’s Wii U, announced for launch
in mid-2012, we expect the market to
decline by 5%, 1% and to grow by 9%
in 2011-14, with the total value of the
packaged hardware and software
market forecast to be £2.5bn–3bn
at the end of this period.
Music
The high street physical audio market
continued to contract in 2010, and this
is expected to continue by around
20% in each of the next three years.
Nevertheless, by 2014 the CD market
in the UK is expected to still have a
value of around £0.3bn.
Sources:
Futuresource/Nick Parker Consulting (games)
We believe that there is a clear
place for HMV as a specialist
retailer of entertainment products
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HMV Group plc
3
Business and financial review: Business review
HMV Live, comprising our live music
venues and portfolio of summer festivals,
performed well, driven by increased venue
utilisation, occupancy and sales as we
continued to maximise the synergies with
HMV UK’s retailing activities.
After a three-year period during which
the Group made excellent progress,
delivering 50% growth in profit before
tax and exceptional items and a 40%
increase in earnings per share, 2010/11
was a disappointing and challenging year
for the Group.
In March 2010, we outlined our strategy
for the next three years, through which we
planned to deliver sustainable growth over
the medium and longer term. The plans
for the HMV business included continuing
to evolve HMV’s product mix and growing
in live and digital, while in Waterstone’s
our short-term target was to restore the
operating margin to 2%–3% by executing a
clear turnaround strategy for the business.
A flexible cost base, including a property
portfolio with a declining average lease life,
underpinned these plans.
Challenging year
We have long acknowledged that the core
HMV markets for music, visual and games
are changing structurally and, therefore, our
business must evolve into higher-growth
areas of the broader entertainment market.
Over the last 12 months, the packaged
music and visual markets declined broadly
as expected. However, during the year the
market for games hardware and software,
albeit at a low point in its growth cycle,
significantly underperformed the industry’s
expectations, whilst in visual HMV’s
performance was weaker than the market,
and in both categories we lost some share
largely as a result of aggressive pricing
strategies by supermarket and Internet mail
order competitors. These continuing
underlying trends, combined with very weak
trading at Christmas, when our UK stores
were significantly impacted by severe snow,
produced a disappointing operating
performance in HMV UK.
14531_HMV_AR11_p01-11.indd 3
In Waterstone’s, under the new
management team appointed at the
beginning of 2010 very good progress was
made on our strategic priorities to refocus
on range and localise the in-store book
offer, drive sales of related product and
maximise efficiencies from the book hub.
Therefore, profit at Waterstone’s increased
significantly compared to the prior year and
we achieved our short-term target for
operating margin.
Addressing our flexible cost base and
capital structure became key priorities as
we exited a difficult peak trading period.
We identified 40 HMV stores for closure,
primarily in locations where we operate
more than one store, and we are making
good progress on this programme.
In addition, the disposals of Waterstone’s
and HMV Canada has simplified the Group
and strengthened its capital structure,
therefore allowing us to more closely focus
on the business strategy of continuing to
develop the customer offer across HMV
Retail and Live. Both Waterstone’s and
HMV Canada have strong positions in their
respective markets combined with high
quality people, and the Group wishes their
new owners and our former colleagues
continued success.
New focus
As negotiations over a revised facility with
our lending banks progressed during our
final quarter, our suppliers remained highly
supportive, reflecting our strong working
relationships with them and the importance
of our business to the markets in which we
operate. Our priority is to optimise these
relationships for the benefit of HMV’s
customers, providing them with high
quality content and the very best offers
for entertainment whether consumed
at home, live or on the move.
We have much to do, and with the Group
on a sounder financial footing we are
accelerating our plans to transform HMV
into a broad-based entertainment business.
To offset the changes taking place in our
core physical product categories, new
products, which align with HMV’s core
entertainment offering and relevance to
customers, have been introduced into our
offer over the last three years. The most
successful of these categories is a highly
focused range of portable digital
technology, including headphones,
speaker docks, MP3 players and related
accessories, which as entertainment
products fit exceptionally well with HMV’s
customer base and specialist brand. Since
their launch in HMV stores three years ago,
these products have grown to become
£85m of HMV UK’s turnover and 8% of
sales, despite limited dedicated store
space, and we have demonstrated that our
focused ranges and differentiated store
environment can compete effectively
with other retailers of these products.
We believe there is a significant revenue
opportunity in expanding our in-store space
and range of these products, incorporating
new portable tablet devices that are
expected to grow rapidly over the next
few years.
During our final quarter, we commenced
trials in six stores, significantly increasing
store space for this category of product,
and our technology like for like sales have
increased by over 100% and we have
seen a swing of more than 8% in the
total stores’ like for like compared to the
rest of our estate. In the new financial
year, we will commence a roll-out of the
successful elements of this trial, so that
by Christmas 2011, 150 HMV stores will
have around a quarter of their space
dedicated to technology.
By Christmas 2011, 150 HMV
stores will have a quarter
of space dedicated to
technology products
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HMV Group plc
4
Business review
We expect this rebalancing of store space
and range will over the next few years offset
the structural changes that we expect to
see in some of our core categories, albeit
the combined value of the physical markets
for music, visual and games in the UK is still
expected to be around £4.5bn in 2014.
Our strategies to compete effectively in
these markets are based on realistic
medium-term assessments and include:
leveraging our leading specialist brand and
multi-channel presence to protect margin;
focusing on our core strengths in range,
campaign and promotions; maximising the
synergies that have been built with HMV
Live; and, through our strong links with
suppliers, creating attractive and valueadded offers for our customers.
Customer relationship management across
all of HMV’s touchpoints with consumers
is a key part of our strategy to be the
leading specialist retailer for entertainment.
HMV has since May 2009 accumulated
1.8 million ‘Pure’ loyalty cardholders, whom
are able to exchange points accumulated
against purchases made from HMV for
a wide range of rewards, such as
entertainment merchandise signed by
artists and tickets to live events. Pure is
also a strong asset for differentiating our
retail offer, and provides key information
about our customers’ preferences, and
these are shared across our activities in
live and digital.
An entertainment brand
Over the last two years, we have made
significant investments in the growth
entertainment markets of live music,
ticketing and digital to counteract declines
in the core physical format retail markets
and evolve HMV into a broad-based
‘entertainment brand’. The three areas
of focus are HMV Live, HMV Tickets and
7digital, which we intend to grow by
maximising synergies with our retail
platform and customer base.
The combined value of the
physical markets for music,
visual and games in the UK is still
expected to be c.£4.5bn in 2014
14531_HMV_AR11_p01-11.indd 4
We intend to add to our portfolio mediumsized live venues, including in the autumn
of 2011 the reopening of a 1,500-capacity
venue in Manchester. Our target is to attain
sufficient UK coverage to route artists’
national tours entirely through HMV Live
venues and, in our existing venues,
continue to drive utilisation, occupancy and
spend per head. Our aspiration for HMV
Live is to increase its operating profit to
around £10m over the medium term.
7digital is at the heart of developments in
digital media, and its entertainment content
is pre-installed on a growing number of
tablet and other consumer electronics
devices, including Samsung, BlackBerry,
Acer, Toshiba and Pure. Our partnership
with 7digital, combined with the increasing
focus on technology products in our stores,
creates opportunities to enhance the HMV
customer experience with bundled offers
of digital content and portable devices.
There is a significant opportunity to
leverage our existing HMV Tickets platform
to grow our share in the UK ticketing
market, which has an estimated annual
value of around £1bn. HMV’s access to a
large and relevant entertainment customer
base enables effective promotion of events
to store and online customers, and this
platform is also attractive to promoters of
events at third-party venues. Our aspiration
is to build a ticketing business that, over
the medium term, will make a £3m–4m
operating profit contribution to HMV UK.
There are powerful synergies from
the partnership of HMV stores,
HMV.com and HMV Tickets
There are powerful synergies from the
partnership of HMV stores, HMV.com and
HMV Tickets. We have already developed
a successful formula for combining these
assets to create new revenue opportunities,
including offering live tickets to customers
when they pre-order product by the same
artist from HMV.com, and tickets to our
venues and festivals are included as
rewards to Pure loyalty cardholders.
Through the support of the HMV store and
online network, and using our strong links
with suppliers, we expect to drive utilisation,
occupancy and sales at our venues and
summer festivals. Ticketing is also a
valuable source of customer data for the
cross-selling of other physical and digital
products across our multiple channels.
In digital, through the Group’s 50%
ownership of 7digital, we have excellent
visibility to and participation in the high
growth market for digital delivery.
Outlook
We continue to operate in a challenging
macro environment, and the core retail
markets in which HMV trades also remain
difficult. However, we have taken decisive
action to restructure the Group, and have
a clear strategy for transforming HMV into
a broad-based entertainment business.
We are encouraged by the support that
continues to be shown by suppliers of
our core categories, in which there are
strong opportunities to improve our store
productivity, and by the early signs from
our technology trials in six stores, which
are being rolled-out to the majority of the
estate by autumn 2011. In addition, the
links between HMV’s operations in retail
and live are proving to be powerful, and
enable us to create unique and compelling
opportunities for our customers. We are
maintaining a relentless focus on cash and
driving cost reduction. With this strategy, we
are targeting a significant improvement in
our business at Christmas, which as always
will be key to the Group’s full financial year.
Although we have much more to do, with
clear plans to further benefit from the
integration of retail, ticketing, live and digital,
combined with a relentless focus on cash
and driving cost reduction, our aspiration
over the medium term is for the Group to
restore operating margin to 3%–4%.
Simon Fox
Chief Executive Officer
29 June 2011
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HMV Group plc
5
Business and financial review: Financial review
The period under review is the 53 weeks
ended 30 April 2011, whilst the prior period
covers the 52 weeks to 24 April 2010.
The result of the Group is presented on
the basis of continuing and discontinued
operations. The discontinued operations
represent Waterstone’s and HMV Canada,
both of which were reclassified as assets
held for sale following the commencement
of disposal processes. In order to aid
performance analysis, results are also
presented below on a pro forma basis,
which treats Waterstone’s and HMV
Canada as if they were continuing
operations for the whole period.
On a pro forma basis, total Group sales
decreased by £148.3m or 7.4% to
£1,868.3m, including an 11.0% decline in
like for like sales. At constant exchange
rates, total sales fell by 8.1%. A favourable
movement in the Canadian dollar
exchange rate, partially offset by an adverse
movement in the Euro, impacted sales by
£14.1m and operating profit by £0.1m.
Pro forma operating profit before
exceptional charges decreased by £43.0m,
or 53.4%, to £37.4m. This reflects the
downturn in trading in the HMV retail
businesses, particularly in the second
half of the year, partially offset by the
improvement in profitability of Waterstone’s.
Key Performance Indicators
Pro forma basis:
Sales
Like for like sales %
Operating profit (before exceptional items)
Exceptional items (operating and financial)
Profit before tax (before exceptional items)
Profit before tax
Statutory basis – continuing operations:
Sales
Like for like sales %
Operating profit (before exceptional items)
Exceptional items (operating and financial)
Profit before tax (before exceptional items)
Profit before tax
2011
£m
Operating profit also includes a full year
contribution from HMV Live for the first
time, which contributed profit of £3.0m
compared with the £0.2m seasonal loss
recorded for the final three months of
the previous financial year.
Joint ventures and associates of 7digital
and aNobii (an ebook business)
contributed a loss after tax of £1.0m.
Net finance charges increased to £8.6m
from £6.2m, reflecting the impact of
higher average net debt as a result of the
downturn in trading. In addition, exceptional
finance charges of £1.9m were incurred
in the period in connection with the
refinancing of the Group’s banking facilities.
2010
£m
1,868.3
(11.0)%
37.4
(28.7)
28.9
0.2
2,016.6
(4.2)%
80.4
(5.3)
74.2
68.9
1,150.2
(14.5)%
27.4
(16.2)
18.8
2.6
1,281.1
(2.4)%
75.1
(1.6)
68.9
67.3
(118.5)
1.2
Adjusted basic earnings per share (continuing operations)
Basic earnings per share (continuing operations)
Total dividend per share
3.8p
(1.1)p
0.9p
11.7p
11.3p
7.4p
Underlying net debt
Free cash flow
170.7
(68.7)
67.6
22.4
Discontinued operations (loss) profit after tax and exceptional items
Store numbers (continuing operations)
Average trading square footage (continuing operations)
14531_HMV_AR11_p01-11.indd 5
273
1.60m
292
1.62m
Growth
%
(7)%
(53)%
(61)%
(10)%
(63)%
(73)%
(67)%
(0.9)%
15/07/2011 09:50
HMV Group plc
6
Financial review
The profit before tax and exceptional items
on a pro forma basis was £28.9m, down
61% on the prior period. For continuing
operations, profit before tax and
exceptional items was £18.8m, down
72.7% on the prior period.
A net operating exceptional charge of
£26.8m (2010: £5.3m) was incurred in the
year. This included £23.9m of store closure
costs, offset by a £13.8m lease premium
received on the disposal of the HMV UK
Oxford Street store, fixed asset impairment
charges of £11.2m, restructuring costs of
£7.8m, and a net defined benefit pension
credit of £2.3m. In addition, a non-cash
impairment charge of £111.5m arose on
the reclassification of Waterstone’s and
HMV Canada as disposal groups. Full
details of exceptional charges by business
are given in Note 7.
The Board is not recommending the
payment of a final dividend. Consequently,
the 0.9p per share interim dividend already
paid represents the total dividend for the
year (2010 total dividend: 7.4p).
Underlying net borrowings at £170.7m
(2010: £67.6m) were £103.1m higher than
last year, primarily reflecting the adverse
impact of working capital movements due
Sales
HMV UK & Ireland
HMV International
HMV Live
Total continuing operations
HMV Canada
Waterstone’s
Discontinued operations
Total HMV Group
Pro forma operating profit
(before exceptional items)
HMV UK & Ireland
HMV International
HMV Live
Continuing operations
Share of post-tax (loss) profit
of joint ventures and associates
HMV Canada5
Waterstone’s5
Total HMV Group
both to the downturn in trading and a
tightening of credit during the period that
the Group’s refinancing remained uncertain.
2011
£m
2010
£m
Year-on-year
growth
(decline)2
%
1,070.1
33.2
46.9
1,150.2
218.9
499.2
718.1
1,868.3
1,241.9
31.1
8.1
1,281.1
221.9
513.6
735.5
2,016.6
(13.8)
6.9
–
(10.2)
(1.3)
(2.8)
(2.4)
(7.4)
Constant
exchange
growth
(decline)2
%
Like for like
sales growth
(decline)4
%
(13.6)
3.3
–
(10.1)
(8.8)
(2.6)
(4.5)
(8.1)
(14.8)
4.3
–
(14.5)
(8.8)
(3.8)
(5.3)
(11.0)
Constant
exchange
growth
(decline)2
%
2011
% of sales
2010
% of sales
Year-on-year
growth
(decline)1
%
73.8
1.2
(0.2)
74.8
2.2
4.4
6.4
2.5
5.9
4.0
–
5.8
(67.5)
16.8
–
(62.0)
(67.5)
11.1
–
(62.1)
0.3
75.1
2.5
2.8
5.3
80.4
–
2.4
0.2
1.9
1.4
2.0
–
5.9
1.1
0.5
0.7
4.0
–
(63.5)
(78.9)
237.7
91.1
(53.4)
–
(63.6)
(80.7)
238.8
90.9
(53.5)
2011
£m
2010
£m
24.0
1.4
3.0
28.4
(1.0)
27.4
0.5
9.5
10.0
37.4
1. Total sales in 2011 are for 53 weeks compared with 52 weeks in 2010. The additional weeks trading contributed 1.2% to total Group sales growth.
2.Year-on-year growth for the 53 week period compared with the corresponding 52 week period last year is based on results translated at the actual exchange rates being the weighted average exchange rates for the year ended 30 April 2011
and year ended 24 April 2010 respectively.
3. Constant exchange growth for the 53 week period compared with the corresponding 52 week period last year is based on the weighted average exchange rates for the year ended 24 April 2010.
4.HMV Group’s like for like sales performance is calculated at constant exchange rates and measures stores that were open at the beginning of the previous financial year (ie open at the beginning of May 2009) and that have not been resized,
closed or resited during that time. It includes sales from internet sites and is only ever the net amount received.
5. On a pro forma basis, Waterstone’s and HMV Canada are presented as if they had been continuing operations throughout the financial year.
14531_HMV_AR11_p01-11.indd 6
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HMV Group plc
7
HMV UK & Ireland
HMV UK & Ireland’s total sales fell by 13.6%
at statutory exchange rates, including a like
for like sales decline of 14.8%. This sales
performance resulted in an operating profit
of £24.0m, 67.5% lower than last year.
Music and visual markets continued to
decline in line with expectations. In music,
the physical market was down almost
10% in volume, broadly in line with HMV’s
performance. Continued growth in the
digital music market resulted in an overall
music market decline of 5%. In visual,
market volume also declined 10%, but
more aggressive competitor pricing
strategies led to a share loss.
The games market continued to be
challenging with a 14% contraction in
market value in the period. HMV market
share also declined as supermarkets, in
particular, expanded their offer. However,
pre-played games continue to perform
strongly with sales +46% in the year.
Other products now account for 12% of
total sales, up from 9% in the prior year.
This reflected strong growth in technology
sales, despite dedicated store space
remaining limited. During the final quarter,
trials were conducted in six stores in which
space for this product category was
significantly increased, delivering
encouraging sales uplifts.
5
1
4
HMV UK sales mix
2010–2011
3
14531_HMV_AR11_p01-11.indd 7
1 Music: 27%
2 Visual: 44%
3 Games: 17%
4 Technology: 8%
5 Other: 4%
Margin declined by 50 basis points in
the period reflecting some dilution from
new sales categories, combined with a
competitive pricing environment. Given
the sales performance, costs were tightly
controlled, with underlying like for like
operating costs down 4% year-on-year.
Net exceptional costs totalling £3.5m
have been charged in the period driven by
store closures and ongoing property costs
(£15.1m), asset impairments (£9.6m) and
head office restructuring (£2.6m). This is
offset by a credit receivable on the exit of
the Oxford Street store (£13.8m).
In total, 22 stores were closed during the
year. These included 19 of the 40 stores
identified for closure in January, with a
further 13 expected to close in the first
quarter of 2011/12.
HMV International
HMV International now comprises seven
stores in Hong Kong and Singapore
following the reclassification of HMV
Canada as a discontinued operation.
HMV International total sales increased
by 6.9% to £33.2m, including like for like
sales up 4.3%. This reflects the successful
introduction of technology and related
products, combined with strong growth
in games.
Operating profit of £1.4m is £0.3m up
on last year with gross margin dilution
of 30 basis points. Operating costs
were flat on prior year.
HMV Live
HMV Live is the second largest multiple
live music venue operator in the UK, with
a portfolio of 12 venues. In addition, HMV
Live also operates five UK festivals and
has management fee arrangements in
place with third parties for approximately
30 overseas festivals.
Sales at HMV Live for the year were
£46.9m with operating profit at £3.0m.
The venues traded well, with improved
venue utilisation, occupancy and spend
per head reflecting the benefit of the
developing operational synergies between
Live and HMV store and online businesses.
The expansion of the venue operation
continued to progress, with the
1,700-capacity HMV Institute in Birmingham
opening after redevelopment in September
2010 and G-A-Y Manchester opened in
April 2011. Contracts were also exchanged
to reopen the 1,500-capacity Ritz in
Manchester in autumn 2011.
The result of the festivals division was
adversely impacted by the inaugural
High Voltage classic rock festival in summer
2010, which underperformed against
expectations. However, the performance
of established festivals was solid, with the
outlook for 2011 encouraging.
Joint ventures and associates
The Group’s investments in joint ventures
and associates accounted for using the
equity method include 7digital and various
investments in the Live division. In addition,
£2.1m was invested in a 45.4% interest in
aNobii, an eBook venture. The Group’s
share of joint venture and associate post
tax losses in the period amount to £1.0m
(2010: £0.3m).
2
15/07/2011 09:50
HMV Group plc
8
Financial review
Waterstone’s – discontinued activity
Net finance charges
On 25 March 2011, the Company
confirmed that it was exploring strategic
options in respect of Waterstone’s and
HMV Canada. This reflected a Board
decision on 26 February 2011 to pursue
a disposal of these businesses, from which
date each has been held as an asset for
sale. This requires the reclassification of
each business as a disposal group and
an assessment of the carrying value
of assets against fair value, which resulted
in an impairment charge of £111.5m
(Waterstone’s £110.5m, HMV Canada
£1.0m). In addition, the results of each
business in the Group’s financial
statements are reclassified to discontinued
operations, with the comparative period
restated accordingly.
Waterstone’s total sales decreased by
£14.4m at statutory exchange rates,
including a like for like sales decline
of 3.8%. A satisfactory first half and
Christmas trading period were followed
by a disappointing final quarter of the
year, with weakness in the book market
accompanying some loss of market share.
Net finance costs for continuing
operations increased from £6.2m to
£8.6m. This reflected higher average net
debt as a result of the downturn in trading.
In addition, exceptional finance charges of
£1.9m were incurred in respect of progress
on the refinancing of the Group’s debt.
However, despite the disappointing end
to the year, Waterstone’s has focused
throughout on transforming its offer,
through an enhancement of range,
successful utilisation of the book hub,
investment in refitting the top 20 stores,
and an enhanced eReader offer. This has
resulted in pro forma operating profit of
£9.5m, compared with £2.8m last year.
Gross margin improved 70 basis points in
the year benefiting from an enhanced local
offer and more selective discounting, with
strong cost management resulting in
operating costs down 4% in the period.
Taxation
Operating exceptional costs totalled
£10.2m, including £8.3m of store closure
costs (19 stores closed during the year with
15 closing in the final quarter), impairment
of remaining property, plant and equipment
(£0.9m) and Head Office restructuring
costs (£0.5m).
Earnings per share
On 20 May 2011 the Group announced
that it had conditionally agreed to sell
the Waterstone’s business for cash
consideration of £53m. The final
condition of the sale, shareholder approval,
was satisfied on 23 June 2011 and the
transaction completed on 28 June 2011.
On 27 June 2011 the Company announced
that it had reached agreement to sell
HMV Canada to Hilco UK for total cash
consideration of £2.0m.
HMV Canada – discontinued activity
Total sales in HMV Canada fell 8.8% at
constant exchange rates, with like for like
sales also down 8.8%. The performance
reflected ongoing decline in music and
visual markets, although HMV Canada
gained market share in both formats.
Performance on games was disappointing,
but technology and other products now
account for over 7% of the sales mix.
The underlying effective tax rate on
continuing operations before exceptional
items is 7% (2010: 28%) which is lower
than the statutory rate due to over provision
in prior periods. The total tax expense in
the current year of £13.5m includes a credit
of £7.3m (2010: £1.0m) in relation to the
exceptional items of £28.7m (excluding
impairment of disposal groups) (2010:
£5.3m) offset by an exceptional charge in
respect of the derecognition of the Group’s
deferred tax asset.
Adjusted earnings per share for
continuing operations, excluding the effect
of exceptional items, was 3.8p, a decrease
of 67% on last year. Basic earnings per
share for continuing operations was a loss
of (1.1)p, a decrease of 110% on last year.
Adjusted earnings per share for the total
Group was 7.0p and basic was a loss
of (29.1)p.
Operating profit of £0.5m reflects the
sales performance, partially offset by a
strong margin control and operating costs
down 3%.
Operating exceptional costs totalling
£2.3m include £0.5m for store closures,
£0.7m for impairment of property, plant and
equipment and £1.1m of Head Office
restructuring costs.
14531_HMV_AR11_p01-11.indd 8
15/07/2011 09:50
HMV Group plc
9
Dividend
Bank financing
The Board is not recommending the
payment of a final dividend. Consequently,
the 0.9p per share interim dividend already
paid represents the total dividend for the
year (2010 total dividend: 7.4p).
On 22 July the Group completed a
refinancing of a £240m revolving
credit facility with a final maturity date
of 30 September 2013, with an option
to extend for a further year. As a
consequence of the difficult market
conditions the Company had experienced,
compounded by weak trading during
the key Christmas period, the Company
announced on 1 March 2011 that it did
not expect to meet certain of the
covenant tests in the borrowing facility
and that discussions with the lenders
had commenced. The Company further
announced on 5 April 2011 that, in
agreement with the lenders, the
measurement period for all relevant
financial covenant tests had moved
from the 12 months ending 30 April 2011
to the 12 months ending 2 July 2011.
Under the terms of the refinancing
effective on 28 June 2011, the Company
is prohibited from making distributions to
shareholders until such time as the £90m
Facility ‘B’ tranche of term debt has been
repaid in full. Following such repayment of
the facility, dividends are permitted subject
to certain restrictions, primarily relating to
the indebtedness of the Company and
existing and forecast compliance with all
other facility terms. Consequently, no
payment of dividends are anticipated in
the forthcoming financial year.
arrangement fee of £4.4m payable.
The facility comprises a £70m term loan
(Facility A), a £90m term loan (Facility B)
and a £60m revolving credit facility (Facility
C), each with a final maturity date of
30 September 2013. The margin payable
on the facility is 4% per annum, up from
2.5% for the Group’s existing funding. In
addition an exit fee (initially at 5% per
annum, increasing to 8% on 1 April 2012
and 14% on 1 January 2013) accrues on
the amount outstanding under Facility B
which is payable upon repayment of Facility
B or final maturity. The Company also
issued warrants representing 5% of the
Company’s share capital to the lending
banks effective 28 June 2011. The warrants
are convertible into ordinary shares by a
lending bank at any time from 30 June 2012
until the tenth anniversary of the issue of
the warrants. The facility became fully
effective with effect from 28 June 2011.
Following completion of negotiations, and
conditional on the disposal of Waterstone’s,
a new £220m bank facility became
effective on 28 June 2011, with an
Summary cash flow
EBITDA1
Capital expenditure
Working capital outflow
Exceptional charges and provision utilisation
Exceptional lease premium received
Other
Net interest paid
Taxation
Free cash flow2
Investments in joint ventures and associates
Debt issue costs
Dividends paid
Purchase of MAMA Group Plc including related fees and net debt acquired
Repayment of loan from joint venture
Other
Net cash outflow
Underlying opening net debt3
Underlying closing net debt3
2011
£m
80.5
(28.2)
(96.7)
(9.9)
13.8
(3.1)
(8.9)
(16.2)
(68.7)
(2.1)
(2.9)
(27.5)
–
–
(1.9)
(103.1)
(67.6)
(170.7)
2010
£m
123.9
(39.9)
(32.2)
(5.1)
–
(4.0)
(4.7)
(15.6)
22.4
(8.1)
–
(31.2)
(48.0)
4.5
(0.7)
(61.1)
(6.5)
(67.6)
1. EBITDA – Earnings before interest, taxation, depreciation, amortisation and exceptional items. 2010/11 is pro forma, based on discontinued activities being fully consolidated through the period.
2. Free cash flow – Cash flow from operating activities after capital expenditure and net interest.
3. Underlying net debt – Underlying net debt is stated before unamortised deferred financing fees.
14531_HMV_AR11_p01-11.indd 9
15/07/2011 09:50
HMV Group plc
10
Financial review
Cash flow and net debt
Acquisition of MAMA Group Plc
Closing net debt of £170.7m was
£103.1m higher than last year. This primarily
reflected a working capital outflow £96.7m,
combined with adverse trading and higher
interest payments, offset by lower capital
expenditure and business acquisitions.
Free cash outflow was £68.7m
(2010: inflow of £22.4m).
As reported at the half year, the net asset
fair value exercise on acquisition of
MAMA Group was finalised, resulting in a
decrease in the fair value of the net assets
acquired and consequently an increase
in the goodwill capitalised of £4.6m.
This principally reflected an impairment
charge against the carrying value of
MAMA’s minority investment in the Nettwerk
group of artist management companies.
Working capital
The Group suffered a significant working
capital outflow during the period, totalling
£96.7m (2010: outflow of £32.2m).
This primarily reflected a marked
reduction in supplier funding year-on-year,
due to the impact of the like for like sales
decline, combined with a tighter credit
environment in advance of the post year
end confirmation of the Group’s refinancing
and a dilution of payments terms in line
with the changing sales mix, as well some
adverse timing effects around the year
end. Stock was down £35m year-on-year,
reflecting store closures and very tight
purchasing controls in the final quarter.
Capital expenditure
Total capital expenditure in the period was
£28.2m (2010: £39.9m), including £18.5m
(£21.5m) for continuing activities and
£9.7m (2010: £18.4m) for discontinued
activities. Expenditure on continuing
activities reflected £3.7m on new stores
and resites, £6.2m on store refurbishment
and expansion, £4.9m on IT and other
projects and £3.7m at HMV Live.
Following the Group’s refinancing, future
capital expenditure is restricted to certain
agreed levels, albeit these are believed to
be adequate to fund the Group’s strategic
plans, including the roll-out of an enhanced
technology offer across the HMV UK store
estate, and continued investment in
HMV Live.
14531_HMV_AR11_p01-11.indd 10
Operating leases
All the Group’s retail stores are held under
operating leases. In the UK, whilst the
majority of leases are on typical institutional
lease terms, lease flexibility has increased
over recent years through natural ageing
and the agreement of shorter lease lengths
on both renewals and new store openings.
Consequently, the average UK lease length
is now six years. Lease flexibility is even
greater in the Group’s International division,
in which the majority of stores operate
through turnover-related leases with an
average length of less than four years.
The Group’s net operating lease rentals in
continuing operations were £84.7m in the
financial year (2010: £85.9m). The total
continuing future rental commitment at
the balance sheet date amounted to
£0.5bn, or £0.4bn at net present value.
updated actuarial assumptions. Finalisation
of the funding valuation and an appropriate
deficit recovery plan became dependent
on agreement regarding the impact of the
Waterstone’s disposal on the scheme, as a
substantial proportion of scheme liabilities
related to the Waterstone’s business.
Consequently, 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.
Pensions
The Group has a number of pension
schemes in operation. These primarily
include various defined contribution
arrangements and a defined benefit
scheme which, following a period of
consultation, closed to future service
accrual on 31 March 2011.
Under IAS 19 ‘Employee Benefits’, the HMV
defined benefit scheme had a deficit, net
of deferred tax, of £26.7m (2010: £28.1m)
at 30 April 2011. The most recently
completed actuarial valuation was at
30 June 2007, where a funding deficit of
£5.1m was subsequently funded by three
special contributions of £2.2m, the last of
which was paid on 1 May 2010. The next
actuarial review is due as at 30 June 2010,
with a more significant deficit anticipated,
reflecting adverse investment returns and
15/07/2011 09:50
HMV Group plc
11
Board of Directors
Philip Rowley
Simon Fox
David Wolffe
Chairman
Chief Executive Officer and
Managing Director HMV UK & Ireland
Group Finance Director
Philip Rowley was appointed to the Board on 1 October
2007, was made Senior Independent Director in
February 2010 and appointed as Chairman to the
Board on 1 March 2011. He was Chairman and CEO
of AOL Europe until February 2007. He was Group
Finance Director of Kingfisher plc from 1998 to 2000,
and Deputy Chief Executive and Finance Director of
Kingfisher’s General Merchandise Division from 2000
to 2001. Prior to that his roles included Executive Vice
President and Chief Financial Officer of EMI Music
Worldwide, and Chief Operating Officer and CFO of
Golden Books Family Entertainment, the largest
children’s book publisher in the US. He is a former
non‑executive director of Tradus plc (previously QXL
ricardo plc) until its delisting in March 2008. He is
currently a non-executive director of each of ARM
Holdings Plc, Misys plc and Promethean World plc,
and is on the Board of trustees of Scidev.net, the
science and development network. He is Chairman
of both Livestation Limited and Pouncer Media Limited.
He is a fellow of the Institute of Chartered Accountants
in England and Wales.
Simon Fox was appointed to the Board with effect from
4 September 2006, became Chief Executive Officer
on 28 September 2006 and additionally Managing
Director of HMV UK and Ireland on 1 February 2007.
He was previously Chief Operating Officer for Kesa
Electricals plc with responsibility for Comet in the UK,
Kesa’s subsidiaries in Continental Europe and
e-commerce developments. Prior to his appointment
as COO of Kesa, he was Managing Director of Comet,
which he led through its demerger from Kingfisher.
Prior to this he founded Office World, the UK’s first
out‑of-town office supplies retailer. He began his
career as a graduate trainee at Security Pacific Bank
and thereafter worked at Boston Consulting Group
and Sandhurst Marketing plc. Mr Fox is also a
non‑executive director of Guardian Media Group.
David Wolffe was appointed to the Board as Group
Finance Director in January 2011. From 2008 he was
Finance Director of ITV Studios, and Interim Managing
Director of ITV Global Entertainment. He previously held
senior finance and executive positions at leading global
media and entertainment brands. These include AOL
Europe as Chief Financial Officer, AOL UK as Managing
Director, and BBC Worldwide, as Finance Director,
Magazines and Consumer Publishing. His professional
and educational background includes Fellowship
of CIMA, the Chartered Institute of Management
Accounting, an MBA from INSEAD, and MEng
Manufacturing Engineering, Cambridge University.
Chairman of the Nomination Committee
Orna Ni-Chionna
Christopher Rogers
Andy Duncan
Non-Executive Director
Orna Ni-Chionna was appointed to the Board on
30 September 2009 and appointed as Senior
Independent Director on 1 March 2011. She is
Chairman of Eden McCallum’s Advisory Board and
Senior Independent Director of the Royal Mail Group.
Orna is a former Partner at McKinsey & Company,
where she specialised in serving retail and consumer
clients. She was until recently the Senior Independent
Director of Northern Foods plc and BUPA and was a
non-executive director of the Bank of Ireland UK
Holdings plc and Bristol & West plc. She has also
served as a member of the UK Retail and Consumer
Advisory Board of Apax Partners. She is Chair of
Trustees of the Soil Association.
Christopher Rogers was appointed to the Board on
1 October 2006. He is Group Finance Director of
Whitbread plc, having been appointed in May 2005.
Previously he was Group Finance Director of
Woolworths Group plc and Chairman of the
Woolworths Group Entertainment and Wholesale
Publishing businesses. He qualified as an accountant
with Price Waterhouse and joined Kingfisher Group
as Corporate Finance Manager in 1988. Subsequent
appointments included Group Financial Controller
at Kingfisher plc and Finance Director and
Commercial Director of Comet Group plc.
Andy Duncan was appointed to the Board on 13 March
2009. He has been Chief Executive of H R Owen plc
since October 2010. Prior to that he was Chief
Executive of Channel 4, a position he held from
July 2004. He was a member of the BBC’s Executive
Board from 2001 to 2004 as Director of Marketing,
Communications and Audiences. He also led the
project to launch Freeview and was Chairman of the
joint venture with BBC, Sky and Crown Castle for its
first two years. Prior to that, from 1984 to 2001, he
worked at Unilever where he held a series of Senior
Director positions. He has also been Chairman of
the Media Trust since 2006, and is a Board member
of Oasis Trust.
Senior Independent Director
Chairman of the Remuneration Committee
Chairman of the Audit Committee
Member of the Nomination and
Remuneration Committees
Member of the Audit, Nomination and
Remuneration Committees
Member of the Audit and Nomination Committees
14531_HMV_AR11_p01-11.indd 11
20/07/2011 15:57
HMV Group plc
12
Corporate governance
Compliance with the Code
The Company has complied throughout the year with the
provisions set out in Section 1 of the June 2008 FRC Combined
Code on Corporate Governance (the ‘Combined Code’).
The following paragraphs, together with the Directors’
remuneration report on pages 16 to 23, provide a description
of how the Combined Code has been applied.
The Board
There were a number of changes to the composition of the
Board during the year under review. Neil Bright retired from
the Board on 17 December 2010. David Wolffe was appointed
to the Board as Group Finance Director on 10 January 2011.
Robert Swannell resigned as Chairman on 1 March 2011 but
remained on the Board as a Non-Executive Director until the
close of business on 23 June 2011. Philip Rowley became
Non-Executive Chairman on 1 March 2011 and Orna Ni-Chionna
replaced Philip Rowley as Senior Independent Director on
8 March 2011.
As at the end of the year under review the Board comprised
four independent Non-Executive Directors, the Chairman, and
two Executive Directors being the Chief Executive Officer and
the Group Finance Director. The biographical details of the
members of the Board are set out on page 11. The Board
considers that during the year under review each of Andy
Duncan, Orna Ni-Chionna, Christopher Rogers and Robert
Swannell were independent. In addition, the Board determined
that Philip Rowley was independent at the time of his
appointment as Chairman on 1 March 2011. In appointing
Philip Rowley as Chairman, the Nomination Committee evaluated
the skills and experience required for the role and, after
consulting with an external adviser and considering the
candidates available at that time, concluded that, in light of
Philip’s understanding of the Company’s business and his skills
and experience, he was the appropriate candidate for the role.
Neither Mr Swannell nor Mr Rowley took part in this selection
process. The Company used external search consultants in
respect of the appointment of David Wolffe.
Whilst the Board is collectively responsible for the success of the
Company, the Chairman manages the Board to ensure that:
–
the Company has appropriate objectives and an effective
strategy;
–
there is a Chief Executive Officer with a team to implement
the strategy;
–
there are procedures in place to inform the Board of
performance against objectives; and
–
the Company is operating in accordance with the principles
of corporate governance.
The Chairman’s other significant commitments are noted on
page 11. The Board considers that these are not a constraint
on the Chairman’s agreed time commitment to the Company.
The Senior Independent Director acts as an alternative
channel of communication for shareholders. The chairman
ofthe Remuneration Committee oversees senior executives’
remuneration and remuneration policy. The Chief Executive
14531_HMV_AR11_p12-92.indd 12
Officer has overall responsibility for running the Company’s
business.
The Board has a schedule of matters specifically reserved to it
for decision. These include the following major matters:
–
approval of any material investments, capital expenditure,
acquisitions and disposals by Group companies;
–
substantial alteration in the general nature of the business;
–
approval of the operating plan and the three year
strategic plan;
–
setting of financial and dividend policies;
–
consideration of interim and final dividends;
–
change of auditors, accounting policies and practices;
–
changes to the share capital of the Company;
–
appointment and removal of all Directors and senior
management; and
–
corporate governance and corporate social responsibility
of the Company.
In accordance with the Combined Code at least half the Board,
excluding the Chairman, comprise independent Non-Executive
Directors. Non-Executive Directors are appointed for an initial
term of three years and the Articles of Association include a
requirement that all Directors submit themselves for re-election
by the shareholders at the first Annual General Meeting following
appointment and thereafter every third calendar year. However,
in accordance with current corporate governance practice the
Directors stand for re-election annually and (apart from Robert
Swannell who retired from the Board on the close of business
on 23 June 2011) will, therefore, stand for re-election at the
forthcoming Annual General Meeting. All have been subject to
evaluation as indicated below, and continue to demonstrate
commitment to the role and be effective members of the
Board. Accordingly, the Board believes these Directors should
be re-elected.
On appointment to the Board, Directors are given a formal
induction and thereafter receive further guidance and training as
and when required. There are also procedures for the Directors
to take independent professional advice at the cost of the
Company, if appropriate. All Directors have access to the advice
and services of the Company Secretary who is responsible to the
Board for ensuring that Board procedures and applicable rules
and regulations are followed. The appointment and removal of
the Company Secretary is a matter for the Board as a whole.
Performance evaluation
The Board has an established process for evaluating the
individual Directors, the Board as a whole and each of the Board
Committees, which it reviews each year to ensure it is robust,
comprehensive and appropriate to the Company. This evaluation
process involves an objective and comprehensive evaluation
of the balance of skills, knowledge and experience of the Board
and any development plans for the Board.
15/07/2011 09:58
HMV
HMVGroup
Groupplc
plc
Annual
report
and
accounts
2011
Annual
report
and
accounts
2011
13
13
The evaluation process for the Board as a whole and for
each of its Committees was conducted by means of detailed
questionnaires completed by all Directors. The results of the
evaluation of each of the Board Committees were reviewed and
discussed by each of the relevant Committees and then reported
to the Board as a whole, together with the results of the appraisal
of the Board itself. An action plan of matters which require further
attention is agreed and reviewed by the Board six months after
the completion of the evaluation process to ensure these are
dealt with accordingly. The evaluation which took place in the
year under review confirmed that the Board was working well
and a number of minor recommendations were agreed.
These included a review of the number of Non-Executive
Directors to Executive Directors so as to ensure the balance
between the two remained appropriate; succession planning
at a senior level was still an important focus of the Board despite
the development of a leadership development programme
which had been implemented during the year under review,
the regular review of the investments made by the Group in its
strategic initiatives should be maintained; and the Board would
need to remain fully appraised of the changes taking place in
the business landscape served by the Company. The Board will
monitor the implementation of these recommendations.
The Chairman appraises the performance of the individual
Board members through discussion with all Directors individually.
The Senior Independent Director is responsible for the
evaluation of the Chairman and the views of the other Directors
are canvassed. The results of the performance evaluation for
each of the Directors and the Chairman were reported to
the Board. The development plans for the Board and the
performance evaluation process will continue to be reviewed
annually.
The Non-Executive Directors met on several occasions
without the Executive Directors being present during the year
under review. They also met without the presence of the
Chairman.
Board Committees
There are three principal Board Committees, each of which
regularly reports to the Board and each of which has clear terms
of reference which can be found on the Company’s website
www.hmvgroup.com. During the year under review each Board
Committee reviewed and updated its terms of reference.
Each Committee will continue to keep under review its terms
of reference and its effectiveness and make recommendations
to the Board of any appropriate changes as and when required.
The chairman of each of the Board Committees will be available
to answer shareholders’ questions at the forthcoming Annual
General Meeting.
Audit Committee
On 1 March 2011 Philip Rowley resigned from the Audit
Committee on his appointment as Chairman of the Board and
Robert Swannell was appointed to the Audit Committee on the
same date when he ceased to be Chairman of the Board. As at
the end of the financial year the Audit Committee comprised
Christopher Rogers (chairman), Andy Duncan, Orna Ni-Chionna
14531_HMV_AR11_p12-92.indd 13
and Robert Swannell. Mr Rogers was appointed to the
Committee on 1 October 2006, Mr Duncan was appointed to the
Committee on 13 March 2009, Mrs Ni-Chionna on 30 September
2009 and Mr Swannell on 1 March 2011. The Chairman, Chief
Executive Officer, Group Finance Director, the Head of Internal
Audit and the external auditors were invited and attended
meetings of the Audit Committee.
Christopher Rogers, chairman of the Committee, is a
qualified Chartered Accountant and Finance Director of
Whitbread plc and, thus, has recent relevant financial experience.
The Board believes that the other Committee members have
relevant experience to serve on this Committee.
The Committee is required to meet a minimum of three
times a year and details of members’ attendance at the
Committee can be found on page 14. Both the Head of Internal
Audit and the external auditors have direct access to the
chairman of the Committee outside the formal Committee
meetings.
The main duties of the Committee are as following:
–
monitoring the integrity of and reviewing the financial
statements;
–
the appointment of and the review of the effectiveness and
independence of the external auditors;
–
approval of the scope of the Company’s risk management
programme and review of the risk management process;
–
reviewing the operation and effectiveness of the internal
audit function; and
–
to oversee the establishment and maintenance of good
business practices throughout the Group.
During the period under review, the Committee met in order
to review a wide range of financial matters, including annual
and half year profit figures, financial statements, trading
statements and other regulatory information disclosed to the
public, to conduct a review of the internal audit function and
to receive regular reports from internal audit, before making
appropriate recommendations to the Board.
Nomination Committee
On 1 March 2011 Philip Rowley replaced Robert Swannell as
chairman of the Nomination Committee. As at the end of the
year under review the Nomination Committee comprised
Philip Rowley (chairman), Christopher Rogers, Andy Duncan,
Robert Swannell, and Orna Ni-Chionna, who were appointed to
the Committee on 1 October 2007, 1 October 2006, 2 February
2009, 13 March 2009 and 30 September 2009, respectively.
The Company Secretary is the Secretary to the Committee.
The Committee meets as and when required and during the
period under review the Committee met on six occasions.
These meetings were to evaluate the Committee’s own
performance, the appointment of Mr Wolffe as Group Finance
Director, the appointment of Mr Rowley as Chairman of the
Board, the appointment of Mrs Ni-Chionna as Senior
Independent Director and to deal with other succession
planning issues.
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Corporate governance continued
The Committee is responsible for identifying and nominating
executive and non-executive candidates for approval by the
Board to fill vacancies as and when they arise and to put in
place succession plans for Directors and other senior managers.
The Committee has access to such information and advice both
from within the Group and externally, at the cost of the Company,
as it deems appropriate. External consultants are used to assist
in identifying suitable external candidates based on a written
specification for each appointment. Committee members
prepare a shortlist of candidates for consideration by the Board.
The final candidate is then subject to formal nomination
by the Committee and approval by the Board. In addition, the
Committee will review the Board structure, size and composition
and from time to time make any relevant recommendations to
the Board.
Remuneration Committee
During the year under review Philip Rowley ceased to be a
member of the Remuneration Committee on 1 March 2011
and Robert Swannell was appointed in his place on that date.
As at the end of the year under review, the Committee
comprised Orna Ni-Chionna (chairman), Christopher Rogers,
Robert Swannell and Andy Duncan who were appointed to the
Committee on 30 September 2009, 1 October 2006, 13 March
2009 and 1 March 2011 respectively. No person other than
the members of the Committee is entitled to be present at
meetings but others may be invited by the Committee to attend.
No Director is present when the Committee considers matters
relating to him or her or acts in matters relating to them.
The Remuneration Committee is required to meet at least
twice a year and is responsible for approving the terms of service
and setting the remuneration for the Executive Directors and
other senior managers of the Group in accordance with a
remuneration policy which is approved by the Board. It is also
responsible for determining the fees of the Chairman and the
terms upon which the service of Executive Directors is
terminated, having regard to a severance policy adopted by
the Board. It also prepares for approval by the Board the annual
Directors’ remuneration report (set out on pages 16 to 23).
A record of members’ attendance at the Board and Committee meetings is as follows:
Board
Neil Bright
Andy Duncan
Simon Fox
Orna Ni-Chionna
Christopher Rogers
Philip Rowley
Robert Swannell
David Wolffe
Audit
12(13)
26(27)
4*
4(5)
27(27)
26(27)
25(27)
26(27)
26(27)
12(12)
5*
4(5)
5(5)
5(5)**
5(5)**
1*
Remuneration
Nomination
1*
8(8)
0
5(6)
8*
6*
8(8)
4 (8)
7(8)**
8(8)**
0
6(6)
5(6)
5(6)
6(6)
0
Figures in brackets denote the maximum number of meetings that each Director could have attended.
*
Not a Committee member but invited to attend all or part of the number of meetings indicated.
**
Mr Swannell attended one Audit Committee and two Remuneration Committee meetings as a member of those Committees after he stepped down as Chairman of the Board
and Mr Rowley attended one Audit Committee meeting and two Remuneration Committee meetings by way of invitation once he was appointed Chairman of the Board.
The instances of non-attendance arose where the Director either had a conflict with another meeting or the meeting was held at short notice.
Internal control
The Board attaches considerable importance to, and
acknowledges its responsibility for, the Group’s system of internal
control and risk management and carries out regular reviews
of their effectiveness. A system of internal control is designed to
manage rather than eliminate risk of failure to achieve business
objectives and can only provide reasonable and not absolute
assurance against material misstatement or loss. The Audit
Committee reviews the effectiveness of the risk management
process and significant risk issues are referred to the Board for
consideration. The Board confirms it has reviewed the Group’s
system of internal controls including financial, operational and
compliance controls as well as risk management, and that
these accord with the guidance on internal controls set out
in the Internal Control: Revised Guidance for Directors on the
Combined Code, issued by the Financial Reporting Council
in October 2005, and that such controls have been in place
14531_HMV_AR11_p12-92.indd 14
during the year under review and up to the date of approval of
the Annual Report and Accounts and that there are satisfactory
ongoing processes for identifying, evaluating and managing the
significant risks faced by the Group. The systems of internal
control and the processes used by the Board to review the
effectiveness of those systems include:
Group
– an internal audit function, which carries out a programme
of audits covering the management of significant corporate
risks and reports directly to the Audit Committee and the
Board on the effectiveness of key internal controls;
–
detailed risk registers, which describe the significant risks
and control strategies in each area of the business and
which are reviewed annually;
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Annual
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–
a comprehensive system of financial reporting, which
includes an annual budget process, monthly reporting
with rolling forecasts, and half year and annual reporting
to enable the Group to meet its public financial reporting
requirements;
–
regular performance monitoring, with remedial action taken
where necessary;
–
regular Board meetings, with a formal schedule of matters
reserved to the Board for decision;
–
established procedures for planning, approving and
monitoring major projects;
–
a policies and procedures manual, which sets out, inter
alia, authority limits and guidelines for capital expenditure,
which include annual budgets and appraisal and review
procedures. All operating businesses have to confirm
compliance with the manual on an annual basis;
–
certain centralised functions, that are staffed by appropriately
qualified individuals who draw on external professional advice.
These functions include finance, tax, treasury, management
information systems, legal, company secretarial and internal
audit; and
–
clearly defined organisational structures and appropriate
delegated authorities.
Management and specialists within the finance department
are responsible for ensuring the appropriate maintenance
of financial records and processes that ensure all financial
information is relevant, reliable, in accordance with the applicable
laws and regulations, and distributed internally and externally
in a timely manner. A review of the consolidation and financial
statements is completed by management to ensure that the
financial position and results of the Group are appropriately
reflected. All financial information published by the Group is
subject to the approval of the Audit Committee.
Audit Committee
– approving the scope of the annual Group risk management
programme;
–
reviewing the results of the risk identification process;
–
providing input on risks and internal controls into the annual
Board strategy discussions;
–
reviewing the effectiveness of the risk management process
and discussing significant risk issues with the Board;
–
considering reports from internal and external audit on the
system of internal control and any material control
weaknesses;
–
reviewing the internal audit and external audit work plans;
and
–
at the year end, before producing the Statement of
Directors’ Responsibilities in the Annual report and accounts,
the Board, through the Audit Committee, considers reports
generated from the internal and external auditors on any
major problems that have occurred during the year.
14531_HMV_AR11_p12-92.indd 15
Relations with shareholders
The Board places high importance on maintaining good
relationships with both institutional and private investors
and ensures, through its investor relations programme,
that shareholders are kept informed of significant Group
developments. Shareholders can access further information
on the Group via the Company’s website at www.hmvgroup.com.
The Chief Executive Officer and Group Finance Director
meet regularly with institutional shareholders and analysts.
Major institutional shareholders are given the opportunity to
meet with the Chairman and the Senior Independent Director.
In addition, the Directors welcome the opportunity to meet with
private investors at the Company’s general meetings, where
shareholders are invited to ask questions and express views
on the Company’s business. The views of shareholders are
reported to the Board as and when appropriate.
Accountability and audit
The Board is aware of its responsibility to present a clear and
balanced assessment of the Group’s financial position and
prospects. This assessment is provided in the statement of the
Chairman on pages 1 and 2 and the Business and financial
review on pages 3 to 10.
The Audit Committee reviews the independence and
objectivity of the external auditors with a view to confirming that,
in its view, the maintenance of objectivity on the one hand and
value for money on the other has been kept appropriately in
balance. The external auditors have in place processes to ensure
their independence is maintained including safeguards to ensure
that where they provide non-audit services their independence is
not threatened. In this context, the Audit Committee considers
that it is appropriate for the external auditors to provide to the
Group, tax advice and other accounting services, including those
in connection with supporting and reporting on financial
representations in public documentation.
During the year under review the auditors were used for
work relating to the disposal of Waterstone’s as well as tax advice
work. These services were considered and approved by the Audit
Committee who determined that the provision of these services
by the auditors was appropriate in the circumstances. Details of
the fees paid to the auditors in the year, for audit and non-audit
services, are given on page 52. The Company foresees using the
auditors for tax advice work in the future.
By order of the Board
Elaine Marriner
Company Secretary
29 June 2011
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Directors’ remuneration report
The Board presents its Remuneration Report to the members
of the Company. In preparing this report and establishing its
policy the Board has given full consideration to, and follows the
provisions of, the Combined Code, Schedule 8 to the Large and
Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 (‘the Regulations’) and the relevant parts of the
Listing Rules of the UK Listing Authority.
Chairman’s Statement
The past financial year has been the most turbulent in HMV’s
history. Clearly the priority of the Board has been to ensure the
ongoing viability and stability of the business, but in my capacity
as Chairman of the Remuneration Committee I have needed to
be cognisant of the impact of the present circumstances on the
remuneration policy for senior executives. Recognising other
business priorities we have not made any significant changes
to the basic structure of the policy this year. However, the lack
of visibility in relation to long-term performance, together with
the depressed share price, have necessitated a review of the
annual bonus and long-term incentive policy. This review remains
ongoing at the time of writing this report and its conclusions will
be set out fully in next year’s report. At such time as the Company
is on a more stable footing the Remuneration Committee is likely
to conduct a fuller review of the policy to ensure that it remains
appropriate for the future structure of the Group.
The Remuneration Committee
The Remuneration Committee (‘Committee’) is a committee
of the Board and its role is to approve, implement and keep
under review the remuneration policy and practice of the Group.
Specific remits include: agreeing with the Board the framework
for the remuneration of the Chairman, Executive Directors
and certain other senior executives; agreeing all terms of the
Executive Directors’ and Company Secretary’s service contracts
and remuneration; determining the nature and scale of shortand long-term remuneration arrangements; and overseeing
the implementation and operation of share incentive schemes.
The Committee’s terms of reference are available on the
Company’s website, www.hmvgroup.com.
The Committee’s members during the year (all of whom the
Board considers to be independent) were as follows:
Orna Ni-Chionna (chairman)
Andy Duncan
Christopher Rogers
Philip Rowley (until 1 March 2011)
Robert Swannell (from 1 March 2011)
At the invitation of the chairman of the Committee, the Chairman
of the Board attends Committee meetings; and the Chief
Executive and the Human Resources Director of HMV UK
Limited also attend Committee meetings by invitation, to provide
background and context on company-wide remuneration as well
as recommendations on executive remuneration. No individual
plays a part in any discussion about his or her remuneration.
14531_HMV_AR11_p12-92.indd 16
Advisers to the Committee
The Remuneration Committee has appointed Hewitt New
Bridge Street (‘HNBS’) a trading name of Aon Hewitt Limited
as its advisers. Aon Hewitt Limited do not provide other services
to the Company. In addition, during the period under review,
the Company used the following advisers in respect of
remuneration matters:
(a) Capita Share Plan Services and Simmons & Simmons,
solicitors, on employee share schemes;
(b) Towers Watson LLP, Lane Clark & Peacock LLP and
PricewaterhouseCoopers LLP on pension matters; and
(c) Reynolds Porter Chamberlain LLP, solicitors, on employment
contracts and associated legal issues.
General policy
The Company’s remuneration aim is to support the recruitment,
motivation and retention of high calibre employees, and to align
incentives with shareholder interests.
In setting the Company’s remuneration policy, therefore,
the Remuneration Committee believes that the Company
should provide:
(a) competitive rewards, which will attract and retain high calibre
management necessary to enable the Company to operate
in the highly competitive retail sector and which reflect
individual responsibilities and experience; and
(b) incentive arrangements which are subject to challenging
performance targets, reflecting the Company’s objectives
and which motivate executives to focus on both annual and
longer term performance.
It is the Committee’s policy that variable performance-related pay
and incentives should account for a significant proportion of the
overall remuneration package of Executive Directors so that their
remuneration is aligned with the Group’s performance. Generally,
for on target performance, the performance-related element
accounts for about half of the total package. For superior
performance this would rise so that performance-related pay
forms the majority of the total package. These figures exclude
pension values, which can vary significantly from person
to person.
The Committee intends that Executive Directors’ basic
salaries should be positioned at or around the median level
in the marketplace with the incentive arrangements set in
order to bring overall remuneration into the upper quartile
for the marketplace provided performance targets are met.
When assessing the marketplace, the Committee refers
to survey data supplied by HNBS, focusing on companies
of a broadly similar size and from the same market sector.
In considering Executive Directors’ remuneration,
the Committee considers pay and conditions in the
workforce generally.
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In particular:
–
base salaries for senior executives have been increased only
modestly or frozen in the last two financial years, in line with
those for the Group’s other employees;
–
the Company operates annual bonus arrangements for all
its employees and all of the Group’s UK employees are able
to participate in equity incentive arrangements through the
Company’s Saving Related Share Option Scheme;
–
the Committee ensures that there are appropriate policies
and procedures in place to monitor the cost of incentive
awards to all employees and share usage under employee
share plans; and
–
the Remuneration Committee is apprised by management
of developments in remuneration policy throughout
the business.
In line with the Association of British Insurers’ Guidelines on
Responsible Investment Disclosure, the Committee will ensure
that the incentive structure for Executive Directors and senior
management will not raise environmental, social or governance
risks by inadvertently motivating irresponsible behaviour.
More generally, the Remuneration Committee will ensure that the
overall remuneration policy does not encourage inappropriate
operational risk-taking.
It is the Company’s policy that no Executive Director should
have a fixed term service contract or notice period exceeding
one year and that no Non-Executive Director should have a letter
of appointment for a term of more than three years. All of the
current Directors’ service contracts or letters of appointment
comply with this policy. Further details are found on page 23.
Components of the Executive Directors’ remuneration
The Executive Directors’ remuneration comprises basic salary;
pension and other benefits; an annual bonus; and an award
of shares under the HMV Performance Share Plan.
Bonuses are subject to performance conditions set at the
start of the financial year and the Committee carries out a quality
review at the end of the year before deciding on the amount
to be paid.
Details on each component are as follows:
Salary
The Committee determines the basic salary for each Executive
Director. Salaries are usually reviewed with effect from 1 July
each year. In 2010 the Executive Directors’ salaries were
unchanged. These salaries will be reviewed again in July 2011
and it is anticipated that no increases will be made.
Benefits in kind
Benefits in kind include provision of a car allowance, pension,
medical and life insurance, permanent health insurance and
staff discount.
14531_HMV_AR11_p12-92.indd 17
Annual bonus
Annual bonuses are dependent on the achievement of
demanding financial targets for the year. In 2010 Directors
were eligible to earn a bonus of 70% of base salary for on
target performance, rising to a maximum of 150% of salary
for exceptional financial performance.
The performance targets are determined each year by the
Committee. For the 2010/11 financial year the performance
target was profit after notional interest (‘PANI’) which is Group
profit before interest and tax reduced by a 10% notional
interest rate applied to the Group’s average capital employed.
At the date of this report the Remuneration Committee had
not made its assessment of whether the performance targets
had been met, however, it is anticipated that no bonuses will
be paid in respect of the 53 weeks to 30 April 2011.
The Committee is reviewing the structure of the annual
bonus arrangements for 2011/12 to ensure that it is appropriate
given the Company’s current circumstances and will disclose full
details of the arrangements for 2011/12, including the measures
used, in next year’s report. While the performance targets for
the 2011/12 financial year have not yet been set, the Committee
intends that these should consist of a range of operational and
strategic measures linked to achieving a longer term recovery
in Company performance.
Performance share awards
Awards under The HMV Performance Share Plan (the ‘Plan’)
are usually made in August each year. Other than in exceptional
circumstances, the rules of the Plan limit awards to 200% of
salary, but the Committee’s normal policy is to grant awards to
Executive Directors with a value equivalent to 120% of salary
(market value of shares as at the date of the award).
The Remuneration Committee reviews award levels in July
each year and has not yet determined the level of awards for
2011/12. However, the Committee confirms that these awards
will not exceed its normal policy on grants to Executive Directors.
The awards vest after three years provided that the
performance measures are met over a three-year period.
The Remuneration Committee sets the performance measures
each year.
The recent policy has been for awards to be granted subject
to two performance measures, with 50% of an award being
linked to relative TSR and the remaining 50% being linked
to growth in earnings per share (‘EPS’). The Remuneration
Committee chose these performance measures because they
provide a balance between rewarding relative performance and
longer term returns to shareholders through the use of TSR
and encouraging growth in profitability through the use of EPS.
The performance conditions for the 2011/12 awards will be
set by the Committee in due course and will be fully disclosed
in next year’s report.
Shareholding guidelines
The Company operates a shareholding policy which requires
the Executive Directors and other senior executives to build
and retain a shareholding in HMV Group plc equivalent in value
to 100% of their salary.
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Directors’ remuneration report continued
Matching award to Mr Fox
On 18 February 2010 a one-off award of matching shares was
made to Mr Fox, full details of which were disclosed in last year’s
annual report. The following performance conditions apply
to this award:
(i)
one-third of the matching award is subject to basic EPS,
adjusted by the Remuneration Committee as appropriate
to take account of selected non-recurring items and other
factors, at the Committee’s discretion, for the 2011/12
financial year being at least 14.0p;
(ii)
one-third of the award is subject to strategic performance
objectives split into two equal parts; (a) 50% of the award
is subject to the attainment of strategic KPIs to April 2011,
these being growth in new product sales of 13%; net margin
improvement at Waterstone’s of 2%; and the achievement
of £7m (pre-minority interests) in profit from Live and Digital;
and (b) 50% will again be linked to the attainment of strategic
KPIs to April 2012, which will be set by the Committee in due
course. In either year the Committee may adjust the overall
level of vesting in circumstances where there is significant
over or under-performance against any individual metric, so
as to ensure that there is an appropriate link between reward
and broad strategic performance. The Committee reviewed
performance against the objectives for the year to April 2011
and determined that the targets in relation to growth in new
product sales and profit from Live and Digital had not been
met but that the target related to net margin improvement at
Waterstone’s had been met. However, in light of the overall
performance of the business, the Remuneration Committee
exercised its discretion to reduce the amount of the award
which would vest to zero. Achievement against the metrics
for 2011/12 (and the rationale for any adjustment) will be
disclosed in the Directors’ Remuneration Report for the
current year end financial year; and
(iii) one-third is based on total shareholder return assessed over
the three-year period from the date of grant. 25% of this part
of the award will vest if the Company achieves median TSR,
with full vesting if the Company achieves upper quartile
performance or above. This TSR performance condition
is subject to a financial underpin requiring the Committee
to be satisfied that there has been an improvement in
underlying financial performance over the performance
period. The TSR group is that as noted on page 22.
Recruitment terms for Mr Wolffe
Mr Wolffe was appointed to the Board of the Company with
effect from 10 January 2011. In order to secure his appointment
the Company undertook to make him an award under the HMV
Performance Share Plan with a market value of 80% of salary as
soon as was possible after he joined. Vesting of this award would
have been subject to the same relative TSR condition as the
awards made to other Executive Directors in 2010. As a result
of the Company being in closed periods from the time that he
joined, the Company has been unable to make this award. It has,
therefore, undertaken to replace this award with a cash award
of up to £100,000 payable in August 2011. Receipt of this award
is conditional on the successful refinancing of the Group’s
banking debt, which has now been delivered.
14531_HMV_AR11_p12-92.indd 18
All Employee Share Plan
The Company operates a Save As You Earn Share Option
Scheme.
Dilution
The Company reviews the awards of shares made under the
various all-employee and executive share plans in terms of their
effect on dilution limits and complies with the dilution limits
recommended by the Association of British Insurers. Assuming
none of the extant options lapse and will be exercised and,
having included all exercised options, the Company has utilised
an amount equivalent to 1.61% of the current share capital under
discretionary schemes and 1.95% under all-employee schemes.
Executive Directors’ Service Agreements and Compensation
for early Termination
Copies of the Executive Directors’ service agreements are
available at the registered office of the Company and will be
available at the Annual General Meeting. Simon Fox and David
Wolffe, who are both standing for re-election at the forthcoming
Annual General Meeting, each have a service agreement, which
provide for a notice period of 12 months.
The arrangements for early termination of an Executive
Director’s service agreement are decided by the Committee
and will be made in accordance with the service agreement
provisions of each of the Executive Directors. Each service
agreement provides for a payment in lieu of notice on early
termination to the Executive Director, which shall consist of base
salary and the cash equivalent of all other benefits and is subject
to mitigation. The Committee may exercise discretion over
deferred bonus entitlement and/or awards made under the
performance share plan in accordance with the rules of the
appropriate schemes.
Outside directorships
No Executive Director may accept a non-executive directorship
without the prior approval of the Board to ensure that they do not
give rise to conflicts of interest. During the period under review
Simon Fox was appointed as a non-executive director at
Guardian Media Group. He receives a non-executive director’s
fee of £39,000 for this directorship, which he retains.
Chairman and Non-Executive Directors’ appointment,
terms and fees
The Chairman and Non-Executive Directors do not have
service agreements but have been engaged under letters
of appointment. All are terminable by the Company without
liability for compensation. All Non-Executive appointments are
for an initial period of three years and can be extended for a
subsequent period of three years. The period of appointment
is to 1 October 2012 for Christopher Rogers, to 30 September
2013 for Philip Rowley, to 1 February 2012 for Robert Swannell,
to 12 March 2012 for Andy Duncan and to 30 September 2012
for Orna Ni-Chionna. As recently announced by the Company,
Mr Swannell ceased to be a director of the Company from the
close of business on 23 June 2011.
Each of the Non-Executive Directors will stand for re-election
at the forthcoming Annual General Meeting.
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The Chairman and the Executive Directors determine the
remuneration of the Non-Executive Directors for their services
as members of the Board and its Committees in accordance
with the Company’s Articles of Association. The Remuneration
Committee determines the remuneration of the Chairman.
A review takes place in January every two to three years.
The policy is to pay fees at a market competitive level in
comparison with companies of broadly similar size in terms
of market capitalisation. The Company takes into account each
individual’s responsibilities and time commitments when setting
fee levels. The Chairman, Philip Rowley, receives a basic fee
of £200,000 per annum.
The Non-Executive Directors each receive a basic fee of £40,000
per annum. Christopher Rogers receives an additional £5,000
per annum for chairing the Audit Committee, Orna Ni-Chionna
receives an additional £5,000 per annum for chairing the
Remuneration Committee plus £5,000 per annum for acting
as Senior Independent Director.
The Chairman and Non-Executive Directors do not
participate in any of the incentive or benefit schemes of
the Group other than the provision of staff discount cards.
Copies of the letters of appointment for the Chairman
and each of the Non-Executive Directors are available at
the registered office of the Company and will be available
at the Annual General Meeting.
Performance graphs
The graphs below show the percentage change in the total shareholder return from 30 April 2005 to the end of the financial year
against both the FTSE 250 and the FTSE General Retailers Index, both of which the Board considers to be appropriate peer groups
for the Company as the Company has been a constituent member of both these indices over the period.
Total Shareholder Return Graphs
For the period 30 April 2005 to 30 April 2011
HMV Group v FTSE General Retailers Index
HMV Group
FTSE General Retailers Index
Cumulative TSR based to 100
140
120
100
80
60
40
20
0
2006
2007
2008
2009
2010
2011
HMV Group v FTSE 250 Index
HMV Group
FTSE 250
Cumulative TSR based to 100
160
140
120
100
80
60
40
20
0
2006
14531_HMV_AR11_p12-92.indd 19
2007
2008
2009
2010
2011
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Audited information
The information below, with the exception of the Directors’
interests in the Company’s Ordinary shares, has been audited.
Pension arrangements
For each Executive Director, only basic salary is pensionable.
Simon Fox and Neil Bright are members of the HMV Group
Pension Scheme, which is a contracted-out defined benefit
scheme, providing them with benefits of up to one-thirtieth
of final pensionable pay for each year of service.
They are subject to the Company’s salary ‘capping’ which
was introduced in April 2006, which is currently £123,600.
The HMV Group Pension Scheme, therefore, provides Mr Fox
and Mr Bright with benefits of up to one-thirtieth of their
respective ‘capped’ salaries for each year of service. The defined
benefit scheme closed to future service accrual with effect from
31 March 2011.
The Company made a contribution to a Self Invested
Pension Plan (‘SIPP’) for each of Mr Bright and Mr Fox in lieu of
pension contribution above the cap.
In the event of death during employment, the dependants of
the Executive Directors would receive a pension and a lump sum.
Mr Wolffe receives a monthly cash allowance of 15% of
salary in lieu of pension.
Name
Simon Fox
Neil Bright
Age as at 24 April 2010
Accrued pension at 30 April 2011 – £000 pa
Increase in accrued pension during the period – £000 pa
Increase in accrued pension during the period (net of inflation) – £000 pa
Transfer value of accrued pension at 30 April 2011 – £000
Transfer value of accrued pension at 24 April 2010 – £000
50
19
4
3
189
139
48
45
2
1
524
464
Directors’ contributions during the period – £000
Increase (decrease) in transfer value over the year
(net of Directors’ contributions)– £000
Transfer value of increase (decrease) in accrued pension during the period
(net of inflation and Directors’ contributions) – £000
11
8
50
60
19
(3)
*
Mr David Wolffe joined the Company with effect from 10 January 2011.
Notes:
(i)
Pension accruals shown are the amounts that would be paid annually on retirement based on service to the end of the year.
(ii) Transfer values have been calculated in accordance with guidance note GN11 issued by the Institute of Actuaries.
(iii) The value of the net increase or decrease represents the incremental value to the Director of his service during the year calculated on the assumption that service is terminated
at the year end. It is based on the accrued pension increase or decrease after an adjustment for inflation.
(iv) The change in the transfer value includes the effect of fluctuations in the transfer value due to factors beyond the control of the Company and the Directors, such as stock
market movements. It is calculated after deducting the Directors’ contributions.
(v) Voluntary contributions paid by the Directors and resulting benefits are not shown.
(vi) The figures above exclude contributions of £32,421 paid into Mr Bright’s SIPP and £90,203 paid into Mr Fox’s SIPP.
(vii) The HMV Group Pension Scheme is now closed to future accrual.
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21
Details of Directors’ remuneration
Executive Directors
Simon Fox
Neil Bright
David Wolffe
Non-Executive Directors
Philip Rowley
Andy Duncan
Orna Ni-Chionna
Christopher Rogers
Robert Swannell
Total
Salary
and fees
2011
£000
Cash allowance
in lieu of
pension
2011
£000
Benefits
in kind
2011
£000
Annual bonus
2011
£000
Total
remuneration
2011
£000
Total
remuneration
2010
£000
517
222
123
2
–
15
1
1
–
–
–
–
520
223
138
874
559
–
71
40
46
45
173
1,237
–
–
–
–
–
17
–
–
–
–
–
2
–
–
–
–
–
–
71
40
46
45
173
1,256
41
40
26
45
200
1,785
Notes:
(i)
Taxable benefits in kind consist of private healthcare during the financial year under review.
(ii) At the end of the period under review the base salary for the Executive Directors was Simon Fox £499,035 and David Wolffe £330,000.
(iii) David Wolffe did not serve as a Director for the full 2010/11 financial year and his remuneration above reflects this accordingly. Robert Swannell served as Chairman until
1 March 2011 when he ceased to act as Chairman and became a Non-Executive Director. Philip Rowley served as a Non-Executive Director until 1 March 2011 when he
became Non-Executive Chairman. Their remuneration above reflects these changes accordingly.
(iv) Target PANI for the year was not met therefore no annual bonuses were awarded.
(v) All the fees earned by Andy Duncan in respect of his Non-Executive directorship are waived by Mr Duncan and have been paid direct to charity.
(vi) Neil Bright resigned from the Company on 17 December 2010.
Directors’ interests in shares
The Directors who held office at the end of the financial period had the following interests (beneficial and non-beneficial) in the share
capital of the Company in addition to the interests in executive share options and other employee share schemes set out on pages 22
and 23:
Ordinary Shares
Executive Directors
Simon Fox
David Wolffe
Non-Executive Directors
Philip Rowley
Andy Duncan
Orna Ni-Chionna
Christopher Rogers
Robert Swannell
30 April 2011
24 April 2010 or
as at the date
of appointment
442,819
–
432,819
–
17,150
12,000
–
5,580
185,000
17,150
12,000
–
5,580
105,000
For those Directors who served at the end of the financial year there have been no changes to the shareholdings since 30 April 2011.
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Share Incentive Plan
The Directors who served as Directors at any time in the year under review and who held shares under the SIP as at 30 April 2011
are as follows:
Total
SIP shares
held at
24 April 2010
Partnership
Shares
purchased by
participants in
May 2010
64p
Matching Shares
awarded in
May 2011
at 64p
which will vest
one year after the
date of purchase
Total
SIP shares
held at
30 April 2011
or date of
termination
Simon Fox
8,752
195
195
9,142
Neil Bright
17,773
195
195
18,163
Note:
(i)
The SIP ceased to operate in May 2010 and, therefore, no further Partnership Shares were purchased or Matching Shares awarded.
Performance Share Plan
The following Performance Share Plan awards for Executive Directors who served at any time during the period under review
are as follows:
Executive Directors
Simon Fox
Neil Bright
David Wolffe
Interests in
shares as at
24 April 2010
Number
of shares
conditionally
awarded
in the year
Date of award
Market
price of
shares at
award
Number of
shares vested
in the year and
Performance market price on
period ending
vesting date
Number of
shares Interests in
lapsed shares as at
in the year 30 April 2011
115.25p
108.15p
24 April 2010
30 April 2011
– 2,060,737
–
–
–
678,571
529,199
520,607
428,571
– 7 August 2007
–
8 July 2008
14 September
2009
–
– 7 August 2007
–
8 July 2008
113.16p
115.25p
108.15p
29 April 2012
24 April 2010
30 April 2011
–
–
–
–
520,607
428,571
529,199
–
–
334,231
–
14 September
2009
113.16p
29 April 2012
–
334,231
–
–
–
–
–
–
–
–
–
2,060,737
678,571
Notes:
(i)
For the awards made in August 2007, vesting is subject to the satisfaction of a target based on adjusted earnings per share (‘EPS’) in the financial year 2009/10. The EPS targets
were set based on the Group’s performance without the contribution of HMV Japan, which was sold during the 2007/08 financial year. This EPS target has not been met and
consequently the awards will not vest.
(ii) To support the three-year transformation plan launched in March 2007, the Remuneration Committee, on a one-off basis for 2007, made some changes to the way in which
remuneration arrangements were applied. The changes required Mr Fox to purchase shares to the value of one times salary. After three years, he may receive up to five shares
for every one share purchased dependent on the achievement of the EPS performance target. Mr Fox’s co-investment arrangement was made under the rules of the Plan and
replaced the regular 2007 Plan award. As part of these arrangements, the share options granted to Mr Fox shortly after his appointment in September 2006 lapsed.
(iii) No shares vested in the year under review.
(v) The 2009 awards are subject to a relative TSR performance condition with performance measured against a comparator group comprising: Arriva, Carpetright, Carphone
Warehouse, Debenhams, Domino’s Pizza UK & IRL, DSG international, Dunelm, Enterprise Inns, Game Group, Greene King, Halfords, Home Retail Group, J D Wetherspoon,
Kesa Electricals, Kingfisher, Marks and Spencer, Marston’s, Millennium & Copthorne Hotels, Mothercare, N Brown Group, Next, Sports Direct International, The Go-Ahead
Group, The Restaurant Group, Whitbread and WH Smith. 25% of the award vests for median performance with the percentage vesting increasing so that 100% of the award
vests for upper quartile performance. Vesting of awards is also subject to the satisfaction of an underpin based on the Group’s absolute performance over the period.
(vi) The 2010 awards are subject to two performance conditions, with 50% based on relative TSR performance against a comparator group comprising: Carpetright, Carphone
Warehouse, Debenhams, DSG International, Findel, Game Group, Halfords, Home Retail Group, Kesa Electricals, Kingfisher, Marks and Spencer, Mothercare, N Brown Group,
Next, Topps Tiles and WH Smith; and, 50% being linked to growth in earnings per share (‘EPS’) to the end of 2012/13. 25% of the TSR element vests if the Company is ranked
at median with the percentage vesting increasing so that 100% of this element of the award vests for upper quartile performance. 25% of the EPS element vests for EPS in
2012/13 of 13.5p, increasing to 65% vesting for EPS of 15.0p and 100% vesting for EPS of 16.5p. No award will vest for TSR performance below the median or threshold.
The Committee will assess EPS performance by reference to the Company’s audited financial results. Performance against the TSR measure will be independently assessed
at the time of vesting.
(vii) Mr Bright’s PSP awards lapsed on his resignation from the Company on 17 December 2010.
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23
Matching award to Mr Fox
On 18 February 2010, the Company granted an option with a nil exercise price to Simon Fox. The share price on the date of the
award was 73.75p. The matching award was granted in accordance with the requirements of Listing Rule 9.4.2 R(2).
Simon Fox
Date of grant
Exercise
price
Number of
options at
24 April 2010
or date of
appointment
Granted
in year
Lapsed
in year
Exercised
in year
Number of
options at
24 April 2011
18 February
2010
0p
2,164,095
–
–
–
2,164,095
Exercisable
from
Exercisable
to
18 February 18 February
2013
2017
Note:
(i)
The performance conditions that apply to this award are disclosed on page 18 of this Report.
Deferred annual bonus
The following deferred bonus awards held by each person who was a Director of the Company at the end of the financial year under
review are as follows:
Executive Directors
Simon Fox
Number of
shares held
conditionally
as at
24 April 2010
Number of
shares
conditionally
awarded in
the year
153,721
21,235
–
–
–
–
310,328
–
David Wolffe
Number of
shares lapsed
in the year
Number of
shares held
conditionally
as at
30 April 2011
Date of award
Market price of
shares at award
Performance
period ending
Number of
shares vested
in the year and
market price on
vesting date
8 July 2008
7 July 2009
106.25p
115.20p
30 April 2011
28 April 2012
–
–
–
–
153,721
21,235
7 July 2010
–
57.65p
–
April 2011 and
2012
–
–
–
–
–
310,328
–
Notes:
(i)
The deferred share awards granted in each of 2008 and 2009 will vest three years following their grant and are not subject to any further performance criteria.
(ii)
50% of the award made to Mr Fox on 7 July 2010 will be deferred over a two year period and paid in equal tranches.
Service agreements
No Executive Director has a service agreement containing a notice period exceeding one year.
The Committee has considered the notice periods and termination arrangements set out below in light of the Combined Code,
and continues to believe they are appropriate for the Executive Directors given their seniority and value to the Company.
The service contracts in respect of the Executive Directors who served at any time during the period under review are summarised
below:
Simon Fox
Neil Bright
David Wolffe
Date of
service contract
Notice period
from Company
Notice period
from individual
18 July 2006
23 April 2002
24 December 2010
12 months
12 months
12 months
12 months
12 months
12 months
Note:
(i)
The service contract under which Mr Wolffe was appointed as Group Finance Director was as described on page 18.
Shareholder approval
A resolution to approve the Remuneration Report is being proposed at the Annual General Meeting.
For and on behalf of the Board
Orna Ni-Chionna
Chairman of the Remuneration Committee
29 June 2011
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Corporate responsibility
Our Corporate Responsibility (CR) platform comprises the areas
of Environment, People and Community.
Environment
The following have been identified as the principal areas for
potential environmental impact by our businesses:
–
Energy usage
–
Waste/recycling
–
Supply chain
–
Packaging
–
Green purchasing policies of goods not for resale
–
Green build initiatives
–
Health and safety
We are managing our impacts through the following initiatives:
Industry and environmental partners
The Group’s businesses in the UK work with a number of
specialist organisations to help to minimise our impacts on the
environment, including The Carbon Trust, British Safety Council,
Adam Energy Management Systems, Inenco, IMServe and Biffa
Waste Services. In addition, through our involvement in various
trade bodies, we are helping to manage the environmental
impacts made by the entertainment and book industries.
HMV UK & Ireland partners the music industry initiative Julie’s
Bicycle, which aims to reduce the sector’s greenhouse gas
emissions.
During its final year of ownership by the Group, Waterstone’s
worked with the Booksellers’ Association & Publishers’
Association Environmental Action Group to ensure that various
industry-wide initiatives were implemented within its stores.
This group considers all aspects of the trade, including
packaging, book miles, paper sourcing and returns, and operates
the information website green4books.
Waterstone’s also worked with the British Safety Council
(BSC) to consider wider measures of environmental impact than
the company’s carbon footprint.
Carbon reduction commitment:
CRC energy efficiency scheme
The Carbon Reduction Commitment (CRC) is a UK emissions
trading scheme (ETS) with the aim of cost-effectively reducing
emissions in the service, public and other less energy-intensive
sectors by 1.2m tonnes by 2020. The CRC will be a mandatory
emissions trading scheme, targeting large organisations whose
emissions are currently not included in the ETS or Climate
Change Agreements of the European Union.
All of the qualifying sites within the Company’s UK store
estate were registered with the Environment Agency in the
required timescale and work is underway to produce our first
Annual Report.
Energy usage
As the table below summarises, energy usage in our UK businesses reduced during the year, reflecting store closures and initiatives
to reduce consumption, offset by the extreme winter weather.
Total HMV UK & Waterstone’s
2007/08
2008/09
2009/10
2010/11
Electricity
Gas
Total
Total kWh Total CO2 (tonnes)
89,599,549
86,856,010
100,975,059
96,880,120
48,117
46,643
54,427
52,412
1,305,943
1,114,062
1,968,694
2,731,897
242
202
361
501
90,905,492
87,970,072
102,943,753
99,612,017
48,358
46,850
54,788
52,913
NB: 2009/10 figures use revised DECC conversion factors, issued 22 January 2010.
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Energy management
Efforts to reduce energy usage in our UK stores through the
roll-out of an energy management system continued to make
progress during this financial year. Systems which enable
heating, air conditioning and lighting to be pre-programmed
to ensure maximum efficiencies, are being installed gradually
across the estate, although at a slower pace than anticipated
due to the prioritisation of a store closure programme in the
UK during the second half.
Automated Meter Readings (AMR) and
electricity procurement
During the last two financial years, over 400 ‘domestic’ energy
meters have been switched to AMR ‘Smart Meters’ to improve
billing, monitoring and reporting capabilities. The new meters
remove the need for manual reading and estimated billing,
and assist the Company and our energy suppliers to reduce
waste. Flexible electricity contracts are negotiated for our UK
businesses, enabling us to maximise price reductions in
the UK’s electricity market.
Waste and recycling
Overall, HMV UK recyclyed over 70% of the waste generated
through its store estate.
In Canada, the high proportion of mall-based stores means
that HMV’s landlords have lead responsibility for waste and
recycling, and most of these participate in mandatory municipal
recycling schemes.
At Waterstone’s product was delivered in reusable totes,
producing less packaging waste, which in HMV forms the bulk
of recycled material.
Waterstone’s Head Office became a ‘binless’ environment
at the end of the year, when all under-desk waste bins were
removed and replaced with centralised bins for plastic cups,
glass, cans, and general waste, as part of the overall aim to
reduce the amount of general waste sent to landfill every year.
Table: UK stores recycling averages*
HMV UK
2009/10
2010/11
Waterstone’s
2009/10
2010/11
*
61%
75%
52%
48%
Figures do not include shopping centre locations, where waste and centre
management carries out recycling. Consultation on waste management and
recycling is underway with landlords of these locations.
Water usage
Measures are taken, where possible, to reduce the amount of
water used in our store and distribution locations. The fit-out of all
new stores follows a ‘green blueprint’, incorporating energy and
water-saving design and devices, while at the Waterstone’s book
hub a recycled grey water system is used.
Supply chain
Waterstone’s centralised book hub delivered a number of
environmental benefits for the company and its suppliers,
including:
–
A significant reduction in suppliers’ transportation
requirements, driven by the replacement of deliveries to
individual branches with shipments to a single destination.
–
Prior to the hub, an average of 20 medium-sized cardboard
boxes per day were used to deliver books direct from
suppliers to each store. Now books are primarily delivered to
the hub on pallets and, after processing, transferred to each
store in plastic reusable totes, thereby reducing the amount
of cardboard and packaging involved in distribution of stock.
–
100% of all packaging used in deliveries to the hub is either
re-used or recycled.
–
Returns of excess stock from each store are made to the
hub, rather than direct to suppliers generally for pulping,
allowing for sale in other branches of Waterstone’s.
Green benefits within the hub include: motion-sensor energyefficient lighting, half-flush sanitary systems and half-hourly
metering to ensure efficient monitoring of energy usage.
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Corporate responsibility continued
Goods not for resale
As part of the Group’s continuing commitment to tightly
managing its costs, efficiencies are being made by more
effectively procuring the Group’s goods and services not
for resale. This programme is also helping to enhance our
environmental commitment.
Paper
Most of the paper used by the Group worldwide is supplied from
FSC-certified sources, and includes a mixture of recycled and
non-recycled stock. The green credentials of suppliers of our
in-store point of sale materials (POS) are carefully monitored.
We continue to review our paper consumption, and this
declined in Waterstone’s by 24% year-on-year, and in HMV UK
by 4% year-on-year, reflecting changes made to both the
Company’s systems and the working practices at head offices
and stores.
Carrier bags
The Group’s businesses are working hard to reduce the amount
of carrier bags distributed annually by our stores to customers.
Our stores have a policy to ask customers, individually or through
point of sale communication, if a bag is required with each
purchase. In Waterstone’s, loyalty cardholders are offered
‘Eco Points’ when they decline a bag, thereby rewarding our
customers with money off future purchases.
The table below shows a year-on-year decline of 25%
in the number of carrier bags used across the Group.
14531_HMV_AR11_p12-92.indd 26
Business
HMV UK
2008/09
2009/10
2010/11
HMV Canada
2008/09
2009/10
2010/11
Waterstone’s
2008/09
2009/10
2010/11
Group
2008/09
2009/10
2010/11
Bags used
Year-on-year
% change
44.5m
47.2m
32.7m
–12%
+6%
–30%
10.0m
8.2m
7.0m
–8%
–18%
–15%
18.6m
14.7m
12.3m
–32%
–21%
–16%
73.2m
70.1m
52.0m
–17%
–4%
–25%
Our businesses adopt a responsible approach to sourcing
carrier bags. Stores in HMV UK and HMV Canada provide
degradable, single-use carrier bags made from 30% recycled
plastic. The bags degrade in landfill sites within 12 to 24 months
in the presence of light, oxygen, heat and stress. In addition,
HMV UK offers customers a ‘bag for life’, manufactured from
100% recycled plastic, principally recycled water bottles.
At Waterstone’s, plastic carrier bags are manufactured from
100% post-consumer recycled plastic. In addition, Waterstone’s
offers a ‘bag for life’ manufactured from 100% certified Fairtrade
organic cotton. In Ireland, where local legislation prohibits the use
of plastic carrier bags, HMV and Waterstone’s provide customers
who request them with bags made from recycled craft paper.
Online products ordered from hmv.com and waterstones.com
are shipped using recycled packaging materials. In HMV
Canada, a bag fee levied by the City of Toronto was
implemented by neighbouring cities during the year, and HMV
collected C$24,000, with proceeds continuing to go to its chosen
charity the Centre for Addiction and Mental Health (CAMH).
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Green build
We strive to ensure that the new stores we open and those we
refit are as green as possible. As well as the roll-out of smart
meters and energy management systems to new stores, any
new timber used in store builds is FSC-certified and only
energy-efficient PCs, lighting and appliances are deployed.
We also recycle fixtures and fittings, wherever possible, with
browser units and stands re-sprayed and metallic merchandising
fixtures refurbished. HMV Canada uses Eco carpet for all new
builds and applicable refits.
Health and safety
The Group maintains a strong commitment to health and safety
in order to protect the visitors, staff and customers at all our
locations across the estate.
The Health and Safety teams from HMV UK and
Waterstone’s were merged to form a Group Health and Safety
Team, enabling best practice to be shared and to provide a more
consistent service. The main activity of the combined team was
the implementation of a revised health and safety file to enhance
compliance and simplify branch tasks
These new procedures also introduced a ‘Zero Tolerance’
policy to ensure enhanced compliance with fire safety checks,
staff training and central supervision.
In order to improve the health and safety culture and climate,
Regional Health and Safety Champions are being introduced to
all parts of the business.
People
Our businesses fully recognise the essential nature of attracting
and retaining dedicated and motivated people. There are
numerous initiatives to promote the engagement of our
colleagues, to celebrate success, provide a range of attractive
benefits, and to develop the careers of individuals.
This year, as a result of employee feedback, we launched the
Pledge Festival, giving colleagues the chance to take advantage
of great offers and discounts on a variety of products and
activities, and also includes many of the great benefits we already
provide for our people. Offers and benefits range from maternity
leave, season ticket loans and healthcare to discounts on festival
tickets, holidays and activities.
14531_HMV_AR11_p12-92.indd 27
Recruitment policy
Our businesses are committed to providing equality of
opportunity and to maximising the talents of our people.
Our recruitment decisions are made only on the basis of
qualifications, skills and ability to do the job. This commitment
to equal opportunities includes:
–
The promotion of equality of opportunity in employment.
–
The development, implementation, regular monitoring and
review of employment policies, with the aim of ensuring
that colleagues receive fair and consistent treatment.
–
A continuing programme of action to ensure our policy
and its implementation is fully effective, including training
and guidance.
–
The elimination of discrimination of any kind.
The law sets out that our policies must at least ensure that
current and potential colleagues are offered the same
opportunities regardless of gender, colour, race, religion or
belief, national or ethnic origin, age, disability, sexual orientation,
marital status, part-time or fixed-term status. Our stance is that
the promotion of equal opportunities is essential and, therefore,
all colleagues should be treated with respect, regardless of
whether they are specifically protected by legislation.
Colleague progression
The Group is committed to nurturing talent and promoting from
within, wherever possible. Various internal training programmes
are available, as well as assistance to gain professional
qualifications where this is relevant. The programmes we operate
enable our businesses to have well-developed succession plans
and to fill any gaps in individuals’ knowledge before promotion.
Examples of these programmes include:
HMV UK & Ireland provides an induction-training programme,
Get Started, for all new colleagues. This includes: a company
DVD, online training, in-store training and regular reviews
for colleagues during their first six months with the Company.
Since 2000, HMV UK & Ireland has had Investors in People
accreditation, which was successfully renewed in April 2009,
reflecting our commitment to developing our people so they
are better able to deliver what is required of them. In 2009 we
trained all retail colleagues on our new customer service strategy
‘loose fit’ and launched NipperpediA – an eLearning tool with role
specific courses and mandatory courses on new product ranges
for all retail colleagues to complement the in-store training
delivered by our store management population. HMV believes
in promoting from within and offers Fast Track programmes
to ensure that talented people with the desire to progress into
management roles are supported. Over the past three years,
more than 700 colleagues have completed one of the four levels
of HMV Fast Track programmes available. Several of our Store
Managers have been promoted to Regional Manager, reflecting
the success of our internal development offer.
In May 2009, HMV Canada introduced the HMV Academy,
an independent e-learning platform that delivers and tracks
compliance-related learning, as well as delivering knowledge
and information about policies, procedures and product.
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Corporate responsibility continued
The Academy has delivered significant cost reduction, flexibility
for end-users and administrators, as well as the elimination of
workbook printing. This year, in an effort to continue educating
HMV employees, HMV Canada introduced 10 new online training
modules as part of the HMV Academy Learning Programme.
The most successful module was the new Pure HMV customer
loyalty and rewards programme. Successful completion of
this module ensured that all store colleagues had a good
understanding of this key business initiative and enabled them
to confidently sell memberships to our customers.
For colleagues in Waterstone’s stores, an induction
programme exists for all new booksellers, following which there
is a focus on customer service through the ‘Spread The Word’
initiative. For those wishing to progress their careers with
Waterstone’s, a Lead Bookseller development programme
was launched in 2010, with workshops attended by 340 Lead
Booksellers in 2010 and 2011. Several Branch Managers have
been promoted to the Regional Manager, reflecting the success
of our Fast Track programme for Regional Managers. Branch
Managers and Assistant Managers also benefit from a range of
workshops, based around various management tasks, including
performance reviews, delivering training to others, Living
Leadership and Spread The Word for Managers.
Green benefits package
Our people are encouraged to choose from a menu of benefits
that directly promote green issues, including:
–
Loans of up to £1,000 to purchase a bicycle for travel to and
from work.
–
Season ticket loans to encourage travel to and from work
using public transport.
–
Give As You Earn (GAYE) scheme to make regular, pre-tax
donations to chosen charities through payroll. We are proud
that our colleagues donated over £7,000 during the year
through this scheme.
In addition, Waterstone’s offers colleagues the opportunity
to participate in the Day for Good scheme, which enables
our people to take paid time off to carry out voluntary work.
Colleagues can request one day of paid time in any year
to volunteer for their chosen organisation.
Responsibility to customers
The customer experience
We believe that it is our responsibility to provide our customers
with the best possible experience. Our people are, therefore,
equipped with high quality and extensive training and our most
prestigious company awards recognise excellent customer
service as a key criteria.
As the standards expected of us increase, we must strive to
deliver an ever more rewarding customer experience. In support
of this, we carry out regular research and brand tracking surveys
with our customers, and employ ‘mystery shopper’ programmes.
Results from these initiatives are fed back to all parts of our
businesses and, where appropriate, adaptations to policy or
training are made.
14531_HMV_AR11_p12-92.indd 28
As a result of this focus, HMV was named Music Retail Brand of
the Year at the Music Week 2011 awards. HMV was also winner
of Best Bricks and Mortar Retailer and Best Blu-ray retailer at the
British Video Association 2011 awards ceremony.
Rewarding loyalty
In the UK, both of our main brands have programmes to reward
customers for their loyalty. Purehmv has been highly successful,
with over 1.8 million members joining since the launch in May
2009. Members earn points every time they shop with HMV
in-store and online, and these points can then be redeemed for
‘cool stuff money can’t buy’ via a bespoke members’ website.
The prestigious Marketing Week 2010 Engage Awards awarded
Purehmv Best Loyalty Scheme. Following its launch in autumn
2007, the Waterstone’s loyalty card now has approximately
3.4 million members, enjoying a wide range of benefits.
Points can be earned on virtually every item in every store,
and are also given as a reward if customers either bring their
own carrier bag or opt not to use one.
The data we collect from customers’ participation in our
schemes enables us to provide carefully targeted and relevant
communication. The right to privacy and security of customer
data is taken very seriously. Customers can opt in or out of
communication at any time and the information we use is not
sold, rented or passed on to others for marketing purposes
without the express consent of customers. All of the information
provided to us by customers is treated securely and strictly in
accordance with the Data Protection Act 1998.
Responsible selling
As specialist retailers, our brands are committed to providing
the widest ranges of products available either on the high street
or online. Sometimes, for all sorts of reasons, certain of the
products we sell in stores or online can be of a sensitive nature.
Therefore, we adopt a responsible approach to selling.
Where appropriate, we liaise with trading standards and other
external bodies and listen to our customers and our colleagues.
Within the boundaries of existing legislation and industry
regulation applied to our product categories, including the
Public Order Act and British Board of Film Classification (BBFC)
ratings, we maintain a strictly non-censorial approach to selling.
In support of this, the people in our stores are provided with
training and regular communication to ensure that, if appropriate,
sensitive product is clearly identified and/or is sold only to
customers who are entitled to purchase it.
HMV UK and Canada believes that it is inappropriate to
restrict or censor the choice that it makes available to customers.
However, we recognise the importance of merchandising and
displaying stock in a responsible manner, which is consistent
with trading standards and retail practice and sensitive to
prevailing public concerns.
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Waterstone’s believes that it should not act as censor and that
customers should have the right to choose whatever they want to
read. The only circumstances under which we would remove a
book from sale are on the advice of the police or the publisher.
We understand that we share a responsibility with parents to
ensure that inappropriate material is not sold to minors. While
many books for children and teenagers include no printed direct
age guidance, our booksellers can both offer advice or decline a
sale if they believe a particular title should not be sold to a minor.
Community
We recognise that both the products we sell and, therefore, the
HMV and Waterstone’s brands, have an important part to play in
the lives of our customers. Our commitment to the hundreds of
communities in which we operate is to extend our engagement
with them in ways which, we hope, can help to make even more
of a difference.
Charitable support
The focus of HMV’s community engagement activity during the
year was its nominated charity CLIC Sargent, which supports
children and young adults with cancer. Since 2008, HMV has
generated over £1m for CLIC Sargent through a range of
fundraising events, donations and cause-related marketing,
and has helped to raise awareness for the invaluable work of
the organisation among HMV’s customers, employees, suppliers
and other stakeholders. On behalf of CLIC Sargent, HMV has
created a number of sports-related annual events and, with its
suppliers, has created a range of products to sell in stores and
online. This fruitful relationship came to an end on 30 April 2011
and in the new financial year HMV will be supporting the
Teenage Cancer Trust in the UK and the Marie Keating
Foundation in the Republic of Ireland.
HMV Canada’s charitable focus is on the promotion of
education and awareness-raising activities to help reduce the
incidence of suicide amongst young Canadians. In an ongoing
partnership with the CAMH, Canada has taken a unique
approach to offering its support. CAMH bi-annually conducts an
anonymous survey to over 9,000 students, which provides reliable
information about the health risk behaviour, attitudes and beliefs
of adolescents. In a highly successful initiative, HMV digital
downloads were offered to encourage survey participation as
well as attract new customers to the HMV.ca website.
Waterstone’s and its customers raised over £105,000 for its
charity partner, Rainbow Trust, through various activities in stores
and initiatives carried out by colleagues, including running the
London Marathon, a parachute jump, donations in lieu of giving
Christmas cards, collection pots and other sporting activities.
Waterstone’s stores also sold charity Christmas cards during
the year, raising over £106,000 which was apportioned between
Rainbow Trust, Wateraid, Save the Children and MacMillan
Cancer Support.
Events
Among the important added-value experiences our local stores
are uniquely placed to provide, is the opportunity for our
customers to meet their favourite artists and authors from the
entertainment and literary worlds at live performances, signings
and other special events.
14531_HMV_AR11_p12-92.indd 29
During the year, HMV UK, Fopp and HMV Canada hosted
several hundred personal appearances by some of the
biggest names in the music and filmed entertainment industries.
They provided volume sales for artists and stores, local, national
and, in some instances, international publicity, and provided
unique experiences for our customers. Demonstrating a
commitment to help develop the careers of new and emerging
artists, HMV and MAMA, the Group’s Live music venue and
festival division, continued to develop the Next Big Thing music
festival, a showcase for celebrating a broad and diverse range of
50 breakthrough artists drawn from across the music spectrum.
In the Games market, HMV’s flagship London store hosted the
official UK retail launch event for the groundbreaking Nintendo
3DS handheld console. 100 HMV stores opened specially at
midnight for the launch.
Waterstone’s supports, through activities in its stores,
World Book Day, by honouring the vouchers that permit every
child in the UK to a free book. Stores held a range of events
to celebrate World Book Day itself, including activity days and
readings across stores and schools. The World Book Day
campaign is supported by Quick Reads, a selection of nine
books which appeal to reluctant adult readers across fiction
and non-fiction, which this year included titles from a number
of well-known authors. The Big Book Bank is an award-winning
Waterstone’s initiative that enables children to bring a favourite
book to school to share with other children and, in return, receive
a voucher from the school to redeem against a new book from
Waterstone’s. During the school year ended June 2010, a total
of 1,272 schools took part in the scheme, with nearly 12,500
books being exchanged across the country. This scheme was
recognised by the Institute of Sales Promotion (ISP), winning
three of its Gold Awards in June 2009: the ISP Gold for Retail,
Home Shopping and E-Commerce; ISP Gold for Art Direction
& Copywriting; and ISP Gold for Social Responsibility.
Waterstone’s continues to be lead sponsor of The Children’s
Laureate which recognises outstanding commitment to
Children’s books and aims to promote a love of reading.
The recently announced 2011/12 Laureate is Julia Donaldson,
author of The Gruffalo.
Waterstone’s was an enthusiastic supporter of the inaugral
World Book Night, which saw 20,000 ‘givers’ distribute 1million
free books across the UK. As well as co-sponsoring the launch
event in Trafalgar Square, where over 5,000 people enjoyed
readings from authors including Alan Bennett, David Mitchell and
Margaret Atwood, hundreds of Waterstone’s stores held events
on the night. Waterstone’s was also a key part of the World Book
Night supply chain, with many givers choosing to pick up their
free books from branches, which were distributed at no charge
via Waterstone’s Distribution Hub.
Waterstone’s was also involved in nearly 20 literary festivals
during the year, offering varying levels of support and
sponsorship. These included: the Times Cheltenham Festival of
Literature; UEA Spring Literary Festival; Stratford Literary Festival;
Daphne du Maurier Festival in Fowey; Glasgow’s Aye Write!
Durham Book Festival; and Discovery Season in Bloomsbury.
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Directors’ report
The Directors submit their report and audited financial
statements for the 53 weeks ended 30 April 2011, which were
approved on behalf of the Board on 29 June 2011.
Principal activities and business review
The principal activities of the Group for the period under review
were the retailing of pre-recorded music, video, electronic games
and related entertainment products under the HMV and Fopp
brands, the retailing of books principally under the Waterstone’s
brand and the operation of a number of live music venues and
festivals. The Group had operations in seven countries, with the
principal markets being those of the UK and Canada.
Since the end of the period under review the Company has
agreed to sell the entire issued share capitals of Waterstone’s
Booksellers Limited, Waterstone’s Booksellers Ireland Limited.
Waterstone’s Booksellers’ Amsterdam BV and Waterstone’s
Booksellers Belgium SA to A&NN Capital Management Fund
Limited for a total consideration of £53.0m. The transaction was
subject to the approval of the Company’s shareholders which
was secured on 23 June 2011. The transaction completed on
28 June 2011 when an initial consideration of £40.0m was paid.
Deferred consideration of £13.0m is payable on 31 October
2011. 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.
Commentary on the strategy of the Company, the
performance of the Group during the year and likely future
developments can be found in the Chairman’s statement
on pages 1 and 2, and the Business and financial review
on pages 3 to 10, which are deemed to be incorporated by
reference in (and shall be deemed to form part of) this report.
Risks and uncertainties
The Board has a policy of continuous identification and review
of key business risks and uncertainties. It oversees the
development of processes to ensure that these risks are
managed appropriately and operational management implement
these and report to the Board on their outcomes. The key risks
identified by the Board, together with a summary of the mitigating
actions considered, are set out on page 31.
Results and dividends
The consolidated loss after deducting taxation amounted to
£(121.7)m (2010: profit of £49.2m). The Board of Directors
recommend that no final dividend be paid in respect of the year
under review. The total dividend paid for the year under review
was 0.9p (2010: 7.4p).
Directors
Neil Bright retired from the Board on 17 December 2010.
David Wolffe was appointed as Group Finance Director on
10 January 2011. Robert Swannell resigned as Chairman on
1 March 2011 but remained on the Board as a Non-Executive
Director. Since the end of the year under review, the Company
has announced that Mr Swannell retired from the Board
at the close of business on 23 June 2011. Philip Rowley was
14531_HMV_AR11_p12-92.indd 30
appointed as Non-Executive Chairman on 1 March 2011 and
Orna Ni-Chionna replaced Mr Rowley as Senior Independent
Director on 8 March 2011. All other Directors served throughout
the year under review and details for all present Directors are
listed, together with their biographical details, on page11.
The Directors will be retiring and seeking re-election at the
forthcoming AGM.
With regards to the appointment and replacement of
Directors, the Company is governed by its Articles of Association,
the Combined Code, the Companies Act 2006 and related
legislation. The Articles themselves may be amended by special
resolution of the shareholders. The powers of the Directors are
detailed in the Corporate governance report on page 12.
The Directors’ interests in the shares of the Company,
together with their remuneration (where applicable) and further
details of their service agreements are detailed in the Directors’
remuneration report on pages 16 to 23.
No Director, at any time during the period under review, had
a material interest in any contracts with the Company or any of its
subsidiary undertakings, other than the Executive Directors who
had such an interest through their service agreements with the
Company, details of which are summarised on pages 18 and 23.
None of the Directors or their families at any time during the
period under review, or subsequently, were interested in any
shares of the Company’s subsidiary undertakings. Each Director
has been given an unlimited indemnity from the Company in
respect of certain losses which they may incur to third parties
in the course of acting as Directors of the Company and any
subsidiary undertaking in which they hold a directorship.
Principal shareholders
As at 29 June 2011 the Company had been advised of the
following holdings representing 3% or more in its issued
Ordinary Shares:
Number of
Ordinary
Shares
Percentage
of issued
share capital
UBS Global Asset Management
Schroders plc
Various entities connected to
Channel Trustees Limited
(as trustees of the Mamut Trust)
of which the beneficiary is
Alexander Mamut
46,118,351
34,619,783
10.89
8.17
25,823,600
6.71
Henderson Global Investors
Fidelity International Limited
Blackrock, Inc
Artemis Fund Managers
23,174,227
20,935,298
20,363,704
19,450,931
5.47
4.94
4.81
4.59
Standard Life Investments
Pacific Capital Sarl
Universities Superannuation
Scheme Limited
15,347,612
14,062,050
3.62
3.32
13,425,751
3.17
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Risk
Mitigating action
Growth of digital entertainment
– Strategic plans based on realistic independent market forecasts.
Physical entertainment media remains a key driver of footfall to the Group’s – Investment in, and development of a broader retail offer, embracing new technology
stores and of online customers to its transactional websites. Technological
products, which have already been successfully incorporated into stores on limited
advances and changing customer preferences have given rise to new
basis
methods of digital delivery, both legal and illegal.
– Delivering entertainment content to customers through multiple channels in retail
In response, the Group’s strategy is to focus on the development of growth
and live, supported by customer loyalty programmes
areas, including the retail of personal digital technology, and live and
– Diversification of the Group’s business – investment in Live and digital media delivery
ticketing. This strategy requires investment in capital and will stretch financial
and operational resources. However, failure to successfully implement,
could have a material adverse effect on the Group’s financial condition
and prospects.
Seasonality
– Thorough planning in advance of Christmas and excellent operational practices
The business of the Group is highly seasonal – the Christmas season is the
to ensure peak trading opportunities are maximised and unexpected events
most important trading period in terms of sales, profitability and cash flow.
are managed
Lower than expected performance in this period, including the impact
– Diversification of the Group’s business away from pure retail – investment in Live
on footfall of severe weather, may have an material impact on results for
entertainment
a full financial year.
Economic environment
– Strategic planning that allows for a range of economic scenarios
Both the retail and live music markets are sensitive to economic conditions – Both our retail and live offers include product and events at affordable price points,
and would be impacted by a prolonged economic downturn.
that are generally more resilient to reductions in discretionary spend than higher
value products
Competition
– Continued adaptation and development of the retail offer to remain competitive
The Group operates in highly competitive markets, where the Group’s
– Maximising our direct relationship with suppliers to ensure the widest ranges
products are often sold at or below cost.
of our core products on the high street
– Ensuring the reputation as a specialist retailer is maintained, through compelling
offers and active customer relationship management
Credit risk and liquidity
–
The Group’s ability to operate depends on access to adequate short
and medium-term funding, predominantly from the bank lending market. –
This requires regular refinancing, the success of which is dependent on
both financial condition of the Group and the appetite of the lending market.
In addition, the interest rate, credit and exchange rate risks must be
adequately managed.
A central Treasury team, that operates within Board approved policies
and financial limits
Regular review and stress testing of liquidity, interest rate and foreign
exchange exposures and covenant headroom
– A successful refinancing agreed on 28 June 2011, providing funding to
30 September 2013. The Directors have no reason to believe that funding will
not be available beyond the maturity date.
Damage to reputation or brands
– Thorough sh3a7 nhe530Td<>ruofGrb9(n)6(d)5ttncas9(n)59(7163 )6(do)5f uno bub
The HMV and live music and festival brands are material assets of the
Group and maintaining their reputation is key to continued success.
Risks include an event that causes reputational damage, including a failure
to comply with legislation or other regulatory requirements.
HMV Group plc
32
Directors’ report continued
Policy on payment of creditors
The Group does not impose standard payment terms on its
suppliers but agrees specific terms with each and ensures that
each supplier is made aware of such terms. It is the Group’s
policy to pay its suppliers in accordance with the terms that
they have agreed. The Group had 39 days purchases outstanding
at 30 April 2011 (2010: 62 days), based on the trade creditors
at that date and purchases made during the year. The Company
is a holding company and therefore has no trade creditors.
Financial instruments
The Group’s Treasury Department is principally responsible for
managing financial risks to which the Group is exposed, such as
funding risk, liquidity risk, interest rate risk, credit risk and foreign
exchange risk. Treasury manages these risks using policies
approved by the Board.
Details of the Group’s financial risk management policies
can be found in Note 26 to the Accounts, a breakdown of the
Group’s net debt position is found in Note 27 and interest
charges can be found in Note 10 to the Accounts.
Employee policies
The Group aims to employ and develop the best people, putting
them in the right positions with a significant level of delegated
authority and supporting them with the infrastructure and
technology required to perform at the highest levels and at the
lowest costs with the quickest response time.
Responsibility for employment rests primarily with each
business operation under the general guidance of central policy
and procedural guidelines. Group companies are committed to
the maintenance of a work environment free of discrimination
on the grounds of age, gender, nationality, ethnic or racial origin,
non-job related disability, sexual orientation or marital status.
The Group gives full consideration to applications from
disabled persons where a disabled person can adequately fulfil
the requirements of the job. Where existing employees become
disabled, it is the Group’s policy, wherever practicable, to provide
continuing employment under normal terms and conditions
and to provide training, career development and promotion
to disabled employees wherever appropriate.
In order to promote employee involvement in the Group,
regular meetings are held between local management and
employees to allow a free flow of information and ideas.
The Company encourages staff involvement in the Group’s
performance via a combination of employee bonus and share
schemes. During the year under review the Group operated a
Save As You Earn Share Option Scheme for all UK employees.
Share capital
At the Annual General Meeting held in September 2010,
shareholders authorised the Company to purchase up to
a maximum of 42,358,705 million of its own Ordinary Shares,
representing 10% of the issued share capital of the Company.
During the period under review the Company did not purchase
any of its own shares for cancellation.
14531_HMV_AR11_p12-92.indd 32
Details of the Company’s share capital can be found in Note 28
which is incorporated by reference and deemed to be part of this
report. Since the end of the period under review the Company
has not increased its issued share capital.
The Company has one class of Ordinary Shares which carry
no right to fixed income. Each share carries the right to one vote
at general meetings of the Company. The percentage issued
nominal value of the Ordinary Shares is 100% of the total
issued nominal value of all share capital. There are no specific
restrictions on the size of a holding nor on the transfer of shares,
which are both governed by the general provisions of the
Articles of Association of the Company and prevailing legislation.
The Directors are not aware of any agreements between holders
of the Company’s shares that may result in restrictions on the
transfer of securities or on voting rights. No person has any
special rights of control over the Company’s share capital and
all issued shares are fully paid.
Details of the employee share schemes are set out in
Note 29 and in the Directors’ remuneration report on pages 16
to 23 both of which are incorporated by reference in (and shall
be deemed to form part of) this report.
Charitable donations
The Group made charitable donations of £12,000 in the period
under review (2010: £13,000). It is Group policy not to make
donations to political parties or independent election candidates
and therefore no political donations were made during the
period. The Group is also involved in charitable fundraising,
details of which can be found in the Corporate Responsibility
Statement on page 29.
Significant agreements
The Company’s Senior Bank Facility agreement, details of which
can be found in Note 26 to the financial statements, contains
provisions entitling the counterparties to exercise termination or
other rights in the event of a change of control of the Company.
The rules of the Company’s Annual Bonus Plan and
share plans set out consequences of a change of control
of the Company on the employees rights under the plans.
All outstanding awards on the change of control will vest
immediately to employees to the extent that any performance
conditions are satisfied and, unless the Remuneration
Committee otherwise decides, will be pro-rated to the extent
that the vesting period for each outstanding award has been
completed at that time.
Details of payments to the Executive Directors under their
service contracts as a result of a change of control can be found
in the Directors’ remuneration report on page 18 and are
deemed to be incorporated by reference in (and shall be
deemed to form part of) this report.
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Auditors
The Directors who were members of the Board at the time
of approving the Directors’ report are listed on page 11.
Having made enquiries of fellow Directors and of the Company’s
auditors, each of these Directors confirms that:
–
to the best of each Director’s knowledge and belief, there
is no information relevant to the preparation of their report
of which the Company’s auditors are unaware; and
–
each Director has taken all steps a director might reasonably
be expected to have taken to be aware of relevant audit
information and to establish that the Company’s auditors
are aware of that information.
A statement of the Directors’ responsibility for the consolidated
and Company financial statements can be found on page 34,
which is deemed to be incorporated by reference in (and shall
be deemed to form part of) this report.
Ernst & Young LLP have indicated their willingness to
continue in office and ordinary resolutions reappointing them as
auditors and authorising the Directors to fix their remuneration
will be proposed at the forthcoming Annual General Meeting.
Annual General Meeting
The Annual General Meeting of the Company will be held at
9.00am on 9 September 2011 at The Holiday Inn, Manor Lane,
Maidenhead, Berkshire, SL6 2RA. The special business to be
proposed at that meeting will be the renewal of the Directors’
authority to allot new Ordinary Shares and to disapply
pre-emption rights in certain circumstances; to avoid an
inadvertent breach of Companies Act 2006, the renewal
of the Group’s authority to make political donations.
The Notice of Meeting and details of the special business
to be proposed can be found in the accompanying letter
to shareholders.
Elaine Marriner
Company Secretary
29 June 2011
Shelley House, 2–4 York Road, Maidenhead, Berkshire SL6 1SR
Going concern
The Group’s business activities, together with the factors likely
to affect its future development, performance and position are
set out in the Business and Financial Review on pages 3 to 10.
In addition, this report describes the management of risks
and uncertainties, including credit risk and liquidity, with further
information on the Group’s borrowing facilities detailed in the
financial statements (see Note 26).
The Directors report that having reviewed current
performance and forecast they have a reasonable expectation
that the Group has adequate resources to continue in
operational existence for the foreseeable future. For this reason
they continue to adopt the going concern basis in preparing the
financial statements.
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Statement of Directors’ reponsibility
The following statement, which should be read in conjunction
with the Auditors’ statement of their responsibilities on page 35,
is made with a view to distinguishing for shareholders the
respective responsibilities of the Directors and the Auditors
in relation to the financial statements.
The Directors are responsible for preparing the Annual
Report and the financial statements in accordance with
applicable United Kingdom law, the Disclosure and Transparency
Rules, the Listing Rules of the UK Listing Authority and those
International Financial Reporting Standards as adopted by the
European Union.
The Directors are required to prepare financial statements for
each financial year which present a true and fair view of the
financial position of the Company and of the Group and the
financial performance and the cash flows of the Company
and of the Group for that period. In preparing those financial
statements, the Directors are required to:
(i)
select suitable accounting policies and then apply
them consistently;
(ii) present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
(iii) provide additional disclosures when compliance with the
specific requirements in IFRS is insufficient to enable users
to understand the impact of particular transactions, other
events and conditions on the entity’s financial position and
financial performance;
The Directors are responsible for keeping adequate accounting
records which disclose with reasonable accuracy at any time, the
financial position of the Company and of the Group and enable
them to ensure that the financial statements comply with the
Companies Act 2006 as well as Article 4 of the IAS Regulation.
They are also responsible for safeguarding the assets of the
Group and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
We confirm that, to the best of our knowledge:
(i)
the financial statements, prepared in accordance with
International Financial Reporting Standards, present fairly the
assets, liabilities, financial position and profit of the Group
taken as a whole; and
(ii) the Directors’ Report includes a fair review of the
development and performance of the business and the
position of the Group, together with a description of the
principal risks and uncertainties that the Group may face.
Simon Fox
David Wolffe
29 June 2011
(iv) state that the Company and the Group have complied
with IFRS, subject to any material departures disclosed
and explained in the financial statements; and
(v) make judgements and estimates that are reasonable
and prudent.
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Independent auditor’s report to the members of HMV Group plc
We have audited the financial statements of HMV Group plc for
the 53 weeks ended 30 April 2011 which comprise the
consolidated income statement, the Group and Parent Company
statements of comprehensive income, the Group and Parent
Company balance sheets, the Group and Parent Company cash
flow statements, the Group and Parent Company statements of
changes in equity and the related notes 1 to 37. The financial
reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union and, as regards the
Parent Company financial statements, as applied in accordance
with the provisions of the Companies Act 2006.
This report is made solely to the Company’s members,
as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so
that we might state to the Company’s members those matters
we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
Company and the Company’s members as a body, for our audit
work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and auditors
As explained more fully in the Directors’ Responsibilities
Statement set out on page 34, the Directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view. Our responsibility
is to audit and express an opinion on the financial statements
in accordance with applicable law and International Standards
on Auditing (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board’s (APB’s) Ethical
Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting policies
are appropriate to the Group’s and the Parent Company’s
circumstances and have been consistently applied and
adequately disclosed; the reasonableness of significant
accounting estimates made by the Directors; and the
overall presentation of the financial statements. In addition,
we read all the financial and non-financial information in the
annual report and accounts to identify material inconsistencies
with the audited financial statements. If we become aware of
any apparent material misstatements or inconsistencies we
consider the implications for our report.
Opinion on financial statements
In our opinion:
–
the financial statements give a true and fair view of the state
of the Group’s and of the Parent Company’s affairs as at
30 April 2011 and of the Group’s loss for the 53 weeks
then ended;
–
the Group financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union;
14531_HMV_AR11_p12-92.indd 35
–
the Parent Company financial statements have been
properly prepared in accordance with IFRSs as adopted
by the European Union and as applied in accordance
with the provisions of the Companies Act 2006; and
–
the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and,
as regards the Group financial statements, Article 4 of the
IAS Regulation.
Opinion on other matters prescribed by the Companies
Act 2006
In our opinion:
–
the part of the Directors’ Remuneration Report to be audited
has been properly prepared in accordance with the
Companies Act 2006;
–
the information given in the Directors’ Report for the financial
year for which the financial statements are prepared is
consistent with the financial statements; and
–
the information given in the Corporate governance
statement set out on pages 12 to 15 with respect to internal
control and risk management systems in relation to financial
reporting processes and about share capital structures is
consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
–
adequate accounting records have not been kept by the
Parent Company, or returns adequate for our audit have not
been received from branches not visited by us; or
–
the Parent Company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
–
certain disclosures of Directors’ remuneration specified
by law are not made; or
–
we have not received all the information and explanations
we require for our audit; or
–
a Corporate Governance Statement has not been prepared
by the Company.
Under the Listing Rules we are required to review:
–
the Directors’ statement, set out on page 33, in relation
to going concern; and
–
the part of the Corporate Governance Statement relating
to the Company’s compliance with the nine provisions of the
June 2008 Combined Code specified for our review; and
–
certain elements of the report to shareholders by the Board
on directors’ remuneration.
John Flaherty (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Birmingham, 29 June 2011
15/07/2011 09:58
HMV Group plc
36
Consolidated income statement
For the 53 weeks ended 30 April 2011 and 52 weeks ended 24 April 2010
Notes
Continuing operations:
Revenue
Cost of sales
Gross profit
Administrative expenses
Trading profit
Share of post-tax losses of associates and joint ventures accounted
for using the equity method
Operating profit
Finance revenue
Finance costs
Profit before taxation
Taxation
Profit (loss) from continuing operations
Discontinued operations:
Profit (loss) after tax from discontinued operations
Profit (loss) for the period
3,4
3
18
5
10
10
11
12
Attributable to:
Shareholders of the Parent Company
Non-controlling interests
Earnings per share for profit (loss) attributable to shareholders:
Basic and diluted
Earnings per share for profit (loss) from continuing operations
attributable to shareholders:
Basic and diluted
Before
exceptional
items
2011
£m
Exceptional
items
2011
£m
Total
2011
£m
1,150.2
(1,066.2)
84.0
(55.6)
28.4
–
(10.9)
(10.9)
(3.4)
(14.3)
1,150.2
(1,077.1)
73.1
(59.0)
14.1
(1.0)
27.4
0.2
(8.8)
18.8
(1.3)
17.5
–
(14.3)
–
(1.9)
(16.2)
(4.5)
(20.7)
(1.0)
13.1
0.2
(10.7)
2.6
(5.8)
(3.2)
13.6
31.1
(132.1)
(152.8)
(118.5)
(121.7)
29.7
1.4
(152.8)
–
(123.1)
1.4
31.1
(152.8)
(121.7)
13
7.0p
(36.1)p
(29.1)p
3.8p
(4.9)p
(1.1)p
13
See Accounting Policies on pages 44 to 48 for the description of the 2011 reporting period.
For details of the exceptional items included above, see Note 7.
14531_HMV_AR11_p12-92.indd 36
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Annualreport
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andaccounts
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2011
Annual
37
Notes
Revenue
Cost of sales
Gross profit
Trading profit
Share of post-tax profits of associates and joint ventures accounted for
using the equity method
Operating profit
Finance revenue
Finance costs
Taxation
Profit from continuing operations
Profit (loss) after tax from discontinued operations
Profit for the period
3,4
3
18
5
10
10
11
12
Attributable to:
Earnings per share for profit attributable to shareholders:
Exceptional
items
2010
(restated)
£m
Total
2010
(restated)
£m
1,281.1
(1,154.1)
127.0
(52.2)
74.8
–
–
–
(1.6)
(1.6)
1,281.1
(1,154.1)
127.0
(53.8)
73.2
0.3
75.1
0.4
(6.6)
68.9
(19.4)
49.5
–
(1.6)
–
–
(1.6)
0.1
(1.5)
0.3
73.5
0.4
(6.6)
67.3
(19.3)
48.0
4.0
53.5
(2.8)
(4.3)
1.2
49.2
53.5
–
53.5
(4.3)
–
(4.3)
49.2
–
49.2
13
Basic
Diluted
Earnings per share for profit from continuing operations
attributable to shareholders:
Before
exceptional
items
2010
(restated)
£m
12.7p
12.7p
(1.1)p
(1.1)p
11.6p
11.6p
11.7p
11.7p
(0.4)p
(0.4)p
11.3p
11.3p
13
Basic
Diluted
See Accounting Policies on pages 44 to 48 for the description of the 2010 reporting period.
For details of the exceptional items included above, see Note 7.
14531_HMV_AR11_p12-92.indd 37
20/07/2011 15:02
HMV Group plc
38
Statements of comprehensive income
(Loss) profit for the period
Foreign exchange differences on retranslation of
foreign operations
Tax effect
Cash flow hedges:
Loss on forward foreign exchange contracts
Transfers to the income statement on cash flow hedges
(cost of sales)
Group
2011
£m
Group
2010
£m
(121.7)
49.2
(0.2)
(0.1)
(0.3)
(1.1)
(0.5)
(1.6)
Company
2011
£m
(403.6)
Company
2010
£m
82.0
–
–
–
–
–
–
(0.5)
–
–
–
(0.1)
(0.6)
–
–
–
–
–
–
Actuarial gain (loss) on defined benefit pension schemes
Tax effect
3.4
(6.0)
(2.6)
(19.3)
5.4
(13.9)
3.9
(6.0)
(2.1)
(19.3)
5.4
(13.9)
Other comprehensive loss for the period, net of tax
(3.5)
(15.5)
(2.1)
(13.9)
Total comprehensive (loss) income for the period
(125.2)
33.7
(405.7)
68.1
Attributable to:
(126.6)
33.7
(405.7)
68.1
1.4
(125.2)
–
33.7
–
(405.7)
–
68.1
14531_HMV_AR11_p12-92.indd 38
15/07/2011 09:58
HMV Group plc
Annual
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andaccounts
accounts2011
2011
39
Balance sheets
Group as at
30 April 2011
Assets
Non-current assets
Property, plant and equipment
Intangible assets
67.8
55.5
167.0
126.8
0.1
–
0.1
–
–
11.4
–
10.3
275.3
–
695.6
–
6.3
11.9
152.9
30.1
12.7
346.9
5.7
–
281.1
12.6
–
708.3
106.2
44.1
–
3.7
24.1
247.8
80.7
0.1
1.8
29.7
–
74.4
–
5.0
21.4
–
28.3
0.1
–
48.9
178.1
198.2
529.2
360.1
–
707.0
100.8
–
381.9
77.3
–
785.6
(5.6)
(32.2)
(1.6)
(39.0)
–
(32.2)
–
(39.0)
(7.0)
(2.8)
(47.6)
(11.8)
(1.1)
(53.5)
–
–
(32.2)
–
–
(39.0)
(191.9)
–
(185.0)
(1.3)
(10.9)
(389.1)
(442.8)
(20.8)
(84.5)
(0.8)
(4.0)
(552.9)
(4.6)
–
(265.8)
(0.5)
(2.6)
(273.5)
(7.8)
(0.9)
(227.5)
–
–
(236.2)
17
11
18
19
20
19
25
21
Assets in disposal groups classified as held for sale
Total assets
Liabilities
Non-current liabilities
Deferred income tax liabilities
Retirement benefit liabilities
12
Interest-bearing loans and borrowings
Provisions
23
Total liabilities
Net (liabilities) assets
14531_HMV_AR11_p12-92.indd 39
£m
15
Deferred income tax asset
Trade and other receivables
Liabilities in disposal groups classified as held for sale
£m
£m
18
Current liabilities
Trade and other payables
Current income tax payable
Derivative financial instruments
Provisions
Company as at
24 April 2010
Notes
Investments in subsidiaries, joint ventures and associates
Investments accounted for using the equity method
Current assets
Inventories
Current income tax recoverable
Cash and short-term deposits
Company as at
30 April 2011
Group as at
24 April 2010
(restated)
£m
11
33
24
22
23
25
24
12
(148.2)
(584.9)
(55.7)
–
(606.4)
100.6
–
(305.7)
76.2
–
(275.2)
510.4
15/07/2011 09:58
HMV Group plc
40
Balance sheets continued
Notes
Equity
Equity share capital
Other reserve – own shares
Hedging reserve
Foreign currency translation reserve
Capital reserve
Retained earnings
Equity attributable to shareholders of the Parent Company
Total equity
30
30,31
30
30
30
Group as at
30 April 2011
£m
Group as at
24 April 2010
£m
347.1
(0.6)
(0.5)
12.7
0.3
(415.5)
(56.5)
0.8
347.1
(0.6)
0.1
12.9
0.3
(260.4)
99.4
1.2
(55.7)
100.6
Company as at
30 April 2011
£m
347.1
(0.6)
–
–
0.3
(270.6)
76.2
–
76.2
Company as at
24 April 2010
£m
347.1
(0.6)
–
–
0.3
163.6
510.4
–
510.4
The financial statements were approved by the Board of Directors on 29 June 2011 and were signed on its behalf by:
Simon Fox
14531_HMV_AR11_p12-92.indd 40
David Wolffe
15/07/2011 09:59
HMV Group plc
Annual
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andaccounts
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2011
41
41
Statements of changes in equity
Group
Notes
At 25 April 2009
347.1
Other comprehensive loss
Total comprehensive (loss) income
Ordinary dividend
Purchase of own shares
Share-based payment awards
Credit for share-based payments
Deferred tax on share-based payments
Non-controlling interests acquired with
subsidiary
–
–
–
14
31
347.1
Total comprehensive (loss) income
Other movements in non-controlling
interests
At 30 April 2011
14531_HMV_AR11_p12-92.indd 41
–
–
–
–
–
–
At 24 April 2010 (restated)
Ordinary dividend
Charge for share-based payments
Payments to non-controlling interests
Equity
share
capital
£m
14
Own
shares
£m
(2.7)
–
–
–
–
(0.3)
2.4
–
–
–
(0.6)
Foreign
currency
Hedging translation
reserve
reserve
£m
£m
0.1
–
–
–
14.0
–
(1.1)
(1.1)
Capital
reserve
£m
Retained
earnings
£m
Noncontrolling
interests
Total (restated)
£m
£m
Total
equity
(restated)
£m
0.3
(259.2)
99.6
–
99.6
–
–
–
49.2
(14.4)
34.8
49.2
(15.5)
33.7
–
–
–
49.2
(15.5)
33.7
(31.2)
–
(2.4)
(1.5)
(0.9)
(31.2)
(0.3)
–
(1.5)
(0.9)
–
–
–
–
–
(31.2)
(0.3)
–
(1.5)
(0.9)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
12.9
0.3
–
(0.6)
(0.6)
–
(0.2)
(0.2)
–
–
1.2
1.2
(260.4)
99.4
1.2
100.6
–
–
–
(123.1)
(2.7)
(125.8)
(123.1)
(3.5)
(126.6)
1.4
–
1.4
(121.7)
(3.5)
(125.2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(27.5)
0.5
(1.4)
–
(27.5)
0.5
(1.4)
–
–
–
–
(1.2)
(27.5)
0.5
(1.4)
(1.2)
–
–
–
–
–
(0.9)
(0.9)
(0.6)
(1.5)
12.7
0.3
(415.5)
(56.5)
347.1
(0.6)
(0.5)
0.8
(55.7)
15/07/2011 09:59
HMV Group plc
42
Statements of changes in equity continued
Company
Notes
At 25 April 2009
347.1
Total comprehensive income
Ordinary dividend
–
–
–
14
31
Share-based payment awards
Credit for share-based payments
Capital contribution to subsidiaries
for share-based payments
At 24 April 2010
At 30 April 2011
14531_HMV_AR11_p12-92.indd 42
14
Own
shares
£m
(2.7)
–
–
–
Capital
reserve
£m
Retained
earnings
£m
Total
£m
0.3
131.0
475.7
–
–
–
82.0
(13.9)
68.1
82.0
(13.9)
68.1
–
–
–
(0.3)
–
–
(31.2)
–
(31.2)
(0.3)
–
–
–
2.4
–
–
–
–
–
(2.4)
(0.6)
(0.3)
–
(0.6)
(0.3)
–
–
–
(1.0)
(1.0)
347.1
Loss for the period
Total comprehensive loss
Ordinary dividend
Charge for share-based payments
Equity share
capital
£m
(0.6)
0.3
163.6
510.4
–
–
–
–
–
–
–
–
–
(403.6)
(2.1)
(405.7)
(403.6)
(2.1)
(405.7)
–
–
–
–
–
–
–
–
–
(27.5)
0.1
(1.1)
(27.5)
0.1
(1.1)
0.3
(270.6)
347.1
(0.6)
76.2
15/07/2011 09:59
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Annual
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2011
43
Cash flow statements
Notes
Cash flows from operating activities
Profit (loss) before tax – continuing operations
(Loss) profit before tax – discontinued operations
Net finance costs
Share of post-tax losses (profits) of associates and joint ventures
Depreciation
Amortisation
Net impairment charges
Profit on disposal of property, plant and equipment
Equity-settled share-based payment charge (credit)
Pension contributions less income statement charge
Movement in inventories
Movement in trade and other receivables
Movement in trade and other payables
Movement in provisions
Cash generated from operations
Income tax (paid) received
Net cash flows from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Interest received
Repayment of loan by joint venture
Payments to acquire investments in joint ventures
Payments to acquire subsidiary
Cash acquired with subsidiary
Payments to non-controlling interests
Other movements in non-controlling interests
Dividends received from subsidiaries
Net cash flows from investing activities
Cash flows from financing activities
Movements in funding
Movement in intercompany funding
Costs of raising debt
Interest paid
Equity dividends paid to shareholders
Repayment of capital element of finance leases
Net cash flows from financing activities
Net increase (decrease) in cash and cash equivalents
Opening cash and cash equivalents
Effect of exchange rate changes
Closing cash and cash equivalents
14531_HMV_AR11_p12-92.indd 43
15
17
5
29
18
16
16
31
14
27
27
21,27
Group
2011
£m
Group
2010
£m
Company
2011
£m
2.6
(110.8)
10.4
1.0
39.7
0.3
122.7
(0.2)
0.5
(3.7)
62.5
34.6
(14.9)
(116.4)
18.5
(15.7)
(16.2)
(31.9)
67.3
1.6
6.2
(0.3)
43.4
0.1
2.0
(0.9)
(1.5)
(2.4)
115.5
(29.6)
(6.0)
3.4
(1.8)
81.5
(15.6)
65.9
(439.4)
–
11.9
–
–
–
422.4
–
0.1
(3.9)
(8.9)
–
(8.7)
(3.4)
2.6
(18.4)
8.4
(10.0)
(32.9)
–
6.7
–
–
–
25.0
–
(0.6)
(2.0)
(3.8)
–
(0.1)
1.4
–
(2.5)
5.6
3.1
(28.2)
0.2
0.2
–
(2.1)
–
–
(0.9)
(0.6)
–
(31.4)
(39.9)
1.1
0.4
4.5
(8.1)
(47.0)
7.8
–
–
–
(81.2)
–
–
3.9
–
(2.1)
–
–
–
–
20.0
21.8
–
–
7.8
4.5
–
(47.0)
–
–
–
112.2
77.5
105.2
–
(2.9)
–
(9.1)
(27.5)
(1.0)
64.7
1.4
27.3
(0.3)
28.4
35.0
–
(0.2)
(0.3)
(5.1)
(31.2)
(0.9)
(2.7)
(18.0)
45.5
(0.2)
27.3
106.0
(94.2)
(2.9)
–
(13.8)
(27.5)
–
(32.4)
(20.6)
42.0
–
21.4
34.8
(12.5)
–
(0.3)
(15.2)
(31.2)
–
(24.4)
56.2
(14.2)
–
42.0
Company
2010
£m
15/07/2011 09:59
HMV Group plc
44
Notes to the financial statements
1. Authorisation of financial statements and statement
of compliance with IFRS
The Group and Company financial statements of HMV Group plc
for the period ended 30 April 2011 were authorised for issue by
the Board of Directors on 29 June 2011, and the balance sheets
were signed on the Board’s behalf by Simon Fox and David
Wolffe. HMV Group plc is a public limited company incorporated
and domiciled in England and Wales. The Company’s Ordinary
Shares are traded on the London Stock Exchange.
The financial statements of the Group and the Company
have been prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union
and as applied in accordance with the provisions of the
Companies Act 2006. The principal accounting policies
adopted by the Group and the Company are set out below.
The Company has taken advantage of the exemption
permitted by Section 408 of the Companies Act 2006 not
to publish its individual income statement and related notes.
2. Accounting policies
Basis of preparation
The consolidated financial statements of the Company and its
subsidiaries are made up to the Saturday on or immediately
preceding 30 April each year. Consequently, the financial
statements for the current period cover the 53 weeks ended
30 April 2011, whilst the comparative period covered the
52 weeks ended 24 April 2010. The financial statements are
prepared in accordance with applicable accounting standards
and specifically in accordance with the accounting policies set
out below.
The financial statements are presented in Pounds Sterling
and are rounded to the nearest tenth of a million except where
otherwise indicated. They are prepared on the historical cost
basis, except for certain financial instruments, share-based
payments and pensions that have been measured at fair value.
The preparation of financial statements requires
management to make estimates and assumptions that affect
the amounts reported for assets and liabilities as at the balance
sheet date and the amounts reported for revenues and expenses
during the year. The nature of estimation means that actual
outcomes could differ from those estimates.
The Group’s business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Business and financial review on pages 4 to 10.
In addition, the Directors’ report describes the management
of risks and uncertainties, including credit risk and liquidity,
with further information on the Group’s borrowing facilities
detailed in the financial statements (see Note 26).
The Directors report that having reviewed current
performance and forecast they have a reasonable expectation
that the Group has adequate resources to continue in
operational existence for the foreseeable future. For this reason
they continue to adopt the going concern basis in preparing
the financial statements.
The Group’s balance sheet as at 24 April 2010 has been
restated on finalisation of the fair values of the assets and
liabilities acquired with MAMA Group Plc in January 2010.
14531_HMV_AR11_p12-92.indd 44
As a result of the completion of this process, net assets acquired
have decreased by £4.6m and goodwill arising on acquisition has
increased by £4.6m. There was no impact on the Group’s profit.
See Note 16 for further details.
The income statement for the 52 weeks ended 24 April 2010
has been restated to reclassify the results of Waterstone’s
and HMV Canada as discontinued operations. Both of these
businesses have been classified as disposal groups held for
sale as at 30 April 2011 and are presented as discontinued
operations in the current period. See Note 12 for further details.
Judgements and key sources of estimation uncertainty
The judgements and key sources of estimation uncertainty that
have a significant risk of causing material adjustment to the
carrying amounts of assets and liabilities within the next financial
year are as follows.
Impairment of goodwill and other assets – The Group is
required to test goodwill for impairment on at least an annual
basis. As part of this testing, the value in use of the cashgenerating units to which the goodwill is allocated is assessed,
which requires the estimation of future cash flows and choosing
a suitable discount rate (see Note 17). Property, plant and
equipment are reviewed for impairment if events or changes
in circumstances indicate that the carrying amount may not be
recoverable. When a review for impairment is conducted, the
recoverable amount of an asset or a cash generating unit is
determined based on value-in-use calculations prepared on
the basis of management’s assumptions and estimates
(see Note 15).
Defined benefit pension obligations – The measurement of
the defined benefit pension obligation is subject to a number of
assumptions which are based on actuarial advice. These include
inflation rates, discount rates, the long-term expected return
on the scheme’s assets and member longevity (see Note 33).
Inventory valuation – inventories are valued at the lower of
cost and net realisable value, which includes, where necessary,
provisions for slow moving and obsolete inventory. Calculation
of provisions requires judgements to be made regarding future
customer demand, the competitive environment and inventory
loss trends.
Taxation – calculation of the Group’s total tax charge
requires a degree of estimation and judgement in respect of
certain transactions whose ultimate tax treatment is uncertain.
Where the final outcome of these tax matters differs from the
amounts that were initially recorded, the tax charge and deferred
tax provisions will be impacted (see Note 11).
Provisions – Provisions for store closure, onerous leases
and restructuring costs are estimates and the actual costs and
timing of future cash flows are dependant on future events.
Expectations are revised in each period, with any difference
accounted in the period in which the revision is made.
Details of provisions are given in Note 24.
For the Company, key areas of estimation uncertainty
are those listed above for the Group and the measurement
and impairment of investments in subsidiaries, joint ventures
and associates (see Note 18).
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2. Accounting policies continued
Basis of consolidation
The consolidated financial statements comprise the accounts
of the Company and its subsidiaries. All intra-group transactions,
balances, income and expenses are eliminated on consolidation.
The results of subsidiaries acquired or disposed of during a
period are included from the date that effective control passed
or up to the effective date of disposal, as appropriate. Where the
end of the reporting period of a subsidiary, joint venture or
associate is different to that of the Group, the entity prepares
additional financial statements, for consolidation purposes, as
of the same date as the financial statements of HMV Group plc.
Interests in joint ventures and associates
A joint venture is a contractual arrangement with other parties
to undertake an economic activity that is subject to joint control.
An associate is an entity in which the Company holds a long-term
non-controlling interest and has the power to exercise significant
influence, being the power to participate in the financial and
operating policies of the entity.
The Group recognises its interest in joint ventures and
associates using the equity method of accounting. Under the
equity method, the interest in the joint venture or associate is
carried in the balance sheet at cost plus post-acquisition
changes in the Group’s share of its net assets, less distributions
received and less any impairment in value. The Group income
statement reflects the share of the jointly controlled or associated
entity’s results after tax. The Group statement of comprehensive
income reflects the Group’s share of any income and expense
recognised by the jointly controlled entity or associate outside
profit and loss.
Any goodwill arising on the acquisition of a jointly controlled
entity, representing the excess of the cost of the investment
compared to the Group’s share of the net fair value of the
entity’s identifiable assets, liabilities and contingent liabilities,
is included in the carrying value of the jointly controlled entity
and is not amortised.
Where necessary, adjustments are made to bring the
accounting policies used into line with those of the Group.
The Group ceases to use the equity method on the date from
which it no longer has joint control over, or significant influence
on, the joint venture or associate.
Investments in subsidiaries
In its separate financial statements, the Company recognises
its investments in subsidiaries at cost less impairments booked.
Income is recognised from these investments when the right
to receive the distribution is established.
Revenue
Revenue represents the value of goods supplied, less discounts
given, and is recognised when goods are delivered and title has
passed. It also includes commission earned on ticket sales and
similar activities. Revenue in the HMV Live division is recognised
at the point that an event occurs or, in the case of services
provided, over a period of time in accordance with the relevant
contract in place. Revenue excludes value added tax (‘VAT’)
and similar sales-related taxes.
14531_HMV_AR11_p12-92.indd 45
Interest income is accrued on a time basis, by reference
to the principal outstanding and the applicable effective interest
rate. Dividend income is recognised when the right to receive
payment is established. Rental income from sublet properties
is recognised on a straight-line basis over the period of
the sublease.
Foreign currencies
Transactions denominated in foreign currencies are recorded
at the rates of exchange ruling at the date of the transactions.
Monetary assets and liabilities denominated in foreign currencies
are retranslated into Sterling at period end rates. The resulting
foreign exchange differences are dealt with in the determination
of profit (loss) for the period.
On consolidation, average exchange rates are used to
translate the results of overseas companies and businesses, and
the assets and liabilities of overseas companies and businesses
are translated into Sterling at period-end rates. Differences on
translation are recognised in other comprehensive income in
a separate equity reserve, which was set to zero on transition
to IFRS. On disposal of an overseas company or business, the
cumulative exchange differences for that entity are recognised
in the income statement as part of the profit or loss on disposal.
Exceptional items
The Group presents as exceptional items on the face of the
income statement those material items of income and expense
which, because of the nature or expected infrequency of the
events giving rise to them, merit separate presentation to allow
shareholders to better understand the elements of financial
performance in the year, so as to facilitate comparison with prior
periods and to better assess trends in financial performance.
Exceptional items recognised in arriving at operating profit
include (but are not limited to) those costs associated with
integrating a newly acquired business, impairment losses,
reversal of impairments and costs associated with restructuring
the business.
Goodwill
On transition to IFRS, the Group utilised the exemption available
in IFRS 1 whereby IFRS 3 Business Combinations has not been
applied retrospectively to past business combinations. Goodwill
arising on acquisitions prior to 25 April 1998 was set off directly
against reserves. This goodwill has not been reinstated on the
balance sheet on the transition to IFRS. Furthermore, it will not be
transferred to the income statement if the subsidiary is disposed
of or if the investment in the subsidiary becomes impaired.
Positive goodwill arising since 25 April 1998 is capitalised
and classified as an asset on the balance sheet. On transition
to IFRS, this goodwill was frozen at its carrying value on the date
of transition, 25 April 2004, subject to impairment testing at that
date. Positive goodwill arising on acquisitions since the Group’s
transition to IFRS is also capitalised, classified as an asset on the
balance sheet and is not amortised. Goodwill is calculated as the
excess of the cost of the business combination over the Group’s
interest in the net fair value of the identifiable assets, liabilities
and contingent liabilities. All capitalised goodwill is reviewed for
impairment annually or more frequently if events or changes in
circumstances indicate that the carrying value may be impaired.
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Notes to the financial statements continued
The capitalised cost of property, plant and equipment includes
only those costs that are directly attributable to bringing an asset
to its working condition for its intended use.
Depreciation of property, plant and equipment is calculated
on cost, at rates estimated to write off the cost, less the
estimated residual value, of the relevant assets by equal annual
amounts over their estimated useful lives.
The annual rates used are:
Freehold property
Over 50 years
Leasehold improvements
Shorter of useful life and
period of the lease
Plant, equipment and vehicles
10 to 33⅓%
The carrying values of property, plant and equipment are
reviewed for material impairment in periods if events or changes
in circumstances indicate the carrying value may not be
recoverable. Useful lives and residual values are reviewed
annually and where adjustments are required these are made
prospectively.
Leased assets
In respect of property operating leases, benefits received and
receivable as an incentive to sign a lease, such as rent-free
periods, premiums payable and capital contributions, are spread
on a straight-line basis over the lease term. All other operating
lease payments are charged directly to the income statement
on a straight-line basis over the lease term. The Group has
a number of lease agreements in which the rent payable
is contingent on revenue, which is expensed in the period
in which it is incurred.
Assets held under finance leases, which transfer to the
Group substantially all the risks and benefits of ownership of the
leased assets, are capitalised at the inception of the lease, with a
corresponding liability being recognised for the lower of the fair
value of the leased asset and the present value of the minimum
lease payments. Lease payments are apportioned between the
reduction of the lease liability and finance charges in the income
statement so as to achieve a constant rate of interest on the
remaining balance of the liability. Assets held under finance
leases are depreciated over the shorter of the estimated useful
life of the asset and the lease term.
Intangible assets
Intangible assets are valued at cost less amortisation and
impairment losses. Intangible assets with finite lives are
amortised on a straight-line basis over their useful lives of
between three and 20 years and are reviewed for impairment
if there is any indication that the carrying value may not be
recoverable. Intangible assets with an indefinite useful life
are not amortised but are tested for impairment annually
or more frequently if events indicate that the carrying value
may be impaired.
14531_HMV_AR11_p12-92.indd 46
Impairment of assets
The Group assesses at each reporting date whether there are
indicators that an asset may be impaired. Assets are grouped
for impairment assessment purposes at the lowest level at which
there are identifiable cash inflows that are largely independent
of the cash inflows of other groups of assets (cash-generating
units). If any indicator of impairment exists, or when annual
impairment testing is required, the Group makes an estimate of
the asset’s recoverable amount, being the higher of its fair value
less costs to sell and its value in use. Value in use is the present
value of the future cash inflows expected to be derived from the
asset. Where the asset does not generate cash inflows that are
independent from other assets, the recoverable amount of the
cash-generating unit to which the asset belongs is estimated.
Where the carrying amount of an asset or cash-generating
unit exceeds its recoverable amount, an impairment loss is
recognised in the income statement.
If there is an indication at the reporting date that previously
recognised impairment losses no longer exist or may have
decreased, the recoverable amount is again estimated. To the
extent that the recoverable amount has increased, the previously
recognised impairment loss is reversed. An impairment loss in
respect of goodwill is not reversed.
Assets held for sale
Non-current assets and disposal groups are classified as held for
sale only if available for immediate sale in their present condition
and a sale is highly probable and expected to be completed
within one year from the date of reclassification. Such assets and
liabilities are measured at the lower of carrying amount and fair
value less costs to sell and are not depreciated or amortised.
Inventories
Inventories are stated at the lower of cost and net realisable
value on a first-in, first-out basis. Net realisable value is based
on estimated selling prices less further costs to be incurred
to disposal.
Taxation
Current tax Current tax assets and liabilities for the current
and prior periods are measured at the amount expected to
be recovered from, or paid to, the taxation authorities, based
on tax rates and laws that are enacted or substantively enacted
by the balance sheet date.
Deferred tax Deferred income tax is recognised on all temporary
differences at the balance sheet date between the tax bases
of assets and liabilities and their carrying amounts for financial
reporting purposes.
Deferred tax liabilities are generally recognised for all
temporary differences and deferred income tax assets are
recognised to the extent that it is probable that taxable profit will
be available against which the deductible temporary differences
can be utilised. The carrying amount of deferred income tax
assets is reviewed at each balance sheet date and reduced to
the extent that it is no longer probable that sufficient taxable
profit will be available to allow all or part of the deferred income
tax asset to be utilised.
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Such assets and liabilities are not recognised if the temporary
difference arises from goodwill or from the initial recognition
(other than in a business combination) of other assets and
liabilities in a transaction that affects neither the taxable profit
nor the accounting profit.
Deferred tax liabilities are not recognised for temporary
differences associated with investments in subsidiaries,
branches and joint ventures as the Group has determined
that undistributed profits will not be distributed in the
foreseeable future.
Deferred income tax assets and liabilities are measured
at the tax rates that are expected to apply to the year when
the asset is realised or the liability settled, based on tax rates
and laws that have been enacted or substantively enacted
at the balance sheet date, and are not discounted.
Taxation is charged or credited to other comprehensive
income if it relates to items that are themselves charged or
credited to other comprehensive income, otherwise it is
recognised in the income statement. Taxation relating to items
taken directly to equity is also charged or credited directly
to equity.
Deferred tax assets and deferred tax liabilities are offset,
if a legally enforceable right exists to set off current tax assets
against current tax liabilities and the deferred taxes relate to the
same taxable entity and the same taxation authority.
Cash and cash equivalents
Cash and short-term deposits comprise cash at bank and in
hand and short-term deposits with an original maturity of three
months or less. For the purposes of the cash flow statement,
cash and cash equivalents consist of cash and short-term
deposits less bank overdrafts that are payable on demand.
Interest-bearing loans and borrowings are initially recognised
at fair value less directly attributable transaction costs and are
subsequently measured at amortised cost using the effective
interest rate method.
Provisions
A provision is recognised when the Group has a legal or
constructive obligation as a result of a past event and it is
probable that an outflow of economic benefits will be required
to settle the obligation. If the effect is material, expected future
cash flows are discounted using a current pre-tax rate that
reflects the risks specific to the liability.
Pension costs
The Group operates both defined benefit and defined
contribution pension schemes, the funds of which are held
in separate, trustee administered funds.
The cost of providing benefits under the defined benefit
scheme is determined using the projected unit credit method,
with actuarial valuations being carried out at each balance sheet
date. The net retirement benefit obligation recognised in the
balance sheet represents the present value of the liabilities of
the defined benefit scheme as reduced by the market value
of the defined benefit scheme assets.
14531_HMV_AR11_p12-92.indd 47
Actuarial gains and losses are recognised in other
comprehensive income in full in the period in which they occur.
Other income and expenses associated with the defined benefit
scheme are recognised in the income statement.
The defined benefit scheme provides benefits to a number
of Group companies. There is no agreement or policy for
allocating a share of the defined benefit obligation to each
participating entity. Consequently, the Company, as sponsoring
employer of the defined benefit scheme, recognises the net
pension obligation for the scheme. The other participating
members of the scheme account for their relevant pension
costs on a defined contribution basis.
On 31 March 2011 the defined benefit scheme was
closed to future accrual and members were instead offered
membership of the defined contribution scheme. Further details
are given in Note 33.
Contributions to the defined contribution scheme are
charged in the income statement as they become payable
in accordance with the rules of the scheme.
Share-based payments
The cost of equity-settled transactions with employees granted
on or after 7 November 2002, which had not vested by
1 January 2005, is measured by reference to the fair value at
the date at which they are granted and is recognised as an
expense over the vesting period, which ends on the date on
which the relevant employees become fully entitled to the award.
Fair value is determined by using an appropriate pricing model.
In valuing equity settled transactions, no account is taken
of any service and performance (vesting conditions), other than
performance conditions linked to the price of the shares of the
Company (market conditions). Any other conditions which are
required to be met in order for an employee to become fully
entitled to an award are considered to be non-vesting
conditions. Like market performance conditions, non-vesting
conditions are taken into account in determining the grant fair
value. No expense is recognised for awards that do not ultimately
vest, except for awards where vesting is conditional upon a
market vesting condition or a non-vesting condition, which are
treated as vesting irrespective of whether of not the market
vesting condition or non-vesting condition is satisfied, provided
that all other non-market vesting conditions are satisfied.
Treasury shares
HMV Group plc shares held by the Group’s Employee Benefit
Trust are classified in shareholders’ equity as ‘other reserve –
own shares’ and are recognised at cost. No gain or loss is
recognised in the financial statements on the purchase, sale,
issue or cancellation of equity shares.
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The Group may from time to time use derivative financial
instruments for hedging purposes, including forward foreign
exchange contracts. The Group does not enter into derivative
financial instruments for speculative purposes.
Derivative financial instruments are stated at their fair value.
The fair value of forward foreign exchange contracts is their
quoted market value at the balance sheet date, being the present
value of the quoted forward price.
Hedge accounting
Changes in the fair value of derivative financial instruments that
are designated and effective as hedges of future cash flows are
recognised in other comprehensive income and any ineffective
portion is recognised immediately in the income statement.
Amounts taken to other comprehensive income are transferred
to the income statement when hedged transactions affect profit
or loss, such as when a forecast sale or purchase occurs.
Hedge accounting is discontinued when the hedging
instrument expires or is sold, terminated or exercised, or no
longer qualifies for hedge accounting. At that time any cumulative
gain or loss on the hedging instrument previously recognised
in other comprehensive income is retained in equity until the
hedged transaction occurs. If the hedged transaction is no
longer expected to occur, the net cumulative gain or loss
recognised in other comprehensive income is then transferred
to the income statement.
Changes in the fair value of derivative financial instruments
that do not qualify for hedge accounting are recognised in the
income statement as they arise.
Customer loyalty schemes
The fair value of loyalty points awarded is deferred until the
awards are redeemed, after adjustment for the number of points
expected never to be redeemed. Fair value is determined by
reference to the value for which the points can be redeemed.
New accounting standards
The Group and the Company have adopted the following new
accounting standards, amendments to accounting standards and
interpretations, which are either mandatory for the first time for
the financial year ending 30 April 2011 or have been adopted
early as appropriate.
–
IAS 27 Consolidated and Separate Financial Statements
(revised 2008) (1 July 2009). This requires that a change
in the ownership interest of a subsidiary is accounted for
within equity as a transaction with owners in their capacity
as owners, therefore no longer giving rise to either goodwill
on acquisition nor a gain or loss on disposal. Changes to
non-controlling interests in subsidiaries during the period
under review totalling £0.6m have been accounted for within
equity. There is no impact on prior periods from this change
in policy.
14531_HMV_AR11_p12-92.indd 48
The following have also been adopted but have no material
impact on the Group or Company:
–
IFRS 2 Share-based Payment: Group Cash-settled Sharebased Payment Transactions (1 January 2010)
–
IFRS 3 Business Combinations (revised 2008) (1 July 2009)
–
IAS 32 Financial Instruments: Presentation – Classification
of Rights Issues (Amendment) (1 February 2010)
–
IAS 39 Financial Instruments: Recognition and Measurement
– Eligible Hedged Items (1 July 2009)
–
IFRIC 17 Distribution of Non-cash Assets to Owners
(1 July 2009)
–
Annual improvements to IFRS (issued in April 2009)
The Group has not adopted early the requirements of the
following accounting standards and interpretations, which have
an effective date after the start date of these financial statements:
–
IAS 24 Related Party Disclosures (Amendment)
(1 January 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)
–
IFRIC 14 Prepayments of a minimum funding requirements
(Amendment) (1 January 2011)
–
IFRIC 19 Extinguishing Financial Liabilities with Equity
Instruments (1 July 2010)
–
Annual improvements to IFRS (issued in May 2010)
The Directors do not anticipate that the adoption of these
standards and interpretations will have a material impact on
the Group’s financial statements.
The effective dates stated are those given in the original
IASB/IFRIC standards and interpretations. As the Group prepares
its financial statements in accordance with IFRS as adopted by
the European Union, the application of new standards and
interpretations will be subject to their having been endorsed
for use in the EU via the EU endorsement mechanism.
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3. Segmental information
For both management and financial reporting purposes the continuing operations of the Group are organised into three operating
businesses – HMV UK & Ireland, HMV International (comprising HMV Hong Kong and HMV Singapore) and HMV Live. At 30 April 2011
Waterstone’s and HMV Canada (which was previously included within HMV International) have been classified as disposal groups
available for sale and as discontinued operations as both businesses are expected to be sold within 12 months.
HMV UK & Ireland and HMV International are the pre-recorded music, video and electronic games retailing divisions that primarily
trade under the HMV brand. HMV Live’s activities include the operation of live music venues and events, including festivals, together
with sponsorship income relating to brands held within the business. It also includes the management of recording artists and other
related activities. Waterstone’s is the book retailing division of HMV Group, primarily trading under the Waterstone’s brand. Segment
information about these businesses is presented below. Finance costs, finance income and income taxes are managed on a
Group basis.
The following tables present revenue (all from third parties), profit, employee numbers and certain asset information regarding
the Group’s reportable segments, for the periods ended 30 April 2011 and 24 April 2010.
53 weeks ended 30 April 2011
HMV
HMV
UK & Ireland International
£m
£m
Segment revenue
Segment trading profit before exceptional items
Operating exceptional items:
Restructuring costs
Store closure costs
Lease disposal premium received
Store impairment costs
Pension scheme settlement
Impairment loss on remeasurement to fair value less
costs to sell
Total exceptional items allocated to segments
Segment operating profit (loss)
Exceptional items not allocated to segments:
Restructuring costs
Pension scheme curtailment
1,070.1
24.0
(2.6)
(15.1)
13.8
(9.6)
–
–
(13.5)
10.5
HMV
Live
£m
33.2
1.4
46.9
3.0
–
–
–
–
–
–
–
–
–
–
–
–
–
1.4
–
3.0
14531_HMV_AR11_p12-92.indd 49
1,150.2
28.4
(2.6)
(15.1)
13.8
(9.6)
–
–
(13.5)
14.9
(3.6)
2.8
Share of post-tax losses of associates and joint ventures not
allocated to segments
Total operating profit (loss)
Net finance costs
Exceptional finance costs
Profit (loss) before taxation
Taxation
Loss for the period
Average employees (number)
Total
continuing Discontinued
operations
operations
£m
£m
(1.0)
6,015
213
515
13.1
(8.6)
(1.9)
2.6
(5.8)
(3.2)
6,743
718.1
13.1
Total
operations
£m
1,868.3
41.5
(1.6)
(8.8)
–
(1.6)
(0.5)
(4.2)
(23.9)
13.8
(11.2)
(0.5)
(111.5)
(111.5)
(124.0)
(110.9)
(137.5)
(96.0)
–
–
–
(110.9)
0.1
–
(110.8)
(7.7)
(118.5)
6,874
(3.6)
2.8
(1.0)
(97.8)
(8.5)
(1.9)
(108.2)
(13.5)
(121.7)
13,617
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3. Segmental information continued
HMV
HMV
UK & Ireland International
£m
£m
Segment assets
Unallocated assets managed on a Group basis:
Centrally held cash and short-term deposits
Total assets
Depreciation
201.4
22.5
10.9
0.5
HMV
Live
£m
91.8
1.5
Total
operations
operations
£m
£m
304.1
24.5
Total
operations
£m
198.2
502.3
15.2
8.8
6.3
3.7
8.1
529.2
39.7
52 weeks ended 24 April 2010 (restated)
Segment revenue
Segment trading profit (loss) before exceptional items
Operating exceptional items:
Impairment charge
Restructuring costs
Integration costs
Total exceptional items
Share of post-tax profits of associates and joint ventures
allocated to segments
Segment operating profit (loss)
Share of post-tax losses of other associates and joint ventures
Total operating profit
Net finance costs
Taxation
Average employees (number)
Segment assets
Unallocated assets managed on a Group basis:
Centrally held cash and short-term deposits
Total assets
Depreciation
14531_HMV_AR11_p12-92.indd 50
HMV
UK & Ireland
£m
HMV
International
£m
1,241.9
73.8
31.1
1.2
8.1
(0.2)
–
–
–
–
–
–
–
–
–
–
(1.6)
(1.6)
–
–
73.8
1.2
6,740
227.7
227
10.0
23.1
0.5
HMV
Live
£m
0.9
(0.9)
129
88.7
0.4
Total
operations
operations
£m
£m
1,281.1
74.8
–
–
(1.6)
(1.6)
0.9
74.1
(0.6)
73.5
(6.2)
67.3
(19.3)
48.0
7,096
326.4
24.0
735.5
5.3
(2.0)
(1.7)
–
(3.7)
–
Total
operations
£m
2,016.6
80.1
(2.0)
(1.7)
(1.6)
(5.3)
0.9
1.6
–
1.6
–
1.6
(0.4)
1.2
7,058
330.5
75.7
(0.6)
75.1
(6.2)
68.9
(19.7)
49.2
14,154
656.9
19.4
7.6
30.1
1.8
10.6
707.0
43.4
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3. Segmental information continued
The following tables present revenue and certain asset information regarding the Group’s geographic locations for the periods ended
30 April 2011 and 24 April 2010.
Segment revenue from third party customers
Non-current assets
Unallocated non-current assets
Total non-current assets
United
Kingdom
£m
Rest of
Europe
£m
Asia
£m
Canada
£m
Total
£m
1,529.4
157.6
86.8
2.1
33.2
1.9
218.9
7.9
1,868.3
169.5
15.1
184.6
United
Kingdom
£m
Rest of
Europe
£m
Asia
£m
Canada
£m
Total
£m
1,662.7
292.6
100.9
4.1
31.1
2.4
221.9
10.1
2,016.6
309.2
37.7
346.9
52 weeks ended 24 April 2010 (restated)
Segment revenue from third party customers
Non-current assets
Unallocated non-current assets
Total non-current assets
Non-current assets for this purpose consist of property, plant and equipment (including those held for sale), intangible assets,
investment in joint ventures and trade and other receivables.
4. Revenue
Revenue disclosed in the consolidated income statement is analysed as follows:
2011
Sale of goods – continuing operations
Sale of goods – discontinued operations
Rendering of services
Financial revenue (Note 10)
Total revenue
14531_HMV_AR11_p12-92.indd 51
£m
2010
(Restated)
£m
1,136.9
718.1
13.3
0.2
1,868.5
1,279.8
735.5
1.3
0.4
2,017.0
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5. Total Group operating profit (including discontinued operations)
Total Group operating profit (including discontinued operations) is stated after charging (crediting):
Depreciation of property, plant and equipment
Impairment charges
Amortisation of intangible assets
Cost of inventories recognised as expense
Write down of inventories
Operating lease rentals:
Minimum rentals
Contingent rentals
Sublease rentals
Net operating lease rentals
2011
£m
2010
£m
39.7
122.7
0.3
1,185.6
6.7
43.4
2.0
0.1
1,296.3
5.4
161.2
2.3
(3.9)
159.6
161.9
3.3
(3.4)
161.8
The Group leases stores under non-cancellable operating lease agreements that are generally subject to periodic rent review.
These agreements provide for either or both minimum rentals and percentage rentals based on sales performance.
6. Fees to auditors
Audit of the Group financial statements
Other fees to auditors:
Local statutory audits for subsidiaries
Other services pursuant to legislation
Tax services
Services relating to corporate finance transactions
2011
£m
2010
£m
0.5
0.2
0.2
0.1
0.1
0.6
1.5
0.2
0.1
–
0.1
0.6
7. Exceptional items (before taxation)
Recognised in arriving at operating profit:
Restructuring costs
Store closure costs
Lease disposal premium received
Impairment costs
Pension scheme curtailment/(settlement)
Integration of Live division
Operating exceptional items
Impairment loss on remeasurement to fair value less costs to sell
Exceptional finance costs – Refinancing
Total exceptional items
14531_HMV_AR11_p12-92.indd 52
2011
2011
2011
£m
£m
£m
Continuing Discontinued
operations operations
Total
(6.2)
(15.1)
13.8
(9.6)
2.8
–
(14.3)
–
(14.3)
(1.9)
(16.2)
(1.6)
(8.8)
–
(1.6)
(0.5)
–
2010
(Restated)
£m
2010
(Restated)
£m
2010
(Restated)
£m
Continuing Discontinued
operations
operations
Total
(7.8)
(23.9)
13.8
(11.2)
2.3
–
–
–
–
–
–
(1.6)
(1.7)
–
–
(2.0)
–
–
(1.7)
–
–
(2.0)
–
(1.6)
(12.5) (26.8)
(111.5) (111.5)
(124.0) (138.3)
–
(1.9)
(124.0) (140.2)
(1.6)
–
(1.6)
–
(1.6)
(3.7)
–
(3.7)
–
(3.7)
(5.3)
–
(5.3)
–
(5.3)
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7. Exceptional items (before taxation) continued
Exceptional items (charged) credited comprise the following:
–
Restructuring costs of £7.8m relating to redundancy costs of non-store employees in HMV UK & Ireland (£2.6m), HMV Canada
(£1.1m) and Waterstone’s (£0.5m), and £3.6m of advisory and other restructuring costs incurred by the Company during
the period;
–
Store closure costs totalling £23.9m (HMV UK & Ireland (£15.1m), HMV Canada (£0.5m) and Waterstone’s (£8.3m)), including
fixed asset write-offs, redundancy costs incurred, strip-out costs, stock obsolescence and an assessment of provisions required
for future property costs on stores where the leases have not yet expired;
–
Partially offsetting store closure costs was a £13.8m premium received in cash by HMV UK & Ireland on the disposal of its
leasehold interest in a store at 360 Oxford Street, London;
–
Fixed asset impairment charges totalling £11.2m were incurred by HMV UK & Ireland (£9.6m), Waterstone’s (£0.9m) and
HMV Canada (£0.7m) following a review of the carrying value of retail assets based on prevailing market trading conditions;
–
At 26 February 2011 the HMV Canada and Waterstone’s businesses were reclassified as disposal groups held for sale
(see Note 12). At this point they were remeasured to the lower of carrying value and fair value less costs to sell, which resulted
in an impairment charge of £111.5m);
–
The UK defined benefit pension scheme was closed to future accrual as at 31 March 2011 with related changes to other linked
benefits such as rights on early retirement. As a result of this curtailment £2.8m has been credited to the income statement.
In addition, the Irish Pension Scheme incurred an exceptional settlement cost of £0.5m in purchasing annuities for former
Waterstone’s employees and which has been classified within discontinued operations;
–
Exceptional costs of £1.9m have been incurred with respect to the refinancing negotiations that were underway in the period
to 30 April 2011 (see Note 10).
Exceptional costs for continuing operations charged to operating profit are allocated as £10.9m to cost of sales and £3.4m to
administrative expenses. A net tax credit of £7.3m arose in respect of exceptional charges (continuing operations £4.2m, discontinued
operations £3.1m).
During the previous period, included within cost of sales were exceptional impairment charges of £2.0m (Waterstone’s £1.0m,
HMV Canada £1.0m) following a review of the carrying value of certain retail assets based on prevailing market trading conditions.
Administration expenses included restructuring costs of £1.7m relating to Waterstone’s and £1.6m of integration costs following the
acquisition of MAMA Group Plc. A tax credit of £1.0m arose in respect of these charges (continuing operations £0.1m, discontinued
operations £0.9m).
8. Directors’ emoluments
Directors’ emoluments
Number of Directors accruing benefits under defined benefit pension schemes
2011
£m
2010
£m
1.2
2
2.3
3
Full details of Directors’ remuneration and interests are set out in the Directors’ remuneration report on pages 16 to 23.
9. Employee costs
Employee costs, including Executive Directors’ emoluments:
Wages and salaries
Social security costs
Other pension costs (see Note 33)
2011
£m
2010
£m
216.1
17.0
4.4
237.5
219.6
17.0
3.7
240.3
Included in wages and salaries is a total charge for equity-settled share-based payments of £0.4m (2010: credit of £1.5m).
In addition, wages and salaries includes a charge of nil (2010: £0.4m) for the Share Incentive Plan and £0.1m (2010: nil) for the
Sharesave Scheme (see Note 29).
The average monthly number of employees during the period is disclosed in Note 3.
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10. Net finance costs
2011
Finance revenue:
Bank interest receivable
Finance costs:
Bank loans and overdrafts
Amortisation of deferred financing fees
Other finance expense – pensions (see Note 33)
Total finance costs
Exceptional finance costs (see Note 7)
Net finance costs
£m
2010
(Restated)
£m
0.2
0.4
7.1
0.8
0.9
8.8
1.9
10.5
5.2
0.4
1.0
6.6
–
6.2
Included within the total net finance costs are net non-cash charges totalling £1.7m (2010: £1.4m). These comprise the amortisation
of deferred financing fees and other finance costs relating to pensions.
In addition to the above net finance income of £0.1m (2010: nil) was included in the result of the discontinued operation
(see Note 12).
11. Taxation
2011
Group
Taxation recognised in the income statement:
United Kingdom, current year:
Corporation tax – continuing operations
Corporation tax – discontinued operations
Over provision in prior periods
Overseas tax, current year:
Corporation tax – continuing operations
Corporation tax – discontinued operations
Over provision in prior periods
Total current tax
Deferred tax:
United Kingdom – continuing operations
United Kingdom – discontinued operations
Overseas – continuing operations
Overseas – discontinued operations
Total deferred tax
Total taxation expense in the income statement
14531_HMV_AR11_p12-92.indd 54
£m
2010
(Restated)
£m
(0.6)
2.2
(5.4)
19.1
0.7
(0.4)
(3.8)
19.4
1.8
(1.1)
(3.3)
(2.6)
(6.4)
0.4
0.5
–
0.9
20.3
9.3
7.9
0.1
2.6
19.9
13.5
0.3
(1.0)
(0.1)
0.2
(0.6)
19.7
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11. Taxation continued
The tax expense in the income statements is disclosed as follows:
2011
Income tax expense on continuing operations
Income tax expense on discontinued operations
Total taxation expense in the income statement
£m
2010
(Restated)
£m
5.8
7.7
13.5
19.3
0.4
19.7
The underlying effective tax rate on continuing operations before exceptional items is 7% (2010: 28%) which is lower than the
statutory rate due to over provision in prior periods. The total tax expense in the current year of £13.5m includes a credit of £7.3m
(2010: £1.0m) in relation to the exceptional items of £28.7m (excluding impairment of disposal groups) (2010: £5.3m) offset by
an exceptional charge in respect of the derecognition of the Group’s deferred tax asset.
The tax charge is reconciled with the standard rate of UK corporation tax as follows:
2011
£m
2010
£m
2.6
(110.8)
1.0
(107.2)
(29.8)
67.3
1.6
(0.3)
68.6
19.2
Effects of:
(Income not taxable)permanent disallowables
Overseas income taxed at different rates
Permanent disallowables on exceptional items
Current tax prior period over provision
Temporary differences relating to prior periods
(0.1)
0.7
31.0
(8.7)
0.4
0.9
(0.2)
0.4
(0.3)
(0.3)
Deferred tax rate change
Derecognition of deferred tax
Total tax charge
1.1
18.9
13.5
–
–
19.7
Profit from continuing operations before tax
(Loss) profit from discontinued operations before tax
Add back(less): share of post-tax (losses) profits of associates and joint ventures
(Loss) profit before taxation
Corporation tax at UK average statutory rate of 27.84% (2010: 28%)
Key factors affecting the tax charge are:
(i)
The tax charge is reduced by the release of prior year provisions relating to UK tax returns.
(ii) The tax charge is increased by non-deductible expenses including non-qualifying depreciation and impairment
on discontinued operations.
(iii) The tax charge is increased by the derecognition of deferred tax (see below).
Tax relating to items charged or credited directly to equity in the Group is as follows:
Deferred tax relating to defined benefit pension schemes
Current tax relating to defined benefit pension schemes
Current tax on foreign exchange gains and losses
Deferred tax on foreign exchange gains and losses
Tax charge (credit) in other comprehensive income
Deferred tax relating to share-based payments charged directly to equity
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2011
£m
2010
£m
6.8
(0.8)
(5.1)
(0.3)
0.1
–
6.1
1.4
7.5
(0.8)
1.3
(4.9)
0.9
(4.0)
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The deferred tax included in the Group balance sheet is as follows:
Deferred tax liability
Other temporary differences
Deferred tax asset
Accelerated depreciation for tax purposes
Defined benefit pension scheme obligations
2011
£m
2010
£m
(5.6)
(1.6)
0.2
0.4
5.5
0.2
6.3
17.5
(0.2)
10.9
1.9
30.1
The distinction between temporary differences that arise from items of either a trading or capital nature and when these can
reasonably be expected to unwind may affect the recognition of deferred tax assets. Accordingly, for the year ended 30 April 2011,
deferred tax on pensions has been recognised to the extent of scheduled contributions over a three year period of £21.0m, resulting
in a deferred tax asset of £5.5m and an unrecognised deferred tax asset of £2.9m. The derecognition of the deferred tax asset in
relation to decelerated capital allowances and the pension have been taken to the income statement (£18.9m) with the remainder
to other comprehensive income (£4.2m).
The UK Government announced in the 2010 Budget that the headline rate of UK corporation tax would be reduced from 28%
to 23% over the course of several years. The first phase of this reduction, taking the UK tax rate from 28% down to 26% came into
effect from 1 April 2011. As a result, recognised deferred tax balances are stated at 26%, resulting in a £1.1m charge to the profit
and loss account.
Unrecognised tax losses
There are no capital losses available for offset against the Group’s future capital gains.
Deferred tax in the income statement
The deferred tax included in the Group income statement is as follows:
Accelerated depreciation for tax purposes
Other
Holdover of capital gains
2011
£m
2010
£m
16.9
0.9
3.0
0.5
(1.4)
19.9
(2.5)
0.8
0.5
0.5
–
(0.7)
2011
£m
2010
£m
6.8
(0.8)
(5.1)
(0.3)
–
–
6.0
1.1
7.1
1.2
(1.2)
(5.4)
0.3
(5.1)
Company
Tax relating to other items charged or credited in the Company is as follows:
Deferred tax relating to defined benefit pension schemes
Current tax relating to defined benefit pension schemes
Current tax on foreign exchange gains and losses
Deferred tax on foreign exchange gains and losses
Tax charge (credit) in other comprehensive income
Deferred tax relating to share-based payments charged directly to equity
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The deferred tax included in the balance sheet of the Company is as follows:
Deferred tax asset
2011
£m
2010
£m
0.1
5.5
0.5
10.9
0.1
5.7
1.2
12.6
12. Discontinued operations
As at 30 April 2011 negotiations for the sale of Waterstone’s and HMV Canada were in progress and the businesses were therefore
classified as disposal groups held for sale and as discontinued operations. Waterstone’s is the book retailing division, primarily trading
in the UK and HMV Canada is the pre-recorded music, video and electronic games retailing division, previously included in the HMV
International business segment. Subsequent to the year end, the Company announced that it had reached agreement to sell both
businesses, further details of which are given in Note 37.
The results of Waterstone’s and HMV Canada for 2009/10 and 2010/11 are presented below:
2011
2011
Waterstone’s HMV Canada
£m
£m
2011
2010
2010
Total Waterstone’s HMV Canada
£m
£m
£m
2010
Total
£m
Revenue
Expenses
Operating profit before exceptional items
Net finance income
Profit before taxation and exceptional items
Exceptional items
499.2
(487.1)
12.1
0.1
12.2
(10.2)
218.9 718.1
(217.9) (705.0)
1.0
13.1
–
0.1
1.0
13.2
(2.3) (12.5)
Impairment recognised on remeasurement to fair value less
costs to sell
(110.5)
(1.0) (111.5)
–
(Loss) profit before tax from discontinued operations
Tax (expense) credit
(Loss) profit for the period from discontinued operations
(108.5)
(9.2)
(117.7)
(2.3) (110.8)
1.5
(7.7)
(0.8) (118.5)
0.1
–
0.1
1.5
(0.4)
1.1
1.6
(0.4)
1.2
3.2
0.8
(2.5)
1.5
(0.6)
0.6
–
–
(0.7)
0.3
–
(0.4)
(1.3)
0.9
–
(0.4)
The tax (expense) credit is analysed as follows:
On profit on ordinary activities for the period
On exceptional items
On derecognition of deferred tax asset
(2.8)
2.3
(8.7)
(9.2)
0.4
3.1
(11.2)
(7.7)
513.6
(510.8)
2.8
–
2.8
(2.7)
221.9
(219.4)
2.5
–
2.5
(1.0)
735.5
(730.2)
5.3
–
5.3
(3.7)
–
–
The impairment recognised on fair value less costs to sell has been allocated to Waterstone’s goodwill (£71.0m) and property, plant
and equipment (Waterstone’s £39.5m, HMV Canada £1.0m). There was no tax impact of the impairment charge.
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12. Discontinued operations
The major classes of assets and liabilities of the businesses were as follows:
2011
2011
£m
£m
Assets
Current income tax asset
Inventories
Cash
Assets classified as held for resale
Liabilities
Interest bearing loans and borrowings
Deferred income tax liability
Retirement benefit liabilities
Provisions
Current income tax payable
Liabilities classified as held for resale
Net assets of disposal group
2011
Total
£m
23.8
–
74.4
51.2
4.1
153.5
7.9
1.7
31.8
1.0
2.3
44.7
31.7
1.7
106.2
52.2
6.4
198.2
(4.1)
(0.3)
(0.6)
(5.9)
(91.6)
(1.0)
(103.5)
50.0
(2.1)
–
–
–
(42.6)
–
(44.7)
–
(6.2)
(0.3)
(0.6)
(5.9)
(134.2)
(1.0)
(148.2)
50.0
The net cash flows attributable to Waterstone’s and HMV Canada are as follows:
2011
2011
£m
£m
Operating cash flows
Investing cash flows
Financing cash flows
Net cash in flow (outflow)
(8.3)
(7.6)
34.1
18.2
(5.6)
(2.1)
7.4
(0.3)
2011
2010
2010
Total Waterstone’s HMV Canada
£m
£m
£m
(13.9)
(9.7)
41.5
17.9
(2.7)
(14.3)
4.5
(12.5)
(0.9)
(3.1)
2.9
(1.1)
2010
Total
£m
(3.6)
(17.4)
7.4
(13.6)
In respect of Waterstone’s share of the UK defined benefit pension liabilities, a scheme apportionment arrangement was entered into
on 6 June 2011 between Waterstone’s and the Company. This provided that on Waterstone’s ceasing to participate in the scheme,
their share of the Scheme’s deficit (instead of becoming immediately payable) will be transferred to the Company. Conversely, the
Group’s Irish defined benefit scheme transfers with Waterstone’s Ireland, where all active members are employed. Further details
are provided in Note 33.
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13. Earnings per share
The following reflects the income and share numbers data used in the basic and diluted earnings per share calculations:
2011
£m
2010
(Restated)
£m
(3.2)
(1.4)
(4.6)
20.7
16.1
48.0
–
48.0
1.5
49.5
Discontinued operations (loss) profit after tax and exceptional items
Exceptional items, less tax thereon – discontinued operations
Adjusted profit from discontinued operations attributable to shareholders of the Parent Company
(118.5)
132.1
13.6
1.2
2.8
4.0
Total (loss) profit attributable to shareholders of the Parent Company
Exceptional items less tax thereon
Total adjusted profit attributable to shareholders of the parent company
(123.1)
152.8
29.7
49.2
4.3
53.5
(Loss) profit from continuing operations
Less non-controlling interests
(Loss) profit from continuing operations attributable to shareholders of the Parent Company
Exceptional items, less tax thereon – continuing operations
Adjusted profit from continuing operations attributable to shareholders of the Parent Company
Weighted average number of Ordinary Shares – Basic
Dilutive share options
Weighted average number of Ordinary Shares – Diluted
2011
Number
Million
2010
Number
Million
423.2
–
423.2
422.5
–
422.5
2011
2010
(Restated)
Pence
Earnings per Ordinary Share is calculated as follows:
Pence
Basic and diluted
Adjusted and diluted
Basic and diluted
Total operations:
Basic and diluted
(1.1)
3.8
11.3
11.7
(28.0)
3.2
0.3
1.0
(29.1)
7.0
11.6
12.7
The adjusted earnings per Ordinary Share is shown in order to highlight the underlying performance of the Group.
Earnings per share for the discontinued operation is derived from the loss attributable to shareholders of the parent from
discontinued operations of £118.5m (2010: profit £1.2m), divided by the weighted average number of Ordinary Shares 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 no dilutive share options in issue (2010: nil). At the year end 2.7m anti-dilutive share awards
were in issue (2010: 1.5m).
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14. Dividends paid and proposed
Ordinary final dividend of 5.6p per share for 2010 (2009: 5.6p)
Ordinary interim dividend of 0.9p per share for 2011 (2010: 1.8p)
2011
£m
2010
£m
23.7
3.8
27.5
23.6
7.6
31.2
The Board is not recommending the payment of a final dividend. Consequently, the 0.9p per share interim dividend already paid
represents the total dividend for the year (2010 total dividend: 7.4p).
15. Property, plant and equipment
Group
Cost at 25 April 2009
Currency retranslation
Disposals
Additions
Acquisition of subsidiary (Restated, see Note 16)
Cost at 24 April 2010 (Restated)
Disposals
Additions
Transfer to assets held for sale
Depreciation and impairment at 25 April 2009
Charge for period
Impairment loss
Disposals
Charge for period
Impairment loss
Disposals
Transfer to assets held for sale
Net book value at 30 April 2011
Net book value at 24 April 2010 (restated)
14531_HMV_AR11_p12-92.indd 60
Freehold
property
£m
–
–
–
–
2.6
2.6
–
–
–
–
2.6
–
–
–
–
–
–
–
0.1
–
–
–
0.1
2.5
2.6
–
Leasehold
property and
improvements
£m
15.6
(0.5)
–
1.2
3.7
20.0
(0.8)
(0.2)
2.4
–
21.4
10.1
(0.5)
0.7
–
–
10.3
(0.8)
1.1
–
(0.2)
–
10.4
11.0
9.7
5.5
Plant,
equipment
and vehicles
£m
482.3
7.0
(5.4)
38.7
3.6
526.2
(2.0)
(31.8)
25.8
(230.1)
288.1
325.9
5.8
42.7
2.0
(4.9)
371.5
(1.8)
38.5
11.2
(27.7)
(157.9)
233.8
54.3
154.7
156.4
Total
£m
497.9
6.5
(5.4)
39.9
9.9
548.8
(2.8)
(32.0)
28.2
(230.1)
312.1
336.0
5.3
43.4
2.0
(4.9)
381.8
(2.6)
39.7
11.2
(27.9)
(157.9)
244.3
67.8
167.0
161.9
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15. Property, plant and equipment continued
Property, plant and equipment has been written down by £11.2m (2010: £2.0m), of which £9.6m relates to HMV UK & Ireland
(2010: nil), £0.9m relates to Waterstone’s (2010: £1.0m) and £0.7m to HMV Canada (2010: £1.0m), following an impairment review
of the carrying value of certain retail assets based on prevailing market trading conditions. The recoverable amounts of assets were
determined from value in use calculations that incorporated three-year cash flow estimates discounted at an appropriate pre-tax
discount rate of 11.8%. The cash flows reflected management’s best estimates of revenue, margin and operating costs over the
forecast period and no reasonably possible change in assumptions would result in further impairment.
Property, plant and equipment with a net book value of £72.2m has been transferred to assets held for sale as at 30 April 2011
(see Note 12).
The carrying value of plant, equipment and vehicles held under finance leases at 30 April 2011 was £6.0m (2010: £6.5m), of
which £5.9m is included in amounts transferred to assets held for sale. £0.1m of fixed assets acquired with a subsidiary were held
under finance lease at 24 April 2010. Leased assets are pledged as security for the related finance leases.
Company
Disposals
Cost at 24 April 2010 and 30 April 2011
Depreciation at 25 April 2009, 24 April 2010 and 30 April 2011
Plant,
equipment
and vehicles
£m
2.0
(0.1)
1.9
1.8
0.1
0.1
0.2
Total
£m
2.0
(0.1)
1.9
1.8
0.1
0.1
0.2
16. Business combinations
During the prior year, on 29 January 2010 the Group completed its acquisition of MAMA Group Plc, when its offer for the entire
issued share capital became unconditional. MAMA comprised a diverse range of music-related businesses, and was the Group’s
joint venture partner in the Mean Fiddler Group, the UK’s second largest multiple live music venue operator. The consideration paid
to acquire MAMA’s shares was £46.0m, which included £4.2m incurred in December 2009, when 10% of share capital was acquired
at 5.25p per share, with the remaining share capital subsequently purchased at 5.4p per share. Associated fees totalled £1.0m.
The total consideration also included £15.5m (including £1.7m fees) incurred in the Group’s earlier investment in Mean Fiddler
Group. This gave a total cost of acquisition of £62.5m, all of which was satisfied in cash.
At 24 April 2010 goodwill of £44.1m was capitalised based on provisional fair values (see Note 17). These fair values have now
been finalised, resulting in a decrease in the fair value of the net assets acquired (detailed below) and consequently an increase in the
goodwill capitalised of £4.6m, bringing the total goodwill to £48.7m. The Group has paid an amount in excess of the fair value of the
net assets based on the expected future profitability and cash generation of the business, as well as a number of synergy benefits,
including using the HMV brand and business relationships to improve operating metrics, and the opportunity with MAMA to build a
wider ticketing business of scale. As part of the fair value exercise, historic goodwill of £22.0m in the books of MAMA Group was
written-off. In addition, intangible assets totalling £5.2m (£3.6m over the book value) have been recognised on acquisition, reflecting
the fair value of various brands predominantly relating to MAMA’s festivals business.
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16. Business combinations continued
From the date of acquisition to 24 April 2010, the operations of MAMA Group contributed £8.1m of revenue and made a loss before
tax and exceptional items of £0.2m. In addition, exceptional costs of £1.6m were charged in the period relating to integration costs
(see Note 7). If the acquisition had taken place at the beginning of the period ended 24 April 2010, revenue for the total Group,
including discontinued operations, would have been £2,053.9m, operating profit before exceptional items would have been £83.3m
and profit before tax and exceptional items would have been £76.5m.
The fair value of the identifiable assets and liabilities as at the date of acquisition, and the corresponding carrying amounts
immediately before the acquisition were:
Book value
£m
Intangible assets
Goodwill
Investments
Inventories
Receivables
Cash
Payables
Provisions
Taxation
Borrowings
Derivative financial instrument
Restated fair
value to Group
£m
10.7
1.6
22.0
5.8
0.4
21.3
7.8
(14.2)
(0.2)
(2.1)
(8.8)
(0.8)
43.5
Non-controlling interest
Effect of the change in fair value of equity previously owned
HMV Group share of net assets acquired
Goodwill arising on acquisition
Consideration (satisfied by cash)
9.9
5.2
–
2.8
0.4
20.1
7.8
(15.2)
(2.2)
(3.1)
(8.8)
(0.8)
16.1
(1.2)
(1.1)
13.8
48.7
62.5
Changes to the provisional fair values previously reported are as follows:
–
–
–
–
–
Property, plant and equipment have been revalued downwards by £0.3m following as an assessment of their carrying value.
Investments have been revalued downwards by £2.7m following an assessment of their future profitability and cash flows.
Payables have increased by £0.4m as a result of a review of obligations.
Provisions have been increased by £1.0m following a review of a number of onerous contracts.
Non-controlling interests have increased by £0.2m due to a review of the recoverability of advances made.
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17. Intangible assets
Group
Acquisition of subsidiary
Cost at 24 April 2010 (restated)
Transfer to disposal group
Amortisation at 25 April 2009
Charge for period
Charge for period
Net book value at 24 April 2010 (restated)
Trademarks
and brands
£m
2.1
5.2
7.3
–
7.3
0.1
0.1
0.2
0.3
0.5
6.8
7.1
2.0
Goodwill
£m
71.0
48.7
119.7
(71.0)
48.7
–
–
–
–
–
48.7
119.7
71.0
Total
£m
73.1
53.9
127.0
(71.0)
56.0
0.1
0.1
0.2
0.3
0.5
55.5
126.8
73.0
Intangible assets include the various trademark registrations and applications for the acronym ‘HMV’ and the dog and trumpet
trademark. They are considered to have an indefinite life as they can be renewed at minimal costs and therefore no amortisation
has been charged. Non-amortisation is supported by an annual impairment review.
Also included are various trademarks and domain names pertaining to the Fopp brand. These are considered to have a useful
life of 10 years and amortisation is being charged over this period.
Various brands predominantly relating to MAMA’s festivals business, totalling £5.2m, were capitalised on the acquisition
of MAMA Group Plc on 29 January 2010. They are considered to have a useful life of 20 years and amortisation is being charged over
this period. Goodwill of £48.7m was recognised relating to the same acquisition, which is allocated to the Live cash-generating unit.
The carrying value of the goodwill is subject to an annual impairment review so as to ensure that the carrying amount is not greater
than the recoverable amount, which is determined from a value in use calculation incorporating cash flow projections based on
forecasts approved by senior management over a four year period. The forecasts used include management’s most recent view of
medium-term trading prospects. Cash flows beyond the four years have been extrapolated using a 2.5% growth rate. This rate does
not exceed the average long-term growth rate for the relevant market. The pre-tax discount rate applied to cash flow projections is
13% based on WACC calculated for the Live business. On the basis of the impairment review undertaken, no impairment of the
capitalised goodwill was required. The calculation of value in use is sensitive to assumptions made with respect to sales forecasts,
gross margins and discount rates. To illustrate, the recoverable amount would reduce to a value equal to the carrying amount if
budgeted sales reduce 0.5%, budgeted gross margin rate reduced by 0.2%, the discount rate increased by 0.2% or the terminal
growth rate reduced by 0.3%.
Goodwill of £71.0m arising on the purchase of Ottakar’s plc on 3 July 2006 has been capitalised. The Ottakar’s business was
subsumed into the Waterstone’s business, which as at 30 April 2011 has been classified as a disposal group. Therefore the goodwill
has been transferred to assets held for sale and an impairment charge has been made against it to write it down to the estimate of
fair value less costs to sell. See Note 12.
The Company had no intangible assets.
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18. Investments in subsidiaries, joint ventures and associates
Investment in joint
ventures and
associates
£m
Group
At 25 April 2009
Additions (including fees incurred)
Additions via acquisition of subsidiary
14.7
9.1
2.8
Share of results for the period
Transfer to subsidiary investment upon full acquisition
0.3
(16.6)
Additions (including fees incurred)
At 30 April 2011
10.3
2.1
(1.0)
11.4
Joint ventures
The Group had the following interests in joint ventures at the balance sheet date, further details of which are given below:
Name of undertaking
7digital Inc
Angel Festivals Limited
Eleven 78 Limited
PAPA Projects Limited
Year end date
Proportion of voting rights
and shares held
31 December
31 December
31 July
31 July
50%
47.4%
50%
50%
Country of incorporation
Nature of business
England and Wales
Digital media
England and Wales
Festivals
England and Wales
Recording
England and Wales Event management
The Group’s share of the net assets and results of joint ventures is as follows:
2011
£m
2010
£m
Non-current assets
Current assets
Current liabilities
Share of net assets
2.0
2.3
(0.4)
(1.9)
2.0
1.8
2.3
–
(1.7)
2.4
Revenue
Cost of sales
Finance costs
(Loss) profit before taxation
Taxation
5.4
(4.0)
(1.7)
–
(0.3)
0.1
(0.2)
9.7
(4.9)
(4.1)
(0.1)
0.6
(0.3)
0.3
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18. Investments in subsidiaries, joint ventures and associates continued
Associates
The Group had the following interests in associates at the balance sheet date:
Year end date
Proportion of voting
rights and shares held
Nature of business
aNobii Limited
Lovebox Entertainment Limited
31 December
31 December
45.4%
38.49%
England and Wales
England and Wales
ebooks
Festivals
Metal Box Recordings Limited1
Nettwerk Records LLC
Nettwerk Management Company Ltd
Nettwerk Management (USA) LLC
Nettwerk Management UK Limited
Nettwerk Productions Partnership
Nettwerk Productions UK Limited
You Are Here LLP
31 July
30 June
30 June
30 June
30 June
30 September
30 September
31 July
33%
England and Wales
20% State of Delaware, USA
20%
Canada
20%
California, USA
20%
England and Wales
20%
Canada
20%
England and Wales
25%
England and Wales
Music production and
recording
Recording
Artist management
Artist management
Artist management
Recording
Recording
Artist management
Name of undertaking
During the year the Group and the Company acquired, for £2.1m in cash (including fees incurred), a 45.4% equity interest in aNobii
Limited, an ebook business. The Group’s investment in aNobii Limited is as follows:
2011
£m
1.8
0.3
(0.7)
1.4
Cost of investment, satisfied by cash
Professional fees incurred
Investment accounted for using the equity method
The Group’s share of the net assets and results of associates is as follows:
2011
£m
2010
£m
Non-current assets
Current assets
Current liabilities
Share of net assets
0.3
1.0
(0.1)
(0.2)
1.0
0.1
2.2
(2.5)
(0.2)
Revenue
Loss for the period
–
(0.8)
0.6
–
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Investment in
subsidiaries
£m
Company
Investment in
joint ventures
and associates
£m
Total
£m
Acquisition including professional fees
Transfer to subsidiary investment upon full acquisition
796.0
47.0
15.5
14.5
1.0
(15.5)
Capital contribution to subsidiaries for share-based payments (see Note 29)
(1.0)
857.5
Additions (see page 65)
Provision at 25 April 2009
Impairment charge
Impairment charge
–
857.5
136.9
25.0
161.9
422.4
584.3
273.2
695.6
2.1
2.1
–
–
–
–
–
2.1
–
2.1
859.6
136.9
25.0
161.9
422.4
584.3
275.3
695.6
659.1
14.5
673.6
–
–
810.5
48.0
–
(1.0)
857.5
An impairment charge of £422.4m has been made against the carrying value of the Company’s investments in various subsidiaries.
Of this, £179.6m relates to the discontinued operations, Waterstone’s and HMV Canada, where the recoverable amount of the
investments was determined based on the estimated proceeds less costs to sell the businesses. In the case of the remaining
continuing businesses, primarily HMV UK & Ireland, a review was performed based on current market trading conditions.
The recoverable amount of the investments was determined from a value in use calculation incorporating five-year cash flow
projections extrapolated at a 1% growth rate and discounted using a pre-tax rate of 11.8%, which resulted in an impairment charge
of £242.8m. The cash flows reflect management’s best estimates of revenue, margin and operating costs over the forecast period.
An increase in the discount rate of 1% would increase the impairment charge by approximately £14.0m and a decrease in the growth
rate to 0% would increase the impairment charge by approximately £8.0m.
In the previous period an impairment charge of £25.0m was made against the carrying value of the Company's investment
in Waterstone's, following a review based on current market trading conditions.
Details of the Group’s investments in joint ventures and associates are listed on pages 64 and 65. The following information
relates to those further investments whose results, or financial position, in the opinion of the Directors, principally affect the figures
of the Group as at 30 April 2011. All undertakings listed below are included in the consolidation.
Name of undertaking
Subsidiaries
Angel Music Group Limited1
Angel Entertainment Limited1
Fopp Entertainments Limited1
Forum Club (Kentish Town) Limited1
G-A-Y Group Limited1
Hammersmith Apollo Limited1
Heaven (London) Limited1
HMV Canada Inc
HMV Guernsey Limited
HMV Hong Kong Limited
HMV (IP) Limited
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Year end date
Nature of business
31 July
31 July
24 April
31 July
31 July
31 July
31 July
24 April
24 April
24 April
24 April
95%
85%
100%
100%
66.25%
100%
66.26%
100%
100%
100%
100%
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Canada
Guernsey
Hong Kong
England and Wales
Holding company
Sponsorship
Retailing
Live venue
Live venues
Live venue
Live venue
Retailing
Retailing
Retailing
Trademarks
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Name of undertaking
HMV Ireland Limited1
HMV Music Limited
HMV Singapore Pte Limited
HMV UK Limited1
Lovebox Festivals Limited1
MAMA Festivals Limited1
MAMA Group Plc
Mean Fiddler Aberdeen Limited1
Mean Fiddler Group Limited1
Mean Fiddler Holdings Limited1
MF Presents Limited1
Supervision CC LLP1
Supervision Management Group Limited1
Supervision Sandom LLP1
Waterstone’s Booksellers Amsterdam BV
Waterstone’s Booksellers Belgium SA
Waterstone’s Booksellers Ireland Limited1
Waterstone’s Booksellers Limited
1.
Year end date
Nature of business
24 April
24 April
24 April
24 April
31 July
31 July
31 July
31 July
31 July
31 July
31 July
28 February
31 July
31 July
24 April
24 April
24 April
24 April
100%
100%
100%
100%
60%
100%
100%
100%
100%
100%
100%
83.3%
100%
85%
100%
100%
100%
100%
Ireland
England and Wales
Singapore
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Netherlands
Belgium
Ireland
England and Wales
Retailing
Retailing
Retailing
Retailing
Festivals
Festivals
Holding company
Live venue
Holding company
Live music venues
Promoter
Artist management
Artist management
Artist management
Retailing
Retailing
Retailing
Retailing
Not directly held by the Company.
19. Trade and other receivables
Non-current
Lease premiums paid
Other receivables
Current
Trade receivables
Amounts owed by subsidiary undertakings
Other receivables
Prepayments and accrued income
Trade receivables continuing operations
Trade receivables included in disposal group
Group
2011
£m
Group
2010
£m
Company
2011
£m
Company
2010
£m
11.4
0.5
11.9
11.9
0.8
12.7
–
–
–
–
–
–
16.9
–
7.5
19.7
44.1
13.2
–
16.9
50.6
80.7
–
72.4
–
2.0
74.4
–
27.7
–
0.6
28.3
16.9
3.6
20.5
13.2
–
13.2
–
–
–
–
–
–
The carrying value of trade and other receivables approximates to fair value. The terms and conditions of amounts owed by subsidiary
undertakings are given in Note 36.
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19. Trade and other receivables continued
Trade receivables are denominated in the following currencies:
Sterling
Euro
Canadian dollar
Group
2011
£m
Group
2010
£m
20.2
0.1
0.2
20.5
12.7
0.2
0.3
13.2
The Group’s credit risk is limited due to the nature of its retailing business. As at 30 April 2011 £0.5m of Group trade receivables
was overdue (2010: £0.8m), of which £0.3m (2010: £0.4m) was provided for. See Note 26 for further discussion of credit risk.
Trade and other receivables are non-interest bearing and are generally on 30 day terms.
The Company has no trade receivables and no provisions for impairment of any financial assets.
20. Inventories
Inventories primarily comprise finished goods and goods for resale. The replacement cost of inventories is considered to be not
materially different from the balance sheet value.
21. Cash and short-term deposits
Cash at bank and in hand
Short-term deposits
Group
2011
£m
Group
2010
£m
Company
2011
£m
Company
2010
£m
22.8
1.3
24.1
27.8
1.9
29.7
21.4
–
21.4
48.9
–
48.9
Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of
between one day and three months depending on the cash requirements of the Group, and earn interest at the respective short-term
deposit rates.
Cash balances are deposited through the year with counter parties that have a strong credit rating, with an agreed limit for each
counterparty, so as to limit the risk of loss arising from a failure. Counterparties are AAA-rated liquidity funds, as well as banks.
For the purpose of the cash flow statement, cash and cash equivalents comprise the following:
Group
2011
£m
Cash at bank and in hand
Short-term deposits
Bank overdrafts
Cash held in disposal group
Bank overdrafts held in disposal group
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22.8
1.3
–
24.1
6.4
(2.1)
28.4
Group
2010
£m
27.8
1.9
(2.4)
27.3
–
–
27.3
Company
2011
£m
21.4
–
–
21.4
–
–
21.4
Company
2010
£m
48.9
–
(6.9)
42.0
–
–
42.0
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22. Trade and other payables
Group
2011
Current
Trade payables
Amounts owed to subsidiary undertakings
Other payables
Accruals and deferred income
Amounts owed to joint ventures and associates
Company
2011
Company
2010
£m
Group
2010
(Restated)
£m
£m
£m
92.9
–
255.5
–
–
1.0
–
0.7
73.9
25.1
103.3
83.4
2.0
1.6
4.0
3.1
–
191.9
0.6
442.8
–
4.6
–
7.8
The carrying value of trade and other payables approximates to fair value. Trade payables are not interest-bearing and are generally
settled on 30–60 day terms. Other payables and accruals are not interest-bearing. The terms and conditions of amounts owed to
subsidiary undertakings are given in Note 36.
23. Interest-bearing loans and borrowings
Non-current
Finance leases
Bank loans
Current
Finance leases
Current borrowings
Bank overdrafts
Total external loans and borrowings
Loans from subsidiary undertakings
Total loans and borrowings
Group
2011
£m
Group
2010
£m
Company
2011
£m
Company
2010
£m
–
7.0
7.0
4.1
7.7
11.8
–
–
–
–
–
–
–
185.0
–
185.0
192.0
–
192.0
1.0
81.1
2.4
84.5
96.3
–
96.3
–
184.2
–
184.2
184.2
81.6
265.8
–
80.3
6.9
87.2
87.2
140.3
227.5
Current borrowings fall due within one year of the balance sheet date. They reflect amounts drawn down from the Group’s multicurrency revolving credit facility (see Note 26), repayments due on the Group’s five year term loan and in the prior year, the short-term
element of finance leases. Bank overdrafts are repayable on demand. Non-current bank loans consists of repayments due on the
Group’s five year term loan in more than one year. The maturity of non-current finance leases is shown in Note 35. Finance leases
in 2011 are included in the disposal group. The terms and conditions of loans from subsidiary undertakings are shown in Note 36.
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23. Interest-bearing loans and borrowings continued
Interest-bearing loans and borrowings analysed by currency are as follows:
Sterling – revolving credit facility
– term loan
– overdraft
– finance leases
Canadian Dollars – overdraft
External loans and borrowings
Sterling – loans from subsidiary undertakings
Euro – loans from subsidiary undertakings
Group
2011
£m
Group
2010
£m
Company
2011
£m
Company
2010
£m
184.0
8.0
–
–
–
192.0
–
–
192.0
80.3
8.5
–
5.1
2.4
96.3
–
–
96.3
184.2
–
–
–
–
184.2
81.6
–
265.8
80.3
–
6.9
–
–
87.2
140.3
–
227.5
All loans and borrowings of the Group and Company as at 30 April 2011 and 24 April 2010 bear interest at variable rates. The rates
are set in advance for periods ranging from overnight to six months by reference to a relevant benchmark rate. Terms and conditions
of loans from subsidiary undertakings are given in Note 36.
Details of security granted under the Facility Agreement are given in Note 26.
In addition to the above, the disposal group includes £4.1m of finance leases held in Waterstone’s and £2.1m of bank overdrafts
held in Canadian dollars by HMV Canada.
24. Provisions
Group
At 24 April 2010 (restated):
Current
Non-current
Charged during the year
Provisions utilised
Released during the year
At 30 April 2011
Analysed as:
Current
Non-current
Group
Total
£m
Company
Total
£m
4.0
1.1
5.1
30.1
(15.0)
(0.6)
(5.9)
13.7
–
–
–
2.6
–
–
–
2.6
10.9
2.8
13.7
2.6
–
2.6
Provisions consist of amounts in respect of store closures, restructuring and onerous leases. The £30.1m provision created
in the year was in respect of store closures and restructuring charges, as further discussed in Note 7. The utilisation of provisions
in the current year largely reflects store closures and the rental costs, net of sublet income, of previously closed stores.
The disposal group includes £5.9m of provisions in respect of store closures, restructuring and onerous leases.
The Company’s provisions at 30 April 2011 (24 April 2010: nil) were in respect of exceptional restructuring and
refinancing charges.
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25. Derivatives and financial instruments
Currency derivatives
The Group uses derivative instruments in order to manage foreign currency exchange risk arising on expected future purchases of
internationally sourced products in the Group’s subsidiaries. In all cases the implementation of these derivative instruments has been
negotiated to match expected purchases and they therefore qualify for hedge accounting. The fair value of cash flow hedges in place
at 30 April 2011 is a £0.5m liability (2010: £0.1m asset), which has been recognised in the hedging reserve.
Interest rate hedging
No interest rate hedging instruments were utilised during the current or prior period, except that detailed below. Interest rate
exposures continue to be monitored in accordance with the Group’s treasury policies.
On acquisition of MAMA Group Plc, the Group acquired a callable interest rate swap, which had been entered into by MAMA as
a hedge against interest payments. The carrying value and the fair value of this financial instrument was a £0.8m liability at acquisition
and at 24 April 2010 and a £0.8m liability at 30 April 2011. The hedge is deemed to be ineffective and therefore future changes to the
carrying value are charged or credited to the income statement.
Fair values
Derivative financial instruments recognised on the balance sheet are considered to be level two of the fair value hierarchy. Valuation
of these instruments involves the use of a model with inputs that are directly or indirectly observable market data. The fair values of
each category of the Group’s financial instruments and their carrying values in the Group’s balance sheet, excluding trade and other
receivables and trade and other payables, are as follows:
30 April 2011
Carrying
amount
£m
24 April 2010
Fair value
£m
Carrying
amount
£m
Fair value
£m
Financial assets
Foreign exchange forward contracts
Financial liabilities
Long-term borrowings
Short-term borrowings
24.1
–
24.1
–
29.7
0.1
29.7
0.1
(7.0)
(185.0)
(7.0)
(185.0)
(7.7)
(81.1)
(7.7)
(81.1)
Interest rate swap
Bank overdrafts
Finance leases
(0.5)
(0.8)
–
–
(0.5)
(0.8)
–
–
–
(0.8)
(2.4)
(5.1)
–
(0.8)
(2.4)
(5.1)
The fair values of each category of the Company’s financial instruments and their carrying values in the Company’s balance sheet,
excluding trade and other receivables and trade and other payables, are as follows:
30 April 2011
Carrying
amount
£m
Financial assets
Financial liabilities
Short-term borrowings
Bank overdrafts
14531_HMV_AR11_p12-92.indd 71
24 April 2010
Fair value
£m
Carrying
amount
£m
Fair value
£m
21.4
–
21.4
–
48.9
0.1
48.9
0.1
(184.2)
(0.5)
–
(184.2)
(0.5)
–
(80.3)
–
(6.9)
(80.3)
–
(6.9)
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25. Derivatives and financial instruments continued
The fair value of cash and short-term deposits and overdrafts is based on the carrying amount as a result of their short maturity.
The fair value of borrowings is based on the carrying amount, adjusted for unamortised deferred financing fees, as a result of their
short maturity. The fair value of finance lease obligations represents the present value of minimum lease payments (Note 35).
For both the Group and the Company the carrying value of trade receivables, other receivables, trade payables and other
payables equates to the fair value. The fair value of foreign exchange forward contracts is determined using foreign exchange
spot rates prevailing at the balance sheet date.
The total notional amount of outstanding foreign currency contracts to which the Group and Company were committed at the
balance sheet date is as follows:
Commercial activities:
Euro
US Dollar
Group
2011
£m
Group
2010
£m
Company
2011
£m
Company
2010
£m
10.2
3.0
13.2
4.3
1.8
6.1
10.2
3.0
13.2
4.3
1.8
6.1
26. Financial risk factors
The Company’s and Group’s business exposes it to certain limited financial risks, such as liquidity risk, interest rate risk, credit risk
and foreign exchange risk. The Group’s Treasury department is principally responsible for managing these risks using policies
approved by the Board.
Liquidity risk
The Company’s and Group’s strategy for managing liquidity risk is to ensure that the Company and Group have sufficient funds
and facilities available to satisfy their current requirements. Liquidity forecasts are prepared on a regular basis to ensure the optimal
use of facilities and forecast covenant compliance is reviewed on a monthly basis. Longer term projections are also made to assess
strategic funding requirements.
At 30 April 2011 the Company had a £240m multi-currency revolving credit facility. The final maturity date of the facility was
30 September 2013. After the balance sheet date, the Company entered into a new banking facility, details of which are given
in Note 37. The Group also has a five year term loan in Mean Fiddler Group Ltd, a wholly owned subsidiary acquired with MAMA
Group Plc, repayable by £0.2m quarterly, with an outstanding balance at 30 April 2011 of £8.0m (2010: £8.8m) and a final maturity
of 13 November 2014. The Group also has some locally arranged bank facilities, which do not have a fixed maturity date but are
reviewed annually.
Total available at
Multi-currency revolving credit facility
Term loan
Other local facilities
Total
30 April
2011
£m
24 April
2010
£m
240.0
8.0
4.9
252.9
240.0
8.8
5.6
254.4
Fees totalling £3.6m incurred in arranging and amending the revolving credit facility have been deferred and are being amortised over
the three year term of the facility to September 2013. Fees totalling £0.3m incurred in arranging the Mean Fiddler Group term loan
were deferred and are being amortised over the five year term of the facility to November 2014.
In March 2011 the Group confirmed that it did not expect to meet certain covenant tests in its bank facility and on 5 April 2011
the Group announced that its lenders had agreed to move the measurement period for all relevant financial covenant tests from
the 12 months ending 30 April 2011 to the 12 months ending 2 July 2011. The Group's banking facilities remained fully available
at 30 April 2011. On 28 June 2011 the group entered into a new bank facility, full details of which are given in Note 37.
Interest was payable on the revolving credit facility at a rate equal to LIBOR plus a margin of 2.25% – 2.50% and on
the term loan at a rate equal to LIBOR plus a margin of 4.25%.
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26. Financial risk factors continued
Of the £240.0m (2010: £240.0m) revolving credit facility, £187.0m (2010: £81.0m) had been drawndown at 30 April 2011. Analysis of
the availability of undrawn committed facilities available to the Group is shown below:
Expiring within one year
Expiring in more than one year but not more than two years
Total
2011
£m
2010
£m
21.6
33.0
54.6
21.5
139.0
160.5
Analysis of the maturity profile of the Group’s financial liabilities at 30 April 2011 is shown below:
Current borrowings
At 30 April 2011
Bank overdrafts
Current borrowings
Finance lease
On demand
£m
Less than
3 months
£m
3 to 12 months
£m
1 to 5 years
£m
More than
5 years
£m
Total
£m
–
–
–
–
2.4
–
–
–
–
2.4
184.3
191.9
0.3
376.5
–
80.6
0.2
442.8
–
523.6
–
–
0.9
0.9
–
0.9
0.9
–
–
1.8
–
–
7.9
7.9
–
–
2.7
–
8.9
11.6
–
–
–
–
–
–
1.7
–
–
1.7
184.3
191.9
9.1
385.3
2.4
81.5
5.5
442.8
8.9
541.1
Analysis of the maturity profile of the Company’s financial liabilities at 30 April 2011 is shown below:
Current borrowings
At 30 April 2011
Bank overdrafts
Current borrowings
At 24 April 2010
14531_HMV_AR11_p12-92.indd 73
On demand
£m
Less than
3 months
£m
3 to 12 months
£m
1 to 5 years
£m
More than
5 years
£m
Total
£m
–
–
–
–
6.9
–
–
–
6.9
184.2
–
4.6
188.8
–
80.3
4.5
7.8
92.6
–
81.6
–
81.6
–
142.3
135.8
–
278.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
184.2
81.6
4.6
270.4
6.9
222.6
140.3
7.8
377.6
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74
Security
The borrowings under the Facility Agreement as at 30 April 2011 are secured by the Guarantors that comprise HMV Group plc and
any wholly-owned subsidiaries of the Company who accede to the Facility Agreement as guarantors. As a condition of the Agreement,
the aggregate gross assets, revenue and earnings before interest and tax of the Guarantors must comprise not less than 70% of the
total gross assets, revenue and earnings before tax and interest of the Company and its subsidiaries. The Guarantors at 30 April 2011
comprised HMV Group plc, HMV Music Limited, Waterstone’s Booksellers Limited, HMV (IP) Limited, HMV UK Limited, HMV Ireland
Limited, Waterstone’s Booksellers Ireland Limited and HMV Guernsey Limited. The Company has granted security comprising firstranking, fixed and floating charges over all the assets and undertakings of the Guarantors. Under the new facility (details of which are
given in Note 37) the condition described above has changed such that the aggregate gross assets, revenue and earnings before
interest and tax of the Guarantors must comprise not less than 90% of the total (excluding Live) and the Guarantors under the new
facility comprise HMV Group plc, HMV Music Limited, HMV (IP) Limited, HMV UK Limited, HMV Guernsey Limited, HMV Ireland
Limited and Rustico Holdings Limited.
The Mean Fiddler term loan is secured on the assets of the Mean Fiddler Group of companies, which include freehold and
long leasehold music and entertainment venues.
Under their banking arrangements, overdraft and cash balances of the Company and of certain subsidiaries are pooled or offset
and cross-guaranteed. Such pooling and offset arrangements are reflected in the Group balance sheet as appropriate.
Interest rate risk
The Company and Group are exposed to interest rate risk from their borrowings and cash deposits, with the potential exposure
monitored on a regular basis. In recent years, without core longer term borrowings, the strong seasonality to trading patterns has
provided that, with the onset of peak trading in December, the Group moved into a net cash position before reverting to a net debt
position until the following December. As both debt and cash deposits attract a floating rate of interest, this seasonality provided
a natural hedge against interest rate risk. However, the Group’s new banking facility (see Note 37) includes £160m of term debt,
which is anticipated to require the supplemental use of interest rate hedging instruments to manage exposure.
Credit risk
The Group’s credit risk arises from its cash and cash equivalents, deposits, and outstanding receivables.
The Group deposits cash balances with counterparties that have a strong credit rating, with an agreed limit for each counterparty,
so as to limit the risk of loss arising from a failure. Counterparties include banks forming the Group’s syndicated banking facility.
Trade and other receivables are regularly monitored and are limited in size due to the nature of the Group’s business as a retailer
dealing predominantly in cash and cash equivalents. Allowances are made for doubtful debts based on the age of the debt and the
customer’s financial circumstances.
The Company does not have any trade receivables.
Foreign exchange risk
The Company and Group are exposed to foreign exchange risk from their investing, financing and operating activities.
Forward foreign exchange contracts are used to hedge the foreign exchange risk of imports where volumes are significant.
However, the Group’s operating businesses generally source the majority of their products from suppliers within their country of
operation and so the foreign exchange exposure is limited. No speculative positions are entered into by the Group. Details of foreign
currency contracts outstanding at the balance sheet date are given in Note 25.
The Group is also exposed to foreign currency translation risk through its investment in overseas subsidiaries, which is partially
offset by foreign currency translation risk in local debt. Generally, the Group does not hedge any net translation exposure of overseas
earnings, although it may in certain circumstances implement hedges to secure short-term financial objectives.
Sensitivity analysis
The following sensitivity analysis illustrates the sensitivity to changes in market variables of the Group’s and Company’s financial
instruments and show the impact on profit and shareholders’ funds.
Interest rate sensitivity
Based on the Group’s net debt position at the year end, a 100 basis points movement in interest rates would affect the Group’s profit
before tax and shareholders’ equity by approximately £1.8m (2010: £0.8m). The impact on the Company would have been £2.5m
(2010: £2.4m).
Foreign exchange rate sensitivity
The Group has a number of cash flow hedges in place, as shown in Note 25. A 10% change in the value of hedged currencies against
Sterling would affect the Group’s profit before tax and shareholders’ equity by £0.7m (2010: £0.2m).
There would not have been any impact on the Company.
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Capital management
The Board reviews the Group’s capital structure on a regular basis, with the core objective being to ensure that the Group will be
able to continue to operate as a going concern, as well as having sufficient funds available to grow the business for the benefit of
shareholders and other stakeholders. The capital structure of the Group comprises loans and borrowings, (see Note 23), cash and
cash equivalents (see Note 21) and equity attributable to equity shareholders of the Company (see Notes 28 and 30). The Group is
subject to certain externally imposed capital requirements in the form of banking covenants that monitor fixed charge and borrowing
ratios. In addition, under the terms of a new bank facility effective 28 June 2011, certain restrictions on distributions to shareholders
now apply (see Note 37).
27. Additional cash flow information
Movements in the Group’s net debt position are as follows:
At 24 April
2010
£m
Bank overdrafts
Loans and borrowings – non-current
Loans and borrowings – current
Net debt
29.7
(2.4)
27.3
(11.8)
(82.1)
(93.9)
(66.6)
At 25 April
2009
£m
Bank overdrafts
Net debt
1.
52.7
(7.2)
45.5
(5.0)
(46.1)
(51.1)
(5.6)
Cash flow
£m
(30.8)
5.0
(25.8)
0.9
(34.8)
(33.9)
(59.7)
Cash flow
£m
1.5
(0.1)
1.4
1.5
(102.9)
(101.4)
(100.0)
Net debt
acquired
£m
7.8
–
7.8
(8.0)
(0.8)
(8.8)
(1.0)
Other non-cash
changes1
£m
–
–
–
–
(0.8)
(0.8)
(0.8)
Other non-cash
changes1
£m
–
–
–
0.3
(0.4)
(0.1)
(0.1)
Exchange
movements
£m
(0.7)
0.4
(0.3)
–
–
–
(0.3)
Exchange
movements
£m
–
(0.2)
(0.2)
–
–
–
(0.2)
At 30 April
2011
£m
30.5
(2.1)
28.4
(10.3)
(185.8)
(196.1)
(167.7)
At 24 April
2010
£m
29.7
(2.4)
27.3
(11.8)
(82.1)
(93.9)
(66.6)
Represents amortisation of issue costs incurred in connection with the raising of debt. The issue costs have been offset against the relevant debt instrument.
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27. Additional cash flow information continued
Movements in the Company’s net debt position are as follows:
At
24 April
2010
£m
Bank overdrafts
Net debt
48.9
(6.9)
42.0
–
(80.3)
(80.3)
(38.3)
At
25 April
2009
£m
Bank overdrafts
Net debt
1.
Cash flow
£m
(27.5)
6.9
(20.6)
–
(103.1)
(103.1)
(123.7)
Cash flow
£m
15.8
(30.0)
(14.2)
–
(45.1)
(45.1)
(59.3)
33.1
23.1
56.2
–
(34.8)
(34.8)
21.4
Other
non-cash
changes1
£m
Exchange
movements
£m
–
–
–
–
(0.8)
(0.8)
(0.8)
–
–
–
–
–
–
–
Other
non-cash
changes1
£m
Exchange
movements
£m
–
–
–
–
(0.4)
(0.4)
(0.4)
–
–
–
–
–
–
–
At
30 April
2011
£m
21.4
–
21.4
–
(184.2)
(184.2)
(162.8)
At
24 April
2010
£m
48.9
(6.9)
42.0
–
(80.3)
(80.3)
(38.3)
Represents issue costs incurred in connection with the raising of debt. The issue costs have been offset against the relevant debt instrument.
28. Share capital
Group and Company
Allotted, called up and fully paid Ordinary Shares of 1p each
At 25 April 2009, 24 April 2010 and 30 April 2011
Number
£m
423,587,057
4.2
No new shares were issued in the Company during the period.
In the event of a winding-up of the Company or other return of capital, the assets available for distribution to shareholders would
be applied in the following order after payment of all debts and liabilities:
(i)
Repaying pari passu the amounts subscribed (1p per share) for the Ordinary Shares.
(ii) Distributing pari passu any balance among the holders of the Ordinary Shares.
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29. Share-based payments
Details of share schemes and related performance targets are given in the Remuneration Report on pages 17 and 18. The total
charge (credit) for share-based payments is summarised as follows:
Share option plan
Deferred annual bonus
Performance Share Plan
All-employee Share Plan
2011
£m
2010
£m
–
0.3
0.1
0.1
–
0.5
–
0.5
(2.0)
–
0.4
(1.1)
Equity-settled share option plan
The Company has a number of share option schemes under which options to subscribe for the Company’s Ordinary Shares have
been granted to certain Directors and management. Options were granted at the five-day average of the market value of the
Company’s shares on the date of grant. The options can normally only be exercised after three years and were subject to the
achievement of earnings per share targets imposed at the date of grant. If the options remain unexercised after a period of 10 years
from the date of grant, the options expire. Options are forfeited if the employee leaves the Group before the option vests or before
vested options are exercised.
The charge for share options in respect of employee services during the period ended 30 April 2011 was £nil (2010: £nil).
There were no grants of share options during the period under review or the prior period.
The movements in the number of share options during the year are detailed in the table below. The options outstanding
at 30 April 2011 had a weighted average exercise price of 167p (2010: 167p) and a weighted average remaining contractual life
of 1.1 years (2010: 2.1 years).
Group
Outstanding at beginning of period
Lapsed during the period
Outstanding at end of the period1
Exercisable at end of the period
1.
2011
Options
Number
1,529,358
(496,315)
1,033,043
1,033,043
2011
Weighted
average
exercise price
Pence
167
167
167
167
2010
Options
Number
2010
Weighted
average
exercise price
Pence
1,639,581
(110,223)
1,529,358
1,529,358
167
167
167
167
Included within this balance are options over 1,033,043 (2010: 1,529,358) shares that have not been recognised in accordance with IFRS 2 as the options were granted
on or before 7 November 2002. These options have not been subsequently modified and therefore do not need to be accounted for in accordance with IFRS 2.
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29. Share-based payments continued
Group
2002 Executive Share Option Scheme
Exercise price 167p
Company
Outstanding at end of the period1
Exercisable at end of the period
1.
2011
Options
outstanding
Number
2011
Weighted
average
remaining
contractual life
Years
2010
Options
outstanding
Number
2010
Weighted
average
remaining
contractual life
Years
1,033,043
1.1
1,529,358
2.1
2011
Options
Number
2011
Weighted
average
exercise price
Pence
2010
Options
Number
2010
Weighted
average
exercise price
Pence
507,319
(485,030)
22,289
22,289
167
167
167
167
601,555
(94,236)
507,319
507,319
167
167
167
167
Included within this balance are options over 22,289 (2010: 507,319) shares that have not been recognised in accordance with IFRS 2 as the options were granted on or before
7 November 2002. These options have not been subsequently modified and therefore do not need to be accounted for in accordance with IFRS 2.
Company
2002 Executive Share Option Scheme
Exercise price 167p
2011
Options
outstanding
Number
2011
Weighted
average
remaining
contractual life
Years
2010
Options
outstanding
Number
2010
Weighted
average
remaining
contractual life
Years
22,289
1.1
507,319
2.1
Equity-settled deferred annual bonus
As part of the HMV Group plc Incentive Plan for Senior Executives, as discussed more fully in the Directors’ Remuneration Report on
page 17, the Company makes deferred awards to certain Directors and senior management. These awards are made in shares and
the number of shares awarded, together with the fair value of the award, is determined by reference to the market value of shares
at the time the award is made, not when it is paid. No adjustment to value is made for expected dividend income during the vesting
period. The deferred award normally vests following the third anniversary of the end of the financial year in which the award is made,
subject to the performance of the individual.
The charge in respect of deferred awards during the period ended 30 April 2011 was £0.3m (2010: £0.5m).
The number and weighted average fair values of, and movements in, deferred share awards during the year are as follows:
Group
Granted during the period
Vested during the period
Forfeited during the period
Outstanding at end of the period
14531_HMV_AR11_p12-92.indd 78
2011
Share
awards
Number
1,046,168
1,365,937
(21,986)
(530,526)
–
1,859,593
2011
Weighted
average
fair value
Pence
110
58
115
81
–
80
2010
Share
awards
Number
1,137,480
269,847
(204,982)
–
(156,177)
1,046,168
2010
Weighted
average
fair value
Pence
120
115
129
–
165
110
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Company
2011
Share
awards
Number
513,014
566,503
–
–
(382,208)
697,309
2011
Weighted
average
fair value
Pence
110
58
–
–
80
84
2010
Share
awards
Number
426,795
123,678
(28,094)
(9,365)
–
513,014
2010
Weighted
average
fair value
Pence
120
115
165
165
–
110
Of the outstanding balance, the assessment of performance conditions at 30 April 2011 will result in nil (2010: nil) share awards
lapsing after the period end (Company: nil, 2010: nil), whilst 560,423 (2010: 21,986) share awards will vest (Company: 246,313, 2010:
nil). The vesting awards will be settled by shares held in an Employee Benefit Trust (see Note 31) and will be transferred to employees
in July 2011.
Equity-settled Performance Share Plan (PSP)
Under the PSP the Executive Directors and certain employees are granted an award of shares, which vest after three years provided
that preset performance criteria, set by the Remuneration Committee, are met. For awards up to and including grants made during
the year ended 25 April 2009, vesting conditions were non-market related, primarily being Group earnings per share targets. For the
award granted during the year ended 30 April 2011 and 24 April 2010, the vesting conditions also include a market related element,
being relative total shareholder return. The charge in respect of the PSP during the year ended 30 April 2011 was £0.1m (2010: credit
of £2.0m).
The number and weighted average fair values of, and movements in, PSP awards during the year are as follows:
Group
Company
Transfer from other Group companies
14531_HMV_AR11_p12-92.indd 79
2011
Share
awards
Number
11,312,783
959,610
–
–
(8,592,479)
3,679,914
2011
Weighted
average
fair value
Pence
113
58
–
112
105
2010
Share
awards
Number
14,843,056
1,348,599
(1,452,083)
(3,426,789)
–
11,312,783
2010
Weighted
average
fair value
Pence
125
113
162
143
–
113
2011
Share
awards
Number
2011
Weighted
average
fair value
Pence
6,001,495
656,055
–
113
58
–
6,282,022
863,430
(61,056)
122
113
162
–
–
(4,927,976)
1,729,574
–
–
107
110
43,520
(1,126,421)
–
6,001,495
125
162
–
113
2010
Share
awards
Number
2010
Weighted
average
fair value
Pence
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The fair value of the PSP grants during the current and prior financial years were based on the following assumptions:
Number
of shares
granted
Fair value
Pence
Price at
grant date
Pence
Expected term
Years
Expected
dividend yield
%
Expected
volatility
%
1,348,599
479,805
479,805
31
44
30
115
58
58
3
3
3
5.8
n/a
6.1
46.5
n/a
42.2
Award date
14 Sep 2009
7 July 2010
7 July 2010
1.
Earnings per share.
2.
Total shareholder return.
Risk
free rate
% Vesting condition
1.92
n/a
1.55
Market2
Non-market1
Market2
Matching award to Simon Fox
In addition to the above, on 18 February 2010, the Company granted an option over 2,164,095 shares with a £nil exercise price to
Simon Fox. The share price on the date of the award was 74p. This award will vest in three years, subject to the achievement of
a range of performance objectives over a three year period (as outlined on page 18), Mr Fox remaining employed by the Group over
that period and the retention of his current shareholding of 432,819 shares. The fair value of this grant is based on the following
assumptions:
Number
of shares
granted
Fair value
Pence
Price at
grant date
Pence
Expected term
Years
Expected
dividend yield
%
Expected
volatility
%
1,442,730
721,365
55
39
74
74
3
3
n/a
6.1
n/a
42.2
Award date
18 Feb 2010
18 Feb 2010
1.
Earnings per share and strategic performance objectives.
2.
Total shareholder return.
Risk
free rate
% Vesting condition
n/a
1.55
Non-market1
Market2
All-Employee Share Plan
The HMV Group plc All Employee Share Plan (the ‘Sharesave Scheme’) was launched on 22 October 2010. Under the Sharesave
Scheme eligible employees were offered the opportunity to buy discounted HMV Group plc shares at the end of a three year savings
period. Employees may elect to save between £5 and £250 per month over three years. The option exercise price was set at a 20%
discount to the average mid-market price in the three working days prior to the Scheme launch. At the end of the three year period
employees can choose whether to exercise the options in whole or in part or have their savings refunded. 1,714,820 options were
issued at an exercise price of 44.6p and are outstanding at 30 April 2011. The fair value of options granted under the Sharesave
Scheme during the year was 8p, which was estimated using the Black Scholes option pricing model, based on the following
assumptions:
Number
of shares
granted
Fair value
Pence
Price at
grant date
Pence
Expected term
Years
Expected
dividend yield
%
Expected
volatility
%
1,714,820
8
55.7
3
8.3
45
Award date
22 Oct 2010
1.
Risk
free rate
% Vesting condition
2.3
Non-market1
Completion of savings contract.
The charge in respect of the Sharesave Scheme during the year ended 30 April 2011 was £0.1m (2010: nil).
The HMV Group plc Share Incentive Plan (the ‘SIP’) provided share-based incentives to eligible employees until closing to further
participation during May 2010. Under the SIP, employees could acquire Ordinary Shares in three ways. Firstly, the Company used the
SIP as part of its broad incentive arrangements by awarding free shares to employees; in this regard an award of 120 free shares was
made to every eligible employee on the Initial Public Offering in May 2002. There have not been any further awards of free shares and
there are no plans to award further free shares to any employees. Secondly, the Company could invite UK employees to purchase
Ordinary Shares, known as Partnership Shares, and thirdly, the Company could, if it wished, agree to match the shares purchased
with additional shares, known as Matching Shares. As at 30 April 2011 the number of shares held in Trust in respect of the SIP was
3,214,853 (2010: 3,790,074). See Note 31 for further details.
The charge in respect of the SIP during the year ended 30 April 2011 was nil (2010: £0.4m).
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30. Reserves
Equity share capital
The balance classified as equity share capital includes the total net proceeds (both nominal value and share premium) on issue
of the Company’s equity share capital, comprising 1p Ordinary Shares. At 30 April 2011, equity share capital included share premium
of £342.9m (2010: £342.9m).
Other reserve – own shares
The own shares reserve represents the Company’s shares that are held by an Employee Benefit Trust. Further details on this reserve
can be found in Note 31.
Hedging reserve
The hedging reserve is used to record changes in the fair value of derivative financial instruments that are designated and effective
as hedges of future cash flows.
Foreign currency translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements
of foreign subsidiaries.
Capital reserve
The capital reserve is utilised on cancellation of shares. No shares have been cancelled by the Company in the current or previous
period.
Goodwill
The cumulative amount of goodwill eliminated against retained earnings at 30 April 2011 is £645.5m (2010: £645.5m).
Company
The Company has taken advantage of the exemption permitted by Section 408 of the Companies Act 2006 not to publish its individual
income statement and related notes. The loss for the period after taxation, dealt with in the accounts of the Company is £403.6m
(2010: profit of £82.0m).
31. Other reserve – own shares
Group and Company
Ordinary Shares:
Balance at 25 April 2009
Shares vested
Shares transferred from Overseas Trust
Shares purchased
Shares vested
Number
of shares
1,772,765
(1,657,065)
77,956
250,000
443,656
(21,986)
421,670
Cost
£m
2.7
(2.4)
–
0.3
0.6
–
0.6
The own shares deducted from shareholders’ equity represent the Company’s shares held by an Employee Benefit Trust (‘the Trust’).
At 30 April 2011, the Trust held 421,670 (2010: 443,656) shares with a nominal value of £4,217 (2010: £4,437) and a market value
of £0.05m (2010: £0.4m). This shareholding represented 0.1% (2010: 0.1%) of the total shares of the Company. The Trust has waived
any entitlement to the receipt of dividends in respect of all of its holding of the Company’s Ordinary Shares. The Trust’s waiver of
dividends may be revoked or varied at any time. All shares held by the Trust have been financed by loans from the Company, which
at 30 April 2011 amounted to £0.3m (2010: £0.5m).
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31. Other reserve – own shares continued
The Trust holds shares to satisfy vested awards of the deferred annual bonus element of the HMV Group Incentive Plan for Senior
Executives (‘HIPS’) and the Performance Share Plan (see Note 29). During the period, 21,986 shares were released to employees
to satisfy the vesting of awards. It is expected that a further 560,423 shares will vest and be transferred to employees in July 2011.
The Group also has a UK Trust which holds the Company’s shares in connection with the HMV Group plc Share Incentive Plan,
details of which are provided in Note 29. At 30 April 2011, the UK Trust held 3,214,853 shares (2010: 3,790,074) with a nominal value
of £32,149 (2010: £37,900). The shares within the UK Trust are not held as own shares by the Group or the Company as neither has
de facto control over the shares.
32. Contingent liabilities
The management of HMV Group is not aware of any legal or arbitration proceedings pending or threatened against any member of
HMV Group which may result in any liabilities significantly in excess of provisions in the financial statements. HMV Group plc has given
a parent guarantee to support local borrowing facilities, details of which are given in Note 26.
33. Pension arrangements
HMV Group employees are members of a number of pension schemes. The main scheme that covers employees in the United
Kingdom is the HMV Group Pension Scheme (the ‘Scheme’ – established with effect from July 1998). The Scheme has two
sections – the Pension Benefit Section and the Pension Saver Section. There is also a small defined benefit pension arrangement
in Ireland (‘Irish Pension Scheme’), which comprises Waterstone’s employees and has been included in the disposal group at the
balance sheet date. The Irish Pension Scheme is therefore excluded from the balance sheet disclosures given below (see Note 12).
Pension Benefit Section
The Pension Benefit Section is of the defined benefit type and is an Inland Revenue exempt approved scheme for the purpose of the
Income and Corporation Taxes Act 1988. It is contracted out of SERPS.
A qualified actuary undertakes a valuation on at least a triennial basis. The most recently completed actuarial valuation was as at
30 June 2007 and was based on an assumed investment return of 5.0% to 6.75% a year, salary increases of 3.0% a year, and annual
pension increases of 2.5% to 3.0%, and used the projected unit method. The result of the valuation was a level of asset cover of 94%,
representing a funding deficit of £5.1m, which has been funded by three special contributions of £2.17m, the last of which was
paid on 1 May 2010. The actuarial review as at 30 June 2010 is close to completion and discussions are in progress between the
Company and the Trustees to agree a deficit recovery plan. These discussions have subsequently incorporated the agreement
of a scheme apportionment arrangement in connection with the post year end disposal of Waterstone’s – see further below.
Following completion of the 30 June 2010 review, the next actuarial review will take place no later than 30 June 2013.
During the financial year a consultation process with employees and the Trustees took place, following which the UK Scheme
closed to future benefit accrual with effect from 31 March 2011. As a result, the 399 active members of the Scheme stopped building
up a final salary pension and of these, 308 transferred to the Pension Saver Section of the Scheme, details of which are given below.
The curtailment of the Scheme due to the closure to future accrual and changes to linked benefits such as rights on early retirement
resulted in a £2.8m credit which has been recognised in the income statement for the year ended 30 April 2011 as an exceptional
item. Offsetting this, a £0.5m exceptional charge for the early settlement of liabilities in the Irish Scheme is included within
discontinued operations, giving a net exceptional credit for pension schemes of £2.3m.
Actual employer contributions to the Pension Benefit Section for the year ended 30 April 2011 were £1.7m (2010: £2.2m)
excluding the special contribution noted above of £2.17m. In addition, a special contribution of £0.3m (2010: £0.4m) was made to
the Group’s Pension Benefit Section in Ireland. As the UK scheme is now closed to future service accrual, future contributions will be
restricted to any special contributions required under a deficit recovery plan, as further discussed below.
On disposal of the Waterstone’s business, all liabilities of the Pension Benefit Section in respect of UK employees will remain
with HMV Group plc in accordance with a scheme apportionment arrangement entered into on 6 June 2011. This provided that on
Waterstone’s ceasing to participate in the Scheme, their share of the Scheme’s deficit (instead of becoming immediately payable)
will be transferred to the Company. In return for so agreeing, the Trustees and the Company have agreed certain payments to, and
additional protection for, the Scheme. These payments are as follows:
(i)
In connection with the Waterstone’s disposal, £1.0m within three weeks of completion and £1.5m within three weeks of receipt
of the deferred consideration due on 30 October 2011.
(ii) £5.0m per annum from 1 July 2011 until the end of the recovery period to be agreed with the Trustees.
(iii) £0.5m per annum from 1 May 2013 to 30 April 2021, and £3.0m on 1 January 2014.
(iv) An additional share of Group’s annual cash generation, subject to a cap of £1.0m.
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33. Pension arrangements continued
The Company will also grant security to the Trustee over the assets of the Company and certain other members of the Group,
consistent to that provided to the lenders and EMI Group under the new bank facility (see Note 37), albeit subordinated to the lenders
and EMI Group.
The Irish Pension Scheme will be included in the net assets disposed of and therefore the liability as at 30 April 2011 of £0.6m
(2010: nil) has been included in the disposal group and is excluded from the balance sheet disclosures as at 30 April 2011 given
below. In connection with the disposal, the Company is required to pay a special contribution of euro1.35m into the Irish Scheme
on completion of the Waterstone’s disposal.
Pension Saver Section
The Pension Saver Section is of the defined contribution type and is open to all permanent and temporary staff of the Group
aged between 18 and 64 years. Members can choose to pay from 2% to 5% of pensionable pay, increasing to a maximum of 6.5%
from 1 April 2011. The Group matches the amount paid by the member up to a maximum of 5% of pensionable pay, which also
increased to a maximum of 6.5% from 1 April 2011. Members have a choice of ways to invest their and the Group’s contributions in
an individual fund to buy pension benefits of their choice. Actual employer contributions to the Pension Saver Section for the year
ended 30 April 2011 were £1.0m (2010: £0.8m). In addition, employer contributions to similar pension arrangements in HMV’s
international businesses totalled £0.5m (2010: £0.5m).
Following the closure of the Pension Benefit section, 308 members joined the Pension Saver section as at 1 April 2011.
The maximum employee and matching employer contribution for these transferring members was set at 6.5% of pensionable pay.
Defined benefit pensions
Amounts reflected in the financial statements in respect of the defined benefit pension scheme are determined with the advice
of independent qualified actuaries, Towers Watson, on the basis of annual valuations using the projected unit funding method.
Scheme assets are stated at their market value at the respective balance sheet dates. The major assumptions used in the calculations
are as follows:
As at
30 April 2011
% per annum
As at
24 April 2010
% per annum
3.6
n/a
3.5
5.3
7.7
n/a
4.2
3.7
3.7
3.5
5.5
8.2
5.1
4.4
Rate of price inflation
Rate of salary increase
Rate of increase for pensions in payment
Rate used to discount scheme liabilities
Expected rate of return on equities & growth funds
Expected rate of return on bonds
Expected rate of return on index-linked bonds
The expected rate of return on Scheme assets are based on external historical and forecast market information.
The post-retirement mortality assumptions used at 30 April 2011 are in line with the actuarial funding valuation as at 30 June 2010.
They reflect the SAPS S1 pensioner mortality series table with a long term trend of improvement of 1.5% per annum from 2002,
based on members’ year of birth. This is a change from the previous valuation as at 24 April 2010 which reflected the pensioner
mortality 00 series tables rated up one year and based on year of use with allowance for medium cohort improvements applying
from 2000 subject to a minimum of 1% per annum. This change has been made to incorporate more reliable and relevant data
which has become available since the last valuation. These bases imply the following life expectancies:
Life expectancy (years)
Male
Female
2011
At age 65 for
someone
currently
aged 65
2011
At age 65 for
someone
currently
aged 50
2010
At age 65 for
someone
currently
aged 65
2010
At age 65 for
someone
currently
aged 50
22.5
24.6
24.2
26.4
21.5
23.9
23.0
25.4
Other non-financial assumptions are consistent with those used in the actuarial valuation of the Scheme as at 30 June 2007.
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Group
On the basis of the above assumptions, the amounts charged or credited to the consolidated income statement and other
comprehensive income for the period ended 30 April 2011 are set out below:
Recognised in the income statement
Current service cost
Exceptional curtailment credit – continuing operations
Exceptional settlement charge – discontinued operations
Total recognised in arriving at operating profit
Finance charge
Interest on pension scheme liabilities
Expected rate of return on assets in the pension scheme
Net charge to other finance expense
Total income statement charge before deduction for taxation
Taken to other comprehensive income
Actual return on scheme assets
Less: expected return on scheme assets
Other actuarial gains and losses
Actuarial gain (loss) recognised in other comprehensive income
2011
£m
2010
£m
(2.9)
2.8
(0.5)
(0.6)
(2.4)
–
–
(2.4)
(7.8)
6.9
(0.9)
(1.5)
(6.5)
5.5
(1.0)
(3.4)
9.8
(6.9)
2.9
0.5
3.4
22.2
(5.5)
16.7
(36.0)
(19.3)
The assets and liabilities of the Scheme at the end of the period were:
Equities
Diversified growth & absolute return funds
Bonds
Index-linked bonds
Other
Total market value of assets
Actuarial value of scheme liabilities
Deficit in the Scheme
Deferred tax
Net pension liability
As at
30 April
2011
£m
As at
24 April
2010
£m
44.6
33.5
–
34.5
0.3
112.9
(145.1)
(32.2)
5.5
(26.7)
53.1
–
25.4
25.0
0.9
104.4
(143.4)
(39.0)
10.9
(28.1)
The pension plans have not invested in any of the Group’s own financial instruments nor in properties or other assets used
by the Group.
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Changes in the fair value of the assets are analysed as follows:
Total market value of assets at the beginning of the period
Employer contributions
Employee contributions
Benefits paid
Settlement cost
Expected return on plan assets
Actuarial gain
Foreign exchange loss
Total market value of assets at the end of the period
2011
£m
2010
£m
104.4
4.4
0.8
79.0
4.8
1.0
(2.5)
(0.9)
(2.5)
–
6.9
2.9
–
(3.1)
112.9
5.5
16.7
(0.1)
–
104.4
2011
£m
2010
£m
Changes in the present value of the Scheme liabilities are analysed as follows:
(143.4)
(2.9)
2.8
0.4
(7.8)
(0.8)
2.5
0.5
(0.1)
3.7
(145.1)
Defined benefit pension obligations at the beginning of the period
Curtailment credit
Settlement cost
Interest on pension scheme liabilities
Employee contributions
Benefits paid
Actuarial gain (loss)
Foreign exchange loss
Defined benefit pension obligations at the end of the period
History of experience gains and losses
Fair value of scheme assets
Present value of defined benefit obligation
Experience adjustments arising on scheme liabilities
Other actuarial changes
Experience adjustments arising on scheme assets
2011
£m
112.9
(145.1)
(32.2)
6.0
(5.5)
2.9
2010
£m
104.4
(143.4)
(39.0)
0.2
(36.2)
16.7
2009
£m
79.0
(100.0)
(21.0)
0.1
6.9
(18.0)
2008
£m
86.3
(102.6)
(16.3)
6.6
6.5
(5.8)
(100.0)
(2.4)
–
–
(6.5)
(1.0)
2.5
(36.0)
–
–
(143.4)
2007
£m
86.9
(109.1)
(22.2)
–
1.3
(1.3)
The cumulative amount of actuarial gains and losses recognised since 25 April 2004 in other comprehensive income is £(32.5)m
(2010: £(35.9)m). The Directors are unable to determine how much of the Scheme deficit of £17.4m, recognised on transition to IFRS
and taken to other comprehensive income in the Group, is attributable to actuarial gains and losses since inception of the Scheme.
Consequently, the Directors are unable to determine the amount of actuarial gains and losses that would have been recognised in the
Group’s other comprehensive income before 25 April 2004.
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The sensitivities regarding the principal assumptions used to measure the Scheme liabilities are set out below:
Assumption
Change in assumption
Impact on defined benefit obligation
Discount rate
Price inflation
Post-retirement mortality
Increase by 0.25%
Increase by 0.25%
Life expectancy increase by one year
Decrease by 7%
Increase by 7%
Increase by 3%
Company
The Company, as sponsoring employer of the UK defined benefit scheme, recognises the net pension obligation for the Scheme.
The other participating members of the Scheme account for their relevant pension costs on a defined contribution basis.
The movement during the period in the defined benefit pension Scheme deficit recognised on the Company balance sheet is
as follows:
2011
£m
2010
£m
(39.0)
3.9
(2.8)
2.8
(1.0)
3.9
(32.2)
5.5
(26.7)
(20.7)
4.3
(2.3)
–
(1.0)
(19.3)
(39.0)
10.9
(28.1)
2009
£m
2008
£m
2007
£m
Deficit in scheme at the beginning of the period
Contributions paid
Curtailment credit
Net charge to other finance expense
Actuarial gain (loss)
Deficit in scheme at the end of the period
Deferred tax
Net pension liability
History of experience gains and losses
Fair value of scheme assets
Present value of defined benefit obligation
Experience adjustments arising on scheme liabilities
Other actuarial changes
Experience adjustments arising on scheme assets
2011
£m
2010
£m
112.9
(145.1)
100.6
(139.6)
76.4
(97.1)
83.2
(99.1)
84.1
(106.1)
(32.2)
6.0
(5.3)
3.2
(39.0)
0.2
(35.6)
16.1
(20.7)
–
5.6
(16.7)
(15.9)
6.9
5.8
(5.2)
(22.0)
–
1.3
(1.3)
The cumulative amount of actuarial gains and losses recognised since 25 April 2004 in the Company’s other comprehensive income
is £(32.1)m (2010: £(36.0)m). The Directors are unable to determine how much of the Scheme deficit of £16.9m, recognised on
transition to IFRS and taken directly to other comprehensive income in the Company, is attributable to actuarial gains and losses since
inception of the Scheme. Consequently, the Directors are unable to determine the amount of actuarial gains and losses that would
have been recognised in the Company ’s other comprehensive income before 25 April 2004.
34. Capital commitments
Group
Capital expenditure: contracted but not provided
2011
£m
2010
£m
–
–
The Company had no capital commitments contracted but not provided at either 30 April 2011 or 24 April 2010.
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35. Obligations under leases
Obligations under operating leases
The Group operates entirely from properties in respect of which commercial operating leases have been entered into. These leases
have an average remaining duration of six years. At the end of the period, future minimum rentals payable under non-cancellable
operating leases were as follows:
Land and buildings
Group
Not later than one year
Between two and five years inclusive
After five years
Other
2011
£m
2010
£m
2011
£m
2010
£m
151.8
474.7
166.4
522.9
0.6
1.5
0.5
0.7
360.8
987.3
469.2
1,158.5
–
2.1
–
1.2
Group companies other than the parent have sublet space in certain properties. The future minimum sublease payments expected
to be received under non-cancellable sublease agreements as at 30 April 2011 is £15.6m (2010: £19.6m).
Land and buildings
Company
Other
2011
£m
2010
£m
2011
£m
2010
£m
0.2
0.3
0.5
0.2
0.5
0.7
–
0.1
0.1
–
–
–
Obligations under finance leases
The Group has acquired certain plant and equipment using finance lease facilities. These leases have no terms of renewal, purchase
options or escalation clauses. At the end of the period, future minimum payments under finance leases were as follows:
Group
After five years
Less: finance charges allocated to future periods
Present value of minimum lease payments
2011
£m
2010
£m
0.8
2.5
1.1
2.7
1.1
4.4
(0.3)
4.1
1.7
5.5
(0.4)
5.1
2011
£m
2010
£m
0.7
2.5
0.9
4.1
1.0
2.7
1.4
5.1
The present value of minimum lease payments is analysed as follows:
After five years
The finance lease liability as at 30 April 2011 is classified on the balance sheet within liabilities in disposal groups held for sale
(see Note 12).
The Company had no obligations under finance leases.
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36. Related party transactions
During the period the Group and Company entered into transactions in the ordinary course of business with related parties.
Transactions entered into and balances outstanding at the end of the period are as follows:
Group
Services
received from
related parties
£m
Amounts
owed by related
parties
£m
Amounts
owed to related
parties
£m
0.9
0.5
–
–
0.2
0.9
With joint ventures
2011
2010
The Group did not enter into any transactions with associates during the course of the year. No provision has been made against
advances to non-controlling interests not expected to be recoverable (2010: £0.8m).
Company
With subsidiaries
2011
2010
Dividends
received from
related parties
£m
Services
rendered to
related parties
£m
Amounts
owed by
related parties
£m
Amounts
owed to
related parties
£m
20.0
112.2
4.4
6.5
72.4
27.7
82.6
141.0
The Company had no transactions with joint ventures in 2011 or 2010. Included within the amounts owed by and to subsidiaries,
£7.7m (2010: £0.3m) related to intercompany trading balances which are settled regularly with no interest charge and £5.7m
(2010: £4.2m) relates to group taxation relief, which is settled annually with no interest charge. The remaining net balance of £23.6m
(2010: £117.8m) related to intercompany loans, which usually have a term of up to six months and on which interest is charged at the
Bank of England base rate prevailing at the date of inception.
The Company was guarantor for the obligations of a subsidiary company, HMV Canada Inc, to a supplier, subject to a maximum
amount of C$2.5m. The guarantee expires on 31 July 2011.
Remuneration of key management personnel
The remuneration of the Directors and key management personnel of the Group is set out below:
Group
2011
£m
Group
2010
£m
Company
2011
£m
Company
2010
£m
Short-term employee benefits
1.8
2.9
0.9
2.0
Post-employment benefits
Termination benefits
0.2
–
0.2
2.2
0.2
0.1
0.2
3.4
0.2
–
–
1.1
0.2
–
–
2.2
37. Post balance sheet event
Refinancing
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).
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37. Post balance sheet event continued
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.
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.
Sale of Waterstone’s
On 20 May 2011 the Company announced that it had reached agreement to sell Waterstone’s to A&NN Capital Fund Management
Limited, a company controlled by a trust in which Alexander Mamut has an interest. 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 is payable on completion and £13.0m is payable on 31 October 2011. This deferred consideration is not contingent on the
satisfaction of any conditions. The business will be sold free of all pension liabilities, with the exception of the Irish pension scheme,
which will transfer to the purchaser subject to a special contribution of euro1.35m to be paid into the scheme on completion.
Following shareholder approval of the disposal at a general meeting on 23 June 2011, all conditions were satisfied and the
transaction completed on 28 June 2011. Transaction costs incurred by the Company in connection with the transaction are
anticipated to total £3.0m.
Sale of HMV Canada
On 27 June 2011 the Company announced that it had sold HMV Canada to Hilco UK for a total cash consideration of £2.0m.
14531_HMV_AR11_p12-92.indd 89
15/07/2011 09:59
HMV Group plc
90
Group financial record
Summarised Profit and Loss Account
Turnover
HMV UK & Ireland
53 weeks
ended
30 April
2011
£m
52 weeks
ended
24 April
2010
£m
52 weeks
ended
25 April
2009
£m
52 weeks
ended
26 April
2008
£m
52 weeks
ended
28 April
2007
£m
1,070.1
1,241.9
1,154.6
1,079.0
932.2
HMV International1
HMV Live
33.2
46.9
1,150.2
31.1
8.1
1,281.1
32.5
–
1,187.1
29.8
–
1,108.8
28.0
–
960.2
Discontinued operations2
Total HMV Group
718.1
1,868.3
735.5
2,016.6
769.6
1,956.7
827.3
1,936.1
934.3
1,894.5
53.7
1.3
–
41.4
1.9
–
24.3
2.1
–
Trading profit (loss) before exceptional items
HMV UK & Ireland
HMV International1
HMV Live
Share of post-tax (losses) profits of associates and
joint ventures
Discontinued operations2
Total HMV Group
Operating exceptional items
Net finance charges before exceptional items
Exceptional finance charges
Profit before tax
Tax
Impairment loss on disposal group
Profit after tax on disposal of discontinued operation
(Loss) profit for the financial period
Basic earnings per share
Adjusted earnings per share
Diluted basic earnings per share
Dividend per share
Total equity
1.
2.
24.0
1.4
3.0
73.8
1.2
(0.2)
(1.0)
0.3
0.2
–
–
27.4
75.1
55.2
43.3
26.4
13.1
40.5
(26.8)
(8.5)
(1.9)
3.3
5.3
80.4
(5.3)
(6.2)
–
68.9
15.1
70.3
(1.7)
(7.3)
–
61.3
23.0
66.3
(4.6)
(9.8)
–
51.9
30.9
57.3
(24.7)
(9.2)
(1.8)
21.6
(13.5)
(111.5)
–
(121.7)
(19.7)
–
–
49.2
(17.1)
–
–
44.2
(14.7)
–
51.8
89.0
(5.5)
–
–
16.1
(29.1)p
7.0p
(29.1)p
0.9p
(55.7)
11.6p
12.7p
11.6p
7.4p
100.4
10.8p
11.1p
10.7p
7.4p
99.6
22.1p
10.1p
21.8p
7.4p
58.8
4.0p
8.7p
4.0p
7.4p
(13.2)
HMV International comprises the results of HMV Hong Kong, HMV Singapore and HMV USA.
Discontinued operations comprise the results of Waterstone’s and HMV Canada, which were both sold in June 2011. In 2007 and 2008, discontinued operations also include
HMV Japan, which was sold on 25 August 2007.
14531_HMV_AR11_p12-92.indd 90
15/07/2011 09:59
HMV Group plc
91
Store and venue directory
HMV UK & Ireland
UK
Aberdeen
Ashford
Ashton under Lyne
Aylesbury
Ayr
Ballymena
Banbury
Bangor, NI
Bangor, Wales
Barnsley
Basildon
Basingstoke
Bath
Belfast Boucher Rd.
Belfast Donegall
Belfast Forestside
Bexleyheath
Birkenhead
Birmingham Bullring
Birmingham High St.
Birmingham The Fort
Blackburn
Blackpool
Bluewater
Bolton
Bolton Middlebrook
Boston
Bournemouth
Bournemouth Castlepoint
Bracknell
Bradford
Bridgend Outlet
Brighton Churchill Sq.
Bristol Broadmead
Bristol Cribbs Causeway
Burnley
Burton Upon Trent
Bury
Bury St Edmunds
Camberley
Cambridge
Canterbury
Cardiff
Cardiff Satellite **
Carlisle
Chatham
Chelmsford
Cheltenham
Cheshire Oaks
Chester
Chesterfield
Chichester
Clydebank
Colchester
Coleraine
Coventry
Craigavon
Crawley
Crewe
Croydon Centrale
Cwmbran
Darlington
Derby
Derry
Doncaster
Dumfries
Dundee
Durham
Eastbourne
East Kilbride
Edinburgh Gyle
Edinburgh Fort Kinnaird
Edinburgh Ocean Terminal
Edinburgh Princes St.
Edinburgh St. James
Enfield
Exeter
Falkirk
Folkestone
Gateshead
Gatwick South Terminal
Glasgow Argyle St.
Glasgow Braehead
Glasgow Buchanan St.
Glasgow Fort
Glasgow Silverburn
Gloucester
Greenwich **
Grimsby
Guernsey
Guildford
Hanley
Harlow
Harrogate
Hastings
Hatfield Galleria
Heathrow Terminal 1
Heathrow Terminal 3
Heathrow Terminal 4
Heathrow Terminal 5
Hemel Hempstead
Hereford
High Wycombe
Horsham
Huddersfield
Hull
Inverness
Ipswich
Isle of Man
Isle of Wight
Jersey
Kettering
King’s Lynn
Kingston
Kirkcaldy
Lancaster
Leamington Spa
Leeds Birstall **
Leeds Headrow
Leeds White Rose
Leicester
Lincoln
Lisburn
Liverpool One
Livingstone
Llandudno
Llanelli
London:
Bayswater Whiteleys
Beckton
Bromley
Canary Wharf
Fulham
Hammersmith **
Harrods
Harrow
Hounslow
Islington
Leadenhall Market
Moorgate
Oxford Circus
Putney **
Richmond
Selfridges
Stratford
Trocadero
Victoria Station
Walthamstow
Wandsworth
Westfield White City
Wimbledon
Wood Green
Loughborough
Luton
Maidstone
Manchester Airport * **
Manchester Arndale
Manchester 90 Market St.
Manchester Trafford Centre
Manchester West One
Mansfield
Merry Hill
Middlesbrough
Milton Keynes
Monks Cross
Newbury
Newcastle
Newcastle Silverlink
Newport
Newry
Newtownabbey
Northampton
Norwich
Norwich Chapelfield
Nottingham Victoria
Nuneaton
Oxford
Perth
Peterborough Queensgate
Plymouth Drake Circus
Poole
Portsmouth
Portsmouth Gunwharf Quay
Preston
Reading Oracle
Redditch
Rochdale
Romford
Rotherham
Salisbury
Scarborough
Scunthorpe
Sheffield High St.
Sheffield Meadowhall
Shrewsbury
Solihull
Southampton
Southend Victoria
Southport
Southshields
Speke Park
St. Albans
St. Helens
Stafford
Staines
Stansted
Stevenage
Stirling
Stockport
Stockton-on-Tees
Stratford
Sunderland
Sutton
Swansea
Swindon
Tamworth
Taunton
Teeside
Telford
Thanet
Thurrock
Torquay
Truro
Tunbridge Wells
Uxbridge
Wakefield
Walsall
Walton on Thames
Warrington
Watford
Wellingborough
Wigan
Winchester
Windsor
Woking
Wolverhampton
Worcester
Workington
Worthing
Wrexham
Yeovil
York
Ireland
Blanchardstown
Cork
Drogheda
Dublin Grafton Street
Dublin Henry Street
Dublin Swords
Dundalk
Dundrum
Galway
Kilkenny
Liffey Valley
Limerick
Limerick Crescent
Newbridge
Sligo
Tallaght
Fopp
Bristol
Cambridge
Covent Garden
Edinburgh
Glasgow Byres
Glasgow Union
Gower Street *
Manchester
Nottingham
HMV International
Hong Kong
Causeway Bay
Central Building
Elements, Union Square
Telford Plaza
Tsimshatsui
Singapore
CityLink
Somerset Centre
HMV Live
Air, Birmingham
Borderline (London)
Camden Barfly (London)
G-A-Y (London)
G-A-Y Late (London)
G-A-Y Manchester *
Heaven (London)
HMV Forum, Kentish Town
HMV Hammersmith Apollo
HMV Institute, Birmingham *
HMV Picture House, Edinburgh
HMV Ritz, Manchester ***
Jazz Café (London)
Relentless Garage (London)
*
**
***
14531_HMV_AR11_p12-92.indd 91
Opened in
53 weeks ended
30 April 2011
Closed since
30 April 2011
Due to open
September 2011
15/07/2011 09:59
HMV Group plc
92
Shareholder information
Financial calendar
Annual General Meeting
9 September 2011
Interim results
Announcement of results for year ending 28 April 2012
December 2011
June 2012
Ordinary Shares
The total number of Ordinary Shares in issue as at 30 April 2011 was 423,587,057 shares, which were held by a total
of 4,264 shareholders.
Share price information
The latest information on the HMV Group plc Ordinary Share price is available on www.hmvgroup.com
Registrars
All enquiries relating to Ordinary Shares, dividends and changes of address should be addressed to the Company’s registrar,
Capita Registrars.
Company information
Registered office
Shelley House
2-4 York Road
Maidenhead
Berkshire SL6 1SR
Registered number
3412290
Corporate website
www.hmvgroup.com
Other websites
www.hmv.com
www.tickets.hmv.com
www.hmv.com.hk
Auditors
Ernst & Young LLP
1 Colmore Square
Birmingham B4 6HQ
Financial advisors
Citigroup
Citigroup Centre
33 Canada Square
Canary Wharf
London E14 5LB
Nomura
25 Bank Street
Canary Wharf
London E14 5LE
14531_HMV_AR11_p12-92.indd 92
Principal bankers
Lloyds TSB Bank plc
25 Gresham Street
London EC2V 7HN
The Royal Bank of
Scotland
135 Bishopsgate
London EC2M 3UR
Registrars
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Lawyers
Simmons & Simmons
CityPoint
One Ropemaker Street
London EC2Y 9SS
15/07/2011 09:59
Contents
Introduction
Overview
The Group had a challenging financial year against
a backdrop of changing product markets and a
progressively difficult macro-economic environment.
Consequently, our operating and financial performance
was adverse to expectations.
1
Business and financial review:
3Business review
5 Financial review
Governance
11 Board of Directors
12 Corporate governance
16 Directors’ remuneration report
24 Corporate responsibility
30 Directors’ report
35Independent auditor’s report to the members
of HMV Group plc
Financial statements
36 Consolidated income statement
38 Statements of comprehensive income
39 Balance sheets
41 Statements of changes in equity
43 Cash flow statements
44 Notes to the financial statements
Decisive action was taken to restructure and refinance
the Group, and we now have a tightly focused and
clear strategy for delivering value from the highly
complementary HMV Retail and Live businesses.
HMV is a world-class brand, which is synonymous with
entertainment, and our focus is on maximising the links
between our activities in Live and Retail, and in future our
progress will be reported through these two divisions.
For the 12 months ended 30 April 2011, our continuing
operations were comprised of the following:
© Carl Fysh
90 Group financial record
Additional information
91 Store and venue directory
92 Shareholder information
92 Company information
HMV Retail
HMV Live
Leading specialist entertainment retailer,
with sales of £1.1bn and operating profit
of £25.4m
Operator of medium-size entertainment
venues and summer music festivals,
with sales of £46.9m and operating profit
of £3.0m
Visual, games and music specialist,
with rapidly evolving sales of personal
digital technology products
Over 1.8m Pure loyalty members and
ticketing platform a valuable source of
customer data
Front cover:
Jessie J performs at the HMV Next Big Thing Festival 2011.
14 venues, including HMV Hammersmith
Apollo, Institute (Birmingham), Picture
House (Edinburgh) and London’s Forum,
Relentless Garage and Jazz Café
Six summer festivals, including Lovebox,
Global Gathering and High Voltage,
and approx 30 overseas festivals under
Godskitchen and Global Gathering brands
12 months ended 30 April 2011. HMV Retail comprised of continuing businesses of HMV UK & Ireland and seven stores in Hong Kong and Singapore.
Design and production:
Radley Yeldar www.ry.com
273 stores, predominantly in the UK
18/07/2011 11:25
HMV Group plc
HMV Group plc
18/07/2011 11:25

HMV Group plc - AnnualReports.com

Transcription

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