24th Jan 12
Suppliers deal boosts HMV
by Natasha Redman
Music to their ears: shares double and banks increase loans on news
Music to their ears: shares double and banks increase loans on news
The future of embattled entertainment retailer HMV is looking slightly more secure after suppliers came to its recue.
HMV, which owns roughly 250 stores in Britain, said that it had signed improved terms with key suppliers – including Universal Music – in a move that will ultimately help it reduce about half of its £180m of debt over the coming three years.
The agreement gives an indication that the film and music industry is willing to back high street retailers during a time when internet shops provide strong competition and online piracy damages trade.
The deal was sufficient to persuade the lenders – including Lloyds Banking Group – to make amendments to existing loan agreements, providing the struggling group with more financial headroom. Following the announcement shares in the chain more than doubled.
David Joseph, Universal Music’s UK chairman, said that HMV is a key part of the music industry in the UK and they are delighted that the backing of the music companies and film studios is helping to ensure the retailer has a future to look forward to.
HMV said that its suppliers will be awarded with a stake of 2.5 per cent in the company as part of the “nature of their relationship” changing. HMV and Lloyds were unable to make any further comments on the details of the agreement due to confidentiality reasons.
However, HMV said that the new arrangement will ensure a “materially positive impact” on cash flow and profits, which will result in a reduction in net debt of 50 per cent over the coming three years. The retailer’s chief executive Simon Fox said that the deal does not address the structural issues which remain but that it gives them time to do so.
He went on to say that as a key element of this they remain committed to bettering their specialist ranging and music and DVD merchandising while also continuing to improve portable technology sales and further developing their digital and online offers.
In a separate issue, Lloyds did warn that it expected losses for the full year to be larger than anticipated at roughly £10m. The retailer has been affected by the consumer spending squeeze as hard-up shoppers look for cheaper deals for music and film products online.
HMV, which recently offloaded bookseller Waterstone’s and revealed it plans to do the same with its live music division, reported a fall of 9.7 per cent in like-for-like group sales during the nine weeks ending 31 December. Previously the group announced that up to 40 stores would be closing in an attempt to make cost savings running into the millions of pounds bracket, with 15 of these closures to take place during the first six months of the year.
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