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HMV set to break loan covenants in January

By | Published on Thursday 13 December 2012


HMV has admitted that it is likely to break covenants, so basically performance requirements, linked to its various debts this coming January, but says that “constructive discussions” are underway with its money-lenders in a bid to mitigate the impact of such a development.

In an interim statement to the City this morning, the retail firm said that, despite a plethora of promotions, total sales across the company fell 13.5% in the six months to 27 Oct, while the firm’s debts increased from £163.7 million to £176.1 million. Losses so far this financial year of £37.3 million, though, were an improvement on the same period last year.

Newish HMV chief Trevor Moore admitted his company was facing yet another challenging year, but added: “The business has started to deliver a number of new initiatives which will help to maximise the seasonal sales opportunity and provide a platform for growth in 2013. Additionally, as we trade through this period we will continue to develop further initiatives with our suppliers and I will provide updates at the appropriate time”.

While its Moore’s job to find the silver lining of course, critics will likely note that HMV has been in the process of “developing new initiatives” that will supposedly turn round the fortunes of the flagging retail firm for a few years now, none of which have really worked. Indeed, in the main it’s been the demise of key competitors in the market that have delivered temporary rays of hope for the entertainment retail company, but those are always short-lived, and there aren’t many high street competitors left to go bust to provide such glimmers of hope in the future.

As previously reported, HMV’s business is now almost exclusively based around high street retail, except for its sizable stake in the ever expanding 7Digital business, which is an asset definitely worth having, though many reckon the retailer will be forced to sell that at some point next year too.

Other efforts to expand the HMV brand into growing strands of the entertainment industry, rather than those in terminal decline, hit a wall when money-lenders got all nervous about the costs involved. And, as previously reported, that strategy formally ended earlier this month with the sale of the company’s live and artist services division MAMA to a consortium led by Dean James, CEO of the tours, venues, festivals and management business from before HMV’s involvement.

Of course the HMV brand remains iconic, and therefore valuable, and major players in the record and DVD industries are desperate to ensure a specialist seller of their goods remains on the British high street, hence the incredibly favourable and risky credit terms they are offering the retailer. Whether that will be enough to placate bankers and keep HMV in business throughout 2013 remains to be seen.