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Article Excerpt
Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Thank you for standing by, and welcome to the HMV Interim Results Analysts and Investors conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session. (OPERATOR INSTRUCTIONS). I must advise you that this conference is being recorded today, Wednesday December 12, 2007.
I would now like to hand the conference over to your first speaker today, Simon Fox. Please go ahead, sir.
SIMON FOX, CHIEF EXECUTIVE, HMV GROUP: Thank you. Good morning, everybody, and welcome to the HMV Group Interim Results conference call. I'm joined this morning by Neil Bright.
The purpose of today's call is to report on the Group's performance during the first half of the financial year, the 26 weeks ended October 27. As we stated at our prelims in July, under the new disclosure rules, we're required to report our half year earlier than before, and so this is the first time that we've separated our interims from the Christmas trading update.
In a moment I'll be handing over to Neil, who'll take you through the details of our financial performance by business for the first half. The usual financial slides on the interims accompany Neil's report, so if you haven't yet downloaded them and you're in front of a PC, then they are available from the investor section of the hmvgroup.com website. There is no current trading update today, and we'll report on the period since the end of the half year, as well as the important Christmas trading period and a full update on our progress when we next meet with you on January 17.
So less than a year into our three year strategic plan, we are pleased with progress. It's been an improved first half for the Group, driven in particular by like-for-like sales growth of 9.2% in HMV UK and Ireland. This performance reflects the progress we are making to change the mix in HMV by exploiting the high growth categories of gains and technology, and to increase our share of music and DVD, both online, and through our stores.
Let me start with HMV UK and Ireland. In games, sales were up 80% in the period, and the category now represents 15% of sales mix, where last year, this was just 9%. Technology and related products have now been successfully rolled out to the majority of stores, and sales grew by nearly 120% in the period. The poor weather in the summer undoubtedly assisted the DVD market at that time. The category has remained strong with volumes up over 13% year-to-date. So we estimate deflation was running at about 5%. Our own DVD sales were up nearly 12%, and we continue to outperform the market.
Music market volumes fell nearly 13% in line with our expectations. However, our music sales were down 7%, reflecting a market share increase of almost 3%. Our online business hmv.com also made good progress. Year-on-year growth ran at nearly 70%, even after a couple of years of triple digit growth, and we continue to outperform that part of the market.
We were pleased to be able to show a good number of you around our next generation store in Merry Hill in September. A further four such new stores are scheduled for next year, including two in Heathrow Terminal 5 which will open in March. As I've said before further rollout will be on the basis of careful research, including how the stores trade through Christmas. But I'm pleased with what I've seen so far, especially the performance of games and technology.
In Canada, trading conditions have continued to be tough with like-for-like sales down, primarily because of a much weaker DVD market than we've experienced in the UK. Meanwhile, we've continued to increase our share of music. Our exposure to higher growth product markets is being addressed, with gains now rolled out to all stores, and technology products very recently introduced.
Since the end of the period, our main specialist competitor in Canada, which has around 6% to 7% of the music market, has entered liquidation. We expect to benefit from withdrawal of their capacity, but in the short term we expect some impact from their stock clearance activities. To complete the HMV picture, our eight shops in Hong Kong and Singapore continued to perform strongly during the period.
Turning to Waterstone's, our like-for-like sales growth was driven by Harry Potter. The market remained highly promotional throughout the period, and we expect it to remain so at Christmas, and for the balance of the second half. The initiatives to drive sales growth remain on track. In September, we launched the Waterstone's loyalty card, and we've already attracted over 700,000 registered members, which means that we're half way to our three year target of 1.5 million members. This will enable us to further differentiate waterstones.com, as the card can be used online as well as in stores, and the early evidence of this has been encouraging.
Finally from me, all of our remaining strategic initiatives encompassing cost savings, revitalizing the existing store estate, and growing in new channels, remain on track. Some of these, as I've already said, are already beginning to influence our trading performance, though it is still early days. The big days and weeks of Christmas are all in front of us, but I'm confident that we are in the best operational shape we've been in for a while and that we have exceptional customer offers, supported by great marketing which leaves us well placed for these important weeks.
With that, I'd now like to hand you over to Neil, who will take you through the first half numbers in more detail.
NEIL BRIGHT, FINANCE DIRECTOR, HMV GROUP: Thank you, Simon, and good morning. As...
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