HMV issues going concern warning over covenants risk

HIGH STREET music chain HMV is at risk of breaching its banking covenants in the new year, it has warned.

Announcing falling sales and an operating loss for the 26 weeks to 27 October 2012, HMV's new CEO and CFO warned that current performance made it "probable" that covenants would not be complied with by its next test date in January 2013.

The directors said that, as such, the issues represent a material uncertainty on the business' ability to continue as a going concern.

But the group is still within its current covenants and in "regular and constructive discussions" with the lenders, CEO Trevor Moore added.

HMV's sales from continuing operations were down 13.5% on the corresponding period, to £288.6m. Operating loss before exceptional items was £24.1m, compared to £33.2m a year earlier.

Moore said that the business was looking to improve its service offering to clients, and noted that its £30m amortisation payment due in January would be met - alongside other liabilities as they are due.

"HMV has had a difficult first half. However, 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," he said.

Moore joined HMV earlier in the year, and was joined by new group FD Ian Kenyon in August. Kenyon had served as a subsidiary CFO for Carphone Warehouse since 2008. He had also held the Carpetright group FD role.