Ailing entertainment retailer HMV looking safer after deal with suppliers

THE future of ailing music and film retailer HMV was looking more secure today after suppliers including Universal Music came to its rescue.

The loss-making group, which owns around 250 stores in the UK, in towns including Ipswich, Colchester, Bury St Edmunds and Chelmsford, said it had signed better terms with key suppliers in a move which will ultimately help it shed around half of its �180million debt pile over the next three years.

The deal is a sign that the music and film industry is willing to support high street retailers at a time when online shops provide intense competition and internet piracy damages trade.

The agreement was enough to persuade the banks, including taxpayer-backed Lloyds Banking Group, to amend existing loan agreements, giving the struggling group more financial headroom. Shares more than doubled following the announcement.

David Joseph, chairman of Universal Music in the UK, said: “HMV is a vital part of the UK music industry and we are delighted that the support of the film studios and music companies is helping to secure its future.”

HMV said its suppliers would receive a 2.5% stake in the business as part of a “change in the nature” of their relationship.

HMV and Lloyds both said they were unable to comment further on the specific details of the deal due to reasons of confidentiality.

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But the retailer said the new arrangement will have a “materially positive impact” on profits and cash flow, which will lead to a 50% reduction in net debt over the next three years.

Simon Fox, HMV chief executive, said: “It won’t address the structural issues that remain but it gives us time to address them.”

He added: “As a key part of this we remain committed to improving our specialist ranging and merchandising of music and DVD whilst also continuing to grow our sales in portable technology and further developing our online and digital offers.”

In the short terms, however, the company warned that it expected losses for the current year to be larger-than-expected at around �10million.

The chain has felt the pressure of the consumer spending squeeze as cash-strapped customers turn to cheaper deals on the internet for music and film.

HMV, which recently sold bookseller Waterstone’s and announced plans to sell its live music division, saw group like-for-like sales fall 9.7% in the nine weeks to December 31.

The group previously announced the closure of up to 40 stores in a bid to make millions of pounds of cost savings, with 15 shut in the first half of the year.

HMV’s announcement came hours after official figures showed that retail sales volumes fell short of City expections during December.

A raft pre-Christmas promotions as shops battled for cash-strapped customers’ money helped

volumes grow by 0/6% month-on-month, the Office for National Statistics said.

But although the increase reversed a 0.5% decline the previous month, it was slightly below the 0.7% growth forecast by the City.

The increase in sales volumes was driven by clothing and department stores, where growth offset a further decline for household goods stores.