News

HMV makes a profit from Waterstone's, as losses deepen

19.12.11 | Benedicte Page

The HMV Group made a profit of £11.5m from the sale of book chain Waterstone's, but the fillip did not prevent the CD and DVD retailer sinking further into the mire with operating losses for the six months to end-October up 25% to £30.4m after sales fell 18%.

Total sales were £364.9m, down 17.6% on 2010 (£442.7m). Like for like sales for the first half were down 11.6%, compared with a 15.5% drop in 2010. HMV sold Waterstone's to Alexander Mamut for £53m in June, and also sold HMV Canada at the same time. The trading loss from these two businesses in the two months before they were sold was £10.2m, leading to a loss from discontinued operations of £4.6m. HMV also booked a £9.3m exceptional loss for restructuring and refinancing, leading to a net loss of £50.1m.

The company, which has issued four group profit warnings this year, said the board was confident that the group would have "adequate resources to continue in operation for the foreseeable future". But it added: "the economic environment and trading circumstances create material uncertainties which may cast significant doubt on the group's ability to continue as a going concern in the future", saying the directors were in "regular and constructive discussions" with the group's banks.

Chief executive Simon Fox said: "This has been a challenging start to the year. However, we have taken decisive action to restructure the business and are now seeing the benefits of this, particularly in our technology products business. Like all consumer-facing companies we are facing tough trading conditions but we continue to press forward during this period."

Nick Hood, head of external affairs for financial health monitoring business Company Watch, said the announcement was "extremely worrying" for staff, suppliers, lenders and shareholders. "If the outlook for HMV wasn't so gloomy, we'd expect announcements like this to come out after the vital Christmas trading period," he commented.

Comments: Scroll down for the latest comments and to have your say

By posting on this website you agree to the Bookseller comments policy. Comments go direct to live please be relevant, brief and definitely not abusive. Report any "unsuitable comments by clicking the links"

Sort: Oldest first | Newest first | Readers' most recommended

By Veteran

I'm puzzled by the assertion that HMV "made a profit of £11.5 million from the sale of book chain Waterstone's".

HMV allegedly paid £300-million for Waterstone's. They acquired Dillons (via HMV major shareholder EMI) for an undisclosed sum; bought Ottakars and rebranded - cost not known; and more recently bought 8 branches of Books Etc and rebranded - cost not known.

They sold the chain to Mr Mamut for a well-publicised £53-million.

Can someone help me with my maths?

Mon, 19/12/2011 - 17:43
By Philip Jones

It makes accounting sense. HMV would have written the cost of the original acquisition of Waterstone's etc off over time, meaning that Waterstones' would have been valued on their books at the time of the sale to Mamut at about £40m. So when HMV sold it for £53m, the difference needs to be accounted for as an exceptional profit.

Mon, 19/12/2011 - 18:00
By pixie Hotmuffin

Lies, damned lies and stastics. Take your pick.

Mon, 19/12/2011 - 19:04
By JULIAN RIVERS

Of course in terms of real cash HMV made a thumping loss.

Moreover I am pretty sure that Waterstones rarely if ever made a real profit backed by cash since Tim founded it .

Mon, 19/12/2011 - 21:24
By Old Bailey

You surely must have some alternative way to spend your life, right?

Tue, 20/12/2011 - 08:47
By la Mole

You too.....

Tue, 20/12/2011 - 10:31
By Ex-Bookseller

I really hope none of you who have posted here work in the industry- except for Philip Jones- who tried to explain the figures.

Tue, 20/12/2011 - 14:47
By Ex-Bookseller

Not meaning to be rude but come on- negativity doesn't work.

Tue, 20/12/2011 - 14:49
By Veteran

Ah, the appreciation of depreciation - or perhaps deprecation a propos the last comments...

Tue, 20/12/2011 - 17:08
By pixie Hotmuffin

So one way or another HMV lost 250 mllion on the acquisition and sale of Waterstones, however it is dressed up in the accounts. I was wondering to myself "how do you do that ?" and then I visitied a HMV store last week. Dark, awful blaring music, poorly and confusingly displayed stock soon drove me out.

Wed, 21/12/2011 - 16:58
By FFS

If they had sold Waterstone's for £53million the day after buying it for £300million then yes, they'd have lost a lot of money. But they had owned it for over a decade, during which it was contributing a profit. And as Philip points out, a proportion of its purchase price would have been written off annually. That's not dressing things up in the accounts, that is absolutely standard in any business.

Wed, 21/12/2011 - 17:25
By Old Bookseller

Which is what Julian Rivers said above. I don't believe the chain ever made any profit with Tim W at the helm - he was desperate to sell! And that's why 'investors' never wanted him back on board. It's very easy to set up a business with OPM.

Wed, 21/12/2011 - 17:58
By le Mole

I doubt if Waterstones made much profit over the 10 year ownership by HMV and the simple fact of the matter is they bought it for £300M and sold it for £53M and that is not good business.

Wed, 21/12/2011 - 21:33
By Learned Lower

As I recall from what the financial pages wrote at the time of the sale to Mamut, Waterstones were actually improving and making an albeit small profit with Dominic Myers in charge and had been propping up HMV's dwindling market, yet they were seen as a failing company. How easily we are deluded by perception rather than the facts. 75% of all albums sold are still CDs, yet everyone is talking about downloads (as in books it is all Kindle this, eBook that) HMV is shrinking their range further and more absurdly and quantity of CDs alarmingly in favour of clothing and computer/iPod accessories and bargain backlist titles and bestselling books.

Chains like HMV and Waterstones are being buried before their death by the media, the perceived superiority of the Internet (true if you know what you are looking for; less fun browsing if you don't. Find it in the shop, buy it off the internet), squeezed margins thanks to the supermarkets skimming off the profitable bits, and the general apathy of their customers. It is range, individuality, knowledgeability, with the flexibility of knowing and feeding the client base's interests and demographics that makes a successful store. HMV like Waterstones (and Borders before) believe that the monolithic one size fits all mentality is the solution; control everything from the centre. Cutting back the core stock has yet to prove to be the solution.

Thu, 22/12/2011 - 00:48
By peter

As learned lower says I was in a localish shopping centre just a couple of days ago and since I had last been (admitted at least 12 months) there were at least 2 new stores selling CD's, etc. just like HMV as well as the local HMV store and they weren't your little family owned shops, so someone must still think they can make money from selling CD's.

Thu, 22/12/2011 - 11:52
By Buff Orpington

I'm surprised, given the ease illegal downloading and growth of MP3 players, but perhaps that's because the 'grey pound' is a substantial and sometimes neglected factor in high street sales. Also, there's still a hard core of people who believe in paying for music.

Going back to the figure of 75% - it sounds impressive, but if it's 75% of a total that's decreasing year on year, then you can understand HMV's desire to find new sales channels.

I can't see HMV surviving and I'm amazed that they managed to secure a loan earlier this year. It's a case of 'when' rather than 'if'. I'd expect next Christmas to be their last.

As for Waterstone's, there's a lot of goodwill towards James Daunt, but he's going to have to really pull something out of the hat next year.

Thu, 22/12/2011 - 14:54
By Veteran

I'm puzzled by the assertion that HMV "made a profit of £11.5 million from the sale of book chain Waterstone's".

HMV allegedly paid £300-million for Waterstone's. They acquired Dillons (via HMV major shareholder EMI) for an undisclosed sum; bought Ottakars and rebranded - cost not known; and more recently bought 8 branches of Books Etc and rebranded - cost not known.

They sold the chain to Mr Mamut for a well-publicised £53-million.

Can someone help me with my maths?

Mon, 19/12/2011 - 17:43
By Philip Jones

It makes accounting sense. HMV would have written the cost of the original acquisition of Waterstone's etc off over time, meaning that Waterstones' would have been valued on their books at the time of the sale to Mamut at about £40m. So when HMV sold it for £53m, the difference needs to be accounted for as an exceptional profit.

Mon, 19/12/2011 - 18:00
By pixie Hotmuffin

Lies, damned lies and stastics. Take your pick.

Mon, 19/12/2011 - 19:04
By JULIAN RIVERS

Of course in terms of real cash HMV made a thumping loss.

Moreover I am pretty sure that Waterstones rarely if ever made a real profit backed by cash since Tim founded it .

Mon, 19/12/2011 - 21:24
By Old Bailey

You surely must have some alternative way to spend your life, right?

Tue, 20/12/2011 - 08:47
By la Mole

You too.....

Tue, 20/12/2011 - 10:31
By Ex-Bookseller

I really hope none of you who have posted here work in the industry- except for Philip Jones- who tried to explain the figures.

Tue, 20/12/2011 - 14:47
By Ex-Bookseller

Not meaning to be rude but come on- negativity doesn't work.

Tue, 20/12/2011 - 14:49
By Veteran

Ah, the appreciation of depreciation - or perhaps deprecation a propos the last comments...

Tue, 20/12/2011 - 17:08
By pixie Hotmuffin

So one way or another HMV lost 250 mllion on the acquisition and sale of Waterstones, however it is dressed up in the accounts. I was wondering to myself "how do you do that ?" and then I visitied a HMV store last week. Dark, awful blaring music, poorly and confusingly displayed stock soon drove me out.

Wed, 21/12/2011 - 16:58
By FFS

If they had sold Waterstone's for £53million the day after buying it for £300million then yes, they'd have lost a lot of money. But they had owned it for over a decade, during which it was contributing a profit. And as Philip points out, a proportion of its purchase price would have been written off annually. That's not dressing things up in the accounts, that is absolutely standard in any business.

Wed, 21/12/2011 - 17:25
By Old Bookseller

Which is what Julian Rivers said above. I don't believe the chain ever made any profit with Tim W at the helm - he was desperate to sell! And that's why 'investors' never wanted him back on board. It's very easy to set up a business with OPM.

Wed, 21/12/2011 - 17:58
By le Mole

I doubt if Waterstones made much profit over the 10 year ownership by HMV and the simple fact of the matter is they bought it for £300M and sold it for £53M and that is not good business.

Wed, 21/12/2011 - 21:33
By Learned Lower

As I recall from what the financial pages wrote at the time of the sale to Mamut, Waterstones were actually improving and making an albeit small profit with Dominic Myers in charge and had been propping up HMV's dwindling market, yet they were seen as a failing company. How easily we are deluded by perception rather than the facts. 75% of all albums sold are still CDs, yet everyone is talking about downloads (as in books it is all Kindle this, eBook that) HMV is shrinking their range further and more absurdly and quantity of CDs alarmingly in favour of clothing and computer/iPod accessories and bargain backlist titles and bestselling books.

Chains like HMV and Waterstones are being buried before their death by the media, the perceived superiority of the Internet (true if you know what you are looking for; less fun browsing if you don't. Find it in the shop, buy it off the internet), squeezed margins thanks to the supermarkets skimming off the profitable bits, and the general apathy of their customers. It is range, individuality, knowledgeability, with the flexibility of knowing and feeding the client base's interests and demographics that makes a successful store. HMV like Waterstones (and Borders before) believe that the monolithic one size fits all mentality is the solution; control everything from the centre. Cutting back the core stock has yet to prove to be the solution.

Thu, 22/12/2011 - 00:48
By peter

As learned lower says I was in a localish shopping centre just a couple of days ago and since I had last been (admitted at least 12 months) there were at least 2 new stores selling CD's, etc. just like HMV as well as the local HMV store and they weren't your little family owned shops, so someone must still think they can make money from selling CD's.

Thu, 22/12/2011 - 11:52
By Buff Orpington

I'm surprised, given the ease illegal downloading and growth of MP3 players, but perhaps that's because the 'grey pound' is a substantial and sometimes neglected factor in high street sales. Also, there's still a hard core of people who believe in paying for music.

Going back to the figure of 75% - it sounds impressive, but if it's 75% of a total that's decreasing year on year, then you can understand HMV's desire to find new sales channels.

I can't see HMV surviving and I'm amazed that they managed to secure a loan earlier this year. It's a case of 'when' rather than 'if'. I'd expect next Christmas to be their last.

As for Waterstone's, there's a lot of goodwill towards James Daunt, but he's going to have to really pull something out of the hat next year.

Thu, 22/12/2011 - 14:54

Latest Jobs

Publisher, Reference (ELT)
Our client is seeking a Publisher to...
Available on request
Digital Marketing Manager - 12 month contract - London
Digital Marketing Manager (12 month...
Dependent on experience
Editor
Editor BPP Learning Media Full-...
Competitive
 

TheBookseller