HMV warns on profits and covenant breach

HMV has issued another profits warning as it starts talks with its banks about a new lending facility as it expects to breach some of its covenant tests when they are next tested.

Business has remained “challenging” since the company issued its last warning in January and profit before tax and exceptional items for the year to April is now expected to be “moderately below” the £45m forecast by analysts.

The group is being squeezed by the increase in digital downloads and competition from supermarkets and online retailers. Sales fell 8.8% in the last five weeks of 2010.

“Trading conditions remain tough, reflecting a difficult consumer environment as well the changing markets in which we operate,” chief executive Simon Fox said.

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