Music and books retailer HMV announced forecast-beating results today after overcoming intense competition from supermarket chains.

The group, which includes Waterstone's and the HMV music chain, posted a 21.9% rise in annual profits and reported an encouraging start to the new financial year.

HMV said it was especially pleased with the improvement by book store Waterstone's, where it believed there was still more growth to come.

The group, based in Maidenhead, Berkshire, said pre-tax profits rose to £117.6 million in the year to April 24, slightly higher than analysts had forecast.

In the UK - the retailer's largest market by sales and profits - HMV maintained its position as market leader and achieved record sales and operating profits.

This was despite what it estimated to be a 40% increase in the space allocated to music and video by the leading supermarket chains.

HMV, which floated on the London stock exchange in 2002, has 550 outlets worldwide, including some 190 Waterstone's stores.

Although the global recorded music industry saw a decline in 2003 due to internet downloading, the retailer said the outlook for the market was "gradually becoming more encouraging".

The United States, seen by many as an indicator of industry trends, saw this market return to growth in the last quarter of 2003. HMV said that as the first UK retailer to offer paid-for digital downloads, it was determined to become a key player in this new market.

HMV said DVD growth continued across the companies and that it believed this had "considerably further to go" before maturity was reached.

During the year HMV recorded a 5% rise in sales to £1.79 billion.

Wednesday June 30, 2004