Adoption of IFRS

Carphone Warehouse Group PLC
22 September 2005

22 September 2005


                        The Carphone Warehouse Group PLC


            Adoption of International Financial Reporting Standards


The Carphone Warehouse today releases its financial results for the 53 weeks to
2 April 2005 as prepared under International Financial Reporting Standards
(IFRS).

The main changes compared to the financial results prepared on the basis of UK
GAAP are as follows:

  • Headline PBT(1) of £100.4m, £1.7m lower than UK GAAP equivalent of
    £102.1m, principally reflecting the additional cost of share-based payments
    under IFRS.

  • Statutory PBT of £91.9m, £23.0m higher than the UK GAAP equivalent of
    £68.9m, mainly reflecting the write back of goodwill amortisation.

  • Effective tax rate(2) of 19.3%, 0.2% lower than the UK GAAP equivalent of
    19.5%.  Cash tax payments are not expected to change materially as a result
    of IFRS.

  • Headline EPS(1) of 9.25p, 0.14p lower than the UK GAAP equivalent of 9.39p.

  • Net assets at 2 April 2005 of £548.0m, compared to the UK GAAP equivalent
    of £502.9m.


Enquiries

For Further Information:

Roger Taylor                       [phone]

Peregrine Riviere                  [phone]



Reconciliation of UK GAAP to IFRS and accounting policies under IFRS are now
available on The Carphone Warehouse website, www.cpwplc.com.


Introduction


From 3 April 2005 The Carphone Warehouse will report its consolidated financial
results in accordance with International Financial Reporting Standards (IFRS).
The Group's first results to be reported under IFRS will be its interim results
for the 26 weeks ending 1 October 2005 and the first Annual Report and financial
statements under IFRS will be for the 52 weeks ending 1 April 2006.  The Group's
results will be restated under IFRS from the transition date of 28 March 2004.

This document explains the impact of IFRS on the Group's financial statements
for the 53 weeks ended 2 April 2005 and the 26 weeks ended 25 September 2004
which were originally presented in accordance with UK generally accepted
accounting practice (UK GAAP).  The restatement excludes the impact of IAS32 
'Financial Instruments: Disclosure and Presentation' and IAS39 'Financial
Instruments: Recognition and Measurement' which the Group has elected to adopt
from 3 April 2005, as permitted by the transitional provisions (see Adoption of
IAS32 and IAS39 below).

The information included within this summary is subject to possible change as
the definition and interpretation of IFRS continues to evolve and be amended by
the relevant authorities.


Timetable


3 November 2005    2005/6 interim results, published under IFRS

June 2006          2005/6 preliminary results, published under IFRS


Summary of the effects of IFRS adoption


The Group will continue to report Headline results (see note g) which the
Directors consider provides assistance in understanding underlying performance.

A summary of the adjustments that affect Headline profit, Statutory profit and
net assets in each of the comparative periods is presented below:


                                                                      26 weeks ended 25      53 weeks
                                                                         September 2004         ended
                                                                Note          Unaudited  2 April 2005
                                                                                              Audited
                                                                                  £'000         £'000
Headline profit before tax as reported under UK GAAP                             28,079       102,103
Adjustments:
                  Share-based payments                           a                (526)       (1,181)
                  Other adjustments                              c                (237)         (519)
Headline profit before tax under IFRS                                            27,316       100,403
                  Taxation as reported under UK GAAP                            (7,020)      (19,910)
                  Deferred tax on IFRS adjustments               d                  108           516
Headline profit after tax under IFRS                                             20,404        81,009


Statutory profit before tax as reported under UK GAAP                            14,118        68,874

Adjustments:
                  Share-based payments                           a                (526)       (1,181)
                  Intangible assets and goodwill                 b               11,796        24,765
                  Other adjustments                              c                (237)         (519)
Statutory profit before tax as reported under IFRS                               25,151        91,939
                  Taxation as reported under UK GAAP                            (7,020)      (19,910)
                  Deferred tax on IFRS adjustments               d                  331         1,877
Statutory profit after tax as reported under IFRS                                18,462        73,906


Net assets as reported under UK GAAP                                           467,743        502,942

Adjustments:
                  Share-based payments                         a                     -              -
                  Intangible assets and goodwill               b                11,796         24,765
                  Other adjustments                            c               (4,482)        (4,764)
                  Deferred tax on IFRS adjustments             d                 5,898          9,134
                  Translation differences                      e                 3,567          4,914
                  Proposed dividends                           f                 4,814         10,968
Net assets under IFRS                                                          489,336        547,959


Explanation of adjustments

a. Share-based payments

IFRS requires that the fair value of share options granted after the prescribed
date of 7 November 2002 is charged to the income statement over the vesting
period.

The charge is based on the fair value, measured using a binomial model for
share-based payments with internal performance criteria and a Monte Carlo model
for share-based payments with external performance criteria, of the shares that
are expected to vest.  Under UK GAAP, a charge was only made to the income
statement for share options granted at an exercise price below market value.

As a result, an additional charge of £1.2m arose in the 53 weeks ended 2 April
2005 (26 weeks ended 25 September 2004 - £0.5m), principally in respect of the
Executive share options issued in June 2003 and January 2004.  The charge for
the Group's long-term incentive plan is materially the same under IFRS as it was
under UK GAAP.

The cost of the options is accrued in reserves and therefore has no impact on
shareholders' equity.

The additional IFRS charge is partially offset in the income statement by a
deferred tax credit of £0.3m in the 53 weeks ended 2 April 2005 (26 weeks ended
25 September 2004 - £0.04m).

b. Intangible assets and goodwill

Under UK GAAP, capitalised goodwill was amortised over its useful economic life.
Under IFRS, goodwill is not amortised but is tested at least annually for
impairment.    Goodwill amortisation of £33.2m charged under UK GAAP in the 53
weeks ended 2 April 2005 (26 weeks ended 25 September 2004 - £14.0m) has
therefore been reversed under IFRS.

IFRS also requires that, on acquisition, specific intangible assets are
identified and recognised and then amortised over their useful economic lives.
Such intangibles include customer bases and customer lists ('acquisition
intangibles'), to which value is first attributed at the time of acquisition.
In the 53 weeks ended 2 April 2005, amortisation on these acquisition
intangibles is £7.5m (26 weeks ended 25 September 2004 - £2.2m).  These assets
were previously included in goodwill and amortised over a period of up to 20
years.

As with goodwill amortisation, the Group will show Headline PBT before charging
amortisation of acquisition intangibles (see note g).

Under IFRS, internal software, key money and deferred subscriber acquisition
costs are reclassified as intangible assets.   The amortisation of these
intangibles will continue to be charged in arriving at Headline PBT.

Under UK GAAP, the value of acquired tax losses was only recognised in
determining goodwill to the extent that their utilisation could be foreseen at
the time of acquisition, whereas under IFRS goodwill is adjusted for the value
of acquired tax losses as they are utilised, even if this utilisation could not
be foreseen at the time of acquisition.

A goodwill expense of £1.0m has been recognised in the 53 weeks ended 2 April
2005 (26 weeks ended 25 September 2004 £nil) in relation to acquired tax losses.

c. Other adjustments

Other adjustments relate principally to property lease incentives and holiday
pay.

Under IFRS, property lease incentives are recognised over the full length of the
lease, rather than the period to the first rent review.  This results in an
additional charge of £0.5m in the 53 weeks ended 2 April 2005 (26 weeks ended 25
September 2004 - £0.2m) and a reduction in net assets of £2.3m at 2 April 2005.

An accrual for holiday pay has also been recognised under IFRS, the value of
which is £2.5m at both 2 April 2005 and 25 September 2004.

d. Deferred tax on IFRS adjustments

Deferred tax on these adjustments relates largely to share-based payments and
acquisition intangibles.

Deferred tax on share-based payments results in a tax credit of £0.3m in the 53
weeks ended 2 April 2005 (26 weeks ending 25 September 2004 - £0.04m) and a
cumulative tax credit of £7.1m in reserves.   Deferred tax on share-based
payments is calculated on the difference between the market price at the date of
the financial statements and the option exercise price; as a result the tax
effect will not correlate exactly to the share-based payment charge.

IFRS also requires the creation of a deferred tax liability in respect of
acquisition intangibles which have no tax base, resulting in a corresponding
increase in goodwill.  Deferred tax is credited to the income statement over the
period as amortisation is charged, resulting in a credit to the tax charge of
£1.4m in the 53 weeks ended 2 April 2005 (26 weeks ended 25 September 2004 -
£0.2m).

Other deferred tax adjustments relate principally to lease incentives.

e. Translation differences

IFRS requires goodwill to be held in the currency of the operations to which it
relates; as a result a translation difference to increase reserves by £4.9m was
recognised for the period ended 2 April 2005 (period ended 25 September 2004 -
£3.6m increase in reserves).

f. Proposed dividends

Under IFRS, dividends proposed but not yet authorised are not accrued in the
financial statements.

Dividend accruals have therefore been reversed, resulting in an increase in
total equity of £11.0m at 2 April 2005 and £4.8m at 25 September 2004.

g. Headline results

Headline information is provided because the Directors consider that it provides
assistance in understanding underlying performance.

Headline PBT is defined as profit before amortisation of acquisition
intangibles, goodwill expense and taxation.

Headline profit after taxation is shown before the tax credit associated with
acquisition intangibles, which has no impact on underlying tax payments.

Headline EPS is based on Headline profit before tax, divided by the weighted
average number of shares in issue.

h. Cash flow statement

While IFRS does not affect the Group's net cash position, it results in the
reclassification of certain cash flows.  In particular, deferred subscriber
acquisition costs in the period ended 2 April 2005 of £25.6m (26 weeks ended 25
September 2004 - £11.9m) are reclassified from operating activities to investing
activities.

Adoption of IAS32 and IAS39

The Group has chosen to adopt IAS32 'Financial Instruments: Disclosure and
Presentation' and IAS39 'Financial Instruments: Recognition and Measurement'
prospectively from 3 April 2005, in accordance with the transitional provisions.
As a result, the relevant comparative information for the 53 weeks ended 2
April 2005 will not reflect the impact of these standards.  The adoption of
IAS39 causes a reduction in shareholders' equity of £7.7m as at 3 April 2005,
made up of:

                                                                   Note    £'000
Fair value of current asset investments and forward                1       1,760
currency contracts
Fair value of non-current asset investments                        2     (2,294)
Financial liabilities                                              3     (7,207)
Reduction in shareholders' equity                                        (7,741)


1.  Fair value of current asset investments and forward currency contracts

Under UK GAAP, current asset investments were recorded at the lower of cost and
realisable value.  Under IAS32 and IAS39, the Group's current asset investments
will be categorised as available-for-sale and recorded at fair value.  Changes
in fair value, together with any related deferred taxation, will be taken
directly to reserves and recycled to the income statement when investments are
sold or determined to be impaired.   The impact of revaluing the Group's current
asset investments at 3 April 2005, net of deferred taxation, is an increase in
reserves of £1.9m.

In addition, under IAS32 and IAS39 the Group's forward currency contracts will
be recognised in the financial statements at fair value, based on contracted
exchange rates.  Under UK GAAP contracts were valued at the exchange rate
prevailing at the balance sheet date.  Changes in fair value, together with any
related deferred taxation, will be taken to the income statement.  The impact of
fair valuing forward currency contracts at 3 April 2005, net of deferred
taxation, is a reduction in reserves of £0.1m.

2.   Fair value of non-current asset investments

Under UK GAAP, non-current asset investments were held at cost less any
provision for permanent diminution in value.  Under IFRS, the Group's long-term
investments, principally a holding in Wireless Frontiers, an independently
managed wireless investment fund, will be categorised as available-for-sale and
recorded at fair value.  Fair value at 3 April 2005 has been determined using
EVCA guidelines and results in a reduction in reserves of £2.3m.  This
diminution in value is not considered to be permanent.  Changes in fair value,
together with any related deferred taxation, will be taken directly to reserves.

3. Financial liabilities

IAS39 requires financial liabilities to be maintained in the balance sheet until
they are legally extinguished, unlike UK GAAP, which required a provision to the
extent that it was considered probable that there would be an outflow of
economic benefit.  A liability of £7.2m has been reinstated to reflect this
requirement at 3 April 2005.

--------------------------

(1) Headline PBT and Headline EPS are defined in Explanation of adjustments
(note g) below.

(2) Effective tax rate is based on Headline PBT.

The summary above excludes the impact of IAS32 'Financial Instruments:
Disclosure and Presentation' and IAS39 'Financial Instruments: Recognition and
Measurement' which, in accordance with the transitional provisions, the Group
has chosen to adopt prospectively from 3 April 2005 (see Adoption of IAS32 and
IAS39 below).


                      This information is provided by RNS
            The company news service from the London Stock Exchange