Final Results/Acquisition

Carphone Warehouse Group PLC 29 May 2001 EMBARGOED UNTIL 0700 HOURS Tuesday 29 May 2001 The Carphone Warehouse Group PLC Full Year Results to 31 March 2001 Highlights for Full Year Results * Growth in turnover of 59% to over £1.1bn * EBITDA growth of 60% from £41.4m to £66.0m * PBT pre amortisation and exceptionals increased from £30.6m to £49.6m (62% growth) * EPS growth of 85% to 5.0p per share * Over 3.8 million connections - up 63% * Delivering high quality customers * 1.6 million subscription customers * 43% subscription mix * Growth in recurring revenue streams - facilities management base now over 214,000 * Successful rollout of MViva: 220,000 customers; development of new data revenues * Full spectrum of mobile communications services established for the future Acquisition of French telecoms services business * Customer base of over 620,000 * £48m net cash consideration * Three call centres in France employing over 650 people * Full details of the acquisition are set out in a separate announcement Charles Dunstone, Chairman and Chief Executive Officer said: 'I am delighted to announce very strong results for the period ending 31 March 2001. 'Our continuing success in the last 12 months has been based on: * attracting a high quality customer base through a broad range of distribution channels and after-sales care and management * European scale that enables us to leverage our relationship with networks and handset manufacturers * our ability to develop services beyond the point of sale allowing us to generate additional recurring revenue streams 'Within our Distribution business we now have over 1,050 stores, across Europe. All areas of the Distribution business including, Retail, Online, Insurance and Wholesale have enjoyed considerable growth and success. 'Our proposition of independence and providing customers what they want, simple, impartial advice, differentiates us from our competitors and enables us to attract and retain high value customers. Over the last 12 months, in a consumer market dominated by pre-pay we have continued to perform strongly by attracting a higher percentage of the valuable subscription based customers than the market as a whole. 'Our commitment to customer service has always looked beyond the point of sale. Over the last 12 months we have further strengthened our after-sales customer relationships through the successful establishment of our Telecoms Services division. Currently managing a base of over 214,000 customers, we provide facilities management services such as billing and revenue management on behalf of leading network operators. 'Today we have announced the acquisition of CMC, the French telecoms services business, for headline consideration of £54m and net cash consideration of £ 48m. CMC is one of France's leading mobile telecoms services businesses, providing customer relationship management services to over 620,000 customers on behalf of network operators including France Telecom and SFR. This is the start of our aim to develop a full Pan-European telecoms service operation. 'The outlook for new technologies and the provision of wireless data services is tremendously exciting, as is the recent launch of GPRS. We believe it will be those who are able to offer innovative data and tailored content services beyond traditional voice that will succeed in this new environment. 'As a result during the last 12 months we have continued to develop our Wireless Data Services division, predominately through MViva our pan-European wireless internet portal. This division is focused on establishing the infrastructure and innovative content from which to maximise the potential from these new technologies. To date MViva has attracted over 220,000 customers. Over the coming months we will concentrate on offering additional data services such as text messaging (SMS), ringtones, icons and audio text. 'Through delivery of distribution, telecoms and wireless data services we are uniquely able to offer customers the complete spectrum of mobile communications, from point of sale, after-sales support and the billing process, to providing tailored content, new technologies and additional innovative services. 'This is best demonstrated by the newly launched FT Mobile, a commercial joint venture between The Carphone Warehouse and The Financial Times Group to offer a customised phone package for high spending subscribers. 'The reduction in pre-pay subsidy since 1 May 2001 has had a marked impact in the total number of mobile phones sold in the UK. This has had most impact on the volume of lower price pre-pay handsets and as such our business model, biased towards higher value pre-pay and subscription customers, remains robust. In fact the effect has been to swing our business mix further towards subscription sales compared to last year, and our recurring revenue streams will further benefit. 'As these results clearly demonstrate we have continued to maximise the opportunities and the potential within the environment in which we operate. Looking ahead, I believe we are perfectly positioned to continue to succeed in this ever-changing market and will retain and build our position as Europe's leading distributor of mobile communications products and services.' SUMMARY OF RESULTS 53 Weeks 52 Weeks 31 March 2001 31 March 2000 Connections 3.82m 2.34m £m £m Turnover 1,110.7 697.7 Gross profit 280.6 192.0 EBITDA Pre-MViva 70.8 41.8 MViva losses (4.8) (0.4) EBITDA+ 66.0 41.4 Exceptional items 6.6 (5.1) PBT 47.4 25.1 Earnings per share 5.0p 2.7p Headline PBT* 49.6 30.6 Headline EPS* 5.4p 3.8p + Earnings before interest, taxation, depreciation and amortisation * Before exceptionals and amortisation The Carphone Warehouse Group PLC ('The Carphone Warehouse') today announces its first full-year results since its flotation on 21 July 2000, for the 53 weeks ending 31 March 2001. Total sales for the period increased by 59% to £ 1,110.7 million and EBITDA increased 69% to £70.8 million pre-MViva and by 60% to £66.0m post MViva. Earnings per share before amortisation of goodwill for the period increased from 2.8p to 6.2p following exceptionals of £6.6m. Earnings per share (pre-exceptionals and amortisation of goodwill) grew from 3.8p to 5.4p. In line with previous years our results continue to reflect our business seasonality between the first and second half of the year with over 75% of earnings achieved in the six months to March 2001. Distribution The revenue streams for Distribution are divided into Retail, Online, Insurance and Wholesale. The Distribution business generated total revenues of £1,079.1 million against £685.8 million last year and contribution of £101.2 million (2000 £63.1 million). A significant contributor towards the Group's growth in profitability in the period was the enhanced gross profit percentage enjoyed through our retail business. When excluding the Group's Wholesale activities the Distribution gross profit margin improved from 31.3% to 33.0%. The Retail business connected over 3.6 million customers, an increase of 65% against the comparative period last year, and achieved sales of £649.3m (2000 £504.5m). This growth came from both subscription, where handsets are sold to customers who enter into airtime contracts and pre-pay sales, where users pay for airtime in advance. At 31 March 2001 the Retail business had a store portfolio of 1,059 across Europe in contrast to the 631 (excluding Tandy) branded stores at the same time last year, of which 411 were in the UK. Growth and investment in our key markets, the UK, France, Ireland, Spain, Germany, Sweden, Belgium, The Netherlands and Portugal has been significant. In our other key markets our focus continues to be the development of the Phone House brand and customer proposition. In certain smaller non-key markets, where the prospects of achieving acceptable financial returns are not evident, the Group has announced its intention to either restructure its operations or withdraw its involvement. Online sales for the period were strong, increasing from £23.8m to £32.6m, derived through European call-centres, transactional websites and our presence on Open, the interactive TV channel. These channels continue to be a good source of revenue for the group. The Insurance business continues to perform well with growth in our policyholder base to 795,000 and turnover of £49.2m (£27.4m last year). Other distribution activities including the Wholesale division continued to reflect the overall market for handsets, with sales of £348.0m against £130.1m last year. This activity was enhanced by the acquisition of the Cellcom business and its voucher distribution operations. Telecoms Services The Telecoms Services division generated revenue of £30.5 million (2000 £10.5 million) and contribution of £18.1 million (2000 £9.7 million) representing growth of 192% and 86% respectively. The division's business is based on continued growth in the on-going customer base and in the Group's facilities management base. The Group currently manages more than 214,000 customers, compared to 9,000 in March 2000 and this area will be a significant focus over the forthcoming period as demonstrated by the announcement of our acquisition in France. The revenue streams for Telecoms Services are divided into both airtime revenue and facilities management services for network operators and our own virtual network. The Group generates a share of airtime revenue from subscribers introduced through our distribution network to a wide range of European mobile network operators. This income is generated as a result of our alignment with the networks in wanting to attract and retain high spending customers. The Facilities Management business provides a range of services from billing, revenue management and credit control, through to customer call and messaging services. Increased ARPU (average revenue per user) levels indicate that the facilities management business has the potential for significant growth, and relationships with additional European networks are being developed. Wireless Data Services In June 2000, the Wireless Data Services division launched MViva, the group's wireless Internet portal. MViva is now available in the UK, France, Spain, Sweden and The Netherlands. The portal had 220,000 registered customers by the end of March 2001 and has over 200 content partners across Europe. In June 2000, the group also entered into a strategic alliance with AOL Europe, which acquired a 15% stake in MViva for $25m. This investment has given rise to an exceptional profit of £16.5m in the period. In addition to MViva, the Group's Wireless Internet fund has made a series of strategic investments in new wireless technology companies in order to strengthen our ability to capture and influence the rapid advance from these new technologies and services. Prior to the year-end our investments were successfully transferred into an independently managed fund. As a result a further $25m was raised from new partners. At 31 March 2001 the fund had capital under management of $85m, which is expected to increase as new investors subscribe. Balance Sheet and Cash Generation The Group has maintained its debt free position at the year end with net cash and short-term investments of £103.5m. This has been due to our ability to generate cash from operating activities and the raising of £187.1m from the issue of shares in the year. In turn £109.3m has been invested in acquisitions and capital expenditure on converting stores into the Group's brand and on our operational infrastructure. In addition, the Group invested a further £31.4m in the Wireless Internet Fund. Our working capital management is closely attuned to this aim of cash generation and our cash conversion ratio is monitored closely. Net assets increased during the period from £43.4m to £438.4m and the Group's liquidity ratio increased from 1.0 to 1.4 reflecting the strength of the Group's financial position. Capital Expenditure During the period the Group invested £109.3m in new stores, acquisitions and further enhancements to its operating systems. Earnings per Share and Dividend Policy Basic EPS grew by 85% to 5.0p for the period ending 31 March 2001. As in previous periods the Board has decided to retain these earnings for continued investment in the development of the Group and the future enhancement of shareholder value. The Board is therefore not proposing a dividend for the period. Current Trading Trading for the seven-week period to 19 May 2001 reflects connections growth of 30% to 399,600 and a 4% swing in our mix profile in favour of subscription, compared to the same period last year. Our insurance base has risen to 817,000, facility management base to 231,000 and MViva base to 292,000. ENDS For further information please contact: The Carphone Warehouse Group PLC 07771 868 601 / 0208 896 5573 Charles Dunstone - Chief Executive Officer David Ross - Chief Operating Officer Roger Taylor - Chief Financial Officer Tristia Clarke - Head of Communications To obtain a copy of our annual report please logon to: www.carphonewarehouse.com or email: investorrelations@cpw.co.uk FINANCIAL REVIEW Consolidated profit and loss account for the 53 weeks ended 31 March 2001 53 weeks 52 weeks ended ended 31 March 25 March 2001 2000 £000 £000 Turnover Existing operations 991,690 697,720 Acquisitions 118,988 - 1,110,678 697,720 Cost of sales (830,126) (505,738) Gross profit 280,552 191,982 Operating expenses (excluding amortisation and (214,536) (150,593) depreciation) EBITDA pre - Mviva 70,787 41,838 MViva losses (4,771) (449) EBITDA 66,016 41,389 Depreciation (18,788) (10,617) Amortisation of goodwill (8,771) (340) Operating profit 38,457 30,432 Existing operations 37,700 30,432 Acquisitions 757 - Net exceptional items 6,555 (5,132) Profit before interest and taxation 45,012 25,300 Net interest receivable (payable) 2,385 (196) Profit on ordinary activities before taxation 47,397 25,104 Tax on profit on ordinary activities (8,675) (8,831) Profit on ordinary activities after taxation 38,722 16,273 Equity minority interests (563) 54 Profit for the financial period 38,159 16,327 Earnings per share Basic 5.0p 2.7p Diluted 4.9p 2.6p Headline earnings per share (basic) Earnings before amortisation of goodwill 6.2p 2.8p Earnings before amortisation of goodwill and 5.4p 3.8p exceptional items Consolidated statement of total recognised gains and losses for the 53 weeks ended 31 March 2001 53 weeks 52 weeks ended ended 31 March 2001 25 March 2000 £000 £000 Profit for the financial period 38,159 16,327 Loss on foreign currency translation (383) (543) Total recognised gains and losses relating to the 37,776 15,784 period Consolidated balance sheet as at 31 March 2001 31 March 25 March 2001 2000 £000 £000 Fixed assets Intangible assets Positive goodwill 231,471 28,361 Negative goodwill - (1,428) Total goodwill 231,471 26,933 Tangible assets 120,278 63,190 Investments 44,426 11,584 Total fixed assets 396,175 101,707 Current assets Stock 52,437 51,842 Debtors due within one year 149,200 82,826 Short-term investments 46,374 11,144 Cash at bank and in hand 67,517 25,348 Total current assets 315,528 171,160 Creditors: amounts falling due within one year (222,348) (173,820) Net current assets (liabilities) 93,180 (2,660) Total assets less current liabilities 489,355 99,047 Creditors: amounts falling due after more than one (14,107) (21,033) year Provisions for liabilities and charges (36,803) (34,594) Net assets 438,445 43,420 Capital and reserves Called-up share capital 833 600 Share premium 356,235 - Capital redemption reserve 30 30 Profit and loss account 79,660 43,560 Equity shareholders' funds 436,758 44,190 Minority interests 1,687 (770) Total capital employed 438,445 43,420 Consolidated cash flow statement for the 53 weeks ended 31 March 2001 53 weeks ended 52 weeks ended 31 March 2001 £'000 25 March 2000 £'000 Net cash inflow from operating activities 43,663 44,475 Net cash inflow (outflow) from returns on investments 2,385 (196) and servicing of finance Net cash outflow from taxation (6,991) (7,412) Net cash outflow from capital expenditure and (141,687) (46,990) financial investment Net cash outflow from acquisitions and disposals (18,818) (17,107) Net cash outflow before management of liquid resources (121,448) (27,230) and financing Net cash inflow from management of liquid resources 196 7,296 Net cash inflow from financing 168,608 11,201 Increase (decrease) in cash in the period 47,356 (8,733) Reconciliation of operating profit to net cash inflow from operating activities 53 weeks ended 52 weeks ended 31 March 2001 25 March 2000 £'000 £'000 Operating profit 38,457 30,432 Depreciation of tangible fixed assets 18,788 10,617 Amortisation of goodwill 8,771 340 EBITDA 66,016 41,389 Loss (profit) on disposal of tangible fixed assets 31 (254) (Decrease) increase in provisions (11,256) 7,233 Decrease (increase) in stock 5,187 (14,446) Increase in debtors (54,248) (36,661) Increase in creditors 37,933 47,214 Net cash inflow from operating activities 43,663 44,475 Notes to the financial statements For the 53 weeks ended 31 March 2001 Accounting policies The financial statements have been prepared in accordance with applicable accounting standards under the historical cost convention. The principal accounting policies have been applied consistently throughout the period and the preceding period. Segmental analysis Divisional results are analysed as follows: 2001 2000 Turnover Profit Net Turnover Profit Net before tax assets before tax assets £000 £000 £'000 £000 £000 £000 Distribution 1,079,143 101,160 363,970 685,838 63,136 21,019 Telecoms Services 30,481 18,125 21,802 10,456 9,746 11,270 Wireless Data Services 1,054 (5,265) 52,673 1,426 977 11,131 Common costs - (48,004) - - (32,470) - 1,110,678 66,016 438,445 697,720 41,389 43,420 Depreciation (18,788) (10,617) Amortisation (8,771) (340) Operating profit 38,457 30,432 Exceptional items 6,555 (5,132) Net interest 2,385 (196) receivable (payable) Profit before tax 47,397 25,104 Results by geographical location are analysed by origin as follows: 2001 2000 Turnover Profit Net Turnover Profit Net before tax assets before tax assets £000 £000 £'000 £'000 £000 £000 United Kingdom 749,160 91,118 391,220 532,618 61,436 47,770 Rest of Europe 361,518 22,902 47,225 165,102 12,423(4,350) Common costs - (48,004) - - (32,470) - 1,110,678 66,016 438,445 697,720 41,389 43,420 Depreciation (18,788) (10,617) Amortisation (8,771) (340) Operating profit 38,457 30,432 Exceptional items 6,555 (5,132) Net interest 2,385 (196) receivable (payable) Profit before tax 47,397 25,104 There is not a material difference between turnover by destination and turnover by origin. Acquisitions during the period generated the following turnover and profit before tax by segment. Turnover Profit before tax £000 £000 Distribution 102,920 187 Telecoms Services 16,608 3,704 Common costs - (3,134) 118,988 757 United Kingdom 107,112 3,562 Rest of Europe 11,876 329 Common costs - (3,134) 118,988 757 It is not practicable to determine the operating assets for the acquisitions made during the period at 31 March 2001 as subsequent to the acquisitions, these assets were incorporated into the operations of other Group undertakings for financial reporting purposes. Tax on profit on ordinary activities The tax charge for the period comprises: 2001 2000 £000 £000 UK corporation tax 7,662 7,523 Deferred tax 2,428 - Overseas tax 473 1,308 Adjustments in respect of prior periods - UK (1,888) - 8,675 8,831 The effective tax rate before amortisation and exceptionals for the Group for the period to 31 March 2001 was 20.2% compared to 31.7% in the previous period. This rate benefited from the use of prior year tax losses and the effect of the profit within the Group's offshore insurance business. Earnings per share The calculations of earnings per share are based on the following profits and numbers of shares: Basic and diluted 2001 2000 £000 £000 Profit for the financial period 38,159 16,327 Amortisation of goodwill 8,771 340 Earnings before amortisation of goodwill 46,930 16,667 Exceptional items (net of tax and minority interests) (5,429) 5,893 Earnings before amortisation of goodwill and exceptional 41,501 22,560 items 2001 2000 Number Number of of shares shares 000's 000's Weighted average number of shares: For basic earnings per share 763,002 600,000 Dilutive effect of share options 23,122 19,415 For diluted earnings per share 786,124 619,415 Basic Diluted pence per pence per share share 2001 2000 2001 2000 Unadjusted earnings per share 5.0 2.7 4.9 2.6 Headline earnings per share: Earnings before amortisation of goodwill 6.2 2.8 6.0 2.7 Earnings before amortisation of goodwill and 5.4 3.8 5.3 3.7 exceptional items Headline earnings per share calculations are provided since the Directors consider that earnings before amortisation of goodwill and exceptional items gives a better indication of performance than Basic earnings per share. Exceptional items 2001 2000 £'000 £'000 Profit (loss) on disposal of subsidiary undertakings (a) 16,514 (1,613) Loss (profit) on disposal of fixed assets (b)(i) (2,484) 1,981 (b)(ii) (2,945) - Cost of fundamental reorganisation (c) (4,530) (5,500) 6,555 (5,132) a) Profit and loss on disposal of subsidiary undertakings MViva On 13 June 2000 the Group entered into a strategic partnership agreement with AOL Europe SA to provide funding, functionality, content and services for the Group's subsidiary, MViva Limited. AOL Europe paid $25m for a 15 % interest resulting in a gain of £16.5m. The loss in the period ended 25 March 2000 resulted primarily from the sale of the subsidiary Tecno Holdings Limited. b) Profit and loss on disposal of fixed assets i. On 30 March 2001, the Group disposed of the individual investments in its Wireless Internet Portfolio into an independently managed fund. Although the consideration for the transfer was equal to the aggregate cost of the individual investments, in accordance with the Group's accounting policy, exceptional losses of £2.5m have been recognised in respect of the disposal of certain investments. The prior period gain of £2.0m relates to the disposal of various properties for a cash consideration of £4.4m. (ii) In certain non-key markets where the prospect of achieving acceptable financial returns are not evident, the Group has announced its intention to either restructure its operations or to withdraw its involvement. As such the Group has provided for the loss of £2.9m expected to arise on the disposal of specific fixed assets. The Group anticipates that further restructuring costs of £3.0m will be incurred in the period to 30 March 2002. c) Cost of fundamental reorganisation In the period ended 25 March 2000, the Group made provision of £5.5m for the anticipated costs of a fundamental reorganisation arising from the integration of the support function and retail operations of Antika Retail Limited (trading as Tandy) into those of the other UK operations. The total cost of the integration, which was completed by 31 March 2001, was £10.0m and as such a charge of £4.5m has arisen in the period. Effect of exceptional items on taxation and minority interests The effects of the exceptional items reported after operating profit on the amounts charged to the profit and loss account for taxation and minority interests were: Tax on profit on Minority ordinary activities interests 2001 £'000 2000 £'000 2001 2000 £'000 £'000 (a) Profit and loss on disposal of - - 2,475 (56) subsidiary undertakings (b) Profit and loss on disposal of - - - 817 fixed assets (c) Cost of fundamental reorganisation (1,350) - - - (Decrease) increase in charge to (1,350) - 2,475 761 profit and loss account Reserves Share premium Capital redemption account reserve Profit and loss Total account £000 £000 £000 £000 Group At 25 March 2000 43,560 - 30 43,590 Profit for the 38,159 - - 38,159 financial period Currency translation (383) - - (383) Issue of share - 356,235 - 356,235 capital* Other movements (1,676) - - (1,676) At 31 March 2001 79,660 356,235 30 435,925 * Net of issue costs of £19.4m. In accordance with the exemption permitted by S230 of the Companies Act 1985, the profit and loss account of the Company is not separately presented. The profit attributable to the shareholders of the Company for the period is £0.6m (2000 - £0.9m). Other movements of £2.1m relate to the exercise of employee share options and reversal of a charge recognised in the profit and loss account of £0.4m relating to shares issued to employees at below market value prior to flotation. The cumulative amount of goodwill written off against the Group's reserves is £0.1m (2000 - £0.1m). Reconciliation of movements in shareholders' funds 2001 2000 £000 £000 Profit for the financial period 38,159 16,327 Currency translation (383) (543) New shares issued 356,468 - Other movements (1,676) - Net movements in shareholders' funds 392,568 15,784 Opening shareholders' funds 44,190 28,406 Closing shareholders' funds 436,758 44,190 Reconciliation of net cash inflow (outflow) to movements in net funds (debts) 2001 2000 £000 £000 Increase (decrease) in cash in the period 47,356 (8,733) Cash outflow (inflow) from decrease (increase) in loans 18,667 (11,425) Cash inflow (outflow) from (inception) repayment of finance (179) 224 leases Cash inflow from decrease in short-term deposits (196) (7,296) Change in net funds 65,648 (27,230) Loans acquired with subsidiary undertakings (2,884) (309) Currency retranslation - 959 Movement in net funds in the period 62,764 (26,580) Net (debt) funds brought forward (6,218) 20,362 Net funds (debt) carried forward 56,546 (6,218) Dividends Profits for the period attributable to shareholders were £38,159,000. As in previous periods the Board has decided to retain these earnings for continued investment in the development of the Group and the future enhancement of shareholder value and is not therefore proposing a dividend for the period. Preliminary Financial Information This financial information is prepared on the basis of accounting policies set out in the Group's statutory accounts for the 53 weeks ended 31 March 2001. The Directors of The Carphone Warehouse Group PLC are responsible in accordance with the Listing Rules of the Financial Services Authority and applicable United Kingdom accounting standards for preparing and issuing this preliminary announcement which was approved on 29 May 2001. The financial information is extracted from the Group's full financial statements for the year ended 31 March 2001 which were approved by the Directors on 29 May 2001 and which received an unqualified audit report. This financial information is abridged and does not constitute statutory accounts for the 53 weeks ended 31 March 2001 and 52 weeks ended 25 March 2000. Full financial statements for the 53 weeks ended 31 March 2001 will be filed with the Registrar of Companies in good course. The 2000 Annual Report and Financial Statements on which the auditors gave an unqualified report has been filed with the Registrar of Companies.

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