Final Results
Carphone Warehouse Group PLC
05 June 2006
Tuesday 6 June 2006
For immediate release
The Carphone Warehouse Group PLC
Preliminary Results for the 52 weeks to 1 April 2006
Excellent operational and financial performance. Major strategic initiatives in
place.
52 weeks ended 53 weeks ended Growth %
1 April 2006 2 April 2005
£m £m
Revenue 3,046.4 2,355.1 29.4%
Headline results*
Profit before tax 136.1 100.4 35.5%
Earnings per share 12.38p 9.25p 33.8%
Statutory results
Profit before tax 81.0 91.9 (11.9%)
Earnings per share 7.99p 8.44p (5.3%)
Dividend per share 2.5p 1.8p 38.9%
*Stated before reorganisation costs, amortisation of acquisition intangibles and
goodwill expense, as reconciled in note 3
Financial Headlines
• Revenue up 29.4% to £3,046.4m
• Like-for-like retail revenue up 5.9% and like-for-like gross profit up
9.0%
• Headline earnings per share up 33.8% to 12.38p
• Full year dividend raised by 38.9% to 2.5p
Operational Headlines
• 52 week connections up 26.0% to 8.2m
• 52 week subscription connections up 23.6% to 3.4m
• 317 net new stores opened
• 2.6m TalkTalk UK customers, accounting for 10% of the UK market
• Acquisitions of Onetel and Tele2 UK
• Major investments in UK broadband and French MVNO announced
Free Broadband from TalkTalk
• Initial demand for free broadband significantly ahead of expectations
• 340,000 customers signed up as at 5 June 2006
• 280,000 customers live on Talk 3 International and Line Rental
• 100,000 customers live on broadband
• Preparations continue for commencement of migration to unbundled lines in
July 2006
• On track to deliver first 200 exchanges by beginning of July 2006
• No change to financial guidance
Charles Dunstone, CEO, said:
'This has been a great year for Carphone Warehouse: we have exceeded
expectations whilst making substantial cash investments in key new initiatives
that will support our continued underlying growth and create major new sources
of profit in the future.
'As always our Distribution business lies at the heart of the Group. This is
the engine that has not only grown substantially during the year, but is the
principal source of the large customer bases we have built up in mobile, fixed
line and insurance. We opened 317 new stores and continued to refresh our
customer offer with unique products and service offerings. The continued
climate of dynamic competition and innovation in the mobile market has created a
strong growth environment, in which we have outperformed. We see the positive
marketplace conditions continuing and further scope to expand our distribution
platform in all our markets.
'Our Free Broadband Forever product has exceeded our most optimistic
expectations, with 340,000 customers now having applied for the service.
Responding to this much greater than anticipated growth, we have answered many
more calls and handled many more sales enquiries than had been planned, with the
result that we have connected more customers in the first eight weeks than we
had planned to do in the first four months. We continue to expand our capacity
to handle the larger than expected customer base and our service levels are
showing steady improvement week by week. When combined with our 2.6m TalkTalk
voice customers, our impact and influence on the UK residential telecoms market
is becoming considerable. Our aim was to change the UK broadband market
forever, and there is no doubt that we are well on the way to achieving this.
'Our Telecoms Services businesses have also grown very strongly. On the mobile
side, The Phone House Telecom, our German service provision business, continued
to perform well, and we have also begun to invest more in our mobile virtual
network operations (MVNOs). In the UK, we launched a new MVNO concept, Mobile
World, offering significant reductions in international mobile calls, and we
relaunched our no frills Fresh service. Customer response has been highly
encouraging and we are continuing to invest in these areas. Subsequent to the
year end, we also launched Virgin Mobile in France, a 50:50 joint venture with
Virgin Group. We are confident of building this into an effective fourth
operator in the French market.
'On the network side, in the UK, Opal is making good progress with its own '21st
century' network and the local loop unbundling programme. Its new network will
enable Opal to carry voice and data over the same platform, further reducing
operating costs and creating opportunities for new services. The important
change to the regulatory structure for wholesale line rental pricing enabled us
to recruit almost 30% of our customers onto a unified bill for line rental and
call charges with a target to increase this to 60% of our voice base this year.
Unsurprisingly, unifying line rental and calls improves customer loyalty.
Abroad, our fixed line operations in Belgium, France, Germany, Ireland, Spain
and Switzerland also made good progress, building our non-UK fixed line customer
base to over 340,000 and making a meaningful contribution to revenues and
profit.
'The profile of our business is evolving rapidly, as we continue to find new
avenues of growth from our key assets - our stores, our customer relationships
and our network infrastructure. The strength of our performance and future
prospects means the Board has no hesitation in proposing a 38.9% increase in the
full year dividend. We view the future with confidence and, as always, we
express our sincere appreciation to all our employees. It is they who have
delivered our achievements to date and whose talent and commitment will deliver
the potential of tomorrow.
Outlook
'Prospects for the Group are good. The continued strength of the customer
proposition, and the rapid innovation in design as well as functionality of
mobile devices, create an attractive environment for our distribution
businesses. We intend to continue the expansion of our store portfolio and other
distribution channels, and are targeting 15% growth in mobile connections in the
coming year.
'Our MVNO operations are also entering an important phase. In France, our joint
venture with Virgin has the opportunity to become a major force in the French
mobile market. This requires investment in the early years, but we are
confident that as a mass market operator, we can build a valuable business in
the longer term. In the UK, we are developing the proposition for Fresh and
Mobile World as we look to build a further source of recurring profits for the
Group.
'We are making a substantial investment during the current year to support our
free broadband proposition, with a £50 million total operating loss from this
project expected. We are confident that this investment will create substantial
value in the medium term and are provisionally estimating incremental profit
from our unbundled broadband service of £30-40 million in the year to March
2008, with full payback on the cash investment within four years. For the
current year, our investments in broadband and Virgin Mobile France will impact
Group profit significantly, although the strength of our confidence in our
future prospects means we intend growing dividends in line with underlying Group
earnings growth.'
Summary of Results
Group revenue for the period was £3,046.4m, compared to £2,355.1m for the prior
year, representing growth of 29.4%. Headline pre-tax profit was £136.1m, an
increase of 35.5% on the year to March 2005. Earnings per share on the same
basis grew by 33.8% to 12.38p. Statutory profit before tax, after
reorganisation costs of £35.2m and acquisition intangibles amortisation of
£19.8m, decreased by 11.9% from £91.9m to £81.0m, while statutory earnings per
share decreased by 5.3% from 8.44p to 7.99p. Cash generated from operations
increased by 16.5% from £168.6m to £196.4m. The Board is proposing a final
dividend of 1.75p, taking the total for the year to 2.5p, up 38.9% on last
year's pay-out.
Distribution Division
The Distribution division comprises our Retail operations and all
directly-related business streams. The key operating assets of the division are
our 1,778 stores across 10 European countries and our Retail and Online brands.
Distribution revenues grew by 22.0% in the year to £1,753.5m, and the division
generated EBIT of £115.5m, a rise of 38.7% on the prior year. Growth was strong
across all business units, with Online growth continuing to be exceptional,
supported by the acquisition of One Stop Phone Shop in March 2005. From the
year to March 2007, we are combining our Retail and Online business units for
reporting purposes.
Headline Financials 2006 2005
£m £m
Revenue 1,753.5 1,436.9
Retail 1,375.5 1,160.2
Online 203.5 128.2
Insurance 116.1 102.0
Ongoing 58.4 46.5
Contribution 246.1 190.1
Retail 127.5 100.9
Online 14.7 7.7
Insurance 45.5 35.0
Ongoing 58.4 46.5
Support costs (84.1) (71.5)
EBITDA 162.0 118.6
Depreciation and amortisation (46.5) (35.4)
EBIT 115.5 83.2
EBIT % 6.6% 5.8%
Retail and Online
The Group achieved 8.19m connections during the year, representing year-on-year
growth of 24.1%. However, last year was a 53 week accounting period and on an
equivalent 52 week basis, connections were up 26.0%.
In subscription connections, the key driver for our Distribution business, we
achieved 52 week growth of 23.6% to 3.42m. Market conditions continued to be
attractive, with further growth in the European handset market driven by good
customer offers and the strong handset pipeline. In addition, we again enjoyed
a year of improving execution, allying a focus on exclusive product with an
aggressive pricing strategy. We have now achieved compound annual growth of
17.1% in subscription connections over the last 5 years.
Our pre-pay business had a very good year, with 52 week connections up 31.7% to
4.25m. The strength of the overall pre-pay market continued unabated, and we
successfully invested in pricing to take market share from generalist retailers.
Our SIM-free sales were marginally up year-on-year at 0.52m, reflecting the
relative strength of the pre-pay market.
Connections (000s) 52 weeks to 52 weeks to 53 weeks to
1 April 2006 26 March 2005 2 April 2005
Subscription 3,423 2,770 2,816
Pre-pay 4,252 3,227 3,272
SIM-free 516 506 512
Group 8,191 6,503 6,600
We opened 362 new stores during the year and closed 45. The total number of
stores increased from 1,461 at March 2005 to 1,778 by March 2006. The total
includes 140 franchise stores (March 2005: 70 franchises). Total average selling
space (excluding franchises) increased by 13.3% to 83,128 sqm (2005: 73,399 sqm)
and sales per square metre increased by 4.7% to £16,547 (2005: £15,807).
Total Retail revenues grew by 18.6% and gross profit by 23.1%. Like-for-like,
after stripping out the impact of new store openings and the 53rd week last
year, revenues grew by 5.9% and gross profit by 9.0%. The increase in revenues
was driven by the strong connections growth through the year, though offset by a
fall in revenue per connection from £189.7 to £185.2 driven by a change in mix.
Average cash gross profit per connection rose from £54.0 to £54.7. Gross profit
per connection for subscription and pre-pay rose 2.9% and 6.9% respectively,
with the average increase of 1.4% reflecting a higher proportion of pre-pay
sales.
Contribution from Retail grew by 26.4% to £127.5m. The contribution margin rose
from 8.7% to 9.3%, reflecting the strong growth in like-for-like gross profit.
The ratio between contribution and gross profit, which gives a more meaningful
indication of cost efficiency given the variability of revenues per connection,
improved from 30.6% to 31.4%. Overall Retail direct costs grew by 21.6%, driven
by the greater store base and like-for-like growth in commission payments to our
sales consultants. Within these figures, total rent costs increased by 17.3%,
reflecting the rapid increase in space over the last two years.
In the UK, our store portfolio increased from 601 stores to 669 stores. New
stores continue to generate an attractive return and the impact on existing
outlets is minimal. We see ample opportunity for further expansion despite our
significant presence, and aim to open a further 80 stores in the UK in the
current year. Our focus is on retail park units, arterial routes and smaller
towns.
Our businesses outside the UK continued to grow strongly. Spain is now our
second largest market by some distance, with a portfolio of 338 stores.
Connections were up 23.7% on a 52 week basis. During the year we acquired Planet
Phone, a small chain of stores acting as an exclusive distributor for Telefonica
Moviles.
Our French operations enjoyed a year of better growth after a subdued period of
trading, as competition between the networks began to intensify. We opened 35
stores, taking the portfolio to 220, and achieved 52 week connections growth of
15.5%, with a better performance in the second half. We are encouraged by recent
trends in France, with the launch of a number of MVNOs, including our own Virgin
Mobile joint venture, set to stimulate the market further.
In The Netherlands and Sweden, our next most important retail markets,
connections fell marginally year-on-year, after prolonged periods of strong
market growth. Both businesses continue to hold good market positions and made
significant contributions to overall Retail profitability. They have returned
to growth in the new financial year, and we continue to invest in new stores in
these territories.
Across our other five markets, comprising Belgium, Germany, Ireland, Portugal
and Switzerland, we generated 52 week connections growth of 22.4%, with all
countries trading well. Switzerland, in particular, achieved a very good
turnaround from the poor performance in the previous year, and after 12 months
of recovery we now intend to invest in further organic growth in that market.
Online connections increased by 61.7% year-on-year to 0.76m on a 52 week basis.
Revenues were £203.5m (2005: £128.2m) and contribution was £14.7m (2005: £7.7m).
Underlying growth continued to be strong as our web and direct sales activities
grew their market share, and overall performance was boosted by the acquisition
of One Stop Phone Shop, a further online brand in the UK market, at the end of
the previous year. We continue to review the European opportunity for direct
and online channels.
Insurance
The Group offers a range of insurance products to its retail customers,
providing protection for the replacement cost of a lost, stolen or damaged
handset, as well as cover for any outstanding contractual liability and the cost
of any calls made if a mobile phone falls into the wrong hands. Insurance is a
core element of the Group's customer proposition.
Our Insurance customer base continued to grow strongly during the year. Overall
the customer base grew by 16.7% to 1.92m. Within this figure, the business mix
improved, with high tier policyholders (typically mobile subscription customers)
up 24.1%. The non-UK base now represents 45.8% of the total.
Insurance revenues grew 13.8% to £116.1m (2005: £102.0m) and contribution
increased by 30.0% to £45.5m (2005: £35.0m). The contribution margin expanded
significantly as we began to benefit from the scale of our operations in a
number of markets, fully underwriting our own business and the investment in new
systems developed in the prior year.
We continue to see good growth prospects in our Insurance business. The main
driver will continue to be growth in our subscription connections, but we have
also recently relaunched the product suite with a move to risk-based pricing,
which allows us to tailor individual policies much more closely to a customer's
needs, while also matching the level of premium to the customer risk profile.
Ongoing
Ongoing revenue represents the share of customer call spend (or ARPU) we receive
as a result of connecting subscription customers to certain networks. We are
typically contractually entitled to our share of revenue for as long as a
customer is active, so this income stream represents an important element of our
overall commercial agreement with many networks. Again, the key underlying
driver for Ongoing is our subscription connection sales.
Ongoing revenues grew by 25.6% to £58.4m year-on-year (2005: £46.5m). This
performance reflects the sustained strong subscription connections growth over
the last few years. We continue to view Ongoing share as a vital element of our
network agreements, as it provides us excellent earnings visibility and clearly
aligns our interests with those of the networks.
Telecoms Services Division
The Group's Telecoms Services operations are split into two businesses, Mobile
and Fixed. The Mobile business encompasses our German service provision
business, The Phone House Telecom, our Facilities Management (FM) business,
managing mobile customers on behalf of networks in the UK and France, and our
MVNO operations. The Fixed business primarily comprises Opal, our
business-to-business service and network operation, and TalkTalk, our
residential service, both in the UK. We also operate a number of smaller fixed
line businesses across Europe.
Telecoms Services revenues grew by 40.1% year-on-year to £1,126.5m (2005:
£804.0m), with good growth across all major business lines. EBIT increased by
16.5% to £26.4m (2005: £22.6m). The EBIT margin fell from 2.8% to 2.3% as we
invested heavily in our broadband and MVNO strategies.
Headline Financials 2006 2005
£m £m
Revenue 1,126.5 804.0
Mobile 459.8 377.7
Fixed 666.7 426.3
Contribution 109.5 79.6
Mobile 48.4 45.3
Fixed 61.1 34.3
Support costs (29.7) (25.0)
EBITDA 79.8 54.6
Depreciation and amortisation (53.4) (32.0)
EBIT 26.4 22.6
EBIT % 2.3% 2.8%
Mobile
Overall we achieved revenue growth of 21.7% to £459.8m (2005: £377.7m), with
contribution rising 6.8% to £48.4m (2005: £45.3m).
The Phone House Telecom, our German service provision business, continued to
perform well in a competitive market. The overall customer base was up 30.0%,
and by March 2006 we had 1.17m customers, of whom 0.82m were on two year
subscriptions. During the year we expanded our distribution channels, as
planned, by opening new stores and signing up new distribution partners.
Revenues rose by 13.1% to £337.4m, with contribution up by 40.1% to £49.8m.
Subscription ARPUs fell, with one or two new channels delivering significantly
lower customer ARPUs.
Total amortisation of SAC was £30.9m, compared to £19.2m last year. The total
cash cost of SAC during the year was £44.7m (2005: £22.5m), with the rise driven
by our aggressive customer acquisition strategy. We anticipate that in the
coming year, SAC cash costs will fall, with amortisation of SAC broadly in line
with the cash cost.
Our MVNO operations recorded revenues of £46.2m (2005: £18.6m) and a loss of
£9.6m (2005: contribution of £1.9m), reflecting our investment in building this
segment. Our main goal for the year has been to relaunch our UK MVNO operations.
At the start of the year we introduced a new MVNO concept, Mobile World, to the
market, offering significant discounts on calls to international numbers. We
believe Mobile World can be exported to a number of our other markets. We
relaunched Fresh, our no frills MVNO service in the UK, in October 2005. The
response has been promising, and we continue to refine the proposition.
Our regional MVNO in France, Breizh Mobile, continued to make good progress in
customer recruitment in Brittany. Just after the year end, we launched Virgin
Mobile France, a joint venture with the Virgin Group, as a nationwide MVNO, with
the Breizh operations forming part of the venture. We are targeting 1 million
customers within three years, and are confident that we can build the business
into an effective fourth operator in the French market.
FM revenues were £76.2m (2005: £60.9m) and contribution was £8.2m (2005: £7.8m).
Our UK FM base of customers managed on behalf of O2 and Vodafone rose 25.2% to
0.88m (2005: 0.67m). The contract with Vodafone expires in the summer,
consistent with Vodafone's strategy of progressively taking all customer
management in house, but this is not expected to have a material impact on
profitability. The key drivers of our FM businesses are the number of customers
under management, the quality of service we provide and our ability to retain
customers. We continue to manage 0.6m customers in France on behalf of Orange
and SFR, and will also provide call centre services to the new Virgin Mobile
operation.
Fixed
Our fixed line operations continued to grow rapidly, with strong organic growth
from customer recruitment boosted by two significant acquisitions during the
year. Total revenues were £666.7m, up 56.4% year-on-year, and contribution was
£61.1m, a rise of 78.0%.
Total revenues from business-to-business operations were £294.7m (2005:
£267.3m), and contribution was £29.7m (2005: £31.5m). Opal, our UK network
provider, generated revenues of £259.9m, an increase of 9.3% (2005: £237.7m).
Revenues in the first half were adversely affected by the regulatory cuts to
mobile termination rates made in September 2004, reducing average revenue per
minute by approximately 12% over that period. As expected, revenue growth
picked up in the second half as these effects annualised. In addition, Opal
benefited from the inclusion of three months of revenue from the Onetel business
base, acquired in December 2005.
The overall business environment continued to be competitive, which had a
negative effect on contribution margin. Opal's contribution fell from £30.6m to
£28.0m. However, the year saw investment in new areas such as TalkTalk Business,
targeting the lower end of the small business market. Customer take-up has been
very encouraging and profits from this unit, as well as a full year contribution
from Onetel's business customer base, are expected to drive strong growth in
underlying profits at Opal in the coming year.
From a network perspective, Opal is making good progress in the development of
its own '21st Century Network' and the local loop unbundling programme. The new
network structure will allow Opal to carry voice and data over the same
platform, reducing unit costs and creating opportunities for additional
services. The installation of our own equipment into BT's premises to enable us
to unbundle customer lines is a fundamental part of the new network, with Opal's
business operations set to benefit from the increased flexibility and lower
regulated costs in the same way as TalkTalk. A key goal for the year ahead is to
develop our expertise in providing broadband and related network services to our
core business customer base.
Xtra, our Spanish fixed line network, recorded revenues of £34.7m (2005: £29.6m)
and contribution of £1.6m (2005: £0.9m).
Total residential revenues rose from £159.0m to £372.0m, and contribution rose
to £31.4m (2005: £2.9m). Our UK residential fixed line service, TalkTalk, is
the main driver of revenues and profitability, recording turnover of £305.6m and
contribution of £24.3m during the year, including the impact of the Onetel and
Tele2 UK acquisitions. After SAC amortisation of £5.7m relating to broadband
customers (2005: £0.6m), contribution was £18.6m.
The main focus for TalkTalk continued to be customer recruitment, both through
Carphone Warehouse stores and third party channels. At March 2006 we had 2.6m
residential fixed line customers in the UK, up from 0.9m at March 2005. This
was significantly enhanced by the acquisition of two of our main competitors in
the CPS market, Onetel and Tele2 UK, in December 2005, bringing an additional
1.3m residential customers into the Group. We have made significant progress on
the integration of these businesses into TalkTalk, a process that will be
completed later this year when we finish migrating Onetel's traffic and
customers onto our own network and billing platform. A reorganisation provision
of £22.3m has been made for the exceptional cash costs arising from the
integration of the Onetel business.
During the year, the market pricing structure for the provision of line rental
to customers was finally addressed, allowing us to start billing customers for
their line as well as their calls. Previously, the wholesale price available
from BT had been higher than BT's own retail price. Following this change, we
now have 722,000 customers on a unified bill for calls and line rental, equating
to 28% of the total UK base. Our target is to increase this to 60% of the voice
base in the coming year, because although line rental is still a zero margin
product, it does increase customer tenure.
During the year we finalised our strategic review of the options for providing
broadband to residential customers. As a result of the clear regulatory
framework established by Ofcom and the undertakings made by BT, in conjunction
with our own review of the market, we announced in November 2005 our plans to
invest in local loop unbundling. Our initial goal was to install our equipment
within 1,000 BT exchanges over the next three years at a cost of approximately
£50m.
Subsequent to the year end we have launched our commercial proposition for
broadband in the UK: the provision of free broadband, forever, for customers
taking our TalkTalk line rental and inclusive calls package. To support this
aggressive strategy, we have accelerated our investment programme, and now aim
to have 1,000 exchanges unbundled by May 2007, giving us nearly 70% coverage of
the population.
Our longer term goal is a base of 3.5m residential customers by March 2009, of
which at least half will be on our new bundled broadband proposition. In the
short term, the costs of recruitment will be high, as a significant proportion
of customers will be loss-making for us before they are migrated onto unbundled
lines: we anticipate a total operating loss from the project of approximately
£50m in the year to March 2007, with free cash outflow (after capex and the full
cash costs of acquiring customers) of around £110m. We are provisionally
forecasting an incremental operating profit from the project of £30-40m in the
year to March 2008, and a full payback on the cash investment within four years.
Our non-UK residential fixed line operations made steady progress during the
year. We now provide services in Belgium, France, Germany, Ireland, Spain and
Switzerland. At the year end we had 341,000 fixed line customers outside the
UK, generating revenues of £66.4m (2005: £35.4m) and contribution of £7.1m
(2005: £1.8m). Throughout Europe our fixed line model benefits from the low
cost of customer acquisition that our store network gives us. We are reviewing
our product strategy in each country to reflect market developments, so that in
all cases we optimise the return for the Group from each customer.
Dealer Division
Headline Financials 2006 2005
£m £m
Revenue 188.4 132.0
Contribution 2.1 1.5
Support costs (1.4) (1.5)
EBITDA 0.7 0.0
Depreciation and amortisation (0.8) (0.7)
EBIT (0.1) (0.7)
EBIT % (0.1%) (0.5%)
Dealer operations comprise our pre-pay voucher distribution business, our
indirect distribution operations and the wholesale shipment of trade-in
handsets. The division was boosted during the year by the acquisition of Hugh
Symons, a major independent distributor in the UK market. Revenues were up
42.8% to £188.4m and the division reduced its EBIT loss to £0.1m.
The European VAT authorities continue to investigate the recovery of VAT in the
industry for trading activities conducted prior to April 2003. Having undertaken
a detailed internal investigation and taken advice, we continue to believe that
we have no financial exposure to this issue within the financial statements.
Reorganisation costs
Following the acquisition of Onetel in December 2005, we have commenced a
reorganisation programme to integrate Onetel with the rest of the Group. The
costs of this integration are estimated at £22.3m, reflecting redundancy and
other employee costs, contract termination costs and network and customer
migration costs. These costs have been recognised in the reported financial
year.
The substantial customer growth achieved through the acquisitions of Onetel and
Tele2 UK, together with the Group's major investment plans in respect of local
loop unbundling and billing platforms, prompted a review during the period of
the Group's systems and network infrastructure. This review resulted in an
accelerated amortisation charge of £12.9m in respect of certain billing,
customer management and other assets, which has been recognised in the period.
Interest and tax
Net interest of £5.7m was payable during the year, compared to a charge of £4.8m
in the prior year. Significant investment in capital expenditure and
acquisitions were financed out of operating cash flow and committed debt
facilities now totalling £725m.
The effective tax rate on a Headline basis was 19.6% (2005: 19.3%). The tax rate
benefited from the utilisation of tax losses incurred in earlier years, and the
effect of profit within low tax rate jurisdictions.
Amortisation of acquisition intangibles and goodwill expense
The amortisation charge in respect of acquisition intangibles amounted to £18.0m
(2005: £7.5m), the increase principally reflecting the Onetel acquisition. A
goodwill expense of £1.8m (2005: £1.0m) has been recognised on acquired deferred
tax assets that had not previously been recognised. These figures are excluded
from Headline profit before tax and earnings per share figures.
Earnings per share (EPS)
Headline EPS was 12.38p (2005: 9.25p). Statutory EPS was 7.99p (2005: 8.44p).
Cash flow and dividend
At 1 April 2006, the Group had net debt of £273.4m (2005: £68.4m). During the
year the Group generated cash from operations of £196.4m (2005: £168.6m).
Cash generation remains a prime objective of the Group and we expect to continue
to generate significant levels of free cash flow in the future, allowing us to
reinvest in the growth of the business and pursue a progressive dividend policy.
We are proposing a final dividend of 1.75p per share, taking the total dividend
for the financial year to 2.5p and representing growth of 38.9% over last year's
1.80p total dividend, slightly ahead of Headline EPS growth. The ex-dividend
date is Wednesday 5 July 2006, with a record date of Friday 7 July 2006 and an
intended payment date of Friday 4 August 2006.
Presentation to investors and analysts
There will be a presentation of the results at 9am this morning at the offices
of UBS, 100 Liverpool Street, London EC2M 2RH. The slides and an audio webcast
will be available on the website at www.cpwplc.com at the same time.
Next trading update
The Group will announce its first quarter trading update on the date of its
Annual General Meeting, 27 July 2006.
For Further Information
For analyst and institutional enquiries
Roger Taylor 07715 170 090
Peregrine Riviere 07909 907193
For media enquiries
Vanessa Tipple 07947 000 021
Anthony Carlisle (Citigate Dewe Rogerson) 07973 611 888
020 7638 9571
FINANCIAL REVIEW
Consolidated income statement for the 52 weeks ended 1 April 2006
Before Amortisation of After Before Amortisation After
amortisation of acquisition amortisation of amortisation of amortisation
acquisition intangibles, acquisition of acquisition acquisition of acquisition
intangibles, goodwill intangibles, intangibles intangibles intangibles
goodwill expense and goodwill expense and goodwill and goodwill and goodwill
expense and reorganisation and expense expense expense
reorganisation costs (see reorganisation
costs note 3) costs
52 weeks 52 weeks 52 weeks 53 weeks 53 weeks 53 weeks
ended ended ended ended ended ended
1 April 1 April 1 April 2 April 2 April 2 April
2006 2006 2006 2005 2005 2005
£'000 £'000 £'000 £'000 £'000 £'000
Revenue
Existing operations 2,922,073 2,922,073 2,355,093 2,355,093
Acquisitions 124,330 124,330 - -
3,046,403 3,046,403 2,355,093 2,355,093
Cost of sales (2,063,021) (2,063,021) (1,630,936) (1,630,936)
Gross Profit 983,382 983,382 724,157 724,157
Operating expenses (740,892) (22,288) (763,180) (550,808) - (550,808)
excluding amortisation
and depreciation
EBITDA 242,490 (22,288) 220,202 173,349 - 173,349
Depreciation (49,585) (49,585) (40,792) (40,792)
Amortisation (51,127) (30,955) (82,082) (27,309) (7,506) (34,815)
Goodwill expense - (1,825) (1,825) - (958) (958)
Operating profit 141,778 (55,068) 86,710 105,248 (8,464) 96,784
Existing operations 129,512 (20,407) 109,105 105,248 (8,464) 96,784
Acquisitions 12,266 (34,661) (22,395) - - -
Profit before interest 141,778 (55,068) 86,710 105,248 (8,464) 96,784
and taxation
Interest payable (13,799) (13,799) (10,748) (10,748)
Interest receivable 8,090 8,090 5,903 5,903
Profit before taxation 136,069 (55,068) 81,001 100,403 (8,464) 91,939
Taxation (26,670) 16,210 (10,460) (19,394) 1,361 (18,033)
Net profit for the 109,399 (38,858) 70,541 81,009 (7,103) 73,906
financial period
Earnings per share
Basic 12.38p 7.99p 9.25p 8.44p
Diluted 11.65p 7.51p 8.86p 8.08p
Consolidated statement of changes in equity for the 52 weeks ended 1 April 2006
52 weeks ended 53 weeks ended
1 April 2006 2 April 2005
£'000 £'000
At the beginning of the period 547,959 480,728
Adoption of IAS32 and IAS39 (7,741) -
At 3 April 2005 540,218 480,728
Net profit for the financial period 70,541 73,906
Currency translation (3,644) 5,718
Tax on items recognised directly in reserves 19,597 1,996
Net change in available-for-sale investments 4,236 -
Issue of share capital 10,684 2,750
Net purchase of own shares (15,851) (8,064)
Cost of share-based payments 10,665 3,608
Equity dividends (17,443) (12,683)
At the end of the period 619,003 547,959
Consolidated balance sheet as at 1 April 2006
1 April 2006 2 April 2005
£'000 £'000
Non-current assets
Goodwill 568,630 452,023
Other intangible assets 159,274 69,369
Property, plant and equipment 241,744 198,220
Non-current asset investments 10,264 6,069
Deferred tax assets 34,938 4,570
1,014,850 730,251
Current assets
Stock 138,047 95,185
Trade and other receivables 554,472 353,890
Current asset investments 5,233 60,468
Cash and cash equivalents 98,093 41,576
795,845 551,119
Total assets 1,810,695 1,281,370
Current liabilities
Trade and other payables (642,009) (458,685)
Corporation tax liabilities (42,669) (37,556)
Loans and other borrowings (56,733) (71,994)
Provisions (123,538) (57,829)
(864,949) (626,064)
Non-current liabilities
Trade and other payables (6,689) (4,753)
Loans and other borrowings (320,054) (98,494)
Deferred tax liabilities - (4,100)
(326,743) (107,347)
Total liabilities (1,191,692) (733,411)
Total assets and liabilities 619,003 547,959
Equity
Share capital 888 877
Share premium reserve 418,359 402,136
Capital redemption reserve 30 30
Translation reserve 2,074 5,718
Accumulated profits 197,652 139,198
Funds attributable to equity shareholders 619,003 547,959
Consolidated cash flow statement for the 52 weeks ended 1 April 2006
52 weeks ended 53 weeks ended
1 April 2006 2 April 2005
£'000 £'000
Operating activities
Operating profit 86,710 96,784
Adjustments for non-cash items:
Share-based payments 10,665 3,608
Depreciation 49,585 40,792
Amortisation (before reorganisation costs) 69,125 34,815
Goodwill expense 1,825 958
Reorganisation costs 35,245 -
Operating cash flows before movements in working capital 253,155 176,957
(Profit) loss on disposal of property, plant and equipment and intangible (1,013) 482
assets
Increase in trade and other receivables (138,086) (81,523)
Increase in stock (41,359) (14,745)
Increase in trade and other payables 95,440 66,632
Increase in provisions 28,228 20,810
Cash generated from operations 196,365 168,613
Taxation paid (13,739) (11,641)
Net cash generated from operating activities 182,626 156,972
Investing activities
Proceeds from sale of property, plant and equipment and intangible assets 2,540 1,363
Acquisition of subsidiaries, net of cash acquired (157,835) (35,300)
Interest paid (13,799) (10,748)
Interest received 8,090 5,903
Acquisition of intangible assets (104,710) (53,782)
Acquisition of property, plant and equipment (89,425) (71,988)
Acquisition of non-current asset investments (1,659) (172)
Cash flows from investing activities (356,798) (164,724)
Financing activities
Proceeds from the issue of share capital 10,684 2,750
Net purchase of own shares (15,851) (8,064)
Increase in borrowings 197,625 22,866
Receipts from (payments to acquire) current asset investments 56,619 (49,663)
Dividends paid (17,443) (12,683)
Cash flows from financing activities 231,634 (44,794)
Net increase (decrease) in cash and cash equivalents 57,462 (52,546)
Cash and cash equivalents at the start of the period 19,352 71,638
Effect of exchange rate fluctuations 143 260
Cash and cash equivalents at the end of the period 76,957 19,352
Cash and cash equivalents for the purposes of this statement comprise:
Cash and cash equivalents 98,093 41,576
Bank overdrafts (21,136) (22,224)
76,957 19,352
Notes to the financial statements for the 52 weeks ended 1 April 2006
1 Accounting policies
The financial statements have been prepared in accordance with applicable
International Financial Reporting Standards (IFRS). The 2006 financial
statements are the first required to be prepared under IFRS. Details of the
impact of IFRS on financial information for the period ended 2 April 2005 were
issued on 22 September 2005, and are available on the Group's website,
www.cpwplc.com.
2 Segmental analysis
Divisional results are analysed as follows:
Revenue Profit before interest and
taxation
2006 2005 2006 2005
£'000 £'000 £'000 £'000
Headline
Retail 1,375,501 1,160,228 127,485 100,884
Online 203,481 128,238 14,729 7,684
Insurance 116,054 101,977 45,536 35,018
Ongoing 58,447 46,527 58,447 46,527
Contribution 246,197 190,113
Support costs (84,153) (71,462)
Depreciation (35,700) (29,778)
Amortisation (10,860) (5,638)
Distribution 1,753,483 1,436,970 115,484 83,235
Fixed 666,687 426,290 61,055 34,303
Mobile 459,773 377,749 48,414 45,314
Contribution 109,469 79,617
Support costs (29,703) (24,963)
Depreciation (13,231) (10,402)
Amortisation (40,143) (21,590)
Telecoms Services 1,126,460 804,039 26,392 22,662
Dealer 188,376 131,952 2,102 1,513
Contribution 2,102 1,513
Support costs (1,422) (1,469)
Depreciation (654) (612)
Amortisation (124) (81)
Dealer 188,376 131,952 (98) (649)
Statutory
Headline Distribution 1,753,483 1,436,970 115,484 83,235
Goodwill expense (1,825) (958)
Reorganisation costs (4,445) -
Distribution 1,753,483 1,436,970 109,214 82,277
Headline Telecoms Services 1,126,460 804,039 26,392 22,662
Amortisation of acquisition intangibles (17,998) (7,506)
Reorganisation costs (30,800) -
Telecoms Services 1,126,460 804,039 (22,406) 15,156
Dealer 188,376 131,952 (98) (649)
Elimination of intra-group transactions (21,916) (17,868) - -
Total Group 3,046,403 2,355,093 86,710 96,784
3 Reconciliation of Headline information to statutory information
2006 2005
EBITDA Operating Profit Profit EBITDA Operating Profit Profit
profit before after profit before after
taxation taxation taxation taxation
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Headline 242,490 141,778 136,069 109,399 173,349 105,248 100,403 81,009
Operating expenses
excluding
amortisation and
depreciation:
Reorganisation costs
(see note 4) (22,288) (22,288) (22,288) (22,288) - - - -
Amortisation:
On acquisition
intangibles - (17,998) (17,998) (17,998) - (7,506) (7,506) (7,506)
Reorganisation costs
(see note 4) - (12,957) (12,957) (12,957) - - - -
- (30,955) (30,955) (30,955) - (7,506) (7,506) (7,506)
Goodwill expense - (1,825) (1,825) (1,825) - (958) (958) (958)
Taxation:
On reorganisation
costs - - - 10,574 - - - -
On acquisition
intangibles and
goodwill expense - - - 5,636 - - - 1,361
- - - 16,210 - - - 1,361
Statutory 220,202 86,710 81,001 70,541 173,349 96,784 91,939 73,906
EBITDA represents earnings before interest, taxation, depreciation, amortisation
and goodwill expense. Contribution represents EBITDA before support costs.
EBIT represents earnings before interest and taxation.
Headline information is provided because the Directors consider that it provides
assistance in understanding underlying performance.
4 Reorganisation costs
The following items have been shown separately given their size or one-off
nature:
Note 2006 2005
£'000 £'000
Reorganisation costs a 22,288 -
Accelerated amortisation b 12,957 -
35,245 -
a) The Group acquired Onetel in December 2005. Since then, the Group has
commenced a reorganisation programme to integrate Onetel with the rest of the
Group. The costs of this integration are estimated at £22.3m, comprising the
following:
£'000
Redundancy and other employee costs 11,934
Contract termination costs 4,977
Network and customer migration costs 4,919
Other 458
22,288
b) The substantial customer growth achieved through the acquisition of Onetel
and Tele2 UK, together with the Group's major investment plans in respect of
local loop unbundling and billing platforms, prompted a review during the period
of the Group's systems and network infrastructure.
The review represented a consideration of the extent to which Group assets are
impaired, either because they have no further use or because their useful
economic lives have reduced significantly. The result of this review was an
accelerated amortisation charge in respect of the following assets:
£'000
Billing infrastructure and customer management systems 8,908
Other 4,049
12,957
5 Taxation
The tax charge comprises:
2006 2005
£'000 £'000
Current tax:
UK corporation tax 8,384 17,611
Overseas tax 16,008 8,770
24,392 26,381
Adjustments in respect of prior periods:
UK corporation tax (5,757) (6,801)
Overseas tax 3,440 (1,499)
Total current tax 22,075 18,081
Deferred tax:
Origination and reversal of timing differences (9,075) (48)
Adjustments in respect of prior periods (2,540) -
Total deferred tax (11,615) (48)
Total tax charge 10,460 18,033
The tax charge relating to Headline earnings in the period is £26.7m (2005 -
£19.4m), representing an effective rate of 19.6% (2005 - 19.3%). The tax charge
relating to statutory earnings in the period is £10.5m (2005 - £18.0m)
representing an effective tax rate of 12.9% (2005 - 19.6%).
6 Earnings per share
2006 2005
£'000 £'000
Statutory earnings 70,541 73,906
Headline earnings (see note 3) 109,399 81,009
2006 2005
Number of shares Number of Shares
000's 000's
Weighted average number of shares:
For basic earnings per share 883,393 875,569
Dilutive effect of share options 55,287 39,078
For diluted earnings per share 938,680 914,647
Basic Diluted
2006 2005 2006 2005
Pence per Pence per Pence per Pence per
share share share share
Earnings per share 7.99 8.44 7.51 8.08
Headline earnings per share 12.38 9.25 11.65 8.86
7 Reserves
Share Share Capital Translation Accumulated Total
premium redemption reserve profits
capital reserve reserve
£'000 £'000 £'000 £'000 £'000 £'000
Group
At 2 April 2005 877 402,136 30 5,718 139,198 547,959
Adoption of IAS32 and IAS39 - - - - (7,741) (7,741)
At 3 April 2005 877 402,136 30 5,718 131,457 540,218
Net profit for the financial - - - - 70,541 70,541
period
Currency translation - - - (3,644) - (3,644)
Tax on items recognised - - - - 19,597 19,597
directly in reserves
Net change in - - - - 4,236 4,236
available-for-sale
investments
Issue of share capital 11 16,223 - - (5,550) 10,684
Net purchase of own shares - - - - (15,851) (15,851)
Cost of share-based payments - - - - 10,665 10,665
Equity dividends - - - - (17,443) (17,443)
At 1 April 2006 888 418,359 30 2,074 197,652 619,003
8 Movements on net debt
At 2 April Adoption of Cash flows Exchange Non-cash At 1 April
2005 IAS32 and differences movements 2006
IAS39
£'000 £'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 41,576 - 56,357 160 - 98,093
Bank overdrafts (22,224) - 1,105 (17) - (21,136)
19,352 - 57,462 143 - 76,957
Current loans and other (49,770) - 14,174 (1) - (35,597)
borrowings
Non-current loans and other (98,494) - (211,799) (9,761) - (320,054)
borrowings
(148,264) - (197,625) (9,762) - (355,651)
Current asset investments 60,468 1,978 (56,619) - (594) 5,233
Total (68,444) 1,978 (196,782) (9,619) (594) (273,461)
9 Equity dividends
2006 2005
£'000 £'000
Final dividend for the period ended 27 March 2004 of 0.90p per ordinary share - 7,869
Interim dividend for the period ended 2 April 2005 of 0.55p per ordinary share - 4,814
Final dividend for the period ended 2 April 2005 of 1.25p per ordinary share 11,005 -
Interim dividend for the period ended 1 April 2006 of 0.75p per ordinary share 6,438 -
17,443 12,683
Proposed final dividend for the period ended 1 April 2006 of 1.75p per ordinary share 15,283
The proposed final dividend for the period ended 1 April 2006 is subject to
shareholders' approval at the Annual General Meeting and has not been included
as a liability in these financial statements.
Preliminary financial information
This financial information is prepared on the basis of accounting policies set
out in the Group's statutory accounts for the 52 weeks ended 1 April 2006.
The Directors of The Carphone Warehouse Group PLC are responsible, in accordance
with the Listing Rules of the Financial Services Authority and applicable
International Financial Reporting Standards, for preparing and issuing this
preliminary announcement, which was approved on 6 June 2006.
The financial information is extracted from the Group's full financial
statements for the period ended 1 April 2006 which were approved by the
Directors on 6 June 2006 and which received an unqualified audit report. This
financial information is abridged and does not constitute statutory accounts for
the 52 weeks ended 1 April 2006 and 53 weeks ended 2 April 2005. Full financial
statements for the 52 weeks ended 1 April 2006 will be filed with the Registrar
of Companies in due course. The 2005 Annual Report and Financial Statements on
which the auditors gave an unqualified report have been filed with the Registrar
of Companies.
This information is provided by RNS
The company news service from the London Stock Exchange
Friday, 22nd November 2024
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