Final Results
Carphone Warehouse Group PLC
07 June 2005
Tuesday 7 June 2005
Embargoed until 0700 hours
The Carphone Warehouse Group PLC
Preliminary Results for the 53 weeks to 2 April 2005
Another year of strong growth. Excellent prospects.
53 weeks ended 52 weeks ended Growth %
2 April 2005 27 March 2004
£m £m
Turnover 2,355.1 1,849.0 27.4%
Headline results*
Profit before tax 102.1 76.3 33.8%
Earnings per share 9.39p 6.81p 37.9%
Statutory results
Profit before tax 68.9 44.5 54.8%
Earnings per share 5.59p 3.17p 76.3%
Dividend per share 1.8p 1.3p 38.5%
*Stated before exceptional items and amortisation of goodwill, as reconciled in
note 7
Financial Headlines
• Turnover up 27.4% to £2,355.1m
• Like-for-like retail revenue up 8.8% and like-for-like gross profit up
5.0%
• Headline earnings per share up 37.9% to 9.39p
• Full year dividend raised by 38.5% to 1.8p
Operational Headlines
• 52 week connections up 21.6% to 6.50m
• 247 net new stores opened
• TalkTalk UK reaches 920,000 customers
• 20.9% growth in Opal business traffic to 5.45 bn minutes
Current Trading
• Trading continues to be strong across all divisions
• Connections up 20% in the 9 weeks to 4 June 2005
• Similar rates of growth in subscription and pre-pay
• Similar rates of growth in UK and non-UK operations
Hans Roger Snook, Chairman, said:
'We have achieved another year of rapid growth, and once again the quality of
our earnings has improved. The evolution of our differentiated business model,
based on providing higher value services beyond the point of sale but with the
store portfolio at its heart, has reached the stage where 56% of our underlying
profitability comes from recurring income streams. This is likely to grow
further this year as TalkTalk moves strongly into profit.
'At the same time we are absolutely committed to developing a business that can
continue to deliver attractive rates of profit growth and cash generation over
the long term. This philosophy underpins our capital expenditure plans for a
continued roll-out of new stores, increased capacity and efficiency in our fixed
line telecoms network, and continued investment in technology and new products
and services. This year we opened 247 net new stores - a record for the Group -
and we plan to open a similar number in the year ahead. Our confidence in our
growth prospects is underlined by a 38.5% rise in the full year dividend.
'As announced in April, I will be stepping down from the Board at the AGM in
July after three years as Chairman. My last year here has been the most
successful in the Group's short history. We have put substantial distance
between ourselves and our competitors in our core Retail operations and at
TalkTalk. Growth in revenues and profitability right across the Group has been
very strong. We are confident that the programme of investment of the last 12
months and continuing over the coming years will further enhance Carphone
Warehouse's competitive position.'
Charles Dunstone, Chief Executive, said:
'Our excellent financial performance stems from our continued investment in
growing our existing businesses and our ability to identify and develop new
commercial opportunities both through our existing asset base and via
acquisition. We are committed to long term value creation, through the
development of a portfolio of related businesses and services that can deliver
attractive and sustainable growth in earnings and dividends. Our track record
of earnings growth and strategic delivery over the past three years now speaks
for itself.
'We are now well on the way to developing a broad-based telecoms group,
providing mobile and fixed line services to individuals and businesses across
ten countries. Our formula is simple: we have a number of assets - our people,
our stores, our fixed line network, our supplier relationships and a strong and
motivated management team - that are highly valuable on their own, but even more
powerful when uniquely combined.
'Three examples serve to illustrate this formula very clearly. The combination
of our people, stores and scale enables us to provide consistently high levels
of service and value to our customers, and differentiates us from our
competitors; the combination of our stores and our highly efficient fixed line
network gives a material competitive advantage in the provision of residential
services; and the combination of our mobile network relationships, our fixed
line infrastructure and our entrepreneurial drive creates innovative new
businesses such as Mobile World. We are dynamic and so are our markets.
Outlook
'Our markets remain very attractive. Continued intense competition between
mobile networks translates into compelling offers for our customers. We expect
this to continue as networks progressively migrate customers to their 3G
platforms and more MVNOs launch. The handset market is vibrant, with more models
than ever before due to be released in the next 12 months and a number of new
manufacturers seeking to gain a foothold in Europe. Our year-to-date
connections growth of 20% is particularly encouraging, especially in the context
of a weaker consumer environment in the UK.
'On the fixed line side, we have now proved that TalkTalk has all the
ingredients to become the major alternative force in UK residential
communications, and further regulatory change over the next year should allow us
to move to the next level in both scale and range of services. The investment
we are making in the Opal network will continue to maximise the value we achieve
from providing services to homes and businesses, and to extend the range of
those services. Outside the UK, we will invest further in building our existing
customer bases and entering new fixed line markets.
'The outlook for our mobile services operations is very promising. Our German
service provision business, The Phone House Telecom, has significantly
outperformed our expectations and we will continue to invest in growing the base
strongly. Our MVNO strategy is gaining pace and reflects the our
entrepreneurial roots: identifying market opportunities and using our existing
assets in innovative new ways.
'We ask a lot of our employees and every year they respond to the challenges we
set them. This year, a further 2,000 people have joined The Carphone Warehouse,
taking the total number of employees to over 12,000. We truly value our people
and thank them all. Finally I would like to take this opportunity to thank Hans
Snook for his unique contribution to the Group during his three years as
Chairman. He leaves the Group very well positioned to deliver further
profitable growth.'
Summary of Results
Group turnover for the period was £2,355.1m, compared to £1,849.0m for the prior
year, representing growth of 27.4%. Headline pre-tax profit was £102.1m, an
increase of 33.8% on the year to March 2004. Earnings per share on the same
basis grew by 37.9% to 9.39p. Statutory profit before tax increased by 54.8%
from £44.5m to £68.9m, while statutory earnings per share increased by 76.3%
from 3.17p to 5.59p. Net cash inflow from operating activities increased by
39.4% from £102.7m to £143.1m.
Distribution Division
The Distribution division comprises our Retail operations and all
directly-related business streams. The key operating assets of the division are
our 1,461 stores across 10 European countries and our Retail and Online brands.
Distribution revenues grew by 27.3% in the year to £1,436.9m, and the division
generated EBIT of £85.0m, a rise of 27.1% on the prior year. Growth was strong
across all business units, with Online growth being exceptional, driven
primarily by the full year impact of the acquisition of E2Save.
2005 2004
£m £m
Turnover 1,436.9 1,128.9
Retail 1,160.2 946.4
Online 128.2 64.5
Insurance 102.0 78.6
Ongoing 46.5 39.4
Contribution 190.6 154.9
Retail 101.4 83.0
Online 7.7 4.5
Insurance 35.0 28.0
Ongoing 46.5 39.4
Support costs (70.6) (57.4)
EBITDA 120.0 97.5
Depreciation (35.0) (30.6)
EBIT 85.0 66.9
EBIT % 5.9% 5.9%
Before exceptional items and amortisation of goodwill
Retail and Online
The Group achieved 6.60m connections during the year, representing year-on-year
growth of 23.4%. However, this year was a 53 week accounting period and on an
equivalent 52 week basis, connections were 6.50m, representing growth of 21.6%.
Within the 52 week figures, 0.47m connections were made through our Online
channels (inbound and outbound call centres, interactive TV and website) (2004:
0.31m).
In the key metric of subscription connections, we achieved 52 week growth of
14.8% to 2.77m. This continued strong performance was a result of enduring
competition between mobile networks and an attractive range of new,
richly-featured handsets, allied to our unique market proposition. We have now
achieved compound annual growth of 20.3% in subscription connections over the
last 5 years.
Our pre-pay business had a very good year, with 52 week connections up 28.1% to
3.23m. The combination of falling prices on entry level handsets, and increased
network interest in the pre-pay segment, drove demand. Our SIM-free sales
recovered well from the previous year, rising 21.4% to 0.51m.
Connections (000s) 52 weeks to 52 weeks to 27 March 53 weeks to
26 March 2005 2004 2 April 2005
Subscription 2,770 2,413 2,816
Pre-pay 3,227 2,520 3,272
SIM-free 506 417 512
Group 6,503 5,350 6,600
We opened 306 new stores during the year and closed 59. The total number of
stores increased from 1,214 at March 2004 to 1,461 by March 2005. The total
includes 70 franchise stores (March 2004: 26 franchises). Total average selling
space (excluding franchises) increased by 12.3% to 73,399 sqm (2004: 65,369 sqm)
and sales per square metre increased by 9.2% to £15,807 (2004: £14,479).
Total Retail revenues grew by 22.6% and gross profit by 16.9%. Like-for-like,
after stripping out the impact of new store openings and the 53rd week, revenues
grew by 8.8% and gross profit by 5.0%. The increase in revenues was driven both
by the strong connections growth through the year, and an increase in average
revenues per connection which rose by 1.0% as the average value of handsets
increased.
Average cash gross profit per connection fell by 3.6% from £56.0 to £54.0, in
line with our expectations. Subscription gross profit per connection held up
very well but the anticipated competition from other retailers in the pre-pay
market, where there are fewer barriers to entry, saw pre-pay gross profit per
connection fall. Nonetheless, the significant uplift in volumes that we
experienced delivered a much higher level of overall profitability from pre-pay
connections than in the previous year, and the margin trend improved in the
second half, with gross profit per connection on both subscription and pre-pay
rising year-on-year.
Contribution (see note 7) from Retail grew by 22.2% to £101.4m. The contribution
margin fell from 8.8% to 8.7%. However, 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 29.4% to 30.7%. Overall
Retail direct costs grew by 14.7%, driven by the greater store base and
like-for-like growth in commission payments to our sales consultants in the
buoyant market. Within these figures, total rent costs increased by only 10.5%,
as we benefited from a wider geographic spread.
In the UK, our store portfolio increased from 509 stores to 601 stores. We have
continued our strategy of identifying sites on arterial routes and in retail
parks, but at the same time we have had great success in opening stores in
smaller towns. This new type of location will provide us with ample
opportunities to continue to grow our UK portfolio over the medium term, and we
are targeting a further 100 openings in the next 12 months.
Our businesses outside the UK continued to deliver very encouraging growth.
Once again, Spain led the way, and delivered 52 week connections growth of
40.4%. Our Spanish management team also succeeded in opening 75 new stores
during the period to take the total to 239, and is confident of achieving
further strong growth in the portfolio over the coming year. The scale of our
Spanish operation is now feeding through into material contributions not only
from a Retail perspective, but also through Insurance and Ongoing ARPU share
income.
Our French Retail operations experienced more challenging conditions as the
market continued to display subdued levels of network competition.
Nevertheless, connections were up 16.4%, which represents a creditable
performance in the market context. We opened 9 new stores during the period,
taking the total French portfolio to 185. In the coming year we are putting a
renewed effort into expanding our presence with a marked acceleration in new
store openings. In addition, we are confident that the market environment will
improve, with the entry of MVNOs and closer regulatory involvement.
In our other major Retail markets, Sweden and The Netherlands, we benefited from
intense competition between the network operators. The Swedish business
generated connections growth of 29.9% and opened 11 new stores, taking the base
to 69 stores. Dutch connections were up 11.2% and the portfolio increased by 29
to 116 stores. 24 of these openings were franchises, whose connections are
excluded for reporting purposes.
Connections growth across all our other markets, incorporating Belgium, Germany,
Ireland, Portugal and Switzerland, was 29.8%. Our Belgian business continues to
perform exceptionally well and represents a significant turnaround from the
loss-making position two years ago, and our Irish and Portuguese operations
consolidated their position as the leading independent distributors in their
respective markets. In Germany, our retail operations primarily support The
Phone House Telecom service provision business, which is discussed in more
detail below.
The Swiss Retail business reported a small loss for the year. However, we have
made several changes to the management team and have focused on improving our
competitive position, and the business is now trading back in line with budget,
with a strong recovery forecast for this year.
Online connections increased by 53.7% year-on-year to 0.47m on a 52 week basis.
Revenues were £128.2m (2004: £64.5m) and contribution was £7.7m (2004: £4.5m).
The UK continues to be the engine of growth for our Online business, enhanced by
a full year contribution from E2Save, and very strong growth in the off-the-page
and web segments of the mobile phone market. As highlighted last year, we have
begun to explore direct channels in other geographical markets, but at this
stage these are not material to overall Online performance. Just before the
year end, we acquired One Stop Phone Shop, another strong off-the-page brand in
the UK market.
Insurance
The Group offers a range of insurance products to its retail customers,
providing protection against the replacement cost of a lost, stolen or broken
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 24.3% to 1.65m. The UK base grew by 22.7% to 1.02m and
the non-UK base grew by 26.8% to 0.63m. The non-UK base now represents 38.2% of
the total.
Insurance revenues grew 29.7% to £102.0m (2004: £78.6m) and contribution
increased by 25.0% to £35.0m (2004: £28.0m). Margins remained relatively steady,
as a gradual decrease in claims rates, driven by increased public awareness
about mobile phone crime, was offset by a rising average claims cost as higher
value handsets became more widely owned.
We continue to see good growth prospects in our Insurance business as we build
out the store portfolio across Europe. Our third party business, acting as
underwriter to other organisations offering mobile phone insurance, is still in
its infancy but provides a further source of long term growth.
Ongoing
Ongoing represents the share in 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.
Ongoing revenues grew by 18.2% to £46.5m during the year (2004: £39.4m). This
performance reflects the sustained strong subscription connections growth over
the last two 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 facilities management ('FM')
operations, managing customers on behalf of networks, and our own customers,
including our virtual network, Fresh, and our German service provision business,
The Phone House Telecom. The Fixed business primarily comprises Opal, our
business-to-business network, 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 45.0% year-on-year to £804.0m (2004:
£554.5m), with good growth across all major business lines. EBIT increased by
50.0% to £22.5m (2004: £15.0m). The EBIT margin increased slightly from 2.7% to
2.8% as strong top line growth was offset by continued investment in recruiting
customers to TalkTalk and building support functions to create a robust platform
for long term growth.
2005 2004
£m £m
Turnover 804.0 554.5
Mobile 377.7 305.9
Fixed 426.3 248.6
Contribution 59.4 43.2
Mobile 25.7 23.5
Fixed 33.7 19.7
Support costs (24.7) (18.1)
EBITDA 34.7 25.1
Depreciation (12.2) (10.1)
EBIT 22.5 15.0
EBIT % 2.8% 2.7%
Before exceptional items and amortisation of goodwill
Mobile
Overall we achieved revenue growth of 23.5% to £377.7m (2004: £305.9m), with
contribution rising 9.3% to £25.7m (2004: £23.5m).
The Phone House Telecom, our German service provision business, performed very
strongly. The rate of customer acquisition accelerated in the second half and
by March 2005 we had 0.86m customers, of whom 0.64m were on two year
subscriptions. We completed the integration with our German retail operations
and are now focused on growing our distribution network, both by opening new
stores and by expanding our dealer channel. Revenues rose by 41.3% to £298.3m
compared to the ten months figure from the previous year, with contribution up
by 52.8% to £16.4m on the same basis. The contribution margin increased from
5.1% to 5.5% as the business benefited from strong competition between the
incumbent networks.
Total revenues from the rest of our Mobile businesses fell 16.2% to £79.4m,
while contribution fell 27.3% to £9.3m. The fall in revenues was the result of
the migration of Sainsbury's customers from a service provision arrangement to
an FM arrangement, and a lower average base at Fresh. The decline in
contribution includes a start-up loss from our French MVNO of £1.0m.
We continued to grow our UK FM business with customers managed on behalf of O2
and Vodafone up by 19.7% to 0.67m (2004: 0.56m). Growth is driven by new
subscription customers signed up to these networks in our stores. The key
drivers of our FM businesses are the number of customers under management, and
the efficiency with which we manage our call centres and bad debt. We continue
to manage 0.6m customers in France on behalf of Orange and SFR.
Our other own customer operations, predominantly Fresh, our UK virtual network,
did not make a material financial contribution during the year. However, we
have recently taken a more proactive approach to our MVNO strategy, with a
number of initiatives that will support long term growth in this business unit.
In July 2004 we launched Breizh Mobile, an MVNO in France addressing the
low-penetration Brittany region with a locally-tailored offering. In the last
quarter, we aggressively promoted our Fresh proposition to maintain our status
as the best value pre-pay offer in the UK market. Finally, we announced just
after the year end the launch of Mobile World, a unique pre-pay service which
offers very attractive rates to international destinations, designed to compete
directly with the fixed line pre-paid calling card market.
Fixed
Our fixed line operations continued their strong momentum from the previous
year. Total revenues were £426.3m, up 71.5% year-on-year, and contribution was
£33.7m, a rise of 71.7%.
Total revenues from business operations were £267.3m. Opal, our UK network
provider for all of our fixed line activity in the UK, generated revenues of
£237.7m, an increase of 8.8% (2004: £218.4m). Revenues in the second half
were, as expected, adversely affected by the regulatory cuts to mobile
termination rates. With the cost of terminating calls on mobile networks
falling, we passed on the saving to our customers, which reduced revenue per
minute by approximately 12% over the second half. Total business traffic over
the network increased by 20.9% to 5.45bn minutes. Including TalkTalk activity,
total traffic increased by 73.4% to 9.56bn minutes.
Total contribution from business operations was £31.5m. Opal contribution was
£30.6m, broadly the same as in 2004. Underlying growth in our direct channel,
where we recruit and manage our own corporate customers, was very encouraging.
However, we experienced increased price competition in our reseller channel, and
scaled down our low margin premium rate services during the year.
We made a number of small reseller acquisitions in the UK during the year, as
the rate of consolidation in the sector picked up. These acquisitions are
attractive because we are able to improve the margin on customer traffic
immediately by moving the lines onto the Opal network. Acquisitions also give
us ready access to sales platforms in regions of the UK where we are currently
under-represented. In total these deals added £17.8m of revenues and £3.0m of
contribution to the year's results.
Xtra, our Spanish fixed line network acquired in March 2004, recorded revenues
of £29.6m and contribution of £0.9m in its first full year in the Group.
Opal's engineering strategy made further good progress during the year. We
provisioned a further 5 switches, taking the total to 11. In addition, we
completed our three year programme of building interconnect into the BT exchange
network, so that by March 2005 over 90% of calls across the Opal network
originated and terminated at the local exchange level. This was significantly
ahead of our 75% target and makes Opal one of the most efficient networks in the
UK based on the costs paid to BT - a call that is originated onto Opal at the
local exchange level is 27% cheaper than a call originating at the regional
exchange level.
The network strategy will evolve over the next 12 months in two important ways:
firstly, to add more capacity through the provisioning of additional switches
and further fibre leases to meet the demands of our growing business; and
secondly, to prepare for the provision of broadband services and integration to
BT's 21st Century Network, which will be key to our long term strategy for Opal
and TalkTalk.
We are continuing to invest in Opal to maximise its potential in the business
telecoms market. We intend to develop and grow a number of new business areas
this year, including line rental, data products, and a corporate mobile
proposition. In addition, we are launching TalkTalk Business to address the
small business market. At the same time, our core voice business is set for
continued growth.
Total residential revenues rose from £30.2m to £159.0m, and contribution after
all marketing and customer acquisition costs was £2.3m, compared to a loss of
£11.0m last year. Our UK residential fixed line service, TalkTalk, had an
outstanding year. We exceeded our target of 900,000 customers by March 2005,
finishing the year with 920,000. TalkTalk UK generated revenues of £123.6m and
became profitable in its second full year, despite continued heavy investment in
marketing and customer acquisition. In addition, we launched a broadband
service in the second half of the year and recruited nearly 50,000 customers by
the year end, which was well ahead of our own expectations. Contribution in the
UK was £0.5m, net of £1.4m start-up losses from our broadband activities,
compared to a loss of £11.0m in 2004.
We believe that TalkTalk's competitive position is strengthening all the time as
it gains real scale. This gives us scope to continue to invest in developing
the brand and recruiting customers aggressively. We intend to introduce
further enhancements to our broadband service during the year, and will launch a
line rental product when the regulatory environment allows. We expect this to
have a positive impact both on customer recruitment and on churn, since it
allows us to consolidate all of a customer's phone bill and terminates the
billing relationship with BT. We have set a target of 2 million residential
customers by March 2008 - equivalent to a 10% share of the UK market.
Our non-UK residential fixed line operations have made a promising start. The
acquisitions of Xtra in Spain and N Tel in Switzerland in the previous financial
year have been successfully integrated into the Group and we have launched
TalkTalk in those two countries, as well as in France and Germany. At the year
end we had 170,000 fixed line customers outside the UK, generating revenues of
£35.4m and contribution of £1.8m. N Tel continued to be strongly profitable,
while we incurred start-up losses elsewhere. Since the year end we have
launched TalkTalk in Belgium and Ireland, and we expect a similar overall result
in the next 12 months from our non-UK operations.
Wholesale Division
2005 2004
£m £m
Turnover 132.0 178.1
Contribution 1.5 1.8
Support costs (1.4) (1.7)
EBITDA 0.1 0.1
Depreciation (0.7) (0.9)
EBIT (0.6) (0.8)
EBIT % (0.5%) (0.5%)
Wholesale operations comprise our pre-pay voucher distribution business, our
dealer operations and the wholesale shipment of trade-in handsets. We are still
aware that 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.
Exceptional items
There were no exceptional items during the year (2004: £6.4m exceptional charge)
(see note 5).
Eliminations
Included within Retail revenue is £17.9m of commissions from the Group's German
service provision business (2004: £12.5m). This revenue is reported within
Retail to avoid distortion of performance.
Interest and tax
Net interest of £4.8m was payable during the year, compared to a charge of £4.9m
in the prior year. Significant investment in capital expenditure and further
bolt-on acquisitions were financed largely out of operating cash flow.
The effective tax rate before amortisation and exceptionals was 19.5% (2004:
22.0%). The tax rate continued to benefit from the utilisation of tax losses
incurred in earlier years, and the effect of profit within low tax rate
jurisdictions.
Goodwill amortisation
Goodwill of £53.7m arose during the period, relating to the acquisitions made.
The total goodwill amortisation charge for the year was £33.2m (2004: £25.4m).
Earnings per share (EPS)
Headline EPS was 9.39p (2004: 6.81p). Statutory EPS was 5.59p (2004: 3.17p).
Cash flow and dividend
At 2 April 2005, the Group had net debt of £68.4m (2004: £40.6m). During the
year the Group generated cash flow from operations of £143.1m (2004: £102.7m),
and total free cash flow before acquisitions, new stores, and dividend payments
of £68.2m (2004: £57.0m) (see note 10).
Cash generation is 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 1.25p per share, taking the total dividend
for the financial year to 1.80p and representing growth of 38.5% over last
year's 1.30p total dividend, reflecting underlying EPS growth. The ex-dividend
date is Wednesday 6 July 2005, with a record date of Friday 8 July 2005 and an
intended payment date of Friday 5 August 2005.
Current trading
Trading in the new financial year has continued to be strong. All divisions are
trading at least in line with plan. Connections are up 20% year-on-year in the
nine weeks to 4 June 2005, with similar rates of growth in subscription and
pre-pay. We remain confident of the outlook.
Presentation to investors and analysts
There will be a presentation of the results at 9am this morning at the offices
of Deutsche Bank, 1 Great Winchester Street, London EC2N 2DB. 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, 28 July 2005.
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 profit and loss account for the 53 weeks ended 2 April 2005
Before Amortisation After
amortisation of of goodwill amortisation
goodwill of goodwill
53 weeks ended 53 weeks ended 53 weeks 52 weeks
ended ended
2 April 2 April 2 April 27 March
2004
2005 2005 2005
£000 £000 £000 £000
Turnover
Existing operations 2,323,180 2,323,180 1,849,011
Acquisitions 31,913 31,913 -
2,355,093 2,355,093 1,849,011
Cost of sales (1,651,141) (1,651,141) (1,303,246)
Gross profit 703,952 703,952 545,765
Operating expenses excluding amortisation and (549,108) (549,108) (427,667)
depreciation
EBITDA 154,844 154,844 118,098
Depreciation (47,896) (47,896) (41,684)
Amortisation of goodwill (33,229) (33,229) (25,417)
Operating profit 106,948 (33,229) 73,719 50,997
Existing operations 104,339 (26,675) 77,664 50,997
Acquisitions 2,609 (6,554) (3,945) -
Loss on disposal of fixed asset investments - - (1,652)
Profit before interest and taxation 106,948 (33,229) 73,719 49,345
Net interest payable (4,845) (4,845) (4,858)
Profit on ordinary activities before taxation 102,103 (33,229) 68,874 44,487
Tax on profit on ordinary activities (19,910) (19,910) (16,783)
Profit for the financial period 82,193 (33,229) 48,964 27,704
Equity dividends (15,782) (15,782) (11,369)
Retained profit for the financial period 66,411 (33,229) 33,182 16,335
Earnings per share
Basic 9.39p 5.59p 3.17p
Diluted 8.99p 5.35p 3.13p
Headline earnings per share
Basic 9.39p 6.81p
Diluted 8.99p 6.72p
Consolidated statement of total recognised gains and losses for the 53 weeks
ended 2 April 2005
53 weeks ended 52 weeks ended
2 April 2005 27 March 2004
£000 £000
Profit for the financial period 48,964 27,704
Currency translation 804 (1,014)
Total recognised gains and losses relating to the period 49,768 26,690
Prior period adjustments - (3,949)
Total gains and losses recognised since last financial statements 49,768 22,741
Consolidated balance sheet as at 2 April 2005
2 April 2005 27 March 2004
£000 £000
Fixed assets
Intangible assets - goodwill 426,841 403,191
Tangible assets 241,139 195,594
Investments 6,069 5,897
Total fixed assets 674,049 604,682
Current assets
Stock 95,185 78,298
Debtors 377,390 271,444
Short-term investments 60,468 10,805
Cash at bank and in hand 41,576 72,813
Total current assets 574,619 433,360
Creditors: amounts falling due within one year (574,439) (408,231)
Net current assets 180 25,129
Total assets less current liabilities 674,229 629,811
Creditors: amounts falling due after more than one year (103,247) (117,737)
Provisions for liabilities and charges (68,040) (40,231)
Net assets 502,942 471,843
Capital and reserves
Called-up share capital 877 874
Share premium 402,136 397,262
Capital redemption reserve 30 30
Profit and loss account 99,899 73,677
Total capital employed 502,942 471,843
Consolidated cash flow statement for the 53 weeks ended 2 April 2005
53 weeks ended 52 weeks ended
2 April 2005 27 March 2004
£000 £000
Net cash inflow from operating activities 143,061 102,657
Net cash outflow from returns on investments and servicing of (4,845) (4,858)
finance
Net cash outflow from taxation (11,641) (2,350)
Net cash outflow from capital expenditure and financial (137,675) (84,245)
investment
Net cash outflow from acquisitions and disposals (46,315) (59,050)
Equity dividends paid (12,683) (12,229)
Net cash outflow before financing (70,098) (60,075)
Net cash inflow from financing 17,552 96,596
(Decrease) increase in cash in the period (52,546) 36,521
Reconciliation of operating profit to net cash inflow from operating activities
53 weeks ended 52 weeks ended
2 April 2005 27 March 2004
£000 £000
Operating profit including exceptional items 73,719 50,997
Depreciation of tangible fixed assets 47,896 41,684
Amortisation of goodwill 33,229 25,417
EBITDA including exceptional items 154,844 118,098
Loss on disposal of fixed assets 482 163
Increase (decrease) in provisions 20,810 (1,469)
Increase in stock (14,745) (20,684)
Increase in debtors (86,870) (53,621)
Increase in creditors 68,540 60,170
Net cash inflow from operating activities 143,061 102,657
Notes to the financial statements
For the 53 weeks ended 2 April 2005
1 Accounting policies
The financial statements have been prepared in accordance with applicable United
Kingdom accounting standards under the historical cost convention. The
principal accounting policies have been applied consistently throughout the
period and the preceding period.
2 Segmental analysis
Divisional results are analysed as follows:
2005 2004
Profit Profit
before tax before tax
Turnover Net assets Turnover Net assets
£000 £000 £000 £000 £000 £000
Distribution 1,436,970 85,068 449,138 1,128,939 66,939 440,521
Telecoms Services 804,039 22,536 53,804 554,491 15,021 31,322
Wholesale 131,952 (656) - 178,067 (813) -
Eliminations (17,868) - - (12,486) - -
2,355,093 106,948 502,942 1,849,011 81,147 471,843
Amortisation of goodwill (33,229) (25,417)
Operating exceptional - (4,733)
items
73,719 50,997
Non-operating exceptional - (1,652)
items
Net interest payable (4,845) (4,858)
Profit before tax 68,874 44,487
Results by geographical location are analysed by origin as follows:
2005 2004
Profit Profit
before tax before tax
Turnover Net assets Turnover Net assets
£000 £000 £000 £000 £000 £000
United Kingdom 1,358,580 67,489 204,701 1,102,185 49,836 177,144
Rest of Europe 996,513 39,459 298,241 746,826 31,311 294,699
2,355,093 106,948 502,942 1,849,011 81,147 471,843
Amortisation of goodwill (33,229) (25,417)
Operating exceptional - (4,733)
items
73,719 50,997
Non-operating exceptional - (1,652)
items
Net interest payable (4,845) (4,858)
Profit before tax 68,874 44,487
The information above includes the following amounts in respect of acquisitions
during the period:
Turnover Loss before Net assets
tax
£000 £000 £000
Distribution 2,400 8 15,008
Telecoms Services 29,513 (4,802) 35,330
31,913 (4,794) 50,338
United Kingdom 31,913 (4,794) 50,338
3 Tax on profit on ordinary activities
The tax charge for the period comprises:
2005 2004
£000 £000
UK corporation tax 17,611 11,144
Overseas tax 8,770 3,247
Deferred tax 1,829 2,803
Adjustments in respect of prior periods - UK (6,801) 1,677
- Overseas (1,499) (2,088)
19,910 16,783
4 Earnings per share
The calculations of earnings per share are based on the following profits and
numbers of shares:
2005 2004
£000 £000
Profit for the financial period 48,964 27,704
Amortisation of goodwill 33,229 25,417
Operating exceptional items (net of tax) - 4,733
Non-operating exceptional items (net of tax) - 1,652
Headline earnings (before amortisation of goodwill and 82,193 59,506
exceptional items)
2005 2004
Number of Number of
shares shares
000's 000's
Weighted average number of shares:
For basic earnings per share 875,569 873,555
Dilutive effect of share options 39,078 11,318
For diluted earnings per share 914,647 884,873
Basic pence per share Diluted pence per share
2005 2004 2005 2004
Earnings per share 5.59 3.17 5.35 3.13
Headline earnings per share 9.39 6.81 8.99 6.72
Headline earnings per share is provided because the Directors consider that it
gives a better indication of underlying performance than standard earnings per
share.
5 Exceptional items
Exceptional items include the following operating and non-operating exceptional
items:
2005 2004
£000 £000
Costs of operational reorganisation (a) - (4,733)
Exceptional operating items - (4,733)
Loss on disposal of fixed asset investments (b) - (1,652)
Total exceptional items - (6,385)
a) Costs of operational reorganisation
Following the acquisition of The Phone House Telecom GmbH (formerly Hutchison
Telecommunications GmbH) ('HTG') in June 2003, the Group closed its support
centre in Munich, closed a further 15 retail stores and commenced the
integration of the retail business with HTG. A provision of £4.7m was booked to
cover the cost of this reorganisation, which included the write down of tangible
fixed assets.
b) Loss on disposal of fixed asset investments
During the period ended 27 March 2004 the Group disposed of 50% of its interest
in Wireless Frontiers, an independently managed wireless investment fund. In
exchange, the acquirer assumed the Group's commitment to make further
contributions to Wireless Frontiers. The disposal resulted in a net loss of
£1.7m.
6 Reserves
Capital
redemption
Profit and loss reserve
account
Share Premium Total
£000 £000 £000 £000
At 27 March 2004 73,677 397,262 30 470,969
Retained profit for the financial period 33,182 - - 33,182
Currency translation 804 - - 804
Issue of share capital (2,127) 4,874 - 2,747
Employee share option schemes 2,427 - - 2,427
Purchase of own shares (8,064) - - (8,064)
At 2 April 2005 99,899 402,136 30 502,065
7 Reconciliation of headline information to statutory information
2005 2004
EBITDA Operating Profit before EBITDA Operating Profit before tax
profit tax profit
£000 £000 £000
£000 £000 £000
Headline 154,844 106,948 102,103 122,831 81,147 76,289
Amortisation of - (33,229) (33,229) - (25,417) (25,417)
goodwill
Exceptional items - - - (4,733) (4,733) (6,385)
(see note 5)
Statutory 154,844 73,719 68,874 118,098 50,997 44,487
EBITDA represents earnings before interest, taxation, depreciation and
amortisation of goodwill. Contribution represents EBITDA before allocation of
support costs.
8 Reconciliation of movements in shareholders' funds
2005 2004
£000 £000
Profit for the financial period 48,964 27,704
Dividends (15,782) (11,369)
Currency translation 804 (1,014)
Issue of share capital 2,750 928
Employee share option schemes 2,427 -
Purchase of own shares (8,064) -
Net movement in shareholders' funds 31,099 16,249
Opening shareholders' funds as previously stated 471,843 459,543
Prior period adjustments (see note 9) - (3,949)
Opening shareholders' funds as restated 471,843 455,594
Closing shareholders' funds 502,942 471,843
9 Prior period adjustments
The Group implemented UITF 38 during the period ended 27 March 2004 and in
accordance with the abstract, restated prior period figures to reflect this. The
effect of the adjustment was to transfer the Group's investment in an Employee
Share Ownership Trust from investments to reserves.
10 Movement on net debt
2005 2004
£m £m
Operating cash flow 143.1 102.7
Tax and interest (16.5) (7.2)
Capex (excluding new stores and freeholds) (58.4) (38.5)
Free cash flow 68.2 57.0
New store capex (25.2) (13.7)
Freehold acquisitions (4.2) (47.3)
Acquisitions and investments (46.5) (59.3)
Dividends (12.7) (12.2)
Net cash outflow (20.4) (75.5)
Opening net (debt) funds including short-term investments (40.6) 29.1
Shares and foreign exchange (7.4) 5.8
Closing net debt (68.4) (40.6)
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 2 April 2005.
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 6 June 2005.
The financial information is extracted from the Group's full financial
statements for the period ended 2 April 2005 which were approved by the
Directors on 6 June 2005 and which received an unqualified audit report. This
financial information is abridged and does not constitute statutory accounts for
the 53 weeks ended 2 April 2005 and 52 weeks ended 27 March 2004. Full financial
statements for the 53 weeks ended 2 April 2005 will be filed with the Registrar
of Companies in due course. The 2004 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
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