Interim Results
Carphone Warehouse Group PLC
06 November 2002
Strictly embargoed until 0700 hours Wednesday 6 November 2002
The Carphone Warehouse Group PLC
Interim Results for the 26 Weeks Ended 28 September 2002
26 weeks ended 26 weeks ended 29 52 weeks ended
28 September 2002 September 2001 30 March 2002
£m £m £m
Total Turnover 861.2 539.6 1,152.7
Turnover (ex-Wholesale) 433.8 364.2 809.7
EBITDA 27.9 21.6 72.8
Profit before tax 12.0 9.6 46.8
Headline earnings per share 1.08p 0.89p 4.41p
(Stated before exceptional items and
amortisation of goodwill)
Exceptional items 13.2 (3.1) (55.1)
• 19% growth in turnover (ex Wholesale) to £433.8m
• 26% growth in profit before tax to £12.0m
• 21% growth in headline EPS to 1.08p
• 10.3% growth in like for like retail revenue and 4.8% growth in like for
like gross profit
• 47% growth in contribution from continental Europe. Losses halved in
Germany
• 20% growth in recurring revenue, comprising 48% of group contribution
• 25% growth in connections (including SIM-free), 4% growth in subscription
connections
• Acquisition of Opal Telecom PLC ('Opal'), a leading UK fixed line network
provider
• 21% growth in connections (inc SIM-free), 4.9% growth in like for like
retail revenue and 5.1% growth in like for like gross profit in the five
weeks to 2 November 2002
Commenting, Hans Snook, Chairman, said:
'This is a very good set of numbers, accompanied by continued positive current
trading and an encouraging outlook for the rest of the year. The Carphone
Warehouse is benefiting from the powerful platform and increased market share we
have built, and from our strategy of serving our customers throughout their
mobile lives, both at and beyond the point of sale. This is growing both the
size of our customer base and its average lifetime value, as well as improving
the quality of our earnings.
'Today, we are also announcing the acquisition of Opal, a leading UK fixed line
network provider. This evolution of our strategy will materially expand our UK
operations and enable us to deliver added value to our customers and
shareholders alike. We expect the deal to be earnings enhancing in its first
full year.'
Charles Dunstone, Chief Executive, said:
'The first half-year has been a period of welcome stability in many of our
markets and encouraging progress for The Carphone Warehouse, with growth in
connections and like-for-like retail revenue exceeding our expectations.
'We have continued to enjoy market share gains in our key markets across Europe
over the last six months. Last year, the volume of mobile handset sales across
Europe fell by 40-50%. Our scale and proposition enabled us to strengthen our
position as others withdrew in this difficult environment. This year, volumes
have stabilised, and with the arrival of new generation colour screens, new
services and new content, the market is now seeing a modest uplift. We believe
that there is still significant scope to grow our market share in the UK and
particularly in some continental European markets, where we continue to build
our presence and our brand.
'Growth in pre-pay connections has been comfortably ahead of our expectations.
This is mainly due to a renewed interest on the part of the networks in
attracting higher-tier pre-pay customers with handsets that have not previously
been available at mass market prices in pre-pay packages. In addition, we have
continued to have notable success in our SIM-free offer. Since introducing this
segment ahead of Christmas 2001, we have grown it into a business achieving
7,500 handset sales a week. Our leverage with handset manufacturers and our
wholesale expertise are both key elements of our dominance of this part of the
market.
'The contribution from our Continental European businesses is up by over 47% to
£17.5m. In Germany the run-rate of losses has been halved. We continue to work
to improve operational performance and remain committed to finding a solution in
Germany by the time we report our preliminary 2003 results.
'Our strategy of developing our high quality recurring revenue streams beyond
the point of sale continues to reap rewards. Our Insurance and Telecoms Services
customer bases continue to grow, and profits from recurring revenues represent
48% of group contribution. In recent months we have changed our terms of trade
with a number of network operators, exchanging a lower upfront commission for a
greater share of ongoing customer ARPU. These developments will have a
beneficial effect on recurring revenues in the future.
'Today, we are augmenting our strategy through the acquisition of Opal, which
will enable us to offer a better value fixed line service as well as a 'better
mobile life'. There are strong revenue synergies between the two companies'
customer bases, and between our stores and Opal's growing corporate sales force.
At the same time the deal adds to our management strength and depth. We believe
the acquisition amounts to a significant and value-creating expansion of our UK
business and its potential.
'For the full year, much as always depends upon the Christmas period; but we are
quietly confident, and this adds to our optimism for the current year. Further
ahead, we see continuing opportunities in imaging, MMS, Java games and colour
screens, and the introduction of new mobile applications. We believe The
Carphone Warehouse is well positioned to benefit from these opportunities.'
Group Performance
Turnover for the period ending 28 September 2002 increased 59.6% to £861.2m and
EBITDA before exceptionals increased 29.4% to £27.9m. Headline EPS in the period
increased by 21.3% from 0.89p to 1.08p.
Distribution
26 weeks ended 26 weeks ended 29 52 weeks ended
28 September 2002 September 2001 30 March 2002
£m £m £m
Distribution Turnover 807.7 497.3 1,063.4
Retail 331.6 279.9 623.3
Insurance 29.0 26.4 60.4
Online 19.7 15.6 36.7
Wholesale 427.4 175.4 343.0
Gross Profit 128.7 117.2 261.9
Contribution* 39.4 32.8 93.1
* Including Mviva losses of £2.4m in interim and full year comparatives
Total Connections (000s) 1,922 1,537 3,615
Subscription 878 847 1,767
Pre-pay 846 690 1,613
Pre-pay SIM-free 198 - 235
Distribution operations generated total revenues of £807.7m (2001 £497.3m), an
increase of 62.4%, and contribution of £39.4m (2001 £32.8m after Mviva losses of
£2.4m), an increase of 20.1%. Excluding our wholesale business, which had a
strong first half in terms of sales, growth in revenue and contribution was
18.2% and 16.2% respectively.
Connections growth was strong throughout the period from May, when the impact of
the networks' withdrawal of subsidy on pre-pay packages first annualised.
Overall, connections in the first half grew by 25.1%. We witnessed 3.6% growth
in subscription connections (after 30% growth in the equivalent period last
year), 22.7% growth in pre-pay and continued success for our SIM-free offering.
As a result, our subscription mix fell to 45.7%, compared to 55.1% in last
year's first half. Excluding the impact of SIM-free, the mix was 50.9%.
Like-for-like revenue growth in the retail business was 10.3% and like-for-like
gross profit growth was 4.8%, reflecting the changing terms of trade with
certain network operators, and a change in the mix of the networks to which we
connected compared to last year. The gross profit generated on each connection
remained steady in pre-pay and declined slightly on subscription in line with
expectations following the change in terms of trade.
Our total share of handset sales across all our markets increased to 7.6% in
September 2002 (source: GfK), up from 4.8% 12 months earlier. Most importantly
our share of high value products and subscription connections is significantly
higher than this and continues to grow.
In Europe, our Retail business continued to demonstrate a strengthening position
while gaining significant market share in most of our markets. The mobile market
overall has been mixed across Europe, with some countries seeing a further
contraction in handset sales this year while others recover. There have been
some early signs of improvement in the operating environment in Germany, where
losses last year were at an unacceptable level, but there is still much to do to
take this business to profitability. We remain committed to finding a solution
in Germany by the time we report our preliminary results in 2003.
The store portfolio increased from 1,085 at September 2001 to 1,117 at September
2002, despite our ongoing rationalisation of underperforming stores. Our retail
space has increased by 4.7% to 62,900 square metres as we continue to migrate to
larger stores in more prime locations. This has inevitably had an impact on
retail operating costs, which grew 9.8% year-on-year. Whilst direct payroll
costs increased in line with our growth in activity, our fixed store costs
increased more than the additional space as a result of the store portfolio
upgrade.
Insurance revenues grew 10.0% as we continued to increase penetration of our
customer base and roll out our insurance product in our international markets.
Customer numbers grew 14.6% year-on-year to 1,019,000.
Our Wholesale activities produced revenues of £427.4m (2001 £175.4m), and a
contribution of £5.2m (2001 £3.3m). Activities within Wholesale include the bulk
distribution of handsets and vouchers to other retailers across Europe, and
using our expertise to trade handsets between geographical markets to take
advantage of pricing differences. This high level of growth was achieved by
taking advantage of increased opportunities and reduced competition in the
wholesale handset and voucher markets. However, the revenue streams remain
volatile and low margin in nature. Furthermore, the business is a net consumer
of working capital, resulting in an increased level of interest expense.
Telecoms Services
26 weeks ended 26 weeks ended 29 52 weeks ended
28 September 2002 September 2001 30 March 2002
£m £m £m
Telecoms Services Turnover 53.5 42.2 89.3
On-going Revenue 12.7 10.7 22.0
MVNO 22.4 21.8 40.9
FMS 18.4 9.7 26.4
Contribution 19.8 16.1 35.9
Total Customers (000s) 1,123 915 1,019
MVNO 178 131 155
FMS 945 784 864
In Telecoms Services we achieved a 26.5% increase in revenue to £53.5m (2001
£42.2m) and a 23.1% increase in contribution to £19.8m (2001 £16.1m). This
reflects continuing increases in both our share of customer spend and in the
number of customers we manage.
Renewed network interest in pre-pay, and some aggressive pricing by Virgin
Mobile, have hampered progress in our MVNO business, Fresh, which has had a
slower first half after a strong trading period in the latter part of our last
financial year. However, these developments have clearly benefited our retail
business, and Fresh continues to generate good returns.
Meanwhile our FMS business has made excellent progress, with contribution almost
doubling to £4.3m (2001 £2.2m) and our customer base growing by 20.5% to
945,000. We continue to seek opportunities to grow our presence in Telecoms
Services in existing and new markets, thus further aligning our interests with
the networks, and improving the quality of our earnings.
Support Costs
Support costs rose by 14.5% to £31.3m (2001 £27.4m). The increase reflects the
impact of the rental costs incurred as a result of the sale and leaseback of our
support centre, as well as the centralisation of certain functions previously
managed at a country level and the commitment of additional resource to
developing certain UK initiatives in our other markets.
Exceptionals
We made an exceptional gain on the sale and lease back of our London offices of
£13.2m, based on a cash consideration of £36.6m.
Cash Flow
The cash movements in the period reflect capital expenditure of £16.0m (2001
£21.5m) and the proceeds from the property sale described above. The level of
capital expenditure is significantly less than that incurred last year and is
reflective of the anticipated run rate for the future. Working capital was
affected by a movement in the VAT debtor of £35m as a result of Wholesale
activities, which also absorbed working capital through day to day trading. We
expect the VAT position to unwind in the second half. As a result, we incurred
an interest charge of £1.3m in the period (2001 £0.7m interest income).
Current Trading
In the five-week period to 2 November 2002 we made 393,000 connections
(including 22,000 SIM-free handset sales), up 21% on the prior year. The growth
in subscription and pre-pay connections (ex SIM-free) was 3% and 44%
respectively, and the subscription mix was 50% (ex SIM-free). Like for like
revenues have grown by 4.9% and like for like gross profit by 5.1%. Our
Insurance base has now risen to 1,026,000 and our Telecoms Services base to
1,132,000.
Outlook and Strategy
After the severe contraction in handset volumes across the market as a whole
last Christmas, we expect the market to show steady growth over the next few
months, driven by a strong product pipeline, the take-up of colour screens and
the launch of new services by a number of networks. The impact of new entrants
providing 3G services in some of our markets may provide a further positive
stimulus although we do not expect this to have a material impact at this early
stage.
We believe that The Carphone Warehouse is well placed to take advantage of these
and other developments in the wider communications market both now and over the
coming years, by leveraging our brand and our retail asset. We continue to focus
our strategy on providing continuing service over the lifetime of our customers'
mobile phone ownership, and in so doing we are cementing strong relationships
with customers, network operators and mobile phone manufacturers alike.
Looking forward, we see excellent opportunities for The Carphone Warehouse to
continue to build its brand across Europe through a widespread and growing
retail network and a strong customer proposition. In particular, there is still
significant scope for us to grow our market share of handset sales and replicate
the success of our Telecoms Services business in the UK and France across our
other continental European markets.
The successful execution of this strategy will also result in a continuing
improvement in the quality of our earnings. As we expect recurring revenue
streams to represent a growing proportion of overall group profitability, we
will become increasingly less reliant on connections growth alone as a driver of
earnings growth.
Ends
For Further Information
The Carphone Warehouse Group PLC
Charles Dunstone 07771 868 601
Roger Taylor 07715 170 090
Tristia Clarke 07771 868 601
For analyst and institutional enquiries 07909 907193
Roger Taylor
Peregrine Riviere
Citigate Dewe Rogerson 07973 611 888
Anthony Carlisle 020 7638 9571
Consolidated profit and loss account
For the 26 weeks ended 28 September 2002
Before Exceptional After
exceptional items items and Exceptional
and amortisation amortisation items and
amortisation
26 weeks ended 26 weeks ended 26 weeks ended 26weeks ended 52 weeks ended
28 28 September 28 29 30
September 2002 2002 September September March
2002 2001 2002
Notes £'000 £'000 £'000 £'000 £'000
Turnover 2 861,247 861,247 539,590 1,152,717
Cost of Sales (696,527) (696,527) (399,527) (834,413)
Gross Profit 164,720 164,720 140,063 318,304
Operating Expenses (136,823) (136,823) (119,696) (270,363)
EBITDA 27,897 27,897 20,367 47,941
Depreciation (14,573) (14,573) (12,719) (26,335)
Amortisation - (7,527) (7,527) (6,570) (14,736)
Operating profit 13,324 5,797 1,078 6,870
Exceptional items 3 - 13,199 13,199 (1,898) (30,227)
Net interest (payable) (1,292) (1,292) 720 342
receivable
Profit on ordinary 12,032 17,704 (100) (23,015)
activities before taxation
Tax on profit on ordinary 4 (3,009) (3,009) (1,664) (6,162)
activities
Profit on ordinary 9,023 14,695 (1,764) (29,177)
activities after taxation
Minority interests - - 407 915
Retained profit (loss) for 10 9,023 14,695 (1,357) (28,262)
the period
Earnings per Share
Unadjusted 5 - 1.76p (0.16p) (3.39p)
Headline 5 1.08p - 0.89p 4.41p
All material gains and losses are included in the Consolidated profit and loss
account.
Consolidated balance sheet
As at 28 September 2002
28 September 29 September 30 March
2002 2001 2002
Notes £'000 £'000 £'000
Fixed assets
Intangible assets 272,405 271,953 274,798
Tangible assets 114,320 131,497 111,654
Other investments 30,190 44,851 30,130
416,915 448,301 416,582
Current assets
Stock 66,795 63,939 50,088
Debtors 180,750 144,609 139,238
Investments 35,424 47,907 67,637
Cash at bank and in hand 44,635 41,504 20,684
327,604 297,959 277,647
Creditors: amounts falling due within one year (208,729) (262,668) (199,669)
Net current assets 118,875 35,291 77,978
Total assets less current liabilities 535,790 483,592 494,560
Creditors: amounts falling due after one year (63,769) (10,517) (39,050)
Provisions for liabilities and charges (45,999) (40,890) (47,483)
Net assets 426,022 432,185 408,027
Capital and reserves
Called-up share capital 839 833 835
Share premium 362,723 356,290 359,305
Capital redemption reserve 30 30 30
Profit and loss account 62,430 73,752 47,085
Equity shareholders' funds 10 426,022 430,905 407,255
Minority interests - 1,280 772
Total capital employed 426,022 432,185 408,027
Approved by the Board of The Carphone Warehouse Group PLC
6 November 2002
Consolidated cash flow statement
For the 26 weeks ended 28 September 2002
26 weeks 26 weeks 52 weeks
ended ended ended
28 29 30
September September March
2002 2001 2002
Notes £'000 £'000 £'000
Net cash (outflow) inflow from operating activities (29,972) 2,013 29,352
Net cash (outflow) inflow from returns on investments and servicing of (1,292) 720 342
finance
Net cash inflow (outflow) from taxation 4,805 (3,989) (9,398)
Net cash inflow (outflow) from capital expenditure and 9 33,569 (21,534) (48,742)
financial investment
Net cash outflow from acquisitions and disposals (152) (41,005) (42,846)
Net cash inflow (outflow) before financing 6,958 (63,795) (71,292)
Net cash inflow from financing 15,633 39,914 34,669
Increase (decrease) in cash in the period 8 22,591 (23,881) (36,623)
Reconciliation of net cash flow from operating activities to operating profit
26 weeks 26 weeks 52 weeks
ended ended ended
28 29 30
September September March
2002 2001 2002
Notes £'000 £'000 £'000
Operating profit excluding exceptional items 5,797 2,268 31,733
Operating exceptional items - (1,190) (24,863)
Operating profit 5,797 1,078 6,870
Depreciation of tangible fixed assets 14,573 12,719 26,335
Amortisation of goodwill 7,527 6,570 14,736
EBITDA 27,897 20,367 47,941
Loss (profit) on disposal of tangible fixed assets - 72 (646)
(Decrease) increase in provisions (1,700) (822) 9,533
(Increase) decrease in stock (16,227) (11,376) 2,700
(Increase) decrease in debtors (39,573) 19,544 26,422
Decrease in creditors (369) (25,772) (56,598)
Net cash (outflow) inflow from operating activities (29,972) 2,013 29,352
Notes to the accounts
For the 26 weeks ended 28 September 2002
1 Basis of preparation and accounting policies
The interim financial information has been prepared on a basis consistent with
the basis of preparation and accounting polices set out on pages 30 to 31 of The
Carphone Warehouse Group PLC annual report for the 52 weeks ended 30 March 2002.
The information set out in this interim report for the 26 weeks ended 28
September 2002 does not compromise statutory accounts within the meaning of
section 240 of The Companies Act 1985. The statutory accounts for the 52 weeks
ended 30 March 2002, incorporating the unqualified auditor's report, have been
filed with the Registrar of Companies.
2 Segmental analysis
Group results are analysed as follows:
26 weeks 26 weeks 52 weeks ended
ended ended
28 29 30
September September March
2002 2001 2002
Turnover Profit (loss) Turnover Profit (loss) Turnover Profit (loss)
before tax before tax before tax
£'000 £'000 £'000 £'000 £'000 £'000
By division:
Distribution 807,758 39,414 496,411 35,222 1,061,646 95,460
Telecoms Services 53,489 19,830 42,272 16,114 89,321 35,872
Data Services - - 907 (2,398) 1,750 (2,398)
Common costs - (31,347) - (27,381) - (56,130)
861,247 27,897 539,590 21,557 1,152,717 72,804
By geographical location:
United Kingdom 648,141 41,750 366,650 37,050 777,872 96,700
Continental Europe 213,106 17,494 172,940 11,888 374,845 32,234
Common costs - (31,347) - (27,381) - (56,130)
861,247 27,897 539,590 21,557 1,152,717 72,804
Depreciation (14,573) (12,719) (26,335)
Amortisation (7,527) (6,570) (14,736)
Exceptional items 13,199 (3,088) (55,090)
Net interest (payable) receivable (1,292) 720 342
Profit (loss) before tax 17,704 (100) (23,015)
There is not a material difference between turnover by destination and turnover
by origin.
Group net assets are analysed as follows:
28 September 29 September 30 March
2002 2001 2002
£'000 £'000 £'000
By division:
Distribution 394,793 351,629 351,223
Telecom Services 31,229 31,157 28,875
Data Services - 49,399 27,929
426,022 432,185 408,027
By geographical location
United Kingdom 352,304 390,465 329,639
Rest of Europe 73,718 41,720 78,388
426,022 432,185 408,027
The results and net assets of the Data Services division have been incorporated
into those of the Distribution division, further to the reorganisation detailed
in 3(d).
3 Exceptional Items
26 weeks 26 weeks 52 weeks
ended ended ended
28 29 30
September September March
2002 2002 2002
Notes £'000 £'000 £'000
Cost of operational reorganisation
Store closures (a) - - (11,956)
Business closures and reorganisation (a) - (1,190) (12,907)
Exceptional operating items - (1,190) (24,863)
Profit (loss) on disposal of fixed assets (b) 13,199 (748) (6,336)
Amounts written off fixed asset investments (c) - - (18,681)
Cost of fundamental reorganisation (d) - (1,150) (5,210)
Total exceptional costs 13,199 (3,088) (55,090)
(a) Costs of operational reorganisation
During the period ended 30 March 2002, the Group incurred costs in reorganising
its operations across Europe. This reorganisation comprised:
-the withdrawal from certain non-key territories;
-the closure of a significant number of under- performing retail outlets;
-the reorganisation of back office operations across the Group, including the
establishment of shared services centres in the UK and Portugal.
(b) Loss on disposal of fixed assets
In August 2002 the Group completed the sale and leaseback of its freehold
offices in London, generating a net profit on disposal of £13.2m.
During the period ended 30 March 2002 fixed assets with a net book value of
£6.3m were written down principally as a result of the withdrawal from non-key
territories and store closure noted in 3(a).
(c) Amounts written off fixed asset investments
During the period ended 30 March 2002 a total of £18.7m was written off the
Group's holding in Wireless Frontiers, an independently managed internet fund,
to reflect the diminution on the value of the fund at 30 March 2002.
(d) Cost of fundamental reorganisation
A charge of £5.2m, reflecting the write-down of fixed assets and other
restructuring costs, was made during the period ended 30 March 2002, principally
in respect of the fundamental reorganisation of the Group's Data Services
division, involving a significant downscaling of wireless internet portal
activities.
4 Tax on profit on ordinary activities
Taxation has been provided using the estimated effective rate of taxation for
the 52 weeks ended 29 March 2003 of 25% (52 weeks ended 30 March 2002 22%),
amounting to a charge of £3.0m.
5 Earnings per share
The calculation of basic earnings per share is based on the following profits or
losses and number of shares;
26 weeks 26 weeks 52 weeks
ended ended ended
28 29 30
September September March
2002 2001 2002
Weighted average number of shares ('000) 835,687 832,646 833,382
Basic earnings for the financial period (£'000) 14,695 (1,357) (28,262)
Headline earnings for the financial period (£'000) 9,023 7,439 36,766
Earnings per share - basic:
Unadjusted 1.76p (0.16p) (3.39p)
Headline (before amortisation of goodwill and exceptional items) 1.08p 0.89p 4.41p
6 Dividends
No interim dividend is proposed.
7 Acquisitions
On 28 August 2002, the Group acquired the remaining 15% of the issued share
capital of MViva Limited, a company in which it already had an 85% stake, from
AOL Europe S.A. in exchange for 3.3 million shares in the company, giving rise
to goodwill of £2.0m.
8 Analysis of change in net debt
At 30 Cash flows At 28 September
March 2002 2002
£'000 £'000 £'000
Cash at bank and in hand 20,684 23,951 44,635
Overdrafts (213) (1,360) (1,573)
20,471 22,591 43,062
Debt due within one year (10,432) 10,432 -
Debt due after more than one year (24,713) (26,040) (50,753)
Net debt (14,674) 6,983 (7,691)
9 Capital expenditure and financial investment
26 weeks 26 weeks 52 weeks
ended ended ended
28 29 30
September September March
2002 2001 2002
£'000 £'000 £000
Payments to acquire tangible fixed assets (16,037) (21,478) (41,377)
Receipts from sale of tangible fixed assets 36,600 - 3,102
Payments to acquire fixed asset investments - - (604)
Net inflows (outflows) on short-term investments 13,006 (56) (9,863)
Net inflow (outflow) from capital expenditure and financial 33,569 (21,534) (48,742)
investments
10 Shareholders' funds
The reconciliation of shareholders' funds is as follows:
26 weeks ended 26 weeks ended 52 weeks ended
28 29 30
September 2002 September 2001 March 2001
£'000 £'000 £000
Profit (loss) for the period 14,695 (1,357) (28,262)
Foreign exchange movements 723 (559) (302)
Issue of new shares 3,349 4 3,002
Net movements in shareholders' funds 18,767 (1,912) (25,562)
Opening shareholders' funds 407,255 432,817 432,817
Closing shareholders' funds 426,022 430,905 407,255
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