Interim Results
Carphone Warehouse Group PLC
03 November 2004
Wednesday 3 November 2004
Embargoed until 0700 hours
The Carphone Warehouse Group PLC
Interim Results for the 26 weeks to 25 September 2004
26 weeks ended 25 26 weeks ended 27 % growth
September 2004 September 2003
£m £m
Turnover 1,033.0 825.5 25.1%
Profit before tax* 28.1 20.3 38.3%
Headline earnings per share* 2.41p 1.74p 38.5%
Dividend per share 0.55p 0.40p 37.5%
* before exceptional items and amortisation of goodwill
Financial Headlines
• 22.5% growth in Retail revenues; 11.7% like-for-like
• 15.8% growth in Retail gross profit; 7.0% like-for-like
• 38.5% growth in headline earnings per share to 2.41p
• 23.6% growth in connections to 2.77m
• 21.6% growth in subscription connections to 1.29m
• 37.5% growth in interim dividend to 0.55p per share
Operational Headlines
• 115 net new stores opened, taking total to 1,329
• 648,000 TalkTalk UK customers; profitable after all costs in August and
September
• 80.3% growth in Opal traffic to 4.1 bn minutes
• TalkTalk launches in France, Spain and Germany
• UK Broadband launch this week
Charles Dunstone, CEO, said:
'The Carphone Warehouse has delivered another good set of results, reflecting
our focus on choice, service and value for our customers, the buoyant mobile
market and the success of our fixed line services. We are building on these
positions through our on-going store opening programme, through this week's
launch of a broadband service, and by offering better service and value than
ever. The prospects for the Group give the Board no hesitation in declaring a
37.5% increase in the interim dividend.'
Overview
Group turnover for the period was £1,033.0m compared with £825.5m for the prior
year, representing growth of 25.1%. We achieved growth in turnover across all
our core businesses. Excluding the acquisitions of Hutchison, Xtra and Ntel,
underlying growth in turnover was 15.9%. Operating profits increased by 37.8%
to £30.4m (2003: £22.1m), with operating margin expanding to 2.9% (2003: 2.7%).
Pre-tax profits for the Group, before exceptional items and goodwill
amortisation, were £28.1m, an increase of 38.3%. Earnings per share on the same
basis grew by 38.5% to 2.41p (2003: 1.74p).
The mobile retail environment continues to be buoyant, with a wealth of new
products and attractive offers for customers. Mobile markets across Europe are
becoming more fragmented with the arrival of new entrants, making the need for
impartial advice ever greater. As a result we are aggressively seeking to
consolidate our number one position in the market by opening more stores and
offering better service and value than ever. The very strong performance of our
Distribution division clearly reflects the success of this strategy, as strong
connections growth feeds through into high margin Insurance and Ongoing business
streams, and translates into growth in our TalkTalk customer base.
In the fixed line business market, Opal has continued to perform well. Despite
competitive pressures in certain segments of the business telecoms market,
Opal's network efficiency protects margin, and its value-added services create
strong customer relationships. We are confident that we will continue to grow
the business, through both new customer wins and acquisitions, in a marketplace
that is now consolidating rapidly.
On the residential side, the launch of free calls on TalkTalk and a sustained
brand-building campaign have taken us to a position as the clear alternative to
BT in the minds of the customer. Over the last 18 months nearly 650,000
customers have joined TalkTalk as we have successfully leveraged the competitive
advantages of the Opal network and our high street presence. The launch of a
broadband service this week, at very competitive prices, is the logical next
stage in our development as a significant provider of fixed line services to the
home. In addition, we are now combining our UK experience and our growing
European store portfolio to introduce fixed line services across our major
markets.
The Phone House Telecom, our German service provider business, is making good
progress and customer recruitment, retention and margins have all been ahead of
our expectations at the start of the year. Our retail operations in Germany
continue to improve and are becoming an important recruitment channel.
Contribution from Mobile Services as a whole grew year-on-year, despite a
decline in profitability from our operations outside Germany.
Outlook
The outlook continues to be positive. We expect the mobile phone market to
continue to grow year-on-year over the Christmas period and into the New Year.
While our own exceptional performance in the second half of last year is likely
to limit the rate of like-for-like progress, we are confident of continued good
connections growth. TalkTalk is now profitable after all costs, and the launch
of broadband should provide stimulus to customer recruitment in the UK. Our
international TalkTalk operations are still in their infancy but we are
confident that we can build sustainable and profitable residential businesses in
all relevant markets. We expect to make further strong progress in the second
half.
Distribution
2004 2003
£m £m
Turnover 607.4 482.9
Retail 491.4 401.2
Online 45.3 26.5
Insurance 47.8 35.8
Ongoing 22.9 19.4
Contribution 74.4 60.1
Retail 33.0 27.3
Online 3.0 1.6
Insurance 15.5 11.8
Ongoing 22.9 19.4
Support costs (32.8) (28.3)
EBITDA 41.6 31.8
Depreciation (17.0) (14.5)
EBIT 24.6 17.3
EBIT % 4.1% 3.6%
Before exceptional items and amortisation of goodwill
The Distribution division generated revenues of £607.4m and EBIT of £24.6m,
representing growth of 25.8% and 42.6% respectively on the prior year. The EBIT
margin expanded by 50 basis points to 4.1%. We continue to focus our strategy
on growing profits at the divisional level by driving mobile connections
volumes, which in turn deliver high margin revenues beyond the point of sale.
Retail and Online
Total connections grew 23.6% to 2.77m. The mobile phone market continued to
show healthy unit growth, stimulated by continuing technological innovation,
fashion and competition between mobile network operators.
Subscription connections grew by 21.6% to 1.29m. Although the rate of growth
declined in the second quarter, we saw strong demand throughout the first half
as new high end handsets were widely available at attractive prices. We expect
the growth rate to continue to decline slightly over the rest of the financial
year as year-on-year comparisons become progressively tougher. Pre-pay
connections (including SIM-free sales) grew 25.4% to 1.48m. Growth in pre-pay
accelerated in the second quarter as competition between networks intensified
and our own pricing became more aggressive.
We opened 136 stores and closed 21 in the first half, taking the total number of
stores in the portfolio to 1,329, of which 46 are franchise stores (2003: 15
franchise stores). Total average selling space in all stores grew by 11.3% to
72,424 sqm (2003: 65,094 sqm).
Total Retail revenues grew 22.5% to £491.4m. Like-for-like growth was 11.7%, as
connections per store continued to increase in the strong market. Subscription
revenue per connection rose by 1.3% and pre-pay revenue per connection rose by
2.2%.
Retail gross profit grew 15.8% to £138.6m. Like-for-like growth was 7.0%.
Subscription gross profit per connection was in line with last year at £91.0
(2003: £90.8). We saw greater competition in the pre-pay market, as indicated
at the start of the financial year, and chose to compete more aggressively in
the second quarter. As a result, gross profit per connection on pre-pay fell by
13.8% to £24.9 (2003: £28.9), but we benefited from selling greater volumes.
Retail contribution grew by 21.0% to £33.0m, as the effect of strong
like-for-like growth offset the decline in gross margin that naturally arises in
a high-subsidy environment. Contribution margin fell marginally year-on-year to
6.7% (2003: 6.8%). Most of our operations performed strongly, with market
conditions similarly good across much of Europe. Connections growth in our
international businesses was 31.5%, compared to 16.1% in the UK.
Our Online business grew very strongly, with connections ahead by 38.8% to
186,000, supported by the acquisition of E2Save at the start of the calendar
year. Revenues grew 70.8% to £45.3m (2003: £26.5m) and contribution by 84.5% to
£3.0m (2003: £1.6m).
Insurance
Insurance continued to make good progress, with revenues increasing by 33.5%
year-on-year to £47.8m (2003: £35.8m). The persistent strong trend in
subscription connections has translated into further growth in our customer base
which rose by 26.8% to 1.46m. The annualised average premium per customer
increased by 4.0% to £68.9. Contribution from Insurance rose 31.2% to £15.5m
(2003: £11.8m), with the margin declining slightly from 32.9% to 32.4% because
of the impact of lower margin third party revenues.
Ongoing
Growth in Ongoing revenues, our ARPU-sharing agreements with mobile networks,
also continued to be supported by strong subscription connections growth.
Ongoing revenues grew 18.4% to £22.9m (2003: £19.4m).
Telecoms Services
2004 2003
£m £m
Turnover 372.9 240.5
Fixed 192.1 112.3
Mobile 180.8 128.2
Contribution 23.6 17.8
Fixed 13.5 8.0
Mobile 10.1 9.8
Support costs (11.5) (7.8)
EBITDA 12.1 10.0
Depreciation (5.9) (4.5)
EBIT 6.2 5.5
EBIT % 1.7% 2.3%
Before exceptional items and amortisation of goodwill
The Telecoms Services division generated revenues of £372.9m and EBIT of £6.2m,
representing growth of 55.1% and 12.5% respectively on the prior year. The EBIT
margin fell by 60 basis points to 1.7% as TalkTalk UK generated further losses.
We expect the divisional EBIT margin to improve going forward now that TalkTalk
has moved into profitability.
Fixed
Opal generated revenues of £115.5m in the first half, an increase of 9.1%
year-on-year. Contribution grew by 31.5% to £17.8m, representing a margin of
15.4% (2003: 12.8%). Business traffic on the Opal network increased by 21.5% to
2.53 billion minutes. Margin expansion reflects the improvement in business mix
towards direct business and away from premium rate services. Premium rate
revenues fell 29.1% in the first half with all other revenues growing by 28.2%.
Revenues in the first half were particularly influenced by the loss of two
Opal resellers that were acquired by other network operators. However, we in
turn acquired two small resellers during the period, and a further one
immediately subsequent to the half-year end, and will continue to pursue similar
opportunities.
As highlighted at the start of the financial year, Opal is operating in an
increasingly competitive environment, particularly in the reseller market. In
addition to this, revenues in the second half will be negatively impacted by the
regulatory reduction in termination rates on calls to mobile phones, which has
inevitably led to a cut in our mobile tariffs. However, our network strategy of
deepening our level of interconnect into the BT local exchange network continues
to provide us with a degree of protection from margin erosion.
On our estimates, Opal recently became the most deeply interconnected network
into BT in the UK, as measured by the number of local exchanges into which Opal
has a direct interconnect. As a result of this strategy, in September
approximately 80% of all calls on Opal originated at the local exchange level,
well in excess of our original target of 75% by March 2005. Overall we continue
to expect to see steady growth in contribution at Opal for the full year.
TalkTalk in the UK generated a loss of £5.8m (2003: loss of £5.5m) on revenues
of £50.2m (2003: £6.4m) in the first half, but was profitable after all costs in
August and September. Total marketing and customer acquisition costs were
£18.8m and the acquisition cost ('SAC') per customer was £23.1. We had a total
of 648,000 tolling customers at the period end and continue to target 900,000 by
March 2005.
This week has seen the launch of our broadband product in the UK. We believe
that broadband offers us a significant opportunity in the long term, with the
new product benefiting from the success of the TalkTalk brand and the low cost
of customer recruitment through our stores. Meanwhile, we continue to wait for
developments in relation to a workable wholesale line rental product.
Our fixed line operations outside the UK generated a positive contribution of
£1.4m on revenues of £26.4m. Profits from Xtra and Ntel were offset by start-up
losses from our TalkTalk operations in France, Spain and Germany. Overall we
anticipate that our non-UK fixed line businesses will achieve a break-even
contribution for the current financial year.
Mobile
Turnover in Mobile Telecoms Services grew 41.0% to £180.8m, and contribution
grew by 3.0% to £10.1m. The decline in the contribution margin, from 7.7% to
5.6%, was mainly the result of the inclusion of The Phone House Telecom, our
German service provider business, for a full six months.
The Phone House Telecom had a very good first half. We continued to pursue our
strategy of building the customer base through a number of distribution
channels, with Phone House stores in particular showing an encouraging trend
over the course of the period. The total base grew by 15.2% year-on-year to
747,000, with the subscription base growing by 13.6% to 577,000. Margins were
better than expected as the business demonstrated excellent operational
efficiency. The ongoing success of the Hutchison acquisition has given us
confidence to invest further in our German operations.
Our other customer bases in the UK and France grew 9.3% to 1,331,000. In
France, our contract with Orange has changed and we are now starting to manage
customers recruited through our own stores. In the medium term this gives us
scope to grow the business beyond 600,000 customers but in the short term,
profits under the new commercial agreement are lower than previously enjoyed.
Customer numbers at Fresh were a little lower than at September 2003 but we have
relaunched the Fresh proposition in recent months and now offer the cheapest
cross-network rates for voice and text on pre-pay. As a result, the base has
returned to growth since June. Our French MVNO, Breizh Mobile, was launched in
July and will be loss-making this year.
Wholesale
2004 2003
£m £m
Turnover 60.7 102.2
Contribution 0.6 1.0
Support costs (0.7) (1.1)
EBITDA (0.1) (0.1)
Depreciation (0.3) (0.6)
EBIT (0.4) (0.7)
EBIT % (0.7)% (0.7)%
Wholesale operations comprise our pre-pay voucher distribution business and the
wholesale shipment of trade-in handsets. There have been no further
developments in relation to the Customs & Excise investigation of VAT recovery
in the handset trading industry.
Depreciation and support costs
The depreciation charge of £23.3m grew 18.8% year-on-year, reflecting the
on-going investment in IT, new stores and the Opal network. Support costs
increased by 20.6% year-on-year to £44.9m. Within this figure, we have provided
£2m entirely in the first half for the annual accounting charge for the
Performance Share Plan.
Move to International Accounting Standards
Over recent months we have been preparing for the move over to IAS. The first
accounting period for which the new accounting standards will apply to the Group
is the 52 week period ending March 2006. At this stage we are expecting the
only material impact on reported profitability (other than the treatment of
goodwill amortisation or impairment) to be the expensing of awards under the
Group's option schemes. Including the charge relating to the Performance Share
Plan noted above, we currently estimate an annual accounting charge of
approximately £3m for share-based payments, starting in our next financial year.
We intend to provide further detail on the move to IAS at our annual investor
and analyst day, which has been provisionally scheduled for 14 April 2005.
Cash flow and dividend
At 25 September 2004, the group had net debt of £86.6m, compared to net debt of
£40.5m at the end of March 2004. During the period the group generated cash
flow from operations of £36.6m (2003: £36.6m), and total free cash flow
(excluding the capital cost of new stores and before acquisitions) of £2.8m
(2002: £18.3m). The Board has declared an interim dividend of 0.55p per share
(2003: 0.40p per share), in line with underlying earnings growth and reflecting
its confidence in strong free cash flow generation for the full year.
The ex-dividend date will be 10 November 2004 and the record date will be 12
November 2004. The intended payment date will be 25 November 2004.
Analysts' presentation and webcast
There will be a presentation for investors and analysts at 9.00 am this morning
at the offices of Deutsche Bank, 1 Great Winchester Street, London EC2N 2DB.
The event will be audio webcast and the presentation slides will be available on
our website, www.cpwplc.com.
Next trading update
The Group will give a full trading update, including revenues, connections and
customer bases, for the third quarter of the current financial year on 13
January 2005. Please note that the current year is a 53 week reporting period.
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 07973 611 888
Citigate Dewe Rogerson 020 7638 9571
FINANCIAL REVIEW
Consolidated profit and loss account
For the 26 weeks ended 25 September 2004
Before After
exceptional Exceptional exceptional
items and items and items and
amortisation of amortisation amortisation
goodwill of goodwill of goodwill
26 weeks 26 weeks 26 weeks 26 weeks 52 weeks
ended ended ended ended ended
25 September 25 September 25 September 27 September 27 March
2004 2004 2004 2003 2004
Notes £'000 £'000 £'000 £'000 £'000
Turnover 2 1,032,954 1,032,954 825,537 1,849,011
Cost of sales (724,291) (724,291) (589,223) (1,303,246)
Gross profit 308,663 308,663 236,314 545,765
Operating expenses (254,906) (254,906) (199,316) (427,667)
excluding amortisation
and depreciation
EBITDA 53,757 53,757 36,998 118,098
Depreciation (23,319) (23,319) (19,637) (41,684)
Amortisation of goodwill - (13,961) (13,961) (12,446) (25,417)
Operating profit 30,438 (13,961) 16,477 4,915 50,997
Exceptional items 5 - - - (1,652)
Net interest payable (2,359) (2,359) (1,790) (4,858)
Profit on ordinary 28,079 14,118 3,125 44,487
activities before
taxation
Tax on profit on 3 (7,020) (7,020) (5,076) (16,783)
ordinary activities
Profit (loss) for the 21,059 7,098 (1,951) 27,704
financial period
Equity dividends 6 (4,814) (4,814) (3,498) (11,369)
Retained profit (loss) 16,245 2,284 (5,449) 16,335
for the financial period
Basic earnings per share
Unadjusted 4 0.81p (0.22)p 3.17p
Headline 4 2.41p 1.74p 6.81p
Consolidated statement of total recognised gains and losses
For the 26 weeks ended 25 September 2004
26 weeks ended 26 weeks ended 52 weeks ended
25 September 2004 27 September 27 March
2003 2004
Notes £'000 £'000 £'000
Profit (loss) for the financial period 10 7,098 (1,951) 27,704
Currency translation 10 685 (199) (1,014)
Total recognised gains and losses relating to the 7,783 (2,150) 26,690
period
Prior period adjustments - - (3,949)
Total gains and losses recognised since last 7,783 (2,150) 22,741
financial statements
Consolidated balance sheet
As at 25 September 2004
25 September 2004 27 September 2003 27 March 2004
£'000 £'000 £'000
Notes
Fixed assets
Intangible assets
Goodwill 7 401,577 387,110 403,191
401,577 387,110 403,191
Tangible assets 204,519 137,477 195,594
Investments 5,865 15,009 5,897
Total fixed assets 611,961 539,596 604,682
Current assets
Stock 95,151 75,330 78,298
Debtors 349,572 242,242 271,444
Short-term investments 17,455 9,595 10,805
Cash at bank and in hand 68,170 125,246 72,813
Total current assets 530,348 452,413 433,360
Creditors: amounts falling due within one year (476,466) (338,094) (400,149)
Net current assets 53,882 114,319 33,211
Total assets less current liabilities 665,843 653,915 637,893
Creditors: amounts falling due after more than (145,574) (151,261) (117,737)
one year
Provisions for liabilities and charges (52,526) (48,461) (48,313)
Net assets 467,743 454,193 471,843
Capital and reserves
Called-up share capital 875 873 874
Share premium 8 398,634 396,054 397,262
Capital redemption reserve 8 30 30 30
Profit and loss account 8 68,204 57,236 73,677
Total capital employed 10 467,743 454,193 471,843
Approved by the Board of The Carphone Warehouse Group PLC
3 November 2004
Consolidated cash flow statement
For the 26 weeks ended 25 September 2004
26 weeks ended 26 weeks ended 52 weeks ended
25 September 2004 27 September 27 March
2003 2004
Notes £'000 £'000 £'000
Net cash inflow from operating activities 36,570 36,626 102,657
Net cash outflow from returns on investments and (2,359) (1,790) (4,858)
servicing of finance
Net cash outflow from taxation (9,589) (1,976) (2,350)
Net cash outflow from capital expenditure and 11 (37,781) (1,410) (84,245)
financial investment
Net cash outflow from acquisitions and 7 (22,504) (30,978) (59,050)
disposals
Equity dividends paid (7,869) (8,729) (12,229)
Net cash outflow before financing (43,532) (8,257) (60,075)
Net cash inflow from financing 28,411 93,732 96,596
(Decrease) increase in cash in the period 13 (15,121) 85,475 36,521
Reconciliation of operating profit to net cash inflow from operating activities
26 weeks ended 26 weeks ended 52 weeks ended
25 September 27 September 27 March
2004 2003 2004
£'000 £'000 £'000
Operating profit 16,477 4,915 50,997
Depreciation of tangible fixed assets 23,319 19,637 41,684
Amortisation of goodwill 13,961 12,446 25,417
EBITDA 53,757 36,998 118,098
Loss on disposal of tangible fixed assets 58 125 163
Increase (decrease) in provisions 4,024 3,411 (1,469)
Increase in stock (15,902) (16,611) (20,684)
Increase in debtors (71,456) (31,722) (53,621)
Increase in creditors 66,089 44,425 60,170
Net cash inflow from operating activities 36,570 36,626 102,657
Notes to the financial statements
For the 26 weeks ended 25 September 2004
1 Basis of preparation and accounting policies
This interim report has been prepared using accounting policies consistent with
those set out on page 30 of The Carphone Warehouse Group PLC annual report for
the 52 weeks ended 27 March 2004. The financial information for the 26 weeks
ended 25 September 2004 and the 26 weeks ended 27 September 2003 is unaudited.
The information set out in this interim report for the 26 weeks ended 25
September 2004 does not comprise statutory accounts within the meaning of
section 240 of The Companies Act 1985. The statutory accounts for the 52 weeks
ended 27 March 2004, incorporating the unqualified auditor's report, have been
filed with the Registrar of Companies.
2 Segmental analysis
Divisional results are analysed as follows:
26 weeks ended 26 weeks ended 52 weeks ended
25 September 2004 27 September 2003 27 March 2004
Turnover Profit Net Turnover Profit Net Turnover Profit Net
before tax assets before tax assets before tax assets
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Distribution 607,387 24,637 443,251 482,878 17,274 415,497 1,128,939 66,939 440,521
Telecoms Services 372,868 6,219 24,492 240,470 5,529 38,696 554,491 15,021 31,322
Wholesale 60,732 (418) - 102,189 (709) - 178,067 (813) -
Eliminations (8,033) - - - - - (12,486) - -
1,032,954 30,438 467,743 825,537 22,094 454,193 1,849,011 81,147 471,843
Amortisation of (13,961) (12,446) (25,417)
goodwill
Operating - (4,733) (4,733)
exceptional items
16,477 4,915 50,997
Non-operating - - (1,652)
exceptional items
Net interest (2,359) (1,790) (4,858)
payable
Profit before tax 14,118 3,125 44,487
Results by geographical location are analysed by origin as follows:
26 weeks ended 26 weeks ended 52 weeks ended
25 September 2004 27 September 2003 27 March 2004
Turnover Profit Net Turnover Profit Net Turnover Profit Net
before tax assets before tax assets before tax assets
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
United Kingdom 581,905 19,426 178,450 504,515 13,805 310,073 1,102,185 49,836 177,144
Rest of Europe 451,049 11,012 289,293 321,022 8,289 144,120 746,826 31,311 294,699
1,032,954 30,438 467,743 825,537 22,094 454,193 1,849,011 81,147 471,843
Amortisation of (13,961) (12,446) (25,417)
goodwill
Operating - (4,733) (4,733)
exceptional items
16,477 4,915 50,997
Non-operating - - (1,652)
exceptional items
Net interest (2,359) (1,790) (4,858)
payable
Profit before tax 14,118 3,125 44,487
Notes to the financial statements
For the 26 weeks ended 25 September 2004
3 Tax on profit on ordinary activities
Taxation has been provided using the estimated effective rate of taxation for
the 53 weeks ending 2 April 2005 of 25% (52 weeks ended 27 March 2004 - 22%).
4 Earnings per share
The calculation of basic earnings per share is based on the following profits or
losses and number of shares:
26 weeks ended 26 weeks ended 52 weeks ended
25 September 2004 27 September 27 March
2003 2004
Weighted average number of shares (000's) 874,573 873,131 873,555
Unadjusted earnings for the financial period (£'000) 7,098 (1,951) 27,704
Headline earnings for the financial period (£'000) 21,059 15,228 59,506
Basic earnings (loss) per share
Unadjusted 0.81p (0.22)p 3.17p
Headline 2.41p 1.74p 6.81p
Headline earnings per share is calculated on earnings before amortisation of
goodwill and exceptional items and is provided because the Directors consider
that it gives a better indication of underlying performance than unadjusted
earnings per share.
5 Exceptional items
Exceptional items include the following operating exceptional items and losses
on the disposal of fixed asset investments:
26 weeks ended 26 weeks ended 52 weeks ended
25 September 27 September 27 March
2004 2003 2004
Notes £'000 £'000 £'000
Costs of operational reorganisation (a) - (4,733) (4,733)
Exceptional operating items - (4,733) (4,733)
Loss on disposal of fixed asset (b) - - (1,652)
investments
Total exceptional items - (4,733) (6,385)
(a) Costs of operational reorganisation
Following the acquisition of 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,
including 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.
Notes to the financial statements
For the 26 weeks ended 25 September 2004
6 Dividends
An interim dividend of 0.55p (2003 - 0.40p) per ordinary share is proposed.
7 Acquisitions
In April 2004 the Group acquired the trade and assets of STL Networks Ltd for a
net cash consideration of £3.6m, giving rise to goodwill of £3.6m.
In June 2004 the Group acquired 100% of the issued share capital of Telequip Ltd
for an initial net cash consideration of £5.8m, giving rise to goodwill of
£5.4m.
In June 2004 the Group paid deferred consideration of £13.0m in relation to Opal
Telecom plc, which was acquired in November 2002.
8 Reserves
Profit and loss Share Capital Total
account premium redemption
reserve
£'000 £'000 £'000 £'000
At 27 March 2004 73,677 397,262 30 470,969
Retained profit for the financial period 2,284 - - 2,284
Currency translation 685 - - 685
Issue of share capital (378) 1,372 - 994
Purchase of own shares (8,064) - - (8,064)
At 25 September 2004 68,204 398,634 30 466,868
9 Reconciliation of headline information to statutory information
26 weeks ended 26 weeks ended 52 weeks ended
25 September 2004 27 September 2003 27 March 2004
EBITDA Operating Profit EBITDA Operating Profit EBITDA Operating Profit
profit before tax profit before tax profit before tax
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Headline 53,757 30,438 28,079 41,731 22,094 20,304 122,831 81,147 76,289
Amortisation of - (13,961) (13,961) - (12,446) (12,446) - (25,417) (25,417)
goodwill
Exceptional - - - (4,733) (4,733) (4,733) (4,733) (4,733) (6,385)
items (see note 5)
Statutory 53,757 16,477 14,118 36,998 4,915 3,125 118,098 50,997 44,487
EBITDA represents earnings before interest, taxation, depreciation and
amortisation of goodwill. Contribution represents EBITDA before allocation of
support costs.
Notes to the financial statements
For the 26 weeks ended 25 September 2004
10 Reconciliation of movements in shareholders' funds
26 weeks ended 26 weeks ended 52 weeks ended
25 September 2004 27 September 2003 27 March 2004
£'000 £'000 £'000
Profit (loss) for the financial period 7,098 (1,951) 27,704
Dividends (4,814) (3,498) (11,369)
Purchase of own shares (8,064) - -
Currency translation 685 (199) (1,014)
Issue of share capital 995 298 928
Net movement in shareholders' funds (4,100) (5,350) 16,249
Opening shareholders' funds 471,843 459,543 455,594
Closing shareholders' funds 467,743 454,193 471,843
11 Capital expenditure and financial investment
26 weeks ended 26 weeks ended 52 weeks ended
25 September 2004 27 September 2003 27 March 2004
£'000 £'000 £'000
Payments to acquire fixed asset investments (15) (25) (257)
Payments to acquire tangible fixed assets (31,791) (18,263) (100,305)
Net (outflow) inflow on short-term (6,650) 16,720 15,471
investments
Receipts from sale of tangible fixed assets 675 158 846
Net outflow from capital expenditure and (37,781) (1,410) (84,245)
financial investment
12 Movement on net (debt) funds
26 weeks ended 26 weeks ended 52 weeks ended
25 September 2004 27 September 2003 27 March 2004
£'000 £'000 £'000
Operating cash flow 36,570 36,626 102,657
Tax and interest (11,948) (3,766) (7,208)
Capex (excluding new stores and freeholds) (21,827) (14,549) (38,449)
Free cash flow 2,795 18,311 57,000
New store capex (9,289) (3,556) (13,700)
Freehold acquisitions - - (47,310)
Acquisitions and investments (22,519) (31,003) (59,307)
Purchase of own shares (8,064) - -
Dividends (7,869) (8,729) (12,229)
Net cash outflow (44,946) (24,977) (75,546)
Opening net (debt) funds* (40,572) 29,098 29,098
Share issues and foreign exchange (1,041) (1,224) 5,876
Closing net (debt) funds* (86,559) 2,897 (40,572)
* Including short term investments
Notes to the financial statements
For the 26 weeks ended 25 September 2004
13 Analysis of changes in net debt
At 27 March Cash flows Retranslation At 25 September
2004 2004
£'000 £'000 £'000 £'000
Cash at bank and in hand 72,813 (4,844) 201 68,170
Overdrafts (1,175) (10,277) (19) (11,471)
71,638 (15,121) 182 56,699
Debt due within one year (15,099) (10,011) (1) (25,111)
Debt due after more than one year (107,916) (25,469) (2,217) (135,602)
Short-term investments 10,805 6,650 - 17,455
Net debt (40,572) (43,951) (2,036) (86,559)
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