Q4 Results

Carphone Warehouse Group PLC
01 April 2004


Thursday 1 April 2004

Embargoed until 0700 hours


The Carphone Warehouse Group PLC

Fourth Quarter Trading Update

The Carphone Warehouse announces its fourth quarter trading update.  Trading
across the group has continued to be strong and we expect to report profit
before tax at the top end of the market forecast range for the current year,
with earnings per share exceeding the range.

Fourth quarter highlights

  • 29.6% growth in connections to 1.44m
  • 32.4% growth in subscription connections to 0.66m
  • 146,000 new TalkTalkTM customers, taking the base to 385,000
  • 98.8% growth in switched minutes through Opal
  • Fixed line acquisitions in Spain and Switzerland

Guidance for the year to March 2005

  • Confident of achieving further strong growth
  • Significant investment in future growth, with capex of £80m budgeted
  • Acceleration of expansion programme, with 200 new stores planned
  • Market growth and store roll-out expected to drive 15% growth in mobile
    connections
  • Further organic growth at Opal with improving business mix
  • Additional marketing investment in TalkTalk to support free calls launch


Charles Dunstone, Chief Executive Officer, said:

'Our fourth quarter trading performance has been a fitting end to a record year.
The mobile market has continued to be buoyant and we have strengthened our
competitive position within it.  In fixed line we have begun to shake up the UK
market and are laying the foundations for growth across Europe.  As a result of
our success we anticipate that full year profits will be at the top end of
market forecasts, with earnings per share exceeding forecasts.'

Distribution

In the fourth quarter connections grew 29.6% to 1.44m as the market remained
strong across most of our businesses.  Subscriptions connections grew 32.4% to
0.66m, stimulated by network competition and more new handsets.  The pre-pay
market has continued to show renewed activity, with the result that pre-pay
connections increased by 45.5% to 0.69m.  As in the third quarter, this growth
came at the expense of SIM-free sales, which fell 38.9% year on year to 0.08m.

We opened 12 new stores during the period, and we finished the year with 1,214
in total.  This figure reflects the sale of our business in the Czech Republic
with 19 stores to the local management team which we recently completed.

Our insurance base benefited from the high level of subscription connections and
increased by 24.9% year-on-year to 1.32m, with 79,000 net new customers added in
the fourth quarter.

Telecoms Services

In the UK, our Vodafone and O2 bases grew by 42.5% to 0.56m during the year.  In
February we opened our second call centre, at Birchwood near Warrington, as a
result of the rapid expansion of our customer bases.  In Germany, the base of
Hutchison, now renamed The Phone House Telecom, has started to grow, and as at
the year end had 0.69m service provision customers, of whom 0.54m were
subscription customers.

Traffic over the Opal network grew by 98.8% to 1.78bn minutes in the quarter.
Excluding TalkTalkTM, traffic grew by 40.4% to 1.26bn minutes.  Opal now has
six switches in operation and over 50% of all traffic is now both originated and
terminated at the local exchange layer, making Opal one of the most efficient
alternative carriers in the UK.

We added 146,000 new TalkTalkTM customers in the quarter, at an accelerating
rate.  We estimate that in March, customers joining TalkTalkTM represented over
30% of net new CPS customers across the entire market.  With the launch of the
free calls proposition, effective today, we anticipate that the rate of sign-up
will accelerate further.

In line with our strategy of developing the TalkTalk model elsewhere in Europe,
we made two acquisitions in the quarter.  In early March we announced the
acquisition of Xtra Telecom in Spain, which provides us with a strong
infrastructure platform from which to launch our residential offer in that
market.  We will also seek to develop Xtra's existing business-to-business
offering.

Today we are announcing the acquisition of N Tel Com GmbH ('N Tel'), a
switchless reseller operating in Switzerland, for a cash consideration of
£13.3m.  In the year to December 2003, N Tel generated unaudited turnover of CHF
41.1m (£18.3m) and operating profit of CHF 4.6m (£2.0m), and had a base of
44,000 customers of which approximately 90% were residential.  Net assets at
completion were CHF 3.6m (£1.6m).

N Tel is achieving good organic growth in its own right and will continue to be
run as a stand alone business, but we intend to enhance its long term potential
by developing tariffs to be distributed through our Phone House stores that will
reflect the new free calls initiative.   We also intend to use N Tel as the
platform for organic growth into other markets, including Germany.

Wholesale

In view of the continued confusion regarding the implementation of joint and
several liability by HM Customs & Excise in relation to mobile phone wholesale
trading, we have not undertaken any wholesaling of mobile phones since April
2003 and do not foresee entering the market again in the coming year.  We
understand that HM Customs & Excise continue to investigate the recovery of VAT
in the industry.  We continue to believe that we have no material unprovided
liability.

Outlook and guidance for the year to March 2005

As part of our presentation to analysts and investors today, we will be giving
updated financial guidance for certain business areas in the coming year.  For
the group as a whole we are confident of delivering further strong growth.  The
key elements of this guidance are set out below.

We are encouraged by the prospects for the Distribution business and will seek
to grow our presence by accelerating our store opening programme across Europe,
with 200 new openings planned for the coming year.  The bulk of these will be in
our largest markets - the UK, Spain and France - but we also see opportunities
for additional stores in our other territories.  In Switzerland, we have
recently reached an agreement with Manor, the department store chain, that will
see 20 Phone House outlets opened in their stores by March 2005.

The mobile market remains strong and although year-on-year comparisons will grow
more challenging as the year progresses, we anticipate connections growth of
approximately 15%, with growth in subscription being ahead of growth in pre-pay.
We expect the retail market to remain competitive and this is likely to
translate into a slightly lower gross profit per pre-pay connection.  However,
the shift in mix towards subscription means that average gross profit per
connection is expected to be constant year-on-year.

In Mobile Telecoms Services we expect profits to be flat overall.  We expect a
further year of growth in our Vodafone and O2 customer bases, but have budgeted
for the coming year to be one of investment for The Phone House Telecom as it
seeks to build its customer base more rapidly.  At the same time our German
retail business is expected to reach break even as it is apportioned an element
of customer ARPU for recruiting customers onto the service provision base.

At Opal we expect revenue growth of approximately 15%, with growth in the direct
and reseller channels being in excess of 20%.  This improvement in mix away from
premium rate services, combined with economies of scale, is expected to offset
some of the margin erosion previously indicated.  We will continue to invest in
building scale in the Opal network by provisioning four further switches during
the year, and in improving efficiency through our programme of establishing
deeper levels of interconnect into the BT exchange network.

The introduction of free calls on the TalkTalk network, effective from today, is
to be supported by a major marketing campaign and as a result we expect to spend
more on marketing this year than in the previous year.  We anticipate that the
appeal of the free calls initiative will lead to a greater customer base at the
end of the next financial year than the existing guidance of 600-700,000.
However, we cannot issue more specific guidance on customer numbers until we are
able to assess the impact of the new campaign.  In profit terms, the overall
number of customers is not expected to make a material difference to the
financial outcome for the year to March 2005.

Our TalkTalk activities outside the UK are expected to deliver a break even
performance in the year, with start-up losses in Spain and France being offset
by the existing profits stream from the N Tel acquisition.

The investment in new stores and Opal, as well as an increased number of IT
projects, will lead to total capital expenditure for the year of approximately
£80m.  This will have a knock-on effect on our depreciation charge, which we
expect to increase by 25% year-on-year.

Presentation

There is a presentation for investors and analysts on the group strategy and
guidance for the coming year at our Acton Support Centre, starting at 10am this
morning.

Next announcement

The group will publish its preliminary results for the year to March 2004 on 3
June 2004.



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


Operating Statistics

•    Connections, mix and store numbers


                                13 weeks to 27 March 2004               52 weeks to 27 March 2004
                                 2004         2003      % change         2004          2003     % change
Connections (000s)
Subscription                      663          501         32.4%        2,413         1,909         26.4%
Pre-pay                           694          477         45.5%        2,520         1,972         27.8%
SIM-free                           80          131       (38.9%)          417           483       (13.7%)
Group                           1,437        1,109         29.6%        5,350         4,364         22.6%

Store numbers                   1,214        1,140          6.5%



Customer bases
                                                        As at 27 March 2004
(000s)                                               2004            2003        % change
Insurance                                           1,324           1,060           24.9%
Telecoms Services - Mobile                          1,973           1,115           77.1%
talktalk                                              385              21               -



Pro forma switched minutes

                         13 weeks to 27 March 2004                   52 weeks to 27 March 2004
(m)                       2004          2003      % change          2004          2003           % change
Opal                     1,260           897         40.4%         4,508         2,754              63.7%
talktalk                   523             -             -         1,009             -                  -
Total                    1,783           897         98.8%         5,517         2,754             100.3%



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