Trading Statement

Carphone Warehouse Group PLC
08 October 2003




Wednesday 8th October 2003

Embargoed until 0700 hours

The Carphone Warehouse Group PLC

Second Quarter Trading Update


The Carphone Warehouse reports a strong second quarter performance, with growth
in subscriptions and talktalkTM connections both accelerating during the
period.  In addition, the group plans to pursue a more aggressive customer
acquisition strategy for talktalkTM.



Second quarter operational highlights



  • Distribution and Opal performing ahead of expectations
  • Subscription connections up 24.0%
  • Growth in Opal switched minutes (ex-talktalk) of 73.9%
  • 140,000 talktalkTM customers tolling at period end, with a current weekly
    run rate of 8,000 net adds



talktalkTM strategy



  • Plan to accelerate rate of customer acquisition through use of additional
    channels and further investment in marketing
  • Targets of 350-400,000 customers by March 2004, 600-700,000 by March 2005
  • All customer acquisition costs ('SAC') and marketing costs to be written
    off as incurred, giving total start-up losses of £7-8m in current financial
    year
  • Contribution margin (after all costs) of 15% achievable in the year to
    March 2005



Charles Dunstone, Chief Executive Officer, said:


'Increasing network competition for subscription customers, good progress in our
German operations, and continued strong growth in our talktalkTM customer base
have been the highlights of an excellent second quarter.



'Given its success to date and the scale of the opportunity, we have decided to
pursue a more aggressive growth strategy for talktalkTM, and additionally to
write off all acquisition costs as incurred.  This investment and the more
conservative accounting policy will lead to start-up losses in talktalkTM in
the current financial year, but a greater contribution than previously forecast
in the year to March 2005 and beyond.'



Distribution

The second quarter continued the strong trends of the previous six months.
Overall connections rose by 16.3% to 1.24m.  Subscription connections growth
accelerated to 24.0%, driven by strong market conditions together with
outstanding performances from our French and Spanish operations.



Pre-pay connections also made solid progress as high street prices fell towards
the end of the quarter.  We have recently witnessed renewed competition between
networks in the pre-pay segment of the market in several countries.  This has
led to lower SIM-free handset sales and Fresh connections.



Our insurance base also demonstrated good growth.  We added 84,000 net new
customers during the quarter, with a good mix of high tier products driven by
strong subscription sales.  The base grew 12.8% year-on-year to 1.15m.



Wholesale

Activity in the Wholesale division was again very subdued in the quarter as we
continue to await further clarification from HM Customs & Excise on the
implications of joint and several liability in relation to European handset
wholesale trading.  If the suspension of trading continues, we anticipate a
break-even outcome for the full year at the EBITA level for this division.



Telecoms Services

The integration of the Hutchison acquisition in Germany has been successful, and
as from 1 September, The Phone House subscription connections have been going on
to our own service provider base.  Our UK customer management base demonstrated
strong organic growth in the period, driven by a good rate of sign-ups on the
Vodafone and O2 networks.  Customers under management across the group at the
end of the period totalled 1.87m.



The rate of organic growth in Opal was maintained from the first quarter.  The
network switched a total of 1.25bn minutes in the quarter, an increase of 97.7%
year-on-year.  Excluding the talktalk traffic, which amounted to 151m minutes
during the period, underlying growth in switched minutes was 73.9%.



talktalkTM connections continue to grow strongly, with 54,000 net new customers
going live over the last two months.  Over recent weeks we have been
experimenting with additional distribution channels, including outbound
telesales agencies and field marketing.  Although acquisition costs are higher
through these channels than through our stores, they are comfortably outweighed
by the marginal value of each customer to the group.  Our affinity arrangement
with Sainsbury's continues to be rolled out through their stores.



Additional investment in talktalkTM

The advent of automated CPS and the acquisition of Opal have presented the group
with a unique opportunity to become a credible alternative to BT in the
residential fixed line market and to build a substantial new profits stream.  As
a result, the group has decided to pursue a more aggressive recruitment strategy
for talktalkTM using additional distribution channels and supported by further
marketing spend.  Based on the current market outlook, we now anticipate having
350,000-400,000 tolling customers by March 2004, and 600,000-700,000 by March
2005.



In addition, the group has revised its intended accounting policy in relation to
SAC.  Acquisition costs, as well as all marketing costs, will now be written off
as incurred rather than amortised over a 12 month period as previously planned.



Financial impact

The financial impact of these changes will be that, if the current customer
growth rate continues, talktalkTM is likely to report a loss for the full year,
after all marketing and acquisition costs, of £7-8m, compared to current
consensus estimates of a profit of about £3m.  £3-4m of this variance relates to
additional marketing spend, and the rest to the change in intended accounting
policy.



However, strong subscriptions growth in the first half, an encouraging mobile
market environment, and continued outperformance by Opal are expected to
mitigate about half of this impact.  For the half-year, start-up losses for
talktalkTM will amount to approximately £5-6m.



For the year to March 2005, we anticipate an average monthly customer ARPU of
£15-16 and a talktalkTM contribution margin, after all SAC and marketing costs,
of approximately 15%.



As a mark of its confidence in the group's future, the Board intends to propose
an interim dividend of 0.4p, representing one third of the anticipated full year
dividend.  This represents 20% growth on the maiden dividend paid for the last
financial year.



Presentation

There will be a presentation on talktalkTM for investors and analysts at 9.00
am this morning, at the offices of Deutsche Bank, 1 Winchester Street, London
EC2.  The slides will be available on our website, www.cpwplc.com, from that
time.



Next trading update

The group will publish its interim results on 4 November 2003.





For Further Information



For analyst and institutional enquiries

Roger Taylor                                                   07715 170 090
Peregrine Riviere                                              07909 907 193



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 26 September 2003


                                              2003                2002            % change
Connections
Subscription                                 581,481             468,847           24.0%
Pre-pay                                      550,583             484,322           13.7%
SIM-free                                     104,251             109,642          (4.9)%
Group                                      1,236,315           1,062,811           16.3%

Store numbers                                  1,175               1,117            5.2%




                                                 26 weeks to 26 September 2003

                                               2003                2002            % change
Connections
Subscription                               1,060,357             878,022           20.8%
Pre-pay                                      963,624             846,381           13.9%
SIM-free                                     213,552             197,824            8.0%
Group                                      2,237,533           1,922,227           16.4%



•         Customer bases



                                                       As at 26 September 2003

(000s)                                               2003            2002          % change
Insurance                                           1,150           1,019           12.8%
Telecoms Services - Mobile                          1,867           1,123           66.3%
talktalk                                              140               -               -





•         Switched minutes




                                              13 weeks to 26 September 2003

(m)                                             2003                2002            % change
Opal                                            1,101                 633           73.9%
talktalk                                          151                   -
Total                                           1,252                 633           97.7%




                                              26 weeks to 26 September 2003

(m)                                            2003                2002            % change
Opal                                           2,079               1,178           76.5%
talktalk                                         216                   -
Total                                          2,295               1,178           94.8%




                      This information is provided by RNS
            The company news service from the London Stock Exchange