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

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