Q4 Trading Update

Carphone Warehouse Group PLC
15 April 2008



Tuesday 15 April 2008


For immediate release

                        The Carphone Warehouse Group PLC

                         Fourth quarter trading update

                      Guidance for the year to March 2009

The Carphone Warehouse is today giving its annual strategy presentation to
investors and analysts, and financial guidance for the year to March 2009.  The
highlights of this presentation are summarised below.


Q4 highlights

  • Total telecoms subscriptions up 16% year-on-year

  • Mobile connections up 12% to 2.7m

  • Mobile subscription connections up 9% to 1.1m

  • 109,000 broadband net adds, taking base to over 2.7m

  • 1.8m customers unbundled, equivalent to 67% of the broadband customer base

  • Year end net debt reflects increased investment in capex and SAC of £50m
    and adverse currency movements since December of £120m

  • Full year headline PBT of £215-220m before asset write-off on disposal of
    the Swiss retail business

  • Full year headline EPS in line with expectations



Guidance for the year to March 2009

  • Greater separation of operating divisions to give increased autonomy with
    lower central overhead

  • Continued evolution of retail business model towards broader connectivity
    services

  • 120 net new openings planned, with 200 re-sites and major re-fits

  • Mobile connections growth 8-10%

  • Significant profit growth expected in Fixed Line

  • Further acceleration of Best Buy Mobile US roll-out

  • Strong cash generation to fund continued investment in growth platform



Charles Dunstone, Chief Executive Officer, said:


'Our performance over the last three months has been good in a slower consumer
environment.  In our Distribution business, continuing network competition and
growing demand for mobile broadband have been key drivers.  In Fixed Line, we
have made further good progress on customer recruitment and continued migration
to our own network, and we now have only 8,000 loss-making free broadband
customers left to migrate.


'Net debt at the year end has increased both as a result of the significant
weakening of sterling against European currencies, and our decision to increase
spending on capex and customer recruitment.  We have accelerated our investment
in network capacity to protect and enhance margins over the long term, and our
highly attractive customer economics comfortably support our increased SAC
spend.  Operating cash flow grew strongly and will continue to do so in the
coming year, but we will continue to invest to build the best possible platform
for sustainable long term growth and value creation for shareholders.


'Looking forward, we anticipate a year of considerable further progress.
Although we are mindful of a tough consumer environment, we see significant
opportunity to evolve our retail model to address the opportunities of a
changing marketplace.  The broadband business is set to deliver significant
further margin improvement, and provides us with excellent earnings visibility.


'The steps we are taking to devolve greater flexibility and responsibility to
the divisional level will allow our businesses to develop more effectively in
their dynamic markets and avoid duplication of central and divisional costs.
Progress in the US continues to be very encouraging, and with our partners Best
Buy we believe this can become a significant third leg for the Group over the
medium term.'


Fourth quarter trading and full year out-turn


Distribution

Group mobile connections were up 12% to 2.7m year-on-year in the last quarter.
Mobile subscription sales were up 9%, and continued to be supported by strong
growth in mobile broadband and smartphone connections.  The off-the-page channel
remained weak, but the effects of the slowdown in this segment are now
annualising.


Total telecoms subscriptions, including Retail sales of in-house and third-party
fixed line broadband and telephony connections, were up 16% year-on-year, as we
continued to develop our businesses across Europe towards a broader connectivity
offering.


During the quarter we reached agreement on the sale of our Swiss stores to
Swisscom, which will result in an asset write-off in the year to March 2008 of
an amount still to be determined.


Fixed Line

We finished the period with over 2.7m broadband customers across TalkTalk and
AOL.  During the quarter we achieved net adds of 109,000 onto the broadband
base, making a total of 442,000 for the financial year.  We migrated a further
215,000 customers onto our own unbundled network, so that at the period end, 67%
of all our broadband customers were on-net.  Of those still being provisioned
via BT's wholesale services, only a very small number are still loss-making, and
in general these are in exchange areas that we had planned to unbundle but where
access to the exchange has been impossible or delayed.  ARPU and margin trends
continued to evolve in line with our expectations.


The base of non-broadband telecoms customers was 1.7m at the end of March, in
line with our expectations.


Cash flow and net debt

Year end net debt has been negatively affected by two factors: the significant
weakening of sterling against the Euro and the Swiss Franc in the final quarter,
in which a large proportion of the Group's borrowings are held as a hedge
against non-sterling assets; and increased spending on capex and subscriber
acquisition costs.  The increase in capex is the result of extending our
exchange footprint further than originally planned, and accelerating our
investment in our Network Unification Project, which will cap network operating
costs in the medium term.  The higher SAC spend reflects the launch of the AOL
laptop offer.  Inventory levels have also increased year-on-year on a
like-for-like basis, reflecting our strategy of improving handset availability,
and stocks of laptops.  We remain well positioned to fund our future growth
strategy.



Full year out-turn

We expect headline PBT to be between £215m-£220m, after taking into account the
additional interest costs of higher net debt, but before an asset write-off on
the sale of our Swiss retail business.



Outlook and guidance for the year to March 2009

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.  The
key elements of this guidance are set out below.



Overall we expect to make further good progress at the group level this year.
Within Distribution, our focus is on evolving the business model towards a
broader connectivity offer and improving operational efficiency, in what we
expect to continue to be a tough consumer environment.  In Fixed Line, further
growth in the customer base, combined with the margin uplift delivered through
the unbundling process, is budgeted to deliver further profitable growth.



In addition, we are finalising an internal review that will lead to clearer
operational autonomy for the two divisions, and avoid duplication between
central and divisional support resources.  This will allow the Distribution
business to develop a more clearly impartial proposition as a third party
broadband provider.  As a result, the divisions are absorbing and becoming
accountable for additional dedicated overhead from the centre, and PLC costs
will be significantly reduced.



Distribution

Divisional revenue growth is expected to be 9-10%.  Excluding non-core revenue
lines, revenue growth is expected to be 10-12%, driven primarily by connections
growth of 8-10% and the wider introduction of new products.  The EBIT margin
will be affected by the absorption of approximately £15m of costs previously
accounted for at the PLC level.



The rate of physical expansion will be more measured this year, reflecting our
objective of focusing on operational improvements, and the softer economic
environment.  The longer term prospects for physical expansion remain as
attractive as ever.  Overall we plan to open 120 net new stores, with gross
openings of approximately 200 of which around 50 will be the relocation of
stores to bigger sites in better locations.  In addition, we will be
accelerating the conversion of our stores to the new format, particularly in the
UK.  Space growth will exceed new store growth as we continue to focus on larger
formats.  The development of the store portfolio will be supported by an
increasing investment in employee training and development as our retail
proposition evolves.



We expect rates of growth in subscription and pre-pay to be similar.  While the
handset market remains relatively flat, we expect further progress in mobile
broadband sales across Europe, and overall market share gains.  We anticipate
that Ongoing and Insurance revenues will track in line with subscriptions
growth.



UK Fixed Line

Divisional revenue growth is expected to be approximately 4-5%.  EBITDA margins
are forecast to expand to 22-23%, reflecting the ongoing trend of margin
improvement through the unbundling process.  After significant increases in
depreciation and amortisation in the coming year, reflecting the material
investments made over the last two years, we expect a divisional EBIT margin of
approximately 12-12.5%, representing an increase of around 300 basis points
year-on-year after reallocation of some PLC support costs down to the divisional
level.



In our Residential business we anticipate further broadband base growth of
around 400,000 customers as we head towards our goal of 3.5m customers by March
2010.  Net customer growth is likely to be skewed towards the second half, as
over the next few months we will be completing the final elements of AOL's
integration.  These involve migrating AOL Broadband customers off the AOL Inc
network and billing platforms onto our own.  Blended broadband ARPU will
continue to rise, towards £24, as TalkTalk becomes an increasing part of the mix
and we increase voice penetration of the AOL base.



With over 80% of new customers signed up in unbundled areas, and the opportunity
to migrate additional AOL customers onto our fully unbundled network later in
the year, we expect that by March 2009, 75-80% of the broadband base will be
on-net.



The base of other billed customers, comprising CPS and narrowband accounts, will
continue to decline as customer churn and upsell to broadband packages exceed
new sales.  ARPUs are planned to increase slightly, to around £18.5, reflecting
the changing mix of the customer base.



In our business-to-business operations, we are planning for revenue growth of
2-3% through organic growth, with EBITDA margin improving year-on-year through
greater operational efficiency.



Best Buy Mobile

As previously announced, the Best Buy Mobile concept is now being rolled out to
all Best Buy consumer electronics stores in the US.  Given the continued
excellent progress being made by the proposition, we have decided to further
accelerate the roll-out, so that the whole of Best Buy's US mobile operations
will be converted to the new Best Buy Mobile format by the end of the current
calendar year - a year earlier than planned.



The Group's profit share in the coming year is likely to be immaterial, as the
uplift in underlying profitability already being demonstrated will be offset by
the one-off costs of conversion and significant investment in recruitment and
training.  However, by 2011 we expect Best Buy Mobile to be making a
contribution of £25-35m to Group profitability.



Virgin Mobile

Virgin Mobile, our MVNO JV with Virgin Group in the French market, is entering
its third year of operation with over 800,000 customers split equally been
pre-pay and subscription.  The business will continue to focus on expanding its
distribution channels, raising the profile of the brand and growing its base
towards critical mass.  While it will record further losses this year as it
continues to invest in growth, we expect it to reach break-even in the year to
March 2010.



PLC costs

As part of our strategy of making our operating divisions more autonomous and
accountable for their use of resources, a number of shared functions previously
included within PLC costs will now operate primarily at the divisional level.
As a result, PLC costs are likely to be in the region of £15m for the coming
year, including approximately £7m of non-cash options costs.



Group cash flow, balance sheet and dividend policy

We will continue to make significant investment in our infrastructure across
both divisions, with total capex of approximately £220m budgeted.  This reflects
a decline of around £40m year-on-year after the peak year of investment just
passed.  The capex will be committed broadly as follows:



New stores, key money, re-sites and refits          £45m

Telecoms network infrastructure                     £85m

IT systems development and hardware                 £70m

Other                                               £20m



In addition, we plan to capitalise approximately £130m of subscriber acquisition
costs across our mobile and UK residential fixed line businesses, where minimum
term contracts apply.  The cash outflow from capitalised SAC is anticipated
broadly to match the annual amortisation charge.



We expect to raise the dividend in line with growth in headline EPS in the
coming year, reflecting the Board's continued confidence in the long term
prospects of the Group.



Presentation

There is a presentation for investors and analysts on Group strategy and
guidance for the coming year at the offices of UBS, 1 Finsbury Avenue, London
EC2M 2PP, starting at 10.00am this morning.  The event will also be audio
webcast live at cpwplc.com.



Next announcement

The Group will publish its preliminary results for the year to March 2008 on 3
June 2008.



For Further Information



For analyst and institutional enquiries

Peregrine Riviere                             07909 907193

Carla Bloom                                   07891 094542


For media enquiries

Shane Conway                                  07932 199 659



Anthony Carlisle (Citigate Dewe Rogerson)     07973 611 888
                                              020 7638 9571


Operating Statistics


Connections, mix and store numbers


                                                    13 weeks to
                                                   29 March 2008
                                             2008          2007         % change
Connections (000s)
Subscription                                1,108         1,017             9.0%
Pre-pay                                     1,445         1,237            16.8%
SIM-free                                      146           156            -6.8%
Group                                       2,699         2,410            12.0%

Store numbers
Directly operated                           2,175         1,950            11.5%
Franchises                                    236           194            21.6%
Group                                       2,411         2,144            12.5%


                                                    52 weeks to
                                                   29 March 2008
                                             2008          2007         % change
Connections (000s)
Subscription                                4,450         4,016            10.8%
Pre-pay                                     6,456         5,428            18.9%
SIM-free                                      588           571             3.0%
Group                                      11,494        10,014            14.8%



Customer bases and exchanges


                                                          As at March
(000s)                                               2008            2007        % change

Insurance                                           2,353           2,233            5.4%

Mobile - TPHT                                       1,837           1,498           22.6%
Mobile - UK MVNO                                      394             482         (18.3%)

Broadband base                                      2,713           2,271           19.4%
Of which unbundled                                  1,813             702          158.3%

Other billed customer base                          1,673           2,361         (29.0%)

Unbundled exchanges                                  2008            2007

TalkTalk exchanges                                  1,619           1,024           58.1%
AOL exchanges                                       1,011             390          159.2%
Total exchanges                                     2,630           1,414           86.0%



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