Final Results
Carphone Warehouse Group PLC
03 June 2004
Thursday 3 June 2004
Embargoed until 0700 hours
The Carphone Warehouse Group PLC
Preliminary Results for the 52 weeks to 27 March 2004
Record earnings growth, dividend raised by 30%, strong outlook for Retail and
Telecoms
52 weeks ended 27 52 weeks ended 29 Growth %
March 2004 March 2003
£m £m
Turnover 1,849.0 1,841.5 0.4%
Turnover (ex-Wholesale) 1,670.9 1,034.9 61.5%
Headline results*
Profit before tax 76.3 57.0 33.8%
Earnings per share 6.81p 5.25p 29.7%
Statutory results
Profit before tax 44.5 34.5 29.0%
Earnings per share 3.17p 2.60p 21.9%
Dividend per share 1.3p 1.0p 30.0%
*Stated before exceptional items and amortisation of goodwill, as reconciled in
note 7
Financial Headlines
• Turnover (ex-Wholesale) up 61.5% to £1.67bn - ex-acquisitions up 28.9%
• Like-for-like retail revenue up 21.0% and like-for-like gross profit up
14.2%
• Headline earnings per share up 29.7% to 6.81p
• Recurring income streams now 55.3% of Group contribution
• Full year dividend raised by 30% to 1.3p
Operational Headlines
• Connections growth of 22.6% to 5.35m with subscription connections growth
of 26.4% to 2.41m
• Opal traffic pro forma growth of 100.5% to 5.52bn minutes
• First full year of TalkTalk with 385,000 live customers at the year end
• Acquisition and successful integration of Hutchison Telecommunications
GmbH
• Acquisitions in Spain and Switzerland to further our fixed line strategy
• Significant investment for future growth planned - 200 new stores to be
opened in 2004/05
Hans Roger Snook, Chairman, said:
'These are great results, to which everyone in Carphone Warehouse has
contributed. They exceed all expectations this time last year, despite the
substantial investment in the launch of TalkTalk, and reflect the momentum of
Carphone Warehouse's strategy and the quality of our execution across the group.
'In the UK and abroad, we continue to grow the scale and profitability of our
core retail business and see further opportunities to continue doing so. Our
strong and growing customer bases continue to fuel our recurring business
streams, increasing the proportion of our profits generated after the point of
sale and further improving the quality of our earnings. And our fixed line
services continue to grow very rapidly, both in the business market with Opal
and now in the residential market with the great success of our TalkTalk launch.
'The strategic moves we have made all leverage our core skills and assets, our
brand and our financial strength. We now have a bigger and stronger growth
platform, which is very well positioned for the continuing change in the dynamic
telecoms marketplace. As a result, we are confident of delivering further
significant shareholder value in the coming year. The board, therefore, has no
hesitation in recommending a 30% increase in our dividend.'
Charles Dunstone, Chief Executive, said:
'The Carphone Warehouse has changed significantly over the last five years from
a company that generated almost all of its income from its UK retail operations,
to a multinational retail group making profits from a range of related services
across ten geographical markets. We are now able to achieve increasing returns
on our fixed cost base and invested capital by extending our customer
relationships beyond the point of sale. As a result, the Group now has a much
more stable base from which to pursue consistent long term profitable growth and
the maximisation of shareholder value.
'Throughout this period of change, the retail portfolio has remained at the
heart of everything we do. With the continued proliferation of handsets,
networks and services making the purchasing decision more complex than ever, our
customers are quite rightly making increasingly rigorous demands on our sales
consultants' knowledge. In this context it has been another year of strong
growth and rapid development for the Group. Our continued focus on impartial
advice and customer service is translating into continued market share gains and
increasing levels of repeat business. Our move into fixed line has been decisive
and successful and provides the Group with a further avenue for long term
growth.
Outlook
'The outlook for our core businesses is promising. We are once again operating
in a handset market demonstrating strong growth. The rapid increase in the
volume of our 3G connections since the start of 2004 gives some indication of
likely future demand, and we are now seeing the incumbent operators start to
come to market with their own 3G services. At the same time the rate of
innovation and renewal from the handset manufacturers continues to stimulate
consumer demand.
'On the fixed line side, we anticipate further strong growth in our TalkTalk
customer base as the appeal of our free calls proposition becomes more widely
recognised. We will pass the 500,000 customer mark in the next few weeks and
anticipate that we will have over 900,000 customers by March 2005. Our
fledgling fixed line operations outside the UK will start to recruit customers
in the coming months and should break even in the first year, with good growth
in profits anticipated over the medium term.
'Opal has had an outstanding 12 months. We remain confident that Opal can
continue to grow revenues at an attractive rate in the year ahead, and maximise
efficiency through increased interconnection and strict control of operating
costs.
'As always, our continued success is down to the dedication and expertise of all
of our employees. Recruitment and training remain as important as ever and in
last 12 months over 1,500 people joined the Group, bringing the total to nearly
11,000. I am delighted to welcome all of these new recruits, including those who
have joined as a result of our acquisitions in Germany, Spain and Switzerland.
With our accelerated store opening plans, the continued expansion of our
customer service activities and our investment in the infrastructure to support
future growth, we expect to create a further 1,000 jobs across Europe in the
current year.
'Over the next year I am confident that we will extend our position as the
leading independent mobile phone retailer in Europe, continue to execute on our
fixed line strategy, and deliver further profitable growth.'
Summary of Results
Group turnover for the period was £1,849.0m, compared to £1,841.5m for the prior
year. Excluding Wholesale operations and the impact of acquisitions, underlying
growth in turnover was 28.9%. Headline pre-tax profit was £76.3m, an increase
of 33.8% on the year to March 2003. Earnings per share on the same basis grew by
29.7% to 6.81p. Statutory profit before tax increased by 29.0% from £34.5m to
£44.5m, while statutory earnings per share increased by 21.9% from 2.60p to
3.17p. Free cash flow, before acquisitions, dividend payments, the purchase of
the Acton Support Centre and Birchwood freeholds and investment in new stores,
was £57.0m (2003: £50.8m) (see note 10).
The principal acquisition during the year was the purchase of Hutchison
Telecommunications GmbH, a mobile service provider operating in Germany. The
net cash consideration was £30.9m. Hutchison has generated revenues of £211.1m
and operating profit of £9.1m since acquisition. Most importantly it enabled us
to restructure our German operations, leading to the generation of an operating
profit in that key market of £5.2m compared to an operating loss of £7.4m last
year.
There were two exceptional items during the year. The restructuring in Germany
resulted in a charge of £4.7m relating to the closure of our Munich head office
and 15 stores. In addition we incurred a non-cash charge of £1.7m in respect of
a loss on the partial disposal of our wireless investment portfolio.
Distribution Division
The Distribution division comprises our Retail operations and all
directly-related business streams. Distribution revenues grew by 28.9% in the
year to £1,128.9m, and the division generated EBIT of £66.9m, a rise of 52.0% on
the prior year. Growth was consistently strong across all business units.
2004 2003
£m £m
Turnover 1,128.9 876.1
Retail 946.4 738.3
Online 64.5 41.9
Insurance 78.6 66.8
Ongoing 39.4 29.1
Contribution 154.9 121.7
Retail 83.0 67.2
Online 4.5 3.4
Insurance 28.0 22.0
Ongoing 39.4 29.1
Support costs (57.4) (52.4)
EBITDA 97.5 69.3
Depreciation (30.6) (25.3)
EBIT 66.9 44.0
EBIT % 5.9% 5.0%
Before exceptional items and amortisation of goodwill
Retail and Online
The Group achieved 5.35m connections during the year, representing year-on-year
growth of 22.6%. Within these figures, 0.31m connections were made through our
Online channels (inbound call centre, interactive TV and website). We estimate
that the Western European handset market grew by 18% in the year to March 2004,
so once again the Group achieved meaningful market share gains during the
period, particularly in the high value subscription market.
In the key metric of subscription connections, we achieved growth of 26.4% to
2.41m, with the rate of growth accelerating throughout the year. In the fourth
quarter, subscription growth was 32.4%. Our subscription mix improved by 1.4
percentage points to 45.1%. This strong performance was driven by increasing
network competition for high value customers, an exciting range of new handsets
from manufacturers, and our own reputation for providing the widest choice and
impartial advice to customers.
Growth in pre-pay connections was also robust, particularly over the Christmas
period and into the fourth quarter of our financial year. Retail prices came
down to levels not seen for three or four years because of the wide availability
of cheap entry-level handsets from manufacturers and a renewed focus from
network operators. As a result, we witnessed high levels of replacement in the
market.
As a direct consequence of these lower pre-pay prices, our SIM-free handset
sales fell during the year. From a financial perspective there is no material
difference to the Group between a pre-pay connection and a SIM-free sale.
We opened 158 new stores during the year and closed or sold 84. The total number
of stores increased from 1,140 at March 2003 to 1,214 by March 2004. The total
includes 26 franchise stores (March 2003: 11 franchises). Total average selling
space increased by 4.6% to 66,170 sqm (2003: 63,233 sqm) and sales per square
metre increased by 22.5% to £14,303 (2003: £11,676).
Growing our store portfolio remains a central element of our Group strategy and
we expect to accelerate our store opening programme in the current year, with
200 new stores planned. This will enable us to grow market share and to continue
to improve our competitive position in all of our markets. With the sale of the
Czech business to management shortly before the year end, we are now focused on
ten markets, which will form the platform for future growth in Retail and other
business streams.
Total Retail revenues grew by 28.2% and gross profit by 20.4%. Like-for-like,
after stripping out the impact of new store openings, revenues grew by 21.0% and
gross profit by 14.2%. The increase in revenues was for the most part driven
through the strong connections growth through the year, but average revenues per
connection also grew by 4.3% as customers tended to trade up to higher value
handsets as network subsidies made them more affordable.
As expected, average cash gross profit per connection fell by 2.0% from £57.1 to
£56.0. Although we benefited in part from an improvement in the business mix,
average gross profit on subscription connections fell by 3.3%, as anticipated,
as a greater proportion of customers sought to upgrade on their existing network
rather than switch network. We make a lower gross profit on upgrades than on new
subscriptions.
The Retail business remains focused on generating a target cash gross profit on
subscription and pre-pay connections rather than on a target gross margin. In
this way we believe we will maximise growth in profits from our Retail business
by achieving the right balance between volume and value. Hence when revenues per
connection rise, the deterioration in our gross margin is exaggerated, but the
converse will be true in an environment of falling revenues per connection.
Contribution (see note 7) from Retail grew by 23.5% to £83.0m. The contribution
margin fell from 9.1% to 8.8%. However, the ratio between contribution and gross
profit, which gives a more meaningful indication of cost efficiency given the
variability of revenues per connection, improved from 28.7% to 29.4%. Overall
Retail direct costs grew by 19.2%, driven by the greater store base, a
significant number of rent reviews, and higher levels of commission payments to
our sales consultants in the strong market environment.
In the UK, our store portfolio increased from 475 stores to 509 stores. Many of
these new stores are on arterial routes or out-of-town retail parks, where we
are able to generate an attractive return on investment without cannibalising
existing store performance. We are the dominant independent mobile phone
retailer in the UK market but we believe there is significant scope for further
store openings and market share gains. Approximately half of the new stores
planned for the Group this year will be in the UK.
Outside the UK we have witnessed a number of outstanding performances. Aided by
strong demand for new handsets, many of our overseas operations are now becoming
substantial businesses in their own right. The management time and effort
invested in improving retail and operational processes across Europe is
beginning to pay dividends and we are very excited about the long term growth
prospects that many of these markets now offer the Group. The recent move to
combine overall responsibility for UK and non-UK Distribution is already
creating efficiencies and highlighting growth opportunities.
Our French and Spanish businesses both had very good years and represent the
most significant opportunities for retail expansion outside the UK. In France we
opened 7 net new stores in the period, taking the total to 176, and connections
grew by 19.9% over the year. In Spain we opened 34 stores for a total of 164
stores, with connections growing by 65.9% over the year. Taken together, these
two markets represented 23.3% of all Group connections during the year, up from
20.3% in the prior period.
In Sweden and The Netherlands we continued to make good progress, supported by
ongoing competition between network operators. Both countries experienced a very
aggressive pre-pay market during the year, especially at the low end, but we
continued to grow subscriptions strongly and strengthened our overall market
position.
In Germany our prospects have been significantly improved by the acquisition of
Hutchison Telecommunications, which we announced in June 2003. Hutchison is a
mobile service provider operating in a regulated market that requires incumbent
mobile operators to offer its tariffs at wholesale rates for resale. Hutchison
has a base of 0.69m customers of which 0.54m are on contracts of up to two
years.
The two businesses are now fully integrated and managed out of a single head
office in Munster. The Phone House stores are recruiting customers onto the
Hutchison service provision base to complement Hutchison's other customer
acquisition channels. In return, the retail chain benefits from a share in the
call revenue of each customer. Overall our German operations made an operating
profit of £5.2m during the year (2003: operating loss of £7.4m) and we have
built a platform for a sustainable business in that important market.
Our Online channel achieved another year of impressive growth, with connections
increasing by 17.9% year-on-year to 0.31m. Revenues were £64.5m (2003: £41.9m)
and contribution was £4.5m (2003: £3.4m). Now that our retail operations are
performing consistently well and The Phone House brand outside the UK is
becoming more widely recognised, we plan to launch direct and internet sales
businesses in a number of other countries in the current financial year. These
have proved to be successful channels for our UK business and we are confident
that we can repeat this success elsewhere. Meanwhile we made a significant
addition to our UK Online operations with the acquisition of E2Save, an '
off-the-page' retailer generating connections predominantly via newspaper
advertising with supporting call centres and a website.
Insurance
The Group offers a range of insurance products to its retail customers,
providing protection against the replacement cost of a lost, stolen or broken
handset, as well as cover for any outstanding contractual liability and the cost
of any calls made if a mobile phone falls into the wrong hands. Insurance is a
core element of the Group's customer proposition and a substantial contributor
to Group profitability.
Our Insurance customer base continued to grow strongly during the year. Overall
we added 0.26m new customers, taking the total to 1.32m. The UK base grew by
19.0% to 0.83m and the non-UK base grew by 36.2% to 0.49m. The non-UK base now
represents 37.4% of the total.
Insurance revenues grew 17.7% to £78.6m (2003: £66.8m) and contribution
increased by 27.4% to £28.0m (2003: £22.0m). The improvement in margins was
attributable to a reduction in the number of claims per policyholder following
an industry-wide campaign against mobile phone crime in the UK. During the year
the business underwent significant change as it relocated from the Isle of Man
to Dublin. We now underwrite substantially all of our own business directly
through our New Technology Insurance subsidiary, whereas previously all of our
business was by way of reinsurance.
Looking forward, we will continue to work hard on retaining insurance customers
as well as attracting new ones. As previously indicated, we see additional
opportunities arising in the provision of underwriting and administration
services to third parties who wish to offer insurance to their customers but do
not have the necessary expertise.
Ongoing
Ongoing represents the share in customer call spend (or ARPU) we receive as a
result of connecting subscription customers to certain networks. We are
typically contractually entitled to our share of revenue for as long as a
customer is active on the number and network that we connected him or her to, so
this income stream represents an important element of our overall commercial
agreement with many networks.
Ongoing revenues grew by 35.3% to £39.4m during the year (2003: £29.1m), on top
of a 32.1% growth rate in the previous year. This performance reflects the
strong subscription connections growth over the last twelve months, as well as
the continued effect of our change in terms of trade with certain networks two
years ago. Under these changed agreements we exchanged an element of upfront
commission for a greater ARPU share over the customer lifetime, thus improving
the quality of our earnings and aligning our interests more closely with those
of the network operators.
Telecoms Services Division
The Group's Telecoms Services operations are split into two businesses, Mobile
and Fixed. The Mobile business encompasses our facilities management ('FM')
operations, managing customers on behalf of networks, and our own customers,
including our virtual network, Fresh, and our German service provision business,
Hutchison (now renamed The Phone House Telecom). The Fixed business comprises
Opal, our business-to-business network, and TalkTalk, our residential service,
both in the UK. Going forward as we build up our non-UK fixed line operations,
these will be split between business and residential as appropriate.
Telecoms Services revenues grew by 249.3% year-on-year to £554.5m (2003:
£158.8m), boosted by the full year impact of acquiring Opal and the acquisition
of Hutchison in June 2003. EBIT increased by 51.9% to £15.0m (2003: £9.9m). The
EBIT margin declined from 6.2% to 2.7% as a result of the lower margin Phone
House Telecom revenues, and the start-up losses in TalkTalk of £11.0m.
2004 2003
£m £m
Turnover 554.5 158.8
Mobile 305.9 82.7
Fixed 248.6 76.1
Contribution 43.2 26.0
Mobile 23.5 18.0
Fixed 19.7 8.0
Support costs (18.1) (10.4)
EBITDA 25.1 15.6
Depreciation (10.1) (5.7)
EBIT 15.0 9.9
EBIT % 2.7% 6.2%
Before exceptional items and amortisation of goodwill
Mobile
We work increasingly closely with network operators to attract and retain high
quality customers, and to generate more value from our customers beyond the
point of sale. Overall we achieved revenue growth of 270.0% to £305.9m (2003:
£82.7m), with contribution up 30.8% to £23.5m (2003: £18.0m). Stripping out the
effect of the Hutchison acquisition, revenues grew by 14.6% to £94.8m and
contribution fell by 28.9% to £12.8m. Overall profitability for the business was
negatively affected year-on-year by the transfer of a service provision base
back to SFR in France just before the previous year end.
We achieved good organic growth in our UK FM business with customers managed on
behalf of O2 and Vodafone growing by 42.5% to 0.56m (2003: 0.39m). This was
boosted in part by an agreement with Sainsbury's, the supermarket chain, to
provide mobile services to its customers in association with O2. We continue to
manage 0.6m customers in France on behalf of Orange and SFR.
The key drivers of our FM businesses are the number of customers under
management, the customer ARPU, and the efficiency with which we manage our call
centres and bad debt. During the year we opened a second UK contact centre in
Birchwood to address the additional volumes of FM and TalkTalk customers under
management.
Within our operations managing our own customers, the major highlight of the
year was the acquisition of Hutchison in Germany. This now represents by far the
most significant element of our own customer operations, and recorded revenues
of £211.1m and an operating profit of 9.1m in its first ten months within the
Group. In the current year we intend to invest in growing the current base of
0.69m customers more aggressively.
Our other own customer operations, predominantly Fresh, our UK virtual network,
suffered during the year as the incumbent networks continued to make aggressive
offers in the pre-pay market. Total customer numbers were flat on the year at
0.12m.
Fixed
Our fixed line operations have had a very successful year. Opal, our
business-to-business network provider which underpins all of our fixed line
activity in the UK, generated revenues of £218.4m and contribution of £30.6m in
its first full year within the Group. Opal continued to win new clients through
a combination of bespoke value-added services and its ability to offer very
competitive voice tariffs to the SME market.
Total business traffic over the network increased by 64.3% on a pro forma basis
to 4.51bn minutes. The difference between revenue growth and traffic growth in
Opal arose from a change in business mix during the year, with high per-minute
revenue but low margin premium rate business representing a lower proportion of
traffic than in the previous year. Including TalkTalk activity, total traffic
increased by 100.5% to 5.52bn minutes.
Opal has a clearly focused engineering strategy that directs investment towards
those elements of the network that create cost efficiency and allow us to add
value to customers. During the year it provisioned a further two switches,
taking the total to six, with plans for a further four in the coming year.
Investment in switches not only allows Opal to manage the rapid rise in call
traffic but also to build its own software layer into the network through which
it provides a number of services to corporate customers, particularly in the
areas of call recording, call queuing services and database management.
The other main area of investment for Opal is in the development of a deeper
level of interconnect into the BT exchange infrastructure, since the extent to
which the Opal network is connected into the BT network has a significant impact
on the price we pay BT for carrying calls. A call that is originated onto the
Opal network at the local exchange level is 27% cheaper than a call originating
at the regional exchange level. By March 2004 we had aimed to originate 30% of
traffic at the local exchange layer but actually hit 60%, creating significant
additional network efficiency. We are targeting a figure of 75% for the coming
year.
The final element of network infrastructure - the fibre backbone connecting our
switches - is leased from a number of operators. There continues to be
significant excess fibre capacity in the UK market and the cost to us of leasing
the bandwidth we require is a very small proportion of our overall network cost.
The outlook for Opal continues to be promising. We are building up our sales
resource to drive further organic growth and investing further in building
network capacity. We plan to resize the network to carry 2 billion minutes per
month to meet future demand while retaining capex near the levels of the last 12
months. This will allow us to continue to grow the business and offer
competitive tariffs through increased network efficiency.
Our residential fixed line service, TalkTalk, which was launched in February
2003, made excellent progress during the year. By March 2004 we had attracted
385,000 customers to our service. In its first full year, TalkTalk generated
revenue of £30.2m and incurred a loss of £11.0m after marketing and customer
recruitment costs of £20.3m. As the base continues to grow, the profitability of
existing customers will comfortably offset the cost of recruiting new customers
and we are confident that it will become a major contributor to overall Group
earnings in the years ahead.
We identified a significant opportunity in the residential fixed line market
arising from a major change in regulation in 2002. The introduction of automated
Carrier Pre-Select ('CPS') made it much easier for new entrants to switch
customers from BT, with no requirement to change telephone numbers, dial
prefixes or install dialler boxes. The acquisition of Opal in November 2002
allowed us to enter this market supported by a highly efficient network, meaning
that we can offer very competitive tariffs while still achieving attractive
margins. The cost of customer recruitment is a key consideration for alternative
providers, and the combination of our trusted telecoms brand with our physical
presence of over 500 stores across the UK gives us a significant advantage in
this respect.
Approximately 150,000-200,000 customers are switching from BT to CPS providers
each month at present, and by the year end TalkTalk was capturing over 30% of
this market on a monthly basis. On 1 April 2004 we launched a major new
proposition offering free calls between TalkTalk customers regardless of time of
day or duration. We believe this enhancement to the service will accelerate the
growth of our customer base and help to establish TalkTalk as the number one
alternative to BT in the residential market. In addition, we anticipate that
further regulatory changes in the next twelve months will enable us to offer our
customers line rental and broadband services.
The early success of TalkTalk has prompted us to consider the development of
fixed line operations outside the UK. Although different geographical markets
are at varying stages of deregulation, our strengthening brand and increasing
physical presence give us two material advantages in the creation of profitable
fixed line businesses.
To this end, we made two acquisitions close to the year end. In Spain we
acquired Xtra Telecom, an alternative telecoms carrier with national coverage in
Spain. It has three switches and low cost, leased infrastructure with a high
level of interconnect into the Telefonica network. It is currently carrying
approximately 45 million minutes of traffic per month for business and wholesale
customers and the international pre-pay market. The existing Xtra sales team
will continue to pursue new business in the SME market and will benefit in the
medium term from the expertise and product portfolio of Opal. In addition, The
Phone House will be launching a residential fixed line service in Spain using
the Xtra network in September 2004.
In Switzerland we acquired N Tel, a switchless reseller with a base of 44,000
customers of whom approximately 90% were residential. 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. We also intend to use N Tel as
the platform for organic growth into other markets, including Germany.
In addition to these two acquisitions, we have also negotiated network terms in
France to develop our own reseller business, which we launched in May 2004. We
expect our non-UK residential operations to break even in the year to March
2005.
Wholesale Division
2004 2003
£m £m
Turnover 178.1 806.6
Contribution 1.8 7.5
Support costs (1.7) (2.4)
EBITDA 0.1 5.1
Depreciation (0.9) (1.0)
EBITA (0.8) 4.1
EBITA % (0.5%) 0.5%
Wholesale operations in the year predominantly comprised our pre-pay voucher
distribution business and the wholesale shipment of trade-in handsets. The
substantial majority of the prior year's turnover related to mobile phone
wholesale trading activities. In view of the continued uncertainty regarding the
actual 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. Having undertaken a detailed
internal investigation and taken advice, we continue to believe that we have no
financial exposure to this issue within the financial statements.
Exceptional items
There were two exceptional items during the year, representing a total charge of
£6.4m.
We incurred an exceptional charge of £4.7m in our German business in the first
half of the year, relating to the planned closure of 15 stores, the integration
of the head office operations of The Phone House Germany and Hutchison, the
closure of the existing German head office in Munich, and associated fixed asset
write-offs.
In the second half of the year we recognised a non-cash charge of £1.7m on the
disposal of part of our interest in our wireless internet portfolio. The
carrying value of this fund on the balance sheet is now £5.4m.
Eliminations
Included within Retail revenue is £12.5m of commissions from the Group's German
service provision business. This revenue is reported within Retail to avoid
distortion of performance.
Interest and tax
Net interest of £4.9m was payable during the year, compared to a charge of £1.0m
in the prior year. This movement reflects the impact of the acquisitions made
over the last eighteen months and increased capital expenditure, as well as the
purchase of the freeholds on our London offices and the Birchwood call centre
site.
The effective tax rate before amortisation and exceptionals was 22%, as in the
prior year. The tax rate continued to benefit from the utilisation of tax losses
incurred in earlier years, and the effect of profit within low tax rate
jurisdictions.
Goodwill amortisation
Goodwill of £64.4m arose during the period, relating to the acquisitions made.
The total goodwill amortisation charge for the year was £25.4m (2003: £20.6m).
Earnings per share (EPS)
Headline EPS was 6.81p (2003: 5.25p). Statutory EPS was 3.17p (2003: 2.60p).
Balance sheet, cash flow and dividend
At 27 March 2004, the Group had net debt of £40.6m (2003: net funds of £29.1m).
During the year the Group generated cash flow from operations of £102.7m (2003:
£77.7m), and total free cash flow before acquisitions, new stores, dividend
payments and the purchase of the London and Birchwood freeholds of £57.0m (2003:
£50.8m) (see note 10).
Cash generation is a prime objective of the Group and we expect to continue to
generate significant levels of free cash flow in the future, allowing us to
reinvest in the growth of the business and pursue a progressive dividend policy.
We are proposing a final dividend of 0.9p per share, taking the total dividend
for the financial year to 1.3p and representing growth of 30.0% over last year's
maiden 1.0p distribution, reflecting underlying EPS growth.
Current trading
Trading in the first two months of the current year has been in line with our
expectations across all divisions.
On 1 April 2004 we launched our free calls proposition on TalkTalk. Over the
last two months our rate of customer sign-up has been consistent with the first
three months of 2004, but with a notable improvement in the mix of channels.
The runrate of gross adds through our stores has risen by over 20%, but we have
recruited proportionately fewer customers through third party channels. As a
result, we have reduced our average customer acquisition cost. Free calls usage
has been as expected, so that at this stage ARPU and margins are in line with
expectations. Despite the competitive environment, churn is showing early signs
of a downward trend. We now expect to have over 900,000 tolling customers by
March 2005.
Presentation to investors and analysts
There will be a presentation of the results at 9am this morning at the offices
of Deutsche Bank, 1 Great Winchester Street, London EC2N 2DB. The slides will
be available on the website at cpwplc.com at the same time.
Next trading update
The Group will announce its first quarter trading update on the date of its
Annual General Meeting, 28 July 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
FINANCIAL REVIEW
Consolidated profit and loss account for the 52 weeks ended 27 March 2004
Before Exceptional After
exceptional items items and exceptional
and amortisation amortisation of items and
of goodwill goodwill amortisation
of goodwill
52 weeks 52 weeks 52 weeks 52 weeks
ended ended ended ended
27 March 27 March 27 March 29 March
2004 2004 2004 2003
£000 £000 £000 £000
Turnover
Existing operations 1,632,849 1,632,849 1,841,525
Acquisitions 216,162 216,162 -
1,849,011 1,849,011 1,841,525
Cost of sales (1,303,246) (1,303,246) (1,453,518)
Gross profit 545,765 545,765 388,007
Operating expenses excluding amortisation and (422,934) (4,733) (427,667) (298,017)
depreciation
EBITDA 122,831 (4,733) 118,098 89,990
Depreciation (41,684) (41,684) (31,977)
Amortisation of goodwill (25,417) (25,417) (20,585)
Operating profit 81,147 (30,150) 50,997 37,428
Existing operations 71,442 42,633 37,428
Acquisitions 9,705 8,364 -
Profit on disposal of fixed assets - 13,199
Loss on disposal of fixed asset investments (1,652) (1,652) -
Amounts written off fixed asset investments - (15,145)
Profit before interest and taxation 81,147 (31,802) 49,345 35,482
Net interest payable (4,858) (4,858) (995)
Profit on ordinary activities before taxation 76,289 44,487 34,487
Tax on profit on ordinary activities (16,783) (16,783) (12,418)
Profit for the financial period 59,506 27,704 22,069
Equity dividends (11,369) (11,369) (8,729)
Retained profit for the financial period 48,137 16,335 13,340
Earnings per share
Basic 6.81p 3.17p 2.60p
Diluted 6.72p 3.13p 2.59p
Headline earnings per share
Basic 6.81p 5.25p
Diluted 6.72p 5.23p
Consolidated statement of total recognised gains and losses for the 52 weeks
ended 27 March 2004
52 weeks ended 52 weeks ended
27 March 2004 29 March 2003
£000 £000
Profit for the financial period 27,704 22,069
Currency translation (1,014) 3,021
Total recognised gains and losses relating to the period 26,690 25,090
Prior period adjustments (3,949) -
Total gains and losses recognised since last financial statements 22,741 25,090
Consolidated balance sheet as at 27 March 2004
Restated
27 March 2004 29 March 2003
£000 £000
Fixed assets
Intangible assets
Goodwill 403,191 367,547
Tangible assets 195,594 133,040
Investments 5,897 11,072
Total fixed assets 604,682 511,659
Current assets
Stock 78,298 56,351
Debtors 271,444 176,981
Short-term investments 10,805 26,276
Cash at bank and in hand 72,813 46,977
Total current assets 433,360 306,585
Creditors: amounts falling due within one year (400,149) (275,311)
Net current assets 33,211 31,274
Total assets less current liabilities 637,893 542,933
Creditors: amounts falling due after more than one year (117,737) (49,383)
Provisions for liabilities and charges (48,313) (37,956)
Net assets 471,843 455,594
Capital and reserves
Called-up share capital 874 873
Share premium 397,262 395,476
Capital redemption reserve 30 30
Profit and loss account 73,677 59,215
Total capital employed 471,843 455,594
Consolidated cash flow statement for the 52 weeks ended 27 March 2004
52 weeks ended 52 weeks ended
27 March 2004 29 March 2003
£000 £000
Net cash inflow from operating activities 102,657 77,678
Net cash outflow from returns on investments and servicing of (4,858) (2,570)
finance
Net cash (outflow) inflow from taxation (2,350) 1,059
Net cash (outflow) inflow from capital expenditure and financial (84,245) 18,244
investment
Net cash outflow from acquisitions and disposals (59,050) (37,892)
Equity dividends paid (12,229) -
Net cash (outflow) inflow before financing (60,075) 56,519
Net cash inflow (outflow) from financing 96,596 (42,623)
Increase in cash in the period 36,521 13,896
Reconciliation of net cash inflow from operating activities to operating profit
52 weeks ended 52 weeks ended
27 March 2004 29 March 2003
£000 £000
Operating profit including exceptional items 50,997 37,428
Depreciation of tangible fixed assets 41,684 31,977
Amortisation of goodwill 25,417 20,585
EBITDA including exceptional items 118,098 89,990
Loss (profit) on disposal of fixed assets 163 (912)
Decrease in provisions (1,469) (12,229)
Increase in stock (20,684) (4,024)
Increase in debtors (53,621) (1,803)
Increase in creditors 60,170 6,656
Net cash inflow from operating activities 102,657 77,678
Notes to the financial statements
For the 52 weeks ended 27 March 2004
1 Accounting policies
The financial statements have been prepared in accordance with applicable United
Kingdom accounting standards under the historical cost convention. The
principal accounting policies have been applied consistently throughout the
period and the preceding period with the exception of the change in accounting
policy resulting from the adoption of Urgent Issues Task Force (UITF) 38 '
Accounting for ESOP Trusts', as detailed in note 9.
2 Segmental analysis
Divisional results are analysed as follows:
2004 2003
Restated
Turnover Profit Net assets Turnover Profit Net assets
before tax before tax
£000 £000 £000 £000 £000 £000
Distribution 1,128,939 66,939 440,521 876,144 44,031 437,159
Telecoms Services 554,491 15,021 31,322 158,757 9,886 18,435
Wholesale 178,067 (813) - 806,624 4,096 -
Eliminations (12,486) - - - - -
1,849,011 81,147 471,843 1,841,525 58,013 455,594
Amortisation of goodwill (25,417) (20,585)
Operating exceptional (4,733) -
items
50,997 37,428
Non-operating exceptional (1,652) (1,946)
items
Net interest payable (4,858) (995)
Profit before tax 44,487 34,487
Results by geographical location are analysed by origin as follows:
2004 2003
Restated
Turnover Profit Net assets Turnover Profit Net assets
before tax before tax
£000 £000 £000 £000 £000 £000
United Kingdom 1,102,185 49,836 177,144 1,368,244 40,537 367,719
Rest of Europe 746,826 31,311 294,699 473,281 17,476 87,875
1,849,011 81,147 471,843 1,841,525 58,013 455,594
Amortisation of goodwill (25,417) (20,585)
Operating exceptional (4,733) -
items
50,997 37,428
Non-operating exceptional (1,652) (1,946)
items
Net interest payable (4,858) (995)
Profit before tax 44,487 34,487
The information above includes the following amounts in respect of acquisitions
during the period:
Turnover Profit before Net assets
tax (liabilities)
£000 £000 £000
Distribution 5,062 145 (16)
Telecoms Services 211,100 7,308 24,480
216,162 7,453 24,464
United Kingdom 5,062 145 (16)
Rest of Europe 211,100 7,308 24,480
216,162 7,453 24,464
3 Tax on profit on ordinary activities
The tax charge for the period comprises:
2004 2003
£000 £000
UK corporation tax 11,144 4,623
Overseas tax 3,247 4,011
Deferred tax 2,803 3,411
Adjustments in respect of prior periods - UK 1,677 (56)
- Overseas (2,088) 429
16,783 12,418
4 Earnings per share
The calculations of earnings per share are based on the following profits and
numbers of shares:
2004 2003
£000 £000
Profit for the financial period 27,704 22,069
Amortisation of goodwill 25,417 20,585
Operating exceptional items (net of tax) 4,733 -
Non-operating exceptional items (net of tax) 1,652 1,946
Headline earnings (before amortisation of goodwill and 59,506 44,600
exceptional items)
2004 2003
Number of Number of
shares shares
000's 000's
Weighted average number of shares:
For basic earnings per share 873,555 850,273
Dilutive effect of share options 11,318 2,166
For diluted earnings per share 884,873 852,439
Basic pence per share Diluted pence per share
2004 2003 2004 2003
Earnings per share 3.17 2.60 3.13 2.59
Headline earnings per share 6.81 5.25 6.72 5.23
Headline earnings per share is provided because the Directors consider that it
gives a better indication of underlying performance than standard earnings per
share.
5 Exceptional items
Exceptional items include the following operating exceptional items,
non-operating items and amounts written off investments.
2004 2003
£000 £000
Costs of operational reorganisation (a) (4,733) -
Exceptional operating items (4,733) -
Profit on disposal of fixed assets (b) - 13,199
Loss on disposal of fixed asset investments (c) (1,652) -
Amounts written off fixed asset investments (d) - (15,145)
Total exceptional items (6,385) (1,946)
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 has been booked to cover the cost of this reorganisation,
including the write down of tangible fixed assets.
b) Profit on disposal of fixed assets
During the period ended 29 March 2003 the Group completed the sale and leaseback
of its freehold offices in London, generating a net profit on disposal of
£13.2m.
c) 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.
d) Amounts written off fixed asset investments
During the period ended 29 March 2003, £15.1m was written off the Group's
holding in Wireless Frontiers to reflect the diminution in the value of the fund
at 29 March 2003.
6 Reserves
Profit and loss Share Premium Capital Total
account redemption
reserve
£000 £000 £000 £000
At 29 March 2003 as previously stated 63,164 395,476 30 458,670
Prior period adjustments (see note 9) (3,949) - - (3,949)
At 29 March 2003 as restated 59,215 395,476 30 454,721
Retained profit for the financial period 16,335 - - 16,335
Currency translation (1,014) - - (1,014)
Issue of share capital (859) 1,786 - 927
At 27 March 2004 73,677 397,262 30 470,969
7 Reconciliation of headline information to statutory information
2004 2003
EBITDA Operating Profit before EBITDA Operating Profit before tax
profit tax profit
£000 £000 £000
£000 £000 £000
Headline 122,831 81,147 76,289 89,990 58,013 57,018
Amortisation of - (25,417) (25,417) - (20,585) (20,585)
goodwill
Exceptional items (4,733) (4,733) (6,385) - - (1,946)
(see note 5)
Statutory 118,098 50,997 44,487 89,990 37,428 34,487
EBITDA represents earnings before interest, taxation, depreciation and
amortisation of goodwill. Contribution represents EBITDA before allocation of
support costs.
8 Reconciliation of movements in shareholders' funds
2004 2003
£000 £000
Profit for the financial period 27,704 22,069
Dividends (11,369) (8,729)
Currency translation (1,014) 3,021
Issue of share capital 928 35,927
Net movement in shareholders' funds 16,249 52,288
Opening shareholders' funds as previously stated 459,543 407,255
Prior period adjustments (see note 9) (3,949) (3,949)
Opening shareholders' funds as restated 455,594 403,306
Closing shareholders' funds 471,843 455,594
9 Prior period adjustments
As explained in note 1, the Group has implemented UITF 38 during the period and
in accordance with the abstract, has restated prior period figures to reflect
this. The effect of the adjustment is to transfer the group's investment in an
Employee Share Ownership Trust from investments to reserves.
10 Movements on net (debt) funds
2004 2003
£m £m
Operating cash flow 102.7 77.7
Tax and interest (7.2) (1.5)
Capex (excluding new stores and freeholds) (38.5) (25.4)
Free cash flow 57.0 50.8
New store capex (13.7) (10.9)
Freehold (acquisitions) disposals (47.3) 31.5
Acquisitions and investments (59.3) (62.1)
Dividends (12.2) -
Net cash (outflow) inflow (75.5) 9.3
Opening net funds* 29.1 34.6
Shares and foreign exchange 5.8 (14.8)
Closing net (debt) funds* (40.6) 29.1
* Including short-term investments.
Preliminary Financial Information
This financial information is prepared on the basis of accounting policies set
out in the Group's statutory accounts for the 52 weeks ended 27 March 2004.
The Directors of The Carphone Warehouse Group PLC are responsible, in accordance
with the Listing Rules of the Financial Services Authority and applicable United
Kingdom accounting standards, for preparing and issuing this preliminary
announcement, which was approved on 3 June 2004.
The financial information is extracted from the Group's full financial
statements for the period ended 27 March 2004 which were approved by the
Directors on 3 June 2004 and which received an unqualified audit report. This
financial information is abridged and does not constitute statutory accounts for
the 52 weeks ended 27 March 2004 and 52 weeks ended 29 March 2003. Full
financial statements for the 52 weeks ended 27 March 2004 will be filed with the
Registrar of Companies in due course. The 2003 Annual Report and Financial
Statements on which the auditors gave an unqualified report have been filed with
the Registrar of Companies.
This information is provided by RNS
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