Final Results
Carphone Warehouse Group PLC
05 June 2007
Tuesday 5 June 2007
For immediate release
The Carphone Warehouse Group PLC
Preliminary Results for the 52 weeks to 31 March 2007
Strong results, positive outlook
Financial Headlines
• Revenue up 31.0% to £3,991.5m
• Like-for-like retail revenue up 6.6% and like-for-like gross profit up 5.0%
• Distribution EBIT up 22.4% to £141.4m
• Headline profit before tax down 9.5% to £123.1m after £80.5m of start-up
losses, as expected, for Broadband and Virgin Mobile France
• Cash from operations up 30.5% to £256.3m
• Full year dividend up 30.0% to 3.25p
Operational Headlines
• Connections up 22.3% to 10.0m
• Subscription connections up 17.3% to 4.0m
• 366 net new stores opened
• Launch of Free Broadband and acquisition of AOL's internet customer base
in the UK
• Number 3 in UK residential broadband and voice services
• Successful joint venture trials of Best Buy Mobile in the US and Geek
Squad in the UK
52 weeks ended 52 weeks ended Growth %
31 March 2007 1 April 2006
£m £m
Revenue 3,991.5 3,046.4 31.0%
Headline results*
Profit before tax 123.1 136.1 (9.5%)
Earnings per share 11.82p 12.38p (4.5%)
Cash from operations 256.3 196.4 30.5%
Statutory results
Profit before tax 68.4 81.0 (15.6%)
Earnings per share 7.51p 7.99p (6.0%)
Dividend per share 3.25p 2.50p 30.0%
*Stated before reorganisation costs in the prior year, amortisation of
acquisition intangibles and goodwill expense, as reconciled in note 3
Charles Dunstone, CEO, said:
'These are strong results. We have grown revenues by over 30% and made
significant investments in telecoms infrastructure, customer recruitment and
strategic acquisitions. Distribution profits are up 22% and in the 12 months
since we launched our broadband proposition we have become the number three
player in the UK broadband market. We now have an excellent platform to deliver
on our strategy.
'The Group now consists of a market-leading retail business with further growth
prospects as it evolves its proposition; a rapidly growing broadband business,
with customer economics improving dramatically and capex set to fall in the
medium term; and a number of exciting new commercial ventures that can all
become significant earnings contributors. We believe this represents the
appropriate blend of earnings visibility, growth and innovation to deliver
strong and consistent results in the years to come.
'Over the past four years TalkTalk has consistently proven itself to be a
serious competitor to BT and today we are reinforcing our value proposition with
a range of price cuts. We are reducing line rental to all voice-only customers,
not just those who take an online bill, and introducing free international calls
to 30 countries on all our call plans.
'Jim Dale is retiring from Carphone Warehouse and is today stepping down as a
Director, after ten years with the Group and six years on the Board. Under his
guidance the Insurance business has grown to be a major contributor to Group
profitability and I would like to thank him for his significant contribution and
wish him very well for his retirement from Carphone Warehouse.'
Summary Review
'Our Distribution business has had another excellent year. We have expanded our
physical presence significantly, delivered further strong like-for-like growth
and increased our market share, with the dynamic market environment continuing
to support our model. Our focus on the widest range of handsets and the best
availability on the high street continues to make us the automatic destination
for customers seeking impartial advice, great customer service and choice. In
addition, our stores have been a valuable source of broadband customers, and our
recurring revenue streams of Insurance and Ongoing ARPU share have demonstrated
further strong growth.
'TalkTalk Free Broadband has changed the UK broadband marketplace and, coupled
with the acquisition of AOL's UK customer base, we are now number three in the
market. In parallel, we have exceeded our targets for unbundling local exchanges
and have launched Britain's first large scale next generation network,
delivering voice and data over a unified infrastructure. This has yet to be
replicated by our competitors in any meaningful scale and gives us a valuable
economic advantage in the delivery of fixed line services.
'The customer service issues which arose from the unprecedented response to our
Free Broadband offer have now substantially been addressed. We are now
provisioning over 80% of new customers directly onto unbundled lines, which
simplifies the process and reduces waiting times to no more than three weeks
from sign-up. This trend, combined with the continued migration of existing
customers to our own network, is the key driver of broadband profitability.
Demand continues to be strong and customer confidence in the service is
increasing.
'During the year we launched two Joint Ventures with Best Buy, the leading US
consumer electronics retailer. Best Buy Mobile, our mobile retail proposition
in the US market, has come through its initial phase with promising results and
we recently announced plans to roll out the concept to 150-200 stores in the
next 18 months. The Geek Squad home technology support service, introduced into
the UK in March 2007, will be rolled out across the country during the year. We
believe that over time, Geek Squad can become a pan-European operation
connecting our retail proposition with customers' increasingly complex
technology needs.
'The Board is confident that the substantial investments we have made this year
will deliver an excellent return to shareholders, and therefore has no
hesitation in proposing a 30% increase in the full year dividend. As a business
we have never believed in taking the easy option and the achievements of the
year bear testament to that. None of it would have happened without the
continued dedication, commitment and ability of all of our employees, and as
always we express our sincere appreciation to them.
Outlook
'The outlook for the Group remains positive. The key drivers of the
Distribution division - network appetite for customers, a vibrant handset
market, and our own physical expansion - all remain firmly in place. The coming
year will mark the next stage of our ongoing evolution, as we start to introduce
our wireless solutions proposition into key locations to address a rapidly
growing market opportunity. Overall we are targeting 15% growth in subscription
connections.
'In the UK Fixed Line business we expect the improving trend in execution to
continue. Customers continue to sign up in significant numbers and migration to
unbundled lines is now a much smoother process. The investments of the past
twelve months will now begin to deliver returns as we increasingly deliver
services via our own infrastructure, and the runrate of profitability by the end
of the year should give very good visibility of future earnings growth and cash
generation.
'As we communicated in April, the success of our unbundling strategy has
encouraged us to broaden our exchange footprint for both TalkTalk and AOL
customers, resulting in a further year of significant infrastructure investment.
However, we expect the level of investment to fall materially in the following
financial year once our exchange build-out is completed.
'Our ventures with Virgin and Best Buy have three things in common: strong
partners, attractive market opportunities and innovative propositions. We are
confident that our investment in these operations will generate attractive
returns as they reach scale.'
Summary of Results
Group revenue for the period was £3,991.5m, a rise of 31.0% on last year's
figure of £3,046.4m. Headline pre-tax profit fell by 9.5% from £136.1m to
£123.1m, reflecting, as expected, start-up losses of £80.5m in the launch of
Free Broadband and Virgin Mobile in France, and a net gain on fixed asset
disposals of £3.7m. Earnings per share on the same basis decreased by 4.5% from
12.38p to 11.82p. Statutory profit before tax, after the amortisation of
acquisition intangibles, and reorganisation costs in the prior year, fell by
15.6% from £81.0m to £68.4m, while statutory earnings per share decreased by
6.0% from 7.99p to 7.51p.
Cash generated from operations increased by 30.5% from £196.4m to £256.3m,
reflecting strong growth in the Group's underlying business. The Board is
proposing a final dividend of 2.25p, taking the total for the year to 3.25p.
The increase of 30% on last year's distribution reflects the Board's confidence
that the current level of investment will generate significant long term value.
Distribution Division
The Distribution division comprises our Retail operations and all
directly-related business streams. The key operating assets of the division are
our 2,144 stores across 10 European countries and our Retail and Online brands.
Equally important are our supplier and partner relationships.
Distribution revenues were up 20.8% year-on-year to £2,117.5m, and the division
generated Headline EBIT of £141.4m, a rise of 22.4%. Growth was strong across
all revenue lines.
From next year the Distribution division will also incorporate our Mobile
operations, as well as our Dealer and non-UK Fixed Line business operations.
This will more accurately group our future operations by the key assets that
support them.
Headline Financials 2007 2006 Change
£m £m %
Revenue 2,117.5 1,753.5 20.8%
Retail (inc Online) 1,908.8 1,579.0
Insurance 137.0 116.1
Ongoing 71.7 58.4
Contribution 292.8 246.1 18.9%
Retail (inc Online) 166.6 142.2
Insurance 54.5 45.5
Ongoing 71.7 58.4
Support costs (96.6) (84.1)
EBITDA 196.2 162.0 21.1%
Depreciation and amortisation (54.8) (46.5)
EBIT 141.4 115.5 22.4%
EBIT % 6.7% 6.6%
Retail (including Online)
The Group achieved 10.0m connections during the year, representing growth of
22.3% over the prior year. Subscription connections, the key driver of value in
our Distribution business, were up 17.3% to 4.0m. We continued to operate in an
attractive market, with fashion and technology being the main drivers of an
accelerating handset replacement cycle, and network operators keen to pursue
customer growth.
We executed well on our handset strategy, focusing on the broadest range and the
best availability in the market, with a number of exclusive products to
stimulate demand and raise footfall. In addition, we began work on improving
retail productivity, as we seek ways to convert more of our footfall into
revenues. This will be a key operational goal for the coming year.
Pre-pay sales continued the very strong trend from the previous year, with total
connections up 27.7%. This performance partly reflects a buoyant market for
pre-pay, and partly our successful strategy of growing our pre-pay market share
towards the level of our subscription share. Towards the end of the financial
year, pre-pay growth slowed as the market became more subdued and we came up
against very strong comparable growth figures. SIM-free sales were up 10.7%
year-on-year.
Connections (000s) 52 weeks to 52 weeks to
31 March 2007 1 April 2006
Subscription 4,016 3,423
Pre-pay 5,428 4,252
SIM-free 571 516
Total 10,014 8,191
We opened 444 new stores during the year and closed 78. The total number of
stores increased from 1,778 at March 2006 to 2,144 by March 2007. The total
includes 194 franchise stores (2006: 140 franchises). Total average selling
space (excluding franchises) increased by 16.5% to 96,865 sqm (2006: 83,128 sqm)
and sales per square metre increased by 4.1% to £17,219 (2006: £16,547).
Total Retail revenues (including Online) were up 20.9% and gross profit by
23.9%. Like-for-like revenue growth was 6.6% and like-for-like gross profit
growth was 5.0%. The increase in revenues was the result of strong connections
growth, partially offset by a fall in average revenue per connection from £192.8
to £190.6 as a result of the higher proportion of pre-pay sales within the mix.
Average cash gross profit per connection rose from £54.4 to £55.2.
Contribution from Retail grew by 17.2% to £166.6m (2006: £142.2m). The
contribution margin fell to 8.7% (2006: 9.0%), as further good like-for-like
growth was offset by continued investment in the store proposition. Retail
direct costs were up 27.1%, reflecting the expansion of the store portfolio,
higher commissions to sales consultants and ongoing rental inflation.
In the UK, our store portfolio increased from 669 stores to 769 stores. At the
same time, we relocated a number of stores to bigger sites and began work on a
new store format providing an improved environment for customers and sales
consultants. We will continue to roll out this new format to key locations
across the UK this year. Growth was enhanced by the acquisition of a portfolio
of stores previously trading as The Link, one of our main independent
competitors, after it had been acquired by Telefonica/O2. Total UK connections
were up 21.6%.
Our Spanish business goes from strength to strength. We opened 70 stores during
the year, taking the overall base up to 408, and achieved connections growth of
24.6%. The launch of a fourth network, Yoigo, and a number of MVNOs, stimulated
further demand. Our growth in Spain has led to long queues with an impact on
conversion rates in a number of our stores, and we are therefore seeking to
locate to larger premises, where appropriate, to meet demand.
In France, the improving trends of the previous year continued. We opened 50
stores, taking the total store count up to 270, and connections growth of 16.1%
reflected a stronger market. The launch of a number of MVNOs, backed by strong
consumer brands, including our own Virgin Mobile joint venture, contributed to a
more vibrant market environment and a shorter replacement cycle.
With the exception of Switzerland and The Netherlands, all of our other markets
enjoyed a year of very good growth. In particular, Sweden achieved connections
growth of 36.3%, a notable effort after a difficult previous 12 months. The
performance reflected our strategy of using a period of tougher market
conditions to improve our retail proposition and pursue additional distribution
channels, with the result that in a rejuvenated market, we took considerable
market share while competitors had weakened. Belgium, Germany, Ireland and
Portugal all fared very well, with connections growth above the Group average
and increasing consistency of execution apparent across the board.
Our Dutch and Swiss businesses continued to underperform, recording connections
growth of 5.0% and a fall of 1.8% respectively. In Switzerland, a year of
underperformance has led to a reorganisation of the business, consolidating our
operations into a single support centre and introducing some new senior
management. In The Netherlands, the overall market was subdued, but we have
also failed to execute consistently. A new management team is producing
encouraging early results.
Insurance
The Group offers a range of insurance products to its retail customers,
providing protection for the replacement cost of a lost, stolen or damaged
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.
The customer base rose by 16.2% over the year to 2.23m. Once again, the mix
improved, with growth of 18.6% in the high tier base. Insurance revenues were
up 18.1% to £137.0m (2006: £116.1m) driven by the higher average base.
Contribution was up 19.6% to £54.5m (2006: £45.5m).
The prospects for our Insurance business are good, given our expectation of
continued growth in subscription connections, the key driver of Insurance policy
sales. Customers are wedded to high value subsidised handsets that are
expensive to replace, and our focus on excellent service and a straightforward
claims process makes the product attractive.
Ongoing
Ongoing revenue represents the share of customer call spend (or ARPU) we receive
as a result of connecting subscription customers to certain networks. We are
typically entitled to our share of revenue for as long as a customer is active,
so this income stream represents an important element of our overall commercial
agreement with many networks, and aligns our interests more closely. Again, the
key underlying driver for Ongoing is our subscription connection sales.
Ongoing revenues grew by 22.7% year-on-year to £71.7m (2006: £58.4m). This
continued strong performance reflects the sustained strong subscription
connections over the last few years, and we expect this positive trend to
continue.
Telecoms Services Division
The Group's Telecoms Services operations are split into two businesses, Fixed
and Mobile. The Fixed business comprises our residential and
business-to-business fixed line operations, predominantly in the UK. The Mobile
business encompasses our German service provision business, The Phone House
Telecom, and our wholly-owned MVNO and Facilities Management ('FM') businesses.
From next year, we will report the Mobile and Non-UK Fixed Line operations
within Distribution, and report UK Fixed Line as a separate division. This
closely reflects our internal reporting structure going forward and groups
business units more logically with the assets that support them.
Telecoms Services revenues grew by 51.0% year-on-year to £1,700.6m (2006:
£1,126.5m). Good underlying growth was supported by a full year's contribution
from Onetel, which was acquired in December 2005, and three months' contribution
from the purchase of AOL's customer base in the UK. EBIT fell 26.4% to £19.4m,
reflecting a total of £72.0m in start-up losses relating to the launch of
TalkTalk Free Broadband.
Headline Financials 2007 2006 Change
£m £m %
Revenue 1,700.6 1,126.5 51.0%
Mobile 504.8 459.8
Fixed 1,195.8 666.7
Contribution 149.0 109.5 36.1%
Mobile 60.0 48.4
Fixed 89.0 61.1
Support costs (50.6) (29.7)
EBITDA 98.4 79.8 23.4%
Depreciation and amortisation (79.0) (53.4)
EBIT 19.4 26.4 (26.4%)
EBIT % 1.1% 2.3%
Fixed
Our fixed line operations grew dramatically during the year, through a
combination of strong underlying growth and the impact of two major
acquisitions. Total revenues were up 79.4% to £1,195.8m (2006: £666.7m) and
contribution was £89.0m (2006: £61.1m). The contribution figure reflects the
impact of £60.3m of losses relating to the launch of TalkTalk Free Broadband.
In our UK business, the year was one of considerable investment in launching our
broadband offering: in customer recruitment, customer service, network
infrastructure and the acquisition of AOL's UK customer base. Total UK Fixed
Line revenues were up 91.7% to £1,084.2m (2006: £565.6m) and contribution rose
55.5% to £81.4m (2006: £52.4m).
The cornerstone of all our UK fixed line operations is the Opal telecoms
network, now re-branded as The Carphone Warehouse Networks. This year we
successfully undertook a major infrastructure project with the build-out of our
own local loop unbundling ('LLU') network. This investment allows us to provide
the full suite of fixed telecoms services - calls, line rental and broadband -
to our customers at a significantly lower operating cost than we can using BT's
wholesale products. By March 2007 we had installed our own equipment in 1,024
exchanges, covering over 65% of the residential population.
Importantly, our pursuit of a 'fully unbundled' strategy, covering voice as well
as broadband, gives us a material advantage over a partially unbundled approach,
in which only the broadband element is unbundled. The technical expertise
required to create this network is substantial, and we do not believe that it
will be easily replicated by other market participants.
At the start of the financial year, we launched TalkTalk Free Broadband, and by
March 2007 we had 655,000 customers live on the new service. Customer ARPUs
were ahead of our original plan, at approximately £28 per month, and underlying
network costs were in line with our expectations, giving us great confidence in
the future profitability of the broadband business.
Costs exceeded our plan in two main areas: firstly, in the rate of migration to
our own network, which we discuss in more detail below; and secondly in relation
to customer service overheads, where we invested in additional headcount to deal
with the high contact rates created by demand and provisioning problems. We
anticipate that unit customer service costs will be in line with our original
plan by March 2008, but in the meantime, as previously indicated, we expect to
incur additional costs of £10-15m in the coming year as a result of these
over-runs.
We made a further major strategic move during the year with the acquisition of
AOL's internet customer base in the UK. This immediately made us the number
three player in the UK broadband market and gave us the requisite scale to
ensure a healthy payback on our infrastructure investment. The acquisition also
gives us two differentiated products in the market, thus increasing our
potentially addressable market. We ended the year with 2.27m broadband
customers, equivalent to approximately 16% of the UK market.
During the year we started migrating customers from BT's network to our own
unbundled lines, a process carried out by BT Openreach's engineers. This
operation is fundamental to the overall profitability of our residential
business as it significantly reduces unit operating costs. Initially, progress
was slow and the high number of errors resulted in a very poor customer
experience. However, towards the year end we saw a significant improvement in
the reliability of the service, which led to a rapid acceleration in migration
rates. As at March 2007 we had more than 700,000 customers, or over 30% of our
broadband base, on our own unbundled network.
As planned, our base of voice-only customers, serviced via Carrier Pre-Select ('
CPS'), declined during the year, as we migrated customers onto our bundled
broadband products. We started the year with 2.57m voice-only customers and by
March 2007 this figure had fallen to 1.86m customers. However, taking into
account our broadband customers who also take voice services, our total voice
base grew to 2.73m. Underlying profitability from voice services improved
during the year as industry consolidation led to a more stable pricing
environment. Overall, our UK residential operations generated revenues of
£764.4m (2006: £305.6m) and contribution of £50.2m (2006: £24.3m).
Our UK business-to-business operations, under the Opal brand, enjoyed a year of
good growth. Reported profitability does not fully reflect the underlying trend
as we continued to allocate all our telecoms engineering headcount to the Opal
business, although the economic benefit is shared with the residential
operations. From the current year, we will allocate these costs on a more
equitable basis. UK business-to-business revenues were up 23.1% to £319.9m
(2006: £259.9m) and contribution rose 11.1% to £31.2m (2006: £28.0m).
During the year, we acquired Alto Hiway, a small business focused ISP. In
combination with Rednet, a business ISP acquired with Onetel, this will provide
the platform for the launch of a range of data products into Opal's core market,
as Opal seeks to extend its product offering outside its historical focus on
value-added voice services. The platform of unbundled exchanges supporting the
residential strategy is a potentially highly valuable asset in the SME space.
Non-UK Fixed Line revenues were up 10.4% to £111.6m (2006: £101.1m), and
contribution down 12.9% to £7.6m (2006: £8.7m). From the year to March 2008 we
will be reporting these operations, and our Mobile businesses, within the
Distribution division, since for the most part their value lies in our ability
to recruit customers through the store base, rather than in network
infrastructure.
Mobile
Total Mobile revenues were up 9.8% to £504.8m (2006: £459.8m), and contribution
rose 24.0% to £60.0m (2006: £48.4m). The Phone House Telecom, our German mobile
service provision business, saw contribution rise 5.8% to £52.7m (2006: £49.8m)
on revenues of £363.2m (2006: £337.4m). After the amortisation charge for
subscriber acquisition costs, net contribution was up 15.8% to £21.9m (2006:
£18.9m).
The operating environment in Germany continued to benefit our model, with
networks demonstrating a consistent appetite for high quality subscription
customers. The service provision base rose by 28.3% to 1.50m customers at March
2007, of whom 926,000 (2006: 823,000) were on two year contracts. Although
increased competition saw some pressure on ARPUs year-on-year, particularly in
pre-pay, our subscription ARPUs showed some signs of stabilisation during the
year as we renewed our focus on higher end distribution channels.
Our wholly-owned MVNO operations moved up a gear as we launched new services in
Spain, Portugal, Switzerland and Belgium during the year. In the UK, we refined
our product strategy to focus on Mobile World, which offers very cheap rates on
calls to international destinations, and took an increasingly rigorous approach
to maximising customer lifetime value. Our MVNO strategy is to identify niche
markets not currently served by the network operators, and to use our own stores
and some third party channels for customer recruitment. Total MVNO revenues
rose 25.1% to £57.8m, with a loss of £1.6m after a loss of £9.6m in the prior
year.
In our Facilities Management operations, providing call centre and billing
services to network operators in the UK and France, business was, as expected,
relatively static, with revenues of £83.8m (2006: £76.2m) and contribution of
£8.8m (2006: £8.2m).
Dealer Division
Headline Financials 2007 2006
£m £m
Revenue 209.7 188.4
Contribution 0.8 2.1
Support costs (1.5) (1.4)
EBITDA (0.7) 0.7
Depreciation and amortisation (0.8) (0.8)
EBIT (1.5) (0.1)
EBIT % (0.7%) (0.1%)
Dealer operations comprise our pre-pay voucher distribution business, our
indirect distribution operations and the wholesale shipment of trade-in
handsets. Revenues were up 11.3% to £209.7m and the division recorded an EBIT
loss of £1.5m.
The European VAT authorities continue to investigate the recovery of VAT in the
industry for trading activities conducted prior to April 2003. 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.
Joint ventures
The share of results of joint ventures in the income statement comprises our
share of post-tax profits or losses from our joint venture operations. At the
start of the financial year, we entered into a joint venture with Virgin to
launch Virgin Mobile, a mass market MVNO in France. The focus of the business
has been on brand-building, customer recruitment and developing sales channels,
and we have been very pleased with progress in the first year of operation. The
French market remains less penetrated and less competitive than the rest of
Western Europe and therefore constitutes a significant opportunity.
Later in the year, we also entered into two commercial agreements with Best Buy,
the leading US consumer electronics retailer. Firstly we launched Best Buy
Mobile, an independent mobile retail format in the US. After a successful trial
in Manhattan, we announced plans subsequent to the year end to expand the
venture to 150-200 stores over the next 18 months. Secondly, we have
collaborated to bring the Geek Squad, the US home technology support business,
to the UK market. This launched in London in March 2007 and we believe it will
form an important element in our overall Group strategy over the coming years,
as wireless technologies pervade the home and customers require on-site and
remote consultancy to enhance their user experience.
In the year to March 2007, losses from joint ventures amounted to £9.9m, with
the majority relating to our Virgin Mobile venture. As previously indicated, we
anticipate total losses of £15-20m in the coming year, as Virgin Mobile
continues to invest in building its brand and customer base and the Best Buy
ventures move towards critical mass.
Acquisitions
During the year the Group acquired the UK internet access business of AOL, for a
gross cash consideration of £251.5m and deferred consideration of £128.4m,
payable over 18 months. Acquisition intangibles of £323.6m and goodwill of
£75.9m arose on the purchase.
Acquisition intangibles relate principally to customer bases, together with
contingent rights to a share of future customer transactional spend and a
licence to continue to use the AOL brand.
Amortisation of acquisition intangibles and goodwill expense
The amortisation charge in respect of acquisition intangibles amounted to £54.2m
(2006: £18.0m), the increase reflecting the full year impact of the Onetel
acquisition, and the AOL acquisition intangibles noted above. A goodwill
expense of £0.5m (2006: £1.8m) has been recognised in respect of historical
acquisitions. These figures are excluded from Headline profit before taxation
and earnings per share figures.
Interest and tax
Net interest of £26.4m was payable during the year, compared to a charge of
£5.7m in the prior year. Significant investment in capital expenditure and
acquisitions were financed out of operating cash flow and debt facilities.
The effective tax rate on a Headline basis was 14.3% (2006: 19.6%). The tax rate
benefited from the recognition of tax losses incurred in earlier years, losses
acquired from earlier acquisitions and low tax rate jurisdictions.
Earnings per share ('EPS')
Headline EPS was 11.82p (2006: 12.38p). Statutory EPS was 7.51p (2006: 7.99p).
Cash flow and dividend
At 31 March 2007, the Group had net debt of £616.9m (2006: £273.4m). During the
year the Group generated cash from operations of £256.3m (2006: £196.4m).
Cash generation remains 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 2.25p per share, taking the total dividend
for the financial year to 3.25p and representing growth of 30.0% over last
year's 2.50p total dividend. The ex-dividend date is Wednesday 4 July 2007,
with a record date of Friday 6 July 2007 and an intended payment date of Friday
3 August 2007.
Board change
Jim Dale, an Executive Director and Executive Chairman of the Group's Insurance
business, having informed the Board of his intention to retire, is stepping down
from the Board with immediate effect.
Presentation to investors and analysts
There will be a presentation of the results at 9am this morning at the offices
of UBS, 1 Finsbury Avenue, London EC2M 2PP. The slides and an audio webcast
will be available on the website at www.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, 26 July 2007.
For Further Information
For analyst and institutional enquiries
Roger Taylor 07715 170 090
Peregrine Riviere 07909 907193
For media enquiries
Michelle Parrish 07736 074 579
Anthony Carlisle (Citigate Dewe Rogerson) 07973 611 888
020 7638 9571
FINANCIAL REVIEW
Consolidated income statement for the 52 weeks ended 31 March 2007
Before Amortisation of After
amortisation of acquisition amortisation of
acquisition intangibles, acquisition
intangibles, goodwill intangibles,
Before Amortisation After goodwill expense and goodwill
amortisation of acquisition amortisation of expense and reorganisation expense and
of acquisition intangibles acquisition reorganisation costs reorganisation
intangibles and goodwill intangibles and costs costs
and goodwill expense goodwill expense (see note 3)
expense
(see note 3)
52 weeks 52 weeks 52 weeks ended 52 weeks ended 52 weeks ended 52 weeks ended
ended ended
31 March 31 March 31 March 1 April 1 April 1 April
2007 2007 2007 2006 2006 2006
£'000 £'000 £'000 £'000 £'000 £'000
Revenue
Existing operations 3,862,259 3,862,259 3,046,403 3,046,403
Acquisitions 129,219 129,219 - -
3,991,478 3,991,478 3,046,403 3,046,403
Cost of sales (2,731,262) (2,731,262) (2,063,021) (2,063,021)
Gross profit 1,260,216 1,260,216 983,382 983,382
Operating expenses (966,244) - (966,244) (740,892) (22,288) (763,180)
excluding
amortisation and
depreciation
EBITDA 293,972 293,972 242,490 (22,288) 220,202
Depreciation (65,908) (65,908) (49,585) (49,585)
Amortisation (68,736) (54,225) (122,961) (51,127) (30,955) (82,082)
Goodwill expense - (529) (529) - (1,825) (1,825)
Share of results of (9,854) (9,854) - -
joint ventures
Operating profit 149,474 (54,754) 94,720 141,778 (55,068) 86,710
Existing operations 136,077 (38,694) 97,383 141,778 (55,068) 86,710
Acquisitions 13,397 (16,060) (2,663) - -
Profit before 149,474 (54,754) 94,720 141,778 (55,068) 86,710
interest and
taxation
Interest payable (32,413) (32,413) (13,799) (13,799)
Interest receivable 6,054 6,054 8,090 8,090
Profit before 123,115 (54,754) 68,361 136,069 (55,068) 81,001
taxation
Taxation (17,665) 16,267 (1,398) (26,670) 16,210 (10,460)
Net profit for the 105,450 (38,487) 66,963 109,399 (38,858) 70,541
financial period
Earnings per share
Basic 11.82p 7.51p 12.38p 7.99p
Diluted 11.20p 7.11p 11.65p 7.51p
Consolidated statement of changes in equity for the 52 weeks ended 31 March 2007
52 weeks ended 52 weeks ended
31 March 2007 1 April 2006
£'000 £'000
At the beginning of the period 619,003 540,218
Net profit for the financial period 66,963 70,541
Currency translation (170) (3,644)
Tax on items recognised directly in reserves 3,205 19,597
Net change in available-for-sale investments 3,668 4,236
Issue of share capital 8,454 10,684
Net sale (purchase) of own shares 599 (15,851)
Unrealised gain on disposal of subsidiary 1,676 -
Net cost of share-based payments 10,410 10,665
Equity dividends (24,185) (17,443)
At the end of the period 689,623 619,003
Consolidated balance sheet as at 31 March 2007
31 March 2007 1 April 2006
£'000 £'000
Non-current assets
Goodwill 638,952 568,630
Other intangible assets 513,592 159,274
Property, plant and equipment 337,404 241,744
Non-current asset investments 14,498 10,264
Interests in joint ventures 1,436 -
Deferred tax assets 51,657 34,938
1,557,539 1,014,850
Current assets
Stock 161,532 138,047
Trade and other receivables 743,850 554,472
Current asset investments 2,314 5,233
Cash and cash equivalents 111,060 98,093
1,018,756 795,845
Total assets 2,576,295 1,810,695
Current liabilities
Trade and other payables (922,189) (642,009)
Corporation tax liabilities (52,707) (42,669)
Loans and other borrowings (22,653) (56,733)
Provisions (109,936) (123,538)
(1,107,485) (864,949)
Non-current liabilities
Trade and other payables (71,550) (6,689)
Loans and other borrowings (707,637) (320,054)
(779,187) (326,743)
Total liabilities (1,886,672) (1,191,692)
Total assets and liabilities 689,623 619,003
Equity
Share capital 896 888
Share premium reserve 426,805 418,359
Capital redemption reserve 30 30
Translation reserve 1,904 2,074
Accumulated profits 259,988 197,652
Funds attributable to equity shareholders 689,623 619,003
Consolidated cash flow statement for the 52 weeks ended 31 March 2007
52 weeks ended 52 weeks ended
31 March 2007 1 April 2006
£'000 £'000
Operating activities
Operating profit 94,720 86,710
Adjustments for non-cash items:
Share-based payments 10,410 10,665
Non-cash movements on joint ventures 8,034 -
Depreciation 65,908 49,585
Amortisation (before reorganisation costs) 122,961 69,125
Goodwill expense 529 1,825
Reorganisation costs - 35,245
Operating cash flows before movements in working capital 302,562 253,155
Profit on disposal of property, plant and equipment and intangible assets (3,717) (1,013)
Increase in trade and other receivables (175,439) (138,086)
Increase in stock (26,437) (41,359)
Increase in trade and other payables 180,395 95,440
(Decrease) increase in provisions (21,097) 28,228
Cash generated from operations 256,267 196,365
Taxation paid (6,481) (13,739)
Net cash generated from operating activities 249,786 182,626
Investing activities
Proceeds from sale of property, plant and equipment and intangible assets 13,557 2,540
Acquisition of subsidiaries, net of cash acquired (258,269) (157,835)
Interest received 6,054 8,090
Acquisition of intangible assets (148,060) (104,710)
Acquisition of property, plant and equipment (161,417) (89,425)
Acquisition of non-current asset investments - (1,659)
Investment in joint ventures (8,344) -
Cash flows from investing activities (556,479) (342,999)
Financing activities
Proceeds from the issue of share capital 8,454 10,684
Net sale (purchase) of own shares 599 (15,851)
Increase in borrowings 374,134 197,625
Interest paid (32,413) (13,799)
Receipts from current asset investments 2,353 56,619
Dividends paid (24,185) (17,443)
Cash flows from financing activities 328,942 217,835
Net increase in cash and cash equivalents 22,249 57,462
Cash and cash equivalents at the start of the period 76,957 19,352
Effect of exchange rate fluctuations (316) 143
Cash and cash equivalents at the end of the period 98,890 76,957
Cash and cash equivalents for the purposes of this statement comprise:
Cash and cash equivalents 111,060 98,093
Bank overdrafts (12,170) (21,136)
98,890 76,957
Notes to the financial statements for the 52 weeks ended 31 March 2007
1 Accounting policies
This financial information is prepared on the basis of the accounting policies
set out in the Group's statutory accounts for the 52 weeks ended 1 April 2006.
The Directors of The Carphone Warehouse Group PLC are responsible, in accordance
with the Listing Rules of the Financial Services Authority, for preparing and
issuing this preliminary announcement, which was approved on 4 June 2007.
The financial information is extracted from the Group's full financial
statements for the 52 weeks ended 31 March 2007 which were approved by the
Directors on 4 June 2007 and which received an unqualified audit report. This
financial information is abridged and does not constitute statutory accounts for
the 52 weeks ended 31 March 2007 and 52 weeks ended 1 April 2006. Full financial
statements for the 52 weeks ended 31 March 2007 will be filed with the Registrar
of Companies in due course. The 2006 Annual Report and financial statements, on
which the auditors gave an unqualified report, have been filed with the
Registrar of Companies.
2 Segmental analysis
Divisional results are analysed as follows:
Revenue Profit before interest and
taxation
2007 2006 2007 2006
£'000 £'000 £'000 £'000
Headline
Retail (including Online) 1,908,819 1,578,982 166,645 142,214
Insurance 137,009 116,054 54,453 45,536
Ongoing 71,689 58,447 71,689 58,447
Contribution 292,787 246,197
Support costs (96,629) (84,153)
Depreciation (41,864) (35,700)
Amortisation (12,904) (10,860)
Distribution 2,117,517 1,753,483 141,390 115,484
Fixed 1,195,848 666,687 88,981 61,055
Mobile 504,768 459,773 60,020 48,414
Contribution 149,001 109,469
Support costs (50,543) (29,703)
Depreciation (23,357) (13,231)
Amortisation (55,677) (40,143)
Telecoms Services 1,700,616 1,126,460 19,424 26,392
Dealer 209,719 188,376 843 2,102
Contribution 843 2,102
Support costs (1,487) (1,422)
Depreciation (687) (654)
Amortisation (155) (124)
Dealer 209,719 188,376 (1,486) (98)
Statutory
Headline Distribution 2,117,517 1,753,483 141,390 115,484
Goodwill expense (529) (1,825)
Reorganisation costs (see note 4) - (4,445)
Distribution 2,117,517 1,753,483 140,861 109,214
Headline Telecoms Services 1,700,616 1,126,460 19,424 26,392
Amortisation of acquisition intangibles (54,225) (17,998)
Reorganisation costs (see note 4) - (30,800)
Telecoms Services 1,700,616 1,126,460 (34,801) (22,406)
Dealer 209,719 188,376 (1,486) (98)
Share of results of joint ventures (9,854) -
Elimination of intra-group transactions (36,374) (21,916) - -
Total Group 3,991,478 3,046,403 94,720 86,710
3 Reconciliation of Headline information to statutory information
2007 2006
EBITDA Operating Profit Net profit EBITDA Operating Profit Net profit
profit before for the profit before for the
taxation financial taxation financial
period period
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Headline 293,972 149,474 123,115 105,450 242,490 141,778 136,069 109,399
Reorganisation
costs (see note 4)
Operating expenses - - - - (22,288) (22,288) (22,288) (22,288)
before accelerated
amortisation
Accelerated - - - - - (12,957) (12,957) (12,957)
amortisation
- - - - (22,288) (35,245) (35,245) (35,245)
Amortisation of - (54,225) (54,225) (54,225) - (17,998) (17,998) (17,998)
acquisition
intangibles
Goodwill expense - (529) (529) (529) - (1,825) (1,825) (1,825)
- (54,754) (54,754) (54,754) - (19,823) (19,823) (19,823)
Taxation:
On reorganisation - - - - - - - 10,574
costs
On amortisation of - - - 16,267 - - - 5,636
acquisition
intangibles and
goodwill expense
- - - 16,267 - - - 16,210
Statutory 293,972 94,720 68,361 66,963 220,202 86,710 81,001 70,541
EBITDA represents earnings before interest, taxation, depreciation, amortisation
and goodwill expense. Contribution represents EBITDA before support costs.
EBIT represents earnings before interest and taxation.
Headline information is provided because the Directors consider that it provides
assistance in understanding underlying performance.
4 Reorganisation costs
The Group acquired Onetel in December 2005 and commenced a reorganisation
programme to integrate it with the rest of the Group. The costs of this
integration were estimated at £22.3m and provided for at 1 April 2006.
Additionally, following a comprehensive review of the Group's systems and
network infrastructure, accelerated amortisation of £13.0m was recognised in the
prior period, principally in relation to billing infrastructure and customer
management systems.
5 Taxation
The tax charge comprises:
2007 2006
£'000 £'000
Current tax:
UK corporation tax 4,892 8,384
Overseas tax 15,211 16,008
20,103 24,392
Adjustments in respect of prior periods:
UK corporation tax (2,371) (5,757)
Overseas tax 921 3,440
(1,450) (2,317)
Total current tax 18,653 22,075
Deferred tax:
Origination and reversal of timing differences (12,944) (9,075)
Adjustments in respect of prior periods (4,311) (2,540)
Total deferred tax (17,255) (11,615)
Total tax charge 1,398 10,460
The tax charge relating to Headline earnings in the period is £17.7m (2006 -
£26.7m) representing an effective rate of 14.3% (2006 - 19.6%). The tax charge
relating to Statutory earnings in the period is £1.4m (2006 - £10.5m)
representing an effective tax rate of 2.0% (2006 - 12.9%).
6 Earnings per share
2007 2006
£'000 £'000
Statutory earnings 66,963 70,541
Headline earnings (see note 3) 105,450 109,399
2007 2006
Number of shares Number of shares
000's 000's
Weighted average number of shares:
For basic earnings per share 892,072 883,393
Dilutive effect of share options 49,147 55,287
For diluted earnings per share 941,219 938,680
Basic Diluted
2007 2006 2007 2006
Pence per Pence per Pence per Pence per
share share share share
Earnings per share 7.51 7.99 7.11 7.51
Headline earnings per share 11.82 12.38 11.20 11.65
7 Reserves
Share Share premium Capital Translation Accumulated Total
reserve redemption reserve profits
capital reserve
£'000 £'000 £'000 £'000 £'000 £'000
At 1 April 2006 888 418,359 30 2,074 197,652 619,003
Net profit for the financial - - - - 66,963 66,963
period
Currency translation - - - (170) - (170)
Tax on items recognised - - - - 3,205 3,205
directly in reserves
Net change in - - - - 3,668 3,668
available-for-sale investments
Issue of share capital 8 8,446 - - - 8,454
Net sale of own shares - - - - 599 599
Unrealised gain on disposal of - - - - 1,676 1,676
subsidiary
Net cost of share-based - - - - 10,410 10,410
payments
Equity dividends - - - - (24,185) (24,185)
At 31 March 2007 896 426,805 30 1,904 259,988 689,623
8 Analysis of changes in net debt
At 1 April Cash flows Exchange Non-cash At 31 March
2006 differences movements 2007
£'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 98,093 13,307 (340) - 111,060
Bank overdrafts (21,136) 8,942 24 - (12,170)
76,957 22,249 (316) - 98,890
Current loans and other borrowings (35,597) 25,114 - - (10,483)
Non-current loans and other borrowings (320,054) (399,248) 11,665 - (707,637)
(355,651) (374,134) 11,665 - (718,120)
Current asset investments 5,233 (2,353) - (566) 2,314
Total (273,461) (354,238) 11,349 (566) (616,916)
9 Equity dividends
2007 2006
£'000 £'000
Final dividend for the period ended 2 April 2005 of 1.25p per ordinary share - 11,005
Interim dividend for the period ended 1 April 2006 of 0.75p per ordinary share - 6,438
Final dividend for the period ended 1 April 2006 of 1.75p per ordinary share 15,362 -
Interim dividend for the period ended 31 March 2007 of 1.00p per ordinary share 8,823 -
24,185 17,443
Proposed final dividend for the period ended 31 March 2007 of 2.25p per ordinary
share
19,946
The proposed final dividend for the period ended 31 March 2007 is subject to
shareholders' approval at the Annual General Meeting and has not been included
as a liability in this financial information.
10 Acquisitions
During the period the Group acquired the UK internet access business of AOL, for
a gross cash consideration of £251.5m and deferred consideration of £128.4m,
payable over 18 months. Acquisition intangibles of £323.6m and goodwill of
£75.9m arose on the purchase.
Acquisition intangibles relate principally to:
• customer bases comprising broadband, narrowband and voice customers;
• rights, subject to future performance criteria, to share in
transactional revenues generated by AOL access and TalkTalk customers
on AOL sites; and
• a licence to continue to use the AOL brand.
This information is provided by RNS
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