Interim Results

Carphone Warehouse Group PLC 02 November 2006 Thursday 2 November 2006 For immediate release The Carphone Warehouse Group PLC Interim Results for the 26 weeks to 30 September 2006 Continued strong growth across the Group 26 weeks ended 26 weeks ended 1 % growth 30 September 2006 October 2005 Â£m Â£m Revenue 1,809.4 1,290.7 40.2% Headline profit before tax** 59.3 37.0 60.1% Start-up losses (45.1) - - Profit before tax* 14.1 37.0 (61.8)% Earnings per share** 5.27p 3.15p 67.3% Dividend per share 1.00p 0.75p 33.3% * before amortisation of acquisition intangibles ** before amortisation of acquisition intangibles and start-up losses in relation to the UK broadband and Virgin Mobile France operations Financial Headlines â€¢ Group revenues up 40.2% to Â£1,809.4m â€¢ Retail revenues up 28.2% to Â£857.5m; 12.1% like-for-like â€¢ Retail gross profit up 27.8% to Â£234.5m; 6.8% like-for-like â€¢ Subscription connections up 17.1% to 1.82m â€¢ Mobile, fixed line and insurance customer bases up 59.2% to 6.82m Operational Headlines â€¢ In discussions with Vodafone over the establishment of a pan-European framework agreement â€¢ 143 net new stores opened â€¢ Strong response to TalkTalk's free broadband proposition â€¢ Acquisition of AOL's internet access business in the UK for Â£370m â€¢ 370 exchanges unbundled; well on target to reach 1,000 by May 2007 â€¢ 60,000 customers on unbundled lines as at 31 October 2006 Charles Dunstone, CEO, said: 'This has been a busy six months, during which Carphone Warehouse has delivered another very strong set of results and invested significantly in building its platform for future growth. 'Our distribution business has maintained its momentum, opening 143 new stores and benefiting from the dynamism of the mobile market and customer demand. With the launch of free broadband and the subsequent acquisition of AOL, TalkTalk has reached critical mass as the number 3 provider of voice calls and broadband in the UK. Crucial to our future success in this area, the evolution of Opal into an all-IP, next generation network is well on track. 'Subsequent to its announcement on 12 October, we have been actively engaged with Vodafone regarding the development of a pan-European framework agreement. It is intended that this agreement will encompass subscription and pre-pay connections, where appropriate. The planned agreement will focus on delivering a consistent and clear customer proposition, for the mutual benefit of both businesses. 'Our confidence in the future is reflected by the one third increase in our dividend.' Overview Group revenue for the period was Â£1,809.4m compared with Â£1,290.7m for the prior year, representing growth of 40.2%. Headline pre-tax profits before amortisation of acquisition intangibles were up 60.1% to Â£59.3m (2005: Â£37.0m), before start-up losses of Â£45.1m in relation to the TalkTalk free broadband launch and Virgin Mobile France. Our Distribution business has enjoyed another very strong period, maintaining its momentum from the second half of last year. The market continues to be attractive, with strong network offers and rapid development in the handset market stimulating customers to upgrade. Whilst we have opened another 143 net new stores in the period to grow our reach and share, we have also brought a renewed focus to our existing portfolio, as we seek to drive incremental footfall and increased productivity for each store. Our determination to drive further subscriptions growth has translated into continued strong performances from our Insurance and Ongoing income streams. In our Fixed Line operations, Opal has performed well after a period of consolidation. The ongoing development of data services to the SME market, based on the next generation network it is building, is the next important stage in its evolution. The UK residential voice business has become a major contributor to Group profitability after several years of investment, and the integration of Onetel has been smooth and rapid, with a positive impact on profitability in both the business and residential operations. The TalkTalk free broadband launch has been highly successful, with customer take-up well ahead of our expectations thanks to the simplicity and value of the offer. We have made a significant investment in customer service to address the additional demand, and service levels are now for the most part comparable with the best in the industry. We will continue to invest in this and other areas to improve the customer experience. As previously announced, start-up costs this year will be greater than planned, owing to the strength of demand and delays in the rate at which customers are migrated onto unbundled lines. In our Mobile operations, progress has been good, with a clear recovery in underlying trends at The Phone House Telecom giving us much encouragement. We have moved our MVNO strategy forward with deals agreed in Spain and Portugal and others in negotiation. Virgin Mobile France has enjoyed a good first six months' trading as we invest heavily in building the brand and recruiting customers. Outlook The outlook continues to be positive. We see no change in the dynamics of the mobile phone market, with competition between players in the industry as strong as ever. We expect demand to be good over Christmas despite a tough comparable period. Our immediate goals in broadband are to raise the rate at which we migrate customers onto unbundled lines, subject to the quality and reliability of BT Openreach's processes; and to begin the integration of the AOL acquisition, following its expected completion later this calendar year. These will, together, be significant drivers of future Group profitability. Distribution 2006 2005 Â£m Â£m Revenue 954.1 752.0 Retail inc Online 857.5 669.0 Insurance 64.3 56.4 Ongoing 32.3 26.6 Contribution 115.4 94.7 Retail inc Online 57.3 46.6 Insurance 25.8 21.5 Ongoing 32.3 26.6 Support costs (45.4) (39.3) EBITDA 70.0 55.4 Depreciation and amortisation* (24.7) (20.6) EBIT 45.3 34.8 EBIT % 4.7% 4.6% * excluding amortisation of acquisition intangibles The Distribution division generated revenues of Â£954.1m and EBIT of Â£45.3m, representing growth of 26.9% and 30.2% respectively on the prior year. The EBIT margin showed a small increase year-on-year, with strong like-for-like growth in Retail and good leverage of our support infrastructure being offset by increased investment in our in-store proposition. We continue to focus our strategy on growing profits at the divisional level by investing in subscription connection growth, thus delivering Insurance and Ongoing revenues beyond the point of sale. Retail (including Online) Total connections grew 34.4% to 4.34m. Business conditions continued to favour our model across our markets, with a good range of new handsets and attractive customer propositions stimulating demand. Subscription connections were up 17.1% to 1.82m and pre-pay connections were up 59.5% to 2.28m, reflecting a continued resurgence in the pre-pay market across Europe. SIM-free sales fell 2.7% to 241,000. We opened 166 stores and closed 23 in the first half, taking the total number of stores in the portfolio to 1,921, of which 167 are franchise stores (2005: 103 franchise stores). We expect to open a net 300 stores in total in the current financial year. Total average selling space in all stores grew by 18.6% to 99,856 sqm (2005: 84,167 sqm). Excluding franchise stores, average space was up 15.9% to 92,931 sqm (2005: 80,213 sqm). Total Retail revenues grew 28.2% to Â£857.5m. Retail like-for-like growth was 12.1%. Subscription revenue per connection fell 2.1% and pre-pay revenue per connection rose 14.3%, driven by the higher levels of subsidy in the prepay market. Retail gross profit grew 27.8% to Â£234.5m. Retail like-for-like gross profit growth was 6.8%. Subscription gross profit per connection was up 4.3% at Â£96.7 (2005: Â£92.7). Gross profit per connection on pre-pay fell 1.3% to Â£23.2 (2005: Â£23.5) as a result of our successful drive to grow our market share in pre-pay. Average revenue and gross profit per connection figures now incorporate Online business, whereas previously they related to Retail only. Retail contribution was up 22.9% to Â£57.3m. Contribution margin fell 30 basis points to 6.7%, due partly to the rise in revenue per connection. In addition, we have invested significantly over the last six months in improving our in-store proposition, with the result that cost growth has accelerated in the short term. However, we are confident that the steps taken will result in better productivity and an enhanced customer experience over the medium term. Franchise operations contributed Â£2.2m to Retail contribution (2005: Â£1.4m). Insurance Insurance revenues grew 14.1% year-on-year to Â£64.3m (2005: Â£56.4m). The customer base was up 16.5% to 2.06m, driven by the continued strong growth in subscription connections. Contribution from Insurance rose 19.7% to Â£25.8m (2005: Â£21.5m), with the positive trend in margin continuing as our operations reach critical mass in most of our markets. Ongoing Growth in Ongoing revenues, our ARPU-sharing agreements with mobile networks, also continued to be supported by strong subscription connections growth. Ongoing revenues grew 21.7% to Â£32.3m (2005: Â£26.6m). Telecoms Services 2006 2005 Headline Start-up Total Â£m Â£m Â£m Â£m Revenue 722.0 47.9 769.9 475.6 Mobile 246.5 - 246.5 219.2 Fixed 475.5 47.9 523.4 256.4 Contribution 74.9 (37.7) 37.2 42.1 Mobile 25.2 - 25.2 23.1 Fixed 49.7 (37.7) 12.0 19.0 Support costs (23.8) - (23.8) (13.7) EBITDA 51.1 (37.7) 13.4 28.4 Depreciation, amortisation and JV costs* (29.3) (6.6) (35.9) (22.5) EBIT 21.8 (44.3) (22.5) 5.9 EBIT % 3.0% - - 1.2% * excluding amortisation of acquisition intangibles The Telecoms Services division generated revenues of Â£769.9m and an EBIT loss of Â£22.5m, after incurring start-up costs relating to the launch of TalkTalk free broadband and Virgin Mobile France of Â£44.3m. Revenues increased 61.9% year-on-year, reflecting the continuing rapid growth in customer bases and the acquisition of Onetel in December 2005. Excluding Onetel, revenue growth was 31.7%. Fixed Total Fixed Line revenues were up 104.2% to Â£523.4m (2005: Â£256.4m). Excluding Onetel revenues of Â£143.7m, revenue growth was 48.1%. Fixed Line contribution fell 36.6% to Â£12.0m (2005: Â£19.0m), after broadband start-up costs at the contribution level of Â£37.7m. Revenues from Business operations rose 35.6% to Â£170.9m (2005: Â£126.0m), with contribution up 28.0% to Â£14.8m (2005: Â£11.5m). Opal generated revenues of Â£153.1m in the first half, an increase of 37.7% year-on-year. This was driven both by the inclusion of Onetel Business traffic and by continued underlying growth in Opal's core business and lower margin premium rate services. Contribution at Opal rose 27.7% to Â£14.3m (2005: Â£11.2m). In line with Opal's strategy of developing a broader range of services to our telecoms customers, after the period end we acquired Alto Hiway, a business ISP based in Newbury, Berkshire. Alto Hiway complements Rednet, our existing business ISP acquired with Onetel, very well, and together they give us a valuable platform from which to launch a new suite of data-related services into the SME market. We have already launched broadband services into our TalkTalk Business channel, which continues to demonstrate good momentum in the small and home business market. Residential revenues rose 170.5% to Â£352.6m (2005: Â£130.3m), but the business recorded a loss at the contribution level of Â£2.7m (2005: Â£7.5m profit). The existing TalkTalk UK voice operations, including Onetel, performed very well, generating revenues of Â£268.1m and contribution of Â£33.2m. The integration of Onetel has been rapid and successful, with the underlying business performing ahead of our initial expectations. As expected, the voice customer base has declined, from 2.57m at the start of the year to 2.14m at the period end, as customers have migrated rapidly to our free broadband proposition. However, we expect the rate of decline to slow in the second half. The TalkTalk free broadband business generated revenues of Â£47.9m in its first six months, and a loss at the contribution level of Â£37.7m. At the period end we had 516,000 customers live on voice and line rental services, of whom 421,000 were also receiving broadband. The initial success of the offer significantly exceeded our expectations, leading to increased wholesale broadband costs and an acceleration in customer service recruitment, as outlined in our trading update on 11 October 2006. However, the underlying customer economics of ARPU and margin are very encouraging and we remain confident of the substantial future profitability of the broadband business. Our immediate operational focus is on the migration of customers from IP Stream, BT's wholesale broadband platform, onto unbundled lines. In October we migrated 40,000 customers, taking the total base on unbundled lines to 60,000. We are confident that BT Openreach is dedicating an increasing level of resource to facilitate an acceleration in line migration and reduce fault rates. After the period end we announced the acquisition of AOL's internet access business in the UK for Â£370m. Completion is subject to clearance by the EU Competition authorities, which we expect to receive by 31 December 2006. The AOL acquisition not only gives us critical mass in UK broadband by making us the number 3 ISP with over 2 million customers, but also accelerates our content strategy through a long term revenue-sharing agreement with AOL's Audience operations in the UK. Revenues in our non-UK TalkTalk businesses rose 17.1% to Â£36.6m but contribution fell 48.4% to Â£1.7m. The decline in profitability was largely the result of SAC costs in Ireland and Belgium and some margin pressure in voice-only products. We are actively reviewing the most effective way to distribute residential telecoms services across these markets, with a focus on maximising the cash value to the Group of signing up broadband or voice customers through our store network. Mobile Mobile Telecoms Services revenues were up 12.4% to Â£246.5m, and contribution rose 9.0% to Â£25.2m. At The Phone House Telecom, revenues were up 7.5% to Â£179.8m (2005: Â£167.2m), with contribution broadly flat at Â£21.3m (2005: Â£21.5m). The customer base rose 28.0% to 1.30m, with 860,000 subscription customers and 440,000 on pre-pay. ARPU trends have shown clear signs of stabilisation in recent months, as we have renewed our focus on higher quality distribution channels, and the impact on the market of discount offers has been muted. As previously indicated, we expect full year profitability at The Phone House Telecom to be flat year-on-year. Our wholly-owned MVNO operations recorded revenue of Â£27.7m and a loss of Â£0.3m. In the UK, we have focused our efforts on developing differentiated services with enhanced net present value. Mobile World continues to trade well, and we have recently relaunched TalkTalk Mobile as our main UK MVNO brand. At 30 September our UK MVNO base was 429,000. Outside the UK we continue to make progress on developing MVNO operations, especially focusing on heavy international users, and during the period announced plans to launch MVNOs in Spain and Portugal. Our joint venture MVNO, Virgin Mobile France, has enjoyed a successful launch period, with momentum building both in customer numbers and points of sale. Financial performance to date has been in line with plan and our share of losses in the first half was Â£4.6m. We will give a full update on Virgin's operating and financial performance in our annual teach-in in April 2007, and are confident of achieving our target of 1 million customers by March 2009. In our other Mobile operations, incorporating our facilities management ('FM') activities in the UK and France, revenues were broadly flat year-on-year at Â£39.0m (2005: Â£38.7m), with contribution up 22.0% at Â£4.2m (2005: Â£3.4m). Dealer 2006 2005 Â£m Â£m Revenue 100.8 73.1 Contribution 0.5 0.7 Support costs (0.7) (0.8) EBITDA (0.2) (0.1) Depreciation and amortisation (0.4) (0.4) EBIT (0.6) (0.5) EBIT % - - Dealer operations comprise the provision of handsets, connections and pre-pay vouchers to third party retailers, and the wholesale shipment of trade-in handsets. There have been no further developments in relation to the Customs & Excise investigation in 2003 of VAT recovery in the handset trading industry. Depreciation, intangibles amortisation and support costs The depreciation charge of Â£28.9m grew 23.8% year-on-year (2005: Â£23.4m), driven by the continued investment in new stores, IT hardware and telecoms network infrastructure. Amortisation of intangible assets, excluding acquisition intangibles, rose 36.4% to Â£27.5m (2005: Â£20.2m), reflecting the growth in subscriber acquisition costs over the last two years, and the investment in IT software development. Support costs were up 29.8% to Â£69.9m (2005: Â£53.9m), reflecting the ongoing build-up in our support infrastructure and a rise in non-cash P&L charges for long term incentive plans. Cash flow and dividend At 30 September 2006, the group had net debt of Â£411.4m, compared to net debt of Â£273.4m at the last financial year end. During the period the group generated cash flow from operations of Â£15.1m (2005: Â£24.9m). Before investment in broadband, cash flow from operations was Â£52.8m. Including operating losses, capex and subscriber acquisition costs, the total investment in broadband in the first half was Â£71.4m. We expect net debt at March 2007 to be approximately Â£600-650m, after taking into account Â£250m of consideration for the AOL acquisition. The Board has declared an interim dividend of 1.00p per share (2005: 0.75p per share), up 33.3%. At this stage we anticipate a similar level of growth in the full year dividend. The ex-dividend date will be 8 November 2006 and the record date will be 10 November 2006. The intended payment date will be 23 November 2006. Analysts' presentation and webcast There will be a presentation for investors and analysts at 9.00 am this morning at the offices of UBS, 1 Finsbury Avenue, London EC2M 2PP. The event will be audio webcast and the presentation slides will be available on our website, www.cpwplc.com. Next trading update The Group will give a full trading update, including revenues, connections and customer bases, for the third quarter of the current financial year on 12 January 2007. For Further Information For analyst and institutional enquiries Roger Taylor 07715 170 090 Peregrine Riviere 07909 907193 For media enquiries Vanessa Godsal 07947 000 021 Anthony Carlisle 07973 611 888 Citigate Dewe Rogerson 020 7638 9571 FINANCIAL REVIEW Consolidated income statement For the 26 weeks ended 30 September 2006 26 weeks 26 weeks 52 weeks ended ended ended 30 September 1 October 1 April 2006 2005 2006 (Unaudited) (Unaudited) (Audited) Note Â£'000 Â£'000 Â£'000 Continuing operations Revenue 1,809,443 1,290,687 3,046,403 Cost of sales (1,239,089) (877,875) (2,063,021) Gross profit 570,354 412,812 983,382 Operating expenses excluding amortisation and (487,190) (329,148) (763,180) depreciation EBITDA 83,164 83,664 220,202 Headline 3 120,841 83,664 242,490 Other 3 (37,677) - (22,288) Depreciation (28,944) (23,381) (49,585) Amortisation of operating intangibles (27,484) (20,149) (64,084) Amortisation of acquisition intangibles and goodwill (18,811) (4,488) (19,823) expense Share of result of joint venture (4,604) - - Operating profit 3,321 35,646 86,710 Headline 3 66,447 40,134 141,778 Other 3 (63,126) (4,488) (55,068) Interest payable (10,423) (5,724) (13,799) Interest receivable 2,439 2,623 8,090 (Loss) profit before taxation (4,663) 32,545 81,001 Headline (see below) 3 59,287 37,033 136,069 Other 3 (63,950) (4,488) (55,068) Taxation 5,354 (7,921) (10,460) Net profit for the financial period 691 24,624 70,541 Headline 3 46,837 27,775 109,399 Other 3 (46,146) (3,151) (38,858) Earnings per share (Basic) 5 0.08p 2.80p 7.99p Headline 5 5.27p 3.15p 12.38p Non-GAAP measure: Headline results Before reorganisation costs, start-up losses, amortisation of acquisition intangibles and goodwill expense (note 3) (Loss) profit before taxation Total (4,663) 32,545 81,001 Amortisation of acquisition intangibles and goodwill 3 18,811 4,488 19,823 expense Profit before taxation, amortisation of acquisition 14,148 37,033 100,824 intangibles and goodwill expense Reorganisation costs 3 - - 35,245 Start-up losses 3 45,139 - - Headline 59,287 37,033 136,069 Consolidated statement of changes in equity For the 26 weeks ended 30 September 2006 26 weeks 26 weeks 52 weeks ended ended ended 30 September 1 October 1 April 2006 2005 2006 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 At the beginning of the period 619,003 540,218 540,218 Net profit for the financial period 691 24,624 70,541 Currency translation (2,111) (1,696) (3,644) Tax on items recognised directly in reserves 4,769 2,263 19,597 Net change in available-for-sale investments (70) 2,165 4,236 Unrealised gain on disposal of subsidiary undertaking 1,676 - - Issue of share capital 4,482 6,753 10,684 Net purchase of own shares 347 (15,580) (15,851) Cost of share-based payments (net of cash settlements) 3,293 2,822 10,665 Equity dividends (15,362) (11,005) (17,443) At the end of the period 616,718 550,564 619,003 Consolidated balance sheet As at 30 September 2006 30 September 1 October 1 April 2006 2005 2006 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 Non-current assets Goodwill 559,927 446,082 568,630 Other intangible assets 167,829 80,054 159,274 Property, plant and equipment 287,402 226,269 241,744 Non-current asset investments 10,768 4,930 10,264 Deferred tax assets 41,400 3,885 34,938 1,067,326 761,220 1,014,850 Current assets Stock 166,913 142,044 138,047 Trade and other receivables 696,645 432,348 554,472 Current asset investments 3,907 42,221 5,233 Cash and cash equivalents 117,134 84,114 98,093 984,599 700,727 795,845 Total assets 2,051,925 1,461,947 1,810,695 Current liabilities Trade and other payables (737,518) (502,734) (642,009) Corporation tax liabilities (40,074) (40,914) (42,669) Loans and other borrowings (9,165) (39,124) (56,733) Provisions (117,447) (81,193) (123,538) (904,204) (663,965) (864,949) Non-current liabilities Trade and other payables (6,683) (1,945) (6,689) Loans and other borrowings (523,237) (243,209) (320,054) Interest in joint venture (1,083) - - Deferred tax liabilities - (2,264) - (531,003) (247,418) (326,743) Total liabilities (1,435,207) (911,383) (1,191,692) Total assets and liabilities 616,718 550,564 619,003 Equity Share capital 892 884 888 Share premium reserve 425,711 414,432 418,359 Capital redemption reserve 30 30 30 Translation reserve (37) 4,022 2,074 Accumulated profits 190,122 131,196 197,652 Funds attributable to equity shareholders 616,718 550,564 619,003 Approved by the Board of The Carphone Warehouse Group PLC 2 November 2006 Consolidated cash flow statement For the 26 weeks ended 30 September 2006 26 weeks 26 weeks 52 weeks ended ended ended 30 September 1 October 1 April 2006 2005 2006 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 Operating activities Operating profit 3,321 35,646 86,710 Adjustments for non-cash items: Share-based payments (net) 3,293 2,822 10,665 Non-cash movements on joint venture 3,175 - - Depreciation 28,944 23,381 49,585 Amortisation (before reorganisation costs) 46,295 24,637 69,125 Goodwill expense - - 1,825 Reorganisation costs - - 35,245 Operating cash flows before movements in working capital 85,028 86,486 253,155 Loss (profit) on disposal of property, plant and 86 (781) (1,013) equipment and intangible assets Increase in trade and other receivables (148,277) (79,536) (138,086) Increase in stock (32,020) (47,243) (41,359) Increase in trade and other payables 115,852 46,798 95,440 (Decrease) increase in provisions (5,691) 23,444 28,228 Cash generated from operations 14,978 29,168 196,365 Taxation received (paid) 108 (4,232) (13,739) Net cash generated from operating activities 15,086 24,936 182,626 Investing activities Proceeds from sale of property, plant and equipment and 114 1,970 2,540 intangible assets Acquisition of subsidiaries, net of cash acquired (14,356) (4,072) (157,835) Interest received 2,439 2,623 8,090 Acquisition of intangible assets (51,567) (37,462) (104,710) Acquisition of property, plant and equipment (77,316) (52,972) (89,425) Movements on non-current asset investments (587) 58 (1,659) Cash flows from investing activities (141,273) (89,855) (342,999) Financing activities Proceeds from the issue of share capital 4,482 6,753 10,684 Net purchase of own shares 347 (15,580) (15,851) Increase in borrowings 186,639 133,931 197,625 Movements on current asset investments 703 21,399 56,619 Interest paid (10,423) (5,724) (13,799) Dividends paid (15,362) (11,005) (17,443) Cash flows from financing activities 166,386 129,774 217,835 Net increase in cash and cash equivalents 40,199 64,855 57,462 Cash and cash equivalents at the beginning of the 76,957 19,352 19,352 period Effect of exchange rate fluctuations (317) (93) 143 Cash and cash equivalents at the end of the period 116,839 84,114 76,957 Cash and cash equivalents for the purposes of this statement comprise: Cash and cash equivalents 117,134 84,114 98,093 Bank overdrafts (295) - (21,136) 116,839 84,114 76,957 Notes to the financial statements For the 26 weeks ended 30 September 2006 1 Basis of preparation and accounting policies This interim report has been prepared using accounting policies consistent with those set out on pages 39 to 42 of The Carphone Warehouse Group PLC annual report for the 52 weeks ended 1 April 2006. The financial information for the 26 weeks ended 30 September 2006 and the 26 weeks ended 1 October 2005 is unaudited. As permitted, the Group has chosen not to adopt IAS34 'Interim Financial Statements' in this interim report. The information set out in this interim report for the 26 weeks ended 30 September 2006 does not comprise statutory accounts within the meaning of section 240 of the Companies Act 1985. The statutory accounts for the 52 weeks ended 1 April 2006, incorporating the unqualified auditor's report, have been filed with the Registrar of Companies. 2 Segmental analysis Divisional results are analysed as follows: Revenue Operating profit 26 weeks ended 26 weeks 52 weeks 26 weeks ended 26 weeks 52 weeks 30 September ended ended 30 September ended ended 2006 1 October 1 April 2006 1 October 1 April 2005 2006 2005 2006 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Headline results Retail including Online 857,476 669,082 1,578,982 57,269 46,580 142,214 Insurance 64,327 56,368 116,054 25,791 21,549 45,536 Ongoing 32,334 26,561 58,447 32,334 26,561 58,447 Contribution 115,394 94,690 246,197 Support costs (45,450) (39,331) (84,153) Depreciation (18,491) (17,068) (35,700) Amortisation of operating (6,190) (3,529) (10,860) intangibles Distribution 954,137 752,011 1,753,483 45,263 34,762 115,484 Fixed 475,507 256,354 666,687 49,749 19,032 61,055 Mobile 246,470 219,252 459,773 25,167 23,084 48,414 Contribution 74,916 42,116 109,469 Support costs (23,774) (13,739) (29,703) Depreciation (9,563) (5,962) (13,231) Amortisation of operating (19,770) (16,566) (40,143) intangibles Telecoms Services 721,977 475,606 1,126,460 21,809 5,849 26,392 Dealer 100,759 73,140 188,376 454 736 2,102 Contribution 454 736 2,102 Support costs (699) (808) (1,422) Depreciation (299) (351) (654) Amortisation of operating (81) (54) (124) intangibles Dealer 100,759 73,140 188,376 (625) (477) (98) Total results Headline Distribution 954,137 752,011 1,753,483 45,263 34,762 115,484 Goodwill expense - - (1,825) Reorganisation costs - - (4,445) Distribution 954,137 752,011 1,753,483 45,263 34,762 109,214 Headline Telecoms Services 721,977 475,606 1,126,460 21,809 5,849 26,392 Amortisation of acquisition (18,811) (4,488) (17,998) intangibles Start-up losses 47,914 - - (44,315) - - Reorganisation costs - - (30,800) Telecoms Services 769,891 475,606 1,126,460 (41,317) 1,361 (22,406) Dealer 100,759 73,140 188,376 (625) (477) (98) Elimination of intra-group (15,344) (10,070) (21,916) - - - transactions Total Group 1,809,443 1,290,687 3,046,403 3,321 35,646 86,710 3 Reconciliation of Headline results to Total results Headline Amortisation of Start-up Reorganisation Total acquisition losses costs intangibles and goodwill expense (note a) (note b) Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 26 weeks ended 30 September 2006 Revenue 1,761,529 - 47,914 - 1,809,443 Cost of sales (1,204,189) - (34,900) - (1,239,089) Gross profit 557,340 - 13,014 - 570,354 Operating expenses excluding (436,499) - (50,691) - (487,190) amortisation and depreciation EBITDA 120,841 - (37,677) - 83,164 Depreciation (28,353) - (591) - (28,944) Amortisation of operating (26,041) - (1,443) - (27,484) intangibles Amortisation of acquisition - (18,811) - - (18,811) intangibles Share of result of joint venture - - (4,604) - (4,604) Operating profit 66,447 (18,811) (44,315) - 3,321 Interest payable (9,599) - (824) - (10,423) Interest receivable 2,439 - - - 2,439 Profit (loss) before taxation 59,287 (18,811) (45,139) - (4,663) Taxation (12,450) 5,643 12,161 - 5,354 Net profit for the financial 46,837 (13,168) (32,978) - 691 period 26 weeks ended 1 October 2005 Revenue 1,290,687 - - - 1,290,687 Cost of sales (877,875) - - - (877,875) Gross profit 412,812 - - - 412,812 Operating expenses excluding (329,148) - - - (329,148) amortisation and depreciation EBITDA 83,664 - - - 83,664 Depreciation (23,381) - - - (23,381) Amortisation of operating (20,149) - - - (20,149) intangibles Amortisation of acquisition - (4,488) - - (4,488) intangibles Operating profit 40,134 (4,488) - - 35,646 Interest payable (5,724) - - - (5,724) Interest receivable 2,623 - - - 2,623 Profit before taxation 37,033 (4,488) - - 32,545 Taxation (9,258) 1,337 - - (7,921) Net profit for the financial 27,775 (3,151) - - 24,624 period 52 weeks ended 1 April 2006 Revenue 3,046,403 - - - 3,046,403 Cost of sales (2,063,021) - - - (2,063,021) Gross profit 983,382 - - - 983,382 Operating expenses excluding (740,892) - - (22,288) (763,180) amortisation and depreciation EBITDA 242,490 - - (22,288) 220,202 Depreciation (49,585) - - - (49,585) Amortisation of operating (51,127) - - (12,957) (64,084) intangibles Amortisation of acquisition - (17,998) - - (17,998) intangibles Goodwill expense - (1,825) - - (1,825) Operating profit 141,778 (19,823) - (35,245) 86,710 Interest payable (13,799) - - - (13,799) Interest receivable 8,090 - - - 8,090 Profit before taxation 136,069 (19,823) - (35,245) 81,001 Taxation (26,670) 5,636 - 10,574 (10,460) Net profit for the financial 109,399 (14,187) - (24,671) 70,541 period 3 Reconciliation of Headline results to Total results (continued) Headline information is stated before reorganisation costs, start-up losses, amortisation of acquisition intangibles and goodwill expense. It is provided because the directors consider that it provides assistance in understanding underlying performance. EBITDA represents earnings before interest, taxation, depreciation, amortisation and goodwill expense. Contribution represents EBITDA before support costs. EBIT represents earnings before interest and taxation. a) Start-up losses In April 2006, the Group launched its free broadband proposition in the UK, and announced that it expected to incur operating losses, now expected to be around Â£70m, in the financial period ending 31 March 2007. Given the significance of the losses in the context of overall Group results, they have been separated out from Headline results to provide better visibility of underlying performance. The Group also launched a joint venture in France with Virgin in April 2006, again with the expectation of incurring start-up losses in the financial period ending 31 March 2007. The results of the joint venture have been separated out from Headline results to provide better visibility of underlying performance. Losses associated with these businesses in the period ended 30 September 2006 are as follows: UK broadband French joint Total venture Â£'000 Â£'000 Â£'000 Revenue 47,914 - 47,914 Cost of sales (34,900) - (34,900) Gross profit 13,014 - 13,014 Operating expenses excluding amortisation and (50,691) - (50,691) depreciation EBITDA (37,677) - (37,677) Depreciation (591) - (591) Amortisation of operating intangibles (1,443) - (1,443) Share of result of joint venture - (4,604) (4,604) Operating loss (39,711) (4,604) (44,315) Interest payable (824) Loss before taxation (45,139) Taxation 12,161 Loss after taxation (32,978) b) Reorganisation costs The following items were shown separately in the financial period ended 1 April 2006 given their size and one-off nature: Â£'000 Reorganisation costs i 22,288 Accelerated amortisation ii 12,957 35,245 i. Following its acquisition of Onetel in December 2005 the Group commenced a reorganisation programme to integrate Onetel with the rest of the Group at an estimated cost of Â£22.3m, which principally comprised redundancy and other employee costs, contract termination costs, and network and customer migration costs. ii. The substantial customer growth achieved through the acquisition of Onetel and Tele2 UK, together with the Group's major investment plans in respect of local loop unbundling and billing platforms, prompted a review in the financial period ended 1 April 2006 of the Group's systems and network infrastructure. The review represented a consideration of the extent to which Group assets were impaired, either because they had no further use or because their useful economic lives had reduced significantly. The result of this review was an accelerated amortisation charge in respect of billing infrastructure, customer management systems and other assets. 4 Taxation Taxation has been provided using the estimated effective rate of taxation on Headline results for the 52 weeks ending 31 March 2007 of 21.0% (52 weeks ended 1 April 2006 - 19.6%). 5 Earnings per share 26 weeks ended 26 weeks ended 52 weeks ended 30 September 1 October 1 April 2006 2005 2006 Total earnings (Â£'000) 691 24,624 70,541 Headline earnings (Â£'000) (see note 3) 46,837 27,775 109,399 Weighted average number of shares (Basic) ('000s) 889,383 880,387 883,393 Earnings per share (pence) 0.08p 2.80p 7.99p Headline earnings per share (pence) 5.27p 3.15p 12.38p 6 Reserves Share Share Capital Translation Accumulated Total capital premium redemption reserve profits reserve reserve Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 At 1 April 2006 888 418,359 30 2,074 197,652 619,003 Net profit for the financial period - - - - 691 691 Currency translation - - - (2,111) - (2,111) Tax on items recognised directly in - - - - 4,769 4,769 reserves Net change in available-for-sale - - - - (70) (70) investments Unrealised gain on disposal of - - - - 1,676 1,676 subsidiary undertaking Issue of share capital 4 7,352 - - (2,874) 4,482 Net purchase of own shares - - - - 347 347 Cost of share-based payments (net of - - - - 3,293 3,293 cash settlements) Equity dividends - - - - (15,362) (15,362) At 30 September 2006 892 425,711 30 (37) 190,122 616,718 7 Movements on net debt At Cash flows Exchange Non-cash At 1 April differences movements 30 September 2006 2006 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Cash and cash equivalents 98,093 19,382 (341) - 117,134 Bank overdrafts (21,136) 20,817 24 - (295) 76,957 40,199 (317) - 116,839 Current loans and other borrowings (35,597) 26,726 1 - (8,870) Non-current loans and other (320,054) (213,365) 10,182 - (523,237) borrowings (355,651) (186,639) 10,183 - (532,107) Current asset investments 5,233 (703) - (623) 3,907 Total (273,461) (147,143) 9,866 (623) (411,361) 8 Equity dividends 26 weeks 26 weeks 52 weeks ended ended ended 30 September 1 October 1 April 2006 2005 2006 Â£'000 Â£'000 Â£'000 Final dividend for the period ended 2 April 2005 of 1.25p per - 11,005 11,005 ordinary share Interim dividend for the period ended 1 April 2006 of 0.75p per - - 6,438 ordinary share Final dividend for the period ended 1 April 2006 of 1.75p per 15,362 - - ordinary share 15,362 11,005 17,443 Proposed interim dividend for the period ending 31 March 2007 of 8,813 1.0p (1 April 2006 - 0.75p) per ordinary share This information is provided by RNS The company news service from the London Stock Exchange

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