Carphone Warehouse Group PLC
24 April 2007
Tuesday 24 April 2007
For immediate release
The Carphone Warehouse Group PLC
Annual strategy update and guidance for the year to March 2008
The Carphone Warehouse is today giving its annual strategy presentation to
investors and analysts, and financial guidance for the year to March 2008. The
highlights of this presentation are summarised below.
Strategic highlights
• Evolution of Retail proposition to support broader wireless solutions
• Geek Squad to form integral link between products and services
• Roll-out of next generation telecoms network to reach 1,650 unbundled
exchanges
• Targeting 3.5m broadband customers and 4.5-5m residential customers in
total by March 2010
• Further roll-out of Best Buy Mobile in the USA, with 150-200 stores over
18 months
Guidance for the year to March 2008
• Confident of continued strong performance
• 250 net new stores planned, with 15% growth in subscription connections
• Capex budget of £220m, reflecting additional exchange roll-out and US
expansion
• Strong cash generation substantially invested for growth
• Major revision of divisional reporting structure to reflect key value
drivers
Charles Dunstone, Chief Executive Officer, said:
'The needs of our customers and suppliers are changing as the convergence of
fixed and wireless technologies gains pace. The opportunities for the Group are
tremendously exciting as we begin to pull together our valuable assets - a
powerful distribution platform, strong partner relationships, an advanced
telecoms network and a growing broadband customer base - to offer an end-to-end
wireless solutions service to our customers.
'Our US trial has been successful and we are today announcing a rapid roll-out
of the Best Buy Mobile format, allowing us to penetrate the substantial US
market in an effective manner with a world class partner.
'In broadband, we are targeting 3.5 million residential customers by March 2010.
Provisioning times are falling as the unbundling process becomes more
streamlined, and we are confident that our increased investment in customer
service will deliver a much improved customer experience. The success of the
free broadband proposition and the compelling economics that unbundling delivers
have led us to extend our LLU footprint to cover 1,650 exchanges, reaching over
80% of the population.
'We continue to see ample opportunities for long term growth in existing and new
business areas, and plan to reinvest a significant proportion of cash generated
this year into building this growth platform.'
New divisional reporting structure
For the new financial year we are changing the divisional structure of our
financial reporting. The changes have been made to simplify our reporting
structure and enable investors to focus on the key value drivers of the
business. The new format reflects how we report internally and more accurately
presents our business lines by the key assets that support them.
The new Distribution division will incorporate our Mobile, Dealer and non-UK
fixed line operations, reflecting the key role our stores play in recruiting and
managing customers for these businesses. UK Fixed Line operations will form a
separate division, reflecting the shared infrastructure base of the Opal
network.
In addition, we will be providing a geographical breakdown of revenues and
operating profit for the Distribution division, split between the UK, Spain,
France, Germany and Other markets, with central support costs and all IT costs
directly allocated to specific business units, excluding central PLC costs.
Between now and our preliminary results on 5 June 2007, we will provide a full
segmental analysis of results for H1 and H2 for the year to March 2006, and H1
of the year to March 2007, under the new format, and on 5 June we will publish
full year numbers in both old and new formats.
The new disclosure will be supported by a simplified quarterly KPI structure
focusing on connections, stores, customer numbers and ARPUs.
Outlook and guidance for the year to March 2008
As part of our presentation to analysts and investors today, we will be giving
updated financial guidance for certain business areas in the coming year. The
key elements of this guidance are set out below.
Distribution
Divisional revenue growth is expected to be 11-13%, with EBIT margin increasing
by about 70-80 basis points year-on-year to approximately 6.5%.
We continue to see significant opportunities for further expansion of our store
portfolio and plan to open 250 net new stores across Europe this year. In
addition, as we begin to move towards an integrated wireless solutions
proposition, we are investing in up to 100 major re-sites or refits in major
locations across Europe.
We expect subscription connections to grow at approximately 15%, supported by
continued demand for new handsets and competition between network operators. We
expect overall connections growth to be 10-12%, reflecting a slower pre-pay
market after the exceptional growth of the last 18 months. Like-for-like gross
profit is forecast to be flat, reflecting broadly flat connections per store and
stable gross profit per connection on both subscription and pre-pay. We
anticipate that Insurance and Ongoing revenues will track marginally ahead of
subscriptions connections growth.
UK Fixed Line
Divisional revenue growth is expected to be approximately 45%, with EBIT margins
expanding to approximately 7% from about 1.5% as the business benefits from
increasing scale and the migration of customers to unbundled lines.
In our Residential operations we anticipate further strong growth in our
broadband customer base as we head towards our three year targets announced
today. We are budgeting for monthly broadband ARPU of £21 for the year as a
whole, reflecting the blend between free broadband customers and the AOL base.
ARPU is expected to trend up gradually through the year as free broadband
customers become a greater proportion of the overall base.
The base of other billed customers, comprising CPS and narrowband accounts, is
expected to continue to decline during the year through migration to our
broadband propositions and natural churn. Other billed customer monthly ARPU is
expected to average £19 but will trend up through the year as the narrowband
base is expected to decline more rapidly than the higher-ARPU CPS base.
Residential EBITDA margin will rise sharply year-on-year, to approximately 15%,
mainly as a result of the unbundling process. By March 2008 we aim to have over
50% of our AOL customers on partially unbundled lines, and over 80% of our
TalkTalk broadband customers on fully unbundled lines.
In our business-to-business operations, we are planning for revenue growth of
11-12%, through the annualisation of acquisitions and the continued development
of our broadband and data proposition for the SME market, and EBITDA margins
rising a little but still in the 10-11% range.
New ventures
We are now investing in three areas of future growth potential with joint
venture partners. In France, the initial success and momentum of our Virgin
Mobile joint venture has encouraged us to invest further in the coming year in
building the customer base and increasing brand awareness.
In addition, we have been developing plans with Best Buy for the roll-out of two
new business ventures. In the US, our five month trial of Best Buy Mobile has
delivered encouraging results and we now plan to expand the concept on a
commercial scale, with 150-200 stores to be opened over the next 18 months. The
majority of these will be 'store within a store' concepts in existing Best Buy
locations.
In the UK, we have recently launched our Geek Squad home technology support
service in the London area. We will expand this over the coming months to cover
the whole of the UK with our remote service, and key cities with our home visit
service. We believe that over time, Geek Squad can become a pan-European
operation connecting our retail proposition with customers' increasingly complex
technology needs.
The increase in costs highlighted earlier this month of £10-15m, combined with
the existing expected investment in Virgin Mobile, is expected to result in a
total loss from joint ventures of £15-20m in the coming year.
PLC costs
As part of the new presentation of divisional results, we are incorporating the
majority of support costs within EBITDA and dispensing with business unit
contribution disclosure. However, we will now report PLC overhead as a
central, unallocated cost, which we expect to amount to £35-40m in the year to
March 2008. This includes a non-cash charge of £15m relating to share options
costs.
Group cash flow, balance sheet and dividend policy
This will be a year of continued significant investment for the Group, with
total capex amounting to approximately £220m, allocated as follows:
New stores, key money, re-sites and refits £60m
Telecoms network infrastructure £80m
IT hardware and software £60m
JVs and other £20m
The success of our unbundling strategy, the opportunity that the acquisition of
AOL provides us, and the evolving strategy of our retail business both in Europe
and the US, have all encouraged us to continue to raise levels of capital
expenditure to deliver on our long term goals. This continued investment, in
addition to the launch this year of our new billing and CRM platform, will lead
to a rise in depreciation and non-SAC amortisation of approximately 33%.
In addition, we plan to capitalise approximately £110m of subscriber acquisition
costs across our mobile and UK residential fixed line businesses, where minimum
term contracts apply. The cash outflow from capitalised SAC is anticipated to
exceed the amortisation charge by approximately £20m. We expect SAC
amortisation to reach or exceed annual capitalised SAC expenditure in the
following financial year.
We expect to raise the dividend by 30% next year, reflecting the Board's
continued confidence in the long term prospects of the Group.
Board appointment
The Board is pleased to announce the appointment of David Grigson as a
Non-Executive Director, with immediate effect. David Grigson is Chief Financial
Officer of Reuters Group PLC.
There are no further details in respect of this appointment required under LR
9.6.13 of the FSA Listing Rules to be disclosed.
Presentation
There is a presentation for investors and analysts on Group strategy and
guidance for the coming year at the the offices of UBS, 1 Finsbury Avenue,
London EC2M 2PP, starting at 10.00am this morning. The event will also be audio
webcast live at cpwplc.com.
Next announcement
The Group will publish its preliminary results for the year to March 2007 on 5
June 2007.
For Further Information
For analyst and institutional enquiries
Roger Taylor 07715 170 090
Peregrine Riviere 07909 907193
For media enquiries
Michelle Parrish 07736074 579
Anthony Carlisle (Citigate Dewe Rogerson) 07973 611 888
020 7638 9571
Operating Statistics
Connections, mix and store numbers
13 weeks to
31 March 2007
2007 2006 % change
Connections (000s)
Subscription 1,017 892 14.0%
Pre-pay 1,237 1,213 2.0%
SIM-free 156 121 29.1%
Group 2,410 2,226 8.3%
Store numbers
Directly operated 1,950 1,638
Franchises 194 140
Group 2,144 1,778
52 weeks to
31 March 2007
2007 2006 % change
Connections (000s)
Subscription 4,016 3,423 17.3%
Pre-pay 5,428 4,252 27.7%
SIM-free 571 516 10.7%
Group 10,014 8,191 22.3%
Customer bases
As at March
(000s) 2007 2006 % change
Insurance 2,233 1,921 16.2%
Mobile - TPHT 1,498 1,168 28.3%
Mobile - UK MVNO 482 362 33.0%
Broadband
AOL 1,535 -
TalkTalk Free 655 -
TalkTalk Existing 81 168
Total 2,271 168
Of which unbundled
AOL (partial) 327 -
TalkTalk (full) 375 -
Total 702 -
Voice
AOL 125 -
TalkTalk Free 740 -
TalkTalk Existing 1,860 2,570
Total 2,725 2,570
AOL Narrowband 505 -
TalkTalk Non-UK 347 341
This information is provided by RNS
The company news service from the London Stock Exchange