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
£m £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
• Group revenues up 40.2% to £1,809.4m
• Retail revenues up 28.2% to £857.5m; 12.1% like-for-like
• Retail gross profit up 27.8% to £234.5m; 6.8% like-for-like
• Subscription connections up 17.1% to 1.82m
• Mobile, fixed line and insurance customer bases up 59.2% to 6.82m
Operational Headlines
• In discussions with Vodafone over the establishment of a pan-European
framework agreement
• 143 net new stores opened
• Strong response to TalkTalk's free broadband proposition
• Acquisition of AOL's internet access business in the UK for £370m
• 370 exchanges unbundled; well on target to reach 1,000 by May 2007
• 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 £1,809.4m compared with £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 £59.3m (2005: £37.0m),
before start-up losses of £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
£m £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 £954.1m and EBIT of £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 £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 £234.5m. Retail like-for-like gross profit
growth was 6.8%. Subscription gross profit per connection was up 4.3% at £96.7
(2005: £92.7). Gross profit per connection on pre-pay fell 1.3% to £23.2 (2005:
£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 £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 £2.2m to Retail contribution (2005: £1.4m).
Insurance
Insurance revenues grew 14.1% year-on-year to £64.3m (2005: £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 £25.8m
(2005: £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 £32.3m (2005: £26.6m).
Telecoms Services
2006 2005
Headline Start-up Total
£m £m £m £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 £769.9m and an EBIT loss of
£22.5m, after incurring start-up costs relating to the launch of TalkTalk free
broadband and Virgin Mobile France of £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 £523.4m (2005: £256.4m). Excluding
Onetel revenues of £143.7m, revenue growth was 48.1%. Fixed Line contribution
fell 36.6% to £12.0m (2005: £19.0m), after broadband start-up costs at the
contribution level of £37.7m.
Revenues from Business operations rose 35.6% to £170.9m (2005: £126.0m), with
contribution up 28.0% to £14.8m (2005: £11.5m). Opal generated revenues of
£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 £14.3m (2005: £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 £352.6m (2005: £130.3m), but the business
recorded a loss at the contribution level of £2.7m (2005: £7.5m profit). The
existing TalkTalk UK voice operations, including Onetel, performed very well,
generating revenues of £268.1m and contribution of £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 £47.9m in its first
six months, and a loss at the contribution level of £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 £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 £36.6m but contribution
fell 48.4% to £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 £246.5m, and contribution
rose 9.0% to £25.2m. At The Phone House Telecom, revenues were up 7.5% to
£179.8m (2005: £167.2m), with contribution broadly flat at £21.3m (2005:
£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 £27.7m and a loss of £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 £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
£39.0m (2005: £38.7m), with contribution up 22.0% at £4.2m (2005: £3.4m).
Dealer
2006 2005
£m £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 £28.9m grew 23.8% year-on-year (2005: £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 £27.5m (2005: £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 £69.9m (2005: £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 £411.4m, compared to net debt of
£273.4m at the last financial year end. During the period the group generated
cash flow from operations of £15.1m (2005: £24.9m). Before investment in
broadband, cash flow from operations was £52.8m. Including operating losses,
capex and subscriber acquisition costs, the total investment in broadband in the
first half was £71.4m. We expect net debt at March 2007 to be approximately
£600-650m, after taking into account £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 £'000 £'000 £'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)
£'000 £'000 £'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)
£'000 £'000 £'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)
£'000 £'000 £'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
£'000 £'000 £'000 £'000 £'000 £'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)
£'000 £'000 £'000 £'000 £'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
£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
£'000 £'000 £'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:
£'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 £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 (£'000) 691 24,624 70,541
Headline earnings (£'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
£'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 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
£'000 £'000 £'000 £'000 £'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
£'000 £'000 £'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
