The Carphone WarehouseInterim Results 2003
4.11.03
First Half Review
Charles Dunstone, CEO
Financial highlights
• 66.7% growth in Turnover (ex Wholesale) to £723.3m
• Organic growth of 23.7%
• 68.8% growth in pre-tax profits to £20.3m
• 61.1% growth in earnings per share to 1.74p
• 15.5% LFL retail revenue growth and 10.1% LFL retail gross profit
growth
• 62% of group contribution from recurring revenues
• Interim dividend of 0.4p per share
Retail
• 1,175 stores with 35 net new stores opened year-to-date
• Now targeting 80 for full year
• 21.0% growth in revenues to £401.2m
• 12.6% growth in contribution to £27.3m
• Total connections growth of 16.4%, subscription growth of 20.8%
• Ongoing revenues up 52.5% to £19.4m
European footprint
SwedenRetail - 53 storesInsuranceOngoing
Czech RepublicRetail - 19 stores
SwitzerlandRetail - 24 storesInsuranceOngoing
PortugalRetail - 46 storesInsuranceOngoing
FranceRetail - 171 storesInsuranceOngoingFMS – 600k customers
UKRetail - 486 storesInsuranceOngoingMVNO – 175k customersFMS – 458k customersFixed line
IrelandRetail -30 storesInsuranceOngoing
SpainRetail - 142 storesInsuranceOngoing
The NetherlandsRetail - 84 storesInsuranceOngoing
BelgiumRetail - 40 storesInsuranceOngoing
GermanyRetail - 80 storesInsuranceOngoingSP - 649k customers
Total customers under management : 1,882k
Telecoms Services - Fixed
• 94.8% growth in switched minutes, year-on-year
• Opal has a c. 20% market share of net new CPS lines each month
Opal’s share of CPS market
0
50
100
150
200
250
300
350
400
450
500
Jan-
02
Mar
-02
May
-02
Jul-0
2
Sep-0
2
Nov-0
2
Jan-
03
Mar
-03
May
-03
Jul-0
3
Sep-0
3
Opal talktalk
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
Nov-02
Dec-02
Jan-03
Feb-03
Mar-03
Apr-03
May-03
Jun-03
Jul-03
Aug-03
Sep-03
0%
5%
10%
15%
20%
25%
30%
Net new lines Share of net new lines
Opal switched minutes
Min
ute
s (m
illio
ns)
talktalk
• talk70™ still the cheapest
• Activity in H1:
• 140,000 customers
• c.50 million calls
• 216m minutes
• >£2m savings over BT
Figures based on average talk70 bill for July 2003. Assumes full Calling Circle take-up.
13.8715.36 15.5
16.73 17.08
23.67
0
5
10
15
20
25
talk70 Tele2 TescoTalk
BTTogether
ReachHomecall
One.TelStandard
£
Monthly ARPU
Financial Performance
Roger Taylor - CFO
H1 '02 H1 '03
Telecoms
Wholesale
Distribution
H1 '02 H1 '03
Telecoms
Wholesale
Distribution
Group Turnover
£825.5m£861.2m
Summary performance (£m)
• 66.7% growth in turnover (ex Wholesale)
• 65.8% growth in EBIT
• 107.4% growth pre talktalk losses
£22.1m
£13.3m
Group EBIT
Distribution
£m H1’03 H1’02 % Change
Turnover 482.9 393.0 22.9%
Contribution 60.1 47.0 27.8%
Support Costs (28.3) (26.7) 5.9%
EBITDA 31.8 20.3 56.4%
Depreciation (14.5) (12.4) 17.3%
EBIT 17.3 7.9 117.4%
EBIT % 3.6% 2.0%
Retail
£m H1’03 H1’02 % Change LFL %
Turnover 401.2 331.6 21.0% 15.5%
Gross Profit 119.7 104.1 15.0% 10.1%
Gross Margin % 29.8% 31.4%
Direct Costs (92.4) (79.9) 15.7%
Contribution 27.3 24.2 12.6%
Contribution % 6.8% 7.3%
878 1,060
846964
198
214
H1 '02 H1 '03
SIM-free
Pre-pay
Subscription
• Mix improved to 47.4% from 45.7%
• Subscription connections growth of 20.8%, 24.0% in Q2
• Average connections per store rose by 13.3% from 1,639 to 1,857
1,9222,238
Group connections (000’s)
Revenue & gross profit per connection
290.7
100.1
183.8
298.9
101.2
190.7
Subscription Pre-pay Average
H1 '02
H1 '03
Average Revenue per Connection
• RPC in subscription and pre-pay has risen
• Upgrade mix has had an effect on subscription gross profit
• Mix now stabilising
• Increasing switch to Ongoing
94.8
28.7
57.7
90.8
28.9
56.9
Subscription Pre-pay Average
H1 '02
H1 '03
Average Gross Profit per Connection
Upgrades mix
• Mix has moved from c. 30% upgrade to 40% in H1 03, but stabilised in Q2
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
H1 '02/03 H2 '02/03 Q1 '03 Q2 '03
Upgrade
New sub
62,28465,094
H1 '02 H1 '03
• 35 net new stores opened year to date
• Opening programme accelerating in coming months
• Shortage of sites at reasonable rents
• Figures include 15 franchise stores (H1 2002: 6 franchises)
No. of stores at period end Average selling space for period (metres)
Sales per sq m (£)
Retail platform
5,324
6,163
H1 '02 H1 '03
1,1171,175
H1 '02 H1 '03
Online
• Strong subscription mix
• Margin impact of affinity deals
£m H1 ‘03 H1 ‘02 % Change
Connections (000s) 134 119 13.1%
Turnover 26.5 19.7 34.5%
Contribution 1.6 1.4 15.3%
Contribution % 6.1% 7.1%
Insurance
• Customer base grew by 12.8%
• Continuing strong growth in non-UK base
• Contribution margin improving from better claims trends
• Average annual premium rose 10% to £66
• Third party opportunities
£m H1 ‘03 H1 ‘02 % Change
Turnover 35.8 29.0 23.4%
Contribution 11.8 8.7 35.9%
Contribution % 32.9% 29.9%
663 726
355424
H1 '02 H1 '03UK Non-UK
Customers (000s)
Ongoing
• Strong performance driven by subscriptions growth and increasing
trend towards ongoing agreements
• Anticipating H2 flat on H1
• H1 assisted by market share triggers
£m H1 ‘03 H1 ‘02 % Change
Turnover & Contribution 19.4 12.7 52.5%
Retail/Online/Ongoing combined performance
• Strong growth in ongoing offsetting the margin reduction in Retail
• Ongoing a higher quality earnings stream
£m H1 ‘03 H1 ‘02 % Change
Turnover 447.1 364.0 22.8%
Gross profit 144.6 121.2 19.2%
Gross margin % 32.3% 33.3%
Contribution 48.3 38.3 25.9%
Contribution % 10.8% 10.5%
Wholesale
• New laws on joint and several VAT liability have curtailed activity
• Now unlikely to re-enter wholesale trading market in foreseeable future
• Voucher distribution and trade-in handset businesses continue
£m H1 ‘03 H1 ‘02 % Change
Turnover 102.2 427.5 (76.1)%
Contribution 1.0 5.1 (80.7)%
Support Costs (1.1) (0.9) 18.5%
EBITDA (0.1) 4.2 n/a
Depreciation (0.6) (0.4) 34.7%
EBIT (0.7) 3.8 n/a
EBIT % (0.7)% 0.9%
Telecoms Services
£m H1 ‘03 H1 ‘02 % Change
Turnover 240.5 40.8 489.7%
Contribution 17.8 7.1 150.9%
Support Costs (7.8) (3.8) 107.3%
EBITDA 10.0 3.3 199.8%
Depreciation (4.5) (1.7) 158.3%
EBIT 5.5 1.6 245.3%
EBIT % 2.3% 3.9%
Telecoms Services - Mobile
£m H1 ‘03 H1 ‘02 % Change
Turnover 128.2 40.8 214.4%
Ex-Hutchison 47.3 40.8 15.9%
Contribution 9.8 7.1 38.2%
Ex-Hutchison 6.0 7.1 (15.3)%
Contribution % 7.7% 17.5%
• Hutchison performing ahead of expectations so far
• Good SAC and ARPU trends
• Underlying profitability affected by loss of SFR base in March
Telecoms Services - Mobile: Customers (000s)
• Good organic growth in Voda/O2 base
135
649345
458
600
600
1234055
H1 '02 H1 '03
Fresh Sainsburys SFR HTG Voda/02 Orange
Telecoms Services - Fixed: Opal
£m H1 ‘03 H1 ‘02 % Change
Turnover 105.8 - -
Contribution 13.6 - -
Contribution % 12.8% - -
• Outstanding performance since acquisition
• Year-on-year revenue growth of 52.4%
• Contribution margin ahead of expectations
• Capex budget raised to accelerate network build-out
Opal target markets
• Directly Billed Customers
• Represents 60% of Opal contribution (62% 2002)
• New connections come from a sales force of over 80
• Corporate and SME focus
• Offer differentiated products
• Reseller Customers
• Represents 32% of Opal contribution (27% 2002)
• Over 150 active resellers
• Resellers choose Opal for network efficiency, pricing and support
• Premium Rate Services
Are margins sustainable?
• The market is competitive and there will always be pressure on
prices
• Opal’s margins have remained constant – why?
• Opal continues to extend network interconnect into BT’s network, aiming
to have 40% of calls through local exchanges by ‘03/04 and 70% by
’04/05
• Local exchanges are 27% cheaper than trunk exchanges
• Opal benefits from the annual determination of BT termination rates by
Oftel
• BT cannot make selective offers to preferred customers
Telecoms Services - Fixed: talktalk
£m H1 ‘03 H1 ‘02 % Change
Customers 140,000
Turnover 6.4 - -
Gross profit 2.9 - -
Gross margin (%) 45.3% - -
Operating profit 1.8 - -
Operating margin (%) 27.8% - -
SAC and marketing (7.3) - -
Contribution (5.5) - -
• SAC per customer £18.3 – expected to rise in H2
• talktalk expected to reach break even runrate by March 2004
Contribution from recurring revenues (£m)
• Recurring revenues accounted for 62% of group contribution in H1,up from
48% in H1 2002
19.4
8.7
8.0
12.7
11.87.1
9.8
H1 '02 H1 '03
Ongoing Insurance Mobile Fixed
Non-UK contribution (£m)
• 43% organic growth in non-UK contribution
17.5
28.8
11.9
H1 '01 H1 '02 H1 '03
Reconciliation to headline PAT and EPS
£m H1 2003 H1 2002 % Growth
Total Contribution 78.9 59.3 33.1%
Support Costs (37.2) (31.4) 18.5%
EBITDA 41.7 27.9 49.6%
Depreciation (19.6) (14.6) 34.7%
Interest (1.8) (1.3) 38.5%
Normalised PBT 20.3 12.0 68.8%
Tax (5.1) (3.0) 68.7%
Profit After Tax (PAT) 15.2 9.0 68.9%
Headline EPS 1.74 1.08 61.1%
Exceptional items (4.7) 13.2
Cash Flow (£m)
£m H1 2003 £m H1 2002 £m
EBITDA 41.7 27.9
Working capital, tax and interest (8.9) (55.4)
Capex (ex new stores) (14.5) (11.7)
Free cash flow 18.3 (39.2)
New store capex (3.6) (4.3)
Acquisitions (31.0) (0.1)
Support Centre - 36.6
Dividends (8.7) -
(25.0) (7.0)
Opening funds 29.1 34.6
FX movements (1.2) -
Closing funds 2.9 27.6
Summary
• 67% growth in turnover driven by 20% subscription growth
• 32% growth in sales per sq. ft over last 2 years
• Operational leverage in Retail and Opal
• Recurring revenues at 62% of group contribution and 71% up year
on year
• talktalk demonstrating strong pre-SAC operating margin
• European contribution growth of 64.6%
• 61% growth in headline EPS
• Operating cash flow generation of £36.6m vs £30m outflow last year
Outlook
Handset market
Nokia6600
Nokia7600
Sony EricssonP900
SamsungP400
MotorolaMPX200
Competition is intensifying
Christmas ‘02 Christmas ’03
Cheapest pre-pay £69.99 £39.99
Cheapest pre-pay colour £199.99 £69.99
Nokia 7210 on postpay £99.99 FREE
Integrated camera phone £99.99 on postpay £99.99 on pre-pay
Inclusive x-net minutes on £25 tariff 100 500
Handsets could be in short supply
Possible
Promised
Confirmed / In stock
Xmas 2003 (Blowout)
Expected Xmas 2003
Xmas 2002
Appendices
8331,058 1,147
704
864
1,091
H1 '01 H1 '02 H1 '03
Europe
UK
1,922
2,238
Group connections (000’s)
1,537
Connections by country (000s)
0
200
400
600
800
1000
1200
2002
2003
Store data
Country
UK
Belgium
Czech Republic
France
Germany
Ireland
The Netherlands
Portugal
Spain
Sweden
Switzerland
March ’03
475
41
19
169
81
29
80
44
130
51
21
Opened
21
-
-
4
8
1
4
4
15
3
3
Closed/Relocated
(10)
(1)
-
(2)
(9)
-
-
(2)
(3)
(1)
-
Sept ’03
486
40
19
171
80
30
84
46
142
53
24
Total 1,140 63 (28) 1,175