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The Carphone Warehouse Group PLC Preliminary Results 2004

The Carphone Warehouse Group PLC Preliminary Results 2004. 3 June 2004. Introduction. Hans Roger Snook - Chairman. Today’s presentation. Introduction - Hans Snook Financials - Roger Taylor Outlook - Charles Dunstone. A good year. Turnover, ex wholesale up 61.5%

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The Carphone Warehouse Group PLC Preliminary Results 2004

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  1. The Carphone Warehouse Group PLCPreliminary Results 2004 3 June 2004

  2. Introduction Hans Roger Snook - Chairman

  3. Today’s presentation Introduction - Hans Snook Financials - Roger Taylor Outlook - Charles Dunstone

  4. A good year • Turnover, ex wholesale up 61.5% • Profit before tax up 33.8% • Earnings per share up 29.7% • Dividend per share up 30% A strong outlook…

  5. Building the growth platform • Building retail strength • Extending beyond the point of sale • Leveraging our assets and skills • Replicating our model abroad • Securing synergies A still immature business

  6. The retail engine • Choice, value, impartial advice • Subscription sales mix • Aligning with mobile operators’ interests • Serving customers throughout the mobile lifetime • Generating repeat purchases The source of recurring income

  7. Beyond the point of sale • Recurring income now over 55% Group contribution • Fixed line telecoms Opal – a business telecoms leader – supporting TalkTalk TalkTalk – leading change in home telecoms – leveraging stores and brand – approaching 500,000 customers Improving the quality of earnings

  8. Maintaining growth momentum • Increasing store openings • Growing profitability of all operations • Adding fixed line growth abroad • Transforming Germany Delivering shareholder value

  9. A dynamic marketplace • Mobile: Transition from 2G to 3G Increased competition New devices, new services, new content • Fixed line: Carrier-Pre-Select, a pan-European trend Carphone Warehouse positioned to benefit

  10. Financial Performance Roger Taylor - CFO

  11. 61.5% growth in turnover (ex Wholesale) 39.8% growth in EBITA 57.4% growth pre TalkTalk losses Wholesale Telecoms Distribution Summary performance (£m) Group Turnover Group EBITA £1,841.5m £1,849.0m £81.1m £58.0

  12. Distribution • Strong Retail performance the key driver of the Distribution division • Subscription sales driving Retail, Insurance and Ongoing performance • EBITA growth of over 70% in last two years

  13. Retail • LFL trend strengthened through the year • Cash gross profit per connection more important than % GM • Costs as a % of gross profit fell from 71.3% to 70.6%

  14. Why % GM is not a key metric for our business • Typical new subscription connection • Movement in handset prices does not affect profitability

  15. Quarterly like-for-like trend • Strengthening of Retail performance throughout the year • Confidence in ROI for increased store roll-out • Comps get tougher as FY05 progresses

  16. Group connections (000’s) • Mix improved to 45.1% from 43.7% • Subscription connections growth of 26.4% • Average connections per store rose by 16.8% from 3,892 to 4,545 5,350 4,363

  17. Revenue & gross profit per connection • ARPC rose due to higher value of products sold • Upgrade effect on subscription gross profit • Pre-pay gross profit fell due to renewed demand from networks and competition from other distribution channels Average Revenue per Connection Average Gross Profit per Connection

  18. Retail platform • 74 net new stores opened • 200 new stores planned for FY05 • Figures include 26 franchise stores • Sales per square metre increased by 22.5% No. of stores at period end Average selling space for period (metres) Sales per sq m (£) 14,303 1,214 66,170 1,140 63,233 11,676

  19. Online • Strong subscription mix • E2Save broadens offering with ‘off the page’ opportunities • European expansion planned for FY05

  20. Insurance • Excellent growth in high tier base • Margins improved • ARPP flat year-on-year • £1.5m of third party revenue Customers (000s)

  21. Ongoing • Strong performance driven by subscriptions growth and increasing trend towards ongoing agreements • Growth likely to slow in FY05 given changing network mix

  22. Telecoms Services • Year-on-year performance impacted by Hutchison acquisition, Opal (full year) and TalkTalk acquisition costs

  23. Telecoms Services - Mobile • Growth in contribution reflecting strong German SP performance • Margin impact of Hutchison acquisition • Ex-Hutchison profitability affected by loss of SFR base in March 2003 • MVNO suffered vs competitive pre-pay market

  24. Telecoms Services - Mobile: Customers (000s) • Continued good organic growth in Voda/O2 base • Now managing our own Orange customers in France

  25. Impact of Hutchison acquisition on Germany • Acquired 670k customers (510k subscription) for net consideration of £30.9m - £61 per sub • Significant turnaround in overall German performance • Plan to invest in growing the base organically over next two years • Successful restructuring and integration of businesses with target of Retail break-even in next 12 months

  26. Telecoms Services - Fixed: Opal • Outstanding performance since acquisition • 60% of calls at local exchange level in March 2004 • Good leverage to operating cost base • Larger accounts and SIM gateways to impact on margin in FY05

  27. Telecoms Services - Fixed: TalkTalk • SAC per customer weighted towards third party channels in H2 • Changing post Big Idea • Gross and operating margins very strong • Considerable investment in building awareness continued into FY05

  28. Wholesale • Since April 2003, activities restricted to network voucher distribution and disposal of trade-in handsets • No likelihood of returning to handset wholesale market in year ahead • C&E continuing to investigate the recovery of VAT across the industry

  29. Contribution from recurring revenues (£m) • Recurring revenues now account for 55.3% of Group contribution (2003: 49.7%) • Further progress expected in FY05 with TalkTalk contribution

  30. Non-UK contribution (£m) • Non-UK contribution now 38.4% of Group (2003: 30.9%) • Growth of 79% in non-UK EBITA to £31.3m (FY03: £17.5m)

  31. 2003-04 Profits Bridge

  32. Reconciliation to headline PAT and EPS • Tax rate of 22% for FY04 (FY03: 22%) • Exceptionals reflect German reorganisation and non-cash charge on partial wireless portfolio disposal

  33. Cash Flow (£m)

  34. Investment appraisal • FY05 will be a year of significant capital investment • All capex and acquisition projects must meet stringent financial return criteria • Acquisitions to achieve post-tax cash IRR of 15% • Recent acquisitions on track to beat this comfortably • New stores to achieve 2 year cash payback • Of the 81 stores opened in the last 6 months and trading for more than 5 weeks, 46 are running more than 10% ahead of appraisal targets • IT investment is prioritised and justified by financial return

  35. ROCE and EVA • ROCE expected to rise this year despite significant capital expenditure • Detailed calculations in Appendix • Targeting increase in EVA through enhanced returns and lower WACC

  36. Highlights of FY04 • EBITA growth of 39.8% • Quality of Retail sales was driver of strong Distribution performance • Investment in Hutchison in Germany provided a platform for profitable growth in leading mobile market • Opal revenue growth and operating margins exceeded acquisition expectations • Successful launch of TalkTalk • Cash generated from operations of over £100m A strong lead in to FY05 for a year of investment and further growth

  37. Outlook and TalkTalk update Charles Dunstone - CEO

  38. Western Europe Handset Market • The market returned to strong growth in 2003 Source: GfK

  39. Mobile phones - Roll out of features Units (000’s) Western Europe Handset Market Source: GfK

  40. CPW ahead on new technology % of March 2004 units

  41. Still a vibrant market Panasonic X300 Samsung E800 Motorola V80 Sony Ericsson S700 Nokia 7610

  42. 3G beginning to register on the radar % of CPW UK post pay connections

  43. Still a vibrant market

  44. Leveraging our market position Total weekly cost of price matching

  45. Stock availability remains good

  46. Customers are becoming less satisfied with networks • Survey highlights ‘significant declines’ in customer satisfaction • Intent to switch providers has risen in both pre-pay and contract Overall satisfaction Pre-pay Overall satisfaction Contract 735 723 720 711 Source – JD Power

  47. Planned store openings in FY05 Germany 72 stores UK 509 stores 100 openings planned Ireland 32 stores 4 openings planned Sweden 59 stores 5 openings planned The Netherlands 87 stores 10 openings planned Belgium 40 stores 4 openings planned Switzerland 29 stores 20 openings planned France 175 stores 20 openings planned Spain 164 stores 40 openings planned Portugal 47 stores 2 openings planned

  48. Opal outlook • Expecting further organic growth and industry consolidation in FY05 • Business mix improving, with less high revenue, low margin PRS • Mix effect and economies of scale partially offsetting competitive pressures and cost of mobile termination • Investing for the network to carry 2 billion minutes/month

  49. Opal minutes • Traffic over the Opal network increased 100.5% year-on-year

  50. TalkTalk progress • Runrate maintained in April / May • Nearing 500,000 customers • 900,000 by March 2005 Source=Ofcom

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