REG - Carphone Warehouse - Final Results

Thu Jun 14, 2012 2:00am EDT

* Reuters is not responsible for the content in this press release.

RNS Number : 3349F
Carphone Warehouse Group PLC
14 June 2012
 



 

 

 

 

 

Thursday 14 June 2012

 

Embargoed until 7am

 

                                                Carphone Warehouse Group plc

 

Preliminary results for the year ended 31 March 2012

 

 

·     Headline EPS up 4% to 12.6p (2011: 12.1p)

·     CPW Europe EBIT £135m, in line with guidance (2011: £135m)

·     Virgin Mobile France revenue growth of 19% to £390m (2011: £328m)

·     Virgin Mobile France EBIT up 4% to £22m (2011: £21m)

·     Group statutory PBT £762.2m (2011: £67.2m), reflecting the disposal of Best Buy Mobile

·     Group Headline PBT £58.3m (2011: £56.3m)

·     £813m returned to shareholders from Best Buy Mobile disposal

·     Final dividend of 3.25p taking the full year dividend to 5p per share

 

 

Outlook and guidance for the year to March 2013

 

·     CPW Europe: Headline EBIT in the range £130m to £150m

·     Virgin Mobile France: revenue growth of 5-10%

·     Group: Headline EPS in the range 11.5p-13.0p

 

A reconciliation of Headline results to statutory results is provided in note 5 to the financial review.

 

 

 

Roger Taylor, CEO, said:

"Our core businesses have performed well during the year, delivering a robust performance in a challenging environment. CPW Europe continues to take advantage of its positioning in the Connected World, focusing on its newly designed store format, wider product and service proposition and strong relationships with network partners, all of which have enabled us to meet our EBIT target for the year.Virgin Mobile France proved to be a resilient business in a very competitive market, with strong revenue growth, and we are excited about the opportunities that the move to a Full MVNO and launch of quad-play will bring. Looking ahead, we expect the consumer environment in Europe to remain difficult, but we see opportunities as well as challenges and we are confident in our strategic positioning and operational execution."

 

 



Group operational overview

 

Following the disposal of our interest in Best Buy Mobile and the closure of Best Buy UK, the Group now comprises our 50% interest in the core European retail business, CPW Europe, and a 47% interest in France's leading MVNO, Virgin Mobile France. In addition, we own properties in London and the north of England, and have substantial cash balances.

 

 

CPW Europe

 

CPW Europe delivered Headline EBIT in line with last year at £135.0m (2011: £134.6m) despite a challenging consumer and mobile market.

 

Revenue of £3,313.1m was 5.5% lower year-on-year (2011: £3,504.8m), but this was largely anticipated. Revenues associated with our German service provider business fell by around £100m, as we concluded its migration to a more typical retail model. In addition, a lack of attractively priced smartphone products in the prepay segment and a weak consumer environment caused a drop of 30-40% in prepay volumes in some markets. This had an impact on revenue, but a limited effect on profitability.

 

Looking ahead, pressure on mobile ARPUs as a result of regulation, competition and the challenging consumer environment will continue. Against this, however, the mobile market shift from 18 to 24 month contracts is now complete and we are starting to enjoy the anticipated benefits from our new contract terms with the network operators. We are also seeing continued payback from our investment in the roll-out of our Wireless World store format, as well as continued momentum in non-cellular product categories where we see real opportunity. Although the prepay market currently remains weak, we have some reason to be more optimistic about the increasing availability of lower priced prepay smartphones in the year ahead.

 

In the UK and in Europe, we have a proven way forward to meet consumers' demand for the Connected World. Built around the central theme of connectivity, our newer format Wireless World stores offer a wider range of mobile and other connected devices and an enhanced level of service. These stores have proved popular with customers and have delivered compelling returns. We had 392 Wireless World stores across the Group as at the end of March 2012 (2011: 106) and we anticipate that the large majority of UK stores will be in the new format within the next two to three years, with continuing progressive conversion in mainland European markets. Within this format we continue to see a promising uptake of the Geek Squad proposition, not only in assurance products but also in service capabilities in-store.

 

One of CPW Europe's key opportunities is to broaden the non-cellular product category by moving more deeply into tablets, accessories, and app-cessories, making CPW Europe the home of technology and giving our customers many more reasons to come into our stores.

 

 

Virgin Mobile France

 

Virgin Mobile France grew revenue by 18.8% to £390.2m (2011: £328.4m), reflecting postpay growth and the benefit of termination revenues which were earned for the first time during the fourth quarter. Faced with increased competition in the French market since early January, the business has proved to be very robust. Around 70% of the Virgin Mobile France customer base is postpay, and whilst on a net basis we lost customers in January and February, by March we had resumed growth in the postpay segment and delivered significant revenue growth for the quarter. As at the end of March 2012 the customer base was flat year-on-year at 1,917,000.

 

The business produced Headline EBIT of £21.5m (2011: £20.6m). The EBIT margin was slightly lower than last year reflecting increased investment in higher value postpay customers, which will help to drive both earnings and value over time.

 

Going forward, with its Full MVNO contracts with both Orange and SFR, Virgin Mobile France can now progressively move its customer base onto this platform, bringing significant benefits of increased flexibility and reduced costs, as well as enabling us to enhance our consumer proposition.

 

The business also announced recently the launch of a quad-play offer, which provides a new strategic opportunity and value-driver. Whilst still in its early stages, we are anticipating that this offer will attract and retain a higher value customer as we further develop our reach into the French market.

 

 

Global Connect

 

Global Connect is the new capital-light profit share agreement between Best Buy and Carphone Warehouse, which aims to replicate the successful Best Buy Mobile model in jurisdictions outside North America and Western Europe.

 

Best Buy recently announced that it plans to have six Best Buy Mobile SWAS stores within Five Star, its business in China, by July 2012, with another eight stores planned for August. Under the Global Connect Agreement, Carphone Warehouse Group is entitled to a 20% share in incremental earnings from this business. Plans for new territories are currently being developed and we hope to make announcements in due course.

 

 

Discontinued businesses

 

During the year, the Group disposed of its interest in Best Buy Mobile for an initial consideration of £813m plus a further £25m in consultancy payments over a five year period. CPW Europe's share of pre-tax profits from Best Buy Mobile for the first half of 2011-12 were £45.0m. Our share in this business ended from September 2011.

 

We also decided to close the 11 trial Best Buy UK stores during the year and concluded this in January 2012. Whilst customer feedback was positive, without national reach the business could not make an acceptable rate of return. Best Buy UK incurred operating losses of £72.5m during the year. Post-tax closure costs of £120.9m have been booked, in line with expectations, of which £45.9m were non-cash asset write-downs, and of which the Group's share was £60.5m.

 

 

Outlook and guidance for the year to March 2013

 

 

CPW Europe

We expect the consumer environment in Europe to remain challenging in the year ahead along with the continued effect of regulation and competition in the mobile market. However, we see some exciting opportunities and remain confident in our strategic positioning and operational execution.

The effect of reduced subsidies on the prepay market is likely to continue into the coming year, and as a result we expect that connection volumes will show a similar year-on-year decline in the first half of the coming year as we saw in the second half of last, causing the same pattern in like-for-like revenue. However, we remain confident in our opportunity to reinvigorate the prepay market by driving smartphone penetration into that segment, and expect this to mitigate the structural effect of reduced subsidies, particularly in the second half.

We expect continuing pressure on network revenues as a result of regulation, competition and the consumer environment, and expect this in turn to affect CPW Europe's revenues and margins. Against this, the business is set to enjoy the growing benefit of customer revenues beyond the initial contract period, through the commercial terms previously agreed with network operators.

We also anticipate continued returns from our ongoing investment in Wireless World stores, and see exciting opportunity to grow our non-cellular revenues, as more and more products that utilise connected devices come to market.

Overall, we expect Headline EBIT to be in the range £130m to £150m, with the ultimate outturn for the year likely to be dependent on our success in driving smartphones more fully into the prepay segment, and on broader economic conditions in some of our continental European markets.

Cash generation will be a key priority for the business in the coming year, and we expect a working capital inflow of over £100m, reversing the short-term negative pattern that we saw in the year to March 2012.

Given the challenging environment, particularly in some of our continental European markets, we will naturally be exploring various cost reduction opportunities throughout CPW Europe. We will also continue to explore opportunities to gain further scale in a number of our mainland European markets.

 

 

Virgin Mobile France

Virgin Mobile France will continue to focus on growing its postpay base and its revenues in the year ahead. While the business is not immune to downward pressure on market ARPUs, we will see the increasing benefit of termination revenues in the coming year, and are targeting year-on-year revenue growth of 5-10%.

We will continue to move customers onto our Full MVNO infrastructure, which provides us with greater strategic flexibility and improved margins. We aim to have at least half of our customers on the new infrastructure by the end of the year.

These improved margins help to counter downward pressure on ARPUs, and as a result, we expect to maintain earnings for the core business at a similar level to 2011-12.

Since the end of last year, Virgin Mobile France has launched a quad-play proposition, providing broadband, landline and TV alongside mobile services. This proposition is in its infancy, but may help the business to attract and retain higher value customers. Investment in this venture is expected to be limited in the coming year, but will be reported separately to provide visibility.

The year ahead will require continued investment in capex, both in relation to the roll-out of Full MVNO infrastructure and on quad-play equipment, which will in turn result in lower levels of cash generation than in 2011-12.

 

Group

Headline EPS is expected to be in the range 11.5p-13.0p, reflecting the guidance above for the Group's joint ventures and broadly flat net income from wholly-owned operations.

 



Performance review

 

 

CPW Europe

 

Headline income statement (100% basis) *

 


 

2012

£m

Restated

2011

£m

Revenue

3,313.1

3,504.8

Gross margin

947.4

996.0

GM %

28.6%

28.4%

Operating expenses

(727.8)

(776.9)

EBITDA

219.6

219.1

Depreciation and amortisation

(84.6)

(84.5)

EBIT

135.0

134.6

EBIT%

4.1%

3.8%

Interest

(16.4)

(15.2)

Tax

(22.0)

(24.8)

PAT

96.6

94.6

Group share

48.3

47.3




* Headline results exclude exceptional items and the results of businesses which have been discontinued.  Prior year Headline results have been restated to exclude the results of businesses which have been discontinued.  For further details see notes 3 and  7 to the financial review.

 

CPW Europe generated revenues of £3,313.1m, a decrease of 5.5% year-on-year (2011: £3,504.8m). As anticipated, revenues associated with our German service provider business fell by around £100m, as we concluded its migration to a more typical retail model.

 

CPW Europe saw a like-for-like revenue decline of 4.6%, reflecting structural changes in certain European markets.

 

The first half of the year saw the impact of the shift from 18 month to 24 month contracts in the UK from mid-2009 onwards which reduced the number of upgrades available in the market. The effect of this shift annualised during the year and the UK business showed growth in postpay connections in the second half of the year.

 

Regulatory cuts to mobile termination rates in the first half of the year resulted in network operators reducing subsidies on prepay handsets, causing a drop of 30-40% in prepay connection volumes in some markets. While the impact of this was principally seen on relatively low value connections, which had a limited effect on profitability, the revenue lost from these transactions had an adverse impact on like-for-like revenue, particularly in the second half of the year.

 

Smartphone penetration continued to increase in the postpay segment, driving an improvement in average revenue per connection. The prepay segment was subdued by the reduction of subsidies noted above, together with weak consumer confidence, and smartphone penetration in this category has remained relatively low to date.

 

Reduced prepay revenues were partially offset by increased non-cellular revenues, where we saw year-on-year growth of over 15% in the second half of the year. Non-cellular is still a very small part of overall revenue, but the potential for growth presented by tablets, accessories, and app-cessories is significant.

 

The consumer environment continues to be challenging in some of our mainland European markets. We are therefore focusing on scale, structure and strong cost control to help mitigate these challenges.

 

In December 2011, CPW Europe completed the disposal of its retail operations in Belgium to Belgacom for net cash consideration of £16.5m.  CPW Europe recorded a gain of £8.0m on the disposal, although this was substantially offset by the adverse trading impact of having announced the sale to Belgacom in April 2011.

 

Connection volumes (excluding Belgium and Best Buy UK) dropped year-on-year, falling by 13.9% from 11.4m to 9.8m, reflecting the factors noted above.

 

CPW Europe opened or resited 195 stores, closed 149 and disposed of 82 in Belgium, ending the year at 2,393 stores, slightly lower than the 2,429 at the start of the year. Within this portfolio, the number of franchise stores increased from 243 at March 2011 to 338 at the end of the year, primarily reflecting growth in France and Spain. In addition to the disposal in Belgium, the decrease in own stores reflects the closure of further stores in Germany along with some smaller stores in other territories.

 

The business has continued to develop its Wireless World store format. At the start of the year we targeted having 350-400 of these stores by the end of March 2012. We ended the year towards the top end of this range with 392 Wireless World stores across our eight remaining retail markets. We continue to see the benefits of this store format both in our financial results and in our customer service scores and remain committed to converting further stores in the year ahead.

 

The gross margin percentage increased by 20 basis points year-on-year to 28.6% (2011: 28.4%).

 

The shift from 18 to 24 month contracts in the UK caused a drop in high margin postpay connections in the first half of the year. Additionally, the business saw the effect of pressure on network ARPUs, due to regulation, competition and the challenging consumer environment, affecting both revenues and margins particularly in the second half of the year.

 

These effects were countered by the first material benefits of commercial terms agreed with network operators in 2009-10 under which CPW Europe receives a more significant share of customer spend after the initial contract term.

 

Increasing visibility of customer behaviour beyond the initial contract period has resulted in higher revenues being recognised at the initial point of connection. This incremental revenue has been used to support the customer proposition, reflecting our long-held strategy of investing the benefits of scale and commercial terms into the customer proposition in order to drive market share.

 

Operating expenses decreased by 6.3% year-on-year to £727.8m (2011: £776.9m). CPW Europe benefited from reduced operating costs in its German service provider business, the gain on the disposal of Phone House Belgium, and ongoing cost reduction initiatives.

 

CPW Europe's Headline EBIT margin increased from 3.8% to 4.1%, reflecting the factors described above.

 

During the year CPW Europe refinanced its debt facilities, which were due to expire in 2012, with a new RCF of £400m which matures in July 2015.  The costs of the new RCF are significantly lower than the previous debt facility. The interest charge for the year was marginally up year-on-year at £16.4m (2011: £15.2m) as the lower margin paid on the new RCF was offset by the write-off of fees from the previous facility.

 

CPW Europe had an effective tax rate of 18.5% (2011: 20.8%). The decrease reflects the reduction in the UK rate of tax from 28% to 26% and the resolution of various historical tax issues during the year.

 

 

Discontinued businesses and exceptional items

 

Best Buy Mobile

During the year the Group disposed of its interest in Best Buy Mobile for an initial consideration of £813.0m and a further £25.0m in consultancy payments over a five year period, both of which are payable directly to the Group.

 



As a result of the disposal, CPW Europe's profit share ceased from September 2011. CPW Europe's share of pre-tax profits for the year was £45.0m (2011: £97.9m).

 

The profit share from Best Buy Mobile, along with certain costs relating directly to the disposal, have been excluded from Headline results in order to provide visibility of the performance of the continuing business.

 

CPW Europe incurred cash costs of £27.7m in connection with the disposal and recorded non-cash accounting charges of £0.7m. These costs relate principally to the replacement of existing CPW Europe incentive schemes, and the award of 7.0m shares in the Company to CPW Europe executives in recognition of their contribution to the success of Best Buy Mobile and inherent value included within existing incentive schemes. These shares are restricted until 2015, representing an extension on the restrictions to 2014 provided under the previous schemes. CPW Europe agreed to pay £11.7m to the Group in relation to these shares, and incurred further cash costs of £15.0m in relation to employment taxes and other compensation that resulted from the transaction. CPW Europe also incurred fees of £1.0m in relation to the disposal. A tax credit of £7.2m has been recognised in respect of these charges. This has been offset by the derecognition of £12.7m of deferred tax assets which are expected to be irrecoverable as a result of the transaction.

 

Best Buy UK

During the year CPW Europe closed its Best Buy UK 'Big Box' business. While the 11 trial stores that had been opened had delivered positive customer satisfaction scores, they did not have the national reach to achieve scale, brand economies and an acceptable return on investment. The business ceased trading in January 2012, and all back office operations have been closed. Seven of the 11 leases have been assigned, one of which is subject to planning consent, and options have been granted on the remaining four, which are expected to be exercised during 2012-13.

 

Best Buy UK incurred operating losses of £72.5m during the year (2011: £62.2m) against which a tax credit of £19.5m (2011: £17.9m) has been recognised. These operating losses, along with the costs of closing the business, have been excluded from Headline results in order to provide visibility of the performance of the continuing business.

 

Total closure costs of £146.8m have been booked, against which a tax credit of £25.9m has been recognised. Closure costs comprise £45.9m of non-cash asset write-downs, £57.5m in relation to property leases, £10.7m in relation to redundancies and other employee-related costs, and other costs of £32.7m, primarily reflecting stock write-downs and contract exit costs.

 

 

Cash flow (100% basis)

 


2012

£m

2011

£m

Headline EBITDA

219.6

219.1

Working capital

(170.8)

(35.0)

Capex

(88.3)

(69.4)

Operating free cash flow

(39.5)

114.7

Best Buy Mobile

45.0

97.9

Best Buy UK

(124.5)

(78.0)

Other

(42.1)

(60.3)

Movement in net (debt) funds

(161.1)

74.3

Opening net funds

131.7

57.4

Closing net (debt) funds

(29.4)

131.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Headline EBITDA was broadly flat year-on-year at £219.6m (2011: £219.1m) for the reasons described above.

 

CPW Europe experienced a working capital outflow of £170.8m in the year, up from £35.0m in the previous year. The largest part of this increase reflected the temporary build-up of network receivables, as a result of a sales weighting towards networks with less favourable payment terms; these terms are being addressed as part of the finalisation of new long-term contractual agreements.

 

The working capital absorption also reflects moving to direct supply arrangements on some key handsets.

 

Capex spend increased to £88.3m (2011: £69.4m) reflecting substantial additional investment in the Wireless World store format and increased investment in IT platforms. These items were offset by proceeds of £16.5m from the sale of Phone House Belgium.

 

Best Buy Mobile reflects CPW Europe's profit share in this business, as described above.

 

Total cash costs associated with Best Buy UK were £124.5m, reflecting EBITDA losses of £69.1m, capex of £4.5m and closure costs incurred in the year of £50.9m. Further closure costs of approximately £50m are expected in the year to March 2013, principally in relation to final property exit costs.

 

Tax payments made during the year reduced to £12.7m (2011: £44.0m) principally reflecting lower tax payments in the UK due to the closure costs of Best Buy UK and lower profits from Best Buy Mobile.

 

Exceptional cash costs of £10.4m were incurred in the year in relation to the Best Buy Mobile disposal, principally in relation to the incentive schemes described above.

 

The main other components of other cash flows are interest costs and facility fees associated with the new £400m RCF.

 

At the end of the year, net debt within CPW Europe was £29.4m (2011: net funds of £131.7m) reflecting the cash flows described above.

 

 

Virgin Mobile France

 

Headline income statement (100% basis) *

 


2012

£m

2011

£m

Revenue

390.2

328.4

EBITDA

25.7

24.3

Depreciation and amortisation

(4.2)

(3.7)

EBIT

21.5

20.6

EBIT %

5.5%

6.3%

Interest

(2.5)

(2.9)

Taxation

(6.7)

(0.7)

PAT

12.3

17.0

Group share

6.1

8.2

 

* See note 7 to the financial review.

 

Virgin Mobile France revenue increased by 18.8% year-on-year to £390.2m (2011: £328.4m) reflecting a higher customer base during the year, an improvement in the quality of customers on the base and the first impact of mobile termination revenue towards the end of the year. Revenue growth at a constant currency was 17.5%.

 

The closing customer base was flat year-on-year at 1.92m customers; however the quality of the base improved substantially with the postpay base increasing by 7.6% year-on-year to 1.34m as the business benefited from good availability of exciting smartphones and an array of competitive offers.

 

In the final quarter of the year Iliad launched its mobile offer in France, offering low cost postpay SIM-only propositions. While Virgin Mobile France experienced an initial spike in churn, the impact was limited and the postpay base returned to growth within weeks of Iliad's launch.

 



The business produced a Headline EBIT margin of 5.5% (2011: 6.3%) with the decrease year-on-year reflecting increased investment in higher value postpay customers, which will help to drive both earnings and value over time. Interest decreased year-on-year from £2.9m to £2.5m, reflecting lower average debt as the business continued to repay shareholder loans during the year.

 

The tax charge of £6.7m (2011: £0.7m) reflects the rate temporarily applicable in France of 36.1% (standard rate 34.4%) although the impact of the increase in rate is partly reduced by the utilisation of brought forward losses. The prior year benefited from a one-off credit in relation to brought forward losses.

 

Virgin Mobile France recorded amortisation on acquisition intangibles arising on the acquisition of Tele2 France, of which the Group's post-tax share is £1.3m (2011: £2.2m). This charge is excluded from Headline results to avoid distortion of underlying performance.

 

 

Cash flow (100% basis)

 


2012

£m

2011

£m

EBITDA

25.7

24.3

Working capital

8.9

2.6

Capex

(12.5)

(6.8)

Operating free cash flow

22.1

20.1

Other

1.1

4.5

Movement in net debt

23.2

24.6

Opening net debt

(63.6)

(88.2)

Closing net debt*

(40.4)

(63.6)

 

* Comprises shareholder loans of £50.5m (2011: £74.3m) and net cash of £10.1m (2011: £10.7m).

 

EBITDA increased from £24.3m to £25.7m for the reasons described above. Capex increased year-on-year to £12.5m (2011: £6.8m) reflecting investment in the Full MVNO infrastructure.

 

The working capital inflow of £8.9m (2011: £2.6m) reflected some one-off items which are not expected to be repeated. Other cash flows reflect interest paid and the impact of foreign exchange. Other cash flows in the prior year include an inflow of £6.7m in relation to the finalisation of the Tele2 France purchase price.

 

Other Group financials

 

Headline income statement


 

2012

£m

 

 

Restated

2011

£m

 


Revenue

6.4

5.6

Operating expenses

(5.4)

(8.7)

Joint ventures



- CPW Europe

48.3

47.3

- Virgin Mobile France

6.1

8.2

Interest

2.9

3.9

Profit before tax

58.3

56.3

Taxation

(0.6)

(1.6)

Profit after tax

57.7

54.7




Earnings per share

12.6p

12.1p

 

 



Revenue increased from £5.6m in 2010-11 to £6.4m in 2011-12, reflecting consultancy income associated with the disposal of the Group's interest in Best Buy Mobile. Operating expenses reduced to £5.4m (2011: £8.7m) reflecting provision releases following the resolution of various uncertainties during the year.

 

Net interest for the year decreased to £2.9m (2011: £3.9m) principally reflecting a reduction in loans to Virgin Mobile France and a reduction in shareholder facilities provided to CPW Europe during 2011-12.

 

 

Statutory results

 


2012

£m

2011

£m

Headline PAT

57.7

54.7




Best Buy Mobile disposal

 



Initial consideration

813.0

-

Operating expenses (post-tax)

(19.7)

-




Share of CPW Europe



Discontinued businesses

(9.8)

13.1

Exceptionals

(77.4)

-




Share of Virgin Mobile France



Amortisation of acquisition intangibles

(1.3)

(2.2)




Statutory PAT

762.5

65.6




Earnings per share

167.0p

14.5p

 

During the year the Group received initial consideration of £813.0m from the disposal of its interest in Best Buy Mobile.

 

Operating expenses associated with the disposal relate principally to the award of shares to CPW Europe employees described above, together with the crystallisation of value on certain Group incentive schemes as a result of the disposal. This resulted in the acceleration of non-cash accounting charges for the relevant schemes. Total charges relating to incentive schemes were £17.5m. Professional fees of £3.1m were also incurred in relation to the disposal.  A tax credit of £0.9m arose in relation to these costs.

 

As explained above, the Group's share of results of discontinued businesses and exceptional items within CPW Europe were a net expense of £9.8m (2011: net income of £13.1m) and £77.4m (2011: nil) respectively.

 

The Group's post-tax share of amortisation of acquisition intangibles in Virgin Mobile France was £1.3m (2011: £2.2m).

 

These items are excluded from Headline results in order to provide visibility of the underlying performance of the continuing business. A reconciliation between Headline results and statutory results is provided in note 5 to the financial review.

 

Net funds and dividends

 

The Group closed the year with net funds of £102.7m (2011: £120.6m) and loans receivable from Virgin Mobile France of £24.3m (2011: £35.7m). The reduction in net funds year-on-year predominantly reflects ordinary dividends paid during the year of £30.6m and the net purchase of own shares at a cost of £27.7m, offset by £32.9m of cash held at the balance sheet date that was returned to shareholders through the deferred capital option of the B/C Share Scheme in April 2012.

 

We are proposing a final dividend of 3.25p per share, bringing the total dividend for the year to 5.0p (2011: 5.0p). The final dividend is subject to shareholder approval at the Company's forthcoming annual general meeting. The ex-dividend date is Wednesday 4 July 2012, with a record date of Friday 6 July 2012 and an intended payment date of Friday 3 August 2012.

 

 

 

 

Analysts' presentation and webcast

 

There will be a presentation for investors and analysts at 9.00 am this morning at the offices of UBS Investment Bank, 100 Liverpool Street, London, EC2M 2RH.

 

The event will be audio webcast and the presentation slides will be available on our website, www.cpwplc.com.

 

Dial-in details:

UK/International: +44 (0)20 3136 2054

USA: +1 646 254 3360

Passcode: 8804433

 

Next announcement

 

The Group will give a full trading update for the first quarter of the current financial year on 27 July 2012. 

 

For further information

 

For analyst and institutional enquiries                 

Kate Ferry, IR Director                                                07748 933 206

 

For media enquiries

Shane Conway, Head of PR, CPW Europe               07932 199 659 

Anthony Carlisle (Citigate Dewe Rogerson)               07973 611 888

                                                                                    020 7638 9571

 

 



 

FINANCIAL REVIEW

 

Condensed consolidated income statement for the years ended 31 March 2012 and 31 March 2011

 

 



 

Headline

 

Non-Headline*

 

Statutory

Restated*

Headline

Restated *

Non-Headline *

 

Statutory



2012

2012

2012

2011

2011

2011


Notes

£m

£m

£m

£m

£m

£m

Revenue

2

6.4

-

6.4

5.6

-

5.6

Cost of sales


-

-

-

-

-

-

Gross profit


6.4

-

6.4

5.6

-

5.6

Operating expenses

3

(5.4)

(20.6)

(26.0)

(8.7)

-

(8.7)

Share of results of joint ventures

2,3,7

54.4

(88.5)

(34.1)

55.5

10.9

66.4

Profit (loss) before investment income, interest and taxation


55.4

(109.1)

(53.7)

52.4

10.9

63.3

Interest income


2.9

-

2.9

3.9

-

3.9

Interest expense


(0.2)

-

(0.2)

(0.6)

-

(0.6)

Investment income

3

0.2

813.0

813.2

0.6

-

0.6

Profit before taxation


58.3

703.9

762.2

56.3

10.9

67.2

Taxation

3

(0.6)

0.9

0.3

(1.6)

-

(1.6)

Net profit for the year


57.7

704.8

762.5

54.7

10.9

65.6

























Earnings per share








Basic

6

12.6p


167.0p

12.1p


14.5p

Diluted

6

12.1p


159.6p

11.6p


13.9p

 

 

* Non-Headline items comprise exceptional items, the results of businesses which have been discontinued by the Group's joint ventures, and amortisation of acquisition intangibles (see note 3). Prior year Headline results have been restated to exclude the results of businesses which have been discontinued by the Group's joint ventures. A reconciliation of Headline results to statutory results is provided in note 5.

 

 

 

 

 

 

 

 

 

 

 

 

 



Condensed consolidated statement of comprehensive income for the years ended 31 March 2012 and 31 March 2011

 




2012

2011




£m

 £m

Net profit for the year



762.5

65.6

Currency translation



(11.9)

(0.1)

Total recognised income and expenses for the year



750.6

65.5

 

 

Condensed consolidated statement of changes in equity

 

For the year ended 31 March 2012

 


Share capital

Share premium reserve

Accumulated profits

Translation reserve

Demerger reserve

Capital redemption reserve

Total


£m

£m

£m

£m

£m

£m

£m

At the beginning of the year

0.5

754.0

741.7

12.0

(750.2)

-

758.0

Total recognised income and expenses for the year

 

-

 

-

 

762.5

 

(11.9)

 

-

 

-

 

750.6

Issue of shares

589.8

(584.0)

-

-

-

-

5.8

Redemption of shares

(556.9)

-

(556.9)

-

-

556.9

(556.9)

Equity dividends

-

-

(253.6)

-

-

-

(253.6)

Net purchase of own shares

-

-

(16.0)

-

-

-

(16.0)

Tax on items recognised directly in reserves

 

-

 

-

 

(0.2)

 

-

 

-

 

-

 

(0.2)

Share of other reserve movements of joint ventures

 

-

 

-

 

0.7

 

-

 

-

 

-

 

0.7

Net movement in relation to share schemes

 

-

 

-

 

19.6

 

-

 

-

 

-

 

19.6

At the end of the year

33.4

170.0

697.8

0.1

(750.2)

556.9

708.0

 
 
For the year ended 31 March 2011
 










Share capital

Share premium reserve

Accumulated profits

Translation reserve

Demerger reserve

Capital redemption reserve

Total


£m

£m

£m

£m

£m

£m

£m

At the beginning of the year

0.5

754.0

675.1

12.1

(751.2)

-

690.5

Total recognised income and expenses for the year

 

-

 

-

 

65.6

 

(0.1)

 

-

-

 

65.5

Net purchase of own shares

-

-

(2.7)

-

-

-

(2.7)

Tax on items recognised directly in reserves

-

-

1.0

-

-

-

1.0

Share of other reserve movements of joint ventures

-

-

1.5

-

-

-

1.5

Net movement in relation to share schemes

-

-

1.2

-

-

-

1.2

Movements in demerger reserve

-

-

-

-

1.0

-

1.0

At the end of the year

0.5

754.0

741.7

12.0

(750.2)

-

758.0



 

Condensed consolidated balance sheet as at 31 March 2012 and 31 March 2011

 



2012  

 2011


Notes

£m

  £m

Non-current assets




Property, plant and equipment


66.1

67.8

Non-current asset investments


0.1

0.1

Interests in joint ventures

7

535.5

592.2

Deferred tax assets


1.3

1.4



603.0

661.5

Current assets




Trade and other receivables


21.3

6.5

Cash and cash equivalents


102.7

120.6



124.0

127.1

Total assets


727.0

788.6

Current liabilities




Trade and other payables


(10.1)

(16.2)

Corporation tax liabilities


-

(1.2)

Provisions


(8.9)

(13.2)

Total liabilities


(19.0)

(30.6)

Net assets


708.0

758.0





Equity




Share capital


33.4

0.5

Share premium reserve


170.0

754.0

Accumulated profits


697.8

741.7

Translation reserve


0.1

12.0

Demerger reserve


(750.2)

(750.2)

Capital redemption reserve


556.9

-

Funds attributable to equity shareholders


708.0

758.0

 

 

Approved by the Board of Carphone Warehouse Group plc on 13 June 2012

 



Condensed consolidated cash flow statement for the years ended 31 March 2012 and 31 March 2011

 



2012

2011



 £m

 £m

Operating activities




(Loss) profit before investment income, interest and taxation


(53.7)

63.3

Adjustments for non-cash items:




      Share-based payments


14.9

1.9

      Non-cash movements on joint ventures


34.1

(66.4)

      Depreciation

1.0

0.8

      Impairment


0.8

-

Operating cash flows before movements in working capital


(2.9)

(0.4)

(Increase) decrease in trade and other receivables


(4.2)

0.2

Increase in trade and other payables


-

5.0

Decrease in provisions


(4.3)

(0.4)

Cash flows from operating activities


(11.4)

4.4

Taxation paid


(0.9)

-

Net cash flows from operating activities


(12.3)

4.4





Investing activities




Investment income received


813.2

0.6

Interest received


2.9

3.9

Acquisition of property, plant and equipment


(0.5)

(2.3)

Net receipts from joint ventures


9.9

14.6

Cash flows from investing activities


825.5

16.8





Financing activities




Settlement of financial instruments


1.5

2.7

Net purchase of own shares


(27.7)

(2.7)

Equity dividends paid


(253.6)

-

Shares redeemed


(556.9)

-

Interest paid


(0.2)

(0.6)

Repayment of VES loans


5.8

-

Cash flows from financing activities


(831.1)

(0.6)





Net (decrease) increase in cash and cash equivalents


(17.9)

20.6

Cash and cash equivalents at the start of the year


120.6

100.0

Cash and cash equivalents at the end of the year


102.7

120.6





 

 

 



1 Basis of preparation and accounting policies

 

 

Directors' responsibilities

The directors of Carphone Warehouse Group plc are responsible, in accordance with the Listing Rules of the Financial Services Authority, for preparing and issuing this preliminary announcement, which was approved on 13 June 2012.

 

Basis of preparation

This financial information does not constitute the Group's statutory accounts for the year ended 31 March 2012 and year ended 31 March 2011, but is derived from those accounts. Statutory accounts for the year ended 31 March 2011 have been delivered to the registrar of companies and those for the year ended 31 March 2012 will be delivered in due course. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.

 

This financial information has been prepared using accounting policies and methods of computation consistent with International Financial Reporting Standards as adopted for use in the EU and specifically those set out on pages 50 to 54 of the Carphone Warehouse Group plc annual report for the year ended 31 March 2011.

 

The financial information reflects the Group's results for the period from 1 April 2011 to 31 March 2012 ("the year").

 

Going concern

At 31 March 2012 the Group had cash and cash equivalents of £102.7m (2011: £120.6m).

 

The directors have reviewed the future cash and profit forecasts of the Group's joint venture investments and other businesses, which they consider to be based on prudent assumptions. The directors are of the opinion that the forecasts, which reflect both the current uncertain economic outlook and reasonably possible changes in trading performance, show that these businesses and the Group should be able to operate within their facilities and comply with their banking covenants. In arriving at this conclusion the directors were mindful that the Group has significant cash and cash equivalents.

 

Accordingly the directors have a reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future and consequently the directors continue to adopt the going concern basis in the preparation of the financial statements.



2 Segmental reporting

 

Segmental results are analysed as follows:

 

2012



Best Buy Europe

(see note 7)

Virgin Mobile France

 (see note 7)

Wholly-owned operations

Total




£m

£m

£m

£m

Revenue



-

-

6.4

6.4

Headline EBIT before share of results of joint ventures



-

-

1.0

1.0

Share of Headline results of joint ventures (post-tax)



48.3

6.1

-

54.4

Headline EBIT



48.3

6.1

1.0

55.4

Exceptional items (see note 3)



-

-

(20.6)

(20.6)

Share of operating results of discontinued businesses within joint ventures (post-tax) (see note 3)



(9.8)

-

-

(9.8)

Share of joint venture exceptional items (post-tax)

(see note 3)



(77.4)

-

-

(77.4)

Share of amortisation of joint venture acquisition intangibles (post-tax) (see note 3)



-

(1.3)

-

(1.3)

Statutory EBIT (segment results)



(38.9)

(19.6)

(53.7)








Assets



521.0

14.5

191.5

727.0

Liabilities



-

-

(19.0)

(19.0)

Net assets



521.0

14.5

172.5

708.0















2011 (restated)



Best Buy Europe

(see note 7)

Virgin Mobile France

 (see note 7)

Wholly-owned operations

Total




£m

£m

£m

£m

Revenue



-

-

5.6

5.6

Headline EBIT before share of results of joint ventures



-

-

(3.1)

(3.1)

Share of Headline results of joint ventures (post-tax)



47.3

8.2

-

55.5

Headline EBIT



47.3

8.2

(3.1)

52.4

Share of results of discontinued businesses within joint ventures

(post-tax) (see note 3)



13.1

-

-

13.1

Share of amortisation of joint venture acquisition intangibles (post-tax) (see note 3)



-

(2.2)

-

(2.2)

Statutory EBIT (segment results)



60.4

(3.1)

63.3








Assets



571.8

20.4

196.4

788.6

Liabilities



-

-

(30.6)

(30.6)

Net assets



571.8

20.4

165.8

758.0

 

 

 

 

 



3 Non-Headline items

 

Non-Headline items comprise:

 

-       exceptional items, which have been disclosed separately given their size and one-off nature;

-       the Group's share of results of discontinued businesses within joint ventures; and

-       the Group's share of joint venture amortisation of acquisition intangibles.

 

Non-Headline items are grouped into three categories: Best Buy Mobile disposal, Best Buy UK closure and Virgin Mobile France amortisation, and are analysed as follows:

 

 




2012

2011


Notes


£m

£m

Operating expenses:





Best Buy Mobile disposal





Costs associated with the Best Buy Mobile disposal

i)


(20.6)

-




(20.6)

-






Share of results of joint ventures (post-tax):





Best Buy Mobile disposal





Best Buy Mobile operating profits

ii)


16.7

35.2

Costs associated with the Best Buy Mobile disposal

iii)


(16.9)

-

Best Buy UK closure





Best Buy UK operating losses

iv)


(26.5)

(22.1)

Closure costs of Best Buy UK

v)


(60.5)

-

Virgin Mobile France amortisation





Virgin Mobile France amortisation of acquisition intangibles

vi)


(1.3)

(2.2)




(88.5)

10.9

Investment income:





Best Buy Mobile disposal





Consideration from the Best Buy Mobile disposal

vii)


813.0

-




813.0

-

Taxation:





Best Buy Mobile disposal





Tax credit on costs associated with the Best Buy Mobile disposal

viii)


0.9

-




0.9

-









704.8

10.9

 

The operating results of discontinued businesses within joint ventures are further analysed as follows:

 




2012

2011




£m

£m

Best Buy Mobile





EBIT



45.0

97.9

Tax



(11.7)

(27.4)




33.3

70.5






Best Buy UK





EBIT



(72.5)

(62.2)

Tax



19.5

17.9




(53.0)

(44.3)






Group share



(9.8)

13.1






 

Exceptional items within joint ventures are further analysed as follows:

 




2012

2011




£m

£m

Costs associated with the Best Buy Mobile disposal



(28.4)

-

Closure costs of Best Buy UK



(146.8)

-

Tax



20.4

-




(154.8)

-






Group share



(77.4)

-

 



Best Buy Mobile disposal

During the year the Group disposed of its interest in Best Buy Mobile for an initial consideration of £813.0m. In addition a further £25.0m in consultancy payments are payable to the Group over a five year period. The initial consideration was returned to shareholders in February and April 2012 via the B/C Share Scheme. As a result  of this transaction a number of long-term incentive schemes either vested or were replaced, resulting in cash costs and non-cash accounting charges. Other costs were also incurred as a result of this transaction by both the Group and Best Buy Europe.

 

i)          Costs incurred by the Group comprise cash costs of £7.2m and other non-cash accounting charges of £13.4m.

 

As a result of the Best Buy Mobile disposal, existing Best Buy Europe incentive schemes were cancelled, and in recognition of the value that had built up in relation to Best Buy Mobile, the Company gifted 7.0m shares to senior Best Buy Europe executives. This gift resulted in a non-cash accounting charge of £11.4m and employer taxes of £1.6m for the Group as Best Buy Europe agreed to pay cash compensation of £11.7m to satisfy the cost of the remaining shares. Certain Group incentive schemes were allowed to vest early in order to facilitate the Best Buy Mobile disposal and to avoid a substantial loss in value. This resulted in cash costs of £2.5m and non-cash accounting charges of £2.0m.

 

Professional fees of £3.1m were also incurred in relation to the disposal.

 

ii)         The Group's share of the results of Best Buy Mobile have been excluded from Headline results in order to provide visibility of the performance of the continuing business.

 

iii)        The cancellation of existing incentive plans, the share gifts described above, associated employment taxes and bonuses paid as a result of the transaction resulted in cash costs of £26.7m and non-cash accounting charges of £0.7m within Best Buy Europe, including the compensation to the Group described above.

 

Best Buy Europe also incurred fees of £1.0m in relation to the transaction.

 

A tax credit of £7.2m has been recognised in respect of these charges. This has been offset by the derecognition of £12.7m of deferred tax assets which are expected to be irrecoverable due to the Best Buy Mobile disposal.

 

vii)        The Group received initial consideration of £813.0m for its interest in Best Buy Mobile in the form of a dividend.

 

viii)                       The Group recognised a tax credit of £0.9m in relation to costs associated with the Best Buy Mobile disposal.

 

 

Best Buy UK closure

During the year Best Buy Europe closed its Best Buy UK business. While the 11 stores that had been opened had delivered positive customer satisfaction scores, they did not have the national reach to achieve scale and brand economies.

 

iv)         The Group's share of the results of Best Buy UK have been excluded from Headline results in order to provide visibility of the performance of the continuing business.      

 

v)          Total costs of closure of £146.8m have been recognised, against which a tax credit of £25.9m has been booked. These closure costs are analysed as follows:

 

 





£m

Property exit costs




57.5

Employee redundancies and other employee-related costs




10.7

Non-cash asset write-downs (net)




45.9

Other exit costs




32.7

Exceptional charge before tax




146.8

Tax credit




(25.9)

Exceptional charge after tax




120.9






Group share




60.5

 

Other exit costs predominantly reflect stock write-downs and contract exit costs.

 

Virgin Mobile France amortisation

vi)         Amortisation of acquisition intangibles within Virgin Mobile France relates to the acquisition of Tele2 France in December 2009.

 



4 Equity dividends and other distributions

 

The following dividends and distributions were paid during the year:





 

 




2012

2011




£m

£m

Final dividend for the year ended 31 March 2011 of 5.0p per ordinary share



22.7

-

Interim dividend for the year ended 31 March 2012 of 1.75p per ordinary share



7.9

-

Dividend of 172p per C share through the B/C Share Scheme



223.0

-

Redemption of 172p per B share through the B/C Share Scheme



556.9

-




810.5

-

 

The following distributions are committed or proposed but had not been effected at 31 March 2012:





 

 



2012

£m


Final dividend for the year ended 31 March 2012 of 3.25p per ordinary share



15.4


Redemption of 172p per B share through the B/C Share Scheme



32.9


 

 

The proposed final dividend for the year ended 31 March 2012 is subject to shareholders' approval at the forthcoming annual general meeting and has not been included as a liability in these financial statements. The expected cost of this dividend reflects the fact that the Group's ESOT has agreed to waive its rights to receive dividends.

 

The redemption of B shares which had not been effected at 31 March 2012 is in respect of shares where an election was made for the deferred capital option under the B/C Share Scheme and was effected in April 2012.

 

 

5 Reconciliation of Headline results to statutory results

 

2012

Profit (loss) before investment income, interest and taxation

Profit before taxation

Net profit

for the year


£m

£m

£m

Headline results

55.4

58.3

57.7

Group exceptional items (see note 3)

(20.6)

792.4

793.3

Share of operating results of discontinued businesses within joint ventures (post-tax) (see note 3)

(9.8)

(9.8)

 

(9.8)

Share of joint venture exceptional items (post-tax)

(see note 3)

(77.4)

(77.4)

(77.4)

Share of amortisation of joint venture acquisition intangibles (post-tax) (see note 3)

(1.3)

(1.3)

(1.3)

Statutory results

(53.7)

762.2

762.5

 

 

2011 (Restated)

Profit (loss) before investment income, interest and taxation

Profit before taxation

Net profit

 for the year


£m

£m

£m

Headline results

52.4

56.3

54.7

Share of results of discontinued businesses within joint ventures (post-tax) (see note 3)

13.1

13.1

13.1

Share of amortisation of joint venture acquisition intangibles

(post-tax) (see note 3)

(2.2)

(2.2)

(2.2)

Statutory results

63.3

67.2

65.6

 

 

Headline information is provided because the directors consider that it provides assistance in understanding the Group's underlying performance.



6 Earnings per share

 


 

2012

Restated

2011

Headline earnings (£m)

57.7

54.7

Statutory earnings (£m)

762.5

65.6




Weighted average number of shares (millions)



Average shares in issue

460.1

457.1

Less average holding by Group ESOT

(3.5)

(4.4)

For basic earnings per share

456.6

452.7

Dilutive effect of share options and other incentive schemes

21.1

18.4

For diluted earnings per share

477.7

471.1




Basic earnings per share



Headline

12.6p

12.1p

Statutory

167.0p

14.5p




 

Diluted earnings per share



Headline

12.1p

11.6p

Statutory

159.6p

13.9p

 

 

 



7 Interests in joint ventures

 

Interests in joint ventures are as follows:

 

Business

Principal activities

2012

interest

2011

interest

Best Buy Europe

Retail, distribution, insurance, telecoms services

50.0%

50.0%

Virgin Mobile France

MVNO

46.6%

47.1%

 

The Group's interest in Virgin Mobile France reduced from 47.1% to 46.6% during the year ended 31 March 2012 following the sale of shares to management of Virgin Mobile France. Management of Virgin Mobile France also hold warrants that give them the right to acquire up to an additional 8.5% of the issued share capital of the business, at a price based on the value of existing shareholder funding and an additional amount which increases with the quantity of shares being acquired.

 

a)    Group balance sheet interests

 

The Group's interests in joint ventures are analysed as follows:

 

2012

Net assets (liabilities)

Goodwill

Loans

Total

 

£m

£m

£m

£m

Opening balance

453.6

102.9

35.7

592.2

Share of results

(34.1)

-

-

(34.1)

Loans repaid (net)

-

-

(9.9)

(9.9)

Share of other reserve movements

0.7

-

-

0.7

Foreign exchange

(11.9)

-

(1.5)

(13.4)

Closing balance

408.3

102.9

24.3

535.5

 

 

 

 

 

Best Buy Europe

418.1

102.9

-

521.0

Virgin Mobile France

(9.8)

-

24.3

14.5

Closing balance

408.3

102.9

24.3

535.5

 

 

 

2011

Net assets (liabilities)

Goodwill

Loans

Total

 

£m

£m

£m

£m

Opening balance

384.7

106.3

50.8

541.8

Share of results

66.4

-

-

66.4

Loans provided (net)

-

-

(14.6)

(14.6)

Share of other reserve movements

1.5

-

-

1.5

Foreign exchange

1.0

(3.4)

(0.5)

(2.9)

Closing balance

453.6

102.9

35.7

592.2

 

 

 

 

 

Best Buy Europe

468.9

102.9

-

571.8

Virgin Mobile France

(15.3)

-

35.7

20.4

Closing balance

453.6

102.9

35.7

592.2

 

At 31 March 2011, Best Buy Europe had a £350m receivables financing arrangement provided by a number of banks. This facility was supported by an RCF of £125m provided equally by the Company and Best Buy, and letters of support through which both shareholders were committed to providing further funding to a maximum of £50m each.

 

In July 2011, Best Buy Europe secured a new £400m RCF from its core bank group. This facility matures in July 2015. Following this refinancing, the receivables financing arrangement, the shareholder RCF and the letters of support were cancelled.

 

Loans are provided to Virgin Mobile France under a shareholder agreement; funding requirements are agreed between the shareholders on a regular basis and are provided in proportion to each party's shareholding.

 

 

 

 

 

 



 

b)    Analysis of profits and losses

 

The Group's share of the results of its joint ventures is as follows: 

 

 

 

Restated

Best Buy Europe

2012

2011

 

£m

£m

Revenue

3,313.1

3,504.8

Headline EBITDA *

219.6

219.1

Depreciation and amortisation

(84.6)

(84.5)

Headline EBIT

135.0

134.6

Net interest expense

(16.4)

(15.2)

Taxation on Headline results

(22.0)

(24.8)

Headline profit after taxation

96.6

94.6

 

 

 

Group share of Headline profit after taxation

48.3

47.3

Group share of operating results of discontinued businesses (post-tax) (see note 3)

(9.8)

13.1

Group share of exceptional items (post-tax) (see note 3)

(77.4)

-

Group share of (loss) profit after taxation

(38.9)

60.4

 

* Headline EBITDA includes the unwinding of discounts for the time value of money on network commissions receivable over the life of the customer. This unwind has a value of £8.7m in the year ended 31 March 2012 (2011: £10.0m) and is treated as interest income in the joint venture's statutory results.

 

 

Virgin Mobile France

2012

2011

 

£m

£m

Revenue *

390.2

328.4

Headline EBITDA **

25.7

24.3

Depreciation and amortisation

(4.2)

(3.7)

Headline EBIT

21.5

20.6

Net interest expense

(2.5)

(2.9)

Taxation on Headline results

(6.7)

(0.7)

Headline profit after taxation

12.3

17.0

 

 

 

Group share of Headline profit after taxation before change in share ownership

5.8

8.0

Gain on reduction of % share ownership

0.3

0.2

Group share of Headline profit after taxation

6.1

8.2

Group share of amortisation of acquisition intangibles (post-tax)

(1.3)

(2.2)

Group share of profit after taxation

4.8

6.0

 

* Revenue excludes contributions towards subscriber acquisition costs from network operators and customers, as the directors

consider that this provides a better representation of underlying performance. These items, which have a value of £71.0m in the year ended 31 March 2012 (2011: £55.1m), are netted off against acquisition costs within Headline EBITDA.  Reported revenue on a statutory basis for the year ended 31 March 2012 is £461.2m (2011: £383.5m).

 

** Virgin Mobile France have commitments in place to purchase an agreed amount of wholesale capacity at preferential rates from network operators in return for a fixed fee. The fixed fee has been recognised as a non-current asset and will be amortised over the period of the commitment. The amortisation of this asset is recognised as a cost of sales within Headline EBITDA in line with other network-related expenses. The amortisation has a value of £4.2m in the year ended 31 March 2012 (2011: nil) and is treated as amortisation in the joint venture's statutory results.  

 

 

 

Total Group share

2012

2011

 

£m

£m

Headline

54.4

55.5

Statutory

(34.1)

66.4

 

 

 

 

 

 

 

 

 



c) Analysis of assets and liabilities

 

The Group's share of the assets and liabilities of its joint ventures is as follows: 

 

Best Buy Europe

2012

2011

 

£m

£m

Non-current assets

662.4

661.7

Cash and overdrafts (net)

165.3

146.8

Other borrowings

(194.7)

(15.1)

Other assets and liabilities (net)

203.2

144.5

Net assets

836.2

937.9


 

 

Group share of net assets

418.1

468.9

 

 

Virgin Mobile France

2012

2011

 

£m

£m

Non-current assets

127.4

95.1

Cash and overdrafts (net)

10.1

10.7

Loans from the Group

(24.3)

(35.7)

Other borrowings

(26.2)

(38.6)

Other assets and liabilities (net)

(107.9)

(64.0)

Net liabilities

(20.9)

(32.5)


 

 

Group share of net liabilities

(9.8)

(15.3)


 

 

 

Total Group share

2012

2011

 

£m

£m

Total Group share of net assets and liabilities of joint ventures

408.3

453.6


 

 

 

8 Related party transactions

 

During the year, the Group had the following disclosable transactions and balances with its joint ventures:

 


Best Buy Europe

Virgin Mobile France



Best Buy Europe

Virgin Mobile France


2012

2012



2011

2011


£m

£m



£m

£m

Revenue for services provided

3.1

-



3.1

-

Net interest and other finance income

0.3

1.2



1.0

1.6

Loans owed to the Group

-

24.3



-

35.7

Other amounts owed to the Group

15.4

-



0.2

0.1

Other amounts owed by the Group

-

-



(1.2)

-

 

 

Revenue for services provided relates to investment property rental income. 

 

Amounts owed to the Group by Best Buy Europe at 31 March 2012 primarily reflect amounts due in relation to shares gifted to senior Best Buy Europe executives as detailed in note 3, which were settled in April 2012.

 

 



9 Risks and uncertainties

 

The principal risks of the Group are as follows:

 

Risks within the CPW Europe business

 

Risk

Mitigation



Consumer environment


CPW Europe's major markets have suffered low or negative economic growth since 2009, and there is uncertainty surrounding the economic outlook, particularly in the Eurozone markets in which the business operates. Some of the products and services offered by the business may be viewed as discretionary, and may therefore be particularly affected by consumer confidence.

 

The business continues to focus on its structure and on strong cost control to try to ensure that it is well-positioned to deal with an uncertain environment.

Dependence on key suppliers and customers


CPW Europe's principal revenue streams are from mobile network operators, and any change in their strategy could affect the revenues and profits of the business. Changes in network ARPU could also have an adverse effect on the revenues and profits of the business.

 

The business is also dependent on relationships with key suppliers to source products on which availability may be limited.

 

The business has moved towards commercial arrangements that provide a closer alignment of interests with the network operators, whereby the risks and rewards of customer ownership are shared, and has focused on the high value postpay and smartphone segments to help to drive economic value for the networks.

 

The business seeks to increase and leverage the scale of its operations to support global strategic relationships.

 

Competition


CPW Europe operates in markets that are highly competitive, in which the behaviour of competitors may damage revenues and margins.

 

In some markets CPW Europe may not have the scale required to compete effectively against increased competition.

 

The business has sought to differentiate itself through innovative propositions, high quality customer service, and a good supply of scarce products.

 

The business is working to build partnerships with other retailers in certain territories in order to achieve additional scale.

 

Regulation


CPW Europe is subject to regulation in a number of areas, including insurance operations, information security and customer management.

 

The business has internal committees and control structures to manage these requirements, to ensure appropriate compliance, and to react swiftly should issues arise.

 

Operations


CPW Europe's operations are dependent on internal and external IT systems which could fail or be unable to keep pace with the needs of the business.

 

A significant investment has been made over recent years in the IT infrastructure of the business, supported by testing processes and ongoing business continuity planning.

Foreign exchange


A material part of CPW Europe's earnings are denominated in Euros, giving rise to exposure to foreign currency fluctuations.

 

The business may hedge a proportion of such earnings, to provide certainty of their value.

 

 

 

 

 

 

 

 



Risks within the Virgin Mobile France business

 

Risk

Mitigation



Consumer environment


Consumer confidence in France remains relatively low, which may affect the level of customer spending and the ability of the business to acquire new customers.

 

The business is focused on improving the quality of its proposition through a wider product and service offering, increased distribution channels and ongoing brand development.

 

Dependence on key suppliers


The business is reliant on third parties for the provision of its network infrastructure.

 

Virgin Mobile France has a strong relationship with its key suppliers, and its increasing scale helps to improve its commercial position. The business has developed a Full MVNO infrastructure to reduce dependency and improve flexibility over time.

 

Competition


The entry of a new MNO has substantially increased competition in the market. This may adversely affect the business' ability to recruit and retain customers and its revenues and margins.

 

The business continues to invest in the quality of its proposition, brand and distribution channels to try to improve its scale and competitive position.

Operations


The business is reliant on internal and external IT systems which could fail or be unable to keep pace with the needs of the business.

 

The launch of the Full MVNO infrastructure and quad-play proposition place further reliance on these IT systems.

 

A significant investment has been made over recent years in the IT infrastructure of the business, supported by evolving business continuity plans.

 

 

 

Other risks within the Group

 

Risk

Mitigation



The Group does not exercise control over Best Buy Europe or Virgin Mobile France and therefore material decisions can only be made with the consent of the relevant joint venture partner. Inability to reach consensus on such decisions could have an adverse effect on the growth, business and financial results of these operations.

 

Such risks are mitigated through agreed strategies, defined and documented processes and regular communication.

 

 

 

10 Statement of directors' responsibilities

 

The audited financial statements for the year ended 31 March 2012 have been prepared in accordance with IFRS and Article 4 of the IAS Regulation. The management report herein includes a fair review of the important events during the year, a description of current principal risks and uncertainties and a fair review of disclosure of related party transactions and changes therein.

 

The directors of Carphone Warehouse Group plc are listed on the Group's website www.cpwplc.com.

 

 

 

By order of the Board on 13 June 2012

 

Nigel Langstaff

Chief Financial Officer

 

 

 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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