Preliminary results for year ended 31 March 2013
RNS Number : 8593H
Carphone Warehouse Group PLC
26 June 2013
Wednesday 26 June 2013
Embargoed until 8h01
Carphone Warehouse Group plc
Preliminary results for the year ended 31 March 2013
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- Revenue growth of 11.5% to £3,694m (2012: £3,313m)
- Significant UK market share gains across all categories
- Like-for-like revenue growth of 4.6% for the full year; strong momentum in H2
- Headline EBIT £137m, in line with guidance (2012: £135m)
- Strong operating free cash flow of £245m (2012: outflow of £40m)
Virgin Mobile France
- Revenue growth of 4.2% at constant currency
- Postpay customer base growth of 11,000 customers
- Headline EBIT of £12m (2012: £22m) reflecting investment in quad-play of £5m (2012: nil) and a competitive marketplace in France
- Headline PAT broadly flat at £58m (2012: £58m)
- Statutory PAT of £4m (2012: £763m) with prior year reflecting gain on disposal of Best Buy Mobile
- Headline EPS 12.3p (2012: 12.6p), within guidance range of 11.5p to 13.0p
- Final dividend of 3.25p taking the full year dividend to 5p per share
- Completion of acquisition of Best Buy’s 50% interest in CPW Europe
A reconciliation of Headline results to statutory results is provided in note 5 to the financial review.
- Partnership in Netherlands with Media Markt / Saturn to progress nationwide full operational business model
- Further potential agreements with Media Markt / Saturn
- Intention to establish Connected World Services partnerships in Germany with Metro Group
- Potential to roll out similar Metro/Makro ‘B2B’ opportunities in other markets
- Roger Taylor to become deputy chairman at the annual general meeting on 24 July 2013
- Andrew Harrison to become chief executive officer at the annual general meeting
Outlook and guidance for the year to March 2014
- CPW Europe: Headline EBIT in the range £140m to £160m, including plc
- Virgin Mobile France: Headline EBIT broadly flat, in the range of £11m to £13m
- Group: Headline EPS in the range 17p to 20p
“Virgin Mobile France has proved its resilience in a tough marketplace through excellent management, continuing to grow its postpay base, and with around half its customers on the Full MVNO platform as at the year end.
“Looking ahead, we see many opportunities for which I believe the business is well-positioned, including a continued focus on growing market share, replicating the UK’s excellent operational execution across Europe and delivering on our strategy of bringing our Connected World capabilities to other business partners. Today we announce the formalisation of our relationships with Media Markt / Saturn and Metro Group. With Media Markt / Saturn we are now pressing ahead across the Netherlands, following successful store trials and, with Metro Group, we formally announce an intention to roll out the Connected World in Germany across the Metro/Makro Cash & Carry, Real and Galeria Kaufhof brands. These are exciting opportunities with the potential to develop both of these relationships in other marketplaces.
“Lastly, the completion of our acquisition of Best Buy’s 50% share of CPW Europe means that once again Carphone Warehouse’s retail operation forms the core of the Group’s business. It is logical, therefore, that Andrew Harrison, who has run this business for several years, should step up to become chief executive officer for the Group. Andrew has worked for Carphone Warehouse for over 17 years and has been an important part of many of our growth strategies including our Best Buy Mobile venture and Connected World strategy. I will move to become deputy chairman, maintaining many of my existing responsibilities, and welcome Andrew to his new role.”
Group operational overview
We have now completed the acquisition of Best Buy’s interest in CPW Europe. This review, however, is reporting on the Group’s 50% interest in CPW Europe, together with our 46% interest in France’s leading MVNO, Virgin Mobile France, and our properties and other assets.
CPW Europe revenue was up 11.5% to £3,694.3m (2012: £3,313.1m) reflecting significant postpay growth in our UK business and growth in our dealer businesses, particularly in Germany. We delivered Headline EBIT of £136.6m (2012: £135.0m) in line with our guidance and slightly up year-on-year. Within this overall performance, our UK business stands out, with like-for-like revenue growth of over 10%, despite a continued weak prepay market. We have invested in our offering and driven market share. Our ‘Smart Deal’ promotions and compelling propositions on key handsets, coupled with our investment in our store environment and online platforms, have increased our share in both the postpay and prepay segments.
Our businesses in mainland Europe generally performed well given the challenging consumer environment. We were particularly pleased with the performance of our businesses in the Netherlands and in Spain, where we saw increasing momentum in the second half of the year. In contrast, the French market has been extremely difficult and while our Phone House business was profitable for 2012-13, there has been an increasing lack of visibility of returns going forward. We therefore undertook a strategic review and have decided to manage an orderly exit through store disposals and some store closures, as announced in April.
Connected World Services
Over the years CPW Europe has developed sophisticated technology platforms and operating processes, as well as bespoke customer relationship management tools. It is our aspiration that these assets, together with the expertise of our employees, can be leveraged through commercial partnerships and service provision arrangements with third parties. Connected World Services is a developing part of the CPW Europe business, incorporating the Global Connect business, which is already providing managed services in relation to mobile phone insurance and technology solutions and is active in exploring further opportunities both within its existing markets and elsewhere in the world.
Virgin Mobile France
Competition in the French market amongst network operators has been intense. However, Virgin Mobile France has proved resilient, growing revenue and its postpay customer base. Its Full MVNO infrastructure enables it to participate more fully in revenue streams, including termination revenues, and to reduce costs, as well as giving it greater tariff flexibility. At the end of the year over 850,000 customers were on this platform, representing 50% of the base, and we will continue to focus on customer migration in the coming year.
The total customer base was down year-on-year at 1.71m customers (2012: 1.92m), partly due to a deliberate reduction in focus on the low-value prepay market, from which there is less visibility of returns on investment. The postpay base increased by 11,000 customers year-on-year to 1.35m (2012: 1.34m) and almost 80% of the customer base is now higher value postpay customers.
On a constant currency basis, we grew revenue by 4.2%, reflecting the growth of mobile termination revenue. On a Sterling basis, revenue was broadly flat for the year at £385.0m, compared to £390.2m in the prior year. Headline EBIT was down year-on-year from £21.5m to £11.9m, affected by an investment of £4.9m (2012: nil) in the development of a quad-play proposition. While this proposition remains in its infancy, it has potential to be a valuable retention tool, whilst also offering opportunities to develop the business’ customer reach.
Property and other assets
We took action to sell one of our freehold properties in Acton towards the end of the year for £40.5m, followed by the sale of a second Acton freehold after the year end for £10.5m.
The Group had cash balances of £116.9 million and loans receivable from Virgin Mobile France with a value of £20.5 million as at 31 March 2013.
Following the completion of the acquisition of Best Buy’s 50% of CPW Europe we are making a logical change in the management of Carphone Warehouse Group plc. As from our annual general meeting on 24 July 2013, Roger Taylor, Chief Executive Officer, will become deputy chairman, and Andrew Harrison, who has been chief executive officer of CPW Europe, will become chief executive officer of the Group. Andrew has worked for Carphone Warehouse for over 17 years. He epitomises the unique culture and values of Carphone Warehouse and is ideally placed to lead the business through the next phase of its journey. Andrew will be joining the board following a formal appointment. Roger will, alongside Andrew, continue to develop and execute the group strategy. The Company also intends to announce the appointment of two additional non-executive directors in the year ahead.
Partnerships in the Netherlands and Germany
We are committed to building our scale and profitability in European markets where we see potential for growth. Following the successful trial of stores with Media Markt / Saturn in the Netherlands, both parties have now signed a letter of intent and expect to have negotiated a full commercial agreement in respect of this market in the coming months. There is potential for this arrangement to be replicated in other Media Markt / Saturn markets in the future. In Germany, as jointly announced today, there is also intent to enter into commercial agreements with Metro Group, which will include business-to-business and business-to-customer propositions. Stores-within-a-store will be rolled out under the Makro/Metro Cash & Carry, Real and Galeria Kaufhof brands. Both parties see potential to roll out similar Metro/Makro business-to-business opportunities in other markets. Further announcements will be made in due course.
Outlook and guidance for the year to March 2014
We expect the consumer environment in Europe to remain challenging in the year ahead. Against this, the more widespread development and promotion of 4G services may provide a stimulus to the handset replacement cycle and an opportunity for network operators to develop pricing structures to reflect higher quality services and higher levels of data consumption. CPW Europe’s investment in expert consultants and in its store formats positions the business well to help customers through the additional choice and complexity of this advancing Connected World.
We plan to continue to drive volume growth in the postpay segment, and anticipate further like-for-like revenue growth in the coming year. We also plan to continue to develop the tablet category, both through standalone sales and handset/tablet bundled propositions. The development of 4G services is expected to improve download speeds significantly and to stimulate demand for tablets with connectivity to mobile networks as well as wi-fi services.
Following the completion of the Group’s acquisition of Best Buy’s interest in CPW Europe, the results of CPW Europe will be consolidated in full from that date. We will be required to perform a fair valuation exercise of the CPW Europe balance sheet. This exercise has not yet been undertaken, but we provisionally expect to see some reduction in the value of existing non-current assets and a resultant reduction in ongoing depreciation and amortisation. From an earnings perspective, we expect that this will largely offset the loss of profits associated with our French business, which continued to deliver a positive contribution until towards the end of last year, and our Swiss telecoms business, which was sold in April 2013.
The business will benefit from the restructuring programme undertaken in 2012-13, although some of the cost savings associated with this programme will be offset by underlying cost inflation, the integration of plc costs and by investment in new business development.
We will operate CPW Europe and the current wholly-owned group as one following completion, and expect Headline EBIT for the enlarged wholly-owned group in the coming year to be between £140m and £160m, with the ultimate outturn likely to depend on the volume of postpay connections, and the level of investment in the tablet category and in new business development.
Cash generation will remain a key priority for the business. We expect further growth in the postpay category to absorb some working capital in the coming year and we expect increased levels of capex investment, particularly in IT, to support the continued development of the retail proposition and to facilitate the development of the Connected World Services business.
Virgin Mobile France
The French mobile market is expected to remain highly competitive, with continued pressure on ARPU. We aim to maintain the postpay base at a similar level year-on-year, and expect some year-on-year reduction in revenues, particularly in the earlier part of the year.
We will continue to move customers onto our Full MVNO infrastructure, and expect to have the large majority of the base on this platform by the end of the year, providing the business with improved margins and greater strategic flexibility.
These improved margins will help to counter downward pressure on ARPU, and we therefore expect Headline EBIT to be broadly flat year-on-year.
The acquisition gives rise to additional interest costs and has resulted in an increase in the number of ordinary shares in issue from 472.8m throughout the year ended 31 March 2013 to 562.1m immediately after completion. Against this, the Group will benefit from 100% of CPW Europe’s profits following completion, providing a significant improvement in Headline Group earnings. On this basis, our guidance range of £140m to £160m Headline EBIT for the enlarged wholly-owned group in the year to March 2014 translates into a basic Headline EPS range of 17p to 20p, compared to a basic Headline EPS of 12.3p for the year to March 2013.