Carphone Warehouse 2006 Annual Report Download

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Revenue
£3,046m
2005: £2,355m
Headline profit
before tax*
£136.1m
2005: £100.4m
Dividend per share
2.5p
2005: 1.8p
The Carphone Warehouse Group PLC
Annual Report 2006
Delivering value to customers and shareholders
*Headline information is shown before amortisation
of acquisition intangibles and goodwill expense,
and before reorganisation costs. A full reconciliation
between Headline and statutory information,
together with an explanation of different terms
used within the Annual Report is provided
in note 10 to the financial statements.

Table of contents

  • Page 1
    The Carphone Warehouse Group PLC Annual Report 2006 Revenue Delivering value to customers and shareholders £3,046m 2005: £2,355m Headline profit before tax* £136.1m 2005: £100.4m Dividend per share 2.5p 2005: 1.8p *Headline information is shown before amortisation of acquisition intangibles...

  • Page 2
    ... and related products and services through 1,778 stores, call centres and the web across 10 European countries STRATEGY 8.2m Stores 1,778 MARKETS UK, BELGIUM, FRANCE, GERMANY, IRELAND, NETHERLANDS, PORTUGAL, SPAIN, SWEDEN, SWITZERLAND To grow our market share by opening new stores and developing...

  • Page 3
    ...-added services to businesses in the UK and Spain STRATEGY Provision of voice and broadband services to residential customers in the UK and other European markets STRATEGY To build our existing MVNO operations to profitable critical mass and develop MVNO operations across Europe To acquire new...

  • Page 4
    The Carphone Warehouse Group PLC Annual Report 2006 Contents Highlights and Strategy 2 Financial Highlights 3 Chairman's Statement 4 Chief Executive's Review Operating and Financial Performance Review 9 Operational Performance 15 Financial Performance Governance 17 Corporate Responsibility 21 Board...

  • Page 5
    ...1 Headline Financial Highlights Revenue Summary 2005/6 Continued strong growth in revenues and earnings Outstanding Retail performance 52 week connections up 26.0% to 8.2 million 317 new stores opened 2.6m TalkTalk UK customers Acquisition of Onetel and Tele2 UK Significant investment in broadband...

  • Page 6
    2 The Carphone Warehouse Group PLC Annual Report 2006 Financial Highlights 2006 £m 2005 £m Revenue Headline results EBITDA Profit before tax Earnings per share Statutory results Profit before tax Earnings per share Reorganisation costs Dividend per share 3,046.4 242.5 136.1 12.38p 81.0 7.99p...

  • Page 7
    ... continue to invest in building scale and taking market share. On the fixed line side, we have supplemented our strong organic growth with the acquisition of two major competitors. The new financial year also promises to be an exciting one, with the launch of our free broadband proposition in April...

  • Page 8
    4 The Carphone Warehouse Group PLC Annual Report 2006 Chief Executive's Review We maintain a private company mentality when it comes to investment and growth opportunities • To become the leading alternative provider of fixed line telecommunications services in the UK. I wrote last year about ...

  • Page 9
    ... fixed cost base. Over the last 12 months we have brought a renewed focus to our mobile virtual network operations (MVNOs), where we buy wholesale capacity from mobile network operators and repackage it under our own brand and tariffs. The UK launch of Mobile World, a service providing market...

  • Page 10
    ... committed to delivering value to customers across all our services. Investment in the right platforms is key to our ability to develop a compelling customer proposition, as it allows us to build scale and offer greater value. SCALE We aim to be a mass market provider in our major business lines by...

  • Page 11
    ... competitive response from other industry players as the year progresses, and the major risks of this new initiative lie in our ability to execute successfully. In our MVNO operations we expect a year of intensive customer recruitment as we build a business to deliver meaningful profitability...

  • Page 12
    ... after year end • Launch Mobile World in other markets • Refine Fresh proposition to maximise customer lifetime values • Build towards target of 1m Virgin Mobile customers within 3 years Fixed - Business • Launch mobile and broadband services • Develop data products • Explore new market...

  • Page 13
    ... invested in pricing to take market share from generalist retailers. Our SIM-free sales were marginally up year-on-year at 0.52m, reflecting the relative strength of the pre-pay market. 2006 Headline Financials £m £m Revenue 1,753.5 1,436.9 Retail 1,375.5 1,160.2 Online 203.5 128.2 Insurance 116...

  • Page 14
    ... market. Online connections increased by 61.7% year-on-year to 0.76m on a 52 week basis. Revenues were 5 YEAR SUBSCRIPTIONS GROWTH OF 17.1% Subscription Pre-pay SIM-free Group 3,423 4,252 516 8,191 2,770 3,227 506 6,503 2,816 3,272 512 6,600 We opened 362 new stores during the year and closed...

  • Page 15
    ...performance was boosted by the acquisition of One Stop Phone Shop, a further online brand in the UK market, at the end of the previous year. We continue to review the European opportunity for direct and online channels. Insurance The Group offers a range of insurance products to its retail customers...

  • Page 16
    ...The Carphone Warehouse Group PLC Annual Report 2006 Operational Performance Telecoms Services Division Revenues grew by 40.1% year-on-year, but margins fell as we invested heavily in our broadband and MVNO strategies he Group's Telecoms Services operations are split into two businesses, Mobile and...

  • Page 17
    ...'s business operations set to benefit from the increased flexibility and lower regulated costs in the same way as TalkTalk. A key goal for the year ahead is to develop our expertise in providing broadband and related network services to our core business customer base. Xtra, our Spanish fixed line...

  • Page 18
    ...: £1.8m). Throughout Europe our fixed line model benefits from the low cost of customer acquisition that our store network gives us. We are reviewing our product strategy in each country to reflect market developments, so that in all cases we are achieving the maximum return for the Group from each...

  • Page 19
    ...and other employee costs, contract termination costs and network and customer migration costs. These costs have been recognised in the reported financial year. The substantial customer growth achieved through the acquisition of Onetel and Tele2 UK, together with the Group's major investment plans in...

  • Page 20
    ... 2010. The terms of all three facilities are similar and the covenant packages are identical. Net borrowings peaked at the end of 2005, mainly as a result of the Onetel and Tele2 UK acquisitions and the high working capital levels required during the peak Christmas trading period. The Group seeks to...

  • Page 21
    ... sales of accessories over the Christmas period. Get Connected The Carphone Warehouse has maintained and developed its six year relationship with Get Connected providing accommodation, phone lines and IT support as well as offering employees the opportunity to earn extra holiday or have matched time...

  • Page 22
    ... Big Companies • No.1 for "Staff getting a buzz from working within their team" • Shortlisted for "Giving Something Back" • Shortlisted for "Well being" Retail Week 2006 • Retailer of The Year Mobile News 2006 • Customer Service • Online Retailer Uswitch • TalkTalk: Home Phone Customer...

  • Page 23
    ...2006 and a working group has been actively ensuring compliance in line with this date. Disability discrimination To ensure that we are offering disabled customers the ability to obtain goods and services in just the same way as any other customer we have a special needs section on our retail website...

  • Page 24
    ... Warehouse Group PLC Annual Report 2006 Corporate Responsibility continued monthly buyers' guide is made from chlorine free paper and from wood from sustainable forests. In addition, the Group has made a commitment to ensure that all cleaning products used in its stores and at the Support Centre...

  • Page 25
    ... Building Society. Andrew Harrison, UK Chief Executive Officer Age 35. Appointed to the Board in April 2006. He joined the Group in July 1995 as Strategy Manager, and became Commercial Director for the UK in 1998. He was appointed Chief Executive Officer of the UK business of The Carphone Warehouse...

  • Page 26
    ..., with three-month notice periods and no compensation for loss of office. Further details on each Director's remuneration, including the dates of their contracts with the Company, are set out in the Remuneration Report on pages 26 to 32. Board meetings The Board meets at least six times a year, with...

  • Page 27
    ... of published financial statements and major acquisitions and disposals, authority levels for expenditure, treasury and risk management policies. Strategic and policy issues are reviewed annually at a combined Board and senior executive strategy day. Performance evaluation During the period the...

  • Page 28
    ... Non-Executive Directors. The work of the Committee in respect of the appointment of John Gildersleeve as Non-Executive Chairman was noted in last year's Annual Report. The Committee did not use an external search consultancy nor open advertising in respect of the appointments of David Goldie...

  • Page 29
    ...an annual review of the effectiveness of the systems of risk management and internal control in operation during the year and up to the date of the approval of the Annual Report and financial statements. Communication with investors The Board believes it is important to explain business developments...

  • Page 30
    ... and shareholders and reinforces behaviour which will lead to the continued long-term development of the business. The Committee makes its recommendations to the Board by taking into account: • The experience of Executive Directors and other senior managers; • The Group's competitiveness in...

  • Page 31
    ... policy, requiring Executive Directors to build up and retain a shareholding in the Company equal to at least 100% of their annual salaries. Salaries and benefits Executive Directors' basic salaries are reviewed annually and take into account the roles, responsibilities, performance and experience...

  • Page 32
    ...2,623 Notes (i) The taxable benefits provided consist of a company car or car allowance, car insurance, fuel and private medical cover. (ii) Annual bonuses for the period ended 1 April 2006 were accrued at the balance sheet date and will be paid in June 2006. For this period, the bonus was based on...

  • Page 33
    ...) Executive Directors may only exercise share options (and Performance Shares - see below) provided they remain in employment and hold a minimum of 100% of salary in shares up until the date of exercise. (iv) The market price per share was 309.0p as at 1 April 2006. The market price during the year...

  • Page 34
    ... targets set under UK GAAP for the impact of International Financial Reporting Standards. Executive Directors' service contracts All Executive Directors and David Ross have service contracts which are terminable by the Company or the Executive Director with twelve months' notice or less. The dates...

  • Page 35
    ... David Ross, has a letter of appointment substantially in the form suggested by the Code and each has a three-month notice period with no compensation for loss of office. The Company has no age limit for Directors. The dates of each contract are set out below Directors' interests in shares and dates...

  • Page 36
    32 The Carphone Warehouse Group PLC Annual Report 2006 Remuneration Report continued Performance graph Graph 1 shows the Group's performance compared to the TSR performance of the FTSE 250 Index over the last five financial years. A three month rolling average has been applied. The FTSE 250 index ...

  • Page 37
    ...Annual Report and financial statements of The Carphone Warehouse Group PLC for the 52 weeks ended 1 April 2006. Principal activities and review of the business The principal activity of the Group continues to be the provision of mobile communication products and services and fixed line communication...

  • Page 38
    ... Warehouse Group PLC Annual Report 2006 Statement of Directors' Responsibilities United Kingdom company law requires the Directors to prepare financial statements for each financial period which give a true and fair view of the state of affairs of the Company and Group and of their profit or loss...

  • Page 39
    ... of Directors' Responsibilities. Our responsibility is to audit the Group financial statements and the part of the Remuneration Report described as having been audited in accordance with relevant United Kingdom legal and regulatory requirements and International Standards on Auditing (UK and Ireland...

  • Page 40
    36 The Carphone Warehouse Group PLC Annual Report 2006 Consolidated Income Statement For the 52 weeks ended 1 April 2006 Before amortisation of acquisition intangibles, goodwill expense and reorganisation costs 52 weeks ended 1 April 2006 Notes £'000 Amortisation of acquisition intangibles, ...

  • Page 41
    ... redemption reserve Translation reserve Accumulated profits Funds attributable to equity shareholders The accompanying notes are an integral part of this consolidated balance sheet. The financial statements on pages 36 to 66 were approved by the Board on 6 June 2006 and signed on its behalf by: 12...

  • Page 42
    38 The Carphone Warehouse Group PLC Annual Report 2006 Consolidated Cash Flow Statement For the 52 weeks ended 1 April 2006 52 weeks ended 1 April 2006 £'000 53 weeks ended 2 April 2005 £'000 Notes Operating activities Operating profit Adjustments for non-cash items: Share-based payments ...

  • Page 43
    ...is a company incorporated in the United Kingdom. The consolidated financial statements of The Carphone Warehouse Group PLC and all of its subsidiaries (the Group) have been prepared in accordance with International Financial Reporting Standards (IFRS). These financial statements are the first annual...

  • Page 44
    40 The Carphone Warehouse Group PLC Annual Report 2006 Notes to the Financial Statements continued d) Revenue Revenue is stated net of VAT and other sales related taxes. The following accounting policies are applied to each business segment: Distribution: Distribution revenue comprises revenue ...

  • Page 45
    ...measured at their fair value based on contracted exchange rates. Hedge accounting as defined by IAS39 has not been applied to the financial statements in either period and changes in fair value are recognised in the income statement. r) Provisions Provisions are recognised when the Group has a legal...

  • Page 46
    42 The Carphone Warehouse Group PLC Annual Report 2006 Notes to the Financial Statements continued are continually reviewed and revised as necessary. While every effort is made to ensure that such estimates and assumptions are reasonable, by their nature they are uncertain, and as such changes in ...

  • Page 47
    ...: Revenue 2005 £'000 Profit before interest and taxation 2006 2005 £'000 £'000 2006 £'000 Headline (see note 10) Retail Online Insurance Ongoing Contribution Support costs Depreciation Amortisation Distribution Fixed Mobile Contribution Support costs Depreciation Amortisation Telecoms Services...

  • Page 48
    ...'s operations are provided in the Group Overview at the front of the Annual Report. Results by geographical location are analysed by origin as follows: 2006 £'000 Revenue 2005 £'000 2006 £'000 Capital expenditure* 2005 £'000 2006 £'000 Total assets 2005 £'000 United Kingdom France Germany...

  • Page 49
    ...000 Redundancy and other employee costs Contract termination costs Network and customer migration costs Other 11,934 4,977 4,919 458 22,288 b) The substantial customer growth achieved through the acquisition of Onetel and Tele2 UK, together with the Group's major investment plans in respect of...

  • Page 50
    46 The Carphone Warehouse Group PLC Annual Report 2006 Notes to the Financial Statements continued 5 Employee costs The average monthly number of employees (including Executive Directors) was: 2006 Number 2005 Number Administration Distribution and sales 2,501 12,762 15,263 1,953 10,305 12,258...

  • Page 51
    Notes to the Financial Statements continued www.cpwplc.com 47 6 Share-based payments continued b) Executive Share Option Scheme: The Group has an Executive Share Option Scheme which provides for a grant price equal to the average quoted market price of the Company's shares on the date of the ...

  • Page 52
    ... Carphone Warehouse Group PLC Annual Report 2006 Notes to the Financial Statements continued 6 Share-based payments continued c) Retail Share Option Scheme: The Group has a Retail Share Option Scheme, which is open to senior employees in the UK Retail business. The scheme provides for a grant price...

  • Page 53
    ... calculated by applying the standard rate of UK corporation tax of 30% to profit before taxation are as follows: Financial Statements 2006 £'000 2005 £'000 Profit before taxation Profit before taxation at 30% Items attracting no tax relief or liability Use of tax losses brought forward and income...

  • Page 54
    ...ended 1 April 2006 is subject to shareholders' approval at the Annual General Meeting and has not been included as a liability in these financial statements. The expected cost of the proposed final dividend for the period ended 1 April 2006 reflects the fact that the Group's Employee Share Ownership...

  • Page 55
    ... (see note 10) 70,541 109,399 73,906 81,009 2006 Number of shares 000's 2005 Number of shares 000's Weighted average number of shares: For basic earnings per share Dilutive effect of share options For diluted earnings per share Financial Statements 883,393 55,287 938,680 875,569 39,078 914...

  • Page 56
    ... the period. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. The growth rates are based on industry growth forecasts. Changes in selling prices and direct costs are based on past practices...

  • Page 57
    ...network and office equipment £'000 Fixtures and fittings £'000 Motor vehicles £'000 Total £'000 Cost At 2 April 2005 Additions Disposals Acquisitions (see note 14) Foreign exchange At 1 April 2006 Depreciation At 2 April 2005 Charge for the period Disposals Foreign exchange At 1 April 2006 Net...

  • Page 58
    54 The Carphone Warehouse Group PLC Annual Report 2006 Notes to the Financial Statements continued 14 Non-current asset investments Total £'000 At 2 April 2005 Adoption of IAS32 and IAS39 (see note 30) At 3 April 2005 Additions Movements in fair value At 1 April 2006 6,069 (2,294) 3,775 1,659 ...

  • Page 59
    ... services to both residential and business customers. The following table sets out the book values of the identifiable assets and liabilities acquired and their provisional fair value to the Group: Book value £'000 Accounting policy alignments £'000 Fair value adjustments £'000 Fair value...

  • Page 60
    56 The Carphone Warehouse Group PLC Annual Report 2006 Notes to the Financial Statements continued 14 Non-current asset investments continued ii) Tele2 UK On 16 December 2005, the Group acquired 100% of the issued share capital of Tele2 UK Communications Limited (Tele2 UK), a company registered in...

  • Page 61
    ...835 Financial Statements Companies acquired in the period contributed £17.3m to the Group's net operating cashflows, gave rise to net interest costs of £2.4m and utilised £1.5m for capital expenditure. Combined proforma revenue and profit before taxation for the Group, assuming all acquisitions...

  • Page 62
    ... revenue in the period, adjusted to take account of the timing of acquisitions, was 53 days (2005 - 47 days). The Directors consider that the carrying amount of trade and other receivables approximates to their fair value. 17 Current asset investments 2006 £'000 2005 £'000 Available-for-sale...

  • Page 63
    ... 2006 and its value at that date of £230.1m reflects the exchange rate at the period end. Financial Statements 73,494 25,000 - - 98,494 £50m term loan: A new five-year bi-lateral £50m term loan was signed in December 2005, the proceeds of which were used in relation to the Onetel acquisition...

  • Page 64
    ...The Carphone Warehouse Group PLC Annual Report 2006 Notes to the Financial Statements continued 19 Cash and cash equivalents, loans and other borrowings continued Borrowing facilities: The Group had undrawn committed borrowing facilities at 1 April 2006, in respect of which all conditions precedent...

  • Page 65
    ... provided by third-party fund managers. Other fair values have been arrived at by discounting future cashflows, assuming no early redemption, or by revaluing forward currency contracts to period-end market rates or rates as appropriate to the instrument. Foreign exchange derivatives: The Group uses...

  • Page 66
    ... Net profit for the financial period Currency translation Tax on items recognised directly in reserves Net change in available-for-sale investments Issue of share capital Net purchase of own shares (see below) Cost of share-based payments (see note 6) Equity dividends (see note 9) At 1 April 2006...

  • Page 67
    ... with acquisitions during the period are provided in note 14. 10,805 (40,572) 25 Commitments under operating leases The Group leases retail units and offices under non-cancellable operating leases. The leases have varying terms, purchase options, escalation clauses and renewal rights. Future...

  • Page 68
    ... Annual Report 2006 Notes to the Financial Statements continued 27 Pension arrangements The Group provides various pension schemes for the benefit of a significant number of its employees: Defined contribution schemes: The Group operates a number of defined contribution schemes for which the cost...

  • Page 69
    ...based payments IFRS requires that the fair value of share options granted after the prescribed date of 7 November 2002 is charged to the income statement over the vesting period. The charge is based on the fair value, measured using a Binomial model for share-based payments with internal performance...

  • Page 70
    ... financial statements at fair value, based on contracted exchange rates. Under UK GAAP contracts were valued at the exchange rate prevailing at the balance sheet date. Changes in fair value, together with any related deferred tax, are taken to the income statement. The impact of fair valuing forward...

  • Page 71
    ... 13. These individual Company financial statements have been prepared under the accounting policies set out therein. The Corporate Governance statement and the Remuneration Report are included in the Group annual report of The Carphone Warehouse Group PLC for the 52 weeks ended 1 April 2006. We have...

  • Page 72
    ...than one year Net assets Capital and reserves Called-up share capital Share premium Profit and loss account Total capital employed The accompanying notes are an integral part of this balance sheet. The financial statements on pages 68 to 72 were approved by the Board on 6 June 2006 and signed on its...

  • Page 73
    ...-for-sale and recorded at fair value from this date. Changes in fair value, together with any related deferred tax, are taken directly to reserves, and recycled to the profit and loss account when the investment is sold or is determined to be impaired. Share-based payments The Company issues...

  • Page 74
    ... as a liability in these financial statements. The expected cost of the proposed final dividend for the period ended 1 April 2006 reflects the fact that the Group's Employee Share Ownership Trust has agreed to waive its rights to receive dividends. 4 Fixed asset investments £'000 At 2 April...

  • Page 75
    ... Measurement' is provided in note 20 to the Group financial statements. 10 Share capital 2006 million 2005 million 2006 £'000 2005 £'000 Authorised Ordinary shares of 0.1p each Allotted, called-up and fully paid Ordinary shares of 0.1p each Movements in share capital in the period arose from the...

  • Page 76
    ...Company for the period is £234.3m (2005 - loss of £13.2m). 12 Reconciliation of movements in shareholders' funds 2006 £'000 2005 £'000 Profit (loss) for the financial period Equity dividends Change in fair value of fixed asset investments Issue of share capital Cost of share-based payments Net...

  • Page 77
    www.cpwplc.com 73 Five Year Record (unaudited) IFRS 2006 £m IFRS 2005 £m UK GAAP 2005 £m UK GAAP 2004 £m UK GAAP 2003 £m UK GAAP 2002 £m Headline results Revenue EBITDA PBT Assets employed Non-current assets Net current assets (liabilities) before provisions Provisions Non-current ...

  • Page 78
    ... Carphone Warehouse Group PLC ("Company") will be held at the Ramada Encore Hotel, 4 Portal Way, Gypsy Corner/A40, London W3 6RT on 27July 2006 at 11am to consider the following business: Ordinary Resolutions 1. To receive the accounts and reports of the Directors and Auditors for the period ended...

  • Page 79
    ... approves the final dividend it will be paid out in accordance with the Financial Calendar set out on page 77 of the Annual Report. Directors Resolutions 4, 5, 6, 7 and 8 David Ross is required to retire by rotation and to stand for re-election every three years pursuant to the Company's Articles of...

  • Page 80
    ...Warehouse Group PLC Annual Report 2006 Explanatory Notes to the Resolutions continued CREST members and, where applicable, their CREST sponsors or voting service providers should note that CRESTCo does not make available special procedures in CREST for any particular messages. Normal system timings...

  • Page 81
    Notice of Annual General Meeting continued www.cpwplc.com 77 Financial Calendar Key dates Results announcement Ex-dividend date Record date Dividend payment date Interim results announcement 6 June 2006 5 July 2006 7 July 2006 4 August 2006 2 November 2006 Financial Statements Published by ...

  • Page 82
    The Carphone Warehouse Group PLC 1 Portal Way London W3 6RS Tel +44 (0)20 8896 5000 Fax +44 (0)20 8753 8009 Email [email protected] Registered no. 3253714 www.cpwplc.com