Carphone Warehouse 2004 Annual Report Download - page 14

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www.cpwplc.com
Operating and Financial Review continued
liability by HM Customs & Excise in relation to mobile
phone wholesale trading, we have not undertaken any
wholesaling of mobile phones since April 2003 and do
not foresee entering the market again in the coming year.
We understand that HM Customs & Excise continue to
investigate the recovery of VAT in the industry. Having
undertaken a detailed internal investigation and taken
advice, we continue to believe that we have no financial
exposure to this issue within the financial statements.
Exceptional items
There were two exceptional items during the year,
representing a total charge of £6.4m.
We incurred an exceptional charge of £4.7m in our German
business in the first half of the year, relating to the planned
closure of 15 stores, the integration of the head office
operations of The Phone House Germany and Hutchison,
the closure of the existing German head office in Munich,
and associated fixed asset write-offs.
In the second half of the year we recognised a non-cash
charge of £1.7m on the disposal of part of our interest
in our wireless internet portfolio. The carrying value of this
fund on the balance sheet is now £5.4m.
Eliminations
Included within Retail revenue is £12.5m of commissions
from the Group’s German service provision business for
customers connected onto our own base. Retail revenue
is reported gross to avoid distortion of performance.
Interest and tax
Net interest of £4.9m was payable during the year,
compared to a charge of £1.0m in the prior year. This
movement reflects the impact of the acquisitions made
over the last eighteen months and increased capital
expenditure, as well as the purchase of the freeholds on
our London offices and the Birchwood call centre site.
The effective tax rate before amortisation and exceptionals
was 22%, as in the prior year. The tax rate continued to
benefit from the utilisation of tax losses incurred in earlier
years, and the effect of profit within low tax rate jurisdictions.
Goodwill amortisation
Goodwill of £64.4m arose during the period, relating to the
acquisitions made. The total goodwill amortisation charge
for the year was £25.4m (2003: £20.6m).
Earnings per share (EPS)
Headline EPS was 6.81p (2003: 5.25p). Statutory EPS was
3.17p (2003: 2.60p).
Cash flow and dividend
At 27 March 2004, the Group had net debt of £40.6m
(2003: net funds of £29.1m). During the year the Group
generated cash flow from operations of £102.7m (2003:
£77.7m), and total free cash flow before acquisitions, new
stores, dividend payments and the purchase of the London
and Birchwood freeholds of £57.0m (2003: £50.8m).
Cash generation is a prime objective of the Group and
we expect to continue to generate significant levels of free
cash flow in the future, allowing us to reinvest in the growth
of the business and pursue a progressive dividend policy.
We are proposing a final dividend of 0.9p per share, taking
the total dividend for the financial year to 1.3p and
representing growth of 30.0% over last year’s maiden
1.0p distribution, reflecting underlying EPS growth.
Net (debt) funds
2004 2003
£m £m
Operating cash flow 102.7 77.7
Tax and interest (7.2) (1.5)
Capex (ex new stores and freeholds) (38.5) (25.4)
Free cash flow 57.0 50.8
New store capex (13.7) (10.9)
Freehold (acquisitions) disposals (47.3) 31.5
Acquisitions and investments (59.3) (62.1)
Dividends (12.2) –
Net cash (outflow) inflow (75.5) 9.3
Opening net funds* 29.1 34.6
Shares and foreign exchange 5.8 (14.8)
Closing net (debt) funds* (40.6) 29.1
* including short-term investments.
Balance sheet
Acquisitions and capital investment during the period are
reflected in an increase in fixed assets from £511.7m to
£604.7m year-on-year. Debtors and short-term creditors also
increased substantially from March 2003 to March 2004,
reflecting acquisitions during the period, together with growth
in turnover ex Wholesale of 61.5%. The increase in long-term
creditors from £49.4m to £117.7m year-on-year principally
reflects the introduction of the term loan noted below.
Financing and treasury
The Group’s operations are financed by committed bank
facilities, retained profits and equity. During the period, the Group
agreed a £120m term loan facility, which amortises between
January 2005 and July 2008. The Group was in compliance
with the covenant conditions of the existing £180m revolving
credit facility and the new facility throughout the period.