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Carphone Warehouse Group plc Interim Results & Strategy Update 7th November 2011 Interim Results for the 6 months ended 30 September 2011 1.
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Agenda • Strategic Highlights Charles Dunstone - Chairman • Interim Results 2011-12 & Strategy Update Roger Taylor - CEO • Financial Update Nigel Langstaff - CFO
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Strategic Highlights Charles Dunstone Chairman
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Strategic Highlights • Sale of interest in Best Buy Mobile (US & Canada) • Closure of Best Buy UK ‘Big Box’ • Launch of Global Connect • Focus on CPW’s connectivity strategy
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Interim Results 2011-12 & Strategy Update Roger Taylor CEO
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Continuing • CPW Europe Headline EBIT £24.4m, pre £4.4m reorganisation charge (2010: £44.2m) • 18 to 24mth contracts (LFL -3.9%, connections -8.8%) • Slower prepay market • Product launch timing • Virgin Mobile France Headline EBIT £8.0m (2010: £19.9m) • Strong revenue growth of 22.1% • Net adds of 88,000 (2010: net reduction of 33,000) • H1 focus on customer acquisitions, increased SAC Other • Best Buy Mobile US profit share up 5.4% to £45.0m (2010: £42.7m) • Weaker Q2 (product launch timing) • Best Buy UK EBIT loss of £46.7m (2010: loss of £28.8m) Interim Results 2011-12 H1 in line with expectations No change to full year guidance for continuing business
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Christmas 2011 iPhone 4 (8gb) Blackberry Curve 8520 Samsung Galaxy Mini £419.00 £129.95 £69.95 New Prepay smartphones CPW exclusives* Blackberry 9300 Samsung Galaxy Europa HTC Wildfire S £159.95 £49.95 £129.95 Nokia C2-02 Nokia C3-00 £69.95 £69.95 Samsung Tocco Lite Alcatel OT810 £49.95 £49.95 *Exclusive features such as content, back cover or add on products
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Postpay propositions HTC Sensation XL Nokia Lumia 800 iPhone4S 16GB Blackberry Bold 9900 Free from £31/mth Free from £31/mth Free from £41/mth Free from £31/mth Choose your FREE gift and FREE phone
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Closure of Best Buy UK „Big Box‟ Focus on „Connected World‟ with one brand • Connectivity strategy prioritised: higher and proven rate of return • Store closure expected by end of calendar year 2011 (losses through to closure £25m-£30m) • Redeployment of Best Buy UK talent • Exceptional cash costs of closure £65m-£75m • Non-cash asset write-downs of £40m-£45m • CPW’s share of total net cash investment from inception to closure c.£100m
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„Connected World‟ - the next step ‘To INSPIRE & GUIDE in this connected world, making people’s lives better through technology’ Extended “connected” product range Higher profit pool categories Further Geek Squad & services roll out Multi-channel „click & connect‟ Extended customer touch points Accessories PH/CPW Stores Integrated web M Commerce A refocused business that plays to our strengths
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CPW Connected World WIRELESS WORLD ++ CONNECTED WORLD Advice on smartphones, tablets, laptops & all other technology that connects your world Your connected retailer • Faster store conversion • Increase in total sq ft: 15%-20% over next 3 to 5 years • Expanding online proposition • Compelling returns
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• Launch of new JV with Best Buy Co., Inc. • Driving Connected World into new markets • Partnerships with major retailers in target markets • Capital-light • Sharing expertise, vendor relationships and best retail practice • Effective operational governance Global Connect Replicating partnership success across the globe
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Global Connect - China • 1.3bn with 50% urban population • 68% mobile penetration nationally • Over 350m handset sales in 2011 • Best Buy - Five Star • National Chinese CE retailer • Revenue US$1.7bn FY11 • Jiangsu based • 210 stores in 6 regions by end FY12 • Ambitious 5 year roll-out plan • Mobile SWAS & SAS proposition • Launch Pilot early 2012 Source: Data Monitor, Euro Monitor; Strategy Analytics; Gartner
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Sale of interest in Best Buy Mobile (US & Canada) • Enable our US partners to pursue ‘Connect’ strategy & market a wider range of products • Consideration £838m for Best Buy Mobile (US & Canada) • Upfront cash payment of £813m ($1,303m) • Ongoing consultancy fee of £5m pa for five years • Intention to return upfront cash payment to shareholders • No corporation tax expected to arise on upfront cash payment Realising value for our shareholders
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Best Buy Europe FMV CPW Put & BBY Call (2 years: BBY Call China/Mexico only) FMV FMV less 10% CPW Put & China/Mexico FMV Formalisation of long-term ownership FMV - fair market value Global Connect Global Connect Delivering shareholder value 3 Years then 4 Years later
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Other deal issues • Up to 170p per share to be distributed to shareholders • Global Connect agreement • Governance • Best Buy Europe dividend policy
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Proposed transactions with Best Buy Co., Inc. Conditions CPW shareholder approval Anticipated timetable 7th November 2011 Announcement of sale of interest in Best Buy Mobile (US & Canada) November/December Production of circular January 2012 1st week 3rd week Circular distributed to CPW shareholders CPW shareholder meeting to approve February 2012 Cash distribution via B Share Scheme Effective over 2011/12 & 2012/13 tax years
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v CPW Europe 50% Virgin Mobile France 47% Property 100% MV of £70m-£80m Cash & loans receivable c.£125m Mexico & China 20% profit share New territories 50% profit share Best Buy Mobile Consultancy fee £25m over 5 years Revised Group Structure CPW Europe potential upside Post distribution of up to £813m to shareholders Global Connect
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Financial Update Nigel Langstaff CFO
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Summary H1 financials • CPW Europe affected as anticipated by 24 month contracts in the UK and SP transition in Germany, including £4m reorganisation charge • Best Buy Mobile US reflects strong prior year comparatives • Unsustainable level of losses within Best Buy UK, resulting in decision to close • Strong period of customer additions caused increased SAC at Virgin Mobile France • Interim dividend of 1.75p, payable in December Headline Group EPS £'m H1 2011-12 H1 2010-11 YoY 100% CPW Europe 20 44 Best Buy Mobile US 45 43 Best Buy UK (47) (29) Tax and interest (12) (20) Best Buy Europe (50%) 3 19 -84% Virgin Mobile France (47%) 2 6 -68% Other 1 - Profit after tax 6 25 -78% Basic EPS 1.2p 5.5p -78%
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Best Buy Europe financials - EBIT • Revenue in line with expectations, with LFL down 3.9% and c.£60m negative impact from Germany • CPW Europe GM% held up well, but overall GM% suppressed by Best Buy UK • Opex savings despite Best Buy UK and German reorganisation costs Best Buy Europe Headline EBIT £'m H1 2011-12 H1 2010-11 YoY Revenue 1,587 1,668 -5% Gross margin 442 484 GM% 27.8% 29.0% -120bp Opex (423) (425) Best Buy Mobile US 45 43 EBITDA 64 102 -37% D&A (46) (44) EBIT 18 58 -69% EBIT% 1.2% 3.5%
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Virgin Mobile France financials - PAT • Strong revenue growth, with last year’s customer base growth weighted to H2 • Net adds of 88,000 (net reduction of 33,000 last year) resulting in high SAC • Underlying EBIT before increased net adds showing good progress Virgin Mobile France Headline PAT £'m H1 2011-12 H1 2010-11 YoY Revenue 193 158 22% EBITDA 10 22 -55% D&A (2) (2) EBIT 8 20 -60% EBIT% 4.1% 12.6% Interest (2) (1) Tax (2) (5) Profit after tax 4 13 -68%
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Best Buy Europe financials - cash flow • EBITDA down YoY (24m contracts, Germany) • YoY increase in H1 working capital outflow reflects higher stock levels and other short-term timing issues • Full year working capital expectation in line with guidance • Capex investment in Wireless World roll-out and IT platforms Best Buy Europe cash flow £'m H1 2011-12 H1 2010-11 YoY EBITDA pre-Best Buy UK 108 129 Working capital (135) (78) Capex (44) (26) OFCF pre-Best Buy UK (71) 25 Best Buy UK (45) (43) Other (16) (18) Net cash flo (132) (36) Closing net fund - 21
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Update on full year guidance Continuing June guidance Update CPW Europe EBIT flat to +10% As June; likely to be lower end given (£135m - £150m) subdued prepay market Interest flat (£15m) Tax 23-24% Virgin Mobile France EBIT up 20-25% As June Basic EPS Pending Best Buy UK 11.5p - 12.0p Regular dividend 3 x cover c.5p Other Best Buy Mobile US No profit share beyond H1 Best Buy UK Losses to closure estimated at £25m-£30m One-off distribution B share scheme n/a Up to £813m As June
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Estimated costs of Best Buy UK closure • All closure plans subject to employee consultation • Significant investment in redeployment of people where possible • Average lease length c.10 years Cash costs £'m Property c.40 Average annual rent c.£860k per store People 10-15 Redeployment / redundancy Other 15-20 Stock disposal, contract exit 65-75 Non-cash charges £'m Asset write-downs 40-45 Net of lease incentives 40-45
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Q&A
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Appendices
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Best Buy Europe guidance update CPW Europe FY guidance H1 actual Comments Space Up 2-3% Up 1% H1 weighting to franchise stores LFL revenue + / - 2% Down 3.9% H1 in line with expectations, with flat to low single digit positive LFLs expected in H2 Connections Down 0 to 5% Down 8.8% Now expecting down 5-10% for FY (weaker prepay) German SP Revenue down c.£100m Revenue down c.£60m Impact weighted towards H1; Earnings down c.£10m Earnings down c.£10m full year guidance unchanged EBIT % Strengthen YoY Down YoY H1 expected, FY guidance unchanged EBIT Flat to +10% H1 expected, FY in line with guidance - £25m down in H1 £24m down in H1 likely to be at the lower end Best Buy Europe FY guidance H1 actual Comments Interest Flat Up £3.1m Write-off of legacy facility fees, following summer refinancing; FY guidance unchanged Tax 23-24% 25% FY guidance unchanged OFCF (ex BBUK) Similar Down YoY H1 OFCF affected by short-term issues; FY guidance for CPW Europe unchanged
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Virgin Mobile France financials - cash flow • Strong cash generation despite investment in growth • Capex investment in full MVNO development • Other in prior year included Tele2 purchase price adjustment Virgin Mobile France cash flow £'m H1 2011-12 H1 2010-11 YoY EBITDA 10 22 Working capital 7 11 Capex (6) (4) OFCF 11 29 Other 0 8 Net cash flow 11 37 Closing debt (52) (51)
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Virgin Mobile France guidance update Virgin Mobile FY guidance H1 actual Comments Net adds 100,000 to 150,000 88,000 FY guidance unchanged Revenue Up 10-15% Up 22% FY guidance unchanged EBIT margin ~7% 4.1% Increased customer acquisition in H1; FY guidance unchanged OFCF Similar Down YoY Increased customer acquisition in H1; FY guidance unchanged
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Group financials - EPS Headline Group EPS £'m H1 2011-12 H1 2010-11 YoY Revenue 3 3 Opex (3) (4) Best Buy Europe 3 19 -84% Virgin Mobile France 2 6 -68% Net interest and tax 1 1 Profit after tax 6 25 -78% Basic EPS 1.2p 5.5p -78% • Expected seasonality in CPW Europe and increased losses in Best Buy UK suppressed YoY earnings from Best Buy Europe • Virgin investment in growth again suppressed short-term earnings
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Group financials - cash and dividends • Planned dividend of c.5p, with 1.75p interim • No short-term plan for additional returns out of existing cash resources • Other in prior year includes FX gains on hedges Group funds £'m H1 2011-12 H1 2010-11 Net funds b/f 121 100 Dividends / own shares (30) (3) Virgin Mobile France loan repayments 7 11 Other (1) 6 Net funds c/f 97 114 VMF loans receivable 28 39 Net funds inc. loans 125 153