Carphone Warehouse Group plc C h W h G l Preliminary Results - - PowerPoint PPT Presentation

C h W h G l Carphone Warehouse Group plc Preliminary Results and Strategy Update 14th June 2011 14 June 2011

Results for the year ended 31 March 2011

Agenda

• Overview & financial highlights

Charles Dunstone - Chairman

• Strategy update

Roger Taylor - CEO

• Financial update & 2012 guidance

Nigel Langstaff - CFO

Overview & financial highlights Charles Dunstone Chairman

A year of considerable success

Headline Financial Highlights 2010-11

• EPS of 15.0p (FY10: 8.3p)
• Dividend of 5.0p per share

p p

• CPW Europe EBIT growth of 18% to £135m (FY10: £114m)
• Best Buy Mobile US profit share up 111% to £98m (FY10: £46m)
• Best Buy Mobile US profit share up 111% to £98m (FY10: £46m)
• Best Buy UK ‘Big Box’ EBIT losses of £62m (FY10: £21m)
• Virgin Mobile France now profitable; EBIT of £21m & net adds of over 200,000

Outlook

“Challenging trading conditions ahead, however the Group is well positioned to maintain its momentum.”

• CPW Europe - well positioned
• Best Buy Mobile US - continued growth
• Best Buy UK ‘Big Box’ - continue to evaluate next steps for CE strategy
• Virgin Mobile France - focus on value creation

Strategy update Roger Taylor CEO

Group structure

Best Buy Europe Virgin Mobile France CPW Property Cash 50% 47.1% 100%

c.2,430 stores across c.1,290 stores in US Western Europe

‘Big Box’

10 stores open 10 stores open

The ‘Wireless’ journey [check content below with team] The ‘Wireless’ journey The Wireless journey [check content below with team]

After Before

Standard CPW/TPH store

• Mobile phones

‘Wireless World’ store

• New in-store environment
• Key customer segments
• Accessories
• Laptops, netbooks (limited)
• Dummy handsets
• Smartphone zone
• Smartphones / tablets

laptops / netbooks

• Live devices
• Wide accessory range
• Geek Squad
• Walk Out Working

… and more

‘Wireless World’ - Product diversification, ranging & services

• Geek Squad penetration: +10%
• Geek Squad penetration: +10%
• Accessories volume: +40%
• Postpay sales: +c.15%

Postpay sales: c.15%

‘Wireless World’ UK EUROPE Average sqft 1,000 - 1,600 900 - 1,600 Margin uplift c.20% c.20% Payback c.2 years c.3 years C £100 £150k Capex £100 - £150k ‘Wireless World Essential’ UK EUROPE Average sqft 500 - 1,000 400 - 900 Margin uplift c.10% c.10% Payback c 2 years c 3 years Payback c.2 years c.3 years Capex £50 - £100k

‘Wireless World’ - What our customers say Other initiatives customers say

“I like it a lot, they’ve made it a place you want to spend time in.” y p “I would take their advice more seriously because it seems more upmarket.” p

• Walk Out Working launched mid-Sep 2010
• NPS – improved with take up of WOW

‘Wireless World’ - Our ‘Wireless’ journey

UK Europe

15% 100% 98% 90% 30%

Store aspirations

85% 96% 91% 75% 15%

Store aspirations

70% 0% 2% 10% FY10 FY11 FY12 FY15 85% 4% 9% 25% FY10 FY11 FY12 FY15 FY10 FY11 FY12 FY15 Wireless World / Wireless World Essential Other FY10 FY11 FY12 FY15 Wireless World / Wireless World Essential Other

• FY11 106 ‘Wireless World’ format stores across UK & Europe
• FY12 c.350-400 ‘Wireless World’ format stores across UK & Europe

Smartphone revolution

W t E bil d i l b t Western Europe mobile device sales by type

6% 7% 6% 4% 4% 3% 2% 1% 24% 31% 34% 41% 65% 61% 53% 43% 39% 36% 34% 31% 27% 12% 15% 22% 29% 30% 30% 30% 27% 17% 17% 19% 24% %

2008 2009 2010 2011 2012 2013 2014 2015

Fully featured smartphones Entry-level smartphones Basic Low-Cost

Graphic created by CPW based on Gartner data. Source: Gartner, Inc., Forecast: Mobile Devices, 2008-2015, 1Q11 Update, Carolina Milanesi et al, March 17, 2011. (Chart descriptions simplified by CPW and data points based on CPW's definition of Western Europe for purpose of presentation) Western Europe: Belgium, France, Germany, Ireland, Netherlands, Portugal, Spain, Sweden, UK

Home of smartphones & tablets

HP Touchpad LG Optimus (3G) 198

Global tablet market (m)

BlackBerry PlayBook HTC Flyer (3G) 122 93 133 166 y y y ( ) 17 57 95 70 43 Motorola Xoom (3G)

2010 2011 2012 2013 2014 2015 Latest forecasts (Apr 2011) Previous (Dec 2010)

Apple iPad 2

• Increase of 30-40% in global tablet forecasts in recent months
• Market forecast to be larger than current laptop/netbook market (2010: 185m)

Source: Latest forecasts average of 5 issued during April (Gartner, ABI, Future Source, Strategy Analytics & iSuppli). Previous forecast average of 9 issued Sep-Dec 2010 (Gartner, Strategy Analytics, UBS, Goldman Sachs, Morgan Stanley, Display Search, iSuppli, Ovum &IC Insight)

Tablets - Get connected

• iPad initially driving high percentage of Wi-Fi only
• Inverse sales behaviour for latest entrants (more contract than hardware)

Pricing points key

• Pricing points key

FREE tablet & FREE smartphone

Connected tablets

Prepay market – a swing factor in the year ahead

Economic environment Channel quality Complexity & consultative sales Pricing points Complexity & consultative sales approach Subsidy levels post MTR cuts Network relationships

Top 5 sellers – prepay smartphones

Blackberry Curve 9300 HTC Wildfire Nokia 5228 Blackberry Curve 8520 Samsung Galaxy Apollo £149.95 £99.95 £49.95 £119.95 £79.95

Effect of move to 24 month contracts

• +

Significant H1 impact c.25% less upgrades Better network terms Upgrades / ‘Sleepers’ FY12 FY13 & b d FY12 c.£20m impact on profit FY13 & beyond Significant profit upside

Network terms alignment Smartphone upside Illustrative Postpay profits

Volume effect 24 month contracts

profits

Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10 Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11 Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13

Germany update

Sophisticated dealer business - ‘Mobile World Distribution’

• Sold 3m handsets and c.400,000 postpay connections in FY11
• Developed sales channels during the year

e e oped sa es c a e s du g e yea

• Preferred distribution partner of all 4 mobile operators
• c.1,500 points of sale
• German Distribution market

th ti t d EUR3 5b

• worth estimated EUR3.5bn
• c.5,000 non-network dealers available to supply

Declining service provider business g p

• Move to traditional retail model
• Decrease in revenue (offset by ‘dealer’ revenues)
• £10m reduction in profitability year-on-year

Retail business

• 135 own branded stores, 43 franchise stores
• c.90 network stores
• Reviewing strategy

Other European markets

Overall

• Improved management structure
• Operationally more efficient
• Renegotiating network commercials
• ‘Wireless World’ roll-out

Belgium - exit Belgium - exit

• Cash consideration EUR22m
• Subject to clearance from Belgian competition authorities

Spain - back to growth

• Plans for up to 100 additional stores

Netherlands Netherlands

• Market changes
• Last remaining independent retailer

France

• Increased network competition

CPW Europe - the year ahead C u ope t e yea a ead

+

• ‘Wireless World’ stores driving growth in

quality, customer experience & profitability

• Unknown prepay trends FY12
• Continue to benefit from smartphones

& development of tablet market

• Impact of 24 month contracts
• European markets improving performance
• Germany year-on-year

European markets improving performance Germany year on year

• Good cost management over last 2 years

A year of transition in mobile marketplace EBIT guidance of flat to +10%

Best Buy Mobile US - Overview

FY11 FY10 Revenue c.$2.5b*

• Connections

7.1m 5.5m Connections growth 28.2% 30.3% SAS Stores 190 77 SWAS Stores 1,101 1,070

• > 13,000 dedicated specialists in stores
• > 10 carriers, 14 manufacturers & 132 handsets available in-store
• Wider online range with additional 60 handsets
• Only retailer with multi channel/multi carrier activation system (BEAST)
• Only retailer with multi-channel/multi-carrier activation system (BEAST)

* Based on Best Buy’s year end (February) and not previously provided.

Best Buy Mobile - Stores

Stand-alone stores

• Average store size c.1,500 sqft
• FY12 target: c.325 stores*
• 5 year target: 600 - 800 stores

Store-within-a-store

• Average store size

Standard

• 1,100 sqft
• End of FY 11: 370 larger format stores

q Larger format

• 1,400 sqft

g

• As at June 2011: 600 larger format stores

* Based on Best Buy’s year end (February)

Best Buy Mobile - Key value propositions & marketing

Best Buy Mobile - Continued growth

20% growth

• Growth in connections
• LFL revenue growth & space growth
• Growth in awareness / draw rates
• Growth in market share

Growth in market share

• Profit share growth of 20% - 30%

6 0% 8.0% 10.0% 12.0%

Medium term market share

0.0% 2.0% 4.0% 6.0% Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar-

aspiration of 10%

10 10 10 10 10 10 10 10 10 11 11 11

Draw rates

Best Buy UK ‘Big Box’

Aintree store Aintree store

• Continue to evaluate next steps in our multi-format/multi-channel CE strategy
• FY11: Loss of £62m

FY11: Loss of £62m

• 10 stores now open (June 2011)

Virgin Mobile France - Marketplace

• 4th biggest player in the marketplace (total market of 63m subscribers)
• Number 1 MVNO
• Number 1 MVNO
• Postpay mix compared to rest of MVNO market

Networks – market share position

• 1. Orange

MVNO

• 2. SFR
• 3. Bouygues

Orange Bouygues

Fourth 3G mobile network licence awarded to ‘Free Mobile’ (Iliad group), to enter the market early 2012 2012.

SFR

Market share - MVNO 8% : Network 92%

Source: Strategy Analytics

Virgin Mobile France - Value creation through quality t b th customer base growth

• Customer recruitment drive in the second half - Q4 net additions 161,000

1 715 1,756 1,917

10% 15% growth

1,685 1,715 1,695 1,682

10% - 15% growth

Q3 FY10 Q4 FY10 Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11

Customer Base (000’s) Revenue EUR(m)

Virgin Mobile France - Value creation through customer awareness

• Effective marketing campaigns
• Strong product range
• Strong product range
• Customer service award

Virgin Mobile France - Value creation through integrated platforms

Agreements with networks

• Multi-network relationship

g

• Full MVNO
• SFR agreement enables transformation of business to ‘full’ MVNO
• First ‘full’ MVNO in France
• Virgin Mobile stores
• Own SIM card & subscribers
• Plans to offer quad-play services

Property

• 4 freehold properties in the UK
• Ongoing development at Preston & Acton

Book value

• f freeholds

Current rental income Market value at 7% yield Market value at 8% yield £68m £5.6m £80m £70m £68m £5.6m £80m £70m Preston development Advertising screen - Acton

Financial update & 2012 guidance Nigel Langstaff CFO CFO

Best Buy Europe Best Buy Europe

Best Buy Europe financials PAT Best Buy Europe financials - PAT

Best Buy Europe PAT

• 28% growth in PAT, despite

incremental investment in Best

£'m 2010-11 2009-10 YoY CPW Europe 135 114 Best Buy Mobile US 98 46 Best Buy UK (62) (21)

incremental investment in Best Buy UK

Best Buy UK (62) (21) EBIT 170 140 22% Interest (15) (16) Tax (34) (29) Profit after tax 121 95 28%

Best Buy Europe financials EBIT Best Buy Europe financials - EBIT

Best Buy Europe EBIT

• Revenue ahead of expectations

due to incremental dealer sales

£'m 2010-11 2009-10 YoY Revenue 3,572 3,529 1% Gross margin 990 1 037

due to incremental dealer sales in Germany

• Continued strengthening of

gross margins on core business

Gross margin 990 1,037 GM% 27.7% 29.4%

• 170bp

Opex (831) (852) Best Buy Mobile US 98 46 EBITDA 257 232 11% D&A (87) (92) EBIT 170 140 22% EBIT% 4.8% 4.0%

Best Buy Europe financials cash flow Best Buy Europe financials - cash flow

Best Buy Europe cash flow

• 24% growth in operating

cashflow from CPW Europe and

£'m 2010-11 2009-10 YoY EBITDA pre-Best Buy UK 317 253 Working capital (35) (27) Capex (69) (54)

cashflow from CPW Europe and Best Buy Mobile US

Capex (69) (54) OFCF pre-Best Buy UK 213 172 24% Best Buy UK (78) (44) Tax (44) (24) Other (16) 1 Other (16) 1 Net cash flow 74 104

• 29%

Closing funds 132 57

Best Buy Europe guidance CPW Europe Best Buy Europe guidance - CPW Europe

CPW Europe 2011-12

Space Up 2-3%



350-400 Wireless World Growth opportunity in Spain LFL revenue + / - 2%



24 month contracts in UK



Weak prepay segment



Weak prepay segment



Wireless World refits



Improvements in Europe



Tablets / accessories

?

Prepay Christmas 2011 Prepay Christmas 2011 Connections Down 0 to 5%



24 month contracts in UK



Weak prepay segment

?

Prepay Christmas 2011 German SP Revenue down ~£100m



Earnings down ~ £10m EBIT % Strengthen YoY



Margin improvement / cost reduction initiatives

?

C EBIT Flat to +10%

?

Depending on prepay Christmas

Best Buy Europe guidance CPW Europe Best Buy Europe guidance - CPW Europe

£15m £10m £10m £10m‐ £15m £15m‐ £20m £10m £20m £135m £135m £150m

2010‐11 EBIT German SP 24m contracts Wireless World GM / opex 2011‐12 base Prepay Christmas 2011‐12 upside

Best Buy Europe guidance CPW Europe Best Buy Europe guidance - CPW Europe

H1 H2 Drivers of profit phasing



24m contracts



German SP



Wireless World



Wireless World Connections YoY Down mid-single digit Up mid-single digit Connections YoY Down mid-single digit Up mid-single digit LFL Down mid-single digit Up mid-single digit EBIT Y Y D £25 U £25 t £40 EBIT YoY Down c.£25m Up £25m to £40m

Best Buy Europe guidance Best Buy Mobile US Best Buy Europe guidance - Best Buy Mobile US

Best Buy Mobile US 2011-12

Space Up ~20%



+ 150 SAS, additional space in SWAS Connections Up ~20%



SWAS space supports LFL growth EBIT Up 20-30%



Reinvestment in growth EBIT Up 20-30%



Reinvestment in growth

Best Buy Europe guidance

• ther

Best Buy Europe guidance - other

Best Buy Europe 2011-12

Interest Flat Likely lower ongoing cash cost Tax 23-24% Lower UK rate OFCF (ex BBUK) Similar



EBITDA growth OFCF (ex BBUK) Similar



EBITDA growth



Additional capex for Wireless World

Virgin Mobile France Virgin Mobile France

Virgin Mobile France financials PAT Virgin Mobile France financials - PAT

Virgin Mobile France PAT

• Move into strong profitability,

reflecting scale benefits and

£'m 2010-11 2009-10 YoY Revenue 328 233 41% EBITDA 24 (19)

reflecting scale benefits and Tele2 synergies

( ) D&A (4) (3) EBIT 21 (22) EBIT% 6.3%

• 9.5%

Interest (3) (2) Tax (1) 5 P fit (l ) ft t 17 (19) Profit (loss) after tax 17 (19)

Virgin Mobile France financials cash flow Virgin Mobile France financials - cash flow

Virgin Mobile France cash flow

• Strong cash generation used to

start paying down shareholder

£'m 2010-11 2009-10 YoY EBITDA 24 (19) Working capital 3 3 Capex (7) (4)

start paying down shareholder loans

Capex (7) (4) OFCF pre-Best Buy UK 20 (20) Tele2 7 (45) Other (2) 6 Net cash flow 25 (60) Closing debt (64) (88)

Virgin Mobile France guidance Virgin Mobile France guidance

Virgin Mobile France 2011-12

Net adds 100,000 to 150,000



Sales momentum Revenue Up 10-15%



In line with average base EBIT margin ~7%



Increasing scale EBIT margin ~7%



Increasing scale



Investment in growth OFCF Similar



EBITDA growth



Working capital



Investment in full MVNO infrastructure

Group Group

Group financials EPS Group financials - EPS

Group EPS

• 15p EPS, at the top end of

guidance range

£'m 2010-11 2009-10 YoY Revenue 6 6 Opex (9) (6)

guidance range

Best Buy Europe 60 47 28% Virgin Mobile France 8 (8) Net interest and tax 2 (1) Profit after tax 68 37 81% EPS 15.0p 8.3p 81%

Group financials cash and dividends Group financials - cash and dividends

• Inaugural dividend of 5p

Group funds

• Opportunity for further one-off

returns if re-financing makes JVs self-sufficient

• Any material disposals also

£'m 2010-11 Net funds b/f 100 VMF loan repayments 15

• Any material disposals also

likely to lead to incremental returns

p y Other 5 Net funds c/f 120 VMF loans receivable 36 Net funds inc. loans 156

Group guidance summary Group guidance - summary

Group 2011-12

CPW Europe EBIT flat to +10% Best Buy Mobile US EBIT up 20-30% B t B UK F th id t f ll Best Buy UK Further guidance to follow VMF EBIT up 20-25% Central P&L Similar YoY EPS With £55m of BBUK losses - ILLUSTRATIVE ONLY 17-18p Ex-BB UK - ILLUSTRATIVE ONLY 21-22p

Q&A