Carphone Warehouse Fiscal Year Underlying Earnings +36%

LONDON -(Dow Jones)- Carphone Warehouse Group, Tuesday reported a 36% jump in annual underlying earnings with initial consumer demand for its recently launched free broadband plan significantly ahead of expectations.

The UK mobile phone retailer and telecom-service provider said 340,000 customers have signed-up for its free broadband plan as at June 5.

Carphone Warehouse founder and Chief Executive Charles Dunstone said the prospects for the group, which was founded in 1989, are good.

"The continued strength of the customer proposition, and the rapid innovation in design as well as functionality of mobile devices, create an attractive environment for our distribution businesses.

"We intend to continue the expansion of our store portfolio and other distribution channels, and are targeting 15% growth in mobile connections in the coming year," said Dunstone, who is the company's biggest shareholder with a 33% stake.

Underlying earnings, profit before one-off items and tax, rose sharply to GBP136.1 million in the year ended April 1, broadly inline with market expectations of GBP135 million. That compares with GBP100.4 million in the same period a year ago.

Revenue rose 29% to GBP3.05 billion in fiscal 2006 from GBP2.36 billion a year earlier.

Carphone Warehouse sells mobile phones as well as other related-products and services in 1,800 stores in the UK, Ireland, Spain, France, Portugal, Netherlands, Belgium, Germany, Sweden and Switzerland. Its biggest market is the U.K., where it operates 669 stores, with another 70 to be opened in fiscal 2007.

The company's two core divisions include distribution and telecom service. The former is made-up of retail operations and all directly related business streams, while telecom services is composed of a range of network and support services to business and residential telecoms customers.

In April, Carphone Warehouse said it would provide a free broadband Internet service to consumers, who subscribe to its fixed-line voice packages on an 18-month contract.

The move is expected to kick off another price war in the U.K. broadband market with NTL and British Sky Broadcasting Group expected to offer similar packages in a bid to grab further market share.

Carphone Warehouse said it will charge GBP9.99 a month for fixed-line voice calls and broadband Internet, plus a rental charge of GBP11 a month for the line and a one-off connection fee of GBP29.99.

As previously announced, Carphone Warehouse will spend around GBP110 million on the broadband offer in fiscal 2007, which will result in an operating loss of GBP50 million.

"We are confident that this investment will create substantial value in the medium term and are provisionally estimating incremental profit from our unbundled broadband service of GBP30 (million) to GBP40 million in the year to March 2008, with full payback on the cash investment within four years," Dunstone said in a statement.

"For the current year, our investments in broadband and Virgin Mobile France will impact Group profit significantly, although the strength of our confidence in our future prospects means we intend growing dividends in line with underlying Group earnings growth," Dunstone added.

Net profit fell 4.6% to GBP70.5 million in fiscal 2006 from GBP73.9 million a year earlier, hit by one-off costs related primarily to the integration and restructure of telecommunications group Onetel, which it acquired from Centrica for GBP154 million in December.

The group also booked a goodwill expense of GBP1.8 million relating to the acquired deferred tax assets that hadn't previously been recognized.

Carphone Warehouse declared a final dividend of 1.75 pence, taking the total for the year to 2.5 pence. That compares with a dividend of 1.80 pence in fiscal 2005.

Carphone Warehouse shares closed at 331.50 pence Monday, valuing the company at GBP2.90 billion.

Company Web site: http://www.cpwplc.com

-By Lilly Vitorovich, Dow Jones Newswires; 44-0-207 842 9290; lilly.vitorovich@dowjones.com

(END) Dow Jones Newswires "

Posted to the site on 6th June 2006