Carphone Warehouse ringing the right numbers, but some investors still hang up

9 Oct 2003

UK-based mobile phone retailer Carphone Warehouse reported stronger than expected sales performance at its fledgling fixed line residential business talktalk, causing it to revise upwards its subscriber targets for the full year, but warned that the new unit will not turn a profit until 2004 causing some investors to bail out. Charles Dunstone’s company, which is one of the largest mobile phone retailers in Europe, claims to have signed up close to 140,000 customers since launch and is adding an average of 8,000 new clients a week. As a result it now anticipates to sign up between 350,000 and 400,000 voice telephony subscribers by March 2004, compared with earlier targets of 200,000. However, the company forecasts that the rapid pace of growth will impact heavily on its profits for 2003 as it has decided to write off subscriber acquisition costs (SACs) as they happen, rather than amortise them within the first twelve months, as originally intended. As a result of the decision Carphone Warehouse expects to report a loss of between GBP7 million and GBP8 million in the first year, down from an earlier projection of a GBP3 million profit. The company’s share price dipped by 4% in the wake of the news, with some analysts suggesting they may have disconnected their links too soon. The new business is a potential cash-cow as each new subscriber generates approximately GBP60 in operating profit per annum. Achieving its first year target could lead to pre-tax profits of GBP90 million in 2004, rising to GBP23 million the year after.

United Kingdom