A weak prepay market, with sales down as much as 40% year on year, has hit profits at Carphone Warehouse Europe.
Its headline earnings before interest and tax for the six months to 30 September were £12.5m, ahead of guidance but down 37.5% on 2011. However, it reiterated its prediction that it will make between £130m and £150m in profit by the end of its financial year.
The UK had a strong sales performance, with like for like revenue up 5% across the half year and up 10% during its second quarter. This outperformed the rest of the group, which had first half like for like sales growth of 1.6% and Q2 growth of 5.0%. Total sales for the trading period were £1.66bn, up 8.0% on 2011. The retailer said postpay sales were a key driver of revenue, with a particularly strong performance in the second quarter from the likes of its Smart Deal offer.
The prepay decline hit total connections, down 11.5% on 2011 to 4.4m although the second quarter decline (down 5.6%) was much shallower than Q1 (down 17.8%). The retailer said it was confident of a turnaround in the prepay market in the second half of its financial year, as the type of products broadens.
The retailer is currently reorganising its business, which resulted in former UK MD Matt Stringer leaving the retailer. Carphone Warehouse said the creation of an autonomous UK and Ireland business and standalone European companies would lead to pre-tax savings of between £20m and £25m each year. However, the retailer will have one-off exceptional costs of between £30m and £35m during the second half of its financial year because of the restructure.
Carphone Warehouse Group CEO Roger Taylor said: 'We have delivered a good performance in a dynamic mobile market, with sales benefitting from our renewed focus and specific investment initiatives. As a result, we have substantially increased our market share of UK postpay volumes and, while the prepay market remains weak, we hope for an improvement in the second half as the product pipeline continues to broaden. In Continental Europe, we have also been exploring growth opportunities for the business through potentially long-term strategic partnerships.'
Looking ahead, the retailer said it was optimistic, despite the challenges facing the industry and economic environment. It said forthcoming products were exciting consumers, as was the further roll-out of 4G services. It predicted a higher proportion of smartphones in the prepay market, as the range gets deeper and prices become more attractive.
Editor: Graeme Neill