Carphone cuts prices, profits meet forecasts

Carphone Warehouse on Tuesday said it was cutting prices for its voice-only fixed line customers in response to a move by BT to reduce line rental charges for people who agree to take an online phone bill. Carphone said its line rental charges would fall for all its customers and it would offer free international calls to 30 countries.

The competitive move comes after a year when the mobile phone retailer and telecoms provider has suffered some damage to its brand as customers switching to its “free” broadband service faced long delays and poor service.

Roger Taylor, finance director, said: “We’re not proud of having put some of our customers through a problematic process, We apologise to customers we feel we’ve let down.”

However, he said the rate of sales in recent months had “shown we haven’t damaged the brand unduly”, and reiterated the group’s plan to invest an extra £15m in customer service in the current financial year.

In the year to March 31, the group said profits before tax and amortisation fell from £136m to £123m, in line with expectations after £80.5m of start-up costs relating to the free broadband service and the setting up of a joint venture in France.

Group revenues rose 31 per cent to £3.99bn, boosted by a full year’s contribution from Onetel, acquired in December 2005, and by the three months of ownership of AOL’s UK internet business.

Earnings per share fell 6 per cent to 7.51p, but the group said it had “no hesitation in proposing a 30 per cent increase in the full year dividend”. A final of 2.25p takes the total to 3.25p.

The group will continue to spend heavily in the current financial year on infrastructure for its broadband service. Mr Taylor said that at the end of March 30 per cent of the 2.27m customers were on the profitable “unbundled” network and by the end of the year that should rise to 70 per cent, a level at which the service would be profitable. Thereafter the level of investment would reduce.

The group’s distribution division, which primarily consists of the 2,144 shops in the UK and mainland Europe, lifted operating profits by 22.4 per cent to £141m. During the year 444 shops were opened and 78 closed. Mr Taylor said the group was aiming to open 250 shops this year, but could open more if sites became available.

He said that although economic conditions might be less favourable for customers that could generate business as people look for cheaper tariffs. In the pre-pay market, he said, Carphone was working with manufacturers to provide innovative handsets to stimulate sales.

Finance charges rose from £5.7m to £26.4m, but Mr Taylor said he was comfortable with net debt of £617m, up from £273m, following the AOL deal.

In opening trading the shares were up 6½p or 2.1 per cent to 310p.