CARPHONE WAREHOUSE GROUP PLC ANNUAL REPORT 2011

THE HOME OF THE CONNECTED WORLD

CARPHONE WAREHOUSE GROUP PLC ANNUAL REPORT 2011

INTRODUCTION

HARNESSING THE CONNECTED WORLD BY MAKING TECHNOLOGY ACCESSIBLE TO CUSTOMERS

Group Headline EPS up over 80% from 8.3p to 15.0p
Group statutory EBIT up 67% from £38.0m to £63.3m
Dividend of 5.0p per share

Headline financial highlights

GROUP EARNINGS PER SHARE [PENCE]

GROUP NET FUNDS / LOAN ASSETS [£M]

VIRGIN MOBILE FRANCE: EBIT [100% BASIS] [£M]

BEST BUY EUROPE: REVENUE [100% BASIS] [£M]

BEST BUY EUROPE: EBIT BEFORE BEST BUY UK [100% BASIS] [£M]

BEST BUY EUROPE: OPERATING FREE CASH FLOW BEFORE BEST BUY UK [100% BASIS] [£M]

An explanation of Headline results is provided on page 80 and a reconciliation between Headline and statutory results is shown in note 10 to the Group financial statements. Details of the statutory result are provided in the Business Review on page 26. Group earnings per share for years to 31 March 2010 has been adjusted for the share consolidation which occurred on Demerger. Group net funds / loan assets have not been presented prior to the Demerger as the Group did not then exist in its current form. An explanation of the basis of preparation prior to the Demerger is provided in note 1 to the financial statements.

OVERVIEW

GROUP AT A GLANCE

CARPHONE WAREHOUSE GROUP

Following the demerger of TalkTalk, the Group comprises joint venture investments in Best Buy Europe and Virgin Mobile France and wholly owned property and other assets in the UK.

BEST BUY EUROPE

Joint venture with Best Buy, a world-leading consumer electronics retailer.
Specialist advice in areas of product and service complexity.
Customer-focused, with a demonstrated track record of high quality service.

CPW EUROPE

Founded in the UK in 1989, the business has grown to become Europe's leading independent mobile phone retailer.
Strong earnings growth over past two years, capitalising on an exciting technology pipeline.
2,429 stores of which approximately 10% are franchises.
Rolling out 'Wireless World' store format, delivering excellent customer feedback and strong financial returns.
Online channels provide information and home and in-store delivery options.

BEST BUY MOBILE US

Launched in the US in 2006 as a partnership between Carphone Warehouse and Best Buy, through which Best Buy Europe receives a profit share from Best Buy Mobile.
Phenomenal growth in market share and earnings since launch, on the back of a rapid rollout of its differentiated proposition across the Best Buy estate.
190 stand-alone stores and 1,101 stores within Best Buy's 'Big Box' stores.
Plans for significant further growth, targeting 600-800 stand-alone stores within next five years.
Online platform relaunched in 2010 to provide improved customer experience.

2,429 stores

12m connections

1,291 stores

7m connections

BEST BUY UK

Best Buy UK is our Best Buy branded stores and online proposition in the UK, which commenced trading in April 2010, offering full range of consumer electronics.
Differentiated, service-led proposition, with the 'Connected World' at its heart.
Six 'Big Box' stores at March 2011 with typical size of 25,000-45,000 sqft.
Five more 'Big Box' stores scheduled through to summer 2011.
Extended online range, with home and in-store delivery options.

VIRGIN MOBILE

NO.1 MVNO IN FRANCE

Joint venture with Virgin Group, leading experts in developing MVNOs worldwide.
Launched in 2006 and now by far the largest MVNO in France.
Strong brand with innovative propositions and award-winning customer service.
Strong relationships with retailers, with over 2,500 retail points of sale.
Continuing to grow strongly, with target of over 2 million customers this year.
Business now highly profitable, despite continued investment in growth.

1.9m customers

OTHER ASSETS

PROPERTY ASSETS

Four freehold properties in the UK, generally with long-term leases.

£74m market value

NET FUNDS AND LOAN ASSETS

Net funds to cover short-term commitments to joint ventures, but available for distribution in medium-term.
Loan assets being repaid by Virgin Mobile France from operating cash flows.

value of £156m

OVERVIEW

02 Chairman's Statement
04 The Connected World

DIRECTORS' REPORT - BUSINESS REVIEW

09 Chief Executive Officer's Review
11 Best Buy Europe
21 Virgin Mobile France
26 Other Financials
28 Corporate Responsibility

DIRECTORS' REPORT - GOVERNANCE

30 Board of Directors and Advisors
32 Corporate Governance
37 Remuneration Report
43 Other Statutory Information
44 Statement of Directors' Responsibilities

FINANCIAL STATEMENTS

45 Independent Auditors' Report
46 Consolidated Income Statement
47 Consolidated Statement of Comprehensive Income
47 Consolidated Statement of Changes in Equity
48 Consolidated Balance Sheet
49 Consolidated Cash Flow Statement
50 Notes to the Financial Statements
74 Five Year Record
75 Company Balance Sheet
76 Notes to the Company Financial Statements
80 Glossary and Definitions
81 Financial Calendar

CARPHONE WAREHOUSE GROUP PLC STRUCTURE

BEST BUY EUROPE

(50% OWNED)
£60.4m
Headline Group PAT

VIRGIN MOBILE FRANCE

(47% OWNED)
£8.2m
Headline Group PAT

OTHER ASSETS AND COSTS

(100% OWNED)
£(0.8)m
Headline Group PAT

Overview p11	Overview p21	Performance Review p26
Marketplace p13	Marketplace p22
Strategy p14	Strategy p23
KPIs p15	KPIs p23
Performance Review p16	Performance Review p24
Risk p20	Risk p25

Where this annual report contains forward-looking statements, they are made by the directors in good faith based on the information available to them at the time of the approval of this annual report. These statements should be treated with caution due to the inherent risks and uncertainties underlying any such forward-looking information. The Group cautions users of this document that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to, those discussed under Risk sections of this document on pages 20, 25 and 27.

Carphone Warehouse Group plc Annual Report 2011

OVERVIEW

CHAIRMAN'S STATEMENT

HARNESSING THE CONNECTED WORLD TO DELIVER VALUE FOR SHAREHOLDERS AND CUSTOMERS

Charles Dunstone, Chairman

Q One year on from a successful demerger, we are delighted with the performance of the Carphone Warehouse Group.

One year on from the creation of the 'new' Carphone Warehouse Group through the successful demerger of TalkTalk, it is a pleasure to report on the company's performance.

Strategically, Carphone is capitalising on the rapid growth and development of the 'Connected World'. Operationally, its execution has been impressive, driving its position in its markets. Financially, despite the tough economic environment, it has delivered results significantly ahead of original expectations. During the year, Carphone consecutively increased its guidance three times, ending the year with earnings per share of 15.0 pence, good cash flow generation from operations and a strong balance sheet.

It was in June 2000 that the original Carphone Warehouse floated on the London Stock Exchange. At that time, we were still riding the growth wave in mobile penetration and we were benefiting from being a source of both great variety and impartial advice – two constants in Carphone's ethos. We had just seen the award of 3G licences and we were looking forward to mobiles becoming the individual's primary access to the internet as well as their primary means of voice communication.

We could not have mapped out the explosive growth of mobile usage and applications, but a great deal of what we saw in 2000 as possibilities, have now become realities. The 'mobile data wave' is well and truly with us. The internet and indeed the office, are now in our pockets.

Increasingly, individuals, groups and organisations are communicating and accessing whatever information they want, wherever they are and whenever they want – and, more and more, they are doing so 'wirefree', or at least with a fusion of wireless and fixed line broadband. Hardware advances have been extraordinary, and mobile devices today are powerful computers. Perhaps more impressively, software now enables hundreds of thousands of applications

and provides an intuitive ease and diversity of usage, which has changed our world and the way we live, work and play – and will continue to do so.

Against this backdrop, competition among mobile operators and device manufacturers has grown even fiercer. The customer's need for a trusted guide to the most appropriate device, to how it works and to the best tariff for them has grown all the more relevant. We are by no means immune to the economic climate, but it is the product and service development cycles which, for us, I believe are the more powerful and which place us well for the future.

The smartphone revolution, the rapid emergence of tablets and the explosion of applications are still just the beginning of the 'Connected World'. Big strides are being made in mobile payment systems, location based services, mobile video and social networking.

Throughout our retail portfolio, Carphone is extremely well positioned to bring our customers the latest and best products and services that the 'Connected World' has to offer. Our 'Wireless World' format stores, which have a wider range of products and services than our traditional stores, produce excellent customer feedback and compelling financial returns. We are accelerating the roll-out of these stores in Europe with 350-400 planned by the end of this year. CPW Europe's Headline EBIT grew by 18% to £134.6m for 2011, reflecting the success of the business during the year.

The extraordinary performance of Best Buy Mobile in the US has exceeded all our expectations. Best Buy Mobile is powerfully differentiated from its US competitors. It provides a wide range of smartphones, tablets and accessories, together with transparency on pricing and the impartial advice and strength of customer service which are hallmarks of both Carphone and Best Buy. Best Buy Mobile is now well-established in the US mobile market, and we see considerable

Carphone Warehouse Group plc Annual Report 2011

potential to widen its penetration and build its market share through expanding its store-within-a-store space and by rolling out new stand-alone stores. The business delivered connections growth of 28% in 2010-11, on top of 30% growth in the previous year, and an increase in Best Buy Europe's profit share of 111% to £97.9m.

A year on from the launch of Best Buy branded stores in the UK, I would like to highlight the fantastic achievement by Best Buy Europe in getting the business up and running. We have been extremely pleased with the customer feedback – which is a credit to the quality of the team – and have learned a great deal about opportunities in the broader consumer electronics market. With the benefit of this experience we are in the process of evolving our strategy for this business.

We are delighted with the progress of Virgin Mobile France. It has moved into profit, and its customer growth has significantly exceeded our expectations. Its acquisition of Tele2 has given the business additional scale, and the successful integration has delivered all the synergies promised. Virgin Mobile France now has 1.9m customers, and we are beginning to see strong profit and cash generation. It has continued to win customer service awards, and the Virgin brand continues to maintain strong levels of recognition in France. Its financial performance reflects the business transformation, with a 2010 £22.2m Headline EBIT loss becoming a 2011 Headline EBIT profit of £20.6m.

In summary, a strong performance from Carphone Warehouse Group in its first year post demerger, and a clear demonstration of the value of our combination with Best Buy. We believe we are well positioned for the future and this, coupled with our financial strength, has led us to commit to a progressive dividend policy, starting with a recommended dividend for the year just ended of 5.0 pence per share. This is to be paid on 5 August 2011 to shareholders on the record as of 8 July 2011.

Everything that the Carphone Warehouse Group has achieved and all its potential are down to the commitment, efforts and quality of all our people. On behalf of the Board, I would like to thank them very much indeed.

Charles Dunstone, Chairman

CARPHONE WAREHOUSE GROUP EVOLUTION

Carphone has a strong track record of growing successful businesses, applying its extensive experience, commercial relationships and an eye for an opportunity to build value.

Carphone Warehouse Group plc Annual Report 2011

OVERVIEW

THE CONNECTED WORLD

Best Buy Europe is on a wireless journey, with its vision being the Connected World.

We aim to place customers at the heart of this journey. The ever increasing availability of the internet on the go and the rapid evolution of devices to support this have created amazing opportunities. We play a valuable role in translating the benefits of technology to customers. We exist to inspire and guide in this 'Connected World', making people's lives better through technology.

CONNECTED

MOBILE> 10:00 L&R SEND

Impartial advice. As an independent retailer, Best Buy Europe is able to provide impartial advice to customers on network offerings and tariffs, allowing them to make informed choices. This independence and impartial advice is a fundamental part of Best Buy Europe's differentiated retail proposition.

In-store set-up. 'Walk Out Working' is a service that helps customers make the most of their new device. In our 'Wireless World' stores, the Geek Squad can explain operating systems in person, help customers download their first applications, set up their email accounts and register them for MyHub.

MyHub. MyHub provides free backup of customers' contacts, music and photos. The MyHub application allows customers to access their information wherever they are, without the need for cables or other synchronising software.

Carphone Warehouse Group plc Annual Report 2011

Carphone Warehouse Group plc Annual Report 2011
05

What is the Connected World?

Today's technology allows electronic devices to communicate with each other, sharing and transferring data rich content. Our goal is to help our customers to benefit from this technology, enabling them to access a digital lifestyle through smarter and easier-to-use mobiles, televisions, computers and tablets.

Strong heritage of expertise.

CPW Europe has a history of innovation and expertise in selling connected products and providing guidance in areas of technological complexity. Best Buy is a global leader in consumer electronics with a track record of outstanding customer service and operational execution. Together, this combination provides the ideal partnership to deliver the 'Connected World'.

My Music Anywhere.

My Music Anywhere provides easy access to entire music collections across multiple devices. It is easy to set up and use, leaving customers with more time to enjoy their music. There is no need to move tracks physically between computer and mobile device. The application takes a snapshot of the music collection which customers can access directly on their phone from wherever they are.

What you want, where you want, when you want.

By providing the complete package of hardware, accessories, connections, content and services our customers can access what they want, where they want, when they want. Devices can be used to connect to home and work while on the move, making our customers more productive and allowing them to get more enjoyment out of everyday life.

Clean Up the World

START STREAMING

12:38:16 SECONDS

CHOICE

OVERVIEW

THE CONNECTED WORLD (CONTINUED)

> Our aim is to deliver the Connected World to our customers. We offer trained experts to provide impartial advice on the widest range of networks, smartphones and electronic devices. Whether it's listening to music on your mobile phone via the internet from content on your home PC, or streaming video while waiting for a flight to board, we offer every connected solution to cater for our customers' needs.

24/7

WHAT'S THE RIGHT LAPTOP FOR ME?

CONNECTED

BETTER INFORMED CHOICES

> "HAVING AN EXPERT TO GUIDE ME MEANS PEACE OF MIND"

EXPERT ADVICE

Our customers tell us that having technology support, protection and repair services for their devices helps them get the most out of them. By placing the Geek Squad within our stores, we provide a direct opportunity for customers to engage and interact with them to find out all they need to know and get the services they need. The Geek Squad team can also fix problems remotely by accessing customers' computers over the internet.

Carphone Warehouse Group plc Annual Report 2011

OVERVIEW

INSPIRATION THROUGH UNDERSTANDING

"CAN I TWEET AND DOWNLOAD GAMES AT THE SAME TIME?"

DELIVERING A BETTER CUSTOMER EXPERIENCE

We have spent considerable time understanding the customer journey in order to provide the best experience to meet customer needs. We have identified four segments that allow us to communicate to customers in a way that we hope is engaging, interesting and informative. These segments are defined in-store by demonstration zones, which help customers to identify devices most suited to their needs. Whether our customers are looking for the latest and greatest, entertainment, social media or work-on-the-go technology, we try to make it easy to find exactly what's right for them.

Upgrade alerts

With our upgrade alert service, we will remind customers when it's time for an upgrade.

Trade-ins

Customers can trade-in their old mobile phones, sat navs, MP3 players, and games consoles.

CUSTOMERS

BRINGING TECHNOLOGY TO OUR CUSTOMERS

"WHO UNDERSTANDS MY TECHNICAL NEEDS?"

"I NEED ADVICE FROM PEOPLE I CAN TRUST"

TRAINING OUR PEOPLE

Through inspiration, engagement and training we aim to deliver highly skilled employees who put the customer at the heart of everything they do. We provide access to the best product and service knowledge to try to deliver a world class level of service for our customers. We have implemented a number of programmes for our people including:

Five day induction training event;
Three week training 'Boot Camp' for Geek Squad agents;
E-learning accreditation for continual development; and
Nine week intensive training for Best Buy UK recruits.

EYE OPENERS

Launched in November 2009 to help customers get the most from their applications, phones and tablets, 'eye openers' features videos from knowledgeable employees giving useful tips and advice on a wide range of devices, to help people get more from their technology. It has quickly been established as the most viewed technology channel on YouTube as it recently celebrated breaking five million views.

www.youtube.com/eyeopeners

Carphone Warehouse Group plc Annual Report 2011
07

OVERVIEW

THE CONNECTED WORLD (CONTINUED)

By putting connectivity at the heart of our business we are committed to helping people experience and buy the best range of hardware, accessories, connections, content and services available to suit their individual needs.

HARDWARE +

We have evolved our stores to provide the broadest range of wireless devices.

ACCESSORIES +

To enhance and support all our hardware we provide an eco-system of accessories.

CONNECTIONS +

Connections remain at the heart of our proposition.

CONTENT +

MyHub provides customers with a simple, secure, and powerful online backup and storage service. My Music Anywhere provides our customers with the ability to listen to their playlists through any device wherever they are.

SERVICES

Supporting our customers is our number one priority so we make sure we offer them technology support, protection and repair. With 'eye openers' we help our customers get the best from their products.

Carphone Warehouse Group plc Annual Report 2011

BUSINESS REVIEW

CHIEF EXECUTIVE OFFICER'S REVIEW

HARNESSING THE CONNECTED WORLD TO GROW OUR BUSINESS AND PROVIDE REAL VALUE TO OUR CUSTOMERS

This has been a year of considerable success for the Group, during which our businesses have made impressive progress. As a result, we ended the year with Group Headline earnings per share of 15.0p (2010: 8.3p) and a strong balance sheet with over £156m of funds and loan assets. The Group is well positioned to maintain this momentum, despite the tough economic environment. This combination of financial strength and positive outlook lies behind the inauguration of our progressive dividend policy, with a dividend for the year ended 31 March 2011 of 5.0p.

Carphone Warehouse Group comprises a 50% joint venture share in Best Buy Europe, a separate joint venture with Virgin, Virgin Mobile France, and directly owned property interests and other assets.

Best Buy Europe has three main operations: CPW Europe, Europe's largest independent mobile retailer; a profit share in Best Buy's mobile phone retailing operations in the US; and Best Buy UK, our 'Big Box' consumer electronics stores and online platform in the UK.

Virgin Mobile France is France's leading MVNO.

Best Buy Europe

CPW Europe

Some 21 years ago, the original Carphone Warehouse opened its first store on the Marylebone Road in London. Today, it has over 2,400 stores, covering the UK, Ireland and seven Continental European countries, and last year connected almost 12 million individuals with new mobile devices.

From the outset, Carphone has been based on the principles of choice, value and impartial advice for all our customers. These principles, together with our record of innovation, have stood us in good stead and are at the heart of

our reputation. They are also all the more relevant now that mobile phones and other wireless devices have become powerful computers, with an explosive growth of applications, a rapid product development cycle, and an increasing range of home entertainment and communication technology.

Ownership of this 'Connected World' is at the heart of our retail strategy. We will continue to provide outstanding value and service across a broad range of wireless products and accessories and help simplify technology choices for our customers.

CPW Europe capitalised well on these opportunities to grow its Headline EBIT by 18% to £134.6m.

During the year we saw an increase in penetration of smartphones and currently around 80-90% of handsets sold with a postpay connection in the UK are smartphones, with penetration in the rest of Europe increasing all the time. We see internet connectivity and smartphone features becoming the norm across virtually all mobile devices, further increasing smartphone penetration in the postpay segment. The prepay segment experienced lower penetration of smartphones, given the economic environment and higher price points.

Our 'Wireless World' format stores, which have a wider range of products and services than our traditional stores, continue to produce excellent customer feedback and compelling financial returns. As at the year end we had 106 'Wireless World' stores across six markets. We are accelerating the roll-out of these stores with a target of 350-400 by the end of the current financial year and aspirations to convert most of the estate within five years.

Q We consider ourselves well positioned to take advantage of smartphone and tablet technology and are excited about the prospects for the year ahead.

Carphone Warehouse Group plc Annual Report 2011

BUSINESS REVIEW

CHIEF EXECUTIVE OFFICER'S REVIEW (CONTINUED)

GROWTH OF TABLETS (M)*

Western Europe
North America

Tablets – a non-existent category just 18 months ago – have already captured consumers' imagination and rapid growth is expected in this segment.

SMARTPHONE INCREASE IN WESTERN EUROPE $(\%)^{**}$

Low cost
Basic
Smart phone - entry level
Smart phone - featured

Smartphone penetration is set to increase, as devices become even more affordable.

Table created by the Company based on Gartner data. Source: Gartner, Inc., Forecast: Connected Mobile Consumer Electronics, Worldwide, 2008-2015, 1Q11 Update, Carolina Milanesi et al, April 1, 2011.

** Table created by the Company based on Gartner data. Source: Gartner, Inc., Forecast: Mobile Devices, 2008-2015, 1Q11 Update, Carolina Milanesi et al, March 17, 2011. (Data points based on CPW's definition of Western Europe which include Belgium, France, Germany, Ireland, Netherlands, Portugal, Spain, Sweden, UK. Smartphone descriptions have been simplified by CPW Group plc for the purpose of this annual report.)

We are excited about the ever-expanding range of tablet devices coming to the market, with forecasts for the size of this market increasing all the time. The CPW Europe 'Wireless World' format is ideally suited to offer a wide range of tablets, particularly as 3G enabled tablet sales increase and more tablets are purchased in a bundle with a smartphone.

Best Buy Mobile US

Best Buy Mobile US had an outstanding year, surpassing our expectations by some way. The US is one of the world's largest mobile marketplaces, with over 280 million mobile phone accounts. Perhaps surprisingly, though, the US consumer has traditionally lacked a retail offering of choice and impartiality. Our partnership with Best Buy, a world-leading electronic goods retailer, was created specifically to address this. It combines the mobile retailing and connections experience of Carphone Warehouse with Best Buy's formidable consumer electronics retailing expertise and store portfolio across the US, and the impartial advice heritage of both organisations. The results have been spectacular. Best Buy Mobile's market share in the US now stands at around 5%, up from around 1% when the venture started in 2006.

At the end of last year, all of Best Buy's 1,101 US 'Big Box' stores had Best Buy Mobile stores-within-a-store, and Best Buy Mobile had rolled-out 190 smaller stand-alone stores, which are similar in size to a 'Wireless World' format store in Europe. In addition, Best Buy Mobile launched a new online platform during the year, providing new sales opportunities as well as developing the business' multi-channel proposition.

Best Buy Mobile's US connections grew by 28%, to over 7 million, and this increased Best Buy Europe's share of profits by 111% to £97.9m.

Best Buy Mobile increased the space allocated for some 370 stores-within-a-store during 2010-11, and has increased a further 230 since the year end. Looking ahead, the business is targeting 600 to 800 stand-alone stores over the next 5 years. We believe that Best Buy Mobile US can secure a 10% share of the US mobile retail market in the medium term.

Best Buy UK

Best Buy UK opened an initial six 'Big Box' stores in the UK during 2010-11 and launched its online offering in November. A further four stores have opened since the year end. The execution of these openings has been impressive, and we are delighted with the customer feedback. Following this launch period we are in the process of evaluating the next steps in our multi-format/multi-channel consumer electronics strategy.

Virgin Mobile France

Virgin Mobile France had an extremely successful year, combining good organic growth with the successful integration of Tele2 France and delivering all the promised synergies. It is France's largest MVNO with some 1.9 million customers and a strong distribution network of over 2,500 third party retail outlets and around 53,000 prepay voucher top-up points. Its management strength is illustrated by the completion of the Tele2 integration and its ability then to return to customer growth, with 161,000 net customer additions in the fourth quarter. This took total net customer growth for the year to over 200,000, bringing Virgin Mobile France within sight of its long-standing target of over 2 million customers.

The financial result last year was a transformation from a Headline EBIT loss of £22.2m to a Headline EBIT profit of £20.6m.

Virgin Mobile France now offers a much wider range of smartphones than it did for much of last year and has made significant market share gains through its creative marketing campaigns. Looking ahead, it will invest in its infrastructure to reduce costs and increase flexibility, and we believe it is well set to reinforce its number one MVNO position in France and to deliver further growth in revenue and operating profit in the current financial year.

In summary

We continue to benefit from a strong product cycle, with smartphone technology continuing to develop and proliferate rapidly, and an ever-expanding range of tablets coming to the market. We believe the business is well positioned to capitalise on this despite the widespread uncertainty around the economic environment.

Roger Taylor, Chief Executive Officer

Carphone Warehouse Group plc Annual Report 2011

BUSINESS REVIEW

BEST BUY EUROPE: OVERVIEW

Best Buy Europe Headline EBIT (100% basis)
	2011 £m	2010 £m	%
CPW Europe	134.6	114.4	18
Best Buy Mobile US	97.9	46.4	111
	232.5	160.8	45
Best Buy UK	(62.2)	(21.0)
EBIT	170.3	139.8	22

PERFORMANCE HIGHLIGHTS

CPW Europe benefitted from strong smartphone sales, and from the cost and margin initiatives launched in the previous year, to deliver Headline EBIT growth of 18%.
Best Buy Mobile delivered phenomenal profit growth, on the back of rapid expansion in like-for-like sales and retail space, and further improvements in operational execution.
Best Buy UK saw EBIT losses of £62.2m, up from £21.0m in 2010, reflecting significant investment in developing the brand following launch.

OUR JOINT VENTURE PARTNER

Best Buy is a world-leading consumer electronics retailer, listed on the New York Stock Exchange, with annual sales of over $50bn.
It has operations in Canada, Mexico and China, as well as the US, where it is a market leader, with market share of over 20% in various consumer electronics categories.
It has established a reputation for outstanding customer support, service innovation and expertise in the whole spectrum of consumer electronics technology.

MANAGEMENT STRUCTURE

Best Buy Europe has its own experienced team, led by Andrew Harrison, CEO, who has been with Carphone Warehouse since 1995.
The joint venture board includes members of the management team and representatives of each shareholder.
The board ordinarily meets formally once a month, to agree strategy and to review performance.
Best Buy Mobile forms part of Best Buy but is governed by a separate management committee, comprising management and representatives of both Best Buy and the Group.
The committee usually meets monthly and covers strategic and operational matters.

Carphone Warehouse Group plc Annual Report 2011

BUSINESS REVIEW

BEST BUY EUROPE: OVERVIEW (CONTINUED)

BACKGROUND

Best Buy Europe is a 50:50 joint venture with Best Buy formed in June 2008, when Best Buy acquired 50% of CPW Europe, including its profit share in Best Buy Mobile US. The venture draws on the innovative and customer-centric heritage of both businesses, and combines the Group's expertise in delivering connected products and services with Best Buy's retailing excellence and scale. The business has retail operations in nine European countries, primarily through The Carphone Warehouse and The Phone House brands, and more recently through the Best Buy brand in the UK, together with its profit share in Best Buy Mobile in the US.

Online platform

Alongside its extensive store portfolio, each of Best Buy Europe's businesses has well-developed online channels.

BEST BUY MOBILE US STORE GROWTH

CPW EUROPE STORE PORTFOLIO

CPW Europe

CPW Europe is the largest independent mobile retailer in Europe, with 2,429 stores at March 2011 and well-developed online channels.
Its specialisation in combining hardware, connections and services, and ongoing investment in high quality and well-trained consultants, make it ideally placed to benefit from the evolution of smartphones and other areas of complex technology.
Most of its stores are between 500 and 1,000 sqft with an average of approximately 620 sqft.
The business has been developing 'Wireless World' stores, which are generally larger than traditional format stores, typically 1,000 sqft to 1,600 sqft. These stores have a broader range of products and services, as well as dedicated Geek Squad agents to provide advanced technical support.
More recently, the format has been adapted to fit into a smaller space, in the form of 'Wireless World Essential' stores, which also focus on a broader range, but typically in a 500 sqft to 1,000 sqft format.

Best Buy Mobile US

Best Buy Mobile offers the same expert, impartial proposition as CPW Europe, and benefits from the scale and brand of Best Buy.
The business has had remarkable success in a market in which the customer experience in mobile phone retailing has lagged that in Europe, increasing market share from around 1% in 2006 to around 5% in 2010.
At March 2011, it operated through 190 stand-alone stores, with a similar format to 'Wireless World' stores in CPW Europe, and 1,101 branded stores within Best Buy's 'Big Box' stores. It has plans to open a further 150 stores in the coming year, with a five year target of 600-800 stand-alone stores, and also continues to develop its online channels.

Best Buy UK

The joint venture launched six stores and an innovative online platform during the year, with five stores scheduled through to summer 2011.
We have used these platforms to trial routes to market for consumer electronics in the UK, and are now evaluating the next steps in our multi-format/multi-channel consumer electronics strategy.

Carphone Warehouse Group plc Annual Report 2011

BUSINESS REVIEW

BEST BUY EUROPE: MARKETPLACE

MAKING THE MOST OF OUR CHANGING MARKETPLACE

The business is experiencing one of the most exciting periods of technological innovation that it has ever known, with increasingly sophisticated smartphones evolving all the time, and the advent of tablets in a wide range of formats. Like other retailers, the business is operating in a challenging economic environment, and this has undoubtedly affected the prepay category in the past year. But the business is in good shape operationally to face these challenges, and remains well-placed to capitalise on the market opportunity going forward.

The smartphone revolution

The proliferation of smartphones into the market has stimulated consumer demand in both Europe and the US in a way that we haven't seen for several years.

Alongside the features available on traditional handsets, smartphones offer multimedia functionality including fully synchronised email, internet access, and the ability to download applications, at ever improving speeds. The past couple of years have seen the entry of new product suppliers, creating new competition in the market, both across products and handset operating systems. This competition is resulting in rapid innovation, and ever more affordable products.

Because smartphones enable customers to access the web, music and movies while they are on the move, they drive significantly greater levels of network activity, which provides the opportunity for growth in operator data revenues. Smartphones are therefore also stimulating competition between the network operators, again providing consumers with outstanding value.

The most compelling data packages to date have been on postpay tariffs, and we expect smartphones to dominate the postpay category even further in the coming year. Due to a combination of relatively expensive data pricing on prepay propositions and weak consumer confidence, smartphones have not yet taken a significant share of the prepay category in our leading markets; however, we expect penetration to increase in the medium term, as smartphones reduce in price.

We think our businesses in both the US and Europe are well-placed to capitalise on continuing smartphone growth. Our significant investment in training is all the more important as technology becomes increasingly complex and our impartial proposition ever more relevant as choices multiply around products, operating systems, services and content.

Tablets enter the market

Tablets share many similarities with smartphones, typically employing touch-screen technology and designed to provide multimedia services on-the-go. The tablet format only launched in 2010, but it has already established itself as an important category and we expect it to become increasingly significant in the years to come.

With numerous devices coming to market, we see tablets as an important opportunity for the business, again playing into our proposition of impartial expert advice, and ongoing customer support.

Consumer electronics

The consumer electronics market has seen a move to online channels in the past year as consumers search for the best possible price and offering.

At the same time, we are seeing rapid technological innovation in the market, and increasing complexity in the products and services being offered. Many new products – including tablets, home computers, home theatre systems and even some domestic appliances – offer opportunities for synchronisation with other devices, home networking and for receiving services across multiple devices.

We see this complexity increasing the need for expert support and guidance, services which are more readily provided in a store environment.

Carphone Warehouse Group plc Annual Report 2011

BUSINESS REVIEW

BEST BUY EUROPE: STRATEGY AND KPIs

HARNESSING THE CONNECTED WORLD THROUGH A CUSTOMER-CENTRIC STRATEGY

Strategy

1 OWNERSHIP OF THE CONNECTED WORLD

Provide outstanding value and service across the broadest range of products

Continue to construct innovative propositions and to find new ways to subsidise expensive products.
Expand our 'Wireless World' store format to provide the broadest range of smartphones and to extend the product range into other connected devices.
Offer a full suite of hardware, accessories, connections, content and services to enable customers to make the most of their technology.

Help consumers simplify complex areas of technology

Continue to invest in the ongoing training of our expert consultants, and to focus on in-store set-up through the 'Walk Out Working' programme.
Increase the number of stores with dedicated Geek Squad resources, and continue to develop Geek Squad phone and home support.
Maintain investment in operational platforms to simplify transaction processes.

Enhance multi-channel platforms to improve customer choice

Ongoing investment in online transactional sites.
Increase range of delivery options across stores, home and work to maximise convenience.
Access extended online range in-store to provide additional choice.

2 CONTINUE TO BUILD MARKET SHARE

Reinvest benefits of scale in improving the consumer proposition, in turn, driving further growth

Best Buy Europe continues to maintain this long-held strategy in both Europe and the US.

Continue to expand and improve the quality of the retail portfolio

Continue the rapid roll-out of standalone stores in the US and increase selling space within Best Buy Mobile stores within 'Big Box' stores.
Improve the quality of European portfolio through migration of appropriate sites to a 'Wireless World' format.

Leverage global scale to secure exclusives and scarce products, and build strategic relationships with key suppliers

Apply combined scale of Best Buy Europe and Best Buy to drive differentiation from competitors and obtain exclusive products.
Continue to develop commercial alignment with the mobile network operators, to enhance strategic partnerships.
Utilise Best Buy's established own-label supply chain to improve the value proposition across all Best Buy Europe channels.

Carphone Warehouse Group plc Annual Report 2011

BUSINESS REVIEW

KPIs

SALES CHANNELS

CPW Europe

'Wireless World' trials during the year have generated a very positive customer response, and demonstrated a good return on investment.
By March 2011, we had 106 new format stores open, and aim to have 350-400 across Europe over the next year, achieved through a mix of new store openings and the refurbishment of existing stores.
We continue to invest in our transactional websites, and have seen good growth in this channel year-on-year.

Best Buy Mobile US

Best Buy Mobile operates from all of Best Buy's 1,101 'Big Box' stores.
In 2010-11 the space allocated to approximately 370 of these centres was increased from an average of 1,100 sqft to 1,400 sqft, with space in a further 230 increased since the year-end.
It continued its rapid deployment of stand-alone stores, adding more than 100 sites during the year to take the total at March 2011 to 190.
It plans to end its fiscal year (February 2012) with 325 stand-alone stores, with longer-term plans for 600-800.
Best Buy Mobile launched a new online platform during the year, streamlining the transaction process to improve the customer experience.

Best Buy UK

Best Buy UK opened six stores in 2010-11 across the UK.
The stores range from 25,000 sqft to 45,000 sqft, and have been used to trial varied ranges and layouts.
Five further 'Big Box' stores are scheduled to open in 2010-11.
The Best Buy UK website launched in November 2010, offering an extended online range.

SALES PERFORMANCE

In both Europe and the US, we have focused on high value postpay and smartphone segments, helping to drive value for the network operators.

CPW EUROPE CONNECTIONS (000)

The connections decline in 2011 reflects lower demand for prepay connections and the impact of the shift from 18 month to 24 month contracts in the UK from mid-2009 onwards.

US CONNECTIONS (000)

Continuing strong growth in connections reflects the rapid roll-out of the model and the success of the proposition in capturing new customers.

Carphone Warehouse Group plc Annual Report 2011

BUSINESS REVIEW

BEST BUY EUROPE: PERFORMANCE REVIEW

The business delivered EBIT growth of over 20% year-on-year, despite incremental EBIT investment of over £40m in Best Buy UK, reflecting the strong performance of the US and European mobile businesses.

CPW EUROPE HEADLINE EBIT (£M)

BEST BUY MOBILE US HEADLINE EBIT (£M)

Headline income statement (100% basis)
	2011 £m	2010 £m
Revenue	3,572.0	3,528.8
Gross margin	990.1	1,037.1
GM %	27.7%	29.4%
Operating expenses	(830.6)	(851.8)
Best Buy Mobile US	97.9	46.4
EBITDA*	257.4	231.7
Depreciation and amortisation	(87.1)	(91.9)
EBIT	170.3	139.8
EBIT %	4.8%	4.0%
Interest	(15.2)	(16.3)
Tax	(34.3)	(28.9)
PAT	120.8	94.6
Group share	60.4	47.3

Headline EBITDA includes the unwinding of discounts for the time value of money on network commissions receivable over the life of the customer. This unwind has a value of £10.0m in the year ended 31 March 2011 (2010: £8.0m) and is treated as interest income in the joint venture's statutory results.

Best Buy Europe generated revenues of £3,572.0m, an increase of 1.2% on last year (2010: £3,528.8m). As anticipated, revenues associated with our German service provider business fell year-on-year, by around £100m, as we continued to move to a more typical retail model. This decrease was more than offset by an increase in revenues from our dealer business in Germany, which has been developing its sales channels during the year, and which provides a platform for potential further growth in that market. Revenues were also adversely affected by around £50m due to the strengthening of Sterling year-on-year, being offset by revenues from Best Buy UK, which commenced trading in April 2010.

CPW Europe saw like-for-like revenue growth of 0.9%, despite a difficult economic backdrop. The business capitalised well on an exciting product cycle, investing in live demonstration models, innovative new displays, and a broader range of associated accessories and services. Smartphone penetration

continued to increase in the postpay segment, driving an improvement in average revenue per connection. The prepay segment was more significantly affected by subdued consumer confidence, with low penetration of smartphones into this category and some price deflation at the low end. Continuing the trend of last year, like-for-like growth was largely driven by the UK business, although there was an encouraging improvement in performance in some of the Group's operations outside the UK towards the end of the year, reflecting investment in commercial and operational initiatives in these territories.

As anticipated, connections volumes dropped year-on-year, falling by 5.2% from 12.5m to 11.8m. This decrease primarily reflects the weakness in the prepay segment noted above. Towards the end of the year, it also reflected the impact of the shift from 18 month to 24 month contracts in the UK from mid-2009 onwards, which is likely to suppress year-on-year upgrade volumes during calendar 2011.

Carphone Warehouse Group plc Annual Report 2011

CPW Europe opened or resited approximately 140 stores and closed around the same number, ending the year at 2,429 stores, in line with the 2,430 at the start of the year. Within this portfolio, the number of franchise stores increased from 206 at March 2010 to 243 at the end of the year, primarily reflecting growth in France and Spain. The decrease in own stores was predominantly in Germany.

The business has continued to develop the 'Wireless World' store format, with 106 such stores at the end of the year across six markets. With a wider range of products and services than traditional stores, this format continues to produce excellent customer feedback and compelling financial returns.

After the year-end, we announced our decision to sell our retail operation in Belgium to Belgacom for a provisional cash consideration of €22m, subject to clearance from the Belgian competition authorities. Belgium is unique in Western Europe in being a largely unsubsidised mobile market, which has always been a challenge for our business model.

Gross margins in the core CPW Europe business continued to strengthen year-on-year, reflecting the margin improvement initiatives that started to bear fruit in the second half of the previous year. This was offset by the increase in low margin dealer revenues noted above and the lower sales margins and substantial investment in marketing in Best Buy UK. Overall, Best Buy Europe's gross margin percentage decreased by 170 basis points year-on-year to 27.7% (2010: 29.4%).

Operating expenses decreased by 2.5% year-on-year from £851.8m to £830.6m. CPW Europe benefitted from reduced operating costs in its German service provider business and from the annualised effects of last year's cost reduction programme, together with the strengthening of Sterling noted above. These savings were partly offset by additional expenditure in Best Buy UK.

Best Buy Mobile achieved phenomenal profit growth year-on-year, translating into an increase in Best Buy Europe's profit share from £46.4m to £97.9m. Best Buy Mobile traded from all of Best Buy's 1,101 (2010: 1,070) 'Big Box' stores in the US at March 2011 and from 190 stand-alone stores, up from 77 at the start of the year. The space allocated to Best Buy Mobile stores-within-a-store was increased from an average of 1,100 sqft to around 1,400 sqft in approximately 370 stores during the year, with a further 230 increased since the year-end. Best Buy Mobile plans to end its fiscal year (February 2012) with 325 stand-alone stores and to increase the total number of stand-alone stores to 600-800 within five years.

Additionally, Best Buy Mobile launched a new online platform during the year, providing new sales opportunities as well as developing the business' multi-channel proposition.

Best Buy Mobile increased connections by 28.2% to 7.1m in 2010-11, compared to 5.5m in 2009-10. The business continues to invest in its differentiated customer proposition, and in marketing activity to increase awareness of the Best Buy Mobile brand and offering.

The increasing scale and operating leverage of the business naturally had a positive impact on operating profit margins year-on-year. This was partially offset by the investment in marketing and customer proposition noted above.

We opened the first six Best Buy branded 'Big Box' stores in the UK during the year, with four more following since March, and the Best Buy transactional website launched in November 2010. Customer feedback during this launch period has been highly encouraging both in-store and online, a lead indicator of the opportunity for an innovative, service-led proposition.

Best Buy UK incurred EBIT losses of £62.2m in the year, up from £21.0m in 2009-10. With only six stores at the year-end, the business still has a disproportionately high central cost base, and has made a substantial investment during the year in marketing and promotional activity, to develop awareness of its brand and retail presence.

Best Buy Europe's Headline EBIT margin increased from 4.0% to 4.8%, despite the significant additional investment in Best Buy UK, reflecting the strong performance of CPW Europe and Best Buy Mobile US year-on-year.

The interest charge decreased from £16.3m to £15.2m, reflecting lower average borrowings, partly offset by the higher costs of the stand-alone banking facilities introduced in 2009.

Best Buy Europe had an effective tax rate of 22.1% (2010: 23.4%). The decrease reflects the anticipated utilisation of tax losses that had not previously been recognised.

Carphone Warehouse Group plc Annual Report 2011
17

BUSINESS REVIEW

BEST BUY EUROPE: PERFORMANCE REVIEW (CONTINUED)

BEST BUY EUROPE NET FUNDS (£M)

Cash flow (100% basis)
	2011 £m	2010 £m
Headline EBITDA pre-Best Buy UK	317.0	252.7
Working capital	(35.0)	(27.1)
Capex	(69.4)	(53.9)
Operating free cash flow pre-Best Buy UK	212.6	171.7
Best Buy UK	(78.0)	(44.0)
Other	(60.3)	(23.3)
Movement in net funds	74.3	104.4
Opening net funds (debt)	57.4	(47.0)
Closing net funds	131.7	57.4

Headline EBITDA within CPW Europe and Best Buy Mobile US grew by 25.4% year-on-year from £252.7m to £317.0m, reflecting the strong improvements in profitability noted above.

CPW Europe absorbed £35.0m of working capital in the year (2010: £27.1m) principally reflecting increased stock levels.

The focus of capex in CPW Europe continued to be its store portfolio and IT platforms. Capex increased from £53.9m last year to £69.4m, principally due to additional investment in the store portfolio.

Total cash investment in Best Buy UK was up from £44.0m in 2009-10 to £78.0m, reflecting EBITDA losses of £59.6m (2010: £21.0m) and capex of £18.4m (2010: £23.0m). Capex relates to new store openings, net of landlord contributions, and IT and online platforms.

The business paid corporation tax of £44.0m in the year, up from £24.0m in the previous year, reflecting the growth in pre-tax earnings seen over the last two years.

The principal other component of other cash flows in the year is interest expense, which was offset in the previous year by foreign exchange gains.

At the end of the year, net funds within Best Buy Europe were £131.7m, up from £57.4m at the start of the year, reflecting the cash generation described above.

Outlook

Best Buy Europe continues to benefit from the proliferation of smartphone technology and the ever-expanding range of tablets coming to market, playing well into the business' core proposition in both Europe and the US. We believe that the business is well positioned strategically and operationally to capitalise on the strong product cycle over time. The business is not entirely immune to the wider economic environment, however, and there is some uncertainty on the outlook for the prepay segment in particular this year.

Carphone Warehouse Group plc Annual Report 2011

We expect CPW Europe connections volumes to reduce by 0-5% in the coming year, again reflecting potential weakness in the prepay segment, together with the impact in the upgrade segment of the switch from 18 month to 24 month contracts in the UK from mid-2009. This switch will dampen postpay volumes, particularly in the first half of the year.

The reduced upgrade volumes will have a negative impact on earnings in the short-term, especially in the first half, although this will start to be offset towards the end of the year by the benefit of renegotiated network commercials, which provide the business with a greater share of revenues beyond the customer contract term.

We expect this short-term impact to be fully offset by incremental profits from our 'Wireless World' stores, alongside the operational and commercial initiatives that are being implemented across our European businesses.

We anticipate a like-for-like revenue range of -2% to +2%, with an increasing proportion of non-connection revenue within the mix. As we accelerate the roll-out of the slightly larger 'Wireless World' format store, and expand our presence in the Spanish market, we would expect an increase in average space of 2-3%.

Following the completion of the migration of our service provider base in Germany, we anticipate a further reduction of around £100m in revenue from that business, with an associated drop in profits of around £10m in 2011-12.

Overall, we anticipate a Headline EBIT from CPW Europe of between £135m and £150m [2011: £134.6m], with the ultimate outcome within this range likely to be dependent on the performance of the prepay segment over the key Christmas trading period.

We expect continued strong progress from Best Buy Mobile in the US, anticipating overall connections growth of around 20%, with growth in the critical postpay category likely to be higher than this.

The business is rolling out around 150 more stand-alone stores during the year, providing additional average space of approximately 13%. These stores do not immediately enjoy the same level of footfall as the well-established 'Big Box' stores, and consequently will not immediately generate the same level of connections, but they provide a critical building block for increasing market share and earnings over time.

The additional space allocated to Best Buy Mobile stores-within-a-store translates into a further increase of around 7-8% in average space. This additional capacity is primarily focused on accessories and other ancillary products, but is also expected to support continued strong like-for-like growth in connections through this format.

As in the second half of 2010-11, we anticipate that the benefits of increasing scale will be partially re-invested in the customer proposition and marketing to drive the business' long-term positioning in the marketplace, and as a result expect EBIT growth of approximately 20-30% year-on-year from £97.9m to around £120m-£130m.

Following the development of our Best Buy branded consumer electronics channels during the past year, we are now in the process of evaluating our next steps for this business, and will provide further guidance once this process is complete.

We expect that Best Buy Europe's existing financing facilities will be replaced in the current year, and that this will result in lower cost and more flexible facilities going forward. Accelerated amortisation on existing facilities is likely to offset some of the profit benefit of this in the current year.

The tax charge will benefit from the lower rates in the UK, and we expect an effective rate of 23-24% for the year.

The accelerated roll-out of 'Wireless World' stores in CPW Europe is expected to result in an increase in capex year-on-year, offsetting anticipated EBITDA growth and resulting in flat operating free cash flow from CPW Europe and Best Buy Mobile US.

Carphone Warehouse Group plc Annual Report 2011
19

BUSINESS REVIEW

BEST BUY EUROPE: RISK

Best Buy Europe has a well-established risk management function, which monitors the key risks facing the business. The table below summarises the most material risks identified, and the ways in which the business seeks to mitigate them.

Consumer environment

Risk
Best Buy Europe's major markets have suffered low or negative economic growth since 2009, and there is uncertainty surrounding the economic outlook. Some of the products and services offered by the business may be viewed as discretionary, and may therefore be particularly affected by consumer confidence.

Mitigation
The business undertook a major reorganisation programme in 2009, and maintains an ongoing programme to try to improve efficiency, and to ensure that it is well-positioned to deal with an uncertain environment.

Dependence on key suppliers and customers

Risk
Best Buy Europe's principal revenue streams are from mobile network operators, and any change in their strategy could affect the revenues and profits of the business.

The business is also dependent on relationships with key suppliers to source products on which availability may be limited.

Mitigation
The business has moved towards commercial arrangements that provide a closer alignment of interests with the network operators, whereby the risks and rewards of customer ownership are shared, and has focused on the high value postpay and smartphone segments to help to drive economic value for the networks.

The business seeks to increase and leverage the scale of its operations to support global strategic relationships.

Competition

Risk
Best Buy Europe operates in markets that are highly competitive, in which the behaviour of competitors may damage revenues and margins.

Mitigation
The business has sought to differentiate itself through innovative propositions, high quality customer service, and a good supply of scarce products.

Regulation

Risk
Best Buy Europe is subject to regulation in a number of areas, including insurance operations, information security and customer management.

Mitigation
The business has internal committees and control structures to manage these requirements, to ensure appropriate compliance, and to react swiftly should issues arise.

Operations

Risk
Best Buy Europe's operations are dependent on internal and external IT systems which could fail or be unable to keep pace with the needs of the business.

Mitigation
A significant investment has been made over recent years in the IT infrastructure of the business, supported by testing processes and ongoing business continuity planning.

Foreign exchange

Risk
A material part of Best Buy Europe's earnings are denominated in US Dollars and Euros, giving rise to exposure to foreign currency fluctuations.

Mitigation
The business may hedge a proportion of such earnings, to provide certainty of their value.

Carphone Warehouse Group plc Annual Report 2011

BUSINESS REVIEW

VIRGIN MOBILE FRANCE: OVERVIEW

PERFORMANCE HIGHLIGHTS

Virgin Mobile France has grown rapidly in the current year, with net customer additions of 0.2m, well ahead of our expectations at the beginning of the year.
After several years of EBIT and cash investment in growth, the business has now reached a scale where it is generating good profits and cash flows, even while it continues to grow.

OUR JOINT VENTURE PARTNER

The Virgin Group was founded by entrepreneur Sir Richard Branson, and operates across a range of sectors globally.
It has become one of the leading exponents of the MVNO business model worldwide, having also set up Virgin Mobile operations in the UK, US, Australia, Canada, India and South Africa.
Management of Virgin Mobile France also hold a minority stake.

MANAGEMENT STRUCTURE

Virgin Mobile France has its own experienced management team, led by Geoffroy Roux de Bezieux, Chairman.
Geoffroy joined Carphone Warehouse in 1995, founding its retail business in France, and was a member of the Old Carphone Warehouse board before leaving to set up this venture.
Three representatives from each shareholder sit alongside Geoffroy on the joint venture board.
The board ordinarily meets formally once a month to agree strategy and review performance.

Carphone Warehouse Group plc Annual Report 2011

BUSINESS REVIEW

VIRGIN MOBILE FRANCE: OVERVIEW AND MARKETPLACE

Through its innovative propositions, high quality customer service and its network relationships, Virgin Mobile France has been able to capitalise on the opportunities in the French marketplace to become the clear number one MVNO.

Well established brand

The brand enjoys prompted awareness and customer satisfaction ratings of over 85%.

Award-winning service

Virgin Mobile France's high quality customer service was recognised through the Iitu Service Client award of 2011 in the mobile phone operator category.

BACKGROUND

The largest MVNO in France with 1.9m customers.
It was launched in 2006, building on Carphone Warehouse's commercial relationships and Virgin's experience as one of the leading MVNO operators worldwide.
The acquisition of Tele2 France in 2009 transformed the business, giving it a significant step-up in scale, which improved its strategic standing and financial performance.
It has a strong distribution network, with over 2,500 third party handset sales points, some 53,000 distribution points for prepay vouchers, a small portfolio of Virgin branded stores, and a well established online platform.
The Virgin brand is well recognised in France and the business enjoys a reputation for high quality customer service.

MARKETPLACE

Competitive landscape

France's mobile market is one of the largest in Western Europe, with approximately 63m subscribers.

The French market has historically been one of the less competitive mobile phone markets in Europe, with only three network operators. In recent years, none of these networks has engaged in an aggressive expansion strategy, providing an opportunity for Virgin Mobile France.

Support for MVNOs

In order to stimulate greater competition in the French market, the French government and the local telecoms regulator, ARCEP, have encouraged the development of MVNOs. Virgin Mobile France has been the chief beneficiary of this drive, as a clear leader in the French MVNO market.

Entry of a fourth network

In December 2009, ARCEP announced that a fourth 3G mobile network licence was being awarded to Free Mobile, a part of the Iliad group.

The introduction of this fourth network is likely to increase the level of competition within the market.

The incumbent networks have sought to strengthen their positions through 'Quad Play' offerings (i.e. television, fixed line telephone, broadband internet and mobile telephone).

Virgin Mobile France continues to develop its range of products and services to ensure that it is well placed to meet this new competition.

Increasing data

As in other European markets, a combination of competition and regulatory intervention has reduced voice revenues over recent years.

However, the proliferation of internet usage on smartphones and other portable communication devices has provided an opportunity to mitigate this through growing data revenues.

We anticipate continued significant growth in network usage, providing further opportunities to try to monetise this activity.

Carphone Warehouse Group plc Annual Report 2011

BUSINESS REVIEW

VIRGIN MOBILE FRANCE: STRATEGY AND KPIs

Strategy

1 GROW BASE TO REINFORCE POSITION AS #1 MVNO

Targeting over 2m customers

The business is well on track to meet its long-standing 2m customer target this year.
Our aim is to maintain this growth to continue to improve the business' scale and strategic position.

Expanding our own distribution, and third party distribution

The business continues to develop its third party distribution channels, including mobile and consumer electronics specialists, and generalists and hypermarkets.
It also has 28 Virgin Mobile branded stores, in store-within-a-store and stand-alone store formats, and is targeting further stores in the current year. Together with its well-established online platform, this will help to provide further distribution capacity.

KPIs

SALES PERFORMANCE

EVOLUTION OF THE BASE (000)
5 YEAR REVENUE GROWTH (£M)

2 IMPROVE PROFITABILITY AND CASH GENERATION

Increase scale benefits

After several years of investment and growth, the business is now seeing the benefits of scale and achieving strong profit and cash generation.
We are targeting an EBIT margin of 10% over time.
We are embarking on the development of a fuller MVNO infrastructure, which will result in greater flexibility, better speed to market and a lower cost base.

EBIT PERFORMANCE

HEADLINE EBIT PROGRESSION (£M)

Carphone Warehouse Group plc Annual Report 2011

BUSINESS REVIEW

VIRGIN MOBILE FRANCE: PERFORMANCE REVIEW

A year of transformed profitability and cash generation, alongside continued strong growth.

Headline income statement (100% basis)
	2011 £m	2010 £m
Revenue*	328.4	232.8
EBITDA	24.3	(19.3)
Depreciation and amortisation	(3.7)	(2.9)
EBIT	20.6	(22.2)
EBIT %	6.3%	(9.5)%
Interest	(2.9)	(1.5)
Tax	(0.7)	5.1
PAT	17.0	(18.6)
Group share	8.2	(8.2)

Revenue excludes contributions towards subscriber acquisition costs from network operators and customers, as the directors consider that this provides a better representation of underlying performance. These items, which had a value of £55.1m in the year ended 31 March 2011 (2010: £41.6m) are netted off against acquisition costs within EBITDA.

Virgin Mobile France saw a transformation in its profitability year-on-year, reflecting the additional scale achieved through its acquisition of Tele2's French customer base in December 2009. Headline EBIT moved from a loss of £22.2m last year to a profit of £20.6m in the year to March 2011.

Revenue increased by 41.1% year-on-year from £232.8m to £328.4m. Revenue growth at a constant currency was 47.0%, with organic growth on the same basis before Tele2 of 29.0%.

The venture delivered substantial customer growth this year, adding over 200,000 customers to take the closing base to 1.92m customers. Most of this growth occurred in the final quarter of the year, when the business had secured deals with some key new product suppliers – enabling it to offer a full range of smartphones – and a number of new distribution channels. It took advantage of market opportunities in that period to deliver a significant increase in market share.

The business produced a Headline EBIT margin in 2010-11 of 6.3% (2010: negative 9.5%) despite high levels of customer acquisition, reflecting the benefits of scale noted above.

Interest increased year-on-year from £1.5m to £2.9m, reflecting the additional debt associated with the Tele2 acquisition.

A tax rate of 34% has been assumed, in line with the rate applicable in France. The tax charge for the year was partly offset by a credit of £5.9m in relation to brought forward tax losses, of which the Group share is £2.8m. It is now anticipated that these losses will be utilised in France rather than the UK, attracting relief at 34% rather than the rate in the UK.

Virgin Mobile France recorded amortisation on acquisition intangibles arising on the Tele2 acquisition, of which the Group's post tax share is £2.2m (2010: £0.6m). This charge is excluded from Headline results to avoid distortion of underlying performance.

Cash flow (100% basis)
	2011 £m	2010 £m
EBITDA	24.3	(19.3)
Working capital	2.6	2.9
Capex	(6.8)	(3.7)
Operating free cash flow	20.1	(20.1)
Other	4.5	(39.4)
Movement in net debt	24.6	(59.5)
Opening net debt	(88.2)	(28.7)
Closing net debt *	(63.6)	(88.2)

Comprises shareholder loans of £74.3m (2010: £105.6m) and net cash of £10.7m (2010: £17.4m).

The significant year-on-year uplift in EBITDA described above translated into strong operating free cash flow. As anticipated, the business has seen an increase in capex year-on-year, with spend of £6.8m against £3.7m in the previous year, principally relating to a programme to bring billing operations in-house.

Other cash inflows in the year include £6.7m in relation to the finalisation of the Tele2 purchase price. Other cash flows in the prior year reflect an outflow of £45.2m in relation to Tele2, partially offset by an increase of £5.6m of share capital.

Outlook

We expect the business to break through the 2 million customer target this year, with guidance for net additions of between 100,000 and 150,000. The strong growth seen in the second half of last year, together with these net additions, are expected to deliver revenue growth of 10-15%.

Some of the margin benefits of improving scale will be reinvested this year in driving further growth and in developing a fuller MVNO infrastructure, to help to improve flexibility and speed to market, and to improve medium-term operating margins. As a result, we expect an EBIT margin of around 7%.

As in the year just ended, we expect an underlying tax rate of 34% to apply, and on a net basis we expect the Group's share of the venture's profits to be £7-8m.

The full MVNO project will also require an increased capital investment, with total capex expected at around £10m (2011: £6.8m). Despite this we anticipate continued good cash generation, on the back of EBITDA growth and further positive movements on working capital.

Carphone Warehouse Group plc Annual Report 2011

BUSINESS REVIEW

VIRGIN MOBILE FRANCE: RISK

Virgin Mobile France has developed its own risk management processes during the year, to identify the main risks facing the business. The table below summarises the most material risks identified and the ways in which the business seeks to mitigate them.

Consumer environment

Risk
Consumer confidence in France remains relatively low, which may affect the level of customer spend and the ability of the business to acquire new customers.

→ Mitigation
The business is focused on improving the quality of its proposition through a wider product and service offering, increased distribution channels and ongoing brand development.

Dependence on key suppliers

Risk
The business is reliant on third parties for the provision of its network infrastructure.

→ Mitigation
Virgin Mobile France has a strong relationship with its key suppliers, and its increasing scale helps to improve its commercial position. The business is in the process of developing a fuller MVNO infrastructure to reduce dependency and improve flexibility over time.

Competition

Risk
The entry of a fourth network, expected in 2012, may make the market more competitive, and adversely affect the business' revenues and margins.

→ Mitigation
The business continues to invest in the quality of its proposition, brand and distribution channels to try to improve its scale and competitive position.

Operations

Risk
The business is reliant on internal and external IT systems which could fail or be unable to keep pace with the needs of the business.

→ Mitigation
A significant investment has been made over recent years in the IT infrastructure of the business, supported by evolving business continuity plans.

Carphone Warehouse Group plc Annual Report 2011

BUSINESS REVIEW

OTHER FINANCIALS

EPS UP OVER 80% TO 15p

FORM OF NET FUNDS / LOAN ASSETS

Freehold properties While our freeholds are not strategic investments, we anticipate that minor development work in the short-term will help to maximise capital returns. In Preston, we have developed retail units alongside our office space, and may find opportunities for further expansion in the coming year.

Headline Group income statement

	2011 £m	2010 £m
Revenue	5.6	5.5
Operating expenses	(8.7)	(6.0)
Best Buy Europe¹	60.4	47.3
Virgin Mobile France²	8.2	(8.2)
EBIT	65.5	38.6
Interest	3.9	(1.6)
Taxation	(1.6)	0.4
PAT	67.8	37.4
EPS	15.0p	8.3p

¹ See page 16.
² See page 24.

Revenue represents rental income from the Group's freehold properties, and increased from £5.5m in 2009-10 to £5.6m in 2010-11.

As anticipated, operating costs increased year-on-year, from £6.0m to £8.7m, in the first year of a stand-alone PLC function following the Demerger.

Net interest income for the period was £3.9m (2010: expense of £1.6m) reflecting interest on cash and on loans to Virgin Mobile France, facility fees from Best Buy Europe and income from minority investments.

A tax charge of £1.6m arose in the year, compared to a credit of £0.4m in the prior year, reflecting increased interest income and a proportion of disallowable costs within profit before taxation.

Revenue and operating expenses are expected to remain similar in the year to March 2012.

Statutory results

	2011 £m	2010 £m
PAT	65.6	218.8
EPS	14.5p	48.7p

Prior year statutory profits include dividend income of £182.0m which arose in association with the Demerger. Current year statutory profits include amortisation of acquisition intangibles in Virgin Mobile France, which had a post-tax effect of £2.2m (2010: £0.6m). These items are excluded from Headline results to avoid distortion of underlying performance. A reconciliation between Headline results and statutory results is provided in note 10 to the Group financial statements.

Group balance sheet

	2011 £m	2010 £m
Best Buy Europe	571.8	512.6
Virgin Mobile France	20.4	29.2
Cash	120.6	100.0
Property	67.8	65.9
Other	(22.6)	(17.2)
Net assets	758.0	690.5

Group net assets increased by £67.5m year-on-year to £758.0m (2010: £690.5m) broadly in line with net profits for the year.

The Group's interests in Best Buy Europe comprise our share of the joint venture's net assets, together with goodwill on the investment, and the year-on-year growth in its value is closely in line with our share of Best Buy Europe PAT.

The Group's interests in Virgin Mobile France include loans due to the Group as well as our share of the venture's net liabilities. Strong cash generation enabled the business to repay £14.6m of loans to the Group, leaving £35.7m outstanding at the end of the year. These loan repayments contributed to an increase in the Group's cash balances year-on-year from £100.0m to £120.6m.

Carphone Warehouse Group plc Annual Report 2011

FREEHOLD PROPERTIES

Book value £68m	Current rental income £5.6m	Market value £74m

Dividends

As previously communicated, the Board is commencing a progressive dividend policy, with the aim of maintaining a dividend cover of at least three times, generally based on Headline earnings. Accordingly, we are proposing a dividend for the year of 5.0p per share. The ex-dividend date is Wednesday 6 July 2011, with a record date of Friday 8 July 2011 and an intended payment date of Friday 5 August 2011.

Other KPIs

The Group's principal KPIs relate to its joint venture operations and are reported in the relevant sections of the Business Review. The KPIs which are relevant for the Group as a whole are those regarding shareholder return, profitability and growth.

Headline KPIs	2011	2010
ROCE	9.4%	5.4%
EPS	15.0p	8.3p

The improvements in return on capital employed and EPS reflect the growth in profitability already detailed in this report.

Risk

The key risks of the Group relate to its joint venture operations and such risks are described on pages 20 and 25. The Group does not exercise control over Best Buy Europe or Virgin Mobile France and therefore material decisions can only be made with the consent of the relevant joint venture partner. Inability to reach consensus on such decisions could have an adverse effect on the growth, business and financial results of these operations. Such risks are mitigated through agreed strategies, defined and documented processes and regular communication.

The Group is also exposed to market risks such as interest rate risk and foreign currency risk. Further details on such risks are provided below.

Capital structure, financing and treasury

The Group is funded entirely by equity, which at 31 March 2011 totalled £758.0m [2010: £690.5m]. The Group had net funds including loans to joint ventures of £156.3m [2010: £150.8m] and an unused bank facility of £50m [2010: £50m]. This facility is backed by the Group's property assets and matures in July 2012. The Group's funds and facilities cover potential funding obligations to its joint ventures, which include an RCF of £62.5m to Best Buy Europe which expires in March 2013, and a further formal commitment to Best Buy Europe of £50m. Best Buy provides an equal RCF and commitment to Best Buy Europe.

Best Buy Europe has a Receivables Financing Agreement ("RFA") provided by a syndicate of banks, which enables it to borrow up to £350m against certain trade receivables. This facility is used to finance working capital and other requirements during the year, and is supplemented by the committed shareholder RCF of £125m noted above. The RFA matures in July 2012.

Virgin Mobile France is funded entirely through equity and shareholder loans, which are provided by its shareholders in proportion to their shareholding.

As indicated by the proposed dividend for the year just ended, it is the Board's intention to return any excess cash to shareholders as it becomes available.

The Group's investment policy is to maximise investment returns whilst ensuring low risk and suitable liquidity.

Treasury policies permit the use of long-term derivative products for the management of currency and interest rate risk and the Group's exposures are monitored regularly. The Group does not trade or speculate in any financial instruments.

Except for a Euro denominated loan provided to Virgin Mobile France, the Group has limited direct exposure to foreign currency fluctuations. The Group ceased net investment hedging in May 2010 but continues to hedge its loan to Virgin Mobile France in order to prevent income statement fluctuations arising from foreign currency movements.

The Group is more significantly affected by foreign currency fluctuations through the results of its joint ventures. All of Virgin Mobile France's profits arise in Euros, while those of Best Buy Europe are materially affected by both the Euro and the US Dollar. Best Buy Europe may hedge a proportion of its non-Sterling earnings to provide certainty of their value. Best Buy Europe provides some funding to its subsidiaries in currencies other than Sterling, giving it limited exposure within net funds to currency fluctuations.

Going concern

A review of the Group's business activities, together with the factors likely to affect its future development, performance and position are set out elsewhere within this Business Review, including the Risk sections. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are shown in the balance sheet, cash flow statement and accompanying notes to the Group financial statements.

The directors, in their consideration of going concern, have reviewed the future cash and profit forecasts of the Group's joint venture investments and other businesses. The directors consider that these forecasts are based on prudent assumptions, and based on these forecasts, that it is appropriate to prepare the Group financial statements on the going concern basis. In arriving at this conclusion, they have noted that at 31 March 2011 there were net funds of £120.6m and an unused committed facility of £50m which does not mature until July 2012.

Carphone Warehouse Group plc Annual Report 2011

BUSINESS REVIEW

CORPORATE RESPONSIBILITY

The Board is committed to high standards of corporate and social responsibility and expects the same from the investments of the Group.

Whilst all businesses of the Group seek to operate in a socially responsible way, given its relative size, this effort is focused especially within Best Buy Europe.

During the year Best Buy Europe devised a clear corporate and social responsibility strategy which focuses on the following key areas:

Community & charity
Environment
People

By focusing on one or two projects in each area the aim has been to make positive, long-term, sustainable changes which can be measured and reported on.

Community & charity

Best Buy Europe has always been about connecting people and helping them realise what's possible in their lives. That's why it supports Get Connected, its chosen charity partner, whose purpose is to ensure that every child and young person in the UK can connect with the support they need, when they need it. Best Buy Europe in the UK has had the privilege of working with Get Connected for over eight years and in that time more than 107,000 young people have been connected to confidential help, advice and support for their emotional and physical well-being.

Best Buy Europe's dedicated corporate responsibility team has worked closely with Get Connected, supporting exciting charity events like auctions, dare-devil sky diving and adventure treks, as well as providing office space and technical support for the charity's vital work. This is a true partnership and a special nationwide fundraising week is held across the UK business each year.

In November 2010, 24 employees travelled to Ecuador to help with vital building work on a school in a small rural community near Cotopaxi National Park. These employees lived and worked alongside the locals, helping to create a much needed school where the local children could get a better education in improved facilities. Each participant raised over £2,500 in order to participate, with this money contributing to building materials, and £65,000 was raised in total for Get Connected.

Best Buy Europe again held a charity auction for Get Connected, and through the generosity of the guests and sponsors, was able to raise £160,000.

The Carphone Warehouse Foundation is a fund to which employees or charities can apply for donations or support with individual causes. For example, if there is a local community charity that needs support or a charity that means a lot to an employee personally, then the fund can help. The foundation will match an employee's fundraising up to a maximum of £200. For national charity campaigns or emergency disaster funds, it also makes donations on behalf of Best Buy Europe. During the year the Carphone Warehouse Foundation provided £107,000 to support a range of charities and causes.

Environment

The Group's businesses are not by their nature particularly high impact in terms of carbon emissions and waste. Nonetheless, we are committed to reducing our impact and continue to look at all aspects of the business to contribute to environmental sustainability. The key strategy and focus of Best Buy Europe is to reduce carbon emissions by 10% over the next 12 months.

Some of the environmental initiatives over the past year include:

installation of smart electricity meters to allow the effectiveness of any new initiatives to be measured;
upgrade of air-conditioning and lighting at the main warehouse in Wednesbury, to reduce carbon emissions;
roll-out of motion-sensor lighting across parts of the business; and
installation of mains-fed water coolers which also raised money to provide clean drinking water wells to communities in Africa.

Carphone Warehouse Group plc Annual Report 2011

Best Buy Europe continues to be committed to the recycling and reuse of old handset components. Anyone can drop off an old handset at a store to be recycled and, in thanks for doing this, £10 is donated to charity [with £5 to Get Connected and £5 to the Carphone Warehouse Foundation]. These phones may be refurbished for local use, reused in developing countries or broken down for recycling, to avoid toxic materials being taken to landfill.

Since its launch, environmental initiatives have been central to Best Buy UK.

Since its launch, environmental initiatives have been central to Best Buy UK. The business stocks a range of energy efficient devices, as well as energy monitoring and saving appliances. It is dedicated to providing advice to customers both in-store and online as to how they can help the environment while also reducing their own ongoing costs. Best Buy UK also provides a trade-in service which makes it easy to part with old technology such as phones, laptops and TVs and make room for the latest products. It doesn't matter how old the products are, the customer will get a fair price. Even if it doesn't have a trade-in value, the customer can still bring it into the store to be recycled free of charge.

People

As any retailer would tell you, a business is only as good as the people it employs and this couldn't be more true with Best Buy Europe, which has over 15,000 employees. We look for employees who are professional, committed and enthusiastic, who take pride in their work and who want to have fun while at work. This pursuit of outstanding people was reflected in Best Buy Europe winning Mobile Magazine's Store Manager of the Year competition for the second year in a row.

As any retailer would tell you, a business is only as good as the people it employs.

Best Buy Europe has developed an inclusive culture with an open door policy where feedback is encouraged and people are kept informed through a whole host internal communications. These communications include regular emails, weekly 'Chalk Talk' presentations within each team on business progress and other updates, and quarterly presentations by executive management to all employees at the support centre in Acton. Employee 'Pulse' surveys take place every three months on a range of topics to assess and measure employee engagement, which is a key performance indicator of the business. Each team manager receives the results for their team to allow them to develop plans to improve employee satisfaction and engagement. When the 'Pulse' survey was first released in February 2008, CPW Europe's UK employee engagement was measured at 75% and the most recent survey in April 2011 reported 87%, being its highest recorded level.

The business continues to operate employment engagement activities including:

projects such as the Ecuador venture described above;
the opportunity to win holidays for providing feedback on how to improve the business; and
competitions between regions on innovation, and incentives for providing high quality customer service.

The success of this approach was reflected in being honoured as one of the top 'Big Company' employers in the 'Sunday Times 2011 Best Companies To Work For' awards.

Get Connected, Best Buy Europe's chosen charity, provides support to young people by phone, email, and webchat, 365 days of the year.

24 employees travelled to Ecuador to raise money for Get Connected and help a community improve the facilities of its local school.

Best Buy Europe was recognised as one of the top employers in the UK by the Sunday Times.

Carphone Warehouse Group plc Annual Report 2011

GOVERNANCE

BOARD OF DIRECTORS AND ADVISORS

Charles Dunstone
Chairman

Roger Taylor
Chief Executive Officer

Nigel Langstaff
Chief Financial Officer

John Gildersleeve
Non-Executive Deputy Chairman

Baroness Morgan of Huyton
Non-Executive Director

John Allwood
Non-Executive Director

30
Carphone Warehouse Group plc Annual Report 2011

Carphone Warehouse Group plc Annual Report 2011

Charles Dunstone

Chairman

Age 46. Founder of Carphone Warehouse. Chairman of the Group since January 2010 and Chief Executive Officer of Old Carphone Warehouse from 1989 to 2010. He was appointed Chairman of TalkTalk Telecom Group PLC in 2010 and is a non-executive director of The Daily Mail and General Trust PLC and Independent Media Distribution PLC. He is Chairman of The Prince's Trust Trading Board and a member of its Council. He is also a director of Best Buy Europe Distributions.

Roger Taylor

Chief Executive Officer

Age 46. Chief Executive Officer of the Group since 2010 and Chief Financial Officer of Old Carphone Warehouse from 2000 to 2010. He is responsible for new business development, strategic initiatives and investor relations. He was appointed Non-Executive Deputy Chairman of TalkTalk Telecom Group PLC in 2010. He is also a director of Best Buy Europe Distributions and Virgin Mobile France.

Nigel Langstaff

Chief Financial Officer

Age 42. Chief Financial Officer of the Group since 2010, and previously held various roles with Old Carphone Warehouse from 1997 to 2010 including UK Finance Director and Group Finance Director. He is responsible for the Group's finance functions, financial reporting and procedures. He is also a director of Virgin Mobile France.

John Gildersleeve

Non-Executive Deputy Chairman and Senior Independent Director

Age 66. Joined the Board in January 2010 as a non-executive director. He was a member of the board of Old Carphone Warehouse from 2000 and was Non-Executive Chairman between 2005 and 2010. He is a non-executive director of British Land PLC and, since 2010, a non-executive director of TalkTalk Telecom Group PLC. He was Chairman of New Look Retail Group until 2011, Gallaher Group PLC until 2007 and EMI Group PLC until 2007. Previously, he was an executive director of Tesco PLC until he retired in February 2004. Prior to this he was a non-executive director of Vodafone Group PLC from 1998 to 2000.

Baroness Morgan of Huyton

Non-Executive Director

Age 51. Joined the Board in January 2010 as a non-executive director. She was a non-executive director of Old Carphone Warehouse from 2005 to 2010. From 2001 until 2005, she was Director of Government Relations at 10 Downing Street. Prior to this she was Political Secretary to the Prime Minister from 1997 to 2001, and was appointed Minister for Women and Equalities in 2001. In 2006 she was appointed as a board member of the Olympic Delivery Authority and was also appointed as a non-executive director of Southern Cross Healthcare Group PLC. She is an advisor to the board of the children's charity ARK and a member of the advisory committee of Virgin Group Holdings Limited. She was appointed Chair of Ofsted in March 2011.

John Allwood

Non-Executive Director

Age 59. Joined the Board in 2010 as a non-executive director. He is a non-executive director of TalkTalk Telecom Group PLC. Previously he was Chief Operating Officer and latterly Group Finance Director of Mecom Group plc. Prior to this, he was Managing Director of Telegraph Media Group Limited. Formerly, he was Chief Executive of Orange UK and also Chief Executive of Mirror Group plc. He is currently a member of Exeter University Council.

Company Secretary

Tim Morris

Advisors

Principal Bankers:

HSBC Bank plc
Royal Bank of Scotland Group PLC

Corporate Brokers:

Credit Suisse (Europe) Limited
1 Cabot Square
London E14 4QJ

UBS
1 Finsbury Avenue
London EC2M 2PP

Registrars:

Equiniti Limited
Aspect House
Spencer Road, Lancing
West Sussex BN99 6DA

Auditors:

Deloitte LLP, London

Registered Office

1 Portal Way
London W3 6RS
Registered number: 07105905

GOVERNANCE

CORPORATE GOVERNANCE

The Board of Directors is committed to high standards of corporate governance.

As stated in the Prospectus, the Company was not required at the time of its issue to comply with the Combined Code on Corporate Governance published by the UK Financial Reporting Council ("FRC") in June 2008 (the "Code"). However, the Company agreed to comply with the Code with effect from its admission on 29 March 2010. The Board is committed to the highest standards of corporate governance and in accordance with the Listing Rules of the UK Listing Authority the Board confirms that, except to the extent stated below, the Company has throughout the year and as at the date of this annual report complied with the provisions set out in Section 1 of the Code. In accordance with the Listing Rules, the relevant parts of this Report have been reviewed by the Company's auditors and their opinion is contained in the Independent Auditors' Report on page 45.

Board of Directors

Members

Charles Dunstone (Chairman)
Roger Taylor (Chief Executive Officer)
Nigel Langstaff (Chief Financial Officer)
John Gildersleeve (Non-Executive Deputy Chairman)
John Allwood (Non-Executive Director)
Baroness Morgan (Non-Executive Director)

The wide range of experience and expertise of the non-executive directors, combined with the skills of the executive directors, provides vast retailing, mobile and general business experience, strong personal skills and independence of thought and perspective.

John Gildersleeve is also the Senior Independent Director. John Allwood is the non-executive director with relevant financial experience.

Meetings

The Board had six formal meetings during the year as well as other meetings as were appropriate for approving certain announcements to shareholders.
All directors attended these meetings with the exception of Nigel Langstaff who was absent from the meeting held on 3 June 2010 and John Gildersleeve who was absent from the meeting held on 17 January 2011, both due to prior engagements that could not be changed.

Other governance matters

All Board papers are sent out on a timely basis with sufficient information for the directors to be able to discharge their duties.
The Company Secretary ensures that all Board papers are sent to non-attending directors and that, where possible and relevant, their comments are captured so that they can be expressed at the meeting.

Responsibilities and reserved matters

The overriding responsibility of the Board is to provide clear, entrepreneurial and responsible leadership to the Group within a framework of efficient and effective controls so as to allow the key issues and risks facing the business to be assessed and managed. Specifically, the Board:
- determines the overall strategic direction of the Group;
- manages the Group's investments, including reviewing their performance;
- reviews and challenges management performance;
- ensures that the necessary operational, financial and human resources are in place to enable the Group to meet its objectives;
- develops an understanding of the views of major shareholders about the Company; and
- communicates with shareholders in conjunction with its dedicated internal investor relations department.

There are also documented schedules of matters reserved to the Board and matters delegated to Committees of the Board.

Such reserved matters include:
- approval of published financial statements;
- declaration of interim and final dividends;
- approval of budget and strategy;
- appointment and remuneration of directors and auditors;
- approval of major acquisitions and disposals;
- approval of authority levels for expenditure; and
- approval of treasury and risk management policies.

Carphone Warehouse Group plc Annual Report 2011

COVERNANCE

UK Corporate Governance Code

On 28 May 2010 the FRC published a new UK Corporate Governance Code ("New Code") to replace the Code. The New Code will apply to the reporting periods beginning on or after 29 June 2010. It will therefore apply to the Company for the year ending 31 March 2012 and not for the financial year covered by this Report.

The Board has however reviewed the New Code and has decided voluntarily to adopt the following principles ahead of the implementation of the New Code. First, all directors will stand for re-appointment annually at the Company's annual general meeting starting from the 2011 meeting. Second, the performance of the Board will be externally reviewed at least every three years, with the first review to be carried out no later than the year ending 31 March 2014.

Independence and compliance

The Board has six members, three of whom, excluding the Chairman, are considered independent non-executive directors. These directors are John Gildersleeve, John Allwood and Baroness Morgan.

This is the first annual report of the Company since the Demerger and, as stated in the Prospectus, Charles Dunstone, Chairman, was not independent on his appointment since he was previously Chief Executive Officer of Old Carphone Warehouse and also had a significant shareholding in the Company. The Board believed that the appointment of Charles as Chairman benefitted the Group, given that Charles was the founder of the business and his knowledge of the Group's businesses was likely to be important to its future development. Major shareholders were consulted prior to the appointment.

Excluding the Chairman, all of the non-executive directors are considered to be independent and therefore, more than half of the directors excluding the Chairman are independent.

Executive directors and the Chairman have service contracts that can be terminated by either the Company or the director on between six and twelve months' notice, depending on the individual. The non-executive directors have three year periods of appointment, the terms of which are substantially in the same format as suggested by the Code, with three month notice periods and no compensation for loss of office. Further details on each director's remuneration and notice period are set out in the Remuneration Report on pages 37 to 42.

Performance evaluation

During the year, the balance of skills, knowledge and experience of the directors was reviewed. The Board and each individual director, also undertook performance evaluations. Using the Higgs 'Suggestions for Good Practice' as guidance, the individual directors initially completed separate questionnaires. The results were collated for and analysed by the Chairman, the Senior Independent Director, the Chief Executive Officer and the Board as a whole. The areas covered included the roles of the executive and non-executive directors, the Board, the Board Committees, the Chairman, preparation for and performance at meetings, the effectiveness of each director, leadership, culture and corporate governance. The results were then considered by the Board as a specific item of business.

Following such performance evaluation the Chairman confirms that all directors seeking re-election at the annual general meeting continue to be effective and demonstrate a commitment to the role, including having time to attend all necessary meetings and to carry out other appropriate duties.

The Chairman meets regularly with all the non-executive directors, usually in the evening prior to a Board meeting. This provides the opportunity to raise any questions regarding the performance of the executive directors or in respect of any other matters.

The Senior Independent Director also met with the non-executive directors, in the absence of the Chairman, to assess the Chairman's effectiveness, having first reviewed the results of a performance evaluation questionnaire completed by all of the directors apart from the Chairman. The Board is of the opinion that the Chairman had no other significant commitments during the year that affected his performance in his role.

External appointments

The Board supports executive directors taking up non-executive directorships as part of their continued development and the Board believes that this will ultimately benefit the Company. Further details are provided in the Remuneration Report on pages 37 to 42.

Board Committees

There are three key Board Committees: Audit, Remuneration and Nomination. The Committees are provided with sufficient resources via the Company Secretary and, where necessary, have direct access to independent professional advisors to undertake their duties.

Carphone Warehouse Group plc Annual Report 2011

GOVERNANCE

CORPORATE GOVERNANCE (CONTINUED)

Audit Committee

Members

John Allwood (Chairman)
John Gildersleeve
Baroness Morgan

Meetings

The members of the Committee met three times during the year.
All members attended each of these meetings except for John Gildersleeve who was absent from the meeting held on 27 May 2010 due to a prior engagement that could not be changed.
The Chief Executive Officer, Chief Financial Officer, other senior management and representatives of the Company's external auditors, Deloitte LLP, attend the Committee meetings by invitation.

Advisors

The Board makes funds available to the Committee to enable it to take independent legal, accounting or other advice when the Committee reasonably believes it necessary to do so.

Other governance matters

The Chairman of the Committee updates the Board on any significant issues that have arisen at the previous Committee meeting.
The external auditors have direct access to the Committee during formal meetings and time is set aside for them to have private discussions with the Committee, in the absence of management.

Responsibilities

The Committee has the following key duties:
- monitoring the integrity of the Group's financial statements and any formal announcements relating to the Group's financial performance;
- reviewing significant financial reporting judgements;
- reviewing the Group's financial controls and internal control and risk management systems;
- monitoring and reviewing the effectiveness of the Group's internal audit functions;
- making recommendations to the Board in relation to the appointment of external auditors;
- reviewing and monitoring the relationship with the external auditors, including their independence, effectiveness, remuneration and terms of engagement;
- considering arrangements by which employees may raise concerns about possible improprieties in matters of financial reporting or other matters;
- considering other topics, as defined by the Board; and
- referring matters to the Board which, in its opinion, should be addressed at a meeting of the Board.

The terms of reference of the Committee are available on the Group's website (www.cpwplc.com) or on request from the Company Secretary.

In light of the assessments and review undertaken, the Committee recommended to the Board that Deloitte LLP be retained as auditors of the Company. This recommendation was endorsed by the Board. The policy relating to the provision of non-audit services by the external auditors specifies the types of work from which the external auditors are excluded; for which the external auditors can be engaged without referral to the Committee; and for which a case-by-case decision is required. In order to safeguard the external auditors' objectivity and independence, the ratio of non-audit fees to audit fees is monitored by the Committee within an overall limit set by the Board on the recommendation of the Committee.

A statement of fees paid or accrued for services from the external auditors during the year is set out below:

	2011 £m	2010 £m
Audit services – statutory audit	0.1	0.1
Tax services	0.1	-
Total	0.2	0.1

In addition to the fees above, the Group's share of the external auditors' statutory audit fees for joint ventures was £0.7m (2010: £0.6m) and the Group's share of their fees for tax and other services was £0.1m (2010: £0.1m). All fees relating to the Demerger were incurred by TalkTalk Group in the year ended 31 March 2010.

Certain non-audit services are pre-approved by the Committee depending upon the nature and cost of the service. Tax services principally comprise technical advice associated with relevant UK and international fiscal laws and regulations and, in particular, assessment of the potential implications of proposed corporate transactions or restructuring. Having undertaken a review of the non-audit related work, the Committee

Carphone Warehouse Group plc Annual Report 2011

has satisfied itself that the services undertaken during the year did not prejudice the external auditors' independence.

At each of its meetings the Committee reviewed and considered reports on the status of the Group's risk management systems, findings from reviews of internal controls in joint venture operations, and reports on the status of any weaknesses in internal controls identified by the internal or external auditors.

Risk management and internal control

The Company has established a risk management programme that assists management throughout the Group to identify, assess and mitigate business, financial, operational and compliance risks. The Board views management of risk as integral to good business practice. The programme is designed to support management's decision-making and to improve the reliability of business performance.

The directors have overall responsibility for the Group's systems of internal control and for reviewing their effectiveness. The Board delegates to executive management the responsibility for designing, operating and monitoring these systems. The systems are based on a process of identifying, evaluating and managing key risks and include the risk management processes set out above.

Executive management of Best Buy Europe and Virgin Mobile France have direct responsibility for the risk management programmes of their businesses. Consequently, the Board places reliance as far as possible on the risk management processes of the joint venture boards.

The Board's focus is primarily on reviewing the effectiveness of these processes, more than involving itself in the processes themselves. Specific controls and processes are detailed further below.

Nomination Committee

Members

John Gildersleeve (Chairman)
Baroness Morgan

Meetings

The Committee meets as and when required.
The Committee met once during the year and both members attended the meeting.

Responsibilities

The key responsibility of the Nomination Committee is to consider succession planning and appropriate appointments to the Board. Key duties as such include:
- overseeing the identification, selection and appointment of directors;
- reviewing the structure, size, composition and leadership needs of the Board;
- considering other commitments of directors relative to the time required for them to fulfil their duties;
- evaluating the skills, knowledge and experience of the Board; and
- making recommendations to the Board.

The terms of reference of the Committee are available on the Group's website (www.cpwplc.com) or on request from the Company Secretary.

The systems of internal control described above were in place throughout the year and up to the date of approval of the annual report and financial statements. The effectiveness of these systems is periodically reviewed by the Audit Committee in accordance with the revised guidance in the Turnbull Report. These systems are also refined as necessary to meet changes in the Group's business and associated risks. The systems of internal control are designed to manage rather than eliminate the risk of failure to achieve business objectives. They can only provide reasonable and not absolute assurance against material errors, losses, fraud or breaches of laws and regulations.

The Board has conducted an annual review of the effectiveness of the systems of risk management and internal control in operation during the year and up to the date of the approval of the annual report and financial statements and this was approved by the Audit Committee and the Board.

Carphone Warehouse Group plc Annual Report 2011
35

GOVERNANCE

CORPORATE GOVERNANCE (CONTINUED)

Joint venture control processes

A dedicated team of risk specialists, including internal auditors, form the Best Buy Europe Risk and Business Assurance function. Members of this team conduct risk workshops and reviews within each of the main Best Buy Europe operating divisions and have assisted Virgin Mobile France with similar risk reviews.

The risk management processes of Best Buy Europe and Virgin Mobile France have involved assessments of key business risks which are wide-ranging, covering risks arising from the regulatory environment, strategy, counter-parties and organisational change associated with acquisitions and major projects. The output from each assessment is a list of key strategic, financial, operational and compliance risks. Associated action plans and controls to mitigate them are also put in place where this is possible and to the extent considered appropriate, taking account of costs and benefits.

Reports, action plans and any changes to the status of the key risks and the risk matrices are reported at each Audit Committee meeting and at Board meetings where applicable. During the year the Board has not identified or been advised of any significant control failings.

Other key controls in place for Best Buy Europe and Virgin Mobile France are as follows:

Best Buy Europe has its own audit committee. Roger Taylor is a member of the committee and Nigel Langstaff attends meetings by invitation. Internal audit and risk reports are provided at all meetings.
Charles Dunstone and Roger Taylor are members of the Best Buy Europe Distributions board of directors and Tim Morris is Company Secretary. Roger Taylor, Tim Morris and Nigel Langstaff are directors of Virgin Mobile France. These boards ordinarily meet every month and have ultimate responsibility for strategic, operational, risk and compliance matters for each business.
The board meetings of Best Buy Europe and Virgin Mobile France are supplemented by frequent informal interaction between shareholders and management on strategic and operational matters.

Communication with investors

The Board believes it is important to explain business developments and financial results to the Company's shareholders and to understand any shareholder concerns. The principal communication media used to impart information to shareholders are news releases (including results announcements), investor presentations and Company publications.

The Chief Executive Officer and Chief Financial Officer have lead responsibility for investor relations. They are supported by a dedicated investor relations department that, amongst other matters, organises presentations for analysts and institutional investors. There is a full programme of regular dialogue with major institutional shareholders, fund managers, analysts, and retail brokers, upon which the Chairman ensures that the Board receives regular updates at Board meetings. In all such dialogue, care is taken to ensure that no price sensitive information is released. The Board also receives periodic reports on investors' views of the performance of the Company. The Chairman and all the non-executive directors, in particular the Senior Independent Director, are available to meet with major shareholders, if such meetings are required.

The Company also communicates with shareholders through the annual general meeting, at which the Chairman gives an account of the progress of the business over the last year, a review of current issues, and provides the opportunity for shareholders to ask questions. Further financial and business information is available on the Group's website, www.cpwplc.com.

Carphone Warehouse Group plc Annual Report 2011

REMOVEMENT

REMUNERATION REPORT

Part 1: Remuneration Committee, Policies And Structure (Unaudited)

| ### Remuneration Committee

Members

John Gildersleeve (Chairman)
John Allwood
Baroness Morgan

Meetings

The members of the Committee met four times during the year and all members attended these meetings.

Advisors

Deloitte LLP – employment tax and share option schemes.
PricewaterhouseCoopers LLP – long-term incentive plans.
Deloitte LLP are the Group's auditors and provide other services as described in the report on Corporate Governance on pages 32 to 36.

Other governance matters

None of the members of the Committee has any personal financial interest (other than as shareholders) in the matters to be decided by the Committee nor potential conflicts of interest arising from cross-directorships.
No director or any person advising the Committee plays a part in any discussion about his or her own remuneration.
All Committee members are non-executive directors who have no day-to-day involvement in running the Group's business. | #### Responsibilities

Responsibility for the establishment of overall remuneration policy for the Group lies with the Board. The Committee has the following key duties:
- making recommendations to the Board on the Company's framework of executive remuneration;
- considering and making recommendations to the Board on the remuneration of the executive directors and senior management relative to performance and market data;
- approving contracts of employment which exceed defined thresholds of total remuneration or have unusual terms or termination periods;
- considering and agreeing changes to remuneration policy or major changes to employee benefit structures; and
- approving employee share-based incentive schemes and associated performance conditions and targets. The terms of reference of the Committee are available on the Group's website (www.cpwplc.com) or on request from the Company Secretary. |
| --- | --- |
| ### Remuneration policy

The Group's remuneration policy has been defined so as to meet the Committee's remuneration strategy

Remuneration strategy

The Committee seeks to ensure that remuneration and incentive schemes:
- achieve alignment between employees and shareholders;
- provide a strong link to individual and business performance;
- attract, retain and incentivise individuals of high quality who have the skills to achieve the highest levels of performance; and
- are in line with best practice. | #### Remuneration policy

In order to achieve this strategy, the remuneration policy is to:
- provide overall packages which are market competitive and capable of rewarding exceptional performance;
- set fixed remuneration at market median levels;
- offer variable rewards, linked to the performance of the Group, which can provide significant overall levels of remuneration for exceptional performance and shareholder value creation; and
- require executive directors to retain a shareholding in the Company, including share options and value enhancement scheme shares, of at least 200% of their annual salary. |
| --- | --- |

Carphone Warehouse Group plc Annual Report 2011

GOVERNANCE

REMUNERATION REPORT (CONTINUED)

Components of remuneration
The main fixed and performance-related elements of remuneration for executive directors are as follows:
Component	Reason
Basic salary and benefits (fixed)	Provide fixed remuneration and benefits reflecting skills, experience and responsibilities to attract and retain key employees.
Pension (fixed)	Provide reasonable and competitive retirement benefits.
Annual performance bonus (short-term variable)	Reward individual and Group performance on both financial and non-financial measures.
Value enhancement and share option schemes (long-term variable)	Align long-term interests of key employees and shareholders, through incentivising a good return on shares in the Company.

Basic salary and benefits

Salaries are reviewed annually with changes ordinarily taking effect on 1 July each year. Salary reviews take into account individual and business performance and market data. There has been no change in the salaries of the executive directors during the year. Taxable benefits consist of car allowances and private medical cover.

Pension

The Company pays 5% of the executive directors' basic salary to defined contribution pension schemes or self-invested pension plans. The Company does not operate any defined benefit pension schemes for the executive directors. Non-executive directors do not participate in any pension schemes.

Annual performance bonus

Bonuses are governed by performance conditions set by the Remuneration Committee to ensure that maximum variable rewards are paid only for exceptional performance. The bonus scheme for the year ended 31 March 2011 was based on Headline EPS together with specific business unit targets based on a balanced scorecard approach. The scorecard considers the achievement of financial, customer, employee and strategy related objectives.

The bonus scheme has a maximum payment of 200% of annual salary. The bonus scheme for 2011-12 will have a similar structure.

The Remuneration Committee is satisfied that this bonus structure provides an excellent link between reward and performance and that it drives the creation of further shareholder value.

The Chairman and non-executive directors do not receive an annual performance bonus.

Medium-term incentive plan

Old Carphone Warehouse had a medium-term incentive plan for Roger Taylor which rewarded increases in the market capitalisation of this group between June 2009 and December 2010. This incentive plan has been measured using the combined share price of the Group and TalkTalk Group, and the maximum payout of £1.0m was made. This payment was made by TalkTalk Group and as such has not been included in Roger's aggregate remuneration from the Group.

Value enhancement scheme

Prior to the Demerger, Old Carphone Warehouse introduced the Best Buy Europe VES, to provide long-term incentives to its senior management group in relation to Best Buy Europe.

Carphone Warehouse Group plc Annual Report 2011

The value of the Best Buy Europe VES pool is adjusted on vesting for any change in the Company's market capitalisation since 6 April 2009, such that an increase in the Company's market capitalisation increases the value of the pool. The Company's opening market capitalisation for this purpose represents an allocation of the market capitalisation of Old Carphone Warehouse at that date, based on the market capitalisations of the Company and TalkTalk in the five days following the Demerger. The Company has an obligation to acquire these shares if performance conditions are met, to provide participants with the share of value described above. It is intended that the Company's shares would be used as consideration for this purpose.

Performance is measured over an initial performance period to July 2013, at which point participants have a put option over 60% of their shares, and a subsequent performance period to July 2014, at which point participants have a put option over the remainder of their shares. On a change of control, Best Buy Europe VES shares may vest early if the relevant performance conditions have been achieved. Loans are ordinarily repayable in full if performance conditions are met. If performance conditions are not met or a participant leaves the scheme before vesting, the Best Buy Europe VES shares are transferred to the Group for the lower of market value at that date and the value of the participant's outstanding loan. However, if market value at the date of transfer is lower than the value of the loan, the participant will ordinarily be required to repay only 20% of the difference.

Also prior to the Demerger, Old Carphone Warehouse introduced the TalkTalk VES, in which certain Company directors and other key management participate. The scheme has a similar structure to the Best Buy Europe VES, but is based on the value of TalkTalk Group, with the obligation to acquire the relevant shares lying with TalkTalk Group. As with the Best Buy Europe VES, the Group advanced loans to participants to enable them to purchase TalkTalk VES shares. The terms of these loans are similar to those of the Best Buy Europe VES.

Share options

Old Carphone Warehouse Group had a market priced share option scheme for executive directors and senior managers. With the exception of share schemes which lapsed due to the Demerger, all share options were cancelled and replaced with share options in the Company and TalkTalk. Share option holders received two share options in TalkTalk and one share option in the Company for every two share options previously held. No share options have been issued to executive directors by the Group, as long-term variable benefits have been provided through the Best Buy Europe VES.

Old Carphone Warehouse Group also had nil priced share options. These options were replaced at Demerger in the same way as noted above. All such outstanding options had vested prior to the Demerger except for those granted by Old Carphone Warehouse in December 2006. This scheme was subject to TSR performance targets measured against an initial performance period to 4 June 2010. These targets were not met and as such the scheme lapsed.

Since the Demerger, nil priced and market priced share options have been issued to members of Group management who did not participate in the Best Buy Europe VES.

The directors do not participate in these schemes.

Share gift

In December 2008, shares were gifted by the Old Carphone Warehouse Group's ESOT to certain senior employees within Old Carphone Warehouse Group and Best Buy Europe, including Nigel Langstaff prior to his appointment as a director of the Company. The shares were restricted until 30 June 2010 and were conditional on meeting various internal performance conditions, principally in relation to earnings and cash generation. Loans were provided to cover the tax arising on this gift; these loans were forgiven by the Remuneration Committee subsequent to the year-end.

Joint venture long-term incentive plans

The remuneration strategy of the Group is also applied as far as possible within Best Buy Europe and Virgin Mobile France. Alongside short-term incentive plans, Best Buy Europe has its own VES, which vests in 2014. The scheme enables participants to share in incremental profits generated by Best Buy Europe over a base defined in respect of the year to 3 April 2010.

Senior management of Best Buy Mobile participate in a long-term incentive plan which is based on incremental earnings generated, in the same way as Best Buy Europe's profit share. The scheme vests in annual instalments to February 2013.

Virgin Mobile France has issued market and nil priced share options to certain employees of the business. These options vest over periods of two to four years.

Directors of the Company do not participate in these joint venture schemes.

Carphone Warehouse Group plc Annual Report 2011
39

GOVERNANCE

REMUNERATION REPORT (CONTINUED)

External appointments

The Board supports executive directors taking non-executive directorships as a part of their continuing development.

The Board has reviewed all such appointments and those appointments that the Board believes require disclosure pursuant to the Code are set out below. The Board has also agreed that the executive directors may retain their fees from such appointments.

Roger Taylor is the Non-Executive Deputy Chairman of TalkTalk Telecom Group PLC, for which he received £75,000 during the year.

Each of the non-executive directors has a letter of appointment substantially in the form suggested by the Code. The Company has no age limit for directors.

Minimum shareholdings

In order to align the interests of the executive directors and shareholders, the Company requires executive directors to build up and retain a shareholding in the Company of at least 200% of their annual salary. The Company may, in calculating this percentage, take into account share options and shares issued under the Best Buy Europe VES.

Performance graph

The graph opposite shows the Group's performance measured through TSR, compared with the FTSE 250 Index, since 29 March 2010 when the Company was first admitted to the London Stock Exchange. The FTSE 250 Index was selected as it is a broad market which includes competitors of the Company.

Directors' interests in shares and service contracts

Details of directors' interests in the ordinary shares of the Company and service contracts are shown in the following table:

	Ordinary shares		Date of contract	Notice period
	2011	2010
C Dunstone	133,083,481	148,072,267	28 Jan 2010	12 months
N Langstaff	500,000	500,000	28 Jan 2010	6 months
R Taylor	522,030	502,197	28 Jan 2010	6 months
J Allwood	-	-	28 Jan 2010	3 months
J Gildersleeve	123,000	123,000	28 Jan 2010	3 months
Baroness Morgan	991	991	28 Jan 2010	3 months

Fees for independent non-executive directors

The fees for the independent non-executive directors are determined by the Board after considering external market research. Independent non-executive directors receive a basic fee of £43,000 plus additional fees as detailed below:

	£'000
Chairperson of Audit Committee	15
Member of Audit Committee	4
Chairperson of Nomination Committee	5
Member of Nomination Committee	4
Chairperson of Remuneration Committee	10
Member of Remuneration Committee	4
Senior Independent Director	17

TSR PERFORMANCE COMPARED TO THE FTSE 250 INDEX

Carphone Warehouse Group plc Annual Report 2011

REMUNERATION REPORT (CONTINUED)

Part 2: Remuneration Details (Audited)

The Accounting Regulations under the Companies Act 2006 ("Regulations") require the Company's auditors to report to the members on this part of the Report and to state, in their opinion, that this part of the Report has been properly prepared in accordance with the Companies Act 2006.

Aggregate remuneration

The total amounts of directors' remuneration and other benefits (excluding pension contributions) were as follows:

	Basic salary /fees £000	Taxable benefits £000	Annual bonuses £000	Total 2011 £000	Total 2010 (i) £000
C Dunstone	240	–	–	240	3
N Langstaff	275	9	449	733	2
R Taylor	440	12	719	1,171	4
J Allwood	62	–	–	62	11
J Gildersleeve	79	–	–	79	1
Baroness Morgan	55	–	–	55	–

(i) Total remuneration for 2010 relates only to that paid to directors for their role as directors of the Company. Charles Dunstone, Roger Taylor, John Gildersleeve and Baroness Morgan were directors of Old Carphone Warehouse for which they respectively received total remuneration of £1,734,000, £1,167,000, £396,000 and £58,000 for the period from 1 April 2009 to 28 March 2010. These directors were remunerated by the Company from 29 March 2010.

Nigel Langstaff was an employee but not a director of Old Carphone Warehouse. Nigel was remunerated by the Company for his role as a director of the Company from 29 March 2010. John Allwood was not a director of Old Carphone Warehouse and was remunerated by the Company from 28 January 2010, when he was appointed as a director of the Company.

Tim Morris and Neil King were directors of the Company from 15 December 2009 to 28 January 2010 and received no remuneration for their roles during this period.

Pension contributions

The schedule below sets out payments by the Group to pension schemes on behalf of executive directors:

	2011 £000	2010(i) £000
N Langstaff	14	–
R Taylor	22	–

(i) Roger Taylor received pension contributions of £20,000 in the period ended 28 March 2010 from Old Carphone Warehouse during his directorship of this company.

Carphone Warehouse Group plc Annual Report 2011

GOVERNANCE

REMUNERATION REPORT (CONTINUED)

Long-term benefits

Details of directors' interests in share options are as follows:

	At 1 April 2010	Exercised	Lapsed	At 31 March 2011	Exercise price per share £	Exercisable from	Expiry date
N Langstaff	70,000	–	–	70,000	0.76	6 Jun 06	6 Jun 13
	87,501	–	–	87,501	nil	28 Jul 08	28 Jul 14
	99,265	–	(99,265)	–	nil	4 Jun 10	4 Dec 16
	99,265	–	(99,265)	–	nil	4 Jun 11	4 Dec 16
R Taylor	222,222	–	–	222,222	0.76	6 Jun 06	6 Jun 13
	231,928	–	–	231,928	0.70	11 Jun 05	11 Jun 12
	100,000	(100,000)	–	–	1.26	19 May 02	23 Jul 10
	100,000	(100,000)	–	–	1.68	19 May 02	23 Jul 10
	120,000	–	–	120,000	1.04	21 May 04	21 May 12
	337,500	–	–	337,500	nil	28 Jul 07	28 Jul 14
	337,500	–	–	337,500	nil	28 Jul 08	28 Jul 14
	241,269	–	(241,269)	–	nil	4 Jun 10	4 Dec 16
	241,269	–	(241,269)	–	nil	4 Jun 11	4 Dec 16

The market price per share when share options were exercised by Roger Taylor was 192.0p. The market price was 364.0p as at 31 March 2011 and during the year ranged between 155.0p and 434.5p.

Best Buy Europe VES shares

The number of A ordinary shares of CPW Retail Holdings Ltd held by executive directors as a part of the Best Buy Europe VES are as follows:

	2011	2010
N Langstaff	376	376
R Taylor	1,070	1,070

Compliance

This Remuneration Report has been prepared in accordance with the Regulations, the relevant Listing Rules of the Financial Services Authority and the Code. The constitution and operation of the Remuneration Committee are in compliance with the Code. In framing its remuneration policy the Committee has given full consideration to the matters set out in Schedule A of the Code. As required by the Regulations, a resolution to approve this Report will be proposed at the annual general meeting to be held on 27 July 2011.

This Report was approved by the Board on 13 June 2011.

John Gildersleeve

Chairman, Remuneration Committee

Carphone Warehouse Group plc Annual Report 2011

GOVERNANCE

OTHER STATUTORY INFORMATION

Employee involvement

The Group places significant emphasis on its employees' involvement in the business at all levels. Managers are remunerated according to results wherever possible and employees are kept informed of issues affecting the Group through formal and informal meetings and through the Group's internal publications. The management team regularly communicates matters of current interest and concern with all employees. Information on the employee engagement activities of Best Buy Europe is included in the report on Corporate Responsibility on pages 28 and 29.

Employment of disabled people

It is the Group's policy to encourage application for employment from disabled people, and to assist with their training and career development, having regard to particular aptitudes and abilities. Every endeavour is made to find suitable alternative employment and to re-train any employee who becomes disabled while serving the Group.

Supplier payment policy

The Group's policy is to agree terms of transactions, including payment terms, with suppliers and, provided that suppliers perform in accordance with the agreed terms, it is the Group's normal practice that payment is made accordingly. Trade payables were immaterial at 31 March 2011.

Donations

Information on the Group's charitable activities is included in the report on Corporate Responsibility on pages 28 and 29. Best Buy Europe made charitable donations of £107,000, with a further £244,000 provided to Get Connected through fundraising and £160,000 raised through a charity auction. No political donations were made during either year by the Group or its joint venture investments.

Contracts with significant shareholders

There are no material contracts with significant shareholders, except as disclosed in the Remuneration Report on pages 37 to 42.

Capital structure

Details of the movements in authorised and issued share capital during the year are provided in notes 20 and 21 to the Group financial statements. The Company has one class of ordinary shares which carries the right to one vote at a general meeting of the Company and has no right to fixed income. Details of employee share schemes are provided in note 6 to the Group financial statements. The Group's ESOT held 2.9m shares on 31 March 2011, but does not vote or receive dividends.

The shareholder agreements of Best Buy Europe and Virgin Mobile France include change of control clauses, whereby if there is a change of control event in relation to the Company, the other shareholders have the option to acquire the Company's ownership of these investments, or require the Company to acquire the other shareholders' interests.

Significant shareholdings

The Company had been notified, in accordance with Chapter 5 of the Disclosure and Transparency Rules of the UK Financial Services Authority, of the following interests in the Company's shares at 31 March 2011:

Name	Number of shares	Percentage of share capital
D P J Ross	63,888,526	13.98%
FMR LLC	48,016,290	10.51%
Newton Investment Management Ltd	21,959,404	4.80%
TIAA-CREF Investment Management LLC	14,913,027	3.26%

Between 31 March 2011 and 1 June 2011, the Company had received notification from TIAA-CREF Investment Management LLC that its holding had reduced below the 3% reporting threshold and from FMR LLC that its holding had increased to 50,487,907 shares, being 11.05% of the Company's share capital.

The total interests of the directors are detailed in the Remuneration Report on pages 37 to 42.

Property, plant and equipment

Movements in property, plant and equipment are set out in note 12 to the Group financial statements. In the opinion of the directors the current open market value of the Group's interests in freehold land and buildings exceeds the book value by £5.9m at 31 March 2011.

Auditors

Each director at the date of approval of this annual report confirms that:

so far as the director is aware, there is no relevant audit information of which the Company's auditors are unaware; and
the director has taken all the steps that he/she ought to have taken as a director in order to make himself/herself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

This confirmation is given and should be interpreted in accordance with the provisions of s.418 of the Companies Act 2006.

Deloitte LLP were appointed as the Company's auditors on incorporation and have expressed their willingness to continue in office as auditors. A resolution to re-appoint them will be proposed at the forthcoming annual general meeting.

Carphone Warehouse Group plc
1 Portal Way
London W3 6RS

By order of the Board

T S Morris
Company Secretary
13 June 2011

Carphone Warehouse Group plc Annual Report 2011

GOVERNANCE

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors are required to prepare the consolidated financial statements in accordance with IFRS and Article 4 of the IAS Regulation and have elected to prepare the Company financial statements in accordance with UK GAAP. Under company law the directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and Group and of the profit or loss of the Company and Group for that period.

In preparing the Company financial statements, the directors are required to:

select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
state whether applicable UK GAAP has been followed, subject to any material departures disclosed and explained in the financial statements; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

In preparing the consolidated financial statements, IAS 1 requires that directors:

properly select and apply accounting policies;
present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's financial position and financial performance; and
make an assessment of the Group's ability to continue as a going concern.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement

We confirm that to the best of our knowledge:

the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
the management report, which is incorporated into the Directors' Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

By order of the Board on 13 June 2011

R Taylor
Chief Executive Officer

N Langstaff
Chief Financial Officer

Carphone Warehouse Group plc Annual Report 2011

INDEPENDENT AUDITORS' REPORT

We have audited the financial statements of Carphone Warehouse Group plc for the year ended 31 March 2011 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity, the Consolidated Balance Sheet, the Consolidated Cash Flow Statement, the notes to the Consolidated Financial Statements 1 to 23, the Company Balance Sheet and the notes 1 to 9 of the Company Financial Statements. The financial reporting framework that has been applied in the preparation of the consolidated financial statements is applicable law and IFRS. The financial reporting framework that has been applied in the preparation of the Company financial statements is UK GAAP.

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's and the Company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion:

the financial statements give a true and fair view of the state of the Group's and of the Company's affairs as at 31 March 2011 and of the Group's profit for the year then ended;
the Group financial statements have been properly prepared in accordance with IFRS;
the Company financial statements have been properly prepared in accordance with UK GAAP; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

Opinion on other matters prescribed by the Companies Act 2006

In our opinion:

the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or
the Company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or
certain disclosures of directors' remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.

Although not required to do so, the directors have voluntarily chosen to provide a report on Corporate Governance detailing the extent of their compliance with the UK Corporate Governance Code. We reviewed:

the directors' report, contained on page 27 of the Business Review, in relation to going concern;
the part of the report on Corporate Governance relating to the Company's compliance with the nine provisions of the UK Corporate Governance Code specified for our review; and
certain elements of the Remuneration Report.

John Murphy

(Senior statutory auditor)

for and on behalf of Deloitte LLP

Chartered Accountants and Statutory Auditor

London, United Kingdom

13 June 2011

Carphone Warehouse Group plc Annual Report 2011

CONSOLIDATED INCOME STATEMENT

FOR THE YEARS ENDED 31 MARCH 2011 AND 31 MARCH 2010

	Notes	Before amortisation of acquisition intangibles 2011 £m	Amortisation of acquisition intangibles* 2011 £m	After amortisation of acquisition intangibles 2011 £m	Before amortisation of acquisition intangibles and exceptional items 2010 £m	Amortisation of acquisition intangibles and exceptional items* 2010 £m	After amortisation of acquisition intangibles and exceptional items 2010 £m
Revenue	2	5.6	–	5.6	5.5	–	5.5
Cost of sales		–	–	–	–	–	–
Gross profit		5.6	–	5.6	5.5	–	5.5
Operating expenses		(8.7)	–	(8.7)	(6.0)	–	(6.0)
Share of results of joint ventures	2,14	68.6	(2.2)	66.4	39.1	(0.6)	38.5
Profit before investment income, interest and taxation	3	65.5	(2.2)	63.3	38.6	(0.6)	38.0
Interest income	7	3.9	–	3.9	3.7	–	3.7
Interest expense	7	(0.6)	–	(0.6)	(5.3)	–	(5.3)
Investment income	4,7	0.6	–	0.6	–	182.0	182.0
Profit before taxation		69.4	(2.2)	67.2	37.0	181.4	218.4
Taxation	8	(1.6)	–	(1.6)	0.4	–	0.4
Net profit for the year		67.8	(2.2)	65.6	37.4	181.4	218.8

A reconciliation of Headline results to statutory results is provided in note 10 to the financial statements.

The accompanying notes are an integral part of this Consolidated Income Statement. All amounts relate to continuing operations.

Earnings per share
Basic	11	15.0p	14.5p	8.3p
Diluted	11	14.4p	13.9p	8.2p

Carphone Warehouse Group plc Annual Report 2011

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED 31 MARCH 2011 AND 31 MARCH 2010

	2011 £m	2010 £m
Net profit for the year	65.6	218.8
Currency translation	(0.1)	4.2
Total recognised income and expenses for the year	65.5	223.0

The accompanying notes are an integral part of this Consolidated Statement of Comprehensive Income.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2011

	Share capital £m	Share premium reserve £m	Accumulated profits £m	Translation reserve £m	Demerger reserve £m	Total £m
At the beginning of the year	0.5	754.0	675.1	12.1	(751.2)	690.5
Total recognised income and expenses for the year	-	-	65.6	(0.1)	-	65.5
Net purchase of own shares	-	-	(2.7)	-	-	(2.7)
Tax on items recognised directly in reserves	-	-	1.0	-	-	1.0
Share of other reserve movements of joint ventures	-	-	1.5	-	-	1.5
Net movement in relation to share schemes	-	-	1.2	-	-	1.2
Movements in demerger reserve	-	-	-	-	1.0	1.0
At the end of the year	0.5	754.0	741.7	12.0	(750.2)	758.0

FOR THE YEAR ENDED 31 MARCH 2010

	Share capital £m	Share premium reserve £m	Accumulated profits £m	Translation reserve £m	Demerger reserve £m	Total £m
At the beginning of the year	-	-	457.8	7.9	(51.8)	413.9
Total recognised income and expenses for the year	-	-	218.8	4.2	-	223.0
Issue of share capital	0.5	754.0	-	-	(754.5)	-
Net movement in relation to share schemes	-	-	(1.5)	-	-	(1.5)
Movements in demerger reserve	-	-	-	-	55.1	55.1
At the end of the year	0.5	754.0	675.1	12.1	(751.2)	690.5

The accompanying notes are an integral part of this Consolidated Statement of Changes in Equity.

Carphone Warehouse Group plc Annual Report 2011

CONSOLIDATED BALANCE SHEET

AS AT 31 MARCH 2011 AND 31 MARCH 2010

	Notes	2011£m	2010£m
Non-current assets
Property, plant and equipment	12	67.8	65.9
Non-current investments	13	0.1	0.1
Interests in joint ventures	14	592.2	541.8
Deferred tax assets	8	1.4	0.8
		661.5	608.6
Current assets
Trade and other receivables	15	6.5	5.6
Cash and cash equivalents	17	120.6	100.0
		127.1	105.6
Total assets		788.6	714.2
Current liabilities
Trade and other payables	16	(16.2)	(10.1)
Corporation tax liabilities		(1.2)	-
Provisions	19	(13.2)	(13.6)
Total liabilities		(30.6)	(23.7)
Net assets		758.0	690.5
Equity
Share capital	20,21	0.5	0.5
Share premium reserve	21	754.0	754.0
Accumulated profits	21	741.7	675.1
Translation reserve	21	12.0	12.1
Demerger reserve	21	(750.2)	(751.2)
Funds attributable to equity shareholders		758.0	690.5

The accompanying notes are an integral part of this Consolidated Balance Sheet.

The financial statements on pages 46 to 73 were approved by the Board on 13 June 2011 and signed on its behalf by:

R Taylor
Chief Executive Officer

N Langstaff
Chief Financial Officer

Carphone Warehouse Group plc Annual Report 2011

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEARS ENDED 31 MARCH 2011 AND 31 MARCH 2010

	Notes	2011£m	2010£m
Operating activities
Profit before investment income, interest and taxation		63.3	38.0
Adjustments for non-cash items:
Share-based payments		1.9	2.4
Non-cash movements on joint ventures		(66.4)	(38.5)
Depreciation		0.8	0.7
Impairment of non-current investments		-	0.1
Operating cash flows before movements in working capital		(0.4)	2.7
Decrease (increase) in trade and other receivables		0.2	(0.6)
Increase in trade and other payables		5.0	3.0
Decrease in provisions		(0.4)	(2.6)
Cash flows from operating activities		4.4	2.5
Investing activities
Investment income received		0.6	182.0
Interest received		3.9	3.7
Acquisition of property, plant and equipment		(2.3)	(0.8)
Net receipts from (investment in) joint ventures		14.6	(32.4)
Cash flows from investing activities		16.8	152.5
Financing activities
Movements on loans from TalkTalk Group	22	-	(397.4)
Movements on loans to Best Buy Europe	22	-	293.3
Settlement of financial instruments		2.7	-
Net purchase of own shares		(2.7)	-
Interest paid		(0.6)	(5.3)
Cash flows relating to movements in the demerger reserve		-	54.4
Cash flows from financing activities		(0.6)	(55.0)
Net increase in cash and cash equivalents		20.6	100.0
Cash and cash equivalents at the start of the year		100.0	-
Cash and cash equivalents at the end of the year		120.6	100.0

The accompanying notes are an integral part of this Consolidated Cash Flow Statement.

Carphone Warehouse Group plc Annual Report 2011

NOTES TO THE FINANCIAL STATEMENTS

1 ACCOUNTING POLICIES

a) Basis of preparation

The Company was incorporated on 15 December 2009 in the United Kingdom and it commenced operations on 17 December 2009. This is its first annual report. The financial statements of the Group have been prepared on a going concern basis in accordance with IFRS as applied in accordance with the provisions of the Companies Act 2006 and Article 4 of the EU IAS Regulation. The financial statements have been presented in UK Sterling on the historical cost basis except for the revaluation of certain financial instruments. The principal accounting policies adopted are set out below.

Going concern

Note 18 to the financial statements includes the Group's policies and processes for managing its exposure to liquidity risk. At 31 March 2011, the Group had cash and cash equivalents of £120.6m (2010: £100.0m) and undrawn committed borrowing facilities of £50.0m (2010: £50.0m).

The directors have reviewed the future cash and profit forecasts of the Group's joint venture investments and other businesses, which they consider to be based on prudent assumptions. The directors are of the opinion that the forecasts, which reflect both the current uncertain economic outlook and reasonably possible changes in trading performance, show that the Group should be able to operate within its facilities and comply with its banking covenants. In arriving at this conclusion the directors were mindful that the Group has significant cash and cash equivalents, and borrowing facilities which are committed until July 2012.

Accordingly the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operation for the foreseeable future and consequently the directors continue to adopt the going concern basis in the preparation of the financial statements.

Presentation of comparative periods

On 26 March 2010, the Demerger of Old Carphone Warehouse Group was effective, resulting in the formation of the Group and TalkTalk Group. Following the Demerger, the Group comprised investments in two joint ventures, Best Buy Europe and Virgin Mobile France, and various other investments, including freehold properties.

The financial statements for the year to 31 March 2010 have been prepared with the objective of presenting the results, net assets and cash flows of the Group in the form that arose on completion of the Demerger, as if it had been a stand-alone group during the entire year.

The financial statements have been prepared by aggregating the financial accounts of the companies and assets that comprised the Group following the Demerger. Any assets and liabilities held within the consolidation of Old Carphone Warehouse Group that relate to the Group have been reflected in these financial statements, as though they had always formed part of the Group. The principles of IAS 27 'Consolidated and Separate Financial Statements' and SIC 12 'Consolidation — Special Purpose Entities' have been applied in determining the companies and assets to be combined and the principles to be followed.

Certain operating expenses relating to the operations of the Group arose in companies that did not form part of the Group on completion of the Demerger. Included within such costs are certain central operating expenses that were borne during the year ended 31 March 2010 by Old Carphone Warehouse, which formed part of TalkTalk Group following the Demerger. A proportion of these costs has been allocated to the Group using a basis of allocation consistent with the nature of the cost. These allocations do not necessarily reflect the results that the Group might have had if it had been a separate, stand-alone group during this time.

Additionally, as the Group did not exist in its current structure until the Demerger, certain cash flows that relate to the operations of the Group actually arose in companies that formed part of TalkTalk Group following the Demerger. As such cash flows are not reflected in the companies that comprise the Group, they are reflected within "cash flows relating to movements in the demerger reserve" in the cash flow statement.

During the year ended 31 March 2010, Old Carphone Warehouse provided funding to various companies within the Group. These financial statements reflect the historical loans and deposits within the Group, adjusted where necessary for transactions required to form the Group. Adjustments have also been made to present the funding of the Group's joint ventures as though it had been made via the Company, to reflect the ongoing structure of their funding, although the funding was in fact provided directly by Old Carphone Warehouse. Where such adjustments have been made, interest income and expense has been adjusted for the interest on joint venture loans so as to recognise this in the Group.

Following the Demerger, shareholders of Old Carphone Warehouse received two shares in TalkTalk and one share in the Company for every two shares in Old Carphone Warehouse. As the Group received no compensation for the issue of these shares, the recognition of the share capital and share premium has been offset by an entry in the demerger reserve.

Joint ventures

Where necessary, adjustments are made to the financial statements of joint ventures to bring accounting policies used into line with those used by the Group. The accounting policies below also relate to those used by joint ventures of the Group.

b) Basis of consolidation

The financial statements reflect the Group's results for the year from 1 April 2010 to 31 March 2011 and comparative information for the year from 1 April 2009 to 31 March 2010. Best Buy Europe reports to a retail calendar, whereby its year end date is normally the Saturday closest to 31 March. As such its results for the year ended 31 March 2011 cover the 52 weeks ended 2 April 2011 and its results for the year ended 31 March 2010 cover the 52 weeks ended 3 April 2010.

The results of subsidiaries and joint ventures acquired or sold during the year are included from or to the date on which control or significant influence passed, except as described above in relation to accounting for the Demerger. Intercompany transactions and balances between subsidiaries are eliminated on consolidation.

Carphone Warehouse Group plc Annual Report 2011

In accordance with UITF 38 'Accounting for ESOP Trusts', shares in the Company held by the Group's ESOT are shown as a reduction in shareholders' funds. Other assets and liabilities held by the Group's ESOT are consolidated with the assets of the Group.

c) Foreign currency translation and transactions

Material transactions in foreign currencies are hedged using forward purchases or sales of the relevant currencies and are recognised in the financial statements at the exchange rates thus obtained. Unhedged transactions are recorded at the exchange rate on the date of the transaction. Material monetary assets and liabilities denominated in foreign currencies are hedged, mainly using forward foreign exchange contracts to create matching liabilities and assets, and are retranslated at each balance sheet date. Hedge accounting as defined by IAS 39 'Financial Instruments: Recognition and Measurement' has been applied by marking to market the relevant financial instruments at the balance sheet date and recognising the gain or loss in reserves in respect of cash flow hedges, and through the income statement in respect of fair value hedges.

Until May 2010 financial instruments were used for the purposes of net investment hedging. Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges in that the gain or loss on the effective portion of the hedges is recognised in equity, while gains or losses on any ineffective portion is recognised in the income statement.

The results of overseas operations are translated at the average foreign exchange rates for the year, and their balance sheets are translated at the rates prevailing at the balance sheet date. Exchange differences arising on the translation of net assets, goodwill and results of overseas operations are recognised in the translation reserve. All other exchange differences are included in the income statement.

The principal exchange rates against UK Sterling used in these financial statements are as follows:

	Average			Closing
	2011	2010	2011	2010
Euro	1.17	1.13	1.13	1.12
United States Dollar	1.56	1.60	1.60	1.52

If a foreign operation is sold, the gain or loss on disposal recognised in the income statement is determined after taking into account the cumulative currency translation differences that are attributable to the operation.

d) Revenue

Revenue comprises rental income on investment properties and is stated net of VAT and other sales related taxes. All such revenue is recognised as the services are provided.

The following accounting policies are applied to revenue arising in the Group's joint ventures:

revenue arising on the sale of mobile and other products and services is recognised when the relevant products or services are provided;
commission receivable on sales, being commission which is contractually committed, and for which there are no ongoing performance criteria, is recognised when the sales to which the commission relates are made, net of any provision for promotional offers and network operator performance penalties. Commission includes a share of customer airtime spend, to the extent that it can be reliably measured and there are no ongoing service obligations. Where the time value of money has a material impact, an appropriate discount is applied such that revenue is recognised at an amount equal to the present value of the future consideration received;
other ongoing revenue is recognised as it is earned over the lives of the relevant customers;
volume bonuses receivable from network operators are recognised when the conditions on which they are earned have been met;
volume bonuses received from suppliers of products are recognised as an offset to product cost when the conditions on which they are earned have been met, and are recognised within cost of sales when the products to which the volume bonuses relate have been sold;
insurance premiums are typically paid monthly or quarterly in advance. Initial administration fees, which are specified in the contract, are recognised at the point of sale; insurance premium income is recognised over the lives of the relevant policies;
revenue from the sale of prepaid credits is deferred until the customer uses the airtime or the credit expires;
revenue generated from the provision of fixed and mobile network services is recognised as it is earned over the lives of the relevant customers; and
all other revenue is recognised when the relevant goods or services are provided.

e) Share-based payments

Equity settled share-based payments are measured at fair value at the date of grant, and expensed over the vesting period, based on an estimate of the number of shares that will eventually vest.

Fair value is measured by use of a Binomial model for share-based payments with internal performance criteria (such as EPS targets) and a Monte Carlo model for those with external performance criteria (such as TSR targets).

For schemes with internal performance criteria, the number of options expected to vest is recalculated at each balance sheet date, based on expectations of performance against target and of leavers prior to vesting. The movement in cumulative expense since the previous balance sheet date is recognised in the income statement, with a corresponding entry in reserves.

Carphone Warehouse Group plc Annual Report 2011

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

1 ACCOUNTING POLICIES CONTINUED

For schemes with external performance criteria, the number of options expected to vest is adjusted only for expectations of leavers prior to vesting. The movement in cumulative expense since the previous balance sheet date is recognised in the income statement, with a corresponding entry in reserves.

If a share-based payment scheme is cancelled, any remaining part of the fair value of the scheme is expensed through the income statement. If a share-based payment scheme is forfeited, no further expense is recognised and any charges previously recognised through the income statement are reversed.

Share-based payment charges are also recognised on loans that are provided to employees to settle personal tax liabilities; the cost of such loans is expensed on grant.

Charges also arise on loans that are provided to employees to fund the purchase of shares in the Group as part of long-term incentives plans, to the extent to which the loans are not, in certain circumstances, repayable; the cost of the relevant part of such loans is expensed over the course of the relevant incentive plans.

f) Pensions

Contributions to defined contribution schemes are charged to the income statement as they become payable in accordance with the rules of the schemes.

g) Dividends

Dividend income is recognised when payment has been received. Final dividend distributions are recognised as a liability in the financial statements in the year in which they are approved by the shareholders. Interim dividends are recognised in the year in which they are paid.

h) Leases

Rental payments under operating leases are charged to the income statement on a straight-line basis over the period of the lease. Lease incentives and rent-free periods are amortised through the income statement over the period of the lease.

i) Taxation

Current tax, including UK corporation tax and overseas tax, is provided at amounts expected to be paid or recovered using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is provided in full on temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base.

Deferred tax liabilities represent tax payable in future periods in respect of taxable temporary differences. Deferred tax assets represent tax recoverable in future periods in respect of deductible temporary differences, and the carry-forward of unused tax losses and credits. Deferred tax is determined using the tax rates that have been enacted or substantively enacted at the balance sheet date and are expected to apply when the deferred tax asset is realised or the deferred tax liability is settled.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Current and deferred tax is recognised in the income statement except where it relates to an item recognised directly in reserves, in which case it is recognised directly in reserves.

Deferred tax assets and liabilities are offset where there is a legal right to do so in the relevant jurisdictions.

j) Intangible assets

Goodwill

Goodwill arising on the acquisition of subsidiary undertakings and businesses, representing the excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities acquired, is recognised initially as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. At the acquisition date, goodwill is allocated to each of the CGUs expected to benefit from the combination and held in the currency of the operations to which the goodwill relates. Goodwill is reviewed at least annually for impairment, or more frequently where there is an indication that goodwill may be impaired. Impairment is determined by assessing the future cash flows of the CGUs to which the goodwill relates. Where the future cash flows are less than the carrying value of goodwill, an impairment charge is recognised in the income statement.

On disposal of subsidiary undertakings and businesses, the relevant goodwill is included in the calculation of the profit or loss on disposal.

Software and licences

Software and licences includes internal infrastructure and design costs incurred in the development of software for internal use. Internally generated software is recognised as an intangible asset only if it can be separately identified, it is probable that the asset will generate future economic benefits, and the development cost can be measured reliably. Where these conditions are not met, development expenditure is recognised as an expense in the year in which it is incurred. Software and licences are amortised on a straight-line basis over their estimated useful economic lives of up to 8 years.

Key money

Key money paid to enter a property is stated at cost, net of amortisation and any provision for impairment. Amortisation is provided on key money at rates calculated to write off the cost, less estimated residual value, on a straight-line basis over 10 years or the lease term if less.

Acquisition intangibles

Acquisition intangibles are amortised over their expected useful lives of up to 5 years on a straight-line basis. The value attributed to such assets is based on the future economic benefit that is expected to be derived from them, calculated as the present value of future cash flows after a deduction for contributory assets.

Carphone Warehouse Group plc Annual Report 2011

Paranormal Statements

k) Property, plant and equipment

Property, plant and equipment, principally for the Group comprising investment property (property held to earn rental income and/or for capital appreciation) is stated at cost, net of depreciation and any provision for impairment. Depreciation is provided on all property, plant and equipment, except for land, at rates calculated to write off the cost, less estimated residual value, of each asset on a straight-line basis over its expected useful life from the date it is brought into use, as follows:

Investment properties: 2% per annum
Short leasehold costs: 10% per annum or the lease term if less
Network equipment and computer hardware: 12.5-50% per annum
Fixtures and fittings: 20-25% per annum
Motor vehicles: 25% per annum

l) Recoverable amount of non-current assets

At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of the asset's recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered to be impaired and is written down through an accelerated amortisation charge to its recoverable amount. The recoverable amount is the higher of an asset's or CGU's fair value less costs to sell and its value in use, and is determined for an individual asset, unless the asset does not generate cash flows that are largely independent of those from other assets or groups of assets.

m) Investments

Investments, other than subsidiaries and joint ventures, are initially recognised at cost, being the fair value of the consideration given plus any transaction costs associated with the acquisition. Investments are categorised as available-for-sale and are then recorded at fair value. Changes in fair value, together with any related taxation, are taken directly to reserves, and recycled to the income statement when the investment is sold or determined to be impaired.

n) Interests in joint ventures

Interests in joint ventures are accounted for using the equity method. The consolidated income statement includes the Group's share of the post-tax profits or losses of the joint ventures based on their financial statements for the year. In the consolidated balance sheet, the Group's interests in joint ventures are shown as a non-current asset in the balance sheet, representing the Group's investment in the share capital of the joint ventures, as adjusted by post-acquisition changes in the Group's share of the net assets or liabilities less provision for any impairment. Any associated goodwill is included within the carrying value of the investment and is assessed for impairment as part of that investment.

Where a joint venture has net liabilities, any loans advanced to it are included in the Group's equity-accounted investment in it. Where a joint venture has net assets, any loans advanced to it are shown separately in the balance sheet, as a receivable to the Group.

o) Stock

Stock is stated at the lower of cost and net realisable value. Cost, net of discounts and volume bonuses from product suppliers (see note 1d), includes all direct costs incurred in bringing stock to its present location and condition and represents finished goods and goods for resale. Net realisable value is based on estimated selling price, less further costs expected to be incurred to disposal. Provision is made for obsolete, slow-moving or defective items where appropriate.

p) Cash and cash equivalents

Cash and cash equivalents represent cash on hand, demand deposits and short-term, highly liquid investments that are readily convertible to known amounts of cash.

q) Loans and other borrowings

Loans represent loans to and from related parties, while other borrowings in the balance sheets of joint ventures represent committed and uncommitted bank loans, bank overdrafts, and loans from shareholders other than the Group.

Bank fees and legal costs associated with the securing of external financing are ordinarily capitalised and amortised over the term of the relevant facility. Borrowing costs associated with qualifying assets are included in the cost of the asset. All other borrowing costs are recognised in the income statement in the period in which they are incurred.

r) Provisions

Provisions are recognised when a legal or constructive obligation exists as a result of past events and it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are discounted where the time value of money is considered to be material.

Provisions in the Group relate primarily to warranties provided in relation to the Best Buy Europe Joint Venture Transaction.

Provisions in Best Buy Europe and Virgin Mobile France include the following categories:

Sales

Sales provisions relate to 'cash-back' and similar promotions, product warranties, product returns, and network operator performance penalties. The anticipated costs of these items are assessed by reference to historical trends and any other information that is considered to be relevant.

Insurance

Full provision is made for the estimated cost of all claims notified but not settled at the balance sheet date. Provision is also made for the estimated cost of claims incurred but not reported at the balance sheet date, based on historical experience of the value of such claims. Any differences between original claims provisions and subsequent settlements are reflected in the income statement in the relevant year.

Reorganisation

Reorganisation provisions relate principally to redundancy costs and are only recognised where plans are demonstrably committed and where appropriate communication to those affected has been undertaken at the balance sheet date. Provisions are not recognised in respect of future operating losses.

Carphone Warehouse Group plc Annual Report 2011

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

1 ACCOUNTING POLICIES CONTINUED

Other

Other provisions relate to dilapidations and similar property costs, and all other provisions, principally being the anticipated costs of unresolved tax issues and legal disputes, and costs associated with onerous contracts. All such provisions are assessed by reference to the best available information at the balance sheet date.

s) Headline results

Headline results are stated before the amortisation of acquisition intangibles and any exceptional items that are considered to be one-off and so material that they require separate disclosure to avoid distortion of underlying performance.

t) Use of critical accounting estimates and assumptions

Estimates and assumptions used in the preparation of the financial statements are continually reviewed and revised as necessary. Whilst every effort is made to ensure that such estimates and assumptions are reasonable, by their nature they are uncertain, and as such changes in estimates and assumptions may have a material impact.

The principal items in the financial statements where changes in estimates and assumptions may have a material impact are as follows:

Recoverable amount of non-current assets

All non-current assets, including goodwill and other intangible assets, are reviewed for potential impairment using estimates of the future economic benefits attributable to them. Any estimates of future economic benefits made in relation to non-current assets may differ from the benefits that ultimately arise and materially affect the recoverable value of the asset.

Trade and other receivables

Provisions for irrecoverable receivables are based on extensive historical evidence and the best available information in relation to specific issues, but are unavoidably dependent on future events.

Revenue recognition

Commission receivable within Best Buy Europe depends for certain transactions on customer behaviour after the point of sale. Assumptions are therefore required, particularly in relation to levels of customer default within the contract period, and minimum levels of customer spend. Such assumptions are based on extensive historical evidence, and provision is made for the risk of potential changes in customer behaviour, but they are nonetheless inherently uncertain.

Current taxation

The complex nature of tax legislation across the tax jurisdictions in which the Group and its joint ventures operate necessitates the use of many estimates and assumptions, where the outcome may differ from that assumed.

Deferred taxation

The extent to which tax losses can be utilised depends on the extent to which taxable profits are generated in the relevant jurisdictions in the foreseeable future, and on the tax legislation then in force, and as such the value of associated deferred tax assets is uncertain.

Provisions

The Group's provisions are based on the best information available to management at the balance sheet date. However, the future costs assumed are inevitably only estimates, which may differ from those ultimately incurred.

u) Recent accounting developments

The following standards or interpretations have become effective during the year ended 31 March 2011 and have the potential to be relevant to the results or position of the Group:

IFRS 3 (Revised) 'Business Combinations' has amended certain aspects of acquisition accounting, including requiring that re-measurements of contingent consideration or deferred tax assets are recorded in the income statement in subsequent years and that transaction costs are expensed.
IAS 27 (Revised) 'Consolidated and Separate Financial Statements' requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control.
IFRIC 16 'Hedges of a Net Investment in a Foreign Operation' clarifies certain matters in relation to net investment hedging, such that hedges may be held by any entity in a group, and ensures the appropriate application of IAS 21 to the hedged item.
'Improvements to IFRSs 2009' has made minor amendments to a variety of standards.

In addition to these developments, the Group has adopted early IAS 24 (Amendment) 'Related Party Disclosures' which has amended the definition of a related party. Consequently TalkTalk is no longer considered a related party of the Group.

The following standards, amendments and interpretations are not yet approved by the European Union and as such cannot be adopted early by the Group:

IFRS 1 (Amendment) 'First-time Adoption of IFRS' on 'Financial Instrument Disclosures' expected to be effective for the year ending 31 March 2012.
IFRS 9 'Financial Instruments' on 'Classification and Measurement' expected to be effective for the year ending 31 March 2014.
IFRS 10 'Consolidated Financial Statements' expected to be effective for the year ending 31 March 2014.
IFRS 11 'Joint Arrangements' expected to be effective for the year ending 31 March 2014.
IFRS 12 'Disclosure of Interests in Other Entities' expected to be effective for the year ending 31 March 2014.
IFRS 13 'Fair Value Measurement' expected to be effective for the year ending 31 March 2014.
IAS 12 (Amendment) 'Income Taxes' on 'Deferred Tax' expected to be effective for the year ending 31 March 2013.
IFRIC 19 'Extinguishing Financial Liabilities With Equity Instruments' expected to be effective for the year ending 31 March 2012.

Carphone Warehouse Group plc Annual Report 2011

2 SEGMENTAL REPORTING

Segmental results are analysed as follows:

2011	Best Buy Europe (see note 14) £m	Virgin Mobile France (see note 14) £m	Investment properties and central functions £m	Total £m
Revenue	–	–	5.6	5.6
Headline EBIT before share of results of joint ventures	–	–	(3.1)	(3.1)
Share of Headline results of joint ventures (post-tax)	60.4	8.2	–	68.6
Headline EBIT	60.4	8.2	(3.1)	65.5
Share of amortisation of joint venture acquisition intangibles (post-tax)	–	(2.2)	–	(2.2)
Statutory EBIT (segment results)	60.4	6.0	(3.1)	63.3
Assets	571.8	20.4	196.4	788.6
Liabilities	–	–	(30.6)	(30.6)
Net assets	571.8	20.4	165.8	758.0
2010	Best Buy Europe (see note 14) £m	Virgin Mobile France (see note 14) £m	Investment properties and central functions £m	Total £m
---	---	---	---	---
Revenue	–	–	5.5	5.5
Headline EBIT before share of results of joint ventures	–	–	(0.5)	(0.5)
Share of Headline results of joint ventures (post-tax)	47.3	(8.2)	–	39.1
Headline EBIT	47.3	(8.2)	(0.5)	38.6
Share of amortisation of joint venture acquisition intangibles (post-tax)	–	(0.6)	–	(0.6)
Statutory EBIT (segment results)	47.3	(8.8)	(0.5)	38.0
Assets	512.6	29.2	172.4	714.2
Liabilities	–	–	(23.7)	(23.7)
Net assets	512.6	29.2	148.7	690.5

Transactions between segments are on an arm's length basis.

Carphone Warehouse Group plc Annual Report 2011

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

3 PROFIT BEFORE INVESTMENT INCOME, INTEREST AND TAXATION

Profit before investment income, interest and taxation is stated after charging (crediting):
	2011 £m	2010 £m
Auditors' remuneration – see below	0.2	0.1
Impairment of non-current investments	–	0.1
Depreciation of property, plant and equipment	0.8	0.7
Investment property rental income	(5.6)	(5.5)
Share-based payments	1.9	2.4
Other employee costs (see note 5)	4.7	3.2
Auditors' remuneration comprises the following:
	2011 £m	2010 £m
Statutory services – audit of the Company and the Company's subsidiaries	0.1	0.1
Tax services – advisory and compliance services	0.1	–
	0.2	0.1

The Group's share of audit fees for Best Buy Europe and Virgin Mobile France was £0.7m (2010: £0.6m) in the year and the Group's share of fees for their tax compliance services was £0.1m (2010: £0.1m).

4 EXCEPTIONAL ITEMS

The following prior year item has been disclosed separately given its size and one-off nature:
	2011 £m	2010 £m
Investment income	–	182.0

During the year ended 31 March 2010, as part of the Demerger, the Group received dividends of £182.0m from Old Carphone Warehouse. These dividends do not reflect the ongoing operations of the Group and have therefore been disclosed separately.

56 Carphone Warehouse Group plc Annual Report 2011

5 EMPLOYEE COSTS

As the Group did not exist in its current form prior to the Demerger, the employee costs for the year ended 31 March 2010 represent an allocation of the cost of a number of Old Carphone Warehouse employees (including directors) for the year. The aggregate remuneration recognised in the income statement in each year is as follows:

	2011 £m	2010 £m
Salaries and performance bonuses	3.9	2.8
Social security costs	0.7	0.4
Other pension costs	0.1	–
	4.7	3.2
Share-based payments (see note 6)	1.9	2.4
	6.6	5.6

The average number of employees (including directors) during the year ended 31 March 2011 was 18 (2010: 19).

Compensation earned by key management, comprising the Board of Directors (an allocation of the compensation of Old Carphone Warehouse directors in the year ended 31 March 2010) and senior executives, was as follows:

	2011 £m	2010 £m
Salaries	1.4	1.0
Performance bonuses	1.5	1.3
Share-based payments	1.7	2.4
	4.6	4.7

Amounts of £0.3 million were paid to HMRC during the year ended 31 March 2009 on behalf of a number of key management; these amounts were outstanding at 31 March 2011 and 31 March 2010. Interest is charged on these loans at market rates; however up to 5 April 2011 this interest has been waived at the discretion of the Company's Remuneration Committee. At the discretion of the Company's Remuneration Committee, these loans were forgiven in May 2011.

At 31 March 2011 the Group had made loans to key management in relation to the Best Buy Europe VES, TalkTalk VES and the share gift (see note 6) of £10.2m (2010: £7.9m) of which £7.3m (2010: £5.6m) related to directors of the Company. Interest is charged on the loans at market rates and interest of £0.5m (£0.4m relating to directors of the Company) has been recognised during the year ended 31 March 2011.

Carphone Warehouse Group plc Annual Report 2011

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

6 SHARE-BASED PAYMENTS

In the years prior to the Demerger, Old Carphone Warehouse issued equity settled share-based payments to certain employees of Best Buy Europe, TalkTalk Group and the Group, and since the Demerger the Company has issued equity settled share-based payments to certain employees of the Group. With the exception of share schemes which lapsed due to the Demerger, following the Demerger all shares and share options in Old Carphone Warehouse were cancelled and replaced with shares and share options in the Company and TalkTalk. Share and option holders received two shares or share options in TalkTalk and one share or share option in the Company for every two shares or share options previously held in Old Carphone Warehouse. The following analysis includes options in the Company held by employees and former employees of Best Buy Europe, TalkTalk Group and the Group. The share options data reflects the share consolidation that occurred on Demerger as though it had applied throughout the year ended 31 March 2010. The WAEP for each scheme has also been restated to reflect the Demerger, with the WAEP for Old Carphone Warehouse allocated between the Company and TalkTalk based on their respective market capitalisations in the 60 days following the Demerger.

a) Value enhancement schemes

Prior to the Demerger, Old Carphone Warehouse introduced two value enhancement schemes to provide long-term incentives to its senior management group in relation to its principal businesses, Best Buy Europe and the TalkTalk Business.

Best Buy Europe VES

The Best Buy Europe VES enables participants to share in up to 2.24% of any increase in the value of Best Buy Europe over an opening valuation determined by the Old Carphone Warehouse board as at 1 April 2009. The incremental value is measured after a minimum annual rate of return of 7% on this valuation. The Group advanced loans totalling £5.8m to participants to enable them to purchase A shares in CPW Retail Holdings Limited, which holds part of the Group's investment in Best Buy Europe. The value of the Best Buy Europe VES pool is adjusted on vesting for any change in the Company's market capitalisation since 6 April 2009, such that an increase in the Company's market capitalisation increases the value of the pool. The Company's opening market capitalisation for this purpose represents an allocation of the market capitalisation of Old Carphone Warehouse at that date, based on the market capitalisation of the Company and TalkTalk in the five days following Demerger. The Company has an obligation to acquire these shares if performance conditions are met, to provide participants with the share of value described above. It is intended that the Company's shares would be used as consideration for this purpose. Performance is measured over an initial performance period to July 2013, at which point participants have a put option over 60% of their shares, and a subsequent performance period to July 2014, at which point participants have a put option over the remainder of their shares. On a change of control, Best Buy Europe VES shares may vest early if the relevant performance conditions have been achieved. Loans are ordinarily repayable in full if performance conditions are met. If performance conditions are not met or a participant leaves the scheme before vesting, the Best Buy Europe VES shares are transferred to the Group for the lower of market value at that date and the value of the participant's outstanding loan. However, if market value at the date of transfer is lower than the value of the loan, the participant will ordinarily be required to repay only 20% of the difference. At 31 March 2011, all of the shares in the Best Buy Europe VES pool had been issued to senior management.

TalkTalk VES

The Group also advanced loans totalling £3.6m to certain participants in the TalkTalk VES. This scheme has a similar structure to the Best Buy Europe VES, but the value of the scheme is dependent on the performance of TalkTalk Group, and the obligation to acquire the TalkTalk VES shares lies with TalkTalk rather than the Company.

b) Joint venture incentive schemes

Best Buy Europe also introduced a VES during the year ended 31 March 2010, to provide long-term incentives to senior management. The scheme enables participants to share in incremental profits generated by Best Buy Europe over a base defined in respect of the year to 3 April 2010, with the percentage of incremental profits varying by Best Buy Europe division. Participants acquired A and B shares in Best Buy Europe Distributions. The Company and Best Buy jointly have an obligation to acquire these shares if certain performance conditions are met. These performance conditions are measured over a performance period to March 2014.

Virgin Mobile France has also issued nil priced and market priced share options to certain employees of the business, which would be settled with shares in Virgin Mobile France if exercised.

Carphone Warehouse Group plc Annual Report 2011

Paraphrase Waehouse Group plc Annual Report 2011

c) Performance Share Plan

Old Carphone Warehouse had a Performance Share Plan which used share options to provide long-term incentives to senior management of Old Carphone Warehouse. Awards made under the Performance Share Plan in the years ended 31 March 2007 and 29 March 2008 were subject to TSR performance targets and were measured over a performance period to 4 June 2010. The performance targets were not met and as such the scheme lapsed.

Awards made in earlier years have already vested.

If the options remain unexercised after a period of ten years from the date of grant, the options expire.

The following table summarises the number and WAEP of share options for the scheme:

	Number million	2011 WAEP £	Number million	2010 WAEP £
Outstanding at the beginning of the year	6.7	-	11.1	-
Lapsed during the year	(3.6)	-	(1.2)	-
Exercised during the year	(1.5)	-	(3.2)	-
Outstanding at the end of the year	1.6	-	6.7	-
Exercisable at the end of the year	1.6	-	3.1	-

The options outstanding at 31 March 2011 had a weighted average remaining contractual life of 3.6 years (2010: 6.6 years). The options exercised during the year were exercised at a weighted average market price of £2.90 (2010: £1.60).

d) Executive Share Option Scheme

Old Carphone Warehouse had an Executive Share Option Scheme under which share options were issued at market value. All Executive Share Option Scheme options have already vested. If the options remain unexercised after a period of ten years from the date of grant, the options expire.

The following table summarises the number and WAEP of share options for the scheme:

	Number million	2011 WAEP £	Number million	2010 WAEP £
Outstanding at the beginning of the year	2.6	0.95	3.8	0.87
Exercised during the year	(1.4)	1.10	(1.2)	0.80
Outstanding at the end of the year	1.2	0.79	2.6	0.95
Exercisable at the end of the year	1.2	0.79	2.6	0.95

The options outstanding at 31 March 2011 had a weighted average remaining contractual life of 1.6 years (2010: 1.8 years). The options exercised during the year were exercised at a weighted average market price of £2.54 (2010: £1.64).

The summary above includes 0.6m options (2009: 1.7m) that were granted before 7 November 2002. In accordance with IFRS 2 'Share-based Payment', no cost has been recognised in respect of these options.

e) Share gift

In December 2008, 1.8 million shares were gifted by Old Carphone Warehouse's ESOT to certain senior employees within Old Carphone Warehouse, of which 0.4m related to employees of the Group. The shares were restricted until 30 June 2010 based on various internal performance conditions, principally in relation to earnings and cash generation. The performance conditions were met and as such the shares become unrestricted during the year.

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

6 SHARE-BASED PAYMENTS CONTINUED

f) Other Old Carphone Warehouse share option schemes

Old Carphone Warehouse had a savings-related share option scheme which permitted the grant to employees of options linked to a bank save-as-you-earn contract for a term of three or five years, with contributions from employees of between £5 and £250 per month. Options could be exercised at the end of the three or five year period at a subscription price not less than 80% of the middle market quotation on the date of grant. All save-as-you-earn schemes were forfeited on Demerger. Market priced options were also granted during the year ended 31 March 2009 by Old Carphone Warehouse to certain senior employees within Old Carphone Warehouse Group. These awards were subject to internal performance conditions, principally in relation to earnings and cash generation, over a period to March 2010. The performance conditions were met and the options vested during the year.

	Number million	2011 WAEP £	Number million	2010 WAEP £
Outstanding at the beginning of the year	3.6	0.75	4.7	0.90
Lapsed during the year	-	-	(0.9)	1.40
Exercised during the year	(2.4)	0.74	(0.2)	0.96
Outstanding at the end of the year	1.2	0.76	3.6	0.75
Exercisable at the end of the year	1.2	0.76	-	-

The options outstanding at 31 March 2011 had a weighted average remaining contractual life of 7.6 years (2010: 8.7 years). The options exercised during the year were exercised at a weighted average market price of £2.39 (2010: £1.60).

g) Carphone Warehouse Group plc Long-Term Incentive Plan 2010

In March and April 2010 the Group made awards under a Long-Term Incentive Plan, which uses share options to provide long-term incentives to employees of the Group. The options were granted at a combination of market price and zero price and are subject to TSR performance targets and are measured over a performance period to 29 March 2013.

An average annual TSR of 20% is required for all options in the scheme to vest. Subject to performance, 60% of options will vest on 29 March 2013, with the remaining 40% vesting on 29 March 2014.

	Number million	2011 WAEP £	Number million	2010 WAEP £
Outstanding at the beginning of the year	1.4	1.35	-	-
Granted during the year	0.7	0.77	1.4	1.35
Outstanding at the end of the year	2.1	1.17	1.4	1.35
Exercisable at the end of the year	-	-	-	-

The options outstanding at 31 March 2011 had a weighted average remaining contractual life of 9.0 years (2010: 10.0 years).

h) Fair value models

The fair value of options with external performance targets was estimated at the date of grant using a Monte Carlo model. The model combines the market price of a share at the date of grant with the probability of meeting performance criteria, based on the historical performance of Old Carphone Warehouse shares. For share options granted in the year, a volatility of 36.0% and a dividend yield of 2.2% was assumed.

The VES shares described in notes 6a and 6b above were acquired by participants at market value as calculated by third party valuation experts using option pricing methodology, cross checked to an expected returns approach adopting discounted cash flow methodology. The discount rates and discounts for lack of marketability employed, where appropriate, reflected the market risk and volatility of the VES shares in question over their expected vesting period. An accounting charge arises on the respective schemes since the loans provided to acquire the shares are in certain circumstances not fully repayable. The charge has been derived using a Black Scholes option pricing model, reflecting equity volatilities specific to the relevant shares.

Carphone Warehouse Group plc Annual Report 2011

Carphone Warehouse Group plc Annual Report 2011
61

i) Charge to income statement and entries in reserves

During the year ended 31 March 2011, the Group recognised a charge to the income statement of £1.9m (2010: £2.4m) in respect of equity settled share-based payments, which is offset by an entry through reserves. As explained in note 6a above, there are circumstances in which part of the loans advanced to VES participants may not be repayable. As required by IFRS 2 'Share-based Payment', the element of the loans in respect of which repayment is uncertain has been reflected in reserves, being £0.7m (2010: £3.9m).

j) Employee Share Ownership Trust

The Group has an ESOT which held 2.9m shares in the Company at 31 March 2011 (2010: 5.2m) for the benefit of the employees of the Group and the Old Carphone Warehouse Group. The ESOT has waived its rights to receive dividends and none of its shares has been allocated to specific schemes.

At 31 March 2011 the shares had a market value of £10.4m (2010: £8.3m).

7 INTEREST INCOME, INTEREST EXPENSE AND INVESTMENT INCOME

Interest income is analysed as follows:

	2011 £m	2010 £m
Interest on cash and cash equivalents	0.8	–
Interest and other finance income from joint ventures	2.6	3.7
Other interest income	0.5	–
	3.9	3.7

Interest expense is analysed as follows:

	2011 £m	2010 £m
Interest on loans from TalkTalk Group	–	5.3
Other interest expense	0.6	–
	0.6	5.3

Investment income is analysed as follows:

	2011 £m	2010 £m
Dividends relating to the Demerger (see note 4)	–	182.0
Income from minority investments	0.6	–
	0.6	182.0

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

8 TAXATION

The tax charge (credit) comprises:

	2011 £m	2010 £m
Current tax:
UK corporation tax	1.2	-
	1.2	-
Deferred tax:
Origination and reversal of timing differences	0.2	(0.6)
Adjustments in respect of prior years	0.2	0.2
	0.4	(0.4)
Total tax charge (credit)	1.6	(0.4)

The principal differences between the tax charge (credit) and the amount calculated by applying the standard rate of UK corporation tax of 28% (2010: 28%) to the profit before taxation are as follows:

	2011 £m	2010 £m
Profit before taxation	67.2	218.4
Profit before taxation at 28% (2010: 28%)	18.8	61.2
Adjustments in respect of prior years	0.2	0.2
Items attracting no tax relief or liability	(17.4)	(61.8)
Total tax charge (credit)	1.6	(0.4)

Items attracting no tax relief or liability primarily relate to the Group's share of results of joint ventures. Taxation associated with the Group's interests in joint ventures is recognised within their results.

Deferred tax assets recognised by the Group and movements thereon during the year are as follows:

	2011 £m	2010 £m
Opening balance	0.8	0.2
(Charge) credit to the income statement	(0.4)	0.4
Movements through accumulated profits	1.0	-
Movements through the demerger reserve	-	0.2
Deferred tax assets	1.4	0.8

On 23 March 2011 the government announced the reduction of the UK corporation tax rate from 28% to 26% from 6 April 2011 and then to 23% over the following three years. The impact of this reduction is not material to the wholly-owned Group.

Carphone Warehouse Group plc Annual Report 2011

9 EQUITY DIVIDENDS

The proposed dividend for the year ended 31 March 2011 is 5.0p per share at an expected cost of £22.7m. As this dividend is subject to shareholders' approval at the forthcoming annual general meeting it has not been included as a liability in these financial statements. The expected cost of the dividend reflects the fact that the Group's ESOT has agreed to waive its rights to receive dividends (see note 6).

No dividends have been paid by the Company in the year (2010: £nil).

10 RECONCILIATION OF HEADLINE RESULTS TO STATUTORY RESULTS

2011	Profit before investment income, interest and taxation £m	Profit before taxation £m	Net profit for the year £m
Headline results	65.5	69.4	67.8
Share of amortisation of joint venture acquisition intangibles (post-tax) (see note 14)	(2.2)	(2.2)	(2.2)
Statutory results	63.3	67.2	65.6
2010	Profit before investment income, interest and taxation £m	Profit before taxation £m	Net profit for the year £m
---	---	---	---
Headline results	38.6	37.0	37.4
Share of amortisation of joint venture acquisition intangibles (post-tax) (see note 14)	(0.6)	(0.6)	(0.6)
Exceptional items (see note 4)	–	182.0	182.0
Statutory results	38.0	218.4	218.8

Headline information is provided because the directors consider that it provides assistance in understanding the Group's underlying performance.

Carphone Warehouse Group plc Annual Report 2011

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

11 EARNINGS PER SHARE

	2011	2010
Headline earnings (£m)	67.8	37.4
Statutory earnings (£m)	65.6	218.8
Weighted average number of shares (millions):
Average shares in issue	457.1	457.1
Less average holding by Group ESOT (see note 6)	(4.4)	(7.8)
For basic earnings per share	452.7	449.3
Dilutive effect of share options	5.7	8.4
Dilutive effect of value enhancement schemes	12.7	–
For diluted earnings per share	471.1	457.7
Basic earnings per share	2011	2010
Headline	15.0p	8.3p
Statutory	14.5p	48.7p
Diluted earnings per share	2011	2010
Headline	14.4p	8.2p
Statutory	13.9p	47.8p

As the Group did not exist during the year ended 31 March 2010 in the form that arose on Demerger, the average actual shares in issue during this period does not provide a meaningful basis for calculating EPS. EPS has therefore been calculated based on the average number of Old Carphone Warehouse shares in issue and the shareholding of the Old Carphone Warehouse ESOT in this year, adjusted for the fact that following the Demerger two shares in Old Carphone Warehouse were replaced with one share in the Company. Diluted EPS has been calculated based on options held over Old Carphone Warehouse shares and its share price during the year ended 31 March 2010, adjusted for the two-to-one ratio noted above.

As detailed in note 6, prior to the Demerger, Old Carphone Warehouse introduced the Best Buy Europe VES to provide incentives to the Group's senior management. The scheme enables participants to share in any increase in the value of Best Buy Europe above a defined minimum annual rate of return. The scheme has an initial performance period to July 2013 and a subsequent performance period to July 2014. It is expected that the scheme will be settled using the Company's shares. As also detailed in note 6, Best Buy Europe also introduced a VES in the year ended 31 March 2010. The Group's obligations in relation to this scheme are also expected to be met using the Company's shares.

The ultimate dilutive effect of these schemes cannot yet be determined, as they are both based on future performance, which is as yet unknown. The potential effect of the schemes has therefore been assessed by calculating the dilution that would have occurred had they vested during the year, taking an average of the results that would have occurred on each day. The value of the schemes has been derived from final results for the years ended 31 March 2010 and 31 March 2011 and the Group's latest financial guidance for the year to 31 March 2012, as communicated in June 2011.

In order to maintain alignment with shareholders, the Company's Remuneration Committee has capped the potential dilution associated with these schemes at 5% of total shares in issue at the vesting date.

There were no shares that could be issued under share option schemes but that are not considered to be dilutive at 31 March 2011 (2010: 5.9m).

Carphone Warehouse Group plc Annual Report 2011

CIPIANCIAL STATEMENTS

12 PROPERTY, PLANT AND EQUIPMENT

	2011 £m	2010 £m
Opening balance	65.9	65.8
Additions	2.7	0.8
Depreciation	(0.8)	(0.7)
Closing balance	67.8	65.9
Cost	72.2	69.5
Accumulated depreciation	(4.4)	(3.6)
Net carrying amount	67.8	65.9

Property, plant and equipment held by the Group is principally investment property. The fair value of the investment property at 31 March 2011 was £73.7m (2010: £72.5m). The valuation of properties was performed internally at March 2011 by reference to appropriate yield rates and market evidence of recent transactions.

At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments:

	2011 £m	2010 £m
Within one year	4.9	4.9
In two to five years	21.6	21.0
After five years	44.1	49.6
	70.6	75.5

13 NON-CURRENT INVESTMENTS

	2011 £m	2010 £m
Opening balance	0.1	0.2
Impairment	-	(0.1)
Closing balance	0.1	0.1

Principal Company investments

The Company has investments in the following subsidiary undertakings, which, alongside joint ventures, principally affected the profits or losses or net assets of the Group. To avoid a statement of excessive length, details of investments which are not significant have been omitted. All holdings are in equity share capital and give the Group an effective holding of 100% on consolidation.

Name	Country of incorporation or registration	Nature of business
CPW Acton One Limited	Isle of Man	Property holding company
CPW Acton Five Limited *	England and Wales	Property holding company
CPW Tulketh Mill Limited *	England and Wales	Property holding company
CPW Irlam Limited *	England and Wales	Property holding company

*Investment held directly by the Company.

Carphone Warehouse Group plc Annual Report 2011

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

14 INTERESTS IN JOINT VENTURES

Interests in joint ventures are as follows:

Business	Principal activities	Country of incorporation	2011 interest	2010 interest
Best Buy Europe	Retail, distribution, insurance, MVNO	England and Wales	50.0%	50.0%
Virgin Mobile France	MVNO	England and Wales	47.1%	47.5%

The Group's interest in Virgin Mobile France reduced from 47.5% at 31 March 2010 to 47.1% at 31 March 2011 following the issue of shares during the year to management of Virgin Mobile France. Senior management of Virgin Mobile France also hold warrants that give them the right to acquire up to an additional 8.5% of the issued share capital of the business, at a price based on the value of existing shareholder funding and an additional amount which increases with the quantity of shares being acquired.

a) Group balance sheet interests

The Group's interests in joint ventures are analysed as follows:

2011	Net assets (liabilities) £m	Goodwill £m	Loans £m	Total £m
Opening balance	384.7	106.3	50.8	541.8
Share of results	66.4	-	-	66.4
Loans repaid (net)	-	-	(14.6)	(14.6)
Share of other reserve movements	1.5	-	-	1.5
Foreign exchange	1.0	(3.4)	(0.5)	(2.9)
Closing balance	453.6	102.9	35.7	592.2
Best Buy Europe	468.9	102.9	-	571.8
Virgin Mobile France	(15.3)	-	35.7	20.4
Closing balance	453.6	102.9	35.7	592.2
2010	Net assets (liabilities) £m	Goodwill £m	Loans £m	Total £m
---	---	---	---	---
Opening balance	339.5	108.5	21.7	469.7
Share of results	38.5	-	-	38.5
Loans provided (net)	-	-	29.8	29.8
Additions	2.6	-	-	2.6
Foreign exchange	4.1	(2.2)	(0.7)	1.2
Closing balance	384.7	106.3	50.8	541.8
Best Buy Europe	406.3	106.3	-	512.6
Virgin Mobile France	(21.6)	-	50.8	29.2
Closing balance	384.7	106.3	50.8	541.8

A revolving credit facility of £125m is provided to Best Buy Europe equally by the Company and Best Buy. At 31 March 2011 and 31 March 2010 no amounts were drawn under this facility. The Company and Best Buy provide further financial support to Best Buy Europe under a letter of support through which both companies are committed to providing further funding to a maximum of £50m each. Prior to the Demerger, loans were provided by the Company to Best Buy Europe under a £475m RCF. Loans are provided to Virgin Mobile France under a shareholder agreement; funding requirements are agreed between the shareholders on a regular basis and are provided in proportion to each party's shareholding.

66
Carphone Warehouse Group plc Annual Report 2011

The Group's share of the results of its joint ventures is as follows:

b) Analysis of profits and losses

Best Buy Europe	2011 £m	2010 £m
Revenue	3,572.0	3,528.8
Headline EBITDA *	257.4	231.7
Depreciation and amortisation	(87.1)	(91.9)
Headline EBIT	170.3	139.8
Net interest expense	(15.2)	(16.3)
Taxation	(34.3)	(28.9)
Profit after taxation	120.8	94.6
Group share of profit after taxation	60.4	47.3

Headline EBITDA includes the unwinding of discounts for the time value of money on network commissions receivable over the life of the customer. This unwind has a value of £10.0m in the year ended 31 March 2011 (2010: £8.0m) and is treated as interest income in the joint venture's statutory results.

Virgin Mobile France	2011 £m	2010 £m
Revenue *	328.4	232.8
Headline EBITDA	24.3	(19.3)
Depreciation and amortisation	(3.7)	(2.9)
Headline EBIT	20.6	(22.2)
Net interest expense	(2.9)	(1.5)
Taxation on Headline results	(0.7)	5.1
Headline profit (loss) after taxation	17.0	(18.6)
Group share of Headline profit (loss) after taxation before change in share ownership	8.0	(9.0)
Gain on reduction of % share ownership	0.2	0.8
Group share of Headline profit (loss) after taxation	8.2	(8.2)
Group share of amortisation of acquisition intangibles (post-tax)	(2.2)	(0.6)
Group share of profit (loss) after taxation	6.0	(8.8)

Revenue excludes contributions towards subscriber acquisition costs from network operators and customers, as the directors consider that this provides a better representation of underlying performance. These items, which have a value of £55.1m in the year ended 31 March 2011 (2010: £41.6m), are netted off against acquisition costs within EBITDA. Reported revenue on a statutory basis for the year ended 31 March 2011 is £383.5m (2010: £274.4m).

Total Group share	2011 £m	2010 £m
Headline	68.6	39.1
Statutory	66.4	38.5

Carphone Warehouse Group plc Annual Report 2011

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

14 INTERESTS IN JOINT VENTURES CONTINUED

c) Analysis of assets and liabilities

The Group's share of the assets and liabilities of its joint ventures is as follows:

Best Buy Europe	2011 £m	2010 £m
Non-current assets	661.7	677.4
Cash and overdrafts (net)	146.8	175.3
Other borrowings	(15.1)	(117.9)
Other assets and liabilities (net)	144.5	77.7
Net assets	937.9	812.5
Group share of net assets	468.9	406.3
Virgin Mobile France	2011 £m	2010 £m
Non-current assets	95.1	100.8
Cash and overdrafts (net)	10.7	17.4
Loans from the Group	(35.7)	(50.8)
Other borrowings	(38.6)	(54.8)
Other assets and liabilities (net)	(64.0)	(58.0)
Net liabilities	(32.5)	(45.4)
Group share of net liabilities	(15.3)	(21.6)
Total Group share	2011 £m	2010 £m
Total Group share of net assets of joint ventures	453.6	384.7

Best Buy Europe is in ongoing discussions with HMRC in relation to VAT on "free gift" promotions, which may result in new assessments. Having undertaken internal investigations and obtained third party advice, the Board considers that further provision for any such exposures would be inappropriate. There are no material contingent liabilities in relation to Virgin Mobile France.

Best Buy Europe had capital commitments at 2 April 2011 of £4.0m (2010: £11.0m).

Within the cash and overdrafts of Best Buy Europe, £45.0m (2010: £65.0m) is held by its insurance business to cover regulatory reserve requirements; these funds are not available to offset other Best Buy Europe borrowings.

The Group's principal CGUs are its joint venture investments and freehold properties, which are tested annually for impairment or more frequently if there are indications that they might be impaired.

The recoverable amounts of the CGUs are determined from value in use calculations. The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next four or five years and extrapolates cash flows in perpetuity based on a growth rate of up to 1.5% (2010: 1.0%). The pre-tax rates used to discount the forecast cash flows range between 6.5% and 10.3% (2010: 6.5% and 10.0%).

The key assumptions for the value in use calculations are those in relation to the discount rates, growth rates and expected changes to selling prices and direct costs, all of which are based on historical patterns and expectations of future market developments. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. The directors do not consider that there are any CGUs where a realistic change to one of the key assumptions on which the value in use calculations are based would result in the CGU's recoverable amount falling below its carrying value.

68 Carphone Warehouse Group plc Annual Report 2011

CIBOR INVESTIGATION SCHEDULE

15 TRADE AND OTHER RECEIVABLES

	2011 £m	2010 £m
Other receivables	6.5	5.6
	6.5	5.6

Other receivables include loans of £5.2m [2010: £3.6m] to members of senior management relating to the Best Buy Europe VES and TalkTalk VES [see note 6]. In certain circumstances these loans would be repayable within one year and for this reason they are included within current assets. In certain other circumstances they would become payable in more than one year.

The Group's trade and other receivables are all not yet due, are entirely denominated in UK Sterling and are expected to be fully recoverable.

16 TRADE AND OTHER PAYABLES

	2011 £m	2010 £m
Other payables	8.4	6.5
Accruals and deferred income	7.8	3.6
	16.2	10.1

17 CASH AND CASH EQUIVALENTS, LOANS AND OTHER BORROWINGS

Cash and cash equivalents comprise:
	2011 £m	2010 £m
Short-term bank deposits and money market funds	120.6	100.0
	120.6	100.0

Cash and cash equivalents include bank deposits with maturities of up to six months which are available on demand.

£50m revolving credit facility

The Group has a committed RCF of £50m, which matures in July 2012. The interest rate payable in respect of drawings under this facility is at a margin over LIBOR for the relevant period. A commitment fee is payable in respect of amounts available but undrawn under this facility. Although no covenants based on Group performance are included in the RCF, it is a requirement of the facility that certain covenants relating to Best Buy Europe's £350m Receivables Financing Agreement have been achieved; this was the case at both 31 March 2011 and 31 March 2010.

This facility was undrawn throughout the year.

Securities and guarantees

No facilities are secured over Group assets although the sale of some such assets would in certain circumstances lead to a reduction in those facilities. The Group has provided guarantees to third party suppliers of Virgin Mobile France, alongside the other shareholders of the business. The Group's maximum potential exposure on these guarantees is £21.0m.

Functional currency

All of the Group's material subsidiaries prepared accounts in UK Sterling. The businesses that had a material effect on the Group's joint venture investments prepared accounts in UK Sterling, Euro and US Dollar.

Carphone Warehouse Group plc Annual Report 2011

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

18 FINANCIAL RISK MANAGEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS

The book value and fair value of the Group's financial assets, liabilities and derivative financial instruments, excluding the Group's loans and other borrowings, is as follows:

	2011 £m	2010 £m
Cash and cash equivalents	120.6	100.0
Loans to Virgin Mobile France (see note 14)	35.7	50.8
Trade and other receivables	6.5	5.6
Trade and other payables	(16.2)	(10.1)

Fair values have been arrived at by discounting future cash flows, assuming no early redemption, or by revaluing forward currency contracts to year-end market rates or rates as appropriate to the instrument.

Financial risk management policies

The Group's activities expose it to certain financial risks including market risk (such as foreign exchange risk and interest rate risk), credit risk and liquidity risk. The Group Treasury function, which operates under approved treasury policies, uses certain financial instruments to mitigate potential adverse effects on the Group's financial performance from these risks. These financial instruments may consist of bank loans and deposits, spot and forward foreign exchange contracts, and foreign exchange swaps. Other products, such as interest rate swaps and currency options, may also be used depending on the risks to be covered. The Group does not trade or speculate in any financial instruments.

Foreign exchange risk

Translational risk and net investment hedges

The Group uses forward currency contracts to hedge balance sheet assets and liabilities and also for short-term liquidity management. Translational currency risk, primarily arising on funding of Virgin Mobile France, is hedged using foreign exchange swaps. In May 2010 the Group discontinued net investment hedging in order to avoid exposure to potential cash volatility on the associated hedges.

The Group's foreign exchange position is calculated daily and any positions are closed out unless the exposure is immaterial. The translation risk on converting overseas currency profits or losses is not hedged and such profits or losses are converted into UK Sterling at average exchange rates throughout the year. This gives the Group a direct exposure to the Euro in respect of Virgin Mobile France. As noted above, while Best Buy Europe reports in UK Sterling, its results are materially affected by the Euro and US Dollar. Best Buy Europe hedges a proportion of its non-Sterling earnings to provide certainty of their value.

At 31 March 2011, the total notional principal amount of outstanding currency contracts was £35.8m (2010: £109.5m), none of which (2010: £60.3m) was held in relation to net investment hedges.

Currency loans and foreign exchange contracts are sensitive to movements in foreign exchange rates. This sensitivity can be analysed in comparison to year-end rates (assuming all other variables remain constant) where a 10% movement in the UK Sterling / Euro exchange rate would have no impact on the income statement or equity (2010: £6.0m movement in equity).

Changes in the value of currency loans and foreign exchange contracts would not be expected to have an impact on the income statement, as they match currency assets, the value of which would rise or fall correspondingly with the hedging instrument, assuming the hedges remain fully effective. The impact on equity of revaluations would have been offset when the Group undertook net investment hedging by the revaluation of foreign currency net assets of joint venture investments that are hedged by these borrowings and derivatives.

Best Buy Europe's policies for translational risk are consistent with those of the Group and it ceased net investment hedging in the year ended 3 April 2010. Virgin Mobile France has limited translational risk exposures as its operations are based solely in France.

Transactional risk and cash flow hedges

The Group is exposed to limited cross-border transactional commitments but where significant, these are hedged at inception using forward currency contracts. At 31 March 2011 and 31 March 2010 the Group held no material cash flow hedges.

Best Buy Europe's operations are exposed to foreign currency transactional risks, primarily through the Best Buy Mobile profit share arrangement and purchases of stock. Best Buy Europe uses foreign exchange contracts to mitigate against foreign currency fluctuations arising on these transactions.

Carphone Warehouse Group plc Annual Report 2011

Paranormal STATEMENTS

Interest rate risk

The Group's interest rate risk arises primarily on cash, cash equivalents and loans to joint ventures, all of which are at floating rates of interest and which therefore expose the Group to cash flow interest rate risk. These floating rates are linked to LIBOR and other interest rate bases as appropriate to the instrument and currency. Future cash flows arising from these financial instruments depend on interest periods agreed at the time of rollover. Group policy permits the use of long-term interest rate derivatives in managing the risks associated with movements in interest rates although the Group holds none of these products at present.

Cash and borrowings, as well as some foreign exchange products, are sensitive to movements in interest rates. This sensitivity can be analysed through calculating the effect on the income statement of a 1% movement in the interest rate in relation to cash, cash equivalents and loans to joint ventures. This analysis has been prepared on the assumption that the year-end positions prevail throughout the year, and therefore may not be representative of fluctuations in levels of borrowings. A 1% movement in the interest rate would result in a £1.6m (2010: £1.5m) movement in the income statement.

Liquidity risk

The Group manages its exposure to liquidity risk by regularly reviewing the long-term and short-term cash flow projections for the business against facilities and other resources available to it. Regular reports are made to the Audit Committee assessing current facilities and debt and daily reports are circulated to senior management showing the Group's net funds. Headroom is assessed based on historical experience as well as by assessing current business risks, including foreign exchange movements.

Credit risk

The Group's exposure to credit risk is regularly monitored and the Group's policy updated as appropriate. Deposits and foreign exchange transactions are spread amongst a number of banks, all of which have credit ratings appropriate to the Group's policies and exposures.

Embedded derivatives

No contracts with embedded derivatives have been identified and accordingly no such derivatives have been accounted for separately.

19 PROVISIONS

	2011 £m	2010 £m
Opening balance	13.6	16.2
Charge in income statement	-	0.1
Released in the year	(0.4)	(2.7)
Closing balance	13.2	13.6

Provisions relate principally to warranties provided in relation to the Best Buy Europe Joint Venture Transaction.

20 SHARE CAPITAL

	2011 million	2010 million	2011 £m	2010 £m
Allotted, called-up and fully paid ordinary shares of 0.1p each	457.1	457.1	0.5	0.5

Carphone Warehouse Group plc Annual Report 2011

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

21 RESERVES AND ACCUMULATED PROFITS

2011	Share capital £m	Share premium reserve £m	Accumulated profits £m	Translation reserve £m	Demerger reserve £m	Total £m
At the beginning of the year	0.5	754.0	675.1	12.1	(751.2)	690.5
Net profit for the year	–	–	65.6	–	–	65.6
Currency translation	–	–	–	(0.1)	–	(0.1)
Net purchase of own shares	–	–	(2.7)	–	–	(2.7)
Tax on items recognised directly in reserves	–	–	1.0	–	–	1.0
Share of other reserve movements of joint ventures	–	–	1.5	–	–	1.5
Net movements in relation to share schemes	–	–	1.2	–	–	1.2
Movements in demerger reserve	–	–	–	–	1.0	1.0
At the end of the year	0.5	754.0	741.7	12.0	(750.2)	758.0
2010	Share capital £m	Share premium reserve £m	Accumulated profits £m	Translation reserve £m	Demerger reserve £m	Total £m
---	---	---	---	---	---	---
At the beginning of the year	–	–	457.8	7.9	(51.8)	413.9
Net profit for the year	–	–	218.8	–	–	218.8
Currency translation	–	–	–	4.2	–	4.2
Issue of share capital	0.5	754.0	–	–	(754.5)	–
Net movements in relation to share schemes	–	–	(1.5)	–	–	(1.5)
Movements in demerger reserve	–	–	–	–	55.1	55.1
At the end of the year	0.5	754.0	675.1	12.1	(751.2)	690.5

72 Carphone Warehouse Group plc Annual Report 2011

73
Carphone Warehouse Group plc Annual Report 2011

22 ANALYSIS OF CHANGES IN GROUP FUNDING

2011	Opening £m	Cash flows £m	Closing £m
Cash and cash equivalents	100.0	20.6	120.6
2010	Opening £m	Cash flows £m	Closing £m
Cash and cash equivalents	–	100.0	100.0
Loans from TalkTalk Group	(397.4)	397.4	–
Loans to Best Buy Europe	293.3	(293.3)	–
	(104.1)	204.1	100.0

23 RELATED PARTY TRANSACTIONS

During the year, the Group had the following disclosable transactions and balances with its joint ventures (see also note 14) and other related parties:

	2011			2010
	Best Buy Europe £m	Virgin Mobile France £m	TalkTalk Group £m	Best Buy Europe £m	Virgin Mobile France £m
Revenue for services provided	3.1	–	1.7	3.8	–
Net interest and other finance income (expense)	1.0	1.6	(5.3)	2.6	1.1
Loans owed to the Group	–	35.7	–	–	50.8
Other amounts owed by the Group	(1.2)	–	–	–	–
Other amounts owed to the Group	0.2	0.1	0.1	1.9	–

Revenue for services provided relates to investment property rental income.

FIVE YEAR RECORD (UNAUDITED)

	2011£m	2010£m	2009£m	2008£m	2007£m
Headline results
a) Group
Share of results of Best Buy Europe	60.4	47.3	28.6	67.0	58.0
Share of results of Virgin Mobile France	8.2	(8.2)	(8.4)	(6.0)	(8.0)
Other	(0.8)	(1.7)	(1.9)	(3.0)	(3.0)
Net profit	67.8	37.4	18.3	58.0	47.0
Earnings per share
- Basic	15.0p	8.3p	4.1p	12.8p	10.6p
- Diluted	14.4p	8.2p	4.0p	12.4p	10.2p
b) Best Buy Europe
Revenue	3,572.0	3,528.8	3,562.6	3,091.0	2,886.0
EBITDA	257.4	231.7	185.3	211.0	201.0
EBIT	170.3	139.8	98.0	145.0	147.0
Interest	(15.2)	(16.3)	(11.9)	3.0	(16.0)
Taxation	(34.3)	(28.9)	(28.9)	(14.0)	(15.0)
Profit after taxation	120.8	94.6	57.2	134.0	116.0
EBIT by division
CPW Europe	134.6	114.4	97.2	145.0	147.0
Best Buy Mobile US	97.9	46.4	7.8	-	-
Best Buy UK	(62.2)	(21.0)	(7.0)	-	-
	170.3	139.8	98.0	145.0	147.0
c) Virgin Mobile France
Revenue	328.4	232.8	138.9	87.0	29.0
EBITDA	24.3	(19.3)	(20.2)	(16.0)	(23.0)
EBIT	20.6	(22.2)	(22.7)	(17.0)	(23.4)
Interest	(2.9)	(1.5)	(1.4)	(1.0)	(0.6)
Taxation	(0.7)	5.1	6.7	6.0	7.0
Profit (loss) after taxation	17.0	(18.6)	(17.4)	(12.0)	(17.0)

The financial results for periods prior to the Demerger have been prepared on the basis that the structure of the Group at Demerger had been in place for the duration of all periods reported. Further details on the basis of preparation are included in note 1 to the Group financial statements.

Carphone Warehouse Group plc Annual Report 2011

COMPANY BALANCE SHEET

AS AT 31 MARCH 2011

	Notes	2011£m
Fixed assets
Investments	3	750.4
Current assets
Cash and cash equivalents		163.5
Debtors: due within one year	4	46.2
		209.7
Creditors: amounts falling due within one year	5	(10.9)
Net current assets		198.8

Total assets less current liabilities		949.2
Provisions	6	(13.2)
Net assets		936.0
Equity
Share capital	8	0.5
Share premium account	8	754.0
Profit and loss account	8	181.5
Total capital employed		936.0

The accompanying notes are an integral part of this Company Balance Sheet.

The financial statements on pages 75 to 79 were approved by the Board on 13 June 2011 and signed on its behalf by:

R Taylor
Chief Executive Officer

N Langstaff
Chief Financial Officer

Carphone Warehouse Group plc Annual Report 2011

NOTES TO THE COMPANY FINANCIAL STATEMENTS

1 ACCOUNTING POLICIES

a) Basis of preparation

The Company was incorporated on 15 December 2009 in the United Kingdom and it commenced operations on 17 December 2009. This is its first annual report. The financial statements have been prepared on a going concern basis (see Note 1 of the Group financial statements) and in accordance with applicable United Kingdom accounting standards under the historical cost convention, as modified by FRS 26 'Financial Instruments: Measurement'.

The Group's financial statements for the period ended 31 March 2011 contain a consolidated cash flow statement. Consequently, the Company has applied the exemption in FRS 1 'Cash Flow Statements' not to present its own cash flow statement.

The following principal accounting policies have been applied consistently throughout the current period.

b) Investments

Investments held in subsidiaries and joint ventures are recognised at cost, being the fair value of consideration, acquisition charges associated with the investment and capital contributions by way of share-based payments, less any provision for permanent diminution in value.

Investments where the Company does have not have control or significant influence are treated as available-for-sale and recorded at fair value. Changes in fair value, together with any related deferred taxation, are taken directly to reserves, and recycled to the profit and loss account when the investment is sold or is determined to be impaired.

c) Share-based payments

Equity settled share-based payments are measured at fair value at the date of grant and expensed over the vesting period, based on an estimate of the number of shares that will eventually vest.

For schemes with internal performance criteria, the number of options expected to vest is recalculated at each balance sheet date, based on expectations of performance against target and of leavers prior to vesting. The movement in cumulative expense since the previous balance sheet date is recognised in the profit and loss account, with a corresponding entry in reserves.

For schemes with external performance criteria, the number of options expected to vest is adjusted only for expectations of leavers prior to vesting. The movement in cumulative expense since the previous balance sheet date is recognised in the profit and loss account, with a corresponding entry in reserves.

If a share-based payment scheme is cancelled, any remaining part of the fair value of the scheme is expensed through the profit and loss account. If a share-based payment scheme is forfeited, no further expense is recognised and any charges previously recognised through the profit and loss account are reversed.

Share-based payment charges are also recognised on loans that are provided to employees to settle personal tax liabilities; the cost of such loans is expensed on grant.

d) Dividends

Dividends receivable from the Company's subsidiaries are recognised only when they are approved by shareholders.

Final dividend distributions to the Company's shareholders are recognised as a liability in the financial statements in the period in which they are approved by the Company's shareholders. Interim dividends are recognised in the period in which they are paid.

e) Foreign currency translation

f) Loans and other borrowings

Bank fees and legal costs associated with the securing of external financing are capitalised and amortised over the term of the relevant facility. All other borrowing costs are recognised in the profit and loss account in the period in which they are incurred.

g) Provisions

Carphone Warehouse Group plc Annual Report 2011

CIMPANION STATEMENTS

2 PROFIT AND LOSS ACCOUNT

In accordance with the exemption permitted by section 408 of the Companies Act 2006, the profit and loss account of the Company is not presented separately. The profit recognised for the period to 31 March 2011 was £176.2m. Information regarding the audit fees for the Group is provided in note 3 to the Group financial statements.

3 FIXED ASSET INVESTMENTS

	2011 £m
On incorporation	–
Additions	2,298.9
Disposals	(986.9)
Impairments	(559.1)
Foreign exchange	(2.5)
At 31 March 2011	750.4
Cost	752.0
Accumulated impairments	(1.6)
Net carrying amount	750.4

On 25 March 2010 the Company became the holding company of Old Carphone Warehouse Group. Following the receipt of a dividend from Old Carphone Warehouse, the Company impaired its investment in Old Carphone Warehouse and subsequently acquired investments from it. The Demerger became effective on 26 March and the Company disposed of the TalkTalk Business.

Fixed asset investments comprise investments in subsidiary undertakings, joint venture investments and other minority investments. Details of the Company's investments in material subsidiary undertakings are provided in note 13 to the Group's financial statements.

4 DEBTORS

	2011 £m
Amounts owed by Group undertakings	7.5
Loans to joint ventures	35.7
Deferred tax asset	1.4
Other debtors	1.6
	46.2

Amounts owed by Group undertakings are repayable within 12 months of the balance sheet date.

5 CREDITORS

	2011 £m
Amounts owed to Group undertakings	1.2
Other creditors	2.4
Accruals and deferred income	7.3
	10.9

Carphone Warehouse Group plc Annual Report 2011

NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED

6 PROVISIONS

	2011 £m
On incorporation	–
Transferred from Old Carphone Warehouse	13.5
Charge to the profit and loss account	0.1
Released in the period	(0.4)
At 31 March 2011	13.2

Provisions relate principally to warranties provided in relation to the Best Buy Europe Joint Venture Transaction.

7 FINANCIAL INSTRUMENTS

The Company has applied the exemption under FRS 25 'Financial Instruments: Presentation' not to disclose details of financial instruments held by the Company. Full disclosure of the Group's financial instruments under FRS 29 (IFRS 7) 'Financial Instruments: Disclosures' and IAS 39 'Financial Instruments: Recognition and Measurement' is provided in note 18 to the Group's financial statements.

The Company has provided guarantees to third party suppliers of Virgin Mobile France, alongside the other shareholders of the business. The Company's maximum potential exposure on these guarantees is £21.0m.

8 SHARE CAPITAL, RESERVES AND ACCUMULATED PROFITS

				2011 million	2011 £m
Allotted, called-up and fully paid ordinary shares of 0.1p each				457.1	0.5
	Share capital £m	Share premium account £m	Profit and loss account £m	Demerger reserve £m	Total £m
On incorporation	–	–	–	–	–
Retained profit for the period	–	–	176.2	–	176.2
Net cost of share-based payments	–	–	4.3	–	4.3
Tax on items recognised directly in reserves	–	–	1.0	–	1.0
Insertion as holding company of Old Carphone Warehouse Group	–	–	–	1,741.4	1,741.4
Capitalisation of demerger reserve	1.4	1,740.0	–	(1,741.4)	–
Demerger of TalkTalk Group	(0.9)	(986.0)	–	–	(986.9)
At 31 March 2011	0.5	754.0	181.5	–	936.0

The Company became the holding company of the Old Carphone Warehouse Group on 25 March 2010 which created a demerger reserve. This demerger reserve was converted to share capital and share premium and the demerger of the TalkTalk Group on 26 March 2010 resulted in the reduction of these balances.

The proposed dividend for the period ended 31 March 2011 is 5.0p. As this dividend is subject to shareholders' approval at the forthcoming annual general meeting it has not been included as a liability in these financial statements. No dividends have been paid by the Company in the period.

Note 6 of the Group financial statements provides further details on equity settled share-based payments.

Carphone Warehouse Group plc Annual Report 2011

9 RELATED PARTY TRANSACTIONS

The Company has taken advantage of the exemption under FRS 8 'Related Party Disclosures' not to provide details of related party transactions with other Group companies, as the Company's financial statements are presented together with the consolidated Group financial statements.

During the year, the Company had the following disclosable transactions and balances with its joint ventures and other related parties:

	2011
	TalkTalk Group
£m	Best Buy
Europe
£m	Virgin Mobile
France
£m
Net interest and other finance income (expense)	–	1.0	1.6
Loans owed to the Company	–	–	35.7
Other amounts owed by the Company	–	(1.2)	–
Other amounts owed to the Company	0.1	0.2	0.1

Carphone Warehouse Group plc Annual Report 2011

GLOSSARY AND DEFINITIONS

The following definitions apply throughout this annual report unless the context otherwise requires:

Acquisition intangibles	Acquired intangible assets such as customer bases, brands and other intangible assets acquired through a business combination capitalised separately from goodwill.
Best Buy	Best Buy Co., Inc. (incorporated in the United States) and its subsidiaries and interests in joint ventures and associates.
Best Buy Europe	Best Buy Europe Distributions and its subsidiaries and interests in joint ventures and associates jointly owned by Best Buy and the Group.
Best Buy Europe Distributions	Best Buy Europe Distributions Limited (incorporated in England and Wales) being the head entity of Best Buy Europe.
Best Buy Europe Joint Venture Transaction	Old Carphone Warehouse's disposal of a 50% interest in its mobile retail and distribution business (Best Buy Europe), including its economic interests in Best Buy Mobile US, in June 2008.
Board	The Board of Directors of the Company.
CGU	Cash generating unit.
Company	Carphone Warehouse Group plc (incorporated in England and Wales).
Demerger	The demerger of Old Carphone Warehouse into the Group and the demerger of TalkTalk Group, effective on 26 March 2010.
Dividend cover	Reflects how many times dividends declared are covered by the net profit of the Group. It is calculated as basic EPS divided by dividends declared in the financial year.
Earnings	Profit after taxation, unless the context otherwise requires.
EBIT	Earnings before investment income, interest and taxation.
EBITDA	Earnings before investment income, interest, taxation, depreciation and amortisation.
EPS	Earnings per share (basic unless otherwise indicated).
ESOT	Employee share ownership trust.
Group	The Company, its subsidiaries and interests in joint ventures, which following the Demerger includes joint venture investments in Best Buy Europe and Virgin Mobile France as well as freehold properties and a number of minority investments in certain other businesses.
Headline results	Results before the amortisation of acquisition intangibles, and before exceptional items which are considered to be one-off and so material that they require separate disclosure to avoid distortion of underlying performance. The phrases "Headline earnings", "Headline EBIT", "Headline EBITDA" and "Headline EPS" should be interpreted in the same way. The Headline results of the Group's joint ventures also include certain reclassifications, as detailed in note 14 to the Group financial statements, to aid understanding of underlying performance.
IFRS	International Financial Reporting Standards as adopted by the European Union.
MVNO	Mobile virtual network operator.
OFCF	Operating free cash flow.
Old Carphone Warehouse	TalkTalk Telecom Holdings Limited (formerly "The Carphone Warehouse Group PLC") (incorporated in England and Wales).
Old Carphone Warehouse Group	Old Carphone Warehouse and its subsidiaries and interests in joint ventures prior to the Demerger.
PAT	Profit after taxation.
Prospectus	The Company's prospectus issued as a part of the Demerger on 29 January 2010 (available on the Company's website at www.cpwplc.com).
ROCE	Return on capital employed. Net profit as a percentage of capital employed, calculated using Headline earnings and with capital employed defined as average equity and average non-current debt. Averages are calculated based on the opening and closing positions for the relevant year.
RCF	Revolving credit facility.
TalkTalk	TalkTalk Telecom Group PLC (incorporated in England and Wales).
Talk Talk Business	The UK fixed line telecommunications division of Old Carphone Warehouse which following the Demerger was owned by TalkTalk.
TalkTalk Group	TalkTalk and its subsidiaries and other investments.
TSR	Total shareholder return.
UK GAAP	United Kingdom Accounting Standards and applicable law.
VES	Value enhancement scheme.
Virgin Mobile France	Omer Telecom Limited (incorporated in England and Wales) and its subsidiaries, operating an MVNO in France as a joint venture between the Company, Bluebottle UK Limited and Financom S.A.S.
WAEP	Weighted average exercise price.

Carphone Warehouse Group plc Annual Report 2011

FINANCIAL CALENDAR

Results announcement	14 June 2011
Ex-dividend date	6 July 2011
Record date	8 July 2011
Annual general meeting	27 July 2011
Dividend payment date	5 August 2011
Interim results announcement	8 November 2011

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Carphone Warehouse Group plc Annual Report 2011

CARPHONE WAREHOUSE
GROUP PLC

Carphone Warehouse Group plc
1 Portal Way
London
W3 6RS
Telephone +44 (0)20 8617 6002
Fax +44 (0)20 8753 8085
Email [email protected]
Registered no. 07105905
www.cpwplc.com

AI assistant

Currys PLC — Annual Report 2011

4904_10-k_2011-03-31_5182c045-f4b6-4d13-bcf6-0474c653792e.pdf

THE HOME OF THE CONNECTED WORLD

HARNESSING THE CONNECTED WORLD BY MAKING TECHNOLOGY ACCESSIBLE TO CUSTOMERS

Headline financial highlights

CARPHONE WAREHOUSE GROUP

BEST BUY EUROPE

BEST BUY EUROPE

CPW EUROPE

BEST BUY MOBILE US

BEST BUY UK

VIRGIN MOBILE

NO.1 MVNO IN FRANCE

OTHER ASSETS

PROPERTY ASSETS

NET FUNDS AND LOAN ASSETS

CONTENTS

OVERVIEW

DIRECTORS' REPORT - BUSINESS REVIEW

DIRECTORS' REPORT - GOVERNANCE

FINANCIAL STATEMENTS

CARPHONE WAREHOUSE GROUP PLC STRUCTURE

BEST BUY EUROPE

VIRGIN MOBILE FRANCE

OTHER ASSETS AND COSTS

HARNESSING THE CONNECTED WORLD TO DELIVER VALUE FOR SHAREHOLDERS AND CUSTOMERS

CARPHONE WAREHOUSE GROUP EVOLUTION

Best Buy Europe is on a wireless journey, with its vision being the Connected World.

CONNECTED

In-store set-up. 'Walk Out Working' is a service that helps customers make the most of their new device. In our 'Wireless World' stores, the Geek Squad can explain operating systems in person, help customers download their first applications, set up their email accounts and register them for MyHub.

What is the Connected World?

Strong heritage of expertise.

My Music Anywhere.

What you want, where you want, when you want.

Clean Up the World

CHOICE

CONNECTED

EXPERT ADVICE

INSPIRATION THROUGH UNDERSTANDING

DELIVERING A BETTER CUSTOMER EXPERIENCE

Upgrade alerts

Trade-ins

CUSTOMERS

BRINGING TECHNOLOGY TO OUR CUSTOMERS

"I NEED ADVICE FROM PEOPLE I CAN TRUST"

TRAINING OUR PEOPLE

EYE OPENERS

HARDWARE +

ACCESSORIES +

CONNECTIONS +

CONTENT +

SERVICES

HARNESSING THE CONNECTED WORLD TO GROW OUR BUSINESS AND PROVIDE REAL VALUE TO OUR CUSTOMERS

Best Buy Europe

CPW Europe

Best Buy Mobile US

Best Buy UK

Virgin Mobile France

In summary

PERFORMANCE HIGHLIGHTS

OUR JOINT VENTURE PARTNER

MANAGEMENT STRUCTURE

BACKGROUND

Online platform

CPW EUROPE STORE PORTFOLIO

CPW Europe

Best Buy Mobile US

Best Buy UK

MAKING THE MOST OF OUR CHANGING MARKETPLACE

The smartphone revolution

Tablets enter the market

Consumer electronics

HARNESSING THE CONNECTED WORLD THROUGH A CUSTOMER-CENTRIC STRATEGY

1 OWNERSHIP OF THE CONNECTED WORLD

2 CONTINUE TO BUILD MARKET SHARE

SALES CHANNELS

CPW Europe

Best Buy Mobile US

Best Buy UK

Currys PLC Annual Report 2011