Camera handsets help boost trading at Carphone Warehouse

Carphone Warehouse, Britain's biggest mobile phone retailer, reported better-than-expected Christmas trading figures yesterday after a late surge in sales of products such as phones with built-in cameras.

The shares rose 2 per cent to 64p after the company said it would meet profit forecasts of about £56.5m for the current year. The stock had fallen sharply earlier this month after a profits warning from Dixons, which operates The Link chain of mobile phone stores.

Charles Dunstone, the chief executive, said: "We achieved strong connections growth across the group, stimulated by new handsets, new services and the return of some subsidy into the pre-pay market." He said Carphone Warehouse's stores in The Netherlands, Spain, Sweden and Switzerland also performed well. In the third quarter, more than 40 per cent of the subscriptions Carphone sold were for phones with cameras.

The business plans to launch its residential fixed-line service in its UK stores early next month after its £65m acquisition of Opal Telecom in November. The service will not be branded under either the Opal or Carphone name but the company says it will save residential users up to £50 a year.

Mr Dunstone reckons 200,000 of Carphone's 2.2 million annual customers will sign up for the service, which is aimed at winning business from larger players such as BT.

In the four weeks to 28 December like-for-like gross profit at Carphone Warehouse rose by 7.8 per cent compared with the previous year, with like-for-like revenue up by 14 per cent. The number of phone connections was 11 per cent up to 590,000, with higher-value subscription connections seeing a 9 per cent jump. The best-selling phone for the third Christmas running was the Nokia 3310.

The group said the strong sales did not come at the expense of margin with gross profit on subscription and pre-pay connections in line with the previous year.

Mr Dunstone said the Competition Commission's price cuts being forced on the network operators would lead to a £20 to £25 increase in the price of pay-as-you-go handsets as operators remove subsidies. This would take the price of a Nokia 3310 from £69.99 to about £95.

The subsidy on subscription connections is likely to remain as operators seek to win higher-spending subscriber customers.

Mr Dunstone said: "It puts more stress on them [the operators] which is clearly not good. But I'm not full of alarm about what will happen. I think the operators will focus more on quality customers and quality distributors. The tariff change might actually be quite helpful in selling subscriptions."

Mr Dunstone was sanguine about the launch of third-generation mobile phones with faster internet access and a wider array of services. "I'd rather they [the operators] came to the market late with it working than risk it having teething problems."

WestLB Panmure raised its recommendation on the shares from "neutral" to "outperform" with a share price target of 80p.

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