Carphone Warehouse 2003 Annual Report Download - page 7

Our retail operations outside the UK have clearly
benefited from the restructuring exercise we undertook
in 2002. The adoption of group-wide best practices
for back office processes and retail proposition has
delivered a strong pick-up in our business across much
of continental Europe.
Connections (000s)
2003 2002
Subscription 1,909 1,767
Pre-pay 1,972 1,613
SIM-free 483 235
Total 4,364 3,615
of which Online 261 200
We continued to achieve good growth in new subscription
connections, which are the lifeblood of our recurring
revenue businesses. Total subscription connections grew
by 8.1% to 1.91m. Although the first half was relatively slow
for subscription growth, this accelerated in the second half
and growth in the fourth quarter was 17.9%.
In the first half of the year the networks showed a renewed
appetite for pre-pay customers and some subsidy returned to
that segment of the market. As a result, pre-pay connection
growth was very strong at 22.3%, although this was flattered
to some extent by a very weak comparative period.
The first full year of our SIM-free offer, where we sell
a handset without a network connection, was highly
successful, with 0.48m handsets sold without a SIM card,
more than double the figure in 2002. As a result of these
relative growth rates our subscription mix deteriorated from
48.9% to 43.7% but this was offset by the overall higher
level of connections growth than we had anticipated.
We continued to expand and upgrade our store portfolio
during the year. By March 2003 we were trading out of
1,140 stores (2002: 1,104 stores), having opened 90 stores
and closed 54 underperforming stores during the year. Total
average selling space increased by 4.0% from 60,800 sqm
to 63,233 sqm.
Total retail revenues grew by 18.5%. Like-for-like, revenues
grew by 11.6% and gross profit by 4.8%. This was achieved
through a significant improvement in average connections per
store from 3,219 to 3,688, and a strong performance on high
value accessories such as Bluetooth headsets and camera
attachments. Average revenue per connection fell by 4.2%
and average gross profit per connection fell by 11.9%, both
held back by the shift in the business mix towards pre-pay
connections and SIM-free sales.
Retail gross profit increased by 10.9% to £234.5m but the
gross margin deteriorated by 210 basis points to 31.8%.
This was mainly as a result of the change in terms of trade
with certain networks near the start of the year, whereby we
exchanged an element of upfront commission for a greater
share of ongoing ARPU. This is reflected in the strong
performance of Ongoing revenue described below.
Contribution from the retail business grew by 11.7% to
£67.2m, with contribution margin decreasing from 9.7% to
9.1%. The leverage to fixed costs, achieved by higher sales
volumes, was offset by the lower gross margin and a higher
cost of customer handset repairs than in previous years.
In the UK, our store portfolio increased from 461 stores
to 475 stores. Within this net movement, we opened 42
stores and closed 28, through a series of site upgrades
and relocations. In the summer we opened Europe’s largest
mobile phone store in London’s Oxford Street and at
Christmas a further major store in the centre of Leeds.
We expect to open a few additional ‘experience’ stores in
major city centres in the coming year. The bulk of our new
openings in the UK will be in retail parks, where we have
been very pleased with the level of store profitability and
the rate of payback on investment.
Our retail operations outside the UK have clearly benefited
this year from the restructuring exercise we undertook in
2002. The adoption of group-wide best practices for back
office processes and retail proposition has delivered a
strong pick-up in our business across much of continental
Europe, aided latterly by a recovering market. We have
continued to build on the good work started in the previous
year, particularly in the area of shared service processing.
Our business in France continued to perform well despite
a weak market. We opened 15 new stores and 5 franchise
outlets, and closed 2 stores, taking the total in France to
169, and we expect to accelerate the opening programme
in the new year both through directly operated stores and
franchise outlets. We remain under-represented in the
French market relative to its population and market size
and we believe there is a significant opportunity to gain
market share.
In Spain, we achieved very strong growth supported by
a recovering market and the aggressive pursuit of market
share by our network partners. Spain is a key growth
market for the Group and will be the focus of a significant
store opening programme in the coming year.
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The Carphone Warehouse Group PLC Annual Report 2003
54,200 60,800 63,233
030201
Average
selling space
(sqm)
11,350 10,200 11,676
030201
Sales per
square metre
(£)