Carphone Warehouse 2006 Annual Report Download - page 17

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TALKTALK NOW HAS
10% OF UK RESIDENTIAL
MARKET (000s)
’06’05’04
385
920
2,570
annualised. In addition, Opal benefited from the
inclusion of three months of revenue from the Onetel
business base, acquired in December 2005.
The overall business environment continued to
be competitive, which had a negative effect on
contribution margin. Opal’s contribution fell from
£30.6m to £28.0m. However, the year saw investment
in new areas such as TalkTalk Business, targeting the
lower end of the small business market. Customer
take-up has been very encouraging and profits from
this unit, as well as a full year contribution from
Onetel’s business customer base, are expected to
drive strong growth in underlying profits at Opal in
the coming year.
From a network perspective, Opal is making good
progress in the development of its own “21st Century
Network” and the local loop unbundling programme.
The new network structure will allow Opal to carry
voice and data over the same platform, reducing
unit costs and creating opportunities for additional
services. The installation of our own equipment into
BT’s premises to enable us to unbundle customer lines
is a fundamental part of the new network, with Opal’s
business operations set to benefit from the increased
flexibility and lower regulated costs in the same way
as TalkTalk. A key goal for the year ahead is to develop
our expertise in providing broadband and related
network services to our core business customer base.
Xtra, our Spanish fixed line network, recorded revenues
of £34.7m (2005: £29.6m) and contribution of £1.6m
(2005: £0.9m).
Total residential revenues rose from £159.0m to
£372.0m, and contribution rose to £31.4m (2005:
£2.9m). Our UK residential fixed line service, TalkTalk,
is the main driver of revenues and profitability,
recording turnover of £305.6m and contribution
of £24.3m during the year, including the impact
of the Onetel and Tele2 UK acquisitions. After SAC
amortisation of £5.7m relating to broadband
customers (2005: £0.6m) contribution was £18.6m.
The main focus for TalkTalk continued to be customer
recruitment, both through Carphone Warehouse stores
and third party channels. At March 2006 we had 2.6m
residential fixed line customers in the UK up from 0.9m
at March 2005. This was significantly enhanced by the
acquisition of two of our main competitors in the CPS
the year we introduced a new MVNO concept,
Mobile World, to the market, offering significant
discounts on calls to international numbers. We
believe Mobile World can be exported to a number
of our other markets. We relaunched Fresh, our
no frills MVNO service in the UK, in October 2005.
The response has been promising, and we continue
to refine the proposition.
Our regional MVNO in France, Breizh Mobile,
continued to make good progress in customer
recruitment in Brittany. Just after the year end, we
launched Virgin Mobile France, a joint venture with
the Virgin Group, as a nationwide MVNO, with the
Breizh operations forming part of the venture. We
are targeting one million customers within three years,
and are confident that we can build the business into
an effective fourth operator in the French market.
FM revenues were £76.2m (2005: £60.9) and
contribution was £8.2m (2005: £7.8m) Our UK FM
base of customers managed on behalf of O2 and
Vodafone rose 25.2% to 0.88m (2005: 0.67m).
The contract with Vodafone expires in the summer,
consistent with Vodafone’s strategy of progressively
taking all customer management in house, but this is
not expected to have a material impact on profitability.
The key drivers of our FM businesses are the number
of customers under management, the quality of
service we provide and our ability to retain customers.
We continue to manage 0.6m customers in France on
behalf of Orange and SFR, and will also provide call
centre services to the new Virgin Mobile operation.
Fixed
Our fixed line operations continued to grow rapidly,
with strong organic growth from customer recruitment
boosted by two significant acquisitions during the year.
Total revenues were £666.7m, up 56.4% year-on-year,
and contribution was £61.1m, a rise of 78.0%.
Total revenues from business-to-business operations
were £294.7m (2005: £267.3m), and contribution
was £29.7m (2005: £31.5m). Opal, our UK network
provider, generated revenues of £259.9m, an increase
of 9.3% (2005: £237.7m). Revenues in the first half
were adversely affected by the regulatory cuts to
mobile termination rates made in September 2004,
reducing average revenue per minute by approximately
12% over that period. As expected, revenue growth
picked up in the second half as these effects
Operating and Financial Performance Review continued www.cpwplc.com 13
Operating and Financial Performance
SUCCESSFUL RELAUNCH
OF UK MVNO FRESH
TALKTALK BUSINESS SHOWING
PROMISING TRENDS
21ST CENTURY NETWORK
IN DEVELOPMENT