Carphone Warehouse 2008 Annual Report Download - page 18

Total Shareholder Return
0
50
100
150
200
250
300
350
400
450
500
550
The Carphone Warehouse Group PLC
FTSE 100 Index
Value of £100 invested on 29 March 2003
Mar 03 Mar 04 Mar 05 Mar 06 Mar 07 Mar 08
by rising costs as we evolved the business, a disappointing performance
from our non-store channels and the losses incurred in exiting our Swiss
retail business. UK Fixed Line EBITDA was up from £69m to £226m.
EBIT also grew strongly from £20m to £126m, as we moved a significant
proportion of our broadband customer base onto our own network and
enjoyed much lower running costs as a result.
Headline earnings per share rose 70% to 20.1p (2007: 11.8p). Statutory
profit before tax, after the amortisation of acquisition intangibles and
reorganisation costs relating to the AOL acquisition, was £124m (2007:
£68m), while statutory earnings per share rose 73% from 7.5p to 13.0p.
Cash generated from operations was up 83% to £468m (2007: £256m)
with year-end net debt of £843m (2007: £617m) affected by the
strengthening of the Euro and Swiss Franc in the latter part of
the year. The Board is proposing a final dividend of 3.00p, taking the
total for the year to 4.25p (2007: 3.25p). This represents a year-on-year
increase of 31% and underlines the Board’s confidence in the Group’s
continued growth.
Joint ventures
In May 2008 we announced that we had reached agreement with Best
Buy, our US partner, to form a new company to pursue growth opportunities
across Europe. As part of the agreement, we are contributing our retail and
related businesses into the new company. Best Buy will pay Carphone
Warehouse £1.1 billion for a 50% stake in the venture. We believe that
the combination of the two companies’ skills will allow us to accelerate
the development of our own retail proposition, as described above, and to
introduce Best Buy’s large format consumer electronics stores into Europe.
Both of these opportunities are significant and we are confident that they will
deliver material value to shareholders over the longer term. The proposed
transaction remains subject to shareholder approval and is expected to
complete by the end of June 2008.
A key reason for our enthusiasm for working with Best Buy in Europe is
the great early success we have enjoyed with them in the US, where we
have a share in the profits of its new mobile retail format, Best Buy Mobile.
We are in the middle of a very rapid roll-out across all of Best Buy’s US
stores, which is expected to be complete during calendar year 2008 – a
year ahead of our previous plans. Store conversions have been achieving
an extraordinary uplift in sales, and customers are responding
enthusiastically to our proposition.
UK Fixed Line business
In our Fixed Line business, we expect to complete the integration of AOL
over the next six months. This will deliver additional cost efficiencies and
allow us to offer a fuller product suite to AOL customers on our network. In
addition, we have accelerated our Network Unification Project, which allows
us to scale up capacity into all our exchanges to address our customers’
growing demand for bandwidth. The project will deliver significant additional
capacity with little impact on fixed operating costs and gives us excellent
visibility of our network economics for the foreseeable future.
Outlook
A year ago I wrote here about our great disappointment over our failure
to deliver an adequate service to our broadband customers, and our
determination to get it right. We are only halfway there – but we would never
have got this far if it were not for the dedication, passion and aptitude of our
employees, whether in stores, contact centres, IT or management. These
are the same qualities that will enable us to be famous again for good
service, and re-invent our retail model with the changing times. On behalf
of the Board I extend my warmest thanks to all of our employees.
John Gildersleeve,
Chairman
Overall, the Group has made further substantial progress this year. In our
Distribution business, we have not only continued to grow our European
footprint, but have successfully identified and exploited new areas of
growth in mobile data, which have offset a slower handset market. Our
Fixed Line business has delivered on its promises, achieving a remarkable
uplift in margin through the migration of customers onto our own network.
Improving customer service
Importantly, we have also made significant investments in, and
improvements to, our broadband customer service, which let our customers
down last year. We still have much work to do to meet our aspiration of
differentiating ourselves positively through the service we offer, but we are
now firmly on the right track, as recent surveys have begun to indicate.
While people often think of customer service as the speed and accuracy
of response in our call centres, which has improved markedly, the customer
experience should also encompass the simplicity of the product, the ease
of set-up, and the quality of the connection in terms of both speed and
reliability. All of these elements continue to have our full attention.
Financial performance
Financial performance this year has been strong. Group revenue for
the period was £4,474m, a rise of 12% on last year’s figure of £3,992m.
Headline pre-tax profit was up 75% to £216m, reflecting the reversal of last
year’s steep losses incurred as we launched Free Broadband. The divisions’
financial performance reflected a reversal of last year’s trends. Distribution
EBIT was broadly flat at £175m, as good top line growth was offset
“We have successfully
identified and exploited new
areas of growth in mobile
data, which have offset a
slower handset market”
Chairman’s Statement
6 The Carphone Warehouse Group PLC Annual Report 2008
John Gildersleeve, Chairman
Source: Thomson Financial
This graph shows the value, by 29 March 2008, of £100 invested in The Carphone
Warehouse Group PLC on 29 March 2003 compared with the value of £100
invested in the FTSE 100 Index. Values are calculated on a rolling 3-month average
basis. The other points plotted are the values at intervening financial year ends.