Carphone Warehouse 2008 Annual Report Download - page 25

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www.cpwplc.com 13
pre-pay (for which a customer just pays for usage but has no ongoing
obligation). Subscription connections are the key driver of the Distribution
division, since they contribute a much higher revenue and gross profit
at the point of sale than pre-pay, and offer a greater lifetime value
opportunity to the Group through ARPU-sharing and the cross-sale
of insurance and fixed line telecoms services.
During the year, we achieved total connections of 11.5m, a rise of 14.8%
on last year’s figure of 10.0m. Subscription connections were up 10.8%
to 4.5m. After several years of sustained growth in the European handset
market, we estimate that over the last 12 months the market has been
flat or marginally down year-on-year. We have therefore grown our market
share through the continued strength of our proposition, based on the
widest range of handsets coupled with impartial advice. The key drivers
of the market continue to be fashion and new technology.
Growth was predominantly driven by new mobile services – notably by
“smartphones”, offering internet access and email capability; and mobile
broadband modems, allowing customers to access broadband speeds
for their laptop computers over the mobile network infrastructure. These
are likely to be key areas of growth over the next 12 months for which
we are well positioned. Our partnerships with key handset vendors give
us a competitive advantage in the market place.
While the stores traded well in a flatter environment, some of our
other distribution channels fared less well. Our “off-the-page” business,
promoting mobile subscription services via newspaper advertisements
and websites, had a tough year after several years of strong growth.
This reflected a change in distribution strategies by the network
operators, and negative publicity over “cashback” offers from some
providers in the market. Excluding the negative impact of off-the-page
sales, total subscription connections were up 14.6%.
Pre-pay connections were up 18.9% to 6.5m. Year-on-year growth
held up well in the first half but then began to slow in the second half,
reflecting the very strong and sustained growth in prior periods. While
pre-pay sales represent attractive and profitable business for the Group,
they do not carry the same weight as subscription business, with growth
tending to be more volatile. We would expect pre-pay sales to be more
susceptible to any changes in consumer demand driven by a tougher
macroeconomic environment.
The Distribution division comprises our Retail operations, mobile
airtime reselling businesses and all directly related business streams.
The key operating assets of the division are our 2,411 stores across
9 European countries, and our Retail and Online brands. Equally
important are our supplier and partner relationships.
Distribution revenues were up 6.8% year-on-year to £3,116.2m (2007:
£2,917.8m), and the division generated Headline EBIT of £175.0m (2007:
£176.9m), a fall of 1.1%. Growth was relatively consistent across core
revenue streams, with only our non-core operations of Non-UK Fixed
Line and Dealer showing a significantly weaker trend.
Retail (including Online)
The Division’s main key performance indicator is connections.
A connection is defined as the sale and activation of a mobile phone
SIM card to an end customer, usually combined with the sale of a
subsidised handset; it also includes sales of mobile phones without
a network connection (“SIM-free”).
Connections are either subscription (for which the customer commits to
a contracted term with a network operator, typically of 12-24 months) or
Distribution:
Growing our market share
It has been a tougher year for Distribution, but we have made good
progress in adapting our model to customers’ changing needs.
Headline Financials
2008 2007
£m £m
Revenue 3,116.2 2,917.8
Retail (inc Online) 2,121.6 1,922.1
Insurance 169.9 137.0
Ongoing 88.6 71.7
Mobile 518.2 504.8
Non-UK Fixed Line 98.4 111.6
Dealer 180.6 209.7
Eliminations (61.1) (39.1)
EBITDA 276.8 262.5
Depreciation and amortisation (101.8) (85.6)
EBIT 175.0 176.9
EBIT % 5.6% 6.1%
Business Review