Carphone Warehouse 2008 Annual Report Download - page 26

Directors’ Report: Business Review
Operating Review continued
14The Carphone Warehouse Group PLC Annual Report 2008
In France we had a tougher year. Revenues fell 6.6% to £223.0m,
but after adjusting for the sale of a majority stake in The Phone House
Services, our French facilities management operation, revenues were up
5.0%. EBIT was down 56.6% to £7.0m. We opened 41 net new stores,
and now have 311 stores in total, but total connections were up just 0.6%
at 0.9m. The market was weaker, after a particularly strong prior year, and
our own performance suffered as the faster store opening programme
diluted the levels of expertise in some of our stores. However, our market
position remains strong and we are confident that the business will return
to growth in the coming year.
Combined Distribution revenue from our other continuing operations,
comprising Belgium, Ireland, Netherlands, Portugal and Sweden, was up
19.4% to £406.0m. EBIT was down 8.4% to £19.0m. The financial
performance of the Dutch business was weak year-on-year, although it
remains profitable, and significant operational improvements were made
during the year which gives us confidence in its future. We saw good
performances from our businesses in Sweden, Portugal and Ireland.
The Swiss Distribution business performed poorly, recording losses for
the year of £4.5m or revenue of £60.7m. Excluding the profits from Ntel,
our Swiss fixed line business, losses were £9.3m. Just before the year
end, we reached agreement with Swisscom, one of the mobile network
operators in Switzerland, for the sale of our retail business. After several
years of attempting to build a business that could deliver sustainable
profits, we could no longer justify the ongoing level of losses and the
absorption of management time in what is ultimately a relatively small
market. We have retained our profitable insurance base and fixed line
telecoms business in Switzerland.
Insurance
The Group offers a range of insurance products to its retail customers,
providing protection for the replacement cost of a lost, stolen or damaged
handset, as well as cover for any outstanding contractual liability and
the cost of any calls made if a mobile phone falls into the wrong hands.
Insurance is a core element of the Group’s customer proposition. The
main drivers of the Insurance business are customer numbers, average
premiums, claims costs and operational efficiency.
The customer base rose by 5.4% over the year to 2.4m. We continued to
see an improvement in mix, with growth in “high tier” customers who pay
higher premiums for more extensive cover exceeding overall growth in the
base. In addition, our development of risk-based pricing has allowed us to
adjust premiums more flexibly based on the level of cover required and
the risk profile of the customer. This has led to a positive trend in average
premium per customer, which has risen 7.1% year-on-year. Insurance
revenues rose 24.0% to £169.9m (2007: £137.0m).
2008 2007
Connections 000s 000s
Subscription 4,450 4,016
Pre-pay 6,456 5,428
SIM-free 588 571
Total 11,494 10,015
We opened 467 stores during the year, including the acquisition of a
chain of 77 stores in Portugal. We closed or relocated 138 stores, and
just before the year end entered into an agreement to sell our 62 Swiss
stores. As a result the total store base increased from 2,144 to 2,411
during the year. The total includes 236 franchise stores (2007: 194).
Total average selling space excluding franchises was up 17.1% to
113,438 sqm (2007: 96,865 sqm), and sales per square metre decreased
by 3.3% to £16,653 (2007: 17,219). Including franchises, total average
selling space was up 17.7% to 122,976 sqm (2007: 104,452 sqm).
Total Retail revenues were up 10.4% to £2,121.6m. On a like-for-like
basis, stripping out the impact of new space, revenue growth was 2.8%
and gross profit growth was 4.7%. Connections growth was the main
driver of the increase in revenues, with average revenue per connection
falling 2.3% as a result of an increasing proportion of pre-pay sales
within the mix.
In the UK, our store portfolio increased from 769 stores to 808 stores,
as we continued to deepen our presence in key urban and suburban
areas. In addition, we made further progress with our programme of
relocating stores in key locations to larger sites to maximise the business
opportunities. At the same time, we carried out trials in a number of
locations which focused the stores on a broader connectivity proposition,
providing not only mobile voice services, but a full range of mobile data
and fixed line broadband choices as well. In the coming year, we intend
to roll out a fuller connectivity offer across all of our UK estate, including
a range of laptops available in all our stores. Total UK connections were
up 15.4%, with subscription connections up 15.9% excluding
off-the-page business.
Our Spanish retail business continued its good performance of recent
years. After a period of very rapid physical expansion, we have entered
a more measured phase of growth in Spain, with the focus now primarily
on moving to larger sites where our stores are too small. We opened
12 net new stores in Spain, taking the total in that market to 420. Total
connections were up 6.4% to 1.5m, reflecting a good performance in a
slower local market. Including our fixed line business Xtra, total revenues
in Spain were up 18.4% to £367.8m, and EBIT was up 21.4% to £27.7m.
13 %
Our existing business
growth in total telecoms subscriptions
Subscription connections up 10.8%
(000s)
4,450
4,016
3,423
2,770
‘05 ‘06 ‘07 ‘08