Carphone Warehouse 2008 Annual Report Download - page 27

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www.cpwplc.com 15
Business Review
Talk Mobile, after agreeing a new wholesale airtime deal with Vodafone.
Mobile World, our MVNO offering cheap international rates, continues
to make good progress.
Our FM businesses are now a relatively small element of our overall
Mobile operations. The base we manage on behalf of a network in
the UK, providing billing and customer care services, is now being
progressively migrated back to the direct control of the network. Near
the start of the year, we sold a majority stake in our French FM business,
with our share of net income now being reported under Joint Ventures
and Associates.
EBITDA
The Distribution division generated EBITDA of £276.8m (2007: £262.5m),
representing year-on-year growth of 5.4%. The EBITDA margin fell by
10 basis points to 8.9% (2007: 9.0%). The main driver of this reduction
in EBITDA margin was the continuing increase in retail costs, and the
weak performance in our off-the-page business, which is highly
operationally geared.
EBIT
EBIT for the division was £175.0m, compared to £176.9m in 2007.
The EBIT margin fell by 50 basis points to 5.6%, reflecting the fall in
the EBITDA margin and increases in depreciation and amortisation.
These charges rose 18.9% year-on-year to £101.8m, driven by
continued investment in new stores, our IT platform and customer
recruitment at TPHT.
The prospects for our Insurance business remain attractive. Our move
into new areas of growth in the retail business, with increasing sales
of laptops, high-end mobile phones and other connected devices, will
present us with a greater number of opportunities to provide insurance
services and other after-sales propositions to our customers.
Ongoing
Ongoing revenue represents the share of average revenue per user
(“ARPU”) we receive as a result of connecting subscription customers
to certain networks. We are typically entitled to a share of revenue
for as long as a customer is active, so this income stream represents
an important element of our overall commercial agreement with
many operators, and aligns our interests more closely. Again, the
key underlying driver for Ongoing is our subscription connection sales.
Ongoing revenues were up 23.6% year-on-year to £88.6m (2007:
£71.7m). This reflects the sustained performance in subscriptions growth,
combined with a continuing trend towards ARPU-sharing agreements.
Mobile
Mobile operations comprise our German service provision business,
The Phone House Telecom (“TPHT”), and our wholly-owned MVNO
and Facilities Management (“FM”) businesses. The main drivers are
the number of customers we manage, and their ARPU.
Total Mobile revenues were up 2.7% to £518.2m (2007: £504.8m). TPHT,
which represents an increasing proportion of Mobile revenues, continued
to perform well. Its overall customer base grew 22.6% to 1.8m, including
0.9m subscription customers on two year contracts. Customer ARPUs,
which have been falling consistently for three years in Germany while we
expand our target customer base, have stabilised, with subscription ARPU
down just 2.1% year-on-year. Total revenues in Germany, including results
reported under the Retail, Insurance and Dealer revenue lines, were up
12.5% to £516.5m (2007: £459.2m), with EBIT up 30.0% to £25.1m
(2007: £19.3m).
This business has paid us back handsomely since we acquired it five
years ago, and continues to deliver steady growth and good visibility.
TPHT has recently begun to evolve its operating model, by changing
its relationship with its main network partner from service provision to
a more standard retail model consistent with how we operate elsewhere
in Europe. While this is not expected to impact overall profitability, it
should translate into improved cash flows as we will no longer incur
subscriber acquisition costs on these customers.
Our MVNO operations across Europe are beginning to attain more
meaningful scale. In the UK, we launched a new proposition this year,
Continued strong LFL gross profit
performance (%)
4.7
5.0
9.0
5.0
‘05 ‘06 ‘07 ‘08
Insurance customer base up 5.4%
(000s)
Nearly 1,000 stores opened
over the past 3years
2,411
2,144
1,778
1,461
‘05 ‘06 ‘07 ‘08
2,353
2,233
1,921
1,645
‘05 ‘06 ‘07 ‘08