Carphone Warehouse 2008 Annual Report Download - page 30

18 The Carphone Warehouse Group PLC Annual Report 2008
Joint ventures and associates
The shareofresults ofjoint venturesand associates in the income
statement comprises our shareofpost-tax profits or losses from
our joint venture and associate operations. During the year, these
were composed of four separate interests: Virgin Mobile, our
French MVNO; The Phone House Services, our French facilities
management operation; Best Buy Mobile, our mobile retail profit-
sharing arrangement in the US with Best Buy; and The Geek Squad,
our UK home technology support business. In the year to March
2008, net losses from joint ventures amounted to £6.1m (2007: £9.9m).
Virgin Mobile had a second successful year of customer growth, and
finished the period with more than 800,000 active customers, split evenly
between subscription and pre-pay. It continued to invest significantly
in brand-building and customer recruitment, and is looking to broaden
its distribution channels heading into its third year of operation, as it
heads towards the necessary scale for long-term profitability. The Group’s
share of post-tax losses in the year was £5.9m.While it will record further
losses in 2008-09as it continues to invest in growth, we expect it to
reach break-even in the year to March 2010.
During the year we disposed of a majority stake in The Phone House
Services. For the ten and a half months during which we accounted
for it as an associate business, our share of net profits was £0.9m.
The US mobile retail venture Best Buy Mobile, made excellent progress
during the year. Stores converted to the new format achieved significant
sales uplifts and our market share grew strongly through the course
of the year. We aim to have the whole of Best Buy’s US store portfolio
converted by the end of the calendar year 2008 and we are well on
course to achieve this goal.
We formalised the terms of our commercial agreement with Best Buy for the
development of our US mobile retail venture, Best Buy Mobile, during the
year. Under the agreement, Best Buy will fund the operation, with the venture
paying a finance charge to Best Buy for the cost of funds. The Group will
receive a share of incremental profits above the historical profitability of
Best Buy’s mobile retail operations, based on a sliding scale. The venture
has not had a material impact on financial performance in the current year,
but has the potential to provide significant profitability in the future.
Our joint venture with Best Buy to bring The Geek Squad to Europe
continued to run a trial home visit service in certain regions of the UK,
with nationwide call centre coverage, providing customers with user
support for home technology problems. In January we launched
services in Spain, and we expect The Geek Squad to be a key part
of the future of the Distribution business.
Other Financial Information
Directors’ Report: Business Review
Operating Review continued
Amortisation of acquisition intangibles and goodwill expense
The amortisation charge in respect of acquisition intangibles amounted
to £75.2m(2007: £54.3m), reflecting the full year impact of the AOL
acquisition. A goodwill expense of £1.0m (2007: £0.5m)has been
recognised in respect of historical acquisitions. These figures are excluded
from Headline profit before taxation and earnings per share figures.
Exceptional reorganisation costs
The Group acquired AOL’s UK internet access business in December
2006.The Group has commenced the reorganisation of the business,
initially through a programme to transfer network operations, hosting,
billing and customer management away from a transitional platform
provided by AOL Time Warner onto the Group’s own systems and
infrastructure. Reorganisation costs of £15.2mhave been incurred
in the year and have been separately disclosed given their size and
one-off nature. The transition is expected to be completed in the year
to March 2009.
Interest and taxation
Net interest of £42.8m was payable during the year (2007: £26.3m).
Further significant investment in capital expenditure, and deferred
consideration relating to the AOL acquisition, were funded out of
operating cash flow and debt facilities.
The effective tax rate on a Headline basis was 15.5% (2007: 14.3%).
The tax rate benefited from the recognition of tax losses incurred in
previous years and profits arising in low tax rate jurisdictions.
Earnings per share (“EPS”)
Headline EPS was 20.1p,a rise of 70.3%year-on-year (2007: 11.8p).
Statutory EPS was 13.0p (2007: 7.5p).