Carphone Warehouse 2004 Annual Report Download - page 10

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www.cpwplc.com
Operating and Financial Review continued
In the UK, our store portfolio increased from 475 stores to
509 stores. Many of these new stores are on arterial routes
or out-of-town retail parks, where we are able to generate
an attractive return on investment without cannibalising
existing store performance. We are the dominant independent
mobile phone retailer in the UK market but we believe there
is significant scope for further store openings and market
share gains. Approximately half of the new stores planned
for the Group this year will be in the UK.
Outside the UK we have witnessed a number of outstanding
performances. Aided by strong demand for new handsets,
many of our overseas operations are now becoming
substantial businesses in their own right. The management
time and effort invested in improving retail and operational
processes across Europe is beginning to pay dividends and
we are very excited about the long-term growth prospects
that many of these markets now offer the Group. The
recent move to combine overall responsibility for UK and
non-UK Distribution is already creating efficiencies and
highlighting growth opportunities.
Our French and Spanish businesses both had very good
years and represent the most significant opportunities
for retail expansion outside the UK. In France we opened
7 net new stores in the period, taking the total to 176, and
connections grew by 19.9% year-on-year. In Spain we
opened 34 stores, taking us to a total of 164 stores, with
connections growing by 65.9% over the year. Taken together,
these two markets represented 23.3% of all Group connections
during the year, up from 20.3% in the prior period.
In Sweden and The Netherlands we continued to make
good progress, supported by ongoing competition between
network operators. Both countries experienced a very
aggressive pre-pay market during the year, especially
at the low end, but we continued to grow subscriptions
strongly and strengthened our overall market position.
In Germany our prospects have been significantly improved
by the acquisition of Hutchison Telecommunications, which
we announced in June 2003. Hutchison is a mobile service
provider operating in a regulated market that requires
incumbent mobile operators to offer its tariffs at wholesale
rates for resale. Hutchison has a base of 0.69m customers
of which 0.54m are on contracts of up to two years.
The two businesses are now fully integrated and managed
out of a single head office in Munster. The Phone House
stores are recruiting customers onto the Hutchison service
provision base to complement Hutchison’s other customer
acquisition channels. In return, the retail chain benefits from
a share in the call revenue of each customer. Overall our
German operations made an operating profit of £5.2m
during the year (2003: loss of £7.4m) and we have built a
platform for a sustainable business in that important market.
Our Online channel achieved another year of impressive
growth, with connections increasing by 17.9% year-on-year
to 0.31m. Revenues were £64.5m (2003: £41.9m) and
contribution was £4.5m (2003: £3.4m). Now that our retail
operations are performing consistently well and The Phone
House brand outside the UK is becoming more widely
recognised, we plan to launch direct and internet sales
businesses in a number of other countries in the current
financial year. These have proved to be successful channels
for our UK business and we are confident that we can
repeat this success elsewhere. Meanwhile we made a
significant addition to our UK Online operations with the
acquisition of E2Save, an ‘off-the-page’ retailer generating
connections predominantly via newspaper advertising with
supporting call centres and a website.
Insurance
The Group offers a range of insurance products to its retail
customers, providing protection against the replacement
cost of a lost, stolen or broken 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 and
a substantial contributor to Group profitability.
Our Insurance customer base continued to grow strongly
during the year. Overall we added 0.26m new customers,
taking the total to 1.32m. The UK base grew by 19.0%
to 0.83m and the non-UK base grew by 36.2% to 0.49m.
The non-UK base now represents 37.4% of the total.
Insurance revenues grew 17.7% to £78.6m (2003: £66.8m)
and contribution increased by 27.4% to £28.0m (2003:
£22.0m). The improvement in margins was attributable
to a reduction in the number of claims per policyholder
following an industry-wide campaign against mobile phone
crime in the UK. During the year the business underwent
significant change as it relocated from the Isle of Man to
Dublin. We now underwrite substantially all of our own
business directly through our New Technology Insurance
subsidiary, whereas previously all of our business was by
way of reinsurance.
Looking forward, we will continue to work hard on retaining
insurance customers as well as attracting new ones.
As previously indicated, we see additional opportunities
arising in the provision of underwriting and administration
services to third parties who wish to offer insurance to
their customers but do not have the necessary expertise.
54,200 60,800 63,233 66,170
030201 04
Average selling space (sqm)
11,350 10,200 11,676
030201
14,303
04
Sales per square metre (£)