Carphone Warehouse 2006 Annual Report Download - page 11

% OF CONTRIBUTION FROM
RECURRING REVENUES*
(% OF TOTAL)
’06’05’04’03
49.7
57.6 59.4 59.7
CONTRIBUTION FROM
RECURRING REVENUES*
UP 32.4% (£m)
’06’05’04’03
77.1
121.4
161.2
213.5
in sales and gross profit, but the strong trading
performance of the last two years creates ever higher
hurdles to clear. Growth in Ongoing (our ARPU sharing
agreements with networks) and Insurance will continue
to be driven by subscription connections.
On the fixed line side, the progress of the new
broadband proposition from TalkTalk will be crucial to
enhancing the long-term value of the Group. The outlook
is promising and the early customer take-up has far
exceeded our expectations, but we expect a more
concerted competitive response from other industry
players as the year progresses, and the major risks of
this new initiative lie in our ability to execute successfully.
In our MVNO operations we expect a year of intensive
customer recruitment as we build a business to
deliver meaningful profitability in the future. Our
German service provision business, The Phone
House Telecom, is already highly profitable, and we
will continue to add customers to the base here, too.
However, profits are likely to be flat year-on-year, as
the amortisation of subscriber acquisition costs is
forecast to rise on the back of the strong subscriber
push of the last two years.
A strong corporate culture has always been a vital
part of Carphone Warehouse’s success, and it is
to the credit of all of our employees that this has
been maintained during a period of high growth and
expansion. We have made significant demands of
everyone across the business this year and the
response has been uniformly positive. With the
acquisitions and our own organic growth, I am
delighted to welcome a further 3,000 people to
the Group in the last 12 months, and the rate of
recruitment shows no sign of abating given the
opportunities ahead of us. We are lucky to have
such a dedicated and talented workforce and
I would like to say thank you to all of them for
their continued efforts.
been totally consistent with our retail strategy: to favour
volume over margin, and pass on the benefits of scale
and investment to our customers. This is particularly
true in local loop unbundling, where the investment
profile favours those who are able to take significant
market share. The costs in the short-term will be
significant, with an estimated operating loss from the
project in the current year of £50m, and a cash outflow
of £110m. However, we are confident that the long
term economics of the business are highly attractive.
We have set an initial target of 3.5m residential
telecoms customers by March 2009, of which we
anticipate over half will be on the new bundled
package. Our focus now is on successful execution:
installing our equipment in BT’s exchanges as rapidly
as possible, building up call centre capacity and
expertise, and closely managing the process for
migrating customers from BT’s platform onto our own.
Importantly, our investment in infrastructure stands to
benefit our business-to-business telecoms operations
as well. We have a significant overlap between our
business and residential customers, thus giving us
two opportunities to generate a good return on our
investment. Opal’s background is one of voice services
into businesses, but with an unbundled platform we
believe that there is a sizeable opportunity to sell data
services into the corporate market. Our plans in this
respect will evolve over the next 12 months.
Outlook
These are exciting times for Carphone Warehouse.
Prospects for the Distribution division are good.
Mobile networks continue to compete aggressively
for customers, stimulating the replacement cycle with
lower prices and better tariffs. The market is also
becoming more fragmented, with MVNOs increasingly
prevalent and adding to the breadth of choice available
to customers. Handset manufacturers are more active
than ever, and are now innovating in fashion and
design as much as in technology and functionality.
As outlined above, we will seek to take advantage of
these attractive market conditions through further rapid
expansion of our store base and the development
of additional distribution channels. Our guidance of
15% growth in mobile connections for the coming
year reflects the overall growth in our store portfolio.
As always, we will strive to generate growth in
connections per store to drive like-for-like growth
Chief Executive’s Review continued www.cpwplc.com 7
Highlights and Strategy
Charles Dunstone, Chief Executive Officer
FASHION BECOMING A KEY
HANDSET MARKET DRIVER
BROADBAND CUSTOMER
TAKE-UP HAS FAR EXCEEDED
OUR EXPECTATIONS
STRONG CORPORATE CULTURE
A VITAL PART OF OUR SUCCESS
*Periods prior to 2004/05
restated for comparability