Carphone Warehouse 2007 Annual Report Download - page 15

We relocated a number of stores to bigger sites
and began work on a new store format providing
an improved environment for customers
Our Dutch and Swiss businesses continued to
underperform, recording connections growth of 5.0%
and a fall of 1.8% respectively. In Switzerland, a year
of underperformance has led to a reorganisation of the
business, consolidating our operations into a single
support centre and introducing some new senior
management. In The Netherlands, the overall market
was subdued, but we have also failed to execute
consistently. A new management team is producing
encouraging early results.
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 16.2% over the year to
2.23m. Once again, the mix improved, with growth of
18.6% in the high tier base. Insurance revenues were
up 18.1% to £137.0m (2006: £116.1m) driven by the
higher average base. Contribution was up 19.6% to
£54.5m (2006: £45.5m).
The prospects for our Insurance business are good,
given our expectation of continued growth in
subscription connections, the key driver of insurance
policy sales. Customers are wedded to high value
subsidised handsets that are expensive to replace, and
our focus on excellent service and a straightforward
claims process makes the product attractive.
Ongoing
Ongoing revenue represents the share of customer call
spend (or ARPU) we receive as a result of connecting
subscription customers to certain networks. We are
typically entitled to our 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 networks, and aligns our
interests more closely. Again, the key underlying driver
for Ongoing is our subscription connection sales.
Ongoing revenues grew by 22.7% year-on-year to
£71.7m (2006: £58.4m). This continued strong
performance reflects the sustained strong subscription
connections over the last few years, and we expect
this positive trend to continue.
Contribution from Retail grew by 17.2% to £166.6m
(2006: £142.2m). The contribution margin fell to 8.7%
(2006: 9.0%), as further good like-for-like growth was
offset by continued investment in the store proposition.
Retail direct costs were up 27.1%, reflecting the
expansion of the store portfolio, higher commissions
to sales consultants and ongoing rental inflation.
In the UK, our store portfolio increased from 669
stores to 769 stores. At the same time, we relocated
a number of stores to bigger sites and began work on
a new store format providing an improved environment
for customers and sales consultants. We will continue
to roll out this new format to key locations across the
UK this year. Growth was enhanced by the acquisition
of a portfolio of stores previously trading as The Link,
one of our main independent competitors, after it had
been acquired by Telefonica/O2. Total UK connections
were up 21.6%.
Our Spanish business goes from strength to strength.
We opened 70 stores during the year, taking the
overall base up to 408, and achieved connections
growth of 24.6%. The launch of a fourth network,
Yoigo, and a number of MVNOs, stimulated further
demand. Our growth in Spain has led to long queues
with an impact on conversion rates in a number of our
stores, and we are therefore seeking to locate to larger
premises, where appropriate, to meet demand.
In France, the improving trends of the previous year
continued. We opened 50 stores, taking the total
store count up to 270, and connections growth of
16.1% reflected a stronger market. The launch of
a number of MVNOs, backed by strong consumer
brands, including our own Virgin Mobile joint venture,
contributed to a more vibrant market environment
and a shorter replacement cycle.
With the exception of Switzerland and The
Netherlands, all of our other markets enjoyed a year
of very good growth. In particular, Sweden achieved
connections growth of 36.3%, a notable effort after
a difficult previous 12 months. The performance
reflected our strategy of using a period of tougher
market conditions to improve our retail proposition
and pursue additional distribution channels, with
the result that in a rejuvenated market, we took
considerable market share while competitors had
weakened. Belgium, Germany, Ireland and Portugal
all fared very well, with connections growth above
the Group average and increasing consistency of
execution apparent across the board.
11
Business Review Governance Financial Statements
www.cpwplc.com
Continued strong LFL
gross prot performance
(%)
14.2
5.0
9.0
5.0
04 05 06 07
Insurance base up 16.2%
(000s)
1,324
1,645
1,921
2,233
04 05 06 07