Carphone Warehouse 2007 Annual Report Download - page 16

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More than 10% share
of UK CPS market
(000s)
385
920
2,570 2,725
04 05 06 07
2007 2006
Headline Financials £m £m
Revenue 1,700.6 1,126.5
Fixed 1,195.8 666.7
Mobile 504.8 459.8
Contribution 149.0 109.5
Fixed 89.0 61.1
Mobile 60.0 48.4
Support costs (50.6) (29.7)
EBITDA 98.4 79.8
Depreciation and amortisation (79.0) (53.4)
EBIT 19.4 26.4
EBIT % 1.1% 2.3%
Telecoms Services Division
The Group’s Telecoms Services operations are split
into two businesses, Fixed and Mobile. The Fixed
business comprises our residential and business-to-
business fixed line operations, predominantly in the
UK. The Mobile business encompasses our German
service provision business, The Phone House
Telecom, and our-wholly owned MVNO and Facilities
Management (“FM”) businesses.
From next year, we will report the Mobile and Non-UK
Fixed Line operations within Distribution, and report
UK Fixed Line as a separate division. This closely
reflects our internal reporting structure going forward
and groups business units more logically with the
assets that support them.
Telecoms Services revenues grew by 51.0%
year-on-year to £1,700.6m (2006: £1,126.5m).
Good underlying growth was supported by a full
year’s contribution from Onetel, which was acquired
in December 2005, and three months’ contribution
from the purchase of AOL’s customer base in the UK.
EBIT fell 26.4% to £19.4m, reflecting a total of £72.0m
in start-up losses relating to the launch of TalkTalk
Free Broadband.
Fixed
Our fixed line operations grew dramatically during
the year, through a combination of strong underlying
growth and the impact of two major acquisitions.
Total revenues were up 79.4% to £1,195.8m
(2006: £666.7m), and contribution was £89.0m
(2006: £61.1m). The contribution figure reflects the
impact of £60.3m of losses relating to the launch
of TalkTalk Free Broadband.
In our UK business, the year was one of considerable
investment in launching our broadband offering: in
customer recruitment, customer services, network
infrastructure and the acquisition of AOL’s UK
customer base. Total UK Fixed Line revenues were
up 91.7% to £1,084.2m (2006: £565.6m), and
contribution rose 55.5% to £81.4m (2006: £52.4m).
The cornerstone of all our UK fixed line operations is
the Opal telecoms network, now re-branded as
The Carphone Warehouse Networks. This year we
successfully undertook a major infrastructure project
with the build-out of our own local loop unbundling
(“LLU”) network. This investment allows us to provide
the full suite of fixed telecoms services – calls, line
rental and broadband – to our customers at a
significantly lower operating cost than we can using
BT’s wholesale products. By March 2007 we had
installed our own equipment in 1,024 exchanges,
covering over 65% of the residential population.
Importantly, our pursuit of a “fully unbundled” strategy,
covering voice as well as broadband, gives us
a material advantage over a partially unbundled
approach, in which only the broadband element is
unbundled. The technical expertise required to create
this network is substantial, and we do not believe that
it will be easily replicated by other market participants.
At the start of the financial year, we launched TalkTalk
Free Broadband, and by March 2007 we had 655,000
customers live on the new service. Customer ARPUs
were ahead of our original plan, at approximately £28
per month, and underlying network costs were in line
with our expectations, giving us great confidence in
the future profitability of the broadband business.
Costs exceeded our plan in two main areas: firstly, in
the rate of migration to our own network, which we
discuss in more detail below; and secondly in relation
to customer service overheads, where we invested in
additional headcount to deal with the high contact
rates created by demand and provisioning problems.
We anticipate that unit customer service costs will be
in line with our original plan by March 2008, but in the
meantime, as previously indicated, we expect to incur
additional costs of £10-15m in the coming year as a
result of these over-runs.
Operating and Financial Performance continued
The Carphone Warehouse Group PLC Annual Report 2007
12