Carphone Warehouse 2007 Annual Report Download - page 21

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Principal Risks and Uncertainties
17
Business Review Governance Financial Statements
www.cpwplc.com
RISK AREA POTENTIAL IMPACT MITIGATION
Competitive
environment
Loss of market share and
erosion in margins from
increased competition.
We have always focused on reinvesting the benefits of our increasing
scale into our customer proposition to keep barriers to entry high and
to maximise value for our customers. Our pricing in both mobile retail
and broadband reflects this strategy.
Brand
perception
Reduction in customer loyalty
and higher churn in our fixed line
operations as a result of poor
customer service.
We are investing significantly in improving current service levels at
TalkTalk. This year we will introduce a new billing and customer
management platform that will enhance our ability to provide high
quality service to our customers.
Capacity and
functionality
of our IT and
telecoms
infrastructure
Failure to provide adequate
service levels to customers or to
manage back office processes.
Our investment in IT continues to grow in line with the increasing scale
and complexity of our business. Telecoms investment will peak in the
coming year, with further investment in later years addressing the
increased bandwidth demands of customers.
Retention
of key
management
Lack of necessary expertise or
continuity to execute strategy.
We have successfully attracted and retained high quality executive
management through attractive incentive packages and wide-ranging
career opportunities.
Operational risks
RISK AREA POTENTIAL IMPACT MITIGATION
Revenue
assurance
Profits and cash flow
reduced through high levels
of non-paying customers.
We have dedicated credit control functions to manage both residential
and corporate debt, and credit checking processes that are continuously
developed to minimise the risk of non-payment. Our network operator
debtors are highly cash generative, well capitalised businesses.
Stock
management
Financial results impacted by
obsolete retail stock.
We have a very high turnover of stock and the subsidised business
model stimulates end demand.
Exchange
rates
Reported profits distorted by
exchange rate movements;
value of assets and liabilities
similarly affected.
Exchange rate exposures are primarily to the Euro and Swiss Franc,
which are historically stable currencies. Exposures to exchange rate
movements are continuously monitored and hedging of specific
transactions is undertaken where the risks are considered material.
Telecoms
regulation
Fixed line business model
compromised by changes
to regulated market structure
and pricing.
We share the goals of the telecoms and insurance regulators of
competitive markets in which the customer has transparency and
choice. We have a team of regulatory specialists who work with the
relevant authorities towards these goals.
Investment in
new areas
Capital invested in new business
areas fails to make a return.
New business ventures and acquisition activity generally have a
required hurdle rate of 15% post-tax internal rate of return. New
ventures are managed in stages so that capital commitment is not
significant until there is good visibility of a return.
Financial risks
As discussed in the Corporate Governance section on pages 22 to 24 of this report, the Group has a dedicated Risk and Internal Audit function,
reporting to the Board, that continuously assesses and monitors the key risks to the business. The table below summarises the more material risks
to the Group, and how we seek to mitigate them in the day-to-day running of the business.