Carphone Warehouse 2007 Annual Report Download - page 8

Chief Executive’s Review
This has been another successful year for Carphone
Warehouse, but we faced significant challenges
along the way. Group revenues are up 31.0%, we
have executed very well in our Retail business and
increased our market share, and we have made
significant progress towards our goal of becoming
the leading alternative fixed line telecoms provider
in the UK. The launch of Free Broadband changed
the face of the UK broadband market forever, but
created its own problems: the unexpected level
of demand, combined with the complexity of the
provisioning processes, led to significant customer
service issues.
Last year I underlined our “private company” approach
to investment and growth opportunities. While every
project needs to be financially justified and we have
rigorous hurdle rates for new investment, we tend to
take the long view. As a result, earnings in the short
term can be depressed by our pursuit of long-term
value creation. In such circumstances it is our
responsibility to communicate the scale, timing and
impact of new business initiatives so that investors
can make informed decisions.
This has never been more true than in the past
12 months. We have incurred start-up losses of over
£80m in our launch of Free Broadband and Virgin
Mobile in France. Our total cash commitment in the year
to these new initiatives, and the acquisition of AOL’s UK
customer base, has been nearly £400m. As we manage
the path to profitability and cash generation in these
businesses, we are already committing to a further
exciting growth project, with the roll-out of our retail joint
venture in the US and Geek Squad in the UK. No doubt
further opportunities will arise, and we will continue to
pursue them with commitment and conviction.
Strategic context
Our strategic approach is built on three
primary objectives:
•To continue to grow market share in all our
geographical markets, by investing in new store
openings, achieving increasing productivity from
our existing estate, and developing additional
distribution channels;
•To maximise the lifetime value of our customers, both
by providing a level of service that encourages repeat
business, and by identifying relevant new products
and services where our brand, service and
distribution give us an edge over other suppliers; and
•To become the leading alternative provider of fixed
line telecommunications services in the UK.
Through organic growth and acquisition, we have built
up a unique set of assets: a network of stores that act
as the focal point of our interaction with customers,
both mobile and fixed line; a comprehensive fixed line
telecoms network covering the whole of the UK, with
investment focused on areas of added value; and
significant customer bases, creating valuable annuity
revenue streams to improve the quality of our
earnings. Our strategic objectives aim to leverage
these assets to deliver long-term growth and value
creation to shareholders.
Growing our retail presence
There are two key factors supporting our strategy to
grow our retail presence. Firstly, we believe that we
are under-penetrated in almost all of our geographical
markets, and the dynamics of the industry continue to
be attractive. Secondly, as our market share increases,
our scale delivers operational benefits through
improving terms with network operators and handset
manufacturers alike. Our model of reinvesting these
benefits into the customer proposition, through better
pricing and improved range and availability of
handsets, serves both to defend our market position
by raising the barriers to entry, and to deliver
incremental growth and scale.
This year we have opened 366 net new stores across
our ten markets, taking the total portfolio to 2,144. Over
the last three years we have opened 930 stores and
grown the estate by 76.6%. During the same period,
connections are up 87.2%, demonstrating our ability
to generate continued growth out of existing sites.
We generated retail like-for-like gross profit growth
of 5.0% during the period, as the handset market
showed further growth, and we took market share
through our focus on the widest range of handsets
and the best availability on the high street. After last
The Carphone Warehouse Group PLC Annual Report 2007
4
The key drivers of the
Distribution division – network
appetite for customers, a
vibrant handset market, and
our own physical expansion –
all remain firmly in place
Revenue up 31.0%
(£m)
1,849
2,355
3,046
3,991
04 05 06 07
Headline operating prot
up 5.4%
(£m)
81.1
105.2
141.8 149.5
04 05 06 07