Carphone Warehouse 2009 Annual Report Download - page 12

8 The Carphone Warehouse Group PLC Annual Report 2009
Directors’ Report – Business Review
Chief Executive Officer’s Review – continued
In November last year we announced plans
to conduct a structural review of the Group.
This process was a natural consequence of
the Best Buy deal and reected discussions
with investors through the summer over
our future plans for the Group.
Key considerations for the structural review
The review covered a broad range of
considerations, the most signicant
of which are set out below, with our
summarised views on each issue. In
conclusion, the Board decided that a
demerger was the right course to pursue,
allowing the two businesses clearer
autonomy and investors clearer choices.
We expect to achieve the demerger
by July 2010, at which time we expect
TalkTalk Group and our investment
in Best Buy Europe to be listed as
independent publicly-quoted companies.
We are condent this will make it easier
Consideration Conclusion
Do the two businesses complement each other
commercially?
Yes, but not materially. The Carphone Warehouse stores are still
an important distribution channel for TalkTalk broadband sales but
now account for only 20% of gross sales, down from around 50%
at launch. Most new customers are now switchers rather than new
to broadband and use other channels to switch providers.
Commercial terms are already at arm’s length.
Does one business have a nancial reliance
on the other?
Not any more. The growth of the broadband business was
historically nanced by the cash generated by the retail business.
Both businesses are now expected to be self-nancing.
Do the businesses have different investor proles? Yes, we believe so. The TalkTalk Group is becoming a highly cash
generative business with a utility-like prole; Best Buy Europe is
entering a growth and investment phase with a major market
opportunity in front of it.
Are the businesses easily separable from a
management and administrative viewpoint?
Yes. We pushed the majority of shared resource down into the
divisions in May last year, and have gone through a further
restructuring process early in 2009.
Are there any material nancing implications of
a demerger?
Yes. The demerger will require us to put in place separate facilities
for the two businesses. However, we are making good progress on
this and do not see it as an obstacle to demerger.
for shareholders to assess more clearly
the value of the Group’s businesses and
that each business will continue to thrive
with its distinct management strategy,
investment characteristics, nancing
arrangements and potential.
Meanwhile, the two businesses are
already effectively run as separate
entities, with a very limited shared central
function. This was a process begun
ahead of the Best Buy transaction last
year, and taken further in early 2009 with
the devolution of most remaining central
functions down to the divisional level.
The Group functions that remain are the
Board, Group Finance, Treasury, Investor
Relations and Company Secretariat.
We now see the Group as a holding
company managing four assets – our
100% holding in TalkTalk Group, the
50% stake in Best Buy Europe, the
48.5% stake in Virgin Mobile France,
and the Group’s freehold properties.
The key elements of each and our
strategy for them are set out here.