Carphone Warehouse 2009 Annual Report Download - page 17

Directors’ Report – Business Review
www.cpwplc.com 13
we are able to generate strong cash
margins while maintaining the most
competitive telecoms bundles in the
market. With customer lifetimes
lengthening and acquisition costs stable,
we believe the net present value of the
base is increasing all the time.
As expected, the AOL Broadband base
fell by just under 245,000 customers,
reecting the 93,000 adjustment noted
above and customers switching from
the higher broadband tariffs to which
AOL customers were historically signed
up. We focused our retention
programmes on customers living within
our unbundled exchange footprint, where
we can offer lower tariffs reecting our
lower cost base in those areas. As a
result, AOL churn rates reduced towards
the end of the year. We also completed
the integration of AOL during 2008,
combining the businesses under a single
UK residential management team.
We made further substantial progress
on the footprint, capacity and resilience
of our telecoms network during the year.
We unbundled a further 326 exchanges,
taking our fully-unbundled network to
1,705 exchanges and our partially-
unbundled network to 1,251 exchanges.
Together this gives us approximately
80% coverage of the UK population.
We unbundled 372,000 customers during
the year, taking the total unbundled
base to 2.2m customers or 78% of the
total broadband base, in line with our
goal. We remain the largest unbundler
in the UK, representing 39% of all
unbundled lines. Importantly, we are still
the only broadband provider that has
succeeded in making full unbundling
work. This is testament to the skill of
our engineers and our strong supplier
partnerships, and enables us to provide
packaged broadband and voice services
at a much lower cost than our partially-
unbundled competitors.
At the year end we changed the way we
account for subscriber acquisition costs
(“SAC”). Historically we have capitalised
SAC and amortised it over a customer’s
minimum contract term – typically
18 months. We are now expensing SAC
as incurred, bringing our policy in line
with the majority of other telecoms
companies and more closely aligning
our prot and loss performance with
our cash ow.
Cash flow
2009 2008
£m £m
Headline EBITDA 181 116
Working capital (35) 12
Capex (106) (172)
Operating free cash ow
(pre-exceptionals) 40 (44)
TalkTalk Group generated operating
free cash ow of £40m (2008: outow
of £44m). Strong EBITDA growth was
partially offset by an outow on working
capital, which was caused by timing
issues due to a change to calendar
month ends; there was no deterioration
in underlying working capital. Capex
reduced from £172m to £106m, reecting
high levels of network investment in
the prior year.
The major elements of the capital
expenditure on the network in 2008-09
were the additional exchanges
unbundled, increased capacity in existing
exchanges, and the continuation of our
project to increase backhaul capacity
within the network. By the end of the year
we had substantially completed our new
CRM and billing platform investment and
have commenced migrations, which
should enable us to provide an enhanced
service to customers in the years ahead.