Carphone Warehouse 2009 Annual Report Download - page 21

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www.cpwplc.com 17
Short-Term Risks
and Challenges
▪
A weak consumer
environment and an uncertain
outlook mean that the
business needs to remain
flexible in its financial planning
▪
The launch of the Big Box
consumer electronics
proposition requires
significant upfront investment
and a major commitment of
resource on which we may not
achieve a satisfactory return
▪
Currency movements could
have a negative impact on
handset prices and erode
margins
▪
Failure to improve working
capital management could
increase financing costs
Longer-Term Risks
and Challenges
▪
Mobile networks may continue
to invest in their own
distribution platforms and
seek to deal directly with their
customers
▪
The rate of technological
change may slow, reducing
the need for customers to
upgrade their handsets
▪
We may experience significant
price competition in the
consumer electronics market,
damaging the economics of
our business plan
▪
Competition between network
operators may subside,
reducing incentives to
customers
Headline Financials (100% basis)
2009 2008
£m £m
Revenue 3,563 3,091
Gross margin 1,033 940
SG&A (845) (723)
EBITDA 188 217
Depreciation and amortisation (87) (65)
Joint ventures – (1)
EBIT 101 151
EBIT % 2.8% 4.9%
Best Buy Europe’s revenues grew
15% to £3,563m, with 9% growth coming
from the strength of the Euro year-on-
year. Headline EBIT fell 33% to £101m
(2008: £151m). Although protability fell
year-on-year, we made signicant
progress in the development of the
business and are well positioned in terms
of market share, product diversication,
an efcient cost base and the strength of
our relationships with both vendors and
mobile network partners.
During the year, we achieved total
connections of 12.5m, up 8% year-on-
year (2008: 11.5m), despite what we
estimate to be a year-on-year decline in
the European handset market. As a result
we estimate that our market share has
grown signicantly, reinforcing our belief
in the value of our independent model in
the eyes of the consumer.
Subscription connections were also
up 8% to 4.8m (2008: 4.5m). Growth
in subscription sales was driven by
high-end, internet-enabled handsets,
and by mobile broadband connections.
It is clear that mobile data, whether via
laptops or handsets, using 3G networks
or WiFi, is really taking off. We have
positioned ourselves well to capture this
rapid growth, as the connections gures
demonstrate. In contrast, the market for
mid-tier handsets, the historical “bread
and butter” of the subscriptions market,
was in decline throughout the year. There
are now signs however, that the features
available in high-end devices are now
cascading into the more mass market
mid-tier ranges, and this segment of the
handset market is beginning to show
signs of improving.
Pre-pay connections were up 9%
to 7.0m. After a slow second quarter,
pre-pay sales picked up in the second
half of the nancial year as we took
signicant market share from general
retailers. Although we initially thought
that the pre-pay business would be
more at risk from a more cautious
consumer environment, any effects
were more than offset by our own
strong market share gains.
Like-for-like revenue, stripping out the
impact of new space, was up 7.9% and
at constant currencies, like-for-like
revenue was up 1.1%.
Divisional gross margin fell 140 basis
points year-on-year, from 30.4% to
29.0%. This decline reected both a
more aggressive trading stance, as we
sought to use our scale and strong
nancial position to grow our market
share, and the impact in our product
mix of lower margin mobile broadband
connections and our drive into the laptop
market place.
We opened 180 stores during the year,
and closed or relocated 132, giving net
store additions of 48. The total store
base was 2,459 at the year end (2008:
2,411), including 219 franchise stores
(2008: 236). Total average selling space
excluding franchises was up 8% to
122,470 sqm (2008: 113,438 sqm).
Including franchises, total average
selling space was up 7% to 131,137 sqm
(2008: 122,976 sqm).
During the year we reduced our plans
for fresh store openings based on our
traditional store format after several
years of rapid expansion. We focused
instead on the most signicant change
Directors’ Report – Business Review
Best Buy Europe – continued
Directors’ Report –
Business Review