Carphone Warehouse 2009 Annual Report Download - page 22

18 The Carphone Warehouse Group PLC Annual Report 2009
Directors’ Report – Business Review
Best Buy Europe – continued
to the in-store proposition achieved in
the business’s history, which included
the introduction of a full laptop offer
across a signicant proportion of the
portfolio. In October, we opened the rst
of our new, mid-sized stores, which are
up to 300 sqm, compared to our normal
small store size of around 60 sqm. These
mid-sized stores offer not only a much
wider range of laptops, but also areas
dedicated to gaming, wireless TV and
music services, all backed up by an
in-store Geek Squad presence. These
stores have performed very strongly, with
excellent customer feedback, and we will
be introducing a further 30-40 over the
coming year, through a mix of new stores
and rets.
During the year we also trialled a major
change to how our sales consultants are
remunerated, with the introduction of
higher base salaries and bonuses, to
replace the traditional mix of lower
salaries and sales-based commissions.
Under the trial, bonuses are based on
a store’s Net Promoter Score, which
is a measure of the difference between
positive and negative customer
feedback. The trial was a success and
we are now progressively introducing
this structure across the whole of the
UK business. There has been no
deterioration in sales performance as a
result, and we believe that, over time, it
will create even greater trust in the brand
in the eyes of customers.
In the US, Best Buy Mobile had an
outstanding year. This business, in which
Best Buy Europe have a prot-sharing
agreement, was launched two years ago
to reposition Best Buy’s mobile retailing
operations with the assistance of
Carphone Warehouse. Over the course
of the year its in-store presence has
been introduced across all of Best Buy’s
Big Box stores in the US, delivering near
triple-digit rates of like-for-like growth
and signicant market share gains as a
result. In addition, Best Buy have opened
33 standalone stores, taking the total
to 39. Our share of prots for the year
was £8m and is expected to grow
signicantly in the year ahead.
Since the deal with Best Buy, which
completed at the end of June, we have
committed signicant resource to the Big
Box consumer electronics retail launch,
planned for spring 2010. We had
originally scheduled the rst store
openings for the second half of 2009,
but the highly favourable property
environment has presented us with
increasingly attractive opportunities,
both in terms of locations and lease
terms. As a result, we have chosen not
to rush, but to take our pick of the
opportunities and ensure that our launch
has the most material impact. We
incurred approximately £7m of costs
relating to the launch during the year.
Best Buy Europe’s Insurance business
continues to be an important contributor
to the protability of the business.
Customers value the protection it gives
when they commit to a high value
contract and receive a heavily
subsidised, valuable mobile phone.
Although performance earlier in the year
was relatively subdued, business picked
up in the second half. We beneted from
the introduction of the laptop proposition
into the stores, and also from the
development of a combined insurance
and Geek Squad assurance policy, giving
customers not only protection against
loss, but also access to technology
assistance from the Geek Squad.
Cash flow (100% basis)
2009 2008
£m £m
Headline EBITDA 188 217
Working capital (160) (4)
Capex (115) (107)
Operating free cash ow
(pre-exceptionals) (87) 106
Best Buy Europe saw an outow on
operating free cash ow of £87m (2008:
inow of £106m). The adverse movement
was largely due to working capital,
particularly in the rst half of the year.
Our working capital position reected an
increasing alignment of our interests with
our network partners, with commission
being deferred over the contract life
rather than paid up front. Whilst not
affecting revenue recognition, this had
an adverse impact on working capital.
We have been working with the networks
and other key suppliers to limit further
absorption of working capital,
experiencing minimal absorption in
the second half of the year, and expect
much-improved cash generation
in 2009-10.
Best Buy Mobile, USA
Best Buy Mobile had an outstanding
performance this year. We have
opened 33 standalone stores this year,
taking the total to 39. Best Buy Mobile’s
in store presence is now in every
Best Buy Big Box store in the US.
White City, London
We opened four new mid sized store
formats last year show casing a much
wider range of laptops and connected
devices alongside the core mobile
propositions.