Carphone Warehouse 2009 Annual Report Download - page 8

Directors’ Report – Business Review
Chief Executive Officer’s Review
4 The Carphone Warehouse Group PLC Annual Report 2009
Charles Dunstone, Chief Executive Officer
“
”
For  years now we have
developed our business with
long-term shareholder value
in mind. This is now more
important than ever.
It seems hard to believe that it is a year
since the last annual report. I note from
my review last year that I agged the
“poor economic climate and inationary
pressures” as reasons for caution in my
outlook statement. I was half-right: world
economies have been at best, poor; at
worst, terrible; but it is a reection of how
fast the macro environment can change
and make fools of us all that we have
been worrying for the last six months
about the spectre of deation rather
than ination.
Companies have to constantly adapt and
change to survive. This is the difcult
message I have had to give to
shareholders this year. Our own major
change this year – the deal with Best Buy
which saw them become 50% owners
of our retail business – was not generally
well received, and did in part contribute
to the share price decline. However,
I am convinced it was absolutely the
right thing to do and the right time to
do it. Here’s why.
Carphone has thrived for 20 years now
on offering customers simple, impartial
advice over their choice of handset,
network and tariff. Increasingly though,
customers don’t need our advice for
buying mobile phones: they have done it
before and they understand how it works.
So if we were to carry on selling just
mobile phone contracts, we would risk
opening the stores one day in two or
three years’ time and nding that we just
weren’t relevant to customers any more.
We believe our core skill is in making
complex technologies simple for
customers. As a result, we have been
busy over the last two years – ever
since I rst mentioned it in the 2007
annual report – developing our retail
proposition to deliver the “Connected
World” to customers. A range of laptops
is now available across most of our
stores, and we are now rolling out
mid-sized stores to offer a much wider
range of connected devices.
We could have continued to go it alone
with this strategy, but during our work
with Best Buy helping them re-engineer
their US mobile retailing operations, we
discovered how much the two businesses
have in common, and in particular that
we have a shared vision of the future of
technology for customers. Iabsolutely
believe that in partnership with Best Buy,
we can deliver the connected world to
customers much better and faster than
we could on our own.
Secondly, Best Buy is without doubt the
leading consumer electronics retailer in
the world. They have conquered their
home market, where consumers are very
demanding and the competition was
strong. They have long eyed Europe as
an attractive opportunity and see
Carphone as a great vehicle through
which to launch Big Box consumer
electronics stores. It is a huge market
and the existing customer experience
can be indifferent. By joining together
with them, shareholders in Carphone can
access what is potentially an enormous
new growth opportunity.
Finally, the years of investment in building
up a valuable telecoms business had
taken its toll on our balance sheet, and
our levels of debt were uncomfortable
given the gathering clouds of the
nancial crisis. The consideration from
Best Buy enabled us to pay off the large
majority of our underlying borrowings
and we are now in a strong nancial
position where many others are
struggling in this very tight credit market.
So in summary, we have brought in a
peerless retailing partner to drive forward
our strategy, given our shareholders
access to a new growth opportunity, and
achieved renewed nancial strength.
Ifeel that over the long term, these
benets more than outweigh the issue
of near-term earnings dilution.