Carphone Warehouse 2011 Annual Report Download - page 21

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Carphone Warehouse Group plc Annual Report 2011 17
CPW Europe opened or resited
approximately 140 stores and closed
around the same number, ending the year
at 2,429 stores, in line with the 2,430 at the
start of the year. Within this portfolio, the
number of franchise stores increased from
206 at March 2010 to 243 at the end of the
year, primarily reflecting growth in France
and Spain. The decrease in own stores was
predominantly in Germany.
The business has continued to develop
the ‘Wireless World’ store format, with
106 such stores at the end of the year
across six markets. With a wider range
of products and services than traditional
stores, this format continues to produce
excellent customer feedback and
compelling financial returns.
After the year-end, we announced our
decision to sell our retail operation in
Belgium to Belgacom for a provisional
cash consideration of €22m, subject to
clearance from the Belgian competition
authorities. Belgium is unique in Western
Europe in being a largely unsubsidised
mobile market, which has always been
a challenge for our business model.
Gross margins in the core CPW Europe
business continued to strengthen year-on-
year, reflecting the margin improvement
initiatives that started to bear fruit in the
second half of the previous year. This was
offset by the increase in low margin dealer
revenues noted above and the lower sales
margins and substantial investment in
marketing in Best Buy UK. Overall, Best
Buy Europe’s gross margin percentage
decreased by 170 basis points year-on-
year to 27.7% (2010: 29.4%).
Operating expenses decreased by 2.5%
year-on-year from £851.8m to £830.6m.
CPW Europe benefitted from reduced
operating costs in its German service
provider business and from the annualised
effects of last year’s cost reduction
programme, together with the
strengthening of Sterling noted above.
These savings were partly offset by
additional expenditure in Best Buy UK.
Best Buy Mobile achieved phenomenal
profit growth year-on-year, translating
into an increase in Best Buy Europe’s profit
share from £46.4m to £97.9m. Best Buy
Mobile traded from all of Best Buy’s 1,101
(2010: 1,070) ‘Big Box’ stores in the US at
March 2011 and from 190 stand-alone
stores, up from 77 at the start of the year.
The space allocated to Best Buy Mobile
stores-within-a-store was increased from
an average of 1,100 sqft to around 1,400
sqft in approximately 370 stores during
the year, with a further 230 increased since
the year-end. Best Buy Mobile plans to end
its fiscal year (February 2012) with 325
stand-alone stores and to increase the
total number of stand-alone stores to
600-800 within five years.
Additionally, Best Buy Mobile launched
a new online platform during the year,
providing new sales opportunities as
well as developing the business’ multi-
channel proposition.
Best Buy Mobile increased connections
by 28.2% to 7.1m in 2010-11, compared
to 5.5m in 2009-10. The business continues
to invest in its differentiated customer
proposition, and in marketing activity to
increase awareness of the Best Buy Mobile
brand and offering.
The increasing scale and operating
leverage of the business naturally had
a positive impact on operating profit
margins year-on-year. This was partially
offset by the investment in marketing
and customer proposition noted above.
We opened the first six Best Buy branded
‘Big Box’ stores in the UK during the year,
with four more following since March,
and the Best Buy transactional website
launched in November 2010. Customer
feedback during this launch period has
been highly encouraging both in-store and
online, a lead indicator of the opportunity
for an innovative, service-led proposition.
BUSINESS REVIEW
Best Buy UK incurred EBIT losses
of £62.2m in the year, up from £21.0m
in 2009-10. With only six stores at the
year-end, the business still has a
disproportionately high central cost
base, and has made a substantial
investment during the year in
marketing and promotional activity,
to develop awareness of its brand
and retail presence.
Best Buy Europe’s Headline EBIT margin
increased from 4.0% to 4.8%, despite the
significant additional investment in Best
Buy UK, reflecting the strong performance
of CPW Europe and Best Buy Mobile US
year-on-year.
The interest charge decreased from
£16.3m to £15.2m, reflecting lower average
borrowings, partly offset by the higher
costs of the stand-alone banking facilities
introduced in 2009.
Best Buy Europe had an effective
tax rate of 22.1% (2010: 23.4%). The
decrease reflects the anticipated
utilisation of tax losses that had not
previously been recognised.