Carphone Warehouse 2011 Annual Report Download - page 23

Carphone Warehouse Group plc Annual Report 2011 19
We expect CPW Europe connections
volumes to reduce by 0-5% in the coming
year, again reflecting potential weakness
in the prepay segment, together with the
impact in the upgrade segment of the
switch from 18 month to 24 month
contracts in the UK from mid-2009. This
switch will dampen postpay volumes,
particularly in the first half of the year.
The reduced upgrade volumes will have
a negative impact on earnings in the
short-term, especially in the first half,
although this will start to be offset
towards the end of the year by the benefit
of renegotiated network commercials,
which provide the business with a greater
share of revenues beyond the customer
contract term.
We expect this short-term impact to be
fully offset by incremental profits from
our ‘Wireless World’ stores, alongside the
operational and commercial initiatives
that are being implemented across our
European businesses.
We anticipate a like-for-like revenue
range of -2% to +2%, with an increasing
proportion of non-connection revenue
within the mix. As we accelerate the
roll-out of the slightly larger ‘Wireless
World’ format store, and expand our
presence in the Spanish market, we
would expect an increase in average
space of 2-3%.
Following the completion of the migration
of our service provider base in Germany,
we anticipate a further reduction of around
£100m in revenue from that business, with
an associated drop in profits of around
£10m in 2011-12.
Overall, we anticipate a Headline EBIT
from CPW Europe of between £135m and
£150m (2011: £134.6m), with the ultimate
outcome within this range likely to be
dependent on the performance of the
prepay segment over the key Christmas
trading period.
We expect continued strong progress from
Best Buy Mobile in the US, anticipating
overall connections growth of around 20%,
with growth in the critical postpay category
likely to be higher than this.
The business is rolling out around 150
more stand-alone stores during the year,
providing additional average space of
approximately 13%. These stores do not
immediately enjoy the same level of footfall
as the well-established ‘Big Box’ stores,
and consequently will not immediately
generate the same level of connections,
but they provide a critical building block
for increasing market share and earnings
over time.
The additional space allocated to Best Buy
Mobile stores-within-a-store translates
into a further increase of around 7-8% in
average space. This additional capacity is
primarily focused on accessories and
other ancillary products, but is also
expected to support continued strong
like-for-like growth in connections through
this format.
As in the second half of 2010-11, we
anticipate that the benefits of increasing
scale will be partially re-invested in the
customer proposition and marketing to
drive the business’ long-term positioning
in the marketplace, and as a result expect
EBIT growth of approximately 20-30%
year-on-year from £97.9m to around
£120m-£130m.
BUSINESS REVIEW
Following the development of our Best Buy
branded consumer electronics channels
during the past year, we are now in the
process of evaluating our next steps for
this business, and will provide further
guidance once this process is complete.
We expect that Best Buy Europe’s existing
financing facilities will be replaced in the
current year, and that this will result in
lower cost and more flexible facilities
going forward. Accelerated amortisation
on existing facilities is likely to offset
some of the profit benefit of this in the
current year.
The tax charge will benefit from the
lower rates in the UK, and we expect
an effective rate of 23-24% for the year.
The accelerated roll-out of ‘Wireless
World’ stores in CPW Europe is expected
to result in an increase in capex year-on-
year, offsetting anticipated EBITDA growth
and resulting in flat operating free cash
flow from CPW Europe and Best Buy
Mobile US.