Carphone Warehouse 2012 Annual Report Download - page 8

Carphone Warehouse Group plc Annual Report 20124
and an enhanced level of service. These stores have proved popular
with customers and have delivered compelling returns. We had 392
Wireless World stores across the Group as at the end of March 2012
(2011: 106) and we anticipate that the large majority of UK stores
will be in the new format within the next two to three years, with
continuing progressive conversion inmainland European markets.
Within this format we continue toseea promising uptake of the Geek
Squad proposition, not only inassurance products but also in service
capabilities instore. Oneof CPW Europe’s key opportunities is to
broaden the non‑cellular product category by moving more deeply
into tablets, accessories and app‑cessories, making CPW Europe
thehome of technology and giving our customers many more
reasons to come into ourstores.
VIRGIN MOBILE FRANCE
Virgin Mobile France grew revenue by 18.8% to £390.2m
(2011:£328.4m), reflecting postpay growth and the benefit
oftermination revenues which were earned for the first time
duringthe fourth quarter. Faced with increased competition in
theFrench market since early January, the business has proved
tobe very robust. Around 70% of the Virgin Mobile France customer
base is postpay and whilst on a net basis we lost customers in
January and February, by March we had resumed growth in the
postpay segment and delivered significant revenue growth for
thequarter. As at the end of March 2012 the customer base
wasflatyear‑on‑year at 1,917,000.
The business produced Headline EBIT of £21.5m (2011: £20.6m).
TheEBIT margin was slightly lower than last year reflecting
increased investment in higher value postpay customers,
whichwillhelp to drive both earnings and value over time.
Going forward, with its Full MVNO contracts with both Orange and
SFR, Virgin Mobile France can now progressively move its customer
base onto this platform, bringing significant benefits of increased
flexibility and reduced costs, as well as enabling us to enhance
ourconsumer proposition. The business also announced recently
the launch of a quad‑play offer, which provides a new strategic
opportunity and value driver. Whilst still in its early stages, we are
anticipating that this offer will attract and retain a higher value
customer as we further develop our reach into the French market.
GLOBAL CONNECT
Global Connect is the new, capital‑light profit share agreement
between Best Buy and Carphone Warehouse, which aims to replicate
the successful Best Buy Mobile model in jurisdictions outside
NorthAmerica and Western Europe.
Best Buy recently announced that it plans to have 14 Best Buy Mobile
SWAS stores within Fivestar, its business in China, by August 2012.
Under the Global Connect Agreement, the Group is entitled to a20%
share in incremental earnings from this business. Plans for new
territories are currently being developed and we hope to make
announcements induecourse.
DISCONTINUED BUSINESSES
During the year, the Group disposed of its interest in Best Buy Mobile
for an initial consideration of £813.0m plus a further £25.0m in
consultancy payments over a five year period. CPW Europe’s share
ofpre‑tax profits from Best Buy Mobile for the first half of 2011–12
was £45.0m. Our share in this business ended from September2011.
We also decided to close the 11 trial Best Buy UK stores during
theyear and concluded this in January 2012. Whilst customer
feedback was positive, without national reach thebusiness could
notmake an acceptable rate of return. Best Buy UK incurred
operating losses of £72.5m during the year. Post‑tax closure costs
of£120.9m have been booked, in line with expectations, of which
£45.9m were non‑cash asset write‑downs, and of which the
Group's share was £60.5m.
OUTLOOK
We expect the consumer environment in Europe to remain
challenging in the year ahead along with the continued effect
ofregulation and competition in the mobile market. However,
wesee some exciting opportunities and remain confident in our
strategic positioning and operational execution. Overall, we expect
Headline EBIT for CPW Europe to be in the range £130m to £150m,
with the ultimate outturn for the year likely to be dependent on our
success in driving smartphones more fully into the prepay segment,
and on broader economic conditions in some of our continental
European markets. Virgin Mobile France will continue to focus
ongrowing its postpay base and its revenues in the year ahead.
Improved margins from our Full MVNO infrastructure will help to
counter downward pressure on ARPUs, and as a result, we expect
to maintain earnings for the core business at a similar level to
2011–12, with limited investment in quad‑play during the year.
Headline EPS is expected to be in the range 11.5p–13.0p, reflecting
the guidance above for the Group’s joint ventures and broadly flat
net income from wholly‑owned operations.
Roger Taylor, Chief Executive Officer
Built around the central theme of connectivity, our newer format
WirelessWorld stores have proved popular with customers
andhavedelivered compelling returns.
CHIEF EXECUTIVE OFFICER’S REVIEW CONTINUED
Non-cellular opportunity
One of the key opportunities for CPW Europe is to
broaden thenon‑cellular product category, making
CPW Europe thehome of technology. Our Wireless
World format stores combinea focused connected
electronics range, with astrongservice proposition.