Carphone Warehouse 2014 Annual Report Download - page 23

Carphone Warehouse Group plc
Annual Report 2014 21
STRATEGIC REPORT
LIKEFORLIKE
Like-for-like revenue compares year-on-year revenue generated from
salesin store, internet sales and telesales, using constant exchange rates.
New stores are included once they have been open for a calendar year
and were therefore open both in the current andthe comparative period.
Closed stores are excluded for anyperiod of closure including periods
ofrefitting. Revenues from our dealer, Connected World Services and other
non-retail businesses are excluded from like-for-like revenues. Like-for-like
revenue is expressed on a pro forma basis as though CPW Europe had
been 100% owned by the Group throughout the relevant periods.
CPW generated revenues of £,m, a decrease of .% year-on-year
(: £,m), principally due to reduced revenues in our dealer
business, which operates at very low margins and therefore has a
limited impact on overall profitability. These reductions were partially
offset by strong like-for-like revenue growth in our retail and online
channels and a strengthening of the Euro year-on-year.
Full year like-for-like revenue growth was .%, a second consecutive
year of strong momentum, again driven by postpay growth in our UK
business, which continued to deliver year-on-year market share
gains in this category.
We were encouraged by customer take-up of G services as network
infrastructure was rolled out more widely across the UK market
during the year. The significantly improved network quality and
download speeds have encouraged customers to take richer data
packages, which in turn drive increases in monthly line rental. Our
executional focus remains strong, with our tablet-based sales tool,
Pin Point, continuing to drive customer satisfaction and conversion,
to the benefit of customers, network operators and ourselves.
Outside the UK, the business has made good progress on improving
its critical mass through partnerships and we continue to focus on
exporting the UK business’ proven operational excellence. In the
Netherlands, a weakened consumer environment caused some
year-on-year deterioration in performance, but we have made excellent
progress on our partnership with Media-Markt Saturn and expect
the roll-out of our proposition across their estate to be completed
by the middle of the forthcoming financial year. We have also made
good progress with the Metro Group inGermany, with trials launching
early in the coming year, and while performance was affected by
challenges in the German wholesale market, our connections
aggregation business performed very strongly. Elsewhere, we saw
aresilient performance in Spain, despite the challenging market
and consumer backdrop, and a strong performance from our Irish
business, which launched a highly successful partnership with
Harvey Norman during the year.
We have made good progress with Connected World Services, continuing
to focus on building a pipeline for future growth, and launched our
preferred supplier partnership with Samsung, through which we
have now opened  Samsung Experience Stores in seven countries.
The declines experienced in the prepay market in recent years
continued, reflecting reduced subsidies from network operators
following regulatory cuts in mobile termination rates and roaming
charges, in addition to the migration of prepay customers to postpay.
As a result of continued weakness in the prepay segment, although
we held our market share, connection volumes dropped year-on-year
by .% from .m to .m.
CPW opened or re-sited  stores during the year and closed  stores,
ending the year with , stores, of which  were franchise stores,
up from  at March  (all excluding France). The increase in
franchise stores primarily reflects growth in Spain, where we have
focused on using the successful franchise model to maintain scale
without the fixed costs of leasing our own stores. The decrease in
our own stores also reflects net closures in Germany and Portugal.
CPW’s overall gross margin increased year-on-year to £m
(:£m) while CPW’s gross margin percentage increased by
basis points year-on-year to .% (: .%), largely reflecting
a lower proportion of low margin dealer revenues. Gross margins on
the core business declined marginally, principally reflecting a higher
year-on-year weighting towards high-end handsets, which have a
lower gross margin percentage than other categories, in the first
half of the year. Average cash gross margins on our core categories
were slightly improved year-on-year, in part reflecting the effects
ofhigher value G customers, together with the continued benefit
ofincremental revenues beyond the minimum contract period.
Operating expenses increased by .% to £m (: £m).
Savings from reduced numbers of our own stores, last year's
reorganisation programme and the unwinding ofacquisition lease
liabilities weremore than offset by investment in the retail sales
journey, partnerships and Connected World Services.
Depreciation and amortisation decreased to £m (: £m).
Thisreduction reflects the full year effect of outsourcing contracts,
through which responsibility for capital investment has transferred
to third parties, as noted last year. Depreciation and amortisation
have also been affected, in line with expectations, by the acquisition
accounting exercise, which resulted in the revaluation of CPW
Europe’s non-current assets to fair value. As a result of this, and
aspreviously noted, the ongoing depreciation and amortisation
charge is closer to our anticipated ongoing level of capex in the
corebusiness, before investment in Connected World Services
andpartnerships.
CPW’s pro forma Headline EBIT increased from £m to £m,
reflecting the factors noted above.
The interest charge for the year was £m (: £m), reflecting
additional borrowing costs following the CPW Europe Acquisition.
CPW had an effective tax rate of % on Headline earnings (: %).
OPERATING CASH FLOW (PRO FORMA BASIS)*
2014 2013
£m £m
Headline EBITDA* 201 208
Working capital (63) 89
Capex (65) (61)
Operating free cash flow 73 236
* Headline EBITDA is presented on a pro forma basis for consistency
withearnings analysis.
Headline EBITDA decreased year-on-year to £m (: £m),
primarily reflecting the incremental investment in operating
expenses noted above.
As anticipated, the business saw some working capital absorption
during the year, reflecting growth in our postpay volumes, together
with an increase in average revenues as G connections became a
more significant proportion of sales during the year. The business
recorded a working capital outflow of £m, compared to an inflow
in the year toMarch of £m.
Capex spend increased to £m (: £m), driven principally
bythe IT investment in our honeyBee platform, which will support
the continued development of both our retail and Connected World
Services businesses.