Event Brief of Best Buy Europe Strategic Update(Webcast Only) - Final.(Interview)(Broadcast transcript)(Report)

PARTICIPANTS

. Peregrine Riviere, The Carphone Warehouse, Director - Corporate Affairs . Bob Willett, Best Buy International, CEO . Charles Dunstone, Best Buy Co., Inc., CEO - The Carphone Warehouse Group . Jude Buckley, Best Buy Co., Inc., Chief Merchant and Marketing Officer - Best Buy Mobile . Shawn Score, Best Buy Co., Inc., President - Best Buy Mobile . David Berg, Best Buy Co., Inc., COO - Best Buy International Limited . Roger Taylor, Best Buy Co., Inc, CEO - Best Buy International Limited . Brian Dunn, Best Buy Co., Inc., President, COO . Jennifer Driscoll, Best Buy Co., Inc., VP - IR . Andrew Hughes, UBS, Analyst . Brian Nagel, UBS, Analyst . Matt Fassler, Goldman Sachs, Analyst . Alan Rifkin, Merrill Lynch, Analyst . Greg Melich, Morgan Stanley, Analyst . Chris Horvers, JPMorgan, Analyst . Steve Malcolm, RFB, Analyst . James Crawshaw, Kaupthing Singer & Friedlander, Analyst . Mitch Kaiser, Piper Jaffray & Company, Analyst

OVERVIEW

BBY reported that it expects revenue of GBP6-7b by 2013 for Best Buy Europe, making approx. 5% EBIT margin.

PRESENTATION SUMMARY

S1. Strategic Update (B.W.) 1. Highlights: 1. BBY got 3,800 units across the world. 2. Delivered the light into the international game. 1. For the last five years, Co. has been driving customer centricity strategy. 3. Started to embark upon international expansion. 1. Canada: 1. Has two brands, excess of 35% of market share. 2. Grown significantly. 2. China: 1. Outsourcing business has 171 stores in China. 2. Couple of BBY stores and remainder of Five Star. 3. Recent partnership with Carphone Warehouse and the addition of the two and a half thousand stores across nine countries in Europe. 4. Diversified base. 5. Late into the game internationally. 6. Drilling carefully and steadily under BBY. 3. Website or Web business and services business is now the dominant services business in US. 4. Co. is able to anticipate change, consumer trend and new business is the head of the market. 1. Due to this, Co. has been able to key driving ROIC even with the changes. 4. Strategic Issues: 1. Next source of topline growth. 2. Growth of relationships with customer across multiple brands. 1. Started four-five years ago the customer centricity strategy. 3. Technology is inconceivable in a multi-located business today. 1. One of the big things Co. has been doing for last 4-5 years is to drive growth to efficient technology. 2. Co. has gone from having multiple operating systems to massive 760 different capabilities from a technology perspective down to some 200 and they constantly rationalizing. 4. Invests heavily in technology. 5. Contacts to being a growth Co., overall at $40b and set itself a goal and a definitive plan of $80b by 2013. 1. Not doing things ahead of consumers' ability to take advantage of it. 2. Focused on this because gross will have 35% shares in US. 3. Co. still has only 22% share. 4. Still has room for significant growth. 2. Strategic Responses: 1. Tesco, Carphone, and Wal-Mart, Co. is driving additional formats. 1. Carphone has 26 different formats. 2. Wal-Mart is into double figures in terms of different formats. 2. Private label brands exclusive brands, developing brands, developing products specifically for people, people are moving this way. 1. Most retailers has extended private label brand, particularly upon private label can be 40-50% of sales in some places, certainly not less than 20%. 2. In US, it is a much lower percentage. 1. Looking to becoming much more of service business. 2. Gives the ability to take the interaction with consumer into the consumer homes, 24 hours a day. 3. Done lot of research and wants vendor partners to get maximum experience from it. 3. Most of profit pools are heavily store-based at the moment and Co. wants to move those profit pools towards services. 1. Carphone warehouses has great capability around annuity customers. 1. Partnership helps Co. to accelerate this, above all de-risk it. 3. Growth Agenda: 1. Wants to be the Number 1 in any form of measure. 2. Wants to achieve the highest market share. 1. National market share is interesting, but local market share is even more interesting. 3. Innovation: 1. Invested heavily in US and created great capability, which has now moved to China, now into Canada, it is also down the reverse. 2. In Carphone Warehouse, taken their expertise around setting mobile phones. 1. Tried 5-6 times to grow Co.'s market share. 3. In 2003 and 2004 started the JV. 1. Co.'s business escalated over 100% growth. 4. Leveraging innovation is necessary. 5. Invested heavily for the last 4-5 years in Co.'s infrastructures. 6. China: 1. Infrastructure is based upon what it has in US, as is Canada, as will be Europe. 7. BBY's supply chain, which it food industry, based much on Tesco. 1. Taking it across Europe. 8. Not re-inventing the wheel. 1. 15 years later, in the late 1970's, Co. moved into target marketing. 2. 15 years ago, moved into personalized marketing. 4. Next Five Year Update: 1. US is around 1,400 and this includes anything that Co. eventually does. 1. In Canada, looking to have some 200-250 stores, added about 187 today over the next five years. 2. In Europe, Co. is looking 100-200 stores starting this coming summer with 1-3 stores. 3. US opened in excess of 100 stores a year. 5. Turkey: 1. Next year 1-2 stores. 6. China: 1. Some 250-300 of next five years. 2. Looking at some 5-10 stores. 3. Will have six plus five by Christmas and will be opening next year. 7. Mexico: 1. Will be opening probably in last week in Nov., first week in Dec. 2. Won't open until Co. is 100% ready. 3. Spends a lot of time learning. 1. Before Co. spends $0.01 internationally, did a tremendous amount of research. 2. Spends lots of time and energy doing this research. 4. Co. has to break its work down as a leadership team into core activities, optimization activities, and transformation. 1. Learnt to manage. 2. Started to leverage private label. 3. Started to build an international team. 4. Has got a lot of people from Canadian business embedded in Chinese business. 5. Other people embedded in Mexican business etc. 6. Building the skills to do this work from within. 8. China: 1. Went through a process of harmonization and stabilization while Co. started to build with the capability. 2. Started to differentiate the operating model from anyone else. 3. Everyone knows that manufacturers own the stock. 1. Changed this model completely. 2. Took a year to do that. 3. Took an excess of $15m in its first BBY store in the first year. 4. Made an opening profit from it. 5. Did not make a total profit because of the start-up cost, but had some real success. 6. Took another 15 months growth in second store to learn, now starting to scale. 9. Critical Factors: 1. Got a pretty good capability that it adopted from H.E. Corney. 2. Looks about 57 different attributes about every developed country and underdeveloped country. 3. Has the ability to repatriate profits, legal system and so on. 4. Going international is about skill and not scale. 5. European market went for a three-day week. 4. Organizational Structure: 1. One clear message, if one takes this simple trade think of everything below ground and everything above ground. 1. Everything above ground that the customer can see, Co. wants to individualize by market. 2. Everything below ground that the customer can't see, Co. wants to leverage that. 3. Investments that Co. is making in fact this year is Co.'s heaviest investment year from an infrastructure perspective. 1. Co. invested heavily in its technology infrastructure supply chain, store systems this year to deal with this. 2. Co. will be leveraging the investment and this space service environments across all of its countries. 5. Summary: 1. Co. had this partnership for some four years. 2. Co. hasn't just jumped into Europe, it just hasn't jumped into JV. 1. Spent a lot of time from the start of the spring of 2004 working together developing the JV. 2. Piloted 30 stores in US. 3. Leveraged it, went to 181, had some massive success. 4. Did the whole chain this year. 3. Partnership has had a pretty robust period of 3-4 years in learning how to operate and work together and sharing ideas.

S2. Evolution of Carphone's Retail Model (C.D.) 1. Solving Customers' Problems: 1. Problem customers have today is they have got all of devices that all of which should make their lives easier, many of which can talk to one another, and they should be able to have seamless experience as they use technology. 1. It just does not happen right now. 2. People are incredibly frustrated. 2. BBY's model is going against the stream of what many people in retail have been trying to do. 1. Most people in retail have been trying to take labor out of their stores and make stores more and more easy for customers to shop themselves. 3. Trained over last nine months over 7,000 people. 1. Every single person that works in any customer-facing role within the Co. has been on very substantial training course about selling laptops, connectivity, data, wireless, broadband. 4. Just started a process of removing old sales commission from Co.'s stores. 1. Now in the whole of Greater London, there are no commissions at all within Carphone Warehouse. 2. Has planned to roll that out to the rest of Co. by Jan., so everyone is just on a big salary. 3. There is a bonus across the store, which is primarily based on what Co. calls the Net Promoter Score. 1. Net Promoter Score basically is how likely if someone to recommend Co. to one of their friends. 2. Broadband: 1. Broadband continues to grow strongly as a mixture of fixed and mobile. 2. Market-by-market, UK is still the largest market. 3. Other countries, coming up, places like Spain and Sweden. 4. Selling data connections is the top business now. 1. This has changed in the last 18 months. 3. Laptops: 1. This time last year, Co. didn't laptops anywhere within the Co. 1. As of today, Co. has over 10% market share in UK of the laptop market. 1. This is by units rather than by value. 2. Has to fight hard with the laptop manufacturers to get them to embrace the idea of subsidized laptops in the first place. 2. Increasing Propensity: 1. Other thing that Co. has seen is an increasing propensity as it gets more sophisticated in the range of products that it offers, and customers are more sophisticated in what they wanted. 2. Believes that there was an expectation that Co. would only be selling low-end products. 1. Has a proper good range now, and will continue to add to that. 3. Got much better at the accessories that Co. is selling within the product. 1. Accessories are a very significant part of the marketplace. 2. Moved earlier this year to instant fulfillment just as Co. does with mobile phones, as a result, attachment rate on accessories improved substantially. 3. Accessories attach rate is now off at a staggering 38% of products. 1. This would compare very favorably with what is seen in mobile phone marketplace. 4. By adding subsidy to the product, Co. will see the penetration grow strongly. 4. Stage 3 of Evolution: 1. About to enter Stage 3 of evolution. 2. Evolution was about fundamentally being in mobile marketplace innovating with the new products Co. can sell to customers. 3. Working hard to make the BlackBerry a consumer product has been a success. 1. One of Co.'s great successes is to include Geek Squad setup with every single Blackberry that Co. sells. 1. It continues to increase Blackberry sales. 2. Has amongst the lowest returns of any one within the industry. 5. Wireless World: 1. Series of new stores that Co. is opening: 1. In Europe, called Wireless World. 2. In US, called [SAT 2.0]. 2. In Westfield Centre in West London, Co. will shortly be opening at [Oct.-end]. 1. Has a store that is pretty big by Carphone Warehouse standards of 3,000 sq. ft. 3. US version of these stores, two of them will open at the end of this week. 1. They will have free trading by Christmas as Co. will. 2. Will be selling laptops and that would be a key feature of what Co. sells, all of them subsided alongside by taking broadband or mobile broadband connection, a lot more peripherals within the product. 3. There will be dedicated areas for BlackBerry, Apple iPod and Apple products. 1. There will be separate Apple sections. 2. Expects to be selling Apple laptops as well within these stores. 3. Will be selling a very significant Apple range. 4. Will be making clearly a lot of effort out of smart phones. 5. iPhone has been a transforming product for BBY in terms of what it does as a product. 1. It is …