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Aplying a SWOT analysis: STRENGTHS 1. Autofone (AP) has a strong brand name- among the top 20 in Arcadia. This is useful in selling AF products across the three divisions. 2. AFRetail has a differentiation strategy or what Porter terms a "unique value proposition" by being the only mobile phone company to offer the products of all mobile phone retailers, and all ofthe network providers. As the CEO recognises this is its "central business idea". 3. AFretail is close to becoming the market leader. Its market share has increased from 20.5% in 2006 to 22.2% in 2010. Its current relative market share is .98 and is growing faster than the current market leader, 09Net. 4. AFRetail has is reasonably solvent although profitability has fallen significantly. Its gearing is 36.7% and interest cover is 2.75. This however represents a deterioration since 2008 when the equivalent figures 20.7% and 8.1 times. The cost of debt has fallen to 7.3% compared to 8.6% in 2006. Financially AF is not in crisis. 5. AFReatial has been a cash generator and the cash has funded its diversification into on-line sales and insurance. These investments are just beginning to payoff. WEAKNESSES 1. There is a significant decline in gross profit (from 32.8% to 26.5%) operating profit (from 12.1% to 3.2%) and net profit after tax margins (from 9.8% to 1.5%) in the period 2006 to 2010. 2. The trade receivables are measured in years - over 4 years (up from 3.67 years in 2006.) This could reflect long term contracts with customers but is excessive and worrying. Over $1 billion is tied up in receivables. 3. Stock days in 2010 are 504 days, down from 530 days in 2008. Besides the working capital locked up in stock the worry is that stock may have to be written off given the rate of technological change in the industry. 4. The current asssets to liabilities ratio is just over 1- roughly similar to 2006. The acid test ratio is more worrying at 0.87 to 1 in 2010 (down from 0.89 to 1 in 2006) 5. There are significant differences between the CEO and the longest serving directors about . the strategic direction of AF. OPPORTUNITIES 1. To tackle the working capital and liquidity problems at AF retail in terms of reducing receivabales and reducing stock. . 2. To increase market share and become market leader. This should generate scale economies and increase profit margins. 3. To exploit the revenues and profits offered by frugal phone, provided the pricing is right. 4. To exploit the rapid growth in the on-line sales sector. THREATS In terms of the 5 forces model: 1. The retail sector was made much less attractive when the network providers entered. However further entrants are unlikely- the industry is less attractive and the the network providers are limited to 4 until 2020, 2. The threat from substitutes is significant. Significantly on-line sales are growing at 15% per annum and represent an increasing percentage of mobile phone sales. However this threat has been covered by AFRetail's diversification into on-line sales. 1