Strong growth from TalkTalk Business (H1 Corporate revenues +9.3%) Revenue growth accelerating and on track to deliver >4% full year growth

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Barnard Lucas
5 years ago
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4 Accelerating broadband (+25,000), fibre (+101,000) and mobile (+64,000) net adds More TV net adds than the rest of the market put together (+300,000 net adds) Significant reduction in year-on-year churn to 1.4% Strong growth from TalkTalk Business (H1 Corporate revenues +9.3%) Acquisition of Virgin Media s substantial National customer base Revenue growth accelerating and on track to deliver >4% full year growth EBITDA margin of 12.6% in H1 (9.0% in H1FY14) Operating FCF up 120% Demand for broadband, fibre and mobile stronger than expected earlier in year Expect incremental 20m- 25m SAC investment to take advantage of stronger volumes in H2 Interim Dividend up 15% to 4.6p 4

'14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 15k 30k 52k 73k 95k 142k 177k 207k 241k 308k 85k 117k 152k 175k 202k 236k 260k 284k 308k 348k 5k 7k 9k

5 4.047m 4.043m 4.053m 4.063m 4.071m 4.076m 4.186m 4.196m 4.206m 4.221m 1,102k 1,217k 917k 732k 557k 390k 80k 230k Q1 '13 Q2' 13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q2' 13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 15k 30k 52k 73k 95k 142k 177k 207k 241k 308k 85k 117k 152k 175k 202k 236k 260k 284k 308k 348k 5k 7k 9k 10k 12k 14k 15k 17k 19k 22k Q1 '13 Q2' 13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q1 '13 Q2' 13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q1 '13Q2' 13Q3 '13Q4 '13Q1 '14Q2 '14Q3 '14Q4 '14Q1 '15Q2 '15 5

6 6 (19k) (4k) 10k 10k 8k 5k 7k 10k 10k 15k Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 7k 15k 22k 21k 22k 47k 35k 30k 34k 67k 24k 32k 35k 23k 27k 34k 24k 24k 24k 40k 80k 150k 160k 167k 175k 185k 185k 115k Broadband Fibre Mobile TV

1.46 1.35 1.24 1.12 1.04 H1'13 H2'13 H1'14 H2'14 H1'15 Phone and Broadband = 1RGU 2.0% 1.

7 H1'13 H2'13 H1'14 H2'14 H1'15 Phone and Broadband = 1RGU 2.0% 1.8% Fastest broadband growth in 4 years More TV net adds than the rest of the market Larger base from which to upsell Seeing accelerating demand for broadband, mobile and fibre, and sustained growth in TV 1.6% 1.4% 1.2% 1.0% Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2'15 7

Significant year-on-year reduction in call volumes (down

programmes through root cause analysis Driving higher

product take-up 4,858 4,333 3,556 2,799 2,499 A

8 7.9m 6.8m 7.1m 6.2m 5.3m 4.7m H2 '12 H1 '13 H2 '13 H1 '14 H2 '14 H1 '15 7,635 Significant year-on-year reduction in call volumes (down 24%) and Ofcom complaints (down 30%) Service improvement programmes through root cause analysis Driving higher rates of fault resolution and online selfservice Multiple product take-up 4,858 4,333 3,556 2,799 2,499 A continuing journey that is at the heart of Making TalkTalk Simpler H2 '12 H1 '13 H2 '13 H1 '14 H2 '14 H1 '15 8

9 3.1% 3.6% +44.7% 12.6% 1.7% 1.9% 9.0% 110m 76m Q1'14 Q2'14 Q1'15 Q2'15 H1 '14 H m -12.0% 153m % 4.60 H1 '14 H1 15 H1'13 H1'14 H1'15 9

10 Revenue, Overheads and Pre-SAC EBITDA Guidance unchanged Revenue growth of at least 4% Overheads as a percentage of revenue < FY13 Pre-SAC EBITDA margins > FY13 Expect a more modest reduction in year on year SAC than envisaged in previous guidance Strong year-on-year growth in EBITDA and EBITDA margin Expect accelerating volumes through H2 to drive additional SAC of 20m- 25m Lower cost per add Net debt Capex - 6% of revenue Cash exceptionals - 30m- 35m Dividend No less than 15% growth 10

11 11

Trading approach is delivering results in line with our plan Revenue growth accelerating, SAC reducing, EBITDA and OFCF up y-o-y Revenue Growth 3.

12 Trading approach is delivering results in line with our plan Revenue growth accelerating, SAC reducing, EBITDA and OFCF up y-o-y Revenue Growth 3.3%; EBITDA margin 12.6% Dividend up 15% year-on-year, in line with commitment On track to deliver 4% revenue growth and 25% EBITDA margin by FY17 12

13 million H1 FY15 H1 FY14 Growth Revenue % Gross Profit % Gross Margin 55.1% 55.2% Opex (217) (215) EBITDA pre SAC & Marketing % EBITDA pre SAC & Marketing Margin 30.2% 29.7% +50 bps SAC & Marketing (108) (116) TV SAC (45) (58) EBITDA (1) % EBITDA Margin 12.6% 9.0% +136bps Profit Before Tax % Tax (7) (2) Effective Tax Rate 20% 20% Profit After Tax % EPS % (1) Excluding exceptional items and amortisation of acquisition intangibles 13

14 million H1 FY15 H1 FY14 Growth EBITDA % Working capital (11) (8) Capex (55) (48) Operating free cashflow % OFCF margin 5.1% 2.4% Interest and taxation (13) (8) 63% Free Cashflow % Acquisition & Share purchase (4) (22) Exceptional spend (11) (8) Dividend (74) (62) Net cash flow (58) (80) Opening Net Debt Closing Net Debt Net debt / EBITDA 2.25x 2.33x 14

3.3% y-o-y growth in H1 On-net (+5.9%) On-net +5.9% 843m Upsell & Price Base Voice VAT Corporate Off-net 871m +3.3% Base growth Price & proposition Voice & VAT Corporate +9.

15 3.3% y-o-y growth in H1 On-net (+5.9%) On-net +5.9% 843m Upsell & Price Base Voice VAT Corporate Off-net 871m +3.3% Base growth Price & proposition Voice & VAT Corporate +9.3% Data +55% H1 FY14 H1 FY15 Off-net -33.3% Only 5.3% of group revenues (FY14: 8.2%) Corporate Off-net ARPU Base 437m Acceleration in Q2 (+3.6%) 434m On-net +6.5% (base growth and ARPU) +3.1% Q1 FY % Q2 FY15 15

On-net revenues to accelerate through H2: ARPU Base Corporate Off-net +>4.

5%) more fully unbundled customers than at the end of H1 FY14 +3.

customers H1 FY15 H2 FY15 Significant further acceleration in growth (broadband, mobile

16 On-net revenues to accelerate through H2: ARPU Base Corporate Off-net +>4.7% Higher opening base 254k (+7.5%) more fully unbundled customers than at the end of H1 FY % 660k (+118%) more TV customers 112k (+47%) and 166k (+117%) more mobile and fibre customers H1 FY15 H2 FY15 Significant further acceleration in growth (broadband, mobile and fibre) ARPU growth Growth in Corporate through data and traction in SoHo/SME broadband Continued voice decline and VAT impact H1FY14 H2FY14 H1FY15 H2FY15 Mobile Fibre TV BB 16

17 76m Gross Profit & Other Cost savings Volumes CPA and marketing 110m Growth in pre SAC EBITDA margin through growth in revenue gross margin cost saving initiatives H1 FY14 H1 FY15 SAC investment in BB, mobile, TV and fibre offset in part by reducing cost per add 17

18 Volume Cost savings Continued Investment in the network has lead to a significant drop in network downtime, one of the key drivers of churn 215m Network 217m Cost savings through MTTS including 25.5% 24.9% H1 FY14 H1 FY15 Call volumes (down 24%) Headcount Engineers Expect FY overheads < FY13 (23.7%) 18

19 Investment in growth 25,000 broadband net adds 174m Volume CPA 153m 300,000 TV net adds 64,000 mobile net adds 101,000 fibre net adds CPA reduction H1 FY14 H1 FY15 TV CPA down from 170 in H1 FY14 to 125 in H1 FY15 driven by Essentials and self install BB, mobile and fibre CPA reduced through channel mix 44% sales online (H1 FY15: 33%) 19

497m 44m 11m 4m 13m 74m 555m Acquisition spend: 3m for the Youview joint venture and 1m for the Yorkco joint venture Dividend payment in line with our commitment and underlines our confidence in

20 497m 44m 11m 4m 13m 74m 555m Acquisition spend: 3m for the Youview joint venture and 1m for the Yorkco joint venture Dividend payment in line with our commitment and underlines our confidence in future growth prospects 2.33x 2.25x Net debt b/f Operating Free Cashflow Exceptionals Acquisition & share repurchase Interest & Tax Dividend Net debt c/f Higher interest cost than the prior year due to payment of facility fees for the new debt facility of 5.3m Net debt to EBITDA ratio reduced to 2.25x 20

21 million H1 FY15 H1 FY14 Cash outflow 11 8 Ethernet Settlement 0 (3) Making TalkTalk Simpler P&L charge 9 8 Ethernet Settlement 0 (3) Making TalkTalk Simpler 9 9 Operating Efficiencies 0 2 H2 Cash exceptionals relating to Making TalkTalk Simpler and our acquisition of the Virgin Media National base are expected to be 19-24m 21

22 Revenue growth accelerating to >4% for full year Profitability improving as benefits of revenue growth and reductions in operating costs and SAC flow through on track to deliver 25% by FY17 Improvements in OFCF coupled with careful capex management provide confidence in continued Net Debt reduction 22

23 23

24 Fibre to the Premise Mobile Expand capacity and utilisation Making TalkTalk Simpler Consumer quad play Business Data products TV for Everyone Grow Business Market Share 4% revenue CAGR and 25% EBITDA by FY17 24

25 96% population coverage unbundling programme completed We will expand bandwidth by 50x-100x while holding capex to 6% of revenue Acquisition of Virgin Media s National (DSL) off-net base 97,700 customers at 30 Sept 2014 Expect to migrate substantial proportion through calendar 2015 In advanced discussions to dispose of offnet base 76m BT TalkTalk Saving Consumer Business Unlimited broadband Saving based on contract length 25

26 80 % 33 % Adding more TV customers than rest of market put together TV base gone from 16% to 33% of base Attracting new customers to TalkTalk c25% of TV customers TV customers churn less than dual-play customers and are beginning to deliver incremental content ARPU c 10 average ARPU (per customer taking paid content) On track for the vast majority of customers to take TV 26

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28 348k 308k 284k 260k 236k 202k 175k 152k 117k 85k Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 64,000 net adds in half taking base to 348, % of unbundled base vs 6.9% a year ago Mobile customers continue to show lower churn and higher NPS Launched fully integrated Quad-Play bundles in October, saving customers over 200 vs Virgin Media 28

29 Entry level SIM Entry level handset Market leading Quad play 3.75 per month 300 minutes Unlimited texts 600MB data 12m contract 3.75 per month Samsung Galaxy White 300 minutes Unlimited texts 600MB data Plus TV Unlimited broadband Anytime calls Free SIM worth minutes 250 texts 200MB data Only available to TalkTalk broadband customers 29

308k 241k 207k 177k 142k 95k 73k 52k 30k 15k Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 101,000 net adds in half taking base to 308,000 8.4% of on-net base vs 4.

30 308k 241k 207k 177k 142k 95k 73k 52k 30k 15k Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 101,000 net adds in half taking base to 308, % of on-net base vs 4.2% a year ago Demand for TV in households with poor broadband speeds c62% of fibre customers take TV c14% of TV customers take fibre At the right price, customers see value in proposition Margin squeeze regulation from 2015 will in time, lead to lower wholesale costs and allow us to drive take-up further 30

31 162m +9.3% y-o-y 177m +55% y-o-y H1 FY14 H1 FY15 H1 FY14 H1 FY15 Continuing strong growth in Data revenues (+55% y-o-y) drives Corporate growth of 9.3% in H1 Strong growth existing customers and new contract wins Significant opportunity to drive growth in small business broadband 31

32 Tariff Simplification > 15m In advanced discussions to sell off-net base 65% of live TTB tariffs eliminated SMPF upsell accelerating AOL rebrand in H2 Brilliant Self Service > 10m Consumer Welcome Centre and Service Centre launched Online sales in TTB live H1 call reductions TalkTalk app downloaded by 300k customers SIMPLER Products and Processes = BETTER Customer Service and Lower Churn = LOWER SAC & CHEAPER Costs to Serve Systems Upgrade and Transformation > 10m New simplified B2B systems live New fault diagnostic tool launches H2 Consumer billing system upgrade H2 Leveraging Data > 5m 3 rd party systems/ support decommissioned Commercial dashboard reporting launched TTB revenue data alignment 32

33 H1'13 H2'13 H1'14 H2'14 H1'15 Total SAC & Marketing costs peaked in H1FY14 Reducing Cost per Add TV CPA down to 125 from 130 in H2FY14 and 170 in H1FY14 BB, mobile and fibre CPA reduced by more economical channel mix Online sales up to 44% from 33% a year ago Reducing total SAC through lower churn Significant year-on-year reduction to 1.4% in Q2 (Q2 FY14: 1.7%) On track to continue to reduce churn to benchmark % 33

4.0%+ H1 12 H2 12 H1 13 H2 13 3.4% 3.1% 3.

34 4.0%+ H1 12 H2 12 H1 13 H % 3.1% 3.6% + Base growth & ARPU + New products + TV + Mobile + Fibre + TalkTalk Business + Data in Big + Partners + Big in Small - Off-net base - Voice (0.1%) FY14 Q1 15 Q2 15 FY14- FY17 (1.9%) (4.0%) (4.8%) 34

35 SAC reduction through lower CPA SAC reduction through lower Churn c 30m 25% 9.0% 12.6% Incremental Revenue at constant gross margin > 120m Making TalkTalk Simpler > 40m > 70m EBITDA 475m Implied Revenue of 1.9bn (4% CAGR) EBITDA 76m EBITDA 110m H1 FY14 H1 FY15 FY17 35

36 36

4.2million points of presence 3,000 Unbundled Exchanges MSAN & DSLAM 96% population coverage

circuit supplied by BTOR or VM Collector Ring 10Gbps optical circuit or dark fibre supplied by

37 4.2million points of presence 3,000 Unbundled Exchanges MSAN & DSLAM 96% population coverage Collector Node to extend reach of Core Network Core Optical Network 2 separate national DWDM networks with 8Tbps (Huawei) and 2.2Tbps (Infinera) capacity FTTC Collector Node Copper Fibre Exchange Backhaul 1Gbps optical circuit supplied by BTOR or VM Collector Ring 10Gbps optical circuit or dark fibre supplied by BTW, SSE, GEO, VM and Eirecom Long term leases in a competitive market with no capacity constraints The only provider of wholesale broadband and Fibre other than BT Wholesale 37

April Fujitsu announced as build partner Digging in York has begun Proposition due in early

38 Progress to date 1 Gig speeds to homes and businesses Will cost TT c50% of current BTOR wholesale charge for 80Mbps End to End network with no dependence on BTOR JV signed in April Fujitsu announced as build partner Digging in York has begun Proposition due in early 2015 Priced to drive rapid take-up Trial in York Potential to scale to 10m premises in long term 38

Phone & Broadband Launched TV & Mobile Launched Integrated

broadband network and customer base Launched tripleplay packages

TalkTalk customers 33% of fully unbundled base taking TV 9% of

of customers to take triple-play Scale quad-play Will use

39 Phone & Broadband Launched TV & Mobile Launched Integrated Quad-Play Scale Quad-Play Provider Built scale fixed phone & broadband network and customer base Launched tripleplay packages Launched mobile handset and SIMonly tariffs available only to TalkTalk customers 33% of fully unbundled base taking TV 9% of base taking mobile Launched quadplay package Expect vast majority of customers to take triple-play Scale quad-play Will use TalkTalk 4G spectrum to build small cell network delivering better service at lower cost 39

40 Accelerating growth in broadband, mobile and fibre Fastest growing TV business in the UK On track to deliver at least 4% revenue growth in FY15 and significant step up in profitability Churn and cost per add reduced significantly y-o-y EBITDA up 45% y-o-y Operating FCF up 120% y-o-y On track to deliver 4% CAGR in revenue and 25% EBITDA margin by FY17 In a strong position to benefit from market transition to quad-play through fibre-to-the-premise and mobile Significant long term growth potential beyond FY17 targets 40

41 41

42 million H1 FY15 H1 FY14 Change Headline earnings % Weighted average shares in issue Weighted average shares in employee trust (34) (40) Shares for basic EPS calculation Headline EPS - Basic 2.9p 0.8p 263% Dilutive effect of share options Shares for diluted EPS Headline EPS - Diluted 2.9p 0.7p 314% Full year weighted average shares in issue is expected to be c[955m] 42

43 million Statutory Headline Comments EBITDA P&L exceptional 9m Working Capital (13) (11) 2m exceptional provision movement Capex (55) (55) Operating Free Cashflow Exceptional spend 0 (11) Share buy back and investments (4) (4) Tax & Interest (13) (13) Dividend (74) (74) Net cash flow (58) (58) 43

44 Multiple (c85) collector node Locations across the UK & N. Ireland Multiple backhaul circuits into the Edge Network Diverse connection into two different edge locations Built to be resilient and economically scalable Peaks at 1.25Tbps of bandwidth utilisation across the UK ADSL2+, Annex M, Fibre broadband, Ethernet, EFM, IPVPN Session Initiation Protocol ( SIP ), Time Division Multiplex ( TDM ), inbound & voice apps The only provider of wholesale broadband and Fibre other than BT Wholesale 44

TalkTalk Business WiFi + In-premise 4G Fibre

low cost connectivity to our customers homes and

45 TalkTalk Business WiFi + In-premise 4G Fibre Ultrafast Cabinet Fibre Ultrafast POP Fibre Backhaul Collector Node WiFi + In-home 4G Fibre TalkTalk Consumer Seamless, genuinely unlimited, low cost connectivity to our customers homes and businesses which will drive growth for the foreseeable future 45

46 GOOD BETTER BEST Simply Broadband Essentials TV Plus TV 3.50* 8.50* 18.50* Totally unlimited broadband, no caps and no speed loss at peak times Britain's safest connection, with award winning HomeSafe security service Free calls between all TalkTalk customers * Excluding Line Rental at per month Totally unlimited broadband, no caps and no speed loss at peak times Unlimited eve & w/e calls to UK landlines including 0870 and 0845 numbers Britain's safest connection with award winning HomeSafe security service Free calls between all TalkTalk customers FREE YouView box worth Freeview channels some in HD 7-day catch up with BBC iplayer, ITV Player, Demand5 and 4oD Pause for up to 30 minutes Access to Now TV & TalkTalk BOX OFFICE Add entertainment channels with Kids or Picturebox TV Boosts a month at a time Totally unlimited broadband, no caps and no speed loss at peak times Unlimited anytime calls to UK landlines including 0870 and 0845 numbers Britain's safest connection with award winning HomeSafe security service and Super Safe Boost Free calls between all TalkTalk customers FREE YouView + box with PVR, worth Sky Entertainment Channels 70+ Freeview channels some in HD Pause, rewind & record, including whole series record at the touch of a button Record over 200+ hours of freeview 7-day catch up with BBC iplayer, ITV Player, Demand5 and 4oD Access to Now TV & TalkTalk BOX OFFICE Add entertainment channels with TV Boosts like Sky Sports and Sky Movies a month at a time Free Mobile SIM worth 90 including a monthly allowance of 100 minutes, 250 texts & 250Mb of data 46

47 TalkTalk Sky Virgin Media BT Plusnet Simply Broadband Unlimited BB + Wkd Calls 50 MB Broadband Only Unlimited Broadband + Wkd calls Unlimited Broadband + Wkd calls Subscription Download Totally Unlimited Totally Unlimited Unlimited Totally Unlimited Unlimited Line Rental N/A Monthly cost (inc LR) One off charges month total Saving with TT Monthly with VLR N/A N/A month total Saving with TT Excluding introductory offers 47

48 TalkTalk Sky Virgin Media BT Essentials TV (Eve & Weekend calls) Lite box Original Bundle inc Broadband Lite (Weekend calls) Big Easy 50MB (Weekend calls) Broadband, TV Starter & Weekend calls Subscription Download Totally Unlimited 2 GB Unlimited 10 GB Line Rental Monthly cost (inc LR) One off charges month total Saving with TT Monthly with VLR N/A month total Saving with TT Excluding introductory offers Comparison includes providers entry level call packages 48

49 TalkTalk Sky Virgin Media BT Plus TV (Anytime calls) Youview PVR Original Bundle inc Broadband Unlimited with Anytime Calls Big Easy 50MB with Anytime calls Unlimited Broadband & TV Essential with Anytime calls Subscription Download Totally Unlimited Totally Unlimited Unlimited Totally Unlimited Line Rental Monthly cost (inc LR) One off charges month total Saving with TT Monthly with VLR N/A month total Saving with TT Excluding introductory offers 49

50 TalkTalk Sky Virgin Media BT Essentials TV with Fibre M Lite Box (Eve & Weekend calls) Original Bundle with Fibre Unlimited (Weekend calls) Big Easy 50MB (Weekend calls) TV Starter, Unlimited Infinity 1 & Weekend calls Subscription Download Totally Unlimited Totally Unlimited Unlimited 20GB Line Rental Monthly cost (inc LR) One off charges month total , Saving with TT Monthly with VLR N/A month total , Saving with TT Excluding introductory offers 50

51 TalkTalk Plus TV (Anytime calls) Youview PVR Virgin Media Big Easy 50MB with Anytime calls Subscription Entry Level Sim Inclusive 5 Download Totally Unlimited Unlimited Line Rental Monthly cost (inc LR) One off charges month total Saving with TT Monthly with VLR month total Saving with TT Excluding introductory offers 51

52 FY12 FY13 FY14 FY15 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 On-Net Broadband & Voice Broadband Only Total On-net Churn 1.7% 1.6% 1.6% 1.5% 1.5% 1.4% 1.7% 1.6% 1.5% 1.4% 1.4% Unbundled 87% 89% 90% 92% 93% 94% 95% 95% 96% 96% 96% 97% 97% 97% Fully Unbundled 68% 70% 73% 75% 77% 78% 80% 81% 82% 83% 84% 85% 86% 87% Mobile Fibre TV Off-net Broadband Voice Total Broadband Revenue On-net Off-net Corporate Total ARPU On-net Off-net Exchanges Unbundled in period Total unbundled 2,037 2,208 2,338 2,508 2,591 2,695 2,717 2,724 2,798 2,979 3,014 3,027 3,032 3,032 52

Year to March th May 2015

Year to March th May 2015 Year to March 2015 14 th May 2015 1 2 FY15 highlights FY15-FY17 Financials Update on Strategic Priorities 3 4.2% * revenue growth for FY15, accelerating to 6.0% in Q4 1m new RGUs added in FY15 (+20%) and