Interim Results 15 NOVEMBER 2011
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Charles Dunstone Chairman
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First Half Overview
• Strategy delivering strong financial results
• Unbundled base conInues to grow
• On track to launch TV Spring 2012
• Declared interim dividend of 2.6 pence/share in line with enhanced dividend policy
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Amy SIrling Chief Financial Officer
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Strong Financial Performance
EBIT (£m)
25%
EPS (p)
38%
OFCF (£m)
59%
Dividend (p)
53%
H1 Headline Profit & Loss (1)
£ million H1’ 12 H1 ‘11 % Growth
Revenue 844 887 -‐4.8%
EBITDA 146 121 +20.7%
EBITDA % Margin 17.3% 13.6%
EBIT 100 80 +25%
EBIT Margin 11.8% 9.0%
(1) Unaudited, excludes excepGonal costs and amorGsaGon of acquisiGon intangibles
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H1 Customer Base and Revenue Profile
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• Customer base mix improving – 89% now unbundled • Revenue profile reflects total customer base movement
H2 Revenue Stabilising
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• FY Guidance flat H2 on H1
• Medium term 2% CAGR
• Now expecIng posiIve broadband net adds during first half calendar 2012 • Improved ARPU driven by pricing and up-‐sell, parIally off-‐set by usage and off-‐net churn • Corporate growth H2
Reducing our Cost Base
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4% y-‐o-‐y
11% y-‐o-‐y
14% y-‐o-‐y
6% y-‐o-‐y
SAC & markeVng
26%
Cost to serve 32%
Networks & IT 21%
Overheads 21%
Total Opex Spend £m
H1 ’11 316
H1 ’12 289
ReducIon Y-‐O-‐Y 27m (9%)
Significant Growth in Headline Earnings and Dividends
£ million H1’ 12 H1 ‘11 % Growth
EBIT 100 80 +25%
Interest (8) (10) -‐-‐20%
PBT 92 70 +31%
TaxaVon (24) (20)
Effec&ve Tax Rate 26% 28.6% -‐2.6%
Earnings 68 50 +36%
Earnings per share 7.6p 5.5p +38%
Dividend per share 2.6p 1.7p +53%
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OperaIng Cash GeneraIon ConInues to Improve
£ million H1’ 12 H1 ‘11 % Growth
EBITDA 146 121 +21%
Working Capital 0 (10)
Capex (49) (50) -‐2%
OperaVng free cash flow 97 61 +59%
OFCF margin 11.5% 6.9%
ExcepVonals (23) (28) -‐18%
Free Cash flow 74 33 +124%
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ExcepIonal Expenditure FY12
12
£ million P/L Cash FY 12 Benefit
Annualised Benefit
Tiscali IntegraIon -‐ 10 15 55
Back Office SimplificaIon 5 17 15 25
Waterford Closure 15-‐20 15-‐20 5 15
OFCOM fine 3 3 -‐
Total Impact in FY12 25-‐30 45-‐50 35 -‐
• Completes Tiscali integraIon spend • Delivers £40m of £40 to £50m operaIng efficiencies target
Net Debt Movement
13
FY12 Financial Guidance
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(*) Assumed weighted average number of shares of 907m
Revenue -‐ • Revenue Flat H2 vs. H1 Stabilising
EBITDA 17-‐18% • EBITDA margin conInues to improve through benefit of operaIng efficiency programmes and unbundling
Top end of range
OFCF as % of Revenue
10-‐11% • H1 cash conversion conInues into H2 • Working capital expected oujlow in H2 (£15-‐£20m)
Top end of range
Earnings per share
15.5p – 16.5p *
• Weighted average number of shares increases EPS Top end of
range
CAPEX as a % of
revenue 6%
• Investment in network and billing systems • ExpecIng £105 -‐ £110m FY
Re-‐iterate guidance
FY12 Key Financial Developments
• Share purchase in the year covers anIcipated share schemes diluIon
• ExcepIonal spend to deliver £40m of £40 to £50m operaIng efficiencies all in FY12
• HMRC agreement on uIlisaIon of VNL tax losses from Tiscali acquisiIon
• Deferred Tax Asset £47m
• EsImated discounted cash tax value £75m
• Refinancing of £550m RCF signed November
• H2 ‘12 cash cost of approx. £7m
• Cost of funding broadly unchanged and £690m total faciliIes now in place
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Dido Harding Chief ExecuIve
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Strategy Delivering
• Strong Financial performance
• 159k fully unbundled customers added
• Delivering a bener experience for customers and operaIng efficiencies.
• Significant progress on up-‐sell
• TV offering on track for launch in Spring 2012
OperaIng efficiencies
Largest unbundled UK network
Value-‐for-‐money
quad-‐play
B2B services
Fibre access
AddiIonal £40-‐50m
2,700 exchanges 93% of customers
Broadband, voice TV, mobile
Exploit network advantage
Future-‐proof service delivery
EXPAND MARGIN GROW REVENUE
20% EBITDA margin + 2% Revenue CAGR
1 2 3 4 5
An enduring Value for Money provider
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Ahead of plan on Unbundling 700 new exchanges
Largest unbundled UK network
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% of Customers Unbundled No. of Exchanges Unbundled
• 201 exchanges unbundled in H1, and on track to deliver 450 full year
• Added 159k fully unbundled customers in H1
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We are improving the quality of our customer base.
H1’11 H2’11 H1’12
Largest unbundled UK network
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Mix Of Customers Value of Customers
IPS SMPF MPF Blended
ARPU per month £30 £15 £27 £25
Average Cont^n per month
£4 £10 £15 £12
ExpecVng posiVve total broadband net adds in first half of calendar year 2012
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We are making significant progress in simplifying our business and reducing costs
OperaIng efficiencies
2
Cost Saving
AcVviVes
£40m of £40-‐50m target idenVfied
• Completed in 2010/11
• Run Rate -‐ £55m
-‐ £40m in 10/11 -‐ £13m in H1 11/12 -‐ £15m in FY 11/12
• Restructured Finance, Technology, HR and other back office funcIons
• 540 headcount reducIon
• Run Rate -‐ £25m
-‐ £5m in H1 11/12 -‐ £15m in FY 11/12
Tiscali IntegraVon Back Office
SimplificaVon Improving Customer
Service
• Call volume reducIon • Consolidated offshore service providers
• Closed Waterford call centre
• Run Rate -‐ £15m
-‐ £5m in FY 11/12
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We are conInuing to improve our customer experiences
40% Improvement
OperaIng efficiencies
2
Calls to Customer Service
66%
First Time Fix Rate
Online Contacts as % of Total
14%
OFCOM Complaints
UP-‐SELL & RE-‐CONTRACTING • CommunicaVng the value of our products, and saving customers money Now
CALL CENTRE IMPROVEMENTS • Improving Online self serve experience • Simplified Scripts and beler training • Fewer contact centres
Now
SPEED / CONNECTIVITY • Engineers to opVmise Speed • Improved DiagnosVcs to increase First
Vme Fix • Beler Network monitoring
Q3
SYSTEM & PROCESS IMPROVEMENT • Home-‐mover improvements • Flexible Payment dates Q4
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We have a pipeline of work that will further improve customers experience and churn
ExpecVng posiVve total broadband net adds in first half of calendar year 2012
Value-‐for-‐money
quad-‐play
3
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More customers are saving more money by buying more products from TalkTalk
H1 10/11 H1 11/12 Change
Fully UNBUNDLED CUSTOMERS 2,600,00 2,900,000 + 300,000
PLUS CUSTOMERS 350,000 800,000 + 450,000
MOBILE MINUTE BOOSTS -‐ 250,000 + 250,000
MOBILE Customers 17,000 50,000 + 33,000
HOMESAFE ACTIVATIONS -‐ 200,000 + 200,000
Value-‐for-‐money
quad-‐play
3
H1 10/11 H1 11/12 Change
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HomeSafe – a real compeIIve advantage
“(HomeSafe) was revolutionary, as for years the ISPs argued that such a service was technically impossible. We should be able to choose what comes into our homes, and finally we can. I, for one, say hurrah for that.” Eleanor Mills, Sunday Times
Value-‐for-‐money
quad-‐play
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“I’d like to pay tribute to the brand TalkTalk for what they’ve done here – they really have been pioneers” Tim Loughton MP & Children’s Minister
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YouView is a Powerful ProposiIon for TalkTalk
• IPTV is growing strongly in other markets • Iliad – France
• PCCW – Hong Kong
• China Telecom
• Easy access of catch-‐up content is the key driver of take-‐up
• Available to fully unbundled customers
Value-‐for-‐money
quad-‐play
3
TalkTalk well posiIoned for TV
Our research tells us:
• TalkTalk ideally posiIoned to offer an upgrade to Freeview customers....
...they are over indexed in our base,
...they want a linle extra but not a lot
...and TalkTalk has a track record of up-‐selling products • TalkTalk ideally posiIoned to offer an entrance to PayTV for late adopters
...offering best value TV
...offering a simple customer experience
Value-‐for-‐money
quad-‐play
3
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TalkTalk TV – High Level Imetable
APPROVED DEVELOP TRIAL PILOT LAUNCH
• BBC trust and OFCOM approves YouView
• Shareholders commined
Sept 2010
• Huawei Set-‐top Box • Youview Soqware Plajorm
• Provisioning flows • CRM CompaIbility
• OperaIonal Readiness
Now & Q3 Q4 Late Q4 / Early Q1 Spring 2012
Value-‐for-‐money
quad-‐play
• Up to 3,000 • Friends and Family
• E2E trial • Customer Experience
• Up to 10,000 • Extension of the trial to test: a) Scale b) Resilience
• Full launch of TV
3
20% of Group Revenue with significant growth potenIal
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TalkTalk Business revenue on track B2B
services
4
• Year-‐on-‐year growth of 17% • Ethernet • Managed SoluIons
• Significant compeIIve advantage in scale of return
• Executel and Greystone trading on plan
• Fixed Line Usage decline & pricing pressure as anIcipated
• MTR reducIons
• Leveraging voice network capability
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Low Fibre demand today, IPTV in Ime will drive demand
Fibre access
• Launched and available to exisIng TalkTalk customers
• Up to 40meg downstream and 2 upstream ( 40/2 )
• Weekly sales c300 per week, current base 3k
5
• Reached commercial agreement on 80/20 product
• StarIng pre-‐registraIon in Jan ‘12 @ £15/month
• £200 savings vs. equivalent Virgin product *
* Based on 18 Month contract
OperaIng efficiencies
Largest unbundled UK network
Value-‐for-‐money
quad-‐play
B2B services
Fibre access
1 2 3 4 5
One year in, making great progress, with more to do
• 89% On-‐ net • 201 exchanges unbundled
• 159k fully unbundled net adds
• £40m now idenIfied • Back office
• Waterford • OSP ConsolidaIon
• HomeSafe • Plus • Mobile • TV on track
• Corporate Revenue on track
• Ethernet
• Low demand • Building for scale • Launching 80/20 next year
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EXPAND MARGIN GROW REVENUE
Confident we are well placed to deliver medium term strategy
Q&A
Appendix
EPS
£ million H1’12 H1’11 FY’12
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* Guidance issued on 907m shares, now expect approximately 884m on weighted average basis
*
FY12 other items • HMRC agreement on uIlisaIon of VNL tax losses from Tiscali acquisiIon
– RecogniIon of a £47m deferred tax asset ( 5 years )
– Associated credit in excepIonal tax line in H1’12 – AnIcipated discounted cash tax value of c.£75m ( 10 years )
• Re-‐financing of £550m RCF signed November – New RCF of £520m matures November 2015
– Bilateral loans of £70m also signed
– Associated fees of c£7m paid in H2 ‘12
– Total commined faciliIes now £690m
• Cash investment of £7m in H2 – Greystone acquisiIon (small B2B reseller)
– YouView joint venture
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