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10 th May 2017
Preliminary Results FY17
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Introduction Charles Dunstone
FY17 Review Tristia Harrison
Financial Review Iain Torrens
Strategic Overview Tristia Harrison
Operational Priorities Charles Bligh
Summary Tristia Harrison
Q&A
Agenda
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Introduction
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Performance Review
FY17
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Strong foundations for delivering future retail growth
• Net add growth from (71K) in first 9m to +22K inQ4
• Over1m customers on our Fixed Price Plans now, with
strong brand momentum and NPS
• Nearly 60% of on-net Retail base in-contract
• Re-launched our brand focusing on four values
• Simple
• Affordable • Reliable • Fair
Leading to happier, more loyal customers; lower churn and positive retail net adds
262
477 601
733 860
993 1,070
Oct Nov Dec Jan Feb Mar Apr
FLPP Take-Up
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105 119 121
173 145 119
97 120 157
Another strong year in TalkTalk Business
Corporate Revenue
FY17 FY16 FY15
Data
Voice
Carrier
£ 397m £ 384m £ 375m
4.2% *
*Excluding Carrier
31%
• Data revenue growth of 30%+
• Significant slow down in the decline of legacy voice
97
173
105
120
145
119
157
119
121
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Improving customer experience in retail and B2B
• Completed MTTS – savings in year of £34m, cumulatively delivered £87m
• Measurable improvement in retention and customer satisfaction
• Strong churn improvement On Net Churn
Q1 Q2 Q3 Q4
1.40%
1.58%
2.11%
1.36%
1.36% 1.43%
1.64%
1.40%
FY16 FY17
Customer Experience
Dec-16 Jan-17 Feb-17 Mar-17 Apr-17
CSAT
NPS
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Customer Base Development
Ethernet base
Broadband base
▪ Consistent growth
▪ Strong product take-up
▪ Strong progress in Ethernet order conversion
▪ Healthy pipeline
Penetration
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Q4 performance: clear evidence of growth
On-Net Net Adds
Q1 Q2 Q3 Q4
(9) (20)
(42)
22
On-Net Churn
Q1 Q2 Q3 Q4
1.4%
1.6%
1.4% 1.4%
Corporate Revenues
Q1 Q2 Q3 Q4
(4.4%)
9.2%
3.0%
9.1%
Underpinned by a number of important regulatory announcements which will drive improvements to service and price optionality over the coming years
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Financials FY17
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Summary Profit & Loss FY17 FY16
£’m £’m
Headline Revenue 1,783 1,838
Gross Profit 949 993
Operating costs & SAC (645) (733)
Headline EBITDA 304 260
Margin 17.0% 14.1%
Profit after tax 100 79
Headline EPS (Basic) 10.5p 8.4p
Dividend per share 10.29p 15.87p
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£1,838m
£1,783m
FY16 On-Net Off-Net Data Legacy Voice Carrier FY17
Wholesale
FY16
FY17
Wholesale Mix & Fibre Penetration
Fibre FY16
FY17
On-Net ARPU Revenue
Gross Margin
FY16 On Net Data Voice & Carrier FY17
77%
19%
3%
15%
6%
Revenue and Gross Margin
54.0%
1.8%
53.2%
2.3%
1.3%
£37m
£26m £11m
£57m
£2m £0.39
£0.26 £0.56
£0.46
£28.16
£28.53
77%
FY16 FY17 Mix Voice Usage
Triple / Quad Play
Pricing & Proposition
Calculated as % of average base
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Opex and SAC
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• MTTS incremental in year savings
• Lower gross adds in year drive lower SAC
• Channel optimisation reflects extended distribution agreement
FY16 FY17
Opex £473m Opex
£459
SAC £186m
SAC £260M
£645m
£733M
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Summary Cashflow £’m FY17 FY16
EBITDA 304 260
Working Capital (28) 10
CAPEX (133) (166)
Operating Free Cash Flow 143 104
Interest and Tax (33) (22)
Free Cash Flow 110 82
Acquisitions (18) (12)
Exceptional Items (46) (88)
Share Sale 1 63
Dividends (150) (135)
NET CASH FLOW (103) (90)
Net Debt * (782) (679)
Net Debt / EBITDA 2.57x 2.61x
* Net of derivatives £39m
OUTLOOK
• Working Capital to stabilise
• CAPEX to revert to 6-7% of revenues
• Exceptional Items to fall to £10m - £20m
• Net Debt to reduce in FY18
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Review Strategic
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UK’s leading value for money connectivity provider
Grow the Retail base
Sustain momentum in B2B
Step change in customer experience and operational efficiencies
Fixed network investment
Ruthlessly prioritise our core strengths
Less capital intensive priorities
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Sustained Retail Base Growth
• Long term price certainty
• Ongoing simplification of our product and pricing portfolio
• Ongoing investment in fixed price plans
• New plans available to both new and existing customers
Happier, more loyal, lower churning customers and net adds growth
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Driving ARPU (Fibre, TV and mobile and pricing)
• Strong fibre take up among new and existing customers
• Material improvements in TV quality and engagement
• New distribution model for Mobile
• Sensible pricing decisions; always the value provider
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Sustaining momentum in TTB
130.9 144.2
161.5 178.8
198.4 220.4
244.8
274.6
2013 2014 2015 2016 2017 2018 2019 2020
National & Metro Ethernet Volume Forecast Data revenues: high growth and high margin
Phone and BB (retail and wholesale)
Legacy Voice
Carrier TalkTalk Group
Data & Next Gen Voice
Gross Margin
Growth
*Ovum Forecasts
Regulated pricing + dark fibre offer further opportunities
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Priorities Operational
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2015 (a) 2016 (a) 2017 2018
Customer demand & expectations
Always on - “An essential utility" .
Source: OECD, Cartesian
Fixed line - average household usage (GB/month) Average Number of Connected Devices
10
25
50
2012 2017 2022
97
132 160+
220+
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Driving operational excellence
Will Deliver
• Cost reductions
• Simplification
• Total cost focus
• Operational stability.
Quality Cost Opex/Revenue declining over time
COO
Consumer Operations
B2B Operations
Network IT
Procurement Security
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Delivering a step change in customer experience
▪ Multichannel
▪ Digital First
▪ Case Management
Consistently good Service Join/Move & Repair In Home Experience
▪ Routers
▪ Homesafe 2.0
▪ Nuisance Calling .
▪ Join/Move re design
▪ Repair re design
.
Customer Satisfaction Churn
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The Network Story – in 3 phases
2008 2012 2014 2016 2006 2018 2020
Build UK First All IP network
500 Exchanges
3037 Exchanges
Core Upgrade
New DNS/DLM Exchange Upgrade
FTTP
Ethernet, IPTV, FTTC
Dark Fibre Deployment
BUILD & SCALE UPGRADE
NEW PRODUCTS
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Sam Knows - External Network Performance
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Ranking of Top 5 FTTC providers
We are ranked 1st from Peak throughput %
April 15 April 16 Sept 16 April 17
Note: Ranking of 2 denotes 2nd best in performance, Sam Knows Industry Panel 2017
3.5
3 3
2
Ran
kin
g
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Network upgrade
FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26
Cost/gb
Delivered within the normal CAPEX envelope
Exchange upgrade
Dark Fibre rollout
=
Hold network opex with customer & usage growth
Tota
l Net
wo
rk O
PEX
Open Existing Backhaul Opex - Dark Fibre
£75m
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Growing confidence in FTTP from York
27
Progress to date Next steps
• 14k homes passed at build cost of under £500 (T1 / T2)
• 27% penetration of serviceable homes
• Majority of TalkTalk customers
• Excellent customer feedback
• ASAT at 82%
• Churn to date is 1 customer
• 100% uptime since launch
• Complete build of FTTP across York (40,000 homes)(T3)
• Continued to learn and drive down build cost / increase take-up
27
POP
POP
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Summary
Strong plan for delivering sustained growth in retail and B2B
Step change in customer experience and ongoing fixed network investment
Fewer simpler priorities
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Outlook and Guidance
• Modest base and revenue growth
• EBITDA £270 - £300m
• Net debt reduced
• Dividend 7.5p
• Total broadband base
• Retail and B2B revenues
FY18
Future KPIs
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Appendices
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Our Network Infrastructure today
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KPIs
FY13 FY14 FY15 FY16 FY17
H1 H2 H1 H2 H1 H2 H1 H2 H1 H2
On-Net Base (m)
Broadband & Voice 3.162 3.295 3.402 3.570 3.656 3.775 3.728 3.658 3.638 3.637
Broadband Only 0.642 0.575 0.526 0.490 0.449 0.402 0.369 0.338 0.329 0.310
Total 3.804 3.870 3.928 4.060 4.105 4.177 4.097 3.996 3.967 3.937
On-Net Churn (p.m.) 1.6% 1.5% 1.6% 1.6% 1.4% 1.3% 1.5% 1.7% 1.4% 1.5%
Mobile (m) 0.117 0.175 0.236 0.284 0.348 0.464 0.596 0.699 0.793 0.913
Fibre (m) 0.030 0.073 0.142 0.207 0.308 0.479 0.578 0.704 0.779 0.927
TV (m) 0.000 0.230 0.557 0.917 1.217 1.414 1.439 1.389 1.333 1.288
Ethernet and EFM lines 7,100 10,200 13,700 17,400 21,600 26,200 30,700 35,100 39,300 42,700
Total Broadband (m) 4.043 4.063 4.076 4.196 4.221 4.283 4.189 4.072 4.036 4.009
Revenue (£m)
On-Net 573 597 612 642 648 685 697 702 670 672
Off-Net 95 83 69 59 46 41 27 28 24 20
Corporate 160 162 162 178 177 198 188 196 208 189
Total 828 842 843 879 871 924 912 926 902 881
On-Net ARPU (£) 25.27 25.93 26.16 26.79 26.45 27.57 28.08 28.91 28.05 28.30
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FY17 Preliminary Results 10 th May 2017
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