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Fastest growing TV business in the UK (over 1m customers at 12 th May) Strong growth from TalkTalk Business (Q4 Corporate revenues +11.0%) 6 th consecutive quarter of net adds growth (+10,000) 5 th consecutive quarter of revenue growth (+4.9%) EBITDA margin of 15.5% in H2 (from 9.0% in H1) Dividend up 15.4% to 12.0p On track to deliver 4% CAGR in Revenue and 25% EBITDA margin by FY17 More opportunities to drive significant growth over long term 3
4.047m 4.043m 4.053m 4.063m 4.071m 4.076m 4.186m 4.196m 917k 732k 557k 390k 230k 80k Q1 '13 Q2' 13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q2' 13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 17.4k 13.7k 15.2k 7.1k 8.7k 10.3k 11.8k 5.4k 117k 152k 175k 202k 236k 260k 284k 142k 177k 207k 95k 73k 85k 52k 30k 15k Q1 '13 Q2' 13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '13 Q2' 13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '13 Q2' 13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 4
5.0% 17.8% 17.0% 15.5% 1.8% 9.0% H1'13 H2'13 H1'14 H2'14 (0.1%) H1'13 H2'13 H1'14 H2'14 (1.9%) 174 +15.4% 144 12.0p 136 10.4p 9.0p 98 H1'13 H2'13 H1'14 H2'14 FY12 FY13 FY14 5
2.0% 7.9m 1.8% 7.1m 6.8m 6.2m 1.6% 5.3m 1.4% 1.2% 1.0% Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 '12 '13 '13 '13 '13 '14 '14 '14 '14 H2 '12 H1 '13 H2 '13 H1 '14 H2 '14 7,635 4,858 4,333 3,556 2,799 Mar 2013 Mar 2014 H2 '12 H1 '13 H2 '13 H1 '14 H2 '14 Dual Play TV Fibre Mobile 6
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FY Revenue Growth 3.4% (H2 +5.0%), FY EBITDA margin 12.3% (H2 15.5%) £112m of incremental investment in growth Strong acceleration in revenue growth and step-up in EBITDA margin in H2 Net debt/EBITDA 2.3x reflects investment in growth Dividend up 15.4% year-on-year, in line with commitment Investment in growth is delivering results in line with our plan Clear route to FY17 targets of 4% revenue growth and 25% EBITDA margin 8
£ million FY14 FY13 Growth Revenue 1,727 1,670 +3.4% Gross Profit 958 919 +4% Gross Margin 55.5% 55.0% +50 bps Opex (427) (395) +8% EBITDA pre SAC & Marketing 531 524 +1% EBITDA pre SAC & Marketing Margin 30.7% 31.4% -70 bps SAC & Marketing (207) (172) TV SAC (111) (62) EBITDA 213 290 -27% EBITDA Margin 12.3% 17.4% Profit Before Tax 74 165 -55% Tax (13) (33) Effective Tax Rate 18% 20% Profit After Tax 61 132 -54% EPS 6.8 14.9 -54% (1) Excluding exceptional items and amortisation of acquisition intangibles 9
£ million Growth FY14 FY13 EBITDA 213 290 -27% Working capital (30) (11) Capex (107) (104) Operating free cashflow 76 175 -57% OFCF margin 4.4% 10.5% Interest and taxation (17) (16) 6% Free Cashflow 59 159 -63% Acquisition & Share purchase (41) (39) Exceptional spend (23) 8 Dividend (99) (87) Net cash flow (104) 41 Opening Net Debt 393 434 Closing Net Debt 497 393 10
3.4% y-o-y growth › On-net +7.6% On-net (+7.6%) • Base growth • ARPU (+3.5%) Corporate Off-net Voice Base Upsell & Price • Post Office £1,727m › Corporate +5.6% £1,670m +3.4% • Data +37.5% › Off-net -28% FY13 FY14 • Only 7.5% of group revenues (FY13: 10.7%) Strong acceleration in H2 (+5.0%) › On-net +8.4% +5.0% Corporate › Corporate + 9.9% Upsell & Voice Base Price +1.8% H1 H2 11
£112m incremental investment in growth in FY14 (£86m H1) £290m › Significant investment in TV growth in Gross H1 TV Profit & £213m Opex Savings Mobile › Incremental Opex costs from scaling & Fibre Dual play SAC TV non-recurring in FY15 Strong step up in H2 EBITDA margin Investing for growth £112m › Cost control › Lower BB & Marketing CPA FY13 FY14 › Lower TV CPA • H2 investment lower than in H2 15.5% FY13 despite greater volumes TV 9.0% SAC Opex Gross Profit H1 H2 12
Network costs in line with our plan to expand capacity and resilience Cost One off Incremental (non-recurring) costs to serve savings CTS from investment in TV growth £427m › Lower in H2 than H1 Volume Network £395m Strong progress in cost savings from › Continuing benefit of historic programmes FY13 FY14 › Making TalkTalk Simpler 13
Full year investment in growth › 687,000 TV net adds Investing for growth › 109,000 mobile net adds £318m TV CPA TV £234m › 134,000 fibre net adds TV Launch Mobile BB Volume & Fibre H2 TV SAC benefit to CPA from Essentials › TV CPA down from £170 in H1 to £130 FY13 FY14 in H2 › No more TV SAC in FY14 H2 than in FY13 H2 BB CPA down from £190 in H1 to £180 in H2 £174m £144m BB CPA TV TV CPA & Volume Marketing H1 H2 14
Key driver in FY14 is impact on Operating £497m FCF of £112m investment in growth £99m £17m Capex and working capital in line with £393m £76m £41m £23m guidance Dividend payment in line with our commitment and underlines our confidence in future growth prospects Net debt to EBITDA ratio of 2.3x Net debt b/f Operating Exceptionals Acquisition & Interest & Tax Dividend Net debt c/f Free Cashflow share repurchase 15
£ million FY14 FY13 Cash outflow 23 (8) Ethernet Settlement (3) (27) Making TalkTalk Simpler 21 5 Operating Efficiencies 0 14 VAT 5 0 P&L charge 22 (9) Ethernet Settlement (3) (27) Making TalkTalk Simpler 20 7 Operating Efficiencies 0 11 VAT 5 0 VAT charge relates to change of HMRC rules on allowable treatment of prompt payment discount 16
Modest growth in net adds in FY15 Similar number of TV net additions to FY14 Revenue growth of at least 4% Overheads as a % of revenue to fall below FY13 level Pre-SAC EBITDA % ahead of that reported in FY13 SAC & Marketing costs lower than FY14 Headline EBITDA Margin 16% -17% Dividend growth of no less than 15% 17
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Fibre to the Expand capacity Premise and utilisation Mobile Making TalkTalk Consumer quad play Simpler Business Data products TV for Everyone Grow Business Market Share Creating value through revenue growth and margin expansion 19
Net adds accelerated each quarter of FY14 917k 732k More customers added than all other Pay-TV operators combined 557k 30% new to TalkTalk 390k 230k › 70% Freeview upgraders 80k Essentials TV has driven acceleration in take-up in H2; continuing take-up of Q2' 13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Plus Over 1m customers at 12 th May 2014 185k 175k 167k 160k 150k 80k Q2' 13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 20
Free Set Top Box 61% Easy catch up TV 60% Which reader survey Oct 2013 Good value/Promos 57% Flexible boosts 28% Family entertainment 15% * Interesting programs / films 15% Childrens cartoon 8% YouView Adult BrandTracker (450 Respondents, April 2014) TalkTalk TV Customer Market Probe (731 respondents, Oct 2013) A large (18m households) and under-served market segment 21
25% 120k 100k 20% Plus 80k 15% 60k 10% 40k Essentials 5% 20k 0% 0k Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar * * * Total revenues / Number of TV customers taking content 22
Mar 2013 Mar 2014 Q1 Q2 Q3 Q4 Dual-Play Triple-Play Dual-Play TV 80% satisfaction rating Those who have used TalkTalk TV the most are the happiest Only 318 complaints to Ofcom relating to TV in H2 23
100% Sky 90% TalkTalk 80% Virgin Media 70% 60% 50% 40% 30% 20% 10% BT Retail 0% FY17 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 As a result TV will drive lower churn and higher ARPU across the base 24
Take-up Usage Loyalty • Over 1m customers in • Customers love • NPS significantly 18 months higher than YouView functionality Broadband • Proposition appeals • 28+% are purchasing • Reporting higher to 18m households boost and TVOD who want a little bit likelihood to stay with content more TV TalkTalk beyond • 228k TVOD in Q4 and contract • 25% of base leaves growing • Early life churn half significant headroom • Average boost and that of broadband • CPA declining TVOD ARPU c£9.00 TV customers will deliver 2x the Average Lifetime Value of Dual Play customers 25
109,000 net adds in year taking base to 284k 260k 284,000 236k 7% of on-net base vs 4.5% a year ago 202k 175k Mobile customers continue to show lower 152k churn and higher NPS 117k 85k Expect base to continue to grow Q1 '13 Q2' 13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 134,000 net adds in year taking base to 207k 207,000 177k 5.0% of on-net base vs 1.9% a year ago 142k Overall demand still modest except where 95k higher speeds transform experience 73k 52k › 50% of fibre customers take TV 30k 15k › 11% of TV customers take fibre Q1 '13 Q2' 13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 26
+11% +38% £91m +9% +29% £87m +3% £82m £82m £80m £80m £80m £80m Q1 '13 Q2' 13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '13 Q2' 13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Continuing strong growth in Data revenues (+37.5% y-o-y) drives Corporate growth of 17.4k 5.6% in FY14 15.2k 13.7k Strong growth in H2 from new contract wins 11.8k 10.3k e.g. Iceland Group, Selfridges 8.7k 7.1k 5.4k 3,024 Ethernet enabled exchanges Q1 '13 Q2' 13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 27
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