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Introduction, Summary and cyber attack Dido Harding H1 Review Dido Harding H1 Financials and Outlook Iain Torrens Longer term strategy Dido Harding
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1 10/11/2015 18:55 Introduction, Summary and cyber attack Dido - - PowerPoint PPT Presentation
1 10/11/2015 18:55 Introduction, Summary and cyber attack Dido - - PowerPoint PPT Presentation
1 10/11/2015 18:55 Introduction, Summary and cyber attack Dido Harding H1 Review Dido Harding H1 Financials and Outlook Iain Torrens Longer term strategy Dido Harding 2 10/11/2015 18:55 3 10/11/2015 18:55 Y-O-Y Revenue Growth EBITDA
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4 £76m £110m
Y-O-Y Revenue Growth
3.1% 3.6% 3.5% 5.9% Q1'15 Q2'15 Q1'16 Q2'16 +3.3% +4.7% £110m £90m
Opex and SAC
£370m H1’15 £397m H1’16 +7.3%
Dividend per share
+15%
H1’15 H1’16 4.60p 5.29p
EBITDA Margin
12.6% 9.9% H1'15 H1'16
Quad-play gaining traction, 12.2% year-on-year growth in RGUs Making TalkTalk Simpler benefits £6m Making TalkTalk Simpler costs £15m In line with commitment
Opex SAC Opex SAC +12.9% 0%
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H1 FY16 H2 FY16
Gross Profit from revenue growth and better mix
£40m-£45m c£40m
Lower Opex as transformation costs fall out Lower SAC from changes in channel mix and CPA
c£5m
Materially higher MTTS Benefits than in H1
£25m-£30m
Before impact of cyber attack
£90m £200m-£210m
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21st October Websites started running slowly, brought websites down, ransom demand Informed law enforcement agencies, criminal investigation launched, started internal investigation 22nd October Informed all customers via the media and via email of the potential risk so we could help them and they could protect themselves Board launched an independent review led by James Powell with support from PWC 6th November Confirmed that the attack was limited to 156,959 customers of which 15,656 bank account numbers and sort codes stolen None of the sensitive personal information on its own can be used to steal from our customers Now We have contacted all customers whose personal data has been stolen to explain what happened and to offer support and advice TalkTalk sales and service websites operational Contacting all customers irrespective of whether directly affected, to explain what happened, what we are doing to safeguard their data going forward, and offer an opportunity to upgrade at no extra cost
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Direct Debit Cancellations Unsolicited Requests to Cease Loyalty Save Rates Customer Feedback
October 27th-29th October 29th Oct – 2nd Nov 32% 29% 34% 30th Oct 6th Nov 48% 54% Brand Consideration* “I appreciate TalkTalk’s honesty in the way they are dealing with this”*
* TNS Brand Tracker * ICM poll of TalkTalk Customers
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One off costs incurred of £30m-£35m › Incident response and customer communications › Incremental call volumes › Internal IT costs and consulting › Foregone revenues from loss of online capability for 3 weeks, and immediate churn › Estimated cost of free upgrade offer to all customers Early indicators of customer response are encouraging › Most customers think we have done the right thing › Online sales and service platforms now back in operation Too early at this stage to assess the wider impact of this attack but we remain confident of: › a material increase in profits in H2 FY16 on the back of existing momentum in revenue and Making TalkTalk Simpler › A further significant increase in profits in FY17 as MTTS programmes complete More clarity will emerge as we trade through Q3 and Q4
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Non-pay disconnections accretive to margin H1: c£1.5m H2: c£3.5m On-net net adds positive in Q2
72 8 4.18m 4.11m 4.10m Opening On-Net Base @ 31st March Non-Pay Disconnects Adjusted On-Net Base @ 31st March H1 Net Adds On-Net Base @ 30th Sept
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1.04 1.12 1.24 1.35 1.46 1.56 1.64 0.3% 0.6% 0.9% 1.2% 1.5% 1.8% 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 H1'13 H2'13 H1'14 H2'14 H1'15 H2'15 H1'16
RGU Churn Churn broadly flat y-o-y in H1
- Difference between 1.4% and 1.5%:
c8,000 customers
- Q2 churn modestly higher than Q1
Trend improving through:
- Benefits of Making TalkTalk Simpler
- Growing triple and quad play
penetration
- TV and mobile customers churn at
roughly half the rate of dual play customers 176,000 RGUs added in H1 (+12.2% y-o-y) RGU per customer up to 1.64 (+12.5% y-o-y)
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10/11/2015 18:55 73 142 207 308 479 578 1% 2% 4% 6% 8% 13% 16%
100 200 300 400 500 600 700 0% 5% 10% 15% 20% H1'13 H2'13 H1'14 H2'14 H1'15 H2'15 H1'16
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Strong growth in Mobile and Fibre penetration SIM-only demand growing - 14.4% market share in H1 FY16 vs 10.3% in H2 FY15 Strong take-up of bundled SIM (quad-play) – Plus TV (33%) Fibre self-install (>90%) driving demand TV growth a function of disciplined trading strategy to focus
- n lower CPA Mobile and Fibre
Mobile, Fibre and TV customers continuing to generate highest Net Promoter Scores and exhibit lowest churn
230 557 917 1,217 1,414 1,439 0% 7% 16% 26% 33% 37% 39%
200 400 600 800 1,000 1,200 1,400 1,600 0% 10% 20% 30% 40% H1'13 H2'13 H1'14 H2'14 H1'15 H2'15 H1'16
117 175 236 284 348 464 596 4% 5% 7% 8% 10% 12% 16%
100 200 300 400 500 600 700 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% H1'13 H2'13 H1'14 H2'14 H1'15 H2'15 H1'16
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Retail customers c81% of on-net; Wholesale c19% of on-net base Step change in FY14 reflects acquisition of Post Office contract Wholesale customers involve long term established relationships including several multi- year contracts
- Lower ARPU and gross margin than Retail at
c40%
- Minimal costs to serve
- No bad debt or SAC exposure
- EBITDA comparable to Consumer base
TTB is only other national wholesale broadband
- perator in UK market other than BT
Retail: 3,489 Retail: 3,433 Retail: 3,440 Retail: 3,373 Retail: 3,326
Wholesale: 381 Wholesale: 627 Wholesale: 737 Wholesale: 732 Wholesale: 771 FY13 FY14 FY15 FY16 Opening Base H1FY16 Closing Base
3.870m 4.060m 4.177m 4.105m 4.097m
* Adjusted for 72k disconnections
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14 ON-NET CORPORATE
Data & Next Gen Voice Phone & BB (retail and w’sale) Carrier Legacy Voice Growth Gross Margin 20%+
- 20%
TalkTalk Group
Carrier
£550m+ revenue in FY15 across three lines
Off-Net
Corporate On-Net
Phone & BB (retail and w’sale) Data & Next Gen Voice Legacy Voice
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H1'15 H1'16
15
Corporate Revenue Ethernet & EFM Lines (‘000)
7.1 10.2 13.7 17.4 21.6 26.2 30.7 H1'13 H2'13 H1'14 H2'14 H1'15 H2'15 H1'16 +6.2% Data Carrier Voice £177m £188m
6.2% growth in Corporate revenue (+6.7% in Q2) +15% growth in Data revenues; Carrier revenues +34% Over 30,000 business Data lines Accelerating demand for Ethernet – conversion hampered by lagging BTOR performance VOIP proposition (powered by tiPicall) launched in October; strong growth expected through H2 Ethernet pipeline
+15% +34%
- 11%
32% 37% 42% 2,850 3,050 3,250 3,450 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Total WIP Over 65 Days
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Making TalkTalk Simpler
Simpler network Simpler fault management Simpler order provisioning Simpler omni- channel service Simpler credit and billing
A simpler business to run Operating cost savings SAC reduction from lower churn and CPA An enabler of revenue growth A transformed brand reputation
£90m-£100m savings
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Systems and Process Development Testing Rollout Remove Structural Costs The drivers of cost are coming down in trials: Lower call volumes Less manual provisioning Improved customer satisfaction As systems roll out variable costs are coming out in scale: Fewer engineer visits Fewer router replacements Lower bad debt Lower retention costs Lower SAC Lower sales leakage We began the process of removing structural costs in H1: Advance notice to reduce headcount in existing call centres Started RFP to consolidate
- ur call centre footprint
Expect new footprint in place over 12-18m Completed internal restructure in October – costs come out in H2FY16
H1 Savings H2 Savings FY17 Savings £6m £25m-£30m £90m-£100m
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H1’16 H1’15 YoY £’m £’m Headline Revenue 912 871 +4.7% Gross Profit 487 480 +1.5% Margin 53.4% 55.1% Operating costs (245) (217) +12.9% SAC & Marketing (152) (153) Headline EBITDA 90 110 Margin 9.9% 12.6% Profit after tax 11 27 Headline EPS 1.2p 2.9p Dividend per Share 5.29p 4.60p +15.0%
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£871m £912m
H1 FY15 On-Net Off-Net Data Legacy Voice Carrier H1 FY16
+4.2% +3.1% +3.6% +4.2% +6.0% +3.5% +5.9% +4.7% Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16
On-net revenue growth of 7.6% (Q2 +8.9%), supported by ARPU growth in H1 of 6.1% from RGU penetration, pricing and proposition, offset by declining voice usage and mix Off-net decline reflects sale of consumer off-net base to Fleur Continuing growth of Data and Carrier in Corporate, offset by Legacy Voice H2 Outlook On-net: Continued RGU progress; pricing and proposition Corporate: Accelerating data growth from pipeline. Carrier expected to be flat year-on-year in H2
£49m £19m £7m £10m £14m
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55.1% 54.0% 53.4%
H1 FY15 COGS benefits H1 FY15 Base Non-Pay Disconnections Pricing & Proposition Corporate Data Mobile Data Usage Mix H1 FY16
Phasing of COGS benefits (lower in H1 FY16 vs H1 FY15) Pricing & propositions Growth in high margin Ethernet and Data Solutions Mobile Data Usage driven temporarily higher by All-in SIM Mix driven by growth in Fibre and declining voice usage H2 Outlook COGS benefit including impact of non- pay disconnections Lower mobile data usage impact Accelerating data revenues in Corporate, flattening Carrier revenues
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£217m £245m
£15m £13m £5m £1m £6m H1 FY15 MTTS Infrastructure Innovation Other MTTS H1 FY16 22
MTTS: one-off transformation costs Infrastructure: ongoing investment in technology, network security and network capability, Innovation costs relate to Mobile and FTTP trial, and blinkbox H2 Outlook Half on half reduction in double- running and transformation costs Procurement benefits H2 weighted Significant step up in MTTS benefits
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£153m £152m
H1 FY15 Broadband TV Fibre Mobile Marketing / Other H1 FY16
Volume CPA Volume CPA Volume CPA Volume CPA 176,000 RGUs added in period Disciplined trading approach - lower broadband and TV volumes and controlled CPA Higher fibre volumes at significantly lower CPA from high percentage of self-install in mix Mobile CPA benefited from high proportion of SIMs in mix H2 OUTLOOK Significant reduction from improved channel mix and falling CPA
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Underlying £51m
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£’m H1 FY16 EBITDA 90 Working Capital 32 CAPEX (84) OFCF 38 Interest and Tax (11) FCF 27 ESOT share divestment 61 Acquisitions (12) Exceptional Items (33) Dividends (85) NET CASH FLOW (42) Net Debt (631)
Innovation £15m MTTS £18m
£84m H1
Underlying £39m Innovation £11m MTTS £16m
£66m H2
MTTS £20m Migrations £13m
£33m £24m H1 H2
Migrations £5m MTTS £19m
Capex / Revenue FY16: 7%-8% FY17: 6%-6.5% Pre-cyber attack
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£200m- £210m
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£631m H1
Net Debt / EBITDA 2.8x
(32) (66) (24) (14) (49)
EBITDA W/C Capex Exceptionals Interest Tax Dividends
£620m
- £630m
H2
Acquisitions
(14) (30-35) £650m
- £665m
H2
Net Debt / EBITDA c2.4x-2.5x Net Debt / EBITDA c2.1x
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£90m £200m-£210m H1 FY16 H2 FY16
Gross Profit
£40m-£45m c£40m
Opex SAC
c£5m
MTTS Benefits
£25m-£30m
Revenue +5% GM% > +100bps vs H1 Pricing & Proposition RGU penetration Positive Mix Effects Data and Next Gen Voice MTTS costs materially lower vs H1 Continued network and IT investment Improving channel mix and falling Cost Per Add vs £6m in H1
c£4m c£21m c£4m Total MTTS benefit: £25m-£30m
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H1 results in line with plan Impact of cyber attack will become clearer through Q3 and Q4 Robust and detailed plan in place to deliver strong uplift in EBITDA during H2 Net Debt / EBITDA in line with plan; expect deleveraging through H2 Interim dividend +15%; expect to grow Final Dividend by 15%
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2006-2010 2010-2013 2014-2017
Free Broadband AOL acquisition Tiscali acquisition
- Exponential
Growth
- Growing
complexity
- Poor customer
experience Tiscali Integration Stabilising Customer experience Getting ready for TV and mobile
- Network synergies
- Back office cost
savings
- Fewer calls to TT,
fewer call centres Launched and scaling quad play Scaling B2B Tackling root cause systems and process issues through Making TalkTalk Simpler
- Transforming customer experience
- Lower operating costs, lower churn
and lower SAC
- Transforming brand reputation
driving sustained revenue growth
2017+
Scaling Mobile Scaling Fibre To The Premise
- An integrated fixed and
mobile network
- A leading value for money
brand serving consumers and businesses
- Generating significant free
cashflows
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Mobile New billing system on track Expect to migrate to TEF network in Q1 FY17 Begun planning core thick build Femtos being tested 3/O2 referred to Phase 2 review; significant merger remedies expected Fibre to the Premise Announced pricing for TalkTalk UFO 1Gig at copper prices Contracted build in York for <£500 / home passed Received sufficient pre-registration interest to commence Phase 2 of build 260 trialists signed up to date from 1,200 homes passed in Phase 1 of build On track for full consumer launch in Q3
Laying the foundations to build an integrated, value for money fixed and mobile network
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Strong acceleration in revenue growth in H1 On track to deliver significant step up in H2 profits as expected Cyber attack smaller than initially thought Putting our customers first throughout this is the right thing to do for the business and shareholders Confident in the medium and long term future of TalkTalk as the value for money provider in the growing quad play and B2B market
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£m H1 FY16 HEADLINE H1 FY16 EXCEPTIONALS H1 FY16 STATUTORY EBITDA 90 (17) 73 Depreciation (36) (36) Amortisation (23) (5) (28) Share of JV’s (6) (6) Interest (11) (11) PROFIT BEFORE TAX 14 (22) (8) Tax (3) 4 1 Effective Tax Rate 20% PROFIT AFTER TAX 11 (18) (7) EPS 1.2p (0.7)p DPS 5.29p 5.29p
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FY13 FY14 FY15 FY16 H1 H2 H1 H2 H1 H2 H1
KPIs On-Net Broadband & Voice (m) 3.162 3.295 3.402 3.570 3.656 3.775 3.728 Broadband Only (m) 0.642 0.575 0.526 0.490 0.449 0.402 0.369 Total On-net Base (m) 3.804 3.870 3.928 4.060 4.105 4.177 4.097 On-net Churn (per month) 1.6% 1.5% 1.6% 1.6% 1.4% 1.3% 1.5% Mobile (m) 0.117 0.175 0.236 0.284 0.348 0.464 0.596 Fibre (m) 0.030 0.073 0.142 0.207 0.308 0.479 0.578 TV (m) 0.000 0.230 0.557 0.917 1.217 1.414 1.439 Ethernet and EFM lines (units) 7,100 10,200 13,700 17,400 21,600 26,200 30,700 Off-net Broadband (m) 0.239 0.193 0.148 0.136 0.116 0.106 0.092 Voice (m) 0.407 0.358 0.315 0.282 0.242 0.226 0.209 Total Broadband (m) 4.043 4.063 4.076 4.196 4.221 4.283 4.189 Revenue (£m) On-net 573 597 612 642 648 685 697 Off-net 95 83 69 59 46 41 27 Corporate 160 162 162 178 177 198 188 Total 828 842 843 879 871 924 912 On-net ARPU (£) 25.27 25.93 26.16 26.79 26.45 27.57 28.08
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As at 10 November 2015