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 Margin +4.7% 12.6% 5.9% +3.3% 9.9% 3.6% 3.5% 3.1% £110m £90m £110m £76m H1'15 H1'16 Q1'15 Q2'15 Q1'16 Q2'16 Quad-play gaining traction, 12.2% year-on-year growth in RGUs Opex and SAC Dividend per share 5.29p +7.3% +15% £397m 4.60p £370m +12.9% Opex Opex 0% SAC SAC H1’16 H1’16 H1’15 H1’15 Making TalkTalk Simpler costs £15m In line with commitment Making TalkTalk Simpler benefits £6m 4 10/11/2015 18:55

£25m-£30m Materially higher MTTS Benefits than in H1 c£40m Lower SAC from changes in c£5m channel mix and CPA Lower Opex as transformation £40m-£45m costs fall out Gross Profit £200m-£210m from revenue growth and better mix £90m H1 FY16 H2 FY16 Before impact of cyber attack 5 10/11/2015 18:55

21 st October Websites started running slowly, brought websites down, ransom demand Informed law enforcement agencies, criminal investigation launched, started internal investigation 22 nd 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 6 th 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 6 10/11/2015 18:55

Direct Debit Cancellations Unsolicited Requests to Cease Loyalty Save Rates Customer Feedback 54% 34% 32% 48% 29% “I appreciate TalkTalk’s honesty in the way they Brand Consideration* are dealing with this” * October 27 th -29 th 29 th Oct 30 th Oct 6 th Nov – 2 nd Nov October * TNS Brand Tracker * ICM poll of TalkTalk Customers 7 10/11/2015 18:55

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 8 10/11/2015 18:55

9 10/11/2015 18:55

4.18m 4.11m 4.10m 72 8 Non-pay disconnections accretive to margin H1: c£1.5m H2: c£3.5m On-net net adds positive in Q2 Opening Non-Pay Adjusted H1 On-Net Base On-Net Base Disconnects On-Net Base Net Adds @ 30 th Sept @ 31 st March @ 31 st March 10 10/11/2015 18:55

Churn broadly flat y-o-y in H1 1.8%  Difference between 1.4% and 1.5%: 1.80 1.64 1.56 c8,000 customers 1.60 1.46 1.35 1.5%  Q2 churn modestly higher than Q1 1.40 1.24 1.12 1.20 Trend improving through: 1.04 1.2% 1.00  Benefits of Making TalkTalk Simpler 0.80  Growing triple and quad play 0.9% penetration 0.60 0.40  TV and mobile customers churn at 0.6% roughly half the rate of dual play 0.20 customers 0.3% 0.00 H1'13 H2'13 H1'14 H2'14 H1'15 H2'15 H1'16 176,000 RGUs added in H1 (+12.2% y-o-y) RGU Churn RGU per customer up to 1.64 (+12.5% y-o-y) 11 10/11/2015 18:55

18% 700 20% 700 16% 16% 600 16% 600 14% 12% 15% 500 13% 500 12% 10% 400 400 10% 8% 8% 10% 7% 8% 300 300 596 578 5% 6% 6% 479 464 4% 4% 200 200 5% 348 4% 308 284 2% 236 100 207 100 1% 175 2% 142 117 73 0% 0 0% 0 H1'13 H2'13 H1'14 H2'14 H1'15 H2'15 H1'16 H1'13 H2'13 H1'14 H2'14 H1'15 H2'15 H1'16 Strong growth in Mobile and Fibre penetration 37% 39% 40% 1,600 SIM-only demand growing - 14.4% market share in H1 FY16 33% 1,400 vs 10.3% in H2 FY15 30% 1,200 26% Strong take-up of bundled SIM (quad-play) – Plus TV (33%) 1,000 Fibre self-install (>90%) driving demand 20% 16% 800 1,439 1,414 TV growth a function of disciplined trading strategy to focus 1,217 600 on lower CPA Mobile and Fibre 917 7% 10% 400 557 Mobile, Fibre and TV customers continuing to generate 200 0% 0 230 highest Net Promoter Scores and exhibit lowest churn 0% 0 H1'13 H2'13 H1'14 H2'14 H1'15 H2'15 H1'16 12 10/11/2015 18:55

4.177m 4.105m Retail customers c81% of on-net; Wholesale 4.097m 4.060m c19% of on-net base 3.870m Wholesale: Wholesale: Wholesale: Wholesale: Wholesale: Step change in FY14 reflects acquisition of Post 737 627 732 771 381 Office contract Wholesale customers involve long term established relationships including several multi- year contracts  Lower ARPU and gross margin than Retail at Retail: Retail: Retail: Retail: c40% Retail: 3,489 3,433 3,440 3,373 3,326  Minimal costs to serve  No bad debt or SAC exposure  EBITDA comparable to Consumer base TTB is only other national wholesale broadband operator in UK market other than BT FY13 FY14 FY15 FY16 Opening H1FY16 Closing Base Base * Adjusted for 72k disconnections 13 10/11/2015 18:55

20%+ Growth Data & £550m+ revenue in FY15 across three lines Next Gen Voice Phone & BB Off-Net (retail and w’sale ) Phone & BB ON-NET (retail and w’sale ) TalkTalk Carrier Data & Group On-Net Next Gen Voice CORPORATE 0 Carrier Corporate Legacy Voice Legacy Voice Gross Margin -20% 14 10/11/2015 18:55

Corporate Revenue 6.2% growth in Corporate revenue (+6.7% in Q2) £188m +15% growth in Data revenues; Carrier revenues +34% +6.2% £177m Over 30,000 business Data lines +15% Data Accelerating demand for Ethernet – conversion hampered by lagging BTOR performance +34% Carrier VOIP proposition (powered by tiPicall) launched in October; strong growth expected through H2 -11% Voice H1'15 H1'16 Ethernet pipeline Ethernet & EFM Lines (‘000) 3,450 42% 30.7 26.2 3,250 21.6 17.4 37% 13.7 3,050 10.2 7.1 2,850 32% Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 H1'13 H2'13 H1'14 H2'14 H1'15 H2'15 H1'16 Total WIP Over 65 Days 15 10/11/2015 18:55

Making TalkTalk Simpler Simpler fault Simpler credit Simpler order Simpler omni- Simpler network management and billing provisioning channel service SAC reduction A transformed Operating cost A simpler An enabler of from lower brand savings business to run revenue growth churn and CPA reputation £90m-£100m savings 16 10/11/2015 18:55

Systems and Remove Structural Testing Rollout Process Costs Development The drivers of cost are As systems roll out variable We began the process of coming down in trials: costs are coming out in removing structural costs in scale: H1: Lower call volumes Fewer engineer visits Advance notice to reduce Less manual provisioning headcount in existing call Fewer router Improved customer centres replacements satisfaction Started RFP to consolidate Lower bad debt our call centre footprint Lower retention costs Expect new footprint in Lower SAC place over 12-18m Lower sales leakage Completed internal H1 Savings £6m restructure in October – costs come out in H2FY16 H2 Savings £25m-£30m FY17 Savings £90m-£100m 17 10/11/2015 18:55

18 10/11/2015 18:55

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% 19 10/11/2015 18:55

£49m £19m +4.2% +4.7% £912m £14m £7m £10m +5.9% +6.0% +4.2% +3.6% +3.5% +3.1% £871m Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 H1 FY15 On-Net Off-Net Data Legacy Carrier H1 FY16 Voice H2 Outlook On-net revenue growth of 7.6% (Q2 +8.9%), supported by ARPU On-net: Continued RGU progress; growth in H1 of 6.1% from RGU penetration, pricing and pricing and proposition proposition, offset by declining voice usage and mix Corporate: Accelerating data growth Off-net decline reflects sale of consumer off-net base to Fleur from pipeline. Carrier expected to be Continuing growth of Data and Carrier in Corporate, offset by flat year-on-year in H2 Legacy Voice 20 10/11/2015 18:55