TalkTalk Interim Results FY17 Summary Strong H1 performance: - - PowerPoint PPT Presentation

TalkTalk Interim Results FY17

Summary

 Strong H1 performance: EBITDA £130m (+44% year-on-year); interim dividend maintained at 5.29p  Material improvements in customer experience: Q2 churn reduced to 1.43% (Q216: 1.58%)  High levels of re-contracting following launch of Fixed Low Price Plans  Compelling value offer and further improvements in service to drive a return to growth in FY18  York fibre to the premise trial to be extended to whole city beginning in Spring 2017  FY EBITDA expected to be towards the lower end of our £320m-£360m guidance  Final dividend expected to be in line with FY16 and broadly covered by operating FCF

H1 Business review

Q2 performance

Churn significantly lower year-on-year; lower recruitment activity ahead of new proposition launch

• H1 revenue -1.1% year-on-year in line with expectations
• Q2 -1.7% year-on-year
• Q2 churn significantly better year on year (Q216: 1.58%)
• Consequence of lower broadband and TV recruitment activity in Q2

ahead of launch of new pricing and propositions

• Continued growth in Fibre and Mobile

• 20k
• 9k

• 33k
• 23k

H1 performance

• 3.9%
• 1.1%

• 11.1%

Broadband Base

Stabilising through strong wholesale performance and reducing churn in retail base

• Continued consistently strong growth in profitable business

• H116: decision to disconnect 72k non-paying customers
• H216: impacted by 95k due to the cyber attack
• H117 slowed gross retail connections before launch of Fixed

• Churn coming down significantly and quality of base rising
• Expect retail base to stabilise and return to growth in FY18

Continuing strong Mobile and Fibre take-up

% base Mobile % base Fibre % base TV

• Strong take-up of TV App by customers who don’t have a

• Flexible viewing on multiple devices is driving greater

• Completed multi-year renewal of full Sky content
• New propositions driving good attachment rates and

TV Content

SAC reduction from lower volumes and efficient distribution

SAC & Marketing Costs

• Pulled back on retail gross adds in Q2 ahead of

• Continuing growth in B2B data connections

• Growing digital sales and upsell
• Improved efficiency in digital channels
• Next Best Action driving more efficient use of

• H2 and beyond will see higher volumes but
• nline and channel optimisation benefits will

The value for money provider of connectivity for everyone

• Making TalkTalk

Simpler delivering better customer experience and lower costs

• Value for money quad play

for customers

• Value for money data for

businesses

• Stable household broadband base
• Rapid RGU growth
• Rapid market share growth in B2B data

Disruptive Innovation Network Leverage Value for Money Products Scale Simple Systems & processes Great Value for Everyone

• Scale brings structural cost

advantage

• Cost / Gb continuing to fall
• Integrated fixed and

mobile network

• Fibre to the Premise long

term potential

Value for money products

THE RIGHT PRICE A RELIABLE SERVICE SIMPLE AND FAIR PRODUCTS GREAT VALUE

 



Always been the case Triple and Quad play customers save even more Real progress with Making TalkTalk Simpler Customer satisfaction up Churn down Fixed Low Price Plans Existing customers get the same deals Fast and Faster simple packages

Making TalkTalk Simpler is delivering

Keeping TalkTalk Simpler

Underpinning our journey towards a self-serve quad play operating model

Delivering new systems and processes

• Network modernisation
• DLM and DNS enhancements
• Backhaul upgrades
• Contact centre repair overhaul
• Join/move essential fixes
• Simple, clear, fair bill and payments
• Next Best Offer
• CRM / process management

Leveraging and scaling Effortless self-serve and quad play

• Network transformation
• Self-serve Repair as default
• Join/move overhaul
• Tail of billing and payments fixes
• Next Best Offer optimisation
• Tail of processes onto new CRM /

• Contact centre footprint and partner

• Dark fibre
• In-home connectivity: monitoring

• Email outsourced
• Mobile service integration with

• Self-serve by default: online/apps

• Extended data-driven

H1: £17m delivered FY savings of £35m-£40m Cumulative £90m+

Extending our network cost advantage

Modest new topology investment to maintain and improve our network cost advantage

• Upgraded backhaul and improved forecasting

eliminated congestion

• More customers get the speeds they pay for on
• ur network than any other
• New access topology will improve resilience and

enhance experience

• Extension of dark fibre capacity from core

network to collector (edge) will drive costs down as bandwidth expands exponentially

Fixed Low Price Plans

5 Key Principles 1. Prices fixed for the duration of the contract 2. Existing customers can get the same deals as new customers 3. Legacy price increase and tariff rationalisation to encourage re- contracting to new plans 4. Simpler product structure, all products begin with quad play components 5. Customers in control of their bundle

Based on in depth customer insight

What is most important to you in choosing a Broadband provider? Price is critical Which of the following would make you more likely to trust your Broadband provider? Customers increasingly see through gimmicks and hidden charges

Total 18 month Package Cost – Unlimited Broadband

Price Comparisons – post launch of Fixed Low Price Plans

Calling and Safety Features

TalkTalk For Everyone

Fixed price plans Family Photo

An important step in brand transformation

Early results are encouraging

Re-contracting onto Fixed Low Price Plans stronger than we expected Short term effects

• ARPU dilution mitigated by:
• Strong attachment rates for calling boosts, TV

and fibre

• New customers joining on higher ARPUs than

legacy cohorts on deep discounts

• Improving quality of revenue mix in base
• Lower churn
• 10 times more customers have re-contracted on

the new plans than in an average month

• Majority of re-contracting customers either out-
• f-contract or nearly out-of-contract ie in highest

churn segments

• Percentage of base in contract growing by 2% per

week – strong forward indicator of reduced churn

We are building a more loyal and higher quality customer base

Medium term benefits

• Higher than expected re-contracting activity

driving short term ARPU dilution

• Simplification of deeply discounted legacy tariffs

driving short term churn

TalkTalk Business growing strongly, driven by data revenues

Corporate Revenue Sustained revenue progress High growth and margin Ethernet & EFM Lines (‘000)

• 22.8%

Wide suite of connectivity products

Material room for TalkTalk Business to grow

• TalkTalk has c10-12% market share
• Taking c16% of Openreach new connections
• Significant growth opportunity as market

expands

National & Metro Ethernet Market IPVPN Market

• TalkTalk has a c2% share
• Opportunity to take market share in segments

not well served by incumbent providers

Building an Inside Out Mobile Network

Progress in H1 FY17

• Mobile base now 793k, 22% of the base
• 500Mb data SIM offer included in all Broadband

packages

• New billing system deployed in live environment
• Our own TalkTalk 4G SIMS successfully

provisioned on Telefonica O2 network

• Ofcom approved use of TalkTalk’s Dect

Guardband spectrum for 4G in September

• Femto home trials successful

Potential to build 4m strong mobile business

Forward timeline Live trials begin Billing migration testing Billing migration Network migration Thick Build Femto rollout Nov 16 Q4 17 Q1 18 Q2 18 18/19 FY19

Concluded successful phase 1 trial of FTTP in York

Progress to date Next steps

• 14k homes passed at build

cost of £417

• 2,500 TalkTalk and Sky

customers taking service (18%

• f homes passed)
• Excellent customer feedback
• ASAT at 82%
• Churn to date is 1

customer

• 100% uptime since launch

(MPF would expect 50+ faults

• ver same period)
• Complete build of FTTP across

York:

• 40k more homes, £20m cost
• ver 18 months from Spring

2017

• JV with CFH (67%:33%)
• Sky to become long term

Wholesale customer

• Can see significant operational

improvements to further reduce costs and improve marketing efficiency, which we will trial in phase 2 in York

Will build out to rest of York in FY18/19

Summary

 Strong H1 performance: EBITDA £130m (+44% year-on-year); interim dividend maintained at 5.29p  Material improvements in customer service: Q2 churn reduced to 1.43% (Q216: 1.58%)  TalkTalk Business continuing to show strong growth through Data  High levels of re-contracting following launch of Fixed Low Price Plans  Compelling value offer and further improvements in service to drive a return to growth in FY18  FY EBITDA expected to be towards the lower end of our £320m-£360m guidance  Final dividend expected to be in line with FY16 and broadly covered by operating FCF

H1 Financial Review

Summary Profit & Loss

• 1.1%

• 3.7%

• SAC & Marketing

• 38.2%

Revenue and ARPU

• Decline in average on net base offset by

• 8,600 additional data lines driving Corporate

• Legacy voice decline offset by growth in

• Carrier growth expected to reverse in H2 so

• Impact of pricing in June and October 2015
• Growth in Fibre and Mobile
• Offset by voice usage decline and mix of

Gross Margin

• Lower weight of Retail revenues versus

• Lower voice revenues (cyber gesture)
• £7m MTTS benefits

• Growth in high margin data revenue (8.3% of

• Greater weight of low margin carrier revenues in

• Pricing
• Reversal of the trend in carrier growth
• Procurement savings

Opex and SAC

• Flat year-on-year with network and IT investment
• ffset by lower costs to serve and MTTS savings

Summary Cashflow

• Timing of payments on distribution agreement
• Phasing of stock payments
• Prepayment of marketing spend ahead of launch of new

• Expect to mostly reverse in H2

• Higher than P&L charge (£11m) due to utilisation of PY

• Expect FY exceptional items of £30-£35m

• FY17 Final dividend expected to be in line with FY16
• Broadly covered by Operating Free Cash Flow

• In line with leverage at end of H116
• Expect strong cashflow generation through H2 to drive

Capex

• H1 Capex (net of asset disposals) reflects
• phasing effect of c£30m investment that was planned for

• underlying H1:H2 weighting
• Timing difference will return to normal levels by year end
• Expect phasing to drive lower capex in H2 (vs H1 and H216)
• Capex for the full year expected to be £130m-£135m, net of

• Slightly higher than planned due to systems investment to

EBITDA outlook

• Back book re-pricing
• Boost attachment rates
• New acquisition volumes
• SAC impact of TV and fibre take-up
• ARPU dilution from re-contracting
• Churn from legacy cohorts

• Quality of base and revenue
• Customer engagement
• Churn
• Success of re-contracting activity drives FY17 EBITDA towards lower end of £320m - £360m

guidance and in line with market consensus

• Final dividend in line with FY16 and guidance
• Year-end leverage (net debt/EBITDA) to be significantly lower than at end of FY16

Impact of Fixed Low Price Plans Medium term benefits Short term impact

Appendices

Reconciliation of reported to statutory profits

Our Network Infrastructure today

Significant national scale through a combination of owned and leased assets

• r Virgin media

Total Other Costs

KPIs