A brighter place for everyone Preliminary Results 16 May 2013
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FY10/11 FY12/13 Only Phone and Broadband Fastest growing TV business in UK No TV, Mobile, Ethernet, Homesafe, or Fibre Fastest growing ethernet business in the UK High churn, losing customers, most complained Churn reducing, customer base growing, far about telco fewer complaints and service calls No one said they worked for TalkTalk but we had Hugely committed (but smaller) team, focused sites everywhere on fewer sites. Everyone a shareholder Complex infrastructure, duplicated operations, One consumer billing system, one network, networks and multiple billing systems post- reduced duplication, £105m saving acquisition EBITDA 16%, DPS 5.6p EBITDA 21%, DPS 10.4p Now in a great position to drive growth 3
Underlying* EBITDA and Margin Underlying* EPS +11% £352m 20.6p +20% £317m 17.2p £276m 13.5p 15.6% 18.8% 21.1% Dividend per Share Net Debt £438m +15% £434m 10.4p -9% 9.0p £393m 5.6p • Excludes £62m of costs relating to investment in TV (FY12: excludes £9m profit on disposal of freehold property), exceptional income (FY12: charge) and amortisation of acquisition intangibles. Earnings for both years excludes related tax based on Headline effective tax rate, FY12 also includes a one off tax credit. 4
1.7% Customer Calls Churn 23.8m 1.6% 16.2m 13.9m 1.5% 1.4% FY11 FY12 FY13 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Ofcom Complaints Net Adds 28k 10 10 Q1 Q2 Q3 Q4 Q1 Q2 15k Q3 Q4 (4) 9k (13) (19) (27) FY11 FY12 FY13 (43) (50) 5
Largest Operating Value for money unbundled UK B2B Fibre efficiencies quad play network FY13 – Returned the business to growth Lower churn Launched TV 1.9% Corporate 73,000 customers – 95% On-net and mobile +ve net adds demand 2,724 revenue growth Strong growth and £10m savings y-o-y 29% growth increasing exchanges actioned +ve feedback gradually unbundled in data 6
Largest Operating Value for money unbundled UK B2B Fibre efficiencies quad play network FY13 – Returned the business to growth Lower churn Launched TV 1.9% Corporate 73,000 customers – 95% On-net and mobile +ve net adds demand 2,724 revenue growth Strong growth and £10m savings y-o-y 29% growth increasing exchanges actioned +ve feedback gradually unbundled in data We have strong momentum to deliver our medium term targets 300 exchanges in Making TalkTalk Scaling TV & mobile Accelerating data Modest but FY14, potential for Simpler = lower churn growth growing demand more Expanding £30m - £50m and = revenue & margin Expect stronger capacity 50x - 100x savings higher ARPU expansion regulation 7
230,000 80,000 0 Q2 Q3 Q4 Added 150,000 TV customers in Q4 25% of customers new to TalkTalk Self-install launched in Q4 to complement engineer install Exited year at 12,000 net adds per week 8
CUSTOMERS SPEND MOST TIME WATCHING LINEAR TV AND LOVE THE FREE 20% HAVE BOUGHT MAJORITY OF TV CATCH-UP CONTENT: FAMILY, CUSTOMERS FROM ENTERTAINMENT, KIDS FREEVIEW/FREESAT AND FILMS Live and catch-up Sport Freeview channels 6% 89% Kids Switchers from 15% Existing PayTV Providers Entertainment 28% Pay content 40% Freeview or Other 11% Freesat 17% 72% Movies 22% 9
20 point improvement in Net Promoter Score vs. Phone & Broadband Our TV customers are very happy with the process of signing up, installation (both engineer and self-install), and the functionality offered by our set top box Improvement in NPS sustained as base has scaled We are seeing lower churn from TV customers than equivalent dual play customers 7 out of 10 TV customers say they are more likely to stay with TalkTalk beyond their contract period than they were on dual play TV is improving our customers’ overall satisfaction and loyalty to TalkTalk 10
Planned Launch Proposition Available Now for 2013/14 FREE YouView Box Engineer and Self Install Essentials proposition planned Options for autumn : 7 day catch up Broader range of ethnic Makes TV available to whole Pause, Rewind, and Record content base Freeview channels Broader choice of TVOD No PVR Unlimited access to 4,000 including blockbusters from shows 1 tuner £3.00 69 premium channels Flexible content New channels: Digital including all Sky Sports and More content: Theatre, Karaoke Channel Movies available in bundles More ethnic and specialist 1 month at a time HD TVOD channels 11
Virgin Media Essentials BT Unlimited Broadband TalkTalk Plus TV Sky Entertainment Collection & Talk Unlimited & TV Essential Unlimited Downloads Unlimited Downloads Unlimited Downloads Unlimited Downloads Anytime Calls Anytime Calls Anytime Calls Anytime Calls Freeview (70 Channels) Entertainment (40 Channels) TV M+ (100 Channels) Freeview (70 Channels) Catch Up TV Catch Up TV Catch Up TV Catch Up TV TalkTalk Player (VoD) Anytime + (VoD) & Sky Go Fibre Optic as Standard BT Vision (VoD) Sky Sports 1-5 & F1 add-on available Sky Sports 1-5 & F1 add-on available Sky Sports 1-5 & F1 add-on available Sky Sports 1-2 1m at a time on subscription on subscription BT Sports Channels inclusive £15.50 £34.00 £34.00 £28.00 Triple Play Price £9.50 £9.95 £10.00 £10.75 Value Line Rental Monthly cost (inc VLR) £25.00 £43.95 £44.00 £38.75 - - - £55.95 Up front cost 18 months £450.00 £791.10 £792.00 £753.45 (inc up front cost) 12
Attitudes to Pay TV 5.0m 7.0m 1.5m 2.5m 6.5m 3.5m Dis- Price- Pay TV Pay TV Mismatched Rejectors interested Aware Wannabees Lovers Sky Freeview FreeSat Virgin Media BT TalkTalk Plus TalkTalk Essentials Source: TalkTalk management data, TalkTalk Omnibus (Pay TV ARPU data), OC&C analysis 13
Available only to TalkTalk customers Wide range of handsets No upfront handset charges Three simple tariffs starting from £5 per month Pays back within 24m contract term ARPU and EBITDA accretive Handsets launched in August 175,000 customers Mobile customers showing lower churn than dual play 14
Who takes mobile from TalkTalk? 21% have previously bought an upsell product from TalkTalk 67% were previously Pay as You Go What they buy: 7 out of Top 10 tariffs are Small - 39% of total sales 3 out of Top 10 tariffs are Medium - 10% of total sales What they’re saying: 65% of over 55’s did not consider any other provider Easy to understand tariffs; easy set-up; clear billing Over 20 points improvement in NPS vs. dual play 15
Margin Revenue DATA STRONG GROWTH IN HIGH MARGIN PRODUCTS Significant opportunities in all channels Data vs. Voice Continued expansion of Ethernet family Ethernet family Opportunities with integrators and public sector via partners New Next Gen Voice CARRIER MAKING TALKTALK SIMPLER Core revenue and new market growth Business and Enterprise Grade service Continued expansion of international centres trading Simpler systems and processes New opportunities in data VOICE Continued declining trend in legacy voice Opportunity in next generation products 16
Corporate Revenue Corporate revenue up 1.9% £322m £316m Strong momentum in data (+29%) and +29% Data Data carrier (+10%) revenues +10% Carrier Carrier Key business wins highlight the benefits of -5% our low-cost, state of the art network: Voice Voice Post Office contract Virgin Media ethernet deal Iceland Retail Group data and voice network FY12 FY13 17
Ethernet and EF M Installations Data products and services revenue £26.8m £23.5m £20.9m 10,261 £18.0m 8,696 7,086 5,431 Q1 Q2 Q3 Q4 H1 FY12 H2 FY12 H1 FY13 H2 FY13 Ethernet and EFM gaining real traction – 10,000+ installed base at year-end Fastest growing ethernet provider in UK with highest number of Points of Presence Network capability underpins growth opportunity in all our Next Generation products and enables us to deliver great value for money 18
43,000 customers added in H2 vs. 22,000 in H1, taking base to 73,000 Overall demand in our base is still modest Actively selling 76Mbps product – to sub 3Mbps base to support TV demand Launched fibre for business customers Fibre customers: Revenue and EBITDA accretive Reduced churn and costs to serve Incremental SAC, pays back in 18m contract term Expect stronger regulation to deliver greater certainty over economics, which will make driving take-up more attractive 19
Continuing scope to unbundle... >3,000 2,724 Will unbundle a further 300 in FY14 2,508 2,007 Potential for more over time as costs 1,742 per exchange fall and ARPU grows Attractive fixed line economics support cost-efficient network investment as demand grows: Investing in resilience and …and bring customers fully on-net capacity 95% Total unbundled 92% Scaling capacity by 50-100x over 86% 74% medium term 81% Fully unbundled 75% 66% 53% FY10 FY11 FY12 FY13 20
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