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 2

H1 Business review 3

Q2 performance Churn significantly lower year-on-year; lower recruitment activity ahead of new proposition launch Q2 Q1 • H1 revenue -1.1% year-on-year in line with expectations Revenue £455m £447m • Q2 -1.7% year-on-year On-net net adds -20k -9k • Q2 churn significantly better year on year (Q216: 1.58%) On-net churn 1.4% 1.4% • Consequence of lower broadband and TV recruitment activity in Q2 ahead of launch of new pricing and propositions Fibre net adds +40k +36k • Continued growth in Fibre and Mobile Mobile net adds +46k +48k TV net adds -33k -23k 4

H1 performance EBITDA YoY Revenue Growth £912m -1.1% 14.4% £902m £27m Off Net Margin £24m -11.1% +44.4% 9.9% £188m Corporate £208m Margin +10.6% £130m On Net £90m £697m £670m -3.9% H1 FY16 H1 FY17 H1 FY16 H1 FY17 Dividend per share Leverage 2.8x 2.8x 2.6x 5.29p 5.29p H1 FY16 H1 FY17 H1 FY16 FY16 H1 FY17 5

Broadband Base Stabilising through strong wholesale performance and reducing churn in retail base Wholesale Broadband Base On Net Churn 2.1% FY16 FY17 1.6% 1.3% 1.4% 899k 1.4% 1.4% 830k 771k 737k Q1 Q2 Q3 Q4 H2’15 H1’16 H2’16 H1’17 Retail Broadband Base Wholesale • Continued consistently strong growth in profitable business Retail • H116: decision to disconnect 72k non-paying customers • H216: impacted by 95k due to the cyber attack 3,440k 3,327k 3,166k • 3,068k H117 slowed gross retail connections before launch of Fixed Low Price Plans • Churn coming down significantly and quality of base rising • Expect retail base to stabilise and return to growth in FY18 H2’15 H1’16 H2’16 H1’17 6

Continuing strong Mobile and Fibre take-up % base Mobile % base TV 37% 22% 793 1,439 1,414 1,389 1,333 699 1,217 596 917 464 348 557 284 236 175 230 117 0 H1'13 H2'13 H1'14 H2'14 H1'15 H2'15 H1'16 H2'16 H1'17 H1'13 H2'13 H1'14 H2'14 H1'15 H2'15 H1'16 H2'16 H1'17 % base Fibre TV Content • Strong take- up of TV App by customers who don’t have a 21% set top box 780 704 • Flexible viewing on multiple devices is driving greater 578 engagement and higher Net Promoter Scores 479 308 • Completed multi-year renewal of full Sky content 207 142 • New propositions driving good attachment rates and 73 30 strong engagement H1'13 H2'13 H1'14 H2'14 H1'15 H2'15 H1'16 H2'16 H1'17 7

SAC reduction from lower volumes and efficient distribution SAC & Marketing Costs Continuing benefit £152m Lower volumes in H1: £3m £34m • Pulled back on retail gross adds in Q2 ahead of £18m launch of new plans TTC TTB £94m £9m Volumes Volumes CPA • Continuing growth in B2B data connections Phasing Reducing costs per add from: • Growing digital sales and upsell • Improved efficiency in digital channels • Next Best Action driving more efficient use of marketing spend H1’16 H1’17 Sustainable reduction: Note: not to scale • H2 and beyond will see higher volumes but online and channel optimisation benefits will continue to deliver lower CPA 8

The value for money provider of connectivity for everyone  Integrated fixed and  Scale brings structural cost mobile network advantage  Fibre to the Premise long  Cost / Gb continuing to fall Disruptive term potential Network Innovation Leverage Great Value for Simple Everyone Value for Systems & Money  Value for money quad play processes Products  Making TalkTalk for customers Simpler delivering  Value for money data for better customer businesses Scale experience and lower costs  Stable household broadband base  Rapid RGU growth  Rapid market share growth in B2B data 9

Value for money products SIMPLE AND A RELIABLE GREAT THE RIGHT PRICE FAIR SERVICE VALUE PRODUCTS    Always been the Real progress Fixed Low Price case with Making Plans TalkTalk Simpler Triple and Quad Existing customers play customers Customer get the same deals save even more satisfaction up Fast and Faster Churn down simple packages 10

Making TalkTalk Simpler is delivering Material Churn Improvement Satisfaction with Service CS ASAT 81% 80% 2.1% FY16 FY17 78% 77% 75% Tech ASAT 74% 71% 70% 1.6% 66% 1.3% 1.4% 65% 64% 64% 63% 1.4% 61% 60% 60% 1.4% 58% 56% 55% 52% 52% Churn down ASAT up 23% 50% y-o-y Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Q1 Q2 Q3 Q4 Ofcom Complaints % customers agreed "TalkTalk is a brand I trust" TT Complaints 54 Complaints down 44% 50 48 47 47 47 47 46 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Source: TNS Brand Tracker 11

Keeping TalkTalk Simpler Underpinning our journey towards a self-serve quad play operating model FY17 – FY18 FY18 & beyond FY16 – FY17 Delivering new systems and Leveraging and scaling Effortless self-serve and quad play processes • • • Network modernisation Network transformation Dark fibre • • • DLM and DNS enhancements Self-serve Repair as default In-home connectivity: monitoring support and CPE • • Backhaul upgrades Join/move overhaul • Email outsourced • • Contact centre repair overhaul Tail of billing and payments fixes • Mobile service integration with • • Join/move essential fixes Next Best Offer optimisation triple play • • Simple, clear, fair bill and payments Tail of processes onto new CRM / • Self-serve by default: online/apps retire legacy CRM (including • Next Best Offer resilience, performance and complaints) • CRM / process management scalability • Contact centre footprint and partner enablers • Extended data-driven model personalisation H1: £17m delivered Cumulative £90m+ FY savings of £35m-£40m 12

Extending our network cost advantage Modest new topology investment to maintain and improve our network cost advantage Some Dark • Upgraded backhaul and improved forecasting All Dark Fibre Pre Dark Fibre No Dark Fibre Fibre eliminated congestion END USER  LOCAL  METRO  COLLECTOR  CORE LOCAL METRO COLLECTOR CORE • More customers get the speeds they pay for on our network than any other NGM NGE • New access topology will improve resilience and enhance experience Customer NGA NGM • Extension of dark fibre capacity from core NGE network to collector (edge) will drive costs down as bandwidth expands exponentially 90% All Dark Fibre Post Dark Fibre Targeted Dark Fibre Coverage High level backhaul cost and evolution £40m planned investments over 3 years will expand capacity and drive down our long term backhaul costs by £20m p.a. FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 Opex - Existing Backhaul Opex - Dark Fibre 13

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 14

Based on in depth customer insight What is most important to you in choosing a Which of the following would make you more likely to Broadband provider? trust your Broadband provider? Drivers of trust in broadband provider Ranking of reasons to choose Broadband provider 1 – most important, 5 – least important Existing customers will Price always get the same 2.0 84 brilliant deals that new customers can get Faster All broadband packages are 2.5 speed unlimited: however much 75 you use, there will be no unexpected charges Reliability 2.7 The price you see is the price you pay. No extra 74 charges, like installation TV content 3.8 fees or line rental Price freeze on all prices 69 and promotions for at least Other 4.0 next 18 months Source: Trinity McQueen Loyalty Propositions Research, April 2016, QB1 QC1 Source: TalkTalk research Scores reported show relative importance indexed to an average score of 100 Customers increasingly see through gimmicks and Price is critical hidden charges 15