Year to March 2015 14 th May 2015 1
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FY15 highlights FY15-FY17 Financials Update on Strategic Priorities 3
4.2% * revenue growth for FY15, accelerating to 6.0% in Q4 1m new RGUs added in FY15 (+20%) and lowest churn (Q4: 1.3%) 40% growth in Data driving Corporate revenue growth of 10% Acquisitions that will drive future growth (Virgin Media and Tesco broadband bases, blinkbox, tIPicall) 15% growth in Headline EBITDA 15% growth in dividend * Statutory revenue after £5m exceptional VAT adjustment in FY14 Raising revenue target to FY17 to 5% CAGR and on track to deliver FY17 EBITDA margin 25% 4
4.2% 13.6% 3.1%* 12.3% +15% £110m £245m -1.0% £213m £76m -4.4% FY12 FY13 FY14 FY15 FY14 FY15 13.8p £318m -£9m +15% £309m 12.0p 10.4p FY13 FY14 FY15 FY14 FY15 * Statutory revenue after £5m exceptional VAT adjustment in FY14 5
272 133 87 134 £110m (3) 65 (51) £76m 8 (133) FY11 FY12 FY13 FY14 FY15 FY11 FY12 FY13 FY14 FY15 687 180 497 114 109 61 230 FY11 FY12 FY13 FY14 FY15 FY11 FY12 FY13 FY14 FY15 Customers taking TV, mobile or fibre all have higher NPS and lower churn than phone & broadband customers 6
1.60 1.8% 28.18 1.50 1.7% 26.93 1.40 1.6% 26.37 1.30 1.5% 25.47 1.20 1.4% 1.10 1.3% 1.00 1.2% RGUs On-net Churn Phone and Broadband = 1RGU/customer 16% growth in RGU/Customer, 2.3% growth in ARPU, larger base from which to upsell 7
37% of phone and broadband customers Growing Base and Penetration 1.6 40% taking TV vs 26% a year ago 1.4 35% TV customers deliver higher lifetime value 1.2 30% than broadband customers 1 25% › Higher NPS › Churn half that of dual play 0.8 20% › Incremental content revenue (+45%) 0.6 15% 0.4 10% Blinkbox acquisition enables 0.2 5% › Acceleration of TV to Go App 0 0% development Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 › Expanding pay per view content › Agreement signed with HBO to offer Game of Thrones (s1-4) on Buy to Own basis access on TV to Go App from June › Greater engagement, higher content ARPU and lower churn The vast majority of customers will take TV over time 8
479k 12.7% of phone and broadband base now taking 396k fibre vs c6% a year ago 308k Demand growing gradually, helped by bandwidth 241k 177k 207k requirement and self-install 142k 15k 30k 52k 73k 95k Margin squeeze regulation now in place; expect tougher pro-competition measures in due course Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 464k 398k 12.3% of phone and broadband base now taking 348k mobile vs 7% a year ago 236k 260k 284k 308k Strong growth in SIM-only demand (13% market 202k share in March ’15 vs 4% a year ago) 152k 175k 117k Strong take-up of bundled SIM from Plus TV 85k customers Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 9
Corporate Revenue Data +39% CAGR 10% growth in Corporate revenue (over 15% Data vs 2 years ago) Strong growth in Data revenues (+40%) more Carrier than offsetting decline in legacy Voice Voice -10% CAGR Over 26,000 business Data lines Voice Significant opportunity to drive growth in Data products in medium sized corporates – FY13 FY14 FY15 material market share opportunity Ethernet & EFM Lines (‘000) tIPicall acquisition will enable TTB to aggressively enter fast growing B2B VOIP 26.2 23.9 21.6 market 19.2 17.4 13.7 15.2 10.2 11.8 8.7 7.1 5.4 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 10
Churn Ofcom Complaints 1.8% 9,191 1.7% 6,355 1.6% 5,040 1.5% 1.4% 1.3% 1.2% FY13 FY14 FY15 £70m+ MTTS Benefits £25m £30m-£50m Process improvements recognised by our customers and our regulator £15m £15m Some systems implementation delayed £17m Significantly greater benefits identified for delivery in FY16-FY17 £15m FY13 FY14 FY15 FY16-FY17 Original Delivered Delivered Additional Total Target Delayed Identified 11
Upgrading to 5% CAGR to FY17 and >5% Delivered accelerating revenue beyond FY17 growth Broadened trading strategy to be a Expect continuing quad play momentum to true quad play provider FY17 and beyond › Added RGUs at lower CPA › Reduced churn Delivered most but not all of the Expect greater benefits from MTTS over next planned savings from MTTS two years and beyond Delivered FY15 as planned On track deliver 25% EBITDA margin in FY17 12
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+4.2% +0.3% +3.9% Q3FY14 VAT impact FY15 1 FY14 yoy Headline Statutory Headline Revenue 1,795 1,727 +3.9% 19 41 Gross Profit 980 958 +2.3% 980 958 54.6% 55.5% Operating costs (735) (745) -1.3% Price & FY14 FY15 Mix Proposition EBITDA 245 213 +15.0% 13.6% 12.3% SAC & 318 309 Marketing 427 Opex 426 (1) Headline results excluding exceptional items and amortisation of acquisition intangibles FY14 FY15 14
Full year Revenue Growth ARPU Growth +2.3%* £1,795m 0.75 0.63 £1,722m* 1.71 1.22 New Voice On-net products usage 26.97 Mix * 26.36 Price & Proposition Corporate FY14 FY15 Off-net * Adjusted for FY14 exceptional VAT impact 15
Q4 FY15 Accelerating Revenue Growth +6.0% On-net growth 7.3% +4.2%* › Underlying base + ARPU +3.6% › Virgin base in Q4 +3.1% ARPU growth of 4.6% Corporate growth 14.3% Off-net decline 33.3% RGU growth of 16% to 1.56 Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY15 * After £5m exceptional adjustment in FY14 for VAT 16
Full Year Opex Focus on driving efficiency › Reducing costs through fewer 427 17 engineer visits 2 426 2 › Better contractual terms 12 Innovation Whilst investing in growth blinkbox › Investing to scale TV, mobile & ultrafast MTTS Business › Investing in our network Expansion Opex 23.7% of revenue, a reduction of 110bps FY14 FY15 17
SAC & Marketing 318 16 Additional investment in growing mobile, 14 309 fibre and broadband offset by lower TV 7 volumes Underlying SAC falling due to lower churn and lower CPA for TV and broadband FY14 CPA Churn Growth FY15 Increased investment in H2 FY15 Product Net Adds 174 156 153 144 Mobile Fibre TV BB H2 FY14 H1 FY14 H1 FY15 H2 FY15 H1 FY14 H2 FY14 H1 FY15 H2 FY15 18
7 30 16 17 Lower 22 245 Lower Churn 213 MTTS CPA Investment in Growth Gross Profit FY15 EBITDA up 15% H2 EBITDA margin of 14.6% FY15 FY14 19
SAC reduction Investment through lower in Growth SAC reduction Churn through lower >£30m 25% CPA >£70m MTTS Incremental >£40m Gross Profit Illustrative EBITDA >£100m £475m 13.7% 12.3% +5% CAGR EBITDA EBITDA £213m £246m FY17 FY14 FY15 20
2.4 x Successfully refinanced core debt 116 589 › Renewed bank debt › Accessed US private placement 2.3 x market 24 Capex 114 497 36 › stable at c6% of revenues for FY15 Dividend 30 Interest › FY16 core capex 6-6.5% with further & Tax 1-2% capex investment in mobile Investments and ultrafast fibre projects OFCF Exceptionals Exceptional items › FY15: Primarily MTTS › FY16: expected £40m-£45m driven by mobile, acquisitions and MTTS Investments › Acquisitions of Tesco and Virgin FY15 FY14 Media broadband bases and blinkbox › Youview and York JV 21
Revenue growth 5% › Strong on-net growth driven by base and ARPU › Strong growth in Data products › Continued decline in off-net and corporate Legacy Voice › Multi-product strategy with continued investment in growth Strong growth in EBITDA and Operating FCF › H2 weighted Net debt / EBITDA < FY15 Dividend growth of 15% 22
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On-net Ultrafast Fibre Network Advantage Inside Out Mobile Integrated Quad-play Making TalkTalk Simpler TalkTalk Business Revenue growth >5% and sustained FCF generation 24
FY14-FY17 Beyond FY17 Making TalkTalk Brand reputation The No.1 Priority Simpler transformed Rising bandwidth Scaling and Network Advantage usage, lower simplifying marginal cost Growing take-up of Growing household Quad Play TV, fibre and mobile market share Growing data Doubled market Scaling TTB revenues share Step change Ultrafast and Trialling and laying economics enable the foundations Inside Out Mobile scaling A HIGH GROWTH, INTEGRATED, VALUE FOR MONEY TELECOMS NETWORK 25 25
1. Quad play growth ambitions 2. How making TalkTalk Simpler will transform our customers’ experience 3. Long term potential of Ultrafast and Inside Out Mobile 26
• Premium Speed Best value BROADBAND • Discounted broadband vs but Premium Content Best value TV Best value MOBILE • Discounted Sport but Premium broadband & voice • Acquisition of Premium mobile base in EE Value for money in all 4 elements of quadplay • Premium mobile • TV and broadband ?? 27
£849 £621 £702 £574 £687 £653 £480 £473 £534 £437 £487 £397 TalkTalk Sky BT EE BT Virgin TalkTalk EE BT BT Virgin Sky Plusnet Media Plusnet Media 18m Cost of Dual Play 18m Cost of Triple Play £936 £858 £804 £667 £29.00 £27.99 £27.00 £27.00 £25.00 £18.00 £12.00 Not Unlimited TalkTalk 3 Vmed BT Voda EE O2 TalkTalk EE BT Virgin 3G 4G 3G 4G 4G 4G 4G Media 18m Cost of Quad Play Cheapest UNLIMITED SIM-Only 28
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