INVESTOR PRESENTATION - January 2021 - TalkTalk Group
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INVESTOR
PRESENTATION
January 2021
1
Disclaimer
Confidential
NOT FOR DISTRIBUTION IN OR INTO THE UNITED STATES OR OTHERWISE THAN TO PERSONS TO WHOM IT CAN BE LAWFULLY DISTRIBUTED.
This document and the accompanying presentation (this “presentation”) has been prepared for lenders under the revolving credi t facility and bilateral credit facility agreement of TalkTalk Telecom Group PLC (the “Company”) by (and is the sole
responsibility of) the Company. It comprises certain written materials concerning the business activities of the Company and its subsidiaries (the “Group”) and certain proposed transactions of the Group. By attending this presentation and/or
accepting a copy thereof, you agree to be bound by the following conditions and will be taken to have represented, warranted and undertaken that you have agreed to the following conditions. This presentation may not be distributed to any
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This presentation does not contain or constitute an offer of securities for sale, or solicitation of an offer to purchase securities, of the Company or any of its affiliates. Neither this presentation nor any part of it nor the fact of its distribution may
form the basis of, or be relied on in connection with any contract or investment decision in relation thereto. Accordingly, any offering of securities by the Company (an “Offering”) that may follow will be based on an offering memorandum
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This presentation includes certain financial measures that are not defined in and therefore not calculated in accordance with IFRS, U.S. GAAP or generally accepted accounting principles in any other relevant jurisdiction, such as, among others,
EBITDA, headline EBITDA, pre-IFRS 16 headline EBITDA, run rate pre-IFRS 16 as adjusted EBITDA, total debt and total net debt, as well as certain measures of performance, such as, among others, net adds, churn and ARPU. Because these
measures are solely derived from the Group’s management accounts and estimates, they may not be comparable to similarly titled measures used by other companies. Such measures should not be considered in isolation or as a substitute for
operating profit or any other measure as an indicator of operating performance, or as an alternative to cash generated from operating activities as a measure of liquidity.
No reliance may be placed for any purposes whatsoever on the information contained in this presentation or on its completeness. The Company and its members, directors, officers and employees are under no obligation to update or keep
current information contained in this presentation, to correct any inaccuracies which may become apparent, or to publicly announce the result of any revision to the statements made herein and any opinions expressed herein are subject to
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2Today’s presenters
Tristia Harrison Kate Ferry Phil Eayres
Incoming Chief Financial Officer
Chief Executive Officer Chief Financial Officer
with TalkTalk from 2014-2018,
with TalkTalk since 2003 with TalkTalk since 2017
Independent Advisor since 2018
3Background
TalkTalk (the ‘”Company’’ or the “OpCo”) is seeking a £100m Tap of the existing 3.875% 2025 Senior Unsecured Notes
The Senior Tap Notes will be used to repay £98m of drawings under the Revolving Credit Facility, cancel £100m of commitments across the
Revolving Credit Facility, and pay associated costs and expenses. The transaction is expected to be leverage neutral. Pro forma for the Senior
Tap Notes issuance, TalkTalk’s pre-IFRS 16 net leverage is expected to be 3.2x
Notwithstanding the impact of COVID-19, TalkTalk achieved strong operational performance for H1-21. TalkTalk’s leadership position as a value
for money provider of reliable fixed line broadband was key to offset the headwinds caused by the pandemic. As a result Fibre net adds were
187k, Ethernet base increased by 2.1k and customer churn rate was 0.91%. Modest decline in Revenue and EBITDA YoY, due to COVID-19 and
industry-wide Voice decline. Free Cash Flow was materially higher YoY
On 17th December Tosca IOM announced a firm intention to make an offer to take the Company private (the ‘’Acquisition’’). Depending on certain
conditions, TalkTalk already has irrevocable undertakings ranging from 49.7% - 55.3% of their existing shareholders committing to roll their
shareholdings. Depending on how many other existing shareholders will roll, the expectation is that the cost to acquire the minority shareholders
will be in the range of £250 - 364m
– No shareholder will hold more than 50% of the future holding company of the OpCo (the “HoldCo”). Therefore no change of control will occur
– The proposed Acquisition is expected to be financed through c. £250 - 364m Junior Subordinated PIK Toggle notes raised at HoldCo (the
“HoldCo Notes”)
– The interest payments for the PIK Toggle can be paid in PIK or cash and any cash interest payments will be serviced through dividend
payments from TalkTalk, expected to be in line with historical dividend payments to the shareholders
– The HoldCo debt will sit outside the restricted group. There will be no contractual obligation on any entity within the restricted group to
dividend monies to the HoldCo
Subsequent to the issuance of the Tap and conditional upon the completion of the Acquisition, the Company will endeavour to grant collateral in
the form of shares in the OpCo to secure the Notes, the RCF and bilateral RCF. An intercreditor agreement would be entered into which will
formalise the relationship between lending classes and the contractual subordination of the PIK Notes. In connection to this TalkTalk will launch a
consent process to Noteholders shortly after completion of the Tap
4New TalkTalk Senior Tap Notes
Sources & Uses and Pro Forma Capitalisation
Sources & Uses
Sources of Funds £m Uses of Funds £m
New £ Senior Tap Notes 100 RCF repayment 98
Transaction costs, expenses and fees(1) 2
Total Sources 100 Total Uses 100
Pro Forma Capital Structure
As of Sep-20 Pro Forma
£m Adj (+/-)
£m x EBITDA £m x EBITDA Margin / Coupon
Cash and Cash Equivalents (38) - (38)
£330m Revolving Credit and Bilateral Facilities 155(2) (98) 57 L+2.75%
£575m Senior Notes 575 - 575 3.875%
New £ Senior Tap Notes 100 100 3.875%
£75m Receivables Purchase facility 66 - 66
Capitalized facility fees (11) - (11)
Senior Net Debt (pre-IFRS 16)(3) 747 3.2x 2 749 3.2x
Adj. LTM Sep-20 EBITDA (pre-IFRS 16)(4) 237 237
Post-IFRS 16 OpCo Leverage
Lease liabilities 220 - 220
Total Net debt (post-IFRS 16)(5) 967 3.3x 2 969 3.3x
LTM Sep-20 EBITDA (post-IFRS 16) 290 290
New Notes issuance
Source: Company reports
Notes:
1. Represents estimated fees and expenses associated with the Refinancing, including the Initial Purchasers’ fees, legal and accounting 3. Represents total borrowings less cash and cash equivalents. Does not include lease liabilities, which as at September 30, 2020 amounted to
expenses and other transaction costs. £42 million on a pre-IFRS 16 basis and £220 million on a post-IFRS 16 basis
2. The total commitments available under the Revolving Credit Facility amount to £395 million. As at September 30, 2020, we had £155 million 4. Represents pre-IFRS 16 Headline EBITDA. Headline EBITDA is Headline operating profit plus charges for Headline depreciation, Headline
drawn thereunder. Since then we have drawn certain additional amounts under the Revolving Credit Facility to finance day-to-day working amortisation and Headline share of results of associates and joint venture. Excludes the £53 million impact resulting from the adoption of
capital requirements. As part of the Refinancing, we expect to cancel £100 million of outstanding commitments across the Revolving Credit IFRS 16
5
Facility and the Bilateral Revolving Credit Facility on a pro rata basis. 5. Represents total debt less cash and cash equivalents. Total debt includes current and non-current borrowings, as well as lease liabilities.New TalkTalk Tap Notes
Terms
Issuer TalkTalk Telecom Group PLC
Instrument Tap Notes to the existing 2025 Senior Notes
Issue size £100m
CCY GBP
Use of Proceeds Repayment of RCF and payment of associated costs and expenses
Tenor February 2025 (same as existing)
Optional redemption February 2022 (same as existing)
Coupon 3.875% (same as existing)
Ranking Pari passu to RCF
Security Unsecured(1)
Governing Law New York Law
Distribution Reg S only
Notes:
1. In connection with the Proposed Acquisition and conditional upon its completion, the Issuer and the Guarantors may elect, in their sole discretion, to grant English law share pledges over the shares in each of the Guarantors and floating charges over substantially all of the assets of the Issuer
and the Guarantors (the “Collateral”) to secure on a pari passu basis their obligations under the Indenture, the Revolving Credit Facility Agreement, the Bilateral Revolving Facility Agreement and any other indebtedness that is from time to time to be secured on a pari passu or junior basis. In
connection with the provision of the Collateral, the Issuer, the Guarantors, the Trustee on behalf of the holders of the Notes, a security agent to be appointed in relation to the Collateral and the facility agents and the lenders under the Revolving Credit Facility Agreement and the Bilateral Revolving
Credit Facility Agreement (among others) would be expected to enter into an intercreditor agreement that, among other things, would be expected to set out: i) the relative ranking of the liabilities under the Indenture, Revolving Credit Facility Agreement, Bilateral Revolving Facility Agreement and
certain future indebtedness that may be incurred by the Issuer and/or certain of its Subsidiaries; ii) the relative ranking of such Collateral; how and when the Collateral may be enforced; iii) how and when the Collateral may be released; iv) the subordination (on customary terms) of shareholder
liabilities (if any) owed to the Issuer (or any of its subsidiaries) by the shareholders of the Issuer (which will support the structural subordination of the HoldCo Notes to the senior secured liabilities of the Restricted Group); v) the payments waterfall for the allocation of the proceeds from any
enforcement of Collateral; vi) and turnover provisions
6Summary corporate and financing structure (post Acquisition)
Shareholders(2)
Restricted group(1) Issuer Guarantors
£57 million under the
£575 million
Revolving Credit
Original Notes(3)
Facility(4)
TalkTalk Telecom Group £nil million under the
£100 million
plc Bilateral Revolving
Additional Notes
(the ‘Issuer’) Credit Facility(5)
offered hereby(3)
TalkTalk Telecom
Holdings Ltd(7) Other indebtedness(6)
Non-Guarantor TalkTalk Group Limited
Subsidiaries(8) (non-Guarantor)
TalkTalk Communications TalkTalk Telecom Non-Guarantor
Ltd(7) Limited(7) Subsidiaries(8)
Non-Guarantor
Subsidiaries(8)
Notes: day-to-day working capital requirements. As part of the Refinancing, we expect to cancel £100 million of outstanding commitments
1. All entities in the Restricted Group are subject to the covenants in the Indenture across the Revolving Credit Facility and the Bilateral Revolving Credit Facility on a pro rata basis.
2. If the Proposed Acquisition is successful, the HoldCo is expected to become the sole direct shareholder of the Issuer. As a result 5. The total commitments available under the Bilateral Revolving Credit Facility amount to £35 million. As at September 30, 2020, we
the HoldCo is expected to have from £250m to £364m in aggregate principal amount outstanding of the HoldCo Notes, all of which had £nil million drawn thereunder. As part of the Refinancing, we expect to cancel £100 million of outstanding commitments across
are expected to be contractually subordinated to the Notes. If the Proposed Acquisition were consummated: (i) the Indenture would the Revolving Credit Facility and the Bilateral Revolving Credit Facility on a pro rata basis.
not require us to pay any dividends to the HoldCo; however (ii) should any cash interest be paid on the HoldCo Notes, it would be 6. As at September 30, 2020, our other financial indebtedness included: (i) (a) £66 million outstanding under the Receivables
expected to be funded via corresponding dividend distributions by the Issuer to the HoldCo in compliance with the restrictive Purchase Facility, less (b) £11 million of capitalized facility fees and (ii) £220 million of lease liabilities (on a post-IFRS 16 basis).
covenants in the Indenture, the Revolving Credit Facility Agreement and the Bilateral Revolving Credit Facility Agreement 7. The Original Notes are, and the Additional Notes will be, guaranteed by the Guarantors. The Guarantors represented (in each case,
3. The Original Notes are, and the Additional Notes will be, senior unsecured obligations of the Issuer and rank pari passu in right of on a standalone but combined basis) 97% of our Headline revenue, 81% of our Headline EBITDA and 90% of our total assets as at
payment with all other existing and future senior indebtedness of the Issuer that is not expressly subordinated in right of payment to and for the year ended March 31, 2020; and 94% of our Headline revenue, 82% of our Headline EBITDA and 92% of our total
the Notes. assets as at and for the six months ended September 30, 2020.
4. The total commitments available under the Revolving Credit Facility amount to £395 million. As at September 30, 2020, we had 8. As at the date of this offering, the direct and indirect non-guarantor subsidiaries of the Issuer did
£155 million drawn thereunder. Since then we have drawn certain additional amounts under the Revolving Credit Facility to finance not have any material financial indebtedness outstanding. 71. COMPANY
OVERVIEW
8TalkTalk – the UK’s leading value for money fixed connectivity provider
A quick snapshot of our business Our purpose and business model
Founded in 2003. Launched free broadband in 2006
Acquired AOL Broadband in 2006 and Tiscali in 2009
Demerger from Carphone Warehouse Group PLC and Our Purpose
listed as TalkTalk Telecom Group PLC in 2010 Simple, affordable,
reliable, fair connectivity
for everyone
Serving over 12 million people in over 4 million homes
Our Mission
and businesses To be the number
one value provider
of fixed connectivity
Access to over 3,000 unbundled exchanges, giving us
nationwide coverage
44,700 high speed Ethernet connections provided to
UK businesses
Effortless Delivering
Great Fibre for
Salford-based Head Office (with satellite office in Products
Customer
Everyone
Shareholder
Experience Value
London)
We believe that simple, affordable, reliable and fair connectivity should be available to everyone
Source: Company information.
9A leaner, more efficient business
TalkTalk previously TalkTalk now
Broadband
Broadband Voice (increasingly Fibre,
including FTTP)
Voice
TV
Mobile TV
Mobile
Core product: broadband
Quad play bundles of fixed, mobile, broadband and TV
Non-core add-ons: voice, TV, mobile
Capital intensive Lower capital intensity, sale of FibreNation
Source: Company information.
10TalkTalk proposed Acquisition overview
On 8th October 2020 TalkTalk announced an approach from its second largest investor, Toscafund Asset Management (‘’Tosca’’), to acquire
the Company
On 17th December Tosca IOM announced a firm intention to make an offer
Proposed Acquisition Current PIK size disclosed in the 2.7 Announcement is £527m. Depending on certain conditions, TalkTalk already has irrevocable
overview undertakings ranging from 49.7% and 55.3% of their existing shareholders committing to roll their shareholdings. Depending on how many
other existing shareholders roll their shareholdings, the expectation is that the cost to acquire the minority shareholders will be in the range of
£250 - 364m
No shareholder will hold more than 50% of the HoldCo. Therefore no change of control will occur
Tosca has been a committed and supportive shareholder of TalkTalk for over three years, now holding c. 29.5% of the outstanding issued
share capital
There is no plan to change the existing strategy, but rather accelerate existing management’s plans
Strategic rationale for
the proposed Tosca believes that TalkTalk’s strategic goals can be best delivered as a private company, without the significant cost and financial reporting
Acquisition burdens of a company listed on the London Stock Exchange
It will enable investments to be made in developing simple customer offers in Full Fibre products as FTTP rolls out at scale across the UK,
repositioning TalkTalk's brand and in building the systems and capabilities required to wholesale telecoms services to multiple potential
customers, both new and existing
HoldCo financing is expected to be a £250 – 364m Junior Subordinated PIK Toggle notes. TalkTalk’s Expectation is that the PIK size will be
closer to the lower end of the range
The interest payments for the PIK Toggle can be paid in PIK or cash and any cash interest payments will be serviced through dividend
payments from TalkTalk, expected to be in line with historical dividend payments to the shareholders
Details on the
HoldCo financing TalkTalk will maintain a prudent financial policy with a target to de-lever over the medium term as the business delivers on improved cash
and financial policy generation
Subsequent to the issuance of the Tap and conditional upon the completion of the Acquisition, the Company will endeavour to grant collateral in
the form of shares in the OpCo to secure the Notes, the RCF and bilateral RCF. An intercreditor agreement would be entered into which will
formalise the relationship between lending classes. In connection to this TalkTalk will launch a consent process to Noteholders shortly after
completion of the Tap
11TalkTalk’s strategy post Acquisition will remain unchanged
Single minded focus on value for money connectivity, unencumbered by having to defend premium TV or mobile
Transition the consumer customer base
base to Full Fibre Consumer propositions based on fast reliable connectivity, marketplace for video content and great value
Acceleration of Full Fibre mix, and improved customer experience reducing cost to serve reducing churn
Structurally well positioned on pricing and well positioned for ongoing OFCOM fairness drive
Strong momentum in B2B business driven by clear focus on B2B data & connectivity and a consistent strategy across
B2B data provider of Direct and Wholesale business lines
choice Serving over 100k SME, corporate and enterprise Direct customers
Remains largest provider of wholesale Broadband in UK, with over 50% market share
Moving to higher bandwidth product mix driving ARPU and margin growth
Continued optimization of TalkTalk’s network so as to meet customers data usage demands whilst reducing cost per Gb
‒ Data usage has doubled year on year in part due to COVID-19 lockdowns and increased working from home,
Optimising our network as well as higher speed customer upgrades
‒ Competitive advantage from a national network that is broken into distinct layers using different technologies to
maximise cost advantage and drive down cost per Gb
Enhanced customers’ video experience by caching of content within the network
Making good progress in resetting to a simpler, lower cost base with continued focus on optimization
Simpler, lower cost base Self-service model with new digital tools such as our online ‘Service Centre’ benefitting both Consumer business
and Wholesale partners
Central costs materially lower due to HQ move, bringing full annualized cash savings to £25 - £30m from FY21, of which
£19 - £23m are operating expenditure reductions, and the remainder are a reduction in annual capital expenditures
Move to new distribution model and digital marketing approach has seen SAC and marketing efficiencies
TalkTalk is the value for money provider of simple, affordable, reliable and fair Fibre connectivity to U.K. homes and businesses
12Resilience during the COVID-19 pandemic
The pandemic has solidified TalkTalk’s position as a critical value provider at a time where access to reliable, affordable connectivity
Our service has never been so important
Network remains highly resilient despite material increases in daytime traffic (+c.20% during the first lockdown)
Accelerating our Demand for higher quality broadband, driven by huge surge in internet usage following increased demand for OTT and gaming
fibre strategy services as well as the mass move to working from home, accelerates our pre-existing strategy
Despite low churn across the industry, we have been able to continue upgrading customers at scale and now have over 60% of our
total Consumer and B2B base taking a FTTC product, adding 187k customers in H1 2021
Historically low Slowdown in churn coincided with COVID-19 lockdown restrictions at the end of March 2020
churn H1 2021 saw churn of 0.91% (H1 2020: 1.27%), consisting of a record low of 0.68% in Q1 2021 (Q1 2020: 1.29%) before returning
to more normal levels in Q2 2021 of 1.14% (Q2 2020: 1.26%)
Acceleration of move to ‘digital first’ service options; re-purposing TalkTalk staff to service customers
Prioritising
customer service More ‘First Time Fix’ as customers empowered and choose to ‘self-serve’ to action changes or resolve issues – faster problem
solving with no need to speak to agents
Prioritisation of voice contact opportunities for vulnerable customers to help better serve those most in need
Our people Responded quickly to ensure the majority of employees could work from home safely
Elected not to access furlough scheme or any government loans
Operational Reduced operating costs, primarily in relation to subscriber Acquisition costs, marketing and third party customer service costs by
flexibility temporary closing international call centres and shifting to digital marketing channels
Opportunity to review third party support structure going forward
132. KEY CREDIT HIGHLIGHTS
1,179 1,239
631 656 692
14Key credit highlights
1 Structurally attractive UK fixed-line market
2 Structural cost advantage driven by advanced and scalable fixed-line network
3 Market leading value provider
4 Large scale B2B business and number one provider of wholesale broadband
5 Ideally positioned for the nationwide shift to Full Fibre
6 Proven track record of operational improvement and cost reduction
7 Highly experienced management team
151 STRUCTURALLY ATTRACTIVE
UK FIXED-LINE MARKET
161 Attractive and growing UK fixed broadband market
Growth in total broadband market… …with ongoing shift towards high speed connections
Fixed broadband connections (millions)(1) Fixed broadband connections by technology (%)(1)
26.8
26.6
26.0 47%
25.5
84%
24.7
23.7
53%
16%
2014 2015 2016 2017 2018 2019 2014 2019
(2)
FTTC & FTTP Others
Notes:
1. Ofcom, Communications Market Report 2020 (September 2020).
2. Other includes Cable, ADSL and Others.
171 Continuing growth in demand for connectivity and high speed broadband
Exponential growth in networked devices… …and growing demand for faster speeds
Total networked devices(1,2) (millions) Average UK fixed broadband speed(1) (Mbps)
5.7 6.2 10.5
93.4
719
415
371
37.8
29.8
2016 2018 2023 2016 2018 2023
Number of networked devices per capita in the UK
Source: Cisco
Notes
1. Cisco Annual Internet Report forecasts for United Kingdom
2. Devices connected to IP networks
181 Supportive regulatory landscape
1 2 3
Ofcom ‘Best Plan’ ruling / CMA Government support for Full Fibre Supportive wholesale
‘Loyalty Penalty’ rollout pricing
Government target for at least 85% GEA 40/10 FTTC ('Up to 40Mbit/s')
nationwide fibre coverage by 2025; with the Ofcom charge control (£)(1)
ambition to accelerate rollout to as close to
100% as possible
Ensure existing customers are informed 88.80
Consultations in Jan-2020 to incentivise
when their contracts expire (in force since
Openreach high speed roll out 68.69
Regulation February 2020) 59.98 59.04
Support for Altnet rollout & initiatives to
Overview Ensure existing customers are offered best
stimulate infrastructure level competition
deals available (in line with what is available
including Openreach Ducts and Poles
to new subscribers)
Access (DPA) at regulated prices
Initiatives such as the UK Fibre programme
and Gigabit Broadband Voucher Scheme for
small businesses 2017/2018 2018/2019 2019/2020 2020/2021
Momentum for TalkTalk’s Fibre-First strategy
Industry-leading Fixed Low Price Plans Competition amongst wholesale suppliers
(“FLPP”) guaranteeing the same price likely to create downward pressure on Falling line rental and controls e.g. on
Impact on throughout the plan wholesale costs Openreach’s FTTC up to 40MBit/s (GEA
TalkTalk Ideally positioned - competitors have a 10- Increased choice among wholesale suppliers 40/10)
15ppts larger legacy base, with a 2x higher e.g. agreement with CityFibre as part of the Easier and cheaper access to infrastructure
price level vs. in-contract subs sale of FibreNation and ongoing discussions
with Openreach
Source:
1. Ofcom, Wholesale Local Access Market Review 2018.
192 STRUCTURAL COST ADVANTAGE
DRIVEN BY ADVANCED AND
SCALABLE FIXED-LINE NETWORK
202 Structural cost advantage underpinned by our network
Cost advantage 3,000+ 3,000+
Advanced and scalable fixed line network Unbundled Exchanges Enabled
Exchanges for Ethernet
‒ Covering approximately 96% of UK’s homes
‒ Unbundled equipment installed in over 3,000 Openreach exchanges
‒ Able to scale efficiently for growing usage, while driving down unit costs 96% 4,600+
Enabled for FTTC
Scale positions in both residential and B2B provides material fixed cost UK Coverage
Services
leverage
‒ Enables maximum use of our network – with peak usage at different times
across each division
7.64Tbps 1bn
Scale enables TalkTalk to access the most competitive wholesale costs from Peak Bandwidth Voice Minutes per
BT Openreach and Alternative Networks Utilisation Month
‒ Wholesale commitments from TalkTalk’s scale base underpin altnet’s
investment case
Capital light and efficient distribution of mobile and TV services 74,000+ 85
FTTC Enabled Collector Nodes
‒ No expensive content costs Across the UK
Cabinets
‒ No expensive Mobile platform investment
‒ Lower capex requirements post FibreNation disposal
Low cost and efficient operations >4,000 Miles 1.67Tbps
of Dark Fibre Netflix Cache
‒ Single head office based in Salford
Source: Company information.
212 Our network gives us a competitive advantage…
We are exploiting new technologies such as self healing software, defined networking, and using real-time
network optimisation
Our advanced network gives us a competitive advantage
Owned Equipment in Owned Equipment across TalkTalk Data
Exchange backhaul Owned Equipment in
Last mile Owned equipment collector ring – 10Gbps optical Centres and UK Telehouses. 100 and
in 1–10Gbps optical circuits regional collector
supplied in 3,000+ circuit or dark fibre supplied 200Gbps wavelengths over dark fibre
supplied by BT Openreach nodes to extend core
by BT Openreach exchanges by BT, SSE, GEO, VM and carrying traffic across our UK national
or Virgin Media optical network
Eircom network
Ethernet
Fibre to the cabinet (FTTC)
Fibre to the premise (FTTP) Unbundled
Home and Street cabinet Collector node Core Transit
business exchanges and Peering
Last mile Dark fibre sourced under long term leases in a competitive market with no
capacity constraints
Price-regulated copper and Ethernet Fibre partially regulated Core optical network across a national leased fibre network supporting 9.6Tbps
of capacity
Access Network Collector and Caching Core and SDN
• Next generation access switching • Adoption of additional high capacity • Self optimising technologies: increase
capability: more cost effective and higher optical products deeper into our network efficiency to identify and respond in real time
capacity backhaul options to customer impacting issues
• Holding more content deeper in the
• Service layer data: identify and resolve network: improves customer experience • AI technologies: through the use of Juniper
service issues in near real time to avoid and reduces amount of traffic that has to NorthStar to ensure the Network will learn
customer disruption and engineer dispatch leave our network from such events to prevent future service
affecting issues
Source: Company information.
222 …which allows us to deliver efficient, low cost connectivity
By executing on our network strategy we will deliver an evermore efficient, high capacity, network firmly
delivering on our “Simple, Affordable, Reliable and Fair Connectivity to Everyone” promise
Customer Experience Demand for Bandwidth Cost
Product Advantage from network breadth
Exponential bandwidth demand growth Innovative backhaul and network options
Guiding customers to the right products for delivers greater capacity at lower cost
them Faster services and new technologies drive
increasing access bandwidth Deep Edge Caching allows scale and
OSS stack allows us to offer wholesale
caching video traffic closer to customer
products at scale Our Access Network Transformation
Data exploitation via Service Index & program allowing us to scale more Highly efficient network strategy driving our
Customer Dashboard efficiently with new technology target "Cost per Gbps" trajectory
(1)
ISP Speed Index Bandwidth Utilisation (Tbps) Cost per Gbps Served
Rank: 3 TalkTalk Fibre 4.52 Mbps
6.4
3.0 3.8
2.3
FY17A FY18A FY19A FY20A FY25E FY2020 FY2021 FY2022 FY2023 FY2024 FY2025
Source: Company information. Notes:
1. Netflix ISP Speed Rankings (Feb 2020) 2nd when comparing copper ISP’s.
233 MARKET LEADING VALUE
PROVIDER
243 Supportive market backdrop for a leading value player
The pandemic has solidified TalkTalk’s position as the critical value provider at a time where access to reliable,
affordable connectivity has never been so important
Macroeconomic and market trends… TalkTalk’s scale residential and B2B value offering
Macroeconomic uncertainty Sudden uptick in demand for
(Brexit, COVID-19) favours value ‘WFH’ communications, online
player gaming and OTT video
Over 50%
Stable household spend on Growth in B2B VoIP / cloud Serving 12m market share in
Telecom services services people in homes wholesale
and businesses broadband
…make TalkTalk’s value proposition compelling to consumers
Value proposition resonating with customers in Consumer and
Over 4m
Business alike and is difficult for competitors to replicate
customers
Low proportion of legacy customers, with minimal delta between
front and back book pricing
Capital light approach and limited pension obligations 44,700
high speed Group Revenue of
Not competing for high cost premium TV content
Ethernet £1.5bn(1)
Significant barriers to entry for new value player entrants given connections
high network investment requirements
Source: Company information.
Notes:
1. Headline LTM Revenue as of Sep-20 253 TalkTalk offers a unique value proposition to consumers
Market leading value provider for both existing and new customers underpinned by Fibre First strategy,
connectivity led approach, and improved customer experience
Our ‘value equation’ Great value for money add-ons
1 • Fibre Focus – over 80% of new customers
choosing to take Fibre as at Q2 FY2021
TV
• Connectivity led proposition with FLPP,
Fibre-first proposition and upsell opportunities leading to Mobile
enhanced ARPU
• Enhanced by pandemic induced ‘work
from home’ requirements
O2
2
• Sustained improvements in connectivity
to drive lower churn
Connectivity • Market leading Wi-Fi Hub and connectivity
improvements supported by the Customer
Enhanced Security
Dashboard
Voice
3 • Higher bandwidth products and more
reliable service lead to better customer
satisfaction
• Acceleration of move to ‘digital first’ service
Customer Experience
during the pandemic
• Maximising the benefits of the investments
already made to optimise customer
experience
Source: Company information.
264 LARGE SCALE B2B BUSINESS
AND NUMBER ONE PROVIDER
OF WHOLESALE BROADBAND
274 Differentiated proposition for business customers
Strong momentum underpinned by wide range of customers with low concentration and high renewal rates
Clear, differentiated proposition to businesses Business model covers routes to all segments
Value provider – history of disruptive pricing and product innovation to reduce B2B Product offering
Route to market
connectivity costs BB Data Voice
Scale network shared with consumer with complimentary peak demand profiles Public Sector System integrators (SI’s)
Easy to do business with – investment in portals, provisioning and assurance System integrators
Corporate &
activities Managed service providers
Enterprise
(MSP’s)
(250+ employees)
Breadth and depth of account management structures TTB Direct
Senior management engagement and bespoke solutions MSP’s
SME & Micro SME
Resellers
(4–250 employees)
Proprietary insights shared with customers TTB Direct
Industry coverage through wholesale relationships across the market without MSP’s
SoHo
dependency on a few key accounts Resellers
(1–3 employees)
TTB Direct
Direct Consumer B2B2C partners
(25m homes) TalkTalk Consumer
Channel mix
Direct: c. 80k customers from SOHO to Enterprise
Wholesale: approximately 900 active partners, including resellers, Wholesalers and
Carriers serving over 1m end customers
Partners and carriers Remains Britain’s largest provider of wholesale broadband, with over 50% market
share
Source: Company information.
284 Growing customer base in both wholesale broadband and ethernet markets
Base growth Product mix
TTB on-net base FTTC penetration
Greater mix of higher
UK’s Largest Wholesale margin products
Broadband Base
Q1'17 Q3'17 Q1'18 Q3'18 Q1'19 Q3'19 Q1'20 Q3'20 Q1'21 FY16 FY17 FY18 FY19 FY20 Q2 FY21
Ethernet base 1Gb % Ethernet base
Q1'17 Q3'17 Q1'18 Q3'18 Q1'19 Q3'19 Q1'20 Q3'20 Q1'21 FY16 FY17 FY18 FY19 FY20 Q2 FY21
Source: Company information.
294 Product upgrade driving ARPU and profit growth
Strong ARPU and margin growth with reduced costs to serve
Greater mix of higher bandwidth products Expanding product set
Significant opportunity in B2B:
Full Fibre to the Premise, with B2B offering Gigabit Ethernet for multiple
service delivery
Replacement for legacy B2B products, i.e. low bandwidth Ethernet
Build to industrial estates, with installation of passive infrastructure
FTTP
Consistent strategy in B2B
✓ Single minded focus on B2B data and connectivity
✓ Simple strategy consistent across Direct and Wholesale
Next gen ethernet
✓ Locked in a number of key Broadband and Ethernet partners with long-
FTTC/SoGEA
term deals
✓ Acceleration to higher speed Ethernet products
Ethernet
EoFTTC
G.Fast
✓ Renewed focus in Direct, delivering record Fibre net adds in FY20
ADSL
FTTP
EFM
B2B2C Business grade
Source: Company information.
30Differentiated ‘platform’ positioning – aggregation of FTTP networks and
4
reseller of a broad range of telecoms services
TalkTalk Network New
TalkTalk Residential
Business B2B resellers owners/ customer
Consumer resellers
Direct carriers segments
TalkTalk Platform
• Our unique position in the UK telecoms industry as both a scale retailer and wholesaler means we have a range of capabilities that have
the potential to be used by a broad range of potential customers who can as a result gain the benefits of TalkTalk’s scale and capability.
• Providers in other industries have similarly used their capabilities and scale to provide a ‘platform’ of services to other, often smaller,
businesses.
• TalkTalk is already a ‘platform’ based business and has a range of capabilities to offer to different customer segments.
• We believe we can leverage this ‘platform’ and our successful wholesale business to develop further opportunities that will both enhance
our proposition and drive financial benefits.
315 IDEALLY POSITIONED FOR THE
NATIONWIDE SHIFT TO FULL
FIBRE
325 Strategic outlook driven by Fibre First approach
Acceleration of speed and bandwidth; underpinning reduction in costs and churn
FTTP
1Gb
G. Fast/
FTTP
300
G. Fast/
FTTP
150
Fibre
80
Fibre Fibre customers incur materially
40 lower CTS and have significantly
longer tenure
Copper
Voice
2020 Future proofed products 2025
Legacy products
Source: Company information.
335 Ideally positioned for the nationwide shift to Full Fibre
Churn rate by product Churn rate by router
Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Aug-18 Nov-18 Feb-19 May-19 Aug-19 Nov-19 Feb-20 May-20
1
Copper Fibre 40&80 GFast FTTP Other Wi-Fi Hub
Data growth Average download speeds
8 Faster Fibre (Mb/s) Superfast Fibre
Peak Traffic
Proportion of Video Traffic TalkTalk 32.92 TalkTalk 63.62
6
Peak Traffic Tb/s
Zen 31.18 Zen 62.50
EE 31.06 Vodafone 61.30
4
Sky 30.99 Sky 61.02
2 Vodafone 30.66 EE 58.39
Plusnet 29.75 Plusnet 58.19
0 BT 28.02 BT 56.69
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Sources: Company information, Ofcom.
Note:
1. All other TalkTalk routers. 345 Fibre has materially lower cost to serve
Fibre customers (both FTTC and FTTP) have higher ARPU, lower costs to serve and lower churn
Cost to serve (£)(1)
H1 FY18 H2 FY18 H1 FY19 H2 FY19 FY2020 FY2021
Copper CTS FTTC CTS FTTC with Wi-Fi hub
The COVID-19 pandemic has accelerated our fibre-first strategy at a time where affordable connectivity is in higher demand: our ‘digital first’
strategy and self-service model has further reduced cost to serve
FTTC customers come with lower cost to serve, e.g. fewer faults and quicker resolution
Cost to serve is even better when our FTTC customers have a Wi-Fi Hub
FTTC customers churn less than copper customers, particularly when they are in-contract
FTTC customer have an average life which is significantly longer than an average copper customer
Therefore over customer life, FTTC customers are more profitable than copper customers
All these metrics improve again when customers migrate onto FTTP services further increasing profitability
Source: Company information. Notes:
1. Chart for illustrative purposes only.
356 PROVEN TRACK RECORD OF
OPERATIONAL IMPROVEMENT
AND COST REDUCTION
366 The TalkTalk operational journey and future outlook
The journey to date leaves the company well positioned for future growth and optimisation
Delivering new systems & processes Leveraging and scaling
✓ Network modernisation ✓ Network transformation
FY2016–FY2018 ✓ CRM / process management enablers ✓ Tail of processes onto new CRM/retire legacy CRM
(including complaints)
✓ Contact centre footprint and partner model
Fixed connectivity led approach Simplification and cost efficiencies
✓ Focus on fixed connectivity, non-core products delivered in ✓ Leaner business and operating model
capital light way ✓ Lower central cost due to HQ move to Salford (on track to
FY2019-2020 ✓ Strong structural positions in Consumer and Business deliver £25m-£30m of annualised cash savings)
✓ Accelerated fibre growth ✓ Digital tools (e.g. ‘My Service Centre’) reduced cost to serve
✓ Move towards digital, targeted marketing
Continued optimisation
✓ Increasing fibre mix leads to reduced churn and cost to serve
✓ Further central cost reductions as we become a leaner, more efficient business
✓ Retain our operational flexibility through continued use of digital marketing, technology, data driven insights and diagnostics to
FY2021 & beyond reduce costs
✓ Review of our third party support structure in-light of changes made during the COVID-19 pandemic
✓ Following the proposed Acquisition TalkTalk will be better placed to accelerate its operational and financial plans, in line
with the existing strategy to create a leaner, more efficient business
376 Strong commercial and operating momentum
Strong momentum in KPIs, with an acceleration in Fibre and Ethernet base and reduced churn, notwithstanding
COVID-19
Fibre net adds (000)(1) Customer on-net churn rate(2)
605 1.22% 1.20% 1.20% 1.27%
490 FY18-20 average:
348 1.21% 0.91%
292
187
2018 2019 2020 H1-20 H1-21 2018 2019 2020 H1-20 H1-21
• Notwithstanding COVID-19 impact, TalkTalk managed to add 187k fibre • Reduced churn driven by customer experience improvements, as well as
clients to bring the total number to c. 2.6m at H1-21 some COVID-19 benefit with reduced switching activity during lockdown
• Q2 net adds of 120k showing a significant improvement vs Q1 (67k) and • H1-21 churn rate of 0.91%, marking a record low in Q1 (0.68%)
returning close to FY20 quarterly average of 151k
B2B - Ethernet base (000)(3) Data revenue growth (£m)(4)
43 45 162 173 181
37 39
32
90 90
2018 2019 2020 H1-20 H1-21 2018 2019 2020 H1-20 H1-21
• Ethernet growth supported by higher volume of 1Gb connections, which • Continued shift in the Ethernet base to higher bandwidth products is driving Data
comes with significantly higher ARPU revenue, while competitive landscape leads to some ARPU dilution
Notes:
1. Net of new Fibre customers joining TalkTalk and those existing customers upgrading to Fibre offset by those leaving TalkTalk 3. Total number of high speed Ethernet connections in our B2B division
2. % of average customer base leaving TalkTalk each month 4. Revenue generated from Data products in our B2B division 386 Ongoing efficiency gains underpinning cost reduction and margin expansion
Simplification and core focus has reduced costs and led to a more efficient business
Reduced cost base(1) EBITDA expansion(1)
38.1% 34.3% 34.0% 14.7% 16.7% 15.7% 16.3%(2)
£613m £260m (2)
£237m £246m
£534m £237m
£513m
FY2019 FY2020 LTM Sep-20 FY2019 FY2020 LTM Sep-20
Operating Costs & SAC % of revenue EBITDA % Margin
Lower cost to serve driven by increased Fibre mix combined with move to Meaningful margin expansion in FY2020, kept stable in LTM Sep-2020 due
self-service model (fewer calls and engineer visits) to benefit of COVID-19 mitigating actions and flexibility of cost base
Central cash cost savings continuing due to HQ move from London to Headline EBITDA growth of c.10% between FY2019 and FY2020, and
Salford (£15m decrease in operating costs in FY2020) overall CAGR of c. 2% from FY2019 to LTM Sep-2020
Digital marketing approach contributing to year on year reduction in
customer Acquisition costs
FTE cost reduction from FY2018 redesign of organisational structure
Lower outsource partner costs
Source: Company information.
Notes:
1. All numbers on a pre-IFRS 16 basis
2. Headline LTM Sep-20 EBITDA, excluding £9m of COVID-19 impact
397 HIGHLY EXPERIENCED
MANAGEMENT TEAM
407 Senior management team has multiple decades of combined expertise in the
telecommunication industry
Incoming CFO – not a member of the PLC board
Board of directors
Sir Charles Dunstone Tristia Harrison Kate Ferry Phil Eayres
Executive Chairman Chief Executive Officer Chief Financial Officer Chief Financial Officer (incoming)
Founded in 2002 and rebranded to Joined in 2003 Joined in 2017 Independent advisor since 2018
TalkTalk in 2003 Previously worked at Carphone Previously worked at Carphone Previously worked at supermarket
Founder of Carphone Warehouse Warehouse; Independent Non- Warehouse, group Pick n Pay in South Africa, as
and TalkTalk Executive Director at Next PLC, PricewaterhouseCoopers and Merrill well as Shell, Pepsico, Diageo and
Trustee at Comic Relief and national Lynch; Non-Executive Director at Bain & Company
charity Ambitious about Autism Greggs
John Gildersleeve Sir Howard Stringer Roger Taylor Nigel Langstaff
Deputy Chairman Non-Executive Director Non-Executive Director Non-Executive Director, Chairman of
Joined in 2010 Joined in 2012 Joined in 2010 the Audit Committee
Previously Chairman of Carphone Chairman of Atrium TV, former Previously CEO/CFO of Carphone Joined in 2017
Warehouse and British Land, Deputy President of CBS Broadcasting of Warehouse Previously CFO at Carphone
Chairman of Spire Healthcare Group the American Film Institute, and Warehouse
plc, New Look Retail Group, EMI former Board member of BBC
Group and Gallaher Group Commercial Holdings Ltd.
Ian West Phil Jordan Paul Reynolds
Senior Independent Director Non-Executive Director Non-Executive Director
Joined in 2011 Joined in 2018 Joined in 2020
Previously worked at Sky plc and Previously CIO at Vodafone UK & Previously Independent Chair of
Kabel Deutschland Ireland and Telefonica; current FibreNation, and CEO of BT
Group CIO and member of the Wholesale; current Chairman of
Operating Board at Sainsbury’s 9Spokes International and a Director
of Computershare
Management team
Jonathan Kini Nick Gunga Gary Steen
Managing Director (Direct Consumer and B2B) Managing Director (TalkTalk Wholesale Services) Managing Director (Technology, Change and Security)
Joined in 2019 Joined in 2005 Joined in 2012
Previously worked at Virgin Media and Vodafone, Highly experienced telecoms expert with a career 30+ years experience working in
current advisor to the Bank of England spanning over 20+ years in the industry telecommunications in Fixed Broadband, Wireless
and Air to Ground Broadband
Daniel Kasmir Tim Morris
Chief People & Procurement Officer Group General Counsel and Company Secretary
Joined in 2019 Joined in 2010
Previously worked at Shell, Manpower, FNZ, Previously worked at Carphone Warehouse and
Xchanging and BDO DLA Piper
Source: Company information.
413. FINANCIALS
42Summary financials(1)
Revenue Pre-IFRS 16 EBITDA
Revenue and ARPU impacted by Voice decline and legacy re-contracting,
14.7% 16.7% 15.7% 16.3%(2)
offset by Fibre penetration
Consumer & B2B Legacy re-
Fibre mix Data Meaningful margin expansion
Voice contracting
£260m (2)
£1,609m £1,557m £237m £246m
£1,507m
£237m
FY2019 FY2020 LTM Sep-20 FY2019 FY2020 LTM Sep-20
Revenue EBITDA % Margin
Capex EBITDA(2) – Capex(3)
6.2% 7.0% 6.2% 7.5% 6.9% 7.4% 57.8% 62.7% 57.8%
Stable and growing EBITDA – Capex %
£113m £116m £112m £163m
£137m £142m
£100m(3) £97m(3) £104m(3)
FY2019 FY2020 LTM Sep-20 FY2019 FY2020 LTM Sep-20
Capex EBITDA - Capex As % of EBITDA
% of revenue (ex. FibreNation)
% of revenue (incl. FibreNation)
Notes:
1. Financials are presented based on Management’s reporting view which shows Headline numbers on a pre-IFRS 16 basis. This differs from statutory accounts presented in the Offering Memorandum which includes impact of Non-Headline
items
2. Represents pre-IFRS 16 Headline EBITDA, excluding £9m of COVID-19 impact. Headline EBITDA is Headline operating profit plus charges for Headline depreciation, Headline amortisation and Headline share of results of associates and
joint venture. Excludes the £53 million impact resulting from the adoption of IFRS 16.
3. Excludes Capex from FibreNation 43H1-21 TalkTalk trading update
Key profit & loss metrics
1 Revenue
31 Mar FYE H1-20 H1-21 %
(£m)(1) (Sep-19) (Sep-20) Var • On-net revenue decline in H1-21 of 6.5%, predominantly due to the
On-net 627 586 (6.5)% COVID-19 pandemic and industry-wide Voice usage declines
– COVID-19 impact was reflected in reduced connections, cancelled
Corporate 154 145 (5.8)%
Sports boost due to lockdown and customers re-contracting early in
Off-net 5 5 - search for better deals
1 Total Revenue 786 736 (6.4)% – Declines partly offset by increased penetration of Fibre (+187k net
adds in H1-21)
2 Gross Profit 402 358 (10.9)% • Corporate revenue decline was due to B2B Voice (down 12.8% YoY)
Gross Margin (%) 51.1% 48.6% –250bps and Carrier (down 17.6% YoY). Data revenues were flat reflecting the
continued shift in the Ethernet base to higher bandwidth products, offset
by some ARPU dilution due to a competitive market
(–) Operating costs & SAC (262) (236) (9.9)%
3 EBITDA 140 122 (12.9)% • Clear signs of total revenue (ex-Carrier and Off-net) growth improvement
in Q2 (-4.8% YoY) vs Q1 (-7.5% YoY), with further improvement expected
% margin 17.8% 16.6% -120bps
in H2-21
EBITDA relating to FibreNation (2) -
2 Gross profit
• Gross margin decline of c. 250bps YoY due to revenue drag above and
higher costs relating to the shift to Fibre products. The dilution in gross
margin from Fibre is offset by the reduced costs to serve, lifting EBITDA
margin
3 EBITDA
• EBITDA was impacted by the revenue drags above. It is estimated that
COVID-19 had a negative impact on the Group’s Headline EBITDA of c.
£9m
• The revenue and margin drags were offset by:
‒ Increased Fibre penetration benefiting cost to serve with fewer faults
and calls
‒ Costs saving initiatives including COVID-19 mitigating actions
Notes:
1. Historical revenue and EBITDA shown on a Headline basis and all numbers are post-IFRS 16
44H1-21 TalkTalk trading update
Cash flow statement & leverage metrics
31 Mar FYE H1-20 H1-21
(£m)(1) (Sep-19) (Sep-20)
1 Changes in net working capital
EBITDA 140 122 • Working capital inflow due to the timing benefit of a key
EBITDA relating to FibreNation (2) -
supplier payment. FY21 working capital is expected to
1 (+/–) Changes in net working capital (80) 41
normalise to an outflow of c. £40m as a result of:
(–) Capex (50) (46)
2
Capex % of Revenues 6.4% 6.3% ‒ The supplier’s full-year payment
Capex relating to FibreNation (8) - ‒ Change in distribution model, expected to generate an
Free cash flow 10 117 upfront outflow
Other adjustments
(31)
2 Capex
(–) Non-Headline items (19)
3 (–) Investments (Acquisitions) (9) (4) • In line with H1-20 at 6.3% of revenues
(–) Share issue (redemptions) - (19)
(17)
‒ Expenditure primarily related to the continuous
4 (–) Dividends (17)
(–) Interest and Taxation (22) (21) enhancement of our network capability and online systems
(–) Non-cash movement in leases (24) (38) 3 Non-Headline items
Movement in Net Debt (81) (13)
• Non-Headline items have increased YoY primarily due to the
FY20 H1-21 completion of the Fibre Assets Business sale. Other amounts
Leverage metrics(1) relate to the final cash spend associated with the move of our
(Mar-20) (Sep-20)
Closing Net Debt(2) 954 967 HQ to Salford (£5m) and the ongoing network transformation
LTM Headline EBITDA 308 290 programme (£7m), offset by MVNO trading profits (£2m)
Net Debt / EBITDA 3.1x 3.3x
4 Other
FY20 H1-21 • Investment / (Acquisitions): £4m relates to the YouView JV
Pre-IFRS 16 Leverage metrics
(Mar-20) (Sep-20)
• Share purchases by the ESOT(7) of £19m in line with long term
Total net borrowings(3) 737 747
LTM Pre-IFRS 16 Headline EBITDA(4) 260 237
incentive plans
Pre-IFRS 16 Net Debt / EBITDA 2.8x 3.2x • Dividends: In-line with prior period, comprised the final dividend
Pre-IFRS 16 net interest expense(5) 43 39 for FY20 of 1.50p
Pre-IFRS 16 net interest coverage(6) 6.0x 6.2x
Notes: 4. Excludes £48m and £53m impact resulting from the adoption of IFRS16 for FY20 and LTM Sep-20, respectively.
1. Historical EBITDA shown on a Headline basis and all numbers are post-IFRS 16. 5. Represents interest expense on senior notes, bank loans and overdrafts less interest income related to cash and cash equivalents
2. Represents total debt less cash and cash equivalents of £56m. Total debt includes current and non-current borrowings, as well as held, in each case, as extracted from our Financial Statements. Our “net interest expense” excludes amortization of deferred facility
lease liabilities. fees and non-recurring refinancing costs.
3. Represents total borrowings less cash and cash equivalents, where total borrowings includes current and non-current borrowings but 6. Represents the ratio between pre-IFRS 16 Headline EBITDA and pre-IFRS 16 net interest expense
excludes (i) £38m of pre-IFRS16 lease liabilities and (ii) £179m of IFRS16 lease liabilities in FY20 and (i) £42m of pre-IFRS16 lease 7. Employee Share Ownership Trust
liabilities and (ii) £178m of IFRS16 lease liabilities in LTM Sep-20. 45You can also read
