“The business bounced back strongly in the final quarter. We recorded our lowest ever churn, testimony to the speed with which customer sentiment has recovered, the success of our greater focus on existing customers, and the growing benefits of our simplification programme."

Results centre

12 May 2016

Preliminary Results for the 12 months to 31 March 2016

  • Strong recovery in Q4: net adds flat, +148k RGUs, lowest ever churn at 1.3%
  • FY EBITDA* of £260m in line with guidance; material step up in H2 margin to 18.4%
  • Reiterating FY17 guidance*: modest revenue growth and £320m-£360m EBITDA*
  • Net debt/EBITDA* reduced to 2.6x (H1: 2.8x); expected to fall towards target of 2x by Y/E FY17
  • Dividend per share up 15% to 15.87p (FY15: 13.80p), in line with commitment
  • FY17 dividend expected to be at least in line with FY16 and covered by free cashflow

*Headline financials

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    • Headline total revenue +2.4% to £1,838m (FY15: £1,795m)
    • On-net revenue +5.0% to £1,399m (FY15: £1,333m); ARPU +5.8%
    • Corporate revenue +2.4% to £384m (FY15: £375m); Data revenues +23.7%
    • Headline EBITDA +6.1% to £260m (FY15: £245m); Headline EPS up 2.4% to 8.4p (FY15: 8.2p)
    • Statutory Profit Before Tax £14m (FY15: £32m) - after exceptional items of £83m (FY15: £46m)
    • Statutory EPS 0.2p (FY15: 7.8p)
    • On-net net adds flat; RGU growth +148k
    • Mobile +90k (14.9% share of new SIM market); fibre +72k; TV -14k
    • Lowest ever quarterly churn at 1.3%
    • On-Net revenue flat year on year; ARPU +3.9%
    • Corporate revenue -2.9% year on year against strong comparative; Data revenues +40.0%
  • Dido Harding, Chief Executive of TalkTalk commented:

    The business bounced back strongly in the final quarter following the cyber attack in October.  We recorded our lowest ever churn and stabilised the broadband base, testimony to the speed with which customer sentiment towards TalkTalk has recovered, the success of our greater focus on existing customers, and the growing benefits of our simplification programme.  We reported full year results in line with our guidance and have declared a 15% higher dividend for the year.

    TalkTalk is well positioned to build upon our already strong credentials as the UK’s leading value for money quad-play and B2B operator.  There has never been a clearer space for a trusted value champion and our learnings from and experience since the cyber attack have helped to focus our plans for the year ahead.  We see strong opportunities for growth across all our products, both for consumers and for businesses, against the backdrop of an increasingly supportive regulatory environment.  As a result we are reiterating our financial guidance for FY17 of £320m-£360m EBITDA.

  •  

    Headline Profit & Loss (£m)

    2016

    2015

    Revenue (£m)

    1,838

    1,795

    EBITDA (1) (£m)

    260

    245

    EBITDA margin

    14.1%

    13.6%

    EBIT(2) (£m)

    131

    117

    Profit after tax(1)(£m)

    79

    76

    EPS(1)(p)

    8.4

    8.2

    Dividend per share (p)

    15.87

    13.80

    (1) Excludes net exceptional items and amortisation of acquisition intangibles
    (2) Excludes net exceptional items

     

    Headline Cash flow (£m)

    2016

    2015

    Headline EBITDA

    260

    245

    Working capital

    10

    (19)

    Capital expenditure

    (166)

    (112)

    Operating free cashflow

    104

    114

    Interest and Tax

    (22)

    (24)

    Free cash flow

    82

    90

    Exceptional items

    (88)

    (30)

    Acquisitions and disposals

    (12)

    (38)

    Share sale

    63

    2

    Dividends

    (135)

    (116)

    Net Debt

    (679)

    (589)

     

    Statutory Profit & Loss

    2016

    2015

    EBITDA (£m)

    177

    199

    Operating profit (£m)

    38

    54

    Profit before tax (£m)

    14

    32

    Profit after tax (£m)

    2

    72

    Statutory EPS (p)

    0.2

    7.8

  • The business recovered strongly in Q4 as customer sentiment following the cyber attack in Q3 improved quickly:

    • Our open and honest communications were recognised by customers as designed to help them protect themselves from potential fraud and the vast majority of customers believe we looked after them as a result
    • Our decision to focus promotional investment on existing customers enabled us to retain customers at a higher rate than before the attack; and
    • The unconditional free upgrade offer that we made available to all customers through December drove high levels of engagement with 489k customers choosing to take an upgrade.

    These actions have driven higher customer engagement, with trust in the brand and brand consideration both higher than they were before the attack.

    Churn improved significantly during the quarter and at 1.3%, was at its lowest level in our history.  A key indicator of churn, unsolicited cease requests, fell to its lowest ever level towards the end of the quarter.  As a result we held the on-net base flat in Q4 after a 101k decline in Q3, illustrating the speed with which customer sentiment towards TalkTalk has recovered, the success of our greater focus on existing customers and the benefits of the Making TalkTalk Simpler (“MTTS”) program.

    Q4 also showed strong progress in Revenue Generating Units (“RGUs”) with growth of 148k and RGU/Customer up by 9.0% year on year to 1.70.  Mobile and Fibre net adds were particularly strong:  the mobile base grew by 90k with TalkTalk achieving the third highest share of the new SIM only market in the quarter (14.9%) including the successful launch of a mobile proposition in TalkTalk Business, and the fibre base grew by 72k.  As we focused trading activity on growing mobile and fibre, the TV base declined by 14k.  The growth in RGUs and the benefit of our autumn pricing activity, offset by promotional initiatives and mix, delivered on-net ARPU growth of 3.9%, which on a smaller customer base, resulted in on-net revenues stable year on year at £351m.

    TalkTalk Business also ended the year strongly, with continuing strength in Data revenues (+40% and 2.3k new connections).  This growth was offset by flat Carrier trading and the established decline in legacy Voice revenues (-30.2%).  As a result, against a strong comparative (Q4 FY15: +14.3%), Corporate revenues as a whole fell by 2.9% year on year.

    Off-net revenues, which comprise less than 3% of total group revenue (Q4FY15: 4.2%), fell by 25% year on year, reflecting the final impact of the disposal of our off-net base at the end of FY15.  The combination of stable on-net revenues, a modest fall in Corporate revenue and the decline in off-net revenues drove a decline in total group revenue of 1.7% to £467m.

    • Revenue and EBITDA
      We expect FY17 revenues to grow modestly, driven by a broadly stable broadband base and continued growth in TalkTalk Business; and Headline EBITDA of £320m-£360m. Consistent with the trends seen in Q4, we expect to see headline revenue decline in H1 2017, reflecting the smaller on net base, and return to growth in H2 as comparatives ease.
      In line with this, we expect EBITDA to reflect an H2 bias, with an H1:H2 weighting of broadly one third:two thirds
    • Net debt
      We expect Net debt/EBITDA to fall towards our target leverage of 2x by the end of FY17. With capex planned at 6%-7% of revenues and a material reduction in cash exceptional costs we expect year end net debt to be broadly similar to that at the end of FY16
    • Dividend
      We expect the FY17 dividend to be at least in line with that of FY16 and covered by free cashflow
  • We made considerable progress during the year towards our strategic ambition of becoming the UK’s leading value for money quad-play operator and delivered FY revenue growth of 2.4% and Headline EBITDA in line with our revised guidance of £260m. 

    The cyber attack in Q3 drove elevated churn for a short period, an extended period through which we were unable to trade effectively, and led to delays in implementing a number of initiatives in the Making TalkTalk Simpler Programme.  However, as expected, H2 still showed a strong step up in profitability with Headline EBITDA margin of 18.4% (H1: 9.9%), helped by the benefits of Making TalkTalk Simpler coming through strongly, and lower SAC & marketing costs.

    The actions we took following the cyber attack, to focus on our existing customers and to restore normality have more than mitigated any lasting impact on the business.  This focus, together with the customer experience benefits of MTTS, helped us to stabilise the broadband base in Q4, drive strong growth in RGUs and deliver the lowest ever churn in our history (1.3%).  Equally the learnings from our detailed review of systems and processes following the cyber attack have helped us to prioritise elements of our trading approach and strategy, which will help us deliver material improvements in profitability in FY17.

    The Board has recommended a Final Dividend of 10.58p taking the full year dividend to 15.87p, 15% higher year on year, and in line with our commitment.