Posted: 31 January 2020

Q3 FY20 Trading update

Q3 FY20 Trading update

Acceleration of Fibre strategy, underpinned by sale of FibreNation for £200m and outperformance on Fibre and Ethernet growth; EBITDA outlook remains unchanged

Metric

Q3 FY20

Q2 FY20

Q3 FY19

Headline revenue (ex-Carrier and Off-net)

£383m

£377m

£386m

Headline 1 On-net revenue

£310m

£310m

£316m

Headline Off-net revenue

£3m

£2m

£3m

Headline Corporate revenue

£79m

£76m

£82m

Headline Data revenue

£51m

£43m

£44m

Headline Voice revenue

£22m

£24m

£26m

Headline Carrier revenue

£6m

£9m

£12m

Fibre Net Adds

148k

174k

146k

On-net ARPU

£24.43

£24.29

£24.70

On-net churn

1.20%

1.26%

1.16%

Ethernet Net Adds

1.7k

1.1k

1.1k

1 Headline revenue excludes revenue from MVNO proposition during the current and prior period

Tristia Harrison, Chief Executive of TalkTalk, commented: TalkTalk enters 2020 a far simpler business with a structural advantage to accelerate Full Fibre nationwide. The recently agreed sale of our FibreNation business for £200m will strengthen our balance sheet while securing a long-term, competitive wholesale agreement, as well as full optionality to work with all Full Fibre builders.

In the last quarter, we have outperformed the market on Fibre and Ethernet growth, with increasing numbers of customers in both Consumer and B2B taking higher speed products. We have continued to see industry-wide Voice decline, but with the successful completion of our move from London to the North West and the resulting cost reductions our EBITDA outlook remains unchanged.

As we look forward, we will reap the benefits of this simplification, further cost reductions, a strengthened balance sheet and cash generation. Plus, clear optionality to realise our scale and accelerate customer migration to Full Fibre products over the long term.”

Highlights

 

Acceleration of Full Fibre strategy

 

On 21 January 2020 TalkTalk announced the sale of its FibreNation business for £200m to CityFibre

 

Net proceeds of the sale will be used to strengthen the Group’s balance sheet

 

Sale underpinned by long-term, competitive wholesale agreement for TalkTalk customers in CityFibre areas, whilst also allowing TalkTalk the flexibility to partner with other network providers

 

TalkTalk is in talks with BT Openreach on a national Full Fibre agreement

Continued focus on Fibre in Consumer and B2B

 

Strong momentum in Fibre net adds continued with 148k during Q3 (Q3 FY19: 146k), accounting for 32% share of all new Openreach Fibre to the Cabinet (FTTC) lines in Q3 (Q3 FY19: 23%)

 

81% of new Consumer customers took a Fibre product (Q3 FY19: 63%) with 42% of these taking the faster, higher ARPU 80mbps product (Q3 FY19: 31%)

 

52% of new Partner customers in our B2B division took a Fibre product (Q3 FY19: 44%)

 

Fibre customers benefit from faster, more reliable connectivity, and are accretive to customer lifetime value (CLV) with lower churn and cost to serve, as well as higher ARPU compared to Copper customers

Consistent strategy in Data business

 

The Ethernet base grew by 1.7k (Q3 FY19: 1.1k), with 36% of orders for higher ARPU 1Gb lines (Q3 FY19: 29%)

 

Ethernet circuits are high margin products and the 1Gb product has materially higher ARPU and lower churn

Improving revenue and ARPU trends

 

Revenue (ex-Carrier and Off-net) contracted by 0.8% year on year with increased Fibre penetration and Data growth offset by the industry-wide decline in Voice revenue, a modestly declining Copper base and accelerated re-contracting of some higher ARPU legacy customers

 

Encouragingly, revenue (ex-Carrier and Off-net) and On-net ARPU were up sequentially by 1.6% and 0.6% respectively due to increased Fibre mix and Data growth, with less ARPU dilution from legacy base re-contracting

EBITDA outlook remains unchanged

 

EBITDA outlook for FY20 remains unchanged, driven by accelerated Fibre take-up and cost reduction

 

Cost savings on track, with HQ move to Salford now complete

 

Expect net debt/EBITDA ratio (pre-IFRS 16) to be towards 2.5x by year end, with further de-leveraging in FY21

         

The person responsible for arranging the release of this announcement on behalf of the Company is Tim Morris, General Counsel and Company Secretary.

There will be a webcast and conference call for analysts and investors at 8.30 am.

Webcast link: https://webcast.merchantcantoscdn.com/webcaster/dyn/4000/7464/16532/118811/Lobby/default.htm

Conference call details: Participants do not need a PIN for the live call – they simply need to ask to be put through to the TalkTalk results call.

Live call:

UK and International

+44 (0) 20 3003 2666

Replay (available for 7 days):

UK and International

+44 (0) 20 8196 1998

 

PIN:

9768771#

Contacts:

Investor Relations:

Tim Warrington

+44 (0) 77 7541 4240

Media:

Dafydd Wyn

+44 (0) 77 9870 4841

PDF copy of announcement