Posted: 11 June 2020

TalkTalk FY20 Preliminary Results

TalkTalk Telecom Group PLC

Preliminary results for the year ended 31 March 2020 (FY20)

Headline EBITDA growth of 9.7% (pre-IFRS 16); 34% Fibre customer base growth
Strong FY21 cash conversion; Dividend of 2.5p maintained

RNS Release (full copy)
Webcast presentation 
Transcript of pre-recorded presentation

Metric

FY20

IFRS 16 ¹

FY20

Pre-IFRS 16 ¹

FY19

Pre-IFRS 16 ¹

Headline² revenue (ex-Carrier and Off-net)

£1,518m

£1,518m

£1,544m

Statutory revenue

£1,569m

£1,569m

£1,632m

Headline² EBITDA

£308m

£260m

£237m

Statutory operating profit

£197m

£202m

£47m

Statutory profit/(loss) before taxation

£131m

£146m

(£5m)

Net Debt ² ³

£954m

£775m

£781m

Fibre net adds

605k

605k

490k

Fibre closing base

2,370k

2,370k

1,765k

Closing On-net broadband base

4,220k

4,220k

4,289k

On-net ARPU

£24.35

£24.35

£24.98

On-net churn

1.20%

1.20%

1.20%

Tristia Harrison, Chief Executive of TalkTalk, commented: “Our priority throughout the COVID-19 pandemic has been to keep the nation connected, while keeping employees safe. Access to reliable, affordable connectivity has never been so important - and low prices matter now more than ever before. As the only scale, value provider, TalkTalk continues to be well positioned to meet this demand. Our strong and resilient network has kept families, friends and communities connected nationwide; and provided vital services for the NHS, care homes and supermarket distribution centres.

Our FY20 performance has been robust. We have grown our Fibre Broadband base by 34% and grown our Headline EBITDA by 9.7%. Whilst industry wide Voice usage declines and the continued re-contracting of the legacy copper base has led to some revenue decline, this has been more than made up by ongoing cost reduction and simplification. The completion of our HQ move from London to Salford and the sale of our Fibre Assets Business to CityFibre for £206m has made us a simpler and more resilient business.

Looking ahead to FY21, we remain in a robust operational and financial position, with levers in our control to manage costs further, whilst having not required any furlough or government assistance. While the uncertainties of COVID-19 mean we will not be providing formal guidance, based on current trends we would expect to deliver stable Headline EBITDA year on year, after assuming a c.£15m COVID-19 impact. We also expect strong cash conversion and will therefore be maintaining the dividend at 2.5p.”

Pre-recorded management presentation link: https://webcast.merchantcantoscdn.com/webcaster/dyn/4000/7464/16532/121981/Lobby/default.htm  

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

Contacts:

Investor Relations:

Tim Warrington

+44 (0) 77 7541 4240

Media:

Lucy Thomas

Dafydd Wyn

+44 (0) 77 7963 9460

+44 (0) 77 9870 4841

¹ IFRS 16 has been applied using the modified retrospective approach. Accordingly, the comparative information has not been restated, with FY20 results presented both including and excluding IFRS 16 to allow year on year analysis on a consistent basis. This alternative performance measure (APM) will be presented for one year only until the comparatives also include the adoption of IFRS 16. See note 1 for more information.

² See note 1 for an explanation of APMs and non-Headline items and note 4 for a reconciliation of Statutory information to Headline information.

³ Total net debt includes £217m lease liability, under IFRS 16, of which £38m relates to finance leases (FY19: £39m finance leases).

COVID-19

COVID-19 pandemic has seen good quality, reliable connectivity become an absolute necessity, further validating our position as the only scale, value provider in the market

Whilst the telecommunications sector has not felt the most severe effects of the COVID-19 pandemic, we will not be completely immune from the longer lasting macroeconomic impacts of the virus

The wellbeing and safety of our workforce has been a key focus for the management team. Thankfully, given critical worker status, the vast majority have been able to safely work from home. We have managed to navigate the crisis without needing to furlough any TalkTalk employees, with multiple roles re-purposed to help serve our customers

Worked closely with Government, and have provided connectivity at key locations, including a number of the NHS Nightingale Hospitals, numerous care homes and supermarket distribution centres

Lockdown measures have resulted in material increases in daytime internet traffic and Voice usage, but our network has had sufficient headroom to handle these increases

Engineers have been unable to visit customer premises and this, combined with consumers being reticent to switch for fear of losing connectivity, has led to lower gross additions; churn continues to be low based on our underlying improvements in customer experience and repair

Closure of third party overseas call centres has reduced our call handling capacity, meaning we have prioritised vulnerable customers through this channel. However, all customers have been able to interact with us digitally, accelerating our move to a ‘digital first’ service model. We will not be returning to pre-COVID-19 contact centre agent levels, further supporting our cost reductions

The extended lockdown and subsequent economic challenges may lead to an element of negative bad debt recoverability and we will watch revenue carefully as various furlough schemes fall away in the autumn. We continue to have significant flexibility in the cost base to offset these bad debt and / or potential revenue impacts

In light of this uncertainty we took a £3m provision, with regards to bad debt in FY20, and at present assume a c.£15m impact for FY21, reflecting current demand and bad debt

Operational highlights

Sale of Fibre Assets Business to CityFibre for £206m completed on 27 March 2020, underpinned by a long-term, competitive wholesale agreement

Closing Fibre base 34% higher year on year at 2,370k (FY19: 1,765k) with net adds of 605k (FY19: 490k), accounting for 32% share of all new Openreach Fibre to the Cabinet (FTTC) lines in FY20 (FY19: 22%)

Strong Fibre uptake in both Consumer and B2B throughout FY20, with 78% of new Consumer customers taking a Fibre product (FY19: 58%) and 58% of new Partner connections taking Fibre (FY19: 42%)

The overall broadband base contracted by 69k to 4,220k, as we continued our strategy of growing the Fibre base and taking a customer lifetime value (CLV) approach to base management, which saw some of our low-value legacy copper customers churn. The base returned to growth in Q4 with 7k net additions

Ongoing low level of average monthly churn at 1.20% (FY19: 1.20%), with Q4 the lowest ever at 1.04%

Completed operational transition of HQ from London to Salford, consolidating our employees in a single northern campus with material increases in engagement and productivity, whilst delivering cost savings in line with plan

Financial highlights ¹ ² ³

Headline revenue (ex-Carrier and Off-net) and On-net ARPU down 1.7% and 2.5% respectively, largely due to the lower base and lower Voice usage and call boost revenue across Consumer and B2B. We also accelerated our strategy of re-contracting of our remaining higher ARPU legacy Copper customers onto a Fixed Low Price Plan (FLPP), ahead of regulatory and industry commitments on out of contract pricing, increasing our in-contract base to 71% (Q4 FY19: 68%). These effects were partly offset by increased Fibre penetration

Statutory revenue contracted by 3.9% mainly due to declining Carrier revenue and lower non-Headline MVNO revenue as we wind down this business

Headline EBITDA (pre-IFRS 16) grew 9.7% to £260m (FY19: £237m) driven by lower cost to serve due to a reduction in faults and contact centres calls as a result of an increase in more reliable Fibre connections, and the efficiencies from the move to our Salford campus and our new distribution agreement leading to a materially lower cost base

Statutory operating profit improvement reflects the profit on disposal of the Group’s Fibre Assets Business, Headline EBITDA growth and fewer non-Headline items

Net debt (pre-IFRS 16) broadly flat year on year with the sale of the Group’s Fibre Assets Business offset by significant working capital outflows due to settling a key supplier monthly invoice earlier than forecast (resulting in an additional payment year on year), a change in distribution model and accelerated Fibre growth, as well as the cash cost of our HQ move

Re-financed the Group’s borrowings in February 2020 with issuance of £575 million 3.875% senior notes due 2025 (replacing previous £400m 5.375% senior notes due 2022); reduction of RCF from £640m to £430m in April 2020

Final dividend of 1.50p (FY19: 1.50p); total 2020 dividend of 2.50p (2019: 2.50p)

¹ IFRS 16 has been applied using the modified retrospective approach. Accordingly, the comparative information has not been restated, with FY20 results presented both including and excluding IFRS 16 to allow year on year analysis on a consistent basis. This alternative performance measure (APM) will be presented for one year only until the comparatives also include the adoption of IFRS 16. See note 1 for more information.

² See note 1 for an explanation of APMs and non-Headline items and note 4 for a reconciliation of Statutory information to Headline information.

³ Total net debt includes £217m lease liability, under IFRS 16, of which £38m relates to finance leases (FY19: £39m finance leases).

Looking forwards

Whilst we do not expect a significant deviation from our previous FY21 objectives, given the COVID-19 uncertainty, we do not feel it is appropriate to give formal guidance for the year at this stage

However, based on current trends we would expect to deliver stable Headline EBITDA year on year, assuming a c.£15m COVID-19 impact. The expectation is ongoing flexibility in the cost base, accelerated by COVID-19, should offset any potential negative impact on bad debt or revenues

We expect strong cash conversion as we continue to de-lever towards our medium term target of 2.0x net debt/Headline EBITDA. This will be driven by materially lower working capital, reduced Capex, lower interest and significantly fewer re-organisation costs. We will therefore maintain the dividend at 2.5p and we will review our dividend policy as we continue to de-lever over the medium term