Strategy delivering: 36% increase in earnings and 53% increase in dividend in H1

159k fully unbundled customers added; broadband base now 89% unbundled

Delivering a better experience for our customers and operating efficiencies on track

Significant progress on upsell into Plus, Homesafe™ and Boosts

TV offering on track for launch Spring 2012 with YouView Service

 

Financial Headlines (1)

  • Revenue of £844m (H1'11: £887m)
  • EBITDA up £25m to £146m (H1'11: £121m) with margin increased to 17.3% (H1'11: 13.6%)
  • H1 EBIT up 25% to £100m (H1'11: £80m); EPS up 38% to 7.6p (H1'11: 5.5p)
  • Operating free cashflow up 59% to £97m for the first half (H1'11: £61m)
  • Interim dividend increased 53% to 2.6p per share (H1'11: 1.7p) in line with enhanced dividend policy

(1)       Excludes exceptional charges and amortisation of acquisition intangibles

 

Operational Headlines

  • 159,000 fully unbundled customer growth with decline in legacy SMPF and off-net leading to total broadband base reduction of 70,000
  • 89% of total broadband base now unbundled with 201 new exchanges added
  • Significant progress in upsell:
    • 800,000 Plus customers, 19% of the base, up from 16% in Q1
    • 250,000 customers taking Mobile Minute Boosts
    • 200,000 customers activated unique HomeSafe™ network level security since May launch
  • Ongoing customer service improvement with 40% reduction in customer service calls and 75% of calls now resolved on first contact
  • £40m of operating efficiencies target of £40 - 50m now identified

 

Q2 Operating Headlines

  • Q2 broadband ARPU steady at £24.70 (Q1: £24.70)
  • 171 exchanges added
  • 83,000 fully unbundled customer growth with decline in legacy SMPF and off-net leading to total broadband base reduction of 43,000

 

Outlook

  • Revenue stabilising, now expected to be broadly flat in the second half versus the first half
  • Expecting EBITDA margin at the top of our 17-18% range as cost reductions and unbundling continue to deliver growth
  • Earnings per share for the full year expected to be at the top end of our 15.5 - 16.5p range
  • Now expecting positive total broadband net adds during the first half of calendar year 2012

 

Commenting on the results, Dido Harding, Chief Executive of TalkTalk, said:

"These results prove we are delivering on our strategy. Earnings are up 36% half on half and this growth, combined with our enhanced dividend policy, has driven an increase in the dividend of more than 50%. We are ahead of plan on our unbundled exchange roll out and making significant progress towards our £40-50m operating efficiency target.

"We are pleased that we are delivering a better experience for our customers, demonstrated by the continuing reduction in calls into our contact centres and a significant increase in the number of customers' queries being resolved first time. This reflects our priority to improve customer experience and make our end to end systems and processes both more effective and more efficient. There is a lag between these initiatives and improvements in customer numbers, but we are confident that the effects will soon become more apparent.

"One of the biggest issues on the internet right now is safety and security. The Government has asked all ISPs to pledge to offer new customers an active choice regarding parental controls by October 2012. Our unique HomeSafe™ product is the only one of its kind that enables parents to filter unwelcome content and protect all devices that use broadband. It has been enthusiastically received and it's working: since launch over 200,000 customers have activated Homesafe™ and it has blocked more than 1 million unwelcome websites at their request.

"We continue to be the best value provider, with more of our customers saving money by buying more products from us and we are making significant progress on upsell to Plus, Homesafe™ and Boosts. The launch of YouView next year will be a major development for TalkTalk and we are on track to offer a value for money product of phone, broadband and TV in Spring 2012.

"In the short term, we fully expect to achieve the upper end of our margin and earnings targets for this year. Looking further ahead, we remain confident that the combination of our attractive market positioning, ongoing operational improvements and compelling developments in our product offering leaves us well placed to achieve our medium term objectives of 20% EBITDA margins and 2% revenue CAGR."