TalkTalk Group Investor Presentation
February 2010 Overview of demerger
• TalkTalkTelecom Group Plc (TalkTalk) : LSE Primary listing Listing • Carphone Warehouse Group Plc (CPW) : LSE Secondary listing
• 100% demerger • No capital raising by either TalkTalk or CPW Structure • For every 2 existing CPW shares: − 2 shares in TalkTalk − 1 share in new CPW • Fri. 29 January 2010 : Prospectus published • Wed. 24 February 2010 : Shareholder meeting Time Table • Tue. 23 March 2010 : Last day of dealing in CPW shares • Mon. 29 March 2010 : Admission of TalkTalk and new CPW shares
• Credit Suisse Securities Europe Joint sponsors • UBS Investment Bank TalkTalk board & management
Chairman: Charles Dunstone Founded CPW in 1989 Took CPW into Telecoms in 2002
CEO: Dido Harding Joining March 2010 (from J Sainsbury)
CFO: Amy Stirling Joined CPW in 2000
Commercial: David Goldie Joined CPW with Opal in 2002
Non-Execs: Roger Taylor, Deputy Chairman John Gildersleeve John Allwood Brent Hoberman Jessica Burley TalkTalk business overview
Leading UK broadband & voice provider: Key numbers: Broadband • Leading Internet Service Provider • 4.15 million customers • 23% market share • 72% on own network • High-profile TalkTalk brand Non-broadband • Simple, flexible broadband & voice product • 1.1 million customers offerings, value-for-money tariffs Business-to-business • Largest Next Generation Network “NGN” • 160,000 SME sites served
• Significant presence in the business market 2009/10 H1 Financials: • “One company” integration benefits Revenue £789 million Incl. Business £158 million • Delivered strong EBITDA and cash flow growth EBITDA £107 million Op. FCF £ 75 million TalkTalk investment summary
Execu ng strategy to con nue strong cash‐flow delivery:
Maintain & grow broadband market share
Drive customer ARPU Grow data services in the business market
Exploit scale & capabili es of own network
Deliver Tiscali acquisi on synergies
Strong capex control Progressive dividend policy Business Strengths Leading UK ISP
4.155 million TalkTalk customers High profile TalkTalk brand Broadband customer propositions
Builds
Peak International Mobile
Security Off-Peak Largest “Next Generation Network”
Broadband customer base
4500 4155
4000
3500 3009 3000
2500
2000
1500
1000
500
0 Q307 Q308 Q309 Q310 Customers on NGN
800Gb Exchanges Collector Nodes 400Gb Core Network 10Gb Largest “Next Generation Network”
UK’s largest all-IP enabled network
PSTN Backhaul Core 1Gb – 10Gb circuits Street Cabinet 2000 exchanges WEB fully unbundled : Access network • MPF : voice & data 85% pop. Coverage (open - regulated) • SMPF : data Services capability • Ethernet : B2B Scalable backhaul Business market presence
• Provider of fixed and mobile, voice and data services for the SME market • Generated £158 million revenue in 1H 2009/10 • Services mainly branded “Opal” - estimated 10% share of fragmented market • Recognised for excellent customer service
• Direct-to-market - broadband/voice access and services Opal “Connect” • 160,000 SME sites served
• Direct-to-market - diverse, bespoke voice/data solutions Opal “Consult” • Direct sales teams and product support, targeting mid-market
• White-label, wholesale products to 500+ business resellers Opal “Partner” • Recent launch of wholesale Ethernet services on NGN Integration – “one company”
• On track to deliver £40‐£50 million annual synergy benefits by end FY 2011 • Crea ng efficient opera ng pla orm:
“ONE” Synergy opportunity End of FY2010
Exchange infrastructure • Optimise equipment within each exchange • Accelerate customer migration onto LLU network On plan
Backhaul infrastructure • Establish extensive & efficient infrastructure • Targeting March 2011 completion On plan
Billing and CRM platforms • Migrate residential customers onto “Trio” billing platform and single CRM platform On plan
Back office • One London head office for TalkTalk, AOL & Tiscali Completed
Brand • Marketing focus on TalkTalk brand only Completed • (AOL loyalty brand retained) Strong EBITDA and cash-flow growth
* Pro-Forma TalkTalk Group ** Guidance for FY 2010 Driving growth Broadband market
• More than 1.0 million new connections forecast in 2 years
Source : Ofcom Telecommunications Market Data (2006-2009), thereafter Ovum forecasts 2009 and Office of National Statistics Increasing ARPU
“Boosts” drive ARPU growth
25.00 Broadband ARPU £/month 23.80 24.00
23.00
22.00 21.20 21.00
20.00 Pipeline of new services 19.00 18.00 Performance & control 17.00
16.00
15.00 Security & Support Q1 08 FY07/08 Q3 09 Q1 10 Q3 10 Corporate opportunity
• Exploit SME market’s migra on to IP‐based services and growth in data traffic • Drive sales of products/services built on Group’s NGN • Business‐grade ADSL, wide‐area Ethernet • Leverage own network to grow share of SME market/expand margins
Large HQ Data Centre Ethernet
Large Ethernet office Market evolving : Leased Leased Mid-sized office ADSL Small ADSL office Volume of connections Volume of connections Scalable network
160 Network delivers sustainable 140 120 compe ve advantage 50% CAGR 100
80 • Customer bandwidth consump on 144 60 customer expected to grow substan ally by 2013 96 40 64 20 43 Ave. peak bandwidth per 0 09/10 10/11 11/12 12/13
IPSC • Off‐net BTW IP Stream (IPSC) charged on £14.00 basis of bandwidth
• TalkTalk unbundled network (LLU) scaled LLU to manage expected growth £1.50 Future products & services
IP-TV • Member of proposed “Project Canvas”: • Partners :
• Establishing common standards • Building open, internet-connected TV platform
• Acquired Tiscali IP-TV service • re-branded TalkTalk • insight into technology & business models
MVNO • Simple, value-for-money voice and data propositions Fibre opportunity Market developments
• Competition Commission appeal - 2009 LLU/MPF price rises
• Digital Britain
• Illegal file-sharing – obligations on ISP’s
• 50p phone tax
• Next Generation Access - fibre Current market environment
• Range of possible wholesale providers
Virgin Media • Fibre/cable passes 50% of UK homes • Serves 3.77 million broadband customers
BT Openreach • Fibre build-out started • FTTC planned to 30% cabinets by 2012 • FTTH planned to 10% homes by 2012
Local developments • Significant local fibre projects under way BT Fibre network impact
TalkTalk NGN
Copper street cabinet Backhaul Core
Fibre “FTTH” street “FTTC” cabinet Initial Openreach product poor
Flexibility for ISP LLU IPStream GEA IPStream (2009) (2002) Provide own modem / own CPE in one box Commercially viable third-party/self- install Decide on access technology Full control of line speed / features / DLM Ability of e.g. offer multicast, FMC, Ability to fault diagnose electronics in own domain Price not dependent on speed delivered / • No current plans to roll out • Limited customer access and demand Financial overview P&L – FY 2009/10
FY 2010 (1) £m FY 2009 (2) Guidance
Revenue Flat y-o-y plus £300m Tiscali 1,385
Broadband and non-broadband 1,089
Business Plus 3-5% 296
EBITDA pre SAC and marketing 307
EBITDA pre SAC and marketing % 21-22.5% 22.1%
SAC and marketing (126)
EBITDA 181
EBITDA % 13-14% 13.1%
Depreciation and amortisation (57)
EBIT 124
EBIT % 8-9% 9.0%
(1) Including Tiscali (2) Restated for change in SAC accounting policy Operating cash flow - FY 2009/10
£m FY2010 Guidance FY2009
EBITDA 171
Working capital (29)
Capex Approx. 6% total revenue (107)
Operating free cash flow (1) 120 35
(1) Excluding exceptionals Financial overview
• Opening net debt in range £480 - £500 million
• Dividend 3.2 pence/share (£29 million) to be paid March 2010
• Cash Corporation Tax expected to be minimal until FY2013
• Strong EBITDA and Operating Cash flow growth TalkTalk investment summary
Execu ng strategy to deliver strong cash‐flow growth:
Maintain & grow broadband market share
Drive customer ARPU Grow data services in the business market
Exploit efficiency & capabili es of own network
Deliver Tiscali acquisi on synergies
Strong capex control Progressive dividend policy APPENDIX CPW dividend history
5.0 4.65 4.5 4.25 4.35
4.0
3.5 3.25
3.0 2.50
(p) 2.5
2.0
1.5
1.0
0.5
0.0 FY2006 FY2007 FY2008 FY2009 FY2010 Net debt & borrowing facilities
TALKTALK GROUP PLC
£550m 100% Revolving Credit shareholding Agreement 2013
CPW GROUP PLC (Loan facilities: minimum £650m)
c£100m New Bilateral 100% Facility shareholding
TALKTALK GROUP LTD & other subsidiaries Demerger structure
TalkTalk Telecom Carphone Warehouse Group PLC Group PLC
100% 100% 50% 48.5%
TalkTalk Group Freehold property Best Buy Europe Virgin Mobile France
* Not eligible for FTSE Index inclusion Mechanics of demerger
Step1: Scheme of arrangement Step2: Reorganisation
A Shares B Shares A Shares B Shares
New CPW Plc New CPW Plc
CPW Plc CPW Plc
Best Buy Virgin Mobile Freehold TalkTalk Best Buy Virgin Mobile Freehold TalkTalk Europe France property Group Europe France property Group Mechanics of demerger (continued)
Step3: Demerger
Existing shareholders Existing shareholders
New CPW Plc TalkTalk Group Plc
Best Buy Virgin Mobile Freehold Old CPW Plc Europe France property TalkTalk Group
• Tax clearance obtained • Scheme document and 2 prospectus • Demerger complete by end of March 2010 Executive Board biographies • Charles Dunstone is currently chief executive officer of Carphone Warehouse and is chairman of TalkTalk. As the founder of Carphone Warehouse he was instrumental in creating the TalkTalk Business following the acquisition of Opal in 2002. Since then he has directed the continued development of the TalkTalk Business to become one of the leading fixed line voice and broadband telecommunications businesses in the UK. Following the Demerger, he will also be chairman of New Carphone Warehouse. He is also chairman of the Prince’s Trust and a non-executive director of The Daily Mail and General Trust Plc and Independent Media Distribution Plc. Charles has been a TalkTalk Director since 20 January 2010.
• Dido Harding is the proposed chief executive officer of TalkTalk. Prior to her appointment Dido was Sainsbury’s convenience director, having been appointed to Sainsbury’s operating board in March 2008. Dido joined Sainsbury’s from Tesco PLC where she held a variety of senior roles both in the UK and international businesses. Prior to this, she worked at Kingfisher plc and Thomas Cook Limited where she gained considerable retail experience. She was appointed as a non-executive director of The British Land Company PLC in January 2010. Dido is expected to take up her role as chief executive officer of TalkTalk before TalkTalk Admission.
• Amy Stirling is currently chief financial officer of the TalkTalk Business and is chief financial officer of TalkTalk. Amy joined Carphone Warehouse in 2000 and became chief financial officer of the TalkTalk Business in 2006. Amy has over 10 years’ experience in the telecommunications industry and has played a key role in the management and integration of those significant businesses acquired by the TalkTalk Business prior to taking up her current position. Amy has been a TalkTalk Director since 20 January 2010.
• David Goldie is group commercial director of TalkTalk. David has over 25 years’ experience in the telecommunications industry and has carried out a number of senior roles within the TalkTalk Group since he joined Carphone Warehouse in November 2002 following the acquisition of Opal. He has considerable knowledge of the TalkTalk Business having been its chief executive officer between 2005 and June 2008 during which time he also served on the Carphone Warehouse Board. Since then, he has focused on major commercial projects, corporate development and the TalkTalk Group’s regulatory affairs. He has been a TalkTalk Director since 20 January 2010. Non-Executive Board Biographies
• Roger Taylor is currently chief financial officer of Carphone Warehouse and is deputy chairman of TalkTalk. Roger has been in his current role since January 2000. He has played a key role in the creation and growth of the TalkTalk Business both organically and through taking the lead role in a number of strategic acquisitions. He therefore has an invaluable understanding of how the TalkTalk Business operates. Following the Demerger, he will also be chief executive officer of New Carphone Warehouse. Roger has been a TalkTalk Director since 20 January 2010.
• John Gildersleeve is a non-executive director of TalkTalk. John joined the Carphone Warehouse Board in June 2000 and became non-executive chairman in July 2005. He was appointed a non-executive director of The British Land Company PLC in September 2008. Previously, he was an executive director of Tesco PLC until he retired in February 2004. He was chairman of Gallaher Group PLC until April 2007 and chairman of EMI Group PLC until September 2007. Prior to this he was a non-executive director of Vodafone Group PLC from 1998 to 2000. He will also become non-executive deputy chairman of New Carphone Warehouse. John has been a TalkTalk Director since 20 January 2010.
• John Allwood is a non-executive director of TalkTalk. John was previously chief operating officer and latterly group finance director of Mecom Group plc. Prior to this, he was managing director of Telegraph Media Group Limited. Formerly, he was chief executive of Orange UK and also chief executive of Mirror Group plc. John is currently a member of Exeter University Council and chairman of Market Evolution Limited, a specialist media consultancy. He is also a non-executive director of New Carphone Warehouse. John has been a TalkTalk Director since 20 January 2010. Non-Executive Board biographies
• Jessica Burley is a non-executive director of TalkTalk. Jessica has over 20 years’ experience in the advertising and publishing industry and is currently a non-executive director of Jacques Vert Plc. She is currently a non- executive director of the Audit Bureau of Circulation, although she will have left this role by the time of TalkTalk Admission and until recently, she was managing director of The National Magazine Company. Prior to this, Jessica was chief operating officer for ACP-NatMag. She previously held senior positions at Financial Times Business, a subsidiary of FT Group, and Future Publishing Limited. Jessica has been a TalkTalk Director since 20 January 2010.
• Brent Hoberman is a non-executive director of TalkTalk. Brent co-founded lastminute.com in April 1998 with Martha Lane Fox. He was lastminute.com’s chief executive officer until it was sold in 2005 during which period he had overseen the company’s flotation on the London Stock Exchange in March 2000. Brent has subsequently founded mydeco the innovative online service for home design and furniture. He is also a Governor of University of the Arts, London, a non-executive director of Guardian Media Group, non- executive chairman of Where Are You Now? Limited, a member of the Business Council for Britain and a Young Global Leader for the World Economic Forum. Brent also continues to be an angel investor in several other internet companies. Brent has been a TalkTalk Director since 20 January 2010.