Annual Report 2016 Group PLC Telecom TalkTalk TalkTalk Telecom Group PLC | Annual Report 2016 2016 TalkTalk is the UK’s leading value for money quad play provider. Our mission is to deliver affordable, reliable, simple, and fair telecoms services for everyone. Contents Strategic report Corporate governance Financial statements At a glance ..............................................................................03 Board of Directors Independent auditor’s report .................................... 60 Chairman’s statement ................................................... 04 and Executive Committee ................................. 28 Consolidated income statement .............................65 Operational and financial highlights ................. 04 Corporate governance .................................................. 30 Consolidated statement Chief Executive Officer’s review ...............................05 Audit Committee .............................................................. 34 of comprehensive income ...........................................66 Chief Financial Officer’s statement ....................... 08 Directors’ Remuneration Report .............................. 37 Consolidated balance sheet .......................................67 Business model and strategy .......................................12 Other statutory information .......................................56 Consolidated cash flow statement .........................68 Market opportunity ������������������������������������������������������������15 Directors’ responsibility statement ........................ 58 Consolidated statement of changes in equity ����������������������������������������������������������69 Regulatory environment .................................................16 Notes to the consolidated Measuring our performance.........................................18 financial statements ........................................................70 Principal risks and uncertainties ................................20 Company balance sheet .............................................103 People .......................................................................................24 Company cash flow statement ..............................104 Corporate social responsibility ..................................26 Company statement of changes in equity ��������105 Notes to the Company financial statements..106 Other information Five year record (unaudited) ......................................110 Glossary...................................................................................111 Financial calendar .................................................... 113 Advisers ����������������������������������������������������������������������� 113 704,000 fibre customers London Manchester 3,996,000 phone and broadband customers (On-net base) 1,389,000 TV customers 35,100 business data lines 699,000 (ethernet and EFM) mobile customers “ The business bounced back Services to consumers Services to businesses TalkTalk provides value for money phone, TalkTalk Business (TTB) serves the needs strongly in the final quarter. broadband, fibre, TV, and mobile to UK of over 180,000 businesses from national We recorded our lowest homes, differentiated by a clear and simple retailers to sole traders and public sector tariff structure, low prices, flexibility and customers nationwide. TTB offers a wide ever churn: testimony to the the inclusion of valuable services, such as range of voice, data connectivity products speed with which customer unlimited broadband usage and HomeSafe®, and interconnection services to business our market-leading network-based security customers and other carriers. TTB is one sentiment has recovered, the service. We also offer mobile services to our of only two network providers in the UK to success of our greater focus phone and broadband customers through provide wholesale connectivity services, a Mobile Virtual Network Operator (MVNO) with large national Internet Service Providers on existing customers, and agreement with Vodafone that will transition (ISPs) such as the Post Office and Telecom the growing benefits of our to a new MVNO relationship with Telefónica Plus amongst its customers. UK during 2017. Our TV proposition, which is TTB also offers competitively priced high simplification programme.” uniquely non-subscription based, includes speed connectivity products such as access to the TalkTalk TV Store for all broadband Dido Harding, Chief Executive Officer Ethernet and Ethernet in the First Mile (EFM) customers and a free YouView set top box for that exploit the Group’s significant network those customers taking our bundled phone, capability and reach. Data revenues are broadband and TV packages. YouView is an the fastest growing product set by revenue internet-enabled television service with in the Group’s range to Corporates, with differentiated catch-up and on-demand a significant and accelerating pipeline. services, and an open platform for future TTB’s voice products comprise of legacy application-driven innovation. revenues and the Group’s newly launched, next generation voice over internet protocol (VOIP) product. 01 TalkTalk Telecom Group PLC Annual Report 2016 Strategic report At a glance ...................................................................................03 Chairman’s statement .............................................. 04 Operational and financial highlights ................... 04 Chief Executive Officer’s review ...........................05 Chief Financial Officer’s statement .................... 08 Business model and strategy ..................................12 Market opportunity ������������������������������������������������������15 Regulatory environment ............................................16 Measuring our performance ....................................18 Principal risks and uncertainties ...........................20 People ..............................................................................24 Corporate social responsibility .............................26 02 TalkTalk Telecom Group PLC Annual Report 2016 At a glance With a network that reaches 96% of the country, TalkTalk is the UK’s leading provider of value for money fixed line voice telephony and broadband services to consumers and businesses. Our fast growing B2B business also offers a wide range of data connectivity and next generation voice products across the UK. Our history TTB has consistently demonstrated significant growth and is the only Created in 2004 as the telecommunications division of The Carphone wholesale provider of broadband and Ethernet connectivity outside Warehouse Group (CPW), a retailer of mobile phones and related of BT Group. It now serves over 180,000 businesses across the UK. products, TalkTalk was demerged and listed on the London Stock Exchange in 2010. Our business model TalkTalk’s network comprises owned equipment that the Company TalkTalk has a long history of positive disruption and challenging has installed in over 3,000 BT exchanges and linked back to a national industry conventions. Having launched a market-beating voice offer high speed fibre backbone through a series of collector rings. The scale in 2004, TalkTalk began building its unbundled local loop network in 2005. and reach of this architecture (the largest unbundled network in the A decade ago this year, the Company launched the UK’s first ever free country) gives the Company geographic coverage of 96% of the UK. broadband offer. This marked a pivotal moment in the evolution of This is a significant competitive advantage and barrier to entry. the UK telecoms sector, and firmly established TalkTalk as the value for money champion in the market. Our business model is underpinned by a sustainable regulatory cost advantage over access to key parts of BT’s network infrastructure; Increased competition and uptake in connectivity services, coupled and a low cost operating model, which together allow us to price with a compelling pricing proposition, fuelled significant growth for competitively. The political and regulatory environment in which the business over subsequent years. Through a combination of this framework evolves is critical to TalkTalk’s business model and acquisitions and organic growth, TalkTalk expanded rapidly, acquiring is currently undergoing a series of reviews which present significant the businesses of AOL UK and Tiscali UK in 2007 and 2009 respectively. opportunities for the Company. In 2010, the business began offering additional consumer services in the form of mobile SIMs. It completed its suite of quad play services Our ambition with the launch of a flexible, value for money pay TV service and TalkTalk believes reasonably priced, reliable telecoms services should mobile handsets in 2012. be available to everyone . We have always aimed to be the leading value TalkTalk also offers fixed line connectivity services to business for money provider for all our products and there has never been a customers (B2B), including high speed Ethernet products and clearer space for a trusted value champion in the market. Our ambition is innovative next generation voice products. Founded in 1995 as to continue to build a scale consumer quad play business that consistently Opal Telecom, TalkTalk Business (TTB) has capitalised on the scale, delivers affordable, reliable, simple and fair telecoms services for performance and reach of the TalkTalk network to create a portfolio everyone. As the