TalkTalk

Interim Results FY17

Summary

Strong H1 performance: EBITDA £130m (+44% year-on-year); interim dividend maintained at 5.29p

Material improvements in customer experience: Q2 churn reduced to 1.43% (Q216: 1.58%)

High levels of re-contracting following launch of Fixed Low Price Plans

Compelling value offer and further improvements in service to drive a return to growth in FY18

York fibre to the premise trial to be extended to whole city beginning in Spring 2017

FY EBITDA expected to be towards the lower end of our £320m-£360m guidance

Final dividend expected to be in line with FY16 and broadly covered by operating FCF

2

H1 Business review

3

Q2 performance

Churn significantly lower year-on-year; lower recruitment activity ahead of

new proposition launch

4

• H1 revenue -1.1% year-on-year in line with expectations

• Q2 -1.7% year-on-year

• Q2 churn significantly better year on year (Q216: 1.58%)

• Consequence of lower broadband and TV recruitment activity in Q2 ahead of launch of new pricing and propositions

• Continued growth in Fibre and Mobile

Q2 Q1

Revenue £455m £447m

On-net net adds -20k -9k

On-net churn 1.4% 1.4%

Fibre net adds +40k +36k

Mobile net adds +46k +48k

TV net adds -33k -23k

H1 performance

5

Leverage

YoY Revenue Growth

£697m

£188m

£670m

£208m

£912m £902m

H1 FY16 H1 FY17

-3.9%

-1.1%

+10.6%

On Net

Corporate

FY16 H1 FY17

£27m Off Net £24m

-11.1%

2.8x

2.6x

EBITDA

Dividend per share

H1 FY16 H1 FY17

£90m

£130m

9.9% Margin

14.4% Margin

5.29p

H1 FY16

5.29p

H1 FY17

+44.4%

H1 FY16

2.8x

Broadband Base Stabilising through strong wholesale performance and reducing churn in retail base

6

Wholesale Broadband Base

737k 771k

830k

899k

H2’15 H1’16 H2’16 H1’17

Wholesale

• Continued consistently strong growth in profitable business

Retail

• H116: decision to disconnect 72k non-paying customers

• H216: impacted by 95k due to the cyber attack

• H117 slowed gross retail connections before launch of Fixed Low Price Plans

• Churn coming down significantly and quality of base rising

• Expect retail base to stabilise and return to growth in FY18

3,440k

H2’15

3,327k

H1’16

3,166k

H2’16

3,068k

H1’17

Retail Broadband Base

On Net Churn

1.4%

1.6%

2.1%

1.3%

1.4% 1.4%

Q1 Q2 Q3 Q4

FY16 FY17

Continuing strong Mobile and Fibre take-up

7

% base Mobile

% base Fibre

% base TV

21%

30 73

142 207

308

479

578

704

780

H1'13 H2'13 H1'14 H2'14 H1'15 H2'15 H1'16 H2'16 H1'17

0

230

557

917

1,217

1,414 1,439 1,389 1,333

H1'13 H2'13 H1'14 H2'14 H1'15 H2'15 H1'16 H2'16 H1'17

37% 22%

117 175

236 284

348

464

596

699

793

H1'13 H2'13 H1'14 H2'14 H1'15 H2'15 H1'16 H2'16 H1'17

• Strong take-up of TV App by customers who don’t have a set top box

• Flexible viewing on multiple devices is driving greater engagement and higher Net Promoter Scores

• Completed multi-year renewal of full Sky content

• New propositions driving good attachment rates and strong engagement

TV Content

SAC reduction from lower volumes and efficient distribution

8

SAC & Marketing Costs

Lower volumes in H1:

• Pulled back on retail gross adds in Q2 ahead of launch of new plans

• Continuing growth in B2B data connections

Reducing costs per add from:

• Growing digital sales and upsell

• Improved efficiency in digital channels

• Next Best Action driving more efficient use of marketing spend

Sustainable reduction:

• H2 and beyond will see higher volumes but online and channel optimisation benefits will continue to deliver lower CPA

£34m

£18m

£9m

H1’16 H1’17

TTC

Volumes CPA

Phasing

£3m

TTB

Volumes

Continuing benefit £152m

£94m

Note: not to scale

The value for money provider of connectivity for everyone

9

Making TalkTalk Simpler delivering better customer experience and lower costs

Value for money quad play for customers

Value for money data for businesses

Stable household broadband base

Rapid RGU growth

Rapid market share growth in B2B data

Disruptive Innovation

Network Leverage

Value for Money

Products

Scale

Simple Systems & processes

Great Value for

Everyone

Scale brings structural cost advantage

Cost / Gb continuing to fall

Integrated fixed and mobile network

Fibre to the Premise long term potential

Value for money products

10

THE RIGHT PRICE A RELIABLE

SERVICE

SIMPLE AND FAIR

PRODUCTS

GREAT VALUE

Always been the

case

Triple and Quad play customers save even more

Real progress with Making

TalkTalk Simpler

Customer satisfaction up

Churn down

Fixed Low Price Plans

Existing customers get the same deals

Fast and Faster

simple packages

66% 64% 64%

70% 71%

74% 75%

77% 78%

81% 80%

50%

52% 52%

55% 56%

58% 60% 60%

61%

65% 63%

Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16

CS ASAT

Tech ASAT

ASAT up 23%

Making TalkTalk Simpler is delivering

11

Material Churn Improvement Satisfaction with Service

Ofcom Complaints % customers agreed "TalkTalk is a brand I trust"

Source: TNS Brand Tracker

46

47 47 47 47

48

50

54

Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16

TT ComplaintsComplaints down 44%

1.4%

1.6%

2.1%

1.3%

1.4% 1.4%

Q1 Q2 Q3 Q4

FY16 FY17

Churn down y-o-y

Keeping TalkTalk Simpler

Underpinning our journey towards a self-serve quad play operating model

12

Delivering new systems and processes

• Network modernisation

• DLM and DNS enhancements

• Backhaul upgrades

• Contact centre repair overhaul

• Join/move essential fixes

• Simple, clear, fair bill and payments

• Next Best Offer

• CRM / process management enablers

Leveraging and scaling Effortless self-serve and quad play

• Network transformation

• Self-serve Repair as default

• Join/move overhaul

• Tail of billing and payments fixes

• Next Best Offer optimisation

• Tail of processes onto new CRM / retire legacy CRM (including complaints)

• Contact centre footprint and partner model

FY16 – FY17 FY17 – FY18 FY18 & beyond

• Dark fibre

• In-home connectivity: monitoring support and CPE

• Email outsourced

• Mobile service integration with triple play

• Self-serve by default: online/apps resilience, performance and scalability

• Extended data-driven personalisation

H1: £17m delivered

FY savings of £35m-£40m

Cumulative £90m+

Extending our network cost advantage

13

Modest new topology investment to maintain and improve our network cost advantage

FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26

Opex - Existing Backhaul Opex - Dark Fibre

High level backhaul cost and evolution

LOCAL METRO

METRO COLLECTOR

COLLECTOR CORE

CORE END USER LOCAL

NGM

NGM

NGA Customer

NGE

NGE

Targeted Dark Fibre 90%

Coverage All Dark Fibre Post Dark Fibre

No Dark Fibre Some Dark

Fibre All Dark Fibre Pre Dark Fibre • Upgraded backhaul and improved forecasting

eliminated congestion

• More customers get the speeds they pay for on our network than any other

• New access topology will improve resilience and enhance experience

• Extension of dark fibre capacity from core network to collector (edge) will drive costs down as bandwidth expands exponentially

£40m planned investments over 3 years will

expand capacity and drive down our long term

backhaul costs by £20m p.a.

Fixed Low Price Plans

14

5 Key Principles

1. Prices fixed for the duration of the contract

2. Existing customers can get the same deals as new customers

3. Legacy price increase and tariff rationalisation to encourage re-contracting to new plans

4. Simpler product structure, all products begin with quad play components

5. Customers in control of their bundle

Based on in depth customer insight

15

4.0

3.8

2.7

2.5

2.0 Price

Reliability

Faster speed

Other

TV content

Ranking of reasons to choose Broadband provider 1 – most important, 5 – least important

Source: TalkTalk research

What is most important to you in choosing a Broadband provider?

Price is critical

Which of the following would make you more likely to trust your Broadband provider?

Customers increasingly see through gimmicks and hidden charges

69

74

75

84 Existing customers will always get the same brilliant deals that new customers can get

The price you see is the price you pay. No extra charges, like installation fees or line rental

All broadband packages are unlimited: however much you use, there will be no unexpected charges

Price freeze on all prices and promotions for at least next 18 months

Source: Trinity McQueen Loyalty Propositions Research, April 2016, QB1 QC1

Scores reported show relative importance indexed to an average score of 100

Drivers of trust in broadband provider

16

Prices correct 01/11/16

Total 18 month Package Cost – Unlimited Broadband

Price Comparisons – post launch of Fixed Low Price Plans

FAST

FASTER

FAST +

Plus TV

FASTER +

Plus TV

£413

£511

£546

£644

£443

£722

£818

£1,097

£639

£795

£762

£892

£626

£627

£633

£633

£414

£535

£358

£545

£402

£451

Cheaper vs

TT

Expensive

vs TT

Unlimited

Broadband

Fibre Unlimited

Original TV &

Unlimited

Broadband

Original TV &

Unlimited Fibre

Unlimited

Broadband &

Weekend Calls

Unlimited Infinity

1 & Weekend

Calls

Starter TV &

Unlimited

Broadband &

Weekend Calls

Starter TV &

Unlimited Infinity

1 & Weekend

Calls

SuperFibre 50 &

Calls

SuperFibre 50 &

Calls

Player Bundle

Mixed Bundle

Unlimited

Broadband & No

Calls

Unlimited Fibre &

No Calls

ADSL Broadband

& Weekend Calls

Unlimited Fibre

(38Mbs) &

Weekend Calls

Unlimited Standard

BB 17

Unlimited Fibre 38

Prices calculated without vouchers and excluding safety features

Voicemail £0.00 £1.25 £0.00 £2.25 £0.00 £0.00 £0.00 £1.00

Caller Display £0.00 £0.00 £2.25 £1.75 £0.99 £1.75 £0.00 £1.00

Anon caller

reject £0.00 £4.00 £2.70 £5.80 £4.00 £1.75 £2.50 £1.00

Last caller

barring £0.00 £3.35 £2.25 £4.75 £0.00 £1.75 £0.00 £1.00

Monthly Total £0.00 £8.60 £7.20 £14.55 £4.99 £5.25 £2.50 £4.00

18 month Total £0 £155 £130 £262 £90 £95 £45 £72

Calling and Safety Features

Prices correct 01/11/16

TalkTalk For Everyone

18

Fixed price plans Family Photo

An important step in brand transformation

Early results are encouraging

19

Re-contracting onto Fixed Low Price Plans stronger than we expected

Short term effects

• ARPU dilution mitigated by:

• Strong attachment rates for calling boosts, TV and fibre

• New customers joining on higher ARPUs than legacy cohorts on deep discounts

• Improving quality of revenue mix in base

• Lower churn

• 10 times more customers have re-contracted on the new plans than in an average month

• Majority of re-contracting customers either out-of-contract or nearly out-of-contract ie in highest churn segments

• Percentage of base in contract growing by 2% per week – strong forward indicator of reduced churn

We are building a more loyal and higher quality customer base

Medium term benefits

• Higher than expected re-contracting activity driving short term ARPU dilution

• Simplification of deeply discounted legacy tariffs driving short term churn

7.1 10.2

13.7

17.4

21.6

26.2

30.7

35.1

39.3

H1'13 H2'13 H1'14 H2'14 H1'15 H2'15 H1'16 H2'16 H1'17

TalkTalk Business growing strongly, driven by data revenues

20

Corporate Revenue Sustained revenue progress

High growth and margin Ethernet & EFM Lines (‘000)

Phone and BB (retail and wholesale)

Legacy Voice

Carrier TalkTalk Group

Data & Next Gen Voice

Gross Margin

Growth

H1'16 H1'17

Data

Carrier

Voice

+10.6%

+38.9%

+30.9%

-22.8%

£188m

£208m

87

91

88 89

94

104

93 95 95

101 100

108

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2FY14 FY15 FY16 FY17

Wide suite of connectivity products

21

FTTC ADSL

2+

1Gb

Ethernet

100 Mb

Ethernet

Eo

FTTC EFM

Broadband products Ethernet products

£20 £40 £70 £300 £1,200

Wholesale – Partner Managed/IPVPN – Partner/Direct

Contended

Standard or Enhanced Care levels

Services Delivered over Copper

Uncontended

Business Grade SLA’s & Ethernet Presentation

Fibre Delivery

SIP can be provisioned across all TalkTalk Business Connectivity

Dark Fibre

EoFTTP EoG.Fast

FTTP G.Fast

Existing products Future products

Material room for TalkTalk Business to grow

• TalkTalk has c10-12% market share

• Taking c16% of Openreach new connections

• Significant growth opportunity as market

expands

22

National & Metro Ethernet Market IPVPN Market

0k

50k

100k

150k

200k

250k

300k

2013 2014 2015 2016 2017 2018 2019 2020

320k

340k

360k

380k

400k

420k

440k

2013 2014 2015 2016 2017 2018 2019 2020

• TalkTalk has a c2% share

• Opportunity to take market share in segments

not well served by incumbent providers

Source: Ovum (Latest UK specific forecast, July 2015), Kable (2015) and TTB internal estimates/weighting

Ovum Service End Points Ovum Service End Points

Building an Inside Out Mobile Network

23

Progress in H1 FY17

• Mobile base now 793k, 22% of the base

• 500Mb data SIM offer included in all Broadband packages

• New billing system deployed in live environment

• Our own TalkTalk 4G SIMS successfully provisioned on Telefonica O2 network

• Ofcom approved use of TalkTalk’s Dect Guardband spectrum for 4G in September

• Femto home trials successful

Potential to build 4m strong mobile business

Forward timeline

Live trials begin

Billing migration testing

Billing migration

Network migration

Thick Build

Femto rollout

Nov 16

Q4 17

Q1 18

Q2 18

18/19

FY19

Selling 4G

Concluded successful phase 1 trial of FTTP in York

24

Progress to date Next steps

• 14k homes passed at build cost of £417

• 2,500 TalkTalk and Sky customers taking service (18% of homes passed)

• Excellent customer feedback

• ASAT at 82%

• Churn to date is 1 customer

• 100% uptime since launch (MPF would expect 50+ faults over same period)

• Complete build of FTTP across York:

• 40k more homes, £20m cost over 18 months from Spring 2017

• JV with CFH (67%:33%)

• Sky to become long term Wholesale customer

• Can see significant operational improvements to further reduce costs and improve marketing efficiency, which we will trial in phase 2 in York

Will build out to rest of York in FY18/19

Summary

25

Strong H1 performance: EBITDA £130m (+44% year-on-year); interim dividend maintained at 5.29p

Material improvements in customer service: Q2 churn reduced to 1.43% (Q216: 1.58%)

TalkTalk Business continuing to show strong growth through Data

High levels of re-contracting following launch of Fixed Low Price Plans

Compelling value offer and further improvements in service to drive a return to growth in FY18

FY EBITDA expected to be towards the lower end of our £320m-£360m guidance

Final dividend expected to be in line with FY16 and broadly covered by operating FCF

H1 Financial Review

26

Summary Profit & Loss

27

H1’17 H1’16 Year on Year

£’m £’m

Headline Revenue 902 912 -1.1%

Gross Profit 469 487 -3.7%

Margin 52.0% 53.4%

Operating costs (245) (245) -

SAC & Marketing (94) (152) -38.2%

Headline EBITDA 130 90 +44.4%

Margin 14.4% 9.9%

Profit after tax 35 11 +218.2%

Headline EPS (Basic) 3.7p 1.2p +208.3%

Dividend per share 5.29p 5.29p -

Revenue and ARPU

28

• Decline in average on net base offset by

pricing

• 8,600 additional data lines driving Corporate

Data growth

• Legacy voice decline offset by growth in

VOIP proposition (+35%)

• Carrier growth expected to reverse in H2 so

that FY overall will be flat y-o-y

• Impact of pricing in June and October 2015

• Growth in Fibre and Mobile

• Offset by voice usage decline and mix of

Retail vs Wholesale customers

£912m

£902m

£27m

£3m

£18m £21m £17m

H1'16 On-Net Off-Net Data Legacy Voice Carrier H1'17

Corporate

£28.08 £28.05

£0.62

£0.50

£0.83

£0.26

H1'16 Pricing &Proposition

Triple / QuadPlay

Voice Usage Mix H1'17

Gross Margin

On-net

- Lower weight of Retail revenues versus

Wholesale revenues in the on-net mix

- Lower voice revenues (cyber gesture)

- £7m MTTS benefits

Corporate

- Growth in high margin data revenue (8.3% of

total revenues vs 5.9% in H116)

- Greater weight of low margin carrier revenues in

the mix (8% vs 6% in H116) and lower year-on-

year voice revenues

H2 to recover:

- Pricing

- Reversal of the trend in carrier growth

- Procurement savings

29

53.4%

52.0%

2.2%

1.8%

1.7%

H1'16 On Net Data Voice & Carrier H1'17

Corporate

Opex and SAC

Opex:

- Flat year-on-year with network and IT investment

offset by lower costs to serve and MTTS savings

SAC & Marketing:

– Lower volumes

– Lower Costs per Add from improved online

journeys, better targeted upselling activity and

channel optimisation

– Phasing – marketing spend deferred ahead of new

propositions launch

– Higher TTB broadband and Data connections

30

245 245

152

94

3

34

18 9

H1'16 Volume ChannelOptimisation

Phasing B2B & Data H1'17

SAC &

Marketing

Opex

Continuing benefit

Summary Cashflow

31

£’m H1 FY17

EBITDA 130

Working Capital (59)

CAPEX (99)

Operating Free Cash Flow (28)

Interest and Tax (11)

Free Cash Flow (39)

Acquisitions (14)

Exceptional Items (15)

Dividends – FY16 Final (100)

NET CASH FLOW (168)

Net Debt * (847)

Net Debt / LTM EBITDA 2.8x

* Net of derivatives £33m

Working Capital

• Timing of payments on distribution agreement

• Phasing of stock payments

• Prepayment of marketing spend ahead of launch of new

propositions

• Expect to mostly reverse in H2

Exceptional items down year-on-year

• Higher than P&L charge (£11m) due to utilisation of PY

provision

• Expect FY exceptional items of £30-£35m

Dividend in line with guidance

• FY17 Final dividend expected to be in line with FY16

• Broadly covered by Operating Free Cash Flow

Leverage

• In line with leverage at end of H116

• Expect strong cashflow generation through H2 to drive

deleveraging towards medium term target of 2.0x

Capex

32

• H1 Capex (net of asset disposals) reflects

• phasing effect of c£30m investment that was planned for

H216 but delayed by cyber attack; and

• underlying H1:H2 weighting

• Timing difference will return to normal levels by year end

• Expect phasing to drive lower capex in H2 (vs H1 and H216)

• Capex for the full year expected to be £130m-£135m, net of

proceeds from asset sales

• Slightly higher than planned due to systems investment to

support new propositions and rollout of mobile systems

£99m

Software

£33m

Hardware

£36m

Innovation

£15m

PPE

£7m

£91m

Software

£43m

Hardware

£43m

Innovation

£13m

H1’16 H1’17 H2’17

£30m-£35m

EBITDA outlook

• Back book re-pricing

• Boost attachment rates

• New acquisition volumes

• SAC impact of TV and fibre take-up

• ARPU dilution from re-contracting

• Churn from legacy cohorts

33

• Quality of base and revenue

• Customer engagement

• Churn

• Success of re-contracting activity drives FY17 EBITDA towards lower end of £320m - £360m

guidance and in line with market consensus

• Final dividend in line with FY16 and guidance

• Year-end leverage (net debt/EBITDA) to be significantly lower than at end of FY16

Impact of Fixed Low Price Plans

Medium term benefits Short term impact

Appendices

34

Reconciliation of reported to statutory profits

35

£m H1’17

HEADLINE

H1’17

EXCEPTIONALS

H1’17

STATUTORY

EBITDA 130 (11) 119

Depreciation (35) (35)

Amortisation (30) (5) (35)

Share of JV’s (5) (5)

Interest (14) (14)

PROFIT BEFORE TAX 46 (16) 30

Tax (11) 2 (9)

Effective Tax Rate 24%

PROFIT AFTER TAX 35 (14) 21

Basic EPS 3.7p 2.2p

DPS 5.29p 5.29p

Our Network Infrastructure today

Significant national scale through a combination of owned and leased assets

Price regulated copper and ethernet

Fibre

Owned equipment in 3,000+ Unbundled Exchanges

Owned equipment in regional Collector Nodes to extend Core Network

Owned Equipment in Collector Ring - 10Gbps optical circuit or dark fibre supplied by BT, SSE, GEO, VM and Eircom

Core National Optical Network 2 separate national networks with 8Tbps (Huawei) and 1,6Tbps (Infinera) capacity

Exchange Backhaul 1-10Gbps optical circuits supplied by BT Openreach or Virgin media

Dark fibre sourced under long term leases in a competitive market with no capacity constraints

Street cabinet

Fibre to the Cabinet

Exchange

Collector Node

Ethernet

Total Other Costs

37

KPIs

38

FY13 FY14 FY15 FY16 FY17

H1 H2 H1 H2 H1 H2 H1 H2 H1

On-Net Base (m)

Broadband & Voice 3.162 3.295 3.402 3.570 3.656 3.775 3.728 3.658 3.638

Broadband Only 0.642 0.575 0.526 0.490 0.449 0.402 0.369 0.338 0.329

Total 3.804 3.870 3.928 4.060 4.105 4.177 4.097 3.996 3.967

On-net Churn (p.m.) 1.6% 1.5% 1.6% 1.6% 1.4% 1.3% 1.5% 1.7% 1.4%

Mobile (m) 0.117 0.175 0.236 0.284 0.348 0.464 0.596 0.699 0.793

Fibre (m) 0.030 0.073 0.142 0.207 0.308 0.479 0.578 0.704 0.779

TV (m) 0.000 0.230 0.557 0.917 1.217 1.414 1.439 1.389 1.333

Ethernet and EFM lines 7,100 10,200 13,700 17,400 21,600 26,200 30,700 35,100 39,300

Total Broadband (m) 4.043 4.063 4.076 4.196 4.221 4.283 4.189 4.072 4.036

Revenue (£m)

On-net 573 597 612 642 648 685 697 702 670

Off-net 95 83 69 59 46 41 27 28 24

Corporate 160 162 162 178 177 198 188 196 208

Total 828 842 843 879 871 924 912 926 902

On-net ARPU (£) 25.27 25.93 26.16 26.79 26.45 27.57 28.08 28.91 28.05