TIDMTALK
RNS Number : 6716E
TalkTalk Telecom Group PLC
10 May 2017
EMBARGOED UNTIL 7.00 AM ON 10(th) MAY 2017
10 May 2017
TalkTalk Telecom Group PLC
Preliminary results for the year ended 31 March 2017 (FY17)
-- Headline EBITDA (1) +17% to GBP304m
-- Customer base returned to growth in Q4 (+22k) with positive
net adds in Retail and Wholesale
-- Q4 churn reduced to 1.40% (Q3: 1.64%)
-- Over 1m customers now on new plans with 59% of on-net Retail base in-contract
-- Strong growth in TalkTalk Business Ethernet base (+8k) fuelling Data revenue growth
-- New operational structure and fewer, simpler priorities to drive growth
-- Review of mobile strategy to create alternative less capital intensive offering
-- Leverage reduced to 2.57x, new debt facilities secured, and dividend reset.
FY17 Financial Highlights
-- Total revenue -3% to GBP1,783m (FY16: GBP1,835m); On-net -4% to GBP1,342m (FY16: GBP1,399m)
-- Corporate revenues (ex-Carrier) + 4%; Data +31%, Legacy Voice -18%
-- FY On-net base -49k, with growth in Q4 of 22k
-- GBP34m of benefits delivered from MTTS; cumulative GBP87m delivered
-- Statutory Profit Before Tax GBP70m (FY16: GBP14m); statutory EPS 6.1p (FY16: 0.2p)
-- Final dividend 5.0p (FY16: 10.58p), total FY17 dividend 10.29p (FY16: 15.87p)
Looking forward
-- New price plans and falling churn underpin confidence in driving customer base growth
-- Retail base growth and continuing growth in TTB to drive return to growth in Group revenues
-- FY18 headline EBITDA(1) expected to be GBP270m-GBP300m as a
result of SAC investment to drive growth
-- FY18 Dividend reset to 7.5p; growth expected to resume once
business returns to earnings growth and leverage has reduced
towards 2.0x
(1) Headline EBITDA is defined in Note 1, and reconciled to
Statutory measures in Note 7.
Charles Dunstone, Executive Chairman of TalkTalk commented:
"I'm enjoying having a more 'hands on role' at TalkTalk and I'm
very excited about the progress we have already made and the
prospects for the business. The promotion of Tristia Harrison and
Charles Bligh to their new positions has created a clear and
simpler operating structure and I can already see the difference
they are making. My focus for the company is growth, cash
generation and profit - in that order. We will be smart about how
we invest, focusing on our fixed network, avoiding other capital
intensive distractions. In light of these new priorities, we have
also decided to reset the dividend as we look to deliver growth and
strong sustainable shareholder returns over the long term."
Tristia Harrison, Chief Executive of TalkTalk commented:
"The last 12 months have seen the business lay down solid
foundations from which to drive sustainable base and revenue growth
in both our Retail and B2B businesses. This will allow us to build
upon our core strength as a value for money fixed line connectivity
provider as we focus on delivering growth, improving our customers'
experience, investing in and future-proofing our fixed network, and
driving operational efficiencies across the business, whilst being
more disciplined and smarter with our assets."
Presentation and Q&A
9.00am - 10.30am: The Ned, 27 Poultry, London EC2R 8AJ
Live Dial-in:
+44 (0) 20 3003 2666
Replay (available for 7 days)
UK & International
+44 (0) 20 8196 1998 PIN code: 5747346#
Webcast:
http://cache.merchantcantos.com/webcast/webcaster/4000/7464/16532/76779/Lobby/default.htm
Investor Relations: Mal Patel +44 (0) 20 3417 1037
Media: Isobel Bradshaw +44 (0) 75 8470 8351
SUMMARY FINANCIALS
Headline Profit 2017 2016
& Loss(1)
------------------------ ------ ------
Revenue (GBPm) 1,783 1,838
EBITDA (GBPm) 304 260
EBITDA margin (%) 17.0 14.1
Operating profit
(GBPm) 165 131
Profit before taxation
(GBPm) 133 107
Profit after taxation
(GBPm) 100 79
Basic EPS (p) 10.5 8.4
Dividend per share
(p) 10.29 15.87
------------------------ ------ ------
Statutory Profit 2017 2016
& Loss
------------------------ ----- -----
Operating profit
(GBPm) 95 38
Profit before taxation
(GBPm) 70 14
Profit after taxation
(GBPm) 58 2
Basic EPS (p) 6.1 0.2
------------------------ ----- -----
Cash flow (GBPm) 2017 2016
----------------------- ------ ------
Operating free
cash flow(1) 143 104
Interest and taxation (33) (22)
Free cash flow(1) 110 82
Exceptional items (46) (88)
Acquisitions (18) (12)
Dividends (150) (135)
Sale of own shares 1 63
Net Debt 782 679
Net Debt/Headline
EBITDA 2.57x 2.61x
----------------------- ------ ------
Key Performance 2017 2016
Indicators
------------------------- ------ ------
On-net Broadband
Net Adds ('000) (49) (181)
On-net Churn (%) 1.45% 1.60%
TV as % of Broadband
base 35% 38%
Fibre as % of Broadband
base 25% 19%
Mobile as % of
Broadband base 25% 19%
EFM & Ethernet
Net Adds ('000) 7.7 8.9
------------------------- ------ ------
(1) Headline and non-statutory measures are defined in Note 1,
and reconciled to Statutory measures in Note 7.
Q4 trading - Return to Retail net adds growth as planned
We saw continuing strong and greater than expected demand for
our new Fixed Low Price Plans ("FLPP") in Q4, both from existing
customers wishing to re-contract and from new customers, which took
the total FLPP base to 993k and the proportion of in-contract
customers at the year end to 59% (FY16: 53%). Combined with
continuing improvements to customer service from operational
initiatives, this momentum helped reduce churn during the quarter
to 1.40% (Q3FY17: 1.64%), and drive net adds growth of 22k, with
the Retail base returning to growth.
Demand for fibre remained strong, with nearly 30% of new
customers choosing to take fibre and within that, more than twice
as many customers as a year ago choosing the 76Mbps product. As a
result, we added 73k new fibre customers during the quarter, taking
the total base to 927k (25.5% of the on-net base). We also saw
improving demand for TV which helped drive a turnaround in the
momentum of the base with net adds of -14k (Q3FY16: -31k). Mobile
net adds of 45k were in line with our plan. We delivered another
strong quarter of Ethernet growth with 2.3k net adds, taking the
year-end base of installed lines to over 26k.
Group headline revenues(*) (ex-Carrier) declined by 2.5% year on
year, driven primarily by the impact of a lower average base,
higher mix of Wholesale customers and ARPU dilution from
re-contracting activity on On-net revenues (-3%). Corporate
revenues (ex-Carrier), grew by 9.1% driven by Data revenues
(+19.4%) and a significantly lower decline in Legacy Voice revenues
(-3.3%; Q3FY16: -19.4%) from growing traction in our Next
Generation voice product.
We made good progress in diversifying our sources of finance and
extending the maturity of our facilities: we refinanced GBP400m of
our short dated bank debt through the successful issue of a debut 5
year public bond, and post year end, refinanced our banking
facilities for a further five years.
Looking forward
Our priorities in FY18 are to sustain the momentum built during
Q4FY17 to deliver growth in the on-net base and on-net revenues;
sustain strong growth in TalkTalk Business ("TTB"); continue our
fixed network investment; focus on customer service improvements
and operational efficiency; improve headline cash flow*; and reduce
net debt.
We expect continuing lower costs per add and reducing churn to
support more economically attractive gross additions during FY18,
however incremental volume growth will require higher SAC &
Marketing investment. As a result we expect to deliver headline
EBITDA(*) of GBP270m-GBP300m, year on year growth in headline
revenues, and improved headline cash flow allowing us to reduce net
debt. Beyond FY18 we expect the growing on-net base, comprising
higher quality lower churning customers, to support a return to
headline EBITDA* growth.
We have reorganised the business under our new leadership team
to focus on fewer, clearer priorities that are focused on
investment in our core fixed network. As part of our review of how
we allocate capital and our clear focus on investing in fixed
connectivity we have reassessed our mobile strategy. While we
remain committed to offering all our customers a compelling mobile
proposition, we have decided not to pursue an inside-out mobile
network strategy, and instead we will continue to work closely with
Telefónica UK on the right platform and customer offering. We
expect to have more information to update on this in due
course.
Dividend
The Board is committed to returning the business to revenue and
customer base growth, improving cash generation and reducing
leverage, and in this context has declared a Final dividend for
FY17 of 5.0p (FY16: 10.58p), taking the total dividend for the year
to 10.29p (FY16: 15.87p). For FY18 the Board expect to declare an
Interim cash dividend of 2.5p (FY17: 5.29p) and a Final cash
dividend of 5.0p (FY17: 5.0p) taking the total cash dividend for
the year to 7.5p (FY17: 10.29p). Looking beyond FY18, the Board
expects to resume dividend growth once the business returns to
earnings growth and has reduced leverage towards Net Debt/Headline
EBITDA(*) of 2.0x.
(*) (Headline measures are defined in Note 1 to the financial
Statements and reconciled to statutory measures in Note 7.)
FY17 Business Review
Summary: 17% growth in headline EBITDA(*) ; strong foundations
in place for future growth
We made solid progress in establishing the operational
foundations for future growth with clear improvements in customer
experience metrics, tangible network enhancements, the relaunch of
our brand and Retail propositions, and excellent growth in TTB. As
a result we exited the year with stronger than expected
re-contracting and gross additions activity driving growth in the
broadband base, lower churn and a higher proportion of the base in
contract.
Group headline* revenues fell by 3.0% with On-net revenues down
4.1%, Corporate +3.4% and Off-net (2.5% of total; FY16: 3.0%)
declining by 20%. The decline in On-net revenues reflects the c.3%
lower average base during the year (as a result of churn and lower
connections activity), and on-net ARPU which was 1.3% lower year on
year at GBP28.16, reflecting the higher proportion of Wholesale
customers on the base (24%, FY16: 21%), and during H2, the dilutive
impact of FLPP offset in part by increased fibre penetration and
price increases.
Corporate revenue growth of 3.4% was driven by Data revenues
(+31%) which benefited from c8k net adds to our Ethernet and EFM
base. Growth in Data and Next Generation Voice (+20%) offset Legacy
Voice (-17.9%), with Carrier revenues broadly flat year on
year.
FY Headline EBITDA(*) of GBP304m (FY16: GBP260m) grew by 17%
(statutory operating profit grew by 150% year on year as a result
of the higher, cyber related exceptional costs in FY16), driven by
a significant improvement in subscriber acquisition costs (SAC) and
marketing, and GBP34m of savings from our transformation programme
Making TalkTalk Simpler (MTTS). In SAC, we benefited from the
extension of our agreement with a major distribution partner for a
5 year period, to provide the Group with a lower cost outsourced
solution for the management of fixed line customer acquisitions.
During the year this enabled us to accelerate gross additions,
whilst deferring a proportion of the upfront SAC cost, which
contributed GBP24m, net of expensed hardware costs of GBP17m. By
delivering a growing and higher quality base, at a lower cost per
add, we expect to see both revenues and gross profit expand in
future years.
Net debt at 31 March 2017 was GBP782m (30 September 2016:
GBP847m), with headline(*) leverage falling from 2.82x to 2.57x and
committed headroom, reflecting the issuance of the Group's debut
bond, at 31 March of GBP412m.
1. Over 1m customers now on Fixed Low Price Plans and 59% of on-net base in-contract
During FY17 we built upon the substantial operational and
customer service improvements delivered by Making TalkTalk Simpler,
and extensive customer research, to launch a comprehensive brand
refresh and our simpler, fairer, Fixed Low Price Plans.
We launched FLPP at the beginning of October 2016, ahead of the
wider industry's move to all-in pricing. Existing and new customers
responded extremely well to the new plans through H2, with the 24
month plans introduced in Q4 showing particularly strong demand. As
a result we now have over 1m customers on the new plans. Many more
customers chose to take fibre than expected; and attachment rates
for calling boosts and TV have also been stronger than we had
expected reflecting both the attractiveness of our simple and clear
pricing, and the much improved online experience that we have
delivered through MTTS. The heightened churn that we experienced
during the first quarter of the launch, from the re-pricing of
legacy propositions, reduced sharply in the final quarter of the
year to 1.40%.
(*) (Headline measures are defined in Note 1 to the financial
Statements and reconciled to statutory measures in Note 7.)
2. Delivered lasting operational and customer service benefits
We made significant progress during FY17 across all our customer
experience improvement programmes, which have driven materially
better outcomes for customers, and as a result, GBP34m of gross
P&L savings. Key areas in which we made strong progress
include:
-- New technical support and repair processes introduced for
front-line service representatives, built on technology deployed in
FY16, reducing customer effort and increasing first-time fix rates,
with fewer customers with a broadband issue calling back within 7
days.
-- More than 600,000 customers enrolled on TalkSafe, TalkTalk's
innovative, secure and low-effort new voice biometric verification
system.
-- Tailored Next Best Action technology deployed across online
and phone channels, increasing Net Promoter Scores (NPS) and
upsell.
-- Introduced a redesigned simpler, more informative and transparent online bill.
-- Re-platformed the highest traffic parts of our websites to
optimise for mobile as well as desktop devices and improve
performance.
With all the initiatives that comprised MTTS now fully embedded
within the business, the programme is now substantially complete,
with cumulative financial benefits of GBP87m delivered.
3. Ongoing network investment has improved customer experience
In addition to improving customer experience through MTTS, we
continued to invest in our network across four major areas:
-- Backhaul and core network enhancement to ensure the best
outcome for customers at peak time. As a result we are ranked best
with samknows for peak time throughput.
-- We replaced our Dynamic Line Management (DLM) system for
improving speed and line stability and rolled out a new secure
Domain Name System (DNS) to improve resilience, security, and
responsiveness.
-- We completed software upgrades to the collector nodes and
began our major access network upgrade to 10gb+ capacity, with over
100 exchanges fully migrated to date.
-- We deployed more Netflix caches at the edge of our network to
improve streaming experience by pushing content closer to the
customer. For customers taking sports boosts, we engineered a
substantial uplift in video quality, which combined with the DLM
improvements has translated into an improved viewing
experience.
We have made excellent progress with our Fibre-To-The-Premise
(FTTP) trial in York. The initial roll out to over 14,000 homes,
was completed in March 2017, with penetration of serviceable homes
at c27% (c2,500 of whom are TalkTalk customers). Build costs were
under our GBP500 per home target, with take-up and customer
satisfaction also ahead of targets. Following the success of this
first phase, work has now begun on the planning work to extend the
network to a further 40,000 premises across the rest of York.
4. Improving customer satisfaction, churn and a return to base growth
The combined effect of MTTS, our network quality improvements
and the launch of FLPP, helped deliver substantial improvements in
customer satisfaction, churn and base growth during FY17.
Churn across the year fell to 1.45% (FY16: 1.60%) with
year-on-year improvements in both H1 (1.40%; H1FY16: 1.48%) and H2
(1.51%; H2FY16: 1.72%), despite elevated levels of churn in Q3 from
the planned tariff rationalisation and re-pricing of legacy
propositions when we launched FLPP.
Customer satisfaction with our service agents and complaints to
Ofcom which are drivers of churn, also improved during the year.
Critically, these improvements, combined with falling costs per add
as a result of more efficient distribution channels through our
extended outsourcing arrangement with DCP, allowed us also to
increase new acquisition activity in the final quarter of the year.
The resulting gross additions exceeded our expectations and coupled
with lower churn, enabled a return to Retail base growth. As a
result we exited the year with 3.947m on-net customers (FY16:
3.996m). Within this, the Retail base declined by 178k during the
year, while the Wholesale base continued to grow robustly
(+129k).
5. Growth in triple and quad play penetration
In line with our strategy of growing fibre, triple and quad play
penetration, we saw strong take-up of fibre (+223k) and mobile
(+214k). There were 927k customers taking fibre at the year-end
(25.5% of the on-net base), with H2 net adds nearly double the
level in H1 as customers responded to our pricing initiatives and
easier on-line upsell journeys.
In Mobile, we ended the year with 913k SIM and handset
contracts, again with H2 net adds stronger than H1 as we introduced
an upgraded SIM as part of our launch of FLPP.
While the TV base contracted during the year by 101k, we saw an
inflection in the rate of decline during Q4 (-14k) as customers
responded positively to the improving functionality and performance
of our next generation YouView interface, and our multi-device TV
App.
At the end of the year our on-net base comprised c42% dual-play
customers (taking voice and broadband), c39% triple-play customers
(taking voice, broadband and either TV or mobile), and c12%
quad-play customers (taking all four products), with strong fibre
penetration across all three.
6. Continuing strong growth at TTB: Corporate (+4.2%) and Data (+30.8%)
TTB delivered another year of strong performance in Corporate.
Revenues (ex-Carrier) grew by 4.2%, with an acceleration in H2 to
+6.1% from +2.3% in H1. Data revenues grew 30.8% year-on-year with
the number of Ethernet and EFM lines up by 8k during the year.
Legacy voice revenues declined (-17.9%) in line with the
established trend but we saw strong take-up of our new next
generation voice product, with revenue growth during the year of
20%. As planned, Carrier revenues were broadly flat year-on-year
(+1.7%).
Following our acquisition of tIPicall in April 2015, our next
generation voice portfolio continued to gain good momentum. 116
Partners have signed up to sell this new service and the total base
of SIP channels on the platform, including acquired base, increased
by 7,340 channels (+65%) during the year. The acquisition has
continued our diversification into next generation telephony
services, further demonstrated by our hosted telephony platform
which saw the user base grow by 43%.
PRIORITIES FOR FY18
We have a clear and defined strategy of driving profitable
growth by leveraging our extensive network assets, improving the
customer experience, and driving operational efficiency. Under our
new leadership team and operational structure we will now focus on
delivering growth in the on-net base and on-net revenues,
sustaining strong growth in TTB; continuing to improve and
future-proof our network, driving a step change in customer
experience, and realising further efficiencies.
1. Returning the Retail base to profitable growth
There is compelling evidence that our new propositions are
delivering not only reduced churn but happier more satisfied
customers; the vast majority of whom are signing up to 24 month
contracts, wanting certainty in pricing and service: early life
churn on the FLPP base is less than 1%; FLPP customers reported Net
Promoter Score is significantly higher than for non-FLPP customers;
and TalkTalk brand satisfaction has grown in each of the last four
months.
This coupled with simpler, better value propositions for new
customers, materially improving customer service, and reducing
costs per add underpins our confidence in driving profitable
subscriber growth in our retail base through gross adds
activity.
As outlined above our TV business has seen significant
improvements in service and customer satisfaction and our
aggregator approach to free and pay TV across multiple devices is
paying off - our investments in TV continue to lead to broadband
churn reduction.
In mobile, while we remain committed to offering all our
customers a compelling proposition, we have decided not to pursue
an inside-out mobile network strategy, and instead we will continue
to work closely with Telefónica UK on the right platform and
customer offering. We expect to have more information to update on
this in due course.
2. Sustaining momentum in TTB
Our market share of Ethernet circuits (c10%) offers significant
further opportunities for growth, supported by the pricing
optionality from favourable Ethernet and dark fibre regulation. We
are seeing increasing demand in the future pipeline from small
businesses looking to use our high speed Ethernet products as they
transition to hosted voice products. We are also growing the
pipeline with large corporates looking to take advantage of our new
managed network connectivity products.
Having expanded our portfolio of data products to offer a
complete portfolio of FTTC and Ethernet products, we expect to see
strong demand from both our partners and direct customers. The
number of partners wholesaling FTTC from us has grown in the last
year and we expect continued growth in this area.
3. Delivering a step change in customer experience
Having delivered progressive improvements in customer experience
from MTTS, our focus over the next twelve months and beyond will be
on consolidating these achievements to drive a step change in three
key areas: consistency of service across all channels, joining and
repair processes, and in-home connectivity/experience. The
investments we have already made in simplifying and upgrading our
customer-facing systems and processes have begun to deliver
measurable returns in the form of higher customer satisfaction,
lower complaints volumes and improved churn. Our overall focus from
here on will be to continue to put the customer at the heart of the
service experience to make sure whichever channel they choose
(online, social to call centre) we give a consistent experience and
advice which increases loyalty to the brand. This also includes our
B2B customers where we have good customer satisfaction with both
direct and wholesale customers and we have plans to improve this to
industry leading levels. These improvements will require modest
incremental investment that will be covered within our overall
commitment of capex/revenues of 6%-7%.
4. Network investment
Continuing investment in the network over the next two years
(within our 6%-7% capex/revenue commitment) will deliver a fully
upgraded access layer (switches and backhaul) with over 1,000
exchanges equipped with 10Gig backhaul circuits, to support growing
FTTC penetration and data usage. We also plan to scale dark fibre
deployment across the entire network, helped by a more favourable
regulatory pricing environment. This will allow us to support the
expected increase in capacity utilisation at reduced unit costs,
and significantly mitigate future network operating costs that
otherwise, would grow substantially as we expand our Ethernet, FTTC
& FTTP base.
Following this network investment programme, we expect the
entire data network to be at the latest switching and network
technology. It will be simplified, more resilient, using the latest
Tier 1 networking technologies (both software and hardware), and
will future-proof the network for the expected needs of consumers
and businesses.
5. Operational excellence
Delivering better quality at a reduced cost of operation is
fundamental to our growth expectations. Our new operating structure
will allow us to further simplify our service footprint and
customer insight systems; reduce the costs of failure; and better
leverage our procurement and cost assurance processes. Over the
medium term, this will result in a fundamentally higher quality of
operation, and reduce our cost / revenue ratio whilst also allowing
us to reinvest efficiencies into further customer experience
improvements.
Finance Review
The Group uses Headline measures that exclude items which are
non-trading or non-recurring to monitor the performance of the
Group. Headline measures are used to partly determine the variable
element of remuneration of senior Management throughout the Group
and are also in alignment with performance measures used by certain
external stakeholders in the context of the telecoms sector. In
particular, EBITDA and Free Cashflow are commonly used across the
telecoms industry to aid stakeholders in making comparisons between
the performance of the Group and its peers. Unless stated
otherwise, the discussion of the Group's financial performance
below, is on a Headline basis. Headline measures are defined in
Note 1 and reconciled to statutory measures in Note 7.
GBPm 2017 2016
On-net 1,342 1,399
Corporate 397 384
Off-net 44 55
Headline Revenue 1,783 1,838
Headline Gross Margin 949 993
% 53.2 54.0
Operating expenses excluding amortisation
and depreciation (459) (473)
SAC and Marketing (186) (260)
Headline EBITDA 304 260
% 17.0 14.1
Exceptional items (57) (83)
Statutory EBITDA 247 177
on and amortisation (1) (131) (121)
Non-operating amortisation (10) (10)
Share of results of joint ventures (11) (8)
Operating profit 95 38
Net finance costs (2) (25) (24)
Profit before taxation 70 14
Taxation (12) (12)
Profit after taxation 58 2
------------------------------------------- ------ ---------
(1) Includes exceptional items of GBP3m (FY16: Nil)
(2) Includes and exceptional credit of GBP7m for interest
receivable on settlement of a dispute
Overview
FY Headline revenue declined by 3% to GBP1,783m (FY16:
GBP1,838m), however the Group delivered a 17% increase in Headline
EBITDA to GBP304m (FY16: GBP260m) and with an increase in statutory
profit before taxation of GBP70m (FY16: GBP14m). The Board has
recommended a Final dividend of 5.0p taking the total dividend for
the year to 10.29p (FY16: 15.87p). Net debt/Headline EBITDA fell
from 2.82x in H1 to 2.57x (FY16: 2.61x) as some of the H1 Headline
working capital outflow reversed in H2 and net debt fell from its
usual seasonal peak of GBP847m at the half year, to GBP782m at year
end. The Group's medium term leverage target remains 2.0x.
Committed headroom at 31 March 2017 was GBP412m (FY16: GBP162m),
reflecting the issuance of the Group's debut bond in Q4.
Headline Revenue
Headline group revenue of GBP1,783m was 3% lower year on year
with On-net revenues 4% lower, Corporate revenues 3% higher and
Off-net revenues (2% of total) 20% lower. The decline in On-net
revenues reflects the c3% lower average base (as a result of churn
and lower connections activity), and the dilutive impact of FLPP
launched in October 2016, offset in part by the increased
penetration of Fibre, and re-pricing of legacy propositions
following the launch of FLPP. Corporate revenue growth was largely
driven by Data revenues (+31%) which benefited from c8k new
connections to our Ethernet and EFM base. The strong growth in Data
revenues and 20% growth in Next Generation Voice from tIPcall
offset the now established decline in Legacy Voice (-18%). As
expected, Carrier revenues were broadly flat year on year
(+2%).
On-net ARPU for the year of GBP28.16, was 1.3% lower year on
year, reflecting the higher Wholesale mix of the on-net base (24%,
FY16: 21%), with price increases in Q3 offsetting the mix effect
and dilution from re-contracting on FLPP.
Headline Gross margin
Headline gross margin of 53.2% was 80bps lower year on year but
saw a significant improvement in H2 rising to 54.5% from 52.0% in
H1, driven by a reduction in carrier trading volumes, the impact of
price increases at the beginning of the half, growth in data
revenues and the settlement of supplier claims, which together
offset the impact on margins of lower ARPU FLPP, a higher mix of
Wholesale customers in the On-net base, and higher Fibre
volumes.
Headline Operating costs, SAC and Marketing
Group operating costs declined by GBP14m year on year (and by
GBP93m on a statutory basis, as a result of higher cyber related
costs in FY16), with the benefits of MTTS, lower levels of bad debt
provisioning linked to the benefit of FLPP on churn and property
reorganisation offsetting investment in network and IT
infrastructure. In total the MTTS programme delivered savings of
GBP34m across the P&L in the year and since inception in 2013
has yielded cumulative savings of GBP87m.
MTTS reached substantial completion during FY17 and continued to
deliver various improvements to the customer experience, namely
repairing voice, broadband and diagnostics flows, simplicity of
bill redesign, introduction of the Premium Address Source to
improve leakage, and improvements in Homemove and Online. The
delivery of the new agent desk top interface for Collections and
Tech agents was rolled out in Q4 to improve handling times.
Operating costs saw further reductions from our revised property
footprint with the adoption of revised ways of working enabling us
to rationalise our London property footprint and the realisation of
a GBP2m profit on the sale and leaseback of our data centre site in
Milton Keynes.
Network operating costs grew modestly with investment in new
backhaul investment, access network technology, IT systems,
security and maintenance offsetting rate savings, and lower
exchange costs.
SAC & Marketing costs fell by 28% year on year, with the
growth in SAC within TTB up 10% as a result of higher Ethernet
volumes being more than offset by lower retail connection volumes,
and a year on year increase in the settlement of service related
disputes. In SAC, we benefited from the extension of our agreement
with a major distribution partner for a 5 year period, to provide
the Group with a lower cost outsourced solution for the management
of fixed line customer acquisitions. During the year this enabled
us to accelerate gross additions, whilst deferring a proportion of
the upfront SAC cost, which contributed GBP24m, net of expensed
hardware costs of GBP17m. By delivering a growing and higher
quality base, at a lower cost per add, we expect to see both
revenues and gross profit expand in future years.
Headline EBITDA
Headline EBITDA grew by 17% to GBP304m (FY16: GBP260m). The
margin for the year grew from 14.1% to 17.0%, with the H2 margin of
19.8% improving over H1 (14.4%) and FY16 H2 of 18.4%. In addition
to the revenue, gross margin, opex and SAC movements identified
above, Headline EBITDA was impacted by a number of additional items
including rebates from suppliers (GBP13m offsetting GBP13m
associated costs), incremental income regarding service level
disputes (GBP10m) and a reassessment of management estimates
related to the recoverability of certain trading receivables
(GBP5m). Further details are contained in Note 3.
Exceptional items
The net exceptional charge in the year amounted to GBP57m (FY16:
GBP83m) and includes one-off costs relating to the delivering of
the MTTS programme, which has now been substantially completed.
GBP31m of exceptional costs were incurred across the MTTS programme
as a result of continued improvement to the customer experience,
systems and processes and implementing changes to the Group's
organisational structure, including costs associated with our move
to a new single North West location in the Soapworks, Salford in
June 17.
During the year ended 31 March 2017, the Group began to
reorganise the business under the new leadership team focusing on
fewer, clearer priorities and less capital intensive projects that
are focused on investment in growing the Group's core fixed line
connectivity business. As part of the review the Group reassessed
its mobile go to market strategy and whilst remaining committed to
offering mobile to its customers, has concluded not to pursue a
femto enabled, inside out network strategy and instead to work
closely with Telefonica UK on an alternative customer offering.
This has given rise to exceptional costs of GBP49m (GBP9m cash)
comprising impairment charges and onerous lease costs in relation
to technology equipment that has no further economic benefit.
Further costs may be incurred during FY18 as the Group works with
its MNO partners on developing an alternative mobile distribution
strategy.
In addition, GBP8m has been incurred relating to one-off costs
in our technology estate, as we change our underlying network
structure for efficiency and scalability over the next two years.
These costs have been offset by an exceptional credit of GBP29m in
relation to various prior year disputed network charges.
Cash exceptionals of GBP46m (FY16: GBP88m) include the costs
incurred during FY17 in relation to the delivery of MTTS and
transforming our network together with the timing impact of prior
year provisions and working capital movements, most notably the
timing of cyber-attack related technology cash costs of GBP12m.
Looking forward to FY18, the Group expects cash exceptional costs
to fall to cGBP10m-GBP20m as it reaches settlement of the disputed
network balances taken to exceptional income in the current year
and delivers on its plans to transform its technology estate,
pursue alternative mobile offerings for all its customers, complete
its property relocations and incurs further reorganisation costs
following the transition to a new management structure.
Depreciation and amortisation
Depreciation and amortisation expense increased from GBP131m to
GBP141m and included exceptional costs amounting to GBP3m in
relation to network transformation. Non-operating amortisation was
flat year on year at GBP10m.
Share of results of joint ventures
Share of costs of joint ventures increased to GBP11m (FY16:
GBP8m) mainly due to the Group's investment in Youview.
Net finance costs
Headline net finance costs for the year were GBP32m (FY16:
GBP24m) comprising of a blended interest rate of 3.6% (FY16: 3.1%)
and including GBP2m of amortisation of bank fees (FY16: GBP1m). On
a cash basis, interest was GBP35m, including GBP8m of fees related
to the execution of the Group's debut bond issue in January 2017,
debtor securitisation and new bank facilities arranged during the
year. In addition, following an Ofcom determination, the Group
recognised an exceptional credit of GBP7m in relation to interest
on a BT dispute settled in FY14 for the overcharging of certain
wholesale Ethernet services. The average cash finance cost in FY18
is expected to be c4.4%.
Taxation
The headline tax charge for the year was GBP33m implying an
effective headline tax rate of 25% (FY16: 26%) against a statutory
rate of 20%, mainly driven by the impact of a reduction in the
statutory tax rate on our deferred tax assets. The statutory tax
charge of GBP12m, is net of the release of a provision following
the settlement of a legacy demerger issue with HMRC during H2.
There were no cash tax payments in the year and in H1, the Group
recovered from HMRC GBP2m in relation to the accounting period
ended 31 March 2015. We exited the year with recognised carried
forward tax losses of GBP339m (FY16: GBP299m) and continue to apply
a 10 year time horizon from a recognition perspective.
Profit before taxation
Headline PBT, before exceptional items, was GBP133m up 24% year
on year, with statutory PBT of GBP70m up GBP56m on FY16.
Earnings per share
2017 2016
Headline earnings
(GBPm) 100 79
Basic EPS 10.5p 8.4p
Diluted EPS 10.4p 8.3p
Statutory earnings
(GBPm) 58 2
Basic EPS 6.1p 0.2p
Diluted EPS 6.0p 0.2p
--------------------- ------ -----
EPS on a headline basis is provided alongside our statutory
measures to allow easier comparison year on year, due to the impact
of non-operating amortisation and exceptional items. A full
reconciliation to Statutory results can be found in note 6 to the
financial statements.
Basic headline EPS was 10.5p (FY16: 8.4p) and on a statutory
basis it was 6.1p (FY16: 0.2p). Fully diluted headline EPS was
10.4p (FY16: 8.3p) and on a statutory basis it was 6.0p (FY16:
0.2p).
Net debt and cashflow
2017 2016
Headline EBITDA 304 260
Working capital (28) 10
Capital expenditure (133) (166)
Operating free cash
flow 143 104
Interest and taxation (33) (22)
Free cash flow 110 82
Exceptional items (46) (88)
Acquisitions (18) (12)
Dividends (150) (135)
Share of own shares 1 63
Net cashflow (103) (90)
Opening net debt (679) (589)
Closing net debt (782) (679)
------------------------ ------ ------
Net debt decreased from GBP847m in H1 to GBP782m at the year end
(FY16: GBP679m), with headline leverage falling from 2.82x to 2.57x
(FY16: 2.61x). Committed headroom at 31 March 2017 was GBP412m
(FY16: GBP162m), reflecting the issuance of the Group's debut bond
in Q4.
Net cash-flow for the year represented an outflow of GBP103m,
with the inflow from GBP304m Headline EBITDA offset by a
combination of the dividend (GBP150m), capital expenditure
(GBP133m), interest costs (GBP35m), exceptional items (GBP46m) and
working capital (GBP28m).
Capital expenditure for the year was GBP133m, representing c7.5%
(FY16: 9%) of revenues and includes income from the sale and
leaseback of the Milton Keynes facility of GBP15m. This expenditure
represents continued investment and enhancement of our network
capability, additional costs in relation to our MTTS programme,
spend on our online systems to support the launch of our new
propositions, and investment in our TV platform. We expect capital
expenditure in FY18 to be within our capex/revenue target of
6%-7%.
During the first half of the year the Group invested GBP59m in
working capital to finance a combination of stock delivered towards
the end of the last financial year, supplier payments related to
the extended distribution arrangement and the prepayment of
marketing costs ahead of the launch of FLPP in the Autumn.
Approximately GBP30m of this working capital investment reversed in
the second half, with the impact of lower stock balances being
broadly offset by a reduction in trade payables. Debtors increased
during the period by GBP28m, reflecting a combination of amounts
due in respect of supplier claims and a higher level of prepayments
in respect of financing, fees network and IT costs and property
related expenses linked to our move to the Soapworks.
Acquisitions expenditure in the year of GBP18m (FY16: GBP12m)
represents GBP10m (FY16: GBP8m) in respect of the YouView joint
venture and GBP8m in respect of contingent consideration for prior
period acquisitions of tiPicall, the Virgin Media off-net broadband
base and the Tesco broadband base.
Dividends
Dividends of GBP150m paid in the year (FY16: GBP135m) comprised
the final dividend for FY16 10.58p and the interim dividend for
FY17 of 5.29p.
The Board is committed to returning the business to revenue and
customer base growth, improving cash generation and reducing
leverage, and in this context has declared a Final dividend for
FY17 of 5.0p (FY16: 10.58p), taking the total dividend for the year
to 10.29p (FY16: 15.87p). For FY18 the Board expect to declare an
Interim cash dividend of 2.5p (FY17: 5.29p) and a Final cash
dividend of 5.0p (FY17: 5.0p) taking the total cash dividend for
the year to 7.5p (FY17: 10.29p). Looking beyond FY18, the Board
expects to resume dividend growth once the business returns to
earnings growth and has reduced leverage towards the Group's Net
Debt/Headline EBITDA target of 2.0x.
The Final dividend for FY17 will be paid on 4(th) August 2017,
subject to approval at the AGM on 19(th) July 2017 for shareholders
on the register 7(th) July 2017 (ex-dividend 6(th) July 2017).
Funding and capital structure
The group is financed through a combination of bank facilities,
US Private Placement notes, Senior notes, debtor securitisation,
retained profits and equity.
The Group continues to review its funding and capital structure
with the objectives of diversifying sources and managing both the
average tenor and interest cost. During the year the Group made
significant progress on these objectives with the introduction of a
GBP75m debtor securitisation facility in September 2016 and in
January 2017, following the publication of credit ratings from both
Fitch (BB- stable outlook) and Standard & Poor's (BB- positive
outlook), the successful launch of our debut public bond offering.
On 15 January 2017, the Group raised GBP400m of Senior notes at a
coupon rate of 5.375%, enabling it to retire GBP150m of shorter
dated bank facilities. The Senior notes have been listed on the
Channel Island exchange.
At 31 March 2017, the Group had total facilities, including the
Senior notes and US Private Placement notes, of GBP1,244m (FY16:
GBP944m), further detail of which is given in the notes. At 31
March 2017 GBP832m (FY16: GBP689m) had been drawn under these
facilities, leaving GBP412m (FY16: GBP255m) of undrawn
facilities.
Subsequent to the year end, the group has completed the
refinancing of its banking facilities for a further 5 years and as
such, at 9 May 2017, the Group's debt facilities consisted on the
GBP400m Senior notes, $185m US Private Placement notes, GBP75m
debtor securitisation facility and GBP640m committed bank facility.
The average term of our debt at 31 March 2017 was 3 years 11 months
which has increased to 4 years 10 months from 8 May 2017.
The Group was in compliance with the terms of all its
facilities, including the financial covenants, at 31 March 2017 and
throughout the year and expects to remain in compliance with the
terms going forward.
Going concern
The Directors have acknowledged the guidance 'Guidance on Risk
Management, Internal Control and Related Financial and Business
Reporting', published by the FRC in September 2014.
Our business activities, together with the factors likely to
affect our future development, performance and position are set out
in the Business Review. Our financial position, cash and borrowing
facilities are described within this Finance review.
The breadth of our base, our value for money proposition,
continuing improvements in operating efficiency and the largest
unbundled network in the UK means that the Directors are confident
in our ability to continue to compete effectively in the UK
telecoms sector.
We have GBP1,244m (FY16: GBP944m) of committed credit facilities
and as at 31 March 2017 the headroom on these facilities was
GBP412m (FY16: GBP255m). Our forecasts and projections, taking into
account reasonably possible changes in trading performance,
indicate that there is sufficient cash and covenant headroom on our
facilities and that this, together with our market positioning,
means that we are well placed to manage our business risks
successfully and have adequate resources to continue in operational
existence for the foreseeable future. The Directors have therefore
adopted the going concern basis of accounting preparing the
financial statements.
Consolidated income statement
For the year ended 31 March 2017
2017 2016
--------------------------------------------- -------------------------------------------------
Headline Statutory Headline Statutory
- - - -
before after before after
non-operating Non-operating non-operating non-operating Non-operating non-operating
amortisation Amortisation amortisation(1) amortisation(1) amortisation(1) amortisation(1)
(1) and (1) and and and and and
exceptional exceptional exceptional exceptional exceptional exceptional
items items items items items items
(2) (2) (2) (2) (2) (2)
Notes GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ----- ------------- ------------- --------------- --------------- --------------- ---------------
Revenue 2 1,783 - 1,783 1,838 (3) 1,835
Cost of sales (834) 21 (813) (845) - (845)
-------------- ----- ------------- ------------- --------------- --------------- --------------- ---------------
Gross profit 949 21 970 993 (3) 990
Operating
expenses
excluding
amortisation
and
depreciation (645) (78) (723) (733) (80) (813)
-------------- ----- ------------- ------------- --------------- --------------- --------------- ---------------
EBITDA 7 304 (57) 247 260 (83) 177
-------------- ----- ------------- ------------- --------------- --------------- --------------- ---------------
Depreciation 3 (69) (3) (72) (72) - (72)
Amortisation 3 (59) (10) (69) (49) (10) (59)
Share of
results
of joint
ventures (11) - (11) (8) - (8)
-------------- ----- ------------- ------------- --------------- --------------- --------------- ---------------
Operating 3,
profit 7 165 (70) 95 131 (93) 38
Net finance
costs 4 (32) 7 (25) (24) - (24)
-------------- ----- ------------- ------------- --------------- --------------- --------------- ---------------
Profit before
taxation 7 133 (63) 70 107 (93) 14
Taxation 5,7 (33) 21 (12) (28) 16 (12)
-------------- ----- ------------- ------------- --------------- --------------- --------------- ---------------
Profit for the
year
attributable
to the owners
of the
Company 7 100 (42) 58 79 (77) 2
-------------- ----- ------------- ------------- --------------- --------------- --------------- ---------------
Earnings per
share
Basic (p) 8 6.1 0.2
Diluted (p) 8 6.0 0.2
-------------- ----- ------------- ------------- --------------- --------------- --------------- ---------------
Statutory
operating
profit 95 38
Adjusted for:
Non-operating
amortisation 7 10 10
Exceptional
items 7 60 83
-------------- ----- ------------- ------------- --------------- --------------- --------------- ---------------
Headline
operating
profit 165 131
-------------- ----- ------------- ------------- --------------- --------------- --------------- ---------------
Consolidated statement of comprehensive income
For the year ended 31 March 2017
2017 2016
Notes GBPm GBPm
------------------------------------------- ------ ----- -----
Profit for the year attributable
to the owners of the Company 58 2
Other comprehensive (expense)/income
Items that may be reclassified to
profit or loss:
(Losses)/gains on a hedge of a financial
instrument (5) 2
Currency translation differences - 1
--------------------------------------------------- ----- -----
Total other comprehensive (expense)/income (5) 3
--------------------------------------------------- ----- -----
Total comprehensive income attributable
to the owners of the Company 53 5
--------------------------------------------------- ----- -----
___________________
(1) Non-operating amortisation represents amortisation of acquisition intangibles.
(2) See note 7 for a reconciliation of exceptional items.
Consolidated balance sheet
As at 31 March 2017
2017 2016
Notes GBPm GBPm
------------------------------------- ----- ------- -------
Non-current assets
Goodwill 495 495
Other intangible assets 243 227
Property, plant and equipment 235 302
Investment in joint ventures 8 9
Trade and other receivables 6 3
Derivative financial instruments 31 18
Deferred tax assets 5 108 115
------------------------------------- ----- ------- -------
1,126 1,169
------------------------------------- ----- ------- -------
Current assets
Inventories 18 57
Trade and other receivables 369 294
Current income tax receivable - 3
Cash and cash equivalents 50 10
------------------------------------- ----- ------- -------
437 364
------------------------------------- ----- ------- -------
Total assets 1,563 1,533
------------------------------------- ----- ------- -------
Current liabilities
Trade and other payables (511) (563)
Current income tax payable (5) -
Borrowings - (25)
Provisions (22) (18)
------------------------------------- ----- ------- -------
(538) (606)
------------------------------------- ----- ------- -------
Non-current liabilities
Borrowings (871) (684)
Derivative financial instruments - (1)
Provisions (14) (11)
------------------------------------- ----- ------- -------
(885) (696)
------------------------------------- ----- ------- -------
Total liabilities (1,423) (1,302)
------------------------------------- ----- ------- -------
Net assets 140 231
------------------------------------- ----- ------- -------
Equity
Share capital 1 1
Share premium 684 684
Translation reserve (64) (64)
Demerger reserve (513) (513)
Retained earnings and other reserves 32 123
------------------------------------- ----- ------- -------
Total equity 140 231
------------------------------------- ----- ------- -------
Consolidated cash flow statement
For the year ended 31 March 2017
2017 2016(1)
Notes GBPm GBPm
------------------------------------------- ----- ----- -------
Operating activities
Operating profit 3 95 38
Share-based payments 5 5
Depreciation of property, plant and
equipment 3 72 72
Amortisation of other operating intangible
fixed assets 3 59 49
Non-operating amortisation 7 10 10
Share of losses of joint ventures 11 8
Impairment of inventory 7 18 -
Impairment of property, plant and
equipment 7 22 -
Profit on disposal of property, plant
and equipment 3 (2) -
Operating cash flows before movements
in working capital 290 182
(Increase)/decrease in trade and
other receivables (63) 15
Decrease/(increase) in inventory 21 (26)
(Decrease)/increase in trade and
other payables (26) 17
Increase/(decrease) in provisions 8 (6)
------------------------------------------- ----- ----- -------
Cash generated from operations 230 182
Income taxes received 2 -
------------------------------------------- ----- ----- -------
Net cash flows generated from operating
activities 232 182
------------------------------------------- ----- ----- -------
Investing activities
Acquisition of subsidiaries and joint
ventures, net of cash acquired (10) (14)
Disposal of subsidiaries and customer
bases - 2
Investment in intangible assets (82) (106)
Investment in property, plant and
equipment (71) (72)
Disposal of property, plant and equipment 20 12
------------------------------------------- ----- ----- -------
Cash flows used in investing activities (143) (178)
------------------------------------------- ----- ----- -------
Financing activities
Settlement of Group ESOT shares 1 2
Net sale of own shares - 61
Payment of contingent consideration (8) -
Drawdown of borrowings 10 143 90
Interest paid (35) (22)
Dividends paid 6 (150) (135)
------------------------------------------- ----- ----- -------
Cash flows used in financing activities (49) (4)
------------------------------------------- ----- ----- -------
Net increase in cash and cash equivalents 40 -
Cash and cash equivalents at the
start of the year 10 10
------------------------------------------- ----- ----- -------
Cash and cash equivalents at the
end of the year 50 10
------------------------------------------- ----- ----- -------
Consolidated statement of changes in equity
For the year ended 31 March 2017
Retained
earnings
Share Share Translation Demerger and other Total
capital premium reserve reserve reserves equity
Note GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ----- -------- -------- ----------- -------- ---------- -------
At 1 April 2015 1 684 (65) (513) 190 297
-------------------------- ----- -------- -------- ----------- -------- ---------- -------
Profit for the
year - - - - 2 2
Other comprehensive
income
Items that may
be reclassified
to profit or loss:
Gain on hedge of
a financial instrument - - - - 2 2
Currency translation
differences - - 1 - - 1
-------------------------- ----- -------- -------- ----------- -------- ---------- -------
Total other comprehensive
income - - 1 - 2 3
-------------------------- ----- -------- -------- ----------- -------- ---------- -------
Total comprehensive
income - - 1 - 4 5
-------------------------- ----- -------- -------- ----------- -------- ---------- -------
Transactions with
the owners of the
Company
Share-based payments
reserve credit - - - - 5 5
Share-based payments
reserve debit - - - - (1) (1)
Sale of own shares - - - - 61 61
Settlement of Group
ESOT - - - - 2 2
Equity dividends 6 - - - - (135) (135)
Taxation of items
recognised directly
in reserves - - - - (3) (3)
-------------------------- ----- -------- -------- ----------- -------- ---------- -------
Total transactions
with the owners
of the Company - - - - (71) (71)
-------------------------- ----- -------- -------- ----------- -------- ---------- -------
At 31 March 2016 1 684 (64) (513) 123 231
-------------------------- ----- -------- -------- ----------- -------- ---------- -------
Profit for the
year - - - - 58 58
Other comprehensive
income
Items that may
be reclassified
to profit or loss:
Loss on hedge of
a financial instrument - - - - (5) (5)
Total other comprehensive
expense - - - - (5) (5)
-------------------------- ----- -------- -------- ----------- -------- ---------- -------
Total comprehensive
income - - - - 53 53
-------------------------- ----- -------- -------- ----------- -------- ---------- -------
Transactions with
the owners of the
Company
Share-based payments
reserve credit - - - - 5 5
Share-based payments
reserve debit - - - - (2) (2)
Sale of own shares - - - - - -
Settlement of Group
ESOT - - - - 3 3
Equity dividends 6 - - - - (150) (150)
Total transactions
with the owners
of the Company - - - - (144) (144)
-------------------------- ----- -------- -------- ----------- -------- ---------- -------
At 31 March 2017 1 684 (64) (513) 32 140
-------------------------- ----- -------- -------- ----------- -------- ---------- -------
Notes to the consolidated financial statements
1. Basis of preparation
The financial information is derived from the Group's
consolidated financial statements for the year ended 31 March 2017,
which have been prepared on the going concern basis in accordance
with International Financial Reporting Standards (IFRS) as adopted
for use in the European Union, IFRS Interpretations Committee and
those parts of the Companies Act 2006 ('the Act') applicable to
companies reporting under IFRS. There are no new or revised
standards and interpretations that have had a material impact on
the Group during the year. The financial statements have been
prepared on the historical cost basis, except for the revaluation
of certain financial instruments and investments. The financial
statements are presented in Sterling, rounded to the nearest
million, because that is the currency of the principal economic
environment in which the Group operates.
The consolidated financial statements were approved by the
Directors on 10 May 2017.
The financial information does not constitute statutory accounts
within the meaning section 435 of the Companies Act 2006 or contain
sufficient information to comply with the disclosure requirements
of IFRS.
The Company's auditors, Deloitte LLP, have given an unqualified
report on the consolidated financial statements for the year ended
31 March 2017, which did not include reference to any matters to
which the auditors drew attention without qualifying their report
and did not contain any statement under section 498 of the
Companies Act 2006. Subject to approval by the Company's
shareholders, the consolidated financial statements will be filed
with the Registrar of Companies following the Company's Annual
General Meeting on 19 July 2017.
Alternative Performance Measures
In response to the Guidelines on Alternative Performance
Measures (APMs) issued by the European Securities and Markets
Authority (ESMA), additional information on the APMs used by the
Group is provided below. The following APMs are used by the
Group.
-- Headline Revenue;
-- Headline EBITDA;
-- Headline Operating profit;
-- Headline profit before taxation;
-- Headline profit after taxation;
-- Headline basic EPS;
-- Headline free cashflow;
Where relevant, a reconciliation between statutory reported
measures and Headline measures is shown in note 7.
EBITDA is defined as Earnings before interest, tax, depreciation
and amortisation. Free cashflow is defined as operating cash flows
after movements in working capital, net capital expenditure and
interest and taxation excluding cash exceptional items (note
7).
Headline measures exclude items which are non-trading or
non-recurring. These items are not included in the performance
measures the Board uses to monitor the performance of the
Group.
Headline measures are used to partly determine the variable
element of remuneration of senior Management throughout the Group
and are also in alignment with performance measures used by certain
external stakeholders in the context of the telecoms sector.
In particular, Headline EBITDA and Free Cashflow are commonly
used across the telecoms industry to aid stakeholders in making
comparisons between the performance of the Group and its peers.
Headline EBITDA and Free Cashflow are not defined terms under
IFRS and may not be comparable with similarly titled profit
measures reported by other companies. They are not intended to be a
substitute for, or superior to, GAAP measures. All APMs relate to
the current year results and comparative periods where
provided.
2. Segmental reporting
Accounting policy
IFRS 8 'Operating Segments' requires the segmental information
presented in the financial statements to be that used by the chief
operating decision maker (CODM) to evaluate the performance of the
business and decide how to allocate resources. The Group has
identified the Board as its CODM. The Board considers the results
of the business as a whole when assessing the performance of the
business and making decisions about the allocation of resources.
Accordingly the Group has one operating segment with all trading
operations based in the United Kingdom.
2017 2016
GBPm GBPm
----------------------------------------- ----- -----
Headline revenue 1,783 1,838
----------------------------------------- ----- -----
Headline EBITDA 304 260
Depreciation (69) (72)
Amortisation of operating intangibles (59) (49)
Share of results of joint ventures (11) (8)
----------------------------------------- ----- -----
Headline operating profit (note 7) 165 131
Non-operating amortisation (10) (10)
Exceptional items - revenue - (3)
Exceptional items - cost of sales 21 -
Exceptional items - operating expenses
excluding amortisation and depreciation (78) (80)
Exceptional items - depreciation (3) -
----------------------------------------- ----- -----
Statutory operating profit (note 7) 95 38
----------------------------------------- ----- -----
The Group's revenue is split by On-net, Off-net and Corporate
products as this information is provided to the Group's CODM.
On-net and Off-net comprise Consumer and Business customers that
receive similar services.
2017 2016
GBPm GBPm
----------------- ----- -----
On-net 1,342 1,399
Corporate 397 384
Off-net 44 55
----------------- ----- -----
Headline revenue 1,783 1,838
----------------- ----- -----
The Group has no material overseas operations; as a result, a
split of revenue and total assets by geographical location has not
been disclosed.
Corporate revenue is further analysed as:
2017 2016
GBPm GBPm
--------- ---- ----
Carrier 121 119
Data 157 120
Voice 119 145
--------- ---- ----
397 384
-------- ---- ----
3. Operating profit
Operating profit is stated after charging/(crediting):
2017 2016
GBPm GBPm
------------------------------------------------ ----- -----
Depreciation of property, plant and equipment 69 72
Amortisation of other operating intangible
fixed assets 59 49
Amortisation of acquisition intangibles 10 10
Profit on disposal of property, plant
and equipment (2) -
Impairment loss recognised on trade receivables 60 71
Employee costs 136 139
Cost of inventories recognised in expenses 55 72
Rentals under operating leases 105 100
Supplier rebates (1) (13) (13)
Service level related disputes (2) (3) (27) (17)
Auditor's remuneration 1 1
Exceptional items (note 7) 86 83
Exceptional items - disputed network charges
in relation to prior years (note 7) (3) (29) -
Exceptional items - depreciation (note
7) 3 -
------------------------------------------------ ----- -----
(1) Included in operating profit are associated increased costs
of GBP13m relating to these supplier rebates.
(2) Included in operating profit are associated increased costs
relating to these service level related disputes.
(3) Included in 2017 exceptional items are GBP12m of service
level related disputes relating to 2016.
4. Net finance costs
Net finance costs are analysed as follows:
2017 2016
GBPm GBPm
-------------------------------------- ----- -----
Interest on bank loans and overdrafts 27 21
Facility fees and similar charges 5 3
Exceptional - finance income (note 7) (7) -
-------------------------------------- ----- -----
25 24
-------------------------------------- ----- -----
In FY17, the Group recognised interest of GBP7m (2016: GBPnil)
on a BT dispute settled in FY14 for the overcharging of certain
wholesale Ethernet services (note 7). In 2016 the impact of finance
income was not material.
In FY17, the Group issued GBP400m Senior Notes due 2022 (the
bond). Arrangement fees of GBP5m were paid and are being amortised
over the life of the notes. Upon receipt of the bond proceeds the
Group repaid GBP50m of the term loan and the 2016 GBP100m RCF in
full, accelerating the amortisation of the fees relating to this
facility. The remaining fees in relation to the 2014 RCF, term loan
and US Private Placement continue to be amortised over the expected
life of the loans and are included within facility fees and similar
charges above. The average interest rate in the year was 3.60%
(2016: 3.10%).
5. Taxation
Accounting policy
Current tax, including UK corporation tax and overseas tax, is
provided at amounts expected to be paid or recovered using the tax
rates and laws that have been enacted or substantively enacted at
the balance sheet date.
Deferred tax is provided on temporary differences between the
carrying amount of an asset or liability in the balance sheet and
its tax base.
Deferred tax liabilities represent tax payable in future periods
in respect of taxable temporary differences. Deferred tax assets
represent tax recoverable in future periods in respect of
deductible temporary differences, and the carry-forward of unused
tax losses and credits. Deferred tax is determined using the tax
rates that have been enacted or substantively enacted at the
balance sheet date and are expected to apply when the deferred tax
asset is realised or the deferred tax liability is settled.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the asset can be utilised. Current and deferred tax is
recognised in the income statement except where it relates to an
item recognised directly in reserves, in which case it is
recognised directly in reserves.
Deferred tax assets and liabilities are offset where there is a
legal right to do so in the relevant jurisdictions.
Tax - income statement
The tax charge/(credit) comprises:
2017 2016
GBPm GBPm
----------------------------------------------- ----- -----
Current tax:
UK corporation tax 5 -
Adjustments in respect of prior years:
UK corporation tax - (1)
Total current tax charge/(credit) 5 (1)
----------------------------------------------- ----- -----
Deferred tax:
Origination and reversal of timing differences 9 7
Effect of change in tax rate 7 6
Adjustments in respect of prior years
- deferred tax credit (1) (3)
Adjustments in respect of prior years
- exceptional (credit)/charge (8) 3
----------------------------------------------- ----- -----
Total deferred tax charge/(credit) 7 13
----------------------------------------------- ----- -----
Total tax charge 12 12
----------------------------------------------- ----- -----
The tax charge on Headline earnings for the year ended 31 March
2017 was GBP33m (2016: GBP28m), representing an effective tax rate
on pre-tax profits of 25% (2016: 26%). The tax charge on Statutory
earnings for the year ended 31 March 2017 was GBP12m (2016:
GBP12m). The reconciliation between the Headline and Statutory tax
charge is shown in note 6.
The principal differences between the tax charge and the amount
calculated by applying the standard rate of UK corporation tax of
20% (2016: 20%) to the profit before taxation are as follows:
2017 2016
GBPm GBPm
-------------------------------------------- ----- -----
Profit before taxation 70 14
-------------------------------------------- ----- -----
Tax at 20% (2016: 20%) 14 3
Items attracting no tax relief or liability - 1
Effect of change in tax rate 7 6
Adjustments in respect of prior years (1) (3)
Adjustments in respect of prior years
- exceptional (credit)/charge (8) 3
Movement in recognised tax losses during
the year - 3
Movement in unrecognised tax losses during
the year - (1)
Total tax charge through income statement 12 12
-------------------------------------------- ----- -----
Tax - retained earnings and other reserves
Tax on items recognised directly in retained earnings and other
reserves is as follows:
2017 2016
GBPm GBPm
------------------------------------------- ----- -----
Total tax charge through income statement 12 12
Deferred tax charge recognised directly
in retained earnings and other reserves - 3
------------------------------------------- ----- -----
Total tax charge through retained earnings
and other reserves 12 15
------------------------------------------- ----- -----
The deferred tax charge recognised directly in retained earnings
and other reserves for the years ended 31 March 2017 and 31 March
2016 relates to share-based payments.
Tax - balance sheet
The deferred tax assets recognised by the Group and movements
thereon during the year are as follows:
Timing
differences
on Other
Share-based capitalised Tax timing
payments costs losses differences Total
GBPm GBPm GBPm GBPm GBPm
----------------------- ----------- ------------ ------- ------------ -----
At 1 April 2016 3 53 56 3 115
(Charge)/credit to the
income statement - (11) 4 - (7)
At 31 March 2017 3 42 60 3 108
----------------------- ----------- ------------ ------- ------------ -----
Timing
differences
on Other
Share-based capitalised Tax timing
payments costs losses differences Total
GBPm GBPm GBPm GBPm GBPm
----------------------- ----------- ------------ ------- ------------ -----
At 1 April 2015 6 54 69 1 130
(Charge)/credit to the
income statement - (1) (13) 2 (12)
Charge to reserves (3) - - - (3)
----------------------- ----------- ------------ ------- ------------ -----
At 31 March 2016 3 53 56 3 115
----------------------- ----------- ------------ ------- ------------ -----
No deferred tax assets and liabilities have been offset in
either year, except where there is a legal right to do so in the
relevant jurisdictions.
On 6 September 2016, a reduction in the UK statutory rate of
taxation was substantively enacted, bringing the tax rate down from
19% to 17% from 1 April 2020, replacing the 18% announced
previously. Accordingly, the tax assets and liabilities recognised
at 31 March 2017 take account of these changes.
At 31 March 2017, the Group had unused tax losses of GBP606m
(2016: GBP650m) available for offset against future taxable
profits. A deferred tax asset of GBP60m (2016: GBP56m) has been
recognised in respect of GBP339m (2016: GBP299m) of such losses,
based on expectations of recovery in the foreseeable future.
No deferred tax asset has been recognised in respect of the
remaining GBP267m (2016: GBP351m) as there is insufficient evidence
that there will be suitable taxable profits against which these
losses can be recovered. All losses may be carried forward
indefinitely.
6. Dividends
Accounting policy
Dividend income is recognised when payment has been received.
Final dividend distributions are recognised as a liability in the
financial statements in the year in which they are approved by the
relevant shareholders. Interim dividends are recognised in the year
in which they are paid.
The following dividends were paid by the Group to its
shareholders:
2017 2016
GBPm GBPm
------------------------------------------- ----- -----
Ordinary dividends
Final dividend for the year ended 31 March
2015 of 9.20p per ordinary share - 85
Interim dividend for the year ended 31
March 2016 of 5.29p per ordinary share - 50
Final dividend for the year ended 31 March
2016 of 10.58p per ordinary share 100 -
Interim dividend for the year ended 31
March 2017 of 5.29p per ordinary share 50 -
------------------------------------------- ----- -----
Total ordinary dividends(1) 150 135
------------------------------------------- ----- -----
(1) Deducted from Company reserves.
The proposed final dividend for the year ended 31 March 2017 of
5.0p (2016: 10.58p) per ordinary share on approximately 950 million
(2016: 946 million) ordinary shares (approximately GBP48m) was
approved by the Board on 10 May 2017 and will be recommended to
shareholders at the AGM on 19 July 2017. The dividend has not been
included as a liability as at 31 March 2017. The payment of this
dividend will not have any tax consequences for the Group.
The Group ESOT has waived its rights to receive dividends in the
current and prior year and this is reflected in the analysis
above.
7. Reconciliation of Headline information to statutory
information
Headline information is provided because the Directors consider
that it provides assistance in understanding the Group's underlying
performance.
Accounting policy
Headline results are stated before the amortisation of
acquisition intangibles and exceptional items. Exceptional items
are those that are considered to be one-off or non-recurring in
nature and so material that the Directors believe that they require
separate disclosure to avoid distortion of the presentation of
underlying performance and should be separately presented on the
face of the income statement.
Critical judgements in applying the Group's accounting
policy
The classification of items as exceptional is subjective in
nature and therefore judgement is required to determine whether the
item is in line with the accounting policy criteria outlined above.
Determining whether an item is exceptional is a matter of
qualitative assessment, making it distinct from the Group's other
critical accounting judgements where the basis for judgement is
estimation.
Profit Profit
Operating before for
Revenue EBITDA profit taxation Taxation the year
Year ended 31 March 2017 GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- --------- ------ --------- --------- -------- ---------
Headline results 1,783 304 165 133 (33) 100
Exceptional items - Operating
efficiencies - MTTS (a) - (24) (24) (24) 5 (19)
Exceptional items - Operating
efficiencies - property
(b) - (8) (8) (8) 2 (6)
Exceptional items - Network
transformation (c) - (8) (11) (11) 2 (9)
Exceptional items - Mobile
proposition (d) - (49) (49) (49) 10 (39)
Exceptional items - Acquisitions
and disposals (e) - 1 1 1 - 1
Exceptional items - Disputed
network charges (f) - 29 29 29 (6) 23
Exceptional items - Operating
expenses - cyber attack
(g) - 2 2 2 (1) 1
Exceptional items - Finance
income (h) - - - 7 (1) 6
Exceptional items - Taxation
(i) - - - - 8 8
Amortisation of acquisition
intangibles (j) - - (10) (10) 2 (8)
--------------------------------- --------- ------ --------- --------- -------- ---------
Statutory results 1,783 247 95 70 (12) 58
--------------------------------- --------- ------ --------- --------- -------- ---------
Profit Profit
Operating before for
Revenue EBITDA profit taxation Taxation the year
Year ended 31 March 2016 GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- --------- ------ --------- --------- -------- ---------
Headline results 1,838 260 131 107 (28) 79
Exceptional items - Revenue
- cyber attack (g) (3) (3) (3) (3) 1 (2)
Exceptional items - Operating
expenses - cyber attack
(g) - (39) (39) (39) 8 (31)
Exceptional items - Operating
efficiencies - MTTS (a) - (31) (31) (31) 6 (25)
Exceptional items - Operating
efficiencies - property
(b) - (10) (10) (10) 2 (8)
Exceptional items - Acquisitions -
and disposal (e) - - - - -
Exceptional items - Taxation
(i) - - - - (3) (3)
Amortisation of acquisition
intangibles (j) - - (10) (10) 2 (8)
--------------------------------- --------- ------ --------- --------- -------- ---------
Statutory results 1,835 177 38 14 (12) 2
--------------------------------- --------- ------ --------- --------- -------- ---------
During the year ended 31 March 2017, Cash exceptional items
amounted to GBP46m (2016: GBP88m).
a) Operating efficiencies - Making TalkTalk Simpler (MTTS)
During the year ended 31 March 2017, the Group concluded its
wide ranging transformation programme that is delivering material
improvements to our customers' experience, driving operating cost
savings, and reducing SAC through lower churn and costs per add
(CPA).
The costs incurred in the year include work on improving
Consumer and TalkTalk Business systems and processes which focus on
customer experience and the review of the organisational structure
of the business.
These programmes have resulted in GBP24m (2016: GBP31m) of costs
including project management, redundancy, consultancy, migration
and call centre costs.
A total taxation credit of GBP5m has been recognised on these
costs in the year ended 31 March 2017 (2016: GBP6m).
b) Operating efficiencies - property rationalisation
During the prior year the Group reviewed the sites from which it
operates, and announced its intention to exit its Warrington and
Irlam sites to relocate to one site at the Soapworks in
Salford.
These programmes have resulted in GBP8m (2016: GBP10m) of costs
including redundancy, property, consultancy and dual running
costs.
A total taxation credit of GBP2m has been recognised on these
costs in the year ended 31 March 2017 (2016: GBP2m).
c) Network transformation
During the year ended 31 March 2017, the Group embarked on a
significant transformation programme which will fundamentally
restructure the Group's network, IT infrastructure and technology
organisation. The change the Group is undertaking will ensure it is
fit for the future and underpins the wider Group strategy in
providing a great service to our customers as a value provider in
the industry. This is a discrete project expected to run until
FY20.
This programme has resulted in GBP11m (2016: GBPnil) of costs
including project management, consultancy, dual running costs,
decommissioning costs and accelerated depreciation costs.
A total taxation credit of GBP2m has been recognised on these
costs in the year ended 31 March 2017 (2016: GBPnil).
d) Mobile proposition
During the year ended 31 March 2017, the Group began to
reorganise the business under the new leadership team focussing on
fewer, clearer priorities that are focused on investment in the
Group's core fixed network. As part of the review the Group
reassessed its mobile strategy and how we allocate capital. The
Group has therefore decided not to pursue an inside-out mobile
network strategy and instead to work with our partners on an
alternative distribution strategy.
As a result, the Group has assessed that items within inventory
and property, plant and equipment have no further economic benefit
to the Group leading to impairment charges and onerous lease costs
of GBP49m (2016: GBPnil). Additional reorganisation costs may be
incurred in FY18 as the Group works with its MNO partners on
developing an alternative mobile distribution strategy.
A total taxation credit of GBP10m has been recognised on these
costs in the year ended 31 March 2017 (2016: GBPnil).
e) Acquisitions and disposal
During the year ended 31 March 2017, final migrations of prior
year customer base acquisitions were completed, following
completion any amounts provided for but not utilised were released
resulting in a credit of GBP1m (2016: GBPnil).
The tax impact in either year is immaterial.
f) Disputed network charges
During the year ended 31 March 2017, the Group has recognised a
GBP29m credit (2016: GBPnil) following the resolution of disputes
relating to prior periods.
A total taxation charge of GBP6m has been recognised on these
credits in the year ended 31 March 2017 (2016: GBPnil).
g) Cyber attack
During the year ended 31 March 2017, the Group received
insurance proceeds of GBP3m (2016: GBPnil) in relation to specific
cyber related costs incurred in the prior year offset by GBP1m of
costs incurred in the current year, including an ICO fine of
GBP0.4m.
A total taxation charge of GBP1m has been recognised on these
items in the year ended 31 March 2017 (2016 GBPnil).
In the prior year, there was a significant and sustained cyber
attack on the TalkTalk website. Following this attack the Group
issued an increased number of credits to retain its customers. The
costs of these credits are recognised against revenue and amounted
to GBP3m. The Group also incurred costs of GBP39m. These costs
included restoring our online capability with enhanced security
features, associated IT, incident response and consultancy costs
and providing free upgrades to our customers.
A total taxation charge of GBPnil has been recognised on these
items in the year ended 31 March 2017 (2016: credit of GBP8m).
h) Finance income
During the year ended 31 March 2017, the Group recognised
interest of GBP7m (2016: GBPnil) on a BT dispute settled in FY14
for the overcharging of certain wholesale Ethernet services.
A total taxation charge of GBP1m has been recognised on these
items in the year ended 31 March 2017 (2016: GBPnil).
i) Taxation items
During the year ended 31 March 2017, the Group resolved a
longstanding enquiry with HMRC in relation to the tax treatment of
GBP85m of losses in respect of TalkTalk Brands Limited. This has
resulted in a tax credit of GBP8m (2016: GBPnil).
In the prior year, the Group recognised a tax charge of GBP3m
which relates to the impact of the statutory corporation tax rate
change from 20% to 19% and then to 18% on prior year exceptional
tax assets.
j) Amortisation of acquisition intangibles
An amortisation charge in respect of acquisition intangibles of
GBP10m was incurred in the year ended 31 March 2017 (2016:
GBP10m).
A total taxation credit of GBP2m has been recognised in relation
to the charge in the year ended 31 March 2017 (2016: GBP2m).
8. Earnings per ordinary share
Earnings per ordinary share are shown on a Headline and
statutory basis to assist in the understanding of the performance
of the Group.
2017 2016
GBPm GBPm
---------------------------------------------- ----- -----
Headline earnings (note 7) 100 79
---------------------------------------------- ----- -----
Statutory earnings 58 2
---------------------------------------------- ----- -----
Weighted average number of shares (millions):
Shares in issue 955 955
Less weighted average holdings by Group
ESOT (7) (19)
---------------------------------------------- ----- -----
For basic EPS 948 936
Dilutive effect of share options 11 11
---------------------------------------------- ----- -----
For diluted EPS 959 947
---------------------------------------------- ----- -----
2017 2016
Pence Pence
---------------------------------- ------ ------
Basic earnings per ordinary share
Headline 10.5 8.4
Statutory 6.1 0.2
---------------------------------- ------ ------
2017 2016
Pence Pence
------------------------------------ ------ ------
Diluted earnings per ordinary share
Headline 10.4 8.3
Statutory 6.0 0.2
------------------------------------ ------ ------
There are no share options considered anti-dilutive in the year
ended 31 March 2017 (2016: nil).
9. Cash and cash equivalents and borrowings
(a) Cash and cash equivalents are as follows:
2017 2016
GBPm GBPm
------------------------- ----- -----
Cash at bank and in hand 50 10
------------------------- ----- -----
The effective interest rate on bank deposits and money market
funds was 0.1% (2016: 0.3%).
(b) Borrowings comprise:
2017 2016
Maturity GBPm GBPm
---------------------------- --------- ----- -----
Current (GBP100m term loan) 2017 - 25
---------------------------- --------- ----- -----
2017 2016
Maturity GBPm GBPm
------------------------------------ ------------ ----- -----
Non-current
$185m US Private Placement 2021, 2024,
(USPP) Notes 2026 148 129
GBP560m revolving credit facility 2019 165 430
GBP50m bilateral agreements 2019 50 50
GBP100m term loan 2019 50 75
GBP100m revolving credit facility 2017 - -
GBP75m receivables purchase
agreement facility 2018 58 -
GBP400m Senior Notes due 2022 2022 400 -
------------------------------------ ------------ ----- -----
Non-current borrowings before
derivatives 871 684
-------------------------------------------------- ----- -----
Total borrowings before derivatives 871 709
-------------------------------------------------- ----- -----
Derivatives (39) (20)
-------------------------------------------------- ----- -----
Borrowings after derivatives 832 689
-------------------------------------------------- ----- -----
2017 2016
Maturity GBPm GBPm
--------------------------------------- --------- ----- -----
2018,
Undrawn available committed facilities 2019 412 255
--------------------------------------- --------- ----- -----
The book value and fair value of the Group's borrowings, are as
follows:
2017 2016
GBPm GBPm
----------------------------- ----- -----
Less than 1 year - 25
1 to 2 years 58 25
2 to 3 years 265 -
3 to 4 years - 530
4 to 5 years 482 -
Greater than 5 years 27 109
----------------------------- ----- -----
Borrowings after derivatives 832 689
----------------------------- ----- -----
Borrowing facilities
The Group's committed facilities total GBP1,244m (2016:
GBP944m). The Group's uncommitted facilities total GBP116m (2016:
GBP81m) giving headroom on committed facilities and uncommitted
facilities of GBP412m (2016: GBP255m) and GBP116m (2016: GBP81m)
respectively.
The financial covenants included in each bank facility and the
USPP Notes restrict the ratio of net debt to EBITDA and require
minimum levels of interest cover. The amounts used in the covenant
calculations are subject to adjustments as defined under the terms
of the arrangement. The Group was in compliance with its covenants
throughout the current and prior periods.
Details of the Group's borrowing facilities of the Group as at
31 March 2017 are set out below:
GBP400m Senior Notes due 2022
On 15 January 2017 TalkTalk Telecom Group PLC issued GBP400m
Senior Notes due 2022. The Senior Notes include incurrence-based
covenants customary for this type of debt, including limitations on
TalkTalk's ability to incur additional debt and make restricted
payments, subject to certain exceptions. The Group is permitted to
incur additional debt subject to compliance with a net debt to
EBITDA ratio of 4.0x and to pay dividends when net debt to EBITDA
is below 3.0x (2.75x from January 2019). Regardless of the
Company's net debt to EBITDA ratio, dividends are also permitted to
be paid out of a basket based on 50% of cumulative consolidated net
income from 1 October 2016. The Senior Notes also contain a
separate exception for the payment of the final dividend for FY17
up to GBP105m. The interest rate payable on the notes is 5.375%
payable semi-annually. The bond proceeds were used to repay the
drawings of the GBP100m 2016 revolving credit facility in full, and
partially repay the drawings under the 2014 revolving credit
facility and term loan.
$185m USPP Notes
In July 2014, the Group issued $185m of USPP Notes maturing in
three tranches ($139m in 2021, $25m in 2024 and $21m in 2026). The
interest rate payable on the Notes is at a margin over US treasury
rate for the appropriate period. The USPP proceeds were swapped to
Sterling to give GBP109m (GBP82m in 2021, GBP15m in 2024 and GBP12m
in 2026) and the net debt includes retranslation of the USPP funds
at the rates achieved where hedged by cross-currency swaps. The
fair value of the cross currency rate swap at 31 March 2017 was
GBP39m (2016: GBP20m).
GBP560m revolving credit facility (RCF) and GBP50m bilateral
agreement
The Group has a GBP560m RCF, which matures in July 2019. The
interest rate payable in respect of drawings under this facility is
at a margin over LIBOR and for the appropriate period. The actual
margin applicable to any drawing depends on the ratio of net debt
to EBITDA calculated in respect of the most recent accounting
period. In addition to the RCF, the Group also has a GBP50m
bilateral agreement on the same terms, signed in July 2014, which
matures in July 2019.
GBP100m term loan
Following repayment of GBP50m from the bond proceeds, the Group
has a committed term loan of GBP50m (March 2016: GBP100m), with a
final maturity date of July 2019. The interest rate payable in
respect of drawings under this facility is at a margin over LIBOR
for the appropriate period. The actual margin applicable to any
drawing depends on the ratio of net debt to EBITDA calculated in
respect of the most recent accounting period.
Receivables purchase agreement
In September 2016, the Group signed a GBP75m receivables
purchase agreement which matures in September 2018 and is included
within committed facilities. The Group has the ability on a rolling
basis to sell its receivables to a third party vehicle in exchange
for a discounted consideration. The Group is deemed to control the
third party vehicle and therefore continues to consolidate the
relevant receivables on the grounds that substantially not all the
risks and rewards of ownership have been transferred under the
programme.
Uncommitted money market facilities and bank overdrafts
These facilities are used to assist in short term cash
management and bear interest at a margin over the Bank of England
base rate.
New GBP640m revolving credit facility (RCF)
On 8 May 2017, the Group refinanced the 2014 RCF, the 2014
bilateral agreement and the GBP100m term loan. The new GBP640m 2017
RCF is a five year committed facility which contains financial
covenants that restrict the ratio of net debt to EBITDA and
requires minimum levels of interest cover. The interest rate
payable on this facility is at a margin over LIBOR for the
appropriate period. The actual margin applicable to any drawing
depends on the ratio of net debt to EBITDA calculated in respect of
the most recent accounting period.
10. Analysis of changes in net debt
Net
cash Non-cash
Opening flow movements Closing
GBPm GBPm GBPm GBPm
-------------------------- ------- ----- ---------- -------
2017
Cash and cash equivalents 10 40 - 50
-------------------------- ------- ----- ---------- -------
Borrowings (709) (143) (19) (871)
Derivatives 20 - 19 39
-------------------------- ------- ----- ---------- -------
(689) (143) - (832)
-------------------------- ------- ----- ---------- -------
Total net debt (679) (103) - (782)
-------------------------- ------- ----- ---------- -------
Net
cash Non-cash
Opening flow movements Closing
GBPm GBPm GBPm GBPm
-------------------------- ------- ----- ---------- -------
2016
Cash and cash equivalents 10 - - 10
-------------------------- ------- ----- ---------- -------
Borrowings (615) (90) (4) (709)
Derivatives 16 - 4 20
-------------------------- ------- ----- ---------- -------
(599) (90) - (689)
-------------------------- ------- ----- ---------- -------
Total net debt (589) (90) - (679)
-------------------------- ------- ----- ---------- -------
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKKDPNBKKOPD
(END) Dow Jones Newswires
May 10, 2017 02:00 ET (06:00 GMT)
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