TIDMTALK
RNS Number : 5069W
TalkTalk Telecom Group PLC
15 November 2017
15 November 2017
TalkTalk Telecom Group PLC
Interim results for the 6 months to 30 September 2017
(H1FY18)
Strong growth momentum; acceleration in net adds
-- Net adds +46k (H1FY17: -29k) with double-digit growth in both
Retail and Wholesale bases; opportunity to step up investment in
growth to deliver further strong net adds progress in H2
-- Return to on-net revenue growth in Q2 (+1.3%)
-- Continued reduction in churn to 1.3% (H2 FY17: 1.5%)
-- 1.6m customers now on FLPP (31 March 2017: 1.0m) - over 50% of Retail base
-- Strong growth in fibre (+161k) and TV (+19k); sustained growth in Ethernet base (+4.3k)
-- Simple and compelling new mobile proposition to be launched in Q3
-- Continue to explore co-investment opportunities in FTTP;
begun build of further 40,000 homes in York
-- Investment in growth to drive FY Headline EBITDA(1,2) towards
lower end of GBP270m-GBP300m guidance
H1FY18 Financial Highlights
-- Headline EBITDA(1,2) GBP95m, excluding MVNO loss (H1FY17: GBP144m excluding MVNO loss)
-- Statutory operating loss GBP42m (H1FY17: GBP44m profit)
-- Headline Revenue(1,2) -1.8% excluding Carrier (H1FY17: -3.4%; H2FY17: -3.1%)
-- Statutory Revenue GBP856m (H1FY17: GBP902m)
-- On-net revenue -1.1%; Corporate (ex-Carrier) +2.2%; Data +10.7 %, Legacy Voice -8.2%
-- Headline(1,2) operating cash flow GBP46m (H1FY17: GBP-28m)
-- Statutory loss before tax GBP75m (H1FY17: profit GBP30m);
statutory EPS -7.5p (H1FY17: 2.2p)
-- H1 dividend 2.50p (H1FY17: 5.29p); H1 Headline net debt/EBITDA(1,3) 2.88x (H1FY17: 2.51x)
Tristia Harrison, Chief Executive of TalkTalk commented:
"When we simplified and reset the business in May we said our
priorities were growth, cash and EBITDA, in that order. The first
half performance shows we are delivering on that plan. We have now
delivered a third consecutive quarter of growth in our broadband
base, with both Retail and Wholesale bases growing; returned to
on-net revenue growth; and delivered lower churn than a year ago.
Our clear value proposition is resonating strongly against an
uncertain economic environment and underpins our plan to simplify
and focus all our investment in delivering affordable, reliable
fixed connectivity to both homes and businesses".
"We expect to step up our planned investment in growth in the
second half, as we take advantage of the strong demand we are
seeing for our fixed low price plans; fibre take up and affordable
propositions in both our residential and B2B markets. Our revised
strategy of focusing the business on fewer, clearer priorities is
re-establishing TalkTalk as the value provider of choice in the UK
fixed connectivity market."
(1) Headline measures represent trading results before adjusting
items which are defined in note 1 to the interim condensed
consolidated financial statements. The directors believe the
presentation of the Group results in this way is relevant to an
understanding of our financial performance, as adjusting items are
identified by virtue of their size, nature or incidence. Further
details regarding Headline measures are disclosed in note 1 to the
interim condensed financial statements. Reconciliations between
Headline measures and statutory reported measures are shown in
notes 6, 9 and 10 to the interim condensed financial
statements.
(2) Headline EBITDA excludes losses from MVNO proposition during
the period of GBP7m (H1FY17: GBP14m). Headline Revenue excludes
revenues from MVNO proposition of GBP28m (H1FY17: GBP33m).
(3) As calculated for the purposes of the Group's borrowings,
see note 1 to the interim condensed consolidated financial
statements.
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Q2 trading - Acceleration in net adds growth and return to
on-net revenue growth
We saw continuing strong demand for our new Fixed Low Price
Plans ("FLPP") in Q2, both from existing customers wishing to
re-contract and from new customers. The total FLPP base grew to
1.62m and with churn contained at 1.37% (Q2FY17: 1.43%), we
delivered 26k net adds during the quarter with both Retail and
Wholesale bases growing. Demand for fibre remained strong (+89k),
with nearly 40% of new customers choosing to take fibre. We also
saw significantly improved demand for TV with net adds of 24k
(Q2FY17: -33k) and another quarter of Ethernet growth (+2k).
On-net revenue growth of 1.3% and Data growth of +5.1% were
offset by declines in off-net of 58% and legacy voice of 9.4%,
broadly in line with previous periods. As a result Group Headline
Revenues(1, 2) (ex-Carrier) declined by 1% year on year.
H1 financial results
The Headline financial results(1) for the half reflect our
planned investment in base growth, reflected in the impact on
revenues and gross profit from strong re-contracting activity,
higher cost to serve and SAC and Marketing. Group Headline
Revenues(1,2) (excluding Carrier) fell by 1.8% with On-net revenues
down 1.1%, Corporate (excluding Carrier) +2.2% and Off-net (less
than 2% of total; H1FY17: 3%) declining by 42%. The decline in
On-net revenues reflects the lower average Retail base during the
period, and on-net ARPU which was 0.8% lower year on year at
GBP26.45, reflecting the dilutive impact of strong re-contracting
volumes on FLPP, offset in part by increased fibre penetration and
price increases on legacy propositions.
Corporate revenue growth of 2.2% was driven by Data revenues
(+10.7%) which benefited from Ethernet and EFM average base growth
of 8k. Growth in Data was partially offset by the now established
decline in Legacy Voice revenues (-8.2%). As expected Carrier
revenues declined year on year (-37.5%) against last year's
significant comparative (+30.9%).
Headline EBITDA(1) of GBP95m (H1FY17: GBP144m) reflects the
impact on gross profits of lower on-net revenues during the period,
the planned investment in subscriber acquisition costs (SAC) and
marketing, and GBP10m of savings from annualising cost
programmes.
Statutory revenues of GBP856m (H1FY17: GBP902m) were 5.1% lower
year on year. The statutory operating loss of GBP42m (H1FY17:
profit GBP44m) reflects the impact of adjusting items, including
exceptionals of GBP59m (H1FY17: GBP11m) and the MVNO operating loss
of GBP7m (H1FY17: GBP14m).
Headline net debt(3) at 30 September 2017 was GBP837m (31 March
2017: GBP782m), with Headline net debt/EBITDA of 2.88x(3) . The
Board has declared an interim dividend of 2.50p (H1FY17:
5.29p).
FY18 outlook and guidance
We see continuing strong demand for our competitively priced
propositions for consumers and businesses and an opportunity to
step up H2 investment in driving materially higher base growth,
continued re-contracting activity, and further fibre take-up. As a
result, we expect FY18 Headline EBITDA(1,2) to be towards the lower
end of our guidance range, and will enter FY19 with a materially
higher quality, lower churning and larger customer base.
(1) Headline measures represent trading results before adjusting
items which are defined in note 1 to the interim condensed
consolidated financial statements. (2) Headline EBITDA excludes
losses from MVNO proposition during the period of GBP7m (H1FY17:
GBP14m). Headline Revenue excludes revenues from MVNO proposition
of GBP28m (H1FY17: GBP33m). (3) As calculated for the purposes of
the Group's borrowings, see note 1 to the interim condensed
consolidated financial statements.
SUMMARY FINANCIALS
Key Performance Indicators Six months ended Six months ended
30 September 2017 30 September 2016
Unaudited Unaudited
-------------------
On-net Broadband Net Adds ('000) 46 (29)
On-net Churn (%) 1.26% 1.40%
TV as % of Broadband base 35% 37%
Fibre as % of Broadband base 29% 21%
EFM & Ethernet Net Adds ('000) 3.8 4.2
Headline Profit & Loss (1) Six months ended Six months ended
30 September 2017 30 September 2016
Unaudited Unaudited (restated)(4)
-------------------
Revenue (GBPm) 828 869
EBITDA (GBPm) 95 144
Basic EPS (p) (0.5) 5.0
Interim dividend per share (p) 2.50 5.29
---------------------------------- ------------------- -------------------------
Adjusting items (1) Six months ended Six months ended
30 September 2017 30 September 2016
Unaudited Unaudited (restated)(4)
---------------------------------- ------------------- -------------------------
Revenue (GBPm) 28 33
EBITDA (GBPm) (66) (25)
Statutory Profit & Loss Six months ended Six months ended
30 September 2017 30 September 2016
Unaudited Unaudited (restated)(4)
-------------------
Revenue (GBPm) 856 902
EBITDA (GBPm) 29 119
Operating (loss)/profit (GBPm) (42) 44
(Loss)/profit before taxation
(GBPm) (75) 30
(Loss)/profit after taxation
(GBPm) (71) 21
Basic EPS (p) (7.5) 2.2
Cash flow (GBPm) Six months ended Six months ended
30 September 2017 30 September 2016
Unaudited Unaudited (restated)(4)
-------------------
Headline operating cash flow
(1) 46 (28)
Interest and taxation (28) (11)
Headline free cash flow 18 (39)
Exceptional items (21) (15)
Acquisitions (5) (14)
Dividends (47) (100)
Headline net debt (3) (837) (847)
Headline net debt/EBITDA (3) 2.88x 2.51x
---------------------------------- ------------------- -------------------------
(1) Headline measures represent trading results before adjusting
items which are defined in note 1 to the interim condensed
consolidated financial statements. (Adjusting items are defined and
reconciled in Note 9 to the) interim condensed consolidated
financial statements and predominantly relate to property, network
and organisational transformation and a change in mobile strategy.
(2) Headline EBITDA excludes losses from MVNO proposition during
the period of GBP7m (H1FY17: GBP14m loss). Headline Revenue
excludes revenues from MVNO proposition of GBP28m (H1FY17: GBP33m).
(3) As calculated for the purposes of the Group's borrowings, see
note 1 to the interim condensed consolidated financial
statements.(4) Prior period results have been restated following
the change in the Group's definition of adjusting Items compared to
prior periods, to include the Mobile Virtual Network Operator
(MVNO) operating loss. Further detail is set out in note 1 and 9 of
the interim condensed consolidated financial statements.
H1 Business Review
At the time of our FY17 preliminary results in May 2017 we set
out a number of clear priorities to drive profitable growth through
a simpler operating structure and a more disciplined, less
capital-intensive approach to initiatives such as mobile. We see a
strong market opportunity for TalkTalk in both consumer and B2B,
with our simple, clear and affordable propositions resonating
powerfully against an uncertain economic environment. Our focus in
FY18 is to deliver growth in the on-net base and on-net revenues;
sustain strong growth in TTB; continue to improve and future-proof
our network; and drive continuing improvement in the customer
experience. We have made good progress during the first half across
all these areas.
1. Driving growth in the base, ARPU and revenues
The on-net base grew by 46k during H1, with double-digit growth
across both Retail and Wholesale bases. We saw continuing strong
momentum in demand for FLPP driving the strongest share of the
switching market in three years. As a result we exited the half
with 1.62m customers on FLPP - the highest in-contract penetration
in five years, and a key driver of improving churn. Nearly a third
of the FLPP base has chosen to contract for 24 months, testament to
the strong resonance of price certainty amongst customers.
Demand for fibre also remained strong, with nearly 40% of new
customers in Q2 choosing our Faster or Fastest packages, and
growing take up from re-contracting customers and upsell activity.
As a result we exited the half with over 1m fibre customers.
The TV base returned to growth in Q2 (+24k) after seven quarters
of decline, as we saw the benefits of our new pricing structure and
growing engagement with our next generation YouView TV platform. In
H2 we expect to launch a multi-room proposition allowing us to
address a new segment in the market, and a new multi-screen
platform, which will offer consistent access to Video On Demand and
linear content, complementing the YouView set top box
experience.
The mobile base declined by 61k during H1 as we prepared the
business for the launch of our new proposition. We will be
launching a simple and compelling new mobile proposition in Q3.
On-net revenues returned to growth in Q2 (+1.3%), driven by base
growth and ARPU progress, with Retail ARPU benefiting from pricing
activity on the legacy (non-FLPP) base and successful upselling of
fibre and TV.
2. Sustaining momentum in TalkTalk Business
TTB's wholesale broadband and FTTC business (part of the Group's
on-net base) continued to grow strongly in H1 driven by new
contract wins and volume growth through existing partners,
delivering year-on-year revenue growth. We expect these trends to
continue through H2, helping to deliver another half of revenue
growth in the Wholesale on-net business.
The Ethernet base once again grew steadily during H1, with over
4k lines added, taking the installed base to over 30k and TTB's
share of new 100Mb installations to nearly 25%.
Data revenues grew by 10.7% to GBP83m (Q2FY18: +5.1%), with the
percentage growth rate beginning to normalise as the business
scales up and re-invests input cost reductions into pricing.
3. Continuing improvements in network performance
In May, we announced our strategic decision to focus investment
on our fixed line network to deliver a fully upgraded access layer
(switches and backhaul) with over 1,000 exchanges equipped with
10Gb backhaul circuits, and support growing FTTC penetration, FTTP
and data usage.
In H1, we continued to invest in our Core and Access network
layers to cope with increasing capacity demands - we have passed
the 3tb per second mark for our peak bandwidth. We continued to
roll out our plans for upgrading the access network layer with over
750 exchanges now equipped with 10Gb backhaul; invested in our core
network equipment to manage capacity demands and completed our
migration to the new DLM (Dynamic Line Management) and DNS (Domain
Name Server) platforms for our residential and business customers.
As a result we have maintained a consistently congestion-free
network and retained our top ranking for FTTC customers with
SamKnows(TM).
During H2, we plan to deploy additional automation in the core
network to manage traffic routing and efficiency; evaluate trunk
network fibre opportunities across the UK to further our fibre
network footprint and extend our cost advantage further; and begin
the planning for a significant investment in in-home technologies
for rollout during FY19 to improve monitoring, self-optimisation
and performance within customers' homes.
Take-up of FTTP in York has continued to grow with penetration
at over 30% (delivered two years ahead of plan) and the TalkTalk
share of the market is significantly ahead of our share of the
national broadband market. We began work on extending the network
to a further 40,000 premises across the rest of York in October,
and expect to complete the build within two years. Beyond this, we
continue to actively explore FTTP co-investment opportunities to
leverage our clear learnings from York to further cities across the
UK.
4. Continuing focus on improving customer experience
During H1, we focused on making a difference to those customer
journeys that matter most and therefore generate the highest call
volumes: selecting and joining TalkTalk, moving home, getting the
best from broadband and technical support. To that end we have
improved communication during the joining journey to provide
clarity & support to customers; allowed customers to retain
their existing contractual commitments during their home move
journey; and implemented an end to end case management solution for
all technical support interactions, providing a seamless experience
and case handling support for complex issues. These measures in
combination with the clarity and certainty that FLPP offers have
driven good improvements in both our Net Promoter Score ("NPS"),
brand perception metrics, and on-net churn which improved year on
year to 1.3% (H1FY17: 1.4%; H2 FY17: 1.5%).
In H2, we will focus further on critical customer journeys to
provide: a brand new personalised experience for customers joining
TalkTalk based on the needs of their particular household and
recognising in-home technical support when its needed; an online
tool to access network incident information & broadband
diagnostic tools to allow customers to compare and report technical
in-home questions with underlying faults; and access to convenient
"in-app" and call-induced text messaging solutions that provide an
alternative to traditional call centre interactions. This means
customers will be able to send and pick up messages when it suits
them and have a real omni-channel choice of calling, texting,
e-chatting and app messaging.
H1 Finance Review
Consolidated Income Statement
Six months ended 30 Six months ended 30
September 2017 September 2016
Unaudited Unaudited (restated)
---------------------------------
Adjusting Adjusting
Headline(1) items Statutory Headline(1) items Statutory
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ----------- --------- --------- ----------- ---------
Revenue 828 28 856 869 33 902
Cost of sales (393) (22) (415) (410) (23) (433)
------------------------------ ----------- --------- --------- ----------- --------- ---------
Gross profit 435 6 441 459 10 469
Operating expenses (239) (64) (303) (234) (22) (256)
SAC & Marketing (101) (8) (109) (81) (13) (94)
------------------------------ ----------- --------- --------- ----------- --------- ---------
EBITDA 95 (66) 29 144 (25) 119
Depreciation and Amortisation (61) (5) (66) (64) (6) (70)
Share of results of JVs (5) - (5) (5) - (5)
Net finance costs (23) (10) (33) (14) - (14)
------------------------------ ----------- --------- --------- ----------- --------- ---------
(Loss)/profit before taxation 6 (81) (75) 61 (31) 30
Taxation (11) 15 4 (14) 5 (9)
------------------------------ ----------- --------- --------- ----------- --------- ---------
(Loss)/profit after taxation (5) (66) (71) 47 (26) 21
------------------------------ ----------- --------- --------- ----------- --------- ---------
(Loss)/earnings per share
Basic (0.5) (7.5) 5.0 2.2
Diluted (0.5) (7.5) 4.9 2.2
------------------------------ ----------- --------- --------- ----------- --------- ---------
(1) Headline measures represent trading results before adjusting
items which are defined in note 1.The directors believe that
presentation of the Group results in this way is relevant to an
understanding of our financial performance, as adjusting items are
identified by virtue of their size, nature or incidence. This
presentation is consistent with the way that financial performance
is measured by management and reported to the Board and assists in
providing a meaningful analysis of our trading results. In
determining whether an event or transaction is adjusting,
management considers quantitative as well as qualitative factors
such as the frequency or predictability of occurrence. Headline
measures are used to partly determine the variable element of
remuneration of senior Management and Executives throughout the
Group and are also in alignment with performance measures used by
certain external stakeholders in the context of the telecoms
sector. Headline EBITDA is commonly used across the telecoms
industry to aid stakeholders in making comparisons between the
performance of the Group and its peers and is defined in note 1 (.
Unless stated otherwise, the discussion of the Group's financial
performance below is on a) (Headline basis. Reconciliations between
Headline measures and statutory reported measures and are shown in
notes 6, 9 and 10) (to the interim condensed consolidated financial
statements.)
Overview
Headline revenue (which includes Carrier revenues than can
fluctuate significantly from period to period, and the established
declining revenue streams of Off-net and Voice) declined by 5% to
GBP828m (H1FY17: GBP869m), and Headline EBITDA by 34% to GBP95m
(H1FY17: GBP144m), with the latter reflecting in part, the near
term impact of our planned investment in growth. Adjusting items
amounted to GBP81m (H1FY17: GBP31m) resulting in a statutory loss
before taxation for the period of GBP75m (H1FY17: profit GBP30m).
The Board has recommended an interim dividend of 2.50p (H1FY17:
5.29p). Headline net debt at the period end (GBP837m) was GBP10m
lower than a year ago with committed headroom at 30 September 2017
of GBP222m reflecting the issuance of the Group's debut bond in Q4
FY17, the refinancing of the Group's facilities in Q1FY18 and the
repurchase of US Private Placement (USPP) Notes in Q2FY18.
Adjusting items
At EBITDA level adjusting items amounted to GBP66m (H1FY17:
GBP25m) and included an MVNO operating loss of GBP7m (H1FY17:
GBP14m) and a net exceptional charge for the period of GBP59m
(H1FY17: GBP11m). The net exceptional charge for the period
includes costs of GBP20m associated with implementing changes to
the Group's organisational structure under the new leadership team,
the finalisation of costs associated with our move to Soapworks,
Salford, and further rationalisation of our property estate.
Following our announcement in May 2017 to reassess our mobile
strategy further net exceptional costs have been incurred in
relation to decommissioning costs, asset write-offs, provision
releases, onerous supplier commitments and redundancies, amounting
to GBP31m (FY17: GBP49m in respect of asset impairments and onerous
lease costs). In addition, exceptional items include GBP8m in
relation to our multi-year network transformation programme (FY17:
GBP8m).
Revenue
Headline group revenue of GBP828m was 5% lower year on year with
On-net revenues 1% lower, Corporate revenues 12% lower and Off-net
revenues (2% of total) 42% lower. The decline in On-net revenues by
GBP7m reflects the lower retail average base and the dilutive
impact on ARPU of FLPP launched in October 2016, offset by
increased penetration of fibre, re-pricing of legacy propositions
and higher call and TV boosts. The decline in Corporate revenue was
largely driven by low margin Carrier (-38% against strong growth in
the comparator period) and Legacy Voice (-8%). High margin Data
revenues, which comprised 45% of Corporate (H1FY17: 36%), increased
by 11% benefiting from c.4k new connections to our Ethernet and EFM
base.
On-net ARPU declined by 0.8% year-on-year, with Retail
customers' ARPU growing as a result of price increases on legacy
(non-FLPP) propositions and successful upselling activity
offsetting the dilutive effect of FLPP.
Statutory revenue of GBP856m was 5% lower year on year and
includes revenue in relation to our MVNO proposition of GBP28m
(H1FY17: GBP33m).
Gross margin
Headline group gross margin of 52.5% was 30bps lower
year-on-year driven by the flow through from revenue of the
dilutive effect of FLPP; and the growth of Fibre in the revenue mix
with higher associated COGS, and the mix impact of higher wholesale
revenues. These effects were partly offset by the re-pricing of
legacy propositions; higher TV and call boosts; and a large
year-on-year reduction in Carrier trading volumes, which positively
impacts margin.
Statutory gross margin of 51.5% was 50bps lower reflecting the
fall in gross margin of our MVNO proposition to GBP6m (H1FY17:
GBP10m).
Operating costs
Headline operating costs excluding amortisation and depreciation
increased by GBP5m year-on-year with increased call centre and
network operating costs offset partly by GBP10m of savings from the
annualizing effect of prior year programmes.
Statutory operating costs, including adjusting items of GBP64m
(H1FY17: GBP22m), increased to GBP303m (H1FY17: GBP256m).
SAC and Marketing
SAC & Marketing costs increased by GBP20m year-on-year,
driven by the planned increase in marketing, base growth at lower
cost per add than prior years and the impact of our agreement with
a major distribution partner to outsource the management of fixed
line customer acquisitions. During the half, this outsourced
solution enabled us to continue to accelerate gross additions,
whilst deferring a proportion of the upfront SAC cost, which
contributed GBP2m (H1FY17: GBP11m) to Headline EBITDA, net of
expensed hardware costs of GBP13m (H1FY17: GBP6m).
Statutory SAC & Marketing costs, including adjusting items
of GBP8m (H1FY17: GBP13m), increased to GBP109m (H1FY17:
GBP94m).
Net finance costs
Headline net finance costs for the period were GBP23m (H1FY17:
GBP14m) representing a blended interest rate of 4.7% (H1FY17:
3.6%). The increase in the blended interest rate was driven
primarily by the coupon on the Group's debut bond, issued in
Q4FY17; a higher level of average debt during the period compared
to the prior year; and the amortisation of additional facility
fees.
Statutory net finance costs also include GBP10m in relation to
the exceptional cost of re-purchasing 100% of the $185m USPP Notes
in August 2017.
Taxation
The statutory taxation credit of GBP4m (H1FY17: -GBP9m) reflects
an effective tax rate of 5% (H1FY17: 30%) on the loss before
taxation of GBP75m (H1FY17: profit GBP30m), representing the best
estimate of the average annual effective tax rate expected for the
full year, applied to the six-month period. There were no cash tax
payments in the period.
Movement in headline net debt (GBPm)
Six months ended Six months ended
30 September 30 September
2017 2016
Unaudited Unaudited (restated)
Headline EBITDA 95 144
Working capital 14 (73)
Capital expenditure (63) (99)
Headline operating cash flow
(1) 46 (28)
Interest and taxation (28) (11)
Headline free cash flow 18 (39)
Exceptional items (21) (15)
Acquisitions (5) (14)
Dividends (47) (100)
Net cash flow (55) (168)
Opening headline net debt (782) (679)
Closing headline net debt (837) (847)
------------------------------- ----------------- ----------------------
(1) Headline operating cash flow is defined and reconciled in
note 9 to the interim condensed consolidated financial
statements.
Net cash flow for the period represented an outflow of GBP55m,
with the inflow from Headline EBITDA (GBP95m) and working capital
(GBP14m) offset by a combination of the dividend (GBP47m), capital
expenditure (GBP63m), interest costs (GBP28m) and exceptional items
(GBP21m).
Capital expenditure for the period represents the continued
investment in our network capability and investment in on our
online systems to support the launch of new propositions.
The cash exceptional cost of GBP21m (FY17: GBP15m) includes the
timing impact of prior year provisions and working capital
movements, most notably Making TalkTalk Simpler ('MTTS') and
property relocations. In addition, costs have been incurred on
delivering on our plans to transform our technology estate, the
reassessment of our mobile strategy, and further reorganisation
costs following the transition to a new management structure. These
costs have been offset by the settlement of certain disputed
network balances that were taken to exceptional income in the prior
year. The cash exceptional cost for FY18, which include expected
further receipts of certain disputed network balances, is now
expected to be cGBP30m.
Acquisitions expenditure in the period of GBP5m (H1FY17: GBP14m)
relates to the YouView joint venture. In the prior period, the
Group paid GBP8m in respect of contingent consideration for the
prior period acquisitions of tiPicall, and the Virgin Media and
Tesco broadband bases.
Headline net debt reduced by GBP10m year on year with committed
headroom at 30 September 2017 of GBP222m (H1FY17: GBP162m),
reflecting the issuance of the Group's debut bond in Q4FY17, the
refinancing of the Group's facilities in Q1FY18 and the repurchase
of US Private Placement (USPP) Notes in Q2FY18.
Dividends
Dividends of GBP47m paid in the period (H1FY17: GBP100m)
comprised the final dividend for FY17 of 5.00p (H1FY17: 10.58p).
The Board has proposed an interim dividend for FY18 of 2.50p
(H1FY17: 5.29p), and expects to declare a Final cash dividend of
5.00p (FY17 Final: 5.00p) taking the total cash dividend for the
year to 7.50p (FY17: 10.29p). The interim dividend for FY18 will be
paid on 18 December 2017 for shareholders on the register 24
November 2017 (ex-dividend 23 November 2017).
Funding and capital structure
The group is financed through a combination of bank facilities,
Senior Notes, debtor securitisation, finance leases, 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
period, the Group completed the refinancing of its banking
facilities for a further five years. In addition, as noted above,
in August 2017, the Group re-purchased 100% of the $185m USPP Notes
which gave rise to an exceptional finance cost of GBP10m.
At 30 September 2017, the Group had total facilities of
GBP1,115m (31 March 2017: GBP1,244m) further detail of which is
given in note 12 to the interim condensed consolidated financial
statements. At 30 September 2017 GBP893m (31 March 2017: GBP832m)
had been drawn under these facilities, leaving GBP222m (31 March
2017: GBP412m) of undrawn facilities. The average term of our debt
at 30 September 2017 was 4 years 2 months (31 March 2017: 3 years
11 months).
The Group was in compliance with the terms of all its
facilities, including financial covenants, at 30 September 2017 and
throughout the period and expects to remain in compliance with the
terms going forward.
Going concern
The Directors have acknowledged the '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 scale of our base, our competitive value for money
proposition, continuing improvements in operating efficiency and
the efficiency and reach of our unbundled network underpins the
Directors' confidence in our ability to continue to compete
effectively in the UK telecoms sector.
We have GBP1,115m (31 March 2017: GBP1,244m) of committed credit
facilities and as at 30 September 2017 the headroom on these
facilities was GBP222m (31 March 2017: GBP412m) following the
Group's re-purchase of 100% of the $185m of USPP Notes in August
2017. 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.
Risks and uncertainties
The Board has reconsidered the principle risks and uncertainties
published at the full year 2017 and considered these to remain
appropriate. The following risks and uncertainties are those that
the Directors believe could have the most significant impact on the
Group's business:
-- Customer trust and brand reputation
-- People
-- Competitive landscape
-- Changing market structure
-- Regulatory compliance
-- Data and cyber security
-- Resilience and business continuity
-- Financial
-- Change delivery and execution
These risks and mitigating factors are described in more detail
on pages 22 to 25 of the TalkTalk Telecom Group PLC Annual Report
2017, a copy of which is available on the Group's website.
The Group's risk management framework facilitates continuous and
ongoing discussion of risks and associated risk appetite to ensure
the appropriate focus is placed on mitigating principle risks. The
Board will continue to assess the principle risks and uncertainties
faced by the Group and will update the risk register and mitigation
plans accordingly.
Statement of Directors' responsibilities
The unaudited interim condensed financial statements for the 6
months ended 30 September 2017 have been prepared in accordance
with IAS 34 'Interim Financial Reporting', as adopted by the
European Union and the Disclosure and Transparency Directive Rules
('DTR'). The interim management report herein includes a fair
review of the important events during the first 6 months and
description of principal risks and uncertainties for the remainder
of the financial period, as required by DTR 4.2.7R, and a fair
review of disclosure of related party transactions and changes
therein, as required by DTR 4.2.8R.
The Directors of TalkTalk Telecom Group PLC are listed on the
Group's website www.talktalkgroup.com.
On behalf of the Board
T Harrison, Chief Executive Officer
K Ferry, Chief Financial Officer
15 November 2017
Consolidated income statement
Six months ended 30 Six months ended 30
September 2017 September 2016
Unaudited Unaudited (restated)
------------------------------ ------------------------------
Adjusting Adjusting
items items
(note (note
Headline 9) Statutory Headline 9) Statutory
Notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ----- -------- --------- --------- -------- --------- ---------
Revenue 4 828 28 856 869 33 902
Cost of sales (393) (22) (415) (410) (23) (433)
------------------------ ----- -------- --------- --------- -------- --------- ---------
Gross profit 435 6 441 459 10 469
Operating expenses
excluding amortisation
and depreciation (340) (72) (412) (315) (35) (350)
------------------------ ----- -------- --------- --------- -------- --------- ---------
EBITDA 95 (66) 29 144 (25) 119
------------------------ ----- -------- --------- --------- -------- --------- ---------
Depreciation 5 (34) - (34) (34) (1) (35)
Amortisation 5 (27) (5) (32) (30) (5) (35)
Share of results of
joint ventures (5) - (5) (5) - (5)
------------------------ ----- -------- --------- --------- -------- --------- ---------
Operating (loss)/profit 5 29 (71) (42) 75 (31) 44
Net finance costs 6 (23) (10) (33) (14) - (14)
------------------------ ----- -------- --------- --------- -------- --------- ---------
(Loss)/profit before
taxation 6 (81) (75) 61 (31) 30
Taxation 7 (11) 15 4 (14) 5 (9)
------------------------ ----- -------- --------- --------- -------- --------- ---------
(Loss)/profit for
the year attributable
to the owners of the
Company (5) (66) (71) 47 (26) 21
------------------------ ----- -------- --------- --------- -------- --------- ---------
(Loss)/earnings per
share
Basic (p) 10 (7.5) 2.2
Diluted (p) 10 (7.5) 2.2
------------------------ ----- -------- --------- --------- -------- --------- ---------
The accompanying notes are an integral part of these interim
condensed consolidated financial statements. All amounts relate to
continuing operations.
Consolidated statement of comprehensive income
Six months
Six months ended
ended 30 September
30 September 2016
2017 Unaudited Unaudited
GBPm GBPm
---------------------------------------------------- --------------- -------------
(Loss)/profit for the period attributable to
the owners of the Company (71) 21
Other comprehensive income/(expense)
Items that may be reclassified to profit or
loss:
Gains/(losses) on a hedge of a financial instrument 2 (2)
Loss on a hedge reclassified to income statement 6 -
Currency translation differences - 1
----------------------------------------------------- --------------- -------------
Total other comprehensive income/(expense) 8 (1)
----------------------------------------------------- --------------- -------------
Total comprehensive (expense)/income attributable
to the owners of the Company (63) 20
----------------------------------------------------- --------------- -------------
Consolidated balance sheet
30 September 31 March
30 September 2016 2017
2017 Unaudited Unaudited Audited
Notes GBPm GBPm GBPm
------------------------------------- ----- --------------- ------------ --------
Non-current assets
Goodwill 495 495 495
Other intangible assets 254 237 243
Property, plant and equipment 232 289 235
Investment in joint ventures 7 9 8
Trade and other receivables 6 4 6
Derivative financial instruments - 28 31
Deferred tax assets 112 111 108
------------------------------------- ----- --------------- ------------ --------
1,106 1,173 1,126
------------------------------------- ----- --------------- ------------ --------
Current assets
Inventories 17 32 18
Trade and other receivables 356 333 369
Cash and cash equivalents 11 56 - 50
------------------------------------- ----- --------------- ------------ --------
429 365 437
------------------------------------- ----- --------------- ------------ --------
Total assets 1,535 1,538 1,563
------------------------------------- ----- --------------- ------------ --------
Current liabilities
Trade and other payables (517) (475) (511)
Current income tax payable (5) (5) (5)
Borrowings 11 (77) (90) -
Provisions 12 (16) (11) (22)
------------------------------------- ----- --------------- ------------ --------
(615) (581) (538)
------------------------------------- ----- --------------- ------------ --------
Non-current liabilities
Borrowings 11 (834) (790) (871)
Derivative financial instruments (1) - -
Provisions 12 (46) (10) (14)
------------------------------------- ----- --------------- ------------ --------
(881) (800) (885)
------------------------------------- ----- --------------- ------------ --------
Total liabilities (1,496) (1,381) (1,423)
------------------------------------- ----- --------------- ------------ --------
Net assets 39 157 140
------------------------------------- ----- --------------- ------------ --------
Equity
Share capital 1 1 1
Share premium 684 684 684
Translation reserve (64) (63) (64)
Demerger reserve (513) (513) (513)
Retained (losses)/earnings and other
reserves (69) 48 32
------------------------------------- ----- --------------- ------------ --------
Total equity 39 157 140
------------------------------------- ----- --------------- ------------ --------
Consolidated cash flow statement
Six months Six months
ended ended
30 September 30 September
2017 2016
Unaudited Unaudited
GBPm GBPm
----------------------------------------------------- ------------- -------------
Operating activities
Operating (loss)/profit (42) 44
Share-based payments 5 4
Depreciation of property, plant and equipment 34 35
Amortisation of other operating intangible fixed
assets 27 30
Non-operating amortisation 5 5
Share of losses of joint ventures 5 5
Impairment of property, plant and equipment 2 -
Operating cash flows before movements in working
capital 36 123
Decrease/(increase) in trade and other receivables 28 (40)
Decrease in inventory 1 25
Decrease in trade and other payables (4) (46)
Increase/(decrease) in provisions 26 (8)
------------------------------------------------------ ------------- -------------
Cash generated from operations 87 54
Income taxes received - 3
------------------------------------------------------ ------------- -------------
Net cash flows generated from operating activities 87 57
------------------------------------------------------ ------------- -------------
Investing activities
Acquisition of subsidiaries and joint ventures,
net of cash acquired (5) (6)
Investment in intangible assets (46) (48)
Investment in property, plant and equipment (17) (51)
Cash flows used in investing activities (68) (105)
------------------------------------------------------ ------------- -------------
Financing activities
Settlement of Group ESOT shares 1 2
Payment of contingent consideration - (8)
Repayment of borrowings (374) -
Drawdown of borrowings 435 143
Interest paid (28) (14)
Dividends paid (47) (100)
------------------------------------------------------ ------------- -------------
Cash flows (used in)/generated from financing
activities (13) 23
------------------------------------------------------ ------------- -------------
Net increase/(decrease) in cash and cash equivalents 6 (25)
Cash and cash equivalents at the start of the
period 50 10
------------------------------------------------------ ------------- -------------
Cash and cash equivalents at the end of the
period 56 (15)
------------------------------------------------------ ------------- -------------
Consolidated statement of changes in equity
Retained
earnings/
(losses)
Share Share Translation Demerger and other Total
capital premium reserve reserve reserves equity
Note GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ----- -------- -------- ----------- -------- ---------- -------
At 1 April 2017 1 684 (64) (513) 32 140
------------------------------- ----- -------- -------- ----------- -------- ---------- -------
Loss for the period - - - - (71) (71)
Other comprehensive income
Items that may be reclassified
to profit or loss:
Gain on hedge of a financial
instrument - - - - 2 2
Loss on a hedge reclassified
to the income statement - - - - 6 6
------------------------------- ----- -------- -------- ----------- -------- ---------- -------
Total other comprehensive
income - - - - 8 8
------------------------------- ----- -------- -------- ----------- -------- ---------- -------
Total comprehensive expense - - - - (63) (63)
------------------------------- ----- -------- -------- ----------- -------- ---------- -------
Transactions with the owners
of the
Company
Share-based payments - - - - 8 8
Settlement of Group ESOT - - - - 1 1
Equity dividends 8 - - - - (47) (47)
Total transactions with
the owners of the Company - - - - (38) (38)
------------------------------- ----- -------- -------- ----------- -------- ---------- -------
At 30 September 2017 1 684 (64) (513) (69) 39
------------------------------- ----- -------- -------- ----------- -------- ---------- -------
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 2016 1 684 (64) (513) 123 231
--------------------------------- ----- -------- -------- ----------- -------- ---------- -------
Profit for the period - - - - 21 21
Other comprehensive income
Items that may be reclassified
to profit or loss:
Loss on hedge of a financial
instrument - - - - (2) (2)
Currency translation differences - - 1 - - 1
--------------------------------- ----- -------- -------- ----------- -------- ---------- -------
Total other comprehensive
expense - - 1 - (2) (1)
--------------------------------- ----- -------- -------- ----------- -------- ---------- -------
Total comprehensive income - - 1 - 19 20
--------------------------------- ----- -------- -------- ----------- -------- ---------- -------
Transactions with the owners
of the
Company
Share-based payments - - - - 4 4
Settlement of Group ESOT - - - - 2 2
Equity dividends 8 - - - - (100) (100)
Total transactions with
the owners of the Company - - - - (94) (94)
--------------------------------- ----- -------- -------- ----------- -------- ---------- -------
At 30 September 2016 1 684 (63) (513) 48 157
--------------------------------- ----- -------- -------- ----------- -------- ---------- -------
Notes to the consolidated financial statements
1. Basis of preparation
TalkTalk Telecom Group PLC is incorporated and domiciled in
England and Wales under the Companies Act 2006. The Company's
shares are listed on the London Stock Exchange. The registered
office of the Company is 11 Evesham Street, London, W11 4AR.
This half-year report has been prepared in accordance with the
Disclosure and Transparency Rules of the United Kingdom Financial
Conduct Authority; IAS 34 'Interim Financial Reporting' as adopted
by the European Union; on the basis of the accounting policies and
the recognition and measurement requirements of IFRS applied in the
consolidated financial statements at 31 March 2017 and those
standards that have been endorsed by the European Union and will be
applied at 31 March 2018. This report should be read in conjunction
with the consolidated financial statements for the year ended 31
March 2017.
The results for each half year are unaudited and do not
represent the Group's statutory accounts within the meaning of
section 434 of the Companies Act 2006. The Group's statutory
accounts were approved by the Directors on 10 May 2017 and have
been reported on by its auditor and delivered to the Registrar of
Companies. The report of Deloitte LLP was (i) unqualified, (ii) did
not include a reference to any matters to which the auditors drew
attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498 of the
Companies Act 2006.
Going concern
Based on internal forecasts and projections, the Directors
consider that the Group has adequate financial resources to
continue in operation for the foreseeable future. Accordingly, the
Directors continue to adopt the going concern basis in preparing
the Group's interim condensed consolidated financial statements
(see H1 Finance review for further detail).
Alternative Performance Measures (APMs)
In response to the Guidelines on 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 net finance costs;
-- Headline profit before taxation;
-- Headline profit after taxation;
-- Headline basic EPS;
-- Headline operating cash flow; and
-- Headline net debt.
Further explanation of what each APMs comprises and
reconciliations between statutory reported measures and Headline
measures are shown in notes 6, 9 and 10.
Headline measures represent trading results before adjusting
items which are defined in note 9. The directors believe that
presentation of the Group results in this way is relevant to an
understanding of our financial performance, as adjusting items are
identified by virtue of their size, nature or incidence. This
presentation is consistent with the way that financial performance
is measured by management and reported to the Board and assists in
providing a meaningful analysis of our trading results. In
determining whether an event or transaction is adjusting,
management considers quantitative as well as qualitative factors
such as the frequency or predictability of occurrence.
Headline measures are used to partly determine the variable
element of remuneration of senior Management and Executives
throughout the Group and are also in alignment with performance
measures used by certain external stakeholders in the context of
the telecoms sector.
Headline EBITDA and operating cash flow are commonly used across
the telecoms industry to aid stakeholders in making comparisons
between the performance of the Group and its peers.
EBITDA is defined as earnings before interest, tax, depreciation
and amortisation. Headline operating cash flow is defined as cash
generated from operations after movements in working capital,
settlement of Group ESOT and net capital expenditure excluding cash
exceptional items. Headline net debt is the Group's total
borrowings after derivatives offset by cash and cash equivalents
excluding finance lease commitments.
The APMs used by the Group are not defined terms under IFRS and
may therefore not be comparable with similarly titled 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. Accounting policies
The interim condensed consolidated financial statements for the
6 months ended 30 September 2017 have been prepared using
accounting policies and methods of computation consistent with
those set out in the consolidated financial statements for the year
ended 31 March 2017 with the exception of the change in the Group's
definition of adjusting Items compared to prior periods, to include
the Mobile Virtual Network Operator (MVNO) operating loss.
Restatement of prior period results
On this basis, prior period results have been restated giving
rise to a decrease in the Group's Headline revenue of GBP33m, an
increase in the Group's Headline EBITDA of GBP14m and an increase
in Group's Headline profit before tax of GBP15m. There is no impact
on the statutory performance of the Group or the Group's
consolidated balance sheet, further detail is set out in note 9.
There are no new or revised standards and interpretations that have
had a material impact on the Group during the period.
2. Accounting policies (continued)
Future accounting developments
At the date of authorisation of these interim condensed
consolidated financial statements, there were a number of
significant standards and interpretations that have not been
applied in these financial statements, these were in issue, but not
yet effective (and in some cases had not yet been adopted by the
EU). Further details of these developments can be found within the
consolidated financial statements for the year ended 31 March
2017.
3. Critical accounting judgements and estimates
The preparation of the interim condensed consolidated financial
statements requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and
the reported amounts of assets and liabilities, income and expense.
Actual results may differ from these estimates.
In preparing these interim condensed consolidated financial
statements, the significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those applied to the
consolidated financial statements for the year ended 31 March
2017.
4. Segmental reporting
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.
The Group's Headline 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.
Six Six months
months ended
ended 30 September
30 September 2016
2017 Unaudited
Unaudited (Restated)
GBPm GBPm
----------------- ------------- -------------
On-net 630 637
Corporate 184 208
Off-net 14 24
----------------- ------------- -------------
Headline revenue 828 869
----------------- ------------- -------------
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:
Six months Six months
ended ended
30 September 30 September
2017 2016
Unaudited Unaudited
GBPm GBPm
------------------- ------------- -------------
Carrier 45 72
Data 83 75
Voice 56 61
------------------- ------------- -------------
Corporate revenue 184 208
------------------- ------------- -------------
5. Operating (loss)/profit
Operating (loss)/profit is stated after
charging/(crediting):
Six months
ended
Six months 30 September
ended 30 September 2016
2017 Unaudited
Unaudited (Restated)
GBPm GBPm
-------------------------------------------------------- ----------------------------------- -------------
SAC and marketing costs(1) 101 81
Depreciation of property, plant and equipment 34 34
Amortisation of other operating intangible fixed assets 27 30
Amortisation of acquisition intangibles 5 5
Service level related disputes (2) - (2)
MVNO operating loss (note 9) 7 15
Exceptional items - impairment of property, plant and
equipment (note 9) 2 -
Exceptional items (note 9) 57 11
-------------------------------------------------------- ----------------------------------- -------------
(1) Excluding adjusting items.
(2) Included in operating profit are associated increased costs
relating to these service level related disputes.
6. Net finance costs
Net finance costs are analysed as follows:
Six months Six months
ended ended
30 September 30 September
2017 2016
Unaudited Unaudited
GBPm GBPm
--------------------------------------- ------------- -------------
Interest on bank loans and overdrafts 19 12
Facility fees and similar charges 4 2
--------------------------------------- ------------- -------------
Headline net finance costs 23 14
--------------------------------------- ------------- -------------
Exceptional - finance expense (note 9) 10 -
--------------------------------------- ------------- -------------
Total net finance costs 33 14
--------------------------------------- ------------- -------------
During the period ended 30 September 2017, the Group completed
the repurchase of its $185m US Private Placement Notes. This
resulted in exceptional costs of GBP8m (2016: GBPnil) including the
settlement of derivative instruments in designated hedge accounting
relationships and associated fees. The Group also refinanced its
revolving credit facilities, resulting in the accelerated
amortisation of arrangement fees from the previous facilities
leading to a GBP2m (2016: GBPnil) exceptional charge in the
period.
7. Taxation
Income tax
Income tax in the interim period is accrued using the tax rate
that would be applicable to the expected annual profit or loss.
The statutory taxation credit of GBP4m (2016: charge GBP9m)
reflects an effective tax rate of 5% (2016: 30%) on the loss before
taxation of GBP75m (2016: profit GBP30m), representing the best
estimate of the average annual effective tax rate expected for the
full year, applied to the six-month period. The tax credit for the
period is lower than the statutory tax rate of 19% as not all
losses have been fully recognised in the period.
The Finance Bill 2017 which was substantively enacted on 31
October 2017 announced changes to utilisation of carried forward
tax losses and the Group is assessing the potential impact on the
deferred tax asset.
8. Equity 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 equity dividends were paid by the Group to its
shareholders:
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2017 2016 2017
Unaudited Unaudited Audited
GBPm GBPm GBPm
--------------------------------------------------- ------------- ------------- ---------
Ordinary dividends
Final dividend for the year ended 31 March 2016 of
10.58p per ordinary share - 100 100
Interim dividend for the year ended 31 March 2017
of 5.29p per ordinary share - - 50
Final dividend for the year ended 31 March 2017 of
5.00p per ordinary share 47 - -
--------------------------------------------------- ------------- ------------- ---------
Total ordinary dividends (1) 47 100 150
--------------------------------------------------- ------------- ------------- ---------
(1) Deducted from Company reserves.
The proposed interim dividend for the year ended 31 March 2018
is 2.50p (year ended 31 March 2017: 5.29p) per ordinary share and
was approved by the Board on 15 November 2017. The expected cost of
approximately GBP24m has not been included as a liability as at 30
September 2017.
9. Reconciliation of Headline information to statutory
information
Accounting policy - adjusting items
Headline measures represent trading results before adjusting
items. The directors believe that presentation of the Group results
in this way is relevant to an understanding of our financial
performance, as adjusting items are identified by virtue of their
size, nature or incidence. This presentation is consistent with the
way that financial performance is measured by management and
reported to the Board and assists in providing a meaningful
analysis of our trading results. In determining whether an event or
transaction is adjusting, management considers quantitative as well
as qualitative factors such as the frequency or predictability of
occurrence.
During the periods under review, the adjusting items excluded
from operating profit in arriving at Headline operating profit were
non-operating amortisation, the MVNO operating loss and exceptional
items.
Examples of charges or credits meeting the definition of
exceptional items include acquisitions/disposals of businesses,
investments and financial instruments, certain regulatory
settlements, historical insurance, tax or litigation matters,
business restructuring programmes, asset impairment charges and
fundamental transformation and property rationalisation programmes.
Certain transformation and rationalisation programmes are so
fundamental they may impact a number of years. In the event that
other items meet the criteria, which are applied consistently from
year to year, they are also treated as exceptional items.
9. Reconciliation of Headline information to statutory
information (continued)
Critical judgements in applying the Group's accounting
policies
The classification of items as adjusting is subjective in nature
and therefore judgement is required to determine whether the item
is in line with the accounting policies outlined above. Determining
whether an item is adjusting is a matter of qualitative assessment,
making it distinct from the Group's other critical accounting
judgements where the basis for judgement is estimation. The
following table includes details of adjusting items:
Operating Profit/(loss) Profit/(loss)
Gross profit/ before for
Period ended 30 September 2017 Revenue profit EBITDA (loss) taxation Taxation the year
- Unaudited GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ---- --------- ------- ------ --------- ------------- -------- -------------
Headline results 828 435 95 29 6 (11) (5)
Exceptional items - Operating
efficiencies - MTTS (a) - - (3) (3) (3) 1 (2)
Exceptional items - Operating
efficiencies - property (b) - - (8) (8) (8) 2 (6)
Exceptional items - Network
transformation (c) - - (8) (8) (8) 1 (7)
Exceptional items - Mobile
proposition (d) - - (31) (31) (31) 6 (25)
MVNO operating loss (e) 28 6 (7) (7) (7) 1 (6)
Exceptional items - Business
reorganisation (f) - - (9) (9) (9) 2 (7)
Exceptional items - Finance
expense (g) - - - - (10) 2 (8)
Non-operating amortisation (h) - - - (5) (5) - (5)
--------------------------------- ---- --------- ------- ------ --------- ------------- -------- -------------
Statutory results 856 441 29 (42) (75) 4 (71)
--------------------------------------- --------- ------- ------ --------- ------------- -------- -------------
Profit Profit
Gross Operating before for
Period ended 30 September 2016 Revenue profit EBITDA profit taxation Taxation the year
- Unaudited (restated) GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ---- --------- ------- ------ --------- --------- -------- ---------
Headline results 869 459 144 75 61 (14) 47
Exceptional items - Operating
efficiencies - MTTS (a) - - (5) (5) (5) 1 (4)
Exceptional items - Operating
efficiencies - property (b) - - (5) (5) (5) 1 (4)
MVNO operating loss (e) 33 10 (14) (15) (15) 3 (12)
Exceptional items - Acquisitions
and disposal (i) - - (1) (1) (1) - (1)
Non-operating amortisation (h) - - - (5) (5) - (5)
--------------------------------- ---- --------- ------- ------ --------- --------- -------- ---------
Statutory results 902 469 119 44 30 (9) 21
--------------------------------------- --------- ------- ------ --------- --------- -------- ---------
The above table shows how all alternative measures are
reconciled to statutory performance measures with the exception of
Headline operating cash flow, Headline net debt, Headline earnings
per share (note 10) and Headline finance costs (note 6).
Headline operating cash flow is defined as cash generated from
operations after movements in working capital, settlement of Group
ESOT and net capital expenditure excluding cash exceptional items
as follows:
Six months
Six months ended
ended 30 September
30 September 2016
2017 Unaudited Unaudited
GBPm GBPm
------------------------------- --------------- -------------
Cash generated from operations 87 54
Net capital expenditure (63) (99)
Settlement of Group ESOT 1 2
Cash exceptional items 21 15
-------------------------------- --------------- -------------
Headline operating cash flow 46 (28)
-------------------------------- --------------- -------------
Headline net debt is the Group's net debt excluding finance
lease commitments as follows:
Six months
ended Year
Six months 30 ended
ended September 31 March
30 September 2016 2017
2017 Unaudited Unaudited Audited
GBPm GBPm GBPm
-------------------------- --------------- ---------- ---------
Net debt (1) (837) (847) (782)
Finance lease commitments (18) - -
--------------------------- --------------- ---------- ---------
Headline net debt (855) (847) (782)
--------------------------- --------------- ---------- ---------
(1) Total borrowings after derivatives offset by cash and cash equivalents.
9. Reconciliation of Headline information to statutory
information (continued)
a) Operating efficiencies - Making TalkTalk Simpler (MTTS)
During the period ended 30 September 2017, the Group incurred
GBP3m (2016: GBP5m) concluding its wide-ranging transformation
programme that is delivering material improvements to customers'
experience through improving processes and systems.
A taxation credit of GBP1m has been recognised on these costs
(2016: GBP1m).
b) Operating efficiencies - property rationalisation
The Group has fundamentally rationalised the sites from which it
operates including the relocation of its Warrington and Irlam sites
to one site at the Soapworks in Salford together with the
rationalisation of our London property footprint. This property
rationalisation programme has given rise to costs of GBP8m (2016:
GBP5m).
A taxation credit of GBP2m has been recognised on these costs
(2016: GBP1m).
c) Network transformation
During the year ended 31 March 2017, the Group embarked on a
significant transformation programme to fundamentally restructure
the Group's network, IT infrastructure and technology estate for
efficiency and scalability.
This programme has resulted in GBP8m (2016: GBPnil) of costs
including decommissioning, dual running, consultancy and project
management costs.
A taxation credit of GBP1m has been recognised on these costs
(2016: GBPnil).
d) Mobile proposition
Following the Group's announcement in May 2017 to reassess the
Group's mobile strategy net exceptional costs have been incurred in
relation to decommissioning costs, asset write offs, provision
releases, onerous supplier commitments and redundancies amounting
to GBP31m.
A taxation credit of GBP6m has been recognised on these costs
(2016: GBPnil).
e) MVNO operating loss
Following the Group's announcement in May 2017 to reassess the
Group's mobile strategy, the Group is now progressing with its
alternative mobile distribution strategy. Operating losses of GBP7m
(2016: GBP15m) associated with the MVNO strategy have been
incurred, given this one-off strategic decision, management
consider these material losses are adjusting items though they do
not meet the criteria under IFRS 5 for separate disclosure as
discontinued operations. The MVNO trading activity will continue to
diminish as contractual commitments expire.
A taxation credit of GBP1m has been recognised on these costs
(2016: GBP3m).
f) Business reorganisation
Net costs of GBP9m (2016: GBPnil) have been incurred associated
with implementing changes to the Group's organisational structure
following the Group reorganising the business under the new
leadership team.
A taxation credit of GBP2m has been recognised on these costs
(2016: GBPnil).
g) Finance expense
During the period ended 30 September 2017, the Group completed
the repurchase of its US Private Placement Notes. This resulted in
incremental costs of GBP8m (2016: GBPnil) relating to the
settlement of derivative instruments in designated hedge accounting
relationships and professional fees. The Group also refinanced its
facilities, resulting in the arrangement fees relating to the
previous facilities being accelerated leading to a GBP2m (2016:
GBPnil) charge in the period.
A taxation credit of GBP2m has been recognised on these costs
(2016: GBPnil).
h) Non-operating amortisation
An amortisation charge in respect of acquisition intangibles of
GBP5m was incurred in the period ended 30 September 2017 (2016:
GBP5m).
i) Acquisitions and disposal
During the period ended 30 September 2016, the Group incurred
exceptional costs of GBP1m in relation to the disposal of the
off-net customer base in the prior period. There were no such costs
in the period ended 30 September 2017.
10. (Loss)/earnings per ordinary share
(Loss)/earnings per ordinary share are shown on a Headline and
statutory basis to assist in the understanding of the performance
of the Group).
Six months
ended
Six months 30
ended September
30 September 2016
2017 Unaudited
Unaudited (Restated)
GBPm GBPm
---------------------------------------------- ------------- -------------
Headline (loss)/earnings (note 9) (5) 47
---------------------------------------------- ------------- -------------
Statutory (loss)/earnings (note 9) (71) 21
---------------------------------------------- ------------- -------------
Weighted average number of shares (millions):
Shares in issue 955 955
Less weighted average holdings by Group ESOT (5) (8)
---------------------------------------------- ------------- -------------
For basic EPS 950 947
Dilutive effect of share options 14 12
---------------------------------------------- ------------- -------------
For diluted EPS 964 959
---------------------------------------------- ------------- -------------
30
September
30 September 2016
2017 Unaudited
Unaudited (Restated)
Pence Pence
---------------------------------------------- ------------- -------------
Basic earnings per ordinary share
Statutory (7.5) 2.2
Headline (0.5) 5.0
---------------------------------------------- ------------- -------------
30
September
30 September 2016
2017 Unaudited
Unaudited (Restated)
Pence Pence
------------------------------------ ------------ -----------
Diluted earnings per ordinary share
Statutory (7.5) 2.2
Headline (0.5) 4.9
------------------------------------ ------------ -----------
There are no share options considered anti-dilutive in the
period ended 30 September 2017 (2016: nil).
11. Cash and cash equivalents and borrowings
(a) Cash and cash equivalents
30 September 30 September 31 March
2017 2016 2017
Unaudited Unaudited Audited
GBPm GBPm GBPm
------------------------- ------------ ------------- --------
Cash at bank and in hand 56 - 50
------------------------- ------------ ------------- --------
The effective interest rate on bank deposits and money market
funds was 0.1% (September 2016: 0.1%, March 2017: 0.1%).
(b) Borrowings
The book and fair value of the Group's borrowings are as
follows:
30 September 30 September 31 March
2017 2016 2017
Unaudited Unaudited Audited
Maturity GBPm GBPm GBPm
------------------------------------------------- --------- ------------ ------------- --------
Current
Bank overdraft 2017 - 15 -
Term loan 2017 - 25 -
GBP100m revolving credit facility 2017 - 50 -
GBP75m receivables purchase agreement facility 2018 73 - -
------------------------------------------------- --------- ------------ ------------- --------
Current borrowings before derivatives (excluding
finance leases) 73 90 -
------------------------------------------------------------ ------------ ------------- --------
11. Cash and cash equivalents and borrowings (continued)
30 September 30 September 31 March
2017 2016 2017
Unaudited Unaudited Audited
Maturity GBPm GBPm GBPm
-------------------------------------------- --------------- ------------ ------------- --------
Non-current
2021, 2024,
$185m US Private Placement (USPP) Notes 2026 - 142 148
GBP560m revolving credit facility 2019 - 460 165
GBP50m bilateral agreements 2019 - 50 50
GBP100m term loan 2019 - 75 50
GBP75m receivables purchase agreement
facility 2018 - 63 58
GBP400m Senior Notes 2022 400 - 400
GBP640m revolving credit facility 2022 420 - -
Non-current borrowings before derivatives
(excluding finance leases) 820 790 871
------------------------------------------------------------- ------------ ------------- --------
Total borrowings before derivatives
(excluding finance leases) 893 880 871
------------------------------------------------------------- ------------ ------------- --------
Derivatives - (33) (39)
------------------------------------------------------------- ------------ ------------- --------
Borrowings after derivatives (excluding
finance leases) 893 847 832
------------------------------------------------------------- ------------ ------------- --------
Finance leases are analysed as follows:
30 September 30 September 31 March
2017 2016 2017
Unaudited Unaudited Audited
GBPm GBPm GBPm
-------------------------------------------- --------------- ------------ ------------- --------
Current 4 - -
Non-current 14 - -
------------------------------------------------------------- ------------ ------------- --------
Total finance leases 18 - -
------------------------------------------------------------- ------------ ------------- --------
Total borrowings before derivatives
(including finance leases) 911 880 871
------------------------------------------------------------- ------------ ------------- --------
Derivatives - (33) (39)
---------------------------------------------------- -------- ------------ ------------- --------
Borrowings after derivatives (including finance
leases) 911 847 832
---------------------------------------------------- -------- ------------ ------------- --------
30 September 30 September 31 March
2017 2016 2017
Unaudited Unaudited Audited
Maturity GBPm GBPm GBPm
--------------------------------------- --------- ------------ ------------- --------
2018,
Undrawn available committed facilities 2022 222 162 412
--------------------------------------- --------- ------------ ------------- --------
Borrowing facilities
The Group's committed facilities total GBP1,115m (Sep 2016:
GBP994m, Mar 2017: GBP1,244m). The Group's uncommitted facilities
total GBP111m (Sep 2016: GBP111m, Mar 2017: GBP116m) giving
headroom on committed facilities and uncommitted facilities of
GBP222m (Sep 2016: GBP162m, Mar 2017: GBP412m) and GBP111m (Sep
2016: GBP96m, Mar 2017: GBP116m) respectively.
The financial covenants included in each bank facility 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
30 September 2017 are set out below:
GBP400m Senior Notes
In January 2017, TalkTalk Telecom Group PLC issued GBP400m
Senior Notes which mature in 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
interest rate payable on the notes is 5.375% payable
semi-annually.
GBP640m revolving credit facility (RCF)
The Group has a GBP640m RCF, which matures in May 2022. 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.
11. Cash and cash equivalents and borrowings (continued)
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.
GBP560m revolving credit facility (RCF), GBP100m term loan and
GBP50m bilateral agreements
In May 2017, the Group refinanced the 2014 RCF, the 2014
bilateral agreement and the GBP100m term loan repaying the
outstanding debt with the proceeds from the new GBP640m RCF, which
matures in May 2022.
$185m USPP Notes
In August 2017, the Group re-purchased 100% of the $185m of USPP
Notes originally maturing in three tranches ($139m in 2021, $25m in
2024 and $21m in 2026).
12. Provisions
The tables below analyses the Group's provisions:
30 September 30 September 31 March
2017 2016 2017
Unaudited Unaudited Audited
GBPm GBPm GBPm
------------ ------------ ------------- --------
Current 16 11 22
Non-current 46 10 14
------------ ------------ ------------- --------
62 21 36
------------ ------------ ------------- --------
One Company Contract
integration Property and other Total
GBPm GBPm GBPm GBPm
--------------------------------- ------------ -------- ---------- -----
At 1 April 2017 (Audited)
Opening balance 1 15 20 36
Charged to income statement - 6 36 42
Released to income statement (1) - (7) (8)
Utilised in the period - (2) (6) (8)
--------------------------------- ------------ -------- ---------- -----
At 30 September 2017 (Unaudited) - 19 43 62
--------------------------------- ------------ -------- ---------- -----
One Company Contract
integration Property and other Total
GBPm GBPm GBPm GBPm
--------------------------------- ------------ -------- ---------- -----
At 1 April 2016 (Unaudited)
Opening balance 1 12 16 29
Utilised in the period - - (8) (8)
--------------------------------- ------------ -------- ---------- -----
At 30 September 2016 (Unaudited) 1 12 8 21
--------------------------------- ------------ -------- ---------- -----
Provisions are recognised when a legal or constructive
obligation exists as a result of past events and it is probable
that an outflow of resources will be required to settle the
obligation and a reliable estimate can be made of the amount of the
obligation. Provisions are discounted where the time value of money
is considered to be material.
Provisions are categorised as follows:
Property
Property provisions relate to dilapidations and similar property
costs, and costs associated with onerous property contracts. All
such provisions are assessed by reference to the terms and
conditions of the contract and market conditions at the balance
sheet date. Onerous property contracts are expected to be utilised
over the next seven years. Dilapidation provisions are expected to
be utilised as and when properties are exited. These provisions
include the costs of exiting our Warrington and Irlam sites, as the
Group relocates to one site at the Soapworks in Salford and
rationalising our London property footprint.
Contract and other
Contract and other provisions mostly relate to the future costs
the Group will incur following the reassessment of its mobile
proposition. The remaining provisions relate to onerous contracts
and contracts with unfavourable terms, anticipated costs of
unresolved legal disputes and committed costs relating to
exceptional projects. All such provisions are assessed by reference
to the best available information at the balance sheet date.
13. Financial risk management and derivative financial
instruments
The book value and fair value of the Group's financial assets,
liabilities and derivative financial instruments, are as
follows:
30 September 30 September 31 March
2017 2016 2017
Unaudited Unaudited Audited
GBPm GBPm GBPm
------------------------------------------------------ ------------ ------------- --------
Financial assets (1)
Cash and cash equivalents 56 - 50
Trade and other receivables (2) 356 333 369
Non-current investments and investment in joint
venture 7 9 9
Non-current trade and other receivables 6 4 6
Derivative instruments in designated hedge accounting
relationships:
Derivative financial instruments (3) - 28 31
Financial liabilities (1)
Trade and other payables (470) (415) (460)
Borrowings before derivatives (893) (880) (871)
Finance leases (18) - -
Derivative instruments in designated hedge accounting
relationships:
Derivative financial instruments (3) (1) - -
------------------------------------------------------ ------------ ------------- --------
(957) (921) (866)
------------------------------------------------------ ------------ ------------- --------
(1) The Group has no financial instruments designated as fair
value through the profit and loss ("FVTPL").
(2) Accrued income has been included within the other
receivables so as to give completeness over the Group's future cash
inflows.
(3) Derivative financial instruments of GBPnil (31 March 2017:
GBP32m) relates to the USPP Notes, and GBP(1)m (31 March 2017:
GBP(1)m) relates to interest rate hedges.
(a) Financial instruments
The Group's activities expose it to a variety of financial risks
including market risk (such as currency risk and interest rate
risk), credit risk and liquidity risk. The Group treasury function
uses certain financial instruments to mitigate potential adverse
effects on the Group's financial performance from these risks.
These financial instruments primarily consist of bank loans and
Interest rate swaps. Other products, such as currency options, can
also be used depending on the risks to be covered, but have not
been used in the current or preceding financial year. The Group
does not trade or speculate in any financial instruments.
The Group has cash flow hedges in place to swap the interest
rate risk on the bank debt from floating to fixed rates. The
outstanding swaps mature between December 2017 and January
2019.
These hedges have been fully effective from inception.
The fair value measurement is classified as Level 2 (2016: Level
2), derived from other observable market data; this means that
their fair value is based upon the mark to market valuation at the
balance sheet date. Fair value measurement at Level 2 gives
consideration to interest rates, yield curves and foreign exchange
rates at commonly quoted intervals for relevant currencies. The
Group has also assessed the credit risk within its financial
instruments. The fair value of these instruments at 30 September
2017 is (GBP1m) (2016: GBP28m).
The cross currency swaps held to hedge the risk on the USD
denominated USPP $185m debt were closed out in the period ended 30
September 2017 resulting in a reduction to the fair value
measurement of Financial Instruments compared to the prior period.
A gain of GBP2m (2016: loss of GBP2m) has been recognised in other
comprehensive income in the period ended 30 September 2017.
(b) Embedded derivatives
No contracts with embedded derivatives have been identified and
accordingly, no such derivatives have been accounted for
separately.
(c) Foreign exchange risk
The Group uses spot and forward foreign exchange trading to
hedge transactional exposures, which arise mainly through cost of
sales and operating expenses and are primarily denominated in Euro
and US Dollar. The Group also used cross-currency swaps to hedge
its US Dollar denominated borrowings (US Private Placement). At 30
September 2017, the adjustment to translate our net debt to
Sterling at swap rates to reflect the impact of hedging was GBPnil
(2016: GBP33m).
Borrowings and foreign exchange contracts are sensitive to
movements in foreign exchange rates; this sensitivity can be
analysed in comparison to year-end rates. There would be no
material impact of a 10% movement in the UK Sterling/Euro or UK
Sterling/USD exchange rate on either the income statement or other
equity. The effect of foreign exchange derivatives on borrowings
was as follows:
UK Sterling USD Total
GBPm GBPm GBPm
-------------------------------------------------------- ----------- ----- -----
30 September 2017 (Unaudited)
Borrowings before derivatives 893 - 893
Derivatives - - -
-------------------------------------------------------- ----------- ----- -----
Borrowings after derivatives (excluding finance leases) 893 - 893
-------------------------------------------------------- ----------- ----- -----
Finance leases 18 - 18
-------------------------------------------------------- ----------- ----- -----
Borrowings after derivatives (including finance leases) 911 - 911
-------------------------------------------------------- ----------- ----- -----
13. Financial risk management and derivative financial
instruments (continued)
UK Sterling USD Total
GBPm GBPm GBPm
-------------------------------------------------------- ------------- ----- -----
30 September 2016 (Unaudited)
Borrowings before derivatives 738 142 880
Derivatives - (33) (33)
-------------------------------------------------------- ------------- ----- -----
Borrowings after derivatives 738 109 847
-------------------------------------------------------- ------------- ----- -----
Finance leases - - -
-------------------------------------------------------- ------------- ----- -----
Borrowings after derivatives (including finance leases) 738 109 847
-------------------------------------------------------- ------------- ----- -----
UK Sterling USD Total
GBPm GBPm GBPm
-------------------------------------------------------- ------------- ----- -----
31 March 2017 (Audited)
Borrowings before derivatives 723 148 871
Derivatives - (39) (39)
-------------------------------------------------------- ------------- ----- -----
Borrowings after derivatives 723 109 832
-------------------------------------------------------- ------------- ----- -----
Finance leases - - -
-------------------------------------------------------- ------------- ----- -----
Borrowings after derivatives (including finance leases) 723 109 832
-------------------------------------------------------- ------------- ----- -----
During the year, the Group used derivatives for the management
of US Private Placement debt, foreign currency cash balances and
foreign currency trading balances.
(d) Interest rate risk
The Group's interest rate risk arises primarily from cash, cash
equivalents and borrowings, all of which are at floating rates of
interest and thus expose the Group to cash flow interest rate risk.
These floating rates are linked to LIBOR and other interest rate
bases as appropriate to the instrument and currency. Future cash
flows arising from these financial instruments depend on interest
rates and periods for each loan or rollover. As detailed in section
(a), the Group has cash flow hedges in place to mitigate its
interest rate risk on its borrowings.
The fair value measurement is classified as Level 2 (2016: Level
2), derived from other observable market data; this means that
their fair value is based upon the mark to market valuation at the
balance sheet date. Fair value measurement at Level 2 gives
consideration to interest rates, yield curves and foreign exchange
rates at commonly quoted intervals for relevant currencies. The
Group has also assessed the credit risk within its financial
instruments.
Cash and borrowings, as well as some foreign exchange products,
are sensitive to movements in interest rates and such movements
have been analysed in the table below by calculating the effect on
the income statement and equity of a one percentage point movement
in the interest rate for the currencies in which most Group cash
and borrowings are denominated. Funding to related parties has been
offset against gross borrowings in calculating these sensitivities.
This annualised analysis has been prepared on the assumption that
the year-end positions prevail throughout the year, and therefore
may not be representative of fluctuations in levels of
borrowings.
30 September 30 September 31 March
2017 2016 2017
Unaudited Unaudited Audited
GBPm GBPm GBPm
------------------------------------------------------ ------------ ------------- --------
100 basis points movement in the UK Sterling interest
rate
Income statement movement 3 6 2
------------------------------------------------------ ------------ ------------- --------
(e) Liquidity risk
The Group manages its exposure to liquidity risk by regularly
reviewing the long and short term cash flow projections for the
business against facilities and other resources available to
it.
During the period ended 30 September 2017, the Group refinanced
its core bank facilities into a new GBP640m revolving credit
facility. This new facility together with the GBP400m Senior Notes,
the Group's share capital and reserves and a number of equipment
leases form the Group's core financing. Following the refinancing
of the RCF, the Group successfully repurchased 100% of its USPP
Notes simplifying the funding structure. In addition to focusing on
its core sources of liquidity, the Group uses a mix of overdrafts,
short-dated uncommitted money market facilities, receivables
factoring and commercial supplier terms to manage its day to day
liquidity position. The Group will continue to review its sources
of finance going forward.
Headroom is assessed based on historical experience as well as
by assessing current business risks, including foreign exchange
movements.
The table below analyses the Group's financial liabilities into
relevant maturity groupings. The amounts disclosed in the table are
the contractual undiscounted gross cash flows assuming year end
interest rates remain constant and that borrowings are paid in full
in the year of maturity.
13. Financial risk management and derivative financial
instruments (continued)
Less than 1 to 2 2 to 3 3 to 4 4 to 5 More than
1 year years years years years 5 years Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- --------- ------ ------ ------ ------ --------- -------
30 September 2017 (Unaudited)
Borrowings (97) (19) (19) (18) (828) - (981)
Finance leases (5) (5) (4) (3) (4) - (21)
Trade and other payables (517) - - - - - (517)
--------------------------------- --------- ------ ------ ------ ------ --------- -------
(619) (24) (23) (21) (832) - (1,519)
--------------------------------- --------- ------ ------ ------ ------ --------- -------
Less than 1 to 2 2 to 3 3 to 4 4 to 5 More than
1 year years years years years 5 years Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- --------- ------ ------ ------ ------ --------- -------
30 September 2016 (Unaudited)
Borrowings (135) (106) (575) (6) (111) (40) (973)
Derivative financial instruments
- receivable - - - - 25 8 33
Trade and other payables (415) - - - - - (415)
--------------------------------- --------- ------ ------ ------ ------ --------- -------
(550) (106) (575) (6) (86) (32) (1,355)
--------------------------------- --------- ------ ------ ------ ------ --------- -------
Less than 1 to 2 2 to 3 3 to 4 4 to 5 More than
1 year years years years years 5 years Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- --------- ------ ------ ------ ------ --------- -------
31 March 2017 (Audited)
Borrowings (39) (91) (293) (26) (531) (41) (1,021)
Derivative financial instruments
- receivable - - - - 29 10 39
Trade and other payables (511) - - - - - (511)
--------------------------------- --------- ------ ------ ------ ------ --------- -------
(550) (91) (293) (26) (502) (31) (1,493)
--------------------------------- --------- ------ ------ ------ ------ --------- -------
(f) Credit risk
The Group's exposure to credit risk is regularly monitored.
Debt, investments, foreign exchange and derivative transactions are
all spread amongst a number of banks, all of which have short or
long term credit ratings appropriate to the Group's exposures.
Trade receivables primarily comprise balances due from fixed line
customers, and provision is made for any receivables that are
considered to be irrecoverable.
(g) Capital risk management
The Group manages its capital to ensure that entities in the
Group will be able to continue as a going concern while maximising
the return to stakeholders.
The capital structure of the Group consists of debt, which
includes the borrowings disclosed in note 12, cash and cash
equivalents and equity attributable to equity holders of the
parent, comprising issued capital, reserves and retained earnings.
The Group's Board reviews the capital structure on an annual basis
including reviewing opportunities to access other sources of
finance including the public debt markets.
14. Analysis of changes in net debt
As at As at
31 30
March September
2017 Net Non-cash 2017
Audited cash flow movements Unaudited
GBPm GBPm GBPm GBPm
------------------------------ -------- ---------- ---------- ----------
Cash and cash equivalents 50 6 - 56
Borrowings before derivatives (871) (22) - (893)
Derivatives 39 (39) - -
------------------------------ -------- ---------- ---------- ----------
Borrowings after derivatives (832) (61) - (893)
------------------------------ -------- ---------- ---------- ----------
Total Headline net debt (782) (55) - (837)
------------------------------ -------- ---------- ---------- ----------
Finance leases - - (18) (18)
------------------------------ -------- ---------- ---------- ----------
Total net debt (782) (55) (18) (855)
------------------------------ -------- ---------- ---------- ----------
15. Commitments
The Group has in the normal course of business entered into
various multi-year supply and working capital agreements for core
network, IT and customer equipment. As at 30 September 2017,
expenditure contracted, but not provided for in these financial
statements amounted to GBP221m (September 2016: GBP264m; March
2017: GBP231m). Of this amount, GBP66m (September 2016: GBP52m;
March 2017: GBP65m) related to capital commitments and GBP29m
(September 2016: GBP39m; March 2017: GBP39m) related to the supply
of customer equipment.
16. Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties of the Company, have been eliminated on
consolidation, and therefore, are not required to be disclosed in
these condensed interim financial statements.
Key management compensation and transactions with the Group's
pension and post-employment schemes for the financial year ended 31
March 2017 are detailed in note 4 (page 84) of the consolidated
financial statements for the year ended 31 March 2017.
As detailed in the consolidated financial statements for the
year ended 31 March 2017, from 1 April 2017 a newly formed PLC
Committee has assumed responsibility for operational management
alongside an executive committee comprising of senior heads of the
main divisions of the Group, which will be more fully described in
the Consolidated financial statements for the year ended 31 March
2018. During the period ended 30 September 2017, the PLC Committee
composition has changed following the resignations of Dido Harding
on 10 May 2017 and Iain Torrens on 30 September 2017, with Kate
Ferry being appointed to the Committee as Chief Financial Officer
from 9 October 2017.
There have been no other significant changes in the nature of
related party transactions from those described in the consolidated
financial statements for the year ended 31 March 2017.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR DMMMMRDFGNZM
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