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Introduction, Summary and cyber attack Dido Harding

H1 Review Dido Harding

H1 Financials and Outlook Iain Torrens

Longer term strategy Dido Harding

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£76m

£110m

Y-O-Y Revenue Growth

3.1% 3.6% 3.5%

5.9%

Q1'15 Q2'15 Q1'16 Q2'16

+3.3%

+4.7%

£110m £90m

Opex and SAC

£370m

H1’15

£397m

H1’16

+7.3%

Dividend per share

+15%

H1’15 H1’16

4.60p

5.29p

EBITDA Margin

12.6%

9.9%

H1'15 H1'16

Quad-play gaining traction, 12.2% year-on-year growth in RGUs

Making TalkTalk Simpler benefits £6m Making TalkTalk Simpler costs £15m In line with commitment

Opex

SAC

Opex

SAC

+12.9%

0%

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H1 FY16 H2 FY16

Gross Profit from revenue growth and better mix

£40m-£45m

c£40m

Lower Opex as transformation

costs fall out

Lower SAC from

changes in channel mix

and CPA c£5m

Materially higher MTTS Benefits

than in H1

£25m-£30m

Before impact of cyber attack

£90m

£200m-£210m

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21st October

Websites started running slowly, brought websites down, ransom demand

Informed law enforcement agencies, criminal investigation launched, started internal investigation

22nd October

Informed all customers via the media and via email of the potential risk so we could help them and they could protect themselves

Board launched an independent review led by James Powell with support from PWC

6th November

Confirmed that the attack was limited to 156,959 customers of which 15,656 bank account numbers and sort codes stolen

None of the sensitive personal information on its own can be used to steal from our customers

Now

We have contacted all customers whose personal data has been stolen to explain what happened and to offer support and advice

TalkTalk sales and service websites operational

Contacting all customers irrespective of whether directly affected, to explain what happened, what we are doing to safeguard their data going forward, and offer an opportunity to upgrade at no extra cost

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Direct Debit Cancellations Unsolicited Requests to Cease

Loyalty Save Rates Customer Feedback

October 27th-29th October

29th Oct – 2nd Nov

32%

29%

34%

30th Oct 6th Nov

48%

54%

Brand Consideration*

“I appreciate TalkTalk’s honesty in the way they are dealing with this”*

* TNS Brand Tracker * ICM poll of TalkTalk Customers

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One off costs incurred of £30m-£35m

› Incident response and customer communications

› Incremental call volumes

› Internal IT costs and consulting

› Foregone revenues from loss of online capability for 3 weeks, and immediate churn

› Estimated cost of free upgrade offer to all customers

Early indicators of customer response are encouraging

› Most customers think we have done the right thing

› Online sales and service platforms now back in operation

Too early at this stage to assess the wider impact of this attack but we remain confident of:

› a material increase in profits in H2 FY16 on the back of existing momentum in revenue and Making TalkTalk Simpler

› A further significant increase in profits in FY17 as MTTS programmes complete

More clarity will emerge as we trade through Q3 and Q4

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Non-pay disconnections accretive to margin

H1: c£1.5m

H2: c£3.5m

On-net net adds positive in Q2

72 8

4.18m 4.11m 4.10m

Opening On-Net Base @ 31st March

Non-Pay Disconnects

Adjusted On-Net Base @ 31st March

H1 Net Adds

On-Net Base @ 30th Sept

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1.04 1.12

1.24 1.35

1.46 1.56

1.64

0.3%

0.6%

0.9%

1.2%

1.5%

1.8%

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

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

RGU Churn

Churn broadly flat y-o-y in H1

Difference between 1.4% and 1.5%: c8,000 customers

Q2 churn modestly higher than Q1

Trend improving through:

Benefits of Making TalkTalk Simpler

Growing triple and quad play penetration

TV and mobile customers churn at roughly half the rate of dual play customers

176,000 RGUs added in H1 (+12.2% y-o-y)

RGU per customer up to 1.64 (+12.5% y-o-y)

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73 142

207 308

479 578

1% 2%

4%

6%

8%

13%

16%

0

100

200

300

400

500

600

700

0%

5%

10%

15%

20%

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

12

Strong growth in Mobile and Fibre penetration

SIM-only demand growing - 14.4% market share in H1 FY16 vs 10.3% in H2 FY15

Strong take-up of bundled SIM (quad-play) – Plus TV (33%)

Fibre self-install (>90%) driving demand

TV growth a function of disciplined trading strategy to focus on lower CPA Mobile and Fibre

Mobile, Fibre and TV customers continuing to generate highest Net Promoter Scores and exhibit lowest churn 0 230

557

917

1,217 1,414 1,439

0%

7%

16%

26%

33%

37% 39%

0

200

400

600

800

1,000

1,200

1,400

1,600

0%

10%

20%

30%

40%

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

117 175

236 284

348

464

596

4%

5%

7% 8%

10%

12%

16%

0

100

200

300

400

500

600

700

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

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

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Retail customers c81% of on-net; Wholesale c19% of on-net base

Step change in FY14 reflects acquisition of Post Office contract

Wholesale customers involve long term established relationships including several multi-year contracts

Lower ARPU and gross margin than Retail at c40%

Minimal costs to serve

No bad debt or SAC exposure

EBITDA comparable to Consumer base

TTB is only other national wholesale broadband operator in UK market other than BT

Retail: 3,489

Retail: 3,433

Retail: 3,440

Retail: 3,373

Retail: 3,326

Wholesale: 381

Wholesale: 627

Wholesale: 737

Wholesale: 732

Wholesale: 771

FY13 FY14 FY15 FY16 OpeningBase

H1FY16 ClosingBase

3.870m 4.060m

4.177m 4.105m 4.097m

* Adjusted for 72k disconnections

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ON-NET

CORPORATE

Data & Next Gen Voice

Phone & BB (retail and w’sale)

Carrier

Legacy Voice

Growth

Gross Margin

20%+

0

-20%

TalkTalk Group

Carrier

£550m+ revenue in FY15 across three lines

Off-Net

Corporate

On-Net

Phone & BB (retail and w’sale)

Data & Next Gen Voice

Legacy Voice

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H1'15 H1'16

15

Corporate Revenue

Ethernet & EFM Lines (‘000)

7.1

10.2

13.7

17.4

21.6

26.2

30.7

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

+6.2%

Data

Carrier

Voice

£177m £188m

6.2% growth in Corporate revenue (+6.7% in Q2)

+15% growth in Data revenues; Carrier revenues +34%

Over 30,000 business Data lines

Accelerating demand for Ethernet – conversion

hampered by lagging BTOR performance

VOIP proposition (powered by tiPicall) launched in

October; strong growth expected through H2

Ethernet pipeline

+15%

+34%

-11%

32%

37%

42%

2,850

3,050

3,250

3,450

Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15

Total WIP Over 65 Days

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Making TalkTalk Simpler

Simpler network Simpler fault management

Simpler order provisioning

Simpler omni-channel service

Simpler credit and billing

A simpler business to run

Operating cost savings

SAC reduction from lower

churn and CPA

An enabler of revenue growth

A transformed brand

reputation

£90m-£100m savings

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Systems and Process

Development Testing Rollout

Remove Structural Costs

The drivers of cost are coming down in trials:

Lower call volumes

Less manual provisioning

Improved customer satisfaction

As systems roll out variable costs are coming out in scale:

Fewer engineer visits

Fewer router replacements

Lower bad debt

Lower retention costs

Lower SAC

Lower sales leakage

We began the process of removing structural costs in H1:

Advance notice to reduce headcount in existing call centres

Started RFP to consolidate our call centre footprint

Expect new footprint in place over 12-18m

Completed internal restructure in October – costs come out in H2FY16

H1 Savings

H2 Savings

FY17 Savings

£6m

£25m-£30m

£90m-£100m

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H1’16 H1’15 YoY

£’m £’m

Headline Revenue 912 871 +4.7%

Gross Profit 487 480 +1.5%

Margin 53.4% 55.1%

Operating costs (245) (217) +12.9%

SAC & Marketing (152) (153)

Headline EBITDA 90 110

Margin 9.9% 12.6%

Profit after tax 11 27

Headline EPS 1.2p 2.9p

Dividend per Share 5.29p 4.60p +15.0%

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£871m

£912m

H1 FY15 On-Net Off-Net Data LegacyVoice

Carrier H1 FY16

+4.2%

+3.1% +3.6%

+4.2%

+6.0%

+3.5%

+5.9%

+4.7%

Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16

On-net revenue growth of 7.6% (Q2 +8.9%), supported by ARPU growth in H1 of 6.1% from RGU penetration, pricing and proposition, offset by declining voice usage and mix

Off-net decline reflects sale of consumer off-net base to Fleur

Continuing growth of Data and Carrier in Corporate, offset by Legacy Voice

H2 Outlook

On-net: Continued RGU progress; pricing and proposition

Corporate: Accelerating data growth from pipeline. Carrier expected to be flat year-on-year in H2

£49m £19m

£7m £10m £14m

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55.1%

54.0%

53.4%

H1 FY15 COGS benefits H1 FY15 Base Non-PayDisconnections

Pricing &Proposition

Corporate Data Mobile DataUsage

Mix H1 FY16

Phasing of COGS benefits (lower in H1 FY16 vs H1 FY15)

Pricing & propositions

Growth in high margin Ethernet and Data Solutions

Mobile Data Usage driven temporarily higher by All-in SIM

Mix driven by growth in Fibre and declining voice usage

H2 Outlook

COGS benefit including impact of non-pay disconnections

Lower mobile data usage impact

Accelerating data revenues in Corporate, flattening Carrier revenues

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£217m

£245m

£15m

£13m

£5m £1m £6m

H1 FY15 MTTS Infrastructure Innovation Other MTTS H1 FY16

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MTTS: one-off transformation costs

Infrastructure: ongoing investment in technology, network security and network capability,

Innovation costs relate to Mobile and FTTP trial, and blinkbox

H2 Outlook

Half on half reduction in double-running and transformation costs

Procurement benefits H2 weighted

Significant step up in MTTS benefits

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£153m £152m

H1 FY15 Broadband TV Fibre Mobile Marketing / Other H1 FY16

Volume

CPA

Volume

CPA Volume

CPA Volume

CPA

176,000 RGUs added in period

Disciplined trading approach - lower broadband and TV volumes and controlled CPA

Higher fibre volumes at significantly lower CPA from high percentage of self-install in mix

Mobile CPA benefited from high proportion of SIMs in mix

H2 OUTLOOK

Significant reduction from improved channel mix and falling CPA

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Underlying £51m

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£’m H1 FY16

EBITDA 90

Working Capital 32

CAPEX (84)

OFCF 38

Interest and Tax (11)

FCF 27

ESOT share divestment 61

Acquisitions (12)

Exceptional Items (33)

Dividends (85)

NET CASH FLOW (42)

Net Debt (631)

Innovation £15m

MTTS £18m

£84m

H1

Underlying £39m

Innovation £11m

MTTS £16m

£66m

H2

MTTS £20m

Migrations £13m

£33m

£24m

H1 H2

Migrations £5m

MTTS £19m

Capex / Revenue

FY16: 7%-8% FY17: 6%-6.5%

Pre-cyber attack

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£200m-£210m

25

£631m

H1

Net Debt / EBITDA 2.8x

(32)

(66)

(24)

(14)

(49)

EBITDA W/C Capex Exceptionals Interest Tax

Dividends

£620m - £630m

H2 Acquisitions

(14)

(30-35)

£650m - £665m

H2

Net Debt / EBITDA c2.4x-2.5x

Net Debt / EBITDA c2.1x

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£90m

£200m-£210m

H1 FY16 H2 FY16

Gross Profit

£40m-£45m

c£40m

Opex

SAC c£5m

MTTS Benefits

£25m-£30m Revenue +5% GM% > +100bps vs H1

Pricing & Proposition RGU penetration Positive Mix Effects Data and Next Gen Voice

MTTS costs materially lower vs H1

Continued network and IT investment

Improving channel mix and falling Cost Per Add

vs £6m in H1

c£4m c£21m c£4m

Total MTTS benefit: £25m-£30m

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H1 results in line with plan

Impact of cyber attack will become clearer through Q3 and Q4

Robust and detailed plan in place to deliver strong uplift in EBITDA during H2

Net Debt / EBITDA in line with plan; expect deleveraging through H2

Interim dividend +15%; expect to grow Final Dividend by 15%

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2006-2010 2010-2013 2014-2017

Free Broadband AOL acquisition

Tiscali acquisition

• Exponential Growth

• Growing complexity

• Poor customer experience

Tiscali Integration Stabilising Customer

experience Getting ready for TV

and mobile

• Network synergies • Back office cost

savings • Fewer calls to TT,

fewer call centres

Launched and scaling quad play Scaling B2B

Tackling root cause systems and process issues through Making TalkTalk

Simpler

• Transforming customer experience • Lower operating costs, lower churn

and lower SAC • Transforming brand reputation

driving sustained revenue growth

2017+

Scaling Mobile Scaling Fibre To The Premise

• An integrated fixed and

mobile network • A leading value for money

brand serving consumers and businesses

• Generating significant free cashflows

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Mobile

New billing system on track

Expect to migrate to TEF network in Q1 FY17

Begun planning core thick build

Femtos being tested

3/O2 referred to Phase 2 review; significant merger remedies expected

Fibre to the Premise

Announced pricing for TalkTalk UFO 1Gig at copper prices

Contracted build in York for <£500 / home passed

Received sufficient pre-registration interest to commence Phase 2 of build

260 trialists signed up to date from 1,200 homes passed in Phase 1 of build

On track for full consumer launch in Q3

Laying the foundations to build an integrated, value for money fixed and mobile network

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Strong acceleration in revenue growth in H1

On track to deliver significant step up in H2 profits as expected

Cyber attack smaller than initially thought

Putting our customers first throughout this is the right thing to do for the business and shareholders

Confident in the medium and long term future of TalkTalk as the value for money provider in the growing quad play and B2B market

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£m H1 FY16 HEADLINE

H1 FY16 EXCEPTIONALS

H1 FY16 STATUTORY

EBITDA 90 (17) 73

Depreciation (36) (36)

Amortisation (23) (5) (28)

Share of JV’s (6) (6)

Interest (11) (11)

PROFIT BEFORE TAX 14 (22) (8)

Tax (3) 4 1

Effective Tax Rate 20%

PROFIT AFTER TAX 11 (18) (7)

EPS 1.2p (0.7)p

DPS 5.29p 5.29p

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FY13 FY14 FY15 FY16 H1 H2 H1 H2 H1 H2 H1

KPIs On-Net Broadband & Voice (m) 3.162 3.295 3.402 3.570 3.656 3.775 3.728 Broadband Only (m) 0.642 0.575 0.526 0.490 0.449 0.402 0.369 Total On-net Base (m) 3.804 3.870 3.928 4.060 4.105 4.177 4.097

On-net Churn (per month) 1.6% 1.5% 1.6% 1.6% 1.4% 1.3% 1.5%

Mobile (m) 0.117 0.175 0.236 0.284 0.348 0.464 0.596 Fibre (m) 0.030 0.073 0.142 0.207 0.308 0.479 0.578 TV (m) 0.000 0.230 0.557 0.917 1.217 1.414 1.439

Ethernet and EFM lines (units) 7,100 10,200 13,700 17,400 21,600 26,200 30,700

Off-net Broadband (m) 0.239 0.193 0.148 0.136 0.116 0.106 0.092 Voice (m) 0.407 0.358 0.315 0.282 0.242 0.226 0.209

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

Revenue (£m) On-net 573 597 612 642 648 685 697 Off-net 95 83 69 59 46 41 27 Corporate 160 162 162 178 177 198 188 Total 828 842 843 879 871 924 912

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

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As at 10 November 2015

Revenue (£m) EBITDA (£m) EBITDA %

Analyst FY16 FY17 FY16 FY17 FY16 FY17

1 1,812 1,724 254 231 14.0% 13.4%

2 1,867 1,948 313 388 16.8% 19.9%

3 1,881 1,983 300 410 15.9% 20.7%

4 1,881 1,966 298 361 15.8% 18.4%

5 1,829 1,821 261 349 14.3% 19.2%

6 1,881 1,995 315 440 16.7% 22.1%

7 1,883 1,971 305 346 16.2% 17.6%

8 1,891 1,951 318 458 16.8% 23.5%

9 1,794 1,721 297 372 16.6% 21.6%

10 1,842 1,943 295 365 16.0% 18.8%

11 1,879 1,959 284 475 15.1% 24.2%

12 1,873 1,891 299 436 16.0% 23.1%

13 1,856 1,940 300 406 16.2% 20.9%

14 1,927 2,001 292 333 15.2% 16.6%

15 1,877 1,961 295 424 15.7% 21.6%

16 1,904 2,002 294 311 15.4% 15.5%

Consensus 1,867 1,924 295 382 15.8% 19.8%

Revenue growth 4.0% 3.0%