Second quarter highlights
- Total connections up 34.0% to 2.38m
- Subscription connections up 16.3% to 0.96m
- 66 net new stores opened, taking the portfolio to 1,921 stores
- 625,000 applications for free broadband, with 421,000 live as at 30 September
- 370 exchanges unbundled, with a further 476 handed over by Openreach
Updated financial guidance for the year to March 2007
- Approximately £20m of additional costs as a result of strong demand for free broadband
- Now expecting broadband start-up costs of approximately £70m in the current year
- No impact anticipated in March 2008 financial year
Strong performance in Distribution and Fixed Line operations to boost underlying profitability
Charles Dunstone, Chief Executive Officer, said:
“We have had a very strong first half's trading. The Distribution business has performed very well and we have had an exceptional customer response to our free broadband launch. I am also pleased to say that our average call centre answering times are now among the lowest in the industry, as measured by independently-conducted market research.
“The unprecedented take-up of our free broadband offer means we have accelerated our customer service recruitment plans and incurred additional wholesale broadband costs. We now expect to incur start-up broadband losses of around £70 million in the current year, compared to our original guidance of £50 million. However, our underlying performance in the first half has been ahead of our expectations, and we expect interim headline pre-tax profits, before the impact of our broadband and Virgin Mobile France operations, to be up 50% year-on-year.”
Total connections grew by 34.0% to 2.38m year-on-year in the 13 weeks to 30 September 2006 . Subscription connections were up 16.3% to 0.96m, as network promotions and the attractive handset pipeline continued to stimulate the market. Pre-pay connections were up 59.0% to 1.29m, reflecting a continuation of the trend witnessed over the previous six months.
We opened a further 66 net new stores in the period, taking the base to 1,921. We now expect to open a total of 300 net new stores in the current financial year. The Insurance business continued to perform well, with the base up 16.5% year-on-year to 2.06m.
Free broadband update
As at 30 September 2006 , we had received 625,000 applications for free broadband. Of these, 516,000 are now live for calls and line rental, with 421,000 live on broadband as well. So far we have unbundled 370 exchanges, with a further 476 exchanges handed over by Openreach. We remain well on course for our target of 1,000 unbundled exchanges by May 2007.
20,000 broadband customers were on unbundled lines at the period end. Over the next three months we will start to use Openreach's bulk migration platform to transfer customers onto unbundled lines in significant volumes. We will update the market on progress at our interim results presentation on 2 November 2006.
We have made significant progress in relation to customer service levels over the last two months. Customers are now going live on broadband typically within 5 weeks of application, which includes the necessary time for arranging wholesale line rental, carrier pre-select and IP Stream transfers, and we expect to reduce connection periods further over the coming weeks. In addition, call centre response times have improved materially, with independent market research now indicating that waiting times are now among the lowest in the industry. We will continue to invest to make TalkTalk's customer service a positive differentiator.
Primarily as a result of the unexpectedly high demand for free broadband, we are set to incur additional costs in the current financial year amounting to approximately £20m. The three factors relating to this cost increase are the incremental wholesale broadband costs incurred across a larger base, delays to LLU migration and an acceleration in customer service costs. We expect these additional costs to have an impact in the current year only, with the immediate development of broadband customer profitability being dependent on the speed and quality of BT Openreach's processes for bulk migration to unbundled lines in the coming months.
Aside from the one-off acceleration in customer service costs, free broadband customer economics to date are evolving in line with previous guidance.
Other Fixed and Mobile operations
Trading in our existing TalkTalk UK residential operations has continued to be strong. The integration of the Onetel acquisition has now been completed ahead of schedule, and as a result of this and good underlying margin trends, we expect the existing customer bases to achieve profits for the year a little ahead of existing guidance. Our other Telecoms Services operations continued to perform in line with expectations.
Carphone Warehouse Group plc (London: CPW)