Annual Financial Report

RNS Announcement

Thursday 19 June 2014

For Immediate Release

TalkTalk Telecom Group PLC ("Company")

Publication of Annual Report 2014

The following documents have today been posted or otherwise made available to shareholders:

· Annual Report 2014

· Notice of 2014 Annual General Meeting

· Form of Proxy for the 2014 Annual General Meeting

In accordance with Listing Rule 9.6.1 a copy of each of these documents has been uploaded to the National Storage Mechanism and will be available for viewing shortly at http://www.morningstar.co.uk/uk/NSM.

These documents are also available to view and download from the Company's website at http://www.talktalkgroup.com.

Copies of the Annual Report 2014 and Notice of the 2014 Annual General Meeting may also be obtained from:

The Company Secretary's Office

11 Evesham Street

London

W11 4AR

Compliance with the Disclosure and Transparency Rule 6.3.5 ('DTR 6.3.5') - Extracts from the Annual Report 2014

The information below, which is extracted from the Annual Report 2014, is included solely for the purpose of complying with DTR 6.3.5. It should be read in conjunction with the Company's Preliminary results announcement for the 12 months to 31 March 2014 issued on 15 May 2014 (available at http://www.talktalkgroup.com/press/press-releases/2014/talktalk-group-preliminary-results-fy14.aspx). Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the full Annual Report 2014. All page numbers and cross-references in the extracted information below refer to page numbers in the Annual Report 2014.

For further information please contact:

Tim Morris +44 (0) 208 753 8243

For media enquiries:

Alex Birtles +44 (0) 7557 435 686

Directors' Responsibilities

The Directors' responsibility statement below has been prepared in conjunction with the Annual Report 2014, whereas this dissemination document contains extracts from the Annual Report 2014 to comply with DTR 6.3.5.

Sir Charles Dunstone - Chairman

Dido Harding - Chief Executive Officer

Stephen Makin - Chief Financial Officer

John Gildersleeve - Senior Independent Director

Ian West - Non-Executive Director

John Allwood - Non-Executive Director

Brent Hoberman - Non-Executive Director

Sir Howard Stringer - Non-Executive Director

James Powell - Non-Executive Director

Joanna Shields - Non-Executive Director

We confirm to the best of our knowledge:

1. The financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

2. The management report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

Principle risks and uncertainties

In common with other organisations, we are affected by a number of risks, not all of which are in our control. Some risks, such as UK macroeconomic factors, are likely to affect the performance of UK businesses generally, while others are particular to our operations. This section sets out the material risks to the Group and how we seek to mitigate them in the day to day running of our business.

1. Competitive environment

Potential impact: Increased competition in the UK phone, broadband and TV (triple play) market may impact financial performance.

Mitigation: We regularly monitor the product offerings of our key competitors as well as the latest market and consumer trends. This ensures we identify opportunities to strengthen our competitive position by broadening and enriching the products and services we offer and by finding ways to deliver greater value for our customers. In FY14, TalkTalk has continued to build on the successful launch of its TV service as part of the YouView joint venture, having acquired a TV customer base of close to 1 million by the end of FY14. The Consumer business also has a sizeable mobile base of c.280,000 customers through its Mobile Virtual Network Operator proposition. These product offerings enable the business to compete more effectively with other triple and quad play providers in the marketplace.

2. Regulatory environment

Potential impact: Changes in BT's regulated wholesale prices can significantly impact the Group's performance.

Mitigation: We have continued to actively participate in Ofcom's consultations impacting on wholesale prices, especially the Fixed Access Market Review and Local Loop Unbundling/Wholesale Line Rental Charge Control. In particular, we have provided Ofcom with evidence, argument and expert opinion to support the case that competition, consumers' interests and the development of a mass market for super-fast broadband will be best served by reductions in wholesale prices or, in the case of fibre, a wider margin between wholesale and retail prices. In addition, the Group continues to work with Openreach to develop fibre products that incur lower set up and provisioning costs, which will allow wholesale prices to reduce further.

3. Regulatory compliance

Potential impact: Failure to operate effective processes and controls across the Group may have an adverse impact on the services we deliver to our customers, leading to churn and non‑compliance with regulatory requirements. The fines that Ofcom can impose on the Group and the associated negative publicity could adversely impact our brand and reputation.

Mitigation: There has been continued focus this year on improving processes and controls and clarifying lines of accountability both in first line operations and in our second line assurance function. There has been significant progress with delivering improvements in our complaints handling processes during the period. This has resulted in a significant reduction in the overall volume of Ofcom complaints from our customers and in our market share of complaints for the sector. The Group's Regulatory Compliance Committee has continued to convene throughout the year to monitor the mitigation of operational risks, which could give rise to customer complaints and regulatory breaches. The Director of Quality & Compliance has chaired a weekly operational Compliance Committee meeting throughout the year, attended by senior executives.

4. Change management

Potential impact: We continue to review, rationalise and integrate our IT infrastructure to simplify the way in which we operate our business. This could have an adverse impact on the services we provide to our customers and on our financial performance.

Mitigation: The Executive Committee regularly monitors progress of significant change programmes and the associated risks. The Group Change Forum, comprised of senior managers, is responsible for establishing and monitoring adherence to the governance framework within which change is managed.

5. Data security

Potential impact: Failure to prevent the loss or exploitation of personally identifiable or commercially sensitive information could result in loss of competitive advantage, regulatory fines, damage to the brand and ultimately churn.

Mitigation: The Group continually reviews and seeks best practice external guidance on its data security capability and invests in and implements new solutions, both to prevent and detect security breaches. In FY14, there have been initiatives including increased hardware and removable media encryption, further enhancements to the Group's data loss prevention capability and roll-out of advanced solutions to protect customer credit card details. The Group has also adopted a 'Ten Steps to Cyber Security' programme, to increase protection against intrusion and attack; improve detection and management of breaches; and increase protection against loss of personal data. The Data Governance Council meets monthly to review progress against the risk mitigation plans aligned to the Ten Steps to Cyber Security.

6. Network stability and resilience

Potential impact: Failure to maintain sufficient and acceptable levels of network and system performance for the Group's Consumer and Business customers could lead to complaints and ultimately churn.

Mitigation: There has been significant focus during the year on ensuring optimum levels of capacity are delivered and maintained to ensure no congestion is experienced by our customers. We launched a Technical Excellence programme, which has delivered a number of significant improvements in the infrastructure's ongoing growth and management.

7. Key suppliers

Potential impact: The business has a number of critical suppliers, the performance of which could significantly affect the business's operational and financial performance. TalkTalk relies on a number of key suppliers to provide network, equipment and services. A failure in their people, systems or processes or a failure to act in an ethically responsible manner could significantly affect TalkTalk's reputation and its ability to deliver products and services to its customers.

Mitigation: We continue to review and improve our processes and controls around supplier selection and in-life risk management. This helps to reduce the likelihood and potential impact of business interruption due to supplier failure.

8. Customer experience

Potential impact: Failure to deliver a seamless and positive end-to-end experience of TalkTalk's products and services and to deal with customers' queries and complaints effectively could damage our brand and lead to churn.

Mitigation: We are committed to continually reviewing and improving the level and quality of customer service we provide. This financial year, we have delivered a number of initiatives to i) reduce the likelihood of customers experiencing service issues, ii) improve the ability of our customers to self-help via the launch of a new Online Service Centre and associated diagnostic tools and iii) deliver better training and tools to our Customer Service teams so that queries and complaints can be handled more effectively.

9. Scaling TV

Potential impact: Now that TalkTalk has successfully established its TV proposition, the business must ensure it can continue to build scale effectively. Failure to closely monitor our customers' experience of our TV service and constantly improve service performance and the quality and value of our content offering could adversely impact our brand and reputation, leading to churn.

Mitigation: In FY14, we launched a lower priced TV proposition for our Essentials customers. As functionality grows, we continue to focus on maintaining the speed and performance of the set-top box through an extensive customer feedback programme, benchmarking tests and field research. We continually develop and renew our partnerships with over 40 content providers to ensure a broad range of family entertainment as we build scale. In addition, our YouView partnership has been extended for another five years. Finally, we continue to improve the customer experience - our self-install proposition is now our customers' preferred set-up method and we have also developed propositions and services for customers requiring wireless connectivity.