Final Results

14th May 2015

TalkTalk Telecom Group PLC

Preliminary results for the 12 months to 31 March 2015 (FY15)

· 4.2%* revenue growth in year, accelerating to 6.0% in Q4

· 1m new Revenue Generating Units added in FY15 (+20%) and lowest churn (Q4FY15: 1.3%)

· Continuing strong growth in Data revenues (+40%) driving growth in Corporate (+10%)

· Acquisitions of Tesco and Virgin broadband, blinkbox and tIPicall to drive future growth

· Dividend per share 13.8p (+15%) in line with commitment

· Raising revenue CAGR target to FY17 and beyond to 5%

· Raising cumulative efficiencies expected from MTTS by FY17 to £70m

· On track to deliver 25% EBITDA margin in FY17

FY15 Financial Highlights

· Total revenue up 4.2%* to £1,795m (FY14: £1,722m*)

· Corporate revenue up 10% to £375m (FY14: £340m)

· Headline EBITDA +15.0% to £245m (FY14: £213m)

· Headline Earnings Per Share up 21% to 8.2p (FY14: 6.8p)

· Statutory Profit After Tax up 157.1% to £72m (FY14: £28m)

*Statutory revenue after £5m exceptional VAT adjustment in FY14

Q4 Operating Highlights

· Total revenue up 6.0% year-on-year to £475m; Corporate +14.3%

· On-net revenue up 7.3% year-on-year to £351m; On-Net ARPU +4.6% to £28.18

· 47,000 phone and broadband net adds

· 83,000 fibre net adds; 66,000 Mobile net adds; 82,000 TV net adds

Dido Harding, Chief Executive of TalkTalk commented:

We have delivered on our revenue growth guidance as planned, and have exited the year with our strongest ever quarterly revenue growth of 6%, and our lowest ever level of churn. British consumers and businesses increasingly appreciate TalkTalk's value for money products, and we are focused on improving our customers' experience still further and growing our already flourishing quad play business.

We are upgrading our revenue CAGR target to FY17 to 5% and are on track to deliver our 25% EBITDA margin target in FY17. Beyond FY17 we expect to continue to grow revenues by at least 5% per annum and we are excited about the opportunities that building an ultrafast fibre network and scale inside out mobile network will bring.

We believe firmly that competition will drive the innovation and investment that Britain needs in this essential infrastructure and urge the respective regulatory bodies currently reviewing the various mergers and industry structure, to put strong competition at the heart of their decisions.

There will be a presentation for analysts and investors starting at 8.30am, at the Andaz Hotel, 40 Liverpool Street, EC2M 7QN

Call and webcast details

UK & International: UK & International: +44 (0) 20 3003 2666

http://www.talktalkgroup.com/investors/results-centre

Replay (available for 7 days)

UK & International +44 (0) 20 8196 1998

PIN code 5969447#

Enquiries

Analysts and Investors: Mal Patel +44 (0) 20 3417 1037/07725 448277

Media: Isobel Bradshaw +44 (0) 20 3417 1027/07584 708351

Financials

(1) Excludes net exceptional charges and amortisation of acquisition intangibles.

Q4 Business Review

Accelerating year-on-year revenue growth (+6.0%) delivers FY growth in line with guidance

Group revenues grew by 6.0% year on year and contributed to full year revenue growth of 4.2%* in line with our guidance. On-net revenues grew by 7.3% year on year driven by base growth and ARPU progress (+4.6% y-o-y) from pricing and new product penetration, partly off-set by mix and promotional investment. Corporate revenues continued to grow strongly (+14.3% y-o-y) driven by data products (+25% y-o-y). Off-net revenues reduced as planned (-33% y-o-y), falling from just under 7% of group revenues a year ago, to just over 4% in Q4.

* Statutory revenue after £5m exceptional VAT adjustment in FY14

Continued growth in net adds (+47,000) boosted by migration of Virgin Media off-net customers

We grew our fully unbundled base by 67,000 customers, with the migration of the bulk of Virgin Media off-net broadband customers driving incremental net adds. Our legacy partially unbundled and off-net bases continued to reduce by 18,000 and 2,000 respectively, driving total net adds growth of 47,000.

Strong growth (+280,000) in revenue generating units

We saw strong growth in the take-up of fibre, mobile and TV in our strongest quarter for new product sales. Revenue Generating Units (RGUs) grew by 280,000 during the quarter and as a proportion of the on-net base, by over 16% year on year to 1.56.

Churn reduced year on year to 1.3% from 1.5%

On-net churn was 1.3% during the quarter compared to 1.5% a year ago (Q3FY15: 1.3%). We continued to see churn from customers taking TV, fibre and/or mobile significantly below that of dual play phone and broadband customers. This, coupled with continued customer service improvements and lower complaints to Ofcom (down 8.2% year on year) has driven lower year on year churn.

82,000 TV customers added in Q4 with 37% of base now taking TV

With 1.4m of our customers now taking TV (37% of the base), we continued to moderate the pace of TV additions during Q4 as part of our broader trading strategy to drive growth across all our products. We added 82,000 net new customers to our TV base in Q4 (Q3FY15: 115,000), bringing the total added during the year to just under 500,000. Penetration of TVOD (pay per view movies) and content boosts remained strong during the quarter, with overall content revenues growing by 34% year on year. With the integration of blinkbox now substantially complete, we will accelerate the development of our TV proposition to drive greater engagement, higher ARPU and lower churn.

66,000 net new mobile and 83,000 net new fibre customers added

Our mobile base grew strongly with 66,000 net adds in the quarter and 464,000 customers at year end, representing 12% of our phone and broadband base (Q4FY14: 7%). We saw particularly strong growth in demand for our market leading SIM-only proposition and good take-up of the SIM bundled into our Plus TV package, with a share of the SIM-only market in March of 13% (March 2014: 4.2%). Following the end of the quarter we launched the UK's best value All In, unlimited SIM offering unlimited data, texts and calls for £12 a month.

We saw growing demand for fibre from our customers during the quarter, helped by increasing requirements for higher bandwidth and the success of self-install. As a result we added 83,000 new customers to the fibre base taking the total to 479,000 at year end, representing 12.7% of our phone and broadband base (Q4FY14: 5.8%).

25% growth in data revenues drives 14% growth in Corporate

Demand for our suite of data products for businesses remained strong, as a result of which we added over 2,000 new Ethernet and EFM lines during the quarter, taking the installed base to over 26,000 and delivering 25% year on year revenue growth. Together with growth in Carrier revenues (+63%), this more than offset the ongoing decline in legacy Voice revenue to drive overall growth in Corporate revenue of 14%. Following the end of the quarter we signed an agreement to acquire the entire issued share capital of tIPicall Limited. tIPicall is a leading provider of next generation SIP trunking and will enable us to build on the strong growth of our data connectivity business by enabling TalkTalk Business to aggressively enter the fast growing B2B VOIP market.

GUIDANCE

FY16

· Revenue and EBITDA

We expect FY16 revenues to grow by 5%, driven by continuing growth in customer numbers and ARPU, and growth in TalkTalk Business revenues. We expect strong growth in EBITDA and Free Cashflow as we make progress towards our FY17 target, whilst reinvesting cost savings from Making TalkTalk Simpler ("MTTS") .

· Net debt

Capex to maintain and expand the network is expected to be within our guideline of 6%-6.5% of revenue. In addition we expect to spend an additional 1%-2% of revenues on capex to support our inside out mobile and fibre innovation projects.

Cash exceptional items related to MTTS, the integration of acquisitions and mobile migration activity are expected to be c£40m-£45m

· Dividend

We plan to grow the FY16 dividend by 15%

FY15 - FY17

In November 2013, we raised our FY14-FY17 revenue CAGR target from 2% to 4% and set our medium term EBITDA margin target of 25% to be achieved by FY17. With revenue momentum accelerating through FY15, we are now targeting CAGR in revenue of 5% over the next two years and remain on track to achieve our FY17 EBITDA margin target of 25% in FY17.

FY15 Business Review

Summary

We delivered full year revenue growth of 4.2%*, in line with our guidance. FY EBITDA of £245m grew by 15% (FY14: £213m) after increased SAC investment in growing broadband, mobile and fibre volumes, and absorbing the operating losses from our acquisition of blinkbox in Q4. Headline Earnings Per Share grew by over 20% and Dividend Per Share by 15%, in line with our commitment.

Our strategic goal is to cement our position as the leading value for money, integrated fixed and mobile telecom and TV provider in the UK. In doing so, we will deliver our FY17 financial targets of 5% revenue CAGR (raised from 4%) and 25% EBITDA margin. Beyond FY17 we expect to continue to grow revenues by at least 5% per annum, and deliver strong free cashflow growth. We will deliver these objectives by:

· Leveraging the scale of our network

· Scaling our integrated quad play products for consumers

· Doubling the market share of TalkTalk Business

· Making TalkTalk simpler and transforming our customers' experience

· Trialling and then rolling out an Ultrafast fibre network

· Building an Inside Out mobile network

We see significant long term opportunities to deliver growth and investor returns within this strategic framework, underpinned by an increasingly supportive regulatory background, changes in the structure of the UK market and growing demand from consumers and businesses for value for money quad play and data propositions.

We have made significant progress in each of these during FY15.

1. leveraging the scale of our network

FY15 progress

The scale and breadth of our unbundled network has enabled us to increase network capacity at falling unit costs while holding capex at c6% of revenues. These scale economics mean we are the only provider in the UK market to offer totally unlimited fixed line data products.

The economics of our network also enable us to grow the base of connected customers through acquisition. In November we announced the acquisition of Virgin Media's off-net broadband base and migrated the bulk of this base onto our network through Q4, while at the same time offering these customers an expanded service (fibre and TV) and saving them money.

At the beginning of Q4 we announced the acquisition of Tesco's phone and broadband and home phone bases, which will begin migration onto our network through the summer. These customers too will enjoy the opportunity to take an expanded set of services and save money on their total connectivity bills.

Outlook

We anticipate continued strong growth in bandwidth usage on our network as customers' ownership of multiple devices grows and as they consume more video content, both from our own TV platform and from other OTT providers. We plan to scale the capacity on our network significantly over the next 5 years and to invest in resilience, all within our capex budget of 6% of revenue. This operating leverage sits at the core of the long term economics of our business.

* Statutory revenue after £5m exceptional VAT adjustment in FY14

2. INTEGRATED QUAD PLAY

FY15 progress

We delivered strong growth across all our products, driven by a compelling value for money pricing strategy and a re-balanced trading approach that contrasted with our strong focus on TV during FY14. The broader trading strategy also enabled us to invest additional SAC at lower costs per add than in FY14, driving broadband, fibre and mobile volumes during H2. As a result, we saw strong annual growth in revenue generating units (RGUs), with over 1m new RGUs added. We exited the year with 1.56 RGUs per customer, 16% higher than at the end of FY14.

All our customer bases grew strongly during the year, with phone and broadband up 6%, TV up 54%, mobile up 63% and fibre up 131%. In addition to a rational pricing strategy with value for money at its heart, we continued to develop key propositions to allow our customers to save even more money.

TalkTalk is now firmly established as the No.3 pay TV platform in the UK, with 1.4m customers. We renewed our commitment to YouView during the year, ensuring another five years of access to the platform and its development pipeline. Customers who take TV generate significantly higher NPS and lower churn than dual play phone and broadband customers. Consequently triple play customers are significantly more valuable. We continued to develop our content offer on YouView during the year and built upon our existing wholesale relationship with Sky. We reached a new multi-year agreement to broaden and extend the distribution of Sky's premium movies and sport content to our TV customers. In addition to the linear channels, this includes the right to offer customers catch up content for both Sky Movies and Sky Sports, access to Sky Sports 5 (Champions League and European football) and Sky Sports Box Office on a pay-per-view basis. This built on our existing relationship to offer Sky entertainment content and access to live sports on NOW TV on a day-pass basis.

We launched Netflix to TalkTalk customers in January. The agreement with Netflix allows us to share in the revenues generated, further demonstrating the appeal of the TalkTalk platform to a growing number of content providers.

We also added 16 further new channels during the year, including Premier Sports, two Brazilian and eight African channels, and a number of unique TV boosts not available on any other UK Pay-TV platform, including TV Box (Universal Studios), and Collections from ITV (a boxset proposition offering a great range of comedy, drama and entertainment classics).

As a result of these developments in our content proposition, we saw material increases in the take-up of pay content boosts and TVOD volumes. Customers watching and purchasing Sky boosts grew particularly strongly during the year, with Sky Sports take-up growing 46% year on year driven by the success of Sky Sports F1 and the introduction of Sky Sports 5; and Sky Movies Boost take-up growing 49% year on year driven by the success of Sky Movies on Demand.

Overall content revenues showed strong progress with growth of over 45% year on year.

In January we announced the acquisition of blinkbox from Tesco. blinkbox is one of the leading on-demand providers of pay content in the UK and works across multiple platforms and devices - both inside and outside the home. blinkbox's established technical expertise in multi-platform, multi-device content delivery and incremental content relationships are highly complementary to our strategy of being the best value for money TV provider in the UK.

In mobile, we reached agreement with Telefonica for O2 to be our new MVNO partner and launched the first integrated quad play bundle in the UK in November, which allows Plus customers to take a mobile SIM as part of their package. As a result we grew our share of the SIM only market to 13% in March from 4.2% a year ago - a larger share of the market than either Tesco Mobile or Vodafone. Following the end of the year we launched our market-beating All-In SIM offering unlimited data, texts and minutes for just £12 a month, representing a saving of £270 in comparison to mobile operator Three's equivalent package over 18 months. All our mobile products are available exclusively to TalkTalk broadband customers and therefore drive significantly improved NPS and churn.

Our fibre proposition saw the strongest growth of all products during the year, albeit from a modest base in FY14, driven by increasing requirements for higher bandwidth and an easier, self-install proposition.

Outlook

The UK fixed line space remains an attractive and rational market in which we see multiple opportunities to continue scaling our value for money quad play propositions. For us, quad play is an offensive strategy. Our customers save money by taking additional products, driving increased penetration of TV, fibre and mobile. The next two years will see us continuing to scale our TV, mobile and fibre businesses within the framework of our existing wholesale relationships.

37% of our fully unbundled customers currently take TV and we expect the continuing development of the platform will drive the vast majority of our customers to take TV over time. With the integration of blinkbox now substantially complete, we expect to accelerate the development of our TV to Go App, expand our range of pay per view content, drive greater engagement, higher content ARPU and lower churn. The first example of the benefits blinkbox will bring to TalkTalk is our recent agreement with HBO to make available Game of Thrones (seasons 1-4), one of the world's most famous TV Shows, to Buy and Own digitally from early June. Customers will also be able to stream their purchased episodes on TalkTalk's TV2Go companion App.

In mobile, moving from our current thin MVNO with Vodafone to O2 will initially deliver improved reseller economics that reflect the scale and growth of our mobile base. The access to 4G that we will have under the new MVNO will allow us to expand our range of mobile products and build on our competitive market position. Over the course of the next two years we will also be able to take full advantage of the unbundled economics (similar to fixed line LLU) that our agreement with O2 offers, by building our own core mobile network systems and taking full control of SIM sourcing, pricing and proposition. As a result, we see headroom to significantly grow penetration of mobile within our base from the current 12%.

We expect demand for high speed superfast broadband to continue to grow as the number of connected devices in our customers' homes grows and more customers find their copper speeds insufficient and as a result are willing to pay for faster connections. We do not however, expect particularly strong growth unless or until the wholesale price of fibre to the cabinet comes down and we are able to pass on these cost savings to our customers. Whilst Ofcom's margin squeeze test protects us from potential abuse from BT's vertically integrated business model, and should drive prices down in the long term, we do not expect this imminently.

3. SCALING TALKTALK BUSINESS

FY15 progress

TalkTalk Business ("TTB") has delivered another year of strong revenue performance with 40% growth in Data and 41% in Carrier more than offsetting the continuing decline in legacy voice (-13%). We connected 9,000 new Ethernet and EFM circuits in the year, taking our total base to over 26,000, a year on year increase of over 50%.

In addition we launched our first ever above-the-line marketing campaign for Business Broadband aimed at the SoHo and SME markets, highlighting our compelling price proposition versus BT (£10.50 per month for unlimited data and calls, including unlimited to mobile numbers, compared to £27 per month for the equivalent product from BT). We also launched a free voice app called Talk2Go which allows customers to use existing fixed line minutes on their mobile free of charge as well as free app to app calls, delivering even further value to our Business Broadband proposition. We have seen a strong response which underpins our confidence in the substantial opportunity for TTB to grow share in the Business Broadband market.

Outlook

Scaling TalkTalk Business is a key component of our longer term growth plan. The UK B2B market remains much more fragmented than the consumer market for telecoms services. TTB's share in its key SME and data markets, whilst having grown strongly in the last two years, remains far below our c18% share of the consumer market. We see an opportunity to double TTB's market share over time, driven by continuing strong growth in its suite of Data products, further growth in the SME phone and broadband market, and deepening relationships in the partner channel for the provision of wholesale services.

The acquisition of tIPicall in April 2015, which will allow us to give increased value to our data customers through a converged voice offer, illustrates the potential TTB has to leverage its existing infrastructure in data products through complimentary investments.

4. MAKING TALKTALK SIMPLER AND TRANSFORMING THE CUSTOMER EXPERIENCE

We launched our Making TalkTalk Simpler (MTTS) programme in FY13. At the time we expected the combined initiatives under this programme to drive incremental savings of £30m-£50m over 3-5 years, by making TalkTalk simpler to operate, improving our customers' experience and reducing our costs, through driving process and efficiency improvements. MTTS is driving transformational change in the way we operate and will deliver significant ongoing customer experience and financial benefits.

FY15 progress

We made considerable progress in simplifying our tariffs during FY15, including the disposal of our off-net broadband base, rebranding AOL customers and eliminating over two-thirds of legacy tariffs in TTB. This has allowed us to begin simplifying the supporting infrastructure and operational systems including the decommissioning of 3rd party systems and support. We introduced billing system upgrades and new fault diagnostic tools in Consumer and implemented a new CRM system in TTB.

We continued to expand our self-service provision during the year. Nearly 475,000 customers have downloaded our service centre App since launch, allowing them to view their package details and bills on the go, check their mobile allowance and diagnose faults remotely. Over 35% of our customers self-served during Q4 allowing them the convenience of managing their account online at a time and place that suits them. Our new online welcome centre, which helps new customers through the process of joining TalkTalk, has reduced early life calls and improved customer satisfaction.

MTTS delivered material improvements for customers evidenced by a reduction in churn and fall in complaints to Ofcom. However, call volumes fell by less than we had planned as we reprioritised some of our teams to focus on integration activities. We also redesigned a number of programmes such as our Consumer CRM system for which we changed suppliers in H2. As a result cost savings of £17m in the year were some £15m lower than we had planned.

Outlook

While we are pleased with the progress we have made in improving customers' experience and the resulting reduction in churn, there is much more to do to drive a step change in our customers' experience and our brand reputation, and therefore to deliver materially higher savings.

This will be our key priority over the next two years and requires ongoing systems transformation that will deliver material financial benefits in the form of significantly lower call volumes, lower leakage between sales and connection, lower bad debt from right first time bills and easier payment processes, lower operating costs from fewer engineer visits and router replacements, and lower retention and churn costs from happier customers.

As a result we expect to deliver operating cost savings greater than the £30-50m we were originally targeting. Having delivered £15m and £17m of savings in FY14 and FY15 respectively we now expect an incremental £40m+ over the next two years with cumulative savings by FY17 now expected to be in excess of £70m.

5. ULTRAFAST FIBRE

The scale of our broadband base and the breadth of our network infrastructure (over 3,000 unbundled exchanges) underpin our ambition in fibre, which we are testing through our JV with Sky and CityFibre in York. Build costs of under £500 per premise passed and speed of take-up from our combined market share of 30%-40% are the key variables that will determine the opportunity for a scale national roll-out of fibre to the premise.

FY15 progress

We have made good progress on the groundworks for our York Fibre to the Premise ("FTTP") trial, with 1,200 homes passed in the first dig area, and are on track to launch our proposition soon and begin connecting customers in the autumn. Early indications of build costs are proving to be in line with our target of under £500 per home passed.

Outlook

Based on our experience to date, we remain confident about the potential to roll out FTTP in scale. At a build cost of under £500 per premise passed and 30%-40% take-up, we believe it will be possible to build a c10million household network across the UK. We see ultrafast as an opportunity to build a mass market, value for money proposition that delivers value for consumers and shareholders through keen pricing and rapid scaling.

Our preliminary discussions on financing such a scale roll out have been positive, underscoring our confidence in the opportunity for building an economically viable, alternative and superior fibre infrastructure to that available today.

6. INSIDE OUT MOBILE

FY15 progress

In Q3 we reached agreement with Telefonica UK to provide full MVNO services (including 4G) and we have begun the process of building a core network that will integrate with O2's network.

Outlook

Through the course of 2015 we shall transition customers onto the O2 network. This will allow us to offer 4G services, fully integrated quad play and deliver much improved economics compared to our current arrangement with Vodafone, under which we offer mobile primarily as an add-on. Over the course of the next two years, our economics will improve further as we integrate our core network with that of O2, and thereby also building our own mobile asset.

We shall also begin deploying femtocells (through a router upgrade programme) which will allow us to offload mobile traffic onto our fixed line network via our in-home 4G network (delivering a superior in-home voice experience). This capacity to offload mobile traffic onto our fixed network will not only deliver significantly reduced costs, for both voice and data usage but also give customers much improved in home mobile reception.

The construction of ultrafast fibre and an inside out mobile network will enable us to offer a completely seamless, value for money consumer quad play and high speed business data service which will drive growth for the foreseeable future.

Appendix - Key KPIs

* Statutory revenue after £5m exceptional VAT adjustment in FY14

Finance Review

Overview

We entered the year with a plan to grow revenue by 4% and TV net additions by a similar level to FY14. As the year progressed we broadened our trading strategy to align with market demand, investing further in fibre and mobile customer growth in H2. This supported ARPU acceleration during the year driving Q4 to our ninth successive quarter of revenue growth at 6.0% and full year revenue growth of 4.2%*, in line with our guidance. In the second half of the year we leveraged our network through the acquisition of broadband bases from Virgin Media and Tesco. We also expanded our TV capability by acquiring blinkbox, one of the leading on-demand providers of pay content in the UK. These transactions will contribute to revenue growth in FY16 and beyond.

Gross profit increased by 2.3% supported by customer growth and the impact of price changes. This was partly offset by a change in mix from the continued reduction in consumer voice revenues and growth in fibre, TV content and the increased scale of our B2B wholesale business.

We continued to focus on making TalkTalk simpler (MTTS) including reducing the complexity which arose through past acquisitions and overall have delivered £17m of recurring benefits. This was partly offset by increased investment in the network, costs to serve and innovation. In H2 we agreed the sale of our off-net broadband base to Fleur Telecom, part of the Daisy Group, which will further simplify our tariffs and enable future systems savings. SAC and marketing costs reduced by 2.8% year on year reflecting efficiencies in TV and broadband costs per add from lower unit costs and self-install, and the decision to lower TV volumes. As announced at the interim results we increased our investment in driving higher customer volumes in the second half.

Overall EBITDA margin increased to 14.6% in H2 from 12.6% in H1, giving an average for the year of 13.6% (FY14: 12.3%).

EPS increased 21% to 8.2p (FY14: 6.8p) and the proposed dividend for the full year FY15 of [13.8p] (FY14: 12.0p) represents growth of 15% in line with our commitment.

Operating cash flow improved from £76m in FY14 to £114m in FY15. Net debt increased to £589m primarily as a result of the investment in growth and acquisition activity during the year.

*Statutory revenue after £5m exceptional VAT adjustment in FY14

Headline financial information

Revenue

Revenue grew 4.2%* to £1,795m (FY14: £1,722m*) with Q4 delivering a ninth successive quarter of revenue growth at 6.0%.

Over the last 12 months we have focused on diversifying our revenue and building scalable quad play including introducing a free mobile SIM as part of the Plus TV bundle, and have increased RGUs by 16%. We have also implemented price changes, the impact of which has been partly offset by continued lower voice usage, mix and promotional investment. As a result on-net revenue increased by 6.3%* to £1,333m (FY14: £1,254m*).

Corporate revenues delivered another strong year of growth, increasing 10% to £375m (FY14: £340m). Data revenues grew 40% year on year. This has been driven by the continued growth in our EFM and Ethernet products with 9k net additions in FY15. Carrier revenue grew 41% including higher usage of 118 numbers. Together, this growth more than offset the continued decline in legacy voice revenues driven by a move from premium rate numbers, and the decrease in regulated call termination rates.

Off-net revenues continued to decline this year as expected, reducing by 32% to £87m (FY14: £128m) as a result of the continued decline in our voice only and off-net broadband bases.

*Statutory revenue after £5m exceptional VAT adjustment in FY14

Gross Profit

Gross profit increased by 2.3% to £980m (FY14: £958m) supported by customer growth and the impact of price changes. This was partly offset by a change in mix from the continued reduction in voice revenues, growth in fibre and TV content and increased scale of our B2B wholesale business.

Operating expenses

Our focus remains on MTTS and driving improved customer experience from our core network. We accelerated MTTS during the second half with a dedicated leadership resource for the project and investment in IT and system changes. As part of this we changed suppliers of our Consumer CRM system in H2. Overall we delivered £17m of benefits from MTTS in FY15 by driving greater efficiency through our systems and supply chain including procurement savings and supplier rebates. These have been partly offset by costs from scaling the business including customer service, network capacity and resilience. We also invested in our innovation projects (ultrafast in York and mobile), and incurred incremental TV operating costs from the blinkbox acquisition. As a result total operating costs were £1m lower at £426m (FY14: £427m).

SAC and Marketing

We reduced the cost of acquiring broadband and TV customers through the year by increasing the proportion of customers who self-install their broadband and fibre (in March), and improving the channel mix to lower cost online channels. Churn also decreased from an average of 1.6% in FY14 to 1.4% in FY15 supported by improved customer service and the increased penetration of TV, mobile and fibre in the base. These efficiency savings were partly reinvested in driving higher mobile and fibre growth as part of our broader trading strategy with total SAC and Marketing £9m lower to £309m (FY14: £318m).

EBITDA

EBITDA increased 15% to £245m (FY14: £213m) reflecting an EBITDA margin of 13.6% (FY14: 12.3%) driven by revenue growth and operating cost and SAC efficiencies.

Depreciation and amortisation

Depreciation and amortisation charges increased to £120m (FY14: £112m) as a result of continued capital investment in the network and IT systems.

Finance costs

Net finance costs of £22m (FY14: £20m) comprised the blended interest rate on debt of 3.00% (FY14: 3.39%), which benefited from new refinancing terms (see below) and the amortisation charges in relation to both the new and old facility fees of £3m (FY14: £3m).

Net interest paid in the year increased to £19m (FY14: £17m), principally driven by higher interest payments as a result of higher average net debt.

Amortisation of acquisition intangibles and exceptional items

The amortisation and depreciation charge of £17m (FY14: £21m) includes £6m related to the amortisation of acquisition intangibles (FY14: £21m). The balance of £11m (FY14: nil) relates to the accelerated depreciation of legacy systems as we progress with MTTS and the planned migration of mobile customers.

The net exceptional charge in the year increased to £46m (FY14: £22m) of which £30m was cash (FY14: £23m):

· Making TalkTalk Simpler efficiency programme: £29m (FY14: £22m).

· Migration, reorganisation and integration costs from the Virgin Media and Tesco customer base and blinkbox acquisitions: £14m (FY14: nil)

· Costs relating to the planned migration of mobile customers to the new 4G MVNO agreed with Telefonica in November: £8m (FY14: nil)

· The sale of our off-net broadband base to Fleur Telecom, part of the Daisy Group for a £5m (FY14: nil) benefit.

· A net revenue impact of £nil (FY14: -£5m) from the treatment of prompt payment discounts and the settlement of certain discussions regarding historic termination charges with Mobile Network operators

The treatment of credits and charges as exceptional items involve judgements made by management as set out in Note 1 to the Financial Statements.

Profit before tax

Profit before tax increased £1m year on year to £32m (FY14: £31m), reflecting the increase in EBITDA and lower amortisation charges, offset by net exceptional charges.

Taxation

Our effective Headline tax rate for the year was 20% (FY14: 18%), representing a tax charge of £19m (FY14: £13m), broadly in line with the statutory rate of 21%.

The Group recognised tax credits of £40m (FY14: nil) including two exceptional tax credits comprising £29m in respect of VNL tax losses as the now well established TV business enables us to recognise losses over a longer time period and £16m for the resolution of legacy items.

Earnings per share 

EPS on a Headline basis is provided alongside our Statutory measures to allow easier comparison year on year, due to the impact of exceptional items. A full reconciliation to Statutory results can be found in note 9 to the financial statements.

Headline EPS increased to 8.2p (FY14: 6.8p), driven by the increase in EBITDA, with the profile during the year showing a significant improvement from 2.9p in H1 to 8.2p full year. The basic number of shares increased to 922m (FY14: 901m), driven by a higher weighted average.

Statutory EPS increased to 7.8p (FY14: 3.1p).

Cashflow and net debt 

Working capital

Working capital outflow of £19m (FY14: £30m) reflects the combined effect of the Group's trading profile during the year and the ongoing reductions in the cost base.

Capital expenditure

Capital expenditure was once again focused on meeting the forecast demands for our network and on driving efficiency through MTTS. In FY15 we spent 6.2% of revenues on capex, in line with our long term trend of 6%. In FY16 we once again expect network related capex of c6% of revenues but in addition expect to incur one-off capex of 1.0%-2.0% of revenues on our innovation projects (fibre to the premise and mobile).

Acquisitions

Acquisition expenditure in the year of £38m (FY14: £8m) represents £6m in respect of the YouView joint venture (FY14: £5m), £3m in respect of the York FTTP joint venture (FY14: £nil) and £29m in respect of the initial consideration for the Virgin Media off-net broadband base and the Tesco broadband base, and blinkbox.

Dividends

Our dividend policy is to return to shareholders 50% of basic Headline earnings per share in the form of ordinary dividends. With Headline results impacted by our investment in growth, we committed to dividend growth at a minimum of 15% for FY15.

Dividends of £116m paid in the year (FY14: £99m) comprised the final dividend for FY14 8.0p and the interim dividend for FY15 of 4.6p.

The Board has declared a final dividend of 9.2p which will be paid on 3rd August 2015, subject to approval at the AGM on 22nd July 2015 for shareholders on the register 10th July 2015 (ex-dividend 9th July 2015). The total declared dividend for the year was 13.8p, a year on year increase of 15%, with dividend cover improving to 0.59x (FY14: 0.57x).

Funding, net debt and capital structure

Operations are financed with committed bank facilities, retained profits and equity. During the year we re-financed our banking facilities and were able to both extend the term and diversify our sources of finance by successfully accessing the US Private Placement market. We also renewed our revolving credit facility and term loans, enabling us to reduce our cost of funding.

Funding

At 31st March 2015, the Group's sources of finance were:

· $185m US Private Placement Notes (USPP): in July 2014 The Group issued $185m of USPP notes maturing in 3 tranches. The USPP proceeds were swapped to £109m and the net debt includes retranslation of the USPP funds at the rates achieved where hedged by cross currency swaps

· £560m revolving credit facility (RCF) and £50m bilateral agreement: the Group has a £560m RCF, which matures in July 2019. In addition to the RCF, the Group also has a £50m bilateral agreement which matures in July 2019.

· £100m term loan: the Group has a committed term loan of £100m (2014: £75m), with a final maturity date of July 2019, this loan amortises during the term with repayments of £25m in January 2017 and £25m in January 2018.

At 31st March 2015, the Group's facilities total £819m. The Group was in compliance with its covenants throughout the current and prior year. At 31 March 2015 £599m (FY14: £490m) had been drawn down under these facilities with £220m of undrawn facilities.

Net debt and capital structure

Net debt in the year increased by £92m (FY14: increase of £104m) to £589m (FY14: £497m) driven by investment in growth and the acquisitions of blinkbox, Tesco phone and broadband Virgin Media broadband bases. As a result the net debt to EBITDA ratio increased modestly from 2.3x in FY14 to 2.4x in FY15. The Board regularly reviews the capital structure of the Group and we expect to return to below 2 times net debt to EBITDA in the medium term.

Accounting developments

The adoption of accounting standards in the year, as disclosed in note 1 to the financial statements, has had no material effect on the financial statements.

Going Concern

The Directors have acknowledged the guidance 'Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009', published by the FRC in October 2009.

Our business activities, together with the factors likely to affect our future development, performance and position are set out in the Business Review. Our financial position, cash and borrowing facilities are described within this Finance review.

The breadth of our base, our value for money proposition, continuing improvements in operating efficiency and the largest unbundled network in the UK means that the Directors are confident in our ability to continue to compete effectively in the UK telecoms sector.

We have £819m of committed credit facilities and as at 31 March 2015 the headroom on these facilities was £220m. 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.

Group income statement

For the year ended 31 March

* A reconciliation of Headline information to Statutory information is provided in note 9 to the financial statements.

The accompanying notes are an integral part of this Group income statement. All amounts relate to continuing operations.

Group statement of comprehensive income

For the year ended 31 March

* Recognised within retained earnings and other reserves

** Recognised within translation reserves

The accompanying notes are an integral part of this Group statement of comprehensive income.

Group statement of changes in equity

For the year ended 31 March

* On 16 September 2013, the Group's Remuneration Committee determined that the relevant performance conditions of the VES schemes (including the 5% TSR requirement) had been satisfied, meaning the VES participants were entitled to exercise the remaining 40% of their options. The settlement of the schemes resulted in the recognition of share premium of £66m and a £78m movement in retained earnings and other reserves.

The accompanying notes are an integral part of this Group statement of changes in equity.

Group balance sheet

As at 31 March

The accompanying notes are an integral part of this Group balance sheet.

These financial statements were approved by the Board on 13 May 2015. They were signed on its behalf by:

D Harding I Torrens

Chief Executive Officer Chief Financial Officer

13 May 2015 13 May 2015

Group cash flow statement

For the year ended 31 March

The accompanying notes are an integral part of this Group cash flow statement.

Notes to the consolidated financial information

1. Accounting policies and basis of preparation

Directors' responsibilities

The Directors of TalkTalk Telecom Group PLC are responsible, in accordance with the listing rules of the Financial Services Authority, for preparing and issuing this preliminary announcement, which was approved on 13 May 2015.

Basis of preparation

The financial information set herein does not constitute the Group's statutory accounts for the years ended 31 March 2015 or 2014, but is derived from those accounts. Statutory accounts for 2014 have been delivered to the Registrar of Companies and those for 2015 will be filed in due course. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006. The 2014 Annual Report of TalkTalk Telecom Group PLC, can be found on the Group's corporate website www.talktalkgroup.com and the 2015 Annual Report will be included on the website shortly.

The financial information is prepared on the basis of the accounting policies set out in the 2014 Annual Report of TalkTalk Telecom Group PLC, except in relation to the new standards which have been adopted in the year with no significant impact on the results for the current or prior year.

Application of significant new or amended EU endorsed accounting standards

Amendments to IFRS 2 'Share-based Payment', IFRS 3 'Business Combinations', IFRS 8 'Operating Segments', IFRS 13 'Fair Value Measurement', IAS 16 'Property, Plant and Equipment', IAS 24 'Related Party Disclosures', IAS 38 'Intangible Assets' and IAS 40 'Investment Property' became effective in the current reporting period. These new and revised standards and interpretations have no material impact on the Group.

2. Segmental reporting

Accounting policy

IFRS 8 'Operating Segments' requires the segmental information presented in the financial statements to be that used by the chief operating decision maker to evaluate the performance of the business and decide how to allocate resources. The Group has identified the Board as its chief operating decision maker. 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.

The Group's revenue is split by On-net, Off-net and Corporate products as this information is provided to the Group's chief operating decision maker. On-net and Off-net comprise Consumer and Business customers that receive similar services.

The Group has no material overseas operations; as a result a split of revenue and total assets by geographical location has not been disclosed.

3. Operating profit before interest and taxation

Group profit before interest and taxation is stated after charging (crediting):

* Includes a credit of £20m to offset associated increased costs of £25m ** Comprises depreciation of £5m and amortisation of £6m (note 9)

4. Employee costs

The average number of employees (including Executive Directors) was:

The aggregate remuneration recognised in respect of these employees in the income statement comprised:

The Group provides various defined contribution pension schemes for the benefit of a significant number of its employees. These are charged to the income statement as they become payable in accordance with the rules of the schemes.

Compensation earned by key management personnel is analysed below. The key management personnel comprised the Board of Directors and TalkTalk Group Executive Committee.

5. Share-based payments

Accounting policy

The Group issues equity-settled share-based payments to certain employees and Executive Directors. Equity-settled share-based payments are measured at fair value at the date of grant and expensed over the vesting period, based on an estimate of the number of shares that will eventually vest.

Fair value is measured by use of a dividend discount or Binomial model for share-based payments with internal, non-market performance criteria (for example, EPS targets) and a Black Scholes or Monte Carlo model for those with external performance criteria (for example, TSR targets).

For schemes with non-market performance criteria, the number of options expected to vest is recalculated at each balance sheet date, based on expectations of performance against target and of leavers prior to vesting. The movement in cumulative expense since the previous balance sheet date is recognised in the income statement, with a corresponding entry in reserves.

For schemes with market performance criteria, the number of options expected to vest is adjusted only for expectations of leavers prior to vesting. The movement in cumulative expense since the previous balance sheet date is recognised in the income statement, with a corresponding entry in reserves.

If a scheme is cancelled, any remaining part of the fair value of the scheme is expensed immediately. If a scheme is forfeited, no further expense is recognised and any charges previously recognised are reversed.

Charges arise on loans that are provided to employees to fund the purchase of shares in the Group as part of long term incentive plans. To the extent to which the loans are not, in certain circumstances, repayable, the cost of such loans is expensed over the course of the relevant incentive plans. Charges are also recognised on loans provided to employees to settle personal tax liabilities. To the extent to which the loans are not, in certain circumstances, repayable, the cost of such loans is expensed on grant.

Group share schemes

The Group's share schemes are the Shareholder Value Plan (SVP), Discretionary Share Option Plan (DSOP), Save-As-You-Earn scheme (SAYE) and Share Match scheme (SIP).

In order to aid the user of the accounts, the dilutive effect on EPS of each of the Group schemes has been presented. This has been calculated using an average share price for the financial year of £3.00 (2014: £2.67).

In June 2014, the Group made awards under the SVP and the DSOP schemes, under rules previously approved by shareholders. Further information is set out in sections (i) and (ii) of this note. The TTG VES and CPW TTG VES have fully vested in the prior year; therefore, disclosures are limited to the dilutive effect on EPS and the number of outstanding options in the prior year.

Summary of share schemes

TalkTalk Telecom Group PLC schemes

(i) TTG SVP

On 18 June 2014, the Company made awards in the Shareholder Value Plan ('SVP'), operating under the Value Enhancement Scheme (VES) rules previously approved by shareholders. Subsequent awards were made to new joiners of the Group in December 2014, February and March 2015. The Group advanced loans to participants to enable them to purchase participation shares in TalkTalk Group Limited, the holding company of the Group's operating business. The SVP is a growth plan and not a share option plan. These loans are subject to a commercial rate of interest set by HMRC. The SVP enables participants to share in up to 7% of any increase in the value of the Group over an opening market capitalisation of £2,941million based on a five business day average up to 3 June 2014. The awards are subject to the following performance conditions:

· at least a 7% compound annual increase (CAGR) in the market capitalisation of the Group from the above valuation over a 3 and 4-year period; and

· the Group's TSR outperforms the FTSE 250.

The performance conditions are measured over an initial performance period from 3 June 2014 to the date of announcement of the Group's FY17 annual results after which a total of 60% of the options will vest. The remaining options are measured over a performance period from 3 June 2014 to the date of announcement of the Group's FY18 annual results. Participation shares are forfeited for the value of the outstanding loan plus accrued interest, if an employee leaves the Group before the scheme vests. The Pool also has a maximum cap on incremental value equal to 2.75% of the total issued share capital of TalkTalk Telecom Group PLC at the date of each vesting.

There is a holding period on 100% of the PLC Shares received in exchange for participation shares on vesting, of 12 months from each vesting date for Executive Directors. All other participants are required to hold 50% of the PLC Shares received in exchange for participation shares on vesting for 12 months from each vesting date.

A fair value exercise was conducted for the award using the Monte Carlo method with the total fair value of the participation shares granted totalling £6m. The resulting IFRS 2 charge for the year ended 31 March 2015 is £1.6m.

(ii) DSOP - 2014 grant

In June 2014, the Group granted eight million nil priced share option awards subject to the following performance conditions:

· at least a 7% compound annual increase ('CAGR') in the market capitalisation of the Group from the above valuation over the next 3 and 4 year periods; and

· the Group's TSR outperforms the FTSE 250.

The options are measured over a performance period from 3 June 2014 to 3 June 2017 and will vest on announcement of the Group's FY17 annual results. A total of 60% of the vested options are exercisable from the vesting date, with the remaining 40% of options being exercisable 12 months later. Options are forfeited if an employee leaves the Group before the options vest, subject to the DSOP scheme rules. Subsequent awards were made to new joiners of the Group in December 2014 and February 2015.

The weighted average remaining contractual life of the DSOP - 2014 grant is 9.2 years.

(iii) DSOP - 2013 grant

In FY14, the Group granted six million nil-priced share option awards subject to absolute TSR and EPS performance targets. The options are measured over a performance period to 31 March 2016 and will vest on the announcement of the Group's FY16 annual results. A total of 60% of the vested options are exercisable from the vesting date, with the remaining 40% of options being exercisable 12 months later. Options are forfeited if an employee leaves the Group before the options vest subject to the DSOP scheme rules. Awards are triggered within a range from 5% to 26% for compound annual growth of TSR and EPS. If the minimum performance requirement is met a total of 25% of the award will vest, rising to 40% for target, 70% for stretch and 100% for super stretch.

The weighted average remaining contractual life of the DSOP - 2013 grant is 8.2 years (2014: 9.2 years).

 (iv) DSOP - 2012 grant

Nil-priced share option awards made under the DSOP 2012 grant are subject to absolute TSR and EPS performance targets with a cap and collar to address volatility in the market, as detailed in the Directors' Remuneration Report. The options are measured over a performance period to 31 March 2015 and will vest on the announcement of the Group's FY15 annual results. A total of 60% of the vested options are exercisable from the vesting date, with the remaining 40% of options being exercisable 12 months later. Options are forfeited if an employee leaves the Group before the options vest. Awards are triggered within a range from 10% to 19% for compound annual growth of TSR and EPS. If the minimum performance requirement is met a total of 25% of the award will vest, rising to 40% for target, 70% for stretch and 100% for super stretch.

*In accordance with the scheme rules, the final performance of the DSOP 2012 was measured on 31 March 2015. It was confirmed that performance against the EPS measure fell below the minimum threshold and was missed, but that performance against the TSR measure exceeded Super Stretch and was hit. 50% of the DSOP 2012 will therefore vest on 14 May 2015, with 60% of the vested options being available to exercise from this date and the remaining 40% available to exercise on 14 May 2016.

The weighted average remaining contractual life of the DSOP - 2012 grant is 6.9 years (2014: 7.9 years).

 (v) DSOP - 2010 grant

Awards made under the DSOP - 2010 grant were subject to TSR performance targets and were measured over a performance period to 28 March 2013. Options were forfeited if an employee left the Group before the options vested. On 28 March 2013, all options vested subject to the DSOP scheme rules but they were not exercisable until after the preliminary announcement on 16 May 2013.

The weighted average remaining contractual life of the DSOP - 2010 grant is 5.6 years (2014: 6.0 years).

(vi) SAYE

The scheme permits the granting of options to employees linked to a bank SAYE contract for a term of three or five years. Contributions from UK employees range from £5 to £250 per month for schemes launched between 2010 and 2013 and between £5 and £500 per month for the 2014 scheme onwards. Options may be exercised at the end of the three or five year period at an exercise price determined at the invitation date. The scheme is available for a period each year for employees to join.

Exercise prices for the schemes are set out below:

2014 grant 240p per share

2013 grant 192p per share2012 grant 123p per share2011 grant 119p per share2010 grant 102p per share

The weighted average remaining contractual life of SAYE options is 2.1 years (2014: 2.3 years).

 (vii) Share Match

The Group launched its first all-employee, HMRC approved Share Match Plan (SIP) in June 2014, following the Remuneration Committee approval of this scheme in the year ending 31 March 2014.This enables eligible employees to purchase market priced shares by entering into a partnership share agreement and holding such shares in trust for up to a five year period. The rules of the Plan allow an employee maximum contribution of £1,800 per annum, or in line with HMRC limits if these are increased. Approval for the TTG Share Match was granted by shareholders at the AGM on 24 July 2013.

The Remuneration Committee, at its discretion may award matching and/or free shares to eligible participants. Matching shares may be granted up to a maximum ratio of two matching shares for each partnership share purchased by a participant. Free shares may be awarded up to a maximum value of £3,600 tax free per annum, or in line with HMRC limits if these are increased.

Currently the Group provides one matching share for each partnership share purchased by participating employees or Executive Directors. During the year ended 31 March 2015, the impact of Share Match scheme on the Group's results is not material.

6. Finance income and costs

Finance costs are analysed as follows:

During the year ended 31 March 2015, the Group refinanced its term loan and revolving credit facility with bank debt and US Private Placement notes and paid £5m in respect of arrangement and legal fees. The fees are being amortised over the expected life of the loan and notes and are included within facility fees and similar charges above, along with the accelerated amortisation of the arrangement fees on the previous re-financing. The average interest rate in the year was 3.00% (2014: 3.39%).

7. Taxation

Accounting policy

Current tax, including UK corporation tax and overseas tax, is provided at amounts expected to be paid or recovered using the tax rates and laws that have been enacted or substantively enacted at the balance sheet date.

Deferred tax is provided on temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base.

Deferred tax liabilities represent tax payable in future periods in respect of taxable temporary differences. Deferred tax assets represent tax recoverable in future periods in respect of deductible temporary differences, and the carry-forward of unused tax losses and credits. Deferred tax is determined using the tax rates that have been enacted or substantively enacted at the balance sheet date and are expected to apply when the deferred tax asset is realised or the deferred tax liability is settled.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Current and deferred tax is recognised in the income statement except where it relates to an item recognised directly in reserves, in which case it is recognised directly in reserves.

Deferred tax assets and liabilities are offset where there is a legal right to do so in the relevant jurisdictions.

Critical judgements in applying the Group's accounting policy

The extent to which tax losses can be utilised depends on the extent to which taxable profits are generated in the relevant jurisdictions for the foreseeable future, and on the tax legislation then in force, and as such the value of associated deferred tax assets is uncertain.

Tax - income statement

The tax charge comprises:

The tax charge on Headline earnings for the year ended 31 March 2015 is £19m (2014: £13m), representing an effective tax rate on pre-tax profits of 20% (2014: 18%). The tax credit on Statutory earnings for the year ended 31 March 2015 is £40m (2014: £3m). The reconciliation between the Headline and Statutory tax charge is shown in note 9.

The principal differences between the tax charge and the amount calculated by applying the standard rate of UK corporation tax of 21% (2014: 23%) to the profit before tax are as follows:

Tax - retained earnings and other reserves

Tax on items recognised directly in retained earnings and other reserves is as follows:

The deferred tax charge recognised directly in retained earnings and other reserves for the years ended 31 March 2015 and 31 March 2014 relates to share-based payments.

Tax- balance sheet

The deferred tax assets recognised by the Group and movements thereon during the year are as follows:

No deferred tax assets and liabilities have been offset in either year, except where there is a legal right to do so in the relevant jurisdictions.

During the year, the Company reviewed the period over which it recognises assets in respect of brought forward tax losses and revised this from five years to ten years due to the increased stability of the TV proposition. The incremental movement of £29m has been recognised through exceptional items.

At 31 March 2015, the Group had unused tax losses of £674m (2014: £702m) available for offset against future taxable profits. A deferred tax asset of £69m (2014: £39m) has been recognised in respect of £347m (2014: £197m) of such losses, based on expectations of recovery in the foreseeable future.

No deferred tax asset has been recognised in respect of the remaining £327m (2014: £505m) as there is insufficient evidence that there will be suitable taxable profits against which these losses can be recovered. All losses may be carried forward indefinitely.

8. Dividends

Accounting policy

Dividend income is recognised when payment has been received. Final dividend distributions are recognised as a liability in the financial statements in the year in which they are approved by the relevant shareholders. Interim dividends are recognised in the year in which they are paid.

The following dividends were paid by the Group to its shareholders:

The proposed final dividend for the year ended 31 March 2015 of 9.2p per ordinary share on approximately 922 million ordinary shares (approximately £85m) was approved by the Board on 13 May 2015 and will be recommended to shareholders at the AGM in July. The dividend has not been included as a liability as at 31 March 2015.

The Group ESOT has waived its rights to receive dividends in the current and prior year and this is reflected in the analysis above.

9. Reconciliation of Headline information to Statutory information

Headline information is provided because the Directors consider that it provides assistance in understanding the Group's underlying performance.

Accounting policy

Headline results are stated before the amortisation of acquisition intangibles and exceptional items. Exceptional items are those that are considered to be one-off or non-recurring in nature and so material that the Directors believe that they require separate disclosure to avoid distortion of underlying performance and should be separately presented on the face of the income statement.

Critical judgements in applying the Group's accounting policy

The classification of items as exceptional is subjective in nature and therefore judgement is required to determine whether the item is in line with the accounting policy criteria outlined above. Determining whether an item is exceptional is a matter of qualitative assessment, making it distinct from the Group's other critical accounting judgements where the basis for judgement is estimation.

a) Revenue

Within the Statutory results are two items relating to ongoing commercial discussions; the treatment of prompt payment discounts and historic termination charge settlements with the Mobile Network Operators. The net impact of these two items is not material. (2014: -£5m)

b) Operating efficiencies - Making TalkTalk Simpler ('MTTS')

During the year ended 31 March 2015, the Group has continued its simplification and cost reduction programmes to drive a seamless and efficient customer experience and provide the business with operations and processes that are fit for purpose.

The costs incurred in the year included work on improving Consumer and TalkTalk Business customer operations, services and rationalising customer tariffs and exiting Group legacy products and access methods.

These programmes have resulted in £29m (2014: £20m) of costs including project management, consultancy, migration and call centre costs.

A total taxation credit of £7m has been recognised on these costs in the year ended 31 March 2015 (2014: £5m).

c) Acquisitions and disposal

During the year ended 31 March 2015, the Group acquired broadband and voice customer bases from both Virgin Media Limited ('Virgin Media') and Tesco Stores Limited ('Tesco') and acquired blinkbox Entertainment Limited ('blinkbox'). The Group has incurred costs for the migration of customers onto the Group's network and integration costs including redundancy. The total charge incurred in the year ended 31 March 2015 was £4m (2014: £nil).

Further to this, the Group has provided for £10m of costs in respect of committed future programmes predominantly in respect of migration, reorganisation and related costs.

In addition, on 24 December 2014, the Group disposed of its existing off-net Broadband customer base to Fleur Telecom Limited, a member of Daisy Communications Group. This transaction generated £5m profit to the Group.

A total taxation credit of £2m (2014: £nil) has been recognised in relation to these items in the year ended 31 March 2015.

d) Mobile Migration

As part of the plan to build a scale quad-play business, during the year ended 31 March 2015, the Group has entered into a new multi-year commercial MVNO agreement with Telefónica UK, where by Telefónica UK will provide TalkTalk with access to 4G and national roaming services in the UK. As a result, the Group provided for £8m (2014: £nil) of costs in respect of committed future mobile migration programmes from the existing network provider to Telefónica UK predominantly in respect of SIM replacement, customer communications and related costs.

A total taxation credit of £2m (2014: £nil) has been recognised on these costs in the year ended 31 March 2015.

e) Impairment loss

As a result of the MTTS exceptional projects, an £11m impairment charge has been recognised in respect of a number of systems to be decommissioned or replaced before the end of their useful economic life. £5m (2014: £nil) of this impairment charge related to equipment and has been included within exceptional depreciation and the remaining £6m (2014: £nil) related to a billing system and has been included in exceptional amortisation on the face of the Group income statement.

A total taxation credit of £2m (2014: £nil) has been recognised on these costs in the year ended 31 March 2015.

f) Amortisation of acquisition intangibles

An amortisation charge in respect of acquisition intangibles of £6m was incurred in the year ended 31 March 2015 (2014: £21m). The Tiscali customer base was fully amortised in the year.

A total taxation credit of £1m has been recognised in the year ended 31 March 2015 (2014: £5m).

g) Tax items

The Group has recognised tax credits of £45m (2014:£nil) comprising a further £29m in respect of VNL tax losses following the increase in the time period used to recognise losses from five to ten years and £16m for the resolution of legacy demerger items (Note 7).

10. Earnings per share

Earnings per share are shown on a Headline and Statutory basis to assist in the understanding of the performance of the Group.

There are no share options considered anti-dilutive in the year ended 31 March 2015 (2014: nil).

11. Goodwill and other intangible assets

(a) Goodwill

Accounting policy

Goodwill arising on the acquisition of subsidiary undertakings and businesses, representing the excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities acquired, is recognised initially as an asset at cost and is subsequently measured at cost less any accumulated impairment losses.

On disposal of a subsidiary undertaking, the relevant goodwill is included in the calculation of the profit or loss on disposal.

Critical judgements in applying the Group's accounting policy

The Group has two CGUs - Consumer and TalkTalk Business. For the purpose of impairment testing, at the acquisition date, goodwill is allocated to each of the CGUs expected to benefit from the synergies of the acquisition. The Group's shared costs and assets relating mainly to infrastructure and central overheads are allocated across the two CGUs based on the relative future cash flows that those shared costs support.

Determining whether goodwill is impaired requires estimation of the value in use of the CGUs to which the goodwill has been allocated. The value in use calculation involves estimation of both the future cash flows of the CGUs and the selection of appropriate discount rates to use to calculate present values.

Impairment of goodwill

Goodwill is not subject to amortisation but is tested for impairment annually or whenever there is an indication that the asset may be impaired; this review is performed at a CGU level.

Impairment is determined by assessing the future cash flows of the CGU to which the goodwill relates. The future cash flows of the Group are taken from the Board approved five-year plan and extrapolated out to 20 years based on the UK's long term growth rate. This is discounted by the CGU's weighted average cost of capital pre-tax to give the net present value of that CGU. Where the net present value of future cash flows is less than the carrying value of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to the other assets of the CGU pro-rata on the basis of the carrying amount of each asset in the unit. Any impairment loss is recognised in the income statement and is not subsequently reversed.

Sensitivity analysis is performed using reasonably possible changes in the key assumptions.

The goodwill acquired in business combinations is allocated at acquisition to the CGUs that are expected to benefit from that business combination. The allocation of goodwill across the CGUs is as follows:

Impairment review

The key assumptions used in the Group's goodwill impairment review are as follows:

· Long term growth rates

Long term revenue growth rates applied are based on the growth rate for the UK per the Organisation for Economic Co-operation and Development (OECD). The rate applied in the current year was 2.2% (2014: 1.7%).

· Discount rate

The underlying discount rate for each CGU is based on the UK ten-year gilt rate adjusted for an equity risk premium and the systematic risk of the CGU. The average pre-tax rate for both CGUs used to discount the forecast cash flows is 9.0% (2014: 8.4%). The assumptions used in the calculation of the CGUs' discount rate are benchmarked to externally available data. The same discount rate has been applied to both CGUs due to the similarity of risk factors and geographical location.

· Capital expenditure

Forecast capital expenditure is based on senior management expectations of future required support of the network and current run rate of expenditure, typically at 6% of revenue.

· Customer factors

The key assumptions for the forecast cash flows of each of the CGUs are based on expected customer growth rates, ARPU, direct costs, including acquisition costs, and change in product mix. The value assigned to each of these assumptions has been determined based on the extrapolation of historical trends in the Group and external information on expected trends of future market developments.

Sensitivity analysis has been performed for each key assumption and the Directors have not identified any reasonably possible material changes in the key assumptions that would cause the carrying value of goodwill to exceed the recoverable amount.

(b) Other intangible assets

Accounting policy

Operating intangibles

Operating intangibles include internal infrastructure and design costs incurred in the development of software for internal use. Internally generated software is recognised as an intangible asset only if it can be separately identified, it is probable that the asset will generate future economic benefits, and the development cost can be measured reliably. Where these conditions are not met, development expenditure is recognised as an expense in the year in which it is incurred. Operating intangibles are amortised on a straight line basis over their estimated useful economic lives of up to eight years.

Acquisition intangibles

Acquired intangible assets such as customer bases and other intangible assets acquired through a business combination are capitalised separately from goodwill and amortised over their expected useful lives of up to six years on a straight line basis. The value attributed to such assets is based on the future economic benefit that is expected to be derived from them, calculated as the present value of future cash flows after a deduction for contributory assets.

Critical judgements in applying the Group's accounting policy

Impairment

At the acquisition date, acquisition intangibles are allocated to each of the CGUs expected to benefit from the synergies of the combination. The Group's shared costs and assets relating mainly to infrastructure and central overheads are allocated across the two CGUs based on the relative future cash flows.

Determining whether the carrying amounts of operating and acquisition intangibles have any indication of impairment requires judgement. If an indication of impairment is identified, further judgement is required to assess whether the carrying amounts can be supported by the value in use of the CGU that the asset is allocated to.

The value in use calculation involves estimation of both the future cash flows of the CGUs and the selection of appropriate discount rates to use to calculate present values.

Useful economic lives

The assessment of the useful economic lives of these operating and acquisition intangibles requires judgement. Amortisation is charged to the income statement based on the useful economic life selected. This assessment requires estimation of the period over which the Group will benefit from the assets.

Impairment of assets

The Group reviews the carrying amounts of its intangible assets to determine whether there is any indication that those assets have suffered an impairment loss at each reporting date. Where an indicator of impairment exists, the Group makes a formal estimate of the asset's recoverable amount and the extent of any impairment loss.

The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. In assessing value in use, the estimated cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset is estimated to be less than the carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount.

Other intangible assets are analysed as follows: