Talkspace, Inc.

www.talktalkgroup.com

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TalkTalk Telecom Group PLC
Annual Report 2011

 
 
 
 
 
 
TalkTalk Telecom Group PLC
We are one of the leading fixed line  
voice and broadband telecommunications 
businesses in the UK. We have over  
4.8 million customers.

Demerger from Carphone Warehouse
In March 2010 we demerged from The Carphone  
Warehouse Group PLC and listed on the London 
Stock Exchange as TalkTalk Telecom Group PLC, 
and are now a constituent of the FTSE 250.

For more information visit: 
www.talktalkgroup.com

Directors’ Report: Overview 
Financial highlights 
What we do 
Chairman’s statement 
Chief Executive Officer’s statement 
Market overview 

Directors’ Report: Performance review 
Business review 
Finance review 
Principal risks and uncertainties 
Corporate and social responsibility review 

Directors’ Report: Governance 
Board and advisors 
Corporate governance 
Directors’ remuneration report 
Other statutory information 

Financial statements 
Statement of Directors’ responsibilities 
Independent Auditor’s report to the members  
of TalkTalk Telecom Group PLC 
Consolidated income statement 
Consolidated statement of comprehensive income 
Consolidated statement of changes in equity 
Consolidated balance sheet 
Consolidated cash flow statement 
Notes to the consolidated financial statements 
Independent Auditor’s report to the Directors  
of TalkTalk Telecom Group PLC 
Company balance sheet 
Company reconciliation of movement  
in Shareholders’ funds 
Notes to the company financial statements 

Other information 
Five year record (unaudited) 
Glossary 
Shareholder information 

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98

 
 
 
 
Financial highlights

•	  We have had strong EBITDA, 
earnings and cash flow 
growth, during a year of 
major change across 
the business.

•	  We achieved our integration 
synergies run rate of £55m, 
making good progress 
towards implementing 
our strategy.

Revenue

+4.7%

Headline EBITDA*

+25%

2011

2010

£m

1,765

2011

276

1,686

2010

£m

221

Operating free cash flow*

Headline earnings per share*

+31%

+24%

2011

2010

£m

156

2011

13.5

119

2010

pence

10.9

Statutory profit before tax

Dividends per share

>100%

5.6

2011

2010

£m

11

57

Final

3.9

Interim

pence

1.7

*		We	use	adjusted	measures	where	measures	are	not	defined	under	IFRS	or	IFRS	numbers	have	been	adjusted.	

For	details	see	page	97.

01

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TalkTalk Telecom Group PLC | Annual Report 2011

 
 
 
 
 
02

Directors’ Report:
Overview

What	we	do	
Chairman’s	statement	
Chief	Executive	Officer’s	statement	
Market	overview	

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04

What we do

We are the UK’s leading value for money 
provider of fixed line broadband and voice 
telephony services to consumers and 
business users.

We	serve	over	4.8	million	customers	across	
the	UK	under	the	TalkTalk,	AOL	Broadband	
and	TalkTalk	Business	brands.	

Largest

unbundled UK network

Over	the	past	five	years,	through	a	combination	of	organic	
growth	and	acquisitions,	we	have	built	one	of	the	UK’s	largest	
broadband	and	voice	customer	bases.	During	the	year	we	
completed	the	integration	of	the	former	Tiscali	business	we	
had	acquired	in	2009,	so	that	the	majority	of	our	base	now	
comprises	TalkTalk	customers.

How we are delivering value for money services for 
our customers:
We	operate	the	UK’s	most	extensive	Next	Generation	
Network.	We	use	this	advanced	network	to	provide	our	
customers	with	a	range	of	clear,	consistent	value	for	
money	broadband,	voice	and	associated	services.

TalkTalk Telecom Group PLC | Annual Report 2011

For	more	information	visit:
www.talktalkgroup.com

05

Our network
We	have	installed	our	own	advanced	equipment	in	more		
than	2,000	of	the	UK’s	local	telephone	exchanges,	which		
serve	around	86%	of	the	country’s	households.	These	
exchanges	are	connected	via	our	own	high	speed,	high	
capacity	all	IP	national	network,	enabling	us	to	carry	all		
of	our	customers’	voice	and	data	traffic	efficiently	and		
cost	effectively.	

This	investment	enables	us	to	take	control	of	the	telephone	
line	from	the	exchange	to	the	customer’s	premises	(on	terms	
established	by	the	telecoms	regulator	Ofcom)	and	to	manage	
all	of	the	voice	and	broadband	services	we	provide	over		
this	line.	

Known	as	‘local	loop	unbundling’,	this	process	brings	major	
advantages	for	the	customer,	such	as	optimised	broadband	
speed	and	service	quality	and	access	to	our	growing	range		
of	additional	products	and	services.	At	the	end	of	the	year,	
86%	of	our	customers	were	being	served	through	our	own	
network.	Further	unbundling,	to	extend	our	network	coverage	
to	93%	of	the	UK’s	households,	is	central	to	our	plans	to	
continue	growing	our	revenue	and	our	profit	margins.

Our consumer business
TalkTalk	is	strongly	positioned	as	the	value	for	money	
broadband	and	voice	provider	in	the	UK	market.	We	offer		
two	straightforward,	compelling	customer	propositions:

TalkTalk Business
In	January	we	rebranded	our	Opal	business	to	business	
operation	as	TalkTalk	Business,	to	benefit	from	the	strength		
of	the	TalkTalk	brand.	

TalkTalk “Essentials”

TalkTalk “Plus”

Simply great value

£6.50

+ FREE connection
+ £12.60 line rental a month

Unlimited broadband 
and phone

£14.50

+ FREE connection
+ £12.60 line rental a month

Office Complete
Your	broadband,	landline,
mobile	and	calls	solution.

Need a new
business line?
Connect	to	the	UK’s	largest
Next	Generation	Network.

More info

More info

This	business	is	a	long-established	supplier	of	voice	and	data	
services	to	the	small	and	medium	sized	enterprise	market,	
using	our	extensive,	low	cost	network	infrastructure	to	deliver	
a	wide	range	of	propositions	to	these	customers.

In	2011	we	launched	three	mobile	products	aimed	at	our	
customers	seeking	to	reduce	the	costs	of	calling	between	
family	members.	

In	2012	we	plan	to	launch	innovative	value	for	money,	broadband	
based	television	services	to	our	customers.	These	will	be	built	
around	YouView,	a	new	technical	standard	for	mass	market	
television	being	developed	by	a	joint	venture	that	comprises	
TalkTalk	and	all	the	UK	Public	Service	Broadcasters,	including	
the	BBC,	BT	and	Arqiva.

TalkTalk Telecom Group PLC | Annual Report 2011

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06

Chairman’s statement

“ This first year since our demerger has been one 
of intense activity for TalkTalk, building a strong 
base on which we can offer an enhanced 
experience for all our customers, and continue 
to grow our revenue and profitability.”

Charles Dunstone 
Chairman

The	demerger	of	TalkTalk	from	Carphone	Warehouse	at	the	
end	of	last	year	was	designed	to	build	value	for	Shareholders	
by	giving	both	companies	the	freedom,	focus	and	flexibility	to	
develop	and	pursue	the	strategies	that	were	right	for	each	of	
them.	One	year	on,	there	can	be	no	doubt	that	the	demerger	
has	worked.	TalkTalk’s	first	year	as	a	standalone	company	has	
been	one	of	intense	activity	and	we	are	delivering	the	benefits	
of	our	growth	and	scale,	reporting	strong	growth	in	earnings	
and	operating	free	cash	flow.	

I	have	sometimes	described	TalkTalk’s	acquisition	of	Tiscali		
in	2009	as	being	like	a	snake	swallowing	a	goat	–	prolonged,	
sometimes	painful	but	worth	it	in	the	end!	We	started	the		
year	with	our	Tiscali	customers	having	been	rebranded	and	
moved	onto	TalkTalk	tariffs,	but	still	on	separate	networks	and	
separate	billing	systems.	Through	the	course	of	the	year	we	
migrated	almost	all	of	them	onto	our	own	network	and	billing	
system.	This	was	an	enormous	and	complex	operation,	at	the	
end	of	which	we	have	a	stronger,	integrated	business	that	is	
ready	to	take	the	next	big	steps	forward.

The	process	of	absorbing	Tiscali’s	customers	into	TalkTalk		
was	not	always	painless,	and	some	suffered	disruption	to		
their	service.	We	sometimes	did	not	deal	with	these	problems	
as	well	as	we	should	have	done,	and	this	resulted	in	some	
customers	getting	frustrated	with	us	and	leaving	TalkTalk.	
However,	I	am	certain	that	for	those	customers	who	stayed	
with	TalkTalk,	and	they	are	the	vast	majority,	the	journey		
was	worthwhile	and	they	will	now	enjoy	a	consistently		
better	customer	experience.	

The	successful	integration	of	Tiscali	has	given	us	a	strong	
base	to	build	on,	but	there	is	still	a	huge	job	to	do	to	make	
TalkTalk	more	efficient	and	to	give	our	customers	an	even	
better	experience.	We	are	now	implementing	a	new	strategy		
to	do	this,	and	to	drive	further	revenue	and	profit	growth.		
This	includes	transforming	the	way	we	work,	expanding	
the	coverage	of	our	network,	and	developing	exciting	
new	products	and	services	for	our	customers.

At	the	heart	of	TalkTalk	is	our	commitment	to	be	the	UK’s	best	
value	for	money	provider	of	broadband,	voice	and	television	
services.	That	commitment	is	now	more	important	than	ever.	
Consumers	and	businesses	are	still	facing	a	difficult	economic	
environment,	with	budgets	under	pressure	and	likely	to	remain	
so	for	some	time.	Broadband	is	now	an	essential	service,	and	
we	will	be	absolutely	true	to	our	heritage	of	giving	customers	
consistently	the	best	value	for	money	products	in	the	market.	

Giving	customers	value	is	about	more	than	offering	them	the	
lowest	prices.	It	is	also	about	what	they	get	for	their	money,	
and	we	have	now	included	our	unique	new	HomeSafe	service	
into	all	TalkTalk	products.	Parents	are	becoming	increasingly	
concerned	about	what	the	internet	can	bring	into	their	homes,	
and	HomeSafe	allows	them	to	control	this	effectively.	It	also	
demonstrates	how	TalkTalk	can	use	its	advanced	network	
technology	to	develop	innovative	services	that	customers	want.	

Early	next	year	we	will	be	transforming	our	customers’	
television	viewing	experience.	UK	households	can	currently	
choose	between	Freeview,	the	free,	basic	multi	channel		
TV	service	with	limited	functionality,	and	high	cost	pay	TV	
services,	offering	an	extensive	range	of	content	and	functions.	
YouView	from	TalkTalk	will	bridge	the	gap	between	these	two	
extremes.	Customers	will	get	all	the	Freeview	content	they	are	
used	to,	but	with	advanced	catch	up	and	video	on	demand	
functions,	all	integrated	within	a	simple,	intuitive	program	
menu.	And	they	will	get	all	this	in	value	for	money	packages	
that	are	just	not	available	in	the	market	now.	

In	this	very	active	year,	we	have	mapped	out	our	course	for		
the	next	phase	of	TalkTalk’s	development,	and	taken	some	
major	steps	forward.	To	reflect	this	progress,	from	the	start		
of	the	2012	financial	year,	we	intend	to	distribute	50%	of		
our	Headline	earnings	per	share	as	regular	dividends.

Last	year	was	a	challenging	one	for	our	employees,	and		
on	behalf	of	the	Board	I	would	like	to	thank	them	all	for		
their	efforts,	and	for	their	continuing	commitment	to		
TalkTalk	and	to	our	customers.

TalkTalk Telecom Group PLC | Annual Report 2011

Chief Executive Officer’s statement

07

Headline EBITDA

+25%

2011

2010

£m

276

221

Operating free cash flow

+31%

2011

2010

£m

156

119

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“ This was a strong all round performance in  
a year of major change across the business. 
We have made good progress implementing 
our strategy, by extending our network, driving 
operating efficiencies, and offering customers 
consistently best value for money services.”

Dido Harding 
Chief	Executive	Officer

TalkTalk	delivered	a	strong	all	round	performance,	in	a	year	of	
major	change	across	the	whole	business.	In	our	first	year	as	a	
stand	alone	company	we	added	almost	500k	customers	to	our	
own	network,	improved	ARPU	by	6%,	grew	Headline	EBITDA	
by	25%,	and	Operating	free	cash	flow	by	31%.

Integration
Our	priority	during	the	year	was	the	integration	of	the	former	
Tiscali	business.	This	was	a	complex	process	that	included	
transferring	all	former	Tiscali	customers	onto	TalkTalk	branded	
price	plans,	moving	them	onto	our	email	platform,	migrating		
a	substantial	majority	of	them	onto	our	extended	network,		
and	moving	their	billing	details	onto	our	upgraded	billing	
system.	We	successfully	completed	all	the	major	elements		
of	this	program	by	the	year	end	and	delivered	our	run		
rate	target	of	£55m	of	annual	synergies.	

During	this	process	a	number	of	customers	suffered	disruption,	
which	caused	higher	levels	of	complaints	and	churn,	and	gave	
rise	to	a	formal	Ofcom	investigation.	We	have	worked	hard	to	
mitigate	the	impact	of	the	disruption	on	our	customers,	and	
to	address	the	specific	billing	problem	highlighted	by	Ofcom,	
which	we	believe	has	now	been	resolved.	As	customers	are	
migrated	onto	our	own	network	and	systems,	their	experience	
improves	significantly	and	churn	reduces.	

Implementing our strategy
With	4.2	million	broadband	customers,	and	the	UK’s	most	
extensive	and	most	advanced	‘Next	Generation	Network’,	our	
aim	now	is	to	realise	the	potential	of	this	scale	for	the	benefit	
of	both	customers	and	Shareholders.	We	therefore	launched		
a	new	strategy	in	November,	and	have	made	good	progress	
implementing	this.	

The	strategy	is	focused	around	five	areas,	and	aims	to	deliver	
our	medium-term	financial	objectives	of	20%	Headline	EBITDA	
margin	and	2%	revenue	CAGR.

TalkTalk Telecom Group PLC | Annual Report 2011

 
 
 
 
 
08

Chief Executive Officer’s statement
continued

HomeSafe
Exclusively	available	to	TalkTalk	
customers	free	of	charge,	HomeSafe	
provides	unique	network	level	safety	
and	security	for	all	devices	using	
the	internet	connection	in	the	
home	including	games	consoles	
and	smart	phones.	The	parental	
control	features,	including	
homework	time,	help	parents	
make	choices	about	how	to	keep	
their	families	safer	online.

1. Extending our network
We	ended	the	year	with	our	own	advanced	equipment	in	2,007	
of	the	UK’s	local	telephone	exchanges,	covering	over	86%	of	
the	country’s	households.	These	unbundled	exchanges	are	
linked	to	our	core	national	Next	Generation	Network	by	our	
high	capacity,	low	cost	backhaul	circuits.	This	all	IP	network	
enables	us	to	manage	multiple	services	efficiently,	control	
service	quality,	and	develop	new	services	rapidly	and	
cost	effectively.

Unbundling	delivers	substantial	benefits	including	higher	
ARPU	and	lower	churn	across	the	customer	base,	access	to	
inbound	call	termination	revenue,	lower	regulated	charges,	
and	lower	backhaul	costs.	Migrating	our	customers	onto	our	
network	delivers	a	better	experience	for	our	customers,	the	
opportunity	to	offer	them	more	products	and	a	rapid	return		
on	the	investment.	

We	are	now	extending	our	network	by	unbundling	a	further	
700	exchanges.	This	will	bring	our	coverage	up	to	93%	of	the	
UK’s	households,	and	with	2,700	unbundled	exchanges	our	
aim	is	to	serve	93%	of	our	customers	on	our	own	network.	

2. Improving operating efficiency and effectiveness
Our	target	is	to	generate	£40-50m	of	operating	efficiencies	
over	the	medium-term,	by	simplifying	our	business	processes,	
eliminating	duplication,	and	in	doing	so	deliver	a	better	service	
to	our	customers.	

Towards	the	end	of	the	year	we	launched	a	major	organisation	
restructuring	that	will	generate	£25m	of	operating	efficiencies	
annually.	Changes	include	integrating	all	our	technology	and		
IT	capabilities	into	one	organisation	and	streamlining	all	our	
non	customer	facing	business	operations.	These	changes	
will	also	greatly	improve	the	quality	of	the	end	to	end	
experience	we	deliver	to	our	customers,	which	will	enable	
us	to	address	customer	services	issues	and	start	to	reduce	
our	overall	customer	service	costs.	

3. Delivering value for money quad play services
We	are	committed	to	providing	an	expanding	range	of	clear,	
value	for	money	services	for	our	customers.	More	of	our	
customers	now	take	both	broadband	and	voice	services,	and	
more	also	opt	for	our	higher	value	“Plus”	product,	which	now	
makes	up	14%	of	our	total	base.	We	aim	to	drive	this	customer	
mix	improvement	further,	and	introduce	more	“Boosts”,	which	
give	customers	extra	value	and	billing	certainty.	

TalkTalk	is	all	about	giving	customers	consistently	the	best	value	
for	money	experience	in	the	market,	and	we	have	reinforced	
this	commitment	by	recently	reducing	the	Headline	price	of	
our	Essentials	and	“Plus”	products	for	all	our	customers	taking	
either	of	these	products.	

Value	for	money	is	not	just	about	price,	it	is	also	about	
what	customers	get	for	their	money,	and	we	have	now	
added	our	new,	free	HomeSafe	option	to	our	Essentials	and	
Plus	propositions.	HomeSafe	is	the	UK’s	first	network-level	
security	product,	which	works	by	filtering	a	customer’s	
broadband	before	it	enters	the	premises.	It	allows	parents	
to	decide	what	internet	content	they	want	to	come	into	their	
home,	and	protects	every	internet	device	in	the	household.	

We	have	extended	our	product	range	by	offering	great	
value	mobile	services	for	our	existing	customers,	aimed	
at	families	seeking	to	reduce	the	costs	of	calling	between	
family	members,	and	we	now	plan	to	extend	the	range	of	
our		mobile	offers.

The	next	major	milestone	in	the	implementation	of	our	
quad	play	strategy	will	be	the	launch	of	an	innovative	value	
for	money	television	service	to	our	customers.	This	will	be	
built	around	YouView,	a	new,	open	technical	standard	for	
mass	market	television	being	developed	by	a	joint	venture	
that	includes	TalkTalk	and	all	the	UK	Public	Service	
Broadcasters,	including	the	BBC,	BT	and	Arqiva.

TalkTalk Telecom Group PLC | Annual Report 2011

09

Always Better Value
The	services	TalkTalk	provides	are	
at	the	very	heart	of	our	homes	and	
we	believe	they	should	be	available	
to	everyone.	This	belief	defines	our	
commitment	to	Always	Better	Value.	
Because	Always	Better	Value	means	
a	brighter	home	for	everyone.

YouView	will	bring	to	our	customers	all	the	‘plug	in	and	watch’	
simplicity	they	are	used	to,	combined	with	the	UK’s	leading	
catch	up	and	video	on	demand	services,	all	instantly	available	
through	one	simple,	intuitive	set-top	box.	Our	customers’	on	
screen	program	guide	will	go	backwards	in	time	as	well	as	
forwards,	for	the	first	time	allowing	them	to	discover	and	watch	
great	programs	whenever	they	want,	including	a	choice	of	pay	
TV	channels	and	on	demand	programs.	YouView	from	TalkTalk	
will	be	in	trial	by	the	end	of	2011,	with	a	full	consumer	launch	
planned	for	spring	2012.

Brighter basics
Successful	delivery	of	our	strategy	is	not	just	about	what	we	
plan	to	do,	it’s	also	about	how	we	do	it.	The	way	people	work	
together	and	the	culture	we	develop	is	a	crucial	element	
to	our	success.	Through	the	course	of	this	year	we	have	
developed	our	Brighter	Basics	–	five	core	values	that	define	
what	kind	of	team	we	aspire	to	be.	They	define	our	aspirations	
as	a	way	of	daily	life,	they	capture	what	makes	TalkTalk	unique,	
and	will	guide	us	in	implementing	our	plans	to	make	TalkTalk	
a	brighter	place	for	everyone.

4. Growing our range of data services for businesses
We	are	using	our	Next	Generation	Network	to	develop		
new	services	to	exploit	the	growth	of	business	data	traffic.	
These	include	products	based	on	Ethernet,	a	technology		
that	delivers	symmetrical,	uncontended,	fast	access	that	is	
displacing	high	cost	legacy	leased	line	products.	We	aim		
to	grow	our	wholesale,	carrier	grade	Ethernet	connectivity	
propositions	for	large	operators	supplying	the	enterprise	
market,	as	well	as	copper-based	‘Ethernet	First	Mile’		
solutions	for	the	mid	market.	

5. Offering fibre access 
We	are	making	delivery	of	our	services	future	proof,		
and	meeting	potential	customer	demand	for	high	speed	
broadband,	by	developing	our	‘Next	Generation	Access’	
capabilities.	We	have	launched	a	fibre	optic	“Boost”	
product,	and	are	working	with	BT	Openreach	to	develop	
this	further,	and	in	particular	to	improve	the	customer	
connection	experience	and	reduce	costs.	

Our	other	fibre	initiatives	include	a	shared	research	and	
development	project	with	BSkyB	to	deploy	a	small	scale		
‘Fibre	To	The	Home’	network	to	3,600	homes	in	north	
west	London,	and	active	support	for	Fujitsu	as	it	seeks	
access	to	government	funds	earmarked	for	investment	
in	superfast	broadband	in	rural	communities.

For	more	information	visit:
www.talktalkgroup.com

TalkTalk Telecom Group PLC | Annual Report 2011

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10

Market overview

At the end of December 2010 there 
were 19.5 million household broadband 
connections in the UK, 3.9% more than 
at the same time the previous year. It is 
estimated that more than 75% of UK 
households now have a fixed line 
broadband connection.

The	UK	has	one	of	the	most	competitive	and	innovative	
telecommunications	markets	in	Europe.	With	consumers	and	
businesses	still	facing	a	tough	economic	environment,	
and	budgets	under	pressure,	TalkTalk	is	clearly	positioned	as	
a	value	for	money	provider,	with	a	strong	appeal	to	customers	
seeking	the	best	value	offers	for	what	is	now	an	essential	
household	and	business	service.

Fixed line broadband
With	4.2	million	fixed	line	broadband	customers,	TalkTalk’s	
market	share	at	the	end	of	December	2010	was	21.5%.	
BT	Retail	was	the	largest	broadband	service	provider,	with	a	
27.7%	market	share.	The	other	large	scale	service	providers	
were	Virgin	Media	and	BSkyB.

Unbundled broadband
At	the	end	of	March	2011	there	were	7.6	million	unbundled	
broadband	lines	in	the	UK.	TalkTalk	was	the	largest	unbundler,	
with	3.6	million	lines,	47.3%	of	the	total	UK	market,	and	a	total	
of	2,007	local	exchanges	unbundled.

21.5%

47.3%

TalkTalk market share at December 2010

TalkTalk share of unbundled market

On-net base

Percentage of customers on-net

2011

2010

million

3.607

3.110

2011

2010

%

86

74

TalkTalk Telecom Group PLC | Annual Report 2011

 
11

UK telecoms regulation
The UK telecoms market is regulated 
by Ofcom, which sets the charges for 
wholesale access to infrastructure 
and associated services owned by 
BT Openreach, where BT is deemed 
to enjoy ‘significant market power’.

Ofcom’s objective is to ensure fair 
competition in the market, so that 
consumers and businesses benefit 
from a choice of services and service 
providers.	Three areas regulated by 
Ofcom are most material for TalkTalk.

LLU Charges
A	consultation	is	currently	in	progress	
to	establish	the	level	of	BT	Openreach	
charges	for	LLU	for	the	period	until	
30	March	2014.	This	consultation	covers	
MPF,	SMPF	and	WLR	charges,	and	takes	
account	of	a	range	of	factors	including	
BT	Openreach’s	cost	of	capital,	the	
value	of	the	local	loop	infrastructure	
for	regulatory	purposes,	and	potential	
efficiency	gains.	Ofcom’s	mid	case	
proposals	(based	on	update	published	
on	18	May	2011)	are	for	MPF	prices	
to	change	to	RPI	minus	2.7%	and	RPI	
minus	4.6%	for	WLR.	A	final	decision	
on	the	new	charges	is	expected	in	
Autumn	2011.

IPStream Charges
This	covers	the	charge	control	for	
BT’s	wholesale	broadband	services,	
of	which	IPStream	is	the	most	relevant,	
being	the	service	used	in	areas	that	are	
outside	TalkTalk’s	unbundled	network	
footprint.	Ofcom’s	market	review	in	
2010	established	that	there	should	be	
a	charge	control	for	IPStream	covering	
the	12%	of	the	population	located	in	
the	most	rural,	least	competitive	areas	
of	the	market.	A	consultation	process	
on	the	actual	charge	levels	is	now	in	
progress	and	Ofcom’s	initial	proposal	
is	that	this	should	be	based	on	a	mid	
case	of	RPI	minus	13%.

Next Generation Access
BT	Openreach’s	NGA	infrastructure,	
currently	mainly	comprising	its	FTTC	
network	is	now	being	rolled	out.	BT	
Openreach	is	required	to	offer	a	wholesale	
NGA	product	on	equivalent	terms	and	
conditions	for	all	communications	providers.	
At	present	it	is	not	subject	to	formal	price	
controls.	The	current	wholesale	product	
is	GEA,	which	TalkTalk	is	using	to	
provide	customers	with	its	Fibre	Optic	
“Boost”	product.	The	development	
of	this	product	further	is	the	subject	of	
discussions	between	TalkTalk,	BT	
Openreach	and	Ofcom,	aiming	to	
improve	the	customer	experience	and	
to	make	its	economics	more	attractive	
for	providers	and	customers.

Net Neutrality 
A	number	of	parties	have	lobbied	vocally	
at	national	and	EU	level	for	the	introduction	
of	rules	to	prevent	certain	forms	of	data	
traffic	management	by	ISPs.	However,	
the	EU,	the	UK	Government	and	Ofcom	
all	appear	to	be	committed	currently	to	
allow	market	transparency	and	competition	
to	protect	consumers’	interests,	rather	
than	prescriptive	regulation.	

FTTC	
GEA	
ISP	
LLU	
MPF		
NGA	
RPI	
SMPF	
WLR	

Fibre	to	the	Cabinet
Generic	Ethernet	Access
Internet	Service	Provider
Local	Loop	Unbundling
Full	unbundling	
Next	Generation	Access
Retail	Price	Index
Partial	unbundling
Wholesale	Line	Rental

Other regulation 
Other significant areas of current 
or potential legislation for TalkTalk. 

Digital Economy Act
This	Act	was	enacted	in	2010	and	
requires	Internet	Service	Providers	to	
send	notifications	to	customers	whose	
connections	have	been	identified	as	
being	used	for	illegal	file	sharing.	The	
Act	includes	reserve	powers	to	require	
the	ISP	to	disconnect	these	customers.	
TalkTalk,	along	with	BT,	was	given	
permission	for	a	judicial	review	of	these	
provisions	of	the	Act,	on	five	grounds.	
In	a	judgment	handed	down	in	
April	2011	the	majority	of	the	challenge	
was	rejected.	An	appeal	is	currently	
being	considered.

In	parallel,	the	Government	is	considering	
whether	there	should	be	a	requirement	
on	ISPs	to	block	certain	websites	that	
promote	illegal	file	sharing,	and	whether	
such	a	scheme	should	be	voluntary	
or	compulsory.	

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TalkTalk Telecom Group PLC | Annual Report 2011

 
 
 
12

Directors’ Report:
Performance review

Business review 
Finance review 
Principal risks and uncertainties  
Corporate and social responsibility review 

14
16
20
22

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14

Business review

Overview
The Group delivered a strong performance in its first year as  
a standalone entity generating material growth in profitability 
(Headline EBIT up 27%) and cash generation (operating free 
cash flow up 31%). Our customer base has remained broadly 
flat during the year as we have focused the business on 
unbundling, taking the percentage of customers on our network 
from 74% to 86% and growing ARPU on our broadband base 
6% from £23.6 in Q4 2010 to £25.0 in Q4 2011. Substantially 
completing the integration program has delivered significant 
margin improvement in the second half of the year and we exit 
the year with the full benefit of £55m integration synergies 
included in our EBITDA run rate. As this increase in profitability 
flows through to operating free cash flow we continue to deliver 
on our commitment to cash growth.

All figures presented within the Business review are presented 
on a Headline basis as this is the way in which management 
reviews the business. Our Statutory results are presented in 
the Finance review.

Customer base and ARPU

Broadband (k)
Non-broadband (k)

On-net base (k)
Of which:
MPF base (k)
SMPF base (k)

2011

4,199
678

2010

4,197
999

Growth 
(decline)

2
(319)

3,607

3,110

497

2,751
856

2,211
899

540
(43)

Off-net base (k)

592

1,087

(495)

ARPU

Broadband
Non-broadband

Q4 2011

Q4 2010

£25.0
£17.7

£23.6
£21.8

5.9%
(18.8)%

Broadband customer base and ARPU
The on-net customer base grew 16% to 3.607 million as 
86% of our new customers are fully unbundled and we have 
migrated customers from IPStream and data stream during 
the course of the year. This was offset by a decline in the 
off-net customer base.

Higher customer churn during the year was mainly 
concentrated among off-net and SMPF customers who  
were subject to significant disturbance through the migration 
process and have a higher broadband price than our fully 
unbundled customers. The 540k increase in the number  
of fully unbundled customers was broadly offset by the 43k 
decline in the partially unbundled base and 495k decline  
in the off-net base, with the total broadband base ending  
flat year on year at 4.2 million.

TalkTalk Telecom Group PLC | Annual Report 2011

TalkTalk continued to acquire new broadband and voice 
customers during the year. Our higher value “Plus” product  
sold well, accounting for 14% of the total base at the year  
end, compared to less than 5% at the start of the year. The 
proportion of fully unbundled broadband and voice customers 
increased from 53% of the total broadband base at the start  
of the year, to 66% at the year end. This improved customer  
mix was one of the main drivers of the 6% growth in broadband 
ARPU from £23.6 in Q4 2010 to £25.0 in Q4 2011.

The unbundled estate increased by 265 exchanges, to 2,007  
at the year end covering 86% of households. The network 
expansion was completed ahead of plan, which enabled us  
to accelerate the customer migration schedule. The migration  
of customers onto our own network therefore slowed 
substantially in the fourth quarter. As the next wave of new 
unbundled exchanges start to come on stream early in the 
current year the pace of migrations will accelerate again.

Non-broadband customer base and ARPU
The non-broadband base consists primarily of voice only 
customers, and declined to 678k at the year end, from 999k  
at the end of the previous year as customers continue to take 
both phone and broadband services. Non-broadband ARPU 
also declined from £21.8 at the start of the year to £17.7 at  
the year end due to the reduction in fixed line usage.

Headline financial statements information

£m

Broadband

Non-broadband
Corporate
Total revenue 
EBITDA 
EBITDA margin
Depreciation and amortisation*
EBIT

*Includes share of results of Joint Venture.

2011

1,247

189
329
1,765
276
15.6%
(84)
192

2010

Growth
(decline)

1,086

14.8%

273 (30.8)%
0.6%
327
4.7%
1,686
221
24.9%
13.1%
(70)
151

27.2%

Revenue
Our revenue is principally derived from the provision of voice 
and broadband services. A customer is treated as a broadband 
customer where they receive broadband and, where relevant, 
voice and mobile services. A customer is classified as 
non-broadband where they do not take broadband and receive 
voice only or narrowband services. Our revenue is a function 
of the mix of services received by the customer and the 
size of the relevant customer base. ARPU is an indicator of 
the average value of the services we supply to each customer. 

Corporate revenue represents revenue generated by TalkTalk 
Business in the provision of voice and data services to 
corporate customers and resellers.

15

Revenue increased by 4.7% to £1,765m (2010 : £1,686m) 
reflecting growth in our broadband revenue together with  
the full year effect of the Tiscali acquisition. Non-broadband 
revenue fell during the year as expected. Excluding the effect 
of the disposal of our fixed line businesses in Ireland and 
Belgium at the beginning of the year, our underlying revenue 
grew by 5.7%.

Revenue from our broadband business increased 14.8%  
year on year to £1,247m (2010 : £1,086m) reflecting the 
increasing ARPU throughout the year and higher customer 
base in the first half of the year.

As we continue to upsell our non-broadband customer base to 
take both phone and broadband services, the revenue from this 
base reduced to £189m (2010 : £273m). We disposed of our 
Belgium and Ireland fixed line voice businesses at the beginning 
of the year accounting for £16m of the revenue reduction.

Revenue from our corporate services was broadly flat at 
£329m (2010 : £327m) as reduction in fixed line usage in 
our voice products has been offset by growth in both data 
services and carrier services and the full year effect of Tiscali.

Headline profit
Headline EBITDA grew by 24.9% to £276m (2010 : £221m) 
and EBITDA margin improved to 15.6%, from 13.1% last year. 
This reflected the margin enhancement from the integration 
program, the full year effect of Tiscali performance and  
the growth in our broadband business. 

The integration program has been substantially completed 
and has delivered overall synergy benefits of £40m in the year, 
including the benefit of access migrations and savings from 
the elimination of backhaul and other network duplication  
and consolidation of systems and processes. 

Our Headline EBIT increased by 27.2% to £192m (2010 : £151m) 
resulting from the improvement in EBITDA offset by an increase 
in depreciation and amortisation resulting from our continued 
investment in exchange roll out and billing systems.

Outlook
TalkTalk is the UK’s leading value for money broadband and 
voice provider and we are well positioned in the tougher 
environment that both consumers and businesses are  
now facing. Household and business budgets remain under 
pressure, and our clear, consistent, value for money approach 
will continue to appeal strongly to customers seeking the  
best value offers for what is now an essential service.

TalkTalk has grown rapidly and achieved substantial scale, and 
we are confident that we can execute our strategy successfully 
and continue to deliver strong, sustainable profit and cash 
flow growth. To reflect this, from the start of the 2012 financial 
year onwards the Board intends to pay out 50% of Headline 
earnings per share as regular dividends.

2012 financial guidance
•   Revenue: broadly flat 

Broadband revenue growth is expected to be offset by  
a continuing decline in non-broadband revenues, with  
TalkTalk Business revenue expected to be broadly flat. 

We expect to add 200k – 250k on-net broadband customers 
during the year and to see a similar level of off-net customer 
loss. Momentum is expected to build through the year  
as churn comes down, and we expect to exit the year with 
positive broadband customer net additions, leaving the  
base broadly flat over the year, with further unbundling 
improving the customer mix and driving higher ARPU. 

•   EBITDA margin: 17.0% – 18.0% 

The EBITDA margin will benefit from customer mix, a full 
year of Tiscali integration synergies (adding an incremental 
£15m to the £40m of synergies benefits captured in 2011), 
and over half of the £25m operating efficiencies generated 
by the restructuring program, offset by additional investment 
in customer growth.  

The increase in our EBITDA margin is expected to be 
weighted towards the second half of the year, mainly 
reflecting the phasing of the restructuring program.

Operating free cash flow and net debt

•  Earnings per share: 15.5 – 16.5p

£m

Headline EBITDA

Working capital
Capex
Operating free cash flow
Net debt

2011

276

(10)
(110)
156
(438)

2010

221

(2)
(100)
119
(508)

Growth

24.9%

•   Capex: 6% of total revenue 

Capital expenditure is expected to be broadly flat year 
on year, equivalent to approximately 6% of total revenue, 
as we continue to invest in our LLU roll out and in the 
network and systems capabilities needed to scale new 
products and services.

31.1%

•  Operating free cash flow: 10% – 11% of total revenue

•  Exceptional cash spend £25m – £30m

The Group grew operating free cash flow in the year to £156m 
(2010 : £119m) an increase of 31.1% on the prior year reflecting 
the significant improvement in EBITDA in the year. We have 
continued to control our investment in capital expenditure in 
line with our guidance to focus on delivering our unbundling 
strategy and unified billing system. As a result of our cash 
generation net debt reduced by £70m to £438m (2010 : £508m).

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TalkTalk Telecom Group PLC | Annual Report 2011

 
 
 
 
 
 
16

Finance review

Reconciliation of Headline to Statutory information

Income statement 

£m

Revenue

Gross margin
Operating expenses excluding 
amortisation and depreciation
Headline EBITDA
Exceptional items  
– One Company(2)
Exceptional items  
– Operating efficiency(2)
EBITDA
Depreciation and amortisation 

Operating(1)
Exceptional(2)

Non operating amortisation(2)
Operating profit
Finance costs
Profit before taxation
Taxation
Profit (loss) for the year

(1) Includes share of results of Joint Ventures.
(2) Excluded from Headline results.

2011

1,765

888

2010

Growth

1,686

848

4.7%

4.7%

(612)
276

(627)
221

24.9%

(36)

(47)

(12)
228

(84)
(7)
(62)
75
(18)
57
(22)
35

–
174

31.0%

(70)
(5)
(83)
16 >100%
(5)
11 >100%
(14)
(3) >100%

Revenue
Revenue increased by 4.7% to £1,765m (2010 : £1,686m) 
reflecting growth in our broadband revenue together with  
the full year effect of the Tiscali acquisition. Non-broadband 
revenue fell during the year as expected. Excluding the effect 
of the disposal of our fixed line businesses in Ireland and 
Belgium at the beginning of the year, our underlying revenue 
grew by 5.7%.

Gross margin
Gross margin for the year was £888m (2010 : £848m) which 
represents a flat year on year margin of 50.3% (2010 : 50.3%). 
The decline in non-broadband and usage together with 
the impact of regulatory price increases was offset by the 
improved contribution from product mix, the benefits of our 
One Company access migrations and the margin accretive 
effect of Tiscali.

Operating expenses
Our operating expenses in the year improved by £15m from 
£627m in the prior year to £612m. This reflects the benefits  
of our integration program primarily on our network and IT 
costs and a focus on effective cost control within management 
overheads offset by the full year effect of Tiscali.

TalkTalk Telecom Group PLC | Annual Report 2011

Exceptional items
Investment in our One Company integration program was 
£43m for the year comprising £36m of operating expense and 
£7m of asset write downs, this included network integration 
costs principally in relation to the decommissioning of the 
legacy Tiscali network and consolidation and replacement to 
create a higher capacity network, certain costs relating to the 
migration of TalkTalk, AOL and Tiscali customers onto our core 
billing system and the integration project teams responsible 
for delivery.

As a result of acquisitions in prior years, the number of legal 
entities in the Group’s structure has been increasing. As part 
of the integration program, an entity rationalisation program 
was undertaken to achieve a more dividend efficient and 
cost effective structure. This has included the liquidation of a 
number of both UK and overseas entities which, in the current 
year, has resulted in the recycling of £4m of Translation 
reserves to the income statement as an exceptional credit. 
Following our restructure program and the disposal of our 
Belgian and Irish businesses at the beginning of the year, 
we have no overseas trading entities.

On 26 January 2011 a restructure of the Group was announced 
to improve the operating efficiency of the Company and to 
generate annualised cost savings of approximately £25m. 
The consultation with employees was completed ahead of 
the year end and, as a result, a charge has been recognised 
in the income statement in relation to the provision of 
redundancy and associated costs totalling £12m.

EBITDA
EBITDA after exceptional items has grown by 31.0% to  
£228m (2010 : £174m). Exceptional costs within EBITDA are 
comparable on a year on year basis at £48m (2010 : £47m) 
and are discussed above. The improvement in EBITDA 
principally reflects the benefits of the integration program 
together with an additional quarter of Tiscali and growth 
in broadband revenues.

Amortisation of acquisition intangibles
The amortisation charge in respect of acquisition intangibles 
amounted to £62m (2010 : £83m). The reduction reflects 
the full amortisation of certain AOL acquisition intangibles 
in the prior year partially offset by the full year effect of the  
Tiscali acquisition.

Profit before taxation
Statutory profit before taxation grew over five fold to £57m  
(2010 : £11m). This reflected the significant increase in 
Headline earnings, decrease in non operating amortisation 
partially offset by the increase in finance costs resulting  
from the debt structure post demerger.

 
Earnings per share 

Cash flow and net debt 

17

Growth

24.9%

31.1%

2011

276

(10)
(110)
156
(43)
(16)
7
(15)
(19)
–
70
(508)
(438)

2010

221

(2)
(100)
119
(20)
–
(239)
(251)
(5)
(54)
(450)
(58)
(508)

Growth

£m

15.1%

14.4%
14.3%

24.5%
23.9%
24.3%

Headline EBITDA

Working capital
Capex
Operating free cash flow
Exceptional items – One Company
Exceptional items – demerger
Acquisitions and disposals(1)
Dividends paid
Interest and taxation
Cash flow relating to demerger
Net cash flow
Opening net debt(2)
Closing net debt(2)

(1) Includes sundry items of £2m, including foreign exchange on-net debt.
(2) Including loans to related parties, net debt was £436m (2010 : £505m).

Capital expenditure 
Capital expenditure in the year was £110m (2010 : £100m), 
representing 6.2% of revenue (2010 : 5.9%). During the year 
we grew our network by unbundling a further 265 exchanges 
and building out partial unbundling into our entire estate to 
allow us to migrate the Tiscali broadband only customers onto 
our own network. We expanded our internal billing capability 
to be able to manage all residential customers on one core 
billing system during the year and migrated substantially all 
of our customers, with the Pipex customer base planned for 
migration during the 2012 financial year.

Working capital
The working capital outflow of £10m (2010 : £2m) was primarily 
due to the integration of the Tiscali business including the 
alignment of certain Tiscali creditors and initial unwind of 
fair value provisions.

Exceptional and demerger costs
Exceptional cash spend associated with the One Company 
integration program totalling £43m was incurred in the 
year together with spend of £16m on demerger costs. 

Acquisitions and disposals
Total cash inflow in relation to acquisitions was £5m 
comprising a £14m adjustment for the Tiscali acquisition  
offset by small strategic business to business acquisitions 
and a payment of £5m in relation to our investment in the 
YouView joint venture. The sale of our Irish and Belgian 
fixed line operations resulted in the receipt of proceeds 
of £4m in the year. 

TalkTalk Telecom Group PLC | Annual Report 2011

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Headline earnings (£m)

Basic EPS
Diluted EPS
Headline earnings on a ‘proforma 
standalone’ basis (£m)
Basic EPS
Diluted EPS
Statutory earnings (£m)
Basic EPS
Diluted EPS

2011

122

13.5p
12.8p

122
13.5p
12.8p
35
3.9p
3.7p

2010

106

11.8p
11.2p

98
10.9p
10.3p
(3)
(0.3)p
(0.3)p

In order to provide a meaningful comparison and to remove 
the distortion of exceptional items, earnings per share is 
provided on a Headline basis as well as a Statutory basis.  
A full reconciliation of Headline to Statutory results can be 
found in note nine to the financial statements.

In addition, due to the significant change in debt structure  
post demerger, EPS is also shown on a ‘proforma standalone’ 
basis. The standalone basis assumes a similar year on year 
debt structure and adjusts the prior year interest charge 
accordingly. This has the effect of increasing interest by  
£11m which, tax effected, reduces earnings by £8m.

Headline earnings per share on a standalone basis grew  
by 23.9% to 13.5p (2010 : 10.9p). Statutory EPS was 3.9p 
(2010 : (0.3)p) reflecting the Group’s Statutory profit for the 
year. Basic EPS was calculated based on a weighted average 
number of shares of 907 million (2010 : 898 million). Dilution 
of 45 million shares (2010 : 50 million) has been applied for 
the purposes of calculating diluted EPS resulting from 
employee share option plans, the details of which can  
be found in note five to the financial statements.

Basic EPS

+24%

2011

2010

pence

13.5

10.9

 
 
 
 
 
18

Finance review
continued

Acquisitions and disposals (continued)
The final purchase price agreement of Tiscali of £14m in 
relation to working capital and customer numbers together 
with the finalisation of the deferred consideration for the 
acquisition of UK Telco of £1m occurred in the year. 
As both acquisitions were made prior to 1 April 2010, 
the provisions of IFRS3 (2004) apply and, as a result, an 
adjustment has been made which has reduced goodwill 
by £15m. This is disclosed in note 29 to the financial 
statements and the prior year balance sheet has been 
restated accordingly.

Dividends
Our current policy is to increase the dividend payment broadly 
in line with growth in our Headline earnings per share. 

Dividends paid in the year of £15m comprised the 
interim dividend of 1.7p per share which was paid 
on 17 December 2010.

The Board has declared a final dividend of 3.9p per share 
which will be paid, subject to shareholder approval,  
on 5 August 2011 for Shareholders on the register at 
8 July 2011. The total declared dividend for the year was 
5.6 pence, which provides dividend cover of 2.4 times.

To reflect the cash generation profile of the Group, our 
dividend policy from the 2012 financial year will be to return 
to our Shareholders 50% of our basic Headline earnings 
per share in the form of ordinary dividends.

Net debt 
Net cash inflow was £70m (2010 : net cash outflow 
of £450m). Net debt including loans to related parties 
was £436m (2010 : £505m). Excluding loans to related  
parties net debt was £438m (2010 : £508m).

Taxation and treasury

Interest
Net interest costs charged to the income statement were 
£18m (2010 : £5m) reflecting the capital structure of the 
Group post demerger. The blended interest rate charge on  
the debt was 3.07%. Net interest paid in the year increased  
to £17m (2010 : £3m) broadly in line with the charge in the 
income statement.

Taxation 
The effective Headline tax rate for the year was 30% (2010 : 28%) 
representing a tax charge of £52m (2010 : £41m) on Headline 
profit before tax of £174m (2010 : £147m). Although the Group 
had minimal disallowable expenses in the year, the rate is 
slightly ahead of the Statutory corporation tax rate as the tax 
charge reflects the impact of the reduction in corporation 
tax rates enacted in the year on our deferred tax assets.

The reduction in corporation tax rate from 28% to 26% created 
a charge through the income statement of £9m resulting from 
the downward revaluation of deferred tax assets. This has been 
partly offset by a prior year adjustment of £5m relating to the 
recognition of additional tax losses and capital allowances. 

The tax charge for the year on Statutory earnings for the year 
was £22m (2010 : £14m). The principal differences between 
the tax charge and the standard rate of corporation tax are the 
impact of the reduction in corporation tax rate and a small 
element of disallowable exceptional spend offset by the £5m 
prior year adjustment.

There have been tax payments in the year of £2m (2010 : £2m) 
which relate to the final corporation tax assessment of our AOL 
Luxembourg entity prior to its liquidation.

2011

2010

£m

Headline

Statutory

Headline

Statutory

Operating profit

Interest
Profit before taxation
Taxation
Profit (loss) for the year

192

(18)
174
(52)
122

75

(18)
57
(22)
35

151

(4)
147
(41)
106

16

(5)
11
(14)
(3)

Headline tax rate

30%

28%

Statutory profit before tax

>100%

2011

2010

11

£m

57

TalkTalk Telecom Group PLC | Annual Report 2011

19

Funding
The Group’s operations are financed by committed bank 
facilities, retained profits and equity. During the year the Group 
was able to make use of overdrafts and some uncommitted 
facilities to assist with working capital management. Funding  
of our subsidiaries is arranged centrally with an emphasis  
on efficient cash management. All funding in the Group is 
provided on an arms length basis. The Group’s committed 
bank facilities comprise a £550m revolving credit facility  
used for working capital purposes and a term loan of £100m. 
The revolving credit facility matures in March 2013 whilst 
the term loan matures in March 2015. The terms of both 
the facilities are similar and the covenants are identical. 
The  Group was in compliance with the covenant conditions 
on both facilities at the year end. As at 31 March 2011, £395m  
had been drawn down on these combined facilities. It is  
the Group’s policy to refinance its facilities significantly  
in advance of maturity dates.

Policy
The Group is exposed to limited cross border transactional 
commitments but where significant, these are hedged at 
inception using forward currency contracts. The Group Treasury 
function operates within the framework approved by the Board, 
in line with best practice, to ensure effective management of  
the Group’s interest and foreign exchange risk.

Capital structure
The Board reviews the capital structure of the Group on an 
annual basis and, as discussed in note 19 to the financial 
statements, considers that the medium-term target gearing  
for the Group is 75% to 100%.

In the first year as a standalone company, significant 
progress has been made towards this target with gearing 
as at 31 March 2011 of 106%.

Accounting developments
The Group has early adopted IAS 24 (2009) ‘Related party 
disclosures’ in the preparation of these financial statements. 
The standard simplifies the definition of a related party, with 
a shared person or entity no longer automatically implying  
the existence of a related party relationship. The impact of the 
adoption of this standard is that following the demerger of the 
Group, Best Buy Europe and Carphone Warehouse Group plc 
are no longer considered to be related parties. Note 28 to the 
financial statements discloses our related party relationships.

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

Going concern
The Directors have acknowledged the guidance ‘Going Concern 
and Liquidity Risk: Guidance for Directors of UK Companies 
2009’, published by the Financial Reporting Council in 
October 2009. 

The Group’s business activities, together with the factors likely 
to affect its future development, performance and position 
are set out in the Chief Executive Officer’s statement on pages 
7 to 9 and Business review on pages 14 to 15. The financial 
position of the Group, its cash flows and borrowing facilities 
are described within this Finance review. In addition, note 19 
in the financial statements describes how the Group manages 
financial risk including foreign exchange risk, interest rate risk, 
credit and liquidity risk. 

Whilst the current economic climate remains uncertain,  
the breadth of our customer base, our value for money 
proposition, improved operating efficiency and the largest 
unbundled network in the UK together with our development 
of a competitive quad play offering means that the Directors 
are confident of the Group’s ability to continue to compete 
effectively in the UK telecommunications sector.

The Group has £650m of committed credit facilities and as  
at 31 March 2011 the headroom on these facilities was £255m. 
The Group’s forecasts and projections, taking into account 
reasonably possible changes in trading performance, indicate 
that there is sufficient headroom on our facilities and that this, 
together with our market positioning, means that the Group is 
well placed to manage its business risks successfully and has 
adequate resources to continue in operational existence for the 
foreseeable future. The Directors have therefore adopted 
the going concern basis of accounting in preparing the 
financial statements.

Net debt

2011

2010

£m

(438)

(508)

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TalkTalk Telecom Group PLC | Annual Report 2011

 
 
 
 
20

Principal 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.

Risk area

Potential impact

Mitigation

1

Competitive environment

2

Regulatory environment 

3

Network reliability

4

Change management

Increased competition in the UK 
broadband market may impact  
financial performance.

Changes in regulated prices  
can significantly impact the  
Group’s performance.

Failure to provide a reliable service  
causes customer churn.

We are undertaking a significant  
change to our organisational structure  
at the start of the 2012 financial year. 
Disruption to business operations 
and back office functions may impact 
financial performance. 

We regularly monitor the product  
offerings of key competitors in the  
market. This results in an ongoing  
review of the customer proposition  
and the overall value of our products.

We actively participate in the pricing 
discussions had by Ofcom, including 
the use of independent experts to 
provide assistance and evidence 
as required.

We focus continually on improving 
network resilience and performance,  
and continue to invest to ensure 
we keep pace with customers 
growing demands. 

We have a Group Change Forum 
comprised of senior managers which  
is responsible for centrally monitoring 
group wide change.

Teams are established to run the 
component projects of the overall 
change, with clear plans in place 
for each area. Regular progress 
reports are provided to ensure 
key dates are met.

5

Fibre access technology

Demand for fibre access could  
grow significantly before a wholesale 
product with acceptable economics 
is available for the Group to market  
to customers.

The Group is working with Openreach  
to develop fibre products which incur 
lower set up and provisioning costs. 
There is close liaison with Ofcom to 
ensure there is regulatory support for 
development of fibre products suitable 
for mass market adoption.

TalkTalk Telecom Group PLC | Annual Report 2011

21

Risk area

Potential impact

Mitigation

6

Data integrity and security

7

Ofcom

Loss of customer data could lead  
to data protection breaches causing  
damage to our reputation and fines.

The Group continually reviews its  
data security and implements new 
solutions as they become available.

During the year we have had 
a notification from Ofcom of 
contravention of General Condition 11 
under section 94 of The Communication 
Act 2003. Ofcom may issue a penalty 
to the Group under this Act.

The Executive team continues to work 
closely with Ofcom to demonstrate that 
the Group is taking appropriate action  
to remedy the issues which led to  
the notification from Ofcom of the 
contravention of General Condition  
11 under section 94 of the 
Communications Act.

In addition, the Group has established  
a Compliance Committee chaired by  
the Senior Independent Director, John 
Gildersleeve. This Committee monitors 
the level of and reason for customer 
complaints and ensures appropriate 
remedial action is taken.

8

Television

9

End to end process and controls

Provision of television services  
could become a more important  
driver of competitive advantage 
in the broadband market.

The Group is part of the YouView joint 
venture, along with the BBC and other 
parties, which is developing a television 
service which includes internet based 
catch up and video on demand services.

Failure to operate effective processes 
across the Group may lead to customer 
churn, and non-compliance with 
regulatory requirements.

A Group wide project was started  
during the year, Project Sunshine,  
to document, review and improve  
the end to end processes in the  
Group. This project is key to driving 
joined up processes across the  
Group and improving our  
customers’ experience.

The Group’s Compliance Committee 
regularly monitors the level and  
reason for customer complaints.

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TalkTalk Telecom Group PLC | Annual Report 2011

 
 
 
22

Corporate and social responsibility review

Leading the way on digital inclusion,  
employee engagement and sustainability.

TalkTalk plays a pivotal role in helping over 4.8 million consumer 
and business customers to connect, communicate and thrive  
in the digital age. We’ve always been active in the communities 
in which we operate and this year we’ve given our activities  
more structure and clearer targets so we can more easily track 
and share our achievements. Our Corporate Responsibility 
program is built around three themes where we believe  
we can make the biggest difference – digital inclusion, the 
environment and employee engagement.

1. Digital inclusion 
The internet connects and entertains, educates and informs –  
it even saves us money. Yet nine million people in the UK have 
never been online, and over four million of those are socially 
excluded due to age, unemployment or income. And this group 
will become increasingly isolated as more public and private 
services move online. That’s why we support and run a number 
of initiatives to help communities to bridge the digital divide.

•   Race Online 2012 

Led by the UK’s Digital Champion, Martha Lane Fox, Race 
Online calls on people to inspire, encourage and support 
the UK’s digitally excluded to take their first steps online. 
Benefits to the UK are forecast to total £22 billion, while 
households can save £560 per year(1). TalkTalk was one of 
the founding partners and has pledged to contribute by 
getting 100,000 more people online by the start of the 
London 2012 Olympics, through education, training and 
awards programs.

•   TalkTalk digital champions 

Our employees share their internet know how in their local 
communities. Our start up kits give them ideas to take to 
anyone they think would benefit from being online – from  
their grandparents to local charities. Uptake has been 
impressive, with nearly 200 staff signing up in the first  
week in April 2011 alone. 

•   TalkTalk brighter futures  

We aim to get 1,000 more families in Brent online during 
the 2011 calendar year by working with the Local Education 
Authority to deliver E-Safety training alongside free and 
discounted broadband and telephone packages. In the 
North West, we offer free connections and hardware via 
schools in Salford and we’re the lead partner in Go ON 
Liverpool, the campaign to help socially and digitally 
excluded adults and children in the city.

2. Environment
We will continually improve our environmental performance  
by using sustainable resources, promoting efficiencies and 
innovation throughout our business and products and 
encouraging our suppliers to do the same. Our energy use  
per Gb of bandwidth use has fallen over a three year period 
leading to our achievement of the Carbon Saver Standard. 

Our target is to further reduce our carbon footprint by 25% by 
2021 (based on Gb use of broadband services) and to inspire 
our employees and customers to lead a greener life and help 
us to reduce our environmental impact on the world we share.

We will reduce our carbon footprint and waste, by focusing on:

•  Energy
•  Building materials
•  Appliances
•  Water
•  Ventilations
•  Travel
•  Refuse

This year we have been included in the FTSE4Good Index, 
the leading global responsible investment index, and won 
several awards. We have also received a BREEAM(2) “Excellent” 
accreditation for our West London headquarters. 

3. Employee engagement 
Employees
Our people are central to the success of TalkTalk and we have 
embarked on a program to make the business “A Brighter 
Place for Everyone”. We want our people to feel included, 
respected and most importantly enjoy their jobs and be 
passionate about the great culture we share within our work 
environment. We want to recognise our people for doing 
great work and helping to drive our business forward.

Brighter Basics
Our Brighter Basics are a set of values and benefits that 
capture our personality and unique identity as a Company. 
They define our aspirations as a way of every day life at work 
and reach out into our personal lives and our communities. 
Brighter Basics are described on page 9.

Digital hero awards
These annual awards reward 
outstanding individuals who use 
digital technology to bring about 
positive social change. In 2010, 
entrants from the 12 UK regions 
received over 140,000 public votes 
between them. The 12 regional 
winners were invited to the 
House of Lords where they 
received bursaries to fund both 
new and existing projects.

TalkTalk Telecom Group PLC | Annual Report 2011

23

Liverpool family concerts
We support the world-renowned 
Royal Liverpool Philharmonic 
Orchestra through our sponsorship 
of their Family Series. Employee 
Champions at our Warrington,  
Irlam and Preston sites made  
sure that over 1,200 of our staff  
and customers enjoyed free 
concerts at Philharmonic Hall.

Engagement
Our Pulse engagement surveys are a regular way of 
information gathering on the views of our people across  
a variety of topics. Employee engagement, the extent to  
which employees are psychologically and emotionally  
attached to their work, positively influences customer 
satisfaction and productivity. Our last survey results  
registered an engagement score of 74%.

Managers receive engagement data with feedback regarding 
their teams. This information includes a summary with key 
items highlighted in order to enable them to work with their 
teams to improve engagement.

Communication
Keeping our people informed of developments and the 
Company’s progress, whilst enabling them to engage in two 
way communication, has been a strong feature this year at 
TalkTalk. ‘Dido’s Blog’ has become a weekly personalised 
account of the Chief Executive Officer’s experiences, with key 
messages to the TalkTalk community. Employees are free to 
post their comments on the blog anonymously should they 
prefer not to include their details. This is reinforced by ‘Team 
Talk’, a weekly set of messages designed to enable managers 
to share information with their teams in a consistent manner.

Our ‘All Hands’ events bring the Chief Executive Officer, 
senior management and every single person in the Company, 
including our outsource service providers at call centres in 
South Africa, India and the Philippines, together twice a year 
to get to hear and participate in key messages around the 
Company’s half year and full year performance and results.

Employee forum
We have a National Employee Forum and five Local Employee 
Forums that provide an important basis for communication 
and consultation on business change matters. Meetings are 
held at least quarterly and deal with site based issues raised 
through our employee representatives and the local 
management team right through to national matters across 
the UK and Ireland. These forums are integral to disseminating 
information and gathering feedback on matters such as 
legislative changes, employment levels and people development.

Involvement and recognition
Annual recognition schemes continue across the Group;  
such as “TalkTalk Heroes” in our business to business area. 
Recognising teams and individual performance is an important 
feature of our culture by acknowledging those who have  
gone the extra mile for the customer or their colleagues. 
Recognition has included our ability to invite X-Factor acts  
to our sites to perform for our staff and to enable our people 
to apply for free tickets to attend X-Factor shows through 
participation in competitions. The opportunity to be part of 
Britain’s biggest TV show is a very popular initiative at TalkTalk.

Employee benefits
We were able to extend our comprehensive range of benefits 
during the year to include Save-As-You-Earn schemes in the 
UK and Ireland, enabling employees to participate in the 
performance of the Company.

During the year we were delighted to be able to offer our 
employees in the UK free broadband and an equivalent 
benefit for our people in Ireland.

We believe that we can make a big difference in our communities 
by inspiring our 3,900 employees to get involved. New projects 
for the calendar year 2011 include Give Something Back, the 
opportunity for staff to take a paid day of leave to take part in 
volunteering or fundraising activities in their local community. 

Our employees continue to work with our Company charity, 
Ambitious About Autism, and its incredible work to support 
young people with autism. Autism is a lifelong condition that 
affects communication, social understanding and behaviour  
in 1 in 100 people. TalkTalk sponsors talkaboutautism.org.uk 
where professionals and parents are encouraged to talk  
more about autism and share knowledge and experiences  
to achieve the best educational outcomes for autistic children. 
In 2011 we celebrated a remarkable milestone; raising a total 
of £1m over the eight years we’ve partnered Ambitious About 
Autism and their TreeHouse School. 

Through these and other initiatives, we aim to use our position 
to engage, empower and support the communities around us. 

‘The Economic Case for Digital Inclusion’ October 2009, PWC.

(1) 
(2)  The most widely used environmental assessment method for buildings.

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TalkTalk Telecom Group PLC | Annual Report 2011

 
 
 
24

Directors’ Report:
Governance

Board and advisors 
Corporate governance 
Directors’ remuneration report 
Other statutory information 

26
28
32
38

25

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26

Board and advisors

Introduction
The Board is committed to the highest standards of corporate 
governance and in accordance with the Listing Rules of the UK 
Listing Authority the Board confirms that except to the extent 
stated below, the Company has throughout the year and as 
at the date of this annual report, complied with the provisions 
set out in Section 1 of the Combined Code on Corporate 
Governance published by the UK Financial Reporting Council 
(‘FRC’) in June 2008 (‘Code’).

This section of the annual report together with the Directors’ 
report and Directors’ remuneration report provide details  
of how the Company has applied the principles and complied 
with the provisions of the Code.

UK Corporate Governance Code
On 28 May 2010 the FRC published a new UK Corporate 
Governance Code (‘New Code’) to replace the Code. The New 
Code applies to reporting periods beginning on or after 
29 June 2010. It will therefore apply to the Company for the 
2012 financial year and not the financial year covered by 
this report. 

The Board has however initially reviewed the New Code and 
has decided to voluntarily adopt the following principles ahead 
of the implementation of the New Code. First, all Directors 
will stand for reappointment annually at the Company’s Annual 
General Meeting (‘AGM’) starting from the 2011 meeting. 
Second, the performance of the Board will be externally 
facilitated at least every three years, with the first review to 
be carried out no later than during the 2014 financial year. 

John Gildersleeve 
Senior Independent Non-Executive Director

Board balance and independence
The Board has nine members, four of which, excluding the 
Chairman and Deputy Chairman, are considered independent 
Non-Executive Directors. These are John Gildersleeve, our 
Senior Independent Director, John Allwood, Brent Hoberman 
and Ian West. Jessica Burley was also an independent 
Non-Executive Director during the period until she stood  
down on 16 November 2010. Ian West was appointed a 
Non-Executive Director on 8 February 2011. Roger Taylor,  
the Deputy Chairman, is not considered independent given  
he was previously Chief Financial Officer of The Carphone 
Warehouse Group PLC from the which the Company was 
demerged in March 2010.

The Chairman and Executive Directors have service contracts 
that can be terminated by either the Company or the Director 
on 12 months notice.

The Non-Executive Directors have three year periods of 
appointment. All the independent Directors have a three 
month notice period with no compensation for loss of  
office. Roger Taylor has a six month notice period.

Points of non-compliance with the code
This is the first annual report of the Company since the demerger 
and, as stated in the Company’s prospectus issued as part 
of the demerger as published on the Company’s website 
(www.talktalkgroup.com), Charles Dunstone, Chairman, was 
not independent on his appointment due to the fact that he 
was previously Chief Executive Officer of CPW and also has a 
significant shareholding in the Company. The Board believes 
that the appointment of Charles as Chairman benefited the 
Group given that Charles was both the founder of CPW, in 
which the Company was created, and his knowledge of the 
market place is important to its future development. Major 
Shareholders were also consulted prior to his appointment. 

TalkTalk Telecom Group PLC | Annual Report 2011

At least half of the Board excluding the Chairman are independent 
and this has been the situation for all of the financial year 
except for between 16 November 2010 and 8 February 2011 
following the resignation of Jessica Burley and prior to the 
appointment of Ian West. During this short period, the Board 
believed that there was sufficient independence on the Board 
still to enable the other independent Non-Executive Directors 
to influence appropriately and challenge any Board decisions. 

How the Board operates
The Board has reserved certain matters, and delegated 
others to the Group’s Executive committee, which comprises 
Dido Harding (Chief Executive Officer), Amy Stirling (Chief 
Financial Officer), David Goldie (Group Commercial Director) 
and other senior employees drawn from across the Group. 
Reserved matters include approving the Group’s strategy, 
annual budgets and other longer term planning. 

The Board had six formal meetings during the year as well  
as other meetings as were appropriate for approving certain 
announcements to Shareholders. All Directors attended 
each of the meetings during the period, save for Roger Taylor  
(absent from the meeting on 30 September 2010 due to a prior 
arranged meeting), David Goldie (absent from the meeting on 
27 July 2010 due to annual leave), Jessica Burley (who attended 
all meetings until her resignation on 16 November 2010) and 
Ian West (who attended the sole remaining meeting following 
his appointment on 8 February 2011).

It is important to the Board that Non-Executive Directors  
have the ability to influence and challenge appropriately.  
To this end all Non-Executive Directors are given a thorough 
induction to the Group and take priority in Board discussions. 
All Directors receive papers in advance of meetings. They  
also receive regular reports and members of the Group’s 
Executive team are invited to present at Board meetings so 
that the Non-Executive Directors form a good knowledge 
of how the Group operates. 

The Chairman meets regularly with just the Non-Executive 
Directors, usually in the evening prior to every other Board 
meeting. This ensures that any concerns can be raised and 
discussed outside of formal Board meetings. The Senior 
Independent Director also attends these sessions where it  
is also possible, if required, to discuss any matters with the 
other independent Non-Executive Directors.

As stated below, the Board has also delegated certain matters 
to a number of Board Committees.

It is important to the Group that all Directors understand 
external views of the Group. To this end regular reports are 
provided to the Board by the Group’s Investor Relations 
Director, covering broker reports and the output of 
meetings with significant Shareholders. 

27

Performance evaluation and continued development
The Board has not been subject to a formal external 
evaluation during the course of the year as it is the Board’s 
first year of operation since the demerger of the Group. 

Each Board member has been subject to an internal 
performance review during the year, where the balance  
of skills, knowledge and experience of each Director was 
reviewed. This was undertaken by each member of the  
Board completing detailed questionnaires. The results of  
these were analysed by the Chairman, Senior Independent 
Director and the Board as a whole.

As part of the performance review the ability of each Director, 
in particular the Non-Executive Directors, to demonstrate the 
required time commitment to the role was assessed.

As a result of this performance evaluation the Chairman confirms 
that each of the Directors seeking re-election at the AGM 
continues to be effective and has demonstrated the appropriate 
commitment to the role.

The Senior Independent Director also met with the other 
Non-Executive Directors to assess the Chairman’s effectiveness 
taking into account the views of Executive Directors. 

The Company Secretary ensures that the Board is made aware 
of new laws, regulations and other information appropriate to 
the Group to ensure that all Directors continually update their 
skills and knowledge and familiarity of the Group in order to 
fulfil their roles. Additionally each Director has access to the 
advice and services of the Company Secretary and also has 
the ability to take independent external advice if required.

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TalkTalk Telecom Group PLC | Annual Report 2011

 
 
 
28

Corporate governance

Chairman:

Charles Dunstone (46)

Skills and experience: Charles founded the 
Carphone Warehouse, and created TalkTalk  
in 2002. Since that date he has directed the 
development of TalkTalk to become one of  
the leading fixed line telecommunication 
businesses in the UK. 

External appointments: Charles is Chairman of the 
Prince’s Trust, Chairman of Carphone Warehouse 
Group plc and a Non-Executive Director of both 
The Daily Mail and General Trust PLC and 
Independent Media Distribution PLC.

Executives:

Dido Harding (43)

Amy Stirling (41)

David Goldie (47)

Skills and experience: Dido joined TalkTalk 
in February 2010. Prior to that date Dido was 
Sainsbury’s convenience director, having been 
appointed to Sainsbury’s operating board in  
March 2008. Dido joined Sainsbury’s from Tesco 
PLC where she held a variety of senior roles. 

Skills and experience: Amy has been the Chief 
Financial Officer of TalkTalk since 2006, having 
been with the Carphone Warehouse since 2000. 
Amy has played a key role in the management and 
integration of the significant businesses acquired 
by TalkTalk over the past six years. 

Skills and experience: David joined TalkTalk when 
the Opal business was acquired by Carphone 
Warehouse in 2002. David has over 25 year’s 
experience in the telecommunications industry 
and has been instrumental in the establishment 
and growth of the Group. 

External appointments: Dido is a Non-Executive 
Director of The British Land Company PLC.

External appointments: Amy has no external 
director appointments.

External appointments: David holds a Non-Executive 
role at The Fulwood Academy and is also a 
Board member of the Northwest Regional 
Development Agency.

Non-Executives:

Roger Taylor (46)

John Gildersleeve (66)

Ian West (47)

Skills and experience: Roger was Chief Financial 
Officer of Carphone Warehouse from January 
2000, and played a key role in the creation and 
growth of its group including TalkTalk. 

Skills and experience: John was an Executive 
Director of Tesco PLC, and joined the Board 
of Carphone Warehouse in June 2000 before 
becoming Chairman in July 2005. 

External appointments: Roger is also Chief Executive 
Officer of Carphone Warehouse Group plc.

External appointments: John is a Non-Executive 
Director of Carphone Warehouse Group plc 
and The British Land Company PLC.

John Allwood (59)

Brent Hoberman (42)

Skills and experience: John was the Chief 
Operating Officer and latterly Group Finance 
Director of Mecom Group plc, and prior to this  
he was managing director of Telegraph Media 
Group Ltd, Chief Executive of Orange UK and  
of Mirror Group plc. 

External appointments: John is a member of 
Exeter University Council and a Non-Executive 
Director of Carphone Warehouse Group plc.

Skills and experience: Brent co-founded
lastminute.com in 1998, and was their Chief 
Executive Officer until it was sold in 2005. 
Brent has subsequently founded and is 
Chairman of mydeco and made.com. 

External appointments: Brent is Governor of 
the University of the Arts College, London, and a 
Non-Executive Director of Guardian Media Group 
and TimeOut Group. Brent also co-founded 
PROfounders Capital which is an early stage 
digital venture fund.

Skills and experience: Ian has been involved in 
the telecoms and media sector for over 20 years. 
He was at BSkyB for 11 years and held various 
roles including managing director of the 
subscription business and also managed the 
introduction of Sky Digital.Since he left in 2000 
he co-founded Top Up TV in 2003. 

External appointments: Ian is a supervisory board 
member of Kabel Deutschland.

Company Secretary

Tim Morris

Advisors 

Corporate Brokers:
Credit Suisse (Europe) Ltd,  
1 Cabot Square, London, E14 4QJ

Barclays Capital  
5, The North Colonnade,  
Canary Wharf, London E14 4BB

Registrar: 
Equiniti Limited,  
Aspect House, Spencer House,  
Lancing, West Sussex, BN99 6GU

Principal Bankers:
Barclays PLC 
HSBC Bank plc 
ING Bank NV 
Royal Bank of Scotland Group PLC

Auditor:
Deloitte LLP,  
2 New Street Square,  
London, EC4A 3BZ

TalkTalk Telecom Group PLC | Annual Report 2011

29

•   Make recommendations to the Board in relation to the 

appointment, reappointment and removal of the external 
auditor and to approve their remunerations and terms  
of engagement;

•   Review and monitor the external auditor’s independence 
and objectivity and the effectiveness of the audit process, 
taking into consideration relevant UK professional and 
regulatory requirements; and 

•   Review the Company’s policy on the engagement of the 

external auditor to supply non audit services. In this 
context the Committee’s remit requires it to report to  
the Board identifying any matters in respect of which it 
considers that action or improvement is needed and to 
make recommendations as to the steps to be taken. 

In light of the assessments and review undertaken, the 
Committee recommended to the Board that Deloitte LLP be 
retained as auditor of the Company. This recommendation 
was endorsed by the Board. 

The policy relating to the provision of non audit services by  
the external auditor specifies the types of work from which 
the external auditor’s are excluded; for which the external 
auditor can be engaged without referral to the Committee; 
and for which a case by case decision is required. In order 
to safeguard the auditor’s objectivity and independence,  
the ratio of non audit fees to audit fees is monitored by the 
Committee. Any work proposed in excess of fifty percent  
of the audit fee is referred to the Committee. Amounts below 
this are discussed with the Chairman of the Committee.

A statement of fees paid or accrued for services from the 
external auditor during the period is set out below: 

£m
Fees payable to the Company’s  
auditor for the audit of the  
Company’s annual accounts
Audit of the Group and its subsidiaries 
pursuant to legislation
Audit services provided  
to all Group companies

Reporting in respect of capital  
market transactions
Other assurance services

2011

2010

0.1

0.7

0.8

–
–

0.1

0.1
0.2

1.0

0.1

0.6

0.7

1.8
1.8

0.4

0.2
0.6

3.1

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TalkTalk Telecom Group PLC | Annual Report 2011

Board Committees 
The Board has established four Committees: Audit, Remuneration, 
Nomination and Compliance; the first three as required by the 
Code, the fourth to ensure the compliance of the Group within 
the regulatory environment in which it operates.

Audit Committee 
The Committee currently comprises the following independent 
Non-Executive Directors: John Allwood (Chairman), 
John Gildersleeve and Ian West. Jessica Burley was also 
a member during the financial year up until her resignation 
on 16 November 2010. John Allwood is the member with 
the recent and relevant financial experience (see Directors’ 
biographies). Roger Taylor is also a member but for the 
reason stated above is not considered independent. All 
of the Committee members have extensive commercial 
experience. The Committee met formally three times during 
the year. All members attended each meeting, although only 
one meeting took place after the appointment of Ian West. 
There were no Committee meetings between the date of 
Jessica Burley’s resignation and Ian West’s appointment. 

The Chairman of the Committee updates the Board on any 
significant issues that may have arisen at the Board meeting 
following each Committee meeting. During the year, all 
requirements of the Code in respect of the Committee were 
met. The work undertaken by the Committee is described 
within the following sections of this Report. The Group’s 
Chief Financial Officer and other senior management attend 
the Committee meetings by invitation of the Committee. 
Representatives of the Company’s external auditor and other 
senior executives from Finance, Tax and Treasury, Legal and 
Business Assurance also attend these meetings by invitation 
of the Committee. The external and internal auditors have 
direct access to the Committee during formal meetings and 
time is set aside for them to have private discussion with the 
Committee, in the absence of management attendees. 

During the period, the formal calendar of items considered  
at each Audit Committee meeting within each annual cycle 
embraced the Code requirements to: 

•   Monitor the integrity of the financial statements of the 
Company, and any formal announcements relating to 
the Company’s financial performance, including reviewing 
significant financial reporting judgements contained in them; 

•   Review the Company’s internal financial controls and  
its internal control and risk management systems and  
to make recommendations to the Board;

•   Review the Company’s arrangements by which employees 

may raise concerns in confidence;

•   Monitor and review the effectiveness of the Company’s 

internal audit function; 

Taxation services

Other services
All other services

Total Group auditor’s remuneration 

 
 
 
30

Corporate governance 
continued

Certain non audit services are pre-approved by the 
Committee depending upon the nature and size of the service. 
Tax services principally comprise technical advice associated 
with relevant UK and international fiscal laws and regulations 
and, in particular, assessment of the potential implications 
of proposed corporate transactions or restructuring. Other 
services principally represent advice provided and project 
management support received for the set up of the Group’s 
finance shared service function. Having undertaken a review  
of the non audit related work, the Committee has satisfied 
itself that the services undertaken during the year did  
not prejudice the external auditor’s independence. 

At each of its meetings the Committee reviewed and considered 
reports on Risk and Business Assurance on the status of the 
Group’s risk management systems, findings from the internal 
audit function concerning internal controls, and reports on the 
status of any weaknesses in internal controls identified by 
the internal or external auditor.

The Chairman of the Committee updates the Board following 
each Committee meeting.

The Committee’s terms of reference, which are available on 
request from the Company Secretary and are published on the 
Group’s website (www.talktalkgroup.com), comply with the Code. 

Remuneration Committee
The Committee currently comprises the following independent 
Non-Executive Directors: John Gildersleeve (Chairman), 
Brent Hoberman and Ian West. Roger Taylor is also a member 
of the Committee but for the reasons stated in this report 
he is not considered independent. Jessica Burley was also a 
member during the financial year up until her resignation on 
16 November 2010, after which John Allwood took her place 
on an interim basis prior to the appointment of Ian West.

The Committee met formally three times during the period 
and each member attended every meeting (save for Roger 
Taylor, who did not attend the meeting on 27 January 2011 
because of a prior engagement). Other Directors including 
the Chief Executive Officer, the Company Secretary, the 
Group Director of Human Resources, and advisors attended 
by invitation of the Committee. A detailed description of the 
Committee’s remit and work during the period is contained 
in the Remuneration Report on pages 32 to 38.

The Chairman of the Committee updates the Board following 
each Committee meeting. 

The Committee’s terms of reference, which are available 
on request from the Company Secretary and are published on 
the Group’s website (www.talktalkgroup.com), comply with 
the Code.

Nomination Committee
During the year the Committee comprised the following 
Non-Executive Directors: John Gildersleeve (Chairman), 
Roger Taylor and Ian West. Jessica Burley was also a member 
during the financial year up until her resignation in November 
2010, after which John Allwood took her place on an interim 
basis. The Committee met once during the year in January 
2011 and each member attended that meeting.

The Committee is responsible for succession planning  
at Board level, overseeing the selection and appointment  
of Directors, regularly reviewing the structure, size and 
composition of the Board and making its recommendations  
to the Board. It assists in evaluating the commitments of 
individual Directors and the balance of skills, knowledge  
and experience on the Board. In this regard, it proposed  
the appointment of Ian West following the resignation of 
Jessica Burley.

The Chairman of the Committee updates the Board following 
each Committee meeting.

The Committee’s terms of reference, which are available on 
request from the Company Secretary and are published on the 
Group’s website (www.talktalkgroup.com), comply with the Code. 

Regulatory Compliance Committee
The members of this Committee are John Gildersleeve 
(Chairman), Dido Harding (Chief Executive Officer), David 
Goldie (Group Commercial Director), Tim Morris, (Company 
Secretary) and other senior executives of the Group. There 
were four formal meetings of the Committee during the year.

The purpose of the Committee is to provide the Board with 
visibility of how the Group remains compliant with those 
regulations affecting its businesses from time to time. Its 
members therefore include those senior executives who  
are operationally responsible for implementing permanent 
changes necessary to ensure the Group remains compliant. 
Such members are accountable to the Committee and the 
Board for the successful delivery of such changes.

This Committee now meets ahead of each formal Board 
meeting and other meetings are scheduled at other times 
depending on those regulatory matters currently affecting  
the Group.

Risk management and internal control
The Company has established a risk management program 
that assists management throughout the Company to identify, 
assess and mitigate business, financial, operational and 
compliance risks. The Board views management of risk as 
integral to good business practice. The program is designed 
to support management’s decision making and to improve 
the reliability of business performance. 

TalkTalk Telecom Group PLC | Annual Report 2011

31

Auditor
Deloitte LLP were appointed on incorporation and have 
expressed their willingness to continue in office as the 
auditor and a resolution to re-appoint them will be proposed 
at the forthcoming AGM. 

Communication with investors
The Board believes it is important to explain business 
developments and financial results to the Company’s 
Shareholders and to understand any shareholder concerns. 
The principal communication media used to impart 
information to Shareholders are news releases (including 
results announcements) and Company publications. In all  
such communications, care is taken to ensure that no price 
sensitive information is released.

The Chief Executive Officer and Chief Financial Officer have 
lead responsibility for investor relations. They are supported  
by a dedicated Investor Relations Director who, amongst other 
matters, organises presentations for analysts and institutional 
investors. There is a full program of regular dialogue with 
major institutional Shareholders, fund managers, analysts,  
retail brokers and credit investors, upon which the Chairman 
ensures that the Board receives regular updates at Board 
meetings. The Board also receives periodic reports on 
investors’ views of the performance of the Company. All the 
Non-Executive Directors and, in particular, the Chairman and 
Senior Independent Director, are available to meet with major 
Shareholders, if such meetings are required. The Company 
plans also to communicate with Shareholders through the 
AGM, at which the Chairman will give an account of the 
progress of the business over the last year, and a review of 
current issues, and provides the opportunity for Shareholders 
to ask questions.

Further financial and business information is available on the 
Group’s website, (www.talktalkgroup.com).

The risk management program is supported by the Business 
Assurance and Internal Audit functions. 

To ensure that all parts of the Group have a good 
understanding of risk, members of this team have conducted 
risk workshops and reviews within each of the main functions 
in the past year, culminating in an assessment of key business 
risks by the Executive Directors and key management. 
These risk assessments have been wide ranging, covering 
risks arising from the regulatory environment, strategy, counter 
parties and organisational change associated both with major 
projects and acquisitions. The risk management process 
operates throughout the Group, being applied equally to 
the main business units and corporate functions. A risk 
report and update is provided at each Board and Audit 
Committee meeting.

The output of each assessment is a list of key strategic, 
financial, operational and compliance risks. Associated action 
plans and controls to mitigate them are also put in place 
where this is possible and to the extent considered appropriate 
by the Board taking account of costs and benefits. Changes in 
the status of the key risks and changes to the risk matrix are 
reported regularly at each Board Meeting.

The Directors have overall responsibility for the Group’s system 
of internal controls and for reviewing their effectiveness. The 
Board delegates to Executive management the responsibility 
for designing, operating and monitoring these systems. The 
systems are based on a process of identifying, evaluating 
and managing key risks and include the risk management 
processes set out above.

The systems of internal control were in place throughout the 
year and up to the date of approval of the annual report and 
financial statements. The effectiveness of these systems is 
periodically reviewed by the Audit Committee in accordance 
with the revised guidance in the Turnbull Report. These systems 
are also refined as necessary to meet changes in the Group’s 
business and associated risks. The systems of internal control 
are designed to manage rather than eliminate the risk of failure 
to achieve business objectives. They can only provide reasonable 
and not absolute assurance against material errors, losses, 
fraud or breaches of law and regulations. 

The Board has conducted an annual review of the effectiveness 
of the systems of risk management and internal controls in 
operation during the year and up to the date of the approval 
of the annual report and financial statements and this was 
approved by the Audit Committee and the Board.

This is supported by an ongoing process for identifying, 
evaluating and managing the risks faced by the Group,  
by the Business Assurance and Internal Audit functions.

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For more information visit:
www.talktalkgroup.com

TalkTalk Telecom Group PLC | Annual Report 2011

 
 
 
32

Directors’ remuneration report

Introduction
This Remuneration Report has been prepared in accordance 
with the Large and Medium sized Companies and Groups 
(Accounts and Reports) Regulations 2008 (‘Regulations’) 
issued under the Companies Act 2006 (‘Act’) and the 
Combined Code on Corporate Governance published by  
the UK FRC in June 2008. The constitution and operation 
of the Remuneration Committee are in compliance with 
the Code. 

In framing its remuneration policy the Committee has given  
full consideration to the matters set out in Schedule A of 
the Code. As required by the Regulations, a resolution to 
approve this report will be proposed at the AGM to be held 
on 28 July 2011. The Regulations require the Company’s 
auditor to report to the members on the ‘auditable part’ of 
this Report (marked *) and to state, in their opinion, that 
this part of the Report has been properly prepared in 
accordance with the Act.

Remuneration committee 
The remuneration policy is set by the Board and is described 
below. The Remuneration Committee, within the framework  
of this policy, determines individual remuneration packages  
for the Executive Directors and the Chairman. The terms of 
reference of the Committee are available on the Group’s 
website (www.talktalkgroup.com) or on request from the 
Company Secretary. 

Remuneration for Non-Executive Directors is determined  
by the Board, taking into account the commitments and 
responsibilities of the role. 

The Committee currently comprises the following independent 
Non-Executive Directors: John Gildersleeve (Chairman), 
Brent Hoberman and Ian West. Jessica Burley was also a 
member during the financial year up until her resignation 
in November 2010. Roger Taylor is also a member of the 
Committee but for the reasons set out in the Corporate 
Governance section of this annual report he is not 
considered independent.

Except when matters concerning their own positions are being 
considered the Chief Executive Officer and the Group Human 
Resources Director are normally invited to attend the meetings 
of the Remuneration Committee to assist the Committee. 
The Committee may discuss any matter affecting the 
Chairman without the Chairman being present.

The Committee has access to independent advice where it 
considers it appropriate. External advice was used in relation 
to share schemes. 

Remuneration policy
During the year ended 31 March 2011 the Board undertook  
a review of Group remuneration to ensure that the overall 
remuneration practices achieved the strategic aims of the 
Group. This took account of the following:

•  Market conditions;

•   The demerger from The Carphone Warehouse Group  
PLC and the listing of TalkTalk Telecom Group PLC on  
the London Stock Exchange;

•   The need to ensure that remuneration policy was in line 

with the risk profile of the Group set by the Board and was 
consistent with an overall policy to encourage long-term 
sustainable performance and the ‘value player’ positioning 
of the Group in its marketplace;

•  The need to help reinforce the Group’s strategy for growth;

•   The requirement to provide a strong link between  
individual and business performance and ensuring 
alignment between employees and the delivery of  
value to Shareholders;

•  The requirement to have clear and stretching targets;

•   The need for the Remuneration policy to be tailored to  

the Group’s circumstances;

•   The requirement for the Group to recruit, retain and 

motivate talent;

•  Cost-effectiveness; and 

•  Reflect corporate governance best practice.

The review concluded that rewards need to be designed 
to attract and retain individuals of high quality who have 
the requisite skills and who are incentivised to achieve 
high levels of performance. This requires packages to be  
market-competitive and capable of rewarding exceptional 
performance. The approach is to set fixed remuneration  
at market median levels and to offer variable rewards, linked  
to the performance of the Group, which can provide significant 
overall levels of remuneration for exceptional performance  
and shareholder value creation.

In order to closely align the interests of the Executive Directors 
and Shareholders, the Company requires Executive Directors 
to build and retain a shareholding in the Company of at least 
200% of their annual salary. The Company may, in calculating 
this percentage, take into account Executive Directors’ 
participation shares issued under the TalkTalk Group Value 
Enhancement Scheme, a summary of which is set out later  
in this report. 

TalkTalk Telecom Group PLC | Annual Report 2011

33

Components of remuneration
The main fixed and performance related elements of 
remuneration that can be awarded to Executive Directors 
are as follows:

•  Basic salary, benefits and pension contribution (fixed);

•  Annual performance bonus (variable); and

•  Share options and performance shares (variable).

Salaries and benefits
Salaries and benefits were set in the context of the demerger 
from The Carphone Warehouse Group PLC and the listing of 
TalkTalk on the London Stock Exchange in March 2010. It is 
the policy of the Board to review salaries annually. 

Annual performance bonus
Cash bonuses are governed by performance conditions set  
by the Remuneration Committee. Maximum variable awards  
are paid only for exceptional performance. The maximum 
bonus that can be paid is 200 per cent of basic salary. The 
bonus scheme for the year ended 31 March 2011 was based 
on a ‘balanced scorecard’ that was a blend of financial 
measures (for example, Group Headline EBITDA, operating 
free cash flow, revenue), strategic projects (for example, the 
Tiscali integration program, customer migrations), customer  
and employee satisfaction measures and innovation.

The Remuneration Committee is satisfied that the bonus 
structure provides an excellent link between reward and 
improved performance of the Group and in the creation  
of further shareholder value.

Share-based incentive plans
Aggregate emoluments shown do not include any amounts for 
the value of options to acquire ordinary shares in the Company 
granted to or held by the Directors. Details of the options for 
the Directors who served during the year are as follows:

TalkTalk Group Value Enhancement Scheme
The TalkTalk Group Value Enhancement Scheme (‘TTG VES’) 
is designed to enable participants to share in the incremental 
value of the Group in the excess of an opening valuation, as 
determined by the Remuneration Committee, with the first 
opening valuation being at the start of the financial year ended 
31 March 2010. Each award will entitle a participant either to 
purchase a fixed number of separate shares or be granted nil 
priced or par value options (‘options’) to acquire a separate 
class of shares in each case in the subsidiary company, 
TalkTalk Group Limited, the holding company for the TalkTalk 
business (‘Participation Shares’).

When the performance conditions have been satisfied and the 
award vests the Participation Shares may be purchased by 
TalkTalk by the issue of TalkTalk Shares or the options may 
be exercised and the resulting Participation Shares may be 
purchased by TalkTalk by the issue of TalkTalk Shares. 
Any Participation Shares that are initially purchased by the 
participants will be acquired at market value and such 
participant will be offered a loan from TalkTalk at a 
commercial rate of interest in order to fund such a purchase. 

Discretionary Share Option Plan
The Discretionary Share Option Plan (‘DSOP’) is designed to 
provide a medium-term incentive plan for certain employees 
of TalkTalk who will not participate in the TTG VES. Other grants 
may be made in special circumstances at the discretion 
of the Committee. It is the intention of the Remuneration 
Committee that, generally in any one year, participants may 
only receive an award under one of such schemes. The 
exercise of the options is subject to continuing employment 
and performance conditions as set out in note five to the 
financial statements. No employee will be granted options 
over 200 per cent of base salary, unless the Board determines 
that exceptional circumstances exist which justify exceeding 
this limit, in which case options shall not exceed 300 per cent 
of base salary.

SAYE Schemes
The SAYE Scheme in the UK is a Save-As-You-Earn share 
option scheme and is approved by HMRC. The SAYE Schemes 
are administrated by the Board or a duly authorised committee 
of the Board. All UK Executive Directors and employees of 
TalkTalk and participating companies within the Group will be 
eligible to participate in the SAYE Scheme as long as they have 
been employed for a qualifying period. To participate in the 
SAYE Scheme, an eligible employee must enter into an SAYE 
contract and agree to make monthly contributions between 
£5 and £250 for a specified period, three or five years. 
A bonus is payable after expiration of the period.

Options granted to acquire TalkTalk shares under the SAYE 
Scheme will have an option price determined by the Board 
which will be not less than the higher of 80 per cent of the 
middle market quotation price or their nominal value.

A similar scheme has been put in place for TalkTalk 
employees in Ireland.

Further details of the features and operations of the TTG 
VES, DSOP and SAYE can be found in note five to the 
financial statements.

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34

Directors’ remuneration report
continued

Aggregate remuneration*
The total amount of Director’s1 remuneration and other 
benefits (excluding pension contributions) were as follows:

Director
Executive
D Harding(4)
A Stirling(3)
D Goldie(3)
Non-Executive
C Dunstone(3,5)
R Taylor(3,6)
J Gildersleeve(3)

J Allwood(3)
J Burley(1,3)
B Hoberman(3)
I West(2)
Aggregate 
emoluments

Basic
£000

500
375
325

360
75
73

60
40
50
8

Taxable 
benefits
£000

Bonuses
£000

17
9
15

2
–
–

–
–
–
–

199
149
130

–
–
–

–
–
–
–

2011
Total
£000

716
533
470

362
75
73

60
40
50
8

2010
Total
£000

249
152
133

4
15
14

12
12
10
–

1,866

43

478

2,387

601

Notes: 
(1) Resigned 16 November 2010
(2) Appointed 8 February 2011
(3) Appointed 20 January 2010
(4)  Appointed 20 January 2010 and remunerated as a Director from  

24 February 2010

(5)  Basic salary for the prior year relates to the period from 29 March 2010  

to 31 March 2010. Remuneration from 20 January 2010 to 28 March 2010 
was borne by CPW and recharged as part of the CPW costs set out in 
note 2 to the financial statements. 

(6)  CPW had a medium-term incentive plan for Roger Taylor which rewarded 
increases in the market capitalisation of this Group between June 2009 
and December 2010. This incentive plan has been measured using the 
combined share price of the Group and Carphone Warehouse Group plc 
and the maximum payout of £1.0m was made during the period. This amount 
was accrued as part of the demerger and is not included in the above.

Total remuneration for 2010 above relates only to that paid  
to Directors for their role as Directors of the Company.  
Charles Dunstone, Roger Taylor and John Gildersleeve  
were Directors of CPW for which they respectively received 
total remuneration of £1,733,781, £1,167,426 and £395,652 
for the period to 28 March 2010. These Directors were then 
remunerated by the Company from 29 March 2010.

Amy Stirling and David Goldie were employees but not Directors 
of CPW. Amy and David were remunerated by the Company for 
their roles as Directors of the Company from 20 January 2010.

John Allwood was not a Director of CPW and was remunerated 
by the Company from 28 January 2010, when he was appointed 
as a Director of the Company.

Pension contributions*
The schedule below sets out payments by the Group to 
defined contribution money purchase pension schemes  
on behalf of Directors. A fixed proportion of salary is paid by  
the Company together with either a fixed proportion by the 
Director or no contribution by the Director and both amounts 
are invested on behalf of the Director. Pension benefits are 
then funded by the total investment. Levels are reviewed 
annually against published market data. None of the Directors 
was a member of a defined benefit pension scheme during 
the year. Pension entitlements are based on basic salary only.

Director
D Harding
A Stirling
D Goldie
Total

2011
£000
51
19
65
135

2010
£000
–
11
4
15

External appointments
The Board supports Executive Directors holding Non-Executive 
Directorships of other companies and believes that such 
appointments are part of the continuing development of the 
Executive Directors from which the Company will ultimately 
benefit. The Board has reviewed all such appointments and those 
appointments that the Board believes require disclosure pursuant 
to the Code are set out below. The Board has also agreed that 
the Directors may retain their fees from such appointments. 

Currently, Dido Harding is a Non-Executive Director of The 
British Land Company PLC for which the annual fee is £64,600. 
David Goldie is also a Board Member of the Northwest Regional 
Development Agency for which he received a fee of £8,666 
during the year.

Charles Dunstone is also Chairman of Carphone Warehouse 
Group plc which the Board believes is a significant other 
commitment for him.

Fees for Non-Executive Directors
The fees for each of the Non-Executive Directors are determined 
by the Board after considering external market research. The 
Chairman’s fee is £360,000. The Deputy Chairman’s fee is 
£60,000. Non-Executive Directors receive a basic fee of 
£45,000 plus additional fees of £15,000 for Chairing the Audit 
Committee, £10,000 for Chairing the Remuneration Committee 
and £5,000 for Chairing the Nomination Committee. A fee of 
£5,000 is paid for membership of the Audit Committee, £5,000 
for membership of the Remuneration Committee and £5,000 
for membership of the Nomination Committee. The Senior 
Independent Director receives an additional fee of £7,500. 
The Non-Executive Directors do not take part in discussions 
on their remuneration. Each of the Non-Executive Directors has 
a letter of appointment substantially in the form suggested by 
the Code, and each has a three month notice period with no 
compensation for loss of office. The Company has no age limit 
for Directors. The dates of each contract are set out on page 38.

TalkTalk Telecom Group PLC | Annual Report 2011

35

Directors’ interest in shares and dates of service contracts*
Details of Directors’ interests in options to buy shares in the Company are as follows:

1) 

TalkTalk Group schemes

Value Enhancement Scheme

a. 
As set out in note five to the financial statements, prior to the demerger two value enhancement schemes were introduced 
to provide long-term incentives to senior management. These were called the TalkTalk Group Value Enhancement Scheme 
(‘TTG VES’) and the Carphone Warehouse TalkTalk Group Value Enhancement Scheme (‘CPW TTG VES’). 

The Directors had the following percentage share in the TTG VES pool at 31 March 2011:

Director
D Harding
A Stirling
D Goldie

2011
% Share
10
6
6

2010
% Share
10
6
6

The remaining percentage of allocated shares in the TTG VES pool is held by other senior management of the Group. Based on 
the weighted average share price for the year, and as disclosed in note five to the financial statements, the dilutive effect of the 
potential number of shares in the VES pool at 31 March 2011 was 22 million (2010 : 28 million).

The Directors had the following interest bearing loans outstanding to the Group in relation to the TTG VES at 31 March 2011: 

Director
D Harding
A Stirling
D Goldie

Interest on outstanding loans was charged at 4% during the year (2010 : 4.75%).

The Directors had the following percentage share in the CPW TTG VES at 31 March 2011:

Director
R Taylor

2011
£000
480
295
295
1,070

2010
£000
461
284
284
1,029

2011
% Share
53.5

2010
% Share
53.5

The remaining percentage share in the CPW TTG VES pool is held by other senior management of Carphone Warehouse Group plc. 

b. 
Details of Executive Directors’ conditional right to receive nil priced options in the Company are shown in the following table:

Discretionary Share Option Plan

Director

D Harding

Total for D Harding

At 31 March 2010  
or date of 
appointment

Granted  

Exercised during  

Lapsed  

At 31 March  

during the year

the year

during the year

2011

–

–
–

236,220

236,220
472,440

–

–
–

–

–
–

236,220

236,220
472,440

Exercise  
price per  
share £

Exercisable  

from

Expiry  
date

–

–

01/09/2012

04/12/2020

01/09/2013

04/12/2020

For awards made in September 2010 the performance conditions are based on achieving a compound Total Shareholder 
Return (“TSR”) of five per cent over the performance period. Full details of the scheme are disclosed in note five to the 
financial statements.

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TalkTalk Telecom Group PLC | Annual Report 2011

 
 
 
 
36

Directors’ remuneration report
continued

2) 

CPW legacy schemes

Share gift

a. 
The Directors had the following interest bearing loans outstanding to the Group in relation to the settlement of the tax liability 
arising as a result of a share gift given in December 2008 by CPW:

Director
A Stirling
D Goldie

b. 

CSOP

Director

Total for A Stirling

R Taylor

Total for R Taylor

2011
£000
144
144
288

2010
£000
144
144
288

At 31 March 2010  
or date of 
appointment

106,668

200,000

200,000

240,000

444,444

250,000
1,334,444

Granted  

Exercised during  

Lapsed  

At 31 March  

during the year

the year

during the year

2011

Exercise  
price per  
share £

Exercisable  

from

Expiry  
date

–

–

– (200,000)(1)

– (200,000)(1)

– (240,000)(2)

–

–

–
– (640,000)

–

–

–

–

–

–

–
–

106,668

0.52

06/06/2006

06/06/2013

–

–

–

444,444

250,000
694,444

0.87

19/05/2002

19/05/2010

1.16

19/05/2002

19/05/2010

0.73

21/05/2004

21/05/2011

0.52

06/06/2006

06/06/2013

0.48

11/06/2005

11/06/2012

(1) The market price at date of exercise was 127p
(2) The market price at date of exercise was 137p

The market price per share was 134p as at 31 March 2011 (2010 : 127p), and the range during the year was 170p to 107p.

TalkTalk Telecom Group PLC | Annual Report 2011

37

c. 
Details of Executive Directors’ conditional right to receive nil priced options in the Company are shown in the following table:

Performance shares

Director
A Stirling

At 31 March 2010  
or date of 
appointment
52,734

Granted  

Exercised during  

Lapsed  

during the year
–

the year
–

during the year
–

52,734

145,588

145,588

396,644

200,000

379,136

379,136

958,272

482,537

482,538

213,856

675,000

675,000
2,528,931

Total for A Stirling

D Goldie

Total for D Goldie

R Taylor

Total for R Taylor

–

–

–

–

–

–

–

–

–

–

–

–

–
–

–

–

–

–

–

–

–

–

–

–

–

–

–
–

At 31 March  

2011
52,734

52,734

–

–

–

(145,588)

(145,588)

(291,176)

105,468

–

200,000

(379,136)

(379,136)

–

–

(758,272)

200,000

(482,537)

(482,538)

–

–

–

–

213,856

675,000

–

675,000
(965,075) 1,563,856

Exercise  
price per  
share £
–

Exercisable  

Expiry  
date
28/07/2007 28/07/2014(1)

from

–

–

–

–

–

–

–

–

–

–

–

28/07/2008 28/07/2014(1)

04/06/2010 04/12/2016(2)

04/06/2011 04/12/2016(2)

28/07/2008 28/07/2015

04/06/2010 04/12/2016(2)

04/06/2011 04/12/2016(2)

04/06/2010 04/12/2016(2)

04/06/2011 04/12/2016(2)

11/06/2005 11/06/2012

28/07/2007 28/07/2014

28/07/2008 28/07/2015

(1) For awards made in July 2004 the performance conditions set out in previous CPW annual reports have been satisfied.
(2)  For awards made in December 2006 the performance conditions set out in previous CPW annual reports were not satisfied and the shares lapsed 

in June 2010.

TalkTalk Telecom Group PLC | Annual Report 2011

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38

Directors’ remuneration report
continued

Directors’ interests in shares and dates of service contracts

Director
C Dunstone
D Harding
A Stirling
D Goldie
R Taylor
J Gildersleeve
J Allwood
B Hoberman
I West

Ordinary shares of 0.1p

31 March 2011
295,209,396
–
536,687
945,460
1,083,698
246,000
–
–
164,323

31 March 2010

Date of contract
296,144,535 20 January 2010
– 20 January 2010
536,687 20 January 2010
945,460 20 January 2010
978,678 20 January 2010
246,000 20 January 2010
– 20 January 2010
– 20 January 2010
– 8 February 2011

Performance graph
The graph below shows the Group’s performance compared to the TSR performance of the FTSE 250 from the date of the 
Group’s listing, 29 March 2010.

The FTSE 250 was selected as it is a broad market index of which the Group is a member.

Performance

£m

150

100

50

0
1
0
2
/
3
0
/
6
2

TalkTalk Telecom Group PLC

FTSE 250

This report was approved by the Board on 18 May 2011.

TalkTalk Telecom Group PLC | Annual Report 2011

1
1
0
2
/
3
0
/
1
3

Other statutory information

39

Employment of disabled people
The Company has an equal opportunities policy which  
ensures that disabled persons are provided with the same 
opportunities for employment, career development, training 
and promotion along with all other employees. As part of this 
policy, applications for employment by disabled persons are 
fully considered, bearing in mind the abilities of the applicant 
concerned. In the event of employees becoming disabled 
during employment a thorough process is followed and 
support provided (including income support insurance)  
to try to secure their employment. 

Supplier payment policy
It is the Company’s policy to develop and maintain key 
business relationships with its suppliers to obtain mutually 
accepted payment terms. The average credit period taken  
on trade payables was 24 days (2010 : 25 days).

Donations
The Company made £240,455 (2010 : £229,915) of charitable 
donations and no political donations in either year.

Contracts with controlling Shareholders
There are no material contracts with controlling Shareholders, 
except as disclosed in the Directors’ remuneration report on 
pages 32 to 38.

Share capital
Details in the movements in issued share capital during the 
year are provided in notes 21 and 22 in the financial statements.

Property, plant and equipment
Movements in property, plant and equipment are set out  
in note 12 to the financial statements. In the opinion of  
the Directors the current open market value of the Group’s 
interests in freehold land and buildings is not materially 
different from its book value at 31 March 2011. It is expected 
that any capital gains would be covered by capital losses.

Significant shareholdings
At 18 May 2011 the Company had been notified of the 
following interests in the Company’s shares:

Name
David Peter John Ross
Capital Research and 
Management Company
FMR LLC
FIL Limited
Government of Singapore 
Investment Corporation Pte Ltd

Number of  

shares
117,160,528

Percentage of  
share capital
12.82%

50,596,100
45,592,488
45,331,791

5.54%
4.98%
4.95%

36,398,095

3.98%

The total interests of the Directors are detailed in the 
Directors’ remuneration report on pages 32 to 38.

Going concern
On the basis of current financial projections and facilities 
available, the Directors are satisfied that the Group has 
adequate resources to continue in operation for the foreseeable 
future and consequently the financial statements continue to  
be prepared on the going concern basis, as discussed in the 
Finance review on page 16.

Directors’ indemnities
Other than director’s liability insurance no other indemnity  
has been provided to Directors.

Audit information
Each of the persons who is a Director at the date of approval  
of this annual report confirms that:

•   So far as the Director is aware, there is no relevant audit 

information of which the company’s auditor are unaware; and

•   The Director has taken all the steps that he/she ought to 
have taken as a Director in order to make himself/herself 
aware of any relevant audit information and to establish 
that the company’s auditor are aware of the information.

This confirmation is given and should be interpreted in 
accordance with the provisions of s418 of the Companies 
Act 2006.

By order of the Board

TalkTalk Telecom Group PLC 
11 Evesham Street 
London W11 4AR

Tim Morris 
Company Secretary 
18 May 2011

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TalkTalk Telecom Group PLC | Annual Report 2011

 
 
 
4040

Financial statements

Statement of Directors’ responsibilities 
Independent auditor’s report to the members  
of TalkTalk Telecom Group PLC 
Consolidated income statement 
Consolidated statement of comprehensive income 
Consolidated statement of changes in equity 
Consolidated balance sheet 
Consolidated cash flow statement 
Notes to the consolidated financial statements 
Independent Auditor’s report to the Directors  
of TalkTalk Telecom Group PLC 
Company balance sheet 
Company reconciliation of movement  
in Shareholders’ funds 
Notes to the company financial statements 

42

43
44
45
46
47
48
49

86
87

88
89

4141

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42

Statement of Directors’ responsibilities 

The Directors are responsible for the maintenance and 
integrity of the corporate and financial information included  
on the Company’s website. Legislation in the United Kingdom 
governing the preparation and dissemination of financial 
statements may differ from legislation in other jurisdictions.

Responsibility statement 
We confirm that to the best of our knowledge:

•   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

•   the management report, which is incorporated into the 

Directors’ 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.

By order of the Board

D Harding 
Chief Executive Officer 
18 May 2011 

A Stirling  
Chief Financial Officer 
18 May 2011

The Directors are responsible for preparing the annual report 
and the financial statements in accordance with applicable law 
and regulations.

Company law requires the Directors to prepare financial 
statements for each financial year. Under that law the Directors 
are required to prepare the Group financial statements in 
accordance with International Financial Reporting Standards 
(IFRSs) as adopted by the European Union and Article 4 of  
the IAS Regulation and have elected to prepare the Parent 
Company financial statements in accordance with United Kingdom 
Generally Accepted Accounting Practice (United Kingdom 
Accounting Standards and applicable law). Under company 
law the Directors must not approve the accounts unless they 
are satisfied that they give a true and fair view of the state 
of affairs of the Company and of the profit or loss of the 
Company for that period. 

In preparing the Parent Company financial statements,  
the Directors are required to:

•   select suitable accounting policies and then apply  

them consistently;

•   make judgments and accounting estimates that are 

reasonable and prudent;

•   state whether applicable UK Accounting Standards 

have been followed, subject to any material departures 
disclosed and explained in the financial statements; and

•   prepare the financial statements on the going concern 
basis unless it is inappropriate to presume that the 
company will continue in business.

In preparing the Group financial statements, International 
Accounting Standard 1 requires that Directors:

•  properly select and apply accounting policies;

•   present information, including accounting policies, in a 
manner that provides relevant, reliable, comparable and 
understandable information; 

•   provide additional disclosures when compliance with the 
specific requirements in IFRSs are insufficient to enable 
users to understand the impact of particular transactions, 
other events and conditions on the entity’s financial position 
and financial performance; and

•   make an assessment of the Company’s ability to continue 

as a going concern.

The Directors are responsible for keeping adequate 
accounting records that are sufficient to show and explain  
the Company’s transactions and disclose with reasonable 
accuracy at any time the financial position of the Company  
and enable them to ensure that the financial statements 
comply with the Companies Act 2006. They are also 
responsible for safeguarding the assets of the Company  
and hence for taking reasonable steps for the prevention  
and detection of fraud and other irregularities.

TalkTalk Telecom Group PLC | Annual Report 2011

 
 
 
 
 
Independent auditor’s report to the members  
of TalkTalk Telecom Group PLC

43

Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors’ Report 
for the financial year for which the Group financial 
statements are prepared is consistent with the Group 
financial statements.

Matters on which we are required to report by exception
We have nothing to report in respect of the following:

Under the Companies Act 2006 we are required to report  
to you if, in our opinion:

•   certain disclosures of Directors’ remuneration specified  

by law are not made; or

•   we have not received all the information and explanations we 

require for our audit.

Under the Listing Rules we are required to review:

•   the Directors’ statement, contained within the financial 

statements, in relation to going concern; 

•   the part of the Corporate Governance Statement relating 
to the Company’s compliance with the nine provisions of 
the June 2008 Combined Code specified for our review; and

•   certain elements of the report to Shareholders by the 

Board on Directors’ remuneration.

Other matter
We have reported separately on the Company financial 
statements of TalkTalk Telecom Group PLC for the period  
ended 31 March 2011 and on the information in the 
Directors’ Remuneration Report that is described as 
having been audited. 

John Murphy (Senior Statutory Auditor)
for and on behalf of Deloitte LLP 
Chartered Accountants and Statutory Auditor 
London, United Kingdom 
18 May 2011

We have audited the Group financial statements of TalkTalk 
Telecom Group PLC for the year ended 31 March 2011 which 
comprise the Consolidated income statement, the Consolidated 
statement of comprehensive income, the Consolidated statement 
of changes in equity, the Consolidated balance sheet, the 
Consolidated cash flow statement and the related notes 1 to 29. 
The financial reporting framework that has been applied in their 
preparation is applicable law and International Financial Reporting 
Standards (IFRSs) as adopted by the European Union.

This report is made solely to the Company’s members,  
as a body, in accordance with Chapter 3 of Part 16 of the 
Companies Act 2006. Our audit work has been undertaken so 
that we might state to the Company’s members those matters 
we are required to state to them in an auditor’s report and for 
no other purpose. To the fullest extent permitted by law, we 
do not accept or assume responsibility to anyone other than 
the company and the Company’s members as a body, for our 
audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and auditor
As explained more fully in the Directors’ Responsibilities 
Statement, the Directors are responsible for the preparation  
of the Group financial statements and for being satisfied that 
they give a true and fair view. Our responsibility is to audit  
and express an opinion on the Group financial statements  
in accordance with applicable law and International Standards  
on Auditing (UK and Ireland). Those standards require us to 
comply with the Auditing Practices Board’s Ethical Standards 
for Auditors.

Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts  
and disclosures in the financial statements sufficient to give 
reasonable assurance that the financial statements are free 
from material misstatement, whether caused by fraud or error. 
This includes an assessment of: whether the accounting 
policies are appropriate to the Group’s circumstances and 
have been consistently applied and adequately disclosed; the 
reasonableness of significant accounting estimates made by 
the Directors; and the overall presentation of the financial 
statements. In addition, we read all the financial and non-
financial information in the annual report to identify material 
inconsistencies with the audited financial statements. If we 
become aware of any apparent material misstatements or 
inconsistencies we consider the implications for our report.

Opinion on financial statements
In our opinion the Group financial statements:

•   give a true and fair view of the state of the Group’s affairs as 
at 31 March 2011 and of its profit for the year then ended;

•   have been properly prepared in accordance with IFRSs 

as adopted by the European Union; and

•   have been prepared in accordance with the requirements 
of the Companies Act 2006 and Article 4 of the IAS Regulation.

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TalkTalk Telecom Group PLC | Annual Report 2011

 
 
 
44

Consolidated income statement

For the year ended 31 March 2011

Revenue
Cost of sales
Gross profit
Operating expenses excluding amortisation 
and depreciation
EBITDA

Depreciation
Amortisation 
Share of results of joint venture 
Operating profit
Finance costs
Investment revenue
Profit before taxation
Taxation
Profit (loss) for the year

Before 
amortisation of 
acquisition 
intangibles and 
exceptional 
items

Amortisation of 
acquisition 
intangibles and 
exceptional 
items*

After 
amortisation of 
acquisition 
intangibles and 
exceptional 
items

Before 
amortisation of 
acquisition 
intangibles and 
exceptional 
items

Amortisation of 
acquisition 
intangibles and 
exceptional 
items*

After 
amortisation 
of acquisition 
intangibles and 
exceptional 
items

2011
£m
1,765
(877)
888

(612)
276

(57)
(26)
(1)
192
(18)
–
174
(52)
122

2011
£m
–
–
–

(48)
(48)

(3)
(66)
–
(117)
–
–
(117)
30
(87)

2011
£m
1,765
(877)
888

(660)
228

(60)
(92)
(1)
75
(18)
–
57
(22)
35

2010
£m
1,686
(838)
848

(627)
221

(46)
(24)
–
151
(10)
6
147
(41)
106

2010
£m
–
–
–

(47)
(47)

(1)
(87)
–
(135)
(1)
–
(136)
27
(109)

2010
£m
1,686
(838)
848

(674)
174

(47)
(111)
–
16
(11)
6
11
(14)
(3)

Notes

2

3

3, 12

3, 11

14

6

6

7

Attributable to the equity holders of the Parent Company

122

(87)

35

106

(109)

(3)

Earnings per share 
Basic (pence)
Diluted (pence)

10

10

13.5
12.8

3.9
3.7

11.8
11.2

(0.3)
(0.3)

* 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 Consolidated income statement. All amounts relate to continuing operations. 

TalkTalk Telecom Group PLC | Annual Report 2011

 
Consolidated statement of comprehensive income

For the year ended 31 March 2011

Profit (loss) for the year(1)
Exchange differences on translation of foreign operations(1) 
Cash flow hedges and currency translation(2)
Taxation of items relating to components of other comprehensive income(1)
Total comprehensive income (expense) for the year

Attributable to the equity holders of the Parent Company

(1)  recognised within retained earnings and other reserves
(2)  recognised within the Translation reserve 

45

Notes

7

2011
£m
35
1 
(1) 
2
37

2010
£m
(3)
–
(1)
(1)
(5)

37

(5)

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

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TalkTalk Telecom Group PLC | Annual Report 2011

 
 
 
 
46

Consolidated statement of changes in equity

For the year ended 31 March 2011

At 1 April 2010
Total comprehensive income for the year
Recycling of translation reserve
Settlement of Group ESOT shares
Net cost of share-based payments 
Equity dividends 
At 31 March 2011

At 1 April 2009
Total comprehensive income for the year
Issue of share capital
Capital reduction
Net cost of share-based payments 
Share-based payments reserve debit
Equity dividends 
Movements in demerger reserve
At 31 March 2010

Share 
capital

Share  
premium

Translation 
reserve

Demerger 
reserve

Retained 
earnings and 
other reserves

£m
1
–
–
–
–
–
1

£m
586
–
–
–
–
–
586

£m
(60) 
(1)
(4)
–
–
–
(65)

£m
(513)
–
–
–
–
–
(513)

£m
378
38
–
1
4
(15)
406

Share 
capital

Share  
premium

Translation 
reserve

Demerger 
reserve

Retained 
earnings and 
other reserves

£m
–
–
1
–
–
–
–
–
1

£m
–
–
986
(400)
–
–
–
–
586

£m
(59)
(1)
–
–
–
–
–
–
 (60) 

£m
529
–
(987)
–
–
–
–
(55)
(513)

£m
232
(4)
–
400
4
(3)
(251)
–
378

Total

£m
392
37
(4)
1
4
(15)
415

Total

£m
702
(5)
–
–
4
(3)
(251)
(55)
392

Notes

5

8

Notes

21, 22

22

5

5

8

22

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

In March 2010 the share premium relating to the ordinary shares was reduced by £400m by way of a court-approved capital 
reduction (note 22). This had the effect of creating distributable reserves which may be released at the discretion (and upon 
the resolution) of the Board. 

During the year ended 31 March 2010 equity dividends of £251m were paid by TalkTalk Telecom Holdings Limited, including 
£69m of dividends paid to its Shareholders and an intercompany dividend of £182m paid as part of the demerger (note 8).

TalkTalk Telecom Group PLC | Annual Report 2011

 
Consolidated balance sheet

For the year ended 31 March 2011

Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Non-current asset investments
Investment in joint venture
Deferred tax asset

Current assets
Cash and cash equivalents
Inventories
Trade and other receivables 
Loans to related parties

Total assets

Current liabilities
Trade and other payables
Corporation tax liabilities
Loans and other borrowings
Provisions

Non-current liabilities 
Loans and other borrowings
Provisions

Total liabilities

Net assets

Equity
Share capital
Share premium 
Translation reserve
Demerger reserve
Retained earnings and other reserves
Funds attributable to equity shareholders

47

Notes

2010  
*As restated
£m

2011
£m

11

11

12

13

14

7

18

15

16

16

17

18

20

18

20

21, 22

22

22

22

22

471
255
290
1
4
116
1,137

1
3
155
2
161
1,298

(376)
(22)
(44)
(32)
(474)

(395)
(14)
(409)
(883)

415

1
586
(65)
(513)
406
415

470
316
262
1
–
155
1,204

1
2
180
3
186
1,390

(400)
(42)
(19)
(29)
(490)

(490)
(18)
(508)
(998)

392

1
586
(60)
(513)
378
392

* The prior year balance sheet has been restated to reflect the finalisation of the Tiscali UK and UK Telco acquisition purchase prices (note 29).

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

These financial statements were approved by the Board on 18 May 2011. They were signed on its behalf by:

D Harding 
Chief Executive Officer 
18 May 2011 

A Stirling  
Chief Financial Officer 
18 May 2011

TalkTalk Telecom Group PLC | Annual Report 2011

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48

Consolidated cash flow statement

For the year ended 31 March 2011

Operating activities
Operating profit
Adjustments for non-cash items:

Share-based payments 
Depreciation 
Amortisation 
Share of losses of joint venture
Recycling of translation reserve
Fair value gain on step acquisition

Operating cash flows before movements in working capital
Decrease in trade and other receivables
Increase in inventory
(Decrease) increase in trade and other payables
Decrease in provisions
Cash generated by operations
Income taxes paid
Net cash flows generated from operating activities

Investing activities
Interest received
Acquisition of subsidiaries and joint venture, net of cash acquired 
Disposal of subsidiaries, net of cash disposed
Acquisition of intangible assets
Acquisition of property, plant and equipment
Disposal of property, plant and equipment
Cash flows used in investing activities

Financing activities
Settlement of Group ESOT shares 
Repayment of borrowings
Drawdown of borrowings
Interest paid
Cash flows relating to movements in demerger reserves
Net decrease in loans to related parties 
Dividends paid
Cash flows (used) from financing activities

Net increase in cash and cash equivalents
Cash and cash equivalents at the start of the year
Cash and cash equivalents at the end of the year

Cash and cash equivalents for the purpose of this statement comprise:
Cash and cash equivalents
Bank overdrafts*

* Bank overdrafts are disclosed within Loans and other borrowings less than one year.

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

TalkTalk Telecom Group PLC | Annual Report 2011

Notes

5

3, 12

3, 11

14

9

13

6

13, 14

13

22

23

23

23

 8

18

18

2011
£m

75 

4 
 60 
92
1
(4)
(1) 

227
11
 (1) 
(28)
(4)
205
(2)
203

–
5
4
(27)
(83)
–
(101)

1
(72)
 – 
(17)
 – 
1
 (15) 
(102)

–
(8)
(8)

1
(9)
(8)

2010
£m

16

4
47
111
–
–
–
178
35
(1)
2
(13)
201
(2)
199

6
(240)
–
(35)
(67)
1
(335)

–
(425)
500 
(9)
(54)
394
(251)
155

19
(27)
(8)

1
(9)
(8)

 
Notes to the consolidated financial statements

49

1. Accounting policies and basis of preparation

Basis of preparation
TalkTalk Telecom Group PLC is incorporated in the 
United Kingdom. 

The Consolidated financial statements of the Company have 
been prepared in accordance with International Financial 
Reporting Standards (‘IFRS’) as adopted for use in the 
European Union and as applied in accordance with the 
provisions of the Companies Act 2006. These financial 
statements therefore comply with Article 4 of the European 
Union International Accounting Standard regulation.  
The Company has applied United Kingdom Generally 
Accepted Accounting Practice (‘GAAP’) in the preparation 
of its individual financial statements, which are contained 
on pages 86 to 93.

The financial statements have been prepared on the going 
concern basis. Details of the considerations undertaken 
by the Directors in reaching this conclusion are set out 
on page 19 within the Finance review.

The financial statements have been prepared on the historical 
cost basis, except for the revaluation of certain financial 
instruments and investments. The financial statements are 
presented in Sterling, rounded to the nearest million, because 
that is the currency of the principal economic environment 
in which the Group operates.

The Group’s principal accounting policies are set out below.

Basis of consolidation
The consolidated financial statements incorporate the  
financial statements of the Company, entities controlled by  
the Company (its subsidiaries) and entities jointly-controlled  
by the Company (its joint ventures) made up to 31 March each 
year. Control is achieved where the Company has the power  
to govern the financial and operating policies of an investee 
entity so as to obtain benefits from its activities. 

The results of subsidiaries acquired or sold during the year are 
included from or to the date on which control passed to or was 
relinquished by the Group. Intercompany transactions and 
balances between subsidiaries are eliminated on consolidation.

Where necessary, adjustments are made to the financial 
statements of subsidiaries to bring accounting policies  
used into line with those used by the Group.

Shares in the Company held by the Group ESOT are shown 
as a reduction in Shareholders’ funds. Other assets and 
liabilities held by the trust are consolidated with the assets 
and liabilities of the Group.

Comparative information – presentation of the Group’s 
Results for the year ended 31 March 2010
On 26 March 2010 CPW demerged into Carphone Warehouse 
Group plc and the Group. The Company and the Carphone 
Warehouse Group plc were separately listed on the London 
Stock Exchange. 

The prior year consolidated financial statements of the Group 
have been prepared with the objective of presenting the 
results, net assets and cash flows of the Group in the form  
that arose on completion of the demerger, as if it had been  
a standalone business during the year ended 31 March 2010.

The financial statements have been prepared by aggregating 
the Statutory accounts of the companies and assets that  
have been transferred to the Group on demerger. Any assets 
and liabilities held within the consolidation of CPW that related 
to the Group were also reflected in the consolidated financial 
statements, as though they formed part of the Group. The 
principles of IAS 27 ‘Consolidated and Separate financial 
statements’ and SIC 12 ‘Consolidation – Special Purpose 
Entities’ have been applied in determining the companies 
and assets to be combined. 

As a part of the demerger, certain companies and assets  
were transferred out of the Group. These companies and 
assets have been treated as though they were never part  
of the Group. Such transfers were made at market value  
as determined by management for cash consideration  
during March 2010. At 31 March 2010, the full value at which 
transfers were made are reflected in the balance sheet and 
any profits or losses arising on the transfers are reflected 
in the demerger reserve as these are effectively treated 
as a capital contribution from CPW.

Adjustments reflected in the demerger reserve, which  
have implications for cash and cash equivalents, have  
been disclosed in the cash flow statement as cash  
flows relating to movements in demerger reserve.

Dividends to or from other entities in CPW have been 
eliminated with the corresponding entry recorded in equity. 
Such dividends would not have been applicable had the 
operations been independent during the current and 
preceding year and are not representative of the future 
position of the Group. Such payments are recorded in 
cash flows relating to movements in demerger reserve.

CPW issued equity settled share-based payments to 
certain employees of its subsidiaries and of Best Buy Europe. 
The related expense arising in relation to these employees 
has been allocated to the Group based on the businesses 
that benefited from the incentives.

Taxation has been allocated in the income statement of the 
Group to reflect as far as possible the underlying tax position 
of the business. Any Group relief provided between companies 
in CPW is therefore treated as having been charged, even if 
such charges were not made. 

As the Company did not exist during the year ended 
31 March 2010 in the form that arose on Demerger, the 
average actual shares in issue during this year do not provide 
a meaningful basis for calculating EPS. EPS was, therefore, 
calculated based on the number of CPW shares in issue 
until the demerger date, the number of the Group’s shares 
in issue after that date, and the shareholding of the Group 
ESOT during this financial year.

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TalkTalk Telecom Group PLC | Annual Report 2011

 
 
 
50

Notes to the consolidated financial statements
continued

1. Accounting policies and basis of preparation (continued) 

Diluted EPS has been calculated based on options held over 
CPW shares during the year ended 31 March 2010 and the 
Group’s proportion of the CPW share price.

Changes in accounting policy
In the current year, the following new and revised Standards 
and Interpretations have been adopted. Unless otherwise 
stated, the adoption of these standards and interpretations  
has had no significant impact on these financial statements:

•   IFRS 1 (Revised) ‘First-time Adoption of International 

Financial Reporting Standards’;

•   IFRS 2 (amended) ‘Group Cash-settled Share-based 
Payment Transactions’: the amendment clarifies the 
accounting for share-based payment transactions  
between Group entities;

•   IFRS 3 (2008) ‘Business Combinations’; the impact  

of the changes are set out below;

•   IAS 24 (2009) ‘Related party disclosures’: the impact  

of the changes are set out below;

•   IAS 27 (2008) ‘Consolidated and Separate financial 

statements’: the impact of the changes are set out below;

•   IAS 28 (Revised) ‘Investments in Associates’: the impact  

of the changes are set out below;

•   IFRIC 17 ‘Distribution of Non-cash Assets to Owners’: the 

Interpretation provides guidance on when an entity should 
recognise a non-cash dividend payable, how to measure 
the dividend payable and how to account for any difference 
between the carrying amount of the assets distributed and 
the carrying amount of the dividend payable when the 
payable is settled; and

•   Improvements to IFRS (April 2009): the impact of the 

changes are set out below.

The following amendments were made as part of 
Improvements to IFRS (2009):

•   Amendment to IFRS 2 ‘Share-based Payment’: IFRS 2 has 
been amended, following the issue of IFRS 3 (2008), to 
confirm that the contribution of a business on formation  
of a joint venture and common control transactions are  
not within the scope of IFRS 2.

•   Amendment to IAS 17 ‘Leases’: IAS 17 has been amended 
such that it may be possible to classify a lease of land as  
a finance lease if it meets the criteria for that classification 
under IAS 17. 

•   Amendment to IAS 39 ‘Financial Instruments Recognition 
and Measurement’: IAS 39 has been amended to state  
that options contracts between an acquirer and a selling 
shareholder to buy or sell an acquiree that will result in a 
business combination at a future acquisition date are not 
excluded from the scope of the standard.

The adoption of IFRS 1, IFRS 2, IAS 28, IFRIC 17 and 
Improvement to IFRS (April 2009) have had no material  
impact on the Group.

IFRS 3 (2008) ‘Business Combinations’, IAS 27 (2008) 
‘Consolidated and Separate financial statements’ and  
IAS 28 (2008) ‘Investments in Associates’
The most significant changes to the Group’s previous accounting 
policies relate to business combinations. These are: acquisition 
related costs are included in operating expenses as they are 
incurred rather than capitalised; any changes to the cost of an 
acquisition, including contingent consideration, resulting from  
an event after the date of acquisition are recognised in profit or 
loss rather than as an adjustment to goodwill; and where a step 
acquisition occurs the Group will remeasure its previously held 
equity interest at acquisition date fair value and recognise the 
resulting gain or loss, if any, in the income statement or other 
comprehensive income. 

The adoption of IFRS 3 (2008) and the subsequent changes to 
the accounting policies have resulted in the Group recognising 
a gain of £1m within its income statement in respect of the fair 
value of the equity interest previously held for the year ended 
31 March 2011.

Any adjustments to contingent consideration of acquisitions 
made prior to 1 April 2010 which result in an adjustment to 
goodwill continue to be accounted for under IFRS 3 (2004)  
and IAS 27 (2005).

IAS 24 (2009) ‘Related party disclosures’
The Group has early adopted IAS 24 (2009) ‘Related party 
disclosures’, which was endorsed by the EU in July 2010 and, 
as such, can be adopted for the year ended 31 March 2011. 
The impact of the standard is that it simplifies the definition  
of a related party, with shared person or entity (director, 
shareholder or otherwise) no longer automatically implying  
the existence of a related party relationship. Under the 
revised standard this only occurs where the person or entity 
can exert significant influence over both entities. The impact 
is that following the demerger of the Group and the adoption 
of IAS 24 (2009), Best Buy Europe and Carphone Warehouse 
Group plc are no longer considered related parties of the Group.

Foreign currency translation and transactions
Material transactions in foreign currencies are hedged using 
forward purchases or sales of the relevant currencies and  
are recognised in the financial statements at the exchange 
rates thus obtained. Unhedged transactions are recorded  
at the exchange rate on the date of the transaction. Hedge 
accounting as defined by IAS 39 ‘Financial Instruments: 
Recognition and Measurement’ has been applied in the 
current and preceding financial year by marking to market  
the relevant financial instruments at the balance sheet date 
and recognising the gain or loss in equity in respect of cash 
flow hedges, and through the income statement in respect  
of fair value hedges.

TalkTalk Telecom Group PLC | Annual Report 2011

51

The results of overseas operations are translated at the average 
foreign exchange rates for the year, and their balance sheets 
are translated at the rates prevailing at the balance sheet date. 
Goodwill is held in the currency of the operations to which it 
relates. Exchange differences arising on the translation of opening 
net assets, goodwill and results of overseas operations are 
recognised in equity. All other exchange differences are included 
in the income statement.

The principal exchange rates against UK Sterling used in these 
financial statements are as follows: 

Euro
United States Dollar

Average

Closing

2011
1.17
1.56

2010
1.13
1.59

2011
1.13 
1.60 

2010
1.12
1.52

Where a foreign operation is sold, the gain or loss on disposal 
recognised in the income statement is determined after taking 
into account the cumulative currency translation differences 
that are attributable to the operation.

Revenue
Revenue is stated net of VAT and other sales related taxes, and 
comprises revenue generated from the provision of fixed line 
telecommunications services. All such revenue is recognised 
as the services are provided:

•  Line rental is recognised in the period to which it relates;

•   Voice and broadband subscriptions are recognised in the 

period to which they relate;

•   Voice usage is recognised in the period in which the 

customer takes the service;

•   Promotional discounts are amortised on a straight-line 
basis over the minimum contract period subject to an 
adjustment for in contract churn;

•   Connection charges are recognised in the period in which 

the connection is made; and

•   Data service solutions and other service contracts are 

recognised as the Group fulfils its performance obligations. 

Share-based payments
The Group issues equity settled share-based payments to 
certain employees. 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 Binomial model for  
share-based payments with internal 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 share-based payment scheme is cancelled, any remaining 
part of the fair value of the scheme is expensed through the 
income statement. If a share-based payment scheme is forfeited, 
no further expense is recognised and any charges previously 
recognised through the income statement are reversed.

Share-based payment charges are also recognised on loans 
that are 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.

Charges also arise on loans that are provided to employees to 
fund the purchase of shares in the Group as part of long-term 
incentives plans (LTIP), 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.

Where loans are granted for the purchase of shares under  
a LTIP, interest is charged on these loans. 

In accordance with IFRS 2 ‘Share-based payment’ no cost  
has been recognised in respect of the options granted  
before 7 November 2002. 

Subscriber acquisition costs
Subscriber acquisition costs, being third party costs of recruiting 
and retaining new customers, are expensed as incurred. 

Pensions
Contributions to defined contribution schemes are charged to 
the income statement as they become payable in accordance 
with the rules of the schemes.

Dividends
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.

Special dividends relating to the demerger transaction have 
been recognised as a liability in the financial statements in the 
year in which they were approved by the relevant Shareholders.

Leases
Rental payments under operating leases are charged to  
the income statement on a straight-line basis over the  
period of the lease. Lease incentives and rent-free periods  
are amortised through the income statement over the 
period of the lease.

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TalkTalk Telecom Group PLC | Annual Report 2011

 
 
 
52

Notes to the consolidated financial statements
continued

1. Accounting policies and basis of preparation (continued) 

Gains or losses from sale and leaseback transactions are 
deferred over the life of the new lease to the extent that the 
rentals are considered to be above or below market rentals. 
The remaining gain or loss is recognised within operating 
expenses in the year in which the sale is completed.

Taxation
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.

Intangible assets

Goodwill
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.

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, customer 
revenue share agreements, brands 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.

At the acquisition date, acquisition intangibles are allocated  
to each of the CGU expected to benefit from the synergies of 
the combination. Details of impairment testing are provided 
within the Impairment of assets section below. 

Property, plant and equipment
Property, plant and equipment are stated at cost, net of 
depreciation and any provision for impairment. Depreciation  
is provided on all property, plant and equipment at rates 
calculated to write off the cost, less estimated residual value, 
of each asset on a straight-line basis over its expected useful 
life from the date it is brought into use, as follows:

Short leasehold costs 
10% or the lease term if less than ten years

Network equipment and computer hardware 
12.5 – 50% per annum

Fixtures and fittings 
20 – 25% per annum

Impairment of assets 

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.

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 combination. The Group tests goodwill 
annually for impairment or more frequently if there are indications 
that goodwill might be impaired, this review is performed at a 
CGU level.

The Group has two CGUs – Residential and Corporate.  
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. 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 or Management approved 
three year plan and extrapolated out for the following 17 years 
based on the UK’s long-term growth rate. This is discounted  
by the CGU’s weighted average cost of capital 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 segment pro-rata on the basis of the 
carrying amount of each asset in the unit. Any impairment  

TalkTalk Telecom Group PLC | Annual Report 2011

53

loss is recognised in the income statement and is not 
subsequently reversed.

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

Property, plant and equipment and other intangible assets
At each reporting date, the Group reviews the carrying amounts 
of its tangible and intangible assets to determine whether there 
is any indication that those assets have suffered an impairment 
loss. 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. An intangible asset with an indefinite 
useful life is tested for impairment at least annually and whenever 
there is an indication that the asset may be impaired.

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. 

Investments
Investments, other than subsidiaries, are initially recognised  
at cost, being the fair value of the consideration given plus  
any transaction costs associated with the acquisition.

Investments are categorised as available-for-sale and are then 
recorded at fair value. Changes in fair value, together with any 
related taxation, are taken directly to equity, and recycled to the 
income statement when the investment is sold or determined to 
be impaired.

Interests in joint ventures 
Interests in joint ventures are accounted for using the equity 
method. The Consolidated income statement includes the Group’s 
share of the post-tax profits or losses of the joint ventures based 
on their financial statements for the year. In the Consolidated 
balance sheet, the Group’s interest in joint ventures are shown 
as a non-current asset in the balance sheet, representing the 
Group’s investment in the share capital of the joint ventures, as 
adjusted by post-acquisition changes in the Group’s share of 
the net assets or liabilities less provision for any impairment. 

When a joint venture has net liabilities, any loans advanced  
to the venture are included in the Group’s equity accounted 
investment in it. When a venture has net assets, any loans 
advanced to it are shown separately in the balance sheet,  
as a receivable to the Group. 

Inventories
Inventories are stated at the lower of cost and net realisable 
value and principally represents modems and routers. Net 
realisable value is based on estimated selling price, less costs 
expected to be incurred on disposal. A provision is made for 
obsolete items where appropriate.

Provisions
Provisions are recognised when a legal or constructive 
obligation exists as a result of past events and it is probable 
that an outflow of resources will be required to settle 
the obligation and a reliable estimate can be made of the 
amount of the obligation. Provisions are discounted where 
the time value of money is considered to be material.

Provisions are categorised as follows:

Operating efficiencies
Operating efficiencies provisions relate principally to 
redundancy costs and are only recognised where plans  
are demonstrably committed and where appropriate 
communication to those affected has been undertaken  
at the balance sheet date. These provisions are typically 
expected to be utilised over the 12 months following 
announcement of the reorganisation. 

One Company integration
These provisions relate principally to redundancy costs and 
are only recognised where plans are demonstrably committed 
and where appropriate communication to those affected 
has been undertaken at the balance sheet date, and onerous 
contract costs where a decision has been made to exit 
a contract as part of the One Company reorganisation. 
These provisions are typically expected to be utilised 
over 12 to 24 months. 

Property
Property provisions relate to dilapidations and similar property 
costs, and costs associated with onerous property contracts. 
All such provisions are assessed by reference to the terms 
and conditions of the contract and market conditions at the 
balance sheet date. Property provisions are expected to  
be utilised over the next nine years.

Contract and other
Contract and other provisions relate to onerous contracts  
and contracts with unfavourable terms arising on the 
acquisition of businesses and anticipated costs of unresolved 
legal disputes. All such provisions are assessed by reference 
to the best available information at the balance sheet date. 
Contract and other provisions are expected to be utilised  
over the next 24 months.

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TalkTalk Telecom Group PLC | Annual Report 2011

 
 
 
54

Notes to the consolidated financial statements
continued

1. Accounting policies and basis of preparation (continued) 

•  Equity instruments

Financial instruments
Financial assets and financial liabilities, in respect of financial 
instruments, are recognised in the Group’s balance sheet 
when the Group becomes a party to the contractual provisions 
of the instrument. 

Trade and other receivables
Trade receivables, loans, and other receivables that have fixed 
or determinable payments that are not quoted in an active 
market are classified as loans and receivables. Loans and 
receivables are measured at amortised cost using the effective 
interest method, less any impairment. Interest income is 
recognised by applying the effective interest rate, except  
for short-term receivables when the recognition of interest 
would be immaterial. 

Equity instruments issued by the Group are recorded at the 
proceeds received, net of direct issuance costs

Shares in the Company held by the Group ESOT are shown as 
a reduction in Shareholders’ funds. Other assets and liabilities 
held by the trust are consolidated with the assets of the Group.

Derivative financial instruments and hedge accounting
The Group’s activities expose it to the financial risks of 
changes in foreign exchange rates and interest rates. The use 
of financial derivatives is governed by the framework approved 
by the Board, which provide written principles on the use of 
financial derivatives consistent with the Group’s risk management 
strategy. Changes in values of all derivatives of a financing 
nature are included within investment income and financing 
costs in the income statement. The Group does not use 
derivative financial instruments for speculative purposes.

Cash and cash equivalents
Cash and cash equivalents includes cash-in-hand and 
deposits held at call with banks. 

Derivative financial instruments are initially measured at fair 
value on the contract date and are subsequently remeasured 
to fair value at each reporting date. 

Trade payables
Trade payables are other financial liabilities initially measured 
at fair value and subsequently measured at amortised cost.

Hedge accounting is discontinued when the hedging 
instrument expires or is sold, terminated, or exercised, or  
no longer qualifies for hedge accounting, or the Company 
chooses to end the hedging relationship. 

Financial liabilities and equity instruments
Financial liabilities and equity instruments issued by the Group 
are classified according to the substance of the contractual 
arrangements entered into and the definitions of a financial 
liability and an equity instrument. An equity instrument is any 
contract that evidences a residual interest in the assets of  
the Group after deducting all of its liabilities and includes  
no obligation to deliver cash or other financial assets. 
The accounting policies adopted for specific financial 
liabilities and equity instruments are set out below.

•  Loans and other borrowings

Loans and other borrowings represent committed and 
uncommitted bank loans, bank overdrafts, and loans from 
related parties. These are initially measured at fair value (which 
is equal to cost at inception), and are subsequently measured 
at amortised cost, using the effective interest rate method, 
except where they are identified as a hedged item in a fair 
value hedge. Any difference between the proceeds net of 
transaction costs and the settlement or redemption of 
borrowings is recognised over the term of the borrowing.

Bank fees and legal costs associated with the securing of 
external financing are capitalised and amortised over the  
term of the relevant facility. All other borrowing costs are 
recognised in the income statement in the period in which 
they are incurred.

Bank overdrafts that are repayable on demand and form an 
integral part of the Group’s cash management are included  
as a component of cash and cash equivalents for the purpose 
of the statement of cash flows.

Fair value hedges
The Group uses derivative instruments (primarily interest  
rate swaps) to manage its interest rate risk. The Group 
designates these as fair value hedges with changes in fair 
value of the hedging instrument recognised in the income 
statement for the year together with the changes in the fair 
value of the hedged item to the extent the hedge is effective.

Headline results and exceptional items
Headline results are stated before the amortisation of 
acquisition intangibles and exceptional items. Exceptional 
items are those that are considered to be one-off, 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. Further  
details of the exceptional items are provided in note 9.

Critical judgements in applying the Group’s  
accounting policies
In the process of applying the Group’s accounting policies 
management has made the following judgements that have  
the most significant effect on the amounts recognised in  
the financial statements. Estimates and assumptions used  
in the preparation of the financial statements are continually 
reviewed and revised as necessary. Whilst every effort is made 
to ensure that such estimates and assumptions are reasonable, 
by their nature they are uncertain, and as such changes in 
estimates and assumptions may have a material impact.

TalkTalk Telecom Group PLC | Annual Report 2011

 
Future accounting developments
At the date of authorisation of these financial statements,  
the following Standards and Interpretations which have not 
been applied in these financial statements were in issue  
but not yet effective (and in some cases had not yet been 
adopted by the EU):

•  IAS 32 (amended) ‘Classification of Rights Issues’

•   IFRIC 19 ‘Extinguishing Financial Liabilities with 

Equity Instruments’

•   IFRIC 14 (amended) ‘Prepayments of a Minimum 

Funding Requirement’

•  Improvements to IFRSs (May 2010)

The Directors do not expect that the adoption of the other 
standards listed above will have a material impact on the 
financial statements of the Group in future periods.

Goodwill
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 (note 11). The carrying value of goodwill is £471m 
(2010 : £470m, as restated) at the balance sheet date. 

Intangible assets and property, plant and equipment
The assessment of the useful economic lives of these assets 
requires judgement. Depreciation and 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.

Determining whether the carrying amount of these assets 
has any indication of impairment also requires judgement. 
If an indication of impairment is identified, further judgement 
is required to assess whether the carrying amount 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 (note 11). 

Trade and other receivables
Judgement is required in order to evaluate the likelihood  
of collection of customer debt after revenue has been 
recognised and hence the value of the bad and doubtful  
debt. These provisions are based on historical trends in  
the percentage of debts which are not recovered.

Deferred taxation
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.

Provisions
The Group’s reorganisation and other provisions are based  
on the best information available to management at the 
balance sheet date. However, the future costs assumed  
are inevitably only estimates, which may differ from those 
ultimately incurred.

55

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TalkTalk Telecom Group PLC | Annual Report 2011

 
 
 
56

Notes to the consolidated financial statements
continued

2. Segmental reporting

IFRS 8 ‘Operating Segments’ requires the segmental information presented in the financial statements to be that used by the 
chief operating decision maker 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.

During the previous financial year the Group incurred costs in respect of CPW (‘CPW costs’). These costs are not reflective of the 
ongoing costs of the Group and have been disclosed separately, the costs of the demerger (note 9) are shown within CPW costs.

Year ended 31 March 2011
Revenue
Headline EBITDA
Depreciation
Amortisation of operating intangibles
Share of results of joint venture
Headline profit before interest and taxation
Amortisation of acquisition intangibles and exceptional amortisation*
Exceptional items – Operating expenses (note 9)
Exceptional items – Depreciation (note 9)
Operating profit

Year ended 31 March 2010
Revenue
Headline EBITDA
Depreciation
Amortisation of operating intangibles
Headline profit before interest and taxation
Amortisation of acquisition intangibles and exceptional amortisation*
Exceptional items – Operating expenses (note 9)
Exceptional items – Depreciation (note 9)
Operating profit

Operations

CPW costs

Total

£m
1,765
276
(57)
(26)
(1)
192
(66)
(48)
(3)
75

£m
–
–
–
–
–
–
–
–
–
–

£m
1,765
276
(57)
(26)
(1)
192
(66)
(48)
(3)
75

Operations

CPW costs

Total

£m
1,686
230
(46)
(24)
160
(87)
(29)
(1)
43

£m
–
(9)
–
–
(9)
–
(18)
–
(27)

£m
1,686
221
(46)
(24)
151
(87)
(47)
(1)
16

* Comprises £62m of amortisation on acquisition intangibles (2010 : £83m) and £4m of exceptional amortisation (2010 : £4m) (note 9).

The Group’s revenue is split by broadband, non-broadband and corporate products. Broadband and non-broadband comprise 
residential customers and business customers that receive similar products.

Broadband
Non-broadband
Corporate

2011 
£m
1,247
189
329
1,765

2010 
£m
1,086
273
327
1,686

The Group has no material overseas operations, as a result a split of revenue and total assets by geographical location has 
not been disclosed. The Group entered into an agreement to sell its operations in Belgium and Ireland on 31 March 2010 
and 19 April 2010 respectively. These operations contributed revenue of £16m in the year ended 31 March 2010 to the 
non-broadband channel.

TalkTalk Telecom Group PLC | Annual Report 2011

 
57

2011 
£m
57
62
26
3
4
33
4
154
19
9
57

2010 
£m
46
83
24
1
4
25
4
164
20
6
40

2011 
Number
1,988
2,089
4,077

2010 
Number
2,346
2,226
4,572

3. Profit before interest and taxation

Group profit before interest and taxation is stated after charging:

Depreciation of property, plant and equipment
Amortisation of acquisition intangibles
Amortisation of operating intangible fixed assets
Impairment of property, plant and equipment
Impairment of operating intangible fixed assets
Impairment loss recognised on trade receivables
Share-based payments
Staff costs, excluding share-based payments
Cost of inventories recognised in expenses
Rentals under operating leases – property 
Rentals under operating leases – other

4. Employee costs

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

Administration
Sales and customer management

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

Wages and salaries
Social security costs
Other pension costs (note 26)

Share-based payments (note 5)

2011 
£m
135
16
3

154
4
158

Compensation earned by Key Management is analysed below. The Key Management Personnel comprised the TalkTalk Group 
Executive Board and Board of Directors in the current year and the TalkTalk Group Executive Board and an allocation of the 
CPW Directors in the prior year.

Salaries and fees
Performance bonuses
Benefits
Pension costs
Share-based payments

2011 
£m
3.4
2.4
0.1
0.2
2.3
8.4

2010 
£m
145
16
3

164
4
168

2010 
£m
2.0
2.5
0.1
0.2
1.5
6.3

TalkTalk Telecom Group PLC | Annual Report 2011

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58

Notes to the consolidated financial statements
continued

5. Share-based payments

The Group issues equity settled share-based payments to certain employees through the schemes set out in the analysis below.

The Group’s share schemes are the Discretionary Share Option Plan (‘DSOP’), Value Enhancement Scheme (‘VES’) and 
Save-As-You-Earn scheme (‘SAYE’). These schemes are disclosed within section (a) of this note to the accounts. 

In addition, the Group has a number of legacy Carphone Warehouse Group schemes which are disclosed within section  
(b) of this note to the accounts. 

The Group recognised a charge of £4m in the year ended 31 March 2011 (2010 : £4m) in respect of equity settled share-based 
payments. In the prior year a charge of £3m was taken directly to reserves in respect of the CPW TTG VES as part of the 
demerger accounting. 

In order to aid the user of the accounts, the dilutive effect of each of the TalkTalk Group schemes and legacy schemes 
has been presented. This has been calculated using an average share price for the financial year of £1.38 (2010 : £1.27).

(a) TalkTalk Telecom Group PLC schemes

During the year the Group introduced the following two schemes:

(i) The DSOP. The scheme uses share options to provide long-term incentives to senior management. Awards made under the 
DSOP are subject to TSR performance targets and are measured over an initial performance period to 29 March 2013, and a 
subsequent performance period to 29 March 2014. Options are forfeited if an employee leaves the Group before the options vest. 

(ii) The SAYE share option scheme. 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 and Ireland employees range from €12 to 
€500 per month. Options may be exercised at the end of the three or five year period at an exercise price of £1.02 per share. 

Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Outstanding at the end of the year
Exercisable at the end of the year

Weighted average remaining contractual life (years)
Dilutive effect (millions)
Valuation method
Share price (pence)
Exercise price (pence)
Expected volatility 
Expected exercise (years)*
Risk free rate*
Expected dividend yield
Fair value of options granted (£m)

* The difference in the schemes reflects the timing of expected exercise date.

DSOP

SAYE

2011 
Number
million
–
29
(5)
24
–

2011
WAEP
£
–
1.25
1.27
1.24
–

2011 
Number
million
–
8
(1)
7
–

2011
WAEP
£
–
1.02
1.02
1.02
–

9.0
0.5
Monte Carlo
132
127
37.4%
6.5
3.4%
3.8%
9m

3.1
0.6
Black Scholes
124
102
42.4%
3.7
1.9%
3.7%
3m

No options were exercisable either during the year or at the year end. Of the DSOP options granted 472,000 were nil priced. 

TalkTalk Telecom Group PLC | Annual Report 2011

59

TTG VES
The TTG VES enables participants to share in up to 7% of any increase in the value of the Group over an opening valuation 
representing invested capital at 1 April 2009, adjusted as relevant for changes in invested capital since that date. The incremental 
value is measured after a minimum annual rate of return of 7% on this invested capital. The Group advanced loans to 
participants to enable them to purchase A shares in TalkTalk Group Limited, the holding company of the Group’s operating 
business. The Group has an obligation to acquire these shares if performance conditions are met, to provide to participants 
the share of value described above. These performance conditions are measured over an initial performance period to 
September 2012, at which point participants have a put option over 60% of their shares, and a subsequent performance 
period to September 2013, at which point participants have a put option over the remainder of their shares. If the 
performance criteria are not met, the A shares will have no value. 

The TTG VES has a potentially dilutive effect of 22 million shares (2010 : 28 million shares), which has been included in the 
diluted EPS calculation.

The fair value of the schemes, which has performance targets based on the growth of the market capitalisation of the Group, 
was estimated at the date of grant using a Monte Carlo model to initially value the A shares and then a Black Scholes model 
to calculate the option value. The model combines the valuation price of a share at the date of grant with the probability 
of meeting performance criteria, based on the expected value of the Group at the date of grant discounted for the lack of 
marketability of the shares.

The following assumptions were used in the Monte Carlo model for the A shares awarded in the year:

•  volatility of 22%;
•  a risk free rate ranging from 0.5% to 2.7%; and 
•  a dividend yield of between 0% and 5% in each of the three years to September 2013.

The following assumptions were used in the Black Scholes model for the A shares awarded in the year:

•  equity volatility of 149.9% and 139.0% for September 2012 and September 2013 options respectively; 
•  a risk free rate of 1.9% and 2.3% for September 2012 and September 2013 options respectively; and 
•  a dividend yield of nil.

(b) Legacy Carphone Warehouse schemes

CPW TTG VES
The CPW TTG VES enables participants to share in up to 2.24% of any increase in the value of the Group over an opening 
valuation representing invested capital at 1 April 2009, adjusted as relevant for changes in invested capital since that date.  
The incremental value is measured after a minimum annual rate of return of 7% on this invested capital. The value of the CPW 
TTG VES pool is adjusted on vesting for any change in the value of the Group’s share price from the date on which the shares 
were issued. The Group’s opening share price for this purpose represents an allocation of the share price of CPW at that 
date, based on the market capitalisations of the Group and Carphone Warehouse Group plc in the 5 days following demerger. 
CPW advanced loans to participants to enable them to purchase C shares in TalkTalk Group Limited, the holding company 
of the Group’s operating businesses. The Group has an obligation to acquire these shares if certain performance conditions 
are met, to provide to participants the share of value described above. These performance conditions are measured over an 
initial performance period to September 2012, at which point participants have a put option over 60% of their shares, and 
a subsequent performance period to September 2013, at which point participants have a put option over the remainder 
of their shares. If the performance criteria are not met, the C shares will have no value. 

The CPW TTG VES has a potentially dilutive effect of 11 million shares (2010 : 10 million shares), which has been included  
in the diluted EPS calculations.

The fair value of the CPW TTG VES C shares was calculated using the same assumptions as for the TTG VES A shares,  
see above. 

The below table summarise the other legacy CPW schemes. The prior year WAEP used throughout this analysis is that of the 
share-based payments as adjusted to reflect the relative value of the Group within CPW at demerger. The prior year WAEP 
is therefore not necessarily representative of the WAEP that might apply on an ongoing basis.

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60

Notes to the consolidated financial statements
continued

5. Share-based payments (continued)

Performance share plan(1)

Outstanding at the beginning of the year
Forfeited during the year
Exercised during the year
Outstanding at the end of the year
Exercisable at the end of the year

Weighted average contract life (years)
Options exercised in the year weighted average market price (£)
Dilutive effect (millions)

ESOS(2)

Outstanding at the beginning of the year
Exercised during the year
Outstanding at the end of the year
Exercisable at the end of the year

Weighted average contract life (years)
Options exercised in the year weighted average market price (£)
Dilutive effect (millions)

2011 
Number
million
13
(8)
(1)
4
4

4.4
1.36
5.6

2011 
Number
million
5
(2)
3
3

1.6
1.35
2.4

2010
WAEP
£
–
–
–
–
–

2010
WAEP
£
0.60
0.55
0.66
0.66

2011
WAEP
£
–
–
–
–
–

2011
WAEP
£
0.78
1.05
0.53
0.53

2010 
Number
million
22 
(2) 
(7)
13 
6

6.6
1.11
5.9

2010 
Number
million
8 
(3)
5 
5

1.7
1.13
2.1

TalkTalk Telecom Group PLC | Annual Report 2011

61

Other employee share option schemes(3)

Outstanding at the beginning of the year
Forfeited during the year
Exercised during the year
Outstanding at the end of the year
Exercisable at the end of the year

Weighted average contract life (years)
Options exercised in the year weighted average market price (£)
Dilutive effect (millions)

Total dilutive effect of legacy schemes

2010
WAEP
£
0.63
–
–
0.51
–

2011 
Number
million
7
–
(4)
3
3

7.7
1.28
3.5

11.5

2011
WAEP
£
0.51
–
0.51
0.51
0.51

2010 
Number
million
9 
(2)
–
7 
–

8.7
1.10
4.3

12.3

(1)   For awards made in July 2004 these performance conditions have been met and the options vested. For awards made in the years ended 31 March 2007 

and 31 March 2008 the performance conditions were not met and lapsed during the year.

(2)   The ESOS options have already vested. If the options remain unexercised after a period of ten years from the date of grant, the options expire. The options 
analysis includes 2 million (2010 : 3 million) options that were granted before 7 November 2002. In accordance with IFRS2 ‘Share-based payment’, no cost 
has been recognised in respect of these options.

(3)  These awards are subject to initial performance conditions, principally in relation to earnings and cash generation, over a period to March 2010. 

These options have all vested. 

Share gift
In December 2008, 3.6 million shares were gifted by Carphone Warehouse’s Employee Benefit Trust to certain senior 
employees of the Carphone Warehouse Group. The shares were restricted until 30 June 2010, when all performance  
criteria were achieved. 

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62

Notes to the consolidated financial statements
continued

6. Finance costs and investment revenue

Finance costs are analysed as follows:

Interest on bank loans and overdrafts
Facility fees and similar charges
Unwinding of discount on provisions
Demerger fees (note 9)

Investment revenue is analysed as follows:

Interest on loans to related parties
Other interest receivable

Loans to Carphone Warehouse Group plc were settled as part of the demerger (note 28).

7. Taxation

The tax charge comprises:

Current tax:
UK Corporation tax
Overseas tax

Adjustments in respect of prior years:
UK Corporation tax
Total current tax

Deferred tax:
Origination and reversal of timing differences
Effect of change in tax rate
Adjustments in respect of prior years – reclassification from current tax
Adjustments in respect of prior years – deferred tax recognised
Total deferred tax

Total tax charge

2011 
£m
13
3
2
–
18

2011 
£m
–
–
–

2010 
£m
7
1
2
1
11

2010 
£m
5
1
6

2011 
£m

2010 
£m

–
–
–

(18)
(18)

18
9
18
(5)
40

22

13
1
14

(2)
12

5
–
–
(3)
2

14

The tax charge on Headline earnings for the year ended 31 March 2011 is £52m (2010 : £41m) representing an effective tax  
rate on pre-tax profits of 30% (2010 : 28%). The tax charge on Statutory earnings for the year ended 31 March 2011 is £22m 
(2010 : £14m). The reconciliation between the Headline and Statutory tax charge is shown in note 9. 

There has been a reclassification of £18m (2010 : nil) in the year from current tax to deferred tax to better reflect expected 
utilisation of losses.

TalkTalk Telecom Group PLC | Annual Report 2011

63

The principal differences between the tax charge and the amount calculated by applying the standard rate of UK corporation tax 
of 28% (2010 : 28%) to the profit before tax are as follows:

Profit before tax
Tax at 28% (2010 : 28%)
Items attracting no tax relief or liability
Effect of change in tax rate
Adjustments in respect of prior years
Total tax charge through income statement

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

Deferred tax (credit) charge
Total tax charge through retained earnings and other reserves

The movement for both the year ended 31 March 2011 and 31 March 2010 relates to share-based payments.

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

2011 
£m
57
16
2
9
(5)
22

2011 
£m
(2)
20

At 1 April 2010
(Charge) credit to the income statement
Credit to reserves
Acquisition of subsidiaries
At 31 March 2011

At 1 April 2009
Credit (charge) to the income statement
Charge to reserves
Acquisition of subsidiaries
At 31 March 2010

Share-based 
payments

Timing 
differences  
on capitalised  
costs

Timing 
differences on 
acquisition 
intangibles

Tax losses

Other timing 
differences

£m
2
(1)
2
–
3

£m
85
(9)
–
–
76

£m
85
(40)
–
–
45

£m
(19)
8
–
(1)
(12)

£m
2
2
–
–
4

Share-based 
payments

Timing 
differences  
on capitalised  
costs

Timing 
differences on 
acquisition 
intangibles

Tax losses

Other timing 
differences

£m
2
1
(1)
–
2

£m
29
14
–
42
85

£m
74
(24)
–
35
85

£m
3
5
–
(27)
(19)

£m
–
2
–
–
2

2010 
£m
11
3
16
–
(5)
14

2010 
£m
1
15

Total

£m
155
(40)
2
(1)
116

Total

£m
108
(2)
(1)
50
155

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 two reductions in the UK Statutory rate of Corporation tax were enacted bringing the rate down from 
28% to 26%. Accordingly the tax assets and liabilities recognised at 31 March 2011 take account of these changes. 
This has resulted in a tax charge to the Income statement as the value of the Group’s tax assets has been reduced. 

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64

Notes to the consolidated financial statements
continued

7. Taxation (continued)

At 31 March 2011, the Group had unused tax losses of £1,016m (2010 : £957m) available for offset against future taxable profits. 
A deferred tax asset of £45m (2010 : £85m) has been recognised in respect of £173m (2010 : £304m) of such losses, based on 
expectations of recovery in the foreseeable future.

No deferred tax asset has been recognised in respect of the remaining £843m (2010 : £653m) 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

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

Ordinary dividends
Interim dividend for the year ended 31 March 2011 of 1.70p per ordinary share
Final dividend for the year ended 31 March 2009 of 3.00p per ordinary share
Interim dividend for the year ended 31 March 2010 of 1.45p per ordinary share 
Total ordinary dividends

Special dividends relating to the demerger
Special interim dividend for the year ended 31 March 2010 of 3.20p per ordinary share
Demerger dividend for the year ended 31 March 2010 of 19.88p per ordinary share
Total special dividends

Total dividends paid

2011 
£m

2010 
£m

15
–
–
15

–
–
–

15

–
27
13
40

29
182
211

251

The final dividend for the year ended 31 March 2011 is 3.90p per ordinary share on approximately 909 million shares (£35m), 
which was approved by the Board on 18 May 2011 and has not been included as a liability as at 31 March 2011.

In the prior year the ordinary dividends were paid by CPW to its Shareholders. 

The special interim dividends of £29m were paid by CPW to its Shareholders. The demerger dividends of £182m were paid 
by CPW to Carphone Warehouse Group plc as part of the demerger transaction.

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

Year ended 31 March 2011
Headline results
Exceptional items – Operating expenses (a)
Exceptional items – Operating expenses (b)
Exceptional items – Depreciation (b)
Exceptional items – Amortisation (b)
Amortisation of acquisition intangibles (d) 
Statutory results

TalkTalk Telecom Group PLC | Annual Report 2011

EBITDA

Profit before 
interest and tax

Profit  
before tax

Profit for  
the year

£m
276
(12)
(36)
–
–
–
228

£m
192
(12)
(36)
(3)
(4)
(62)
75

£m
174
(12)
(36)
(3)
(4)
(62)
57

£m
122
(9)
(28)
(2)
(3)
(45)
35

 
 
 
 
65

EBITDA

Profit before 
interest and tax

Profit  
before tax

Profit for  
the year

£m
221
(29)
(18)
–
–
–
–
174

£m
151
(29)
(18)
(1)
(4)
(83)
–
16

£m
147
(29)
(18)
(1)
(4)
(83)
(1)
11

£m
106
(24)
(17)
(1)
(3)
(63)
(1)
(3)

Year ended 31 March 2010
Headline results
Exceptional items – Operating expenses (b)
Exceptional items – Operating expenses (c)
Exceptional items – Depreciation (b)
Exceptional items – Amortisation (b)
Amortisation of acquisition intangibles (d)
Exceptional items – Interest (c)
Statutory results

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

(a) Operating efficiencies

On 26 January 2011, a major restructure of the Group was announced to integrate technology and IT capabilities and consolidate 
back office functions. The reorganisation will principally result in a reduction in headcount. Operating reorganisation costs of 
£12m were incurred during the year ended 31 March 2011, principally comprising redundancies and consulting costs. 

A total taxation credit of £3m has been recognised in respect of these costs.

(b) One Company integration

The One Company integration was implemented during the prior year following the acquisition of Tiscali UK on 3 July 2009.  
The Group revisited its overall operating structure in order to both integrate the Tiscali business and deliver efficiencies in 
existing operations. The program generated significant synergies, through the elimination of duplicated costs and migration 
of customers onto the Group’s unbundled network. 

The program included network integration costs related to the termination of contracts, and the write down of associated assets 
principally, of backhaul circuits. This comprised both those acquired with the Tiscali business and those previously contracted 
for by the Group prior to its acquisition of Tiscali. These contracts were terminated as it was necessary to replace the previous 
backhaul solutions in order to provide one combined backhaul solution for the Group and to create a higher capacity network. 

Operating reorganisation costs of £40m were incurred during the year ended 31 March 2011, principally comprising redundancies 
and site closures, an integration project team and consulting costs (2010 : £29m). Costs of £7m were incurred in respect of 
redundant software and fixed asset write downs (2010 : £5m).

A total taxation credit of £10m has been recognised in respect of these costs (2010 : £6m).

A credit of £4m has been recognised in respect of recycling of Translation reserves in relation to legal entities which have  
been liquidated. No taxation has been recognised in respect of this credit.

(c) Demerger and other separation costs

During the year ended 31 March 2010, the Carphone Warehouse demerged the Company and it was separately listed on the 
London Stock Exchange. The separation required substantial costs to be incurred, both for managing the process internally,  
for meeting the external requirements for a company to list and for separating from IT activities managed by CPW. Operating 
costs of £18m and banking fees of £1m were incurred. A taxation credit of £1m was recognised in respect of these costs.

(d) Amortisation of acquisition intangibles

A tax credit at 28% has been recognised in all periods in respect of the amortisation of acquisition intangibles, net of any 
adjustments in respect of prior periods, this was £17m for the year ended 31 March 2011 (2010 : £20m).

TalkTalk Telecom Group PLC | Annual Report 2011

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66

Notes to the consolidated financial statements
continued

10. Earnings per share

Basic and diluted earnings per ordinary share have been calculated in accordance with IAS 33 ‘Earnings per share’. EPS is shown 
on both a Headline and Statutory basis to assist in the understanding of the underlying performance of the Group.

Headline earnings (note 9)

Statutory earnings

Weighted average number of shares (millions):
Shares in issue
Less weighted average holdings by Group ESOT
For basic EPS
Dilutive effect of share options
For diluted EPS

Basic earnings (loss) per share
Headline
Statutory

Diluted earnings (loss) per share
Headline
Statutory

2011 
£m
122

2010 
£m
106

35

(3)

914
(7)
907
45
952

914
(16)
898
50
948

2011 
pence

2010 
pence

13.5
3.9

11.8
(0.3)

2011 
pence

2010 
pence

12.8
3.7

11.2
(0.3)

In the prior year the Group did not exist in the form that arose on demerger, the average actual shares in issue during the prior year 
do not provide a meaningful basis for calculating EPS. The prior year EPS has therefore been calculated based on the number of 
CPW shares in issue until demerger, the number of the Company’s shares in issue from that date, and the shareholding of the Group 
ESOT during the prior year.

Diluted EPS has been calculated based on options held over CPW shares during these years and the Group’s proportion of the 
CPW share price over that period.

The number of shares that could be issued but that are not considered to be dilutive at 31 March 2011 is 27 million (2010 : 7 million).

TalkTalk Telecom Group PLC | Annual Report 2011

67

2010  
*As restated
£m
304
166
–
470

2011 
£m
470
3
(2)
471

11. Goodwill and other intangible assets

(a) Goodwill

Opening net book value
Acquisition of subsidiaries (note 13)
Disposals (note 13)
Closing net book value

The goodwill acquired in business combinations is allocated at acquisition to the CGUs that are expected to benefit from that 
business combination. The Group has two CGUs – Residential and Corporate. The Group’s shared costs and assets relating 
mainly to infrastructure and central overheads are allocated across the two CGUs based on relative size of the value in use 
of the CGU. The allocation of goodwill across the CGUs is as follows: 

Residential
Corporate

2010  
*As restated
£m
338
132
470

2011 
£m
337
134
471

* The prior year balance sheet has been restated to reflect the finalisation of the Tiscali UK and UK Telco acquisition purchase prices (note 29).

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. 
This review is performed at a CGU level. 

The recoverable amounts of the CGUs are determined from value in use calculations. The Group prepares cash flow forecasts 
derived from the most recent financial budgets approved by the Board or Management for the next three years and extrapolates 
cash flows out for the following 17 years. The key assumptions used are as follows:

•   Long-term growth rates

Long-term revenue growth rates applied are based on the growth rate for the UK per the OECD. The rate applied in the 
current year was 1.8% (2010 : 1.8%).

•   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 9.1% 
(2010 : 8.8%). The assumptions used in the calculation of the CGU’s 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 required future investment in the network  
and current run rate of expenditure.

•   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 to changes in assumptions 
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.

TalkTalk Telecom Group PLC | Annual Report 2011

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68

Notes to the consolidated financial statements
continued

11. Goodwill and other intangible assets (continued)

(b) Other intangible assets

Other intangible assets are analysed as follows:

Opening balance at 1 April 2010
Additions
Amortisation 
Impairment charges
Closing balance at 31 March 2011

Cost (gross carrying amount)
Accumulated amortisation
Closing balance at 31 March 2011

Opening balance at 1 April 2009
Additions
Acquisition of subsidiaries
Amortisation 
Impairment charges
Closing balance at 31 March 2010

Cost (gross carrying amount)
Accumulated amortisation
Closing balance at 31 March 2010

Operating 
intangibles

Acquisition 
intangibles

Total other 
intangibles

£m
126
28
(26)
(4)
124

207
(83)
124

£m
190
3
(62)
–
131

328
(197)
131

£m
316
31
(88)
(4)
255

535
(280)
255

Operating 
intangibles

Acquisition 
intangibles

Total other 
intangibles

£m
114
35
5
(24)
(4)
126

179
(53)
126

£m
176
–
97
(83)
–
190

333
(143)
190

£m
290
35
102
(107)
(4)
316

512
(196)
316

Operating intangibles includes internally generated assets of net book value £5m (2010 : £6m), which are amortised over 
a period of up to five years. 

Included within Operating intangibles are the following assets which are material to the Group: 

•   TRIO, the customer billing system, which has a net book value of £91m (2010 : £86m). TRIO is amortised over a period of 

up to eight years depending on the release date of relevant component. The weighted average remaining useful economic 
life of the components of TRIO is six years. 

Acquisition intangibles are removed from cost in the analysis above once fully amortised.

TalkTalk Telecom Group PLC | Annual Report 2011

69

Customer 
bases

Customer 
revenue share 
agreements

Other

Total

£m
188
3
(60)
131

328
(197)
131

£m
–
–
–
–

–
–
–

£m
2
–
(2)
–

–
–
–

£m
190
3
(62)
131

328
(197)
131

Customer 
bases

Customer 
revenue share 
agreements

Other

Total

£m
164
92
(68)
188

328
(140)
188

£m
9
–
(9)
–

–
–
–

£m
3
5
(6)
2

5
(3)
2

£m
176
97
(83)
190

333
(143)
190

Acquisition intangibles are analysed as follows:

Opening balance at 1 April 2010
Acquisition of subsidiaries
Amortisation 
Closing balance at 31 March 2011

Cost (gross carrying amount)
Accumulated amortisation
Closing balance at 31 March 2011

Opening balance at 1 April 2009
Acquisition of subsidiaries
Amortisation 
Closing balance at 31 March 2010

Cost (gross carrying amount)
Accumulated amortisation
Closing balance at 31 March 2010

Customer bases relate primarily to the AOL UK internet access business which was acquired in December 2006 and the Tiscali 
UK internet access business which was acquired in July 2009. The valuation of customer bases is derived from the discounted 
future cash flows expected from them, after a deduction for contributory assets.

Customer revenue share agreements arose on the acquisition of AOL’s UK internet access business, and represent rights, 
subject to performance criteria, to a share of transactional revenues generated by AOL access customers and customers on 
AOL sites. The valuation of these rights was again derived from the discounted future cash flows expected from the agreement, 
after a deduction for contributory assets.

Other acquisition intangibles primarily represents licences to continue to use the AOL and Tiscali brands, valued using the 
relief from royalty method.

Included within Acquisition intangibles are the following assets which are material to the Group and their remaining useful 
economic life at 31 March 2011: 

•   AOL broadband customer base which has a net book value of £69m (2010 : £107m) and a remaining useful economic 

life of 22 months (2010 : 34 months); and

•   Tiscali customer base which has a net book value of £59m (2010 : £77m) and a remaining useful economic  

life of 39 months (2010 : 51 months).

Acquisition intangibles are removed from cost in the analysis above once fully amortised.

TalkTalk Telecom Group PLC | Annual Report 2011

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70

Notes to the consolidated financial statements
continued

12. Property, plant and equipment

Opening balance at 1 April 2010
Additions
Depreciation 
Impairment charges
Closing balance at 31 March 2011

Cost (gross carrying amount)
Accumulated depreciation and impairment charges
Closing balance at 31 March 2011

Opening balance at 1 April 2009
Additions
Acquisition of subsidiaries
Disposals
Depreciation 
Closing balance at 31 March 2010

Cost (gross carrying amount)
Accumulated depreciation and impairment charges
Closing balance at 31 March 2010

13. Non-current asset investments

Cost and net book value at 1 April 2009, 31 March 2010 and 31 March 2011

Leasehold 
improvements

Network 
equipment and 
computer 
hardware

Fixtures and 
fittings

£m
7
–
(1)
–
6

6
–
6

£m
254
87
(55)
(3)
283

442
(159)
283

£m
1
1
(1)
–
1

6
(5)
1

Leasehold 
improvements

Network 
equipment and 
computer 
hardware

Fixtures and 
fittings

£m
3
5
–
–
(1)
7

8
(1)
7

£m
215
61
24
(1)
(45)
254

394
(140)
254

£m
1
1
–
–
(1)
1

2
(1)
1

Total

£m
262
88
(57)
(3)
290

454
(164)
290

Total

£m
219
67
24
(1)
(47)
262

404
(142)
262

£m
1

Non-current asset investments at 31 March 2011 and at 31 March 2010 relate to a 11.3% interest in Shared Band Limited, 
a telecommunications technology provider. The Group holds a strategic, non-controlling interest. These shares are not held 
for trading and accordingly are classified as available for sale. The fair value of the shares is based on cost less any provision 
for impairment, as the shares are not listed on an exchange, and therefore a market price cannot be reliably measured. 

(a) Principal Group investments

The Group has investments in the following subsidiary undertakings, which principally affected the profits or losses or net  
assets of the Group. To avoid a statement of excessive length, details of investments which are not significant have been  
omitted. All holdings are in equity share capital and give the Group an effective holding of 100% on consolidation.

TalkTalk Telecom Group PLC | Annual Report 2011

71

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Name
TalkTalk Group Limited
TalkTalk Telecom Holdings Limited*
TalkTalk Communications Limited 
(formerly Opal Telecommunications Limited)
Onetel Telecommunications Limited
TalkTalk Telecom Limited
TalkTalk Direct Limited
TalkTalk UK Communication Services Limited
GIS Telecoms Limited
CPW Network Services Limited
Tiscali UK Limited

* Directly held by the Company.

Country of incorporation  
or registration
England and Wales
England and Wales

England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales

Nature of business
Holding company
Holding company

Telecommunications
Telecommunications
Telecommunications
Telecommunications
Telecommunications
Telecommunications
Telecommunications
Telecommunications

As part of the One Company integration, the Group’s subsidiaries have been reduced from 67 to 39 in the year. 
These 28 subsidiaries were either liquidated, merged or sold. This includes nine overseas entities. 

(b) Acquisitions and disposals

(i) Tiscali UK
On 3 July 2009, the Group acquired the entire issued share capital of Tiscali UK for a gross cash consideration of £238m, 
comprising £236m of cash consideration and £2m of fees. On 2 August 2010 a net adjustment in respect of working capital 
and customer numbers was agreed between the Group and Tiscali S.p.A. This resulted in an adjustment to goodwill of £14m. 
The carrying value of goodwill in the prior year has been restated to £162m in line with the requirements of IAS 1 ‘Presentation 
of financial statements’ (see note 29). There have been no subsequent changes to the fair value adjustments disclosed in the 
Non-Statutory financial statements for the year ended 31 March 2010.

There were net cash inflows of £14m in the year ended 31 March 2011 in respect of the settlement of the adjustment to the 
consideration. Net cash outflows in the year ended 31 March 2010 comprised gross cash consideration of £238m offset by 
£3m of cash acquired.

(ii) Other acquisitions
The Group acquired Opal 2CCH Limited (formerly ‘2 Circles Communications Holdings Limited’) and Southern Communications 
Limited for cash consideration net of cash acquired of £2m and deferred consideration of £2m, which resulted in acquisition 
intangibles of £2m and goodwill of £3m. The impact of these acquisitions on the results of the Group for the year ended 
31 March 2011 had the businesses been acquired on 31 March 2010, is immaterial. The Group has recognised a gain of 
£1m within its income statement in respect of the increase in fair value of the equity interest held in Opal 2CCH Limited at 
the acquisition date. The goodwill of £3m was recognised relating to the future opportunities arising from the nature of the 
businesses and fit with the Group’s existing operations.

The Group paid cash consideration of £1m in respect of V Networks Limited deferred consideration and dealer buyouts 
which resulted in goodwill and acquisition intangibles of £1m. 

In the year ended 31 March 2010, the Group acquired UK Telco Limited for cash consideration of £5m and deferred consideration 
of £1m (as restated), which resulted in acquisition intangibles of £2m and goodwill of £4m (as restated). The £1m deferred 
consideration was paid in the year ended 31 March 2011. The impact of this acquisition on the results of the Group for the  
year ended 31 March 2010, and had the business been acquired on 31 March 2009, were immaterial. The goodwill of £4m  
was recognised relating to the future opportunities arising from the nature of UK Telco (GB) Limited’s business and fit with  
the Group’s existing operations.

(iii) Disposals
On 19 April 2010 the Group entered into an agreement to sell its operations in Ireland for a consideration of £4m. The profit  
on sale of the business has been offset by the impairment of goodwill recognised on the acquisition of Tele2 Ireland in 2006  
of £2m and closure costs for the business of £2m, resulting in nil profit or loss on disposal. 

TalkTalk Telecom Group PLC | Annual Report 2011

 
 
 
 
72

Notes to the consolidated financial statements
continued

14. Interest in joint venture

On 10 September 2010 the Group entered into a joint venture agreement with The British Broadcasting Corporation, ITV 
Broadcasting Limited, British Telecom PLC, Channel Four Television Corporation, Arqiva Limited and Channel 5 Broadcasting 
Limited to form YouView TV Limited (formerly Canvas Pro Tem Limited). The Group holds 14.3% of the ordinary share capital  
of YouView TV Limited. The joint venture has been set up in order to develop a new free-to-air internet-connected TV service  
to UK homes in 2012. The table below sets out the net additions in the year.

Opening balance at 1 April 2010
Initial recognition of investment
Additions
Share of results
Closing balance at 31 March 2011

The Group’s share of the results, assets and liabilities of its joint venture are as follows:

Group share of results of joint venture
Revenue
Expenses
Loss before taxation
Taxation
Loss after taxation

Group share of net assets of joint venture

Non-current assets
Cash and overdrafts (net)
Other liabilities
Net assets 

Net assets

£m
–
–
5
(1)
4

2010 
£m
–
–
–
–
–

2010 
£m

–
–
–
–

2011 
£m
–
(1)
(1)
–
(1)

2011 
£m
3
2
(1)
4

At 31 March 2011 the Group had committed to pay £14m to YouView TV Limited payable over the three year period to 31 March 2014.

15. Inventories

Goods for resale

2011 
£m
3

2010 
£m
2

The difference between the balance sheet value of inventory and its replacement cost is considered by the Directors not to  
be material.

TalkTalk Telecom Group PLC | Annual Report 2011

  
73

2010  
*As restated
£m

2011 
£m

109
(31)
78
44
33
155
2
157

160
(37)
123
31
26
180
3
183

16. Trade and other receivables

Trade and other receivables comprise:

Current – trade and other receivables
Trade receivables – gross
Less provision for impairment
Trade receivables – net
Other receivables
Prepayments and accrued income
Trade and other receivables
Loans to related parties

* The prior year balance sheet has been restated to reflect the finalisation of the Tiscali UK acquisition purchase price (note 29).

The Directors estimate that the carrying amount of trade receivables approximates to their fair value.

Loans to related parties at 31 March 2011 comprise a loan to Future Office Communications Limited (2010 : Opal 2CCH Limited 
and Ecocall Limited), an associated company of the Group.

The average credit period taken on trade receivables, calculated by reference to the amount owed at the year end as a proportion 
of total revenue in the year, adjusted to take account of the timing of acquisitions, was 19 days (2010 : 29 days).

The Group’s trade receivables are denominated in the following currencies:

UK Sterling
Other

The ageing of gross trade receivables is as follows:

Not yet due
0 to 2 months
2 to 4 months
Over 4 months

The ageing of the provision for impairment of trade receivables is as follows:

Not yet due
0 to 2 months
2 to 4 months
Over 4 months

2011 
£m

102
7
109

2011 
£m
59
20
10
20
109

2011 
£m
(3)
(5)
(6)
(17)
(31)

2010 
£m

150
10
160

2010 
£m
102
22
8
28
160

2010 
£m
(2)
(7)
(6)
(22)
(37)

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74

Notes to the consolidated financial statements
continued

16. Trade and other receivables (continued)

Movements in the provisions for impairment of trade receivables are as follows:

Opening balance
Charged to the income statement
Receivables written off as irrecoverable
Acquisition of subsidiaries

2011 
£m
(37)
(33)
39
–
(31)

2010 
£m
(19)
(25)
23
(16)
(37)

Trade receivables of £22m (2010 : £23m) were past due but not impaired. These balances primarily relate to Residential and 
Corporate fixed line customers. The Group has made provisions based on historical rates of recoverability and all unprovided 
amounts are considered to be recoverable. The ageing analysis of these trade receivables is as follows:

Not yet due
0 to 2 months
2 to 4 months
Over 4 months

17. Trade and other payables

Trade payables 
Other taxes and social security costs
Other payables
Accruals and deferred income

2011 
£m
–
15
4
3
22

2010 
£m
–
15
2
6
23

2010  
*As restated
£m
115
26
23
236
400

2011 
£m
112
33
34
197
376

* The prior year balance sheet has been restated to reflect the finalisation of the UK Telco acquisition purchase price (note 29).

The average credit period taken on trade payables, calculated by reference to the amounts owed at the balance sheet date  
as a proportion of the amounts invoiced by suppliers in the year, adjusted to take account of the timing of acquisitions, was  
24 days (2010 : 25 days).

The Directors consider that the carrying amount of trade and other payables approximates to their fair value.

TalkTalk Telecom Group PLC | Annual Report 2011

75

2011 
£m
1

2010 
£m
1

2011 
£m

2010 
£m

9
35
44

2011 
£m

100
295
395

9
10
19

2010 
£m

100
390
490

Maturity

2015
2013

18. Cash and cash equivalents, loans and other borrowings

(a) Cash and cash equivalents are as follows:

Cash at bank and in hand

The effective interest rate on bank deposits and money market funds was 0.6% (2010 : 0.4%).

b) Loans and other borrowings comprise:

Current 
Bank overdrafts
Other uncommitted bank loans

Non-current
£100m term loan
£550m revolving credit facility

Details of the current and non-current borrowing facilities of the Group for the year are set out below.

Bank overdrafts:
Overdraft facilities are used to assist in short-term cash management; these uncommitted facilities bear interest at a margin  
over the Bank of England base rate.

£100m term loan:
The Group has a committed Term Loan of £100m, which matures in March 2015. The interest rate payable in respect of drawings 
under this facility is at a margin over LIBOR for the relevant currency and for the appropriate period. The actual margin applicable 
to any drawing depends on the ratio of net debt to EBITDA calculated in respect of the most recent accounting period. Covenants 
included in this facility restrict the ratio of net debt to EBITDA and require minimum levels of interest cover and fixed charges 
(interest and operating lease expenditure) cover. The Group was in compliance with these covenants at the end of the current 
and prior year. During the year the final maturity date on the loan was extended from 2013 to 2015.

£550m revolving credit facility (“RCF”):
The Group has a committed RCF of £550m, which matures in March 2013. The interest rate payable in respect of drawings 
under this facility is at a margin over LIBOR for the relevant currency and for the appropriate period. The actual margin 
applicable to any drawing depends on the ratio of net debt to EBITDA calculated in respect of the most recent accounting 
period. Utilisation and non-utilisation fees are payable under this facility. Covenants included in this facility restrict the ratio of 
net debt to EBITDA and require minimum levels of interest cover and fixed charges (interest and operating lease expenditure) 
cover. The Group was in compliance with these covenants at the end of the year.

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76

Notes to the consolidated financial statements
continued

18. Cash and cash equivalents, loans and other borrowings (continued)

Borrowing facilities
The Group had undrawn committed borrowing facilities at the end of the year, in respect of which all conditions precedent had 
been met, as follows:

Undrawn available committed facilities

Maturity
2013

2011 
£m
255

2010 
£m
160

The book value and fair value of the Group’s loans and other borrowings, all of which are in Sterling, are as follows:

Less than 1 year
1 to 2 years
2 to 3 years
3 to 4 years

2011 
£m
44
295
–
100
439

2010 
£m
19
–
490
–
509

Securities and guarantees
None of the borrowings are secured over Group assets. Although some guarantees are given by Group companies, these 
guarantees are to cover commercial obligations and, as such, create no additional credit risk.

19. Financial risk management and derivative financial instruments

The book value and fair value of the Group’s financial assets, liabilities and derivative financial instruments, excluding the 
Group’s loans and other borrowings shown above, are as follows:

Cash and cash equivalents
Trade and other receivables
Non-current investments and investment in joint venture
Trade and other payables
Loans to related parties

Book and fair value

2010  
*As restated
£m
1
180
1
(400)
3

2011 
£m
1
155
5
(376)
2

* The prior year balance sheet has been restated to reflect the finalisation of the Tiscali UK and UK Telco acquisition purchase price (note 29).

(a) Financial instruments

The Group’s activities exposed it to a variety of financial risks including market risk (such as currency risk and interest rate risk), credit 
risk and liquidity risk. The Group Treasury function used certain financial instruments to mitigate potential adverse effects on the 
Group’s financial performance from these risks. These financial instruments primarily consisted of bank loans, interest rate swaps 
and foreign exchange swaps. Other products, such as currency options, can also be used depending on the risks to be covered but 
have not been used in the current or preceding financial year. The Group does not trade or speculate in any financial instruments.

TalkTalk Telecom Group PLC | Annual Report 2011

77

(b) Embedded derivatives

No contracts with embedded derivatives have been identified and accordingly no such derivatives have been accounted  
for separately.

(c) Foreign exchange risk

The Group uses forward currency contracts to hedge transactional exposures, which arise mainly through cost of sales and 
operating expenses, and are primarily denominated in Euro and US dollar. The Group also uses short-term currency swaps  
for liquidity management. At 31 March 2011, the sterling value of outstanding currency contracts was £23m (2010 : £49m). 

Borrowings and foreign exchange contracts are sensitive to movements in foreign exchange rates; this sensitivity can be 
analysed in comparison to year end rates (adjusted for funding to related parties and assuming all other variables remain 
constant) as follows: 

10% movement in the UK Sterling/Euro exchange rate
Income statement movement
Other equity movement

The effect of foreign exchange derivatives on borrowings at the year end was as follows:

2011
Borrowings before derivatives
Derivative

2011 
£m

2010 
£m

2
–

Other

£m

–
–
–

–
–

Total

£m

439
–
439

UK Sterling

£m

439
(23)
416

Euro

£m

–
23
23

During the year the Group used derivatives for management of foreign currency cash balances held by overseas subsidiaries 
which were inherited from CPW on demerger.

2010
Borrowings before derivatives
Derivative

(d) Interest rate risk

UK Sterling

£m

509
(41)
468

Euro

£m

–
38
38

Other

£m

–
3
3

Total

£m

509
–
509

The Group’s interest rate risk arises primarily from cash, cash equivalents and borrowings, all of which are at floating rates of 
interest and thus expose the Group to cash flow interest rate risk. These floating rates are linked to LIBOR and other interest  
rate bases as appropriate to the instrument and currency. Future cash flows arising from these financial instruments depend  
on interest rates and periods for each loan or rollover.

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78

Notes to the consolidated financial statements
continued

19. Financial risk management and derivative financial instruments (continued)

Cash and borrowings, as well as some foreign exchange products, are sensitive to movements in interest rates and such 
movements have been analysed in the table below by calculating the effect on the income statement and equity of one 
percentage point movement in the interest rate for the currencies in which most Group cash and borrowings are denominated. 
Funding to related parties has been offset against gross borrowings in calculating these sensitivities. This annualised analysis 
has been prepared on the assumption that the year end positions prevail throughout the year, and therefore may not be 
representative of fluctuations in levels of borrowings.

1% movement in the UK Sterling interest rate
Income statement movement
Other equity movement

(e) Liquidity risk

2011 
£m

2010 
£m

5
–

5
–

The Group manages its exposure to liquidity risk by regularly reviewing the long and short-term cash flow projections for the 
business against facilities and other resources available to it. Headroom is assessed based on historical experience as well  
as by assessing current business risks, including foreign exchange movements. Existing facilities do not expire until March 2013; 
it is Group policy to refinance debt maturities significantly ahead of maturity dates.

The table below analyses the Group’s financial liabilities into relevant maturity groupings. The amounts disclosed in the table 
are the contractual undiscounted cash flows assuming year end interest rates remain constant and that borrowings are paid 
in full in the year of maturity. 

Less than 1 year

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years

More than 
 5 years

£m

£m

£m

£m

£m

£m

2011
Loans and other borrowings
Derivative financial instruments – payable
Derivative financial instruments – receivable
Trade and other payables

(54)
(23)
23
(376)

(305)
–
–
–

(3)
–
–
–

(103)
–
–
–

–
–
–
–

Less than 1 year

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years

–
–
–
–

More than 
 5 years

*As restated
2010 
Loans and other borrowings
Derivative financial instruments – payable
Derivative financial instruments – receivable
Trade and other payables

£m

£m

£m

£m

£m

£m

(33)
(49)
49
(400)

(14)
–
–
–

(504)
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

* The prior year balance sheet has been restated to reflect the finalisation of the UK Telco acquisition purchase price (note 29).

Total

£m

(465)
(23)
23
(376)

Total

£m

(551)
(49)
49
(400)

(f) Credit risk

The Group’s exposure to credit risk is regularly monitored. Debt, investments, foreign exchange and derivative transactions are 
all spread amongst a number of banks all of which have short or long-term credit ratings appropriate to the Group’s exposures. 
Trade receivables primarily comprise balances due from Residential and Corporate fixed line customers, and provision is made 
for any receivables that are considered to be irrecoverable.

TalkTalk Telecom Group PLC | Annual Report 2011

 
 
 
 
 
 
79

(g) Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising 
the return to stakeholders through the optimisation of the debt and equity balance. 

The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 18, cash and cash equivalents 
and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed 
in notes 21 to 22.

The Group’s Board reviews the capital structure on an annual basis. As part of this review, the Board considers the cost of  
capital and the risks associated with each class of capital. The Group has a medium-term target gearing ratio of 75% to 100% 
determined as a proportion of net debt to equity. The gearing ratio at 31 March 2011 of 106% (2010 : 130%) was marginally 
above the higher end of the target range demonstrating progress towards our medium-term target. 

The gearing ratio at the year end is as follows:

Debt
Cash and cash equivalents
Net debt

Equity

Net debt to equity ratio

20. Provisions

Operating efficiencies
One Company integration
Property
Contract and other

Current
Non-current

2011 
£m
(439)
1
(438)

2010 
£m
(509)
1
(508)

415

392

106%

130%

2011 
£m
12
10
9
15
46

2011 
£m
32
14
46

2010 
£m
–
14
9
24
47

2010 
£m
29
18
47

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80

Notes to the consolidated financial statements
continued

20. Provisions (continued)

2011
Opening balance
Charged to income statement
Utilised in the year
Unwinding of discount

2010
Opening balance
Charged to income statement
Acquisition of subsidiaries
Utilised in the year
Released in the year
Unwinding of discount

Provisions are categorised as follows:

(a) Operating efficiencies 

Operating 
efficiencies

One Company 
integration

Property

Contract and 
other

£m

–
12
–
–
12

£m

£m

£m

14
6
(10)
–
10

9
1
(2)
1
9

24
–
(10)
1
15

Operating 
efficiencies

One Company 
integration

Property

Contract and 
other

£m

£m

£m

£m

–
–
–
–
–
–
–

6
11
–
(3)
–
–
14

–
–
10
(2)
–
1
9

2
–
41
(19)
(1)
1
24

Total

£m

47
19
(22)
2
46

Total

£m

8
11
51
(24)
(1)
2
47

Operating efficiencies provisions relate principally to redundancy costs (note 9) and are only recognised where plans 
are demonstrably committed and where appropriate communication to those affected has been undertaken at the 
balance sheet date. These provisions are typically expected to be utilised over the 12 months following announcement 
of the reorganisation. 

(b) One Company integration

One Company provisions relate principally to redundancy costs (note 9) and are only recognised where plans are demonstrably 
committed and where appropriate communication to those affected has been undertaken at the balance sheet date and 
onerous contract costs, where a decision has been made to exit a contract as part of the One Company reorganisation. 
These provisions are typically expected to be utilised over the 12 to 24 months. 

(c) Property

Property provisions relate to dilapidations and similar property costs, and costs associated with onerous property contracts.  
All such provisions are assessed by reference to the terms and conditions of the contract and market conditions at the 
balance sheet date. Property provisions are expected to be utilised over the next nine years.

(d) Contract and other

Contract and other provisions relate to onerous contracts and contracts with unfavourable terms arising on the acquisition  
of businesses and anticipated costs of unresolved legal disputes. All such provisions are assessed by reference to the  
best available information at the balance sheet date. Contract and other provisions are expected to be utilised over 
the next 24 months.

TalkTalk Telecom Group PLC | Annual Report 2011

 
 
 
 
 
 
 
 
 
 
81

21. Share capital

Allotted, called-up and fully paid:
Ordinary shares of 0.1 pence each

2011 
million

2010
million

2011 
£m

2010 
£m

914

914

1

1

In addition redeemable preference shares of £50,000 were issued as part of the demerger transaction and were redeemed in 
the year. 

22. Reserves 

At 1 April 2010
Net profit for the year
Exchange differences on translation of foreign operations
Recycling of translation reserve
Currency translation and cash flow hedges
Tax on items recognised directly in reserves (note 7)
Settlement of Group ESOT shares
Share-based payments reserve credit (note 5)
Equity dividends
At 31 March 2011

At 1 April 2009
Net loss for the year
Currency translation and cash flow hedges
Tax on items recognised directly in reserves (note 7)
Issue of share capital
Capital reduction
Share-based payments reserve credit (note 5)
Share-based payments reserve debit (note 5)
Equity dividends
Movement in demerger reserves
At 31 March 2010

Share capital

Share premium

Translation 
reserve

Demerger 
reserve

Retained 
earnings and 
other reserves

£m
1
–
–
–
–
–
–
–
–
1

£m
586
–
–
–
–
–
–
–
–
586

£m
(60)
–
–
(4)
(1)
–
–
–
–
(65)

£m
(513)
–
–
–
–
–
–
–
–
(513)

£m
378
35
1
–
–
2
1
4
(15)
406

Share capital

Share premium

Translation 
reserve

Demerger 
reserve

Retained 
earnings and 
other reserves

£m
–
–
–
–
1
–
–
–
–
–
1

£m
–
–
–
–
986
(400)
–
–
–
–
586

£m
(59)
–
(1)
–
–
–
–
–
–
–
(60)

£m
529
–
–
–
(987)
–
–
–
–
(55)
(513)

£m
232
(3)
–
(1)
–
400
4
(3)
(251)
–
378

Total

£m
392
35
1
(4)
(1)
2
1
4
(15)
415

Total

£m
702
(3)
(1)
(1)
–
–
4
(3)
(251)
(55)
392

As explained in note 1, the demerger reserve primarily reflects the profits or losses arising on the transfer of investments  
and net assets of CPW on demerger. 

The ultimate Parent Company of the Group, TalkTalk Telecom Group PLC, was incorporated on 15 December 2009.  
As discussed in note 1, TalkTalk Telecom Group PLC became the ultimate Parent Company of the Group during the prior  
year and these financial statements have been prepared as if this structure had been in place throughout the prior year.

On 29 March 2010 the Group became a separately listed entity on the London Stock Exchange, under a court approved scheme 
of arrangement under part 26 of the Companies Act. Under this scheme the former Parent Company of the Group, CPW was 
delisted and a new Parent Company incorporated holding A and B shares in CPW. This new Parent Company, TalkTalk Telecom 
Group PLC, paid a dividend of £182m to Carphone Warehouse Group plc, as part of the scheme of arrangement, representing 
the book value of the businesses that formed Carphone Warehouse Group plc.

TalkTalk Telecom Group PLC | Annual Report 2011

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82

Notes to the consolidated financial statements
continued

22. Reserves (continued)

Both the share capital and share premium in the new company arose as a result of the issuance of new shares in the Group  
to ordinary Shareholders of CPW. As these shares were issued for nil consideration, both the share capital of £1m and share 
premium of £986m have been treated as arising from the demerger reserve. 

On 29 March 2010 the share premium relating to the ordinary shares was reduced by £400m by way of a court-approved 
capital reduction. This had the effect of creating distributable reserves which may be released at the discretion (and upon 
the resolution) of the Board.

The £55m movement in the demerger reserve during the year ended 31 March 2010 arose as a result of the restructuring 
of CPW. As explained in the prospectus such movements have principally arisen from the allocation of operating expenses 
and profits arising in companies that form part of the TalkTalk Group after the demerger that related to the business of 
Carphone Warehouse Group plc, including the impact in 2009 of the Best Buy Europe Joint Venture Transaction, and 
dividends within CPW.

During the year ended 31 March 2010 equity dividends of £251m were paid. Of this total, £27m represented the ordinary final 
dividend of CPW for the financial year ended 31 March 2009, £13m represented the ordinary interim dividend of CPW for 
the financial year ended 31 March 2010, and £29m represented a special interim dividend paid by CPW to its Shareholders 
prior to demerger. The demerger dividend of £182m was paid by CPW to Carphone Warehouse Group plc as part of the 
demerger transaction, and represented the book value of assets transferred to Carphone Warehouse Group plc from CPW.

Net purchase of own shares
The TalkTalk Telecom Holdings ESOT held 5 million shares at 31 March 2011 (2010 : 10 million) in the Company for the benefit 
of CPW former employees. The Group ESOT has waived its rights to receive dividends and none of its shares have been 
allocated to specific schemes. At the year end the shares had a market value of £7m (2010 : £13m).

Opening

Net cash flow

Exchange 
movements

Closing

£m

£m

£m

£m

1
(9)
(8)

(10)
(490)
(500)

(508)
3
(505)

–
–
–

(25)
97
72

72
(1)
71

–
–
–

–
(2)
(2)

(2)
–
(2)

1
(9)
(8)

(35)
(395)
(430)

(438)
2
(436)

23. Analysis of changes in net debt

2011
Cash and cash equivalents
Bank overdrafts

Current loans and other borrowings
Non-current loans and other borrowings

Total net debt
Loans to related parties
Total net debt including loans to related parties

TalkTalk Telecom Group PLC | Annual Report 2011

 
 
83

Opening

Net cash flow

Exchange 
movements

Closing

£m

£m

£m

£m

6
(33)
(27)

–
(425)
(425)

(452)
397
(55)

(5)
24
19

(10)
(65)
(75)

(56)
(394)
(450)

–
–
–

–
–
–

–
–
–

1
(9)
(8)

(10)
(490)
(500)

(508)
3
(505)

2010
Cash and cash equivalents
Bank overdrafts

Current loans and other borrowings
Non-current loans and other borrowings

Total net debt
Loans to related parties
Total net debt including loans to related parties

During the prior year, the Group repaid funding of £425m and drew down £500m on new facilities.

24. Commitments under operating leases

The Group leases network infrastructure and offices under non-cancellable operating leases. The leases have varying terms, 
purchase options, escalation clauses and renewal rights. There were no leases which were individually significant to the Group. 

The Group had outstanding commitments for future minimum payments due as follows:

Less than 1 year
2 to 5 years
Greater than 5 years

25. Capital commitments

2011 
£m
38
83
56
177

2010 
£m
34
95
48
177

The Group had entered into the following amount of contractual commitments for the acquisition of property, plant and equipment 
at the year end:

Expenditure contracted, but not provided for in the financial statements

2011 
£m
14

2010 
£m
29

26. Pension arrangements

The Group provides various defined contribution pension schemes for the benefit of a significant number of its employees, 
the cost of which for the year ended 31 March 2011 was £3m (2010 : £3m).

TalkTalk Telecom Group PLC | Annual Report 2011

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84

Notes to the consolidated financial statements
continued

27. Contingent liabilities

As at the 31 March 2011 the Group is awaiting a decision from Ofcom as to what, if any, action it will take as result of its 
investigation of the Group in respect of General Condition 11 concerning certain bills the Group has issued to customers after  
they ceased to receive service from the Group. No provision has been made in these financial statements as at it is uncertain  
both as to whether or not Ofcom will impose any financial penalty and the amount of such penalty.

28. Related party transactions

During the year, the Group had the following disclosable transactions:

2011
Loans owed to the Group

2010
Revenue for services provided
Expenses for services received
Net interest income
Loans owed to the Group
Other amounts owed to the Group
Amounts owed by the Group

Best Buy Europe

Carphone 
Warehouse 
Group plc

Other related 
parties

£m

–

15
(24)
–
–
8
(18)

£m

–

–
(2)
5
–
–
(1)

£m

2

–
–
–
3
–
–

Following the demerger of the Group from CPW and the adoption of IAS 24 (Revised), Best Buy Europe and Carphone Warehouse 
Group plc are no longer considered related parties (see note 1).

Other related parties comprises loans to Future Office Communications Limited (2010 : Opal 2CCH Limited and Ecocall 
Limited), associated undertakings of the Group.

Revenue for services provided during the prior year principally relates to telecommunication services. Expenses for services 
received relate primarily to IT services and commissions on product sales. All products and services were provided at market rates. 

The remuneration of the Directors, who are key management personnel of the Group, is set out in the Directors’ remuneration 
report on pages 32 to 38.

TalkTalk Telecom Group PLC | Annual Report 2011

85

29. Restatement of comparative information

During the year the following adjustments were agreed in respect of acquisitions:

•   A net adjustment in respect of working capital and customer numbers was agreed between the Group and Tiscali S.p.A. for the 
acquisition of Tiscali UK. This resulted in an adjustment to goodwill of £14m. The carrying value of goodwill of Tiscali UK in 
the prior year has been restated to £162m in line with the requirements of IAS 1 ‘Presentation of financial statements’. 

•   The deferred consideration on UK Telco Limited was finalised and settled. This has resulted in an adjustment to goodwill  

of £1m. The carrying value of goodwill of UK Telco in the prior year has been restated to £4m in line with the requirements 
of IAS 1 ‘Presentation of financial statements’.

The comparative information has been restated to reflect the impact of this settlement, this only impacted the balance sheet.  
A restated balance sheet for the year ended 31 March 2009 has not been presented as the above restatement did not impact 
that year. 

Balance sheet at 31 March 2010

Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Non-current asset investments
Deferred tax assets

Current assets
Cash and cash equivalents
Inventories
Trade and other receivables 
Loans to related parties

Total assets
Current liabilities
Trade and other payables
Corporation tax liabilities
Loans and other borrowings
Provisions

Non-current liabilities 
Loans and other borrowings
Provisions

Total liabilities
Net assets

Equity
Share capital
Share premium 
Translation reserve
Demerger reserve
Retained earnings and other reserves
Funds attributable to equity Shareholders

As previously 
reported

Restatement of 
Tiscali goodwill

Restatement of 
UK Telco 
deferred 
consideration

As restated

£m

£m

£m

£m

485
316
262
1
155
1,219

1
2
166
3
172
1,391

(401)
(42)
(19)
(29)
(491)

(490)
(18)
(508)
(999)
392

1
586
(60)
(513)
378
392

(14)
–
–
–
–
(14)

–
–
14
–
14
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–
–

(1)
–
–
–
–
(1)

–
–
–
–
–
(1)

1
–
–
–
1

–
–
–
1
–

–
–
–
–
–
–

470
316
262
1
155
1,204

1
2
180
3
186
1,390

(400)
(42)
(19)
(29)
(490)

(490)
(18)
(508)
(998)
392

1
586
(60)
(513)
378
392

TalkTalk Telecom Group PLC | Annual Report 2011

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86

Independent Auditor’s report to the Directors 
of TalkTalk Telecom Group PLC

Opinion on other matters prescribed by the Companies Act 2006
In our opinion:

•   the part of the Directors’ Remuneration Report to be 
audited has been properly prepared in accordance  
with the Companies Act 2006; and

•   the information given in the Directors’ Report for the 
financial year for which the financial statements are 
prepared is consistent with the Parent Company 
financial statements.

Matters on which we are required to report by exception
We have nothing to report in respect of the following matters 
where the Companies Act 2006 requires us to report to you 
if, in our opinion:

•   adequate accounting records have not been kept by the 
Parent Company, or returns adequate for our audit have  
not been received from branches not visited by us; or

•   the Parent Company financial statements and the part of 
the Directors’ Remuneration Report to be audited are not 
in agreement with the accounting records and returns; or

•   certain disclosures of Directors’ remuneration specified  

by law are not made; or

•   we have not received all the information and explanations 

we require for our audit.

Other matters
We have reported separately on the Group financial statements 
of TalkTalk Telecom Group PLC for the year.

John Murphy (Senior Statutory Auditor) 
for and on behalf of Deloitte LLP 
Chartered Accountants and Statutory Auditor  
London, United Kingdom 
18 May 2011

We have audited the Parent Company financial statements 
of TalkTalk Telecom Group PLC for the period ended 
31 March 2011 which comprise the Company balance sheet, 
the Company reconciliation of movements in Shareholders’ 
funds and the related notes 1 to 9. The financial reporting 
framework that has been applied in their preparation is 
applicable law and United Kingdom Accounting Standards 
(United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the Company’s members,  
as a body, in accordance with Chapter 3 of Part 16 of the 
Companies Act 2006. Our audit work has been undertaken so 
that we might state to the Company’s members those matters 
we are required to state to them in an auditor’s report and for 
no other purpose. To the fullest extent permitted by law, we do 
not accept or assume responsibility to anyone other than the 
Company and the Company’s members as a body, for our 
audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and auditor
As explained more fully in the Directors’ Responsibilities 
Statement, the Directors are responsible for the preparation 
of the Parent Company financial statements and for being 
satisfied that they give a true and fair view. Our responsibility 
is to audit and express an opinion on the Parent Company 
financial statements in accordance with applicable law and 
International Standards on Auditing (UK and Ireland). Those 
standards require us to comply with the Auditing Practices 
Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and 
disclosures in the financial statements sufficient to give 
reasonable assurance that the financial statements are free 
from material misstatement, whether caused by fraud or error. 
This includes an assessment of: whether the accounting policies 
are appropriate to the Parent Company’s circumstances and 
have been consistently applied and adequately disclosed; 
the reasonableness of significant accounting estimates made 
by the Directors; and the overall presentation of the financial 
statements. In addition, we read all the financial and non-financial 
information in the annual report to identify material inconsistencies 
with the audited financial statements. If we become aware of 
any apparent material misstatements or inconsistencies we 
consider the implications for our report.

Opinion on financial statements
In our opinion the Parent Company financial statements:

•   give a true and fair view of the state of the Company’s 

affairs as at 31 March 2011;

•   have been properly prepared in accordance with United 
Kingdom Generally Accepted Accounting Practice; and

•   have been prepared in accordance with the requirements 

of the Companies Act 2006.

TalkTalk Telecom Group PLC | Annual Report 2011

Company balance sheet

As at 31 March 2011

Fixed assets
Non-current asset investments

Current assets
Debtors: amounts due within one year 

Total assets

Current liabilities
Creditors: amounts due within one year

Non-current liabilities 
Loans 

Total liabilities

Net assets

Equity
Share capital
Share premium 
Retained earnings and other reserves
Equity Shareholders’ funds

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

These financial statements were approved by the Board on 18 May 2011. They were signed on its behalf by:

D Harding 
Chief Executive Officer 
18 May 2011 

A Stirling  
Chief Financial Officer 
18 May 2011

87

2011
£m

996
996

487
487
1,483

(122)
(122)

(395)
(395)

(517)

966

1
586
379
966

Notes

4

5

6

7

8, 9

9

9

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88

Company reconciliation of movement in Shareholders’ funds

Loss for the period
Equity dividends
Retained loss for the period
Issue of share capital
Net cost of share-based payment
Net movement of Shareholders’ funds
Opening Shareholders’ funds
Closing Shareholders’ funds

2011
£m
(10)
(15)
(25)
987
4
966
–
966

TalkTalk Telecom Group PLC | Annual Report 2011

 
Notes to the company financial statements

89

1. Accounting policies

Basis of preparation
The separate financial statements of the Company are presented as required by the Companies Act 2006. They have been 
prepared under the historical cost convention and in accordance with applicable United Kingdom Accounting Standards and 
law. The Company was incorporated on 15 December 2009, this is the first set of Statutory accounts that have been prepared, 
accordingly these have been prepared for the period from 15 December 2009 to 31 March 2011.

The financial statements have been prepared on the going concern basis. Details of the considerations undertaken by the 
Directors in reaching this conclusion are set out on page 19 within the Finance review.

The principal accounting policies are summarised below. They have all been applied consistently throughout the period. 

Investments
Fixed asset investments in subsidiaries and joint ventures are recorded at cost, being the fair value of consideration, acquisition 
charges associated with the investment and capital contributions by way of share-based payments, less any provision for impairment. 

Financial liabilities and equity instruments
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered 
into. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all  
of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out below.

Loans and other borrowings 
Loans and other borrowings represent committed and uncommitted bank loans, and bank overdrafts. 

These are initially measured at fair value (which is equal to cost at inception), and are subsequently measured at amortised cost, 
using the effective interest rate method, except where they are identified as a hedged item in a fair value hedge. Any difference 
between the proceeds net of transaction costs and the settlement or redemption of borrowings is recognised over the term of 
the borrowing.

Bank fees and legal costs associated with the securing of external financing are capitalised and amortised over the term of 
the relevant facility. All other borrowing costs are recognised in the income statement in the period in which they are incurred.

Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issuance costs. 

Share-based payments
The Company issues equity settled share-based payments to certain employees. 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 Binomial model for share-based payments with internal performance criteria (such as EPS 
targets) and a Monte Carlo model for those with external performance criteria (such as 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.

Share-based payments issued by the Company to its subsidiary undertakings are treated as additions to investments based on 
the fair value of the grant, spread over the relevant vesting period, with corresponding credit to reserves. Where the Company 
recharges the cost of share-based payments to its subsidiary undertaking the investment is reduced accordingly. 

Taxation
Current 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 recognised in respect of all timing differences that have originated but not reversed at the balance sheet date 
where transactions or events that result in an obligation to pay more, or a right to pay less, tax in the future have occurred at 
the balance sheet date, with the following exception:

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TalkTalk Telecom Group PLC | Annual Report 2011

 
 
 
90

Notes to the company financial statements
continued

1. Accounting policies (continued)

Deferred tax assets are recognised only to the extent that the Directors consider that it is more likely than not that there will be 
suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.

Deferred tax is measured on a non-discounted basis with the tax rates that are expected to apply in the periods in which the 
timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.

The taxation liabilities of certain Group companies are reduced wholly or in part by the surrender of losses by fellow Group companies. 

Dividends 
Dividends receivable from the Company’s subsidiaries and joint venture investments are recognised only when they are approved 
by Shareholders.

Final dividend distributions to the Company’s Shareholders are recognised as a liability in the financial statements in the period in 
which they are approved by the Company’s Shareholders. Interim dividends are recognised in the period in which they are paid. 

Directors
The Directors’ remuneration was borne by another Group company and not recharged.

Detailed disclosures of the Directors’ remuneration and share based payments are given in the audited section of the Directors’ 
remuneration report on pages 32 to 38 and should be regarded as an integral part of this note. 

Employees
The Company has no employees.

Exemptions
The Company has taken advantage of the exemption under FRS 8 ‘Related Party Disclosures’ not to provide details of related 
party transactions with other Group companies, as the Company financial statements are presented together with the 
consolidated Group financial statements. 

The Company has applied the exemption under FRS 29 ‘Financial Instruments: Disclosures’ so as not to disclose details of 
financial instruments held by the Company. Full disclosure of the Group’s financial instruments recognised under FRS 29 
(IFRS 7) ‘Financial Instruments: Disclosures’ and IAS 39 ‘Financial Instruments: Recognition and Measurement’ is provided 
in note 19 to the Group’s annual report and accounts.

2. Loss for the period

As permitted by section 408 of the Companies Act 2006, the Company has elected not to present its own profit and loss account 
for the period. The Company reported a loss of £10m for the period ended 31 March 2011.

The auditor’s remuneration for audit and other services is disclosed in the Corporate governance report on page 29. 

3. Dividends

Interim dividend for the period ended 31 March 2011 of 1.70p per ordinary share
Total ordinary dividends

Final dividend for period ended 31 March 2011 of 3.90p per ordinary share

2011
£m
15
15

35

The final dividend for the period ended 31 March 2011 was approved by the Board on 18 May 2011 and has not been included 
as a liability as at 31 March 2011.

The expected cost of this dividend reflects the fact that the Group ESOT has agreed to waive its rights to receive dividends.

TalkTalk Telecom Group PLC | Annual Report 2011

91

2011
£m
991
5
996

2011
£m

–
996
996

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4. Non-current asset investments

Subsidiaries
Joint venture

Cost and net book value
Opening balance at 15 December 2009
Additions
At 31 March 2011

On 26 March 2010 the Company became the owner of the entire issued share capital of CPW, that owns the entire issued 
share capital of TalkTalk Group Limited, the holding company of the Group’s fixed line telecommunications companies in the UK. 
The investment was received by the Company as consideration for shares issued to the former Shareholders of CPW as part 
of the demerger transaction.

Joint venture
On 10 September 2010 the Group entered into a joint venture agreement with The British Broadcasting Corporation, ITV 
Broadcasting Limited, British Telecom PLC, Channel Four Television Corporation, Arqiva Limited and Channel 5 Broadcasting 
Limited to form YouView TV Limited (formerly Canvas Pro Tem Limited). The joint venture has been established in order to 
develop a new free-to-air internet-connected TV service to UK homes in 2012. Further detail relating to the joint venture 
are disclosed within note 14 to the consolidated financial statements.

Principal Group investments
The Company has investments in the following subsidiary undertakings. To avoid a statement of excessive length, details of 
investments which are not significant have been omitted. All holdings are in equity share capital.

Name
TalkTalk Telecom Holdings Limited* 
TalkTalk Group Limited 
Onetel Telecommunications Limited
TalkTalk Communications Limited 
(formerly Opal Telecom Limited)
TalkTalk Telecom Limited
TalkTalk Direct Limited
TalkTalk UK Communication Services Limited
GIS Telecoms Limited 
CPW Network Services Limited
Tiscali UK Limited

* Directly held

Country of incorporation  
or registration
England and Wales
England and Wales
England and Wales

England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales

Percentage ownership
100%
100%
100%

Nature of business
Holding company
Holding company
Telecommunications

100%
100%
100%
100%
100%
100%
100%

Telecommunications
Telecommunications
Telecommunications
Telecommunications
Telecommunications
Telecommunications
Telecommunications

TalkTalk Telecom Group PLC | Annual Report 2011

 
 
 
92

Notes to the company financial statements
continued

5. Debtors: amounts due within one year

Amounts owed by Group undertakings
Other debtors

2011
£m
485
2
487

Interest on intercompany funding is calculated at the Bank of England base rate plus 3.75%; intercompany deposits receive interest 
at the Bank of England base rate with no margin. Interest is either paid or capitalised monthly as appropriate. Where they exist, 
currency balances are calculated at similar rates.

Interest is not charged on balances arising between Group companies as a result of intercompany trading; such balances are 
settled regularly in line with agreed terms of trade, usually through the Group’s netting system, within 30 to 60 days.

6. Creditors: amounts due within one year

Amounts owed to Group undertakings

2011
£m
122
122

Interest on intercompany funding is calculated at the Bank of England base rate plus 3.75%; intercompany deposits receive interest 
at the Bank of England base rate with no margin. Interest is either paid or capitalised monthly as appropriate. Where they exist, 
currency balances are calculated at similar rates.

Interest is not charged on balances arising between Group companies as a result of intercompany trading; such balances are 
settled regularly in line with agreed terms of trade, usually through the Group’s netting system, within 30 to 60 days.

7. Loans

Loans 

2011
£m
395
395

The details of the loans are disclosed within note 18 to the consolidated financial statements and should be regarded as an 
integral part of these financial statements.

TalkTalk Telecom Group PLC | Annual Report 2011

93

2011
million

914

2011
£m

1

Share capital

Share premium

Profit and loss 
and other 
reserves

£m
–

1

–
–
–

1

£m
–

986

(400)
–
–

586

£m
–

–

400
(10)
4
(15)

379

Total

£m
–

987

–
(10)
4
(15)

966

8. Share capital

Called-up, allotted and fully paid:

Ordinary shares of 0.1 pence each

9. Reserves

Opening balance at 15 December 2009

Issue of share capital

Capital reduction
Loss for the period
Net cost of share-based payments
Equity dividends

The Company was incorporated on 15 December 2009 and on 29 March 2010 the Group became a separately listed entity  
on the London Stock Exchange, under a court approved scheme of arrangement under part 26 of the Companies Act. Both  
the share capital and share premium in the Company arose as a result of the issuance of new shares in the Group to ordinary 
Shareholders of CPW. As these shares were issued for nil consideration, both the share capital of £1m and share premium  
of £986m have been treated as arising from the demerger reserve. Further detail is included in notes 1 and 22 to the 
consolidated financial statements which should be considered an integral part of these financial statements. 

On 29 March 2010 the share premium relating to the ordinary shares was reduced by £400m by way of a court approved 
capital reduction. This had the effect of creating distributable reserves which are available at the discretion of the Board 
for dividend payments as required. 

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94

Other information

Five year record (unaudited) 
Glossary 
Shareholder information 

96
97
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Five year record (unaudited)

Headline results
Revenue
Net profit for the year

Net assets employed
Non-current assets
Net current assets (liabilities) before provisions
Provisions
Non-current liabilities
Net assets employed

Headline earnings per share
Basic 
Diluted

2010  
*As restated 
£m

2009 
Unaudited
£m

2008 
Unaudited 
£m

2007 
Unaudited 
£m

2011 
£m

1,765
122

1,686
106

1,385
95

1,424
12

1,116
(12)

1,137
(281)
(46)
(395)
415

1,204
(275)
(47)
(490)
392

1,319
(184)
(8)
(425)
702

928
(235)
(10)
(895)
(212)

857
(122)
(18)
(862)
(145)

13.5
12.8

11.8
11.2

10.7
10.4

1.3
1.3

(1.4)
(1.3)

* The balance sheet at 31 March 2011 has been restated to reflect the finalisation of the Tiscali UK and UK Telco acquisition purchase price (note 29).

On 26 March 2010 CPW demerged into Carphone Warehouse Group plc and the Group. The Company and Carphone Warehouse 
Group plc were separately listed on the London Stock Exchange. 

The consolidated financial information of the Group for the years ended 31 March 2010, 31 March 2009, 31 March 2008  
and 31 March 2007 have been prepared with the objective of presenting the results, net assets and cash flows of the Group  
in the form that arose on completion of the demerger, as if it had been a standalone business during those periods.

TalkTalk Telecom Group PLC | Annual Report 2011

Glossary

97

ADSL

ARPU

Asymmetric Digital Subscriber Line technology enables data transmission over existing copper wiring at data rates several 
hundred times faster than analog modems, providing for simultaneous delivery of voice, video and data

Average Revenue Per User

Best Buy Europe

Joint venture between Carphone Warehouse Group plc and Best Buy Co. Inc.

CAGR

CGU

Churn

Compound Annual Growth Rate

Cash Generating Unit

A measure of the number of subscribers moving into or out of a product or service over a specific period of time

The Company

TalkTalk Telecom Group PLC

CPS

CPW

CRM

Demerger

DWDM

EBIT

EBITDA

EPS

Ethernet

Carrier Pre-Select is the automated process under which voice customers can be switched from BT and other suppliers  
with no requirement to change telephone numbers, or to dial prefixes or to install dialler boxes

The Carphone Warehouse Group PLC, its subsidiary companies, joint ventures and investments

Customer Relationship Management

The demerger of the The Carphone Warehouse Group PLC into TalkTalk Telecom Group PLC and Carphone Warehouse 
Group plc effective on 26 March 2010

Dense Wave Division Multiplexing

Earnings Before Interest and Taxation

Earnings Before Interest Taxation Depreciation and Amortisation

Earnings Per Share

Ethernet is a protocol that controls data transmission over a communications network often referred to as a family  
of frame-based computer

Free cash flow

Cash generated from operations before exceptional items, interest, taxation, dividend payments and investments

Gb

GPS

Gigabytes per second

Global Positioning System

Group ESOT

TalkTalk Telecoms Holdings Employee Share Option Trust

Headline information

Headline information represents the Group’s Consolidated income statement, stated before the amortisation of acquisition 
intangibles and exceptional items that are considered to be one-off, 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

HD

IP

ISP

LLU

High Definition

Internet Protocol is the packet data protocol used for routing and carriage of messages across the internet and similar networks. 
IP performs the addressing function and contains some control information to allow packets to be routed through networks

Internet Service Provider

Local Loop Unbundling

Mbit/s/Mbps

Unit of data transfer rate equal to 1,000,000 bits per second

MPF

MVNO

Metallic Path Facility provides both broadband and telephony services to customers from TalkTalk Group exchange infrastructure

Mobile Virtual Network Operator

Narrowband

Telecommunication service that carries voice information in a narrowband of frequencies

Net Debt

NGN

Quad play

RCF

Borrowings net of cash held on deposit at financial institutions

Next Generation Network

A customer that takes voice, broadband, TV and MVNO services from the Group

Revolving Credit Facility

SMPF or partial unbundling

Shared Metallic Path Facility provides broadband services to customers from TalkTalk Group exchange infrastructure

SME

TDM

Small and Medium sized Enterprises

Time Division Multiplexing and a digital data transmission method that takes signals from multiple sources, divides them into 
pieces which are then placed periodically into time slots, transmits them down a single path and reassembles the time slots 
back into multiple signals at the remote end of the transmission

Unbundling

Process by which BT makes available its local network to third party broadband service providers

VoIP

wi-fi

Voice over Internet Protocol

Trademark of the Wi-Fi Alliance often used as a general term for wireless networking technology that uses radio waves  
to provide wireless high speed internet and network connections

TalkTalk Telecom Group PLC | Annual Report 2011

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Shareholder information

Financial calendar

AGM

Ex-dividend date

Record date

Dividend payment date

28 July 2011

25 May 2011

27 May 2011

5 August 2011

Our website
Visit www.talktalkgroup.com/investors 
to find out more information on 
our latest financial results, reports, 
share price, financial calendar 
and shareholder services.

TalkTalk Telecom Group PLC | Annual Report 2011

Notes

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TalkTalk Telecom Group PLC | Annual Report 2011

 
 
 
100

About this report
This report was printed, in the UK by Royle Print, a CarbonNeutral printing 
company. The report was produced using vegetable based inks on one 
production site avoiding the need for transportation between processes.

The paper used in this report is Amadeus 100 Silk for the cover and Amadeus 
75 Matt for the text. The cover board comprises 100% post-consumer waste 
and the text 50% post-consumer waste and 25% pre-consumer waste. Both 
are independently certified according to the rules of the Forest Stewardship 
Council. Please remove the cover before recycling. 

Designed and produced by Addison. www.addison.co.uk

TalkTalk Telecom Group PLC
Registered in England and Wales No. 7105891 
11 Evesham Street, London W11 4AR

For more information visit:
www.talktalkgroup.com

Cert no. XXX-XXX-XXXX

TalkTalk Telecom Group PLC | Annual Report 2011

TalkTalk Telecom Group PLC
We are one of the leading fixed line  
voice and broadband telecommunications 
businesses in the UK. We have over  
4.8 million customers.

Demerger from Carphone Warehouse
In March 2010 we demerged from The Carphone  
Warehouse Group PLC and listed on the London 
Stock Exchange as TalkTalk Telecom Group PLC, 
and are now a constituent of the FTSE 250.

For more information visit: 
www.talktalkgroup.com

Directors’ Report: Overview 
Financial highlights 
What we do 
Chairman’s statement 
Chief Executive Officer’s statement 
Market overview 

Directors’ Report: Performance review 
Business review 
Finance review 
Principal risks and uncertainties 
Corporate and social responsibility review 

Directors’ Report: Governance 
Board and advisors 
Corporate governance 
Directors’ remuneration report 
Other statutory information 

Financial statements 
Statement of Directors’ responsibilities 
Independent Auditor’s report to the members  
of TalkTalk Telecom Group PLC 
Consolidated income statement 
Consolidated statement of comprehensive income 
Consolidated statement of changes in equity 
Consolidated balance sheet 
Consolidated cash flow statement 
Notes to the consolidated financial statements 
Independent Auditor’s report to the Directors  
of TalkTalk Telecom Group PLC 
Company balance sheet 
Company reconciliation of movement  
in Shareholders’ funds 
Notes to the company financial statements 

Other information 
Five year record (unaudited) 
Glossary 
Shareholder information 

01
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04
06
07
10

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16
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22

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26
28
32
39

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47
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49

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www.talktalkgroup.com

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TalkTalk Telecom Group PLC
Annual Report 2011