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14 The Carphone Warehouse Group PLC Annual Report 2009
Directors’ Report – Business Review
TalkTalk Group – continued
Outlook
The prospects for the coming year are
good. After many years of investment,
we expect TalkTalk Group to deliver
signicant free cash ow and consolidate
its position in the marketplace. While we
remain mindful of the tough times many
of our customers are enduring, we
believe that residential broadband and
telephony are must-have services that
customers are unwilling to forego. At the
same time, as a clear value player with
no unwanted services within the bundle,
we expect to benet from customers
seeking to save on monthly outgoings
by moving to TalkTalk.
We expect to achieve 125,000-175,000
broadband net adds next year, reecting
stable market share in a maturing market.
ARPU growth is expected to be marginal,
with some benecial mix effects and the
sale of additional value-added services
likely to be cancelled out by a slight
decline in voice trafc.
The non-broadband base is likely to
continue to decline but at a slower
rate than this year, with ARPUs again
broadly stable.
Within the B2B operation, we are
budgeting for revenue growth of 3-5%,
driven by the launch of new data services
and a renewed strategic focus. EBITDA
margins in both businesses are expected
to be at to slightly up, driven by
operating efciency and scale benets.
While overall EBIT growth is likely to
be limited, we are targeting signicant
free cash ow generation. We are
planning for neutral working capital and
a further reduction in capex, to £80m in
the coming year. This allows us to target
operating free cash ow of over £100m,
a gure which we believe is sustainable
in the medium term.
Longer term we are bullish about the
outlook for broadband. The market
appears to be consolidating around four
major players, of which we are clearly
differentiated as offering transparent
value and simplicity. Across both our
divisions, we are guided by our view of
the connected world – that customers
will increasingly use mobile and xed
broadband connectivity wherever they
are, to integrate their entertainment,
domestic and business needs
seamlessly. This makes the broadband
connection in the home one of great
strategic importance and value.
However, we remain conscious of the
role of the regulator in ensuring that
where signicant investment has been
made, it is suitably protected. Fibre
networks will come, although we do not
believe they will reach the mass market
for ve years. When they do, we are
condent that we will be able to access
that infrastructure at fair rates
determined by natural market forces.