TalkTalk has positioned itself as a value-for-money provider in the über-competitive telecommunications market. It was founded in 2003 as a subsidiary of The Carphone Warehouse, Europe’s largest independent mobile phone retailer. In March 2011, it became an independent company when it demerged from its parent and was listed as a stand-alone entity on the FTSE.

Lorraine joined TalkTalk in December 2009. Prior to this she was Director of Tax (EMEA) at Nortel Networks, the US listed Canadian telecoms company. She has previously worked within the tax departments at Reckitt Benckiser and Kingfisher plc. She qualified as a chartered accountant at KPMG and studied Law with French and German at Keele University.

The thinking behind the TalkTalk/Carphone Warehouse demerger was simple, says Lorraine. The companies had to go their own way if they were to build value for shareholders and allow them to pursue their own interests. TalkTalk is primarily a broadband and telephony company, whereas The Carphone Warehouse is a mobile phone retail outlet. It was during this demerger period that Lorraine was drafted in to take responsibility for tax and treasury.

“I have been with the company since December 2009 – just before the demerger. I have a background in tax and telecommunications, so it was a good match. I am now fully responsible for treasury at TalkTalk,” she explains. Lorraine and her team were asked to build the treasury from scratch. This involved the installation of 360T to buy and sell the company’s foreign exchange and a Wall Street Systems treasury management system (TMS).

In the early days, TalkTalk was known as a provider of fixed line telephony services, but has since branched out into fixed/mobile telephony and broadband services. Like some other UK broadband providers, the group has also invested in its own exchange infrastructure, known as Local Loop Unbundling (LLU). Today, the company possess the most extensive unbundled local-loop network in the UK, which has allowed it to compete on price with its big rivals – BT and Virgin Media. As a result of its investment in the telecoms infrastructure, the company finds itself the UK’s second-largest broadband provider, with 4.1m broadband customers and 1.1m voice-only and narrowband subscribers.

The company’s treasury and its headquarters are to be found in west London. However, back office duties are taken care of by a 50-strong team in a shared service centre based in Warrington.

“The shared service centre has been up and running since September last year. Previously, the finance function was split between London and Warrington. We have since brought it all together in the Warrington office to make it a more efficient structure. The reason we decided to move all the back office to Warrington was that we found ourselves with a lot of duplication of processes and roles of various functions. It was a streamlining exercise in line with the other restructuring that was going on,” explains Lorraine.

The next 12 months promise to be challenging ones for the team. The capital structure of the group is due for review and an exciting new internet-based TV service –YouView – is in the offing. “Since the demerger, for us it has been about finding our own two feet and making sure that we have a bank group in place that fits our requirements. In the past, the wider banking group was geared toward an international retailer, but we have now managed to move away from that. The next step is to look at our sources of funding, and perhaps that will take us into the bond market.”

Big things are expected of YouView, a joint venture that includes BBC, Channel 4, Channel 5, ITV and Arqiva, BT and TalkTalk. The project promises to deliver internet protocol television (IPTV) to the United Kingdom. The platform will allow viewers to access a range of third-party services – including TV content channels, radio stations, on-demand services and internet content – using a set-top box, an internet connection and an aerial.

In this interview, Lorraine tells us more about her treasury department.

How many of you are there in the treasury team?

We are a lean team of three – a treasury manager, a treasury analyst and me! We are all based at the group Head Office in west London. Immediately after the demerger from Carphone Warehouse, we were a slightly larger team of four, but we then set up a finance shared service centre in Warrington, which has now taken over some of our back office duties. The shared service centre came about as a result of the duplications we found in finance and treasury following the major acquisitions we had made over the last few years. It has been up and running since September last year and we now have around 55 people working there. Bringing it all together in the Warrington office makes for a much more efficient structure and the treasury team in London works with them on a daily basis.

What are your bank relationships like?

We turn to the banks in our bank group to provide the services the business needs. Our main cash management bank is HSBC, who we moved to prior to demerger. They worked with us through the demerger process and we have maintained a good, open relationship with them. They are responsive to our business needs and like TalkTalk, they understand the importance and the need for great customer service. In addition, HSBC process all our BACS transactions and have helped us automate our payments process. J.P. Morgan and Barclaycard are currently providers of our merchant acquiring services. We aim to be fair and transparent with our banks and we keep all our relationships under regular review to ensure we are getting the best pricing and service.

Do you pool your cash?

Yes, we have a notional pool with HSBC. The TalkTalk Telecom Group plc entity is the head of the pool and all our subsidiaries participate. As all our business is in the UK, we can be very efficient with our cash management. We have a simple business model and strive to have our internal processes and external relationships reflect that simplicity. The cash pooling mechanism is therefore ideal for us – it is efficient and easy to manage and this helps us to keep our costs to a minimum.

What is the company’s stance on debt?

We have not issued any bonds as yet, but we do have £690m of bank debt, which comprises revolving credit facilities (RCF) and term loans. We re-financed our debt at the end of 2011 and it now matures in 2015. The re-financing took place against a very turbulent economic backdrop and we were fortunate to have the support of some banks, such as RBS and Lloyds, who have been with us since our Carphone Warehouse days.

When choosing our new bank group, we tried to include banks who were suited to a UK telecommunications business. Our legacy bank group was much larger and a significant proportion of those involved were there because they could support the demands of an international retailer (Carphone Warehouse), so they naturally fell away. We therefore wanted to continue to use the UK clearing banks, but also build on those relationships we had with institutions which have a specific interest in telcos, in particular DNB, which now acts as agent for our bank group.

We have really strong and transparent relationships with our banks and we actively keep them up-to-speed with the latest developments at TalkTalk. I try to make sure they spend time with our CEO and CFO so they can understand the company’s strategy and get a real sense of the spirit of TalkTalk. Personally, I aim to meet with the banks every couple of months to discuss operational changes and challenges, new ideas and plans for the coming months.

What are your thoughts on the importance of credit ratings?

We are now two years on from the demerger and one of our key objectives for the coming year is to make sure our funding structure is right for TalkTalk. Having been through the re-financing last year we absolutely recognise the need to look at the diversification of our funding structure so that we can manage risk, as well as being nimble enough to react to new opportunities that may present themselves, without having to repeatedly return to the bank debt markets.

A key element of this review will be to understand how the outside world views us and indicative ratings will be a good way to do this. I do think however, that it is important not to underestimate the amount of work involved in introducing a new set of stakeholders to the business. Obtaining and monitoring a credit rating, issuing a bond or exploring alternative sources of debt will require a significant investment of time for the company, particularly in what is a transformational year for TalkTalk with the launch of our TV product.

Speaking of credit ratings, is counterparty risk a key item on your agenda?

It is something that we keep an eye on. We do monitor the credit ratings of our banks, but at the end of the day, we face the same risks as other corporates. We do however, feel we have a strong bank group, which in additional to having minimal foreign exchange exposure, means we do not have to spend a material amount of time reviewing this.

Do you have a TMS/ERP and if so, which system(s) do you use?

We use the WallStreet Treasury Management System. It is very user-friendly and we have been able to do quite a lot of work to integrate it with our accounting system. Again TalkTalk was using WallStreet prior to the demerger, but we have been able to tailor it further since then.

We don’t currently have an ERP but it is something we are actively looking at. Again as a result of the acquisitions we have done, we find ourselves working with several different finance systems. We haven’t decided on our final ERP partner yet, but this is a live project led by our finance team and it will bring real efficiency to the function to have end-to-end processing. My team are very much involved in the selection, design and implementation stages of the project and are very much looking forward to a day when we are all using the same system!

Do spreadsheets still have a part to play in TalkTalk’s treasury?

I’d like to say we have managed to completely eradicate them, but we do still have uses for them. We have however, been able to reduced our dependency on them, by leveraging some of the functionality in our TMS and banking platforms.

We tend to use spreadsheets now to help us analyse our interest costs, for cash flow forecasting and to assist with our understanding of our working capital. Our main challenge with using spreadsheets is the loss of consistency when switching between formats and functions. There is of course, always scope for human error, but with the appropriate checks and balances in place, these can hopefully be minimised.

You mentioned earlier that you have minimal FX exposure? Could you please elaborate?

TalkTalk imports hardware such as routers and network equipment for the exchanges from the US and the Far East and so this drives a need for dollars. In addition, we make some payments in euros to other telcos where our customers terminate calls on their networks.

The volumes are relatively modest so we generally use 360T as the platform to support our currency requirements. I find this to be a fair way to give all our banks the opportunity to participate in this business if they want to and in keeping with our desire to have an open relationship with our banks, the automated platform allows us to collate data and statistics that we can then share with them.

Is interest rate risk more of a worry then? Do you hedge against it?

Over the last 12 months we have started to build up our interest rate hedges to a level we feel gives us some protection in an uncertain world. At the moment, we have fixed the interest rates on approximately 50% of our debt. This is reviewed regularly to give us the opportunity to re-assess our position depending on the forecast cash flow of the business and the company’s appetite for greater certainty over its interest cost. The swaps are provided by our relationship banks.

Do you ever have surplus cash? If so, what do you do with it?

At the moment, due to the efficient funding structure that we have, we rarely have cash to place on deposit. When we do have surplus funds, we generally place them on deposit with our relationship banks or we use a money market platform from ICD (Institutional Cash Distributors).

What does the future hold for treasury at TalkTalk?

The first thing on the agenda is to look at our longer-term funding structure. The two years since the demerger, have been focused on establishing the Treasury function, setting our policies and making sure we have a bank group that fits the business. We can now turn to the longer term to make sure that TalkTalk has the funding in place to support its business strategy.

Secondly, as the business gears up for the launch of our TV proposition in conjunction with YouView, we, as a treasury function, need to be ready to support the growth of this exciting new stage of our business.