11th Nov 2014 11:35
LONDON (Alliance News) - TalkTalk Telecom Group PLC said Tuesday it is on track to deliver its financial targets for the financial year 2017 and upped its interim dividend as it swung to a pretax profit in the half year to end-September.
The company raised its interim dividend to 4.6 pence from 4.0 pence in the previous year.
TalkTalk posted a pretax profit of GBP20 million in the half year, swinging from a pretax loss of GBP9 million a year before, as revenue rose to GBP871 million from GBP843 million.
The company continues to expect its revenues to grow by at least 4% for the full year, with its second half seeing higher rates of customer growth, pricing activity, and continuing growth in data revenues at its TalkTalk Business segment. However, it reduced its full year guidance for its earnings before interest, tax, depreciation and amortisation margin to "modestly" below its previously guided 16% to 17%.
This is as a result of TalkTalk now expecting to spend an additional GBP20 million to GBP25 million on subscriber acquisition costs.
TalkTalk noted that it will invest more in customer acquisition costs in the second half than it had expected at the beginning of the year, which it said will provide it with a larger customer base to leverage over the medium term.
TalkTalk said it remains on track to see a 4% compound annual growth rate in revenues between the financial year 2014 and the financial year 2017, and a 25% earnings before interest, tax, depreciation and amortisation margin by financial 2017. It now expects to see higher volumes or broadband, fibre and mobile customers, and lower volumes of television customers than it had previous anticipated.
On-net revenues for the half year, meaning customers connected directly using TalkTalk's own equipment, were boosted by broadband customer additions of 25,000 in the recent half year, as customers continued to take up new products including television, mobile and fibre, the company said.
Off-net revenues, or customers whose connection is provided via BT Group PLC's wholesale business, declined to GBP46 million from GBP69 million, in line with expectations as its voice-only and off-net customer base shrank.
The company said it is "ideally placed" as the market moves to quad-play, meaning customers taking up a fixed phone line, broadband, television and mobile all in the same package. A third of its customers now take three services from the company, it said. This led to fewer television customer additions in the second quarter compared to previous quarters, it said.
Jefferies said that the higher subscriber acquisition costs imply a 7% to 8% reduction in full year earnings, and whilst TalkTalk's guidance of 25% margins by the financial year 2016/17 remains, it relies on an around GBP100 million net reduction in subscriber acquisition costs.
Jefferies noted that whilst the company suggested customer churn of 1.2% is attainable within 2 years "against the backdrop of more intense competition in the UK fixed-line market" and taking into account the higher subscriber acquisition costs, it thinks the building blocks underpinning TalkTalk's financial year 2016/17 guidance should now be treated with "additional caution".
Jefferies has a Hold rating on the stock.
Shares in TalkTalk are trading down 4.6% at 283.00 pence late Tuesday morning.
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews
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