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TalkTalk: Profit warning, fibre roll-out plans

February 8, 2018

Shares in UK telco TalkTalk plummeted after it warned on profits and said it would cut its dividend, while it looks to raise £200 million from investors to shore up its balance sheet and fund a new fibre broadband rollout.

The company said full-year earnings before interest, tax, depreciation and amortisation would now be £230 million – £245 million, down from the £270 million – £300 million range it initially outlined in November 2017.

The company added 37,000 customers in its third quarter, and forecast additions of 150,000 to 160,000 in the full year.

Charles Dunstone, Executive Chairman of TalkTalk commented: “It’s 12 months since I announced my intention to take a more active role in the management of TalkTalk. Since then, we have reset the business and returned it to quarter-on-quarter customer growth. By signing heads of terms with Infracapital we are making good progress towards putting TalkTalk at the heart of Britain’s fibre future by building a full fibre network, bringing faster, more reliable internet to millions of homes and businesses. Looking ahead we see real opportunity to continue growing the core business whilst also investing in full fibre. We have therefore strengthened our balance sheet and temporarily reduced our dividend to take full advantage of the opportunities available. We anticipate revenue growth and strong earnings growth in the year ahead, as the benefits of a growing customer base and rigorous cost control begin to deliver the results this business is capable of.”

TalkTalk is looking at a potential equity investment of up to £500 million (enabling total investment of c.£1.5 billion) to provide full fibre to more than 3 million homes and businesses in mid-sized towns and cities in the UK. It would be a founding wholesale customer of the new company, providing a minimum volume commitment. The initiative builds on the successful TalkTalk full fibre trial in York. The network currently reaches 14,000 homes and is in the process of being extended to 54,000

Offering an opinion on the results, Paolo Pescatore VP, Multiplay and Media at CCS Insight, commented: “Not a bad set of results. The new management is doing a good job of turning the business around. Net adds are up is up and the company is now the largest provider of wholesale broadband. Of course, the biggest news is the UK fibre broadband rollout. This is great for UK plc and the drive to reach the masses, but this will put a drain on TalkTalk’s resources. Therefore, expect further initiatives to cut costs.”

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