Talktalk Telecom Group plc (LON:TALK) lowered its final dividend as it reported a 3.0% decline in full year revenue due to a continued churn of customers and less people signing up to use its internet services.
Shares fell 10.60% to 163.15p in morning trading.
Revenue for the year to 31 March 2017 came to £1.7bn, down from £1.8bn the previous year.
On-net revenue fell 4.0% to £1.3bn from £1.4bn, reflecting a drop in number of broadband customers by 49 and a churn rate of 1.4%.
However, the churn was an improvement on the previous year’s 1.6% when the company was still reeling from a cyber attack in 2015. A hacker had accessed the personal information of more than 150,000 customers and the company was forced to pay a £400,000 fine last year for its security failings.
Without the costs of improving its security systems, underlying earnings (EBITDA) rose 17% to £304mln in 2016 from £260mln a year ago. Earnings were also boosted by an improvement in subscriber acquisition costs and £34mln of savings as part of its transformation programme, “Making TalkTalk Simpler”. Deutsche Bank had expected EBITDA of £323mln.
Newly appointed chairman, Charles Dunstone, said: “My focus for the company is growth, cash generation and profit - in that order. We will be smart about how we invest, focusing on our fixed network, avoiding other capital intensive distractions. In light of these new priorities, we have also decided to reset the dividend as we look to deliver growth and strong sustainable shareholder returns over the long term."
Dunstone, who owns a 31% stake in TalkTalk and founded the company, returned to the helm this month. He is also the founder of Carphone Warehouse and has stepped down as chairman of the retailer to join TalkTalk.
Tristia Harrison, head of TalkTalk’s consumer business and a former marketing director at Carphone Warehouse, has taken over as chief executive following the departure of Dido Harding. Charles Bligh has moved to the role of chief operating officer from managing director.
TalkTalk lowers dividend
The group declared a final dividend of 5.0p, compared to 10.58p a year ago, taking the total for the year to 10.29p, down from 15.87p in 2016. Deutsche Bank had pencilled in a final dividend of 10.58p.
For fiscal year 2018, the company said it would maintain its final dividend at 5.0p, bringing the total for the year to 7.5p.
TalkTalk said it expects to resume dividend growth once the business improves its earnings and reduces its net debt divided by headline EBITDA to 2.0x. The net debt/headline EBITDA fell to 2.57x last year from 2.61x the prior year.
Russ Mould, investment director at AJ Bell, said: “Talk Talk’s 8%-plus dividend yield at yesterday’s close looked like it was in 'too good to be true' territory, especially as earnings cover for the pay-out was less than one times. But, the cut in the 2018 dividend to 7.5p (from 10.29p in the year just ended) is deeper than expected and that explains why the shares are receiving such harsh treatment this morning."
Mould added that the decision to cut the dividend would not have been taken lightly since Dunstone owns a stake in the company.
The analyst said the chairman's record shows that he has never been afraid to buy or sell assets, which means it may be a "matter of time" before analysts start to ponder whether TalkTalk is a potential bid candidate.
Underlying earnings expected to fall in 2018
The company expects headline EBITDA in 2018 of £270mln-£300mln, as it invests in marketing and improving subscriber acquisition costs.
Talk-Talk also sees year-on-year growth in headline revenues and improved headline cash flow, helping to cut net debt.
The group hopes to lower costs per additional customer and reduce its churn next year.