Talktalk Telecom Group PLC (LON:TALK) shares tumbled as it swung to a half-year loss and said full year profits will be at the lower end of its guidance range as it ramped up investment to attract more customers.
The company reported a statutory pre-tax loss of £75mln for the six months to the end of September, compared to a £30mln pre-tax profit last year.
READ: TalkTalk slumps after Barclays downgrades to 'equal weight' on valuation grounds
Revenue fell 5% to £828mln with declines across on-net, off-net and corporate products, the company said in its interim results statement.
TalkTalk said its core earnings for the year would be towards the bottom of its expected range of £270-300mln as it restructures the business in an effort to increase its share of the market in the second half of the year.
Shares dropped 7% to 176p in afternoon trading.
“When we simplified and reset the business in May we said our priorities were growth, cash and EBITDA, in that order,” said chief executive Tristia Harrison.
“We have now delivered a third consecutive quarter of growth in our broadband base, with both retail and wholesale bases growing; returned to on-net revenue growth; and delivered lower churn than a year ago."
A £59m exceptional charge was incurred for costs associated with implementing changes to the group’s organisational structure.
TalkTalk will also take a £31mln charge as a result of a strategy review of its mobile business, launched in September, in relation to decommissioning costs, asset write-offs, provision releases, onerous supplier commitments and redundancies. Additionally it is about to launch a “simple and compelling new mobile proposition”.
TalkTalk adds more customers, churn falls
On the back of its turnaround plan, the company added 46,000 net customers in the first half after a 29,000 fall in the year-ago period, thanks to stronger demand for its fixed low-price plans (FLLPs).
The percentage rate of customers leaving the firm – or churn – fell to 1.3% from 1.5% and the group secured double digit customer growth across its retail and wholesale.
TalkTalk has been trying to reinstate its standing as a budget internet provider after its reputation took a hit from a cyber attack in 2015, which saw the personal data of more than 150,000 customers stolen.
TalkTalk making progress on restoring customer growth
“The big share price drop is largely a function of the group saying profits are going to be at the bottom end of previous guidance, but, odd as it sounds, this year’s profit was never a top priority for the new management team," said George Salmon, equity analyst at Hargreaves Lansdown.
"Instead, the focus has been on restoring customer growth, and progress here has been good. 46,000 on-net broadband customers were added in the half, and the TV customer base is now growing again after the turbulence of 2015’s data hack."
Salmon added the opportunity to boost margins and profitability should arise once TalkTalk’s investments in getting its house in order have been completed.
While Hargreaves is willing to give Talktalk the benefit of the doubt for now, Salmon said there is "no getting away from the fact that, longer-term, profits will need to rise up the priority list".