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TalkTalk announces sale of direct B2B unit as it reports 35% drop in profits

TalkTalk shares jumped as it said it expects a return to revenue and earnings in growth in fiscal year 2019

TalkTalk
TalkTalk is building a full fibre network to rival BT

Talktalk Telecom Group PLC (LON:TALK) had a lot to say on Thursday as it announced plans to sell its direct business-to-business unit, a 35% drop in annual profits and a positive outlook for the year ahead. 

In early trading, shares jumped 8% to 131p. 

The company has agreed to sell the direct B2B business to strategic partner Daisy Group for £175mln. The deal is expected to be completed in late July.

TalkTalk said it would take a £15mln hit from the proposed sale but the deal will strengthen its balance sheet and allow for investment in “sustainable growth” and its plans to build a new full fibre broadband network for three million premises.

The company will build the fibre network through a joint venture with Infracapital, the infrastructure investment arm of M&G Prudential.

“As an existing strategic partner, Daisy is well placed to serve all direct customers, who would remain on our network and provide ongoing revenue,” said chief executive Tristia Harrison.

The sale of the business, which represents less than 20% of revenue, is part of a wider strategy to simplify operations to focus on growth areas.

Harrison said the deal would allow it to focus on its core B2B markets while removing “significant complexity and cost from the business.”

Restructuring costs hit profits but return to growth expected 

The cost of its restructuring dragged on the company’s profits in the year to end of March. 

Underlying earnings (EBITDA) fell to £233mln from £361mln last year, in line with a profit warning issued earlier in the year.

READ: TalkTalk slumps as it cuts earnings forecast and unveils fibre broadband roll-out deal

But TalkTalk maintained its guidance for this year for EBITDA growth of 15%.

“As expected, our decision to invest in growth has come with short-term implications for EBITDA, but positions us well for FY19…” said Harrison.

Revenue fell dropped to £1.71bn from £1.79bn a year ago, reflecting the decision to reduce its activity in the low-margin carrier business and a decline in off-net revenues.

The group added 190,000 customers in the year, including 109,000 in the fourth quarter, while its churn rate fell to record low of 1.22% from 1.45%.

The company expects a return to revenue growth this year as it targets net add growth of more than 150,000 customers.

The total dividend was cut to 4p from 10.29p.

TalkTalk COO to led fibre JV with BT veteran

Separately, the company announced that its joint venture with Infracapital would be led by Charles Bligh, who will step down as group chief operating officer.

BT Group plc (LON.BT.A) veteran, Paul Reynolds, has been appointed as chairman. 

READ: TalkTalk in price war with Vodafone and BT Group, analysts warn

BT is also planning to build its own fibre network through its Openreach division while Vodafone and CityFibre have joined forces to do the same. 

Quick facts: Talktalk Telecom Group PLC

Price: 104.7 GBX

AIM:TALK
Market: AIM
Market Cap: £11.97 m
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