Talktalk Telecom Group PLC (LON:TALK) expects to see a “significant” jump in annual profits this year, but its drive to attract new customers and changes in how it books revenues will put a £15mln dent in its earnings.
With three months remaining in its financial year, the phone and internet provider has almost hit its target of adding a net 150,000 broadband customers, while the number of people using its fibre broadband has surged by 338,000.
READ: TalkTalk to move HQ
As a result, TalkTalk, which now boasts a customer base of almost 4.3mln, expects underlying profits to surge to between £245-250mln this year, up from £197mln in 2018.
But that is below the £259mln City analysts had been looking for, after the company confirmed that a new accounting standard and higher costs associated with attracting more customers – such as the initial installation of the infrastructure – will dent profits by between £10-15mln.
“The underlying business is on track,” said chief executive Tristia Harrison. “The change to earnings guidance is due to IFRS 15 timing adjustments and investment in growth.”
She added: “Year-on-year, we have increased revenue by growing the base and stabilising ARPU, which combined with lower costs is driving improved earnings.
“Our significant customer momentum, combined with the benefits of our reorganisation and HQ move, gives us confidence in strong earnings growth for FY20.”
In the three months ended 31 December, TalkTalk’s customer base grew by 44,000 (Q3 17: +37,000), while revenue rose 2.9% to £386mln (Q3 17: £375mln). Average revenue per user fell to £24.70 from £25.18 a year earlier.
TalkTalk shares dropped 9% at the opening bell to 101.8p, wiping almost £100mln from the market value of the company.