TalkTalk to cut dividend further as returning Dunstone checks in

After reporting full year adjusted operating profits short of expectations, TalkTalk's returned founder Charles Dunstone said he would cut the dividend in the current year as he focused on "growth, cash generation and profit - in that order".

New price plans and falling customer churn underpinned his confidence in driving growth in the customer base, he said, though profits were likely to fall this coming year too.

For the year ending 31 March, total revenues of £1.78bn were down 3% on the previous year, with headline earnings before interest, tax, depreciation and amortisation growing 17% to £304m.

The consensus forecast was for revenue of £1.8bn and EBITDA of £311m, with company guidance that EBITDA to be towards the lower end of the £320-360m range.

Statutory profit before tax of £70m was well up from the prior year's £14m, with statutory earnings per share up to 6.1p from 0.2p.

A final dividend of 5p took the total 2017 dividend to 10.29p, down 35% from the previous year's 15.87p.

In the current year, the dividend will be 'reset', or cut 27%, to 7.5p, with growth expected to resume once the business returns to earnings growth and leverage has reduced towards 2.0x.

Executive chairman Dunstone, who too back the reins from Dido Harding of the company he spun off from his Carphone Warehouse Group in 2010, said he was enjoying having a more 'hands on role' and was "very excited about the progress already made and the prospects for the business".

He added: "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."

The customer base returned to growth in the fourth quarter, with positive net additions in retail and wholesale, churn reduced to 1.40% from 1.64% in the third quarter.

Entering the new year, more than 1m customers are now on new plans with 59% of on-net retail base in contract.

Dunstone set out his priorities for the 2018 financial year as being: to sustain the momentum built during fourth quarter; to deliver growth in the on-net base and on-net revenues; sustain strong growth in TalkTalk Business; continue fixed network investment; focus on customer service improvements and operational efficiency; improve headline cash flow; and reduce net debt.

Shares in TalkTalk tanked more than 12% on Wednesday morning towards 12-month lows, falling at one point to just above low 151p before easing back to 166p by midday.

Analyst Michael Hewson at CMC Markets said the dividend yield of 8.5% "was always going to be vulnerable, particularly when dividend cover is significantly under covered" but felt after the cut in the dividend the payout still remains "fairly respectable" at around 4%.

"Sometimes it pays to take a couple of steps back to move a business forward and in cutting the dividend, and reducing costs and debt the new management appears to be putting in place the conditions to place the company on a more solid foundation. A case of short term pain for long term gain."

But Hewson acknowledged the company remained one of the most complained about in the telecoms sector and in terms of its broadband and TV packages was still playing catch-up with rivals BT and Virgin Media.