TalkTalk cuts dividend and earnings outlook, raises funds for fibre project

TalkTalk shares tumbled after the telecoms group cut its dividend, reduced earnings guidance and asked shareholders for £200m to strengthen its balance sheet and invest in full-fibre broadband.

The FTSE 250 telecoms group said it would cut the annual dividend “temporarily” to 2.5p a share after previously steering investors towards a 7.5p payout. TalkTalk also reduced its guidance for 2018 earnings to £230-245m. In November it said earnings would be at the lower end of a £270-300m range published in May.

This is the second time in less than a year that TalkTalk has reduced its guidance for the dividend. The company, whose financial year ends in March, paid out 10.29p a share last year but "reset" its target to 7.5p in May 2017.

The company said it was raising £200m from shareholders to strengthen its finances and fund a drive to connect more than 3m homes and businesses to full-fibre broadband. The company has agreed with Infracapital, M&G Prudential’s infrastructure arm, to form an independent company for the initiative with TalkTalk contributing up to £100m, or a fifth of the equity.

TalkTalk’s shares fell 12% to 106p at 08:07 GMT, down by more than half since 1 November as concerns have built about the strength of its balance sheet and the viability of the dividend. Several brokers have warned that the dividend is under threat because of pressure on earnings and the balance sheet.

The company has been beset by problems in recent years, including a security breach that allowed the theft of data for about 150,000 customers. Former chief executive Dido Harding left in May 2017 and Charles Dunstone, the founder of former parent Carphone Warehouse, became executive chairman.

Dunstone pointed to rising customer numbers and lower customer turnover as signs that the business was getting back on track. TalkTalk added 37,000 net customers in the third quarter.

He said: "It's 12 months since I announced my intention to take a more active role in the management of TalkTalk. Since then, we have reset the business and returned it to quarter-on-quarter customer growth.

“We see real opportunity to continue growing the core business whilst also investing in full fibre. We have therefore strengthened our balance sheet and temporarily reduced our dividend to take full advantage of the opportunities available.”