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LONDON (Alliance News) - TalkTalk Telecom Group PLC Thursday upgraded its compound annual revenue growth target through the financial year 2017, and expects to grow revenue by at least 5% per year beyond 2017, as it posted a rise in pretax profit for its recently ended financial year.
For the year to end-March, TalkTalk posted a pretax profit of GBP32 million, up from GBP31 million a year before, as a rise in revenue to GBP1.80 billion from GBP1.72 billion offset exceptional costs of GBP63 million.
These exceptional costs included costs for its restructuring programme, as well as costs related to the migrating, reorganising and integrating customer bases acquired from Virgin Media PLC and Tesco PLC and the acquisition of Tesco's video streaming service blinkbox. The costs also included the sale of its base of broadband customers whose connection is provided via BT Group PLC's wholesale business to Daisy Group PLC, and costs related to the migration of mobile customers to a new 4G mobile virtual network operator deal agreed with Telefonica SA.
TalkTalk attributed its revenue growth to strong take-up of fibre, mobile and television, with what it calls 'revenue generating units' up 16% over the year, and price changes, which were partly offset by lower voice usage and promotional investment.
The company has raised its target to a 5% compound annual growth rate in revenue through to 2017, and expects to maintain this growth rate beyond 2017, increased from its previous target of 4%. It said it is on track to meet its targeted 25% earnings before interest, tax, depreciation and amortisation margin by the financial year 2017.
TalkTalk said it is making good progress on groundworks for its fibre-to-the-premise network in York, part of a joint venture with Sky PLC and CityFibre Infrastructure Holdings PLC. TalkTalk said it was on target to begin connecting customers in the Autumn.
The company is looking to sure up its position as a quad-play provider, meaning that customers can take broadband, fixed-line, mobile and television services from them. Its phone and broadband customer base rose 6%, its television customer base rose 54%, mobile rose 63% and fibre more than doubled. The integration of blinkbox is now substantially complete, and the company now expects to accelerate the development of its TV to Go application, and expand the range of its pay per view content.
It expects demand for high speed superfast broadband to continue, but cautioned that it does not expect particularly strong growth unless or until the wholesale price of fibre to the cabinet comes down.
TalkTalk is cutting costs under what it calls the 'Making TalkTalk Simpler' plan, and said it achieved cost savings of GBP17 million during the year, around GBP15 million lower than it had planned.
The company said whilst it was pleased with the progress it had made in improving customer experience and churn, there is "much more to do." As a result, it now plans to deliver cost savings greater than the GBP30 million to GBP50 million it had originally targeted, now expecting an incremental GBP40 million or more in savings over the next two years, with total savings by financial 2017 of over GBP70 million.
TalkTalk proposed a final dividend of 9.2 pence, taking its total dividend for the year to 13.8p, up from 12.0p a year before. It said it plans to grow its dividend in the current year by 15%.
"We have delivered on our revenue growth guidance as planned, and have exited the year with our strongest ever quarterly revenue growth of 6%, and our lowest ever level of churn. British consumers and businesses increasingly appreciate TalkTalk's value for money products, and we are focused on improving our customers' experience still further and growing our already flourishing quad play business," said Chief Executive Officer Dido Harding in a statement.
Nomura reiterated its Reduce rating for TalkTalk, saying it expects earnings downgrades for the company in the financial year 2016. Nomura analyst James Britton noted that there was no specific margin target, which it has previously provided.
Shares in TalkTalk are trading up 3.0% at 374.10 pence Thursday afternoon.
By Hana Stewart-Smith; hanassmith@alliancenews.com; @HanaSSAllNews
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