TeamTalk’s turnaround makes strong progress, profit after tax up 18 percent on the same period last year

TeamTalk Limited (NZX: TTK) is pleased to announce a return to profitability for the six months ended 31 December 2016. Profit after tax was $1.349m, up from $1.148m for the same six-month period last year and following a loss of $1.310m for the full year ended 30 June 2016.

TeamTalk chairman Roger Sowry said, “The return to profitability is a direct result of the focus and determination of the board, the new chief executive and senior management to turnaround the company and its financial performance. These results demonstrate that TeamTalk’s executive team is successfully delivering on our new strategic business plan to increase revenue, reduce costs and capital expenditure, refocus the company and realise TeamTalk’s inherent potential.

“There are further material initiatives underway, that will continue to deliver sustainable growth and increase profitability, which are expected to yield even better results over the next 6-18 months and beyond.”

Compared with the corresponding period last year, profit after tax and earnings per share increased 18%.

Highlights of the company’s performance for the six months ended 31 December 2016, against the same period last year were:

• Net cash flow from the group’s operations increased 27.7% to $5.36m from $4.20m;
• Net debt for the group was down from $35.47m to $33.89m;
• Inventory was down 49% to $1.39m from $2.70m;
• CityLink broadband revenue increased 7% to $7.38m, up from $6.89m, with EBIT up 14.5% at $2.87m up from $2.50m;
• TeamTalk Wireless, the national mobile radio network, increased revenue by 4% to $10.6m from $10.2m, and EBIT was up by 13.4% to $0.93m from $0.82m; and
• More recently and as announced on 28 February 2017, TeamTalk has agreed the essential terms of a new 3-year banking facility to March 2020 with Westpac New Zealand Limited.

TeamTalk’s chief executive Andrew Miller said, “Farmside has adversely impacted on the company’s results since its acquisition and we are addressing this issue head-on. Work began late last year to restructure Farmside which is expected to result in 2H costs being 22% less than 1H. Operating costs at Farmside are then expected to be significantly lower in 2018 versus 2017.

“These savings together with the enhanced performance of our mobile radio and broadband network, as well as an expected reduction and deferral of major capital expenditure for the CityLink network in Wellington, mean the company is well-positioned to deliver significantly stronger cash flows for shareholders in 2017 and beyond.”

Outlook and guidance

TeamTalk is providing guidance for the 12 months to 30 June 2017 in the range of:

• EBIT of $4.7 million to $5.2 million;
• Profit after tax of $2.0 million to $2.4 million.

Andrew Miller said, “We are targeting EBIT for the 12 months to 30 June 2018 to be in the region of $8.0 million to $9.5 million and profit after tax to be in the region of $4.1 million to $5.6 million.  Cost reduction will be a key part of this, with $2.1 million of cost savings anticipated at Farmside alone.”

Debt reduction is targeted at 33% from 30 June 2016 to 30 June 2018, with net debt at 30 June 2017 to be around $31 million.

TeamTalk will consider a resumption of dividends in 2018.

Spark offer

Roger Sowry said, “This result, with the turnaround plan starting to deliver results with profit after tax up 18%, confirms the Board’s view that Spark’s opportunistic, hostile and highly conditional proposal at $0.80c per share undervalues the company and does not represent fair value to our shareholders.

The Spark approaches and proposals, initially at $0.60c and then at $0.80c, were both unanimously rejected by the TeamTalk directors prior to the hostile takeover offer notice being announced by Spark on 7 February 2017.

It is evident that Spark is attempting to capture the upside benefits of the new TeamTalk business plan for Spark’s shareholders, ahead of it being fully implemented and reflected into TeamTalk’s share price. Spark will also have the opportunity to capture significant synergy benefits if it were to acquire TeamTalk. Accordingly, the Spark notice of offer is viewed by TeamTalk as being very opportunistic.

We reaffirm our earlier recommendation that shareholders do not sell their shares or enter any commitment to accept an offer from Spark if it proceeds on the basis notified to the market pending further communication from the TeamTalk board.”

Ends