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TeamTalk posts full-year loss on Farmside charge that threatened covenants

TeamTalk [NZX: TTK], the listed telecommunications company, posted a full-year loss after writing down goodwill on its Farmside rural unit, a charge that required the cooperation of its lender to avoid a covenant breach.

The loss was $8.3 million in the year ended June 30, from a profit of $3.6 million a year earlier, the Wellington-based company said in a statement. Sales jumped 31 percent to $60.3 million. Excluding the impairment and tax, earnings fell to $3.8 million from $5.4 million as expenses rose.

TeamTalk acquired Farmside Group to extend its rural reach, adding to businesses including its CityLink fibre-optic broadband service. But costs to integrate Farmside eroded earnings in 2013 and in today's announcement the company said it "under-estimated the difficulty in building a strong, experienced management team in what is a very dynamic market" and faced a challenge from the government's rural broadband initiative.

The impairment charge would have triggered a breach of the company's banking covenants as at June 30 but TeamTalk said it kept Westpac Banking Corp informed and the bank agreed not to include the charge in its earnings calculation for compliance. Still, the impairment did mean TeamTalk had to present its $34.6 million bank loan as a current liability.

Across the company's other businesses, mobile radio earnings before interest and tax fell to about $1.5 million from $1.67 million, while broadband Ebit rose to $5.97 million from $5.3 million.

The company will pay a dividend of 7.5 cents, making 17.5 cents for the year. The shares fell 4.1 percent to $1.63 and have dropped 23 percent this year.


Comments and questions

Same route taken by TTK. Following on the footsteps of CAV. Just wait till they blow out debt further, and then go through 2 - 3 years of no dividend but debt reduction focus. More pain and suffering to come..

NTA crushed to 6 cents a share, at least CAV's NTA is $1.19 more than their share price. Same can't be said for TTK. Very little to keep this company afloat if earnings fall even that weee bit more.

Add in management's determination to pay 15C dividend each year thats 4.25 Million in cash out from operations. Not exactly leaving much for debt repayment when earnings is only around 3 - 4 million