Auditor Warns UK ISP TalkTalk Over Unusual Accounting Practices
Deloitte has reportedly highlighted a series of “unusual accounting practices” (Telegraph journalist’s quote) in broadband ISP TalkTalk’s as yet unpublished annual report, which the auditors suggest could – in a reasonable worst case scenario – only enable them to meet the covenants on theirs debt by excluding more “exceptional items” from everyday costs.
The budget internet provider is currently still under pressure from a hefty debt mountain of around £1.1bn and seems to have struggled to reduce customer churn since being taken private as part of the 2020 takeover by Toscafund – the organisation controlled by hedge fund tycoon Martin Hughes (here).
According to The Telegraph (paywall), which has seen the operator’s latest annual report, lenders typically restrict corporate borrowers’ debt to a multiple of their underlying profitability, thus reclassifying more costs as exceptional can keep them within the limits (exception items could be things like acquiring and retaining customers).
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TalkTalk is still said to be presenting its accounts on a going concern basis (i.e. meaning a business that is operating and making a profit), which Deloitte fears could – in the future – be at risk. The auditor highlighted a “high level of estimation” in how revenues were recognised, and “a high level of management judgement” in the decision to account for the £31m costs of switching customers from copper to fibre broadband as exceptional.
The rules around TalkTalk’s debts will become more restrictive next year, which might increase the risk of the operator breaching its covenants and possibly even inviting insolvency procedures. The provider has not commented on the Telegraph’s report, but Virgin Media (VMO2) are separately known to be discussing the prospect of a £3bn deal to acquire TalkTalk (here).
We haven’t had a solid update on the VMO2 and TalkTalk proposal since mid-July 2022, but the newspaper claims that VMO2 are currently carrying out due diligence on the proposed deal. Such an acquisition would be one way to tackle the provider’s debts and, in theory, a deal could be reached as soon as October 2022.
UPDATE:
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While we don’t have TalkTalk’s latest annual report (assuming that is what the Telegraph meant), we do note that TalkTalk’s last accounts – as published in July 2022 – can be downloaded here.
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on X (Twitter), Mastodon, Facebook and Linkedin.
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they’ll be in even more debt when i don’t renew my contract this autumn . thieves
I’m sure they’ll miss your £30 a month!
TalkTalk are being out competed by Vodafone in the budget ISP sector.
Both as bad as each other, customer service for both companies are pathetic.
The profit margin can’t be that great on penny pincher ISP’s.
TalkTalk have always fiddled their books. Exceptional items go back years and years and years. A joke really that switching costs (£31m!) costs is classified as “exceptional”. No other ISP would try this let alone get away with it.
This comes as no surprise toe as I have since December 2021 and to date have had three routers as they all went down. And then down time of no Internet service my DD was still taken from my account. After providing a video of the router being out of service. And via buying a new router to prove my thourts. And 9 months later after fighting for my compensation and the fact being charged for a replacement router. I finally got my money back.
I’ve been without Internet for 13 days and they always tell you that they take care of customer service and that they will help you with everything, but the technical service is lousy and they don’t give a shit if people need this service to work or study, but yes, very punctual in the automatic debit each month.
If an Internet provider does go under, like with some of uk Energy providers. What happens to their customers? Dose Ofcom move them over to a different provider?
And with energy costs going up for uk businesses, imagine even Internet service providers will find it hard to pay their Energy bills?
And so we may see more struggling next year.