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TalkTalk squeezes suppliers as cash crunch looms

TalkTalk
TalkTalk

TalkTalk has warned there are doubts over its future survival as the struggling broadband provider squeezes suppliers in the shadow of a looming cash crunch.

Bosses have warned there is “material uncertainty” ahead of a crucial debt refinancing that “may cast significant doubt” over its ability to continue.

TalkTalk is in the process of breaking up and selling off parts of its business as it grapples with a £1.1bn debt pile.

The recent rise in interest rates mean the company is bracing for a sharp increase in its borrowing costs when it refinances these debts early next year.

The company warned that if it has not secured refinancing by August 2024 it will be at risk of breaching its debt covenants.

TalkTalk burnt through a further £81m in the first half of the year, while its net debt stood at £973m excluding leases.

Finance costs also jumped almost 40pc to £65m from £47m in 2022 amid rising interest rates, according to company accounts seen by The Telegraph.

TalkTalk has extended its credit terms with some suppliers to as much as 300 days as it tries to shore up its cash reserves.

Suppliers subject to delayed payments include The&Partnership, the advertising agency founded by Johnny Hornby.

Mr Hornby, who also co-founded the Hawkstone beer brand with Jeremy Clarkson, has a long-running relationship with TalkTalk boss Sir Charles Dunstone after securing Carphone Warehouse as his first client.

TalkTalk and Mr Hornby said their extended credit terms had been in place for several years.

But other companies in the marketing sector are understood to be affected and industry sources said a number of suppliers had raised concerns about the delayed payments in recent weeks.

TalkTalk has also made use of supply chain financing, which allows suppliers to obtain earlier payments via the company’s bank. The total amount owed to suppliers stood at £590m at the end of August.

The cash crunch at TalkTalk, which was taken private by Toscafund in 2020, has forced bosses to pursue a break-up of the group.

In October, the company agreed to sell its business division to its own shareholders for £95m after it failed to find a third-party buyer.

TalkTalk is also understood to have received offers for a stake in its wholesale operations from infrastructure funds including Florida-based DigitalBridge.

The wholesale division is thought to be valued at around £1.5bn, meaning bosses could raise several hundred million pounds from the sale of a minority stake, which would be crucial for the looming refinancing.

However, analysts have cast doubts over the value of the division as its main revenue source comes from TalkTalk’s own retail business, which shed 100,000 customers in the first quarter alone.

James Ratzer, an analyst at New Street Research, said TalkTalk was facing a “binary outcome” from the sale.

He said: “If they can sell a stake in [the wholesale platform] then there’s a clear path to refinancing.

“But if bidders walk away it will come down to whether shareholders want to put money in.”

TalkTalk’s revenues edged up 3pc to £748m in the first half of the year as price rises offset customer losses, but losses more than tripled to £44m as inflation and rising interest rates pushed up costs.

A spokesman for TalkTalk declined to comment.