TalkTalk cyber attack will cost company up to £35m

TalkTalk faces a bill of up to £35m to deal with the cyber attack that has plunged it into crisis and put its finances under increased pressure.

The broadband operator said it will know more about the financial impact of the security breach at the end of the financial year, as it reported interim results that gave investors some reassurance over the state of the business.

In the face of strong criticism from some City observers over the condition of its balance sheet and calls to suspend its dividend, TalkTalk increased the interim pay-out by 15pc.

Dido Harding, the company’s chief executive, said: “We are absolutely comfortable that we can afford it. The board is absolutely comfortable with our net debt.”

Net debt increased by £42m in the first six months. TalkTalk also surprised investors by revealing its executive share plan raised around £60m in summer by selling around 20 million shares, a move that diluted their equity but helped effectively cover the dividend.

TalkTalk shares recovered 12pc following the update, which did not include any impact on trading from the cyber attack last month.

The personal details of 157,000 customers were exposed in the hacking breach, prompting the company to shut down online sales for three weeks. The company’s stock market value remains down nearly 20pc since the attack was disclosed.

Hackers struck TalkTalk at a time when it was already under commercial attack from discounting by BT and Sky. In the six months to the end of September, TalkTalk lost 80,000 customers.

It attributed most of the drop to tightening bad debt, which meant customers were cut off after a 90 day grace period, rather 180 days. TalkTalk had been uniquely generous with its grace period within the broadband industry.

Underlying profits sank by 28pc year-on-year to £73m as the costs of a major IT overhaul rose. It meant TalkTalk’s cash profit margin dipped below 10pc.

At the pre-tax level, TalkTalk swung from a profit of £20m last year to a loss of £8m.

The company said it was confident there will be “a significant step-up in profits” in the second half of the year, but Baroness Harding declined to comment on whether it would maintain its cash profit margin target for next financial year of 25pc.

She said it was too early to judge whether the costs of the cyber attack would make the threshold impossible to meet, feeding longstanding analyst scepticism over whether it is realistic. TalkTalk faces BAE and PwC consultancy fees, increased customer retention costs and the impact of suspending online sales.

Despite shedding broadband customers and a sharp slowdown in new subscribers to its TV service in the first half, TalkTalk reported a 4.7pc rise in sales to £912m. The increase was driven by a combination of price rises, nearly 100,000 customers upgrading to fibre broadband and growth in the operator’s mobile business.

TalkTalk will next month attempt to shore up its customer base in the wake of the cyber attack by offering what it described as free upgrades. All customers will be offered either extra TV content, a mobile SIM card with some calls and texts included, free calls from their landline or a visit from a broadband engineer to check their line.

Alongside its half-year report, TalkTalk announced that Roger Taylor, the deputy chairman of Dixons Carphone, has joined its board.