Dividend will keep on rising, pledges KCom

The Hull-based group, which operates domestic telecoms services in East Yorkshire through its KC arm, and serves big businesses and organisations through its Kcom division, hiked its dividend almost 21 per cent and said it will continue to rise.

Despite pressure on businesses, households and local authorities to cut spending, KCom said it plans to continue investing in growth, including £25m of capital investment this year. It hopes to continue winning recurring revenues, to drive “long-term sustainable growth”.

“We are pleased to report half year results showing continued progress across the group,” said executive chairman Bill Halbert. “Strong growth in earnings and resultant conversion into cash emphasises the robust foundation on which the group is building its growth strategy.

“Additional multi-year contract wins, including being the preferred bidder on a further public services network (PSN) contract, have strengthened further the contract backlog for future years, underpinning our ability to achieve our objective of sustainable growth.”

Pre-tax profits surged 22.7 per cent to £27m during the six months to the end of September compared with a year earlier. The group reported a 1.6 per cent increase in revenues to £198m.

KCom stuck to its promise of dividend increases of at least 10 per cent this year and next, hiking its interim payout by 20.9 per cent to 1.33p per share.

Its cash generation, hailed by analysts as “bumper”, increased 66.5 per cent to £35.3m. This helped the group further slash net debt to £75.1m from £111.8m a year earlier. Net debt has fallen by more than £100m since September 2008, when it stood at £180.2m – a figure which helped prompt a deep strategic review, cost-cutting and hundreds of job losses.

KCom said it won contracts across the public and private sectors during the half. It won and extended deals with firms including Bradford-based supermarket chain Morrisons, British Airways, Domino’s Pizza and RBS WorldPay.

The group has also been growing its PSN capability to link public services ranging from councils, fire services, police forces and health trusts via shared networks. These shared private internets digitally linking thousands of public sector workers, aim to replace the current system of individual IT networks, cutting duplicate infrastructure and reducing buying costs.

KCom believes 30 to 70 regional PSNs could be required over the next three years, forming a rare pocket of buoyant public sector spending.

The group said it has been appointed preferred bidder on an East Midlands PSN, and is also preferred bidder for a contract with Calderdale Metropolitan Council to provide voice, data and mobile phone services.

These deals helped its Kcom business services arm grow turnover by 2.5 per cent to £137.7m and increase underlying earnings by 6.3 per cent to £13.4m.

Its KC division, formerly known as Kingston Communications, grew turnover one per cent to £63.1m, but underlying profits fell 1.3 per cent to £30.3m, hit by plunging sales in its Colour Pages directory business.

Mr Halbert is due to stand down from the dual executive chairman role at next year’s annual shareholder meeting, usually held in July, when his job will be split, but there was no detail on succession plans.

The company was unavailable for further comment.

Shares in KCom shed 0.95p to close at 73.25p, a 1.3 per cent fall.

Analyst Mark James at Liberum Capital said the company is undervalued. “KCom had another bumper period for cash generation, with free cash flow virtually doubling year-on-year to £21m,” he said.

“Deleveraging continues apace and the company has raised its interim dividend 21 per cent.

“There may be some disappointment with the revenue trajectory (the move away from low/no margin business has accelerated) but profits and cash generation are still strong.”

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