KCom turns to freehold property rent to help plug pension hole

The agreement will please shareholders in the Hull-based company who were concerned that the group would have to pay more in pension payments, hitting the dividend payment.

The freehold property assets will provide £1m a year to cover the current pension deficit.

KCom is the latest in a number of companies to use its property in this way and follows ITV, John Lewis, Whitbread, Sainsbury’s and Marks & Spencer

Analyst Andrew Darley, at Finncap, said: “We believe the key to KCom’s current valuation is the dividend, for which the prospect of continuing growth had been overshadowed by the threat of enhanced pension payments.

“Today KCom has announced an asset-backed partnership which provides an efficient means of funding the current pension deficit, via transfer of freehold property assets for 15 years.

“No further ‘repair’ contributions will be due (this year), and the dividend is therefore presumed unhampered.”

KCom said it is working closely with the pension trustees on further funding options.

These include providing additional income streams. The group will provide an update on the scheme’s funding position and deficit repair plan at the preliminary results announcement in June.

In a trading update, KCom said its performance for the year to March 31 is in line with market expectations.

The company’s final results are due to be announced on June 11 and will include an update on the group’s future dividend policy.

KCom has been making progress amid tough markets, helped by rolling out super-fast fibre optic broadband internet.

It is rolling out a fibre optic network across its Hull and East Yorkshire heartland.

It reached 16,000 homes and businesses at the end of 2012 and it is in the process of extending the service to a further 30,000 properties.

This will mean 30 per cent of KC’s telecoms network is covered with fibre broadband by 2015.

Fibre optics offers much faster speeds than copper line broadband, although customers must pay a premium.

It caters for the increasing number of households watching internet TV, downloading music and films and generally using much bigger volumes of data.

KCom’s KC division – formerly Kingston Communications – made a “strong contribution” to its third quarter trading, spanning the October to December period.

KCom does not report quarterly profits, but said it has “positive momentum” across all brands.

Telecoms firms are currently battling stagnant spending by businesses.