The pain is over as KCom aims for growth

After two years of painful restructuring, the Hull-based group said its transformation is beginning to take shape, and announced a return to profitability.

KCom also revealed the latest in a string of significant deals, signing a three-year contract with telecoms rival Daisy Group to provide it with call handling services.

"These are financial results that are sustainable," said executive chairman Bill Halbert. "The business fundamentals have been significantly strengthened."

On almost all measures, KCom reported improving trends and beat expectations. It reported pre-tax profits up to 19.1m in the year to the end of March, compared with a 111.3m loss a year earlier.

Earnings before interest, tax, depreciation and amortisation (EBITDA) – the City's preferred measure – surged 7.2 per cent to 69.8m.

As expected, revenue was down 12.6 per cent to 412.8m as KCom shed low margin contracts. Net debt was down to 116.8m from 157.9m a year earlier.

The group set out ambitions for both its KCom arm, which serves big businesses and organisations, and Kingston Communications (KC), its East Yorkshire-based phone and internet arm.

In East Yorkshire, it is exploring plans to expand KC's coverage by up to 25 miles beyond its Hull heartland.

This could see the group offer internet and phone services as far north as Bridlington and as far west as Selby, by physically adding to its network, or sharing BT's exchanges.

In those areas, where its market share falls away to about 30 per cent, its believes there could be another 30-50,000 potential customers. "There's significant opportunity to grow market share," said Mr Halbert.

However, it has no plans to expand further afield to Leeds, York and Doncaster, where its brand is less well known.

KC is also ploughing 2.8m investment into its KC broadband network, which should increase speeds for most customers to 2megabits per second, and 10mbps for 60 per cent of these.

"You're looking at achieving digital Britain standards with our

existing copper network," added Mr Halbert.

The KC division reported a 3.5 per cent fall in revenue to 123.5m,

with a one per cent fall in EBITDA to 57.3m.

The group's KCom arm saw a 15.8 per cent fall in revenue to 291m as it quit lower margin business such as product reselling and began outsourcing network maintenance. However, EBITDA was up 60 per cent to 22.7m.

Mr Halbert said the division's increased capability will help it grow, thanks to deals such as a tie-up announced with BT a year ago.

The group currently has about five per cent of sales of managed services to the small and medium-sized enterprise market.

"We want to take that, over the next three to five years, to something like 25 per cent," said Mr Halbert.

He added the current government cost-cutting drive will have minimal impact, as the group works mainly with local authorities rather than central government departments.

He believes councils could even turn to KCom to help save costs.

Move to shut final salary schemes

KCom has joined the growing legion of companies aiming to save costs by closing final salary pension schemes.

Big pension scheme deficits, which are treated like debt on balance sheets, have become a major headache for firms, who face the mounting costs of an ageing workforce.

While KCom's net pension liabilities fell to 50.4m from 61m during the year as assets increased, executive chairman Bill Halbert said he expects the deficit to grow.

KCom said it is in talks to close its two defined benefit pension schemes to future accrual, while breaking the link to final salary.

It also plans to pay the scheme 21m over the next three years, to reduce the deficit.

"Businesses with defined benefit schemes are facing increasing difficulties," said Mr Halbert.

"The plan is to introduce a unified single defined contribution scheme."

Analysts at Investec said: "This will be a major step in de-risking the business, it is clear to us that management is making clear progress tackling its deficit."