Profits at KCom up by 71pc as contracts come in

The Hull-based company has won new business with Bradford-based supermarket chain Morrisons, pizza takeaway firm Domino’s, law firm Eversheds and the NHS Business Services Authority.

KCom said pre-tax profits for the year to March 31 rose to £32.9m from £19.2m a year ago.

Revenues fell four per cent to £395.4m after the company, which also counts British Airways and Reckitt Benckiser among its customers, withdrew from low-margin commodity-based operations.

KCom increased its full-year dividend to 3.6p from last year’s 1.75p.

The company’s shares, which have gained 30 per cent in the last six months, closed up nine per cent, a rise of 6p to 71.75p.

Executive Chairman Bill Halbert said: “Our results are ahead of expectations, with strong cash generation and a further strengthening of the balance sheet.

“Recent contract wins show the group is beginning to deliver on its return to growth strategy. They underline our growing reputation and recognition in our chosen markets and we are excited about the group’s future opportunities.”

He added that the full year dividend of 3.6p was more than double that of the previous year.

“We are pleased to reiterate our earlier commitment to 10 per cent dividend growth over the next two years, reflecting the board’s confidence in future performance,” he said.

As well as contract wins within the private sector, Kcom won the Staffordshire PSN contract and has been selected as preferred bidder for the Dorset PSN.

Mr Halbert said this positioned KCom as a market leader in this area.

Speaking about future trading, Mr Halbert said the board expected the group to continue trading in line with expectations in the financial year ahead.

“Key growth drivers for Kcom include further PSN contracts and opportunities to manage critical communications services for leading private companies that require a trusted partner,” said Mr Halbert.

Net debt was reduced from £116.8m to £82.0m, which the group said was due to the strong performance throughout the year, and out-performance in the final quarter of the year.

The year-end debt position also benefited from a lower level of capital spending than anticipated. Spending fell from £17.6m to £13.9m due to the timing of a number of capital projects.

The group’s KC and Eclipse services, which provide telecoms to domestic and small business customers, reported a 0.5 per cent decline in revenues to £122.9m after growth in KC was offset by revenue reduction in Eclipse and KC Colour Pages.

Earnings increased by one per cent to £57.9m following a reduction in operating costs.

The group said that growth within KC reflected increasing demand for higher bandwidth from business customers.

In consumer services, the upsell to higher value KC packages resulted in higher average revenues per customer.

Mr Halbert said he was pleased with the level of demand for bundled packages, which were launched in November.

Progress has also been made on the expansion into selected neighbouring towns and villages, which offset a reduction in customer numbers and the continuing decline of traditional call revenues.

The decline in Eclipse reflected the anticipated churn of lower end consumer contracts. The proportion of revenue from business customers has increased as a result of the focus on the SME market.

The Kcom arm, which serves medium to large businesses and organisations, and the Smart421 technology business division saw a 4.8 per cent fall in revenues to £276.9m, reflecting the exit from low margin services, specifically maintenance contracts.

Earnings rose by 13.6 per cent to £25.8m reflecting a reduction in operating costs.

Within the Kcom business, revenues from the key target markets of managed and connect services grew in the second half.

Mr Halbert said Kcom continued to secure new and renewed contracts across both enterprise and the public sector.

Within the enterprise area, new contracts have been signed with Domino’s and Eversheds.

Renewals and extensions to contracts include Phones4U, Admiral Group and Morrisons.

Smart421 delivered strong revenue growth of 42 per cent to £23.0m.