KCom is now 10 months into its two-year transformation programme, and there are already clear signs that the bold steps taken to get the business back on track are bearing fruit.
Although revenues slipped sharply, that was part of a conscious decision by management of its enterprise-focused business, Kcom, to exit low-margin commodity services like hardware distribution and break-and-fix maintenance. In aggregate, sales of these lines halved from £60m to £30m, but that meant profit margins at the division were higher. Group underlying cash profits rose 49 per cent to £10.7m, partly due to the changing business mix, but also as a result of cost savings resulting from the outsourcing of its network management to BT.
Chairman Bill Halbert also said the new arrangement with BT has improved Kcom's competitive position in tenders for enterprise managed network deals, noting that it had already resulted in a number of new contracts which could be "announced soon". He added that although potential customers were still cautious - particularly those dependent on a consumer recovery - they were beginning to spend on the kind of outsourcing services Kcom offers as a means of cutting costs.
Strong cash generation meant net debt fell by £10m to £146m in the period, and Cazenove expects it to fall by a similar amount in the second half. The broker forecasts full-year adjusted pre-tax profits of £30.9m and EPS of 3.56p.
KCOM (KCOM) | ||||
|---|---|---|---|---|
| ORD PRICE: | 45p | MARKET VALUE: | £230m | |
| TOUCH: | 45-46p | 12-MONTH HIGH: | 47p | LOW: 11p |
| DIVIDEND YIELD: | 3.4% | PE RATIO: | 49 | |
| NET ASSET VALUE: | 2p* | NET DEBT: | £146m | |
| Half-year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 244 | -103.0 | -19.7 | 0.50 |
| 2009 | 211 | 13.3 | 1.9 | 0.50 |
| % change | -13 | - | - | - |
Ex-div: 16 Dec Payment: 1 Feb *Includes intangible assets of £103m, or 20p a share | ||||
