The City can wait. First, Kingston must recapture the hearts and minds of Hull

Clayton Hirst reports on the fallen local hero that is beset by shareholder anger and takeover talk as it tries to bounce back
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The Independent Online

The letters page of a local newspaper probably isn't the first place you'd turn to gauge how a company is viewed by its shareholders. But in the case of Kingston Communications, the Hull Daily Mail is a rich source of information.

The telecoms company, spun out of Hull City Council, has 44,000 individual shareholders in East Yorkshire. And the views of these investors - some of whom put their life savings into the firm - are never far from the Hull Daily Mail.

"Is it now time for the management to consider paying some dividends to their long-suffering shareholders? I personally think it is long overdue," said L Buck of Fairfax Avenue in a recent edition of the paper.

Another letter, from J Coats of Canterbury Drive, even discussed the merits of Kingston's accounting techniques. "Try telling your bank manager that you're doing really well, if it wasn't for his interest charge. He'd laugh at you ... Kingston Communications should be sold. Even at the current share value I could at least expect some return."

Four years ago, when Kingston was floated on the Stock Exchange, it was very different. After all, it was the sole network operator for households in Hull and was winning orders to provide telecoms for corporate clients. Hull's paper was full of tales of optimism as people scrambled to invest in what they thought would be a cash cow. "Investors have drained local building societies and banks in the rush to claim a stake," said the paper at the time of the float. Riding the boom in tech stocks, Kingston even entered the FTSE 100.

But then it all went wrong.

While Kingston's customers in Hull stayed loyal, business orders dried up during the economic downturn and the stock market fell out of love with it. The company stopped paying dividends to shareholders and its former chief executive, Steve Maine, left abruptly last year amid talk of a boardroom rift.

The man charged with attempting to return some glory to Kingston and make money for the folk of East Yorkshire is Malcolm Fallen. Promoted from finance director, he has already performed surgery on the company by selling off its satellite business. Now, he believes that Kingston is in the right shape to start growing again and is keen to silence the talk that he wants to find a buyer.

"Kingston is not for sale and nor are the various parts of the business. In the UK, there is £12bn to £15bn of expenditure on corporate telecoms each year. We have a very small share of that, but we can grow it."

Mr Fallen admits that this will be hard "against a backdrop of falling telecoms prices". But instead of battling it out with the likes of BT and Cable & Wireless for corporate customers, Mr Fallen is rewriting Kingston's business plan so that it looks after its customers' equipment as well as offering telecoms connections. "We will manage everything," he says. "The telecoms industry is good at pushing technology. But it is not strong at account management and service support."

In May, Kingston reported its first operating profit: £1.4m on revenues of £293.6m. Mr Fallen believes it will take at least 18 months before the company is fully reshaped with its services focus. "It is a cultural thing as much as anything," he says.

Some in the City think Kingston is running out of time to prove it can survive under its own steam. One view is that Hull City Council, which owns 41.4 per cent, would be willing to sell out if it was offered a decent premium to the current market value of £246m. The company, it is believed, would make good prey for a larger UK telecoms company.

Mr Fallen says: "The telecoms industry benefits from scale. It has high operating costs and we all have salesman knocking on the same doors. A combined solution in the industry is probably the right thing, but I don't know what the catalyst would be. If someone puts something on the table, I will look at it."

Of greater importance to Mr Fallen, though, is getting to a point where the company can resume paying its shareholders a dividend. "The issue for the board is to drive profitability so we can make a distribution."

Perhaps then the letters page of the Hull Daily Mail will be a little kinder to Kingston.

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