Annual
Report
& Accounts
2004-05 Kingston Communications (HULL) PLC Annual Report 2004-05 Contents
1 A message from your Chairman
2 Chief Executive Officer’s overview
4 Group at a glance
6 Operating and financial review
11 Board of Directors
12 Corporate social responsibility
14 Corporate governance
18 Remuneration report
24 Directors’ report
25 Independent Auditors’ report to the members 
of Kingston Communications (HULL) PLC
26 Consolidated profit and loss account
27 Balance sheets
28 Consolidated cash flow statement 
Reconciliation of net cash flow to movement in net debt
29 Consolidated statement 
of total recognised gains and losses 
Reconciliation of movements 
in consolidated shareholders’ funds
30 Notes to the financial statements
43 Five year summary of consolidated figures
Operating data
44 Glossary of terms
Analysis of ordinary shareholders
Financial calendar
Secretary and Advisers
Year ended Year ended Change over
31 March 2005 31 March 2004 prior year
Summary £ million £ million %
Business results excluding discontinued 
operations and exceptional items
1
Turnover 364.3 294.7 23.6
EBITDA 62.9 50.7 24.0
Operating profit excluding amortisation 
of intangible fixed assets 25.9 3.9
Profit /(loss) before tax
2
8.6 (6.1)
Adjusted basic earnings per share (pence)
3
4.1 (1.2)
Reported results
4
Turnover 366.5 324.2 13.0
EBITDA 58.7 43.5 34.9
Operating profit/(loss) 12.6 (109.6)
Profit /(loss) before tax 7.0 (118.6)
Basic earnings/(loss) per share (pence) 3.0 (31.2)
Dividend per share (pence) 
5
0.9 nil
1
Includes continuing operations and acquisitions but excludes discontinued activities and exceptional items.
2
Profit before tax of £8.6 million represents operating profit excluding discontinued activities,
exceptional items less net interest payable and similar charges.
3
Adjusted basic earnings per share represents earnings per share before exceptional items, amortisation
of intangible fixed assets and deferred taxation.
4
Reported results include the results of discontinued operations and exceptional items.
5
Includes proposed final dividend of 0.54 pence and interim of 0.36 pence.
Operating profit, excluding
discontinued operations, exceptional
items and amortisation of intangible
fixed assets, of £25.9 million (2004:
£3.9 million)
Proposed final dividend of 0.54 pence
per share, resulting in a total dividend
of 0.9 pence per share (2004: Nil)
Group turnover excluding discontinued
activities up 23.6% to £364.3 million
(2004: £294.7 million)
Group EBITDA excluding exceptional
items and discontinued activities 
up 24.0% to £62.9 million (2004:
£50.7 million)
Integration of new businesses on track
with encouraging early sales wins from
our broader service portfolio
Disposal of the Group’s French
operations for €47 million (subject to
French Competition Authority approval)
focuses Group strategy on the UK
market and will improve the Group’s
net debt position
HIGHLIGHTS OF THE YEAR 1
A message from your Chairman
Dear Shareholder
Results
We began the year in a much improved position
with clear objectives to continue to strengthen the
Group’ s financial performance and to pay a dividend
to our shareholders. We have achieved these
objectives. Revenue from our continuing business,
excluding acquisitions, has increased and margins
have improved resulting in an increased operating
profit. This improvement in profitability has provided
the basis for both the payment of an interim dividend
and a proposed final dividend.
Strategy
In terms of strategic direction for the Group, 
we accelerated our positioning as a provider of
integrated, converged communications services 
in the UK through the acquisitions of Omnetica and
T echnica. The combined capabilities of the resulting
business-to-business operation have reduced 
our exposure to increasingly commoditised basic
telecommunications voice services and provided
us with access to higher quality recurring revenues.
At the same time, we have created an enviable
combined customer base with demonstrable
strengths in discrete market segments.
The acquisition of Eclipse Internet complements
our existing broadband capability and gives us 
the opportunity to increase our broadband service
portfolio and develop a customer base throughout
the UK.
These additions to our Group, combined with the
continued focus and capacity to meet the changing
communications needs of our customers, have
greatly enhanced our position over the year .
Board changes
During this year, we announced a number of 
Board changes.
In January we announced the appointment of
Executive Director Peter Halls and Non-Executive
Directors Johannes Huth and Clare Page. Peter Halls,
aged 54, is a director of the Group’ s business-to-
business operation, Affiniti. Peter was formerly CEO
of Omnetica and has over 25 years experience in
the IT industry . Johannes Huth, aged 44, is Head 
of European activities for one of the Group’ s major
shareholders, Kohlberg Kravis Roberts. Clare Page,
aged 34, has been a member of the Kingston upon
Hull City Council since May 2002 and was previously
a Non-Executive Director of the Company from
October 2002 until June 2003.
Maxwell Bird, a Non-Executive Director since June
2003, resigned from the Board in March. We thank
him for his contribution and wish him well.
Outlook
The Board is greatly encouraged by the
improvement in the Group’ s financial performance.
In light of this we are recommending payment of 
a final dividend of 0.54 pence per share, resulting
in a full year dividend of 0.9 pence per share. 
As outlined at the time of our interim results, our
future policy is to increase dividends in line with
underlying earnings before amortisation of
intangible assets.
The new financial year has begun in line with our
expectations as we start to see early benefits from
the initial stages of the integration of the business.
We look forward to delivering further improvement
in the Group’ s overall performance in the year ahead.
Michael Abrahams CBE DL
Chairman
“The Board is greatly encouraged 
by the improvement in the Group’s
financial performance.” Kingston Communications (HULL) PLC Annual Report 2004-05 Chief Executive Officer’ s overview
2
Q. How has the Group performed over 
the last year?
A. It has been a very successful – and very busy –
year , during which we have improved our financial
performance across all areas of the Group. We have
delivered growth in sales organically , improved our
margins and resumed paying dividends. We have
also accelerated our strategy of focusing on our
UK target markets and strengthened our ability to
deliver integrated, converged communications
services to our customers.
Q. Why did the Group acquire Eclipse,
Omnetica and T echnica?
A. The acquisition of Omnetica has given us access
to extensive, high quality enterprise data and IP
networking skills together with a very attractive
customer base. The skills and customers we have
gained through this acquisition complement our
existing customer base and traditional strengths 
in providing voice and carrier services. 
The acquisition of T echnica supports the Group’ s
existing capabilities in the growing UK storage
market, and will enhance and strengthen our
business-to-business service offering. 
The combination of new and existing skills within
the Group gives us a stronger position in the
evolving converged solutions market, broadening
our managed services proposition and improving
our ability to serve key vertical markets. At the same
time, we have significantly reduced our dependency
on basic voice services where there has been 
a continuous and substantial decline in prices.
The UK market for broadband internet continues
to grow. While our successful Karoo internet brand
serves our East Y orkshire market, the acquisition 
of Eclipse gives us the opportunity to grow our
broadband capability throughout the rest of the UK.
“During the year we have improved
our financial performance across all
areas of the Group.”
1. Malcolm Fallen, 
Chief Executive Officer
2. Our expansion into Lincolnshire 
is a natural extension of our successful
operation in East Yorkshire
1
2 3
Q. How does ‘Affiniti’ fit with the other
Kingston ‘brands’?
A. The Group has a portfolio of market-facing
identities such as Affiniti, Karoo, Eclipse, Hull Colour
Pages and, of course, Kingston Communications.
These are distinct identities that serve particular
target markets. 
Q. When will the acquisitions have a positive
effect on the share price?
A. The market responded positively to the news
about the acquisitions. It is now up to us to realise
and drive value from the benefits they present to
the Group. While the performance of the Group
obviously affects our share price, it is important 
to remember that there are factors outside of 
our control – such as the performance of other
companies in the sector and overall sentiment
towards our sector and the broader stock market –
that also have an impact on the share price. 
Q. Is the increasing level of debt bad news?
A. The increase in debt reflects the investment 
in the recent acquisitions. The sale of the French
operation after the year end will reduce net debt
and we are confident of further reductions as we
continue to generate cash from the business. 
Q. Will acquisitions be a part of the Group’s
future strategy?
A. We review all of our investment options based 
on their strategic fit with the Group and their ability
to deepen our service capabilities and deliver
profitable growth and shareholder value. Last year’ s
acquisitions were also undertaken to ensure that we
could meet the changing needs of our customers.
However , it is just as important that we continue to
grow our existing business organically and we will
do this by focusing on meeting the communications
needs of the discrete market segments that we have
identified. The organic growth we have experienced
during the last year reflects our success in winning
new customers and increasing the depth of services
sold to existing customers.
Q. Why has the Group decided to expand its
East Yorkshire operation to offer services to
businesses in North Lincolnshire?
A. Many of the businesses with which we have 
a long-established relationship in East Y orkshire also
have offices in North Lincolnshire. We have already
secured several contracts in the area and we are
confident that our service proposition and our
reputation for excellent customer service will mean
that many other businesses in and around Lincoln
and Grimsby will want to do business with us.
Q. What do you think are Kingston’s key
challenges going forward? 
A. It is important that we gain maximum benefit from
our acquisitions by integrating them successfully .
We need to achieve this while maintaining our
focus on the day-to-day challenges of running our
business efficiently and ensuring that our customers
remain at the centre of everything we do.
Q. Can shareholders expect a larger dividend
next year?
A. Our ability to pay a dividend is directly related
to the profitability and cash flows of the Group. 
As improving our profitability is a key objective
going forward, I hope that there will be an
increased dividend payable next year . 
Malcolm Fallen
Chief Executive Officer
Q. How are the business-to-business acquisitions
being integrated within the rest of the Group?
A. Our priority is to ensure that the integration of
these businesses is undertaken properly rather than
just done quickly. The first phase, which was to
present a single sales and marketing identity to our
existing and prospective customers by the start of
the new financial year , was completed successfully .
The first visible sign of that was the launch of Affiniti,
our national business-to-business identity . The next
phase will concentrate on bringing together our
service delivery capabilities and integrating the
processes and systems.
Ultimately , the core objective of the integration
process is to optimise service delivery . Our goal is to
improve the customer experience and increase sales
productivity while continuing to drive efficiencies
through the business.
Q. Why did you create a new brand – 
Affiniti – for the Group’s national business-
to-business operation?
A. The new business has been created by bringing
together Kingston’ s national business-to-business
operation with Omnetica and T echnica. T ogether
they offer a broader and deeper service offering
than they did as individual businesses. 
The Kingston Communications brand is strongly
associated with voice and carrier expertise, while
the market associates the Omnetica brand with
enterprise data networking. We want our target
markets to know that we are much more than just 
a provider of voice communications or a data
networking company . What we’ve created in the
UK, under the Affiniti brand, is a new, end-to-end
proposition as a communications integrator .
The Affiniti brand only applies to our national
business-to-business operation – we have retained
the Kingston Communications identity for all of 
our other activities. Kingston Communications (HULL) PLC Annual Report 2004-05 Group at a glance
4
1. During the year we secured 
a contract with Independent Radio
News for the provision of its ‘Maureen’
directory enquiries (118) service 
2. A new communications network for
Bolton Metropolitan Borough Council
and the local education authority 
will offer secure broadband internet
access to more than 100 primary and
secondary schools in the borough 
3. Broadband internet services will be
provided to student accommodation in
Lincoln and Loughborough as part of a
contract with APS Student Services Ltd
4. Our broadband customer base for
both our Karoo and Eclipse internet
services has grown significantly during
the year
Affiniti
Affiniti, our national business-to-business operation,
is a communications integrator . It specialises in 
the provision of converged communications 
to businesses and public sector organisations
throughout the UK, combining carrier services,
enterprise voice, data, video, mobile, wireless and
storage skills, together with network expertise and
managed services. 
Highlights of the year
Successful launch of Affiniti, bringing together
Kingston’ s national business-to-business operations
with Omnetica and T echnica
Achieved Developer Partner status with Nortel and
received Nortel’ s Best Customer Focus Award 2004
Named as Cisco Systems’ IPC Partner of the Y ear
and Services Partner of the Y ear (2005) and Scottish
Partner of the Y ear (2004)
Achieved Check Point Platinum Partner Status
T argets for next year
Raise awareness of our capabilities among
customers, prospects and the industry
Increase sales productivity
Continue our focus on enhancing and improving
the customer experience and driving efficiency
throughout the business
Continue to drive value for our customers in
providing converged communications solutions
Secure profitable growth through new and existing
access and service propositions
AFFINITI
Afﬁniti
Rest of Group
Revenue on continuing activities £’000
05   248,802
04 190,133
1
2
3
4 5
Kingston Communications East Yorkshire
Contact Centres
Eclipse Internet
We provide high quality , innovative communications
services to over 185,000 business and residential
customers in East Y orkshire. Our broadband
services and customer base were significantly
strengthened by the acquisition of Eclipse Internet
in September 2004.
Our Hull-based Contact Centres business offers
outsourced contact centre facilities, including
directory enquiries (DQ) services, for organisations
operating across the UK.
Highlights of the year
Our ISP customer base grew to over 100,000, with
70% of customers connected via broadband
Eclipse Internet named by ISPA as Best Heavy
Business Broadband service provider 2005
Major business wins included the Humber Mental
Health T rust, Cattles plc, Hull’ s NHS Primary Care
T rusts and APS Student Services Ltd
Continued growth in business mobile sales, which
increased by 142%
T argets for next year
Drive further growth in broadband, differentiating
through customer service and product innovation
Launch attractive new telephony propositions
Extend our coverage south of the River Humber
into Lincolnshire, to expand network services to
business customers
Leverage our investment in DQ technology
Publishing Services
In addition to producing the Group’ s own market-
leading telephone directories, Hull Colour Pages
and Hull White Pages, our Publishing Services
business provides directory production services for
independent telecoms operator Manx T elecom. 
Highlights of the year
Maintained profit margin across services
Strategic partnership developed with web-based
services provider
Growth of Hull Colour Pages customer base year
on year
T argets for next year
Defend our local directory market
Develop existing and new directory 
publishing contracts
EAST YORKSHIRE BUSINESS PUBLISHING SERVICES
Kingston Communications
East Yorkshire, Contact Centres 
and Eclipse Internet
Rest of Group
Revenue on continuing activities £’000
05   103,453
04 93,218
Publishing Services
Rest of Group
Revenue on continuing activities £’000
05  12,672
04 12,418 Kingston Communications (HULL) PLC Annual Report 2004-05 Operating and financial review
6
Business and Operating Review
We set clear objectives for the year . These were:
• T o broaden our capabilities to meet our customers’
changing needs in key vertical markets, reduce our
dependency on basic voice services and increase
the level of recurring revenues.
• T o achieve sustainable, profitable growth.
• T o deliver returns to our shareholders.
These objectives have been achieved.
We have also responded to the changing needs of
our target customers by expanding our capabilities
in the areas of broadband services, data and IP
network services and storage solutions through
the acquisitions of Eclipse, Omnetica and T echnica
respectively . These acquisitions, combined with
our existing operations, have enabled us to
accelerate our strategic positioning in the UK market
as a high-quality , converged communications
integration provider . 
The disposal of the Italian and French operations
of Omnetica for a combined consideration of 
€51 million underlines our strategy of focusing 
on the UK market. The French disposal is subject
to French Competition Authority approval but 
is expected to be completed during the summer
of 2005.
The Group has performed strongly during the year
with turnover from continuing operations increasing
23.6% to £364.3 million as a result of organic growth
and acquisitions. Group EBITDA, before exceptional
items and excluding discontinued operations, 
has increased from £50.7 million to £62.9 million.
This strong growth reflects improvements in 
our continuing operations and the part year
contributions from Eclipse and Omnetica. 
T urnover from continuing operations, before
acquisitions, has shown consistent growth across
the year , increasing by 3.2% to £304.0 million 
(2004: £294.7 million) with a corresponding EBITDA
improvement from £50.7 million to £56.9 million
with margins improving to 18.7% (2004: 17.2%).
The steady turnover growth in continuing operations
has been achieved by focusing on higher quality ,
recurring revenues. Exceptional costs of £3.7 million
in the continuing operations of the Group (2004:
£7.9 million) include provisions for redundancies
and onerous property leases arising from the drive
for continued efficiency .
In line with the expectations we had at the time,
the acquisitions made during the year have made
an immediate positive impact on the Group. 
The combined contribution from Eclipse over six
months and Omnetica over three months has been
£60.2 million of turnover and £6.1 million of EBITDA
before exceptional items.
The Group reported an operating profit excluding
discontinued operations, exceptional items 
and amortisation of intangible fixed assets of 
£25.9 million (2004: £3.9 million). This strong growth
demonstrates the Group’ s continued improvement
in operating performance.
Adjusted basic earnings per share, excluding
discontinued operations, exceptional items,
amortisation of intangible fixed assets and deferred
tax, was 4.1 pence (2004: Loss 1.2 pence). In light 
of the improved financial performance of the
Group, the Board is proposing a final dividend of
0.54 pence per share, resulting in a full year dividend
payment of 0.9 pence per share (2004: Nil). 
Affiniti
Affiniti, launched in April 2005, is our national
business-to-business operation created by bringing
together our Business Services division, Omnetica
and T echnica. Affiniti reinforces our position in the
UK market and combines a range of complementary
skills and capabilities that strengthen our customer
proposition and enable us to help our customers
exploit the benefits of converged communications.
T urnover from Affiniti grew 30.9% to £248.8 million
(2004: £190.1 million), including one quarter’ s
contribution from Omnetica. EBITDA increased
77.4% also reflecting the three month contribution
from Omnetica and the improvement in the
operating performance of underlying activities.
As indicated at the half year , the first phase of 
the integration process was to organise the new
business around our extended customer base 
with a focus on those discrete customer segments
where we have a strong market position. This has
been achieved and we are now focusing on the next
phase – integrating the service delivery capabilities,
processes and systems.
We have already seen benefits coming through
from the acquisitions as our enlarged customer
base provides real opportunities to sell and deliver
our extended breadth of capabilities.
We are developing and extending relationships
with a number of existing customers including
EMBC and Ford of Europe, underlining our
commitment to delivering high quality , sustainable
revenues from current as well as new customers.
We also secured some important new contracts –
University of Dundee and SportsWorld.
Our acquisitions, combined with our existing
operations, have enabled us to accelerate
our strategic positioning in the UK market 
as a high-quality converged communications
integration partner. 7
1. Kingston provided energy efficiency
company Elyo with a broadband VPN
(virtual private network) across over 50
sites, allowing home-based and remote
staff to work more effectively 
2. A contract to provide GSM & GPRS
services as part of the Icomera Onboard
Wireless Internet solution on the GNER
East Coast Mainline Rail Service means
that passengers can obtain internet
and email access while they travel
3. A solution involving Kingston’s
intelligent network technology and
computer telephony and speech
recognition from T elephonetics gives
film fans who call CINEWORLD’s
information and booking line a
user-friendly experience
4. A contract to provide BlackBerry
devices to NHS managers and health
professionals at Hull’s Primary Care
Trusts as part of a pilot scheme allows
remote employees to stay in contact
with the workplace 
5. An upgrade of communications
technology at car insurer Admiral’s call
centres has boosted the productivity
of its agents by allowing them to make
more calls in less time
PROGRESS OF OUR BUSINESS
2
3
4
5
1 Kingston Communications (HULL) PLC Annual Report 2004-05 Operating and financial review
8
During the second half of the year , we secured some
significant managed services contracts within our
target sectors. Warwickshire Police selected us for
the provision of an advanced data and telephony
network to carry all of the force’ s communications
traffic using IP technology , while Bolton Council
agreed a contract for the provision of a fully-
managed, IP-based communications infrastructure.
It is the combination of the strength of our
capabilities and the quality of the customer base that
provides an exciting opportunity for future growth.
Our near term challenge is to ensure the continued
successful operational integration of the businesses
so that we can maximise this opportunity .
Our expertise has received significant industry
endorsement. During the year we were named 
as Cisco’ s IP Communications Partner of the Y ear ,
Services Partner of the Y ear and Scottish Partner 
of the Y ear , and won Nortel’ s Best Customer Focus
award. Our internet services have also won awards:
the Internet Service Providers Association (ISPA)
named us Best Internet Carrier and Best Sumo
Business Broadband service provider .
East Yorkshire and Contact Centres
T urnover in East Y orkshire and Contact Centres
increased 1 1.1% to £103.5 million (2004: £93.2 million).
This includes six months contribution from 
Eclipse. EBITDA increased to £39.2 million (2004:
£37.5 million), an increase of 4.5% year on year .
Our East Y orkshire operation continues to
experience strong growth in broadband, both in
its core regional market via the Karoo brand and
nationally via Eclipse Internet. Overall, our internet
customer base, on a like-for-like basis, has increased
58% from 66,000 to 104,000 with 70% of all internet
customers having broadband connections. 
The migration of customers to broadband and the
resulting strong access revenues are offsetting the
effects of the national trend of declining dial-up
internet traffic.
1. Kingston has equipped
Gloucestershire Constabulary’s
emergency helicopter service with
‘heli-tele’, capable of beaming live
images to wherever they are needed
2. Kingston has provided the world’s
leading supplier of office products,
Office Depot, with a networked contact
centre solution for its UK sites
1
2 9
Our expansion into Lincoln and Grimsby is
continuing as planned, with the infrastructure build
due for completion in June 2005. We have already
secured significant contracts in this area, including
APS Student Services Limited, the University of
Lincoln and Millennium Chemicals. 
Again, our internet services have received industry
endorsement, with Eclipse Internet being 
named by ISPA as Best Heavy Business Broadband
service provider . 
During the second half of the year we have invested
in and developed our capability in the provision of
outsourced directory enquiries (DQ) services and
secured a significant contract with Independent
Radio News.
During the year our experience and capability in
the contact centre market was recognised at the
European DQ Awards, where we were named Best
Wholesale Service provider .
Publishing Services
T urnover in Publishing Services increased to 
£12.7 million (2004: £12.4 million), a 2.4% increase
year on year . The small decline in EBITDA to 
£7.2 million (2004: £7.4 million) reflects the reduction
in the volume of work for BT towards the end of
the year .
Our Publishing Services business continues to
perform well in the East Y orkshire area, underpinned
by the strong performance of our Hull Colour
Pages directory .
In addition to the publication of our traditional
regional directories, we have provided directory
publishing services to BT as it has re-established 
its presence in the UK classified directories market.
As anticipated, the volume of work on this short-
term BT contract has declined materially during
the second half of the year .
Group Earnings
The strength of the Group’ s performance is
reflected in the growth of operating profit, before
discontinued operations, exceptional items 
and amortisation of intangible fixed assets, to
£25.9 million (2004: £3.9 million).
Group depreciation costs have reduced in the year
to £37.5 million (2004: £52.6 million). This reduction
reflects, in part, the impact of the accelerated write
down of our network assets undertaken in 2004
coupled with a tight control on capital investment
aimed at improving operating margins.
Amortisation of intangible assets of £8.7 million
(2004: £2.5 million) has increased as a result of 
the goodwill arising on the consolidation of the
acquisitions of Eclipse and Omnetica. We are
currently amortising this goodwill over ten years. 
The Group reported a pre-tax profit on the sale of
the satellite and broadcast business in April 2004
of £2.9 million. In February 2005, the Group sold 
its shares in Intelsat for £0.9 million, realising 
a profit of £0.3 million. During the year the Group
has taken an exceptional charge of £0.1 million to
write down our investment in the Spectrum Venture
Management Fund.
Reported profit on ordinary activities before interest
and tax of £15.6 million compares to a loss of 
£111.1 million in the prior year . 
Net interest payable and similar charges of 
£8.6 million have increased from £7.5 million in the
prior year . Interest costs for the Group increased in
the second half of the year as a result of the increase
in debt arising from the acquisitions of Omnetica
and Eclipse. The anticipated sale of the French
operations of Omnetica will have a favourable
impact on interest costs in the next financial year .
During the year , we have recorded a taxation credit
of £5.6 million (2004: £0.2 million). This credit arises
from the recognition of a deferred tax asset
reflecting our current view as to the utilisation 
of unclaimed capital allowances in the Group. 
Profit after tax was £12.6 million compared to a loss
of £118.4 million in the prior year .
Group Financing and Investment
The Group’ s net debt has increased by £69.4 million
over the year to £163.6 million (2004: £94.2 million).
The increase is driven by net investment in
acquisitions and disposals of £72.2 million.
The major part of the net debt increase relates 
to the cash element of the consideration paid for
Omnetica in December 2004, an amount of 
£97.7 million. At this time, the Group entered into a
new £225 million five year bank facility to finance both
the acquisition and ongoing funding requirements. 
Investment to fund continued growth and drive
operational improvement in the business has
continued, with capital expenditure of £36.9 million
in the year (2004: £37.2 million).
Cash financing costs increased during the year 
to £11.1 million (2004: £6.7 million) reflecting both
increased borrowings and the costs associated with
arranging the new facility .
Group net cash flow before acquisitions, disposals
and before interest in the year was £14.0 million
(2004: £14.3 million). This includes the cash impact
of the exceptional restructuring undertaken in the
prior year of £3.0 million.
The net debt position of the Group will benefit from
the anticipated disposal of the French operations of
Omnetica for a cash consideration of €47 million.
The disposal, which is subject to French Competition
Authority approval, should be completed during
the summer of 2005 and the proceeds will be used
to repay debt. Kingston Communications (HULL) PLC Annual Report 2004-05 Operating and financial review
10
Dividend
In light of the improved financial performance of the
Group, the Board is proposing a final dividend of
0.54 pence per share, resulting in a full year dividend
payment of 0.9 pence per share. The decision
reflects the progress the Group has made to date
and the Board’ s confidence in the Group’ s prospects.
As outlined at the time of our interim results, our
future policy is to increase dividends in line with
underlying earnings before amortisation of
intangible fixed assets. Subject to shareholder
approval at the Company’ s Annual General Meeting
on 22 July , the final dividend will be payable on 
29 July to shareholders registered at the close of
business on 24 June 2005.
Profit before and after taxation
Reported profit before tax was £7.0 million compared
to a loss of £118.6 million last year . Net interest
payable was £8.6 million compared to £7.5 million
last year .
The total tax credit of £5.6 million (2004: £0.2 million)
reflects the movements in deferred tax balances,
combined with prior year adjustments.
International Financial Reporting Standards (IFRS)
With effect from 1 April 2005, the Group will be
adopting International Financial Reporting Standards
(IFRS) in its consolidated financial statements. 
We have undertaken a specific project to review
the transition to IFRS and to determine the impact
of these adjustments on reported results. We are
on track to meet its reporting obligations, and the
first set of results the Group will publish under IFRS
will be the interim statement for the six months
ending 30 September 2005. The Group will also 
be restating its comparative results for the six months
ended 30 September 2004 and the year ended 
31 March 2005, in accordance with IFRS.
Cash flow liquidity and capital structure
Net cash outflow before financing was £70.8 million
compared to an inflow last year of £7.6 million. 
This was due principally to the acquisitions and
disposals made by the Group in the year and
increased financing costs. At the year end the 
net debt position of the Group had increased by
£69.4 million to £163.6 million.
The Group continues to maintain tight control over
cash flow through a combination of improving
profitability , active working capital management
and careful consideration of any capital investment
programmes. The ongoing funding requirements of
the Group, currently anticipated to meet the needs
of the business, can be met from the syndicated
loan facility .
Treasury policies and controls
A centralised treasury function supports the
operational activities of the Group and operates
within a treasury policy approved by the Board.
The main functions of Group T reasury are to ensure
adequate funding to meet the needs of the Group,
and to manage the financial risks of the Group 
that arise from the nature of its funding structure
and operating cash flows through appropriate
hedging strategies.
Procedures are in place to monitor and manage
financial exposures, prevent unauthorised
transactions and prevent transactions of a speculative
nature. The Group T reasury function is subject to
an annual review by Internal Audit.
More detail on the financial risks faced by the Group
and management of those risks is contained in note
26 to the financial statements.
Pensions
The Company continues to support the pension
requirements of its employees through schemes
described in detail in note 28 to the financial
statements. In line with the experience of many
other companies the Defined Benefit Schemes
operated by the Company are currently in deficit
as measured by FRS17. The Company , however ,
views the funding of the schemes from a long 
term perspective and continues to meet the
funding obligations set on a triennial basis by
qualified actuaries.
Outlook
The Group has accelerated its strategic repositioning
as a provider of integrated, converged
communications services in the UK. The acquisitions
of Omnetica, T echnica and Eclipse, followed by
the sale of Omnetica’ s French and Italian operations,
have reduced our exposure to increasingly
commoditised basic telecommunication services,
leading to a clear focus on the UK market. At the
same time, we have added substantial breadth and
depth to the Group’ s capabilities.
The new financial year has begun in line with our
expectations as we start to see early benefits from
the initial stages of the integration of the businesses.
We look forward to delivering further improvement
in the Group’ s overall performance in the year ahead. 11
Board of Directors
1. Michael Abrahams CBE, DL (66)
Non-Executive Chairman. Joined the Board in March
1999. He was Deputy Chairman of Prudential plc
until May 2000. He is Chairman of The London Clinic.
2. Malcolm Fallen (45)
Chief Executive Officer of the Group since
November 2003. Previously Chief Financial Officer
since joining the Company in January 2001. He
joined from Eircom plc, where he had been Chief
Financial Officer since March 1999.
3. Paul Simpson (36)
Chief Financial Officer of the Group since May 2004.
Joined the Company in 2000 from Ernst & Y oung,
having been closely involved with the flotation of
Kingston in 1999.
4. Neil Gower (46)
Executive Director . Joined the Board in May 2004.
He is the Director of the customer service and
operations function of Affiniti, our national business-
to-business operation, and has spent 24 years with
the Group.
5. Peter Halls (54)
Executive Director . Joined the Board in December
2004. He is a director of Affiniti, our national
business-to-business operation. He was previously
CEO of Omnetica and has been in the IT industry
for over 25 years.
6. Kevin Walsh (52)
Executive Director . Joined the Board in May 2004.
He has been the Managing Director of our East
Y orkshire business since April 2003 and has been
with the Group since 2000. 
7. John Carrington (59)
Non-Executive Director . Joined the Board in April
2003. He has over 30 years experience in the
international telecommunications industry and
was the founding Managing Director of BT Cellnet
in 1983.
8. Sean Christie (47)
Non-Executive Director . Joined the Board in March
1999 and is Senior Independent Non-Executive
Director . He was the Finance Director of Northern
Foods plc until his resignation in October 2004. 
9. Johannes Huth (44)
Non-Executive Director . Joined the Board in
January 2005. He is Head of Kohlberg Kravis
Roberts’ European activities. Prior to joining KKR 
in May 1999, he was a Member of the Management
Committee of Investcorp and jointly responsible
for Investcorp’ s operations in Europe. 
10. Clare Page (34)
Non-Executive Director . Joined the Board in
January 2005. She was previously a Non-Executive
Director of the Company from October 2002 until
June 2003. Mrs Page has been a member of the
Kingston upon Hull City Council since May 2002.
12345
678910 Kingston Communications (HULL) PLC Annual Report 2004-05 Corporate social responsibility
12
Corporate Social Responsibility
We aim to achieve our business objectives in 
a caring and responsible manner , recognising the
economic, social and environmental impact of our
activities. We are committed to Corporate Social
Responsibility (CSR). We believe this not only serves
the interests of society but also helps to make us
more competitive. This year we established a CSR
Steering Group, developed a formal CSR Policy
endorsed by the Board and are currently developing
action plans, against which compliance will be
monitored. The Steering Group reports to the
Board quarterly .
The Company has been approved by the Good
Corporation and is included in the FTSE 4 Good
Index. We have recently subscribed to the Corporate
Responsibility Exchange developed by the London
Stock Exchange. We anticipate that this will help
us to monitor and report on our CSR and Corporate
Governance activities. 
The information given in this report, and compliance
with the various policies, is audited by the in-house
Quality & Business Improvement T eam, and is
expected to become a standard Internal Audit
item in the future.
Our employees are encouraged to refer to our
CSR, Environmental, Health & Safety, Ethics,
Whistleblowers and Community Relations policies,
which are available on our intranet site to all staff. 
Environmental
As in previous years, the Company’ s activities are
not expected to give rise to any significant inherent
environmental risks over the next 12 months.
We have completed a Group-wide Environmental
Impact Review and, although our environmental
impact is low, we have begun an Environmental
Improvement Programme. This is designed to embed
environmental management techniques and
processes throughout all of our businesses.
Particular success has been achieved in relation 
to our recycling initiatives. We have recycled
43,055 kg of paper , 24,965 kg of waste electrical/
electronic equipment and 23,560 kg of cabling. 
Following collaboration with the Carbon T rust, 
we have identified a number of target areas for 
the reduction of energy use in the coming year . 
An energy ‘switch off’ campaign is being
implemented with estimated annual savings of
£60,000. As these savings are realised we will be
contributing to a forest replanting programme.
Progress towards a Group-wide Environmental
Management System has been significant and 
we expect to achieve compliance with ISO14001
by early 2006.
There were no prosecutions for any environmental
offences nor were any environment-related
enforcement notices served on the Company .
Health & Safety
Development of a proactive health and safety culture
has continued. A revised Health & Safety Policy has
formed an integral part of staff training to make
sure it is understood, embraced and implemented
at all levels.
Key individuals have undertake an Advanced Health
& Safety qualification and have achieved a higher
than average pass rate. Our Group-wide risk
assessment programme continues, with training
provided for 30 new risk assessors.
We have focused on Occupational Health during
the year with the development of new policies on
Substance Misuse and Work/Life Balance. We plan 
to further expand our Occupational Health services
during the coming year .
There were no work-related fatalities during the
year . Notifiable accidents have reduced from 11 
to six. Working days lost as a result have declined
further from 150 to 95. There were no health and
safety enforcement notices served on the Company
during the year , nor were there any prosecutions
for health and safety offences.
Community Relations
We are committed to supporting the communities in
which we operate through sponsorship of individuals
and organisations, membership of business
organisations, involvement in community projects
and support for national charities. 
As part of our Centenary celebrations in 2004 
we launched our Acts of Goodwill programme,
designed to contribute to local communities by
supporting employees in charitable activities they
identified. Since it was launched, we have supported
schools, amateur sports teams and local, regional
and national charities by giving staff access to
company resources, fundraising assistance and
time off to undertake voluntary work.
Our continued sponsorship of the Kingston
Communications Stadium in Hull provides a valuable
contribution to the development of sporting and
educational facilities in the area. Our partnership
with Kingswood High School in Hull, through which
we facilitate interactive learning for pupils, has
been extended to incorporate e-mentoring of
pupils by employees.
We aim to achieve our business objectives in 
a caring and responsible manner, recognising
the economic, social and environmental impact
of our activities. 13
Staff Welfare
We are committed to high standards of employment
practice and aim to be recognised as the employer
of choice. We continue to reward people fairly 
and to encourage personal development and
learning. We also recognise the need to consider
all of our employees as partners within the business
and continue to ensure that all of our employment
policies and strategies enable us to carry out our
business with integrity and enhance the quality 
of our working environment. Employment policies
are designed to provide equal opportunities
irrespective of colour , ethnic or national origin,
nationality , sex, religion, marital or disabled status.
The training and development of employees is
considered fundamental to the continued success of
the Company and we are committed to the Investors
in People award for our training programmes. 
An internal communications strategy supports the
Company’ s commitment to informing all employees
of the financial and economic factors affecting the
Company’ s performance. Consultative arrangements
with staff representatives are in place throughout
the Company and we are committed to listening
to and acting upon feedback from staff through
these and other mechanisms such as employee
surveys and team briefing processes.
The Company wants its employees to share in its
success and aims to achieve this through various
share and performance-related bonus schemes in
which the vast majority of employees participate.
The Company offers flexible benefits for all staff
and a job grading and reward structure is in place.
Ethics
As a provider of telecommunications connectivity ,
we are conscious of our responsibility to ensure,
where we can exercise control, that content and
service providers observe acceptable standards.
We insist upon compliance with the Independent
T elevision Commission/Ofcom programme code
and the rules of the Independent Committee for
Supervision of T elecommunications Information
Services. Our Karoo internet customers have been
offered a free ‘spam’ filtering service allowing them
to control emails they may find offensive or intrusive.
We have a formal Ethics Policy confirming our
commitment to a culture of openness, trust and
integrity , and to treating staff fairly and with respect.
It sets out our commitment to protect employees,
partners, suppliers, customers and shareholders
from illegal or damaging actions by individuals. 
It includes a ‘Whistleblower’ s Charter’ which
enables our employees to report, in confidence,
any suspected wrongdoings by the Company 
or other employees. We also provide employees
with details of how to obtain independent external
advice from the Public Concern at Work helpline. 
During the year some of our customers suffered from
the ‘rogue dialler’ scam whereby unscrupulous
service providers manipulated their dial up internet
access, causing unanticipated premium rate charges
to be incurred. Although we have no control or
influence over the service providers and have been
charged for these calls ourselves, we have given our
customers time to sort out the problem. Where this
has not been possible we have, in many cases, borne
a substantial proportion of the cost and offered
customers free upgrades to broadband to prevent
the problem from re-occurring.
1. Affiniti, our national business-to-
business operation, specialises in 
the provision of converged
communications services
2. A contract for the provision of 0845
numbering services and Interactive
Voice Response T echnology allows
Sheffield residents easier access to
out-of-hours medical care
1
2 Kingston Communications (HULL) PLC Annual Report 2004–05
14
Good Governance and the Code of Best Practice
The Board is committed to high standards of corporate governance and
responsiveness to stakeholder expectations. In the 2004 FTSE ISS Corporate
Governance Index the Company was ranked as out-performing 43.5% of UK
listed companies and 84.9% of companies in the telecom services group. 
The Company takes full account of the principles of Good Governance and
the Code of Best Practice appended to the Listing Rules of the Financial
Services Authority , and the July 2003 FRC Combined Code. It has complied
with the Combined Code throughout the year with the following exceptions:
i. For parts of the year a minority of the Non-Executive Directors were 
wholly independent.
ii. For part of the year independent Non-Executive Directors did not comprise
more than half of the Board.
iii. The Remuneration Committee was not made up of wholly independent
directors, as it included a director nominated by Kingston upon Hull 
City Council.
iv. Non-Executive Directors are not appointed for specific terms. The Board
considers that Non-Executive Directors should serve only for so long as they
can make an effective contribution and specifies that all Non-Executive
Directors must stand for re-election at least once every three years.
v. An appropriate balance of Executive and Non-Executive Directors was not
maintained in the early part of the year .
vi. The Audit Committee had insufficient members but the operation of the
Committee was carefully monitored and all decisions ratified by the Board.
Kingston upon Hull City Council, one of the Company’ s major shareholders, 
is entitled to have Board representation proportionate to its shareholding.
The Council is also entitled to appoint a Council-nominated director to the
Remuneration Committee. As long as the Council holds more than 30% of 
the Company’ s shares it can nominate two directors for appointment by the
Company; between 15% and 30% it may only nominate one. 
The Company’ s other major shareholder , Kohlberg Kravis Roberts (KKR), has 
a corresponding right to nominate one Board director for appointment by the
Company as long as KKR holds more than 15% of the Company’ s shares. 
Both Kingston upon Hull City Council and KKR have signed Relationship
Agreements with the Company designed to secure its independence and ensure
that their voting power is only exercisable in the Company’ s best interests.
The nominees’ appointment by the Board is subject to the Company’ s Articles
of Association and they are obliged not to vote where there may be a conflict
of interest between their nominator and the Company . Mrs C Page, Mr M Bird
and Mr J Robinson were, throughout their respective terms of office, serving
Councillors nominated by Kingston upon Hull City Council, so were not wholly
independent under corporate governance guidance. The Council delegates
responsibility for its shareholding to a wholly separate Council Committee on
which none of the Council-nominated directors sit or report to. The Board is
therefore satisfied that in practice they bring a valuable and independent view
to its deliberations. Mrs J Hughes was not, during her period as a director with
the Company , wholly independent under the principles of the Combined Code
by virtue of the Company’ s investment in Spectrum Venture Management Ltd,
of which Mrs Hughes was then Non-Executive Chairman.
The Board acknowledges that it has not achieved the Combined Code
recommendation that at least half the Board should be independent Non-
Executive Directors. The Board believes that full compliance with the Code’ s
requirement for a majority of independent Non-Executive Directors would
make the Board unwieldy , however , the Directors are currently searching for
an additional independent Non-Executive member of the Board.
Mr J Huth, who was appointed in January 2005, is not independent because
he was nominated by KKR which owns 23.7% of shares in the Company .
The only directors considered to satisfy the requirements of independence as
defined by the Combined Code are Mr S Christie and Mr J Carrington,
although Mr M Abrahams was independent on appointment.
The Board of Directors
The Board currently comprises the Non-Executive Chairman, Chief Executive
Officer , Chief Financial Officer , three Executive and five Non-Executive Directors.
During the early part of the year , when the number of Executive Directors 
was below the current level, senior executives from within the Group actively
participated in Board Meetings by invitation. The Board is satisfied that since
the end of May 2004 the balance of Executive and Non-Executive Directors 
is appropriate and that no individual or group may dominate its decisions. 
The Board’ s Non-Executive Directors are independent of management and
have a range of experience covering corporate governance, customer and
employee issues, strategy , business operations and finance. The roles of
Chairman and Chief Executive Officer are clearly defined and separate in that
the Chairman is primarily responsible for the proper functioning of the Board.
The Chief Executive Officer is responsible for running the business of the
Company and for implementing Board strategy and policy . 
The Company has a policy that no Executive Director should take on more than
one Non-Executive Directorship of a FTSE 100 company or the chairmanship
of such a company .
Mr M Abrahams is the Non-Executive Chairman, and has served for a period of
six years. Mr Abrahams is also Chairman of the London Clinic and the Prudential
staff pension scheme as well as being a director of a number of other companies.
The only change in Mr Abraham’ s commitments during the year is that he
resigned as Chairman of Minorplanet PLC in June 2004. In addition to Board
and committee meetings Mr Abrahams is involved in regular dialogue with
Company executives both during and outside normal working hours and
represents the Company at numerous meetings, particularly where his frequent
presence in London makes this an efficient means of advancing the Company’ s
interests. The extent to which he is readily contactable and available to act as
the Company’ s Chairman is part of the evaluation of his effectiveness by his
Board colleagues. The Board is satisfied that Mr Abrahams is able to consistently
devote a more than adequate proportion of his time to the Company .
Mr M Fallen is the Chief Executive Officer and was appointed to this position
in November 2003, having previously been the Chief Financial Officer . Mr Fallen
has been employed by the Company since 2001.
Corporate governance 15
Mr S Christie is the Board’ s senior independent Non-Executive Director and
would be available to shareholders if they have concerns which contact
through the normal channels has failed to resolve, or for which such contact 
is inappropriate. A summary of the responsibilities of the senior independent
Non-Executive Director is available on the Company website. None of the
current Non-Executive Directors have served for more than six years. 
All directors’ service contracts are available for inspection at the Company’ s
registered office.
The Board meets at least monthly . All directors receive detailed reports and
briefing papers in advance of Board meetings. The Board has a formal schedule
of matters specifically reserved to it to ensure retention of full responsibility for
and effective control over Group strategy and policy and setting the Company’ s
values. These matters include strategic plans, annual budgets, review of
operating and financial performance, individual appraisal of significant new
projects, risk management policies, funding, health and safety and environmental
compliance. All directors may receive independent professional advice at the
Company’ s expense, and are regularly advised and guided by the Company
Secretary on proper corporate governance. Opportunities for training are
available to the Board and newly appointed Non-Executive Directors receive 
a comprehensive induction programme. All directors are responsible equally
for the Company’ s affairs; Non-Executive Directors have particular responsibility
for ensuring that proposed business projects and strategies are discussed and
reviewed fully . All business units and functions are required to develop formal
succession plans which are reviewed annually by the Board.
In the previous year the Board adopted a formal procedure of evaluation to
review the effectiveness of its own performance, as well as that of its various
committees. An independently-developed questionnaire has been completed
by all the directors and its results collated and assessed against last year’ s
results. Following review by the Board, a prioritised action plan has been drawn
up to implement improvements. The performance of individual directors is
regularly assessed by members of the Nomination Committee, taking into
account factors such as attendance, integrity , objectivity in decision-making,
experience and ability to contribute effectively to Board meetings. Directors
are also encouraged during the evaluation process to indicate any training they
may require. In their individual evaluation of Board effectiveness, each director
is also invited to comment on the performance and effectiveness of his or her
colleagues. The Chairman’ s performance is evaluated by means of a confidential
questionnaire completed by each of the other directors using criteria derived
from the Combined Code including leadership skills, ensuring that the Board
receives correct and sufficient information and the ability to ensure effective
communication between Board members and with shareholders. The results
are collated by the Company Secretary , discussed with the other directors, and
any resulting actions initiated by the senior independent Non-Executive Director . 
Responsibility for managing the business, implementation of business policy
and review of business performance is delegated to the Chief Executive Officer
supported by the other Executive Directors. An Executive Management Board
comprising the Chief Executive Officer , Chief Financial Officer , business unit
managers and other senior executives met monthly throughout the year . 
The extent of the Chief Executive Officer’ s delegated powers has been set by
the Main Board. However , the Board holds in-depth reviews of individual
business strategies and performance each year in addition to the annual
review of strategy , business plans and budgets.
The Board met on 12 occasions during the year . The record of directors’
attendance at Board meetings is set out in the following table. 
Number of Out of 
Directors meetings possible %
Mr M Abrahams (Chairman) 12 12 100
Mr M Fallen (CEO) 12 12 100
Mrs J Hughes (resigned 23/07/04) 2 4 50
Mr S Christie (Senior NED) 10 12 83
Mrs C Page (appointed 01/01/05) 3 3 100
Mr M Bird (resigned 31/03/05) 6 12 50
Mr J Robinson (resigned 23/07/04) 4 4 100
Mr J Carrington 12 12 100
Mr P Simpson (CFO) (appointed 24/05/04) 10 10 100
Mr N Gower (appointed 24/05/04) 10 10 100
Mr K Walsh (appointed 24/05/04) 10 10 100
Mr P Halls (appointed 31/12/04) 3 3 100
Mr J Huth (appointed 01/01/05) 0 3 0
The Non-Executive Directors have met during the year without the Chairman
and Chief Executive Officer present, including a meeting to evaluate the
performance of the Chairman. Additionally , the Chairman met with the 
Non-Executive Directors without the Executive Directors being present.
Board committees
The Board has established and delegated specific responsibilities to the following
committees and takes care to regularly review committee membership to
ensure continued effectiveness.
The Remuneration Committee
Committee membership: John Carrington (Chairman), Sean Christie, Michael
Abrahams, Maxwell Bird (resigned 31/03/05).
The report of the Remuneration Committee and details of its role are given 
on pages 18 to 23. During the year the Committee met on six occasions. 
Out of possible attendances each member’ s participation was:
John Carrington 6 out of 6 Sean Christie 5 out of 6
Michael Abrahams 6 out of 6 Maxwell Bird 4 out of 6
The Committee has adopted new T erms of Reference in line with
recommendations in the Combined Code and other best practice. These are
available on request from the Company Secretary and are also available on the
Company’ s website. The Board is satisfied that the Remuneration Committee
arrangements meet the requirements of the Combined Code, with the
exception of independence of all of its members, as previously mentioned. Kingston Communications (HULL) PLC Annual Report 2004-05 Corporate governance
16
The Audit Committee
Committee membership: Sean Christie (Chairman), John Robinson (resigned
23/07/04), John Carrington (appointed 27/01/05).
The Audit Committee supports the Board in the execution of its responsibilities
to establish and monitor financial reporting and internal control procedures.
The Audit Committee aims to meet four times a year with the external auditors
in attendance. Arrangements are agreed with the Board to allow time for review
of any issues and concerns raised by the Committee. The Chief Executive Officer ,
Chief Financial Officer and Chairman attend by invitation when required. 
The Committee monitors the Company’ s relationship with its external auditors.
During the year the Committee met on four occasions. The Committee has
adopted new T erms of Reference in line with recommendations in the Combined
Code and other best practice. These are available on request from the Company
Secretary and are also available on the Company’ s website. The Board is aware
that the Audit Committee arrangements did not meet the requirements of the
Combined Code because there were insufficient members. However , the Board
monitored the operation of the Committee and ratified all its decisions. John
Carrington was appointed in January 2005 in order to address the problem.
The Company is also engaged in the search for a further independent Non-
Executive Director who would be expected to become a member of the 
Audit Committee. The Board recognises that its limited size precludes 
regular changes in its Committee membership to avoid reliance on particular
individuals. Nevertheless the Board is satisfied that the calibre of the Committee
members is such that they can cope with the demands made upon them at
the present time.
The Audit Committee meets with the Head of Internal Audit to review work
undertaken by the Internal Audit function and to define and agree the scope
of future work. The Committee also meets informally on other occasions with
the internal and external auditors.
Out of the possible attendances each member’ s participation was:
Sean Christie 4 out 4 John Robinson 1 out of 1
John Carrington 1 out of 1
There has been no disagreement between the Audit Committee and the Board.
Should there be disagreement on any material issue, the Audit Committee
would report that issue to the shareholders in the Annual Report.
The Nomination Committee
Committee membership: Michael Abrahams (Chairman), Sean Christie, 
John Carrington, Johannes Huth (appointed 27/01/05).
The Nomination Committee makes recommendations to the Board regarding
appointment of Non-Executive and Executive Directors. The Committee ensures
that any appointments or re-appointments are made on merit and against
objective criteria. All directors are required to stand for re-election every three
years. The re-appointment of Non-Executive Directors is subject to consideration
by the Nomination Committee, prior to Board approval. The Committee 
has adopted new T erms of Reference in line with recommendations in the
Combined Code and other best practice. These are available on request from
the Company Secretary and are also available on the Company’ s website. 
The Board is satisfied that the Nomination Committee arrangements meet
the requirements of the Combined Code. The Committee has retained external
advisers to assist and advise it regarding appointments. The external advisers
carry out initial interviews and select suitable applicants for consideration. 
The Committee also relies on professional assistance from independent
specialists and consultants to assist with the selection process.
During the year the Committee met on four occasions. 
Mr S Christie and Mr M Fallen will stand for re-election this year . The Committee
(excluding Mr Christie in the case of his own proposed re-appointment) has
recommended their appointment. It is considered that Mr Christie brings
considerable experience of the management and financial management of
other businesses, and is a valuable source of independent guidance. Mr Fallen
has led the programme of acquisitions and disposals, the refocusing of the
Group’ s strategic objectives and its return to profitability . He has demonstrated
the ability to lead and inspire, creating confidence in the Company’ s future
amongst customers, suppliers and employees.
Out of the possible attendances each member’ s participation was:
Michael Abrahams 4 out of 4 Sean Christie 4 out of 4
John Carrington 4 out of 4 Johannes Huth 0 out of 1
Internal control
T urnbull compliance
The Board, as required by the Financial Services Authority , discloses that it has
complied with the provisions of the Combined Code relating to internal control
having established the procedures necessary to implement the guidance in the
T urnbull Report and by reporting in accordance with that guidance.
The Board has overall responsibility for the Company’ s system of internal control
and for reviewing its effectiveness whilst the role of management is to implement
Board policies on risk and control. The system of internal control is designed to
manage rather than eliminate the risk of failure to achieve business objectives.
The Company’ s management operates a risk management process which
identifies and evaluates the key risks faced by each business within the Group
and reports to the Board on how those risks are being managed. Each business
maintains a database of its key risks which identifies the probability of each
risk occurring, the impact if the risk does occur and the actions being taken to
manage each risk to the desired level. 
The key risks identified are mapped to business objectives and to the controls
in place to manage those risks. The business risk databases are reviewed and
updated quarterly by business management and are reported to the Board and
Executive Management Board. A Group risk database and map is produced
annually which identifies the key risks. These include failure to develop and
deliver new services, to meet customer expectations, to maintain brand awareness
and to operate appropriate systems and processes. Key operational risks include
maintenance of network infrastructure reliability , physical and information
security and ensuring that appropriate business continuity arrangements are in
place. The Company also places a high priority on developing its strategy for
advanced technologies and effective management of change. Measures to
address these risks include organisations designed around customer segments
and focused on exemplary service delivery , development of a Group-wide
security culture and continued process re-design and improvement.
The Board reviews the Group and business risk databases and receives regular
reports on any material events which affect the Company’ s rating of its key risks.
Managing Directors of business units report regularly to the Board regarding
risks to their businesses. The risk assessment process is regularly reviewed by
Internal Audit. The Board is satisfied that the system of internal control and
risk management is embedded in the routine of management decision making
and reporting, is being appropriately used to direct resources to the areas of
significant risk and is making a positive contribution to the achievement of the
Company’ s objectives. 17
Organisation
The Board concentrates on strategic, directional and financial performance. 
It aims to safeguard the Company’ s assets, ensure proper accounting records
are maintained and that the financial information used within the business and
for publication is reliable. There is a clearly defined organisational structure
with established reporting responsibilities, authorities and reporting lines to
the Board.
Financial information and control
The Company’ s businesses budget on an annual basis, and these budgets 
are updated at least quarterly . The performance of businesses against these
forecasts is monitored by the Board. Key financial and non-financial information
is reviewed by the Board monthly in order to monitor performance against
objectives. There is an established investment evaluation process to ensure
Board approval for all major capital expenditure commitments.
Monitoring of controls
The Company has an Internal Audit function. Its work supports the directors 
in assessing key controls through a structured work programme. There are
established procedures for appraisal and authorisation of capital expenditure
and other transactions and for signature of contracts. The Head of Internal
Audit has a direct reporting line to the Chairman of the Audit Committee.
Any system of internal financial control can, however , only provide reasonable
but not absolute assurance against misstatement and loss. The system of
internal financial control described above was in place for the financial year
and continues in place in the current financial year .
Appointment of auditors to non-audit engagements
The Board is aware of the need to maintain an appropriate degree 
of independence on the part of the auditors when engaged on non-
audit assignments.
The Audit Committee has adopted a policy to define the Group’ s engagement
with the auditors and other accounting firms on non-audit assignments. 
The policy categorises non-audit engagements as follows:
• Auditor preferred services – those engagements where there would be 
a loss of shareholder value if the auditors did not carry out the work.
• Auditor restricted services – those engagements which the Audit
Committee does not consider appropriate for the auditors to undertake.
• Auditor authorised services – those engagements where it may or may not
be appropriate to engage the auditors.
The policy defines by type and value of assignment where the engagement
of the auditors or another accounting firm requires the prior approval of the
Audit Committee, where management may exercise their discretion and the
framework for reporting appointments to the Committee. The categories and
criteria adopted include a shareholder value analysis which assesses various
criteria such as price and relevant experience. The framework is reviewed
annually by the Audit Committee.
Going concern
Under corporate governance requirements, the directors confirm that, having
reviewed the Group’ s budget and forecasts, they consider that the Group has
adequate resources to continue in operational existence for the foreseeable
future. Accordingly they continue to adopt the going concern basis in preparing
the financial statements.
Statement of Directors’ responsibilities
United Kingdom Company law requires the directors to prepare accounts for
each financial year which give a true and fair view of the state of affairs of the
Company and the Group and of the profit or loss of the Group for that year . 
In preparing the accounts, the directors have:
• Selected suitable accounting policies and applied them consistently .
• Made judgements and estimates that are reasonable and prudent.
• Stated whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the accounts.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the accounts comply with the
Companies Act 1985. They are also responsible for safeguarding the assets 
of the Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Relations with shareholders
The Company is committed to establishing constructive relationships with
investors. Meetings are held from time to time with the Company’ s principal
shareholders to discuss the Company’ s strategy and performance, and to
obtain feedback. The Company also has in place a formal programme of
meetings with institutional investors. The Company has published detailed
Group financial and operating data half yearly .
The Company has an investor relations function which aims to actively encourage
communications between the Company and its shareholders. Private investors
may obtain information on the Company’ s strategy and performance from the
Company’ s website at www.kcom.com, which includes details of press releases
and copies of presentations given at analysts’ briefings. Copies of the Group’ s
financial reports may also be found on the Company’ s website.
The Board considers that the Company’ s Annual General Meeting (AGM)
represents a forum for communication between the Company’ s shareholders
and its directors. The Company’ s Chairman and directors will be available to
answer questions at the AGM. The Board has sought to encourage shareholder
participation by inviting questions in advance and referring minority interest
questions for later detailed response. Details of the resolutions to be proposed
at the AGM are set out in the separate notice of the AGM sent to all shareholders.
In line with developing best practice, the Company provides an opportunity
on Proxy Forms for votes to be withheld and will disclose proxy voting totals
both at the AGM and subsequently on the Company website. 
The Company welcomes the opportunity for active shareholder participation
at its AGM and believes that voting on a show of hands encourages this, but
will keep under review developing best practice with regard to voting of all
resolutions on a poll. Kingston Communications (HULL) PLC Annual Report 2004-05
18
Remuneration report
1. INTRODUCTION
This report has been prepared in accordance with the Directors’ Remuneration
Regulations 2002. The Regulations require the auditors to report to the
Company’ s members on the ‘auditable part’ of the Directors’ Remuneration
Report and to state whether in their opinion that part of the report has been
properly prepared in accordance with the Companies Act 1985 (as amended by
the Regulations). The Report has therefore been divided into separate sections
for audited and unaudited information. The Company has endeavoured to
comply with developing best practice in remuneration reporting.
U UN NA AU UD DI IT TE ED D  I IN NF FO OR RM MA AT TI IO ON N
2. REMUNERATION COMMITTEE 
The Board Remuneration Committee:
• Develops and implements the Remuneration Policy .
• Recommends to the Board the individual remuneration and benefit
packages for Executive Directors, including pension arrangements.
• Monitors the remuneration and benefits packages of senior management
below Board level.
• Monitors and reviews the design and operation of the Company’ s share
incentive plans.
• Sets and monitors performance targets for use with the Company’ s various
incentive schemes, both cash and share based.
• Reviews and notes annually the remuneration trends across the Group.
• Oversees any major change in employee benefit structures throughout 
the Group.
• Ensures all the provisions of the Directors Remuneration Regulations 2002
and the revised Combined Code are fulfilled.
• Ensures contractual terms on termination are fair and that failure is not
rewarded, whilst recognising its duty to mitigate any loss.
• Agrees the policy for authorising claims for expenses from the Chief Executive
Officer and Chairman.
• Is responsible for selecting and appointing any remuneration consultants to
advise the Committee.
It is made up entirely of Non-Executive Directors and met six times during 
the year ended March 2005. It complies with the revised Combined Code of
Best Practice with the exception that Mr M Bird was not wholly independent
due to his elected membership of Kingston upon Hull City Council. 
Membership of the Remuneration Committee during the year ending 31 March
2005 is noted on page 15. Mr J Carrington is Chairman of the Committee.
The Chief Executive Officer , Mr M Fallen, and the Group Human Resources
Director , Mrs T O’Brien, attend the Committee meetings to provide advice 
to the Committee. No director played any part in discussions about his or her
remuneration. The Committee also has access to external professional advice
as well as to information regarding the remuneration practices of companies
of similar size and of industry competitors.
The Committee has been advised during the year by Inbucon who were
appointed by the Committee to advise on executive remuneration and
employee share schemes in 2004 and continue to assist and advise the
Committee. During the period Inbucon did not provide the Company with
any other services. Hewitt Bacon & Woodrow act as actuaries to the Kingston
Communications Pension Fund, as well as measuring the T otal Shareholder
Return (TSR) for performance conditions of the Company’ s employee share
schemes. They do not, however , directly advise the Remuneration Committee
on any matters.
3. REMUNERATION POLICY
The Kingston Communications Remuneration Policy described in this report is
applicable from 1 April 2004 and remains in effect. Our aim is to link remuneration
with performance and, within that aim, we will ensure that remuneration is
sufficiently competitive to attract, retain and reward high calibre executives
and senior managers with the experience, skills and motivation required. 
It is intended that this policy should meet developing best practice standards.
It will be reviewed each year in the light of market conditions and developments
in good corporate governance.
When reviewing its policy the Committee takes into account the levels of
remuneration and benefits throughout the Group. It aims to achieve a balanced
and progressive relationship between reward and responsibility , whilst guarding
against any individual receiving unjustified windfall gains.
The following key principles are used:
• Remuneration is set at competitive and fair levels.
• Performance-based rewards will be dependent on achievement of
demanding targets which reflect shareholder interest.
• Performance measures and targets are robust and structured to operate
soundly throughout the business.
• Bonuses, which are always performance dependent, can be earned at every
level throughout the Group.
• The design of long term incentives is prudent and in line with relevant
investor guidelines.
• Non-Executive Directors, including the Chairman, are not awarded any type
of incentives.
• Awards, where possible, are structured to align participants with a similar
risk/reward strategy to that of shareholders.
In determining whether performance conditions have been correctly measured,
the Committee will be guided and advised by the Audit Committee.
Prior to the acquisition of Omnetica and T echnica the Company carried out 
a thorough evaluation of all roles within the organisation to ensure that it had
a Company-wide coherent pay and reward structure that took full account of
responsibilities, skills and contribution. This also included a review of the
effectiveness of incentives such as bonus payments, and a change in culture
from expectation based on entitlement to expectation dependent upon
Company earnings and individual performance. Executives and managers have
their targets set against Group financial targets, divisional financial targets
(where appropriate) and personal objectives.
The components of remuneration for Executive Directors and senior
managers are:
Directors’ Service Contracts
Service contracts for Executive Directors are not longer than 12 months. With
the exception of the Chairman, who has a 12 month contract, the notice period
for Non-Executive Directors is six months. All directors’ service contracts include
a clause that notice or pay in lieu of notice may be forfeited for a serious breach
or continued material breach. Details are provided on page 21.
Basic Salary and Benefits
Salaries are established by reference to those prevailing in the market generally
for Executive Directors and senior managers of comparable status, responsibility
and skills in comparable industries and are generally set at or about the median.
The Committee uses executive remuneration surveys prepared by independent
consultancy firms to assist in establishing market levels. Salaries are reviewed
on an annual basis, in conjunction with Inbucon, and considered as part of the
overall remuneration package. 19
In addition to basic salary , Executive Directors and senior managers receive 
a company car (or equivalent cash allowance), and other benefits in line with
competitive practice. The taxable benefit of those items relating to Executive
Directors is set out later in the Report.
Non-Executive Directors’ fees are set by the Chairman and Executive Directors,
with the benefit of external advice. The Chairman’ s fees are set by the
Remuneration Committee (excluding the Chairman), based on external advice.
Non-Executive Directors are not involved in any discussion about their own
remuneration. Their fees are reviewed periodically in light of the fees payable
to Non-Executive Directors for comparable companies and the importance
attached to the retention and attraction of high calibre individuals. Fees also
reflect individual responsibilities in chairing the Board and its committees. 
Annual Bonus Scheme
The Company operates an annual bonus scheme for all employees based 
on achieving financial targets set by reference to EBITDA. The level of bonus
achievable varies with business and personal performance. A full percentage
award is dependent on substantial out-performance of expectations for the
financial year . These targets are set by the Remuneration Committee at the
beginning of each financial year and kept under review thereafter . For most
Executive Directors and senior managers between 44% and 55% of total
potential earnings is performance-related. Bonuses and other benefits for most
employees are not pensionable. However , because the Company was legally
obliged to maintain the existing terms and conditions of former Omnetica
employees, some bonuses and benefits are pensionable.
The table below shows bonuses/performance targets for directors for 2004/05.
Group Divisional
Financial Financial Personal Objectives Bonus as 
T arget T arget Objectives achieved % of salary
M Fallen 100% – – 100% 60%
P Simpson 80% – 20% 100% 50%
PHalls –100%
1
– 91.4% 91.4%
N Gower 10% 45% 45% 88.5% 44.25%
K Walsh 10% 45% 45% 81.75% 40.88%
1
Reflects targets agreed pre-acquisition.
Cash Bridge Scheme
This scheme was introduced last year in a fluid employment market with the aim
of ensuring the retention of senior executives. No share options were awarded
in 2003, and those awarded in previous years were all ‘underwater’ and were not
having any retentive effect. The scheme is performance based and will pay 
a bonus of between 30% and 60% of salary as a demanding financial performance
target has been met, which includes the cost of the scheme. That target was
based on Group EBITDA requirements and measured over a one-year period.
Entitlement is calculated in respect of the year ended March 2005 but payment
will be deferred until July 2006 to maximise the retention of key management.
There are 13 participants in the scheme. We intend to operate a similar scheme
this year .
External Appointments
The Board believes that it can benefit from the breadth of experience where
its members hold directorships in other companies. Accordingly , but subject
to the Board’ s prior approval, Executive Directors may assume membership 
of other company Boards and retain the fees earned. 
Share Options and Long T erm Incentive Schemes (LTIS) 
There are no share schemes in which directors solely participate. The schemes
are available to either all employees or certain groups of people (including
directors) at the discretion of the Remuneration Committee. However , currently
directors and senior executives do not receive awards under these schemes
but participate in the Long T erm Incentive Plans.
The Remuneration Committee has recently embarked upon a thorough review
of the incentives and schemes used throughout the Company . The aim is to
align rewards with the Company’ s objectives and the Committee will consider
whether share options are an effective method of achieving that aim.
Currently , selection for participation in discretionary schemes involves discussion
with the Company’ s operational management to identify and motivate those
people with the potential to substantially improve the Company’ s performance.
Recommendations are then considered by the Remuneration Committee. 
Each year the Committee reviews whether an award should be made and if so,
at what level, although this would not normally exceed 80% of annual salary and
in most cases significantly lower maximum percentages apply . The decision made
each year takes account of individual performance, Company performance,
and the amount of options ‘available’ under headroom levels in accordance
with ABI guidelines and best practice. Under the scheme rules the aggregate
value of options held under the Approved and Unapproved schemes (excluding
New Hire award options) cannot exceed four times current annual earnings.
Under the Long T erm Incentive Scheme (LTIS) the value of the award at the
date of grant cannot exceed 150 % of the basic annual salary in any
performance period.
Executives are encouraged to build up their interests more closely with
shareholders although there is no mandatory requirement to hold options
beyond the minimum period.
All Employee Schemes
SAYE
The Company has made four offerings under the SAYE scheme in September
1999, September 2000, May 2001 and September 2004. A further offering is
planned for the summer of 2005.
SIP
During 2003 the Company introduced a Share Incentive Plan (SIP). This scheme
is open to all employees and offers both partnership and matching shares
(which are currently offered on a 1:5 basis). So far 157 employees participate 
in this scheme with an average allocation of 15 matching shares per employee
per month.
Discretionary Schemes
APPROVED
This is an Inland Revenue approved scheme which was adopted on 22 June 1999.
Awards are made on a selective basis. Performance conditions always apply .
Any options are awarded at current market value on the date of grant. These
options become exercisable (providing performance conditions have been met)
between three and ten years from the date of grant provided the recipient is
still employed by the Company . The maximum value of share options under
this scheme that can be held by any individual is £30,000. No awards have been
made under this scheme since December 2002.
UNAPPROVED – NORMAL
This scheme was adopted on 6 July 2000 and is due to expire on 5 July 2005.
Awards are made on a selective basis. Performance conditions will always apply .
Any options are awarded at current market value on the date of grant. These
options become exercisable (providing performance conditions have been met)
between three and five years from the date of grant provided the recipient is
still employed by the Company . No awards have been made under this scheme
since 2001. Kingston Communications (HULL) PLC Annual Report 2004-05 Remuneration report
20
UNAPPROVED – NEW HIRE
This scheme was adopted on 6 July 2000 and is due to expire on 5 July 2005.
Awards are made on a selective basis but are made infrequently and only when
necessary to attract a potential senior executive to join the Company . Usually
there are performance conditions attached, but the Remuneration Committee
has the discretion to offer options, where necessary , without performance
conditions attached. During 2004/05 857,161 options were granted (split between
32 people), all of which had performance conditions attached. This award was
made to facilitate the Company’ s corporate acquisitions. These options become
exercisable (providing any performance conditions have been met) between
three and ten years from the date of grant provided the recipient is still
employed by the Company . Only two grants were made during the period. 
LONG TERM INCENTIVE SCHEME (L TIS)
Grants under this scheme are selective and aimed at the Company’ s senior
and middle management. Performance conditions always apply . Options 
are awarded at nil cost. They become exercisable (to the extent that the
performance conditions have been met) between three and ten years from
the date of grant provided the recipient is still employed by the Company .
One award was made under this scheme during 2004-05.
Early Exercise of Options
The rules of each scheme provide for early exercise of options under certain
circumstances (in the event of death or where the employee’ s contract is
terminated and the employee is deemed to be a ‘good leaver’). However , the
only options that become exercisable are those which do not have performance
conditions attached, or those where performance conditions have already been
met. In any other circumstances the Remuneration Committee may use its
discretion to allow a partial exercise on a pro-rata basis and uses a consistent
formula for all employees. 
Performance Conditions for Share Options
All awards of discretionary share options (with the possible exception of New
Hire in some cases) have performance conditions attached which are reviewed
annually to ensure they are fair . The Remuneration Committee may amend the
performance conditions provided that the amended conditions are no less
demanding and are deemed as being a fairer measurement of performance,
and that the circumstances merit such a change. Any significant change would
require shareholder approval.
Performance conditions for awards made after 1 April 2002 are:
Half of the award measures the T otal Shareholder Return (TSR) of the Company
in the Performance Period against a Comparator Group of telecommunications
stocks. The other half of the award measures the TSR of the Company in the
Performance Period against a Comparator Group within the Stock Exchange
T echmark Index. TSR in both cases must be at or above the following percentiles:
Percentage Ranked Percentage of the Relevant Half of the
Against Relevant Comparator Group Award Which Becomes Exercisable
50% 20%
60% 40%
70% 60%
80% 80%
90% 100%
The performance conditions are measured by the Company’ s advisers Hewitt
Bacon & Woodrow. Each year a new Performance Period is established which 
is measured from 1 April for three years. Any awards made during that financial
year are covered by the Performance Period beginning that same financial year .
Hewitt Bacon & Woodrow provide the Company with an update on 1 April each
year for each Performance Period, as well as providing a final measurement.
The Company provides all award holders with annual updates. 
The comparator groups selected (T elecoms and T echmark) are considered 
to be the most appropriate by the Company’ s advisers because they include
companies who employ executives and management who are most likely 
to have the skills and experience required by the Company , or to whom the
Company’ s senior personnel are most likely to be attracted if they perceive
the Company’ s pay and benefits package to be uncompetitive.
There were 158 members of the FTSE T echmark All Share Index and 12 members
of the FTSE All Share T elecoms Index as at 31 March 2005. A full list is available
from the Company Secretary .
Performance conditions for awards made before 1 April 2002 were based on
similar criteria (i.e. in two halves), but had to reach 50% achievement against
the relevant index at which point 100% of the relevant half of the award became
payable. These criteria were replaced in 2002 in line with best practice.
Share Dilution and Headroom
The Company adheres strictly to both the latest ABI Guidelines and its own
share scheme rules in monitoring the level of share dilution. The issue of
discretionary shares will not exceed 5% of the issued ordinary share capital 
of the Company in any rolling 10-year period. Additionally , the issue of all shares
for the total of the Company’ s employee share schemes will not exceed 10%
of the issued ordinary share capital of the Company in any rolling 10-year period.
As our share schemes began in 1999, we are currently in year six of the first
rolling period.
The Remuneration Committee reviews the current levels, available headroom
and general trends on a regular basis.
Headroom 2005 2004 2003
Rolling Y ear 6 54
T otal issued share capital as at 31 March 514.5M 308.3M 308.3M
Percentage of headroom used 2.02 3.22 4.35
LONG TERM INCENTIVE PLAN (L TIP)
Following shareholder approval at the 2004 AGM the Company introduced 
a new Long T erm Incentive Plan. The plan is a cash bonus pool scheme, based
on achieving a 3-year EBITDA target for the 2004 award (measured to 31 March
2007). Each participant is awarded a number of points taking into account factors
such as responsibility and ability to influence Company performance. Provided
the target is met, the cash bonus pool is distributed amongst participants on 
a pro-rata basis according to their points, but subject to a cap as specified in
the Scheme rules. The benefit is paid partly in cash and partly in shares, and the
Remuneration Committee has the discretion to award up to 50% of the total
benefit in shares. The cash element is payable at the end of the three year
period but the shares are not released for a further year .
Final calculation of any potential benefit is not possible until the end of the
period. However , as an illustration of the possible size of the pool, for the award
made in 2004 (maturing in 2007), an annual compound growth rate in EBITDA
of 5% would result in 1% of the increase going into the pool. This increases on
a straight-line basis up to 10% annual compound growth, which allows 7.5% 
of the increase to go into the pool. The maximum potential benefit from each
grant is limited to 200% of an individual’ s basic salary .
The Committee is currently considering whether to make a further award in 2005.
If the award is made, it is likely that it will be based on a 3-year PBTA target. 21
4. PERFORMANCE GRAPH
The following graph shows, for the financial year ended 31 March 2005 and 
for each of the previous five financial years, the T otal Shareholder Return (TSR)
on a holding of the Company’ s ordinary shares compared with a hypothetical
holding of shares made up of shares of the same kind and number as those by
reference to which the FTSE T elecommunications Services Sector is calculated.
This index has been chosen as the appropriate comparator because it reflects
the performance of other companies operating in the same market sector .
5. SERVICE CONTRACTS
Date of Appointment Unexpired T erm Notice Period
Executive Directors
Mr P Simpson 24/05/2004 2 years (2007)
1
12 months
Mr K Walsh 24/05/2004 2 years (2007)
1
12 months
Mr N Gower 24/05/2004 2 years (2007)
1
12 months
Mr M Fallen 18/01/2001 1 years (2006)
1
12 months
Mr P Halls 31/12/2004 0 years (2008)
2
12 months
Date of Appointment Unexpired T erm Notice Period
Non-Executive Directors
Mr M Abrahams 01/03/1999 2 years (2007)
1
12 months
Mr S Christie 01/03/1999 1 year (2006)
1
6 months
Mr M Bird 11/06/2003 resigned 31/03/05 N/A
Mr J Carrington 08/04/2003 1 year (2006)
1
6 months
Mr J Huth 01/01/2005 0 years (2008)
2
6 months
Mrs C Page 01/01/2005 0 years (2008)
2
6 months
Mrs J Robinson 11/06/2003 resigned 23/07/04 N/A
Mrs J Hughes 18/11/1999 resigned 23/07/04 N/A
1
This is the balance of a notional three-year term since a directors’ last re-election.
2
Appointed since last AGM.
Special Provisions
Apart from the Chairman, Mr M Abrahams, none of the Non-Executive Directors’
service contracts make any provision for compensation for loss of office. 
Mr Abrahams’ service contract awards a sum, in the event of loss of office, equal
to any fees which would have been paid during the notice period, less 10%.
The service contracts for Executive Directors allow for payment in lieu of notice
(12 months) in the event of loss of office. Additionally Mr M Fallen’ s contract has
a special provision for the event of a change of control of the Company . In this
event, 12 months salary is payable, plus a sum equivalent to the notional value
of all benefits in kind (including any pension rights) as would have been received
during the 12-month period (based on the taxable value of the preceding year).
A AU UD DI IT TE ED D  I IN NF FO OR RM MA AT TI IO ON N
6. DIRECTORS’ REMUNERATION
The following table sets out an analysis of pre-tax remuneration during the year
ending March 2005 and total remuneration for 2004. It includes bonuses but
excludes pensions which are shown separately .
Salaries/ T axable Total T otal
Fees Benefits Bonuses** 2005 2004
Name £’000 £’000 £’000 £’000 £’000
Mr M Abrahams 141 – – 141 131
Mr S Maine – – – – 770
Mr M Fallen 310 26 372 708 450
Mr P Simpson* 127 12 139 277 –
Mr K Walsh* 125 11 136 273 –
Mr N Gower* 139 12 156 307 –
Mr P Halls* 45 7 41 93 –
Mr M Bird* 25 – – 25 20
Mr J Carrington 34 – – 34 29
Mr S Christie 34 – – 34 30
Mrs J Hughes* 8 – – 8 21
Mr J Robinson* 8 – – 8 20
Mr M Kemp* – – – – 3
Mrs C Page* 6 – – 6 3
Mr J Huth* 6 – – 6 –
Total 1,008 68 844 1,920 1,477
* Part period only (details of appointment/resignation dates are shown in the
table opposite).
** Bonuses include, other than for P Halls, the benefit accruing under the Cash
Bridge Scheme (see page 19) which becomes payable in July 2006.
7. DIRECTORS’ INTERESTS
The interests of directors and their families in the Company’ s shares at 31 March
2005 and 31 March 2004 (or date of appointment if later), other than with respect
to options to acquire ordinary shares which are detailed separately , are set out
below. All of the interests held by directors and their families are beneficial.
At March 2005 At March 2004
Name Ordinary Shares Ordinary Shares
Mr M Abrahams 19,999 19,999
Mr M Bird 5,000 5,000
Mr J Carrington 17,500 17,500
Mr S Christie 17,222 2,222
Mr M Fallen 130,735 55,099
Mr N Gower 93,008 –
Mr P Halls 389,372 –
Mr J Huth 0 –
Mrs C Page 0 –
Mr P Simpson 25,000 –
Mr K Walsh 27,733 –
There has been no change since the end of the year in the interest of the
continuing directors.
Index (Year ended March 2000 based at 100)
Apr 03 Apr 04 Apr 05 Apr 02 Apr 01 Apr 00
100.00
80.00
60.00
40.00
20.00
0.00
48.01
31.13
24.98
30.34
33.59
100.0
12.50
9.00
3.40
6.60 7.10
■ Kingston Communications (HULL) PLC
■ FTSE Telecommunications Services Sector
Below: Kingston Communications (HULL) PLC T otal Return Index Versus The FTSE T elecommunication
Services Sector T otal Return Index For The Five Financial Y ears Ending 31 March 2005 Kingston Communications (HULL) PLC Annual Report 2004-05 Remuneration report
22
8. SHARE OPTIONS
Details of share options held by the Executive Directors as at 31 March 2005, performance conditions of which are described on page 20 are:
Mr M Fallen 
Held At Exercised Granted Lapsed Held At Option Market Price Date of Vesting Lapse Quantity Performance 
Scheme 01/04/04 in Period in Period in Period 31/03/05 Price at Grant Grant Date Date Unexpired Conditions
L TIS 290,909 75,636 0 215,273 0 Nil 82.5p 20/08/01 20/08/04 19/08/11 0 50 T els/50 T ech
L TIS 200,000 0 0 0 200,000 Nil 59.75p 27/08/02 27/08/05 26/08/12 200,000 50 T els/50 T ech
SAYE 14,180 0 0 0 14,180 119p 140p 01/05/01 01/05/06 01/10/06 14,180 None
T otal 505,089 75,636 0 215,273 214,180 214,180
One L TIS award was due to vest during the period, and only vested at 26% causing the balance to lapse as the performance criteria were not fully met. The market
price at the vesting/lapse date was 62.25p. Other details of the award are shown above. 
Mr Fallen exercised 75,636 options during the period. This took place on 2 December 2004 when both the exercise price and the market price were 60.5p.
Other details regarding the options are shown above. No share options had their terms varied during the period.
Mr Fallen’ s individual limits, in accordance with our scheme rules described on pages 19 and 20 are:
• Value of Approved and Unapproved options granted during the period is currently 0 times salary .
• Value of L TIS granted during the period is 0% as no awards have been made (2004: 0%).
Mr P Simpson
Held At Exercised Granted Lapsed Held At Option Market Price Date of Vesting Lapse Quantity Performance 
Scheme 01/04/04 in Period in Period in Period 31/03/05 Price at Grant Grant Date Date Unexpired Conditions
Approved 5,709 0 0 5,709 0 118.75p 118.75p 24/05/01 24/05/04 24/05/04 0 100 T ech
Approved 15,000 0 0 0 15,000 82.5p 82.5p 20/08/01 20/08/04 19/08/11 15,000 100 T ech
L TIS 25,000 0 0 0 25,000 Nil 59.75p 27/08/02 27/08/05 26/08/12 25,000 50 T els/50T ech
T otal 45,709 0 0 5,709 40,000 40,000
One Approved award was due to vest during the period, but lapsed as the performance criteria were not met. The market price at the vesting/lapse date was
58.75p. Other details of the award are shown above. 
Mr Simpson did not exercise any options during the period. No share options had their terms varied during the period.
Mr Simpson’ s individual limits, in accordance with our scheme rules described on pages 19 and 20 are:
• Value of Approved and Unapproved options granted during the period is currently 0 times salary .
• Value of L TIS granted during the period is 0% as no awards have been made (2004: 0%).
Mr K Walsh
Held At Exercised Granted Lapsed Held At Option Market Price Date of Vesting Lapse Quantity Performance 
Scheme 01/04/04 in Period in Period in Period 31/03/05 Price at Grant Grant Date Date Unexpired Conditions
Approved 25,263 0 0 25,263 0 118.75p 118.75p 24/05/01 24/05/04 24/05/04 0 100 T ech
Unappr . 18,309 0 0 18,309 0 118.75p 118.75p 24/05/01 24/05/04 24/05/04 0 100 T ech
L TIS 106,666 27,733 0 78,933 0 Nil 82.5p 20/08/01 20/08/04 19/08/11 0 50 T els/50 T ech
L TIS 125,000 0 0 0 125,000 Nil 59.75p 27/08/02 27/08/05 26/08/12 125,000 50 T els/50 T ech
T otal 275,238 27,733 0 122,505 125,000 125,000
One Approved award and one Unapproved award were due to vest during the period, but lapsed as the performance criteria were not met. The market price at
the vesting/lapse date was 58.75p. One L TIS award was due to vest during the period, but only vested at 26% causing the balance to lapse as the performance
criteria were not fully met. The market price at the vesting/lapse date was 62.25p. Other details of the awards are shown above. 
Mr Walsh exercised 27,733 L TIS options during the period. This took place on 2 December 2004 when both the exercise price and the market price were
60.5p.Other details regarding the options are shown above. No share options had their terms varied during the period.
Mr Walsh’ s individual limits, in accordance with our scheme rules described on pages 19 and 20 are:
• Value of Approved and Unapproved options granted during the period is currently 0 times salary .
• Value of L TIS granted during the period is 0% as no awards have been made (2004: 0%). 23
Mr N Gower
Held At Exercised Granted Lapsed Held At Option Market Price Date of Vesting Lapse Quantity Performance 
Scheme 01/04/04 in Period in Period in Period 31/03/05 Price at Grant Grant Date Date Unexpired Conditions
Approved 10,714 0 0 0 10,714 280p 280p 16/07/99 16/07/02 15/07/09 10,714 None
Unappr . 18,000 0 0 18,000 0 118.75p 118.75p 24/05/01 24/05/04 24/05/04 0 100 T ech
Unappr . 4,374 0 0 0 4,374 591p 591p 26/07/00 26/07/03 25/07/05 4,374 100 T ech
L TIS 48,888 48,888 0 0 0 Nil 280p 16/07/99 16/07/02 15/07/09 0 50 T els/50 T ech
L TIS 169,696 44,120 0 125,576 0 Nil 82.5p 20/08/01 20/08/04 19/08/11 0 50 T els/50 T ech
L TIS 150,000 0 0 0 150,000 Nil 59.75p 27/08/02 27/08/05 26/08/12 150,000 50 T els/50 T ech
SAYE 8,140 0 0 8,140 0 119p 140p 01/05/01 01/06/04 01/12/04 0 None
T otal 409,812 93,008 0 151,716 165,088 165,088
One Unapproved award was due to vest during the period, but lapsed due to not meeting its performance criteria. The market price at the vesting/lapse date
was 58.75p. One L TIS award was due to vest during the period, but only vested at 26% causing the balance to lapse as the performance criteria were not fully
met. The market price at the vesting/lapse date was 62.25p. Other details of the award are shown above. One SAYE scheme lapsed as Mr Gower chose not to
exercise his options. Mr Gower exercised 93,008 L TIS options during the period. This took place on 2 December 2004 when both the exercise price and the market
price were 60.5p. Other details regarding the options are shown above. No share options had their terms varied during the period.
Mr Gower’ s individual limits, in accordance with our scheme rules described on pages 19 and 20 are:
• Value of Approved and Unapproved options granted during the period is currently 0 times salary .
• Value of L TIS granted during the period is 0% as no awards have been made (2004: 0%).
Mr P Halls
Mr Halls does not currently hold any share options.
General Information
The information provided above is a summary . However , full details of directors’ shareholdings and options are contained in the Register of Directors’ Interests
which is available for inspection at the Company’ s Registered Office. There are no Non-Executive Directors who hold share options in the Company .
The closing mid-market price of Kingston Communications (HULL) PLC shares on 31 March 2005 was 71.25p. The high and low closing mid-market share prices
during the year were 72.75p and 49p respectively .
9. PENSIONS
Mr N Gower
Mr Gower is a member of the Kingston Communications Pension Scheme which
is a long-standing approved scheme. It normally provides a maximum target
pension on retirement of 50% of salary and a cash lump sum of 150% of salary .
Both of these amounts are reduced pro rata for service below 40 years. 
The Company has also established a Funded Unapproved Retirement Benefit
Scheme for the benefit of Executive Directors and senior management. 
The amount paid under this arrangement to Mr Gower was £31,778 (2004: £Nil).
During the period the following benefits were accrued:
Y ear ended 31 March 2005
£
Accrued pension at 24 May 2004 (per annum)
1
20,500
Accrued lump sum entitlement at 24 May 2004
1
61,500
Accrued pension at 31 March 2005 (per annum) 23,549
Accrued lump sum entitlement at 31 March 2005 70,647
Increase in pension during the financial year 
to 31 March 2005 gross of inflation (per annum)
1
3,049
Increase in lump sum during the financial year 
to 31 March 2005 gross of inflation (per annum)
1
9,147
Increase in pension during the financial year 
to 31 March 2005 net of inflation (per annum)
1
2,507
Increase in lump sum during the financial year 
to 31 March 2005 net of inflation (per annum)
1
7,521
T ransfer value of accrued benefits at 24 May 2004 197,267
T ransfer value of accrued benefits at 31 March 2005 237,769
Increase in transfer value
2
32,013
T ransfer value of the net-of-inflation increase in accrued benefits
2
17,282
1
Mr Gower became a Director on 24 May 2004 and so the stated financial year
runs from 24 May 2004 to 31 March 2005.
2
The increase in both the total transfer value and the transfer value of the net-
of-inflation are shown after deducting estimated Directors’ contributions of
£8,849 in the period from 24 May 2004 to 31 March 2005.
Mr M Fallen
Mr Fallen is a member of the Kingston Group Personal Pension Plan, a defined
contribution scheme. During the financial year , the Company made contributions
of £10,200 on behalf of Mr Fallen (2004: £8,309).
During the financial year, the Company made or committed to make
contributions of £84,350 to Mr Fallen’ s money purchase pension arrangement
(2004: £74,404).
Mr P Simpson
Mr Simpson is a member of the Kingston Group Personal Pension Plan, a defined
contribution scheme. During the financial year , the Company made contributions
of £11,286 on behalf of Mr Simpson (2004: £Nil).
Mr K Walsh
Mr Walsh is a member of the Kingston Group Personal Pension Plan, a defined
contribution scheme. During the financial year , the Company made contributions
of £12,503 on behalf of Mr Walsh (2004: £Nil).
Mr P Halls
Mr Halls is a member of the Omnetica Ltd Defined Contribution Pension
Scheme. During the financial year , the Group made contributions of £15,209
on behalf of Mr Halls (2004: £Nil).
10. APPROVAL
This Directors’ Remuneration Report has been approved by the Board of
Directors of Kingston Communications (HULL) PLC.
JPC Bailey
Company Secretary Kingston Communications (HULL) PLC Annual Report 2004-05
24
Principal activities
The principal activity of the Group consists of the running, operating, managing
and supplying telecommunications systems and related services.
Review of the business and future developments
A review of the business of the Company and its divisions during the year is
incorporated in the various reviews set out on pages 4 to 10.
Results and dividends
The profit for the year attributable to members of the parent Company amounted
to £12.6 million (2004: loss of £118.4 million). The Directors are recommending
payment of a final dividend of 0.54 pence (2004: £Nil), resulting in a total dividend
of 0.9 pence (2004: £Nil). 
Charitable and political donations
The Company made a number of local charitable donations throughout the
year to support community organisations and initiatives totalling £12,500
(2004: £12,434). No political donations were made.
Creditor payment policy
The Company aims to pay its suppliers within a reasonable period of the invoice
being received and in accordance with the Confederation of British Industry
prompt payment code. At 31 March 2005, the Company’ s trade creditors
represented 10 days of trade purchases (2004: 24 days).
Employment policies
Employment strategies within the Company have been designed to deliver
growth and development of the Company and its people, linked to
business needs.
The Company operates an Equal Opportunities policy and takes every
opportunity to involve and consult with its employees. Full details are
provided under the corporate social responsibility report on page 13.
Health and Safety is an integral part of good business management and well-
established systems of safety management are in place throughout the business. 
Directors’ responsibilities
The statement of Directors’ responsibilities is given in the corporate governance
report on page 17. 
Directors’ interests
Details of Directors’ interests in the Company’ s shares at the start and end of the
year are given in the remuneration report on page 21.
Interest of management in certain transactions
Other than as disclosed in note 30 to the financial statements, none of the
Directors had an interest in a significant contract to which the Company or 
any subsidiary undertaking was party during the year .
Authority to purchase shares
At the Company’ s Annual General Meeting on 23 July 2004 authority was given
for the Company to purchase up to 38,032,851 of its own shares.
International Financial Reporting Standards (IFRS)
With effect from 1 April 2005 the Group will be adopting IFRS in its consolidated
financial statements. Adoption of IFRS will not only lead to changes in the
presentation of the primary statements and related notes, but will also have
an impact on the treatment of the following:
• Accounting for pensions and employee benefits, which will broadly follow
the requirements of FRS17, the impact of which is set out in note 28 to the
financial statements.
• Goodwill and other intangibles, under which goodwill is no longer
amortised but will be subject to an annual impairment assessment.
• Intangible assets arising from acquisitions after 1 April 2004 will be separately
identified and amortised through the profit and loss account over their
estimated useful economic lives.
• Share based payments, where the fair value of the award is charged as an
expense in the profit and loss account.
• Provision for the payment of final dividends will not be made until approved
at the Annual General Meeting.
The Group has undertaken a specific project to review the transition to IFRS and
to determine the impact of these adjustments on reported results. The Group
is on track to meet its reporting obligations, and the first set of results the Group
will publish under IFRS will be the interim statement for the six months ending
30 September 2005. The first annual report and accounts will be for the year
ending 31 March 2006. The Group will also be restating its comparative results
for the six months ended 30 September 2004 and the year ended 31 March 2005
in accordance with IFRS.
Substantial shareholdings
With the exception of those holdings of ordinary shares listed below, the
Directors are not aware of any persons holding 3% or more of the ordinary share
capital of the Company at 18 May 2005 which is required to be disclosed in
accordance with sections 198 to 208 of the Companies Act 1985.
No. of shares % held
Kingston upon Hull City Council 157,499,999 30.6%
Demag Holdings 121,881,135 23.7%
Amvescap plc 33,424,637 7.0%
Kingston upon Hull City Council’ s shareholding is held in the name of 
Morgan Nominees Limited. Demag Holdings’, a company controlled by KKR,
shareholding is held in the name of Vidacos Nominees Limited.
Post Balance Sheet Events
On 20 May 2005 the Group announced the sale of the French operation of the
Omnetica Group for a cash consideration of €47 million. The sale is conditional
on approval by the French Competition Authority and is expected to complete
during the summer of 2005.
Directors
The names and biographical details of the Directors of the Company at 31 March
2005 are given on page 11. 
Re-election
Mr M Fallen and Mr S Christie retire from the Board at the Annual General
Meeting and, being eligible, offer themselves for re-election. Mrs C Page, 
Mr P Halls and Mr J Huth have been appointed to the Board since the last Annual
General Meeting, and, pursuant to the Company’ s Articles of Association, are
standing for re-election.
Annual General Meeting
The Annual General Meeting will be held at the Gemtec Arena at the Kingston
Communications Stadium, Kingston upon Hull on 22 July 2005 at 11am. 
The notice of Annual General Meeting accompanies this Annual Report.
Auditors
Deloitte & T ouche LLP have expressed their willingness to continue in office
as auditors to the Company . A resolution to re-appoint them as auditors will
be put to the members at the Annual General Meeting.
JPC Bailey
Company Secretary
23 May 2005
Directors’ report 25
We have audited the financial statements of Kingston Communications (HULL)
PLC for the year ended 31 March 2005 which comprise the profit and loss
account, the balance sheets, the cash flow statement, the statement of total
recognised gains and losses and the related notes 1 to 32 together with the
reconciliation of net cash flow to movement in net debt and reconciliation of
movements in consolidated shareholder’ s funds. These financial statements
have been prepared under the accounting policies set out therein. We have
also audited the information in the part of the directors’ remuneration report
that is described as having been audited.
This report is made solely to the company’ s members, as a body , in accordance
with section 235 of the Companies Act 1985. Our audit work has been undertaken
so that we might state to the company’ s members those matters we are required
to state to them in an auditors’ report and for no other purpose. T o the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company’ s members as a body , for our audit
work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As described in the statement of directors’ responsibilities, the company’ s
directors are responsible for the preparation of the financial statements in
accordance with applicable United Kingdom law and accounting standards.
They are also responsible for the preparation of the other information
contained in the annual report including the directors’ remuneration report.
Our responsibility is to audit the financial statements and the part of the
directors’ remuneration report described as having been audited in
accordance with relevant United Kingdom legal and regulatory requirements
and auditing standards.
We report to you our opinion as to whether the financial statements give a true
and fair view and whether the financial statements and the part of the directors’
remuneration report described as having been audited have been properly
prepared in accordance with the Companies Act 1985. We also report to 
you if, in our opinion, the directors’ report is not consistent with the financial
statements, if the company has not kept proper accounting records, if we have
not received all the information and explanations we require for our audit, or if
information specified by law regarding directors’ remuneration and transactions
with the company and other members of the group is not disclosed.
We review whether the corporate governance statement reflects the company’ s
compliance with the nine provisions of the July 2003 FRC Combined Code
specified for our review by the Listing Rules of the Financial Services Authority ,
and we report if it does not. We are not required to consider whether the
board’ s statements on internal control cover all risks and controls, or form an
opinion on the effectiveness of the group’ s corporate governance procedures
or its risk and control procedures.
We read the directors’ report and the other information contained in the
annual report for the above year as described in the contents section including
the unaudited part of the directors’ remuneration report and consider the
implications for our report if we become aware of any apparent misstatements
or material inconsistencies with the financial statements.
Basis of audit opinion
We conducted our audit in accordance with United Kingdom auditing standards
issued by the Auditing Practices Board. An audit includes examination, on 
a test basis, of evidence relevant to the amounts and disclosures in the financial
statements and the part of the directors’ remuneration report described as
having been audited. It also includes an assessment of the significant estimates
and judgements made by the directors in the preparation of the financial
statements and of whether the accounting policies are appropriate to the
circumstances of the company and the group, consistently applied and
adequately disclosed.
We planned and performed our audit so as to obtain all the information 
and explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
and the part of the directors’ remuneration report described as having been
audited are free from material misstatement, whether caused by fraud or other
irregularity or error . In forming our opinion, we also evaluated the overall
adequacy of the presentation of information in the financial statements and the
part of the directors’ remuneration report described as having been audited.
Opinion
In our opinion:
• the financial statements give a true and fair view of the state of affairs of the
Company and the Group as at 31 March 2005 and of the profit of the Group
for the year then ended; and
• the financial statements and part of the directors’ remuneration report
described as having been audited have been properly prepared in
accordance with the Companies Act 1985.
Deloitte & T ouche LLP
Chartered Accountants and Registered Auditors
Leeds
23 May 2005
Independent Auditors’ report to the members of
Kingston Communications (HULL) PLC Kingston Communications (HULL) PLC Annual Report 2004-05
26
2005 2004
Before Before
Exceptional Exceptional Exceptional Exceptional
items items Total items items T otal
Notes £’000 £’000 £’000 £’000 £’000 £’000
Turnover 2
– Continuing 304,033 – 304,033 294,684 – 294,684
– Acquisitions 60,249 – 60,249 –– –
– Discontinued 2,255 – 2,255 29,512 – 29,512
366,537 – 366,537 324,196 – 324,196
Operating costs before depreciation and amortisation 3 (303,352) (4,500) (307,852) (268,798) (11,879) (280,677)
Group EBITDA 2
– Continuing 56,868 (3,681) 53,187 50,650 (7,879) 42,771
– Acquisitions 6,050 (325) 5,725 –– –
– Discontinued 267 (494) (227) 4,748 (4,000) 748
63,185 (4,500) 58,685 55,398 (11,879) 43,519
Depreciation and other amounts written off tangible fixed assets 4 (37,453) – (37,453) (52,645) (97,942) (150,587)
Group EBITA
– Continuing 22,269 (3,681) 18,588 3,870 (105,821) (101,951)
– Acquisitions 3,653 (325) 3,328 –– –
– Discontinued (190) (494) (684) (1,117) (4,000) (5,117)
25,732 (4,500) 21,232 2,753 (109,821) (107,068)
Amortisation of intangible fixed assets 4 (8,669) – (8,669) (2,543) – (2,543)
Group operating profit/(loss) 4
– Continuing 16,661 (3,681) 12,980 1,437 (105,821) (104,384)
– Acquisitions 592 (325) 267 –– –
– Discontinued (190) (494) (684) (1,227) (4,000) (5,227)
17,063 (4,500) 12,563 210 (109,821) (109,611)
Profit on sale or termination of operations 5 – 2,898 2,898 –– –
Profit on sale of fixed asset investments 5 – 311 311 –– –
Amounts written off fixed asset investments 5 – (141) (141) – (1,456) (1,456)
Profit/(loss) on ordinary activities before interest and taxation 15,631 (111,067)
Net interest payable and similar charges 7 (8,638) (7,503)
Profit/(loss) on ordinary activities before taxation 2 6,993 (118,570)
T axation 8 5,637 216
Profit/(loss) on ordinary activities after taxation 12,630 (118,354)
Dividends 9 (4,168) –
Profit/(loss) for the financial year 10 8,462 (118,354)
Basic earnings/(loss) per share 11 3.03p (31.18p)
Adjusted basic earnings/(loss) per share 11 4.09p (1.19p)
Diluted earnings/(loss) per share 11 3.02p (31.18p)
Adjusted diluted earnings/(loss) per share 11 4.08p (1.19p)
Consolidated profit and loss account
For the year ended 31 March 2005 27
Consolidated Parent Company
2005 2004 2005 2004
Notes £’000 £’000 £’000 £’000
Fixed assets
Intangible assets 12 202,465 26,497 – –
T angible assets 13, 14 232,331 250,312 – 39
Investments 15 1,087 1,660 637,315 490,662
435,883 278,469 637,315 490,701
Current assets
Stocks 16 13,042 2,154 – –
Debtors 17 134,312 74,387 33,214 46,113
Cash at bank and in hand 28,189 6,589 6,204 –
175,543 83,130 39,418 46,113
Creditors: amounts falling due within one year 18 (169,505) (101,198) (14,250) (47,616)
Net current assets/(liabilities) 6,038 (18,068) 25,168 (1,503)
T otal assets less current liabilities 441,921 260,401 662,483 489,198
Creditors: amounts falling due after more than one year 19 (191,506) (100,812) (191,280) (100,803)
Provisions for liabilities and charges 22 (5,541) (5,637) (1,242) (3,647)
Net assets 244,874 153,952 469,961 384,748
Capital and reserves
Called up share capital 23, 24 51,454 38,033 51,454 38,033
Share premium account 24 352,229 282,374 352,229 282,374
Profit and loss account 24 (158,809) (166,455) 66,278 64,341
Equity shareholders’ funds 244,874 153,952 469,961 384,748
MD Abrahams, Chairman
MJ Fallen, Chief Executive Officer
23 May 2005
Balance sheets
As at 31 March 2005 Kingston Communications (HULL) PLC Annual Report 2004-05
28
2005 2004
Notes £’000 £’000
Net cash inflow from operating activities 31A 49,964 51,461
Returns on investments and servicing of finance 31B(i) (11,132) (6,677)
T axation 31B(ii) (101) –
Capital expenditure and financial investment 31B(iii) (35,952) (37,151)
Acquisitions and disposals 31B(iv) (72,227) –
Equity dividends paid 31B(v) (1,390) –
Net cash (outflow)/inflow before management of liquid resources and financing (70,838) 7,633
Management of liquid resources 31B(vi) (1,926) –
Financing 31B(vii) 92,438 (13,004)
Increase/(decrease) in cash in the year 19,674 (5,371)
2005 2004
Notes £’000 £’000
Increase/(decrease) in cash in the year 19,674 (5,371)
(Increase)/decrease in debt and lease financing (92,907) 13,004
Finance leases acquired with subsidiaries (643) –
Issue costs of new long term loans 3,467 35
Cash inflow from short term deposits 1,926 –
Change in net debt resulting from cash flows (68,483) 7,668
Amortisation of loan issue costs (895) (768)
Movement in net debt in the year (69,378) 6,900
Net debt at beginning of financial year (94,221) (101,121)
Net debt at end of financial year 31C (163,599) (94,221)
Consolidated cash flow statement
For the year ended 31 March 2005
Reconciliation of net cash flow 
to movement in net debt
For the year ended 31 March 2005 29
2005 2004
£’000 £’000
Profit/(loss) for the financial year 8,462 (118,354)
Exchange movements 210 41
T otal recognised gains and losses for the year 8,672 (118,313)
. 2005 2004
Notes £’000 £’000
Profit/(loss) on ordinary activities after taxation 12,630 (118,354)
Dividends (4,168) –
8,462 (118,354)
Issue of ordinary shares (net of issue costs) 83,276 –
Employee share schemes (1,026) (124)
Exchange movements 210 41
Increase/(decrease) in shareholders’ funds 90,922 (118,437)
Shareholders’ funds at beginning of financial year 24 153,952 272,389
Shareholders’ funds at end of financial year 24 244,874 153,952
Consolidated statement of total recognised 
gains and losses
For the year ended 31 March 2005
Reconciliation of movements in consolidated
shareholders’ funds
For the year ended 31 March 2005 Kingston Communications (HULL) PLC Annual Report 2004-05
30
1. ACCOUNTING POLICIES
Summarised below are the principal accounting policies which have been
consistently applied throughout the current and prior financial year .
Basis of preparation
The financial statements on pages 26 to 42 have been prepared under the
historical cost convention and in accordance with applicable United Kingdom
accounting standards.
Basis of consolidation
The consolidated financial statements include the financial statements of the
Company and its undertakings made up to 31 March 2005. The results of new
subsidiary undertakings are included from the dates of the acquisition. Where
a company has ceased to be a subsidiary undertaking during the year , its results
are included to the date of cessation.
Turnover
Group turnover , which excludes value added tax, comprises the value of services
provided and equipment sales by Group undertakings, excluding those between
them. The Group enters into contractual arrangements that include various
components, which operate independently of each other . T urnover is recognised
in respect of the Group’ s right to consideration for each individual component
where a reliable fair value can be attributed to these components.
T urnover from calls is recognised in the Group profit and loss account at 
the time the call is made over the Group’ s network. T urnover from rentals is
recognised evenly over the rental period. T urnover from sales is recognised at
the point of sale. T urnover from production of directories is recognised at the
point when the directory is published. T urnover arising from the provision of
other services, including maintenance contracts, is recognised evenly over the
periods in which the service is provided to the customer .
Intangible assets – goodwill 
Goodwill represents the excess of the consideration paid for investments in
subsidiary undertakings, associated undertakings or businesses over the fair
value of identifiable assets and liabilities as at the date of their acquisition.
Prior to 1 April 1998 goodwill was written off direct to reserves in accordance
with accounting standards then in force. From 1 April 1998, goodwill arising
on acquisition is capitalised and amortised over the Directors’ estimate of its
useful economic life. Provision is made for any impairment. The Directors have
estimated the useful economic life of goodwill arising in respect of acquisitions
since 1 April 1998 to be between 5 and 20 years, being the period over which the
value of the underlying business will exceed the value of the underlying assets.
Goodwill previously written off against reserves will remain deducted within
shareholders’ funds. However , if a subsidiary , associate or business is
subsequently sold or closed, any goodwill arising on acquisition that was
previously written off directly to reserves or that has not been amortised
through the profit and loss account is taken into account in determining the
profit or loss on sale or closure.
Intangible assets – research and development 
Research expenditure is written off as incurred. Development expenditure 
is also written off, except where the Directors are satisfied as to the technical,
commercial and financial viability of individual projects. In such cases, the
identifiable expenditure is deferred and amortised over the period during
which the Group is expected to benefit.
T angible fixed assets
T angible fixed assets are stated at historical cost less accumulated depreciation
and any provision for impairment. Network infrastructure and related equipment
is recorded at cost plus labour costs directly attributable to the cost of the network
construction. Depreciation is provided so as to write off the cost of assets to
residual values on a straight-line basis over the assets’ useful estimated lives
as follows:
Freehold buildings 40 years
Leasehold buildings and improvements period of lease
Exchange equipment 10 years
External plant 10 to 20 years
Vehicles, other apparatus and equipment 3 to 10 years
Depreciation of network infrastructure and related equipment is provided for
from the date the network comes into operation.
Fixed asset investments
Fixed asset investments are shown at cost less provision for impairment. 
Government grants
European Regional Development Fund grants are credited to a separate
account from which transfers to the profit and loss account are made over the
estimated useful life of the asset concerned.
Grants received giving immediate financial support or reimbursing costs
previously charged to profit are recognised in the profit and loss account in
the period in which they become receivable.
Stocks
Stocks, stores and work-in-progress are valued at the lower of cost or net
realisable value. Costs include, where appropriate, direct overhead expenses.
Long-term contracts
Amounts recoverable on long-term contracts, which are included in debtors,
are stated at the net sales value of the work done less amounts received as
progress payments on account. Excess progress payments are included in
creditors as payments on account. Cumulative costs incurred net of amounts
transferred to cost of sales, less provision for contingencies and anticipated
future losses on contracts, are included as work-in-progress balances in stock.
Taxation
The taxation charge is based on the profit for the year and takes into account
taxation deferred because of timing differences between the treatment of
certain items for taxation and accounting purposes.
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date where transactions or
events that result in an obligation to pay more, or a right to pay less, tax in the
future have occurred at the balance sheet date, with the following exceptions:
• Provision is made for gains on disposal of fixed assets that have been rolled
over into replacement assets only where, at the balance sheet date, there is
commitment to dispose of the replacement assets.
• Provision is made for the tax that would arise on remittance of the retained
earnings of overseas subsidiaries only to the extent that, at the balance
sheet date, dividends have been accrued as receivable.
• Deferred tax assets are recognised only to the extent that the Directors consider
that it is more likely than not that there will be suitable taxable points from
which the future reversal of the underlying timing differences can be deducted.
Deferred tax is measured on a non-discounted basis at the tax rates that are
expected to apply in the periods in which timing differences reverse, based on
tax rates and laws enacted or substantively enacted at the balance sheet date.
Notes to the financial statements
At 31 March 2005 31
Financial instruments
The Group uses certificates of deposit and fixed deposits for the investment of
short term surplus cash. Interest on these instruments is calculated based on the
instrument’ s yield at which it was purchased, and is taken to profit over the life of
the instrument. Financial assets are stated in the balance sheet at cost plus
accrued interest.
Foreign currencies
T ransactions in foreign currencies are recorded at the rate ruling at the date of
the transaction or at the contracted rate if the transaction is covered by a forward
exchange contract. Monetary assets and liabilities denominated in foreign
currencies are retranslated at the rate of exchange ruling at the balance sheet
date or , if appropriate, at the forward contract rate.
The accounts of overseas subsidiary undertakings are translated at the rate of
exchange ruling at the balance sheet date. The exchange difference arising
on the retranslation of opening net assets is taken directly to reserves. All other
translation differences are taken to the profit and loss account with the exception
of differences on foreign currency borrowings to the extent that they are used
to finance or provide a hedge against Group equity investments in foreign
enterprises, which are taken directly to reserves together with the exchange
difference on the net investment in these enterprises.
Leasing and hire purchase commitments
Assets held under finance leases, which are leases where substantially all the
risks and rewards of ownership of the asset have passed to the Group, and hire
purchase, are capitalised in the balance sheet and are depreciated over their
useful economic lives. The capital elements of future obligations under finance
leases and hire purchase contracts are included as liabilities in the balance sheet.
The interest elements of the rental obligations are charged in the profit and loss
account over the periods of the leases and hire purchase contracts. Rentals
payable under operating leases are charged in the profit and loss account on
a straight-line basis over the lease term.
Bank loans and issue costs
Bank loans are stated at the amount of proceeds after deduction of issue costs
which are amortised over the period of the loan.
Pensions
During the year the Company operated two primary pension schemes covering
the pension arrangements of eligible employees. One of these schemes operates
on the defined contribution (money purchase) principle and for this scheme the
pension cost charged represents the contributions payable. The other scheme
provides members with defined benefits based on final pensionable salary . The
overall long term costs of providing pensions for employees who are members
of this scheme are charged against profits evenly over the expected working
lives of the members. The contributions are assessed in accordance with the
advice of a qualified actuary based on actuarial valuations normally conducted
every three years. The relevant benefits promises are funded in advance and
the assets of the schemes are held in separate trustee administered funds.
Employee share schemes
The cost of award of shares, or share options, to employees is recognised as
an operating expense over the period of the employee’ s performance which
relates to the award. The cost of award is calculated based on the difference
between the share or option exercise price and the market value of the shares
at the date of grant of the award. In the case of the Company’ s performance-
related schemes, the cost is based on actual performance to date relative to
the performance targets dictated under the rules of the relevant scheme.
Where the Company purchases shares to settle a particular award of share
options the cost is limited to the price of the shares purchased. T o the extent
an amount greater than the pro-rated purchase price of such shares has been
expensed prior to the date of the purchase then the excess expense is
credited to the profit and loss account in the period of the purchase.
2. SEGMENTAL ANAL YSIS
Group operating
Turnover EBITDA profit/(loss)
2005 2004 2005 2004 2005 2004
£’000 £’000 £’000 £’000 £’000 £’000
Affiniti 248,802 190,133 24,269 13,714 (4,839) (17,612)
Kingston 
Communications 
East Y orkshire and
Contact Centres 103,453 93,218 39,165 37,533 28,201 22,025
Publishing 
Services 12,672 12,418 7,192 7,402 7,019 7,159
Other (645) (1,085) (7,708) (7,999) (13,128) (10,135)
Continuing activities
before exceptional 
items 364,282 294,684 62,918 50,650 17,253 1,437
Exceptional items – – (4,006) (7,879) (4,006) (105,821)
Continuing 
activities 364,282 294,684 58,912 42,771 13,247 (104,384)
Discontinued 
activities 2,255 29,512 (227) 748 (684) (5,227)
Total 366,537 324,196 58,685 43,519 12,563 (109,611)
Profit/(loss) Capital Net operating
before taxation expenditure assets
2005 2004 2005 2004 2005 2004
£’000 £’000 £’000 £’000 £’000 £’000
Affiniti (8,637) (119,409) 23,112 22,542 174,632 112,986
Kingston 
Communications 
East Y orkshire and 
Contact Centres 28,085 19,513 12,303 10,742 85,966 82,780
Publishing 
Services 6,927 7,112 116 268 (270) (246)
Other (10,060) (13,056) 293 229 139,085 18,392
Discontinued 
operations (684) (5,227) 1,203 3,730 – 32,718
Unallocated 
interest (8,638) (7,503) – – – –
Total 6,993 (118,570) 37,027 37,511 399,413 246,630
Reconciliation of Group net operating assets to net assets
2005 2004
£’000 £’000
Net operating assets 399,413 246,630
Fixed asset investments 1,087 1,660
Cash at bank and in hand 28,189 6,589
Net corporation tax (creditor)/debtor (221) (117)
Deferred taxation 10,972 –
Bank loans, overdrafts and other loans (191,280) (100,803)
Obligations under finance leases and 
hire purchase contracts (508) (7)
Proposed dividends (2,778) –
Net assets 244,874 153,952 Kingston Communications (HULL) PLC Annual Report 2004-05 Notes to the financial statements
32
None of the turnover , operating profit or net operating assets arising outside
the United Kingdom are material to the Group. The geographical analysis of
turnover by destinations is given below.
2005 2004
£’000 £’000
Geographical analysis of turnover
United Kingdom 349,860 316,443
Europe 15,734 4,107
Other 943 3,646
Total 366,537 324,196
3. GROUP OPERATING COSTS
2005 2004
£’000 £’000
Own work capitalised (7,294) (6,602)
Other operating income:
– other grant income – (99)
Other external charges 225,965 197,281
Staff costs 89,181 90,097
Depreciation and amortisation of fixed assets: 46,122 153,130
Total 353,974 433,807
Acquisitions are included in the table above and are made up of other external
charges of £37,898,000 (2004: £Nil) and staff costs of £16,626,000 (2004: £Nil)
and depreciation and amortisation of fixed assets of £5,458,000 (2004: £Nil).
Discontinued operations are included in the table above and are made up
of other external charges of £1,836,000 (2004: £20,829,000) and staff costs of
£646,000 (2004: £7,935,000) and depreciation and amortisation of fixed assets
of £457,000 (2004: £5,975,000).
4. GROUP OPERATING PROFIT/(LOSS)
Operating profit/(loss) is stated after charging/(crediting):
2005 2004
£’000 £’000
Operating lease rentals: 
– hire of plant and machinery 2,050 3,495
– other operating leases 5,260 3,845
Auditors’ remuneration for audit services 243 120
Auditors’ remuneration for non-audit services 171 56
Release of prior year network operating cost accrual (2,378) (1,936)
Non recurring operating items:
– restructuring, redundancy and other costs 4,500 11,879
Depreciation of owned assets
– continuing 34,517 46,670
– acquisitions 2,361 –
– discontinued 457 5,975
Depreciation of leased assets
– continuing 82 120
– acquisitions 36 –
Profit on disposal of fixed assets (300) (380)
Amortisation of capitalised development expenditure
– continuing 310 508
– acquisitions 42 –
Accelerated write down of assets:
– continuing – 97,942
Amortisation of intangible assets:
– continuing 5,298 1,925
– acquisitions 3,019 –
– discontinued – 110
Employee Share Schemes and 
long term incentive plans 465 119
Auditors remuneration for audit and non-audit services incurred by the company
were £Nil (2004: £Nil).
5. NON-OPERATING EXCEPTIONAL ITEMS
2005 2004
£’000 £’000
Profit on sale of the Satellite and Broadcast division 2,898 –
Profit on disposal of shares held in Intelsat Ltd 311 –
Write down of fixed asset unlisted investment 
in Spectrum Venture Management Fund (141) (1,456)
Total 3,068 (1,456)
The combined tax effect of these items is a charge of £Nil (2004: £Nil).
6. EMPLOYEES AND REMUNERATION
The average numbers employed by the Company during the year were 
as follows:
Number of employees
2005 2004
Affiniti 1,245 1,038
Kingston Communications East Y orkshire and Contact Centres 800 831
Publishing Services 100 97
Other 77 63
Satellite & Broadcast 14 172
Total 2,236 2,201
The costs incurred in respect of these employees were:
2005 2004
£’000 £’000
Wages and salaries 77,410 77,938
Social security costs 7,069 7,380
Other pension costs 4,702 4,779
Total 89,181 90,097
Less own work capitalised (7,294) (6,602)
Charged to profit and loss account 81,887 83,495
Disclosures required by the Companies Act 1985 on Directors’ remuneration,
including salaries, performance related bonuses, pension contributions and
pension entitlements, are to be found in the tables on pages 21 to 23 within
the remuneration report, and form part of these financial statements.
7. NET INTEREST PAYABLE AND SIMILAR CHARGES
2005 2004
£’000 £’000
On bank loans, overdrafts and other loans (7,288) (7,088)
Finance lease and hire purchase contracts (22) (2)
(7,310) (7,090)
Interest receivable and similar income 173 355
(7,137) (6,735)
Amortisation of loan arrangement fees (1,501) (768)
Total (8,638) (7,503) 33
8. TAXATION
a) Analysis of tax credit in the year
The (credit)/charge based on the profit/(loss) for the year comprises:
2005 2004
£’000 £’000
UK corporation tax:
– profit for the period (4) –
– adjustment in respect of the previous period – (216)
Overseas corporation tax:
– profit for the period 25 –
T otal current tax 21 (216)
UK deferred tax:
Origination and reversal of timing differences in respect of:
– profit in the period (excluding exceptional items) (5,658) –
T otal deferred tax (note 17) (5,658) –
T ax on profit/(loss) on ordinary activities (5,637) (216)
b) Factors affecting tax (credit)/charge for the year
2005 2004
£’000 £’000
Group profit/(loss) on ordinary activities before tax 6,993 (118,570)
Group profit/(loss) on ordinary activities before tax at 30% 2,098 (35,571)
Effects of:
Expenses not deductible for tax purposes 1,750 224
Accounting depreciation not eligible for tax purposes 546 497
Goodwill amortised 1,563 1,200
Accounting provisions not taxed 243 52
Accounting depreciation in excess of tax depreciation (3,450) 33,598
Non taxable disposal of subsidiary (2,729) –
Adjustments relating to prior years corporation tax – (216)
T otal current tax 21 (216)
9. DIVIDENDS
2005 2004
£’000 £’000
Equity dividends on ordinary shares:
– interim paid of 0.36 pence per share (2004: £Nil) 1,390 –
– final proposed of 0.54 pence per share (2004: £Nil) 2,778 –
4,168 –
10. PROFIT FOR THE FINANCIAL YEAR
The Parent Company has taken advantage of Section 230 of the Companies Act
1985 and has not included its own profit and loss account in these financial
statements. The profit dealt within the accounts of the Parent Company is
£6,170,000 (2004: £1,346,000).
11. EARNINGS/(LOSS) PER SHARE
For the year ended 31 March 2005, the calculation of the basic earnings per
ordinary share of 3.03p was based on the weighted average of 417,503,168
ordinary shares in issue during the year and profit after taxation of £12,630,000.
The adjusted basic earnings per ordinary share of 4.09p is calculated using the
same number of shares referred to above and earnings of £17,073,000.
For the year ended 31 March 2004, the calculation of the basic loss per ordinary
share of 31.18p was based on the weighted average of 379,539,162 ordinary
shares in issue during the year and loss after taxation of £118,354,000. 
The adjusted loss per ordinary share of 1.19p is calculated using the same
number of shares referred to above and loss of £4,534,000.
Adjusted earnings per share figures are presented. These exclude the effects
of operating and non-operating exceptional items, deferred taxation and
amortisation of intangible assets to allow comparison to the prior year on 
a comparable basis. The recognition of deferred tax assets has resulted in a tax
credit which is not expected to form part of the regular charge for taxation.
Diluted earnings per share is based on the weighted average number of
ordinary shares in issue, adjusted to reflect conversion of all dilutive potential
ordinary shares. Dilutive potential ordinary shares comprise share options
granted to employees. 
For the year ended 31 March 2005, the calculation of the diluted earnings per
ordinary share of 3.02p was based on the weighted average of 418,549,569
ordinary shares and profit after taxation of £12,630,000. The adjusted diluted
earnings per ordinary share of 4.08p are calculated using the same number of
shares referred to above and earnings of £17,073,000.
For the year ended 31 March 2004, the impact of share options was anti-
dilutive and these were therefore excluded from the calculation of diluted
weighted average share capital.
The adjustments to basic earnings per share to reconcile to adjusted and
diluted earnings per share for the year ended 31 March 2005 are as follows:
Earnings 
Shares Profit per share
No £’000 pence
Basic 417,503,168 12,630 3.03
Options 1,046,401 – –
Diluted 418,549,569 12,630 3.02
Adjustments:
Exceptional items – 1,432 0.34
Deferred taxation – (5,658) (1.36)
Amortisation of intangible assets – 8,669 2.08
Adjusted basic 417,503,168 17,073 4.09
Adjusted diluted 418,549,569 17,073 4.08
The adjustments to basic earnings per share to reconcile to adjusted and
diluted earnings per share for the year ended 31 March 2004 are as follows:
Earnings 
Shares Loss per share
No £’000 pence
Basic 379,539,162 (118,354) (31.18)
Options – – –
Diluted 379,539,162 (118,354) (31.18)
Adjustments:
Exceptional items – 111,277 29.32
Deferred taxation – –
Amortisation of intangible assets – 2,543 0.67
Adjusted basic 379,539,162 (4,534) (1.19)
Adjusted diluted 379,539,162 (4,534) (1.19) Kingston Communications (HULL) PLC Annual Report 2004-05 Notes to the financial statements
34
12. INTANGIBLE FIXED ASSETS – CONSOLIDATED
Development
costs Goodwill T otal
£’000 £’000 £’000
Cost
At 1 April 2004 785 33,522 34,307
Acquisitions 266 – 266
Additions 117 184,985 185,102
Disposal of subsidiary undertaking – (1,250) (1,250)
At 31 March 2005 1,168 217,257 218,425
Accumulated amortisation
At 1 April 2004 544 7,266 7,810
Acquisitions 166 – 166
Charge for the year 352 8,317 8,669
Disposal of subsidiary undertaking – (685) (685)
At 31 March 2005 1,062 14,898 15,960
Net book value
At 31 March 2005 106 202,359 202,465
At 31 March 2004 241 26,256 26,497
Development costs have been capitalised in accordance with SSAP 13
‘Accounting for research and development’ and are therefore not treated, 
for dividend purposes, as a realised loss.
13. TANGIBLE FIXED ASSETS – CONSOLIDATED
Vehicles,
other
Exchange apparatus
Land and equip- External & equip-
buildings ment plant ment T otal
£’000 £’000 £’000 £’000 £’000
Cost
At 1 April 2004 27,803 212,487 308,095 112,386 660,771
Acquisitions 1,136 15,416 – 19,247 35,799
Additions 286 7,903 9,894 15,771 33,854
Disposals (28) (120) – (2,104) (2,252)
Disposal of subsidiary 
undertaking (7,703) – (49,104) – (56,807)
Reclassification – 1,757 – (1,757) –
At 31 March 2005 21,494 237,443 268,885 143,543 671,365
Accumulated depreciation
At 1 April 2004 9,380 151,356 167,748 81,975 410,459
Acquisitions 348 8,167 – 12,687 21,202
Charge for the year 269 13,543 7,608 16,033 37,453
Disposals (12) (58) – (2,055) (2,125)
Disposal of subsidiary 
undertaking (495) – (27,460) – (27,955)
Reclassification – 966 – (966) –
At 31 March 2005 9,490 173,974 147,896 107,674 439,034
Net book value
At 31 March 2005 12,004 63,469 120,989 35,869 232,331
At 31 March 2004 18,423 61,131 140,347 30,411 250,312
Land and buildings includes freehold property with a net book value of 
£11.2 million (2004: £17.5 million). Of this, £0.5 million (2004: £3 million) relates
to land which is not depreciated.
The figures stated above include the following amounts in respect of assets
held under finance leases and hire purchase contracts:
Vehicles,
other
Exchange apparatus
Land and equip- External & equip-
buildings ment plant ment T otal
£’000 £’000 £’000 £’000 £’000
Cost
At 31 March 2005 1,547 8,504 1,357 134 11,542
At 31 March 2004 1,547 8,289 1,507 134 11,477
Accumulated depreciation
At 31 March 2005 728 8,359 1,354 134 10,575
At 31 March 2004 646 8,289 1,499 134 10,568
Net book value
At 31 March 2005 819 145 3 – 967
At 31 March 2004 901 – 8 – 909
14. TANGIBLE FIXED ASSETS – PARENT COMPANY
Vehicles, 
other
apparatus
& equip-
ment T otal
£’000 £’000
Cost
At 1 April 2004 476 476
At 31 March 2005 476 476
Accumulated depreciation
At 1 April 2004 437 437
Charge for the year 39 39
At 31 March 2005 476 476
Net book value
At 31 March 2005 ––
At 31 March 2004 39 39
15. INVESTMENTS
Listed Unlisted
invest- invest-
ments ments T otal
Consolidated £’000 £’000 £’000
Cost
At 1 April 2004 160 3,116 3,276
Acquisitions – 12 12
Additions – 266 266
Disposals – (710) (710)
At 31 March 2005 160 2,684 2,844
Amounts written off
At 1 April 2004 160 1,456 1,616
Charge for the year – 141 141
At 31 March 2005 160 1,597 1,757
Net book value
At 31 March 2005 – 1,087 1,087
At 31 March 2004 – 1,660 1,660
The market value of the listed investments at 31 March 2005 was £Nil (2004: £Nil). 35
Shares in Loans to
subsidiary subsidiary Listed
under- under- invest-
takings takings ments T otal
Parent Company £’000 £’000 £’000 £’000
Cost
At 1 April 2004 28,510 473,465 336 502,311
Additions 193,882 – – 193,882
T ransfer to subsidiary undertaking (12,625) 12,625 – –
Repayment of loans – (47,229) – (47,229)
Disposals – – (336) (336)
At 31 March 2005 209,767 438,861 – 648,628
Amounts written off
At 1 April 2004 50 11,263 336 11,649
Disposals – – (336) (336)
At 31 March 2005 50 11,263 – 11,313
Net book value
At 31 March 2005 209,717 427,598 – 637,315
At 31 March 2004 28,460 462,202 – 490,662
Subsidiary undertakings (as at 31 March 2005)
Details of the principal trading subsidiaries of the Company are listed below.
A full list will be appended to the Company’ s next annual return. All of the
following companies are 100% owned by the Company and are all registered
in England and Wales.
Name of Company Business activity
Eclipse Networking Limited Other computer related activities
Omnetica Limited T elecommunications services
T echnica UK Limited* Other software consultancy
Kingston Communications Limited T elecommunications services
T orch Communications Limited Operation of telecommunications 
infrastructure
Kingston Information Services Limited Publication of telephone directories
Kingston Communications Contact 
Centres Limited* Provision of call centre services
Kingston Business Supply , installation and maintenance
Communications Limited of systems and telecommunications 
voice and data services solutions
*Held directly
16. STOCKS
Consolidated Parent Company
2005 2004 2005 2004
£’000 £’000 £’000 £’000
Raw materials and consumables 5,928 1,055 – –
Equipment for resale 1,957 916 – –
Work in progress 5,157 183 – –
13,042 2,154 – –
There is no material difference between the carrying value and the replacement
cost of stocks.
17. DEBTORS
Consolidated Parent Company
2005 2004 2005 2004
£’000 £’000 £’000 £’000
T rade debtors 84,466 39,840 158 97
Amounts owed by 
subsidiary undertakings – – 29,972 43,612
Interest receivable – 5 – –
Other debtors 8,327 5,877 2,605 1,916
Prepayments and accrued income 30,547 28,665 479 488
Deferred tax asset 10,972 – – –
134,312 74,387 33,214 46,113
Deferred taxation asset
At 1 April 2004 – – – –
T ransfer to profit and loss account 5,658 – – –
T ransfer in on acquisition 3,242 – – –
T ransfer out on disposal 2,072 – – –
At 31 March 2005 10,972 – – –
The major components of the provision for deferred taxation and the amounts
not provided are as follows:
Provided Not Provided
2005 2004 2005 2004
Consolidated £’000 £’000 £’000 £’000
Accelerated capital allowances 10,972 – 26,909 34,887
Losses – – 3,012 –
Other timing differences – – 1,167 1,212
10,972 – 31,088 36,099
Deferred tax assets relating to accelerated capital allowances and short term
timing differences of £10.9 million have been recognised in those subsidiary
companies in which there is sufficient available evidence that suitable taxable
profits will arise against which these assets are expected to reverse under the
provisions of FRS19. There are additional deferred tax assets of £31.1 million which
have not been recognised, as there is insufficient evidence as to the generation
of suitable profits against which these assets can be offset. The utilisation of
these assets would reduce the group’ s tax charge in future periods.
18. CREDITORS: AMOUNTS FALLING 
DUE WITHIN ONE YEAR
Consolidated Parent Company
2005 2004 2005 2004
£’000 £’000 £’000 £’000
Bank overdrafts – – – 6,112
Obligations under finance leases 
and hire purchase contracts (note 21) 282 4 – –
T rade creditors 49,852 20,949 2,752 399
Payments received on account 11,038 – – –
Amounts owed to 
subsidiary undertakings – – – 35,518
Corporation tax 221 117 115 115
Other taxes and social security costs 14,874 5,091 2,362 2,661
Other creditors 12,372 3,621 306 1,204
Accruals and deferred income 78,088 71,416 5,937 1,607
Proposed dividends 2,778 – 2,778 –
169,505 101,198 14,250 47,616 Kingston Communications (HULL) PLC Annual Report 2004-05 Notes to the financial statements
36
19. CREDITORS: AMOUNTS FALLING 
DUE AFTER MORE THAN ONE YEAR
Consolidated Parent Company
2005 2004 2005 2004
£’000 £’000 £’000 £’000
Obligations under finance leases 
and hire purchase contracts (note 21) 226 3 – –
Bank loan (note 20) 191,280 100,803 191,280 100,803
Accruals and deferred income – 6 – –
191,506 100,812 191,280 100,803
20. BANK LOAN
Consolidated Parent Company
2005 2004 2005 2004
£’000 £’000 £’000 £’000
Amounts falling due:
– between two and five years 194,443 102,000 194,443 102,000
Loan issue costs (3,163) (1,197) (3,163) (1,197)
191,280 100,803 191,280 100,803
The loan facilities and the overdraft were secured by guarantees given by all
material subsidiaries of Kingston Communications (HULL) PLC in favour of 
the banks.
21. OBLIGATIONS UNDER FINANCE LEASES 
AND HIRE PURCHASE CONTRACTS
Consolidated Parent Company
2005 2004 2005 2004
£’000 £’000 £’000 £’000
Amounts falling due:
– within one year 282 4 – –
– between two and five years 226 3 – –
508 7 – –
22. PROVISIONS FOR LIABILITIES AND CHARGES
Consolidated Parent Company
2005 2004 2005 2004
£’000 £’000 £’000 £’000
Onerous lease contracts
1
At 1 April 2004 4,961 291 3,647 –
Acquisitions 426 – – –
Established in the year 3,173 4,766 494 3,647
Utilised in the year (796) (96) – –
T ransfer to current liabilities (2,899) – (2,899) –
At 31 March 4,865 4,961 1,242 3,647
Milgo pension scheme
2
At 1 April 2004 676 790 – –
Utilised in the year – (114) – –
At 31 March 676 676 – –
T otal provisions for 
liabilities and charges 5,541 5,637 1,242 3,647
1
Provision has been made for the estimated unavoidable lease payments 
on unoccupied buildings. This includes an amount arising out of a guarantee
of liabilities under a lease of property entered into by a former subsidiary . 
It is expected that these payments will arise equally over the next two to 
four years.
2
Following the acquisition of Milgo Solutions Ltd, in March 2001, the Group
assumed certain obligations to fund the Kingston Communications (Data)
Scheme, the fair value of which has been provided for based upon 
actuarial advice.
23. CALLED UP SHARE CAPITAL
2005 2004
£’000 £’000
Authorised
1,000 million Ordinary shares of 10 pence each 100,000 100,000
Allotted, called up and fully paid
514,536,556 (2004: 380,328,514)
Ordinary shares of 10 pence each 51,454 38,033
Ordinary shares allotted during the year were as follows:
Number Nominal value Consideration
£ £’000
Issued as consideration for 
purchase of investments 133,408,042 13,340,804 83,197
Employee Benefit T rust 800,000 80,000 80
The Company has a number of share option schemes which grant Directors and
certain senior management options to subscribe for the Company’ s shares.
Details of these schemes are set out below.
Approved Options
Option Exercise
Date Price Granted Exercised Lapsed Balance Period
16/07/99 280p 853,530 – 510,690 342,840 2002-09
23/05/00 535p 631,481 – 191,860 439,621 2003-10
06/07/00 655p 8,509 – 2,418 6,091 2003-10
17/08/00 435p 342,136 – 342,136 – 2003-10
29/11/00 270p 14,352 – 11,000 3,352 2003-10
21/12/00 229.5p 30,000 – 30,000 – 2003-10
21/03/01 124p 27,129 – 27,129 – 2004-11
24/05/01 118.75p 683,517 – 579,207 104,310 2004-11
20/08/01 82.5p 496,883 – 86,161 410,722 2004-11
03/12/02 56.75p 20,000 – – 20,000 2005-12
Totals 3, 107 ,537 – 1 ,780,601 1 ,326,936
Unapproved Options
Option Exercise
Date Price Granted Exercised Lapsed Balance Period
26/07/00 0p to 591p 491,157 93,333 273,737 124,087 2003-10
17/08/00 0p to 655p 357,348 24,217 331,131 2,000 2001-10
21/08/00 435p 3,000 – 3,000 – 2003-10
29/11/00 270p 13,148 – 13,148 – 2003-10
31/01/01 0p to263p 73,733 – 54,612 19,121 2002-11
20/02/01 0p 155,241 18,099 137,142 – 2003-11
21/03/01 0p 194,154 24,800 169,354 – 2003-11
24/05/01 118.75p 1 ,320,657 – 1 ,278,345 42,312 2004-06
20/08/01 0p to 82.5p 670,009 57,308 260,140 352,561 2002-11
04/09/01 0p 304,646 28,013 196,902 79,731 2004-11
21/09/01 0p 93,333 93,333 – – 2002-11
21/02/02 0p 77,500 48,125 29,375 – 2003-12
11/06/02 0p 24,539 – – 24,539 2005-12
27/08/02 0p 165,606 20,000 – 145,606 2005-12
27/09/02 0p 30,000 – 30,000 – 2005-12
09/12/03 0p 80,000 – 20,000 60,000 2006-13
24/09/04 0p 32,786 – – 32,786 2007-14
11/02/05 0p 824,368 – – 824,368 2008-15
Totals 4,911,225 407 ,228 2,796,886 1,707,111 37
LTIS Options
Option Exercise
Date Price Granted Exercised Lapsed Balance Period
16/07/99 0p 1,850,472 806,517 996,178 47,777 2002-09
01/10/99 0p 19,555 – 19,555 – 2002-09
26/07/00 0p 56,667 56,667 – – 2003-10
17/08/00 0p 228,282 5,977 222,305 – 2003-10
21/09/00 0p 9,410 – 9,410 – 2003-10
20/08/01 0p 4,109,958 864,933 3,110,895 134,130 2004-11
27/08/02 0p 3,046,916 20,000 1,659,083 1,367,833 2005-12
12/08/04 0p 1,301,406 – 30,159 1,271,247 2007-14
Totals 10,622,666 1,754,094 6,047,585 2,820,987
SAYE Options
Option Exercise
Date Price Granted Exercised Lapsed Balance Period
Sep-99 £2.24 2,671,220 6,044 2,663,368 1,808 1999-05
Sep-00 £4.80 560,711 – 556,663 4,048 2000-06
May-01 £1.19 7,583,741 2,521 6,905,444 675,776 2001-06
Sep-04 £0.62 3,473,975 – 256,284 3,217,691 2004-08
Totals 14,289 ,647 8,565 10,381 ,759 3,899,323
SIP Shares
Month No of Participants Partnership Matching
April 181 17,475 3,496
May 172 17,888 3,589
June 167 15,268 3,504
July 166 13,517 2,703
August 166 14,604 2,928
September 167 15,003 2,992
October 165 16,465 3,294
November 161 16,850 3,367
December 162 13,941 2,825
January 161 13,868 2,761
February 160 13,223 2,641
March 157 12,071 2,413
T otal for 2004-05 180,173 36,513
24. RESERVES
Share Profit
Share premium and loss
capital account account T otal
£’000 £’000 £’000 £’000
Consolidated
At 1 April 2004 38,033 282,374 (166,455) 153,952
Employee share schemes – – (1,026) (1,026)
Currency translation difference 
on foreign currency net investments – – (534) (534)
Currency translation difference 
on related borrowings – – 534 534
Currency translation differences – – 210 210
Shares issued in the year 13,421 69,855 – 83,276
Profit for the financial year – – 8,462 8,462
At 31 March 2005 51,454 352,229 (158,809) 244,874
Share Profit
Share premium and loss
capital account account T otal
£’000 £’000 £’000 £’000
Parent Company
At 1 April 2004 38,033 282,374 64,341 384,748
Employee share schemes – – (66) (66)
Shares issued in the year 13,421 69,855 – 83,276
Profit for the financial year – – 2,003 2,003
At 31 March 2005 51,454 352,229 66,278 469,961
At 31 March 2005 the accumulated goodwill written off to consolidated
reserves in respect of acquisitions prior to 31 March 1998 was £18.8 million.
(2004: £18.8 million).
25. ACQUISITIONS & DISPOSALS
Eclipse
On 30 September 2004, the Group acquired Eclipse Networking Limited. 
The consideration paid was £12,625,000, including acquisition costs. In its last
financial year , prior to acquisition, to 31 May 2004, Eclipse Networking Limited
reported a profit after taxation of £505,689. For the period since that date to
the date of acquisition, the company generated £466,000 profit after taxation.
For the period since acquisition, turnover of £7,578,000 and operating profit
of £882,000 in respect of Eclipse is included within the consolidated profit and
loss account as continuing operations – acquisitions, and reported within
Kingston Communications East Y orkshire and Contact Centres.
The provisional fair value to the Group of net assets acquired is shown below:
Provisional 
Book fair value to
value of the Group 
assets Fair value of assets 
acquired adjustments acquired
£’000 £’000 £’000
Intangible fixed assets 100 – 100
T angible fixed assets 922 18 940
Stocks 43 (42) 1
Debtors 1,407 (255) 1,152
Cash at bank and in hand 1,856 – 1,856
Creditors (2,371) (164) (2,535)
Deferred taxation (220) – (220)
Net assets acquired 1,737 (443) 1,294
Goodwill 11,331
T otal consideration 12,625
Satisfied by:
Cash 9,500
Kingston Communications (HULL) PLC shares 2,953
Acquisition costs 172
T otal consideration 12,625
Fair value adjustments were made to the book value of the assets and liabilities
to adjust where applicable the carrying values of certain assets and liabilities.
The provisional fair values represent the directors’ current estimates of the net
assets acquired. However , in accordance with FRS7, the values attributed may
be revised as further information becomes available. Kingston Communications (HULL) PLC Annual Report 2004-05 Notes to the financial statements
38
Omnetica
On 31 December 2004, the Group acquired the Omnetica Group. 
The consideration paid was £180,642,000 including acquisition costs. In its last
financial year , prior to acquisition, to 30 September 2004, the Omnetica Group
reported a profit after taxation but before amortisation of £3,700,000. 
For the period since that date to the date of acquisition, the Omnetica Group
generated the following results:
£’000
Turnover 54,391 
Operating loss (11,669)
Loss before taxation (11,669)
T axation 233
Loss for the period (11,436)
The statement of total recognised gains and losses for the same period was 
as follows:
£’000
Loss for the period (11,436)
Exchange difference on retranslation of net assets 
of subsidiary undertakings 580
T otal recognised gains and losses for the period (10,856)
For the period since acquisition, the following results are included in respect
of the Omnetica group within the consolidated profit and loss account as
continuing operations – acquisitions, and reported within Affiniti.
£’000
Turnover
UK 36,801
France 15,856
Group eliminations (128)
52,529
EBITDA
UK 4,613
France 806
Group eliminations (487)
4,932
Operating profit/(loss) before amortisation
UK 2,521
France 232
Group eliminations (487)
2,266
Operating profit/(loss)
UK 8
France 213
Group eliminations (487)
(266)
The provisional fair value to the Group of net assets acquired is shown below:
Provisional 
Book fair value to
value of the Group 
assets Fair value of assets 
acquired adjustments acquired
£’000 £’000 £’000
Intangible fixed assets - goodwill 57,611 (57,611) –
T angible fixed assets 13,571 – 13,571
Stocks 13,843 (2,147) 11,696
Debtors 43,679 (926) 42,753
Cash at bank and in hand 12,842 – 12,842
Creditors (114,364) (308) (114,672)
Deferred tax asset 3,462 – 3,462
Net liabilities acquired 30,644 (60,992) (30,348)
Settlement of Omnetica indebtedness 41,159
Goodwill 169,831
T otal consideration 180,642
Satisfied by:
Cash 97,734
Kingston Communications (HULL) PLC shares 78,843
Acquisition costs 4,065
T otal consideration 180,642
Fair value adjustments were made to the book value of the assets and liabilities
to adjust where applicable the carrying values of certain assets and liabilities.
The provisional fair values represent the directors’ current estimates of the net
assets acquired. However , in accordance with FRS7, the values attributed may
be revised as further information becomes available.
Technica
On 11 March 2005, the Group acquired T echnica UK Limited. The consideration
paid was £3,774,000, including acquisition costs. In its last financial year , prior
to acquisition, to 31 December 2004, T echnica UK Limited reported a profit
after taxation of £117,960. For the period since that date to the date of
acquisition, the company generated a loss after taxation of £62,000.
For the period since acquisition, turnover of £142,000 and operating loss of
£24,000 in respect of T echnica is included within the consolidated profit and loss
account as continuing operations – acquisitions, and reported within Affiniti.
The provisional fair value to the Group of net assets acquired is shown below:
Provisional 
Book fair value to
value of the Group 
assets Fair value of assets 
acquired adjustments acquired
£’000 £’000 £’000
T angible fixed assets 86 – 86
Debtors 499 – 499
Cash at bank and in hand 221 – 221
Creditors (537) 108 (429)
Provisions – (426) (426)
Net assets acquired 269 (318) (49)
Goodwill 3,823
T otal consideration 3,774
Satisfied by:
Cash 2,100
Kingston Communications (HULL) PLC shares 1,401
Acquisition costs 273
T otal consideration 3,774 39
Fair value adjustments were made to the book value of the assets and liabilities
to adjust where applicable the carrying values of certain assets and liabilities.
The provisional fair values represent the directors’ current estimates of the net
assets acquired. However , in accordance with FRS7, the values attributed may
be revised as further information becomes available.
The agreement in respect of the acquisition of T echnica contains provision for
payment of further purchase consideration contingent upon the achievement
of certain performance criteria. The directors consider that the performance
of the business in the period since acquisition provides insufficient basis to
determine whether the performance criteria will be met. Accordingly no provision
has been made for payment of further purchase consideration. The directors
will continue to review the performance of the business and the extent to
which further purchase consideration should be provided.
Inmedia
In April 2004, the Group disposed of its Satellite and Broadcast business.
Proceeds received were £34 million and the profit on disposal was £2.9 million.
PRES SRL
In March 2005, the Group disposed of PRES SRL, the Italian subsidiary of the
Omnetica Group. Proceeds received were £2.7 million and no profit or loss was
recorded on disposal.
26. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Group’ s principal financial instruments during the year comprised bank loans,
cash on short term deposit, interest rate swaps and forward foreign exchange
contracts. The main purpose of these financial instruments is to finance the
Group’ s operations, to manage the interest rate risk arising from its sources of
finance and to minimise the impact of fluctuations in exchange rates on future
cash flows. The Group has various other financial instruments such as short term
debtors and creditors which arise directly from its operations. As permitted
under FRS13, these short term instruments have been excluded from the
following disclosures in this note.
The Group regularly reviews its exposure to interest, liquidity and foreign currency
risk. Where appropriate the Group will take action, in accordance with a Board-
approved T reasury Policy , to minimise the impact on the business of movements
in interest rates and currency rates. 
Liquidity risk
The net debt position of £94.2 million at the beginning of the financial year has
fluctuated throughout the year with net debt of £163.6 million at the year end.
The Group generated positive cash flow from its operating activities after capital
expenditure of £14.0 million for the 12 months. However , several corporate
events have significantly impacted the net cash flow. Firstly , the Group raised
£34 million from the disposal of its inmedia division in April 2004. The cash
element of the consideration, net of cash acquired, for the acquisitions of
Eclipse in September 2004 and T echnica in March 2005 together increased
net debt by £9.7 million. In addition, further debt was raised to fund the cash
element of the consideration on the acquisition of Omnetica in December 2004.
In order to meet the new funding requirements of the Group the £200 million
revolving credit facility in place at the beginning of the year (and due to expire
in November 2005) was replaced by a new £225 million five year credit facility
through a syndicate of nine banks. The Group considers that this facility will
provide sufficient funding to meet the organic investment needs of the business.
Short term flexibility of funding is available under the £10 million overdraft
facility provided by the Group’ s clearing bankers.
Interest rate risks
Sterling interest rate swaps were held during the year that fixed approximately
55% (2004: 64%) of the year end net debt. The weighted average fixed interest
rate payable was 5.1% (2004: 5.7%) Maturity dates of the interest rate swaps are
between July 2006 and January 2010. The weighted average period over which
the interest rates are fixed is 2.3 years (2004: 1.8 years).
Interest rate exposures will continue to be hedged in accordance with the
T reasury Policy .
Foreign currency risk
The level of foreign currency payments and receipts has historically been very
low for the Group on a net basis and it has not previously been considered
necessary to hedge operational foreign currency cash flows. The majority of
US dollar inflows arose in the inmedia business, and following the disposal 
of this business in April 2004 a net exposure was created for the Group to buy
US dollars. This US dollar requirement was significantly increased following the
Omnetica acquisition. The US dollar payments arise principally on equipment
purchases invoiced in US dollars. Forward foreign exchange contracts are used
on a rolling basis, with maturity dates to coincide with the sales cycle, in order
to minimise the impact of fluctuations in exchange rates on future cash flows
and gross margin. Euro denominated debt is maintained in the UK parent
company to hedge the translation risk arising on net assets held in France.
Interest rate risk profile of financial assets and financial liabilities
Financial assets
The Group had financial assets of £28.2 million at the year end (2004: £6.6 million),
comprising cash on overnight money market deposits and cash at bank. This
attracts floating rates of interest.
The currency profile of the Group’ s financial assets at 31 March 2005 and 
31 March 2004 was:
2005 2004
Currency £’000 £’000
Sterling 18,497 6,113
US dollar 5,692 409
Euro 4,000 67
Total 28,189 6,589
Foreign currency cash balances are held on a short term basis to fund cash flow
requirements in these currencies.
Financial liabilities
The currency and interest rate risk profile of the Group’ s financial liabilities at
31 March 2005 and 31 March 2004 were:
2005 2004
Floating Fixed Total Floating Fixed T otal
Currency £’000 £’000 £’000 £’000 £’000 £’000
Sterling 85,000 90,508 175,508 42,000 60,000 102,000
Euro 19,443 – 19,443 –––
Total 104,443 90,508 194,951 42,000 60,000 102,000
Undrawn committed borrowing facilities at the year end were £30 million
(2004: £98 million).
New bank facilities were signed on 31 December 2004. The facility comprises
a multi-currency revolving credit facility of £100 million and an amortising
multi-currency term facility of £125 million. The final maturity date of both
facilities is 31 December 2009.
Interest on amounts drawn under the committed borrowing facility is based on
the relevant LIBOR. A fixed interest rate was achieved on approximately 55% of
the net debt at the year end (2004: 64%) through the use of interest rate swaps. Kingston Communications (HULL) PLC Annual Report 2004-05 Notes to the financial statements
40
Fair values of financial assets and financial liabilities
The mark-to-market value of the interest rate swaps at 31 March 2005 was 
£0.0 million (2004: £1.1m payable by the Company). Interest rate swaps are
accounted for by adjusting the interest cost on the floating debt return.
There are no other significant differences between the fair value of the Group’ s
financial assets and liabilities and their book value. Fair values of financial assets
and liabilities are determined by reference to market value based on the net
present value of future cash flows.
27. FINANCIAL COMMITMENTS
Authorised future capital expenditure and financial investment, before
deduction of available government grants, amounted to:
Consolidated Parent Company
2005 2004 2005 2004
£’000 £’000 £’000 £’000
Contracted 9,086 2,188 – –
The annual commitments under non-cancellable operating leases were 
as follows:
Consolidated Parent Company
2005 2004 2005 2004
£’000 £’000 £’000 £’000
Leasehold buildings: leases expiring:
Within 12 months 181 411 – –
In two to five years 255 278 – –
After five years 3,758 3,529 – –
Plant and equipment: leases expiring:
Within 12 months 243 1,242 – 73
In two to five years 371 2,542 – 147
28. PENSIONS
The Company participates in two defined benefit pension schemes in the UK.
A full actuarial valuation of the Kingston Communications Pension Scheme was
carried out at 1 April 2004 and of the Kingston Communications (Data) Pension
Scheme at 1 April 2002. These valuations have been updated by independent
qualified actuaries to 31 March 2005 in accordance with FRS17.
The major assumptions used by the actuaries are:
At 31 March At 31 March At 31 March
2005 2004 2003
% pa % pa % pa
Inflation assumption 2.9 2.75 2.50
Rate of increase in salaries (plus an allowance 
for promotional increases) 3.9 4.25 4.00
Rate of increase in pension in payment 
– increasing at RPI or LPI 2.9 2.75 2.50
Discount rate 5.35 5.50 5.50
Assets and expected returns
As at 31 March 2005
Expected rate 
of return
Value £m % pa
Equities 86.3 7.75
Fixed interest gilts 14.8 4.75
Index linked gilts 19.3 4.50
Corporate bonds 14.8 5.15
Cash and net current assets 3.3 4.80
T otal market value of assets 138.5
As at 31 March 2004
Expected rate 
of return
Value £m % pa
Equities 74.9 7.75
Fixed interest gilts 12.8 4.75
Index linked gilts 29.3 4.50
Corporate bonds 8.7 5.25
Cash and net current assets 3.0 4.25
T otal market value of assets 128.7
As at 31 March 2003
Expected rate 
of return
Value £m % pa
Equities 55.6 7.75
Fixed interest gilts 8.7 4.75
Index linked gilts 43.1 4.50
Corporate bonds 1.3 5.00
Cash and net current assets 1.3 3.50
T otal market value of assets 110.0
Reconciliation to balance sheet
Value at Value at Value at
31 March 31 March 31 March
2005 2004 2003
£m £m £m
T otal market value of assets 138.5 128.7 110.0
Present value of liabilities 168.5 154.6 142.0
Deficit (30.0) (25.9) (32.0)
Related deferred tax asset 9.0 7.8 9.6
Net pension liability (21.0) (18.1) (22.4)
If the previous amounts had been recognised in the financial statements, 
the Group’ s net assets and profit and loss reserve would be as follows.
At March At March At March
2005 2004 2003
£m £m £m
Net assets excluding pension liability 244.9 154.0 272.4
Net pension liability (21.0) (18.1) (22.4)
Net assets including pension liability 223.9 135.9 250.0
At March At March At March
2005 2004 2003
£m £m £m
Profit and loss reserve excluding pension liability (158.8) (166.5) (48.0)
Net pension liability (21.0) (18.1) (22.4)
Profit and loss reserve including pension liability (179.8) (184.6) (70.4)
Analysis of the amount that would have been charged to operating profit
under FRS17:
2005 2004
£m £m
Current service cost 3.8 3.4
Past service costs 0.2 0.2
Curtailment and settlement costs – 0.1
T otal operating charge 4.0 3.7 41
Analysis of the amount that would have been credited to net finance income
under FRS17:
2005 2004
£m £m
Expected returns on pension schemes assets 8.3 6.9
Interest on pension schemes liabilities (8.4) (7.7)
Net return (0.1) (0.8)
Analysis of the amount that would have been recognised in the statement of
total recognised gains and losses:
2005 2004
£m £m
Actual returns less expected returns 
on pension schemes assets 2.5 11.9
Experience gains and losses arising 
on the Schemes liabilities 5.9 0.6
Changes in assumptions underlying 
the present values of the Schemes liabilities (11.9) (5.6)
Actuarial (loss)/gain recognised in statement 
of total recognised gains and losses (3.5) 6.9
Movement in deficit during the year
2005 2004
£m £m
Deficit in Scheme at beginning of the period (25.9) (32.0)
Movement in period:
Current service cost (3.8) (3.4)
Curtailment and settlement cost – (0.1)
Company Contributions 3.5 3.7
Past service costs (0.2) (0.2)
Other finance income (0.1) (0.8)
Actuarial (loss)/gain (3.5) 6.9
Deficit in Scheme at end of period (30.0) (25.9)
History of experience gains and losses
2005 2004 2003
Difference between the expected and 
actual returns on Schemes assets:
Amount (£m) 2.5 11.9 (23.2)
Percentage of Schemes assets 1.8% 9.2% (21.1%)
Experience gains and losses on Schemes liabilities:
Amount (£m) 5.9 0.6 2.6
Percentage of the present values 
of Schemes liabilities 3.5% 0.4% 1.9%
Changes in assumptions underlying 
the present values of Schemes liabilities:
Amount (£m) (11.9) (5.6) (4.2)
Percentage of the present values 
of Schemes liabilities (7.1%) (3.6%) (3.0%)
T otal amount recognised in Statement 
of T otal Recognised Gains and Losses:
Amount (£m) (3.5) 6.9 (24.8)
Percentage of the present values 
of Schemes liabilities (2.1%) 4.5% (17.9%)
SSAP 24
The principal defined benefit scheme at 31 March 2005 was the Kingston
Communications Pension Scheme, which is a funded scheme and provides
defined benefits based on final pensionable salary . The assets of the scheme
are held separately from the assets of the Group in trustee administered funds.
Contributions to the scheme are assessed in accordance with the advice of a
qualified actuary . Actuarial valuations are normally carried out triennially .
The most recent formal valuation for the Kingston Communications Pension
Scheme was at 1 April 2004. The main long term financial assumptions used 
in the valuation were:
Rate of return on scheme assets: 6.55% per annum
Rate of future salary inflation: 3.90% per annum
Rate of future pension increases*: 3.00% per annum
*On the excess over the guaranteed minimum pension.
At 1 April 2004 the market value of the assets of the Kingston Communications
Pension Scheme was £120.6 million. The actuary’ s assessment, on a market value
basis, was that the assets represented 87% of the benefits that had accrued 
to members and pensioners, after allowing for future expected increases in
earnings. The valuation takes into account the impact of the loss of tax credits on
UK equity dividends which was announced in the budget of July 1997 and the
closure of the scheme to new entrants which was effective from 12 January 1998.
The most recent formal valuation for the Kingston Communications (Data)
Pension Scheme was at 1 April 2002 using the attained age method. The main
long term financial assumptions used in the valuation were:
Rate of return on scheme assets: 7.00% per annum
Rate of future salary inflation: 4.25% per annum
Rate of future pension increases: 2.75% per annum
At 31 March 2002, the market value of the assets of the Kingston Communications
(Data) Pension Scheme for the financial year was £6.2 million. The actuary’ s
assessment was that the assets represented 76.2% of the benefits that had
accrued to members and pensioners, after allowing for future expected increases
in earnings. 
The contribution rate for the Kingston Communications Pension Scheme for
the financial year was 15% of pensionable earnings. The agreed contribution
rate for the forthcoming financial year is 18.1% of pensionable earnings. 
The contribution rate for the Kingston Communications (Data) Pension Scheme
for the financial year was 12.7% and the agreed contribution rate for the
forthcoming financial year is 16.6% of pensionable earnings.
Both Schemes are closed to new members and therefore under the projected
unit method the current service cost would be expected to decrease as the
members of the Schemes approach retirement.
As required by SSAP24, the figures included in the accounts in respect of the
Company’ s pension schemes are based on actuarial valuations last carried 
out as above. These do not take into account any impact of the fall in general
stock market values since those valuation dates. Any such impact will be
reflected in the next SSAP24 triennial valuations as at 1 April 2007 for the
Kingston Communications Pension Scheme and 1 April 2005 for the Kingston
Communications (Data) Pension Scheme, based upon which subsequent
pension costs will be determined until the adoption of FRS17.
Per note 22, Provisions for liabilities and charges include £676,000 (2004: £676,000)
in respect of a fair value adjustment relating to the Kingston Communications
(Data) Pension Scheme.
The other schemes operated by the Company are defined contribution (money
purchase) schemes and are open to all eligible employees. Contributions
charged to the profit and loss account, in respect of defined contribution
pension schemes amounted to £1.2 million (2004: £1.1 million).  Kingston Communications (HULL) PLC Annual Report 2004-05
42
29. OTHER COMMITMENTS AND CONTINGENT LIABILITIES
Contingent liabilities existed at 31 March 2005 in relation to guarantees given
by the Parent Company on behalf of subsidiary undertakings, together with
contingencies arising in the normal course of the Group’ s business in respect
of overdraft facilities. None of these guarantees are considered material in the
context of the net assets of the Group.
In the normal course of business the Company enters into litigation to enforce
its contractual rights and defend claims brought by third parties. At 31 March
2005 none of the litigation is considered material to the Group.
The Company has responded recently to the European Commission 
in connection with its investigation into a third party complaint that 
HM Government’ s rating of the network infrastructures of BT and the Company
constitutes illegal state aid. Based on extensive advice received the Board
considers that the complaint is ill founded. As at 31 March 2005, no claim has
been made against the Company . Accordingly no provision has been made 
in the accounts for the year ended 31 March 2005.
30. RELATED PARTY TRANSACTIONS
The following material transactions with related parties took place during the year:
Contracts of significance
The Company invested a further £0.1 million in the Spectrum Venture
Management Fund in fulfilment of outstanding commitments and paid
management fees of £0.2 million during the year. Mrs J Hughes, who was 
a Non-Executive Director for part of the financial year , is the co-founder and
Non-Executive Chairman of Spectrum Venture Management Limited, which
oversees the management of this fund. The carrying value of this investment
at 31 March 2005 was £1.1 million (2004: £0.9 million). Notice has been given to
the Fund that no further investments will be made made into the Fund other
than ongoing management fees.
31. NOTES TO CONSOLIDATED CASH FLOW STATEMENT
A Reconciliation of operating loss to net cash inflow from operating activities
2005 2004
£’000 £’000
Group operating profit/(loss) 12,563 (109,611)
Depreciation and amounts written off
tangible fixed assets 37,453 150,587
Amortisation of intangible fixed assets 8,669 2,543
EBITDA 58,685 43,519
Profit on sale of fixed assets (300) (380)
(Increase)/decrease in debtors (4,550) 9,330
Decrease in stocks 809 102
Decrease in creditors (3,654) (1,026)
Non cash charges in respect of employee share schemes (1,026) (84)
Cash flows from operating activities 49,964 51,461
B Analysis of cash flows for headings netted in the cash flow statement
(i) Returns on investments and servicing of finance:
Interest received 173 355
Interest paid (7,816) (6,995)
Interest element of finance lease rental payments (22) (2)
Loan issue costs (3,467) (35)
Net cash outflow for returns on investments 
and servicing of finance (11,132) (6,677)
(ii) T axation:
Overseas tax paid (101) –
Net cash outflow from taxation paid (101) –
(iii) Capital expenditure and financial investment:
Purchase of tangible fixed assets (36,910) (37,189)
Capitalised development expenditure (117) (322)
Sale of tangible fixed assets 402 673
Purchase of investments (266) (313)
Sale of investments 939 –
Net cash outflow for capital expenditure 
and financial investment (35,952) (37,151)
(iv) Acquisitions and disposals:
Sale of subsidiary undertaking 36,667 –
Purchase of subsidiary undertakings and businesses (108,894) –
Net cash outflow from acquisitions and disposals (72,227) –
(v) Equity dividends paid: (1,390) –
(vi) Management of liquid resources
Increase in short term deposits (1,926) –
(vii) Financing:
Debt due beyond a year: net increase/(decrease) in loans 92,500 (13,000)
Capital element of finance lease: rental payments (142) (4)
Issue of share capital 80 –
Net cash inflow/(outflow ) from financing 92,438 (13,004)
The subsidiaries acquired during the year contributed cash flows from
operating activities of £6.4 million in the period since acquisition and paid
£2.5 million in respect of capital expenditure and financial investment.
C Analysis of net debt
Acquisitions Other
31 March Cash and non cash 31 March
2004 flow disposals changes 2005
£’000 £’000 £’000 £’000 £’000
Cash 6,589 19,674 – – 26,263
Short term deposits – 1,926 – – 1,926
Loans (100,803) (89,582) – (895) (1 91 ,280)
Finance leases (7) 142 (643) – (508)
(94,221) (67,840) (643) (895) (1 63,599)
32. POST BALANCE SHEET EVENTS
On 20 May 2005 the Group announced the sale of the French operations of the
Omnetica Group for a cash consideration of €47 million. The sale is conditional
on approval by the French Competition Authorities and is expected to complete
during the summer of 2005. 43
Year Year
ended ended
31 March 31 March
2005 2004
Kingston Communications East Yorkshire
Number of lines – residential (‘000) 163 165
Number of lines – business (‘000) 103 101
Number of lines – total (‘000) 266 266
Number of calls – local (millions) 174 186
Number of calls – out of area (millions) 210 210
Number of calls – total (millions) 384 396
Number of minutes – local (millions) 850 773
Number of minutes – out of area (millions) 1,297 1,529
Number of minutes – total (millions) 2,147 2,302
Note: calls on the Kingston Communications East Y orkshire network are untimed and charged at a flat rate of 5.5p (excl. VAT).
2005 2004 2003 2002 2001
£’000 £’000 £’000 £’000 £’000
Profit and loss account
Turnover 366,537 324,196 329,908 318,122 232,240
EBITDA 58,685 43,519 40,580 28,861 16,556
Group operating profit /(loss) 12,563 (109,611) (20,302) (37,377) (16,345)
Profit /(loss) on ordinary activities after taxation 12,630 (118,354) (24,211) (34,045) (10,526)
Balance sheet
Fixed assets (excluding investments) 434,796 276,809 391,163 410,986 410,974
Other operating liabilities (35,383) (30,179) (20,792) (18,858) (64,230)
Net operating assets 399,413 246,630 370,371 392,128 346,744
Non operating liabilities (154,539) (92,678) (97,982) (93,301) (16,749)
Capital employed 244,874 153,952 272,389 298,827 329,995
Cash flows
Net cash inflow from:
Operating activities 49,964 51,461 44,749 20,460 12,342
Dividends from joint ventures and associates – ––––
Returns on investments and servicing of finance (11,132) (6,677) (7,530) (6,593) 3,147
T axation (101) – (25) (28) –
Net capital expenditure (35,952) (37,151) (45,542) (105,438) (161,836)
Sale/(purchase) of investments – – – (489) 10,478
Acquisitions (108,894) – (56) (132) (11,293)
Disposals 36,667 – (5) 830 973
Equity dividends paid (1,390) – – – (3,000)
Management of liquid resources (1,926) – – – 56,000
Financing 92,438 (13,004) 4,985 103,905 15,862
Increase/(decrease) in cash 19,674 (5,371) (3,424) 12,515 (77,327)
Ratios and other key information
Average staff employed 2,930 2,201 2,379 2,397 1,906
EBITDA to turnover 16.0% 13.4% 12.3% 9.1% 7.1%
Operating profit/(loss) to turnover 3.4% (33.8%) (6.2%) (11.7%) (7.0%)
Operating profit/(loss) to average operating assets 3.9% (35.5%) (5.3%) (10.1%) (6.1%)
Basic earnings/(loss) per share 3.03p (31.18p) (6.38p) (9.03p) (2.92p)
Dividends per share 0.9p ––––
Attributable net assets per share 47.59p 40.48p 71.62p 78.64p 87.59p
Five year summary of consolidated figures
As at 31 March 2005
Operating data Kingston Communications (HULL) PLC Annual Report 2004-05
44
Financial
Amortisation
The allocation of cost of goodwill or other intangible
assets over time.
Auditor
An independent individual qualified to examine and
provide an opinion on a company’ s financial and
accounting records and supporting documents.
Balance sheet
A statement of the assets and liabilities of an
organisation at a point in time (the year end of the
Kingston Communications Group is 31 March).
Cash flow statement
A summary of the money received and spent by the
Company during the year .
Capital expenditure (capex)
Money spent to purchase new or upgrade existing
physical assets such as equipment or property .
Company
Kingston Communications (HULL) PLC.
Creditor
Amounts payable to suppliers and other
organisations providing services to the Company .
Current assets
Assets held by the Company other than for long
term use such as stocks, debtors and cash.
Debtor
Amounts which we have billed customers but not
yet received.
Depreciation
The allocation of cost of an asset – such as
equipment or property – because of general wear
and tear over time.
Dividend
The income from a share investment that is given to
shareholders out of a company’ s retained earnings.
Earnings/(loss) per share
This figure is calculated by dividing profits or losses
attributable to members of the Company by the
number of shares in issue.
EBITA (earnings before interest, tax and
amortisation)
A measure of profitability which excludes the
impact of amortisation charges arising on goodwill
and other intangible assets.
EBITDA (earnings before interest, tax,
depreciation and amortisation)
A measure of profitability , favoured by companies
undergoing major investment programmes. It shows
the profits before interest, tax, depreciation and
amortisation are deducted.
Exceptional items
T ransactions included in a company’ s profit and loss
account, which are outside the ordinary course of
business such as profit or losses on the sale of an
operation or costs of a fundamental reorganisation.
Goodwill
The difference between what a company pays for
another company and the fair value of the acquired
assets of that company .
Group
Kingston Communications (HULL) PLC and all its
subsidiary undertakings.
Intangible assets
Items of value that cannot be physically touched,
such as goodwill, patents, licences or specific
development costs.
Investments
Ownership interests held in other companies either
for income or capital appreciation.
Ordinary shares
The principal type of shares bought by investors,
and representing part ownership of a company .
Operating assets
Items of value owned by a company that contribute
to the regular income from its operations.
PBTA (profit before tax and amortisation)
A measure of profitability which excludes from profit
before tax the impact of amortisation charges
arising on goodwill and other intangible assets.
Profit and loss account
A financial document showing the income, expenses
and net profit or loss generated by an organisation
over a given period of time.
Retained profit
The final result for the year , after deducting tax,
minority interests and dividends, which is then
added (or taken away if it is a loss) to shareholders’
funds at the end of the year .
T angible fixed assets
A long-term asset held for business use such as
property , network and exchange equipment.
Turnbull report
A report giving guidance to company directors on
implementing Stock Exchange rules on internal
controls and risk management.
Technology
Backbone network
A major transmission path that can carry a very high
volume of traffic. It ensures that all smaller networks
that are connected to the backbone are also
connected to each other .
Broadband
Network technology that allows the transmission
of large amounts of data.
Broadband internet
T echnology that enables faster internet access,
and as a result allows services such as interactive
digital TV , video conferencing and video e-mail.
Converged communications
Data and voice communications carried over 
a single IP network.
Data
Information sent across communications networks
from computer to computer .
Intelligent network (IN)
A network that allows the fast and flexible
introduction of new services and customisation
capabilities for users of that network.
IP (Internet Protocol)
A standard specification for transmitting voice and
data over the internet.
ISP (Internet Service Provider)
A company which provides users with access to
the internet.
Leased line
A reliable, dedicated network connection offered
at various speeds depending on the customer’ s
requirements.
Voice
Fixed line or mobile telephone calls.
Glossary of terms Designed by Addison Corporate Marketing.
Printed by Royle Corporate Print.
Secretary and Advisers
Analysis of ordinary shareholders at 31 March 2005 by category
Number Number % of
of holders of shares held total shares
Individuals 69,330 70,058,381 13.6%
Insurance Company 4 940,379 0.2%
Investment trust 10 50,301 –
Pension Fund 13 30,293 –
Nominee Company 1,747 438,350,054 85.2%
Limited Company 171 2,741,059 0.6%
Bank and nominee 16 716,523 0.1%
Other institutions 17 1,649,566 0.3%
514,536,556 100.0%
Financial calendar
Annual General Meeting 22 July 2005
Interim results 2005 announcement (provisional) 29 November 2005
Preliminary results announcement (provisional) 23 May 2006
Shareholder information line: 0870 162 3100
Website address: www.kcom.com
Secretary
John Bailey LLB
Auditors
Deloitte & T ouche LLP
1 City Square
Leeds LS1 2AL
Investor Relations
Anita Pace
Kingston Communications (HULL) PLC
37 Carr Lane
Kingston upon Hull
HU1 3RE
Email: investor .relations@ kcom.com
T el: 01482 602666
Financial Advisers
Lazard
50 Stratton Street
London
W1J 8LL
Stockbrokers
Dresdner Kleinwort Wasserstein
20 Fenchurch Street
London 
EC3P 3DB
JP Morgan Cazenove
20 Moorgate
London
EC2R 6DA
Registrar
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TH
T el: 0870 162 3100
Registered Office
37 Carr Lane
Kingston upon Hull
HU1 3RE
Company number
2150618 Kingston Communications (HULL) PLC
37 Carr Lane, Kingston upon Hull, HU1 3RE
01482 602 100    www.kcom.com