By Rory Gallivan

LONDON--U.K. telecoms provider KCOM Group PLC (KCOM.LN) said Friday that it would raise its dividend by 10% a year up to 2016 as strong demand for consumer services such as high-speed broadband helps to stem the decline in revenue caused by a slower market for business services.

Revenue for the year ended March 31 fell to 372.9 million pounds ($576.8 million) from GBP387.3 million the previous year, but improved profitability at KC, which provides telecoms services to residents in Hull partly offset a weaker performance at business services arm Kcom. The full-year dividend rose to 4.4 pence from 4 pence.

KCOM said that KC's performance was aided by strong demand for its high-speed broadband service, which it says is the fastest in the U.K. Hull is in a unique position among U.K. cities because BT Group PLC (BT.A.LN), the former state-owned telecommunications operator, does not operate there. KCOM used to be owned by Hull City Council.

KC benefited from customers increasingly taking bundled packages that combine telephone services and broadband. KC recently introduced a television service that customers can now buy as part of a bundled package. Chairman Bill Halbert told Dow Jones Newswires that it is too early to gauge demand for its TV services, which allow people to watch programs on demand.

He added that, although KCOM cannot compete with big companies such as British Sky Broadcasting Group PLC (BSY.LN) and BT in bidding for exclusive rights to broadcast big sporting events such as top-tier English soccer matches, it would consider paying BSkyB or BT to broadcast these games.

While KC performed strongly, KCOM said that the business-focused arm Kcom has faced difficult conditions.

Kcom provides services such as online billing and data hosting to public sector bodies such as the North Wales Police and to businesses such as the pizza delivery company Domino's.

Mr. Halbert said that despite the recent weakness, he sees strong potential for Kcom to benefit from growing Internet use as more and more activity is conducted online, pointing to Kcom's contract to help the Association of Train Operating Companies manage online ticket sales.

-At 1159 GMT, shares were up 6 pence, or 8%, at 83 pence valuing the company at GBP397 million.

-Write to Rory Gallivan at rory.gallivan@dowjones.com; Twitter: @RoryGallivan

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