Connected to
our customers

KCOM Group PLC
Annual report and accounts 2016/17

By listening to and learning from our customers, we design and deliver the right services to help them create greater value from the way they interact, collaborate and connect with what matters to them.




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Highlights

Revenue
£ million
£331.3m -5.1%
EBITDA1,2
£ million
£67.6m -9.7%
Operating profit1
£ million
£40.7m -20.0%
Profit before tax
£ million
£30.5m -65.6%
Net (debt)/funds2
£ million
£(42.4)m
Proposed full year dividend
(pence per share)
6.00p +1.5%
  1. Before exceptional items.
  2. Refer to glossary on page 114 of the 2016/2017 Annual Report.

Our business at a glance

We make life easier and better for every customer

We help customers create greater value from the way they interact, collaborate and connect with what matters to them.

We help large organisations make the most of technology to serve their customers better and address other business challenges.

Our customers include:

  • Bupa
  • HMRC
  • NFU Mutual
  • O2
  • Rail Delivery Group
  • Shoosmiths

What differentiates us in the Enterprise market

The broadest range of legacy experience combined with cutting edge expertise

Our capability in complex IP-based solutions and cloud implementations is enhanced by partnerships with key vendor partners and niche technology providers.

Agile and nimble by design, we can quickly make a difference to our customers’ businesses

We advocate flexible and scalable approaches and technologies to deliver swiftly on the promises of public cloud and digital transformation and help prepare our customers for an unpredictable future.

Customers can choose from our range of voice and broadband services to suit their needs.

145,000
households and businesses

What differentiates us in the Hull and East Yorkshire market

Our investment in a full fibre network is delivering an unrivalled online experience

Our investment is creating a unique, future‑proof platform for the delivery of innovative over the top services, with more than half of our customers already able to benefit from ultrafast download speeds that are the exception across the rest of the UK.

As part of the community we serve, we understand our customers’ needs

Our unique heritage in Hull and East Yorkshire has made us part of the fabric of the local community. We have a unique ability to engage closely with our customers and use our deep understanding of their needs to deliver services they value.

We provide connectivity-based services to national organisations.

Our customers include:

  • Domino’s
  • Furniture Village
  • One Stop
  • RNLI
  • Wren Kitchens

Our activities in this increasingly commoditising market seek to maximise the value of our historic investment in national network platforms.

Review of 2017

Clear focus on the future

  • Strategy focused on delivering shareholder value
    • Long-term cash generation from our Hull and East Yorkshire segment
    • Sustainable growth in our Enterprise segment

We remain in an environment of change and transition both internally and for our customers and markets. Each presents new challenges and exciting opportunities.”

Graham Holden
Non-Executive Chairman
9 June 2017

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Continued transition

Progress towards the creation of

  • A regional fibre based services provider through continued deployment of fibre and development of over-the-top services
  • A provider of complex IP-based solutions in the Enterprise market, driven in the near term by expanding presence in contact centre and cloud services

Focused on creating a simplified business, operating on a reduced cost base and generating sustainable returns for shareholders.”

Bill Halbert
Chief Executive
9 June 2017

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Progress in key areas

  • Revenue shows the effect of strategic repositioning away from traditional commoditising services
  • EBITDA is additionally affected by the cost of the national fibre network outsource and overrun of certain project costs
  • Re-investment of proceeds from sale of certain national network assets in the fibre deployment in Hull and East Yorkshire is progressing well, attracting strong customer take-up
  • Strong net debt management with favourable year-on-year underlying working capital movement
  • Proposed final dividend of 4.00 pence per share (2016: 3.94 pence)
Jane Aikman
Chief Financial Officer
9 June 2017

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Our business model

Creating value from connections

  • The skills, expertise and experience of our people

    Our people are one of our key differentiators in delivering value to our customers, particularly in our Enterprise market where the combination of design, development and applications integration skills in the areas of cloud, contact and collaboration sets us apart from competitors.

    Our investment in our Hull and East Yorkshire fibre network

    Our Fibre To The Premises deployment gives customers in Hull and East Yorkshire a superior online experience and provides a platform for the delivery of other valued-added services.

    Our technology platforms

    Our technology platforms underpin our ability to provide solutions to customers.

    Our strategic partners

    We work closely with carefully selected partners including Amazon Web Services, Cisco and Microsoft and use our skills and experience to design, create and support solutions based on their market leading technologies.

  • Enterprise

    We provide consulting, design, implementation and managed services related to the collaborative systems and cloud markets.


    Hull and East Yorkshire

    We provide communication and internet-based services to residential and business customers in the region.


    National Network Services

    We provide network connectivity and related services to businesses nationally.


  • For shareholders

    6.00p

    Proposed full year dividend (pence per share)



    For customers

    137,000

    Premises passed by our Hull and East Yorkshire fibre deployment



    For employees

    73

    Latest employee engagement score (October 16)


    More detail on how we create value can be seen in our business model download.


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Secure and efficient

“Millions of our customers are choosing to use our digital services rather than picking up a phone or pen, with more joining them every day. But we know that not everyone can, or wants to, deal with us online, and so we’re continuing to improve our services across all contact channels. Voice ID is the latest example of the cutting-edge technology we are using to make it easier for people to manage their tax and tax credits.”

Ruth Owen
Director General for Customer Services, HMRC

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Reliability is key

“I’ve been very impressed by Lightstream. It’s fast and, most importantly, it stays up. For me, although the speed is important, the continuity of service is paramount and Lightstream gives me that.”

Mac Jordan
Webhorus

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“For our customer facing service, as well as the back office processes and the service IT delivers to the business, KCOM plays a critical role in our success.”

Michelle Liptrot
Transformation Director, Arrow XL

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Our strategy

Driving operational excellence

Our value creation is underpinned by four strategic pillars

  • We understand and anticipate the needs of our customers and align our products, services and solutions to meet those needs, creating a unique brand experience differentiated by the value we deliver.


    Priorities for 2017/18

    We will:
    • introduce new propositions for consumers, business and wholesale partners in our Hull and East Yorkshire market;
    • enhance the experience of customers in our Hull and East Yorkshire market by making improvements to buying, fault resolution and billing processes;
    • develop and launch a refreshed in-home service experience for customers in our Hull and East Yorkshire market;
    • leverage our track record with key reference clients to win new customers for complex IP-based contact and cloud projects; and
    • seek to expand further our relationships with existing customers.
  • We want to provide an environment where we attract, develop, sustain and enable all our people to demonstrate and apply their capabilities, offering opportunities for everyone to reach their full potential.


    Priorities for 2017/18

    We will:
    • move away from a recognition culture based on length of service and introduce a modern recognition platform that provides more relevant and transparent opportunities for reward and recognition;
    • make the most of the professional communities we have established across the business to improve workforce planning, succession planning and talent management processes;
    • develop academies for all our professional communities, providing clear development solutions and pathways that support ownership of development by the individual; and
    • drive benefit from a broad, company-wide resource pool of skilled talent that allows for focused and effective utilisation and prioritisation where it is needed to support growth, develop communities and share knowledge.
  • We recognise that our customers’ needs are better met if we work seamlessly with carefully selected partners to create combined service offerings.


    Priorities for 2017/18

    We will:
    • review our long-established partnership with BT to ensure that it remains fit for purpose to meet our future needs;
    • seek partners for the development of over-the-top services for consumers in our Hull and East Yorkshire market;
    • continue to develop and leverage our ecosystem of technology partners to increase our capability in the Enterprise market and achieve the most effective outcomes for our customers; and
    • continue to seek new critical partnerships.
  • Our customer service excellence is underpinned by robust processes and systems.


    Priorities for 2017/18

    We will:
    • add capabilities to consolidate and build resilience into our existing IT systems;
    • continue to develop our API-centric IT architecture;
    • introduce an engineering mobility and scheduling system that will increase the efficiency of our engineering workforce in Hull and East Yorkshire and improve the experience customers receive during new service installations or fault repairs; and
    • deliver system enhancements that improve the experience of customers in our Hull and East Yorkshire market.

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Sustainability

Operating with a positive effect on our stakeholders and society

Our sustainability strategy covers four main areas that are taken into account when making key business decisions: the communities in which we operate, our people, our customers and suppliers and the environment. The Board receives reports on each of these as appropriate. Responsibility for the overall sustainability strategy sits with our Chief Executive, Bill Halbert.

Our sustainability strategy and initiatives are fully integrated and aligned with the key pillars of our business strategy.

There are three key objectives that underpin our sustainability strategy:

1
To use our expertise in communications technology to create a positive impact on all our stakeholders and the communities in which we operate.
2
To promote our values, both internally and in the way we do business with external stakeholders.
3
To engage and empower our people so they can make a positive contribution to our sustainability strategy and the causes that matter to them.

Directors’ report

Corporate governance
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Nomination committee report
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Audit committee report
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Remuneration report
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Financial statements

Five year summary
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Income statements
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Balance sheets
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Cash flow statements
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