Connected to Our Customers Annual Report and Accountsannual 2016/17 Report
Total Page:16
File Type:pdf, Size:1020Kb
KCOM Group PLC Annual report and accounts 2016/17 KCOM Group PLC PLC Group KCOM Connected to our customers Annual report 2016/17 Annual and accounts Connected to our customers 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. www.kcomplc.com Strategic report 03 Highlights 04 Our business at a glance 06 Chairman’s statement 08 CEO’s statement 10 Our business model 12 Market opportunities and trends 17 Performance review 20 Our strategy 22 Key performance indicators 24 Managing risk in our business 30 Sustainability Directors’ report 36 Board of Directors 38 Corporate governance 43 Nomination Committee report 45 Audit Committee report 48 Other disclosures 50 Remuneration report 52 Policy report 63 Annual report on remuneration Financial statements 74 Independent auditors’ report 80 Consolidated income statement 80 Consolidated statement of comprehensive income 81 Balance sheets 82 Consolidated statement of changes in shareholders’ equity 83 Parent Company statement of changes in shareholders’ equity 84 Cash flow statements 85 Notes to the financial statements 114 Glossary 115 Five year summary of consolidated figures 116 Shareholder information See also Online report ar17.kcomplc.com Strategic report Highlights Revenue EBITDA¹,2 Operating profit¹ Strategic report £ million £ million £ million £331.3m £67.6m £40.7m -5.1% -9.7% -20.0% 2017 331.3 2017 6 7.6 2017 40.7 2016 349.2 2016 74.9 2016 50.9 2015 348.0 2015 74.3 2015 5 7.2 Profit before tax Net (debt)/funds2 Proposed full year dividend £ million £ million (pence per share) £30.5m £(42.4)m 6.00p -65.6% +1.5% 2017 30.5 2017 (42.4) 2017 6.00 2016 88.7 2016 7.4 2016 5.91 2015 16.7 2015 (99.3) 2015 5.37 1. Before exceptional items. 2. Refer to glossary on page 114. Operational highlights See also Performance review > Progress in key focus areas page 17 > Growth in Enterprise revenue Key performance indicators page 22 > Growth in consumer revenue in Hull and East Yorkshire Glossary > Fibre network deployment in Hull and East Yorkshire page 114 ahead of schedule > Continued focus on optimising cost base > Strengthened management team > Strong cash management KCOM Group PLC Annual report and accounts 2016/17 | 03 Strategic report Our business at a glance We make life easier and better for every customer We help customers create Enterprise greater value from the way We help large organisations make the most of technology they interact, collaborate to serve their customers better and address other business and connect with what challenges. matters to them. Our customers include: We have refined our reporting segments to > Bupa align with the way the business is run and how > HMRC financial performance is measured. > NFU Mutual See Note 4 on pages 91 to 94. > O2 See also > Rail Delivery Group Our business model > Shoosmiths page 10 Market opportunities and trends page 12 Our strategy page 20 What differentiates us in the Enterprise market The broadest range of legacy Agile and nimble by design, experience combined with we can quickly make a difference cutting edge expertise to our customers’ businesses Our capability in complex IP-based We advocate flexible and scalable solutions and cloud implementations approaches and technologies to is enhanced by partnerships with deliver swiftly on the promises of key vendor partners and niche public cloud and digital technology providers. transformation and help prepare our customers for an unpredictable future. 04 | KCOM Group PLC Annual report and accounts 2016/17 Strategic report National Network Services 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. Hull and East Yorkshire 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 As part of the community network is delivering an we serve, we understand unrivalled online experience our customers’ needs Our investment is creating a Our unique heritage in Hull and unique, future-proof platform East Yorkshire has made us part of for the delivery of innovative the fabric of the local community. over-the-top services, with more We have a unique ability to than half of our customers already engage closely with our able to benefit from ultrafast customers and use our deep download speeds that are the understanding of their needs to exception across the rest of the UK. deliver services they value. KCOM Group PLC Annual report and accounts 2016/17 | 05 Strategic report Chairman’s statement Dear Shareholder Our objective is to deliver long-term, sustainable value for our Clear focus shareholders. Our strategy is designed to offer shareholders a combination of income generation and value accretion. Strategic focus on the future Hull and East Yorkshire is core to the strategic direction of KCOM, and receives the majority of the Group’s investment. We are fully committed to completing the fibre deployment across our market to deliver premium services both to homes > Strategy focused on delivering and businesses. This should deliver long-term sustainable cash shareholder value generation, to continue to support our dividend policy. > Long-term cash generation from Our Enterprise business is focused on market areas, where we our Hull and East Yorkshire segment have seen good growth and where we have market leading skills. We are targeting development in this area to provide momentum > Sustainable growth in our in shareholder value. A key part of our growth this year comes Enterprise segment from additional business from existing customers who recognise the value we can add to their business. This helps to give us confidence that our strategy is the right one. The Board expects, over the coming 24 months to see further substantial progress, in support of this strategy. Graham Holden Non-Executive Chairman 06 | KCOM Group PLC Annual report and accounts 2016/17 While we continue the investment in our fibre deployment We seek always to ensure that we have appropriate succession Strategic report and the further development of our Enterprise business, I am plans in place both for the Board and for the senior management pleased to confirm that the Board is recommending, subject to team of the business as well as recognising talent right across shareholder approval, a final dividend of 4.00 pence per share, the organisation. This has been a regular topic of discussion in accordance with our existing commitment to deliver a during the year and is covered in the Nomination Committee minimum full year dividend of 6.00 pence per share for both this report on page 44. year and the year ending 31 March 2018. This reflects both our confidence in the strategy being executed by the management Good governance and responsible business team and longer term prospects. Good governance is essential to the business and we seek to adopt best practice where it is beneficial. Board appointment In October, Jane Aikman joined the Board as Chief Financial In line with best practice, we have recently completed a Officer. Jane previously held a number of Executive level consultation with major shareholders around some proposed positions, including her most recent role as Chief Financial changes to our Remuneration policy. I am pleased to say that Officer and Chief Operating Officer for Phoenix IT Group Plc they received widespread support and the policy will be until its acquisition by and merger with Daisy Group. presented to shareholders for approval at the AGM. Jane has quickly established herself as a valued member of the As a major business headquartered in Hull, we are delighted to Board and her fresh perspectives are already bringing additional be a Principal Partner for Hull’s 2017 City of Culture celebration. strength and focus to the business. Jane will stand for election This 12 month programme is designed to bring a wide variety by shareholders at the Annual General Meeting in July. of cultural and artistic events to the city and provide a range of opportunities for the local community to experience the Board effectiveness positive impact that this will bring. As well as supporting the events themselves, the business is supporting a number of our We continually consider the effectiveness of the Board and have employees who are volunteering as City of Culture ambassadors. a formal evaluation annually, which in 2016 was carried out by our Company Secretary. The conclusion from the evaluation was We hope that the legacy left by the City of Culture programme that we are operating effectively but there were some minor will support the continued regeneration of the region for many areas for improvement. We continue to monitor against our set years to come. of Board objectives which are detailed further in the Corporate governance section. In 2017, we will conduct an externally We remain in an environment of change and transition both facilitated evaluation. internally and for our customers and markets. Each presents new challenges and exciting opportunities and we value and appreciate the energy and enthusiasm that our colleagues across the business show in making life easier and better for our customers. “ We remain in an environment I would like to thank them all for their continuing contribution. This, coupled with the clear focus that we have on the future, of change and transition gives the Board every confidence that we can achieve our both internally and for our ambitions as a business.