CEO’s statement

Continued progress as we transform the business

Bill Halbert

In summary

  • Progress towards becoming an integrated business
  • Continue transformation through tighter focus on three key markets
  • Integration of brands to align resource
  • Journey continues into coming year

Dear shareholder

During the last year we have continued with the transformation of the business, building on the progress made since we began this journey back in 2008. Our full year financial results were broadly as anticipated and I am pleased to report that there has been continued progress in our focus areas, as we transform into an integrated business.

Within the Kcom segment, made up of the activities relating to our Kcom, Smart421 and Eclipse brands, we continued our shift away from the provision of declining network-based voice and associated commodity services and towards more sustainable, higher value managed IP-based services. Those services included our contract to provide HMRC with a range of contact centre services, exploiting our investment in our market leading ‘Workplaces’ platform. This was delivered successfully and in place ahead of the personal tax self-assessment deadline at the end of January.

We launched also a number of cloud-based packages, primarily aimed at small and medium-sized businesses. These include a managed Office 365 service, with increased levels of customer support and tailored migration. During the year, our Eclipse brand became one of Microsoft’s first official Cloud Solution Provider partners.

Across all brands, we continue to see growing interest in our cloud and collaboration related capabilities.

As a result of this continued shift, the revenue and margins from some of our more traditional legacy activities have continued to decline. Recognising this, and their diminishing importance and contribution to future growth, an exceptional impairment charge has been recognised against the goodwill balance associated with those related historic acquisitions made in 2004.

In the KC segment, our Lightstream fibre network is supporting the demand for cloud-based services among SMBs, with continued interest for example in our high definition cloud-based CCTV service. Demand is driven also by Hull’s inclusion in the Government’s Superfast Britain voucher scheme, aimed at supporting SMBs with improved digital connectivity.

We continue to shift towards sustainable, higher value services

We have seen continued strong demand for our fibre-based services among consumers in the region with take-up well in excess of national rates. As a result, we have taken the decision to accelerate the rate of deployment and, by March 2017, over 100,000 homes will be able to access the service.

We have seen that fibre customers consume over twice as much data compared to those using a standard copper-based broadband connection. This demonstrates the growing importance of high bandwidth connections as customers look to make use of the wide range of ‘over the top’ services that are being developed such as on-demand content.

We will seek to accelerate the progress we have made

While many of those services are developed by third parties, we have begun to develop regionally-focused content for consumers, including coverage of local sporting and cultural events. Our content offering is in the early stages of development and we will be making more content available, particularly in the run up to Hull becoming the UK City of Culture in 2017.

These are the key opportunities for future growth and in the coming year, we will seek to accelerate the progress we’ve made to date.

Ofcom

In March, the industry regulator, Ofcom, announced its intention to undertake a strategic review of the UK’s digital communications market, to ensure that communications providers and services continue to meet the needs of consumers and businesses. It will examine competition, investment, innovation and the availability of products in the broadband, mobile and landline markets.

The first phase of the review will examine current and future market factors that may affect digital communications services, and current regulatory approaches. Ofcom expects to publish a discussion document in the near future.

We will play an active part in this review, continuing our active and constructive dialogue with the regulator and other communications providers.

Looking ahead

Over the coming year, we will continue to tighten our focus on the three key markets we serve: enterprise, small and medium-sized business and consumer.

To do this, we will begin the process of integrating our existing brands in order to align resources with those target markets and prioritise investment more tightly to support our strategic growth areas, where we see increasing opportunity. We see this, in particular, being the provision of cloud-based services, the integration of collaborative systems and their related consultancy, design and integration activities and the development of fibre-based propositions. Building on the progress to date, we will continue consolidating our business-wide operational and support services to remove overlaps and duplication creating a more scalable, agile operating model.

Our achievements so far on the journey are a testament to the capability, commitment and collaboration of everyone across the business and it is that strength and combination of qualities that will see us continue our successful transformation, while continuing to deliver the highest standards of customer service.

Bill Halbert

Chief Executive
17 June 2015