Directors' report

Other disclosures

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Principal activities

The principal activities of the Group are described in the Our business and Our vision sections and in the Business review.

Disclosure of all relevant information to auditors

The Directors who approved this report are satisfied that there is no relevant audit information (as defined in the Companies Act 2006) of which the Company's auditors are unaware. Each of the Directors has taken all reasonable steps to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

Directors

The names and biographical details of our Directors as at 31 March 2011 are in the Board of directors section. Further information regarding the Directors who served during the year can be found in the Corporate governance section and in the Remuneration report.

Creditor payment policies

The Group seeks to agree payment terms with each supplier when we start doing business with them. We always aim to pay our suppliers within a reasonable period of the invoice being received and in accordance with the Prompt Payment Code, which can be found at www.promptpaymentcode.org.uk. At 31 March 2011, the Company had no trade creditors (2010: £Nil). Group creditor days represented 72 days (2010: 54 days).

Charitable and political donations

The Group made a number of charitable donations throughout the year to support community organisations and initiatives, totalling £9,015 (2010: £12,189). No political donations were made.

Employees

Our employment strategies are linked to business needs and have been designed to deliver the growth and development of the Group and our people. Our employment policies are designed to provide equal opportunities irrespective of age, disability, ethnicity, gender, gender reassignment, marital status and civil partnership, nationality, pregnancy and maternity, race, religion and belief and sexual orientation.

All employees, whether part-time or full-time, temporary or permanent, are treated fairly and equally. We select employees for employment, promotion, training or other matters affecting their employment on the basis of aptitude and ability.

All employees are assisted and encouraged to develop to their full potential so that their combined talents and resources of the workforce are fully utilised to maximise the efficiency of the organisation.

We take every opportunity to involve and consult with our employees and we believe that employee involvement is an essential contributor to the development of our business. Our Executive Directors regularly visit our different office locations to meet with our employees, provide updates on the performance of the Company and to receive suggestions and feedback, through both roadshow presentations and informal meetings. Our quarterly online magazine called 'Insight' helps to raise awareness of activities across the Group and is supported by a weekly round-up bulletin which is distributed to all employees.

In March 2011 we undertook a Group-wide employee survey to obtain feedback from our employees on a range of topics. The results of this will be fed back to employees once these have been collated and will be used to enhance employee interaction in the future and to feed into any decision making which may affect the interests of our employees.

We encourage our employees to become shareholders by offering a Share Incentive Plan as we believe this encourages greater employee engagement. More information about this can be found in the Remuneration report.

Share capital

The Company has a single class of share capital which is divided into ordinary shares of 10 pence.

Rights and obligations attaching to shares

In a general meeting of the Company voting is as follows:

A member is not entitled to vote in respect of any share in the capital of the Company held by him or her, if there are sums payable to the Company in respect of such share which remain unpaid.

Full details of the deadline for exercising voting rights in respect of the resolutions to be considered at the AGM to be held on Friday 22 July 2011 are set out in the Notice of Meeting.

All dividends are paid proportionately to the amounts paid up on the shares and are paid to those members whose names are on the share register at the date at which the dividend is declared, or at such other date as determined by the Directors or by an ordinary resolution of the Company.

If the Company is wound-up, the liquidator, with the sanction of a special resolution of the Company or any other sanction required by law, may divide the whole or any part of the assets of the Company amongst the shareholders and may determine how the division of the assets will be carried out.

Transfer of shares

All transfers of uncertificated shares must be made in accordance with, and be subject to, the Uncertificated Securities Regulations 2001 and in accordance with any arrangements made by the Board.

All transfers of certificated shares must be in writing in a form which has been approved by the Directors; this is known as 'the Instrument of Transfer'. The Instrument of Transfer must be signed by, or on behalf of, the transferor and the transferor will remain as the holder of the share until the name of the transferee is entered into the share register.

The Directors may refuse to register the transfer of any share which is not fully paid or which is in favour of more than four persons jointly. The Directors may also refuse to recognise an Instrument of Transfer if it is not lodged at the Company's registered office or at any other place which the Directors have determined.

If the Directors refuse to register a transfer they will send to the transferee a notice of the refusal and the Instrument of Transfer within two months of the date on which the transfer was lodged with the Company.

Shares held by Employee Share Trusts (EST)

The trustees of the Kingston Communications 2000 EST vote any shares held in the EST as they wish, having due regard to the interests of the employees as potential beneficiaries.

The trustees of the KCOM Group PLC EST consult with participants regarding the voting of any investment shares, but may vote any co-investment shares held in the EST as they wish, having due regard to the interests of the participants.

Allotment of shares

At the AGM in 2010, the Company was authorised by the members to allot shares up to an aggregate nominal amount of £17,220,130. Authority was also given at the same time for the partial disapplication of pre-emption rights, up to a maximum aggregate value of £2,583,019. As at the date of this report no shares had been allotted under this authority, however the Company intends to allot sufficient shares to meet requirements in relation to our Executive Incentive Plan prior to the AGM. As at 31 March 2011 the number of shares that were required was 1,496,000 with a nominal value of £149,600.

Repurchase of shares

At the AGM in 2010, the Company was authorised by members to purchase its own shares, up to a maximum of 51,660,391. During the year, the Company purchased 181,370 (2010: 2,580,000) shares on the London Stock Exchange at a cost of £88,871 in order to meet its obligations under the Company's share schemes. These shares represent 0.04% of the called up share capital and are held in trust until they vest; therefore the purchase of these shares does not reduce the share capital in issue. The total number of shares held in trust to meet obligations under the Company's share schemes is:

Number
As at 1 April 2010 7,074,780
As at 31 March 2011 7,060,230

Further details around the purchase of shares in the year are set out in note 27 to the financial statements.

Significant agreements – change of control

The following significant agreements contain provisions entitling the counterparties to exercise termination or other rights in the event of a change of control of the Company:

The Company does not have any agreements with any Director or employee that would provide compensation for loss of office or employment resulting from a takeover.

Annual General Meeting

Our AGM will be held at the KC Stadium, Kingston upon Hull on Friday 22 July 2011 at 11.00am. The Notice of Meeting is also available on our Group website at www.kcomplc.com. Four resolutions will be proposed as special business. Explanatory notes on these resolutions are set out in the Notice of Meeting.

The Directors consider that all the resolutions proposed are in the best interests of the Company and it is their recommendation that shareholders support these proposals as they intend to do so in respect of their own holdings.

This report has been reviewed and approved by the Board of KCOM Group PLC.

Signed on behalf of the Board

Kathy Smith

Company Secretary

8 June 2011

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