The KCOM Group is a leading providerof communications services to consumer

and business markets across the UK.

Our goal is to become an acknowledged leaderin the markets we serve and an automatic

partner of choice for individual consumers andorganisations in those markets.

We aim to help our customers exploitcommunications and associated technologies

to improve the performance of theirbusinesses and organisations and to enhance

their personal communications experience.

to the KCOM Group – a leading providerof communications services to consumersand organisations across the UK.

Our business was founded over 100 years ago and has grown and developedboth organically and by acquisition. Today, we are stronger than ever. As anational business, our Group is organised to serve its two principal markets andoperates through four distinct customer-facing brands.

The aim of this brochure is to introduce you to what we do and to illustrate thevalue that we bring to our customers. You will see that, whether for consumers athome, small businesses or major organisations, we have the expertise, knowledgeand resources to deliver a communications solution that is perfect for you.

Our aim is to establish leadership in the markets we serve by continuing to buildour reputation for service excellence and by exploiting our ‘best-in-class’partnerships. Our plans for the future are ambitious, but achievable. We hopethat you will join us on our journey, as we continue to deliver excellence now andin the future.

Bill Halbert, Executive Chairman

Welcome

Our GroupWe want to enable our customersto exploit the communicationsrevolution to enhance their personalcommunications experience and tohelp businesses and organisationsimprove their performance.

What we doThe KCOM Group is a leading provider of communicationsservices to both consumer and business markets acrossthe UK.

Our customersWe are passionate about serving our customers – they areat the centre of everything we do. We seek to understandtheir needs, match our capabilities and those of ourpartners to their requirements and to deliver on ourpromises better than the competition.

Our goal

Our goal is to become an acknowledged leader in themarkets we serve and an automatic partner of choice forindividual consumers and organisations in those markets.

Our strategy

In recent years the strategy of our Group has been drivenby the changing communications needs of our customers.As a result, we are successfully creating a trusted andprofitable communication services business.By structuring our organisation around the markets weserve, we aim to deliver a high-quality customer experience,a key ingredient in the creation of long term, sustainablerelationships.

The Group is organised to serveits two principal markets

Our strategic relationships

Our strategic relationships demonstrate our commitment tofocusing on the core activities that help us to deliver thevalue added services our customers expect.

BT and Phoenix IT

Our strategic relationship with BT gives us extended marketreach and new services. By combining the footprint ofKCOM’s national network with BT’s, we are able to offerunparalleled network reach and develop new competitivepropositions and services throughout the UK.

The relationship means that BT undertakes themanagement of our network and provides KCOM Groupwith access to BT’s network across the UK. Going forward,we will be able to offer our customers complete access to aset of differentiated Next Generation Network products andservices based around BT’s 21st Century Networkprogramme.

Our partnership with Phoenix gives us access to industryleading field service engineering and maintenance services,an integral and essential component of our propositions.

Tailored communicationssolutions to support

business goals

Telecommunications andinternet-based services

Consumers andbusinesses in the

Hull and EastYorkshire region

Small businesses andconsumers nationally

UK basedbusinesses and

public sectororganisations

Our aims:

l To grow KC revenues throughnew products and services,including bundled propositionsand the roll out of a minimumbroadband speed of 2Mbps toall customers

l To achieve targeted geographicexpansion

l To establish a revitalised brandexperience

l To champion the Digital Agendain the regeneration of Hull andEast Yorkshire and to shape thefuture of broadband services

Our customers:KC has delivered a number of industry ‘firsts’ forits customers. These include Britain’s best-valuetelephone calls packages, the UK’s firstweekday off-peak broadbandservice, free local directoryenquiries and one of thefastest broadband services inthe country. According toindependent tests by

KC is proud to providea range of telecommunications and

broadband services to businesses andconsumers throughout Hull and East

Yorkshire. It is the only telecoms provider inthe UK to offer inclusive local calls in all its

telephone packages and is one of thefounding UK providers of broadband internet.

KC is consistently at the forefront ofcommunications to deliver the best quality

customer experience.

Proud to bepart of local life

‘We don’thave to worry about

how much we’redownloading anymore, which

is fantastic. It is importantpeople have a choice ofpackages to meet their

needs. Karoo Internet hasalways been very quick’

Lee JenkinsonKaroo Customer, Hull

broadband benchmarking company Epitiro,Karoo, KC’s broadband service, consistently offersthe fastest speeds of any UK broadband provider.

KC Business recently launched KC Cloud, a rangeof services for businesses which deliver hostedMicrosoft applications via a broadbandconnection. KC also delivers the fastest responseand highest fix rate performance for localbusinesses in the country and is the UK’s largestwholesale directory enquiries (DQ) provider.

The business has committed to a multi-millionpound upgrade to the core network infrastructurein Hull and its surrounding areas to provide aplatform for the launch of new products andservices.

KC is committed to delivering on its corporateand social responsibilities to help break thebarriers to an inclusive society. We have aprogramme of activities designed to raise theaspirations of young people in the region. Usingour skills and technology, we believe we have theopportunity to make a real difference to the localcommunity.

Further information:

To find out more about KC and itsactivities, go to:

www.k-c.co.uk

Eclipse Internet provides arange of Internet-based

services to small andmedium sized business anddiscerning consumers acrossthe UK.Through the deliveryof exceptional service and

innovative technicalsolutions, Eclipse Internetoffers a communicationsone-stop-shop that gives

businesses the freedom togrow and develop their own

organisation.

Aiming to become the number 1ISP for small business

small business marketplace. We constantly lookfor ways to innovate our service so that we areadding more and more value to our targetmarket. Recent innovations range from givingcustomers more diagnostic tools so they can fixtheir faults themselves to pro-active servicemonitoring that enables us to see a problembefore a customer does.

The Group’s agreement with BT gives usextensive national network reach and enablesus to deliver leading-edge, technologicalinternet and hosting solutions to our growingcustomer base.

Further information: To find out more about Eclipse and itsactivities, go to:

www.eclipse.net.uk

‘Eclipse’sflexibility and

excellent customer servicegive small business start-ups

like mine a chance toreally compete in our

own market’Jeremy Lennard

Managing DirectorJS3 Recruitment

Our customers:Our focus is on small to medium sizedbusinesses and discerning consumers looking forexceptional service. We aim to exceedcustomers’ expectations and to equip smallerorganisations with the communicationsresources they need to grow their own business.

We provide a range of broadband servicesincluding hosted e-mail, anti-spam/anti-viruse-mail protection, domain registration, andmanaged server hosting as well as oursuper-fast fibre broadband which deliversdownload speeds of up to 40Mbps and uploadspeeds of up to 10Mbps – five times faster thanexisting standards. This enables businessesto benefit from increased connection speedsand services including VPN, video conferencingand VoIP.

Our single UK based call centre promisesbusiness customers an answer to a technicalsupport call in less than 60 seconds. Our faultrate is the lowest in the industry whencompared to BT industry average reports acrossthe last 12 months. We fix more than 70% ofour faults when a customer calls us, at that firstpoint of contact. As a result, we are increasinglyrecognised as a leading ISP provider to the

History:Eclipse was formed 15 years ago in 1995 byentrepreneur Mark Lang. Positioned as aspecialist ISP delivering innovative, technicalproducts and services, the business went fromstrength to strength. It joined the KCOM Groupin 2005 and has built a successful reputation asthe leading ISP for small businesses across theUK.

Our aspirations:

l To become the number oneISP for small businesses

l To differentiate our brand in themarket by delivering an industryleading customer experience

l To have a team so good at whatwe do, we win industry awardsevery year

Kcom is dedicated to helpingcustomers realise their

ambitions by taking care oftheir critical communicationsso they are free to plan, think

and progress.

Timeto create

tomorrow R

‘They took thetask beyond a quick fix

and gave truly insightfulthought-leadership guidanceon where we could take thesystems capabilities in the

future. They’ve helped makeour growth possible.’

We aim to lead the marketin the management ofcritical communicationsOur goals:

l To lead the market in thedelivery of ManagedCommunications Services

l To achieve significant revenueand margin growth byintroducing compellingcommunications-basedpropositions and services to themarket that exploit fully ourrelationship with BT, ourmanaged services capability andour expertise in specific customersectors

l To differentiate ourselves in themarket by delivering an industryleading customer experience

l To transform our internaloperational processes andsystems, in order to driveefficiencies

l To become a business renownedfor uniting, energising andinspiring

Our customers:Our focus is on multi-site private and publicsector organisations that have complexnetworking requirements but often lack theinternal resources to meet their increasinglycomplex communications needs.

The outsourcing of our network to BT gives usextensive network reach in the UK, access tonew customers and allows us to focus on theexperience we deliver to our customers.

Kcom also has a well-established resellerchannel providing solutions to partners thatallow them to increase their revenues and growtheir businesses.

Further information: To find out more about Kcomand its activities, go to:

www.kcom.com

Simon TownleyHead of Infrastructure

Hermes

History:Smart421 was founded in 1999 and joined theKCOM Group in September 2006.

Our ambitions:l To continue building long-term,

successful partnerships withleading UK organisations

l Continual development of newpropositions that enable ourclients to remain innovative andcompetitive

l To deliver exceptional customerservice and the same or betterreturn on investment than theglobal IT consultancies

Customers:Smart421 provides flexible, responsiveand cost-effective IT solutions thatfacilitate the delivery of businessresults. We provide specialistcommunications packages, fromarchitecture and design consultancy,through to the delivery of businessintegration services, data managementand managed services.

Smart421 specialises in systems integration andmanaged services of business-critical systems for

large organisations with complex ITrequirements. Through taking an agile, specialist

approach to technology, Smart421 is able todeliver intelligent business technology solutions

more reliably than offshore outsourcingcompanies and more cost-effectively than larger

IT consultancies. Its expert approach means that it can help

organisations to align information technologyto business strategy, ultimately releasinginternal resources to enable companies to

compete, plan and grow.

Facilitating business growth through t

Smart421 technology specialists provide clientswith the market intelligence and technologicalknowledge to enable their business to remainflexible and one-step-ahead. Smart421’s ever-evolving propositions enable clients to stayahead of the technology curve to exploit newtrends and innovations, increasing theircompetitive edge.

Smart421 primarily serves the Financial TimesUK 500 list of large enterprise companies andpublic sector organisations across the UK andEurope, delivering added value solutions to theircomplex IT requirements.

Further information: To find out more about Smart421and its activities, go to:

www.smart421.com

‘Smart421are one of our most

trusted partners. Theyconsistently deliver on

time and to budget, andtheir people are flexible,

reliable and committed toour business’

Group IT Manager, ONE

technology

CSR

Consultation with partners and employeeshas allowed us to develop a corporate socialresponsibility programme that is focused onfour key areas:

l Our work in the community

l Our commitment to ourworkplace

l Our environmental policy

l Our ethical policy

Our work in the community:Involvement in the local community is ofparamount importance to the KCOM Group. Ourconsumer-facing brands are committed tosupporting their local area and we activelyencourage involvement in a variety of activitiesincluding competitions and sponsored events.

Our KC brand has an active communityprogramme and has committed financial andhuman resource to three main communitypartners for the next two years: Hull & HumberKC Cares, Cat Zero and Hull Children’sUniversity.

Annually, across the Group, we adopt a nationalcharity and organise a series of events andactivities to raise funds. Our Group Charity ofthe Year is always selected through anemployee voting system and for this financialyear (2010/11), we will be working with theStroke Association. We aim to raise in excess of£45,000.

Our environmental policy:We are committed to achieving a real andsustainable positive impact on the broadercommunity in which we live and work. Webelieve that it is essential that both as a firmand as individuals we should operate in anenvironmentally conscious manner. Ourobjective is to minimise the impact of ourbusiness activity on the environment, whereverpossible. This includes ensuring that oursuppliers do likewise and that we persuade ourclients to consider environmental matterswherever possible.

Our ISO 14001 compliant EnvironmentalManagement System continues to ensure wemanage our environmental responsibilitieseffectively, and our Environmental Plan ensuresclear objectives are set.

This year has also seen a much greater focus onthe Carbon Reduction Commitment (CRC) andwork has taken place in a number of areas toensure we have a full programme in place tocapture the data required to meet ourobligations under the CRC.

The Group has also signed up to the 10:10initiative. This is a project aimed at unitingevery sector of British society to achieve a 10per cent cut in the UK’s carbon emissions in2010.

Our workplace:We recognise that our employees are vital tothe success of the Group and this principleguides our decision making on how weapproach the management of people. Lastyear, we were delighted to achieve re-accreditation of the Investors in People award,an award which recognises business successthrough its people.

Recognising and celebrating the achievementsof employees is an important part of ourworkplace ethos and we have a variety ofrecognition schemes in place. We encourage ouremployees to participate in the success of theGroup through share ownership. Our awardwinning SIP scheme has entered its fourth yearwith over 60 per cent of the Group’s employeesowning shares in the business.

Our ethical policy:We have an Ethics and Anti-Fraud Policyconfirming our commitment to a culture ofopenness, trust and integrity and to treatemployees fairly and with respect. It confirmsour commitment to protect employees,partners, suppliers, customers and shareholdersfrom illegal or damaging actions by individuals.The Policy also sets out the Group’s zerotolerance approach to fraud.

The KCOM Group recognises the importance ofapproaching its responsibilities for corporatesocial responsibility in a co-ordinated andcommitted fashion.

Financial statements

Consolidated income statementFor the year ended 31 March 2010

2010 2009£’000 £’000

Continuing operations

Revenue 412,800 472,439

Operating expenses (386,250) (571,688)

Group operating profit/(loss) 26,550 (99,249)

Analysed as:Group EBITDA before exceptional items 69,795 65,141Exceptional items – impairment of goodwill – (106,890)Exceptional items – other (10,205) (22,380)Depreciation of property, plant and equipment (20,074) (20,331)Amortisation of intangible assets (12,966) (14,789)

Finance costs (7,368) (12,304)Finance income - 197Share of (loss)/profit of associates (12) 11

Profit/(loss) before taxation 19,170 (111,345)

Taxation (1,477) 4,863

Profit/(loss) for the year 17,693 (106, 482)

Profit/(loss) for the year attributable to equity holders of the Company 17,693 (106,482)

Earnings/(loss) per share from continuing operationsBasic 13.47p (20.70p)Diluted 3.38p (20.70p)

Consolidated statement of comprehensive incomeFor the year ended 31 March 2010

2010 2009

£’000 £’000

Profit/(loss) for the year 17,693 (106,482)

Other comprehensive incomeCash flow hedges 920 (6,568)Actuarial gains/(losses) on retirement benefit obligation 5,620 (53,550)Tax on items taken directly to equity (1,832) 14,957

Total comprehensive income/(loss) for the year attributable to equity holders 22,401 (151,643)

Balance sheetsAs at 31 March 2010

Consolidated Parent Company

2010 2009 2010 2009£’000 £’000 £’000 £’000

Non-current assets

Goodwill 85,272 86,410 - -Intangible assets 10,547 20,502 - -Property, plant and equipment 124,057 131,009 - -Investments 1,054 1,049 234,215 234,215Deferred tax assets 56,115 59,424 14,104 17,078Amounts owed from subsidiary undertakings - - 260,267 237,239

277,045 298,394 508,586 488,532

Current assetsInventories 3,608 4,117 - -Trade and other receivables 76,927 86,469 232 512Cash and cash equivalents 13,890 17,508 - -

94,425 108,094 232 512

Total assets 371,470 406,488 508,818 489,044

Current liabilitiesTrade and other payables (144,678) (136,944) - -

Non-current liabilitiesBank loans (129,458) (174,195) - -Retirement benefit obligation (50,373) (60,993) (50,373) (60,993)Long term provisions and other payables (11,204) (13,737) - -

Total liabilities (335,713) (385,869) (50,373) (60,993)

Net assets 35,757 20,619 458,445 428,051

Capital and reserves attributable to equityholders of the company

Share capital 51,660 51,660 51,660 51,660Share premium account 353,231 353,231 353,231 353,231Hedging and translation reserve (6,351) (7,271) - -Retained earnings (362,783) (377,001) 53,554 23,160

Total equity 35,757 20,619 458,445 428,051

www.kcomplc.com