TIDMGAMA
RNS Number : 8984K
Gamma Communications PLC
07 September 2021
7 September 2021
Gamma Communications plc
Unaudited results for the six months ended 30 June 2021
Increase in Revenues, profit and cash generation
Gamma Communications plc ("Gamma" or "the Group"), a leading
provider of Unified Communications as a Service ("UCaaS") into the
UK and European business markets, is pleased to announce its
unaudited results for the six months ended 30 June 2021.
Six months ended 30
June
----------------------
2021 2020 Change (%)
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Revenue GBP217.4m GBP177.3m +23%
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Gross profit GBP111.7m GBP93.1m +20%
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Gross margin 51% 53%
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Profit from operations GBP32.9m GBP26.3m +25%
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Adjusted EBITDA* GBP46.0m GBP36.1m +27%
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PBT GBP32.4m GBP26.2m +24%
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Adjusted PBT* GBP37.0m GBP28.0m +32%
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EPS (Fully Diluted, "FD") 27.0p 22.1p +22%
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Adjusted EPS (FD)* 30.6p 23.5p +30%
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Interim dividend per share 4.4p 3.9p +13%
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Cash generated by operations GBP43.1m GBP32.2m +34%
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Cash generated by operations /
adjusted EBITDA 94% 89%
---------- ---------- -----------
Cash and Cash Equivalents less
Borrowings ("net cash") GBP25.6m GBP38.7m -34%
---------- ---------- -----------
*All adjusted measures set out above and throughout this
document which are described as "adjusted" represent Alternative
Performance Measures ("APMs") and are separately presented within
the statement of profit or loss or reconciled in the Financial
Review section or segment note and are applied consistently. Where
reference is made to adjusted EPS this is stated on a fully diluted
basis. Definitions of APMs are included in the Financial Review.
Our policy on the use of APMs is included in note 2.
Key Highlights
The Group had a strong financial performance with good growth
across all key product categories in the first half. COVID-19 had
only a minor impact on the overall financial performance of the
business.
Financial highlights
The main business units continued to perform well:
-- Revenue grew by 23% from GBP177.3m to GBP217.4m. The UK
Revenue growth in the period (which was largely organic) was 9%
(from GBP166.8m to GBP182.0m). The European Business grew revenues
from GBP10.6m to GBP35.4m which includes the inorganic growth from
the acquisitions in Spain and Germany.
-- Recurring Revenue (being Revenue which is recognised "over
time" as per note 3) grew from GBP166.7m to GBP194.3m (being 89% of
total Revenue; H1 2020 - 94%). The reduction is due to the
acquisition of HFO in Germany which includes mobile Revenues which
are commission based (and hence not recurring). This business also
has lower margins and therefore the group Gross Margin has reduced
from 53% to 51%.
-- UK Indirect Business continued to grow strongly with a focus
on the existing partner base. Gross profit increased from GBP64.5m
in H1 2020 to GBP69.2m in H1 2021 (+7%).
-- UK Direct Business continued to deliver very positive growth,
with Gross Profit increased from GBP22.4m in H1 2020 to GBP26.4m in
H1 2021 (+18%). The 2021 figures include the results of Mission
Labs since its acquisition on 3 March 2021 and also reflect the
exclusion of revenues from The Loop subsequent to its sale on 31
December 2020.
-- The European Business saw Gross Profit increase from GBP6.2m
in H1 2020 to GBP16.1m in H1 2021, primarily as a result of the
inclusion of six full months of trading results for acquisitions
which happened in 2020. The level of Gross Profit was consistent
with that earned in the second half of 2020 albeit with less
favourable exchange rates and harder trading conditions in
Spain.
Cash generation has remained strong but the Net Cash figure has
reduced due to the acquisition of Mission Labs Limited ("Mission
Labs") as described below.
Product launches
In its core UK market, Gamma has successfully launched a number
of key products (all of which have been well received by both
Channel Partners and end users) -
-- PhoneLine+ is a cloud based voice application replacement
service for a basic telephone line. It is easier to adopt than a
full UCaaS solution, and was made possible through our acquisition
of Mission Labs as described below.
-- Horizon Contact is a Cloud Contact Centre solution which is
fully integrated with Gamma's Horizon cloud service.
-- An enhanced mobile service which deepens Gamma's existing
relationship with Three and gives end users access to both 5G and
Wifi calling.
-- SoGEA Broadband which provides end users with broadband
without the need for a traditional phone line.
Following the end of the half we also launched a product
enhancement that allows both new and existing Gamma customers to
fully integrate their Horizon Cloud PBX service with Microsoft
Teams.
In the Netherlands, we introduced a Webex video calling and
conferencing service which is fully integrated with our existing
cloud PBX product.
Product highlights
There continues to be strong growth across the major product
groups in the United Kingdom:
-- The number of installed SIP Trunks as at 30 June 2021
increased by 14.3% to 1,354,000 from 1,185,000 at 31 December 2020
confirming our leading position in this market; these figures
include sales of the MS Teams Direct Routing product and seats on
Exactive's Cloud UCX platform.
-- Overall Cloud seats increased by 7% to 695,000 as at 30 June
2021 from 646,000 at 31(st) December 2020 (this includes Horizon,
Collaborate and our Cloud Contact Centre). Within this, the number
of Horizon (Cloud PBX) users increased by 6% to 638,000 from
601,000 and the number of Horizon users taking the additional
Collaborate service increased by 20% from 46,000 to 55,000.
-- The number of Cloud PBX seats in our European business
increased by 6% to 121,000 from 114,000 at 31 December 2020 - the
same rate of growth as we are experiencing in the UK.
Acquisitions
On 3 March 2021 we acquired Mission Labs . The initial
consideration (net of cash acquired) was GBP40.8m with up to an
additional GBP6.0m contingent deferred consideration payable over
the next three years assuming certain development milestones are
met.
We had been partnering with Mission Labs over the previous 18
months on various projects such as PhoneLine+. The addition of the
Mission Labs team has accelerated Gamma's ability to take advantage
of structural changes in the market which are leading to a greater
adoption of cloud services. The capabilities acquired will allow
the Group to bring additional new products and services into the
markets in which we operate.
We will continue to actively appraise acquisition targets to
gain further scale and to strengthen technology, product and people
capabilities across the Group.
Andrew Taylor, Chief Executive Officer, commented:
"We have delivered a strong business performance and a very good
set of financial results in the first six months of 2021, with both
our UK and European businesses continuing to develop positively. We
have begun to successfully knit together our desired Western
European footprint and as part of a structured group operating
model and growth strategy, we are working with our local management
teams to both further enable and accelerate our long-term Cloud PBX
growth across Europe.
"Despite the economic and business market impact of the COVID-19
pandemic, our product performance was very robust and we continued
to broaden and strengthen our market capabilities through the
development and launch of new products and services. During the
period we have reinforced the execution of our UCaaS strategy,
which is progressing very well, with the strengthening of both our
overall technology and product capabilities. As ever, we have
continued to invest and strengthen both our direct and indirect
channel propositions across all markets, with a focus on positively
enabling our partners and our end-customers to be competitive and
highly successful in their respective markets."
Enquiries:
Gamma Communications plc Tel: +44 (0)333 006 5972
Andrew Taylor, Chief Executive Officer
Andrew Belshaw, Chief Financial Officer
Investec Bank plc (NOMAD & Broker) Tel: +44 (0)207 597 5970
Patrick Robb / Virginia Bull
Tulchan Communications LLP (PR Adviser) Tel: +44 (0)207 353 4200
James Macey White / Matt Low
Chairman's statement
I am pleased to present the unaudited results for the six months
ended 30 June 2021.
Overview of results
Group Revenue for the six months ended 30 June 2021 increased by
GBP40.1m to GBP217.4m (H1 2020: GBP177.3m) an increase of 23%. The
UK Revenue growth in the period was mainly organic and increased by
9% from GBP166.7m to GBP182.0m. Our Revenue in Europe grew from
GBP10.6m to GBP35.4m the improvement being attributable mainly to
our acquisitions in Spain (April 2020) and Germany (July 2020).
Adjusted EBITDA for the Group increased by 27% to GBP46.0m (H1
2020: GBP36.1m). Fully diluted earnings per share for the half year
increased by 22% to 27.0p (H1 2020: 22.1p). Adjusted fully diluted
earnings per share for the half year increased by 30% to 30.6p (H1
2020: 23.5p).
The cash generated by operations for the first half was GBP43.1m
compared to GBP32.2m in H1 2020. The closing gross cash balance for
the period was GBP30.8m compared to GBP42.5m at the end of December
2020. This was impacted by GBP47.3m which we invested on
acquisitions, including GBP6.5m of deferred consideration and
option payments made in respect of past acquisitions. Throughout
the pandemic we took no government support and we have continued to
pay shareholders a dividend in line with our progressive policy and
this resulted in a cash outflow of GBP7.5m in the first half.
The first half of 2021 continued to be dominated by the COVID-19
pandemic with further periods of lockdown in all of the territories
in which we operate. This has been challenging for all businesses
and restricted our normal level of sales effort.
Throughout the pandemic, Gamma has continued to support its
customers.
Our financial performance remained strong because our commercial
model means that the majority of sales are on a recurring
basis.
I am pleased to report that we have significantly expanded our
development capability through the acquisition of Manchester based
Mission Labs on 3 March 2021. Mission Labs is a well-respected
UCaaS technology business founded in 2016, which has built a
reputation for creating technologically advanced solutions and
delivering great service to its customers and partners. The
experienced management team are remaining with the business and
leading their team through the next stage of Mission Labs'
growth.
Gamma had been partnering with Mission Labs for over 18 months
on projects such as PhoneLine+. The acquisition gives Gamma
additional capabilities in the rapidly evolving markets of Cloud
Contact Centre and Cloud Communications.
The acquisition also enables Gamma to accelerate our direct
digital channel strategy. Mission Labs has developed CircleLoop
(www.circleloop.com), a UCaaS technology platform which provides a
cloud-based telephony product fully serviced through web, desktop
and mobile applications and aimed at the micro-business market.
This capability will enable Gamma to address a key market
opportunity in the UK and Europe.
Our market
The COVID crisis has highlighted the importance of our products
and services for end users. During the crisis they were able to
carry on their business and many new customers have enjoyed the
benefits of using a UCaaS product for the first time. As businesses
move to new post-pandemic working practices, many are finding that
a UCaaS solution will assist them with home-working or
hybrid-working. We are seeing traffic volumes increase as the
economy rebounds.
The PSTN switch off in 2025 is also a driver for businesses to
move to a UCaaS solution - we estimate that 3m PSTN lines used by
micro businesses will need to be migrated.
We are finding that businesses of all sizes are now embracing
UCaaS and the pipelines for both our Direct business and our
Channel Partners are strong. As our CEO describes below we now have
a number of solutions for businesses of different sizes. This bodes
well for our future growth.
Board and Governance
During the first half of the year we had two planned retirements
from the Board. Andrew Stone, a founder-shareholder, and Alan
Gibbins (Chair of the Audit Committee since our IPO in 2014) both
stood down as Non-Executive Directors at the recent AGM (20 May
2021).
I would like to thank Andrew and Alan for their dedication and
contribution to Gamma over the past years.
Following Alan's retirement, Charlotta Ginman has taken over as
Chair of the Audit Committee. She is currently chair of the audit
committees at Keywords Studios plc, Pacific Asset Trust plc and
Polar Capital Technology Trust plc.
We continue to comply with the QCA Corporate Governance Code
(2018 edition) (the 'QCA Code').
Employees
Gamma had 1,686 employees at 30 June 2021 (30 June 2020: 1,355).
The Board recognises the high levels of dedication shown by Gamma's
employees during the pandemic period which enabled us to provide
uninterrupted services to our customers, some of which have been
delivering critical services.
We invest in all our employees and in particular we assist
apprentices to gain valuable work experience, to continue their
education and to obtain nationally recognised qualifications.
We continue to encourage all employees to own shares in the
Company. In the UK we launched this year's SAYE scheme in April
2021 and 402 employees subscribed which brought the total employees
in the SAYE scheme to 759. We also have 160 employees who are
buying shares monthly through our SIP scheme and 836 in total who
hold shares through the SIP Trust. We are currently working to
establish the most efficient way for our new colleagues in Europe
to own Gamma shares should they wish to do so.
Environment, Social and Governance ("ESG")
Gamma has always taken its ESG responsibilities seriously and
has been offsetting its carbon emissions from the UK business for
the past fifteen years.
During the period we have appointed an Environmental Data
Manager who will work with all of our Business Units to evaluate
our emissions and to form a plan for when we target net zero. We
are also evaluating the various frameworks and standards which are
emerging and have engaged consultants to helps us to ensure that we
further enhance our emissions measurement and reporting to ensure
that we measure and disclose the appropriate metrics both for
ourselves and our stakeholders. We will be consulting with our
stakeholders and we welcome their input.
Dividend
Gamma remains committed to a progressive dividend policy which
has meant that our dividend has increased between 10-15% every year
since our IPO in 2014. Gamma has paid one third of the dividend as
an interim dividend with the final two thirds paid as a final
dividend once the results for the full year are known.
The Board is pleased to declare an interim dividend, in respect
of the six months ended 30 June 2021, of 4.4 pence per share (2020:
3.9 pence). This is an increase of 13%. It will be payable on
Thursday 21 October 2021 to shareholders on the register on Friday
24 September 2021.
Current trading and outlook
Our performance subsequent to 30 June 2021 has continued to be
healthy.
During the various periods of lockdown, we have not seen any
increase in bad debts from our historical low levels. Our new sales
activity at the start of the crisis was slightly below its normal
level and this affected our growth in a small way. As we are now
coming out of the period of uncertainty created by the pandemic
sales activity has returned to normal and we continue to be
optimistic about Gamma's future growth prospects.
As a consequence, the Board expects that revenue for the full
year ending 31 December 2021 will be within the range of current
market expectations (which was raised following our trading updates
issued on 20 May and 13 July) and that our adjusted EBITDA and
adjusted EPS are expected to be in the upper half of current market
expectations. Company compiled analyst market expectations for the
full year are Revenue (GBP446.8m-GBP460.0m), adjusted EBITDA
(GBP90.5m-GBP95.0m) and adjusted EPS (57.6p-63.1p).
Richard Last
Chairman
Chief Executive Review
I would like to start by welcoming our new colleagues into the
Gamma family. We acquired Mission Labs on 3 March 2021, and I am
pleased to report that our integration plan is progressing very
well. The Mission Labs technology, product and people skills and
capabilities are already making a positive contribution to the
development and acceleration of our UCaaS strategy.
I am pleased to say that all of our business units have
performed well, and despite the ongoing COVID-19 related economic
headwinds experienced across all markets, I am happy to report
another excellent set of financial results for the first half of
2021. Supporting this performance, we delivered positive net
additional growth across all of our UCaaS products, and all of our
business market segments and geographies, which was in line with
our expectations and included a small but net positive contribution
from those products which we launched during the last 6-12 months.
These are discussed in more detail below.
The markets which we serve in the UK and Europe have proven to
be robust and in addition to completing the Mission Labs
acquisition and the disposal of The Loop, we were pleased to
deliver strong organic growth across our UK business during the
period. We have continued to save on costs in some areas due to the
COVID-19 pandemic (for example in travel and marketing), however it
is important to note that we have continued to invest in our UCaaS
technology platform, products, and team development, which has and
will in the future enable us to deliver new and exciting products
into the market via both our indirect and direct channels. This is
an exciting part of our long-term growth strategy, and we are very
pleased with progress.
We continue to assess the impact that the COVID-19 pandemic is
having on the cloud communications market and consider that the
long-term structural changes and shift towards a more flexible and
remote working environment, will lead to an increase in adoption of
UCaaS services and an acceleration in the use of these services
across businesses of all sizes. We see this as a long-term growth
opportunity across the markets in which we operate, and the quality
and competitiveness of our products and the strength of our direct
and indirect channel businesses in the UK and in Europe provides
confidence that we will continue to perform well and that the
long-term growth prospects for our sector and for Gamma will
continue to be positive.
European Expansion
One of our key strategic pillars continues to be to expand our
business into Europe, to benefit from low cloud penetration levels
and a long-term sustainable growth opportunity in these markets -
we plan to do this both organically using the businesses we have
acquired as cloud growth platforms and by gaining scale within each
market through making additional bolt-on acquisitions. We have made
no further acquisitions in mainland Europe during the first half,
but we have delivered net additional cloud product growth which is
in line with our UK business and considered a good performance
given the difficult COVID-19 related market conditions experienced
during the period.
The number of hosted PBX seats in our European business
increased by 6% to 121,000 from 114,000 as at 31 December 2020,
representing approximately 14% of our total cloud seats across the
Group
As highlighted previously, we expect to see an acceleration of
cloud adoption across Europe where markets are still at the early
stage of penetration and this will lead to a corresponding
reduction in revenues from traditional telephony. The adoption of
UCaaS across the business market is expected to double over the
next five years which both justifies and reinforces our "land and
expand" strategy across Europe.
Development of UCaaS product capability
Another of our strategic pillars is to exploit our strength in
the Cloud PBX market to develop a full UCaaS suite of products and
services.
As the UCaaS market develops, we realise that different segments
of the business market will have differing requirements for their
internal and external communications and therefore we need to
supply each segment with different products and services. The
business market is not homogenous, and we are therefore focused on
developing products for three different categories of businesses:
Micro, SME and Enterprise.
Micro-business
Micro businesses are smaller than the SMEs we have served
historically and typically have below ten employees. Micro
businesses are beginning to realise the benefit of cloud
communications services. One key difference from SMEs is that micro
businesses require greater simplicity in how products are delivered
and many have a preference to consume these products digitally over
the web.
In a micro business, customer service is vital, and a growing
business must appear capable and reliable. Employees needs to be
available and contactable all the time. Our fully digital web
enabled Circle Loop product allows very small businesses to have a
communications product which is "always on" and give a professional
appearance. Micro Businesses can self-provision telephony services
using Circle Loop in a very short space of time and with no need
for outside assistance. Pricing starts from just GBP5 per user per
month and is therefore both accessible and affordable for every
small business.
The UK PSTN switch off is fast approaching (in 2025) and this
creates an opportunity for Gamma as small businesses will be
looking for an alternative cloud solution which we believe Gamma
and our partners are very well positioned to provide.
Our plan during the months and years ahead is to broaden the
digital reach and strengthen the recognition of the Circle Loop
brand across our UK target market, with a view to significantly
increasing the contribution that Circle Loop makes to our overall
Cloud performance. In addition to this, the Circle Loop platform
will, in due course, be launched as a digital proposition outside
of the UK.
SME
Gamma has served the SME market in the UK for twenty years and
it is the market segment where we have historically been strongest
and lead the market in UCaaS. SMEs have more complex core
communication needs which differ by industry, and whilst many
discovered Cloud Communications some time ago, the fact that the
businesses tend to be dynamic means they demand more innovative
solutions. Hence there is an ongoing need for us to continue to
develop our core Horizon product as well as providing additional
modules for those who need additional functionality. Examples of
additional modules are Call Recording and Collaborate (which allows
video and audio conferencing as well as instant messaging and
screen sharing).
SMEs usually need a Channel Partner to help them derive the most
value from the product set which we offer. Gamma's mantra of "being
easy to do business with" ensures that we continue to be strong in
this market. We help Channel Partners to help end users by making
sure that our product is technically flexible and that we are
commercially reasonable.
During the first half we launched our Cloud Contact Centre
product - Horizon Contact. This is a fully integrated additional
module that attaches to our core Horizon Cloud product. It was
developed by Gamma's in-house development team (including the team
of developers who joined the Group following our Telsis acquisition
in 2019).
Many SME businesses will derive benefit from the capabilities
that the module offers even if they don't operate a traditional
contact centre. For example, a small travel agent or a car
dealership that wants to provide continuity of experience for a
customer would benefit from the multiple communications channels
that the product brings together. For both Gamma and our partners,
the module changes the definition of a Contact Centre opportunity.
Initial response to the product has been pleasing and early unit
sales are encouraging. As well as driving sales of the module, the
ability to offer the product is also driving sales of Horizon seats
which we otherwise may not have won.
Whilst our own Collaborate module is doing well in the market
and attachment rates have increased to 9%, we recognise that some
end users choose to use other UCaaS products alongside our Cloud
PBX offering. In July 2021, we launched a product enhancement which
allows users to integrate their Horizon Cloud product with
Microsoft Teams. We also continue to offer a variant of SIP called
Microsoft Teams Direct Routing which is now our fastest growing SIP
offering.
To complement our UCaaS product set, we provide access services
to our customers. Customers may choose to access our applications
using fixed fibre (such as Ethernet and Broadband) or through a
mobile based application. During the first half we launched SoGEA
Broadband which allows customers to take a broadband service
without having a traditional phone line, and we also launched an
enhanced mobile service which deepens our existing relationship
with Three and gives users access to both 5G and Wi-Fi calling.
Both services have been received positively in the market and
initial early sales are encouraging.
Enterprise
Enterprise customers have more complex needs often because of
the need for integration into a wide range of business management
applications. We therefore tend to deal with them directly and we
often supply a degree of service management as well as the core
products.
Typically a larger business has existing infrastructure so this
segment has only recently begun to embrace the shift to Cloud
Communications.
Enterprise customers need multiple products and don't tend to
procure everything in one big deal. Instead, they buy from multiple
vendors and integration of the offering becomes key. We are
pragmatic in our approach to this segment and we know that our
capabilities may need to be supplemented by services and components
from third parties.
Notwithstanding this, we sometimes work with partners to supply
certain solutions initially but eventually we may bring that
capability "in house". As an example, the acquisition of Exactive
in 2020 allowed us to assist our Enterprise customers with complex
Microsoft Teams implementations. The acquisition of Mission Labs
has allowed us to assist customers who wish to install Amazon
Connect as their Cloud Contact Centre. Mission Labs provides
bespoke developer services to Connect customers as well as
supplying its own module - Smart Agent - which can be used with
Amazon Connect to give an enhanced experience to both agents and
customers.
Summary and outlook
As highlighted previously, we have continued to perform very
well throughout the COVID-19 "lockdown" period in each country
where we operate. This is despite the resulting economic headwinds
experienced during this period, which although slowly but surely
improving have impacted business market confidence across each
country. We have a robust business model based on recurring monthly
billing which has ensured we have continued to be cash generative.
This strong earnings visibility has enabled us to plan effectively
and importantly, ensure that we have continued to invest in
delivering both our short- and longer-term commitments.
On this point, I continue to be very pleased with the execution
of our short-term business objectives and our longer-term strategy,
and I have been particularly impressed and proud of how our teams
have engaged to support colleagues, partners and our end customers
- I believe this is what truly sets Gamma apart from others and
positions us very much as a caring organisation, with a very high
degree of personal, professional and corporate integrity.
The COVID-19 pandemic has driven a shift in demand to UCaaS away
from networks to applications, and because of this we have grown
and re-shaped our capabilities to respond to the opportunity. The
integration work we have done with Microsoft Teams during the
period is a good example of this. We expect this positive trend to
continue, and we also see a future opportunity as end business
users consider their long-term strategic solutions over the short
term tactical fixes they may have put in place during the COVID-19
pandemic.
In summary, this has been a very strong first half performance
and I have been particularly impressed with how the business
market, our customers and our partners have responded to the
difficult circumstances. Although the economic recovery is at
different stages across the markets where we operate, businesses
are back trading and things are trending slowly towards a future
state of "normality". Notwithstanding the possibility of future
"lockdowns" across Europe, our long-term outlook is positive and in
addition to executing against our longer-term strategic
commitments, we will continue to focus on delivering a high level
of service for both our Channel Partners and end users, while
ensuring we enable them to be competitive and highly successful in
the markets where they operate.
Andrew Taylor
Chief Executive Officer
Financial review
Revenue and Gross Profit
Gamma has performed well during the six months ended 30 June
2021, increasing Revenue by 23% to GBP217.4m (H1 2020: GBP177.3m)
and Gross Profit by 20% to GBP111.7m (H1 2020: GBP93.1m). The UK
businesses have seen growth in Revenue of GBP15.3m (+9%) and Gross
Profit of GBP8.7m (+10%). The growth in the Revenue of the European
Business of GBP24.8m from GBP10.6m to GBP35.4m is primarily due to
a full six months of results of businesses acquired in 2020.
Adjusted EBITDA increased by 27% to GBP46.0m (2020: GBP36.1m).
Adjusted EPS (FD) increased by 30% to 30.6p (2020: 23.5p).
UK Indirect
H1 2021 H1 2020 Increase
GBPm GBPm
Revenue 130.1 119.5 +9%
Gross Profit 69.2 64.5 +7%
Gross Margin 53.2% 54.0%
Overall, the growth in the UK Indirect Business unit has been
strong. The growth is entirely organic, whereas in other segments
the results include the impact of acquisitions, but it should be
noted that the performance in H1 2020 (which is the comparator
period) was weaker than normal due to the first Covid lockdown -
this "low base" therefore slightly flatters growth.
Gross Margin has been broadly consistent with previous periods
which is a change in trend following many years of growth. The
historical growth was largely driven by an improving mix of high
margin UCaaS products against lower margin legacy and access
products. We have been guiding for some time that this would
eventually reach a consistent level of mid-50s and we believe that
this has now happened. We do not expect Gross Margin to increase as
the mix of UCaaS and access products stays broadly constant.
UK Direct
H1 2021 H1 2020 Increase
GBPm GBPm
Revenue 51.9 47.2 10%
Gross Profit 26.4 22.4 18%
Gross Margin 50.9% 47.5%
The UK Direct business continued to grow. There was some
inorganic growth driven by the Mission Labs acquisition in March
2021. This delivered GBP2.3m of Revenue in the year. This growth
was in part offset by the disposal of The Loop Manchester Limited
in 2020 which contributed GBP0.7m in the first half of 2020.
Whilst the headline growth has therefore been 10%, the organic
Revenue growth (correcting for Mission Labs and The Loop) was
GBP3.1m or 7%. We had expected the growth percentage in 2021 to be
lower than in previous years as the COVID-19 pandemic impacted the
sales pipeline in 2020 resulting in fewer new projects starting in
the first half of 2021. Notwithstanding, the growth was better than
expected due to some upsell and projects starting earlier.
The gross margin has increased due to mix - first, as a result
of Mission Labs which is a higher margin as a result of being a
SaaS model; and second, there is also an increase in gross margin
in the organic business due to a lack of installations and hardware
sales which are lower margin.
Europe
H1 2021 H1 2020 Increase
GBPm GBPm
Revenue 35.4 10.6 234%
Gross Profit 16.1 6.2 160%
Gross Margin 45.5% 58.5%
Our European business saw growth primarily as a result of the
inclusion of a full six months of results of the acquisitions made
in 2020 - Voz Telecom in Spain (acquired April 2020), HFO in
Germany (July 2020) and Gamma Communications Benelux expanded in
July 2020 with the acquisition of gnTel.
Gross margins have decreased from the prior year as a result of
"high revenue/ low margin" business within the Epsilon subsidiary
of the HFO business which offers mobile connections - this was
acquired in July 2020. The margins on a product by product basis
are consistent with those in the UK.
Compared to the run rate in the second half of 2020 (i.e.
following the acquisitions), the European Revenue has reduced (and
the Gross Margin has increased) as the mix of sales moves from
legacy products towards UCaaS products (where the rate of increase
in seats is consistent with the UK). The Gross Profit has been
static (against an expectation of growth) and there are two reasons
for this. First, the exchange rate has been less favourable in H1
2021 compared to the end of 2020 which has reduced the Gross Profit
by 4% (GBP0.6m). Second, our small direct business in Spain has
faced very difficult trading conditions due to the pandemic and we
estimate that this has reduced the GP of that business by
GBP0.4m.
Operating expenses
Operating expenses grew from GBP66.8m in H1 2020 to
GBP78.8m.
We break these down as follows:
H1 H1 H1 H1
2021 2021 2020 2020
GBPm GBPm GBPm GBPm Growth
Expenses included within cash
generated from operations
- UK Businesses 49.7 48.5 3%
- European Business 12.0 5.2 131%
- Central Costs 4.0 3.3 21%
------- -------
65.7 57.0
Depreciation and amortisation
- tangible and intangible assets 7.2 7.0 3%
- right of use assets 1.3 1.0 30%
- acquisition 4.6 1.8 156%
------- -------
13.1 9.8
Operating expenses 78.8 66.8 18%
---------------------------------- ------- ------- ------- ------- -------
Movements in expenses were driven by:
-- The UK Businesses' operating expenses growing by 2.5%
(compared to Gross Profit growth of 10.0%). This growth has been
lower than originally expected as a result of continued lockdowns
in 2021 resulting in unexpected cost savings for example, travel
and subsistence expenses continue to be significantly lower. Not
all of these savings are expected to continue in the long run as
"normality" returns post Covid.
-- Drivers of the increase in the overhead include expenses
relating to Mission Labs (acquired in March 2021) of GBP1.8m as
well as increases in share based payments costs (+GBP1.5m) which
continued to increase during the period. The latter is because of
the increasing take up of the all-staff schemes such as SAYE (which
drives the cost of running the scheme). In addition, the rising
share price has continued to make the costs of employers NI for
share grants higher than in previous years. We would expect both of
these overhead drivers to continue as we increase our levels of
development investment and more employees take advantage of our
share plans.
-- The increase in European costs is reflective of the cost base
growing by acquisitions (that is to say that it is not organic
growth).
-- Central costs have increased from the prior period which is
due to continued growth in the Group function which is required to
support the businesses we have acquired around Europe as well as an
increase in governance costs.
Depreciation and amortisation on tangible and intangible assets
have increased slightly from GBP7.0m in H1 2020 to GBP7.2m in H1
2021. This is driven by acquisitions in the prior year but has been
part offset by a decrease in depreciation in the UK business as the
assets associated with our previous mobile platform became fully
written down. Our new mobile proposition requires less capital
investment and hence this reduction will be permanent. The annual
depreciation charge is now in line with the annual capital
expenditure spend and is not expected to increase
significantly.
Research and development costs in the year increased in part due
to the acquisition of Mission Labs but also the increasing levels
of development being undertaken. The charge to the income statement
was GBP6.7m (H1 2020 GBP5.1m) in addition to GBP0.7m (H1 2020
GBP1.1m) which was capitalised.
Exceptional Items
There were no exceptional items in the current period or in H1
2020.
Alternative performance measures
Our policy for alternative performance measures is set out in
note 2.
The tables below reconcile the alternative performance measures
used in this document:
Depreciation
and amortisation
Statutory on business Adjusting
Measure basis combinations tax items Adjusted basis
2021
PBT (GBPm) 32.4 4.6 - 37.0
PAT* (GBPm) 26.2 4.6 (1.1) 29.7
EPS (FD) (p) 27.0 4.7 (1.1) 30.6
-------------- ---------- ------------------ ----------- ---------------
2020
PBT (GBPm) 26.2 1.8 - 28.0
PAT (GBPm) 21.2 1.8 (0.4) 22.6
EPS (FD) (p) 22.1 1.8 (0.4) 23.5
-------------- ---------- ------------------ ----------- ---------------
* PAT is the amount attributable to the ordinary equity holders
of the Company
We believe that these measures provide a user of the accounts
with important additional information by providing the following
alternative performance metrics:
-- Profit before tax is adjusted for the amortisation of
intangibles which were created on acquisition. This enables a user
of the accounts to compare performance irrespective of whether the
Group has grown by acquisition or organically.
-- Profit after tax is adjusted in the same way as Profit before
tax but it also considers the tax impact of these items. To exclude
the items without excluding the tax impact would not give a
complete picture.
-- Adjusted earnings per share takes into account all of the
factors above and gives users of the accounts information on the
performance of the business that management is more directly able
to influence and on a basis comparable from year to year.
In addition to the above we add back the depreciation and
amortisation charged in the year to Profit from Operations (2021:
GBP32.9m; 2020: GBP26.3m) to calculate a figure for EBITDA (2021:
GBP46.0m; 2020: GBP36.1m) which is commonly quoted by our peer
group internationally and allows users of the accounts to compare
our performance with those of our peers.
EBITDA (being also "Adjusted EBITDA")
Adjusted EBITDA grew from GBP36.1m to GBP46.0m. The UK adjusted
EBITDA grew by 20% to GBP45.9m. The European business contributed
an additional GBP3.1m as a result of acquisitions in 2020 which was
in part offset by an increase in central costs of GBP0.7m.
Taxation
The effective tax rate for the first half of 2021 was 18.5%
(2020: 19.1%). The rate in the current year is slightly below the
statutory UK rate of 19% as a result of the introduction of the
130% super-deduction capital allowance on qualifying plant and
machinery investments. This is in part offset by a tax rate change
to 25% for deferred tax in the UK and also disallowable
expenditure. We would expect the tax rate to increase in future
years as a result of an increasing impact of higher taxation rates
in the UK and Europe.
Net cash and cash flows
The Group has net cash of GBP25.6m. The gross cash balance at
the end of the period was GBP30.8m and the Group had borrowings of
GBP5.2m which are held by trading subsidiaries outside of the UK
which pre-dated their acquisition by Gamma.
In addition, we estimate that we will have to pay an additional
GBP11.9m in future in relation to acquisitions made (this is a mix
of contingent consideration and the exercise of options over shares
not yet acquired); these payments will be between 2022 and 2024. We
do not class contingent consideration as debt for the purposes of
quoting a net cash figure.
Cash conversion from trading increased from previous years due
to short term working capital movements. The ratio of adjusted
EBITDA to cash generated from operations was 94% (2019: 89%). We do
not expect the future conversion ration to remain at levels above
90% and we continue to target a range of between 85% and 90%.
Items which are not directly related to trading were:
-- Capital spend was GBP6.1m, which is in line with the prior period.
-- GBP40.8m was paid for the acquisition of Mission Labs net of
cash acquired (2020: GBP19.8m - Exactive and Voz Telecom).
-- GBP6.5m was paid in deferred consideration and option
exercises (2020: GBP1.7m) of which GBP1.5m was for Exactive and
GBP5.0m was for HFO.
-- GBP4.6m was received from the issue of shares (2020:
GBP0.3m). This significant increase on the prior period was as a
result of reinvestment in Gamma by former shareholders of Missions
Labs (GBP2.8m) and HFO (GBP0.7m) as well as part payment of
deferred consideration for Exactive in shares (GBP0.3m). The other
shares issues relate to exercise of options held by employees.
-- GBP7.5m was paid as dividends (2020: GBP6.6m).
Adjusted EPS (FD) and Statutory EPS (FD)
Adjusted EPS (FD) increased from 23.5p to 30.6p (30%). The
growth in adjusted EPS (FD) has been driven by the continued growth
in a difficult market as well as the acquisitions. Adjusted EPS is
EPS as adjusted for exceptional items (if any, there are none in
the period and prior period) and other items as defined in note 2
and a reconciliation to the statutory measure is shown in the table
above.
EPS (FD) grew from 22.1p to 27.0p (11%). The growth is lower
than the adjusted metric because, in the current period, there is
an increase in the amortisation relating to business
combinations.
Going Concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
are consistent with those set out in the Annual Report for the year
ended 31 December 2020. In assessing going concern management and
the Board has considered:
-- The principal risks faced by the Group are set out in Note 1
to the interim financial statements and are consistent with those
found in the Annual Report for the year ended 31 December 2020.
-- The financial position of the Group including budgets and financial plans.
-- The strong cash position - at 30 June 2021 the Group had cash
and cash equivalents of GBP30.8m (year ended 31 December 2020:
GBP53.9m). Net cash (being cash and cash equivalents less
borrowings) was GBP25.6m (year ended 31 December 2020: GBP48.0m).
All borrowings were acquired with acquisitions made in previous
years.
-- Future cashflows including liquidity, borrowings and the
acquisition of Mission Labs (which was GBP40.2m on a cash free
basis). We have performed sensitivity analysis which has shown that
EBITDA is our biggest sensitivity and would need to decrease by 59%
for the Group to need additional borrowing (assuming no mitigating
actions had been taken). We consider this to be highly unlikely.
Notwithstanding, lenders have indicated to management that they
would provide additional debt funding if required.
-- The ongoing impact of COVID-19. Whilst this impacted new wins
in 2020, to be delivered in 2021, the Group has continued to grow.
In the medium term, as a result of COVID-19, the adoption of cloud
services will accelerate and this reinforces our overall UCaaS
strategy.
The Directors are satisfied that the Group has adequate
financial resources to continue in operational existence for the
foreseeable future, a period of at least twelve months from the
date of this report. Accordingly, the going concern basis of
accounting continues to be used in the preparation of the condensed
consolidated financial statements.
Dividends
The Board has declared an interim dividend of 4.4p (2020: 3.9p).
This is an increase of 13% and is in line with our progressive
dividend policy. The interim dividend is payable on Thursday 21
October 2021 to shareholders on the register as at Friday 24
September 2021.
Andrew Belshaw
Chief Financial Officer
MANAGEMENT STATEMENT
This Interim Management Report (IMR) has been prepared solely to
provide additional information to shareholders to assess the
Group's strategies and the potential for those strategies to
succeed. The IMR should not be relied on by any other party or for
any other purpose.
The IMR contains certain forward-looking statements. These
statements are made by the Directors in good faith based on the
information available to them up to the time of their approval of
this report but such statements should be treated with caution due
to the inherent uncertainties, including both economic and business
risk factors, underlying any such forward-looking information.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
-- the condensed set of interim financial statements has been
prepared in accordance with IAS 34 "Interim Financial
Reporting";
-- the Interim Management Report includes a fair review of the
information required by DTR 4.27R (indication of important events
during the first six months and description of principal risks and
uncertainties for the remaining six months of the year); and
-- the Interim Management Report includes a fair review of the
information required by DTR 4.28R (disclosure of related party
transactions and changes therein).
By the order of the Board
6 September 2021
INDEPENT REVIEW REPORT TO GAMMA COMMUNICATIONS PLC
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2021 which comprises the condensed
consolidated statement of profit or loss, the condensed
consolidated statement of comprehensive income, the condensed
consolidated statement of financial position, the condensed
consolidated statement of changes in equity, the condensed
consolidated statement of cash flows and related notes 1 to 11. We
have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the AIM Rules of the London Stock Exchange.
As disclosed in note 1, the annual financial statements of the
group will be prepared in accordance with United Kingdom adopted
International Financial Reporting Standards. The condensed set of
financial statements included in this half-yearly financial report
has been prepared in accordance with United Kingdom adopted
International Accounting Standard 34, "Interim Financial
Reporting".
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2021 is not prepared, in all material respects, in accordance
with United Kingdom adopted International Accounting Standard 34
and the AIM Rules of the London Stock Exchange.
Use of our report
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
Reading, United Kingdom
6 September 2021
Condensed consolidated statement of profit or loss
For the six months ended 30 June 2021
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2021 2020 2020
GBPm GBPm GBPm
Note Unaudited Unaudited Audited
Revenue 3 217.4 177.3 393.8
Cost of sales (105.7) (84.2) (193.0)
----------- ----------- -------------
Gross profit 111.7 93.1 200.8
Operating expenses (78.8) (66.8) (125.1)
Earnings before depreciation, amortisation
and exceptional items 46.0 36.1 79.0
Exceptional items - - 19.6
----------- ----------- -------------
Earnings before depreciation and amortisation 46.0 36.1 98.6
Depreciation and amortisation (excluding
business combinations) (8.5) (8.0) (16.9)
Depreciation and amortisation arising
due to business combinations (4.6) (1.8) (6.0)
----------------------------------------------- ----- ----------- ----------- -------------
Profit from operations 32.9 26.3 75.7
Finance income - 0.3 0.4
Finance expense (0.5) (0.4) (1.1)
Profit before tax 32.4 26.2 75.0
Tax expense 4 (6.0) (5.0) (10.6)
----------- ----------- -------------
Profit after tax 26.4 21.2 64.4
Profit is attributable to:
Equity holders of Gamma Communications
plc 26.2 21.2 64.2
Non-controlling interests 0.2 - 0.2
26.4 21.2 64.4
=========== =========== =============
Earnings per share attributable to the
ordinary equity holders of the Company:
Basic per ordinary share (pence) 5 27.4 22.3 67.5
Diluted per ordinary share (pence) 5 27.0 22.1 66.6
----------- ----------- -------------
Adjusted earnings per share is shown
in note 5
Condensed consolidated statement of comprehensive income
For the six months ended 30 June 2021
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2021 2020 2020
GBPm GBPm GBPm
Unaudited Unaudited Audited
Profit for the period after tax 26.4 21.2 64.4
Other comprehensive income
Items that may be reclassified subsequently
to the income statement (net of tax
effect)
Exchange difference on translation
of foreign operations (2.2) 0.7 (0.1)
----------- ----------- -------------
Total comprehensive income 24.2 21.9 64.3
=========== =========== =============
Total comprehensive income for the
period attributable to:
Equity holders of Gamma Communications
plc 24.0 21.9 64.1
Non-controlling interests 0.2 - 0.2
24.2 21.9 64.3
=========== =========== =============
Condensed consolidated statement of fi nancial position
As at 30 June 2021
30 June 30 June 31 December
2021 2020 2020
GBPm GBPm GBPm
Note Unaudited Unaudited Audited
Assets
Non-current assets
Property, plant and equipment 7 35.7 31.1 36.3
Right of use assets 11.4 12.5 11.5
Intangible assets 8 133.5 74.8 95.3
Trade and other receivables 18.6 16.6 5.7
Deferred tax asset 5.9 2.7 14.8
---------- ---------- ------------
205.1 137.7 163.6
Current assets
Inventories 7.2 9.8 8.1
Trade and other receivables 99.7 85.7 93.7
Cash and cash equivalents 30.8 42.5 53.9
Current tax asset 2.7 1.7 2.6
---------- ---------- ------------
140.4 139.7 158.3
---------- ---------- ------------
Total assets 345.5 277.4 321.9
---------- ---------- ------------
Liabilities
Non-current liabilities
Other payables 9.6 5.4 9.8
Provisions 1.0 1.5 1.9
Borrowings 3.9 2.8 4.6
Lease Liabilities 10.6 12.0 10.8
Contingent consideration 3.6 1.2 1.2
Put option liability 1.0 - 5.6
Deferred tax 9.2 6.1 9.0
38.9 29.0 42.9
Current liabilities
Trade and other payables 66.4 72.6 62.5
Provisions 1.1 - 0.6
Borrowings 1.3 1.0 1.3
Lease Liabilities 2.4 1.7 2.3
Contingent consideration 2.5 3.1 1.8
Put option liability 4.8 - 5.6
Current tax 0.2 - 0.5
78.7 78.4 74.6
---------- ---------- ------------
Total liabilities 117.6 107.4 117.5
---------- ---------- ------------
Net assets 227.9 170.0 204.4
========== ========== ============
Equity
Share capital 10 0.2 0.2 0.2
Share premium reserve 13.6 7.8 9.0
Other reserves 4.5 6.3 6.1
Retained earnings 214.3 155.7 197.5
Equity attributable to owners of Gamma
Communications plc 232.6 170.0 212.8
---------- ---------- ------------
Non-controlling interests 2.0 - 3.0
Written put options over non-controlling
interests (6.7) - (11.4)
---------- ---------- ------------
Total equity 227.9 170.0 204.4
========== ========== ============
Condensed consolidated statement of cash fl ows
For the six months ended 30 June 2021
Six months Six months
ended ended
30 June 30 June Year ended
2021 2020 31 December
GBPm GBPm 2020
Note Unaudited Unaudited Audited
Cash flows from operating activities
Profit for the period before tax 32.4 26.2 75.0
Adjustments for:
Depreciation of property, plant and
equipment 7 4.0 4.8 9.7
Depreciation of right of use assets 1.3 1.0 2.2
Amortisation and reduction in value
of intangible assets 8 7.8 4.0 11.0
Change in fair value of contingent
consideration - - (0.1)
Share-based payment expense 2.6 1.1 3.5
Interest income - (0.3) (0.4)
Finance cost 0.5 0.4 1.1
Gain on disposal of subsidiary undertaking - - (19.5)
----------- ----------- -------------
48.6 37.2 82.5
Increase in trade and other receivables (8.2) (3.5) (6.1)
Decrease/(Increase) in inventories 0.9 (1.4) 0.3
Increase/(Decrease) in trade and other
payables 2.8 0.2 (6.1)
Decrease in contract liabilities (0.6) (1.0) (1.2)
(Decrease)/Increase in provisions and
employee benefits (0.4) 0.7 0.9
----------- ----------- -------------
Cash generated by operations 43.1 32.2 70.3
Taxes paid (7.6) (7.9) (14.1)
Net cash flows from operating activities 35.5 24.3 56.2
----------- ----------- -------------
Investing activities
Purchase of property, plant and equipment 7 (3.6) (3.1) (9.5)
Purchase of intangible assets 8 (2.5) (3.0) (5.9)
Interest received - 0.3 0.4
Acquisition of subsidiaries net of
cash acquired 9 (47.3) (21.5) (47.7)
Disposal of subsidiary net of disposed
cash - - 19.4
----------- ----------- -------------
Net cash used in investing activities (53.4) (27.3) (43.3)
----------- ----------- -------------
Financing activities
Lease liability repayments (1.7) (0.9) (2.1)
Repayment of borrowings (0.5) (1.1) (1.6)
Interest paid (0.1) (0.1) (0.3)
Share issues 4.6 0.3 1.5
Dividends (7.5) (6.6) (10.4)
----------- ----------- -------------
Net cash used in financing activities (5.2) (8.4) (12.9)
----------- ----------- -------------
Net decrease in cash and cash equivalents (23.1) (11.4) -
Cash and cash equivalents at beginning
of period 53.9 53.9 53.9
----------- ----------- -------------
Cash and cash equivalents at end of
period 30.8 42.5 53.9
=========== =========== =============
Condensed consolidated statement of changes in equity
For the six months ended 30 June 2021
Share Share Other Retained Total Non-controlling Written Total
capital premium reserves earnings interests put options equity
reserve over
non-controlling
interests
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
1 January 2020 0.2 6.6 4.8 140.9 152.5 - - 152.5
--------- --------- ---------- ---------- ------ ---------------- ----------------- --------
Issue of shares - 1.2 (0.3) 0.2 1.1 - - 1.1
Share-based
payment
expense - - 1.1 - 1.1 - - 1.1
Dividends paid - - - (6.6) (6.6) - - (6.6)
------ ---------------- ----------------- --------
Transactions
with
owners - 1.2 0.8 (6.4) (4.4) - - (4.4)
--------- --------- ---------- ---------- ------ ---------------- ----------------- --------
Profit for the
half year - - - 21.2 21.2 - - 21.2
Other
comprehensive
income - - 0.7 - 0.7 - - 0.7
--------- --------- ---------- ---------- ------ ---------------- ----------------- --------
Total
comprehensive
income - - 0.7 21.2 21.9 - - 21.9
30 June 2020 0.2 7.8 6.3 155.7 170.0 - - 170.0
========= ========= ========== ========== ====== ================ ================= ========
1 January 2021 0.2 9.0 6.1 197.5 212.8 3.0 (11.4) 204.4
--------- --------- ---------- ---------- ------ ---------------- ----------------- --------
Issue of shares - 4.6 (1.7) 1.6 4.5 - - 4.5
Share-based
payment
expense - - 2.3 - 2.3 - - 2.3
Non-controlling
interest - - - 1.2 1.2 (1.2) - -
Equity put
rights - - - (4.7) (4.7) - 4.7 -
Dividends paid - - - (7.5) (7.5) - - (7.5)
------ ---------------- ----------------- --------
Transactions
with
owners - 4.6 0.6 (9.4) (4.2) (1.2) 4.7 (0.7)
--------- --------- ---------- ---------- ------ ---------------- ----------------- --------
-
Profit for the
half year - - - 26.2 26.2 0.2 - 26.4
Other
comprehensive
income - - (2.2) - (2.2) - - (2.2)
--------- --------- ---------- ---------- ------ ---------------- ----------------- --------
Total
comprehensive
income - - (2.2) 26.2 24.0 0.2 - 24.2
30 June 2021 0.2 13.6 4.5 214.3 232.6 2.0 (6.7) 227.9
========= ========= ========== ========== ====== ================ ================= ========
Other reserves comprise the following:
Merger Share Foreign Own shares Total
reserve option exchange other
reserve reserve reserves
GBPm GBPm GBPm GBPm GBPm
1 January 2020 2.3 3.8 (0.6) (0.7) 4.8
--------- --------- ---------- ----------- ----------
Issue of shares - (0.3) - - (0.3)
Share-based payment expense - 1.1 - - 1.1
Other comprehensive income - - 0.7 - 0.7
--------- --------- ---------- ----------- ----------
30 June 2020 2.3 4.6 0.1 (0.7) 6.3
========= ========= ========== =========== ==========
1 January 2021 2.3 5.2 (0.7) (0.7) 6.1
--------- --------- ---------- ----------- ----------
Issue of shares - (1.7) - - (1.7)
Share-based payment expense - 2.3 - - 2.3
Other comprehensive income - - (2.2) - (2.2)
--------- --------- ---------- ----------- ----------
30 June 2021 2.3 5.8 (2.9) (0.7) 4.5
========= ========= ========== =========== ==========
Notes to the interim financial information
For the six months ended 30 June 2021
1. Basis of preparation
The condensed consolidated interim financial information
(interim financial information) included in this half -- yearly
financial report has been prepared in accordance with International
Accounting Standard 34 'Interim Financial Reporting', as adopted by
the United Kingdom. The interim financial statements do not
constitute statutory accounts within the meaning of the Companies
Act 2006 and should be read in conjunction with the Group's Annual
Report and Accounts for the year ended 31 December 2020, which was
prepared in accordance with IFRS as adopted by the United
Kingdom.
There are no additional standards or interpretations requiring
adoption that are applicable to the Group for the accounting period
commencing 1 January 2021.
Principal risks and uncertainties
The principal risks faced by the Group continue to be service
disruption, data loss and cyber attacks, customer service
experience, reliance on key suppliers, market landscape, legal and
regulatory, attracting and retaining people, M&A and climate
change. Further details can be found in the Annual Report for the
year ended 31 December 2020. There is an emerging risk of the
possibility of a shortage of inventory of handsets as a result of
the chip shortage which the Group is doing its best to try to
mitigate.
2. Accounting policies, judgements and estimates
The accounting policies adopted are consistent with those
followed in the preparation of the audited statutory financial
statements for the year ended 31 December 2020.
Preparation of the consolidated financial statements requires
the Group to make certain estimations, assumptions and judgements
regarding the future. Estimates and judgements are continually
evaluated based on historical experience and other factors,
including best estimates of future events. In the future, actual
experience may differ from these estimates and assumptions. The
estimates and assumptions that have a significant risk of causing a
material adjustment within the next financial year are discussed
below.
Critical accounting judgements
Critical judgements, apart from those involving estimations,
applied in the preparation of the consolidated financial statements
are discussed below:
(a) Principal vs agent classification of channel partners
The Group receives payment for products and services from
channel partners who onwardly sell to end users. The Group has
considered whether channel partners are acting as a principal or an
agent under the criteria in IFRS 15.
Where a channel partner has the primary responsibility for
providing the products or services to the end user, carries the
inventory risk, is free to establish its own prices and bears the
credit risk for the amount receivable from the end user then the
channel partner is treated as the principal in that transaction.
The Group therefore recognises Revenue earned in this way based on
the transactions with the channel partner and not the end user. For
more information on the Group's Revenue please see note 3, Segment
information.
(b) Revenue recognition
Revenue recognition on contracts may involve providing services
over multiple years and involving a number of products. In such
instances, judgement is required to identify the date of
transaction of separable elements of the contract and the fair
values which are assigned to each element. The Group also regularly
assesses customer credit risk inherent in the carrying amounts of
receivables, contract costs and estimated earnings. For more
information on the Group's Revenue recognition policy please see
accounting policies.
Key accounting estimates
(a) Put option liability
On 1 July 2020, the Group acquired 80.25% of HFO Holding GmbH
(formerly AG) (HFO) and an additional 7.9% in H1 2021. The
remaining 11.85% can be purchased in two tranches via put and call
options. When calculating the liability, management has made an
estimate of the 2021 EBITDA and the 2022 run rate monthly net
additional cloud seats. The Group has a put option liability of
GBP5.8m at 30 June 2021. This is calculated on an expected returns
approach. The liability relating to the second put option based on
the 2021 EBITDA result is highly sensitive to a small change in the
results. If there were to be further lockdowns as a result of
COVID-19 which would adversely impact the results then there could
be a decrease in the put liability of up to GBP2.6m (EUR3m). In
addition the number of net additions to cloud seats could change
the put option liability by an increase of GBP2.6m (EUR3m).
Alternative Performance Measures
Adjustments to the income statement have been presented because
the Group believes that adjusted performance measures (APMs)
provide valuable additional information for users of the financial
statements in assessing the Group's performance. Moreover, they
provide information on the performance of the business that
Management is more directly able to influence and on a basis
comparable from year to year.
The measures are adjusted for the following items:
(a) Depreciation and amortisation
Depreciation and amortisation relate to the assets which were
acquired by the Group. These are omitted from adjusted operating
expenses to allow users of the accounts to compare against other
external data sources.
(b) Depreciation and amortisation arising due to business
combinations
This adjustment is made to improve the comparability between
acquired and organically grown operations, as the latter cannot
recognise internally generated intangible assets. Adjusting for
amortisation provides a more consistent basis for comparison
between the two.
(c) Change in fair value of acquisitions
The change in fair value of deferred consideration and put
option liability is adjusted for to improve the comparability
between acquired and organically grown operations, providing a more
consistent basis for comparison between the two.
(d) Exceptional items
The Group treats certain items which are considered to be
one-off or not representative of the underlying trading of the
Group as exceptional in nature.
The Directors apply judgement in assessing the particular items,
which by virtue of their scale or nature should be classified as
exceptional items. The Directors consider that separate disclosure
of these items is relevant to an understanding of the Group's
financial performance. Any changes to items that are initially
identified as exceptional in one year will consistently be treated
as exceptional in subsequent periods.
Changes in deferred consideration, reduction of intangible
assets and goodwill, and profit upon disposal of a subsidiary are
considered to be exceptional where of a certain scale as they are
not representative of the primary activities of the Group.
(e) Adjusting tax items
Where movements to tax balances arise and these do not relate to
the underlying trading current year tax charge, these are adjusted
in determining certain APMs as they do not reflect the underlying
performance in that year.
The tables below reconcile the alternative performance measures
used in this document:
Depreciation
and amortisation
Statutory on business Adjusting
Measure basis combinations tax items Adjusted basis
2021
PBT (GBPm) 32.4 4.6 - 37.0
PAT* (GBPm) 26.2 4.6 (1.1) 29.7
EPS (FD) (p) 27.0 4.7 (1.1) 30.6
-------------- ---------- ------------------ ----------- ---------------
2020
PBT (GBPm) 26.2 1.8 - 28.0
PAT (GBPm) 21.2 1.8 (0.4) 22.6
EPS (FD) (p) 22.1 1.8 (0.4) 23.5
-------------- ---------- ------------------ ----------- ---------------
*PAT is the amount attributable to the ordinary equity holders
of the Company (as defined in the CFO Report earlier).
In addition to the above we add back the depreciation and
amortisation charged in the year to Profit from Operations (2021:
GBP32.9m; 2020: GBP26.3m) to calculate a figure for EBITDA (2021:
GBP46.0m; 2020: GBP36.1m) which is commonly quoted by our peer
group internationally and allows users of the accounts to compare
our performance with those of our peers.
3. Segment information
The Group's main operating segments are outlined below:
(R) UK Indirect - This division sells Gamma's products and
services to channel partners based in the UK and contributed 60%
(2020: 67%) of the Group's external Revenue.
(R) UK Direct - This division sells Gamma's products and
services to end users based in the UK. It contributed 24% (2020:
27%) of the Group's external Revenues.
(R) European - This division consists of sales made in Europe by
Gamma Communications Benelux group in the Netherlands, Voz group in
Spain and HFO group in Germany contributing 16% (2020: 6%) of the
Group's external Revenues; and
(R) Central functions - This is not a Revenue generating segment
but is made up of the central management team and wider Group
costs.
Factors that management used to identify the Group's reportable segments
The Group's reportable segments are strategic business units
that offer products and services into different markets. They are
managed separately because each business requires different
marketing strategies and are reported separately to the Board and
management team.
Measurement of operating segment profit or loss, assets and
liabilities
The accounting policies of the reporting segments are the same
as those described in the summary of significant accounting
policies. The Group evaluates performance on the basis of profit or
loss from operations but excluding non-recurring losses, such as
goodwill impairment. Inter-segment sales are priced in line with
sales to external customers, with an appropriate discount being
applied to encourage use of Group resources at a rate acceptable to
local tax authorities. This policy was applied consistently
throughout the current and prior period.
Central
UK Indirect UK Direct European functions Total
Period to 30 June 2021 GBPm GBPm GBPm GBPm GBPm
------------------------------------- ------------ ---------- --------- ----------- -------
Segment Revenue 141.8 51.9 35.4 - 229.1
Inter-segment Revenue (11.7) - - - (11.7)
------------ ---------- --------- ----------- -------
Revenue from external customers 130.1 51.9 35.4 - 217.4
------------ ---------- --------- ----------- -------
Timing of Revenue recognition
At a point in time 7.6 2.1 13.4 - 23.1
Over time 122.5 49.8 22.0 - 194.3
------------ ---------- --------- ----------- -------
130.1 51.9 35.4 - 217.4
Total Gross Profit 69.2 26.4 16.1 - 111.7
Operating expenses (43.7) (13.7) (17.4) (4.0) (78.8)
Earnings before depreciation
and amortisation 32.2 13.7 4.1 (4.0) 46.0
Depreciation and amortisation
(excluding business combinations) (6.1) (0.4) (2.0) - (8.5)
Depreciation and amortisation
arising due to business
combinations (0.6) (0.6) (3.4) - (4.6)
------------------------------------- ------------ ---------- --------- ----------- -------
Profit/(loss) from operations 25.5 12.7 (1.3) (4.0) 32.9
------------ ---------- --------- ----------- -------
External customer Revenue has been derived principally in the
geographical area of the operating segment and no single customer
contributes more than 10% of Revenue.
Central
UK Indirect UK Direct European functions Total
Period to June 2021 GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------------ ---------- --------- ----------- ------
Additions to non-current
assets 5.4 0.8 1.1 - 7.3
------------ ---------- --------- ----------- ------
Reportable segment assets 217.0 44.4 84.1 - 345.5
------------ ---------- --------- ----------- ------
Reportable segment liabilities 60.9 22.2 34.5 - 117.6
------------ ---------- --------- ----------- ------
UK Indirect UK Direct Central Total
European functions
Period to 30 June 2020 GBPm GBPm GBPm GBPm GBPm
------------------------------------- ------------ ---------- --------- ----------- -------
Segment Revenue 130.2 47.6 10.6 - 188.4
Inter-segment Revenue 10.7 0.4 - - 11.1
------------ ---------- --------- ----------- -------
Revenue from external customers 119.5 47.2 10.6 - 177.3
------------ ---------- --------- ----------- -------
Timing of Revenue recognition
At a point in time 7.0 1.9 1.7 - 10.6
Over time 112.5 45.3 8.9 - 166.7
------------ ---------- --------- ----------- -------
119.5 47.2 10.6 - 177.3
Total Gross Profit 64.5 22.4 6.2 - 93.1
Operating expenses (44.3) (11.8) (7.4) (3.3) (66.8)
Earnings before depreciation
and amortisation 27.7 10.7 1.0 (3.3) 36.1
Depreciation and amortisation
(excluding business combinations) (7.1) - (0.9) - (8.0)
Depreciation and amortisation
arising due to business
combinations (0.4) (0.1) (1.3) - (1.8)
------------------------------------- ------------ ---------- --------- ----------- -------
Profit/(loss) from operations 20.2 10.6 (1.2) (3.3) 26.3
------------ ---------- --------- ----------- -------
External customer Revenue has been derived principally in the
geographical area of the reporting segment and no single customer
contributes more than 10% of Revenue.
UK Indirect UK Direct Central Total
European functions
Period to June 2020 GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------------ ---------- --------- ----------- ------
Additions to non-current
assets 8.4 0.1 0.6 - 9.1
------------ ---------- --------- ----------- ------
Reportable segment assets 188.4 67.0 22.0 - 277.4
------------ ---------- --------- ----------- ------
Reportable segment liabilities 34.8 46.8 25.8 - 107.4
------------ ---------- --------- ----------- ------
4. Taxation on profit on ordinary activities
Tax expense is recognised based on management's best estimate of
the weighted average effective annual tax rate expected for the
full financial year. The estimated average annual tax rate used for
the period to 30 June 2021 is 19%, compared to 19% for the six
months ended 30 June 2020.
5. Earnings per share
Six months Six months
ended ended
30 June 30 June
21 20
Earnings per Ordinary Share - basic (pence) 27.4 22.3
Earnings per Ordinary Share - diluted (pence) 27.0 22.1
The calculation of the basic and diluted earnings per share is
based on the following data:
Six months Six months
ended ended
30 June 30 June
21 20
GBPm GBPm
Earnings
Profit after tax attributable to equity holders
of the Company 26.2 21.2
=========== ===========
Shares Number Number
Basic weighted average number of Ordinary Shares 95,522,758 94,858,245
Effect of dilution resulting from share options 1,406,872 1,180,577
-----------
Diluted weighted average number of Ordinary
Shares 96,929,630 96,038,822
=========== ===========
In April 2021 certain vendors of Mission Labs reinvested GBP2.8m
in Gamma (182,086 shares). In June 2021 GBP0.3m of Ordinary Shares
(15,844 shares) were issued as part of deferred consideration for
the acquisition of Exactive Holdings Limited. In June 2021 the
vendors of HFO have reinvested GBP0.7m in Gamma (37,294
shares).
Adjusted earnings per share is detailed below:
Six months Six months
ended ended
30 June 30 June
21 20
Adjusted earnings per Ordinary Share - basic
(pence) 31.1 23.8
Adjusted earnings per Ordinary Share - diluted
(pence) 30.6 23.5
Adjusted profit used in the calculation of adjusted earnings per
share is detailed below:
Six months Six months
ended ended
30 June 30 June
21 20
Earnings GBPm GBPm
Profit for the period attributable to equity
holders of the Company 26.2 21.2
Amortisation arising on business combinations 4.6 1.8
Adjusting tax items (1.1) (0.4)
Adjusted profit after tax for the period 29.7 22.6
=========== ===========
6. Dividends
A final dividend of 7.8p was paid on the 24 June 2021 (2020:
7.0p).
The Board has declared an interim dividend of 4.4p per share
payable on Thursday 21 October 2021 to shareholders on the register
as at Friday 24 September 2021. In the prior year an interim
dividend of 3.9p was paid.
7. Property, plant and equipment
Land and Network Computer Fixtures
building assets equipment and fittings Total
GBPm GBPm GBPm GBPm GBPm
Cost
At 1 January 2021 4.8 71.9 11.6 2.0 90.3
Additions - 3.0 0.5 0.1 3.6
Acquisition of subsidiary - - 0.1 - 0.1
Disposals - (0.1) - - (0.1)
Exchange differences (0.2) - (0.1) (0.1) (0.4)
At 30 June 2021 4.6 74.8 12.1 2.0 93.5
---------- -------- ----------- -------------- ------
Depreciation
At 1 January 2021 0.1 44.7 7.9 1.3 54.0
Charge for the period 0.1 3.1 0.5 0.3 4.0
Exchange differences - (0.2) - - (0.2)
At 30 June 2021 0.2 47.6 8.4 1.6 57.8
---------- -------- ----------- -------------- ------
Net book value
At 1 January 2021 4.7 27.2 3.7 0.7 36.3
At 30 June 2021 4.4 27.2 3.7 0.4 35.7
---------- -------- ----------- -------------- ------
8. Intangible assets
Customer Development
Goodwill contracts Brand costs Software Total
GBPm GBPm GBPm GBPm GBPm GBPm
Cost
At 1 January 2021 55.0 48.6 2.4 17.6 16.6 140.2
Additions - - - 0.9 1.6 2.5
Acquisition of subsidiary 38.7 1.5 0.9 5.2 - 46.3
Exchange differences (1.5) (1.8) - (0.2) - (3.5)
Reclassifications - - - 0.8 (0.8) -
At 30 June 2021 92.2 48.3 3.3 24.3 17.4 185.5
--------- ----------- ------ ------------ --------- ------
Amortisation
At 1 January 2021 8.8 13.5 0.7 10.1 11.8 44.9
Charge for the period - 3.9 0.6 1.9 1.4 7.8
Exchange Differences (0.1) (0.6) - - - (0.7)
Reclassifications - - - 0.4 (0.4) -
At 30 June 2021 8.7 16.8 1.3 12.4 12.8 52.0
--------- ----------- ------ ------------ --------- ------
Net book value
At 1 January 2021 46.2 35.1 1.7 7.5 4.8 95.3
At 30 June 2021 83.5 31.5 2.0 11.9 4.6 133.5
--------- ----------- ------ ------------ --------- ------
Amortisation on intangible assets is charged to the consolidated
statement of profit or loss and included in operating expenses.
Voz was acquired in April 2020 and the company is still in its
early integration life cycle stage within the Group. The headroom
between the recoverable amount (determined based on a value in use
model) and the carrying value of the Voz CGU is modest at GBP10m at
30 June 2021. We expect the headroom to increase in future periods
as the business delivers its UCaaS growth strategy. We have
considered reasonably possible changes in key assumptions that
could cause an impairment at 30 June 2021, and have identified two
key assumptions relating to the cash flows in years 1 to 5,
being:
(1) The Group's value in use cash flows assumes a double digit
Revenue CAGR over the five year period. A decrease in the forecast
Revenue CAGR by 4% over this period, would see the headroom reduced
to nil.
(2) To breakeven, the EBITDA margin percentage would need to
reduce by 2.4% each year.
(3)
9. Business combinations
Summary of acquisitions
On the 3 March 2021 the Group acquired 100% of Mission Labs
Limited and its subsidiaries. ("Mission Labs"). Mission Labs is a
leading developer of applications to manage cloud contact centres
and enhance customer experience.
The provisional asset and liabilities recognised as a result of
the acquisitions are as follows:
Mission
Labs
GBPm
Tangible fixed assets 0.1
Right of use assets 0.1
Intangible - development costs 5.2
Intangible - customer contracts 1.5
Intangible - brand 0.9
Cash 2.4
Trade receivables 1.0
Other receivables 0.3
Trade payables (0.3)
Other payables (0.5)
Borrowings (0.2)
Deferred tax liability (1.3)
--------
Net identified assets acquired 9.2
Add: Goodwill 38.7
Net assets acquired 47.9
========
Mission
Labs
GBPm
Satisfied by:
Cash paid 43.2
Contingent consideration (1) 4.7
Total purchase consideration 47.9
========
(1) Contingent consideration is based on Mission Labs achieving
milestones in 2021,2022 and 2023. Consideration of up to GBP6.0m
may be payable. The fair value of GBP4.7m at acquisition is based
on a payout of GBP5.7m which takes into account the weighted
probability of success.
Net cash outflow on acquisitions:
Mission Labs Total
GBPm GBPm
Cash consideration 43.2 43.2
Less: cash acquired (2.4) (2.4)
------------- ------
Net outflow of cash for acquisitions in
the period 40.8 40.8
Contingent consideration payment in the
period - 1.5
Put option liability payment in the period - 5.0
Net outflow of cash - Investing activities 40.8 47.3
============= ======
Valuations of intangible assets
Customer contracts were valued under the Replacement Cost and
Distributor approach as appropriate. Technology was valued under
the Multi-period excess earning model and Brand under the
Relief-from-royalty methodology.
Goodwill
The goodwill encapsulates the ability to grow through new
technology and attracting new customers as well as the synergies
gained through bringing Mission Labs into the Group and is not
deductible for tax purposes.
Acquired receivables
The fair value of acquired trade receivables for Mission Labs is
GBP1.0m. The gross contractual amount for trade receivables due is
GBP1.0m.
Revenue and Profit
Mission Labs contributed Revenues of GBP2.3m and loss after tax
of GBP(0.6)m to the Group for the period from 3 March 2021 to 30
June 2021.
If the acquisition had occurred on 1 January 2021, consolidated
Revenue and loss after tax for the six months to 30 June would have
been GBP4.0m and GBP(0.3)m respectively.
10. Share capital
Number GBPm
1 January 2021
Ordinary Shares of GBP0.0025 each 95,402,437 0.2
--------------- ------
Number
At 1 January 2021 95,402,437
Movement:
January 5,629 (a)
March 8,305 (a)
April 23,715 (a)
April 182,086 (b)
May 47,400 (a)
June 359,377 (a)
June 37,294 (c)
June 15,844 (d)
At 30 June 2021 96,082,087
===============
(a) Ordinary shares were issued to satisfy options which have
been exercised.
(b) Ordinary shares were issued to certain vendors of Mission
Labs as a result of reinvestment in Gamma
(c) Ordinary shares were issued to a certain vendor of HFO
Holding GmbH as a result of reinvestment in Gamma
(d) Ordinary shares were issued as consideration to the shareholders
of Exactive Holdings Limited
Number GBPm
30 June 2021
Ordinary Shares of GBP0.0025 each 96,082,087 0.2
--------------- ------
11. Events after the reporting date
There have been no significant events affecting the Group since
30 June 2021.
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END
IR BLGDCXSGDGBL
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