TIDMGAMA
RNS Number : 9824H
Gamma Communications PLC
02 August 2023
2 August 2023
Gamma Communications plc
("Gamma" or the "Group")
H1 trading update
Growth in all segments, continued high cash generation. Full
year guidance reiterated.
Gamma Communications plc, a leading provider of Unified
Communications as a Service ("UCaaS") to the business markets in
the UK, Germany, Spain and the Netherlands, is pleased to announce
a trading update for the six months ended 30 June 2023. This update
confirms the statements made at the time of the AGM on 17 May
2023.
Group overview
We are pleased to report that the Group performed well through
the first six months of the year with all business segments
contributing to healthy year-on-year adjusted EBITDA growth and
high group operating cash conversion.
In both the UK and Europe, our resilient recurring revenue
model, combined with selective price increases, helped mitigate the
impact of inflationary cost increases. The Group remains well
positioned to deliver growth in line with current market
expectations for the year ending 31 December 2023.
United Kingdom
Gamma Business (formerly Indirect - see Note 1 below) continues
to deliver a strong financial performance. Growth was primarily
driven by our UCaaS portfolio, which includes our Horizon Cloud PBX
solution as well as those SIP trunks supporting Microsoft Teams
implementations and other non-Gamma Cloud PBX solutions. UCaaS unit
growth continued with PhoneLine+ (Gamma's own software solution)
take up accelerating, whilst Horizon Cloud PBX and additional
module bolt ons net growth was lower than in prior periods
(partially due to some switching from Horizon to PhoneLine+).
Gamma Enterprise (formerly Direct - see Note 1 below) has seen a
number of significant contract wins, including an organisation-wide
mobility solution for the Home Office in the public sector, and an
SD-WAN for Lidl's UK store network. Additionally, there have been
several wins for our omnichannel contact centre management
solution, Smart Agent, within the NHS. Our Microsoft Teams voice
enablement services continued to grow in the first half with the
pipeline remaining strong.
Overheads across the UK remained within expectations during the
first half with continued careful management of spend.
Europe: Germany, Spain and the Netherlands
Europe delivered healthy adjusted EBITDA growth in the period.
Our results were further bolstered by foreign exchange movements,
with a Euro that strengthened against Sterling compared to the
prior year.
Product development
Gamma has continued to make progress in the development and
delivery of products and solutions. We are particularly pleased
with Microsoft Teams voice enablement which is now available in all
of the countries in which we operate, as well as the continued
capability improvement we are making to our UCaaS portfolio.
Cash
Gamma's balance sheet remains strong, with significant cash
generation from trading activities in line with our cash conversion
guidance of more than 90%. Closing net cash at the half year was
approximately GBP121.5m compared to GBP92.5m as at 31 December
2022.
Outlook
The Board remains positive about the prospects for Gamma. In
line with the statement made at the time of the AGM, management
expects adjusted EBITDA and adjusted EPS (fully diluted) for the
year ending 31 December 2023 to be within the range of market
forecasts .*
The Board will announce results for the half year ended 30 June
2023 on Tuesday 5 September 2023.
Andrew Belshaw, Chief Executive, commented on the results:
"I am pleased to report on a healthy first half performance
across all segments.
Our products are business critical and combine reliability and
innovation to support the ever-evolving communications challenges
for businesses of all sizes. These products continue to support a
financial model that has a high level of recurring revenue and
exceptional cash generation which enables us to invest in and grow
Gamma.
Our first half trading shows the value of sustained investment.
Our newer products, from Microsoft Teams voice integration to
PhoneLine+, are performing well and we are pleased with our
improved progress in Europe.
Although we are not immune from macro challenges, communications
services tend to be resilient through the cycle and we enter the
second half with confidence."
* Company compiled range is based on known sell side analyst
estimates. The ranges are adjusted EBITDA GBP 110. 4m - GBP 117. 2m
and adjusted EPS (fully diluted) 70.0 pence - 77.0 pence.
Enquiries:
Gamma Communications plc Tel: +44 ( 0)333 006 5972
Andrew Belshaw, Chief Executive Officer
Bill Castell, Chief Financial Officer
Rachael Matzopoulos, Company Secretary
Investec Bank plc (NOMAD & Broker) Tel: +44 (0)207 597 5970
Patrick Robb / Virginia Bull
Teneo (PR Adviser) Tel: +44 (0)207 353 4200
James Macey White / Matt Low / Rebecca
Hamer
Note 1 - Change in segmental reporting
In recent years, Gamma has widened its product and
solution/services set to address the communications needs of a
broader range of businesses. Post pandemic, customer requirements
have evolved in respect of their telecommunications and IT
infrastructure and methods of procurement for such products and
services have broadened. Because of this, t he Group's business
unit responsibilities have been realigned to allow the business
units to focus more directly on customer needs and preferences.
Our two UK business units are now aligned with customer groups
rather than routes to market. We have therefore updated our
segmental reporting structure to reflect the way in which the Group
now manages its operations.
Previously the reported segments were UK Indirect, UK Direct,
Europe and Central Functions. The new segments are Gamma Business,
Gamma Enterprise, Europe and Central Functions. Gamma Business
consists of the former UK Indirect business with the addition of
some customers and associated costs from the UK Direct business
(now Gamma Enterprise). This has resulted in a GBP13.5m revenue
movement between segments for FY 2022 (3% of group revenue) with no
change in Executive Committee leadership.
The Group's main operating segments are outlined:
-- Gamma Business - This division sells Gamma's products to
smaller businesses in the UK, typically with those with fewer than
250 employees. This division sells through different routes to
market, including the channel, direct, digital and as well as
through other carriers who sell to smaller businesses in the
UK.
-- Gamma Enterprise - This division sells Gamma's products to
larger businesses in the UK, typically with those with more than
250 employees. Larger organisations have more complex needs so this
division sells Gamma's and other suppliers' products to Enterprises
and Public Sector customers, together with an associated managed
service wrap and ordinarily sells directly.
-- Europe - This division consists of sales made in Europe
through Gamma's German, Spanish and Dutch businesses.
-- Central Functions - This comprises the central management team and wider Group costs.
This change in reporting structure has taken effect for
reporting in 2023. In advance of the announcement of our H1 results
for the six months ended 30 June 2023, we are providing the
following restated views of our HY22 and FY22 financial results
under this new segmentation to provide the correct comparability.
Going forward, the assets and liabilities of the segments along
with their depreciation and amortisation, which were previously
provided as supplementary information, will no longer be shown.
Gamma Gamma Europe Central Total
Business Enterprise Functions
Half Year to 30 June 2022 (restated) GBPm GBPm GBPm GBPm GBPm
------------------------------------------ ---------- ------------ ------- ----------- -------
Segment revenue 163.5 49.4 35.6 - 248.5
Inter-segment revenue (13.1) (0.7) - - (13.8)
---------- ------------ ------- ----------- -------
Revenue from external customers 150.4 48.7 35.6 - 234.7
---------- ------------ ------- ----------- -------
Timing of revenue recognition
At a point in time 7.9 2.9 15.2 - 26.0
Over time 142.5 45.8 20.4 - 208.7
---------- ------------ ------- ----------- -------
150.4 48.7 35.6 - 234.7
Total gross profit 80.2 24.0 16.2 - 120.4
Adjusted Earnings before depreciation,
amortisation and exceptional items 38.1 13.7 4.3 (4.2) 51.9
---------- ------------ ------- ----------- -------
Exceptional items - - - -
Earnings before depreciation and
amortisation 38.1 13.7 4.3 (4.2) 51.9
------------------------------------------ ---------- ------------ ------- ----------- -------
This change in segmentation resulted in the following movements
between the former Direct segment (now Gamma Enterprise) to the
former Indirect segment (now Gamma Business) for HY 2022: Revenue
of GBP6.7m, Gross Profit of GBP3.9m, Overheads of GBP3.1m,
resulting in a GBP0.8m EBITDA movement between segments for the
period ended 30 June 2022.
Gamma Gamma Europe Central Total
Business Enterprise Functions
Full Year to 31 December 2022 (restated) GBPm GBPm GBPm GBPm GBPm
-------------------------------------------- ---------- ------------ --------- ----------- ---------
Segment revenue 334.0 102.9 73.4 - 510.3
Inter-segment revenue (24.6) (0.9) (0.2) - (25.7)
---------- ------------ --------- ----------- ---------
Revenue from external customers 309.4 102.0 73.2 - 484.6
---------- ------------ --------- ----------- ---------
Timing of revenue recognition
At a point in time 17.5 6.7 28.7 - 52.9
Over time 291.9 95.3 44.5 - 431.7
---------- ------------ --------- ----------- ---------
309.4 102.0 73.2 - 484.6
Total gross profit 163.7 49.3 34.7 - 247.7
Adjusted Earnings before depreciation,
amortisation and exceptional items 78.6 27.9 9.0 (10.4) 105.1
---------- ------------ --------- ----------- ---------
Exceptional items - - (12.5) - (12.5)
Earnings before depreciation and
amortisation* 78.6 27.9 (3.5) (10.4) 92.6
-------------------------------------------- ---------- ------------ --------- ----------- ---------
* We add back the depreciation and amortisation charged in the
year to Profit from Operations (2022: GBP65.4m) to calculate a
figure for EBITDA (2022: GBP92.6m).
This change in segmentation resulted in the following movements
between the former Direct segment to the former Indirect segment
for FY 2022: Revenue of GBP13.5m, Gross Profit of GBP8.1m and
Overheads of GBP6.2m, resulting in a GBP1.9m EBITDA movement
between segments for the year ended 31 December 2022.
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END
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