TIDMGAMA
RNS Number : 3401L
Gamma Communications PLC
05 September 2023
5 September 2023
Gamma Communications plc
Unaudited results for the six months ended 30 June 2023
Healthy first half performance, continued strong cash generation
and positive business momentum leading to full year outlook in the
top half of market expectations
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 2023.
Six months ended
30 June
Change
2023 2022 (%)
----------------------------------- ---------- ---------- -------
Revenue GBP256.2m GBP234.7m 9%
Gross profit GBP131.2m GBP120.4m 9%
Gross margin 51% 51%
Profit from operations GBP42.2m GBP38.7m 9%
Adjusted EBITDA* GBP56.5m GBP51.9m 9%
Profit before tax ("PBT") GBP43.5m GBP38.4m 13%
Adjusted PBT* GBP48.3m GBP43.1m 12%
Earnings Per Share ("EPS") (fully
diluted) 33.8p 31.9p 6%
Adjusted EPS (fully diluted)* 37.5p 35.6p 5%
Interim dividend per share 5.7p 5.0p 14%
Cash generated by operations GBP57.1m GBP49.5m 15%
Cash generated by operations
/ adjusted EBITDA* 101% 95%
Cash and cash equivalents less
borrowings ("Net cash")* GBP121.7m GBP72.6m 68%
----------------------------------- ---------- ---------- -------
*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 note 2 or our
segment note and are applied consistently. Where reference is made
to adjusted EPS this is stated on a fully diluted basis.
Definitions of APMs and our policy on their use are included in
note 2. APMs are not considered to be a substitute for, or superior
to, IFRS measures. Constant currency movements for the statement of
profit or loss are calculated by applying the prior period average
exchange rates to the results for the period ended 30 June
2023.
Key Financials
The Group continued to perform well in the first six months of
the year delivering good gross profit growth flowing through to
both adjusted EBITDA and adjusted PBT, with strong cash
generation.
-- Revenue and gross profit grew by 9% to GBP256.2m and GBP131.2m respectively (H1 2022: GBP234.7m
and GBP120.4m), with gross margin being maintained and adjusted EBITDA growing by 9% to GBP56.5m
(H1 2022: GBP51.9m).
-- Recurring revenue (being revenue which is recognised "over time" as per note 3) in the period
grew to GBP229.7m (H1 2022: GBP208.7m) remaining high at 90% (H1 2022: 89%) of total revenue.
-- Gamma Business continued to grow strongly, primarily driven by our UCaaS portfolio. Revenue
growth has also been supported through targeted price rises. Gross profit increased by 8%
to GBP86.8m (H1 2022: GBP80.2m(#) ) with a stable gross margin.
-- Gamma Enterprise grew gross profit by 6% to GBP25.4m (H1 2022: GBP24.0m (#) ). As expected,
gross margin decreased slightly as a result of higher hardware sales which are lower margin.
-- European Business delivered reported gross profit growth of 17% to GBP19.0m (H1 2022: GBP16.2m(##)
). After current year immaterial alignment of European commission presentation between cost
of sales and operating expenses, and on a constant currency basis, the comparable growth was
7%. In all instances this represented an improved gross margin.
-- We continue to see growth in our voice enablement product set, particularly where we are supporting
Microsoft Teams ("MS Teams"), with Operator Connect and MS Teams Direct Routing, and other
third party voice applications. We have included supplementary information on product volumes
at the end of the Chief Executive Review.
-- The attachment rates on "bolt-ons" which can be bought alongside our core Cloud PBX product
(Horizon) continue to increase which supports our Average Revenue Per User ("ARPU").
-- Adjusted earnings per share (fully diluted) for the year increased by 5% to 37.5p (H1 2022:
35.6p). The growth has been impacted by the change in the UK statutory tax rate. If the prior
year group effective tax rate had been applied the growth would have been 11%.
-- Cash conversion ( Cash generated by operations / adjusted EBITDA) was higher than prior periods
at 101% primarily as a result of favourable working capital movements.
(#) See Note 3 for segmental change information and restated
comparatives.
(##) In H2 2022 there was a review and alignment of European
commission presentation between cost of sales and operating
expenses resulting in an immaterial GBP0.8m reduction in cost of
sales and equivalent increase in operating expenses in H1 2022.
Acquisition
On 16 August 2023, we acquired Satisnet Limited ("Satisnet"), a
UK-based cyber security company (a Managed Security Services
Provider) of software and services to the medium/large enterprise
market. See note 12 for events after the reporting date for further
detail. The business will become part of Gamma Enterprise. We
expect the acquisition to be immediately earnings enhancing
although not materially so, given its small size relative to the
Group.
Outlook
Following a healthy first half performance, growth is expected
to continue into the second half and adjusted EBITDA and adjusted
EPS are now anticipated to be in the top half of the range of
market expectations(+) .
Andrew Belshaw, Chief Executive Officer, commented:
"We continue to deliver good financial growth and our broadened
product set is resonating with channel partners and enterprise
customers alike. In the UK the impending PSTN switch off has led to
good early growth in our PhoneLine+ product. Outside the UK, we
have worked hard to improve the underlying performance in our
European businesses and have made good progress.
We have seen excellent cash conversion in the period and the
strength of Gamma's balance sheet has enabled us to continue to
acquire capability, whether through product development or
acquisition. We have recently broadened our offering into the
adjacent managed cyber security sector through the acquisition of
Satisnet. We continue to see M&A as a way to supplement our
organic growth and capabilities. Our resilient business model
allows us to look forward 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 CompanySecretary@gamma.co.uk
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 Gamma@teneo.com
Hamer
Chief Executive Review
We had a healthy first half financial performance with revenue,
gross profit and adjusted EBITDA all growing by 9% compared to the
same period in the previous year. We generated GBP57.1m in cash
from operations and increased our net cash balance to GBP121.7m at
the end of the period.
Our markets and performance
More than 50% of businesses in the UK, and almost 70% in the
European countries in which we operate, still have a physical
hardware PBX rather than a Cloud-based software PBX solution. This
presents an ongoing opportunity for us to continue to increase
sales of our Hosted PBX solution (Horizon, in the UK), as well as
to upsell the additional services we offer such as call recording
and Horizon Contact (our omni-channel product which enables
communication with customer agents). These bolt-ons help us to
maintain the ARPU on each seat that we sell in a market where price
discounting is common.
During the first half we added 31,000 UK Cloud PBX seats in the
UK of which 26,000 were Horizon seats. We have been pleased with
the level of gross additions in the Horizon base. Churn has
increased slightly as some customers have reduced the number of
seats taken when re-contracting, following downsizing of their
business during the Covid period. Our track record of consistently
adding cloud PBX seats and additional functionality bolt-ons,
evidences the growing demand for solutions that improve customer
communication.
At the end of 2025 the UK's Public Switched Telephony Network
("PSTN") is undergoing a fundamental change. The PSTN and
Integrated Services Digital Network ("ISDN") are scheduled to be
turned off and replaced with new technology based on Voice over
Internet Protocol ("VoIP") products. The onus is on businesses to
convert before the end of 2025. The future demise of ISDN has been
a driver of the growth of our SIP business for some years now. The
PSTN gets turned off at the same time and there are over three
million single telephony lines relying on the old technology which
are used by micro-businesses of fewer than ten employees. Each of
the businesses will need to find a new solution for their voice
communications. This presents a sizeable opportunity for Gamma and
our channel partners. Gamma has developed our own cloud solution
for customers, called PhoneLine+, which replaces the simple single
line used by micro-businesses. PhoneLine+ is a cost effective
product which appeals to users who do not need the full
functionality of our Horizon product. PhoneLine+ has had good early
sales with 5,000 seats in the period.
The PSTN switch off in the UK will also accelerate the migration
of data services from legacy products (such as ADSL) to newer
products which are not centred on the existence of the PSTN (such
as SoGEA). This will continue to provide Gamma with an opportunity
for volume growth but with lower margins on those new additional
sales of data products.
We also added 2,000 Cloud PBX seats in Europe in the first half,
which is lower than the previous run rate, because we are focussing
on Operator Connect sales in the Netherlands (rather than Cloud PBX
where the market is more competitive), and we did not have any
large seat wins in Germany as we did at the end of 2022.
As well as the growth in Cloud PBX, we also see increasing
adoption of voice-enablement solutions, particularly MS Teams. In
the UK, the number of SIP Trunks supporting Hardware PBXs fell very
slightly but we are not yet seeing a trend (which will be positive
for us) of customers migrating to Cloud PBX from hardware solutions
which are supported by SIP. We saw significant growth in SIP Trunks
supporting MS Teams and other third-party voice applications.
During the half we added 38,000 MS Teams users in the UK and 5,000
in Europe. We see this as a significant future growth area.
Through our European acquisition strategy, we have a presence in
Germany, the Netherlands and Spain. Between them, these countries
already have more than twice as many potential UCaaS business users
as the UK, but the average penetration rate across those three
countries remains much lower than the UK, leaving scope for
long-term future growth.
The rate of Cloud PBX adoption in our European markets continues
to be slower than market analysts had been predicting several years
ago. Our German business showed 8% growth in the number of cloud
seats and we continued to see the contribution from the
newly-acquired Neotel business drive performance in Spain. In the
Netherlands, the PBX market is more mature and competitive, so we
have been focusing that business on the voice enablement of MS
Teams and we are benefitting from being early to the market,
securing deals from larger customers which we had not previously
been able to serve with our Cloud PBX offering.
Strategic update
Develop a common pan-European product set for UCaaS and CCaaS
for SMEs.
We have acquired businesses in Germany, the Netherlands and
Spain and as a consequence we sell a mixture of business solutions
in different countries. Supporting this varied product set will
become inefficient in the long term and hence we have a multi-year
programme to move to a common product set across all of Gamma's
geographic operations. This solution set will be a mixture of
third-party products and Gamma's own IP which, when combined with
our excellent service wrap, will meet the communications
requirements of a wide range of end users.
During the first half of 2023, our Technology teams across
Europe have come together to form one single team. By working
collaboratively they have been able to launch our Operator Connect
product (which voice enables MS Teams) in Germany, Spain and
Belgium (as well as continuing sales in the UK and the Netherlands
where we had already launched it).
In addition, we have used the platform we built in the UK for
our PhoneLine+ and Horizon Connect products to test launch a new
Cloud PBX product in the Spanish market.
Develop multiple routes to market in each country in which we
operate.
We have now launched our "digital first" offering, CircleLoop,
in Germany and the Netherlands alongside the UK - this is based on
the same platform as PhoneLine+. This "low touch" solution gives
access to Gamma for small customers who wish to buy solutions
digitally, and will allow us to involve channel partners who want
to work on a referral model (i.e. gaining commission from directing
their own customers to our website).
We have also started a programme to review our user portals in
each country. In every country in which we operate we have a portal
where customers and end users can interact with us. These are
hosted using different technologies and provide varying degrees of
customer service. We have embarked on a multi-year project to build
a common portal across Europe which will give all of our customers
the same experience.
Become a trusted partner to Enterprises across Europe,
transforming their communications estates.
Our Enterprise business continued to see good client wins.
Notable wins in the first half of this year were Lidl (SD-WAN),
Shawbrook Bank (CCaaS), NHS (SIP & CCaaS) and The Home Office
(Mobile).
We continue to strengthen our relationships with both Microsoft
and Amazon as we see an important role for us to help our customers
implement solutions involving products from the "digital giants".
Indeed, we are also receiving inbound opportunities from these
partners that are helping us to expand our Enterprise business
outside of the UK.
After the period end we acquired Satisnet which is a Managed
Security Services Provider. Cyber security has become increasingly
important for our customers, many of whom have asked us whether we
are able to support them in this area. We expect to be able to
accelerate the growth of the Satisnet business by taking its
services to our Enterprise customer base. Following an extensive
search to find the right partner, I am pleased to be able to
welcome John McCann and the Satisnet team to Gamma. We can now
provide our customers with a Managed Security Service, offering,
for example, managed firewalls, a 24x7 managed Security Operations
Centre ("SOC") and incident response. Services are purpose built to
meet the specific requirements of each customer. We have already
secured a Managed Security solution for Reed (a current customer)
and we have a number of opportunities from our existing customer
base who have asked us to provide the services which Satisnet can
offer.
Create an organisation that engages all our people with a common
set of values and goals.
We cannot execute our strategy without our great people.
We have acquired businesses with complementary values to our
own; however, we did not have a common language to describe them.
During the first half of 2023, we codified the four Gamma Values:
we're there and we care; we love to grow; we step up and own it;
and we do the right thing.
As part of our values programme we now recognise our Gamma
Values Champions quarterly. These champions could be colleagues
going out of their way to help and support each other, finding
better and simpler ways of doing things, stepping up and owning
challenges and opportunities, or doing the right thing for the
business, their colleagues and our customers.
I am very proud of them and everyone else who makes Gamma what
it is. The products and services which we provide to our customers
are critical for them to run their own businesses; but Gamma can
only provide those products and services because we have 1,800
people who live our values on a daily basis.
During the first half of the year, we also launched an
initiative called "You Belong" aiming to encourage, attract, retain
and develop both current and prospective employees to Gamma with
the core values that we launched. We held the first set of
community meetings which bring together different demographics of
employees within Gamma to support and develop our colleagues'
experiences at work. The first four groups we have formed are
focussing on Women, Multicultural, Early Careers and Wellbeing
groups and we hope that other groups will also form, driven by
employee needs.
Board and corporate governance
The first half of 2023 has seen two of our long-standing
colleagues retire from the Board. On behalf of everyone at Gamma, I
would like to thank Richard Last, our former Chair, and Martin Lea,
Non-Executive Director and former Senior Independent Director, for
their service since we listed in 2014. I am also pleased to welcome
Martin Hellawell to the Board as our new Chair. Martin brings a
wealth of experience into Gamma and my executive team and I are
already working well with him.
As a leading communications company, Gamma will comply with the
Telecommunications Security Act. We are currently investing in the
systems which will ensure we are fully compliant.
Environmental
Gamma remains committed to advancing from a Carbon Neutral
business to a Carbon Net-Zero business by 2042, and we expect to
reduce our Scope 1 and 2 emissions (made directly and indirectly)
by 90% by 2030. We were awarded an A- for our Supplier Engagement
Score by the Carbon Disclosure Project earlier this year,
reflecting the work that we have done to understand our supplier
emissions. This ties into our work on Company-wide emission
reductions under the Science-Based Target initiative (SBTi). We
will seek validation of our target within the 24-month SBTi
timeframe.
Outlook
I am pleased with our first half performance. We expect our
growth to continue into the second half and now anticipate adjusted
EBITDA and adjusted EPS will be in the top half of the range of
current market expectations.
We continue to deliver against our short and longer-term growth
strategy. We will invest in both our product set and the systems
which are used by customers to order from us. We are able to do
this because we are in a strong financial position. We continue to
evaluate acquisition opportunities which will provide additional
capability or take us into new parts of the market, increasing our
relevance to our customer base.
As a result of the market opportunity and the investments we are
making, the Board is positive about the outlook for the Group in
2024 and beyond. We believe that more and more businesses of all
sizes are seeing the advantages that UCaaS can bring and we expect
to see continuing growth.
Andrew Belshaw
Chief Executive Officer
Supplementary information on product volumes
The table below shows the movements in the number of SIP Trunks
which provide voice enablement to various hardware PBXs and voice
applications:
Voice Enablement - UK & June December Change
Europe 2023 2022 (%)
(000's)
SIP Trunks enabling traditional hardware PBX
* UK 1,042 1,053 -1
-------- ----------- ---------
* Europe 192 183 5
-------- ----------- ---------
SIP Trunks enabling a non-Gamma Cloud PBX
* UK 378 367 3
-------- ----------- ---------
- - n/a
* Europe
-------- ----------- ---------
Voice enabled MS Teams users (either Operator Connect or MS
Teams Direct Routing)
* UK 394 356 11
-------- ----------- ---------
* Europe 6 1 500
-------- ----------- ---------
The table below shows the number of Cloud PBX seats in UK and
Europe:
Cloud PBX seats - UK & Europe June December Change
(000's) 2023 2022 (%)
UK - Horizon 777 751 3
------ --------- -------
UK - PhoneLine+ 8 3 167
------ --------- -------
UK - Total 785 754 4
------ --------- -------
Europe 163 161* 1
------ --------- -------
* 3,000 CCaaS seats were previously included in the total
"European Cloud" seats and are now included in the CCaaS table
below.
The table below shows the number of units of the various
bolt-ons which are sold to enhance the functionality of UK Cloud
PBX (Horizon):
Horizon bolt-ons - UK June December Change
(000's) 2023 2022 (%)
Collaborate 76 73 4
------ --------- -------
Call Recording 108 96 13
------ --------- -------
Horizon for MS Teams 9 7 29
------ --------- -------
Horizon Contact 14 11 27
------ --------- -------
The table below shows the number of CCaaS seats:
CCaaS seats - UK & Europe June December Change
(000's) 2023 2022 (%)
UK - Horizon Contact** 14 11 27
------ --------- -------
UK - SmartAgent 11 8 38
------ --------- -------
UK - Total 25 19 32
------ --------- -------
Europe*** 3 3 0
------ --------- -------
**All Horizon Contact users also take a "Base Horizon" seat
(separately disclosed within Cloud PBX seats); for the avoidance of
doubt, these 14,000 seats are the same as the seats in the table
above.
*** The Neotel acquisition in October 2022 included 3,000 CCaaS
seats.
Financial Review
Revenue and gross profit
Gamma has performed well during the six months ended 30 June
2023, increasing overall revenue by 9% to GBP256.2 (H1 2022:
GBP234.7m) and gross profit by 9% to GBP131.2m (H1 2022:
GBP120.4m). The UK businesses have seen growth in revenue of
GBP18.7m (+9%) and gross profit of GBP8.0m (+8%) and Europe has
seen growth in revenue of GBP2.8m (+8%) and gross profit of GBP2.8m
(+17%).
Gamma Business
GBPm H1 2023 H1 2022* Increase
-------------- -------- --------- ---------
Revenue 164.8 150.4 10%
Gross Profit 86.8 80.2 8%
Gross Margin 52.7% 53.3%
* See Note 3 for segmental change information and restated
comparatives.
Overall, the growth in the Gamma Business unit has been strong.
Growth was primarily driven by our UCaaS portfolio, which includes
our Horizon Cloud PBX solution as well as those SIP trunks
supporting MS 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+). Revenue growth has also been supported through
targeted price rises. Gross margin has been stable with previous
periods, which is in line with expectations, as the mix of UCaaS
and connectivity products is now reasonably consistent.
Gamma Enterprise
GBPm H1 2023 H1 2022* Increase
-------------- -------- --------- ---------
Revenue 53.0 48.7 9%
Gross Profit 25.4 24.0 6%
Gross Margin 47.9% 49.3%
* See Note 3 for segmental change information and restated
comparatives.
Gamma Enterprise has seen a number of significant contract wins,
including an organisation-wide mobile 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 omni-channel
contact centre management solution, Smart Agent, within the NHS.
Our MS Teams voice enablement services continued to grow in the
first half with the pipeline remaining strong. The gross margin
decrease is due to product mix as a result of a higher number of
hardware sales which are lower margin as expected.
Europe
GBPm H1 2023 H1 2022** Increase
-------------- -------- ---------- ---------
Revenue 38.4 35.6 8%
Gross Profit 19.0 16.2 17%
Gross Margin 49.5% 45.5%
** In H2 2022 we reviewed and aligned European commission
presentation between cost of sales and operating expenses resulting
in an immaterial GBP0.8m reduction in cost of sales and equivalent
increase in operating expenses in 2022. For comparative purposes,
applying this alignment in H1 2022 gross profit would have been
GBP17.0m resulting in year-on-year growth of 12%, with gross margin
at 47.8%.
Growth in UCaaS supported a good first half financial
performance. Results were further bolstered by positive foreign
exchange movements, with a Euro that strengthened against Sterling
compared to the prior year. After alignment of immaterial European
commission presentation between cost of sales and operating
expenses, and on a constant currency basis, the equivalent gross
profit growth was 7%.
Operating expenses
Operating expenses grew from GBP81.7m in H1 2022 to GBP89.0m. We
break these down as follows:
GBPm H1 2023 H1 2022 Change
Expenses included within cash
generated from
operations 74.7 68.5 9%
Depreciation & amortisation 14.3 13.2 8%
Total Operating Expenses 89.0 81.7 9%
-------- -------- -------
Of the movements in "Expenses included within cash generated
from operations" shown above, which increased by 9% (or an 8%
increase when taking into account the immaterial GBP0.8m German
commission reclassification from cost of sales to operating
expenses):
-- The UK Businesses' operating expenses grew by 7% (compared to
gross profit growth of 8%). These expenses (the majority of which
relate to staff) have been actively controlled with offset product
price changes where appropriate given the inflationary
environment.
-- Increase in European costs was 10%, after taking into account
the immaterial reallocation of GBP0.8m between cost of sales and
operating costs. This was adversely impacted by the stronger Euro
and general inflationary pressures. On a constant currency basis
the growth was 6%.
-- Central costs have increased from the prior period due to
continued growth in the Group functions required to support the
businesses we have acquired around Europe as well as an increase in
governance and professional fee costs.
Depreciation and amortisation on tangible and intangible assets
(excluding business combinations) has increased to GBP14.3m (H1
2022: GBP13.2m). The annual depreciation and amortisation charge is
below the annual capital expenditure spend but is expected to
increase in future as more of our own developed software products
come into service.
Exceptional Items
There were no exceptional items in the period or in H1 2022.
Alternative performance measures
Our policy for alternative performance measures and definitions
is set out in note 2.
EBITDA (and also "adjusted EBITDA")
Adjusted EBITDA, as defined in note 2, grew from GBP51.9m to
GBP56.5m (9%). There were no exceptional items in the period or in
H1 2022.
Taxation
The effective tax rate was 24% (2022: 19%) based on applying the
expected full year effective rate. This increase is as a result of
the statutory UK rate rising from 19% to 25% in April 2023. The tax
rate in future years will continue to increase as a result of a
full year of the UK tax rate increase to 25%, and the higher rates
in the main European countries within which we operate.
Net cash and cash flows
The Group has net cash of GBP121.7m (H1 2022: GBP72.6m). The
cash and cash equivalents balance at the end of the period was
GBP123.5m and the Group had borrowings of GBP1.8m which are held by
trading subsidiaries outside of the UK and pre-date their
acquisition by Gamma.
Cash generated by operations was GBP57.1m (H1 2022: GBP49.5m).
The cash conversion was higher than prior periods at 101% (H1 2022:
95%) primarily as a result of favourable working capital
movements.
Items which are not directly related to trading were:
-- Capital spend was GBP10.5m, which is an increase from GBP7.8m
in the comparative period, as a result of the increase in overall
development spend (as seen in H2 2022). This is discussed further
below.
-- GBP9.7m was paid as dividends to shareholders (H1 2022: GBP8.5m).
-- GBP2.4m was paid as contingent consideration for the
acquisition of Mission Labs (H1 2022: GBP1.6m).
-- GBP1.5m was received from interest income (H1 2022: GBP0.2m).
-- GBP0.1m was received from the issue of shares (H1 2022: GBP0.3m).
Gamma's Group treasury policy is governed by the Audit
Committee. Gamma manages cash centrally and seeks to maximise value
and return whilst balancing associated risks. The policy manages
concentration risk by setting an appropriate limit on the amount
that can be placed with any one institution and manages credit risk
by setting a minimum requirement around the credit rating of the
financial institution. Given 85% of Group revenue is generated from
our UK business, all deposit balances are held with large
established UK financial institutions. Cash in Europe is held for
working capital purposes and follows the same Group policy as set
out above.
Capital spend
Capital spend in H1 2023 was GBP10.5m (H1 2022: GBP7.8m) as
follows:
-- GBP7.8m was the capitalisation of development costs incurred
during the period (H1 2022: GBP5.6m). This is a similar level of
capitalised development cost to H2 2022. Research costs expensed
through the statement of profit or loss increased to GBP8.4m versus
H1 2022 (GBP7.6m), again in line with H2 2022.
-- GBP1.8m related to the core network, including increasing
capacity as well as other minor items such as IT and fixtures and
fittings (H1 2022: GBP2.2m).
-- GBP0.9m was spent with third-party software vendors for the
software which underpins our Cloud PBX products (H1 2022: nil).
Adjusted EPS (fully diluted) and Statutory EPS (fully
diluted)
Adjusted EPS (fully diluted) increased from 35.6p to 37.5p (5%).
Adjusted EPS is EPS as adjusted for exceptional items (if any,
there are none in the period or in H1 2022) and other items as
defined and reconciled to the statutory measure in note 2. The
growth rate has been impacted by the change in the UK statutory tax
rate. If the prior year effective tax rate had been applied the
growth would have been 11%.
Statutory EPS (fully diluted) grew from 31.9p to 33.8p (6%). The
growth is slightly higher than the adjusted metric because, in the
current period, the depreciation and amortisation relating to
business combinations has grown at a slower rate. The growth rate
has been impacted by the change in the UK statutory tax rate. If
the prior year effective tax rate had been applied the growth would
have been 12%.
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 2022. In assessing going concern management 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 2022.
-- The financial position of the Group.
-- The strong cash position - at 30 June 2023 the Group had cash
and cash equivalents of GBP123.5m. Net cash (being cash and cash
equivalents less borrowings) was GBP121.7m. All borrowings were
acquired with acquisitions made in previous years.
-- Budgets, financial plans and associated future cash flows
including liquidity and borrowings.
-- Sensitivity analysis, which has shown that EBITDA would have
to decrease by over 100% between the period end date and December
2024 for the Group to need additional borrowing (assuming no
mitigating actions had been taken). We consider this to be highly
unlikely.
The Directors are satisfied that the Group has adequate
financial resources to continue in operational existence for the
foreseeable future, being 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 5.7p (2022: 5.0p).
This is an increase of 14% and is in line with our progressive
dividend policy. The interim dividend is payable on Thursday 19
October 2023 to shareholders on the register as at Friday 22
September 2023.
Bill Castell
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 IMR includes a fair review of the information required by
DTR 4.27R (indication of important events and their impact during
the first six months and description of principal risks and
uncertainties for the remaining six months of the year); and
-- the IMR 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
4 September 2023
Independent Review Report to Gamma Communications plc
Conclusion
We have been engaged by Gamma Communications plc ("the company")
and its subsidiaries (together "the group") to review the condensed
set of financial statements in the half-yearly financial report for
the six months ended 30 June 2023 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 cash flows, the condensed consolidated
statement of changes in equity and related notes 1 to 12.
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 2023 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.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 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 (ISRE (UK) 2410). 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.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with United Kingdom adopted
international accounting 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".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This Conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410; however, future events or
conditions may cause the entity to cease to continue as a going
concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the AIM rules of the London
Stock Exchange.
In preparing the half-yearly financial report, the directors are
responsible for assessing the group's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly financial report, we are
responsible for expressing to the company a conclusion on the
condensed set of financial statements in the half-yearly financial
report. Our Conclusion, including our Conclusion Relating to Going
Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with
ISRE (UK) 2410. 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
4 September 2023
Condensed consolidated statement of profit or loss
For the six months ended 30 June 2023
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
Note Unaudited Unaudited Audited
Revenue 3 256.2 234.7 484.6
Cost of sales (125.0) (114.3) (236.9)
----------- ----------- -------------
Gross profit 131.2 120.4 247.7
Operating expenses (89.0) (81.7) (182.3)
Earnings before depreciation, amortisation
and exceptional items 56.5 51.9 105.1
Exceptional items - - (12.5)
----------- ----------- -------------
Earnings before depreciation and
amortisation 56.5 51.9 92.6
Depreciation and amortisation (excluding
business combinations) (9.5) (8.5) (17.7)
Depreciation and amortisation arising
due to business combinations (4.8) (4.7) (9.5)
-------------------------------------------- ----- ----------- ----------- -------------
Profit from operations 42.2 38.7 65.4
Finance income 1.7 0.2 0.8
Finance expense (0.4) (0.5) (1.3)
Profit before tax 43.5 38.4 64.9
Tax expense 4 (10.4) (7.3) (15.4)
----------- ----------- -------------
Profit after tax 33.1 31.1 49.5
----------- ----------- -------------
Profit is attributable to:
Equity holders of Gamma Communications
plc 33.0 31.0 49.3
Non-controlling interests 0.1 0.1 0.2
33.1 31.1 49.5
=========== =========== =============
Earnings per share attributable
to the ordinary equity holders of
the Company:
Basic per Ordinary Share (pence) 5 34.1 32.2 51.1
Diluted per Ordinary Share (pence) 5 33.8 31.9 50.6
----------- ----------- -------------
Adjusted earnings per share is shown
in note 5
Condensed consolidated statement of comprehensive income
For the six months ended 30 June 2023
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
Unaudited Unaudited Audited
Profit for the period 33.1 31.1 49.5
Other comprehensive
income
Items that may be reclassified subsequently to the statement
of profit or loss (net of tax effect)
Exchange difference on translation
of foreign operations (1.3) 1.3 2.9
----------- ----------- -------------
Total comprehensive
income 31.8 32.4 52.4
=========== =========== =============
Total comprehensive income for the
period attributable to:
Equity holders of Gamma Communications
plc 31.7 32.3 52.2
Non-controlling interests 0.1 0.1 0.2
31.8 32.4 52.4
=========== =========== =============
Condensed consolidated statement of fi nancial position
As at 30 June 2023
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
Note Unaudited Unaudited Audited
Assets
Non-current assets
Property, plant and equipment 7 30.9 34.4 33.8
Right of use assets 8.5 9.9 9.1
Intangible assets 8 123.4 129.0 124.3
Deferred tax asset 5.3 5.6 5.5
Trade and other receivables 11.9 12.8 13.0
---------- ---------- ------------
180.0 191.7 185.7
Current assets
Inventories 12.6 8.5 10.2
Trade and other receivables 106.9 110.8 109.4
Cash and cash equivalents 123.5 75.6 94.6
Current tax asset 2.5 3.5 6.9
---------- ---------- ------------
245.5 198.4 221.1
---------- ---------- ------------
Total assets 425.5 390.1 406.8
---------- ---------- ------------
Liabilities
Non-current liabilities
Other payables 1.7 2.2 2.7
Borrowings 1.5 2.2 1.7
Lease Liabilities 7.6 9.5 8.6
Provisions 1.7 1.0 0.9
Contract Liabilities 7.5 7.9 7.8
Contingent consideration 9 - 1.6 1.5
Deferred tax 10.1 7.5 11.3
30.1 31.9 34.5
Current liabilities
Trade and other payables 54.5 56.2 54.0
Borrowings 0.3 0.8 0.4
Lease Liabilities 2.9 2.2 2.5
Provisions 0.4 0.7 0.7
Contract Liabilities 8.8 9.0 9.2
Contingent consideration 9 2.7 3.0 3.5
Put option liability 9 1.8 5.4 1.8
Current tax 0.7 0.3 0.5
72.1 77.6 72.6
---------- ---------- ------------
Total liabilities 102.2 109.5 107.1
---------- ---------- ------------
Net assets 323.3 280.6 299.7
========== ========== ============
Equity
Share capital 10 0.2 0.2 0.2
Share premium reserve 18.1 15.2 18.0
Other reserves 11 9.1 7.8 9.0
Retained earnings 297.2 261.8 273.9
Equity attributable to owners of
Gamma Communications plc 324.6 285.0 301.1
---------- ---------- ------------
Non-controlling interests 0.9 2.3 0.8
Written put options over non-controlling
interests (2.2) (6.7) (2.2)
---------- ---------- ------------
Total equity 323.3 280.6 299.7
========== ========== ============
Condensed consolidated statement of cash fl ows
For the six months ended 30 June 2023
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
Note Unaudited Unaudited Audited
Cash flows from operating activities
Profit for the period before tax 43.5 38.4 64.9
Adjustments for:
Depreciation of property, plant
and equipment 7 4.6 4.5 9.5
Depreciation of right of use assets 1.3 1.3 2.8
Amortisation of intangible assets 8 8.4 7.4 14.9
Impairment of goodwill - - 12.2
Change in fair value of contingent
consideration/put option liability - - (0.9)
Share based payment expense 1.3 1.8 4.3
Interest income (1.7) (0.2) (0.8)
Finance expense 0.4 0.5 1.3
Loss on disposal of subsidiary undertaking - - 0.3
57.8 53.7 108.5
Decrease/(increase) in trade and
other receivables 3.5 (12.7) (10.1)
(Increase) in inventories (2.4) (0.6) (2.6)
(Decrease)/increase in trade and
other payables (1.6) 8.2 4.1
(Decrease)/increase in contract
liabilities (0.7) 1.2 (0.4)
Increase/(decrease) in provisions
and employee benefits 0.5 (0.3) (0.4)
----------- ----------- -------------
Cash generated by operations 57.1 49.5 99.1
Taxes paid (5.3) (7.4) (14.4)
Net cash flows from operating activities 51.8 42.1 84.7
----------- ----------- -------------
Investing activities
Gain on disposal of property, plant
and equipment - 0.1 0.4
Purchase of property, plant and
equipment 7 (1.8) (2.2) (6.8)
Purchase of intangible assets 8 (8.7) (5.6) (13.9)
Interest received 1.5 0.2 0.8
Acquisition of subsidiaries net
of cash acquired (inc. contingent
consideration) (2.4) (1.6) (9.8)
Disposal of subsidiary net of disposed
cash - - (0.3)
Net cash used in investing activities (11.4) (9.1) (29.6)
----------- ----------- -------------
Financing activities
Lease liability repayments (1.3) (1.3) (2.8)
Repayment of borrowings (0.3) (0.4) (0.7)
Interest paid (0.1) (0.3) (0.1)
Share issues 0.1 0.3 3.1
Dividends (9.7) (8.5) (13.3)
----------- ----------- -------------
Net cash used in financing activities (11.3) (10.2) (13.8)
----------- ----------- -------------
Net increase in cash and cash equivalents 29.1 22.8 41.3
Cash and cash equivalents at beginning
of period 94.6 52.8 52.8
Effects of exchange rate changes on
cash and cash equivalents (0.2) - 0.5
Cash and cash equivalents at end
of period 123.5 75.6 94.6
=========== =========== =============
Condensed consolidated statement of changes in equity
For the six months ended 30 June 2023
Share Share Other Retained Total Non-controlling Written Total
capital premium reserves earnings interests put equity
reserve options
over
non-controlling
interests
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
1 January 2022 0.2 14.9 4.5 239.1 258.7 2.2 (6.7) 254.2
--------- --------- ---------- ---------- ------ ---------------- ----------------- --------
Issue of shares - 0.3 (0.2) 0.2 0.3 - - 0.3
Share-based
payment
expense - - 2.2 - 2.2 - - 2.2
Dividends paid - - - (8.5) (8.5) - - (8.5)
------ ---------------- ----------------- --------
Transactions
with
owners - 0.3 2.0 (8.3) (6.0) - - (6.0)
--------- --------- ---------- ---------- ------ ---------------- ----------------- --------
Profit for the
period - - - 31.0 31.0 0.1 - 31.1
Other
comprehensive
income - - 1.3 - 1.3 - - 1.3
--------- --------- ---------- ---------- ------ ---------------- ----------------- --------
Total
comprehensive
income - - 1.3 31.0 32.3 0.1 - 32.4
30 June 2022 0.2 15.2 7.8 261.8 285.0 2.3 (6.7) 280.6
========= ========= ========== ========== ====== ================ ================= ========
1 January 2023 0.2 18.0 9.0 273.9 301.1 0.8 (2.2) 299.7
--------- --------- ---------- ---------- ------ ---------------- ----------------- --------
Issue of shares - 0.1 - - 0.1 - - 0.1
Share-based
payment
expense - - 1.4 - 1.4 - - 1.4
Dividends paid - - - (9.7) (9.7) - - (9.7)
------ ---------------- ----------------- --------
Transactions
with
owners - 0.1 1.4 (9.7) (8.2) - - (8.2)
--------- --------- ---------- ---------- ------ ---------------- ----------------- --------
-
Profit for the
period - - - 33.0 33.0 0.1 - 33.1
Other
comprehensive
expense - - (1.3) - (1.3) - - (1.3)
--------- --------- ---------- ---------- ------ ---------------- ----------------- --------
Total
comprehensive
expense/income - - (1.3) 33.0 31.7 0.1 - 31.8
30 June 2023 0.2 18.1 9.1 297.2 324.6 0.9 (2.2) 323.3
========= ========= ========== ========== ====== ================ ================= ========
Notes to the interim financial information
For the six months ended 30 June 2023
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 2022, 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 2023.
Principal risks and uncertainties
The principal risks faced by the Group continue to be that
product development becomes misaligned with market needs, unplanned
service disruption, data loss and cyber-attacks, over-reliance on
key suppliers, inability to attract and retain top talent, failure
to adapt and develop new routes to market, uncertain competitive
landscape causes loss of market share, unsuccessful M&A
activities and legal and regulatory non-compliance. Further details
can be found in the Annual Report for the year ended 31 December
2022.
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 2022.
Preparation of the interim financial information 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 key
judgements and sources of estimation uncertainty reported in the
financial statements for the year ended 31 December 2022 are still
relevant.
Alternative Performance Measures
Adjustments to the Statement of Profit or Loss have been
presented because the Group believes that adjusted performance
measures (APMs) provide additional information for users of the
financial statements in assessing the Group's performance, and also
represent the underlying performance of the Group. These are also
used by the Board and management as KPIs to understand how the
business is performing. Moreover, they provide information on the
trading performance of the business that Management is more
directly able to influence and on a comparable basis from year to
year. Reference to 'underlying' reflects the trading results of the
Group without the impact of depreciation and amortisation of
acquired intangible assets, changes in fair value consideration and
any tax related effects that would otherwise impact the users
understanding of the Group's performance. The Directors believe
that adjusted results provide additional useful information on the
core operational performance of the Group, and review the results
of the Group on an adjusted basis internally.
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 as wide a range of internally generated intangible
assets. Adjusting for depreciation and amortisation provides a more
consistent basis for comparison between the two.
(c) 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 table below reconciles the alternative performance measures
used in this document:
Depreciation
& amortisation
Statutory from business Adjusting Adjusted
Measure basis combinations tax items basis
2023
PBT (GBPm) 43.5 4.8 - 48.3
PAT* (GBPm) 33.0 4.8 (1.2) 36.6
EPS (FD) (p) 33.8 4.9 (1.2) 37.5
------------- ---------- ---------------- ----------- ---------
2022
PBT (GBPm) 38.4 4.7 - 43.1
PAT* (GBPm) 31.0 4.7 (1.1) 34.6
EPS (FD) (p) 31.9 4.8 (1.1) 35.6
------------- ---------- ---------------- ----------- ---------
* Profit After Tax ("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 depreciation and
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 adjustments to statutory measures, we
add back the depreciation and amortisation charged in the year to
Profit from Operations (H1 2023: GBP42.2m; H1 2022: GBP38.7m) to
calculate a figure for EBITDA (H1 2023: GBP56.5m; H1 2022:
GBP51.9m) which is commonly quoted by our peer group
internationally and allows users of the accounts to compare our
performance with those of our peers. We further adjust EBITDA for
exceptional items as this gives a reader of the accounts a view of
the underlying trading picture which is comparable from year to
year. There were no exceptional items in the period or in H1
2022.
An adjustment to the cash has 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 as Net Cash is a better measure
of liquidity. We do not consider contingent consideration or IFRS
16 lease liabilities as debt for the purpose of quoting a net cash
figure.
2023 2022
GBPm GBPm
Cash and cash equivalents 123.5 75.6
Borrowings (1.8) (3.0)
------ ------
Net Cash 121.7 72.6
====== ======
3. Segment information
The Group's main operating segments are outlined below:
-- Gamma Business - This division sells Gamma's products to
smaller businesses in the UK, typically to those with fewer than
250 employees. This division sells through different routes to
market, including the channel, direct and digital, as well as
through other carriers who sell to smaller businesses in the UK. It
contributed 64% (2022: 64%) of the Group's external revenue.
-- Gamma Enterprise - This division sells Gamma's products to
larger businesses in the UK, typically to those with more than 250
employees. Larger organisations have more complex needs so this
division sells Gamma's and other suppliers' products to Enterprise
and Public Sector customers, together with an associated managed
service wrap and ordinarily sells directly. It contributed 21%
(2022: 21%) of the Group's external revenue.
-- European - This division consists of sales made in Europe
through Gamma's German, Spanish and Dutch businesses. It
contributed 15% (2022: 15%) of the Group's external revenue.
-- Central functions - This comprises the central management team and wider Group costs.
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, the 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.
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 provided a restated view
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.
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 excludes 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.
Gamma Gamma Central
Business Enterprise European functions Total
Period to 30 June 2023 GBPm GBPm GBPm GBPm GBPm
--------------------------------- ---------- ------------ --------- ----------- -------
Segment revenue 177.0 53.5 38.6 - 269.1
Inter-segment revenue (12.2) (0.5) (0.2) - (12.9)
---------- ------------ --------- ----------- -------
Revenue from external
customers 164.8 53.0 38.4 - 256.2
---------- ------------ --------- ----------- -------
Timing of revenue recognition
At a point in time 7.6 5.4 13.5 - 26.5
Over time 157.2 47.6 24.9 - 229.7
---------- ------------ --------- ----------- -------
164.8 53.0 38.4 - 256.2
Total gross profit 86.8 25.4 19.0 - 131.2
Earnings before depreciation,
amortisation and exceptional
items 41.6 14.5 5.0 (4.6) 56.5
---------- ------------ --------- -----------
Exceptional - - - - -
Earnings before depreciation
and amortisation 41.6 14.5 5.0 (4.6) 56.5
--------------------------------- ---------- ------------ --------- ----------- -------
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.
Gamma Gamma Central
Business Enterprise European functions Total
Period to 30 June 2022 GBPm GBPm GBPm GBPm GBPm
(restated)
--------------------------------- ---------- ------------ --------- ----------- -------
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
Earnings before depreciation
and amortisation 38.1 13.7 4.3 (4.2) 51.9
---------- ------------ --------- -----------
Exceptional - - - - -
Earnings before depreciation
and amortisation 38.1 13.7 4.3 (4.2) 51.9
--------------------------------- ---------- ------------ --------- ----------- -------
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.
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 2023 is 24%, compared to 19% for the six
months ended 30 June 2022. This increase is as a result of the
statutory UK rate rising from 19% to 25% in April 2023.
5. Earnings per share
Six months Six months
ended ended
30 June 30 June
23 22
Earnings per Ordinary Share - basic (pence) 34.1 32.2
Earnings per Ordinary Share - diluted (pence) 33.8 31.9
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
23 22
GBPm GBPm
Earnings
Profit after tax attributable to equity
holders of the Company 33.0 31.0
============= ===========
Shares Number Number
Basic weighted average number of Ordinary
Shares 96,872,058 96,341,184
Effect of dilution resulting from share
options 642,984 836,273
-------------
Diluted weighted average number of Ordinary
Shares 97,515,042 97,177,457
============= ===========
Adjusted earnings per share is detailed below:
Six months Six months
ended ended
30 June 30 June
23 22
Adjusted earnings per Ordinary Share - basic
(pence) 37.8 35.9
Adjusted earnings per Ordinary Share - diluted
(pence) 37.5 35.6
Adjusted profit used in the calculation of adjusted earnings per
share is detailed below:
Six months Six months
ended ended
30 June 30 June
23 22
Earnings GBPm GBPm
Profit for the period attributable to equity
holders of the Company 33.0 31.0
Amortisation arising on business combinations 4.8 4.7
Adjusting tax items (1.2) (1.1)
Adjusted profit after tax for the period 36.6 34.6
=========== ===========
6. Dividends
A final dividend of 10p was paid on 22 June 2023 (2022: 8.8p).
The Board has declared an interim dividend of 5.7p per share
payable on Thursday 19 October 2023 to shareholders on the register
as at Friday 22 September 2023. In the prior year an interim
dividend of 5.0p was paid.
7. Property, plant and equipment
Land and Network Computer Fixtures
building assets equipment and fittings Total
GBPm GBPm GBPm GBPm GBPm
2023
Cost
At 1 January 2023 4.7 67.4 13.5 2.8 88.4
Additions - 0.8 0.9 0.1 1.8
Disposals - (0.2) - - (0.2)
Exchange differences (0.1) - (0.1) - (0.2)
At 30 June 2023 4.6 68.0 14.3 2.9 89.8
---------- -------- ----------- -------------- ------
Depreciation
At 1 January 2023 0.3 41.8 10.7 1.8 54.6
Charge for the period 0.1 3.4 0.8 0.3 4.6
Disposals - (0.2) - - (0.2)
Exchange differences - - (0.1) - (0.1)
At 30 June 2023 0.4 45.0 11.4 2.1 58.9
---------- -------- ----------- -------------- ------
Net book value
At 1 January 2023 4.4 25.6 2.8 1.0 33.8
At 30 June 2023 4.2 23.0 2.9 0.8 30.9
---------- -------- ----------- -------------- ------
Land and Network Computer Fixtures
building assets equipment and fittings Total
GBPm GBPm GBPm GBPm GBPm
2022
Cost
At 1 January 2022 4.5 78.7 12.3 2.4 97.9
Additions - 1.2 1.0 - 2.2
Disposals - (6.4) - - (6.4)
Exchange differences 0.1 (0.1) (0.1) 0.5 0.4
At 30 June 2022 4.6 73.4 13.2 2.9 94.1
---------- -------- ----------- -------------- ------
Depreciation
At 1 January 2022 0.3 50.3 9.0 1.5 61.1
Charge for the period - 3.5 0.8 0.2 4.5
Disposals - (6.3) - - (6.3)
Exchange differences - 0.4 0.2 (0.2) 0.4
At 30 June 2022 0.3 47.9 10.0 1.5 59.7
---------- -------- ----------- -------------- ------
Net book value
At 1 January 2022 4.2 28.4 3.3 0.9 36.8
At 30 June 2022 4.3 25.5 3.2 1.4 34.4
---------- -------- ----------- -------------- ------
8. Intangible assets
Customer Development
Goodwill contracts Brand costs Software Total
GBPm GBPm GBPm GBPm GBPm GBPm
2023
Cost
At 1 January
2023 97.5 50.9 1.4 40.4 19.3 209.5
Additions - - - 7.8 0.9 8.7
Disposals - - - (0.2) - (0.2)
Exchange differences (1.2) (1.0) (0.1) (0.2) - (2.5)
At 30 June 2023 96.3 49.9 1.3 47.8 20.2 215.5
--------- ----------- ------ ------------ --------- ------
Amortisation
At 1 January
2023 20.8 29.1 0.7 18.0 16.6 85.2
Charge for the
period - 4.2 0.2 2.2 1.8 8.4
Disposals - - - (0.2) - (0.2)
Exchange Differences (0.4) (0.7) (0.1) (0.1) - (1.3)
At 30 June 2023 20.4 32.6 0.8 19.9 18.4 92.1
--------- ----------- ------ ------------ --------- ------
Net book value
At 1 January
2023 76.7 21.8 0.7 22.4 2.7 124.3
At 30 June 2023 75.9 17.3 0.5 27.9 1.8 123.4
--------- ----------- ------ ------------ --------- ------
Customer Development
Goodwill contracts Brand costs Software Total
GBPm GBPm GBPm GBPm GBPm GBPm
2022
Cost
At 1 January
2022 91.8 47.6 2.2 28.1 18.5 188.2
Additions - - - 5.6 - 5.6
Exchange differences - - - (0.1) - (0.1)
Reclassifications 0.6 0.9 - 0.2 - 1.7
At 30 June 2022 92.4 48.5 2.2 33.8 18.5 195.4
--------- ----------- ------ ------------ --------- ------
Amortisation
At 1 January
2022 8.7 20.2 0.9 14.8 14.3 58.9
Charge for the
period - 3.7 0.5 2.2 1.0 7.4
Disposals - - - (0.1) - (0.1)
Exchange Differences (0.1) 0.4 - (0.1) - 0.2
At 30 June 2022 8.6 24.3 1.4 16.8 15.3 66.4
--------- ----------- ------ ------------ --------- ------
Net book value
At 1 January
2022 83.1 27.4 1.3 13.3 4.2 129.3
At 30 June 2022 83.8 24.2 0.8 17.0 3.2 129.0
--------- ----------- ------ ------------ --------- ------
Amortisation on intangible assets is charged to the consolidated
statement of profit or loss and included in operating expenses.
9. Fair value of financial Instruments
The financial instruments included in the 'Consolidated
statement of financial position are measured at fair value or
amortised cost. Those financial liabilities measured at fair value
remain unchanged from the Annual Report for the year ended 31
December 2022 and include contingent consideration GBP2.7m (31
December 2022: GBP5.0m) and put option liability GBP1.8m (31
December 2022: GBP1.8m), both classified as level 3. Both the
contingent consideration and put option liability were valued using
a probability weighted expected returns methodology, using a
discount rate appropriate to the transaction. Movements in the fair
value are charged through the profit and loss.
10. Share capital
Number GBPm
1 January 2023
Ordinary Shares of GBP0.0025 each 96,847,301 0.2
------------ -----
At 1 January 2023 96,847,301
Movement:
January 7,170 (a)
February 2,221 (a)
April 5,268 (a)
May 4,132 (a)
June 109,751 (a)
At 30 June 2023 96,975,843
============
(a) Ordinary shares were issued to satisfy options
which have been exercised.
Number GBPm
30 June 2023
Ordinary Shares of GBP0.0025 each 96,975,843 0.2
------------ -----
11. Other reserves
Merger Share Foreign Own shares Total
reserve option exchange other
reserve reserve reserves
GBPm GBPm GBPm GBPm GBPm
1 January 2022 2.3 7.1 (4.2) (0.7) 4.5
--------- --------- ---------- ----------- ----------
Issue of shares - (0.2) - - (0.2)
Share-based payments - 2.2 - - 2.2
Other comprehensive income - - 1.3 - 1.3
--------- --------- ---------- ----------- ----------
30 June 2022 2.3 9.1 (2.9) (0.7) 7.8
========= ========= ========== =========== ==========
1 January 2023 2.3 8.7 (1.3) (0.7) 9.0
--------- --------- ---------- ----------- ----------
Share-based payments - 1.4 - - 1.4
Other comprehensive income - - (1.3) - (1.3)
--------- --------- ---------- ----------- ----------
30 June 2023 2.3 10.1 (2.6) (0.7) 9.1
========= ========= ========== =========== ==========
12. Events after the reporting date
On 16 August 2023 the Group acquired the entire issued share
capital of Satisnet Limited, a UK-based Managed Security Services
Provider of software and services to the medium/large enterprise
market. There was an initial payment to the sellers of GBP10.1m
(excluding amounts paid for cash acquired and working capital). In
addition, there is GBP2.8m in Gamma shares payable by October 2023
and a further GBP2.1m payable in cash. There is also an earn out
agreement based on revenue and growth profit targets for 18 months
to 31 December 2024 and 2025. This may result in an additional
consideration of up to GBP5.0m, of which 80% will be in cash and
20% by the issue of consideration shares.
Due to the proximity of the acquisitions to the publication of
this update, the Group has not yet completed the purchase price
allocation and it is impractical to give further information.
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END
IR BIGDCRUGDGXS
(END) Dow Jones Newswires
September 05, 2023 02:00 ET (06:00 GMT)
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