TIDMGAMA
RNS Number : 1016T
Gamma Communications PLC
23 March 2021
23 March 2021
Gamma Communications plc
Results for the year ended 31 December 2020
Good organic growth in the UK supported by strategic
acquisitions in Europe combine to deliver positive results for
2020
Gamma Communications plc ("Gamma" or "the Group"), a leading,
technology-based provider of communications services to the
business market in Europe, is pleased to announce its results for
the year ended 31 December 2020.
Year ended 31 December
-------------------------
2020 2019 Change (%)
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Revenue GBP393.8m GBP328.9m +20%
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Gross profit GBP200.8m GBP166.5m +21%
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Gross margin 51% 51%
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Profit from operations GBP75.7m GBP45.5m +66%
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Adjusted EBITDA GBP79.0m GBP63.5m +24%
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PBT GBP75.0m GBP45.2m +66%
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Adjusted PBT GBP61.7m GBP48.1m +28%
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EPS (Fully Diluted, "FD") 66.6p 36.1p +84%
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Adjusted EPS (FD) 51.3p 40.8p +26%
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Total dividend per share 11.7p 10.5p +11%
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Cash generated by operations GBP70.3m GBP54.0m +30%
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Cash generated by operations / adjusted
EBITDA 89% 85%
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Cash and cash equivalents (gross
cash) GBP53.9m GBP53.9m 0%
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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 - within
the adjustments is the gain of GBP19.5m made on the sale of the
Group's non-core business which traded as "The Loop". Our policy on
the use of APMs is included in note 2.
Key Highlights
The Group had a good financial performance across all business
units with growth across all key product categories during the
year. COVID-19 only had a small impact on the overall financial
performance of the business, with cancellations, bad debt and churn
continuing in line with their normal low, pre-COVID-19 levels.
Financial highlights
Each of the business units continued to perform well:
-- Revenue grew by 20% from GBP328.9m to GBP393.8m.
-- Organic revenue growth in the period was 9% (from GBP328.9m
to GBP357.6m across the Group). Organic growth was slightly lower
than originally expected due to the lower rate of sales in the
second quarter driven by the COVID-19 pandemic; sales activity
returned to pre-COVID levels in the second half. (NB Organic growth
excludes the results of acquisitions made in 2020).
-- Recurring revenue (being repeat business) in the year grew
from GBP306.9m in 2019 to GBP359.3m in 2020.
-- UK Indirect Business continued to grow strongly with a focus
on the existing partner base. Gross profit increased 11% (GBP13.1m)
from GBP119.1m in 2019 to GBP132.2m in 2020.
-- UK Direct Business (which now includes Exactive) continued to
grow gross profit which increased by 21% (GBP8.1m) from GBP38.2m in
2019 to GBP46.3m in 2020.
-- European Business saw gross profit increase from GBP9.2m in
2019 to GBP22.3m in 2020, primarily through acquisition - Voz
Telecom (acquired in April 2020), HFO Holding (acquired in July
2020) and gnTel (acquired in July 2020).
Product highlights
Continued strong growth across the major product groups in the
United Kingdom:
-- The number of installed SIP Trunks increased by 17% to
1,185,000 from 1,016,000 at 31 December 2019; these figures include
sales of the MS Teams Direct Routing product and seats on
Exactive's CloudUCX platform.
-- The number of Horizon (Cloud PBX) users increased to 601,000
from 522,000 (+15%). The number of Horizon users taking the
additional Collaborate service increased from 9,000 to 46,000.
-- The number of hosted PBX seats in our European business
increased to 114,000 at 31 December 2020 from 22,000 at 31 December
2019. Much of this growth was via the acquisitions of Voz and
gnTel.
-- Horizon Contact, our Cloud Contact Centre solution, which
resulted from the acquisition of Telsis in 2019 and is a fully
integrated module for our Cloud PBX product was successfully
launched in the UK on 2 March 2021.
-- In the second quarter of 2021, we expect to launch our single
line replacement product (PhoneLine+) and we will also release
functionality which will enable Horizon users to integrate our
Cloud PBX with MS Teams.
Acquisitions
We have continued to execute our strategy through selective
acquisitions which both strengthen our UCaaS product functionality
and expand our geographical footprint in Europe.
We have strengthened our product capabilities as follows -
-- In February 2020, we acquired Exactive Holdings Ltd
("Exactive"), a unified communications specialist (based in the UK
and Poland) with expertise in Microsoft Teams. It is helping to
develop our UCaaS proposition by enabling us to configure Microsoft
Teams as a full UCaaS solution for those customers who require it.
These will tend to be Enterprise customers.
-- In March 2021, we acquired Mission Labs Limited ("Mission
Labs"). Mission Labs provides expertise and product capability in
the Cloud Contact Centre as a Service market ("CCaaS"). It also has
a solution for micro-business users called Circle Loop which is
sold digitally.
We have expanded our presence in Europe through three
acquisitions: -
-- In April 2020, we acquired VozTelecom OIGAA360, S. A. ("Voz
Telecom"), a well-established provider of cloud communication
services in Spain, which provides us with access to the nascent
Cloud PBX market.
-- In July 2020, we acquired a majority shareholding in HFO
Holding AG ("HFO") in Germany. HFO is a leading provider of SIP
Trunks in Germany and has recently begun to sell Cloud PBX
products.
-- Also, in July 2020, we acquired gnTel B.V. ("gnTel"), a Cloud
PBX provider in the Netherlands and Germany.
Acquisition activity has been high in FY2020. We have bought
four companies and the cash outflow for acquisitions in that period
was GBP52.8m. However, each acquisition was funded from internally
generated cash flow and we believe it has been the most cost
effective way to build a footprint to take advantage of the future
acceleration in UCaaS uptake in continental Europe.
Subsequent to the end of 2020 we acquired Mission Labs Limited
for initial consideration (on a cash free basis) of GBP40.2m which
was also funded from internally generated cashflow.
Andrew Taylor, Chief Executive Officer, commented,
"We have delivered a good business performance and set of
financial results for 2020, with both our UK and European
businesses continuing to develop and grow. We have begun to
successfully knit together our desired European footprint and are
working with the local management to accelerate our growth in Cloud
PBX in Europe.
"Despite the COVID-19 pandemic, our product performance was
positive, and we continued to strengthen our market capabilities
through the development and launch of new products and services.
During the year we have reinforced the execution of our UCaaS
strategy, which is progressing very well, with the strengthening of
both our geographical reach and overall product capabilities. As
ever, we have continued to strengthen both our Direct and Indirect
channel propositions across all markets, with a focus on positively
supporting our partners and our customers"
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
Chair's statement
Overview of results
Group revenue for the year ended 31 December 2020 increased by
GBP64.9m to GBP393.8m (2019: GBP328.9m) an increase of 20% on the
prior year. Despite lower sales in quarter two due to the COVID-19
restrictions, organic growth in revenue amounted to GBP28.7m (+9%).
Adjusted EBITDA for the Group increased by GBP15.5m (24%) to
GBP79.0m (2019: GBP63.5m) whilst organic EBITDA growth was
GBP11.6m. (NB Organic growth excludes the results of acquisitions
made in 2020).
Fully diluted earnings per share for the year increased by 84%
to 66.6p (2019: 36.1p). Adjusted earnings per share (FD) for the
year increased by 26% to 51.3p (2019: 40.8p), with the main
adjusting item being the profit made on the sale of The Loop (the
fibre business based in Manchester) which generated a profit of
GBP19.5m. Adjusted items are explained and reconciled in the
financial review. The cash generated by operations for the year was
GBP70.3m compared to GBP54.0m in 2019. The closing cash balance for
the year was GBP53.9m which was the same as at the end of December
2019. This cash balance has been maintained despite investing
GBP15.4m on capital items, GBP52.8m on acquisitions and paying
GBP10.4m in dividends. The disposal of The Loop generated a cash
inflow of GBP19.4m. Subsequent to year end, the Group paid initial
consideration (on a cash free basis) of GBP40.2m for Mission Labs
Limited.
Overview of the year
The year has been a period of strong strategic execution for
Gamma with the following highlights:
-- The whole business has responded well to a difficult period;
we have been able to run the business with the vast majority of our
staff working from their homes.
-- Growth in revenue and profitability has been good despite the
economic downturn caused by COVID-19. The Group's recurring revenue
model has proved robust and its product set supports businesses
which have had to work remotely. The Group has seen cancellations
and bad debt remain at the low levels experienced prior to the
pandemic.
-- There has been strong growth in the volumes of our key UCaaS
products in the UK. SIP Trunking units increased by 17% (this
includes MS Teams Direct Routing) and Cloud PBX units increased by
15%. In Europe we now have 114,000 Cloud PBX seats - 16% of our
total seats.
-- In April 2020, we launched a Microsoft Teams Direct Routing
product to our Channel Partners, making Gamma's market-leading SIP
trunks available to Enterprises using Microsoft Teams. This is an
expanding market and we have already connected thousands of
individuals to the platform since the launch.
-- During the year, the Group acquired UCaaS providers in two
countries - Voz Telecom (Spain) and HFO (Germany). We had started
discussions with both businesses before the pandemic made
international travel difficult. As we have known management for
some time, the integration continues to go well. The UCaaS market
in both countries is significantly less penetrated than in the UK
but is expected to grow rapidly. We also acquired gnTel in the
Netherlands (which provides a product capability and opens up a new
route to market through partners who specialise in IT).
-- To improve our product offering in the UCaaS space, Gamma
acquired Exactive in the UK (which supports companies wishing to
use Microsoft Teams as a UCaaS solution). After the year end we
acquired Mission Labs Limited which will give us additional
capabilities in the rapidly evolving markets of Cloud Contact
Centre and Cloud Communications.
-- The Group continues to develop its product portfolio, it
launched Horizon Contact Centre on 2 March 2021 which has been
received positively by our channel partners. Further product
releases are expected throughout 2021.
Board and governance
I was delighted to welcome Charlotta Ginman and Xavier Robert to
the Board on 8 September 2020 as additional Independent
Non-Executive Directors. Charlotta holds a number of non-executive
roles at both AIM and fully listed businesses and is also the chair
of the audit committee at Keywords Studios plc, Pacific Asset Trust
plc and Polar Capital Technology Trust plc.
Xavier Robert is Head of UK at Bridgepoint Private Equity and
was their Global head of TMT from 2011 to 2018. He has acted as a
non-executive for many private companies - in many cases as
chairman of the Board or chair of the Remuneration or Audit
Committees. He is a French national and lives in the UK. He has
significant experience of international M&A.
As we announced earlier today Alan Gibbins will be leaving the
board following our AGM in May. Alan has been a Non-Executive
Director and Chair of the Audit Committee since our flotation in
2014. I am grateful for all of his hard work and contribution to
the Board. Charlotta will take over as Chair of the Audit Committee
following Alan's departure.
On 2 June 2020, the Nominations Committee appointed Martin Lea
as Senior Independent Director.
On 5 June 2020, it was decided to rotate the Chair of the
Remuneration Committee. Martin Lea stood down as its chair after
six years and handed over to Henrietta Marsh. Henrietta has been a
member of the committee since joining the Board in April 2019 and
has previously chaired remuneration committees at other premium
list and AIM traded companies.
On 3 August 2020, the Board created a separate Environmental,
Social and Governance ("ESG") Committee. This committee is chaired
by Martin Lea and its membership consists of a mixture of
Non-Executive and Executive Directors. I am pleased to say that
Gamma already has a strong set of ESG credentials; the purpose of
the committee is to encourage and oversee the underlying activity
and to ensure that we report in line with the emerging standards in
this area.
We continue to adhere to the QCA Corporate Governance Code (2018
edition) (the 'QCA Code').
Employees
At 31 December 2020, we had 1,530 employees in the Group based
in seven countries. During the year I was pleased to welcome the
staff of Exactive in the UK and Poland, Voz Telecom in Spain and
Morocco, HFO in Germany and gnTel in the Netherlands and Germany
into the Gamma Group.
We encourage all employees to own shares in the Company. For our
UK based employees, we offered a sharesave scheme for the fifth
year in succession. Once again, it was particularly pleasing to see
the high take-up, with 449 staff choosing to participate in the
scheme (2019: 459). We also run an "Evergreen SIP" scheme which
gives employees a further opportunity to buy shares in the company
in a tax efficient way. We are actively exploring ways in which our
non-UK based employees can own Gamma shares.
The Board recognises the high levels of support and commitment
from its staff through what has been a very difficult year. We
would like to express our thanks for their dedication, hard work
and enthusiasm. Gamma did not take advantage of the UK Government's
Job Retention Scheme ("furlough") nor similar schemes offered by
governments in the other countries in which we operate.
Dividend
Gamma remains committed to a progressive dividend policy which
has seen the dividend increase by 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. Having carefully
considered the interests of all stakeholders, and noting that the
Group has continued to be cash generative and has not availed
itself of Government support, the Board has continued with this
policy throughout 2020.
The Board is pleased to propose a final dividend, in respect of
the year ended 31 December 2020, of 7.8 pence per share (2019: 7.0
pence), an increase of 11%. Subject to shareholder approval at the
forthcoming AGM, this dividend will be payable on Thursday 24 June
2021 to shareholders on the register on Friday 4 June 2021. When
added to the 3.9 pence interim dividend (2019: 3.5 pence) this
would make a total dividend of 11.7 pence for the year as a whole
(2019: 10.5 pence).
Environmental
As a business which enables other companies to reduce their
carbon footprint by communicating and collaborating from multiple
sites and thereby reducing the need to travel, we continue to
challenge ourselves on our own environmental credentials. We run a
certified CarbonNeutral(c) network and we have also now committed
to supporting the UN Sustainable Development Goals.
Since Gamma's inception nearly 20 years ago, we have taken our
responsibilities to the wider environment seriously and were the
first UK carrier to offer end users an opportunity to offset the
"carbon cost" of their communications through the introduction of
"Green minutes" back in 2007. Prior to COVID-19, as a business
which is based on multiple sites, we encouraged our people not to
travel but rather to use our own collaborative communications tools
which both reduces our carbon emissions and promotes employee
wellbeing. This has stood us in good stead for the conditions in
which we have had to operate throughout 2020.
Current Trading and Outlook
The Board is positive about the outlook for the Group in 2021
and beyond. Our product set is well suited to organisations that
wish to work remotely as part of their disaster recovery plans or
who will choose to allow more flexible working in future. We
believe that experiences learned from the COVID-19 pandemic will
demonstrate the advantages of UCaaS to businesses of all sizes
across all industries and we expect to see continuous growth in
UCaaS product sales.
Gamma will continue to concentrate efforts and investment on
supporting our channel partners and end users. We will develop a
product set which facilitates flexible working for businesses of
all sizes, building on an already strong reputation for operational
excellence and service quality.
Richard Last
Chair
Chief Executive Review
I am pleased to report another excellent set of financial
results for 2020.
As well as executing against our short-term commitments
throughout 2020, we have also focused heavily on the further
development and execution of our medium and longer-term growth
strategy. We have, both organically and through acquisition,
accelerated the development of our technology and product
capabilities, while extending our European footprint. In addition,
we have developed and strengthened the skills and capabilities of
our team, while continuing our focus and investment on building
digital platform capabilities and skills across Gamma.
I am very pleased with how the whole Group continues to respond
to the COVID-19 pandemic. Our focus throughout has been on the
safety and wellbeing of our staff, our partners and our
end-customers but we have also sought to ensure that business
continuity was at the heart of our planning and support. The level
of support and engagement from all of our staff has been excellent
throughout, and I want to give my thanks to the entire Gamma team
for how they have responded to this challenging period for
everyone. The services we provide to business customers have always
been vital, and during the pandemic the structural changes to our
marketplace have substantially reinforced both the importance of
this and future growth opportunities for Gamma and our overall
sector. We believe that the experience of COVID-19 will only
accelerate the adoption of cloud services in the business market in
the medium to long term, thereby reinforcing our overall UCaaS
strategy.
Despite very difficult COVID-related economic and business
market conditions, we have continued to grow and strengthen our
position in our core UK market. Importantly, we have benefitted
from our "SaaS" recurring revenue business model.
During the period we have made very good progress with the
integration of our acquisitions that we previously made to support
both our geographical expansion and the acceleration of our UCaaS
technology and product strategy. These businesses, which include
Dean One, Nimsys, Telsis and Exactive, are now very much part of
the Gamma Group. In addition, during the period, we have expanded
our business across mainland Europe through our first acquisitions
in Spain (Voz Telecom) and Germany (HFO Group), as well as
completing another bolt-on acquisition in the Netherlands (gnTel).
All acquisitions are making very positive progress.
I am delighted with the continued investment and progress we
have made throughout 2020, to both expand and strengthen our
technology, product set, service, and delivery capabilities across
Gamma. In November 2019 we acquired Telsis, which had cloud contact
centre capabilities. Using this capability, we have recently
launched our Horizon cloud contact centre solution (CCaaS) - this
is aimed at end users in the SME market and is fully integrated
into Horizon (our leading cloud PBX service).
In February 2020, we acquired Exactive Holdings Ltd
("Exactive"), a unified communications specialist with expertise in
Microsoft Teams. This has helped us to deliver our strategic
objective of further developing our UCaaS proposition by enabling
us to configure Microsoft Teams as a full UCaaS solution for those
customers who require it - these customers tend to be larger in
size. During the year, we also launched Microsoft Teams Direct
Routing - a product which enables our Channel Partners to
facilitate the implementation of Microsoft Teams for those end
users who choose to do that. We will also be launching the tools
which will allow our customers to integrate our Horizon product
with Microsoft Teams later this year.
I would also like to highlight the progress we have made in
developing and expanding both our mobile and fixed data access
product portfolio in the UK and across Europe. We plan to launch
our new UK MVNO service during the first half of 2021 and, when
combined with our fixed access portfolio, this provides an
opportunity for our sales team and channel partners to up-sell and
cross-sell Gamma's access products.
I am also pleased that (after the end of the year under review)
we acquired Mission Labs, a UCaaS technology business who we have
previously partnered with and got to know over the last 18-months.
This acquisition will deliver significant benefits to Gamma:
-- It will enable us to enhance and expand our Cloud Contact
Centre as a Service (CCaaS) technology, product, and channel
partner capabilities with larger enterprise sized customers.
Mission Labs has a well-established product and exciting AI
capabilities which are complementary to our recent Telsis
acquisition.
-- It will allow us to accelerate our digital channel strategy,
through Mission Labs CircleLoop platform. CircleLoop provides a
cloud-based telephony product which is fully serviced through the
web and aimed at micro-businesses. We plan to launch our first
jointly developed product (PhoneLine+) in the UK during Q2
2021.
-- It has brought a group of highly talented software developers
to Gamma, who will work with our existing team to define and
deliver products in the UCaaS and CCaaS space.
-- It has provided Gamma with a product capability and
technology platform which supports our future growth plans and
opportunities across the UK and Europe.
Business review
UK Indirect Business
The UK Indirect Business accounted for 63% of our group revenue
in 2020, and I am very pleased to report that it performed very
strongly, with gross profit up 11% to GBP132.2m and revenue up by
7% to GBP247.2m. Gross margin went up from 51.8% to 53.5% (which
reflects an ongoing shift towards our higher margin UCaaS
products). This performance demonstrates the robustness of our
indirect channel to market and the high relevance of our products
and services during the pandemic.
In response to the COVID-19 pandemic, during Q2 we introduced a
"COVID-19 Support Package" for our UK channel partners, which
allowed them to hibernate customers (i.e. temporarily pause their
contracts) or to provide home working capability without charge
from Gamma. This provided commercial assistance and a measure of
certainty at a time when it was needed most and built a strong
level of goodwill across our partner base.
During the period most of our business has been conducted
remotely with our partners which has reinforced the benefits of our
digital eLearning (Gamma Academy) and eMarketing (Gamma Accelerate)
platform capabilities. These are now embedded into the everyday
activity of our partner base, and during the period our partners
completed 19,690 training courses and ran 303 digital marketing
campaigns using our Gamma Accelerate platform.
Our overall product performance was strong, and we delivered net
volume growth across all major product categories.
-- Our UCaaS performance was particularly pleasing, and after a
strong Horizon performance in Q1, we returned to normal net growth
run-rate levels throughout Q3 and Q4 following lock down in Q2.
-- We delivered significant growth in Collaborate seats during
the period. We now have a steady monthly run rate of collaborate
subscriptions and a healthy attachment rate of 7% across the
Horizon base. The product combination remains a strong, cost
effective tool for smaller customers in our base.
-- For larger customers, who have more complex and feature rich
requirements, in April 2020 we launched Microsoft Teams Direct
Routing which is now delivering a steady monthly run rate of net
additions.
-- Our SIP performance was particularly strong throughout the
period, demonstrating the need for both business customers and
carriers to strengthen their voice network capacity.
UK Direct Business
The Direct Business accounted for 25% of our group revenue in
2020. I am very pleased to report we delivered a very strong
performance, with gross profit growing 21% to GBP46.3m and revenue
growing 17% to GBP98.1m. Notwithstanding some of the project
delivery and new business sales challenges during the lock-down
period of the pandemic (e.g. access to customers, the temporary
postponement of new projects and, due to physical access issues, a
suspension of all but key existing project installations), we have
delivered a strong year across all market segments. We secured over
GBP85m of contract bookings (excluding sales relating to The Loop);
of this amount 75% was new business to Gamma.
Although COVID-19 suppressed our overall Direct sales
performance in H1, we quickly recovered during H2 and achieved
notable wins across our Enterprise business with Serco plc (fully
managed communications services), Grant Thornton (Microsoft Teams),
Bannatyne Group (UCaaS) and Sureserve plc (UCaaS & CCaaS). We
also extended existing long-term agreements with Dignity plc, BNP
Paribas and Volkswagen Financial Services.
In Public Sector, we secured significant wins across a wide
selection of councils, charities, healthcare providers and "blue
light" providers. Of note is the RNIB who are implementing our
UCaaS and CCaaS services, while Cardiff, South Ayrshire, Crawley
and Coventry councils have implemented our market leading SIP
services. Nine additional NHS trusts contracted with us for a mix
of SIP and Microsoft Teams, and as in previous years, we
successfully delivered and supported a more complex University
Clearing solution to the education sector during the pandemic.
Throughout 2020, we continued to focus on the development and
execution of our direct digital programme (The Gamma Hub), and I am
happy to report that we have made excellent progress in
streamlining and fully automating our end-to-end operating and
delivery model across all of our Direct market segments and
products. As part of our investment during the period, we extended
the use of AI and sales automation across our Direct Business, and
this investment enabled us to rapidly switch to remote selling
within hours of the national lockdown. In addition to this, we
accelerated our adoption of digital marketing across all market
segments, which has enabled us to maintain good levels of lead
generation and strong engagement. Through 2021, we aim to focus our
digital investments on delivering further improvements in
operational efficiency and customer service. This will include the
delivery of online quotation tools, a customer self-service
capability, and fully automated provisioning, which will reduce our
delivery lead times.
Finally, on 31 December 2020 we announced that we divested our
non-core Manchester based fibre business which traded as "The Loop"
and which we have reported on in our Direct Business. The proceeds
from this sale strengthened our balance sheet.
European Business
Our European business grew - mainly through acquisition - with
gross profit up 142% to GBP22.3m and revenue up by 219% to
GBP48.5m. Gross margin went down from 61% to 46% as a result of the
lower gross margins of Epsilon, the mobile focused distribution
business which we acquired as part of the HFO acquisition. In 2020
the overseas business represented 12% of our group revenue and 5%
of our group EBITDA (although the run rate is higher as 2020
includes only a part of the year for acquisitions). Throughout the
year, I am pleased to report that we delivered positive net growth
across all key European product categories, and at the end of 2020
have a total of 114,000 cloud seats across our European
business.
HFO - Germany
We acquired HFO in July 2020. HFO has been providing SIP trunks
to the German business market both directly and via its indirect
channel partners since 2013. Similar to our UK business, HFO
provides SIP trunking into "on premise" hardware PBXs as well as to
support the enablement of Cloud based solutions.
Throughout 2020, the business focussed both on enlarging the
partner base as well as encouraging existing partners who are
currently selling SIP to start adding Cloud PBX products into their
portfolio. The Cloud PBX market is significantly less developed in
Germany than in the UK with a penetration of only approximately 9%.
This transition from partners selling SIP to Cloud PBX is a very
similar journey to that which the UK Indirect Channel business has
been on for the past ten years. Despite the pandemic lengthening
the sales cycle (in a similar manner to the UK), by the end of the
year, HFO was delivering positive growth in new Cloud PBX
sales.
At the end of 2020, we had a total of 10,400 Cloud seats in
Germany. These include Cloud seats from HFO as well as those from
the German division of gnTel which in 2021 we have merged with HFO.
This has created synergies and will also allow HFO to sell gnTel's
products into the German market through their well-established
partner distribution channels.
Our UK sales and commercial teams have been sharing knowledge
with their peers in our Germany businesses and a number of Gamma's
well established UK commercial models and go to market strategies
will be introduced into Germany during 2021.
In addition to the core HFO business which mainly focusses on
SIP and UCaaS, part of the German Group is a mobile focused
distribution business which trades under the Epsilon brand. Due to
the mature nature of the mobile market, this business has less
potential for growth than the core HFO business, however, during
2020, it sold 100,000 mobile contracts across all of the major
networks including Deutsche Telekom, Vodafone and Telefonica.
Epsilon also launched its own IoT offering - Fusion IOT. This
managed platform for M2M-simcards means that Epsilon is now a
service provider with end-customer ownership.
Whilst we see limited growth in the Epsilon business in the
medium term, we believe that Epsilon's distribution partners may be
able to sell UCaaS products in the future.
Voz Telecom - Spain
In April 2020 we acquired VozTelecom OIGAA360, S. A. ("Voz
Telecom"), a well-established provider of cloud communication
services in Spain. The company provides us with access to the small
but growing Cloud PBX market in Spain. Voz Telecom is the fourth
largest cloud provider in Spain and the largest outside of the
major network operators.
During 2020, we strengthened our UCaaS proposition in Spain
through the addition of new product features and options. This
included API integration with other business applications (CRM
& ERP) and full availability of our self-developed softphone,
which importantly, enabled end users to implement home working. In
addition, through the year, we launched a white-label cloud PBX
product for a national mobile operator which drove growth in our
UCaaS seats. Our total UCaaS seats across all platforms in Spain
now stand at 43,000.
As well as the core UCaaS business, our Spanish business has two
other smaller business units - ComYMedia (a Cloud ICT direct
business) and NetHits (which provides call centre facilities for,
amongst others, Accenture). Unlike the rest of the group, these
business units were more severely impacted by COVID-19. ComYMedia
is reliant on project income and projects were delayed or cancelled
and NetHits suffered as a key customer reduced their call centre
capacity requirements.
In 2020 we transitioned to a new MVNO reseller agreement with
MasMovil which increased gross margin and allowed us to introduce
more competitive pricing plans. During the period, we started to
bundle our mobile and UCaaS propositions with MasMovil, which
enables us to drive improvements in margin and now also have a
steady run-rate of UCaaS seats coming indirectly from the MasMovil
channel.
Similar to Germany, and as part of a structured integration
plan, we have shared some of the knowledge and tools from the UK
team and have developed several initiatives to drive long-term
cloud growth. For example, a new channel programme was launched at
the end of 2020. We are also leveraging our UK technology and
product capabilities and plan to launch a Cloud Contact Centre
solution (CCaaS) and Microsoft Teams Direct Routing service during
2021.
Netherlands
In July 2020 we acquired gnTel, which has materially
strengthened our cloud position across the Dutch market, with a
specific and complementary focus on the IT reseller channel. At the
end of 2020, after delivering positive net growth through the year,
we now have a total of 61,000 cloud seats in the Netherlands. In
addition to this, our wholesale and retail mobile offerings, which
we take to market in partnership with T-Mobile, performed very
well. We more than doubled our mobile connections through 2020, and
when combined with our cloud proposition, will remain an important
driver for future growth.
Since acquiring gnTel, we have delivered strong growth in cloud
seats across the IT channel and have reinforced our excellent
reputation for providing a stable and reliable cloud PBX platform
to channel partners and end users. Shortly after acquisition, we
introduced our T-Mobile product offering to gnTel's channel partner
base, which was well received and is positively contributing to our
growth numbers.
Throughout the year, we focused on further developing and
strengthening both our cloud product and channel proposition across
the Dutch market, and similar to Spain and Germany, there was close
cooperation with our UK commercial, product marketing and indirect
channel teams. We launched a new cloud telephony product
("Horizon") during Q1 2020, delivering enriched features and with
more competitive price positioning, and, as part of our partner
proposition, we also implemented Gamma's e-marketing platform
("Accelerate") which has been very positively received in the
market. Similar to Spain, we are leveraging our UK technology and
product capabilities and plan to launch a Cloud Contact Centre
solution (CCaaS) and Microsoft Teams Direct Routing service during
2021.
Our Nimsys business provides cloud communications and IT
services to business customers operating from multi-tenanted
offices. We experienced decreasing demand due to less business
activities in office buildings, but we expect this trend to reverse
once businesses start returning to their offices. In spite of this
pandemic related issue, we connected 164 new business customers
during 2020. In addition, we also re-signed two long-term contracts
with important multi-tenant office providers.
As part of our integration planning, we have also integrated our
Schiphol Connect business with Nimsys and aligned the businesses
under common business and operational systems to drive synergy and
a better customer experience. This approach has also allowed
Schiphol Connect to cross-sell new Nimsys based products and
enhanced support services to their customer base.
In August 2020, and as part of a structured succession plan, we
appointed Gerben Wijbenga as CEO of our Benelux business, and I am
very pleased to report that Gerben has settled in well and has
started to make a very positive contribution.
Summary and outlook
As a business, we have responded decisively to both the
challenge and opportunity that the COVID-19 pandemic has presented
across our markets, while maintaining a focus on supporting our
staff, our customers, and our channel partners. I continue to be
very pleased with the execution of our short-term business
objectives, and because of our robust business model and our very
positive financial performance throughout the year, we have doubled
down on the execution, continued investment, and further
development of our longer-term growth strategy.
Looking forward, we will continue to stay focused on developing
the products and services which enable our customers and our
channel partners to be successful and win market share in their
respective markets. Given the growth opportunities across the core
product areas and market segments in which we operate, we do expect
to see ongoing competition which could lead to price pressure, but
to compensate for this, we will continue to add-value by further
developing our products and our overall value proposition to our
channel partners and end customers.
Our view of the current structural changes in the UCaaS market
are also very positive with regards to our strategy and future
growth opportunities. The pandemic has raised both the awareness
and adoption of cloud communication services, and because of this,
businesses and their employees have explored new ways of working
both flexibly and remotely. The significant benefits of the UCaaS,
CCaaS and fixed and mobile access products that we sell across the
UK and Europe have been reinforced during the pandemic, and
notwithstanding the risks of pandemic related economic and business
market headwinds, we continue to see a positive business and
overall long-term market outlook.
As a final point, I would like to personally thank our staff,
partners and customers for their contribution and ongoing support
during a very difficult period. Given the circumstances, our
performance during 2020 has been strong, and we remain optimistic
about Gamma's future growth prospects.
Andrew Taylor
Chief Executive Officer
Financial review
Overview
Gamma has performed well during the year increasing revenue by
20% to GBP393.8m (2019: GBP328.9m) and gross profit by 21% to
GBP200.8m (2019: GBP166.5m). We have seen this strong performance
across all the main areas of the business. The growth is in part
due to acquisitions in the year with organic growth in revenue
being GBP28.7m (+9%) and gross profit growth of GBP19.8m (+12%) (NB
Organic growth removes the results of acquisitions made in 2020).
Organic growth was slightly lower than originally expected due to
the lower rate of sales in the second quarter driven by the onset
of the COVID-19 pandemic although sales activity returned to
pre-COVID levels in the second half of the year. Adjusted EBITDA
increased by 24% to GBP79.0m (2019: GBP63.5m) whilst organic EBITDA
grew 19%. Adjusted EPS (FD) increased by 26% to 51.3p (2019:
40.8p).
Revenue and gross profit
UK Indirect
2020 2019 Increase
GBPm GBPm
Revenue 247.2 230.1 +7.4%
------ ------ ---------
Gross Profit 132.2 119.1 +11.0%
------ ------ ---------
Gross Margin 53.5% 51.8%
------ ------ ---------
Overall, the growth in the UK Indirect Business unit has been
consistent with previous periods - the revenue growth was 7.4%.
This is slightly lower than we had been originally expecting due to
the lower rate of net additions in the second quarter which was
driven by the onset of the COVID-19 pandemic - net additions did
subsequently trend towards to pre-COVID-19 levels in the second
half. Because of the recurring nature of revenues, lower net
additions in the second quarter had an impact on the revenue
performance in the second half of the year.
Within the UK Indirect Business, the gross profit from the
traditional business (which includes calls and lines and trade with
other carriers) has seen minimal movement from the previous year.
Indeed, the trend we had seen over the past years where traditional
business was declining has flattened and there remains a small
quantity of this traditional business on the Gamma network. This
will gradually erode over time. We will therefore (from 2021) no
longer show the "traditional" business as a separate line within
our segmental analysis as the trend that it was highlighting is no
longer a significant factor in our performance.
We group our data, mobile, SIP and UCaaS products as our
"growth" products and revenue from growth product sales increased
from GBP186.5m to GBP205.0m (+10%) and gross profit grew from
GBP106.7m to GBP119.9m (+12%). The gross margin grew from 57% to
58%, which reflects the fact that the main contributors to this
growth were SIP Trunking and our UCaaS products (Horizon and
Collaborate) which have higher margins than other products. In
addition (again due to lockdown) we had fewer installations and
hardware sales in the second quarter. These tend to be at a lower
margin than the monthly recurring revenues and therefore the margin
has increased due to the change in mix.
UK Direct
2020 2019 Increase
GBPm GBPm
Revenue 98.1 83.6 +17.3%
------ ------ ---------
Gross Profit 46.3 38.2 +21.2%
------ ------ ---------
Gross Margin 47.2% 45.7%
------ ------ ---------
The UK Direct Business continues to grow strongly and in line
with previous periods despite the challenging market conditions.
There is some inorganic growth driven by the acquisition of
Exactive in February 2020. This contributed GBP3.3m of revenue in
the year meaning that the organic growth was 13%.
The UK Direct Business continues to focus on selling to larger
enterprise businesses and public sector customers on multi-year
deals. The growth was mainly attributable to sales to enterprise
customers and revenue from those increased by GBP11.8m. Sales to
the public sector increased by GBP3.0m which relates to growth in
both the organic and acquired business. Our Direct mid-market
revenue was in line with the prior year.
The gross margin increased due to a lack of installations and
hardware sales which are lower margin and hence the mix changed
favourably.
Europe
2020 2019 Increase
GBPm GBPm
Revenue 48.5 15.2 +219%
------ ------ ---------
Gross Profit 22.3 9.2 +142%
------ ------ ---------
Gross Margin 46.0% 60.5%
------ ------ ---------
Our European business consists of the group under Gamma
Communications Benelux B.V. (formerly DX Groep) in the Netherlands,
Voz Telecom in Spain (acquired April 2020) and HFO in Germany
(acquired July 2020). In addition, Gamma Communications Benelux
expanded with the acquisition of gnTel in July 2020. The
acquisitions contributed GBP36.2m of revenue in the year and
GBP12.8m of gross profit. The organic revenue growth of the Dutch
business was 3% which was made up of a strong growth in sales of
Cloud PBX and Mobile products offset by a decline in the legacy
ISDN product throughout 2019 which affected the opening run rate of
revenue into 2020.
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. The margins on
a product by product basis are consistent with those in the UK but
the mix in Europe tends to be away from lower margin data products
(broadband and ethernet).
The Group finance team has regular calls with the local finance
teams to monitor their performance. We continue to spend time
aligning both processes and accounting policies.
Operating expenses
Operating expenses grew from GBP121.0m to GBP125.1m. We break
these down as follows:
2020 2020 2019 2019
GBPm GBPm GBPm GBPm Growth
Expenses included within cash generated
from operations
- UK Indirect Business 69.1 64.9 +6.5%
- UK Direct Business 22.9 20.1 +13.9%
- European Business 18.3 8.9 +105.6%
- Central Costs 8.0 6.5 +23.1%
------ ------
118.3 100.4
Depreciation and amortisation
- tangible and intangible assets 14.7 13.4 +9.7%
- right of use assets 2.2 1.7 +29.4%
- acquisition 6.0 2.0 +200.0%
------ ------
22.9 17.1
Share based payments 3.5 2.6 +34.6%
Exceptional items (19.6) 0.9
Operating expenses 125.1 121.0 +3.4%
----------------------------------- ------ ------- ------ ------ --------
Movements in cash-based expenses are discussed below:
-- Within the UK Indirect Business, operating expenses have
grown by 6.5% although of the increase in costs of GBP4.2m, GBP1.9m
is the full year impact due to our acquisition of Telsis in 2019.
Organic cost growth was 3.5% which is favourable compared to our
growth in gross profit. This demonstrates both our ability to be
cost efficient as the business grows and also the fact that working
in the "Covid environment" means we have experienced some
unexpected cost savings for example, travel and subsistence
expenses are significantly lower. These savings are not expected to
continue in the long run but it is difficult to predict how quickly
costs will return. One significant driver of cost continues to be
our investment in the development of products that will provide
future benefits as well as our desire to ensure that our level of
customer service remains the best in our industry.
-- In the UK Direct business, overhead increased by 13.9%
(compared to gross profit growth of 21.2%) - this includes GBP1.1m
of cost from Exactive - the "like for like" growth is 8.5%. The
level of increase was mainly to support the growth in the business
as well as our ongoing investment in our digital strategy.
-- The increase in European costs of GBP9.4m is reflective of
the cost base growing by acquisitions. The organic Dutch business
had overheads in line with prior year.
-- Central costs have increased from the prior year, which is
due to two main factors. First, as our European footprint expands,
Group functions required to support the businesses we have acquired
increases. Second, we have completed four acquisitions in the year
and have incurred significant costs in respect of our M&A
programme (which we include within our operating expenses).
Depreciation and amortisation on tangible and intangible assets
have increased from GBP13.4m in 2019 to GBP14.7m in 2020. This is
driven by acquisition - the depreciation in the UK business
decreased year on year. The annual depreciation charge is now in
line with annual capital expenditure and (save for future
acquisitions) is not expected to increase significantly.
Share based payments costs have increased during the year
because of the increasing cost of the all-staff schemes such as
SAYE. In addition, the rising share price has made the costs of
employers NI for share grants higher than in previous years.
Exceptional Items
There were two exceptional items in the year which are discussed
below.
Disposal of a subsidiary
On the 31 December 2020 Gamma completed the sale of its non-core
fibre business which traded as The Loop Manchester Limited, based
in Manchester, UK.
An exceptional gain of GBP19.5m was recognised relating to the
proceeds on disposal less the book value of the net assets of the
business. This was a cash item.
Deferred consideration
An exceptional item of GBP0.1m was recognised as a result of a
difference between the estimated consideration and the amount paid
in relation to Nimsys. Whilst this figure is not material, previous
changes in estimated consideration have been treated as exceptional
and hence we have been consistent by including this as
exceptional.
In the prior year there were exceptional transactions related to
the acquisition of the DX Groep which netted to zero - full details
are provided in the prior year financial statements.
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:
Measure Statutory Amortisation Change Adjusting Exceptional Adjusted
Basis of intangibles in fair tax items basis
value of items **
acquisitions
2020
PBT (GBPm) 75.0 6.0 0.3 - (19.6) 61.7
PAT* (GBPm) 64.2 6.0 0.3 (1.5) (19.6) 49.4
EPS (FD)
(p) 66.6 6.2 0.3 (1.5) (20.3) 51.3
------------ ---------- ---------------- -------------- ---------- ------------ ---------
2019
PBT (GBPm) 45.2 2.0 - - 0.9 48.1
PAT* (GBPm) 34.5 2.0 - 1.6 0.9 39.0
EPS (FD)
(p) 36.1 2.1 - 1.7 0.9 40.8
------------ ---------- ---------------- -------------- ---------- ------------ ---------
* PAT is the amount attributable to the ordinary equity holders
of the Company.
** See note 4 for further details.
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 also adjusted for exceptional items for
the same reason as above but it is also 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 (2020:
GBP75.7m; 2019: GBP45.5m) to calculate a figure for EBITDA (2020:
GBP98.6m; 2019: GBP62.6m) 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 (2020: GBP79.0m; 2019: GBP63.5m).
Adjusted EBITDA
Adjusted EBITDA grew from GBP63.5m to GBP79.0m (24%). Were we to
eliminate the effect of acquisitions made in 2020 then adjusted
EBITDA would have grown by 19%.
Taxation
The effective tax rate for 2020 was 14% (2019: 24%). The rate in
2020 is depressed due to non-taxable income on the disposal of The
Loop. The underlying rate applied to trading profits was slightly
above the 19% statutory UK rate due to disallowable expenditure and
the increasing impact of higher taxation rates in European
countries. We would expect these trends to continue and hence to
see the marginal rate of tax increase slightly above the UK
headline rate in future years. In 2019, the rate was inflated by
adjusting tax items of GBP1.6m and tax on business combinations of
GBP0.5m - neither of these were cash items.
Net cash and cash flows
The Group has net cash of GBP48.0m. The gross cash balance at
the end of the year was GBP53.9m in line with the end of the
previous year and the Group had borrowings of GBP5.9m which are
held by trading subsidiaries outside of the UK and pre-dated their
acquisition by Gamma.
In addition, we estimate that we will have to pay an additional
GBP14.2m in future in relation to acquisitions made before the end
of the year (this is a mix of contingent consideration and the
exercise of options over shares not yet acquired); these payments
will be between 2021 and 2023. There is also a possible GBP6.0m of
contingent consideration which may become due to the vendors of
Mission Labs Limited - a business acquired after the end of the
year. We do not class contingent consideration as debt for the
purposes of quoting a net cash figure.
Cash conversion from trading during the year was in line with
previous years. The ratio of adjusted EBITDA to cash generated from
operations was 89% (2019: 85%).
Items which are not directly related to trading were:
-- Capital spend was GBP15.4m, which is an increase from
GBP12.4m in the comparative period. This is discussed in detail
below.
-- GBP45.1m was paid for the new acquisitions net of cash
acquired (2019: GBP7.5m) of which GBP3.2m was paid for the
acquisition of Exactive, GBP16.6m for Voz Telecom, GBP18.5m for HFO
and GBP6.8m for gnTel.
-- GBP2.5m was paid in deferred consideration relating to the
acquisition of Nimsys in the prior year (2019: GBPnil).
-- Our acquisition spend was offset by GBP19.4m which was
received for the disposal of The Loop (our fibre business based in
Manchester); this figure is net of cash.
-- GBP10.4m was paid as dividends (2019: GBP9.2m) - We retained
our pre-existing dividend policy despite the pandemic.
Capital spend
Capital spend in 2020 was GBP15.4m (2019: GBP12.4m) as
follows:
-- GBP9.5m was the spend on maintaining and increasing capacity
on the core network as well as other minor items such as IT and
fixtures and fittings (2019: GBP9.9m).
-- GBP2.7m was the capitalisation of development costs incurred
during the period (2019: GBP1.4m) - the increase is due to
acquisition, the amount of development capitalised in the UK
business was consistent with the prior year.
-- GBP3.2m was spent with third-party software vendors for the
software which underpins our Cloud PBX products (GBP1.1m).
Adjusted EPS (FD) and Statutory EPS (FD)
Adjusted EPS (FD) increased from 40.8p to 51.3p (26%). 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 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 36.1p to 66.6p (84%). The growth is higher
than the adjusted metric, in the current year, because of the
exceptional item relating to the disposal of The Loop.
Going Concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
are set out in the Strategic Report. In assessing going concern
management and the Board has considered:
-- The principal risks faced by the Group, discussed further 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 31 December 2020 the Group had
cash and cash equivalents of GBP53.9m (2019: GBP53.9m). Net cash
(being cash and cash equivalents less borrowings) was GBP48.0m
(2019: GBP53.9m). All borrowings were acquired with acquisitions
made in the year.
-- 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 43%
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 borrowing if required.
-- The ongoing impact of COVID-19. Whilst this has impacted new
wins in 2020, the Group has continued to grow. In the medium term,
as a result of COVID-19, the adoption of cloud services will
accelerate in 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 Annual
Report for the year ended 31 December 2020.
Dividends
The Board has proposed a final dividend of 7.8p (2019: 7.0p).
This is an increase of 11% and is in line with our progressive
dividend policy.
Subject to shareholder approval, the final dividend is payable
on Thursday 24 June 2021 to shareholders on the register as at
Friday 4 June 2021.
Finally, I would like to thank Alan Gibbins for his support and
wise counsel during the period he has chaired the Audit
Committee.
Andrew Belshaw
Chief Financial Officer
22 March 2021
Consolidated statement of profit or loss
For the year ended 31 December 2020
2020 2019
Note GBPm GBPm
Revenue 3 393.8 328.9
Cost of sales (193.0) (162.4)
-------- --------
Gross profit 200.8 166.5
Operating expenses (125.1) (121.0)
Earnings before depreciation, amortisation
and exceptional items 79.0 63.5
Exceptional items 4 19.6 (0.9)
-------- --------
Earnings before depreciation and amortisation 98.6 62.6
Depreciation and amortisation (excluding
business combinations) (16.9) (15.1)
Depreciation and amortisation arising due
to business combinations (6.0) (2.0)
------------------------------------------------- ----- -------- --------
Profit from operations 75.7 45.5
Finance income 0.4 0.1
Finance expense (1.1) (0.4)
Profit before tax 75.0 45.2
Tax expense 5 (10.6) (10.7)
Profit after tax 64.4 34.5
-------- --------
Profit is attributable to:
Equity holders of Gamma Communications plc 64.2 34.5
Non-controlling interests 0.2 -
-------- --------
64.4 34.5
-------- --------
Earnings per share attributable to the ordinary
equity holders of the company:
Basic per Ordinary Share (pence) 6 67.5 36.6
Diluted per Ordinary Share (pence) 6 66.6 36.1
-------- --------
Adjusted earnings per share is shown in note
6
All income recognised during the year was generated from
continuing operations.
Consolidated statement of comprehensive income
For the year ended 31 December 2020
2020 2019
GBPm GBPm
Profit for the year 64.4 34.5
Other comprehensive loss
Items that may be reclassified subsequently
to the income statement (net of tax effect)
Exchange differences on translation of foreign
operations (0.1) (0.4)
Total comprehensive income for the year 64.3 34.1
------ ------
Total comprehensive income for the year attributable
to:
Equity holders of Gamma Communications plc 64.1 34.1
Non-controlling interests 0.2 -
------ ------
64.3 34.1
------ ------
Consolidated statement of fi nancial position
As at 31 December 2020
2020 2019
Note GBPm GBPm
ASSETS
Non-current assets
Property, plant and equipment 8 36.3 32.1
Right of use assets 11.5 11.4
Intangible assets 9 95.3 37.4
Deferred tax asset 5.7 3.0
Trade and other receivables 14.8 15.0
------- ------
163.6 98.9
Current assets
Inventories 8.1 8.1
Trade and other receivables 93.7 77.5
Cash and cash equivalents 53.9 53.9
Current tax asset 2.6 -
------- ------
158.3 139.5
------- ------
Total assets 321.9 238.4
------- ------
LIABILITIES
Non-current liabilities
Other payables 1.5 0.2
Borrowings 4.6 -
Provisions 1.9 0.8
Lease liabilities 10.8 11.3
Contract liabilities 8.3 9.1
Contingent consideration 1.2 1.1
Put option liability 5.6 -
Deferred tax 9.0 3.9
-------
42.9 26.4
Current liabilities
Trade and other payables 54.9 46.1
Borrowings 1.3 -
Provisions 0.6 0.9
Lease liabilities 2.3 1.3
Contract liabilities 7.6 8.0
Contingent consideration 1.8 1.5
Put option liability 5.6 -
Current tax liability 0.5 1.7
-------
74.6 59.5
------- ------
Total liabilities 117.5 85.9
------- ------
Net assets 204.4 152.5
======= ======
EQUITY
Share capital 0.2 0.2
Share premium reserve 9.0 6.6
Merger reserve 2.3 2.3
Share option reserve 5.2 3.8
Foreign exchange reserve (0.7) (0.6)
Own shares (0.7) (0.7)
Retained earnings 197.5 140.9
Equity attributable to owners of Gamma Communications
Plc 212.8 152.5
Non-controlling interests 3.0 -
Written put options over non-controlling interests (11.4) -
------- ------
Total equity 204.4 152.5
======= ======
Consolidated statement of cash fl ows
For the year ended 31 December 2020
2020 2019
Note GBPm GBPm
Cash flows from operating activities
Profit for the year before tax 75.0 45.2
Adjustments for:
Depreciation of property, plant and equipment 8 9.7 9.8
Depreciation of right of use assets 2.2 1.7
Amortisation and reduction in value of intangible
assets 9 11.0 13.7
Change in fair value of contingent consideration (0.1) (7.2)
Share based payment expense 3.5 2.6
Interest income (0.4) (0.1)
Finance cost 1.1 0.4
Gain on disposal of subsidiary undertaking (19.5) -
------- -------
82.5 66.1
Increase in trade and other receivables (6.1) (16.7)
Decrease/(Increase) in inventories 0.3 (1.9)
(Decrease)/Increase in trade and other payables (6.1) 6.3
(Decrease)/Increase in contract liabilities (1.2) 0.7
Increase/(Decrease) in provisions 0.9 (0.5)
------- -------
Cash generated by operations 70.3 54.0
Taxes paid (14.1) (7.5)
------- -------
Net cash flows from operating activities 56.2 46.5
------- -------
Investing activities
Purchase of property, plant and equipment 8 (9.5) (9.9)
Purchase of intangible assets 9 (5.9) (2.5)
Interest received 0.4 0.1
Acquisition of subsidiaries net of cash acquired (47.7) (7.5)
Disposal of subsidiary net of disposed cash 19.4 -
------- -------
Net cash used in investing activities (43.3) (19.8)
------- -------
Financing activities
Lease liability repayments (2.1) (1.1)
Repayment of borrowings (1.6) -
Interest paid (0.3) -
Share issues 1.5 2.0
Dividends (10.4) (9.2)
------- -------
Net cash used in financing activities (12.9) (8.3)
------- -------
Net increase in cash and cash equivalents - 18.4
Cash and cash equivalents at beginning of
the year 53.9 35.5
------- -------
Cash and cash equivalents at end of the year 53.9 53.9
======= =======
Consolidated statement of changes in equity
For the year ended 31 December 2020
Share Share Merger Share Foreign Own Retained Total NCI Written Total
capital premium reserve option exchange shares earnings put equity
reserve reserve reserve options
over
NCI
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
1 January 2019 0.2 4.6 2.3 3.2 (0.2) (0.8) 112.4 121.7 - - 121.7
-------- -------- -------- -------- --------- ------- --------- ------ ----- -------- -------
Issue of
shares - 2.0 - (1.4) - - 1.3 1.9 - - 1.9
Investment in
own shares - - - - - 0.1 - 0.1 - - 0.1
Share based
payment
expense - - - 2.0 - - - 2.0 - - 2.0
Tax on share
based payment
expense:
- Current - - - - - - 1.0 1.0 - - 1.0
- Deferred - - - - - - 0.9 0.9 - - 0.9
Dividends paid - - - - - - (9.2) (9.2) - - (9.2)
Transactions
with owners - 2.0 - 0.6 - 0.1 (6.0) (3.3) - - (3.3)
-------- -------- -------- -------- --------- ------- --------- ------ ----- -------- -------
Profit for the
year - - - - - - 34.5 34.5 - - 34.5
Other
comprehensive
loss - - - - (0.4) - - (0.4) - - (0.4)
-------- -------- -------- -------- --------- ------- --------- ------ ----- -------- -------
Total
comprehensive
(loss)/income - - - - (0.4) - 34.5 34.1 - - 34.1
31 December
2019 0.2 6.6 2.3 3.8 (0.6) (0.7) 140.9 152.5 - - 152.5
======== ======== ======== ======== ========= ======= ========= ====== ===== ======== =======
1 January 2020 0.2 6.6 2.3 3.8 (0.6) (0.7) 140.9 152.5 - - 152.5
---- ---- ---- ------ ------ ------ ------- ------- ---- ------- -------
Issue of shares - 2.4 - (1.4) - - 1.3 2.3 - - 2.3
Share based payment expense - - - 2.8 - - - 2.8 - - 2.8
Tax on share based payment
expense
- Current - - - - - - 1.0 1.0 - - 1.0
- Deferred - - - - - - 0.5 0.5 - - 0.5
Non-controlling interests on
acquisition of subsidiary - - - - - - - - 2.8 - 2.8
Equity put rights - - - - - - - - - (11.4) (11.4)
Dividends paid - - - - - - (10.4) (10.4) - - (10.4)
Transactions with owners - 2.4 - 1.4 - - 7.6 (3.8) 2.8 (11.4) (12.4)
---- ---- ---- ------ ------ ------ ------- ------- ---- ------- -------
Profit for the year - - - - - - 64.2 64.2 0.2 - 64.4
Other comprehensive loss - - - - (0.1) - - (0.1) - - (0.1)
---- ---- ---- ------ ------ ------ ------- ------- ---- ------- -------
Total comprehensive (loss)/income - - - - (0.1) - 64.2 64.1 0.2 - 64.3
31 December 2020 0.2 9.0 2.3 5.2 (0.7) (0.7) 197.5 212.8 3.0 (11.4) 204.4
==== ==== ==== ====== ====== ====== ======= ======= ==== ======= =======
Notes to the consolidated financial statements
For the year ended 31 December 2020
1. Basis of preparation
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS), issued by the
International Accounting Standards Board ('IASB') as adopted by the
European Union ('adopted IFRS'). The financial statements are
presented in sterling and, unless otherwise stated, have been
rounded to the nearest 0.1 million (GBPm).
The financial statements have been prepared on a historical cost
basis.
The financial information contained in this statement does not
constitute statutory financial statements within the meaning of the
Companies Act 2006. They are an extract from the full accounts for
the year ended 31 December 2020 on which the auditor has expressed
an unqualified opinion and do not include any statement under
section 498 of the Companies Act 2006. The full accounts contain a
detailed statement of the accounting policies which have been used
to prepare this summary. The accounts will be posted to
shareholders on or before 21 April 2021 and subsequently filed at
Companies House.
There are no additional standards or interpretations requiring
adoption that are applicable to the Group for the accounting period
commencing 1 January 2020.
A full set of the audited statutory accounts will be available
at:
www.gammacommunicationsplc.com/investors/financial-results-and-shareholder-communications/
2. Accounting policies
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.
Critical accounting estimates and judgements
Some of the critical accounting judgements and estimates require
management to make difficult, subjective or complex judgements or
estimates. The policies which management consider critical because
of the level of complexity, judgement or estimation involved in
their application and their impact on the financial information are
available in the Annual Report.
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:
Measure Statutory Depreciation Change in Adjusting Exceptional Adjusted
Basis and amortisation fair value tax items ** Basis
on business of acquisitions items
combinations
2020
PBT (GBPm) 75.0 6.0 0.3 - (19.6) 61.7
PAT* (GBPm) 64.2 6.0 0.3 (1.5) (19.6) 49.4
EPS (FD)
(p) 66.6 6.2 0.3 (1.5) (20.3) 51.3
------------- ---------- ------------------ ----------------- ---------- ------------ ---------
2019
PBT (GBPm) 45.2 2.0 - - 0.9 48.1
PAT* (GBPm) 34.5 2.0 - 1.6 0.9 39.0
EPS (FD)
(p) 36.1 2.1 - 1.7 0.9 40.8
------------- ---------- ------------------ ----------------- ---------- ------------ ---------
* PAT is the amount attributable to the ordinary equity holders
of the Company.
** See note 4 for further details.
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 and contributed 63% (2019: 70%) of the
Group's external revenue;
(R) UK Direct - This division sells Gamma's products and
services to end users in the Mid-market, Enterprise and public
sectors. They contributed 25% (2019: 25%) of the Group's external
revenues.
(R) European (formerly overseas) - This division consists of
sales made in Europe by Gamma Communications Benelux B.V. (formerly
DX Groep B.V.) and its subsidiary companies (including the newly
acquired gnTel entities) in the Netherlands, by VozTelecom Oigaa360
S.A. and its subsidiaries in Spain and by HFO and its subsidiaries
in Germany contributing 12% (2019: 5%) 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 reportable 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, and exceptional income.
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 year.
UK UK Central
Indirect Direct European functions Total
2020 GBPm GBPm GBPm GBPm GBPm
------------------------------------------- --------- ------- -------- ---------- -------
Segment revenue 268.5 98.1 48.5 - 415.1
Inter-segment revenue (21.3) - - - (21.3)
--------- ------- -------- ---------- -------
Revenue from external customers 247.2 98.1 48.5 - 393.8
--------- ------- -------- ---------- -------
Timing of revenue recognition
At a point in time 14.7 4.0 15.8 - 34.5
Over time 232.5 94.1 32.7 - 359.3
--------- ------- -------- ---------- -------
247.2 98.1 48.5 - 393.8
Total gross profit 132.2 46.3 22.3 - 200.8
Operating expenses (87.3) (4.2) (25.6) (8.0) (125.1)
Earnings before depreciation, amortisation
and exceptional items 59.6 23.4 4.0 (8.0) 79.0
Exceptional items - 19.5 0.1 - 19.6
--------- ------- -------- ---------- -------
Earnings before depreciation and
amortisation 59.6 42.9 4.1 (8.0) 98.6
Depreciation and amortisation (excluding
business combinations) (13.6) (0.5) (2.8) - (16.9)
Amortisation arising due to business
combination (1.1) (0.3) (4.6) - (6.0)
------------------------------------------- --------- ------- -------- ---------- -------
Profit/(loss) from operations 44.9 42.1 (3.3) (8.0) 75.7
--------- ------- -------- ---------- -------
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
2020 GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------------ ---------- --------- ----------- ------
Additions to non-current
assets 16.4 0.2 4.5 - 21.1
------------ ---------- --------- ----------- ------
Reportable segment assets 199.6 31.1 91.2 - 321.9
------------ ---------- --------- ----------- ------
Reportable segment liabilities 60.1 15.0 42.4 - 117.5
------------ ---------- --------- ----------- ------
The UK Indirect revenue and gross profit is further split
between traditional and growth products below:
2020 2019
GBPm GBPm
Year ended 31 December
Traditional products and services 42.2 43.6
Growth (being strategic and enabling) products
and services 205.0 186.5
Total revenue from external customers 247.2 230.1
====== ======
Traditional products and services 12.3 12.4
Growth (being strategic and enabling) products
and services 119.9 106.7
Total gross profit 132.2 119.1
====== ======
Given that the decline in the traditional business has now
stabilised and that element of the business is no longer material,
this will be the final year where we show this split. We believe
that it is no longer needed by a user of the accounts to understand
the growth of the business.
The UK Direct revenue is detailed below:
2020 2019
GBPm GBPm
Mid Markets 27.3 27.5
Enterprise 47.9 36.1
Public Sector 21.6 18.6
The Loop(1) 1.3 1.4
98.1 83.6
===== =====
(1) The Group completed the sale of The Loop business on 31
December 2020.
Following a re-organisation, the UK Direct business is now
managed with a common management team and hence this will be the
last year that we split the revenue by sub-channel.
Central
UK Indirect UK Direct Overseas functions Total
2019 GBPm GBPm GBPm GBPm GBPm
------------------------------------
Segment revenue 251.6 83.6 15.2 - 350.4
Inter-segment revenue (21.5) - - - (21.5)
------------ ---------- --------- ----------- --------
Revenue from external customers 230.1 83.6 15.2 - 328.9
------------ ---------- --------- ----------- --------
Timing of revenue recognition
At a point in time 16.4 5.6 - - 22.0
Over time 213.7 78.0 15.2 - 306.9
------------ ---------- --------- ----------- --------
230.1 83.6 15.2 - 328.9
Total gross profit 119.1 38.2 9.2 - 166.5
------------ ---------- --------- ----------- --------
Operating expenses (81.5) (20.3) (12.7) (6.5) (121.0)
Operating profit before
depreciation, amortisation
and exceptional items 51.6 18.1 0.3 (6.5) 63.5
Exceptional items - - (0.9) - (0.9)
------------ ---------- --------- ----------- --------
Operating profit before
depreciation and amortisation 51.6 18.1 (0.6) (6.5) 62.6
Depreciation and amortisation
(excluding business combinations) (13.9) (0.2) (1.0) - (15.1)
Amortisation arising on
business combinations (0.1) - (1.9) - (2.0)
------------------------------------ ------------ ---------- --------- ----------- --------
Profit from operations 37.6 17.9 (3.5) (6.5) 45.5
------------ ---------- --------- ----------- --------
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.
2019 Central
UK Indirect UK Direct European functions Total
GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------------ ---------- --------- ----------- ------
Additions to non-current
assets 11.6 - 0.8 - 12.4
------------ ---------- --------- ----------- ------
Reportable segment assets 190.4 23.0 25.0 - 238.4
------------ ---------- --------- ----------- ------
Reportable segment liabilities 62.0 12.4 11.5 - 85.9
------------ ---------- --------- ----------- ------
4. Exceptional items
2020 2019
GBPm GBPm
Contingent consideration adjustment - DX Groep - 8.1
Reduction of goodwill carrying value - (4.2)
Reduction of intangible assets carrying value - (3.9)
----- ------
Exceptional items related to DX Groep acquisition(1) - -
Contingent consideration adjustment - Nimsys(2) 0.1 (0.9)
Profit upon disposal of subsidiary(3) 19.5 -
----- ------
Total Exceptional Items 19.6 (0.9)
===== ======
(1) In 2019, the Gamma Communications Benelux Group (formerly DX
Groep) experienced a higher than expected attrition rate of legacy
customers taking ISDN. This resulted in lower than expected
revenues. Therefore, the estimated contingent consideration due has
been revised and the associated intangible assets including
goodwill were reduced.
(2) At 31 December 2020, the contingent consideration due in
respect of Nimsys was remeasured and updated as a result of the
2020 EBITDA being slightly lower than the estimate. The overall
balance due decreased by GBP0.1m (2019: increase GBP0.9m) which was
credited to the statement of comprehensive income, further detail
can be found in note 10.
(3) Relates to the sale of The Loop Manchester on 31 December
2020, further detail can be found in note 11 .
5. Taxation on profit on ordinary activities
2020 2019
GBPm GBPm
Current tax expense
Current tax on profits for the year 12.1 9.9
Adjustment in respect of prior year 0.1 (0.6)
Overseas tax 0.5 0.7
------ ------
Total current tax 12.7 10.0
Deferred tax expense
Origination and reversal of temporary differences (2.3) (1.2)
Adjustment in respect of prior years 0.1 0.5
Tax rate change 0.1 (0.2)
Adjusting tax items - 1.6
------ ------
Total deferred tax (2.1) 0.7
Total tax expense 10.6 10.7
====== ======
The reasons for the difference between the actual tax charge for
the period and the standard rate of corporation tax in the United
Kingdom applied to profits for the period are as follows:
2020 2019
GBPm GBPm
Profit before income taxes 75.0 45.2
Expected tax charge based on the standard rate
of United Kingdom corporation tax at the domestic
rate of 19% (2019: 19%) 14.3 8.6
Effects of:
Tax-exempt income(1) (3.7) -
Tax effect of expenses that are not deductible
in determining taxable profit - 0.5
Effect of different tax rates of subsidiaries
operating in other jurisdictions (0.2) (0.2)
Tax rate change - (0.2)
Tax on business combinations - 0.5
Adjusting tax items - 1.6
Adjustment in respect of prior years 0.2 (0.1)
------
Total tax expense 10.6 10.7
====== ======
(1) Includes gain on the disposal of The Loop Manchester Limited
(note 11)
6. Earnings per share
2020 2019
Earnings per Ordinary Share - basic (pence) 67.5 36.6
Earnings per Ordinary Share - diluted (pence) 66.6 36.1
The calculation of the basic and diluted earnings per share is
based on the following data:
2020 2019
GBPm GBPm
Earnings
Profit after tax 64.2 34.5
=========== ===========
Shares Number Number
Basic weighted average number of Ordinary Shares 95,058,880 94,370,938
Effect of dilution resulting from share options 1,273,867 1,246,648
-----------
Diluted weighted average number of Ordinary Shares 96,332,747 95,617,586
=========== ===========
On 28 February 2020, the Group acquired Exactive Holdings
Limited; GBP0.9m of Ordinary Shares (69,024 shares) were issued as
part consideration in March 2020.
Adjusted earnings per share is detailed below:
2020 2019
Adjusted earnings per Ordinary Share - basic
(pence) 51.9 41.3
Adjusted earnings per Ordinary Share - diluted
(pence) 51.3 40.8
Adjusted profit used in the calculation of adjusted earnings per
share is detailed below:
2020 2019
GBPm GBPm
Earnings
Profit attributable to the equity holders of
the Company 64.2 34.5
Amortisation arising on business combinations 6.0 2.0
Movement of fair value on put option 0.3 -
Exceptional items (disposal of The Loop) (19.5) -
Exceptional items (change in value of deferred
consideration) (0.1) 0.9
Adjusting tax items (1.5) 1.6
Adjusted profit after tax for the year 49.4 39.0
======= =====
7. Dividends
The following dividends were paid by the Group to its
shareholders:
2020 2019
GBPm GBPm
Final dividends for the year ended 31 December 2018
of 6.2p per ordinary share - 5.8
Interim dividend for the year ended 31 December
2019 of 3.5p per ordinary share - 3.4
Final dividends for the year ended 31 December 2019 6.6 -
of 7.0p per ordinary share
Interim dividend for the year ended 31 December 3.8 -
2020 of 3.9p per ordinary share
10.4 9.2
===== =====
A final dividend of 7.8p will be proposed at the Annual General
Meeting but has not been recognised as it requires approval. The
total amount of dividends proposed is 11.7p. The payments of these
dividends do not have any tax consequences for the Group.
8. Property, plant and equipment
Land and Network Computer Fixtures Total
buildings assets equipment and fittings
GBPm GBPm GBPm GBPm GBPm
Cost
At 1 January 2020 - 67.9 9.1 1.4 78.4
Additions - 7.2 2.2 0.1 9.5
Acquisition of subsidiaries 4.9 0.1 0.3 0.5 5.8
Disposals - (3.1) - - (3.1)
Exchange differences (0.1) (0.2) - - (0.3)
At 31 December 2020 4.8 71.9 11.6 2.0 90.3
----------- -------- ----------- -------------- ------
Depreciation
At 1 January 2020 - 38.6 6.8 0.9 46.3
Charge for the year 0.1 8.1 1.1 0.4 9.7
Disposals - (1.6) - - (1.6)
Exchange differences - (0.4) - - (0.4)
At 31 December 2020 0.1 44.7 7.9 1.3 54.0
----------- -------- ----------- -------------- ------
Net book value
At 1 January 2020 - 29.3 2.3 0.5 32.1
At 31 December 2020 4.7 27.2 3.7 0.7 36.3
----------- -------- ----------- -------------- ------
9. Intangible assets
Goodwill Customer Brand Development Software Total
contracts costs
GBPm GBPm GBPm GBPm GBPm GBPm
Cost
At 1 January 2020 24.0 22.4 1.1 10.3 13.4 71.2
Additions - 3.0 - 2.7 3.2 8.9
Acquisition of
subsidiary 32.0 22.6 1.4 4.7 - 60.7
Acquisition adjustment (0.8) - - - - (0.8)
Exchange differences (0.2) 0.6 (0.1) (0.1) - 0.2
At 31 December
2020 55.0 48.6 2.4 17.6 16.6 140.2
--------- ----------- ------ ------------ --------- ------
Amortisation
At 1 January 2020 8.7 8.0 0.3 7.8 9.0 33.8
Charge for the
year - 5.5 0.4 2.3 2.8 11.0
Exchange differences 0.1 - - - - 0.1
At 31 December
2020 8.8 13.5 0.7 10.1 11.8 44.9
--------- ----------- ------ ------------ --------- ------
Net book value
At 1 January 2020 15.3 14.4 0.8 2.5 4.4 37.4
At 31 December
2020 46.2 35.1 1.7 7.5 4.8 95.3
--------- ----------- ------ ------------ --------- ------
(1) This relates to amendments made within the 12 months of
acquisition date to the provisional amounts recognised for those
acquisitions.
Amortisation on intangible assets is charged to the consolidated
statement of profit or loss and included in operating expenses.
10. Business combinations
During 2020, the Group completed a total of four acquisitions,
all of which are 100% owned by the Group unless otherwise
stated.
Acquisition Acquired Principal activity
Exactive Holdings February Exactive is a leading UK Microsoft Gold
Limited and its subsidiaries Partner and specialist Microsoft Teams
(Exactive) UCaaS provider.
--------- ----------------------------------------------
VozTelecom Oigaa360(1) April Voz Telecom provides telecommunication
and its subsidiaries services to end users directly and through
(Voz Telecom) a network of wholesale partners, franchisees
and dealers.
--------- ----------------------------------------------
HFO Holding AG(2) July The core HFO business is one of the leading
and its subsidiaries SIP Trunk providers in Germany. It also
(HFO) has a subsidiary which focuses on mobile
distribution which trades under the Epsilon
brand.
--------- ----------------------------------------------
gnTel B.V. and gnTel July gnTel operates VoIP platform services,
GmbH (gnTel) EasyConference and other activities.
--------- ----------------------------------------------
(1) On 9 April 2020, the Group acquired 94.9% of the issued
share capital of VozTelecom Oigaa360 S.A., with the remaining 5.1%
acquired by 30 June 2020.
(2) On 1 July 2020, the Group acquired 80.25% of HFO Holding AG
(HFO), with an option to acquire the remaining shareholding, held
by management, over the next 3 years.
The identifiable assets acquired and liabilities assumed are as
follows:
Exactive Voz Telecom HFO gnTel Total
GBPm GBPm GBPm GBPm GBPm
Tangible fixed assets - 0.7 5.1 - 5.8
Intangible - development
costs - 2.5 1.5 0.7 4.7
Intangible - customer contracts 1.8 7.1 11.6 2.1 22.6
Intangible - brand - 0.7 0.5 0.2 1.4
Cash 0.9 1.4 - 0.6 2.9
Trade receivables 0.6 1.3 5.5 0.5 7.9
Other receivables 0.3 4.4 0.6 0.7 6.0
Inventories - 0.3 - - 0.3
Trade payables (0.2) (3.2) (2.2) (0.1) (5.7)
Other payables (1.1) (7.2) (4.8) (1.0) (14.1)
Deferred tax liability (0.3) (0.4) (3.8) (0.5) (5.0)
--------------------------------- --------- ------------ ------ ------ -------
Total identifiable assets 2.0 7.6 14.0 3.2 26.8
Less: Non-controlling interests - - (2.8) - (2.8)
--------------------------------- --------- ------------ ------ ------ -------
Add: Goodwill 5.3 15.2 7.3 4.2 32.0
--------------------------------- --------- ------------ ------ ------ -------
Net assets acquired 7.3 22.8 18.5 7.4 56.0
================================= ========= ============ ====== ====== =======
Exactive Voz Telecom HFO gnTel Total
GBPm GBPm GBPm GBPm GBPm
Satisfied by
Cash paid 4.1 17.7 18.5 7.4 47.7
Ordinary Shares issued 0.9 - - - 0.9
Consideration for convertible
bonds - 5.1 - - 5.1
Contingent consideration(1) 2.3 - - - 2.3
Total 7.3 22.8 18.5 7.4 56.0
=============================== ========= ============ ===== ====== ======
(1) Contingent consideration is based on Exactive achieving
predetermined EBITDA targets for fiscal years 2020 and 2021.
Additional consideration of up to GBP1.5m may be payable in 2021
and 2022 of which 80% will be in cash and 20% by the issue of
consideration shares. The fair value of the contingent
consideration at acquisition of GBP2.3m was based on Exactive
achieving GBP0.9m EBITDA for 2020 giving GBP1.5m contingent
consideration and achieving GBP1.9m EBITDA for 2021 giving GBP0.9m
contingent consideration. At 31 December 2020 the maximum GBP1.5m
relating to EBITDA for 2020 is expected to be paid and GBP0.9m
relating to the EBITDA targets for 2021.
HFO - Remaining Shareholding
The Group has an option to acquire the remaining 19.75% of the
shares (which are held by management) in two tranches of c8% in
2021 and 2022 (where the consideration will be based on the results
of the preceding financial year) and one final tranche of c4% in
2023 (also based on the results of the preceding financial year).
This additional consideration will in aggregate be between EUR7.5m
and EUR17.5m and will be payable in cash. As part of the
transaction, management has agreed to re-invest approximately 17%
of the cash proceeds it will receive from each tranche of the
additional consideration into Gamma shares which will then be
"locked up" for two years after each re-investment.
The upper end of the option price will only be achieved if HFO
achieves challenging growth targets related to its IP telephony
business. This has been included as a put option liability based on
the estimated gross obligation.
Net cash outflow on acquisitions:
Exactive Voz Telecom HFO gnTel Total
GBPm GBPm GBPm GBPm GBPm
Cash paid 4.1 18.0 18.5 7.4 48.0
Less: cash acquired (0.9) (1.4) - (0.6) (2.9)
--------------------------------- --------- ------------ ----- ------ ------
Net outflow of cash for
acquisitions in the year 3.2 16.6 18.5 6.8 45.1
Deferred consideration payments 2.6
Net outflow of cash - investing
activities 47.7
================================= ========= ============ ===== ====== ======
The cash consideration for Voz Telecom includes the additional
GBP0.3m made to acquire the non-controlling interest.
Valuations of intangible assets
Customer contracts were valued under the Income Method and the
brand under the Relief from Royalty Method.
Goodwill
The goodwill is attributable to the acquired entities. The
goodwill is not deductible for tax purposes.
Acquired receivables
The fair value of acquired trade receivables for Exactive, Voz
Telecom, HFO and gnTel is GBP0.6m, GBP1.3m, GBP5.5m and GBP0.5m
respectively. The gross contractual amount for trade receivables
due is GBP0.6m, GBP1.3m, GBP6.0m and GBP0.5m respectively, of which
GBP0.5m in Voz Telecom is expected to be uncollectible.
Revenue and profit contribution
From the date of acquisition, the acquired businesses have
contributed GBP36.2m of revenue and GBP1.0m of profit after
taxation attributable to the owners of the parent to the Group:
Profit/(loss) Profit/(loss)
Revenue before tax after tax
GBPm GBPm GBPm
Exactive 3.3 0.6 0.4
Voz Telecom 9.8 (0.5) (0.4)
HFO 21.0 1.4 0.9
gnTel 2.1 0.2 0.1
------------- -------- -------------- --------------
36.2 1.7 1.0
------------- -------- -------------- --------------
If these acquisitions had occurred on 1 January 2020, the
acquired businesses would have contributed revenue and profit after
taxation attributable to the owners of the parent to the Group as
outlined in the table below. These amounts are unaudited.
Profit/(loss) Profit/(loss)
Revenue before tax after tax
GBPm GBPm GBPm
Exactive 3.8 0.6 0.5
Voz Telecom 13.1 (1.9) (1.5)
HFO 38.3 3.1 1.9
gnTel 5.0 0.8 0.5
------------- -------- -------------- --------------
60.2 2.6 1.4
------------- -------- -------------- --------------
11. Disposal of a subsidiary
During the year ended 31 December 2020, the Group completed the
disposal The Loop Manchester Limited for consideration of GBP19.6m.
The business was transferred into a company that was set up on the
20 May 2020 having been trading as a separate business unit for a
number of years previously. The assets and liabilities disposed of
were as follows:
2020
GBPm
Property, plant and equipment 1.5
Trade and other receivables 0.4
Cash and cash equivalents 0.2
Current tax payable (0.1)
Trade and other payables (1.9)
-------
Net assets disposed 0.1
Consideration/Equity value (19.6)
-------
Gain on disposal (19.5)
-------
12. Events after the reporting date
On the 3 March the Group acquired Mission Labs Limited and its
subsidiaries. Mission Labs provide the Group with expertise and
product capability in the Cloud Contact Centre as a Service market
("CCaaS"). It also has a solution for micro-business users called
Circle Loop which is sold digitally.
The initial consideration for the entire issued share capital of
Mission Labs is GBP40.2m on a cash free basis with up to an
additional GBP6.0m contingent deferred consideration payable over
the next three years assuming certain development milestones are
met on the existing and future product set.
As part of the transaction, management shareholders (who
previously owned 72% of the shares acquired) have agreed to
re-invest approximately 10% of their cash proceeds into Gamma
shares which will be locked up for three years. These shares will
be issued by Gamma following the announcement of its 2020 full year
results on 23 March 2021. The price will be based on the average of
daily closing price over the 30-day period prior to the release of
results.
Due to the proximity of the acquisition to the publication of
these accounts, the Group has not yet completed the purchase price
allocation and it is impractical to give further information.
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END
FR FLFVTVTIFFIL
(END) Dow Jones Newswires
March 23, 2021 03:02 ET (07:02 GMT)
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