REG - Gamma Communications - Final Results
25/03/2024 07:15
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RNS Number : 0589I Gamma Communications PLC 25 March 2024
25 March 2024
Gamma Communications plc
Results for the year ended 31 December 2023
Continued strong financial performance, with growth in line with expectations,
delivering considerable cash generation
Gamma Communications plc ("Gamma" or "the Group"), a leading technology-based
provider of communication services across Europe, is pleased to announce its
results for the year ended 31 December 2023.
Year ended 31 December
2023 2022 Change (%)
Revenue £521.7m £484.6m +8%
Gross profit £267.2m £247.7m +8%
Gross margin 51% 51%
Adjusted EBITDA* £114.3m £105.1m +9%
Profit before tax ("PBT")** £71.5m £64.9m +10%
Adjusted PBT* £97.9m £87.8m +12%
Earnings Per Share ("EPS") (fully diluted)** 54.9p 50.6p +8%
Adjusted EPS (fully diluted)* 75.1p 71.8p +5%
Total dividend per share 17.1p 15.0p +14%
Cash generated by operations £123.5m £99.1m +25%
Adjusted cash conversion* 108% 94%
Net cash* £134.8m £92.5m +46%
*The Group uses certain measures in addition to those reported under IFRS,
under which the Group reports. These measures are known as Alternative
Performance Measures ("APMs"). The Group does not consider these APMs to be a
substitute for, or superior to, the equivalent statutory IFRS measures. These
APMs are explained, defined and reconciled in the APM section and are applied
consistently.
**In 2023, EPS and PBT include two exceptional items, a significant non-cash
impairment of a development cost intangible asset and significant
non-recurring restructuring costs. In 2022, these measures included
exceptional items relating to an impairment of the Spanish cash generating
unit (CGU) and disposal of ComyMedia in Spain.
Key highlights
· Strong financial performance with growth in all business units and strong cash
position.
· Three acquisitions completed: Satisnet, in August 2023, a leading provider of
cyber security services and solutions; EnableX Group, in December 2023, giving
us a relationship with Ericsson-LG and access to their UCaaS solution, iPECS;
and Coolwave Communications, in February 2024, an international SMS and voice
services provider allowing us to provide Operator Connect and other carrier
services into nearly 20 countries.
· Through these acquisitions and strengthening existing partnerships we intend
to have a full UCaaS portfolio with our in-house developed product, PhoneLine+
for micro-businesses, Horizon and iPECS for SMEs, and a Cisco suite for larger
SME and Enterprises customers. Most of these can be integrated with Teams.
· After applying the Board's capital allocation framework we are announcing an
intention to launch a share buyback programme of £35m to be executed over the
next six months, until early September.
Financial highlights
The Group delivered continued strong financial performance with good gross
profit growth flowing through to both Adjusted EBITDA and Adjusted PBT, with
significant cash generation.
· Revenue and gross profit grew by 8% to £521.7m and £267.2m respectively
(2022: £484.6m and £247.7m), with gross margin being maintained at 51%.
· Recurring revenue (being revenue which is recognised "over time" as per note
3) grew by 7% to £462.8m (2022: £431.7m), remaining at 89% (2022: 89%) of
total revenue.
· Adjusted EBITDA grew by 9% to £114.3m (2022: £105.1m) ahead of 8% growth in
revenue and gross profit with maintained focus on cost control.
· Gamma Business continued to grow strongly, primarily driven by our UCaaS
portfolio but also supported through targeted price rises. Gross profit
increased by 8% to £176.1m (2022: £163.7m(#)) with a stable gross margin.
· Gamma Enterprise grew gross profit by 7% to £52.6m (2022: £49.3m(#))
partially supported by the Satisnet acquisition. Gross margin decreased
slightly from 48.3% to 47.8% due to Satisnet having a lower gross profit
margin.
· The European business delivered gross profit growth of 11% to £38.5m (2022:
£34.7m(#)), 8% excluding foreign exchange movements, with gross margin
improving from 47.4% to 48.5% supported by the successful integration of
NeoTel, acquired in 2022.
· Profit before tax increased by 10% to £71.5m (2022: £64.9m) after a £12.7m
non-cash exceptional impairment of development cost intangible assets and
£3.3m of non-recurring exceptional restructuring costs (note 4).
· Adjusted EPS (fully diluted) for the year increased by 5% (2022: 12%) to 75.1p
(2022: 71.8p). The reduction in growth rate was primarily due to the adverse
impact of the increase in UK statutory corporation tax rate in April 2023.
· Cash generated by operations increased by 25% to £123.5m (2022: £99.1m) with
Adjusted cash conversion of 108% (2022: 94%), primarily a result of favourable
working capital movements, in particular the effect of some prepayments in
2022 not repeated in 2023. This underpinned a net cash increase of 46% to
£134.8m (2022: £92.5m), achieved after total payments of £30.5m related to
acquisitions (net of cash acquired) and £15.2m paid as dividends in the year.
(#)See Note 3 for segmental change information and restated comparatives.
Andrew Belshaw, Chief Executive Officer, commented,
"Gamma has produced another strong set of results. Recurring revenue, stable
margins and cash generation continue to be a feature of our business. We have
grown in each business unit and the growth in our European business is
particularly pleasing.
As well as our organic growth, Gamma has made acquisitions which have added to
our growth potential and our ability to sell additional solutions to our
existing customers.
We have developed our solution portfolio in the UCaaS space, and in the UK,
for the first time, we will have a portfolio of solutions to serve any
business of any size - we plan to replicate this in Europe throughout 2024. I
want to thank our customers, partners and colleagues and look forward to
working with them as we continue to grow the business over the coming years.
I am very pleased with this set of results and the opportunities which lie
ahead of us suggest a promising future for the group."
Enquiries:
Gamma Communications plc Tel: +44 (0)333 006 5972
Andrew Belshaw, Chief Executive Officer CompanySecretary@gamma.co.uk (mailto:CompanySecretary@gamma.co.uk)
Bill Castell, Chief Financial Officer
Investec Bank plc (NOMAD & Broker) Tel: +44 (0)207 597 5970
Patrick Robb / Virginia Bull
Teneo (PR Adviser) Tel: +44 (0)207 353 4200
James Macey White / Matt Low / Rebecca Hamer Gamma@teneo.com (mailto:Gamma@teneo.com)
Cautionary Statement
Certain statements in this Full Year results announcement are forward-looking.
Although Gamma believes that the expectations reflected in these
forward-looking statements are reasonable, we can give no assurance that these
expectations will prove to have been correct. Because these statements contain
risks and uncertainties, actual results may differ materially from those
expressed or implied by these forward-looking statements. We undertake no
obligation to update any forward-looking statements whether as a result of new
information, future events or otherwise.
Chief Executive Review
I am pleased to report another set of strong results for Gamma in 2023. Group
revenue for the year ended 31 December 2023 increased by £37.1m to £521.7m
(2022: £484.6m), an increase of 8% on the prior year. Adjusted EBITDA for the
Group increased by £9.2m (9%) to £114.3m (2022: £105.1m). Profit before tax
for the year was £71.5m, an increase of 10% from the prior year figure of
£64.9m.
Fully diluted earnings per share for the year increased by 8% to 54.9p
(2022: 50.6p); Adjusted earnings per share (fully diluted) for the year
increased by 5% (2022: 12%) to 75.1p (2022: 71.8p). The reduction in
percentage growth relative to the increase in revenues was primarily due to
the adverse impact of the increase in UK statutory corporation tax rate in
April 2023.
Adjusted items are explained and reconciled in the Alternative Performance
Measures section.
Cash generated by operations for the year was £123.5m compared to £99.1m in
2023. The closing Net Cash balance for the year was £136.5m (2022: £94.6m).
This cash balance has increased despite investing £23.0m in capital items,
paying £30.5m in relation to acquisitions (including repayment of debt
acquired) and paying £15.2m in dividends.
Continuing to deliver our strategy
As I reported in early 2022, we began a five-year strategic review, mapping
our competitive and market landscape out to the end of 2026. This was
undertaken in the context of the aftermath of the COVID-19 pandemic, the rise
of hybrid working and the resulting changes in the communications market.
As a result of this review we identified four strategic priorities:
· Develop a common pan-European solution set for UCaaS and CCaaS for
SMEs.
· Develop multiple routes to market in each country in which we
operate.
· Become a trusted partner to Enterprises across Europe, transforming
their communications estates.
· Create an organisation that engages all our people with a common
set of values and goals.
Throughout the year we continued to build on each of these strategic pillars
to grow every part of our business.
Develop a common pan-European solution set for UCaaS and CCaaS for SMEs.
Gamma has a disparate solution set across Europe - each business which we have
bought has had its own set of customer solutions. When selecting which
solutions to sell in each market we have considered both the needs of the
market and the most economical way of providing that solution, for example, is
it more profitable to partner with another company or to build that capability
ourselves.
As technology becomes more complex, it can be more economical to adopt best of
breed third-party solutions rather than building our own technology. We
therefore expect to take more third-party technology and incorporate it into
the managed services which we offer to channel partners and our own end users.
As an example, Artificial Intelligence ("AI") is affecting many industries,
and communications is no exception. AI will be incorporated into both the
solutions which our end users need to be able to run their businesses, and
into the tools which we need to run our own network and business. Where high
quality third-party solutions exist, it does not make economic sense for Gamma
to build its own suite of AI tools so we will partner with technology leaders
to make these solutions available to our end users.
Global providers of technology recognise the added value that Gamma can bring
to their solutions because of our high levels of service (which make solutions
easy to provision and consume), our communications network (which means we can
voice enable products) and our wide distribution reach across Europe.
Gamma is unique in having that combination - service, a network and a wide
distribution.
In the UK, we continue to sell our core Horizon Cloud PBX solution (which has
always incorporated software licensed from Cisco). During the year, we
strengthened our partnership with Cisco, which will allow us to sell the more
complex solutions which they have been developing. This includes Cisco's
collaboration software (which is a "bolt on" addition to Horizon providing
video conferencing). We have stopped ongoing development of some of our own
collaboration software (although this is still available and expected to
generate revenue) and we will, in future, provide Cisco's video conferencing
solutions alongside our own product. Cisco's suite of communication solutions
uses AI to enhance the user experience, for example "Audio Intelligence" is a
set of AI, software and hardware technologies that powers clear communication
across the entire Cisco portfolio. It includes features such as noise removal,
music mode and optimised framing. For end users who require an enhanced
virtual meeting experience, AI also features in the solution itself with an AI
assistant that provides real-time transcription of calls as well as meeting
summaries for those who join late or miss calls.
As well as deepening our relationship with Cisco, towards the end of 2023
Gamma acquired EnableX. This gives us a relationship with Ericsson-LG ("ELG")
which allows access to ELG's UCaaS solution, iPECS. iPECS is a cloud
communications solution that unites the hybrid workplace on a single platform
available on any device, anywhere. There are already 130,000 users in the UK
on our iPECS UCaaS solution and 15 million users worldwide using iPECS
applications and hardware. It is easy to use and has an intuitive user
interface.
We intend to include both the ELG and Cisco solutions in our portfolio.
Gamma intends to sell iPECS and the Cisco Suite in every country in which we
operate. We believe this will make us unique amongst pan-European
communications providers because we intend to have a full UCaaS portfolio
which starts with our in-house developed product, PhoneLine+ for
micro-businesses, Horizon and iPECS for SMEs, and the Cisco suite of solutions
for the larger SME and Enterprise customers.
We will also have a solution set which can be integrated with MS Teams if
users require. We plan to work with a partner to supply MS Licences to our
own Channel Partners who are not able to supply them to end users.
Additionally, we are able to simply "voice enable" MS Teams for those users
who only require Teams to make and receive calls using phone numbers. The
popularity of Teams continues to be a growth driver for Gamma.
As we work to roll out this common solution set across 2024, Gamma continues
to sit in a unique position within our industry - channel partners across
Europe want to work with us because of the variety of solutions we can offer
their end users, and the global technology companies (such as Cisco and ELG)
want to work with us because of our breadth of distribution capability. We
continue to work with other global solution providers to explore the
possibility of adding other relevant solutions into our portfolio.
It will take us some time to achieve our goal of a common solution set, but we
are progressing well. By partnering where it makes sense to do so, it will be
more cost effective for us to introduce new technology and we will be able to
do it more quickly.
Develop multiple routes to market in each country in which we operate.
I am pleased with the strong portfolio of solutions that we are now able to
offer. However, Gamma has always been known for its high levels of customer
service and, in particular, for making solutions easy to provision and to
operate. This task is made more complex because we support multiple routes to
market.
In the UK we have focused on the indirect route to market through our valued
channel partners who sell mainly to SME customers. We have sold to UK-based
Enterprise and Public Sector customers directly. In Europe there are a variety
of sales models including wholesale, resale, dealer and direct.
The customer portal which we have had in operation in the UK is widely
recognised as industry leading. In Europe we have acquired several portals of
varying degrees of quality. Portals are important because customers want to
order solutions made up of multiple components - not only do we need to
provide third-party software and hardware, we need to bundle this with our own
voice enablement services at the point of provisioning which, among other
things, ensures that end users can continue to use the same telephone numbers
which they have always had.
During 2023, we have been reviewing the underpinning systems which we use to
support our businesses across Europe. We have concluded that we need to
enhance our portals to improve user experience and allow us to get solutions
to market quickly. At the start of 2024 we welcomed Colin Lees to Gamma as
CTO. Colin joins us from Openreach where he was CTO. Colin brings with him a
wealth of experience in the design of user portals and how they interact with
the underlying telecoms network. He will use this knowledge to work with our
team of developers to enhance the portals, which will give our customers the
excellent quality of service which they are accustomed to, but which is better
able to grow and develop with Gamma.
As well as being a differentiator in the market, our future portal will
support all the routes to market which we use.
In addition, throughout 2023, we continued to invest in the Gamma Hub (which
is used by our Enterprise customers in the UK). This allows our customers to
place orders, which both gives them a better experience and reduces our
overheads due to the high level of automation. We continue to invest in this
to consistently give our customers excellent service.
Become a trusted partner to Enterprises across Europe, transforming their
communications estates.
SME customers continue to be a driver of growth for us. However, it is
important to note that Gamma should not be considered "only" a supplier to
SMEs. We continue to service and win customers in the Enterprise and Public
Sector space in the UK and increasingly now in the Benelux region.
Throughout 2023, Microsoft and AWS have become large and important partners to
us. Our Microsoft Teams voice enablement solution continues to be developed
and has been deployed by some of the largest UK Enterprise and Public Sector
organisations. We also deployed Microsoft Operator Connect across all our
businesses and have secured several European and pan-European contracts. In
Benelux we secured significant Operator Connect wins, including for a large
Dutch university and our first Belgian customer, providing Operator Connect
for a large municipality. We believe we are the largest provider of voice
enablement for Teams both in the UK and the Netherlands. Our acquisition of
Coolwave at the start of 2024 brings capabilities which will allow us to voice
enable Teams in around 20 countries; in time this will be via the Operator
Connect programme. This will significantly increase the market we are able to
serve with this product.
Our contact centre SmartAgent solution, which enhances the Amazon AWS Connect
platform, has grown considerably in 2023, with over 13,000 customer service
agents using SmartAgent in the UK and Europe. Our new contract wins include
the Government Digital Project and Shawbrook Bank. During the year we have
continued to develop SmartAgent, allowing existing customers to adopt new
features such as WhatsApp messaging. This is important as it enables us to
monetise communication channels which are not traditional voice and text. We
have also introduced AI for solving our customers' problems without them
needing to interact with a person - again we are able to charge on a per unit
basis for this "call deflection" service.
Alongside our hyperscale partnerships we continue to win significant managed
service contracts for SD-WAN, UCaaS, CCaaS and Mobile solutions in both
Enterprise and Public Sector. During 2023 Central England Co-op and Redde
Northgate plc both awarded us multi-year contracts for large SD-WAN estates.
Epping Forest and Gloucester Councils adopted our combined UCaaS and CCaaS
solution and the Home Office has selected Gamma as its mobile provider for the
next three years.
We further enhanced our managed service capability with the acquisition of
Satisnet, a Cyber Security Managed Security Services Provider, and have
successfully cross sold this service to several existing customers including
Reed.
Create an organisation that engages all our people with a common set of
values and goals.
As reported previously, Gamma has identified four key values which are at our
core. These values unite us across all of our business units in each country
we operate in:
We're there and we care - caring for our employees, our customers, our
environment and all stakeholders;
We love to grow - not only growing as a business, but also reflecting that we
are made up of individuals who strive for personal growth;
We do the right thing - we act openly in our relationships both within and
outside of Gamma;
We step up and own it - everyone within our organisation takes ownership of
problems and helps one another to solve them.
We celebrate these values with our quarterly awards and annual dinner for
award winners.
Throughout 2023, our Charity Forum facilitated our employees taking part in
various national sporting events, organised a UK-wide charity raffle and
supported matched funding on a variety of individual and team activities. I am
also pleased to say that in 2024 we will be working with two UK universities
providing scholarships for students on STEM programmes.
Gamma Business
Gamma Business is our business unit which sells to SMEs in the UK, mainly via
Channel Partners. Revenue in 2023 grew from £309.4m to £332.2m - an increase
of 7%.
Our growth in the UK SME market through our channel partners continues to be
strong. Across the Group our net adds in Horizon were 46k (2022: 75k) and our
net adds in PhoneLine+ were 12k (2022: 1k), primarily driven by Gamma
Business. In addition, our new acquisition, EnableX, added 25k users on the
iPECS platform in 2023. On a pro-forma basis the Group added 83k seats of
Cloud PBX products in 2023. We're delighted with this strong growth in the
current economic climate.
We have delivered growth in our product aimed at micro-businesses, PhoneLine+.
Businesses are slowly beginning to understand that existing "single line"
products (based on legacy technology) are being withdrawn between now and the
end of 2025. Notwithstanding this, some potential customers are moving to
"Metallic Path Framework" or "MPF" solutions provided by some network
providers - these solutions effectively mimic the PSTN and mean that the end
user does not need a cloud solution such as PhoneLine+. We expect these
solutions to be retired over the next five years as local telephone exchanges
are closed which will mean that the growth of PhoneLine+ is likely to be
slower than anticipated in 2024 and 2025 but stronger after this period.
While the sales of PhoneLine+ accelerated, the Horizon base continued to
increase but net new volumes were lower than in previous years. This was
caused by both a reduction in gross adds and a slight increase in churn. The
latter is driven by end users ceasing the service and returning their phone
numbers to the general pool (as opposed to moving to another operator); in
other words, this is due to businesses ceasing to trade or downsizing in
response to a weakness in the economy.
The reduction in gross adds was due to some customers requiring features which
Horizon does not support. As noted above, we have addressed this by the
addition of Ericsson-LG in 2023. In 2024 we intend to add Cisco solutions to
the portfolio. We now have a more complete set of solutions than we have ever
had, and we can meet the needs of all businesses.
The cross-selling of additional modules for Horizon (such as call recording or
collaboration) continues to be pleasing and our penetration rates continue to
increase, which is important as this offsets any ARPU reductions on the sales
of the core Horizon product. As we extend the portfolio of solutions (as
described above) and new technologies, such as AI, come into the
communications space, the opportunity to cross sell and up sell increases
across Phoneline+, iPECS and Cisco.
Connectivity remains a core component of our portfolio, and we grew our UK
volumes of both broadband, to 168k (2022: 158k), and ethernet, to 20.9k (2022:
19.4k). In 2024 we will continue to focus on the geographic availability and
pricing of our services to give our customers and partners the connectivity
services they need to support their business.
We continue to be the leading supplier of voice enablement for Teams and we
now have a base of 429k users (2022: 356k) taking either our Operator Connect
or Direct Routing Solutions. As mentioned above, our acquisition of Coolwave
will increase the total addressable market for voice enablement of Teams. The
acquisition will also enhance the offering from our Service Provider business
(which is reported within Gamma Business). The Service Provider business
provides carrier services such as hosting telephone numbers and connecting
calls. Our customers are carriers who wish to run a service in the UK but do
not have network capabilities. Our customers include several of the
hyperscalers and over half of Gartner's magic quadrant providers in UCaaS,
CCaaS and CPaaS. We will also be able to offer these customers services in
around 20 countries, which greatly enhances the growth prospects of this part
of the business unit.
Gamma Enterprise
Gamma Enterprise revenues, supported by the acquisition of Satisnet, which
contributed £4.6m of revenue, grew from £102.0m to £110.1m in 2023 - an
overall increase of 8%.
The general softness in the economy noted above also affected the organic
growth of our Enterprise business unit. We saw elongated sales cycles with
decisions delayed. Whilst our growth in 2023 was therefore lower than
anticipated, our pipeline going into 2024 is strong because those buying
decisions were delayed, not avoided, and customers are now being signed up.
Our portfolio strength and variety is enabling us to win a large and varied
group of Enterprise and Public Sector customers. Our ability to build and
manage their solutions assists us in re-signing contracts with our existing
customers. Our Microsoft Teams voice enablement solution has been deployed by
the largest UK Enterprise and Public Sector organisations such as HMRC, DWP
and the London Stock Exchange. During 2023 Central England Co-op and Redde
Northgate plc both awarded us multi-year contracts for large SD-WAN estates.
Epping Forest and Gloucester Councils adopted our combined UCaaS and CCaaS
solution and the Home Office has selected Gamma as its mobile provider for the
next three years.
Europe
Our growth in Europe was also pleasing. Revenue in 2023 grew from £73.2m to
£79.4m - an increase of 8%.
During the year we added 7k seats of Cloud PBX - mainly driven by sales in
Germany. The German market continues to be slow to embrace Cloud PBX (and
indeed cloud products in general) and penetration remains below 20%. We see
Germany as a significant driver for growth in the medium term and longer term
- annual growth rates are likely to be lower than we have seen in the UK but,
given the overall market is larger, growth will likely last for many years to
come. As well as the organic growth potential, we continue to seek
acquisitions to improve our scale and market position in Germany.
While Teams usage in Europe lags behind that of the UK, we are building a base
of Operator Connect customers and we are now the leading supplier of Operator
Connect in the Netherlands - albeit the market is very immature.
Key market trends
UK market growth
We have identified three key trends in the UK market which will continue to
drive our growth.
More complex communications solutions are being required by users
Both changing working patterns (e.g. hybrid and home working) and new
technologies (e.g. omnichannel and AI) mean that businesses are becoming more
demanding in what they require from their communications systems.
This presents opportunities, but there is also the risk that Gamma fails to
keep up with the additional demands. The gross adds on our Horizon solution
were slightly lower than in previous years because Horizon lacks features
which some end users are now demanding. We have responded to this trend by
broadening our UCaaS portfolio in the UK to include more feature-rich
solutions from Ericsson-LG and Cisco.
Over time we expect to require a broader portfolio of solutions which
incorporate all of the latest technologies to be able to compete across the
whole market as needs and demands become more complex. Through a combination
of partnering with the global technology giants and developing our own
solutions where it is commercially sensible to do so, we will be the only
pan-European communications provider which is able to supply solutions to all
customers no matter how complex their needs are.
PSTN Switch off
At the end of 2025, BT will cease to provide services which are underpinned by
the PSTN. This will mean that millions of consumers and micro-businesses will
need to seek another solution for their broadband and voice. While some are
choosing to delay their digital journey through temporary MPF solutions or may
choose to cancel their landline altogether, Gamma is well placed to provide
next generation solutions for forward-thinking businesses. Gamma can supply
both broadband and voice - the latter being provided by our own PhoneLine+
solution, Horizon or iPECS. We see this as an opportunity for growth over the
coming years.
Hardware PBX to cloud migrations
We expect a trend to emerge where end users who have taken Gamma SIP to voice
enable a hardware PBX will move towards a full UCaaS solution. We have not
seen this happening in volume during 2023. We believe that the lack of
migration to date has been because the hardware PBX solutions which are still
in use are more feature rich than the Cloud PBX products which have been
widely available and are generally bought on long-term contracts.
As Cloud PBX solutions become more feature rich, this trend will accelerate
and we expect end users to migrate away from a SIP/hardware solution. There is
a risk that Gamma may lose business, but we believe we are well placed to
increase ARPUs for customers who stay with Gamma. The wholesale ARPU from a
SIP customer is typically around £1.25 per user per month. If these customers
migrate to a Teams solution, that can double, and it can increase further if
end users migrate to one of Gamma's UCaaS offerings. To capitalise on this
coming trend it has been important for Gamma to increase the breadth of its
UCaaS portfolio. Hardware PBXs are not homogenous and have a variety of
features. As noted previously, Gamma now has a wide variety of cloud solutions
and is therefore able to meet the needs of most end users.
European market growth
Gamma first acquired businesses in Europe in 2018 and, in the past five years,
we have built up a large amount of experience and knowledge of the European
communications markets.
Market conditions in the Netherlands and Spain continue to be difficult. The
Dutch market is already well penetrated for Cloud PBX and, in Spain, the
market is dominated by the MNOs (particularly Telefonica). We do see voice
enablement (and particularly voice enablement of MS Teams) as being a growth
driver in the Netherlands and Spain over the medium term.
There is a bigger market opportunity in Germany where the cloud market
continues to be under-penetrated compared to the rest of Europe. During the
year the CEO of our German business, Achim Hager, retired and we thank him for
his contribution to the Group. We appointed Gerben Wijbenga, our Dutch CEO, to
an expanded role as CEO of a combined Northern Europe business. We also
appointed a new Sales Director, Thomas Muschalla, who joined us from nFon (the
German market leader by size for Cloud PBX) where he held the same role. We
believe that we have a management team and a set of solutions which will
enable us to capitalise on the market movement to Cloud PBX as this develops.
Board changes
Henrietta Marsh has informed the Board of her intention to retire as the
Senior Independent Non-Executive Director at the conclusion of the 2024 AGM
having served on the Board since April 2019. Further information on this
change and resulting Board Committee changes are provided in a separate
announcement.
Sustainability
We remain committed to providing transparency and actively engaging with our
stakeholders to ensure alignment with our environmental objectives. We ensure
that management are incentivised to achieve our aims through ESG targets as
part of their bonus metrics and regularly monitor progress. Each of the
Executive Committee members have personalised ESG bonus criteria and clear
ownership responsibility.
In 2022, we announced a science-based net-zero target of 2042, supporting both
the Paris Agreement's aims to limit the temperature increase to 1.5°C
globally and the UN Sustainable Development Goal 13: Climate Action. We are
pleased to confirm that the SBTi has verified Gamma's net-zero science-based
target by 2042.
In 2023 we published our first Sustainability Report, highlighting progress
made in all areas of ESG (environment, social and governance). We have
published our first report under the Task Force on Climate-related Financial
Disclosures ("TCFD") and we have reported compliance with ten out of the
eleven recommendations.
Outlook
The communications market in Europe continues to grow and evolve. We have
identified growth opportunities in the UK and Europe, in SME and Enterprise
(using both our own solutions and those of third parties). We believe our
improving portfolio of solutions will meet the communications challenges which
businesses are facing today and in the future. The recent acquisition of
Coolwave has increased the addressable market for our voice enablement
products (including MS Teams) and provides new opportunities for our Service
Provider business (which is part of Gamma Business).
We saw some evidence of a softer economy in 2023, although early signs in 2024
are that there is some improvement. We believe that our enhanced product set
will continue to drive growth but the current economic climate may temper the
rate of acceleration. Conversely, the reduction in inflation has reduced
pressure on overheads and particularly salaries.
In October 2024, Gamma will celebrate ten years as a listed company. We have
grown revenue, Adjusted EBITDA and Adjusted EPS (fully diluted) in every one
of the nine years to date and we expect growth to continue in 2024 as we add
more users both in the UK and Europe. We have a robust business model based on
recurring revenue from solutions that are critical to the businesses which use
them. Our continued profitability, strength in cash generation and healthy net
cash balance leave us well placed to maximise the opportunity even in
challenging macro-economic times.
I look forward to working with our customers, partners and colleagues for the
benefit of all our stakeholders as we continue to grow the business over the
coming years.
Andrew Belshaw
Chief Executive Officer
Supplementary information on product volumes
The table below shows the movements in the number of SIP Trunks which provide
voice enablement to various hardware PBXs and voice applications:
Voice Enablement - UK & Europe December December Change
(000's) 2023 2022 (%)
SIP Trunks enabling traditional hardware PBX
- UK 1,019 1,053 -3
- Europe 198 183 8
SIP Trunks enabling a non-Gamma Cloud PBX
- UK 398 367 8
- Europe - - n/a
Voice enabled MS Teams users (either Operator Connect or MS Teams Direct
Routing)
- UK 429 356 21
- Europe 9 1 800
The table below shows the number of Cloud PBX seats in UK and Europe:
Cloud PBX seats - UK & Europe December December Change
(000's) 2023 2022 (%)
UK - Horizon 797 751 6
UK - iPECS 130 - n/a
UK - Micro* 27 15 80
UK - Total 954 766 25
Europe 161 154** 5
*CircleLoop and PhoneLine+, our Cloud PBX products which serve the micro
business market
** 3,000 CCaaS seats were previously included in the total "European Cloud"
seats and are now included in the CCaaS table below. Amounts have also been
restated to exclude 7,000 seats which related to a SIP solution added in H2
2022 and are included within the SIP units.
The table below shows the number of units of the various bolt-ons which are
sold to enhance the functionality of UK Cloud PBX (Horizon):
Horizon bolt-ons - UK December December Change
(000's) 2023 2022 (%)
Call Recording 117 96 22
Collaborate 77 73 5
Horizon for MS Teams 13 7 86
Horizon Contact 17 11 55
The table below shows the number of CCaaS seats:
CCaaS seats - UK & Europe June December Change
(000's) 2023 2022 (%)
UK - Horizon Contact* 17 11 55
UK - SmartAgent 13 8 63
UK - Total 30 19 58
Europe** 4 3 33
* All Horizon Contact users also take a "Base Horizon" seat (separately
disclosed within Cloud PBX seats); for the avoidance of doubt, these 17,000
seats are the same as the seats in the table above
** The Neotel acquisition in October 2022 included 3,000 CCaaS seats
Financial review
Overview
Gamma has performed well during the year, increasing revenue by 8% to £521.7m
(2022: £484.6m) and gross profit by 8% to £267.2m (2022: £247.7m). Group
Adjusted EBITDA increased by 9% to £114.3m (2022: £105.1m), profit before
tax increased by 10% to £71.5m (2022: £64.9m) and Adjusted PBT increased by
12% to £97.9m (2022: £87.8m). EPS (fully diluted) increased to 54.9p (2022:
50.6p) while Adjusted EPS (fully diluted) increased by 5% (2022: 12%) to 75.1p
(2022: 71.8p). The reduction in Adjusted EPS (fully diluted) growth was
primarily due to the adverse impact of the increase in UK statutory
corporation tax rate in April 2023. In the reporting of financial information
in this Financial review, the Group uses certain measures in addition to those
reported under IFRS, under which the Group reports. These measures are known
as Alternative Performance Measures ("APMs"). The Group believes that these
additional measures, which are used internally, are useful to users of the
financial information in helping them understand business performance. The
Group does not consider these APMs to be a substitute for, or superior to, the
equivalent measures calculated and presented in accordance with IFRS. These
APMs are explained, defined and reconciled from the most comparable IFRS
metric in the Alternative Performance Metric section and used consistently
period on period.
Revenue and gross profit
Gamma Business
2023 2022* Increase
£m £m
Revenue 332.2 309.4 +7%
Gross profit 176.1 163.7 +8%
Gross margin 53.0% 52.9%
*See note 3 for segmental change information and restated comparatives
Overall, the growth in Gamma Business has been strong. Growth was primarily
driven by our UCaaS portfolio, which includes our Horizon Cloud PBX solution
as well as those SIP trunks supporting MS Teams implementations and other
non-Gamma Cloud PBX solutions. UCaaS unit growth continued, with PhoneLine+
(Gamma's own software solution) making a more significant contribution to the
product mix. Horizon Cloud PBX and additional module bolt-ons net growth was
lower than in prior periods, partially due to this change in mix. Revenue
growth has also been supported through targeted price rises, including across
our connectivity portfolio. Gross margin has been stable with previous
periods, which is in line with expectations, as the mix of UCaaS and
connectivity products is now reasonably consistent.
Gamma Enterprise
2023 2022* Increase
£m £m
Revenue 110.1 102.0 +8%
Gross profit 52.6 49.3 +7%
Gross margin 47.8% 48.3%
*See note 3 for segmental change information and restated comparatives
Gamma Enterprise has continued to have significant contract wins, including
UK-wide SD-WAN solutions for Redde Northgate plc and the Denholm Group, and a
Microsoft Teams implementation with a Contact Centre as a Service ("CCaaS")
overlay for Gloucester County Council. There have also been a number of wins
for our AWS omnichannel contact centre, via our enablement tool SmartAgent,
with the Government Digital Project and Shawbrook Bank. In addition, Satisnet
Limited, the UK-based Managed Security Services Provider that was acquired in
August 2023, has been successfully integrated, contributing £4.6m of revenue
and £1.5m of gross profit in the year. The gross margin decrease is due to
Satisnet having a lower gross profit margin.
Europe
2023 2022 Increase
£m £m
Revenue 79.4 73.2 +8%
Gross profit 38.5 34.7 +11%
Gross margin 48.5% 47.4%
Growth in both SIP and UCaaS, with UCaaS supported by the NeoTel acquisition,
resulted in an improved year-on-year financial performance with good growth in
both European revenue and gross profit. Results were further bolstered by
positive foreign exchange movements, with a Euro that strengthened against
Sterling compared to the prior year. Gross profit growth was 8% excluding
foreign exchange movements. The gross margin improvement was supported by the
successful integration of the NeoTel business acquired in 2022.
Operating expenses
Operating expenses grew from £182.3m in 2022 to £200.2m (£184.2m net of
£16.0m exceptional items outlined below). We break these down as follows:
2023 2022 Change
£m £m
Expenses included within cash generated from operations 152.9 142.6 7%
Depreciation and amortisation (excluding business combinations) 21.3 17.7 20%
Amortisation arising due to business combinations 10.0 9.5 5%
Exceptional items 16.0 12.5 28%
Total operating expenses 200.2 182.3 10%
Expenses included within cash generated from operations increased by 7%,
comprising the following:
· The UK businesses' operating expenses grew by 7% (compared to gross profit
growth of 7%). These expenses (the majority of which relate to staff) have
been actively controlled with mitigating product price changes where
appropriate given the inflationary environment.
· The increase in European operating expenses costs was 10% (compared to gross
profit growth of 11%). This was adversely impacted by the stronger Euro and
general inflationary pressures. Excluding the impact of foreign exchange
movements, the increase was 8%.
· Central costs remained broadly flat from the prior period.
Depreciation and amortisation on tangible and intangible assets (excluding
business combinations) increased to £21.3m (2022: £17.7m). The annual
depreciation and amortisation charge remained below the annual capital
expenditure spend.
Amortisation arising due to business combinations increased to £10.0m (2022:
£9.5m). This reflected an increased level of intangible assets as a result of
further bolt-on acquisitions in the year, as well as the impact of a full year
of amortisation on the NeoTel intangible assets in 2023.
Exceptional items
There were two exceptional items in the year (2022: two), a non-cash
impairment of £12.7m and a one-off restructuring cost of £3.3m. The cash
cost of the restructuring in the year was £0.2m (2022: £nil), with the
remainder payable in 2024.
Restructuring costs
Following organisational changes related to the expanded UCaaS offering and
the combining of the German and Dutch senior leadership teams, a restructuring
exercise was carried out in late 2023, which resulted in one-off severance
costs of £3.3m.
Development cost intangible asset impairment
A non-cash impairment of £12.7m on intangible development cost assets has
been recognised in the year. This resulted from stopping ongoing development
of some of our own collaboration software following the acquisition of EnableX
in December 2023, which provides a partnership with Ericsson-LG that further
expands our UCaaS offering, along with the strengthening of our partnership
with Cisco.
The exceptional items in 2022 were impairment of goodwill on the Spanish
cash-generating unit ("CGU") and a small loss on disposal of a subsidiary. A
non-cash impairment of the Spanish CGU was recognised in 2022 (£12.2m). This
CGU was impacted by challenging local market economic conditions. It was
anticipated that the achievement of future business performance targets may
take longer than originally forecast. This, combined with the increase in
discount rates applied, resulted in an impairment. On 5 August 2022 Gamma
completed the sale of ComyMedia, previously part of the Spanish CGU, for €1.
ComyMedia specialised in IT solutions and had little fit with the rest of
Gamma's European business. An exceptional loss of £0.3m was recognised
relating to proceeds on disposal less the book value of the net assets of the
business. ComyMedia generated a negligible EBITDA contribution in 2022 prior
to disposal.
Adjusted EBITDA
Adjusted EBITDA grew from £105.1m to £114.3m (9%) driven by the revenue and
gross profit growth in both the UK and Europe together with Group-wide cost
control.
Profit before tax
Profit before tax grew from £64.9m to £71.5m (10%), driven by the revenue
and gross profit growth in both the UK and Europe together with Group-wide
operating expense cost control. In addition, finance income increased by
£4.6m to £5.4m (2022: £0.8m) due to an increased amount of cash held
alongside an increase in interest rates. Finance costs reduced slightly from
£1.3m to £0.9m.
Taxation
The effective tax rate for 2023 was 25% (2022: 24%). This increase follows the
statutory UK rate rising from 19% to 25% in April 2023. The effective tax rate
in 2023 applied to trading profits was above the 23.5% statutory UK average
rate due primarily to expenses that are not deductible in determining taxable
profit. The rate in 2022 was increased relative to the statutory rate at the
time by the goodwill impairment charge on the Spanish CGU, which is a
non-deductible tax expense. The tax rate in future years will increase as a
result of a full year of the UK tax rate increase to 25%.
Net Cash and cash flows
The Group had Net Cash of £134.8m (2022: £92.5m). This comprised cash and
cash equivalents of £136.5m (2022: £94.6m) at the end of the year, offset by
borrowings of £1.7m (2022: £2.1m) held by European trading subsidiaries and
which pre-dates their acquisition by Gamma.
Cash generated by operations was £123.5m (2022: £99.1m). The ratio of cash
generated by operations as a percentage of Adjusted EBITDA ("Adjusted cash
conversion") was 108% (2022: 94%). The increase in cash conversion was
primarily the result of favourable year-on-year working capital movements
totalling £19.2m, including:
· A year-on-year favourable movement of £16.8m in relation to trade and other
receivables, with the majority of the cash effect of the unwind of some
prepayments in 2022 and 2023 and with the remainder attributable primarily to
improved debtor days.
· A year-on-year favourable movement of £1.6m in relation to advance inventory
purchases in 2022 to de-risk potential supply chain delays.
The primary cash items which are not directly related to trading were:
· Capital spend was £23.0m, which is an increase from £20.7m in the
comparative period. This is discussed below.
· £30.5m was the total payment for acquisitions net of cash acquired (2022:
£9.8m): £8.3m for the acquisition of Satisnet (net of cash acquired),
£18.9m for the acquisition of EnableX (net of cash acquired) which included
£7.7m to repay all EnableX borrowings on acquisition, £0.9m of contingent
consideration paid in cash as final payment for Exactive and £2.4m of
contingent consideration based on milestones achieved in 2022 in relation to
Mission Labs.
· £1.3m was paid to acquire the remaining 3.95% of shares in Gamma Holding
GmbH.
· £4.9m (2022: £0.8m) of interest was received on cash and cash equivalents,
increased during the year due to higher cash holdings and improved interest
rates.
· £1.9m was received from the issue of shares (2022: £3.1m) on the exercise of
share options.
· £15.2m was paid as dividends (2022: £13.3m).
Gamma's Group treasury policy is governed by the Audit Committee. Gamma
manages cash centrally and seeks to maximise value and return whilst balancing
associated risks. The policy manages concentration risk by setting an
appropriate limit on the amount that can be placed with any one institution,
and manages credit risk by setting a minimum requirement around the credit
rating of the financial Institution. Given 85% of Group revenue is generated
from our UK business, all deposit balances are held with large established UK
financial institutions. Cash in Europe is held for working capital purposes
and follows the credit rating requirements as set out above.
Capital spend
Capital spend in 2023 was £23.0m (2022: £20.7m), broken down as follows:
· £5.6m on the core network, including increasing capacity as well as computer
equipment and fixtures and fittings (2022: £6.8m).
· £14.4m on the capitalisation of development costs incurred during the period
(2022: £13.1m). The increase was due to the continued development of our
own portal and our own voice applications (in part using the capabilities
acquired with Mission Labs) and is partially offset by the amounts paid to
third parties as outlined below.
· £3.0m with third-party software vendors for the software which underpins our
Cloud PBX products (2022: £0.8m).
Adjusted EPS (fully diluted) and EPS (fully diluted)
Adjusted EPS (fully diluted) increased from 71.8p to 75.1p (5%), which
compares to a 12% increase in 2022. The reduction in growth is primarily due
to the increase in statutory UK corporation tax rate to 25% in April 2023.
There will be a continued impact on Adjusted EPS (fully diluted) growth in
2024 when the statutory tax rate increase impact will be annualised.
EPS (fully diluted) increased from 50.6p to 54.9p (8%). The growth is higher
than the adjusted metric because, in the current year, amortisation relating
to business combinations has grown at a slower rate. The growth rate has also
been impacted by the increase in statutory UK corporation tax rate to 25% in
April 2023.
Acquisitions
The acquisitions of Satisnet and EnableX in the year were the primary driver
behind the £30.4m increase in intangible assets from £124.3m to £154.7m.
These acquisitions created intangible additions of £46.1m, including £36.6m
of goodwill and £6.6m of customer contract intangible assets. The exercise to
identify and value EnableX acquired intangible assets remains provisional at
this time due to proximity of the acquisition to the year end.
Acquisitions were also the primary reason behind the increase in contract
liabilities from £17.0m to £26.2m, with £1.9m acquired with Satisnet and
£4.5m acquired with EnableX.
Acquisitions also drove the £4.4m increase in contingent consideration from
£5.0m to £9.4m. Additions totalled £7.5m (£3.9m in relation to Satisnet
and £3.6m in relation to EnableX). These were partially offset by settlement
of the final element of the Exactive contingent consideration for £1.1m and
settlement of £2.4m of contingent consideration in relation to the 2022
Mission Labs milestones, both of which had been previously accrued.
Share premium also increased by £4.9m in the year from £18.0m to £22.9m.
£2.8m of this increase was attributable to the Satisnet acquisition, where
£2.8m of the consideration was in ordinary shares issued. Exercise of share
options also increased share premium by £1.9m.
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 contained in the Annual Report for the year ended 31 December 2023
("Annual Report"). In assessing going concern, management and the Board have
considered:
· The principal risks faced by the Group discussed further in the Annual Report.
· The financial position of the Group.
· The strong cash position - at 31 December 2023 the Group had cash and cash
equivalents of £136.5m (2022: £94.6m) and Net Cash of £134.8m (2022:
£92.5m). Borrowings of £1.7m (2022: £2.1m) were all acquired with
acquisitions made in previous years.
· Budgets, financial plans and associated future cash flows which incorporate
completed acquisitions up to the date of the Annual Report including the
Coolwave acquisition and the share buyback programme of £35m to be executed
in 2024, including liquidity and borrowings.
· Sensitivity analysis, which has shown that EBITDA would need to decrease by
more than 100% for the Group to need additional borrowing (assuming no
mitigating actions had been taken). We consider this to be highly unlikely.
The Directors are satisfied that the Group and Company have adequate financial
resources to continue in operational existence for the foreseeable future,
being a period of at least 12 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.
Capital allocation policy
Gamma has a strong unlevered balance sheet and continues to generate
significant operating cash flow. The Board's main priorities when it comes to
our cash is to enhance the growth of the business, both organically and
through acquisition, and to reward shareholders through growth in earnings
alongside our progressive dividend policy while retaining a robust capital
base.
Where there is surplus cash over and above the needs of funding that organic
and inorganic growth, the Board will consider additional one-off returns of
capital to shareholders. After applying the Board's capital allocation
framework we are announcing an intention to launch a share buyback programme
of £35m to be executed over the next six months, until early September (see
separate announcement).
The Board will continue to keep its capital allocation policy and further
distributions to shareholders under review, with consideration of other
potential uses of capital that may drive value for shareholders over the
medium term.
Dividends
The Board is proposing a final dividend of 11.4p (2022: 10.0p). This is an
increase of 14% and is in line with our progressive dividend policy. Subject
to shareholder approval, the final dividend is payable on Thursday 20 June
2024 to shareholders on the register on Friday 31 May 2024.
Financial guidance
The Board anticipates Adjusted EBITDA and Adjusted EPS (fully diluted) for the
year ending 31 December 2024 will be in the range of current market
expectations*. The Adjusted EBITDA and Adjusted EPS (fully diluted) guidance
excludes the one-off incremental costs relating to the implementation of new
cloud-based Finance and HR systems, which we intend to treat as an adjusting
item and are anticipated to be c.£3m in total and split over 2024 and 2025.
UK corporation tax rate is expected to increase from a blended rate of 23.5%
to 25%, with expected capital spend of £22m-£25m and Adjusted cash
conversion of 90%+.
*Company compiled range is based on known sell side analyst estimates as at 22
March 2024. The ranges are Adjusted EBITDA of £118.3m to £127.4m and
Adjusted EPS (fully diluted) of 75.8p to 86.3p.
Bill Castell
Chief Financial Officer
Consolidated statement of profit or loss
For the year ended 31 December 2023
2023 2022
Note £m £m
Revenue 3 521.7 484.6
Cost of sales (254.5) (236.9)
Gross profit 267.2 247.7
Operating expenses (200.2) (182.3)
Earnings before interest, tax, depreciation, amortisation and exceptional 114.3 105.1
items (Adjusted EBITDA)
Exceptional items 4 (16.0) (12.5)
Earnings before interest, tax, depreciation and amortisation (EBITDA) 98.3 92.6
Depreciation and amortisation (excluding business combinations) (21.3) (17.7)
Amortisation arising due to business combinations (10.0) (9.5)
Profit from operations 67.0 65.4
Finance income 5.4 0.8
Finance expense (0.9) (1.3)
Profit before tax 71.5 64.9
Tax expense 5 (17.8) (15.4)
Profit after tax 53.7 49.5
Profit is attributable to:
Equity holders of Gamma Communications plc 53.6 49.3
Non-controlling interests 0.1 0.2
53.7 49.5
Earnings per share attributable to the ordinary equity holders of the company:
Basic per Ordinary Share (pence) 6 55.2 51.1
Diluted per Ordinary Share (pence) 6 54.9 50.6
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 2023
2023 2022*
£m £m
Profit after tax 53.7 49.5
Other comprehensive income/(expense)
Items that may be reclassified subsequently to the profit or loss
Exchange differences on translation of foreign operations before tax (0.9) 3.5
Tax effect of exchange differences on translation of foreign operations 0.3 (0.6)
Total comprehensive income 53.1 52.4
Attributable to:
Equity holders of Gamma Communications plc 53.0 52.2
Non-controlling interests 0.1 0.2
53.1 52.4
* For re-presentation of 2022 comparatives refer to note 1, section
Consolidated statement of comprehensive income.
Consolidated statement of financial position
As at 31 December 2023
2023 2022*
Note £m £m
Assets
Non-current assets
Property, plant and equipment 8 30.5 33.8
Right of use assets 7.9 9.1
Intangible assets 9 154.7 124.3
Deferred tax asset 6.5 5.5
Trade and other receivables 11.8 10.0
Contract assets 2.9 3.0
214.3 185.7
Current assets
Inventories 11.8 10.2
Trade and other receivables 76.1 75.0
Contract assets 32.5 34.4
Cash and cash equivalents 136.5 94.6
Current tax asset 3.6 6.9
260.5 221.1
Total assets 474.8 406.8
Liabilities
Non-current liabilities
Other payables 0.1 2.7
Borrowings 1.4 1.7
Lease liabilities 7.0 8.6
Provisions 1.7 0.9
Contract liabilities 12.1 7.8
Contingent consideration 11 7.7 1.5
Put option liability 1.1 -
Deferred tax 10.4 11.3
41.5 34.5
Current liabilities
Trade and other payables 66.5 54.0
Borrowings 0.3 0.4
Lease liabilities 3.0 2.5
Provisions 3.4 0.7
Contract liabilities 14.1 9.2
Contingent consideration 11 1.7 3.5
Put option liability - 1.8
Current tax 0.1 0.5
89.1 72.6
Total liabilities 130.6 107.1
Net assets 344.2 299.7
Equity
Share capital 12 0.2 0.2
Share premium reserve 22.9 18.0
Other reserves 13 6.9 9.0
Retained earnings 315.1 273.9
Equity attributable to owners of Gamma Communications plc 345.1 301.1
Non-controlling interests 0.2 0.8
Written put options over non-controlling interests (1.1) (2.2)
Total equity 344.2 299.7
* For re-presentation of 2022 comparatives refer to note 1, section
Consolidated statement of financial position.
Consolidated statement of cash flows
For the year ended 31 December 2023
2023 2022
Note £m £m
Cash flows from operating activities
Profit for the year before tax 71.5 64.9
Adjustments for:
Depreciation of property, plant and equipment 8 9.3 9.5
Depreciation of right of use asset 2.3 2.8
Amortisation of intangible assets 9 19.7 14.9
Impairment of intangible assets 9 12.7 -
Impairment of goodwill 9 - 12.2
Change in fair value of contingent consideration/put option liability - (0.9)
Share-based payment expense 2.7 4.3
Interest income (5.4) (0.8)
Finance expense 0.9 1.3
Loss on disposal of subsidiary undertaking 4 - 0.3
113.7 108.5
Decrease/(increase) in trade and other receivables and contract assets 6.7 (10.1)
Increase in inventories (1.0) (2.6)
Increase in trade and other payables 2.1 4.1
Decrease in contract liabilities (1.5) (0.4)
Increase/(decrease) in provisions 3.5 (0.4)
Cash generated by operations 123.5 99.1
Taxes paid (15.3) (14.4)
Net cash flows from operating activities 108.2 84.7
Investing activities
Proceeds on disposal of property, plant and equipment - 0.4
Purchase of property, plant and equipment 8 (5.6) (6.8)
Purchase of intangible assets 9 (17.4) (13.9)
Interest received 4.9 0.8
Acquisition of subsidiaries net of cash acquired 10 (22.8) (9.8)
Disposal of subsidiary net of disposed cash - (0.3)
Net cash used in investing activities (40.9) (29.6)
Financing activities
Lease liability repayments (2.3) (2.8)
Put option liability payment (1.3) -
Repayment of borrowings (0.5) (0.7)
Repayment of borrowings acquired with acquisitions 10 (7.7) -
Interest paid (0.1) (0.1)
Share issues 1.9 3.1
Dividends 7 (15.2) (13.3)
Net cash used in financing activities (25.2) (13.8)
Net increase in cash and cash equivalents 42.1 41.3
Cash and cash equivalents at beginning of the year 94.6 52.8
Effects of exchange rate changes on cash and cash equivalents (0.2) 0.5
Cash and cash equivalents at end of the year 136.5 94.6
Consolidated statement of changes in equity
For the year ended 31 December 2023
Share capital Share premium reserve Other reserves Retained earnings Total Non-Controlling interests Written put options over non-controlling interests Total equity
£m £m £m £m £m £m £m £m
1 January 2022 0.2 14.9 4.5 239.1 258.7 2.2 (6.7) 254.2
Issue of shares - 3.1 (2.7) 2.7 3.1 - - 3.1
Share-based payment expense - - 4.3 - 4.3 - - 4.3
Tax on share-based payment expense:
- Current tax - - - 0.1 0.1 - - 0.1
- Deferred tax - - - (1.1) (1.1) - - (1.1)
Non-controlling interests on acquisition of subsidiary - - - 1.6 1.6 (1.6) - -
Equity put rights - - - (4.5) (4.5) - 4.5 -
Dividends paid - - - (13.3) (13.3) - - (13.3)
Transactions with owners - 3.1 1.6 (14.5) (9.8) (1.6) 4.5 (6.9)
Profit for the year - - - 49.3 49.3 0.2 - 49.5
Other comprehensive income - - 2.9 - 2.9 - - 2.9
Total comprehensive income - - 2.9 49.3 52.2 0.2 - 52.4
31 December 2022 0.2 18.0 9.0 273.9 301.1 0.8 (2.2) 299.7
1 January 2023 0.2 18.0 9.0 273.9 301.1 0.8 (2.2) 299.7
Issue of shares - 4.9 (4.2) 4.2 4.9 - - 4.9
Share-based payment expense - - 2.7 - 2.7 - - 2.7
Tax on share-based payment expense:
- Deferred tax - - - (0.1) (0.1) - - (0.1)
Non-controlling interests on acquisition of subsidiary - - - 0.9 0.9 (0.7) - 0.2
Equity put rights - - - (2.2) (2.2) - 1.1 (1.1)
Dividends paid - - - (15.2) (15.2) - - (15.2)
Transactions with owners - 4.9 (1.5) (12.4) (9.0) (0.7) 1.1 (8.6)
Profit for the year - - - 53.6 53.6 0.1 - 53.7
Other comprehensive (expense) - - (0.6) - (0.6) - - (0.6)
Total comprehensive (expense)/income - - (0.6) 53.6 53.0 0.1 - 53.1
31 December 2023 0.2 22.9 6.9 315.1 345.1 0.2 (1.1) 344.2
Notes to the consolidated financial statements
For the year ended 31 December 2023
1. Basis of preparation
The preliminary results for the year ended 31 December 2023 are an abridged
statement of the full Annual Report which was approved by the Board of
Directors on 24 March 2024. The consolidated financial statements in the full
Annual Report are prepared in accordance with UK-adopted International
Financial Reporting Standards ("IFRS"), with IFRS as issued by the
International Accounting Standards Board ("IASB") and with the requirements of
the Companies Act 2006.
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 2023
on which the auditor has expressed an unqualified opinion and do not include
any statement under section 498 of the Companies Act 2006. The Group's
statutory consolidated financial statements for the year ended 31 December
2023 will be available at the Gamma Communications plc website in due course
and will be posted to shareholders prior to the AGM and subsequently filed at
Companies House.
The financial information included in this preliminary announcement does not
itself contain sufficient information to comply with IFRS. The annual report
and audited financial statements for the year ended 31 December 2023 will be
made available on the Group's website in March 2024.
The financial statements are presented in Pounds Sterling and, unless
otherwise stated, have been rounded to the nearest 0.1 million (£m). The
consolidated financial statements have been prepared on a going concern basis
under the historical cost convention, except for certain financial
instruments which have been measured at fair value.
The accounting policies adopted are consistent with those followed in the
preparation of the audited statutory consolidated financial statements for the
year ended 31 December 2023.
A full set of the audited statutory accounts will be available in due course
at: www.gammagroup.co/company/investors/results-presentations/
(http://www.gammagroup.co/company/investors/results-presentations/)
There are no additional standards or interpretations requiring adoption that
are applicable to the Group for the accounting period commencing 1 January
2023.
Consolidated statement of comprehensive income
The Group has revised the presentation of the Consolidated statement of
comprehensive income to present exchange differences and the tax effect of
them separately. These were presented as one net figure previously. The
revised presentation is considered to be more helpful to the users of the
accounts. The comparatives have been re-presented to be consistent with the
revised presentation format.
Consolidated statement of financial position
The Group has revised the presentation of the Consolidated statement of
financial position to present contract assets separately. These were presented
within Trade and other receivables in previous periods. The revised
presentation is considered to be more helpful to the users of the accounts,
given the relative materiality of contract assets. The comparatives have been
re-presented to be consistent with the revised presentation format. Contract
costs were previously included within contract assets in Trade and other
receivables and continue to be included within Trade and other receivables as
contract costs. The revision has no impact on the Consolidated statement of
profit or loss or cash flows, or total or net assets.
Consolidated statement of cash flows
In 2023 the put option liability payment of £1.3m was recorded within
financing activities given no change in control. In 2022 a comparable put
option liability payment of £3.8m was recorded in acquisition of subsidiaries
net of cash required within investing activities and has not been re-presented
as it is not material.
2. Accounting policies, judgements and estimates
The accounting policies adopted are consistent with those followed in the
preparation of the audited statutory consolidated financial statements for the
year ended 31 December 2023.
Preparation of the consolidated financial statements requires the Group to
make certain estimations, assumptions and judgements regarding the future.
Estimates and judgements are continually evaluated based on historical
experience and other factors, including best estimates of future events. In
the future, actual experience may differ from these estimates and assumptions.
The following are considered to be the critical accounting judgements and key
sources of estimation uncertainty.
Critical accounting judgements
Critical judgements, apart from those involving estimations, applied in the
preparation of the consolidated financial statements are discussed below:
Revenue recognition
Revenue recognition on contracts may involve providing services over multiple
years and involving a number of products. In such instances, judgement is
required to identify the date of transaction of separable elements of the
contract and the fair values which are assigned to each element. For more
information on the Group's revenue recognition policy please see note 1,
Accounting policies of the full set of the statutory consolidated financial
statements.
Key accounting estimates
Key accounting estimates that could have a significant risk of causing a
material adjustment within the next financial year are discussed below:
Contingent consideration
At 31 December 2023, the fair value of contingent consideration liabilities
amounted to £9.4m (2022: £5.0m). This is based on estimates of the future
financial performance of the acquired entity. The maximum amount that could be
paid is £16.5m due by the end of 2027, dependent upon financial performance.
Further details on these estimates and sensitivity of the fair value of
contingent consideration is provided within note 11 Contingent Consideration.
3. Segment information
In recent years, Gamma has widened its product and solution/services set to
address the communications needs of a broader range of businesses. Post
pandemic, customer requirements have evolved in respect of their
telecommunications and IT infrastructure and methods of procurement for such
products and services have broadened. Because of this, the Group's business
unit responsibilities have been realigned to allow the business units to focus
more directly on customer needs and preferences.
Our two UK business units are now aligned with customer groups rather than
routes to market. We have therefore updated our segmental reporting structure
to reflect the way in which the Group now manages its operations.
Previously the reported segments were UK Indirect, UK Direct, Europe and
Central Functions. The new segments are Gamma Business, Gamma Enterprise,
Europe and Central Functions. Gamma Business consists of the former UK
Indirect business with the addition of some customers and associated costs
from the UK Direct business (now Gamma Enterprise). This has resulted in a
£13.5m revenue movement between segments for the year ended 31 December 2022
(3% of group revenue) with no change in Executive Committee leadership.
This change in segmentation resulted in the following movements between the
former Direct segment to the former Indirect segment for FY 2022: revenue
of £13.5m, gross profit of £8.1m and overheads of £6.2m, resulting in
a £1.9m EBITDA movement between segments for the year ended 31 December
2022.
This change in reporting structure has taken effect for reporting in 2023.
The Group's main operating segments are outlined below:
Gamma Business - This division sells Gamma's products to smaller businesses in
the UK, typically with fewer than 250 employees. This division sells through
different routes including the channel, direct, digital and other carriers who
sell to smaller businesses in the UK. It contributed 64% (2022: 64%) of the
Group's external revenue.
Gamma Enterprise - This division sells Gamma's products to larger businesses
in the UK, typically to those with more than 250 employees. Larger
organisations have more complex needs so this division sells Gamma's and other
suppliers' products to Enterprise and Public Sector customers, together with
an associated managed service wrap, and ordinarily sells directly. It
contributed 21% (2022: 21%) of the Group's external revenue.
Europe - This division consists of sales made in Europe through Gamma's
German, Spanish and Dutch businesses. It contributed 15% (2022: 15%) of the
Group's external revenue.
Central functions - This comprises the central management team and wider Group
costs.
Factors that Management used to identify the Group's operating segments
The Group's reportable segments are strategic business units that are aligned
with customer groups, needs and preferences. They are managed separately
because each business requires different marketing strategies and are reported
separately to the Board and Executive Committee to use for decision-making.
Measurement of operating segment profit or loss
The accounting policies of the reportable segments are the same as those
described in the summary of material accounting policies.
The Board and Executive Committee evaluate performance on the basis of
earnings before interest, tax, depreciation, amortisation and exceptional
items.
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.
Revenue from external customers has been derived principally in the
geographical area of the operating segment and no single customer contributes
more than 10% of revenue.
2023 Gamma Business Gamma Europe Central Total
£m Enterprise £m functions £m
£m £m
Segment revenue 353.9 110.6 79.5 - 544.0
Inter-segment revenue (21.7) (0.5) (0.1) - (22.3)
Revenue from external customers 332.2 110.1 79.4 - 521.7
Timing of revenue recognition
At a point in time 19.3 9.2 30.4 - 58.9
Over time (recurring) 312.9 100.9 49.0 - 462.8
332.2 110.1 79.4 - 521.7
Total gross profit 176.1 52.6 38.5 - 267.2
Earnings before interest, tax, depreciation, amortisation and exceptional 85.0 29.6 10.2 (10.5) 114.3
items (Adjusted EBITDA)
Exceptional items (14.7) (0.2) (1.0) (0.1) (16.0)
Earnings before interest, tax, depreciation and amortisation (EBITDA) 70.3 29.4 9.2 (10.6) 98.3
2022 (Restated) Gamma Business Gamma Europe Central Total
£m Enterprise £m functions £m
£m £m
Segment revenue 334.0 102.9 73.4 - 510.3
Inter-segment revenue (24.6) (0.9) (0.2) - (25.7)
Revenue from external customers 309.4 102.0 73.2 - 484.6
Timing of revenue recognition
At a point in time 17.5 6.7 28.7 - 52.9
Over time (recurring) 291.9 95.3 44.5 - 431.7
309.4 102.0 73.2 - 484.6
Total gross profit 163.7 49.3 34.7 - 247.7
Earnings before interest, tax, depreciation, amortisation and exceptional 78.6 27.9 9.0 (10.4) 105.1
items (Adjusted EBITDA)
Exceptional items - - (12.5) - (12.5)
Earnings before interest, tax, depreciation and amortisation (EBITDA) 78.6 27.9 (3.5) (10.4) 92.6
Geographic segmentation
The UK is the Group and Company's country of domicile and is where most
revenue is generated, which is from external UK customers. The geographic
analysis of revenue and non-current assets, which excludes deferred tax
assets, is presented below.
The Group's revenue from external customers by geographical location is
detailed below:
2023 2022
£m £m
UK 413.8 391.1
Europe 107.9 93.5
Total 521.7 484.6
The Group's non-current assets by geographical location are detailed below:
2023 2022
£m £m
UK 131.8 104.0
Europe 76.0 76.2
Total 207.8 180.2
4. Exceptional items
2023 2022
£m £m
Impairment of intangible development costs 12.7 -
Restructuring costs 3.3 -
Impairment of goodwill - 12.2
Loss on disposal of subsidiary - 0.3
Total exceptional items 16.0 12.5
Tax effect of exceptional items (3.9) -
An impairment of intangible development costs totalling £12.7m has been
recorded in the year (2022: £nil), see note 9 for additional information.
Restructuring costs relate to severance of £3.3m in the year (2022: £nil),
following non-recurring organisational changes related to the expanded UCaaS
offering and the combining of the German and Dutch senior leadership team. The
cash cost in the year was £0.2m and the remaining £3.1m is expected to be
paid out within the next 12 months.
In 2022 an impairment of goodwill in the Spanish CGU was recognised, along
with a loss on disposal of ComyMedia (previously part of the Spanish CGU).
The total cash cost of exceptional items in the year was £0.2m (2022: £nil).
5. Tax expense
2023 2022
£m £m
Current tax expense
UK current tax on profits for the year 18.9 13.7
Overseas current tax 1.1 1.1
Adjustment in respect of prior year 1.7 (0.4)
Total current tax 21.7 14.4
Deferred tax expense
Origination and reversal of temporary differences (2.3) (0.2)
Adjustment in respect of prior years (1.6) 0.2
Tax rate change - 1.0
Total deferred tax (3.9) 1.0
Total tax expense 17.8 15.4
The tax charge for 2023 is higher (2022: higher) than the standard blended
rate of corporation tax in the United Kingdom of 23.5% (2022: 19%). The
differences are explained below:
2023 2022
£m £m
Profit before tax 71.5 64.9
Expected tax charge based on the standard blended rate of United Kingdom 16.8 12.3
corporation tax at the domestic rate of 23.5% (2022: 19%)
Effects of:
Tax effect of expenses that are not deductible in determining taxable profit 0.8 2.8
Effect of different tax rates of subsidiaries operating in other jurisdictions (0.1) (0.2)
Tax rate change - 1.0
Other tax items 0.2 (0.3)
Adjustment in respect of prior years 0.1 (0.2)
Total tax expense 17.8 15.4
Deferred tax was calculated based on the tax laws and rates that were enacted
or substantively enacted at the balance sheet date.
6. Earnings per share
2023 2022
Earnings per ordinary share - basic (pence) 55.2 51.1
Earnings per ordinary share - diluted (pence) 54.9 50.6
The calculation of the basic and diluted earnings per share is based on the
following data:
2023 2022
£m £m
Profit attributable to the ordinary equity holders of the Company 53.6 49.3
Shares No. No.
Weighted average number of Ordinary Shares for basic earnings per share 97,088,798 96,543,985
Effect of dilution resulting from share options 606,553 948,689
Diluted weighted average number of ordinary shares 97,695,351 97,492,674
In 2022, as part of Gamma's acquisition of Gamma Holding GmbH (formerly HFO)
the vendor reinvested £0.5m and purchased 44,558 ordinary shares.
Adjusted earnings per share (diluted) is detailed below:
2023 2022
Adjusted earnings per ordinary share - diluted (pence) 75.1 71.8
7. Dividends
The following dividends were paid by the Group to its shareholders:
2023 2022
£m £m
Final dividend for the year ended 31 December 2021 of 8.8p per ordinary share - 8.5
Interim dividend for the year ended 31 December 2022 of 5.0p per ordinary - 4.8
share
Final dividend for the year ended 31 December 2022 of 10.0p per ordinary share 9.7 -
Interim dividend for the year ended 31 December 2023 of 5.7 per ordinary share 5.5 -
15.2 13.3
A final dividend of 11.4p will be proposed at the 2024 Annual General Meeting
but has not been recognised as it requires shareholder approval. The total
amount of dividends proposed for the year ended 31 December 2023 is 17.1p. The
payments of these dividends do not have any tax consequences for the Group.
8. Property, plant and equipment
Land and buildings Network Computer equipment Fixtures and fittings Total
£m assets £m £m £m
£m
Cost
At 1 January 2023 4.7 67.4 13.5 2.8 88.4
Additions - 3.9 1.6 0.1 5.6
Acquisition of subsidiary - - - 0.1 0.1
Disposals - (3.1) (0.8) (0.2) (4.1)
Exchange difference (0.1) 0.2 0.1 0.1 0.3
At 31 December 2023 4.6 68.4 14.4 2.9 90.3
Depreciation
At 1 January 2023 0.3 41.8 10.7 1.8 54.6
Charge for the year 0.2 6.9 1.8 0.4 9.3
Disposals - (3.1) (0.8) (0.2) (4.1)
Exchange difference 0.1 - - (0.1) -
At 31 December 2023 0.6 45.6 11.7 1.9 59.8
Net book value
At 1 January 2023 4.4 25.6 2.8 1.0 33.8
At 31 December 2023 4.0 22.8 2.7 1.0 30.5
Land and buildings Network Computer equipment Fixtures and fittings Total
£m assets £m £m £m
£m
Cost
At 1 January 2022 4.5 78.7 12.3 2.4 97.9
Additions 0.2 5.5 1.0 0.1 6.8
Acquisition of subsidiary - - 0.1 - 0.1
Disposals - (16.7) - - (16.7)
Disposal of subsidiary - - (0.1) - (0.1)
Exchange difference - (0.1) 0.2 0.3 0.4
At 31 December 2022 4.7 67.4 13.5 2.8 88.4
Depreciation
At 1 January 2022 0.3 50.3 9.0 1.5 61.1
Charge for the year 0.1 7.5 1.6 0.3 9.5
Disposals - (16.3) - - (16.3)
Disposal of subsidiary - - (0.1) - (0.1)
Exchange difference (0.1) 0.3 0.2 - 0.4
At 31 December 2022 0.3 41.8 10.7 1.8 54.6
Net book value
At 1 January 2022 4.2 28.4 3.3 0.9 36.8
At 31 December 2022 4.4 25.6 2.8 1.0 33.8
9. Intangible assets
Goodwill Customer contracts Brand Development Software Total
£m £m £m costs £m £m
£m
Cost
At 1 January 2023 97.5 50.9 1.4 40.4 19.3 209.5
Additions - - - 14.4 3.0 17.4
Acquisition of subsidiaries 36.6 6.6 0.8 - 2.1 46.1
Disposal of subsidiaries - - - - - -
Disposals - - - (2.4) - (2.4)
Exchange difference (0.9) (0.8) - (0.1) - (1.8)
At 31 December 2023 133.2 56.7 2.2 52.3 24.4 268.8
Amortisation and impairment
At 1 January 2023 20.8 29.1 0.7 18.0 16.6 85.2
Charge for the year - 8.8 0.4 5.2 5.3 19.7
Impairment charge - - - 12.7 - 12.7
Disposal of subsidiaries - - - - - -
Disposals - - - (2.4) - (2.4)
Exchange difference (0.3) (0.5) - (0.3) - (1.1)
At 31 December 2023 20.5 37.4 1.1 33.2 21.9 114.1
Carrying value
At 1 January 2023 76.7 21.8 0.7 22.4 2.7 124.3
At 31 December 2023 112.7 19.3 1.1 19.1 2.5 154.7
Included in development costs are assets not yet in service of £2.4m (2022:
£10.2m).
Goodwill Customer contracts Brand Development Software Total
£m £m £m costs £m £m
£m
Cost
At 1 January 2022 91.8 47.6 2.2 28.1 18.5 188.2
Additions - - - 13.1 0.8 13.9
Acquisition of subsidiaries 4.0 1.3 0.1 - - 5.4
Disposal of subsidiaries - - - (0.2) - (0.2)
Disposals - - (0.9) (0.8) - (1.7)
Exchange difference 1.7 2.0 - 0.2 - 3.9
At 31 December 2022 97.5 50.9 1.4 40.4 19.3 209.5
Amortisation and impairment
At 1 January 2022 8.7 20.2 0.9 14.8 14.3 58.9
Charge for the year - 7.9 0.7 4.0 2.3 14.9
Impairment charge 12.2 - - - - 12.2
Disposal of subsidiaries - - - (0.2) - (0.2)
Disposals - - (0.9) (0.8) - (1.7)
Exchange difference (0.1) 1.0 - 0.2 - 1.1
At 31 December 2022 20.8 29.1 0.7 18.0 16.6 85.2
Carrying value
At 1 January 2022 83.1 27.4 1.3 13.3 4.2 129.3
At 31 December 2022 76.7 21.8 0.7 22.4 2.7 124.3
In 2022 an impairment of the goodwill of the Spanish CGU was recognised.
In December 2023 Gamma acquired EnableX, which gave the Group a relationship
with Ericsson-LG and allows access to Ericsson-LG's UCaaS solution, iPECS,
which further expands our UCaaS offering. This, along with the strengthening
of our partnership with Cisco, has resulted in the Group stopping ongoing
development of some of our own collaboration software and accordingly
reviewing the recoverability of our capitalised development costs.
The carrying amount of this collaboration software, which had been in
development as at 31 December 2023, was £15.0m (2022: £7.5m), recorded
within development cost intangible assets and the Gamma Business reportable
segment. Following the decision to stop ongoing development of this software,
the carrying amount has been reduced to its recoverable amount of £2.3m
through recognition of an impairment loss of £12.7m. This loss is included
within operating expenses in the Consolidated statement of profit or loss and
recorded solely within the Gamma Business segment.
The recoverable amount was calculated using the expected future discounted
cash flows over the estimated life of the asset. It incorporates cash flows
derived from Board approved five year forecasts and with cash flows beyond the
five year forecast period then reflecting management's expectations of future
growth prospects in the asset's market, with all cash flows discounted to
present value.
These cash flows have also been adjusted to exclude any estimated cash inflows
and outflows arising from enhancing the asset. The post-tax risk adjusted
discount rate used in estimating the recoverable amount based on value in use
is 9.7% or 12.3% on a pre-tax risk adjusted discount basis.
10. Business combinations
Summary of acquisitions
During 2023 the Group completed a total of two acquisitions, both of which are
100% owned by the Group unless otherwise stated.
Acquisition Acquired Principal activity
Satisnet Limited (Satisnet) August Satisnet is a leading provider of cyber security services and solutions to
businesses across the UK and Europe.
EnableX Group (EnableX) 1 December EnableX's focus is on enabling resellers to access new opportunities and win
within multiple technology areas, including in cloud communications, where it
is one of the leading providers to the UK wholesale channel.
(1) On 20 December 2023, the Group acquired 95% of EnableX with an option to
acquire the remaining shareholding, held by management, in 2027.
The fair value of identifiable assets acquired and liabilities assumed is as
follows:
Satisnet EnableX Total
£m £m £m
Tangible fixed assets - 0.2 0.2
Intangible assets - software - 2.1 2.1
Intangible assets - customer contracts 6.6 - 6.6
Intangible assets - brand 0.8 - 0.8
Cash 5.5 0.6 6.1
Inventories - 0.6 0.6
Trade and other receivables 2.1 5.1 7.2
Trade and other payables (2.8) (4.8) (7.6)
Bank loans(1) - (7.7) (7.7)
Contract liabilities (1.9) (4.5) (6.4)
Deferred tax liability(2) (1.9) - (1.9)
Total identifiable assets/(liabilities) 8.4 (8.4) -
Less: Non-controlling interests - (0.2) (0.2)
Add: Goodwill 12.6 24.0 36.6
Net assets acquired 21.0 15.4 36.4
(1) Bank loans of £7.7m were repaid at the time of acquisition.
(2) Deferred tax liability arising on customer contract and brand intangible
assets.
The fair value of identifiable assets acquired and liabilities assumed are
final for Satisnet.
The fair value of identifiable assets acquired and liabilities assumed are
provisional for EnableX. The exercise to finalise these balances and the
corresponding adjustment in respect of non-controlling interest is ongoing and
will be completed by 30 June 2024.
The value of the goodwill represents the prospective future economic benefits
that are expected to accrue from enhancing the portfolio of products available
to the Group's existing customers.
£19.5m was the total payment for the acquisition of EnableX, gross of £0.6m
of cash acquired. This payment included £7.7m to repay, at the time of
acquisition, all EnableX bank loans, with £11.8m the remaining cash
consideration paid.
Satisnet EnableX Total
£m £m £m
Satisfied by:
Cash paid 13.8 11.8 25.6
Ordinary Shares issued 2.8 - 2.8
Deferred consideration1 0.5 - 0.5
Contingent consideration(2) 3.9 3.6 7.5
Total 21.0 15.4 36.4
(1) Deferred consideration of £0.5m relating to the initial purchase payment
has been retained. This is expected to be paid in cash within 12 months,
provided that the retained amount has not been offset against the price
adjustment or against claims or damages and losses.
(2)Contingent consideration is payable dependent on future performance of the
business acquired. Refer to note 11 for further details.
Net cash outflow on acquisitions:
Satisnet EnableX Other Total
£m £m £m £m
Cash consideration 13.8 11.8 - 25.6
Less: cash acquired (5.5) (0.6) - (6.1)
8.3 11.2 - 19.5
Contingent consideration payments during the year1 - - 3.3 3.3
Net outflow of cash - investing activities 8.3 11.2 3.3 22.8
(Acquisition of subsidiaries net of cash acquired)
Repayment of acquired bank loans2 - 7.7 - 7.7
Net outflow of cash - financing activities - 7.7 - 7.7
(Repayment of borrowings acquired with acquisitions)
Net cash outflow relating to acquisitions in the year 8.3 18.9 3.3 30.5
(1) See note 11 Contingent consideration.
(2) Bank loans of £7.7m were repaid at the time of acquisition under change
of control notice.
Valuations of intangible assets
Customer contracts were valued under the Income Method and the Brand under the
Relief from Royalty methodology.
Goodwill
The goodwill is attributable to the acquired entity. The goodwill is not
deductible for tax purposes.
Revenue and profit contribution
From the date of acquisition, the acquired businesses have contributed £4.6m
of revenue and £0.2m of profit after taxation attributable to the equity
holders of Gamma Communications plc:
Revenue Profit before tax Profit after tax
£m £m £m
Satisnet 4.6 0.3 0.2
EnableX - - -
Total 4.6 0.3 0.2
If these acquisitions had occurred on 1 January 2023, the acquired businesses
would have contributed revenue and profit after taxation attributable to the
equity holders of Gamma Communications plc as outlined in the table below. The
amounts below are unaudited.
Revenue Profit before tax £m Profit after tax
£m £m
Satisnet 12.1 0.9 0.7
EnableX 15.1 1.3 1.0
Total 27.2 2.2 1.7
11. Contingent consideration
2023 2022
£m £m
Current 1.7 3.5
Non-current 7.7 1.5
9.4 5.0
The reconciliation of the carrying amounts of contingent consideration is as
follows:
Exactive Mission Labs NeoTel Satisnet EnableX Total
£m £m £m £m £m £m
1 January 2023 0.9 3.9 0.2 - - 5.0
Acquisition of subsidiary - - - 3.9 3.6 7.5
Contingent consideration settled (1.1) (1) (2.4) - - - (3.5)
Change in fair value of contingent consideration:
Unwinding of discount - 0.2 - 0.2 - 0.4
Other change in fair value 0.2 - (0.2) - - -
31 December 2023 - 1.7 - 4.1 3.6 9.4
(1) Includes £0.2m of shares issued.
Contingent consideration for Exactive was based on the EBITDA performance for
2021. This was settled during 2023, part cash £0.9m and part shares £0.2m.
Contingent consideration relating to Mission Labs is based on milestones being
achieved in 2023. Consideration of up to £1.7m may be payable. The fair value
of £1.7m at 31 December 2023 is current and based on a payout of £1.7m which
takes into account the weighted probability of payout.
Contingent consideration for NeoTel was based on gross profit for the period
July 2022 to July 2023, which was not achieved. Subsequently the contingent
consideration liability has been released.
Contingent consideration for Satisnet is based on managed service revenues for
the financial year ending 31 December 2025, and gross profit split between the
periods from 1 July 2023 to 31 December 2024 and the financial year ending 31
December 2025. Consideration of up to £5.0m may be payable. The fair value of
£4.1m at 31 December 2023 is non-current and based on a payout of £4.8m
which takes into account the weighted probability of payout.
Contingent consideration for EnableX is based on the EBITDA performance for
the financial year ending 31 December 2026. Consideration of up to £9.8m may
be payable. The fair value of £3.6m at 31 December 2023 is non-current and
based on a payout of £5.8m which takes into account the weighted probability
of payout.
The valuation technique used for instruments categorised in Level 3 (including
contingent consideration) was a probability weighted expected returns
methodology, using a risk-adjusted discount rate appropriate to the
transaction. The fair value of contingent consideration which is a Level 3
instrument is £9.4m (2022: £5.0m). It is dependent on the future financial
performance of the entity. It is assumed that future profits are in line with
management estimates which are derived from internal business plans together
with financial due diligence performed in connection with the acquisition.
The following analysis is provided to illustrate the sensitivity of the
year-end balance to a change in an individual input, within reasonable
expected ranges, while all other variables remain constant. This is not
intended to imply the likelihood of change or that possible changes in value
would be restricted to this range.
Input Change Change in
Year-end discounted estimate in input fair value £m
Discount rate 14.3% +1% (0.2)
-1% 0.2
Financial forecasts Forecast revenue performance +10% -
-10% (1.8)
Forecast gross profit performance +10% 0.2
-10% (1.1)
Forecast EBITDA performance +10% 0.6
-10% (0.6)
The following table sets out the contractual maturities (representing
undiscounted contractual cash flows) of financial liabilities at fair value
(contingent consideration and put option liability):
Less than 1 year Between Between Over
£m 1 and 2 2 and 5 5 years
years years £m
£m £m
2023 1.7 1.1 11.2 -
2022 5.3 1.7 - -
As at 31 December, the potential undiscounted amount of future payments that
could be required under contingent consideration arrangements range from nil
to £16.5m.
12. Share capital
At 31 December the share capital was as follows:
2023 2023 2022 2022
Number £m Number £m
Authorised, allotted and fully paid
Ordinary Shares of £0.0025 each 97,462,226 0.2 96,847,301 0.2
Ordinary Share movement in the year is as follows:
Number Notes
As at 1 January 2023 96,847,301
January 7,170 (a)
February 2,221 (a)
April 5,268 (a)
May 4,132 (a)
June 109,751 (a)
July 176,233 (a)
August 1,000 (b)
September 25,607 (a)
September 246,599 (b)
October 2,790 (a)
November 3,510 (a)
December 10,450 (a)
December 20,194 (c)
As at 31 December 2023 97,462,226
(a) Ordinary shares were issued to satisfy options which had been exercised.
(b) Ordinary shares were issued to the vendor of Satisnet Limited as
consideration for the purchase.
(c) Ordinary shares were issued to the former owners of Exactive Holdings
Limited, being the final of two contingent consideration payments.
13. Other reserves
A breakdown of other reserves is shown below:
Merger reserve Share option reserve Foreign exchange reserve Own shares Total Other Reserves
£m
£m
£m £m £m
1 January 2022 2.3 7.1 (4.2) (0.7) 4.5
Issue of shares - (2.7) - - (2.7)
Share-based payment expense - 4.3 - - 4.3
Other comprehensive income - - 2.9 - 2.9
31 December 2022 2.3 8.7 (1.3) (0.7) 9.0
1 January 2023 2.3 8.7 (1.3) (0.7) 9.0
Issue of shares - (4.2) - - (4.2)
Share-based payment expense - 2.7 - - 2.7
Other comprehensive (expense) - - (0.6) - (0.6)
31 December 2023 2.3 7.2 (1.9) (0.7) 6.9
14. Subsequent events
In February 2024, the Group acquired the entire issued share capital of
Coolwave Communications Limited, a prominent international SMS and voice
services provider, for an initial cash payment of £6.3m (excluding amounts
paid for cash acquired). In addition, there is a further amount payable of up
to £0.4m within the next six months. Given the timing of the closure of the
transaction, the Group expects to disclose the provisional accounting for the
acquisition in the H1 2024 results.
In March 2024, the Group has appointed Investec Bank plc to manage a share
buyback programme to purchase ordinary shares of 0.25 pence each in Gamma
Communications plc for an aggregate purchase price of up to £35.0m within
certain pre-set parameters (the "Programme"). The Company has authorised the
Programme to continue while it retains the authority from shareholders to
repurchase such ordinary shares until the earlier of: (i) the maximum
aggregate consideration payable by the Company has been reached or (ii) Friday
6 September 2024. The Programme will be conducted by the Company in accordance
with and under the terms of the general authority granted to the Board by the
Company's shareholders. The purpose of the Programme is to reduce the
Company's share capital (any Shares repurchased for this purpose will be
cancelled) and to enable the Company to meet obligations arising from share
option programmes (any Shares repurchased for this purpose will be held in
treasury).
Alternative Performance Measures
The Group uses certain measures to assess the financial performance of its
business. These measures are called Alternative Performance Measures ("APMs")
because they exclude amounts that are included in, or include amounts that are
excluded from, the most directly comparable measure calculated and presented
in accordance with IFRS, or are calculated using financial measures that are
not calculated in accordance with IFRS.
These APMs are used to measure operating performance and liquidity in
presentations to the Board and as a basis for strategic planning and
forecasting. The Group believes that APMs provide additional useful
information for users of the financial statements to assess the Group's
performance, including the Group's core operational performance. These and
similar measures are used widely by certain investors, analysts and other
interested parties as supplemental measures of performance and liquidity.
The APMs may not be comparable to similarly named measures used by other
companies and have limitations as analytical tools. They should not be
considered in isolation or as a substitute for analysis of the Group's results
reported under IFRS.
An explanation of the relevance of each of the APMs, a reconciliation of the
APM to the most directly comparable measure calculated and presented in
accordance with IFRS and a discussion of the limitations are set out below.
The Group does not consider these APMs to be a substitute for, or superior to,
the equivalent measures calculated and presented in accordance with IFRS.
EBITDA and Adjusted EBITDA
EBITDA is presented because it is widely used by securities analysts,
investors and our peer group internationally to evaluate the profitability of
companies. EBITDA is defined as Profit before tax excluding finance expense,
finance income, depreciation of property, plant and equipment, right of use
asset depreciation and amortisation of intangible assets. EBITDA eliminates
potential differences in core financial performance that can be caused by
variations in capital structures (affecting net finance costs), tax positions
(such as the availability of brought forward losses against which taxable
profits can be relieved), the cost and age of property, plant and equipment
and right of use assets (affecting relative depreciation expense), and the
extent to which intangible assets are identifiable (affecting relative
amortisation expense).
Adjusted EBITDA is a primary profit measure used internally by the Board to
assess financial performance of the Group and its segments. It is defined as
EBITDA (as defined above) adding back exceptional items. It excludes
exceptional items (note 4) by virtue of their size, nature or incidence, in
order to show the Group's core performance.
The following table is a reconciliation from statutory profit before tax for
the year to EBITDA and Adjusted EBITDA:
2023 2022
£m £m
Profit before tax 71.5 64.9
Finance income (5.4) (0.8)
Finance expense 0.9 1.3
Profit from operations 67.0 65.4
Depreciation of property, plant and equipment and right of use assets 11.6 12.3
Amortisation from intangible assets 19.7 14.9
EBITDA 98.3 92.6
Exceptional items 16.0 12.5
Adjusted EBITDA 114.3 105.1
In the year, the cash cost of exceptional and other adjusting items was £0.2m
(2022: £nil).
Adjusted profit before tax
Adjusted profit before tax is defined as profit before tax excluding the
effects of exceptional items, amortisation arising from business combinations
and changes in fair value of contingent consideration and put option
liability. These items are individually material items and/or are not
considered to be representative of the trading performance of the Group:
Exceptional items (note 4) are excluded by virtue of their size, nature or
incidence in order to show the core performance of the Group.
Amortisation of intangibles arising from business combinations is excluded
because this charge is a non-cash accounting item based on judgements about
the assets' value and economic life and is the result of the application of
acquisition accounting, and whilst revenue recognised in the income statement
does benefit from the intangibles that have been acquired, the amortisation
costs bear no relation to the Group's trading performance in the period. This
adjustment improves comparability between acquired and organically grown
operations.
Changes in fair value of contingent consideration and put option liability are
excluded because the amounts are non-cash accounting items and bear no
relation to the Group's trading performance in the period. This adjustment
improves comparability between acquired and organically grown operations.
Adjusted profit before tax is the primary profit measure used internally to
reward employees.
The following table is a reconciliation from statutory Profit before tax for
the year to Adjusted profit before tax:
2023 2022
£m £m
Profit before tax 71.5 64.9
Exceptional items 16.0 12.5
Amortisation of intangibles arising from business combinations 10.0 9.5
Change in fair value of contingent consideration and put option liability 0.4 0.9
Adjusting items 26.4 22.9
Adjusted profit before tax 97.9 87.8
In the year, the cash cost of exceptional and other adjusting items was £0.2m
(2022: £nil).
Adjusted earnings per share (fully diluted)
Adjusted earnings per share ("EPS") fully diluted is presented as management
believes it is important for understanding the changes in the Group's fully
diluted EPS, including improving comparability between acquired and
organically grown operations. Adjusted EPS fully diluted is defined as Diluted
EPS where the earnings attributable to ordinary shareholders are adjusted by
excluding the effects of exceptional items, amortisation arising from business
combinations and changes in fair value of contingent consideration and put
option liability (for the same reasons outlined previously in relation to
Adjusted profit before tax), as well as the tax on these items, because they
are individually or collectively material items that are not considered to be
representative of the trading performance of the Group. To exclude the tax
impact of these items would give an incomplete picture.
2023 2022
Earnings per ordinary share - diluted (pence) 54.9 50.6
Adjusted earnings per ordinary share - fully diluted (pence) 75.1 71.8
2023 2022
£m £m
Profit after tax attributable to the ordinary equity holders of the Company 53.6 49.3
Adjusting items:
Exceptional items 16.0 12.5
Amortisation of intangibles arising from business combinations 10.0 9.5
Change in fair value of contingent consideration and put option liability 0.4 0.9
26.4 22.9
Tax relating to adjusting items (6.6) (2.2)
Adjusted profit after tax attributable to the ordinary equity holders of the 73.4 70.0
Company
2023 2022
No: No:
Diluted weighted average number of ordinary shares 97,695,351 97,492,674
Net cash
Net cash is presented as it is an important liquidity measure used by
management and the board. Net cash is defined as cash and cash equivalents
less borrowings. IFRS 16 lease liabilities and contingent consideration are
not considered as debt for the purpose of quoting Net cash.
2023 2022
£m £m
Cash and cash equivalents 136.5 94.6
Borrowings (1.7) (2.1)
Net cash 134.8 92.5
The following table is a reconciliation of the movements in Net cash from
previously reported periods:
Cash and cash equivalents Borrowings Net cash
£m £m £m
At 1 January 2022 52.8 (3.3) 49.5
Repayments - 0.7 0.7
Disposal of subsidiaries - 0.6 0.6
Net increase in cash and cash equivalents 41.3 - 41.3
Effects of foreign exchange rate changes 0.5 (0.1) 0.4
At 31 December 2022 94.6 (2.1) 92.5
Repayments - 0.5 0.5
Borrowings acquired with acquisitions - 7.7 7.7
Repayment of borrowings acquired with acquisitions - (7.7) (7.7)
Net increase in cash and cash equivalents 42.1 - 42.1
Effects of foreign exchange rate changes (0.2) (0.1) (0.3)
At 31 December 2023 136.5 (1.7) 134.8
Adjusted cash conversion
Adjusted cash conversion is presented as management believe it is important to
understand the Group's conversion of Adjusted EBITDA (as defined previously)
to cash. The Group's Adjusted cash conversion is defined as Cash generated by
operations excluding the cash impact of exceptional items divided by Adjusted
EBITDA, so as to exclude the impact of significant one-off transactions
outside the normal course of trading. Adjusted cash conversion is used to
track and measure timing differences between profitability and cash generation
through working capital management, including seasonality or one-offs.
2023 2022
£m £m
Cash generated by operations 123.5 99.1
Cash impact of exceptional items 0.2 -
Cash generated by operations (excluding exceptional item impacts) 123.7 99.1
Adjusted EBITDA 114.3 105.1
Adjusted cash conversion 108% 94%
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