REG - Gamma Communications - Half-year Report
10/09/2024 07:00
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RNS Number : 5031D Gamma Communications PLC 10 September 2024
10 September 2024
Gamma Communications plc
Unaudited results for the six months ended 30 June 2024
Strong first half performance, complemented by growth from acquisitions. Full
year Adjusted EBITDA in the top half of market expectations and Adjusted EPS
at top of the range
Gamma Communications plc ("Gamma" or "the Group"), a leading provider of
technology-based communication services across Europe, is pleased to announce
its unaudited results for the six months ended 30 June 2024.
Six months ended 30 June
2024 2023 Change (%)
Revenue £282.5m £256.2m 10%
Gross profit £145.8m £131.2m 11%
Gross margin 52% 51%
Adjusted EBITDA* £62.2m £56.5m 10%
Profit before tax ("PBT") £48.5m £43.5m 11%
Adjusted PBT* £56.0m £48.3m 16%
Earnings Per Share ("EPS") (fully diluted) 36.7p 33.8p 9%
Adjusted EPS (fully diluted)* 42.5p 37.5p 13%
Interim dividend per share 6.5p 5.7p 14%
Cash generated by operations £59.6m £57.1m 4%
Adjusted cash conversion*^ 100% 101%
Net cash* £142.9m £121.7m 17%
*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 measure. These APMs
are explained, defined and reconciled in the APM section, which follows the
notes to the condensed financial statements, and are applied consistently.
^ The Group's Adjusted cash conversion is defined as Cash generated by
operations excluding the cash impact of exceptional items £2.2m (for 2023
restructuring) and of other adjusting items £0.4m (which comprise the
incremental costs related to the implementation of new cloud-based Finance and
HR systems), divided by Adjusted EBITDA.
Key highlights
· Strong financial performance with gross profit and Adjusted EBITDA growth in
all business units and strong cash position.
· Continued growth in Cloud PBX seats, Gamma surpassed 1 million UK seats as at
30(th) June.
· Completed two acquisitions both of which are expected to be immediately
earnings enhancing:
· Coolwave Communications, in February 2024, an international SMS and
voice services provider allowing us to provide Operator Connect for Microsoft
Teams and other carrier services into nearly 20 countries; and
· BrightCloud, in July 2024, giving us additional capabilities in the
Cisco Contact Centre as a Service ("CCaaS") space. This also enables us to
offer these additional Customer Experience ("CX") solutions to our existing
Enterprise customers.
· Gamma has also recently agreed with Cisco that it will acquire Placetel, a
German market leader in the Cloud PBX space, enabling German companies to buy
Cisco Collaboration solutions both digitally and through local partners. This
deal remains subject to certain closing conditions being met and we expect it
to close shortly. This will elevate Gamma to being one of the leading
providers in Germany with a pro-forma number of around 300,000 seats. See note
13 for additional details.
· The Board is beginning to consider a move to the Main Market. We will provide
a further update in January 2025 following engagement with our largest
shareholders.
Financial highlights
The Group continued to perform well in the first six months of the year
delivering strong gross profit growth flowing through to both Adjusted EBITDA
and Adjusted PBT, with healthy cash generation.
Group performance:
· Group revenue grew by 10% to £282.5m, gross profit grew by 11% to £145.8m
(H1 2023: £256.2m and £131.2m) and profit before tax grew by 11% to £48.5m
(H1 2023: £43.5m), with Adjusted EBITDA growing by 10% to £62.2m (H1 2023:
£56.5m). Acquisitions have positively contributed to the Group's performance
during the period. Excluding the contribution of acquisitions since June 2023
and the impact of movements in foreign exchange, revenue increased by 5%,
gross profit by 7%, and Adjusted EBITDA by 8%.
· Recurring revenue (being revenue which is recognised "over time" as per note
3) in the year grew to £252.7m (H1 2023: £229.7m) remaining high at 89% (H1
2023: 90%) of total revenue.
· Adjusted EPS (fully diluted) for the period increased by 13% to 42.5p (H1
2023: 37.5p) reflecting the impact of strong Adjusted EBITDA growth and
increased interest income. Cash generated by operations increased by 4% to
£59.6m (H1 2023: £57.1m). This was despite the timing of inventory purchases
for contracted future hardware sales and the invoicing of certain significant
contracts at the period end, in Gamma Enterprise. Adjusted cash conversion was
in line with prior periods at 100%.
· In total 1,910,596 Ordinary Shares were acquired by the Company and held in
Treasury for an aggregate £27.3m over the course of the buyback to 6
September 2024, when the buyback programme expired.
Business unit performance:
· Gamma Business continued to grow strongly driven primarily by our UCaaS
portfolio. Revenue growth has also been supported by recent acquisitions.
Gross profit increased by 12% to £97.1m (H1 2023: £86.8m) with a stable
gross margin.
· Gamma Enterprise, benefitted by a number of significant contract wins, grew
gross profit by 14% to £28.9m (H1 2023: £25.4m) with the Satisnet
acquisition contributing £2.1m (H1 2023: £Nil).
· European revenue was flat and gross profit growth was 7%, when excluding
foreign exchange impacts, following good progress in higher margin products.
The impact of foreign exchange meant gross profit otherwise grew 4% to £19.8m
(H1 2023: £19.0m).
Outlook
Following a strong first half performance, growth is expected to continue
across the second half and Adjusted EBITDA is now anticipated to be in the top
half and Adjusted EPS at the top of the range of market expectations(+).
Andrew Belshaw, Chief Executive Officer, commented:
"Gamma has achieved another strong set of results, marked by robust revenue
growth, stable margins, and strong cash generation. Our broadened product set
is resonating well with both Channel Partners and enterprise customers. As
customers require more complex communications solutions, we continue to see
opportunities to grow our revenues further. We are making progress in
developing a common Pan-European product set, expanding our enterprise
offering while continuing to capitalise on the significant opportunities
within our SME customer base.
The strength of Gamma's balance sheet has enabled us to expand our
capabilities, through both product development and strategic acquisitions. We
have recently broadened our enterprise offerings with two earnings enhancing
acquisitions: Coolwave Communications and BrightCloud. Additionally, we have
conditionally agreed with Cisco to acquire Placetel a leading player in the
German Cloud PBX space. We continue to view M&A as a key tool to
complement our organic growth, broaden our capabilities and expand our
European presence. With a strong pipeline of organic and inorganic
opportunities, our resilient business model enables us to look forward with
confidence."
(+) Company compiled range is based on known sell side analyst estimates. The
current consensus range for full year 2024 Adjusted EBITDA £120.9m - £127.4m
and Adjusted EPS (fully diluted) 78.4p - 84.0p, as at 6 September 2024.
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
Rachael Matzopoulos, Company Secretary
Peel Hunt (NOMAD & Broker) Tel: +44 (0)207 418 8900
Neil Patel / Benjamin Cryer / Kate Bannatyne
Deutsche Numis (Broker) Tel: +44 (0)207 260 1000
Simon Willis / Hugo Rubinstein / Spencer Clark
Teneo (PR Adviser) Tel: +44 (0)207 353 4200
James Macey White / Matt Low / Ffion Dash Gamma@teneo.com (mailto:Gamma@teneo.com)
Gamma Communications plc is a leading provider of technology-based
communication services across Europe. Gamma is admitted to trading on AIM and
employs approximately 1,900 people. Offering a range of Unified
Communications, mobile, security and connectivity services, Gamma provides
robust and secure end-to-end business communication solutions, enabling
organisations to communicate, collaborate and offer a better customer
experience.
Gamma's vision is for a better-connected world in which it can work smarter
for the benefit of business, people, and the planet. Its primary market is the
UK, where it delivers network-based services to SME, Public Sector, and
Enterprise markets through its extensive network of trusted channel partners
and direct sales and support capabilities. Expanding its presence in Europe,
Gamma is continuing to grow its group of businesses focused on digital
transformation by delivering services to customers via a network of channel
partners in Germany, Spain, and the Benelux region.
For more information about Gamma and its comprehensive range of products and
services, please visit gammagroup.co
Chief Executive Review
I am pleased to report another set of strong results for Gamma's first six
months of 2024. Group revenue for the six months increased by £26.3m to
£282.5m (H1 2023: £256.2m), an increase of 10% on the prior year. Adjusted
EBITDA for the Group increased by £5.7m (10%) to £62.2m (H1 2023: £56.5m).
Profit before tax for the period was £48.5m, an increase of 11% from the
prior year figure of £43.5m.
Cash generated by operations for the period was £59.6m compared to £57.1m in
H1 2023. The closing Net Cash balance for the half was £142.9m (31 December
2023: £134.8m). This cash balance has increased despite investing £7.8m in
capital items, paying £9.0m in relation to acquisitions, returning £12.6m to
shareholders at 30 June 2024 through a share buyback scheme, and paying
£11.1m in dividends.
Our performance in the first half of 2024 was strong. The gross profit and
EBITDA of each business unit grew organically in line with our expectations
and all of the acquisitions made in 2023 and early in 2024 have been
immediately accretive.
We believe that the acquisitions we have made in 2024 will continue to perform
well in the second half of this year and will be a growth driver into 2025 and
beyond.
In addition to the growth driven by acquisitions, our organic growth has been
solid. Gamma continues to experience growth in our existing markets.
I would like to thank our staff for their hard work in the first half which
has driven this performance.
Strategic update
Develop a common pan-European solution set.
Gamma continues to sit in a strong 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 Ericsson-LG "ELG") want to work with us because of the
breadth of our distribution capability. Our conditional deal with Cisco to
acquire their German Placetel business demonstrates the strength of our
partnership. We continue to work with global solution providers to explore the
possibility of adding other relevant solutions into our portfolio. The
acquisition of BrightCloud gives us expertise in delivering the Cisco CX CCaaS
solution.
We are currently converging on three UCaaS(1) solutions, addressing different
market segments:
· PhoneLine+ (and its digital variant CircleLoop) - this solution was developed
internally and provides a price-competitive solution to micro-businesses of up
to ten employees.
· iPECS (developed by ELG) - this is a feature rich solution designed to appeal
to SMEs. Alongside iPECS, we continue to sell additional solutions locally,
most notably our Horizon solution in the UK and Netherlands, and to support
our end users and partners who are used to their functionality.
· Our longstanding partnership with Cisco allows us to offer their UCaaS and
wider collaboration solutions into the SME and Enterprise space - both
directly and through our Channel Partners. This includes the entire Cisco
suite from basic voice solutions through to complex AI-powered Contact Centre
solutions. We launched a beta trial of Horizon with Webex in July 2024 which
provides both us and our partners another opportunity to increase Average
Revenue per User ("ARPU") from the end users. We look forward to the full
launch of this product which we expect to happen in late September.
In addition, we can integrate these above solutions with Microsoft ("MS")
Teams. Where Teams users do not wish to integrate with another solution, we
can offer voice enablement to those users for whom the functionality of MS
Teams is sufficient. Through partnerships, we now provide Microsoft licences
to our direct Enterprise customers who prefer to source both the licences and
the voice enablement from the same supplier.
We continue to keep our portfolio of solutions under review to ensure that we
have the most up to date and innovative solutions for our end users of all
sizes and in all countries.
The lines between CCaaS and UCaaS are becoming blurred and some features which
had historically been seen as "contact centre specific" are now required in
basic UC solutions - for example, our PhoneLine+ solution can be integrated
with WhatsApp to provide a simple "omnichannel" capability where customers of
our end users can be contacted by both voice and text. We will continue to
develop our CCaaS solution set. Both ELG and Cisco provide Contact Centre
options which provide us with upsell opportunities from the basic
communication solutions, and the acquisition of BrightCloud demonstrates our
commitment to our strategic partnership with Cisco.
In 2021, we released a "bolt on" to our Horizon solution called Horizon
Contact which provided Contact Centre functionality - this option is being
taken by around 7% of our new users. We are now adapting this technology so
that the Contact Centre functionality can sit on top of other voice solutions
(most notably MS Teams). This means that, for example, if a SME MS Teams user
requires Contact Centre functionality they can consider our Contact Centre
solution which will seamlessly work alongside MS Teams.
(1) Software platform that allows communication using multiple different media
that runs over the internet.
As we have reported previously, the landscape for communication solutions
continues to become more complex but Gamma has a very strong track record of
utilising these changes to take a larger share of the spend from our end
users.
Develop multiple routes to market in each country in which we operate.
Gamma has always been known for its high levels of customer service and a key
part of this is our ability to make communications solutions easy to provision
and to operate. Maintaining this level of service is complex because there are
multiple routes to market and it is hard to excel in every route - it is
therefore a key differentiator for Gamma, and hard to replicate.
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. Across all
routes to market, customer portals are important. 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 their existing telephone numbers.
Our project to rebuild our existing suite of portals (and to roll out one
portal across Europe) is continuing apace. We expect to have the first
elements launched early in 2025 with completion of the project in 2026. This
will ensure that we continue to give our customers the excellent quality of
service which they are accustomed to.
As well as being a differentiator in the market, our future portal will
support all the routes to market which we use. We will be able to add
solutions quickly into the new portal which will mean that as new trends
appear in the market we can bring solutions to market quickly and therefore
begin to generate revenues at pace. We will also be able to turn "product"
from larger organisations such as Cisco and MS into "solutions" which can be
consumed easily by both Channel Partners and end users.
Upon the acquisition of Placetel we will have a well-known and well-utilised
portal which businesses can use in Germany to procure Cisco UCaaS and
Collaboration solutions digitally. We also have the opportunity to take this
to other countries.
Become a trusted partner to Enterprises across Europe, transforming their
communications estates.
Gamma has long been known as a key supplier to SME customers across Europe and
this market continues to be a driver of growth for us. One of our strategic
aims was to become equally well-known in the Enterprise and Public Sector
spaces, and we are pleased that is now the case. We continue to invest in this
business through the acquisition of new capabilities.
In 2021 we acquired Mission Labs which gave us the SmartAgent solution. This
enhances the AWS Connect platform. Sales have grown considerably with over
16,000 customer service agents using SmartAgent in the UK and Europe. We have
continued to develop SmartAgent, allowing existing customers to adopt new
features such as WhatsApp messaging and AI features. This is important as it
enables us to monetise communication channels which are not traditional voice
and text. AI enables our customers to answer their customers' queries without
them needing to interact with a person - we are able to charge on a per unit
basis for this "call deflection" service. Our recent acquisition of
BrightCloud gives us the capability to support Cisco CX solutions alongside
those of Amazon.
As well as working with Amazon and Cisco, we have invested organically in the
MS Operator Connect solution which enables any organisation to voice enable MS
Teams (although this tends to be used by larger end users). We deployed
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 are one of the largest
providers of voice enablement for Teams both in the UK and the Netherlands.
Our new portal will use the capability we acquired with Coolwave
Communications ("Coolwave") to enable customers to procure pan-European MS
voice services from one place - this will be available early next year.
Our acquisition of Satisnet in August 2023 has enhanced our capability as a
managed security services provider. We have successfully cross-sold this
service to our pre-existing customers and see further cross-sell opportunities
across our client base.
Create an organisation that engages all our people with a common set of
values and goals.
We continue to celebrate our key values with our quarterly awards and annual
dinner for award winners.
On top of this, we are introducing a job levelling framework, so that our
people are aligned in their goals, pay and structure as well as values.
A job levelling framework provides a strong foundation to build teams and
structure the wider business, rewarding the success of our people, and
allowing them to see opportunities for career progression within Gamma.
Our markets and performance
At the full year we identified a number of market trends which are both
driving Gamma's growth today and which will continue to drive our growth for
the medium term.
Customers are requiring more complex communications solutions
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 Gamma with the opportunity to sell more to more customers to ensure
that their communications solutions meet their needs - solutions can consist
of a combination of several products which are knitted together and surrounded
by Gamma's service wrap.
We continue to add to our portfolio of solutions to ensure that we incorporate
all of the latest technologies to be able to compete across the whole market
as needs and demands become more complex. This means that we can sell a
broader solution for each end user and therefore increase ARPU. A prime
example of this is our acquisition of BrightCloud; we are already seeing
opportunities for cross-selling these new capabilities into our existing
customer base.
German Cloud market is still under penetrated
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 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 significantly bigger market opportunity in Germany where the cloud
market is under-penetrated compared to the rest of Europe. However, the German
market generally continues to be slow to embrace Cloud PBX (and indeed cloud
products in general). One area of the German market which is seeing growth is
where smaller start-up businesses are buying Cloud PBX services online. The
German market leader in this space is Placetel (which is presently a division
of Cisco). Gamma has conditionally agreed to acquire Placetel, and following
completion this will elevate us to being one of the leading providers in
Germany. While we expect the German market to be a significant driver for
growth in the medium term and longer term, short term market growth rates are
likely to be lower than we have seen in the UK. However, 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 additional acquisitions to
improve our scale and market position in Germany.
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 cloud communications solution.
We did not see this happening in volume during the first half of 2024 and
believe that lack of migration was because the hardware PBX solutions which
are still in use are more feature rich than the Cloud PBX products which have
been widely available.
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. 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: Gamma's cloud solutions are now
able to meet the needs of most end users.
PSTN Switch-off in the UK
BT's cessation of the provision of services which are underpinned by the PSTN
has now been delayed until early 2027. This delay defers the need for millions
of consumers and micro-businesses 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 high speed fibre based broadband and voice - the latter
being provided by our own PhoneLine+ solution, Horizon or iPECS.
Despite the delay in the timetable, we are still seeing significant numbers of
end users moving to Cloud Communications Solutions. In the first six months
of the year, we added 48,000 seats in the UK. The level of additions is
particularly strong because we now have an expanded portfolio including
PhoneLine+ and iPECS in addition to the existing Horizon product.
Business unit Performance
Gamma Business is our business unit which sells to SMEs in the UK, mainly via
Channel Partners. Revenue - supported by the acquisitions of Pragma
(previously referred to as EnableX in the 2023 Annual Report) and Coolwave -
grew from £164.8m to £184.1m - an increase of 12%. Sales of PhoneLine+
accelerated and the Horizon and iPECS bases continue to grow in line with
historical performance. The cross-selling of additional modules for Horizon
(such as call recording or collaboration) has been 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 and new technologies, such as AI, come into the
communications space, the opportunity to cross-sell and up-sell increases
across all of our communications solutions.
Gamma Enterprise has had a strong start to 2024, and revenues - supported by
the acquisition of Satisnet in August 2023, a Cyber Security Managed Security
Services Provider - grew from £53.0m to £61.0m in H1 2024, an overall
increase of 15%. As we reported previously, a number of projects had been
delayed from 2023 into 2024 which meant growth towards the end of 2023 was
softer than expected but this has now come through in 2024. Equally pleasing
is that our pipeline remains strong.
We continue to look for acquisitions which will bring additional capability to
our Enterprise offering. Some of these acquisitions may bring several new
capabilities and may therefore be larger than those we have done historically.
European revenue was flat but gross profit growth was 7% when excluding
foreign exchange impacts, following good progress in higher margin products.
The impact of foreign exchange meant gross profit otherwise grew 4% from
£19.0m to £19.8m.
During H1 2024 we added 3,000 voice enabled MS Teams users, an increase of
33%, across Operator Connect and MS Teams Direct Routing. 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. We continue to invest in
Europe. The forthcoming acquisition of Placetel demonstrates our commitment to
building a market leading European business (with a particular focus on
Germany).
Consideration of Main Market listing
The Board is beginning to consider a move to the Main Market. We will provide
a further update in January 2025 following engagement with our largest
shareholders.
ESG
Since the validation of Gamma's near and long-term emissions reduction targets
by the SBTi, we have made progress in defining our action plan to achieve
net-zero emissions, identifying key areas for emissions reductions and
establishing interim targets.
We are delighted to announce the pilot launch of the Gamma Scholarship
Programme, supporting talented students of STEM degrees at the University of
Salford and Glasgow Caledonian University. The scholarships will provide
opportunities to those who are often underrepresented in education and the
technology industry, strengthening their longer-term career prospects.
Outlook
While we saw some evidence of a softer economy in 2023, the first half of 2024
has proved to be positive, delivering pleasing growth and we see this
continuing into the second half of 2024 and into 2025. We believe that our
enhanced product set will continue to drive growth as businesses across Europe
look for more complex communication solutions to deal with recent trends in
working patterns.
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).
Following a strong first half performance, growth is expected to continue
across the second half and Adjusted EBITDA is now anticipated to be in the top
half and Adjusted EPS at the top of the range of market expectations.
Since being admitted to AIM nearly ten years ago, we have grown revenue,
Adjusted EBITDA and Adjusted EPS (fully diluted) in every year and we expect
growth to continue in the second half of this year and beyond 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
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 number of Cloud PBX seats in UK and Europe:
Cloud PBX seats - UK & Europe June December Change
(000's) 2024 2023 (%)
UK - Total 1,002 954 5%
Europe 161 161 0%
-- Of which is Germany 38 34 12%
-- Of which is Non-Germany 123 127 (3%)
The table below shows the increase in the number of SIP Trunks which provide
voice enablement to various hardware PBXs and voice applications:
Voice Enablement - UK & Europe June December Change
(000's) 2024 2023 (%)
SIP Trunks enabling traditional hardware PBX
- UK 968 1,019 (5%)
- Europe 204 198 3%
-- Of which is Germany 197 191 3%
-- Of which is Non-Germany 7 7 0%
SIP Trunks enabling a non-Gamma Cloud PBX
- UK 451 398 13%
- Europe - - -
Voice enabled MS Teams users (either Operator Connect or MS Teams Direct
Routing)
- UK 457 429 7%
- Europe 12 9 33%
The table below shows the number of CCaaS seats:
CCaaS seats - UK & Europe June December Change
(000's) 2024 2023 (%)
UK - Total* 40 30 33%
Europe 4 4 0%
*CCaaS seats for Horizon Contact users also take a "Base Horizon" seat
(therefore 24,000 seats are separately disclosed within Cloud PBX seats).
Financial Review
Overview
Gamma has performed well during the six months ended 30 June 2024, increasing
overall revenue by 10% to £282.5m (H1 2023: £256.2m) and gross profit by 11%
to £145.8m (H1 2023: £131.2m). Group Adjusted EBITDA increased by 10% to
£62.2m (H1 2023: £56.5m), profit before tax increased by 11% to £48.5m (H1
2023: £43.5m) and Adjusted PBT increased by 16% to £56.0m (H1 2023: £48.3m)
while Adjusted EPS (fully diluted) increased by 13% (H1 2023: 5%) to 42.5p (H1
2023: 37.5p). Acquisitions have positively contributed to the Group's
performance during the period. Excluding these and the impact of movements in
foreign exchange rates, revenue increased by 5%, gross profit by 7%, and
Adjusted EBITDA by 8%.
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 Measures section and used consistently period on period.
Revenue and gross profit
Gamma Business
H1 2024 H1 2023 Increase
£m £m
Revenue 184.1 164.8 +12%
Gross Profit 97.1 86.8 +12%
Gross Margin 52.7% 52.7%
Overall, the growth in Gamma Business has been strong. The acquisitions of
Pragma and Coolwave, have contributed £9.7m of revenue and £3.7m of gross
profit in the period. Excluding the impact of acquisitions, growth was 6% for
revenue and 8% for gross profit and has been driven by growth in 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. Service Provider, which is reported within Gamma Business and
includes the Coolwave acquisition, contributed 21% of revenue and 19% of gross
profit. Gross margin has been stable with previous periods, which is in line
with expectations, as the mix of UCaaS and connectivity products is reasonably
consistent. Gross margin growth has also been supported through targeted price
rises.
Gamma Enterprise
H1 2024 H1 2023 Increase
£m £m
Revenue 61.0 53.0 +15%
Gross Profit 28.9 25.4 +14%
Gross Margin 47.4% 47.9%
Overall, the growth in Gamma Enterprise has been strong. The acquisition of
Satisnet, completed in August 2023, has contributed £5.5m of revenue and
£2.1m of gross profit in the period. Excluding the impact of this
acquisition, growth was 5% for revenue and 6% for gross profit, despite a
degree of price pressure in the lower end of the Public Sector, which is a
relatively small part of our overall public sector business. Growth has been
driven by a number of significant contract wins, including an SD-WAN, LAN,
WiFi, and security infrastructure for Morrisons Supermarkets, Morrisons Local,
and McColl's newsagents and a Fusion IOT solution for The AA. Additionally,
there have been several wins for our omni-channel contact centre management
solution, SmartAgent, with Equiniti and additional sales to JD Sports Fashion
in the US. The gross margin decrease is due to Satisnet having a lower gross
profit margin.
Europe
H1 2024 H1 2023 (Decrease)/
£m £m Increase
Revenue 37.4 38.4 (3%)
Gross Profit 19.8 19.0 +4%
Gross Margin 52.9% 49.5%
Both revenue and gross profit were impacted by negative foreign exchange
movements, with Pound Sterling having strengthened against the Euro compared
to the prior period. Excluding the impact of foreign exchange movements,
revenue was flat as European revenue has benefitted from growth in Cloud PBX
and CCaaS, offset by declines in the traditional products (Mobile, Broadband,
Hardware and Epsilon). Conditions in the Netherlands continue to be
challenging where revenue has declined, while Germany and Spain continue to
grow. Excluding the impact of foreign exchange movements, the gross profit
growth was 7%. The gross profit and gross margin improvement reflects the
renegotiation of network costs where we have benefited from Group purchasing
power and the product mix in the period.
Operating expenses
Operating expenses grew from £89.0m in H1 2023 to £100.1m. We break these
down as follows:
H1 2024 H1 2023 Change
£m £m
Operating expenses excluding research and development costs, depreciation and 66.3 +11%
amortisation
73.5
Research and development costs 10.7 8.4 +27%
Depreciation & amortisation (excluding business combinations) 9.6 9.5 0%
Amortisation arising due to business combinations 6.3 4.8 +33%
Total operating expenses 100.1 89.0 +12%
Operating expenses excluding research and development costs, depreciation and
amortisation increased by 11% (in line with gross profit growth of 11%)
comprising the following:
· The UK businesses' operating expenses grew by 13% (compared to gross profit
growth of 12%). These expenses (the majority of which relate to staff) have
primarily increased due to a higher headcount following the three acquisitions
completed since June 2023. Excluding these acquisitions, operating expenses
grew by 4% and headcount decreased. Headcount has also reduced since year end
following the restructuring undertaken in late 2023.
· The increase in European operating expenses cost was 5% (compared to gross
profit growth of 4%). This was positively impacted by the weaker Euro.
Excluding the impact of foreign exchange movements, the increase was 8%.
· Central costs increased by 4% mainly due to professional fees related to
acquisitions.
Research and development costs expensed increased by 27% due to a higher
portion of research and development spend being expensed. The decision to stop
ongoing development of some of our own collaboration software temporarily
lowered development spend capitalisation as we moved resources onto new
development projects which commenced later in the period.
Depreciation and amortisation on tangible and intangible assets (excluding
business combinations) remained consistent at £9.6m (H1 2023: £9.5m).
Amortisation arising due to business combinations increased to £6.3m (H1
2023: £4.8m). This reflected an increased level of intangible assets
following the Coolwave, Pragma and Satisnet acquisitions, all of which have
completed since H1 2023.
Exceptional Items
There were no exceptional items in the period (H1 2023: £nil).
Adjusted EBITDA
Adjusted EBITDA grew from £56.5m to £62.2m (10%), driven by the revenue and
gross profit growth across the Group. There were no exceptional items in the
period (H1 2023: £nil). We incurred £0.6m of incremental costs relating to
the ongoing implementation of new cloud-based Finance and HR systems which
commenced in the period. These are recorded as other adjusting items as the
anticipated total cost of c.£3m for the implementation to the end of 2025 is
considered significant.
Profit before tax
Profit before tax grew from £43.5m to £48.5m (11%), driven by the revenue
and gross profit growth across the Group. In addition, finance income
increased by £1.9m to £3.6m (H1 2023: £1.7m) due to an increased amount of
cash held alongside an increase in interest rates.
Taxation
The effective tax rate was 26% (2023: 24%) based on applying the expected full
year effective rate. This increase is as a result of the statutory UK rate
rising from 19% to 25% in April 2023. This meant the UK statutory rate
increased from 23.5% for the calendar year 2023, to 25% for the calendar year
2024. The tax rate of 26% is in line with expectations for the Group's future
tax rate based also on current known higher taxation rates in the main
European countries in which we operate.
Net Cash and cash flows
The Group had Net Cash of £142.9m (H1 2023: £121.7m). Net Cash is now equal
to cash and cash equivalents as the Group had no borrowings at 30 June 2024
(H1 2023: £1.8m), following a final repayment of £1.5m (H1 2023: £0.3m)
during the period.
Cash generated by operations was £59.6m (H1 2023: £57.1m) and adjusted cash
generated by operations was £62.2m (H1 2023: £57.1m) which reflects the cash
impact of 2023 exceptional items and other adjusting items in 2024. Adjusted
cash conversion was 100% (H1 2023: 101%), which compares to 108% for the year
ended 31 December 2023.
The impact of working capital on the period has been negative when compared to
the year-end impact, with a period-on-period relative outflow totalling
£12.9m. This is primarily due to:
· A period-on-period unfavourable movement of £14.6m in relation to trade and
other receivables and contract assets. This was due to a number of factors,
with 2023 benefiting from the cash effect of unwinding some prepayments that
year, and then the timing of weekends in June 2024 meaning that some cash
collection was deferred into July while a number of significant contracts were
also invoiced by Gamma Enterprise in June 2024.
· A period-on-period unfavourable movement of £2.9m in relation to inventories.
This is a result of inventory purchases for contracted hardware sales in Gamma
Enterprise in H2 2024, together with increasing stock levels in acquired
entities.
· A period-on-period favourable movement of £5.1m in relation to trade and
other payables. This is primarily as the 30 June fell on a Sunday and so
certain payments were deferred into July.
Tax paid increased to £13.2m (H1 2023: £5.3m). This reflects the increase in
UK average tax rate to 25% (H1 2023: 23.5%) which is also applied to higher H1
2024 profits, and one-off tax refunds received in H1 2023.
The primary cash items which are not directly related to trading were:
· £12.6m of treasury shares were purchased and paid in cash as part of the
share buyback programme announced in March 2024 (H1 2023: nil). This is
discussed further below.
· £11.1m was paid as dividends (H1 2023: £9.7m).
· £9.0m was the total payment for acquisitions net of cash acquired (H1 2023:
£2.4m). This comprises £6.3m for the acquisition of Coolwave (net of cash
acquired), £1.7m of contingent consideration based on milestones achieved in
2023 as a final payment in relation to Mission Labs, £0.5m deferred
consideration for NeoTel and £0.5m deferred consideration for Coolwave.
· Capital spend was £7.8m, which is a decrease from £10.5m in H1 2023. This is
discussed below.
· £3.6m of interest income (H1 2023: £1.5m) was received on cash and cash
equivalents, increased due to higher cash holdings and improved interest
rates.
· £1.5m of borrowings were repaid (H1 2023: £0.3m) as a final payment to
reduce Group borrowings, which were held by trading subsidiaries outside of
the UK and which predated acquisition by Gamma, to £nil.
Gamma's Group treasury policy is governed by the Audit Committee. Gamma
manages cash centrally and seeks to maximise value and return while 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 87% 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 H1 2024 was £7.8m (H1 2023: £10.5m), broken down as
follows:
· £4.7m on the capitalisation of development costs incurred during the period
(H1 2023: £7.8m). The decrease follows our decision to stop ongoing
development of some of our own collaboration software. This temporarily
lowered development spend capitalisation, whilst increasing research and
development expense, as we moved resources onto new development projects which
commenced later in the period. In addition, the restructuring during 2023
reduced total research and development spend.
· £1.4m on the core network, including increasing capacity as well as computer
equipment (H1 2023: £1.8m).
· £1.7m was spent with third-party software vendors for the software which
underpins our Cloud PBX products, including from recent acquisitions (H1 2023:
£0.9m).
Adjusted EPS (fully diluted) and EPS (fully diluted)
Adjusted EPS (fully diluted) increased from 37.5p to 42.5p (13%) which
compares to a 5% increase in H1 2023. The increase reflects the impact of
strong Adjusted EBITDA growth and increased interest income. The increase in
statutory UK corporation tax rate to 25% in April 2023 had a continued
negative growth impact in H1 2024 of 3% since the increased tax rate was
effective for the whole of the period. The share buyback otherwise had a
negligible impact since the timing of the buyback was weighted to the latter
half of the period.
EPS (fully diluted) grew from 33.8p to 36.7p (9%). The growth is lower than
the adjusted metric because, in the current period, the amortisation relating
to business combinations has grown at a higher rate as a result of
acquisitions and £0.6m of incremental costs relating to the implementation of
new cloud-based Finance and HR systems have been incurred.
Acquisitions
The acquisition of Coolwave in February 2024 and the completion of the fair
value accounting for Pragma were the primary drivers behind the £10.0m
increase in intangible assets from £154.7m to £164.7m.
These acquisitions together created intangible asset additions of £11.6m:
· Completion of the Pragma fair value accounting increased associated intangible
assets by £4.1m. Customer contracts intangible of £13.7m and brand
intangible of £1.8m were both established, offset by an £11.4m reduction in
goodwill and corresponding recognition of a £3.9m deferred tax liability
relating to these intangible assets, together with a £0.2m current tax
liability.
· The Coolwave acquisition also led to the recognition of intangible assets
which totalled £7.5m, comprised £6.0m technology intangibles and £1.5m of
customer contract intangibles.
Going Concern
The Group's business activities, together with the factors likely to affect
its future development, performance and position, are consistent with those
set out in the Annual Report for the year ended 31 December 2023. In assessing
going concern management and the Board have considered:
· The principal risks faced by the Group as set out below. These are consistent
with those found in the Annual Report for the year ended 31 December 2023.
· The financial position of the Group.
· The strong cash position - at 30 June 2024 the Group had cash and cash
equivalents of £142.9m (31 December 2023: £136.5m). The Group has no
borrowings at 30 June 2024.
· Budgets, financial plans, associated future cash flows and sensitivity
analysis, including liquidity, which incorporate completed acquisitions up to
the date of this interim statement and the share buyback programme.
The Directors are satisfied that the Group has adequate financial resources to
continue in operational existence for the foreseeable future, being a period
of at least twelve months from the date of this report. Accordingly, the going
concern basis of accounting continues to be used in the preparation of these
condensed consolidated financial statements.
Share buyback
As at 30 June 2024, 1,003,372 Ordinary Shares had been acquired by the
Company. The share buyback resulted in a charge being recorded in Other
Reserves due to the £14.9m of liabilities associated with the buyback,
including the payments of £12.6m made during the period. This was the primary
reason Other Reserves reduced by £14.1m from £6.9m to (£7.2m).
A further 907,224 shares have since been bought back at £13.2m value such
that as at 6 September 2024, the announced end date of the programme, a total
of 1,910,596 have been purchased at £27.3m value, out of the announced
programme of up to £35m. The Programme expired on 6 September 2024 in
accordance with its previously announced conditions and the Board has decided
not to extend this buyback beyond its original term.
The Board's capital allocation priority remains to enhance the growth of the
business, both organically and through selective acquisitions, and to reward
shareholders through growth in earnings while maintaining a progressive
dividend policy and a robust capital base.
The Board will continue to keep its capital allocation policy and potential
further distributions to shareholders, including share buybacks, under review,
balancing opportunities for investment in organic and inorganic growth and
cash requirements.
Principal risks and uncertainties
The principal risks faced by the Group continue to include the risks set out
in the Annual Report for the year ended 31 December 2023. These are that
product development becomes misaligned with market needs, unplanned service
disruption, data loss and cyber-attacks, over-reliance on key suppliers,
inability to attract and retain top talent, failure to adapt and develop new
routes to market, uncertain competitive landscape causes loss of market share,
unsuccessful M&A activities and legal and regulatory non-compliance.
Further details can be found in the Annual Report for the year ended 31
December 2023.
Dividends
The Board has declared an interim dividend of 6.5p (2023: 5.7p). This is an
increase of 14% and is in line with our progressive dividend policy. The
interim dividend is payable on Thursday 17 October 2024 to shareholders on the
Register as at Friday 20 September 2024.
Outlook
Following a strong first half performance, growth is expected to continue
across the second half and Adjusted EBITDA is now anticipated to be in the top
half and Adjusted EPS at the top of the range of market expectations.
Bill Castell
Chief Financial Officer
Management Statement
This Interim Management Report (IMR) has been prepared solely to provide
additional information to shareholders to assess the Group's strategies and
the potential for those strategies to succeed. The IMR should not be relied
on by any other party or for any other purpose.
The IMR contains certain forward-looking statements. These statements are
made by the Directors in good faith based on the information available to them
up to the time of their approval of this report. Because these statements
involve risks and uncertainties, including both economic and business risk
factors, actual results may differ materially from those expressed or implied
by these forward looking statements. The Group undertakes no obligation to
update any forward-looking statements whether as a result of new information,
future events or otherwise.
Responsibility Statement
We confirm that to the best of our knowledge:
· the condensed set of interim financial statements has been prepared in
accordance with IAS 34 "Interim Financial Reporting";
· the Interim Management Report includes a fair review of the information
required by DTR 4.27R (indication of important events and their impact during
the first six months and description of principal risks and uncertainties for
the remaining six months of the year); and
· the Interim Management Report includes a fair review of the information
required by DTR 4.28R (disclosure of related party transactions and changes
therein).
By order of the Board
9 September 2024
Independent Review Report to Gamma Communications plc
Conclusion
We have been engaged by Gamma Communications plc ("the Company") and its
subsidiaries (together "the Group") to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2024 which comprises the condensed consolidated statement of profit or
loss, the condensed consolidated statement of comprehensive income, the
condensed consolidated statement of financial position, the condensed
consolidated statement of cash flows, the condensed consolidated statement of
changes in equity and related notes 1 to 13.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2024 is not prepared, in all
material respects, in accordance with United Kingdom adopted International
Accounting Standard 34 and the AIM Rules of the London Stock Exchange.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council for use in the United Kingdom (ISRE (UK) 2410). A review of interim
financial information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the Group are
prepared in accordance with United Kingdom adopted international accounting
standards. The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with United
Kingdom adopted International Accounting Standard 34, "Interim Financial
Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This Conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410; however future events or conditions may cause the entity to
cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the AIM rules of the London Stock Exchange.
In preparing the half-yearly financial report, the directors are responsible
for assessing the Group's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
Company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for
expressing to the Company a conclusion on the condensed set of financial
statements in the half-yearly financial report. Our Conclusion, including our
Conclusion Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this
report.
Use of our report
This report is made solely to the Company in accordance with ISRE (UK) 2410.
Our work has been undertaken so that we might state to the Company those
matters we are required to state to it in an independent review report and for
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company, for our review work,
for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
Reading, United Kingdom
9 September 2024
Condensed consolidated statement of profit or loss
For the six months ended 30 June 2024
Six months Six months Year ended
ended
ended
31 December 2023
30 June 2024
30 June 2023
£m
£m
£m
Note Unaudited Unaudited Audited
Revenue 3 282.5 256.2 521.7
Cost of sales (136.7) (125.0) (254.5)
Gross profit 145.8 131.2 267.2
Operating expenses (100.1) (89.0) (200.2)
Earnings before interest, tax, depreciation, amortisation, exceptional items 62.2 56.5 114.3
and other adjusting items (Adjusted EBITDA)
Exceptional items - - (16.0)
Other adjusting items (0.6) - -
Earnings before interest, tax, depreciation and amortisation (EBITDA) 61.6 56.5 98.3
Depreciation and amortisation (excluding business combinations) (9.6) (9.5) (21.3)
Amortisation arising due to business combinations (6.3) (4.8) (10.0)
Profit from operations 45.7 42.2 67.0
Finance income 3.6 1.7 5.4
Finance expense (0.8) (0.4) (0.9)
Profit before tax 48.5 43.5 71.5
Tax expense 4 (12.7) (10.4) (17.8)
Profit after tax 35.8 33.1 53.7
Profit attributable to:
Equity holders of Gamma Communications plc 35.8 33.0 53.6
Non-controlling interests - 0.1 0.1
35.8 33.1 53.7
Earnings per share attributable to the ordinary equity holders of the Company:
Basic per Ordinary Share (pence) 5 36.8 34.1 55.2
Diluted per Ordinary Share (pence) 5 36.7 33.8 54.9
Adjusted earnings per share is shown in note 5.
All income recognised during the period was generated from continuing
operations.
Condensed consolidated statement of comprehensive income
For the six months ended 30 June 2024
Six months Six months Year ended
ended
ended
31 December 2023
30 June 2024
30 June 2023
£m
£m
£m
Unaudited Unaudited Audited
Profit after tax for the period 35.8 33.1 53.7
Other comprehensive income/(expense)
Items that may be reclassified subsequently to the statement of profit or loss
Exchange differences on translation of foreign operations before tax (0.9) (1.6) (0.9)
Tax effect of exchange differences on translation of foreign 0.3 0.3 0.3
operations
Total comprehensive income 35.2 31.8 53.1
Total comprehensive income for the period attributable to:
Equity holders of Gamma Communications plc 35.2 31.7 53.0
Non-controlling interests - 0.1 0.1
35.2 31.8 53.1
Condensed consolidated statement of financial position
As at 30 June 2024
30 June 2024 30 June 2023* 31 December 2023*
£m £m £m
Note Unaudited Unaudited Audited
Assets
Non-current assets
Property, plant and equipment 7 33.6 39.4 38.4
Intangible assets 8 164.7 123.4 154.7
Deferred tax asset 5.7 5.3 6.5
Trade and other receivables 11.1 9.1 11.8
Contract assets 3.6 2.8 2.9
218.7 180.0 214.3
Current assets
Inventories 12.2 12.6 11.8
Trade and other receivables 83.9 75.8 76.1
Contract assets 33.8 31.1 32.5
Cash and cash equivalents 142.9 123.5 136.5
Current tax asset 5.0 2.5 3.6
277.8 245.5 260.5
Total assets 496.5 425.5 474.8
Liabilities
Non-current liabilities
Other payables 0.1 1.7 0.1
Financial liabilities 5.4 9.1 8.4
Provisions 1.4 1.7 1.7
Contract liabilities 13.0 7.5 12.1
Contingent consideration 9 7.2 - 7.7
Put option liability 9 1.2 - 1.1
Deferred tax liability 13.2 10.1 10.4
41.5 30.1 41.5
Current liabilities
Trade and other payables 78.5 54.5 66.5
Financial liabilities 2.0 3.2 3.3
Provisions 1.6 0.4 3.4
Contract liabilities 16.4 8.8 14.1
Contingent consideration 9 1.0 2.7 1.7
Put option liability 9 - 1.8 -
Current tax liability 0.6 0.7 0.1
100.1 72.1 89.1
Total liabilities 141.6 102.2 130.6
Net assets 354.9 323.3 344.2
Equity
Share capital 10 0.2 0.2 0.2
Share premium reserve 23.3 18.1 22.9
Other reserves 11 (7.2) 9.1 6.9
Retained earnings 339.5 297.2 315.1
Equity attributable to owners of Gamma Communications plc 355.8 324.6 345.1
Non-controlling interests 0.2 0.9 0.2
Written put options over non-controlling interests (1.1) (2.2) (1.1)
Total equity 354.9 323.3 344.2
* For re-presentation of comparatives refer to note 1, section Consolidated
statement of financial position.
Condensed consolidated statement of cash flows
For the six months ended 30 June 2024
Six months Six months Year ended
ended
ended 31 December 2023
30 June 2024
30 June 2023 £m
£m
£m
Note Unaudited Unaudited Audited
Cash flows from operating activities
Profit for the period before tax 48.5 43.5 71.5
Adjustments for:
Depreciation of property, plant and equipment 7 4.4 4.6 9.3
Depreciation of right-of-use assets 1.2 1.3 2.3
Amortisation of intangible assets 8 10.3 8.4 19.7
Impairment of intangible assets - - 12.7
Share-based payment expense 1.1 1.3 2.7
Interest income (3.6) (1.7) (5.4)
Finance expense 0.8 0.4 0.9
62.7 57.8 113.7
(Increase)/decrease in trade and other receivables and contract assets (7.9) 3.5 6.7
(Increase) in inventories (3.9) (2.4) (1.0)
Increase/(decrease) in trade and other payables 7.2 (1.6) 2.1
Increase/(decrease) in contract liabilities 3.2 (0.7) (1.5)
(Decrease)/increase in provisions (1.7) 0.5 3.5
Cash generated by operations 59.6 57.1 123.5
Taxes paid (13.2) (5.3) (15.3)
Net cash flows from operating activities 46.4 51.8 108.2
Investing activities
Purchase of property, plant and equipment 7 (1.4) (1.8) (5.6)
Purchase of intangible assets 8 (6.4) (8.7) (17.4)
Interest received 3.6 1.5 4.9
Acquisition of subsidiaries net of cash acquired 12 (9.0) (2.4) (22.8)
Net cash used in investing activities (13.2) (11.4) (40.9)
Financing activities
Lease liability repayments (2.0) (1.3) (2.3)
Put option liability payment - - (1.3)
Repayment of borrowings (1.5) (0.3) (0.5)
Repayment of borrowings acquired with acquisitions - - (7.7)
Interest paid - (0.1) (0.1)
Share issues 0.6 0.1 1.9
Purchase of treasury shares (12.6) - -
Dividends (11.1) (9.7) (15.2)
Net cash used in financing activities (26.6) (11.3) (25.2)
Net increase in cash and cash equivalents 6.6 29.1 42.1
Cash and cash equivalents at beginning of period 136.5 94.6 94.6
Effects of exchange rate changes on cash and cash equivalents (0.2) (0.2) (0.2)
Cash and cash equivalents at end of period 142.9 123.5 136.5
Condensed consolidated statement of changes in equity
For the six months ended 30 June 2024
Share capital Share premium reserve Other Retained earnings Total Non-controlling interests Written put options over non-controlling interests
reserves Total equity
£m £m £m £m £m £m £m £m
1 January 2023 0.2 18.0 9.0 273.9 301.1 0.8 (2.2) 299.7
Issue of shares - 0.1 - - 0.1 - - 0.1
Share-based payment expense - - 1.4 - 1.4 - - 1.4
Dividends paid - - - (9.7) (9.7) - - (9.7)
Transactions with owners - 0.1 1.4 (9.7) (8.2) - - (8.2)
Profit for the period - - - 33.0 33.0 0.1 - 33.1
Other comprehensive expense - - (1.3) - (1.3) - - (1.3)
Total comprehensive income/(expense) - - (1.3) 33.0 31.7 0.1 - 31.8
30 June 2023 0.2 18.1 9.1 297.2 324.6 0.9 (2.2) 323.3
1 January 2024 0.2 22.9 6.9 315.1 345.1 0.2 (1.1) 344.2
Issue or reissue of shares - 0.4 (1.6) 1.6 0.4 - - 0.4
Share-based payment expense - - 1.1 - 1.1 - - 1.1
Share buyback(1) - - (14.9) - (14.9) - - (14.9)
Treasury share allocations(2) - - 1.9 (1.9) - - - -
Dividends paid - - - (11.1) (11.1) - - (11.1)
Transactions with owners - 0.4 (13.5) (11.4) (24.5) - - (24.5)
Profit for the period - - - 35.8 35.8 - - 35.8
Other comprehensive expense - - (0.6) - (0.6) - - (0.6)
Total comprehensive income/(expense) - - (0.6) 35.8 35.2 - - 35.2
30 June 2024 0.2 23.3 (7.2) 339.5 355.8 0.2 (1.1) 354.9
(1) Represents the share buyback programme announced on 25 March 2024 of which
£12.6m has been paid in cash and a liability of £2.3m.
(2) Treasury share allocations relates to treasury shares which have been used
to satisfy share options and other employee share plans.
Notes to the interim financial information
For the six months ended 30 June 2024
1. Basis of preparation
The condensed consolidated interim financial information (interim financial
information) included in this half‑yearly financial report has been prepared
in accordance with International Accounting Standard 34 'Interim Financial
Reporting', as adopted by the United Kingdom. The interim financial statements
do not constitute statutory accounts within the meaning of the Companies Act
2006 and should be read in conjunction with the Group's Annual Report and
Accounts for the year ended 31 December 2023, which was prepared in accordance
with IFRS as adopted by the United Kingdom.
The new standards, amendments and interpretations applied for the first time
are shown below. There were no new standards, amendments or interpretations
applied for the first time which had a material impact on the condensed
consolidated financial statements.
· Amendment to IAS 1- Classification of Liabilities as Current or Non-current
· Amendment to IAS 7 and IFRS 7 - Supplier Finance Arrangements
· Amendments to IFRS 16 Leases - Lease Liability in a Sale and Leaseback.
Condensed consolidated statement of financial position
At 30 June 2024 the Group has revised the presentation of the Condensed
consolidated statement of financial position to combine line items presented
separately in previous periods. Property, plant and equipment now comprises
property, plant and equipment and right-of-use assets previously presented
separately, and financial liabilities now comprises borrowings and lease
liabilities previously presented separately. The revised presentation is
considered to be simpler to the user of the accounts. The comparatives have
been re-presented to be consistent with the revised presentation format. The
revision has no impact on the Condensed consolidated statement of profit or
loss or cash flows or total liabilities, assets or net assets.
As disclosed in our Annual Report and Accounts for the year ended 31 December
2023 the Group 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. As the condensed
consolidated interim financial information includes the Consolidated statement
of financial position for 30 June 2023 and this was originally prepared before
this revised presentation we have represented the 30 June 2023 comparatives to
be consistent with the revised presentation format as presented at 31 December
2023. The revision has no impact on the Condensed consolidated statement of
profit or loss or cash flows or total liabilities, assets or net assets.
2. Accounting policies, judgements and estimates
Accounting policies
The accounting policies adopted are consistent with those followed in the
preparation of the audited statutory financial statements for the year ended
31 December 2023 other than for the new amendments applied for the first time
as outlined in note 1 and which did not have a material impact on the
condensed consolidated financial statements. As a result of the share buyback
which commenced in this period and the acquisition of certain technology
rights as part of the Coolwave acquisition in the period, the Group has now
additionally disclosed its Treasury share and Intangible Technology assets
accounting policies below.
Treasury shares
The Group's holdings in its own equity instruments are shown as deductions
from shareholders' equity. Treasury shares represent shares repurchased and
available for specific and limited purposes. The cost of treasury shares
subsequently used to satisfy share options, sold or reissued is calculated on
a weighted-average basis. Consideration, if any, received for the sale of such
shares is also recognised in equity. No gain or loss is recognised in the
statement of profit or loss on the purchase, sale, reissue, or cancellation of
treasury shares. Shares repurchased under the share buyback programme which
are immediately cancelled are not shown as treasury shares but are shown as a
deduction from equity (retained earnings).
Intangible Technology assets
Technology is comprised of software licences purchased from third parties,
which are recognised at cost, and rights over network interface
identifications either purchased from third parties, which are recognised at
cost, or acquired through business combinations, which are recognised at fair
value at the acquisition date. Amortisation of these assets, on the same basis
as other assets, commences when the asset is available for its intended use.
Amortisation is provided over the useful economic life assigned, up to seven
years. Amortisation is charged to the consolidated statement of profit or loss
through operating expenses on a straight-line basis over the useful life from
the date the asset is available for use.
Judgements and estimates
Preparation of the condensed consolidated interim financial information
requires the Group to make certain estimations, assumptions and judgements
regarding the future. Estimates and judgements are continually evaluated based
on historical experience and other factors, including best estimates of future
events. In the future, actual experience may differ from these estimates and
assumptions. The critical accounting judgements and key sources of estimation
uncertainty reported in the financial statements for the year ended 31
December 2023 are still relevant. No new items have been identified in the six
months ended 30 June 2024. Disclosure of the basis for estimation and
sensitivity related to the contingent consideration key estimate is included
in note 9.
3. Segment information
The Group's main operating segments are outlined below:
· Gamma Business - This segment sells Gamma's products to smaller businesses in
the UK, typically with fewer than 250 employees. This segment sells through
different routes, including the channel, direct, digital and other carriers
who sell to smaller businesses in the UK. It contributed 65% (H1 2023: 64%) of
the Group's external revenue.
· Gamma Enterprise - This segment 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 business unit 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 22% (H1 2023: 21%) of the Group's external revenue.
· European - This segment consists of sales made in Europe through Gamma's
German, Spanish and Dutch businesses. It contributed 13% (H1 2023: 15%) of the
Group's external revenue.
· Central functions - This segment comprises the central management team and
wider Group costs.
Measurement of operating segment profit or loss, assets and liabilities
The accounting policies of the reporting segments are the same as those
described in the summary of significant accounting policies. The Board and
Executive Committee evaluate performance on the basis of earnings before
interest, tax, depreciation, amortisation, exceptional items and other
adjusting items ("Adjusted EBITDA"). Inter-segment sales are priced in line
with sales to external customers, with an appropriate discount being applied
to encourage use of Group resources at a rate acceptable to local tax
authorities. This policy was applied consistently throughout the current and
prior period.
Gamma Business Gamma Enterprise European Central functions Total
Period to 30 June 2024 £m £m £m £m £m
Segment revenue 196.2 62.8 37.6 - 296.6
Inter-segment revenue (12.1) (1.8) (0.2) - (14.1)
Revenue from external customers 184.1 61.0 37.4 - 282.5
Timing of revenue recognition
At a point in time 10.7 5.6 13.5 - 29.8
Over time 173.4 55.4 23.9 - 252.7
184.1 61.0 37.4 - 282.5
Total gross profit 97.1 28.9 19.8 - 145.8
Adjusted EBITDA 46.1 15.8 5.1 (4.8) 62.2
Exceptional items - - - - -
Other adjusting items (0.6) - - - (0.6)
EBITDA 45.5 15.8 5.1 (4.8) 61.6
External customer revenue has been derived principally in the geographical
area of the operating segment and no single customer contributes more than 10%
of revenue.
Gamma Business Gamma Enterprise European Central functions Total
Period to 30 June 2023 £m £m £m £m £m
Segment revenue 177.0 53.5 38.6 - 269.1
Inter-segment revenue (12.2) (0.5) (0.2) - (12.9)
Revenue from external customers 164.8 53.0 38.4 - 256.2
Timing of revenue recognition
At a point in time 7.6 5.4 13.5 - 26.5
Over time 157.2 47.6 24.9 - 229.7
164.8 53.0 38.4 - 256.2
Total gross profit 86.8 25.4 19.0 - 131.2
Adjusted EBITDA 41.6 14.5 5.0 (4.6) 56.5
Exceptional items - - - - -
Other adjusting items - - - - -
EBITDA 41.6 14.5 5.0 (4.6) 56.5
External customer revenue has been derived principally in the geographical
area of the operating segment and no single customer contributes more than 10%
of revenue.
A reconciliation of Adjusted EBITDA, the Group's measure of Segment profit, to
the Group's profit before tax for the period is shown in the APM section.
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 presented below is based on the country in which the
customer is invoiced. The geographic analysis of non-current assets, which
excludes deferred tax assets, is based on the location of the assets.
The Group's revenue from external customers by geographical location is
detailed below:
Six months ended Six months ended
30 June 2024 30 June 2023
£m £m
UK 227.8 204.8
Europe 51.6 49.0
Other 3.1 2.4
Total 282.5 256.2
The Group's non-current assets, which excludes deferred tax assets, by
geographical location are detailed below:
30 June 31 December 2023
2024 £m
£m
UK 135.0 131.8
Europe 78.0 76.0
Total 213.0 207.8
4. Taxation on profit on ordinary activities
Tax expense is recognised based on management's best estimate of the weighted
average effective annual tax rate expected for the full financial year. The
estimated average annual tax rate used for the period to 30 June 2024 is 26%,
compared to 24% for the six months ended 30 June 2023. This increase is as a
result of the statutory UK rate rising from 19% to 25% in April 2023, meaning
the UK statutory rate increased from 23.5% for the calendar year 2023 to 25%
for the calendar year 2024.
5. Earnings per share
Six months ended Six months ended
30 June 24
30 June 23
Earnings per Ordinary Share - basic (pence) 36.8 34.1
Earnings per Ordinary Share - diluted (pence) 36.7 33.8
The calculation of the basic and diluted earnings per share is based on the
following data:
Six months ended Six months ended
30 June 24
30 June 23
£m £m
Profit after tax attributable to equity holders of the Company 35.8 33.0
Shares No. No.
Basic weighted average number of Ordinary Shares 97,259,972 96,872,058
Effect of dilution resulting from share options 163,474 642,984
Diluted weighted average number of Ordinary Shares 97,423,446 97,515,042
Adjusted earnings per share is detailed below:
Six months ended Six months ended
30 June 24
30 June 23
Adjusted earnings per Ordinary Share - basic (pence) 42.6 37.8
Adjusted earnings per Ordinary Share - diluted (pence) 42.5 37.5
6. Dividends
A final dividend of 11.4p was paid on 20 June 2024 (2023: 10.0p). The Board
has declared an interim dividend of 6.5p per share payable on 17 October 2024
to shareholders on the Register as at 20 September 2024. In the prior year an
interim dividend of 5.7p was paid.
7. Property, plant and equipment
30 June 2024 30 June 2023 31 December 2023 £m*
£m £m*
Owned property, plant and equipment 27.4 30.9 30.5
Leased right-of-use assets 6.2 8.5 7.9
Total Property, plant and equipment 33.6 39.4 38.4
* See note 1, section Consolidated statement of financial position.
Owned property, plant and equipment is broken down as follows:
Land and building Network assets Computer equipment Fixtures and fittings Total
£m £m £m £m £m
2024
Cost
At 1 January 2024 4.6 68.4 14.4 2.9 90.3
Additions - 0.7 0.6 0.1 1.4
Acquisition of subsidiaries - 0.1 - - 0.1
Disposals - - - - -
Exchange differences (0.1) (0.2) (0.1) - (0.4)
At 30 June 2024 4.5 69.0 14.9 3.0 91.4
Depreciation
At 1 January 2024 0.6 45.6 11.7 1.9 59.8
Charge for the period - 3.4 0.8 0.2 4.4
Disposals - - - - -
Exchange differences - (0.1) (0.1) - (0.2)
At 30 June 2024 0.6 48.9 12.4 2.1 64.0
Net book value
At 1 January 2024 4.0 22.8 2.7 1.0 30.5
At 30 June 2024 3.9 20.1 2.5 0.9 27.4
Land and building Network assets Computer equipment Fixtures and fittings Total
£m £m £m £m £m
2023
Cost
At 1 January 2023 4.7 67.4 13.5 2.8 88.4
Additions - 0.8 0.9 0.1 1.8
Disposals - (0.2) - - (0.2)
Exchange differences (0.1) - (0.1) - (0.2)
At 30 June 2023 4.6 68.0 14.3 2.9 89.8
Depreciation
At 1 January 2023 0.3 41.8 10.7 1.8 54.6
Charge for the period 0.1 3.4 0.8 0.3 4.6
Disposals - (0.2) - - (0.2)
Exchange differences - - (0.1) - (0.1)
At 30 June 2023 0.4 45.0 11.4 2.1 58.9
Net book value
At 1 January 2023 4.4 25.6 2.8 1.0 33.8
At 30 June 2023 4.2 23.0 2.9 0.8 30.9
8. Intangible assets
Goodwill Customer contracts Brand Development costs Technology(2) Total
£m £m £m £m £m £m
2024
Cost
At 1 January 2024 133.2 56.7 2.2 52.3 24.4 268.8
Additions - - - 4.7 1.7 6.4
Acquisition of subsidiaries - 1.5 - - 6.0 7.5
Reclassifications(1) (11.4) 13.7 1.8 - 3.5 7.6
Disposals - - - (0.1) - (0.1)
Exchange differences (1.0) (0.9) (0.1) (0.1) (0.1) (2.2)
At 30 June 2024 120.8 71.0 3.9 56.8 35.5 288.0
Amortisation
At 1 January 2024 20.5 37.4 1.1 33.2 21.9 114.1
Charge for the period - 5.1 0.3 3.8 1.1 10.3
Disposals - - - (0.1) - (0.1)
Exchange Differences (0.4) (0.6) - - - (1.0)
At 30 June 2024 20.1 41.9 1.4 36.9 23.0 123.3
Net book value
At 1 January 2024 112.7 19.3 1.1 19.1 2.5 154.7
At 30 June 2024 100.7 29.1 2.5 19.9 12.5 164.7
(1) In 2024 we reclassified the balances between goodwill, customer contracts
and brand as a result of the finalisation of the fair value accounting for the
Pragma acquisition, refer to note 12. The other reclassification amount of
£3.5m in 2024 relates to technology intangible assets as they now better
align with other similar transactions. In 2023 £3.5m of these assets were
included within inventory. Inventory movements within the consolidated
statement of cash flows related to the technology intangible assets during
2023 have not been represented as they are immaterial.
(2) The acquisition of Coolwave and the reclassification noted above mean that
the Group now holds non-software type technology assets. We have chosen to
combine these with the previously presented category of Software intangibles
in a new category called Technology, due to the similar nature of the
underlying rights.
Goodwill Customer contracts Brand Development costs Technology(1) Total
£m £m £m £m £m £m
2023
Cost
At 1 January 2023 97.5 50.9 1.4 40.4 19.3 209.5
Additions - - - 7.8 0.9 8.7
Disposals - - - (0.2) - (0.2)
Exchange (1.2) (1.0) (0.1) (0.2) - (2.5)
differences
At 30 June 2023 96.3 49.9 1.3 47.8 20.2 215.5
Amortisation
At 1 January 2023 20.8 29.1 0.7 18.0 16.6 85.2
Charge for the - 4.2 0.2 2.2 1.8 8.4
period
Disposals - - - (0.2) - (0.2)
Exchange (0.4) (0.7) (0.1) (0.1) - (1.3)
Differences
At 30 June 2023 20.4 32.6 0.8 19.9 18.4 92.1
Net book value
At 1 January 2023 76.7 21.8 0.7 22.4 2.7 124.3
At 30 June 2023 75.9 17.3 0.5 27.9 1.8 123.4
(1) Previously referred to as Software.
Amortisation of intangible assets is charged to the consolidated statement of
profit or loss and included in operating expenses.
9. Financial Instruments
The tables below set out the measurement categories and carrying values of
financial assets and liabilities with fair value inputs where relevant.
Measurement category Carrying value 30 June 2024 Fair value basis of Fair value hierarchy Carrying value 31 December 2023
£m measurement £m
Financial assets Amortised cost 3.6 - - 2.9
Non-current
Contract assets
Other receivables Amortised cost 0.6 - - 0.6
Current Amortised cost 142.9 - - 136.5
Cash and cash equivalents
Trade receivables - net Amortised cost 56.0 - - 50.6
Contract assets Amortised cost 33.8 - - 32.5
Other receivables Amortised cost 3.3 - - 2.7
240.2 225.8
Financial liabilities Amortised cost 0.1 - - 0.1
Non-current
Other payables
Borrowings Amortised cost - - - 1.4
Lease liabilities Amortised cost 5.4 - - 7.0
Contingent consideration Fair value through P&L 7.2 Fair value weighted expected returns methodology Level 3 7.7
Put option liability Fair value through P&L 1.2 Fair value weighted expected returns methodology Level 3 1.1
Current Amortised cost 68.7 - - 57.7
Trade and other payables
Borrowings Amortised cost - - - 0.3
Lease liabilities Amortised cost 2.0 - - 3.0
Share buyback Amortised cost 2.3 - - -
Contingent consideration Fair value through P&L 1.0 Fair value weighted expected returns methodology Level 3 1.7
87.9 80.0
For trade and other receivables, cash and cash equivalents, provisions, trade
and other payables, and share buyback fair values approximate to book values
due to the short maturity periods of these financial instruments.
Share buyback represents the remaining purchase liability at 30 June 2024 for
the uncancellable portion of the contract under the share buyback programme
announced in March 2024. Note 13 provides a further update on this programme.
All liabilities measured at fair value are classified as level 3 and are
remeasured at each reporting date.
The fair value of Level 3 instruments is illustrated in the table below:
Financial liabilities 30 June 2024 31 December 2023
£m £m
Contingent consideration 8.2 9.4
Put option liability 1.2 1.1
9.4 10.5
The Group's finance team performs valuations of financial items for financial
reporting purposes and in consultation with third-party valuation specialists
for complex valuations. Valuation techniques are selected based on the
characteristics of each instrument, with the overall objective of maximising
the use of market-based information. The finance team reports directly to the
CFO.
Both the contingent consideration and put option liability were valued using a
probability weighted expected returns methodology, using a risk-adjusted
discount rate appropriate to the individual characteristics of the
transaction. Movements in the fair value are charged through the Consolidated
statement of profit and loss. The key input used in the valuations are the
financial forecasts of the acquired entity, where the most important
assumption is the future revenue forecast, and the discount rate.
Contingent consideration
Contingent consideration relates to future anticipated payments to vendors
which are dependent on the future financial performance of acquired entities.
At 30 June 2024, the fair value of contingent consideration liabilities
amounted to £8.2m (31 December 2023: £9.4m). The maximum amount that could
be paid is £14.8m due by the end of 2027, dependent upon financial
performance.
The reconciliation of the carrying amounts of contingent consideration is as
follows:
Mission Labs Satisnet Pragma(1) Total
£m £m £m £m
1 January 2024 1.7 4.1 3.6 9.4
Contingent consideration settled (1.7) - - (1.7)
Change in fair value of contingent consideration:
Unwinding of discount - 0.2 0.3 0.5
30 June 2024 - 4.3 3.9 8.2
(1) Refers to Pragma Group ("Pragma"), previously referred to as EnableX in
the 2023 Annual Report.
Put option liability
The put option liability is an option for the previous owners to sell or for
the Group to acquire the remaining 5% of the shares in Pragma. At 30 June
2024, the fair value of put option liabilities amounted to £1.2m (31 December
2023: £1.1m), the £0.1m movement in H1 relates to the unwinding of the
discount factor. The fair value of £1.2m at 30 June 2024 is based on a payout
of £1.7m which takes into account the weighted probability of payout. The
maximum amount that could be paid is £2.9m due by the end of 2027, dependent
upon financial performance.
10. Share capital
Number £m
1 January 2024
Ordinary Shares of £0.0025 each 97,462,226 0.2
Movement:
January* 12,370
February* 19
March* 3,468
April* 22,306
30 June 2024
Ordinary Shares of £0.0025 each 97,500,389 0.2
* Ordinary shares were issued to satisfy options which have been exercised.
In the period ended 30 June 2024, 1,003,372 Ordinary Shares of 0.25 pence each
(30 June 2023: Nil) were acquired by the Company and held in Treasury, of
which 83,460 (30 June 2023: Nil) were transferred from Treasury to settle
exercised share options.
At 30 June 2024, 919,912 shares were held in treasury (30 June 2023: Nil),
representing 0.9% (30 June 2023: Nil) of issued share capital. The shares held
in treasury do not have voting rights. The number of Ordinary Shares with
voting rights was 96,580,477 (30 June 2023: 96,975,843), therefore the total
issued share capital at 30 June 2024 was 97,500,389 Ordinary Shares (30 June
2023: 96,975,843 Ordinary Shares).
11. Other reserves
Merger reserve Share option reserve Foreign exchange reserve Share reserve Total other reserves
£m £m £m £m £m
1 January 2023 2.3 8.7 (1.3) (0.7) 9.0
Share-based payments - 1.4 - - 1.4
Other comprehensive income - - (1.3) - (1.3)
30 June 2023 2.3 10.1 (2.6) (0.7) 9.1
1 January 2024 2.3 7.2 (1.9) (0.7) 6.9
Issue of shares - (1.6) - - (1.6)
Share-based payments - 1.1 - - 1.1
Share buyback(1) - - - (14.9) (14.9)
Treasury share allocations(2) - - - 1.9 1.9
Other comprehensive income - - (0.6) - (0.6)
30 June 2024 2.3 6.7 (2.5) (13.7) (7.2)
(1) Represents the share buyback programme announced on 25 March 2024 of which
£12.6m has been paid in cash.
(2) Treasury shares allocations are treasury shares which have been used to
satisfy share options and other employee share plans.
12. Business combinations
Summary of acquisitions 2024
On 1 February 2024 the Group completed the acquisition of 100% of Coolwave
Communications Limited ("Coolwave") a prominent International SMA and voice
service provider. Coolwave was acquired in order to increase the Group's total
addressable market for voice enablement products (including MS Teams) and
provide new opportunities for our Service Provider business.
The fair value of the identifiable assets and liabilities assumed, which are
final, is as follows:
£m
Tangible fixed assets 0.1
Intangible assets - technology 6.0
Intangible assets - customer contracts 1.5
Cash 0.7
Trade and other receivables 1.4
Trade and other payables (1.3)
Deferred tax liability(1) (0.9)
Net assets acquired 7.5
(1) Deferred tax liability arising on technology and customer contracts
intangible assets.
£m
Satisfied by:
Cash paid 7.0
Deferred consideration paid in period 0.5
Total 7.5
Coolwave contributed £2.2m of revenue and £0.2m to the Group's profit for
the period between the acquisition date and 30 June 2024. If Coolwave had been
acquired on 1 January 2024 the contribution to the Group's revenue for the
period would have been £2.6m and the Group's profit would have been £0.3m.
Net cash outflow on acquisitions:
£m
Cash consideration 7.0
Less: cash acquired (0.7)
6.3
Contingent consideration payments during the period(1) 1.7
Deferred consideration payments during the period(2) 1.0
Net outflow of cash - investing activities 9.0
(1) See note 9 Financial Instruments.
(2) Deferred consideration relates to fixed amounts payable with regard to
acquisitions. During H1 2024 £0.5m relates to the final NeoTel acquisition
payment and £0.5m for Coolwave.
Summary of acquisition 2023
During 2023 the Group acquired Satisnet Limited ("Satisnet") and the Pragma
Group ("Pragma"), previously referred to as EnableX in the 2023 Annual Report.
The fair value accounting for Satisnet was completed and disclosed in 2023.
The fair value accounting for Pragma was provisional at 31 December 2023.
During H1 2024 the fair value accounting of the identified assets and
liabilities assumed was completed. As a result Goodwill has reduced by £11.4m
and other intangible assets has increased by £15.5m (customer contacts
£13.7m and brand £1.8m), with a £3.9m deferred tax liability recognised
relating to these intangible balances and a £0.2m current tax liability.
The fair value of the identifiable assets and liabilities assumed is as
follows:
Pragma £m
Tangible fixed assets 0.2
Intangible assets - technology 2.1
Intangible assets - customer contracts 13.7
Intangible assets - brand 1.8
Cash 0.6
Inventories 0.6
Trade and other receivables 5.1
Trade and other payables (5.0)
Bank loans(1) (7.7)
Contract liabilities (4.5)
Deferred tax liability(2) (3.9)
Total identifiable assets 3.0
Less: Non-controlling interests (0.2)
Add: Goodwill 12.6
Net assets acquired 15.4
(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.
13. Events after the reporting date
Acquisition of BrightCloud
In July 2024, the Group acquired the entire issued share capital of
BrightCloud Group Ltd, Cisco's leading European Enterprise partner for CCaaS
renowned for its expertise in customer experience transformation, for an
initial cash payment of £9.0m (excluding amounts paid for Net Cash acquired
and £0.1m for stamp duty) and a cash payment or receipt subject to
finalisation of the acquired closing balance sheet and working capital
adjustments. There is also an additional future payment of up to £4.0m in
relation to an earnout agreement which is dependent on revenue targets over
the period between closing and 31 December 2025. Given the timing of the
closure of the transaction, the Group expects to disclose the provisional
accounting for the acquisition in the 2024 year end results.
Share buyback
In total 1,910,596 Ordinary Shares were acquired by the Company for an
aggregate £27.3m over the course of the buyback to 6 September 2024, the
announced end date of the programme. The Programme expired on 6 September 2024
in accordance with its previously announced conditions and the Board has
decided not to extend this buyback beyond its original term.
Intention to acquire Placetel
In August 2024, the Group announced its intent to acquire the entire issued
share capital of BroadSoft Germany GmbH (known as Placetel) from Cisco.
Placetel is a German market leader in the Cloud PBX space, enabling German
companies to buy Cisco Collaboration solutions both digitally and through
local partners. This will elevate Gamma to being one of the leading providers
in Germany with a pro-forma number of around 300,000 seats. For the year ended
31 December 2023, unaudited Placetel revenue was approximately €28.7m, as
reported under German GAAP. Related to this, we intend to enter into a
multi-year global license purchase commitment with Cisco that will further
align Gamma and Cisco in the European market. The deal remains subject to
certain closing conditions being met and we expect it to close shortly.
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.
As noted in the Financial guidance in the full year results on 25 March 2024,
the Group has amended the definition of Adjusted EBITDA and Adjusted earnings
per share (fully diluted) to exclude other adjusting items which in the period
comprise the incremental costs related to the implementation of new
cloud-based Finance and HR systems, in order to show the Group's core
performance. We have adjusted for these as the anticipated total cost of the
implementation to the end of 2025 is considered significant. This change also
impacts the calculation of Adjusted profit before tax and Adjusted cash
conversion. This amendment has no impact on the APMs previously reported in
2023 under the definition at that time as these other adjusting items then
totalled £nil.
The Group has also updated the definition of "Changes in fair value of
contingent consideration and put option liability" with regards Adjusted
profit before tax and Adjusted earnings per share (fully diluted), to clarify
that it should be more specifically, "Changes in fair value of contingent
consideration and put option liability from the unwinding of discounting".
This update in definition has no impact on the APMs previously reported in
2023 under the definition at that time.
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 and other adjusting
items (which comprise the incremental costs related to the implementation of
new cloud-based Finance and HR systems). It excludes exceptional items (by
virtue of their size, nature or incidence) and other adjusting items (which
comprise the incremental costs of implementing the new cloud-based Finance and
HR systems as the anticipated total cost of the implementation to the end of
2025 is considered significant.), in order to show the Group's core
performance.
The following table is a reconciliation from statutory profit before tax for
the six months to June to EBITDA and Adjusted EBITDA:
Six months ended 30 June 2024 Six months ended 30 June 2023
£m £m
Profit before tax 48.5 43.5
Finance income (3.6) (1.7)
Finance expense 0.8 0.4
Profit from operations 45.7 42.2
Depreciation of property, plant and equipment and right-of-use assets 5.6 5.9
Amortisation from intangible assets 10.3 8.4
EBITDA 61.6 56.5
Exceptional items - -
Other adjusting items 0.6 -
Adjusted EBITDA 62.2 56.5
In the six months to June, the cash cost of exceptional and other adjusting
items was £2.6m (H1 2023: £Nil).
Adjusted profit before tax
Adjusted profit before tax is defined as profit before tax excluding the
effects of exceptional items, other adjusting items (which comprise the
incremental costs related to the implementation of new cloud-based Finance and
HR systems), amortisation arising from business combinations and changes in
fair value of contingent consideration and put option liability from the
unwinding of discounting. These items are individually material items and/or
are not considered to be representative of the trading performance of the
Group:
Exceptional items are excluded by virtue of their size, nature or incidence in
order to show the core performance of the Group.
Other adjusting items (which comprise the incremental costs related to the
implementation of new cloud-based Finance and HR systems) are excluded as the
anticipated total cost of the implementation to the end of 2025 is considered
significant.
Amortisation of intangibles arising due to business combinations is excluded
because this charge is a non-cash accounting item based on judgements about
the assets' value and economic life. Its exclusion is consistent with industry
peers and how certain external stakeholders monitor the performance of the
business.
Changes in fair value of contingent consideration and put option liability
from the unwinding of discounting 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:
Six months ended 30 June 2024 Six months ended 30 June 2023
£m £m
Profit before tax 48.5 43.5
Exceptional items - -
Other adjusting items 0.6 -
Amortisation of intangibles arising due to business combinations 6.3 4.8
Change in fair value of contingent consideration and put option 0.6 -
liability from the unwinding of discounting
Adjusting items 7.5 4.8
Adjusted profit before tax 56.0 48.3
In the six months to June, the cash cost of exceptional and other adjusting
items was £2.6m (H1 2023: £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, other adjusting items (which
comprise the incremental costs related to the implementation of new
cloud-based Finance and HR systems), amortisation arising due to business
combinations and changes in fair value of contingent consideration and put
option liability from the unwinding of discounting (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.
Six months ended 30 June 2024 Six months ended 30 June 2023
Earnings per Ordinary Share - diluted (pence) 36.7 33.8
Adjusted earnings per Ordinary Share - fully diluted (pence) 42.5 37.5
Six months ended 30 June 2024 Six months ended 30 June 2023
£m £m
Profit after tax attributable to the ordinary equity holders of the Company 35.8 33.0
Adjusting items:
Exceptional items - -
Other adjusting items 0.6 -
Amortisation of intangibles arising due to business combinations 6.3 4.8
Change in fair value of contingent consideration and put option liability from 0.6 -
the unwinding of discounting
Adjusting items 7.5 4.8
Tax relating to adjusting items (1.9) (1.2)
Adjusted profit after tax attributable to the ordinary equity holders of the 41.4 36.6
Company
2024 2023
No: No:
Diluted weighted average number of Ordinary Shares 97,423,446 97,515,042
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.
30 June 2024 31 December 2023
£m £m
Cash and cash equivalents 142.9 136.5
Borrowings - (1.7)
Net cash 142.9 134.8
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 2023 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
Repayments - 1.5 1.5
Net increase in cash and cash equivalents 6.6 - 6.6
Effects of foreign exchange rate changes (0.2) 0.2 -
At 30 June 2024 142.9 - 142.9
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 and other adjusting
items (which comprise the incremental costs related to the implementation of
new cloud-based Finance and HR systems), divided by Adjusted EBITDA, so as to
exclude the impact of significant or 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.
Six months ended 30 June 2024 Six months ended 30 June 2023 31 December 2023
£m £m £m
Cash generated by operations 59.6 57.1 123.5
Cash impact of exceptional items (2023 restructuring) 2.2 - 0.2
Cash impact of other adjusting items (2024 systems implementation) 0.4 - -
Adjusted Cash generated by operations 62.2 57.1 123.7
Adjusted EBITDA 62.2 56.5 114.3
Adjusted cash conversion 100% 101% 108%
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