TIDMGAMA
RNS Number : 3446Y
Gamma Communications PLC
06 September 2022
6 September 2022
Gamma Communications plc
Unaudited results for the six months ended 30 June 2022
Strong first half performance, continued cash generation and
positive business momentum
Expectations for the full year unchanged
Gamma Communications plc ("Gamma" or "the Group"), a leading
provider of Unified Communications as a Service ("UCaaS") into the
UK and European business markets, is pleased to announce its
unaudited results for the six months ended 30 June 2022.
Six months ended
30 June
----------------------
Change
2022 2021 (%)
---------- ---------- -------
Revenue GBP234.7m GBP217.4m +8%
---------- ---------- -------
Gross profit GBP120.4m GBP111.7m +8%
---------- ---------- -------
Gross margin 51% 51%
---------- ---------- -------
Profit from operations GBP38.7m GBP32.9m +18%
---------- ---------- -------
Adjusted EBITDA* GBP51.9m GBP46.0m +13%
---------- ---------- -------
Profit before tax ("PBT") GBP38.4m GBP32.4m +19%
---------- ---------- -------
Adjusted PBT* GBP43.1m GBP37.0m +16%
---------- ---------- -------
EPS (Fully Diluted, "FD") 31.9p 27.0p +18%
---------- ---------- -------
Adjusted EPS (FD)* 35.6p 30.6p +16%
---------- ---------- -------
Interim dividend per share 5.0p 4.4p +14%
---------- ---------- -------
Cash generated by operations GBP49.5m GBP43.1m +15%
---------- ---------- -------
Cash generated by operations /
Adjusted EBITDA 95% 94%
---------- ---------- -------
Cash and cash equivalents less borrowings
("Net Cash") GBP72.6m GBP25.6m +184%
---------- ---------- -------
* All adjusted measures set out above and throughout this
document which are described as "adjusted" represent Alternative
Performance Measures ("APMs") and are separately presented within
the statement of profit or loss or reconciled in the Financial
Review section or segment note and are applied consistently. Where
reference is made to adjusted EPS this is stated on a fully diluted
basis. Definitions of APMs are included in the Financial Review.
Our policy on the use of APMs is included in note 2. Constant
currency movements for the income statement are calculated by
restating the results for the period ended 30 June 2022 at the
prior period average exchange rates.
Key Highlights
The Group continued to perform strongly in the first six months
of the year with good gross profit growth flowing through to
Adjusted EBITDA and significant cash generation.
Financial highlights
The UK business units continued to perform well. In Europe,
Germany's strong growth out performed the more subdued performance
in the smaller Spanish and Dutch businesses:
-- Revenue and gross profit grew by 8% to GBP234.7m and
GBP120.4m respectively (H1 2021: GBP217.4m and GBP111.7m), with
gross margin being maintained and Adjusted EBITDA growing by 13% to
GBP51.9m (H1 2021: GBP46.0m).
-- Recurring revenue (being revenue which is recognised "over
time" as per note 3) in the year grew to GBP208.7m (H1 2021:
GBP194.3m) being maintained at 89% of total revenue.
-- UK Indirect Business continued to grow strongly with a focus
on the existing partner base. Gross profit increased by 10% to
GBP76.3m (H1 2021: GBP69.2m) with a stable gross margin.
-- UK Direct Business returned to growth, with gross profit
increasing 6% to GBP27.9m (H1 2021: GBP26.4m). A strong contracted
pipeline, significantly ahead when compared to this time last year,
supports the growth we anticipate for the full year. As expected
gross margin decreased slightly as a result of higher installations
and hardware sales which are lower margin.
-- European Business, in local currency, delivered gross profit
growth of 4%, seeing strong growth in UCaaS users and a good
performance from our German business being tempered by some
headwinds in our smaller Spanish business. After foreign exchange
("FX") translation, the European business gross profit was stable
at GBP16.2m (H1 2021 GBP16.1m).
Product highlights
There continues to be strong volume growth across the major
product groups:
-- The number of installed SIP Trunks increased, driven by voice
enablement of the Microsoft ("MS") Teams via Direct Routing and
Operator Connect.
-- The number of Horizon (Cloud PBX) users increased by 6% to
716,000 from 676,000 as at 31 December 2021; sales of the
Collaborate module grew faster than the core module, increasing by
10% to 69,000 from 63,000.
-- The number of Cloud PBX seats in our European business
increased by 7% to 137,000 from 128,000 at 31 December 2021 - a
slightly higher rate of growth than we are experiencing in the UK
and in line with the growth in the European market.
Andrew Belshaw, Interim Chief Executive Officer, commented:
"I am pleased to be presenting the first set of results since I
took on my new role. Gamma has had a strong first half. Our Direct
business in the UK has returned to growth as we had indicated it
would once the effects of COVID had worked through. The UK Indirect
business continues to be strong with good growth in the new
variants of SIP which support MS Teams users. Our European business
has increased the number of Cloud seats by 7% despite a challenging
economic environment."
"We are seeing some effects of inflation in connectivity and
hardware costs which we are generally able to pass on to customers.
We expect this to continue to increase in the second half and into
2023. We are also seeing salary inflation, which we continue to
actively manage whilst focussing on retention and ensuring that we
support our lower paid staff seeing unprecedented rises in the cost
of living. Gamma is well placed to navigate the publicised
macro-economic headwinds. We are a leader in a market with
long-term structural growth, have a high degree of recurring
revenue and have been and will continue to be strongly cash
generative. We have a robust balance sheet that will allow us to
continue to invest in the business as well as support organic
growth with selected acquisitions."
Enquiries:
Gamma Communications plc Tel: +44 (0)333 006 5972
Andrew Belshaw, Interim Chief Executive Officer
Bill Castell, Chief Financial Officer
Investec Bank plc (NOMAD & Broker) Tel: +44 (0)207 597 5970
Patrick Robb / Virginia Bull
Tulchan Communications LLP (PR Adviser) Tel: +44 (0)207 353 4200
James Macey White / Matt Low
Chair's statement
I am pleased to present the unaudited results for the six months
ended 30 June 2022.
Overview of results
Group revenue for the six months ended 30 June 2022 increased by
GBP17.3m to GBP234.7m (H1 2021: GBP217.4m) an increase of 8% on the
prior year. Profit before tax for the period was GBP38.4m, an
increase of 19% (H1 2021: GBP32.4m). Adjusted EBITDA for the Group
increased by GBP5.9m or 13% to GBP51.9m (H1 2021: GBP46.0m).
Adjusted items are explained and reconciled in the Financial Review
and note 2. Fully diluted earnings per share for the half increased
by 18% to 31.9p (H1 2021: 27.0p). Adjusted earnings per share
(fully diluted) for the year increased by 16% to 35.6p (H1 2021:
30.6p).
The cash generated by operations for the half year was GBP49.5m
compared to GBP43.1m in H1 2021. The closing net cash balance for
the period was GBP72.6m compared to GBP49.5m at the end of December
2021. The cash balance has increased despite investing GBP7.8m on
capital expenditure, GBP1.6m of contingent consideration for
acquisitions and paying GBP8.5m in dividends.
The first half of 2022 saw the positive impact from the lifting
of COVID restrictions offset by the increasing global macroeconomic
headwinds we all face going into 2023. Although not totally immune
to these headwinds, Gamma's commercial model with its high
recurring revenue stream and cash conversion leaves us well placed
to both navigate those challenges ourselves and continue to support
our customers through the challenging times ahead.
Our markets
As we approach the UK PSTN switch off in 2025 many businesses
still need to migrate their ISDN lines to SIP meaning there is
still growth in the SIP market. Cloud Communications is a growing
market across Europe, with short, medium and long-term
opportunities. The European market is under-penetrated with these
technologies which presents us with an opportunity to grow our
European revenues and profits as those markets evolve.
Board and governance
On 3 May 2022, Andrew Belshaw was promoted from Chief Financial
Officer to Deputy Chief Executive Officer as part of a structured
plan to strengthen and broaden the scope and capacity of Gamma's
management team. To fill the role of Chief Financial Officer, Bill
Castell joined the Company and the Board on 1 May 2022 having
previously been Chief Financial Officer at Ovo Energy. Prior to
this Bill has held senior finance roles at Virgin Media, Barclays
Corporate Bank and Barclaycard Europe, and he also serves as a
Non-Executive Director for the Financial Ombudsman Service.
On 4 July 2022, Andrew Belshaw took on the role of Interim Chief
Executive Officer after Andrew Taylor notified the Board of his
intention to retire from his role as Chief Executive Officer and
the Board. I would like to take the opportunity to thank Andrew
Taylor formally for his leadership over the past four years. He has
played a key role in shaping Gamma's strategy and he leaves the
business in an excellent position to further develop and grow.
At the AGM on 19 May 2022, Wu Long Peng retired from the Board
as a Non-Independent Non-Executive Director. I am grateful to Wu
Long Peng for his substantial input and support, particularly since
the IPO almost eight years ago.
I was delighted to welcome Shaun Gregory to the Board on 1 July
2022 as an Independent Non-Executive Director. Shaun has had an
extensive career across media and advertising spanning over 30
years. More recently, he has been the Chief Executive Officer of
Exterion Media and IYUNO Media Group and is currently the Chief
Executive Officer of EMG Group.
Employees
At 30 June 2022, we had 1,783 employees in the Group based in
seven countries (30 June 2021: 1,686). We encourage all employees
to own shares in the Company. For our UK based employees, we
offered a Sharesave scheme for the sixth year in a row. Once again,
it was pleasing to see the high take-up, with 360 staff choosing to
participate in the scheme (2021: 402). This brought the total
number of employees in the SAYE scheme to 711. We also have 174
employees who are buying shares monthly through our Share Incentive
Plan and 703 in total who hold shares through the Share Incentive
Plan Trust.
Environmental
Gamma remains committed to developing from a Carbon Neutral
business to a Carbon Net-Zero business by 2042. Gamma expects to
reduce Scope 1 and 2 emissions (those made directly and indirectly)
by 90% by 2030 from a baseline year of 2021. In H1 2022 we
committed to set near and long-term Company-wide emission
reductions in line with the Science-Based Target initiative (SBTi)
and we will seek validation of our target within the 24-month SBTi
timeframe.
Dividend
Gamma remains committed to a progressive dividend policy which
has seen the dividend increase by between 10 - 15% every year since
our IPO in 2014. Gamma has paid one third of the dividend as an
interim dividend with the final two thirds paid as a final dividend
once the results for the full year are known.
The Board is pleased to declare an interim dividend, in respect
of the six months ended 30 June 2022, of 5.0 pence per share (2021:
4.4 pence). This is an increase of 14%. It will be payable on
Thursday 20 October 2022 to shareholders on the register on Friday
23 September 2022.
Current Trading and Outlook
The Board remains positive about the prospects for Gamma. Having
successfully navigated and continued to grow through the COVID
pandemic, we now face increasing global economic and geopolitical
headwinds. The Group continues to deliver against its long-term
growth strategy. Gamma will continue to concentrate its efforts and
investment to develop a product and solution set which facilitates
flexible working for businesses of all sizes, building on an
already strong reputation for operational excellence and service
quality. The business is in a strong financial position, which
enables it to continue to invest in its product portfolio across
its European footprint.
As we said in our trading update on 2 August 2022, the Board
expects Adjusted EBITDA and Adjusted EPS for the year ending 31
December 2022 to be in the upper half of the range of market
forecasts at that time. Company compiled analyst market
expectations based on known sell side analyst estimates have not
changed since 2 August with an Adjusted EBITDA range of GBP102.3m -
GBP106.8m and Adjusted range of EPS of 67.1p - 74.6p.
Richard Last
Chair
Interim Chief Executive Review
I am pleased to have taken on the role of Gamma's Interim CEO. I
must start by thanking Andrew Taylor for the platform he has
established that will enable us to continue to grow.
As the Chair has already explained, the first half of 2022 was
strong and Gamma is in a good position to maximise the
opportunities which exist in our market. Our new CFO, Bill Castell,
will explain the drivers for the first half's growth in his
report.
The evolution of communications presents many opportunities for
Gamma and we have the strength to be able to take on each of these
opportunities. I set out below the changing market characteristics
which we expect to help continue to drive our growth over the
coming years.
Areas of historical strength remain healthy and growing; outlook
for long term growth exciting
-- Cloud Communications remains a growing market in the UK.
The majority of businesses in the UK still have a physical
hardware PBX rather than a Cloud based software PBX solution.
Therefore, the UK market for our products will continue to expand
and we are well positioned to capture this significant opportunity.
We believe that we not only have a product set which can satisfy
that market today but we also have the technology development
capabilities and resources to continue to build new software
modules which will meet customer requirements in the future.
-- The European market is under-penetrated which presents us
with an opportunity to grow our European revenues and profits as
the market evolves.
Through our targeted European acquisition strategy, we have
developed a network capability and channel relationships in Spain,
the Netherlands and Germany. Between them, these countries have
more than twice as many UCaaS business users as the UK. The average
penetration rate for Cloud PBX across those three countries is much
lower than the UK which means there is scope for higher growth in
future.
Despite the low market penetration, the growth rate of Cloud PBX
adoption in our European markets is stubbornly lower than we would
like but we are pleased to report that we continue to grow our
UCaaS products in line with those markets, with 7% growth in this
period.
Over the coming periods, Gamma's strategy is to take our product
developed for the UK market into those European territories where
we have a competitive advantage in a fuller feature set than any
local competition.
We have already begun to assemble cross-border teams who are
working together to successfully launch products developed in the
UK overseas (for example MS Operator Connect in the Netherlands)
and I am confident we will be able to launch additional products
across Europe in the second half of this year.
We continue to evaluate opportunities to grow by acquisition
either into new geographies or to augment the sales channels and
scale we have in the countries in which we already operate. In late
August we agreed to acquire NeoTel, another UCaaS / CCaaS business,
in Spain for a maximum of EUR5.5m in cash with potentially a
further EUR3.5m of contingent cash consideration depending on the
performance of NeoTel in 2023; the growth targets required for the
vendor to receive the additional consideration are challenging.
Completion of the acquisition is still subject to regulatory
approval and closing conditions being met which we expect to follow
shortly. We believe that our existing Spanish business will be in a
much better position to focus on the growing UCaaS and CCaaS
markets in Spain following this acquisition.
The growth of our Spanish business had historically been held
back by the performance of ComyMedia, its subsidiary which
specialised in IT solutions and had little fit with the rest of our
European business. ComyMedia had been contributing around GBP1.6m
in yearly revenues but generated a negligible Adjusted EBITDA
contribution. We disposed of ComyMedia in August 2022.
-- Favourable customer trends and behaviours present us with an
opportunity to improve Average Revenue Per User ("ARPU").
Since 2006, Gamma has sold a core Cloud PBX solution called
Horizon - a product which now has 716,000 users in the UK. Over the
course of the last three years our in-house team has developed a
number of additional modules that are fully integrated with that
core Cloud PBX. These are -
-- Call recording - launched in 2019 using our own technology, it now has 83,000 users.
-- Horizon Collaborate - was originally launched in 2020 but has
now been re-architected using software which we have developed
ourselves - it has 69,000 users.
-- MS Teams integration - some users prefer to use MS Teams as a
Collaboration product (as opposed to Horizon Collaborate) and hence
we launched an option to integrate our Cloud PBX (Horizon) with
Teams (for an additional charge) in July 2021. We now have 5,000
users who take this option.
-- Multi-Channel Communications (Contact Centre functionality) -
was launched in April 2021 (using technology obtained through our
Telsis acquisition). It now has 8,000 users.
Each of the above modules were built by our own in-house
development team; each is sold on a "per month / per seat" basis
and provides us with a recurring revenue stream.
When we are able to sell these additional modules alongside the
core Horizon product, it increases the ARPU of a Horizon seat.
-- Technology changes also present an opportunity for growth.
For example, SIP continues to evolve and improve as a product and
that gives us an opportunity to improve our ARPUs as customers move
to higher value solutions or new variants.
SIP is a substitution product for ISDN that Gamma has been
selling in the UK and Germany for over fifteen years; in both
markets we are a market leader.
As we approach the UK PSTN switch off in 2025 there is still
growth in the UK SIP market. There are still ISDN users who will
convert to SIP over the next three years and we are well placed to
win our share of that business. As we have not been a provider of
ISDN historically this migration generates new revenue for
Gamma.
The SIP market has evolved and we now sell different variants of
SIP.
We had a UK base of 1.60m of SIP trunks as at 30 June 2022 (31
December 2021: 1.43m). We are seeing users beginning to change how
they use SIP as a product. Because we have been planning for this
evolution of the market for some time, Gamma already has a strong
product set to meet the changing demand.
-- 1.01m trunks are being used by owners of traditional hardware
PBX products (31 December 2021: 1.01m). Our units of traditional
SIP are static. We continue to win new business but long time SIP
customers are now moving to other solutions such as Cloud PBX. As
customers move from a combination of SIP (which we sell) plus a
hardware PBX (which we don't sell) to Gamma's own Cloud PBX
solution we have an opportunity to take the share of spend which
was originally taken by the hardware provider. This can see our
ARPUs increase by up to five-fold.
-- 0.32m trunks are being used by users of a Cloud PBX product
other than Gamma's Horizon product (31 December 2021: 0.30m). Some
end users move to other providers of Cloud PBX and many of these
(unlike Gamma) do not have their own carrier capability. Because
Gamma is a traditional telecoms carrier in each country in which we
operate we are able to support other providers of Cloud PBX who
provide only an "over the top" software service. Our preference is
clearly always for our customers to buy our own Horizon Cloud PBX
product but where they choose not to and prefer to buy from a
competitor who does not have their own carrier capability then
Gamma can provide that service. In this instance, the alternative
provider buys SIP capability from Gamma.
-- 0.27m are being used to support users of Microsoft Teams (31
December 2021: 0.12m). Some customers are migrating from a hardware
PBX to a solution which includes MS Teams and this is our fastest
growing driver of SIP sales. Microsoft does not have any carrier
capability but Gamma is able to provide connectivity into the
servers that run MS Teams - this is explained in more detail below.
This additional technical capability typically allows us to double
ARPU compared to the SIP product which is being replaced. We
therefore see the rise of Teams as a generator of additional
revenue for Gamma.
Collectively, this variety of offer means that Gamma continues
to have a revenue opportunity on whatever route businesses take on
their forced migration from ISDN.
-- MS Teams adoption is growing in the Enterprise space, as more
organisations "voice enable" their solution, we have the
opportunity to gain revenue.
MS Teams is a software tool which facilitates collaborative
working. It allows users to contact others in their own network and
to schedule video calls but without support from a carrier such as
Gamma it does not allow users to make and receive external calls
from the PSTN and nor does it have normal PBX functionality (for
example, voicemail, hunt groups, call forwarding etc).
The growth of deployment of MS Teams provides Gamma with a
number of opportunities to grow revenue.
Currently we believe that fewer than 5% of MS Teams users have
their Teams instance "voice enabled" but that percentage will
increase and Teams voice usage is predicted to rise by more than
3.5m users in the UK by 2026. Gamma can provide a range of services
to support and benefit from this opportunity to sell a number of
complementary services -
-- As mentioned above, we are able to provide a SIP service to
Teams users to enable them to make and receive calls to and from
the PSTN. We call this service Microsoft Teams Direct Routing or
"Operator Connect" when it is sold through Microsoft's accredited
portal. We include sales of these products within our SIP volumes
as explained above.
-- Through our acquisition of Exactive we are able to perform
complex integrations of Teams with other platforms.
-- Where customers want Teams with a fully integrated PBX
capability we are able to integrate our Horizon Cloud PBX product
with Teams. At present we find relatively few customers taking this
capability as we find that Teams appeals more to Enterprise
customers and our Horizon product is primarily aimed at the SME
market.
Outlook
I look forward to working with our customers, partners and staff
as we continue to grow the business through both our existing
portfolio of products and the development of more products and
solutions in the future. Our products are designed to meet the
communications challenges which businesses are facing today and in
the future.
Most commentators expect a tightening of the UK and European
economies in the remainder of this year and into 2023 but we have a
robust business model based on recurring revenue from products and
solutions that are critical to the businesses which use them.
Whilst economic headwinds may slow the rate of our revenue growth
if the markets in which operate enter a recession, we would still
expect to deliver growth (but perhaps more slowly) and revenues
from our existing business to remain robust due to our monthly
recurring revenue model. We have seen that historically businesses
do not cut back on communication spend in a recession. Our
continued profitability, strength in cash generation and healthy
net cash balance leave us competitively placed to maximise the
opportunity even in challenging macro-economic times.
Like every other business we have challenges around salary
inflation which we do not expect to materially impact 2022 but
these may slow the growth in our Adjusted EBITDA for a short
time.
Irrespective of these short-term challenges we continue to
invest in organic growth, new product development and acquisitions
to further build scale and capability. I believe that the business
is in a good position to continue to grow.
Andrew Belshaw
Interim Chief Executive Officer
Financial review
Revenue and gross profit
Gamma has performed well during the six months ended 30 June
2022, increasing revenue by 8% to GBP234.7m (H1 2021: GBP217.4m)
and gross profit by 8% to GBP120.4m (H1 2021: GBP111.7m). The UK
businesses have seen growth in revenue of GBP17.1m (+9%) and gross
profit of GBP8.6m (+9%). Adjusted EBITDA increased by 13% to
GBP51.9m (H1 2021: GBP46.0m). Adjusted EPS (FD) increased by 16% to
35.6p (H1 2021: 30.6p).
UK Indirect
H1 2022 H1 2021 Change
GBPm GBPm
-------- -------- -------
Revenue 143.7 130.1 +10%
-------- -------- -------
Gross Profit 76.3 69.2 +10%
-------- -------- -------
Gross Margin 53.1% 53.2%
-------- -------- -------
Overall, the growth in the UK Indirect Business unit has been
strong. The growth has been driven by UCaaS and data product
growth. ARPU has been supported through the successful up-sell of
additional modules to UCaaS customers. Gross Margin has been
broadly consistent with previous periods, which is in line with
expectations, as the mix of UCaaS and connectivity products is now
reasonably constant.
UK Direct
H1 2022 H1 2021 Change
GBPm GBPm
Revenue 55.4 51.9 +7%
Gross Profit 27.9 26.4 +6%
-------- -------- -------
Gross Margin 50.4% 50.9%
-------- -------- -------
The significant levels of sales activity in late 2021 has
started to flow through in H1 2022 leading to a 7% growth in
revenue and 6% growth in gross profit. The UK Direct business has
seen a number of significant MS Teams user contract wins, including
the Home Office and the Department for Work and Pensions in the
public sector. The strong contracted pipeline, significantly ahead
when compared to this time last year, across the Direct channel
gives comfort on the growth we expect for the full year. Minimal
impact from the well-publicised supply chain shortage has been seen
in H1 2022 but we are seeing supply squeezes for some items of
hardware begin to increase in H2. The gross margin decrease is due
to mix as a result of higher installations and hardware sales which
are lower margin as previously expected.
Europe
H1 2022 H1 2021 Change
GBPm GBPm
-------- -------- -------
Revenue 35.6 35.4 +1%
-------- -------- -------
Gross Profit 16.2 16.1 +1%
-------- -------- -------
Gross Margin 45.5% 45.5%
-------- -------- -------
The revenue and gross profit growth have been negatively
impacted by exchange rates (GBP1.3m and GBP0.6m respectively). In
local currency, the growth was 4% on both revenue and gross profit.
Growth in UCaaS supported a good first half financial performance
from our German business which counterbalanced some headwinds in
our smaller Spanish business. The growth of our Spanish business
has historically been impacted by a small subsidiary, ComyMedia,
which generated a negligible Adjusted EBITDA contribution. We
disposed of ComyMedia in August 2022.
Europe gross margins have remained consistent with the prior
year. The gross margin is lower than for the UK business as a
result of "high revenue/low margin" business within the Epsilon
business which offers mobile connections in Germany.
Operating expenses
Operating expenses grew from GBP78.8m in H1 2021 to GBP81.7m. We
break these down as follows:
H1 2022 H1 2021 Change
GBPm GBPm
Expenses included within cash
generated from operations 68.5 65.7 +4%
Depreciation and amortisation 13.2 13.1 +1%
-------- -------- -------
Total Operating Expenses 81.7 78.8 +4%
-------- -------- -------
Movements in expenses were driven by:
-- The UK Businesses' operating expenses grew by 5% (compared to
gross profit growth of 9%). This growth has been tightly managed
whilst inflationary pressures have been monitored.
-- Drivers of the increase in the overhead include increased
staff costs offset in part by lower share-based payments costs
driven by the lower share price which has made the costs of
employers NI for share grants lower than in previous years.
-- The decrease in European costs is as a result of exchange
rate movements giving a GBP0.4m benefit. In local currency the cost
growth was 2%, reflecting tight cost control.
-- Central costs have increased from the prior period which is
due to continued growth in the Group function required to support
the businesses we have acquired around Europe as well as an
increase in governance costs.
Depreciation and amortisation on tangible and intangible assets
remained constant at GBP7.2m. This level has been maintained as the
increase in capitalised labour has not resulted in current period
amortisation. The annual depreciation and amortisation charge is
below the annual capital expenditure spend but is expected to
increase in future.
Exceptional Items
There were no exceptional items in the period or in H1 2021.
Alternative performance measures
Our policy for alternative performance measures is set out in
note 2. The tables below reconcile the alternative performance
measures used in this document:
Depreciation
and amortisation
Statutory on business Adjusting Adjusted
Measure basis combinations tax items basis
2022
PBT (GBPm) 38.4 4.7 - 43.1
PAT* (GBPm) 31.0 4.7 (1.1) 34.6
EPS (FD) (p) 31.9 4.8 (1.1) 35.6
------------- ---------- ------------------ ----------- ---------
2021
PBT (GBPm) 32.4 4.6 - 37.0
PAT (GBPm) 26.2 4.6 (1.1) 29.7
EPS (FD) (p) 27.0 4.7 (1.1) 30.6
------------- ---------- ------------------ ----------- ---------
* PAT is the amount attributable to the ordinary equity holders
of the Company
We believe that these measures provide a user of the accounts
with important additional information by providing the following
alternative performance metrics:
-- Profit before tax is adjusted for the amortisation of
intangibles which were created on acquisition. This enables a user
of the accounts to compare performance irrespective of whether the
Group has grown by acquisition or organically.
-- Profit after tax is adjusted in the same way as Profit before
tax but it also considers the tax impact of these items. To exclude
the items without excluding the tax impact would not give a
complete picture.
-- Adjusted earnings per share takes into account all of the
factors above and gives users of the accounts information on the
performance of the business that management is more directly able
to influence and on a basis comparable from year to year.
In addition to the above we add back the depreciation and
amortisation charged in the period to Profit from Operations (H1
2022: GBP38.7m; 2021: GBP32.9m) to calculate a figure for Adjusted
EBITDA (H1 2022: GBP51.9m; 2021: GBP46.0m) which is commonly quoted
by our peer group internationally and allows users of the accounts
to compare our performance with those of our peers.
EBITDA (being also "Adjusted EBITDA")
Adjusted EBITDA grew from GBP46.0m to GBP51.9m (13%).
Taxation
The effective tax rate for the first half of 2022 was 19% (2021:
19%). The rate in the current year is consistent with the statutory
UK rate of 19%. The tax rate in future years will increase as a
result of the UK tax rate increasing to 25% and the higher rates in
the main European countries that we operate.
Net cash and cash flows
The Group has net cash of GBP72.6m. The gross cash balance at
the end of the period was GBP75.6m and the Group had borrowings of
GBP3.0m which are held by trading subsidiaries outside of the UK
and pre-date their acquisition by Gamma.
In addition, we estimate that we will have to pay an additional
GBP10.0m in the future in relation to acquisitions made (this is a
mix of contingent consideration and the exercise of options over
shares not yet acquired); these payments will be between 2022 and
2024. We do not class contingent consideration as debt for the
purposes of quoting a net cash figure.
Cash conversion from trading during the year increased from
previous years. The ratio of Adjusted EBITDA to cash generated from
operations was 95% (2021: 94%).
Items which are not directly related to trading were:
-- Capital spend (including intangible assets) was GBP7.8m (H1
2021: GBP6.1m). The increase was driven by capitalised development
costs, as the Group continues to invest in its product set, but in
part offset by lower tangible asset purchases and software licence
purchases.
-- GBP1.6m was paid in contingent consideration relating to
Mission Labs. In H1 2021 GBP6.5m was paid in deferred consideration
and option exercises of which GBP1.5m was for Exactive and GBP5.0m
was for Gamma Holding GmbH (formerly HFO Holding AG).
-- There were no acquisitions in H1 2022 (2021: GBP40.8m - Mission Labs).
-- GBP0.3m was received from the issue of shares (2021:
GBP4.6m). The high prior year number was as a result of
reinvestment in Gamma by former shareholders of Missions Labs
(GBP2.8m) and Gamma Holding GmbH (GBP0.7m) as well as part payment
of deferred consideration for Exactive in shares (GBP0.3m). The
other shares issues relate to exercise of options held by
employees.
-- GBP8.5m was paid as dividends (2021: GBP7.5m).
Adjusted EPS (FD) and Statutory EPS (FD)
Adjusted EPS (FD) increased from 30.6p to 35.6p (16%). Adjusted
EPS is EPS as adjusted for exceptional items (if any, there are
none in the current and prior period) and other items as defined in
note 2 and a reconciliation to the statutory measure is shown in
the table above.
EPS (FD) grew from 27.0p to 31.9p (18%). The growth is higher
than the adjusted metric because, in the current period, the
amortisation relating to business combinations has grown at a
slower rate.
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 2021. In assessing going concern management and
the Board has considered:
-- The principal risks faced by the Group are set out in note 1
to the interim financial statements
and are consistent with those found in the Annual Report for the
year ended 31 December 2021.
-- The macroeconomic environment.
-- The financial position of the Group including budgets and financial plans.
-- The strong cash position - at 30 June 2022 the Group had cash
and cash equivalents of GBP75.6m. Net cash (being cash and cash
equivalents less borrowings) was GBP72.6m. All borrowings were
acquired with acquisitions made in previous years.
-- Future cashflows including committed M&A cash outflows, liquidity and borrowings.
-- Sensitivity analysis, which has shown that Adjusted EBITDA
would need to be nil for the Group to need additional borrowing
(assuming no mitigating actions had been taken). Possible
mitigating actions would include a review of capital expenditure,
variable and semi-fixed overheads. We consider this to be highly
unlikely.
The Directors are satisfied that the Group has adequate
financial resources to continue in operational existence for the
foreseeable future, a period of at least twelve months from the
date of this report. Accordingly, the going concern basis of
accounting continues to be used in the preparation of the condensed
consolidated financial statements.
Dividends
The Board has declared an interim dividend of 5.0p (2021: 4.4p).
This is an increase of 14% and is in line with our progressive
dividend policy. The interim dividend is payable on Thursday 20
October 2022 to shareholders on the register as at Friday 23
September 2022.
Bill Castell
Chief Financial Officer
MANAGEMENT STATEMENT
This Interim Management Report (IMR) has been prepared solely to
provide additional information to shareholders to assess the
Group's strategies and the potential for those strategies to
succeed. The IMR should not be relied on by any other party or for
any other purpose.
The IMR contains certain forward-looking statements. These
statements are made by the Directors in good faith based on the
information available to them up to the time of their approval of
this report but such statements should be treated with caution due
to the inherent uncertainties, including both economic and business
risk factors, underlying any such forward-looking information.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
-- the condensed set of interim financial statements has been
prepared in accordance with IAS 34 "Interim Financial
Reporting";
-- the Interim Management Report includes a fair review of the
information required by DTR 4.27R (indication of important events
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 the order of the board
5 September 2022
INDEPENT REVIEW REPORT TO GAMMA COMMUNICATIONS PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2022 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 11.
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 2022 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 group a conclusion on the
condensed set of financial statement 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
5 September 2022
Condensed consolidated statement of profit or loss
For the six months ended 30 June 2022
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2022 2021 2021
GBPm GBPm GBPm
Note Unaudited Unaudited Audited
Revenue 3 234.7 217.4 447.7
Cost of sales (114.3) (105.7) (219.2)
----------- ----------- -------------
Gross profit 120.4 111.7 228.5
Operating expenses (81.7) (78.8) (160.2)
Earnings before depreciation and
amortisation (Adjusted EBITDA) 51.9 46.0 95.4
Depreciation and amortisation (excluding
business combinations) (8.5) (8.5) (17.6)
Depreciation and amortisation arising
due to business combinations (4.7) (4.6) (9.5)
------------------------------------------------ ----------- ----------- -------------
Profit from operations 38.7 32.9 68.3
Finance income 0.2 - 0.1
Finance expense (0.5) (0.5) (1.2)
Profit before tax 38.4 32.4 67.2
Tax expense 4 (7.3) (6.0) (13.2)
----------- ----------- -------------
Profit after tax 31.1 26.4 54.0
Profit is attributable to:
Equity holders of Gamma Communications
plc 31.0 26.2 53.6
Non-controlling interests 0.1 0.2 0.4
31.1 26.4 54.0
=========== =========== =============
Earnings per share attributable
to the ordinary equity holders of
the Company:
Basic per ordinary share (pence) 5 32.2 27.4 55.9
Diluted per ordinary share (pence) 5 31.9 27.0 55.2
----------- ----------- -------------
Adjusted earnings per share is
shown in note 5
Condensed consolidated statement of comprehensive income
For the six months ended 30 June 2022
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2022 2021 2021
GBPm GBPm GBPm
Unaudited Unaudited Audited
Profit for the period after tax 31.1 26.4 54.0
Other comprehensive income
Items that may be reclassified
subsequently to the income statement
(net of tax effect)
Exchange difference on translation
of foreign operations 1.3 (2.2) (3.5)
----------- ----------- -------------
Total comprehensive income 32.4 24.2 50.5
=========== =========== =============
Total comprehensive income for
the period attributable to:
Equity holders of Gamma Communications
plc 32.3 24.0 50.1
Non-controlling interests 0.1 0.2 0.4
32.4 24.2 50.5
=========== =========== =============
Condensed consolidated statement of fi nancial position
As at 30 June 2022
30 June 30 June 31 December
2022 2021 2021
GBPm GBPm GBPm
Note Unaudited Unaudited Audited
Assets
Non-current assets
Property, plant and equipment 7 34.4 35.7 36.8
Right of use assets 9.9 11.4 10.2
Intangible assets 8 129.0 133.5 129.3
Deferred tax asset 5.6 5.9 7.0
Trade and other receivables 12.8 18.6 14.3
---------- ---------- ------------
191.7 205.1 197.6
Current assets
Inventories 8.5 7.2 7.9
Trade and other receivables 110.8 99.7 98.4
Cash and cash equivalents 75.6 30.8 52.8
Current tax asset 3.5 2.7 5.1
---------- ---------- ------------
198.4 140.4 164.2
---------- ---------- ------------
Total assets 390.1 345.5 361.8
---------- ---------- ------------
Liabilities
Non-current liabilities
Other payables 2.2 1.7 2.0
Borrowings 2.2 3.9 2.5
Lease Liabilities 9.5 10.6 9.8
Provisions 1.0 1.0 1.1
Contract Liabilities 7.9 7.9 10.0
Contingent consideration 1.6 3.6 3.7
Put option liability - 1.0 2.3
Deferred tax 7.5 9.2 10.0
31.9 38.9 41.4
Current liabilities
Trade and other payables 56.2 59.0 48.1
Borrowings 0.8 1.3 0.8
Lease Liabilities 2.2 2.4 2.1
Provisions 0.7 1.1 0.9
Contract Liabilities 9.0 7.4 7.4
Contingent consideration 3.0 2.5 2.6
Put option liability 5.4 4.8 3.4
Current tax liability 0.3 0.2 0.9
77.6 78.7 66.2
---------- ---------- ------------
Total liabilities 109.5 117.6 107.6
---------- ---------- ------------
Net assets 280.6 227.9 254.2
========== ========== ============
Equity
Share capital 9 0.2 0.2 0.2
Share premium reserve 15.2 13.6 14.9
Other reserves 10 7.8 4.5 4.5
Retained earnings 261.8 214.3 239.1
Equity attributable to owners of Gamma
Communications plc 285.0 232.6 258.7
---------- ---------- ------------
Non-controlling interests 2.3 2.0 2.2
Written put options over non-controlling
interests (6.7) (6.7) (6.7)
---------- ---------- ------------
Total equity 280.6 227.9 254.2
========== ========== ============
Condensed consolidated statement of cash fl ows
For the six months ended 30 June 2022
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2022 2021 2021
GBPm GBPm GBPm
Note Unaudited Unaudited Audited
Cash flows from operating activities
Profit for the period before tax 38.4 32.4 67.2
Adjustments for:
Depreciation of property, plant
and equipment 7 4.5 4.0 8.3
Depreciation of right of use assets 1.3 1.3 2.7
Amortisation and reduction in value
of intangible assets 8 7.4 7.8 16.1
Share based payment expense 1.8 2.6 4.8
Interest income (0.2) - (0.1)
Finance cost 0.5 0.5 1.2
----------- ----------- -------------
53.7 48.6 100.2
Increase in trade and other receivables (12.7) (8.2) (5.4)
(Increase)/decrease in inventories (0.6) 0.9 0.2
Increase/(decrease) in trade and
other payables 8.2 2.8 (6.2)
Increase/(decrease) in contract
liabilities 1.2 (0.6) 1.5
Decrease in provisions and employee
benefits (0.3) (0.4) (0.5)
----------- ----------- -------------
Cash generated by operations 49.5 43.1 89.8
Taxes paid (7.4) (7.6) (13.3)
Net cash flows from operating
activities 42.1 35.5 76.5
----------- ----------- -------------
Investing activities
Proceeds on disposal of property,
plant and equipment 7 0.1 - 0.1
Purchase of property, plant and
equipment 7 (2.2) (3.6) (9.1)
Purchase of intangible assets 8 (5.6) (2.5) (7.7)
Interest received 0.2 - 0.1
Acquisition of subsidiaries net
of cash acquired (inc. contingent
consideration) (1.6) (47.3) (49.3)
Net cash used in investing activities (9.1) (53.4) (65.9)
----------- ----------- -------------
Financing activities
Lease liability repayments (1.3) (1.7) (3.1)
Repayment of borrowings (0.4) (0.5) (2.3)
Interest paid (0.3) (0.1) (0.5)
Share issues 0.3 4.6 5.9
Dividends (8.5) (7.5) (11.7)
----------- ----------- -------------
Net cash used in financing activities (10.2) (5.2) (11.7)
----------- ----------- -------------
Net increase/(decrease) in cash
and cash equivalents 22.8 (23.1) (1.1)
Cash and cash equivalents at beginning
of period 52.8 53.9 53.9
----------- ----------- -------------
Cash and cash equivalents at end
of period 75.6 30.8 52.8
=========== =========== =============
Condensed consolidated statement of changes in equity
For the six months ended 30 June 2022
Share Share Other Retained Total Non-controlling Written Total
capital premium reserves earnings interests put equity
reserve options
over
non-controlling
interests
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
1 January 2021 0.2 9.0 6.1 197.5 212.8 3.0 (11.4) 204.4
--------- --------- ---------- ---------- ------ ---------------- ----------------- --------
Issue of shares - 4.6 (1.7) 1.6 4.5 - - 4.5
Share-based
payment
expense - - 2.3 - 2.3 - - 2.3
Non-controlling
interest - - - 1.2 1.2 (1.2) - -
Equity put
rights - - - (4.7) (4.7) - 4.7 -
Dividends paid - - - (7.5) (7.5) - - (7.5)
------ ---------------- ----------------- --------
Transactions
with
owners - 4.6 0.6 (9.4) (4.2) (1.2) 4.7 (0.7)
--------- --------- ---------- ---------- ------ ---------------- ----------------- --------
Profit for the
half year - - - 26.2 26.2 0.2 - 26.4
Other
comprehensive
income - - (2.2) - (2.2) - - (2.2)
--------- --------- ---------- ---------- ------ ---------------- ----------------- --------
Total
comprehensive
income - - (2.2) 26.2 24.0 0.2 - 24.2
30 June 2021 0.2 13.6 4.5 214.3 232.6 2.0 (6.7) 227.9
========= ========= ========== ========== ====== ================ ================= ========
1 January 2022 0.2 14.9 4.5 239.1 258.7 2.2 (6.7) 254.2
--------- --------- ---------- ---------- ------ ---------------- ----------------- --------
Issue of shares - 0.3 (0.2) 0.2 0.3 - - 0.3
Share-based
payment
expense - - 2.2 - 2.2 - - 2.2
Dividends paid - - - (8.5) (8.5) - - (8.5)
------ ---------------- ----------------- --------
Transactions
with
owners - 0.3 2.0 (8.3) (6.0) - - (6.0)
--------- --------- ---------- ---------- ------ ---------------- ----------------- --------
Profit for the
half year - - - 31.0 31.0 0.1 - 31.1
Other
comprehensive
income - - 1.3 - 1.3 - - 1.3
--------- --------- ---------- ---------- ------ ---------------- ----------------- --------
Total
comprehensive
income - - 1.3 31.0 32.3 0.1 - 32.4
30 June 2022 0.2 15.2 7.8 261.8 285.0 2.3 (6.7) 280.6
========= ========= ========== ========== ====== ================ ================= ========
Notes to the interim financial information
For the six months ended 30 June 2022
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 2021, which was
prepared in accordance with IFRS as adopted by the United
Kingdom.
There are no additional standards or interpretations requiring
adoption that are applicable to the Group for the accounting period
commencing 1 January 2022.
Principal risks and uncertainties
The principal risks faced by the Group continue to be unplanned
service disruption, data loss and cyber-attacks, over-reliance on
key suppliers, inability to attract and retain top talent,
uncertain competitive landscape, price erosion, legal and
regulatory non-compliance and unsuccessful M&A strategies.
Further details can be found in the Annual Report for the year
ended 31 December 2021. There were emerging risks identified in the
prior year of the macroeconomic impacts of the Russian/Ukraine
conflict and climate change that the Company continues to
monitor.
2. Accounting policies, judgements and estimates
The accounting policies adopted are consistent with those
followed in the preparation of the audited statutory financial
statements for the year ended 31 December 2021.
Preparation of the interim financial information requires the
Group to make certain estimations, assumptions and judgements
regarding the future. Estimates and judgements are continually
evaluated based on historical experience and other factors,
including best estimates of future events. In the future, actual
experience may differ from these estimates and assumptions. The key
judgements and sources of estimation uncertainty reported in the
financial statements for the year ended 31 December 2021 are still
relevant.
Alternative Performance Measures
Adjustments to the income statement have been presented because
the Group believes that adjusted performance measures (APMs)
provide valuable additional information for users of the financial
statements in assessing the Group's performance. These are one of
the metrics used by the Board and management as KPIs to understand
how the business is performing. Moreover, they provide information
on the performance of the business that Management is more directly
able to influence and on a comparable basis from year to year.
The measures are adjusted for the following items:
(a) Depreciation and amortisation
Depreciation and amortisation relate to the assets which were
acquired by the Group. These are omitted from adjusted operating
expenses to allow users of the accounts to compare against other
external data sources.
(b) Depreciation and amortisation arising due to business
combinations
This adjustment is made to improve the comparability between
acquired and organically grown operations, as the latter cannot
recognise internally generated intangible assets. Adjusting for
amortisation provides a more consistent basis for comparison
between the two.
(c) Adjusting tax items
Where movements to tax balances arise and these do not relate to
the underlying trading current year tax charge, these are adjusted
in determining certain APMs as they do not reflect the underlying
performance in that year.
The tables below reconcile the alternative performance measures
used in this document:
Depreciation
and amortisation
Statutory on business Adjusting Adjusted
Measure basis combinations tax items basis
2022
PBT (GBPm) 38.4 4.7 - 43.1
PAT* (GBPm) 31.0 4.7 (1.1) 34.6
EPS (FD) (p) 31.9 4.8 (1.1) 35.6
------------- ---------- ------------------ ----------- ---------
2021
PBT (GBPm) 32.4 4.6 - 37.0
PAT* (GBPm) 26.2 4.6 (1.1) 29.7
EPS (FD) (p) 27.0 4.7 (1.1) 30.6
------------- ---------- ------------------ ----------- ---------
*PAT is the amount attributable to the ordinary equity holders
of the Company.
In addition to the above we add back the depreciation and
amortisation charged in the period to Profit from Operations (H1
2022: GBP38.7m; H1 2021: GBP32.9m) to calculate a figure for
Adjusted EBITDA (H1 2022: GBP51.9m; H1 2021: GBP46.0m) which is
commonly quoted by our peer group internationally and allows users
of the accounts to compare our performance with those of our
peers.
3. Segment information
The Group's main operating segments are outlined below:
(R) UK Indirect - This division sells Gamma's products and
services to channel partners and contributed 61% (2021: 60%) of the
Group's external revenue.
(R) UK Direct - This division combines Gamma's products with
those of third parties to provide communications solutions directly
to end users (who tend to be Enterprise size). It contributed 24%
(2021: 24%) of the Group's external revenue.
(R) European - This division consists of sales made in Europe by
local subsidiaries in the Netherlands, Spain and Germany,
contributing 15% (2021: 16%) of the Group's external revenue.
(R) Central functions - This is not a revenue generating segment
but is made up of the central management team and wider Group
costs.
Factors that management used to identify the Group's reportable
segments
The Group's reportable segments are strategic business units
that offer products and services into different markets. They are
managed separately because each business requires different
marketing strategies and are reported separately to the Board and
management team. Management are in the process of reviewing the go
to market segments.
Measurement of operating segment profit or loss, assets and
liabilities
The accounting policies of the reporting segments are the same
as those described in the summary of significant accounting
policies. The Group evaluates performance on the basis of profit or
loss from operations but excludes non-recurring losses, such as
goodwill impairment. Inter-segment sales are priced in line with
sales to external customers, with an appropriate discount being
applied to encourage use of Group resources at a rate acceptable to
local tax authorities. This policy was applied consistently
throughout the current and prior period.
Central
UK Indirect UK Direct European functions Total
Period to 30 June 2022 GBPm GBPm GBPm GBPm GBPm
------------------------------------- ------------ ---------- --------- ----------- -------
Segment revenue 156.8 56.1 35.6 - 248.5
Inter-segment revenue (13.1) (0.7) - - (13.8)
------------ ---------- --------- ----------- -------
Revenue from external customers 143.7 55.4 35.6 - 234.7
------------ ---------- --------- ----------- -------
Timing of revenue recognition
At a point in time 7.9 2.9 15.2 - 26.0
Over time 135.8 52.5 20.4 - 208.7
------------ ---------- --------- ----------- -------
143.7 55.4 35.6 - 234.7
Total gross profit 76.3 27.9 16.2 - 120.4
Operating expenses (45.4) (14.9) (17.2) (4.2) (81.7)
Adjusted Earnings before
depreciation and amortisation 37.3 14.5 4.3 (4.2) 51.9
Depreciation and amortisation
(excluding business combinations) (5.9) (0.7) (1.9) - (8.5)
Depreciation and amortisation
arising due to business
combinations (0.5) (0.8) (3.4) - (4.7)
------------------------------------- ------------ ---------- --------- ----------- -------
Profit/(loss) from operations 30.9 13.0 (1.0) (4.2) 38.7
------------ ---------- --------- ----------- -------
External customer revenue has been derived principally in the
geographical area of the operating segment and no single customer
contributes more than 10% of revenue.
Central
UK Indirect UK Direct European functions Total
Period to 30 June 2022 GBPm GBPm GBPm GBPm GBPm
----------------------------- ------------ ---------- --------- ----------- ------
Additions to non-current
assets 7.0 0.6 1.1 - 8.7
------------ ---------- --------- ----------- ------
Reportable segment assets 265.6 43.1 81.4 - 390.1
------------ ---------- --------- ----------- ------
Reportable segment liabilities 58.0 20.9 30.6 - 109.5
----- ----- ----- ------
Central
UK Indirect UK Direct European functions Total
Period to 30 June 2021 GBPm GBPm GBPm GBPm GBPm
------------------------------------- ------------ ---------- --------- ----------- -------
Segment revenue 141.8 51.9 35.4 - 229.1
Inter-segment revenue (11.7) - - - (11.7)
------------ ---------- --------- ----------- -------
Revenue from external customers 130.1 51.9 35.4 - 217.4
------------ ---------- --------- ----------- -------
Timing of revenue recognition
At a point in time 7.6 2.1 13.4 - 23.1
Over time 122.5 49.8 22.0 - 194.3
------------ ---------- --------- ----------- -------
130.1 51.9 35.4 - 217.4
Total gross profit 69.2 26.4 16.1 - 111.7
Operating expenses (43.7) (13.7) (17.4) (4.0) (78.8)
Adjusted Earnings before
depreciation and amortisation 32.2 13.7 4.1 (4.0) 46.0
Depreciation and amortisation
(excluding business combinations) (6.1) (0.4) (2.0) - (8.5)
Depreciation and amortisation
arising due to business
combinations (0.6) (0.6) (3.4) - (4.6)
------------------------------------- ------------ ---------- --------- ----------- -------
Profit/(loss) from operations 25.5 12.7 (1.3) (4.0) 32.9
------------ ---------- --------- ----------- -------
External customer revenue has been derived principally in the
geographical area of the operating segment and no single customer
contributes more than 10% of revenue.
Central
UK Indirect UK Direct European functions Total
Period to 30 June 2021 GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------------ ---------- --------- ----------- ------
Additions to non-current
assets 5.4 0.8 1.1 - 7.3
------------ ---------- --------- ----------- ------
Reportable segment assets 217.0 44.4 84.1 - 345.5
------------ ---------- --------- ----------- ------
Reportable segment liabilities 60.9 22.2 34.5 - 117.6
------------ ---------- --------- ----------- ------
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 2022 is 19%, compared to 19% for the six
months ended 30 June 2021.
5. Earnings per share
Six months Six months
ended ended
30 June 30 June
22 21
Earnings per Ordinary Share - basic (pence) 32.2 27.4
Earnings per Ordinary Share - diluted (pence) 31.9 27.0
The calculation of the basic and diluted earnings per share is
based on the following data:
Six months Six months
ended ended
30 June 30 June
22 21
GBPm GBPm
Earnings
Profit after tax attributable to equity
holders of the Company 31.0 26.2
=========== ===========
Shares Number Number
Basic weighted average number of Ordinary
Shares 96,341,184 95,522,758
Effect of dilution resulting from share
options 836,273 1,406,872
-----------
Diluted weighted average number of Ordinary
Shares 97,177,457 96,929,630
=========== ===========
Adjusted earnings per share is detailed below:
Six months Six months
ended ended
30 June 30 June
22 21
Adjusted earnings per Ordinary Share - basic
(pence) 35.9 31.1
Adjusted earnings per Ordinary Share - diluted
(pence) 35.6 30.6
Adjusted profit used in the calculation of adjusted earnings per
share is detailed below:
Six months Six months
ended ended
30 June 30 June
22 21
Earnings GBPm GBPm
Profit for the period attributable to equity
holders of the Company 31.0 26.2
Amortisation arising on business combinations 4.7 4.6
Adjusting tax items (1.1) (1.1)
Adjusted profit after tax for the period 34.6 29.7
=========== ===========
6. Dividends
A final dividend of 8.8p was paid on the 23 June 2022 (2021:
7.8p). The Board has declared an interim dividend of 5.0p per share
payable on Thursday 20 October 2022 to shareholders on the register
as at Friday 23 September 2022. In the prior year an interim
dividend of 4.4p was paid.
7. Property, plant and equipment
Land and Network Computer Fixtures
building assets equipment and fittings Total
GBPm GBPm GBPm GBPm GBPm
2022
Cost
At 1 January 2022 4.5 78.7 12.3 2.4 97.9
Additions - 1.2 1.0 - 2.2
Disposals - (6.4) - - (6.4)
Exchange differences 0.1 (0.1) (0.1) 0.5 0.4
At 30 June 2022 4.6 73.4 13.2 2.9 94.1
---------- -------- ----------- -------------- ------
Depreciation
At 1 January 2022 0.3 50.3 9.0 1.5 61.1
Charge for the period - 3.5 0.8 0.2 4.5
Disposals - (6.3) - - (6.3)
Exchange differences - 0.4 0.2 (0.2) 0.4
At 30 June 2022 0.3 47.9 10.0 1.5 59.7
---------- -------- ----------- -------------- ------
Net book value
At 1 January 2022 4.2 28.4 3.3 0.9 36.8
At 30 June 2022 4.3 25.5 3.2 1.4 34.4
---------- -------- ----------- -------------- ------
Land and Network Computer Fixtures
building assets equipment and fittings Total
GBPm GBPm GBPm GBPm GBPm
2021
Cost
At 1 January 2021 4.8 71.9 11.6 2.0 90.3
Additions - 3.0 0.5 0.1 3.6
Acquisition of subsidiary - - 0.1 - 0.1
Disposals - (0.1) - - (0.1)
Exchange differences (0.2) - (0.1) (0.1) (0.4)
At 30 June 2021 4.6 74.8 12.1 2.0 93.5
---------- -------- ----------- -------------- ------
Depreciation
At 1 January 2021 0.1 44.7 7.9 1.3 54.0
Charge for the period 0.1 3.1 0.5 0.3 4.0
Exchange differences - (0.2) - - (0.2)
At 30 June 2021 0.2 47.6 8.4 1.6 57.8
---------- -------- ----------- -------------- ------
Net book value
At 1 January 2021 4.7 27.2 3.7 0.7 36.3
At 30 June 2021 4.4 27.2 3.7 0.4 35.7
---------- -------- ----------- -------------- ------
8. Intangible assets
Customer Development
Goodwill contracts Brand costs Software Total
GBPm GBPm GBPm GBPm GBPm GBPm
2022
Cost
At 1 January
2022 91.8 47.6 2.2 28.1 18.5 188.2
Additions - - - 5.6 - 5.6
Disposals - - - (0.1) - (0.1)
Exchange differences 0.6 0.9 - 0.2 - 1.7
At 30 June 2022 92.4 48.5 2.2 33.8 18.5 195.4
--------- ----------- ------ ------------ --------- ------
Amortisation
At 1 January
2022 8.7 20.2 0.9 14.8 14.3 58.9
Charge for the
period - 3.7 0.5 2.2 1.0 7.4
Disposals - - - (0.1) - (0.1)
Exchange Differences (0.1) 0.4 - (0.1) - 0.2
At 30 June 2022 8.6 24.3 1.4 16.8 15.3 66.4
--------- ----------- ------ ------------ --------- ------
Net book value
At 1 January
2022 83.1 27.4 1.3 13.3 4.2 129.3
At 30 June 2022 83.8 24.2 0.8 17.0 3.2 129.0
--------- ----------- ------ ------------ --------- ------
Customer Development
Goodwill contracts Brand costs Software Total
GBPm GBPm GBPm GBPm GBPm GBPm
2021
Cost
At 1 January
2021 55.0 48.6 2.4 17.6 16.6 140.2
Additions - - - 0.9 1.6 2.5
Acquisition of
subsidiary 38.7 1.5 0.9 5.2 - 46.3
Exchange differences (1.5) (1.8) - (0.2) - (3.5)
Reclassifications - - - 0.8 (0.8) -
At 30 June 2021 92.2 48.3 3.3 24.3 17.4 185.5
--------- ----------- ------ ------------ --------- ------
Amortisation
At 1 January
2021 8.8 13.5 0.7 10.1 11.8 44.9
Charge for the
period - 3.9 0.6 1.9 1.4 7.8
Exchange Differences (0.1) (0.6) - - - (0.7)
Reclassifications - - - 0.4 (0.4) -
At 30 June 2021 8.7 16.8 1.3 12.4 12.8 52.0
--------- ----------- ------ ------------ --------- ------
Net book value
At 1 January
2021 46.2 35.1 1.7 7.5 4.8 95.3
At 30 June 2021 83.5 31.5 2.0 11.9 4.6 133.5
--------- ----------- ------ ------------ --------- ------
Amortisation on intangible assets is charged to the consolidated
statement of profit or loss and included in operating expenses.
Our annual goodwill impairment test of our Spanish business
performed in September 2021 showed that the headroom between the
recoverable amount (determined based on a value in use model) and
the carrying value of the Spain cash generating unit ("CGU") was
modest at GBP12m at the measurement date. As part of our 2021
goodwill impairment test, we considered reasonably possible changes
in key assumptions that could cause an impairment, and identified
two key assumptions relating to the cash flows in years 1 to 5,
being:
1. The Group's value in use cash flows assumes a double-digit
revenue CAGR over the five-year period. A decrease in the forecast
revenue CAGR by 4% (H1 2021: 4%) over this period, would see the
headroom reduced to nil.
2. To breakeven, the Adjusted EBITDA margin percentage achieved
in year 5 and terminal years would need to reduce by 9% (H1 2021:
6%).
9. Share capital
Number GBPm
1 January 2022
Ordinary Shares of GBP0.0025 each 96,323,054 0.2
------------- -----
Number
At 1 January 2022 96,323,054
Movement:
January 5,291 (a)
March 10,516 (a)
April 14,401 (a)
June 13,591 (a)
At 30 June 2022 96,366,853
=============
(a) Ordinary shares were issued to satisfy options which
have been exercised.
Number GBPm
30 June 2022
Ordinary Shares of GBP0.0025 each 96,366,853 0.2
------------- -----
10. Other reserves
Merger Share Foreign Own shares Total
reserve option exchange other
reserve reserve reserves
GBPm GBPm GBPm GBPm GBPm
1 January 2021 2.3 5.2 (0.7) (0.7) 6.1
--------- --------- ---------- ----------- ----------
Issue of shares - (1.7) - - (1.7)
Share-based payment expense - 2.3 - - 2.3
Other comprehensive income - - (2.2) - (2.2)
--------- --------- ---------- ----------- ----------
30 June 2021 2.3 5.8 (2.9) (0.7) 4.5
========= ========= ========== =========== ==========
1 January 2022 2.3 7.1 (4.2) (0.7) 4.5
--------- --------- ---------- ----------- ----------
Issue of shares - (0.2) - - (0.2)
Share-based payment expense - 2.2 - - 2.2
Other comprehensive income - - 1.3 - 1.3
--------- --------- ---------- ----------- ----------
30 June 2022 2.3 9.1 (2.9) (0.7) 7.8
========= ========= ========== =========== ==========
11. Events after the reporting date
On 5 August 2022 the Group disposed of a small Spanish
subsidiary ComyMedia Proyectos Y Sevicios S.L.U. The business
contributed around GBP1.6m of yearly revenue but was negligible at
Adjusted EBITDA level.
On the 12 August 2022 the Group signed an agreement to acquire
100% of the share capital of NeoTel 2000 S.L.U. ("NeoTel"). The
agreement is subject to regulatory approval and closing conditions
being met which is expected to follow shortly. NeoTel provides a
cloud PBX and call centre solution focused on the Spanish SME
market. The initial consideration is a maximum of EUR5.5m with
potentially a further EUR3.5m of contingent consideration depending
on performance to June 2023.
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END
IR BRGDCCUGDGDU
(END) Dow Jones Newswires
September 06, 2022 02:00 ET (06:00 GMT)
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