16:01 Tue 08 Sep 2020
Gamma Communications - Half-year Report
8 September 2020
Gamma Communications plc
Unaudited results for the six months ended 30 June 2020
Increase in revenues, profitability and cash generation
|
Six months ended 30 June |
|
|
|
2020 |
2019 |
Change (%) |
Revenue |
|
|
+12% |
Gross profit |
|
|
+19% |
Gross margin |
53% |
49% |
|
Profit from operations |
|
|
+21% |
Adjusted EBITDA |
|
|
+19% |
PBT |
|
|
+21% |
Adjusted PBT |
|
|
+23% |
EPS (Fully Diluted, "FD") |
22.1p |
19.4p |
+14% |
Adjusted EPS (FD) |
23.5p |
19.2p |
+22% |
Total dividend per share |
3.9p |
3.5p |
+11% |
Cash generated by operations |
|
|
+18% |
Cash generated by operations / adjusted EBITDA |
89% |
90% |
|
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 comprehensive income 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.
Key Highlights
The Group had a strong financial performance across all business units with positive growth across all key product categories during the first half. COVID-19 had a minor impact on the overall financial performance of the business, with cancellations and bad debt at their normal low, pre-COVID-19 levels.
Financial highlights
The main business units continued to perform well:
· Revenue grew by 12% from
·
·
· Overseas business saw gross profit increase from
Product highlights
There was continued strong growth across the major product groups in the
· The number of installed SIP Trunks increased from 1,016,000 at
· The number of Horizon (Cloud PBX) users increased from 522,000 to 560,000 (+7%) in the first six months of 2020. The main growth area continues to be in the SME segment which is the market segment Horizon has been developed to serve.
· Collaborate, the fully integrated
In
Acquisitions
During the period we have continued to execute our strategy through two acquisitions which strengthen our UCaaS product capabilities and expand our geographical footprint in
· In
· In
In addition, after the end of the period, we acquired
Each of our acquisitions has been integrated into our group operating model. This has ensured that they have quickly become part of the group and reduced the level of management time required on integration.
Whilst acquisition activity has been high during the first seven months of 2020 (we have bought four companies and the cash outflow for acquisitions in the period was c£45m), each acquisition has been funded from internally generated cash flow and we believe it has been the most cost effective way to build a footprint to take advantage of the future acceleration in UCaaS uptake in continental
Digital programme
We have also continued to invest in our Digital Programme which has progressed well during the period, and has delivered real benefits across our direct channel business. This investment includes the launch of a digital platform (the "Gamma Hub") which is the first iteration of our integrated Dealer partner platform which will afford us full visibility of sales leads and opportunities across our dealer network. The continued digitalisation of key operational and business processes is driving improved levels of automation, efficiency and overall customer experience.
"We have delivered a strong business performance and a very good set of financial results in the first six months of 2020, with both our
"Despite the COVID-19 pandemic, our product performance was positive, and we continued to strengthen our market capabilities through the development and launch of new products and services. During the period we have reinforced the execution of our UCaaS strategy, which is progressing very well, with the strengthening of both our geographical reach and overall product capabilities. As ever, we have continued to strengthen both our direct and indirect channel propositions across all markets, with a focus on positively supporting our partners and our customers"
Enquiries:
Notes to Editors
Gamma is a leading supplier of
Gamma's largest market is in the
In
In
In
.
Chairman's statement
I am pleased to present the unaudited results for the six months ended
Overview of results
Group revenue for the six months ended
The cash generated by operations for the first half was
The first half of 2020 was dominated by the COVID-19 pandemic and has been challenging for all businesses. The products and services which Gamma sells are often critical for the end users to carry on their business. Gamma was able to continue to support its customers and performed well during the pandemic because our people were able to adapt quickly to the new working environment. Our customers, partners and suppliers were also very supportive. Our financial performance was maintained because our commercial model involves the majority of sales being invoiced monthly on a recurring basis. This has meant we have not only weathered the crisis but we have continued to grow - albeit with our growth levels slightly reduced due to the much lower economic activity in the second quarter.
The business has continued to perform well:
· Our UCaaS products have helped many of our end users to run their businesses effectively in difficult circumstances. We have (through the use of our own products) been able to fully support our channel partners and end customers throughout the "lockdown" period.
· The business has grown and remained cash generative during this period. We have not taken advantage of any of the government support schemes which have been made available in any of the countries in which we operate; it should be noted that we did not take any funds which formed part of the
· We have been pleased to provide some support for end user business customers who have been unable to trade due to the pandemic. We offered a "hibernation" scheme whereby customers who were not using the service could opt not to pay for it. This reduced cash and profit by
· The COVID-19 pandemic impacted our ability to deploy deals we won in Q1 and initiating new projects in Q2 which has had an impact on our sales pipeline in our Direct business. We therefore, expect a small hiatus in new projects starting towards the end of 2020 and in the first part of next year which will affect the level of growth of the Direct business unit in the early part of 2021. Since the half year, sales activity has returned to pre-COVID-19 levels.
We have strengthened our product capabilities and our geographic footprint through acquisition:
· In
· We have entered into two new countries both of which have significant PBX bases and very low cloud penetration. We acquired
· Since the period end, we have expanded our business in
Board and Governance
This morning we were pleased to announce the appointments of
Having qualified as a Chartered Accountant,
On
On
In addition, on
We continue to adhere to the QCA Corporate Governance Code (2018 edition) (the 'QCA Code').
Employees
Gamma now has 1,355 employees (
We are making a significant investment in people to strengthen the foundations for our business. We are building our capabilities in HR, Systems & Support, European management and governance and UCaaS product development. This will support our business both now and in the future which is particularly important as we anticipate growth.
We continue to encourage all employees to own shares in the Company. In the
The Board recognises the high levels of support from Gamma's employees during this difficult period which have enabled uninterrupted services to be provided to most customers, some of which have been delivering vital services. Many have made significant personal sacrifices as they have had to juggle work commitments with changed family circumstances and we thank everyone for their dedication and support.
Environmental
As a business which enables other companies to reduce their carbon footprint by communicating and collaborating from multiple sites and thereby avoiding travel, we continue to challenge ourselves on our own environmental credentials. We run a certified CarbonNeutral© network and we have also now committed to supporting the UN Sustainable Development Goals.
Dividend
Gamma remains committed to a progressive dividend policy which has increased between 10-15% every year since we listed in 2014. Gamma has paid one third of the dividend as an interim dividend with the final two thirds paid as a final dividend once the results for the full year are known. Having carefully considered the interests of all stakeholders, including shareholders, and noting that the Group has continued to be cash generative and has not availed itself of Government support, the Board has decided to continue with this policy.
The Board is pleased to declare an interim dividend, in respect of the six months ended
Current trading and outlook
Our performance subsequent to
Richard Last
Chairman
Chief Executive Review
I would like to start by welcoming our new colleagues into the Gamma family. We acquired Exactive and
Gamma traded strongly in the first quarter and had expected to be equally strong throughout the first half. However, the COVID pandemic in the second quarter created uncertainty about the resilience of the economies in which we operate. Notwithstanding this, the markets which we serve proved themselves to be robust and in addition to completing acquisitions in both the
Gamma responded swiftly and decisively to the COVID-19 pandemic. Our focus throughout has been on the safety and wellbeing of our staff, our partners and our end-customers while ensuring that business continuity was at the heart of our planning and support. We quickly established a governance structure and COVID-19 leadership team to take decisions and communicate our plans to all stakeholders, and the level of support and engagement with our staff has been excellent throughout. This focus has continued, as we now consider how best to return our staff to the office where appropriate, while assessing the longer term implications and opportunities that a more flexible working environment will present Gamma, our partners and our customers. Overall, we consider that as a result of COVID-19, the adoption of cloud services will accelerate in the medium to long term, and therefore reinforce Gamma's market position and overall strategy.
Throughout the lockdown period, we continued to support our channel partners with our digital training platform, "
Strategy
Our strategy has four key elements.
Evolve our strong cloud telephony position into the
We focus on the UCaaS market in the
Offering to SME users across
The majority of our business consists of selling products and services to SME customers in the
We continue to execute well in the
In the first half of 2019, as a key element of our UCaaS strategy, we launched a suite of Collaboration services. Gamma Collaborate is a fully integrated bolt-on to our market leading Horizon product. We saw significant levels of additional users taking the service during the COVID-19 "lockdown" period in the
As a result of the positive execution of our European geographical expansion strategy, we are very much establishing ourselves as a recognised UCaaS player in mainland
In addition, in
We previously reported that we acquired
We are particularly pleased with the progress we are making on the execution of our UCaaS product strategy. This includes investment in strengthening our in-house development capabilities, while augmenting this through utilising partner capabilities and strategic product bolt-on acquisitions, which bring both core product and UCaaS development skills to Gamma. It should be noted that this is part of a long-term UCaaS technology and product strategy which is ultimately focused on building and developing common core platforms which in the future will be deployed across our core markets. We will continue to invest and innovate in this area and bring new products to market.
Offerings into the enterprise space primarily in the
When we sell to enterprise and public sector customers (which is mainly done directly in the
Microsoft Teams ("Teams") is an increasingly sought after UCaaS solution amongst such customers, and our strategy is to provide this as a stand-alone managed service to our customers, and one which is fully assured by Gamma's core network and excellent customer service. As a result, during the first half of the year:
· We acquired Exactive, a
· As part of integrating Microsoft Teams into our overall portfolio, we launched a Microsoft Teams Direct Routing product to our
Where enterprise and public sector customers require Cloud Contact Centre functionality, we partner with Cirrus, a well-regarded and market-leading solution provider in this market segment. Cirrus has been developed to address the needs of larger customers, whereas our own "
Build on our Fixed and Mobile Telecom strength to differentiate our proposition from pure "Over the Top" (OTT) players
Sales of data access products in the
We continue to offer data access services (Broadband and Ethernet) in the
Notwithstanding this, I am pleased to report that we delivered net growth in our data access products during the first half, ending the period with 114,000 Broadband circuits and 15,300 Ethernet circuits, representing an increase from 111,000 and 13,900 respectively. Monthly net additions are now growing back towards pre-COVID levels.
We offer mobile services in four countries
Each of our European operations is able to offer its customers a mobile service.
In the
In
HFO (our German business) has a subsidiary, Epsilon, which offers mobile connections from three of the major mobile operators in
Network resilience is an important differentiator in all territories in which we operate
We not only differentiate ourselves by offering a full suite of services (including data and mobile access alongside the core UCaaS product) but we also run our own network.
When evaluating acquisition opportunities we ensure that each business we consider has a similar philosophy; that is, it seeks to differentiate itself by running its own network infrastructure. We are not merely buying a sales channel in each country which we enter but we are also buying a resilient infrastructure similar to the one which we have in the
Expand to
Entry into new markets
Since announcing our last set or results we have acquired businesses in
As mentioned previously, we now have over 100,000 Cloud PBX seats in
Integration is proceeding well
Each of our acquisitions has been integrated into our group operating model. This has ensured that they have quickly become part of the group and reduced the level of management time required on integration.
The senior team in Gamma and in those acquired businesses have and continue to be very focused on the integration of those businesses, and although circumstances have made travel to our overseas operations difficult, we have been effectively managing this through frequent video calls with local management teams to ensure that integration plans are on track and performance is in line with our expectations. Importantly, we have deepened our knowledge of the businesses and their wider management teams over the last twelve months, therefore positive relationships already exist, and we have a clear understanding of the business priorities across each business.
As each acquired business is already operating profitably as well-established wholesale channel businesses and brands in their own territories with their own networks, integration is focused on softer areas which ensure a common set of processes and policies across the businesses in areas such as finance, HR and operational resilience and compliance. We also ensure that we share best practice from our development, sales and product teams across each Group company. This includes working with the sales and product marketing teams in each country to develop long-term "go to market" strategies which have worked well in the
Performance of our existing business has been good
We were pleased with the performance of our Dutch business in the first half of 2020 and our largest Dutch business (
During the first half and in particular with reference to COVID-19, our experience in all European geographies in which we operate was similar to that seen in the
Although our current focus is very much on the business performance, business support and integration of our recent acquisitions, we will continue to monitor the market, and assess other acquisition opportunities in those markets where we already operate, and where these will complement and strengthen our position.
As previously reported, we do not expect Brexit to affect our plans for geographical expansion or, indeed, to have a materially detrimental effect on our existing business.
Continue to build on our digital capabilities to assure agility and sustain competitiveness
We continue to invest in and develop a digital platform which is a key tool in supporting our direct customers in the
The main focus for the digital programme team in the first half of 2020 was planning our next major phase of business transformation targeted for deployment at the end of 2020.
The focus has been to develop a streamlined delivery model and digital tool supporting all
In parallel with this delivery model, will be the release of "Customer Communities". This will allow customers of all sizes to self-serve support, provisioning, billing and reporting through our single system, providing them with greater control. We aim to provide a best in class customer experience. This will be a key differentiator supporting customer acquisition and retention, and will provide a high degree of digital automation which as well as materially strengthening customer service, will provide a highly scalable operational and business support services platform
For the first time we have an integrated dealer partner platform
We also launched our first iteration of our integrated Dealer partner platform affording us full visibility of sales leads and opportunities across our dealer network. The platform is being enriched daily with marketing content, training guides and template campaigns, resulting in a marked increase in dealer sales. The platform is laying the foundations to leverage more strategic relationships and similar to what Gamma has achieved with our "indirect channel partner portal" ensuring that Gamma is easy to do business with.
We use Artificial Intelligence to generate sales leads
We also implemented an Artificial Intelligence agent ("Gemma") that directly engages in a follow-up conversation with prospects. We are now in a position where email conversations on some of the simpler pre-sale qualifications can take place without any human sales engagement.
The innovation process is also well underway. Further deployment of AI, bots and adoption of tools to automate simple high-volume tasks are already delivering material benefit and improving efficiency across all our business processes which will enable us to scale.
Digital transformation in the Direct business is key to our rapid growth while driving operational efficiencies
The "Gamma Hub" consolidates multiple marketing apps and tools onto one 'best of breed' platform and this allows us to deliver faster, more frequent campaigns through utilising shared content and processes. This has already proved valuable in our rapid response to COVID-19 and has allowed us to create and execute multiple omnichannel campaigns in hours where this would previously have taken days or weeks.
We have also improved how we collect, cleanse, enrich and sustain the integrity of prospecting data whilst maintaining our GDPR compliance. Previously this was done manually. Today, data in The Gamma Hub is continuously validated by the platform giving us more tailored information for all prospects. This has increased the lead conversion ratio. We have also been able to expand the depth of data held, allowing us to have more meaningful engagements with our prospects.
Gamma values
Earlier in the year, and as part of an exciting employee led program which was aligned with our Gamma 2023 Strategy, we established Gamma's core values. These are:
· Aim high
· Consider others
· Think differently
· Stronger together
These values were launched in early 2020 as part of a company-wide values program, which included a full brand refresh and the launch of our new Gamma websites. We also introduced a new company strapline "Working Smarter, Together." which seeks to sum up our aspirations as a business, how we like to operate as a company, and importantly underpins our UCaaS focused strategy moving forward.
Summary and outlook
Despite the obvious difficulties during the last six months caused by COVID-19, I continue to be pleased with the execution of both our short-term business objectives and our longer term 2023 strategy. We have shown that we are able to operate our business with almost all staff working from home albeit we are now beginning to open offices again. I am also pleased to say that our internal network coped adequately with this level of home-working.
As highlighted previously, the business has performed very well throughout the "lockdown" period in each country where we operate, and I have been particularly impressed and proud of how our teams have engaged to support colleagues, partners and our end customers - I believe this is what truly sets Gamma apart from others and positions us very much as a caring organisation with a very high degree of personal, professional and corporate integrity. We have a robust commercial model based on recurring monthly billing (and we have made a very deliberate point of acquiring businesses who have similar models) which has ensured we have continued to operate positively and be cash generative. We are therefore confident that should there be a need for a second lockdown or localised lockdowns, the business will be able to function well and will continue to generate a positive cashflow.
We continue to see demand for our products and services which facilitate flexible working and the COVID-19 pandemic has reinforced and demonstrated the advantages of UCaaS to many businesses which had not previously considered the need for such a service. Therefore, we are confident in the long-term growth prospects of the business across the whole of
It is my belief that the current crisis will ultimately accelerate the adoption of UCaaS across all markets, and although this will bring increased opportunity, it will also present increased levels of competition as the market becomes even more attractive. We will continue to stay focused on developing the products and services which enable our customers and our channel partners to be successful and win market share in their respective markets. The quality and competitiveness of our products and the strength of our direct and indirect channel businesses in the
Throughout the second half of 2020 we will build on each of our strategic pillars:
· In UCaaS we will continue to develop the roadmap for our UCaaS product suite in the
· We will continue to ensure that each infrastructure we operate in each country in
· We will continue to focus on the integration of our new acquisitions in the
· As part of driving increased levels of digitalisation and automation across our
As part of our COVID-19 governance and market monitoring activities, in the second half we shall continue to closely monitor partner and end-customer cancellations and bad debts due to business failures (which in turn are due to the general economic down turn). As highlighted previously, in the first half these ran at our normal low levels across all countries where we operate but may increase if the economy and business market deteriorates. In addition, during the second half we will establish a "new way of working" strategy which will take into consideration survey feedback that we have been receiving from our staff, our customers and our partners. As we move forward, Gamma will make sensible and informed decisions that positively impact our future way of working and overall business prospects.
While we focus on delivering our short-term business and financial commitments in 2020, we will continue to execute against our strategic priorities while continuing to maintain a strong balance sheet and generating positive monthly cashflow.
I would like to personally thank all of our staff (both existing and new), our channel partners and our customers for their ongoing support during what I know has been a very difficult period.
Chief Executive Officer
Financial review
Revenue and gross profit
Gamma has performed well during the six months ended 30 June 2020, increasing revenue by 12% to £177.3m (H1 2019: £158.2m) and gross profit by 19% to £93.1m (H1 2019: £78.1m). We have seen this strong performance across all the main areas of the business. This has resulted in adjusted EPS of 23.5p, an increase of 22% from the same period in the prior year.
|
H1 2020 |
H1 2019 |
Increase |
|
£m |
£m |
|
|
|
|
|
Revenue |
119.5 |
110.9 |
7.8% |
Gross Profit |
64.5 |
55.9 |
15.4% |
Gross Margin |
54% |
50% |
|
Overall, the growth in the
Within the
We group our data, mobile, SIP and Cloud PBX products as our "growth" products and revenue from growth product sales increased from £89.3m to £98.2m (+10%) and gross profit grew from £49.9m to £58.3m (+17%). The gross margin grew from 50% to 54%, which reflects the fact that the main contributors to this growth were SIP Trunking and our UCaaS products (Horizon and Collaborate) which have higher margins than other products. In addition (again due to lockdown) we had fewer installations and hardware sales in the second quarter. These tend to be at a lower margin than the monthly recurring revenues and therefore the margin has increased due to the change in mix - for this reason we would expect margin to fall back again in the second half to be nearer to 2019 levels.
|
H1 2020 |
H1 2019 |
Increase |
|
£m |
£m |
|
|
|
|
|
Revenue |
47.2 |
40.0 |
18.0% |
Gross Profit |
22.4 |
17.9 |
25.1% |
Gross Margin |
47% |
45% |
|
The
The growth was mainly attributable to sales to enterprise customers increasing by £6.9m. Sales to the public sector increased by £0.5m which was attributable to some "one-off" business in the first half of 2019 not being repeated in 2020 - the underlying recurring business is showing better growth. Our Direct mid-market revenue was in line with the prior year. The
The gross margin increased in part as a result of some lower margin work in the public sector in the prior year that was not repeated and also (in common with the Indirect Business) a lack of installations and hardware sales has pushed the margin higher; as for the Indirect Business, we would not expect this trend to continue as business gets back to normal after "lockdown".
Overseas
|
H1 2020 |
H1 2019 |
Increase |
|
£m |
£m |
|
|
|
|
|
Revenue |
10.6 |
7.3 |
45.2% |
Gross Profit |
6.2 |
4.3 |
44.2% |
Gross Margin |
58% |
59% |
|
Our overseas business consists of the DX Groep in
Gross margins have been consistent between periods. The margins on a product by product basis are consistent with those in the
The Group finance team has regular calls with the local finance teams to monitor their performance. We have also spent time aligning both processes and accounting policies.
Operating expenses
Operating expenses grew from £56.3m to £66.8m.
We break these down as follows:
|
H1 |
H1 |
H1 |
H1 |
Growth |
Expenses included within cash generated from operations |
|
|
|
|
|
- |
35.7 |
|
30.9 |
|
15.5% |
- |
11.7 |
|
9.4 |
|
24.5% |
- Overseas Business |
5.2 |
|
4.0 |
|
30.0% |
- Central Costs |
3.3 |
|
2.3 |
|
43.5% |
|
|
55.9 |
|
46.6 |
|
Depreciation and amortisation |
|
|
|
|
|
- tangible and intangible assets |
7.0 |
|
6.7 |
|
4.5% |
- right of use assets |
1.0 |
|
0.8 |
|
25.0% |
- acquisition |
1.8 |
|
1.1 |
|
63.6% |
|
|
9.8 |
|
8.6 |
|
Share based payments |
|
1.1 |
|
1.1 |
0.0% |
Exceptional items |
|
- |
|
- |
|
Operating expenses |
|
66.8 |
|
56.3 |
18.7% |
Movements in cash-based expenses were driven by:
· Within the
· In the
· The increase in overseas costs is reflective of the inorganic growth with the acquisition of Voz Telecom. Within the overseas costs of £3.3m, £0.9m was for M&A activity (both executed and the costs for reviewing opportunities which were not ultimately pursued).
· Central costs have increased from the prior period, which is due to a number of factors. The first is that we have built a Group function which is able to support the businesses we have acquired around
Whilst overheads have increased between H1 2019 and H1 2020, the growth from H2 2019 to H1 2020 is much lower - that is much of the growth in overheads happened in the second half of 2019. This is (in part) because general overhead increases have been offset by cost savings which have been driven by COVID-19 - for example, travel and subsistence expenses are significantly lower. These savings are not expected to continue in the long run.
Depreciation and amortisation on tangible and intangible assets have increased slightly from £6.7m in H1 2019 to £7.0m in H1 2020. This is driven by the inorganic growth (i.e. depreciation incurred within acquired companies). The annual depreciation charge is now in line with the annual capital expenditure spend and is not expected to increase significantly.
Share based payment costs are in line with the prior year.
Exceptional Items
There were no exceptional items in the period.
In the prior year there were exceptional transactions related to the acquisition of the DX Groep which netted to zero - full details are provided in the prior year interim statements. None of these were cash items.
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:
2020 |
|
|
|
|
|
Measure |
Statutory basis |
Amortisation of intangibles |
Adjusting tax items |
Exceptional items ** |
Adjusted basis |
EBITDA* (£m) |
36.1 |
- |
- |
- |
36.1 |
PBT (£m) |
26.2 |
1.8 |
- |
- |
28.0 |
PAT (£m) |
21.2 |
1.8 |
(0.4) |
- |
22.6 |
EPS (FD) (p) |
22.1 |
1.8 |
(0.4) |
- |
23.5 |
|
|
|
|
|
|
2019 |
|
|
|
|
|
Measure |
Statutory basis |
Amortisation of intangibles |
Adjusting tax items |
Exceptional items ** |
Adjusted basis |
EBITDA* (£m) |
30.4 |
- |
- |
- |
30.4 |
PBT (£m) |
21.7 |
1.1 |
- |
- |
22.8 |
PAT (£m) |
18.5 |
1.1 |
(0.3) |
(1.0) |
18.3 |
EPS (FD) (p) |
19.4 |
1.1 |
(0.3) |
(1.0) |
19.2 |
* Profit from operations is the nearest equivalent statutory measure to EBITDA and is reconciled on the Consolidated Statement of Comprehensive Income and note 3 (Segmental Analysis).
** See note 4 for further details.
Adjusted EBITDA and EBITDA
The combination of increasing sales of new products and operational improvements means that both EBITDA and adjusted EBITDA grew from £30.4m in H1 2019 to £36.1m or 19%.
Taxation
The effective tax rate for the first half of 2020 was 19% (2019: 15%). The rate in the prior year was artificially depressed by an exceptional tax credit of £1.0m which related to the reduction of the intangible assets acquired with the DX Groep. The underlying tax rate in 2019 (ignoring this credit) would have been slightly above the statutory
Cash flows
The cash balance at the end of the half was £42.5m, down from £53.9m at the end of the previous year.
The ratio of adjusted EBITDA to cash generated from operations was 89% in the first half (2019: 90%).
Significant non-operational spend items were:
· Capital spend for the half was £6.1m, which is an increase from £5.2m in the comparative period. This is discussed in detail below.
· £19.8m was paid for the acquisitions net of cash acquired (2019: £3.4m) of which £3.2m was paid for the acquisition of Exactive and £16.6m for Voz Telecom.
· £1.7m was paid in deferred consideration relating to the acquisition of Nimsys in the prior year (2019: £nil).
· £6.6m was paid as dividends (2019: £5.8m).
Capital spend in the first half was in respect of maintaining and increasing capacity on the core network. It was £6.1m (2019: £5.2m).
Adjusted EPS (FD) and Statutory EPS (FD)
Adjusted EPS (FD) increased from 19.2p to 23.5p (22%). The growth in adjusted EPS (FD) has been driven by the continued growth in a difficult market. Adjusted EPS is EPS as adjusted for exceptional items as defined in note 4 and is shown in the table above.
EPS (FD) grew from 19.4p to 22.1p (14%). The growth is lower than the adjusted metric because, in the current period, there is an increase in the amortization relating to business combinations. These items are in part offset by an exceptional tax credit relating to the reduction in intangibles.
Going Concern
Having assessed and considered the principal risks faced by the Group, the potential impact of COVID-19, the sensitivity analysis and the Group's significant financial headroom, 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.
Please see note 1 for further information.
Dividends
The Board has declared an interim dividend of 3.9p (2019: 3.5p). This is an increase of 11% and is in line with our progressive dividend policy.
The interim dividend is payable on Thursday 22 October 2020 to shareholders on the register on Friday 25 September 2020.
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
7 September 2020
INDEPENDENT REVIEW REPORT TO GAMMA COMMUNICATIONS PLC
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 2020 which comprises the statement of comprehensive income, the statement of financial position, the statement of changes in equity, the cash flow statement and related notes 1 to 14. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules of the London Stock Exchange.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (
Conclusion
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 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the
Use of our report
This report is made solely to the company in accordance with International Standard on Review Engagements (
Statutory Auditor
7 September 2020
Condensed consolidated unaudited statement of comprehensive income
For the six months ended 30 June 2020
|
|
Six months |
Six months |
Year ended |
|
Note |
Unaudited |
Unaudited |
Audited |
|
|
|
|
|
Revenue |
3 |
177.3 |
158.2 |
328.9 |
Cost of sales |
|
(84.2) |
(80.1) |
(162.4) |
Gross profit |
|
93.1 |
78.1 |
166.5 |
Operating expenses |
|
(66.8) |
(56.3) |
(121.0) |
|
|
|
|
|
Earnings before depreciation, amortisation and exceptional items |
36.1 |
30.4 |
63.5 |
|
Exceptional items |
4 |
- |
- |
(0.9) |
Earnings before depreciation and amortisation |
|
36.1 |
30.4 |
62.6 |
Depreciation and amortisation (excluding business combinations) |
(8.0) |
(7.5) |
(15.1) |
|
Amortisation arising due to business combinations |
|
(1.8) |
(1.1) |
(2.0) |
|
|
|
|
|
Profit from operations |
|
26.3 |
21.8 |
45.5 |
Finance income |
|
0.3 |
- |
0.1 |
Finance expense |
|
(0.4) |
(0.1) |
(0.4) |
Profit before tax |
|
26.2 |
21.7 |
45.2 |
Tax expense |
5 |
(5.0) |
(3.2) |
(10.7) |
Profit after tax |
|
21.2 |
18.5 |
34.5 |
|
|
|
|
|
Other comprehensive income/(loss) |
|
0.7 |
(0.1) |
(0.4) |
|
|
|
|
|
Total comprehensive income attributable to the owners of the parent |
21.9 |
18.4 |
34.1 |
|
|
|
|
|
|
Earnings per share |
|
|
|
|
Basic per ordinary share (pence) |
6 |
22.3 |
19.7 |
36.6 |
Diluted per ordinary share (pence) |
6 |
22.1 |
19.4 |
36.1 |
Adjusted earnings per share is shown in note 6 |
|
|
|
|
Condensed consolidated unaudited statement of financial position
As at 30 June 2020
|
|
30 June 2020 |
30 June |
31 December 2019 |
|
Note |
Unaudited |
Unaudited |
Audited |
Assets |
|
|
|
|
Non-current assets |
|
|
|
|
Property, plant and equipment |
8 |
31.1 |
31.0 |
32.1 |
Right of use assets |
|
12.5 |
9.0 |
11.4 |
Intangible assets |
9 |
74.8 |
34.5 |
37.4 |
Deferred tax asset |
|
2.7 |
4.4 |
3.0 |
Trade and other receivables |
|
16.6 |
11.4 |
15.0 |
|
|
137.7 |
90.3 |
98.9 |
|
|
|
|
|
Current assets |
|
|
|
|
Inventories |
|
9.8 |
7.5 |
8.1 |
Trade and other receivables |
|
85.7 |
78.3 |
77.5 |
Cash and cash equivalents |
|
42.5 |
44.8 |
53.9 |
Current tax |
|
1.7 |
- |
- |
|
|
139.7 |
130.6 |
139.5 |
Total assets |
|
277.4 |
220.9 |
238.4 |
|
|
|
|
|
Liabilities |
|
|
|
|
Non-current liabilities |
|
|
|
|
Other payables |
|
0.2 |
0.2 |
0.2 |
Long term borrowings |
|
2.8 |
- |
- |
Provisions |
|
1.5 |
1.7 |
0.8 |
Lease liabilities |
|
12.0 |
8.3 |
11.3 |
Contract liabilities |
|
5.2 |
9.1 |
9.1 |
Contingent consideration |
|
1.2 |
0.6 |
1.1 |
Deferred tax assets |
|
6.1 |
3.6 |
3.9 |
|
|
29.0 |
23.5 |
26.4 |
Current liabilities |
|
|
|
|
Trade and other payables |
|
61.7 |
51.0 |
46.1 |
Provisions |
|
- |
- |
0.9 |
Lease liabilities |
|
1.7 |
0.8 |
1.3 |
Contract liabilities |
|
10.9 |
8.2 |
8.0 |
Short term borrowings |
|
1.0 |
- |
- |
Contingent consideration |
|
3.1 |
- |
1.5 |
Current tax |
|
- |
2.2 |
1.7 |
|
|
78.4 |
62.2 |
59.5 |
Total liabilities |
|
107.4 |
85.7 |
85.9 |
|
|
|
|
|
Issued capital and reserves attributable to owners of the parent |
|
|
|
|
Share capital |
11 |
0.2 |
0.2 |
0.2 |
Share premium reserve |
|
7.8 |
4.7 |
6.6 |
Merger reserve |
|
2.3 |
2.3 |
2.3 |
Share option reserve |
|
4.6 |
3.3 |
3.8 |
Foreign exchange reserve |
|
0.1 |
(0.3) |
(0.6) |
Own shares |
|
(0.7) |
(0.8) |
(0.7) |
Retained earnings |
|
155.7 |
125.8 |
140.9 |
Total equity |
|
170.0 |
135.2 |
152.5 |
Total equity and liabilities |
|
277.4 |
220.9 |
238.4 |
Condensed consolidated unaudited statement of cash flows
For the six months ended 30 June 2020
|
|
Six months |
Six months |
Year ended |
|
Note |
Unaudited |
Unaudited |
Audited |
Cash flows from operating activities |
|
|
|
|
Profit for the period before tax |
|
26.2 |
21.7 |
45.2 |
|
|
|
|
|
Adjustments for: |
|
|
|
|
Depreciation of property, plant and equipment |
8 |
4.8 |
4.9 |
9.8 |
Depreciation of right of use assets |
|
1.0 |
0.8 |
1.7 |
Amortisation and reduction in value of intangible assets |
9 |
4.0 |
2.9 |
13.7 |
Change in fair value of contingent consideration |
|
- |
- |
(7.2) |
Share based payment expense |
|
1.1 |
1.1 |
2.6 |
Interest income |
|
(0.3) |
- |
(0.1) |
Finance cost |
|
0.4 |
0.1 |
0.4 |
|
|
37.2 |
31.5 |
66.1 |
|
|
|
|
|
(Increase) in trade and other receivables |
|
(3.5) |
(14.5) |
(16.7) |
(Increase) in inventories |
|
(1.4) |
(1.3) |
(1.9) |
Increase in trade and other payables |
|
0.2 |
11.3 |
6.3 |
(Decrease)/increase in contract liabilities |
|
(1.0) |
0.9 |
0.7 |
Increase/(decrease) in provisions and employee benefits |
|
0.7 |
(0.5) |
(0.5) |
|
|
|
|
|
Cash generated by operations |
|
32.2 |
27.4 |
54.0 |
Taxes paid |
|
(7.9) |
(2.7) |
(7.5) |
Interest paid |
|
(0.1) |
- |
- |
Net cash flows from operating activities |
|
24.2 |
24.7 |
46.5 |
|
|
|
|
|
Investing activities |
|
|
|
|
Purchase of property, plant and equipment |
8 |
(3.1) |
(4.0) |
(9.9) |
Purchase of intangible assets |
9 |
(3.0) |
(1.2) |
(2.5) |
Interest received |
|
0.3 |
- |
0.1 |
Payment of deferred consideration |
|
(1.7) |
- |
- |
Acquisition of subsidiaries net of cash acquired |
|
(19.8) |
(3.4) |
(7.5) |
Net cash used in investing activities |
|
(27.3) |
(8.6) |
(19.8) |
|
|
|
|
|
Financing activities |
|
|
|
|
Lease liability repayments |
|
(0.9) |
(0.9) |
(1.1) |
Repayment of borrowings |
|
(1.1) |
- |
- |
Share issues |
|
0.3 |
(0.1) |
2.0 |
Dividends |
|
(6.6) |
(5.8) |
(9.2) |
Net cash used in financing activities |
|
(8.3) |
(6.8) |
(8.3) |
|
|
|
|
|
Net increase in cash and cash equivalents |
|
(11.4) |
9.3 |
18.4 |
Cash and cash equivalents at beginning of period |
|
53.9 |
35.5 |
35.5 |
|
|
|
|
|
Cash and cash equivalents at end of period |
|
42.5 |
44.8 |
53.9 |
Condensed consolidated unaudited statement of changes in equity
For the six months ended 30 June 2020
|
Share capital |
Share premium reserve |
Merger reserve |
Share option reserve |
Foreign exchange reserve |
Own shares |
Retained earnings |
Total equity |
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
1 January 2019 |
0.2 |
4.6 |
2.3 |
3.2 |
(0.2) |
(0.8) |
112.4 |
121.7 |
Issue of shares |
- |
0.1 |
- |
(0.7) |
- |
- |
0.7 |
0.1 |
Recognition of share-based payment expense |
- |
- |
- |
0.8 |
- |
- |
- |
0.8 |
Dividend paid |
- |
- |
- |
- |
- |
- |
(5.8) |
(5.8) |
Transaction with owners |
- |
0.1 |
- |
0.1 |
- |
- |
(5.1) |
(4.9) |
|
|
|
|
|
|
|
|
|
Profit for the period |
- |
- |
- |
- |
- |
- |
18.5 |
18.5 |
Other comprehensive loss |
- |
- |
- |
- |
(0.1) |
- |
- |
(0.1) |
Total comprehensive (loss)/income |
- |
- |
- |
- |
(0.1) |
- |
18.5 |
18.4 |
30 June 2019 |
0.2 |
4.7 |
2.3 |
3.3 |
(0.3) |
(0.8) |
125.8 |
135.2 |
|
|
|
|
|
|
|
|
|
1 January 2020 |
0.2 |
6.6 |
2.3 |
3.8 |
(0.6) |
(0.7) |
140.9 |
152.5 |
Issue of shares |
- |
1.2 |
- |
(0.3) |
- |
- |
0.2 |
1.1 |
Recognition of share-based payment expense |
- |
- |
- |
1.1 |
- |
- |
- |
1.1 |
Dividend paid |
- |
- |
- |
- |
- |
- |
(6.6) |
(6.6) |
Transaction with owners |
- |
1.2 |
- |
0.8 |
- |
- |
(6.4) |
(4.4) |
|
|
|
|
|
|
|
|
|
Profit for the period |
- |
- |
- |
- |
- |
- |
21.2 |
21.2 |
Other comprehensive income |
- |
- |
- |
- |
0.7 |
- |
- |
0.7 |
Total comprehensive income |
- |
- |
- |
- |
0.7 |
- |
21.2 |
21.9 |
30 June 2020 |
0.2 |
7.8 |
2.3 |
4.6 |
0.1 |
(0.7) |
155.7 |
170.0 |
Notes to the condensed consolidated unaudited interim financial information
For the six months ended 30 June 2020
1. Basis of preparation
The condensed consolidated unaudited 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
There are no additional standards or interpretations requiring adoption that are applicable to the Group for the accounting period commencing 1 January 2020.
Going Concern
At 30 June 2020, the Group had gross cash balances of £42.5 million and external debt on the balance sheet of £3.8m (which relates to debt held by VozTelecom pre-acquisition and therefore was a liability assumed into the Group upon acquisition).
In adopting the going concern basis for preparing the half year condensed financial statements, the directors have considered the Group's principal risks and uncertainties, including the potential impact of the COVID-19 pandemic on the Group and any longer-term impact to the global economy. In the first half of 2020, the COVID-19 pandemic has not had a significant impact on the Group's trading performance and the Group has continued to operate effectively.
The directors have also considered sensitivities in respect of potential downside scenarios, including reverse stress testing the latest cash flow projections that cover a period of 18 months from the date of these half year condensed financial statements. In these scenarios, the Group has more than sufficient headroom in its available resources. The directors have noted that for the Group to be left in a negative cash position a significant and unlikely reduction in trade would be required across the 18-month period.
The Directors have acknowledged the latest guidance on going concern as issued by the Financial Reporting Council in May 2020 and the thematic review published in July 2020.
Having assessed and considered the principal risks faced by the Group, the potential impact of COVID-19, the sensitivity analysis and the Group's significant financial headroom, 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 12 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.
Principal risks and uncertainties
There have been no changes in the principal risks and uncertainties during the period and therefore these remain consistent with the year ended 31 December 2019 and are disclosed in the Annual Report for that year. The Directors have considered the impact of COVID-19 and do not consider that it has (at this point in time) changed the principal risks and uncertainties which the Group is facing. The directors continue to monitor the impact of COVID-19 on the principal risks and uncertainties.
2. Accounting policies
The accounting policies adopted are consistent with those followed in the preparation of the audited statutory financial statements for the year ended 31 December 2019.
An additional accounting policy has been introduced since year end relating to non-controlling interests. The Group recognises non-controlling interest in an acquired entity either at fair value or at the non-controlling interest's proportionate share of the acquired entity's net identifiable assets. This decision is made on an acquisition by acquisition basis
Critical accounting estimates and judgements
The Group makes certain estimates and assumptions 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 estimates and assumptions that have a significant risk of causing a material adjustment within the next financial year are discussed below.
Critical accounting judgements
Critical judgements, apart from those involving estimations, applied in the preparation of the consolidated financial statements are discussed below:
(a) Principal vs agent classification of channel partners
The Group receives payment for products and services from channel partners who onwardly sell to end users. The Group has considered whether channel partners are acting as a principal or an agent under the criteria in IFRS 15. Where a channel partner has the primary responsibility for providing the products or services to the end user, carries the inventory risk, is free to establish its own prices and bears the credit risk for the amount receivable from the end user then the channel partner is treated as the principal in that transaction. The Group therefore recognises revenue earned in this way based on the transactions with the channel partner and not the end user. Where a Channel Partner acts as an introducer to an end user and the Group carries the contract risk then the Group recognises revenue from the end user and treats any commission paid to a partner as a cost of sale - this latter model is more prevalent in our overseas operations.
(b) Revenue recognition
Revenue recognition on contracts may involve providing services over multiple years and involving a number of products. In such instances, judgement is required to identify the date of transaction of separable elements of the contract and the fair values which are assigned to each element. The Group also regularly assesses customer credit risk inherent in the carrying amounts of receivables, contract costs and estimated earnings.
Key accounting estimates
There are no key accounting estimates.
Alternative Performance Measures
Adjustments to EBITDA, PBT, PAT and EPS (fully diluted) have been presented because the Group believes that adjusted measures provide valuable additional information for users of the financial statements in assessing the Group's performance. Moreover, they provide information on the performance of the business that management is more directly able to influence and on a basis comparable from year to year. The measures are adjusted for the following items:
(a) Amortisation of intangibles arising on acquisition
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.
(b) 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.
(c) Exceptional items
The Group treats certain items which are considered to be one-off or not representative of the underlying trading of the Group as exceptional in nature.
The Directors apply judgement in assessing the particular items, which by virtue of their scale and nature should be classified as exceptional items. The Directors consider that separate disclosure of these items is relevant to an understanding of the Group's financial performance.
Changes in deferred consideration, reduction of intangible assets and goodwill are considered to be exceptional as they are not representative of the underlying trade of the Group as the nature of the Group's business is as a technology-based provider of communications services not an investment company.
(d) 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.
3. Segment information
The Group's main operating segments are outlined below:
®
®
® Overseas - This division consists of sales made in
® Central functions - This is not a revenue generating segment but is made up of the central management team and wider Group costs.
Factors that management used to identify the Group's reportable segments
The Group's reportable segments are strategic business units that offer products and services into different markets. They are managed separately because each business requires different marketing strategies and are reported separately to the Board and management team.
Measurement of operating segment profit or loss, assets and liabilities
The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. The Group evaluates performance on the basis of profit or loss from operations but excluding non-recurring losses, such as goodwill impairment, the effects of share-based payments and exceptional income. Inter-segment sales are priced along the same lines as 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.
|
|
|
Overseas |
Central functions |
Total |
|
£m |
£m |
£m |
£m |
£m |
Period to 30 June 2020 |
|
|
|
|
|
Total revenue from external customers |
119.5 |
47.2 |
10.6 |
- |
177.3 |
Inter-segment revenue |
10.7 |
0.4 |
- |
- |
11.1 |
|
|
|
|
|
|
Timing of revenue recognition |
|
|
|
|
|
At a point in time |
7.0 |
1.9 |
1.7 |
- |
10.6 |
Over time |
112.5 |
45.3 |
8.9 |
- |
166.7 |
|
119.5 |
47.2 |
10.6 |
- |
177.3 |
|
|
|
|
|
|
Total gross profit |
64.5 |
22.4 |
6.2 |
- |
93.1 |
|
|
|
|
|
|
Operating expenses |
(44.3) |
(11.8) |
(7.4) |
(3.3) |
(66.8) |
|
|
|
|
|
|
Earnings before depreciation and amortisation |
27.7 |
10.7 |
1.0 |
(3.3) |
36.1 |
Depreciation and amortisation (excluding business combinations) |
(7.1) |
- |
(0.9) |
- |
(8.0) |
Amortisation arising due to business combinations |
(0.4) |
(0.1) |
(1.3) |
- |
(1.8) |
|
|
|
|
|
|
Profit from operations |
20.2 |
10.6 |
(1.2) |
(3.3) |
26.3 |
Finance income |
0.3 |
- |
- |
- |
0.3 |
Finance expense |
(0.2) |
- |
(0.2) |
- |
(0.4) |
Group profit before tax |
20.3 |
10.6 |
(1.4) |
(3.3) |
26.2 |
Tax expense |
(3.7) |
(2.2) |
0.3 |
0.6 |
(5.0) |
Group profit after tax |
16.6 |
8.4 |
(1.1) |
(2.7) |
21.2 |
Other comprehensive income |
- |
- |
0.7 |
- |
0.7 |
Total comprehensive income attributable to the owners of the parent |
16.6 |
8.4 |
(0.4) |
(2.7) |
21.9 |
External customer revenue has been derived principally from the
Period to June 2020 |
|
|
Overseas |
Central functions |
Total |
|
£m |
£m |
£m |
£m |
£m |
Additions to non-current assets |
8.4 |
0.1 |
0.6 |
- |
9.1 |
Reportable segment assets |
188.4 |
67.0 |
22.0 |
- |
277.4 |
Reportable segment liabilities |
34.8 |
46.8 |
25.8 |
- |
107.4 |
|
|
|
Overseas |
Central functions |
Total |
|
£m |
£m |
£m |
£m |
£m |
Period to 30 June 2019 |
|
|
|
|
|
Total revenue from external customers |
110.9 |
40.0 |
7.3 |
- |
158.2 |
Inter-segment revenue |
12.4 |
- |
- |
- |
12.4 |
|
|
|
|
|
|
Timing of revenue recognition |
|
|
|
|
|
At a point in time |
9.2 |
2.8 |
- |
- |
12.0 |
Over time |
101.7 |
37.2 |
7.3 |
- |
146.2 |
|
110.9 |
40.0 |
7.3 |
- |
158.2 |
|
|
|
|
|
|
Total gross profit |
55.9 |
17.9 |
4.3 |
- |
78.1 |
|
|
|
|
|
|
Operating expenses |
(38.9) |
(9.5) |
(5.6) |
(2.3) |
(56.3) |
|
|
|
|
|
|
Earnings before depreciation and amortisation |
23.9 |
8.5 |
0.3 |
(2.3) |
30.4 |
Depreciation and amortisation (excluding business combinations) |
(6.9) |
(0.1) |
(0.5) |
- |
(7.5) |
Amortisation arising due to business combinations |
- |
- |
(1.1) |
- |
(1.1) |
|
|
|
|
|
|
Profit from operations |
17.0 |
8.4 |
(1.3) |
(2.3) |
21.8 |
Finance income |
- |
- |
- |
- |
- |
Finance expense |
(0.1) |
- |
- |
- |
(0.1) |
Group profit before tax |
16.9 |
8.4 |
(1.3) |
(2.3) |
21.7 |
Tax expense |
(3.2) |
(1.6) |
1.2 |
0.4 |
(3.2) |
Group profit after tax |
13.7 |
6.8 |
(0.1) |
(1.9) |
18.5 |
Other comprehensive loss |
- |
- |
(0.1) |
- |
(0.1) |
Total comprehensive income attributable to the owners of the parent |
13.7 |
6.8 |
(0.2) |
(1.9) |
18.4 |
External customer revenue has been derived principally from the
Period to June 2019 |
|
|
Overseas |
Central functions |
Total |
|
£m |
£m |
£m |
£m |
£m |
Additions to non-current assets |
10.7 |
- |
0.7 |
- |
11.4 |
Reportable segment assets |
161.5 |
35.2 |
24.2 |
- |
220.9 |
Reportable segment liabilities |
66.0 |
11.4 |
8.3 |
- |
85.7 |
The
|
Six months ended |
Six months ended |
|
£m |
£m |
Period to 30 June |
|
|
Traditional products and services |
21.3 |
21.6 |
Growth (being strategic and enabling) products and services |
98.2 |
89.3 |
Total revenue from external customers |
119.5 |
110.9 |
|
|
|
|
|
|
Traditional products and services |
6.2 |
6.0 |
Growth (being strategic and enabling) products and services |
58.3 |
49.9 |
Total gross profit |
64.5 |
55.9 |
Given that the decline in the traditional business has now stabilised and that element of the business is no longer material, this will be the final year where we show this split. We believe that it is no longer needed by a user of the accounts to understand the growth of the business.
The
|
Six months ended |
Six months ended |
|
£m |
£m |
|
|
|
Mid Markets |
13.5 |
13.7 |
Enterprise |
23.2 |
16.3 |
Public Sector |
9.8 |
9.3 |
The Loop |
0.7 |
0.7 |
Total revenue from external customers |
47.2 |
40.0 |
Following a re-organisation, the
4. Exceptional items
|
Six months ended |
Six months ended |
|
|
|
Contingent consideration adjustment |
- |
8.1 |
Revaluation of goodwill carrying value |
- |
(4.2) |
Revaluation of intangible assets carrying value |
- |
(3.9) |
|
- |
- |
The exceptional items in the prior period related to the contingent consideration which was due on acquisitions.
In preparing the statutory accounts for 2018, the best estimate of the contingent consideration in respect of the DX Groep was made. During 2019, a higher than expected attrition rate of legacy customers taking ISDN caused the revenues to be lower than expected. Therefore, the estimated contingent consideration due has been revised and the associated intangible assets including goodwill have been reduced.
5. 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 2020 is 19%, compared to 15% for the six months ended 30 June 2019. The tax rate was lower in 2019 due to £1.0m exceptional tax credit on reduction of intangibles.
6. Earnings per share
|
Six months ended |
Six months ended |
|
|
|
Earnings per Ordinary Share - basic (pence) |
22.3 |
19.7 |
Earnings per Ordinary Share - diluted (pence) |
22.1 |
19.4 |
The calculation of the basic and diluted earnings per share is based on the following data:
|
Six months ended |
Six months ended |
|
|
|
Earnings |
£m |
£m |
Profit after tax |
21.2 |
18.5 |
|
|
|
Shares |
Number |
Number |
Basic weighted average number of Ordinary Shares |
94,858,245 |
94,062,836 |
Effect of dilution resulting from share options |
1,180,577 |
1,304,874 |
Diluted weighted average number of Ordinary Shares |
96,038,822 |
95,367,710 |
Adjusted earnings per share is detailed below:
|
Six months ended |
Six months ended |
|
|
|
Adjusted earnings per Ordinary Share - basic (pence) |
23.8 |
19.5 |
Adjusted earnings per Ordinary Share - diluted (pence) |
23.5 |
19.2 |
Adjusted profit used in the calculation of adjusted earnings per share is detailed below:
|
Six months ended |
Six months ended |
|
|
|
Earnings |
£m |
£m |
Profit for the period |
21.2 |
18.5 |
Amortisation arising on business combinations |
1.8 |
1.1 |
Less tax benefit associated with business combinations |
(0.4) |
(0.3) |
Less tax benefit associated with exceptional (reduction of intangibles) |
- |
(1.0) |
Adjusted profit after tax for the period |
22.6 |
18.3 |
There have been no material transactions involving Ordinary Shares or potential shares between the reporting date and the date of completion of the financial statements.
7. Dividends
A final dividend of 7.0p was paid on the 18 June 2020 (2019: 6.2p).
The Board has declared an interim dividend of 3.9p per share payable on Thursday 22 October 2020 to shareholders on the register as at Friday 25 September 2020. In the prior year an interim dividend of 3.5p was paid.
8. Property, plant and equipment
|
|
Network assets |
Computer equipment |
Fixtures and fittings |
Total |
|
|
£m |
£m |
£m |
£m |
|
|
|
|
|
|
Cost |
|
|
|
|
|
At 1 January 2020 |
|
67.9 |
9.1 |
1.4 |
78.4 |
Additions |
|
2.6 |
0.4 |
0.1 |
3.1 |
Acquisition of subsidiary |
|
0.1 |
0.4 |
0.3 |
0.8 |
Reclassifications |
|
(0.3) |
- |
0.3 |
- |
At 30 June 2020 |
|
70.3 |
9.9 |
2.1 |
82.3 |
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
At 1 January 2020 |
|
38.6 |
6.8 |
0.9 |
46.3 |
Charge for the period |
|
4.0 |
0.6 |
0.2 |
4.8 |
Exchange differences |
|
- |
- |
0.1 |
0.1 |
Reclassifications |
|
(0.1) |
- |
0.1 |
- |
At 30 June 2020 |
|
42.5 |
7.4 |
1.3 |
51.2 |
|
|
|
|
|
|
Net book value |
|
|
|
|
|
At 1 January 2020 |
|
29.3 |
2.3 |
0.5 |
32.1 |
At 30 June 2020 |
|
27.8 |
2.5 |
0.8 |
31.1 |
9. Intangible assets
|
|
Customer contracts |
Brand |
Development costs |
Software |
Total |
|
£m |
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
Cost |
|
|
|
|
|
|
At 1 January 2020 |
24.0 |
22.4 |
1.1 |
10.3 |
13.4 |
71.2 |
Additions |
- |
3.0 |
- |
1.1 |
1.9 |
6.0 |
Acquisition of subsidiary |
23.0 |
8.9 |
- |
2.5 |
- |
34.4 |
Exchange differences |
0.3 |
1.3 |
(0.1) |
- |
- |
1.5 |
Reclassifications |
- |
- |
- |
0.8 |
(0.8) |
- |
At 30 June 2020 |
47.3 |
35.6 |
1.0 |
14.7 |
14.5 |
113.1 |
|
|
|
|
|
|
|
Amortisation |
|
|
|
|
|
|
At 1 January 2020 |
8.7 |
8.0 |
0.3 |
7.8 |
9.0 |
33.8 |
Charge for the period |
- |
1.7 |
0.1 |
1.0 |
1.2 |
4.0 |
Exchange differences |
- |
0.4 |
- |
0.1 |
- |
0.5 |
At 30 June 2020 |
8.7 |
10.1 |
0.4 |
8.9 |
10.2 |
38.3 |
|
|
|
|
|
|
|
Net book value |
|
|
|
|
|
|
At 1 January 2020 |
15.3 |
14.4 |
0.8 |
2.5 |
4.4 |
37.4 |
At 30 June 2020 |
38.6 |
25.5 |
0.6 |
5.8 |
4.3 |
74.8 |
The estimated cost of software which the Group is contractually committed to purchase at 30 June 2020 is £3.5m (30 June 2019: £6.2m). This amount is for the purchase of software licenses. The capital commitments in 2020 are payable in USD, with the payable amount being $4.4m. Changes in the exchange rate could cause variances in the value of the commitment.
10. Business combinations
Summary of acquisitions
On the 28 February 2020 the Group acquired 100% of Exactive Holdings Limited and its subsidiaries; Exactive Limited, Exactive Online Limited and Exactive Poland sp.zoo. ("Exactive"). Exactive is a leading
On the 9 April 2020, the Group acquired 94.90% of the issued share capital of VozTelecom Oigaa360 S.A., and the remaining 5.1% was acquired by 30 June 2020. The subsidiaries included are VozTelecom Comunicación Inteligente S.L.U., VozTelecom Puntos de Servicio S.L.U., VozTelecom Andalucía S.L.U., ComyMedia Proyectos y Servicios S.L.U., VozTelecom Maroc S.A.R.L. A.U. ("Voz Telecom"). Voz Telecom is one of the leading Cloud PBX providers in
Details of the purchase consideration, the net assets acquired, and goodwill are as follows:
|
Exactive |
Voz Telecom |
30 June 2020 |
|
£m |
£m |
£m |
|
|
|
|
Consideration paid for shares in issue |
4.1 |
17.7 |
21.8 |
Deferred consideration for convertible bonds |
- |
5.1 |
5.1 |
Contingent consideration |
2.3 |
- |
2.3 |
Ordinary shares issued |
0.9 |
- |
0.9 |
Total purchase consideration |
7.3 |
22.8 |
30.1 |
Exactive
Contingent consideration at 30 June 2020
The earn out agreement is based on Exactive's EBITDA for fiscal years 2020 and 2021. In the event that predetermined EBITDA targets are achieved by Exactive each year, additional consideration of up to £1.5m may be payable in 2021 and 2022 of which 80% will be in cash and 20% by the issue of consideration shares.
Ordinary shares issued
The fair value of the 69,024 shares issued as part of the consideration paid for Exactive Holdings Limited (£0.9m) was based on the middle market quotations for an ordinary share of
Voz Telecom
Deferred consideration at 30 June 2020
An amount is payable relating to convertible bonds which are to be converted to shares once Voz Telecom has delisted from the Mercado Alternativo Bursátil exchange ("MAB") and purchased by Gamma for €5.7m. Voz Telecom has delisted from MAB and once the share capital increase has been registered the payment will be made.
Non-controlling interest
Subsequent to the acquisition date, but prior to 30 June 2020, a further £0.3m payment was made to acquire the non-controlling interest.
The provisional asset and liabilities recognised as a result of the acquisitions are as follows:
|
Exactive |
Voz Telecom |
Total |
|
£m |
£m |
£m |
|
|
|
|
Cash |
0.9 |
1.4 |
2.3 |
Trade receivables |
0.5 |
1.3 |
1.8 |
Other receivables |
0.3 |
2.4 |
2.7 |
Inventories |
- |
0.3 |
0.3 |
Property, plant and equipment |
- |
0.8 |
0.8 |
Right of use assets |
- |
1.9 |
1.9 |
Intangible - development costs |
- |
2.5 |
2.5 |
Intangible - customer contracts |
1.8 |
7.1 |
8.9 |
Trade payables |
(0.2) |
(1.8) |
(2.0) |
Other payables |
(1.1) |
(9.0) |
(10.1) |
Deferred tax liability/asset |
(0.3) |
(1.3) |
(1.6) |
Net identified assets acquired |
1.9 |
5.6 |
7.5 |
Less: non-controlling interests |
- |
(0.1) |
(0.1) |
Add: |
5.4 |
17.3 |
22.7 |
Net assets acquired |
7.3 |
22.8 |
30.1 |
Valuations of intangible assets
Customer relations were valued under the Income Method and technology under the replacement cost methodology.
Acquired receivables
The fair value of acquired trade receivables for Exactive and Voz Telecom is £0.5m and £1.9m respectively. The gross contractual amount for trade receivables due is £0.5m and £2.4m respectively, of which £0.5m in Voz Telecom is expected to be uncollectible.
Accounting policy choice for non-controlling interests
The Group recognises non-controlling interest in an acquired entity either at fair value or at the non-controlling interest's proportionate share of the acquired entity's net identifiable assets. This decision is made on an acquisition by acquisition basis. For non-controlling interest in Voz Telecom, the Group elected to recognise the non-controlling interest in at its proportionate share of the acquired net identifiable assets.
As at 30 June 2020, the Group controlled 100% of Voz Telecom.
Revenue and profit
Exactive contributed revenues of £1.2m and profit after tax of £0.2m to the Group for the period from 28 February 2020 to 30 June 2020.
If the acquisition had occurred on 1 January 2020, consolidated revenue and profit after tax for the six months to 30 June 2020 would have been £1.7m and £0.3m respectively.
Voz Telecom contributed revenues of £2.9m and loss after tax of £(0.1)m to the Group for the period from 9 April 2020 to 30 June 2020.
If the acquisition had occurred on 1 January 2020, revenue and loss after tax for the six months to 30 June 2020 would have been £6.6m and £(1.3)m respectively. The loss after tax includes £1.3m of costs which were incurred by Voz in respect of the acquisition by the Group - these are not related to normal tradingand adjusting for these would give an adjusted profit after tax (based solely on trading) of nil for the six month period.
The goodwill is attributable to the acquired entities and is broken down below. The goodwill is not deductible for tax purposes.
|
|
£m |
|
|
|
Voz Telecom goodwill |
|
17.3 |
|
|
0.3 |
Total Voz Telecom |
|
17.6 |
Exactive |
|
5.4 |
Total |
|
23.0 |
Purchase consideration - cash outflow
|
Exactive |
VozTelecom |
Total |
|
£m |
£m |
£m |
|
|
|
|
Cash consideration |
4.1 |
18.0 |
22.1 |
Less: cash acquired |
(0.9) |
(1.4) |
(2.3) |
Net outflow of cash - Investing activities |
3.2 |
16.6 |
19.8 |
The cash consideration for Voz Telecom includes the additional £0.3m made to acquire the non-controlling interest.
11. Share capital
|
Number |
£m |
1 January 2020 |
|
|
Ordinary Shares of £0.0025 each |
94,781,312 |
0.2 |
|
|
|
|
Number |
|
At 1 January 2020 |
94,781,312 |
|
Movement: |
|
|
January |
7,925 |
(a) |
March |
14,400 |
(a) |
March |
69,024 |
(b) |
April |
39,688 |
(a) |
May |
20,283 |
(a) |
At 30 June 2020 |
94,932,632 |
|
|
|
|
(a) Ordinary shares were issued to satisfy options which have been exercised. |
|
|
(b) Ordinary shares were issued as consideration to the shareholders of Exactive Holdings Limited |
||
|
|
|
|
Number |
£m |
30 June 2020 |
|
|
Ordinary Shares of £0.0025 each |
94,932,632 |
0.2 |
12. Related party transactions
Dividends totalling £0.04m (being the final dividend for 2019) were paid in the first half of the year in respect of ordinary shares held by the Company's Directors (2019: £0.02m).
13. Events after the reporting date
On 1 July 2020, the Group obtained control of German based
HFO is one of the leading SIP Trunk providers in
The Group also acquired 100% of
Due to the proximity of the acquisitions to the publication of this update, the Group has not yet completed the purchase price allocation and it is impractical to give further information.
14. Ultimate controlling party
There is no ultimate controlling party.
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