Chairman's statement

 

I am pleased to present the unaudited results for the six months ended 30 June 2021.

 

Overview of results

 

Group Revenue for the six months ended 30 June 2021 increased by £40.1m to £217.4m (H1 2020: £177.3m) an increase of 23%. The UK Revenue growth in the period was mainly organic and increased by 9% from £166.7m to £182.0m. Our Revenue in Europe grew from £10.6m to £35.4m the improvement being attributable mainly to  our acquisitions in Spain (April 2020) and Germany (July 2020).  Adjusted EBITDA for the Group increased by 27% to £46.0m (H1 2020: £36.1m). Fully diluted earnings per share for the half year increased by 22% to 27.0p (H1 2020: 22.1p). Adjusted fully diluted earnings per share for the half year increased by 30% to 30.6p (H1 2020: 23.5p).

 

The cash generated by operations for the first half was £43.1m compared to £32.2m in H1 2020. The closing gross cash balance for the period was £30.8m compared to £42.5m at the end of December 2020.  This was impacted by £47.3m which we invested on acquisitions, including £6.5m of deferred consideration and option payments made in respect of past acquisitions. Throughout the pandemic we took no government support and we have continued to pay shareholders a dividend in line with our progressive policy and this resulted in a cash outflow of £7.5m in the first half.

 

The first half of 2021 continued to be dominated by the COVID-19 pandemic with further periods of lockdown in all of the territories in which we operate. This has been challenging for all businesses and restricted our normal level of sales effort.

 

Throughout the pandemic, Gamma has continued to support its customers.

Our financial performance remained strong because our commercial model means that the majority of sales are on a recurring basis.

 

I am pleased to report that we have significantly expanded our development capability through the acquisition of Manchester based Mission Labs on 3 March 2021. Mission Labs is a well-respected UCaaS technology business founded in 2016, which has built a reputation for creating technologically advanced solutions and delivering great service to its customers and partners. The experienced management team are remaining with the business and leading their team through the next stage of Mission Labs' growth.

 

Gamma had been partnering with Mission Labs for over 18 months on projects such as PhoneLine+. The acquisition gives Gamma additional capabilities in the rapidly evolving markets of Cloud Contact Centre and Cloud Communications.

 

The acquisition also enables Gamma to accelerate our direct digital channel strategy. Mission Labs has developed CircleLoop (www.circleloop.com), a UCaaS technology platform which provides a cloud-based telephony product fully serviced through web, desktop and mobile applications and aimed at the micro-business market. This capability will enable Gamma to address a key market opportunity in the UK and Europe.

 

 

 

Our market

 

The COVID crisis has highlighted the importance of our products and services for end users. During the crisis they were able to carry on their business and many new customers have enjoyed the benefits of using a UCaaS product for the first time. As businesses move to new post-pandemic working practices, many are finding that a UCaaS solution will assist them with home-working or hybrid-working. We are seeing traffic volumes increase as the economy rebounds.

 

The PSTN switch off in 2025 is also a driver for businesses to move to a UCaaS solution - we estimate that 3m PSTN lines used by micro businesses will need to be migrated.

 

We are finding that businesses of all sizes are now embracing UCaaS and the pipelines for both our Direct business and our Channel Partners are strong. As our CEO describes below we now have a number of solutions for businesses of different sizes. This bodes well for our future growth.

 

Board and Governance

 

During the first half of the year we had two planned retirements from the Board. Andrew Stone, a founder-shareholder, and Alan Gibbins (Chair of the Audit Committee since our IPO in 2014) both stood down as Non-Executive Directors at the recent AGM (20 May 2021).

 

I would like to thank Andrew and Alan for their dedication and contribution to Gamma over the past years.

 

Following Alan's retirement, Charlotta Ginman has taken over as Chair of the Audit Committee. She is currently chair of the audit committees at Keywords Studios plc, Pacific Asset Trust plc and Polar Capital Technology Trust plc.

 

We continue to comply with the QCA Corporate Governance Code (2018 edition) (the 'QCA Code').

 

Employees

 

Gamma had 1,686 employees at 30 June 2021 (30 June 2020: 1,355). The Board recognises the high levels of dedication shown by Gamma's employees during the pandemic period which enabled us to provide uninterrupted services to our customers, some of which have been delivering critical services.

 

We invest in all our employees and in particular we assist apprentices to gain valuable work experience, to continue their education and to obtain nationally recognised qualifications.

 

We continue to encourage all employees to own shares in the Company. In the UK we launched this year's SAYE scheme in April 2021 and 402 employees subscribed which brought the total employees in the SAYE scheme to 759. We also have 160 employees who are buying shares monthly through our SIP scheme and 836 in total who hold shares through the SIP Trust. We are currently working to establish the most efficient way for our new colleagues in Europe to own Gamma shares should they wish to do so.

 

Environment, Social and Governance ("ESG")

 

Gamma has always taken its ESG responsibilities seriously and has been offsetting its carbon emissions from the UK business for the past fifteen years.

 

 

During the period we have appointed an Environmental Data Manager who will work with all of our Business Units to evaluate our emissions and to form a plan for when we target net zero. We are also evaluating the various frameworks and standards which are emerging and have engaged consultants to helps us to ensure that we further enhance our emissions measurement and reporting  to ensure that we measure and disclose the appropriate metrics both for ourselves and our stakeholders. We will be consulting with our stakeholders and we welcome their input.

 

Dividend

 

Gamma remains committed to a progressive dividend policy which has meant that our dividend has increased 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 2021, of 4.4 pence per share (2020: 3.9 pence). This is an increase of 13%. It will be payable on Thursday 21 October 2021 to shareholders on the register on Friday 24 September 2021.

 

Current trading and outlook

 

Our performance subsequent to 30 June 2021 has continued to be healthy.

 

During the various periods of lockdown, we have not seen any increase in bad debts from our historical low levels. Our new sales activity at the start of the crisis was slightly below its normal level and this affected our growth in a small way. As we are now coming out of the period of uncertainty created by the pandemic sales activity has returned to normal and we continue to be optimistic about Gamma's future growth prospects.

 

As a consequence, the Board expects that revenue for the full year ending 31 December 2021 will be within the range of current market expectations (which was raised following our trading updates issued on 20 May and 13 July) and that our adjusted EBITDA and adjusted EPS are expected to be in the upper half of current market expectations.  Company compiled analyst market expectations for the full year are Revenue (£446.8m-£460.0m), adjusted EBITDA (£90.5m-£95.0m) and adjusted EPS (57.6p-63.1p).

 

 

 

Richard Last

Chairman

 

Chief Executive Review

 

I would like to start by welcoming our new colleagues into the Gamma family. We acquired Mission Labs on 3 March 2021, and I am pleased to report that our integration plan is progressing very well. The Mission Labs technology, product and people skills and capabilities are already making a positive contribution to the development and acceleration of our UCaaS strategy.

 

I am pleased to say that all of our business units have performed well, and despite the ongoing COVID-19 related economic headwinds experienced across all markets, I am happy to report another excellent set of financial results for the first half of 2021. Supporting this performance, we delivered positive net additional growth across all of our UCaaS products, and all of our business market segments and geographies, which was in line with our expectations and included a small but net positive contribution from those products which we launched during the last 6-12 months. These are discussed in more detail below.

 

The markets which we serve in the UK and Europe have proven to be robust and in addition to completing the Mission Labs acquisition and the disposal of The Loop, we were pleased to deliver strong organic growth across our UK business during the period. We have continued to save on costs in some areas due to the COVID-19 pandemic (for example in travel and marketing), however it is important to note that we have continued to invest in our UCaaS technology platform, products, and team development, which has and will in the future enable us to deliver new and exciting products into the market via both our indirect and direct channels. This is an exciting part of our long-term growth strategy, and we are very pleased with progress.

 

We continue to assess the impact that the COVID-19 pandemic is having on the cloud communications market and consider that the long-term structural changes and shift towards a more flexible and remote working environment, will lead to an increase in adoption of UCaaS services and an acceleration in the use of these services across businesses of all sizes. We see this as a long-term growth opportunity across the markets in which we operate, and the quality and competitiveness of our products and the strength of our direct and indirect channel businesses in the UK and in Europe provides confidence that we will continue to perform well and that the long-term growth prospects for our sector and for Gamma will continue to be positive.

 

European Expansion

 

One of our key strategic pillars continues to be to expand our business into Europe, to benefit from low cloud penetration levels and a long-term sustainable growth opportunity in these markets - we plan to do this both organically using the businesses we have acquired as cloud growth platforms and by gaining scale within each market through making additional bolt-on acquisitions. We have made no further acquisitions in mainland Europe during the first half, but we have delivered net additional cloud product growth which is in line with our UK business and considered a good performance given the difficult COVID-19 related market conditions experienced during the period.

 

The number of hosted PBX seats in our European business increased by 6% to 121,000 from 114,000 as at 31 December 2020, representing approximately 14% of our total cloud seats across the Group

 

As highlighted previously, we expect to see an acceleration of cloud adoption across Europe where markets are still at the early stage of penetration and this will lead to a corresponding reduction in revenues from traditional telephony. The adoption of UCaaS across the business market is expected to double over the next five years which both justifies and reinforces our "land and expand" strategy across Europe.

 

Development of UCaaS product capability

 

Another of our strategic pillars is to exploit our strength in the Cloud PBX market to develop a full UCaaS suite of products and services.

 

 

As the UCaaS market develops, we realise that different segments of the business market will have differing requirements for their internal and external communications and therefore we need to supply each segment with different products and services. The business market is not homogenous, and we are therefore focused on developing products for three different categories of businesses: Micro, SME and Enterprise.

 

Micro-business

 

Micro businesses are smaller than the SMEs we have served historically and typically have below ten employees. Micro businesses are beginning to realise the benefit of cloud communications services. One key difference from SMEs is that micro businesses require greater simplicity in how products are delivered and many have a preference to consume these products digitally over the web.

 

In a micro business, customer service is vital, and a growing business must appear capable and reliable. Employees needs to be available and contactable all the time. Our fully digital web enabled Circle Loop product allows very small businesses to have a communications product which is "always on" and give a professional appearance. Micro Businesses can self-provision telephony services using Circle Loop in a very short space of time and with no need for outside assistance. Pricing starts from just £5 per user per month and is therefore both accessible and affordable for every small business.

 

The UK PSTN switch off is fast approaching (in 2025) and this creates an opportunity for Gamma as small businesses will be looking for an alternative cloud solution which we believe Gamma and our partners are very well positioned to provide.

 

Our plan during the months and years ahead is to broaden the digital reach and strengthen the recognition of the Circle Loop brand across our UK target market, with a view to significantly increasing the contribution that Circle Loop makes to our overall Cloud performance. In addition to this, the Circle Loop platform will, in due course, be launched as a digital proposition outside of the UK.

 

 

SME

 

Gamma has served the SME market in the UK for twenty years and it is the market segment where we have historically been strongest and lead the market in UCaaS. SMEs have more complex core communication needs which differ by industry, and whilst many discovered Cloud Communications some time ago, the fact that the businesses tend to be dynamic means they demand more innovative solutions. Hence there is an ongoing need for us to continue to develop our core Horizon product as well as providing additional modules for those who need additional functionality. Examples of additional modules are Call Recording and Collaborate (which allows video and audio conferencing as well as instant messaging and screen sharing).

 

SMEs usually need a Channel Partner to help them derive the most value from the product set which we offer. Gamma's mantra of "being easy to do business with" ensures that we continue to be strong in this market. We help Channel Partners to help end users by making sure that our product is technically flexible and that we are commercially reasonable.

 

During the first half we launched our Cloud Contact Centre product - Horizon Contact. This is a fully integrated additional module that attaches to our core Horizon Cloud product. It was developed by Gamma's in-house development team (including the team of developers who joined the Group following our Telsis acquisition in 2019).

 

 

Many SME businesses will derive benefit from the capabilities that the module offers even if they don't operate a traditional contact centre. For example, a small travel agent or a car dealership that wants to provide continuity of experience for a customer would benefit from the multiple communications channels that the product brings together. For both Gamma and our partners, the module changes the definition of a Contact Centre opportunity. Initial response to the product has been pleasing and early unit sales are encouraging. As well as driving sales of the module, the ability to offer the product is also driving sales of Horizon seats which we otherwise may not have won.

 

Whilst our own Collaborate module is doing well in the market and attachment rates have increased to 9%, we recognise that some end users choose to use other UCaaS products alongside our Cloud PBX offering. In July 2021, we launched a product enhancement which allows users to integrate their Horizon Cloud product with Microsoft Teams. We also continue to offer a variant of SIP called Microsoft Teams Direct Routing which is now our fastest growing SIP offering.

 

To complement our UCaaS product set, we provide access services to our customers. Customers may choose to access our applications using fixed fibre (such as Ethernet and Broadband) or through a mobile based application. During the first half we launched SoGEA Broadband which allows customers to take a broadband service without having a traditional phone line, and we also launched an enhanced mobile service which deepens our existing relationship with Three and gives users access to both 5G and Wi-Fi calling. Both services have been received positively in the market and initial early sales are encouraging.

 

Enterprise

 

Enterprise customers have more complex needs often because of the need for integration into a wide range of business management applications. We therefore tend to deal with them directly and we often supply a degree of service management as well as the core products.

 

Typically a larger business has existing infrastructure so this segment has only recently begun to embrace the shift to Cloud Communications.

 

Enterprise customers need multiple products and don't tend to procure everything in one big deal. Instead, they buy from multiple vendors and integration of the offering becomes key. We are pragmatic in our approach to this segment and we know that our capabilities may need to be supplemented by services and components from third parties.

 

Notwithstanding this, we sometimes work with partners to supply certain solutions initially but eventually we may bring that capability "in house". As an example, the acquisition of Exactive in 2020 allowed us to assist our Enterprise customers with complex Microsoft Teams implementations. The acquisition of Mission Labs has allowed us to assist customers who wish to install Amazon Connect as their Cloud Contact Centre. Mission Labs provides bespoke developer services to Connect customers as well as supplying its own module - Smart Agent - which can be used with Amazon Connect to give an enhanced experience to both agents and customers.

 

 

Summary and outlook

 

As highlighted previously, we have continued to perform very well throughout the COVID-19 "lockdown" period in each country where we operate. This is despite the resulting economic headwinds experienced during this period, which although slowly but surely improving have impacted business market confidence across each country. We have a robust business model based on recurring monthly billing which has ensured we have continued to be cash generative. This strong earnings visibility has enabled us to plan effectively and importantly, ensure that we have continued to invest in delivering both our short- and longer-term commitments.

 

On this point, I continue to be very pleased with the execution of our short-term business objectives and our longer-term strategy, 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.

 

The COVID-19 pandemic has driven a shift in demand to UCaaS away from networks to applications, and because of this we have grown and re-shaped our capabilities to respond to the opportunity. The integration work we have done with Microsoft Teams during the period is a good example of this. We expect this positive trend to continue, and we also see a future opportunity as end business users consider their long-term strategic solutions over the short term tactical fixes they may have put in place during the COVID-19 pandemic.

 

In summary, this has been a very strong first half performance and I have been particularly impressed with how the business market, our customers and our partners have responded to the difficult circumstances. Although the economic recovery is at different stages across the markets where we operate, businesses are back trading and things are trending slowly towards a future state of "normality". Notwithstanding the possibility of future "lockdowns" across Europe, our long-term outlook is positive and in addition to executing against our longer-term strategic commitments, we will continue to focus on delivering a high level of service for both our Channel Partners and end users, while ensuring we enable them to be competitive and highly successful in the markets where they operate.

 

Andrew Taylor

Chief Executive Officer

 

 

Financial review

 

Revenue and Gross Profit

 

Gamma has performed well during the six months ended 30 June 2021, increasing Revenue by 23% to £217.4m (H1 2020: £177.3m) and Gross Profit by 20% to £111.7m (H1 2020: £93.1m). The UK businesses have seen growth in Revenue of £15.3m (+9%) and Gross Profit of £8.7m (+10%). The growth in the Revenue of the European Business of £24.8m from £10.6m to £35.4m is primarily due to a full six months of results of businesses acquired in 2020. Adjusted EBITDA increased by 27% to £46.0m (2020: £36.1m). Adjusted EPS (FD) increased by 30% to 30.6p (2020: 23.5p).

 

UK Indirect

 

 

Overall, the growth in the UK Indirect Business unit has been strong. The growth is entirely organic, whereas in other segments the results include the impact of acquisitions, but it should be noted that the performance in H1 2020 (which is the comparator period) was weaker than normal due to the first Covid lockdown - this "low base" therefore slightly flatters growth. 

 

Gross Margin has been broadly consistent with previous periods which is a change in trend following many years of growth. The historical growth was largely driven by an improving mix of high margin UCaaS products against lower margin legacy and access products. We have been guiding for some time that this would eventually reach a consistent level of mid-50s and we believe that this has now happened. We do not expect Gross Margin to increase as the mix of UCaaS and access products stays broadly constant.

 

UK Direct

 

 

The UK Direct business continued to grow. There was some inorganic growth driven by the Mission Labs acquisition in March 2021. This delivered £2.3m of Revenue in the year. This growth was in part offset by the disposal of The Loop Manchester Limited in 2020 which contributed £0.7m in the first half of 2020.

 

Whilst the headline growth has therefore been 10%, the organic Revenue growth (correcting for Mission Labs and The Loop) was £3.1m or 7%. We had expected the growth percentage in 2021 to be lower than in previous years as the COVID-19 pandemic impacted the sales pipeline in 2020 resulting in fewer new projects starting in the first half of 2021. Notwithstanding, the growth was better than expected due to some upsell and projects starting earlier.

 

The gross margin has increased due to mix - first, as a result of Mission Labs which is a higher margin as a result of being a SaaS model; and second, there is also an increase in gross margin in the organic business due to a lack of installations and hardware sales which are lower margin.

 

 

Europe

 

 

Our European business saw growth primarily as a result of the inclusion of a full six months of results of the acquisitions made in 2020 - Voz Telecom in Spain (acquired April 2020), HFO in Germany (July 2020) and Gamma Communications Benelux expanded in July 2020 with the acquisition of gnTel.

 

Gross margins have decreased from the prior year as a result of "high revenue/ low margin" business within the Epsilon subsidiary of the HFO business which offers mobile connections - this was acquired in July 2020. The margins on a product by product basis are consistent with those in the UK.

 

Compared to the run rate in the second half of 2020 (i.e. following the acquisitions), the European Revenue has reduced (and the Gross Margin has increased) as the mix of sales moves from legacy products towards UCaaS products (where the rate of increase in seats is consistent with the UK). The Gross Profit has been static (against an expectation of growth) and there are two reasons for this. First, the exchange rate has been less favourable in H1 2021 compared to the end of 2020 which has reduced the Gross Profit by 4% (£0.6m). Second, our small direct business in Spain has faced very difficult trading conditions due to the pandemic and we estimate that this has reduced the GP of that business by £0.4m.

 

Operating expenses

 

Operating expenses grew from £66.8m in H1 2020 to £78.8m.

 

We break these down as follows:

 

 

Movements in expenses were driven by:

 

·    The UK Businesses' operating expenses growing by 2.5% (compared to Gross Profit growth of 10.0%). This growth has been lower than originally expected as a result of continued lockdowns in 2021 resulting in unexpected cost savings for example, travel and subsistence expenses continue to be significantly lower. Not all of these savings are expected to continue in the long run as "normality" returns post Covid.

·    Drivers of the increase in the overhead include expenses relating to Mission Labs (acquired in March 2021) of £1.8m as well as increases in share based payments costs (+£1.5m) which continued to increase during the period. The latter is because of the increasing take up of the all-staff schemes such as SAYE (which drives the cost of running the scheme). In addition, the rising share price has continued to make the costs of employers NI for share grants higher than in previous years. We would expect both of these overhead drivers to continue as we increase our levels of development investment and more employees take advantage of our share plans.

·    The increase in European costs is reflective of the cost base growing by acquisitions (that is to say that it is not organic growth).

·    Central costs have increased from the prior period which is due to continued growth in the Group function which is 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 have increased slightly from £7.0m in H1 2020 to £7.2m in H1 2021. This is driven by acquisitions in the prior year but has been part offset by a decrease in depreciation in the UK business as the assets associated with our previous mobile platform became fully written down. Our new mobile proposition requires less capital investment and hence this reduction will be permanent. The annual depreciation charge is now in line with the annual capital expenditure spend and is not expected to increase significantly.

 

Research and development costs in the year increased in part due to the acquisition of Mission Labs but also the increasing levels of development being undertaken.  The charge to the income statement was £6.7m (H1 2020 £5.1m) in addition to £0.7m (H1 2020 £1.1m) which was capitalised.

 

Exceptional Items

 

There were no exceptional items in the current period or in H1 2020.

 

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:

* 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 year to Profit from Operations (2021: £32.9m; 2020: £26.3m) to calculate a figure for EBITDA (2021: £46.0m; 2020: £36.1m) 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 £36.1m to £46.0m. The UK adjusted EBITDA grew by 20% to £45.9m. The European business contributed an additional £3.1m as a result of acquisitions in 2020 which was in part offset by an increase in central costs of £0.7m.

 

Taxation

 

The effective tax rate for the first half of 2021 was 18.5% (2020: 19.1%). The rate in the current year is slightly below the statutory UK rate of 19% as a result of the introduction of the 130% super-deduction capital allowance on qualifying plant and machinery investments. This is in part offset by a tax rate change to 25% for deferred tax in the UK and also disallowable expenditure. We would expect the tax rate to increase in future years as a result of an increasing impact of higher taxation rates in the UK and Europe.

 

Net cash and cash flows

 

The Group has net cash of £25.6m. The gross cash balance at the end of the period was £30.8m and the Group had borrowings of £5.2m which are held by trading subsidiaries outside of the UK which pre-dated their acquisition by Gamma.

 

In addition, we estimate that we will have to pay an additional £11.9m in 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 increased from previous years due to short term working capital movements. The ratio of adjusted EBITDA to cash generated from operations was 94% (2019: 89%). We do not expect the future conversion ration to remain at levels above 90% and we continue to target a range of between 85% and 90%.

 

Items which are not directly related to trading were:

·      Capital spend was £6.1m, which is in line with the prior period.

·      £40.8m was paid for the acquisition of Mission Labs net of cash acquired (2020: £19.8m - Exactive and Voz Telecom).

·      £6.5m was paid in deferred consideration and option exercises (2020: £1.7m) of which £1.5m was for Exactive and £5.0m was for HFO.

·      £4.6m was received from the issue of shares (2020: £0.3m). This significant increase on the prior period was as a result of reinvestment in Gamma by former shareholders of Missions Labs (£2.8m) and HFO (£0.7m) as well as part payment of deferred consideration for Exactive in shares (£0.3m). The other shares issues relate to exercise of options held by employees.

 

·      £7.5m was paid as dividends (2020: £6.6m).

Adjusted EPS (FD) and Statutory EPS (FD)

 

Adjusted EPS (FD) increased from 23.5p to 30.6p (30%). The growth in adjusted EPS (FD) has been driven by the continued growth in a difficult market as well as the acquisitions. Adjusted EPS is EPS as adjusted for exceptional items (if any, there are none in the period 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 22.1p to 27.0p (11%). The growth is lower than the adjusted metric because, in the current period, there is an increase in the amortisation relating to business combinations.

 

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 2020. 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 2020.

·      The financial position of the Group including budgets and financial plans.

·      The strong cash position - at 30 June 2021 the Group had cash and cash equivalents of £30.8m (year ended 31 December 2020: £53.9m). Net cash (being cash and cash equivalents less borrowings) was £25.6m (year ended 31 December 2020: £48.0m). All borrowings were acquired with acquisitions made in previous years.

·      Future cashflows including liquidity, borrowings and the acquisition of Mission Labs (which was £40.2m on a cash free basis). We have performed sensitivity analysis which has shown that EBITDA is our biggest sensitivity and would need to decrease by 59% for the Group to need additional borrowing (assuming no mitigating actions had been taken). We consider this to be highly unlikely. Notwithstanding, lenders have indicated to management that they would provide additional debt funding if required.

·      The ongoing impact of COVID-19. Whilst this impacted new wins in 2020, to be delivered in 2021, the Group has continued to grow. In the medium term, as a result of COVID-19, the adoption of cloud services will accelerate and this reinforces our overall UCaaS strategy.

 

The Directors are satisfied that the Group has adequate financial resources to continue in operational existence for the foreseeable future, a period of at least twelve months from the date of this report. Accordingly, the going concern basis of accounting continues to be used in the preparation of the condensed consolidated financial statements.

 

Dividends

 

The Board has declared an interim dividend of 4.4p (2020: 3.9p). This is an increase of 13% and is in line with our progressive dividend policy. The interim dividend is payable on Thursday 21 October 2021 to shareholders on the register as at Friday 24 September 2021.

 

 

 

 

 

 

Andrew Belshaw
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

6 September 2021

 

 

 

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 2021 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 changes in equity, the condensed consolidated statement of cash flows and related notes 1 to 11.  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 will be prepared in accordance with United Kingdom adopted International Financial Reporting 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".

 

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 (UK and Ireland) 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. 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.

 

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 2021 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.

 

Use of our report

 

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. 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

6 September 2021

 

Condensed consolidated statement of profit or loss

For the six months ended 30 June 2021

 

 

 

 

Condensed consolidated statement of comprehensive income

For the six months ended 30 June 2021