Gamma Communications plc
H1 trading update

Strong first half performance, continued cash generation and positive business momentum

Gamma Communications plc ("Gamma" or the "Group"), a leading provider of Unified Communications as a Service ("UCaaS") to the business markets in the UK, Germany, Spain, and the Netherlands, is pleased to announce a trading update for the six months ended 30 June 2022.  This update confirms the statements made at the time of the AGM on 19 May 2022.

Group overview

We are pleased to report that the Group performed well through the first six months of the year with strong year on year adjusted EBITDA growth.

In both the UK and Europe our resilient recurring revenue model, combined with selected price increases and strict cost discipline, has helped mitigate inflationary pressures, ensuring that the Group has good momentum going into the second half of the year. The Group continues to proactively manage its supply chain; given the well-publicised delays in the availability of various telco/networking hardware devices we deliberately built the UK Indirect Business inventory to over twice the levels we held pre-COVID.

United Kingdom

We have seen healthy momentum in the Indirect Business which remains on track to meet our targeted 8% growth in Gross Profit for FY 2022. There has been good sales traction on key new products such as Horizon Contact.

The Direct Business has seen a number of significant MS Teams user contract wins, including the Home Office and DWP in the public sector. A strong contracted pipeline, significantly ahead when compared to this time last year, across the Direct channel gives comfort on the sizeable growth we expect for the full year. Revenue growth will approach 10% (2022 against 2021). 

Overheads across the UK were within expectations during the first half and inflationary increases will continue to be challenged and tightly managed.  

Europe: Germany, Netherlands and Spain

Growth in UCaaS supported a good first half German business financial performance which counterbalanced some headwinds in our smaller Spanish business. Microsoft Teams Operator Connect was launched in the Netherlands and is planned to roll out in both Germany and Spain.  We will also launch our contact centre product in Spain in the second half of the year.

Product development

The Group has continued to make progress on the expansion of the capabilities it offers to its customers, across all channels and countries, leveraging its growing in-house software development capability and the range of strategic partnerships it has developed.

Cash

Gamma's balance sheet remains strong, with significant cash generation from its trading activities.  Closing net cash at the half year was approximately £72.6m compared to £49.5m at the end of the previous year. This is after paying £1.7m of contingent consideration on acquisitions and making early supplier payments to receive attractive prompt payer discounts. 

Outlook

The Board remains positive about the prospects for Gamma. In line with the statement made at the time of the AGM, management expects adjusted EBITDA and adjusted EPS for the year ending 31 December 2022 to be in the upper half of the range of market forecasts.*

The Board will announce results for the half year ended 30 June 2022 on Tuesday 6 September 2022.

Andrew Belshaw, Interim Chief Executive, commented on the results:

"I'm very pleased to report on a strong first half performance.  Gamma is leveraging the full breadth of its market-leading product set both through the channel and direct across all of our markets.   

Although not immune from the macro-economic challenges ahead, our recurring revenue model, strong cash generation and healthy balance sheet enables us to continue to invest in the undoubted market opportunity.  Churn and bad debt remains at low levels and these results demonstrate the resilience of the customer base and the importance they attach to Gamma's products and services.

We look forward to continuing this momentum into the second half."

* Note: Company compiled range is based on known sell side analyst estimates.  The ranges are Adjusted EBITDA £102.3m - £106.8m and Adjusted EPS 67.1 pence - 74.6 pence.