TIDMGAMA
RNS Number : 5151I
Gamma Communications PLC
22 March 2018
22 March 2018
Gamma Communications plc
Audited Results for year ended 31 December 2017
Continued momentum from existing portfolio with launch of new
products positioning Gamma for the future
Gamma Communications plc ("Gamma" or "the Group"), a leading,
technology based provider of communications services to the UK
business market, is pleased to announce its audited results for the
year ended 31 December 2017.
Years ended 31 December
------------------------------ -------------------------- -------
2017 2016 Change
(%)
------------------------------ ------------ ------------ -------
Revenue GBP238.4m GBP213.5m +12%
------------------------------ ------------ ------------ -------
Gross profit GBP113.0m GBP98.8m +14%
------------------------------ ------------ ------------ -------
Gross margin 47.4% 46.3%
------------------------------ ------------ ------------ -------
EBITDA GBP39.6m GBP31.3m +27%
------------------------------ ------------ ------------ -------
Adjusted EBITDA GBP41.6m GBP34.2m +22%
------------------------------ ------------ ------------ -------
PBT GBP26.4m GBP21.6m +22%
------------------------------ ------------ ------------ -------
Adjusted PBT GBP28.4m GBP24.5m +16%
------------------------------ ------------ ------------ -------
EPS (Fully Diluted, "FD") 23.9p 18.8p +27%
------------------------------ ------------ ------------ -------
Adjusted EPS (FD) 24.6p 21.1p +17%
------------------------------ ------------ ------------ -------
Total dividend per share 8.4p 7.5p +12%
------------------------------ ------------ ------------ -------
Cash generated by operations GBP38.8m GBP31.3m +24%
------------------------------ ------------ ------------ -------
Cash generated by operations
/ Adj EBITDA 93.3% 91.5%
------------------------------ ------------ ------------ -------
All adjusted measures set out above and throughout this document
which are described as "adjusted" and represent Alternative
Performance Measures ("APMs") 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 Note 1.
-- Continued strong growth in all non-traditional products -
o The number of installed SIP Trunks increased from 511,000 at
31 December 2016 to 680,000 at 31 December 2017 (a gain of
+33%)
o The number of Cloud PBX users increased from 230,000 to
331,000 (+44%)
o Volumes of access products are increasing as a result of past
investment. Broadband has increased from 54,000 units to 76,000
(+41%) and Ethernet from 3,500 to 5,300(+51%); and
o Mobile proposition has taken longer to become established in
the Channel than we had hoped but volumes now growing as the
proposition has developed.
-- Gamma successfully launched its initial fixed/mobile converged offering in December 2017.
-- Strong growth in the indirect business
o Gross profit from indirect business increased from GBP78.2m to
GBP86.6m (+11%)
o The number of Channel Partners grew from 970 to 1089
(+12%)
-- Significant wins in the direct business drive growth
o Gross profit up from GBP20.6m to GBP26.5m (+29%)
o The direct business made further progress with significant new
contract awards including Rush Hair and Beauty, Stackhouse Poland,
the insurance broker, and Thrifty UK (the latter has adopted
Gamma's cloud compute platform).
o Our Public Sector base continues to grow with key wins from
Merseyside Police and Norfolk and Suffolk NHS Foundation Trust.
-- The new high capacity national optical network project is on
schedule and on budget. This will enable Gamma to deliver services
at up to 10Gbit/s in the second half of 2018.
Bob Falconer, Chief Executive Officer, commented
"The business performed well throughout 2017, with solid growth
across the product range and in both indirect and direct routes to
market. Our Cloud PBX product - Horizon - now has an excellent
position and reputation in the market and continues to displace
traditional on-premises equipment, whilst Gamma remains synonymous
with SIP Trunking, where we have continued to outpace the market
growth. Data volumes have accelerated both in our fixed and mobile
capabilities and this will continue to be fuelled by the general
shift to Cloud based services, the expansion of fibre reach in the
UK and the necessity to work from anywhere. We are seeing good
returns on our selective investments in this area. Direct wins in
enterprise and public sector include Leicester City Council, itsu,
The Financial Ombudsman, and MacMillan Cancer Support. Our
investments in development have brought many useful product
enhancements and I was particularly pleased to be able to launch
our initial converged fixed/mobile voice service which brings real
and novel benefits to a business user.
"Having recently announced my planned retirement at the AGM on
the 23(rd) May, these are my last set of results as Chief Executive
of Gamma. The business is in excellent shape, has a clear
differentiated strategy, with many exciting opportunities ahead of
it; a momentum my successor Andrew Taylor and the board are keen to
maintain. I would like to thank everyone at Gamma, our many
partners, customers, shareholders and Board, I have enjoyed working
with you all. I look forward to welcoming Andrew Taylor to Gamma as
CEO Designate in April and wish him all the best for the
future."
Enquiries:
Gamma Communications Tel: +44 (0)333 006
plc 5972
Richard Last, Chairman
Bob Falconer, Chief
Executive Officer
Andrew Belshaw, Chief
Financial Officer
Investec Bank plc (NOMAD Tel: +44 (0)207 597
& Broker) 5970
Andrew Pinder / Sebastian
Lawrence
Patrick Robb
Tulchan Communications Tel: +44 (0)207 353
LLP (PR Adviser) 4200
James Macey White /
Matt Low
Notes to Editors
Gamma is a rapidly growing, technology based, provider of
communications services to the business market (sales are in GBP to
UK based businesses). Gamma's services, such as Cloud PBX, Inbound
Call Control Services and SIP Trunking, are designed to meet the
increasingly complex voice, data and mobility requirements of
businesses, through the exploitation of its own intellectual
property.
Gamma also provides business-grade mobile and data services and,
as a consequence of its history, has a substantial voice service
capability. These services enable Gamma to provide a comprehensive
range of communications services.
Gamma has enjoyed strong organic revenue and EBITDA growth
driven by a high percentage of revenues which repeat monthly. The
business had 901 employees at 31 December 2017. It operates across
six main locations - headquartered in Newbury - with offices in
London, Manchester, Glasgow, Portsmouth and Budapest.
A full set of the audited statutory accounts are available
at
www.gamma.co.uk/investors/financial-results-and-shareholder-communications
Chairman's statement
Introduction
I am very pleased to present the audited results of Gamma
Communications plc for the year ended 31 December 2017.
Gamma is extremely well positioned in the UK communications
market with a strong portfolio of voice, data and mobile services
to meet the growing communications needs of a modern business. With
a strong core technical capability, the Group is able to bring
innovative, and often disruptive, products to the market.
Overview of results
Group turnover for the year ended 31 December 2017 increased by
GBP24.9m to GBP238.4m (2016: GBP213.5m), an increase of 11.7% on
the prior year. Of this increase GBP12.4m came from the indirect
channel's business where turnover increased to GBP181.4m (2016:
GBP169.0m), while GBP12.5m came from the direct business which saw
turnover increase to GBP57.0m (2016: GBP44.5m). Gross profit for
the year to 31 December 2017 rose to GBP113.0m an increase of 14.4%
compared to the GBP98.8m achieved in 2016, whilst the gross margin
increased to 47.4% (2016: 46.3%). Adjusted EBITDA for the Group
increased by 21.6% to GBP41.6m (2016: GBP34.2m). EBITDA for the
group increased by 26.5% to GBP39.6m (2016: GBP31.3m).
Adjusted EPS (FD) for the year ended 31 December 2017 increased
by 16.6% to 24.6p (2016: 21.1p). EPS (FD) for the year ended 31
December 2017 increased by 27.1% to 23.9p (2016: 18.8p).
Cash generated from operations for the year was GBP38.8m
compared to GBP31.3m in 2016. This represents a cash generated from
operations to adjusted EBITDA conversion ratio in respect of 2017
of 93%, compared to 92% for 2016. Net cash and cash equivalents as
at 31 December 2017 amounted to GBP31.6m compared to GBP28.2m as at
31 December 2016.
Dividend
The Board is pleased to propose a final dividend, in respect of
the year ended 31 December 2017, of 5.6p per share (2016: 5.0p)
which, subject to the necessary shareholder approval at the
forthcoming AGM, will be payable on Thursday 21 June 2018 to
shareholders on the register on Friday 1 June 2018. When added to
the 2.8p interim dividend (2016: 2.5p) this makes a total dividend
declared of 8.4p for the year as a whole (2016: 7.5p).
Business review
2017 has been an excellent year of progress for Gamma on many
fronts. The business continues to have considerable momentum in the
market, coupled with a strong reputation for service quality and
innovation.
In the channel - Gamma's primary route to market - the business
has enjoyed solid growth; increasing the number of active channel
partners to close to 1,100. Over the last two years increased
emphasis has also been placed on actively supporting existing
partners to take a higher overall share of the market by providing
strong support, differentiated products and in helping our partners
to broaden their portfolio. This has proved to be most
successful.
The direct business is now well established with significant
growth coming, as intended, from larger enterprises and the public
sector. New contracts have been agreed with organisations such as
Savills plc, for whom we have provided a UK and European network,
and in the public sector we have had success with a number of
councils and NHS Trusts, including City and County of Swansea and
the full SIP estate of Manchester University NHS Foundation
Trust.
The Gamma network, which underpins our capability, has undergone
significant investment and we are pleased to see the benefits of
this now coming through, giving the business a simpler and more
flexible capability, and positioning it well for future growth
through new product development.
Gamma's strategic products of SIP and Cloud PBX continue to be
the main drivers of growth; the market for both of these products
remains healthy and we continue to invest significantly in their
development. I was also encouraged by the increased volume of sales
of our data products as the capital investments to reduce the costs
of sale came to fruition. Although more commoditised and lower
margin, these products are an important part of the overall bundle
of products - as is mobile. Early in 2017 we completed the transfer
of customers on to our 'Full' MVNO service. Our data volumes on the
new service grew in the second half of the year, albeit from a low
base. In November we launched, to a select number of partners, the
first release of our converged fixed/mobile service 'Connect'. This
has been a significant development for Gamma, removing the
distinction between the fixed and mobile phone and making new
services - such as single voicemail and MIFID II compliant call
recording available across fixed and mobile devices.
The Group's strategy, which is regularly reviewed by the board,
remains focused on having a strong, relevant and differentiated
product portfolio, with a healthy new product pipeline and a high
quality service offering.
Risk committee
In recognition of the importance of the Group's services to the
business market and the changing nature of threats, the board has
established a Risk committee under the chairmanship of Martin Lea,
Independent Non-Executive Director.
The Group remains particularly vigilant to cyber security
threats and regularly reviews the health of our security
governance, to ensure appropriate resourcing and a high priority is
placed on mitigating risk in this area. The Group subscribes to a
number of sources of security intelligence, as well as
participating in relevant national working groups. It regularly
employs expert third parties to carry out penetration testing
against its network, product platforms and online interfaces to
ensure any vulnerabilities are understood and addressed. We
continue to invest in skills and technology to ensure we keep pace
with the increasing quantity and complexity of cyber-crime and the
constantly evolving best practice in this area.
Board and employees
Post period end, on March 16, Bob Falconer, Chief Executive
Officer, announced his decision to retire at the conclusion of this
year's AGM on 23 May. He has served Gamma with distinction during
his time with the business and leaves the Group in a very good
position to continue the strong growth it has delivered under his
stewardship. We wish him a happy retirement.
At the same time, the Group reported that it had appointed
Andrew Taylor as CEO Designate, Andrew will join the Board on 4
April and take over the role of Chief Executive Officer following
the conclusion of the AGM on 23 May. We look forward to welcoming
him to the business.
Richard Bligh, Director of Business Development, stepped down
from the Board on 30 June 2017 following a decision to retire from
executive roles. I am pleased to say that we continue to benefit
from Richard's significant industry experience on a part-time
consultancy basis.
We are privileged to have an active and experienced board and a
strong senior team, with real strength in depth of management. A
policy of developing and growing talent from within has proved
successful in both maintaining a clear culture and a high level of
staff loyalty. The employees remain the bedrock of Gamma and they
have significantly contributed to the creation of the successful
Group we have today. I should like to thank them for their
consistent hard work and continued support.
Gamma is fully supportive of apprenticeship schemes and employee
volunteering within the local community and has a policy of matched
funding for charitable activities by staff. Employee motivation and
development are fundamental principles of Gamma and lead to a
stronger and more successful business.
Outlook
Gamma has made a significant investment in new product
development and is in great shape for 2018 and the foreseeable
future. The infrastructure is in place, the products are strong and
the routes to market established.
Richard Last
Chairman
Chief Executive Review
Introduction
In part, 2017 was a continuation of 2016. The business
concentrated on what it does well and, as a consequence, made
excellent progress across sales, product growth, service quality
and network modernisation.
Meanwhile our development teams successfully made many important
incremental enhancements to our existing products, whilst also
bringing new products to market, particularly Connect - our initial
fixed/mobile converged service.
We were pleased with the growth in both our direct and indirect
routes to market (29% and 11% gross profit growth respectively).
The indirect channel remains our primary focus (76% of revenue) and
provides an unrivalled route to the small and medium business
market. Our direct sales teams concentrate on the larger enterprise
and public sector markets which generally demand a more tailored
solution and acceptance onto framework agreements.
Where the customer's requirements are more complex, and might
involve, for example outsourcing or other broader customer specific
services that we don't supply, then we would work closely with the
larger Systems Integrators (SI) and Business Process Outsourcing
(BPO) organisations.
Indirect business
Throughout 2017, the number of channel partners actively trading
with Gamma expanded from 970 to 1,089 whilst revenues grew by
GBP12.4m to GBP181.4m in 2017 (2016: GBP169.0m). The channel now
represents 76% of our total revenues.
Although we continued to grow the number of channel partners
trading actively with us, in 2017 we have placed more emphasis on
working closely with existing partners to help them succeed and
take a greater overall share of the business market, from which
both parties directly benefit.
As part of this initiative, our digital marketing programme
'Accelerate' has put the latest marketing tools in the hands of
even our smallest partners, enabling them to generate highly
focussed marketing campaigns; in 2017 over 600 channel partners
have taken advantage of this capability.
In a similar vein, the Gamma Academy provides an on-line
training suite, enabling partners to become accredited with an
impressive level of product knowledge. In 2017 over 15,200 courses
were undertaken by individuals working for our channel partners,
helping them to deliver a quality service to their end
customers.
Product differentiation, however, remains the most valued asset
and directly helped some of our channel partners move further into
the mid-market. For example, the fast growing Focus Group has been
highly successful in the property sector (e.g. The Kings Group),
and winning the business of companies such as Fleet Alliance, as
well growing its position in the Care sector. Additionally our
partner G3 sold SIP to Hello Magazine.
In data, the improved competitiveness of our products helped
partner TSI win an order for 243 Ethernet circuits to a nationwide
retail chain, and a 100 site national MPLS solution is currently
being rolled out to the National Autistic Society with Integrated
Business Telecommunications.
Overall, SIP Trunking and Horizon (Cloud PBX) have continued to
be the prime contributor to growth in the channel, and the approach
of providing all services - line, data, handsets, and calls as a
bundle - continues to resonate.
Direct business
Our direct business again grew strongly in 2017, with revenues
rising to GBP57.0m (2016: GBP44.5m) and gross profit rising to
GBP26.5m (2016: GBP20.6m). This growth can be attributed to the
delivery and billing of contracts won in late 2016, and contracts
won and delivered efficiently in 2017. The growth was concentrated
in the Enterprise and Public Sectors where our brand is growing and
Gamma's Managed Communications Services are making significant
inroads into these markets.
Some GBP54.5m of new contract awards were won during 2017, many
of which will commence in 2018. In the public sector we saw success
with the Financial Ombudsman Service, Intellectual Property Office,
Leicester City Council and the City and County of Swansea who all
migrated from legacy solutions to SIP. In healthcare we had further
success with many NHS trusts, including Manchester University NHS
Foundation Trust who have consolidated their entire estate onto
Gamma SIP trunking. To strengthen our position in this sector, we
are in the process of being accredited for the Health and Social
Care Network; if successful this will allow Gamma and its partners
to compete for the replacement to the current N3 network. This
accreditation process is expected to conclude mid-2018.
Customer Service continues to be at the core of our direct
business and I am pleased to report that our Net Promoter Score
("NPS") was 40 which is well above our industry average. This is
one of the key reasons we secured GBP15.3m of customer contract
renewals and extensions in 2017.
Fibre and 'The Loop' in Manchester
We are pleased to see initiatives from several companies to
increase the rate of installation of 'fibre to the premises'
("FTTP"), and to see Ofcom's desire to ensure more of the duct and
fibre resources held by BT can be used by other telecoms providers
to increase the availability of high speed connectivity across the
UK. Both of these initiatives will help to facilitate Gamma's
service offering to business end-users nationally.
The trend towards FTTP will also encourage more intensive use of
our own unique fibre network - branded 'The Loop' - in Manchester.
This is a discrete part of Gamma's business and is a 161km, wholly
owned, fibre network across the authorities of Manchester, Salford
and Trafford which now connects all of Manchester's key datacentres
and media-hubs (including Media City), as well as providing high
capacity internet to a growing number of leading businesses in the
area.
Located in close proximity to a number of key public and private
sector buildings, The Loop is playing a leading role in supporting
Greater Manchester's Mayor Andy Burnham's Digital Strategy. It is
also a key component in an initiative with Tameside Metropolitan
Borough Council to take fibre into TfGM (Transport for Greater
Manchester) tram ducts, a pilot that utilises existing
infrastructure to improve integration between the ten authorities
of Greater Manchester.
The Loop provides services to 42 customers including The NHS,
The BBC, Manchester Metropolitan University and Equinix, and it has
recently been announced as strategic Fibre Partner to Manchester
City Council.
Products
Unusually, Gamma devotes circa 20% of its staff resources to
developing and enhancing its products. This significant, but
finite, resource uses software and technology and focusses on
taking products developed by others for a global market by
tailoring and integrating them so they are highly accessible and
relevant to the UK business market.
SIP Trunking
Although we anticipated a slowdown in the rate of conversion
from ISDN to SIP in 2017 this has not been evident, and our SIP
Trunking volumes have grown steadily over the year from 511,000
channels at the end of 2016 to 680,000 channels (+ 33%). Our SIP
Trunk Call Manager enhancement, which provides added features such
as business continuity and call reporting, has proved successful in
adding value and differentiation to the product.
Gamma remains the UK market leader in SIP Trunking, and
continues to outpace the general UK market growth (Cavell Report
June 2017).
Although this is a displacement market, the Ofcom Market report
2017, indicated that at the end of 2016 there were still
approximately 2.5m ISDN channels in operation, indicating that
today there remains just shy of 2 million lines still to convert to
a SIP Trunking or Cloud PBX solution.
Cloud PBX (Horizon)
In preparation for growth in 2016 the focus was on increasing
both the scale and the underlying resilience of the Horizon
platform. This has proved invaluable as during 2017, the number of
Horizon 'seats' grew from 230,000 to 331,000 (+ 44%).
Over 2017 we were able to turn our attention back to product
enhancements including, for example, providing greater integration
with widely used CRM (Customer Relationship Management) systems in
both the Healthcare and Recruitment Sectors thereby increasing the
appeal of the product in these vertical markets.
Compliance is a growing driver in many sectors, but particularly
so in both Finance and Retail. In response to this, and in
particular to the challenges of MiFiD II and PCI compliance, we now
provide enhanced call recording and credit card payment services
and will add to this capability progressively during 2018.
It is worthy of note that the core underpinning platform of
Horizon is provided by Broadsoft Inc. who have been recently
acquired by Cisco. We believe that the added capability that Cisco
can bring to the platform will increase its appeal, particularly to
businesses and channel partners already strategically committed to
Cisco products.
The Cloud PBX market continues to grow strongly (22% pa - Cavell
June 2017) and Gamma continues to grow ahead of the market
rate.
Cloud Compute / Backup
In 2017, we launched a Cloud based server and back up service,
based on the Amazon Web Services platform. As anticipated, it has
been been a relatively slow start as channel partners assess the
product and consider the implications of adding it to their
portfolio. To date over 100 partners have been accredited to sell
the product, and we are now beginning to see the first set of
orders being provisioned and billed.
Network and Data
Volumes on the Gamma network continued to grow strongly over the
year: voice traffic grew 21%, whilst data more than doubled. This,
very welcome, demand is being addressed through a programme of
major network investments that will provide higher speed access and
significant additional capacity.
In particular, I am pleased to report that the build out of
Gamma's new core fibre backbone continues according to plan; 85% of
the route has now been delivered by our partner CityFibre, and the
overlay of our 100Gbit/s core router network remains scheduled for
the second half of 2018. This overlay network greatly simplifies
our infrastructure, deepens the interconnects into Openreach,
thereby reducing our cost of sale and enabling the removal of
legacy network elements and associated costs. This is in addition
to the interconnects we have now built into other carriers, such as
TalkTalk and Virgin Media, to further improve the reach and cost
base of our underlying service.
As prices fall Ethernet becomes a more attractive high-speed
alternative to broadband for many smaller businesses with growing
connectivity needs. It will also give us the ability to provide
selected customers with speeds up to 10Gbit/s and links on our
national network of up to 100Gbit/s.
We have, therefore, seen healthy growth in the data market. We
now have over 5,000 Ethernet services under management and business
broadband connections grew over the year from 54,000 to 76,000
(+41%), driven largely by Fibre to the Cabinet (FTTC) services
bringing higher speeds and reliability to businesses. We believe
there is considerable scope for increasing our share of the growing
market for higher speed and quality of services.
Mobile services
At the end of March 2017 we finally closed down our 'thin' MVNO
with Vodafone and completed the transfer of the remaining customers
that had agreed to transfer on to our own 'Full' MVNO. Mobile is
now all about data, with voice just a part of the bundle. As the
Gamma service became more established, and we developed the
proposition, our data volumes grew in H2 2017 to 62.5 TB (H1 2017
35.0 TB).
As we anticipated, the services had a slower start in the
channel relative to the direct business. Channel partners were
either new to the Gamma mobile service and cautious, or contracted
in to agreements with the main operators. We did, nevertheless, see
encouraging growth in the channel in the second half of the
year.
It is important to emphasise that our strategy in mobile is not
to enter a mature market late in the day with a value proposition
competing against much larger mobile operators with sunk costs. The
objective is to leverage the inherent strengths of Gamma to create
a sufficiently differentiated service for the UK business market.
That is what we have been doing with the development of Connect -
our first release fixed/mobile converged service.
Connect was launched to a limited number of channel partners in
November 2017. The product enables users to combine their Horizon
fixed line service with their Gamma mobile so it appears as a
single service. Users can choose which number (fixed or mobile) to
present to the called party and all the features of Horizon -
including a single voicemail service - are available to the mobile.
The user can make or receive calls on either device using the same
services and numbers. The product will progressively be made
available to all channel partners.
Operational and service performance
The business market is, quite rightly, highly intolerant of any
service disruption and this is an area where the business seeks to
differentiate from its competitors. Emphasis on continuous
improvement, good capacity planning, rigorous change control and
robust design - whilst never guaranteeing freedom from problems -
does in the long term drive up service levels.
Our major platforms supporting SIP, Horizon and Mobile services
all exceeded their service level targets for the year. With the
levels of growth and change that have been driven through the
platforms this is a major achievement and a strong testimony to our
quality based approach. The business has retained its certification
to ISO27001, Cyber Essentials (mandatory for relevant government
contracts) and ISO22301, Business Continuity.
Additionally, our 'Straightforward to do business with'
programme seeks to make it as easy as possible for our customers to
interact with us. The result of this effort was backed up by a NPS
of +45 in a recent customer satisfaction survey in our indirect
business.
People
The average number of employees in the Gamma Group increased
over the year from 732 to 845. The main areas of growth were in
support of the growth in volumes, particularly the connection of
new customers, sales, and the development of new products.
We have continued to focus on the recruitment of high quality
graduates across the business and we have increased the
opportunities available for apprentices.
Outlook
Looking forward to 2018, whilst technology marches on, our core
strategy remains fundamentally unchanged. Our current product set
presents us with ample growth opportunities and having a deep
capability across data, IP voice and mobility, coupled with a
clean, high capacity core network, gives us the opportunity to
continue to innovate and disrupt in established markets. The move
into IT services as a value added intermediary between the channel
and large scale players such as AWS, as a route to the SMB market
is logical, although it will take time to build significant
volumes.
We anticipate the Direct business to continue to grow healthily,
particularly in large enterprise, based on a strong reputation and
product capability with an increasing contribution from the public
sector, where we are still under-represented.
The business is in an excellent shape and well poised for future
growth.
Bob Falconer
Chief Executive Officer
Financial review
Revenue and gross profit
Indirect business
Revenue from the indirect business grew from GBP169.0m to
GBP181.4m (+7.3%) and gross profit grew from GBP78.2m to GBP86.5m -
an increase of GBP8.3m in the year.
This growth is particularly pleasing despite the fact that we
faced two notable headwinds. First, the traditional business (which
includes calls and lines and trade with other carriers) is
declining; in 2017 the gross profit from this part of the business
declined by GBP4.0m to GBP12.5m (2016: GBP16.5m). Second, the
growth of our new mobile product was slower than we had hoped.
However, the increase from other products has more than offset
those items. SIP trunking and our Cloud PBX product (Horizon) grew
in line with previous years and our data products have shown
increased levels of growth.
We group our data, mobile, SIP and Cloud PBX products as our
"growth" products and revenue from growth product sales increased
from GBP113.2m to GBP130.9m (+15.6%) and gross profit grew from
GBP61.7m to GBP74.0m (+19.9%). The gross margin grew from 54.5% to
56.5%, which reflects the fact that the main contributor to this
growth was SIP Trunking, which has a higher margin than other
products.
Direct business
The direct business had its best ever year. Revenue increased
from GBP44.5m in 2016 to GBP57.0m (+28.0%) and gross profit from
GBP20.6m to GBP26.5m (+28.6%). Margin increased slightly from 46.3%
to 46.5% (but the underlying trend is higher as we had some low
margin equipment sales in the first half of the year).
The growth was attributable to sales of growth products and
gross profit on these products grew from GBP16.8m to GBP22.8m. This
business continues to move from selling to smaller customers to
larger enterprise businesses and public sector customers on
multi-year deals. The order book at the year end remained
strong.
Adjusted operating expenses
Adjusted operating expenses grew from GBP64.6m (2016) to
GBP71.4m. This was due to a number of factors:
-- Ongoing growth in the number of customers buying new products
for the first time continues to be a driver of overhead, especially
in the area of provisioning product to our new enterprise
customers.
-- Increased investment in product research that doesn't meet capitalisation criteria.
-- Continued investment in our sales teams.
The above increases were offset to some degree by our ongoing
programme to reduce the running costs of our network through
selective additional investment.
Alternative performance measures
Our policy for alternative performance measures is set out in
Note 1.
The tables below reconcile the alternative performance measures
used in this document -
2017
Measure Depreciation,
amortisation Share
Statutory and gains based Adjusted
basis on disposal payment Tax items basis
-------------------- ---------- ------------- --------- ---------- -----------
Operating Expenses
(GBPm) 86.8 (13.4) (2.0) - 71.4
EBITDA (GBPm) 39.6 - 2.0 - 41.6
PBT (GBPm) 26.4 - 2.0 - 28.4
PAT (GBPm) 22.6 - 2.0 (1.4) 23.2
-------------------- ---------- ------------- --------- ---------- -----------
2016
Measure Depreciation
and amortisation Share
Statutory and gains based Adjusted
basis on disposal payment Tax items basis
-------------------- ---------- ----------------- --------- ---------- ---------
Operating Expenses
(GBPm) 77.4 (9.9) (2.9) - 64.6
EBITDA (GBPm) 31.3 - 2.9 - 34.2
PBT (GBPm) 21.6 - 2.9 - 24.5
PAT (GBPm) 17.7 - 2.9 (0.6) 20.0
-------------------- ---------- ----------------- --------- ---------- ---------
The reconciliation of EPS to adjusted EPS is shown below (both
are shown on a Fully Diluted basis):
2017 2016
pence pence
------------------------------------------------ ------- -------
EPS 23.9 18.8
Share based payment expense 2.1 3.1
Tax effect associated with share based payment
expense (0.4) (0.6)
Additional effect of dilution - (0.2)
Non-recurring tax credit due to the conclusion (1.0) -
of a previously unresolved tax matter
------------------------------------------------ ------- -------
Adjusted EPS 24.6 21.1
------------------------------------------------ ------- -------
Adjusted EBITDA and EBITDA
The combination of increasing sales of new products and
operational improvements means that adjusted EBITDA grew from
GBP34.2m in 2016 to GBP41.6m or 21.6%. The statutory EBITDA
performance was consistent with the adjusted measure increasing by
26.5% from GBP31.3m to GBP39.6m.
Taxation
The effective tax rate for 2017 was 14.4%. This rate is however
depressed significantly by a non-recurring tax credit of GBP0.9m
which related to a tax overpayment from 2014 and earlier years
where the underlying position has only recently been resolved.
Taking the credit into account, the underlying effective tax rate
for the year was 17.8% (2016: 18.1%). The tax rate is lower than
the statutory rate for the year of 19.25% (2016: 20.00%) because
the Group benefits from research and development tax credits. Due
to the on-going research that the Group does, we would expect the
effective tax rate for the Group to remain slightly below the
statutory rate.
Cash flows
The cash balance at the end of the year was GBP31.6m, up from
GBP28.2m at the end of the previous year. The cash generated from
operations for the year was GBP38.8m which represents 93% of
adjusted EBITDA for the year (2016: 92%). Management believes that
the conversion of EBITDA into pre-tax cashflow is a key metric for
the business because it demonstrates that the profitability of the
business is underpinned by cashflow.
Capital spend for the year was GBP24.7m, which is an increase
from GBP19.6m in the comparative period. This is discussed in
detail below.
The Group continues to be debt free and a number of lenders have
indicated that they would be willing to support the Group with debt
were it to be required for capital expenditure programmes or
M&A activity.
Capital expenditure
The Group spent GBP24.7m (2016: GBP19.6m) on capital which was
split as follows.
-- GBP13.2m was on enhancement and replacement of existing
assets (2016: GBP11.3m). Of this amount
o GBP4.4m was spent on our new national network, which will
replace our existing fibre ring. This will provide Gamma with a
core infrastructure for the next twenty-five years (and is
therefore not representative of the underlying run rate spend).
(2016:nil). There is another GBP1.0m of spend to come in 2018 on
this project.
o GBP7.7m was the cost of increasing capacity and development of
the core network as well as other minor items such as IT and
fixtures and fittings (2016: GBP8.6m).
o There was no significant spend on the build out of our data
network (2016: GBP1.8m).
o GBP1.1m was the capitalisation of development costs incurred
during the year (2016: GBP0.9m).
-- GBP11.5m was on customer premises equipment; this is "success
based" expenditure and has increased in line with sales in our data
and Cloud PBX products (2016: GBP8.3m). (See also note 2 on impact
of implementation of IFRS 15).
Adjusted EPS (FD) and Statutory EPS (FD)
Adjusted EPS (FD) increased from 21.1p to 24.6p (16.6%). The
growth in adjusted EPS (FD) is slightly behind that of adjusted
EBITDA due to depreciation and amortisation in the year increasing
from GBP9.9m in 2016 to GBP13.4m. This is driven by the investment
programme and success based capital spend described above. The
statutory EPS (FD) performance was better than the adjusted measure
increasing by 27.1% from 18.8p to 23.9p; this was caused by a
settlement of a historical tax liability resulting in a
non-recurring tax credit.
Dividends
The Board has proposed a final dividend of 5.6p representing a
full year dividend of 8.4p per share. This is an increase of 12%
against our dividend for 2016 of 7.5p and is in line with our
progressive dividend policy.
Subject to shareholder approval, the final dividend is payable
on Thursday 21 June 2018 to shareholders on the register as at
Friday 1 June 2018.
New accounting standards
Gamma has now concluded its analysis in respect of the new
accounting standards relating to revenue recognition (IFRS 15),
leases (IFRS 16) and Financial Instruments (revision to IFRS 9).
Our full assessment is discussed in Note 3 to the 2017 Annual
Report and Accounts and this is summarised in Note 2 of these
abbreviated accounts. As indicated at the half year, EPS (FD) for
2017 would not have been materially affected had the new standards
been applied.
IFRS 15 will be adopted from 1 January 2018 and therefore in
next year's audited financial statements, Gamma will restate the
2017 figures under the new accounting policies. The effect of
implementing IFRS 15 in 2017 would have been as follows -
As reported Restatement following Change
(current implementation
GAAP) of IFRS 15
Revenue GBP238.4m GBP242.9m +1.9%
EBITDA GBP39.6m GBP36.8m -7.1%
Adjusted EBITDA GBP41.6m GBP38.8m -6.7%
PBT GBP26.4m GBP26.5m +0.4%
Adjusted PBT GBP28.4m GBP28.5m +0.3%
EPS (FD) 23.9p 24.0p +0.4%
Adjusted EPS (FD) 24.6p 24.7p +0.4%
Net Assets GBP98.8m GBP95.3m -3.5%
A full reconciliation and explanation for the above changes is
given in Note 3 to the 2017 Annual Report and Accounts. This is
summarized in the notes to these abbreviated Financial
Statements.
The group will also be implementing IFRS 16 from 1 January 2018
(which is earlier than required). The group will take advantage of
the practical expedient whereby modified retrospection is allowed
and therefore will not restate the comparatives when the 2018
financial statements are prepared. As an indication of the effect
of IFRS 16 at 1 January 2018 the Group will recognise a liability
of GBP6.4m and a corresponding right of use asset of GBP6.1m.
Management estimates that the effect on the statement of income for
2018 will be that GBP1.6m which would have been shown as "operating
expense" will now be shown as GBP1.3m of depreciation and GBP0.2m
of interest. Note that these figures assume the Group's property
portfolio remains unchanged over the course of 2018.
The Group's review of the changes to IFRS 9 has not resulted in
any material changes to accounting policies and therefore no impact
is expected on EPS in future years.
Andrew Belshaw
Chief Financial Officer
Consolidated statement of comprehensive income
For the year ended 31 December 2017
2017 2016
Notes GBPm GBPm
--------------------------------------------- -------- --------
Revenue 238.4 213.5
Cost of sales (125.4) (114.7)
----------------------------------------- -------- --------
Gross profit 113.0 98.8
Operating expenses (86.8) (77.4)
Operating profit before share based
payment expense, depreciation and
amortisation (adjusted EBITDA) 41.6 34.2
Share based payment expense (2.0) (2.9)
Operating profit before depreciation
and amortisation (EBITDA) 39.6 31.3
Depreciation and amortisation (14.1) (9.9)
Gain on disposal of assets 0.7 -
----------------------------------------- -------- --------
Profit from operations 26.2 21.4
Finance income 0.2 0.2
----------------------------------------- -------- --------
Profit before tax 26.4 21.6
Tax expense 4 (3.8) (3.9)
----------------------------------------- -------- --------
Profit after tax 22.6 17.7
Total comprehensive income attributable
to the owner of the parent 22.6 17.7
----------------------------------------- -------- --------
Earnings per share
Basic per ordinary share (pence) 5 24.4 19.4
Diluted per ordinary share (pence) 5 23.9 18.8
----------------------------------------- -------- --------
Adjusted Earnings per share is shown in note 3.
Consolidated statement of financial position
At 31 December 2017
2017 2016
Notes GBPm GBPm
------------------------------------------- ------- -------
Assets
Non-current assets
Property, plant and equipment 6 44.1 33.5
Intangible assets 7 10.0 10.0
Deferred tax asset 1.7 1.8
-------------------------------------- --- ------- -------
55.8 45.3
-------------------------------------- --- ------- -------
Current assets
Inventories 3.2 3.0
Trade and other receivables 8 50.6 39.9
Cash and cash equivalents 31.6 28.2
-------------------------------------- --- ------- -------
85.4 71.1
-------------------------------------- --- ------- -------
Total assets 141.2 116.4
-------------------------------------- --- ------- -------
Liabilities
Non-current liabilities
Provisions 1.8 1.9
Deferred tax - 0.2
-------------------------------------- --- ------- -------
1.8 2.1
-------------------------------------- --- ------- -------
Current liabilities
-------------------------------------------------------------
Trade and other payables 9 39.8 32.5
Current tax 0.8 1.6
-------------------------------------- --- ------- -------
40.6 34.1
-------------------------------------- --- ------- -------
Total liabilities 42.4 36.2
-------------------------------------- --- ------- -------
Issued capital and reserves attributable to owners of
the parent
Share capital 0.2 0.2
Share premium reserve 3.8 3.8
Merger reserve 2.3 2.3
Share option reserve 2.8 3.5
Own shares (0.8) (0.8)
Retained earnings 90.5 71.2
-------------------------------------- --- ------- -------
Total equity 98.8 80.2
-------------------------------------- --- ------- -------
TOTAL EQUITY AND LIABILITIES 141.2 116.4
-------------------------------------- --- ------- -------
Consolidated statement of cash flows
For the year ended 31 December 2017
2017 2016
Notes GBPm GBPm
------------------------------------------------ ------- -------
Cash flows from operating activities
Profit for the year before tax 26.4 21.6
Adjustments for:
Depreciation of property, plant and
equipment 6 13.0 8.6
Amortisation of intangible assets 7 1.1 1.3
Share based payment expense 2.0 2.9
Interest income (0.2) (0.2)
-------------------------------------------- ------- -------
42.3 34.2
-------------------------------------------- ------- -------
Increase in trade and other receivables (10.0) (7.3)
Increase in inventories (0.2) (0.7)
Increase in trade and other payables 6.8 4.6
Increase in provisions and employee
benefits (0.1) 0.5
-------------------------------------------- ------- -------
Cash generated by operations 38.8 31.3
Taxes paid (3.6) (4.8)
-------------------------------------------- ------- -------
Net cash flows from operating activities 35.2 26.5
-------------------------------------------- ------- -------
Investing activities
Purchases of property, plant and equipment 6 (23.6) (18.7)
Expenditure on development costs 7 (1.1) (0.9)
Interest received 0.2 0.2
-------------------------------------------- ------- -------
Net cash used in investing activities (24.5) (19.4)
Financing activities
Share issues - 0.1
Repayment of loans made to individuals
to subscribe for shares - 2.6
Dividends (7.3) (6.4)
-------------------------------------------- ------- -------
Net cash used in financing activities (7.3) (3.7)
Net increase in cash and cash equivalents 3.4 3.4
Cash and cash equivalents at beginning
of year 28.2 24.8
-------------------------------------------- ------- -------
Cash and cash equivalents at end of
year 31.6 28.2
-------------------------------------------- ------- -------
Consolidated statement of changes in equity
For the year ended 31 December 2017
Share Own shares
Share Share Merger option GBPm Retained Total
capital premium reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- --------- --------- --------- --------- ----------- ---------- --------
1 January 2016 0.2 3.7 2.3 3.8 (0.8) 57.5 66.7
Issue of shares - 0.1 - (2.5) - 2.5 0.1
Recognition of
share based payment
expense - - - 2.2 - - 2.2
Deferred tax on
share based payment
expense - - - - - (0.1) (0.1)
Dividend paid - - - - - (6.4) (6.4)
Transaction with
owners - 0.1 - (0.3) - (4.0) (4.2)
---------------------- --------- --------- --------- --------- ----------- ---------- --------
Profit for the
year - - - - - 17.7 17.7
---------------------- --------- --------- --------- --------- ----------- ---------- --------
Total comprehensive
income - - - - - 17.7 17.7
---------------------- --------- --------- --------- --------- ----------- ---------- --------
31 December 2016 0.2 3.8 2.3 3.5 (0.8) 71.2 80.2
---------------------- --------- --------- --------- --------- ----------- ---------- --------
1 January 2017 0.2 3.8 2.3 3.5 (0.8) 71.2 80.2
Issue of shares - -- - (2.2) - 2.2 --
Recognition of
share based payment
expense - - - 1.5 - - 1.5
Current tax on
share based payment
expense - - - - - 2.1 2.1
Deferred tax on
share based payment
expense - - - - - (0.3) (0.3)
Dividend paid - - - - - (7.3) (7.3)
Transaction with
owners - -- - (0.7) - (3.3) (4.0)
---------------------- --------- --------- --------- --------- ----------- ---------- --------
Profit for the
year - - - - - 22.6 22.6
Total comprehensive
income - - - - - 22.6 22.6
---------------------- --------- --------- --------- --------- ----------- ---------- --------
31 December 2017 0.2 3.8 2.3 2.8 (0.8) 90.5 98.8
---------------------- --------- --------- --------- --------- ----------- ---------- --------
Basis of preparation
These financial statements have been prepared in accordance with
International Financial Reporting Standards, International
Accounting Standards and Interpretations (collectively IFRS) issued
by the International Accounting Standards Board (IASB) as adopted
by European Union ("adopted IFRSs"), and are in accordance with
IFRS as issued by the IASB, and are presented in Sterling and,
unless otherwise stated, have been rounded to the nearest 0.1m
(GBPm).
The financial statements have been prepared on a historical cost
basis.
Publication of non-statutory accounts
These condensed financial statements do not constitute statutory
accounts within the meaning of the Companies Act 2006. They are an
extract from the full accounts for the year ended 31 December 2017
on which the auditor has expressed an unqualified opinion and do
not include any statement under section 498 of the Companies Act
2006. The full accounts contain a detailed statement of the
accounting policies which have been used to prepare this summary
and remained unchanged from the prior year. The accounts will be
posted to shareholders on or before 27 April 2018 and subsequently
filed at Companies House.
A full set of the audited statutory accounts will be available
at
www.gamma.co.uk/investors/financial-results-and-shareholder-communications
1. Alternative performance measures
Adjustments to EBITDA, PBT, 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 in the short term and
on a basis comparable from year to year.
The measures are adjusted for the following items:
(a) Share based payment expense
The adjusted EBITDA excludes Share Based Payment expense because
the historical charges are inflated by significant levels of awards
made at IPO and have reduced significantly period on period. The
charge includes options being issued to senior management, an SAYE
and a SIP scheme offered to all staff, and the costs of employer's
National Insurance on share option gains. Because of the special
float award made in 2014, the Share Based Payment charges have
decreased year-on-year and this leads to increases in EBITDA, PBT
and EPS which are not reflective of the business performance but
are merely reflective of the fact that lower levels of options have
been awarded post float. Therefore management excludes Share Based
Payments from the adjusted figures to ensure that the trading
performance of the business is properly understood.
(b) Depreciation and amortisation
Depreciation and amortisation relate to assets which were
acquired by the Group. They are omitted from adjusted operating
expenses to allow a user to see how costs which management can
control in the short term have varied from period to period.
(c) Gain on disposal of PPE
The Group may sometimes make a gain or loss on disposal of an
asset. These gains or losses occur infrequently and are not trading
items (the Group does not trade in fixed assets and neither expects
to have gains or losses on disposal, nor does it budget for them).
These gains or losses will therefore affect EBITDA, PBT and EPS but
are not reflective of the ongoing trading profitability of the
Group. Therefore management excludes these items from the adjusted
figures to ensure that the trading performance of the business is
properly understood.
(d) Non-recurring tax credit
During the year there was a non-recurring tax credit of GBP0.9m
arising due to overpayment from 2014 and earlier years where the
underlying position has only recently been resolved. This is not
expected to recur and distorts the true effective tax rate for the
Group. This item impacts EPS. Adjusted EPS is stated before
non-recurring tax items to give a better understanding of the true
tax position of the Group.
(e) Other non-recurring items
Non-recurring items are those which are considered significant
by virtue of their nature, size or incidence, and are presented
separately in the Statement of Comprehensive Income to enable a
full understanding of the Group's financial performance.
There were none in the period or comparative period which
affected EBITDA or PBT.
2. Changes in accounting policies
IFRS 15 "Revenue from Contracts with Customers"
Based on the changes in accounting policy which will be applied
from 1 January 2018, the Group has restated its 2017 results for
the changes in policies required by IFRS 15. These are shown below
and will form the comparative figures to the 2018 results.
There are four adjustments derived from the change in accounting
policies:
Adjustment (a) has the effect of removing "up front" Cloud PBX
subscriptions which were previously recognised on purchase. These
are now amortised over the period for which a customer is expected
to use the service.
Adjustment (b) has the effect of removing assets which were
supplied as part of a service from the fixed asset register and
instead recognising these as a sale at the point of delivery to the
customer. There is a corresponding reduction in ongoing service
revenues.
Adjustment (c) has the effect of spreading installation revenue
over the length of the contract.
Adjustment (d) has the effect of spreading the cost of
commissions in the direct business over the length of the contract
to which they relate.
The combined effect of the four adjustments is to reduce EBITDA
and adjusted EBITDA by GBP2.8m. Both EPS (FD) and adj EPS (FD)
increased by 0.1p.
Impact on Consolidated Statement of Comprehensive income of
IFRS15
Under Adjustment Adjustment Adjustment Adjustment Restated
previous (a) - (b) - (c) (d) amount
accounting Cloud CPE - Installations - Sales under
policies PBX Subscriptions Commissions IFRS
GBPm 15
GBPm
------------------------------- ----------- ------------------ ---------- ---------------- ------------ --------
Revenue 238.4 (1.1) 7.4 (1.8) - 242.9
Cost of sales (125.4) 2.5 (11.6) 1.1 - (133.4)
------------------------------- ----------- ------------------ ---------- ---------------- ------------ --------
Gross profit 113.0 1.4 (4.2) (0.7) - 109.5
Operating expenses (86.8) (1.9) 4.8 - 0.7 (83.2)
------------------------------- ----------- ------------------ ---------- ---------------- ------------ --------
Operating profit before
share based payment
expense, 41.6 1.4 (4.2) (0.7) 0.7 38.8
exceptional items,
depreciation and amortisation
(adjusted EBITDA)
Share based payment
expense (2.0) - - - - (2.0)
Operating profit before
depreciation and amortisation
(EBITDA) 39.6 1.4 (4.2) (0.7) 0.7 36.8
Depreciation and amortisation (14.1) (1.9) 4.8 - - (11.2)
Gains on disposal of
assets 0.7 - - - - 0.7
------------------------------- ----------- ------------------ ---------- ---------------- ------------ --------
Profit from operations 26.2 (0.5) 0.6 (0.7) 0.7 26.3
Finance income 0.2 - - - - 0.2
------------------------------- ----------- ------------------ ---------- ---------------- ------------ --------
Profit before tax 26.4 (0.5) 0.6 (0.7) 0.7 26.5
Tax expense (3.8) - - - - (3.8)
------------------------------- ----------- ------------------ ---------- ---------------- ------------ --------
Profit after tax 22.6 (0.5) 0.6 (0.7) 0.7 22.7
------------------------------- ----------- ------------------ ---------- ---------------- ------------ --------
Total comprehensive
income attributable
to the owner of the
parent 22.6 (0.5) 0.6 (0.7) 0.7 22.7
------------------------------- ----------- ------------------ ---------- ---------------- ------------ --------
Earnings per share
------------------------------- ----------- ------------------ ---------- ---------------- ------------ --------
Basic per ordinary
share (pence) 24.4 (0.5) 0.6 (0.8) 0.8 24.5
------------------------------- ----------- ------------------ ---------- ---------------- ------------ --------
Diluted per ordinary
share (pence) 23.9 (0.5) 0.6 (0.7) 0.7 24.0
------------------------------- ----------- ------------------ ---------- ---------------- ------------ --------
Impact on Consolidated Statement of Financial Position of
IFRS15
The below table shows the effect of the same four adjustments on
the consolidated statement of financial position as at 31 December
2017. As above, these will form the comparatives for the 2018
financial statements. The combined effect of the four adjustments
is to reduce net assets by GBP3.5m.
2017 Adjustment Adjustment Adjustment Adjustment 2017
Under previous (a) (b) (c) (d) Restated
accounting - Cloud - CPE - Installations - Sales amount
policies PBX Commissions under
GBPm Subscriptions IFRS
15
GBPm
-------------------- --------------- -------------- ------------ ---------------- ------------ -----------------
Assets
Non-current assets
Property, plant and
equipment 44.1 - (16.5) - - 27.6
Intangible assets 10.0 5.5 - - - 15.5
Deferred tax asset 1.7 - - - - 1.7
-------------------- --------------- -------------- ------------ ---------------- ------------ -----------------
55.8 5.5 (16.5) - - 44.8
-------------------- --------------- -------------- ------------ ---------------- ------------ -----------------
Current assets
-------------------- --------------- -------------- ------------ ---------------- ------------ -----------------
Inventories 3.2 - - - - 3.2
Trade and other
receivables 50.6 - 18.2 3.1 2.2 74.1
Cash and cash
equivalents 31.6 - - - - 31.6
-------------------- --------------- -------------- ------------ ---------------- ------------ -----------------
85.4 - 18.2 3.1 2.2 108.9
-------------------- --------------- -------------- ------------ ---------------- ------------ -----------------
Total assets 141.2 5.5 1.7 3.1 2.2 153.7
-------------------- --------------- -------------- ------------ ---------------- ------------ -----------------
Liabilities
Non-current
liabilities
Provisions 1.8 - - - - 1.8
Deferred tax - - - - - -
-------------------- --------------- -------------- ------------ ---------------- ------------ -----------------
1.8 - - - - 1.8
-------------------- --------------- -------------- ------------ ---------------- ------------ -----------------
Current liabilities
Trade and other
payables 39.8 11.3 - 4.7 - 55.8
Current tax 0.8 - - - - 0.8
-------------------- --------------- -------------- ------------ ---------------- ------------ -----------------
40.6 11.3 - 4.7 - 56.6
-------------------- --------------- -------------- ------------ ---------------- ------------ -----------------
Total liabilities 42.4 11.3 - 4.7 - 58.4
-------------------- --------------- -------------- ------------ ---------------- ------------ -----------------
Issued capital and
reserves
attributable
to owners of the
parent
Share capital 0.2 - - - - 0.2
Share premium
reserve 3.8 - - - - 3.8
Merger reserve 2.3 - - - - 2.3
Share option reserve 2.8 - - - - 2.8
Own shares (0.8) - - - - (0.8)
Retained earnings 90.5 (5.8) 1.7 (1.6) 2.2 87.0
-------------------- --------------- -------------- ------------ ---------------- ------------ -----------------
Total equity 98.8 (5.8) 1.7 (1.6) 2.2 95.3
-------------------- --------------- -------------- ------------ ---------------- ------------ -----------------
Total equity and
liabilities 141.2 5.5 1.7 3.1 2.2 153.7
-------------------- --------------- -------------- ------------ ---------------- ------------ -----------------
IFRS 16 "Leases"
IFRS 16 comes in to effect on 1 January 2019, however early
adoption is allowed as long as IFRS 15 has been adopted and
therefore the Group intends to adopt the new standard from 1
January 2018.
The standard allows two options for adoption - fully
retrospective and modified retrospective. The Group has elected to
take the modified retrospective approach. As a result of this the
Group will:
-- recognise a lease liability at 1 January 2018 for leases
previously classified as an operating lease applying IAS 17. The
Group will measure that lease liability at the present value of the
remaining lease payments, discounted using the lessee's incremental
borrowing rate at the date of initial application.
-- recognise a right-of-use asset at 1 January 2018 for leases
previously classified as an operating lease applying IAS 17. The
Group has chosen to measure that right-of-use asset at an amount
equal to the lease liability, adjusted by the amount of any prepaid
or accrued lease payments relating to that lease recognised in the
statement of financial position as at 31 December 2017
-- 2017 comparatives are left unchanged and any opening
adjustment to net assets is recognised on 1 January 2017
The modified retrospective approach also allows a number of
practical expedients which the Group has made use of:
-- Application of a single discount rate to a portfolio of
leases with reasonably similar characteristics, being 4%
-- Reliance on an assessment of whether a lease is onerous by
applying IAS 37 Provisions, Contingent Liabilities and Contingent
Assets immediately before the date of initial application as an
alternative to performing an impairment review using the principles
in IAS 36 Impairment of Assets
-- No recognition of leases whose term ends within 12 months of
the date of initial application
-- Exclusion of initial direct costs from the measurement of the
right of use asset at the date of initial application
-- Hindsight may be used, such as in determining the lease term
if the contract contains options to extend or terminate the
lease
As noted above, no comparatives are given for the change in
policies brought about by IFRS 16 but the Group has calculated that
the right of use asset to be recognised as at 1 January 2018 will
be GBP6.1m (and there will be a corresponding liability of
GBP6.4m). The expected depreciation charge on this right of use
asset in the 2018 accounts (assuming no additions or disposals of
leases) will be GBP1.3m and interest charge of GBP0.2m which
compares to an operating lease charge of GBP1.6m within the
operating expenses for 2017. The effect on EBITDA and adjusted
EBITDA is therefore expected to be an increase of GBP1.6m but there
will not be a material effect on PAT or EPS (FD) or adjusted EPS
(FD).
The opening lease liability of GBP6.1m is reconciled to the
table of lease commitments below -
Land and Other
buildings GBPm
GBPm
Lease commitments 7.2 0.2
Less practical expedients taken (0.2) (0.1)
Less interest to be unwound over (0.7) -
the lease term
Opening lease liability 6.3 0.1
---------------------------------- ----------- ------
Less onerous lease provision (0.3) -
---------------------------------- ----------- ------
Opening Right to Use Asset 6.0 0.1
---------------------------------- ----------- ------
IFRS 9 (Financial Instruments)
The Group's review of the changes to IFRS 9 has not resulted in
any material changes to accounting policies and therefore no
adjustments are expected to be required in future years.
3. Segment information
The Group has two main operating segments:
-- Indirect - This division sells Gamma's traditional and growth
products and services to channel partners and contributed 76%
(2016: 79%) of the Group's external revenue.
-- Direct - This division sells Gamma's traditional and growth
products and services to end users in the SME, Enterprise and
public sectors together with an associated service wrap. They
contributed 24% (2016: 21%) of the Group's external revenues.
2017 Indirect Direct Total
GBPm GBPm GBPm
---------------------------------------------- --------- ------- -------
Traditional products and services 50.5 10.8 61.3
Growth (being strategic and enabling)
products and services 130.9 46.2 177.1
---------------------------------------------- --------- ------- -------
Total revenue from external customers 181.4 57.0 238.4
---------------------------------------------- --------- ------- -------
Inter-segment revenue 45.8 - 45.8
Traditional products and services 12.5 3.7 16.2
Growth (being strategic and enabling)
products and services 74.0 22.8 96.8
---------------------------------------------- --------- ------- -------
Total gross profit 86.5 26.5 113.0
---------------------------------------------- --------- ------- -------
Segment operating profit before share
based payment expense, depreciation
and amortisation 29.0 12.6 41.6
Share based payment expense (1.8) (0.2) (2.0)
Segment operating profit before depreciation
and amortisation and gains on disposal
of property, plant and equipment 27.2 12.4 39.6
Depreciation, amortisation and gains
on disposal of assets (13.4) (0.7) (14.1)
Gain on disposal of property, plant
and equipment 0.7 - 0.7
---------------------------------------------- --------- ------- -------
Profit from operations 14.5 11.7 26.2
---------------------------------------------- --------- ------- -------
Finance income 0.2 - 0.2
Tax (2.0) (1.8) (3.8)
---------------------------------------------- --------- ------- -------
Group profit after tax 12.7 9.9 22.6
---------------------------------------------- --------- ------- -------
External revenue of customers has been derived principally from
the United Kingdom and no single customer
is over 10% of revenue.
Indirect Direct Total
GBPm GBPm GBPm
--------------------------------- --------- ------- ------
Additions to non-current assets 22.2 2.5 24.7
--------------------------------- --------- ------- ------
Reportable segment assets 118.4 22.8 141.2
--------------------------------- --------- ------- ------
Reportable segment liabilities 34.4 8.0 42.4
--------------------------------- --------- ------- ------
2016 Indirect Direct Total
GBPm GBPm GBPm
---------------------------------------------- --------- ------- ------
Traditional products and services 55.8 10.2 66.0
Growth (being strategic and enabling)
products and services 113.2 34.3 147.5
---------------------------------------------- --------- ------- ------
Total revenue from external customers 169.0 44.5 213.5
---------------------------------------------- --------- ------- ------
Inter-segment revenue 38.8 - 38.8
Traditional products and services 16.5 3.8 20.3
Growth (being strategic and enabling)
products and services 61.7 16.8 78.5
---------------------------------------------- --------- ------- ------
Total gross profit 78.2 20.6 98.8
Segment operating profit before share
based payment expense, depreciation
and amortisation 24.8 9.4 34.2
Share based payment expense (2.9) - (2.9)
Segment operating profit before depreciation
and amortisation and gains on disposal
of property, plant and equipment 21.9 9.4 31.3
Depreciation and amortisation (9.0) (0.9) (9.9)
---------------------------------------------- --------- ------- ------
Profit from operations 12.9 8.5 21.4
---------------------------------------------- --------- ------- ------
Finance income 0.2 - 0.2
---------------------------------------------- --------- ------- ------
Tax (2.3) (1.6) (3.9)
---------------------------------------------- --------- ------- ------
Group profit after tax 10.8 6.9 17.7
---------------------------------------------- --------- ------- ------
External revenue of customers has been derived principally from
the United Kingdom and no single customer
is over 10% of revenue.
Indirect Direct Total
GBPm GBPm GBPm
--------------------------------- --------- ------- ------
Additions to non-current assets 19.0 0.6 19.6
--------------------------------- --------- ------- ------
Reportable segment assets 100.8 15.6 116.4
--------------------------------- --------- ------- ------
Reportable segment liabilities 31.5 4.7 36.2
--------------------------------- --------- ------- ------
4. Tax expense
2017 2016
GBPm GBPm
--------------------------------------------------- ------ ------
Current tax expense
Current tax on profits for the year 5.1 3.9
Adjustment in respect of prior year (0.9) 0.1
--------------------------------------------------- ------ ------
Total current tax 4.2 4.0
--------------------------------------------------- ------ ------
Deferred tax expense
Origination and reversal of temporary differences (0.4) (0.1)
Total deferred tax (0.4) (0.1)
--------------------------------------------------- ------ ------
Total tax expense 3.8 3.9
--------------------------------------------------- ------ ------
The reasons for the difference between the actual tax charge for
the year and the standard rate of corporation tax in the United
Kingdom applied to profits for the year are as follows:
2017 2016
GBPm GBPm
------------------------------------------------ ------ ------
Profit before income taxes 26.4 21.6
Expected tax charge based on the standard
rate of United Kingdom corporation tax
at the domestic rate of 19.25% (2016: 20.00%) 5.1 4.3
Expenses not deductible for tax purposes - 0.1
Additional deduction for R&D expenditure (0.4) (0.4)
Adjustment in respect of prior year (0.9) (0.1)
------------------------------------------------ ------ ------
Total tax expense 3.8 3.9
------------------------------------------------ ------ ------
The Finance Act 2016 includes provision for the main rate of
corporation tax to reduce to 17% for the year beginning 1 April
2020.
5. Earnings per share and dividends
Earnings per share
The calculation of basic earnings per Ordinary Share is based on
a profit after tax of GBP22.6m (2016: GBP17.7m) and 92,750,844
(2016: 91,235,007) Ordinary Shares, being the weighted average
number of Ordinary Shares in issue during the period.
The diluted earnings per Ordinary Share is calculated by
including in the weighted average number of shares the dilutive
effect of potential Ordinary Shares related to committed share
options. The following reflects the share data used in the
calculation of diluted earnings per share:
Total Total
2017 No. 2016 No.
Weighted average number of Ordinary Shares
for basic earnings per share 92,750,844 91,235,007
Effect of dilution resulting from share
options 1,651,182 2,552,241
-------------------------------------------- ----------- -----------
Weighted average number of Ordinary Shares
adjusted for the effect of dilution 94,402,026 93,787,248
-------------------------------------------- ----------- -----------
The following reflects the income data used in the calculation
of adjusted earnings per share computations before share based
payments expense, one-off items and their associated tax
effect:
Total Total
2017 2016
GBPm GBPm
Profit after tax for the year 22.6 17.7
Tax adjustment in respect of prior years (0.9) -
Share based payment expense 2.0 2.9
Less tax effect associated with share based
payment expense and one-off costs (0.5) (0.6)
--------------------------------------------- ------ ------
Adjusted profit after tax for the year 23.2 20.0
--------------------------------------------- ------ ------
2017 2016
------------------------------------------------ ----- -----
Adjusted earnings per Ordinary Share - basic
(pence) 25.0 21.9
Adjusted earnings per Ordinary Share - diluted
(pence) 24.6 21.1
------------------------------------------------ ----- -----
The number of shares used to calculate diluted adjusted earnings
per share in 2016 was 94,732,610.
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.
Dividends
An interim dividend of 2.8p was paid on 19 October 2017 (2016:
2.5p).
A final dividend of 5.6p will be proposed at the Annual General
Meeting but has not been recognised as it requires approval (2016:
5.0p). The total amount of dividends proposed is 8.4p (2016:
7.5p)
6. Property, plant and equipment
Customer
Network Premises Computer Fixtures
assets equipment equipment and fittings Total
GBPm GBPm GBPm GBPm GBPm
---------------- -------- ----------- ----------- -------------- ------
Cost
At 1 January
2017 54.5 13.3 6.2 0.7 74.7
Additions 11.0 11.5 0.8 0.3 23.6
Disposals - (1.4) - - (1.4)
At 31 December
2017 65.5 23.4 7.0 1.0 96.9
---------------- -------- ----------- ----------- -------------- ------
Depreciation
At 1 January
2017 33.6 4.0 3.4 0.2 41.2
Charge for the
year 5.8 5.7 1.1 0.4 13.0
Disposals - (1.4) - - (1.4)
At 31 December
2017 39.4 8.3 4.5 0.6 52.8
---------------- -------- ----------- ----------- -------------- ------
Net book value
At 1 January
2017 20.9 9.3 2.8 0.5 33.5
---------------- -------- ----------- ----------- -------------- ------
At 31 December
2017 26.1 15.1 2.5 0.4 44.1
---------------- -------- ----------- ----------- -------------- ------
Cost
At 1 January
2016 45.9 5.8 4.6 0.5 56.8
Additions 8.6 8.3 1.6 0.2 18.7
Disposals - (0.8) - - (0.8)
At 31 December
2016 54.5 13.3 6.2 0.7 74.7
---------------- -------- ----------- ----------- -------------- ------
Depreciation
At 1 January
2016 29.4 1.7 2.2 0.1 33.4
Charge for the
year 4.2 3.1 1.2 0.1 8.6
Disposals - (0.8) - - (0.8)
At 31 December
2016 33.6 4.0 3.4 0.2 41.2
---------------- -------- ----------- ----------- -------------- ------
Net book value
At 1 January
2016 16.5 4.1 2.4 0.4 23.4
---------------- -------- ----------- ----------- -------------- ------
At 31 December
2016 20.9 9.3 2.8 0.5 33.5
---------------- -------- ----------- ----------- -------------- ------
There was no property, plant or equipment held under finance
leases at the end of either year.
There was no property, plant or equipment held as security at
the end of either year.
7. Intangible assets
Goodwill Development Customer
on Consolidation costs Contracts Total
GBPm GBPm GBPm GBPm
--------------------- ------------------ ------------ ----------- ------
Cost
At 1 January 2017 12.5 6.1 2.1 20.7
Additions - 1.1 - 1.1
--------------------- ------------------ ------------ ----------- ------
At 31 December 2017 12.5 7.2 2.1 21.8
--------------------- ------------------ ------------ ----------- ------
Amortisation
At 1 January 2015 4.5 4.2 2.0 10.7
Charge for the year - 1.0 0.1 1.1
--------------------- ------------------ ------------ ----------- ------
At 31 December 2017 4.5 5.2 2.1 11.8
--------------------- ------------------ ------------ ----------- ------
Carrying value
At 1 January 2017 8.0 1.9 0.1 10.0
--------------------- ------------------ ------------ ----------- ------
At 31 December 2017 8.0 2.0 - 10.0
--------------------- ------------------ ------------ ----------- ------
Cost
At 1 January 2016 12.5 5.2 2.1 19.8
Additions - 0.9 - 0.9
--------------------- ------------------ ------------ ----------- ------
At 31 December 2016 12.5 6.1 2.1 20.7
--------------------- ------------------ ------------ ----------- ------
Amortisation
At 1 January 2016 4.5 3.3 1.6 9.4
Charge for the year - 0.9 0.4 1.3
--------------------- ------------------ ------------ ----------- ------
At 31 December 2016 4.5 4.2 2.0 10.7
--------------------- ------------------ ------------ ----------- ------
Carrying value
At 1 January 2016 8.0 1.9 0.5 10.4
--------------------- ------------------ ------------ ----------- ------
At 31 December 2016 8.0 1.9 0.1 10.0
--------------------- ------------------ ------------ ----------- ------
The estimates of the useful economic lives of the intangible
assets are as follows:
-- Customer contracts - five years
-- Development costs - over anticipated useful economic life of
asset developed but no more than four years
-- Goodwill on consolidation - indefinite (subject to impairment)
8. Trade and other receivables
2017 2016
GBPm GBPm
Trade receivables 25.9 22.4
Less: provision for impairment of trade
receivables (2.7) (2.0)
----------------------------------------- ------ ------
Trade receivables - net 23.2 20.4
----------------------------------------- ------ ------
Accrued income 10.5 10.0
Prepayments 10.9 8.1
Other receivables 6.0 1.4
----------------------------------------- ------ ------
Total trade and other receivables 50.6 39.9
----------------------------------------- ------ ------
9. Trade and other payables
2017 2016
GBPm GBPm
Current
Trade payables 7.9 8.3
Other payables 1.9 1.3
Accruals - Cost of Sales 15.0 10.6
Accruals - Operating expenses (non-payroll) 3.2 2.5
Accruals - Payroll related (excl tax and
social security) 6.7 6.7
Tax and social security 2.4 1.2
Deferred income 2.7 1.9
--------------------------------------------- ------ ------
Total trade and other payables 39.8 32.5
--------------------------------------------- ------ ------
10. Subsequent events
There have been no subsequent events that the Directors of the
Group are aware of at the date of signing.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEFFWFFASEED
(END) Dow Jones Newswires
March 22, 2018 03:00 ET (07:00 GMT)
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