Gamma Communications plc Annual Report 2014

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FY2014 Annual Report · Gamma Communications plc

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Communicate

Innovate

Gamma Communications plc
Annual Report and
Accounts 2014

Gamma is an AIM listed
communications company.

We are a leading supplier
of business communications
services to the UK market.

Welcome to our 2014
maiden Annual Report.

Contents

Page 2
Our business at a glance

Strategic report

Our business at a glance
Market overview
Chairman’s statement
Business model
Chief Executive Officer’s review
Strategy for growth
Key performance indicators
Performance metrics
Principal risks and uncertainties
Business Unit review

Indirect Channel Business Unit
Direct Channel Business Unit

Financial review
Corporate social responsibility

2
4
6
8
10
14
16
17
18
20
22
24
26
28

Corporate governance

Governance introduction
Board of Directors
Senior management
Corporate governance report
Audit Committee report
Remuneration Committee report
Directors’ report
Statement of Directors’ responsibilities

Financial statements

Independent auditor’s report
Consolidated statement
of comprehensive income
Consolidated statement of
financial position
Consolidated statement of cash flows
Consolidated statement of changes
in equity
Notes forming part of the
financial statements
Company balance sheet
Notes forming part of the
Company financial statements

Our business at a glance

Who we are and…

…what we do

Strategic
report

Corporate
governance

Financial
statements

Supplementary information

Glossary of terms
Company information

30
32
34
36
38
40
46
48

51
52

54
81

84
IBC

Gamma is a rapidly growing,
technology-based provider
of advanced communications
services to the UK business
market.

Who and where we are
As of December 2014, Gamma has
559 staff based across five main sites
in the UK with a small development
centre in Budapest. Some 20% of our
people are actively engaged in either
developing or enhancing our services.

What we do for our customers

The way people work, communicate
and collaborate is undergoing profound
change. And it is all in the quest
for increased business productivity
and efficiency while at the same time
reducing operational and IT costs.

We supply a broad range of
communications to small, medium

and large-sized business customers,
the public sector and not-for-profit
organisations, both through our large
network of channel partners and
directly. Our products include fixed
telephony, IP telephony, Cloud PBX
solutions, broadband and data
connections, mobile services, and
unified communications solutions.

Portal

Fixed connection

Local
connection

National
network

Mobile connection

Gamma Core
Network
– Services
– Applications
– Interconnects

Customer’s
site(s)

What makes us different
→ Outstanding customer service
→ Excellent network coverage and resilience
→ Complete solutions from just one supplier
→ Commercial strength and stability
→ Strong balance sheet and consistent market strategy

Gamma creates simplified
communications and
software services for
business. With a broad
range of voice, mobile and
data services, we lead on
network strength, products
that are both easy to use
and provision, and quality
through automation.

Network

We operate a 2000 km optical
fibre network formed in a
resilient ‘figure of eight’
architecture around the UK.

Our core network centres
are spread across six main
locations and our key product
platforms are located in at
least two of these locations,
with the ability for each
node to act independently
should one fail. As a result
we typically achieve an
availability of 99.997%
or better for these resilient
platforms.

Key

National network
Service centre

Leeds

Manchester

Birmingham

Milton Keynes

Bristol

London

A history
of Gamma

2001–02

2003–04

2005–06

2007–08

2009–10

2011–14

→ Initially formed through
selective acquisition of
UK national network
assets and relevant staff
from the administrators
of Atlantic Telecom.

→ Agreement with Telia to

enable its channel partners
to transfer their UK voice
services to Gamma.

→ Invested £10m into the
core network to position
the business for next
generation services.

→ Won major supply contracts
with Tiscali, AOL and Pipex.

→ Acquired a direct sales
channel through the
acquisition of Uniworld
Communications Limited
for £10.4m.

→ Acquired the IPR on billing
and support systems, and
specialist software skills
in Budapest.

→ First phase SIP Trunking

launched.

→ Full carbon offset,
becoming first
carbon-neutral carrier.

→ Launched inbound
call control services.

→ Expanded to 350
channel partners.

with large enterprise and
public sector customers.

→ Launch of “The Loop”

in Manchester to exploit
the extensive fibre and
ducting assets the Group
has in the City.

→ Broadened the portfolio
substantially to include
data services, Cloud
PBX (branded Horizon)
and Mobile.

→ Acquisition of Varidion

Limited, a small systems
integrator and wide area
data specialist, thereby
strengthening the
Company’s capability

Gamma Communications plc
Annual Report and Accounts 2014

Financial
highlights

£17.9m

£23.1m

Unadjusted EBITDA grew by 10%
from £16.3m to £17.9m

Adjusted EBITDA grew by 34%
from £17.2m to £23.1m

£173.2m

£67.6m

Overall revenue grew from £148.7m
in 2013 to £173.2m (up 16%)

Gross profit improved from £53.9m
to £67.6m (up 25%)

£16.4m

Net cash inflow from operating
activities was £16.4m up 17%
from £14.0m in 2013

Our business at a glance

Who we are and…

Gamma is a rapidly growing,
technology-based provider
of advanced communications
services to the UK business
market.

What we do for our customers

We supply a broad range of
communications to small, medium

Portal

Fixed connection

Local
connection

National
network

Mobile connection

Gamma Core
Network
– Services
– Applications
– Interconnects

Customer’s
site(s)

A history
of Gamma

2001–02

2003–04

2005–06

→ Initially formed through
selective acquisition of
UK national network
assets and relevant staff
from the administrators
of Atlantic Telecom.

→ Agreement with Telia to

enable its channel partners
to transfer their UK voice
services to Gamma.

→ Invested £10m into the
core network to position
the business for next
generation services.

→ Won major supply contracts
with Tiscali, AOL and Pipex.

→ Acquired a direct sales
channel through the
acquisition of Uniworld
Communications Limited
for £10.4m.

→ Acquired the IPR on billing
and support systems, and
specialist software skills
in Budapest.

…what we do

Network

We operate a 2000 km optical
fibre network formed in a
resilient ‘figure of eight’
architecture around the UK.

Key

National network
Service centre

Leeds

Manchester

Birmingham

Milton Keynes

Bristol

London

2007–08

2009–10

2011–14

→ First phase SIP Trunking

launched.

→ Full carbon offset,
becoming first
carbon-neutral carrier.

→ Launched inbound
call control services.

→ Expanded to 350
channel partners.

with large enterprise and
public sector customers.

→ Launch of “The Loop”

in Manchester to exploit
the extensive fibre and
ducting assets the Group
has in the City.

→ Broadened the portfolio
substantially to include
data services, Cloud
PBX (branded Horizon)
and Mobile.

→ Acquisition of Varidion

Limited, a small systems
integrator and wide area
data specialist, thereby
strengthening the
Company’s capability

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements
Market overview

Understanding and
responding in a vibrant
communications market

Our services are designed
to meet the needs of the
UK business market, from
small businesses to national
enterprises. We do not compete
in either the residential market,
or the market for multinational
corporations. Our focus is on
software based services that
we can supply from the core
of our network (i.e. cloud-
based) and we minimise our
involvement with equipment
on the customer’s premises.

Major trends impacting
growth in our market are
the shift of hardware to the
Cloud, the availability of optical
fibre access for businesses,
the growth in smartphones,
and the growing convergence
of communications and IT.

SIP Trunking: Business Grade VoIP
SIP Trunking is increasingly being used by
business customers to replace traditional
ISDN lines. At the end of 2014 there
were estimated to be 1.5m SIP Trunking
channels deployed in the UK, of which
Gamma has a 16% share and is the
market leader. The broader directly
relevant market, however, is the 3.2m
business ISDN channels for which SIP
Trunking offers a modern, more cost-
effective alternative. Gamma’s growth
rate in sales of SIP Trunking services
in 2014 was 45%.

Cloud PBX: A phone system
in the Cloud
The total UK business PBX market
(including on-premise and hosted) is
approximately 17.6m seats, of which
close to 1.65m are hosted PBX seats.
Cloud PBX services are increasingly
replacing traditional, on-premise
PBX infrastructure with seat volumes
growing at circa 22% per annum
including private Cloud PBXs.
In 2014 Gamma’s growth rate
in Cloud PBX seats was 86%.

75%

Research predicted that by the
start of 2014 more than 75% of
UK businesses would be using
at least one type of Cloud service

Efficiency case study:
Knight Frank
estate agent

The challenge – to meet a growing demand
for real time audio, video and imaging on the
desktop, Knight Frank wanted to move away
from computing in the server room and put
processing power back on users’ desks.

At the same time the firm wanted to
improve its communications infrastructure
to better support a mobile and increasingly
global workforce, and to deliver a seamless,
multimedia and more collaborative experience
for all users.

Firstly we brought the Knight Frank branch
network up to date by replacing some
600 legacy telephone lines and broadband
links with an Ethernet wide area network,
delivering a 40 times increase in capacity
and generating new opportunities for video
and voice.

Building on the new Ethernet infrastructure,
we implemented SIP telephony across the
organisation, creating an environment for
Microsoft® Lync® and leveraging our Lync®
2013 accreditation. We brought Knight
Frank’s extensive and disparate population
of mobile devices under the Gamma umbrella,
bringing opportunities for fixed/mobile
convergence and BYOD.

“The main benefits we’ve seen (by working
with Gamma) have been a rock solid
architecture across the organisation that
we’ve really been able to build on. As it has
developed it has allowed us to do additional
things that have delivered some pretty
incredible cost savings.”

Owen Williams
Partner and Group Head of IT, Knight Frank

1,000

Since 2000, available broadband
speeds in the UK have risen from
0.5 megabits per second to 1,000

3.2m

There are 3.2m business ISDN
channels in the UK, for which SIP
Trunking offers a modern, more
flexible and lower cost alternative

Broadband
Gamma offers a quality business-grade
broadband service and does not
compete for the residential market.
Connections grew by 45% in 2014.

Mobile services
Gamma acts as a virtual operator,
either under its own brand or that of
its channel partner. In 2014 Gamma’s
market share of the UK business market
stood at just 0.6%, leaving plenty of
opportunity for further growth.

Routes to market
Gamma sells all of its products through
both the indirect channels (via 725
channel partners) which generates 79%
of its revenue, as well as selling to end
users through the direct channel.

Inbound
The market for Inbound Call Control
Services ranges from large enterprises
to small organisations for whom
professionally managing inbound calls
(such as for sales and customer services)
is important as it enables them to queue,
record and route calls effectively.

Ethernet
Ethernet is becoming the dominant
Wide Area Network transmission
technology because it can transport
large amounts of any type of data in
a fast, assured and economic manner.
Ethernet connectivity between Local
Area Networks enables multiple services
and applications to operate seamlessly
across different geographical locations.
Gamma is a relatively late entrant
to this market and views Ethernet
as an enabling technology for its more
strategic services such as SIP Trunking.

94%

In 2000, 50% of adults in the UK
used a mobile phone. Today this
figure is 94%

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsChairman’s statement

An exciting year
for Gamma

Introduction
I am very pleased to present my
first report on the results of Gamma
Communications plc for the year ended
31 December 2014 since its successful
IPO and listing on the Alternative
Investment Market (AIM) on 10 October
2014. To have the opportunity to be
Chairman of a growing and dynamic
company such as Gamma, operating
in the vibrant communications market,
and working with a truly professional
Board and management team is very
exciting and one to which I am greatly
looking forward.

Gamma has had exceptional support
from its founder Shareholders for many
years; they nurtured its growth and
provided an environment in which it
could develop into the successful
business it is today. We are pleased that
they remain significant Shareholders
as the Company moves to its next phase
of growth and development as an AIM
listed company. The AIM listing provided
Gamma with the opportunity to broaden
its Shareholder base, give it access to
new sources of capital for future growth
and development and provide increased
visibility and recognition for the
business in its markets.

Overview of results
Overall Group revenue for the year
ended 31 December 2014 increased
by £24.5m to £173.2m (2013: £148.7m),
an increase of 16% compared to the
year ended 31 December 2013. Of
this increase, £17.9m came from the
indirect channels business which grew
revenue to £136.9m (2013: £119.0m)
and £6.6m from the direct business
which saw revenue increase to £36.3m
(2013: £29.7m).

Gross profit for the year to 31 December
2014 amounted to £67.6m, an increase
of 25% compared to the £53.9m
achieved in 2013, whilst the gross profit
percentage increased to 39.0% (2013:
36.2%). EBITDA, before exceptional costs
and share based payments, for the Group
as a whole increased to £23.1m (2013:
£17.2m), an increase of 34% compared to
the previous year. Adjusted earnings per
share for the year ended 31 December
2014 were 15.0p (2013: 10.8p);
unadjusted earnings per share were
10.0p (2013: 9.9p).

The net operating cash inflow for the
year was £16.4m compared to £14.0m
in 2013. This represents a cash to
EBITDA ratio in respect of 2014 of 92%
compared to 86% for 2013. Despite the
increased capital expenditure and other
exceptional items, net cash as at 31
December 2014 amounted to £13.4m,
which is marginally down from £14.6m
as at 31 December 2013.

Dividend
Gamma, as stated at the time of the IPO,
is committed to a progressive dividend
policy. I am therefore pleased to announce
that a dividend, in respect of the year
ended 31 December 2014, of 3.95 pence
per share will, subject to the necessary
Shareholder approval at the forthcoming
Annual General Meeting, be payable to
Shareholders on the register at 5 June
2015. This dividend represents a yield of
2.1% on the IPO price.

Corporate development
Not surprisingly, Gamma’s focus in 2014
was the successful IPO of the business,
which in itself will enhance the corporate
development opportunities available
to the Company. It does, however,
remain Gamma’s intention to look for
opportunities to invest in new business
areas and make appropriate earnings-
enhancing acquisitions which support

2014 has been an excellent
year for Gamma with a
successful AIM listing
and revenue and profit
continuing to increase.

6th

Fixed Line Network
Provider of the Year 2014,
6th year in a row

100

Gamma was recognised as
one of ‘The Sunday Times
Best 100 Companies to
Work For – 2014’

its strategic objectives. In 2014 Gamma
came to an agreement with the vendors
of Varidion Limited (acquired in 2012)
to settle the deferred element of the
consideration early by paying £2.6m
in cash. This was considered appropriate
as it has enabled the integration and
development of the business and
its management to be completed
more quickly.

In December 2014 Gamma purchased
control equipment that provides the core
of a mobile network. When brought into
active use, currently anticipated to be
2016, the Group will have much greater
control and flexibility over its mobile
services and be much better positioned
for the widely anticipated market for
converged services, with a specific
focus on the business market.

Board and employees
As part of the preparation for IPO a
number of changes to the Board took
place during 2014. Firstly, I should like
to thank Owen Jonathan, previously
Chairman, who retired from the Board
in May 2014, and Ean Kuok and Steve
Burton, who resigned from the Board
just prior to the IPO, for their tremendous
input into the Company and for their
support and encouragement to the
executive management team. Secondly,
I should like to welcome the new members
of the Board, Alan Gibbins and Martin
Lea, who both joined in June 2014 as
Independent Non-Executive Directors;
they have taken on the roles of Chairman
of the Audit Committee and of the
Remuneration Committee respectively.
I should also like to welcome Andrew
Belshaw who was appointed to the
Board as Finance Director in October
2014; I believe the Board as presently
constituted has a wealth of experience
and the necessary understanding to help
take Gamma through its next stage of
development and beyond.

The senior executives, managers and
employees are the bedrock of Gamma
and they have significantly contributed
to the creation of the successful
company we have today. I should like
to thank them for their consistent hard
work and continued support, especially
during the IPO process when, despite
the significant increase in workload
of the executive Board members and
the senior executive team, the business
continued to grow and develop
successfully and provide excellent
support to our customers and partners.

Gamma is fully supportive of
apprenticeship schemes, 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, we believe, to a successful
and strong business.

Outlook
The Board looks forward to 2015
with great enthusiasm and believes
that Gamma will continue to benefit
from the investment it has made and
continues to make in its direct and
indirect business channels. Gamma’s
stated vision is to continue to grow
both its market share and profitability
by developing new innovative
communications products for business
and the public sector. We believe that
Gamma has the experience, resources
and capabilities to continue to achieve
its objectives.

Richard Last
Chairman and Independent
Non-Executive Director

Corporate governance
page 30

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsBusiness model

How Gamma
creates value

Highly cash generative
with a resilient business
model, a broad customer
base and low customer
concentration, Gamma has
seen strong growth driven
by repeating revenues.

Gamma is a rapidly growing, technology-
based provider of communications
services to the UK business market.
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 know-
how and own intellectual property.

Gamma also provides services such
as business-grade broadband, Ethernet,
mobile and data services. Also, as a
consequence of its history, Gamma has
a substantial voice service capability,
completing its comprehensive range
of communication services.

Our services
Our portfolio comprises voice, data
and mobile services that are sold
indirectly through channel partners
and directly to end users. These

services are sold in a standard,
repeatable way to both partners and
customers. What creates value and
differentiation in our services is the way
we deliver them to our partners via the
Gamma portal. The business invests
significantly in software resources to
automate, simplify and speed up the
provisioning and billing of our services.
This focus on “ease of use” for all our
services across one platform is a key
differentiator, and reduces the back
office costs of our partners.

Growing our business
The business has consistently grown
its margins over the last five years and
this growth has come from right across
our different channels. We do not have a
target mix for indirect and direct business
– we will let the business market decide.
This growth has come despite industry
reductions in regulated prices and
difficult economic conditions.

A resilient business model

Gamma provides
these services:

The services are provided
for these business markets:

Enterprise and Public Sector
(5% of Gamma revenues)

Voice

Data

Mobile

Channel
(80% of Gamma
revenues)

Channel
partners

End users/
customers

SME/Mid Market
15% of Gamma revenues

Public sector
This is becoming an increasingly
important market for Gamma, both
through a number of key channel
partners, who are active and successful
in the public sector, and our own direct
sales capability. Through framework
agreements we now have a significant
presence in education, health and
local government, and are now looking
to establish a presence in central
government under the new Public
Services Network (PSN) framework.

Strategic services
The single biggest factor in the success of
the business over the last five years has
been the transition from selling traditional
services, such as calls and lines, to
providing the more strategic services of
Cloud PBX, SIP Trunking and Inbound Call
Control Services. For the customer, these
services have three inherent advantages
over the services they replace: they cost
less, they are more flexible and feature-
rich, and they do not require significant
capital expenditure to implement.
For Gamma, the investment in product
development is returned with improved
margins, longer contracts and lower
churn as the products are more integral
to a business operation. The enabling
services of Ethernet, mobile and
broadband (see diagram) are prerequisites
for providing the strategic services and
for ensuring that Gamma, and its channel
partners, maximise the revenue
opportunity from each customer.

Service portfolio

h
t
w
o
r
G

Enabling
services

Ethernet

Mobile

Traditional
services

Broadband

Calls and
lines

Strategic
services

SIP
Trunking

Cloud
PBX

Inbound

Margin

37,000

We have added over 37,000 new
seats during 2014 to the Horizon
product, our Cloud-based alternative
to a traditional phone system (PBX)

Case study:
Alternative
Networks
“We’re all about designing and
building solutions that solve
business issues. Through the strong
and supportive channel partner
relationship we enjoy with Gamma,
we benefit from innovative and
flexible products and focused
marketing support.

Gamma’s broad portfolio of products
and services can uniquely blend
together, making it easier for us
to present a seamless proposition
to clients, while maximising the
cross-sell and margin opportunity.

Our clients fully recognise the
benefits of moving away from
legacy technology over to
technology that enables far more
flexibility, provides a robust and
resilient platform and gives them
the ability to change the shape
of their business. Our partnership
with Gamma means we can help
our clients make this change and
realise these benefits.”

Neil Rampe
Group Commercial and Marketing
Director at Alternative Networks

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsChief Executive Officer’s review

Welcome to Gamma’s
inaugural Annual Report

2014 saw a strong financial and operational performance
from Gamma, as well as a successful listing on the Alternative
Investment Market (AIM).

Listing on AIM was an important step
forward in the development of Gamma.
Being a listed business raises the
corporate profile of Gamma and PLC
status increases access to business
and public sector markets, both important
growth opportunities.

It was particularly pleasing to guide
the business on a smooth transition
from private to public ownership while
delivering such a strong trading
performance. The breadth and depth
of the broader Gamma management
team ensured that trading remained
undisturbed, with the business having
a record year.

Overall, revenue grew from £148.7m
in 2013 to £173.2m (+16%) whilst gross
profit improved from £53.9m to £67.6m
(+25%). Adjusted EBITDA grew by 34%
from £17.2m to £23.1m, while adjusted
profit before tax increased to £16.7m,
up 35% from £12.4m in 2013.

The outlook for Gamma remains positive,
and we look forward to continuing the
strong momentum in the business and
delivering sustainable long term value
for our stakeholders.

Channel partners
With almost 80% of Gamma’s revenues
coming indirectly from our channel
partners, we were very pleased to see
the number of partners that trade with
us grow from 627 to 725 during the
year. The clear trend amongst channel

operators to provide a much broader
range of business IT and communications
services has given us the opportunity
to work with a much wider range
of organisations, from IT specialists
to Systems Integrators. We have been
particularly pleased to help many of
our partners, including larger channel
partners such as Alternative Networks,
Capita IT, HighNet and Focus, to expand
their portfolios and grow their capability
in the UK business market.

Direct sales
The direct arm of Gamma’s business
grew rapidly, particularly in the larger
enterprise sector. This included
some significant wins, such as Hearst
Magazines, for whom the business
provides all data, voice and mobile
services. FCC Environment also selected
Gamma to implement and support, for
the next three years, a fully managed
next generation voice and data network
for their extensive estate. We were also
awarded major multi-year infrastructure
contracts from BDO LLP and Moore
Stephens LLP.

In the public sector, where we
see considerable scope for growth,
the business has been particularly
successful in the education sector,
adding 25 academic institutions that
include Oxford and Bristol Universities.
We also became approved suppliers of
fixed telephony services to public sector
organisations, being awarded one of
ten positions in the Crown Commercial

May I echo the Chairman’s
comment in thanking the
founding Shareholders
for their unstinting support
for the business for over
ten years.

Introducing our strategy
for growth, find out
more on page 14

Exploiting existing services

Infrastructure investment

Introducing new services

Developing the market

Execution

Service’s RM1035 framework. Gamma
also mirrored this in Scotland, being
one of eight approved suppliers of
telecommunications services via the
Scottish Procurement Framework.

creating both a one-stop-shop for service
and providing greater certainty on costs
for the customer. Indeed, for Horizon,
this bundling has extended to include
the fixed telephone handset.

Strategic products
Our strategic products of SIP Trunking
(business grade VoIP) and Horizon (our
hosted PBX service) have enjoyed
exceptional growth. Our SIP product –
which is a more flexible alternative
to traditional ISDN – grew by 45% from
161,000 to 234,000 channels during
2014. With the consistent investment
in automated processes that we have
made over several years, the business
has readily coped with order volumes
at times exceeding 10,000 channels
per month. During 2014 we introduced
a number of service enhancements,
including additional resilient options,
and new pricing initiatives that bundle
in the call minutes. Gamma is pleased to
be recognised as the current UK market
leader in SIP Trunking.

As businesses look to put more services
in the Cloud, the traditional PBX is being
seriously challenged by hosted services.
Gamma’s Horizon product has achieved
growth of 86% over the last year.
With over 80,000 connected handsets,
Gamma now has over 250 channel
partners accredited to sell the product.
With both SIP Trunking and Horizon,
the business has taken the significant
step of bundling both calls and access
connectivity into the service package;

Enabling products
Gamma’s enabling services of ethernet,
business-grade broadband, and mobile
also grew significantly during the year.
For example, the number of business-
grade broadband connections grew
from 20,000 to 29,000.

Traditional products
Margins on the traditional business, which
we define as conventional wholesale calls
and lines on TDM technology, increased
marginally over the year, ahead of the
general reduction in the market. We have
significantly reduced our role in carrying
traffic for the fixed line calling card
market, which is being steadily displaced
by targeted mobile offerings.

Corporate development
We were particularly pleased to finalise
the consideration paid on our 2012
acquisition of Varidion Limited at
£3.6m by paying £2.6m in the year.
This business unit, which provides more
bespoke services for larger organisations,
has performed exceptionally well since
becoming a part of the Gamma Group.
In 2014 it had revenues of £7.8m
and EBITDA of £1.4m. It is now being
integrated deeper into the organisation
in anticipation of strong growth in 2015
and beyond.

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements
Chief Executive Officer’s review

Welcome to Gamma’s
inaugural Annual Report
continued

Operational performance
With Gamma now providing services to
a growing proportion of UK businesses,
the quality of the operational services
is absolutely paramount, and an
area where the business seeks to
differentiate itself from its competitors.

Overall, across all Gamma products
the 2014 performance was above
the service levels offered, although
in a technical operation of our
scale there were inevitably a small
number of service glitches. In all
cases the business has been ruthless
in identifying and eliminating the
root causes. Overall, the service
trend has been one of continuous
improvement over several years.
Strong emphasis continues to
be placed on the quality of the
operational service, the elimination
of risk and improvements in security,
and to this end the business has
maintained its certification in both
ISO 27001 and ISO 22301. Surveys
of customer satisfaction have
provided very positive results, with
a Net Promoter Score (NPS) of +29%
for the indirect business and +22%
for the direct – both excellent results.

The performance of BT Openreach
continues to be of significant concern
and the greatest driver of complaints.

We are working with other BT
Openreach customers and the OTA
(Office of the Telecommunications
Adjudicator) to drive service
improvement for business customers.

The industry as a whole continues
to undergo major changes, such as the
proposed acquisition of EE by BT, much
of it driven by larger players looking
to take multiple service offerings to the
consumer market. Gamma, by contrast,
remains wholly focused on the UK
business market and the Channel
as an effective route to that market.

Bob Falconer
Chief Executive Officer

Regulatory
Gamma intervened in support of an
appeal brought by BT at the Supreme
Court regarding the termination rates
for non-geographic numbers; we were
pleased that the Supreme Court allowed
BT’s appeal. Gamma now awaits the
outcome of two follow-on cases before
the Competition Appeal Tribunal in
relation to its termination rates for
these calls.

Investments in product development
Over 2014 we continued our investment
in the core network. This latest
generation infrastructure will enable
more converged voice, data and software
services, to support the growth of the
business and reduce third party costs.

The business also continues to invest
heavily in product development, with
around 20% of the staff resources
allocated to this function. With a broad
product portfolio, much of the focus has
been on enhancing the current product
set. A key focus in the development of
the Horizon Cloud PBX was the addition
of soft clients for PCs and smartphones,
and the ability to interwork the Horizon
product with the customer’s internal
systems – enhancing the service from
a replacement telephony service to
a more unified communications solution.

We have also launched a voice business
continuity product enabling a business
to immediately redirect all its incoming
calls to a pre-prepared plan in the event
of difficulty.

In December 2014 we made an
opportunistic, but strategic, acquisition
of equipment that comprise the ‘core’ of
a mobile network, i.e. the equipment
which controls the voice and data
services used by a mobile subscriber.
We currently anticipate bringing those

assets into active use in 2016. This
will give us both a reduced cost of sale
and the ability to add more converged
fixed and mobile services for the UK
business market.

People
The average number of people in the
Gamma Group increased over the year
from 431 to 519 primarily to support
the growth in product volume and future
product development. In support of
this growth we entered into new leases
on properties in London and Glasgow
to cater for the continued expansion
of the business.

Once again Gamma was recognised
as one of “The Sunday Times 100 Best
Companies to Work For 2014”. As well
as aiding recruitment and retention,
the survey process has provided us with
valuable and detailed feedback from
our employees.

We were also pleased to receive the
industry awards for ‘Network Operator
of the Year 2014’ and ‘Best Fixed Line
Network Provider 2014’ from Comms
Business and Comms Dealer CNA awards
respectively.

Outlook
And so to 2015, where our core strategy
is to remain a leader in the high growth
sectors of the business communications
market (such as SIP Trunking and Cloud
PBX) underpinned by absolutely the best-
in-class in terms of quality of service and
with the best and most motivated staff
we can hire. We expect the volumes
to continue to grow in strategic markets
(SIP Trunking, Cloud PBX etc) and to
continue to decline in traditional services
(phone calls and lines), with our margins
continuing to migrate from traditional
to strategic.

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsStrategy for growth

Growing our profitability
and market share

This strategy will be principally
pursued organically, but Gamma
is also well placed to consider
strategically relevant acquisitions
as the opportunities arise.

Our vision is delivered
via five strategic pillars:

Exploiting existing services

Maintaining focus on the high-growth market opportunities
for services such as SIP Trunking and Cloud PBX.
Continuing to minimise the erosion of traditional services
in spite of anticipated market size reductions by offering
customers extra features and a migration path to strategic
services and enabling services.
Increasing ﬂexibility of approach to increase share of
customer spend over time as multiple services increasingly
procured from the same supplier and individual incumbent
contracts expire.

Infrastructure investment

Completing the infrastructure investment programme
currently underway in order to better position the business
to supply more converged services and multi-site data services.
Reducing cost by expanding the data network deeper into
the regulated BT Openreach exchanges.
Seeking commercial opportunities to expand and deepen
its technical capability in mobile services.

Introducing new services

Launching an MPLS data service in 2015 to address
the needs of larger multi-site organisations supported
by a single set of IT systems and Gamma’s portal.
Developing more converged services, and commercial
bundles of services, to meet the perceived demand for
such services in the UK business market.

Developing the market

Growing the number of channel partners Gamma works
with and deepening the relationship with existing channel
partners by providing attractive services and support.
Growing business in the public sector and gaining access
to further public sector framework agreements.

Growing Gamma’s brand awareness in the UK business
market in support of the above.

Execution

Maintaining our “Policy of One” in terms of underlying
systems.

Our objective
Gamma’s objective is to
continue to grow both its
market share and proﬁtability
by developing new innovative
communications products
for organisations.

Key performance
indicators
page 16

Innovation
case study:
Pret A Manger

Leading food retailer Pret A Manger
has signed a contract with Gamma for
the provision of a secure, PCI (Payment
Card Industry) compliant, managed
communications solution to deliver
mission-critical applications, such
as credit card, voice and VDI traffic,
to global datacentres and over 300
high street locations. The contract
will enable Pret to prioritise shop floor
applications, allowing for intelligent
use of bandwidth and secure passage
for important traffic like credit cards.
Furthermore, the network will be
optimised for compliancy and cross
border traffic flow, increasing
productivity and customer service
across the organisation. With an
inclusive 24/7 managed service
that removes burden and total cost
of ownership, Pret is able to take
advantage of a robust, secure and
scalable network and focus completely
on growing its successful business.

A key factor in choosing Gamma
to design, implement and manage
the communications service was
its service breadth and roadmap
philosophy, explained Andy Chalklin,
director of IT for Pret A Manger; “Our
basic requirement was a secure, reliable
data network that could prioritise and
deliver critical applications, help meet
our progressive compliancy needs,
specifically PCI, and provide the best
bandwidth for our budget and need.”

Andy Chalklin
Director of IT for Pret A Manger

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsKey performance indicators

Measuring our success

Strategy
page 14

Revenue (£m)

£173.2m

2014

2013

2012

173.2

148.7

137.2

Definition
Revenue from sales made to all
customers (excluding intra-group
sales which eliminate on
consolidation).

Outlook
Ongoing growth driven by increased
sales of strategic and enabling
products.

2014 Gross Profit (£m)

£67.6m

2014

2013

2012

67.6

53.9

44.9

Definition
Revenues less direct costs of
sales (excluding depreciation
on specific assets which is shown
as depreciation).

Outlook
Ongoing growth driven by increased
sales of strategic and enabling
products.

Gross Profit (%)

39.0%

2014

2013

2012

39.0

36.2

32.7

Net cash (£m)

£13.4m

2014

2013

2012

7.2

13.4

14.6

Definition
Gross Profit as a percentage
of revenue.

Outlook
Continued growth but slowing
as the product mix of strategic and
enabling versus traditional tends
to an equilibrium.

Definition
Cash and cash equivalents held at
the end of the year.

Outlook
The Group intends to maintain a
cash balance at this level subject
to any acquisition opportunities
that may arise.

Adjusted EBITDA (£m)

£23.1m

Definition
Adjusted earnings before interest,
taxation, depreciation and
amortisation stated before
exceptional items and share
based payment charges.

2014

2013

2012

17.2

14.4

23.1

Outlook
Continued growth.

Net operating cash flows (£m)

£16.4m

2014

2013

2012

9.2

16.4

14.0

Definition
Net cash flows from operating
activities.

Outlook
Growth in line with EBITDA –
cash conversion is expected to
remain strong.

Adjusted EAT (£m)

£14.0m

Definition
Adjusted earnings after tax is stated
after adjustment for exceptional items
and share based payments and the
tax effect of those items.

Adjusted EPS (£p)

15.0p

Definition
Adjusted earnings after tax divided by
the fully diluted number of shares.

Unadjusted earnings per share were
10.0p (2013: 9.9p).

14.0

Outlook
Continued growth is expected.

2014

2013

2012

10.1

7.7

2014

2013

2012

10.8

8.4

15.0

Outlook
Continued growth.

Performance metrics

Number of Hosted
Seats (‘000s)

Definition
Number of billed seats at end of year
on all of the Cloud PBX products.

2014

2013

2012 26

Outlook
Continued growth.

Number of SIP
Channels (‘000s)

234

2014

2013

2012

103

234

161

Principal risks
page 18

Definition
Number of billed SIP Channels at
end of the year.

Outlook
Continued growth.

Strategic and Enabling
Services as percentage
of Gross Margin (%)

65%

2014

2013

2012

Definition
Margin from strategic products
(Inbound, SIP Trunking and Cloud PBX)
and enabling products (Ethernet,
Broadband and Mobile) as a
percentage of the total margin.

Outlook
Continued growth.

Cross sell ratios
per channel
partner (%)

72%

Definition
The percentage of margin of our
wholesale business derived from
channel partners who are taking four
or more strategic or enabling products.

Outlook
Continued growth.

2014

2013

2012

Network availability (%)

Definition
Availability of strategic platforms.

Direct customer profile

99.997%

Outlook
Similar or improving.

Definition
Number of direct customers
generating monthly revenues of
above £5,000 at the end of the year.

Outlook
Continued growth.

2014

2013

2012

99.997

99.993

99.978

Customer satisfaction (%)

22.3%

2014

22.3

2013

2012 15.8

43.1

Definition
The Net Promoter Score of a
random selection of direct customers
measured quarterly and averaged
over the year.

Outlook
We expect our NPS score to remain
above 20%.

2014

2013

2012

Number of channel partners

725

2014

2013

2012

725

627

525

Definition
Number of wholesale channel
partners with monthly billing over
£500 at the end of the year.

Outlook
Continued growth.

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsPrincipal risks and uncertainties

Understanding the risks
that affect our Company

As with any business, Gamma is exposed
to a number of different risks. Whilst some
are clear and straightforward to manage,
others are less apparent and may be
outside Gamma’s direct control. Therefore
in all aspects of risk management we seek
out new risk areas continually, as well as
building contingency options into our plans
and processes.

To this end Gamma operates a robust and well established
structure for the identification, evaluation, monitoring and
mitigation of the potential risks to its performance. There is
a comprehensive operational governance structure, with
regular and documented meetings to track risks through
the four stages on opposite page. Each generic area of risk
(e.g. Regulatory) has clearly assigned accountability at Director
level within the management team, with reporting lines to
the CEO and ultimately the Board.

Gamma’s business is heavily reliant on the performance of
its network and associated application platforms. It ensures
that the network architecture and operational support
processes are robust and can cope with the vast majority
of failures without impacting customer service. Gamma holds
certification to ISO 27001, 22301 and ND 1643 which cover
the security and business continuity of its primary products,
as well as its core operational functions. Gamma carries out
a full set of business continuity rehearsals, covering both
technical failure and loss of access to physical locations.

The principal risks to the business are listed with
a short description of their potential impact and what we
are doing to mitigate them. This is not an exhaustive list
and, as described above, the risk profile to the business
is constantly evolving:

Risk

Description

Potential impact

Mitigating actions

Regulatory
environment

The UK’s telecommunications sector does
not have a “licence” requirement; it operates
under a General Authorisation regime whereby,
in combination with relevant UK and European
statute, the sector’s regulator outlines the
required compliance, which is presumed from
telecommunications companies such as us.

Security

By its very nature our network infrastructure
provides customers with open access to the
internet and global voice networks. As such there
is a risk from cyber threat and telephony fraud
as well as to the physical infrastructure.

Network
and systems
performance

Maintaining
customer
service levels

Reliable, high quality, voice and data services
are critical to any business and are the core
components of Gamma’s products. Therefore
maintaining very high levels of service
availability is central to any service provider’s
credibility in this market.

Communications services are critical to
businesses. The ability to order and deliver them
easily and get support quickly when something
goes wrong are key areas that any service
provider is assessed on when a customer is
placing business.

Increased
competition

Suppliers

New entrants or existing service providers
extend their product set to compete directly
with our products and services.

The business relies on a number of key suppliers
to provide elements of its products and services.

Key personnel

The business has grown rapidly over the
last few years, with very low staff turnover.
Therefore there are individuals that have
been instrumental in its development and
are important to its ongoing success.

Evolution
of technology
and markets

The communications market is constantly
evolving both in terms of the available
technologies and also in how people look
to purchase certain products.

Our activities within the UK can also be impacted by the decisions

Gamma mitigates this risk by continuing to monitor likely regulatory

of relevant legislative, regulatory and judicial bodies both domestically

changes; assessing their risk and potential impact; and engaging with

and in the European Union, with the primary potential impact of new

regulators as appropriate.

decisions being changes to buy and sale prices for products and the

way in which we are required to engage with our customers. Should our

activities be found to be in breach of the requirements of our General

Authorisation, the primary impact would be the cost of negative

publicity and any financial penalty levied.

A breach of security could have a significant impact on the Company’s

Gamma’s core infrastructure and operating capability is certified under

reputation and, in the case of telephony fraud, there could also be the

ISO 27001 for security. We have a proactive approach to identifying any

chance of significant commercial impact.

threat or attack and well proven procedures for neutralising such events.

If our network and systems perform below the market expectations

We operate a comprehensive operational governance framework to

then this will impact our ability to grow and sustain revenues.

manage the availability and performance of our services. This includes

Delivering poor customer service has two potential impacts: firstly on

We hold a monthly quality forum chaired by the CEO that reviews

our ability to sustain and grow revenues and, secondly, dealing with

performance across all parts of the business.

failure increases the costs of the support operation.

We also employ external agencies to carry out penetration testing on

our systems as well as carrying out our own security incident rehearsals.

Our fraud management applications aim to identify unusual traffic

patterns within a short space of time and we have a 24/7 operational

capability to then assess and mitigate the risk.

the design and architecture of our platforms, capacity planning, change

management, security, business continuity planning and rehearsals,

incident management and monitoring. This structure is subject to

external audit via our ISO 27001, ISO 22301 and ND 1643 certifications.

This takes into account direct customer feedback as well as providing

a mechanism for internal feedback between the business functions.

We also carry out regular customer surveys that focus on assessing

how straightforward we are to work with.

This may dilute the addressable market and slow down growth.

Gamma provides services which are more attractive to our customers

than those of competitors.

Failure of one of these suppliers to perform may have an impact

Where possible we avoid reliance upon a single supplier for a particular

on our ability to deliver products and services.

element of our service, and ensure key supplier contracts have

appropriate clauses in place to assure their performance.

Loss of key individuals could have an impact on the business’

The business has a well-established team and a reputation for being

continuing development.

a good employer. In 2014, it came 29th in ‘The Sunday Times Best 100

Companies To Work For’ ranking. This process involves a comprehensive

staff survey, the feedback from which is actively reviewed and

addressed by the senior management team.

If the business does not at least keep pace with this evolving market

Gamma plans, develops and markets products which match the

then its plans for growth may be impacted.

evolution of market demand and of relevant technologies, and develops

its core platforms to support these products.

Risk management process

Identiﬁcation
Risks recorded
in controlled
risk registers

Evaluation
Risk exposure
reviewed and
prioritised

Mitigation
Risk owners identiﬁed
and action plans
implemented. Robust
mitigation strategy
subject to regular and
rigorous review

Monitoring
Risks analysed for
impact and probability
to determine
gross exposure

Strategy
page 14

Regulatory

environment

The UK’s telecommunications sector does

not have a “licence” requirement; it operates

under a General Authorisation regime whereby,

in combination with relevant UK and European

statute, the sector’s regulator outlines the

required compliance, which is presumed from

telecommunications companies such as us.

Security

By its very nature our network infrastructure

provides customers with open access to the

internet and global voice networks. As such there

is a risk from cyber threat and telephony fraud

as well as to the physical infrastructure.

Network

and systems

performance

Maintaining

customer

service levels

Increased

competition

Suppliers

Reliable, high quality, voice and data services

are critical to any business and are the core

components of Gamma’s products. Therefore

maintaining very high levels of service

availability is central to any service provider’s

credibility in this market.

Communications services are critical to

businesses. The ability to order and deliver them

easily and get support quickly when something

goes wrong are key areas that any service

provider is assessed on when a customer is

placing business.

New entrants or existing service providers

extend their product set to compete directly

with our products and services.

Key personnel

The business has grown rapidly over the

last few years, with very low staff turnover.

Therefore there are individuals that have

been instrumental in its development and

are important to its ongoing success.

Evolution

of technology

and markets

The communications market is constantly

evolving both in terms of the available

technologies and also in how people look

to purchase certain products.

Risk

Description

Potential impact

Mitigating actions

Our activities within the UK can also be impacted by the decisions
of relevant legislative, regulatory and judicial bodies both domestically
and in the European Union, with the primary potential impact of new
decisions being changes to buy and sale prices for products and the
way in which we are required to engage with our customers. Should our
activities be found to be in breach of the requirements of our General
Authorisation, the primary impact would be the cost of negative
publicity and any financial penalty levied.

Gamma mitigates this risk by continuing to monitor likely regulatory
changes; assessing their risk and potential impact; and engaging with
regulators as appropriate.

A breach of security could have a significant impact on the Company’s
reputation and, in the case of telephony fraud, there could also be the
chance of significant commercial impact.

Gamma’s core infrastructure and operating capability is certified under
ISO 27001 for security. We have a proactive approach to identifying any
threat or attack and well proven procedures for neutralising such events.

If our network and systems perform below the market expectations
then this will impact our ability to grow and sustain revenues.

Delivering poor customer service has two potential impacts: firstly on
our ability to sustain and grow revenues and, secondly, dealing with
failure increases the costs of the support operation.

This may dilute the addressable market and slow down growth.

The business relies on a number of key suppliers

to provide elements of its products and services.

Failure of one of these suppliers to perform may have an impact
on our ability to deliver products and services.

Loss of key individuals could have an impact on the business’
continuing development.

If the business does not at least keep pace with this evolving market
then its plans for growth may be impacted.

We also employ external agencies to carry out penetration testing on
our systems as well as carrying out our own security incident rehearsals.

Our fraud management applications aim to identify unusual traffic
patterns within a short space of time and we have a 24/7 operational
capability to then assess and mitigate the risk.

We operate a comprehensive operational governance framework to
manage the availability and performance of our services. This includes
the design and architecture of our platforms, capacity planning, change
management, security, business continuity planning and rehearsals,
incident management and monitoring. This structure is subject to
external audit via our ISO 27001, ISO 22301 and ND 1643 certifications.

We hold a monthly quality forum chaired by the CEO that reviews
performance across all parts of the business.

This takes into account direct customer feedback as well as providing
a mechanism for internal feedback between the business functions.
We also carry out regular customer surveys that focus on assessing
how straightforward we are to work with.

Gamma provides services which are more attractive to our customers
than those of competitors.

Where possible we avoid reliance upon a single supplier for a particular
element of our service, and ensure key supplier contracts have
appropriate clauses in place to assure their performance.

The business has a well-established team and a reputation for being
a good employer. In 2014, it came 29th in ‘The Sunday Times Best 100
Companies To Work For’ ranking. This process involves a comprehensive
staff survey, the feedback from which is actively reviewed and
addressed by the senior management team.

Gamma plans, develops and markets products which match the
evolution of market demand and of relevant technologies, and develops
its core platforms to support these products.

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements

Business Unit review

We divide our business
into our channel and direct
business units that serve
different markets from
a core portfolio of services.

2020

Indirect Channel

The largest part of our
business, and very much the
core of what we do; providing
services to the UK business
community through 725
channel partners. We work
closely with these partners
to help them succeed. In turn
they are loyal and growing
in number. The channel route
to market comprises 79% of
Group revenues.

More on page 24

Gamma Communications plc
Annual Report and Accounts 2014

2121

Strategic reportCorporate governanceFinancial statementsBusiness Unit review

1Indirect Channel

Business Unit

The business has grown revenues 15%
year on year, and gross profit is up 23%
to £52.4m. Main drivers of profit growth
have been the increase in number of
partners and also the favourable change
in product mix whereby more higher
margin services (SIP Trunking, Horizon
and Inbound) are replacing the lower
margin traditional services. Our Cloud PBX,
Horizon, has been a star service in 2014
with over 34% of our partners actively
selling the service to their customers.

Gamma grew the number of active
partners from 627 to 725 during 2014.
We continue to be pleasantly surprised by
the breadth and capability of new channel
partners – both in terms of their scale and
their core business activities. We were
particularly pleased to sign up significantly
more Microsoft Gold Partners and Systems
Integrators, as well as IT Specialists and
Unified Communications providers.
This diversity and breadth of the business
models of new channel partners confirms
the convergence of IT and telecoms, and
our industry’s appetite to broaden service
portfolios. To support the growth in
partners, our sales team grew by 34%

over the year. 24% of our new sales staff
were internally promoted, and over 40%
of our sales team have been with Gamma
for more than five years, with 14% over
ten years.

As ever, we have worked hard on
deepening the relationship with our
partners to ensure we are well connected
right across their business and supporting
all relevant aspects of their operations.
Over the year we ran sales training
sessions, operational workshops to
support our partners’ back office staff,
and regular webinars on product,
market issues, and important regulatory
information. Our accreditation schemes
on key products continued apace, with
over 850 individuals trained during the
year. All of these activities combined
to help generate a depth of relationship
that hopefully puts Gamma at the core
of our partners’ business; creating long
term partnerships as opposed to short
term transactional relationships.

Major partners during the year included
companies such as Alternative Networks,
Azzurri, Daisy, Capita IT, Focus, HighNet

Looking ahead to 2015, we plan to:

→ Successfully launch our MPLS data product through

the channel

→ Continue to grow the number of channel partners in

emerging segments

→ Increase the level of business from Microsoft partners

and Systems Integrators as a % of the whole

→ Increase cross sell ratios into the partner base

→ Work with our strategic partners to help them grow

their businesses

The largest part of our
business, and very much
at the heart of what we do;
providing services to over
725 channel partners across
the UK. These partners work
closely with us, are loyal,
and growing in number.
The channel business is close
to 80% of Group revenues.

15%

Revenue grew 15% over the year

Gamma added 98 new actively
trading channel partners in 2014

‘Simplicity’ is Gamma’s white label
telecoms service, enabling Gamma to
provide all, or part, of the service that
the partner would normally provide,
such as billing and first line support,
whilst the partner retains the contractual
relationship. In 2014 this has been
particularly successful, enabling Gamma
to partner with businesses that have
strong customer relationships, expertise
in related areas, but little appetite or
capability for providing these services.

and Sabio. We continue to benefit from
a broad spread of customers and low
customer concentration. Our top ten
partners accounted for 26% of total
revenues at the end of 2014.

We have continued to develop our
commercial frameworks with partners to
build stronger, longer-term and mutually
beneficial relationships, increasing our
visibility of forward revenues.

One relationship we’re looking to develop
positively is our partnership with O2,
focusing on helping them take SIP
Trunking and Cloud PBX into their
business market. We have had a number
of significant wins with O2 this year,
including the University of Edinburgh,
Carillion and Swinton Insurance.

Channel case study:
TIC/Rapid Communications

“ We’ve known about Gamma as a
SIP provider for a number of years,
but decided this year to take them on
board as a strategic supplier and really
wish we’d made this decision a long time
ago. They’re easy to do business with,
their portal is fantastic to order and
manage services from, and they seem
to be a really enthusiastic bunch of
people who enjoy working for Gamma.”

Julie Purdie
Director, TIC/Rapid Communications, a new Gamma partner in
2014 selling SIP Trunking and hosted services in the Midlands

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsBusiness Unit review

2 Direct Channel

Business Unit

Just over 20% of our
revenue is derived from
direct sales into the
business market.

We find that some customers,
particularly larger enterprises, prefer,
indeed insist on, working directly with
the network bearing operator, or have
very specific requirements that require
a more tailored response, such as the
public sector. This is where our direct
capability is most focused.

It was a strong year for this side of
our business with a number of big
wins, including BDO, the London Stock
Exchange, Hearst Magazines and Moore
Stephens all signing, with an average
contract length of three years. The
managed service offering across voice,
data and mobile has proven very
successful in the enterprise space.

Our penetration of the public sector
market, and in particular the education
sector, continues apace. In 2014,
a further 19 universities and colleges
became direct Gamma customers

including Oxford, LSE, Bristol and Ulster
Universities, taking the total number
of universities to which Gamma directly
supplies services to 33.

Gamma became one of ten service
providers selected by the Crown
Commercial Services to supply
telecommunication services to any
public sector organisations under
the RM1035 framework. We were also
awarded one of eight positions on the
Scottish Government’s Fixed Telephony
Services Framework, allowing Gamma
to provide services to any public sector
organisation in Scotland.

We also won managed service contracts
with two of the largest London housing
trusts, Catalyst and East Thames Group.

Over 65% of our new enterprise
and public sector contracts were for
converged services (data and voice).

SME/Mid-Market case study:
Thrifty Car & Van Rental UK

“With Gamma we have been able to
achieve a complete communications
solution. We now have all our services
under one roof and have managed to
make continued cost savings across our
telephony estate. We’ve been impressed
with the continued professionalism
Gamma have shown throughout the
transfer and wouldn’t hesitate to
recommend them to anyone looking
for a truly unified solution.”

Rob Parsons
Finance Director, Thrifty Car & Van Rental UK

Customer service continues to be at
the heart of our proposition and we track
our performance quarterly with CSAT
surveys, using the Net Promoter Score
methodology as a method of quantifying
and tracking our customers’ perceptions
on service. Our average score for the year
across four quarters of measurement
was 22.3.

Churn has reduced over the year in
terms of gross profit, and, on average,
new customers are double the size
of those leaving. Many of our larger
customers have re-signed contracts
in 2014, including American Golf who
have a signed a five year agreement for
a data network and Cloud PBX solution,
and Hinduja Global Systems.

Contract lengths have increased by
approximately 12% on average in all
product classes over 2014.

At the same time in this segment of the
business, we had zero churn.

In the mid-market and SME sector,
growth has been strong with a greater
emphasis on Cloud PBX and SIP Trunking,
in line with the rest of the business. This
has been key to increasing revenue
and profitability, as usage on traditional
services from existing customers
continues to fall, due primarily to fixed
to mobile substitution. The underlying
service mix is changing significantly from
traditional services to strategic services,
with additional benefits of longer
contract lengths and higher margins.

This is borne out by both revenue and
margin per customer increasing by 10%
over the year.

A major area of success in the market
has been winning voice and data
business in the multi-sited business
sector. From a small business with three
sites, to a national business with 80+
sites throughout the UK, our strategic
services really lend themselves to giving
businesses an operational flexibility in
how they manage their customers’ calls
without significant capital outlay. This is
why businesses such as West Bromwich
Building Society, Haymarket Media, Home
Energy, and Concur Technologies have
become Gamma customers in 2014.

Looking ahead to 2015, we plan to:

→ Increase the average size of direct customers and

new contracts

→ Build market share in the public sector by maximising

opportunities from our framework contracts

→ Continue to have a CSAT Net Promoter Score above 20%

→ Push Cloud PBX and SIP Trunking harder into the

mid market

Enterprise and
Public Sector
case study

“It’s refreshing to have
a service where we can
scale our lines up and
down when we want
at key times of the year
without the hassle of
having to plan ahead.
Gamma has given us
the freedom to control
how we want to
manage our numbers.”

IT Manager, a major local authority

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsFinancial review

Excellent financial
performance in 2014

Highlights

£173.2m
+16%

Overall revenue grew from
£148.7m in 2013 to £173.2m

£23.1m
+34%

Overall EBITDA before
exceptional items and share
based payments grew from
£17.2m in 2013 to £23.1m

£16.4m
+£2.4m

Cashflow from operating activities
grew from £14.0m to £16.4m

£15.0p
+4.2p

Adjusted EPS grew from 10.8p
to 15.0p

Revenue
Indirect Business
Revenue from the indirect business
grew from £119.0m to £136.9m and
gross profit grew from £42.6m to
£52.4m – an increase of just under
£10m of gross profit year on year, which
is the highest annual increase in gross
profit in the history of the Group.

Unlike many of Gamma’s peers, the
performance of the traditional business
(which includes calls and lines and trade
with other carriers) bucked the industry
trend of decline and showed a small
increase in gross profit, despite revenue
declining, as a consequence of reductions
in the cost base which were reflected in
lower pricing. Gamma continues to attract
traditional business as a by-product from
channel partners who want access to our
new products such as Cloud PBX and SIP
Trunking. The number of channel partners
actively trading with Gamma increased
from 627 at the start of the year to 725
by the end of the year. These customers
come to Gamma for our newer products
but often bring their traditional business
with them.

The percentage of gross profit coming
from channel partners who buy four or
more products (excluding traditional calls
and lines) from Gamma grew from 62%
to 72%. Both the increase in channel
partners and the fact that channel
partners are selling more products meant
that the revenue from new product sales
increased from £51.2m to £72.4m
and gross profit grew from £24.7m to
£33.6m. The main contributor to this
growth was SIP Trunking. The percentage
profit on sales of new product to channel
partners fell slightly due to a changing
mix from strategic products to enabling
products as well as more competitive
pricing on Cloud PBX as Gamma seeks
to establish a significant market share
in this important area for future growth.

Andrew Belshaw describes
a positive set of results
for 2014 as Gamma reports
for the first time as a
listed group.

Direct Business
The direct business has also had a year
of unprecedented growth. Revenue
increased from £29.7m in 2013 to £36.3m
and gross profit from £11.3m to £15.2m.
As for the indirect business, the growth
was attributable to sales of new product
and profit on these products grew from
£5.7m to £10.6m. This includes multi-
product solution sales to larger enterprises
made by Gamma Network Solutions
Limited. This is particularly pleasing
because much of the new business is
won on multi-year contracts.

Operating expenses
Operating expenses before exceptional
items and share based payments grew
from £41.5m to £50.9m. This was due to
increased headcount required to support
the growth in the number of customers
switching to new products for the first time.
We also continue to increase our investment
in product development and, whilst internal
spend of £0.9m was capitalised in the year,
we spent more on the research and initial
development of new product offerings and
variants on our existing product set as we
continue to build for the future. The Group
continues to invest in its systems to ensure
that as sales increase, the number of
customer service personnel required
does not increase at the same rate.

Adjusted EBITDA
The combination of increasing sales
of new products and operational
improvements means that adjusted
EBITDA grew from £17.2m to £23.1m
or 34% – an impressive performance.

Exceptional items and share
based payments
There were a number of exceptional items
which included the cost of the flotation
(£1.2m) and a small charge for re-
structuring (£0.2m). In addition there was
an exceptional charge (£0.6m) relating to
the variation in the fair value of the
deferred consideration in respect of the
acquisition of Varidion Limited in 2012.
The original deferred payment plan

extended as far as 2017 but the Board
took the opportunity to settle this early.
This enables management to focus on
maximising the growth opportunities.
The Group has ultimately paid £3.6m
for a business which had an EBITDA of
£1.4m in 2014, which the Board believes
represents excellent value.

Capital expenditure
Capital spend was higher than expected.
The Board is constantly seeking
opportunities which meet the Group’s
strategic goals and one such opportunity
was realised at short notice in the final
quarter of 2014 when the Group was able
to acquire the assets for a mobile platform.

Share based payment charges for the year
were £3.2m and are expected to continue
at approximately this level for the next
two years as options issued to the senior
management team pre-flotation vest over
a three year period.

Cash flows
The cash balance at the end of the
year was £13.4m, which is down from
£14.6m at the end of the previous year.
Notwithstanding this, trading cash flows
were good and the cash conversion of
EBITDA into net cash flow from operating
activities was 92%.

Capital spend for the year was £12.1m,
which is an increase from £5.9m in the
previous year and this is discussed below.

In addition to a higher than anticipated
capital spend, there were a number of
exceptional cash flows:

→ £2.6m was paid as deferred

consideration for the acquisition
of Varidion Limited in 2012;

→ As a result of the IPO process a loan

was made to the Chief Executive which
resulted in net cash outflows of £1.0m;

→ The former Chief Financial Officer

settled some share options for a cash
payment of £1.3m;

→ On IPO, staff awards under a Shadow
Share Option scheme crystallised
which totalled £1.0m.

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 or an acquisition.

The Group spent £12.1m on capital which
was split as follows:

→ £8.8m was on network assets which
is higher than the historical run rate
due to investment in the network and
the mobile platform referred to above;

→ £0.9m was the capitalisation of

development costs incurred during
the year;

→ £1.0m was on customer premises
equipment (“CPE”); this is “success
based” expenditure and is expected to
increase in line with sales growth; and

→ £1.4m of other assets.

Taxation
The effective tax rate for the year was
18.3% (2013: 19.1%). The low tax rate is
attributable to the fact that the Group
enjoys significant research and development
tax credits. However, for 2015 and onwards
the Group will have moved into the large
company regime which will result in a
reduced level of benefit and therefore a
higher effective rate.

Dividends
Gamma’s share capital was admitted to
AIM in October 2014 and was therefore
publicly traded for the final quarter only.
The Board has proposed a final dividend
of 3.95p representing a pro-forma, post
admission full year dividend of 5.93p per
share. The final dividend is payable in late
June to shareholders registered on 5 June
2015 and will have an ex-dividend date
of 4 June 2015.

Andrew Belshaw
Finance Director

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsCorporate social responsibility

Peerless efficiency and
a top 100 employer

The Gamma culture is a
hard thing to put into words,
but it has been instrumental
in the growth and success
of the business to date. It is
best summarised as having
trust in staff, delegating as
far as possible, and creating
an informal, constructive
environment where the
organisation chart has little
value. We put a lot of time
and effort into trying to
be different from the larger
companies we compete
against, and protecting
our culture as we expand
is a key part of that.

Communicating with staff is obviously
paramount in maintaining an involved
and informed group of employees.
We have quarterly conference calls
across the whole Company where the
management team individually brief
the staff, supported by regular staff
newsletters, CEO briefings (by location)
and an annual survey (see Best
Companies to Work For).

Our staff churn across the business
is low relative to industry norms,
and particularly so in our customer
service teams where knowledgeable,
experienced staff are so vital to offering
good customer service. Wherever
we can, our preference is to grow our
own staff from graduates or apprentices.
In sales, for example, our strategy is
to recruit graduates as desk-based
support staff, developing them into
sales and ultimately sales management.
The average tenure of our sales staff
is well over five years, with many of
our sales management having been
with us for over ten years.

The business also offers staff a choice
in terms of flexible benefits. This includes
gym membership, dental and health
plans, childcare vouchers, cycle to
work schemes and shopping discounts.

We believe this flexibility gives our
employees freedom and choice in
selecting a customised basket of benefits
to suit their specific needs and individual
lifestyle. We also aim to provide a degree
of peace-of-mind for our people through
the provision of income protection
and life assurance policies. For those
employees juggling work, family or carer
commitments, or trying to enhance their
work/life balance, we provide the option
for them to purchase additional holidays.

Staff learning and development remains
a key priority for Gamma. It helps us
to maximise the potential of our people,
retain skills, and grow the business.
As a technically based business in a fast
changing market we need to keep our
people’s skills up to date and give them
the opportunity to grow and develop
as best they can. Fortunately, as a fast
growing business we are well placed to
do just that. A wide range of learning and
development opportunities are available
to all and many employees are funded
by Gamma to undertake Masters
level courses and other professional
development courses.

The Environment
and CarbonNeutral®

Chosen
charity

We made a commitment to reducing carbon footprint across our network back
in 2006, through investment in the efficiency of our IP based network and
other assets as well as an active offset management programme. This means
Gamma is a fully certified CarbonNeutral® company, making us one of the
few communications providers in the UK to have a net zero carbon footprint.

We are proud to support the
Woodland Trust, an organisation
dedicated to the protection and
promotion of natural woodlands
across the UK.

Apprenticeships

Volunteering Policy

Gamma continues to welcome and assist apprentices to
gain invaluable work experience, continue their education
and gain nationally recognised qualifications. With
apprentices currently employed in IT, Infrastructure
Support, Software Development and Customer Service,
we have a good track record of offering permanent
employment at the end of the apprenticeships.

Gamma actively encourages and supports employees
who wish to volunteer within the community or for
charities. Supporting volunteers helps the Company
to build relationships with the local community and
improves its perception within it. Employees who
do volunteering work can use the skills that they have
developed at work to help in the community, or learn
new skills, such as leadership, helping to improve their
morale, physical health and overall work-life balance.

Best Companies to
Work For, sponsored
by the Sunday Times

The Sunday Times Best Companies to Work For
2014 recognises the opinion of Britain’s motivated
workforces and it is widely acknowledged as the
most searching and extensive research into employee
engagement carried out in this country. All the scores
and ratings that are assessed to compile the lists
are based on employee opinions and companies
are scored in the following categories: The Sunday
Times 100 Best Small Companies to Work For
(SMEs of up to 250 employees), 100 Best Companies
to Work For in the 250–4,999 employee range, the
25 Best Big Companies to Work For with 5,000-plus
in the workforce and the 100 Best Not-for-Profit
Organisations to Work For. In 2014 Gamma was
voted the ‘29th Best Company to Work For’.

Policy on staff support
for good causes

Gamma operates a policy of “matched funding”
for all qualifying staff charity activities in addition
to supporting the Woodland Trust. In 2014 we also
ran two charity events with our customers – car rallying
and cycling. The Charity Mountain Bike event raised
£5,000 for the Samaritans and Rays of Sunshine whilst
the Gammaball Rally raised a staggering £100,000
for HoneyPot and ATE (Action Through Enterprise).

The Strategic Report was approved by the Board of Directors on
19 March 2015.

Andrew Belshaw
Finance Director

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsCorporate governance

Chairman’s introduction
to corporate governance

The Directors do not comply with the
UK Corporate Governance Code in all
respects. We have reported on our
Corporate Governance arrangements
by drawing upon best practice available,
including those aspects of the UK
Corporate Governance Code we consider
to be relevant to the Company and
best practice.

The Board comprises seven Directors,
two of whom are Executive Directors
and five of whom are Non-Executive
Directors, reflecting a blend of different
experience and backgrounds. Of the
Non-Executive Directors, the Group
regards Richard Last, Alan Gibbins
and Martin Lea as Independent
Non-Executive Directors within
the meaning of the UK Corporate
Governance Code 2014.

The Board meets regularly to consider
strategy, performance and the framework
of internal controls. To enable the Board
to discharge its duties, all Directors receive
appropriate and timely information.
Briefing papers are distributed to all
Directors in advance of Board meetings.

The Company has established Audit,
Nomination and Remuneration
Committees of the Board with formally
delegated duties and responsibilities.
The Company’s commitment to
strong corporate governance and risk
management will remain central to
the business during 2015 and beyond.

The Board recognises that
sound corporate governance
is an essential underpinning
for a growing, publicly-
quoted business, and is
committed to ensuring
the integrity of both its
processes and of those
of the Company as a whole.

Corporate governance framework

The Board has a coherent corporate governance framework,
as illustrated below, with clearly defined responsibilities and
accountabilities designed to safeguard and enhance long-term
shareholder value and provide a robust platform to realise
the Company’s strategy.

Board of Directors
page 32

Board of
Directors

Richard Last
Chairman and Independent
Non-Executive Director

Bob Falconer
Chief Executive Officer

Andrew Belshaw
Finance Director

Alan Gibbins
Independent
Non-Executive Director

Martin Lea
Independent
Non-Executive Director

Andrew Stone
Non-Independent
Non-Executive Director

Wu Long Peng
Non-Independent
Non-Executive Director

Audit Committee
Chaired by Alan Gibbins.
Members: Richard Last and Martin Lea.

Nomination Committee
Chaired by Richard Last.
Members: Martin Lea, Alan Gibbins,
Wu Long Peng and Andrew Stone.

Remuneration Committee
Chaired by Martin Lea.
Members: Richard Last and Alan Gibbins.

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsBoard of Directors

An experienced Board

We have an experienced
Board which blends industry
expertise, with public
company experience and
the knowledge and skills
of our long standing
shareholders.

1 Richard Last
Chairman and Independent
Non-Executive Director
Richard is currently Chairman and
Non-Executive Director of Servelec Group
plc, a UK-based technology group and
of British Smaller Companies VCT 2 plc,
a venture capital trust, both listed on
the London Stock Exchange. Richard
is also Chairman and Non-Executive
Director of AIM listed Arcontech Group
plc, a financial services software
company and of Lighthouse Group plc,
an AIM quoted financial services group.
He is also a Non-Executive Director of
Corero Network Security plc, an AIM
quoted IT security solutions provider
and a number of private companies.

Richard is a Fellow of the Institute
of Chartered Accountants in England
and Wales.

2 Bob Falconer
Chief Executive Officer
Bob began his career at BT’s Research
Laboratories before joining ICI in 1987,
rising to become the global telecoms
manager for the group. In 1994 Bob took
a directorship at Racal Network Services
(later Racal Telecom and Global Crossing
UK) where he stayed until 2002, during
which time he was responsible for group
operations. Bob joined Gamma in 2003 as
COO before being appointed CEO in 2004.

Bob has a BSc in Electrical and Electronic
Engineering from Heriot-Watt University,
Edinburgh and is a Fellow of the
Institution of Engineering and Technology.

7 Wu Long Peng
Non-Independent Non-Executive Director
Long Peng has more than 30 years’
experience in finance and corporate
affairs. He is an Executive Director of
Kuok (Singapore) Limited, Pacific Carriers
Limited and Malaysian Bulk Carriers
Berhad (a company listed on Bursa
Malaysia). He is also a Non-Executive
Director of Pacc Offshore Services
Holdings Limited (a company listed on
the Singapore Exchange) and a Director
of Epsilon Global Communications
Pte Ltd. Long Peng joined the Board
of Gamma in 2011.

Long Peng is a Fellow Member of
the Association of Chartered Certified
Accountants in the United Kingdom
and a member of the Institute of
Singapore Chartered Accountants.

3 Andrew Belshaw
Finance Director
Andrew has been Finance Director
of Gamma since 2007 and was
appointed to the Board in October
2014. A Chartered Accountant by
background, he has worked in both
audit and corporate finance at Deloitte
and Ernst & Young, specialising in
providing advice to a wide range of
clients in the technology sector. After
leaving private practice, Andrew worked
alongside the Commercial Director in
a new business development role at
Xansa plc before joining Gamma.

Andrew has a degree in Maths from St
John’s College, Cambridge and gained an
MBA from Warwick University Business
School. He is a Fellow of the Institute
of Chartered Accountants in England
and Wales.

4 Alan Gibbins
Independent Non-Executive Director
Alan has extensive experience of public
company reporting and financial services
spanning 30 years with Price Waterhouse
and PricewaterhouseCoopers LLP, having
been a Partner from 1985 until 2006.
His responsibilities included one of the
main London audit groups and he was
an Audit and Business Assurance Partner.
Alan has been a Non-Executive Director
and Audit Committee Chairman for
BlueBay Asset Management plc as well
as being a Non-Executive Director for a
number of private companies. Alan joined
Gamma in June 2014 and is Chairman of
the Audit Committee.

Alan has an MA in Modern History from
Lincoln College, Oxford and is a member
of the Institute of Chartered Accountants
in England and Wales.

5 Martin Lea
Independent Non-Executive Director
Martin has over 20 years’ experience
leading businesses within the support
services, telecommunications and
network, integration and service sectors.
Most recently, he served as interim CEO
at Multicom Security Group, Sweden’s
leading provider of monitored alarm
transmission services, and was President
and CEO of Invitel from 2004 to 2011,
during which time it grew to become
Hungary’s second largest fixed line
operator. Prior to Invitel, Martin was
Executive Vice President of Intertek
Group plc and Managing Director of
Racal Telecom, a national UK alternative
telecom operator and managed service
provider. Martin joined Gamma in
June 2014 and is Chairman of the
Remuneration Committee.

Martin has a BA 1st class (hons) degree
in Business Studies, and is a Fellow of
the Institute of Directors.

6 Andrew Stone
Non-Independent Non-Executive Director
Andrew is a founding Director of
Greenstone+ Ltd (formerly Greenstone
Carbon Management Ltd) and was
previously a Non-Executive Director
of Armajaro Trading Ltd, a global soft
commodity trading house, from 2011
until 2012 when he was appointed Global
Head of Commodities and one of the
CEOs from January 2013 to July 2013.
Andrew has also acted as Non-Executive
Director at Openfield plc, one of the UK’s
largest grain marketing organisations.
From 1993 to 2006, Andrew was
employed at ED&F Man in a variety
of senior positions including Managing
Director of ED&F Man Asia, and a director
of both SIS 88 Pte Ltd and Asian Blending
Pte Ltd. He is also a Director of Epsilon
Global Communications Pte Ltd.

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsSenior management

Robust leadership

The Gamma management
team has many years’
experience in both Gamma
and the communications
industry. The average
tenure at Gamma is over
eight years. Commitment,
knowledge and a passion
for Gamma are what drives
this team.

1 Richard Bligh
Group Marketing Director
Richard joined Gamma in 2004 and has
nearly 20 years’ telecoms experience
in a variety of marketing and business
development Vice President roles. These
include UK and international experience
in ECI Conferencing, Intertek plc, Global
Crossing and Racal Telecom. Richard
has extensive experience of business
markets from serving multinational
corporates to selling via the channel.

Richard is a graduate of Cardiff University
and a member of the Chartered Institute
of Marketing.

2 Andy Morris
Group Operations Director
Andy joined Gamma in 2006 with
a proven track record of establishing
and running high quality, customer
orientated operations. Previously
at Cable & Wireless he successfully
ran a business unit responsible for 12
of Cable and Wireless’ largest corporate
customers including Marks and Spencer
and Alliance & Leicester. Prior to that
he was involved with a number of
telecoms start ups both in the UK and
across a number of European countries.

He spent the early part of his career
with GEC Marconi Aerospace and is an
engineering graduate of Nottingham
Trent University.

7 Alan Mackie
Product Director
Alan has over 20 years’ experience in
the telecoms and data managed services
industry, in senior product management,
marketing and project management
roles. Immediately prior to his current
role, Alan was Head of Voice Services
at Gamma, having undertaken product/
project management roles at application
hosting companies Aspective and Global
Crossing earlier in his career.

Alan is a graduate of Napier University,
with a degree in Communications
Engineering.

5 Malcolm Goddard
Group Commercial Director and
Company Secretary
Malcolm joined Gamma in 2005 bringing
over 15 years’ experience in mergers and
acquisitions, multinational procurement,
business management and IT outsourcing.

Malcolm’s early career was with ICI and
AstraZeneca, and he has a degree in
Engineering from Cambridge University.

6 David Macfarlane
Managing Director – Gamma
Network Solutions
David joined Gamma in 2012 following
Gamma’s acquisition of his managed
services business Varidion Limited
and now heads up our enterprise
solutions division.

Prior to this, David was the CTO at
Sirocom and laterally the Group CTO
at Azzurri Communications and has
over 25 years’ experience in creating
and delivering managed services.

3 John Haw
Sales Director
John was promoted to Sales Director
after successfully developing the
system integrator and VAR channel
for Gamma. A university graduate
with a degree in Business Studies,
John has had a successful career in
telecoms sales, including positions
with MCI and Vodafone.

He has nearly 20 years’ experience
in channel sales and development.

4 Paul Peel
Development Programme Director
Paul joined the leadership team as
its Programme Director having spent
over 20 years managing programmes
and projects in technology intensive
industries. A graduate of the RMA
Sandhurst, he spent his early years
in telecoms with the Royal Signals,
completing a degree in Electronic
Systems Engineering en route. He
joined Gamma from General Dynamics
in 2003 since when he has been
involved in delivering many of
Gamma’s significant business
transformation projects.

He has an MBA and Masters degrees
from King’s College London and Cranfield
University. He is also a Member of the
British Computer Society, reflecting
his wider role at the head of Gamma’s
software development teams.

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsCorporate governance

Corporate governance report

All Directors have access to the advice and services of the
Company Secretary, who is responsible to the Board for ensuring
that Board procedures are followed and that applicable rules
and regulations are complied with. In addition, the Company
Secretary will ensure that the Directors receive appropriate
training as necessary. The appointment and removal of the
Company Secretary is a matter for the Board as a whole. All
Directors are supplied with information in a timely manner in a
form, and of a quality, appropriate to enable them to discharge
their duties.

Since the impact Board meeting on 2 October 2014, there have
been three further Board meetings during the year. The
following is a table of attendance:

Executive Directors

Bob Falconer

Andrew Belshaw

Non-Executive Directors

Richard Last (Independent)

Alan Gibbins (Independent)

Martin Lea (Independent)

Wu Long Peng

Andrew Stone

Board
Meeting

Audit
Committee

Remuneration
Committee

3/3

N/A

3/3

N/A

3/3

N/A

Details of Directors who ceased to hold office prior to flotation
have been omitted.

During 2014, certain Directors who were not committee
members attended meetings of the Audit Committee and
Remuneration Committee by invitation. These details have not
been included in the table. Where a Director is unable to attend
meetings of the Board or of Board committees, such Director
is invited to review the relevant papers for the meetings and
provide his comments to the Board or the Board committees
in advance of such meetings.

The Nomination Committee did not meet in 2014.

The Directors support high standards of corporate governance.
We do not comply with the UK Corporate Governance Code in
all respects. We have reported on our Corporate Governance
arrangements by drawing upon best practice available, including
those aspects of the UK Corporate Governance Code we consider
to be relevant to the Company and best practice.

Notwithstanding this, as an AIM quoted company, the Company
is not required to comply with the Code.

The Board is responsible for establishing and maintaining the
system of internal controls which has been in place throughout
2014. The effectiveness of the Group’s system of internal control
is reviewed annually by the Audit Committee on behalf of the
Board, as referred to in the Audit Committee Report.

The workings of the Board and its Committees
At 31 December 2014 the Board was comprised of five
Non-Executive Directors, one of whom is the Chairman, and
two Executive Directors. Of the Non-Executive Directors, three
are considered to be independent. The Board is responsible
to the shareholders for the proper management of the Group.
It meets regularly, as set down in the table below, to review
trading performance, set and monitor strategy, examine
acquisition and divestment possibilities, approve major capital
expenditure projects and other significant financing matters
and report to shareholders. The Board delegates authority to
the management for the day-to-day business under a set of
delegated authorities which cover: routine operational matters,
purchasing procedures, financial authority limits, contract
approval procedures and the hiring of full time and temporary
staff and consultants.

Matters reserved for the Board are communicated in advance
of formal meetings. All of the Directors are subject to election
by shareholders at the first AGM after their appointment to the
Board and to re-election by shareholders at least once every
three years. In addition, any Non-Executive Director who has
served on the Board for more than nine years will be subject
to annual re-election.

The Chairman and Non-Executive Directors have other third
party commitments including directorships of other companies as
disclosed in the Directors’ biographies. The Company is satisfied
that these associated commitments have no measurable impact
on their ability to discharge their responsibilities effectively.
The Executive Directors have no third party commitments.

New Directors receive induction on their appointment to the
Board which covers the activities of the Group and its key
business and financial risks, the terms of reference of the
Board, and its committees, and the latest financial information
about the Group.

Board performance
The Company has a formal process of annual performance
evaluation for the Board, its committees and individual
Directors. The Board and its committees are satisfied that
they are operating effectively.

A performance evaluation of the Board, the Board committees
and individual Directors will continue to be conducted annually
and the method for such review will continue to be reviewed
by the Board in order to optimise the process.

The performance of the Executive Directors is reviewed by
the Remuneration Committee and the bonuses payable to
the Executive Directors are linked directly to the results of
these reviews.

The Company has Directors’ and officers’ liability insurance
in place.

Committees
The following committees deal with specified aspects of the
Group’s affairs.

Audit Committee
The make-up and workings of the Audit Committee are set out
in the Audit Committee report on page 38.

The Company’s policy is to attract and develop a highly
qualified and diverse workforce, to ensure that all selection
decisions are based on merit and that all recruitment activities
are fair and non-discriminatory. We continue to focus on
encouraging diversity of business skills and experience,
recognising that Directors and managers with diverse skills
sets, capabilities and experience gained from different
backgrounds enhance the Group.

Relations with shareholders
Communication with shareholders is given high priority by
the Board and is undertaken through press releases, general
presentations at the time of the release of the annual and
interim results and face-to-face meetings. The Group issues
its results promptly to individual shareholders and also
publishes the same on the Company’s website. Regular
updates to record news in relation to the Company are also
included on the website.

In order to ensure that the members of the Board develop
an understanding of the views and concerns of major
shareholders there is regular dialogue with institutional
shareholders, including meetings after the announcement
of the Company’s annual and interim results. The Board uses
the Annual General Meeting to communicate with private and
institutional investors and welcomes their participation.

Remuneration Committee
The make-up and workings of the Remuneration Committee,
together with details of the Directors’ remuneration, interest in
options, together with information on service contracts, are set
out in the Report on Directors’ Remuneration. No Director is
involved in the decision about their own remuneration.

Signed on behalf of the Board by:

Richard Last
Chairman and Independent
Non-Executive Director

Nomination Committee
The Nomination Committee will assist the Board in discharging
its responsibilities relating to the composition and make-up
of the Board and any committees of the Board. It will also be
responsible for periodically reviewing the Board’s structure
and identifying potential candidates to be appointed as
Directors or committee members as the need may arise.
The Nomination Committee will be responsible for evaluating
the balance of skills, knowledge and experience and the size,
structure and composition of the Board and committees of
the Board, retirements and appointments of additional and
replacement Directors and committee members and will make
appropriate recommendations to the Board on such matters.

The Nomination Committee is chaired by Richard Last and its
other members are Martin Lea, Alan Gibbins, Wu Long Peng
and Andrew Stone.

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsCorporate governance

Audit Committee
report

Alan Gibbins
Audit Committee Chairman

This first report of the Audit Committee covers
the period from July 2014 to the review of
Gamma’s first set of results following the
October 2014 IPO.

Membership
The members of the Audit Committee and meetings
attended are:

Name

Alan Gibbins, Chairman

Richard Last

Martin Lea

Meetings attended

3/3

The Audit Committee is responsible for ensuring that the
financial performance of Gamma is properly monitored,
controlled and reported. The Committee consists of the three
Independent Non-Executive Directors, including the Chairman
of the Board, who between them have a balance of recent
and relevant financial experience and accounting training,
and general business background.

The Board established the Audit Committee and agreed
its terms of reference in July 2014 prior to the IPO, and the
Committee has met three times since with all members present.
The CEO and Finance Director, and other Non-Executive
Directors (all by invitation), and the external auditors, have
also all attended each meeting. The chairman of the Committee
maintains a regular dialogue with the Finance Director.

Role of the Committee
The Audit Committee:

→ Monitors the integrity of Gamma’s financial statements,

the appropriateness of accounting policies, and significant
reporting judgements.

→ Reviews the effectiveness of financial controls and systems.
In this context it keeps under review the need for an internal
audit function.

→ Oversees the relationship with external auditors, including
meeting with the auditors at the planning and completion
stages of their work, the scope of any non-audit services and
fees, and assessing their independence and effectiveness.

→ Leasehold Dilapidations. Provisions for leasehold

dilapidations are estimates of the cost of returning leasehold
properties to a defined condition at the end of the lease.
The Committee has satisfied itself as to the basis of the
estimates made.

→ Taxation. The Committee considered the estimates involved
in arriving at the provision for taxation and was satisfied
with management’s approach.

→ Contingent assets and liabilities. The Committee considered
and agreed with management’s judgements in relation
to contingent assets and liabilities and the need for any
reference to these in the notes to the financial statements.

Alan Gibbins
Audit Committee Chairman
19 March 2015

Areas of focus since establishment, including areas
of judgement
The Committee reviewed the integrity of the 2013 financial
statements included in Gamma’s Listing Particulars on 16
September 2014 and was satisfied with this. Due diligence
reporting for the IPO was carried out by Grant Thornton but
using a separate team from a different office from that which
carries out the external audit. This arrangement facilitated the
IPO process and the Committee was satisfied that appropriate
independence between the teams was maintained. Gamma’s
tax affairs are handled by a different firm.

The Committee noted the extensive due diligence on financial
controls as part of the IPO process, and also the findings of
the external auditors, and is satisfied at present that no internal
audit establishment is required. We also reviewed the audit
plan for the 2014 audit provided by the auditors and were
satisfied that this focused on key risk and judgemental areas.
Subsequently, the audit findings report prepared by the
auditors was reviewed in detail and the Committee was
satisfied with those findings and the conclusions.

Areas of risk and judgement reviewed by the Committee
included the following. In each case the Committee endorsed
management’s judgement as to the accounting treatment:

→ Carrying value of intangible assets. Gamma carries out a

significant level of in house development which is capitalised
and amortised where appropriate – that is, where projects are
technically feasible, can be completed and that the asset can
or will be capable of use or sale. The Committee considers
management’s capitalisation process and assessment of
the carrying value.

→ Goodwill relating to past acquisitions is not amortised but
is tested every year for impairment using estimates of the
present value of future cash flows. The Committee was
satisfied with the impairment testing process. The amount
recognised as an intangible asset for customer contracts
when a business is acquired requires consideration, inter alia,
of the rate of future renewals. The Committee reviewed
management’s judgements in this area.

→ Revenue recognition. Gamma has a number of revenue

streams arising from its various products and services which
should be recognised in line with relevant contractual terms.
The Committee’s consideration of this area took into account
the extensive work carried out by Gamma’s Revenue
Assurance function on the integrity of amounts billed and
charges received.

→ The charge in the financial statements for share based

payments can be complex and has been an area of focus
for management and the external auditors.

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsCorporate governance

Remuneration Committee
report

Dear Shareholders
I am pleased to introduce the Director’s Remuneration Report
for the 2014 financial year. The Chairman’s statement (on
pages 6 to 7) provides a summary of the progress the Group
has made over the year. The Remuneration Committee is
committed to structuring senior executive remuneration that
is competitive, incentivises and rewards good performance,
and that will help the Company to continue building on this
strong performance, thereby creating value for shareholders.
The Remuneration Committee is appointed by the Board, and
comprises the three Independent Non-Executive Directors.

The Committee is primarily responsible for determining and
agreeing with the Board the broad policy for the remuneration
and employment terms of the Executive Directors, Chairman
and other senior executives and, in consultation with the CEO,
for determining the total individual remuneration packages of
senior executive managers. The Committee is also responsible
for the review of, and making recommendations to the Board
in connection with share incentive plans, and performance
related pay schemes and their associated targets, and for the
oversight of employee benefit structures across the Group.
The Committee’s full terms of reference are reviewed regularly
and approved by the Board. No Director or manager is involved
in any decisions as to their own remuneration.

Short term performance for senior executives is incentivised using
an annual bonus scheme based on the achievement of profitability
targets, and long term performance is incentivised by way of a
long term incentive plan (LTIP) based on the achievement of Total
Shareholder Return (TSR) and Earnings Per Share (EPS) growth
goals, over a three year measurement period.

In addition to the LTIP, in order to further facilitate the alignment of
employee and shareholder interests, prior to its admission to AIM,
the Group also adopted a Group-wide general Share Incentive
Plan (SIP) and a Company Share Option Plan (CSOP). Under the
SIP, awards of 256,320 free shares were made to all employees
in October 2014. The CSOP will enable the Group to selectively
incentivise key high performing employees.

All employees in the Group participate in a bonus scheme
that enables them to earn up to 10% of basic salary based half
on personal performance and half on Company performance.
Furthermore, based on the Company’s performance in 2014, and
the contribution and hard work of all the employees, the Board was
pleased to approve a 3% increase in like for like salary cost for 2015
to cover the annual salary review and increases to reflect additional
individual responsibilities. This increase does not apply to Directors.

This Remuneration Report includes a summary of the Company’s
Remuneration Policy, details of Directors’ Service Agreements as
well as the Annual Report on Remuneration. As an AIM listed
company, this report is not mandatory, but is included as a matter
of best practice, and the Remuneration Report will be put to a vote
at the forthcoming Annual General Meeting.

Martin Lea
Remuneration Committee Chairman
19 March 2015

Martin Lea
Remuneration Committee
Chairman

This report is on the activities of the
Remuneration Committee for the period
to 31 December 2014. It sets out the
remuneration policy and the remuneration
details for the Executive and Non-Executive
Directors of the Company.

The report is split into three main areas:

The statement by the Chairman of the Remuneration Committee 40

The Directors’ remuneration policy

The Annual Report on Remuneration

Page

Membership
The members of the Remuneration Committee and meetings
attended are:

Name

Martin Lea, Chairman

Richard Last

Alan Gibbins

Meetings attended

3/3

Directors’ Remuneration Policy
This part of the Directors’ Remuneration Report sets out the remuneration policy of the Company with regard to its Directors.

Policy on Executive Director Remuneration
The Company’s remuneration policy is designed to ensure that the Company is able to attract, retain and motivate executives and
senior management of the right quality to enable the Company to fulfil its objectives and longer term potential. The retention of key
management and the alignment of management incentives with the creation of shareholder value are a key objective of this policy.

Setting base salary levels for Executive Directors at an appropriate level is key to management retention. Therefore, the
Remuneration Committee seeks to ensure that salaries are market competitive for comparable companies. The aim is to set total
compensation within a range around the median level for the Company’s peer group.

The Remuneration Committee is directly responsible for setting the remuneration of Executive Directors and for giving guidance
on and approving recommendations for the remuneration of other members of the senior management team.

The main components of the remuneration policy for the year ending 31 December 2015 and how they are linked to and support
the Company’s business strategy are summarised below:

Purpose and link to strategy

Operation

Potential remuneration

Performance metrics

Base salary

To be set at a level which
is sufficiently competitive to
recruit and retain individuals
of the appropriate calibre to
deliver the Company’s strategy,
and which takes into account
the Director’s experience and
personal contribution to the
Company’s strategy.

Not applicable.

Salaries are typically reviewed
annually, with any changes
effective from 1 January.

The review takes into account:

→ Company performance;
→ the role experience and
performance of the
individual Director;

→ average workforce salary
adjustments within
the Company.

Salaries are benchmarked from
time to time against comparable
roles at companies of a similar size
and complexity in the Telecoms
and IT services sectors.

The Executive Directors base
salaries were last reviewed in
October 2014 at the time of
the Company’s admission to the
AIM market.

The CEO’s salary is currently
£294,000, and is not due for
further review until January 2016.

The Finance Director’s (who was
newly appointed at the time of
the IPO) salary is currently
£140,000, and this is scheduled
to be reviewed at the end of June
2015, following his initial nine
months in post.

Benefits

To complement basic salary
by providing market competitive
benefits to attract and retain
executives.

Pension

To provide retirement benefits,
which when taken together
with other elements of the
remuneration package, will
enable the Company to attract
and retain executives.

Reviewed from time to time
to ensure that benefits when
taken together with other
elements of remuneration
remain market competitive.

Benefits for the Executive
Directors currently comprise
participation in the Company’s
life assurance and permanent
health insurance schemes.

The Executive Directors
(together with all other eligible
staff) are able to participate in the
Company’s defined contribution
(money purchase) pension scheme.

The Company contributes
a maximum of 5.1% of salary.

The cost of providing these
benefits vary year on year
depending on the schemes’
premiums.

Not applicable.

A contribution of 5.1% per annum
of salary is paid into the scheme,
by the Company, on behalf of the
Finance Director. The Finance
Director is able to request that the
Company, at the discretion of the
Remuneration Committee, makes
additional contributions where
salary or bonus has been waived.

The CEO does not participate in
the scheme.

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsCorporate governance

Remuneration Committee report
continued

Purpose and link to strategy

Operation

Potential remuneration

Performance metrics

For the CEO and Finance Director
the on target bonus potential is
50% of salary, with the maximum
bonus (achievable in the event
of overachievement of target)
capped at 100% of salary.

For the year ending 2014, the
targets were based on growth
in Earnings After Tax.

For 2015, targets will be based
on growth in Adjusted Profit
Before Tax (PBT).

The Remuneration Committee
would in normal circumstances
expect to make annual LTIP
awards to the Executive Directors
(and other senior executive
managers) at a value of 100%
of base salary.

Special pre IPO awards were
granted to the CEO and Finance
Director (and other senior
executive managers) in 2014 at
a value of 200% of base salary.

These awards will vest in April
2017, subject to service conditions
and Total Shareholder Return
(TSR) and Earnings per Share
(EPS) performance conditions.

It is anticipated that further
awards will be made in April 2015
following announcement of the
Group’s annual results.

Vesting of the 2014 LTIP awards
in April 2017 is conditional upon
the following performance
conditions:

→ 15% of the shares if annual
compound total shareholder
return (TSR) over the
performance period equals
8%, and 50% of the shares
if annual compound TSR over
the performance period equals
15% or higher with straight
line vesting in between.

→ 15% of the shares if annual

compound growth of adjusted
earnings per share (adjusted
for exceptional costs and
share based payment costs)
over the performance period
equals 8%, and 50% of the
shares if annual compound
growth of adjusted EPS over
the performance period equals
20% or higher with straight
line vesting in between.

Details of unvested awards under
the historic schemes are in the
Annual Report on Remuneration.

Not applicable.

The Executive Directors (as well
as the other senior executive
managers) participate in a
discretionary, annual, performance
related bonus scheme.

Targets are set at the beginning
of each year based on the
recommendations of the
Remuneration Committee.

Bonuses are paid in cash based
on audited financial results.

The Executive Directors
(as well as other senior executive
managemers) participate in
a discretionary LTIP.

The plan entitles participants to an
allocation of, or options over, free
(or nominal value) shares after a
performance period of three years,
subject to certain performance and
service conditions being met.

Participation is at the discretion
of the Remuneration Committee.

Awards will typically be made
annually based on a multiple of
annual salary.

Performance conditions are set
by the Remuneration Committee
at the time of the award.

The plan rules amongst other things
include claw-back provisions and a
limitation to ensure that new shares
issued, when aggregated with all
other employee share awards must
not exceed 10% of issued share
capital over any ten year period.

Prior to the adoption of the LTIP,
the Executive Directors had
been made awards under other
historic schemes.

Following flotation, no further
awards will be made under such
schemes. As such they no longer
form part of the Company’s
remuneration policy.

Annual bonus

To incentivise the achievement
of the Company’s annual
financial targets.

Long Term Incentive Plan (LTIP)

To motivate executives and
incentivise the achievement
of longer-term financial
performance.

To align the interests of
executives and Shareholders.

Previous share awards

Policy on Non-Executive Director Remuneration
The Chairman and the other Non-Executive Directors’ remuneration comprises only fees. The Chairman’s fee is approved by
the Board on the recommendation of the Remuneration Committee. The other Non-Executives’ fees are approved by the Board
on the recommendation of the Chairman and Executive Directors. The Non-Executive Directors are not involved in any decisions
about their own remuneration.

Additional fees over and above the base fee are payable to the chairmen of the Audit and Remuneration Committees.
They are reviewed annually with changes effective from 1 January each year.

The Chairman and the other Independent Non-Executive Directors are entitled to be reimbursed for reasonable expenses.

Details of the fees currently payable are set out in the Annual Report on Remuneration. The fees were set at the time the
Chairman and other Independent Non-Executive Directors joined the Board during the second quarter of 2014, and will not
be reviewed until January 2016.

Directors’ Service Agreements
Executive Directors’ Service Agreements
The key elements of the Executive Directors’ Service Agreements are summarised in the table below:

Key element

Effective date of
Service Agreement

Notice period

Basic salary

Annual bonus

Pension

Benefits

Share schemes

Termination payments

CEO Bob Falconer

AIM admission date

Finance Director Andrew Belshaw

AIM admission date

6 months notice given by either party

£294,000 per annum

£140,000 per annum

Discretionary performance related

None

Company contributes 5.1% of basic salary into
defined contribution money purchase scheme

Participation in Company life assurance and
permanent health insurance schemes

Eligible to participate in Company share schemes

The Company has the discretion to make
a payment of basic salary in lieu of notice
to terminate the employment forthwith in
the event of notice being given

The Company has the discretion to make
a payment of basic salary in lieu of notice to
terminate the employment forthwith in the
event of notice being given

Non-Executive Director Letters of Appointment
The Non-Executive Directors have Letters of Appointment stating that their appointment is for an initial term of three years from
the date of the appointment letter. The Letters of Appointment provide for termination of the appointment with three months’
notice by either party.

The current Non-Executive Directors’ appointments commenced on the following dates:

Director

Alan Gibbins

Richard Last

Martin Lea

Wu Long Peng

Andrew Stone

Date of Appointment

17 June 2014

6 June 2014

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements
Corporate governance

Remuneration Committee report
continued

Annual Report on Remuneration
Introduction
This Annual Report on Remuneration sets out information about the remuneration of the Directors of the Company, for the period
ended 31 December 2014. Please note that this only includes those individuals that have acted as Directors since the admission to AIM.

Remuneration Committee
Membership
The Remuneration Committee consisted of the following Directors in the period from the date of AIM admission to
31 December 2014.

Martin Lea (Chairman), Independent Non-Executive Director.
Alan Gibbins, Independent Non-Executive Director.
Richard Last, Independent Non-Executive Director and Chairman of the Board.

Activities in 2014
In the run up to the IPO and after the Listing, the Committee met three times in 2014 in order to conduct the following main items
of business: Terms of reference of the Remuneration Committee; the CEO loan to facilitate him converting his B shares into A
shares and the related post IPO lock-in period; the terms of the new LTIP scheme and the pre IPO awards and related targets; the
terms of the new Company SIP and the initial award of free shares; the terms of the new Company CSOP scheme; the revisions
to Executive Directors remuneration and Service Agreements to be effective from date of admission to AIM; the Company annual
salary review; senior executive managers’ annual salary review; executive annual bonus scheme structure and targets for 2015.

Advisors
Prior to Listing, the Company received independent advice from h2glenfern Remuneration Advisory on a number of issues
including Executive Director remuneration benchmarking and the structuring of the Long Term Incentive Plan (LTIP). H2glenfern
Remuneration Advisory operates in accordance with the principles of the Code of Conduct of the Remuneration Consultants Group
in relation to remuneration consulting in the UK. The fees for this advice excluding VAT were £28,000.

Remuneration of the Executive Directors

Director

Bob Falconer

Salary and fees

Benefits

Annual bonus

Pension

Total for

2014

£250,793

–

£294,000

–

£544,793

Andrew Belshaw
Bonuses are shown on an accrued basis.
In addition to the above, prior to flotation, Malcolm Goddard served as a Director from 17 March 2014 (incorporation) to 30 August 2014 and Gerard Sreeves from
23 May 2014 to 1 October 2014 as detailed in note 7 of the financial statements.

£114,189

£113,797

£267,986

£40,000

–

Bob Falconer became a Director on 27 June 2014 but was also a director of the former group holding company (Gamma Telecom
Holdings Limited) which was acquired by Gamma Communications plc by way of a share for share exchange on 12 May 2014. His
remuneration is shown assuming that Gamma Communications plc had been the holding company for this year and the prior year
and that he had been paid by that company.

Andrew Belshaw became a Director of the Company on 1 October 2014 and his salary from then until the end of the period was
£38,505. He waived £100,000 of his bonus relating to 2014 and received a pension contribution of the same amount.

Director

Bob Falconer

Salary and fees

Benefits

Annual bonus

227,986

–

184,500

Pension

85,600

Remuneration of the Non-Executive Directors

Director

Richard Last

Alan Gibbins

Martin Lea

Wu Long Peng

Andrew Stone

Directors’ Fee

Committee
Chair Fee

£43,750

£20,416

£20,417

£2,917

Total for
2013

498,086

Total for

2014

£43,750

£23,333

£20,417

Share scheme interests awarded during the year ended 31 December 2014
Deferred Share Scheme (DSS)
The following awards were made under the DSS in respect of the financial performance for the 18 months ended
30 June 2014. There are no performance conditions attached.

Director

Bob Falconer

Andrew Belshaw

Type of
scheme interest

Basis of award

Nil-Cost Option

Discretionary

Nil-Cost Option

Discretionary

Nil-Cost Option

Discretionary

Nil-Cost Option

Discretionary

Nil-Cost Option

Discretionary

Number of
awards

219,496

329,244

71,765

35,882

Vesting date

Exercise price

1 Feb 2015

10 Oct 2016

1 Feb 2015

1 Feb 2016

1 Feb 2017

£0.0025

Unapproved share option plan
The following award was made under an unapproved share option plan. There are no vesting conditions.

Director

Type of
scheme interest

Basis of award

Number of
awards

Vesting date

Exercise price

Andrew Belshaw
This award was made pre-IPO to compensate Andrew Belshaw for the fact that he was unable to exercise existing options on IPO.

Discretionary

31,204

Option

Immediate

£1.87

Long Term Incentive Plan (LTIP)
The following awards were made under the LTIP. The performance conditions are set out below the table.

Director

Bob Falconer

Andrew Belshaw

Type of
scheme interest

Basis of award

Number of
awards

Vesting date

Exercise price

Nil-Cost Option

200% of Salary

288,220

1 April 2017

Nil-Cost Option

200% of Salary

170,732

1 April 2017

£0.0025

At the time of making an award the Remuneration Committee set challenging long term performance targets in order to align the
interests of the Directors with shareholders and which, together with continuous employment conditions, must be satisfied before an
award vests.

The awards granted in 2014 have a performance period of three years starting from the vesting commencement date, being
1 April 2014. The awards will vest as follows:

→ 15% of the shares if annual compound total shareholder return (“TSR”) over the performance period equals 8%, and 50% of the shares

if annual compound TSR over the performance period equals 15% or higher with pro rata straight line vesting in between; and

→ 15% of the shares if the annual compound growth of the Company’s adjusted earnings per share between the financial years at the

beginning and the end of the performance period is equal to 8%, and 50% of the shares if the annual compound growth of the Company’s
adjusted earnings per share over the same period is equal to or in excess of 20% with pro rata straight line vesting in between.

Statement of Directors’ shareholding and share interests
Directors’ share interests at 31 December 2014 are set out below:

Number
of beneficially
owned shares

With
performance
measures

Without
performance
measures

Vested but
unexercised

Exercised
during
the year

Options

Executive Director

Bob Falconer

Andrew Belshaw

Non-Executive Director

Richard Last

Alan Gibbins

Martin Lea

Wu Long Peng

Andrew Stone

4,566,528

276,337

53,475

13,368

–

3,700,000

288,280

170,732

329,234

179,412

219,496

107,541

–

As the Company was incorporated during the year there were no opening shareholding and share interests.
This report was approved by the Board of Directors on 19 March 2015 and signed on its behalf by:

Martin Lea
Remuneration Committee Chairman

Nil

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsCorporate governance

Directors’ report

The Directors present their Annual Report
on the affairs of the Group, together with
the financial statements for the year ended
31 December 2014.

Details of significant events since the balance sheet date are
contained in note 30 to the financial statements. An indication
of likely future developments in the business of the Company
and details of research and development activities are included
in the Strategic Report.

Share capital and share options
Details of the share capital of the Company and options over
shares of the Company are set out in notes 21 and 25 to the
Group financial statements. Over the period, the Company had
three share incentive schemes by which Directors and employees
may: (i) be granted options under a long term incentive scheme
to subscribe for nil cost shares in the Company, (ii) be issued
shares under the Company Share Option Plan, and (iii) be issued
shares under a Share Incentive Plan.

The maximum aggregate number of shares which may be issued
in respect of these schemes is limited to 10% of the issued
share capital.

Composition of Group
Details concerning subsidiary undertakings are given in Note 13
to the Group financial statements.

Information about the use of financial instruments by the
Company and its subsidiaries is given in note 18 to the
financial statements.

Directors’ interests in share capital
The Directors’ interest in share capital is shown within the
Remuneration Report.

Dividends
The Directors recommend a final dividend of 3.95 pence per
Ordinary Share to be paid in late June to ordinary Shareholders
on the register on 5 June 2015. No interim dividend has been
proposed or paid.

Directors’ indemnities
The Company has made qualifying third party indemnity
provisions for the benefits of its Directors which were made
during the course of the year and remain in force at the date
of this report.

Directors
The names and biographies of the Directors during the year
are disclosed on pages 32 to 35. In addition, prior to flotation,
Malcolm Goddard served as a Director from 17 March 2014 to
30 August 2014 and Gerard Sreeves from 23 May 2014 to
1 October 2014.

Going concern
The Group’s business activities, together with the factors likely
to affect the future development, performance and position,
are set out in the Strategic Report. The financial position of
the Group, its cash flows and liquidity position and borrowing
facilities are described in the Finance Review section in the
Strategic Report and in note 18. Further information on the
Group’s exposure to financial risks and the management
thereof is provided in note 18.

The Board’s review of the accounts, budgets and financial
plan leads the Directors to believe that the Group has sufficient
resources to continue in operation for the foreseeable future.

The financial accounts are therefore prepared on a going
concern basis.

Treasury policy
The objective of the Group’s treasury policy is to manage
the Group’s financial risk and to minimise the adverse effects
of fluctuations in the financial markets on the value of the
Group’s financial assets and liabilities, on reported profitability
and on the cash flows of the Group. Note 18 sets out the
particular risks to which the Group is exposed, and how these
are managed.

Interests in contracts
There have been no contracts or arrangements during the financial
year in which a Director of the Company was materially interested
and which were significant in relation to the Group’s business.

Health, safety, the environment and the community
The Group has a formal Health, Safety and Environmental
Policy which requires all operations within the Group to pursue
economic development whilst protecting the environment.
The Directors aim not to damage the environment of the areas
in which the Group operates, to meet all relevant regulatory
and legislative requirements and to apply responsible standards
of its own where relevant laws and regulations do not exist.

It is the policy of the Group to consider the health and welfare
of employees by maintaining a safe place and system of work
as required by legislation in each of the countries where the
Group operates.

Political donations
No political donations were made in the year.

During both the year and the prior year Gamma undertook
the Best Companies Limited employee engagement survey
and achieved a 2-star accreditation. The results from this survey
attracted a listing in the Sunday Times Best 100 Companies
to Work For and Gamma was placed in the top 50 companies
in the UK.

Disabled employees
Applications for employment by disabled persons are given full
and fair consideration for all vacancies in accordance with their
particular aptitudes and abilities. It is the policy of the Company
that training and promotion opportunities should be available
to all employees.

Auditors and their independence
A resolution to appoint auditors for the year to 31 December
2015 will be proposed at the Annual General Meeting. The
Company has a policy for approval by the Audit Committee of
non-audit services by the auditor, to preserve independence.

Disclosure of information to auditors
The Directors who held office at the date of approval of this
Directors’ report confirm that, so far as they are each aware,
there is no relevant audit information of which the Company’s
auditor is unaware; and each Director has taken all the steps
that he ought to have taken as a Director to make himself
aware of any relevant audit information and to establish that
the Company’s auditor is aware of that information.

This confirmation is given and should be interpreted in accordance
with the provisions of s418 of the Companies Act 2006.

Employee consultation
Gamma recognises the essential importance of employees
to the success of the business and ensures that they are fully
informed of events that directly affect them and their working
conditions. Information on matters of concern to employees is
given in briefings that seek to provide a common awareness on
the part of all employees of the financial and economic factors
affecting the Group’s performance.

By order of the Board:

Andrew Belshaw
Finance Director
19 March 2015

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsCorporate governance

Statement of Directors’
responsibilities

The Directors are responsible for preparing
the Annual Report and the financial
statements in accordance with applicable
law and regulations.

Company law requires the Directors to prepare financial statements
for each financial year. Under that law the Directors have to prepare
the financial statements in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union
and have also chosen to prepare the parent company financial
statements under United Kingdom Generally Accepted
Accounting Practice. Under company law the Directors must not
approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs and profit
or loss of the Company and Group for that period. In preparing
these financial statements, the Directors are required to:

→ select suitable accounting policies and then apply them

consistantly;

→ make judgements and accounting estimates that are

reasonable and prudent;

→ state whether applicable IFRSs have been followed, subject
to any material departures disclosed and explained in the
financial statements;

→ prepare the financial statements on the going concern basis
unless it is inappropriate to pressume that the Company will
continue in business.

The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at
any time the financial position of the Company and enable
them to ensure that the financial statements comply with
the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.

The Directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.

Andrew Belshaw
Finance Director
19 March 2015

Independent auditor’s report to the
members of Gamma Communications plc

We have audited the financial statements of
Gamma Communications plc for the period
ended 31 December 2014 which comprise the
consolidated statement of financial position,
the parent company balance sheet, the
consolidated statement of comprehensive
income, the consolidated statement of cash
flow, the consolidated statement of changes
in equity and the related notes. The financial
reporting framework that has been applied in
preparation of the Group financial statements
is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by
the European Union.

The financial reporting framework that has been applied in
the preparation of the parent company financial statements
is applicable law and United Kingdom Accounting Standards
(United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the Company’s members,
as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken
so that we might state to the Company’s members those
matters we are required to state to them in an auditor’s 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 and the Company’s members as
a body, for our audit work, for this report, or for the opinions
we have formed.

Respective responsibilities of Directors and auditor
As explained more fully in the Directors’ Responsibilities
Statement, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they
give a true and fair view. Our responsibility is to audit and
express an opinion on the financial statements in accordance
with applicable law and International Standards on Auditing
(UK and Ireland). Those standards require us to comply with
the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements
A description of the scope of an audit of financial statements
is provided on the Financial Reporting Council’s website at
www.frc.org.uk/auditscopeukprivate

Opinion on financial statements
In our opinion:

→ the financial statements give a true and fair view of the
state of the Group’s and of the parent company’s affairs
as at 31 December 2014 and of the Group’s profit for the
year then ended;

→ the Group financial statements have been properly

prepared in accordance with IFRSs as adopted by the
European Union;

→ the parent company financial statements have been

prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and

→ the financial statements have been prepared in accordance

with the requirements of the Companies Act 2006.

In our opinion the Group financial statements comply with
IFRSs as issued by the IASB.

Opinion on other matter prescribed by the
Companies Act 2006
In our opinion the information given in the Strategic Report
and Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the
financial statements.

Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if,
in our opinion:

→ adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or

→ the parent company financial statements are not in

agreement with the accounting records and returns; or

→ certain disclosures of Directors’ remuneration specified

by law are not made; or

→ we have not received all the information and explanations

we require for our audit.

Nicholas Watson
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Reading
19 March 2015

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements
Financial statements

Consolidated statement of comprehensive income
For the year ended 31 December 2014

Revenue
Cost of sales
Gross profit
Operating expenses

Operating profit before share based payment, depreciation, amortisation
and exceptional items
Share based payment expense
Exceptional items
Operating profit before depreciation and amortisation
Depreciation and amortisation

Profit from operations
Finance income
Profit before tax
Tax expense

Profit after tax

Total comprehensive income attributable to the owner of the parent

Earnings per share
Basic per ordinary share (pence)
Diluted per ordinary share (pence)
Adjusted earnings per share is shown in note 10.

The notes on pages 54 to 80 form part of these financial statements.

Notes

2014
£m
173.2
(105.6)
67.6
(56.1)

23.1
(3.2)
(2.0)
17.9
(6.4)

11.5
–
11.5
(2.1)

9.4

10.6
10.0

2013
£m
148.7
(94.8)
53.9
(42.4)

17.2
(0.9)
–
16.3
(4.8)

11.5
–
11.5
(2.2)

9.3

10.5
9.9

Consolidated statement of financial position
At 31 December 2014

Assets
Non-current assets
Property, plant and equipment
Intangible assets
Deferred tax asset

Current assets
Inventories
Trade and other receivables
Cash and cash equivalents

Total assets

Liabilities
Non-current liabilities
Other payables
Provisions
Deferred tax liability

Current liabilities
Trade and other payables
Current tax liability

Total liabilities

Issued capital and reserves attributable to owners of the parent
Share capital
Share premium reserve
Merger reserve
Share option reserve
Retained earnings

Total equity

Total equity and liabilities

Notes

2014
£m

2013
£m

18.9
10.8
2.3
32.0

1.1
32.5
13.4
47.0

79.0

–
0.9
0.2
1.1

25.9
0.8
26.7

27.8

0.2
3.2
2.3
2.4
43.1

51.2

79.0

12.8
11.2
0.6
24.6

0.5
26.4
14.6
41.5

66.1

1.4
1.0
1.0
3.4

24.7
1.1
25.8

29.2

0.2
–
2.3
1.1
33.3

36.9

66.1

The financial statements on pages 50 to 83 were approved and authorised for issue by the Board of Directors on 19 March 2015
and were signed on its behalf by:

Andrew Belshaw
Finance Director

The notes on pages 54 to 80 form part of these financial statements.

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsFinancial statements

Consolidated statement of cash flows
For the year ended 31 December 2014

Cash flows from operating activities
Profit for the year before tax
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Change in fair value of contingent consideration
Share based payment expense

(Increase) in trade and other receivables
(Increase) in inventories
Increase in trade and other payables
(Decrease)/Increase in provisions and employee benefits

Taxes paid

Net cash flows from operating activities

Investing activities
Purchases of property, plant and equipment
Expenditure on development costs
Payment of deferred consideration
Loans made to individuals to subscribe for shares

Net cash used in investing activities

Financing activities
Share buybacks and cancellations
Share issues

Net cash used in financing activities

Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

The notes on pages 54 to 80 form part of these financial statements.

Notes

2014
£m

11.5

5.1
1.3
0.6
3.0
21.5
(3.3)
(0.6)
1.9
(0.1)

(3.0)

16.4

(11.2)
(0.9)
(2.6)
(2.8)

(17.5)

(3.1)
3.0

(0.1)

(1.2)
14.6

13.4

2013
£m

11.5

3.7
1.1
–
0.4
16.7
(3.9)
(0.2)
3.7
0.1

(2.4)

14.0

(5.1)
(0.8)
–
–

(5.9)

(0.7)
–

(0.7)

7.4
7.2

14.6

Consolidated statement of changes in equity
For the year ended 31 December 2014

1 January 2013
Share buybacks and cancellations
Issue of shares
Transaction with owners

Profit for the year
Total comprehensive income

31 December 2013

1 January 2014
Share option cancellations
Issue of shares
Deferred tax on share based payments
Recognition of share based payments
Transaction with owners

Profit for the year
Total comprehensive income

Share
capital
£m
0.2
–
–
–

Share
premium
£m
–
–
–
–

Merger
reserve
£m
2.3
–
–
–

Share option
reserve
£m
0.7
–
0.4
0.4

Retained
earnings
£m
24.6
(0.6)
–
(0.6)

–
–

0.2

0.2
–
–
–
–
–

–
–

–

–
–
3.2
–
–
3.2

–
–

2.3

2.3
–
–
–
–
-

–
–

1.1

1.1
(0.6)
(1.1)
–
3.0
1.3

–
–

9.3
9.3

33.3

33.3
(2.4)
0.9
1.9
–
0.4

9.4
9.4

Total
equity
£m
27.8
(0.6)
0.4
(0.2)

9.3
9.3

36.9

36.9
(3.0)
3.0
1.9
3.0
4.9

9.4
9.4

31 December 2014

0.2

3.2

2.3

2.4

43.1

51.2

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsFinancial statements

Notes forming part of the financial statements
For the year ended 31 December 2014

1. Accounting policies
Basis of preparation
Gamma Communications plc (the “Company”) is a company
domiciled in England. The Company was incorporated on
17 March 2014 as Gamma Communications Limited and this is
the first set of financial information prepared by the Company.
The Company changed its name to Gamma Communications plc
on 3 October 2014 when it became a public company.

Standards, amendments and interpretations to existing
standards that are not yet effective and have not been adopted
early by the Group
At the date of authorisation of these financial statements,
certain new standards, and amendments to existing standards
have been published by the IASB that are not yet effective, and
have not been adopted early by the Group. New accounting
standards expected to be relevant to the Group are listed below.

The Group was formed on 12 May 2014 when Gamma
Communications Limited acquired the entire share capital
of Gamma Telecom Holdings Limited and its wholly owned
subsidiaries through the issue of 20,590,196 Ordinary Shares
and 1,699,983 B1 Shares (further detail on the share capital
is set out in note 21).

The acquisitions of the subsidiaries are deemed to be
‘combinations under common control’ as ultimate control
before and after the acquisition was the same. As a result,
the transaction is outside the scope of IFRS 3 “Business
combinations” and has been included under the principles
of merger accounting by reference to UK GAAP.

Accordingly, although the units which comprise the Group did
not form a legal group for the entire period, the current period
and comparative results comprise the results of the subsidiary
companies as if the Group had been in existence throughout
the entire period.

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 0.1 million (£m).

The former group, Gamma Telecom Holdings Limited, adopted
IFRS for the first time in its Historical Financial Information
for the three years ended 31 December 2013 as presented in
the Placing and Admission to AIM document dated 7 October
2014 which can be found on www.gamma.co.uk. Gamma
Communications plc is a continuation of Gamma Telecom
Holdings Limited as reflected in the merger accounting principle
that has been adopted. Therefore the Group is not deemed to
be a first time adopter of IFRS in these financial statements.

The principal accounting policies adopted in the preparation
of the financial statements are set out below. The policies
have been consistently applied to all the periods presented.

→ IFRS 15 Revenue and Contracts with Customers

(effective 1 January 2017);

→ Amendments to IAS 16 and IAS 38 clarifying

Acceptable Methods of Depreciation and Amortisation
(effective date 1 January 2016); and

→ Annual improvements to IFRSs 2012-2014 Cycle

(effective 1 January 2016).

Management anticipates that all relevant pronouncements will
be adopted in the Group’s accounting policies for the first period
beginning after the effective date of the pronouncement. New
standards, interpretations and amendments not either adopted
or listed below are not expected to have a material impact on
the Group’s financial statements.

Going concern
The Directors prepare a detailed annual budget and constantly
reforecast for the next 12 month period. The Group has a
significant cash balance and is not reliant on any debt facilities.
Therefore, at the time of approving the financial statements,
the Directors have a reasonable expectation that the Company
and the Group have adequate resources to continue in
operational existence for the foreseeable future. Thus they
continue to adopt the going concern basis of accounting in
preparing the financial statements.

Basis of consolidation
The Group financial statements consolidate those of the
parent company and all of its subsidiaries. The parent controls
a subsidiary if it has power over the investee to significantly
direct the activities, exposure or rights to variable returns from
its involvement with the investee, and the ability to use its
power over the investee to affect the amount of the investor’s
returns. All subsidiaries have a reporting date of 31 December.
All transactions and balances between Group companies are
eliminated on consolidation, including unrealised gains and
losses on transactions between Group companies. Where
unrealised losses on intra-Group asset sales are reversed
on consolidation, the underlying asset is also tested for
impairment from a Group perspective. Amounts reported
in the financial statements of subsidiaries have been
adjusted where necessary to ensure consistency with
the accounting policies adopted by the Group.

Profit or loss and other comprehensive income of subsidiaries
acquired or disposed of during the year are recognised from
the effective date of acquisition, or up to the effective date
of disposal, as applicable.

The consolidated financial statements consist of the results
of the following entities:

Entity
Gamma Communications plc
Gamma Telecom Holdings Limited
Gamma Telecom Limited
Gamma Business Communications
Limited
Gamma Network Solutions Limited
Peach Amber Kft
Gamma Metronet Limited
NP4UK Limited
Uniworld Bureau Services Limited
Go Worldwide Solutions Limited
Blue Spot Technologies Limited
Gamma Telecom Employee
Benefit Trust

Summary description
Holding company
Intermediate holding company
Trading company
Holdings and trading company

Trading company
Trading company
Dormant
Dormant
Dormant
Dormant
Dormant
EBT

As set out in the basis of preparation note, the units which
comprise the Group have all been under common management
and control throughout the period presented in the consolidated
financial information but they did not form a legal group
throughout that period, the Group coming into existence on
12 May 2014. As a result, the Group Reconstruction is outside
the scope of IFRS 3 “Business combinations”. In accordance
with IAS 8, the Directors have determined that the most
appropriate method of accounting for the Group Reconstruction
is to follow the principles of merger accounting by reference
to UK GAAP.

The aim of merger accounting is to show the results and
financial position of the Group as if the Group had always been
in existence, as follows:

→ The results of the subsidiaries have been included in the

consolidated results for the entire period during which the
Group Reconstruction took place, as well as prior periods; and

→ The consolidated results include the assets and liabilities
of the subsidiaries at the book values at which they were
recorded prior to the Group Reconstruction: there is no
requirement to fair value, and no goodwill arises as a result.

The share capital issued to effect the merger has been shown
as if it had always been issued.

These financial statements incorporate the results of business
combinations using the acquisition method with the exception of
the common control transaction on the forming of the Group. In
the statement of financial position, the acquiree’s identifiable
assets, liabilities and contingent liabilities are initially recognised
at their fair values at the acquisition date. The results of acquired
operations are included in the consolidated statement of
comprehensive income from the date on which control is
obtained. They are deconsolidated from the date control ceases.

Revenue
Revenue represents the fair value of the consideration received
or receivable for communication services and equipment sales,
net of discounts and sales taxes.

Revenue is recognised when it is probable that the economic
benefits associated with a transaction will flow to the Group
and the amount of revenue and associated costs can be
measured reliably.

The Group sells a number of communications products (both
traditional and new) each of which typically consists of all or
some of four main types of revenue – voice and data traffic,
a subscription or rental, equipment and installation fees.
Revenue for each element of the sale of the product is
recognised as described below.

To the extent that invoices are raised to a different pattern
than the revenue recognition described below, appropriate
adjustments are made through deferred and accrued income
to account for revenue when the underlying service has been
performed or goods have transferred to the customer.

Voice and data traffic
Revenue from traffic is recognised at the time the call
is made.

Revenue arising from the interconnection of voice and data
traffic between other telecommunications operators is
recognised at the time of transit across the Group’s network.

Subscriptions and rentals
Revenue from the rental of analogue and digital lines is
recognised evenly over the period to which the charges relate.
Subscription fees, consisting primarily of monthly charges
for access to broadband, hosted IP services and other internet
access or voice services, are recognised as revenue as the
service is provided.

Equipment sales
Revenue from the sale of peripheral and other equipment
is recognised when all the significant risks and rewards of
ownership are transferred to the buyer, which is normally
the date the equipment is delivered and accepted by the
customer. Where the buyer has a right of return, the Group
defers recognition of revenue until the right to return has
lapsed. However, where the Group retains only insignificant
risks of ownership due to the right of return, revenue is not
deferred, but the Group recognises a provision based on
previous experience and other relevant factors. The same
policy applies to warranties.

Installations
Revenue arising from separable installation and connection
services is recognised when it is earned, upon activation.

Arrangements with multiple deliverables
Where goods and/or services are sold in one bundled
transaction, the Group allocates the total arrangement’s
consideration to the different individual elements based
on their relative fair values. Management determines the
fair values of individual components based on actual amounts
charged by the Group on a stand-alone basis, or alternatively
based on comparable pricing arrangements observable in
the market.

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsFinancial statements

Notes forming part of the financial statements
For the year ended 31 December 2014 continued

1. Accounting policies continued
Advances made to channel partners
Advances paid upfront to channel partners are only capitalised
where the Group can demonstrate recovery of the asset
through contractual claw back provisions and past evidence
of recovery. Where they are capitalised they are written
off rateably over the period of the contract to cost of sales.
Where this is not possible they are charged directly to the
consolidated statement of comprehensive income.

Goodwill
Goodwill represents the excess of the cost of a business
combination over, in the case of business combinations
completed prior to 1 January 2011, the Group’s interest in
the fair value of identifiable assets, liabilities and contingent
liabilities acquired and, in the case of business combinations
completed on or after 1 January 2011, the total acquisition
date fair value of the identifiable assets, liabilities and
contingent liabilities acquired.

For business combinations completed prior to 1 January 2011,
cost comprised the fair value of assets acquired, liabilities
assumed and equity instruments issued, plus any direct costs
of acquisition. Changes in the estimated value of contingent
consideration arising on business combinations completed
by this date were treated as an adjustment to cost and, in
consequence, resulted in a change in the carrying value
of goodwill.

For business combinations completed on or after 1 January
2011, cost comprises the fair value of assets acquired, liabilities
assumed and equity instruments issued, plus the amount
of any non-controlling interests in the acquiree plus, if the
business combination is achieved in stages, the fair value of
the existing equity interest in the acquiree.

Intangible assets
An intangible asset, which is an identifiable non-monetary
asset without physical substance, is recognised to the extent
that it is probable that the expected future economic benefits
attributable to the asset will flow to the Group and that its cost
can be measured reliably. The asset is deemed to be identifiable
when it is separable or when it arises from contractual or other
legal rights.

Intangible assets acquired as part of a business combination are
shown at fair value at the date of the acquisition less accumulated
amortisation. Amortisation is charged on a straight line basis
through the profit or loss. The rates applicable, which represent
the Directors’ best estimate of the useful economic life, are:

→ Customer contracts – five years

Impairment of non-financial assets (excluding inventories
and deferred tax assets)
Impairment tests on goodwill and other intangible assets with
indefinite useful economic lives are undertaken annually at
the financial year end. Other non-financial assets are subject to
impairment tests whenever events or changes in circumstances
indicate that their carrying amount may not be recoverable.
Where the carrying value of an asset exceeds its recoverable
amount (i.e. the higher of value in use and fair value less costs
to sell), the asset is written down accordingly.

Where it is not possible to estimate the recoverable amount
of an individual asset, the impairment test is carried out on
the smallest group of assets to which it belongs for which
there are separately identifiable cash flows: its cash generating
units (‘CGUs’). Goodwill is allocated on initial recognition to
each of the Group’s CGUs that are expected to benefit from
the synergies of the combination giving rise to the goodwill.

Contingent consideration
Contingent consideration is included in cost at its acquisition
date fair value and is classified as a financial liability, re-measured
at fair value subsequently through profit or loss. Contingent
consideration classified as equity is not re-measured.

Impairment charges are included in profit or loss, except to
the extent they reverse gains previously recognised in other
comprehensive income. An impairment loss recognised for
goodwill is not reversed.

Direct costs
For business combinations completed on or after 1 January
2011, direct costs of acquisition are recognised immediately
as an expense.

Impairment
Goodwill is capitalised as an intangible asset with any
impairment in carrying value being charged to the consolidated
statement of comprehensive income. Where the fair value of
identifiable assets, liabilities and contingent liabilities exceed
the fair value of consideration paid, the excess is credited in
full to the consolidated statement of comprehensive income
on the acquisition date.

Development costs
Expenditure on the research phase of an internal project is
recognised as an expense in the period in which it is incurred.
Development costs incurred on specific projects are capitalised
when all the following conditions are satisfied:

→ Completion of the asset is technically feasible so that it will

be available for use or sale;

→ The Group intends to complete the asset and use or sell it;

→ The Group has the ability to use or sell the asset and the
asset will generate probable future economic benefits
(over and above cost);

→ There are adequate technical, financial and other resources

to complete the development and to use or sell the asset; and

→ The expenditure attributable to the asset during its

development can be measured reliably.

Development costs not meeting the criteria for capitalisation
are expensed as incurred. The cost of an internally generated
asset comprises all directly attributable costs necessary to
create, produce and prepare the asset to be capable of
operating in the manner intended by management. Directly
attributable costs include employee (other than Directors)
costs incurred along with third party costs.

Judgement by the Directors is applied when deciding whether
the recognition requirements for development costs have
been met. Judgements are based on the information available
at each statement of financial position date. In addition, all
internal activities related to the research and development
of new projects are continuously monitored by the Directors.

Foreign currency
Transactions entered into by Group entities in a currency
other than the currency of the primary economic environment
in which they operate are recorded at the rates ruling when
the transactions occur. Foreign currency monetary assets
and liabilities are translated at the rates ruling at the reporting
date. Exchange differences arising on the retranslation
of unsettled monetary assets and liabilities are recognised
immediately in profit or loss, except for foreign currency
borrowings qualifying as a hedge of a net investment in
a foreign operation, in which case exchange differences are
recognised in other comprehensive income and accumulated
in the foreign exchange reserve along with the exchange
differences arising on the retranslation of the foreign operation.

On consolidation, the results of overseas operations are
translated into sterling at rates approximating to those ruling
when the transactions took place. All assets and liabilities of
overseas operations, including goodwill arising on the acquisition
of those operations, are translated at the rate ruling at the
reporting date. Exchange differences arising on translating the
opening net assets at opening rate and the results of overseas
operations at actual rate are recognised in other comprehensive
income and accumulated in the foreign exchange reserve.

Exchange differences recognised in the profit or loss of Group
entities on the translation of long-term monetary items forming
part of the Group’s net investment in the overseas operation
concerned are reclassified to other comprehensive income and
accumulated in the foreign exchange reserve on consolidation.

On disposal of a foreign operation, the cumulative exchange
differences recognised in the foreign exchange reserve relating
to that operation up to the date of disposal are transferred to
the consolidated statement of comprehensive income as part
of the profit or loss on disposal.

Segment reporting
Operating segments are reported in a manner consistent with
the internal reporting provided to the chief operating decision-
maker. The chief operating decision-makers have been identified
as the Chief Executive Officer, Finance Director and the
Management Committee. For further details please see note 4.

Financial assets
The Group does not have any financial assets which it would
classify as fair value through profit or loss, available for sale
or held to maturity. Therefore, all financial assets are classed
as loans and receivables as defined below.

Loans and receivables
These assets are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active
market. They arise principally through the provision of goods
and services to customers (e.g. trade receivables), but also
incorporate other types of contractual monetary asset.
They are initially recognised at fair value plus transaction
costs that are directly attributable to their acquisition or issue,
and are subsequently carried at amortised cost using the
effective interest rate method, less provision for impairment.

Impairment provisions are recognised when there is objective
evidence (such as significant financial difficulties on the part
of the counterparty or default or significant delay in payment)
that the Group will be unable to collect all of the amounts
due, the amount of such a provision being the difference
between the net carrying amount and the present value of
the future expected cash flows associated with the impaired
receivable. For trade receivables, which are reported net,
such provisions are recorded in a separate allowance account
with the loss being recognised within administrative expenses
in the consolidated statement of comprehensive income.
On confirmation that the trade receivable will not be
collectable, the gross carrying value of the asset is written
off against the associated provision.

The Group’s loans and receivables comprise trade and other
receivables and cash and cash equivalents in the consolidated
statement of financial position.

Cash and cash equivalents includes cash in hand, deposits
held at call with banks, other short term highly liquid
investments with original maturities of three months
or less, and – for the purpose of the statement of cash
flows – bank overdrafts. Bank overdrafts are shown
within loans and borrowings in current liabilities on the
consolidated statement of financial position.

Financial liabilities
Apart from contingent consideration the Group does not have
any financial liabilities that would be classified as fair value
through profit or loss. Therefore, these financial liabilities
are classified as financial liabilities at amortised cost, as
defined below.

Other financial liabilities include the following items:

→ Trade payables and other short term monetary liabilities,

which are initially recognised at fair value and subsequently
carried at amortised cost using the effective interest method.

Share capital
The Group’s Ordinary Shares and deferred shares are classified
as equity instruments.

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsFinancial statements

Notes forming part of the financial statements
For the year ended 31 December 2014 continued

1. Accounting policies continued
Retirement benefits: defined contribution schemes
Contributions to defined contribution pension schemes are
charged to the consolidated statement of comprehensive
income in the year to which they relate.

Share based payments
Where equity settled shares or share options are awarded
to employees, the fair value of the options at the date of grant
is charged to the consolidated statement of comprehensive
income over the vesting period. Non-market vesting conditions
are taken into account by adjusting the number of equity
instruments expected to vest at each reporting date so that,
ultimately, the cumulative amount recognised over the vesting
period is based on the number of options that eventually
vest. Non-vesting conditions and market vesting conditions
are factored into the fair value of the options granted. As long
as all other vesting conditions are satisfied, a charge is made
irrespective of whether the market vesting conditions are
satisfied. The cumulative expense is not adjusted for failure
to achieve a market vesting condition or where a non-vesting
condition is not satisfied.

Where the terms and conditions of options are modified
before they vest, the increase in the fair value of the options,
measured immediately before and after the modification,
is also charged to the consolidated statement of comprehensive
income over the remaining vesting period.

The fair value of the options is measured by use of either the
Black-Scholes method or the Monte Carlo method; the latter
methodology being used where there are market conditions
attached to the share awards.

Prior to flotation, the Group also operated a shadow share
option scheme (a cash settled share based payment). An option
pricing model is used to measure the Group’s liability at each
reporting date, taking into account the terms and conditions on
which the bonus is awarded and the extent to which employees
have rendered service. Movements in the liability are recognised
in the consolidated statement of comprehensive income. All
such awards crystallised on flotation and were settled in 2014.

Exceptional items
The Group treats certain items which are considered to be
one-off and not representative of the underlying trading of
the Group as exceptional in nature.

The Directors apply judgement in assessing the particular items,
which by virtue of their scale and nature should be classified
as exceptional items. The Directors consider that separate
disclosure of these items is relevant to an understanding of
the Group’s financial performance.

Leased assets
Where substantially all of the risks and rewards incidental
to ownership are not transferred to the Group (an “operating
lease”), the total rentals payable under the lease are charged
to the consolidated statement of comprehensive income on
a straight line basis over the lease term. The aggregate benefit
of lease incentives is recognised as a reduction of the rental
expense over the lease term on a straight line basis.

Dividends
Dividends are recognised when they become legally payable.
In the case of interim dividends to equity shareholders, this is
when declared by the Directors. In the case of final dividends,
this is when approved by the shareholders at the AGM. Dividend
distributions payable to equity shareholders are included in
other liabilities when the dividends have been approved in
a general meeting prior to the reporting date.

Taxation
The tax expense represents the sum of the tax currently
payable and deferred tax.

Current tax
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from net profit as reported in the
income statement because it excludes items of income or
expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible.

Deferred tax
Deferred tax assets and liabilities are recognised where the
carrying amount of an asset or liability in the consolidated
statement of financial position differs from its tax base,
except for differences arising on:

→ the initial recognition of goodwill;

→ the initial recognition of an asset or liability in a transaction
which is not a business combination and at the time of the
transaction affects neither accounting or taxable profit; and

→ investments in subsidiaries and jointly controlled entities

where the Group is able to control the timing of the reversal
of the difference and it is probable that the difference will
not reverse in the foreseeable future.

Recognition of deferred tax assets is restricted to those instances
where it is probable that taxable profit will be available against
which the deductible temporary differences can be utilised.

Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised based on tax laws and rates that have been enacted or
substantively enacted at the balance sheet date. Deferred tax
is charged or credited in the income statement, except when it
relates to items charged or credited in other comprehensive
income, in which case the deferred tax is also dealt with in
other comprehensive income.

Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes
levied by the same taxation authority and the Group intends
to settle its current tax assets and liabilities on a net basis.

Current tax and deferred tax for the year
Current and deferred tax are recognised in profit or loss,
except when they relate to items that are recognised in other
comprehensive income or directly in equity, in which case,
the current and deferred tax are also recognised in other
comprehensive income or directly in equity respectively.
Where current tax or deferred tax arises from the initial

accounting for a business combination, the tax effect is
included in the accounting for the business combination.

Property, plant and equipment
Items of property, plant and equipment are initially recognised
at cost. As well as the purchase price, cost includes directly
attributable costs and the estimated present value of any
future unavoidable costs of dismantling and removing items.
The corresponding liability is recognised within provisions.

Assets in the course of construction for use in the supply of
communication products, or for administration purposes not yet
determined, are carried at cost, less any recognised impairment
loss. Cost includes professional fees. Depreciation of these
assets, on the same basis as other assets, commences when
the assets are ready for their intended use.

Assets which are supplied to customers as part of a service
(for example, a broadband router), known as Customer Premises
Equipment, are capitalised and depreciated over the length
of the contract for the relevant service.

Depreciation is provided on all other items of property, plant and
equipment so as to write off their carrying value over their expected
useful economic lives. It is provided at the following rates:

Network assets
Customer Premises Equipment
Computer equipment
Fixtures and fittings

10%–33% per annum straight line
20%–50% per annum straight line
25%–50% per annum straight line
20%–25% per annum straight line

Inventories
Inventories are initially recognised at cost, and subsequently at
the lower of cost and net realisable value. Cost comprises all
costs of purchase, costs of conversion and other costs incurred in
bringing the inventories to their present location and condition.

Weighted average cost is used to determine the cost of
ordinarily interchangeable items.

Work in progress is valued at the lower of cost, comprising direct
materials and labour plus attributable overheads less provision for
foreseeable losses and progress payments, and net realisable value.

Employee Benefit Trust (EBT)
As the Company is deemed to have control of its EBT, it is
treated as a subsidiary and consolidated for the purposes
of the consolidated financial statements. The EBT’s assets
(other than investments in the Company’s shares), liabilities,
income and expenses are included on a line-by-line basis in
the consolidated financial statements.

Provisions
The Group recognises provisions where there is a present
obligation as a result of a prior event. The Group has recognised
provisions for liabilities of uncertain timing or amount relating
to leasehold dilapidations. The provision is measured at the best
estimate of the expenditure required to settle the obligation at
the reporting date, discounted at a pre-tax rate reflecting
current market assessments of the time value of money and
risks specific to the liability.

2. Critical accounting estimates and judgements
The Group makes certain estimates and assumptions
regarding the future. Estimates and judgements are
continually evaluated based on historical experience
and other factors, including expectations of future events
that are believed to be reasonable under the circumstances.
In the future, actual experience may differ from these
estimates and assumptions. The estimates and assumptions
that have a significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities within
the next financial year are discussed below.

(a) Valuation of intangibles
Acquisitions may result in customer contracts being recognised.
These are valued using discounted cash flow methods which
require the application of certain key judgements and
estimates. In particular, management has had to estimate the
likely future rate of contract renewals which involves a level of
judgement due to the short trading history of the acquisition. If
the contract renewals are lower than estimated this may result
in an impairment to the asset valuation. The level of renewal
experienced to date supports management’s estimates.

(b) Impairment of goodwill
The Group is required to test, on an annual basis, whether goodwill
has suffered any impairment. The recoverable amount is
determined based on value in use calculations. The use of this
method requires the estimation of future cash flows and the
choice of a discount rate in order to calculate the present value of
the cash flows. Actual outcomes may vary. Impairment testing has
not indicated any impairment in goodwill over the period end dates.

(c) Taxation
Significant judgement is required in determining the provision
for income taxes. During the ordinary course of business, there
are transactions and calculations for which the ultimate tax
determination is uncertain. As a result, the Company recognises
tax liabilities based on estimates of whether additional taxes
and interest will be due. These tax liabilities are recognised
when, despite the Group’s belief that its tax return positions
are supportable, the Group believes that certain positions could
be challenged and upon review by tax authorities. The Group
believes that its accruals for tax liabilities are adequate for all
open audit years based on its assessment of many factors
including past experience and interpretations of tax law. This
assessment relies on estimates and assumptions and may involve
a series of complex judgements about future events. To the
extent that the final tax outcome of these matters is different
from the amounts recorded, such differences will impact income
tax expense in the period in which such determination is made.

(d) Control assessment
IFRS 10 has introduced a new definition of control.
Management considers that this does not affect its assessment
that the Group continues to consolidate all entities within these
consolidated financial statements as the Company has control
over the following:

→ power over the investee to significantly direct the activities;

→ exposure, or rights, to variable returns from its involvement

with the investee; and

→ the ability to use its power over the investee to affect the

amount of the investor’s returns.

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsFinancial statements

Notes forming part of the financial statements
For the year ended 31 December 2014 continued

2. Critical accounting estimates and judgements continued
In particular, management believes that the Group exercises
this level of control over the Employee Benefit Trust.

3. Revenue
Revenue in all periods principally arises from the provision
of services. There is an immaterial level of sales of goods.

4. Segment information
The Group has two main operating segments:

→ Indirect – This division consists of the Gamma Business

Unit. It sells the products developed by Gamma to channel
partners and contributed 79% (2013: 80%) of the Group’s
external revenue.

→ Direct – This division consists of Gamma Business

Communications Limited and Gamma Network Solutions
Limited. These companies sell Gamma’s traditional and new
products to end users in the private and public sectors
together with an associated service wrap. They contributed
21% (2013: 20%) of the Group’s external revenues.

There are no material non UK segments and no material
non-current assets outside the UK.

Both operating segments sell a combination of traditional
products (which is mainly voice traffic from which revenues
are derived from channel partners and other carriers as well
as rentals for wholesale lines) and new products (which
consists of IP voice traffic, rental income derived from SIP
trunks, hosted IP voice systems and Gamma’s hosted inbound
product and data products).

Factors that management used to identify the Group’s
reportable segments
The Group’s reportable segments are strategic business units
that offer products and services into different markets. They
are managed separately because each business requires
different marketing strategies.

Measurement of operating segment profit or loss, assets
and liabilities
The accounting policies of the operating segments are the
same as those described in the summary of significant
accounting policies.

The Group evaluates performance on the basis of profit or loss
from operations but excluding non-recurring losses, such as
goodwill impairment, and the effects of share based payments.

Inter-segment sales are priced along the same lines as sales to
external customers, with an appropriate discount being applied
to encourage use of Group resources at a rate acceptable to
local tax authorities. This policy was applied consistently
throughout the current and prior period.

Loans and borrowings are allocated to the segments based on
relevant factors (e.g. funding requirements). Details are
provided in the reconciliation from segment assets and
liabilities to the Group position.

(e) Leasehold dilapidations
Leasehold dilapidations relate to the estimated cost of
returning a leasehold property to a defined condition at the
end of the lease in accordance with the lease terms. Once
the stage of the lease has been reached at which a reliable
estimate of the costs can be made, a provision is recognised in
the profit and loss. The main uncertainty relates to estimating
the cost that will be incurred at the end of the lease.

(f) Contingent assets and liabilities
The Group exercises judgement in measuring and recognising
contingent assets and the exposures to contingent liabilities
related to pending litigation or other outstanding claims subject
to negotiated settlement, mediation, arbitration or government
regulation, as well as other contingent assets or liabilities.
Judgement is necessary in assessing the likelihood that a
pending claim will succeed, or an asset/liability will arise, and
to quantify the possible range of the financial settlement.
Because of the inherent uncertainty in this evaluation process,
actual gains or losses may be different from the originally
estimated provision.

(g) Capitalisation of internal development costs
The Group carries out a number of research and development
projects. Some of these projects consist of speculative research
whilst others are considered to be closer to the maintenance
of existing systems. However, where a piece of development
is producing an asset which will be used within the business
or sold directly (and it is probable that it will generate future
economic benefits) then the development cost is capitalised
and amortised. Each year the Directors consider the work which
has been performed by the development team and where it is
assessed that the appropriate criteria are met the costs are
capitalised; this involves inherent judgement as to the likely
future economic benefit to be derived from the asset.

(h) Acquisition of assets
During the year the business acquired various assets. In one
instance assets were acquired along with various support
contracts for those assets and also some staff contracts. The
Directors considered whether this acquisition was, in fact, the
acquisition of a business. The Directors considered guidance
in IFRS 3 B7 which states that a business will consist of inputs,
processes and outputs. Whilst this involves some judgement,
the Directors felt that in the case of this acquisition, all criteria
were not met and hence the acquisition has been accounted
for as a purchase of assets.

(i) Share Based Payment Charges
The Company runs a number of share option schemes which
give rise to share based payment charges. The calculation
of the charges involves a significant level of estimate
particularly around market volatility and yield. In instances
where there are performance conditions (i.e. the LTIP scheme)
the Directors must also consider the likelihood of the
performance conditions being met. The Directors use the
services of a firm of Chartered Accountants (who are not
the auditor) to assist with these valuations.

2014
Traditional products
New products
Total revenue from external customers
Inter-segment revenue

Traditional products
New products
Total gross profit

Segment operating profit before share based payment, depreciation,
amortisation and exceptional items
Share based payment expense
Exceptional Items
Segment EBITDA
Depreciation and amortisation

Segment profit
Tax
Group profit after tax

Indirect
£m

Direct
£m

64.5
72.4
136.9
8.2

18.8
33.6
52.4

17.4
(3.2)
(1.4)
12.8
(5.8)

7.0
(0.9)
6.1

13.7
22.6
36.3
–

4.6
10.6
15.2

5.7
–
(0.6)
5.1
(0.6)

4.5
(1.2)
3.3

Total
£m

78.2
95.0
173.2
8.2

23.4
44.2
67.6

23.1
(3.2)
(2.0)
17.9
(6.4)

11.5
(2.1)
9.4

External revenue of customers has been derived principally from the United Kingdom and no single customer contributes more
than 10% of revenue.

Additions to non-current assets
Reportable segment assets
Reportable segment liabilities

2013
Traditional products
New products
Total revenue from external customers
Inter-segment revenue

Traditional products
New products
Total gross profit

Segment operating profit before share based payment, depreciation,
amortisation and exceptional items
Share based payment expense
Segment EBITDA
Depreciation and amortisation

Segment profit
Interest income
Tax
Group profit after tax

Indirect
£m
11.6
54.2
12.2

Indirect
£m

67.8
51.2
119.0
6.5

17.9
24.7
42.6

13.6
(0.9)
12.7
(4.2)

8.5
–
(1.7)
6.8

Direct
£m
0.5
24.8
15.6

Direct
£m

17.1
12.6
29.7
–

5.6
5.7
11.3

3.6
–
3.6
(0.6)

3.0
–
(0.5)
2.5

External revenue of customers has been derived principally from the United Kingdom and no single customer is over 10%
of revenue.

Total
£m
12.1
79.0
27.8

Total
£m

84.9
63.8
148.7
6.5

23.5
30.4
53.9

17.2
(0.9)
16.3
(4.8)

11.5
–
(2.2)
9.3

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsFinancial statements

Notes forming part of the financial statements
For the year ended 31 December 2014 continued

4. Segment information continued

Additions to non-current assets
Reportable segment assets
Reportable segment liabilities

Indirect
£m
5.5
45.4
16.3

5. Profit on ordinary activities
Profit on ordinary activities is stated after charges/credits of the following amounts

Changes in inventories
Staff costs (see note 7)
Depreciation of property, plant and equipment (incl. impairment)
Amortisation of intangible assets
Fees payable to the Company’s auditor for the audit of the parent company and consolidated financial statements
Fees payable to the Company’s auditor for other services:

– Audit of the Company’s subsidiaries pursuant to legislation
– Other services

Operating lease expense:

– Property

Direct
£m
0.4
20.7
12.9

2014
£m
0.6
30.1
5.1
1.3
–

0.1
0.3

1.2

Total
£m
5.9
66.1
29.2

2013
£m
0.2
21.9
3.7
1.1
–

0.1
–

1.1

Fees payable to the Company’s auditor for the audit of the parent company and consolidated financial statements totalled £16k
for the year.

6. Exceptional items

IPO costs
Change in the fair value of contingent consideration relating to the purchase of Varidion Limited (note 26)
Restructuring

2014
£m
1.2
0.6
0.2
2.0

2013
£m
–
–
–
–

IPO costs relate to the professional fees incurred on the admission of the Group to AIM.

The change in the fair value of contingent consideration is because during the course of the year the Directors took an opportunity
to settle the consideration relating to the purchase of Varidion Limited.

7. Staff costs

Staff costs (including Directors) comprise:
Wages and salaries
Defined contribution pension cost (note 24)
Social security contributions and similar taxes

Share based payment expense (note 25)

Employee numbers
The average number of staff employed by the Group during the financial year amounted to:

Operational
Selling, administration and distribution

2014
£m

23.2
1.2
2.5
26.9
3.2
30.1

2013
£m

17.7
1.2
2.1
21.0
0.9
21.9

2014
Number
272
247
519

2013
Number
214
217
431

Key management personnel compensation
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the
activities of the Group, including the Directors of the Company listed on page 32, and the Management Committee listed on
page 34.

Salary
Defined contribution pension costs
Social security contributions and similar taxes

Share based payment expense (note 25)

Emoluments in respect of Directors are summarised below

Salary
Compensation for loss of office
Defined contribution pension costs
Social security contributions and similar taxes

Share based payment expense (note 25)

Emoluments disclosed above include the following amounts in respect of the highest paid Director.

Salary
Total pension and other post-employment benefit costs
Share based payment expense

2014
£m
2.3
0.2
0.3
2.8
2.9
5.7

2014
£m
0.9
0.2
0.1
0.1
1.3
1.0
2.3

2014
£m
0.6
0.0
0.6
1.2

2013
£m
1.9
0.4
0.3
2.6
0.5
3.1

2013
£m
0.7
–
0.2
0.1
1.0
0.2
1.2

2013
£m
0.4
0.1
0.1
0.6

During the year, one Director (2013: two Directors) participated in a private money purchase defined contribution pension scheme.

The remuneration for the Directors who have served as such since flotation is shown within the Remuneration Report. Between
incorporation and flotation, there were two additional Directors who received remuneration from the Group. Malcolm Goddard
served as Director from incorporation on 17 March 2014 to 30 August 2014 and Gerard Sreeves from 23 May 2014 to
1 October 2014. During those periods their remuneration was as follows:

Director
Gerard Sreeves
Malcolm Goddard
Bonuses are shown on an accrued basis.

Salary and
fees
56,968
49,639

Bonus
-
39,994

Compensation for
loss of office
181,424
-

Pension
9,055
-

Total for
period
served as
Director
247,447
89,633

Gerard Sreeves also exercised 118,381 options over £0.0025 Ordinary Shares shortly after he ceased to be a Director. A payment
of £1,104,000 was also paid for cancellation options over 400,000 A1 ordinary shares.

8. Finance income
Recognised in profit or loss

Finance income
Interest received on bank deposits
Total finance income

2014
£m

2013
£m

–
–

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsFinancial statements

Notes forming part of the financial statements
For the year ended 31 December 2014 continued

9. Tax expense

Current tax expense
Current tax on profits for the year
Adjustment in respect of prior year
Total current tax
Deferred tax expense
Origination and reversal of temporary differences (note 20)
Total tax expense

2014
£m

2013
£m

2.9
(0.2)
2.7

(0.6)
2.1

2.9
(0.5)
2.4

(0.2)
2.2

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:

Profit before income taxes
Expected tax charge based on the standard rate of United Kingdom corporation tax at the domestic rate of 21.5%
(2013: 22.25%)
Expenses not deductible for tax purposes
Additional deduction for R&D expenditure
Adjustment in respect of prior year
Total tax expense

2014
£m
11.5

2.5
0.5
(0.7)
(0.2)
2.1

2013
£m
11.5

2.6
0.4
(0.3)
(0.5)
2.2

The Finance Act 2013 includes provision for the main rate of corporation tax to reduce to 20% from 1 April 2015.

10. Earnings per share and dividends
Earnings per share
The calculation of basic earnings per Ordinary Share is based on a profit after tax of £9.4 million (2013: profit of £9.3 million)
and 88,349,480 (2013: 88,326,746) Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the
period (adjusted for the fact that there was a share split during the period). Because the Group was formed by a share for share
exchange, for the purposes of calculating earnings per share, it has been assumed that the number of shares at incorporation
was the number of shares between 1 January 2013 and incorporation for the purposes of calculating a weighted average.

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 as described in note 25. For 2014 the diluted Ordinary Shares
were based on 93,601,600 Ordinary Shares that included 5,252,120 potential Ordinary Shares.

The following reflects the income and share data used in the calculation of adjusted earnings per share computations before
share based payments, one-off costs and their associated tax effect.

Profit for the year
Exceptional costs
Share based payment costs
Less tax benefit associated with share based payment costs and one-off costs
Adjusted profit after tax for the year

Weighted average number of Ordinary Shares for basic earnings per share
Effect of dilution resulting from share options
Weighted average number of Ordinary Shares adjusted for the effect of dilution

Adjusted earnings per Ordinary Share – basic (pence)
Adjusted earnings per Ordinary Share – diluted (pence)

Total
2014
£m
9.4
2.0
3.2
(0.6)
14.0

Total
2013
£m
9.3
–
0.9
(0.1)
10.1

Total
2014
No.
88,349,480
5,252,120
93,601,600

Total
2013
No.
88,326,746
5,274,854
93,601,600

2014
15.9
15.0

2013
11.4
10.8

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
During 2014, Gamma Communications plc did not pay an interim dividend.

A final dividend of 3.95p will be proposed at the Annual General Meeting but has not been recognised as it requires approval.

11. Property, plant and equipment

Cost
At 1 January 2013
Additions
At 31 December 2013
Depreciation
At 1 January 2013
Charge for the year
At 31 December 2013
Net book value
At 1 January 2013
At 31 December 2013

Cost
At 1 January 2014
Additions
At 31 December 2014
Depreciation
At 1 January 2014
Charge for the year
At 31 December 2014
Net book value
At 1 January 2014
At 31 December 2014

Network
assets
£m

Customer-
Premises
equipment
£m

Computer
equipment
£m

Fixtures
and fittings
£m

30.3
2.7
33.0

21.6
2.2
23.8

8.7
9.2

33.0
8.8
41.8

23.8
3.2
27.0

9.2
14.8

0.2
0.7
0.9

–
0.2
0.2

0.2
0.7

0.9
1.0
1.9

0.2
0.6
0.8

0.7
1.1

9.9
1.6
11.5

7.5
1.2
8.7

2.4
2.8

11.5
1.0
12.5

8.7
1.3
10.0

2.8
2.5

1.1
–
1.1

0.9
0.1
1.0

0.2
0.1

1.1
0.4
1.5

1.0
–
1.0

0.1
0.5

Included within network assets are assets in the course of construction with a value of £4.0m (2013: £Nil) for which no
depreciation has been charged. Depreciation will commence when the asset enters operational use.

There was no property, plant or equipment held under finance leases at the end of the period (2013: £Nil).

There was no property, plant or equipment held as security at the end of the period (2013: £Nil).

Total
£m

41.5
5.0
46.5

30.0
3.7
33.7

11.5
12.8

46.5
11.2
57.7

33.7
5.1
38.8

12.8
18.9

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsFinancial statements

Notes forming part of the financial statements
For the year ended 31 December 2014 continued

12. Intangible assets

Cost
At 1 January 2013
Additions
At 31 December 2013
Amortisation
At 1 January 2013
Charge for the year
At 31 December 2013
Carrying value
At 1 January 2013
At 31 December 2013

Cost
At 1 January 2014
Additions
At 31 December 2014
Amortisation
At 1 January 2014
Charge for the year
At 31 December 2014
Carrying value
At 1 January 2014
At 31 December 2014

Goodwill on
Consolidation
£m

Development
costs
£m

Customer
Contracts
£m

12.5
–
12.5

4.5
–
4.5

8.0
8.0

12.5
–
12.5

4.5
–
4.5

8.0
8.0

2.6
0.8
3.4

0.8
0.7
1.5

1.8
1.9

3.4
0.9
4.3

1.5
0.9
2.4

1.9
1.9

2.1
–
2.1

0.4
0.4
0.8

1.7
1.3

2.1
–
2.1

0.8
0.4
1.2

1.3
0.9

Total
£m

17.2
0.8
18.0

5.7
1.1
6.8

11.5
11.2

18.0
0.9
18.9

6.8
1.3
8.1

11.2
10.8

Research and development costs expensed in the year totalled £4.4m (2013: £3.8m).

The estimates of the useful economic lives of the intangible assets are as follows:

→ Customer contracts – five years

→ Development costs – various but no more than four years

→ Goodwill on consolidation – indefinite (subject to impairment)

The carrying amount of goodwill is allocated to the cash generating units (CGUs) as follows:

Gamma Business Communications Limited
Gamma Network Solutions Limited

2014
£m
6.8
1.2
8.0

2013
£m
6.8
1.2
8.0

The carrying value of the Group’s goodwill is not subject to annual amortisation and was tested for impairment at 31 December 2014
and 2013. The recoverable amount has been determined on a value-in-use basis on each CGU using the management approved
12-month budget for each CGU. The base 12-month projection is amended for years two to five as follows: (a) by increasing revenue
by 6% for Gamma Business Communications Limited and by 25% for Gamma Network Solutions Limited; (b) gross margin percentage
is assumed to be held constant; and (c) overheads are assumed to grow in line with inflation. These cash flows are then discounted at
15% which management believes reflects the Group’s cost of capital and any risk factors associated with the direct business – both
CGUs form the direct part of the Group and therefore it is appropriate to use a single discount rate across both CGUs.

Based on the results of the impairment reviews carried out for each period (giving a recoverable amount of £22.0m in respect of
Gamma Business Communications Limited and £9.3m in respect of Gamma Network Solutions Limited), no impairment charges have
been recognised by the Group in either of the years. Management has considered various sensitivity analyses in order to appropriately
evaluate the carrying value of goodwill. Having assessed the anticipated future cash flows, the Directors do not consider there to be
any reasonably possible changes in assumptions that would lead to such an impairment charge in any of the years.

13. Subsidiaries
The principal subsidiaries of Gamma Communications plc, all of which are 100% owned and have been included in these financial
statements in accordance with the merger accounting as set out in the basis of preparation and basis of consolidation note 1,
are as follows:

Name
Gamma Telecom Holdings Limited
Gamma Telecom Limited
Gamma Metronet Limited
Gamma Business Communications Limited
Gamma Network Solutions Limited
Peach Amber Kft
Notes:
(a) Gamma Network Solutions Limited is owned by Gamma Business Communications Limited

Country of
incorporation
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Hungary

Nature of
business
Intermediate holding company
Telephony services
Dormant
Retail telephony services
Data and communications networks
Software services

Notes

(a)

Gamma Business Communications Limited held 100% of the share capital of the following dormant subsidiaries, all incorporated
in the United Kingdom, at 1 January 2013, 31 December 2013 and 31 December 2014:

→ Blue Spot Technologies Limited

→ Go Worldwide Communications Limited

→ Uniworld Bureau Services Limited

Gamma Telecom Limited is also a member of NP4UK Limited which is a dormant company (limited by guarantee) incorporated
in the United Kingdom.

The Group also consolidates the Gamma Telecom Employee Benefit Trust.

The Group held no interests in unconsolidated structured entities.

14. Inventories

Raw materials and consumables
Provision
Total inventories

15. Trade and other receivables

Trade receivables
Less: provision for impairment of trade receivables
Trade receivables – net
Accrued income
Prepayments
Other receivables
Total trade and other receivables

2014
£m
1.2
(0.1)
1.1

2014
£m
17.9
(1.2)
16.7
7.6
4.6
3.6
32.5

2013
£m
0.6
(0.1)
0.5

2013
£m
15.9
(0.9)
15.0
7.3
3.2
0.9
26.4

Due to the short term nature of trade and other receivables and as the credit risk has been adjusted for, the book value
approximates to fair value.

As at 31 December 2014 and 2013 trade receivables as shown below were past due but not impaired. They relate to customers
with no default history or where we have an offset arrangement. The ageing analysis of these receivables is as follows:

Up to 3 months
3 to 6 months
6 to 12 months
Older than 1 year

2014
£m
1.7
0.3
0.2
0.2
2.4

2013
£m
1.6
1.5
0.4
–
3.5

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsFinancial statements

Notes forming part of the financial statements
For the year ended 31 December 2014 continued

15. Trade and other receivables continued
As at 31 December 2014 trade receivables of £0.8m (2013: £0.4m) were past due and impaired. The amount of the provision as
at 31 December was £1.2m (2013: £0.9m). The main factors considered by the Credit Committee in determining that the amounts
due are impaired are that the customers are unlikely to be trading or the debts are three months and more past due. The ageing of
these receivables is as follows:

Not due
Up to 3 months
3 to 6 months
6 to 12 months
Older than 1 year

2014
£m
0.3
0.1
0.3
0.2
0.3
1.2

2013
£m
0.5
–
0.1
0.1
0.2
0.9

The Group does not have any concentration of credit risk. None of the customers represents more than 10% of trade receivables.

Movements on the Group provision for impairment of trade receivables are as follows:

At beginning of the year
Provided during the year
Receivable written off during the year as uncollectible
Unused amounts reversed

2014
£m
0.9
0.3
–
–
1.2

2013
£m
1.5
–
(0.5)
(0.1)
0.9

The movement on the provision for impaired receivables has been included in the selling and administrative expenses line in the
consolidated statement of comprehensive income.

16. Cash and cash equivalents notes

Cash at bank available on demand

17. Trade and other payables

Current
Trade payables
Other payables
Accruals
Contingent consideration (note 26)

Tax and social security
Deferred income
Total trade and other payables

Non-current
Contingent consideration (note 26)
Total other payables

2014
£m
13.4

2014
£m

3.3
0.9
17.3
0.1
21.6
2.6
1.7
25.9

2014
£m

–
–

2013
£m
14.6

2013
£m

6.3
0.8
13.7
0.7
21.5
1.4
1.8
24.7

2013
£m

1.4
1.4

Book values approximate to fair value at 31 December 2014 and 31 December 2013.

All current trade and other payables are payable within three months of the period end date shown above with the exception of
the contingent consideration which is payable between three and 12 months and as such they are all considered current.

18. Financial instruments – Risk Management
The Group is exposed through its operations to the following financial risks:

→ Credit risk

→ Fair value or cash flow interest rate risk

→ Market risk

→ Liquidity risk

In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note
describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them.
Further quantitative information in respect of these risks is presented throughout these financial statements.

Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:

→ Trade receivables

→ Cash and cash equivalents

→ Trade and other payables

A summary of the financial instruments held by category is provided below:

Financial assets – loans and receivables – amortised cost

Cash and cash equivalents
Trade receivables – net
Accrued income
Other receivables
Total financial assets

Financial liabilities – amortised cost

Trade and other payables
Total financial liabilities – amortised cost

Financial liabilities – fair value through profit or loss (FVTPL)

Contingent consideration
Total financial liabilities – FVTPL

2014
£m
13.4
16.7
7.6
3.6
41.3

2014
£m
21.5
21.5

2014
£m
0.1
0.1

2013
£m
14.6
15.0
7.3
0.9
37.8

2013
£m
20.8
20.8

2013
£m
2.1
2.1

General objectives, policies and processes
The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst
retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the
effective implementation of the objectives and policies to the Group’s Management Committee. The Board receives quarterly
reports from the Management Committee through which it reviews the effectiveness of the processes put in place and the
appropriateness of the objectives and policies it sets.

The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s
competitiveness and flexibility. Further details regarding these policies are set out on the next page:

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsFinancial statements

Notes forming part of the financial statements
For the year ended 31 December 2014 continued

18. Financial instruments – Risk Management continued
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or a counterparty to a financial instrument fails to meet its contractual
obligations. The Group is mainly exposed to credit risk from credit sales. It is Group policy, implemented locally, to assess the credit risk
of new customers before entering contracts. Such credit ratings are taken into account by local business practices.

The Credit Committee has established a credit policy under which each new customer is analysed individually for creditworthiness
before the Group’s standard payment and delivery terms and conditions are offered. The Group’s review includes external ratings
when available. Purchase limits are established for each customer, which represent the maximum open amount without requiring
approval from the Credit Committee.

The Credit Committee determines concentrations of credit risk by quarterly monitoring the creditworthiness rating of existing
customers and through a monthly review of the trade receivables’ ageing analysis.

Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. For banks and financial
institutions, only independently rated parties with high credit status are accepted.

The Group does not enter into derivatives to manage credit risk, although in certain isolated cases it may take steps to mitigate
such risks if they are sufficiently concentrated.

Quantitative disclosures of the credit risk exposure in relation to financial assets are set out below. Further disclosures regarding
trade and other receivables, which are neither past due nor impaired, are provided in note 15.

Financial assets – maximum exposure

Cash and cash equivalents
Trade receivables – net
Accrued income
Other receivables
Total financial assets

2014
£m
13.4
16.7
7.6
3.6
41.3

2013
£m
14.6
15.0
7.3
0.9
37.8

The Credit Committee monitors the utilisation of the credit limits regularly and at the reporting date does not expect any losses
from non-performance by the counterparties.

Cash in bank
The Group is continually reviewing the credit risk associated with holding money on deposit in banks and seek to mitigate this risk
by holding deposits with banks with high credit status.

Fair value and cash flow interest rate risk
As of 31 December 2013 and 31 December 2014 the Group’s exposure to fair value and cash flow interest rate risk was not
material. It is Group policy that all borrowings are approved by the Finance Director to ensure that it is not taking on significant
risk related to possible movements in interest rates. Although the Board accepts that this policy neither protects the Group
entirely from the risk of paying rates in excess of current market rates nor eliminates fully cash flow risk associated with
variability in interest payments, it considers that it achieves an appropriate balance of exposure to these risks.

Market risk
The market risk relates to foreign exchange. Foreign exchange risk arises because the Group has a small operation located in
Hungary whose functional currency is not the same as the functional currency in which the Group companies are operating.
Although the fact that its overseas operations are small compared to those in the UK reduces the Group’s operational risk, the
Group’s net assets arising from such overseas operations are exposed to currency risk resulting in gains or losses on retranslation
into sterling. Given the levels of materiality, the Group does not hedge its net investments in overseas operations as the cost of
doing so is disproportionate to the exposure.

Foreign exchange risk also arises when individual Group entities enter into transactions denominated in a currency other than their
functional currency; the Group has very few customers who are invoiced in currency other than sterling and no regular suppliers
invoice in currency other than sterling. Again, these transactions are not hedged because the cost of doing so is disproportionate
to the risk.

As of 31 December 2013 and 31 December 2014 the Group’s exposure to foreign exchange risk was not material.

A sensitivity analysis for market risk has not been prepared as the risk is immaterial.

Liquidity risk
Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will encounter difficulty
in meeting its financial obligations as they fall due.

It is the Group’s aim to settle balances as they become due.

The Board receives annual 24-month cash flow projections. At the end of the financial year, these projections indicated that
the Group expected to have sufficient liquid resources to meet its obligations under all reasonably expected circumstances.

The following table sets out the contractual maturities (representing undiscounted contractual cash flows) of financial liabilities:

2014
Trade and other payables
Contingent consideration
Total

2013
Trade and other payables
Contingent consideration
Total

Up to 3
months
£m

21.5
–
21.5

Up to 3
months
£m

20.8
0.7
21.5

Between
3 and 12
months
£m

Between
1 and 2
year
£m

Between
2 and 5
years
£m

Over
5 years
£m

–
0.1
0.1

–
–
–

Between
3 and 12
months
£m

Between
1 and 2
year
£m

Between
2 and 5
years
£m

–
–
–

–
0.6
0.6

–
0.8
0.8

–
–
–

Over
5 years
£m

–
–
–

More details in regard to the line items are included in the respective notes:

→ Trade and payables – note 17

Capital disclosures
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising its
return to shareholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged
from the prior year. The Group monitors “adjusted capital” which comprises all components of equity (i.e. share capital, share
premium reserve, merger reserve, share option reserve and retained earnings).

The Group’s objectives when maintaining capital are:

→ to safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns for shareholders

and benefits for other stakeholders; and

→ to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

The Group has historically maintained very low levels of gearing and is not exposed to externally imposed capital requirements.
The Group will continue to manage the amount of capital it requires in proportion to risk. The Group manages its capital structure
and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets.

Total equity
Cash and cash equivalents
Capital
Total equity
Overall financing
Capital–to–overall financing ratio

2014
£m
51.2
13.4
64.6
51.2
51.2
1.26

2013
£m
36.9
14.6
51.5
36.9
36.9
1.40

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements
Financial statements

Notes forming part of the financial statements
For the year ended 31 December 2014 continued

19. Provisions

At 31 December 2012 and 2013
Released in year
At 31 December 2014
Due within one year or less
Due after more than one year

Leasehold
dilapidation
provision
£m
1.0
(0.1)
0.9
0.1
0.8
0.9

At each year end date, the leasehold provision is payable in greater than one year.

Leasehold dilapidations relate to the estimated cost of returning a leasehold property to a defined condition at the end of the
lease in accordance with the lease terms. Once the stage of the lease has been reached at which a reliable estimate of the costs
can be made, a provision is recognised in the profit and loss. The main uncertainties relate to estimating the cost that will be
incurred at the end of the lease and also whether the option to break from the lease will be exercised.

20. Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 20% (2013: 23%).

The movement on the deferred tax account is as shown below:

Liability at 1 January
Tax credit recognised in profit and loss
Recognised directly in equity
Asset/(liability) at 31 December

2014
£m
(0.4)
0.6
1.9
2.1

2013
£m
(0.6)
0.2
–
(0.4)

Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. All deferred tax has
been recognised.

The deferred taxation asset/(liability) consists of the tax effect of temporary differences as follows:

2014
Difference in capital allowances and depreciation/amortisation
Other temporary and deductible differences
Deferred tax on share options
Business combinations
Deferred tax asset/liability

Asset
£m

Liability
£m

(0.1)
0.1
2.3
–
2.3

–
–
–
(0.2)
(0.2)

Net
£m

(0.1)
0.1
2.3
(0.2)
2.1

2013
Difference in capital allowances and depreciation/amortisation
Other temporary and deductible differences
Business combinations
Deferred tax asset/liability

Asset
£m

Liability
£m

0.1
0.5
–
0.6

(0.7)
–
(0.3)
(1.0)

(Charged)/
Credited to
Profit or
loss
£m

Credited to
equity
£m

0.5
(0.4)
0.4
0.1
0.6

Net
£m

(0.6)
0.5
(0.3)
(0.4)

–
–
1.9
–
1.9

Credited to
Profit or
loss
£m

–
0.2
–
0.2

21. Share capital
On incorporation, the issued share capital of the Company was 1 Ordinary Share of £1.00. The share capital from 17 March 2014
(incorporation) to 12 May 2014 was as follows:

Allotted and fully paid
Ordinary Shares of £1 each

2014
Number

2014
£m

0.0
0.0

On 12 May 2014, the Company acquired the group headed by Gamma Telecom Holdings Limited by virtue of a share for share
exchange. 1,699,983 B1 Ordinary Shares of £0.01 each and 20,590,196 Ordinary Shares of £0.01 were issued on that date. The
share capital from 12 May 2014 to 2 October 2014 was as follows:

Allotted and fully paid
B1 Ordinary Shares of £0.01 each
Ordinary Shares of £0.01 each

2014
Number

1,699,983
20,590,196

2014
£m

–
0.2
0.2

In addition to the above shares, the Company also had another class of share being an A1 Ordinary Share of £0.001 each with none
in issue.

The Ordinary Shares and B1 Shares together (the “Equity Shares”) confer on their holders the right to receive notice of and to
attend, speak, and vote at all general meetings of the Company and to sign written resolutions of the Company. The holders of A1
Shares are not entitled to receive notice of or to attend general meetings of the Company and are not entitled to vote thereat nor
are they entitled to receive or participate in written resolutions of the Company.

Every dividend to be paid by the Company, other than a dividend payable on or following the occurrence of certain changes of
control, will be distributed to the holders of the Equity Shares pro rata to their holdings of Equity Shares. The holders of any shares
not being Equity Shares are not entitled to participate in or receive any dividend other than a dividend payable on or following the
occurrence of an Event.

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsFinancial statements

Notes forming part of the financial statements
For the year ended 31 December 2014 continued

21. Share capital continued
On or following the occurrence of a change of control, the receipts from the acquirer shall be applied as follows:

(a) firstly, to the holders of the Ordinary Shares and A1 Shares, an amount equal to £3.75 for each Ordinary Share or A1 Share held
by them on the date of the acquisition or, if the receipts from the acquirer divided by the aggregate number of Ordinary Shares
and A1 Shares in issue at the date of the acquisition (on a fully diluted basis) is less than £3.75, the whole of the receipts at such
date shall be paid to the holders of the Ordinary Shares and A1 Shares pro rata to the number of Ordinary Shares and A1 Shares
held by them;

(b) the balance thereof (if any) shall be paid to the holders of the Equity Shares pro rata to their respective holdings of

Equity Shares.

On 2 October 2014, in preparation for the flotation, the share capital of the Company underwent a four for one split. The share
capital on 2 October 2014 was as follows:

Allotted and fully paid
B1 Ordinary Shares of £0.0025 each
Ordinary Shares of £0.0025 each

2014
Number

6,799,932
82,360,784

2014
£m

–
0.2
0.2

Following the share split on 2 October 2014, 3,356,528 B1 Ordinary Shares of £0.0025 each in the Company were redesignated
as 3,356,528 Ordinary Shares, subject to a payment from the shareholder of the sum of £3.1m to the Company (being £0.9375
per B1 Ordinary Share registered in his name).

On 6 October 2014 the holders of all the remaining issued B1 ordinary shares of £0.0025 in the Company voluntarily converted
their B1 Ordinary Shares into 1,726,481 Ordinary Shares and 1,717,323 Deferred Shares pursuant to the articles of association
of the Company. The conversion rate was calculated by applying a formula based on the Placing Price to reflect the equity value
of the B1 Ordinary Shares.

Also on 6 October 2014 12,000 Ordinary Shares were issued and allotted to satisfy an exercise of options which had taken place
earlier at an exercise price of 62.5p; 608,481 Ordinary Shares were issued following the exercise of options held by certain
employees pursuant to the 2013 Unapproved Share Option Scheme and the Unapproved Share Option Scheme. A further 256,320
Ordinary Shares were allotted to the SIP Trust.

On 9 October 2014 an additional 6,152 Ordinary Shares were issued at a price of £1.87.

As a result of the above share transactions, on 10 October 2014 (at flotation) the share capital was as follows:

Allotted and fully paid
Ordinary Shares of £0.0025 each
Deferred Shares of £0.0025 each

2014
Number

88,326,746
1,717,323

2014
£m

0.2
-
0.2

The Deferred Shares have no voting rights and do not carry any entitlement to attend general meetings of the Company,
nor will they be admitted to trading on AIM or any other market. They will not carry any dividend rights and will only be entitled
to a payment on a return of capital or winding-up of the Company after each Ordinary Share has received a payment of £0.1m.
They are not transferable without the prior written consent of the Company.

On 20 November 2014, 202,381 Ordinary Shares were issued to satisfy options which had been exercised.

At 31 December 2014 the share capital was as follows:

Allotted and fully paid
Ordinary Shares of £0.0025 each
Deferred Shares of £0.0025 each

2014
Number

88,529,127
1,717,323

2014
£m

0.2
-
0.2

Subsequent to the end of the period, the Company bought back the issued Deferred Shares on 20 February 2015 from
distributable profits.

22. Reserves
The following describes the nature and purpose of each reserve within equity:

Reserve
Share premium
Merger reserve

Share option reserve
Foreign exchange reserve
Retained earnings

Description and purpose
Amount subscribed for share capital in excess of nominal value.
Represents the share capital and share related movements of the previous holding company
Gamma Telecom Holdings Limited following the common control transaction as set out in note 1.
Represents credit to equity relating to share based payment expense on share options.
Gains/losses arising on retranslating the net assets of overseas operations into sterling.
All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere.

23. Leases
The Group had commitments under non-cancellable operating leases as set out below:

2014
In one year or less
Between one and five years
In five years or more

2013
In one year or less
Between one and five years
In five years or more

Land and
Buildings
£m

1.0
3.2
2.1
6.3

Land and
Buildings
£m

1.1
2.9
2.3
6.3

Other
£m

–
0.2
–
0.2

Other
£m

0.1
0.1
–
0.2

24. Retirement benefits
The Group operates a defined contribution pension scheme for the benefit of its employees. The assets of the scheme are
administered by trustees in a fund independent from those of the Group. The pension costs charged for each year are listed below:

Defined contribution pension scheme

2014
£m
1.2

2013
£m
1.2

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsFinancial statements

Notes forming part of the financial statements
For the year ended 31 December 2014 continued

25. Share based payment
Share Options
Following the share for share exchange which took place on 12 May 2014, the Company and Gamma Telecom Holdings Ltd granted
that holders of Gamma Telecom Holdings Ltd share options could exchange their options for equivalent options over shares in the
Company. There is no incremental fair value as a result of the modification.

On 2 September 2014 the Board approved a Long Term Incentive Plan for the senior management team which granted 349,833
options over £0.01 Ordinary Shares at an exercise price of £0.01 per share which will vest on 1 April 2017 subject to performance
conditions. The awards granted will have a performance period of three years starting from the vesting commencement date,
being 1 April 2014.

The awards will vest as follows:

→ 50% of the shares are subject to an award if annual compound total shareholder return over the performance period exceeds
or equals 15% and 15% of the shares are subject to an award if the annual compound total shareholder return over the period
equals 8% with pro rata straight line vesting in between; and

→ 50% of the shares are subject to an award if annual compound growth of the Company’s adjusted earnings per share over

the performance period exceeds or equals 20% between the financial years at the beginning and the end of the performance
period and 15% of the shares are subject to an award if the annual compound growth of the Company’s adjusted earnings
per share exceeds or equals 8% with pro rata in between.

As at 2 September 2014 the following options were therefore in existence:

Date of grant
6 June 2014
6 June 2014
6 June 2014
6 June 2014
6 June 2014
2 September 2014
Notes:
(a) Vesting period was immediate.
(b) Vesting period starts on the earlier of a flotation or 24 June 2015.

Exchanged/
Granted in
year
226,667
18,000
25,000
910,000
495,658
349,833

Exercise
Price
£1.000
£2.500
£3.000
£0.990
£0.001
£0.010

Class of
Share
Ordinary
Ordinary
Ordinary
A1 Ordinary
A1 Ordinary
Ordinary

Notes
(a)
(a)
(a)
(a)
(a)
(b)

On 1 October 2014, 949,132 options over £0.001 A1 shares were cancelled and a cash settlement was made at £3.75 per share
less the exercise price. The following options were in existence immediately prior to the subdivision of shares which occurred on
2 October 2014:

Date of grant
6 June 2014
6 June 2014
6 June 2014
6 June 2014
6 June 2014
2 September 2014

Exchanged/
Granted in
year
226,667
18,000
25,000
910,000
495,658
349,833

Cancelled/
lapsed
–
–
–
(850,000)
(99,132)
–

Pre
Conversion
226,667
18,000
25,000
60,000
396,526
349,833

Exercise
Price
£1.000
£2.500
£3.000
£0.990
£0.001
£0.010

Class of
Share
Ordinary
Ordinary
Ordinary
A1 Ordinary
A1 Ordinary
Ordinary

On 2 October 2014, at the time of the share sub-division, the options were redesignated as follows:

Date of grant
6 June 2014
6 June 2014
6 June 2014
6 June 2014
6 June 2014
2 September 2014

Pre
conversion
226,667
18,000
25,000
60,000
396,526
349,833

Ratio
4.0000
4.0000
4.0000
2.0053
2.0053
4.0000

Post
conversion
906,668
72,000
100,000
120,320
795,169
1,399,332

Price
£0.2500
£0.6250
£0.7500
£0.4940
£0.0025
£0.0025

Share
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary

There is no incremental fair value as a result of the modification.

Movements in the number of options from 2 October 2014 (post conversion) to the end of the year were as follows:

The options below were exercised at a weighted average share price of £1.96.

2014
Date of grant
6 June 2014
6 June 2014
6 June 2014
6 June 2014
6 June 2014
2 September 2014
6 October 2014
6 October 2014
6 October 2014
6 October 2014
6 October 2014
6 October 2014
Notes:
(a) Options have vested and are exercisable.
(b)

Post
conversion
906,668
72,000
100,000
120,320
795,169
1,399,332
–
–
–
–
–
–

Granted
–
–
–
–
–
–
922,880
329,244
703,384
372,477
123,200
67,892

Exercised
(190,000)
(36,000)
–
–
(614,091)
–
–
–
–
–
–
–

End of year
716,668
36,000
100,000
120,320
181,078
1,399,332
922,880
329,244
703,384
372,477
123,200
67,892

Exercise
Price
£0.2500
£0.6250
£0.7500
£0.4940
£0.0025
£0.0025
£0.0025
£0.0025
£0.0025
£0.0025
£1.8700
£0.0025

Class of
Share
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary

Notes
(a)
(a)
(a)
(a)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(b)

The awards granted will have a performance period of three years starting from the vesting commencement date, being 1 April 2014. The awards will vest
as follows:
i.

50% of the shares are subject to an award if annual compound total shareholder return over the performance period exceeds or equals 15% and 15%
of the shares are subject to an award if the annual compound total shareholder return over the period equals 8% with pro rata straight line vesting
in between; and
50% of the shares are subject to an award if annual compound growth of the Company’s adjusted earnings per share over the performance period
exceeds or equals 20% between the financial years at the beginning and the end of the performance period and 15% of the shares are subject to an
award if the annual compound growth of the Company’s adjusted earnings per share exceeds or equals 8% with pro rata in between.

ii.

(c) Awards vest on 1 February 2015; there are no vesting conditions.
(d) Awards vest on 10 October 2015; there are no vesting conditions.
(e) Awards vest on 1 February 2016; there are no vesting conditions.
(f) Awards vest on 1 February 2017; there are no vesting conditions.
(g)

123,200 options over Ordinary Shares at an exercise price of £1.87 to compensate holders of options over A Ordinary Shares which were granted in
conjunction with the issue of B shares for the loss of capital gains tax treatment in relation to the reorganisation of the share capital. These options are
fully vested and exercisable.

Apart from the options noted as exercisable, all other options above are outstanding.

The Company was incorporated in March 2014 and therefore options in the prior period were held in the former group holding
company, Gamma Telecom Holdings Limited (and these are shown below):

2013
Date of grant
29 August 2003
6 September 2005
8 July 2009
2 September 2009
10 March 2010
7 July 2010
24 June 2013
24 June 2013
24 June 2013

Start of year/
Granted in
year
5,122
12,000
1,076,027
37,500
131,351
25,000
910,000
4,425
495,658

Cancelled/
lapsed
(5,122)
–
(972,500)
–
(23,000)
(8,333)
–
–
–

End of year
–
12,000
103,527
37,500
108,351
16,667
910,000
4,425
495,658

Exercise
Price
£2.50
£2.50
£1.00
£1.00
£1.00
£1.00
£0.99
£0.001
£0.001

Notes
(a)
(a)
(a)
(a)
(a)
(a)
(b)
(b)
(c)

All options lapse ten years after the date on which they were issued.

Notes:
(a) Options over £0.01 Ordinary Shares; vesting period starts on date of issue.
(b) Options over £0.001 A1 Shares; vesting period starts on date of issue.
(c) Options over £0.001 A1 Shares; vesting period of two years.

The share options are subject to equity-settled share based payments.

The share options outstanding at 31 December 2014 represented 6% of the issued share capital as at that date (2013: 1%)
and would generate additional funds of £0.6m (2013: £1.2m) if fully exercised. The weighted average remaining life of the share
options was 20 months (2013: 106 months), with a weighted average remaining exercise price of 11 pence (2013: 18 pence;
after adjustment for the share split).

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statements

Financial statements

Notes forming part of the financial statements
For the year ended 31 December 2014 continued

25. Share based payment continued
Shadow Share Option Scheme (cash settled)
Under this scheme, the Group used to award employees with a shadow share option which will only vest on a change of control in
the Company or a listing. Within 30 days of vesting, the employee will receive a payment equal to the number of units multiplied by
the difference in market value at the date of vesting and market value of the date of grant.

On 31 October 2013, 10,000 options were issued at a notional market value of £3.39 and 5,000 options were issued at a notional
market value of £2.43. On 12 November 2013, a further 5,000 options were issued at £2.43 and on 14 January 2014, 25,000
options were issued at £3.39.

Employee Shareholder Status Shares
On 27 November 2013, Gamma Telecom Holdings Limited issued 112,000 B1 shares for nil consideration as “Employee Shareholder
Status Shares”.

Share based payment expense
Equity-settled share based payments are measured at fair value (excluding the effect of market-based vesting conditions) at
the date of grant. The fair value determined at the grant date of the equity-settled share based payments is expensed over the
vesting period, based on the Company’s estimate of shares that will eventually vest and adjusted for the effect of non-market
based vesting conditions.

Application of the fair value measurement results in a charge to operating expenses within the subsidiary company Gamma
Telecom Limited. The charge has been made to the profit and loss account of the subsidiary as the employees’ services are
provided to the subsidiary company. The charge for each year is as listed below:

Share options issued to key management
Share options issued to other employees
Shadow Share Options
Total share based payment expense

2014
£m
2.9
0.1
0.2
3.2

2013
£m
0.4
–
0.5
0.9

Fair value is measured using the binomial pricing model and includes the information set out in the table below. The expected life
used in the model assumes that vesting conditions will be met and all options will be exercised at the earliest opportunity.

Share price at grant date (pence)
Exercise price (pence)
Expected volatility
Risk free rate
Expected dividend yield

2014
187
0–62.5
30%
0.7–1.06%
3%

2013
61–85
0–25
25%
0.823%
0%

The share price at grant date and the exercise price have been adjusted for the share split.

The assumptions relating to volatility and the risk free rate are calculated with reference to other comparable companies within
the telecommunications sector.

The Group did not enter into any share based payment transactions with parties other than employees during any of the periods.

26. Fair value measurement of financial instruments
Financial assets and financial liabilities measured at fair value in the statement of financial position are grouped into three
Levels of a fair value hierarchy. The three Levels are defined based on the observability of significant inputs to the measurement,
as follows:

→ Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

→ Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly

or indirectly

→ Level 3: unobservable inputs for the asset or liability.

The Group only has one Level 3 financial liability being the contingent consideration.

The Group’s finance team performs valuations of financial items for financial reporting purposes, including Level 3 fair values,
in consultation with third party valuation specialists for complex valuations. Valuation techniques are selected based on the
characteristics of each instrument, with the overall objective of maximising the use of market-based information. The finance
team reports directly to the Finance Director.

The valuation techniques used for instruments categorised in Level 3 are described below.

The fair value of contingent consideration related to the acquisition of Gamma Network Solutions Limited (see note 16) was based
on the expected gross margins earned by the business in the five years following acquisition.

The discount rate used is based on the Group’s estimated cost of debt. The effects on the fair value of risk and uncertainty
in the future cash flows are dealt with by adjusting the estimated cash flows rather than adjusting the discount rate.

The most significant sensitivity is a change in future gross margin. An increase/(decrease) by 10% of the future gross margin
made by the business will result in an increase/(decrease) of fair value of £297,000. Theoretically the contingent consideration
could range from zero through to an unlimited amount however in practice the amount due is bounded by the level of sales made
by a finite sales force. The acquisition was constructed in such a way that the gross margin from future sales is at least as large
as the contingent consideration.

Management has recalculated the fair value of the contingent consideration at the end of each accounting period and there
has been no material difference in the fair value.

Level 3 fair value measurements
The reconciliation of the carrying amounts of financial instruments classified within Level 3 is as follows:

Contingent consideration at 1 January
Adjustment to contingent consideration
Realised during period
Contingent consideration at 31 December

27. Capital commitments
The Group had no capital commitments at 31 December 2014 and 31 December 2013.

2014
£m
2.1
0.6
(2.6)
0.1

2013
£m
2.1
–
–
2.1

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsFinancial statements

Notes forming part of the financial statements
For the year ended 31 December 2014 continued

28. Related party transactions
Details of key management’s remuneration are given in note 7. As at 31 December 2014 an amount of £0.5m (2013: £0.6m)
was owed to the Group by key management personnel; this sum includes £50,000 owed by Andrew Belshaw. On 6 May 2014, a
subsidary (Gamma Telecom Holdings Limited) made an interest free loan of £50,000 to Andrew Belshaw to enable him to repay
a loan of £50,000 from the Employee Benefit Trust. This loan is repayable on the earlier of the date on which Andrew Belshaw
sells the 200,000 £0.0025 Ordinary Shares which are held in the Employee Benefit Trust (and it is part payable if there is a partial
disposal) or within 30 days of Andrew Belshaw ceasing to be employed by the Group or 4 April 2021.

On 2 October 2014, the Company agreed certain arrangements with Bob Falconer to enable him to maintain his holding of 5%.
of the issued Ordinary Share capital of the Company for the purposes of enabling him to benefit from “entrepreneur’s relief” from
UK capital gains tax. In order to achieve this, Bob Falconer agreed to pay to the Company the sum of £3.1m, being £0.9375
in respect of each of the 3,356,528 B1 shares held by him, such that each of his B1 shares converted into one Ordinary Share
(each, a “Converted Share”). To part fund that payment, the Company’s subsidiary, Gamma Telecom Holdings Limited, made an
interest free loan to Bob Falconer of £2.6m (“Loan”). If Bob Falconer ceases to be a Director of the Company the Loan is repayable
on expiry of his notice period or three months after termination if no notice period applies. The Loan is also repayable if Bob
Falconer disposes of the Converted Shares or upon certain events of default, including his bankruptcy or within six months of
his death. There is also a part repayment obligation if Bob Falconer sells only part of the Converted Shares. The Loan is secured
by an unregistered charge over 1,580,159 Ordinary Shares registered in Bob Falconer’s name. As part of these arrangements,
the Company cancelled Bob Falconer’s options over 549,132 A shares in return for a cancellation payment to Bob Falconer of
£1.6m, being equal to the capped value of the A shares pursuant to the terms of the Company’s articles of association in force
at that time less the option exercise price for those A shares. Bob Falconer used part of the cancellation payment to repay a loan
of £0.3m which had previously been made by Gamma Telecom Holdings Limited to him in April 2014.

No dividends were paid to Directors during the year and no dividends were payable to Directors at the year end.

There were no other transactions with related parties during the period.

29. Contingent assets and liabilities
In July 2014 the Supreme Court overturned a Court of Appeal judgment, made in July 2012, which had disallowed a ladder pricing
policy in use by the Group. The Group received the Supreme Court Order in December 2014 and it will start the process to recover
the money from the mobile operators. Any ongoing benefit for the period after the Supreme Court’s judgment will depend on
whether the mobile operators alter their pricing, which would impact the termination rates they are charged.

Neither the Group nor the Company has recognised any benefit from ladder pricing to date. All ladder pricing will cease from
the end of June 2015 when new pricing arrangements for Non-Geographic Call Services in the UK come into effect.

The Group had no contingent liabilities at 31 December 2014 or 31 December 2013 other than the contingent consideration
in relation to the business acquisition discussed in note 26.

30. Events after the reporting date
On 20 February 2015 Gamma Communications plc bought-back 1,717,323 Deferred Shares at a price of £0.0025 per share from
distributable profits.

31. Ultimate controlling party
There is no ultimate controlling party.

Company balance sheet
At 31 December 2014

Fixed assets
Investments

Current assets
Debtors
Cash at bank and in hand

Net current assets
Total assets less current liabilities
Capital and reserves
Called-up equity share capital
Share premium account
Share option reserve
Profit and loss account
Shareholders’ funds

Note

2014
£m

2.3
2.3

11.4
6.7
18.1

18.1
20.4

0.2
3.2
2.1
14.9
20.4

The financial statements on pages 81 to 83 were approved and authorised for issue by the Board of Directors on 19 March 2015
and were signed on its behalf by:

Andrew Belshaw
Finance Director

The notes on pages 82 to 83 form part of these financial statements.

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsFinancial statements

Notes forming part of the Company financial statements
From the date of incorporation to 31 December 2014

1. Accounting policies
Basis of accounting
The financial statements for the Company have been prepared in accordance with applicable accounting standards (being
those accepted within the UK, “UK GAAP”) and under the historical cost convention. In future periods the Company will report
under FRS101.

The principal accounting policies are set out below.

The accounts are prepared on the going concern basis. In assessing whether the going concern assumption is appropriate, the
Directors have taken into account all relevant available information about the future trading including profit and cash forecasts
and available facilities and funding. The business has a track record of profitable growth and is cash generative and this is
expected to continue. It is therefore considered appropriate to adopt the going concern basis of accounting in the preparation
of the annual financial statements.

As a consolidated profit and loss account is published, a separate profit and loss account for the parent company is omitted from
the Group financial statements by the virtue of section 408 of the Companies Act 2006. The loss in respect of the Company for
the year was £0.1m.

Cash flow statement
The Directors have taken advantage of the exemption in Financial Reporting Standard No 1 (Revised 1996) from including cash
flow statements in the financial statements on the grounds that the Company is wholly owned and its parent publishes a
consolidated cash flow statement.

Investments
Investments are recorded at cost less amounts written off.

The cost of acquisition is the amount of cash or cash equivalents paid and the fair value of other purchase consideration given
by the acquirer, together with the expenses of the acquisition. Where the payment of consideration for an acquisition is to be
made after the date of acquisition, reasonable estimates of the amounts expected to be paid are included in the cost of acquisition
at their present values.

The cost of acquisition is adjusted when revised estimates are made, with consequential corresponding adjustments continuing
to be made to the cost of the investment, and therefore goodwill, until the ultimate amount is known.

Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.
An equity instrument is any contract that evidences a residual interest in the assets of the entity after deducting all of its
financial liabilities.

Dividends and distributions relating to equity instruments are debited direct to equity.

2. Investments

Additions
Total investments

2014
£m
2.3
2.3

On 12 May 2014, the Company acquired Gamma Telecom Holdings Limited by way of a share for share exchange.

At 31 December 2014 the Company held share capital of the following subsidiaries, all of which are registered in England and
Wales with the exception of Peach Amber Kft which is registered in Hungary:

Entity
Gamma Telecom Holdings Limited
Gamma Telecom Limited
Gamma Business Communications Limited
Gamma Network Solutions Limited
Peach Amber Kft
Gamma Metronet Limited
NP4UK Limited
Uniworld Bureau Services Limited
Go Worldwide Solutions Limited
Blue Spot Technologies Limited
Notes:
(a) All 100% owned via intermediate holding company Gamma Telecom Holdings Limited.
(b) All 100% owned via intermediate trading entity Gamma Business Communications Limited.

Nature of business
Intermediate holding company
Telephony services
Retail telephony services
Data and communications networks
Software services
Dormant
Dormant
Dormant
Dormant
Dormant

Proportion held
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%

3. Debtors

Amounts owed from Group undertakings

4. Share capital
Details of the share capital and movement during the period are given in note 21 to the consolidated accounts.

5. Reserves

On incorporation
Profit for the financial period
Share buybacks and cancellations
Share issues
At 31 December 2014

Share
capital
£m
–
–
–
0.2
0.2

Share
premium
account
£m
–
–
–
3.2
3.2

Share
option reserve
£m
–
–
2.1
–
2.1

6. Reconciliation of shareholders’ funds and movements on reserves

Profit for the financial year
New shares issued
Share buybacks and cancellations
Net increase in shareholders’ equity funds
Opening shareholders' funds
Closing shareholders’ funds

7. Contingent liabilities
The Company had no contingent liabilities at 31 December 2014.

8. Capital commitments
The Company had no capital commitments at 31 December 2014.

Note

(a)
(a)
(b)
(a)
(a)
(a)
(b)
(b)
(b)

2014
£m
11.4

Profit
and loss
account
£m
–
14.9
-
–
14.9

2014
£m
14.9
3.4
2.1
20.4
–
20.4

9. Post balance sheet events
On 20 February 2015 the Company bought-back 1,717,323 Deferred Shares at a price of £0.0025 per share from
distributable profits.

10. Related party transactions
The Group has taken advantage of the FRS 8 ‘Related Party Transaction’ exemption from disclosure of intra group transactions
between the parent and a wholly owned subsidiary.

Gamma Communications plcAnnual Report and Accounts 2014Strategic reportCorporate governanceFinancial statementsSupplementary information

Glossary of terms

BYOD
“Bring your own device”, a relatively recent trend where
employees use their own personal mobile devices as work
mobiles during the working day.

“Cloud PBX”
A “multi company” phone system that is located in Gamma data
centres and provides advanced phone system functionality,
and is regularly updated with new features and functionality.
It also enables businesses to pay for phone services out of
Opex rather than Capex.

This service is part of a wider trend in ICT, whereby businesses
are replacing hardware with services from the Cloud. It is
impacting significantly on IT, Software and Telecoms.

Inbound
A software based service that enables businesses to
dynamically manage phones calls into their business – where
they arrive, who they go to, what services are added (voicemail,
call queuing, etc) to inbound calls.

IP telephony
A method of delivering telephony calls over “data” lines, such as
broadband, using Internet Protocol. This negates the need for
businesses to have both data and voice lines for their premises.

ISDN
Means an integrated service digital network and BT’s telephony
product of that name which is generally sold and/or resold to
businesses. The service is used primarily as a dedicated voice
line for businesses.

MPLS
“Multi Protocol Layer Switching”. A technology implemented
across private wide area data networks that enables businesses
to prioritise traffic by type – voice, video, data etc.

“SIP Trunking”
A business grade service that carries voice over a data circuit,
instead of having a dedicated voice circuit (such as ISDN),
enabling businesses to reduce the number of lines they pay
for and has greater flexibility than dedicated voice lines (around
phone numbering, capacity changes and speed of installation).

TDM
Time Division Multiplexing: A means of transmitting and
switching calls and data across a single channel by providing
dedicated time slots.