Gamma Communications plc Annual Report 2016

← All annual reports

FY2016 Annual Report · Gamma Communications plc

Loading PDF…

G
a
m
m
a
C
o
m
m
u
n

i
c
a
t
i

o
n
s
p

l
c
A
n
n
u
a

R
e
p
o
r
t
a
n
d
F

n
a
n
c
i

S
t
a
t
e
m
e
n
t
s
2
0
1
6

Driving success

in a growing market

Glasgow
7 West Nile Street
Glasgow
G1 2PR

Portsmouth
The Port House
Marina Keep
Port Solent
Portsmouth
PO6 4TH

Budapest
Peach Amber IP Mérnöki Kft
Széchenyi Rakpart 8
1054 Budapest
Hungary

Newbury Head Office
Kings House
Kings Road West
Newbury
Berkshire
RG14 5BY

Manchester
The Malthouse
Elevator Road
Trafford Park
Manchester
M17 1BR

Unit C Focal Point
The Village
Third Avenue
Trafford Park
Manchester
M17 1FG

London
Holland House
4 Bury St
London
EC3A 5AW

www.gamma.co.uk

Gamma Communications plc
Annual Report and Financial Statements 2016

Gamma is an AIM-listed
communications company.
Welcome to our 2016 Annual Report.

Who we are
As of December 2016, Gamma had 753 staff across six sites. We have five
main sites in the UK with a small, highly capable development team in Budapest.

What we do
Gamma is a rapidly growing, technology-based provider of advanced
communications services to the UK business market. We supply a broad
range of simplified communications and software services 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 direct.

Gamma Core
Network
– Services
– Applications
– Interconnects

Creating simpliﬁed communications for business

Fixed connection

Portal

Local
connection

National
network

Mobile connection

Customer’s
site(s)

What makes us different?
• Outstanding customer service
• Excellent network availability and resilience
• Innovative services
• Commercial strength and stability
• Strong balance sheet and consistent market strategy

All adjusted measures set out on this page and throughout this document are described as “adjusted” and are defined
and reconciled in the Financial review section and are applied consistently. Where reference is made to adjusted EPS
this is stated on a fully diluted basis.

Jargon Buster

Unsure what SIP is, or Cloud
PBX? Check out our Jargon Buster
through the course of the report
for definitions.

Read more about
our strategy:

p22-23

Mobile services
Much of 2016 was focused on bringing our
Full MVNO service into active use in the
second half of the year. This has been a
demanding and technically challenging
project, requiring some parallel running,
with our expiring “thin” MVNO agreement
with Vodafone and the concomitant extra
costs resulting from that. We have chosen
to work with Three as the primary radio
network provider in the UK on the basis
of their excellent network capability,
complementary market strategy and
substantial data capability. The new
Gamma mobile service, which offers a
full 4G service, not only provides Gamma
with a much improved cost base but also
full control over its technical infrastructure,
enabling product innovation and
differentiation. In the latter half of 2016
and into 2017 effort has been focussed on
tuning the service, the market proposition
and managing the logistically difficult
task of swapping the SIM cards of those
customers prepared to transfer from the
“thin” MVNO.

The new service was launched to new
customers in October, with some early
successes in the direct business; the
indirect market will inevitably take more
time to build momentum. We recognise
that mobile growth now is fundamentally
driven by data volumes, be they from
person or machine, and we will use
this metric to track our progress going
forward. In the second half of 2016 our
average monthly data volume was
a modest 7.4Tbytes, which we plan
to grow significantly.

Gamma is one of only a very small
number of companies in the UK (and
by far the smallest) that owns the
necessary technical infrastructure
to develop a deep fixed and mobile
converged service and, with work
already underway, it is anticipated that
we will bring a first release converged
product to market in late 2017.

Operational performance
The business market is, quite rightly,
highly intolerant of any service disruption
and this is an area where Gamma seeks
to differentiate itself from its competitors.
Emphasis on continuous improvement,
good capacity planning, rigorous change
control and robust design – whilst never
guaranteeing freedom from problems
– does in the long term drive up
service levels.

Our major platforms supporting SIP
Trunking, Horizon and Mobile services
all exceeded their service level availability
targets for the year. With the levels
of growth and change that have been
driven through the platforms we see
this as a major achievement and a
strong testimony to our quality based
approach. The business has retained
its certification to ISO27001, Cyber
Essentials (mandatory for relevant
government contracts) and ISO22301,
and extended these to cover the new
mobile service.

Security
The Board regularly reviews the health
of our security governance, to ensure
appropriate resource and a high priority
is placed on mitigating risk in this area.
The Group subscribes to a number
of sources of security intelligence, as
well as participating in relevant national
working groups. It regularly employs
expert third parties to carry out
penetration testing against its network,
product platforms and online interfaces
to ensure any vulnerabilities are
understood and addressed.

Customer service
With a growing product portfolio, and
many of our channel partners being
new to the sector, we wanted to ensure
that our products were well understood
and easier to use than those of our
competitors. We therefore developed
and launched the “Gamma Academy”.
This is an online training environment
that is used by new channel partners,
new staff within existing channel partners,
and as a refresh for current users.

It is intended to ensure our partners
have all the material they need to make
best use of our online tools and interfaces
so they are equipped to deliver the best
service to their own customers. Successful
use of the Academy contributes to the
accreditation ratings of our key partners.

As a part of our initiative to “make
Gamma straightforward to do business
with” we invested further in our portal
user interface enabling customers
to tailor the functionality around their
specific requirements, ensuring a more
straightforward experience, whilst also
reducing our support overhead.

Network
Traffic volumes on the Gamma
network have continued to grow;
the network now carries over 1 billion
minutes of voice traffic per month which
is up from 800 million at the end of 2015,
whilst data traffic has increased by
40% over the same period. This is a
consequence of both an increase in the
number of customers and the volume
generated per customer.

Jargon Buster

What is Cloud PBX?
A “multi company” phone system that
is located in Gamma data centres
and provides advanced phone
system 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.

What is 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.

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Chief Executive Officer’s review continued

Gamma culture

With a full capability in both mobile
and fixed communications services,
the business is in an excellent position
to bring exciting new products to
the business market during 2017.

To cater for this growth, and meet
the growing demand for data services,
coupled with the increasing requirement
for access speeds of up to 10Gbit/s from
larger enterprises and the public sector,
Gamma is making a £5m investment in
its national network. In the Company’s
Admission Document in 2014, the
Directors indicated their expectation that
parts of the underpinning fibre network
would be retired and replaced. Therefore,
as part of this investment, the Group
is also taking the opportunity to replace
much of the fibre on its national network
with a new arrangement with CityFibre
which runs through to 2042.

The new fibre network will interconnect
various datacentres, Gamma locations
and BT nodes in a resilient ring through
London, Manchester and other major
cities. This will also reduce Gamma’s
cost of delivery of data services in a
highly competitive market. The core
network is readily scalable to 8Tbit/s
and is expected to go into service
during 2018. This will complement
other investments made in recent years
to reduce cost and increase capacity
which the business will begin to benefit
from in the coming year.

Overall during 2017/18 Gamma will
undertake a series of engineering
projects and traffic migrations which will:

• bring this new core network into

active service;

• enable direct data access to an

increased number of BT Openreach
exchanges, thereby reducing the cost
of ethernet data services;

• enable full IP interconnection into the
BT voice network – eliminating the
legacy multiple voice interconnects
into BT exchanges; and

• allow the removal of significant legacy
equipment, associated support costs,
and a reduction in national fibre
rate charges.

The completion of this major programme
of work will position the business with
a lower cost base, increased capacity
and greater flexibility for introducing
new services.

People
The average number of people in the
Gamma Group increased over the year
from 626 to 732, primarily to support
the growth in product volumes, channel
partners and new product development.

Once again, Gamma was recognised
as one of “The Sunday Times Top 100
Best Companies To Work For 2016”
and retained its 2-star accreditation by
Best Companies as an “Outstanding
Company”. The staff engagement criteria
used to assess Best Companies are
highly correlated with successful
business performance and we have
consistently found it to be a valuable tool.

To complement our successful graduate
programme, we have stepped up our
recruitment of apprentices to help
attract nascent talent from a wider
pool of candidates.

Outlook
Looking forward to 2017, our core
strategy is to continue to work closely
in support of the channel and to remain
both market leader and disruptor in the
high growth or displacement sectors
of the business communications market.
With a full capability in both mobile and
fixed communications services, the
business is in an excellent position
to bring exciting new products to the
business market during 2017. Quality
of service and ‘ease of doing business’
continue to remain core underpinning
enablers of growth.

Our direct business has grown
significantly in recent years and the focus
there is on larger opportunities and the
public sector, both of which we believe
have been poorly served in the past.

We expect volumes to continue to grow
in SIP Trunking and Cloud PBX, with the
expected continued decline in traditional
services (phone calls and lines). We hope
to build on the accelerated growth we
have seen in our data services, whilst
mobile generally and fixed/mobile
integration presents a big opportunity for
the business with our converged product
being launched later in 2017. In support
of the strategy the Board remains open to
suitable acquisitions which the business
is in a strong position to consider.

Bob Falconer
Chief Executive Officer

Gamma people and

our engaging culture

Strategy: Our engaging
culture in action

p24-25

Our culture has been central to our growth and
success over the years and the Company works
very hard to ensure it maintains a distinctive
way of working and communicating that
enables all staff to really feel part of Gamma.

Engaging
Culture

Insight

Experience

Flexibility

Innovation

Our style is informal and trusting, and we take
great pride in seeing staff grow and develop
in skill sets, responsibilities and breadth of roles
over the years.

This philosophy is supported by the “people facts”
– low staff turnover, ability to recruit quality staff
and a consistently strong showing in “The Sunday
Times Top 100 Best Companies To Work For”
(see page 38).

By focusing on the channel as our primary route to
market, and with years of experience in developing
innovative services for businesses, we can offer
real insight into what the market wants and how
best to deliver those solutions to market.

One of the key benefits of low staff turnover is the
experience and expertise that is built up across
teams and functions. This translates to very
specific benefits whether technical, in engineering
or billing or finance, or more customer-centric
benefits in sales, marketing or customer service.

Understanding how we work and what our
customers expect can often be as important as
subject matter expertise. We actively encourage
staff to take on new roles in different functions
to provide a broader range of experience.

In many technology companies, innovation is
often seen as technical innovation. At Gamma,
we take a much broader view. Our areas for
innovating services include unique pricing models,
productising services in a simple-to-consume
way, and developing support tools for our partners
to diagnose issues remotely. Even our commercial
contracts are flexible and innovative. Technical
innovation? Yes, but that’s only the beginning.

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Strategy for growth

Growing our profitability

and market share

Strategy: Our
engaging culture
in action

p24-25

Our engaging culture feeds directly into our strategy,
which will be principally pursued organically, but
Gamma is also well placed to consider strategically
relevant acquisitions as the opportunities arise.

Strategy pillars explained

Execution

Engaging
Culture

Exploiting
existing services

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

Execution

Infrastructure
investment

Developing
the market

Introducing
new services

Exploring
existing services

Infrastructure investment

Introducing
new services

Developing
the market

What are we doing?

• Maintaining focus on

• We have an ongoing

infrastructure investment
programme 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.

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

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 end-customer
wallet over time as multiple
services procured from the
same supplier and individual
incumbent contracts expire.

• Developing more converged
services and commercial
bundles of services to meet
the demand for such services
in the UK business market.

• Seeking commercial

opportunities to expand
and deepen our technical
capability in mobile services.

• Growing the number
of channel partners
that Gamma works
with and deepening
the relationship with
existing channel partners
by providing attractive
services and support.

• Growing business in the

public sector.

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

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016
Strategy: Our engaging culture in action

Engaging
Culture

Assuring reliability

How Gamma is improving partner knowledge

Reducing complexity

How Gamma provides Universities with a stress free Clearing process

Academy
We launched the new Gamma Academy in December 2016.
Integrated into the Gamma Portal that our partners use, the
Academy provides our partners with exclusive access to easy
to digest, bite-sized training material including video tutorials,
eLearning courses, content and step-by-step product guides.

The platform helps partners improve their understanding of the
Gamma product portfolio and ensures their teams are offering
the best service to their customers, using all the available self-
serve tools.

The Academy can intelligently recommend, based on partner
usage patterns, what training should be undertaken and at what
level for that individual. There is also an intuitive search function to
help users find relevant training programmes and the ability for line
managers to create learning plans for team members, view their
activity and monitor progress. Once training programmes have
been successfully completed, a badge is awarded which can be
displayed on LinkedIn, providing differentiation to help partners
stand out when competing for business.

Support Roadshows
We ran our customer Support Roadshows for the fifth time this
year, with a record turnout of 228 partners attending to find out
how they can increase their efficiency and deliver the best service
for their customers using the Gamma Portal and other services.

The roadshows also provide an opportunity for partners to give
Gamma feedback on ways we can improve their experience

of working with us. We then use this insight to shape our
development and support roadmap. This year especially we
were able to showcase a number of developments that partners
had asked for in the previous year’s session, including the new
Gamma Portal landing page, Gamma Academy and a number
of new portal widgets, all aimed at making us easier to
do business with.

The roadshows were supported by a dedicated crew of Gamma
experts, running a range of master class sessions.

100% of partners who provided feedback said they had taken
away knowledge to assist them in their daily role, and 89% rated
the event 8 or more out 10 for usefulness.

“ I’ve already done the SIP
Beginner course, and plan to do
all the others. Been with Gamma
for a long time but nothing
has explained our products
as succinctly. Great job.”

What is Clearing?
University Clearing takes place in late August each year, starting on
the morning that prospective students receive their A ‘level results.
Students who don’t meet their required grades for a guaranteed
place are eligible for “Clearing”; a way of matching Universities with
available places to students without places. Consequently some
Universities estimate that inquiries for places through Clearing have
tripled since 2012 and a number of Universities reported call
volumes exceeding 3,000 during their peak hour, a large spike
versus the calls they receive on a normal day. Clearing is a way for
the majority of Universities to fill their available places with students
and thus generate revenue by way of tuition fees. It is a major
contributor to a University’s finances and it is very important that
they are contactable to all prospective students. The majority of
students contact the Universities on a dedicated clearing telephone
number, so being able to receive all of these revenue generating
calls is of paramount importance to them. It is also important for
the students to receive a prompt and informative calling experience
so that the caller will “stay on the line” to the University. During this
24 hour period, the University phone service is truly “mission critical”
– every call is money.

How does Gamma help reduce the complexity of Clearing?
As a market leader in providing services to Universities and
colleges, this period in August is critical for us to support our
customers in every way possible. Our services need to scale on
the day to cope with significant increases in volumes of inbound
calls, and to interact seamlessly with other components of the
Universities, communications infrastructure.

Our services allow management of increased levels of inbound call
traffic, queue and controls calls in the cloud until an agent is ready
to take the call, and deliver multiple resilience and failover options
to ensure no calls are missed.

What support do we provide?
We work proactively with customers well before Clearing to make
sure everything is in place for “the big day”. Each year we create
a dedicated support team and separate support contact number
just for Universities. We carry out detailed capacity analysis
and load testing for call queuing before August. We also make
recommendations on call flows and improving routing efficiency.

On the day itself we offer all our Universities a member of Gamma
staff on-site where required, just to ensure all goes smoothly.

What did 2016 Clearing look like for Gamma’s University
customers?
Our clearing service has gone from strength to strength with
concurrent calls on our Inbound platform increasing by 39%
between 2015 and 2016 without affecting the quality and reliability
of service received by our customers and delivering 100% uptime.

• 42 Universities took part in our Clearing programme – a 50%

increase on 2015 and one third of UK Universities.

• All Gamma on-site engineers received positive feedback.

• No fault related support tickets were raised.

• Our Inbound platform hit 24,250 concurrent calls during Clearing

2016 versus 17,500 in 2015.

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Key performance indicators

Measuring our success

Performance metrics

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.

Gross profit (£m)

£98.8m

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.

Number of Hosted seats (‘000s)

230

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

Outlook
Continued growth.

Relevant strategy pillars

Number of SIP channels (‘000s)

511

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

Outlook
Continued growth.

Relevant strategy pillars

Revenue (£m)

£213.5m

2016

2015

2014

213.5

191.8

173.2

2016

2015

2014

98.8

82.3

67.6

Gross margin (%)

46.3%

Definition
Gross profit as a percentage of revenue.

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

Adjusted EBITDA (£m)

£34.2m

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

Outlook
Continued growth.

2016

2015

2014

46.3

42.9

39.0

Cash (£m)

£28.2m

2016

2015

2014

13.4

28.2

24.8

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.

2016

2015

2014

34.2

28.3

23.1

Net operating cash flows (£m)

£26.5m

2016

2015

2014

16.4

26.5

28.2

EPS (p)

18.8p

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

Outlook
Expected to grow in the absence
of any unforeseen exceptional items.

Adjusted EPS (p)

21.1p

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

Outlook
Continued growth.

2016

2015

2014

10.0

18.8

19.6

2016

2015

2014

21.1

17.9

15.0

Definition
Net cash inflow from operating activities.

Outlook
In 2015, unusually high due to ladder
income. In the future, growth in line
with EBITDA – cash conversion
is expected to remain strong.

Network availability (%)

99.996%

Definition
Availability of strategic platforms.

Outlook
Similar.

Relevant strategy pillars

Direct customer profile

131

2016

2015

2014 80

142

230

Strategic and enabling services as
percentage of gross margin (%)

79%

2016

2015

2014

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.

Relevant strategy pillars

2016

2015

511

360

2014

234

Cross sell ratios per channel
partner (%)

74%

2016

2015

2014

2016

2015

2014

99.996

99.997

Customer satisfaction (%)

45.0%

2016

2015

2014

22.3

45.0

40.0

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

Outlook
Similar.

Relevant strategy pillars

2016

2015

2014

131

109

Number of channel partners

970

2016

2015

2014

970

834

725

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

Outlook
Similar.

Relevant strategy pillars

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

Outlook
Continued growth.

Relevant strategy pillars

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

Outlook
Continued growth.

Relevant strategy pillars

Strategic
pillars:

Exploiting
existing services

Infrastructure
investment

Introducing
new services

Developing
the market

Execution

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Principal risks and uncertainties

Understanding the risks

that affect our Company

Mitigati o

Ide

t
i

ﬁ

Identification
Risks recorded in controlled risk registers.

Evaluation
Risk exposure reviewed and prioritised.

Risk
management
process

i
t

ring

alu atio

Monitoring
Risks analysed for impact and probability.

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

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.

In all aspects of risk management we
identify new risk areas as they arise,
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 the opposite
page. Each generic area of risk
(e.g. Security) 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 is being done
to mitigate them. This is not an exhaustive
list and, as described, the risk profile
of the business is constantly evolving:

Risk

Security

Description

Potential impact

Mitigating actions

Impact

Change

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. Over the last few years
the profile around cyber security has changed significantly and the Company has
adapted its governance accordingly.

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 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.

High

We also employ external agencies to carry out penetration testing on our systems as well
as carrying out our own security incident rehearsals. We have also undergone assessment
and certification to meet the ‘Cyber Essentials’ standard.

In light of the increasing profile of cyber security we have enhanced our governance
to ensure that we follow best practice in the identification and management of associated
risk, including: increased frequency and broadened scope of both routine and bespoke
penetration testing, mandated cyber security training for all our employees, dedicated
security roles to track how cyber threats are evolving and are best detected, and Board
visibility of the ‘health’ of the governance structure.

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.

Maintaining
customer
service levels

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

Network
and systems
performance

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.

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.

We have a comprehensive service development plan that captures customer feedback
and seeks to best align the support interfaces (system and human) with the needs of our
customers. This programme delivers additional self-serve tools, online training material
and specific customer service training for our support teams. Our objective is to eliminate
any cause of frustration and ensure any interaction is as straightforward as possible.

High

In terms of governance, we hold a monthly quality forum chaired by the CEO that reviews
performance across all parts of the business. This forum has its own action register
to track through any improvements highlighted.

We also employ external agencies to carry out penetration testing on our systems as
well as carrying out our own security incident rehearsals. The business has retained its
certification to ISO27001, Cyber Essentials (mandatory for relevant government contracts).

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

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.

High

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

This may dilute the addressable market
and slow down growth.

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

Moderate

Increased
competition

Evolution of
technology
and markets

Suppliers

Regulatory
environment

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

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

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 Gamma.

Key personnel

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

Brexit

Britain’s impending departure from the EU creates uncertainty and will result in
changes for some businesses. This is likely to produce both risks and opportunities
for Gamma.

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

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.

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

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.

Moderate

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.

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

The main risks anticipated are possible
reduction in economic activity across the
UK; possible long term reduction in the
size of the financial sector in London;
possible increases in the costs of
international call termination and
international mobile roaming.

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

Low

The business has a well-established team and a reputation for being a good employer.
In 2016, it came 46th in ‘The Sunday Times Top 100 Best 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 will manage both its pricing policies and its contractual arrangements
with customers and suppliers in the light of the evolution of the government’s
Brexit negotiations

Low

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016

Business review

Indirect business

Our primary route to market – the channel – is at
the heart of what we do. Providing services to 970
channel partners, we value highly the relationships
we have built. These partners own the end customer
contract and hold the relationship. We are acutely
aware that our partners have choice, and our
objective is to make that choice simple – with
Gamma you grow faster, have lower churn and
more innovative and disruptive quality products.
The indirect business is 79% of Group revenues.

Indirect case study:

Welcomm
Communications

“We’ve been partnering with Gamma since 2011 and we’ve
found them very easy to work with. As a Platinum Partner,
we receive a number of valuable benefits including access
to a priority support desk and excellent marketing support
which has included one on one consultancy and a number
of bespoke marketing campaigns to help us drive additional
business. The Gamma team are an absolute pleasure to
work with. We feel we’re properly aligned, they work with
us strategically and commercially. We’re looking forward
to a really bright future working with them.”

Aidan Piper
Managing Director, Welcomm Communications

Leicestershire-based Gamma Platinum Partner selling Cloud-PBX,
SIP Trunking and Data Services, including Converged Private Networks

The continued growth in margin
demonstrates the resilience of the
indirect business. Despite increasing
competition in some areas, and the
early signs of an expected decline
in traditional voice margins, external
revenues grew to £169.0m in 2016,
up 11% and gross profit £78.2m,
up 22%.

The indirect business has become
more balanced across its product line.
We have again seen strong growth
from our SIP Trunking and Cloud PBX
service – Horizon – whilst Inbound
volumes continue to grow, albeit at
tighter margins. Although a late entrant
to the market we have been pleased
with the growth of our Ethernet and
Broadband services which have both
grown volumes in excess of 30%. Our
five channel sales teams are focused
on very specific market sectors.

Our Cloud PBX system, Horizon,
really came of age in 2016. The Cavell
industry report ranked it as one of the
UK’s largest Cloud PBX platforms.
The active customer base on Horizon
grew to 206,000 in 2016, with over
75,000 net additions. During the year
a significant engineering programme
was completed to maintain the
excellent resilience of the platform
and provide a solid base for growth
and feature expansion in 2017.

Indirect business revenue income
percentage

79%

136

Gamma added 136 new actively
trading channel partners in 2016

Current channel
partner examples

Examples of new
customers through
channel partners

22%

Gross profit increase
in 2016 to £78.2m
for indirect business

We launched our mobile service in
the latter part of the year, bringing a real
choice to the channel – particularly for
those who consider customer ownership
and service control essential elements
of their business model.

Gamma grew the number of active
partners from 834 to 970 during 2016.
We now have 72% of Microsoft Gold
partners signed and trading with Gamma.
The penetration of the top SI’s is currently
42%, although this metric has been
impacted by consolidation in that sector.

In 2016 the size of the channel sales
team grew by 20%, with most of the
growth coming from the recruitment
of graduate Internal Account Managers.
Nurturing and retaining talent in the
channel mould and Gamma culture
is a key part of our long term strategy.
Of our senior account managers,
40% have been at Gamma for 10 years
and 73% for over five years.

The reach and diversity of our partners
continues to expand and excite.

The propensity to purchase IT and
telecoms from a single supplier is
accelerating, and our partners are
broadening their portfolios to match.
With lines between previously distinct
partner sectors becoming increasingly
blurred, our sales specialist teams play
a vital role in augmenting the required
skills for our most sophisticated products.

As ever, we have worked hard on
deepening the relationship with our
partners to ensure we are well connected
right across their business and are
supporting all relevant aspects of their
operations. Over the year we ran sales
training sessions and operational
workshops to support our partners’
back office staff, and regular webinars
on product market issues and important
regulatory information. 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.

A new Platinum Partner scheme was
introduced to bring a valuable intimacy
to the way we do business with a number
of our key resellers. On the back of this
success we will shortly offer a “Gold”
level, to the next tier of channel partners.
In essence these programmes exchange
commitment to grow the volume of their
Gamma business in return for greater
support in service, marketing and the
use of Platinum or Gold “brands” to
help them grow.

Gamma and the partner community
look forward to another successful
year in 2017.

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Business review continued

Direct business

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

Direct business in action 2016

Horizon delivers security
and performance analytics
for Hudsons Property

The opportunity
Hudsons Property’s original
telephony was a number
of leased ISDN lines and
an on-premises leased PBX.
The driver for change came
when it was discovered that
the PBX had been hacked,
leaving Hudsons with an
unusually high phone bill.

A heated conversation with
the legacy supplier revealed
that the technical limitations
of the PBX meant little could
be done to prevent
a recurrence of the fraud.

Hudsons’ wish-list was short:
they wanted the reassurance
of better security, to maintain
good call quality, and to keep
costs under control.

The solution

The ISDN lines and on-premises PBX
have gone. In their place Gamma’s
Assured ADSL with guaranteed quality
of service provides the highest quality
voice connectivity to the outside world
from new desk-top SIP phones, while
Gamma’s Horizon solution delivers
the intelligence that allows Hudsons
to manage the system. The solution
is priced on a per-user basis with all
line items rolled in to a monthly fee
with no up-front costs.

The benefits

• Enhanced security
• High voice quality
• Simple and effective
conference calling

• Flexible and easy to use

call forwarding

• Horizon analytics aid staff
performance management
• Costs controlled, predictable

Public sector
We are pleased to have made
significant advances in the Public
Sector, having secured just under
£10m of new contract revenue.

Significant wins for the year have been
across a multitude of government sectors.
In the social housing space, we have
secured major contracts with customers
such as Your Housing for fixed and
mobile voice services and Notting Hill
Housing for a wide area network.

In Central Government, we were
selected for a large mobile deployment
by the Department for Communities
and Local Government. We further
strengthened our market leading
credentials in SIP, with a number
of local government organisations
such as Trafford Metropolitan Borough
Council and Woking Borough Council
selecting us to be their next generation
IP Voice provider.

2016 has also seen a growth in
the number of health organisations
that we work with, such as Betsi
Cadwaladr University Health Board.
The majority of our customers now
take a minimum of one of our next
generation cloud telephony products.

As well as bringing on new public
sector organisations, the unit is
focusing on re-signing customers,
cross selling and upselling additional
products and solutions to our existing
customers. These include migrating
customers from legacy ISDN estates
to next generation SIP-based services.
A good example of this through 2016
was the Countess of Chester Hospital
which migrated to a Gamma SIP
solution. Re-signs in the year
included the Open University.

We are also seeing growth in our Cloud
PBX platform, Horizon, as customers
move away from traditional on-site
telephony systems to consumption-
based-cloud replacements. Cost
saving, resiliency and flexibility are
the key reasons that customers
are selecting Horizon.

Since the launch of our new mobile
service in late 2016, Gamma has
won public sector contracts totalling
approximately 4,000 connections
and has built a strong pipeline
of over 10,000 connections.

Our churn was once again negligible
with no loss of a major account which
is a testament to the customer service
Gamma delivers.

Direct business revenue income
percentage

21%

13%

Gross profit increased in 2016
to £20.6m from £18.2m in 2015
for the direct business

Current customer
examples

Examples of new
direct customers

Our success on being awarded the right
frameworks continues to play a key part
in securing Public Sector business. In
2015 our investment saw us awarded
access to nine lots of the Crown
Commercial Service RM1045 (Network
Services) framework and in 2016 this
allowed us to secure 26 new contracts
totalling £4.9m in new contract wins and
we anticipate this to grow in 2017. We
also continue to support GCloud, the
Janet Telephony Purchasing Service,
Procurement For Housing and Scottish
Fixed Telephony Services frameworks
as vehicles to access the public sector.

Mid-market/SME sector
2016 saw us build on the successes,
marketing effort and sales pipeline from
2015, with Cloud PBX and SIP Trunking
services still leading the way.

In the SME market (10-100 seats),
Cloud PBX sales still dominate the
landscape, with a significant number of
new customers (in comparison to 2015)
coming directly from Inbound enquiries
into the business. Our Cloud PBX
service, Horizon, has gained a reputation
in this space for being reliable and
cost-effective when compared against
our competition and our customers seem
happy to refer us into new opportunities,
which bodes well for 2017.

Moving upwards into the mid-market,
it seems that the reverse is true, where
IT and technically minded support staff
are more likely to have the expertise to
‘plumb’ themselves into their telephony
environment. Hence, SIP Trunking and
Inbound for resilience purposes makes
up the bulk of the new sales.

2016 has also seen us hit a high level of
product penetration in our major account
base. We’ve managed to build on our
relationships and re-sign customers such
as Virgin Wines, Just-Eat and Cotswold
Outdoor (Snow & Rock).

However, looking forward to 2017, one
of the challenges we face is how we
generate more business from our existing
customers. With this in mind, our strategy
is simple; we will be selling some new
services (including our new mobile
service which has little penetration
thus far) and will also be looking at slightly
refocusing the teams to sell to a greater
number of larger SME’s and mid-market
businesses that have broader estates
to service.

We truly believe that good customer
service can help us sustain and
accelerate the growth of our business.
With this in mind, one of the initiatives

running throughout Gamma is to ‘be easy
to do business with’. In 2016, with input
from our customers, we came up with
a short, medium and long term plan
which will hopefully lead to sustainable
competitive advantage moving forward.

Enterprise
This year has been a year of solid
performance in our Enterprise business,
achieving good growth with our existing
managed accounts, meeting all our 2016
KPIs and securing significant contracts
from household names. Large
enterprises are seeking to unify their
communications to help them meet the
challenges of this digital era and they
want to do this in the quickest, simplest
and lowest cost way, ideally with a single
provider. Whilst many operators can
provide point data, voice and mobile
products, Gamma’s Enterprise business
has become expert in delivering and
managing a wide range of communication
services to address the changing needs
of today’s enterprise organisations.

To this end we secured £33.6m of new
customer contracts during 2016 with
an additional 11% growth of existing
managed customer contracts. Our
notable wins include Strutt and Parker,
the UK property partnership, that has
migrated to our fully converged data,
voice and mobile service. In retail, a
particularly strong market for Gamma,
Nando’s, the leading casual dining chain,
is deploying our managed network
connectivity across its extensive UK
estate and City Electrical Factors, the
UKs leading electrical distributor, has
adopted a fully unified solution for its data,
voice and mobility from Gamma. We had
additional major wins with Berendsen plc,
Reed the employment agency and the
OCS Group of companies.

The majority of contract awards are for our
managed next generation cloud services,
where we help large organisations
navigate between fixed and mobile
communications. This model resonates
with larger organisations because they
reduce the cost and complexity of
operating large communications estates.
To this end we are particularly pleased
with the uptake of Gamma’s new mobile
service in this market sector with over
4,100 connections being contracted since
its launch in late 2016 and a further sector
pipeline of over 10,000 connections.

As mentioned in previous reports, we
use the Net Promoter Score mechanism
to measure the satisfaction of our clients.
In 2016, our NPS score rose again from
40 to 45.

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Financial review

Excellent financial

performance in 2016

Andrew Belshaw describes a positive set
of results for 2016 as Gamma reports for
the second full year as a listed group.

Revenue and gross profit
Indirect business
Revenue from the indirect business grew
from £152.0m to £169.0m (+11.2%) and
gross profit grew from £64.1m to £78.2m
– an increase of £14.1m in the year.

That increase in gross profit is our biggest
year on year growth in absolute terms.
This growth is particularly pleasing
despite the fact that the traditional
business (which includes calls and lines
and trade with other carriers) has started
showing its first signs of decline; in 2016
it declined by £2.0m to £16.5m (2015:
£18.5m). However, the increase from our
growth products has more than offset that
decline (“growth products” are together
SIP Trunking, Cloud PBX, Inbound,
Data and Mobile products and services).

Revenue from growth product sales
increased from £93.8m to £113.2m
(+20.7%) and gross profit grew from
£45.6m to £61.7m (+35.3%). The gross
margin grew from 48.6% to 54.5% which

Andrew Belshaw
Chief Financial Officer

Highlights

£213.5m (+11%)

21.1p (+3.2p)

Revenue grew from £191.8m in 2015
to £213.5m

Adjusted EPS grew from 17.9p to 21.1p

£21.6m (-4%)

PBT fell by 4% from £22.6m to £21.6m
because 2015 included a £5.7m exceptional
gain from the “ladder pricing” settlement

£34.2m (+21%)

Adjusted EBITDA grew from £28.3m
in 2015 to £34.2m

£26.5m (-£1.7m)

£31.3m (+£6.0m)

Cash flow from operating activities fell
from £28.2m to £26.5m due to a £5.1m
non-recurring inflow from the “ladder pricing”
settlement in 2015

Adjusted net operating cash inflow before
tax grew from £25.3m to £31.3m

reflects the fact that the main contributor
to this growth was SIP Trunking, which
has a higher margin than other products.
We have also seen margins improve
significantly on our Inbound product
as customers have moved from using
08 numbers to 03 numbers.

The key drivers of growth in our gross
profit line continue to be SIP Trunking
and Cloud PBX. However, in addition,
throughout 2016 we saw our data
products grow at levels above previous
years due to our ability to offer lower
overall pricing for customers. We had
forecast previously that our investment
in the network would result in a lower
cost base which would drive sales and
this has proved to be the case.

We continue to see growth in both the
number of channel partners and also
the cross-selling of products into those
partners – the percentage of gross profit
coming from channel partners who
buy four or more products (excluding
traditional calls and lines) from Gamma
remains high at 74% (2015: 73%).

Direct business
The direct business has also had a good
year. Revenue increased from £39.8m in
2015 to £44.5m (+11.8%) and gross profit
from £18.2m to £20.6m (+13.2%). Margin
increased slightly from 45.7% to 46.3%.

The growth was attributable to sales
of growth products and gross profit
on these products grew from £14.0m
to £16.8m. This business continues to
move from selling to smaller customers
to larger businesses on multi-year deals.
The order book at the year end was
strong with some significant wins in 2016
(including a large financial institution)
which will only start to contribute
significantly to revenues and gross
profit in 2017.

Operating expenses before share
based payment expense
Operating expenses (before share based
payment expense) grew from £61.4m
to £74.5m. This was due to a number
of factors:

• Ongoing growth in the number of

customers switching to new products
for the first time continues to be
a driver of overhead.

• New mobile platform operating

costs of £4.2m in 2016. This was
a combination of operational costs
required to make it ready for service
and also the ongoing maintenance
of the platform. (2015: £1.8m).

• Increased investment in product R&D
that doesn’t meet capitalisation criteria.

• Continued investment in 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
£28.3m to £34.2m or 20.8% – adjusted
EBITDA has almost doubled in the three
year period since Gamma floated (having
been £17.2m in 2013). The reconciliation
of EBITDA to adjusted EBITDA is shown
below:

EBITDA
Exceptional gain
Share based payment expense

Adjusted EBITDA

2016
£m

31.3
–
2.9
34.2

2015
£m

29.9
(5.7)
4.1
28.3

The adjusted EBITDA excludes share based payment
expense (as well as exceptional items) because these have
fluctuated significantly year on year.

Adjustments to EBITDA, PBT, EPS
and net operating cash inflow have
been presented to ensure underlying
performance year on year is understood.
The Group believes that adjusted
measures provide valuable additional
information for users of the financial
statements in assessing the Group’s
performance since they provide
information on the performance of
the business that management is
more directly able to influence and
on a basis consistent across the Group.

Exceptional items and share based
payment expense
Exceptional items are those which are
considered significant by virtue of their
nature, size or incidence, and are
presented separately in the income
statement to enable a full understanding
of the Group’s financial performance.
In the year ended 31 December 2016
there were no exceptional items. In the
previous year there was an exceptional
gain of £5.7m relating to “ladder pricing”.

The absence of an exceptional gain in
2016 explains why the PBT and EPS
figures show a slight decline.

Share based payment expense for the
year was £2.9m in 2016 (2015: £4.1m).
The charge includes options being issued
to senior management, an SAYE and a
SIP scheme offered to all staff, and the
costs of employers’ National Insurance
on share option gains. The reduction in
the charge in the year reflects the fact
that a special LTIP offered on float in
2014 has now largely unwound.

Adjusted PBT for the year of £24.5m
(2015: £21.0m) excludes share based
payment expense of £2.9m (2015: £4.1m),
as well as an exceptional gain of £5.7m in
2015, against PBT of £21.6m (2015: £22.6m).

Taxation
The effective tax rate for the year was
18.1% (2015: 19.0%). The tax rate is
lower than the statutory rate for the year
(20.0%) because the Group receives
research and development tax credits.

Cash flows
Good cash generation meant we had cash
balances at the end of the year of £28.2m,
up from £24.8m at the end of the previous
year. The adjusted net operating cash
inflow before tax for the year was £31.3m
which represents 92% of adjusted EBITDA
for the year; in line with our historical
rates of cash conversion (2015: 89%).
We continue to turn our trading profit into
cash. (Adjusted net operating cash inflow
before tax is defined as “Net cashflows
from operating activities” £26.5m (2015:
£28.2m) plus “Taxes paid” £4.8m (2015:
£2.2m) before exceptional cashflows; in
2015 there was an exceptional cash inflow
of £5.1m whereas in 2016 there were no
exceptional cash flows).

Capital spend for the year was £19.6m,
which is an increase from £11.5m in the
previous year. This is discussed in
detail below.

The Group continues to be debt free and
a number of lenders have indicated that
they would be willing to support the Group
with debt were it to be required for capital
expenditure programmes or M&A activity.

Capital expenditure
The Group spent £19.6m (2015: £11.5m)
on capital which was split as follows:

• £4.0m was on enhancement,

replacement, increasing capacity and
development of the core network (as
well as minor network related IT items
and fixtures and fittings) (2015: £3.4m).

• An additional £2.8m was spent on
augmenting the mobile platform
purchased in 2014 in preparation
for the launch of our live service
(2015: £1.0m).

• £1.8m was spent on building out our
data network into a number of local
exchanges which will, going forwards,
reduce our cost base for our ethernet
product (2015: £0.4m). This has given us
the ability to reduce prices and we have
already seen a marked upturn in sales.

• £0.9m was the capitalisation of

development costs incurred during the
year, this is in line with previous years
(2015: £0.9m).

• £8.3m was on customer premises

equipment (“CPE”); this is “success
based” expenditure (because each
new sale requires the provision of
equipment) and is expected to increase
in line with new sales of our data and
Cloud PBX products (2015: £4.4m).

• £1.8m of other assets which are

predominantly related to IT and fixtures
and fittings (2015: £1.4m).

In addition, we expect to spend £5m
on our new national network which will
replace our existing fibre ring. This will
provide Gamma with a core infrastructure
for the next 25 years.

Adjusted EPS
EPS is adjusted for exceptional items and
share based payment expense. Adjusted
EPS increased from 17.9p to 21.1p (18%).
The growth in adjusted EPS is slightly
behind that of adjusted EBITDA due to
depreciation and amortisation in the year
increasing from £7.4m in 2015 to £9.9m.
This is driven by the investment
programme and success based
capital spend described above. The
reconciliation of EPS to adjusted EPS
is shown below (both are shown on a
fully diluted basis):

EPS
Exceptional gain
Share based payment expense
Tax effect associated with share
based payment expense and
exceptional gain
Additional effect of dilution

Adjusted EPS

2016
pence

2015
pence

18.8
–
3.1
(0.6)

19.6
(6.1)
4.4
–

(0.2)
21.1

–
17.9

See also note 10 to the financial statements.

Dividends
The Board has proposed a final dividend
of 5.0p representing a full year dividend
of 7.5p per share. This is an increase
of 14% against our dividend for 2015 of
6.6p and is in line with our progressive
dividend policy.

Subject to shareholder approval, the
final dividend is payable on Thursday
22 June 2017 to shareholders on the
register as at Friday 2 June 2017.

Andrew Belshaw
Chief Financial Officer

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Corporate social responsibility

GammaFest is an
excellent example of
how we put a lot of
time and effort into
trying to be different
from the larger
companies that we
compete against, and
how we protect our
culture as we expand.

The second GammaFest was
held during September 2016 at
Keele University with some great
bands and singers, DJ sets, fun
activities and plenty of food.
The event was a big hit with
almost 50% of employees
travelling from all our offices
to spend the weekend together –
some of them even formed bands
that performed on the main stage.

People

power

Our culture has been instrumental in the growth
and success of the business to date. This is aided by
trusting our staff, delegating as far as possible, and
creating an informal, constructive environment.

Communicating with staff is obviously
paramount in maintaining an involved
and informed group of employees.
We have quarterly conference calls
where the management team individually
brief the whole staff, supported by regular
staff newsletters, CEO briefings (by
location) and an annual survey (see
Top 100 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 existing staff and we provide
learning opportunities for everyone.
We have also recruited and developed
both graduates and apprentices. In sales,
for example, our strategy is to recruit
graduates as desk-based support staff,
developing them into field-based 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. 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.

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Corporate social responsibility continued

BEST COMPANIES
TO WORK FOR
2016

Gamma has
been, for
the last four
years running,
recognised in
the Top 100
Best Companies
To Work For

Top factor ranks
Wellbeing
My manager
Leadership
Male/female ratio
Average age
Voluntary leavers
Earning £35,000+

30th
40th
37th
72/28
36
12%
39%

The Sunday Times Top 100 Best
Companies To Work For 2016
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. In 2016
Gamma was recognised as the 46th
best company to work for.

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. A wide range of learning and development
opportunities are available, including funding
by Gamma to undertake Master’s level courses
and other professional development courses.

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

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. Our annual
fundraising charity event the Gamma Ball Rally
raised an amazing £100,000 in 2016 (£400,000
over four years), donating £50,000 to Action
Through Enterprise (£200,000 total). This fantastic
charity supports a community in Ghana, where
over the last three years the funds have helped 64
small businesses become sustainable and initiated
the community’s first school feeding programme,
which in the last year has fed 850 children. We also
held a cycling event which raised £5,000 to build
a sensory gazebo at a school for children with
learning difficulties near to our Newbury office.

Apprenticeships
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, HR, Infrastructure Support,
Software Development and Customer Service,
we have a good track record of offering permanent
employment at the end of the apprenticeships.

Flexible benefits
Gamma offers all UK-based staff access to a
pension scheme, life assurance cover and income
protection. In response to staff feedback, Gamma
offers a flexible benefits package which allows staff
to trade salary for benefits such as a bike to work,
gym membership, childcare vouchers and additional
holiday. Gamma has also partnered with Reward
Gateway to offer staff a variety of discounts from
various retail outlets.

Volunteering policy
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. During the year we have
been working with ‘Back on Track’, a Manchester
charity which runs a learning centre in Manchester’s
Northern Quarter working with adults who are going
through a process of recovery or rehabilitation,
having been through problems with alcohol or
drugs, offending, homelessness or mental health.

The environment and CarbonNeutral®
We made a commitment to reducing our 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.

Share scheme
In addition to the long term incentive schemes
which offer options to key employees, Gamma is
keen to ensure that all employees who would like
to be shareholders can do so in the most efficient
way. Gamma has historically offered both a Share
Incentive Plan (“SIP”) and, in 2016, also offered
a Save As You Earn (“SAYE”) scheme, both of
which allow all eligible employees to acquire
shares. The latter was shortlisted for the “Best
New Share Scheme” award at the ProShare awards
due to the extraordinary take up by 46% of eligible
employees. At 31 December 2016, 455 employees
were shareholders via the SIP scheme and 307
employees held options under the SAYE scheme.

The strategic report was approved by the Board
of Directors on 20 March 2017.

Andrew Belshaw
Chief Financial Officer

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Corporate governance

Chairman’s introduction

to corporate governance

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.

Richard Last
Chairman and Independent
Non-Executive Director

The Directors support high standards
of corporate governance. Although as an
AIM-quoted company, the Company is not
required to comply with the UK Corporate
Governance Code, we have reported on
our corporate governance arrangements
including those aspects of the Code we
consider to be relevant to the Company.

The Board is responsible for establishing
and maintaining the system of internal
controls which has been in place
throughout 2016. The effectiveness of
the Group’s system of internal controls is
reviewed annually by the Audit Committee
on behalf of the Board, as referred to in
the Audit Committee report.

The Board comprises eight Directors,
three 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 2017 and beyond.

Richard Last
Chairman and Independent
Non-Executive Director

The Company’s commitment to strong
corporate governance and risk management
will remain central to the business during
2017 and beyond.

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

Richard Last
Chairman and Independent Non-Executive Director

Alan Gibbins
Independent Non-Executive Director

Bob Falconer
Chief Executive Officer

Andrew Belshaw
Chief Financial Officer

Richard Bligh
Director of Business Development

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.

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016
Board of Directors

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

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 Tribal Group plc, an
education software, systems and
services group, Arcontech Group
plc, a financial services software
company, and Lighthouse Group
plc, a 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.

Bob Falconer
Chief Executive Officer

Andrew Belshaw
Chief Financial 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.

A Chartered Accountant by
background, Andrew has
worked in both audit and
corporate finance at Deloitte LLP
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.

Richard Bligh
Director of Business
Development

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 was appointed
Director of Business
Development on
1 February 2017.

Richard is a graduate
of Cardiff University.

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

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.

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 and was President and
CEO of Invitel from 2004 to 2011.
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 is also an Independent
Non-Executive Director of Epsilon
Global Communications PTE Ltd,
a privately owned provider of
global communications and
infrastructure services.

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

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.

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.

Year joined
2014

Year joined
2003

Year joined
2007

Year joined
2004

Year joined
2014

Year joined
2011

Committee membership
—

Committee membership
• Chairman of the

Nomination Committee

• Member of the Audit Committee
• Member of the

Remuneration Committee

Committee membership
• Chairman of the
Audit Committee

• Member of the

Nomination Committee

• Member of the

Remuneration Committee

Committee membership
• Chairman of the

Remuneration Committee

• Member of the

Nomination Committee

• Member of the Audit Committee

Committee membership
• Member of the

Nomination Committee

Committee membership
• Member of the

Nomination Committee

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Corporate governance continuedSome of our

key people

The Gamma management team
is made up of knowledgeable
and passionate people. Strong
leadership at all levels drives the
business to success. Below are only
some examples of our key people.

Pam Williams
HR Director

Pam has led the HR team since 2014,
and is passionate about learning,
development and loves to see people
unleash their full potential to achieve
things they did not think were possible.
Outside of work Pam enjoys yoga,
family walks and reading.

Keely Westbury
Group Purchase Ledger Manager

Keely has been with Gamma for
four years and oversees supplier
accounts and staff expenses. She is
very determined and loves problem
solving, and in her spare time she
loves spending time with her family.

David Macfarlane
Managing Director –
Gamma Network Solutions

David is a technoholic, advising
Gamma’s customers how best they
can innovate their business through
embracing technology. When offline
he’s a football, hockey and netball
coach to his teenage kids.

Danny Jacobs
Head of Channel Support

Steve Holden
Head of Software Development

Helen Higgons
Group Financial Controller

Danny has been with Gamma since
2012 and his focus is driving up the
support levels across the Gamma
Product set and helping channel
partners support their customers.
Outside of work he plays squash,
shoots clays and enjoys walks.

Steve heads up the development team
in Gamma and has over 18 years’
experience designing and architecting
software solutions for the telecoms
industry. A keen traveller, Steve has
covered a large part of mainland
Europe, South, Central and Northern
US (including Alaska).

Helen is responsible for a team
of 14 people. Helen has been
with Gamma for five years.
Helen enjoys spending time with
friends and family outside work.

Andrew Smethurst
Head of Unified Communications

Jo Shuttleworth
Head of Service Development

Samantha Russell
Head of Service Provisioning

Daryl Pile
Managing Director – Channel

Haleem Gul
Head of Technical Services

Ashley Griffiths
Managing Director, The Loop

Andy has been with Gamma since
2004 looking after some of Gamma’s
largest resellers. Outside of work
Andy loves cricket and football and
has succumbed to just watching both.

Jo leads a team of eight people and
has been with Gamma for seven
years. Jo has a passion for improving
the customer experience through
developing systems, processes
and training support. In her spare
time Jo is a keen runner.

Sam joined Gamma in 2009 and is
now responsible for the provisioning
teams within Customer Operations,
focusing on delivering excellent
service.

Daryl has been with Gamma for
14 years and delivers innovative
propositions helping our partners
grow and succeed. He is a part time
LEGO construction foreman for
his two sons and loves to travel.

Haleem manages a team of 50
engineers and has been with Gamma
for 13 years. In his spare time Haleem
enjoys road cycling, walking and
spending quality time with his family.

Ashley is Managing Director of
Gamma’s Manchester fibre network
‘The Loop’, serving high profile public
and private sector customers and
connects to MediaCityUK. Outside
of work, Ashley enjoys classical art
and contemporary music.

Matt Davies
Head of Customer
Programme Management

Matt has been with Gamma since
2010 leading the project delivery of
Gamma managed services. In his
spare time Matt enjoys the outdoors
and spending time with his family.

Justin Coombes
Head of Marketing

Justin has been with Gamma
for nine years and embraces B2B
marketing with innovative techniques.
In his spare time Justin likes the
great outdoors and is a keen boater
and cyclist.

John Murphy
Customer Service Director

John leads the Customer Operations
teams of 211 people and has been
with Gamma for over six years. John
has a passion for innovation within
customer service and employee
development. In his spare time
John enjoys travel, adventure and
the great outdoors.

Andy Morris
Managing Director Service
and Operations

Since 2006 Andy Morris has been
responsible for managing Gamma’s
Network, product platforms and
Customer Service teams. Away
from work, Andy loves the great
outdoors and live music.

Alan Mackie
Product Director

Alan has been at Gamma since 2006
and heads up the Application Services
Product team, as well as the Pre Sales
and Marketing teams within Gamma.
Outside work, Alan enjoys running
(very slowly!).

Tony MacKenzie
Head of Engineering

Tony heads up Gamma’s
network engineering functions.
He is passionate about ‘building
new stuff’ and innovation. As an
accomplished technical scuba diver
Tony spends most of his spare time
underwater, either in the sea or more
recently in caves.

Siobhan Carr
Head of Direct Support

James Bushell
Head of Product Lines

Siobhan has been with Gamma
for five years and looks after three
teams which are the forefront for
faults and provisioning giving Gamma
customers a proactive and over and
above experience. Outside of work
Siobhan loves travelling.

James leads the Application Services
product management team and has
been with Gamma since early 2003.
His focus is on quality product delivery
through understanding the needs of
Gamma’s customers. In his spare time
he enjoys travel, good food and wine.

Cem Ahmet
Managing Director
– Gamma Business
Communications

Cem has been with Gamma for over
11 years and leads his 60+ strong
army into the SME & mid-market
battlefields. Outside of work Cem likes
the odd game of golf and a good read.

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Corporate governance continuedCorporate governance report

The workings of the Board and its Committees
At 31 December 2016, the Board was comprised of five
Non-Executive Directors, one of whom is the Chairman,
and three 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
opposite, 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 for review by 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.
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.

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.

The following is a table of attendance:

Board
meeting

Audit
Committee

Remuneration
Committee

Nomination
Committee

Executive Directors
Bob Falconer
Andrew Belshaw
Richard Bligh

12/12
12/12
11/12

Non-Executive Directors
Richard Last
(Independent)
Alan Gibbins
(Independent)
Martin Lea
(Independent)
Wu Long Peng
Andrew Stone

12/12

11/12
8/12

N/A
N/A
N/A

3/3

N/A
N/A

N/A
N/A
N/A

5/5

N/A
N/A

N/A
N/A
N/A

1/1

1/1
1/1

During 2016, 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.

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 AGM to
communicate with private and institutional investors and
welcomes their participation.

Signed on behalf of the Board by:

Richard Last
Chairman and Independent
Non-Executive Director
20 March 2017

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 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 48.

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.

Nomination Committee
The Nomination Committee assists the Board in discharging its
responsibilities relating to the composition and make-up of the
Board and any committees of the Board. It is also 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 is
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.

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.

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Corporate governance continuedAudit Committee report

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

Alan Gibbins
Audit Committee
Chairman

Name

Alan Gibbins, Chairman

Richard Last

Martin Lea

Meetings
attended

3/3

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
knowledge. There were no changes to the membership
of the Committee during the year.

The Committee meets at least three times a year generally
just prior to Board meetings to facilitate immediate and
efficient reporting to the Board, with additional meetings where
necessary. The external auditors are invited to each meeting.
The CEO and Chief Financial Officer (together with members
of the finance team as appropriate), and the other Non-
Executive Directors also attend by invitation.

The Committee also meets separately at least once a year with
the external auditors without others being present. The Chairman
of the Committee maintains a regular dialogue with the Chief
Financial Officer and his team and with the external auditors.

Objectives and responsibilities
The Committee’s key objectives are to provide effective
governance over Gamma’s financial reporting and the
performance of the external auditors; to provide oversight
of the Group’s systems of internal financial control; and
to report to the Board on these matters.

In fulfilment of these objectives the Committee:

• reviews Gamma’s financial statements and finance-related
announcements, including compliance with statutory and
listing requirements. As an AIM-listed company, Gamma
is not required fully to comply with the UK Corporate
Governance Code, but seeks nevertheless to comply
in all material respects;

• considers whether these statements and announcements
provide a balanced and understandable view of Gamma’s
strategy and performance, and of the associated risks;

• considers the appropriateness of accounting policies

and significant accounting judgements and the disclosure
of these in the financial statements;

• reviews the effectiveness of financial controls and systems.
Gamma does not have an internal audit function and the
Committee is of the view that Gamma is not yet of a size and

complexity to warrant the establishment of such a function.
However, as described below, during the year the Committee
commissioned an internal audit of the billing systems, being the
most complex area of the financial systems and fundamental
to the sound financial management of Gamma; and

• oversees the relationship with and performance of the

external auditors.

Activities of the Committee during the year
In fulfilment of the responsibilities set out on this page, the
Committee’s activities have focused on financial reporting
and the related statutory audit; and the assessment of internal
controls. In addition, the Committee conducted a review of the
performance of the external auditors after their first year in post.
The selection of Deloitte LLP as Gamma’s external auditors was
described in last year’s Audit Committee report.

Financial reporting and statutory audit
The Committee has reviewed with both management and the
external auditors the half year and annual financial statements,
focusing on:

• the overall truth and fairness of the results and financial
position, including the clarity of disclosures shown in the
statements and their compliance with statutory, listing
and best practice requirements. This includes accounting
disclosures and whether at least equal prominence is given
to GAAP results where non-GAAP amounts are disclosed.
The Audit Committee is satisfied that Gamma is transparent
on these matters;

• the appropriateness of the accounting policies and practices

used in arriving at those results;

• the resolution of management’s significant accounting

judgements or of matters raised by the external auditors during
the course of their half year review and annual statutory
audit. Key issues are described in more detail below; and

• the quality of the Annual Report taken as a whole,

including disclosures on Governance, Strategy, Risks and
Remuneration, and whether it gives a fair and balanced
picture of the Group.

External audit
The Committee discussed, challenged and agreed with Deloitte
LLP their detailed audit plans prepared in advance of the audit,
which set out their assessment of key audit risks and materiality.
Their approach to the review of the half year results was also
discussed and agreed. As in the previous year, there were
particular discussions on the complexity of auditing revenues
and associated costs (to ensure the accuracy of billings to
clients and that Gamma only pays for the proper amount of
any corresponding external cost) and the use of specialist
audit techniques for Gamma’s billing and related IT systems.
To help with these discussions, the Head of Revenue Assurance
and Billing attended the relevant meeting.

Accounting policies, practices and judgements
The selection of appropriate accounting policies and practices
is the responsibility of management, and the Committee
discussed these with both management and the external
auditors. Significant areas considered by the Committee
in relation to the 2016 financial statements are set out below.

• Revenue recognition. Gamma has a number of revenue
streams arising from its products and services which
should be recognised in line with relevant contractual terms.
The Committee took into account the work of Gamma’s
Finance function on the accuracy of amounts recognised
as well as the audit work on the relevant systems carried out
by Deloitte LLP. In addition, the Committee commissioned an
internal audit by KPMG of the billing systems. The Committee
was satisfied as to the robustness of the reporting of
revenues and associated costs.

• Capitalisation of internal development costs. Gamma

carries out a significant level of in-house development which
is capitalised and amortised where appropriate – where
projects are technically feasible, can be completed and the
asset can or will be capable of use or sale. The Committee
considered management’s capitalisation process and the
assumptions used when assessing whether expenditure
should be capitalised or otherwise. The Committee was
satisfied that a sufficient degree of scepticism was used
by management and the external auditors in arriving
at amounts which should be capitalised.

• Impairment. Gamma is required to test annually whether
goodwill has suffered any impairment and to consider
whether the fixed assets used in the business are carried
at an appropriate amount. The Committee reviewed the
impairment testing carried out and concurred with
management that there was no impairment of goodwill
or any of the fixed assets used in the business.

• Share based payments. The charge in the financial

statements for share based payments can be complex often
involving estimates around market volatility and yield. The
Committee reviewed the calculations prepared by Gamma’s
external advisers in this area, calculations by management,
the assumptions relating to performance conditions and the
findings of the external auditors and was satisfied as to the
amounts and disclosures.

• 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, particularly the costs to be incurred by the end of each
lease. Where appropriate, relevant assets are written down
to reflect their remaining useful lives.

• Onerous leases. Gamma has recently made a decision

to invest in its national network which will mean the former
network becomes redundant and therefore leases associated
with the old network will become onerous. Where the
unavoidable costs of a lease exceed the economic benefit
expected to be received from it, a provision is made for the
present value of the obligations under the lease. The Committee
reviewed the calculation and key estimates underpinning the
provision and agreed with management’s view.

• Taxation. The Group recognises tax liabilities based on its
assessment of the supportability of its tax return positions.
The Committee considered the estimates involved in arriving
at the provision for taxation, in particular where there is any
possibility of challenge upon review by the tax authorities.
Next year Gamma will be publishing its tax strategy and
work on this is under way.

Assessment of internal financial control
Management is responsible for putting in place internal financial
controls over financial reporting and to protect the business from
identified material risks. Control improvements were suggested
by Deloitte LLP coming out of their first year as Gamma’s
external auditors and management is implementing these.
The Audit Committee commissioned an internal audit review
of Gamma’s billing systems from KPMG. The review did not
find any substantive issues and management is discussing with
KPMG certain enhancements to the current systems following
their observations. The CFO presented to the Committee a
roadmap of Gamma’s financial systems and where these are
to be upgraded or enhanced in the near future. The Committee
was pleased to note that systems appear to be fit for purpose.

New accounting standards
The Committee has been kept appraised of progress on
Gamma’s preparations for the implementation of two accounting
standards which will affect the amounts disclosed in Gamma’s
financial statements, IFRS 15 (Revenues) and IFRS 16
(Leases). Gamma expects to implement both standards in 2018
and the Committee will continue to monitor progress in this area.

External audit effectiveness
Deloitte LLP were appointed as Gamma’s auditors for the
2015 financial year and following completion of the audit for
that year the Audit Committee carried out an assessment
of their performance and of the external audit process, taking
into account the views of the finance team and of the Board.
The assessment was in general positive but suggested areas
where Gamma and Deloitte LLP could work and communicate
better together. The Audit Committee is pleased to report that
the response has been very positive and that the external audit
has run smoothly and constructively.

Alan Gibbins
Audit Committee Chairman
20 March 2017

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Corporate governance continuedRemuneration Committee report

This report is for the period to
31 December 2016. It sets out
the remuneration policy and the
remuneration details for the
Executive and Non-Executive
Directors of the Company.

Martin Lea
Remuneration
Committee
Chairman

The report is split into three main areas:

The statement by the Chairman
of the Remuneration Committee

The Directors’ remuneration policy

The Annual Report on Remuneration

Page

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

Name

Alan Gibbins, Chairman

Richard Last

Martin Lea

Meetings
attended

5/5

The information provided in this part of the Annual Report
on Remuneration is unaudited.

Dear shareholder
I am pleased to introduce the Director’s Remuneration Report for
the 2016 financial year. The Chairman’s statement (on pages 4 to
5) 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
continue to grow profitably, 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 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. This Remuneration Committee report includes a
summary of the remuneration policy, details of Directors’ Service
Agreements as well as the Annual Report on Remuneration.

The Executive Directors receive an amount of fixed pay made
up of a base salary, and in some cases a benefits package
and pension contribution. In line with the general Company wide
salary increase, and taking into account the performance of the
business, it was decided to increase the base pay of the CEO
and CFO by 2% with effect from January 2017. The Non-
Executive Directors’ fees were also increased by the same %.

Short term performance for senior executives is incentivised
using an annual bonus scheme based on the achievement of
profitability goals. 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. There are
no changes to the structure of these schemes planned for 2017.
In the policy table and the Annual Report on Remuneration
we have included details of the targets associated with both
the annual bonus scheme and the long term incentive plan
for the relevant period.

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).

The CSOP is designed to enable the Group to selectively
incentivise key high performing employees. In 2016 awards
of 53,911 options were made to high performing employees
under the CSOP.

In 2016, in order to further stimulate employee wide share
ownership, the Company introduced a new Company wide SAYE
share save scheme. Under this scheme, employees who choose
to participate are granted options, at a 20% discount to market
price, and then save a pre-determined sum over a period of three
years. The money saved can then be used by the employee
to exercise their options. In its first year 44% of all employees
chose to participate, with options being granted over 641,053
shares. There were no shares issued under the SIP in 2016.

These various schemes provide the Board with tools to help
it to continue to strengthen the alignment of employee and
shareholder interests.

Employees in the Group generally 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 2016, and the contribution and hard work
of all the employees, the Board was pleased to approve
a 2% general salary increase at the 2016 year end.

As an AIM-listed company, this report is not mandatory, but is included as a matter of best practice, and it is our intention to continue
to increase the scope and content of the report. Gamma’s Remuneration Committee report was approved on an advisory basis at
the 2016 AGM with 99.98% of votes cast in favour. We are not proposing any material policy changes for the current financial year.
This Remuneration Committee report will again be put to an advisory vote at the forthcoming 2017 AGM.

Martin Lea
Remuneration Committee Chairman
20 March 2017

Directors’ remuneration policy

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

Consideration of shareholders’ views on remuneration
The Company welcomes dialogue with its shareholders over matters of remuneration, and will seek the views of its significant
shareholders if and when any major policy changes are being planned. The Chairman of the Remuneration Committee is available
for contact with institutional investors concerning the Company’s approach to remuneration.

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 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.

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; and

• average workforce salary

adjustments within the Company.

The CEO’s base salary was
reviewed on 1 January 2017
(the prior review being in January
2016) and was increased by 2%
to £305,878.

The CFO’s base salary was
reviewed on 1 January 2017
(the prior review being in January
2016) and was increased by 2%
to £187,272.

In addition to the above, salaries are
independently benchmarked from
time to time against comparable
roles at companies of a similar size
and complexity in the Telecoms
and IT services sectors.

The Director of Business
Development was appointed to
this new position on 1 February
2017 (having previously served
as COO). His salary is £182,843
with effect from 1 March 2017.

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Corporate governance continuedPurpose and link to strategy

Operation

Potential remuneration

Performance metrics

Purpose and link to strategy

Operation

Potential remuneration

Performance metrics

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 income protection 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.

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

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
bonus scheme rules do include
a claw-back provision.

Not applicable.

The cost of providing these
benefits vary year on year
depending on the schemes’
premiums. The Remuneration
Committee monitors the overall
cost of the benefits package.

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

During the year the COO
(now Director of Business
Development) received £2,241
in salary in lieu of a contribution
by the Company to his pension
of £2,550. In 2017 the CEO and
Director of Business Development
will not participate in the scheme.

For the Executive Directors, the
maximum capped bonus potential
is 100% of salary.

For 2016, the Executive Directors
achieved the maximum capped
bonus of 100% of salary.

Not applicable.

For the year ending 2016, the
targets were based on growth in
Adjusted Profit Before Tax (PBT).
To achieve maximum bonus the
performance target was set at
17% annual growth in Adjusted
Profit Before Tax (PBT). For 2017,
targets are again based on
growth in Adjusted Profit
Before Tax (PBT).

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.

The Executive Directors (as well as
other senior executive managers)
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.

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.

Following the announcement
of the Group’s results for 2015,
awards were granted under this
scheme at a value of 100%
of base salary. These awards
will vest in April 2019, subject
to service and performance
conditions.

It is anticipated that further
awards will be made in April 2017
following announcement of the
Group’s annual results.

Vesting of the 2016 LTIP awards
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
EPS (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.

In both cases (TSR and EPS) the
Committee determined that at this
stage of Gamma’s development
and its market position, absolute
performance measures are more
appropriate than relative
measures.

Alignment of executive remuneration and the market
In September 2016, the Company engaged h2glenfern, a remuneration advisory practice, to undertake a benchmarking exercise
for use in considering the remuneration levels of the Executive and Non-Executive Directors. In undertaking this work h2glenfern
took into account Gamma’s size, position, profile and outlook, and reviewed the remuneration data for a number of comparable UK
quoted telecoms/technology companies. It is planned that a similar benchmarking exercise will be undertaken every three years.

In addition to such formal benchmarking exercises, the Committee takes advantage of various annual AIM Directors’ Remuneration
reports as well as available data about similar and competing companies. The Company aims to position Gamma Directors’ salary
and annual bonus at the median level, but to also ensure there is significant incentive and reward for better than average longer
term results through the performance based Long Term Incentive Plan.

Consideration of employment conditions elsewhere in the Group
The Committee considers the pay and conditions of employees throughout the Company when determining the remuneration
arrangements for Executive Directors although no direct comparison metrics are applied. In particular, the Committee considers the
relationship between general changes to UK employees’ remuneration and Executive Director reward. Whilst the Committee does
not directly consult with our employees as part of the process of determining executive pay, the Board does receive feedback from
employee surveys that takes into account remuneration in general. The Committee also receives updates from the HR Director.

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Corporate governance continuedPolicy on recruitment
When hiring a new Executive Director the Committee will consider the overall remuneration package by reference to the
remuneration policy set out in this report. The Committee would not usually expect to pay sign-on payments or compensate
new Directors for any variable remuneration forfeited from any employment prior to joining the Board other than in exceptional
circumstances, and in such circumstances would aim to compensate the new Executive through the Company’s Long Term
Incentive Plan. Long Term Incentive Plan (LTIP) awards will be made on an ongoing basis in line with our policy for other Directors.
In the year of recruitment a higher award may be made within the limits of the plan (maximum of 200% of salary other than in
exceptional circumstances). Salary and annual bonus levels will be set so as to be competitive at the median level with comparable
roles in companies in similar sectors, and also taking into account the experience, seniority and the scope of responsibility of the
appointee coming into the role. New Executive Directors will be able to participate in the annual bonus scheme on a pro-rated basis
for the portion of the financial year for which they are in post. New Executive Directors will receive benefits and pension
contributions in line with the Company’s existing policy.

Policy on loss of office
The following sets out the Company’s policy with regard to exit payments in relation to each remuneration element for Executive
Directors. These apply other than in circumstances where the Executive is dismissed for breach of contract, including serious
dishonesty, gross misconduct or incompetence, or wilful neglect of duty, in which cases no amount will be payable.

Basic salary: This will be paid over the contractual notice period (six months based on the current policy) however the Company
has the discretion to make a lump sum payment for termination in lieu of notice. Benefits and Pension contributions: These will
normally continue to be provided over the notice period, however the Company has the discretion to make a lump sum payment
on termination equal to the value of the benefits payable during the notice period. Annual Bonus: The payment of any annual bonus
would be entirely at the discretion of the Remuneration Committee and if made would be pro-rated to the time of active service
in the year that employment ceased. The decision of the Committee, in such circumstances, would take into consideration the
financial performance of the Company, the performance of the individual, and the circumstances of the termination of employment.
Long Term Incentive Plan (LTIP): This is governed by the rules of the LTIP scheme. If the Executive Director’s employment ceases
for reasons of death, ill health, injury, disability or redundancy during the performance period of the LTIP award, then normally
in these circumstances, the participant’s award will vest on a time pro rata basis subject to the Remuneration Committee
assessment of the satisfaction of the performance conditions applying to the award for the period prior to cessation of employment.
The Committee retains discretion to decide to waive in full or in part the performance conditions if it feels that is appropriate in
particular circumstances. In all other circumstances if an Executive Director’s employment ceases then the award will lapse on
the date of cessation, unless the Remuneration Committee determines in its discretion prior to the date of cessation that the award
should vest on a pro rata basis.

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 CEO. 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 paid for 2016 are set out in the Annual Report on Remuneration. The Directors’ fees were increased by 2%
with effect from January 2017. There were no changes to the Non-Executive Director Committee Chair fees.

The current fees are as follows:

Director

Richard Last
Alan Gibbins
Martin Lea
Wu Long Peng
Andrew Stone

Directors’ fee

Committee
Chair fee

£76,500
£35,700
£35,700
£35,700
£35,700

–
£6,000
£6,000
–
–

2017

£76,500
£41,700
£41,700
£35,700
£35,700

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

10 October 2014

CFO
Andrew Belshaw

10 October 2014

Director of Business Development
Richard Bligh

1 January 2016

6 months’ notice given by either party
£299,880 per annum
Discretionary performance related
None

6 months’ notice given by either party
£183,600 per annum
Discretionary performance related
Company contributes up to 5.1% of
basic salary into defined contribution
money purchase scheme

Participation in Company life
assurance and income protection
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

6 months’ notice given by either party
£182,843 per annum
Discretionary performance related
None. With effect from January 2017
Company pension contributions were
consolidated into salary at no
additional cost to the Company
Participation in Company life
assurance and income protection
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

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
17 June 2014
17 June 2014
6 June 2014
6 June 2014

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 2016.

Remuneration Committee
Membership
The Remuneration Committee consisted of the following Directors during the year to 31 December 2016:

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

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Corporate governance continued
Role of the Remuneration Committee
The role of the Remuneration Committee is to determine and recommend to the Board the remuneration policy for the Executive
Directors. This includes base salary, annual and long term incentive awards and pension arrangements. In determining the
remuneration policy, the Remuneration Committee takes into account many factors including the need for a significant proportion
of the Executive Directors’ remuneration to be structured so as to link rewards to business performance.

Activities of the Remuneration Committee in 2016
The Committee met five times in 2016 in order to conduct the following main items of business: agree the annual Remuneration
Committee report; review the Chairman’s fees; set senior executive bonus targets for 2016; approve the terms of the Company’s
new all employee SAYE share scheme; approve senior executive bonus payments relating to 2015; approve the 2016 LTIP and
CSOP awards and set LTIP targets; review the projected dilution impact and cost of various share schemes; conduct the annual
review of Remuneration Committee terms of reference and performance; consider the results of the Directors’ remuneration market
comparison conducted by h2glenfern; consider the Company annual salary review and any changes to overall Company
remuneration structure.

Advisers
In September 2016, the Company engaged h2glenfern, a remuneration advisory practice to undertake a benchmarking exercise
for use in considering the remuneration levels of the Executive and Non-Executive Directors. The cost of this work was £7,500
excluding VAT.

Remuneration of the Executive Directors
Bonuses are shown on an accrued basis.

The share option remuneration has been calculated as the excess of the share price on the vesting date over the exercise price
for share options that vested during the year.

Director

Bob Falconer
Andrew Belshaw
Richard Bligh

Salary and fees

Benefits

Annual bonus

Share options

£299,880
£161,459
£202,241

–
–
–

£299,880
£183,600
£200,000

–
£299,978
£563,372

Pension

–
£31,467
£7,500

Total for
2016

£599,760
£676,504
£973,113

Richard Bligh received £2,241 salary in 2016 in lieu of a contribution by the Company to his pension of £2,550.

Andrew Belshaw waived £22,141 of his salary for 2016 and received a pension contribution of the same amount.

The bonus payment was the maximum based on achieving a target of 17% annual growth in adjusted PBT. No amount of the bonus
was deferred. The share options vesting during the year relate to the pre-IPO awards made under the 2014 DSS scheme and which
had no performance conditions attached.

The Directors have no rights under any Company pension schemes that are designated as defined benefit schemes.

In addition to the above, the Company provides life assurance and group income protection for the Executive Directors.

Director

Bob Falconer
Andrew Belshaw
Richard Bligh

Salary and fees

Benefits

Annual bonus

Share options

£294,000
£131,305
£150,765

–
–
£10,000

£294,000
£140,000
£120,612

£1,732,287
£195,363
£366,933

Pension

–
£36,706
£7,689

Total for
2015

£2,320,287
£503,374
£655,999

Andrew Belshaw waived £28,695 of his salary for 2015 and received a pension contribution of the same amount.

Richard Bligh became a Director of the Company on 1 December 2015 and his salary from then until the end of 2015 was £12,564.

Remuneration of the Non-Executive Directors

Director

Richard Last
Alan Gibbins
Martin Lea
Wu Long Peng
Andrew Stone

Director

Richard Last
Alan Gibbins
Martin Lea
Wu Long Peng
Andrew Stone

Directors’ fee

Committee
Chair fee

£75,000
£35,000
£35,000
£35,000
£35,000

–
£6,000
£6,000
–
–

Directors’ fee

Committee
Chair fee

£75,000
£35,000
£35,000
£35,000
£35,000

–
£5,000
£5,000
–
–

Total for
2016

£75,000
£41,000
£41,000
£35,000
£35,000

Total for
2015

£75,000
£40,000
£40,000
£35,000
£35,000

Share scheme interests awarded during the year ended 31 December 2016
Deferred Share Scheme (DSS)
There were no awards made to Directors under the DSS plan during the year ended 31 December 2016 or 31 December 2015.

Unapproved share option plan
There were no awards made to Directors under the unapproved share option plan during the year ended 31 December 2016
or 31 December 2015.

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

2016
Director

Bob Falconer

Andrew Belshaw

Richard Bligh

2015
Director

Bob Falconer

Andrew Belshaw

Richard Bligh

Type of
scheme interest

Basis of award

Nil-cost option

100% of salary

Nil-cost option

100% of salary

Nil-cost option

100% of salary

Type of
scheme interest

Basis of award

Number of
awards

71,870

44,002

47,932

Number of
awards

Vesting date

Exercise price

Exercise date

31 Mar 2019

£0.0025

–

Vesting date

Exercise price

Exercise date

Nil-cost option

100% of salary

108,888

1 April 2018

Nil-cost option

100% of salary

Nil-cost option

100% of salary

51,851

55,838

1 April 2018

£0.0025

–

At the time of making an award the Remuneration Committee sets 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 LTIP awards have a performance period of three years starting from the vesting commencement date. 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.

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Corporate governance continued

Directors’ report

The Directors present their annual
report on the affairs of the Group,
together with the financial statements
and auditor’s report, for the year ended
31 December 2016.

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.

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

Dividends
The Directors recommend a final dividend of 5.0p per
ordinary share to be paid on Thursday 22 June 2017 to
ordinary shareholders on the register on Friday 2 June 2017
which, together with the interim dividend of 2.5p paid on
Thursday 20 October 2016 to Ordinary Shareholders on
the register as at Friday 23 September 2016 makes a total
of 7.5p for the year (2015: 6.6p).

Capital structure
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 four share incentive schemes by which Directors and
employees may: (i) be granted options under a Long Term
Incentive Plan to subscribe for nil cost shares in the Company,
(ii) be granted options under the Company Share Option Plan,
(iii) be issued shares under a Share Incentive Plan, and (iv)
be granted options under a Save As You Earn 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 the Group
Details concerning subsidiary undertakings are given
in note 13 to the Group financial statements.

Directors
The names and biographies of the Directors during the year
are disclosed on pages 42 to 43.

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

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

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, liquidity position and borrowing facilities
are described in the Financial 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.

Save As You Earn (SAYE)
The following awards were made under the SAYE. The performance conditions are set out below the table.

Director

Richard Bligh

Type of
scheme interest

Basis of award

Number of
awards

Vesting date

Exercise price

Exercise date

Discounted
option

Savings-related
share option

3,135

19 April 2019

£3.444

–

The awards granted will have a performance period of three years starting from the grant date, being 19 Apr 2016.

Statement of Directors’ shareholding and share interests
Directors’ share interests at 31 December 2016 are set out below:

2016

Executive Director

Bob Falconer

Andrew Belshaw

Richard Bligh

Non-Executive Director

Richard Last

Alan Gibbins

Martin Lea

Wu Long Peng

Andrew Stone

2015

Executive Director

Bob Falconer

Andrew Belshaw

Richard Bligh

Non-Executive Director

Richard Last

Alan Gibbins

Martin Lea

Wu Long Peng

Andrew Stone

Number
of beneficially
owned shares

With
performance
measures

Without
performance
measures

Vested but
unexercised

Options

3,490,075

277,654

412,222

53,475

13,368

–

1,286,500

469,038

266,587

286,281

–

35,882

67,389

–

Options

–

Number
of beneficially
owned shares

With
performance
measures

Without
performance
measures

Vested but
unexercised

4,567,193

277,002

422,222

53,475

13,368

–

3,650,000

397,168

222,587

235,214

–

548,740

107,647

202,167

–

Exercised
during
the year

548,740

71,765

134,778

–

Exercised
during
the year

–

179,306

134,778

–

During the 2016 AGM, a motion was set for the shareholders to approve on an advisory only basis the Directors’ Remuneration
Report. 99.98% votes were cast in favour of the motion.

This Remuneration Committee report will be put to an advisory vote at the forthcoming 2017 AGM. This report was approved
by the Board of Directors on 20 March 2017 and signed on its behalf by:

Martin Lea
Remuneration Committee Chairman

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Corporate governance continued
Auditors and their independence
A resolution to appoint auditors for the year to 31 December
2017 will be proposed at the AGM. 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
Each of the persons who is a Director at the date of approval of
this Annual Report confirms that, so far as the Director is aware,
there is no relevant audit information of which the Company’s
auditor is unaware; and the Director has taken all the steps that
he ought to have taken as a Director in order 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.

Deloitte LLP have expressed their willingness to continue
in office as auditor and a resolution to reappoint them will
be proposed at the forthcoming Annual General Meeting.

By order of the Board,

Andrew Belshaw
Chief Financial Officer
20 March 2017

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 contributions
No political contributions were made in the year.

Disabled employees
Applications for employment by disabled persons are always
fully considered, bearing in mind the aptitudes of the applicant
concerned. In the event of members of staff becoming disabled
every effort is made to ensure that their employment with the
Group continues and that appropriate training is arranged.
It is the policy of the Group that the training, career development
and promotion of disabled persons should, as far as possible,
be identical to that of other employees.

Employee consultation
The Group 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.

During both the year and the prior year the Group 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 Top 100 Best
Companies To Work For and the Group was placed in the
top 50 companies in the UK.

Statement of Directors’

responsibilities

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.

Responsibility statement
We confirm that to the best of our knowledge:

• the financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair
view of the assets, liabilities, financial position and profit
or loss of the Company and the undertakings included
in the consolidation taken as a whole;

• the strategic report includes a fair review of the development
and performance of the business and the position of the
Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face; and

• the Annual Report and financial statements, taken as a

whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess
the Company’s position and performance, business model
and strategy.

This responsibility statement was approved by the Board
of Directors on 20 March 2017 and is signed on its behalf by:

Andrew Belshaw
Chief Financial Officer
20 March 2017

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
are required to prepare the Group financial statements in
accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union and Article 4 of the
IAS Regulation and have elected to prepare the parent company
financial statements in accordance with IFRS 101 “Reduced
Disclosure Framework” Under company law the Directors must
not approve the accounts unless they are satisfied that they give
a true and fair view of the state of affairs of the Company and
of the profit or loss of the Company for that period.

In preparing the parent company financial statements, the
Directors are required to:

• select suitable accounting policies and then apply

them consistently;

• make judgements and accounting estimates that are

reasonable and prudent;

• state whether applicable UK Accounting Standards have

been followed, subject to any material departures disclosed
and explained in the financial statements; and

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

In preparing the Group financial statements, International
Accounting Standard 1 requires that Directors:

• properly select and apply accounting policies;

• present information, including accounting policies, in
a manner that provides relevant, reliable, comparable
and understandable information;

• provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable
users to understand the impact of particular transactions,
other events and conditions on the entity’s financial position
and financial performance; and

• make an assessment of the Company’s ability to continue

as a going concern.

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Corporate governance continuedFinancial statements

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

Consolidated statement of comprehensive income
For the year ended 31 December 2016

Revenue
Cost of sales
Gross profit
Other operating income

Operating expenses

Operating profit before share based payment expense,
exceptional items, depreciation and amortisation
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 67 to 89 form part of these financial statements.

Notes

3,4

2016
£m

213.5
(114.7)
98.8

–

(77.4)

34.2
(2.9)
–
31.3
(9.9)

21.4
0.2
21.6
(3.9)

17.7

19.4
18.8

2015
£m
191.8
(109.5)
82.3

5.7

(65.5)

28.3
(4.1)
5.7
29.9
(7.4)

22.5
0.1
22.6
(4.3)

18.3

20.4
19.6

We have audited the financial statements
of Gamma Communications plc for the year
ended 31 December 2016 which comprise
the Consolidated Statement of Comprehensive
Income, the Consolidated Statement of
Financial Position, the Consolidated Statement
of Cashflows, the Consolidated Statement of
Changes in Equity, the Company Balance Sheet,
the Company Statement of Changes in Equity,
and the Group and Company related notes 1
to 28 and 1 to 9 respectively. The financial
reporting framework that has been applied
in the 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 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), including FRS 101 “Reduced
Disclosure Framework”.

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
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting policies
are appropriate to the Group’s and the parent company’s

circumstances and have been consistently applied and
adequately disclosed; the reasonableness of significant
accounting estimates made by the Directors; and the overall
presentation of the financial statements. In addition, we read all
the financial and non-financial information in the Annual Report
to identify material inconsistencies with the audited financial
statements and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit.
If we become aware of any apparent material misstatements
or inconsistencies we consider the implications for our report.

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 2016 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 properly
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.

Opinion on other matters prescribed by the Companies
Act 2006
In our opinion, based on the work undertaken in the course
of the audit:

•

the information given in the strategic report and the Directors’
report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
the strategic report and the Directors’ report have been
prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the Company
and its environment obtained in the course of the audit, we have
not identified any material misstatements in the strategic report
and the Directors’ report.

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.

Andrew Bond FCA
(Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
Reading, United Kingdom
20 March 2017

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Consolidated statement of financial position
As at 31 December 2016

Consolidated statement of cash flows
For the year ended 31 December 2016

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
Provisions
Deferred tax

Current liabilities
Trade and other payables
Current tax

Total liabilities

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

Total equity

Total equity and liabilities

Notes

2016
£m

2015
£m

33.5
10.0
1.8
45.3

3.0
39.9
28.2
71.1

116.4

1.9
0.2
2.1

32.5
1.6
34.1

36.2

0.2
3.8
2.3
3.5
(0.8)
71.2

80.2

116.4

23.4
10.4
2.0
35.8

2.3
35.2
24.8
62.3

98.1

1.4
0.4
1.8

27.3
2.3
29.6

31.4

0.2
3.7
2.3
3.8
(0.8)
57.5

66.7

98.1

The financial statements on pages 63 to 66 were approved and authorised for issue by the Board of Directors on 20 March 2017
and were signed on its behalf by:

Andrew Belshaw

Chief Financial Officer

The notes on pages 67 to 89 form part of these financial statements.

Cash flows from operating activities
Profit for the year before tax
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Share based payment expense
Interest income

Increase in trade and other receivables
Increase in inventories
Increase in trade and other payables
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
Repayment of loans made to individuals to subscribe for shares
Interest received

Net cash used in investing activities

Financing activities
Share issues
Investment in own shares
Dividends

Net cash used in financing activities

Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Notes

2016
£m

21.6

8.6
1.3
2.9
(0.2)
34.2
(7.3)
(0.7)
4.6
0.5

(4.8)

26.5

(18.7)
(0.9)
–
2.6
0.2

(16.8)

0.1
–
(6.4)

(6.3)

3.4
24.8

28.2

2015
£m

22.6

6.1
1.3
4.1
(0.1)
34.0
(3.3)
(1.2)
0.4
0.5

(2.2)

28.2

(10.6)
(0.9)
(0.1)
0.5
0.1

(11.0)

0.5
(0.8)
(5.5)

(5.8)

11.4
13.4

24.8

The operating cash flow in 2015 includes £5.1m of cash received relating to the laddering settlement which management considers
to be non-recurring in nature.

The notes on pages 67 to 89 form part of these financial statements.

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Financial statements continuedConsolidated statement of changes in equity
For the year ended 31 December 2016

Notes forming part of the financial statements
For the year ended 31 December 2016

1 January 2015
Issue of shares
Current tax on share based payment expense
Deferred tax on share based payment expense
Recognition of share based payment expense
Dividend paid (note 10)
Investment in own shares
Transaction with owners

Profit for the year
Total comprehensive income

31 December 2015

1 January 2016
Issue of shares
Deferred tax on share based payment expense
Recognition of share based payment expense
Dividend paid (note 10)
Transaction with owners

Profit for the year
Total comprehensive income

Share
capital
£m
0.2
–
–
–
–
–
–
–

Share
premium
reserve
£m
3.2
0.5
–
–
–
–
–
0.5

Merger
reserve
£m
2.3
–
–
–
–
–
–
–

Share option
reserve
£m
2.4
(1.6)
–
–
3.0
–
–
1.4

–
–

0.2

0.2
–
–
–
–
–

–
–

3.7

3.7
0.1
–
–
–
0.1

–
–

2.3

2.3
–
–
–
–
–

–
–

3.8

3.8
(2.5)
–
2.2
–
(0.3)

–
–

Own
shares
£m
–
–
–
–
–
–
(0.8)
(0.8)

–
–

(0.8)

(0.8)
–
–
–
–
–

–
–

Retained
earnings
£m
43.1
1.6
0.7
(0.7)
–
(5.5)
–
(3.9)

18.3
18.3

57.5

57.5
2.5
(0.1)
–
(6.4)
(4.0)

17.7
17.7

Total
equity
£m
51.2
0.5
0.7
(0.7)
3.0
(5.5)
(0.8)
(2.8)

18.3
18.3

66.7

66.7
0.1
(0.1)
2.2
(6.4)
(4.2)

17.7
17.7

31 December 2016

0.2

3.8

2.3

3.5

(0.8)

71.2

80.2

1. Accounting policies

Basis of preparation
These financial statements have been prepared in accordance
with International Financial Reporting Standards, International
Accounting Standards and Interpretations (collectively IFRS)
issued by the International Accounting Standards Board (IASB)
as adopted by the 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 financial statements have been prepared on a historical
cost basis, except for the revaluation of certain properties and
financial instruments. The Company has taken advantage of
the exemption available within FRS 101 Reduced Disclosure
Framework in respect to IFRS 7.

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 years presented.

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.

•

IFRS 15 Revenue and Contracts with Customers
(effective 1 January 2018)

•

IFRS 16 Leases (effective 1 January 2019)

• Amendments to IAS 40 clarifying transfers or property to,
or from, investment property (effective 1 January 2018)

• Amendments to IFRS 9 which replaces IAS 39

(effective date 1 January 2018)

• Amendments to IAS 7 as a result of the Disclosure

Initiative (effective date 1 January 2017); and

• Annual improvements to IFRSs 2014-2016 Cycle

(effective 1 January 2018).

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.

IFRS 15 was published in May 2014 and the effective date
has been delayed to reporting periods beginning on or after
1 January 2018. Following the finalisation of the standard
and IFRS 16, the Group is in the process of assessing the
impact of this.

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 of £28.2m (2015: £24.8m) 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 entities shown in note 13.

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 growth) 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
or data is transferred.

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.

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Financial statements continuedNotes forming part of the financial statements
For the year ended 31 December 2016 continued

1. Accounting policies continued

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 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.

Advances made to channel partners
Where the Group can demonstrate recovery of the asset
(being the advances made) through contractual claw back
provisions and past evidence of recovery, they are deferred
and recognised over the period of the contract. Where this
is not possible they are charged directly to the consolidated
statement of comprehensive income.

Business combinations
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 comprises 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.

Goodwill
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.

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.

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.

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 (whether in
respect of new products or enhancement of existing products)
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.

Segment reporting
Operating segments are reported in a manner consistent with
the internal reporting provided to the chief operating decision-
makers. The chief operating decision-makers have been
identified as the Chief Executive Officer and Chief Financial
Officer. 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.

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.
Amortisation is charged to the Income Statement on a straight
line basis over the estimated useful life from the date the asset
is available for use.

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.

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
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 are classified as equity
instruments.

1. Accounting policies continued

Share based payment expense
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.

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 statement
of comprehensive income because it excludes items of income
or expense that are taxable or deductible in other years, it
includes items that are tax deductible but which do not affect
net profit 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 statement of financial position
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 or a telephone handset), known as
Customer Premises Equipment, are capitalised and depreciated
over the expected period of the provision of that 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

4%–33% per annum straight line
7%–33% 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 stated 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 EBTs, they
are treated as subsidiaries and consolidated for the purposes
of the consolidated financial statements. The EBTs’ 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 or onerous lease provision. 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 on this page.

Judgements

(a) Revenue recognition
Revenue recognition on long-term contracts to provide
services requires estimates of profits over the multiple-year
terms of such agreements, considering factors such as the
frequency and extent of future maintenance; the resources
required to perform the services; and future billing rate and
cost changes. The Company routinely reviews estimates
under service agreements and regularly revises them to adjust
for changes in outlook. The Company also regularly assesses
customer credit risk inherent in the carrying amounts of
receivables and contract costs and estimated earnings.
Revisions that affect a product services agreement’s total
estimated profitability result in an immediate adjustment
of earnings. The Company provides for probable losses.

(b) Impairment
The Group is required to test, on an annual basis, whether
goodwill has suffered any impairment and to consider whether
the fixed assets used in the business are carried at an
appropriate amount. 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 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 upon review by tax authorities. The Group believes
that its accruals for tax liabilities are adequate for all open
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) 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 over the useful economic life. 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.

2. Critical accounting estimates and judgements continued

Estimates

(a) 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 statement
of comprehensive income. The main uncertainty relates to
estimating the cost that will be incurred at the end of the lease.

(b) 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.

(c) Onerous lease provisions
Where the unavoidable costs of a lease exceed the economic
benefit expected to be received from it, a provision is made for
the present value of the obligations under the lease. Provision
has been made in respect of onerous leases for the shorter
of the remaining period of the lease and the period until the
Company exits the lease commitment. The amount provided is
based on the future rental obligations together with other fixed
outgoings and the possibility of either sub-letting or buying-out
from the lease commitment. Significant assumptions are used
in making these calculations and changes in assumptions
and future events could cause the value of these provisions
to change.

3. Revenue
Revenue in all periods principally arises from the provision
of products and services. There is an immaterial level of sales
of goods (which are not part of a service).

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

•

Indirect – This division sells Gamma’s traditional and
growth products to channel partners and contributed
79% (2015: 79%) of the Group’s external revenue.

• Direct – This division sells Gamma’s traditional and

growth products to end users in the SME, Enterprise
and public sectors together with an associated service
wrap. They contributed 21% (2015: 21%) 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 and services (which is mainly voice traffic from which
revenues are derived from channel partners and other carriers
as well as rentals for wholesale lines) and growth products
and services (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). Growth products
and services were formerly known as New products and
services but management believes that Growth is a better
description of the product set. There is no change in
underlying classification.

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

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

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

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

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.

2016
Traditional products and services
Growth (being strategic and enabling) products and services
Total revenue from external customers
Inter-segment revenue

Traditional products and services
Growth (being strategic and enabling) products and services
Total gross profit

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

Profit from operations
Finance income
Tax
Group profit after tax

Indirect
£m

Direct
£m

55.8
113.2
169.0
38.8

16.5
61.7
78.2

24.8
(2.9)
–
21.9
(9.0)

12.9
0.2
(2.3)
10.8

10.2
34.3
44.5
–

3.8
16.8
20.6

9.4
–
–
9.4
(0.9)

8.5
–
(1.6)
6.9

Total
£m

66.0
147.5
213.5
38.8

20.3
78.5
98.8

34.2
(2.9)
–
31.3
(9.9)

21.4
0.2
(3.9)
17.7

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

2015
Traditional products and services
Growth (being strategic and enabling) products and services
Total revenue from external customers
Inter-segment revenue

Traditional products and services
Growth (being strategic and enabling) products and services
Total gross profit

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

Profit from operations
Finance income
Tax
Group profit after tax

Indirect
£m
19.0
100.8
31.5

Indirect
£m

58.2
93.8
152.0
29.2

18.5
45.6
64.1

20.6
(4.1)
5.7
22.2
(6.6)

15.6
0.1
(1.9)
13.8

Direct
£m
0.6
15.6
4.7

Direct
£m

11.5
28.3
39.8
–

4.2
14.0
18.2

7.7
–
–
7.7
(0.8)

6.9
–
(2.4)
4.5

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

Total
£m
19.6
116.4
36.2

Total
£m

69.7
122.1
191.8
29.2

22.7
59.6
82.3

28.3
(4.1)
5.7
29.9
(7.4)

22.5
0.1
(4.3)
18.3

4. Segment information continued

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

5. Profit on ordinary activities
Profit on ordinary activities is stated after charging the following amounts:

Indirect
£m
11.0
67.6
9.0

Net foreign exchange
Research and development costs
Staff costs (see note 7)
Depreciation of property, plant and equipment (incl. impairment)
Amortisation of intangible assets
Cost of inventories recognised as an expense
Fees payable to the Company’s auditor for other services:
– Audit of the Company’s subsidiaries pursuant to legislation
Operating lease expense:
– Property

Direct
£m
0.5
30.5
22.4

2016
£m

0.4
6.3
42.3
8.6
1.3
2.9

0.2

1.9

Total
£m
11.5
98.1
31.4

2015
£m
0.1
6.1
37.1
6.1
1.3
3.5

0.1

1.2

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 42 and 43, and the Management Committee
in place during 2016.

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
Social security contributions and similar taxes

Share based payment expense

2016
£m

3.2
0.1
0.6
3.9
2.0
5.9

2016
£m

1.6
0.2
1.8
1.1
2.9

2016
£m

0.6
0.6
1.2

2015
£m
2.9
0.2
0.5
3.6
3.6
7.2

2015
£m
1.1
0.1
1.2
1.2
2.4

2015
£m
0.6
0.8
1.4

Fees payable to the Company’s auditor for the audit of the parent company and consolidated financial statements totalled £55k
(2015: £55k) for the year.

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

6. Exceptional items

Gain from ladder pricing

2016
£m

–

2015
£m
5.7

Salary
Share based payment expense

Ladder pricing was a mechanism which was used by fixed line operators to bill other operators for calls to certain 08 numbers.
In 2015, Gamma reached a commercial settlement in regard to its ladder pricing policy with the affected operators resulting
in an exceptional gain of £5.7m. There was a non-recurring cash inflow of £5.1m; £0.6m was received previously but not recognised
as income as the invoices had been disputed.

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

2016
£m

34.1
1.8
3.5
39.4
2.9
42.3

2015
£m

28.5
1.6
2.9
33.0
4.1
37.1

2016
Number

419
313
732

2015
Number
364
262
626

During the year, two Directors (2015: two Directors) participated in a private money purchase defined contribution pension scheme.

8. Finance income

Finance income
Interest received on bank deposits
Total finance income

2016
£m

0.2
0.2

2015
£m

0.1
0.1

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)
Adjustment in respect of prior year
Total deferred tax
Total tax expense

2016
£m

2015
£m

3.9
0.1
4.0

(0.1)
–
(0.1)
3.9

4.9
(0.4)
4.5

(0.4)
0.2
(0.2)
4.3

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 20.00% (2015: 20.25%)
Expenses not deductible for tax purposes
Change in tax rates
Additional deduction for R&D expenditure
Adjustment in respect of prior year
Total tax expense

2016
£m

21.6

4.3
0.1
–
(0.4)
(0.1)
3.9

2015
£m
22.6

4.6
–
0.1
(0.2)
(0.2)
4.3

The Finance Act 2015 included provision for the main rate of corporation tax to reduce to 19% for the year beginning 1 April 2017.
The Finance Act 2016 includes provision for the main rate of corporation tax to reduce to 17% for the year beginning 1 April 2020.

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 £17.7m (2015: £18.3m) and 91,235,007
(2015: 89,488,163) Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the year.

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 2016 the diluted Ordinary Shares were
based on 93,787,248 Ordinary Shares (2015: 93,226,438) that included 2,552,241 potential Ordinary Shares (2015: 3,738,275).

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

Profit for the year
Exceptional income
Share based payment expense
(Less)/add tax effect associated with share based payment costs and one-off costs
Adjusted profit after tax for the year

Total
2016
£m

17.7
–
2.9
(0.6)
20.0

Total
2015
£m
18.3
(5.7)
4.1
0.1
16.8

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)

2016
No.

91,235,007
3,497,603
94,732,610

2015
No.
89,488,163
4,591,931
94,080,094

2016
21.9
21.1

2015
18.8
17.9

For statutory Earnings Per Share, the number of shares used for the fully diluted calculation is prescribed by IFRS 2. For adjusted
Earnings Per Share, the Company produces a calculation formulated on management’s judgement of the number of options which
will vest based on full management forecasts and budgets.

There have been no material transactions involving Ordinary Shares or potential shares between the reporting date and the date
of completion of the financial statements.

Dividends
An interim dividend of 2.5p was paid on 20 October 2016 (2015: 2.2p).

A final dividend of 5.0p will be proposed at the Annual General Meeting but has not been recognised as it requires approval
(2015: 4.4p). The total amount of dividends proposed is 7.5p.

11. Property, plant and equipment

Cost
At 1 January 2015
Additions
Disposals
Reclassification
At 31 December 2015
Depreciation
At 1 January 2015
Charge for the year
Disposals
Reclassification
At 31 December 2015
Net book value
At 1 January 2015
At 31 December 2015

Cost
At 1 January 2016
Additions
Disposals
At 31 December 2016
Depreciation
At 1 January 2016
Charge for the year
Disposals
At 31 December 2016
Net book value
At 1 January 2016
At 31 December 2016

Network
assets
£m

Customer/
Premises
equipment
£m

Computer
equipment
£m

Fixtures
and fittings
£m

41.8
4.8
(1.6)
0.9
45.9

27.0
3.7
(1.6)
0.3
29.4

14.8
16.5

45.9
8.6
–
54.5

29.4
4.2
–
33.6

16.5
20.9

1.9
4.4
(0.5)
–
5.8

0.8
1.4
(0.5)
–
1.7

1.1
4.1

5.8
8.3
(0.8)
13.3

1.7
3.1
(0.8)
4.0

4.1
9.3

12.5
1.4
(8.4)
(0.9)
4.6

10.0
0.9
(8.4)
(0.3)
2.2

2.5
2.4

4.6
1.6
–
6.2

2.2
1.2
–
3.4

2.4
2.8

1.5
–
(1.0)
–
0.5

1.0
0.1
(1.0)
–
0.1

0.5
0.4

0.5
0.2
–
0.7

0.1
0.1
–
0.2

0.4
0.5

There was no property, plant or equipment held under finance leases at the end of either year.

There was no property, plant or equipment held as security at the end of either year.

Total
£m

57.7
10.6
(11.5)
–
56.8

38.8
6.1
(11.5)
–
33.4

18.9
23.4

56.8
18.7
(0.8)
74.7

33.4
8.6
(0.8)
41.2

23.4
33.5

12. Intangible assets

Cost
At 1 January 2015
Additions
At 31 December 2015
Amortisation
At 1 January 2015
Charge for the year
At 31 December 2015
Carrying value
At 1 January 2015
At 31 December 2015

Cost
At 1 January 2016
Additions
At 31 December 2016
Amortisation
At 1 January 2016
Charge for the year
At 31 December 2016
Carrying value
At 1 January 2016
At 31 December 2016

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

4.3
0.9
5.2

2.4
0.9
3.3

1.9
1.9

5.2
0.9
6.1

3.3
0.9
4.2

1.9
1.9

2.1
–
2.1

1.2
0.4
1.6

0.9
0.5

2.1
–
2.1

1.6
0.4
2.0

0.5
0.1

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

• Customer contracts – five years.

• Development costs – over the anticipated useful economic life of the asset developed 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

2016
£m

6.8
1.2
8.0

Total
£m

18.9
0.9
19.8

8.1
1.3
9.4

10.8
10.4

19.8
0.9
20.7

9.4
1.3
10.7

10.4
10.0

2015
£m
6.8
1.2
8.0

The carrying value of the Group’s goodwill was tested for impairment at 31 December 2016 and 2015. The recoverable amount has
been determined on a value-in-use basis on each CGU using the Board 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 16% for Gamma Business Communications Limited
and by 27% for Gamma Network Solutions Limited (being based on historical growth rates); (b) gross margin percentage is assumed
to be held constant (based on historical data); and (c) overheads are assumed to grow by 6% for Gamma Business Communications
Limited and 19% for Gamma Network Solutions Limited. These cash flows are then discounted at 12% – both CGUs form the direct
business 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 year (giving a recoverable amount of £44.5m in respect of Gamma
Business Communications Limited and £20.4m 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
Blue Spot Technologies Limited
Go Worldwide Communications Limited
Uniworld Bureau Services Limited

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

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

Ownership by
the Company
Direct ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership

Notes
(a)
(a)
(a)
(a)
(a)
(b)
(a)
(a)
(a)

Notes:
(a) Registered Office: 5 Fleet Place, London, EC4M 7RD, England.
(b) Registered Office: 1054 Budapest, Széchenyi Rakpart 8, Hungary.

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 and the Gamma Communications plc SIP 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

2016
£m

3.1
(0.1)
3.0

2016
£m

22.4
(2.0)
20.4
10.0
8.1
1.4
39.9

2015
£m
2.4
(0.1)
2.3

2015
£m
19.4
(1.2)
18.2
8.1
5.0
3.9
35.2

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 2016 and 2015 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

2016
£m

1.7
0.6
–
–
2.3

2015
£m
1.1
0.1
–
0.1
1.3

15. Trade and other receivables continued
As at 31 December 2016 trade receivables of £1.7m (2015: £0.9m) were past due and impaired. The amount of the provision as
at 31 December was £2.0m (2015: £1.2m). The main factors considered by the finance function 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

2016
£m

0.3
1.0
0.4
0.1
0.2
2.0

2015
£m
0.3
0.6
0.1
0.1
0.1
1.2

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

2016
£m

1.2
1.0
(0.2)
2.0

2015
£m
1.2
0.5
(0.5)
1.2

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 equivalent

Cash at bank

17. Trade and other payables

Current
Trade payables
Other payables
Accruals
Tax and social security
Deferred income
Total trade and other payables

Book values approximate to fair value at 31 December 2016 and 31 December 2015.

2016
£m

28.2

2016
£m

8.3
1.3
19.8
1.2
1.9
32.5

2015
£m
24.8

2015
£m

4.4
0.8
18.7
1.9
1.5
27.3

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 payables
Other payables
Accruals
Total financial liabilities

2016
£m

28.2
20.4
10.0
1.4
60.0

2016
£m

8.3
1.3
19.8
29.4

2015
£m
24.8
18.2
8.1
3.9
55.0

2015
£m
4.4
0.8
18.7
23.9

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 monthly 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.

18. Financial instruments – risk management continued
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 below:

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.

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.

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
where available. Purchase limits are established for each customer, which represent the maximum open amount without requiring
further approval from the Credit Committee.

The Credit Committee determines concentrations of credit risk by monitoring the creditworthiness rating of existing customers
and through regular reviews of the trade receivables’ ageing analysis.

The Group does not enter into derivatives to manage credit risk.

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

2016
£m

28.2
20.4
10.0
1.4
60.0

2015
£m
24.8
18.2
8.1
3.9
55.0

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 seeks to mitigate this risk
by only holding deposits with banks with a credit rating of A or above, unless Board approval is obtained.

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.

During the year, the Group entered into two forward foreign exchange contracts to mitigate against the foreign exchange risk
on foreign contracts. These are in USD and relate to one supplier. There were no open foreign exchange contracts at year end.

As of 31 December 2015 and 31 December 2016 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.

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:

2016
Total financial liabilities

2015
Total financial liabilities

Up to 3
months
£m

Between
3 and 12
months
£m

Between
1 and 2
years
£m

Between
2 and 5
years
£m

Over
5 years
£m

28.3

1.1

–

Up to 3
months
£m

23.9

Between
3 and 12
months
£m

Between
1 and 2
years
£m

Between
2 and 5
years
£m

Over
5 years
£m

–

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

• Trade and other 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

2016
£m

80.2
28.2
108.4
80.2
80.2
1.35

2015
£m
66.7
24.8
91.5
66.7
66.7
1.37

19. Provisions

Leasehold dilapidation provision
Onerous lease provision
Total provisions
Of which:
Due within one year or less
Due after more than one year

At 1 January 2016
Additional provision in the year
Utilisation of provision
At 31 December 2016

2016
£m

1.3
0.6
1.9

0.1
1.8

Onerous
lease
provision
£m
0.1
0.5
–
0.6

2015
£m
1.3
0.1
1.4

0.1
1.3

Total
£m
1.4
0.6
(0.1)
1.9

Leasehold
dilapidation
provision
£m
1.3
0.1
(0.1)
1.3

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.

The onerous lease provision relates to lease payments on property which became onerous during the year. The amount provided
is based on the future rental obligations together with other fixed outgoings and the possibility of either sub-letting or buying-out
from the lease commitment. Significant assumptions are used in making these calculations and changes in assumptions and future
events could cause the value of these provisions to change.

20. Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 17% (2015: 18%).

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

Asset at 1 January
Tax credit recognised in profit and loss
Recognised directly in equity
Asset at 31 December

2016
£m

1.6
0.1
(0.1)
1.6

2015
£m
2.1
0.2
(0.7)
1.6

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

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

2016
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
1.6
–
1.8

(0.2)
–
–
–
(0.2)

Net
£m

(0.1)
0.1
1.6
–
1.6

(Charged)/
Credited to
profit or
loss
£m

Credited to
equity
£m

0.1
–
(0.1)
0.1
0.1

–
–
(0.1)
–
(0.1)

2015
Difference in capital allowances
and depreciation/amortisation
Other temporary and deductible differences
Deferred tax on share options
Business combinations
Deferred tax asset/(liability)

21. Share capital
At 31 December the share capital was as follows:

Allotted and fully paid
Ordinary Shares of £0.0025 each

Ordinary Share movement in the year is as follows:

1 January 2016
16 March 2016
31 March 2016
18 April 2016
30 June 2016
22 September 2016
31 December 2016

(a) Ordinary Shares were issued to satisfy options which had been exercised.

In the prior year, the share capital movements were as follows:

1 January 2015
23 March 2015
21 May 2015
9 September 2015
2 December 2015
31 December 2015

(Charged)/
Credited to
profit or
loss
£m

Credited to
equity
£m

Asset
£m

Liability
£m

0.1
0.1
1.8
–
2.0

(0.3)
–
–
(0.1)
(0.4)

Net
£m

(0.2)
0.1
1.8
(0.1)
1.6

(0.1)
–
0.2
0.1
0.2

–
–
(0.7)
–
(0.7)

2015
£m

0.2
0.2

2016
Number

91,751,499

2016
£m

0.2
0.2

2015
Number

90,250,607

Number
90,250,607
32,500
1,022,536
50,000
207,856
188,000
91,751,499

Number
88,529,127
1,099,111
12,000
221,561
388,808
90,250,607

Notes

(a)
(a)
(a)
(a)
(a)

Notes

(a)
(a)
(a)
(a)

(a) Ordinary Shares were issued to satisfy options which had been exercised.

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

Reserve
Share premium reserve
Merger reserve

Share option reserve
Own shares
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. 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.
Represents credit to equity relating to share based payment expense on share options.
Purchase of own shares under a SIP scheme
All other net gains and losses and transactions with owners (e.g. dividends) not recognised
elsewhere.

23. Leases
The Group had future minimum lease payments as set out below:

2016
In one year or less
Between one and five years
In five years or more

2015
In one year or less
Between one and five years
In five years or more

Land and
buildings
£m

1.6
4.6
2.3
8.5

Land and
buildings
£m

1.0
3.3
1.7
6.0

Other
£m

0.1
0.1
–
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

25. Share based payment expense

2016
£m

1.8

2015
£m
1.6

Share options granted
On 15 April 2016 the Board approved an issue of options under the Company Share Option Plan which granted 65,382 options
over £0.0025 Ordinary Shares at an exercise price of £4.3575. These will vest in April 2019.

On 17 May 2016 the Board approved an award under the Long Term Incentive Plan for the senior management team. 352,769
options were granted over £0.0025 Ordinary Shares at an exercise price of £0.0025 per share which will vest on 1 April 2019
subject to performance conditions. The awards granted will have a performance period of three years starting from the vesting
commencement date, being 31 March 2016.

The awards issued under the Long Term Incentive Plan will vest as follows:

• 15% of the shares are subject to an award if annual compound total shareholder return over the performance period equals
8% and 50% of the shares are subject to an award if the annual compound total shareholder return over the period equals
or exceeds 15% with pro rata straight line vesting in between; and

• 15% of the shares are subject to an award if annual compound growth of the Company’s adjusted earnings per share over the
performance period equals 8% between the financial years at the beginning and the end of the performance period and 50%
of the shares are subject to an award if the annual compound growth of the Company’s adjusted earnings per share equals
or exceeds 20% with pro rata in between.

On 19 May 2016 the Board approved an issue of options under a Save As You Earn scheme which granted 641,053 options over
£0.0025 Ordinary Shares at an exercise price of £3.444. These options will vest in July 2019.

Share options modified
On 31 October 2015 the following modifications were made to existing share options:

2015
Date of original grant
6 October 2014
6 October 2014

No. of options
modified
157,971
49,885

Original
vesting date
1 February 2016
1 February 2017

Modified
vesting date
1 June 2016
1 June 2016

Exercise
price
£0.2500
£0.2500

There is not considered to be a material impact on the fair value of the options. The options concerned had no performance
conditions attached to them.

Share options movements
Movements in the number of options during the year were as follows:

The options below were exercised at a weighted average exercise price of £4.21.

2016
Date of grant
6 June 2014
2 September 2014
6 October 2014
6 October 2014
6 October 2014
6 October 2014
6 October 2014
8 May 2015
8 June 2015
31 October 2015
15 April 2016
17 May 2016
19 May 2016

Start of year
259,168
1,155,912
219,497
329,244
545,413
272,707
67,892
370,349
455,218
207,856
–
–
–

Granted
–
–
–
–
–
–
–
–
–
–
65,382
352,769
641,053

Forfeited
–
–
–
–
–
–
–
–
–
–
–
–
–

Modified
–
–
–
–
–
–
–
–
–
–
–
–
–

Exercised
(199,168)
–
(219,497)
(329,244)
(545,129)
–
–
–
–
(207,856)
–
–
–

End of year
60,000
1,155,912
–
–
284
272,707
67,892
370,349
455,218
–
65,382
352,769
641,053

Exercise
price
£0.2500
£0.0025
£0.0025
£0.0025
£0.0025
£0.0025
£0.0025
£2.7000
£0.0025
£0.0025
£4.3575
£0.0025
£3.4440

Class of
share
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary

Notes
(a)
(b) (j)
(a)
(a)
(a)
(c)
(b) (j)
(d)
(e) (j)
(f)
(g)
(h) (j)
(i)

Notes:
(a) Options have vested and are exercisable.
(b) The awards granted will have a performance period of three years starting from the vesting commencement date, being 1 April 2014.
(c) Awards vest on 1 February 2017; there are no vesting conditions.
(d) The awards granted will have a performance period of three years starting from the grant date, being 8 May 2015.
(e) The awards granted will have a performance period of three years starting from the vesting commencement date, being 31 March 2015.
(f)

On 31 October 2015 49,885 options with a vesting date of 1 February 2017 and 157,971 with a vesting date of 1 February 2016 were modified to have
a new vesting date of 1 June 2016.

(g) The awards granted will have a performance period of three years starting from the grant date, being 15 April 2016.
(h) The awards granted will have a performance period of three years starting from the vesting commencement date, being 31 March 2016.
(i) The awards granted will have a performance period of three years starting from the vesting commencement date, being 1 July 2016.
(j)

The awards will vest as follows:
i. 15% of the shares are subject to an award if annual compound total shareholder return over the performance period equals 8% and 50% of the shares

are subject to an award if the annual compound total shareholder return over the period exceeds or equals 15% with pro rata straight line vesting
in between; and

ii. 15% of the shares are subject to an award if annual compound growth of the Company’s adjusted earnings per share over the performance period
equals 8% between the financial years at the beginning and the end of the performance period and 50% of the shares are subject to an award
if the annual compound growth of the Company’s adjusted earnings per share exceeds or equals 20% with pro rata in between.

Apart from the options noted as exercisable, all other options above are outstanding.

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Financial statements continued

Notes forming part of the financial statements
For the year ended 31 December 2016 continued

25. Share based payment expense continued
Movements in the number of options during the previous year were as follows:

The options below were exercised at a weighted average share price of £3.15.

2015
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
8 May 2015
8 June 2015
31 October 2015

Start of year
716,668
36,000
100,000
120,320
181,078
1,399,352
922,880
329,244
703,384
372,477
123,200
67,892
–
–
–

Granted
–
–
–
–
–
–
–
–
–
–
–
–
370,349
530,999
–

Forfeited
–
–
–
–
–
(243,440)
–
–
–
(49,885)
–
–
–
(75,781)
–

Modified
–
–
–
–
–
–
–
–
(157,971)
(49,885)
–
–
–
–
207,856

Exercised
(457,500)
(36,000)
(100,000)
(120,320)
(181,078)
–
(703,383)
–
–
–
(123,200)
–
–
–
–

End of year
259,168
–
–
–
–
1,155,912
219,497
329,244
545,413
272,707
–
67,892
370,349
455,218
207,856

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
£2.7000
£0.0025
£0.0025

Class of
share
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary

Notes
(a)
(a)
(a)
(a)
(a)
(b) (i)
(a)
(a)
(c)
(d)
(e)
(b) (i)
(f)
(g) (i)
(h)

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

(f) The awards granted will have a performance period of three years starting from the grant date, being 8 May 2015.
(g) The awards granted will have a performance period of three years starting from the vesting commencement date, being 31 March 2015.
(h) On 31 October 2015 49,885 options with a vesting date of 1 February 2017 and 157,971 with a vesting date of 1 February 2016 were modified to have

a new vesting date of 1 June 2016.

(i) The awards will vest as follows:

i. 15% of the shares are subject to an award if annual compound total shareholder return over the performance period equals 8% and 50% of the shares

are subject to an award if the annual compound total shareholder return over the period exceeds or equals 15% with pro rata straight line vesting
in between; and

The share options are subject to equity-settled share based payments.

The share options outstanding at 31 December 2016 represented 4% of the issued share capital as at that date (2015: 4%) and
would generate additional funds of £3.5m (2015: £1.1m) if fully exercised. The weighted average remaining life of the share options
was 15 months (2015: 16 months), with a weighted average remaining exercise price of £1.03 (2015: £0.33).

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
Modified share options in respect of key management
Total share based payment expense

2016
£m

2.0
0.9
–
2.9

2015
£m
3.5
0.5
0.1
4.1

Fair value is measured using the Black-Scholes model and the Monte Carlo model (where market performance conditions are
imposed). The information set out in the table below is used in the calculations. 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

2016

436 – 450
0.25 – 436
27%

2015
267 – 284
0.25 – 270
30%
0.54 – 0.58% 0.97 – 1.405%
2.2%

2.2%

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 2015 and 2016.

26. Capital commitments
As at 31 December 2016, amounts contracted for but not provided in the financial statements amounted to £1.7m for the Group
(2015: £nil). This amount is for the purchase of property, plant and equipment.

27. Related party transactions
Details of key management’s remuneration are given in note 7. As at 31 December 2016 an amount of £nil (2015: £3.0m) was owed
to the Group by key management personnel.

Bob Falconer
Andrew Belshaw
Richard Bligh
Other key management

1 January 2015
£000
2,591
50
325
112
3,078

Loan made
£000
–
–
–
448
448

Repaid
£000
–
(50)
(325)
(112)
(487)

1 January 2016
£000

2,591
–
–
448
3,039

Repaid
£000

(2,591)
–
–
(448)
(3,039)

31 December 2016
£000

–
–
–
–
–

Dividends of £0.4m (2015: £0.6m) 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 year.

28. Ultimate controlling party
There is no ultimate controlling party.

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Financial statements continued

Company balance sheet
As at 31 December 2016

Fixed assets
Investments

Current assets
Debtors
Cash at bank and in hand

Creditors: amounts falling due within one year
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

2016
£m

3.8
3.8

31.0
6.0
37.0
(4.8)
32.2
36.0

0.2
3.7
3.6
28.5
36.0

2015
£m

3.8
3.8

20.3
7.6
27.9
–
27.9
31.7

0.2
3.7
3.6
24.2
31.7

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 profit in respect of the Company for
the year was £10.6m (2015: £14.8m).

The financial statements of Gamma Communications plc (registered number 08943488) on pages 90 to 91 were approved and
authorised for issue by the Board of Directors on 20 March 2017 and were signed on its behalf by:

Andrew Belshaw

Chief Financial Officer

The notes on pages 92 to 93 form part of these financial statements.

Company statement of changes in equity
For the year ended 31 December 2016

1 January 2015
Dividends paid
Share based payments
Exercise of share options
Transaction with owners

Total comprehensive income

31 December 2015

1 January 2016
Dividends paid
Share based payments
Exercise of share options
Transaction with owners

Total comprehensive income

31 December 2016

Share
capital
£m
0.2
–
–
–
–

–

0.2

0.2
–
–
–
–

–

0.2

Share
premium
reserve
£m
3.2
–
–
0.5
0.5

Share option
reserve
£m
2.1
–
3.1
(1.6)
1.5

Profit and loss
account
£m
14.9
(5.5)
–
–
(5.5)

–

3.7

3.7
–
–
–
–

–

3.7

–

3.6

3.6
–
2.2
(2.2)
–

–

3.6

14.8

24.2

24.2
(6.3)
–
–
(6.3)

10.6

28.5

Total
equity
£m
20.4
(5.5)
3.1
(1.1)
(3.5)

14.8

31.7

31.7
(6.3)
2.2
(2.2)
(6.3)

10.6

36.0

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Financial statements continuedNotes forming part of the Company financial statements
For the year ended 31 December 2016

1. Accounting policies

Basis of preparation
The financial statements have been prepared in accordance with Financial Reporting Standard 100 Application of Financial
Reporting Requirements and Financial Reporting Standard 101 Reduced Disclosure Framework.

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 years presented, unless otherwise stated.

The financial statements have been prepared on a historical cost basis, except for the revaluation of certain properties and financial
instruments. The presentation currency used is sterling and amounts have been presented in round millions (“£m”).

The financial statements 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. It is therefore considered appropriate to adopt the going concern basis of accounting
in the preparation of the annual financial statements.

Disclosure exemptions adopted
In preparing these financial statements the Company has taken advantage of all disclosure exemptions conferred by FRS 101.
Therefore these financial statements do not include:

(a) certain disclosures regarding the Company’s capital;

(b) a statement of cash flows;

(c)

the effect of future accounting standards not yet adopted;

(d) the disclosure of the remuneration of key management personnel;

(e)

disclosure of related party transactions with other wholly owned members of the Group headed by
Gamma Communications plc; and

(f) disclosures in respect of financial instruments.

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

At 1 January 2016
Additions
At 31 December 2016

2016
£m

3.8
–
3.8

2015
£m
2.3
1.5
3.8

At 31 December 2016 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
Uniworld Bureau Services Limited
Go Worldwide Solutions Limited
Blue Spot Technologies Limited

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

Proportion held
100%
100%
100%
100%
100%
100%
100%
100%
100%

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.
(c) Registered Office: 5 Fleet Place, London, EC4M 7RD, England.
(d) Registered Office: 1054 Budapest, Széchenyi Rakpart 8, Hungary.

Note
(c)
(a) (c)
(a) (c)
(b) (c)
(a) (d)
(a) (c)
(b) (c)
(b) (c)
(b) (c)

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

3. Debtors

Amounts owed from Group undertakings
Other debtors

4. Creditors

Amounts due from Group undertakings
Other creditors

2016
£m

30.9
0.1
31.0

2016
£m

4.6
0.2
4.8

2015
£m
20.2
0.1
20.3

2015
£m
–
–
–

5. Share capital
Details of the share capital and movement during the year are given in note 21 to the consolidated financial statements.

6. Dividends paid
Details of the dividends paid during the year are given in note 10 to the consolidated financial statements.

7. Contingent liabilities
The Company had no contingent liabilities at 31 December 2015 or 31 December 2016.

8. Capital commitments
The Company had no capital commitments at 31 December 2015 or 31 December 2016.

9. Related party transactions
The Company has taken advantage of the exemption available within FRS 101 Reduced Disclosure Framework to not to disclose
transactions with other members of the Group headed by the Company. See note 27 for details of the disclosed related party
transactions.

Strategic reportFinancial statementsCorporate governanceGamma Communications plc Annual Report and Financial Statements 2016Financial statements continuedNotes

Supplementary information