Gamma Communications plc
Annual Report and Accounts 2018
Our strategy
for the future
Contents
Gamma is an AIM-listed
communications company.
We are a leading supplier of business
communications services to the UK
and Dutch markets.
Highlights
Revenue
£284.9m +18%
Revenue grew from £242.0m
in 2017 to £284.9m
EPS
30.0p +25%
Adjusted EPS
30.3p +31%
Dividend
9.3p +11%
EPS (fully diluted) increased
by 25% from 24.0p in 2017 to 30.0p
Adjusted EPS (fully diluted) grew
by 31% from 23.1p to 30.3p
Dividend grew
by 11% from 8.4p to 9.3p
All 2017 figures, except cash and dividends, have been restated for the effects of the adoption
of IFRS 15.
All alternative performance measures set out throughout this document are described as
‘adjusted’ and are defined and reconciled in the Financial Review section and these definitions
are applied consistently. Where reference is made to adjusted EPS this is stated on a fully
diluted basis (‘FD’).
AIM Company of the Year 2018
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Strategic report
Chairman’s statement
Q&A with the Chief Executive Officer
Chief Executive Officer’s statement
Delivering our strategy
Our strategy and culture in action
Gamma at a glance
Market trends
Business model
TSI case study
Dean One case study
Care UK case study
Gamma Accelerate case study
Key performance indicators
Principal risks and uncertainties
Business review
UK Indirect
UK Direct
Overseas
Financial review
Corporate social responsibility
Corporate governance
Chairman’s introduction
to corporate governance
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Board of Directors
54
Leadership team
56
Corporate governance report
58
Audit Committee report
60
Remuneration Committee report
Directors’ report
71
Statement of Directors’ responsibilities 73
Financial statements
Independent auditor’s report
Consolidated statement
of comprehensive income
Consolidated statement
of financial position
Consolidated statement of cash flows
Consolidated statement
of changes in equity
Notes forming part of the
financial statements
Company balance sheet
Company statement
of changes in equity
Notes forming part of the
Company financial statements
Supplementary
information
Company information
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Our growth
journey
is continuing through the ongoing
implementation of our successful
long term strategy. Our recent
expansion into Europe is a clear
milestone on our way to managed
business growth.”
Andrew Taylor
Chief Executive Officer
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Gamma Communications plc Annual Report and Accounts 2018Strategic report
Chairman’s statement
Working together to deliver
our long term strategy
I am pleased to present the results
for the year ended 31 December 2018.
Dividend
Gamma remains committed to a
progressive dividend policy. The Board
is therefore pleased to propose a final
dividend, in respect of the year ended
31 December 2018, of 6.2 pence per
share (2017: 5.6 pence), an increase of
11% which, subject to shareholder
approval at the forthcoming AGM, will
be payable on Thursday 20 June 2019
to shareholders on the register on
Friday 31 May 2019. When added to
the 3.1 pence interim dividend
(2017: 2.8 pence) this makes a total
dividend declared of 9.3 pence for the
year as a whole (2017: 8.4 pence).
Business development
We continue to launch new products as
well as developing our existing product
portfolio. As in previous years, the focus
of our development programme has
been to provide services that deliver both
tangible business benefits to the end
user and support our channel partner
base to develop their businesses.
During the year we launched Connect,
the fixed/mobile converged product
that integrates a mobile user with the
Gamma Cloud PBX service, Horizon.
The service includes an easy to use app
that supports advanced voicemail and
number presentation services, and
feedback from early adopters of the
product has been very positive.
We will continue to develop Horizon
into a full Unified Communications as a
Service (‘UCaaS’) suite (in line with our
strategic aims) with the imminent
launch of Collaborate.
Increasingly we are focusing on
providing integrated services that
support Horizon to integrate with a
greater number of CRM systems making
the service an integral part of the end
user’s key business systems.
Alongside product development,
we invest in programmes to support
channel partners to develop and
optimise their own business.
Specifically we have increased our focus
on our channel partner marketing
platform (Accelerate) and this is now
actively used by over 700 of our
partners to assist them to generate and
convert customer leads. Channel
partners have significantly increased
their use of our online training platform
(The Gamma Academy), which enables
partners to keep up to date with new
products and services. The platform can
also be used to train their staff and is
therefore cost effective for both them
and Gamma.
In the indirect channel, our channel
partners continue to drive growth in
our key products:
• BTT successfully secured the contract
to supply SCS with a 117 site MPLS
network.
• Fidelity Group have again extended
their long term commitment to
Gamma for another two years. In total,
they have committed to add 5,500
Horizon seats in the next two years
predominantly on five year terms.
• South West Communications have
committed to 3,000 net new Horizon
seats per year in a strategic agreement
for the next two years.
• Focus Group has pledged a minimum
of 5,700 Horizon seats per year for the
next two years as part of a contract
which could see them add over 10,000
seats per year. In addition we will see
a net growth of 750 broadband circuits
a year, together with the selection of
Gamma for all its new and existing
inbound business over the same two
year period.
The direct business continues to perform
well across all market segments, but in
particular our focus on Enterprise and
Public Sector organisations is reaping the
rewards, with significant multi-year
contract awards including The London
Stock Exchange for Global UCaaS and
retailer ALDI (UK and Ireland) for an
enterprise-wide data network.
Overview of results
Group revenue for the year ended
31 December 2018 increased by £42.9m
to £284.9m (2017: £242.0m), an increase
of 18% on the prior year. Of this increase,
£3.4m was inorganic and was due to the
acquisition of the DX Groep in the
Netherlands. The organic growth pre
acquisition was 16% and, of this, £25.7m
came from the UK indirect channel where
revenue increased to £210.6m (2017:
£184.9m) while £13.8m came from the
UK direct business which saw revenue
increase to £70.9m (2017: £57.1m). Gross
profit for the year rose to £132.2m, an
increase of 22% compared to the £108.7m
achieved in 2017, with an improvement in
the gross margin to 46.4% (2017: 44.9%)
due to improved product mix. EBITDA for
the Group increased by 34% to £48.3m
(2017: £36.0m).
Fully diluted earnings per share for the
year increased by 25% to 30.0p
(2017: 24.0p). Adjusted fully diluted
earnings per share for the year
increased by 31% to 30.3p (2017: 23.1p).
The cash generated by operations for
the year was £40.6m compared to
£29.9m in 2017. This represents a cash
to adjusted EBITDA conversion ratio for
2018 of 84% compared to 83% for 2017.
The closing cash balance for the year
was £35.5m compared to £31.6m at the
end of December 2017. This cash
balance has been maintained whilst
spending £12.7m on capital items,
£11.1m on acquisitions and £8.1m
on dividends.
2
Gamma Communications plc Annual Report and Accounts 2018 In the public sector the Scottish
Government deployed a large SIP
solution, and The Guinness Partnership
is deploying a managed solution for
Unified Communications, Connectivity
and Mobility. Gamma achieved Stage 2
Health and Social Care Network (HSCN)
compliance, in addition to being
awarded new contracts with Fife
and Thurrock Councils.
Expansion into the Netherlands
The year also saw Gamma’s expansion
into the Netherlands as part of our
strategic decision to expand into
Europe to gain scale. This was achieved
through the acquisition of DX Groep
which trades as Dean One and Schiphol
Connect. Dean One sells a similar
portfolio of services to Gamma through
channel parties to SME customers.
Schiphol Connect is a provider of
communications and connectivity
products to businesses in and around
Amsterdam’s main airport.
In December 2018, Dean One
announced a strategic partnership
with T-Mobile in the Netherlands
and launched a ‘Mobile Wholesale’
proposition across the Dutch market.
This will allow the channel in the
Netherlands to compete effectively
with KPN and provide a viable mobile
alternative to the SMR market.
On 4 February 2019 we expanded our
presence in the Netherlands with the
acquisition of the Nimsys group of
companies for an initial consideration of
EUR 4.0m (net of acquired cash and
debt) with up to another EUR 3.6m
payable contingent on performance in
2019 and 2020. In 2018, Nimsys had
revenues of EUR 3.5m and EBITDA of
EUR 1.5m. Nimsys provides internet,
cloud telephony and associated IT
services primarily to the operators and
corporate clients of premium multi-
tenant office buildings across the
Netherlands and derives its revenue
primarily from recurring service
contracts with those operators and
their tenants.
Board and employees
In May 2018, Bob Falconer, the former
CEO, retired and stood down from the
Board. Bob has been instrumental in the
growth and development of Gamma for
which we thank him and wish him a
happy retirement. I am pleased to
report that the Company has continued
to benefit from Bob’s significant
company knowledge and industry
expertise on a part-time consultancy
basis. Andrew Taylor joined the Board
on 4 April and took over as CEO at the
AGM on 23 May. Andrew has made an
immediate and positive impact in the
business. During the second half of this
year, Andrew has worked with the
management team to define the Group’s
strategy to ensure that we continue to
grow into the medium and long term.
As of 31 December 2018, Gamma had
1,044 employees, an increase from
901 at 31 December 2017. This growth is
driven by the general expansion of the
business (both organically and by
acquisition) and the continued
investment in new service development
and changing mix of products.
The Company offered a sharesave
scheme for the third year. Once again,
it was particularly pleasing to see the
exceptionally high take up, with 257 staff
choosing to participate in the scheme
(2017: 231).
The Board recognises the high levels
of support and commitment from its
staff and would like to express its
thanks for their dedication, hard work
and enthusiasm.
We continue to assist apprentices to
obtain valuable work experience, to
continue their education and to gain
nationally recognised qualifications.
Revenue
£284.9m
Dividend per share
9.3p
+18%
+11%
At present, we have thirteen apprentices
currently employed in IT, HR,
Infrastructure Support, Software
Development, Sales and Customer
Service. We have a good track record of
offering permanent employment at the
end of these apprenticeships, and
expanding opportunities for apprentices
across the business remains a priority
for Gamma.
We consider diversity to be an important
part of our culture at Gamma, and run a
number of programmes across our
business to support and promote this.
We are aware of the lack of diversity of
the Board and will consider this with
future appointments.
Outlook
The Board looks forward enthusiastically
to 2019 and beyond. We have considered
the effect of Brexit on the future
performance of our businesses and have
identified no material issues which are
specific to Gamma. In the event of
adverse macro-economic factor such as
a slow-down in the UK economy, Gamma
has a business model that delivers a very
high percentage of recurring revenues
that also gives greater certainty in the
short to medium term.
As a predominantly channel-focused
business, Gamma will continue to
concentrate efforts and investment
on strengthening our relationship and
capabilities to support the channel to
be successful. We all also ensure in the
direct business, we continue to focus on
growth with large enterprises and the
Public Sector and on building on an
already strong reputation for operational
excellence and service quality.
Richard Last
Chairman and Independent
Non-Executive Director
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Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Q&A with the Chief Executive Officer
Introducing the new
Chief Executive Officer
Andrew Taylor
Q. What were your highlights
from the year?
A. There are really too many to mention,
but I suppose if I were to choose one it
would be having the privilege of
collecting the AIM Company of the Year
award on behalf of all of our staff,
customers and channel partners.
It is such a fantastic accolade and great
recognition for the entire Gamma team.
Q. Can you talk a little about your
new strategy?
A. Our new ‘Gamma 2023’ strategy is
very focused on building on our strong
foundations and ensuring that we deliver
long term sustainable growth for
Gamma and our shareholders. During
the last six months, we have conducted a
thorough market assessment and have
identified four key strategic priorities for
our business moving forward. These
priorities are centred around developing
a leading network-enabled UCaaS
proposition in both the UK and Europe,
where we believe there is a significant
long term growth opportunity. We will
concentrate our efforts on providing a
very high Quality of Service for unified
voice to the business segment, and it is
our belief that Gamma’s service will be
highly differentiated in the markets
where we choose to operate. In addition
to this, through an increased adoption of
digital technology across our Company,
we will ensure that we improve the way
we operate and deliver service to our
customers and channel partners alike,
while creating a scalable and highly
automated platform which will allow
our business to grow efficiently.
Q. How is Dean One integrating
and what lessons have you learned
from the Dean One acquisition?
A. The DX Groep integration has gone to
plan and the business is performing
well, although it has only been a few
months since we completed the
acquisition. We have implemented an
appropriate level of governance and are
working with both the DX Groep and
Gamma teams to identify specific areas
of synergy where we can drive growth.
Culturally, both teams are aligned and
are working well together, and for the
foreseeable future we aim to manage
DX Groep as a separate entity, while
supporting the team to grow in the
Dutch market.
Q. What are the biggest opportunities
over the next 12 months?
A. Developing and growing our core
business lines (SIP, Data, Cloud PBX) in
the UK will be our priority during the next
12 months, as I believe that we have
significant growth opportunities across
each of our core product areas. I also
think that continued disruption across
the sector (regulatory, fibre roll-out,
structural changes within the incumbents
and general consolidation) will create an
environment where both Gamma and
our partners will never have a better
opportunity to develop and grow our
businesses. Ensuring that we deliver
unbelievably good service (win the hearts
and minds of our channel partners and
end customers) is a prerequisite, and will
present an opportunity to further
strengthen our brand and market
position. In addition to this, given the
competition for talent within the sector
(a drop in the attractiveness of our
industry is causing a talent shortage),
we have an opportunity to position
ourselves and our new strategy in an
extremely positive way, which I believe
will help us attract and retain great talent
into the businesses.
Q. What are your thoughts
on Gamma after your first year?
A. Gamma is a really excellent business
with great people, a high quality
network and set of products which have
really tapped into the growth areas in
the UK telecommunications market.
Gamma has been really smart, and used
next generation technology and
innovative business models to disrupt
the UK market and from day one we
have focused on automation to ensure
that as a company our channel partners
and customers find it really easy to do
business with us. Simplification is at the
heart of what we do! We have a very
dynamic and agile commercial
relationship with our customers and
partners, and when you combine this
with the investments that we have made
in digital technology e.g. the Gamma
Portal platform, as a company we are
very focused on working out how we
can enable our partners and end-
customers to be successful in the
market and both develop and
strengthen the profitability of
their businesses.
4
Gamma Communications plc Annual Report and Accounts 2018 Chief Executive Officer’s statement
“ It seems hard to believe that I joined Gamma
only last summer. The welcome and support
that I have received from our staff, customers
and channel partners during this period has
been heart-warming.”
Introduction
The welcome and support that I have
received from our staff, customers and
channel partners since joining Gamma
in April has been heart-warming, and I
am pleased to report an excellent set of
financial results for 2018.
My initial focus after joining Gamma was
to ensure that we continued to execute
against our commitments, and that we
provided both our staff, customers and
channel partners with a clear sense of
continuity in leadership, and I am happy
that the handover with Bob Falconer
was received positively and that we have
continued to deliver against our
promises in a consistent and very
professional manner. This shorter term
objective has been balanced with a
renewed focus on developing a longer
term growth strategy for Gamma, and
during the second half of the year, we
made significant progress in delivering a
clear vision and set of strategic priorities
for the future.
Both our direct and indirect channel
businesses have continued to perform
strongly, and throughout 2018 we
were awarded several new multi-year
customer and partner contracts across
the Mid Market, enterprise and public
sector markets.
In November, we were appointed as an
accredited supplier to the Health and
Social Care Network (HSCN), and as one
of only a small number of accredited
suppliers, via both our direct and
indirect channels, Gamma can now
provide HSCN with an extensive set of
data network and voice services.
We have continued to invest and
strengthen our sales, service and
delivery capabilities across Gamma, and
our continued focus and investment on
product development will deliver several
new and exciting product launches
during 2019. Supporting the success of
our indirect channel partners is a
priority, and throughout 2018 we have
continued to develop and strengthen
our self-serve partner portal, while
ensuring that our digital platforms
(Gamma Academy and Gamma
Accelerate) enable our partners to
create new opportunities, win market
share and drive increased levels of
revenue and margin. In our direct
business, and as part of a digital
transformation programme, we are
implementing a new digital platform
which will deliver improved levels of
automation and customer service, while
providing a more scalable and efficient
platform for growth.
During 2018, we received several
industry accolades and awards, however
everyone across Gamma was especially
proud that we were awarded Company
of the Year at the AIM Awards. The
award is a testament to the hard work
and dedication shown by Gamma’s
employees and the support we have
received from both our direct customers
and our channel partners, for which we
are enormously grateful.
Strategy
During 2018 I initiated and led an
important project to define Gamma’s
longer term vision and growth strategy.
This project was supported by an
external consultancy with input and
leadership from Gamma’s senior
leadership team. In addition to this,
there was significant input from
Gamma’s staff and other key
stakeholders, including our partners
and customers. I also announced earlier
in the year that Andy Morris had been
promoted to the newly created role of
Chief Strategy and Operating Officer,
which reinforces our commitment to
both planning and executing a long term
growth strategy and vision for Gamma.
I am pleased to report that the first
phase of this work has been completed
and we presented our key conclusions
to investors and analysts at a Capital
Market Day in London and Edinburgh
in early 2019.
Our strategy builds on Gamma’s strong
foundations and focuses on delivering
long term sustainable growth from a
position of expertise and strength
across our core products and markets.
We have identified four key areas which
we will focus on to ensure growth over
the next five years:
• Evolve our cloud telephony position
into the United Communications
services (UCaaS)
• Build on our fixed and mobile telecom
strength to differentiate our
proposition from pure OTTs
• Expand our geographic footprint
into Europe
• Continue to build on our digital
capabilities to assure agility and
sustain competitiveness
Strategy for long term growth
Page 10
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Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Chief Executive Officer’s statement continued
Expansion to Europe
Related directly to our future growth
strategy, in October 2018 we acquired
the DX Groep, a small but growing
telecoms group based in the
Netherlands, comprising two entities –
Dean One and Schiphol Connect. Dean
One has similar attributes to Gamma,
and is a successful channel-led business,
focused on products that Gamma
has strong knowledge and experience
of. The Cloud PBX market in the
Netherlands is similar to the UK, where
Gamma has a track record in driving
sustainable growth, and this is our plan
with Dean One.
Dean One has a very similar product set
to Gamma, selling Cloud PBX, SIP trunks,
data products and mobile to primarily
SME businesses via a network of over
500 channel partners. Dean One has
approximately 60 employees, and for
the full year ended 31 December 2018,
revenues were c. €15.8 million
(unaudited) and EBITDA (adjusted for
costs incurred in the acquisition by
Gamma) was c. €0.8million (unaudited).
Since completion of the acquisition,
we have received positive feedback
from our staff and our customers and
partners in both the UK and the
Netherlands. It is our plan to use
Dean One as a focal point as we look
to broaden our geographic footprint
in Europe over the next five years.
In February 2019 we completed the
acquisition of Nimsys, another business
based in the Netherlands. We believe our
expansion into Europe will complement
the organic growth within the UK.
staff. The development will also support
the trend for larger SME businesses to
consume unified communications
services from a cloud-based solution
which in turn will expand Gamma’s
addressable market.
We also continue to add features to our
market leading SIP Trunking service,
focusing on adding value to solutions
such as Microsoft Teams for businesses
that require quality integration to
voice services.
As businesses continue to demand
greater bandwidth from any location
in order to access cloud-based
“By continuing to grow within Europe Gamma is able
to take advantage of the low cloud penetration and
digitisation within the continent and therefore the
long term growth opportunity is significant.”
Products & marketing
Gamma continues to focus on product
developments that both add value to
our existing offerings and open up new
opportunities to create margin for our
indirect channel partners and our
direct business.
The key focus of our product
developments for the near term is to
add features and value to our existing
core products and to converge existing
services to meet the demands of
businesses. The developments are
targeted to support the growing
demand for integrated communications
that support the core line of business
and enable channel partners to support
their end users efficiently.
In line with our strategy to focus on
UCaaS, the key developments for 2019
include an expansion to our Cloud PBX
service (Horizon) to include additional
UCaaS products such as enhanced
audioconferencing, web meetings,
presence application sharing and video
conferencing. The introduction of these
advanced collaboration services will
enable the Horizon service to support
the growing demand for businesses to
communicate in a more integrated way
with their customers, suppliers and
applications, we continue to enhance
our enabling services of data access and
mobility, to provide secure and high
quality services.
We will continue our focus on the
development of value-added services
for data and mobile access to support
the key business needs and growth
opportunities that we have identified.
In 2019 this will include utilisation of 4G
as a means of connecting customers
who are waiting for fixed line ethernet
service installation. This 4G service will
also provide backup services to increase
service availability for retail customers.
In addition, we will launch a Managed
WiFi service to enable businesses to
provide segmented WiFi access for staff
and guests.
Our mobile connections during 2018
increased from 35k to 50k, representing
year on year growth of +43%. During
the period, we also delivered several
customer support and service related
enhancements to our mobile service,
including the launch of our Connect
service and our WiFi calling application,
which materially improves inbuilding
wireless coverage, which is particularly
important for Gamma’s Enterprise
and Public Service customers.
6
Gamma Communications plc Annual Report and Accounts 2018 Looking forward, mobile will form a key
part of Gamma’s long-term growth plan,
and a fundamental part of our UCaaS
(Unified Communications as a Service)
product strategy, where Gamma aims to
provide a differentiated ‘quality assured’
service to business customers. In
addition to this, in 2019 Gamma is also
focused on establishing a more strategic
relationship with our chosen MNO
partner in the UK, which we believe will
enable us to optimise and improve both
how we operate and manage our MVNO
business in the future. As part of this,
our objective is to differentiate our
mobile proposition in the UK business
market, selling through our indirect and
direct channel, and ensuring that we
continue to increase our base over the
next five years.
During 2018, Gamma launched a set of
Cloud applications including Cloud
Compute and Cloud Backup. After
reviewing the market readiness for
these products and the focus of Gamma
going forward, we made the decision to
cease those services so that we could
concentrate on the core product area
of UCaaS.
Another key part of our strategy is to
continue to invest in our market-leading
digital platforms. These support the
sales processes of the indirect and direct
businesses from lead generation to
execution of the order and the ongoing
support of the services. Ongoing
investment in these platforms is a key
element of the Gamma strategy to
ensure that we are offering the buying
experience that the customer requires
as well as minimising the cost of
customer acquisition and support.
This continued focus on ensuring
that ‘Gamma is easy to do business
with’ forms a key part of our long
term strategy.
Indirect business
The number of channel partners actively
trading with Gamma has expanded
again from 1,089 to 1,150 and revenues
have grown by £25.7m to £210.6m in
2018 (2017: £184.9m). The channel
continues to account for 74% of
our Group revenues.
During 2018 we have delivered solid
growth across the indirect business,
with a continued focus on both
strengthening current channel
relationships and identifying new
partners. The channel team has focused
on several key areas, with the objective
of continuing to develop and strengthen
Gamma’s overall channel proposition.
These areas include cross-selling and
upselling more of our existing products,
selling new products and services
into our current channel base and
developing new partners and
programmes to support the growth of
their business. These areas are designed
to further enable our channel partners
to be more competitive and successful
in growing market share in their
respective market areas.
This focus has led to several success
stories for our channel partners as they
continue to drive growth across our key
products, including major solutions
delivered to Coventry Building Society,
GAP Clothing, Specsavers, Saga,
Admiral, Aegon and Investec.
Our business supporting other carriers
with number hosting and number
porting is growing well and is supported
by a number of ‘non-traditional’ carriers
entering the UK market, that are
leveraging Gamma’s expertise in IP
telephony and number porting to
support their own business offerings.
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Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Chief Executive Officer’s statement continued
Gamma’s ‘easy to do business with’
programmes have delivered continued
success for our channel partners.
The Gamma Academy delivered over
16,000 training courses to channel
partners during 2018, representing
strong engagement and participation
across our partner base.
Our digital marketing programme,
Gamma Accelerate, continues to prove
itself as a valuable tool for our channel
partners. Designed with simplicity in
mind, Accelerate is aimed at making it
easy for partners to rebrand white label
marketing material, run integrated
campaigns to generate new leads, and
more effectively engage with prospects
and customers to boost sales. We now
have over 700 partners using Accelerate
and our aim is to give our partners every
opportunity for growth and success. We
have made substantial investments into
Accelerate, continually developing new
features, content and services around
the platform.
During 2018, we were pleased to win a
very special award, Best Wholesale
Provider at the Comms Business
Awards, which recognises wholesalers
who have been active in creating new
and innovative opportunities for the
channel. The award was due to the
outstanding operational support and
customer service that we provide our
channel partners – reflected in our
recent Net Promoter Score of +45.
Direct business
During 2018, our direct business
delivered a very strong year with all
business segments performing well.
Overall, our direct business revenues
rose to £70.9m (2017: £57.1m) assisted
by the excellent momentum of contracts
awarded in 2017, and combined with
several new customer contracts won
and delivered in this financial year.
In the mid market, we secured more
than 1,200 customer orders, up from
900 in 2017. More crucially, our average
order size is increasing, assisted by
larger key wins as we focus on larger
organisations. To this end, we secured
large SIP contracts with the BGL Group,
Shawbrook Bank and The PRA Group.
We have continued to deliver strong
growth in SIP, Cloud PBX and data, and
as our overall customer base grows, we
are focusing on reducing end user churn
with new offers across our products
which are designed to assist our
partners to retain their customers.
These bundles combine extra features
with commercial benefits such as our
Horizon re-sign offer, rewarding our
partners with a re-sign bonus per
subscription coupled with inclusive soft
clients, enabling them to sign their
customers on three or five year
contracts. Rewarding partner loyalty
is a key theme across all services and
products, helping them grow and
protect their customer base.
8
Gamma Communications plc Annual Report and Accounts 2018 Building on and executing against our
strategic priorities will be a key focus
during 2019, and in addition, we will
continue to strengthen our capabilities
across our core products, channels and
markets, with a view to identifying
opportunities to develop and grow our
business further. Aligned with this will
be a continued focus on quality and
operational excellence, coupled with
ensuring that we harness the skills and
talent across Gamma to support and
fully enable our channel partners and
end customers to be more successful.
At the time of writing there is increasing
uncertainty over Brexit and there is
speculation that this may have a
negative effect on the UK economy as a
whole. We do not envisage any specific
material risk to Gamma and we note
that in times of economic downturn,
telecommunications has proven to be
resilient. We are therefore confident that
there will be continued demand for
Gamma’s products and services.
As a final point, I would like to personally
thank our staff, partners and customers
for their contribution and ongoing
support. Our performance during 2018
has been strong, and we remain
optimistic about Gamma’s future
growth prospects.
Andrew Taylor
Chief Executive Officer
Our Enterprise team has continued to
perform exceptionally well in 2018,
delivering key wins with Rank Group,
Nandos and The London Stock
Exchange. Notwithstanding this, the
highlight of 2018 was winning a five year
managed service contract with leading
supermarket ALDI, where we will deliver
one of the market’s largest ethernet
WANs covering their 900+ estate in the
UK and Ireland; the solution will also
have resilience over our 4G
mobile network.
Gamma’s Public Sector team has also
delivered good growth throughout 2018,
including a key central government SIP
contract with the Scottish Government.
Amongst other key deals, both Mid
Essex NHS Trust and Scottish Courts and
Tribunal have undertaken large SIP
deployments and the YMCA has
contracted for multiple Horizon Cloud
PBX deployments with underlying data
connectivity. Importantly, Gamma also
achieved Stage 2 compliance with NHS
Digital for Health and Social Care
Network and is bidding for a number
of significant opportunities.
During 2018, our direct business
successfully achieved a monthly NPS
over 40, which is a testament to our
customer focus and contributing to a
very high customer resign rate during
the year.
For example, the Open University
and Taylor Wimpey extended their
Cloud Voice and Mobile contracts
for a further 36 months.
Network
As reported at the half year, Gamma’s
new high capacity national optical
network project was delivered on
schedule and on budget. This enables
Gamma to deliver services at 10Gb/s
and above which increases IP capacity
into multiple terabits/s whilst providing
reach into major business districts for
access into circuit provision.
In practice this means that:
• Gamma now provides connectivity
between the key Central Business
Districts (‘CBD’) on the M4, M5, M6,
M62 and M1 corridors. This allows
Gamma to connect end customers to
its network with high capacity
ethernet pipes in these CBD and
deliver our SIP or hosted services.
• Gamma now has greater control of the
connectivity from the CBD across our
network and out to the other carriers
or internet, providing a better end
user experience.
• The network is more resilient due to its
ring architecture and provision of dual
paths (clockwise and anticlockwise) for
customers’ traffic – if there is a fibre
break then traffic is re-routed in the
other direction.
• Overall, due to improved efficiencies
and the nature of a modern network
architecture, we are able to
reduce costs.
In addition, we previously reported a
three-year programme to remove legacy
voice equipment in order to reduce
costs (data center and support).
This programme is now complete and
has delivered annualised savings of
c£3m p.a. in ongoing network costs
(against 2016 levels). These savings are
included within these results.
Outlook
As I highlighted at our half-year results
and at the recent Capital Markets Days,
Gamma is in good shape and I consider
our short term outlook to be positive.
We have a robust business model with
a high level of recurring revenue and
margin, and although there is increasing
competition in the marketplace, the
quality and competitiveness of our
products, combined with the strength
of our direct and indirect channel
businesses, provides confidence in
our ability to execute against our
short term commitments.
9
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Delivering our strategy
A strategy driven by
an engaging culture
Our objective
Gamma’s objective
is to continue
to grow both its
market share and
profitability by
developing new,
innovative
communications
products for
organisations.
Engaging
culture
— Insight
— Experience
— Flexibility
— Innovation
Corporate social
responsibility
page 46
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Strategic pillars
Key strategic decisions
What we’ve achieved in 2018
Priorities for 2019
Exploiting
existing services
Evolve our strong cloud telephony
position into the UCaaS market
• Continued the development of Accelerate, our online marketing and
• Expansion of the Cloud PBX service to include enhanced web/video
campaign management tool that enables channel partners to increase the
conferencing and desktop collaboration, to address the changing needs
number of products they sell to customers.
of business communications.
• Developed further channel routes to market in the IT Reseller and System
• Further enhance our integration with Office suite environments and
Integrator space.
alternative collaboration tools.
• Achieved the Certification required to provide network services to the
• Develop our market-leading SIP Trunking services to enhance services
Health and Social Care sectors.
such as Microsoft Teams.
• Continued the development of vertical market integration of the
Cloud PBX with markets specific CRM solutions.
Introducing
new services
Build on our fixed and mobile
telecom strength to differentiate
our proposition from pure OTTs
• Enhanced the Connect, Cloud PBX and Mobile integration service,
• Complement our Data Access services with additional value-added
by adding an easy to use app and WiFi calling capability.
products e.g. security.
•
Increased bandwidth on ethernet and MPLS services to 10GB.
• Commence the next phase of the development of our Mobile capabilities
to ensure we can offer full mobility for our UCaaS solutions.
• Online Pricing Tools to make the quoting and ordering
of ethernet easier.
• Fully launched the Connect Solution providing all the features of the
Horizon Cloud PBX on an easy-to-use, integrated business mobile service.
Developing
the market
Expand to Europe to gain
continued growth and scale
• Acquired DX Groep in the Netherlands. This has provided us with
• Evaluate the German and French markets and identify potential partners.
both a secure non-UK business and the management structure
to expand into other European countries.
• Support the DX Groep business in the Dutch market.
Infrastructure
development
Continue to build on our digital
capabilities to assure agility
and sustain competitiveness
• Completed the build out of a new national fibre network and migrated
• Develop our mid to long term plan to ensure our digital capabilities
all services.
•
Increased our capacity at a number of BT Openreach exchanges,
support the anticipated changes in user expectations and
buying behaviour.
thereby continuing to reduce the cost of ethernet data services.
• Deliver the second phase of the programme to enhance the online
• Delivered the first phase of a programme to provide online tools
for our direct business units to serve their customers.
presence of our direct channel.
Execution
The four strategic pillars are all underpinned by our ‘Straightforward
to do business with’ culture which seeks to make it as easy as possible
for our customers to interact with us.
Gamma Communications plc Annual Report and Accounts 2018 Our engaging culture feeds
directly into our strategy.
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Strategic pillars
Key strategic decisions
What we’ve achieved in 2018
Priorities for 2019
Exploiting
existing services
Evolve our strong cloud telephony
position into the UCaaS market
• Continued the development of Accelerate, our online marketing and
• Expansion of the Cloud PBX service to include enhanced web/video
campaign management tool that enables channel partners to increase the
number of products they sell to customers.
conferencing and desktop collaboration, to address the changing needs
of business communications.
• Developed further channel routes to market in the IT Reseller and System
• Further enhance our integration with Office suite environments and
Integrator space.
alternative collaboration tools.
• Achieved the Certification required to provide network services to the
• Develop our market-leading SIP Trunking services to enhance services
Health and Social Care sectors.
such as Microsoft Teams.
• Continued the development of vertical market integration of the
Cloud PBX with markets specific CRM solutions.
Introducing
new services
Build on our fixed and mobile
telecom strength to differentiate
our proposition from pure OTTs
• Enhanced the Connect, Cloud PBX and Mobile integration service,
• Complement our Data Access services with additional value-added
by adding an easy to use app and WiFi calling capability.
products e.g. security.
•
Increased bandwidth on ethernet and MPLS services to 10GB.
• Commence the next phase of the development of our Mobile capabilities
• Online Pricing Tools to make the quoting and ordering
of ethernet easier.
• Fully launched the Connect Solution providing all the features of the
Horizon Cloud PBX on an easy-to-use, integrated business mobile service.
to ensure we can offer full mobility for our UCaaS solutions.
Developing
the market
Expand to Europe to gain
continued growth and scale
• Acquired DX Groep in the Netherlands. This has provided us with
both a secure non-UK business and the management structure
to expand into other European countries.
• Evaluate the German and French markets and identify potential partners.
• Support the DX Groep business in the Dutch market.
Infrastructure
development
Continue to build on our digital
capabilities to assure agility
and sustain competitiveness
• Completed the build out of a new national fibre network and migrated
• Develop our mid to long term plan to ensure our digital capabilities
all services.
•
Increased our capacity at a number of BT Openreach exchanges,
thereby continuing to reduce the cost of ethernet data services.
• Delivered the first phase of a programme to provide online tools
for our direct business units to serve their customers.
support the anticipated changes in user expectations and
buying behaviour.
• Deliver the second phase of the programme to enhance the online
presence of our direct channel.
Execution
The four strategic pillars are all underpinned by our ‘Straightforward
to do business with’ culture which seeks to make it as easy as possible
for our customers to interact with us.
11
Gamma Communications plc Annual Report and Accounts 2018Financial statementsSupplementary informationCorporate governance
Our strategy and culture in action
Expanding into Europe
The UK has been leading other
European markets in the adoption of
IP Telephony, with SIP as a replacement
for ISDN lines and cloud-based
telephony services replacing ‘on
premise’ PBXs. Gamma has been
enabling this transformation since 2006
and has significant experience in how
to transition channel partners and
their customers from legacy to next
generation services. Therefore the
Company sees a significant opportunity
to leverage this experience as the
European adoption of cloud IP services
is facilitated by the closure of legacy
ISDN networks and the broader market
demand for integrated UCaaS services.
Expanding outside of the UK also allows
Gamma to serve better its international
customers and de-risk its UK centricity.
By having direct access to a much
larger market, Gamma can maximise
any investment it makes in developing
both its product and service
management capabilities.
During 2018 Gamma made its first
acquisition against this strategy,
when it completed the purchase of the
DX Groep based in the Netherlands.
The DX Groep has a very similar
business model to Gamma but is much
earlier in its growth. It operates its own
hosted telephony platform with full
fixed and mobile access services.
Developing
the market
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Gamma Communications plc Annual Report and Accounts 2018 C
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The DX Groep primarily operates via
channel partners and has developed its
own online sales enablement tools for
partners to use.
Whilst the Dutch market is relatively
mature in its adoption of IP based voice
services, making its first acquisition here
was a low risk ‘first step’ for Gamma and
provides the Company with a platform
from which to continue to build a
European presence. Members of the
senior teams from both Gamma and
the DX Groep have formed a European
Management Board, that is overseeing
the ongoing assessment of the primary
markets and potential partners in each.
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Gamma is the right home for
Dean One as we look to accelerate
the success we have seen in
the Netherlands. We know
Gamma very well and believe
this is a positive development
for all involved."
— Klaas Bottema, co-Chief Executive,
Dean One
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Gamma Communications plc Annual Report and Accounts 2018Strategic report
Our strategy and culture in action continued
Introducing
new services
Connect and Horizon Collaborate
Business communications supporting
the needs of today's business users
Businesses today need to communicate
with their customers, partners and staff
in a more flexible and targeted way than
ever before. Gone are the days when a
fixed phone service was the only way
to communicate.
Gamma appreciates the complexity of
the business communications needs
of today’s businesses, and this input
feeds directly into our new product
and services roadmap.
The Gamma market-leading Cloud PBX
Horizon is constantly being developed to
provide solutions to support customers’
ways of working and to provide Gamma
channel partners the ability to
differentiate their service offerings
in a very competitive market.
At the core of our product development
principles is providing easy to use
and intuitive products that work
and support the business goals of
the customer.
14
In supporting this change in business
communications, Gamma has focused
on two main areas, providing a mobility
solution that connects users to the
Cloud PBX platform and enhances the
communications options to include
instant messaging and has integrated
collaboration and conferencing.
We fully launched our mobility solution,
linked to our Cloud PBX service Horizon,
in 2018. This service, called Connect,
enables users to combine their Horizon
fixed line service with their Gamma
mobile so it appears as a single service.
Users can choose which number (fixed or
mobile) to present to the called party and
all the features of Horizon – including a
single voicemail service and call
recording – are available to the mobile.
The user can make or receive calls on
either device using the same services
and numbers.
The Connect service is establishing
a platform for customers to have a
simplified fixed/mobile experience,
and in supporting the changing ways
of working towards a more mobile
organisation.
The next phase of the Horizon
development is the introduction of the
Collaborate enhanced functionality.
This service integrates to the Horizon
Cloud PBX solution providing the
business with a platform to support
instant messaging, advanced audio
and video conferencing and document
sharing. The service is simple to use,
for both the end users within the
Company and for external users,
customers and partners.
This service will be launched in the first
half of 2019, with initial customer trials
already successfully undertaken.
These developments are highlights of
a continual development process that
is focused on adding value to end
customers, making it easier and more
effective for them to communicate,
and adding value to our partners, to
differentiate themselves in a very
competitive market.
Gamma Communications plc Annual Report and Accounts 2018 Direct business
transformation programme
Like many businesses Gamma is
reviewing how it operates and engages
with its customers in a digital world
across the whole Group as part of its
overall business strategy.
Gamma is proud that it has always been
a digitally-enabled company and has
been at the forefront of Customer Portal
interaction in the wholesale business.
To enable the UK direct business to
continue to grow and scale efficiently,
and deliver the customer experience
expected, we needed to review and
change the processes, practices and
systems from ‘Bid to Cash’ across the
business unit.
Change of this nature, led from the top
of the management team, can be
complex and involves all staff in this
business unit. Mapping, transforming
and checking the quality of data
currently in multiple sources can be time
consuming and complex, but is essential
to ensure the continuity and high service
quality Gamma is known for.
To support this business change in
approach, and provide significantly
better digital engagement for customers
across all the markets served, it was
decided that the main functions would
be built upon a single platform,
replacing several legacy systems
and ad-hoc tools and portals.
The programme of work was split
into a number of phases, with the
foundational process design, new
working practices and core system
configurations carried out in phase 1
during 2018. Expert deployment
partners and data migration specialists
were hired to help and segment the
internal Business Change and Systems
teams. This will allow the deployment of
the initial changes and new functionality
to be carried out in 2019, speeding
up a number of key processes allowing
greater visibility to customers and
supporting greater volumes of orders
and customers.
Infrastructure
development
The scope and benefits in particular are:
• Faster and more efficient prospect
to order.
• Faster and more efficient support
and provisioning.
• A new Customer Portal providing
access to existing functionality such as
billing, and new functionality such as
Order Tracking, Trouble Ticketing and
Service Performance all in one place.
• Migration of data from the existing
CRM tool and Trouble Ticketing system
(which will be retired).
This platform and the services that
will be integrated will form the basis
of Gamma’s business delivery and
customer interaction. We are already
looking at future phases to deliver more
functionality internally and externally
to improve the customer experience.
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Gamma Communications plc Annual Report and Accounts 2018
Our strategy and culture in action continued
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Gamma Communications plc Annual Report and Accounts 2018 Exploiting
existing services
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Another way we’re addressing
customers’ needs is by bundling our
products. This not only gives customers
a single bill for all their communications
services, but also provides a single
point of contact when services are
implemented and supported, taking
away the headache and costs of
managing multiple suppliers.
In addition, we work closely with our
channel partners on their marketing
activities, providing tailored marketing
advice and activities to help them reach
new customers that goes beyond a
straight product sell. Many partners
are verticalised in their go-to-market
approach and we develop multi-channel
campaigns that have verticalised
messaging to help with this tactic.
Vertical markets
and propositions
Businesses don’t just buy
communications services for the
sake of communications; rather
communications services are used
to solve real business issues and
present solutions to their problems.
Communications services need to be
contextualised to support business
needs and these are usually aligned
to strategic initiatives such as cost
optimisation, moving into new markets
for competitive agility, reducing or
managing risk or the cost of complexity,
giving a better customer experience
by empowering decision making and
monitoring productivity or addressing
concerns over security or compliance
and regulation.
At Gamma we’re developing
propositions that meet business needs
and direction; more often than not this
is not just about selling a single product
but bringing a number of products
together, with an integration that may
be technical or commercial or both.
With our Horizon Cloud PBX service, we
are providing integrations with 30 third
party applications that meet the needs
of specific vertical markets. For example,
we integrate with applications such
as Bullhorn for recruitment, Emis for
healthcare and Sage for accounting
as well as a range of CRMs
including Salesforce.
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Gamma Communications plc Annual Report and Accounts 2018Financial statementsSupplementary informationCorporate governance
Gamma at a glance
Our products
and services
Gamma is a rapidly growing,
technology-based provider of advanced
communications services to the UK
and Dutch business markets. We create
simplified communications and software
services for business.
Our Data access products are
designed to assure quality of
service for our voice services and
provide access to key applications
for businesses
The Data service architecture is
fully integrated with our national
voice network, allowing a fully
converged service offering, and
a single support structure
Fully resilient solution delivered
into more than one network node
High capacity MPLS core network
Direct peering with key content
providers as well as geographically
diverse internet transit
POP sites around UK
Our voice product platforms (SIP
Trunking, Cloud PBX and Inbound)
are an integral part of our national
voice and data network
Our underlying voice switching
fabric is a carrier class
Highly resilient, distributed,
next generation, national
softswitch network
We are part of the UK’s national
switching infrastructure
Interconnects with all major
UK, international, fixed and
mobile carriers
We process over three million
calls per hour during the peak
business hours
Gamma owns its mobile core
network giving us the same
control as we have over fixed
voice services (routing of all calls,
text and data traffic onto the
Gamma network)
Gamma Mobile has independent
control of its core network
Primary mobile network is
with Three UK
Premium MultiNet provides
access to multiple networks
in one single SIM
4G data service
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Gamma Communications plc Annual Report and Accounts 2018
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Who we are
1,044 staff
Our expert staff are a key part of
our success and product development
Awards
1st place
Best channel support service
Presence
We operate from five towns and cities
in the UK, Budapest and Amsterdam
1st place
Best channel supplier –
wholesale provider
Corporate social responsibility
page 46
How we sell
We supply a broad range of simplified communications
and software services to small, medium and large sized
business customers, both through our large network
of channel partners and direct.
UK Indirect
Sold via:
System integrators
Resellers
Unified Communications providers
Value added resellers
Cloud infrastructure providers
Users:
Harrods
National Express
Countrywide
Park Dean Resorts
SCS
74%
of sales
£210.6m
2018 sales
Business review page 38
UK Direct
Sold into:
Public Sector
Mid-Market
Enterprise
Users:
London Stock Exchange Group
Scottish Government
BGL Group
John Lewis Partnership
National Audit Office
Overseas
Sold via:
Resellers
System integrators
Value added resellers
Sold into:
Public Sector
Mid-Market
Enterprise
Users:
De Haagse Hogeschool
Driscoll’s
Amsterdamse Hogeschool
voor de Kunsten
New York Pizza
25%
£70.9m
of sales
2018 sales
1%
of sales
£3.4m
2018 sales
since acquisition
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Gamma Communications plc Annual Report and Accounts 2018Financial statementsSupplementary informationCorporate governance
Market trends
The shift to integrated and
contextualised communications
We have identified key trends in our markets showing
how the face of business communications is changing
and how Gamma is addressing these trends.
The rise of converged and unified communication services
• Communication is no longer isolated,
customers can contact businesses
from anywhere/anyhow.
The key is matching the
communications method to the
customer and task requirement.
• Businesses are looking for business
communications solutions that
can support them as their way
of working changes, and for the
communications to be relevant
to their customers, whether that
be a phone call, a video chat or
a collaborative desktop session.
• Businesses are looking for service
simplicity and cost savings in their
business comms solutions.
• Business efficiency driven by single
phone numbers, single voice mail
service whether the user is utilising
a mobile or fixed device.
The Gamma opportunity
• Gamma launched the Connect
service, a solution that provides the
features of our Cloud PBX service,
Horizon, on a mobile in May 2018.
This service combines the Gamma
core voice and mobile, service as a
simple to use solution that provides
real business efficiency for users,
ensuring that customer interactions
are dealt with effectively, regardless
of location. This service has been
undertaken by a number of
businesses and the interest from
end customers and channel
partners has continued to build
since the launch.
• In the first half of 2019, Gamma
will launch Horizon Collaborate,
providing a fully-integrated
messaging, collaboration
and audio/video conferencing
service to our industry-
leading Cloud PBX service.
Supporting
effective business
communications
in an ever changing
world
The challenge for businesses to be
competitive in today’s increasingly
fast moving world has never
been greater. Customers and
employees are demanding that
businesses offer services and
means of communication to meet
their requirements. To support
these requirements, businesses
need communication services
that are flexible, scalable and
secure to meet today’s and
tomorrow’s challenges.
Underpinning these business and
user trends are a number of
technology and industry directions
that support the overall changes in
how business operates.
Gamma is addressing these
technology trends in a number
of ways.
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Gamma Communications plc Annual Report and Accounts 2018 Superfast connectivity
explosion to support
the rise of cloud services
• Cloud based applications are now
the norm for many businesses and
vertical markets. To ensure that these
services work effectively businesses
need fast, highly available and
secure connectivity from the user
to the application.
• The flexibility that on demand
software solutions provide to all
businesses (large or small) enables
them to deploy new solutions faster
and more efficiently.
• Businesses cannot survive without
access to key data/software/
customers over the internet.
• Simple connectivity is not enough
as more and more data is
accessed remotely.
• Customer contact is moving from a
phone call/email to interactive video,
online chat, screen sharing.
• All this communication needs fast/
secure/scalable connectivity for
businesses that supports their key
applications, not the priorities of
online gamers/YouTubers!
The Gamma opportunity
• Gamma has seen a significant
rise in demand for high
bandwidth broadband and
ethernet services over the past
12 months.
• We have met this demand and
connectivity services are now a
significant part of the Gamma
portfolio, underpinning customer
access to the businesses’ key
cloud applications.
• We have utilised our network
reach to build out ethernet
nodes in a number of population
centres, reducing our cost of
supply and allowing us to drive
volume in a competitively
priced market.
• Moving into 2019 we will
continue to implement more
access services that support the
requirements for increased
bandwidth.
Digital disruption –
from buying to support
Outlook
All businesses are looking to
streamline their operations to
provide a better experience for their
customers, whether they are buying,
using or feeding back on the services
that a company provides. At the
heart of this change is how new
technology can help.
The Gamma opportunity
• To provide products and
services to our customers that
streamlines their business
communication processes.
• To support our direct customers
in how they engage with Gamma
to make their interactions with us
more effective and appropriate.
• To support our partners in taking
cost out of their processes so that
they can make their businesses
more effective.
In 2019 Gamma will roll out a
new digital model to support
our direct customers in the
following areas to provide
customer benefit:
• Faster and more efficient
prospect to order process.
• Faster and more efficient
support and provisioning.
• A new Customer Portal
providing access to existing
functionality such as billing,
and new functionality
such as Order Tracking,
Trouble Ticketing and Service
Performance all in one place.
This platform and the services
that will be integrated will
form the basis of Gamma’s
business delivery and customer
interaction. We are already
looking at future phases to
deliver more functionality
internally and externally
to improve the customer
experience.
The Gamma opportunity
• Gamma is an infrastructure-light
provider, with a core network that
can support the key routing of
voice/data and mobile traffic
in an integrated core.
• This core integration allows us to
develop differentiated services,
such as the Connect service.
• We provide simple, easy-to-
consume services, underpinned
by automated provisioning and
support models.
Network flexibility
• The increase in customer demand
to support changes to their business
communications in a faster and
more flexible way means that service
providers need to be flexible.
• New OTT providers can offer
applications that are easy to use,
but the customer connectivity may
not have the capacity or security
to support it.
• Large network-based operators may
have the core capacity, but not the
flexibility to deliver the applications
that customers need.
• Businesses need a balance – fast to
deploy applications over a scalable
and secure infrastructure that
supports all users.
21
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Business model
Creating value and growth
Highly cash generative with a resilient business
model, a broad customer base and low customer
concentration, Gamma has seen strong growth
driven by repeating revenues.
Our strengths
Our products and services
Core Gamma foundations
What makes us different
Product and network quality
Driving innovation on the back of strong network
and product foundations (carrier grade, high
availability, and rock solid end-user performance).
Channel automations
Portal capabilities (built around the channel
with overlay support geared to make Gamma
easy to do business with).
Digital platforms
Training (Academy) and marketing enablement
(Accelerate) to drive channel engagement and growth
(providing the channel with the edge to be successful
and grow their businesses).
Commercial agility
Providing our partners leverage and flexibility
(driving incentives and not causing price erosion)
and selling on value and not price.
People
Human aspect of channel and direct customer
engagement (long standing, consistency, built on trust
and a balance of strong business ethics) – culture,
skills, and delivering against our mutual promises.
22
VOICE
Our voice product portfolio
(SIP Trunking, Cloud PBX and Inbound)
is designed to meet the needs
of a modern business. Supporting
businesses collaborating with
their customers.
DATA
Our Data Access products are
designed to assure quality of service
to businesses accessing their critical
business applications in the cloud,
including Gamma voice products, with
all services supported via a single
support structure.
MOBILE
Gamma owns its mobile core network,
giving us the same control as we have
over fixed voice product and services
(routing of all calls, texts and data
traffic onto the Gamma network).
This infrastructure allows us to
provide differentiated services such
as Connect, our fixed/mobile service.
Gamma Communications plc Annual Report and Accounts 2018 S
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The markets we serve
UK Indirect
Our primary route to market, the
channel, is at the heart of what we do.
Providing services to 1,150 channel
partners, with the partner owning
the end customer contract and
the relationship.
74%
Indirect business revenue
income percentage
UK Direct
Gamma supports a number of direct
customer relationships, focusing on
customers where they are looking
for a contract with the network
operator. The direct business
supports the requirements of
Enterprises, Mid Markets and
Public Sector organisations.
25%
Direct business revenue
income percentage
Overseas
Dean One supports 364 partners
where Dean One owns the end
customer contract and 158 partners
who own the end customer contract.
In addition Schiphol Connect has
380 customers.
1%
Overseas business revenue
income percentage
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Delivering innovative
multi-platform solutions
Gamma Communications plc Annual Report and Accounts 2018Financial statementsSupplementary information
TSI case study
A Gamma partner for eight years,
TSI provides a range of communications
for businesses of all sizes. The company
offers a portfolio of services and
products across cloud telephony,
unified communications and
connectivity – citing ethernet as their
most successful product from Gamma.
The challenge
TSI is focused on consistency of service
and trust. Noting that many of its
customers do not want multiple
suppliers, TSI wanted to be able to
provide all of their voice and data needs
under one roof, a key challenge in
keeping with its goal of offering
‘complete business communications
from one trusted supplier’.
Priding itself on not being a ‘faceless’
entity meant that TSI’s suppliers
are key to retaining this essential,
personable relationship with its
existing customer base.
Gamma drives
key growth and
helps boost profit
margins for TSI
24
Gamma Communications plc Annual Report and Accounts 2018 Our ongoing relationship with
Gamma is professional, friendly
and trusting. We never feel we
are getting the ‘hard sell’ and
are never pressured or squeezed
on price.”
— Martin Coleman,
Operations Director, TSI
The solution
TSI takes pride in being a reliable and
trusted port of call for its customers,
making the buying and support
processes as easy and comprehensible
as possible in order to retain trust and to
achieve core business growth within its
existing customer base.
Over the past decade, TSI has regularly
taken the time to understand the full
range of Gamma products available.
Having knowledge of the full portfolio
allowed it to give value-add to its
customers, making services more sticky,
and a trust in Gamma’s support services
meant that its had confidence in its
processes and delivery.
The results
Working with one of the UK’s largest
retailers in 2017, TSI won a deal to supply
a 20/100Mbs ethernet circuit with ADSL
back-up into around 300 stores across
the UK, with the support of Gamma’s
Ethernet team.
Gamma’s services were successfully
delivered on time and the customer is
extremely happy with the quality of the
services and support received throughout
the rollout.
Commenting on the win, TSI’s Operations
Director, Martin Coleman says:
“The Gamma Ethernet team were integral
to winning the 300-store tender, both from
a technical point of view in helping to fulfil
customer requirements and assisting with
answering a multi-page tender document,
through to negotiating the commercials.
Having different Gamma products in our
portfolio has allowed us to win deals such
as this that we might not otherwise have
won. Gamma products now make up almost
50% of our annual turnover and have
driven our growth considerably over the
past decade.”
25
Gamma drives
key growth and
helps boost profit
margins for TSI
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Dean One case study
In the competitive telecoms
market in the Netherlands,
service providers have lots
of choice when it comes to
who they partner with.
Most service providers offer a very
similar product set, so when Jan
Rietveld, owner of Telecom Raadgevers,
was looking to work with a supplier in
2011, he was looking for a partner that
would understand his business, and be
there for the long term to support his
growth plans.
With this ongoing relationship Telecom
Raadgevers now sells the full range of
Dean One products, cloud telephony,
SIP Trunking, mobile and connectivity.
Telecom Raadgevers provides the first
line support to the customer, utilising
the Dean One portals and support
teams for additional assistance.
Q. What do you like about the
cooperation within Dean One?
A. Dean One, just like us, highly values
personal contact and really enters into
the relationship with the dealer. The
products that Dean One offers are also
offered by other providers, but thanks to
the fun activities that are organised, such
as get-togethers and outings, you really
get a personal bond with the brand.
You may see executives at other parties
in the distance on a stage once a year.
When I go to a drink with Dean One,
Frank Caris (CCO) comes over and asks:
‘Hey Jan, how are you? How is your
business?’ What I also really appreciate is
that you know the people you get on the
phone at Dean One, and they also know
who you are. If you call a customer
service provider from a major provider,
you may be lucky to have the same
person on the phone twice in one
month. That will never happen
with Dean One for sure.
– Jan Rietveld
Telecom Raadgevers, Owner
Dean One working
alongside Telecom
Raadgevers to help
drive growth
26
Gamma Communications plc Annual Report and Accounts 2018 ...you really get a personal
bond with the brand.”
— Jan Rietveld
Telecom Raadgevers, Owner
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Gamma Communications plc Annual Report and Accounts 2018
Care UK case study
Gamma answers
the call for Care UK
When lives can quite literally
depend on a phone call,
you’d better hope that the
phone service being used is
the most reliable there is.
But for Care UK, the largest
private sector supplier of
NHS 111 urgent cover
across a big part of the UK
including London, the choice
of SIP and hosted telephony
provider was a simple one.
With demand for care rising and
budgets under increasing pressure,
the UK government relies more
and more on the private sector
to supplement and in some cases
take over the job of care provision.
The move to hosted services
Care UK has chosen Gamma as its
telecoms partner in a major
consolidation, modernisation and
future-proofing programme of its large
and diverse telephony estate, something
which had built up over time as the
company has grown both organically
and by acquisition.
• The overarching strategy of the whole
rationalisation exercise is to move
from an on-premise model to a hosted
one, built entirely around Gamma’s
Horizon platform.
• The benefits of the move include more
flexibility, a much-reduced technical
support overhead, better resilience,
and lower costs.
• The exception to the 100% hosted rule
is Care UK’s NHS 111 provision which
remains rooted in on-premise
switches and Gamma SIP connectivity.
Progressing
Fourteen months on and the move
to Horizon is progressing well. The roll
out is complete to 20 large healthcare
centres and is in progress to deliver
Horizon to more than 120 care homes all
the way from Dorset to Aberdeenshire.
The company also operates three contact
centres based on the Horizon platform’s
call centre functionality. All use the Akixi
cloud-based reporting system which is
deployed to provide both real-time and
historical information.
Jason Wells, Head of IT Infrastructure
and Operations, has no regrets about
the decision to go the hosted route with
Horizon, either from a business
perspective or an IT perspective.
With a legacy telephony estate of
multiple different systems anything
from 30 years old to six months old,
and from a large number of different
suppliers, it presented something of
a nightmare to manage, support,
service and locate spares for.
28
Gamma Communications plc Annual Report and Accounts 2018 S
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Switching to Gamma has been
the best move we’ve ever
made! We’re getting a better
service that’s more resilient,
more reliable, simple to expand
upon and we’re saving money.”
— Jason Wells
Head of IT Infrastructure
and Operations, Care UK
Now Horizon is rolling out and a
complex matrix of costly hardware
and software support contracts is
unwinding, that particular headache
is coming to an end.
There were a lot of old legacy phone
systems and they came with a lot of
costs, both financial and in support time.
In the case of one PBX platform the
vendor wanted a seven-figure amount
just to keep it running, which made our
decision very easy.
£600,000
at least, saved over three years
by moving to Gamma’s Horizon
The ongoing support across a whole
mix of different handsets and systems
was proving very expensive, and
keeping them all up to date was
substantially challenging.
Gamma Communications plc Annual Report and Accounts 2018
Gamma Accelerate case study
Midshire Business
Systems improves and
increases marketing
activity with less
effort and resource
30
Gamma Communications plc Annual Report and Accounts 2018 The Midshire Group of
Companies was established
28 years ago, and is one of
the largest office technology
resellers in the UK. Midshire
focuses on market-leading
services including business
telephone systems,
broadband and IT solutions
and products. Today, Midshire
is now a £32 million turnover
group, with over 250
employees in three regional
offices and over 14,000
installations.
The challenge
Midshire prides itself on continually
offering the latest technology to its
customers and, as part of this,
proactively informs customers and
prospects about the latest news and
product launches. As the customer base
grew, it became more and more of a
challenge to manage and schedule
multiple communication programmes
with the combination of legacy
systems it had accumulated since 2002.
It became apparent that syncing up
marketing activities such as nurture
campaigns, emailers and social media
posts was problematic.
The Midshire marketing team needed
to improve the quality and quantity of
all campaign activity, whilst reducing the
daily workload of the team so they could
focus on other marketing avenues. Step
one would be to segment the customer
base which would allow for improved
message consistency of the material
distributed. It was also recognised
that the customer journey was not as
seamless as it would have liked and that
this could be improved with greater
synchronisation between social media
posts and email campaigns.
The solution
One of the first things that appealed
to Midshire about the Gamma
Accelerate portal was that all the
marketing campaigns could be
centralised in one easy to use platform.
This would instantly remove the issue
of combining several different tools and
fundamentally streamline the process,
saving considerable time. Furthermore,
the library of high quality collateral
enabled Midshire to quickly and easily
customise campaign material to make
it its own. With the addition of a full
end-to-end Campaign-in-a-Box,
including emailers and social media,
Midshire now has all the tools needed
to run full lead nurture campaigns.
Midshire has also enjoyed training
from Gamma on Accelerate. From
implementation on day one to today
Gamma has supported and guided
Midshire and provided lots of useful
hints and tips to new marketing
members as their team grew on how
to get the most from Accelerate.
The results
Midshire’s original goal was to improve
the quantity and quality of its campaigns
while also reducing the workload on the
team, both of which it has achieved
with Accelerate.
Jamie Callaghan, Marketing Manager at
Midshire said:
“The ease of social media scheduling means
we can focus more time on other aspects
of our marketing plan. As a result, our
marketing activity has increased overall
and thus sales have increased.”
He continued, “We have a great relationship
with Gamma, any queries or issues have
been dealt with promptly and without fuss.
We have become a key partner for Gamma
and regularly test new products prior to
launch. This enables us to always be at the
cutting edge of our industry and offer our
customers the best value and support
moving forward.”
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With Gamma’s Accelerate all of our marketing
campaigns could be automated in one easy-to-use
platform. The high quality customer-facing collateral
which could be easily branded as well as social media
scheduling was a great appeal for us at Midshire.
It has made the whole process seamless.”
— Jamie Callaghan, Marketing Manager, Midshire
31
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsCorporate governance
Key performance indicators
Measuring our success*
Revenue (£m)
£284.9m
2018
2017
2016
Definition
Revenue from sales made to all
customers (excluding intra-group
sales which eliminate on
consolidation).
Gross margin (%)
46.4%
2018
2017
2016
46.4%
44.9%
46.3%
Definition
Gross profit as a percentage
of revenue.
Gross profit (£m)
£132.2m
£242.0m
£213.5m
£284.9m
2018
2017
2016
£132.2m
£108.7m
£98.8m
Outlook
Growth.
Definition
Revenues less direct costs of sales.
Outlook
Growth.
EBITDA (£m)
£48.3m
2018
2017
2016
Outlook
Continued growth but expected to
slow as the product mix of strategic
and enabling versus traditional tends
to an equilibrium.
Definition
Earnings before interest, taxation,
depreciation, gains and losses
on disposal of fixed assets
and amortisation.
£48.3m
£36.0m
£34.2m
Outlook
Continued growth.
Cash (£m)
£35.5m
2018
2017
2016
Cash generated by operations (£m)
£40.6m
£35.5m
£31.6m
£28.2m
2018
2017
2016
£40.6m
£29.9m
£31.3m
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.
Definition
Net cash flows from operating
activities before tax.
Outlook
Expected to grow in line with
EBITDA – cash conversion is expected
to remain strong.
EPS (p)
30.0p
2018
2017
2016
30.0p
24.0p
18.8p
Adjusted EPS (p)
30.3p
2018
2017
2016
Definition
Earnings after tax divided by the
fully diluted number of shares.
Outlook
Expected to grow in the absence
of any unforeseen events.
Definition
Adjusted earnings after tax divided by
the fully diluted number of shares.
Outlook
Continued growth.
30.3p
23.1p
21.1p
Relevance
By removing amortisation on
acquisition from this metric, a better
understanding of the performance of
the business is gained. This adjustment
is normally made by analysts so allows
a user of the accounts to compare the
actual results with the expectations
of the analyst community.
*2016 figures are not restated for the effects of the adoption of IFRS 15.
32
Gamma Communications plc Annual Report and Accounts 2018 Strategic pillars:
Execution
Exploiting existing services
Infrastructure investment
Introducing new services
Developing the market
Performance metrics*
UK business supplementary information
Number of hosted seats (‘000s)
Number of SIP channels (‘000s)
435
2018
2017
2016
435
331
230
856
2018
2017
2016
856
680
511
Definition
Number of billed seats at end of year
on all of the Cloud PBX products.
Outlook
Continued growth.
Relevant strategic pillars
Definition
Number of billed SIP channels
at end of the year.
Outlook
Continued growth.
Relevant strategic pillars
Strategic and enabling services as percentage of gross margin
Direct customer profile
78%
2018
2017
2016
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.
Network availability
99.997%
2018
2017
2016
78%
75%
79%
176
2018
2017
2016
176
159
131
Outlook
Growth.
Relevant strategic pillars
Definition
Number of direct customers
generating monthly revenues of
above £5,000 at the end of the year.
Outlook
Continued growth.
Relevant strategic pillars
Number of channel partners
1,150
99.997%
2018
99.997%
2017
99.996%
2016
1,150
1,089
970
Definition
Availability of strategic platforms.
Outlook
Similar.
Relevant strategic pillars
Definition
Number of wholesale channel
partners with monthly billing over
£500 at the end of the year.
Outlook
Expected to slow growth channel as
focus is on cross selling to existing
channel partners.
Relevant strategic pillars
Net Promoter Score – direct
Net Promoter Score – indirect
41%
2018
2017
2016
41%
40%
45%
43%
2018
2017
2016
26%
43%
45%
Definition
The Net Promoter Score of a random
selection of direct customers
measured quarterly and averaged
over the year.
Outlook
Similar.
Relevant strategic pillars
Definition
The Net Promoter Score of a random
selection of indirect customers
measured quarterly and averaged
over the year.
Outlook
Similar.
Relevant strategic pillars
*Non UK performance metrics not included as non material in 2018.
33
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance
Principal risks and uncertainties
Understanding the risks
that affect the Group
This section describes the principal risks
that could have a material adverse impact
on the Group and how those risks are
identified, evaluated and managed.
Mitig a t i o n
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Risk management process
Identification
Risks recorded in controlled
risk registers.
Evaluation
Risk exposure reviewed
and prioritised.
Monitoring
Risks analysed for impact
and probability.
Mitigation
Risk owners identified and
action plans implemented.
Robust mitigation strategy
subject to regular and
rigorous review.
34
How we manage risk
The Board has overall responsibility for
the establishment and oversight of the
Group’s risk management framework,
for ensuring that an appropriate risk
management culture exists within the
organisation, and for ensuring the
effective identification, assessment
and management of individual risks.
In order to assist in this process, with
respect to non-financial risk, the Board
has established a Group Risk Committee
under the Chairmanship of Martin Lea,
Independent Non-Executive Director.
In addition to its Chairman, the Risk
Committee comprises two independent
Non-Executive Directors, the CEO and
the Group Chief Strategy and Operating
Officer. It generally meets quarterly or
as otherwise required. The main tasks
of the Risk Committee are to:
• ensure the Company has an
appropriate and effective risk
management and control system;
• ensure that there is a system in place
for scanning the environment for
new risks; and
• determine the nature and extent
of the principal risks and agree
with management how they will
be managed or mitigated.
Gamma operates a robust and well-
established structure for the
management of risk in each area of
its business. This process includes the
identification of risks and an evaluation
and scoring of risks based on the
likelihood of occurrence, the potential
impact, and the adequacy of the
mitigation or control actions in place.
Each generic area of risk has clearly
assigned accountability at Director-level
within the management team, with
reporting lines to the CEO, the Risk
Committee and ultimately the Board.
Gamma Communications plc Annual Report and Accounts 2018
A risk register is maintained which
includes all identified risks, their
scores, prioritisation and the status
of existing controls and mitigations
and further actions in progress.
The Risk Committee undertakes a
quarterly review of the risk register
and in particular the number and
status of the principal risks and
progress with the implementation of
any mitigation plans. In addition the
Committee receives reports on any
material incidents, their root causes
and mitigating actions; also the results
of regular cyber security related testing
as well as updates from the Chief
Information Security Officer and other
senior operational management.
Gamma has a series of policies
regarding anti-corruption/anti-bribery,
human rights, the environment and
social matters; but the Board does
not consider there to be significant
risks in this area. There is also a whistle
blowing policy in place enabling
employees to confidentially report
matters of concern to the Chief
Strategy and Operating Officer.
The principal risks to the business
are listed here with a short description
of their potential impact and what is
being done to mitigate them. This is
not necessarily an exhaustive list, and
there may be other risks that could
be identified in the future. However
our ongoing commitment to risk
management will seek to identify
and mitigate such future risks.
Operational – unplanned service
disruption
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.
Information and cyber security
By its very nature, our network
infrastructure provides customers with open
access to the internet and global voice
networks. As such there is a risk from cyber
threat and telephony fraud, as well as to the
physical infrastructure. Over the last few
years the profile around cyber security has
changed significantly, including the advent of
GDPR regulation and its associated controls.
As a result, the Company has adapted its
governance structure under the direction of
the Company’s Chief Information Security
Officer (CISO).
Potential impact
A breach of security could have a significant
impact on the Group’s reputation and in
some cases commercial impact.
Potential impact
If our network and systems perform below
the market expectations then this will impact
our ability to grow and sustain revenues.
Mitigating actions
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, and business
continuity planning and rehearsals, incident
management and monitoring. This structure
is subject to external audit via our ISO 27001,
ISO 22301 and ND 1643 certifications.
We have a mature Incident Management
process that is rehearsed on a regular basis.
This capability is available 24x7x365 and
ensures that we can immediately respond to
events that may impact the performance of
the services we provide to our customers.
Mitigating actions
We continue to adapt our governance
structure to ensure that we follow best
practice in the identification and
management of information and cyber
security 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.
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. We 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.
The Company has representation on various
Industry forums to ensure we are fully aware
of new areas of risk, methods employed by
malicious actions and best practice in the
identification and mitigation of risk.
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.
Impact
High
Change
Impact
High
Change
35
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance
Principal risks and uncertainties continued
Reputational
Supplier
Market landscape
Legal and regulatory
Key personnel
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.
The business relies on a number of key
suppliers to provide elements of its products
and services.
New entrants or existing service providers
extend their product set to compete directly
with our products and services. The
communications market is constantly
evolving both in terms of the available
technologies and also in how people look to
purchase certain products.
The UK’s telecommunications sector does
The business has grown rapidly over the last
not have a ‘licence’ requirement; it operates
few years, with very low staff turnover.
under a General Authorisation regime
whereby, in combination with relevant UK
Therefore, there are individuals who have
been instrumental in its development and
and European statute, the sector’s regulator
are important to its ongoing success.
outlines the required compliance which is
presumed from telecommunications
companies such as Gamma.
Potential impact
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.
Potential impact
Failure of one of these suppliers to perform
may have an impact on our ability to deliver
products and services.
Potential impact
This may dilute the addressable market and
slow down growth. If the business does not
at least keep pace with this evolving market
then its plans for growth may be impacted.
Mitigating actions
Where possible, we avoid reliance upon a
single supplier for a particular element of our
service and we ensure key supplier contracts
have appropriate clauses in place to assure
their performance. Suppliers of important
services are monitored carefully and are
subject to regular operational reviews. The
Risk Committee reviews the most significant
risks and the status of related mitigation
projects quarterly.
Mitigating actions
Gamma aims to provide services which
are more attractive to our customers than
those of competitors. 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.
In addition, Gamma, from time to time,
undertakes a major strategy review, the
overarching objective of which is to ensure
it remains competitive in its key markets
and to identify new opportunities
for further growth.
Mitigating actions
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.
In terms of governance, we hold a
monthly Operational Review chaired
by the Chief Strategy and Operating Officer
that reviews performance across all parts
of the business. This forum has its own
action register to track through any
improvements highlighted.
The Company has established a Crisis
Management process to ensure it can
respond to events that may draw media and
regulatory interest – this is supported by
external specialist agencies. This process is
rehearsed at least once a year.
Potential impact
Loss of key individuals could have
an impact on the continuing development
of the business.
Potential impact
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 sell
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.
Mitigating actions
Mitigating actions
Gamma mitigates this risk by continuing to
The business has a well-established team
monitor likely regulatory changes; assessing
and a reputation for being a good employer.
their risk and potential impact; and regularly
For example, in 2017, it came 49th in
engaging with regulators as appropriate.
‘The Sunday Times Top 100 Best Companies
To Work For’ ranking. This process involved
a comprehensive staff survey, the feedback
from which is actively reviewed and
addressed by the senior management team.
The Company is also committed to an
ongoing programme of people development
programmes and active succession planning
across the business.
Impact
High
36
Change
Impact
Moderate
Change
Impact
Moderate
Change
Impact
Low
Change
Change
Impact
Low
Gamma Communications plc Annual Report and Accounts 2018
Reputational
Supplier
Market landscape
Legal and regulatory
Key personnel
Communications services are critical to
The business relies on a number of key
New entrants or existing service providers
businesses. The ability to order and deliver
suppliers to provide elements of its products
extend their product set to compete directly
them easily, and reach support quickly when
and services.
something goes wrong, are key areas that
any service provider is assessed on when a
customer is placing business.
with our products and services. The
communications market is constantly
evolving both in terms of the available
technologies and also in how people look to
purchase certain products.
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.
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.
Potential impact
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.
Potential impact
Potential impact
Failure of one of these suppliers to perform
This may dilute the addressable market and
may have an impact on our ability to deliver
slow down growth. If the business does not
products and services.
at least keep pace with this evolving market
then its plans for growth may be impacted.
Mitigating actions
Mitigating actions
Mitigating actions
We have a comprehensive service
Where possible, we avoid reliance upon a
Gamma aims to provide services which
development plan that captures customer
single supplier for a particular element of our
are more attractive to our customers than
feedback and seeks to best align the support
service and we ensure key supplier contracts
those of competitors. Gamma plans,
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.
have appropriate clauses in place to assure
develops and markets products which match
their performance. Suppliers of important
the evolution of market demand and of
services are monitored carefully and are
relevant technologies, and develops its core
subject to regular operational reviews. The
platforms to support these products.
Risk Committee reviews the most significant
Our objective is to eliminate any cause of
risks and the status of related mitigation
frustration and ensure any interaction is as
projects quarterly.
In addition, Gamma, from time to time,
undertakes a major strategy review, the
overarching objective of which is to ensure
it remains competitive in its key markets
and to identify new opportunities
for further growth.
straightforward as possible.
In terms of governance, we hold a
monthly Operational Review chaired
by the Chief Strategy and Operating Officer
that reviews performance across all parts
of the business. This forum has its own
action register to track through any
improvements highlighted.
The Company has established a Crisis
Management process to ensure it can
respond to events that may draw media and
regulatory interest – this is supported by
external specialist agencies. This process is
rehearsed at least once a year.
Potential impact
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 sell
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.
Mitigating actions
Gamma mitigates this risk by continuing to
monitor likely regulatory changes; assessing
their risk and potential impact; and regularly
engaging with regulators as appropriate.
Potential impact
Loss of key individuals could have
an impact on the continuing development
of the business.
Mitigating actions
The business has a well-established team
and a reputation for being a good employer.
For example, in 2017, it came 49th in
‘The Sunday Times Top 100 Best Companies
To Work For’ ranking. This process involved
a comprehensive staff survey, the feedback
from which is actively reviewed and
addressed by the senior management team.
The Company is also committed to an
ongoing programme of people development
programmes and active succession planning
across the business.
Impact
High
Change
Impact
Moderate
Change
Impact
Moderate
Change
Impact
Low
Change
Impact
Low
Change
37
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance
Business review
A broadened portfolio
We supply a broad range of simplified communications
and software services to small, medium and large sized
business customers, both through our large network
of channel partners and direct.
UK Indirect
The channel is right in the DNA of Gamma,
contributing 74% of our revenue. Our clear
objective is to provide the channel with
something that is both different and of
quality, and really drive sales in the hard
to reach SMB market.
UK Direct
The UK direct business has had an
encouraging year, delivering revenues
of £70.9m and gross profit of £32.8m, up
24% and 28% respectively. The Gamma
brand has continued to gain recognition as
a quality provider of Cloud ICT solutions.
Overseas
In October 2018 Gamma acquired
DX Groep, a growing telecoms group
based in the Netherlands.
74%
25%
1%
Indirect sales
Direct sales
Overseas sales
17%
28%
Gross profit increase in 2018
to £97.5m for indirect business
Gross profit increase in 2018
to £32.8m for direct business
£1.9m
Gross profit since acquisition
Current channel partner examples
Current direct customer examples
Current partner examples
Fidelity
South West Communications
Reed
Teleperformance
Nederlandse Publieke
Interxion
Focus Group
BTT
Welcomm
Epsom & St Helier University Hospital’s
NHS Trust
YMCA
Levi’s
38
Gamma Communications plc Annual Report and Accounts 2018 UK Indirect
2018 saw strong growth across
Gamma’s indirect business, with
a continued focus on strengthening
current channel relationships.
We are now actively working with
1,150 partners at the end of
2018 (1,089 at the end of 2017).
Gross profits rose from £83.0m
in 2017 to £97.5m, and revenues
grew from £184.9m to £210.6m.
Daryl Pile
Managing Director – UK Indirect
As more and more organisations begin
to adopt a customer-first approach to all
aspects of their business, Gamma sees
this as a key opportunity for the channel
to implement the technology that will
enable a customer’s business to improve
and operate more efficiently. Partners
who can add new solutions to their
portfolio that offer real value to their
customer, whilst placing themselves
in a powerful position to cross-sell and
upsell, will see success.
Gamma’s focus is, and will continue to
be, on developing innovative ways to
help the channel succeed. Our approach
is to provide compelling, high quality and
disruptive solutions for our channel
partners to take to market, underpinned
by first-class support. Our ‘easy to do
business with’ mantra reinforces
everything we do at Gamma and, to keep
in line with this, we have expanded our
marketing and e-learning platforms that
we make available to our partners. These
areas are designed to further enable our
channel partners to be more competitive
and successful in growing market share
in their respective market areas.
Gamma Accelerate is an online partner-
marketing portal, designed to make it
easy for channel partners to access and
customise marketing material, generate
new leads and engage with prospects
and customers. With more than 700
channel partners using the system in
some capacity, 2018 has seen a
significant increase in marketing
campaigns run, with the number
doubling when compared to 2017. We
have also added more than 10 integrated,
end-to-end marketing campaigns for
partners to use for lead generation.
As we look to 2019, Gamma is extending
its marketing managed service to include
copywriting, social media profile analysis,
website analysis and digital advertising
to ensure partners are adopting best
practice strategies and tactics for the
marketing activity.
The Gamma Academy is an online
training platform, developed by us to
provide partners with comprehensive
support tools, training and product data,
ensuring they have the information they
need to confidently win new business,
support existing customers and
compete effectively with larger asset-
owning competitors. In 2018, individuals
working in our channel partner
community undertook over 16,000
courses. These courses are designed to
cover all aspects of our service including
provisioning and technical support,
in a clear and concise format.
The Gamma Portal continues to be a
key differentiator, allowing partners to
take full control and ownership of their
customers and provision and manage
services online.
Gamma’s partner accreditation
programmes have gone from strength to
strength with the Platinum programme
at capacity, whilst we continue to bring
on new Gold partners. We will further
expand the accreditation into 2019 to
provide additional value to our partners.
The adoption of SIP Trunking for PBX
connectivity and ISDN replacement has
seen signs of slowing down, particularly
in the SME sector as the 2025 ISDN turn
off date seems too far in the distance
to make a real impact now. However,
Gamma continues to outperform the
market growth rate for SIP. Our SIP
Trunk Call Manager service, which adds
a number of call management features
taking it beyond basic connectivity,
is gaining momentum.
Our Cloud PBX product, Horizon,
continues its popularity with our partner
base with more than 813 partners
actively selling the product. The
Cloud PBX market is saturated with
competitors ranging from ‘big-tech’ to
local niche operators. For our partners
differentiation is key and Gamma aims
to help with this in a number of ways
including offering Horizon white-label
marketing and sales campaigns specific
to ripe verticals and integration with
mobile added through the Connect
converged fixed and mobile service.
For 2019, we will be launching a set of
UCaaS tools and applications that will
enhance the Horizon Cloud PBX
proposition for our channel partners
and present an opportunity for them to
upsell this to their existing customers
and attack the mid-market.
Our Connect solution has given our
mobile proposition real differentiation
for partners to take to market. Our
specialists are working closely with
partners to harness this proposition and
target specific sectors who would benefit
greatly from this solution, for example
estate agents, recruitment companies
and healthcare organisations.
We have seen a strong year for our
data services portfolio, with orders
continuing to grow for both ethernet
and broadband, whilst partner uptake of
our private multi-site CPN service is
solid. We have also launched Gamma’s
new Ethernet Layer 2 option for
network and infrastructure partners
to differentiate their offering with a
better service wrap.
2018 has seen a major restructure
for our Channel Sales team. As a UK
business with staff living right across the
country, we have restructured the teams
and accounts geographically, allowing
account managers to get closer to and
work better with their partners. The
teams now better reflect how the
channel has evolved, whilst allowing us
to improve support to partners and
successfully onboard new business.
Gamma has introduced a ‘New Business’
team to ensure that partners new to
Gamma are receiving the best
onboarding experience possible
so they can begin to sell and grow
their business quickly.
39
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Business review continued
UK Direct
It has been another year of strong
performance across the direct
business, delivering revenues of
£70.9m (2017: £57.1m) and gross
profit of £32.8m (2017: £25.7m),
up 24% and 28% respectively. I was
pleased to see continued success
across the board with some notable
wins and key accreditation awards.
David Macfarlane
Managing Director – UK Direct
While I am pleased with record-breaking
contracts signings of £99.0m in 2018
(2017: £81.7m), I am particularly
delighted that £17.2m (2017: £13.6m)
were customers either extending or
expanding their existing agreement
with us, demonstrating a high level of
customer satisfaction. Customer service
is key to Gamma, especially in our direct
business. During 2018 we successfully
achieved a monthly Net Promoter Score
of over 40, a testament to our customer
focus which contributed to the reason
that all segments of direct secured
key contract re-signs with customers
including Taylor Wimpey, which
extended its Cloud Voice and Mobile
contract for a further 36 months.
To support our growth and further
empower customers, investment in
Digital Transformation will continue into
2019 and beyond with the launch of the
GammaHub in early 2019. This platform
will provide a simplified end to end
system, reduce touch points, and create
a leading digital customer experience
for our customers.
Enterprise
The most notable win for the direct
business in 2018 has been a £31m
managed service contract with leading
supermarket ALDI, awarded in the
summer. During the second half of 2018,
our project and provisioning teams have
been working hard to start the delivery
40
of one of the market’s largest ethernet
WANs, covering an initial 900 plus stores
across the UK and Ireland to provide
a quality network to underpin the
retailer’s digital strategy. Gamma
was successful in a highly competitive
process, beating all market competitors
to this marquee customer and I am
looking forward to seeing how
our continued partnership can support
ALDI’s ambitious growth plans.
The year started strong with the team
winning a contract for more than £2.2m
to deliver a fully managed WAN for Engie
Supply. Other significant wins in 2018
included a £1.9m Global SIP contract
with London Stock Exchange Group
and a three-year contract with Bourne
Leisure to provide Horizon Cloud PABX,
SIP and SIP Trunk Call Manager.
John Lewis Partnership also awarded
Gamma a contract to consolidate their
legacy public telephony into a highly
available SIP solution.
In addition we were delighted to re-sign
several managed services contracts for
further business, including building and
construction firm Taylor Wimpey for its
fixed voice and mobile services.
This year has also seen investment in
our support and delivery teams with the
introduction of service advocates to
help manage the complex requirements
of our Enterprise customer accounts.
Public Sector
2018 has seen some very positive
growth in the Public Sector unit,
including contracting 1200 SIP Trunks
to the Scottish Government, a strategic
central government deal and a focus
for us in 2018.
Amongst other notable deals,
we won a long term contract to deliver
a WAN across UK Met office locations
and sites, following an extensive and
very competitive bidding process.
A lot of rigorous work has gone into
our successful application process
to achieve Stage 1 and 2 compliance
for Health & Social Care Network
Accreditation (HSCN), which now allows
us to provide our service into the
NHS and Healthcare market sector.
University Clearing was again a
massive success with over 21,000
peak time concurrent calls carried
across the Gamma network and
51 Universities registered for
support, with a 31% increase in
chargeable services.
Mid Market
In our Mid Market teams, focus this year
has been on improving processes in
both internal and field sales to enable
sustainable growth and improved
conversion across the board. This effort
has already borne fruit with a very
successful year for both upsell and new
business. The move from traditional to
next generation voice services is still
driving continued growth in this sector,
with the majority of new wins being for
our market-leading SIP Trunks and
Cloud PBX, Horizon.
We have seen notable success in the
finance sector this year with a standout
win for £1.5m with debt management
company, the PRA Group, to deliver
3,000 channels of PCI compliant SIP
Trunks. In addition, we’re supplying
300 channels of resilient SIP Trunking
to specialist savings and lending
provider Shawbrook Bank, together with
connectivity and Inbound services for its
key customer-facing contact numbers.
In addition we made a number of
key contract re-signs, including high
street retailer Hidden Hearing, global
omnichannel customer experience
provider Teleperformance and a
managed UK WAN for clothing
retailer Levi’s.
The Loop
Our Manchester fibre network,
The Loop, has further extended its reach
with the addition of Point to Point
connectivity from Manchester to new
datacentres in London and Slough.
This allowed us to a win a high capacity
connection for the international
TV production company ‘The Farm’ –
best known for TV series ‘X Factor’ and
‘Britain’s Got Talent’. This high capacity
connection will link its new Manchester
production facility to their London HQ
and will facilitate editing of these
flagship shows. We also obtained orders
from ‘Booking.com’ who are now using
The Loop Network and have expanded
the network reach to the Greater
Manchester area of Tameside using a
creative method of laying fibre through
the TfGM tram duct network.
Gamma Communications plc Annual Report and Accounts 2018 Overseas
DX Groep
Gamma acquired the DX Groep in
October 2018, a growing telecoms
group based in the Netherlands.
The group consists of Dean One
and Schiphol Connect. Revenue
was £3.4m and gross profit was
£1.9m since acquisition.
Willen van Ingen
Managing Director – Dean One
Dean One
Dean One provides, via business
partners, a wide range of telecom and
internet products specifically for the
SME market. The core products that
Dean One takes to market are
Cloud PBX services including fixed/
mobile integration, SIP Trunking,
mobile services, data connectivity
and traditional landlines.
Dean One focuses on differentiating
from other operators by having a more
personal service and easy-to-use
intuitive portals. It is the philosophy of
Dean One to offer all telephony and
internet products in an exceptional,
clear and easy to understand manner.
The products are easy to implement and
easy in use, both for the end customer
organisation and the channel partner.
This service focused ethos enables Dean
One to get long term commitment from
both partners and end customers.
Dean One has a number of partner
programmes, offering a support model
that is lined up to the needs of the
partner. We support 364 business
partners where Dean One owns the
end customer contract (78% of total
revenue), and 158 wholesale partners
who invoice their customers directly,
and the partner owns the contract
(22% of total revenue). Besides
traditional telecom partners there
is a strong and growing number of ICT
service providers and integrators active
in this wholesale segment. In the retail
segment Dean One works with two
different types of partner models:
Commercial Partners, who mainly focus
on selling products and services and
Service Partners, who also do the
implementation and first line support
of the customer.
Dean One launched the GO! Portal for
Wholesale partners in 2017. The portal
has been established to address the
growing demand of ICT partners to sell
Cloud PBX services. The portal is unique
in the market because of its simplicity
and ease of use. Partners are able to
make all necessary changes themselves
during the complete customer lifecycle,
without requiring to engage with
Dean One. The plan is to add more
products and services to the Go Portal
and to offer the platform to all
channel partners.
At the end of 2019, KPN, the Netherlands
Telecoms incumbent, has planned
to cease the delivery of traditional
ISDN telephony lines. Currently,
approximately 60% of the SME market
still makes use of this type of telephony.
This offers Dean One, which also still has
a lot of customers with traditional ISDN
products, the opportunity to offer these
customers Cloud PBX and SIP Trunking
products. This transition has started in
2018 and will be accelerated in 2019,
where Dean One will be migrating new
current customers through special
propositions and tailor-made campaigns.
Besides the migration of ISDN telephony
to VoIP products, Dean One will further
develop its Cloud PBX offering with
unified communications services.
New services will be added so that the
product can keep up with competition
in the market and service the growing
need of SMEs to have more than
voice services.
In addition to the product development
programme, Dean One is focused
on both processes and systems to
optimise the efficiency of the business.
In 2019 Dean One will continue to phase
out old propositions and systems and
will finalise the migration to one
billing platform.
Regarding mobile telephony, Dean One
has signed a new agreement with
T-Mobile. Dean One can make use of
the network, products and services of
T-Mobile. This network has been tested
as the best network over the past
three years in the Netherlands.
The agreement with T-Mobile is unique
in the Netherlands and guarantees that
Dean One can make the difference with
a strong competitive mobile only offer.
This offering will provide a strong base
to cross sell additional services.
Schiphol Connect
In 2018 Schiphol Connect has focused
on migration of customers to its own
network. In 2017, 398 customers were
acquired from Schiphol Telematics, a
100% daughter company of Royal
Schiphol Group. By the end of 2018,
380 customers were operational
on the Schiphol Connect network.
Customers were migrated from
traditional (TDM) telephony systems
to a Cloud PBX and from mainly DSL
technology to high bandwidth internet.
Customers were offered to migrate to
these new technologies.
The vast majority of customers have
agreed to migrate as they were also
given new IP phones with new features
and higher bandwidths, thus enabling
them to operate more efficiently.
In 2019 Schiphol Connect will focus
on cross- and upselling with existing
customers and acquiring new
customers on the airport.
41
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Financial review
Positive financial
performance
As the Chairman and CEO have outlined,
2018 was characterised by one of Gamma’s
strongest trading performances.
Andrew Belshaw
Chief Financial Officer
Changes in presentation
and accounting policy
These are the first full year results which
are presented by Gamma following the
adoption of IFRS 9 and 15. The adoption
of IFRS 15 means that all comparative
figures in this report, except cash and
dividends, have been restated. IFRS 9 has
not resulted in a restatement but merely
additional disclosure. IFRS 15 has not only
affected revenue but has also required
certain operating costs to be re-stated as
items which were previously classified as
assets (customer premises equipment)
are now treated as a cost of sale.
In addition, Gamma has chosen to adopt
IFRS 16 early and it has also chosen to
use the modified retrospective approach
to adoption which means there are no
restatements to the prior year figures.
The impact of the change on EBITDA and
cash generated by operations is shown
on the next page. Gamma is also
presenting its results differently in that
share based payments are no longer
considered to be an adjusting item. That
is, in our prior year results ‘adjusted
EBITDA’ and ‘adjusted EPS’ were adjusted
for share based payments whereas this
is no longer the case, and comparative
adjusted measures no longer include
share based payments.
We have completed our first acquisition
since our flotation in 2014 and for this
year and in the future we will show PBT,
PAT and EPS figures adjusted for the
amortisation of the intangible assets
which were recognised on acquisition
Highlights
£284.9m +18%
Revenue grew from £242.0m
in 2017 to £284.9m
£132.2m +22%
Gross profit grew from £108.7m
in 2017 to £132.2m
£48.3m +34%
EBITDA grew from £36.0m
in 2017 to £48.3m
£40.6m +36%
Cash generated by operations grew
from £29.9m in 2017 to £40.6m
30.0p +25%
30.3p +31%
EPS (fully diluted) increased by 25%
from 24.0p in 2017 to 30.0p
Adjusted EPS (fully diluted) grew
by 31% from 23.1p to 30.3p
42
Gamma Communications plc Annual Report and Accounts 2018 of the subsidiary. This adjustment is
made to improve the comparability
between acquired and organically
grown operations, as the latter
cannot recognise internally generated
intangible assets. Adjusting for
amortisation provides a more consistent
basis for comparison between the two.
Reconciliations are given below in this
financial review section and in note 1
to the Annual Report and Accounts.
Revenue and gross profit
Indirect business
Revenue from the indirect business
grew from £184.9m to £210.6m (+14%)
and gross profit grew from £83.0m to
£97.5m – an increase of £14.5m.
The traditional business (which includes
calls and lines and trade with other
carriers) declined significantly in 2017 but
that decline slowed in 2018 and revenue
fell from £50.5m in 2017 to £47.9m. The
gross profit from this part of the business
decreased slightly by £0.6m to £11.9m
(2017: £12.5m). Whilst the calls and lines
business (CPS and WLR) continues to
decline as businesses move from legacy
technology to new IP based products,
our Carrier business is growing slightly
after several years of decline. This is
driven by a number of ‘non-traditional’
carriers entering the UK market who are
leveraging Gamma’s expertise in IP
telephony and number porting to
support their own business offerings.
We group our data, mobile, SIP and Cloud
PBX products as our ‘growth’ products.
Revenue from growth product sales
increased from £134.4m to £162.7m
(+21%) and gross profit grew from £70.5m
to £85.6m (+21%). The gross margin grew
from 52% to 53%, which reflects the fact
that the main contributor to this growth
was SIP Trunking, which has a higher
margin than other products. SIP Trunking
and our Cloud PBX product (Horizon)
grew in line with previous years and our
data products have shown increased
levels of growth. Our mobile product
had subscriber numbers increasing
throughout 2018 and hence the product
contributed favourably to gross profit
when comparing 2018 to 2017.
Direct business
The direct business continues to grow
strongly. Revenue increased from
£57.1m in 2017 to £70.9m (+24%) and
gross profit from £25.7m to £32.8m
(+28%). The gross margin grew from
45% in 2017 to 46% in 2018.
Historically, we have shown our direct
business revenues split between
Traditional and Growth (which is how we
disclose the split for the indirect
business revenues). However we note
that (a) our Traditional revenues are
essentially static in the direct channel
and therefore all growth has come from
the Growth products; (b) we may on
occasion win a contract where a
customer is taking Traditional products
but intends to migrate to Growth
products; and (c) we increasingly
describe the business by segment so, for
example, we may reference Enterprise,
Mid-Market and Public Sector. We will
therefore show the revenues for the
direct business split by segment rather
than product as we believe this will
enable a user of the accounts to better
understand the revenue drivers of the
business unit. For this year we have
shown the split both ways but, in future,
we will discontinue the product split.
To illustrate this point, under the former
disclosure, the growth in the direct
business was driven by our Growth
product set where revenues increased
from £46.3m to £59.9m and gross
profit increased from £22.0m to
£29.3m whereas the revenue growth
in Traditional was only £0.2m
(from £10.8m to £11.0m).
Reviewing the new disclosure split, it can
be seen that of the revenue increase of
£13.8m, £6.4m (46%) comes from
Enterprise customers and £3.6m (26%)
comes from the Public Sector. These two
market segments grew by 30% and 28%
respectively and are the growth drivers
for the direct business.
There is some uncertainty over the
growth rate in the Public Sector
throughout 2019 due to budget
uncertainty caused by the length of time
which has been taken to conclude a
‘Brexit deal’.
International
During the year the Group purchased DX
Groep in the Netherlands. In the three
months that the business has been a
part of the Group it has contributed
£3.4m of revenue and £1.9m of gross
profit (a margin of 56%).
Operating expenses
Operating expenses grew from £82.4m
(2017) to £97.8m. We break these down
in Table 1 below.
We also separately present expenses
included within cash generated from
operations which have a more
immediate effect on the cash flows of
the business. Items such as depreciation
and share based payments are ‘non-
cash’ in the year in which they are
incurred. We believe that it is helpful to a
user of the accounts to understand how
the expenses interact with the cash
demands of the business.
We also present the effect of share
based payments. Historically we showed
EBITDA and EPS adjusted for share
based payments because the historical
charges were inflated by significant
levels of awards made at the point of
IPO but these reduced significantly
period on period and hence the
decreasing charges were not reflective
of the business performance but were
merely reflective of the fact that lower
levels of options have been awarded
post float. Given that share based
payments have now stabilised these are
no longer excluded. However we show
the impact of expenses so that a user
can compare previous published data
with the current period data.
Table 1 – Operating expenses
Expenses included within cash generated from operations –
not related to leases
Expenses included within cash generated from operations –
related to leases*
Depreciation and amortisation – tangible and intangible assets
Depreciation and amortisation – right of use assets*
Amortisation – intangible assets created on acquisition of subsidiary
Gains on disposal of fixed assets
Share based payments
Operating expenses
2018
£m
82.0
–
12.1
1.4
0.4
–
1.9
97.8
* We have separated the elements relating to leases and right of use assets to illustrate the effect of the
adoption of IFRS 16.
2017
£m
69.5
1.2
10.4
–
–
(0.7)
2.0
82.4
43
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Financial review continued
Movements in cash based expenses
were driven by:
• ongoing growth in the number of
customers buying new products for
the first time continues to be a driver
of overhead, especially in the area of
provisioning product to our new
Enterprise customers;
• increased investment in product
research that doesn’t meet
capitalisation criteria;
• continued investment in our
sales teams;
• investment in our ‘digital strategy’
programme which will allow customers
to provision and change services online
and thereby will ultimately reduce
overhead; and
• central costs for consulting relating
to our strategy programme and
the due diligence costs of our
European expansion.
The above increases were offset to some
degree by our ongoing programme to
reduce the running costs of our network
through selective additional investment.
We have eliminated £3m of costs per
annum between 2016 and 2018 and this
has been a contributor to the strong
business performance in 2017 and 2018.
This programme is now concluded and
those cost savings have been included
within these results. We continue
to look for areas where efficiencies
can be made.
Depreciation and amortisation have
increased from £10.4m in 2017 to
£13.9m in the current year. This is driven
by increased capex over the past few
years and the annual depreciation
charge is now in line with the annual
capex spend.
Share based payments are now at a
consistent level year on year; they had
been higher in previous years due to
share awards made at the time of float
in 2014.
Alternative performance measures
Our policy for alternative performance
measures is set out in note 1.
Table 2 reconciles the alternative
performance measures used
in this document.
Table 3 – Adjusted EBITDA and EBITDA
Adjusted EBITDA
Table 2 – Alternative performance measures
Statutory
basis
Amortisation
of intangibles
Tax
items
Adjusted
basis
2018
measure
EBITDA (£m)
PBT (£m)
PAT (£m)
EPS (FD) (p)
2017
measure
EBITDA
PBT (£m)
PAT (£m)
EPS (FD) (p)
Consistent with 2017 presentation
and accounting policy
Changes due to presentation
• Share based payments
Changes due to accounting policy
• IFRS 15
• IFRS 16
Consistent with 2018 presentation
and accounting policy
Table 4 – Cash flows
Consistent with 2017 presentation
and accounting policy
Changes due to accounting policy
48.3
34.5
28.4
30.0
–
0.4
0.4
0.4
Statutory
basis
Amortisation
of intangibles
36.0
26.5
22.7
24.0
–
–
–
–
–
–
(0.1)
(0.1)
Tax
items
–
–
(0.9)
(0.9)
48.3
34.9
28.7
30.3
Adjusted
basis
36.0
26.5
21.8
23.1
Growth
31%
2018
£m
54.6
(1.9)
(5.8)
1.4
2017
£m
41.6
(2.0)
(3.6)
–
48.3
36.0
34%
Cash generated by operations
2018
£m
48.0
2017
£m
38.8
Growth
24%
• IFRS 15 – customer premises equipment (CPE)
(10.2)
(11.5)
spend
• IFRS 15
• IFRS 16
1.2
1.6
2.6
–
Consistent with 2018 presentation
and accounting policy
40.6
29.9
36%
Consistent with 2017 presentation
and accounting policy
Cash generated by operations/
adjusted EBITDA
2018
£m
2017
£m
48.0/54.6
= 88%
38.8/41.6
= 93%
Consistent with 2018 presentation
and accounting policy
40.6/48.3
= 84%
29.9/36.0
= 83%
In order to allow users of the accounts to
see how these changes have affected
the key metrics, we present a
reconciliation (Table 3).
Adjusted EBITDA and EBITDA
The combination of increasing sales of
new products and operational
improvements means that EBITDA grew
from £36.0m in 2017 to £48.3m or 34%.
The changes to accounting policy and
presentation have slightly flattered the
percentage growth of EBITDA but this is
driven mainly by the effect of IFRS 16
which has adjusted the current period
44
(favourably) and not the comparator as
this is not restated; if the effect of
IFRS 16 were to be removed the
percentage growth is slightly lower
under the new basis.
Cash flows
The cash balance at the end of the year
was £35.5m, up from £31.6m at the end
of the previous year. The cash generated
Gamma Communications plc Annual Report and Accounts 2018 by operations in the year was £40.6m
(2017: £29.9m) and the main uses
of this were:
• capital expenditure of £12.7m
(2017: £15.8m)
• acquisition of DX Groep of £11.5m
(2017: nil)
• dividend paid of £8.1m (2017: £7.3m)
• taxation paid of £4.3m (2017: £3.6m)
We had previously published a ratio of
the adjusted EBITDA compared to
cash generated by operations and
commented that we would expect this
ratio to average 90% giving a guide to
the level of cash conversion from the
underlying trading before our capex
programme.
The accounting standard changes
mentioned above have also affected
the presentation of items within the
statement of cash flows between
cash generated by operations and
investing activities.
The cash generated by operations figure
is reconciled (Table 4).
As a result of the changes to adjusted
EBITDA and the cash generated by
operations we also set out below a
comparison of the ratio under the old
and new basis (Table 4).
Using either the old basis or the new
basis the cash conversion from
operations is broadly the same in
both years. Whereas we used to
comment that cash conversion would
be around 90%, we now believe it will
be between 80-85%.
The overall cash conversion looks less
favourable under the new accounting
policy because provision of CPE to
customers is now treated as a sale
with deferred payment terms and
therefore cash flows which had
appeared as capex are now, in effect,
working capital movements.
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.
Table 5 – Adjusted EPS (FD)
Adjusted EPS (FD)
Consistent with 2017 presentation and
accounting policy
Changes due to presentation
• Share based payments
Changes due to accounting policy
• IFRS 15
• IFRS 16
Growth
+38%
2018
p
34.0
(1.5)
(2.5)
0.3
2017
p
24.6
(1.5)
–
–
Consistent with 2018 presentation
and accounting policy
30.3
23.1
+31%
Taxation
The effective tax rate for 2018 was
17.6% (2017: 14.3%). Note that the rate
in the previous period was depressed
significantly by a non-recurring tax
credit of £0.9m which related to a tax
overpayment from 2014 and earlier
years. The effective rate for 2018 is also
lower than expected due to one-off
effects associated with IFRS 15
implementation.
Capital expenditure
The Group spent £12.7m (2017: £15.8m)
on capital which was split as follows:
• Regular spend on maintaining and
increasing capacity on the core
network was £11.6m (2017: £11.4m)
– £9.1m was the cost of increasing
capacity and development of the
core network as well as other minor
items such as IT and fixtures and
fittings (2017: £7.7m).
– £1.3m was the capitalisation of
development costs incurred during
the period (2017: £1.1m).
– £1.2m was spent with third party
software vendors for the software
which underpins our Cloud PBX
product (2017: £2.6m).
• Project spend was as follows:
– £1.1m was spent on the new national
network. (2017: £4.4m).
Note that following adoption of IFRS 15,
customer premises equipment (CPE) is
no longer capitalised.
Creation of right of use asset
Upon the adoption of IFRS 16, an
additional fixed asset of £6.2m was
created. A corresponding liability was
also created. This is a ‘non-cash item’.
Adjusted EPS (FD) and Statutory
EPS (FD)
Adjusted EPS (FD) increased from
23.1p to 30.3p (31%). As for EBITDA,
the revision to accounting policies and
changes in presentation impact the
results. We have therefore provided a
reconciliation to previous presentation
and policies to aid users of these
accounts (Table 5).
Under both the new and old regimes,
the growth in adjusted EPS (FD) has
been significant due to the very strong
trading described earlier however the
implementation of IFRS 15 has had a
negative effect on 2018 compared to
2017. This is because less CPE was
shipped in 2018 than 2017 and this is
now treated as a sale (at a profit) under
IFRS 15 so, in effect, the gross profit on
‘imputed sales’ of CPE was lower.
Statutory EPS (FD) grew from 24.0p to
30.0p (25%). The growth is lower than
the adjusted metric because, in the
previous period, the figure was flattered
by a tax rebate from previous years
which was adjusted out as it was
non-recurring and non-trading.
Dividends
The Board has proposed a final dividend
of 6.2p (2017: 5.6p) representing a full
year dividend of 9.3p. This is an increase
of 11% against our dividend for 2017 of
8.4p and is in line with our progressive
dividend policy.
Subject to shareholder approval, the
final dividend is payable on Thursday
20 June 2019 to shareholders on the
register as at Friday 31 May 2019.
Andrew Belshaw
Chief Financial Officer
45
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Corporate social responsibility
Celebrating
the power
of people
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 and CEO briefings
(by location). Our staff churn across the
business is low compared 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 ensure 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. We also offer
employees the opportunity to improve
their own health and wellbeing through
discounted gym memberships and we
also provide free fruit.
46
Staff learning and development remains
a key priority for Gamma. It helps us to
maximise the potential of our people,
retain skills and grow the business.
As a technically based business in a
fast-changing market we need to keep
our people’s skills up to date and give
them the opportunity to grow and
develop as best they can. 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.
Gamma Communications plc Annual Report and Accounts 2018 Gamma team events
As well as Christmas events at each
office, in 2018 we saw the return of
Gammafest, a Company-wide festival.
Gammafest rewards employees for their
fantastic achievements and contribution
to Gamma, and allows them to celebrate
their success. Gammafest is free to all
employees. This allows for all employees
to come together at one venue to meet
colleagues from across the business,
which is especially important as we have
increased head count by over 10% in the
last year. Gammafest offers employees
from all our offices the opportunity to
meet face-to-face, and gives
homeworkers the chance to engage with
their colleagues in a social setting to
forge stronger working relationships.
Employees can participate in fun
team-building activities, such as human
table football and volleyball. Many
employees are skilled musicians and
semi-professional singers, so the
evening music festival provided them
with the stage to team up with other
staff and showcase their talent.
In addition to improving employee
engagement, it is satisfying for people
to receive recognition for their wider
talents and skills outside of the
workplace. All employees are welcomed
to Gammafest, regardless of their
length of service, to show that Gamma
recognises and values all employees’
contributions regardless of their time
here, which will drive their contribution
to Gamma's success going forward.
Apprenticeships
Gamma has continued to build and
develop its apprentice offering with
new programmes introduced in both
Customer Support and IT and
Infrastructure. Gamma has hired
10 new apprentices during 2018 as well
as dedicated specialists to support the
learning and development of the newest
apprentices. Gamma has been proud
to support a number of the existing
apprentices who have chosen to
continue their studies via the
apprenticeship model up to and
including degree level.
Flexible benefits
Gamma offers all UK-based staff access
to a Salary Sacrifice 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.
Share schemes
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. In 2018 Gamma offered
a Save As You Earn (‘SAYE’) scheme
which allows all eligible employees to
acquire shares.
Gammafest
Gammafest is a Company-wide
festival. Gammafest rewards
employees for their fantastic
achievements and contribution
to Gamma, and allows them
to celebrate their success.
47
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Corporate social responsibility continued
Gender Pay Gap
Gamma welcomes the new legislation
set out in the Equality Act 2010 (Gender
Pay Gap Information) Regulations 2017
which requires organisations with over
250 employees to report their gender
pay gap against six key measures. We
are published our first Gender Pay Gap
report for UK employees and
accompanying narrative in April 2018.
Gamma has long been committed
to building a diverse and inclusive
workforce as well as nurturing our
reputation of being a great employer
to work for. We believe in creating
opportunities for all to grow and to
flourish at work.
Gamma operates in a sector in which
it is well documented that there is a
shortage of technically skilled females
who choose to pursue a career in
telecommunications and technology.
We have been keen to address this by
ensuring that we recruit in an equal and
fair way while maintaining standards of
best practice. Working with a number of
universities and other partners, we have
been successful in attracting qualified
women into teams where knowledge of
science, technology, engineering or
maths (STEM) is essential.
Where we have recruited staff into
our Billing, Software Development,
Programme Development and Technical
Support departments, we have a gender
pay gap in single digits. This gives us
comfort that our general recruitment
policies are working. However, because
of the historic difficulty in recruiting
females into technical roles, including
leadership and management, we do
have imbalances in other areas
of the business.
Our figures
On the statutory snapshot date of
5 April 2017, out of the total number
of employees...
71.14%
were males
28.86%
were females
Statutory
Gender pay gap
Gender bonus pay gap
Mean*
34.60%
86.56%
Median*
25.62%
33.85%
* The mean is the average of a list of numbers.
The median is the middle value in all of the numbers listed in numerical order.
Bonus proportions
Proportion of males and females
receiving a bonus
Males
91.74%
Females
89.38%
Gamma’s Pay Quartiles
Upper pay quartile
Upper middle pay quartile
Lower middle pay quartile
1
Lower pay quartile
48
% of males
in each pay quartile
% of females
in each pay quartile
85.49%
77.84%
64.77%
58.55%
14.51%
22.16%
35.23%
41.45%
We are, however, working hard to
encourage, support, develop and retain
women throughout their careers at
Gamma and to prepare them for senior
roles within the organisation. In 2018 we
improved our maternity policy to further
support women.
On International Women's Day 2018,
we launched a Women in Technology
Steering Group which focuses on issues
which may hold women back in their
careers, to innovate career progression,
formalising an outreach programme to
encourage young females to study
STEM subjects. These outreach events
have included employees visiting
primary and secondary schools to
promote STEM subjects, such as coding,
to young women.
Gamma Communications plc Annual Report and Accounts 2018 Environment and CarbonNeutral®
Gamma is one of the few UK
communications providers to be fully
CarbonNeutral® certified with a net
zero carbon footprint, and we are proud
to support the Woodland Trust, an
organisation dedicated to the protection
and promotion of natural woodlands
across the UK. 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.
We’ve invested in various projects
since becoming CarbonNeutral® –
most recently:
• Acre Amazonian Rainforest
Conservation Project (Brazil) which
protects 105,000 hectares of
rainforest from deforestation by
providing alternative economic
development opportunities.
• Meru and Nanyuki Community
Reforestation Programme (Kenya)
offers hundreds of individual tree
planting activities which improve
access to food and create additional
sources of income.
• Sub-Saharan Africa Improved Water
Infrastructure Project which creates
and repairs wells for clean drinking
water in rural communities, meaning
they no longer have to use firewood to
boil and purify water, alleviating
pressure on the local forests and
reducing CO2 emissions.
Policy on staff support
for good causes
Gamma operates a policy of ‘matched
funding’ for all qualifying staff charity
activities, which led to over £5,000 of
donations for employee chosen
charities in 2018.
Our annual fundraising event, Gamma
Ball Rally, raised £100,000 in 2018
(£500,000 over five years) for our chosen
charities, Action Through Enterprise (ATE)
and SpecialEffect. ATE supports
communities in Ghana, including 82
businesses, providing 1,032 school meals
and supporting 150 disabled children.
ATE have said that Gamma has “been
instrumental in establishing ATE as the
charity it is today. From humble
beginnings, Gamma has supported
ATE to grow and access increasingly
impoverished and marginalised
communities in Ghana: from 460
students in 2013, ATE now supports
1,032 students across six schools; from
18 small business owners equipped with
training and grants, ATE has now
supported 82 businesses to grow and
thrive; and from 60 disabled children and
their families ATE has more than doubled
its support to reach over 150 disabled
children and their families across three
different locations in Upper West Ghana.”
SpecialEffect puts fun and inclusion back
into the lives of those with disabilities by
providing special equipment so they can
play videogames. In 2018 we also held
football tournaments and bike rides
for these charities, and these events
collectively raised over £8,000 for these
fantastic causes.
Gamma also regularly holds charity
events across our sites, and in 2018
we held our annual Macmillan coffee
morning which raised over £1,100.
We also raised money across our offices
for other causes such as Sport Relief.
2018 also saw the introduction of
reverse festive calendars across all our
Gamma offices, where employees were
encouraged to bring in items which
could then be donated to a foodbank
local to each office. The generosity
and support which Gamma employees
showed towards these foodbanks
was overwhelming.
Volunteering policy
Gamma actively encourages and
supports employees who wish to
volunteer within the community or for
charities. Supporting volunteers helps
the Group 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. Our employees have
also used their volunteering days to
work with organisations such as
mountain rescue teams, food banks
and basketball clubs for children from
disadvantaged backgrounds.
The strategic report was approved
by the Board of Directors on
11 March 2019.
Andrew Belshaw
Chief Financial Officer
49
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Corporate governance
Chairman’s introduction
to corporate governance
“The Company’s commitment to strong
corporate governance and risk management
will remain central to the business during
2019 and beyond.”
Richard Last
Chairman and Independent
Non-Executive Director
The Directors support high standards of
corporate governance. On 23 May 2018,
the Board of Gamma formally decided to
apply The QCA Corporate Governance
Code (2018 edition) (the ‘QCA Code’).
Gamma has adopted this code as it feels
it takes key elements of good governance
and applies them in a manner which is
workable for the different needs of
growing companies. The Group’s
Corporate Governance Compliance
Code document which was approved
on 25 September 2018 is available on
the website www.Gamma.co.uk
The Board is responsible for establishing
and maintaining the system of internal
controls which has been in place
throughout 2018. 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 seven Directors,
two of whom are Executive Directors
and five of whom are Non-Executive
Directors, reflecting a blend of different
experience and backgrounds.
Of the Non-Executive Directors,
the Group regards Richard Last,
Alan Gibbins and Martin Lea as
Independent Non-Executive Directors
within the meaning of the Corporate
Governance Code (2018 edition).
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 Group has established Audit,
Nomination, Remuneration and Risk
Committees of the Board with formally
delegated duties and responsibilities.
The Group’s commitment to strong
corporate governance and risk
management will remain central to
the business during 2019 and beyond.
Richard Last
Chairman and Independent
Non-Executive Director
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.
50
Gamma Communications plc Annual Report and Accounts 2018 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
Chairman
Executive
Directors
Non-Executive
Directors
Richard Last
Chairman and Independent Non-Executive Director
Andrew Taylor
Chief Executive Officer
Andrew Belshaw
Chief Financial Officer
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
Board Committees
Audit Committee
The Audit Committee’s
role is to provide effective
governance over Gamma’s
financial reporting,
including the adequacy of
disclosures made in the
financial statements; to
review 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.
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.
Risk Committee
The Risk Committee
assists the Board in its
duty to carry out a robust
assessment of the principal
non-financial risks facing
the Company (financial
risk is considered by the
Audit Committee).
Remuneration Committee
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.
2018 Membership
2018 Membership
2018 Membership
2018 Membership
Alan Gibbins (Chair)
Richard Last (Chair)
Martin Lea (Chair)
Martin Lea (Chair)
Richard Last
Martin Lea
Martin Lea
Alan Gibbins
Wu Long Peng
Andrew Stone
Richard Last
Alan Gibbins
Richard Last
Alan Gibbins
Andrew Taylor
Audit Committee Report
page 58
Nomination Committee
Report page 57
Remuneration Committee
Report page 60
Risk Committee Report
page 57
Board roles
The Board is composed
of a number of key roles,
each responsible for
a particular area of
governance and to bring
balance to decision making.
Chairman
The Chairman is
responsible for the
leadership of the Board.
Executive Directors
They have responsibility
for running the
Company’s business.
Non-Executive Directors
They bring an independent
perspective to decision-
making; they hold senior
management to account;
they also support and
mentor the CEO and
senior management.
51
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance
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 Chairman and
Non-Executive Director of ITE
Group plc, a leading international
exhibition and conference
organisation listed on the London
Stock Exchange, of AIM-listed Tribal
Group plc, an education software,
systems and services group, and
Arcontech Group plc, a financial
services software company. He is
also a Non-Executive Director of
Corero Network Security plc, an
AIM-quoted IT security solutions
provider. Richard is also Chairman
and Non-Executive Director of
British smaller companies VCT 2 plc
and Lighthouse Group plc; he is
standing down from both Boards
at their respective forthcoming
AGMs in May this year.
Richard is a Fellow of the Institute
of Chartered Accountants in
England and Wales.
Andrew Taylor
Chief Executive Officer
Andrew Belshaw
Chief Financial Officer
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.
Andrew has over 22 years’ experience
in the telecommunications industry,
and has a demonstrable track record
of achievement in previous roles,
both in the UK and internationally.
Until recently, Andrew was Chief
Executive Officer of Nomad Digital,
a provider of IP connectivity and
digital solutions to the global
transportation sector. In this role
(2013-2017), Andrew was responsible
for establishing Nomad as a leader
in the sector, and when acquired by
Alstom in 2017, was serving over
50 global customers from 20 offices.
Before joining Nomad, Andrew
was Digicel’s Regional Chief
Executive Officer (2012-2013), with
responsibility for all fixed and mobile
operations across the Northern
Caribbean. In this role, Andrew had
responsibility for all fixed network
services and business/ ICT solutions
across 26 international markets,
and was responsible for driving
significant growth in both revenues
and profitability.
From 2008 to 2010, Andrew was
Chief Executive of Intec Telecom PLC,
a provider of software solutions.
After a period of significant growth
and business improvement, Intec
was acquired by CSG in 2010.
Alan Gibbins
Independent
Non-Executive Director
Alan has extensive experience
of public company reporting and
financial services spanning 30 years
with Price Waterhouse and
PricewaterhouseCoopers LLP,
having been a Partner from 1985
until 2006.
His responsibilities included one
of the main London audit groups
and he was an Audit and Business
Assurance Partner. Alan is presently
Chairman of Jefferies International
Ltd and stood down from the
board of BlueBay Asset
Management at the end of 2018.
He is a Non-Executive Director
and Trustee for a number of private
not for profit 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 Fellow of the Institute of
Chartered Accountants in
England and Wales.
Year joined
2014
Year joined
2018
Year joined
2007
Year joined
2014
Committee membership
• Chairman of the Nomination
Committee membership
• Member of the Risk Committee
Committee membership
–
Committee
• Member of the Audit Committee
• Member of the Remuneration
Committee
• Member of the Risk Committee
52
Committee membership
• Chairman of the Audit Committee
• Member of the Nomination
Committee
• Member of the Remuneration
Committee
• Member of the Risk Committee
Corporate governance continuedGamma Communications plc Annual Report and Accounts 2018 Andrew Stone
Non-Independent
Non-Executive Director
Andrew is Managing Partner of
St Albans Capital LLP, a family
investment management vehicle.
Andrew is also a Founder and
Director of Greenstone+, a market
leader in non-financial reporting
software. Andrew recently joined
the Board of Frugalpac, a recycling
packaging business.
Andrew also sits on the Boards of
Epsilon Global Communications
Pte Ltd and Calcot Hotels Limited.
From 1993-2006 Andrew held
various positions at ED&F Man
including Managing Director of
ED&F Man Asia.
Wu Long Peng
Non-Independent
Non-Executive Director
Long Peng has more than 30 years’
experience in finance and corporate
affairs. He is a Non-Executive
Director of Malaysian Bulk Carriers
Berhad (a company listed on Bursa
Malaysia), Pacc Offshore Services
Holdings Limited (a company listed
on the Singapore Exchange),
Mapletree Commercial Trust
Management Ltd and 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.
Martin Lea
Independent
Non-Executive Director
Martin has over 20 years’
experience leading businesses
within the support services,
telecommunications and network,
integration and service sectors.
Most recently, he served as interim
CEO at Multicom Security Group
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. Martin joined Gamma
in June 2014 and is Chairman
of the Remuneration and Risk
Committees. 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.
Composition
The Board comprises seven
directors, two of whom
are Executive Directors
and five of whom are
Non-Executive Directors.
Chairman and Independent
Non-Executive Director (1)
Chief Executive Officer (1)
Chief Financial Officer (1)
Independent
Non-Executive Director (2)
Non-Independent
Non-Executive Director (2)
Year joined
2014
Year joined
2011
Year joined
2011
Committee membership
• Chairman of the Remuneration
Committee membership
• Member of the Nomination
Committee membership
• Member of the Nomination
Committee
Committee
Committee
• Chairman of the Risk Committee
• Member of the Nomination
Committee
• Member of the Audit Committee
53
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Leadership team
Andrew Taylor
Chief Executive Officer
Biography available on page 52
Board of Directors.
Andrew Belshaw
Chief Financial Officer
Biography available on page 52
Board of Directors.
Daryl Pile
Managing Director – UK Indirect
Daryl joined Gamma in 2003 and
has a proven track record in
overseeing revenue and margin
growth in the telecoms industry.
With over 17 years’ of experience,
he has taken a number of business
development roles including Head
of Channel and Sales Director at
companies such as Telia, Uniworld
and Gamma. Prior to his current
position, Daryl was Head of Sales
for the PBX / UC channel overseeing
the development of around half our
channel partners.
Daryl is a graduate of the University
of Surrey with a degree in
Economics.
Steve Lowe
Product Director, Mobile
Steve has over 23 years’ experience
in the mobile telecommunications
industry. Having held senior
operational and product
development roles at BT Cellnet
and One 2 One, Steve established
and led the Mobile Virtual Network
Operator businesses of Kingston
Communications and BT. For the
past 14 years, he has provided
hands-on consultancy services
to a variety of mobile network
operators and mobile virtual
network operators across Europe,
including Deutsche Telekom and
Vodafone. Steve joined Gamma in
July 2018 to lead the development
of its mobile business.
Phil Stubbs
Chief Technical Officer
Phil joined Gamma at the beginning
of 2018 to lead the Company’s
technical strategy and manage
the end-to-end design and
development of the Gamma
network and products. He has over
20 years experience in delivering
high value solutions within
communications companies, both
within network operators and
solution vendors. Phil spent the
early part of his career in software
development at Vodafone and has
degrees in Electronic Engineering
and Mathematics.
Andy Morris
Chief Strategy and Operating
Officer
Andy joined Gamma in 2006 with a
proven track record of establishing
and running high quality, customer
orientated, operations. Previously
Cable & Wireless he successfully
ran a business unit responsible for
12 of Cable and Wireless’s largest
corporate customers including
Marks and Spencer and Alliance and
Leicester. Prior to that he was
involved with a number of
Telecom’s start ups both in the UK
and across a number of European
countries. He spent the early part of
his career with GEC Marconi
Aerospace and is an Engineering
graduate of Nottingham Trent
University.
54
Corporate governance continuedGamma Communications plc Annual Report and Accounts 2018 David Macfarlane
Managing Director – UK Direct
David joined Gamma in 2012
following Gamma’s acquisition
of his managed services business
Varidion Limited and now heads
up Gamma Network Solutions,
our enterprise solutions division.
Prior to this, David was the CTO at
Sirocom and latterly the Group CTO
at Azzurri Communications and has
over 25 years experience in creating
and delivering managed services.
Alan Mackie
Products Director, Application
Services
Alan has over 20 years’ experience
in the telecoms and data managed
services industry, in senior product
management, marketing and
project management roles.
Immediately prior to his current
role, Alan was Head of Voice
Services at Gamma, having
undertaken product/project
management roles at application
hosting companies, Aspective and
Global Crossing earlier in his career.
Alan is a graduate of Napier
University, with a degree in
Communications Engineering.
David Doherty
Product Director, Access and
Digital Strategy
David has been with Gamma since
2016 and leads the networking
and access product portfolio.
He is also responsible for Gamma’s
overall digital strategy. David has
held a number of senior positions
responsible for product
development, large change
programmes and ICT leadership
in managed service providers
such as Racal, NTL Business
(now Virgin Media Business), Vanco
and Easynet. Previous to joining
Gamma, David was ICT Director for
Ofcom the UK communications
regulator. Outside work David
enjoys cooking, photography and
has recently taken up running.
Malcolm Goddard
Group Commercial Director
Malcolm joined Gamma in 2005
bringing over 15 years experience in
M&A, multi-national procurement,
business management and
IT outsourcing.
Malcolm’s early career was with
ICI and Astrazeneca, and he has
a degree in Engineering from
Cambridge University.
John Murphy
Group Operations Director,
Operations Management
John joined Gamma in 2011 bringing
over 15 years of experience
delivering successful customer
service projects and large financial
programmes within telecoms,
financial services and utilities
industries. Having previously
spent eight years as a change
management consultant, he
then took an operational role for
Gamma in 2013 and since that
time has worked in various senior
operational roles before being
appointed to Group Operations
Director in 2018.
Pam Williams
Human Resources Director
As a senior Human Resources
Leader with international
experience, Pam has over 20 years’
operational and strategic
experience gained in a diverse
range of sectors including
information products, technology,
creative digital media and the public
sector. She has a demonstrable
track record in building
organisational capability through
transformational change; growing
leadership and workforce capability
and contributing to business
effectiveness. Pam has worked in
start-up, entrepreneurial and
established organisations ranging
from SMEs through to a Fortune
200 organisation leading HR teams
and in stand-alone roles. Pam has
an MA in Coaching & Mentoring
Practice (Oxford Brookes) and an
MBA (OU). She is a Chartered Fellow
of the CIPD and a Fellow of the CMI.
55
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Corporate governance report
All Directors have access to the advice
and services of the Company Secretary,
who is responsible to the Board for
ensuring that Board procedures are
followed and that applicable rules
and regulations are complied with.
In addition, the Company Secretary
will ensure that the Directors receive
appropriate training as necessary.
The appointment and removal of the
Company Secretary is a matter for
the Board as a whole. All Directors are
supplied with information in a timely
manner in a form, and of a quality,
appropriate to enable them to discharge
their duties.
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 review is based on a template
covering key areas:
Below is a table of attendance.
• Board composition;
During 2018, 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.
• Board information;
• Board process, internal control and
risk management;
• Board accountability;
• CEO and top management; and
• Standards of Conduct
The areas are scored by all members
and reviewed by the Chairman and
Company Secretary and compared
against the previous evaluation.
Lower scores are discussed.
The Company has Directors’ and
officers’ liability insurance in place.
Board meeting attendance
Executive Directors
Andrew Taylor
Bob Falconer
Andrew Belshaw
Non-Executive Directors
Richard Last (Independent)
Alan Gibbins (Independent)
Martin Lea (Independent)
Wu Long Peng
Andrew Stone
Board
meeting
Audit
Committee
Remuneration
Committee
Nomination
Committee
Risk
Committee
8/8
4/4
10/10
10/10
10/10
10/10
10/10
10/10
n/a
n/a
n/a
4/4
4/4
4/4
n/a
n/a
n/a
n/a
n/a
5/6
6/6
6/6
n/a
n/a
n/a
n/a
n/a
3/3
3/3
3/3
3/3
3/3
2/2
1/1
n/a
2/3
3/3
3/3
n/a
n/a
The workings of the Board
and its Committees
At 31 December 2018, the Board was
comprised of five Non-Executive
Directors, one of whom is the Chairman,
and two Executive Directors. Of the
Non-Executive Directors, three are
considered to be independent. The
Board is responsible to the shareholders
for the proper management of the
Group. It meets regularly, as set down in
the table below, to review trading
performance, set and monitor strategy,
examine acquisition and divestment
possibilities, approve major capital
expenditure projects and other
significant financing matters and report
to shareholders. The Board delegates
authority to the management for the
day-to-day business under a set of
delegated authorities which cover:
routine operational matters, purchasing
procedures, financial authority limits,
contract approval procedures and the
hiring of full time and temporary staff
and consultants.
Matters for review by the Board are
communicated in advance of formal
meetings. All of our Directors are subject
to election by shareholders at the first
AGM after their appointment to the
Board. Thereafter, all Directors are
subject to re-election by shareholders
at each AGM. 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.
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.
56
Corporate governance continuedGamma Communications plc Annual Report and Accounts 2018 Time commitment
The Executive Directors are expected to
devote substantially the whole of their
time, attention and ability to their duties,
whereas, as one would expect, the
Non-Executives have a lesser time
commitment. The Non-Executive
Directors are required to spend sufficient
time in the business to discharge their
responsibilities. Typically this is
50-60 days per year for the Chairman,
25-30 days per year for Independent
Non-Executives with chair of committee
responsibilities and 16-20 days for
Non-Independent Non-Executives. 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
are permitted to have third party
commitments with the permission of the
Chairman. At present the CEO has one
non-executive role and the CFO has no
external commitments.
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 58.
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.
Risk Committee
The Risk Committee was formed in
December 2017 to assist the Board in its
duty to carry out a robust assessment
of the principal non-financial risks facing
the Company (financial risk is considered
by the Audit Committee). Its main
function is to review the risk register
prepared and maintained by
management and to re-confirm that
the principal risks have been identified
and (where appropriate) mitigated.
The Committee has identified six
principal risk areas – Operational,
Suppliers, Market Landscape, Legal
and Regulatory, Key Personnel
and Reputational.
The purpose of the Committee is to
manage rather than eliminate risk and
therefore it cannot provide absolute
assurance against any one risk. The role
of the Committee will be to review
reports from management to consider
whether significant risks are identified,
evaluated, managed and controlled and
whether any significant weaknesses are
promptly remedied. It will also indicate a
need for more extensive monitoring.
The Risk Committee is chaired by Martin
Lea and its other members are Richard
Last, Andrew Taylor, Alan Gibbins and
Andy Morris (Chief Strategy and
Operating Officer).
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. The
Chairman also visits major shareholders.
Signed on behalf of the Board by:
Richard Last
Chairman and Independent
Non-Executive Director
11 March 2019
57
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Audit Committee report
plan; the half year announcement
together with the external auditors’
review of those results; and the full
year Report and Accounts, again with
the external auditors’ observations
and opinions.
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.
Role and responsibilities
The Committee’s role is summarised
at the beginning of this report. The
Committee works within a framework
of approved terms of reference which
are reviewed annually.
In fulfilment of its role and
responsibilities, the Committee:
• reviews Gamma’s financial statements
and finance-related announcements,
including compliance with statutory
and listing requirements;
• considers whether these statements
and announcements provide a
balanced and understandable view of
Gamma’s strategy and performance,
and of the associated risks. Further
consideration of these matters is also
provided by the Risk Committee and
by the Board as a whole;
• 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 continues to be of the
view that Gamma is not yet of a size
and complexity to warrant the
establishment of such a function. The
Committee’s consideration of internal
audit matters and engagement of third
parties to review particular areas is
described below; and
• oversees the relationship with and
performance of the external auditors.
The board have authorised the
committee to seek any information it
requires from any employee of the
company in order to perform its duties,
obtain independent legal, accounting or
other professional advice on any matter
it believes necessary to do so and also
have the right to publish in the
company’s annual report detail of any
issues that cannot be resolved between
the committee and the board.
Activities of the Committee
during the year
In fulfilment of the responsibilities set
out previously, the Committee’s activities
have focused on financial reporting and
the related statutory audit; and on the
assessment of internal financial controls.
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 good 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 and
follows good practice;
• the appropriateness of the accounting
policies and practices used in arriving
at those results. The Group’s
preparation for the implementation
of IFRS 15 (Revenue from Contracts
with Customers), IFRS 16 (Leases) and
IFRS 9 (Financial Instruments) were
reviewed by the Committee last year
and we can report that there have
been no issues with implementation
in the current year;
• the resolution of 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, balanced and understandable
picture of the Group.
This year the Company has adopted the
QCA Governance Code issued by the
Quoted Companies Alliance in April
2018. This is a practical, outcome-
oriented approach to corporate
governance which is considered to
be a valuable reference for growing
Audit Committee role
The Audit Committee’s role is to
provide effective governance over
Gamma’s financial reporting,
including the adequacy of disclosures
made in the financial statements;
to review 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.
Membership
The members of the Audit
Committee and meetings
attended are:
Name
Alan Gibbins, Chairman
Richard Last
Martin Lea
Meetings
attended
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 pattern of meetings follows the
public reporting and audit cycle, with
meetings to consider the external audit
58
Corporate governance continuedGamma Communications plc Annual Report and Accounts 2018 companies. Its implementation has not
required any major adjustments to the
Company’s governance, including
disclosures in these accounts, and the
Committee has satisfied itself that
Gamma complies with the QCA Code.
External audit-accounting matters
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. Key risks were assessed to be:
• the accuracy of traffic and pricing data;
• the risk inherent to all companies of
management override of internal
controls; and
• purchase price accounting related to
the DX Groep acquisition.
Further details of Deloitte’s audit and
their conclusions thereon are contained
in the audit opinion on pages 74 to 77.
Consideration of the audit appointment
is given at the end of this Audit
Committee report.
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.
Revenue recognition
As last year, there were particular
discussions on the complexity of
auditing the area of revenues (to ensure
the accuracy of billings to clients). This
continues to be an important area of
audit focus where the external auditors
use specialist audit techniques. We are
pleased to note that further progress
has been made this year and are
satisfied that the audit of this key area
is as incisive as possible. The Audit
Committee continues to be satisfied
as to the robustness of the reporting
of revenues and associated costs.
Purchase price accounting for DX Groep
Following this first acquisition by
Gamma since listing on AIM, the
Audit Committee had a particular focus
on the purchase price accounting and
associated judgements and estimates
applied by management in identifying
the value of intangible assets and
goodwill. These were discussed with
management and the Committee has
received reports provided by third
parties as part of this process.
More broadly, DX Groep in the
Netherlands has been a part of the
Gamma Group since October 2018.
At present its results are not material
to the Group and the incumbent local
auditors have been left in place for the
2018 audit. A desktop review of the
results and balance sheet has been
carried out by Deloitte who have also
audited the purchase price adjustments
relating to goodwill and other
intangible assets.
Brexit
The Committee considers that the
disclosures made in relation to Brexit
in this Annual Report and Accounts
adequately describe the potential
impact to the Group.
Other areas of judgement
The Group’s preparation for the
implementation of IFRS 9 (Financial
Instruments), IFRS 15 (Revenue from
Contracts with Customers) and IFRS 16
(Leases) was reviewed by the Committee
last year and we are pleased to report
that there have been no issues with
implementation in the current year.
Since flotation, we have reported on the
Committee’s review of a number of
other areas including the capitalisation
of internal development costs; the
carrying value of fixed assets; the
calculation of the charge for share based
payments; the adequacy of provisions
for leasehold dilapidations; and
provisions for taxation. The Committee
is satisfied that all of these areas of
Gamma’s processes and procedures
are well developed and appropriate for
each of the areas concerned, and that
each is properly accounted. Although
these are no longer considered material
areas of accounting judgement, they are
important matters which are kept under
review by the Audit Committee.
Assessment of internal financial control
Management is responsible for putting
in place internal financial controls over
financial reporting to protect the
business from identified material risks.
Deloitte place reliance on controls in
their audit of the revenue balance.
Controls are not relied on other areas
of audit.
The Audit Committee is of the view
that the size of the Group is now such
that having some degree of internal
audit work carried out is a priority.
The Chairman of the Audit Committee
and the CFO maintain a dialogue with
external providers of internal audit
services as to what areas might usefully
be reviewed.
Over the last two years Gamma has
commissioned internal audit work
from KPMG on Gamma’s billing system
and from PwC on controls over
physical stock.
In 2018 Gamma engaged KPMG
to carry out a high level review of
controls in four areas: purchase to pay;
order to cash; HR/payroll; and financial
controls/tax/treasury. A number
of helpful observations have been
made and are being addressed
to further strengthen the internal
control environment.
External audit
Effectiveness
The Committee is pleased to report
that Gamma and Deloitte are working
and communicating well and that the
external audit has run smoothly
and constructively.
Fees
No fees were paid to the external
auditors for non-audit work.
Appointment
Deloitte LLP were appointed as
Gamma’s external auditors for the
year ended 31 December 2015. There
are no current retendering plans.
However, the Deloitte partner
responsible for the Gamma audit,
Andrew Bond, will rotate off the
audit having served for five years.
After the 2019 year-end audit, the
Audit Committee will take that
opportunity once again to review
the audit appointment.
For the financial year ending
31 December 2019, the Committee
has recommended to the Board
that Deloitte LLP be reappointed
and the Board will be proposing
their reappointment.
Alan Gibbins
Audit Committee Chairman
11 March 2019
59
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Remuneration Committee report
This report is for the period to 31 December 2018.
It sets out the remuneration policy and the remuneration
details for the Executive and Non-Executive Directors
of the Company.
The information provided in this part
of the Annual Report on Remuneration
is unaudited.
Dear shareholder
I am pleased to introduce the Directors’
Remuneration Report for the 2018
financial year. This year has been one
of significant change and continued
positive progress at Gamma. The
Chairman’s statement (on pages 2 to 3)
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.
New CEO and changes to the
remuneration package for the
Executive Directors and Chairman
In May, Bob Falconer, our long serving
CEO, retired and stood down from the
Board. In line with the bonus scheme
rules, and having considered the
performance of the Company at that
time, the Remuneration Committee
exercised its discretion and approved
the payment of a time pro-rated bonus
in respect of his period of service in 2018
up to his retirement date. Similarly, in
line with the LTIP (Long Term Incentive
performance share Plan) scheme rules
and having taken into account the
achievement against the performance
objectives, the Committee approved the
time pro-rated vesting of his 2016, and
2017, LTIP awards.
Following an extensive search by the
Nomination Committee to ensure we
recruited a person with the right skills,
experience, and track record to continue
the Company’s success, Andrew Taylor
was appointed as CEO at the AGM on
23 May. The appointment of a new
externally recruited CEO necessitated
a change to the CEO remuneration
package. As part of the search process
the Remuneration Committee used
appropriate benchmark data to ensure
that we could attract and retain the best
candidate. In considering the CEO
remuneration the Committee also
recognised that the incoming CEO would
not have the substantial shareholding
of Bob, and also that the Company has
grown very significantly in size since the
time of the IPO. Andrew was appointed
CEO in May 2018, with a salary of
£394,125, and a maximum potential
annual bonus of 125% of salary, with up
to 25% of the bonus being deferred into
a share option award governed by a
Deferred Bonus Plan. Andrew also
received an initial LTIP award of 190% of
salary in order to provide a performance
linked equity incentive and align his
interests with that of the shareholders.
Remuneration Committee
role
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 report is split into three
main areas:
Page
60
62
67
The statement by the Chairman
of the Remuneration Committee
The Directors’ remuneration policy
The Annual Report on
Remuneration
Membership
The members of the
Remuneration Committee and
meetings attended are:
Meetings
attended
Name
Martin Lea, Chairman
Richard Last
Alan Gibbins
60
Corporate governance continuedGamma Communications plc Annual Report and Accounts 2018 Employee remuneration
Employees in the Group generally
participate in a bonus scheme that
enables them to earn up to – and in
exceptional circumstances over – 10%
of basic salary based on a combination
of personal and Company performance.
Based on the Company’s performance
in 2018, and the contribution and hard
work of all the employees, the Board
was pleased to approve a 2% general
salary increase at the 2018 year end.
As an AIM-listed company, this report
is included as required following the
Company’s adoption of the QCA
Corporate Governance Code and as
a matter of best practice. 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 2018 AGM with 99.53% of
votes cast in favour. This Remuneration
Committee report will again be put to
an advisory vote at the forthcoming
2019 AGM.
Martin Lea
Remuneration Committee Chairman
11 March 2019
Long term performance continues
to be 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. Given the
Company’s growth profile, its stage of
development and the challenges of
identifying a relevant peer group, the
Committee believes that absolute
performance goals remain more
relevant than comparative performance
measures. There have been no changes
made to the LTIP scheme structure,
however the expected maximum value
of annual awards for the Executive
Directors has been increased from
100% to 125% of base salary.
Employee share schemes
In order to continue to strengthen the
alignment of employee and shareholder
interests the Group operates a general
Save As You Earn scheme (‘SAYE’),
a 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 2018 awards
of 185,424 options were made to high
performing employees under the CSOP.
Under the SAYE 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
2018 28% (2017: 30%) of all employees
chose to participate, with options being
granted over 241,298 (2017: 274,664)
shares. The take-up was lower than
previously as there is a statutory
maximum limit for savings which a
number of employees had reached in
the previous year.
There were no shares issued under the
SIP in 2018 (2017: nil).
In line with the general Company-wide
salary increase, and considering the
performance of the business, it was
decided to increase the base pay
of the CEO by 2% with effect from
1 January 2019.
Based on the significant increase in the
size and value of the business over the
past few years, towards the end of 2018,
the Committee also undertook a
benchmarking exercise related to the
CFO’s remuneration and also the
Chairman’s fees. The Committee was
assisted in this exercise by remuneration
advisors h2glenfern, as well as making
reference to published AIM Director
remuneration data. As a result of this
exercise, with effect from 1 January 2019
the CFO’s salary was increased from
£191,017 to £250,000. The CFO’s
maximum annual bonus remained at
100% of salary with up to 25% of the
bonus being deferred into a share
option award governed by a Deferred
Bonus Plan.
The Chairman’s fees were increased
from £78,030 to £100,000 with effect
from 1 January 2019.
The Committee believes that these
changes were necessary in order for
the Company to remain competitive in
terms of Director remuneration, and
appropriate relative to the market,
given the Company’s size and value
and position around the upper quartile
of the AIM 100.
Changes to Directors’
remuneration policy
Short-term performance for Executive
Directors and other senior executives
continues to be incentivised using a
discretionary annual bonus scheme.
Whereas this has historically been based
on the achievement of Company
profitability goals, the policy has been
amended to enable the Committee to
set personal performance objectives in
relation to up to 20% of the maximum
bonus potential. Furthermore, under
the revised policy, the maximum bonus
payable to the CEO has been increased
to 125% of salary. In addition, the
Committee may determine that
payment of a proportion of any bonus
that it awards to an Executive Director
may be deferred into an award
governed by the terms of the
Deferred Bonus Plan.
61
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance 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
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.
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.
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.
Not applicable.
The CEO’s base salary was set
at the time of his appointment
in May 2018 and was reviewed
on 1 January 2019 and was
increased by 2% to £402,008.
The CFO’s base salary, following
a benchmarking exercise, was
increased from £191,017 to
£250,000 with effect from
1 January 2019.
Not applicable.
The costs of providing these
benefits vary year on year
depending on the schemes’
premiums. The Remuneration
Committee monitors the overall
cost of the benefits package.
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.
A contribution of up to 5.1%
per annum of salary is paid into
the scheme, by the Company,
on behalf of the CFO.
The CEO does not participate
in the scheme.
Not applicable.
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.
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.
62
Corporate governance continuedGamma Communications plc Annual Report and Accounts 2018 Purpose and link to strategy
Operation
Potential remuneration
Performance metrics
Annual bonus
To incentivise the
achievement of the
Company’s annual
financial targets,
or other near term
strategic objectives.
For the CEO the maximum
annual bonus potential is
125% of base salary.
For the CFO the maximum
annual bonus potential is
100% of base salary.
The Executive Directors and
other senior executives participate
in a discretionary, annual,
performance related bonus
scheme. Targets are set at the
beginning of each year and are
generally based on Company
financial performance, however
the Remuneration Committee can
set personal objectives in relation
to up to 20% of the maximum
bonus potential.
The Remuneration Committee at
its discretion may determine that
a proportion of any bonus that it
awards may be deferred into an
allocation of shares or grant of
options each with a three year
vesting period and governed
by the terms of the Deferred
Bonus Plan.
Other than to the extent deferred,
under the terms of the Deferred
Bonus Plan, bonuses are paid in
cash based on audited financial
results. The bonus scheme rules
include a claw-back provision.
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 and
other senior executives 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 at a value of up to
125% of base salary. The scheme
rules however do allow the
Remuneration Committee
discretion to make higher
value awards.
Following the announcement
of the Group’s results for 2017,
an award was granted to the
CFO under this scheme at a
value of 125% of base salary.
Upon his appointment as CEO
Andrew Taylor was granted an
initial joining award under this
scheme at a value of 190% of
base salary. These awards will
vest in April 2021, subject to
service and performance
conditions.
It is anticipated that further
awards will be made in April
2019 following announcement
of the Group’s annual results.
For the year ending December
2018, the targets were based
on growth in Adjusted Profit
Before Tax (PBT). To achieve
maximum bonus the
performance target was set
at 16.6% annual growth in
Adjusted Profit Before Tax
(PBT). At or below 3.0%
growth in PBT no bonus
would be payable, with a linear
relationship between 3.0%
and 16.6% growth.
For the year ending December
2018, 25% of the CEO’s bonus
was deferred into an award
governed by the terms of the
Deferred Bonus Plan.
For 2019 the performance
targets are based on growth
in Adjusted Profit Before Tax
(PBT), in relation to 80% of the
maximum potential bonus and
on personal objectives in
relation to 20%.
Vesting of the 2018 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.
63
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Illustrations of application of the policy
The graph below seeks to demonstrate how pay varies
with performance for the Executive Directors based on
the Directors’ remuneration policy described previously.
This is based on pay for the year ending 31 December 2019.
Element
Fixed
Annual variable
bonus
LTIP
Description
Fixed remuneration is made up of total
salary, pension and benefits.
The annual variable bonus is an incentive
scheme where remuneration in the form
of money and deferred shares is received
or receivable as a result of the performance
conditions that relate to that period.
The long term incentive plan is an incentive
scheme where remuneration in the form of
shares is received or receivable as a result
of the performance conditions that relate
to that period.
Assumptions used in determining the level of pay out under
given scenarios are as follows:
Element
Minimum
Maximum
Description
Under the minimum remuneration it is
assumed that only fixed pay i.e. salary,
pension and benefits are received. It is
assumed that performance conditions for
the annual variable bonus and the LTIP are
not achieved.
Under the maximum salary remuneration,
it is assumed that the Directors receive not
only their fixed remuneration but achieve
their performance targets for the annual
bonus and LTIP.
The Company does not present an ‘on target’ figure because
the incentive scheme is structured with stretching targets
which if achieved result in the executives receiving their
maximum remuneration as depicted in the graphs below.
The expected future LTIP remuneration is calculated as the
value at the time of the award, i.e. 125% of salary.
Chief Executive Officer
Minimum
Maximum
0
Chief Financial Officer
Minimum
Maximum
0
750,000
1,500,000
750,000
1,500,000
Fixed
Annual variable bonus
LTIP
The graph above shows an LTIP award of 125% of base salary
for Andrew Taylor. In 2018 he received an LTIP award of 190%
as a one-off joining award. Future awards are anticipated to be
at 125%.
64
Alignment of Executive remuneration and the market
At the time of appointing our new CEO in 2018, the
Remuneration Committee undertook a detailed benchmarking
exercise among peer group organisations in order to determine
a competitive and appropriate remuneration package.
Towards the end of 2018 the Committee undertook a further
benchmarking exercise to consider the remuneration of the
CFO. The previous benchmarking exercise with respect to
Executive Directors was undertaken in September 2016. In
undertaking such benchmarking exercises the Company takes
into account Gamma’s size, market position, profile and
outlook, and reviews the remuneration data for a number
of comparable UK quoted companies.
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, based on appropriate comparator organisations, 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.
Policy 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. How
this policy was applied in the case of appointing Andrew Taylor
as CEO is explained in the Remuneration Committee
Chairman’s statement and the policy table (above).
Corporate governance continuedGamma Communications plc Annual Report and Accounts 2018 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.
Policy on Non-Executive Director remuneration
The Chairman and the other Non-Executive Directors’
remuneration comprise 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, Remuneration and Risk 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 2018 are set out in the Annual
Report on Remuneration.
Towards the end of 2018 the Remuneration Committee
undertook a benchmarking exercise assisted by remuneration
advisers h2glenfern in considering the remuneration of the
Chairman, and also in understanding the current market with
respect to non-executive director remuneration. This
considered a relevant sample of AIM 100 companies and the
Committee also made reference to other published AIM 50
listed companies’ non-executive director remuneration
data. Following this review, the Committee recommended
to the Board, and the Board approved the increase of the
Chairman’s fees from £78,030 to £100,000 with effect from
1 January 2019.
The other Non-Executive Directors’ base fees were increased
by 2% with effect from 1 January 2019.
The current fees are as follows:
Director
Richard Last
Alan Gibbins
Martin Lea
Wu Long Peng
Andrew Stone
Directors’ fee
£100,000
£37,142
£37,142
£37,142
£37,142
Committee
Chair fee
2019
–
£100,000
£6,000
£12,000
–
–
£43,142
£49,142
£37,142
£37,142
Basic salary: This will be paid over the contractual notice
period (CEO: 12 months, CFO: six months) 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.
Bob Falconer retired from his position as CEO on 23 May 2018.
How this policy was applied to his retirement is explained
in the Remuneration Committee Chairman’s statement
previously. Bob received no compensation for loss of office
or payment in lieu of notice, but did receive a 2018 bonus
payment on a time pro-rated basis with respect to his service
up to the date of retirement. He also benefited from the time
pro-rated vesting of his 2016 and 2017 LTIP awards, after
taking into consideration the performance of the Company.
65
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Directors’ Service Agreements
Executive Directors’ Service Agreements
The key elements of the Executive Directors’ Service Agreements are summarised in the table below:
Key element
CEO Andrew Taylor
Effective date of
Service Agreement
CEO Designate – 4 April 2018
CEO – 23 May 2018
CFO Andrew Belshaw
10 October 2014
Notice period
Basic salary
Annual bonus
Pension
Benefits
12 months’ notice given by either party
6 months’ notice given by either party
£402,008 per annum
£250,000 per annum
Discretionary performance related
Discretionary performance related
Nil
Company contributes up to 5.1% of basic salary into
defined contribution money purchase scheme
Participation in Company life assurance and income
protection schemes
Participation in Company life assurance and income
protection schemes
Share schemes
Eligible to participate in Company share schemes
Eligible to participate in Company share schemes
Termination
payments
The Company has the discretion to make a payment
of basic salary in lieu of notice to terminate the
employment forthwith in the event of notice
being given
The Company has the discretion to make a payment
of basic salary in lieu of notice to terminate the
employment forthwith in the event of notice
being given
Non-Executive Director Letters of Appointment
The Non-Executive Directors have Letters of Appointment stating that their appointment is for an initial term of three years
from the date of the appointment letter. The Letters of Appointment provide for termination of the appointment with three
months’ notice by either party. Reappointment of Non-Executive Directors is voted for at each AGM, with the most recent
reappointment date being 23 May 2018.
The current Non-Executive Directors’ initial appointments commenced on the following dates:
Date of
appointment
17 June 2014
17 June 2014
17 June 2014
6 June 2014
6 June 2014
Director
Richard Last
Alan Gibbins
Martin Lea
Wu Long Peng
Andrew Stone
66
Corporate governance continuedGamma Communications plc Annual Report and Accounts 2018 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 2018.
Remuneration Committee
Membership
The Remuneration Committee consisted of the following Directors during the year to 31 December 2018:
• Martin Lea (Chairman), Independent Non-Executive Director.
• Alan Gibbins, Independent Non-Executive Director.
• Richard Last, Independent Non-Executive Director and Chairman of the Board.
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 2018
The Committee met six times in 2018 in order to conduct the following main items of business: agree the annual Remuneration
Committee report; set senior executive bonus targets for 2018; receive results of Company-wide benefits and gender pay
gap reviews; review and approve proposals for the 2019 all employee SAYE share scheme; approve senior executive bonus
payments relating to 2017; approve the 2018 LTIP and CSOP awards and set LTIP targets; review the projected dilution
impact and cost of various share schemes; consider retiring CEO remuneration arrangements; conduct the annual review
of Remuneration Committee terms of reference; consider the Company annual salary review and any changes to overall Company
remuneration structure and review the Chairman’s, Executive Directors’ and other senior executive salaries and bonus structures.
Advisers
The Company typically engages external advisers to undertake a benchmarking exercise relating to Directors’ remuneration
from time to time. In 2018 benchmarking services have been provided by H2glenfern in respect of benchmarking remuneration
for the CFO, Chairman and Non-Executive Directors. The cost of this work was £7,500 net of VAT.
Remuneration of the Executive Directors
Bonuses are shown on an accrued basis.
The share option remuneration has been calculated at the share price on the vesting date.
Director
Andrew Taylor
Bob Falconer
Andrew Belshaw
Salary and fees
Benefits
Annual bonus
Share options
Pension
£291,551
£133,998
£191,017
–
–
–
£364,439
£122,234
£191,017
–
£1,210,456
£340,726
–
–
£9,742
Total for
2018
£655,990
£1,466,688
£732,502
Following his retirement Bob Falconer will continue to act as a consultant for the Company on a periodic basis. From the date
of resignation to 31 December 2018 he was paid no consultancy income from the Company.
The bonus payment was the maximum based on exceeding a target of 16.6% annual growth in adjusted PBT. 25% of
Andrew Taylor’s bonus was deferred into an award governed by the terms of the Company’s Deferred Bonus Plan. No amount
of the other Director’s bonus was deferred.
The share options vesting during the year relate to the 2015 LTIP which achieved a vesting percentage of 93.875%, based on
achieving 40.10% annual compound growth for TSR and 17.9% annual compound growth for EPS against targets of 15% and 20%
respectively, over the three year vesting period.
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
Pension
Total for
2017
£305,885
£187,277
£135,416
–
–
–
£305,878
£187,277
–
£1,631,665
£1,138,038
£1,337,720
–
£2,243,428
£9,620
£6,069
£1,522,212
£1,479,205
Richard Bligh received £6,069 salary in 2017 in lieu of a contribution by the Company to his pension of £6,906. Richard Bligh
ceased to be a Director on 30 June 2017 but was employed between 1 July and 30 September 2017 during which time he
earned £43,750; he also occasionally acts as a consultant to the Company and earned £6,000 in fees from 1 October to
31 December 2017.
67
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance 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
£78,030
£36,414
£36,414
£36,414
£36,414
Directors’
fee
£76,500
£35,700
£35,700
£35,700
£35,700
Committee
Chair fee
–
£6,000
£12,000
–
–
Committee
Chair fee
–
£6,000
£6,000
–
–
Total for
2018
£78,030
£42,414
£48,414
£36,414
£36,414
Total for
2017
£76,500
£41,700
£41,700
£35,700
£35,700
Share scheme interests awarded during the year ended 31 December 2018
Long term incentive plan (LTIP)
The following awards were made under the 2018 LTIP. The performance conditions are set out below the table.
2018
Director
Andrew Taylor
Andrew Belshaw
Type of
scheme interest
Basis of
award
Number of
awards
Vesting
date
Nil-cost option
£750,000
108,381
31 Mar 2021
Nil-cost option
125% of salary
34,504
31 Mar 2021
Exercise
price
£0.0025
£0.0025
Exercise
date
–
–
Upon his appointment as CEO Andrew Taylor received an initial award of share options which are subject to performance
conditions at a value of £750,000.
2017
Director
Bob Falconer
Andrew Belshaw
Richard Bligh
Type of
scheme interest
Basis of
award
Number of
awards
Vesting
date
Nil-cost option
100% of salary
Nil-cost option
100% of salary
Nil-cost option
100% of salary
62,296
38,140
37,238
31 Mar 2020
31 Mar 2020
31 Mar 2020
Exercise
price
£0.0025
£0.0025
£0.0025
Exercise
date
–
–
–
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. Upon his resignation from the Company, all of Richard Bligh’s share options have lapsed.
The 2017 and 2018 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.
68
Corporate governance continuedGamma Communications plc Annual Report and Accounts 2018 Save As You Earn (SAYE) share scheme
There were no awards made to Directors under the SAYE during the years ended 31 December 2018 or 2017.
Statement of Directors’ shareholding and share interests
Directors’ share interests at 31 December 2018 are set out below:
2018
Executive Director
Andrew Taylor
Andrew Belshaw
Non-Executive Director
Richard Last
Alan Gibbins
Martin Lea
Wu Long Peng
Andrew stone
2017
Executive Director
Bob Falconer
Andrew Belshaw
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
–
228,853
53,475
13,368
13,368
–
200,000
108,381
116,646
–
–
–
–
–
–
–
–
–
–
–
–
Options
–
–
–
–
–
–
–
Number
of beneficially
owned shares
With
performance
measures
Without
performance
measures
Vested but
unexercised
3,490,609
278,188
243,054
133,993
53,475
13,368
13,368
–
473,500
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Exercised
during
the year
–
48,675
–
–
–
–
–
Exercised
during
the year
288,280
206,618
–
–
–
–
–
Performance graph and table
The Remuneration Committee has chosen to compare the TSR of the Company’s Ordinary Shares against the AIM 100 Index
because this index consists of the most comparable companies to the Group. The values indicated in the graph show the share
price growth plus re-invested dividends from a £100 hypothetical holding of ordinary shares in Gamma Communications Plc
from the date of IPO.
700
600
500
400
300
200
100
0
£
4
1
0
2
/
0
1
/
3
1
4
1
0
2
/
2
1
/
3
1
5
1
0
2
/
2
0
/
3
1
5
1
0
2
/
4
0
/
3
1
5
1
0
2
/
6
0
/
3
1
5
1
0
2
/
8
0
/
3
1
5
1
0
2
/
0
1
/
3
1
5
1
0
2
/
2
1
/
3
1
6
1
0
2
/
2
0
/
3
1
6
1
0
2
/
4
0
/
3
1
6
1
0
2
/
6
0
/
3
1
6
1
0
2
/
8
0
/
3
1
6
1
0
2
/
0
1
/
3
1
6
1
0
2
/
2
1
/
3
1
7
1
0
2
/
2
0
/
3
1
7
1
0
2
/
4
0
/
3
1
7
1
0
2
/
6
0
/
3
1
7
1
0
2
/
8
0
/
3
1
7
1
0
2
/
0
1
/
3
1
7
1
0
2
/
2
1
/
3
1
8
1
0
2
/
2
0
/
3
1
8
1
0
2
/
4
0
/
3
1
8
1
0
2
/
6
0
/
3
1
8
1
0
2
/
8
0
/
3
1
8
1
0
2
/
0
1
/
3
1
8
1
0
2
/
2
1
/
3
1
Gamma Communications PLC – TSR
AIM 100 – TSR
69
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Chief Executive’s historical remuneration
The table below sets out the total remuneration delivered to the Chief Executive over the last year valued using the
methodology applied to the single total figure remuneration.
Chief Executive
2018
2017
2016
2015
2014
Total Single Figure
Bob Falconer
£1,466,688
£2,243,428
£599,760
£2,230,287
£544,793
Andrew Taylor
£655,990
Annual bonus payment level achieved
(% of maximum opportunity)
Bob Falconer
Andrew Taylor
LTIP Vesting level achieved
(% of maximum opportunity)
100%
100%
92.827%1
–
100%
–
100%
–
100%
–
–
100%
–
–
100%
–
n/a1
n/a2
n/a2
1 92.827% represents the blended rate for the vesting of Bob Falconer’s 2015, 2016 and 2017 LTIP scheme. These schemes achieved performance vesting percentages
of 93.875%, 91.847% and 90.046% respectively.
2 Share option schemes prior to the 2015 LTD scheme (which rested in 2017) did not have performance obligations attached to them.
Percentage change in remuneration of the Director undertaking the role of CEO
Bob Falconer retired as CEO on 23 May 2018 and was replaced by new CEO Andrew Taylor. The attraction and successful
appointment of a new CEO necessitated the benchmarking of the CEO remuneration package to bring it in line with current
market norms. That is why there was a significant increase in the remuneration of the Director undertaking the role of CEO in
2018 reflecting the impact of Andrew’s appointment from May 2018.
Salary, other pay and benefits
Annual bonus
% increase in CEO
remuneration in 2018
compared with 2017
% increase in employee
remuneration in 2018
compared with 2017
39.1%
59.1%
3.1%
5.9%
Relative importance of spend on pay
The following table shows the Company’s actual spend on pay for all Group employees relative to dividends and underlying
pre-tax profit.
Overall spend on pay, including Executive Directors
Capital expenditure1
Dividends
2018
£m
55.8
12.7
8.1
2017
£m
48.1
15.8
7.3
Change
%
+16%
–20%
+11%
1 Capital expenditure has been included in the above table as it represents a key expenditure, being the Group’s investment in infrastructure to drive future growth.
Statement of voting
During the 2018 AGM, a motion was set for the shareholders to approve on an advisory only basis the Directors’ Remuneration
Report. 99.53% of votes were cast in favour of the motion.
This Remuneration Committee report will be put to an advisory vote at the forthcoming 2019 AGM. This report was approved by
the Board of Directors on 11 March 2019 and signed on its behalf by:
Martin Lea
Remuneration Committee Chairman
11 March 2019
70
Corporate governance continuedGamma Communications plc Annual Report and Accounts 2018 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 2018.
The Corporate Governance Statement
set out on pages 50 to 51 forms
part of this report.
Details of any significant events since
the balance sheet date are contained
in note 31 to the financial statements.
An indication of likely future
developments in the business of the
Company and details of research
and development activities are
included in the strategic report.
Information about the use of financial
instruments by the Company and its
subsidiaries is given in note 21 to the
financial statements.
Dividends
The Directors recommend a final
dividend of 6.2p per ordinary share to
be paid on Thursday 20 June 2019 to
ordinary shareholders on the register on
Friday 31 May 2019 which, together with
the interim dividend of 3.1p, makes a
total of 9.3p for the year (2017: 8.4p).
Capital structure
Details of the authorised and issued
share capital of the Company and
options over shares of the Company are
set out in notes 24 and 27 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;
be granted options under the
Company Share Option Plan;
(iii) be issued shares under a Share
(ii)
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 15
to the Group financial statements.
Directors
The names and biographies of the
Directors during the year are disclosed
on pages 52 to 53.
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 21. Further
information on the Group’s exposure to
financial risks and the management
thereof is provided in note 21.
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 21 sets out the particular
risks to which the Group is exposed, and
how these are managed.
Interests in contracts
There have been no contracts or
arrangements during the financial year
in which a Director of the Company was
materially interested and which were
significant in relation to the Group’s
business.
Health, safety, the environment
and the community
The Group has a formal Health, Safety
and Environmental Policy which requires
all operations within the Group to
pursue economic development whilst
protecting the environment. The
Directors aim not to damage the
environment of the areas in which the
Group operates, to meet all relevant
regulatory and legislative requirements
and to apply responsible standards of its
own where relevant laws and
regulations do not exist.
It is the policy of the Group to consider
the health and welfare of employees by
maintaining a safe place and system of
work as required by legislation in each of
the countries where the Group operates.
Political contributions
No political contributions were made in
the year.
71
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance 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/she ought to have taken as a
Director in order to make himself/
herself 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
auditors 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
11 March 2019
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 2018 the Group undertook the
Best Companies Limited employee
engagement survey and achieved a
1-star accreditation. The results from
this survey attracted a listing in
The Sunday Times Top 100 Best
Companies To Work For.
Auditors and their independence
A resolution to appoint auditors for
the year to 31 December 2019 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.
72
Corporate governance continuedGamma Communications plc Annual Report and Accounts 2018 Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual
Report and the financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to
prepare financial statements for each
financial year. Under that law the
Directors 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 FRS 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:
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
and is signed on its behalf by:
Andrew Belshaw
Chief Financial Officer
11 March 2019
• 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.
The Directors are responsible for
keeping adequate accounting records
that are sufficient to show and explain
the Company’s transactions and disclose
with reasonable accuracy at any time
the financial position of the Company
and enable them to ensure that the
financial statements comply with the
Companies Act 2006. They are also
responsible for safeguarding the assets
of the Company and hence for taking
reasonable steps for the prevention
and detection of fraud and
other irregularities.
The Directors are responsible for the
maintenance and integrity of the
corporate and financial information
included on the Company’s website.
Legislation in the United Kingdom
governing the preparation and
dissemination of financial statements
may differ from legislation in
other jurisdictions.
73
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Financial statements
Independent auditor’s report to the members
of Gamma Communications plc
Summary of our audit approach
Report on the audit of the financial statements
Opinion
In our opinion:
• the financial statements of Gamma Communications plc
(the ‘parent company’) and its subsidiaries (the ‘Group’)
give a true and fair view of the state of the Group’s and
of the parent company’s affairs as at 31 December 2018
and of the Group’s profit for the year then ended;
Key audit
matters
Materiality
• the Group financial statements have been properly prepared
Scoping
Significant
changes in
our approach
The key audit matters that we identified in the
current year were:
• revenue: accuracy of volume and pricing; and
• acquisition accounting: purchase price
allocation.
The materiality that we used for the Group
financial statements was £1.7m which was
determined on the basis of 5% of profit
before tax.
We audited the entire Group to full scope with
the exception of one location and the newly
acquired subsidiary DX Groep B.V in the year,
which are subject to desktop analytical review
procedures. Our approach results in
approximately 98% coverage of profit before
tax, revenue and net assets.
Following the acquisition of DX Groep B.V in the
year, we have identified a new key audit matter
in relation to the associated purchase price
allocation in acquisition accounting, specifically
the judgement relating to retail customer
contracts and the most sensitive assumptions
in the valuation, being the attrition rate and
discount rate.
In the prior year, we identified two key audit
matters relating to revenue. There were no new
material contracts in the year of a complex
nature or material manual adjustments.
We have reassessed our revenue risk and
identified a key audit matter relating to the
indirect usage revenue stream, specifically
to the accuracy of the volume of traffic and
pricing data which are used to determine
the value of revenue recognised.
Conclusions relating to going concern
We are required by ISAs (UK) to report in respect of the
following matters where:
• the directors’ use of the going concern basis of accounting in
preparation of the financial statements is not appropriate; or
• the directors have not disclosed in the financial statements
any identified material uncertainties that may cast significant
doubt about the Group’s or the parent company’s ability to
continue to adopt the going concern basis of accounting
for a period of at least 12 months from the date when the
financial statements are authorised for issue.
We have nothing to report in respect of these matters.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the
financial statements of the current period and include the
most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified. These
matters included those which had the greatest effect on:
the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit
of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion
on these matters.
in accordance with International Financial Reporting
Standards (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, including
Financial Reporting Standard 101 ‘Reduced Disclosure
Framework’; and
• the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
• the consolidated statement of comprehensive income;
• the consolidated and parent company balance sheets;
• the consolidated and parent company statements of
changes in equity;
• the consolidated cash flow statement;
• the Group’s related notes 1 to 32;
• the Company only balance sheet; and
• the parent Company’s related notes 1 to 10.
The financial reporting framework that has been applied
in the preparation of the Group financial statements is
applicable law and 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,
including FRS 101 ‘Reduced Disclosure Framework’
(United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further
described in the auditor’s responsibilities for the audit of the
financial statements section of our report.
We are independent of the Group and the parent company in
accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the
Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as
applied to listed entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
74
Gamma Communications plc Annual Report and Accounts 2018 Revenue: accuracy of volume and pricing
Key audit matter
description
Acquisition accounting: purchase price allocation
Key audit
matter
description
Usage revenue is calculated based on the volume of traffic and associated pricing. The accurate measurement of
the volume of traffic as well as the accuracy of the pricing, which is applied against these volumes to determine the
value of revenues has been identified as the key audit matter.
In 2018 the Groups revenues were £284.9m (2017: £242.0m) of which usage revenue represents £65.3m
(2017: £65.4m). The Group’s revenue recognition principles are disclosed in note 1.
We have assessed the adequacy of the design and implementation of controls as well as tested the operating
effectiveness of these controls, specifically the rate change reviews, the revenue reconciliations performed
(including the reviews there-of), and the analysis of monthly revenue trends.
Specialist IT auditors have supported our assessment of the relevant automated controls, the most critical of which
being the matching of the rates input and call data records (CDR) automatically within the system to calculate the
billing per transaction.
We have tested the volumes and prices involved in usage revenues by tracing a sample of invoice information to
CDR. In addition, we performed a recalculation of the revenue to be recognised in relation to the call by multiplying
the appropriate rate against the minutes. We compared this expectation to actual revenues, ensuring the difference
fell within a reasonable threshold.
We also performed credit note testing on a sample of credit notes.
Based on our procedures, we conclude that no material misstatements were identified in respect of the accuracy
of the volume of traffic and pricing data used in the indirect usage revenue stream.
During the year, the Group acquired DX Groep B.V. This has resulted in the Group recognising intangible assets,
along with goodwill of £16.6m and £7.2m, respectively as disclosed in note 16.
There is a significant level of judgement required in fair valuing the assets, in particular the customer relationships
which represents 65% of the total intangibles recognised. Therefore, this key audit matter relates specifically to the
Retail Customer contracts of £10.3m, and the most sensitive assumptions in the valuation being the attrition rate
and discount rate. This is consistent with Notes 1 and 2.
We have assessed the adequacy of the design and implementation of controls over the review of acquisition
accounting. We have performed substantive audit procedures on the acquisition accounting, supported by our
valuation specialists. Our substantive tests involved:
• evaluating the appropriateness of the valuation techniques employed by both Management and
Management’s experts;
• assessing the reasonableness of the valuation assumptions used in the fair value analysis and considering
whether in our judgement these are consistent with a market participant’s view;
• evaluating whether the fair value model being used is appropriate considering the entity’s circumstances
identified; and
• performing sensitivity analysis for comparison to the entity’s fair value estimate.
We have also:
• assessed the reasonableness of management’s business and accounting assumptions used in the forecast data
by considering previous forecasting accuracy;
• comparing the projections used to board approved management budgets; and
• testing the mathematical accuracy of the overall models.
Based on our procedures, no material misstatements have been identified in respect of the attrition rate and
discount rate used in valuation of the retail customer relationship intangible asset which was recognised following
the acquisition of DX Groep B.V.
How the scope
of our audit
responded
to the key
audit matter
Key
observations
How the scope
of our audit
responded
to the key
audit matter
Key
observations
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the
scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Materiality
Basis for
determining
materiality
Rationale for
the benchmark
applied
PBT
Group materiality
Group financial statements
£1.7m (2017: £1.4m)
5% (2017: 5.3%) of statutory profit before tax
Parent company financial statements
£1.2m (2017: £0.8m)
2% (2017: 2%) of net assets
We chose this measure as it is the primary statutory
measurement used by the users of the accounts and key
stakeholders to measure the performance of the Group.
Net assets has been chosen as the benchmark as it is
considered the most relevant benchmark for an
investment holding company.
Group materiality £1.7m
PBT £35m
Component materiality range £0.3 to £1.2m
Audit Committee reporting threshold £0.09m
We agreed with the Audit Committee that we would report to them all audit differences in excess of £86k (2017: £70k), as well
as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit
Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
75
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance
An overview of the scope of our audit
We audited the entire Group to full scope with the
exception of one location and the newly acquired company,
DX Groep B.V., which are subject to desktop analytical review
procedures. Our approach results in approximately 98%
coverage of profit before tax, 98% of revenue and 98%
of net assets.
At the parent entity level we also tested the consolidation
process. Audit work to respond to the risks of material
misstatement was performed directly by the Group audit
engagement team. Our audit work of the components was
executed at levels of materiality applicable to each individual
entity which were lower than Group materiality and ranged
from £0.3m to £1.2m (2017: £0.3m to £1m).
2%
2%
2%
Revenue
Profit before tax
Net assets
98%
98%
98%
Full audit scope
Review at group level
Other information
The Directors are responsible for the other information.
The other information comprises the information included
in the Annual Report, other than the financial statements
and our auditor’s report thereon.
Our opinion on the financial statements does not cover the
other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form
of assurance conclusion thereon.
In connection with our audit of the financial statements,
our responsibility is to read the other information and,
in doing so, consider whether the other information is
materially inconsistent with the financial statements
or our knowledge obtained in the audit or otherwise
appears to be materially misstated.
If we identify such material inconsistencies or apparent
material misstatements, we are required to determine
whether there is a material misstatement in the financial
statements or a material misstatement of the other
information. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact.
We have nothing to report in respect of these matters.
Responsibilities of Directors
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, and for such internal control as the
directors determine is necessary to enable the preparation
of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Group’s and the parent
company’s ability to continue as a going concern, disclosing as
applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either
intend to liquidate the Group or the parent company or to
cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate,
they could reasonably be expected to influence the
economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the
financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
Report on other legal and regulatory requirements
Opinions 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 Group
and of the parent company and their environment obtained in
the course of the audit, we have not identified any material
misstatements in the strategic report or the directors’ report.
76
Financial statements continuedGamma Communications plc Annual Report and Accounts 2018
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
• we have not received all the information and explanations
we require for our audit; or
• 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.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report
if in our opinion certain disclosures of directors’ remuneration
have not been made.
We have nothing to report in respect of this matter.
Use of our report
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.
Andrew Bond FCA
(Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Statutory Auditor
Reading, United Kingdom
11 March 2019
77
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Consolidated statement of comprehensive income
For the year ended 31 December 2018
Revenue
Cost of sales
Gross profit
Operating expenses
Operating profit before depreciation, amortisation and gain on disposal
Depreciation and amortisation (excluding business combinations)
Amortisation arising due to business combination
Gain on disposal of property, plant and equipment
Profit from operations
Finance income
Finance expense
Profit before tax
Tax expense
Profit after tax
Other comprehensive loss
Total comprehensive income attributable to the owners of the parent
Earnings per share
Basic per Ordinary Share (pence)
Diluted per Ordinary Share (pence)
* Restated results following the adoption of IFRS 15 as explained in note 3.
Adjusted earnings per share is shown in note 11.
All income recognised during the year was generated from continuing operations.
The notes on pages 82 to 113 form part of these financial statements.
Notes
4
7
7
7
9
9
10
11
11
2018
£m
284.9
(152.7)
132.2
(97.8)
48.3
(13.5)
(0.4)
–
34.4
0.3
(0.2)
34.5
(6.1)
28.4
(0.2)
28.2
30.3
30.0
2017
£m*
242.0
(133.3)
108.7
(82.4)
36.0
(10.4)
–
0.7
26.3
0.2
–
26.5
(3.8)
22.7
–
22.7
24.5
24.0
78
Financial statements continuedGamma Communications plc Annual Report and Accounts 2018 Consolidated statement of financial position
As at 31 December 2018
Assets
Non-current assets
Property, plant and equipment
Right of use assets
Intangible assets
Deferred tax asset
Trade and other receivables
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Non-current liabilities
Other payables
Provisions
Lease liability
Contract liabilities
Contingent consideration
Deferred tax
Current liabilities
Trade and other payables
Provisions
Lease liability
Contract liabilities
Current tax
Total liabilities
Issued capital and reserves attributable to owners of the parent
Share capital
Share premium reserve
Merger reserve
Share option reserve
Foreign exchange reserve
Own shares
Retained earnings
Total equity
Total equity and liabilities
* Restated results following the adoption of IFRS 15 as explained in note 3.
Notes
12
13
14
23
18
17
18
19
20
22
13
4
28
23
20
22
13
4
24
25
25
25
25
25
25
2018
£m
31.8
4.2
38.0
4.4
11.9
90.3
6.2
62.8
35.5
104.5
194.8
0.3
1.2
2.9
8.5
8.1
3.9
24.9
37.2
1.0
1.5
7.9
0.6
48.2
73.1
0.2
4.6
2.3
3.2
(0.2)
(0.8)
112.4
121.7
194.8
The financial statements on pages 78 to 81 were approved and authorised for issue by the Board of Directors
on 11 March 2019 and were signed on its behalf by:
Andrew Belshaw
Chief Financial Officer
The notes on pages 82 to 113 form part of these financial statements.
2017
£m*
29.2
–
15.5
1.7
10.9
57.3
3.2
61.6
31.6
96.4
153.7
–
1.5
–
7.8
–
–
9.3
39.8
0.3
–
8.2
0.8
49.1
58.4
0.2
3.8
2.3
2.8
–
(0.8)
87.0
95.3
153.7
79
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Consolidated statement of cash flows
For the year ended 31 December 2018
Cash flows from operating activities
Profit for the year before tax
Adjustments for:
Depreciation of property, plant and equipment
Depreciation of right of use asset
Amortisation of intangible assets
Share based payment expense
Interest income
Finance cost
Increase in trade and other receivables
Increase in inventories
(Decrease)/Increase in trade and other payables
Increase in contract liabilities
Increase/(decrease) in provisions and employee benefits
Cash generated by operations
Taxes paid
Net cash flows from operating activities
Investing activities
Purchases of property, plant and equipment
Purchase of intangible assets
Interest received
Acquisition of subsidiary net of cash acquired
Notes
12
13
14
12
14
16
2018
£m
34.5
8.7
1.4
3.8
1.9
(0.3)
0.2
50.2
(1.7)
(3.0)
(5.7)
0.4
0.4
40.6
(4.3)
36.3
(10.2)
(2.5)
0.3
(11.1)
2017
£m*
26.5
7.5
–
2.9
2.0
(0.2)
–
38.7
(18.3)
(0.2)
6.8
3.0
(0.1)
29.9
(3.6)
26.3
(12.1)
(3.7)
0.2
–
Net cash used in investing activities
(23.5)
(15.6)
Financing activities
IFRS 16 liability repayments
Share issues
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
* Restated results following the adoption of IFRS 15 as explained in note 3.
The notes on pages 82 to 113 form part of these financial statements.
(1.6)
0.8
(8.1)
(8.9)
3.9
31.6
35.5
–
–
(7.3)
(7.3)
3.4
28.2
31.6
80
Financial statements continuedGamma Communications plc Annual Report and Accounts 2018 Consolidated statement of changes in equity
For the year ended 31 December 2018
1 January 2017
Change in accounting policy
Restated equity at 1 January 2017*
Issue of shares
Recognition of share based payment expense
Current tax on share based payment expense
Deferred tax on share based payment expense
Dividend paid (note 11)
Transaction with owners
Profit for the year (restated)*
Total comprehensive income (restated)*
31 December 2017 (restated)*
1 January 2018 (restated)*
Change in accounting policy
Issue of shares
Recognition of share based payment expense
Current tax on share based payment expense
Deferred tax on share based payment expense
Dividend paid (note 11)
Transaction with owners
Profit for the year
Other comprehensive loss
Total comprehensive (loss)/income
Share
capital
£m
0.2
–
0.2
–
–
–
–
–
–
Share
premium
reserve
£m
3.8
–
3.8
–
–
–
–
–
–
Merger
reserve
£m
2.3
–
2.3
–
–
–
–
–
–
Share
option
reserve
£m
3.5
–
3.5
(2.2)
1.5
–
–
–
(0.7)
Foreign
exchange
reserve
£m
–
–
–
–
–
–
–
–
–
–
–
0.2
0.2
–
–
–
–
–
–
–
–
–
–
–
–
3.8
3.8
–
0.8
–
–
–
–
0.8
–
–
–
–
–
2.3
2.3
–
–
–
–
–
–
–
–
–
–
–
–
2.8
2.8
–
(1.0)
1.4
–
–
–
0.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.2)
(0.2)
Own
shares
£m
(0.8)
–
(0.8)
–
–
–
–
–
–
Retained
earnings
£m
71.2
(3.6)
67.6
2.2
–
2.1
(0.3)
(7.3)
(3.3)
Total
equity
£m
80.2
(3.6)
76.6
–
1.5
2.1
(0.3)
(7.3)
(4.0)
–
–
22.7
22.7
22.7
22.7
(0.8)
87.0
95.3
(0.8)
–
–
–
–
–
–
–
–
–
–
87.0
3.8
1.0
–
0.7
(0.4)
(8.1)
(3.0)
28.4
–
28.4
95.3
3.8
0.8
1.4
0.7
(0.4)
(8.1)
(1.8)
28.4
(0.2)
28.2
31 December 2018
0.2
4.6
2.3
3.2
(0.2)
(0.8)
112.4
121.7
* Restated results following the adoption of IFRS 15 as explained in note 3.
81
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Notes forming part of the financial statements
For the year ended 31 December 2018
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.
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, with
the exception of IFRS 16 which has been applied through the
modified retrospective approach, meaning that IFRS 16 has
been applied from 1 January 2018 with no restatement to
comparative figures.
Going concern
The Directors prepare a detailed annual budget and
reforecast for the next 12 month period on a quarterly basis.
The Group continues to be profitable and cash generative and
has a significant cash balance of £35.5m (2017: £31.6m) 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. The Directors have considered the
impact of Brexit and believe the impact on the Group will be
low. The Group has minimal cross border trading and deals
predominantly in sterling. The European acquisition will
continue to run independently though there could be an
impact of foreign exchange translation though this is not
anticipated to be material given the size of the overseas
operation. The Group is highly profitable and has cash
reserves which will protect the Group if there is a wider
economic impact. Thus it continues 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.
82
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 15.
Exemption from audit
For the year ending 31 December 2018 the following
subsidiaries of the Company were entitled to exemption
from audit under s479A of the Companies Act 2006
relating to subsidiary companies.
Subsidiary name
Gamma Telecom Holdings Limited
Gamma Telecom Limited
Gamma Business Communications Limited
Gamma Network Solutions Limited
Uniworld Bureau Services Limited
Company
registration
number
04287779
04340834
02998021
06783485
07136383
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 the Group has fulfilled its
performance obligations under the relevant customer
contract.
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 sales 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 performance obligations
have been met.
The Group receives payment for products and services from
channel partners who onwardly sell to end users. These
channel partners are treated as the principal in that
transaction because the channel partner has the primary
responsibility for providing the products or services to the end
user; the channel partner carries the inventory risk; the
channel partner is free to establish its own prices either with
or without bundling in other goods or services which are not
supplied by the Group; and the channel partner bears the
credit risk for the amount receivable from the end user. The
Group therefore recognises revenue based on the
transactions with the channel partner and not the end user.
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.
Financial statements continuedGamma Communications plc Annual Report and Accounts 2018 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 ethernet, broadband, hosted IP services and other
internet access or voice services, are recognised as revenue as
the service is provided.
A small minority of sales of the Cloud PBX product are made
under an ‘up front’ model whereby a channel partner buys a
right to use a service for an unspecified period of time into the
future. This is treated as an option to obtain future services at
a discount and the revenue is taken equally over the
estimated future period of usage of that service.
Business combinations
Acquisitions of subsidiaries and businesses are accounted for
using the acquisition method. The consideration transferred
in a business combination is measured at fair value, which is
calculated as the sum of the acquisition-date fair values of
assets transferred by the Group, liabilities incurred by the
Group to the former owners of the acquiree and the equity
interest issued by the Group in exchange for control of the
acquiree. Acquisition-related costs are recognised in profit
or loss as incurred.
At the acquisition date, the identifiable assets acquired and
the liabilities assumed are recognised at their fair value at the
acquisition date, except that:
Equipment sales
Revenue from the sale of peripheral and other equipment is
recognised when the control of the asset has transferred to
the buyer, which is normally the date the equipment is
delivered and accepted by the customer.
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, and which are
capable of use independently of that service are treated as
having been sold to the customer.
At the inception of the service when the CPE is shipped the
cost of the asset is taken to cost of sales and revenue is
accrued to recognise the sale at a margin typical of sales of
that product. A contract asset balance is created in respect of
the accrued revenue and this is released over the length of the
contract which results in lower ongoing service revenues.
Installation fees
Where an installation is not capable of being separated out
from an ongoing service contract (i.e. the installation has no
standalone value to the customer), revenue will be allocated
to the initial equipment sale (if any) and the ongoing service
revenues. The latter element will result in a contract liability
which will be released over the length of the contract with the
effect that ongoing service charges are increased.
Costs related to installations are similarly capitalised and
released in line with the release of the corresponding revenues.
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
Advances are sometimes made to channel partners as part of
an incentive deal. 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.
• deferred tax assets or liabilities and assets or liabilities
related to employee benefit arrangements are recognised
and measured in accordance with IAS 12 Income Taxes and
IAS 19 Employee Benefits respectively; and
• assets (or disposal Groups) that are classified as held for sale
in accordance with IFRS 5 Non-current Assets Held for Sale
and Discontinued Operations are measured in accordance
with that standard.
Goodwill is measured as the excess of the sum of the
consideration transferred, the amount of any non-controlling
interests in the acquiree, and the fair value of the acquirer’s
previously held equity interest in the acquiree (if any) over the
net of the acquisition-date amounts of the identifiable assets
acquired and the liabilities assumed. If, after reassessment,
the net of the acquisition-date amounts of the identifiable
assets acquired and liabilities assumed exceeds the sum of
the consideration transferred, the amount of any non-
controlling interests in the acquiree and the fair value of the
acquirer’s previously held interest in the acquiree (if any), the
excess is recognised immediately in profit or loss as a bargain
purchase gain.
When the consideration transferred by the Group in a
business combination includes an asset or liability resulting
from a contingent consideration arrangement, the contingent
consideration is measured at its acquisition-date fair value
and included as part of the consideration transferred in a
business combination. Changes in fair value of the contingent
consideration that qualify as measurement period
adjustments are adjusted retrospectively, with corresponding
adjustments against goodwill. Measurement period
adjustments are adjustments that arise from additional
information obtained during the ‘measurement period’ (which
cannot exceed one year from the acquisition date) about facts
and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the
contingent consideration that do not qualify as measurement
period adjustments depends on how the contingent
consideration is classified. Contingent consideration that is
classified as equity is not remeasured at subsequent reporting
dates and its subsequent settlement is accounted for within
equity. Other contingent consideration is remeasured to fair
value at subsequent reporting dates with changes in fair value
recognised in profit or loss.
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For the year ended 31 December 2018 continued
1. Accounting policies continued
When a business combination is achieved in stages, the
Group’s previously-held interest in the acquired entity is
remeasured to its acquisition date fair value and the resulting
gain or loss, if any, is recognised in profit or loss. Amounts
arising from interests in the acquiree prior to the acquisition
date that have previously been recognised in other
comprehensive income are reclassified to profit or loss,
where such treatment would be appropriate if that interest
were disposed of.
If the initial accounting for a business combination is
incomplete by the end of the reporting period in which the
combination occurs, the Group reports provisional amounts
for the items for which the accounting is incomplete. Those
provisional amounts are adjusted during the measurement
period (see above), or additional assets or liabilities are
recognised, to reflect new information obtained about facts
and circumstances that existed as of the acquisition date that,
if known, would have affected the amounts recognised as of
that date.
In the case of business combinations completed prior to
1 January 2011 goodwill represents the excess of the cost of
a business combination over the Group’s interest in the fair
value of 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.
Contingent consideration
Contingent consideration arises when settlement of all or part
of the cost of a business combination falls due after the date
the acquisition was completed.
It is stated at fair value and all contingent consideration has
been treated as part of the cost of the settlement. At each
balance sheet date, contingent consideration comprises the
fair value of the remaining contingent consideration valued
at acquisition.
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.
84
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 statement of comprehensive
income. The rates applicable, which represent the Directors’
best estimate of the useful economic life, are:
• Customer contracts – ten to thirteen years; and
• Brand – five years.
Impairment of non-financial assets
(excluding inventory 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.
Financial statements continuedGamma Communications plc Annual Report and Accounts 2018 Judgement 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. Amortisation is charged
to the statement of comprehensive income 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.
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 6.
Financial assets
All financial assets are held under the business model of
holding the asset to collect the contractual cash flows arising
from the assets, which are made up solely of payments of the
principal and interest. Therefore, all financial assets are
classified at amortised cost.
Except for trade receivables, financial assets 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.
Trade receivables do not contain significant financing
components and therefore are initially recognised at their
transaction price, and subsequently treated in line with other
financial assets.
Except for trade receivables, impairment provisions are
recognised as an expected credit loss provision under the
general approach, being the expected credit loss over the
next 12 months. Where there is a credit risk on a financial
asset that has increased significantly, the impairment
provision is measured at the lifetime expected credit loss.
Impairment for trade receivables will be measured under the
simplified approach with an expected credit loss percentage
applied to each ageing category. All financial assets will be
reported net of impairment; when the Group has no
reasonable expectation of recovering a financial asset, the
portion that is not recoverable is derecognised.
These financial assets comprise trade and other receivables,
accrued income, 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 and other short term highly liquid
investments with original maturities of three months or less.
Financial liabilities
Financial liabilities include 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.
Financial liabilities – Derivatives
Forward exchange contracts are entered into to mitigate
foreign exchange risk. These contracts are derivatives and
therefore measured at fair value through profit or loss.
Hedge accounting has not been applied.
Share capital
The Group’s Ordinary Shares are classified as equity
instruments.
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.
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Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Notes forming part of the financial statements
For the year ended 31 December 2018 continued
1. Accounting policies continued
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 is used where there are market conditions
attached to the share awards.
Leased assets
IFRS 16 has been applied through the modified retrospective
approach, meaning that IFRS 16 has been applied from
1 January 2018 with no restatement to comparative figures.
This policy will typically apply to properties, cars and fibre
networks where the Group has substantially all of the capacity
of the asset.
On entering into a lease, a right of use asset and lease liability
will be created.
The right of use asset will be depreciated over the lease-term
and if necessary impaired in accordance with applicable
standards. The lease liability is subsequently measured by
increasing the carrying amount to reflect interest on the lease
liability (application of the effective interest method, using the
Group’s incremental borrowing rate) and by reducing the
carrying amount to reflect the lease payments made.
Variable rents are not part of the lease liability and the
right of use asset. The payments are recognised as an
expense in the period in which they are incurred. Variable
payments are presented within note 13.
In the event that lease incentives are received to enter into
operating leases, such incentives are recognised as a liability.
The aggregate benefit of incentives is recognised as a
reduction of rental expense on a straight line basis, except
where another systematic basis is more representative of the
time pattern in which economic benefits from the leased
asset are consumed.
Where leases are 12 months or less or of low value then
payments made are expensed evenly over the period of usage
of that asset in line with the practical expedients set out in
IFRS 16.
Where the Group has a contract to use part of a fibre or
copper pathway and it does not have substantially all of the
capacity of the asset then that is not a lease and payments are
expensed evenly over the period of usage of that asset. In
some instances a pathway may have a small incidental linkage
where the Group is using substantially all of the capacity of a
very minor part of the pathway but in this instance the whole
contract is not treated as a lease.
The discount rate applied of 4% is the Group’s incremental
borrowing rate.
Dividends
Dividends are recognised when they become legally payable.
In the case of interim dividends to equity shareholders, this
is upon payment. 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 nor 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.
86
Financial statements continuedGamma Communications plc Annual Report and Accounts 2018 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.
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
Computer equipment
Fixtures and fittings
4%–33% per annum straight line
25%–50% per annum straight line
20%–25% per annum straight line
Inventory
Inventory (which is all finished goods) is 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.
Employee Benefit Trust (‘EBT’)
As the Company is deemed to have control of its EBT, it is
treated as a subsidiary and consolidated for the purposes
of the consolidated financial statements. The EBT’s assets
(other than investments in the Company’s shares), liabilities,
income and expenses are included on a line-by-line basis in
the consolidated financial statements.
Provisions
The Group recognises provisions where there is a present or
constructive 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
provisions. Provisions are measured at the best estimate of
the expenditure required to settle the obligation at the
reporting date, and where material discounted at a pre-tax
rate reflecting current market assessments of the time value
of money and risks specific to the liability.
Alternative performance measures
Adjustments to EBITDA, PBT and EPS (fully diluted) have
been presented because the Group believes that adjusted
measures provide valuable additional information for
users of the financial statements in assessing the Group’s
performance. Moreover, they provide information on the
performance of the business that management is more
directly able to influence and on a basis comparable
from year to year.
The measures are adjusted for the following items:
(a) Amortisation on intangibles arising on acquisition
We have completed our first acquisition since our flotation
in 2014 and we will show EPS figures adjusted for the
amortisation of the intangible assets which were recognised
on acquisition of the subsidiary. This adjustment is made
because most analysts adjust for these items and by providing
figures adjusted in this way, a user of the accounts is able to
compare the actual results with the expectations of the
analyst community.
(b) Depreciation and amortisation
Depreciation and amortisation relate to assets which were
acquired by the Group. They are omitted from adjusted
operating expenses to allow a user to see how costs which
management can influence in the short term have varied
from period to period.
(c) Gain on disposal of PPE
The Group may sometimes make a gain or loss on disposal of
an asset. These gains or losses occur infrequently and are not
trading items (the Group does not trade in fixed assets and
neither expects to have gains or losses on disposal, nor does it
budget for them). These gains or losses will therefore affect
EBITDA, PBT and EPS but are not reflective of the ongoing
trading profitability of the Group. Therefore management
excludes these items from the adjusted figures to ensure that
the trading performance of the business is properly
understood.
(d) Non-recurring tax credit
During the prior year there was a non-recurring tax credit
of £0.9m arising due to overpayment from 2014 and earlier
years where the underlying position has only recently been
resolved. This is not expected to recur and distorts the true
effective tax rate for the Group. This item impacts EPS.
Adjusted EPS is stated before non-recurring tax items to give
a better understanding of the true tax position of the Group.
(e) Other non-recurring items
Non-recurring items are those which are considered
significant by virtue of their nature, size or incidence, and
are presented separately in the statement of comprehensive
income to enable a full understanding of the Group’s
financial performance.
There were none in the period or comparative period which
affected EBITDA or PBT.
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Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Notes forming part of the financial statements
For the year ended 31 December 2018 continued
2. Critical accounting estimates and judgements
3. Changes in accounting policies
The Group makes certain estimates and assumptions
regarding the future. Estimates and judgements are
continually evaluated based on historical experience and
other factors, including expectations of future events that are
believed to be reasonable under the circumstances. In the
future, actual experience may differ from these estimates and
assumptions. The estimates and assumptions that have a
significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next
financial year are discussed below.
Critical accounting judgements
(a) Principal vs agent classification of channel partners
The Group receives payment for products and services from
channel partners who onwardly sell to end users. The Group
has considered whether channel partners are acting as a
principal or an agent under the criteria set out in paragraphs
B34 to B38 of IFRS 15.
Where a channel partner has the primary responsibility for
providing the products or services to the end user and carries
the inventory risk and is free to establish its own prices and
bears the credit risk for the amount receivable from the end
user then the channel partner is treated as the principal in
that transaction. The Group therefore recognises revenue
earned in this way based on the transactions with the channel
partner and not the end user.
(b) Revenue recognition
Revenue recognition on contracts may involve providing
services over multiple years and involving a number of
products. In such instances, judgement is required to identify
the date of transaction of separable elements of the contract
and the fair values which are assigned to each element. The
Group also regularly assesses customer credit risk inherent in
the carrying amounts of receivables and contract costs and
estimated earnings.
Key accounting estimates
(a) Purchase price allocation in business combinations
A number of estimates have been made when calculating the
value of finite and indefinite lived intangibles acquired in
business combinations. This includes those around the
customer contract intangible assets. These are valued using
discounted cash flow methods which require the application of
certain key estimates. In particular, management has had to
estimate customer attrition rates. If the customer attrition rates
are higher than estimated this may result in an impairment to
the asset valuation. The estimates around both the value of the
intangible asset and the period over which it is amortised
impact the amortisation charge and therefore the Group’s
profit. On 1 October 2018, the Group acquired DX. An element
of the purchase price was contingent upon the 2019 results.
The Group has a liability for contingent consideration of £8.1m
at 31 December 2018. This assumes that DX will achieve an
EBITDA of EUR 3.0m (£2.7m) for the year ended 31 December
2019. If DX achieves an EBITDA of EUR 3.7m (£3.3m) or higher
then the liability would be understated by £3.8m. When
calculating the contingent consideration amount management
has made an estimate of the 2019 EBITDA which is the basis of
the calculation. A 10% change in this value would create a
€2m impact on the contingent consideration value.
88
At the date of authorisation of these financial statements,
the Group has not applied the following new and revised IFRSs
that have been issued but are not yet effective and,
in some cases, had not yet been adopted by the EU:
• IFRS 17 – Insurance contracts
• IFRS 2 (amendments) – Classification and Measurement of
Share-based Payment Transactions
• IFRS 4 (amendments) – Applying IFRS 9 Financial instruments
with IFRS 4 Insurance contracts
• IAS 40 and IAS 28 (amendments) – Sale or Contribution of
Assets between an Investor and its Associate or Joint Venture
• Annual improvements to IFRSs 2014-2016 Cycle –
Amendments to IFRS 1 First-time adoption of International
Financial Reporting Standards and IFRS 28 Investments in
Associates and Joint Ventures
• IFRIC 22 – Foreign Currency Transactions and Advanced
Consideration
• IFRIC 23 – Uncertainty over Income Tax Treatments
The Directors do not expect that the adoption of the
standards listed above will have a material impact on the
financial statements of the Group in future periods.
In the current year, the Group has applied a number of
amendments to IFRSs issued by the International Accounting
Standards Board (IASB) that are mandatorily effective for an
accounting period that begins on or after 1 January 2018. The
new and amended accounting standards adopted during the
year are:
• IFRS 15 Revenue and Contracts with Customers
(effective 1 January 2018).
• IFRS 16 Leases (effective 1 January 2019, early adopted
1 January 2018).
• Amendments to IFRS 9 which replaces IAS 39
(effective date 1 January 2018).
IFRS 9 (Financial Instruments)
The Group has considered the effects of the changes to IFRS 9
and has revised its accounting policies from 1 January 2018.
None of the changes to accounting policies are materially
different to the previous policies and therefore the Group has
not restated the 2017 figures upon adoption of the new policies.
The adoption of IFRS 9 has not impacted the classification of
financial instruments. Derivatives (in the form of foreign
exchange forward contracts) continue to be measured at fair
value through profit or loss, and all other instruments
continue to be measured at amortised cost.
With the exception of trade receivables, due to the simplicity
of financial instruments, impairment to financial instruments
is expected to be negligible and hence have no material
impact on the financial statements. To measure the expected
credit loss provision of trade receivables, they have been
grouped by days past due. Details of the expected credit loss
provision for trade receivables is shown in note 18.
Financial statements continuedGamma Communications plc Annual Report and Accounts 2018 IFRS 15 (Revenue from Contracts with Customers)
Based on the new accounting policy which was adopted on 1 January 2018, the Group has restated its 2017 results for the
changes in policies required by IFRS 15. These are shown below and will form the comparative figures to the 2018 results.
There are four adjustments derived from the change in accounting policies:
• Removing ‘up-front’ Cloud PBX subscriptions which were previously recognised on purchase. These are now capitalised and
amortised over the period for which a customer is expected to use the service.
• Removing assets which were supplied as part of a service from the fixed asset register and instead recognising these as a sale
at the point of delivery to the customer. There is a corresponding reduction in ongoing service revenues.
• Spreading installation revenue over the length of the contract. Previously installation costs were recognised up-front.
• Spreading the cost of commissions in the direct business over the length of the contract to which they relate. Previously
commissions were recognised as they were paid.
The Company has voluntarily changed the presentation of certain amounts in the statement of financial position to reflect the
terminology of IFRS 15. These amounts are contract liabilities relating to the contracts where the Company has received
payment as part of a contract but has not yet satisfied the relevant performance obligation. These amounts are as follows:
• Contract liabilities totalling £4.6m as at 31 December 2018 in relation to installations, with £2.6m current and £2.0m
non-current.
• Contract liabilities totalling £11.8m as at 31 December 2018 in relation to Cloud PBX, with £5.3m current and £6.5m
non-current.
IFRS 15 (Impact on the consolidated statement of comprehensive income for the year ended 31 December 2017)
Revenue
Cost of sales
Gross profit
Operating expenses
Operating profit before depreciation, amortisation and gain on disposal
Depreciation and amortisation
Gain on disposal of property, plant and equipment
Profit from operations
Finance income
Finance expense
Profit before tax
Tax expense
Profit after tax
Total comprehensive income attributable to the owners of the parent
Earnings per share
Basic per Ordinary Share (pence)
Diluted per Ordinary Share (pence)
2017
Under previous
accounting
policies
£m
238.4
(125.4)
113.0
(86.8)
IFRS 15
adjustment
£m
3.6
(7.9)
(4.3)
4.4
Restated
amount
IFRS 15
£m
242.0
(133.3)
108.7
(82.4)
39.6
(14.1)
0.7
26.2
0.2
–
26.4
(3.8)
22.6
22.6
24.4
23.9
(3.6)
3.7
–
0.1
–
–
0.1
–
0.1
0.1
0.1
0.1
36.0
(10.4)
0.7
26.3
0.2
–
26.5
(3.8)
22.7
22.7
24.5
24.0
89
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Notes forming part of the financial statements
For the year ended 31 December 2018 continued
3. Changes in accounting policies continued
IFRS 15 (Impact on the consolidated statement of financial position as at 31 December 2017)
Assets
Non-current assets
Property, plant and equipment
Right of use assets
Intangible assets
Deferred tax asset
Trade and other receivables
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Non-current liabilities
Provisions
Lease liability
Contract liabilities
Deferred tax
Current liabilities
Trade and other payables
Provisions
Lease liability
Contract liabilities
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
2017
Under previous
accounting
policies
£m
IFRS 15
adjustment
£m
Restated
amount
IFRS 15
£m
44.1
–
10.0
1.7
–
55.8
3.2
50.6
31.6
85.4
141.2
1.5
–
–
–
1.5
39.8
0.3
–
–
0.8
40.9
42.4
0.2
3.8
2.3
2.8
(0.8)
90.5
98.8
141.2
(14.9)
–
5.5
–
10.9
1.5
–
11.0
–
11.0
12.5
–
–
7.8
–
7.8
–
–
–
8.2
–
8.2
16.0
–
–
–
–
–
(3.5)
(3.5)
12.5
29.2
–
15.5
1.7
10.9
57.3
3.2
61.6
31.6
96.4
153.7
1.5
–
7.8
–
9.3
39.8
0.3
–
8.2
0.8
49.1
58.4
0.2
3.8
2.3
2.8
(0.8)
87.0
95.3
153.7
The IFRS 15 adjustment shows a reclassification versus the numbers shown in the 2017 Annual Report, for current assets and
non-current assets of £12.5m and a decrease in current liabilities of £7.5m. Total assets and total liabilities have not changed.
90
Financial statements continuedGamma Communications plc Annual Report and Accounts 2018 IFRS 16 (Leases)
IFRS 16 has been applied through the modified retrospective approach, meaning that IFRS 16 has been applied from
1 January 2018 with no restatement to comparative figures. For this reason, both old and new accounting policies are shown
below to reflect the policies applied to current year and comparative accounting policies. Disclosure of the financial impact of
IFRS 16 is shown in note 13.
Previous accounting policy
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.
Policy applied from 1 January 2018
Leased assets
IFRS 16 has been applied through the modified retrospective approach, meaning that
IFRS 16 has been applied from 1 January 2018 with no restatement to comparative figures.
This policy will typically apply to properties, cars and fibre networks where the Group has
substantially all of the capacity of the asset.
On entering into a lease, a right of use asset and lease liability will be created.
The right of use asset will be depreciated over the lease-term and if necessary impaired in
accordance with applicable standards. The lease liability is subsequently measured by
increasing the carrying amount to reflect interest on the lease liability (application of the
effective interest method, using the Group’s incremental borrowing rate) and by reducing
the carrying amount to reflect the lease payments made.
Variable rents are not part of the lease liability and the right of use asset. The payments are
recognised as an expense in the period in which they are incurred. Variable payments are
presented within the note right of use assets.
In the event that lease incentives are received to enter into operating leases, such incentives
are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction
of rental expense on a straight line basis, except where another systematic basis is more
representative of the time pattern in which economic benefits from the leased asset
are consumed.
Where leases are 12 months or less or of low value then payments made are expensed
evenly over the period of usage of that asset in line with the practical expedients set out in
IFRS 16.
Where the Group has a contract to use part of a fibre or copper pathway and it does not
have substantially all of the capacity of the asset then that is not a lease and payments are
expensed evenly over the period of usage of that asset. In some instances a pathway may
have a small incidental linkage where the Group is using substantially all of the capacity
of a very minor part of the pathway but in this instance the whole contract is not treated as
a lease. The discount rate applied of 4% is the Group’s incremental borrowing rate.
The impact of IFRS 16 is to increase EBITDA by £1.3m through the removal of operating lease expenses, and a net impact
of £nil on profit from operations due to an offsetting £1.3m increase in depreciation.
4. Revenue
Revenue in all periods principally arises from the provision of products and services.
Disaggregation of revenue
Revenue is disaggregated into product type (traditional and growth products), the timing of revenue recognition
(at a point in time and over time) and operational segment. This disaggregation is shown by note 6.
Contract balances
The following table provides information about receivables, accrued income and contract liabilities from contracts with customers:
Receivables, which are included in ‘Trade and other receivables’
Accrued income, which is included in ‘Trade and other receivables’
Contract liabilities
31 December
2018
£m
31.0
27.7
16.4
31 December
2017
£m
25.9
27.0
16.0
1 January
2017
£m
22.4
20.4
13.0
The amount of revenue recognised in 2018 from performance obligations satisfied (or partially satisfied) in previous periods is
£nil (2017: £nil).
The contract liabilities are deferred income arising from installations and Horizon upfront subscriptions, which are released to
the income statement over the life of the contract.
91
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Notes forming part of the financial statements
For the year ended 31 December 2018 continued
4. Revenue continued
Significant changes in the contract liabilities balances during the period are as follows:
Revenue recognised that was included in the contract liability balance at the beginning of the period
Increases due to cash received, excluding amounts recognised as revenue during the period
Contract
Liabilities
31 December
2018
£m
(7.1)
7.8
Contract
Liabilities
31 December
2017
£m
(5.2)
7.9
Transaction price allocated to the remaining performance obligations
The following table includes revenue expected to be recognised in the future related to performance obligations that are
unsatisfied (or partially unsatisfied) at the reporting date.
Revenue expected to be recognised
2019
£m
11.4
2020
£m
5.4
2021
onwards
£m
3.6
Total
£m
20.4
The Group applies the practical expedient in paragraph 121 of IFRS 15 and does not disclose information about remaining
performance obligations that have original expected durations of one year or less. No consideration from contracts with
customers is excluded from the amounts presented above.
5. Contract costs
Capitalised contract costs consist of commissions from the Direct UK business unit which are directly associated with
specific customer contracts, and installation costs. Capitalised commissions amounted to £2.5m at 31 December 2018
(31 December 2017: £2.3m). The amount of amortisation was £1.5m in 2018 (2017: £1.1m) and there was no impairment loss in
relation to the costs capitalised. Capitalised installation costs amounted to £3.2m at 31 December 2018 (31 December 2017:
£3.1m). The amount of amortisation was £2.0m in 2018 (2017: £1.4m) and there was no impairment loss in relation to the costs
capitalised.
Applying the practical expedient in paragraph 94 of IFRS 15, the Group recognises the incremental costs of obtaining contracts
as an expense when incurred if the amortisation period of the assets that the Group otherwise would have recognised is one
year or less.
6. Segment information
As a result of the acquisition of DX Groep B.V. the Group has expanded its operating segments to reflect that it now operates in
the UK and Overseas. Previously the Group presented two operating segments: Indirect and Direct. Operational segments are
based on where the sales are generated. The Group now presents four operating segments:
• UK Indirect – This division sells Gamma’s traditional and growth products to channel partners and contributed 74% (2017: 75%)
of the Group’s external revenue.
• UK 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. It contributed 25% (2017: 25%) of the Group’s external revenues.
• Overseas – This is a new division arising from the acquisition of DX Groep B.V. This division currently consists of sales made by
DX Groep B.V. and its subsidiary companies, which in 2018 consisted of sales in the Netherlands. It contributed 1% (2017: 0%)
of the Group’s external revenues.
• Central functions – This is a new division arising as a result of the overseas expansion. This division consists of costs that were
previously included in the UK business but are not specifically attributable to the UK. This is not a revenue generating segment
but is made up of the central management team and wider Group costs.
As this change in business structure has arisen during the year due to the expansion overseas it is not relevant to the 2017
operating results.
All 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).
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.
92
Financial statements continuedGamma Communications plc Annual Report and Accounts 2018 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.
2018
Traditional products and services
Growth (being strategic and enabling) products and services
Total revenue from external customers
Inter-segment revenue
Timing of revenue recognition
At a point in time
Over time
Traditional products and services
Growth (being strategic and enabling) products and services
Total gross profit
Operating profit before depreciation, amortisation and gain
on disposal of property, plant and equipment
Depreciation and amortisation (excluding business combinations)
Amortisation arising due to business combination
Profit from operations
Finance income
Finance expense
Tax
Group profit after tax
Other comprehensive loss
Total comprehensive income attributable
to the owners of the parent
UK
Indirect
£m
47.9
162.7
210.6
52.5
19.9
190.7
210.6
11.9
85.6
97.5
35.0
(12.9)
–
22.1
0.3
(0.2)
(4.0)
18.2
–
18.2
UK
Direct
£m
11.0
59.9
70.9
–
3.7
67.2
70.9
3.5
29.3
32.8
16.4
(0.4)
–
16.0
–
–
(2.8)
13.2
–
13.2
Overseas
£m
Central
functions
£m
–
–
3.4
–
–
3.4
3.4
–
–
1.9
(0.4)
(0.2)
(0.4)
(1.0)
–
–
0.2
(0.8)
(0.2)
(1.0)
–
–
–
–
–
–
–
–
–
–
(2.7)
–
–
(2.7)
–
–
0.5
(2.2)
–
(2.2)
Total
£m
284.9
52.5
23.6
261.3
284.9
132.2
48.3
(13.5)
(0.4)
34.4
0.3
(0.2)
(6.1)
28.4
(0.2)
28.2
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
Recognition on transition to IFRS 16
Reportable segment assets
Reportable segment liabilities
UK
Indirect
£m
12.5
6.0
146.1
46.0
UK
Direct
£m
0.2
0.2
22.0
12.4
Overseas
£m
24.9
–
26.7
14.7
Central
functions
£m
–
–
–
–
Total
£m
37.6
6.2
194.8
73.1
From 2019 onwards, the Group will no longer differentiate the UK direct business by traditional and growth, but instead by
Market, as shown below. The Group will continue to differentiate the indirect business by traditional and growth products.
In addition, the Overseas revenue has not been split by traditional and growth products as the Group doesn’t measure this
business unit by these criteria.
93
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Notes forming part of the financial statements
For the year ended 31 December 2018 continued
6. Segment information continued
Direct revenue by Market
Mid-markets
Enterprise
Public sector
The Loop
2017*
Traditional products and services*
Growth (being strategic and enabling) products and services*
Total revenue from external customers*
Inter-segment revenue*
Timing of revenue recognition
At a point in time*
Over time*
Traditional products and services*
Growth (being strategic and enabling) products and services*
Total gross profit*
Operating profit before depreciation, amortisation and gain
on disposal of property, plant and equipment*
Depreciation and amortisation*
Gain on disposal of property, plant and equipment*
Profit from operations*
Finance income*
Finance expense*
Tax*
Group profit after tax*
2018
£m
25.1
27.8
16.5
1.5
70.9
Direct
£m
10.8
46.3
57.1
–
3.8
53.3
57.1
3.7
22.0
25.7
12.4
(0.4)
–
12.0
–
–
(1.8)
10.2
2017
£m
21.6
21.4
12.9
1.2
57.1
Total
£m
61.3
180.7
242.0
45.8
22.0
220.0
242.0
16.2
92.5
108.7
36.0
(10.4)
0.7
26.3
0.2
–
(3.8)
22.7
Indirect
£m
50.5
134.4
184.9
45.8
18.2
166.7
184.9
12.5
70.5
83.0
23.6
(10.0)
0.7
14.3
0.2
–
(2.0)
12.5
External revenue of customers has been derived principally from the United Kingdom and no single customer is over 10%
of revenue.
Additions to non-current assets*
Reportable segment assets*
Reportable segment liabilities*
* Restated results following the adoption of IFRS 15 as explained in note 3.
Indirect
£m
15.4
125.2
45.7
Direct
£m
0.4
28.5
12.7
Total
£m
15.8
153.7
58.4
94
Financial statements continuedGamma Communications plc Annual Report and Accounts 2018 7. Profit on ordinary activities
Profit on ordinary activities is stated after charging/(crediting) the following amounts:
Net foreign exchange
Research costs
Staff costs (see note 8)
Depreciation of property, plant and equipment
Depreciation on right of use assets
Amortisation of intangible assets (excluding business combinations)
Amortisation arising due to business combinations
Gain on disposal of property, plant and equipment
Cost of inventories recognised as an expense
Fees payable to the Company’s auditors:
Operating lease expense:
• Other
• Property
2018
£m
–
8.7
55.8
8.7
1.4
3.4
0.4
–
15.5
0.2
–
–
2017
£m
0.2
8.3
48.1
7.5
–
2.9
–
(0.7)
15.7
0.2
0.1
1.6
Fees payable to the Company’s auditor for the audit of the parent company and consolidated financial statements totalled £70k
(2017: £55k) for the year, and £127k (2017: £95k) for the audit of subsidiaries and other audit services. Fees payable for other
assurance services comprised £10k (2017: £30k).
8. Staff costs
Staff costs (including Directors) comprise:
Wages and salaries
Defined contribution pension cost (note 26)
Social security contributions and similar taxes
Share based payment expense (note 27)
Employee numbers
The average monthly number of staff employed by the Group during the financial year amounted to:
Operational
Selling, administration and distribution
2018
£m
46.1
2.8
5.0
53.9
1.9
55.8
2018
Number
552
424
976
2017
£m
39.8
2.1
4.2
46.1
2.0
48.1
2017
Number
491
354
845
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 pages 52 and 53, and the Management Committee in
place during 2018.
Salary
Post-employment benefits
Short term employee benefits
Share based payment expense (note 27)
2018
£m
3.3
0.1
0.8
4.2
1.0
5.2
2017
£m
3.0
0.1
0.4
3.5
1.0
4.5
95
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Notes forming part of the financial statements
For the year ended 31 December 2018 continued
8. Staff costs continued
Emoluments in respect of Directors are summarised below:
Salary
Social security contributions and similar taxes
Share based payment expense
Emoluments disclosed above include the following amounts in respect of the highest paid Director.
Salary
Share based payment expense
2018
£m
1.3
0.4
1.7
0.4
2.1
2018
£m
0.7
0.1
0.8
During the year, one Director (2017: two Directors) participated in a private money purchase defined contribution
pension scheme.
9. Finance income and expense
Finance income
Interest received on bank deposits
Total finance income
Finance expense
Interest expense on leases
Total finance expense
Net finance income
10. Tax expense
Current tax expense
Current tax on profits for the year
Adjustment in respect of prior year
Overseas tax
Total current tax
Deferred tax expense
Origination and reversal of temporary differences (note 23)
Total deferred tax
Total tax expense
2017
£m
1.4
0.2
1.6
0.4
2.0
2017
£m
0.6
0.3
0.9
2017
£m
0.2
0.2
–
–
0.2
2018
£m
0.3
0.3
(0.2)
(0.2)
0.1
2018
£m
2017
£m
4.9
0.1
0.2
5.2
0.9
0.9
6.1
5.1
(0.9)
–
4.2
(0.4)
(0.4)
3.8
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 19.00% (2017: 19.25%)
Additional deduction for R&D expenditure
Adjustment in respect of prior year
Total tax expense
2018
£m
34.5
6.6
–
(0.5)
6.1
2017
£m
26.5
5.1
(0.4)
(0.9)
3.8
The Finance Act 2016 includes provision for the main rate of corporation tax to reduce to 17% for the year beginning 1 April
2020, being 19% until 1 April 2020.
In 2018 there is no deduction for R&D expenditure shown within the tax expense, as it is now shown within EBITDA, in line with
the R&D Expenditure Credit Scheme.
96
Financial statements continuedGamma Communications plc Annual Report and Accounts 2018 11. Earnings per share and dividends
Earnings per share
The calculation of basic earnings per Ordinary Share is based on a profit after tax of £28.4m (2017: £22.7m) and 93,646,411
(2017: 92,750,844) 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. The following reflects the share data used in the calculation of
diluted earnings per share:
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
2018
No.
93,646,411
1,108,034
94,754,445
2017
No.
92,750,844
1,651,182
94,402,026
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
Less tax adjustment in respect of prior years
Add amortisation arising on business combination
Less tax benefit associated with one-off costs
Adjusted profit after tax for the year
* Restated results following the adoption of IFRS 15 as explained in note 3.
Adjusted earnings per Ordinary Share – basic (pence)
Adjusted earnings per Ordinary Share – diluted (pence)
* Restated results following the adoption of IFRS 15 as explained in note 3.
Total
2018
£m
28.4
–
0.4
(0.1)
28.7
2018
30.6
30.3
Total
2017
£m
Restated*
22.7
(0.9)
–
–
21.8
2017
Restated*
23.5
23.1
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 3.1p was paid on 18 October 2018 (2017: 2.8p).
A final dividend of 6.2p will be proposed at the Annual General Meeting but has not been recognised as it requires approval
(2017: 5.6p). The total amount of dividends proposed is 9.3p (2016: 8.4p). The payments of these dividends do not have any tax
consequences for the Group.
97
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Notes forming part of the financial statements
For the year ended 31 December 2018 continued
12. Property, plant and equipment
Cost
At 1 January 2018
Additions
Acquisition of subsidiary
Disposals
Reclassification
At 31 December 2018
Depreciation
At 1 January 2018
Charge for the year
Disposals
Reclassification
At 31 December 2018
Net book value
At 1 January 2018
At 31 December 2018
Cost
At 1 January 2017*
Additions*
Disposals*
At 31 December 2017*
Depreciation
At 1 January 2017*
Charge for the year*
Disposals*
At 31 December 2017*
Net book value
At 1 January 2017*
At 31 December 2017*
Network
assets
£m
Customer
premises
equipment £m
Computer
equipment
£m
Fixtures and
fittings
£m
65.5
10.0
0.7
–
0.6
76.8
39.3
7.3
–
0.5
47.1
26.2
29.7
54.5
11.0
–
65.5
33.6
5.7
–
39.3
20.9
26.2
0.8
–
–
(0.2)
(0.6)
–
0.7
–
(0.2)
(0.5)
–
0.1
–
1.1
–
(0.3)
0.8
0.7
0.3
(0.3)
0.7
0.4
0.1
7.0
0.2
0.3
–
–
7.5
4.5
1.2
–
–
5.7
2.5
1.8
6.2
0.8
–
7.0
3.4
1.1
–
4.5
2.8
2.5
1.0
–
0.1
–
–
1.1
0.6
0.2
–
–
0.8
0.4
0.3
0.7
0.3
–
1.0
0.2
0.4
–
0.6
0.5
0.4
Total
£m
74.3
10.2
1.1
(0.2)
–
85.4
45.1
8.7
(0.2)
–
53.6
29.2
31.8
62.5
12.1
(0.3)
74.3
37.9
7.5
(0.3)
45.1
24.6
29.2
* Restated results following the adoption of IFRS 15 as explained in note 3.
There was no property, plant or equipment held as security at the end of either year.
Prior to the application of IFRS 15, all customer premises equipment (CPE) was held under a single asset class. Following the
application of IFRS 15 CPE now falls into two categories, being CPE that is treated in line with IFRS 15 and CPE that does not
meet the criteria of IFRS 15. The Group has reclassified CPE that does not meet the requirements of IFRS 15 from CPE to
network assets.
98
Financial statements continuedGamma Communications plc Annual Report and Accounts 2018 13. Leases under IFRS 16
The Group’s lease commitments are predominantly made up of office premises, other leases for land and buildings, and cars.
Right of use assets
Cost
At 1 January 2018 – recognition on transition to IFRS 16
Acquisition of subsidiary
Additions
Disposals
At 31 December 2018
Depreciation
At 1 January 2018
Charge for the year
Disposals
At 31 December 2018
Net book value
At 1 January 2018
At 31 December 2018
Land and
buildings
£m
Other
£m
Total
£m
6.0
0.2
0.1
(1.1)
5.2
–
1.3
(0.2)
1.1
–
4.1
0.2
–
–
–
0.2
–
0.1
–
0.1
–
0.1
6.2
0.2
0.1
(1.1)
5.4
–
1.4
(0.2)
1.2
–
4.2
Disposals of right of use assets relate to the decision to exercise break clauses for office premises in August 2019. No
replacement leases have been committed to in the year ended 31 December 2018.
Lease liabilities
Maturity analysis – contractual undiscounted cash flows
In one year or less
Between one and five years
In five years or more
Total undiscounted lease liabilities at 31 December 2018
Lease liabilities included in the statement of financial position at 31 December 2018
Current
Non-current
Amounts recognised in the comprehensive income statement
Interest expense on lease liabilities
Expenses relating to short term leases
Expenses relating to leases of low value assets, excluding short term leases of low value assets
Amounts recognised in the statement of cash flows
Total cash outflow
2018
£m
2017
£m
1.6
2.1
1.1
4.8
4.4
1.5
2.9
0.2
–
–
1.6
1.7
4.4
1.3
7.4
–
–
–
–
–
–
1.7
During the years ended 31 December 2017 and 31 December 2018 there were no variable lease payments not included in the
measurement of lease liabilities, no sale and leaseback transactions and no income from sub-leasing right of use assets.
The Group holds leases for office equipment such as photocopiers for which the Group has taken the small value exemption in
paragraph 6 of the IFRS 16 standard. In addition to this the Group has applied the short term exemption to a number of other
leases for land and buildings that have lease terms of less than 12 months.
99
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Notes forming part of the financial statements
For the year ended 31 December 2018 continued
14. Intangible assets
Cost
At 1 January 2018
Additions
Acquisition of subsidiary
At 31 December 2018
Amortisation
At 1 January 2018
Charge for the year
At 31 December 2018
Carrying value
At 1 January 2018
At 31 December 2018
Cost
At 1 January 2017
Additions
At 31 December 2017
Amortisation
At 1 January 2017
Charge for the year
At 31 December 2017
Carrying value
At 1 January 2017
At 31 December 2017
Goodwill on
consolidation
£m
Development
costs
£m
Customer
contracts
£m
Brand
£m
Software
£m*
12.5
–
7.2
19.7
4.5
–
4.5
8.0
15.2
12.5
–
12.5
4.5
–
4.5
8.0
8.0
7.2
1.3
0.4
8.9
5.2
1.2
6.4
2.0
2.5
6.1
1.1
7.2
4.2
1.0
5.2
1.9
2.0
2.1
–
15.1
17.2
2.1
0.4
2.5
–
14.7
2.1
–
2.1
2.0
0.1
2.1
0.1
–
–
–
0.9
0.9
–
–
–
–
0.9
–
–
–
–
–
–
–
–
10.0
1.2
0.2
11.4
4.5
2.2
6.7
5.5
4.7
7.4
2.6
10.0
2.7
1.8
4.5
4.7
5.5
Total
£m
31.8
2.5
23.8
58.1
16.3
3.8
20.1
15.5
38.0
28.1
3.7
31.8
13.4
2.9
16.3
14.7
15.5
* Restated results following the adoption of IFRS 15 as explained in note 3.
The estimates of the useful economic lives of the intangible assets are as follows:
• Goodwill on consolidation – indefinite (subject to impairment).
• Development costs – over the anticipated useful economic life of the asset developed but no more than four years.
• Customer contracts – nine to ten years.
• Brand – five years.
• Software – four years.
All amortisation on intangible assets charged to the consolidated statement of comprehensive income is included within
operating expenses.
The carrying amount of goodwill is allocated to the cash generating units (‘CGUs’) as follows:
Gamma Business Communications Limited
Gamma Network Solutions Limited
DX Groep B.V.
2018
£m
6.8
1.2
4.6
12.6
2017
£m
6.8
1.2
–
8.0
The CGUs are determined based on how the business units are reported internally.
The carrying value of the Group’s goodwill was tested for impairment at 31 December 2018 and 2017 for Gamma Business
Communications limited and Gamma Network Solutions Limited. DX Groep B.V. has been tested for impairment on
31 December 2018.
The recoverable amount has been determined on a value-in-use basis on each CGU using the Board approved budgets where
gross margin percentage is assumed to be held constant and budgeted revenue and overheads are forecasted to grow. These
cash flows are discounted at the pre-tax cost of capital for the Group.
100
Financial statements continuedGamma Communications plc Annual Report and Accounts 2018 Based on the results of the impairment reviews carried out for each year (giving a recoverable amount of £38.2m (2017: £27.4m)
in respect of Gamma Business Communications Limited, £41.9m (2017: £24.1m) in respect of Gamma Network Solutions Limited
and £11.7m for DX Groep B.V., no impairment charges have been recognised by the Group in either of the years. 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.
15. 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 Business Communications Limited
Gamma Network Solutions Limited
Gamma Development KfT
(formerly Peach Amber KfT)
Gamma Communications Netherlands B.V.
DX Groep B.V.
Dean One B.V.
Schiphol Connect B.V.
Gamma Communications Ireland Ltd
Gamma Communications US Inc
Uniworld Bureau Services Limited
Nature of business
Country of
incorporation
United Kingdom Intermediate holding company
United Kingdom Telephony services
United Kingdom Telephony services
United Kingdom Telephony services
Hungary
Software services
Intermediate holding company
Netherlands
Intermediate holding company
Netherlands
Telephony services
Netherlands
Telephony services
Netherlands
Telephony services
Ireland
United States
Dormant
United Kingdom Dormant
Ownership
by the Company
Direct ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Notes
(a)
(a)
(a)
(a)
(b)
(c)
(d)
(d)
(d)
(e)
(f)
(a)
Notes:
(a) Registered Office: 5 Fleet Place, London, EC4M 7RD, England.
(b) Registered Office: 1054 Budapest, Széchenyi Rakpart 8, Hungary.
(c) Office address: 5 Fleet Place, London, EC4M 7RD, England.
(d) Office address: Krijgsman 75, 1186 DR Amstelveen, the Netherlands.
(e) Registered Office: 6th floor, 2 Grand Canal Square, Dublin 2.
(f) Registered Office: 1313 N. Market Street, Suite 5100, Wilmington, Delaware, 19801, USA.
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 Communications plc SIP Trust.
The Group held no interests in unconsolidated structured entities.
16. Business combinations
Summary of acquisition
On 1 October 2018 the Group acquired 100% of the issued share capital of DX Groep B.V., a provider of telephony services.
The acquisition has provided Gamma Communications Plc with initial access to the European telecommunications market.
Details of the purchase consideration, the net assets acquired and goodwill are as follows:
Cash paid
Contingent consideration
Total purchase consideration
At
acquisition
£m
11.5
8.1
19.6
Fair value
adjustment
£m
–
–
–
31 December
2018
£m
11.5
8.1
19.6
In the event that pre-determined EBITDA is achieved by the subsidiary by the year ended 31 December 2019, additional
consideration of up to £14m may be payable in cash on 10 May 2020.
The potential undiscounted amount payable under the agreement is between £nil (€nil) for EBITDA in the year ended
31 December 2019 of less than £1.6m (€1.8m) and £12.6m (€14.0m) for EBITDA of £3.3m (€3.7m) or more. Sterling values
have been translated at the closing exchange rate of 1.1128.
The fair value of contingent consideration of £8.1m was estimated by calculating the present value of future expected cash
flows. The estimates are based on a discount rate of 4% and 2019 EBITDA €3m with an earnings multiplier of 7.5 times less the
cash already paid.
To date DX Groep B.V. is performing in line with expectations.
101
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Notes forming part of the financial statements
For the year ended 31 December 2018 continued
16. Business combinations continued
The provisional fair value of the assets and liabilities recognised as a result of the acquisition are as follows:
Cash
Trade receivables
Inventories
Tangible fixed assets
Intangible fixed assets – pre existing
Intangible – customer contracts
Intangible – brand
Financial assets
Trade payables
Other receivables
Other payables
Current tax
Deferred tax liability/asset
Net identifiable assets acquired
Add: Goodwill
Net assets acquired
At
acquisition
£m
0.4
0.5
0.1
1.1
1.1
–
–
–
(1.0)
0.6
(2.0)
(0.2)
–
0.6
Fair value
adjustment
£m
–
–
–
–
(0.5)
15.1
0.9
–
–
–
–
–
(3.7)
11.8
31 December
2018
£m
0.4
0.5
0.1
1.1
0.6
15.1
0.9
–
(1.0)
0.6
(2.0)
(0.2)
(3.7)
12.4
7.2
19.6
There were no acquisitions in the year ended 31 December 2017.
Acquired receivables
The fair value of acquired trade receivables is £0.5m. The gross contractual amount for trade receivables due is £0.5m, of which
£nil is expected to be uncollectible.
Revenue and profit contribution (unaudited)
The acquired business contributed revenues of £3.4m and net profit of £0.1m to the Group for the period from 1 October 2018
to 31 December 2018.
If the acquisition had occurred on 1 January 2018, consolidated pro-forma revenue and profit for the year ended
31 December 2018 would have been £14.4m and £0.8m respectively. These amounts have been calculated as follows:
For the year ended 31 December 2018
Add: Transaction costs
For the year ended 31 December 2018 if the acquisition occurred on 1 Jan 2018
Revenue
£m
14.4
–
14.4
Profit
£m
0.1
0.7
0.8
Goodwill
The goodwill of £7.2m is attributable to the acquired Group acting as a focal point through which Gamma can broaden its
geographical footprint in the medium term. The goodwill is not deductible for tax purposes.
Purchase consideration – cash outflow
Cash consideration
Less: Cash acquired
Net outflow of cash – Investing activities
Valuations of intangible assets
Customer relations were valued under the Income Method and the brand under the Relief from Royalty Method.
17. Inventories
Raw materials and consumables
Provision
Total inventories
2018
£m
6.6
(0.4)
6.2
2018
£m
11.5
(0.4)
11.1
2017
£m
3.4
(0.2)
3.2
The replacement cost of stocks equals the balance sheet amount. Inventory levels are high in comparison to 2017 as the Group
has purchased stock in advance due to Brexit.
102
Financial statements continuedGamma Communications plc Annual Report and Accounts 2018 18. 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
Of which:
Due within one year or less
Due after more than one year
2018
£m
31.0
(4.6)
26.4
27.7
17.9
2.7
74.7
62.8
11.9
2017
£m
25.9
(2.7)
23.2
27.0
16.3
6.0
72.5
61.6
10.9
The Directors consider that the carrying value of the trade and other receivables is approximately equal to their fair value.
As at 31 December 2018 and 2017 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
2018
£m
1.8
0.3
–
–
2.1
2017
£m
1.5
–
–
–
1.5
As at 31 December 2018 trade receivables of £4.3m (2017: £2.3m) were past due and impaired. The amount of the provision
as at 31 December 2018 was £4.6m (2017: £2.7m). 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
2018
£m
0.3
2.1
0.6
0.9
0.7
4.6
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
2018
£m
2.7
2.1
(0.2)
4.6
2017
£m
0.4
1.3
0.5
0.2
0.3
2.7
2017
£m
2.0
1.2
(0.5)
2.7
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.
103
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Notes forming part of the financial statements
For the year ended 31 December 2018 continued
19. Cash and cash equivalents
Cash at bank
20. Trade and other payables
Current and non-current
Trade payables
Other payables
Accruals – Cost of sales
Accruals – Operating expenses (excluding payroll)
Accruals – Payroll (excluding tax and social security)
Tax and social security
Deferred income
Total trade and other payables
Book values approximate to fair value at 31 December 2018 and 31 December 2017.
Of which:
Due within one year or less
Due after more than one year
2018
£m
35.5
2018
£m
4.4
2.1
13.4
4.7
6.8
2.1
4.0
37.5
37.2
0.3
2017
£m
31.6
2017
£m
7.9
1.9
15.0
3.2
6.7
2.4
2.7
39.8
39.8
–
Within ‘Accruals – Cost of sales’ is an amount which represents an estimate of amounts which have yet to be billed by other
carriers. This accrual is required because in the telecoms industry, calls and data are passed from one carrier to another and
there is a significant level of billing between carriers, and reconciliations are carried out between the data records of each
carrier. In some cases, these reconciliations may take some time to perform. Even when a bill has been received, most
carriers reserve the right to issue additional bills if they discover that the units thereon were incomplete or the calls were
not correctly rated.
21. 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.
104
Financial statements continuedGamma Communications plc Annual Report and Accounts 2018 A summary of the financial instruments held by category is provided below:
Financial assets – amortised cost
Cash and cash equivalents
Trade receivables – net
Accrued income
Prepayments
Other receivables
Total financial assets
Financial liabilities – amortised cost
Trade payables
Other payables
Accruals – Cost of sales
Accruals – Operating expenses (excluding payroll)
Accruals – Payroll (excluding tax and social security)
Contract liabilities
Lease liabilities
Total financial liabilities
2018
£m
35.5
26.4
27.7
17.9
2.7
110.2
2018
£m
4.4
1.8
12.8
5.4
7.0
16.4
4.4
52.2
2017
£m
31.6
23.2
27.0
16.3
6.0
104.1
2017
£m
7.9
1.9
15.0
3.2
6.7
16.0
–
50.7
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.
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 below:
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 18.
Due to the Group’s procedures for managing credit risk, expected credit losses on all non-trade receivable financial assets are
expected to be negligible. Expected impairment for trade receivables are calculated based on historical default rates. Details of
this provision are shown in note 18.
105
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Notes forming part of the financial statements
For the year ended 31 December 2018 continued
21. Financial instruments – risk management continued
Financial assets – maximum exposure
Cash and cash equivalents
Trade receivables – net
Accrued income
Prepayments
Other receivables
Total financial assets
2018
£m
35.5
26.4
27.7
17.9
2.7
110.2
2017
£m
31.6
23.2
27.0
16.3
6.0
104.1
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 in addition to those already provided against.
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 and the acquired companies under DX Groep B.V. which are 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 three 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 two open foreign exchange contracts at year end
to cover payments totalling USD$3.8m.
As of 31 December 2017 and 31 December 2018 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.
Interest rate risk
The Group’s only exposure to interest rate risk arises from the interest rate on fixed term, fixed rate bank deposits. Analysis of
this has not been prepared as this risk is immaterial.
Liquidity risk
Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will encounter difficulty in
meeting its financial obligations as they fall due.
It is the Group’s aim to settle balances as they become due.
The Board receives annual 36-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:
2018
Total financial liabilities
(excluding lease and contract liabilities)
2017
Total financial liabilities
(excluding lease liabilities and contract liabilities)
Lease and contract liabilities have been excluded.
Up to 3
months
£m
30.9
Up to 3
months
£m
32.9
Between
3 and 12
months
£m
–
Between
3 and 12
months
£m
Between
1 and 2
years
£m
0.5
Between
1 and 2
years
£m
Between
2 and 5
years
£m
–
Between
2 and 5
years
£m
1.8
–
–
Over
5 years
£m
–
Over
5 years
£m
–
The Group presents a maturity analysis of lease liabilities within note 13.
More details in regard to the line items are included in the respective note:
• Trade and other payables – note 20.
106
Financial statements continuedGamma Communications plc Annual Report and Accounts 2018 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
22. Provisions
Leasehold dilapidation provision
Onerous lease provision
Onerous contracts
Total provisions
Of which:
Due within one year or less
Due after more than one year
At 1 January 2018
Additional provision in the year
Utilisation of provision
At 31 December 2018
2018
£m
117.9
35.5
153.4
117.9
117.9
1.30
2018
£m
1.4
0.3
0.5
2.2
1.0
1.2
Onerous
contracts
£m
–
0.5
–
0.5
Leasehold
dilapidation
provision
£m
1.3
0.1
–
1.4
Onerous
lease
provision
£m
0.5
0.1
(0.3)
0.3
2017
£m
95.3
31.6
126.9
95.3
95.3
1.33
2017
£m
1.3
0.5
–
1.8
0.3
1.5
Total
£m
1.8
0.7
(0.3)
2.2
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 account. 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. Leasehold
dilapidation provisions relate to property rentals and vary from less than 12 months to in excess of five years.
The onerous lease provision relates to lease payments on property which became onerous during the prior 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. The onerous lease provision relates
to POP sites, with remaining terms of under 12 months.
From time to time the Group engages in contracts with suppliers where there is a minimum commitment. This is done in
instances where the minimum purchase commitment is considered to be comfortably achievable and there is a material
commercial advantage to making that commitment. Rarely there may be an unforeseen change in circumstances which means
that the commitment becomes onerous and a provision is made at the point it appears that the minimum commitments will not
be achieved. Provisions for onerous leases relate to contracts less than two years in length.
107
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Notes forming part of the financial statements
For the year ended 31 December 2018 continued
23. Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method using the tax rate at which it is expected to
unwind, being 19% until 1 April 2020 and then 17% from 1 April 2020.
The movement on the deferred tax account is as shown below:
Asset at 1 January
Change in accounting policy
Restated asset at 1 January
Tax credit recognised in profit and loss
Recognised directly in equity
Tax arising on acquisition
Net/asset at 31 December
2018
£m
1.7
3.8
5.5
(0.9)
(0.4)
(3.7)
0.5
2017
£m
1.6
–
1.6
0.4
(0.3)
–
1.7
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, will therefore be tax-paying and so expects to recover all deferred tax assets.
The deferred taxation asset/(liability) consists of the tax effect of temporary differences as follows:
Asset
£m
Liability
£m
1.9
1.5
1.0
–
4.4
–
(0.2)
–
(3.7)
(3.9)
Asset
£m
Liability
£m
0.4
0.2
1.1
1.7
–
–
–
–
Net
£m
1.9
1.3
1.0
(3.7)
0.5
Net
£m
0.4
0.2
1.1
1.7
Credited to
profit or
loss
£m
–
(1.0)
0.1
–
(0.9)
Charged to
equity
£m
(0.2)
–
(0.2)
–
(0.4)
Credited/
(charged)
profit or
loss
£m
Charged to
equity
£m
0.5
0.1
(0.2)
0.4
–
–
(0.3)
(0.3)
2017
£m
0.2
0.2
Notes
(a)
(a)
(a)
(a)
(a)
(a)
(a)
2018
Number
93,984,626
2018
£m
0.2
0.2
2017
Number
93,289,973
Number
93,289,973
199,829
381,171
4,457
4,703
14,814
82,059
7,620
93,984,626
2018
Difference in capital allowances and depreciation/
amortisation
Other temporary and deductible differences
Deferred tax on share options
Deferred tax on acquisition of subsidiary
Deferred tax asset/(liability)
2017
Difference in capital allowances and depreciation/
amortisation
Other temporary and deductible differences
Deferred tax on share options
Deferred tax asset/(liability)
24. Share capital
At 31 December the share capital was as follows:
Authorised, allotted and fully paid
Ordinary Shares of £0.0025 each
Ordinary Share movement in the year is as follows:
As at 1 January 2018
May 2018
June 2018
August 2018
September 2018
October 2018
November 2018
December 2018
As at 31 December 2018
(a) Ordinary Shares were issued to satisfy options which had been exercised.
108
Financial statements continuedGamma Communications plc Annual Report and Accounts 2018 In the prior year, the share capital movements were as follows:
As at 1 January 2017
March 2017
May 2017
December 2017
As at 31 December 2017
Number
91,751,499
272,992
1,224,949
40,533
93,289,973
Notes
(a)
(a)
(a)
(a) Ordinary Shares were issued to satisfy options which had been exercised.
25. Reserves
The following describes the nature and purpose of each reserve within equity:
Reserve
Share premium reserve
Merger reserve
Share option reserve
Foreign exchange reserve
Own shares
Retained earnings
26. Retirement benefits
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 in 2014. 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.
Exchange differences relating to the translation of the net assets of the Group’s foreign subsidiaries
from their functional currency into the parent’s functional currency.
Purchase of own shares under a SIP scheme.
All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere.
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
2018
£m
2.8
2017
£m
2.1
27. Share based payment expense
Share options granted
On 23 May 2018 the Board approved an issue of options under the Company Share Option Plan which granted 185,424 options
over £0.0025 Ordinary Shares at an exercise price of £7.3400. These will vest in May 2021.
On 3 April 2018 the Board approved an award under the long term incentive plan for the senior management team.
315,353 options were granted over £0.0025 Ordinary Shares at an exercise price of £0.0025 per share which will vest on
3 April 2021 subject to performance conditions. The awards granted will have a performance period of three years starting
from the vesting commencement date, being 3 April 2018.
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 exceeds or
equals 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 Group’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 Group’s adjusted earnings per share exceeds or
equals 20% with pro rata in between.
On 8 May 2018 the Board approved an issue of options under a Save As You Earn scheme which granted 241,298 options over
£0.0025 Ordinary Shares at an exercise price of £5.5520. These options will vest in July 2021.
The weighted average fair value of awards granted during the year was £2.91 (2017: £2.30).
109
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Notes forming part of the financial statements
For the year ended 31 December 2018 continued
27. Share based payment expense continued
Share options movements
Movements in the number of options during the year were as follows:
The options below were exercised at a weighted average share price of £7.51, and weighted average exercise price of £1.15, and
the weighted average exercise price of share options exercisable at 31 December 2018 was £2.34.
2018
Date of grant
6 June 2014
8 May 2015
8 June 2015
15 April 2016
17 May 2016
19 May 2016
5 April 2017
9 May 2017
22 May 2017
3 April 2018
8 May 2018
23 May 2018
Start
of year
20,000
370,349
358,698
65,382
277,986
605,681
184,032
273,583
261,208
–
–
–
Granted
–
–
–
–
–
–
–
–
–
315,353
241,298
185,424
Forfeited/
Cancelled
–
–
(21,970)
(2,294)
(25,598)
(33,353)
(13,684)
(15,089)
(41,323)
–
(20,171)
(5,450)
Exercised
–
(281,119)
(336,728)
–
(46,272)
(6,354)
–
(3,099)
(20,973)
–
(108)
–
End
of year
20,000
89,230
–
63,088
206,116
565,974
170,348
255,395
198,912
315,353
221,019
179,974
Exercise
price
£0.2500
£2.7000
£0.0025
£4.3575
£0.0025
£3.4440
£4.9325
£4.1600
£0.0025
£0.0025
£5.5520
£7.3400
Class of
share
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Notes
(a)
(a)
(a)
(b)
(c) (l)
(d)
(e)
(f)
(f) (k) (l)
(h)
(i)
(j)
Notes:
(a) Options have vested and are exercisable.
(b) The awards granted will have a performance period of three years starting from the grant date, being 15 April 2016.
(c) The awards granted will have a performance period of three years starting from the vesting commencement date, being 31 March 2016.
(d) The awards granted will have a performance period of three years starting from the vesting commencement date, being 1 July 2016.
(e) The awards granted will have a performance period of three years starting from the grant date, being 5 April 2017.
(f) The awards granted will have a performance period of three years starting from the vesting commencement date, being 31 March 2017.
(g) The awards granted will have a performance period of three years starting from the vesting commencement date, being 1 July 2017.
(h) The awards granted will have a performance period of three years starting from the vesting commencement date, being 3 April 2018.
(i) The awards granted will have a performance period of three years starting from the grant date, being 23 May 2018.
(j) The awards granted will have a performance period of three years starting from the vesting commencement date, being 1 July 2018.
(k) The awards 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.
(l)
Options for Bob Falconer were vested early in line with the amount of the vesting period up to his leaving date and hence exercised before the rest of the scheme
becomes exercisable. The unvested shares were cancelled.
There were no lapsed share options during the year.
Apart from the options noted as exercisable, all other options above are outstanding.
Movements in the number of options during the previous year were as follows:
110
Financial statements continuedGamma Communications plc Annual Report and Accounts 2018
The options below were exercised at a weighted average share price of £5.35, and weighted average exercise price of £0.013,
and the weighted average exercise price of share options exercisable at 31 December 2018 was £0.25.
2017
Date of grant
6 June 2014
2 September 2014
6 October 2014
6 October 2014
6 October 2014
8 May 2015
8 June 2015
15 April 2016
17 May 2016
19 May 2016
5 April 2017
9 May 2017
22 May 2017
Start
of year
60,000
1,155,912
284
272,707
67,892
370,349
455,218
65,382
352,769
641,053
–
–
–
Granted
–
–
–
–
–
–
–
–
–
–
184,032
274,664
321,720
Forfeited/
Cancelled
–
–
–
–
–
–
(96,520)
–
(74,783)
(33,678)
–
(1,081)
(60,512)
Exercised
(40,000)
(1,155,912)
(284)
(272,707)
(67,892)
–
–
–
–
(1,694)
–
–
–
End
of year
20,000
–
–
–
–
370,349
358,698
65,382
277,986
605,681
184,032
273,583
261,208
Exercise
price
£0.2500
£0.0025
£0.0025
£0.0025
£0.0025
£2.7000
£0.0025
£4.3575
£0.0025
£3.4440
£4.9325
£4.1600
£0.0025
Class of
share
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Notes
(a)
(a) (j)
(a)
(a)
(a)
(b)
(c) (j)
(d)
(e)
(f)
(g)
(i)
(h) (j)
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.
ii.
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
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.
There were no lapsed share options during the year.
The share options are subject to equity-settled share based payments.
The share options outstanding at 31 December 2018 represented 2% of the issued share capital as at that date (2017: 3%) and
would generate additional funds of £6.9m (2017: £5.4m) if fully exercised. The weighted average remaining life of the share
options was 15 months (2017: 17 months), with a weighted average remaining exercise price of £3.03 (2017: £2.26).
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
Total share based payment expense
2018
£m
1.0
0.9
1.9
2017
£m
1.0
1.0
2.0
Included within the total share based payment expense of £1.9m (2017: £2.0m) is national insurance of £0.6m (2017: £0.5m).
111
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance
Notes forming part of the financial statements
For the year ended 31 December 2018 continued
27. Share based payment expense continued
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
2018
686 – 762
0.25 – 734
25%
2017
500 – 575
0.25 – 493
27%
0.817 – 0.878% 0.182 – 0.263%
1.4%
1.4%
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 2017 and 2018.
28. Fair value measurements of financial instruments
Financial assets and financial liabilities measured at fair value in the statement of financial position are grouped into three
Levels of a fair value hierarchy. The three Levels are defined based on the observability of significant inputs to the
measurement, as follows:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly or indirectly.
• Level 3: unobservable inputs for the asset or liability.
The Group only has one Level 3 financial liability being the contingent consideration.
The Group’s finance team performs valuations of financial items for financial reporting purposes, including Level 3 fair values, in
consultation with third party valuation specialists for complex valuations. Valuation techniques are selected based on the
characteristics of each instrument, with the overall objective of maximising the use of market-based information. The finance
team reports directly to the CFO.
The valuation techniques used for instruments categorised in Level 3 are described below.
The fair value of contingent consideration related to the acquisition of DX Group (see note 16) was based on the expected 2019
EBITDA of the business.
The discount rate used is based on the Group’s estimated cost of debt. The effects on the fair value of risk and uncertainty in
the future cash flows are dealt with by adjusting the discount rate.
The two most significant sensitivities are a change in future EBITDA and change in the value of sterling. An increase/(decrease)
by 10% of either of these variables will result in an increase/(decrease) of fair value of £2.25m. As per the agreement the sum of
the Earnout Amount and the Base Consideration shall never exceed €27.5m and the Earnout Amount shall never exceed
€14.0m and shall never be negative.
Management has recalculated the fair value of the contingent consideration at the end of each accounting period and there has
been no material difference in the fair value.
Level 3 fair value measurements
The reconciliation of the carrying amounts of financial instruments classified within Level 3 is as follows:
1 October 2018
Adjustment to contingent consideration
31 December 2018
£m
8.1
–
8.1
112
Financial statements continuedGamma Communications plc Annual Report and Accounts 2018 29. Capital commitments
As at 31 December 2018, amounts contracted for but not provided in the financial statements amounted to £14.4m for the
Group (2017: £0.1m). This amount is for the purchase of software licences in 2018 and property, plant and equipment in 2017.
The capital commitments in 2018 are payable in USD, with the payable amount being $18.3m. Changes in the exchange rate as a
result of Brexit could cause variances in the value of the commitment.
30. Related party transactions
Details of key management’s remuneration are given in note 8.
Dividends of £0.4m (2017: £0.3m) 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.
31. Subsequent events
On 4 February 2019 the Group acquired the Nimsys group of companies, for an initial consideration of £3.5m (€4.0m) (net of
acquired cash and debt), with up to another £3.2m (€3.6m) payable contingent on performance in 2019 and 2020, converted
using the acquisition date exchange rate of 1.1414. Nimsys is based in the Netherlands and provides internet, cloud telephony
and associated IT services primarily to the operators and tenants of premium multi-tenant office buildings across the
Netherlands and derives its revenue primarily from recurring service contracts with those operators and their tenants.
Due to the proximity of the acquisition to the publication of these accounts and given the materiality of the transaction,
the Group has not yet completed the purchase price allocation and it is impracticable to give further information.
32. Ultimate controlling party
There is no ultimate controlling party.
113
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Company balance sheet
As at 31 December 2018
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
3
4
5
6
2018
£m
11.0
11.0
64.5
6.5
71.0
(21.1)
49.9
60.9
0.2
4.6
10.8
45.3
60.9
2017
£m
9.3
9.3
45.1
6.1
51.2
(13.1)
38.1
47.4
0.2
3.8
9.1
34.3
47.4
As a consolidated statement of comprehensive income is published, a separate profit and loss account for the parent company
is omitted from the Group financial statements by virtue of section 408 of the Companies Act 2006. The profit in respect of the
Company for the year was £19.1m (2017: £13.1m).
The financial statements of Gamma Communications plc (registered number 08943488) on pages 114 to 115 were approved and
authorised for issue by the Board of Directors on 11 March 2019 and were signed on its behalf by:
Andrew Belshaw
Chief Financial Officer
The notes on pages 116 to 118 form part of these financial statements.
114
Financial statements continuedGamma Communications plc Annual Report and Accounts 2018 Company statement of changes in equity
For the year ended 31 December 2018
1 January 2017
Dividends paid
Share based payments
Issue of shares
Transaction with owners
Total comprehensive income
31 December 2017
1 January 2018
Dividends paid
Share based payments
Issue of shares
Transaction with owners
Total comprehensive income
31 December 2018
Share
capital
£m
0.2
–
–
–
–
–
0.2
0.2
–
–
–
–
–
0.2
Share
premium
reserve
£m
3.7
–
–
0.1
0.1
Share
option
reserve
£m
7.6
–
1.5
–
1.5
Profit and loss
account
£m
28.5
(7.3)
–
–
(7.3)
–
3.8
3.8
–
–
0.8
0.8
–
4.6
–
9.1
9.1
–
1.7
–
1.7
–
10.8
13.1
34.3
34.3
(8.1)
–
–
(8.1)
19.1
45.3
Total
equity
£m
40.0
(7.3)
1.5
0.1
(5.7)
13.1
47.4
47.4
(8.1)
1.7
0.8
(5.6)
19.1
60.9
115
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Notes forming part of the Company financial statements
For the year ended 31 December 2018
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 assets
The Company does not have any financial assets which it
would classify at fair value through profit or loss, available for
sale or held to maturity. Therefore, all financial assets are
classed as loans and receivables as defined below.
Loans and receivables
These assets are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active
market. They arise principally through the provision of goods
and services to customers (e.g. trade receivables), but also
incorporate other types of contractual monetary asset.
They are initially recognised at fair value plus transaction costs
that are directly attributable to their acquisition or issue and
are subsequently carried at amortised cost using the effective
interest rate method, less provision for impairment.
Impairment provisions are recognised when there is objective
evidence (such as significant financial difficulties on the part of
the counterparty or default or significant delay in payment)
that the Company 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.
The Company’s loans and receivables comprise amounts due
from Group undertakings, other receivables and cash and
cash equivalents in the statement of financial position. Cash
and cash equivalents includes cash in hand, deposits held at
call with banks and other short term highly liquid investments
with original maturities of three months or less. Bank
overdrafts are shown within loans and borrowings in current
liabilities on the statement of financial position.
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.
1. Accounting policies
General information
The Company’s principal activity is to act as a holding
company that does not trade with third parties. The Group,
of which this Company is part, is principally engaged in the
provision of communications and software services
for business.
The Company is a public company and is incorporated and
domiciled in the UK. The address of its registered office is
5 Fleet Place, London, EC4M 7RD.
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.
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 virtue of
section 408 of the Companies Act 2006. The profit in respect
of the Company for the year was £19.1m (2017: £13.1m).
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)
(d)
the effect of future accounting standards not yet adopted;
the disclosure of the remuneration of key management
personnel;
disclosure of related party transactions with other wholly
owned members of the Group headed by Gamma
Communications plc; and
(e)
(f) disclosures in respect of financial instruments.
Investments
Shares in Group undertakings are initially recorded at cost
and subsequently adjusted for capital contributions related to
share based payments and any provisions for impairment.
116
Financial statements continuedGamma Communications plc Annual Report and Accounts 2018 2. Critical accounting judgements and estimates
Gamma Communications plc is a non-complex entity primarily holding intercompany debtors and creditors. As such there are
no critical judgements or accounting estimates that represent a risk of material misstatement over the next 12 months.
3. Investments
At 1 January 2018
Capital contributions arising from share based payments
At 31 December 2018
At 31 December 2018 the Company held share capital of the following subsidiaries.
2018
£m
9.3
1.7
11.0
Nature of business
Country of
incorporation
United Kingdom Intermediate holding company Direct ownership
United Kingdom Telephony services
United Kingdom Telephony services
United Kingdom Telephony services
Ownership
by the Company
Name
Gamma Telecom Holdings Limited
Gamma Telecom Limited
Gamma Business Communications Limited
Gamma Network Solutions Limited
Gamma Development KfT (formerly Peach Amber KfT) Hungary
Gamma Communications Netherlands B.V.
DX Groep B.V.
Dean One B.V.
Schiphol Connect B.V.
Gamma Communications Ireland Ltd
Gamma Communications US Inc
Uniworld Bureau Services Limited
Software services
Netherlands
Intermediate holding company
Netherlands
Intermediate holding company
Netherlands
Telephony services
Netherlands
Telephony services
Ireland
Telephony services
Dormant
United States
United Kingdom Dormant
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
2017
£m
7.8
1.5
9.3
Notes
(a)
(a)
(a)
(a)
(b)
(c)
(d)
(d)
(d)
(e)
(f)
(a)
Notes:
(a) Registered Office: 5 Fleet Place, London, EC4M 7RD, England.
(b) Registered Office: 1054 Budapest, Széchenyi Rakpart 8, Hungary.
(c) Office address: 5 Fleet Place, London, EC4M 7RD, England.
(d) Office address: Krijgsman 75, 1186 DR Amstelveen, the Netherlands.
(e) Registered Office: 6th floor, 2 Grand Canal Square, Dublin 2.
(f) Registered Office: 1313 N. Market Street, Suite 5100, Wilmington, Delaware, 19801, USA.
Gamma Telecom Limited is also a member of NP4UK Limited which is a dormant company (limited by guarantee) incorporated
in the United Kingdom.
4. Debtors
Amounts due from Group undertakings
Other debtors
2018
£m
64.5
–
64.5
Amounts due from Group undertakings are payable on demand.
The Group has considered the expected credit loss arising on amounts due from Group undertakings. All subsidiaries are
profitable and pay annual dividends. Therefore the value of the expected credit loss is negligible.
5. Creditors
Amounts due to Group undertakings
Accruals
2018
£m
21.1
–
21.1
2017
£m
45.0
0.1
45.1
2017
£m
13.0
0.1
13.1
117
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Notes forming part of the Company financial statements
For the year ended 31 December 2018 continued
6. Share capital
Details of the share capital and movement during the year are given in note 24 to the consolidated financial statements.
7. Dividends paid
Details of the dividends paid during the year are given in note 11 to the consolidated financial statements.
8. Contingent liabilities
The Company had no contingent liabilities at 31 December 2017 or 31 December 2018.
9. Capital commitments
The Company had no capital commitments at 31 December 2017 or 31 December 2018.
10. Related party transactions
The Company has taken advantage of the exemption available within FRS 101 Reduced Disclosure Framework not to disclose
transactions with other members of the Group headed by the Company. See note 30 to the consolidated financial statements
for details of the disclosed related party transactions.
118
Financial statements continuedGamma Communications plc Annual Report and Accounts 2018 Supplementary information
Company information
Registered Office
Legal Advisers to the Company
Bird & Bird LLP
15 Fetter Lane
London
EC4A 1JP
Registrar
Capita Registrars Limited
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Company website
www.gamma.co.uk
Company number
08943488
5 Fleet Place
London
EC4M 7RD
Head Office
Kings House
Kings Road West
Newbury
Berkshire
RG14 5BY
Nominated Adviser and Broker
Investec Bank plc
30 Gresham Street
London
EC2V 7QP
Auditors to the Company
Deloitte LLP
Abbots House
Abbey Street
Reading
RG1 3BD
United Kingdom
119
Gamma Communications plc Annual Report and Accounts 2018Strategic reportFinancial statementsSupplementary informationCorporate governance Supplementary information continued
Notes
120
Gamma Communications plc Annual Report and Accounts 2018 This Report is printed on material which is derived from sustainable sources. Both the manufacturing
paper mill and printer are registered to the Environmental Management System ISO 14001 and are
Forest Stewardship Council® (FSC) chain-of-custody certified.
Designed and produced by SampsonMay
Telephone: 020 7403 4099 www.sampsonmay.com
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www.gamma.co.uk
@gammauk
@gamma_business
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