Working smarter,
together.
Gamma Communications plc
Annual Report and Accounts 2019
Gamma, a listed company, is a leading
supplier of business communications
services to the UK and Dutch markets.
Strategic Report
Chairman’s statement
Our business model
Market trends
Chief Executive Officer’s statement
Our strategy
Key performance indicators
Performance Metrics
Risk management
Our principal risks
Business review
UK Indirect
UK Direct
Overseas
Financial review
Environmental, social and governance report
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4
6
12
16
18
20
22
24
28
29
30
31
32
35
Corporate governance
Chairman’s governance statement
Board of Directors
Leadership team
Corporate governance report
Nominations Committee report
Audit Committee report
Risk Committee report
Remuneration Committee report
Directors’ report
Statement of Directors’ responsibilities
Financial statements
Independent auditor’s report
46
48
50
52
55
56
59
60
73
74
76
Consolidated statement of comprehensive income 80
Consolidated statement of financial position
Consolidated statement of cash flows
Consolidated statement of changes in equity
Notes forming part of the financial statements
Company statement of financial position
Company statement of changes in equity
Notes forming part of the Company financial
statements
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82
83
84
113
114
115
Supplementary information
Company information
118
gammacommunicationsplc.com
Empowering people
to communicate.
Financial highlights
Revenue
£328.9m
Growth from £284.9m to £328.9m
Profit from operations
£45.5m
Increased from £34.4m to £45.5m
Adjusted EBITDA*
£63.5m
Adjusted EBITDA grew from £48.3m to £63.5m
Dividend
10.5p
Grew from 9.3p to 10.5p
+15%
+32%
+31%
+13%
*
All adjusted measures set out throughout this document which are described as
“adjusted” represent Alternative Performance Measures (“APMs”) and are defined and
reconciled in the Financial Review section and are applied consistently. Where reference
is made to adjusted EPS this is stated on a fully diluted basis ('FD's). Our policy on the use
of APMs is included in note 1.
Working smarter,
together.
Annual Report and Accounts 2019
1
Strategic reportGovernance reportFinancial reportSupplementary information Chairman’s statement
Working together
to power the market
I am pleased to present the Annual Report for the year
ended 31 December 2019.
Overview of results
Group revenue for the year ended 31 December 2019
increased by £44.0m to £328.9m (2018: £284.9m) an
increase of 15% on the prior year. Adjusted EBITDA for the
Group increased by 31% to £63.5m (2018: £48.3m). Fully
diluted earnings per share for the year increased by 20%
to 36.1p (2018: 30.0p). Adjusted fully diluted earnings per
share for the year increased by 35% to 40.8p (2018: 30.3p).
On a statutory basis profit before tax and profit from
operations also increased by more than 30%.
The cash generated by operations for the year was
£54.0m compared to £40.6m in 2018. The closing cash
balance for the year was £53.9m compared to £35.5m at
the end of December 2018. This cash balance has been
increased whilst investing £12.4m on capital items, £7.5m
on acquisitions and paying £9.2m in dividends.
Overview of the year
As outlined in this report, the year has been a period of
strong strategic execution for Gamma with highlights
including:
We launched Collaborate and a new Call Recording
platform to expand our Unified Communiations as a Service
(UCaaS) offering and, in November, we acquired Telsis
Direct Limited, Telsis Communication Services Limited,
Telsis Services Limited and Telsis GmbH (”Telsis“), which will
enable us to develop a Contact Centre solution for release
towards the end of 2020.
Strong growth in our key products in the UK of SIP
Trunking (units increased by 19%) and Cloud PBX (units
increased by 20%).
In addition, in February 2020, we acquired Exactive
Holdings Limited and its subsidiaries (“Exactive“) which
enables us to support enterprise and public sector
customers who choose solutions using Microsoft
Teams. This represents a fundamental part of our
UCaaS strategy.
In the Netherlands we grew our number of Cloud seats
to over 22,000. We also acquired Nimsys in February
2019, its integration has gone well and Nimsys is
growing strongly. The performance of Dean One in the
second half improved following a disappointing first half.
We continue to focus on European expansion and
throughout 2019 we conducted discussions with a
number of potential acquisitions. In February 2020, we
made an offer for VozTelecom OIGAA360, SA and its
subsidiaries ("Voz Telecom") in Spain, which (when
complete) will give us a foothold into the Spanish market
which is set to grow significantly over the coming years.
“ 2019 has been a very good
year for Gamma; we have
seen strong growth in our
key products, launched new
platforms and continued our
European expansion.”
Dividend per share
10.5p
Earnings per share
36.1p
+13%
+20%
2
Gamma Communications plc Board and employees
I was delighted to welcome Henrietta Marsh to the board
on 16 April 2019. She brings a wealth of experience
gained from serving on the boards of both private and
listed companies. Henrietta will chair the Remuneration
Committee after the upcoming AGM. Gamma has a
strong and experienced Board. We have improved our
diversity on the Board and within the Senior
Management Team in the last year but there is more to
do and we will consider this with future appointments.
The business now has 1,176 employees across three
countries. We continue to invest in all of our employees
and in particular we assist apprentices to gain valuable
work experience, to continue their education and to
obtain nationally recognised qualifications. At present,
we have 24 apprentices 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 encourage employees at all levels to own shares in the
company and in July we used our SIP Trust to award £500
of free shares to all employees. The company also offered
a sharesave scheme for the fourth year. Once again, it was
particularly pleasing to see the exceptionally high take up,
with 459 staff choosing to participate in the scheme
(2018: 257). Finally, we have launched an “Evergreen SIP”
scheme which gives employees another opportunity to
buy shares in the company in a tax efficient way.
The Board recognises the high levels of support and
commitment from its staff through a period of
significant strategic planning and implementation and
would like to express its thanks for their dedication,
hard work and enthusiasm.
Dividend
Gamma remains committed to a progressive dividend
policy which has meant an increase of between 10-15%
every year since we listed in 2014. Gamma has paid one
third of the dividend as an interim dividend with the final
two thirds paid as a final dividend once the results for the
year are known.
The Board is pleased to propose a final dividend, in
respect of the year ended 31 December 2019, of 7.0
pence per share (2018: 6.2 pence) an increase of 13%
which, subject to shareholder approval at the
forthcoming AGM, will be payable on Thursday 18 June
2020 to shareholders on the register on Friday 29 May
2020. When added to the 3.5 pence interim dividend
(2018: 3.1 pence) this makes a total dividend declared
of 10.5 pence for the year as a whole (2018: 9.3 pence).
Governance
During 2018 we adopted the QCA Corporate
Governance Code (2018 edition) (the ‘QCA Code’).
Environmental
As a business which enables other companies to
reduce their carbon footprint by communicating and
collaborating from multiple sites (which avoids travel),
we continue to challenge ourselves on our
environmental credentials. We run a certified Carbon
Neutral network and we have also now committed to
supporting the UN Sustainable Development Goals.
The Board has considered the emerging effects of
climate change on the future of the business and we
consider them to be low risk.
Outlook
The Board is positive about the outlook for the business
in 2020 and beyond.
We have discussed the potential impact of Covid-19
on the business which (to date) has been very limited.
Notwithstanding, this remains a matter of close attention
for the Board. In particular, we will take measures to
ensure the safety of our channel partners, customers,
employees and other stakeholders. We are taking regular
advice and following guidance from the government and
public bodies. We have a sub-group of our Senior
Leadership Team who are monitoring the situation on a
daily basis and communicating the latest advice to staff.
With respect to our day-to-day operations we are able
(should it become necessary) to operate our business
with almost all staff working from home. We have stress
tested our network to ensure that this is achievable.
We believe we will be able to continue to support our
customers fully.
The potential impact of the Covid-19 health crisis on
the short-term results is difficult to assess at this time.
We have a resilient business model and at this point we
have seen little effect on our business. We suspect that
we may see fewer orders as channel partners and end
customers are beginning to introduce travel and
meeting restrictions which will make customer visits
and lead generation more difficult. With respect to
existing orders, installations which require engineers
to visit a site are also likely to be delayed and hence
revenues will be delayed. At the time of writing it is
impossible to know how long this situation is likely
to continue for. We have a strong balance sheet and
a robust business model and we expect to be able
to weather the crisis.
In the longer-term, our product set is well suited to
organisations that wish to be able to work remotely as
part of their disaster recovery plans. Whilst the current
crisis is not desirable, we believe that the experience
will demonstrate the advantages of UCaaS to
businesses of all sizes across all industries.
As a predominantly channel-focused business, Gamma
will continue to concentrate efforts and investment on
strengthening our relationships and capabilities to
support the channel to be successful. We will also
ensure that in the direct business, we continue to focus
on growth with larger enterprises and the public sector,
and on building on an already strong reputation for
operational excellence and service quality. Our support
for Enterprise customers may involve offering solutions
based on other products (for example Microsoft Teams)
as well as our own product set.
Richard Last
Chairman
3
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial reportSupplementary information
Our business model
Providing straightforward
services for business
Our business model
Our product categories
Gamma is a leading supplier of
Unified Communications as a Service
(UCaaS) in the UK and Dutch markets,
supplying communication solutions
directly and via our extensive network
of trusted channel partners.
With a range of Unified Communications,
Mobile and Connectivity services,
Gamma provides robust and secure
solutions that enable organisations to
communicate, collaborate and offer
a better customer experience.
Unified Communications
Our award-winning range of Unified Communications
products enables businesses to raise productivity, boost
agility and increase collaboration. From messaging and
video calling to instant conference services, we help
reduce costs and operational complexity while increasing
employee engagement.
SIP Trunking and Call Management
With the UK’s leading SIP trunking service we give
businesses a more versatile, resilient phone service at less
cost. Gamma SIP trunks come with powerful business
continuity features plus exceptional inbound call
management functionality.
Mobile
Our business-only mobile service features flexible tariffs
and powerful bolt-ons. When combined with Gamma’s Unified
Communications services, employees can keep working
wherever they are, remaining ‘always-on’ to customers.
Connectivity
Our high-performance connectivity products deliver
outstanding speeds combined with robust security and
resilience measures; from broadband and Ethernet to
advanced Network services, we provide businesses
with the customisable connectivity they need to grow.
Strengths
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
Providing channel partners with Gamma
Academy and Gamma Accelerate, our
training and marketing platforms, to drive
channel engagement and growth.
4
Gamma Communications plc
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Flexible
solutions
Chann
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Collaborative
culture
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s
Core purpose
Working smarter,
together.
D
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Connected
communications
End-to-end
control
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Com m e r c i a l a
g ilit y
How we sell
UK Indirect
Our primary route to market, the channel is at
the heart of what we do. We provide market-
leading products to 1000+ channel partners,
with an exceptional service wrap.
2019 sales
70%(2018: 74%)
UK Direct
Our direct business supports the requirements
of Enterprises, Mid Markets and Public Sector
organisations, looking to contract with
network operators.
2019 sales
25%(2018: 25%)
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l
p
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Overseas
Our overseas entities sell both directly and
through the channel. In the Netherlands,
Dean One sells via 600+ channel partners,
Nimsys, an ICT specialist for workspaces and
multi-tenancy buildings and Schiphol Connect,
the telecom and internet provider at Schiphol
Airport sell directly to end users.
2019 sales
5%
(2018: 1%)
Commercial agility
Providing our partners with leverage
and flexibility (driving incentives and
not causing price erosion) to sell based
on value and not price.
People
Our employees are a key part of our
business; they embody the Gamma
values, which allows us to deliver better
services and build relationships with
our customers.
1,176
employees
5
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial reportSupplementary information
Market Trends
Supporting effective
business communications
to empower businesses to
work smarter, together.
The way a business communicates with its external and
internal stakeholders is a key way for it to differentiate
itself and provide effective customer service.
Gamma provides business communication services
that are flexible, scalable and secure to meet today’s
and tomorrow’s challenges.
Underpinning the business and users trends are a
number of technology and industry directions that
support the overall changes in how businesses operate.
6
Gamma Communications plc Market Trend
The rise of converged
and unified communication
services
• Businesses are looking for 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.
The key is matching the communications method to the
customer and task requirement.
• Businesses are looking for service simplicity and cost savings
in their business communications solutions.
• Business efficiency can be driven by using single phone
numbers, and therefore a single voicemail service, which the user
can utilise through a mobile or fixed device.
Gamma Response:
Gamma launched Collaborate in the first half of the year, which now
has 9,000 users. This provides a fully-integrated messaging,
collaboration and audio/video conferencing service to our
industry-leading Cloud PBX service, Horizon. We also launched a
call recording service and subscription management service, which
allows partners to more effectively manage their Cloud seats. We
plan to launch a fully integrated contact centre module into our
UCaaS suite helping us support business communications.
SIP trunks
1,016k
+19%
Horizon users
522k
+20%
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Annual Report and Accounts 2019Strategic reportGovernance reportFinancial reportSupplementary information
Market Trends continued
Market Trend
Network Flexibility
• Customers demand support when changing their business
communication requirements. This means 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 between fast to deploy applications
and a scalable and secure infrastructure that supports all users.
Gamma response:
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.
We provide simple, easy to consume services underpinned
by automated provisioning and support models.
Market Trend
Superfast Connectivity
Growth 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.
Gamma Response:
Gamma continues to offer data access services; ethernet
services will be used to support larger SME customers and
will move to improve bearer models to future-proof their
requirements. The Gamma focus is on working to support
customers' Cloud-based business applications.
8
Gamma Communications plc 9
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial reportSupplementary information Market Trends continued
10
Gamma Communications plc i
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In order to meet these
and future trends, Gamma
aligns our organisation
and focus at all levels to
four key brand principals:
Evolve our:
Flexible solutions
Products, pricing and services that can adjust to the
changing needs of clients and business.
Collaborative culture
Specialist expertise of business communications working
in partnership with clients to achieve the right solution and
provide ongoing support when it matters.
Connected communications
Sophisticated, dependable and secure products and
services designed to help businesses succeed in the
modern world.
End-to-end control
End-to-end control and technical integration for ‘always-on’
unified communications that give people the freedom to work
wherever, whenever.
” We empower people.
We give them the belief
and ability to achieve
more. What sets Gamma
apart is how we work with
people and not just what
we sell to them.”
Annual Report and Accounts 2019
11
Chief Executive Officer’s statement
A new strategy
drives success
Our people have contributed to
another year of excellent results.
I am pleased to report another excellent set of financial
results for 2019 which demonstrates the efficacy of the
strategy which we set out at the start of 2019.
As well as executing against our short-term
commitments, throughout 2019, we focused heavily on
planning and executing our medium and longer-term
growth strategy for Gamma.
Both our Direct and Indirect channel businesses have
continued to perform strongly, and throughout 2019 we
were awarded several new multi-year customer and
partner contracts. This has enabled us to strengthen
both our contracted backlog and revenue and margin
visibility, ensuring that we continue to benefit from a
very high percentage of recurring revenue and margin.
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 new and exciting product launches during
2020, including a cloudcentre offering. Development of a
cloud contact centre offering is a frequent request from
channel partners and end users and will open up a part of
the market in the larger SME space. Supporting the
success of our indirect channel partners is a priority, and
we continue 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.
The Gamma Academy delivered 19,992 training
courses to channel partners during 2019 (2018: 16,602).
Gamma Accelerate delivered a significant increase in
marketing campaigns run by channel partners during
the period with 870 of Gamma’s partners now actively
using the platform (2018: 732).
We offer a product set which can be used by other
businesses to reduce their carbon footprint and we are
proud that we are certified CarbonNeutral©.
Notwithstanding, we continue to work hard to reduce
our energy consumption. We last monitored our CO2
emissions between July 2017 to June 2018 which were
2,332 tonnes of CO2. This was a reduction of 5%
compared to the previous twelve months.
12
Gamma Communications plc Revenue
Gross profit
£328.9m +15%
£166.5m +26%
Strategy
Our strategy has four key elements.
Evolve our strong Cloud telephony position into the
Unified Communications as a Service (“UCaaS”) market
We focus on the UCaaS market in the UK and Europe
and this is expected to grow by 12% annually over the
coming five years.
We continue to execute well in the UK and are one of
the market leaders in both our core products of SIP and
Cloud PBX. In SIP Trunking we have now increased our
market share to 31% in the UK. In Cloud PBX, we have
increased the number of seats from 435,000 to
522,000 which makes us the second in the market in
the UK with a share of 11%.
As a first stage in building a broader UCaaS proposition,
we launched a suite of Collaboration services in the first
half of 2019. Gamma Collaborate launched as a fully
integrated bolt-on to our market leading Horizon
product and now has 9,000 users. We have also
launched a new integrated Gamma call recording
service and a Subscription Management Service, which
allows partners to better manage their estate of seats
on the platform.
In November we bought Telsis for £4.3m which brings
additional development capability which will allow us to
launch a fully integrated contact centre module into our
UCaaS suite later in 2020.
In the Netherlands we have increased our number of Cloud
seats to 22,000. We have made a binding offer for Voz
Telecom in Spain which (if accepted by the shareholders)
will give us 40,000 Cloud PBX seats in the Spanish market.
By growing our base of SIP and Cloud customers and
developing new integrated modules we are able to
upsell into our existing base as well as selling to end
users who require more functionality.
Where enterprise customers require the functionality of
Microsoft Teams, we have now launched a variant of our
SIP product which is technically better suited to Teams
and which has commercial wrap which will enable partners
to sell SIP more easily alongside Teams. We also acquired
Exactive in February 2020 which gives us the capability to
deploy Teams into customers who require this solution.
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.
Build on our Fixed and Mobile Telecom strength to
differentiate our proposition from pure “Over the
Top” players (OTTs)
As part of our detailed analysis of the marketplace and
our long term strategy development during the year,
we reinforced our view that being able to offer a fully
integrated suite of connectivity products will be a key
differentiator for us from other Cloud PBX providers
who only offer an “over the top” software solution.
We continue to offer data access services (Broadband
and Ethernet) in the UK and we ended the year with
111,000 Broadband circuits and 13,900 Ethernet circuits.
The Business focused Data services market is
undergoing a change, driven by the investment in fibre
services from the current large players, BT and TalkTalk,
and new infrastructure providers such as CityFibre.
This is effectively developing a model where services
such as Fibre to the Premises (“FTTP”) and Fibre to
the Cabinet (“FTTC”) can provide high bandwidth
broadband services at a cost-effective price that
will meet the requirements of the majority of SME
businesses. Ethernet services will be used to support
larger SME / Midmarket customers and they will move
to higher bandwidth services which Ethernet offers to
future proof their requirements. Gamma continues to
work with BT, TalkTalk and other suppliers to ensure
that we can offer a full suite of high bandwidth services
to customers as the market evolves.
13
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial reportSupplementary information Chief Executive Officer’s statement continued
Some users will access our service over mobile data links
(either in addition to or instead of fixed fibre). In the UK we
have an agreement with Three UK and started a project
to move to a new platform which will give customers
increased functionality (for example 5G) but at a reduced
cost to Gamma. We expect the new service to go live in
early 2021 and for cost savings to be recognised
towards the end of 2021.
In the Netherlands, we signed a long-term strategic
partnership with T-Systems in December 2018 which
has enabled us to strengthen our proposition and
market position with both our direct customers and
indirect channel partners. In the course of the first year
we have added 7,000 mobile users.
Expand to Europe to gain continued
growth and scale
We were disappointed with the performance of our
Dutch business in the first half of 2019 as the
announcement by the incumbent of the imminent
closure of ISDN as a product resulted in revenues falling
more rapidly than expected in this legacy part of the
business. However, performance was better in the
second half and our largest Dutch business (Dean One)
continues to increase its Cloud seats and Mobile
connections. Throughout 2019, we focused on
strengthening both our product and partner
proposition across the Dutch market. In order to
provide additional scale and capability, we also
acquired Nimsys in February 2019, which has
performed particularly well, and we are also happy with
the performance of Schiphol Connect.
As highlighted previously, we have made an offer to
acquire Voz Telecom, which is the fourth largest Cloud
PBX business in Spain (after the established telecoms
providers such as the Mobile Network Operators
“MNOs”). The acquisition of Voz Telecom will provide us
with an important foundation within a key cloud growth
market, which represents a key part of our European
expansion strategy. Voz Telecom supplies c40,000 Cloud
PBX seats which equates to a market share of c5%.
With an overall market size of c18m PBX seats (slightly
smaller than the UK market) and a cloud penetration of
only c5%, the Spanish market for Cloud PBX is forecast
to grow rapidly in the future.
We continue to monitor and assess other acquisition
opportunities in both the Dutch and Spanish markets,
which will complement and strengthen our position in
both countries. In addition, and as part of our stated
strategy, we continue to assess acquisition opportunities
in both the German and French markets, both of which
are characterised with low cloud penetration levels and
significant future growth potential.
We do not expect Brexit to affect our plans for
expansion or, indeed, to have a materially detrimental
effect on the existing business.
Continue to build on our digital capabilities to
assure agility and sustain competitiveness
We continue to invest in key programmes which will enable
our digital transformation.
Our strategic aim is to build a digital platform that will
enable us to manage our business and to serve our
customers more effectively and efficiently. The first
objective is to scale and grow economically by taking as
many manual processes out of our back-office systems.
14
We continued our expansion into Europe
with Nimsys in the Netherlands and
strengthened our UCaaS suite with
the acquisition of Telsis.
Gamma Communications plc The second objective is to maintain our position of
being easy to do business with. We will build systems
which will allow partners and end users to self order,
provision and serve.
In 2019 we deployed Release 1 of the “Gamma Hub”, our
whole business digital platform that will underpin the
continued rapid growth of our direct business. Release
1 is the foundation stage of a four-year programme that
will transform us into a digital-first organisation and
assure agility and sustain competitiveness through
intelligent automation and customer self-serve.
In this release, we delivered a single customer support
and ticketing platform supporting direct customers
across all our market segments, and all our products
and services, with a rich engagement and support tool
allowing us to create deeper more meaningful
relationships with each and every customer. In this
release we also deployed a new customer CRM with
market-leading sales and marketing automation
allowing us to track, nurture and develop opportunities
and customers, from our very first engagement,
through to in-life support.
In 2020 we will be implementing Release 2, which will
start to transform our customer delivery and service
management processes creating one seamless and
‘digitally connected’ experience across the whole
customer lifecycle. As part of this phase, we will
be streamlining our operating model to lay the
foundations for delivering a consistent, high quality
yet tailored service experience at scale across all
our customer segments.
People and diversity
During 2019, we surveyed our staff to understand the
values which underpin Gamma as an organisation.
We were delighted with the level of engagement
and response from our staff, and that a number
of common themes emerged across all groups of
staff at all locations. We have distilled all of these
contributions to agree Gamma’s core Values:
Our values
• Aim high
• Think differently
• Consider others
• Stronger together
These values were launched in early 2020 as part of a
companywide values program, which included a full
brand refresh and the launch of our new Gamma
websites. We also introduced a new company strapline
“Working Smarter, Together” which seeks to sum up
our aspirations as a business. In addition to this, we also
refurbished our offices across Gamma with a particular
focus on our Manchester and Glasgow offices.
Vision
Empower people to communicate and work
smarter, together.
Mission
To provide straightforward Cloud Communications
services for business, underpinned by a robust,
secure network.
Environmental considerations
We take our responsibilities to the wider environment
seriously. As a business which is based on multiple
sites, we encourage our people not to travel but rather
to use our own collaborative communications tools
which both reduces our carbon emissions and
promotes employee wellbeing. One of our core values
is “Consider Others” and as part of this we aim to
reduce waste and to reduce our carbon footprint. We
are conscious of our power consumption and seek to
buy capital equipment which uses less power than the
legacy items it replaces.
We are committed to social
responsibility and embed this
into our policies and practices.
Summary and outlook
I continue to be very pleased with the execution of both
our short-term business objectives and our longer-term
2023 strategy, which we outlined during January 2019
– the business is in good shape and our outlook is
positive. We have a robust business model with a high
level of recurring revenue and margin, and we continue
to stay focused on developing the products and services
which enable our customers and our channel partners to
be successful and win market share in their respective
markets. We continue to see competition across all core
market segments, including the UCaaS, data and mobile
product areas, where we believe we will see continued
price pressure. However, the quality and competitiveness
of our products and the strength of our direct and
indirect channel businesses provides confidence that
we will continue to execute against our commitments.
Throughout 2020 we will build on each of our
strategic pillars:
•
In UCaaS we will strengthen our partner and
end-customer proposition through the launch our
fully integrated cloud contact centre module and
continue to develop the roadmap for our UCaaS
product suite.
• We will work with our strategic partners to deliver
quality access technologies (ethernet, broadband
and mobile) at competitive prices
• We will continue to build our business in the
Netherlands and continue to look for additional
opportunities to further develop our business across
continental Europe.
• We will develop our portals internally and externally
to give our customers and staff the best digital
experience within our industry.
As a final point, I would like to personally thank our staff,
partners and customers for their contribution and
ongoing support. Our performance during 2019 has
been strong, and we remain optimistic about Gamma’s
future growth prospects.
The Chairman's statement provides our current
assessment of the impact of Covid-19 on our
future performance.
Working smarter, together.
Andrew Taylor
Chief Executive Officer
15
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial reportSupplementary information
Our strategy
A strategy driven by
an engaging culture
Cloud Telephony and UCaaS
Our focus
Having established market leading positions
in both the SIP and Hosted PBX markets, our
focus is to build on that position and take
advantage of the emerging Unified
Communications as a Service market. This
requires us to add both team collaboration
(Instant messaging, Video conferencing,
Screen Share) and Multi-Channel customer
contact products and services. In both cases
these need to be integrated with our core
Hosted PBX and SIP offerings, underpinned by
our fixed and mobile network solutions.
Achievement
In April 2019 we launched our first full UCaaS
service called Collaborate, which is integrated
to our Horizon hosted PBX product. This
service provides Horizon users the ability to
set up conference calls, supported by video
and screen share capabilities. In November
we acquired Telsis which provides us with
development capabilities required to build
and support Multi-Channel customer contact
services for the SME market.
Our focus
In anticipation of the forecasted market shift
from low end Ethernet to high speed
Broadband our focus is on strengthening our
Broadband proposition and adding value into
these services. At the same time, we have to
assure we are competitive in high speed
Ethernet services. Whilst the mobile market is
relatively flat, we anticipate significant
disruption through the launch of 5G services
and ‘Unlimited’ data bundles. This reinforces
our decision in 2018 to move to a light MVNO
model with an appropriate partnership model
that allowed us to exploit this disruption.
Achievement
In November 2019 we announced the
partnership agreement with Three UK that
supports a smooth transition from our current
operating model onto their 5G-ready network.
Work is well underway to provide the
technologies to effect this transition and
establish the new operating model.
Future Priorities
Our priority for 2020 is to launch a Multi-Channel
contact centre solution integrated with our
Horizon platform targeted at the SME market.
We are also building on our development
capabilities to assure a strong product roadmap
for our UCaaS product portfolio.
Relevant KPIs:
Associated risks:
2 8
5 6 7
Future Priorities
Our priority in 2020 is to complete the
implementation of the new operating model
with Three and have commenced the
migration of customers to the new platform.
It should be noted that this is largely a
background system process with minimal
customer disruption.
We are looking to enhance our Broadband
proposition during 2020 whilst assuring we are
competitive for the provision of Ethernet
services.
Relevant KPIs:
Associated risks:
2 5 8
5 8
Evolve our strong
Cloud telephony
position into the
UCaaS market
Fixed and Mobile Telecom
Build on our Fixed
and Mobile
Telecom strength
to differentiate our
proposition from
pure OTTs
16
Gamma Communications plc Key to KPIs
1 Revenue
2 Gross profit
3 Gross profit margin
4 EBITDA
5 Cash
6 Cash generated by operations
7 EPS
8 Adjusted EPS
KPIs
See pages 18-21
Key to risks
1 Information and cyber security
2 Operational – Unplanned
service disruption
3 Customer service experience
4 Supplier
5 Market landscape
6 Legal and regulatory
7 Our people
8 M&A and climate change
Risks
See pages 22-27
Future priorities
We are focused on continuing to identify
potential new acquisitions and conclude deals
in the primary markets we are interested in.
Relevant KPIs:
Associated risks:
2 5 6 8
5 7 8
Our focus
There are a number of large European markets
where the adoption of Cloud communications
services is at a much lower level of penetration
than the UK. Whilst each country will have its
own unique reasons for this, we believe that
the advent of UCaaS and the shift to desktop
and mobile applications for communication in
all forms, will be a new and disruptive driver for
the adoption of Cloud-based services. Our
focus is to gain a position in relevant markets
through acquisition and leverage of our UK
experience to gain significant market share
through organic and inorganic growth.
Achievement
Following the acquisition of the DX Groep
in the Netherlands in 2018 we subsequently
acquired Nimsys in February 2019. We also
initiated a structured process to identify
and prioritise potential acquisitions in three
other markets.
Our focus
To ensure that we have straightforward sales,
service management and product user
interfaces which align with customer
expectations and differentiate our overall
proposition, whilst at the same time
allowing us to optimise our operating
model and grow efficiently.
Achievement
In March 2019 we launched a new Digital
platform for our Direct business that supports
the ordering and support of our services.
Future priorities
As we evolve our UCaaS products and services
we are placing particular emphasis on building
the appropriate design and development
capability to assure these services have
the most effective user experience for both
channel partners and users of our services.
We will continue to build out our digital
platform for our Direct business enabling us to
scale effectively and align with our customers'
service management requirements.
Relevant KPIs:
Associated risks:
1 3 6 7
2 5
Company Expansion
Expand into
Europe to gain
continued growth
and scale
Digital Progression
Continue to build
on our digital
capabilities to
assure agility
and sustain
competitiveness
17
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial reportSupplementary information Our Key performance indicators
Key performance indicators
The assessment of our KPIs, their link to our strategy, movement
in the year and their progression is described in the table below.
Revenue (£m)
£328.9m
Gross profit (£m)
£166.5m
.
0
2
4
2
.
9
8
2
3
.
9
4
8
2
Definition
Revenue from sales made to all customers
(excluding intra-group sales which eliminate
on consolidation).
Progress
Revenue has grown by 15% year on year as a
result of strong growth in our key products in
the UK of SIP Trunking (units increased by
19%) and Cloud PBC (units increased by 20%).
.
5
6
6
1
Definition
Revenue less cost of sales.
.
2
2
3
1
.
7
8
0
1
Progress
Gross profit has continued to grow as a
result of increased revenue and efficiencies
achieved as a result of building our digital
capabilities such as the new Digital platform
for the direct business that supports
ordering and support of our services.
Outlook
Growth.
7
1
0
2
8
1
0
2
9
1
0
2
Outlook
Growth.
7
1
0
2
8
1
0
2
9
1
0
2
EBITDA (£m)
£62.6m
.
6
2
6
.
3
8
4
.
0
6
3
7
1
0
2
8
1
0
2
9
1
0
2
Definition
Earnings before interest, taxation,
depreciation, gains and losses on disposal
of fixed assets and amortisation, but after
exceptional items.
Progress
Exceptional items related to contingent
consideration adjustment for Nimsys which
is performing above original estimates.
Outlook
Continued growth.
Gross margin (%)
50.6%
Definition
Gross profit as a percentage of revenue.
Progress
Revenue has grown by a larger amount than
cost of sales.
Outlook
Continued growth but expected to slow as
the product mix of strategic and enabling
versus traditional tends to an equilibrium.
.
6
0
5
4
6
4
.
.
9
4
4
7
1
0
2
8
1
0
2
9
1
0
2
18
Gamma Communications plc
Cash (£m)
£53.9m
Cash generated by operations (£m)
£54.0m
.
9
3
5
Definition
Cash and cash equivalents held at the end
of the year.
.
0
4
5
Definition
Net cash flows from operating activities
before tax.
.
5
5
3
6
1
3
.
7
1
0
2
8
1
0
2
9
1
0
2
EPS (p)
36.1p
.
1
6
3
.
0
0
3
.
0
4
2
7
1
0
2
8
1
0
2
9
1
0
2
Progress
Gamma continues to maintain a high
cash level while exploring opportunities
for expansion.
Outlook
The Group intends to maintain a cash
balance at this level subject to any
acquisition opportunities that may arise.
.
6
0
4
.
9
9
2
7
1
0
2
8
1
0
2
9
1
0
2
Progress
Operational cash flow has continued to
increase.
Outlook
Expected to grow in line with EBITDA – cash
conversion is expected to remain strong.
Adjusted EPS (p)
40.8p
Definition
Earnings after tax divided by the fully diluted
number of shares.
.
8
0
4
Definition
Adjusted earnings after tax divided by the
fully diluted number of shares.
Progress
The increase in earnings is as a result of
increased revenue and greater efficiencies
in margin.
.
3
0
3
.
1
3
2
Outlook
Expected to grow in the absence of any
unforeseen events.
Progress
Adjustments to earnings include in the
current year amortisation arising on
business compensation, exceptional and
related tax benefits.
Outlook
Continued growth.
7
1
0
2
8
1
0
2
9
1
0
2
19
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial reportSupplementary information
Our Key performance indicators continued
Performance metrics
The assessment of our KPIs, their link to our strategy, movement
in the year and their progression is described in the table below.
Number of hosted
seats (‘000s)
522
Number of SIP
channels (‘000s)
1,016
Definition
Number of billed seats at the end of the year
on all of the Cloud PBX products.
Progress
We have achieved growth from prior year
as planned.
0
8
6
6
1
0
1
,
6
5
8
Definition
Number of billed SIP channels at the end of
the year.
Progress
We have continued to grow our number of
SIP channels during the year
Outlook
Continued growth.
Outlook
Continued growth.
2
2
5
5
3
4
1
3
3
7
1
0
2
8
1
0
2
9
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
R&D
spend (£m)
£11.3m
.
3
1
1
.
0
0
1
4
9
.
Definition
The sum of research costs expensed through
the statement of comprehensive income and
capital expenditure on development costs in
intangibles during the year.
Progress
We have continued to invest in research
and development.
Outlook
Continued investment.
Network
availability (%)
99.997%
7
9
9
9
9
.
7
9
9
9
9
.
7
9
9
9
9
.
Definition
Availability of strategic platforms.
Progress
The network has continued to have strong
availability throughout the year.
Outlook
Similar.
7
1
0
2
8
1
0
2
9
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
20
Gamma Communications plc
Direct customer
profile
199
Definition
Number of direct customers generating
monthly revenues of above £5,000 at the
end of the year.
Progress
We have increased the number of direct
customers generating monthly revenue of
above £5,000.
Outlook
Continued growth.
9
9
1
6
7
1
9
5
1
7
1
0
2
8
1
0
2
9
1
0
2
Indirect strategic and enabling
as a percentage of total revenue (%)
56.8%
.
1
7
5
.
8
6
5
.
5
5
5
Definition
Revenue from strategic products (Inbound,
SIP Trunking and Cloud PBX) and enabling
products (Ethernet, Broadband and Mobile)
within the indirect business (the main
revenue segment) as a percentage of total
revenue.
Progress
Overall revenue has grown; we have grown
our key products in the UK of SIP Trunking
by 19%.
7
1
0
2
8
1
0
2
9
1
0
2
Outlook
Growth.
Net Promoter Score
Direct (%)
41%
Net Promoter Score
Indirect (%)
40%
1
4
1
4
0
4
Definition
The Net Promoter Score of a random
selection of direct customers measured
quarterly and averaged over the year.
Progress
We continued to maintain a score above
40%, which is considered a “good” score.
Outlook
Similar.
5
4
3
4
0
4
Definition
The Net Promoter Score of a random
selection of indirect customers measured
quarterly and average over the year.
Progress
We continued to maintain a score above
40%, which is considered a “good” score.
Outlook
Similar.
7
1
0
2
8
1
0
2
9
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
21
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial reportSupplementary information
Risk management
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.
Risk management framework
Group Risk Committee
Data Protection Committee
Executive Directors
Risk Management Process
Identification
Evaluation
Monitoring
Mitigation
Risk Champions
How we manage risk
Gamma operates a robust and well-established
structure for the management of risk in each area of
its business. This process includes the identification,
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
within the senior leadership team with reporting lines
to the CEO and ultimately the Board.
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. Risk management happens at multiple levels
within the organisation, supported through a network
of nominated people we call ‘Risk Champions’. These
people are actively encouraged to identify and assess
risk across the business and this structure, coupled
with the ‘top-down’ governance enables a business-
wide approach to the way the Company manages
risk. In this way, a culture of risk awareness and risk
management is embedded throughout the organisation.
22
Gamma Communications plc Our risk governance
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 the
Company’s Chairman, two independent Non-Executive
Directors, the CEO and the Group Operations Director.
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.
Reporting to the CEO and ultimately the Board, the
senior leadership team provides executive level
governance of the risk management framework and the
associated prioritisation of risk mitigation activities. In
addition to this, a subset of the senior leadership team
forms a ‘Data Protection Committee’ with a specific
focus on risks related to information security and
obligations under the GDPR. This committee meets
quarterly to assess the current and future risk profile
associated with our strategy and other external factors.
Gamma utilises certified frameworks for the
management of risk related to information security
(ISO 27001), business continuity (ISO 22301) and
environmental management (ISO 14001).
Gamma has a series of policies regarding anti-
corruption/anti-bribery, human rights and wider
environmental and social matters; but the Board does
not consider there to be significant risks in these areas.
There is also a whistleblowing policy in place.
The risk management process
Within the Risk Management Governance Framework,
Gamma has a well-established process for managing
risk. The process follows four simple steps.
•
•
•
•
Identification – Risks can be identified at every level
within the organisation and simple online templates
are available with supporting guidelines.
Evaluation – Enables the initial potential impact
assessment, the likelihood and proximity and
subsequent priority of a risk.
Monitoring – Ongoing review and re-evaluation of a
risk, with the frequency determined by the relative
impact, likelihood and proximity.
Mitigation – Risk owners are assigned and action
plans developed and implemented. Robust risk
mitigation strategies are subject to regular and
rigorous review.
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; the results of
regular cyber security related testing; and updates from
the Chief Information Security Officer and other
members of the senior leadership team.
Risk appetite
The Company’s risk appetite is reflected in the way
it assesses, scores, ranks and then manages
individual risks.
As a service provider which provides mission critical
services to business customers, the Company has a
very low risk appetite for anything that could severely
disrupt the level and quality of service provided to its
customers, or that could give rise to regulatory or legal
risks or that could result in a material level of
reputational risk.
As a commercial organisation the Company
understands that it must accept and then manage
certain levels of risk associated with planned growth.
This primarily means accepting the inherent risks in
taking on large commercial contracts, moving into
non-UK geographic territories, making acquisitions and
continuing to develop and introduce new products. As
the Company continues to build its experience and that
of its people, then the level of risk associated with any
particular growth initiative will naturally reduce.
23
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial reportSupplementary information Our principal risks
Our principal risks and
how we mitigate them
The assessment of our principal areas of risk, their link
to our strategy, movement in the year and how we seek
to mitigate them are described in the table below.
Information and
cyber security
Risk impact:
High
Change on prior year
Relevant strategy:
1 3 4
Description
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 introduction of GDPR regulation
and its associated controls.
Potential impact
A breach of security could have a significant
impact on the Group’s reputation and in some
cases also impact its commercial position.
Potential fines could also be enforced if the
Company was found to be in breach of its
obligations relating to the GDPR.
Mitigating actions
Gamma continues to adapt its governance structure to
ensure best practice is followed in the identification and
management of information and cyber security risks.
This includes: 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.
The Company is represented in various Industry forums
to ensure we are fully aware of new areas of risk,
methods employed by malicious actors and best
practice in the identification and mitigation of risk.
The Company’s fraud management applications aim to
identify unusual voice traffic patterns quickly and we
have a 24/7 operational capability to then assess and
mitigate the risk.
Gamma’s core infrastructure and operating capability is
certified under ISO 27001 for security.
In response to the changing profile of information and
cyber security risk the Company has recently adapted
its governance structure to include a ‘Data Protection
Committee’ which provides senior leadership team
oversight of the principal risks in this area.
Unplanned service
disruption
Risk impact:
High
Change on prior year
Relevant strategy:
1 2 4
Description
Reliable, high-quality voice and data services
are critical to any business and are the core
components of Gamma’s products and
strategy. Therefore, maintaining very high
levels of service availability is central to its
credibility, competitive positioning, and its
financial performance. This is particularly so
as it serves the business market.
Mitigating actions
Gamma operates a comprehensive operational
governance framework to manage the availability and
performance of its services. This includes the design and
architecture of the network, product 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.
Potential impact
If Gamma’s network and systems perform
below the market expectations then this could
have a direct impact on product and revenue
growth through reputational impact and could
also result in increased operating costs.
There is 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.
The Company has established an Emergency
Communications Committee as part of the
communications process which is initiated during any
major service incident. This committee ensures that
the Company maintains effective communication both
internally and externally with customers, suppliers and
where necessary the media and regulatory bodies (the
latter supported by specialist agencies). This process is
rehearsed at least once a year.
24
Gamma Communications plc
Key to change in risk profile
Risk profile increase year on year
Risk profile no change year on year
Risk profile decrease year on year
Key to strategy
1 Cloud Telephony and UCaaS
Evolve our strong Cloud telephony position into
the UCaaS market
2 Fixed and Mobile Telecom
Build on our Fixed and Mobile Telecom strength
to differentiate our proposition from pure OTTs
3 Company Expansion
Expand into Europe to gain continued growth
and scale
4 Digital progression
Continue to build on our digital capabilities
to assure agility and sustain competitiveness
Our strategy
See pages 16-17
Risks
See pages 22-27
Customer Service
Experience
Risk impact:
High
Change on prior year
Relevant strategy:
1 2
Supplier
Risk impact:
Moderate
Change on prior year
Relevant strategy:
2 3
Description
Communications services are critical to
business customers. Maintaining an
exceptionally high-quality overarching
customer service experience is critical to
Gamma’s reputation, competitive position and
ongoing financial success. This includes as
examples: the ability for our channel partners
and direct customers to easily place orders; to
activate services on time; and to be able to
access effective administrative or technical
support quickly and easily, with all aspects
increasingly taking advantage of the available
digital platforms and user interfaces.
Potential impact
Delivering poor customer service has two
potential impacts: firstly, on the Company’s
ability to sustain and grow revenues; and
secondly, dealing with failure increases the
costs of the support operation.
Description
The business relies on a number of key
suppliers to provide elements of its products
and services. For example, access circuits
purchase from other operators to connect to
customer premises, and equipment from
various hardware and software suppliers that
facilitate the provision of Gamma’s services.
Potential impact
Failure of one of these suppliers to perform may
have an impact on our ability to deliver products
and services within the UK and European markets.
The risk profile has increased year on year, due
to the strategic plans to expand into Europe.
Through this expansion, there is a high
likelihood that the number of key suppliers will
increase to grow within new geographies.
Mitigating actions
Gamma has a comprehensive service development
strategy that captures customer feedback and seeks to
best align the support interfaces (system and human)
with the needs of customers. This strategy delivers
tools to put customers in control, digital training
material and specific customer service training for
customer support teams. The objective is to eliminate
any cause of frustration and ensure any customer
interaction is as straightforward as possible.
In terms of governance, there is 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.
Mitigating actions
Where possible, the business avoids reliance upon a
single supplier for a particular element of its service
proposition and governance is in place to 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 which include adherence to
Gamma’s information security requirements and
broader service KPIs. The Risk Committee reviews the
most significant risks and the status of related
mitigation projects quarterly.
25
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial reportSupplementary information
Our principal risks continued
Mitigating actions
We aim to provide products and supporting services
which are more attractive to our customers than those
of our competitors. The planning, development and
marketing of products and customer service that
Gamma provides are closely aligned to the evolution of
market demand and of relevant technologies.
The Company periodically undertakes a major strategy
review, across products, new and current markets and
geographies, the overarching objective of which is to
ensure we remain competitive in our key markets and to
identify new opportunities for further growth in terms of
markets, products and service experience.
Potential impact
The primary potential impact of new decisions would be
changes to buy and sell prices for products and the
processes Gamma uses for some transactions e.g. when
customers switch providers. Should these 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 legislative or regulatory changes; assessing their
risk and potential impact, and regularly engaging with
regulators as appropriate.
Mitigating actions
We have a well-established team and a reputation for
being a good employer. For example, in 2019, Gamma
came 87th in the ‘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
the People Agenda, with focus on development and
leadership programmes, succession planning as well as
effective employee engagement initiatives.
Furthermore, we have a collaborative culture and a
well-defined set of people-oriented values that help to
make us an attractive employer.
Mitigating actions
In order to reduce the risks associated with
acquisitions: pre-purchase, Gamma applies adequate
specialist resource to due diligence, negotiation, and
contractual preparation; post-purchase, adequate
resource is applied to integration and strategic
direction of the acquired business; and brings it under
the main governance control processes.
Description
New entrants or existing service providers
could extend or improve their product capability
to compete directly with Gamma’s products and
services. The communications market is
constantly evolving both in terms of the
available technologies and also in terms of how
people prefer to purchase certain products.
Potential impact
Growing competition may dilute the addressable
market, and slow down the rate of growth. If the
Company does not at least keep pace with the
evolving market then our plans for revenue
growth may be negatively impacted.
Description
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. Our activities can be impacted by the
decisions of relevant legislative, regulatory or
judicial bodies both domestically and in the
European Union.
Description
The business has grown rapidly over the last few
years, and so far has experienced low staff
turnover, and generally has been able to develop
or recruit the number and quality of staff
required to support our strategic development.
There is a risk to continued growth, product
portfolio expansion, and entry into new markets,
if the business cannot attract, develop, and retain
people of the required skill and experience.
Potential impact
Loss of key individuals or an inability to recruit
the required quantity or quality of people could
have an impact on the future growth of the
business or the quality of services provided.
Description
Acquisition of new businesses, particularly
those in different countries introduces both
financial and operational risk. These can arise,
for instance, through incomplete due
diligence, management distraction, failure of
acquired businesses to deliver to their
forecasts, misunderstandings due to differing
languages and cultures.
Potential impact
These could include: failure to achieve
expected financial performance; operational
problems which could create reputational
damage; distraction of management so
opportunities are lost in the existing business.
Market landscape
Risk impact:
Moderate
Change on prior year
Relevant strategy:
1 2
Legal and regulatory
Risk impact:
Change on prior year
Relevant strategy:
Low
2 3
Our people
Risk impact:
Low
Change on prior year
Relevant strategy:
1 2 3 4
M&A
Risk impact:
Moderate
Change on prior year
Relevant strategy:
3
26
Gamma Communications plc
Mitigating actions
Gamma already has business continuity plans in
accordance with ISO 22301. For instance, Gamma has
provided laptops to all staff with a secure connection to
the corporate network. Internal systems such as email,
network monitoring and customer support tools are
available to staff when working remotely. Weather
forecasts are monitored closely and in the event of
extreme weather, communications procedures are
initiated to notify all staff. Gamma has also installed
back-up generators at key network and customer
support sites to mitigate the risk of power cuts.
Climate Change
Risk impact:
Low
Change on prior year
Relevant strategy:
n/a
Description
Climate change has both immediate effects
and progressive, long-term effects on the risk
profile of businesses. Short-term effects
include the increasing frequency of extreme
weather events (wind/rain/flood); they may
include step changes in costs (taxation on
emissions); and will mean that certain sectors
of industry find their business models difficult
to sustain.
Potential impact
The impact of climate change risks on Gamma
is assessed as low. Extreme weather risks are
mitigated via existing resilience plans.
Gamma’s energy costs are a small proportion
of its costs and likely regulatory interventions
are seen as manageable. The progressive
effects on certain industry sectors are not
expected to have a material negative effect
given the diverse nature of Gamma’s customer
base. In fact, overall climate change is believed
to be an opportunity for Gamma since its
products will help customers avoid travel.
Transitory risks
The following are viewed as transitory risks which carry a potential impact to the business as opposed
to permanent risk features, and as such not included in the main table, however Gamma believe they
are important to comment upon.
Covid-19
Brexit
The Covid-19 virus has had an impact
on economic activity.
The impact could include delays and
suspension of hardware supply chain
(certain computer or telephone hardware
is supplied to customers as part of certain
product packages). Suspension of the
hardware supply chain would limit new sales of
these packages, but would not affect Gamma’s
ability to provide communications services to
existing customers.
If a major outbreak occurred in the UK: staff may be
required to self-quarantine at home; staff may be lost
or become sick for extended periods; and volumes of
new sales may be restricted because Gamma staff and
its resellers’ staff are unable to meet customer staff.
Gamma is certified to the ISO 22301 business
continuity standard and as such the business is fully
prepared for site closures and remote working should
this be required and as such Gamma views the risk of
any disruption to customer services as minimal.
Gamma is also working closely with technology
partners to assure continuity of hardware supply
across our products and services.
Gamma’s main exposure is to the possible
reduction in overall UK economic activity.
In 2019, extra hardware stock (for supply to
customers with certain product packages)
was acquired ahead of the anticipated ‘hard
Brexit’ dates.
The risk impact included in the above tables are described as if no mitigating actions are taken.
27
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial reportSupplementary information
Business review
Connected
communication
solutions
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
Our primary route to market, the channel, is at the heart of what we
do. Providing services to channel partners, with the partner owning
the end customer contract and the relationship.
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 UK Direct business supports the
requirements of Enterprises, Mid Markets and Public Sector
organisations.
Overseas
This division consists of sales made in the Netherlands, by DX
Groep B. V. and its subsidiary companies. We provide services to
both channel partners and directly to the end customer.
Proportion of sales
70%
25%
5%
28
Gamma Communications plc Revenue:
£230.1m
+9.3%
UK Indirect
In 2019 Gamma’s indirect business has shown robust
growth in margin, units, and market share for key service
areas of Cloud PBX, SIP Trunking, and Connectivity.
Revenue increased by 9% to £230.1m in 2019, and gross
profit rose to £119.1m in 2019, an increase of 22%.
Gamma remains well placed in a competitive market as
our revenue and costs are spread across a spectrum of
services, not just connectivity. This approach means
re-sign rates remain high, and churn is stable across
both Ethernet and Broadband, while creative pricing
has driven gross adds.
Our partners are beginning to provide greater
integration of these services for their end users, and
this will continue in 2020. Gamma is uniquely positioned
to provide some of these integrations ready-made, with
access to APIs across the product set where modular
consumption is preferred.
The Gamma Portal continues to be a key differentiator,
making us first choice within our partner community
due to the high level of control and ownership it
provides. We have expanded the content and capability
of our eLearning (“Gamma Academy”) and eMarketing
(“Gamma Accelerate”) platforms. The Gamma Academy,
provides partners with a comprehensive set of support,
training and product tools. Individuals in the channel
community undertook over 19,992 courses in 2019,
an increase on over 16,000 in 2018. The Gamma
Accelerate portal allows partners to access and
customise marketing material, generate new leads, and
engage with prospects and customers. In 2019, more
than 800 partners used the system, and there was a
10% increase on 2018 for marketing campaigns run.
Our partner programme has grown to over 60 partners
across both Gold and Platinum tiers and we continue to
evolve the programme whilst protecting its exclusivity.
In 2019 we launched Technical Alliance programme to
reward partners commitment to Gamma for their chosen
products and to ensure that relevant support and
provisioning staff are fully trained, qualified and engaged.
We are particularly pleased to have increased our
market share of SIP Trunking services again in 2019.
Approximately 30% of orders have taken the
supplementary “SIP Trunk Call Manager” service adding
valuable Cloud-based call management features to
complement the connected voice services. We also
began trials of our fully integrated Microsoft Teams
Direct Routing capability, enabling partners to monetise
the SIP and call bundle opportunity within the rapidly
growing Microsoft Teams community.
Sales of our Cloud PBX product, Horizon, have remained
strong in a marketplace that now has over 100 vendors
catering to the SME customer. Gamma’s scalability,
easy to use digital portals and end-to-end proposition
enable it to compete in a market where barriers to entry
have fallen dramatically. In 2019 we launched our
UCaaS service, Collaborate, which exceeded our
expectations with a 7% attachment rate on new orders.
Following the acquisition of Telsis in November, we aim
to enhance this UCaaS capability throughout 2020, and
expect its impact to be an increase in average customer
size on Horizon.
We have seen operational efficiencies following the roll
out of new regional based account management teams;
account manager locations now match their partner
base, promoting both time and environmental
efficiencies. For the third consecutive year, we have
seen a decrease in the number of accounts per head
giving each account a more tailored approach.
Looking ahead, we are uniquely positioned to increase
market share across our product lines, with Mobile
representing an immediate opportunity to continue the
strong net growth we have seen. The focus for the
indirect channel continues to reflect our core strategic
objectives: building out our UCaaS proposition
differentiated by fixed and mobile capabilities; and
enabling our partners with an evolving set of digital
platforms to help them grow their business. This will
drive our success as we deliver disruptive, high-quality
propositions in existing and targeted new markets.
Daryl Pile
Managing Director – UK Indirect
“ The continued success of Gamma’s indirect
business unit reflects that over 1,000 partners
in our channel community decide to place their
business with us, something we will never take
for granted. We continue to enable our partners
through intuitive portals and APIs, whilst
ensuring that our service portfolio, development
roadmap, and acquisitions drive the value of our
channel partners, businesses and Gamma.ˮ
Gross profit
Increase
+22.2%
£119.1m
Key channel partners we work with:
Arrow
Maintel
Southern Communications
Focus Group
29
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial reportSupplementary information Business review continued
UK Direct
Our direct business continues to grow, contributing
revenues of £83.6m (2018: £70.9m) and gross profit of
£38.2m (2018: £32.8m), up 18% and 17% respectively.
We achieved good growth across all our market
segments, but our focus on larger customers saw our
revenue from the Enterprise business grow by 30%.
We achieved another strong year of contract award,
securing £92.3m in 2019, slightly down on 2018 which
was swollen by a single large contract. The most
pleasing aspect of this order performance was that
36% can be attributed to customers adding more
products or services to their existing agreement,
demonstrating a high level of customer satisfaction and
our focus on cross-selling new products and services
to our current customers.
As a customer-centric organisation, the happiness of
our customers is everything to us. During 2019 our
average Net Promoter Score remained at 41% which is
a testament to this effort and focus, and a key factor in
why we also re-secured some £27.4m of contracts with
existing customers including our very large financial
institution which extended and expanded its managed
SIP platform and for a further 30 months.
As planned, we launched The Gamma Hub in early 2019
our end-to-end digital platform which has dramatically
improved customer engagement. Further releases are
scheduled for 2020 that, when deployed across our
direct business will provide a single end-to-end system
providing customers with a leading digital experience
and greatly simplify our delivery and support models.
Enterprise – It has been a good year for the Enterprise
business unit with a strong year of sales growth
securing £41m of new contracted revenues with leading
organisations such as Inchcape plc and David Lloyd for
data services and BUPA for UCaaS services. This
momentum was primarily due to our Managed Service
model that provides customers access to both the
latest technologies, such as UCaaS and SDWAN, while
complemented with solutions that are optimised,
managed and tailored at scale. In addition, we were
delighted to re-sign several managed services
contracts for further business, including international
sandwich shop chain Pret a Manager who extended and
upgraded their extensive data network with us for a
further 36 months.
David Macfarlane
Managing Director – UK Direct
“ We continue to grow our presence in
a challenging market. This is down to a
combination of our market-leading products
and services combined with our excellent
and consistent customer service. Year over
year, our existing customers are contracting
more and more of their communications
estates with Gamma.”
Public Sector – We successfully awarded access to the
Crown Commercial’s Network Services 2 framework
(RM3808) for all ten lots that that were applied for. This
will allow us to continue to supply the UK public sector
with all Gamma’s data, voice or mobile services, by either
direct award or via a competitive tender process. We
additionally became accredited suppliers on Crown
Commercial G-Cloud 11 for UCaaS, CCaaS and SIP
Services. Despite the challenging backdrop of Brexit, the
original network services framework expiry and general
budget uncertainty in the sector, our focus on central
government provided positive returns with key contract
awards, including HMRC and Public Health England who
both selected Gamma for large-scale SIP deployments,
and the HM Land Registry also awarded us their inbound
services. We also had a good proportion of new contract
wins across NHS Health, Education, Local government
and the Social Housing Sector.
Mid-Market – In the mid-market growth has also been
strong and 2019 saw us continue our strategy of focusing
on the upper end of the SME market, although this creates
a longer sales cycle, contracts awarded are larger, for
longer duration and are for typically for multiple products
or services. To this end, our team secured new multiyear
SIP contracts with Hogg Robinson and Heathrow Airport,
International Law firm Hill Dickenson, selected our
Microsoft Team Direct Routing service to support their
UCaaS deployment. Looking after customers is our
passion, and when they re-sign or, better still, expand their
agreement with us this is testament to the service we
provide. To this end, Hidden Hearing and an existing voice
customer awarded us a multiyear contract to connect its
300 sites with data and voice services.
The Loop – Our Manchester fibre network, The Loop, has
continued to expand its fibre presence across the Greater
Manchester region and now connects more than 70
commercial multi-occupier buildings as well as all of the
leading data centres. The network now stretches over
87km through the commercial centres of Manchester,
Trafford and Salford with more than 187km of fibre cabling.
It is a strategic provider of critical infrastructure to a
number of leading organisations in the private and public
sector, including Equinix, Peel, the NHS and Manchester
City Council and 2019 signed a consolidated five-year
contract with MCDA, Manchester City Council’s Media
Assets holding company to provide fibre and internet to
Sharp, Space Studios and the new Arbeta building.
Gross profit
Increase
+16.5%
£38.2m
Customer examples
HMRC
Hidden Hearing
BUPA
Pret a Manger
JISC
Revenue:
£83.6m
+17.9%
30
Gamma Communications plc Revenue:
£15.2m
+347.1%
Overseas
DX Groep
2019 proved to be a transitional year for the DX Groep.
In February, the acquisition of Nimsys was completed.
Nimsys specialise in offering IT and telecommunication
services to the multi-tenant building sector and their
customers include the likes of Spaces and HNK. Nimsys
adds market breadth to the group in a rapidly growing
sector. Our overseas group has contributed £15.2m to
revenue in the year and £9.2m to gross profit.
Nimsys
Since the acquisition of Nimsys in February, the
company has shown strong organic growth. There were
two clear reasons for this; the first is the strong market
sector growth for multi-tenant buildings, and the
second is the success and growth rate of one of its
larger customers across the Netherlands. Looking
ahead into 2020, continued growth is expected in both
these areas driven by the lack of office space in and
around Amsterdam.
Focus for 2020 will be on continued growth and on the
integration with Schiphol Connect.
Schiphol Connect
2019 was a strong year in terms of performance for
Schiphol Connect. We continued to perform well,
building on offering high availability and value-added
services to its customer base. This was driven by a
number of factors;
Firstly, the migration of customers, voice services from
another service provider to a Dean One offering
assured cost efficiencies across the group. Secondly,
the team were successful in winning a number of large
international customers.
Focus for 2020 will be on the integration with Nimsys
(as above), with key consideration given toward how
best to rationalise suppliers, service our customers
and grow our footprint.
Dean One
During the year, Dean One’s growth was affected by the
ISDN switch-off in the Netherlands, which impacted the
first half performance and resulted in an impairment
on the intangible assets recognised on acquisition.
On a positive note, clear progress has been made in
developing the Cloud PBX offering. It has a brand-new
look and feel user interface, plus a much richer
feature-set; however, much of the work has been
centred around making the platform technically able to
support much faster deployment of additional features
(which bodes well for future releases). This new service
was launched to the wholesale partners in January and
Q1 will also see it Retail-partner ready. Additional
features will be added as we head further into 2020,
development priorities being led predominantly via the
Channel and end-user feedback, including highly
anticipated Unified Communications features.
Additionally, the launch of the wholesale T-Mobile
offering in February has been a big success. Business
partners were looking for an alternative to KPN, since
they ceased their activities with their challenger brand
Telfort. The propositions sold are very similar to the
T-Mobile @work portfolio, which has a competitive
price point in the business segment with the option that
traffic for both voice and data is included to the USA.
2019 was communicated as the year that the
incumbent operator (KPN) planned to switch-off ‘lower
capacity ISDN’ circuits.
This meant that all providers/partners who sold this
service had to find an alternative voice service for their
customers. In Dean’s case, this was a rather large
number of customers. The challenge here is the plan
and path taken to deal with these customers and
partners. Whilst many customers took the migration to
Cloud option, many (particular the smaller businesses)
have remained passive. Whatever the outcome, it's fair
to say that the migration to another service has been
much more difficult than expected, not just for Dean
One, but also for other service providers in the market.
2020 will see Dean One build on its rather unique
mission, which is ‘To accelerate the productivity and
success of the SME workforce and its business
partners. Always going the extra mile to provide
communication and collaboration services that are
tailored to the user’s needs and stand out in technical
reliability, simplicity and user friendliness.
Willem van Ingen
Managing Director – Dean One
“ We are pleased to have completed our first full
year as part of the Gamma Group. We have
successfully acquired Nimsys which adds market
breadth to the group in a rapidly growing sector.ˮ
Gross profit
Increase
+384.2%
£9.2m
Customer examples
Nederlandse Publieke
Interxion
Welcomm
31
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial reportSupplementary information
Financial review
Andrew Belshaw
Chief Financial Officer
Another year of strong financial
performance for Gamma.
Financial
performance
Revenue
+15%
+26%
+30%
+33%
+20%
+35%
£328.9m
Gross profit
£166.5m
EBITDA
£62.6m
Cash generated by operations
£54.0m
EPS (fully diluted)
36.1p
Adjusted EPS (fully diluted)
40.8p
32
Gamma has performed well during the year, increasing
revenue by 15% to £328.9m and gross profit by 26% to
£166.5m. This strong performance across all areas of
the business. This has resulted in EPS of 36.1p, an increase
of 20% from the prior year.
Revenue and gross profit
UK Indirect
Revenue
Gross Profit
Gross Margin
2019
£m
230.1
119.1
51.8%
2018
£m
210.6
97.5
46.3%
Increase
+9.3%
+22.2%
Revenue from the UK Indirect business grew from £210.6m to
£230.1m (+9%) and gross profit grew from £97.5m to £119.1m –
an increase of £21.6m (+22%).
Within the UK Indirect business, the gross profit from the traditional
business (which includes calls and lines and trade with other carriers)
has seen a slight increase from the previous period which is contrary
to the trends seen over the past few years. The call and lines part of
the business continues to decline but Gamma is now providing IP
telephony services to other carriers which is offsetting this.
We group our data, mobile, SIP and Cloud PBX products as our
“growth” products and revenue from growth product sales
increased from £162.7m to £186.5m (+15%) and gross profit grew
from £85.6m to £106.7m (+25%). The gross margin grew from 53%
to 57%, which reflects the fact that the main contributors to this
growth were SIP Trunking and our Cloud PBX product (Horizon)
which have higher margins than other products. Despite price
pressure in Cloud PBX, margins are holding up due to fewer calls
being used within bundled offerings.
UK Direct
Revenue
Gross Profit
Gross Margin
2019
£m
83.6
38.2
2018
£m
70.9
32.8
Increase
+17.9%
+16.5%
45.7%
46.3%
The UK Direct business continues to grow strongly. The growth was
mainly attributable to sales to Enterprise customers increasing by
£8.3m. Mid-Market revenue increased by £2.4m and Public Sector
grew by £2.1m. This business continues to move from selling to
smaller customers to larger enterprise businesses and public
sector customers on multi-year deals. The order book remains
strong with significant customer wins anticipated in the second half.
Gamma Communications plc
The gross margin fell slightly because the margin on larger
customers tends to be lower and also more of the new business wins
have a higher proportion of access sales (typically Ethernet) which
has a lower margin than the voice applications suite of products.
Overseas
Revenue
Gross Profit
Gross Margin
2019
£m
15.2
9.2
2018
£m
3.4
1.9
Increase
+347.1%
+384.2%
60.5%
55.9%
The Dutch business contributed £15.2m of revenue in 2019, £9.2m
of gross profit – a margin of 61%. There are no comparatives as the
business was acquired in October 2018 with a further acquisition in
February 2019.
Gamma acquired DX Groep in October 2018 and Nimsys in February
2019. As reported at the half year, the performance of the DX Groep
business in the first half was below expectations as a significant
amount of legacy ISDN business ceased due to changes made by the
incumbent network provider in the Netherlands. In the second half, the
performance of the business has improved and sales of Cloud PBX
and Mobile were strong. Nimsys has also exceeded our expectations.
The initial acquisition price for DX Groep was £11.5m and no further
consideration will be paid due to a greater than expected drop off of
ISDN revenue in 2019. As a result, the level of contingent consideration
has reduced to nil with an equivalent reduction in the carrying value of
associated assets. This is discussed under exceptional items below.
The initial acquisition price for Nimsys was £3.7m with up to another
£3.2m payable dependent on performance in 2019 and 2020. Given
the performance of Nimsys in 2019, we now estimate that all of the
contingent consideration is likely to be paid. Therefore the aggregate
consideration for the two Dutch businesses is likely to be £18.4m.
Operating expenses
Operating expenses grew from £97.8m to £121.0m.
We break these down as follows:
• The increase in overseas costs is reflective of the inorganic
growth and a full year of the DX Groep.
• Central Costs have increased significantly year on year which is
due to a number of factors. The first is that we are building a
group function in anticipation of operating several businesses
around Europe over the coming years. A second factor is the
cost of our strategy project. Finally, we have incurred significant
due diligence costs on acquisitions, some of which have
completed whilst some were not followed through.
Depreciation and amortisation on tangible and intangible assets
has increased from £12.1m in 2018 to £13.4m in 2019. This is driven
by increased capital expenditure over the past few years. The
annual depreciation charge is now in line with the annual capital
expenditure spend and is not expected to increase significantly.
Share based payment costs have increased during the year
because more executives have been included within the scheme
and the rising share price has made the costs of employers, NI for
share grants higher than in previous years.
Exceptional items
There were a number of exceptional transactions in the year but all
relate to the acquisition of either the DX Groep or Nimsys (both in
the Netherlands).
DX Groep
An exceptional item relates to the contingent consideration which
is due for the acquisition of the DX Groep. In preparing the statutory
accounts for 2018 we made our best estimate of the contingent
consideration. During 2019 a higher than expected attrition rate
of legacy customers taking ISDN caused the revenues to be lower
than expected. It should be noted that the margins made on ISDN
in the Netherlands (c.40%) are much higher than in the UK and
therefore this acceleration of churn from legacy products has had
a disproportionate effect on profit. This means that we have both
revised our estimate of the contingent consideration due and have
also considered whether the intangible assets and goodwill which
were acquired with the business require reduction.
2019
£m
2019
£m
2018
£m
2018
£m
Growth
As a result of the above there are three exceptional items:
• A credit of £8.1m arising from the release of the contingent
Expenses included within cash
flows from operating activities
– UK Indirect Business
– UK Direct Business
– Overseas Business
– Central Costs
Depreciation and amortisation
– tangible and intangible assets
– right of use assets
– acquisition
Share based payments
Exceptional items
Operating expenses
64.9
20.1
8.9
6.5
13.4
1.7
2.0
60.6
16.4
2.3
2.7
100.4
82.0
12.1
1.4
0.4
17.1
2.6
0.9
121.0
13.9
1.9
-
97.8
+7.1%
+22.6%
+287.0%
+140.7%
+10.7%
+21.4%
+400.0%
+36.8%
+23.7%
Movements in cash-based expenses were driven by:
•
•
Within the UK Indirect Business, operating expenses, excluding
share based payments, have grown by 7.1% (compared to Gross
Profit growth of 22.2%). This demonstrates the effect of
programmes we have undertaken historically to ensure that we
are running the business more efficiently.
In the UK Direct business, overhead increased by 22.6% (compared
to Gross Profit growth of 16.5%). The level of increase is mainly driven
by our investment in our digital strategy programme but we also
continue to invest in additional sales heads to grow the business.
consideration.
• A debit of £3.9m arising from the reduction in carrying value
of the intangible assets.
• A debit of £4.2m arising from the reduction in carrying value
of goodwill.
In addition to the exceptional items a credit of £1.0m relating to
deferred tax movements in connection with the reduction in
carrying value of intangible assets has been included within
“adjusting tax items”.
Nimsys
With respect to Nimsys, the opposite has occurred – the business
had performed better than originally expected which meant our
initial estimate of contingent consideration was too low and
therefore it now needs to be increased.
Following the initial recognition of Nimsys contingent consideration
in February 2019, the contingent consideration has been
remeasured at the reporting date. The overall balance due has
increased by £0.9m which we have charged to the statement of
comprehensive income. There is no tax effect.
None of these items relating to either transaction are cash items.
The alternative performance measures referred to herein have
been adjusted for all of these items.
33
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial reportSupplementary information Financial review continued
Alternative performance measures
Our policy for alternative performance measures is set out in note 1.
The tables at the bottom of this page reconcile the alternative
performance measures used in this report.
The Group continues to have no external debt 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.
Adjusted EBITDA and EBITDA
The combination of increasing sales of new products and
operational improvements means that EBITDA grew from
£48.3m in 2018 to £62.6m or 30% and adjusted EBITDA grew
from £48.3m in 2018 to £63.5m or 31%.
Adjusted EPS (FD) and Statutory EPS (FD)
Adjusted EPS (FD) increased from 30.3p to 40.8p (35%). The growth
in adjusted EPS (FD) has been significant due to the strong trading
described earlier. Adjusted EPS is EPS as adjusted for exceptional
items as defined in the table below.
Statutory EPS (FD) grew from 30.0 to 36.1p (20%). The growth is
lower than the adjusted metric because, in the current period,
there is an increase in the exceptional amortisation relating to
business combinations as well as charge for change in value of
deferred consideration which was not present in the prior year.
These items are in part offset by an exceptional tax credit relating
to the reduction in intangibles.
Dividends
The Board has proposed a final dividend of 7.0p (2018: 6.2p). This
is an increase of 13% and is in line with our progressive dividend
policy which has meant an increase of between 10-15% every year
since we listed in 2014.
Subject to shareholder approval, the final dividend is payable
on Thursday 18 June 2020 to shareholders on the register as
at Friday 29 May 2020.
Andrew Belshaw
Chief Financial Officer
16 March 2020
Taxation
The effective tax rate for 2019 was 24% (2018: 18%). This rate is inflated
by adjusting tax items of £1.6m and tax on business combinations of
£0.5m – neither of these are cash items. The underlying tax rate
(ignoring these adjustments) would have been 19%.
Cash flows
The cash balance at the end of the year was £53.9m, up from
£35.5m at the end of the previous year.
The ratio of adjusted EBITDA to cash generated from operations
was 85% (2018: 84%).
Significant non-operational spend items were:
• Capital spend was £12.4m, which is a decrease from £12.7m in
the comparative period. This is discussed in detail below.
• £7.5m was paid for acquisitions net of cash acquired (2018:
£11.1m) of which £3.4m was paid for the acquisition of Nimsys
and £4.1m for Telsis.
• £9.2m was paid as dividends (2018: £8.1m).
Capital spend
Capital spend in 2019 was £12.4m (2018: £12.7m) as follows:
• Regular spend on maintaining and increasing capacity on the
core network was £12.4m (2018: £11.6m):
•
£9.9m 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 (2018: £9.1m).
• £1.4m was the capitalisation of development costs incurred
during the period (2018: £1.3m).
•
£1.1m was spent with third-party software vendors for the
software which underpins our Cloud PBX product (2018: £1.2m).
• Project spend in the current period was nil (2018: £1.1m was
spent on the national network).
The tables below reconcile the alternative performance measures used in this document:
2019
measure
EBITDA* (£m)
PBT (£m)
PAT (£m)
EPS (FD) (p)
2018
measure
EBITDA* (£m)
PBT (£m)
PAT (£m)
EPS (FD) (p)
Statutory basis
Amortisation of
intangibles
Adjusting tax items
62.6
45.2
34.5
36.1
–
2.0
2.0
2.1
–
–
1.6
1.7
Statutory basis
Amortisation of
intangibles
Adjusting tax items
48.3
34.5
28.4
30.0
–
0.4
0.4
0.4
–
–
(0.1)
(0.1)
Exceptional items**
0.9
0.9
0.9
0.9
Exceptional items**
–
–
–
–
Adjusted basis
63.5
48.1
39.0
40.8
Adjusted basis
48.3
34.9
28.7
30.3
*
Profit from operations is the nearest statutory measure to EBITDA and is reconciled on the Consolidated Statement of Comprehensive Income and Note 6
(segemental analysis).
** See Note 8 for further details.
34
Gamma Communications plc Environmental,
social and
governance report
Gamma takes its responsibilities towards the
environment seriously. We are committed to social
responsibility and embed this into our policies and
practices. We believe that sound corporate
governance is essential in order to effectively run
our business and look to engage with a wide range
of stakeholders in order to create value for all.
35
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial reportSupplementary information Environmental, Social and Governance continued
ENVIRONMENTAL
Helping the
environment is core
to everything we do
Gamma’s heritage is to develop products which enable people to communicate
and collaborate with colleagues, customers and suppliers without the need to
travel. Businesses who choose to use Unified Communications products should
travel less and therefore reduce their carbon footprint. Helping the environment is
core to everything we do. One of our core values is to “Consider Others” and this
includes our global neighbours, not just our near neighbours.
As a business we still produce CO2 and that is why we
have been engaged in carbon offset programmes since
2006. We are committed to being an environmentally
friendly company ourselves and where we produce CO2
we will offset that.
In line with this approach, the Board has confirmed its
commitment to supporting the UN Sustainable
Development Goals. An initial analysis of the impact
of the business has been undertaken; this will be
continued throughout 2020 in line with the Global
Reporting Initiative and UN guidance.
The Board has responsibility for oversight of
environmental issues (and also risks related to climate
change which are discussed below). The CEO is
responsible for executing strategies that have been
agreed with the board which maintain the values to
which Gamma has subscribed since its foundation.
Monitoring and offset of carbon emissions
Annual GHG emissions in tonnes CO2e
2014/2015
2015/2016
2016/2017
2017/2018
3,003
2,768
2,462
2,332
We use a third party to monitor our own carbon
emissions, with the calculations being done biennially
for our UK business – in future years we will include the
whole of the Group. The most recent fully analysed
information covers the year to 30 June 2018. This was
produced using the GHG Protocol and using emissions
conversion factors published by the Department of
Environment, Food and Rural Affairs (Defra); it
generated the carbon emissions results shown below.
The GHG Protocol used does not include emissions
produced in Gamma’s supply chains but, where
possible, we work with suppliers who share our values.
Annual breakdown of emissions by source in UK offices
GHG Emissions Source
Electricity
Road Business – Grey Fleet
Air Business
Natural Gas
Road Business – Company Vehicles
Road Business – Taxis
Water
Rail Business
Total
36
GHG Emissions
2016/2017
(tCO2e)
1,726.4
412.8
113.3
20.3
36.5
5.6
1.1
145.8
2,461.8
% of total
GHG Emissions
2017/2018
(tCO2e)
70%
17%
5%
1%
1%
0.2%
0.04%
6%
1,497.9
402.7
176.2
22.8
34.8
8.0
1.9
187.6
2,331.9
% of total
64%
17%
8%
1%
1%
0.3%
0.08%
8%
Gamma Communications plc communities no longer need to purify water through
boiling. This alleviates pressure on local forests – the
predominant source of firewood – and reduces
greenhouse gas (GHG) emissions.
Our CarbonNeutral® status is valid until December 2020
and we are committed to renewing our status in the future.
Closer to home, Gamma has been a Woodland Trust
Corporate Member since 2010, helping create, restore
and protect UK woodland.
Waste Management
As well as producing CO2, like any business, Gamma
produces other waste. The larger waste items are
network assets which need to be retired. These are
disposed of in compliance with the Waste Electric and
Electronic Equipment Directive (WEEE Directive). Such
assets are sent to a WEEE certified operator who is
engaged to dispose of the items appropriately in
compliance with the certificates they provide to us.
Across Gamma sites, more general “office waste” is
separated into recyclable and non-recyclable materials.
We are looking to make further improvements to our
waste management and track the onward processing
of the waste.
We do not presently record the mass of waste
produced annually.
Climate-related business risks and opportunities
As well as working to reduce Gamma’s effect on the
environment, the Board has also considered the
business risks which are associated with climate
change. We believe that climate change presents an
opportunity for the Unified Communication industry as
the products which are supplied allow business users
to reduce their travel.
Notwithstanding, there are risks which were discussed
in the “Our principal risks” section of the Annual Report.
Some types of “extreme weather” (which is becoming
more frequent as a result of climate change) could pose
a risk to Gamma. For example, the impact on assets
caused by data centre flooding or extreme wind
resulting in roof loss. We maintain our buildings to a
high standard and do not build on a flood plain to
mitigate this risk. More widely, this type of weather
could impact the electrical grid supply and we mitigate
this by having our own back-up systems in place on
core parts of the network.
Climate change risks are reviewed quarterly by the
Risk Committee, which reports to the Board. The
committee’s initial analysis suggests the primary
impact of climate change on Gamma’s operations is
positive in the sense that it may drive a demand for the
core product set whilst recognising that Gamma’s own
operations primarily consume electricity and that the
carbon generation from these is being offset.
Our total (UK) emissions for 2016/2017 and 2017/2018
were 2,462 tCO2e and 2,332 tCO2e respectively,
reducing by 5.3% over the time period despite the fact
that we were carrying more minutes on our network.
Electricity emissions decreased over the two-year
period by approximately 13.2% because we continue
to invest in capital items which are more efficient than
those which they replace. Emissions from our small
fleet of vehicles also decreased.
Unfortunately, emissions from transport (air, rail and
taxis) increased over the two-year period because we
have more employees who travel and our European
expansion plans mean we undertake more air travel. We
are working to reduce the amount of travel each of our
employees undertakes each year.
Whilst a full analysis is not yet available for the year to
June 2019, more recent data is available on electricity
consumption. This shows that the electricity element of
the total has fallen by 2.8% between 2017/18 & 2018/19
again demonstrating our commitment to replacing old
inefficient capital equipment with more modern
equipment which uses less electricity. The most
significant area of energy usage by Gamma is at our
data centre in Manchester which accounts for 57% of
our electricity usage. By replacing equipment and using
modern air conditioning plant we can continue to
reduce power usage in this area.
We are also looking at the choices we make when
selecting vendors for our computing and network
equipment. There is a rolling process of renewal of this
infrastructure and in each iteration the new equipment
is more energy efficient. This has facilitated a general
downward trend in overall electricity consumption
despite the Company’s continued growth.
Because no organisation can produce no CO2 footprint,
where we do release CO2 into the atmosphere we made
a commitment in 2006 that we would fully offset this.
Gamma has held ‘Certified Carbon Neutral Company’
status (conferred by Natural Capital Partners) since
2006. Over the years we have invested in a variety of
“offset projects” which have been a combination of
environmentally friendly power generation projects in
the developing world and forest conservation. At
present, the offsetting projects include Amazon
rainforest conservation and reforestation in Kenya:
• Acre Amazonian Rainforest Conservation Project
(Brazil) which aims to protect 105,000 hectares of
rainforest in the Amazon basin from deforestation.
The project works with communicates and local
groups to help protect ecosystem services while
providing alternative models of economic
development which avoid destruction of the forest.
• Meru and Nanyuki Community Reforestation
Programme (Kenya) offers hundreds of individual tree
planting activities and enables local communities to
improve access to food and create additional
sources of income beyond subsistence farming,
helping to improve the biodiversity of the local area.
•
Improved Water Infrastructure Project (Uganda): this
project provides clean drinking water to small rural
communities by repairing and drilling new boreholes,
helping to reduce water scarcity. Boreholes can be
used as water wells by installing a vertical pipe casing
and well screen, which allows water to be extracted
from the ground. By providing clean water,
37
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial reportSupplementary information Environmental, Social and Governance continued
SOCIAL
Gamma takes
the welfare of all
of its stakeholders
very seriously
We described how we try to do our best for our Global neighbours
earlier. We also focus on working with our stakeholders who are
closer to the business. We identify these as our customers,
suppliers and our people.
Customers
Gamma’s ethos is to provide a robust product at a fair
price. Where we are selling via Channel Partners we
want our Partner to be able to make a fair margin for the
value that they are adding to our End User. We want to
produce products which allow our End Users to be able
to communicate easily and reliably.
The business has a strong reputation for service and
support. We invest time engaging with our customers
across a range of topics to ensure our business
remains straightforward to deal with. In order to
understand overall customer satisfaction levels, we run
regular satisfaction surveys from our Sales and Support
teams and are pleased to report that over 90% of our
customers surveyed in 2019 were satisfied with the
support they received. We also track an annual Net
Promoter Score (NPS) and recorded a positive score of
+40 for 2019 which is well above the industry average
for our sector.
Our pricing is fair and transparent.
Data Protection and Privacy
We are mindful of the importance of supporting our
customers and those partners we do business with, in
their endeavours. In that line, we recognise the need to
ensure that any personal data that we may collect is
properly protected and that we are transparent and
responsible in the way we handle it. Details regarding
our privacy policy can be found on our website, at
https://www.gamma.co.uk/privacy-policy/
Suppliers
Gamma works with carefully chosen suppliers. The
main suppliers are those who provide equipment (both
for our own network and for onward sale to customers)
and other telecoms businesses.
As part of the communications industry, Gamma
recognises that it has a responsibility to take a robust
approach to slavery and human trafficking. Gamma is
committed to preventing slavery and human trafficking in
its own corporate activities and to ensure that its supply
chains are free from slavery and human trafficking.
We conduct a regular risk assessment of the different
types of supply to identify where there is the greatest risk
of modern slavery or human trafficking being involved.
The supply of telecommunications software is considered
low risk, but the supply of customer premises equipment
(such as handsets and routers) which may have been
manufactured in low wage countries is considered to
carry a higher risk. Hence we choose suppliers who can
demonstrate that they are not involved in these practices.
Gamma operates a number of policies which enable it
to identify supply chain risk. These are its
whistleblowing policy and employee policies within the
handbook. We also have a recruitment and agency
workers policy so that Gamma uses only specified
reputable employment agencies to source labour.
Due diligence reviews are undertaken which evaluate the
modern slavery and human trafficking risks of each new
high-risk supplier and we review (on a regular basis) the
risk profile of each supplier. Where the risk profile is high,
Gamma requires evidence from the relevant suppliers
that they have detailed written policies and effective
procedures in place to control the risk of modern slavery
and human trafficking in their own supply chain.
38
Gamma Communications plc Sharing in the success of our business growth
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 tax-efficient way.
Since 2016, Gamma has offered a Save As You Earn
(‘SAYE’) scheme which allows all eligible employees to
acquire shares.
During 2019 we also awarded all eligible employees £500
of free shares using our Share Incentive Plan (“SIP”). This
was to recognise the hard work that everyone had put in
to deliver an exceptional set of results in 2018. Our SIP is
also available to allow employees to buy shares on a
monthly basis should they choose to do that. In 2019
44% (2018: 28%) of all employees chose to participate
the SAYE scheme, with options being granted over
377,800 (2018: 241,298) shares.
Apprenticeships
The Gamma apprenticeship programme has continued
to expand during 2019. We currently have 24 apprentices
(2018: 13) across the business in various functions. Our
most recent apprentices started their careers in a wide
range of specialisms including Finance, IT, Unified
Communications and Software Development. The
balance of the apprenticeships at Gamma are
represented by apprentices from previous years
continuing their studies, in some cases up to degree level
and existing employees continuing their professional
development through the apprenticeship model. At
Gamma we are proud of our commitment to developing
our employees and see apprenticeships as a great way
to support talented people throughout their careers.
Health and Safety
Gamma is committed to working in a way that protects
the health, safety and welfare of employees and others.
Gamma strives to improve performance on a continual
basis. Gamma will promote equally the duties of
management and employees. All employees and others
working on our premises have a duty to co-operate with
supervisors and managers, to maintain health and
safety provision, to take care of their own health and
safety and that of others, and report any concerns they
may have or unsafe conditions they find.
We are pleased to report that there were no fatalities,
major injuries, or any dangerous occurrences reported
in 2019.
The Company has appointed a member of the
leadership team, Andy Morris, who is responsible for
monitoring and reviewing the Health and Safety policy.
Directors are responsible for making available adequate
physical and organisational resources. Managers must
devise and implement safe systems of work and
supervisors must ensure that workers are briefed and
consulted on any risks they are exposed to and comply
with safe working practices. Managers are responsible
for ensuring the policy is brought to the notice of all
employees and others who may be affected by it.
Where necessary the Company will employee
specialists to assist with meeting statutory
requirements and implementing our own policy.
39
Gamma People
Health and wellbeing
At Gamma, we create a positive working environment
for our employees, supporting their health and wellbeing
is central to everything we do. We regularly invest in our
employee workplace and in 2019 we invested over £1m in
the refurbishment of our office environment within our
Manchester and Glasgow operational centres, creating
facilities which encourage collaboration and promote
mental and physical wellbeing.
We provide a free and confidential Employee
Assistance Programme (EAP) helpline; alongside a
supporting online tool. Through the EAP, employees
can access information and advice on everyday
matters, as well as more serious issues, and receive
counselling. The EAP helpline and online resources are
promoted and reinforced through monthly health and
wellbeing communications, with a different theme each
month, linking to nationwide health and wellbeing
campaigns and initiatives such as: World Mental Health
Day, Time to Talk Day and Scroll Free September.
Gamma has a network of employees that are fully
qualified Mental Health First Aiders, that are situated
across all Gamma offices. These employees are trained
to further support their colleagues’ health and
wellbeing at work, by looking out for early signs and
symptoms of mental ill health. Where invited they will
converse with colleagues experiencing mental health
issues or emotional distress and (in more complex
cases) they will encourage and signpost colleagues
to appropriate support.
We recognise that one important part of wellbeing is to
provide some financial security to our employees. Gamma
offers all UK-based staff access to a Salary Sacrifice
pension scheme, life assurance cover and income
protection. These facilities ensure that staff and their
dependents are looked after should the worst happen.
Gamma also offers a benefits package, which allows
staff to trade salary for benefits such as a bike to work,
childcare vouchers and additional holiday as well as
access to a health cashback plan. Gamma has also
partnered with Reward Gateway to offer staff a variety
of discounts from various retail outlets and access
to health and fitness discounts including gym
memberships. We also offer enhanced maternity and
paternity pay and encourage shared parental leave.
Apprenticeships
in 2019
24
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial reportSupplementary information Environmental, Social and Governance continued
Employee relations and diversity
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.
We list some of the data from our UK Gender Pay Gap
analysis below.
The median pay gap is the difference between the
midpoints in the ranges of hourly earnings of men and
women. The mean gender pay gap is the difference
between the average hourly earnings of men and women.
During 2019, we continued the delivery of our
bespoke diversity, equality and inclusion (DE&I)
training to all UK employees.
On the statutory snapshot date of 5 April 2018,
out of the total number of UK employees:
Employees
Males: 70.17% (-0.97)
Females: 29.83% (+0.97)
Statutory
Gender pay gap
Gender bonus pay gap
Mean*
Median*
2018: 33.71%
(2017: 34.60%)
2018: 78.49%
(2017: 86.56%)
2018: 25.41%
(2017: 25.62%)
2018: 21.13%
(2017: 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
5 April 2018
5 April 2017
Proportion of males
receiving a bonus
Proportion of females
receiving a bonus
93.07%
91.74%
92.59%
89.38%
Gamma’s Pay Quartiles
Upper pay quartile
Upper middle pay quartile
Lower middle pay quartile
Lower pay quartile
% of males
in each pay
quartile
% of females
in each pay
quartile
2018: 85.97%
(2017: 85.49%)
2018: 14.03%
(2017: 14.51%)
2018: 76.02%
(2017: 77.84%)
2018: 23.98%
(2017: 22.16%)
2018: 63.18%
(2017: 64.77%)
2018: 36.82%
(2017: 35.23%)
2018: 57.92%
(2017: 58.55%)
2018: 42.08%
(2017: 41.45%)
40
Gamma Communications plc Gamma operates in a sector in which 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.
We are also keen to change this trend. Since 2017,
Gamma has partnered with the University of Salford
to encourage more females to undertake science,
technology, engineering or maths (STEM) subjects. As
part of the University’s insight programme, Gamma has
organised an initiative which welcomes female students
into a work environment. This involves talks from a variety
of Gamma staff about their career journeys while also
taking part in demonstrations and activities that illustrate
work activities and a tour of one of the Gamma offices.
Gamma received special thanks and commendation
from the leader of the initiative, Professor Takruri-Rizk.
Our Women in Technology Steering Group was
established during 2018. It has been working to identify
the issues that may hold women back and how these
can be addressed. The Group also develops ways to
support women’s personal growth and career
progression at Gamma and considers how we can
develop our outreach programme to encourage
students from local schools and colleges to study STEM
subjects. As a result, employees now attend careers
events at several schools in areas local to our offices to
help promote the technology sector to all genders.
Group employee numbers at 31 December 2019
Directors of Gamma
Communications plc
Senior managers of the
Company (including
subsidiary Directors)
Male
Female
Total
7 (87%)
1 (13%)
14 (93%)
1 (7%)
8
15
Employees
828 (70%) 348 (30%)
1,176
Group employee numbers at 31 December 2018
Directors of Gamma
Communications plc
Senior managers of the
Company (including
subsidiary Directors)
Male
Female
Total
7 (100%)
–
16 (94%)
1 (6%)
7
17
Employees
756 (72%) 292 (28%) 1,048
Group employee numbers
1,176
Males: 828
Females: 348
41
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial reportSupplementary information Environmental, Social and Governance continued
Giving something back
Giving back to our local communities
Everyone at Gamma is entitled to additional leave each
year to help a good cause or to work in the local
community to give something back. Throughout 2019
employees from our offices have contributed to the
local communities near their offices by volunteering
with Salford Foodbank, The Corn Exchange Dementia
Café in Newbury (which we also sponsor) and
participating in the Boden Boo and Erskine beach clean
near the Glasgow office.
Members of our Newbury and London offices spent
time at Growing2gether, a local charity which functions
primarily as a horticultural therapy and environmental
education centre for adults and young people with
learning disabilities and physical disabilities. Over a
number of days, Gamma helped to build new pathways
for the allotment to make these more accessible for
wheelchair users.
Employees from our London office supported Shelter by
participating in their Vertical Rush event which involves
racing up the 42 floors of one of London’s tallest
buildings – Tower 42. Shelter helps millions of people
every year struggling with bad housing or homelessness
through their advice, support and legal services.
Each year our offices take part in a coffee morning for
Macmillan and the Christmas Jumper Day (in aid of
Save the Children).
As well as corporate support for organisations, Gamma
also operates a “Double It” scheme. This is a match
funding scheme for Gamma employees, where money
raised for a charity or good cause which is special to a
particular employee is matched by Gamma.
42
Giving back further afield
During the year we hosted the sixth Gamma Ball Rally.
This involves 100 of our channel partners driving in
low-cost cars across five European countries over
three days. They “compete” in a variety of weird and
wonderful challenges for charity and the event
concludes with a charity auction. Between this and our
charity cycle event (“MTBorRoad”) we raised over
£100,000 for our chosen charities – Action Through
Enterprise and Special Effect: Action Through
Enterprise (ATE) aims to reduce poverty in Lawra
District, Upper West Ghana through education and
social change, while Special Effect uses video games
and technology to enhance the quality of life of people
with disabilities. Since the first Gamma Ball Rally in 2013
we have raised over £600,000.
Gamma Communications plc GOVERNANCE
Behaving responsibly
and ethically
The Directors support high standards of corporate governance
and are committed to ensuring the integrity of both their
processes and those of the Company as a whole.
Duty to promote the success of the Company
Engaging with our stakeholders and acting in a way
that promotes the long-term success of the Company,
while taking into account the impacts of our business
decisions on our stakeholders, are central to our
strategic thinking and our statutory duties in
accordance with Section 172(1) of the Companies Act
2006 (s.172). The content below constitutes our s.172
Statement, as required under the Companies
(Miscellaneous Reporting) Regulations 2018.
The Board of Directors consider, both individually and
together, that they have acted in the way that they
consider, in good faith, would be most likely to promote
the success of the Company for the benefit of its
members as a whole, having regard to the stakeholders
and matters set out in s.172 (a-f of the Companies Act)
in the decisions taken during the year. Our plan is
designed to have a long-term beneficial impact on the
Company and its stakeholders.
The Board’s intention is to behave responsibly and
ethically at all times, in line with our company values,
and to ensure that our management teams operate the
business in a responsible manner and to the highest
standards of business conduct and good governance
(see pages 46 to 74). We will contribute to the long-term
success of the Company and continue to nurture our
reputation as a responsible, successful company that
delivers stakeholder value, as outlined in our company
purpose.
Our impacts on, and engagement with, our key
stakeholder groups are considered within the
implementation of our Group strategy. The stakeholder
groups are: employees, customers, our suppliers, the
environment and our shareholders. How we engage
with these groups is covered throughout the report.
Bribery and corruption
Gamma employees must not accept or give to any
third party any gift, hospitality or other personal benefit
that is likely to influence (or which other people may
reasonably think likely to influence) their judgement or
be construed as bribery or conflict with duties to any
customer or colleague. Approval should be obtained
from a Director or the Chief Executive in any matters
relating to this.
Gamma takes a serious view of corruption and any
actions would be considered gross misconduct.
Fair tax strategy
Gamma’s approach to management of its tax affairs is
driven by the following objectives:
• Acting with integrity and transparency – the way we
do business means we are trusted by all our
stakeholders, now and in the future;
• Compliance – paying the right amount of tax at the
right time; and
• Reducing the costs of doing business – we deliver
services to customers at a price they are willing and
able to pay.
The above objectives mean that Gamma has a tax
strategy and policies that balance the need to build
and maintain trust with stakeholders (including the
UK Government) while also maximising the return
for investors.
Gamma includes a full tax strategy document on the
investors, section of the website.
43
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial reportSupplementary information Communications is a fast moving
industry. We work alongside the
relevant industry bodies and
trade associations.
Regulation
Gamma operates in a regulated industry and the
framework within which we work is governed by EU
Regulations, Directives and Recommendations, and the
UK Government through our regulators, Ofcom, the
PSA and the FCA, (and their equivalents in the
Netherlands). Each of these will consult with industry
from time to time and Gamma (as a significant
communications provider in the UK) will participate in
consultation responses in its own right and as member
of several industry bodies.
Gamma’s engagements with the relevant authorities
are generally based around a number of key principals
promoting transparency and an open marketplace.
• Defend the channel – We recognise that many
communications services are provided by channel
partners who are themselves SMEs. They do not all
have the resources to engage with regulatory bodies
in the consultation process nor implement significant
levels of regulation.
• We give a voice to UK business – Often regulation is
(quite rightly) aimed at protection of the domestic
consumer but this can have unintended
consequences when applied to business users as
well; we aim to ensure that regulation is balanced and
fair to business as well as residential users.
• Challenge the cost assumptions for implementation
– as there is a high possibility of underestimating the
costs of implementing new regulation, especially for
smaller channel partners and in the more complex,
less vertically integrated value chain that is the
hallmark of business-to-business communication
provision in the markets in which we operate.
• Ensure that regulation stays current –
Communications is a fast moving industry and new
services can be offered (for example “over the top”
services which are not based on a network) which
may not be regulated in a way to provide (in our view)
adequate protection for end users or where outdated
regulation creates competitive distortions.
• We are selective in responses – we only contribute
where we have something relevant to say.
• We work alongside the relevant industry bodies and
trade associations.
44
Political contributions
As part of the Company policy, Gamma employees are
prohibited from using the company, products or
services to contribute to a political cause.
Whistleblower schemes
Gamma has a whistleblowing policy in place. We are
currently investigating the use an external firm for
whistleblowing going forward.
Further information in relation to governance can be
found in the corporate governance report on page 45.
The Strategic Report was approved by the Board
of Directors on 16 March 2020
Andrew Belshaw
Chief Financial Officer
Gamma Communications plc Corporate
Governance
Corporate governance
Chairman’s corporate governance statement
Board of Directors
Leadership team
Corporate governance report
Nomination Committee report
Audit Committee report
Risk Committee report
Remuneration Committee report
Directors’ report
Statement of Directors’ responsibilities
46
48
50
52
55
56
59
60
73
74
45
Strategic reportGovernance reportFinancial statementsSupplementary informationAnnual Report and Accounts 2019 Chairman’s governance statement
Richard Last
Chairman
Ensuring good
governance
and compliance
Role of the board
— Responsible for the overall conduct of the Group’s
business including our long-term success.
— Setting our purpose, values, standards and
strategic objectives.
— Reviewing our performance.
— Ensuring a positive dialogue with our stakeholders
is maintained.
The Board is responsible for establishing and
maintaining the system of internal controls which has
been in place throughout 2019. 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.
46
The Company is committed to
strong corporate governance
to support long-term value.
Dear shareholder,
Welcome to the Corporate Governance Report for the
year ended 31 December 2019, which I am pleased to
present on behalf of the Board. The Board recognises
that sound corporate governance is an essential
underpinning for a growing, publicly quoted business,
and is committed to ensuring the integrity of both its
processes and of those of the Company as a whole.
Corporate Governance Code
The Directors support high standards of corporate
governance. In the prior year the Board of Gamma
formally decided to apply 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 29 August 2019 is available on the website
www.gammacommunicationsplc.com.
The Board
During the year, we have continued to keep under
review the composition of the Board and its
committees to ensure that we have the right balance
of skills, independence, experience and diversity.
After a thorough search to identify an appropriate
Non-Executive Director we were pleased to welcome
Henrietta Marsh to the board on 16 April 2019. She
brings a wealth of experience gained from serving on
the boards of both private and listed companies.
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. Please refer
to the remuneration committee report for further
details around executive pay and its composition.
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.
Looking ahead
The Group’s commitment to strong corporate
governance and risk management will remain central
to the business during 2020 and beyond.
Richard Last
Chairman and Independent Non-Executive Director
Gamma Communications plc
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
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.
Board of Directors
See page 48
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.
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
Henrietta Marsh
Independent Non-Executive Director
Andrew Stone
Non-Independent Non-Executive Director
Wu Long Peng
Non-Independent Non-Executive Director
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.
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.
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).
2019 Membership
Alan Gibbins (Chair)
2019 Membership
Richard Last (Chair)
2019 Membership
Martin Lea (Chair)
2019 Membership
Martin Lea (Chair)
Richard Last
Martin Lea
Alan Gibbins
Martin Lea
Alan Gibbins
Richard Last
Henrietta Marsh
Henrietta Marsh
Henrietta Marsh
Andrew Stone
Wu Long Peng
Alan Gibbins
Richard Last
Henrietta Marsh
Andrew Taylor
Audit Committee Report
See page 56
Nomination Committee
See page 55
Remuneration Committee
See page 60
Risk Committee Report
See page 59
47
Strategic reportGovernance reportFinancial statementsSupplementary informationAnnual Report and Accounts 2019
Board of Directors
Our highly
experienced Board
Our Board blends industry expertise with public
company experience and the knowledge and skills
of our long-standing shareholders.
Key to committees
Committee Chair
A Audit
N Nomination
R Risk
R Remuneration
Richard Last
Chairman and Independent
Non-Executive Director
Andrew Taylor
Chief Executive Officer
Andrew Belshaw
Chief Financial Officer
Alan Gibbins
Independent Non-Executive
Director
Appointed to the Board:
2014
Appointed to the Board:
2018
Appointed to the Board:
2014
Appointed to the Board:
2014
Committee Membership:
N R R
Committee Membership:
R
Committee Membership:
—
Committee Membership:
A N R R
Skills and experience:
Richard has over 25 years’
experience in technology and
communication sectors having
worked at board level for a number
of publicly quoted and private
companies in these industries.
Richard is a Fellow of the Institute of
Chartered Accountants in England
and Wales.
Other roles:
Richard is Chairman and Non-
Executive Director of Hyve Group
plc (formerly 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.
Skills and experience:
Andrew has over 20 years’ experience
in the Telecommunications industry,
and has a demonstrable track record
of achievement in previous roles, both
in the UK and internationally.
Previously, Andrew was Chief
Executive Officer of Nomad Digital, a
provider of IP connectivity and digital
solutions to the global transportation
sector. In this role, 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 international offices.
Before joining Nomad, Andrew was
Digicel’s Regional Chief Executive
Officer. In this role, Andrew had
responsibility for all fixed network
services and business/ ICT solutions
across 26 international markets.
Prior to this, Andrew was Chief
Executive of Intec Telecom plc, a
global provider of operational and
business software solutions to the
Telecommunications industry. Intec
was acquired by CSG in 2010.
Other roles:
In July 2019 Andrew resigned from
the Board of MDS Holdings Limited.
He does not currently hold any other
roles.
Skills and experience:
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 in 2007.
Andrew has a degree in Maths from
St John’s College, Cambridge and
gained an MBA from Warwick
Business School. He is a Fellow
of the Institute of Chartered
Accountants in England and Wales.
Other roles:
None
Skills and experience:
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 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.
Other roles:
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.
48
Gamma Communications plc Tenure (since listing in 2014)
Independence
0-5 years
+5 years
2
6
Independent non-executive
4
Non-independent non-executive 2
2
Executive
Board gender
Male
Female
7
1
Martin Lea
Independent Non-Executive
Director
Henrietta Marsh
Independent Non-Executive
Director
Andrew Stone
Non-Independent
Non-Executive Director
Wu Long Peng
Non-Independent
Non-Executive Director
Appointed to the Board:
2014
Appointed to the Board:
2019
Appointed to the Board:
2014
Appointed to the Board:
2014
Committee Membership:
R R A N
Committee Membership:
A N R R
Committee Membership:
N
Committee Membership:
N
Skills and experience:
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 has a BA 1st class (Hons)
degree in Business Studies, and is a
Fellow of the Institute of Directors.
Other roles:
Martin is also an Independent
Non-Executive Director of Epsilon
Global Communications PTE Ltd, a
privately-owned provider of global
communications and infrastructure
services.
Skills and experience:
Henrietta has more than 30 years’
experience in investment and
financial services having worked for
3i Group, Morgan Stanley and ISIS
Equity Partners (now Living Bridge
Equity Partners) where she founded
and chaired the AIM VCT Managers
Group. She was formerly a Non-
Executive Director and Chair of the
remuneration committees at Electric
Word plc, Alternative Networks plc
and Dods Group plc, all of which were
traded on the Alternative Investment
Market (AIM) and discoverIE Group
plc, which is listed on the London
Stock Exchange.
Henrietta has an MA in Mathematics
from Cambridge University and an
MBA from INSEAD.
Other roles:
Henrietta currently serves as a
Non-Executive Director at Herald
Investment Trust, which is listed on
the London Stock Exchange. She is
a member of the LSE’s AIM Advisory
Group.
Skills and experience:
Andrew is Managing Partner of St
Albans Capital LLP, a family
investment management vehicle.
From 1993-2006 Andrew held
various positions at ED&F Man
including Managing Director of ED&F
Man Asia. Andrew has been a director
of Gamma entities since 2011.
Other roles:
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.
Skills and experience:
Long Peng has more than 30 years’
experience in finance and corporate
affairs. Long Peng has been a director
of Gamma entities since 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.
Other roles:
He is a Non-Executive Director of
Mapletree Commercial Trust
Management Ltd, Epsilon Global
Communications Pte and K2
Strategic Pte Ltd.
49
Strategic reportGovernance reportFinancial statementsSupplementary informationAnnual Report and Accounts 2019
Leadership team
Leadership team
“ We have a strong and talented
leadership team who support
the Board and are responsible
for day-to-day operations within
the business.”
Andrew Taylor
Chief Executive Officer
Andrew Belshaw
Chief Financial Officer
Biography available on page 48
Board of Directors.
Biography available on page 48
Board of Directors.
Phil Stubbs
Chief Technical Officer
Phil joined Gamma in 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.
Alan Mackie
Chief Marketing and
Products Officer
Alan joined Gamma in 2005 and has
over 20 years’ experience in the
telecoms and data managed
services industry, working in senior
product management, marketing
and project management roles. 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.
John Murphy
Group Operations Director
Malcolm Goddard
Group Commercial Director
John joined Gamma in 2011 bringing
over 15 years of experience
delivering successful customer
service projects and large financial
programmes within the 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.
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.
50
Gamma Communications plc Our leadership team
have a wealth of
experience at Gamma.
Suzie Woodhams
Chief People Officer
Suzie joined Gamma in September
2019 from Optivo where she held
the role of Executive Director People
and Communications. Prior to this,
she was Group HR Director at
Telecity Group plc for 12 years.
Telecity is a UK based technology
business with operations across
13 European countries. As a key
member of the management team,
Suzie was responsible for driving
and promoting the people agenda
across the Group and the Board.
During Suzie’s tenure, Telecity
became a leader in their space and
grew to employ 800 people with
a market capitalisation of £2.6bn.
Andy Morris
Chief Strategy and Operating Officer
Andy joined Gamma in 2006 and has
experience in establishing and
running high-quality, customer-
orientated operations. In his
previous roles at Cable & Wireless,
he successfully ran a business unit
responsible for 12 of the entity’s
largest corporate customers
including Marks and Spencer and
Alliance and Leicester. He has also
been involved with a number of
telecom start-ups in Europe.
Andy spent the early part of his
career with GEC Marconi Aerospace
and is an Engineering graduate of
Nottingham Trent University.
Tenure:
3
0 - 5 years:
6 - 10 years: 2
Over 10 years: 5
Daryl Pile
Managing Director – UK Indirect
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.
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’ 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.
51
Strategic reportGovernance reportFinancial statementsSupplementary informationAnnual Report and Accounts 2019 Corporate Governance Report
Corporate
Governance Report
Board activities
Strategy
• Reviewed and approved the 2023 strategy;
• Approved the proposed acquisitions of Nimsys and Telsis; and
• Reviewed other potential acquisition targets which did not
complete or were ongoing at year end.
Business developments
• Discussed the mobile strategy; and
• Discussed deals with data providers which underpin our access
strategy (Broadband, Ethernet).
Financial performance
• Monitored 2019 performance against the approved budget;
• Approved the 2018 Annual Report and Accounts and determined
they were fair, balanced and understandable;
• Approved the 2019 half-year results;
• Approved the final dividend for 2018 and 2019 interim dividend;
• Approved the 2020 budget; and
• Received reports from the Audit Committee concerning the
overall level of financial governance of the Group.
Corporate Governance Report
Operation of the Board
The Board comprises eight Directors, two of whom are Executive
Directors and six 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, Martin Lea and Henrietta Marsh as Independent
Non-Executive Directors within the meaning of the QCA Corporate
Governance Code (2018 edition).
The Board is responsible to the shareholders for the proper
management of the Group. It meets regularly, 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.
Board meeting attendance
Executive Directors
Andrew Taylor
Andrew Belshaw
Non-Executive Directors
Richard Last (Independent) 1
Alan Gibbins (Independent)
Martin Lea (Independent)
Henrietta Marsh (Independent) 2
Wu Long Peng
Andrew Stone
Board
meeting
Audit
Committee
Remuneration
Committee
Nomination
Committee
Risk
Committee
11/11
11/11
11/11
11/11
11/11
8/8
11/11
9/11
n/a
n/a
1/1
3/3
3/3
2/2
n/a
n/a
n/a
n/a
5/5
5/5
5/5
3/3
n/a
n/a
n/a
n/a
2/2
2/2
2/2
0/0
2/2
2/2
3/4
n/a
4/4
4/4
4/4
2/2
n/a
n/a
1 Richard Last stepped down from the Audit Committee in April 2019.
2 Henrietta Marsh joined the Board in April 2019.
52
Gamma Communications plc Corporate governance
• Reviewed and approved the Notice of AGM and corporate
governance disclosures;
• Considered the key provisions of the QCA code and its
application to the Company;
• Reviewed and approved the Matters Reserved for the Board and
each of the Committees’ terms of reference;
• Discussed the findings of the Board evaluation and agreed
actions for the following year; and
• Chairman and Non-Executive Directors met without the
Executive Directors present.
Risk
• Reviewed the status of the principal risks and progress with the
implementation of any mitigation plans;
• Received regular reports from Chairs of the committees on
matters discussed; and
• Received updates on regulatory developments.
People and culture
• Discussed talent, diversity and succession planning;
• Reviewed the composition of the Senior Leadership Team in the
UK and equivalent management groups for the overseas entities;
• Reviewed the results of the annual employee survey;
• Reviewed updates regarding health and safety within the Group;
• Approved the appointment of Henrietta Marsh; and
• Reviewed the Company’s values.
Shareholders
• Reviewed feedback following the investor roadshows and other
institutional shareholder meetings; and
• The Chair met with shareholders as requested.
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 and the CFO
have no external commitments.
During 2019, 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 their comments to the Board or
the Board Committees in advance of such meetings.
Training and Development
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.
The Board ensure that they keep their skills up to date. They are
made aware of accounting, regulatory, governance and GDPR
changes via papers to the Board, presentations and external
documents. An annual review of compliance with the AIM Rules is
also performed.
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:
• Board composition;
• 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.
53
Strategic reportGovernance reportFinancial statementsSupplementary informationAnnual Report and Accounts 2019 Corporate Governance Report continued
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 56.
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, Henrietta Marsh, 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. These are included on pages 24 to 27.
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, Henrietta Marsh and
Andy Morris (Chief Strategy and Operating Officer).
Stakeholder Engagement
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
54
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.
Relations with employees/employee engagement
The Group recognises the 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
through attendance at employee roadshows which take place twice
a year. In addition to this, there is also a process in place which allows
employees to contact the CEO anonymously if they wish to bring
items to the attention of the Board. We plan to designate a
non-executive director for engagement with the workforce.
During 2019 the Group undertook the Best Companies Limited
employee engagement survey and achieved a one-star
accreditation. The results from this survey attracted a listing in
The Sunday Times Top 100 Best Companies to Work For.
Business relationships
Relationships with suppliers and customers are paramount to the
way that Gamma operates; the Senior leadership team and the CEO
engage on a regular basis with major suppliers and customers.
Suppliers
Gamma’s supplier payments policy is to always pay suppliers on or
before the agreed term (which will vary from contact to contract). If
an invoice is fully authorised on the system, it will pull through to the
next available payment run even if this is before the contractual due
date. The maximum contractual payment period agreed is 90 days,
which was offered by the supplier without Gamma’s request. For the
year ended 31 December 2019, the average time taken to pay
invoices was 29 days.
Gamma currently has a small number of suppliers who are paid via a
netting agreement. The terms of these agreements are such that
payment can only be processed once the netting is agreed by both
sides. This can result in the days taken to pay being abnormally high
on some invoices and therefore influencing Gamma’s average days
taken to pay suppliers. Due to Gamma’s dispute policy whereby the
disputed value of an invoice is withheld from payment until resolved,
this can also result in average days taken to pay being influenced.
Any disputes are raised with the supplier directly at the earliest
opportunity. Any valid charges on an invoice are paid, with the
disputed amounts being held back until a credit is received or the
dispute has been resolved.
Customers (and Customer Satisfaction)
Each customer has a Business Development, Information Assurance
and Customer Development manager and is invited to our Customer
Roadshows. These roadshows discuss the latest industry trends and
opportunities for the channel to target, an update on Gamma’s
ever-expanding UCaaS and Connectivity product portfolio and panel
discussions exploring the future of the Channel and define where the
Channel’s value lies in a digital world.
Signed on behalf of the Board by:
Richard Last
Chairman and Independent Non-Executive Director
16 March 2020
Gamma Communications plc Nomination Committee Report
Richard Last
Chair
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 primarily responsible for:
• Evaluating the balance of skills, knowledge and
experience of the Board
• Evaluating the size structure and composition of the
Board and Committees of the Board
• Retirements and appointments of additional and
replacement Directors and Committee members
• Making appropriate recommendations to the Board
on such matters.
Membership
The members of the Nomination Committee
and the meetings attended are:
Meetings attended
Richard Last (Chair)
Alan Gibbins
Martin Lea
Henrietta Marsh*
Wu Long Peng
Andrew Stone
* Membership from 16 April 2020.
2/2
2/2
2/2
0/0
2/2
2/2
Dear shareholder,
On behalf of the Board, I am pleased to present the Nominations
Committee report for the year ended 31 March 2019 which
summarises our membership and activities in the year.
Role and responsibilities
The committee is 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 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.
Activities in the year
The Committee is also delighted to welcome Henrietta Marsh to
the Board who was appointed as a new Non-Executive Director in
April 2019. There is a formal, rigorous and transparent procedure
for the appointment of new Directors to the Board. The Committee
interviewed suitable candidates who were proposed either by
existing Board members or by an external search firm. Careful
consideration was given to ensure that proposed appointees had
enough time available to devote to the role and that the balance of
skills, knowledge, experience and diversity on the Board is achieved.
When the Committee found a suitable candidate, the Chair of the
Committee then made a proposal to the whole Board, which retains
responsibility for all such appointments. The board approved the
appointment of Henrietta Marsh before her appointment.
Diversity
Gamma seeks to have a workforce which reflects the world we and
our customers live in, whilst facilitating the delivery of our strategic
goals. The Board and the Committee believe that diversity is a wider
topic than simply gender and in order to achieve the Group’s future
growth aspirations, Gamma should remain committed to building a
pipeline of diverse talent and to regularly review the HR processes,
including recruitment and performance management frameworks.
Succession planning
The committee has considered not only succession plans for the
Directors but also has had oversight of a deeper review into the
Company’s management structure to identify those with potential
to develop in the longer-term into future leaders of the business
taking into account the challenges and opportunities facing the
Company in the medium to long term.
Conflicts of interest
The Board operates a policy to identify and, where appropriate,
manage any potential conflicts of interest that Directors may have.
It is the role of the Committee to monitor the situation and
determine actions to address any potential or actual conflicts that
may arise. The Committee reviews all potential conflicts of interest
on an annual basis and when new Directors are formally appointed.
No conflicts of interest were noted in the year and to the date of this
Annual Report.
Re-appointment of Directors
The re-appointment of Directors is subject to their ongoing
commitment to Board activities and satisfactory performance.
All Directors will stand for re-election annually. The Committee
has confirmed to the Board that the contributions made by the
Directors offering themselves for re-election at the AGM continue to
benefit the Board and the Company should support their re-election.
Richard Last
Chairman
16 March 2020
55
Strategic reportGovernance reportFinancial statementsSupplementary informationAnnual Report and Accounts 2019 Audit Committee Report
Alan Gibbins
Chair
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.
Membership
The members of the Audit Committee and the meetings
attended are:
Meetings attended
Alan Gibbins (Chair)
Richard Last*
Martin Lea
Henrietta Marsh*
3/3
1/1
3/3
2/2
*
Henrietta Marsh joined the Board and the Audit Committee in
April 2019. Following this appointment, Richard Last, Chairman of
the Group, stood down from the Committee in accordance with
good corporate governance, having attended one meeting.
56
Dear shareholder,
I am pleased to present the Audit Committee report for the year
ended 31 December 2019. This report details how the Audit
Committee fulfilled its responsibilities during the year.
The Committee consists of the three Independent Non-Executive
Directors, who between them have a balance of recent and
relevant financial and accounting experience, and general
business knowledge.
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 Chairman,
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 plan; the half
year announcement together with the external auditors’ review
of those results; and the full year Annual Report, 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 risks surrounding internal
financial controls. Other risks are considered 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 yet have an internal audit function although
certain internal audit-related exercises are commissioned by the
Audit Committee from time to time as considered appropriate.
The Committee’s consideration of internal audit matters and the
likely development of internal audit in the future are described
below; and
• oversees the relationship with and performance of the external
auditors.
Gamma Communications plc Activities of the Committee during the year
In fulfilment of the responsibilities set out above, the Committee’s
activities have focused on financial reporting and the related
statutory audit; and on the assessment of internal financial
controls.
The Committee discussed the materiality used by Deloitte for their
audit of the Group Financial Statements. It is satisfied that the
materiality thresholds used for reporting to the Committee are such
as to give the Committee good oversight of the adequacy of the
Group’s accounting; and that the scope and approach is appropriate.
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:
Further details of Deloitte’s audit and their conclusions thereon are
contained in the audit opinion on pages 76 to 79.
Consideration of the audit appointment is given at the end of this
Audit Committee report.
• the overall truth and fairness of the results and financial position,
including the clarity of disclosures shown in the statements and
their compliance with statutory, listing and best practice
requirements. This includes accounting disclosures and whether
at least equal prominence is given to GAAP results where
non-GAAP amounts are disclosed. The Audit Committee is
satisfied that Gamma continues to be transparent on these
matters and follows best practice;
• the appropriateness of the accounting policies and practices
used in arriving at those results;
• 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 and balanced picture of the Group.
As an AIM-listed company, Gamma is not required to comply fully
with the UK Corporate Governance Code, but seeks nevertheless
to comply in all material respects. Last year the Company adopted
the QCA Governance Code (“QCA”) issued by the Quoted
Companies Alliance in April 2018, which did not require any major
adjustments to the Company’s governance, including disclosures
in these accounts The Committee has satisfied itself that Gamma
continues to comply 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 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
• the valuation of acquired intangible assets – Dean One.
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. Having
considered the key risks, the key audit matters were:
Revenue recognition
The Auditors and the Committee continue their focus on the
complexity of auditing the area of revenues (to ensure the
accuracy of billings to clients). The Audit Committee continues
to be satisfied as to the robustness of the reporting of revenues
and associated costs.
Valuation of acquired intangible assets – Dean One
During 2018, the Group acquired DX Groep B.V. (DX). This resulted
in the Group recognising intangible assets and goodwill. During the
first half of 2019 there was a decline in performance of Dean One,
a DX subsidiary, due to a decline in the ISDN revenues; this led to
an impairment of the carrying value of goodwill and customer
contracts. The committee discussed management’s view of the
appropriate carrying values.
Other areas of judgement
Since flotation, we have reported on the Committee’s review of a
number of other areas including the adoption of IFRS 15 (revenues
from contracts with customers) and IFRS 16 (leases), both now well
embedded; 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 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.
57
Strategic reportGovernance reportFinancial statementsSupplementary informationAnnual Report and Accounts 2019 Audit Committee Report continued
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 .
Effectiveness
The Committee are pleased to report that Gamma and Deloitte
continue to work together and communicate well and that the
external audit has run smoothly and constructively.
Appointment
Deloitte LLP were appointed as Gamma’s external auditor
for the first time for the year ending 31 December 2015 with
reappointment approved annually thereafter. The year ending
31 December 2019 therefore represents Deloitte LLPs’ fifth year
as the external auditor. Although there are no current retendering
plans, the Deloitte partner responsible for the Gamma audit,
Andrew Bond, is rotating off the audit having served for five years
and his successor has now been introduced.
For the financial year ending 31 December 2020, the Committee
has recommended to the Board that Deloitte LLP be reappointed
and the Board will be proposing their reappointment.
Alan Gibbins
On behalf of the Audit Committee
16 March 2020
Key controls over indirect revenue are relied upon by Deloitte
during the course of their external audit but such reviews are only
in support of their statutory audit opinion.
The non-UK subsidiaries are subject to full audits by local audit
firms where required. As the Group expands the results of overseas
subsidiaries are likely to become more material and we will be
moving to appoint Deloitte or another firm to carry out audits
of these companies to the Group timetable.
Businesses recently acquired have less developed financial
controls than the UK business and Gamma is developing processes
to enable it to roll out controls appropriate for the size of each
business acquired.
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 have
continued their dialogue with external providers of internal audit
services as to what areas might usefully be reviewed and who is
best qualified to do the reviews.
Over the last two to three years Gamma has commissioned internal
audit work from KPMG on Gamma’s billing system and a high-level
review of controls in the areas of purchase to pay; order to cash;
HR/payroll; and financial controls/tax/treasury; and from PwC on
controls over physical stock. At the present time KPMG are
concluding an internal controls health check at Dean One and PwC
are reviewing the partner settlement process. A number of helpful
observations have been made and are being addressed.
In 2020 we will seek to appoint a single firm as supplier of internal
audit services to the Group.
58
Gamma Communications plc Risk Committee report
Martin Lea
Chair
Risk Committee
The Risk Committee focuses on “non-financial”
risks that are not normally within the remit of the
Audit Committee.
It is primarily responsible for ensuring that:
• Management has implemented an appropriate
and effective risk management and internal
control system.
• There is a system in place to scan the
environment for new risks.
• The nature and extent of the principal risks faced
is understood and that they are effectively
managed and mitigated.
• An appropriate risk management culture exists
within the organisation.
Martin Lea (Chair)
Alan Gibbins
Richard Last
Henrietta Marsh*
Andy Morris (Chief Strategy
and Operating Officer)**
Andrew Taylor (CEO)
Meetings
attended
4/4
4/4
4/4
2/2
4/4
3/4
* Membership from 16 April 2019
** From January 2020 John Murphy (Operations Director)
replaced Andy Morris on the Risk Committee.
In addition to the committee members, quarterly meetings are
also normally attended by the CFO, the Company Secretary,
the Chief Information Security Officer, and the Chief People
Officer.
Dear shareholder,
I am pleased to introduce the Risk Committee Report for the year
ended 31 December 2019.
We were very pleased to welcome Henrietta Marsh to the Board
of the Company and as a member of the Risk Committee in 2019.
The Committee now comprises the Company’s four Independent
Non-Executive Directors, the CEO, and the Group Operations
Director.
Details of our overall risk management governance framework
and processes together with the Group’s principal risks can be found
on pages 24 to 27 of the Strategic Report.
Role of the Risk Committee
The Committee is responsible, on behalf of the Board, for ensuring
that management has designed and implemented appropriate risk
management and internal control systems, and for the ongoing
monitoring and review of the effectiveness of those systems. This
includes ensuring that there is a system in place for scanning the
environment for new risks and also responding to unexpected
ones. It also monitors the risk exposure of the Group and is
responsible for agreeing with management how the principal risks
will be managed and mitigated or tolerated. The Committee is
further responsible for ensuring that an appropriate and evolving
risk awareness and risk management culture exists throughout
the organisation.
Activities of the Risk Committee in 2019
The Committee met four times in 2019, in order to conduct the
following main items of business:
• the regular review of any unexpected and material service
incidents or other corporate risk incidents;
• the regular review of the Company risk registers covering
business continuity, cyber and physical security, supplier,
regulatory, legal, people and more recently climate risks,
focusing on the higher risk items and the status of associated
mitigation plans;
• determining how recent Group acquisitions would be
incorporated into the overall Group risk management and
control environment;
• review of the Group’s major incident, crisis management and
communications plan and of its testing;
• undertaking a review of the Group’s approach to the assessment
and management of GDPR related risks; and
• reviewing the contents of the principal risks section of the
Annual Report.
Looking Forward
The Group continues to grow, not just in size, but also in the
breadth and sophistication of services provided, and the diversity
of geographic markets within which it operates. These factors
together with further developments in environmental governance
expectations and standards, mean that risk awareness,
identification, assessment and management will continue to be an
important aspect of our overall activity and corporate governance.
The Group’s focus in the coming year will be on further developing
and improving its competency and effectiveness in its overall
approach to risk management.
Martin Lea
Chairman Risk Committee
16 March 2020
59
Strategic reportGovernance reportFinancial statementsSupplementary informationAnnual Report and Accounts 2019 Dear shareholder,
I am pleased to introduce the Directors’ Remuneration Report for
the year ended 31 December 2019.
We were very pleased to welcome Henrietta Marsh to the Board of
the Company and as a member of the Remuneration Committee in
2019. The Committee now comprises the Company’s four
Independent Non-Executive Directors.
The Committee is primarily responsible for determining and
recommending to the Board the policy for the remuneration and
employment terms of the Executive Directors and the Chairman
and, in consultation with the CEO, for determining the remuneration
packages of other senior executives. 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. It is also
responsible 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 other senior
executive is involved in any decisions as to their own remuneration.
Link between remuneration and strategy
The Group’s strategy is designed to enable the business to
continue to grow both its profitability and market share by
developing new innovative communications products and services
for organisations. The Remuneration Committee is committed to
structuring senior executive remuneration that is competitive,
enables the Company to attract retain and motivate executives of
the calibre required to successfully further develop and execute
the Group’s strategy, and which rewards good performance. A
significant proportion of total remuneration is performance-based
and linked to the achievement of current year and longer-term
performance measures. Short-term performance is incentivised
via an annual bonus scheme which is based on company financial
objectives as well as personal performance objectives which
typically support strategic initiatives. Long-Term performance is
incentivised by a performance share plan (LTIP), which is typically
based on the achievement of demanding Total Shareholder Return
and Earnings Per Share growth targets.
In addition, the Company has applied a policy of using share
incentives across the Group. This includes awards to more senior
staff under the Company Share Option Plan (CSOP), as well as both,
Save as You Earn (SAYE), and Share Incentive Plans (SIPs), the
participation in which is open to all UK employees.
We believe these policies help the Company to continue to grow
profitably through the successful execution of its strategy as well
as providing alignment between the interests of shareholders and
all employees who can share in the Company’s success.
Directors’ Remuneration Report
Martin Lea
Chair
Remuneration Committee
The Committee is primarily responsible for determining
and making recommendations to the Board on the
policy for the remuneration and employment terms
of the Executive Directors, Chairman and other senior
executives, and for the effective implementation of
that policy.
The committee’s terms of reference are reviewed and
approved by the Board annually, and are available on
the Company’s website.
Martin Lea (Chair)
Richard Last
Alan Gibbins
Henrietta Marsh*
* Membership from 16 April 2019
Meetings
attended
5/5
5/5
5/5
3/3
Report structure and content
This report is for the year ended 31 December 2019
and is split into three main areas:
Statement by the Chairman of the
Remuneration Committee
Directors’ remuneration policy
Annual Report on Remuneration
Page
60
62
67
60
Gamma Communications plc Performance and Executive Director remuneration
outcomes in 2019
This year has been one of continued positive progress at Gamma.
The Chairman’s statement (on pages 2 to 3) provides an overview
of the strong financial performance and the progress the Group has
made. The highlights include revenue growth of 15% to £328.9m,
and adjusted profit before tax growth of 38% to £48.1m.
Based on overachievement against the Executive Directors’
maximum Adjusted Profit before Tax performance targets (relating
to 80% of their maximum bonus potential), and achievement of 80%
and 100% respectively of the CEO’s and CFO’s personal
performance objectives (relating to 20% of their maximum bonus
potential); the CEO earned a bonus of 120% of salary (compared to
the maximum potential bonus of 125%) and the CFO earned the
maximum potential bonus of 100% of salary. 25% of the bonus
earned in both cases is subject to deferral into shares for three years.
The three-year performance conditions related to the LTIP share
option awards made to the CFO, as well as other senior executives
in 2016, were exceeded. These options therefore vested in full in
2019. During the year, new LTIP three-year performance share
awards were made to the Executive Directors at 125% of salary.
Awards under the scheme were also made to other senior
executives.
The committee did not exercise discretion in the determination of
the Executive Directors, remuneration during 2019.
In line with the general company-wide salary increase, and the
remuneration policy, the base salary of the Executive Directors was
increased by 2.5% with effect from 1 January 2020.
Non-Executive Director Remuneration
At the time Henrietta Marsh joined the Company as our new
Independent Non-Executive Director, the fees of the Non-
Executives (excluding the Chairman’s fees) were revised, to bring
them in line with market norms for publicly quoted businesses of
comparable sizes. The review, led by the Chairman and the Chief
Executive, took into account the results of a benchmarking exercise
undertaken by remuneration advisors h2glenfern as well as other
published AIM 50 remuneration data.
As a result of the review the Non-Executive Director fees were
increased from £37,142 to £48,000 and the committee chair fees
from £6,000 to £8,000 with effect from 1 April 2019.
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. There have been no changes to policy
regarding the annual bonus scheme.
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 or rules.
Employee Share Schemes
In order to continue to strengthen the alignment of our employee
and shareholder interests, the Group operates a Save As You Earn
scheme (“SAYE”) and a Share Incentive Plan (SIP) which are open to
all UK employees.
In addition, there is a Company Share Option Plan (CSOP) which is
designed to enable the Group to selectively incentivise key high
performing employees. In 2019 awards of 157,914 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 2019
44% (2018: 28%) of all employees chose to participate, with options
being granted over 377,800 (2018: 241,298) shares.
In July 2019 the Company issued £500 free shares to each
employee under the terms of a SIP scheme. This did not entail the
Company issuing new shares as the shares were already held in the
Gamma Communications plc SIP trust. The shares are tax-free if
held for five years.
Towards the end of the year the Company launched a new
“evergreen” (available for people to join at any time) SIP scheme. It
allows staff to buy up to £150 of shares each month out of gross
salary (Partnership shares). The shares need to be kept for five
years for the employees to keep the tax benefit. As at 31 December
2019, 459 employees had joined the scheme.
Employee Remuneration
Based on the Group’s performance in 2019, and the contribution
and hard work of all its employees, the Board was pleased to
approve a 2.5% general salary increase at the end of 2019.
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
Group performance.
Governance Disclosure and the Year Ahead
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 and we have further increased the disclosure in this year’s
Annual Report on Remuneration. The Directors’ Remuneration
Report was approved on an advisory basis at the 2019 AGM with
99.3% of votes cast in favour. This Directors’ Remuneration Report
will again be put to an advisory vote at the forthcoming 2020 AGM.
With effect from the conclusion of the 2020 AGM, Henrietta Marsh
will succeed me as Remuneration Committee Chair. I will continue
to serve as a member of the committee. Under Henrietta’s
chairmanship, the committee will continue to ensure that executive
remuneration remains aligned with the Group’s strategic objectives,
and shareholder interests.
On behalf of the committee, I thank you for your support during the
last year and hope that you find this report increasingly helpful and
informative.
Martin Lea
Remuneration Committee Chairman
16 March 2020
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Remuneration policy
This part of the Directors’ Remuneration Report sets out the
Group’s remuneration policy with regard to its Directors.
Consideration of shareholders’ views on remuneration
The Company welcomes dialogue with its shareholders over
matters of remuneration. The Chairman of the Remuneration
Committee is available for contact with institutional investors
concerning the approach to remuneration.
Policy on Executive Director remuneration
The Group’s remuneration policy is designed to ensure that it can
attract, retain and motivate executives and senior management of
the right quality to enable it to fulfil its strategic objectives and
deliver long-term sustainable growth. The retention of key
management and the alignment of management incentives with the
creation of shareholder value is 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 Group’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.
Summary of policy changes for 2020
A statement of how the Company intends to implement its
remuneration policy in 2020 is included in the Annual Report
on Remuneration. There have been no material policy changes
for 2020.
Purpose and link to strategy
Operation
Potential remuneration
Performance metrics
Base salary
To be set at a level which is
sufficiently competitive to recruit
and retain Executive Directors of
the appropriate calibre, skill and
experience to deliver the
Company’s strategy, and which
considers the scope of the
individual Directors’ contribution to
the Group.
Benefits
To complement basic salary by
providing market competitive
benefits to attract and retain
executives.
Salaries are typically reviewed
annually, with any changes
effective from 1 January, but
exceptionally may take place at
other times of the year.
When determining an appropriate
level of base salary, the committee
considers:
• Group performance;
• the role, responsibilities,
experience and personal
performance of the Director; and
• average workforce salary
adjustments within the Group.
In addition to the above, salaries
are independently benchmarked
from time to time against
comparable roles at listed
companies of a similar size
and complexity.
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
Group’s life assurance and income
protection schemes, which are
also available to all other UK
employees.
The actual base salaries paid to
the Executive Directors and those
set for the current year are
disclosed in the Annual Report
on Remuneration.
Not applicable.
Not applicable.
The cost of providing these
benefits varies year on year
depending on the schemes’
premiums. The Remuneration
Committee monitors the overall
cost of the benefits package.
Pension
To provide retirement benefits
which, when taken together with
other elements of the
remuneration package, will enable
the Group to attract and retain
executives.
The Executive Directors (together
with all other eligible staff) can
participate in the Group’s defined
contribution (money purchase)
pension scheme.
Employer contribution of up to
5.1% of salary per annum is paid
into the scheme, which is the
same level available to eligible
employees across the wider
workforce.
Not applicable.
62
Gamma Communications plc Purpose and link to strategy
Operation
Potential remuneration
Performance metrics
Annual Bonus
To incentivise the achievement of
the Group’s annual financial
targets, or other near -term
strategic objectives.
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, annual, performance
related bonus scheme.
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.
Typically, 25% of any bonus
awarded to the Executive
Directors is deferred into shares.
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.
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
(or any other period as the
committee may decide), 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 maximum bonus (including
any part of the bonus deferred into
share awards) deliverable under
the plan is up to 125% of annual
base salary, in the case of the CEO
and 100% in the case of the CFO.
Bonus awards are based on
annual performance against
stretching company financial
targets (e.g. Profit before Tax) and
personal performance objectives
for the individual Directors.
Targets are set by the committee
at the beginning of each year with
up to 20% of the maximum bonus
opportunity being based on
personal objectives, and the
remainder on Group financial
performance targets.
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.
The vesting of LTIP awards is
conditional upon the successful
achievement of financial
performance conditions over the
performance period, which are set
by the Committee at the time of
the award.
Performance conditions currently
include compound annual growth
in adjusted earnings per share
(EPS), and compound annual
growth in total shareholder return
(TSR) with each having equal
weighting i.e. up to a maximum
vesting of 50% of the shares.
In both cases (TSR and EPS) the
Committee has currently
determined that at this stage of
Gamma’s development and its
market position, absolute
performance measures are more
appropriate than relative
measures.
For future LTIP awards the
Committee will assess what
performance conditions and
associated weightings it
considers appropriate in
supporting the Company’s
strategy and longer-term
objectives.
All employee share plans
Executive Directors are eligible to
participate in all employee share
schemes which are designed to
encourage share ownership
across the wider UK workforce.
These currently include regular
Save as You Earn Option Plans
(SAYE Plan) and an evergreen
Share Incentive Plan (SIP).
Executive Directors may
participate in these plans in line
with HMRC guidelines currently
prevailing, and on the same basis
as other eligible UK employees.
Participation levels are in
accordance with HMRC limits as
amended from time to time.
Not applicable.
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Strategic reportGovernance reportFinancial statementsSupplementary informationAnnual Report and Accounts 2019 Remuneration Committee Report continued
Committee discretion, flexibility and judgement in operating the incentive plans.
The Committee retains discretion, consistent with market practice and in line with the various scheme rules, in a number of areas with
regard to the operation and administration of the discretionary annual bonus and the LTIP plans. These include, but are not limited to:
The Discretionary Annual Bonus Plan:
The LTIP Plan:
• The scheme participants.
• The scheme participants.
• The review of and setting of annual performance measures
• The form and timing of the grant of an award.
and targets.
• The determination and calculation of any bonus payment,
including upward or downward adjustment as appropriate.
• The timing of any bonus payments.
• The determination of the proportion of any bonus award that
is deferred into an award under the terms of the deferred
bonus plan.
• The determination of the treatment of leavers depending on the
circumstances.
• The size of awards made.
• The setting of appropriate performance measures.
• The determination of the treatment of leavers depending
on the circumstances.
• Discretion relating to vesting in the event of a change of control
of the Company.
• The ability to substitute a cash equivalent in place of shares.
• To make appropriate adjustments to awards required in certain
circumstances e.g. Demerger, capitalization or rights issue,
or other restructuring events.
• To change any performance or other condition applying to
an award, if any event or series of events happen, which result
in the Committee considering it is fair and reasonable to make
such change.
Illustrations of application of the Policy
The graph below demonstrates how pay varies with performance for the Executive Directors based on the Directors Remuneration Policy
described above. This is based on pay for the year ending 31 December 2020.
Element
Fixed
Description
Fixed remuneration is made up of total salary, pension and benefits.
Annual Variable bonus
The annual variable bonus is an incentive scheme where remuneration in the form of cash and deferred
shares is received or receivable as a result of the performance conditions that relate to that period.
LTIP
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.
Chief Executive Officer
Chief Financial Officer
Minimum
Maximum
Minimum
Maximum
0
500,000
1,000,000
1,500,000
2,000,000
0
500,000
1,000,000
1,500,000
2,000,000
Fixed
Annual variable bonus
LTIP
LTIP value with 50% share price growth
Assumptions used in determining the level of payout under given scenarios is as follows:
Performance
Fixed pay
Minimum
Maximum
Fixed pay i.e. salary, pension and
benefits only.
Fixed pay i.e. salary, pension and
benefits only.
Annual variable bonus
No bonus
LTIP
No LTIP vesting
Maximum bonus awarded
Maximum LTIP calculated as the value at
the time of the award. The chart also
shows the impact of 50% share price
growth over the vesting period.
An “on target” figure is not presented because the incentive scheme is structured with stretching targets which, if achieved, results in the
executives receiving their maximum remuneration as depicted in the graphs above.
64
Gamma Communications plc
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. 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 pay and employment conditions
elsewhere in the Group
The Committee considers the pay and conditions of employees
throughout the Group 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 Chief People Officer.
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 Group’s Long Term Incentive Plan (LTIP). LTIP awards are made
on an ongoing basis in line with our policy for Executive Directors and
other senior executives. In the year of recruitment, a higher award
may be made within the limits of the plan (maximum of 200% of
salary other than in exceptional circumstances). Salary and annual
bonus levels will be set so as to be competitive at the median level
with comparable roles in companies in similar sectors, and also
taking into account the experience, seniority and the scope of
responsibility of the appointee coming into the role. New Executive
Directors will be able to participate in the annual bonus scheme on a
pro-rated basis for the portion of the financial year for which they are
in post. New Executive Directors will receive benefits and pension
contributions in line with the Company’s existing policy.
Policy on loss of office
The following sets out the Company’s policy with regard to exit
payments in relation to each remuneration element for Executive
Directors. These apply other than in circumstances where the
Executive is dismissed for breach of contract, including serious
dishonesty, gross misconduct, incompetence, or wilful neglect of
duty, in which cases no amount will be payable.
Basic salary: This will be paid over the contractual notice period
(CEO: twelve 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. 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 time pro rata
basis subject to its assessment of the satisfaction of the
performance conditions. The Committee retains discretion to
decide to waive in full or in part the performance conditions if it
feels that is appropriate in any particular circumstances.
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 2019 and fees planned for 2020 are set
out in the Annual Report on Remuneration.
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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
Notice period
Salary
Annual bonus
Pension
CEO Designate – 4 April 2018
CEO – 23 May 2018
12 months notice given by either party
Basic salary (2019)
Discretionary performance-related
Nil
Benefits
Share schemes
Termination
payments
Participation in Company life assurance and income
protection schemes
Eligible to participate in Company share schemes
The Company has the discretion to make a payment of
basic salary in lieu of notice to terminate the employment
forthwith in the event of notice being given
Non-Executive Director Letters of Appointment
CFO Andrew Belshaw
10 October 2014
6 months’ notice given by either party
Basic salary (2019)
Discretionary performance-related bonus
Company contributes up to 5.1% of basic salary into defined
contribution money purchase scheme
Participation in Company life assurance and income
protection schemes
Eligible to participate in Company share schemes
The Company has the discretion to make a payment
of basic salary in lieu of notice to terminate the employment
forthwith in the event of notice being given
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 22 May 2019.
The current Non-Executive Directors’ initial appointments commenced on the following dates:
Date of first appointment
17 June 2014
17 June 2014
17 June 2014
6 June 2014
6 June 2014
16 April 2019
Director
Richard Last
Alan Gibbins
Martin Lea
Wu Long Peng
Andrew Stone
Henrietta Marsh
66
Gamma Communications plc Annual Report on Remuneration
This Annual Report on Remuneration sets out information about the remuneration
of the Directors of the Company, for the year ended 31 December 2019.
The information in this report is unaudited, unless indicated otherwise.
Remuneration Committee
Membership
The Remuneration Committee consisted of the following Directors
during the year to 31 December 2019:
Martin Lea (Chair)
Independent Non-Executive Director
Alan Gibbins
Richard Last
Henrietta Marsh
(joined 16 April 2019)
Independent Non-Executive Director
Independent Non-Executive Director
and Chairman of the Board
Independent Non- Executive Director
From time to time, the Chief Executive Officer, the Chief Financial
Officer and the Chief People Officer are invited to attend committee
meetings. The Company Secretary acts as secretary to the
Remuneration Committee.
Remuneration Committee responsibilities
The committee is constituted as a formal sub-committee of the
Board and operates within its terms of reference, which are
reviewed and updated annually. The primary 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. The committee also is responsible for
oversight of the remuneration of other members of the senior
management team and supervising the workings of all of the
Group’s share incentive plans.
Activities of the Remuneration Committee in 2019
The Committee met five times in 2019 in order to conduct the
following main items of business: agree the annual Remuneration
Committee report; set senior executive bonus targets for 2019;
review and approve proposals for the 2019 all employee SAYE
share scheme and an ongoing, evergreen, company-wide SIP
scheme; approve senior executive bonus payments relating to
2018 including the CEO deferred bonus award; approve the 2019
LTIP and CSOP awards and set LTIP targets; approve the vesting of
the 2016 LTIP options; review the projected dilution impact and
cost of various share schemes; conduct the annual review of the
Remuneration Committee terms of reference; consider the 2020
Company annual salary review and any changes to overall
Company remuneration structure review the Executive Directors’
and other senior executive salaries and bonus structures, and
determine the remuneration levels for2020.
Advisors
The Company engages external advisors from time to time, both to
undertake benchmarking exercises relating to Directors’
remuneration and also to advise on broader remuneration matters.
In 2019, the Remuneration Committee took independent advice
from h2glenfern Remuneration Advisory. This work was principally
to a review the Company’s level of remuneration-related disclosure
(as reported in the in the Annual Report), and general governance.
The cost of this work was £4,000 exclusive of VAT.
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Strategic reportGovernance reportFinancial statementsSupplementary informationAnnual Report and Accounts 2019
Remuneration Committee Report continued
Remuneration of the Executive Directors (audited)
Director
Andrew Taylor
Bob Falconer
Andrew Belshaw
Year
2019
2018
2019
2018
2019
2018
Salary
£000’s
402
292
–
134
252
191
Benefits
Annual bonus
Long term
incentive (LTIP)
£000’s
£000’s
£000’s
Pension
£000’s
–
–
–
–
–
–
482
364
–
122
250
191
–
–
–
1,210
469
341
–
–
–
–
10
10
Total
£000’s
884
656
–
1,466
981
733
Andrew Belshaw received £2,417 salary in 2019 in lieu of a contribution by the Company to his pension of £2,750. Annual bonuses are
shown on an accrued basis and include both the cash and deferred share element. The 2019 bonus includes the value of deterred shares
to be granted in 2020.
The value of the LTIP for 2019 relates to the vesting of the 2016 LTIP awards, and the value has been calculated using the share price
on the vesting date.
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.
Annual performance bonus 2019.
The maximum annual bonus award opportunity for each Executive Director in respect of the year ended 31 December 2019 was 125% of
salary for the CEO Andrew Taylor and 100% of salary for the CFO Andrew Belshaw. The structure of the bonus and the objectives for the
Executive Directors are set out in the table and comments below.
Measure
Weighting
Threshold
£m
Maximum
£m
Outcome
£m
% of Bonus Payable
Payment £000s
A.Taylor
A.Belshaw
A.Taylor
A.Belshaw
Profit before tax
Personal Objectives
80%
20%
39.99
n/a
44.6
n/a
45.2
n/a
100%
80%
100%
100%
402
80
200
50
The personal objectives set for 2019 were based primarily on:
CEO: The successful conclusion of a strategic mobile partner agreement, establishing an agreed technology/supplier road map for a next
generation product evolution and developing a management succession plan.
CFO: The strengthening of the finance team and succession plan development, planning for the further enhancement of the Group’s level
of disclosure based on FRC code, and internal processes and documentation improvements.
25% of Andrew Taylor’s and Andrew Belshaw’s bonuses were deferred into an award governed by the terms of the Company’s Deferred
Bonus Plan. The vesting period for the awards under the terms of the plan is three years.
The Remuneration Committee did not exercise any discretion in determining the bonus awards.
Long Term Incentive Plan (‘LTIP’).
Vesting of 2016 LTIP awards.
Details of the share options vesting during the year are set out below:
Director
Andrew Belshaw
Total number
of shares
44,002
%
Vesting
100
Shares
Vesting
44,002
Share price1
£
LTIP
value
10.65
468,621
1 The long term incentive figure for the year has been valued using the market value of the shares that vested in 2019 at the vesting date of 13 May 2019.
The face value of the 2016 LTIP vested shares at time of award was £183,598. Of the increase in the value of the shares on vesting,
£303,023 was as a result of share price appreciation over the period.
The 2016 LTIP was subject to a combination of performance conditions based on annual compound growth in total shareholder return
(TSR) and annual compound growth in earnings per share (EPS) over the three-year period. Details of the performance against these
performance conditions are shown below.
Measure
Annual
compound
growth in TSR
Annual
compound
growth in EPS
Weighting
50%
50%
8%
8%
Threshold
performance
(30% vesting)
Target
performance
(100% vesting)
Actual
performance
15%
38.4%
Vesting
Andrew Belshaw
%
vesting
100%
Number of
shares
22,001
Values
£
234,310
20%
23.8%
100%
22,001
234,310
The Remuneration Committee did not exercise any discretion in determining the achievement of the performance criteria.
68
Gamma Communications plc Remuneration of the Non-Executive Directors (audited)
Director
Directors’ Fees
Committee Chair Fees
Total
Richard Last
Alan Gibbins1
Martin Lea1
Henrietta Marsh2
Wu Long Peng1
Andrew Stone1
2019
£000’s
2018
£000’s
2019
£000’s
2018
£000’s
2019
£000’s
2018
£000’s
100
45
45
34
45
45
78
36
36
–
36
36
–
8
15
–
–
–
–
6
12
–
–
–
100
53
60
34
45
45
78
42
48
–
36
36
1 With effect from 1 April 2019, the Non-Executive Directors’ fees and committee chair fees were increased following a benchmarking exercise.
2 Henrietta Marsh joined the board in April 2019.
Share scheme interests awarded during the year ended 31 December 2019 (audited)
Long Term Incentive Plan (‘LTIP’).
During the year ended 31 December 2019 the following LTIP awards were granted. The performance conditions are set out below the table.
2019
Director
Andrew Taylor
Andrew Belshaw
Type of scheme
interest
Nil-cost option
Nil-cost option
Basis of award Number of awards
125% of salary
125% of salary
50,964
31,693
Vesting date1
April 2022
April 2022
Face value
of award2
502,509
312,500
Exercise price
£0.0025
£0.0025
1 The vesting date is approximately one month from the date of announcement of the Group’s results, which historically has been in March.
2 The face value of the award has been calculated using the closing share price at the vesting commencement date, being 1 April 2019, to estimate
the value of the incentive, as the actual value of the award will not be finalised until the closing share price is known when the incentive vests.
2018
Director
Andrew Taylor
Andrew Belshaw
Type of scheme
interest
Nil-cost option
Nil-cost option
Basis of award Number of awards
Vesting date
£750,000
125% of salary
108,381
34,504
31 Mar 2021
31 Mar 2021
Face value
of award1
750,000
238,769
Exercise price
£0.0025
£0.0025
1 The face value of the award has been calculated using the closing share price of the day prior to the vesting commencement date to estimate the value of the
incentive, as the actual value of the award will not be finalised until the closing share price is known when the incentive vests.
Andrew Taylor, upon his appointment as CEO received an initial award of LTIP share options valued at £750,000, which are subject to
performance conditions.
At the time of making an award the Remuneration Committee sets challenging long-term performance targets in order to align the interests
of the Directors with shareholders and which, together with continuous employment conditions, must be satisfied before an award vests.
The 2019 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.
Save As You Earn (SAYE) Share Scheme
There were no awards made to directors under the SAYE scheme during the years ended 31 December 2019, or 2018.
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Strategic reportGovernance reportFinancial statementsSupplementary informationAnnual Report and Accounts 2019 Remuneration Committee Report continued
Statement of Directors’ shareholding and share interests (audited)
Directors’ share interests at 31 December 2019 are set out below:
2019
Executive Director
Andrew Taylor
Andrew Belshaw
Non-Executive Director
Richard Last
Alan Gibbins
Martin Lea
Henrietta Marsh
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
1,000
–
393,962
159,345
104,337
–
–
–
–
–
–
9,209
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Exercised
during
the year
–
44,002
–
–
–
–
–
–
Exercised
during
the year
–
48,675
–
–
–
–
–
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.
1,000
800
600
400
200
0
70
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
9
1
0
2
/
2
0
/
3
1
9
1
0
2
/
4
0
/
3
1
9
1
0
2
/
6
0
/
3
1
9
1
0
2
/
8
0
/
3
1
9
1
0
2
/
0
1
/
3
1
9
1
0
2
/
2
1
/
3
1
Gamma Communications PLC – TSR
AIM 100 – TSR
Gamma Communications plc Chief Executive’s historical remuneration (audited)
The table below sets out the total remuneration of the Chief Executive over the last five years valued using the methodology applied to the
single total figure remuneration.
Director
CEO
Total remuneration
Annual bonus
payment level achieved
(% of maximum opportunity
LTIP Vesting
level achieved
(% of maximum opportunity)
2019
20181
2017
2016
2015
2014
Andrew Taylor
Andrew Taylor
Bob Falconer
Bob Falconer
Bob Falconer
Bob Falconer
Bob Falconer
£884,408
£655,990
£1,466,688
£2,243,428
£599,760
£2,320,287
£544,793
96%
100%
100%
100%
100%
100%
100%
N/A
N/A
92.83%2
100%
N/A3
N/A3
N/A3
1 Bob Falconer retired as CEO on 23 May 2018 and was replaced by Andrew Taylor.
2 92.827% represents the blended rate for the vesting of Bob Falconer’s 2015, 2016 and 2017 LTIP schemes. These schemes achieved performance vesting
percentages of 93.875%, 91.847% and 90.046% respectively.
3 Share options schemes prior to the 2015 LTIP scheme (which vested in 2017) did not have performance conditions attached to them.
Percentage change in remuneration of Director undertaking the role of CEO.
The table below outlines the increase in salary, other pay and benefits and annual bonus for the year ended 31 December 2018 and 2019
for Andrew Taylor in comparison to the wider workforce.
2019
Director
Salary, other pay and benefits1
Annual bonus
% increase in CEO remuneration in 2019
compared with 2018
% increase in employee remuneration in
2019 compared with 2018
2.0%
-2.1%
3.1%
4.8%
1 In calculating the Group CEO data for 2018, we have used the annual equivalent remuneration amount of £394k for Andrew Taylor, who was appointed on 23 May 2018,
to provide a true comparison.
Pay ratio information in relation to the total remuneration of the director undertaking the role of CEO
The table below sets out the ratio of the total remuneration received by the Group CEO to the total remuneration received by our UK
employees at the median, 25th and 75th percentiles.
Method
Option A
Year
2019
Pay data
Group CEO
UK employees 25th percentile
UK employees 50th percentile
UK employees 75th percentile
25th percentile pay ratio
50th percentile pay ratio
75th percentile pay ratio
31.9x
Base salary
£402,008
£25,545
£34,962
£56,100
23.2x
14.4x
Total pay and benefits
£884,408
£27,688
£38,177
£61,268
1. “Option A” methodology was selected on the basis that it provides the most robust and statistically accurate means of identifying the
median, lower and upper quartile colleagues.
2. The Group Chief Executive remuneration is the total single figure remuneration for the year ended 31 December 2019 contained on page 68.
3. The workforce comparison is based on actual payroll data for the period 1 January 2019 to 31 December 2019.
4. The total single figure remuneration calculated for each employee includes full-time equivalent base pay, annual bonuses for the 2019
performance year, overtime, benefits, allowances and employer pension contributions.
5. Part-time workers have been included by calculating the full-time equivalent value of their pay and benefits.
6. Leavers, joiners and employees on reduced pay (due to sick pay, maternity leave, etc.) have been included.
71
Strategic reportGovernance reportFinancial statementsSupplementary informationAnnual Report and Accounts 2019 Remuneration Committee Report continued
Relative importance of spend on pay (audited)
The following table shows the Group’s actual spend on pay for all Group employees relative to dividends and underlying pre-tax profit.
Overall spend on pay, including Executive Directors (£m)
Capital expenditure1
Dividends (£m)
2019
£m
67.2
12.4
9.2
2018
£m
55.8
12.7
8.1
Change
%
+20%
-2%
+14%
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.
Implementation of remuneration policy in the financial year 2020.
There have not been any material changes to the way in which the remuneration policy of the Group has been implemented in 2020.
Executive Directors
The following table summarises the Executive Director remuneration package for 2020
Director
Andrew Taylor
Andrew Belshaw
Salary
£000’s
412
256
Benefits
Maximum annual bonus
opportunity (% of salary)
Maximum LTIP
opportunity (% of salary)
Maximum pension
contribution (% of salary)
–
–
125%
100%
125%
125%
–
5.1%
Salary: With effect from 1 January 2020, the salaries of the Executive Directors were increased by 2.5%.
Benefits: There were no changes to the benefits arrangements for the year commencing 1 January 2020.
Annual performance bonus: The maximum annual bonus opportunity remains the same as it was in the prior year. The performance
measures and weightings are similar to the prior year with 80% of the maximum potential bonus being based on growth in adjusted profit
before tax, and 20% based on personal objectives. The specific targets for the annual bonus for 2020 will be disclosed in the 2020 Annual
Report on Remuneration.
Pension: There were no changes to the pension arrangements for the year commencing 1 January 2020
Long term incentive (LTIP): It is anticipated that further performance-based share option awards will be made in April 2020. The Committee
will determine the levels, performance conditions, weighting and targets to be applied at the time of the award and will disclose them in the
2020 Annual Report.
Non-Executive Directors
The Non-Executive Directors’ general fees were increased by 2.5% from the 1 January 2020. There was no increase to the Committee
Chair fees at that time.
The following table summarises the 2020 Non-Executive Director fees.
Director
Richard Last
Alan Gibbins
Martin Lea
Henrietta Marsh
Wu Long Peng
Andrew Stone
Directors’ Fees
£000s
Committee Chair Fees
£000s
£ Total Fees
000s
102
49
49
49
49
49
–
8
16
–
–
–
102
57
65
49
49
49
Statement of Voting
During the 2019 AGM, a motion was set for the shareholders to approve on an advisory only basis the Directors’ Remuneration Report.
99.3% votes were cast in favour of the motion.
This Remuneration Committee report will be put to an advisory vote at the forthcoming 2020 AGM. This report was approved by the Board
of Directors on 16 March 2020 and signed on its behalf by:
Martin Lea
Remuneration Committee Chairman
16 March 2020
72
Gamma Communications plc Directors’ Report
Directors’ Report
The Directors present their Annual Report,
together with the Group’s audited financial
statements for the year ended 31 December 2019.
The Corporate Governance Statement set out on pages 46 to 47
forms part of this report.
Details of any significant events since the reporting date are included
in note 33 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 30 to the financial statements.
Dividends
The Directors recommend a final dividend of 7.0p per ordinary
share (2018: 6.2p) to be paid on Thursday 18 June 2020 to ordinary
shareholders on the register on Friday 29 May 2020 which,
together with the interim dividend of 3.5p (2018: 3.1p), makes a total
of 10.5p for the year (2018: 9.3p).
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 27 and 29 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 (LTIP) to
subscribe for nil cost shares in the Company;
(ii) be granted options under the Company Share Option Plan
(CSOP);
(iii) be issued shares under a Share Incentive Plan (SIP); and
(iv) be granted options under a Save As You Earn plan (SAYE).
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 17 to
the Group financial statements.
Directors
The names and biographies of the Directors during the year and up
to the date of signing are disclosed on pages 48 to 49.
Directors’ interest in share capital
The Directors’ interest in share capital is shown within the Annual
Report on Remuneration.
Directors’ indemnities
The Company has made qualifying third-party indemnity provisions for
the benefit of its Directors of the Company and its subsidiaries 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 its 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 of the Strategic Report and in note
23. Further information on the Group’s exposure to financial risks
and the management thereof is provided in note 23.
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 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 acquisitions 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 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 23 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 (2018: £nil).
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.
Auditors and their independence
A resolution to appoint auditors for the year to 31 December 2020
will be proposed at the AGM. The Company has a policy for
approval by the Audit Committee of non-audit services by the
auditor, to preserve independence.
Disclosure of information to the auditor
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 auditor and a resolution to reappoint them will be proposed at
the forthcoming Annual General Meeting.
Approved and authorised by the Board.
By order of the Board,
Andrew Belshaw
Chief Financial Officer
16 March 2020
73
Strategic reportGovernance reportFinancial statementsSupplementary informationAnnual Report and Accounts 2019
Statement of Directors’ responsibilities
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 United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable
law) including 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:
•
•
•
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 is 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.
74
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.
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
16 March 2020
Gamma Communications plc Financial
Statements
Contents
Independent auditor’s report
76
Consolidated statement of comprehensive income 80
Consolidated statement of financial position
Consolidated statement of cash flows
Consolidated statement of changes in equity
Notes forming part of the financial statements
Company statement of financial position
Company statement of changes in equity
Notes forming part of the Company financial
statements
81
82
83
84
113
114
115
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75
Annual Report and Accounts 2019
Financial statements
Independent auditor’s report to the
members of Gamma Communications plc
Report on the audit of the financial statements
3.Summary of our audit approach
Key audit
matters
1. 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 2019 and of the group’s profit for the
year then ended;
• the group financial statements have been properly prepared 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
Materiality
Scoping
• 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 statement of financial
position;
• the consolidated and parent company statements of changes
Significant
changes in
our approach
The key audit matters that we identified in the current
year were:
• revenue: accuracy of volume and pricing of indirect
usage revenue
• acquired intangible assets: impairment review.
Within this report, key audit matters are identified
as follows:
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
The materiality that we used for the group financial
statements was £2.3m which was determined on the
basis of 5% of profit before tax.
We have audited the entire UK group with the
exception of one location, being the newly acquired
Telsis Communication Services Limited. We have
performed analytical review procedures over the
remainder of the Group. The split between full audit
procedures and analytical reviews is presented within
our overview of the scope of the audit.
In the prior year we identified a key audit matter in
relation to the judgement relating to retail customer
contracts and the most sensitive assumptions in the
valuation, being the attrition rate and discount rate
upon the acquisition of DX Groep B.V. Given this
acquisition occurred in the prior year it is no longer
a key audit matter.
In the year we noted a downturn in performance of
Dean One, resulting in the identification of impairment
indicators. As a result, we have specifically identified
the revenue growth assumptions in the customer
relationship intangible asset valuation model to be
a key audit matter.
in equity;
• the consolidated cash flow statement;
• the group’s related notes 1 to 34.
• the company’s related notes 1 to 11.
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).
2. 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.
76
4. 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 twelve months from the date when the financial statements
are authorised for issue.
We have nothing to report in respect of these matters.
5. 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.
Gamma Communications plc
5.1. Revenue: accuracy of volume and pricing of indirect usage revenue
Key audit matter
description
How the scope
of our audit
responded to the
key audit matter
Key
observations
Usage revenue is calculated based on the volume traffic of calls 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 2019 the group’s revenues were £328.9m (2018: £284.9m) of which usage revenue represents £73.3m (2018: £65.3m).
The group’s revenue recognition principles are disclosed in note 1.
We have obtained an understanding of the relevant controls surrounding the volume and pricing of indirect usage revenue
and tested the operating effectiveness of these controls, specifically the rate change reviews, the revenue reconciliations
performed (including the reviews thereof), 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 call data
records. We recalculated the revenue in relation to the calls by multiplying the appropriate rate against the minutes.
In addition we performed an expectation of total revenues for the year based on the month-on-month trends, movements in
minutes as well as rate fluctuations. We compared this expectation to actual revenues, with any differences outside of our
threshold investigated further.
We also traced a sample of credit notes raised post year end to supporting documentation to test for possible
overstatement of revenue.
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.
5.2. Acquired intangible assets: valuation
Key audit
matter
description
How the scope
of our audit
responded
to the key
audit matter
Key
observations
During 2018 the group acquired DX Groep B.V. (DX). This resulted in the group recognising intangible assets and goodwill of
£16.6m and £7.2m respectively.
During 2019 there has been a decline in performance of DX. A key factor behind this has been a more significant than
expected decline in ISDN revenues.
As a result of the decline in performance, Management have considered the individual intangible assets and goodwill
recognised upon acquisition for impairment.
In making their assessment, Management exercised significant judgement around the discount rates, growth rates and
attrition rates used in their forecasts.
This resulted in an impairment to the intangible assets and goodwill of £3.9m and £4.2m respectively, with an equivalent
reduction in contingent consideration.
As such, based on the sensitivities included within Management’s model, we have identified the growth assumptions, as well
as the discount rate applied in the impairment model, to be a key audit matter.
Throughout the year, we have considered whether any indicators of impairment existed, which included a consideration of
the: macroeconomic environment; business performance; and other factors that may impact the recoverable amount of the
customer contract intangible assets. We have also gained an understanding of the controls and the implementation thereof,
related to management’s assessment of the recoverable amount of the customer contract intangible assets.
At 30 June 2019, where an indicator of impairment was identified, we obtained, reviewed and challenged management’s
impairment review, which included:
• recalculating the implied rate of return used based on the latest forecasts and consideration;
• benchmarking the implied EBITDA multiple;
• testing the mathematical accuracy of the models;
• assessing the business’ historical performance and forecasting accuracy;
• challenging management’s assumptions, including those related to revenue growth;
• recalculating the total impairment charge to be recognised; and
• assessing the completeness and accuracy of the disclosures made in the financial statements.
Based on our procedures, we concur with the impairment charge recognised in the year and that the remaining carrying
value of goodwill and other intangibles is recoverable.
6. Our application of materiality
6.1. 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
Group financial statements
£2.3m (2018: £1.8m)
5% (2018: 5%) of statutory profit before tax
Parent company financial statements
£1.1m (2018: £1.2m)
2% (2018: 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.
77
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial statementsSupplementary information
Financial statements continued
We agreed with the Audit Committee that we would report to them all
audit differences in excess of £112k (2018: £86k), 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.
PBT £45.2m
PBT
Group materiality
Group materiality £2.3m
Component materiality
range £1.4 to £0.6m
Audit Committee reporting
threshold £0.11m
6.2. Performance materiality
We set performance materiality at a level lower than materiality
to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the
financial statements as a whole. Group performance materiality
was set at 70% of group materiality for the 2019 audit (2018: 70%).
In determining performance materiality, we considered the
following factors:
a. Our historical knowledge of the entity’s business and our ability
to forecast misstatements,
b. The reliability of the entity’s internal control over financial
reporting,
c. Low turnover of key accounting personnel in previous years,
d. The entity’s history of misstatements, both corrected and
uncorrected,
e. Management’s willingness to investigate and correct these
misstatements.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of £112k (2018: £86k), 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.
7. An overview of the scope of our audit
7.1. Scoping
Our Group audit was scoped by obtaining an understanding of the
Group and its environment, including controls, and assessing the
risks of material misstatement at the Group level. Based on that
assessment, we have focused our Group audit scope primarily
on the audit work at 4 components (2018: 4). These 4 components
represent the principal business units and account for 96% of
the Group’s revenue, 99% of the Group’s pre-tax profit and 99%
of the Group’s net assets. They have therefore been assessed as
the most financially significant components within the Group,
with review procedures performed over all other entities. The
component materialities ranged from £0.6m to £1.4m, with Gamma
Telecoms Limited being the largest single component.
At the parent entity level we also tested the consolidation process
and carried out analytical procedures to confirm our conclusion
that there were no significant risks of material misstatement of the
aggregated financial information of the remaining components not
subject to audit.
4%
1%
1%
Revenue
Profit before tax
Net assets
96%
99%
99%
Full audit scope
Review at Group level
7.2. Our consideration of the control environment
We have placed reliance on IT controls as part of our significant risk
testing over revenue, the most critical of which being the matching
of the rates input and call data records records within the system to
calculate the billing per each transaction. We have also tested the
operationg effectiveness of a number of revenue controls,
specifically in relation to rate-change reviews, the revenue
reconciliations performed thereof, and the analysis of monthly
revenue trends. Deloitte placed a reliance on these controls as part
of our revenue approach specifically in relation to the indirect
revenue stream. We did not rely on controls for other parts of our
audit, and instead took a fully substantive approach.
78
Gamma Communications plc 8. 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.
Report on other legal and regulatory requirements
11. 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
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.
12. Matters on which we are required to report by exception
12.1. 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 nothing to report in respect of these matters.
• we have not received all the information and explanations we
9. 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.
10. 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.
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.
12.2. 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.
13. 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
16 March 2020
79
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial statementsSupplementary information Financial statements continued
Consolidated statement of comprehensive income
For the year ended 31 December 2019
Revenue
Cost of sales
Gross profit
Operating expenses
Earnings before depreciation, amortisation and exceptional items
Exceptional items
Earnings before depreciation and amortisation
Depreciation and amortisation (excluding business combinations)
Amortisation arising due to business combination
Profit from operations
Finance income
Finance expense
Profit before tax
Tax expense
Profit after tax
Other comprehensive loss
Items that may be reclassified subsequently to the income statement (net of tax effect)
Exchange differences on translation of foreign operations
Total comprehensive income attributable to the owners of the parent
Earnings per share
Basic per Ordinary Share (pence)
Diluted per Ordinary Share (pence)
Adjusted earnings per share is shown in note 12.
All income recognised during the year was generated from continuing operations.
The notes on pages 84 to 112 form part of these financial statements.
Notes
4
8
7
7
10
10
11
12
12
2019
£m
328.9
(162.4)
166.5
(121.0)
63.5
(0.9)
62.6
(15.1)
(2.0)
45.5
0.1
(0.4)
45.2
(10.7)
34.5
(0.4)
34.1
36.6
36.1
2018
£m
284.9
(152.7)
132.2
(97.8)
48.3
–
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
80
Gamma Communications plc Consolidated statement of financial position
As at 31 December 2019
Assets
Non-current assets
Property, plant and equipment
Right of use assets
Intangible assets
Deferred tax assets
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 liabilities
Contract liabilities
Contingent consideration
Deferred tax
Current liabilities
Trade and other payables
Provisions
Lease liabilities
Contract liabilities
Contingent consideration
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
Notes
14
15
16
26
20
19
20
21
22
24
25
30
26
22
24
25
30
27
28
28
28
28
28
28
2019
£m
32.1
11.4
37.4
3.0
15.0
98.9
8.1
77.5
53.9
139.5
238.4
0.2
0.8
11.3
9.1
1.1
3.9
26.4
46.1
0.9
1.3
8.0
1.5
1.7
59.5
85.9
0.2
6.6
2.3
3.8
(0.6)
(0.7)
140.9
152.5
238.4
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 80 to 83 were approved and authorised for issue by the Board of Directors on 16 March 2020 and were
signed on its behalf by:
Andrew Belshaw
Chief Financial Officer
The notes on pages 84 to 112 form part of these financial statements.
81
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial statementsSupplementary information Notes
14
15
16
10
10
14
16
18
13
2019
£m
45.2
9.8
1.7
13.7
(7.2)
2.6
(0.1)
0.4
66.1
(16.7)
(1.9)
6.3
0.7
(0.5)
54.0
(7.5)
46.5
(9.9)
(2.5)
0.1
(7.5)
(19.8)
(1.1)
2.0
(9.2)
(8.3)
18.4
35.5
53.9
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)
(23.5)
(1.6)
0.8
(8.1)
(8.9)
3.9
31.6
35.5
Financial statements continued
Consolidated statement of cash flows
For the year ended 31 December 2019
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 and reduction in value of intangible assets
Change in fair value of contingent consideration
Share based payment expense
Interest income
Finance cost
(Increase) in trade and other receivables
(Increase) in inventories
Increase/(decrease) 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
Purchase of property, plant and equipment
Purchase of intangible assets
Interest received
Acquisition of subsidiaries net of cash acquired
Net cash used in investing activities
Financing activities
Lease 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
The notes on pages 84 to 112 form part of these financial statements.
82
Gamma Communications plc Consolidated statement of changes in equity
For the year ended 31 December 2019
1 January 2018
Change in accounting policy
Issue of shares
Recognition of share based payment expense
Tax on share based payment expense:
Current tax
Deferred tax
Dividend paid
Transaction with owners
Profit for the year
Other comprehensive loss
Total comprehensive (loss)/income
31 December 2018
1 January 2019
Issue of shares
Investment in own shares
Recognition of share based payment expense
Tax on share based payment expense:
Current tax
Deferred tax
Dividend paid
Transaction with owners
Profit for the year
Other comprehensive (loss)/income
Total comprehensive (loss)/income
Total
equity
£m
95.3
3.8
0.8
1.4
0.7
(0.4)
(8.1)
(1.8)
28.4
(0.2)
28.2
Notes
Share
capital
£m
0.2
–
–
–
Share
premium
reserve
£m
3.8
–
0.8
–
Merger
reserve
£m
2.3
–
–
–
Share
option
reserve
£m
2.8
–
(1.0)
1.4
Foreign
exchange
reserve
£m
–
–
–
–
Own
shares
£m
(0.8)
–
–
–
Retained
earnings
£m
87.0
3.8
1.0
–
13
13
–
–
–
–
–
–
–
0.2
0.2
–
–
–
–
–
–
–
–
–
–
–
–
–
0.8
–
–
–
4.6
4.6
2.0
–
–
–
–
–
2.0
–
–
–
–
–
–
–
–
–
–
2.3
2.3
–
–
–
–
–
–
–
–
–
–
–
–
–
0.4
–
–
–
3.2
3.2
(1.4)
–
2.0
–
–
–
0.6
–
–
–
–
–
–
–
–
(0.2)
(0.2)
–
–
–
–
–
–
–
0.7
(0.4)
(8.1)
(3.0)
28.4
–
28.4
(0.2)
(0.8)
112.4
121.7
(0.2)
–
–
–
–
–
–
–
–
(0.4)
(0.4)
(0.8)
–
0.1
–
–
–
–
0.1
–
–
–
112.4
1.3
–
–
1.0
0.9
(9.2)
(6.0)
34.5
–
34.5
121.7
1.9
0.1
2.0
1.0
0.9
(9.2)
(3.3)
34.5
(0.4)
34.1
31 December 2019
0.2
6.6
2.3
3.8
(0.6)
(0.7)
140.9
152.5
The notes on pages 84 to 112 form part of these financial statements.
83
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial statementsSupplementary information Financial statements continued
Notes forming part of the financial statements
For the year ended 31 December 2019
1. Accounting policies
Basis of preparation
These financial statements are prepared in accordance with the
Companies Act 2006 and International Financial Reporting
Standards (‘IFRS’), issued by the International Accounting
Standards Board (‘IASB’) as adopted by the European Union (‘EU’).
The financial statements are prepared on a going concern basis
and have been prepared on a historical cost basis, except for
certain financial instruments which have been measured at fair
value.
The financial statements are presented in Pounds Sterling and,
unless otherwise stated, have been rounded to the nearest
0.1 million (£m).
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.
Going concern
A detailed annual budget and quarterly reforecasts for the next
12-month period are prepared for review by the Board. The Group
continues to be profitable and cash generative and has a significant
cash balance of £53.9m (2018: £35.5m) 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 Brexit and believe the impact on the
Group will be low. The Group has minimal cross border trading;
volatility in the exchange rates has been considered but it is not
considered to be a material risk. The European companies will
continue to operate independently in their local currencies. 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 the financial
statements of Gamma Communications plc (‘the Company’) and
the entities controlled by the Company (its subsidiaries). All
subsidiaries have a reporting date of 31 December. On acquisition
the Telsis group (consisting of Telsis Direct Limited, Telsis
Communication Services Limited, Telsis Services Limited and
Telsis GmbH) had a period end of 24 November 2019, this will be
amended to 31 December with the first reporting period being an
extended period to 31 December 2020. The period since
acquisition to 31 December 2019 has been included in
consolidation.
All transactions and balances between Group companies are
eliminated on consolidation, including unrealised gains and losses
on transactions between Group companies.
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 17.
Exemption from audit
For the year ending 31 December 2019 the following UK
subsidiaries will take advantage of the audit exemption under
s479A of the Companies Act 2006.
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
For the year ending 31 December 2019, Gamma Communications
Europe B.V. and DX Groep B.V. were entitled to exemption from
preparation of consolidated financial statements under Section
408 of the Dutch Civil Code (consolidation exemption for
intermediate holding companies).
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 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 contract liabilities (formerly deferred income) and
contract assets (formerly 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.
84
Gamma Communications plc 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 minority of sales of the Cloud PBX product are made under an
‘up front’ model whereby a channel partner buys the 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 spread equally over the estimated future period of usage
of that service.
Where applicable, the consideration for the acquisition includes
any asset or liability resulting from a contingent consideration
arrangement measured at fair value at the acquisition date.
Subsequent changes are adjusted against the cost of acquisition
where they qualify as measurement period adjustments. All other
subsequent changes in the fair value of contingent consideration
classified as an asset or liability are accounted for in accordance
with relevant IFRSs.
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.
Equipment sales
Revenue from the sale of peripheral and other equipment is
recognised when control of the asset has transferred to the buyer,
which is normally the date the equipment is delivered and accepted
by the customer.
If the amount of contingent consideration changes as a result of
a post-acquisition event, such as not meeting an earnings target,
accounting for the change in consideration depends on whether
the additional consideration is classified as an equity instrument
or an asset or liability.
Installation fees
Revenue from installations which cannot be separated from an
ongoing service contract, i.e. installations with no standalone value
to the customer, will be allocated to initial equipment sale (if any) and
ongoing service revenues. The latter element will result in a contract
liability which will be released over the length of the contract.
Contingent consideration that is classified as equity is not
remeasured at subsequent reporting dates, and the subsequent
settlement is accounted for within equity. For the amounts not
classified as equity, this will be measured at fair value at each
balance sheet date with the movements being accounted for
in the statement of comprehensive income.
Arrangements with multiple deliverables
Where goods and/or services are sold in a bundled transaction,
the total arrangement consideration is allocated to the individual
elements based on their relative fair values. This fair value is based
on amounts charged on a standalone basis, or by using comparable
pricing arrangements observable in the market.
Intangible assets
Goodwill
Goodwill arises on business combinations and represents the
excess of the cost of acquisition over the Group’s interest in the
fair value of the identifiable assets and liabilities of the acquired
business at the acquisition date.
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 exceeds the fair value of
consideration paid, the excess is credited in full to the consolidated
statement of comprehensive income on the acquisition date.
Impairment tests on goodwill are undertaken annually at the
financial year end.
Goodwill arising on acquisitions before the date of transition to
IFRS has been retained at the previous UK GAAP amounts subject
to impairment testing.
Customer Contracts and Brand
Brand and customer contract-related intangible assets acquired as
part of a business combination are valued at their fair value at the
acquisition date less accumulated amortisation. Amortisation is
charged on a straight-line basis through the consolidated
statement of comprehensive income. The expected useful
economic life of the intangible assets represents the best
estimates available and are as follows:
Category
Useful Economic Life
Customer contracts
Seven to thirteen years
Brand
Five years
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
advances 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.
Incentive deals
Where the Company enters into incentive deals it spreads the
costs over the period of the deal and attributes a proportion of
revenue against these costs. Where there is no revenue the credit
is shown against revenue over the period of the deal.
Business combinations
The acquisition method of accounting is used for the acquisition of
subsidiaries. The cost of the acquisition is measured at the
aggregate fair value of consideration given. Acquisition-related
costs are recognised in the consolidated statement of
comprehensive income as incurred.
At the acquisition date, the acquiree’s identifiable assets, liabilities
and contingent liabilities that meet the conditions for recognition
under IFRS 3 Business Combinations are recognised at their fair
value. Certain assets and liabilities are not recognised at their fair
value at the acquisition date as they are accounted for using other
applicable IFRSs. These include deferred tax assets/liabilities and
also any assets related to employee benefit arrangements.
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 of one year from the acquisition
date 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.
85
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial statementsSupplementary information Financial statements continued
Notes forming part of the financial statements continued
For the year ended 31 December 2019
1. Accounting policies continued
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. These typically include
employee costs incurred and third-party costs.
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, but no more
than four years.
Software
Software is comprised of licences purchased from third parties and
is initially recognised at cost. Amortisation of these assets, on the
same basis as other assets, commences when the assets are ready
for their intended use.
Amortisation is provided on software over the useful economic live
assigned. This is as follows:
Category
Software
Useful Economic Life
Four 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.
Foreign currency
The consolidated financial statements are presented in Pounds
Sterling, which is the functional currency of the Company.
Transactions in foreign currency are translated to the functional
currency at the prevailing rates when the transactions occur.
Foreign currency monetary assets and liabilities are translated at
the rates prevailing 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.
The results of overseas operations are translated into Pounds
Sterling at rates approximating to those prevailing when the
transactions took place. The assets and liabilities of overseas
operations are translated at the prevailing rate 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.
Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the Executive Directors. For further
details please see note 6.
Financial instruments
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.
86
Gamma Communications plc 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,
contract assets (formerly 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
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.
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
Leased assets consist of rental property, cars and fibre networks
where the Group has the right to control the identified asset.
Upon 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 the interest on the lease
liability (by 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 or 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 25.
Where 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.
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 classified as 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. In this instance the whole contract is not treated
as a lease.
The discount rate applied is 4% (2018: 4%), which 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. For final dividends, this is when they are 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
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.
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 do not affect net profit and it
further excludes items that are never taxable or deductible.
87
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial statementsSupplementary information Financial statements continued
Notes forming part of the financial statements continued
For the year ended 31 December 2019
Provisions
Provisions are recognised where there is a present or constructive
obligation as a result of a past event. The Group has recognised
provisions for liabilities of uncertain timing or amounts relating to
leasehold dilapidations and 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.
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.
Alternative performance measures
Adjustments to EBITDA, PBT, PAT 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
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.
(b) Depreciation and amortisation
Depreciation and amortisation relate to the assets which were
acquired by the Group. These are omitted from adjusted operating
expenses to allow users of the accounts to compare against other
external data sources.
(c) Exceptional items
The Group treats certain items which are considered to be one-off
or not representative of the underlying trading of the Group as
exceptional in nature.
The Directors apply judgement in assessing the particular items, which
by virtue of their scale or nature should be classified as exceptional
items. The Directors consider that separate disclosure of these items
is relevant to an understanding of the Group’s financial performance.
Changes in deferred consideration, reduction of intangible assets
and goodwill are considered to be exceptional as they are not
representative of the primary activities of the Group.
(d) Adjusting tax items
Where movements to tax balances arise and these do not relate to
the underlying trading current year tax charge, these are adjusted
in determining certain APMs as they do not reflect the underlying
performance in that year.
1. Accounting policies continued
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.
Property, plant and equipment
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:
Category
Network assets
Computer equipment
Fixtures and fittings
Useful Economic Life
14%–25% 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 purchase costs, 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.
88
Gamma Communications plc 2. Critical accounting estimates and judgements
3. Changes in accounting policies
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:
• Amendments to IFRS 3 - Business Combinations (applicable for
the period beginning 1 January 2020. Not yet endorsed for use in
the EU)
• Amendments to references to the Conceptual Framework in IFRS
Standards (applicable for the periods beginning 1 January 2020)
• Amendments to IAS 1 and IAS 8 – Definition of material.
(applicable for period from 1 January 2020)
• Amendments to IFRS 9, IAS 39 and IFRS 7 – Interest rate
benchmark reform (applicable for period from 1 January 2020)
•
IFRS 17 – Insurance contracts (applicable for the period
beginning 1 January 2021, not yet endorsed for use in the EU)
• Amendments to IAS 1 – Classification of Liabilities as Current or
Non-Current. Applicable from the period commencing 1 January
2022. Not yet endorsed for use in the EU.
The Directors do not expect that the adoption of these standards
will have a material impact on the financial statements of the Group
in future periods.
The Group makes certain estimates and assumptions regarding the
future. Estimates and judgements are continually evaluated based
on historical experience and other factors, including best estimates
of future events. 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 within
the next financial year are discussed below.
Critical accounting judgements
Critical judgements, apart from those involving estimations, applied
in the preparation of the consolidated financial statements are
discussed below:
(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 in IFRS 15.
Where a channel partner has the primary responsibility for
providing the products or services to the end user, carries the
inventory risk, 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, contract costs and estimated earnings.
Key accounting estimates
There are no material sources of estimation uncertainty at the
reporting date.
89
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial statementsSupplementary information Financial statements continued
Notes forming part of the financial statements continued
For the year ended 31 December 2019
4. Revenue
Revenue in all periods principally arises from the provision of products and services.
Disaggregation of revenue
Revenue is disaggregated into the operating segment and the timing of revenue recognition (at a point in time and over time). The UK
segments are disaggregated by either market and/or product type. This disaggregation is shown by note 6.
Contract balances
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers:
Receivables, which are included in ‘Trade and other receivables’
Contract assets, which are included in ‘Trade and other receivables’
Contract liabilities
2019
£m
34.8
33.1
17.1
2018
£m
31.0
27.7
16.4
The amount of revenue recognised in 2019 from performance obligations satisfied (or partially satisfied) in previous periods is £nil (2018: £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.
The contract assets are accrued income, where invoices are raised in a different pattern compared to the revenue recognition to account
for revenue when performance obligations have been met.
Significant changes in the contract liabilities balances during the year 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
2019
£m
(7.8)
9.2
2018
£m
(7.1)
7.8
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
5. Contract costs
2020
£m
10.5
2021
£m
5.4
2022
onwards
£m
3.6
Total
£m
19.5
Capitalised contract costs consist of commissions from the UK Direct division which are directly associated with specific customer
contracts and installation costs.
Commissions
Capitalised
Amortised
Installation costs
Capitalised
Amortised
There was no impairment loss in relation to the costs capitalised (2018: £nil).
2019
£m
2018
£m
1.6
1.7
3.7
2.3
2.5
1.5
3.2
2.0
90
Gamma Communications plc 6. Segment information
The Group’s main operating segments are outlined below:
• UK Indirect – This division sells Gamma’s products to channel partners and contributed 70% (2018: 74%) of the Group’s external
revenue. This also includes the Telsis entities acquired during the year.
• UK Direct – This division sells Gamma’s products to end users in the SME, enterprise and public sectors together with an associated
service wrap. It contributed 25% (2018: 25%) of the Group’s external revenues.
• Overseas – This division consists of sales made in the Netherlands, by DX Groep B.V. and its subsidiary companies contributing 5%
(2018: 1%) of the Group’s external revenues. This includes the newly acquired Nimsys.
•
Central functions – This is not a revenue-generating segment but is made up of the central management team and wider Group costs.
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 operating segments
The Group’s reportable segments are strategic business units that offer products and services into different markets. They are managed
separately because each business requires different marketing strategies and are reported separately to the Board and management team.
Measurement of operating segment profit or loss, assets and liabilities
The accounting policies of the reportable 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 in line with 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.
2019
Revenue from external customers
Inter-segment revenue
Timing of revenue recognition
At a point in time
Over time
Total gross profit
Operating expenses
Earnings before depreciation, amortisation and exceptional items
Exceptional items
Earnings before depreciation and amortisation
Depreciation and amortisation (excluding business combinations)
Amortisation arising due to business combination
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
UK
Indirect
£m
230.1
21.5
UK
Direct
£m
83.6
–
Overseas
£m
15.2
–
Central
functions
£m
–
–
16.4
213.7
230.1
119.1
(81.5)
51.6
–
51.6
(13.9)
(0.1)
37.6
0.1
(0.4)
37.3
(9.7)
27.6
–
27.6
5.6
78.0
83.6
38.2
(20.3)
18.1
–
18.1
(0.2)
–
17.9
–
–
17.9
(3.7)
14.2
–
14.2
–
15.2
15.2
9.2
(12.7)
0.3
(0.9)
(0.6)
(1.0)
(1.9)
(3.5)
–
–
(3.5)
1.5
(2.0)
(0.4)
(2.4)
–
–
–
–
(6.5)
(6.5)
–
(6.5)
–
–
(6.5)
–
–
(6.5)
1.2
(5.3)
–
(5.3)
Total
£m
328.9
21.5
22.0
306.9
328.9
166.5
(121.0)
63.5
(0.9)
62.6
(15.1)
(2.0)
45.5
0.1
(0.4)
45.2
(10.7)
34.5
(0.4)
34.1
External revenue of customers has been derived principally from the United Kingdom and no single customer contributes more than 10%
of revenue.
91
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial statementsSupplementary information Financial statements continued
Notes forming part of the financial statements continued
For the year ended 31 December 2019
6. Segment information continued
Additions to non-current assets
Reportable segment assets
Reportable segment liabilities
UK
Indirect
£m
11.6
190.4
62.0
UK
Direct
£m
–
23.0
12.4
Overseas
£m
0.8
25.0
11.5
Central
functions
£m
–
–
–
The UK Indirect revenue and gross profit is further split between traditional and growth products below:
Traditional products and services
Growth (being strategic and enabling) products and services
Total revenue from external customers
Traditional products and services
Growth (being strategic and enabling) products and services
Total gross profit
The UK Direct revenue by market is detailed below:
Mid-markets
Enterprise
Public sector
The Loop
Total revenue from external customers
2019
£m
43.6
186.5
230.1
2019
£m
12.4
106.7
119.1
2019
£m
27.5
36.1
18.6
1.4
83.6
Total
£m
12.4
238.4
85.9
2018
£m
47.9
162.7
210.6
2018
£m
11.9
85.6
97.5
2018
£m
25.1
27.8
16.5
1.5
70.9
92
Gamma Communications plc 2018
Revenue from external customers
Inter-segment revenue
Timing of revenue recognition
At a point in time
Over time
Total gross profit
Operating expenses
Earnings before depreciation, amortisation and exceptional items
Exceptional items
Earnings before depreciation and amortisation
Depreciation and amortisation (excluding business combinations)
Amortisation arising due to business combination
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
UK
Indirect
£m
210.6
52.5
UK
Direct
£m
70.9
–
Overseas
£m
3.4
–
Central
functions
£m
–
–
19.9
190.7
210.6
97.5
(75.4)
35.0
–
35.0
(12.9)
–
22.1
0.3
(0.2)
22.2
(4.0)
18.2
–
18.2
3.7
67.2
70.9
32.8
(16.8)
16.4
–
16.4
(0.4)
–
16.0
–
–
16.0
(2.8)
13.2
–
13.2
–
3.4
3.4
1.9
(2.9)
(0.4)
–
(0.4)
(0.2)
(0.4)
(1.0)
–
–
(1.0)
0.2
(0.8)
(0.2)
(1.0)
–
–
–
–
(2.7)
(2.7)
–
(2.7)
–
–
(2.7)
–
–
(2.7)
0.5
(2.2)
–
(2.2)
Total
£m
284.9
52.5
23.6
261.3
284.9
132.2
(97.8)
48.3
–
48.3
(13.5)
(0.4)
34.4
0.3
(0.2)
34.5
(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
93
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial statementsSupplementary information Financial statements continued
Notes forming part of the financial statements continued
For the year ended 31 December 2019
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 9)
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
Cost of inventories recognised as an expense
Impairment of trade receivables
Fees payable to the Group’s auditors
2019
£m
0.2
9.9
67.2
9.8
1.7
3.6
2.0
15.5
(0.6)
0.2
2018
£m
–
8.7
55.8
8.7
1.4
3.4
0.4
15.5
(0.2)
0.2
Fees payable to the Group’s auditor for the audit of the Company and the consolidated financial statements totalled £205k (2018: £197k),
which includes £41k (2018: £39k) in respect of the half-year review which is considered a non-audit service. The auditor also provided
services for transition to IFRS in Hungary and the related local statutory audit for approximately £13k.
8. Exceptional items
Contingent consideration adjustment – DX Groep
Reduction of goodwill carrying value
Reduction of intangible assets carrying value
Exceptional items related to DX Groep acquisition
Contingent consideration adjustment - Nimsys
Total exceptional items
2019
£m
8.1
(4.2)
(3.9)
–
(0.9)
(0.9)
2018
£m
–
–
–
–
–
–
The exceptional items relate to the contingent consideration which is due on acquisitions.
In preparing the statutory accounts for 2018, the best estimate of the contingent consideration for DX Groep was made. During 2019,
a higher than expected attrition rate of legacy customers taking ISDN caused the revenues to be lower than expected. Therefore, the
estimated contingent consideration due has been revised and the associated intangible assets including goodwill have been reduced.
Following the initial recognition of Nimsys, deferred consideration in February 2019, we have remeasured the contingent consideration
at the reporting date and updated the balance due. The overall balance due has increased by £0.9m which has been charged to the
statement of comprehensive income.
9. Staff costs
Staff costs (including Directors) comprise:
Wages and salaries
Defined contribution pension cost
Social security contributions and similar taxes
Share based payment expense (note 29)
2019
£m
54.6
3.9
6.1
64.6
2.6
67.2
2018
£m
46.1
2.8
5.0
53.9
1.9
55.8
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.
Employee numbers
The average monthly number of staff employed by the Group during the financial year amounted to:
Operational
Selling, administration and distribution
94
2019
Number
632
481
1,113
2018
Number
552
424
976
Gamma Communications plc 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 48 to 49, and the Management Committee in place during 2019.
Salary
Post-employment benefits
Short-term employee benefits
Share based payment expense (note 29)
Remuneration in respect of Directors is summarised below:
Salary
Social security contributions and similar taxes
Share based payment expense
During the year, the aggregate amount of gains made by Directors on the exercise of share options was £0.5m.
Remuneration disclosed above includes the following amounts in respect of the highest paid Director.
Salary
Share based payment expense
2019
£m
3.3
0.1
0.8
4.2
1.1
5.3
2019
£m
1.7
0.3
2.0
0.5
2.5
2019
£m
0.9
0.1
1.0
During the year, one Director (2018: one Director) participated in a private money purchase defined contribution pension scheme.
Key management personnel include the directors, remuneration for whom is disclosed in the remuneration report on pages 50 to 51.
10. 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 (expense)/income
2019
£m
0.1
0.1
(0.4)
(0.4)
(0.3)
2018
£m
3.3
0.1
0.8
4.2
1.0
5.2
2018
£m
1.3
0.4
1.7
0.4
2.1
2018
£m
0.7
0.1
0.8
2018
£m
0.3
0.3
(0.2)
(0.2)
0.1
95
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial statementsSupplementary information Financial statements continued
Notes forming part of the financial statements continued
For the year ended 31 December 2019
11. 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
Adjustment in respect of prior years
Tax rate change
Adjusting tax items
Total deferred tax (note 26)
Total tax expense
2019
£m
9.9
(0.6)
0.7
10.0
(1.2)
0.5
(0.2)
1.6
0.7
10.7
2018
£m
4.9
0.1
0.2
5.2
0.9
–
–
–
0.9
6.1
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% (2018: 19.00%)
Effects of:
Tax effect of expenses that are not deductible in determining taxable profit
Effect of different tax rates of subsidiaries operating in other jurisdictions
Tax rate change
Tax on business combinations
Adjusting tax items
Adjustment in respect of prior year
Total tax expense
2019
£m
45.2
8.6
0.5
(0.2)
(0.2)
0.5
1.6
(0.1)
10.7
2018
£m
34.5
6.6
–
–
–
–
–
(0.5)
6.1
Deferred tax was calculated based on the tax laws and rates that were enacted or substantively enacted at the balance sheet date. The
Finance Act 2019 included provision for the main rate of corporation tax to reduce to 17% from 1 April 2020. Following the UK Budget
2020 on 11 March 2020, the main rate of corporation tax is expected to remain at 19%, however this change had not been substantively
enacted at the statement of financial position date and therefore has not been reflected in the deferred tax balances recorded.
12. Earnings per share
The calculation of basic earnings per Ordinary Share is based on a profit after tax of £34.5m (2018: £28.4m) and 94,370,938 (2018:
93,646,411) Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the year.
Earnings per Ordinary Share – basic (pence)
Earnings per Ordinary Share – diluted (pence)
The calculation of the basic and diluted earnings per share is based on the following data:
Profit after tax
Shares
Weighted average number of Ordinary Shares for basic earnings per share
Effect of dilution resulting from share options
Diluted weighted average number of Ordinary Shares
2019
36.6
36.1
2019
£m
34.5
2018
30.3
30.0
2018
£m
28.4
No.
94,370,938
1,246,648
95,617,586
No.
93,646,411
1,108,034
94,754,445
On 28 February 2020, the Group acquired Exactive Holdings Limited and its subsidiaries; £0.9m of Ordinary Shares will be paid as part
consideration by 15 April 2020.
Adjusted earnings per share is detailed below:
Adjusted earnings per Ordinary Share – basic (pence)
Adjusted earnings per Ordinary Share – diluted (pence)
96
2019
41.3
40.8
2018
30.6
30.3
Gamma Communications plc Adjusted profit used in the calculation of adjusted earnings per share is detailed below:
Profit for the year
Amortisation arising on business combinations
Exceptional items (change in value of deferred consideration)
Adjusting tax items
Adjusted profit after tax for the year
13. Dividends
An interim dividend of 3.5p was paid on 24 October 2019 (2018: 3.1p).
2019
£m
34.5
2.0
0.9
1.6
39.0
2018
£m
28.4
0.4
–
(0.1)
28.7
A final dividend of 7.0p will be proposed at the Annual General Meeting but has not been recognised as it requires approval (2018: 6.2p). The
total amount of dividends proposed is 10.5p (2018: 9.3p). The payments of these dividends do not have any tax consequences for the Group.
14. Property, plant and equipment
Cost
At 1 January 2019
Additions
Acquisition of subsidiary
Disposals
Exchange difference
At 31 December 2019
Depreciation
At 1 January 2019
Charge for the year
Disposals
At 31 December 2019
Net book value
At 1 January 2019
At 31 December 2019
Network
assets
£m
Computer
equipment
£m
Fixtures and
fittings
£m
76.8
7.8
0.1
(16.9)
0.1
67.9
47.1
8.4
(16.9)
38.6
29.7
29.3
7.5
1.7
–
(0.1)
–
9.1
5.7
1.2
(0.1)
6.8
1.8
2.3
1.1
0.4
–
(0.1)
–
1.4
0.8
0.2
(0.1)
0.9
0.3
0.5
Total
£m
85.4
9.9
0.1
(17.1)
0.1
78.4
53.6
9.8
(17.1)
46.3
31.8
32.1
There was no property, plant or equipment held as security at the end of either year. The property, plant and equipment has been
considered for impairment indicators and there was no material impairment.
97
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial statementsSupplementary information Financial statements continued
Notes forming part of the financial statements continued
For the year ended 31 December 2019
15. Right of use assets
Cost
At 1 January 2019
Additions
Disposals
At 31 December 2019
Depreciation
At 1 January 2019
Charge for the year
Disposals
At 31 December 2019
Net book value
At 1 January 2019
At 31 December 2019
Land and
buildings
£m
Other
£m
5.2
8.7
(0.3)
13.6
1.1
1.6
(0.3)
2.4
4.1
11.2
0.2
0.2
(0.1)
0.3
0.1
0.1
(0.1)
0.1
0.1
0.2
Total
£m
5.4
8.9
(0.4)
13.9
1.2
1.7
(0.4)
2.5
4.2
11.4
The Group’s lease commitments are predominantly made up of office premises, other leases for land and buildings, and cars.
Disposals of right of use assets relate to the decision to exercise break clauses for office premises in August 2019 and the expiration of
car leases.
No replacement leases have been committed to in the year ended 31 December 2019 (2018: none).
16. Intangible assets
Cost
At 1 January 2019
Additions
Acquisition of subsidiaries
Exchange difference
At 31 December 2019
Amortisation and impairment
At 1 January 2019
Charge for the year
Impairment charge
At 31 December 2019
Carrying value
At 1 January 2019
At 31 December 2019
Goodwill
£m
Customer
contracts
£m
Brand
£m
Development
costs £m
Software
£m
19.7
–
4.5
(0.2)
24.0
4.5
–
4.2
8.7
15.2
15.3
17.2
–
5.9
(0.7)
22.4
2.5
1.7
3.8
8.0
14.7
14.4
0.9
–
0.2
–
1.1
–
0.2
0.1
0.3
0.9
0.8
8.9
1.4
–
–
10.3
6.4
1.4
-
7.8
2.5
2.5
11.4
1.1
0.9
–
13.4
6.7
2.3
-
9.0
4.7
4.4
Total
£m
58.1
2.5
11.5
(0.9)
71.2
20.1
5.6
8.1
33.8
38.0
37.4
All amortisation on intangible assets is charged to the consolidated statement of comprehensive income and is included within operating
expenses.
Due to a fall in ISDN revenues from the Dutch business (which trades as Dean One), the values of goodwill, customer contracts and brand have
been reduced by £4.2m, £3.8m and £0.1m respectively. These amounts have been charged to the statement of comprehensive income
through the “exceptional items” line and have been included within the Overseas Business” in the segmental analysis in Note 6.
At 30 June 2019, the customer contracts and brand were valued using a multiple-period excess earnings model and a relief from royalty
model, respectively. Given the proximity of the original acquisition of Dean One, a fair value less costs to sell approach was used to determine
the recoverable amount of goodwill. The valuation techniques utilise Level 2 inputs. The key assumptions used were in respect of the
customer contract valuation model and were: the implied rate of return of 21.5%, revenue growth of 12% in the first 5 years followed by 2%
to the end of the assets useful economic life and attrition rates of 8%.
98
Gamma Communications plc 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.
Nimsys
Telsis
2019
£m
6.8
1.2
3.0
2.2
2.1
15.3
2018
£m
6.8
1.2
7.2
–
–
15.2
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 2019 and 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 budgets are built
on past experience with the entities and are over five years plus terminal value. The long-term growth rates used were 2%. The cash flows
are discounted at the pre-tax cost of capital for the relevant CGU. When considering the recoverable amount the break-even point for the
assumptions is calculated to understand the sensitivity of the assumptions.
Based on the results of the impairments reviews carried out for each year the recoverable amount in respect of Gamma Business
Communications Limited, Gamma Network Solutions Limited, DX Groep B.V., Nimsys Groep B.V. and Telsis entities is greater than the
carrying amount of goodwill. The Group has assessed the anticipated future cash flows and the Directors do not consider there to be any
reasonably possible changes in assumptions that would lead to such an impairment charge in the future.
17. Subsidiaries
The principal subsidiaries of Gamma Communications plc, all of which the ordinary share capital is 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
Telsis Direct Limited
Telsis Communication Services Limited
Telsis Services Limited
Telsis GmbH
Gamma Development KfT
Gamma Communications Europe B.V. (formerly
Gamma Communications Netherlands B.V.)
DX Groep B.V.
Dean One B.V.
Schiphol Connect B.V.
Nimsys Groep B.V.
Gamma Communications Ireland Ltd
Gamma Communications US Inc
Uniworld Bureau Services Limited
Country of
incorporation
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Germany
Hungary
Nature of business
Intermediate holding company
Telephony services
Telephony services
Telephony services
Telephony services
Other telecommunication activities
Telephony services
Other telecommunication activities
Software services
Ownership by
the Company
Direct ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Netherlands
Intermediate holding company
Indirect ownership
Netherlands
Netherlands
Netherlands
Netherlands
Ireland
United States
United Kingdom
Intermediate holding company
Telephony services
Telephony services
Telephony services
Telephony services
Dormant
Dormant
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Notes
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(b)
(c)
(d)
(e)
(e)
(e)
(f)
(g)
(h)
(a)
Notes:
(a) Registered Office: 5 Fleet Place, London, EC4M 7RD, England.
(b) Registered Office: Rößlerstraße 88, 64293 Darmstadt, Germany
(c) Registered Office: 1054 Budapest, Széchenyi Rakpart 8, Hungary.
(d) Office address: 5 Fleet Place, London, EC4M 7RD, England.
(e) Office address: Krijgsman 12-14, 1186 DR Amstelveen, the Netherlands.
(f) Administrative Office: Herengracht 124-128, Amsterdam, the Netherlands
(g) Registered Office: 6th floor, 2 Grand Canal Square, Dublin 2.
(h) 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 holds no interests in unconsolidated structured entities.
99
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial statementsSupplementary information Financial statements continued
Notes forming part of the financial statements continued
For the year ended 31 December 2019
18. Business combinations
Summary of acquisitions
The Group acquired 100% of the issued share capital of Nimsys Groep B.V. (“Nimsys”) on the 4 February 2019. 100% of the share capital of
Telsis Direct Limited, Telsis Communication Services Limited, Telsis Services Limited and Telsis GmbH was acquired on 25 November
2019, and these are treated as one acquisition referred to as “Telsis”.
Nimsys is a provider of internet, Cloud telephony and associated IT services primarily to the operators and tenants of premium multi-
tenant office buildings across the Netherlands. Telsis provides carriers and solution providers with Telephony and Contact Centre
applications that can form the core platform for a service provider’s go-to-market offering.
Details of the purchase consideration, the net assets acquired and goodwill at acquisition are as follows:
Cash paid
Contingent consideration
Total purchase consideration
Nimsys
£m
3.7
1.8
5.5
Telsis
£m
4.3
–
4.3
Total
£m
8.0
1.8
9.8
Contingent consideration at 31 December 2019
Nimsys
The potential undiscounted amount payable under the agreement is between £0.3m (€0.35m) for EBITDA in the year ended 31 December
2019 of less than £1.16m (€1.365m) and EBITDA growth less than 5% and £1.5m (€1.8m) for EBITDA of £1.39m (€1.63m) and where growth
is greater than or equal to 25%. Values have been translated at the closing exchange rate of 1.1757.
The potential undiscounted amount payable under the agreement is between £0.3m (€0.35m) for EBITDA in the year ended 31 December
2020 of less than £1.22m (€1.43m) and EBITDA growth less than 5% and £1.5m (€1.8m) for EBITDA of £1.45m (€1.71m) and where growth is
greater than or equal to 25%. Values have been translated at the closing exchange rate of 1.1757.
The fair value of the contingent consideration at acquisition of £1.8m was based on Nimsys achieving €1.6m EBITDA, representing a 24%
increase for 2019 giving €1.3m contingent consideration and €1.7m EBITDA in 2020 representing an 8% increase, giving contingent
consideration of €0.6m. Values were translated at the rate at acquisition of 1.1433.
Nimsys B.V. is performing above expectations and therefore the fair value of contingent consideration has increased to £2.6m (€3.1m
using a closing exchange rate of 1.1757) which was estimated by calculating the present value of future expected cash flows. The
estimates are based on the Group’s cost of borrowings and 2019 and 2020 EBITDA €1.64m and €1.9m respectively, and growth of 26%
and 15.6% respectively. In the event that the maximum pre-determined EBITDA is achieved by the subsidiary for the year ended 31
December 2020, additional consideration of up to €0.4m may be payable in cash in the first half of 2021.
Telsis
There is no contingent consideration for this transaction.
The assets and liabilities recognised as a result of the acquisitions are as follows:
Cash
Trade receivables
Tangible fixed assets
Intangible – software
Intangible – customer contracts
Intangible – brand
Trade payables
Other receivables
Other payables
Current tax
Deferred tax liability/asset
Net identifiable assets acquired
Add: Goodwill
Net assets acquired
Nimsys
£m
0.3
0.3
0.1
–
3.5
0.2
(0.1)
0.1
(0.1)
(0.1)
(0.9)
3.3
2.2
5.5
Telsis
£m
0.2
0.2
–
0.8
2.4
–
(0.1)
0.5
(1.3)
–
(0.7)
2.0
2.3
4.3
Total
£m
0.5
0.5
0.1
0.8
5.9
0.2
(0.2)
0.6
(1.4)
(0.1)
(1.6)
5.3
4.5
9.8
Valuations of intangible assets
Customer contracts were valued under the Income Method and the brand under the Relief from Royalty Method.
Acquired receivables
The fair value of acquired trade receivables for Nimsys and Telsis is £0.3m and £0.2m respectively. The gross contractual amount for trade
receivables due is £0.3m and £0.2m respectively, of which £nil is expected to be uncollectible.
100
Gamma Communications plc Revenue and profit contribution (unaudited)
Nimsys contributed revenues of £3.1m and profit after tax of £1.0m to the Group for the period from 4 February 2019 to 31 December 2019.
If the acquisition had occurred on 1 January 2019, consolidated pro-forma revenue and profit for the year ended 31 December 2019
would have been £3.4m and £1.2m respectively. These amounts have been calculated as follows:
For the year ended 31 December 2019
Add: Transaction costs
For the year ended 31 December 2019 if the acquisition occurred on 1 Jan 2019
Revenue
£m
3.4
–
3.4
Profit
£m
1.1
0.1
1.2
Telsis contributed revenues of £0.3m and profit after tax of nil to the Group for the period from 25 November 2019 to 31 December 2019.
If the acquisition had occurred on 1 January 2019, consolidated pro-forma revenue and profit for the year ended 31 December 2019
would have been £2.9m and £0.8m respectively. These amounts have been calculated as follows:
For the year ended 31 December 2019
Add: Transaction costs
For the year ended 31 December 2019 if the acquisition occurred on 1 Jan 2019
Revenue
£m
2.9
–
2.9
Profit
£m
0.4
0.4
0.8
Goodwill
The goodwill of £4.5m (Nimsys £2.2m, Telsis £2.3m) is attributable to the acquired entities. The goodwill is not deductible for tax purposes.
Purchase consideration – cash outflow
Cash paid
Less: cash acquired
Net outflow of cash – investing activities
Nimsys
£m
3.7
(0.3)
3.4
Telsis
£m
4.3
(0.2)
4.1
In the year ended 31 December 2018, the Group acquired 100% of the issued share capital of DX Groep B.V., a provider of telephony
services.
19. Inventories
Raw materials and consumables
Provision
Total inventories
The replacement cost of inventories equals the balance sheet amount.
2019
£m
8.5
(0.4)
8.1
Total
£m
8.0
(0.5)
7.5
2018
£m
6.6
(0.4)
6.2
101
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial statementsSupplementary information Financial statements continued
Notes forming part of the financial statements continued
For the year ended 31 December 2019
20. Trade and other receivables
Trade receivables
Less: provision for impairment of trade receivables
Trade receivables – net
Contract assets
Prepayments
Other receivables
Total trade and other receivables
Of which:
Due within one year or less
Due after more than one year
2019
£m
34.8
(4.4)
30.4
33.1
25.8
3.2
92.5
77.5
15.0
The Directors consider that the carrying value of the trade and other receivables is approximately equal to their fair value.
Movements on the 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
2019
£m
4.6
0.4
(0.6)
4.4
2018
£m
31.0
(4.6)
26.4
27.7
17.9
2.7
74.7
62.8
11.9
2018
£m
2.7
2.1
(0.2)
4.6
The movement on the provision for impaired receivables has been included in the revenue line or operating expense line as appropriate in
the consolidated statement of comprehensive income.
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. We provide for all receivables based on knowledge of customer and
historical experience and estimate irrecoverable amounts by reference to past default experience. 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
2019
£m
0.2
2.3
0.8
0.5
0.6
4.4
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.
As at 31 December 2019 and 2018 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:
2019
£m
4.1
0.5
0.2
-
4.8
2018
£m
1.8
0.3
–
–
2.1
Up to 3 months
3 to 6 months
6 to 12 months
Older than 1 year
102
Gamma Communications plc 21. Cash and cash equivalents
Cash at bank
22. 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 2019 and 31 December 2018.
Of which:
Due within one year or less
Due after more than one year
2019
£m
53.9
2019
£m
6.1
3.1
13.3
6.5
8.8
4.5
4.0
46.3
46.1
0.2
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
Within ‘Accruals – Cost of sales’ is an amount which represents the estimated costs 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.
103
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial statementsSupplementary information Financial statements continued
Notes forming part of the financial statements continued
For the year ended 31 December 2019
23. Financial instruments – risk management
The Group is exposed through its operations to the following financial risks:
• Credit risk.
• Market risk.
• Fair value or cash flow interest rate risk.
• Liquidity risk.
The Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and
processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is
presented throughout these financial statements.
Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:
• Trade receivables.
• Cash and cash equivalents.
• Trade and other payables.
A summary of the financial instruments held by category is provided below:
Financial assets – amortised cost
Cash and cash equivalents
Trade receivables – net
Contract assets
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)
Lease liabilities
Total financial liabilities
2019
£m
53.9
30.4
33.1
3.2
120.6
2019
£m
6.1
3.1
13.3
6.5
8.8
12.6
50.4
2018
£m
35.5
26.4
27.7
2.7
92.3
2018
£m
4.4
1.8
12.8
5.4
7.0
4.4
35.8
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 into 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 20.
104
Gamma Communications plc
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 is calculated based on historical default rates. Details of this provision are
shown in note 20.
Financial assets – maximum exposure
Cash and cash equivalents
Trade receivables – net
Contract assets
Other receivables
Total financial assets
2019
£m
53.9
30.4
33.1
3.2
120.6
2018
£m
35.5
26.4
27.7
2.7
92.3
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 operations located in Europe 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 Pound 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 one forward foreign exchange contract to mitigate against the foreign exchange risk on foreign
contracts. This is in USD and relates to one supplier. The foreign exchange contract was open at year end to cover payments totalling
USD$7.0m.
As of 31 December 2018 and 31 December 2019 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.
Fair value or cash flow interest 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 (excluding
lease and contract liabilities):
2019
2018
The Group presents a maturity analysis of lease liabilities within note 25.
For more details on the line items included above, see note 22.
Up to 3
months
£m
36.4
30.9
Between
3 and 12
months
£m
1.3
–
Between
1 and 2
years
£m
0.1
0.5
Between
2 and 5
years
£m
–
–
Over
5 years
£m
–
–
105
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial statementsSupplementary information Financial statements continued
Notes forming part of the financial statements continued
For the year ended 31 December 2019
23. Financial instruments – risk management continued
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 that are managed as capital (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
24. Provisions
Leasehold dilapidation provision
Onerous lease provision
Onerous contracts
Other provisions
Total provisions
Of which:
Due within one year or less
Due after more than one year
At 1 January 2019
Additional provision in the year
Utilisation of provision
At 31 December 2019
2019
£m
153.8
53.9
207.7
153.8
153.8
1.35
2019
£m
1.3
–
–
0.4
1.7
0.9
0.8
Onerous
contracts
£m
0.5
(0.5)
–
–
Leasehold
dilapidation
provision
£m
1.4
0.1
(0.2)
1.3
Onerous
lease
provision
£m
0.3
–
(0.3)
–
Other
provisions
£m
-
0.4
-
0.4
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
Total
£m
2.2
–
(0.5)
1.7
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. Under IFRS 16, dilapidations costs are accounted for within the right of use asset and released to the
profit and loss account through depreciation. 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 related to lease payments on properties which were considered to be onerous. During the year all the
provision was utilised.
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 contracts related to
contracts less than two years in length.
106
Gamma Communications plc 25. 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
Lease liabilities included in the statement of financial position at 31 December
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
2019
£m
1.7
6.9
6.6
15.2
12.6
1.3
11.3
0.4
–
–
2018
£m
1.6
2.1
1.1
4.8
4.4
1.5
2.9
0.2
–
–
The amounts recognised in the statement of consolidated cash flows is £1.1m (2018: £1.6m).
During the years ended 31 December 2018 and 31 December 2019 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.
26. 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. Following the UK Budget 2020 on 11 March 2020, the main rate of
corporation tax is expected to remain at 19%, however this change had not been substantively enacted at the statement of financial
position date and therefore has not been reflected in the deferred tax balances recorded.
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 charge recognised in profit and loss
Recognised directly in equity
Tax arising on acquisition
Net (liability)/asset at 31 December
2019
£m
0.5
–
0.5
(0.7)
0.9
(1.6)
(0.9)
2018
£m
1.7
3.8
5.5
(0.9)
(0.4)
(3.7)
0.5
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 and so expects to have sufficient profits which can be utilised. The movements in relation to change
in accounting policy relate to the application of IFRS 15, this is not expected to be seen going forward.
The deferred taxation asset/(liability) consists of the tax effect of temporary differences as follows:
2019
Difference in capital allowances and depreciation/amortisation
Other temporary and deductible differences
Deferred tax on share options
Deferred tax on acquisition of subsidiaries
Deferred tax asset/(liability)
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)
Asset
£m
–
1.1
1.9
–
3.0
Asset
£m
1.9
1.5
1.0
–
4.4
Liability
£m
–
(0.2)
–
(3.7)
(3.9)
Liability
£m
–
(0.2)
–
(3.7)
(3.9)
Credited/
(charged) to
profit or loss
£m
(1.9)
(0.4)
–
1.6
(0.7)
Credited/
(charged) to
equity
£m
–
–
0.9
–
0.9
Credited/
(charged) to
profit or loss
£m
–
(1.0)
0.1
–
(0.9)
Credited/
(charged) to
equity
£m
(0.2)
–
(0.2)
–
(0.4)
Net
£m
–
0.9
1.9
(3.7)
(0.9)
Net
£m
1.9
1.3
1.0
(3.7)
0.5
107
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial statementsSupplementary information Financial statements continued
Notes forming part of the financial statements continued
For the year ended 31 December 2019
27. 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 2019
March 2019
April 2019
May 2019
July 2019
September 2019
October 2019
November 2019
December 2019
As at 31 December 2019
2019
Number
94,781,312
2018
Number
93,984,626
2019
£m
0.2
0.2
Number
93,984,626
12,909
32,459
212,998
323,379
162,686
16,993
12,244
23,018
94,781,312
2018
£m
0.2
0.2
Notes
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a) Ordinary Shares were issued to satisfy options which had been exercised.
28. 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
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.
29. Share based payment expense
Share options granted
On 8 May 2019 the Board approved an issue of options under a Save As You Earn scheme which granted 377,800 options over £0.0025 Ordinary
Shares at an exercise price of £8.2800. These options will vest in July 2022.
On 13 May 2019 the Board approved an issue of options under the Company Share Option Plan which granted 157,914 options over £0.0025
Ordinary Shares at an exercise price of £10.9000. These will vest in May 2022.
On 3 June 2019 the Board approved an award under the long term incentive plan for the senior management team. 232,674 options were
granted over £0.0025 Ordinary Shares at an exercise price of £0.0025 per share which will vest on 1 April 2022 subject to performance
conditions. The awards granted will have a performance period of three years starting from the vesting commencement date, being 1 April 2019.
On 20 September and 1 October 2019, the Board approved awards under the long term incentive plan for the senior management team.
3,422 and 4,183 options respectively, were granted over £0.0025 Ordinary Shares at an exercise price of £0.0025 per share which will vest
on 1 April 2022 subject to performance conditions. The awards granted will have a performance period of three years starting from the
vesting commencement date, being 1 April 2019.
On 22 November 2019, the Board approved awards under the long term incentive plan for the senior management team. 9,209 options
were granted over £0.0025 Ordinary Shares at an exercise price of £0.0025 per share which will vest on 1 April 2022. The awards granted
will have a performance period of three years starting from the vesting commencement date, being 1 April 2019.
108
Gamma Communications plc 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 straight line
vesting in between.
The weighted average fair value of awards granted during the year was £4.89 (2018: £2.91).
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 £11.13, and weighted average exercise price of £2.57, and the
weighted average exercise price of share options exercisable at 31 December 2019 was £2.57.
2019
Date of grant
6 June 2014
8 May 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
8 May 2019
13 May 2019
3 June 2019
20 September 2019
1 October 2019
22 November 2019
Start
of year
20,000
89,230
63,088
206,116
565,974
170,348
255,395
198,912
315,353
221,019
179,974
–
–
–
–
–
–
Granted
–
–
–
–
–
–
–
–
–
–
–
377,800
157,914
232,674
3,422
4,183
9,209
Forfeited/
Cancelled
–
(35,183)
(2,294)
–
(36,052)
(13,681)
(31,610)
–
–
(20,815)
(4,088)
(15,763)
(3,669)
–
–
–
–
Exercised
(5,600)
(18,237)
(44,736)
(206,116)
(521,997)
–
–
–
–
–
–
–
–
–
–
–
–
End
of year
14,400
35,810
16,058
–
7,925
156,667
223,785
198,912
315,353
200,204
175,886
362,037
154,245
232,674
3,422
4,183
9,209
Exercise
price
£0.2500
£2.7000
£4.3575
£0.0025
£3.4440
£4.9325
£4.1600
£0.0025
£0.0025
£5.5520
£7.3400
£8.2800
£10.9000
£0.0025
£0.0025
£0.0025
£0.0025
Class of
share
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Notes
(a)
(a)
(a)
(b)
(c)
(d)
(e)
(f) (l)
(g)
(h)
(i)
(j)
(k)
(l)
(l)
(l)
(l)
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 31 March 2016.
(c) The awards granted will have a performance period of three years starting from the vesting commencement date, being 1 July 2016.
(d) The awards granted will have a performance period of three years starting from the grant date, being 5 April 2017.
(e) The awards granted will have a performance period of three years starting from the vesting commencement date, being 1 July 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 3 April 2018.
(h) The awards granted will have a performance period of three years starting from the vesting commencement date, being 1 July 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 2019.
(k) The awards granted will have a performance period of three years starting from the grant date, being 13 May 2019
(l) The awards granted will have a performance period of three years starting from the vesting commencement date, being 1 April 2019.
There were no lapsed share options during the year.
Apart from the options noted as exercisable, all other options above are outstanding.
109
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial statementsSupplementary information Financial statements continued
Notes forming part of the financial statements continued
For the year ended 31 December 2019
29. Share based payment expense continued
Movements in the number of options during the previous year were as follows:
The options below were exercised at a weighted average share price of £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 straight line vesting 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.
The share options are subject to equity-settled share based payments.
The share options outstanding at 31 December 2019 represented 2% of the issued share capital as at that date (2018:2%) and would
generate additional funds of £8.9m (2018: £6.9m) if fully exercised. The weighted average remaining life of the share options was 17
months (2018: 15 months), with a weighted average remaining exercise price of £4.22 (2018: £3.03).
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
2019
£m
1.1
1.5
2.6
2018
£m
1.0
0.9
1.9
Included within the total share based payment expense of £2.6m (2018: £1.9m) is National Insurance of £0.6m (2018: £0.6m).
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.
110
Gamma Communications plc
Share price at grant date (pence)
Exercise price (pence)
Expected volatility
Risk-free rate
Expected dividend yield
2019
£m
1060 – 1165
0.25 – 1090
27%
0.531 – 0.770%
0.9%
2018
£m
686 – 762
0.25 – 734
25%
0.817 – 0.878%
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 2018 and 2019.
30. 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 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 Nimsys Groep B.V. (see note 18) 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 Pound Sterling. The potential undiscounted
amount payable under the agreement is between £0.3m (€0.35m) and £1.45m (€1.71m). Sterling values have been translated at the closing
exchange rate of 1.1757. A 10% change in the exchange rate could give a £0.1m impact on the values.
Management has recalculated the fair value at the end of the accounting period and there have been adjustments to both DX Groep and
Nimsys contingent consideration.
For DX Groep, in preparing the statutory accounts for 2018, the best estimate of the contingent consideration was made. During 2019 a
higher than expected attrition rate of legacy customers taking ISDN caused the revenues to be lower than expected. Therefore, the
estimated contingent consideration due has been revised and the associated intangible assets including goodwill have been reduced. In
addition, there was an exceptional tax credit of £1.0m in respect of deferred tax related to the intangible assets which were reduced.
Following the initial recognition of Nimsys deferred consideration in February 2019 performance has exceeded expectations and
therefore we have remeasured the contingent consideration at the reporting date and updated the balance due. The overall balance due
has increased by £0.9m which we have charged to the statement of comprehensive income.
Level 3 fair value measurements
The reconciliation of the carrying amounts of financial instruments classified as level 3 is as follows:
1 January 2019
Acquisition of subsidiary
Adjustment to contingent consideration
Exchange differences
31 December 2019
Of which:
Due within one year or less
Due after more than one year
Total
DX Groep
£m
8.1
–
(8.1)
–
–
Nimsys
£m
–
1.8
0.9
(0.1)
2.6
2019
£m
1.5
1.1
2.6
Total
£m
8.1
1.8
(7.2)
(0.1)
2.6
2018
£m
–
8.1
8.1
111
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial statementsSupplementary information Financial statements continued
Notes forming part of the financial statements continued
For the year ended 31 December 2019
31. Capital commitments
As at 31 December 2019, amounts contracted for but not provided in the financial statements amounted to £11.5m for the Group (2018:
£14.4m). This amount is for the purchase of software licences in 2019 and 2018.
The capital commitments in 2019 are payable in USD, with the payable amount being $15.2m. Changes in the exchange rate could cause
variances in the value of the commitment.
32. Related party transactions
Details of key management’s remuneration are given in note 9.
Dividends of £0.03m (2018: £0.4m) 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 outside of the wholly owned group during the year.
33. Subsequent events
On the 18 February 2020 the Group made an offer to acquire the entire issued and to be issued share capital of VozTelecom. VozTelecom
is admitted to trading on the Mercado Alternativo Bursátil in Spain. Accordingly, the offer will be implemented by means of a takeover offer
under the relevant Spanish legislation. The offer values the entire issued and to be issued ordinary share capital of VozTelecom at
approximately €25.3 million (£21.0 million) on a fully diluted basis. The cash consideration payable pursuant to the offer will be financed
from the Gamma Group’s existing cash resource (which was £53.9 million as at 31 December 2019). VozTelecom’s net debt at 31
December (adjusted for convertible bonds) was approximately €5.2m which would imply an enterprise value of c.€30.5 million (c.£25.3
million).
On the 28 February 2020 the Group acquired Exactive Holdings Limited and its subsidiaries for an initial consideration of £5.0m of which
£3.6m is in cash payable immediately, £0.5m held in escrow for 24 months and £0.9m will be in Gamma shares payable by 15 April 2020.
Exactive is a leading UK Microsoft Gold Partner and specialist Microsoft Teams UCaaS provider with an excellent reputation and track
record. With a growing number of larger business and public sector organisations adopting Microsoft Teams as their collaboration
solution, Exactive’s expertise and ‘Cloud UCX platform’ will enable us to address this market segment and business opportunity more
effectively.
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 impractical to give further information.
34. Ultimate controlling party
There is no ultimate controlling party.
112
Gamma Communications plc Company statement of financial position
As at 31 December 2019
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 share capital
Share premium account
Share option reserve
Profit and loss account
Shareholders’ funds
Notes
3
4
5
6
2019
£m
13.0
13.0
77.3
31.8
109.1
(53.9)
55.2
68.2
0.2
6.6
12.8
48.6
68.2
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
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 £12.5m (2018: £19.1m).
The financial statements of Gamma Communications plc (registered number 08943488) on pages 113 to 114 were approved and
authorised for issue by the Board of Directors on 16 March 2020 and were signed on its behalf by:
Andrew Belshaw
Chief Financial Officer
The notes on pages 115 to 117 form part of these financial statements.
113
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial statementsSupplementary information Share
capital
£m
0.2
–
–
–
–
Share
premium
reserve
£m
3.8
–
–
0.8
0.8
Share
option
reserve
£m
9.1
–
1.7
–
1.7
Profit and
loss account
£m
34.3
(8.1)
–
–
(8.1)
–
0.2
0.2
–
–
–
–
–
0.2
–
4.6
4.6
–
–
2.0
2.0
–
6.6
–
10.8
10.8
–
2.0
–
2.0
–
12.8
19.1
45.3
45.3
(9.2)
–
–
(9.2)
12.5
Total
equity
£m
47.4
(8.1)
1.7
0.8
(5.6)
19.1
60.9
60.9
(9.2)
2.0
2.0
(5.2)
12.5
48.6
68.2
Financial statements continued
Company statement of changes in equity
For the year ended 31 December 2019
Notes
7
7
1 January 2018
Dividends paid
Share based payments
Issue of shares
Transaction with owners
Total comprehensive income
31 December 2018
1 January 2019
Dividends paid
Share based payments
Issue of shares
Transaction with owners
Total comprehensive income
31 December 2019
The notes on pages 115 to 117 form part of these financial statements.
114
Gamma Communications plc Notes forming part of the Company financial statements
For the year ended 31 December 2019
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 limited by shares and is
incorporated and domiciled in England and Wales. 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. The presentation currency used is Pound Sterling and unless
otherwise stated, has been rounded to the nearest 0.1 million (£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 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 £12.5m
(2018: £19.1m).
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) the effect of future accounting standards not yet adopted;
(d) the disclosure of the remuneration of key management
personnel;
(e) disclosure of related party transactions with other wholly owned
members of the Group headed by Gamma Communications plc;
(f) disclosures in respect of financial instruments; and
(g) disclosures in respect of IFRS 2 share based payments.
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.
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.
115
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial statementsSupplementary information Financial statements continued
Notes forming part of the Company financial statements continued
For the year ended 31 December 2019
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
Capital contributions arising from share based payments
At 31 December
At 31 December 2019 the Company held the ordinary share capital of the following subsidiaries.
Name
Gamma Telecom Holdings Limited
Gamma Telecom Limited
Gamma Business Communications Limited
Gamma Network Solutions Limited
Telsis Direct Limited
Telsis Communication Services Limited
Telsis Services Limited
Telsis GmbH
Gamma Development KfT
Gamma Communications Europe B.V.
(formerly Gamma Communications
Netherlands B.V.)
DX Groep B.V.
Dean One B.V.
Schiphol Connect B.V.
Nimsys Groep B.V.
Gamma Communications Ireland Ltd
Gamma Communications US Inc
Uniworld Bureau Services Limited
Country of incorporation Nature of business
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Germany
Hungary
Intermediate holding company
Telephony services
Telephony services
Telephony services
Telephony services
Other telecommunication activities
Telephony services
Other telecommunication activities
Software services
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Ireland
United States
United Kingdom
Intermediate holding company
Intermediate holding company
Telephony services
Telephony services
Telephony services
Telephony services
Dormant
Dormant
Notes:
(a) Registered Office: 5 Fleet Place, London, EC4M 7RD, England.
(b) Registered Office: Rößlerstraße 88, 64293 Darmstadt, Germany.
(c) Registered Office: 1054 Budapest, Széchenyi Rakpart 8, Hungary.
(d) Office address: 5 Fleet Place, London, EC4M 7RD, England.
(e) Office address: Krijgsman 12-14, 1186 DR Amstelveen, the Netherlands.
(f) Administrative Office: Herengracht 124-128, Amsterdam, the Netherlands.
(g) Registered Office: 6th floor, 2 Grand Canal Square, Dublin 2.
(h) Registered Office: 1313 N. Market Street, Suite 5100, Wilmington, Delaware, 19801, USA.
2019
£m
11.0
2.0
13.0
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
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
Indirect ownership
2018
£m
9.3
1.7
11.0
Notes
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(b)
(c)
(d)
(e)
(e)
(e)
(f)
(g)
(h)
(a)
Gamma Telecom Limited is also a member of NP4UK Limited which is a dormant company (limited by guarantee) incorporated in the
United Kingdom.
116
Gamma Communications plc 4. Debtors
Amounts due from Group undertakings
2019
£m
77.3
77.3
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. The value of the expected credit
loss is negligible.
5. Creditors
Amounts due to Group undertakings
Accruals
6. Share capital
2019
£m
53.8
0.1
53.9
2018
£m
21.1
–
21.1
Details of the share capital and movement during the year are given in note 27 to the consolidated financial statements.
7. Dividends paid
Details of the dividends paid during the year are given in note 13 to the consolidated financial statements.
8. Contingent liabilities
The Company had no contingent liabilities at 31 December 2018 or 31 December 2019.
9. Capital commitments
The Company had no capital commitments at 31 December 2018 or 31 December 2019.
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 32 to the consolidated financial statements for details
of the disclosed related party transactions.
11. Subsequent events
In February 2020, entities owned by the Company made an offer for Voz Telecom and acquired Exactive Holdings Limited. Further details
are given in note 33 to the consolidated financial statements.
117
Annual Report and Accounts 2019Strategic reportGovernance reportFinancial statementsSupplementary information Company information
Registered Office
Legal Advisers to the Company
Bird & Bird LLP
15 Fetter Lane
London
EC4A 1JP
Registrar
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Company website
www.gammacommunicationsplc.com
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
118
Gamma Communications plc Working smarter, together.
+44 (0) 333 014 0000
info@gamma.co.uk
www.gammacommunicationsplc.com
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