CEO statement
We have delivered a strong business performance and a very good set of financial results, with both our UK and European businesses continuing to develop and grow positively.
I am pleased to report another excellent set of financial results for 2020.
As well as executing against our short-term commitments, throughout 2020 we have also focused heavily on the further development and execution of our medium and longer-term growth strategy. We have, both organically and through acquisition, accelerated the development of our technology and product capabilities, while extending our European footprint. In addition, we have developed and strengthened the skills and capabilities of our team, while continuing our focus and investment on building digital platform capabilities and skills across Gamma.
I am very pleased with how the whole Group continues to respond to the COVID-19 pandemic. Our focus throughout has been on the safety and wellbeing of our staff, our partners and our end-customers but we have also sought to ensure that business continuity was at the heart of our planning and support. The level of support and engagement from all of our staff has been excellent throughout, and I want to give my thanks to the entire Gamma team for how they have responded to this challenging period for everyone. The services we provide to business customers have always been vital, and during the pandemic the structural changes to our marketplace have substantially reinforced both the importance of this and future growth opportunities for Gamma and our overall sector. We believe that the experience of COVID-19 will only accelerate the adoption of cloud services in the business market in the medium to long term, thereby reinforcing our overall UCaaS strategy.
Despite very difficult COVID-related economic and business market conditions, we have continued to grow and strengthen our position in our core UK market. Importantly, we have benefitted from our “SaaS” recurring revenue business model.
During the period we have made very good progress with the integration of our acquisitions that we previously made to support both our geographical expansion and the acceleration of our UCaaS technology and product strategy. These businesses, which include Dean One, Nimsys, Telsis and Exactive, are now very much part of the Gamma Group. In addition, during the period, we have expanded our business across mainland Europe through our first acquisitions in Spain (Voz Telecom) and Germany (HFO Group), as well as completing another bolt-on acquisition in the Netherlands (gnTel). All acquisitions are making very positive progress.
I am delighted with the continued investment and progress we have made throughout 2020, to both expand and strengthen our technology, product set, service, and delivery capabilities across Gamma. In November 2019 we acquired Telsis, which had cloud contact centre capabilities. Using this capability, we have recently launched our Horizon cloud contact centre solution (CCaaS) – this is aimed at end users in the SME market and is fully integrated into Horizon (our leading Cloud PBX service).
I am delighted with the continued investment and progress we have made throughout 2020, to both expand and strengthen our technology, product set, service, and delivery capabilities across Gamma.
In February 2020, we acquired Exactive Holdings Ltd (“Exactive”), a unified communications specialist with expertise in Microsoft Teams. This has helped us to deliver our strategic objective of further developing our UCaaS proposition by enabling us to configure Microsoft Teams as a full UCaaS solution for those customers who require it – these customers tend to be larger in size. During the year, we also launched Microsoft Teams Direct Routing – a product which enables our Channel Partners to facilitate the implementation of Microsoft Teams for those end users who choose to do that. We will also be launching the tools which will allow our customers to integrate our Horizon product with Microsoft Teams later this year.
I would also like to highlight the progress we have made in developing and expanding both our mobile and fixed data access product portfolio in the UK and across Europe. We plan to launch our new UK MVNO service during the first half of 2021 and, when combined with our fixed access portfolio, this provides an opportunity for our sales team and channel partners to up-sell and cross-sell Gamma’s access products.
I am also pleased that (after the end of the year under review) we acquired Mission Labs, a UCaaS technology business who we have previously partnered with and got to know over the last 18 months. This acquisition will deliver significant benefits to Gamma:
- It will enable us to enhance and expand our Cloud Contact Centre as a Service (CCaaS) technology, product, and channel partner capabilities with larger enterprise sized customers. Mission Labs has a well-established product and exciting AI capabilities which are complementary to our recent Telsis acquisition.
- It will allow us to accelerate our digital channel strategy, through the Mission Labs CircleLoop platform. CircleLoop provides a cloud-based telephony product which is fully serviced through the web and aimed at micro-businesses. We plan to launch our first jointly developed product (PhoneLine+) in the UK during Q2 2021.
- It has brought a group of highly talented software developers to Gamma, who will work with our existing team to define and deliver products in the UCaaS and CCaaS space.
- It has provided Gamma with a product capability and technology platform which supports our future growth plans and opportunities across the UK and Europe.
Business review
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.
Gross profit
UK Indirect Business
UK Direct Business
European Business
The UK Indirect Business accounted for 63% of our group revenue in 2020, and I am very pleased to report that it performed very strongly, with gross profit up 11% to £132.2m and revenue up by 7% to £247.2m. Gross margin went up from 51.8% to 53.5% (which reflects an ongoing shift towards our higher margin UCaaS products). This performance demonstrates the robustness of our indirect channel to market and the high relevance of our products and services during the pandemic.
In response to the COVID-19 pandemic, during Q2 we introduced a “COVID-19 Support Package” for our UK channel partners, which allowed them to hibernate customers (i.e. temporarily pause their contracts) or to provide home working capability without charge from Gamma. This provided commercial assistance and a measure of certainty at a time when it was needed most and built a strong level of goodwill across our partner base.
During the period, most of our business has been conducted remotely with our partners, which has reinforced the benefits of our digital eLearning (Gamma Academy) and eMarketing (Gamma Accelerate) platform capabilities. These are now embedded into the everyday activity of our partner base, and during the period our partners completed 19,690 training courses and ran 303 digital marketing campaigns using our Gamma Accelerate platform.
Our overall product performance was strong, and we delivered net volume growth across all major product categories.
- Our UCaaS performance was particularly pleasing, and after a strong Horizon performance in Q1, we returned to normal net growth run-rate levels throughout Q3 and Q4 following lockdown in Q2.
- We delivered significant growth in Collaborate seats during the period. We now have a steady monthly run rate of collaborate subscriptions and a healthy attachment rate of 7% across the Horizon base. The product combination remains a strong, cost effective tool for smaller customers in our base.
- For larger customers, who have more complex and feature rich requirements, in April 2020 we launched Microsoft Teams Direct Routing which is now delivering a steady monthly run rate of net additions.
- Our SIP performance was particularly strong throughout the period, demonstrating the need for both business customers and carriers to strengthen their voice network capacity.
The Direct Business accounted for 25% of our group revenue in 2020. I am very pleased to report we delivered a very strong performance, with gross profit growing 21% to £46.3m and revenue growing 17% to £98.1m. Notwithstanding some of the project delivery and new business sales challenges during the lockdown period of the pandemic (e.g. access to customers, the temporary postponement of new projects and, due to physical access issues, a suspension of all but key existing project installations), we have delivered a strong year across all market segments. We secured over £85m of new contract bookings (excluding sales relating to The Loop); of this amount 75% was new business to Gamma.
Although COVID-19 supressed overall Direct sales performance in the first half of 2020, we quickly recovered during the second half and achieved notable wins across our Enterprise business with Serco plc (fully managed communications services), Grant Thornton (Microsoft Teams), Bannatyne Group (UCaaS) and Sureserve plc (UCaaS & CCaaS). We also extended existing long-term agreements with Dignity plc, BNP Paribas and Volkswagen Financial Services.
In Public Sector, we secured significant wins across a wide selection of councils, charities, healthcare providers and “blue light” providers. Of note is the RNIB who are implementing our UCaaS and CCaaS services, while Cardiff, South Ayrshire, Crawley and Coventry councils have implemented our market leading SIP services. Nine additional NHS trusts contracted with us for a mix of SIP and Microsoft Teams, and, as in previous years, we successfully delivered and supported a more complex University Clearing solution to the education sector during the pandemic.
Throughout 2020, we continued to focus on the development and execution of our direct digital programme (The Gamma Hub), and I am happy to report that we have made excellent progress in streamlining and fully automating our end-to-end operating and delivery model across all of our Direct market segments and products. As part of our investment during the period, we extended the use of AI and sales automation across our direct business, and this investment enabled us to rapidly switch to remote selling within hours of the national lockdown. In addition to this, we accelerated our adoption of digital marketing across all market segments, which has enabled us to maintain good levels of lead generation and strong engagement. Through 2021, we aim to focus our digital investments on delivering further improvements in operational efficiency and customer service. This will include the delivery of online quotation tools, a customer self-service capability, and fully automated provisioning, which will reduce our delivery lead times.
Finally, on 31 December 2020 we announced that we divested our non-core Manchester based fibre business which traded as “The Loop” and which we have reported on in our Direct Business. The proceeds from this sale strengthened our balance sheet.
Our European business grew – mainly through acquisition – with gross profit up 142% to £22.3m and revenue up by 219% to £48.5m. Gross margin went down from 61% to 46% as a result of the lower gross margins of Epsilon, the mobile focused distribution business which we acquired as part of the HFO acquisition. In 2020 the overseas business represented 12% of our Group revenue and 5% of our Group adjusted EBITDA (although the run rate is higher as 2020 includes only a part of the year for acquisitions). Throughout the year, I am pleased to report that we delivered positive net growth across all key European product categories, and at the end of 2020 have a total of 114,000 cloud seats across our European business.
HFO – Germany
We acquired HFO in July 2020. HFO has been providing SIP trunks to the German business market both directly and via its indirect channel partners since 2013. Similar to our UK business, HFO provides SIP trunking into “on premise” hardware PBXs as well as to support the enablement of cloud-based solutions.
Throughout 2020, the business focussed both on enlarging the partner base as well as encouraging existing partners who are currently selling SIP to start adding Cloud PBX products into their portfolio. The Cloud PBX market is significantly less developed in Germany than in the UK with a penetration of only approximately 9%. This transition from partners selling SIP to Cloud PBX is a very similar journey to that which the UK Indirect Channel business has been on for the past ten years. Despite the pandemic lengthening the sales cycle (in a similar manner to the UK), by the end of the year, HFO was delivering positive growth in new Cloud PBX sales.
At the end of 2020, we had a total of 10,400 Cloud seats in Germany. These include Cloud seats from HFO as well as those from the German division of gnTel which in 2021 we have merged with HFO. This has created synergies and will also allow HFO to sell gnTel’s products into the German market through their well-established partner distribution channels.
Our UK sales and commercial teams have been sharing knowledge with their peers in our German businesses and a number of Gamma’s well established UK commercial models and go to market strategies will be introduced into Germany during 2021.
In addition to the core HFO business which mainly focusses on SIP and UCaaS, part of the German Group is a mobile focused distribution business which trades under the Epsilon brand. Due to the mature nature of the mobile market, this business has less potential for growth than the core HFO business, however during 2020, it sold 100,000 mobile contracts across all of the major networks including Deutsche Telekom, Vodafone and Telefonica. Epsilon also launched its own IoT offering – Fusion IOT. This managed platform for M2M-simcards means that Epsilon is now a service provider with end-customer ownership.
Whilst we see limited growth in the Epsilon business in the medium term, we believe that Epsilon’s distribution partners may be able to sell UCaaS products in the future.
Voz Telecom – Spain
In April 2020 we acquired VozTelecom OIGAA360, S. A. (“Voz Telecom”), a well-established provider of cloud communication services in Spain. The company provides us with access to the small but growing Cloud PBX market in Spain. Voz Telecom is the fourth largest cloud provider in Spain and the largest outside of the major network operators.
During 2020, we strengthened our UCaaS proposition in Spain through the addition of new product features and options. This included API integration with other business applications (CRM & ERP) and full availability of our self-developed softphone, which importantly, enabled end users to implement home working. In addition, through the year, we launched a white-label cloud PBX product for a national mobile operator which drove growth in our UCaaS seats. Our total UCaaS seats across all platforms in Spain now stand at 43,000.
As well as the core UCaaS business, our Spanish business has two other smaller business units – ComYMedia (a Cloud ICT direct business) and NetHits (which provides call centre facilities for, amongst others, Accenture). Unlike the rest of the Group, these business units were more severely impacted by COVID-19. ComYMedia is reliant on project income and projects were delayed or cancelled, and NetHits suffered as a key customer reduced their call centre capacity requirements.
In 2020 we transitioned to a new MVNO reseller agreement with MasMovil which increased gross margin and allowed us to introduce more competitive pricing plans. During the period, we started to bundle our mobile and UCaaS propositions with MasMovil, which enables us to drive improvements in margin and now also have a steady run-rate of UCaaS seats coming indirectly from the MasMovil channel.
Similar to Germany, and as part of a structured integration plan, we have shared some of the knowledge and tools from the UK team and have developed several initiatives to drive long-term cloud growth. For example, a new channel program was launched at the end of 2020. We are also leveraging our UK technology and product capabilities and plan to launch a Cloud Contact Centre solution (CCaaS) and Microsoft Teams Direct Routing service during 2021.
Netherlands
In July 2020 we acquired gnTel, which has materially strengthened our cloud position across the Dutch market, with a specific and complementary focus on the IT reseller channel. At the end of 2020, after delivering positive net growth through the year, we now have a total of 61,000 cloud seats in the Netherlands. In addition to this, our wholesale and retail mobile offerings, which we take to market in partnership with T-Mobile, performed very well. We more than doubled our mobile connections through 2020, and when combined with our cloud proposition, will remain an important driver for future growth.
Since acquiring gnTel, we have delivered strong growth in cloud seats across the IT channel and have reinforced our excellent reputation for providing a stable and reliable cloud PBX platform to channel partners and end users. Shortly after acquisition, we introduced our T-Mobile product offering to gnTel’s channel partner base, which was well received and is positively contributing to our growth numbers.
Throughout the year, we focused on further developing and strengthening both our cloud product and channel proposition across the Dutch market, and similar to Spain and Germany, there was close cooperation with our UK commercial, product marketing and indirect channel teams. We launched a new cloud telephony product (“Horizon”) during Q1 2020, delivering enriched features and with more competitive price positioning, and, as part of our partner proposition, we also implemented Gamma’s e-marketing platform (“Accelerate”) which has been very positively received in the market. Similar to Spain, we are leveraging our UK technology and product capabilities and plan to launch a Cloud Contact Centre solution (CCaaS) and Microsoft Teams Direct Routing service during 2021.
Our Nimsys business provides cloud communications and IT services to business customers operating from multi-tenanted offices. We experienced decreasing demand due to less business activities in office buildings, but we expect this trend to reverse once businesses start returning to their offices. In spite of this pandemic related issue, we connected 164 new business customers during 2020. In addition, we also re-signed two long-term contracts with important multi-tenant office providers.
As part of our integration planning, we have also integrated our Schiphol Connect business with Nimsys and aligned the businesses under common business and operational systems to drive synergy and a better customer experience. This approach has also allowed Schiphol Connect to cross-sell new Nimsys based products and enhanced support services to their customer base.
In August 2020, and as part of a structured succession plan, we appointed Gerben Wijbenga as CEO of our Benelux business, and I am very pleased to report that Gerben has settled in well and has started to make a very positive contribution.
Summary and outlook
As a business, we have responded decisively to both the challenge and opportunity that the COVID-19 pandemic has presented across our markets, while maintaining a focus on supporting our staff, our customers, and our channel partners. I continue to be very pleased with the execution of our short-term business objectives, and because of our robust business model and our very positive financial performance throughout the year, we have doubled down on the execution, continued investment, and further development of our longer-term growth strategy.
Looking forward, we will 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 set out how this aligns with our four strategic pillars on pages 12 to 13. Given the growth opportunities across the core product areas and market segments in which we operate, we do expect to see ongoing competition which could lead to price pressure but to compensate for this, we will continue to add-value by further developing our products and our overall value proposition to our channel partners and end customers.
Our view of the current structural changes in the UCaaS market are also very positive with regards to our strategy and future growth opportunities. The pandemic has raised both the awareness and adoption of cloud communication services, and because of this, businesses and their employees have explored new ways of working both flexibly and remotely. The significant benefits of the UCaaS, CCaaS and fixed and mobile access products that we sell across the UK and Europe have been reinforced during the pandemic, and notwithstanding the risks of pandemic related economic and business market headwinds, we continue to see a positive business and overall long-term market outlook.
As a final point, I would like to personally thank our staff, partners and customers for their contribution and ongoing support during a very difficult period. Given the circumstances, our performance during 2020 has been strong, and we remain optimistic about Gamma’s future growth prospects.
Andrew Taylor Chief Executive Officer
Also in this section
Financial review
We have seen this strong performance across all the main areas of the business.
Chair's statement
We will continue to concentrate efforts and investment on supporting our channel partners and end users.