Financial review

Growth in all geographies despite the pandemic

Gamma has performed well during the year, increasing revenue by 20% to £393.8m (2019: £328.9m) and gross profit by 21% to £200.8m (2019: £166.5m).

Financial performance

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Gross profit
Adjusted EBITDA
Cash generated by operations
EPS (fully diluted)
Adjusted EPS (fully diluted)


Gamma has performed well during the year, increasing revenue by 20% to £393.8m (2019: £328.9m) and gross profit by 21% to £200.8m (2019: £166.5m). We have seen this strong performance across all the main areas of the business. The growth is in part due to acquisitions in the year with organic growth in revenue being £28.7m (+9%) and gross profit growth of £19.8m (+12%). (NB Organic growth removes the results of acquisitions made in 2020). Organic growth was slightly lower than originally expected due to the lower rate of sales in the second quarter driven by the onset of the COVID-19 pandemic, although sales activity returned to pre-COVID levels in the second half of the year. Adjusted EBITDA increased by 24% to £79.0m (2019: £63.5m) whilst organic EBITDA grew 19%. Adjusted EPS (FD) increased by 26% to 51.3p (2019: 40.8p).

Revenue and gross profit

UK Indirect

Gross Profit132.2119.1+11.0%
Gross Margin53.5%51.8%

Overall, the growth in the UK Indirect Business unit has been consistent with previous periods – the revenue growth was 7.4%. This is slightly lower than we had been originally expecting due to the lower rate of net additions in the second quarter which was driven by the onset of the COVID-19 pandemic – net additions did subsequently trend towards to pre-COVID-19 levels in the second half. Because of the recurring nature of revenues, lower net additions in the second quarter had an impact on the revenue performance in the second half of the year.

Within the UK Indirect Business, the gross profit from the traditional business (which includes calls and lines, and trade with other carriers) has seen minimal movement from the previous year. Indeed, the trend we had seen over the past years where traditional business was declining has flattened and there remains a small quantity of this traditional business on the Gamma network. This will gradually erode over time. We will therefore (from 2021) no longer show the “traditional” business as a separate line within our segmental analysis as the trend that it was highlighting is no longer a significant factor in our performance.

We group our data, mobile, SIP and UCaaS products as our “growth” products and revenue from growth product sales increased from £186.5m to £205.0m (+10%) and gross profit grew from £106.7m to £119.9m (+12%). The gross margin grew from 57% to 58%, which reflects the fact that the main contributors to this growth were SIP trunking and our UCaaS products (Horizon and Collaborate) which have higher margins than other products. In addition (again due to lockdown) we had fewer installations and hardware sales in the second quarter. These tend to be at a lower margin than the monthly recurring revenues and therefore the margin has increased due to the change in mix.

UK Direct

Gross Profit46.338.2+21.2%
Gross Margin47.2%45.7%

The UK Direct Business continues to grow strongly and in line with previous periods despite the challenging market conditions. There is some inorganic growth driven by the acquisition of Exactive in February 2020. This contributed £3.3m of revenue in the year meaning that the organic growth was 13%.

The UK Direct Business continues to focus on selling to larger enterprise businesses and public sector customers on multi-year deals. The growth was mainly attributable to sales to Enterprise customers and revenue from those increased by £11.8m. Sales to the Public sector increased by £3.0m which relates to growth in both the organic and acquired business. Our Direct Mid-market revenue was in line with the prior year.

The gross margin increased due to a lack of installations and hardware sales which are lower margin and hence the mix changed favourably.


Gross Profit22.39.2+142%
Gross Margin46.0%60.5%

Our European business consists of the group under Gamma Communications Benelux B.V. (formerly DX Groep) in the Netherlands, Voz Telecom in Spain (acquired April 2020) and HFO in Germany (acquired July 2020). In addition, Gamma Communications Benelux expanded with the acquisition of gnTel in July 2020. The acquisitions contributed £36.2m of revenue in the year and £12.8m of gross profit. The organic revenue growth of the Dutch business was 3% which was made up of a strong growth in sales of Cloud PBX and mobile products offset by a decline in the legacy ISDN product throughout 2019 which affected the opening run rate of revenue into 2020.

Gross margins have decreased from the prior year as a result of “high revenue / low margin” business within the Epsilon subsidiary of the HFO business which offers mobile connections. The margins on a product by product basis are consistent with those in the UK but the mix in Europe tends to be away from lower margin data products (broadband and ethernet).

The Group finance team has regular calls with the local finance teams to monitor their performance. We continue to spend time aligning both processes and accounting policies.

Operating expenses

Operating expenses grew from £121.0m to £125.1m. We break these down as follows:

Expenses included within cash generated from operations
– UK Indirect Business69.1 64.9 +6.5%
– UK Direct Business22.9 20.1 +13.9%
– Overseas18.3 8.9 +105.6%
– Central costs8.0 6.5 +23.1%
  118.3 100.4 
Depreciation and amortisation
– tangible and intangible assets14.7 13.4 +9.7%
– right of use assets2.2 1.7 +29.4%
– acquisition6.0 2.0 +200.0%
  22.9 17.1 
Share based payments 3.5 2.6+34.6%
Exceptional items (19.6) 0.9 
Operating expenses 125.1 121.0+3.4%

Movements in cash-based expenses are discussed below:

  • Within the UK Indirect Business, operating expenses have grown by 6.5% although of the increase in costs of £4.2m, £1.9m is the full year impact due to our acquisition of Telsis in 2019. Organic cost growth was 3.5% which is favourable compared to our growth in gross profit. This demonstrates both our ability to be cost efficient as the business grows and also the fact that working in the “Covid environment” means we have experienced some unexpected cost savings for example, travel and subsistence expenses are significantly lower. These savings are not expected to continue in the long run but it is difficult to predict how quickly costs will return. One significant driver of cost continues to be our investment in the development of products that will provide future benefits as well as our desire to ensure that our level of customer service remains the best in our industry.
  • In the UK Direct business, overhead increased by 13.9% (compared to gross profit growth of 21.2%) – this includes £1.1m of costs from Exactive – the “like for like” growth is 8.5%. The level of increase was mainly to support the growth in the business as well as our ongoing investment in our digital strategy.
  • The increase in European costs of £9.4m is reflective of the cost base growing by acquisitions. The organic Dutch business had overheads in line with prior year.
  • Central costs have increased from the prior year, which is due to two main factors. First, as our European footprint expands, Group functions required to support the businesses we have acquired increases. Second, we have completed four acquisitions in the year and have incurred significant costs in respect of our M&A programme (which we include within our operating expenses).

Depreciation and amortisation on tangible and intangible assets have increased from £13.4m in 2019 to £14.7m in 2020. This is driven by acquisitions – the depreciation in the UK business decreased year on year. The annual depreciation charge is now in line with annual capital expenditure and (save for future acquisitions) is not expected to increase significantly.

Share based payments costs have increased during the year because of the increasing cost of the all-staff schemes – such as SAYE. In addition, the rising share price has made the costs of employers’ NI for share grants higher than in previous years.

Exceptional Items

There were two exceptional items in the year which are discussed below.

Disposal of a subsidiary

On the 31 December 2020 Gamma completed the sale of of its non-core fibre business which traded as The Loop Manchester Limited, based in Manchester, UK.

An exceptional gain of £19.5m was recognised relating to the proceeds on disposal less the book value of the net assets of the business. This was a cash item.

Deferred consideration

An exceptional item of £0.1m was recognised as a result of a difference between the estimated consideration and the amount paid in relation to Nimsys.

Whilst this figure is not material, previous changes in estimated consideration have been treated as exceptional and hence we have been consistent by including this as exceptional.

In the prior year there were exceptional transactions related to the acquisition of the DX Groep which netted to zero – full details are provided in the prior year financial statements.

Alternative performance measures

Our policy for alternative performance measures is set out in note 3.

The tables below reconcile the alternative performance measures used in this document:


Amortisation of
Change in fair
value of
Adjusting tax
PBT (£m)
PAT* (£m)
EPS (FD) (p)


Amortisation of
Change in fair
value of
Adjusting tax

* PAT is the amount attributable to the ordinary equity holders of the Company

** See note 9 for further details

PBT (£m)
PAT (£m)
EPS (FD) (p)

We believe that these measures provide a user of the accounts with important additional information by providing the following alternative performance metrics:

  • Profit before tax is also adjusted for exceptional items for the same reason as above but it is also adjusted for the amortisation of intangibles which were created on acquisition. This enables a user of the accounts to compare performance irrespective of whether the Group has grown by acquisition or organically.
  • Profit after tax is adjusted in the same way as Profit before tax but it also considers the tax impact of these items. To exclude the items without excluding the tax impact would not give a complete picture.
  • Adjusted earnings per share takes into account all of the factors above and gives users of the accounts information on the performance of the business that management is more directly able to influence and on a basis comparable from year to year.

In addition to the above we add back the depreciation and amortisation charged in the year to Profit from Operations (2020: £75.7m; 2019: £45.5m) to calculate a figure for EBITDA (2020: £98.6m; 2019: £62.6m) which is commonly quoted by our peer group internationally and allows users of the accounts to compare our performance with those of our peers. We further adjust EBITDA for exceptional items as this gives a reader of the accounts a view of the underlying trading picture which is comparable from year to year (2020: £79.0m; 2019: £63.5m).

Adjusted EBITDA

Adjusted EBITDA grew from £63.5m to £79.0m (24%). Were we to eliminate the effect of acquisitions made in 2020 then adjusted EBITDA would have grown by 19%.


The effective tax rate for 2020 was 14% (2019: 24%). The rate in 2020 is depressed due to non-taxable income on the disposal of The Loop. The underlying rate applied to trading profits was slightly above the 19% statutory UK rate due to disallowable expenditure and the increasing impact of higher taxation rates in European countries. We would expect these trends to continue and hence to see the marginal rate of tax increase slightly above the UK headline rate in future years. In 2019, the rate was inflated by adjusting tax items of £1.6m and tax on business combinations of £0.5m – neither of these were cash items.

Net cash and cash flows

The Group has net cash of £48.0m. The gross cash balance at the end of the year was £53.9m in line with the end of the previous year and the Group had borrowings of £5.9m which are held by trading subsidiaries outside of the UK and pre-dated their acquisition by Gamma.

In addition, we estimate that we will have to pay an additional £14.2m in future in relation to acquisitions made before the end of the year (this is a mix of contingent consideration and the exercise of options over shares not yet acquired); these payments will be made between 2021 and 2023. There is also a possible £6m of contingent consideration which may become due to the vendors of Mission Labs Limited – a business acquired after the end of the year. We do not class contingent consideration as debt for the purposes of quoting a net cash figure.

Cash conversion from trading during the year was in line with previous years. The ratio of adjusted EBITDA to cash generated from operations was 89% (2019: 85%).

Items which are not directly related to trading were:

  • Capital spend was £15.4m, which is an increase from £12.4m in the comparative period. This is discussed in detail below.
  • £45.1m was paid for the new acquisitions net of cash acquired (2019: £7.5m) of which £3.2m was paid for the acquisition of Exactive, £16.6m for Voz Telecom, £18.5m for HFO and £6.8m for gnTel.
  • £2.5m was paid in deferred consideration primarily relating to the acquisition of Nimsys in the prior year (2019: £nil).
  • Our acquisition spend was offset by £19.4m which was received for the disposal of The Loop (our fibre business based in Manchester); this figure is net of cash.
  • £10.4m was paid as dividends (2019: £9.2m) – we retained our pre-existing dividend policy despite the pandemic.

Capital spend

Capital spend in 2020 was £15.4m (2019: £12.4m) as follows:

  • £9.5m was the spend on maintaining and increasing capacity on the core network as well as other minor items such as IT and fixtures and fittings (2019: £9.9m).
  • £2.7m was the capitalisation of development costs incurred during the period (2019: £1.4m) – the increase is due to acquisition, the amount of development capitalised in the UK business was consistent with the prior year.
  • £3.2m was spent with third-party software vendors for the software which underpins our Cloud PBX products (£1.1m).

Adjusted EPS (FD) and Statutory EPS (FD)

Adjusted EPS (FD) increased from 40.8p to 51.3p (26%). The growth in adjusted EPS (FD) has been driven by the continued growth in a difficult market as well as the acquisitions. Adjusted EPS is EPS as adjusted for exceptional items and other items as defined in note 3 and a reconciliation to the statutory measure is shown in the table on page 104 of the financial statements.

EPS (FD) grew from 36.1p to 66.6p (84%). The growth is higher than the adjusted metric, in the current year, because of the exceptional item relating to the disposal of The Loop.

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. In assessing going concern management and the Board has considered:

  • The principal risks faced by the Group, discussed further.
  • The financial position of the Group including budgets and financial plans.
  • The strong cash position – at 31 December 2020 the Group had cash and cash equivalents of £53.9m (2019: £53.9m). Net cash (being cash and cash equivalents less borrowings) was £48.0m (2019: £53.9m). All borrowings were acquired with acquisitions in the year.
  • Future cashflows including liquidity, borrowings and the acquisition of Mission Labs (which was £40.2m on a cash free basis). We have performed sensitivity analysis which has shown that EBITDA is our biggest sensitivity and would need to decrease by 43% for the Group to need additional borrowing (assuming no mitigating actions had been taken). We consider this to be highly unlikely. Notwithstanding, lenders have indicated to management that they would provide additional borrowing if required.
  • The ongoing impact of COVID-19. Whilst this has impacted new wins in 2020, the Group has continued to grow. In the medium term, as a result of COVID-19, the adoption of cloud services will accelerate and this reinforces our overall UCaaS strategy.

The Directors are satisfied that the Group has adequate financial resources to continue in operational existence for the foreseeable future, a period of at least 12 months from the date of this report. Accordingly, the going concern basis of accounting continues to be used in the preparation of the Annual Report for the year ended 31 December 2020.


The Board has proposed a final dividend of 7.8p (2019: 7.0p). This is an increase of 11% and is in line with our progressive dividend policy.

Subject to shareholder approval, the final dividend is payable on Thursday 24 June 2021 to shareholders on the register as at Friday 4 June 2021.

Finally, I would like to thank Alan Gibbins for his support and wise counsel during the period he has chaired the Audit Committee.

Andrew Belshaw Chief Financial Officer
22 March 2021

Also in this section

Chair's statement

We will continue to concentrate efforts and investment on supporting our channel partners and end users.

CEO statement

We have delivered a strong business performance and a very good set of financial results.

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

Key to KPIs

  1. Revenue
  2. Gross profit
  3. Gross margin
  5. Cash
  6. Cash generated by operations
  7. EPS
  8. Adjusted EPS

Key to risks

  1. Unplanned service disruption
  2. Data Loss and Cyber Attacks
  3. Customer service experience
  4. Suppliers
  5. Market landscape
  6. Legal and regulatory
  7. Our people
  8. M&A
  9. Climate change