Financial review

Strong profit to cash conversion

Gamma has performed well during the year increasing revenue by 14% to £447.7m (2020: £393.8m) and gross profit by 14% to £228.5m (2020: £200.8m).

Financial performance

See all KPIs
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 14% to £447.7m (2020: £393.8m) and gross profit by 14% to £228.5m (2020: £200.8m). The two UK businesses have in aggregate seen growth in Revenue of £29.7m (+9%) and Gross Profit of £17.3m (+10%). The growth in the Revenue of the European Business of £24.2m from £48.5m to £72.7m is primarily due to a full 12 months of results of businesses acquired in 2020. Adjusted EBITDA increased by 21% to £95.4m (2020: £79.0m). Adjusted EPS (FD) increased by 25% to 64.0p (2020: 51.3p)

Revenue and gross profit

UK Indirect

Gross Profit143.2132.2+8%
Gross Margin53.0%53.5%

Overall, the growth in the UK Indirect Business unit has been strong. There have been no acquisitions in either year which affected revenue or gross profit and hence the growth shown in the above table is entirely organic.

Gross Margin has been broadly consistent with the prior year which is a change in trend following growth historically. The historical growth was largely driven by an improving mix of high margin UCaaS products against lower margin legacy products but this mix has now stabilised. The revenue from the sale of legacy product is now negligible and hence the mix is more constant. This change is in line with our expectations. We do not expect Gross Margin to increase as the mix of UCaaS and access products stays broadly constant.

UK Direct

Gross Profit52.646.3+14%
Gross Margin50.2%47.2%

The UK Direct business continued to grow. There was some inorganic growth driven by the Mission Labs acquisition in March 2021; this was in part offset by the disposal of The Loop Manchester Limited in 2020.

As previously communicated, the growth in revenue for 2021 was lower than it would have been had sales activity in mid 2020 not been severely hampered by COVID-19. We won fewer new projects in 2020 which meant less work started in 2021. This situation has now reversed and we have seen significant levels of sales activity in late 2021 and we enter 2022 with a strong pipeline.

Notwithstanding, the global chipset shortage has the potential to cause some installations to become delayed which will mean that billing starts later than planned, which may dampen growth slightly.

The gross margin has increased due to mix – first, as a result of Mission Labs which is a higher margin as a result of being a SaaS model; and second, as mentioned earlier, fewer new projects started in the year (the start of a project is lower margin due to low margin installations and hardware sales).


Gross Profit32.722.3+47%
Gross Margin45%46%

Our European business saw growth primarily as a result of the inclusion of a full 12 months of results of the acquisitions made in 2020 – Voz Telecom in Spain (acquired April 2020), HFO in Germany (July 2020) and Gamma Communications Benelux expanded in July 2020 with the acquisition of gnTel.

Because of acquisitions, the year on year growth is not indicative of business performance. The revenue in H1 for Europe was £35.4m and this grew by 5% to £37.3m in the second half. The growth in revenue was driven by increased commissions earned by our Epsilon business in Germany (where revenues can fluctuate). Revenues from UCaaS seat sales grew in all European territories but the associated traffic revenues were lower – unlike the UK, in Europe traffic is not bundled into the seat pricing which results in more fluctuation.

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 – which was acquired in July 2020. The margins on a product by product basis are consistent with those in the UK.

Operating expenses

Operating expenses grew from £125.1m to £160.2m; when the exceptional items are eliminated then operating expenses grew from £144.7m to £160.2m – much of the increase comes from including a full year’s costs of business acquired in 2020 and also an increase in our development activity. We break these down as follows

Expenses included within cash generated from operations
– UK Businesses101.8 95.5 +7%
– European Business23.3 18.3 +27%
– Central Costs8.0 8.0 +0%
  133.1 121.8 
Depreciation and amortisation
– tangible and intangible assets14.9 14.7 +1%
– right of use assets2.7 2.2 +23%
– acquisition9.5 6.0 +58%
  27.1 22.9 
Operating expenses (before exceptionals) 160.2 144.7+11%
Exceptional items  (19.6) 
Operating expenses 160.2 125.1+28%

Movements in expenses were driven by:

  • The UK Businesses’ operating expenses growing by 7% (compared to Gross Profit growth of 10%). This growth has been lower than originally expected as a result of continued lockdowns in 2021 resulting in unexpected cost savings (for example, travel and subsistence expenses continue to be significantly lower). Not all of these savings are expected to continue in the long run as “normality” returns post COVID. We expect to see our travel and marketing (event attendance) costs increasing “post Covid” in 2022. We are also seeing signs of wage inflation being above historical norms.
  • There were two areas of overhead growth which were disproportionate:
    • We continue to invest in the development and maintenance of our voice application products and associated software tools (for example our portal). Our spend in this area during the year was £19.6m (of which £14.8m was charged to the profit and loss and £4.8m was capitalised; in 2020 these figures were £10.2m and £2.7m respectively). The increase is driven by our desire to develop more of our own technology which included the acquisition of Mission Labs, which brought more development costs into our cost base.
    • Share-based payments costs increased from £3.5m to £4.8m (+£1.3m). This is mainly due to the increasing take up of the various share schemes which are offered.
    • Aside of the effect of development and share based payments, the UK business overheads grew by only £0.4m year on year; as noted above we do not expect to be able to keep overheads increases to this level in 2022.
  • The increase in European costs is reflective of the cost base growing by acquisitions (that is to say that it is not organic growth). In 2022 we intend to invest more in sales heads in each of the three countries which will increase the cost base a little (i.e. below £1m). The increase in sales heads is expected to increase the rate of sales of Cloud PBX seats by investing in the sales function.
  • Central costs are inline with the prior year. They include the costs of our M&A programmes (which are not adjusting items).

Depreciation and amortisation on tangible and intangible assets have increased from £14.7m in 2020 to £14.9m in 2021. This is slightly below our annual capital spend and may therefore increase slightly in future years.

Exceptional items

There were no exceptional items in 2021.

In the prior year there were exceptional transactions related to the disposal of a subsidiary (The Loop Manchester Limited) where 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 and a difference between the estimated deferred consideration and amount paid in relation to Nimsys

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 8 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 adjusted for exceptional items and it is also adjusted for the amortisation of intangibles which were created on acquisition and the change in fair value of acquisitions. 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 adjustments to statutory measures, we add back the depreciation and amortisation charged in the year to Profit from Operations (2021: £68.3m; 2020: £75.7m) to calculate a figure for EBITDA (2021: £95.4m; 2020: £98.6m) 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 trading picture which is comparable from year to year (adjusted EBITDA: 2021: £95.4m; adjusted EBITDA: 2020: £79.0m).

An adjustment to Cash and Cash equivalents has been presented because the Group believes that adjusted performance measures (APMs) provide valuable additional information for users of the financial statements in assessing the Group’s performance as Net Cash is a better measure of liquidity.

Cash and Cash equivalents52.853.9
Net Cash49.548.0

Adjusted EBITDA

Adjusted EBITDA grew from £79.0m to £95.4m (21%).


The effective tax rate for 2021 was 19% (2019: 14%). The underlying rate in 2021 applied to trading profits was slightly above the 19% statutory UK rate due to disallowable expenditure, the increasing impact of higher taxation rates in European countries and an upcoming change in tax rates in the UK from 19% to 25%, which is increasing deferred tax charges in the year. We would expect these trends to continue and hence to see the effective rate of tax increase slightly above the UK headline rate in future years.

The rate in 2020 was depressed due to non-taxable income on the disposal of our subsidiary, The Loop

Net Cash and cash flows

The Group has Net Cash of £49.5m (2020: £48.0m) – “Net Cash” is Cash and Cash Equivalents less Borrowings. The Cash and Cash equivalents balance at the end of the year was £52.8m, a slight decrease from the previous year and the Group had borrowings of £3.3m (2020: £5.9m) which are held by trading subsidiaries outside of the UK and pre-dated their acquisition by Gamma. We do not class contingent consideration as debt for the purpose of quoting a net cash figure.

Cash conversion from trading during the year increased from previous years. The ratio of adjusted EBITDA to cash generated from operations was 94% (2020: 89%).

Items which are not directly related to trading were:

  • Capital spend was £16.8m, which is an increase from £15.4m in the comparative period. This is discussed below.
  • £49.3m was the total payment for acquisitions net of cash acquired (2020: £47.7m) of which £40.8m was paid for the acquisition of Mission Labs, £1.5m was paid in deferred consideration for the acquisition of Exactive, £2.0m was paid to acquire a SIP Trunk base from another carrier and £5.0m for the exercise of options relating to HFO.
  • £5.9m was received from the issue of shares (2020: £1.5m). This significant increase on the prior year was as a result of the reinvestment in Gamma by former shareholders of Mission Labs (£2.8m) and HFO (£0.7m). The other share issues relate to exercise of options held by employees.
  • £11.7m was paid as dividends (2020: £10.4m).

Capital spend

Capital spend in 2021 was £16.8m (2020: £15.4m) as follows:

  • £9.1m 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 (2020: £9.5m).
  • £4.8m was the capitalisation of development costs incurred during the period (2020: £2.7m) – the increase is due to development of our own voice applications products (in part using the capabilities acquired with Mission Labs).
  • £2.9m was spent with third-party software vendors for the software which underpins our Cloud PBX products (2020: £3.2m).

Adjusted EPS (FD) and Statutory EPS (FD)

Adjusted EPS (FD) increased from 51.3p to 64.0p (25%). 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 p34.

EPS (FD) decreased from 66.6p to 55.2p (-17%). The growth is lower than the adjusted metric as a result of the exceptional income item in the prior year 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 in the Annual Report for the year ended 31 December 2021.
  • The financial position of the Group as well as budgets and financial plans.
  • The strong cash position - at 31 December 2021 the Group had cash and cash equivalents of £52.8m (2020: £53.9m). Net Cash (being cash and cash equivalents less borrowings) was £49.5m (2020: £48.0m). All borrowings were acquired with acquisitions made in the prior year.
  • Future cashflows including liquidity and borrowings.
  • Sensitivity analysis, which has shown that EBITDA would need to decrease by 94% for the Group to need additional borrowing (assuming no mitigating actions had been taken). We consider this to be highly unlikely.
  • The ongoing impact of COVID-19. Whilst this impacted new wins in 2020 and slowed growth in 2021, 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 2021.


The Board has proposed a final dividend of 8.8p (2020: 7.8p). This is an increase of 13% and is in line with our progressive dividend policy.

Subject to shareholder approval, the final dividend is payable on Thursday 23 June 2022 to shareholders on the register on Friday 3 June 2022.

Andrew Belshaw Chief Financial Officer
21 March 2022

Also in this section

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
  4. Adjusted EBITDA
  5. Cash
  6. Cash generated by operations
  7. EPS
  8. Fully diluted adjusted EPS

Key to risks

  1. Unplanned service disruption
  2. Data loss and cyber attacks
  3. Over-reliance on suppliers
  4. Inability to attract and retain top talent
  5. Uncertain competitive landscape
  6. Price erosion
  7. Legal and regulatory non-compliance
  8. Unsuccessful M&A strategies

The opportunity for UX and CX to win in the Experience economy

Hybrid here to stay

Fundamentals are more important than ever

The ESG Committee oversees the development and activity of Gamma's ESG agenda.