Business unit review

The UK Indirect Business accounted for 61% of our Group revenue in 2022, with gross profit up 9% to £155.6m and revenue up by 10% to £295.9m.

The Indirect channel continues to provide strong organic growth, in our core UCaaS and evolving voice enablement markets. These positive results also reflect our channel partners’ ability to safely navigate challenging macroeconomic conditions by continuing to deliver robust growth and maintain low levels of bad debt, despite the lingering impacts of business disruption from the COVID pandemic, and the significant jump in interest and inflation rates. Our partners have also accelerated into evolving markets such as Microsoft Team Voice enablement and Contact Centre for small business, driving our sales forward in these areas. They have also delivered growth in our core UCaaS markets by continuing to focus on quality and availability of customer support, flexible commercials and an agility to embrace new services wrapped into easily consumable packages for their customers.

Channel partners continue to attract significant levels of private equity and debt financing their financial solidity, “no-to-low” debt leverage, high gross margins and recurring revenue models making this a highly attractive marketplace for funding. This has driven more consolidation during the period which shows little sign of abating in 2023, despite rising interest rates and improved terms on alternative investments. This has enabled us to make efficiencies in our partner sales and support teams, allowing greater resource and focus on all partners, of all sizes, evolving our account management and relationship model accordingly.

Our periodic price rises passed a fair and reasonable proportion of the inflationary cost increases we have experienced, to our channel partners. Our own efficiency gains, procurement activities and growth enabled us to maintain our competitiveness in core markets. It also allowed us to grow the number of people who support the channel, in a steady and sustainable manner.

Our steadfast support and investment in the channel has once again been recognised by various industry awards, reflecting the efforts of everyone that contributes to the UK Indirect Business Unit, for example:

• Best CCaaS Vendor – Comms National Awards 2022
• Best Partner Programme – Comms National Awards 2022
• Best Infrastructure SIP – Comms Council 2022
• Vendor/Distributor Sales & Account Management Team – Channel Champion 2022

The UK Indirect partner base has benefited from a plethora of service releases and enhancements, concentrated on our CCaaS and UCaaS services. We have also moved 50% of our Horizon base to our own Collaboration client with improvements rolled out throughout the year to strengthen the product. This was achieved alongside the completion of our mobile base migration to more agile infrastructure, including the benefits of 5G services.

Additionally, we were particularly pleased to evolve our Microsoft Team integration client, which facilitates our native Microsoft Teams Voice Enablement and integration to our Horizon UCaaS service. The usability and automation improvements made were further complimented by our certification to resell “Microsoft Operator Connect” to the UK resale channel (one of only two major operators in the UK with this status) providing a competitive advantage for the mid-term.

As we reflect on 2022, and also look to the future, these rapidly expanding markets and technology shifts have and will provide substantial opportunities to drive forward:

• Acceleration of UCaaS adoption across all customer segments - 5 million seats to migrate in the next four years.
• Emergence of a new market delivering next generation CCaaS services to both new SME customers and our existing base of 700,000 seats.
• Growth of voice enabled Microsoft Teams users will accelerate- 3 million seats by 2025* (Cavell UK Cloud Comms Report 2022).
• A stop-sell on analogue and ISDN services (including ADSL and FTTC) in 2023 (majority of which is expected to occur in that year), with a cessation of services planned by the end of 2025.

The strength of the Gamma indirect partner community (our relationships, our people, and our products), mean we look forward with confidence to 2023.

The UK Direct Business accounted for 24% of our Group revenue in 2022, with gross profit up 9% to £57.4m and revenue up by 10% to £115.5m.

It has been another year of solid performance across the direct business . As predicted, our sales order book has bounced back from the slow start we experienced in 2021 as organisations started to assess their post-pandemic infrastructure to understand if it was fit for purpose in the new hybrid working era. To this end, at the start of 2022, both Public Sector and Enterprise customers focused on adopting business-grade UCaaS solutions that would support their new operating models. We also experienced rapid growth of our Microsoft Teams solutions across both Enterprise and Public Sector Market Segments.

Additionally, the latter period of 2022 has seen a rise in organisations restructuring their intra-office and remote connectivity models to support changes in working locations, which has driven an increase in SDWAN solutions deployed by us to new and existing customers.

Our Direct business is now recognised as a leading provider of managed communication solutions to large Enterprise and Public Sector organisations, and a pleasing outcome of this is a strong contracted order book.

Gamma Direct is a managed communications services provider. Therefore, customer satisfaction is vital to our success, measured utilising Net Promoter Score methodologies. This year we achieved an NPS of 41 (2021: 38) in our customer surveys – this continued customer focus continues to differentiate us from our competitors.

All our market segments performed well in 2022, with particular success across the Central Government and Large Enterprises spaces. In Public Sector, we secured several significant UCaaS wins across a wide range of customers, including Microsoft Teams seats across two very large Central Government agencies, seats for City Councils and for two Universities. In addition, we also secured a large CCaaS solution for a Blue Light service. Other notable contract awards include six County Councils that contracted for a mix of SIP and CCaaS, and five NHS trusts awarded us an array of contracts for UCaaS, SIP and connectivity.

Our mobile and mobility solutions continue to resonate with our customers in Public Sector (our commercial model combined with Three's new 5G network has been particularly well received).

Towards the end of 2022, we successfully gained access to the Crown Commercial Services RM6261 Mobile Services Framework LOT1, which has led to us becoming only one of four providers who can be directly awarded contracts without the need for further rounds of competition.

Our Enterprise team achieved notable wins with Card Factory and URBN for managed SDWAN services, Venator plc and Hastings Direct for pan-European Microsoft Teams, The AA for a large mobility solution and Wilmot Dixon, Lovewell Blake LLP and Bibby Financial for a combination of UCaaS and CCaaS services. I am pleased to report several key new contracts, including EON and Admiral Financial who have both implemented our SmartAgent CX client into their contact centres.

CircleLoop, the digital UCaaS service and channel which we acquired with Mission Labs, now have more than 11,000 customers who are using this service via our digital platform.

Our investment in our direct digital programme (The Gamma Hub) is ongoing as we focus on providing our customers with a self-service capability, and fully automated provisioning to reduce our delivery lead times and increase our operational efficiencies.

The European Business accounted for 15% of our Group revenue in 2022, with gross profit up 6% to £34.7m and revenue up by 1% to £73.2m.

Gamma Germany

The transformation of the business from a pure SIP and connectivity provider to a full-blown service provider with cloud solutions has made excellent progress. In 2022 the GnTel German sales operations were fully integrated into Gamma Germany and a salesforce was built for resale and wholesale business. The SIP-base in Germany is still growing. The January 2023 Kick-Off event in Germany brought lots of contacts and will push our success in 2023.

We now serve over 2m SIP-number-extensions in the market. However, not all of these will be transferable into cloud in the future as a proportion of B2C customers do not fit into current products. This is particularly true in Germany, with a rate of over 90% of B2C customer being served with special high-end Gateways for internet, voice and smart home that are used by almost all network operators.

Regarding products, we have been very successful with the start of FibreMax, our broadband fibre product for Germany. As a result of ever increasing network interconnects, we are very competitive in the market. The goal is to gain a greater share of customer budget on the one hand and a better retention rate by delivering a wide range of effective products and therefore achieving top level service delivery.

In Q1, 2023, we will enrich our portfolio with the next group product, Microsoft Operator Connect. Although some other market players made announcements regarding this product, currently we are the only company, aside from Deutsche Telekom, who can deliver this product in Germany. Operator Connect will open up a new partner base, mainly in the IT sector. Partners that only wish to enable the voice feature within Microsoft Teams will then have a proper and stable solution. Furthermore, we will be evolving a go-to-market-strategy for Enterprise Customers in Germany.

Our Epsilon mobile distribution business again delivered a very strong performance throughout 2022. One key aspect of this is our continued investment focus on our IOT (Internet of Things) business (Fusion IOT) which provides IOT solutions to the SME business segment. The result is the current increase in new customer business, and in addition, large Enterprises like Austrian Federal Railways now rely on our solutions (to provide WLAN in the Austrian trains).

In line with our previously announced plan we have transitioned to the full Gamma Brand (with the exception of Epsilon) in the German market.

Gamma Spain

The Spanish economy has been impacted by higher inflation along with higher interest rates delaying business decisions in adopting new technology and services in the telecom market. Challenging local market economic conditions mean achievement of future business performance targets will take longer than originally forecast resulting in an impairment of the Spanish cash generating unit in 2022. We also completed the sale of our subsidiary “ComyMedia” in July 2022. ComyMedia specialised in IT solutions and had little fit with the rest of our European business. ComyMedia generated a negligible EBITDA contribution in 2022 prior to disposal.

The UCaaS business has increased the number of active seats by both organic and inorganic growth, following the acquisition of NeoTel, in October 2022, a cloud communications company based in Málaga specialising in cloud PBX and call centre product for the SME market. The mobile business has performed well and the reseller contract we have with one of the leading mobile network operators has strengthened our UCaaS offering. We also signed a wholesale white label contract with one of the largest mobile virtual network operator in Spain, mainly focused on the residential market but aiming to penetrate the business micro segment with a cloud PBX solution, with market launch expected early Q2 2023.

SIP trunk product revenues decreased in year. Traditional PBX resellers who developed this product line are being affected by increasing cloud communications penetration trend, reducing the total number of traditional PBX sold in the market. This is a good opportunity for us to monetise this market trend towards UCaaS, but inevitably SIP trunk revenues will continue to decline in near future, nevertheless the new “Operator Connect” product launch in early 2023 will provide new market segments to sign new customers with SIP trunk like telephony service into Microsoft Teams.

During 2022 we enhanced our channel partner programme addressing hundreds of Microsoft partners to promote our cloud communications services integrated into MS Teams, to provide training and developing lead generation campaigns. This is a growing opportunity we will continue to address and expand in the future, which will be strengthen with the Operator Connect product deployment in Spain expected in the first half of 2023. This is one of our growth levers in the market, giving us a competitive advantage against traditional large operators.

From the product side, we introduced a new Contact Centre solution into the channel, as an entry point to our UCaaS service, in a similar way to Gamma’s “Horizon Contact” product in the UK, addressing CCaaS market opportunity while increasing product ARPU and margins too. The channel has received the product with enthusiasm and started to generate relevant sales during second half of the year.

Gamma Netherlands

Market growth is slowing down due to high penetration in the Dutch business market, nevertheless we continued to grow our Cloud and Mobile base. Revenue decreased as a result of call usage, with a reduction in pay as you go (“PAYG”) traffic mix.

Connect, being the first supplier of Operator Connect in the Dutch Soho/SME market. We have seen a high level of interest from our existing customers and partners base as well as new partners who are interested in this proposition. Furthermore, we relaunched our Gamma Internet and Mobile portfolio, as well as further expanding our Microsoft Direct Routing solutions. At the end of 2022 we launched a copper to fibre migration programme for internet which we expect to benefit from in 2023. For Mobile further expansion of the product portfolio resulted in double digit growth in revenue and customers.

Our multi-tenant business (Gamma Business Services) continued to grow. In addition to continuing our cross-sell programme of Cloud & Mobile services to our existing customers, we were also able to acquire customers in new buildings. Additionally, we see increased demand for the supply of hardware in combination with a service contract. Looking forward, we see an exciting pipeline that will further grow the business.

The launch of Microsoft Operator Connect is one of the examples of the benefits of developing a common pan-European product set.