Gamma Communications Regulatory News (GAMA)

Monday 20 July

Gamma Communications plc

Pre-close trading update

First half organic growth and acquisitions in Spain, Germany and the Netherlands

Gamma Communications plc ("Gamma" or the "Group"), a leading technology based provider of communications services to the business markets in the UK, Germany, Spain, and the Netherlands, is pleased to announce a trading update for the six months ended 30 June 2020. This is an update to the statement made at the time of the AGM on 5 June 2020.

Group overview

We are pleased to report that in spite of the challenging conditions, Gamma has continued to perform well through the first six months of the year. Based on this performance, management expects that EBITDA and EPS for the full year will be ahead of consensus*.

Highlights from the period and post-period end include the following:

Acquistions give us scale in Europe and accelerate technology development

· We continue to execute our European expansion strategy having acquired Voz Telecom (Spain) in April 2020 and HFO Holdings (Germany) on 1 July 2020. Integration of those businesses has started and is proceeding in line with our plan.

· We continue to appraise acquisition targets in Europe to enter new territories and to gain scale and strengthen capabilities in countries where we already operate. On Friday 17 July, we completed a small acquistion of GnTel, a Cloud PBX provider in the Netherlands, for a cash consideration of EUR 8.1m. This acquisition will be fully integrated with our exisiting Netherlands business and will give us access to a new group of channel partners.

· The acquisition of GnTel will increase our Cloud PBX seats in Europe to over 100,000. The pro-forma EBITDA for the combined European business for FY 2019 would have been EUR 8.8m.

· In February 2020 we acquired Exactive, a UK Microsoft Teams specialist. Since the acquisition, we have secured over 6,000 new direct routing seats with organisations such as Metro Bank, Fraser Nash, Northern Marine and Baillie Gifford. 

We have progressed our product development and digital transformation programme.

· We launched our Microsoft Teams Direct Routing service making Gamma's market-leading SIP trunks available to Microsoft Teams users. This is an expanding market and we have already connected thousands of users to the platform since the launch in April. The Indirect business has worked with partners to deploy the new Microsoft Teams Direct Routing service into end users. 

· We continue to invest in our digital transformation program and we have launched our Dealer Hub. We remain on target to launch Release 2 of the platform in the second half of 2020, which significantly optimises customer order delivery and provides customers with an online community for support and digital engagement with Gamma.

· Building on the acquistion of Telsis in 2019, we are on track to launch a multichannel cloud contact centre solution. This will be targeted at the small / medium sized business segment. The solution will be a fully integrated application within our Horizon Cloud PBX platform, and will be available to both our indirect channel and direct customers.

Our core business has continued to perform strongly.

· In both the UK and Europe, our financial model has continued to be robust given that 93% of revenue is recurring and billed monthly. Cancellations of existing contracts continue to be at normal (minimal) levels and we are still seeing no increase in the level of bad debt.

· In our UK Indirect business, we have continued to have net additions for SIP Trunks, Cloud PBX and UCaaS although during Q2 they were at a lower level than pre-Covid. We offered a "hibernation" option to customers who are not trading and this has cost us £1.2m - this offer expired on 30 June. Post-period end, the level of new business enquiries has begun to increase back towards pre-Covid levels.

· Our Direct business, has been awarded numerous new multi-year contracts across Enterprise, Public Sector and SME including RNIB (for UCaaS), Restore plc (for WAN), Sureserve (for Cloud PBX) and Toyota Financial Services (for WAN). 

Cash

Gamma continues to have a very robust balance sheet, with strong cash generation from its trading activities which were in line with previous levels. Closing net cash at the half year is approximately £37.7m compared to £53.9m at the end of the previous year - the reduction primarily driven by the acquisitions of Voz (payments to date - before cash acquired - of £17.9m) and Exactive (initial cash payment of £4.1m). The Company has decided not to utilise the Government furlough scheme and all tax payments are up to date. The Directors expect to propose an interim dividend in line with our stated progressive policy.

The Board expect to announce results for the half year ended 30 June 2020 on Tuesday 8 September 2020.

Andrew Taylor, Chief Executive, commented on the results:

"I am encouraged by our performance in the first half of 2020 given the difficult economic conditions. Our staff have worked incredibly hard to keep the business running remotely and to ensure that we continued to deliver an excellent level of support to both our channel partners and our end users. I am very pleased with our continued focus on delivering against our near-term commitments as well as the execution of our longer-term UCaaS strategy, as exemplified by our geographical expansion into both Spain and Germany, and the strengthening of our UCaaS capabilities through the acquisitions of Exactive and Telsis in the UK. I am delighted to welcome all of our new colleagues from Exactive, Voz, HFO and GnTel into the Gamma family."

* Note: Company compiled consensus expectations for the full year for Revenue, Adjusted EBITDA and EPS are £373.2m, £71.8m, and 46.5p respectively.