Gamma Communications H2 2024 Earnings Report

Gamma Communications EPS Results

• Actual EPS: GBX 85.10
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Gamma Communications Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Gamma Communications Announcement Details

• Quarter: H2 2024
• Date: 3/25/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, March 25, 2025
• Conference Call Time: 6:00AM ET

Gamma Communications (LON:GAMA), together with its subsidiaries, engages in the provision of technology-based communications and software services for small, medium, and large sized to businesses in Western Europe. The company offers Unified Communications as a Service products for enabling businesses to raise productivity, boost agility, and increase collaboration; Contact Centre as a Service, through a software platform that allows contact centres to operate over the internet for SMEs and Enterprise; and Direct Routing and Operator Connect services, designed to enable seamless and integrated calling between Teams and the local telephony infrastructure. It also offers Session Initiation Protocol trunking service with inbound call management functionality; and PhoneLine+, a phone line replacement service using VoIP technology to deliver voice calls over the broadband network. In addition, the company offers CircleLoop, a cloud-based telephony product, serviced through web, desktop and mobile applications and aimed at the micro-business market; and Cloud PBX, a virtual PBX system rooted on the internet, automatically answers all calls and routes them to the right department or user extension. Further, it provides Horizon, a business phone system with hosted communications service that provides businesses with fixed and mobile telephony capabilities; Horizon Collaborate, a solution for internal and external communication needs, including voice and video calls, instant messaging, video conferencing, and desktop and document sharing; and Horizon Contact, a cloud-based contact center solution, designed to work in conjunction with Horizon and Horizon Collaborate. The company offers its services through a network of channel partners, as well as directly to end users. Gamma Communications plc was founded in 2002 and is headquartered in London, the United Kingdom.

Gamma Communications H2 2024 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Gamma reported a strong FY24 with revenue up 11% to £579.4m, adjusted EBITDA up 10% to £125.5m, adjusted EPS +13% to 85.1p, £153.7m cash at year‑end and a 14% higher full‑year dividend (19.5p).
• Positive Sentiment: Management says its German footprint now has scale after Placetel and Starface, with a pro‑forma run‑rate of ~€125m revenue, ~€23–24m EBITDA and >500k cloud seats, positioning Germany as a major growth market.
• Positive Sentiment: The service‑provider channel (~20% of Gamma Business, ~£76m) is a growing strategic area — Callwave expands multi‑country voice/numbering services for cloud comms partners and supports international expansion.
• Negative Sentiment: Management flagged some softness at the very small end of the SME market and an ongoing UK national insurance increase hitting Gamma’s payroll by ~£2m, which could pressure near‑term SME demand and margins.
• Positive Sentiment: Capital allocation is active and shareholder friendly — a £50m buyback announced, RCF drawn for Starface, the group remains effectively net‑cash pre‑buyback and says recent acquisitions have been accretive.

Presentation

[Andrew Belshaw, CEO at Gamma Communications]

Hello and good morning. Apparently, we are now online, so welcome everybody in the room, and welcome to you if you're joining us over the web link as well. Thank you very much indeed for making the time to come and join us for Gamma's FY 2024 results. We're pretty happy with the results for reasons that we'll go into. We think we've had a very, very good, strong year, and we hope you do too. The agenda is pretty similar to what we normally do, so I'll start with a general business update. Bill will come and talk about the financial highlights for the year. Then we'll spend a bit of time talking about the market trends and the business units. Really, what I'm looking to pull out from the business units is three things this year.

[Andrew Belshaw, CEO at Gamma Communications]

Firstly, when we're talking about Gamma Business, which is our channel business where we're selling through partners, we'll talk a bit more about what we do with the service providers that we work with. When we talk about enterprise, I just want to bring out some of the great logo wins we've had in the year, and particularly those where we've been able to service some of our customers using capabilities that we've acquired over the last few years. When we get to talking about Europe, inevitably we'll talk about Germany because that's what everybody's asking us about. We'll do that. We'll then have a business outlook. The other thing I should say is, normally we try and be very helpful in our business outlook, and we try and give you a bit of guidance in terms of where we're coming up to against consensus.

[Andrew Belshaw, CEO at Gamma Communications]

We can't do that this year because, as you'll think, everyone's very well aware, we're currently going for a float on the main market. That means we have to issue a prospectus, and, therefore if we say too much against where we're going to be against consensus, that means we've done a profit forecast, and then we have to pay some accountants really quite a lot of money to talk about that, which is all a bit hard and difficult. Once we've got the float out of the way, Bill will be giving you a bit more guidance against consensus. In the meantime, if you need any help with models and things, you know where to go and do go and have a chat to Bill Castell. Who's that handsome fellow? That's me.

[Andrew Belshaw, CEO at Gamma Communications]

I probably should have introduced myself at the beginning and didn't. For those of you who've got this far and are going, "Who is that talking?" I'm Andrew Belshaw, and I'm Gamma's CEO. It was suggested to me that I might sort of want to begin by just running around very quickly what Gamma actually does, just kind of going back to the very basics. Gamma, I think most of you probably are aware, Gamma's a B2B communications business. We started about 20, 25 years ago in the U.K., selling just calls and lines in those days. Just pick up your phone, make a phone call, largely to small businesses. About 10 years ago we started selling to enterprises, and over the last five years, we've been selling in Europe as well. What we do is three things very crudely. We sell communications platforms.

[Andrew Belshaw, CEO at Gamma Communications]

If you think about the, the one everybody knows is, is Teams, but we sell Cisco platforms at the top end of the market on the right-hand side there. In the mid-market, we have a product called Horizon that we've been selling in the U.K. for about 15 years now. We've got over, well over 800,000 users on that. We also sell a product called IPEX, which used to be known as Ericsson LG, which is a, therefore a joint venture between Ericsson and LG. Then we have our own proprietary platform, PhoneLine+, at the bottom end of the market. We don't just sell those, those platforms and distribute them. We're also a carrier. We also have our own network, which means we can provide what we call voice enablement or using phone numbers to enhance those platforms.

[Andrew Belshaw, CEO at Gamma Communications]

If you've got a legacy product, so hardware PBX, we can provide some trunking. If you're using Teams, we can provide Operator Connect, which basically enables you to take calls in and out of Teams just using numbers. We'll talk a bit more about our service provider business and what we do there, a little bit later. At the bottom, connectivity, so Ethernet, broadband, mobile. Just as a reminder, where we're selling Ethernet, we're reselling other people. We're not digging up large swathes of the U.K. and laying our own fiber. We don't do that. We work with partners like BT, PXC, the old TalkTalk Business. Mobile, we work with people like Three and EE in the U.K. That's what we do. Do we make some money doing it? Yes, we do.

[Andrew Belshaw, CEO at Gamma Communications]

We're very, very proud of those numbers. Really good growth, throughout FY 2024. Thank you very much indeed to all of our customers, all of our partners, and all of our employees for their hard work during 2024. Bill is going to go through the numbers in a lot more detail. I won't steal his thunder. He will accuse me of having done that anyway, but I'm not going to. Bill will sort of unpick what's organic, what's not organic. What I would say is where we have acquired businesses, they've been accretive from the get-go, which has been particularly pleasing. The other thing I'm particularly pleased in there, without diving into the numbers, is just the number of customers we have taking Gamma product now. We've got well over a million end users. That's a million seats in the U.K., on one of our cloud platforms.

[Andrew Belshaw, CEO at Gamma Communications]

On Germany, in Germany now, on a pro forma basis, if you sort of add up everything we now own in Germany, had we owned that at the end of 2024, we'd have had over 500,000 cloud seats, which is fantastic. It's probably worth saying at this point because it's in the RNS, and Bill will cover it in a bit more detail. Whilst we've had a really, really good start to the year in Germany, our enterprise business is looking good. Our SME business, we're seeing a little bit of softness in there. People are already asking us, I'm sure it will come up in Q&A, one or two of maybe our peers that sell into SME have reported that they're still quite confident. We're confident. We're not worried.

[Andrew Belshaw, CEO at Gamma Communications]

What we are seeing is at the bottom end of SME, and remember Gamma's average customer size on something like Horizon is about 16, 17 seats. In that very, very small end of SME where you've got sort of 10, 15 employees, we are kind of anecdotally picking up that people are a little bit worried about the economy. They're a little bit worried about NI rises. They're a little bit worried about what might be coming through in employment legislation. That has been just a little bit softer. At the bottom end of SME, we are seeing that softness. In terms of the highlights of the business, and we'll cover all of these a lot more later. As I say, our service provider business within Gamma Business, so Gamma Business selling through the channel, largely to SMEs, has had a really good FY 2024.

[Andrew Belshaw, CEO at Gamma Communications]

We're just going to pull out the 20% of our business that's selling to service providers. Why are we doing that? Because we're quite excited about it. More and more service providers, and what we mean is those people who sell a communications platform where they're not a carrier. If you think about Microsoft being the obvious one, but also Cisco, people like Twilio as well. They don't have network capability in country, and they require people like Gamma to help them. That's a growing market because we're seeing more and more of those players. Also, following our Callwave acquisition 12 months ago, we're beginning to offer those services outside of the U.K. now, and we see that as a growth area. We're pleased with what we've achieved in FY 2024, but we see it as a growth area.

[Andrew Belshaw, CEO at Gamma Communications]

Similarly, in enterprise, enterprise has had a good FY 2024. Bill, again, will run you through that. I will talk to you a bit later about some of the wins we've had. We've got a number of really exciting, new logos on people like Specsavers, people like Swansea Council, Savills, Morrisons. We're winning business because we're very good at what we do, first and foremost, but we're also winning business because of some of the capabilities that we've acquired. When we get on to talk about Germany, or sorry, Europe, we're still in the Netherlands, we're still in Spain, we still love those businesses, we're still excited about them, but we've done two big acquisitions in Germany over the course of the last seven or eight months. For the first time, I can stand here and say our German business now has scale.

[Andrew Belshaw, CEO at Gamma Communications]

We now have sales teams across the whole of Germany, and I'll give you some stats and some figures later on. Fundamentally, we've got good products. We've got products that will work for every customer, you know, irrespective of their size. We've got a sales team across the whole of Germany. We will revisit some of those things a bit later on. Right now, I'm just going to hand you over to Bill, who can come and talk a little bit about the financial highlights for the year.

[Bill Castell, CFO at Gamma Communications]

Thank you, Andrew. I am Bill Castell. I think I know pretty much everyone in the room. I am the Chief Financial Officer, been at Gamma just under three years. Little joke on the side, I now wear glasses, not just because we have got Specsavers as a new customer. I think it is more age-related, but it is a useful thing. I have got around 11 slides. I wanted 15, but Andrew said I have got to be quick. I am very happy afterwards in Q&A to cover because there is a lot going on, a lot of good stuff happened in the last 12 months in 2024. If I turn over, a common slide I think many have seen is the six-box grid that covers some of the key financial highlights. As Andrew has already said, our revenue was up 11% at GBP 579.4 million.

[Bill Castell, CFO at Gamma Communications]

that flowed through to an adjusted EBITDA up 10% at GBP 125.5 million. I'll talk a little bit about that because we actually had quite a few costs flowing through that GBP 125.5 million that we did not have in prior years. Flowing through, after that, going through to adjusted EPS, that was up 13%, so double-digit at 85.1 p, helped by interest income. As I go on to the cash line, you'll see that this was pre the Starface transaction that took place in 2025 in February. We did finish the year. You can see at the center there at GBP 153.7 million of cash. That cash in the center is the same as our net cash because we did not have any debt, the small German mortgage we paid off in 2024. I'll come to 2025 because we do now have debt. Cash conversion.

[Bill Castell, CFO at Gamma Communications]

That, at the bottom there in the corner at 96%. That was slightly down from the 108% last year. If you recall last year, I talked about the working capital adjustments, but it is well above the 90% plus guidance that I gave with adjusted cash at GBP 120.4 million. All of that feeds through. I am going to talk about the share buyback in 2025 in a moment, but we are still having our progressive dividend policy. If you recall, at half year, we came out with 6.5 p. We have the one-third, two-thirds. Hopefully it is no surprise we are at 19.5 p, which is up 14% year on year. As Andrew said, a strong set of results for the year. This slide, one of my new slides coming through, I think as Andrew mentioned, we are subject to FCA approval.

[Bill Castell, CFO at Gamma Communications]

We have a prospectus that is in draft, but we look to go to the main market on the 2nd of May. Previously, we've talked about Q2, but on the 2nd of May, if you know the market well, you know that in order to get the tracker stocks, you have to be in before the 6th of May to get the end of, end of June trackers coming in. The 2nd of May is the date that we're going. I thought it was a good time to take a look back before we go into the details of 2024 and just look at the last 10 years. I think the graphs kind of on their own show the story, which of 18% CAGR on adjusted EBITDA over the last 10 years to 2014 to 2024, and 19% on adjusted EPS at the fully diluted basis.

[Bill Castell, CFO at Gamma Communications]

Interestingly, you can look back at 2014, Gamma's adjusted EBITDA was GBP 23.1 million. That compares to this 2024, GBP 125.5 million. If you keep that GBP 23.1 million in your mind, then Andrew will refer back a bit later when he talks about Germany because interestingly, Germany might be following a similar path, we hope, going forward. Certainly we now have scale in Germany. If I move on to the primary statements, this is our income statement. I've already talked about the double-digit growth that you can see in the light purple column on the table. There are three points I want to call out here. The first is right at the top, that 89% recurring revenue. It's something that's been consistent in Gamma's story. We've asked a subscription-based model. That would continue to be 89% with GBP 516.6 million.

[Bill Castell, CFO at Gamma Communications]

Hopefully, those of you who've had a chance to look at the RNS, we have increased disclosure this year. On page 25 of my version, it might have moved to page overnight, we give extra disclosure to break down that revenue so you can start to see what's traffic subscription, and then you can start to see what's the non-recurring. Hopefully that helps in some of your modeling going forward. The second one is to talk about the organic growth. Again, we've increased disclosure at the back end, page 44 of the RNS, as we've done all of these acquisitions, Starface in 2025, but even in 2024, we had Placetel, Bright Cloud, and Pragma before that, Satisnet. We have done quite a lot of acquisitions in the last couple of years.

[Bill Castell, CFO at Gamma Communications]

We felt it was the right time to actually look at our adjusted performance measures and alternative performance measures, and that's what we've done on the back end of the RNS. You'll see that on the side, the final column of the table, and you can see a 6% gross profit and a 6% adjusted EBITDA level. I'll come back to operating expenses later on. The third point to note is actually our statutory profit before tax at 34%, not a bad outcome at all, growing significantly. When we do adjust, because in the prior year we did have exceptional items, that still comes out as a very healthy 14%. Right at the bottom there, you can see the adjusted profit before tax at GBP 111.9 million, which is growth of 14%, helped by the interest income.

[Bill Castell, CFO at Gamma Communications]

Clearly we had the GBP 153.7 million at the end of the period, but we had significant cash throughout the period. I start going through, like I have previously, the divisions. Gamma Business, as Andrew's already said, our largest division. When you look at the growth, actually at the revenue and at the GP level, at 11% headline growth, with Pragma and Callwave that Andrew's already mentioned, and we'll cover a little bit further, especially when we talk about service provider on that side. We have increased our disclosure on service provider going forward. The second one is stable margins. You can see the 52.8% compared to prior year 53%, so very stable margins throughout the period. We had organic growth at the GP level, slightly down, as Andrew mentioned, as we went into Q4, but overall for the full year, at 6% going forward.

[Bill Castell, CFO at Gamma Communications]

One thing I should note is that we had stable ARPUs across the piece with the bolt-ons coming through. The price rises landed more in the traditional products when I talked to you at half year. You can see the service providers, we start talking a little bit more about that, just the scale of it with excess of 12 billion minutes flowing through our network on that side. Moving on to Gamma Enterprise, the numbers get bigger. At the headline level on revenue, you have 15% growth year on year up to GBP 126.5 million. The gross profit up 14% to GBP 60.2 million. Again, margin stable, 47.6% compared to the prior year, 47.8%. Pleasingly, the organic growth stepped up 24 to 23.

[Bill Castell, CFO at Gamma Communications]

You can see on the GP, for example, organic was at 4% in 2023, has now grown to 6% in 2024, on that side. All in all, healthy performance, Bright Cloud, Andrew talked later about the Cisco CX provider, providing that kind of turbocharge at the headline level. When you look at the double-digit growth of both revenue and gross profit. Now, Europe, this is going to be increasing focus, going forward. Germany will be disclosed on its own, as a result of the size. Andrew's got a page which I won't steal his thunder on that's coming up, which will explain that. The headline story was 6% revenue and 18%, but that was significantly helped by the Placetel acquisition. At the organic, then you were actually pretty much flat, slightly down at minus 1% growth year on year.

[Bill Castell, CFO at Gamma Communications]

Interestingly, similar to when I spoke to you at half year, the gross profit was up 5% year on year, so positive 5% on a constant currency basis. Gross profit at GBP 45.4 million. This is all in sterling. You can see that margin. The outcome of that is that we've been growing the higher margin, what we call the non-traditional products. The traditional products, you know, the mobile side, haven't grown as much as the kind of the products that we're keen to grow, which is more the UCaaS and other products. At the moment in Europe, for those who know our business, Germany is by far the largest part of our European business, but we also have Spain and Netherlands.

[Bill Castell, CFO at Gamma Communications]

Germany grew, and you can see some of the numbers I've put down there on the gross profit side. Germany had an 8% underlying organic growth. That's pre-Placetel. Even before the transactions, we saw some good momentum in our German business. Automatically, you'll go then, if Germany's growing 8, what are the others growing by? Spain was growing. I think, as you can see in the RNS, Netherlands, although it's a very small part of our overall business, was more challenging as a more mature market, on that side. Investments, this is a slide that I started about 18 months ago to show, just to give clarity on our total development spend. What you'll see is it's relatively stable for the year 2024 versus 2023. We're at GBP 32.2 million worth of development.

[Bill Castell, CFO at Gamma Communications]

That's both what we capitalize in development, but also what we put through the P&L, which is important. That's pretty much flat, so slightly up year on year, $500,000. I think the important thing to note is we've been capitalizing less. You can see the 45% in 2023 capitalization rate versus the 39% in 2024. I said this at half year, if you recall, as we moved the investment. We still invest in PhoneLine+ and some of our own software, but clearly we have third-party supplier relationships such as Cisco and those relationships with Ericsson, Teams, and others. We are now focusing more on the portal, which is allowing us to interact better with our channel partners. That has gone live now.

[Bill Castell, CFO at Gamma Communications]

It's in constant build, in respect to improving that portal with the channel partners to sell these multitude of products, that we can now sell, through the channel. As a result of the first half, as a result of that first half, there was more kind of expensed development than capitalized. When you move across then to the other side, you can see the CapEx, therefore, was down year on year, down GBP 3.8 million. It went from GBP 23 million in 2023, down to GBP 19.2 million in 2024. You can see that development costs come across at being GBP 1.9 million less. Also, we bought quite a few software licenses in 2023, and there was not such a need in 2024 on those software licenses. To spare that in mind, in particular the capitalization rate, because I have added a new slide.

[Bill Castell, CFO at Gamma Communications]

I'd like to keep things interesting. If you look at the income statement, there's one number that I didn't call out on the headline, which was the 14%, which all other things being equal might be quite shocking if OpEx was increasing 14%. What I've shown here is a bar graph and a table, just to explain that 14%. If we work backwards, as a result of the M&A, we get the benefit clearly of all the revenue and gross profit and the double digits you've seen. We also inherit the cost associated with that business. You can see the inorganic growth of GBP 14.1 million in the year compared to 2023. Since those acquisitions we purchased, there's an extra GBP 14.1 million costs. Good news is there's more revenue and gross profit than that, on that side.

[Bill Castell, CFO at Gamma Communications]

When you strip those out on an organic basis, you get to GBP 161.5 million, which is a 6% year on year increase. However, when I do the analysis, and hopefully when you do the analysis, you also can see there was a number of things in 2024 that I alluded to earlier that did not occur in 2023. One is if we had the same capitalization rate, i.e., we did not expense as much, in 2024, then we would have had GBP 2 million of extra CapEx and GBP 2 million less OpEx. That is just looking on a like for like basis on a constant capitalization rate. Deal costs, I think it should be no surprise given Starface, Placetel, Bright Cloud, Callwave, and others that maybe we did not go ahead with, that due diligence costs were GBP 1.9 million up year on year.

[Bill Castell, CFO at Gamma Communications]

Unlike I know some other businesses out there, we do not split those out as an adjustment. We flow those through, as normal course. Finally, the kind of strange one, there is a few here, but the strange one of R&D tax credits, clearly if you spend less CapEx, you get less R&D tax credits coming through. We had GBP 1.1 million less R&D tax credit coming through. There is a slight net contingent release associated with Satisnet and Pragma that goes the other way. All of that leads you to a view that actually the organic growth was around GBP 8.6 million, but of that, GBP 4.9 million is what I would call underlying kind of true year on year, which gets you to around a 3% increase year on year.

[Bill Castell, CFO at Gamma Communications]

I know those in the room who do all the modeling will do it their own way, but it gives you just an idea on the like-for-like basis, going forward. Back to the primary statements, balance sheet, I won't spend too long because I've got to speed up as Andrew looks across at me on that side. There are two things I'd like to pull out here. One, when you look at the main balances, there are kind of significant increases in receivables and payables, et cetera. That is associated with just the M&A purchases. And you'll find in the RNS, both the PPA adjustments we've made, but also you can see the balance sheet that we've taken on with the transactions. I think that's one point to note.

[Bill Castell, CFO at Gamma Communications]

The second point to note is the second is at the bottom there, which was just the release of Satisnet and Pragma I mentioned earlier, in the contingent consideration. We finished paying off Mission Labs. You'll see again in the RNS, we have quite a lot of disclosure now on the contingent consideration. You can map through all of those sides. Needless to say, I'll say it again, we finished with GBP 153.7 million of cash. That was pre the Starface transaction, but it leads me nicely onto the cash flow. Again, a few comments. I'm going to keep saying 96% conversion, not 108% as I said before because of the prepayments prior year, but well above the 90% guidance that was provided. Another really strong year of cash conversion.

[Bill Castell, CFO at Gamma Communications]

When you look at the bottom, you can see there was a GBP 17.8 million net cash increase. This was after our normal progressive dividend policy of GBP 17.3 million, acquisitions of over GBP 15 million, our share buyback of over GBP 27 million. That list keeps going on, but we still keep generating cash. I think that's the main point to take away. The only other slight anomaly this year is the increase in taxes paid, which you'll see went from GBP 15.3 million in 2023 to GBP 23.9 million. Quite an increase in taxes paid. That's a result of us making more profit, which is not a bad thing. Also, in the prior period, we had some exceptional items. In 2024, we had some due diligence costs which were not tax deductible as well.

[Bill Castell, CFO at Gamma Communications]

When you work through, and again, there's a note in the RNS that takes you through how that comes about. As I said, 96% cash conversion, finished the year at GBP 153.7 million. Another strong cash generative year. The slide that often everyone waits for after listening to me go through 10 other slides. This is, as Andrew said, where I normally list the consensus and give you a view. We can't do that this year as a result of the prospectus and moving to Main. However, with Peel Hunt and Deutsche Numis, our brokers help. This is what I am allowed to say on that side. Firstly, I haven't mentioned, I know Andrew did the share buyback announcement that went out two minutes after the first RNS, with a GBP 50 million share buyback.

[Bill Castell, CFO at Gamma Communications]

If you recall, we have an RCF facility of GBP 130 million, that we took out as part of the Starface transaction. We drew down GBP 30 million related to Starface. We clearly have liquidity to support both the share buyback and the dividend subject to the AGM that we announced today of GBP 0.13, GBP 0.195 for the full year. Certainly enough funds. You'd also see in the going concern statement in the RNS that we gave a February month end update. We're actually, as we stand here today, in a net cash position. Although we're taking GBP 30 million on the RCF, given the working capital cash that we have in the business, we're, you know, GBP 17 million plus is the number you'll see.

[Bill Castell, CFO at Gamma Communications]

We're actually sitting here before we start the share buyback in a net cash position at the end of February. When we do look out to 2025, we're not giving official guidance, but as Andrew said, we're excited about the German acquisitions. Andrew and I have spent a lot of time in Germany and we're heading out there next week. It's also supported by satisfactory group organic growth. That might come up in the Q&A. Everyone I spoke to this morning asked, what does satisfactory mean? On that side, we'll see on that side. We're making good progress in the integration in Germany, which Andrew will come to. The final comments, and this is the final one, is just to provide a few numbers, which will help with the modeling.

[Bill Castell, CFO at Gamma Communications]

The national insurance, Andrew's alluded to the impact on U.K. SME. We ourselves have over 1,500 people in the U.K. So that's hitting us, by around GBP 2 million. And that's not just the 13.8% moving to 15%, but also the banding change as a result of that. That's just to give people a view. I think what I've seen from the analysts, most of that is now included in their numbers. Then there are some anticipated adjustments. At the bottom, the bottom one I think I've alluded to before, we spent GBP 1.4 million in 2024 on our ERP and HR system. We said it was a two-year program totaling GBP 3 million. This is just the remainder of that, the GBP 1.5 million coming through in 2025. That's on budget and on course. There are costs. Andrew's mentioned the accountants.

[Bill Castell, CFO at Gamma Communications]

There's lawyers, there's accountants, there's entry fees. That, similar to people who we've been following in Alpha and others, is around GBP 2 million, expected cost, on that side. Finally, with Starface, with that acquisition that was completed on February the 19th, there were a number of transactional costs associated with that, which were estimated to be between GBP 4 million and GBP 5 million. Again, those last three items are expected to be adjusted for, whereas the GBP 2 million NI is an ongoing cost. That will just come through normal course. That's it. Very happy to answer any questions in the Q&A at the end. I will now hand over to Andrew, who'll give you an update and give you some more disclosure on Germany.

[Andrew Belshaw, CEO at Gamma Communications]

Castell, thank you very much indeed. Right. We call this section catchy title, Update on Market Trends and Business Units. It is an update. There are no major pivots that we're about to announce. You know, one of the things about Gamma is it's a bit of an oil tanker business, an oil tanker sort of industry. Things tend to move relatively slowly. You'll have seen this slide before, but again, I just wanted to sort of run through it and remind you what Gamma is about and where we play in this market. Gamma occupies what is almost a unique position. The global tech giants and the partners want to come and talk to Gamma. We're talking about people like Microsoft. We're talking about Cisco.

[Andrew Belshaw, CEO at Gamma Communications]

I have a couple of dinners this week with other people that you'll know who want to come and talk to us because we have this amazing distribution reach. We have thousands of partners across Europe reaching tens of thousands of small businesses across Europe. We have access to hundreds, if not thousands, of CIOs in enterprise and public sector as well. We have this amazing reach. Why do we have that reach? It's just wonderful symbiosis. We have that reach because actually we're good at what we do, but also fundamentally we have all of those relationships with the tech giants and the large partners. It just works really, really well. We're not merely a distributor of comms platforms and things. Gamma is a carrier. We have a network in the U.K.

[Andrew Belshaw, CEO at Gamma Communications]

We have a network in the Netherlands and Spain and in Germany as well, which means we can do voice enablement, which means if we're selling a communications platform, we can provide numbering on that platform. We can carry the calls. I have got an example of where we won some work this year just on the back of that capability. At the bottom, I think Bill mentioned it earlier on, we are currently rebuilding our portal. Why are we doing that? Because we want our customers and our partners to have a fantastic quality of service. Gamma just sits in this great position where the tech giants want to talk to us because of the distribution.

[Andrew Belshaw, CEO at Gamma Communications]

Our customers want to talk to us because we have the relationship with the tech giants, but also we have that carrier capability and we have that fantastic, quality of service. You'll have also seen this slide or a variation on a theme of this slide, which are the growth drivers. We've been talking about these probably for the last year or so now, but they remain very pertinent and they remain constant. One of the problems that we have when we're trying to explain Gamma to a new investor or even to our own employees is the world's more complicated. Ten years ago, I'd have been stood up here talking about plastic phones on your desk, making calls. If you made more calls, you made more money. These days, you want to do video calling.

[Andrew Belshaw, CEO at Gamma Communications]

You'll want to integrate with WhatsApp, which you didn't want to do 15 years ago because it didn't exist. You'll want to integrate with CRM systems. As the world becomes more complicated, I think our story becomes more complicated. For those of you who are modelers, modeling it becomes more complicated. Fundamentally, we have more opportunities to increase the ARPU from customers because they have more things they want to do with their communications and therefore we can charge them more money. You'll see that sort of come through. Second thing, we're going to kind of keep going on about it. We're very excited about Germany. We've got lots to say on that. I won't go through that now. The German market is still very, very underpenetrated compared to, certainly, the U.K.

[Andrew Belshaw, CEO at Gamma Communications]

but even in the U.K., going on to, to, to point three, you've still got somewhere between 40% and 50% of businesses in the U.K. using a hardware PBX with Gamma SIP in, which is great because they're buying Gamma SIP. we're very excited about that. Over time, they will migrate to cloud products and the ARPU goes up because in the U.K., we don't sell those hardware boxes. we only get the SIP revenue, but we can increase our ARPU by getting the communication platform revenue as well. The fourth thing, PSTN switch off in the U.K., BT keep putting the date back, which, you know, is, is perhaps, less helpful. there's three things that we're doing to, exploit the PSTN switch off. The first is we have our product, PhoneLine+, that we launched a little while ago.

[Andrew Belshaw, CEO at Gamma Communications]

It's a single line replacement product for, for micro businesses. We've got 34,000 users on that. In the next few months, we're going to launch the next iteration of PhoneLine+ that just enables our customers to do more things, which is great. Secondly, we have a good fiber offering working with our partners, people like BT and PXC. That's going to be on our new portal over the next couple of months as well, just enabling our customers to come and pick the right fiber solution for them. The third thing that I think we're calling out probably for the first time here is we have a product, or solution rather, called Fusion IoT that was developed by our German team. It's an IoT solution. We've brought that into the U.K. now.

[Andrew Belshaw, CEO at Gamma Communications]

Where we have end users who've got single lines going into things like lifts, like alarms, where they're just monitoring something, IoT is the obvious replacement for those single lines. That's going to be launched over the course of the next couple of months in the U.K. to small business. That's the market. Let's talk about the various business units. Gamma Business, this is where we're selling mainly through channel partners, mainly to small businesses. That's about 80% of what we do. As I said, what I wanted to focus on this morning was the 20% of the business that we don't really talk about, which is our service provider business. It's about GBP 76 million out of the GBP 370 million. It's about 20%, 21% of Gamma Business revenues.

[Andrew Belshaw, CEO at Gamma Communications]

It is selling to a slightly different type of partner to our regular channel partners. It tends to be people like ISPs, like MVNOs, like cloud communications providers like we were talking about earlier. What does Gamma provide for them? Actually, it is very simple. If you are a cloud communications provider and you want to provide telephony in a country, you are going to need phone numbers. You may not have phone numbers in that country. Gamma has lots of stock of phone numbers in all the countries in which we operate. We are able to sub-allocate those to our partners who are able to sub-allocate them to their end users. We can also route calls in and out of those numbers. Rather than just having the comms platform, you have now got the comms platform with the ability to make and receive calls.

[Andrew Belshaw, CEO at Gamma Communications]

As I said at the beginning, that's exciting for us for two reasons. The first reason is because more and more provide, you know, if you think about some of the names, again, they don't really like us naming them. If you think about that Gartner Magic Quadrant and you think who's up there towards the top right, those are the kind of people that don't have comms networks in each country. Those are the people that we're dealing with. You know, more people are buying some of their solutions. The really exciting thing is following our Callwave acquisition, we can now begin to offer that in nearly 20 countries. We say it's 20 countries. You're all really good at maths because you're all analysts. You'll see there's 16 flags up there. I don't know where the other four have gone.

[Andrew Belshaw, CEO at Gamma Communications]

Maybe they don't have flags. Who knows? Anyway, the notes are definitely saying to me there's 20 countries and we've got 16 flags up there. Anyway, the point being that one of the things we're going to be doing throughout the rest of 2025 and into 2026 is talking to the people that we're already working with in the U.K. about providing that business for them outside of the U.K. Again, we see this as a growth business. We just wanted to sort of call it out this morning because it'll be something that I think we're going to be talking about a little bit more, as well as the rest of what Gamma business does, as well as all of the good stuff that we do through our channel partners to our small business customers.

[Andrew Belshaw, CEO at Gamma Communications]

Enterprise, I wanted to talk about, and I'll show you some logos of, business that we've won during 2024. I want to focus on some of the acquisitions that we've made and how they're helping us to win business. The first acquisition, just to remind you, was a business called Exactive. I have to say I couldn't remember exactly when we bought Exactive. I thought it was either 2019 or 2020. I thought, what I'll do, I'll just type that into Copilot really quickly. Did Gamma buy Exactive in 2019 or 2020? Microsoft told me with an amazing amount of confidence, Gamma bought Exactive in 2023, which I know isn't true. We're safe here. AI is not yet taking over the entire world. Absolutely. There are some things it can do, some things it's less good at.

[Andrew Belshaw, CEO at Gamma Communications]

Anyway, we'll talk about Exactive, which ironically, was our Microsoft capability. Satisnet was our security capability that we bought in 2023. Bright Cloud was our customer experience capability that we bought about six months ago in 2024. Here are some logos. You will know these companies very, very well. I think probably our most high-profile win in 2024 is Morrisons. We're absolutely delighted to be working with Morrisons. We've been seeking them out for some time to work with them. The first thing that we did for Morrisons is we're putting in a brand new network for them that's covering 2,000 sites across the U.K. That's going to be a high-speed network that helps them really fulfill their e-commerce ambitions.

[Andrew Belshaw, CEO at Gamma Communications]

They work with people like Amazon, Delivery, Uber, and they need a good in-store network to do that. We were able to win that business fundamentally because we just did not turn up and sort of talk about network speeds and all the techie stuff. We just listened to the business problems, what they are trying to do, and how can we solve them. We won the network, and then we have also now provided SIP to them over that network. We have sold PhoneLine+ into Morrisons as a communications platform. We are also now selling them security services using our Satisnet capability. Again, it is a network win followed by voice wins and a security win, other things that we are really, really good at.

[Andrew Belshaw, CEO at Gamma Communications]

The AA, some of you who've been following Gamma for some time will remember, we've had this logo up before years ago. Gamma helped the AA move from 08 numbers. If you follow their vans up and down the motorway some years ago, they had 08 numbers. Now they're all 03 numbers. That's just a cost saving for them. More importantly than that, it gets Gamma to be known as a reliable technology partner. When they wanted to put their mobile estate out for tender, they invited us to come and tender for that, and we won it. More recently, we've been working on a project with the AA to put our Fusion IoT solution into their vans, which is turning their van into a network hub. That does a whole bunch of quite interesting things for them.

[Andrew Belshaw, CEO at Gamma Communications]

Fundamentally, what it means is they can get to you if you've broken down more quickly. What's that? That's better customer service for them. Ultimately, they can see more, or see more customers in a day, fix more breakdowns in a day, which again is good for them. We're also working on a security solution now with the AA, and that's going to be a partnership between Gamma's network capability, Cisco's SD-WAN capability, and the security capability that we have through Satisnet. Bringing those three things together, we're providing now a security solution for the AA. Again, just demonstrates that we win the first project and then we move on to other projects. Edmondson Electrical is a brand new customer for us this year.

[Andrew Belshaw, CEO at Gamma Communications]

Edmondson Electrical, as you probably know, they've got a number of stores and warehouses around the country, and they had lots and lots of different PBXs that were running locally. What they wanted was a single cloud PBX that could just work across their entire estate. With our partners at Cisco, we bid Webex and we won it. Why did we win it? Again, it's that network capability together with the cloud communications platform. Put very simply, when we actually put our solution together and we trialed it, ours actually works. I won't tell you who we were up against, but not all of the pilots that they tried did work. It just goes to show you it's the cloud communications platform coupled with the network that actually matters when you're bidding these country companies.

[Andrew Belshaw, CEO at Gamma Communications]

The final one down there, Swansea City and County Council. Again, that's been a SIP customer of ours for some time, but they're one of these people who have SIP going into a hardware solution, and they wanted to move to UCaaS and also a CCaaS offering because obviously lots of people phone the council. They'd invested quite heavily in Teams. They already had the E5 licenses that you need to voice enable Teams. They wanted a Teams-heavy solution, but they needed the contact center offering. What we were able to do is take Teams because we worked with Microsoft. We were able to take Cisco's contact center because we worked with Cisco.

[Andrew Belshaw, CEO at Gamma Communications]

We were able to take a proprietary solution that we've got called Cloud UCX that we acquired with Exactive a few years ago and knit all of that together into a solution that worked for Swansea so they could leverage what they'd already done with Microsoft and we could give them the best in class capability on the back of Cisco's contact center solution. Just hopefully some examples of what we do and how the acquisitions have helped. Gamma Europe, again, Bill sort of alluded to it earlier. Our Spanish business is going well. Netherlands business, you know, it's a tough market in the Netherlands. It's quite a saturated market in the Netherlands. We really wanted to talk about Germany.

[Andrew Belshaw, CEO at Gamma Communications]

One of the questions we've been asked lots about Germany at the moment is, you know, what is the size and scale of your German business? Because we bought Placetel back in September, October time. You've only really got a quarter of Placetel results and the numbers and none of Starface. What we've attempted to do is throw together a pro, sorry, throw together detailed analysis of our German business, by aggregating what would FY 2024 have looked like if we add up Gamma Germany as it was with the Placetel business for the year, with the Starface business for the whole year. There's a few gap issues going in there. These are approximate numbers, but hopefully it gives you an idea of scale.

[Andrew Belshaw, CEO at Gamma Communications]

As we sit here today, the run rate for Gamma Germany is revenue, EUR 125 million, EBITDA around about EUR 23 million, EUR 24 million. We've got 450 employees in five sites across Germany. As I mentioned earlier, for the first time, we've really got coverage in Germany. We've got Köln up there in North Rhine-Westphalia, Karlsruhe down in Baden-Württemberg, and then over in Bavaria, we've got HOF, Munich, and Starnberg. We've got really, really good coverage. We've got over 500,000 cloud seats in Germany, which puts us up there, I think certainly in the top three of cloud providers in Germany. In addition to that, we've got nearly 400,000 users on hardware. One of the things that Starface are able to do is to go to customers who say, "We quite like your platform, but we don't like cloud.

[Andrew Belshaw, CEO at Gamma Communications]

We don't want to go to the cloud yet." Starface can provide it on a piece of hardware that you can put in your own server room. Nobody can get to it or touch it. That's yours. When you're ready to move to the cloud, it's very easy for us just to flip a switch and move you into the cloud. We've got 400,000 users on hardware that can move to the cloud. We also have 200,000 users on something called Estos, which is another part of the Starface business that we acquired. What Estos is, is a sort of UC overlay. Again, it's a peculiarly German product that sits on top of a hardware PBX. Again, if you're sitting there going, "I'm not ready to move to the cloud.

[Andrew Belshaw, CEO at Gamma Communications]

I want to have a hardware PBX, but I quite want voice and instant messaging and all the other stuff you associate with UC," Estos can sit on the top of that and sort of provide you a kind of UC solution on hardware. We have another 200,000 users on that. Our Fusion IoT product has 44,000 SIMs out there. I hope you agree. It is actually a sizable German business of scale. The thing that really excites me, and sort of Bill alluded to this earlier, is if you go back to the graphs that Bill showed you a few minutes ago, the size of Gamma Germany today is not a million miles away from the size of Gamma U.K. when we floated Gamma U.K., 10, 11 years ago now. That is one of the things that makes me so excited.

[Andrew Belshaw, CEO at Gamma Communications]

It makes me so excited because when you look at the German market, the state of the German market looks a bit like the U.K. market looked all those years ago as well. What's that graph telling you? This is from an organization called Covel. It's independent third-party data. We've shown you Covel data before, and I think we've generally sort of fessed up to the fact that they tend to be a little bit optimistic. I'll just sort of put that thought out there with you. If you look at the end of 2024, Covel are telling us there's just over five million cloud users in the U.K. Now, again, depending on who you read—sorry, in Germany, quite right. Thank you, Bill. There's just over five million cloud users in Germany.

[Andrew Belshaw, CEO at Gamma Communications]

Depending on who you read and who you study, the total German market is somewhere between 25 and 30 million users attached to a telephony in some way, shape, or form, we believe. What Covel are saying, so penetration somewhere between 15% and 20% is what people are sort of saying, but definitely sub 20% everybody would agree on. Covel are then saying over the next four years that doubles. Even four years from now, you've got sort of 30%, 35% penetration in Germany. Germany, as we've seen in the U.K., as Gamma has grown over the last 10 years, very steadily, very methodically over the U.K., the German cloud PBX market is going to grow very steady, very methodically over the next 10 years. Gamma's in a really, really good place to exploit that.

[Andrew Belshaw, CEO at Gamma Communications]

Why are we in a good place? Because we've got the entire solution set now, and we'll kind of come at this in a couple of different ways. We've got Placetel, which was the acquisition we made in September. That's a digital-first solution. It's digital. Many of our customers still come to us through partners, but it just enables small businesses, sub-10 users, to go online, manage their telephony very easily, and it's a really nice solution. As of a few weeks ago, we now have Starface, which is a fantastic mid-market solution in Germany, you know, providing a very flexible cloud PBX experience. At the top end, we work with Cisco. I talked about our Estos product a moment ago. Our Estos product can give larger businesses a UC type of experience, even if they want to use hardware.

[Andrew Belshaw, CEO at Gamma Communications]

Hardware's still really important in Germany. I mentioned again a minute ago, Starface still has a hardware offering. Right now, as we sit here in Germany, for a business of pretty much any size in Germany, we can provide you with either a hardware or a cloud offering that will give you the communications platform you need. Of course, Teams is down there now. We've launched Operator Connect in Germany. We've got a whole thousand seats on there. I have a really nasty feeling that may make us one of the biggest providers in Germany. We've got a, you know, we can provide that as well. We continue to look for other solutions that we need. The other way of looking at that is actually to sort of think about the chart that I showed you right at the very beginning of the presentation.

[Andrew Belshaw, CEO at Gamma Communications]

This is what Gamma looked like when we were stood up here 12 months ago. We had a fantastic SIP trunking business that we bought a few years ago over in HOF, and we had a great mobile business. We were a bit weak in cloud, and we were a little bit weak in some of the areas of voice enablement. I can remember saying, if you were here 12 months ago, there are two or three situations in Germany that I think we can unlock over the course of this year. I am absolutely delighted we did unlock them over the course of this year because we are just in a very, very, very different place now in terms of that business. Organically, what we knew we were going to do was launch Teams voice enablement.

[Andrew Belshaw, CEO at Gamma Communications]

As I said a minute ago, Operator Connect is available in Germany, and we work with Cisco in Germany at the enterprise end. You know, we have not spent too much time talking about it, but getting our enterprise business into Germany and winning large German clients is something that we very much want to focus on as well over the next year or two. Since we have done the acquisitions, we now have that sort of full-service cloud-based communication suite. Basically what I showed you earlier on, this, you probably cannot see very well, but that is Gamma service provider. Again, I mentioned a few minutes ago, service provider is something we want to launch in various European countries, certainly including Germany.

[Andrew Belshaw, CEO at Gamma Communications]

Connectivity, we can sell you Ethernet and broadband in Germany, but we need to get better at it, and we need to get better coverage of that. That is one of my challenges, over the next year or two. Hopefully you sort of get the sense, you get the excitement. Gamma Germany looks like Gamma U.K. looked like 10 years ago. The German market looks like the U.K. looked like 10 years ago, and we have got the bits now to exploit that market in a way that we did not 12 months ago. Still very excited about the U.K., very excited about the Netherlands, very excited about Spain, but I do think we have built something special in Germany over the last 12 months, just to labor the point.

[Andrew Belshaw, CEO at Gamma Communications]

Moving to the outlook, as I say, Gamma business, I'm excited about what we're doing with small business. I'm excited about what we're doing with channel partners. I'm excited about all of those SIP customers that are currently using SIP+ hardware that are going to be moving to the cloud over the course of the next few years. We're excited about the capability of our service provider business and how we think that can grow both inside and outside the U.K. Gamma enterprise, we're winning, and we're winning because we're good, but we're also winning because we made some great acquisitions, and we're knitting those together and providing our customers with a full technology stack, which is great. In Europe, again, Spain, Netherlands carry on growing, but in Germany, we've now got scale. We've got a great solution set.

[Andrew Belshaw, CEO at Gamma Communications]

We've got a fantastic partner base. We're not entirely sure what's going to happen tomorrow, what Rachel Reeves will or won't say, but whatever happens to the U.K. economy over the course of the next 12 months, the fundamentals of Gamma's business remain strong. We've got high recurring revenue. We have stable margins. Bill talked about the cash conversion earlier on. Fundamentally, what we do providing communication is critical to every single one of our customers and every single one of their end users. What we've seen, if, you know, taxes change or whatever changes, investment changes, and the economy gets a little bit softer, Gamma carries on growing in periods of a softer economy. It may just grow a little bit more slowly than it grows when the economy's buoyant. Finally, we continue to look for M&A opportunities.

[Andrew Belshaw, CEO at Gamma Communications]

We know we've got a job of work to do to integrate our German business, and we're already on that. As Bill said, we're over there next week. I'm spending about half my time in Germany at the moment just making sure we get that integration right so that we can exploit the opportunities that we've got going forward. What we've bought has been accretive, and we carry on looking for other things that are accretive. That's probably where I invite Bill to come and sit down with me at the front, and we can move into Q&A if that's okay. Oh, look at the, there's a row. I don't, Jamie, I'm going to let you. They're all wonderful gentlemen. Jamie, that's your call.

[Andrew Belshaw, CEO at Gamma Communications]

Yep, hi, it's Morris, from Barclays. Just a couple for me, please.

[Andrew Belshaw, CEO at Gamma Communications]

Just on Germany, in the slides, you put enough slides up saying that you've grown 18% in the U.K. over 10 years and Germany could look like the U.K. People obviously assume, or not assume, but ask the question, does that mean you can take your 25 million and perform an EBITDA and grow that 18% over 10 years and see where you come out? I mean, if I look at the German market over the last 10, 15 years, it has been slower than the rest of Europe, I mean, mobile adoption, broadband adoption, everything. Just curious your view as to if you think there's anything structurally different about Germany which might make you think that you couldn't just extrapolate the 18% kind of guy you've got. Yeah. and then just a sort of second last question.

[Andrew Belshaw, CEO at Gamma Communications]

In the Dutch market, you sort of brush off the declines there as it's a mature market. In fairness, KPN, Vodafone Ziggo are doing okay in the Dutch market. There's no disruptive forces seemingly. Curious to kind of dive under the hood slightly as to is it as simple as it's mature or is there some more sort of other elements going on? Thanks.

[Andrew Belshaw, CEO at Gamma Communications]

Do you want to go first or what?

[Bill Castell, CFO at Gamma Communications]

Should I go? Yeah, go ahead. I'll go first. We will be very happy if Germany follows the 18% KG growth. I think when you look at it, the size of the market, middle stand, so the SME equivalent is large in the U.K. So that's a tick in the box. Where we're starting from, as Andrew said, the 15% to 20% cloud penetration is a tick in the box.

[Bill Castell, CFO at Gamma Communications]

I think it comes down to cloud adoption, and the rate of cloud adoption, in Germany. It has shifted, but it hasn't accelerated. I think when you came in 2018, Covel was saying they thought it would be a much quicker cloud adoption, across the piece. I think we've shown in even difficult macroeconomic times in Germany, we've managed to do high single. I talked about 8% gross profit, you know, organic. We're obviously now a larger business. Even in a poor macroeconomic environment where cloud has moved, but it hasn't taken off, you've got high single-digit growth. The political uncertainty, I think, is solving itself in Germany. Maybe that's too early to say, and I'll regret saying that. The other aspect, I think everyone's heard about the potential fiscal stimulus that's going through, as well.

[Bill Castell, CFO at Gamma Communications]

When we're in Germany and Andrew and I meeting shareholders in Germany and elsewhere, the proof's going to be in the pudding, but there's a bit more confidence building that there's going to be kind of a more positive outlook, going forward. Now, it's not suddenly going to jump. I think the jury's out whether the 18%, 19% can definitely be baked in now, but I think it's not out in respect that we can get high single digit growth in a market that in the macro economy that's not booming. I don't know, Andrew, if you would add anything to that.

[Andrew Belshaw, CEO at Gamma Communications]

No, I think that's all very reasonable. Yeah.

[Bill Castell, CFO at Gamma Communications]

And then on the Netherlands, you're actually, I think when you look at the penetration, it's close to kind of 70%. The cloud penetration, KPN and, you know, we don't talk ill of competitors and sometimes we beef them up, but KPN have done a great job. I think they bought Rootit, which was a Gamma-like company back in 2012, I think it was 10, 12 years ago, and so they kind of got a good advantage early doors in that marketplace. Maybe we turned up and it was the first place we went to in 2018. We're not saying it's a poor market. It's just it is not growing for us at this time. There's opportunities, Operator Connect and others that we're doing well in, but it is a highly penetrated market with competitors. When you look at the market size compared to Germany, you know, the TAM is just not the same size as Germany.

[Bill Castell, CFO at Gamma Communications]

Obviously, we're not in France, but that's a significant TAM and Spain. It's just a smaller market for us. As you might be aware, Herbern, who runs our Dutch business, also, you know, covers Northern Europe. We have managed to kind of get synergies across Netherlands and Germany. The CFO also covers Netherlands and Germany as well. There's automatically, you know, some actions we've taken in order to grow that. The materiality of the Dutch business, you know, when you look through all the RNSs and elsewhere, you can see it's just a couple of percent of the overall group. We're serious about it, but we don't want to, when it's having a bit of a challenging time, it doesn't really steer the group in a different way.

[Andrew Belshaw, CEO at Gamma Communications]

I think I just, I think it's a sort of vindication the other way around, not particularly in our favor that scale matters. I think is, you know, so why have we been so excited about the fact we've now got scale in Germany? Because all of the people that you sort of, you know, KPN, Enrich, doing well in the Netherlands, they've got scale.

[Bill Castell, CFO at Gamma Communications]

Yeah. Sorry.

[Andrew Belshaw, CEO at Gamma Communications]

Yeah. Would be the other thing I'd say. You know, it doesn't particularly work for us well in the Netherlands, but certainly does in the U.K. and Germany.

[Harvey Robinson, Senior Technology Analyst at Panmure Liberum]

Harvey. Thanks. Harvey Robinson, Panmure Liberum. Three questions, I think, two more detailed and one quite short. I'll get a short answer.

[Harvey Robinson, Senior Technology Analyst at Panmure Liberum]

Just on ARPU, you give a bit of color in the statement on page five about how Teams adds to your GBP 1.25 price. A couple of years ago, you gave us quite a useful slide about how ARPU shifted within the Horizon portfolio. I think Cloud PBX was GBP 8, and then the collaboration tools were up to GBP 18. You obviously added the Ericsson partnership since then. Could you just give us a bit more feel for how those ARPUs change and whether there's any margin impact on that? I think obviously you said, I think historically that Ericsson hardware is quite prevalent with some of the people with SIP into hardware. So that's question one.

[Harvey Robinson, Senior Technology Analyst at Panmure Liberum]

Question two, just on networks, you've been quite clear about what you own and don't own in the U.K. in terms of the voice enabled, network at the core of network. You've talked about BT, you've talked about Three and EE. Could you give us a sort of a facsimile of what that would be if you copy that into Germany, what that would be and what that strategy is? What do you own? What don't you own? Who do you partner with in the network? Because you've obviously made quite a point about voice enablement being important. The final question is probably going to get a blunt answer. Why are you keeping Spain? Wouldn't it make more sense to recycle the capital into Germany? Sorry.

[Bill Castell, CFO at Gamma Communications]

I'll take the first two.

[Andrew Belshaw, CEO at Gamma Communications]

Yeah, yeah.

[Bill Castell, CFO at Gamma Communications]

Take the third one

[Andrew Belshaw, CEO at Gamma Communications]

Yeah.

[Bill Castell, CFO at Gamma Communications]

Because I was expecting maybe some of those. I think, yes, we, Andrew did show previously that slide that kind of showed the SIP trunk and then an average of four users per SIP trunk at the 125. In the RNS, we talk about doubling to the 250 of Teams. I think it's that slide. We always talk about kind of 7.95. It's list price, not ARPU. If you recall, we gave list prices, as a result of the situation. The IPEX list price is around 7.50. Just to give you that idea, as you, I think you're thinking about the SIP PBX migration as you move across, what are the different, now you've got more of a stack, what are the different points? IPEX is very similar to that. Our PhoneLine+, the entry level is 3.95 as a list price.

[Bill Castell, CFO at Gamma Communications]

there's kind of PhoneLine++ because we're going to do different SKUs on that up to around GBP 6.95. Some have been launched, some are about to be launched, I should say, in relation to that side. you've talked about Microsoft already at GBP 2.50 around that level. and then actually Webex gets a little bit more complicated because there's multi-tiers. You kind of start with a common tier at GBP 4.95, and then you can go all the way up to more of that enterprise grade level, you know, CX. On the kind of contact centers, it used to be called around GBP 23.95. Overall, I think we're around the GBP 8 and GBP 9 if you kind of average out where we look.

[Bill Castell, CFO at Gamma Communications]

As you just see that SIP PBX migration, you've got, yes, some might go to Teams, some will go, hopefully go to Horizon, some will go to IPEX. Some will just want, you know, we talked about PSTN switch off, the more simple basics at GBP 3.95, but we now do have that menu. The key is also the platform that we're building with the channel partners so people can choose quite easily. Because now, rather, you know, 24, 36 months ago, it was pretty much Horizon. Now we've got a whole suite of products, which is why the platform's so important. Hopefully that answers, it doesn't give you the idea of the ARPUs, but we don't quote those sizes, but, you know, not far off the list price on those things.

[Bill Castell, CFO at Gamma Communications]

I would say just on, if you remember on Horizon, we do have those bolt-ons. I think you've heard of Contact, Horizon Contact, which is much healthier, GBP 18 per user on that. That's less than the SIP PBX migration. That's the bolt-ons that go thereafter. Good that I did my research because it's not my expertise to look at that German infrastructure side of things. You're right, as a result of all of the acquisitions we've got, we have a network infrastructure which is dedicated links between our data center space and the telecoms. I'll talk about our data centers in a moment. Germany, I think you're very aware, you have data centers in country, due to GDPR. We have dedicated rack space where we host all of our computers.

[Bill Castell, CFO at Gamma Communications]

All the UCaaS, the platforms, the IT platforms. As Andrew said, we've got our own SIPs. We have our own voice service infrastructure. Now, with Placetel, with Starface, and with our own HFO, which had the SIP voice business. By the way, HFO already provided to Starface SIP. We knew the Starface, and that's how the relationship started many, many years ago with Andrew and the SIP, with Starface, on that side. We have data centers in Frankfurt, in HOF, which is where our HFO business is based. We have a voice center in Nuremberg and Frankfurt as well. The idea is over time, we will bring those data centers together because there will be some synergy that we can get on that. The key for us is actually we have the rack space.

[Bill Castell, CFO at Gamma Communications]

To scale, we're not digging up, as Andrew said, roads. This is data center space to scale. It's putting more switches and elsewhere into those data centers. There's plenty of rack space to do that. We don't have any barriers to scale. Is there anything you want to add on that?

[Andrew Belshaw, CEO at Gamma Communications]

Yeah. I mean, I suppose, yes, absolutely. On the other bits and pieces, if you think about the mobile, getting an MVNO in Germany is virtually impossible for regulatory reasons. We work with all of the main mobile operators. We've got agreements. This is going to test me who they are. Certainly with Deutsche, Telefonica, Voda, and there's one other that somebody will shout out in a minute, the main mobile networks.

[Andrew Belshaw, CEO at Gamma Communications]

I sort of briefly alluded to fiber. Fiber in Germany is high A, because their rollout's not great, and B, when we look at the sort of cloud PBX market in Germany, and we say that's about 10 years behind the U.K., the fiber market in Germany strikes me and, you know, again, some of you are probably even closer to it than I am, is even further. Because you've got all these little regional fiber providers that are sort of cabling up individual towns and cities, and, yeah, we need to work on a solution so that we can provide fiber across the country. It's a very, I think the quick answer to it is it's a very, very, very similar model to the U.K. We're not digging up the road.

[Andrew Belshaw, CEO at Gamma Communications]

We're not building our own mobile network. We have got our own voice network, as Bill said. We need to do some consolidation. You know, that should be an opportunity for synergies going forward, just not having quite so many data centers. That's Germany. Spain. Spain, I think, yeah, I mean, there's a number of reasons for keeping Spain. I mean, the main one, and it goes back to that sort of arrow diagram. The fact that we have a business in Spain is actually very attractive for some of the people that we partner with. While that business is growing, yeah, okay, it's not growing as much as Germany's growing, and I think it won't grow as much as Germany's growing, but it's washing its own face. It's growing. We're learning about the Spanish market.

[Andrew Belshaw, CEO at Gamma Communications]

We're still looking for opportunities to consolidate that market. There's no reason for us to do anything different for the time being. There were hands going up all over. Sorry.

[Colm McDonagh Smith, Analyst at Citi]

Hi, Colm McDougsmith from Citi. Hi. Just one question in terms of the comment you made about the PSTN switch off, kind of being pushed back. I think you said repeatedly, I mean, in terms of the current deadline, I think is January 2027.

[Bill Castell, CFO at Gamma Communications]

Yeah.

[Colm McDonagh Smith, Analyst at Citi]

What's your view of that? I suppose is your comments about the delays, is that there's still the same scale of opportunity? It's just being pushed more back towards that deadline, or is it that the scale of opportunity is actually smaller than you thought?

[Bill Castell, CFO at Gamma Communications]

No, I think the issue is the, what's the, and that's probably a really bad analogy, but the sort of fire isn't getting towards the end of the burning platform maybe as quickly as we thought it was going to do. People aren't, you know, in theory, I think it was the end of 2025 originally, people would be really compelled to buy all of those things that we were talking about in Minikay, so PhoneLine+, FTTP, IoT to replace lift lines and things. And, you know, human nature being what human nature is, other things are, you know, sort of interesting for the next 12, 18 months. I think the scale of the opportunity is still there. It's just taking a little bit longer to crystallize. Yeah.

[Andrew Belshaw, CEO at Gamma Communications]

Some of the PhoneLine+ growth is because of new builds, because obviously it's the Soho side, so you can't have new copper lines, as I know you well were. There is still some growth for the PhoneLine+ that's coming out as a result of PSTN, but it's just, the whole switch off hasn't happened. It's just new build switch off has happened.

[Bill Castell, CFO at Gamma Communications]

Very good. James. We've got, is there Ross and James? Okay. I said, I think, yeah. Ross is very understated there. It's just, it's not.

[Ross Jobber, Senior Advisor at Edison Group]

And I'm Sean retiring. It's like an auction. Ross Jobber from Edison Group. Just a quick one on the enterprise side.

[Ross Jobber, Senior Advisor at Edison Group]

As the complexity of solutions grows, can you say what impact that's having on the enterprise buying process, whether or not you're seeing any changes there and how you're responding and just the competitive dynamics at the 50,000 foot view for the non-telecom analysts?

[Bill Castell, CFO at Gamma Communications]

Yeah, what is the buying process? I think buying cycles are probably getting a little bit longer because there's an element of people going out to market, maybe testing the market a little bit and, you know, maybe refining what it is they're looking for. Having said that, you know, most of the companies we're dealing with, certainly the logos that we put up there, I mean, the CIOs are pretty good. They know what they're doing. You know, they can knock together an RFP that's pretty tight that defines things well.

[Bill Castell, CFO at Gamma Communications]

I think it, you know, in some ways it means we end up having to partner with people more often because quite often you'll see an RFP where we can't do 100% of it. I think that's true for a lot of the competition as well to sort of steer into the second part of that question. That begins to drive us towards what are the next, you know, what, why have we acquired the things that we require? Quite often we're acquiring businesses because actually we've been partnering with them or businesses that look a bit like them. In terms of the competitive landscape, I mean, it's the usual suspects. It's the BTs, the Vodafones of this world.

[Andrew Belshaw, CEO at Gamma Communications]

Virgin Rings.

[Bill Castell, CFO at Gamma Communications]

Yeah, Virgin Rings, certainly on the voice side.

[Bill Castell, CFO at Gamma Communications]

We're also seeing more of the kind of global SIs getting involved at the enterprise end, you know, because again, it's looking more like what they do, which is knitting together a lot of solutions. You know, we're coming up against them and indeed working, you know, we may be, they may be priming something and we may be sitting behind them. There's that sort of relationship going on as well now. Should we come over to James? Who's been very, you sat on the wrong side of the room there, Joe. That's the problem.

[James Lockyer, Analyst at Peel Hunt]

Hi, yes, James Lockyer from Peel Hunt. I guess a follow-up to, I think, his first question. The complexity you said earlier benefits you, more products to sell.

[Bill Castell, CFO at Gamma Communications]

Yeah.

[James Lockyer, Analyst at Peel Hunt]

Does the complexity increase the complexity of the sale for the channel partners where previously they were just selling a phone line? Does that mean that it's going to be required education efforts from their parts? Could there be professional fees, services that go with that to educate the end customer if they're solving business problems, let's say, from that perspective? The second question, you talked about service provider revenues, 21% of Gamma business. They reported it was a lower gross margin than the group of business. Is that because it's growing faster than an immature margin or is that margin going to have a dampening effect going forwards? Finally, on the growth of EBITDA, you mentioned you've shown that as organic growth, but your CapEx has obviously reduced as well.

[James Lockyer, Analyst at Peel Hunt]

Could you give us an idea of what the organic EBITDA less R&D CapEx growth was for in 2024? Because I think that would probably be faster. Thank you.

[Andrew Belshaw, CEO at Gamma Communications]

Should I do the complexity one? Do you want to talk about the margins on the service provider and the EBITDA question?

[Bill Castell, CFO at Gamma Communications]

Yeah.

[Andrew Belshaw, CEO at Gamma Communications]

Okay, perfect. Right. I think it's a real opportunity for Gamma because you're right, things are becoming more complicated. One of the things Gamma has always been good at is simplifying the complicated, putting it into the hands of a channel partner. All they have to do is make the sale, come to the portal, press a few buttons, and provision stuff. That journey is becoming harder and harder and harder for us as things become more and more complicated.

[Andrew Belshaw, CEO at Gamma Communications]

What we are trying to do is just simplify every step of the process because that is how we win. It goes back to, you know, when you talk to, I was going to name a name then I will not, but when you talk to some of those big global giants, they do not really have a clue as to how small business consumes this stuff. They are building things that can be consumed by those enterprise customers that we talked about earlier. We have a CIO and a team who actually know what they are doing, not by a small business that frankly does not have anybody that knows what they are doing. Where Gamma can really add value in that chain is just simplifying stuff down, making it easy for the channel partner to provision, making it easy for the end user to consume.

[Andrew Belshaw, CEO at Gamma Communications]

Sometimes that means sort of dumbing it down, turning bits off of it, and that sort of thing. Having said that, education of channel partners is absolutely key. You know, as we are bringing more solutions in, we have to educate channel partners in how to sell them. Inevitably, we have to do that. Again, it is a differentiator for us. It helps us to get channel partners into more situations where they can win. I think the professional services one is a really interesting one. Many of our channel partners will be selling professional services to their end users. Hitherto, we do a little bit of professional services.

[Andrew Belshaw, CEO at Gamma Communications]

Where we have channel partners who want very specific bits of help, sometimes on a very big bit, we might charge them for that, but it's very, very minor part of our business now. I love recurring revenue and I love run rate business. I think the challenge for us is rather than go, here's something complicated, have a professional services wrap around it, it's to be able to go, actually, here's something that was complicated that we've made simple. We'd love to turn that into a managed service with a recurring revenue stream for you. That's how we'd like to run the business.

[Bill Castell, CFO at Gamma Communications]

Cool. Two questions. Service provider, I think the simple answer is yes, that it's a lower margin business.

[Bill Castell, CFO at Gamma Communications]

When you look at other service providers and you just look at traffic, you know, others can get really low, but we're not doing that. We're quite selective and the services, excuse the pun, that we put around the service provider and the Callwave acquisition helps us, allows it to be, to be higher margin. It is not, when you think about the kind of UCaaS space and some of the kind of 70% to 80% gross margins you can get on those products, it is low. They will have a slight dilutive impact. One, I'm not allowed to give guidance, but, you know, I've said previously, the expectation is you're not going to see a sudden margin drop off.

[Bill Castell, CFO at Gamma Communications]

On the EBITDA side, I'll let you do the math because we don't guide, as you know, to kind of cash EBITDA or EBITDA minus CapEx on that side. You're absolutely right. I hope some of my slides were showing that when you look at the 2023, you know, GBP 125.5 million EBITDA we've said, the CapEx has come down from GBP 23 million down to GBP 19.2 million. You've automatically got less CapEx coming through. That is, as we discussed before, as we kind of move away, as I mentioned it, from developing our own software to developing on the portal. More and more as time goes by, and I'm talking kind of medium term here, as we work with Cisco, as we work with Ericsson, as we work with many other third parties, they will be doing the R&D.

[Bill Castell, CFO at Gamma Communications]

That's part of it. We didn't want to be in an arms race, especially the top end with AI. We're fine at the PhoneLine+ at the bottom end, but if we're, you know, in our own software development, we haven't got the budgets that Cisco's and others have. As a result of that, that will come through more as the kind of cost of sale and the license will have less kind of OpEx associated with that development cost, but we'll also have less CapEx. As Andrew always says, we don't know what other CapEx might come in two or three years' time, but all other things being equal, as we get through this quite intensive stage of the portal build, which, as you recall, I said was happening in 2025 and happening in 2026. After that time, the portal should then be more maintenance CapEx.

[Bill Castell, CFO at Gamma Communications]

Unless we come up with some other CapEx we're going to spend, which we might do, then all others being equal, you see the profile that you're seeing at the moment, which is not the 23 million. It's lowering down to 19, and it might continue to do that once we're after the portal investment.

[Timothy Robertson, Managing Repair Representative at Progressive Insurance]

Tim Robertson from Progressive Insurance. Can you talk about Germany and the missing bits that you saw in terms of connectivity and enterprise? Are all the bits and pieces in place for you to go out and build an enterprise business from scratch there? How significant is connectivity as a missing ingredient in Germany?

[Bill Castell, CFO at Gamma Communications]

What good questions. I might answer those back to front. I think connectivity is really important. There's a little bit of chicken and egg in that, right?

[Bill Castell, CFO at Gamma Communications]

Because people say to us, you know, why, why hasn't Germany moved towards the cloud? One of the reasons is the connectivity is not there. Is the connectivity not there because they do not want to move to the, you know, which way round does all of that go? You kind of feel going forward, people are going to be doing more stuff in the cloud. Therefore, they are going to need better quality of connectivity to be able to do that. As we were saying earlier on, Germany is way behind in its fiber buildout compared to other countries in Western Europe. It is not terribly organized in the sense of Deutsche are doing a bit of it, but you have got a whole bunch of very kind of regionalized businesses that are growing up.

[Bill Castell, CFO at Gamma Communications]

In order for us to run an enterprise business, you know, I think when we went through some of the, some of the examples earlier on, you know, we love having a network because once you've got somebody's network, you can start sending voice over the top, security over the top. Generally, you know, one of the first things we try and sell to our enterprise customers is the network. You can't do that if you haven't got the fiber connectivity. These things become a little bit chicken and egg. We are looking at inevitably doing things in a couple of ways. Acquiring is the obvious thing to do because there are businesses that have got this sort of nexus of contracts with the various fiber providers that could then help us.

[Bill Castell, CFO at Gamma Communications]

but you know, as well as looking to acquire something like that, you can also partner with somebody like that as well. Where we are talking, you know, and again, without giving too much away, in days gone by, you'll have seen slides up there with logos of Aldi, Lidl, Volkswagen. And they're quite big in Germany, as it turned out. You know, we can already have the conversation with the CIO in the U.K. saying, look, you like what we do in the U.K., could we go and talk to your German counterpart? In order to do that, we need to partner with somebody who can help us on the connectivity side. Those conversations are ongoing.

[Bill Castell, CFO at Gamma Communications]

We've got a bid that we're working through at the moment that is basically, you know, it's somebody that we sort of know a bit in Germany.

[Timothy Robertson, Managing Repair Representative at Progressive Insurance]

Customer, not an acquisition.

[Bill Castell, CFO at Gamma Communications]

Sorry. When I say a bid, yeah, a customer bid. I think, yes. We would have a, yeah, it's a U.K. customer that we know a bit that we're talking about in Germany, and we're partnering on the connectivity side there. Aside of that, and I suppose looking at it the other way, you know, there are businesses out there that basically do a little bit of what Gamma's enterprise business does. You know, inevitably we're having a look and a chat to those as well. We're kind of keen to do it.

[Bill Castell, CFO at Gamma Communications]

We will definitely look at doing it organically. If we can kind of shortcut that and make a sensible acquisition, we'll make a sensible acquisition as well.

[Timothy Robertson, Managing Repair Representative at Progressive Insurance]

I think that's it.

[Bill Castell, CFO at Gamma Communications]

Is that it? I'm sorry, we've probably gone slightly over. Thank you very much indeed for your time. Thank you for your attention. Thank you for those of you that write notes on us because we do appreciate it. We appreciate all the time and the effort that you put into understanding the business to get a good quality of analysis out there. Thank you very much indeed. We're probably around for a few more questions, I suspect. Thank you.

[Andrew Belshaw, CEO at Gamma Communications]

Thank you.

Participants

Executives

• Bill Castell, CFO
• Andrew Belshaw, CEO

Analysts

• Ross Jobber, Senior Advisor at Edison Group
• Colm McDonagh Smith, Analyst at Citi
• Timothy Robertson, Managing Repair Representative at Progressive Insurance
• Analyst at Barclays
• James Lockyer, Analyst at Peel Hunt
• Harvey Robinson, Senior Technology Analyst at Panmure Liberum