Gamma Communications – executive interview (28 May 2025)

Now see, so Gamma's coming about 25 years old now. So we started in the early 2000s mainly selling what we call landlines in those days. So Gamma's always been about selling B2B communication. So one of the questions we get is why have we never heard of Gamma? Well, because we sell to small businesses and we largely sell through channel partners as well. So a lot of our relationships with our end customers is with our partners and we make sure we look after our partners. And if you get all the way back to the early 2000s, it was one of our partners knocking on your door, asking to see your phone bill and saying, 'We think we could do that a bit cheaper. Hopefully, a bit cheaper.' And the world's clearly moved on. The technologies moved on. IP, telephony, voice over IP, video. I'm sure we'll talk about AI at some point in this conversation. So all of these technologies have come. Gamma's journey's been moving from just selling to small businesses. We now sell to large enterprises. So we deal with people like Barclays and Morrison's and large customers. And then in the last few years, we've now moved into Europe as well. So it's been a story of expansion both in terms of what we sell and where we sell it over the last few years.

Yeah. So, one of the things about Gamma is our world has got more complicated. That means it's a lot harder for us to explain it to people because it would be better if it was simple. But conversely, it means we can sell our customers more things. So, if you think about the plethora of ways you communicate now compared to what you were doing even 10 years ago, we now have the opportunity to sell you more. It goes back to what we were saying earlier on. It used to be about just one bill, calls, line rental, and now it's video, now it's integration with other systems. But we try and simplify down to three things that we do. The first of that is cloud communications platforms. So if you think about something like a Zoom or you think about Teams, they would be cloud communications platforms generally used by larger businesses. We work with Cisco, we work with Ericsson and LG. We have a platform called Horizon that uses some Cisco technology and also some things we built ourselves, and we have a platform called Phone Line Plus designed for small businesses. So these are cloud-based platforms so you have nothing on your premises. You can access them either via a plastic handset as many people still do or possibly through an application on your laptop or on your phone. So if you think about how Teams works, it's that sort of thing. And we'll be selling that to all range of customers. As I say, we have things that work for small businesses, we have things that work for larger businesses. And that's all done on a recurring revenue model, multi-year contracts. That's the first thing we do. But we're not merely a seller of software. We are a communications company at heart. We have a carrier network in the UK and actually in the Netherlands, Spain, and Germany. And what does that mean? It means we're plugged into being able to use telephone numbers. So, for example, if you're a Teams user and you want to use that to make and receive calls using phone numbers, so you want an 0207 number that effectively makes your Teams ring so you can take a call, we can help you do that. So the software is enabled to do that, but it won't do that out of the box. You will need somebody like Gamma, a carrier, to help you do that. So we can provide you with the platform. That's the first thing. And the second thing we can do is we can link that into the telephony network, so we can pull all that together. The third thing we can do is just the basic building blocks of telephony. So if you need a broadband line or an Ethernet line or you need a mobile, we can provide those as well. Now we don't dig up the roads, so we're not laying our own fiber. We'll partner with people like BT and TalkTalk in the UK. And for mobile, we partner with Three and EE in the UK. We're not having our own spectrum or building our own towers or any of that sort of thing. So yes, it's those communications platforms. We've got something for any business of any size. It's voice enabling that, so you can actually use phone numbers on it rather than just doing video calling. And it's the basic building blocks, things like broadband, things like mobile as well. That's fundamentally what we support.

Yeah, it's a very competitive market. I mean we sit in the middle of this fantastic ecosystem. So Gamma has lots and lots of relationships both with channel partners. We've got something like 1500 partners in the UK, similar number now around Europe as well. And the reason that a lot of the large providers of communications platforms, so people like Cisco, people like Ericsson LG, people like Amazon want to work with Gamma is because we've got this fantastic distribution network. So we know lots and lots of channel partners, we know lots and lots of enterprise customers, and it just helps those big global guys get their solutions into the market and into a much wider market. And partners and end users want to work with us because we have the relationship with the global guys. So it's a really good place to sit in the ecosystem, and of course we've got some things that we've built ourselves over the years as well. But it's not just that, as we said earlier on, because we're a comms company, because we're a carrier, we have the capability to plug those into the telephony network as well. So it's not just kind of going 'here's some software, good luck with that.' It's actually 'here's some software and we've ported all of your numbers onto it.' So, as a small business or even a larger business, you just get it out of the box and it works. And you can do video calling, you make and receive calls, whatever it is you want to do. And you couple all that with our fantastic customer service, which we think we've got. And our industry is not always renowned for having great customer service, but we have great service both for our partners and for our end users. And that's exemplified really by the time and investment and money we're putting into our portal, because what we try to do is just make things really easy for our partners to consume, really easy for our partners to sell, and really easy for our end users to consume as well. So it's those four things really. It's a great distribution network, it's great relationships with some of the big global guys, the fact that we're a carrier so we can knit everything together, and having that really good level of customer service and particularly our portal.

Yeah, it felt like the right time for us to move. So Gamma listed on AIM in 2014. Our market cap I think was around 160 million. Gamma's market cap more recently has been well over a billion. And we've increasingly governed ourselves like a main market business. So one of the nice things about AIM is the governance boundary is a little bit lower, but as we got bigger, we just sort of kept the governance in line with a main market business. So we've known we were going to make this move as we got larger. From a corporate point of view, at some point in the future, and this isn't a today thing, if Gamma decides to do a larger acquisition than we've done, and we need to raise sort of hundreds of millions, I think doing that on AIM would be harder. So doing that on the main market is probably the place where we need to do that. So AIM has been an amazing home for us. We stayed on there for 10 years and it's a really good stock exchange for growing businesses as we were and still are. But we felt now was the right time to move up to the main market, partly because we're governed that way, partly to attract customers and employees, and also to be able to raise money in the future. It just seemed right from multiple different perspectives.

Sure. Well, great to be here. Absolutely. Gamma is quite different. We don't dig up roads. I used to work for Virgin Media, we were with the fiber rollout. Gamma doesn't have that. We're quite a low capital intensive business actually. Our capex is around just around the 20 million mark compared to our revenue which is close to 600 million. So we're kind of 3 to 4%. And that's because we do have a network, but it's VoIP. And so we rely on others to have their footprint. And we're much more of a cloud-based subscription-based business with high recurring revenues. 89% of our revenues are recurring with low capital intensity and a large cash conversion around 90% plus. So last year it was kind of 94 to 96%. So a good healthy lower capital intensity business.

Sure. And it's changed over time. Gamma's been around for 25 years and it started off with Gamma Business which was serving businesses of 250 employees and below and providing their communication needs. That business represents today around 64, 65% of our overall group. That's 2024. It's going to change, I'll come back to that. And then Gamma Enterprise which we really entered into in 2012, so about 12, 13 years ago. That business we go direct to customers, whereas when we deal with SMEs we have 1500 or so channel partners in UK. In Gamma Enterprise we go direct to those customers, and that business is around 22, 23% of our overall business. And then we're left with Europe which is 14% but growing quite significantly, which I'll come to. Europe is quite new to us. It was in 2018 we entered Europe and we went to Netherlands, Spain, and Germany at different time periods, and we recently in 2024 just done two substantial transactions actually. The first transaction, but the biggest one was Starface which we bought for 96 million euros, around 164 million pounds, and that's really given us a much larger footprint in the German business which is exciting because the German business is probably where the UK business was 10 years ago. And actually if you look at it on a pro forma basis, Gamma Group 10 years ago when we floated had an EBITDA around 23 million. If you look at Germany today and assumed we'd owned all the businesses we own today at the beginning of 2024 for those 12 months, we would have been around 23, 24 million euros. Actually Germany is the same size the UK was 10 years ago. And the big thing for us and the opportunity is we talk about cloud penetration. The market in the UK overall we think it's about 55, 60% penetrated, so using cloud-based products 55, 60% of the market. In Germany we think that's around 15%. So there's a substantial growth profile going forward, and we shouldn't forget that in Germany when you look at that SME, there's something called Mittelstand, and the German economy is bigger than the UK economy, and that Mittelstand layer probably is 60, 70% bigger than the UK. So not only is cloud penetration low, but the size of the prize is bigger, which is why we're excited. And to your previous question, whereas Europe was around 14%, going forward it's going to be 20% plus of our business. So it's going to be similar size to the Gamma Enterprise business. So it's becoming a much more important part of the business, the European business and Germany within that business.

Yeah, absolutely. So like any company you look at capital allocation. When I explain it to the employees, it's how we use the money that we generate and the shareholders' money, and that's absolutely key. So what's our cost of equity and what's our return hurdles? So when we look at capital allocation across the piece, you've got it exactly: organic is absolutely key to us to reinvest. And I think you probably had other interviews with colleagues who talked about Project Fulcan and some of the investment we're doing in the business, absolutely key. And a lot of the growth when you look over the 10 years, our EBITDA growth has been on a CAGR basis around 18 to 19%. A lot of that is organic. M&A is really useful though as well, both for geographic presence. I talked about entering the European market in 2018 onwards, and also product-based. So in the UK just last year, not only did we buy in Germany which gives us geographical presence or a more deep geographical presence, we also bought a business called Brightcloud which is more in the customer experience space in our enterprise business. We bought another business the year before, Satiset, which was in the cyber side. We bought a business called Cool Wave. So all of these, not huge, not the size of the Starface transaction, but all giving us product capability that we've got a great route to market in the UK. The key for us is to have the products that our customers want and need. We realize we can't always grow that organically. There is also a need to have M&A to complement that. And then third, we're hugely cash generative. Absolutely. If we can beat the cost of equity and plus in organic or inorganic, we will invest in that. But we have a progressive dividend policy which has been growing around 13 to 15% every year, and then we've done a share buyback this year 2025, but we also did a share buyback in 2024. So we balance all of those different parts of capital allocation. Most important thing, we realize it's the shareholders' money. We're stewards of that, and the key is we hit the return hurdles. And to date we've done well in that.

Yeah, I have to say Gamma's kind of moved from being a teenager to an adult, and we can talk maybe about the recent move from AIM to Main, but as part of that, I've been here 3 years and we're already on the journey. Just as you would expect, updating our finance ERP platform, we've put in a new HR platform as well, ensuring that we have the talent across the organization as we move from being that teenager to adult. But the DNA and what's great about the company is its real mix of people, which you'll meet: Andrew Belshaw our CEO and Colin, people who've been here 15, 20 years, some from the beginning 25 years ago, to people like myself and Colin who've had different experience elsewhere, and fusing those two things together so you get the best of Gamma of the last 25 years and some new thinking coming in as we mature the company, as we go from AIM to Main which we've just recently done. And platforms, systems, and thinking has to change and evolve as we go through that.

Sure. But you're absolutely right. For the last 10 years, we've been on AIM since October 2014 when market cap was 160, 170 million. We're now at 1.2, 1.3 billion as we speak here. The process is an interesting one. First of all, a lot of hard work by a lot of employees across the whole of Gamma. So most importantly, thank you to everyone not just in the finance function across the piece. I think the good news is that over those last 10 years, we really had grown up and matured from being a kind of teenager to an adult. So in many ways some of the stepping stones you need to go to the main market we'd already gone through and were in a good place to go. So some of the processes, it's actually very much a full listing. So although we listed on AIM, when you move to Main you have a prospectus. Here's one I prepared earlier, as Peter like. That's what we did. So we have a full prospectus that covers all the financials, but you have a sponsor like Peel Hunt that takes you through like a normal IPO process. You have an accounting firm that's checking your working capital assumptions around that to make sure you're a going concern for those 12, 18 months. Tick, tick, tick. Then you have an FCA P3 process which looks at your policies and procedures just to make sure you meet all the governance requirements for a main listed company. And you have the lawyers doing legal due diligence, etc., etc. So it is quite a process to go through, a number of advisers, as I said a lot of hard work, but the good news is that a lot of the hard work had taken place over the last four, five years as we matured through the piece. And I think the one other thing to mention, as I said we had a great 10 years at AIM, but a lot of our shareholders were taking funds associated with IHT relief. So if you used to be 40%, now 20% under the Labour government, you get that relief. Now that means they can't join us on that journey going to the main market. So in Gamma, when you look at the research analysts, they approximated between 15 and 20% of our shareholder base at the beginning of this process was these IHT funds. We knew that they could not join us, so Andrew and I spent quite a lot of time with our current shareholders but also potential new investors to cover that kind of demand and supply piece. And the majority if not all of that IHT money needed to come by May the 2nd, which is the date that we went to the main market. And we needed to do all of this process also if you're looking to, if someone else is looking to do this, by May the 6th in order to get accepted by June the 6th to be a FTSE 250 company, and then we go live with the trackers etc. on the 23rd of June. So it's quite a strict timetable that you have to follow in a process and make sure you don't miss some of those hurdles, and then just manage that kind of movement and shareholder base during that period. We put a share buyback in at the same time just to help manage that process. But that was something that kept me busy every day just making sure we understood those liquidity points. We're still subject to finalization on the FTSE 250, but we'll be thrilled when we hopefully join the FTSE 250. And the Gamma story continues. And thank you to all of the employees, both current and past, who have got us to this point.