Gamma’s results are once again ahead of expectations, thanks to growth in its UK indirect businesses, particularly from higher-margin areas such as cloud telephony (SIP Trunking and Cloud PBX).
- Half-yearly pretax profit GBP21.7 million (up 40%)
- Revenues of GBP158 million (up 15% from the same period last year).
- Installed SIP Trunks up 10% to 938,000 at 30 June 2019
- Broadband up 10% to 103,000 units
- Ethernet up 31% to 11,000
- Mobile connections up 20% to 60,000
- Cloud PBX up 10% to 478,000.
Gamma’s strategy is to expand into Europe through acquisition, and to this end it has already acquired DX Groep and Nimsys (Netherlands), with the company planning to spend an additional EUR20-40 million on deals in Germany, Spain and France. It expects to benefit from relatively low levels of cloud penetration in mainland Europe.
It is also targetting unified comms as-a-service (UCaaS), and continue to identify its ‘easy to do business with’ mantra as a core attribute to winning and retaining business customers.
Current mix of sales:
- 74% UK indirect, with customers including Harrods, National Express, Countrywide, Park Dean Resorts and SCS – GBP211 million revenues in 2018
- 25% UK direct, with customers including LSE, Scottish Government, BGL Group, John Lewis, National Audit Office – GBP71 million revenues in 2018
- 1% Overseas, with revenues of GBP3.4 million.
What the CEO says:
“Developing and growing our core business lines (SIP, Data, Cloud PBX) in the UK will be our priority during the next 12 months, as I believe that we have significant growth opportunities across each of our core product areas. I also think that continued disruption across the sector (regulatory, fibre roll-out, structural changes within the incumbents and general consolidation) will create an environment where both Gamma and our partners will never have a better opportunity to develop and grow our businesses. Ensuring that we deliver unbelievably good service (win the hearts and minds of our channel partners and end customers) is a prerequisite, and will present an opportunity to further strengthen our brand and market position.” Andrew Taylor, CEO, Gamma Communications
In recent years the differentiator for Gamma has been its “easy to do business with” mantra, which has seen it become operationally efficient in terms of configure-price-quote (CPQ) and onboarding of customers. This has enabled it to beat bigger players to the sale through speed and efficiency. It has also made concerted efforts in terms of customer-centricity, and in 2018 reported a 19 point increase in its Net Promoter Score (NPS) to +45. This is a very respectable score for a B2B service provider, as NPS scores lag behind those found in B2C telecoms. Smaller companies such as Gamma tend to be more agile and able to respond to changes in their customer base faster than for a Tier 0/1 operator – this give Gamma short-term advantages. However, as other B2B businesses improve their own customer-centricity and become easier to do business with, Gamma will be challenged to keep ahead of the curve.
In its favour is also the fact that it is focused on the growth area of the B2B market – SMEs – which make up 99% of the European business market but which many telecoms firms are poor at targeting. This gives it a large potential market to address. But while it has experience and expertise in this market, other B2B providers are waking up to the opportunity and beginning to specifically target it with solutions. Gamma will therefore have more direct competition on its hands in future than it had previously. Growing by M&A into Europe is a sensible strategy, enabling it to cushion its entry rather than make the rookie errors that come with being the ‘new boy’ in the market. But its pockets are not as deep as other players so it needs to choose its acquisitions wisely and avoid over-stretching its organisation. If it can’t deliver against sales, that NPS is going to take a battering. A controlled expansion is vital.
A key weakness for all B2B players, and one that Gamma is aware of, is competition for good staff. Telecoms is failing to attract and retain sufficient high quality staff (meaning wages and thus costs are set to rise). This is a challenge for the entire sector; to overcome it Gamma must automate as much as possible and retain its staff – placing them where they add the most value to their customers.