When the first wave of the epidemic hit, Gamma Communications CFO Andrew Belshaw had every reason to be concerned.
For although the UK-listed group had developed a strong following for its United Communications as a Service (UCaaS) model, there was danger ahead.
Three quarters of Gamma’s client base was made up of SMEs (small and medium-sized enterprises) and no one really knew the full extent of risks that businesses were facing going into a lockdown without an end in sight.
The group’s share price, which had grown six-fold sharply to a £1bn market cap five years after listing in October 2014, had fallen from 1,450p in late January to 970p by early March, although strong 2019 results released on 17 March revealed gross profit up 26 percent to £166.5m from the previous year on revenue that increased 15 percent to £328.9m over the period.
In the end it proved to be the darkest moment for Gamma as things soon improved when investors came to understand that the AIM-listed group’s offer is proving to be increasingly valued as companies of all sizes need to better equipped to face the challenges of the coronavirus environment.
Its mission is to “provide straightforward cloud communication and collaboration services for business, underpinned by a robust, secure network.”
That approach is chiming well with clients that need to maintain competitive edge whilst at the same time are not having to worry about security as staff continue to work remotely.
But what is most comforting for shareholders is the recurring revenue model that the group has developed in selling up a bundle of cloud-based services around an offer initially focused on phone line rental. By the start of November Gamma’s share price had risen to around 1700p, giving it a market cap of over £1.6bn.
“Now customers are not paying for the calls they make, they’re paying for the software and the platform they’re using to make those calls,” says Belshaw.
He can take plenty of credit for helping devise this approach, which offers a long term, sustainable cashflow, during his 14 year tenure at the firm. The group has also developed a collaborative approach with a number of channel partners that has enabled it to expand overseas into the Dutch, Spanish and German markets.
Critical to the Gamma business model is a joined-up approach in which finance provides insights on customer behaviour to determine strategic decision-making. Belshaw’s previous experience in a business development role at tech group Xansa, helped create an entrepreneurial mind-set that has allowed him to be closely focused on innovation and new areas of business.
When he arrived at Gamma in 2007, Belshaw was finance director of the arm selling to channel partners, one of two business units comprising the then privately owned entity. Since then the model has expanded to include innovations which Belshaw admits sometimes involves “taking a punt where we think anarea is going to be the next big thing.” he says.
What’s critical says Belshaw is the ability to “innovate quicker than some of your rivals can innovate and have the ability to see the changes that are going on in the landscape,” he says.
The resulting shift to a model where 90 percent of revenue comes from subscriptions required not only a resetting internally but also a cultural shift for channel partners to move to the same structure. “We had to say you’re better off with this revenue model,” says Belshaw.
CFO in the business
It’s fair to say that Belshaw has always been comfortable on the tech space. Having studied maths at the University of Cambridge he returned to the Thames Valley area, a long-time tech hot spot, joining accountancy giant Arthur Andersen there.
At Andersens he appreciated the freedoms give to young staff in a dynamic environment, covering audit and corporate finance, but says personal lessons were learned about the limitations to those freedoms. “You can allow people to maybe go out on a limb and be innovative and be entrepreneurial, but if they’re too innovative and too entrepreneurial, you don’t always get people doing things that you want them to do,” he observes.
He then gravitated to Deloitte when Andersens folded in the wake of the Enron scandal before a switch to rival EY provided the opportunity to undertake more M&A work, especially in the TMT and biotech areas, before joining Xansa.
Belshaw says that working with tech companies he witnessed “management teams that seemed to be working hard but actually having an awful lot of fun. You think one day I want to do that,” he says.
He also liked the idea of driving an organisation, following advice that moving into a commercial role would help his career. “Everyone I was talking to, kept saying when you leave practice there’s a prejudice that you’re very good at debits and credits, but not so good at commercial work, that I wanted to address,” he informs.
In the event, Belshaw took on a business development role at outsourcing firm Xansa, which is now part of software group Steria. “It was working on the front line with the sales guys, pricing up large IT and BPO (business process outsourcing) contracts, and ultimately presenting those back to the board,” he says.
Having the ability to effectively liaise with the teams on the frontline, is an important skill he says he brought into Gamma when he joined 14 years ago. “As a CFO you cannot be close enough to your sales guys, and you cannot get involved early enough in a contract or piece of work because the earlier you’re in there, the more value you can give.
“The bigger the contract, generally, the more risk associated with it, so you need to get in and help mitigate those risks earlier on rather than just let them fester. If you can kill that early on, you get more margin in the deal,” he says.
Although in its role as gatekeeper, Belshaw says finance will halt a deal if it’s too risky or doesn’t contain enough of a margin, he adds: “Hopefully nine times out of 10 we will be saying you can probably do that better or you can do that in a way where we can manage the risk a bit better,” he adds.
Belshaw says developing a culture in which finance stays close to the business is proving vital when agility is key to taking on larger competitors. “As a fast-growth business, trying to compete with larger companies, you know one of your USPs as a business has to be agility.
“We know that we can do something quickly that one of our competitors couldn’t do without going through 38 layers of bureaucracy to getting it signed off- that becomes a differentiator,” he says.
A crucial role for finance is providing insights from data to help drive the group’s strategic decision-making. “Part of our finance team is the revenue assurance group which bills every call and has vast amounts of data we’re able to look at and pare down, to understand who’s buying what. It’s a rich data source that reveals trends we can respond to,” he says.
Belshaw says that granular level of information has been vital for thriving in the past few months. “We could not have run the business without being able to know what all of our customers are doing, how much usage of the service they were making and that enabled us to take a view on who was trading and ultimately how many end users were about to go bust or not”
“Just by tracking, you can begin to build up a picture of how much your user base is actually trading and then whether you’re going to have the same number of subscribers as you come out of this. At the moment they are surviving and therefore our revenue is holding up really well,” says Belshaw.
Using tools such as Microsoft’s Power BI, Gamma’s finance team has developed the means for the group to better understand how the business is performing in the form of a Covid dashboard. “It explains the overall picture of the business to everyone in the group,” he says.
But there was still a job to be done in informing analysts and investors about which parts of the group would be impacted by the changing dynamic of the coronavirus environment. “We were very transparent in saying if the economy contracted by 20 percent, we might lose 20 percent of our user base.
“But at the same time we said our offer will become increasingly attractive because even if Covid gets solved tomorrow, the vast majority people won’t want to work the way they were working this time last year. And I think the vast majority employers are going to be quite accommodating and will want some people working in the office and some out of the office, it will be something of a hybrid model,” he says.
“IT directors need to be working out what communication solutions and what platforms they will want to use going forward, that enable staff to work in the way that they want to work. So the onus is on us and our competitors to go back and say these are the solutions that we have and are working on to achieve this,” says Belshaw.
If anything, the need for companies to communicate effectively, as we enter a second period of lockdown across several European countries, can only be a positive for the Gamma model, says Belshaw. “The way people want to talk to each other and communicate with each other is fundamentally changing in every sector of the economy. We need to be ready for that,” he adds.