In keeping with tradition (here’s last year), I’d like to share our 2024 accounts. Our serious competitors have to do so in the public domain so doing so seems fair, and while we do not have to, we know our customers value our transparency.
If you follow us on Companies House (Simwood Group PLC) I’d draw your attention to the ‘Strategic Report’ where we unpack a lot of what I think is audit nonsense which causes confusion. Some indulge in their Enron-esque “non-GaaP” accounts but we’d sooner stick to the standards but explain what the underlying picture is when applying account rules which distort things and mask actual performance.
On the face of it 2024 was a poor year with core telecoms revenue down. Actually, if you strip out specific and known effects, like us terminating a large customer who, politely, was culturally incompatible, it was +12.1%. That compares really well with our peer group – Gamma were +11% while Magrathea were -2.75%, and BT +1% despite CPI+ adjustments (i.e. also down). That comes against some unique self-imposed headwinds for us which suppressed 2024 performance:
- We do not pass dirty Origin Surcharges on to our customers, removing windfall revenue from doing so, and in fact suppressing our margins where we route surcharged calls at a loss – as we routinely do unless or until anti-arbitrage measures kick in.
- We’re increasingly attracting much larger international (or multinational) customers. These come with a much longer sales cycle – 18 months and counting in one case – before we see revenue.
- We do not levy inflation adjustments and never have – in real terms our headline prices go down every year
So overall, that’s a pretty pleasing performance I think.
When it comes to EBITDA, we were +13.7%, but realistically +2.4% after making the same adjustments as last year (which was itself +39%). That contrasts really well with the same peers with Gamma’s Adjusted EBITDA +10%, BT’s Adjusted EBITDA +8%, Magrathea’s estimated EBITDA (as they only file unaudited abbreviated accounts) -7.2%. However, we have far more conservative accounting policies and were we to follow practices elsewhere, such as capitalising the R&D and other key initiatives, our Adjusted EBITDA ends up a further 183% higher, even on the voluntarily reduced turnover described above. I’ll take that.
The market remains tough, as can be seen by some competitors larger and smaller going backward. If we were to report trends over a longer period it becomes more stark – one of them has revenues down nearly 30% on 2011! CPI erosion takes another 33% off that in real-terms – CPI is +48% over that period, eroding 33% of purchasing power when compounded year-on-year. -63% in real-terms doesn’t feel like a serious long-term business customers can depend on to me, nor does -31.3%! Gamma bucked that trend at +337% – +304% after CPI erosion – albeit with lots of accretion through acquisitions. We’re +12,705% over the same period, well, only +12,672% in real terms! Of course, as Jim Slater said, “Elephants don’t gallop… Smaller companies are more capable of rapid growth than larger ones. A small company can achieve a much faster percentage increase in its figures than a large one.”, so you’d expect us to grow faster than the larger operators in our peer group, but then they should be more profitable given huge economies of scale. Right?
We already have an excellent EBITDA margin of 15.1% ahead of even those who, by definition, make up their own accounting rules. Gamma do pip us at 21.8% as do BT at 38.9%. However, adjusting our EBITDA for accounting policy as we did earlier, shifts us to 28.1% – ahead of Gamma but still less than the former monopolist. Not at all bad considering all the things we do not do to inflate our revenue and the relative scales. I think that says all that needs to be said about our efficiency and interconnect economics.
As we look forward to 2025 we look forward to some major new account wins coming on stream, more new wins, but moreover the investment we’ve made in automation bearing fruit. Some of that comes at the expense of our revenue of course – with automation porting credits reducing the cost of a typical port to £2.50 while others compared above at still charging up to £12 – but we’ll derive the benefit of our automation elsewhere internally too. Our great new colleagues in Georgia are helping raise our overall human productivity too.
We’ll keep cranking the handle and think it is really important for you, our customers, to be confident we’re able to grow and invest in the services that underpin your business.
