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Toople Plc

Toople COVID-19 presenting opportunities for the Group

Toople PLC (LON:TOOP), a provider of bespoke telecom services to UK SMEs, has announced interim results for the six months ended 31 March 2020.

Commenting on the results, Richard Horsman, Non-Executive Chairman, said:

“Our business is functioning well and the key operational and financial milestones that we outlined at the time of the acquisition of DMSL have been achieved.  We are well placed to take advantage of the financial and operational synergies afforded by the acquisition of DMSL and our growth drivers, which will only increase in relevance as the UK economy emerges from the COVID-19 crisis.  Whether the lockdown eases swiftly, or becomes stricter, Toople is the solution to stay connected.”

Financial and Operational Highlights:

·     Successful placing to raise gross proceeds of £1.2 million to fund the transformational acquisition of DMS Holding 2017 Limited (“DMSL”), completed on 19 February 2020

o  Reported period contains only six weeks of ownership of DMSL

o  DMSL has a history of being cash generative, which should considerably accelerate timeline to achieve profitability and positive cash generation

·      Group revenue grew year on year by 39% to £1.5 million for the six month period

o  Broadband revenue grew by 70%

o  Mobile revenue grew by 100%

·      Gross profit increased by 61% to £334,839 (HY 2019: £207,494)

·      Gross margin improved by 3 percentage points to 22%

·      Cash at bank was over £1 million at period end

·      New contract wins for reported for the Group

·    Launch of a telecoms price comparison website and a service offering company credit reference checking and   reports, complementing the Group’s IT and telecoms services

·      Company on track to realise cost synergies of over £1 million per annum following acquisition

o  £480,000 (annualised) already achieved to date, with a further £120,000 already in progress to be   delivered; and a further £420,000 identified to be realised by end of financial year

Commenting on summary and outlook, Andy Hollingworth, CEO at Toople, added:

“Growth is being driven by a number of factors, not least a noticeable switch by UK SMEs to superfast fibre broadband, ahead of the phasing out of existing legacy copper infrastructure, due for completion by 2025.  This trend is coupled with a seismic shift in UK working practices, whereby more workers are either electing or being asked to work from home, driving further reliance on home based telecoms, IT and broadband solutions.

“All our brand propositions are geared around offering choice for our customers. We provide them with the best bespoke solution for their individual needs. The investments we have made are driving top line growth with future returns in mind.  That said, the financial and operating synergies already achieved are propelling us more quickly towards positive cash generation.  Clearly the major caveat is the true impact of COVID-19 on the wider economy, but as it stands today, we believe it presents opportunities for our Group.”

Chairman’s Statement

Introduction

Firstly, I would like to take this opportunity to thank all our staff and commercial partners for their effort and support in continuing to deliver services to our customers over the lockdown period. Their commitment has been outstanding, not least during the current uncertainty and upheaval caused by the coronavirus pandemic and we wish them and all our customers and shareholders well.  I would also like to thank Geoff Wilson, who had been a Director of the Company since market entry and chose not to stand for re-election at the last Annual General Meeting.  Geoff’s insight, experience and advice has been invaluable to the Company and we wish him well for the future.  Toople has changed dramatically over the course of the last six months and even more so since the reported period ended.

Acquisition and Business Overview

In January 2020 we announced a successful placing to raise gross proceeds of £1.2 million to fund the transformational acquisition of DMS Holding 2017 Limited (“DMSL”).  The total consideration for the acquisition was £1.56 million, which was paid for by a cash payment of £376,000, and the issue of new ordinary shares in Toople.

DMSL provides unified communication services in the UK and has over 15 years’ experience of providing broadband connectivity, mobile and fixed voice and cloud services.  The commercial benefits of the acquisition, completed on 19 February 2020, have already become evident.  The positive financial impact will become clearer when we announce Final Results, as this reported period only contains six weeks of ownership of DMSL, and few of the acquisition benefits are reflected in these numbers.

We are very pleased to have completed this transformational acquisition and would like to thank all the shareholders, old and new, who have backed us, as well as our new debt finance partners HomeSelect Finance.  We believe that the combined business will now accelerate Toople towards EBITDA profitability and cash self-sufficiency, reducing previous reliance on the market to provide funds for working capital.

The acquisition of DMSL also expanded the Group’s reach into the UK residential market, which is experiencing a period of rapid change, as operational automation further develops and more people choose to (or are forced to) work from home.

We have also recently launched a telecoms price comparison website and a service offering company credit reference checking and reports.  These complement the Group’s IT and telecoms services.

Growth Drivers

All the Group brands seek to differentiate themselves by offering IT, telecoms and broadband solutions, with robust and reliable packages, that enhance a customer’s business and are based on trust and transparency, with no hidden fees within pricing policies.  This provides customers with a clear understanding of cost and fixed prices for the duration of their contracts.

Growth is being driven by a number of factors, not least a noticeable switch by UK SMEs to superfast fibre broadband and VoIP telephony, ahead of the phasing out of existing legacy copper infrastructure, due for completion by 2025.

As businesses are forced to review their existing telecoms services, many are seeking new solutions which provide enhanced quality at an affordable fixed price.  SMEs are increasingly dissatisfied with a lack of price transparency, poor service offerings and poor customer service from the traditional tier one providers.  Toople is taking advantage of these failings by its larger competitors and is fast becoming a major disruptor in the market.

This trend is coupled with a seismic shift in UK working practices, whereby more workers are either electing or being asked to work from home, driving further reliance on home based telecoms, IT and broadband solutions.

COVID-19 impact

The trend towards working from home has been accelerated by the onset of COVID-19 and the subsequent lockdown, which happened right at the end of the reported period.  The COVID-19 pandemic has impacted all businesses to varying degrees and affected the lives of all citizens in the UK.  With the rapid development of COVID-19, our priority was to help ensure the health and safety of our employees, customers, partners, and communities and to ensure business continuity for us and our customers.

Following the COVID-19 outbreak, we quickly deployed our own unified communications platform across the entire workforce.  Our employees in the UK, South Africa and Poland have been able to work remotely without disruption to any of the Company’s key business functions.  As a result, sales, billing and customer support functions have remained largely unaffected and the business has continued to perform solidly, signing new customers and servicing existing ones.

All businesses in the UK have undoubtedly been forced to make unprecedented changes to the way in which they operate.  To believe that we are fully insulated from the global crisis would be unwise, but the Company is optimistic about its business case since it provides critical connectivity services and many businesses are even more dependent on it now than previously.

Summary and Outlook

Our business is functioning solidly and the key operational and financial milestones that we outlined at the time of the acquisition of DMSL are being achieved.  We are well placed to take advantage of the financial and operational synergies afforded by the acquisition of DMSL, and our growth drivers, which will only increase in relevance as the UK economy emerges from the COVID-19 crisis.  Whether the lockdown eases swiftly, or it becomes stricter, Toople is the solution to stay connected.

The new Toople has a strong operational and financial base from which to grow and is selling into a market which demands quality products and services at an affordable fixed price: which is what we offer.   We look forward to the future with renewed confidence and optimism.

Richard Horsman

Non-Executive Chairman

CEO’s Review

Overview

This has been a period of substantial activity for the Group as we completed the acquisition of DMSL; raised new funds; restructured the business into four operating brands; and began to realise the benefits that the operating and financial synergies of a larger group bring.

The integration of DMSL is progressing to plan, and the substantial cost savings identified at the time of the acquisition are now being made, with further details given below.  As part of this, notice of termination was given on the Company’s Slough premises and the Company has now moved to operate from one location; Bishop’s Stortford.

Following the acquisition, Toople has extended its offering and now trades under four main brands: www.toople.com; www.dmsluk.co.uk; broadbandandphones.co.uk; and www.checkthatcompany.co.uk.

Toople.com continues to provide, as before, bespoke telecoms services managed via the Group’s proprietary software platform, for its fast growing target market of UK SMEs with between one and 50 employees. 

DMSL also provides unified communication services in the UK, ranging from a single phone line to a multi-site unified comms VoIP platform, delivered via a network of telecoms and IT carriers and content providers across the UK including BT Business, BT Global Services, Gamma, EE, Vonage, TalkTalk Business and O2.  DMSL acts as a BT Premier reseller for broadband connectivity, mobile and fixed voice and cloud services and is responsible for over 250,000 BT customers and over 400,000 Revenue Generating Units.

broadbandandphones.co.uk is a telecoms price comparison website and www.checkthatcompany.co.uk is a service offering company credit reference checking and reports.  These complement the Group’s IT and telecoms services, and although in their infancy, early indications are that they are growing well.

Financial Performance

The six month reported period contains only six weeks’ contribution from DMSL, which was completed on 19 February 2020.

Total revenues grew by over 39% to £1.5 million (HY 2019: £1.08 million) with Broadband revenue growing by 70% and mobile revenue by 100%.  Gross profit increased by 61% to £334,839 (HY 2019: £207,494) and overall gross margin improved by 3 percentage points to 22%.

In our wholesale business, we continued with our strategy to only sign partnership agreements which are more profitable, as well as renegotiating or terminating historic unattractive contracts. We have made further progress in this regard during the reported period.

Our operating loss was £1.06 million compared with a loss in HY2019 of £843,579, but this includes exceptional one off restructuring costs of £78,986. Marketing costs were also higher when compared to HY2019, reflecting our strategy to invest in digital marketing and to grow the business, driving a significant increase in lead conversion and sales, which ultimately will result in a lower cost of acquisition per customer.  

Cash at bank was over £1 million at period end and total assets increased substantially due to the acquisition, increasing to £4.2 million (HY2019: £1.3 million).  Loss per share was 0.06 compared to 0.09 in HY2019.

DMSL has multiple revenue streams including: upfront cash and recurring revenue from BT activities; recurring revenues from directly managed and contracted customers; and revenue share with resellers.  The combined Group is now of significantly larger scale, which has opened up opportunities to benefit from operational gearing and operating efficiencies.

DMSL has a history of being cash generative, which should considerably accelerate our timeline to achieve profitability and positive cash generation.  We communicated at the time of the acquisition that we were seeking to achieve cost savings of £50,000 per month equating to £600,000 per annum.  To date we have already achieved over £40,000 per month (£480,000 on an annual basis) with the remaining £20,000 (£120,000 annualised) already in progress to be delivered.

In addition to this we have now identified a further annualised total of £420,000 that can be realised, so we now expect to achieve over £1 million of synergies over the course of the next financial year, substantially more than originally identified. 

We remain cautious about the overall impact that COVID will have on our customers and the wider economy, but despite this, the Company expects to be in a much stronger position from a cash generation perspective as a result of the acquisition synergies that we have identified and realised.

Operating Performance

DMSL continues to perform solidly and since acquisition has won a number of notable new contracts in the retail, NGO and insurance sectors.  We were particularly pleased with the Carluccio’s contract win (following its acquisition by Boparan Restaurant Group) as it showed the attractiveness of our service offering.

The Board remains acutely aware of the impact of COVID-19 on the wider business environment; its true impact cannot be underestimated by any business.  However, we are confident that our core offering of a cloud telephony platform will ensure business continuity and can act as a solution for other businesses who are increasingly seeing remote working environments as the norm.

The difficulties caused by the outbreak of COVID-19 and the ensuing ‘lockdown’ means that small and medium sized businesses, particularly in the food retail, leisure and hospitality industries, will increasingly look for this type of reliable fixed price communication and connectivity.

Furthermore the Government has earmarked £5 billion towards rolling out gigabit broadband in the most difficult-to-reach 20 per cent of the country. We welcome this move and consider it to be a boost to Toople, and to consumers and businesses who will gain access to higher speed and larger bandwidth connectivity over the next five years.  Toople is well placed to take advantage of these market drivers.

Summary and Outlook

All our brand propositions are geared around offering our customers choice. We provide them with the best bespoke solution for their individual needs. The investments we have made are driving top line growth with future returns in mind.  That said, the financial and operating synergies achieved are propelling us more quickly towards positive cash generation.  Clearly the major caveat is the true impact of COVID-19 on the wider economy, but as it stands today, we believe it presents opportunities for our Group.

Despite the challenging trading conditions in the B2B environment, both DMSL and Toople have been trading satisfactorily, and in recent weeks we have seen a material change back to pre-COVID-19 conditions.  The board believe that, considering the uncertain times and unprecedented period, the combined business is well placed from a material lower operating base achieved through the acquisition synergies to take advantage of post COVID-19 opportunities.

We continue to demonstrate to our customers that we are agnostic about carrier choice and focussed on providing them with the best service at the best price; with transparency and certainty of costs over the term of their contract.  Particularly at this difficult time, businesses and consumers have needed this from their telecoms and IT suppliers.  Our propositions continue to be disruptive and competitive in the market.  Whether business confidence grows or shrinks, businesses need to remain connected, and we offer the best telecommunications technology at a fixed price that will always remain attractive against sluggish incumbents. 

Andrew Hollingworth

Chief Executive Officer
 

Principal risks and uncertainties relating to the Company’s business strategy

The Group is subject to a number of risk factors. The Company’s prospectus published at the time of its Standard Listing and the further prospectuses published in June 2017, September 2018 and January 2020 included detailed assessments of the risks facing the business. The Directors have remained cognisant of the following key risks in the first six months of this financial year. Other risk factors not presently known or currently deemed immaterial may also apply.

•      The Company is dependent on the ability of the Directors to implement the Company’s strategy and significantly increase customer   numbers. There is no assurance that the Company’s business strategy will ultimately be successful;

•      The Group operates in a competitive market and may not be able to sell multiple products to customers;

•      The loss of, or inability to attract, key personnel could adversely affect the Group;

•      The technology upon which the Group’s products and services are based may become obsolete; in particular, the Group is reliant     on  the technical robustness of its software platform;

•      An increase in supplier costs could result in significantly reduced gross profit margins;

•      The Group is currently dependent on marketing spend to generate customers. The Group may not be able to acquire customers at a  cost that will generate sufficient gross profit margins for the Group, particularly if competition in the market increases;

•     The Company may not be able to secure capital to provide working capital for the Group to drive the growth of the business on     terms acceptable to the Group, or at all

•       The ownership and use of intellectual property by the Group may be challenged by third parties or otherwise disputed;

•       From time to time the Group may be subject to complaints or claims in the normal course of business; 

•     The Company is exposed to the risk that third parties that owe the Group money, securities or other assets may not fulfil their   obligations. These parties may default on their obligations due to bankruptcy, lack of liquidity, operational failure or other reasons;

•       The Group’s performance could be adversely affected by poor economic conditions;

•       The Group’s infrastructure and systems could be targeted by cyber-attacks;

•       The pricing environment in the telecoms industry could become more difficult;

•       The UK telecoms market is subject to regulation by Ofcom and subject to high incidence of fraud and bad debt risk;

•      New data protection legislation (“GDPR”) became effective on 25 May 2018. The Group relies on assurances from its data suppliers   that such data is compliant.

•     COVID-19 – The Board is monitoring the global health crisis and is considering the associated risks and impact on the position of the Group from both an operational and financial perspective. With the extreme restrictions in force as a result of COVID-19 and is implications, means that there can be no assurance that the Group will be able to perform its intended workflows, achieve its stated aims or raise additional finance if required. The Board continues to monitor the effect of COVID-19 on an on-going basis.

The Directors seek to mitigate these risks by applying their considerable experience of operating businesses in the sector and by devising trading and operating strategies designed to seek out and exploit profitable trading opportunities whilst seeking to protect the business from downside risks.
 

Responsibility Statement

The Directors are responsible for preparing the Interim Report in accordance with the Disclosure and Transparency Rules of the United Kingdom’s Financial Conduct Authority (‘DTR’) and with International Accounting Standard 34 on Interim Financial Reporting (IAS 34).

The Directors confirm that the interim financial statements have been prepared in accordance with IAS 34 and that as required by DTR 4.2.7 and DTR 4.2.8, the Interim Report includes a fair review of:

·      important events that have occurred during the first six months of the year;

·      the impact of those events on the financial statements;

·      a description of the principal risks and uncertainties for the remaining six  months of the financial year; 

·      details of any related party transactions that have materially affected the Company’s financial position or performance in the six months ended 31 March 2020; and

·      any changes in the related parties transactions described in the last annual report that could have a material effect on the financial position or performance of the enterprise in the first six months of the current financial year.

The Directors who served during the period and up to the date of signing the interim financial statements were:

Richard Horsman

Andrew Hollingworth

Kevin Lawrence

Company Secretary:

WKH Company Secretary Services

By Order of the Board

Andrew Hollingworth

Chief Executive Officer

9 July 2020

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Disclaimer: Statements in this article should not be considered investment advice, which is best sought directly from a qualified professional.