Toople plc (LON:TOOP), a provider of bespoke telecom services to UK SMEs, has announced its final audited results for the year ended 30 September 2020.
Commenting on the results, Richard Horsman, Non-Executive Chairman, said:
“As we look back over the financial year, we can truly say that it was a transformative period for our Company. During the reported period we have acquired a highly complementary business, DMSL, raised funds to bolster our balance sheet, restructured into four distinct operating brands, further simplifying our business propositions for our customers and have more than delivered on financial and operational synergies promised at the time of the acquisition.”
Financial and Operational Highlights:
· Successful placing to raise gross proceeds of £1.2 million to fund the acquisition of DMS Holding 2017 Limited (“DMSL”), completed on 18 February 2020
· Reorganisation of business into four main trading brands
· Successful integration of DMSL, with annual cost synergies of over £1.6 million now being realised compared with initial guidance of £50,000 per month
· Group revenue grew year on year by 40% to £3.4 million with a seven months’ contribution from DMSL
· Gross profit increased by 130% to £1.1 million (FY 2019: £479k)
· Increase in overall gross margin from 20% to 32% – a significant improvement following acquisition of DMSL which delivered a gross margin of 44% for the period
· Improved performance in the Toople.com business achieved by reducing carrier costs and ceasing services to poor paying or bad debt customers
· Active cost control and management
· 23% reduction in marketing costs reflecting change in strategy, with more focus on DMSL business and recognizing COVID-19 impact
· Administrative expenses only increased by 8%, despite 40% increase in revenues
· New contract wins and contract extensions reported for the Group
· Launch of a telecoms price comparison website and a credit reference checking and report company, complementing the Group’s IT and telecoms services
· Cash at bank at 30th September 2020 was over £568,000
· Proactive approach to bad debts has resulted in a charge of £1.1m providing for legacy bad debt issues; the impacts of Covid-19; any potential adverse effects of Brexit; and reducing the group’s risk for out of term customers as a part of our strategy towards future risk created by the pandemic.
· New client onboarding measures in place including credit checking and digital document signature requirement
Commenting on summary and outlook, Andy Hollingworth, CEO at Toople, added:
“The news about a vaccine roll-out in the UK has given everyone a boost, but given the general economic uncertainty in the UK with the full economic impact of COVID 19 not yet fully clear; and the UK once again facing a national lockdown with further lockdown restrictions likely to continue well into 2021, we must remain vigilant on costs.
“That said, trading has progressed well in the first few months of FY20/21, with notable contract wins and contract extensions announced to the market. Additionally, we are beginning to see a number of acquisition opportunities which, with a strengthened balance sheet and the ability to offer listed shares as part of the consideration mix, we are well-placed to take advantage of.
“Overall we remain cautiously optimistic about the future prospects for Toople, particularly given HM Government’s commitment to the rolling out of fibre telecommunication infrastructure to replace copper and the necessary and ultimately unavoidable upgrade of the country’s network from 4G to 5G and the opportunities that will present the Group.”
Chairman’s Statement
Introduction
2020 has been a remarkable year, and we are fortunate enough to say that it was a transformative period for our Company. During the reported period we acquired DMSL, raised funds to bolster our balance sheet, restructured into four distinct operating brands and have exceeded the financial and operational synergies anticipated at the time of the acquisition. The integration of DMSL is complete and its service offering continues to resonate with both existing customers, who have extended and augmented contracts, as well as with new ones who see the value of our proposition that provides bespoke telecoms services for our target market of UK SMEs with between 1 and 50 employees.
COVID-19
The COVID-19 pandemic has seen good quality and reliable connectivity become an absolute necessity, further validating our service offering and highlighting the attractiveness of our fixed pricing structure. Overall, the telecommunications sector has not felt the most severe effects of the COVID-19 pandemic, but we will not be completely immune from the longer lasting macroeconomic impacts of the virus. Clearly, the wellbeing and safety of our workforce continues to be a key focus for the management team and thankfully, they have been able to work safely work from home ensuring business continuity for Toople and its customers.
Following the COVID-19 outbreak, we quickly deployed our own unified communications platform across the entire workforce, enabling our people in the UK, South Africa and Poland to work remotely and without disruption to any of the Company’s key business functions. As a result, our 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.
As I write this, extended lockdown measures are now in place which will undoubtedly lead to subsequent economic challenges, and may lead to an element of negative bad debt recoverability. We will continue to focus on this area closely, whilst continuing to manage our cost base prudently. This cost management and the fact that we have over delivered on the promised acquisition synergies, should go a long way towards offsetting any bad debt and accelerate the Company’s position to achieve cash profitability.
Acquisition and Fundraisings
In January 2020 we announced a successful placing to raise gross proceeds of £1.2 million and the issue of £1.625 million loan notes to fund the 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. The commercial benefits of the acquisition have already become evident.
We are very pleased to have completed this 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 assist Toople towards EBITDA profitability and cash self-sufficiency, reducing previous reliance on the market to provide funds for working capital.
Following the acquisition of DMSL we undertook a review of the entire business and implemented a plan to restructure and reorganise the Group into four main brands: www.toople.com; www.dmsluk.co.uk; broadbandandphones.co.uk; and www.checkthatcompany.co.uk, further simplifying our business propositions for our customers. As part of this review, a number of initiatives were put in place, which have delivered substantial cost savings and synergies of £600,000 per annum. I am pleased to say that these have now been achieved, and overall the Company is now achieving £1.6m of annualised synergies and savings.
Growth Drivers
The macro drivers which are expected to precipitate substantial growth for the Group also remain in place, namely HM Government’s commitment to the rolling out of fibre telecommunication infrastructure to replace the legacy copper infrastructure by 2025 and the necessary and ultimately unavoidable upgrade of the country’s network from 4G to 5G. The Board remains positive about the Company’s future prospects driven by a number of factors, not least a noticeable switch by UK SMEs to superfast fibre broadband and VoIP telephony.
All the Group brands differentiate themselves in the market 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.
The Company continues to focus on margin enhancing customers, which as previously advised, will lead to a decline in headline revenues in the short term.
Post Balance sheet Events and Board Change
In October 2020, just after the reported period end, our brokers informed us of the opportunity to raise additional funds for the Company by way of an equity Placing. Accordingly, given the wider economic uncertainty caused by COVID-19, the Board we felt it prudent to pursue this. As a result we successfully raised £774,000 (before expenses). The Placing was significantly oversubscribed and utilised all of the existing share issue capability of the Company. We are grateful to existing shareholders for the support they have shown to the Company and welcome new shareholders to the register.
The Company has made substantial operational and financial progress in recent months and securing this injection of capital has positioned the business with a healthier balance sheet. We are well capitalised and look forward to executing on our growth strategy.
The Company also announced that Kevin Lawrence, who had been CFO since June 2018, would become a Non-Executive Director of the Company effective from 1 October 2020 and chair the audit and remuneration committees. Paul White, who joined the Company as Financial Controller in June 2020 was appointed CFO from 1 October 2020. Paul worked closely with Kevin since joining the Company developing an excellent knowledge of the Group’s operating subsidiaries, financial processes and systems and we welcome him to his new role.
Summary
The news about a vaccine roll-out in the UK has given everyone a boost, but given the general economic uncertainty in the UK with the full economic impact of COVID 19 not yet fully clear, and the UK once again facing a national lockdown with further lockdown restrictions likely to continue well into 2021, we must remain vigilant on costs.
That said, trading has progressed well in the first few months of FY20/21, with notable contract wins and contract extensions announced to the market. Additionally, we are beginning to see a number of acquisition opportunities which, with a strengthened balance sheet and the ability to offer listed shares as part of the consideration mix, we are well-placed to take advantage of.
In summary, we had a dynamic financial year and we remain very optimistic about the long-term prospects for the Company. We wish all our staff, customers, shareholders and suppliers good health and financial prosperity in 2021.
Richard Horsman
Non-Executive Chairman
13 January 2021
Chief Executive Officer’s Review
Operational Review
We have achieved much during the reported period, and into the first quarter of the current financial year, making substantial progress despite general gloom in economy in the face of the pandemic. We successfully acquired DMSL, integrated the business, implemented a reorganisation and delivered on substantial cost savings, whilst continuing to win new contracts and upgrade existing ones. We also launched a telecoms price comparison website and a service offering company credit reference checking and reports, complementing the Group’s IT and telecoms services. In addition, in October 2020, we raised additional funds via a successful Placing to bolster our balance sheet and give us a financial buffer in anticipation of a period of impending financial uncertainty. All of this was achieved against the backdrop of the hiatus caused by COVID-19.
What has become clear throughout this global crisis has been the accelerated elevation of the internet to an essential utility, with broadband and telecoms networks being classified as critical national infrastructure, keeping the nation connected in these extraordinary times. Good quality, reliable connectivity is an absolute necessity. With many small businesses across the UK under significant pressure, we are acutely aware of providing them with essential services at an affordable cost. SMEs, now more than ever, need a clear understanding of costs and fixed prices for the duration of their contracts with no hidden fees within pricing policies.
Undoubtedly, the global pandemic has forced businesses to review their existing telecoms services, corporate connectivity and working practices. Connectivity, particularly at the moment, should be affordable for all businesses, with minimum outage and disruption to ensure business continuity. This is why existing customers are increasingly extending contracts with us and we continue to win new customers across a broad range of sectors, as evidenced by the contract wins announced towards the end of 2020. SMEs, in particular, 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 establishing itself as a disruptor in the market.
For our own part, we coped extremely well with the challenges that COVID-19 presented. Following the initial outbreak, we quickly deployed our own unified communications platform across the workforce to enable remote working and this continues with a new national lockdown recently commenced.
As the pandemic has unfolded, COVID-19 has adversely impacted our business in some areas. The main operational impact has been in how we serve our customers and approach new ones. Our customer experience teams are now making three times as many calls as previously in order to maintain the same levels of customer contact, especially as we are a B2B focused operation and many of our customers are being forced to work remotely or substantially change their working practices.. We anticipate that these issues are being experienced industry wide.
On the marketing front, the mix of new business orders has shifted to more upgrades and recontracts, so customers can drive better connectivity speeds, whilst retaining continuity of service. This has led to a slight softening of the new customer intakes. As a result, we have, like others, reduced our overall marketing spend. Despite this, the business has maintained a solid trading base and we look forward with confidence as the vaccine roll-out positively impacts life and businesses return to normal during the course of 2021. The Board believe this will deliver further growth and a sales mix change where new orders contribute more, wherein higher gross profit can be achieved. We are now starting to invest in marketing again, and are seeing new customer numbers start to pick up. SMEs up and down the country have been profoundly impacted by the lockdown measures and we have been focused on informing, reassuring and supporting them.
Sadly, not all businesses will survive COVID-19, but we are doing all that we can to help our B2B clients, from dialling up or down bandwidth requirements for those businesses whose needs have evolved in the wake of COVID-19, to assisting with payment terms where possible.
Financial Performance
The reported period contains only seven months’ contribution from DMSL, which was completed on 18 February 2020.
Total revenues grew by over 40% to £3.4 million (FY 2019: £2.5 million). Gross profit increased by 130% to £1.1 million (FY 2019: £479,000) and overall gross margin improved by 12 percentage points to 32%. Improvement was driven in part by reducing carrier costs in Toople.com and continuing our strategy of ceasing services to poor paying or bad debt customers.
We have adopted a proactive approach to bad debt, which has resulted in a charge of £1.1m. However, this provides for legacy bad debt issues; the impacts of Covid-19; any potential adverse effects of Brexit; and reducing the group’s risk for out of term customers as a part of our strategy towards future risk created by the pandemic.
Following the integration of DMSL we have now introduced new procedures to ensure a reduction in future bad exposure which include ensuring all new customer onboarding is done via online document signature and each customer has successfully passed our credit checking process. We have also stopped accepting verbal and voice recorded contracts.
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 year.
As a result, our operating loss was £2.4 million compared with a loss in FY2020 of £1.6 million, but this includes the bad debt costs of £1.1 million. Active cost controls led to a 23% reduction in marketing costs, reflecting our change in strategy, with more focus on DMSL business and recognising the COVID-19 impact, discussed above. Consequently, administrative expenses only increased by 8%, despite a 40% increase in revenues.
Cash at bank was over £568,000 at period end and total assets increased substantially due to the DMSL acquisition, increasing to £2.8 million (FY2019: £1.3 million). Our balance sheet was further bolstered post the year end in October 2020, when we raised a further £774,000 (before expenses) via a Placing. This leaves the business with a healthy cash position and a substantially improved balance sheet to navigate any potential economic uncertainty in 2021. The loss per share was 0.09p matching our half year results of 0.09 in 2020.
Having acquired DMSL in February 2020, we quickly integrated the business and identified substantial cost savings and synergies. We initially guided that we expected savings in the region of £50,000 per month, but I am delighted to report that these are now running in excess of £130,000 per month, saving the combined business £1,600,000 on an annualised basis. This coupled with new contract wins and extensions announced during the course of the year and into the start of FY2021, gives the Board renewed confidence that the Company will be profitable in a shorter timeline than previously anticipated. That said, we do remain extremely cautious about the overall impact that COVID-19 and Brexit will have on our customers and the wider economy and are mindful that not all businesses will survive. We will manage our costs accordingly and look forward to the new opportunities which periods of rapid change inevitably bring.
Outlook
The economic impact of the COVID-19 pandemic is likely to be significant and we will not be immune to upcoming challenges, particularly as the UK faces a new national lockdown. However, we entered FY21 in a more robust operational and financial position, and we do not expect a significant deviation from our previous objectives of growing our core revenue, replacing unprofitable contracts and moving towards cash profitability at the operating level. Our strategy remains the same, and we enter 2021 a bigger, better, stronger and more focussed business with an improved balance sheet.
The Group and its various brands continue to perform well. Trading in the first part of this financial year has started to return to more normal conditions in the B2B market as more businesses emerged from the initial lockdown and reviewed critical expenditure such as for IT and telecoms. Trading within the DMSL business demonstrated growth on orders on a like for like basis against 2019 and we have also seen growth in order volumes compared with last year.
We continue to set our sights on the societal importance of telecoms and connectivity as present and future drivers of growth for the Group. These are reflected in the Government’s commitment to rolling out of fibre infrastructure to replace copper and the upgrade of the country’s network to 5G. The Board remains optimistic about the Company’s future prospects whilst recognising the challenges that lie ahead in the near term due to the pandemic and the post-Brexit environment.
Andrew Hollingworth
Chief Executive Officer
13 January 2021
A copy of the Annual Report will be posted on the Company’s website: www.toopleplc.co.uk
An electronic version will shortly be available for inspection at the National Storage Mechanism: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
Notice of the Company’s Annual General Meeting will be sent to shareholders in due course.
