Toople plc share price, company news, analysis and interviews

Toople plc (LON:TOOP) Chief Executive Officer Andy Hollingworth caught up with DirectorsTalk for an exclusive interview to discuss the acquisition of DMSL, £1.6 million of annualised synergies and savings, cash position, effects of lockdown, the company’s future and CFO changes.

Q1: Now, you made an
acquisition earlier this year, Andy can you give us a brief overview of that
business as a refresher?

A1: DMSL UK offers a diverse portfolio of business
services and products to over 250,000 UK-based small businesses and the
business has been established for over 20 years.

All of the products and propositions are designed to deliver
collaboration that drives UK business to communicate better and as importantly,
to communicate in a more cost effective point of view, wherever the employee
chooses to work from. They also have an extensive partner channel of 100 IT and
telecom specialists across the UK delivering service, support, and consultancy to
small businesses across the range of the DMSL products.

The portfolio, as I say, is wide, it is extensive, from single phone line to multi-site hosted voice platforms and full data centre connectivity. They’re one of BT’s longest-serving BT premier partners but at the same time, as a group, we always remain carrier agnostic and ensuring that we give the right advice, the right solution and the right connectivity for the customer, depending on their location and their speed and bandwidth requirements.

Q2: So, since the acquisition, what
has Toople achieved since the integration of DMSL?

A2: We firstly did a
complete review of what would be the wider group and commenced a rapid
integration of the two businesses. As a result of that, we’ve reorganised the
group into four main brands: toople.com, DMSLUK.co.uk broadbandandphones.co.uk
and checkthatcompany.co.uk.

As part of that review, our
initial acquisition rationale to the market was to deliver a £600,000 a year
annual saving, we then subsequently identified that we could increase that
saving and we communicated that through our interim results to the market and
we revised that upwards from £600,000 annual saving to £960,000 annual saving.

Today, we’re communicating that we’re able to give guidance to raise that saving further to an annual saving of£ .6 million delivered via cost savings and via synergies.

Q3: Like you’ve just said, you’re
on track to deliver £1.6 million of annualised synergies and savings, how has
that been achieved?

A3: I think we really
need to recap and look at why we embarked on M&A and more importantly, why
you embark on M&A and there should be three key drivers 1) scale, 2) skill set
and 3) synergies. Not all M&A that you do ticks all three boxes but
actually in the case of DMSL, it ticked every single box.

As we deployed the integration
between the two businesses, it became clearly evident that there were
significantly more opportunities within the skill set of the DMSL people that
allowed us to drive the integration further. We therefore were able to
materially change our head count assumptions and we were also able to drive
further cost savings in the supply chain across the group than we’d originally
expected.

In balance, what is important to say is that whilst we are delivering now more than £130,000 a month of synergies and cost savings, it’s not cost savings at all costs. We’ve not stripped the business to the bone in any way, shape or form, the businesses well-structured as one company going forward and the structure fully supports the growth ambitions of the business.

Q4: How is the overall cash
position set to improve?

A4: DMSL, in particular,
has a history of being a cash generative business, coupled with the £1.6
million worth of annual savings that are realisable from today, it’s not a
promise, it’s not an expectation, we’ve made the changes that as of today, we
will start to save £133,000 a month. So, that dramatically changes our
anticipated timeline to profitability and to cash generations, we’re materially
accelerating that.

The company has now a multitude of
diverse revenue streams and historically, if we remember the TOOP business in
its growth phases, were gaining customers with the use of, working capital and
consuming working capital to grow the customer base. Now we’re able to drive
that customer acquisition and return an immediate gross profit through the
wider trading relationships that we’ve got within the group.

So, you’ve got in summary, three things, you’ve got DMSL that’s historically been a cash generative business, you’ve got £1.6 million of annual savings that we are delivering as of today and thirdly, a change in our trading from upfront gross profit generation to waiting to the second year of the contract to make gross profit on a customer.

Q5: You’re expecting a decline in
headline and revenues in the short term, can you tell us more about that?

A5: We’re dedicating our focus on to margin-enhancing customer growth, not growth at all costs, both directly and through our channel partners which underpins the strategy of acceleration to transform our cash position over the next 12 months. Of course, we look forward to updating the market in our year end results which we expect to announce during December.

Q6: It’s been a difficult time for
most companies since the pandemic, what changes has the company seen in
business over the lockdown periods? What was the overall effect?

A6: Clearly, the wider
trading environment remains somewhat subdued for the moment as most businesses
deal with the impact of covert and we, as a board, continually monitor the
situation and respond accordingly in line with the government guidelines.

Despite this, I would argue that
our sector has been as robust as any could be in this climate,  data connectivity became significantly
important as the new world forced people to work from home. For sure, many
businesses are still not operating today and some are unlikely to trade again.

We have performed robustly and
satisfactorily through the lockdown and indeed, trading in August return to
more normal conditions as many businesses emerged and reviewed their critical
expenditure on things like IT and telephones. Quite excitingly, if we look at
our August order intake, our August order intake was 14% up on August 2019 and,
as of last night, our September intake is up on September 2019.

So, we can see now more of a return to more stabilised conditions but we remain mindful of the current economic and pandemic climate that we continue to trade in. As I said before, our sector is as robust as a sector can be, people still need connectivity, there is still an emerging need for faster connectivity, with greater bandwidth as more people work from home and more households host more people working from home.

Q7: With that in mind, how do you
view the company’s future?

A7: The macro drivers
which are expected to drive substantial growth for the group remain so namely
the government’s commitment to rolling out fibre to the premise infrastructure
to replace the old copper infrastructure and also the mobile networks are
moving from 4G to %G so they remain the same.

So the board remains optimistic about
our future prospects and another key driver for us is  obviously, clearly, as I said before, the move
towards homeworking by small businesses and their employees, despite the
outbreak of the pandemic and the result of decreases in the economic activity,
the conditions in which the business is set, we’re set to thrive and remains
unaffected.

In some ways, the outlook is even more positive as many people make a more permanent switch to working from home and the need for reliable, faster data connections with more bandwidth, working from home is a key strategy that all of our products and propositions support.

Q8: Now, your current CFO is stepping
down, but he’ll remain with the company, what will be his new role?

A8: So, Kevin Lawrence sits currently on the PLC board and he will continue to chair the audit and the renumeration committees in a non-exec capacity. We clearly will continue to rely on his guidance, he’s got a wealth of skills and practical knowledge relevant to scaling businesses. He’s got an excellent capability in acquisitions and the understanding of the PLC environment so that will continue to prove invaluable.

Q9: The new CFO, an internal
opponent, can you tell us more about Paul White and the experience that he’ll
bring to the role?

A9: I think first of
all, it’s absolutely critical now with the increasing size of the business and
the scale of the business that we absolutely needed to appoint a full time CFO and
a full time CFO that has complimentary skills, market knowledge and a proven
experience in our line of work and our strategy and Paul does that.

He joined the business back in
June under the remit of Financial Controller and that’s a major advantage to us
as the fact that he already knows our business, he’s been working intimately
with Kevin over that period so we are really pleased to announce him as the
next CFO of Toople.

He knows the business well, he
shares our values, he shares our vision and our ambitions and, as I say, he’s
been shadowing Kevin for the last three months so has an excellent knowledge of
the operating subsidiaries, the financial processes, and the systems.

Toople plc (LON:TOOP) CEO Andy Hollingworth caught up with DirectorsTalk for an exclusive interview to discuss changes in the business, acquisitions, impact of COVID, cash generation and profitability and what the future holds for the company.

Q1: Interim results just published and the business seems to have change a lot since your last set of results. Andy, can you talk us through the major changes?

A1: It’s a dramatic set of changes over the course of the last six months, January, this year, 2020, we announced a successful placing to fund the acquisition of DMSL UK which was transformational. The reason why it was transformational was DMSL have multiple revenue streams, including upfront cash and recurring revenues from BT, recurring revenues from its directly managed and contracted customers and revenue shares with over a hundred plus partners and resellers that they’ve had over the last 19 years.

So, the combined group is now of significantly larger scale which has opened up opportunities to benefit from material operational gearing and operating efficiencies.

Q2: Now, you talk about the acquisition being transformational, can you expand on that for us a little?

A2: One of the major results is that pre-acquisition the material customer growth in Toople came at a capital loss for the first 10 months of every customer’s life that we bought on board. That obviously consumes cash before we experienced a return, the gross profit kicks in a sort of month 10 to month 11 and then you make the margins between month 11 and  month 24, which is the typical life of a customer contract.

Whereas the DMSL business model is built around receiving payments upfront and our new carrier relationships mean that customer acquisitions are, at worst, cash neutral from day one so not cash burning and are generating gross profit sort of immediately. This coupled with the cost synergies that we’ve identified and are delivering on substantially reduces our cash burn.

Next, the acquisition also expanded the group’s reach into the UK consumer market, which is experiencing a huge change, and a rapid change, and as operational automation further develops and more people choose or in the current situation of forced to work from home, that is a real key new segment for us – the consumer market and delivering high speed broadband to homes.

Finally, we also recently launched a telecoms price comparison site so a broadbandandphones.co.uk and we also have a site that is available for credit checking and credit referencing and reports for UK businesses. So, they complement the groups IT and telecom services per se.

Q3: I think you’ve hinted at this, but how has the combined business performed since COVID? Has it impacted growth and have you won any new contracts?

A3: I think it’s fair to say that obviously nobody in the UK or globally is insulated from the financial impact of COVID and its true impact cannot be underestimated by any business.

Our sector as a whole has suffered but considered to be reasonably insulated on the basis that there’s a huge move of people working from home now and not in the office and what do they need, they need high speed connectivity with great bandwidth. So, whilst trading conditions in the B2B environment have been challenging, the group as a whole across all of the companies have traded actually solidly during this period which is good to see. In recent weeks, we’ve notably seen a change back to pre-COVID conditions for all the numbers and activity so we’re quite comfortable in terms of where we’ve been in this period.

We’ve continued to win a number of new contracts which we’ve updated the market with in the retail, the hospitality and insurance sectors and our core offering to support that is strong with cloud telephony platforms that ensure business continuity for all of our customers that can act as a solution in an increasing environment that is supporting remote working.

So, the core cloud VoIP offering supports the significant unprecedented times that we’re in.

Q4: You talked about COVID presenting opportunities for the group, what can you tell us about those?

A4: I think, as I just said, the trend towards working from home has been accelerated by the onset of COVID and the subsequent lockdown which may remain with us in some form for a long time to come. All businesses in the UK have undoubtedly been forced to make, as I say, unprecedented changes to the way in which they operate and now more than ever are reliant on connectivity and their communications wherever they may choose to work.

All the group brands differentiate, they seek themselves to differentiate, by offering IT, telecoms and broadband solutions with robust and reliable packages that enhances that customer’s business wherever they may be and are based on, always, the Toople’s DNAs of trust, transparency, no hidden fees with fixed pricing where possible. That is critical for companies adapting in the new challenging circumstances.

Q5: You talked a lot in your statement about the acquisition synergies and cost savings, can you elaborate on that for us?

A5: DMSL has always had a history of being cash generative which considerably accelerates our timeline to achieve profitability and cash generation. We communicated at the time of the acquisition, and a key part of our rationale was seeking to achieve cost savings of some £50,000 per month so equating to £600,000 a year of savings. To date, we’ve already achieved over £40,000 pound a month of synergy savings so £480,000 on an annual basis, we’ll start to follow through in terms of cost savings with the remaining £10,000 already in frame to be delivered and we’re delivering as we speak to another £120,000 of synergy savings that will be delivered.  In addition, as a result of the integration of the two businesses, we’ve also identified a further annualised total of £420,000 plus that can be realised.

So, in summary, we expect to achieve over £1 million of synergies over the course of the next  financial year, substantially more than we than we originally identified and really good to see.

Q6: So, what does all that mean for your cash generation and profitability?

A6: I think we must remain cautious about the overall macro impact of COVID but as I’ve said, we’ve traded through it solidly, we’ve seen a return to pre-COVID conditions in terms of all the numbers that are coming in on an hourly daily business. We expect materially to be in a much, much stronger position from a cash generation perspective as a result of the acquisition synergies that we’ve identified and realised and they are certainly propelling us more quickly towards positive cash generation.

Q7: Just looking at the future, what do you think the future holds for Toople?

A7: Growth is all being driven by a number of factors, not least, and we’ve talked about it many times, a notable switch from UK small businesses and homes to super-fast fibre broadband, VoIP telephony. This is all being driven by the government’s policy and OFCOM’s policy of phasing out the existing legacy copper infrastructure, a process that has to be complete for new orders by 2025 and copper infrastructure closed by 2027. The company is aligning itself, and has aligned itself, to that future connectivity.

Businesses are forced review their existing telecom services, many are seeking new solutions, reviewing their current costs, looking for enhanced quality at affordable fixed prices and SMEs are increasingly dissatisfied with a lack of pricing, transparency, poor service offerings and poor customer service from the traditional tier one providers. We’re taking advantages of those failings by the bigger competitors and we’re fast becoming a major disruptor in the market.

The trend is coupled with a seismic shift in UK working practices accelerated by COVID, perverse to say that there is opportunity in these unprecedented times in our segment and for the company. More workers are either electing or being forced to work from home, driving further reliance on home-based infrastructure, home-based speeds, home-based based bandwidth, and IT capability in a consumer environment as well as the business environment.

We will continue to demonstrate what we’ve always done, which is be agnostic to the carriers, deal with all the biggest UK carriers and the best choice for the customer providing them with the best service at the best price with transparency of offerings. Particularly, this difficult time businesses and consumers need this from a telecoms and IT suppliers where the business confidence grows over the coming months or year, or shrinks businesses still need to be remained to be connected. We offer the best telecoms technology and solutions at a fixed price and we should always remain attractive against our sluggish incumbents in the marketplace.

So, I’m very, very positive about the opportunities that exist, even considering the difficult times that we’re in and will continue to be in.

Toople plc (LON:TOOP) Chief Executive Officer Andy Hollingworth caught up with DirectorsTalk for an exclusive interview to discuss the settlement of the David Breith loan, trading update, their sales centre in Durban and whether growth will continue.

Q1: A few weeks ago, you announced the settlement of the David Breith loan, can you just talk us through that?

A1: It was an opportunity where obviously we had an outstanding loan since the company floated in June 2016 where Dave Breith had a loan of just over £600,000 in the business and that was for gaining access to the IPR of the Merlin software platform and any sort of debt to the business prior to market flotation.

The terms of the loan were very
simple, minimum 3 years, non-interest bearing and then only repayable at a time
that the Toople board consider the company in a position to repay that debt.

There was an opportunity to repay
debt at a considerable discount and the Board settled that debt at less than
25p in the pound which actually the net result of that was to make the company
a debt-free business; we now have no debt in the business whatsoever.

At the same time, we had, from our brokers, an approach for some interesting further TOOP stock that they couldn’t get on the market, we had our permissions as a standard list and we were able  to secure some private placing.

So, we were able to service the debt without affecting the working capital of the business and obviously to enhance the working capital of the business with the placing as well. So, timing was perfect although I would comment that without the private placing, the Board, at less than 25p in the pound in the settlement of the debt, the Board would have elected to cease that opportunity anyway.

Q2: Today you provided the market with a trading update, can you just talk us through the numbers Andy?

A2: Obviously the numbers are very very strong, we’ve previously communicated to the market that we’re growing quite materially and we’d already told the market that we’d achieved over 900 orders in April and subsequent to that, now we’ve achieved over 1,000 orders from customers in May. Just finishing June, as of Friday night, the actual numbers from Friday night was 1,150 orders in June so over 1,100 orders and we then would’ve received more orders online on Saturday and Sunday.

So, if you just look at the main number, of over 1,000 orders, if we compare that to our trading this time last year, as a year-on-year comparison, we’re now bringing in 3.5 times more orders every single month than we did for the same period last year. It represents, as stated, a 250% growth year-on-year comparison.

Q3: The update today, it mentioned that you’ve established a sales centre in Durban n South Africa, what’s the rationale there?

A3: Very simple. The rationale is what we’re seeing from customers is our digital marketing activity that we put out there to create the brand to put different propositions in the marketplace, what we see is a lot of small businesses and a lot of sole traders that want to interact with the company, post 8pm, and indeed on Saturday’s and Sunday’s.

What we can see is that when a customer
is interacting because you because our marketing is 100% digital, the real best
time to interact with that customer is whilst they’re on their laptop, whilst
they’re on their laptop, whilst they’re on their tablet or their mobile. If you
leave it for a period and they move on to the next thing then what we’re seeing
is customers end up, even though they’ve filled in an enquiry form on the proposition
that they’ve seen, some of those customers we never get to contact.

Indeed, if we look at all of the
lead generates on a monthly basis and all the enquiries that come in on our digital
marketing activity, we convert overall, about 30% of those leads. If you then look
at the actual customers that we get to contact, we actually convert over 80% of
all of the customers that we actually end up getting in contact with based on
their enquiry.

So, what Durban will do is
significantly extend our operating hours, post 8pm in the weekdays and on
Saturday’s and Sunday’s so that the enquiries already coming in, we’ll convert more
of those enquiries. So, our conversion rates will grow because we’re there and we’re
available with the customers and we can interact in a real-time basis.

So, we will see an increase in
conversion rates over the coming months and what that means is as you increase your
conversion rates on the leads that you’re already generating in the marketing
budget that we’ve got then you’ll obviously see the net result is the overall
reduction in the cost of acquisition of an order or a customer.

So, it’s a good thing from a company perspective and drives a really great interaction with the customer.

Q4: Just going back to the numbers that you mentioned, do you think growth will continue for Toople?

A4: I think certainly. If we look at absolutely the growth month-on-month which we’ve tried be as detailed as possible in the bulletin which shows monthly growth.

Just going back to exactly what I
said about the Durban presence, obviously the Durban presence will undoubtedly fuel
further growth and fuel further conversion rates so we look forward to the
coming months and the next year, with significant confidence.

Toople plc (LON:TOOP) Chief Executive Officer Andrew Hollingworth caught up with DirectorsTalk for an exclusive interview to discuss their interim results and what the future holds for the company.

Q1: Interims out today, are you pleased with the numbers?

A1: Absolutely, yes. I’m really pleased with the numbers, I think they’re a real solid set of numbers and I think from a financial and operational perspective we’ve exceed or performed at least in line with our KPI’s.

To
summarise the headline numbers, if you look at the overall group revenue, that grew by an impressive 57% to £1.08 million and
if you then look at our direct small business revenue line, which is our key in
strategic focus for us growing that small business market, that grew by 169%.
That justifies the decision that we’re making in the investment of our digital
marketing and our in-house sales team.

If we then look at
the three core propositions that make up really the company proposition so that
small business market then the broadband revenue grew by 159%, the mobile
revenue grew by 124% and the cloud-based telephony revenue grew by 82%. 

That is all
underpinned by, obviously, material growth in the orders and Revenue Generating
Units (RGUs) from the small business market. This has resulted in a leap of 150%
of the gross profit over the period and gross margins have also improved by 7
percentage points over the same period last year.

So, given the strategic investments that we’re making and we indicated we would make which, absolutely it’s a really good solid material set of growth results.

Q2: I did notice that your numbers show a decrease in wholesale revenue, is this something that investors should be concerned about?

A2: No, not at all. That’s been an intended result of our strategy to move away from a few legacy wholesale contracts that we had prior to floatation which typically deliver low margin in terms of the revenue side of things but also obviously presents a higher debtor risk when you’re working on really really low margins.

As I say, all of
those contracts were in place prior to the company coming to market 3 years ago,
it’s always been our strategy to exit ourselves from those agreements. Our
strategy going forward with our partnership agreements is to be extremely
selective about the agreements we enter into. They’ve got to deliver the right
gross margins for the business.

So, no, to be expected and completely comfortable it is a result of our strategic intent.

Q3: As you mentioned earlier and in summary, you state that you are comfortable with Toople’s cash position and the investments you have made in people and digital marketing and that they’re paying off.  Could you please expand on that statement for us a little?

A3: Our cash position at the end of the 31st March 2019 stood at a healthy £1.15 million, that is exactly in line with our expectations and the Board believes that the current position is more than sufficient to allow the business to continue and pursue the growth strategy that you’re seeing and what we indicated to the market at the time of our placing back in September 2018.

That investment is underpinned by the results that I’ve
previously talked to you about on this call and demonstrating the gross profit
increase of 150%. So, comfortable and sufficient to continue the material
growth story.

I think we really really spend our cash really wisely and our investment is in it totality to
accelerate the sign up of new customers. Bear in mind that the difference with
this business is that every customer that we bring on board typically signs a
24-month contract so it is absolutely fixed, recurring, transparent revenue
over 24-month period.

As I say, we spend
it wisely and what we can see is a significant increase in our lead conversion
and our sales being achieved and that leads to a lower cost of acquisition. Critically,
we can also identify that there are real efficiencies in our marketing spend and,
in our sales performance, where we can drive further growth without the need to
increase our marketing spend that you’ve seen to date.

So, I think that’s absolutely pertinent and correct as we drive towards profitability and relates to the cash position, it’s worth commenting on that.

Q4: Just looking at the industry more generally, what did you make of the recent KCom deal where it was taken over by a pension fund?

A4: It certainly shows that there is significant interest and there’s always been consolidation in our market.

Looking at that
deal, it’s going to value KCom over £500 million and the thing that interest me
is that KCom have about 5% of our core market in terms of the small business market
so I think it’s a good benchmark in terms of the industry still shows consolidation.

That’s great for us, great for where we’re driving in our market share gains in the small business market and I think over time actually, we will have a team role and an interest in the M&A activity that exists within the market.

Q5: You also note that a major tier one UK carrier has started to benchmark itself against yourselves.  What does this tell us about your place in the marketplace?

A5: We can go through all of this solid set of growth and material sets of growth, this is the bit that really really excites me because we must remember that 3 years ago, nobody had heard of the company, it was an unknown brand. Now we’re sitting here today with the biggest legacy carrier in the UK market starting to benchmark its pricing against us as their number 1 comparator.

That just does demonstrate
what we’ve achieved over the last 3 years since we created Toople, we’re
disruptive, we’re disruptive in the small business market, we’re on the radar
of the big legacy provider in the UK market.

It’s a great place to be and we are fulfilling and achieving all the objectives we set out to be, that’s got to be exciting for us.

Q6: What does the future hold for Toople PLC do you think?

A6: I think the company’s future is really bright. If you look at the growth story and the April numbers, post-period, we received over 900 orders from over 600 small businesses placing orders with us for the first ever time. That’s 600 brand new businesses placing orders with us, that’s not a ‘one hit wonder’, we can see from our activity that that is consistent, we also believe we can grow from that so I think it’s great.

Also, what you’ve
got to remember is, we are significantly growing the customer base, that’s what
our investment was lined up to do. Let’s never miss the opportunity that whilst
600 small business customers are going to be joining every single month, once
we’ve demonstrated the great customer experience, the transparency and pricing and
they’ve got their confidence in the company, that sets us up to cross-sell and
upsell and sell more products into the same customers, that has obviously got
no cost of acquisition to it, it’s not like bringing a new customer in.

I think there are opportunities
as well as the continued growth of taking market share in the small business
market so in summary, I would say that we’re making great solid progress
towards our goal and the road to profitability.