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Toople Q&A “optimistic about future prospects” (LON:TOOP)

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.

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