Toople Plc (LON:TOOP), a provider of bespoke telecom services to UK SMEs, has today announced its final results for the year ended 30 September 2016.
Highlights:
– Launch of the Toople brand in May 2016
– Strong growth in the second half of the year, driven by consolidation of the wholesale business and acquisition of the Company’s first SME customers
– Revenue for the year to 30 September increased to £957,749 (2015 £36,799)
– Revenue grew to £555,140 in H2; representing a 38% increase on H1
– Gross margin was £77,641 (8.1%)
– Loss before Taxation of £1,733,578
– Cash at 30 September 2016 of £743,824, following one-off costs of listing, repayment of debt, launch of the brand and expansion of the Group’s services
Post period highlights:
– Orders across channels steadily increasing, reaching over 200 new orders on average per month since market entry up to 31st December2016
– Finessed digital marketing strategy resulting in consistent new customer growth
– Expect to achieve a 30% margin over the contract life of a typical customer
– Breadth of portfolio driving additional “bolt-on” product sales
– Increased 4G capabilities with the addition of O2 and Vodafone to the offered networks, complementing its existing EE services
– The launch of Toople’s new broad cloud business telephony service is expected to be a key driver for new customer acquisition with attractive margins
– The Group is now able to offer a unified communications package
– Accredited by more than 30 of the UKs biggest B2B cashback and comparison sites, with the most notable listings on; uSwitch, Quidco, Topcashback, and Broadband Genie
– Achieved an average customer satisfaction score of 8.5 out of 10 via Trustpilot with its “Right first time” customer service strategy
Andy Hollingworth, CEO, Toople Plc, said, “Since our Standard Listing on the Official List in May 2016, our focus has been to validate the Toople concept and opportunity, and asses the market’s willingness to accept a new brand. The Company remains at an early stage and performance thus far has been encouraging, with consistently increasing customer numbers, new product launches and high customer satisfaction scores.
The foundations are in place for us to continue on this positive trajectory, with a scalable platform and experienced Management team. As such, the Company is on course towards its strategic ambition of becoming the UK’s leading provider of bespoke telecom services to UK SMEs.”
Chairman’s Statement
I am pleased to announce the maiden annual results of the Company following its successful admission to the Main Market on 10 May 2016.
The year to 30 September 2016 saw the formation of the Toople Plc Group of companies, following the acquisition of the business of Toople.com in April 2016. This initial period has very much been about validating the Toople concept and the market opportunity, together with assessing the market’s willingness to accept a new brand. We are pleased with the results of this process, which has given the Board confidence that there is a real opportunity for a Company such as Toople to build a profitable and cash generative business in the Small Business Sector. Furthermore, the experience gained during the period endorses the Board’s belief that the business can deliver strong growth without significantly increasing its direct cost base.
As a result of this activity, it is pleasing to note that the Company delivered strong trading growth in the second half of the year, with revenue growth of 38% compared to the first half of the year. This growth was driven by both the consolidation of the wholesale business and the acquisition of the first SME customers.
Following admission to the market, the initial phase of targeted digital marketing proved to be too competitive and so far, more expensive than anticipated. Management enacted a number of demand generation campaigns in order to determine the most effective method to balance customer acquisition costs relative to the investment and customer lifetime value. The Board is highly cognizant of the need to balance customer acquisition against upfront cash investment and long-term sustainable profitability.
Since the year end, our finessed digital marketing strategy has resulted in consistent new customer growth. The breadth of our portfolio is also driving additional “bolt-on” product sales, which is expected to lead to further half on half revenue growth during 2017.
The year under review has involved a huge amount of sustained activity from management and staff alike. We have gained admission to the Main Market, built the capability of the business, launched the brand, and acquired customers. The Board would therefore like to thank everyone involved for their hard work and contribution during this time.
Richard Horsman – Non-Executive Chairman
Chief Executive Officer’s Review
Introduction
During the course of the year, the Group has progressed towards its strategic ambition of becoming the UK’s leading provider of bespoke telecom services to UK SMEs.
Since going live in the market less than six months ago, progress has been encouraging, and gives the Board confidence that the Company will deliver further growth in the coming months. Revenue grew to £555,140 in the second half of the year, representing a 38% increase on H1, with customer numbers continuing to grow during H1 of 2017.
As at February 2016, there were around 5.4 million SME businesses in the UK. Of these, more than 5 million (96%) fall into the category of having less than 50 employees: this group represents the Group’s Target Market. BT are the largest telecoms provider, receiving nearly 50% of the total market fixed line revenues. The Board believes that this market size and share represents a significant opportunity, with early trading suggesting that Toople’s brand, price, and approach can be successful.
Strategy and business overview
The Group provides a range of telecoms services primarily targeted at the UK SME market. Its services offered include business broadband, fibre, data services (Ethernet First Mile and Ethernet), business mobile phones, cloud PBX and traditional services (calls and lines), all of which are delivered and managed through Merlin, the Group’s proprietary software platform.
The Directors believe that the Merlin platform is a key differentiator for the Group. Merlin provides an end-to-end automated process that allows customers to place orders easily, and enables the business to grow its customer base, without the need to scale expensive resources.
As a result of the in-house Merlin capability, Toople can be very agile in the market. The business had initially assumed that its margins would largely be driven by customers purchasing broadband and calls. Whilst this remains true, the business has also recognised the high-growth, profitable market opportunity that Hosted telephony is fast becoming. Accordingly, the Company has recently brought its global Broad cloud platform to market, with its first customers already signed up.
The market opportunity for Hosted telephony is supported by the latest forecasts from Gartner, Inc., which projects the worldwide public cloud services market to be worth $208.6 billion in 2016*. *Gartner, Inc.: Forecast Analysis: Public Cloud Services, Worldwide, 2Q16 Update Report.
Financial summary
The financial results for the year ended 30 September 2016 include the full year financial results for the operating companies acquired by Toople Plc in April 2016. Revenue for the year ended 30 September 2016 was £957,749, which generated a Gross Margin of £77,641 (8.1%), recognising the predominance of wholesale revenues across the full year period. Operating Losses were £1,714,559 and Losses before Taxation of £1,733,578. Loss per share was 2.76p. This includes pre-admission costs in the subsidiaries.
At 30 September 2016, the Group had cash balances totaling £743,824. Cash raised on admission was £2m: this funded the one-off cost of admission to the market, £0.343m (including £0.080m recognised in share premium in the year); the repayment of a short-term loan to David Breith, £0.065m; and the repayment of the overdraft in the subsidiary businesses, £0.103m. The residual cash balance of £1.489m has been utilised in the business to fund working capital and to make investments in building the brand, acquiring customers and increasing the capability of the business.
At 30 September 2016, the Group was partially financed by loans from David Breith, a major shareholder. The loans cannot be recalled until the third anniversary of the agreement, and after this date only if the Board consider the Company to be in a position to service the debt.
Operational update
Henry Howard Finance Agreements
In May, the Group announced an agreement with Henry Howard Finance plc (“HHF”), to facilitate the launch of its mobile phone offering, without the need for a large, and risky, cash outlay to fund handsets. Since then, the favourable commercial terms the Company has with its suppliers, has changed the funding model, so that the Company retains the risk and cashflow benefits, without the need to use the HHF facility.
Increased mobile network propositions
Also in May, the Company added both O2 and Vodafone to the networks supporting its mobile offering on 4G capability, to complement its existing EE services. This was 5 months ahead of the original target date, allowing the Company to launch its mobile propositions earlier than planned. The Company’s mobile propositions are aligned with Toople’s values, offering highly competitive fixed price calls, texts and data bundles, to SMEs.
Post period update
Customer numbers
Since launch, the Company has been steadily increasing the number of customers it attracts to its platform, with orders across all its channels steadily increasing, reaching over 200 new orders on average per month, since market entry up to 31st December 2016. The Directors are targeting an increased average monthly order rate during 2017.
As the business grows, absolute customer numbers will become a less relevant metric due to the increase in the number of customers taking more than one product. Going forward, the Company believes it is appropriate to report on Revenue Generating Units (“RGUs”), which will represent the number of individual services that result in recurring billable revenue and margin. This can encompass telephone lines; broadband lines, data lines, sim cards and hosted seats. This performance measure is in line with industry standards.
Marketing opportunities
The management team continues to use its telecoms experience to identify marketing opportunities that it considers to offer the best return on investment. The current cost of customer acquisition ranges between £40 and £91 per customer. The Company expects to achieve a 30% margin over the contract life of a typical customer. The majority of customer contracts are 24 months on broadband and mobile and 36 months on hosted telephony
Comparison site recognition
Toople has been accredited by more than 30 of the UKs biggest business-to-business cashback and comparison sites, with the most notable listings on; uSwitch, Quidco, Topcashback, Money Supermarket and Broadband Genie. Orders online and over the phone have already started to be received through these websites. Brand presence on these sites will also drive overall brand recognition for the Company resulting in organic brand search achieving lower customer acquisition costs overall.
Customer service
Customer service is central to Toople’s strategy and Toople.com aims to attract and retain its customers by delivering “right first time” UK based customer service. It is therefore pleased to have achieved an average customer satisfaction score of 8.5 out of 10 via Trustpilot, which is significantly higher than the average scores achieved by the leading companies operating in the sector. Customer experience is critical to delivering best in class retention rates: and as customer contracts mature, provides the Company the best opportunity to sell more than one product to re-contracting customers.
Wholesale customers
In addition to its SME customer base, the Group provides telecoms services (minutes, lines, broadband, cloud PBX) and billing functionality, through the Company’s bespoke telecoms platform, Merlin, to a number of wholesale customers. These services are provided on a license fee and provision agreement.
There continues to be a number of orders for these services, and whilst the wholesale market is not the strategic focus of the Company, it will continue to monitor and review potential opportunities for revenue and margin growth going forward.
Senior management changes
On 21 November, 2016, Mark Evans was appointed Chief Operating Officer, having joined Toople shortly after admission. Mark had been leading the Company’s digital channel sales and contact centre strategy since launch.
With more than 14 years’ industry experience and having previously held senior positions at O2, Mark now leads the Toople customer engagement functions both from a people, software and channel marketing perspective. Mark and the team are focused on ensuring the Group’s back office process is best in class and delivering a great customer experience to small businesses.
Telephony Service Launch
In H1 2017 the Company launched a new cloud business telephony service for its SME target market, and wholesale customers. The two simple propositions: Toople.com Classic and Toople.com Premium, provide an efficient way for small businesses to have a reliable, maintenance free phone system that requires minimum capital expenditure and no advance payment.
These products can be ordered on line or over the phone, with unlimited calls bundles for a fixed monthly fee and come with the handset included in the seat price. Toople.com Premium provides customers with full phone system functionality and mobility via an additional IOS or Andriod app on their mobile, tablet or laptop. Customers will be able to take their office with them on any device, ensuring they never miss a call.
The services also offer the added ability to cross sell and up sell into the existing customer base, which the business is already seeing early signs of success with.
The launch of Toople’s business phone systems enables the Company to deliver complete unified communications to its small business customers. The Company believes this service will become an increasingly important part of its proposition mix, being a great value-add for existing customers, and a key driver for new customer acquisition with good margin and cash generation for the Company.
Merlin platform
The integration of the Group’s proprietary bespoke telecoms platform, Merlin, into the business has been completed. Toople continues to own the full Intellectual Property Rights for the platform.
EU Referendum / Brexit
Whilst the process to leave the EU will provide a period of uncertainty for UK small businesses, the Company believes that Toople’s transparency, fixed prices and service levels will continue to appeal to business owners.
Ofcom regulation
Ofcom’s plans to close the gap in fibre deployment between the UK and some continental European countries, in order to ensure everyone has the right to request service of 10 megabits per second by 2020, is fully supported by the Board. The Board considers the proposed changes to BT Group Plc’s network to ease access for competitors, to be an opportunity for a new company to enter and establish itself in the UK market. Toople believes it will give transparency for infrastructure investment, R&D and a cost base equitable to all service providers. However, there is still a way to go to guarantee the speeds that countries such as Spain and Japan deliver.
Toople will remain a strong voice within the UK SME regulatory and legislative environment, its core customer segment.
Prospects
While it is still early days for the Company, its performance thus far is encouraging. The upward trend in orders and revenue demonstrates that the SME market is prepared to accept a new brand and Toople remains well placed to take advantage of the market opportunity that exists, with its competitive propositions in broadband, mobile, and increasingly, Hosted telephony. The Toople brand and its associated values is now successfully launched in the market, and the Board believes it will generate future growth. The Company will always follow a profitable market share growth strategy rather than just market share at all costs.
My thanks go to customers, shareholders, and most importantly the team here at Toople for what has been delivered so far.
Andrew Hollingworth – Chief Executive Officer
