Toople delivers increase in gross profits and gross margin
In its half-year results for the six months ended 31 March 2021 (TOOP ) told investors that trading has returned to more normalised levels as it begins to witness a return to growth.
The telecom service provider to UK SMEs said that despite revenues largely remaining the same over the period, gross profit increased by 40% to £0.47m (HY20: £0.33m) while gross margin rose by 9 percentage points to 31% which the company highlighted was ‘principally due to a shift in our business mix to better performing clients with stronger debtor profiles.’
The Group also reported ‘a much improved performance at the EBITDA level’ as EBITDA loss came in at £0.595m compared to £1.04m in 2020, a year-on-year improvement of 43%.
Having adopted ‘a proactive approach’ to bad debt by implementing a number of new measures last year, Toople reported no material bad debts, with only a £0.043m charge in the period compared to £0.309m in the 2020 period and over £1.1m for the full year 2020.
While the company’s sales pipeline for the period was flat, Toople said it has ‘held up well over the last three months of the period’ and again it is now starting to see an upturn in the level of business as lockdown eases, with the number of enquiries once again increasing.
Toople reported operating loss at £0.695m compared with a loss in HY20 of £1.04m. It said this figure for the period includes exceptional one off restructuring costs of £0.79m.
Operationally, the company hailed the success of DMSL over the period which it said ‘continues to perform solidly’. Since its acquisition in February 2021, the DMSL brand has won a number of notable new contracts in the retail, NGO and local government sectors.
In particular, the company cited the recent Sainsbury's and Carluccio's contract trial win.
The Company said it now has ‘a healthier balance sheet’ and that it is well capitalised to pursue its growth strategy. By period-end, cash at bank was over £0.99m and total assets totalled £2.8m (HY20: Cash at bank was over £0.568m and total assets were £2.9m).
Toople said it is ‘beginning to see a number of acquisition opportunities’ arise. It highlighted to investors that ‘with a strengthened balance sheet and the ability to offer listed shares as part of the consideration mix,’ it believes it is well-placed to take advantage of this.
Post-period, the company highlighted that trading has ‘progressed well’ in the months since March 2021 with Toople having won a string of new contracts and contract extensions.
Since early March 2021, Toople said trading has returned to ‘more normalised levels’ and it is now beginning to see growth return to the company’s sales leads and conversion rates.
The company said it expects this trend to continue and that it has as a result, increased its sales force headcount by over 30% in recent weeks, ‘as confidence slowly returns to the UK SME market, boosted by the vaccine roll-out and the easing of COVID-19 restrictions.’
Commenting on the results, Richard Horsman, Non-Executive Chairman of Toople said: "COVID-19 has caused great uncertainty for businesses and for the market in general, but on the whole we have traded satisfactorily through it, winning new business and reducing costs.”
Also commenting on the results, Andy Hollingworth, CEO, added: "We enjoy a strong relationship with the large carriers and operators. BT, in particular, is targeting the SME market heavily with an above the line TV and press campaign. We believe this will benefit DMSL and will have a material impact on our order volumes over the summer months.’
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Since the start of 2021, Toople has secured new contracts which CEO, Andy Hollingworth, said are “further evidence” of growing momentum. The group’s long-term outlook is expected to be largely underpinned by the UK Government’s commitment to roll out fibre telecommunication infrastructure to replace copper and upgrade the UK’s network to 5G.
In March 2021, Toople unveiled in an update that monthly orders had continued to grow, with gross margins coming in as materially higher than during the pre-pandemic period.
Toople believes trading will continue to demonstrate significant progress as the current UK lockdown begins to ease and the economy moves towards the post-pandemic period.
Shares in Toople were trading 6.26% higher at 0.061p this morning following the results.
Reasons to TOOP
The company completed its “transformational” acquisition of DMS Holdings (DMSL), a firm which provides unified communication services in the UK, back in February 2020. Toople believes DMSL will accelerate its own positive cash generation and drive profitability.
The macro drivers for TOOPLE indicate structural growth opportunities across the SME Telecom markets. Its contract wins, and renewals point towards several compelling value propositions from the Company across broadband, mobile, and fixed line services.
Market Opportunity
In a previous trading update, Toople said the macro drivers expected to precipitate substantial growth for the Group remain in place, particularly the UK government’s commitment to rolling out fibre telecommunication infrastructure to replace copper.
The macro drivers expected to precipitate substantial growth for the Group are said to 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 UK’s network from 4G to 5G.
This forms part of the country’s efforts to upgrade its telecoms system to full fibre lines to deliver “gigabit speeds” following concerns that the UK has fallen behind other countries. The UK government aims for full-fibre networks to cover the entire country by 2033.
Openreach, which controls the UK’s telecoms infrastructure, is building full-fibre to over 4.5 million premises by the end of March 2021 and more than 20 million in the late 2020's.
Andy Hollingworth, CEO of Toople said this goal coupled with the impact of COVID-19 is driving the need for better remote connectivity and unified communications solutions.
“As full-fibre availability in the UK grows exponentially, our suite of services supports the transition to a full-fibre future and as the availability of fibre increases, so too will the number of new and expanded contracts for Toople,” he commented.
He highlighted the significance of this accessibility in a “new reality where employees can work from anywhere but must remain seamlessly connected to their colleagues and clients.” And said, “In light of societal changes to working practices, and technical upgrades to the UK's communications infrastructure, the long-term outlook for Toople is bright."
Strong Balance Sheet
Toople’s balance sheet is expected to provide it with greater flexibility to target additional organic growth opportunities across their target markets, which should lead to a positive outturn for FY20 and accelerate its path to profitability and positive cash flow in FY21.
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