Toople Reports FY20 as ‘a transformative’ period and a strong Outlook for FY21
The provider of bespoke telecom services to UK SMEs acquired DMSL, a provider of unified communication services in the UK, back in February 2020, which was funded through a successful £1.2m placing.
While the telecommunications sector is not immune from the impact of the COVID-19 pandemic, Toople reportedsaid the period ‘has seen good quality and reliable connectivity become an absolute necessity’ which it added had further validated its service offering to customers.
Over the FY20 period, group revenue grew year-on-year by 40% to £3.4m, including a seven months' contribution from DMSL, while gross profit rose 130% to £1.1m (FY19: £0.5m).
The group said it saw an increase in overall gross margin from 20% to 32% - ‘a significant improvement’ after acquiring DMSL, which itself delivered a gross margin of 44% for the period.
Annual cost synergies achieved during the period accumulated to over £1.6m on an annualised basis, which is a considerable achievement when initial guidance was approximatelyof £0.6m. Furthermore, admin expenses decreased from 92% to 71% of revenue during the period on 40% revenue growth.
Adjusted operating loss was therefore relatively flat at approximately £1.2m, before exception costs of £1.2m largely relating to the impairment charges over trade receivables from legacy customers that have been written off during the period.
Cash at the bank was over £0.6m as at period end and total assets increased substantially due to the DMSL acquisition, increasing to £2.8m (FY19: £1.3m). Its balance sheet was further bolstered post the year end in October 2020, when it raised a further £0.8m.
Outlook
While the group acknowledges that the economic impact of the COVID-19 pandemic is likely to be ‘significant’, it noted that trading has progressed well in the first few months of FY21.
‘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,’ it said.
The company told investors that, ‘Our strategy remains the same, and we enter 2021 a bigger, better, stronger and more focussed business with an improved balance sheet.’
Specifically, the macro drivers which are 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 country's network from 4G to 5G.
‘We continue to set our sights on the societal importance of telecoms and connectivity as present and future drivers of growth. The Board remains optimistic about future prospects whilst recognising the challenges that lie ahead in the near term due to the pandemic.’
Investors will be pleased to note that sales, billing and customer support functions remained largely unaffected during the pandemic, allowing the business to sign new clients whilst servicing existing ones, and quickly deployed its own unified communications platform across the entire workforce, enabling staff across the UK, South Africa and Poland to work remotely without disruption.
Telco services have never been more prominent in peoples minds than during lockdown and the macro operating environment for TOOPLE across Broadband, fixed-line and mobile services is likely to remain positive throughout FY21 and beyond.
The robust balance sheet and significant shareholder support positions the Company for further revenue growth and positive operational gearing, as costs remain largely flat, will deliver accelerated earnings growth over the coming year.
Shares in Toople have increased by over 53% since the beginning of September 2020, from 0.07p to open today at 0.107p.
Reasons to Follow 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. The group’s contract wins, and renewals point towards several compelling value propositions from the Company across broadband, mobile, and fixed line services.
Significant Market Opportunity
In a recent trading update, Toople told investors that the macro drivers expected to precipitate substantial growth for the Group remain in place, particularly the UK government’s commitment to rolling out of fibre telecommunication infrastructure to replace copper.
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 importance of this accessibility in a “new reality where employees can work from anywhere but must remain seamlessly connected to their colleagues and clients.” And added “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 will provide management greater flexibility to target additional organic growth opportunities across their target markets, which should lead for a positive outturn for FY20 and accelerate the Company’s path to profitability and positive cash flow in FY21.
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