Company Announcements

THIS ANNOUNCEMENT IS RESTRICTED AND IS NOT FOR PUBLICATION, RELEASE OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO OR FROM THE UNITED STATES, CANADA, AUSTRALIA, THE REPUBLIC OF SOUTH AFRICA, JAPAN OR ANY JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL. THIS ANNOUNCEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR ISSUE OR THE SOLICITATION TO BUY, SUBSCRIBE FOR OR OTHERWISE ACQUIRE ANY ORDINARY SHARES OF TOOPLE PLC IN ANY JURISDICTION IN WHICH ANY SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

Toople PLC

("Toople" or the "Company")

Proposed Acquisition of DMS Holding

Conditional Placing of 1,200,000,000 Ordinary Shares at a price of 0.1 pence per share

Issue of Loan Notes

and

Notice of General Meeting

The Board of Toople, a provider of bespoke telecom services to UK SMEs, is pleased to announce that the Company has conditionally agreed to acquire the entire issued share capital of DMS Holding in conjunction with the completion of a book build for the placing by the Company's brokers, Turner Pope and Novum, of 1,200,000,000 new Ordinary Shares ("Placing Shares") at 0.1 pence per Ordinary Shares ("Placing Price") to raise gross proceeds of £1.2 million. Toople's results for the year ended 30 September 2019 were published earlier today.

DMS Holding is the holding company for DMSL, a company which provides unified communication services in the UK.  DMSL commenced trading in 2002 and has over 15 years' experience of providing broadband connectivity, mobile and fixed voice and cloud services.  The consideration for the Acquisition is £1.56 million, subject to post completion adjustment, to be satisfied by a cash payment of £460,000, the issue of 1,050,000,000 new Ordinary Shares in Toople (the "Consideration Shares") at the Placing Price, and the issue of Options to acquire up to 800,000 new Ordinary Shares.

Under the terms of the proposed Placing, the Placees will receive 600,000,000 Placing Warrants calculated on the basis of one Placing Warrant for every two Placing Shares acquired.  Each Placing Warrant entitles the holder to subscribe for 1 new Ordinary Share at the Placing Price at any time during the period commencing on Admission and expiring at midnight on the third anniversary thereof.

The Acquisition and the Placing is conditional upon, inter alia:

(i)            approval by the UK Listing Authority of a prospectus to be published by the Company in connection with the Placing (the "Prospectus") and the publication by the Company of the Prospectus in accordance with the Prospectus Rules;

(ii)           approval of the Resolutions at a general meeting of the Company to be held at the offices of Fieldfisher at Riverbank House, 2 Swan Lane, London EC4R 3TT at 09:00 a.m. on 17 February 2020.

(iii)          the Placing Shares being admitted to listing on the Official List (standard listing segment) and to trading on the London Stock Exchange's main market for listed securities ("Admission") on or around 18 February 2020 (or such later date as may be agreed by the Company, Novum and Turner Pope).

The Company has also agreed to issue £1,625,000 of zero coupon secured Loan Notes to HomeSelect Finance pursuant to the Loan Note Instrument to raise net proceeds of £1,235,000.  The net proceeds of the Placing together with the funds raised through the issue of the Loan Notes will be used to provide the initial cash consideration for DMS Holding and to provide general working capital for the Enlarged Group. 

Highlights of the Acquisition and Information on DMSL

·      DMSL is a family owned business, which acts as a BT Premier reseller principally in the B2B market

·      In the year to 30 April 2019, DMSL's turnover was £3.1 million, with a profit before taxation of £331,282

·      The Company is responsible for over 250,000 BT customers and over 400,000 Revenue Generating Units

·      Headquartered in Bishop Stortford, the company also has sales and quality operations based in the same Durban site as Toople's sales and marketing operations

·      DMSL currently offers a portfolio of business services and products, from a single phone line to a multi-site unified comms VoIP platform, delivered via a network of telecoms and IT carriers and content providers across the UK including BT Business, BT Global Services, Gamma , EE, Vonage, Talktalk Business and 02

·      DMSL has multiple revenue streams including: upfront cash and recurring revenue from BT activities; recurring revenues from directly managed and contracted customers; and revenue share with resellers

·      Once completed the combined Group will be of larger scale opening up opportunities to benefit from operational gearing and operating efficiencies

·      DMSL is cash generative, accelerating Toople's timeline to achieve profitability and positive cash generation

Andy Hollingworth, CEO of Toople, commented:

"This is a transformational acquisition for Toople with strong operational and market synergies as DMSL operates primarily in the B2B space and also offers hosted telephony.  They have a comparatively low churn rate with many customers on 12 month auto-renew at the end of their initial contract term.  When you combine this with their stable margins driven from BT commissions and high margin on directly contracted VOIP growth it makes for an attractive proposition.

"Financially it makes perfect sense as DMSL is already profitable and has been for a number of years.  As a result, the combined business will accelerate to EBITDA profitability and cash self-sufficiency, reducing the historic reliance on the market to provide funds for working capital.  It also provides us with far more predictable and controllable income streams. Significant synergies have been identified to improve overall Group profitability and cash generation and there is the possibility for further margin enhancement once direct business has been migrated onto Toople's proprietary Merlin platform.

"As well as bringing immediate cash inflow on a monthly basis, the acquisition should substantially de-risk the entire business model and can help accelerate cash conversion from customers."

-ends-

For further information please visit www.Toople.com or contact:

Notes to editors:

Toople PLC, a company incorporated in the UK provides a range of telecoms services primarily targeted at the UK SME market. Services offered by the Group include business broadband, fibre, EFM and Ethernet data services, business mobile phones, cloud PBX and SIP Trunking and Traditional Services (calls and lines) all of which are delivered and managed through Merlin, the Group's proprietary software platform.

The Group is differentiated by its focus on creating small business connectivity solutions, with robust and reliable packages that will enhance our customer's companies. In addition, our vision is based on trust and transparency, with no hidden fees within our pricing policy providing customers with a clear understanding of cost.

Toople Plc has a strong and highly experienced Board and management team who are focused on growing the business both organically and by identifying earnings enhancing strategic acquisition opportunities.

Important notice

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

This announcement does not constitute, or form part of, a prospectus relating to the Company, nor does it constitute or contain any invitation or offer to any person, or any public offer, to subscribe for, purchase or otherwise acquire any shares in the Company or advise persons to do so in any jurisdiction, nor shall it, or any part of it form the basis of or be relied on in connection with any contract or as an inducement to enter into any contract or commitment with the Company.

The content of this announcement has not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000 (FSMA). This announcement has been issued by and is the sole responsibility of the Company. The information in this announcement is subject to change.

This announcement is not an offer of securities for sale into the United States. The securities referred to herein have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the Securities Act), and may not be offered or sold, directly or indirectly, in or into the United States, except pursuant to an applicable exemption from registration. No public offering of securities is being made in the United States. This announcement is not for release, publication or distribution, directly or indirectly, in or into the United States, Australia, Canada, the Republic of South Africa, Japan or any jurisdiction where to do so might constitute a violation of local securities laws or regulations (a Prohibited Jurisdiction). This announcement and the information contained herein are not for release, publication or distribution, directly or indirectly, to persons in a Prohibited Jurisdiction unless permitted pursuant to an exemption under the relevant local law or regulation in any such jurisdiction.

Cairn Financial Advisers LLP (Cairn) is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Cairn is acting solely as nominated adviser exclusively for the Company and no one else in connection with the contents of this announcement and will not regard any other person (whether or not a recipient of this announcement) as its client in relation to the contents of this announcement nor will it be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the contents of this announcement. Apart from the responsibilities and liabilities, if any, which may be imposed on Cairn by FSMA or the regulatory regime established thereunder, Cairn accepts no responsibility whatsoever, and makes no representation or warranty, express or implied, for the contents of this announcement including its accuracy, completeness or verification or for any other statement made or purported to be made by it, or on behalf of it, the Company or any other person, in connection with the Company and the contents of this announcement, whether as to the past or the future. Cairn accordingly disclaims all and any liability whatsoever, whether arising in tort, contract or otherwise (save as referred to above), which it might otherwise have in respect of the contents of this announcement or any such statement.

Novum Securities Limited ("Novum") and Turner Pope Investments (TPI) Limited (TPI) are authorised and regulated by the Financial Conduct Authority in the United Kingdom. Novum and TPI are acting solely as the Company's brokers and placing agents exclusively for the Company and no one else in connection with the contents of this announcement and will not regard any other person (whether or not a recipient of this announcement) as their client in relation to the contents of this announcement nor will they be responsible to anyone other than the Company for providing the protections afforded to their clients or for providing advice in relation to the contents of this announcement. Apart from the responsibilities and liabilities, if any, which may be imposed on Novum and TPI by FSMA or the regulatory regime established thereunder, Novum and TPI accept no responsibility whatsoever, and make no representation or warranty, express or implied, for the contents of this announcement including its accuracy, completeness or verification or for any other statement made or purported to be made by them, or on behalf of them, the Company or any other person, in connection with the Company and the contents of this announcement, whether as to the past or the future. Novum and TPI accordingly disclaim all and any liability whatsoever, whether arising in tort, contract or otherwise (save as referred to above), which they might otherwise have in respect of the contents of this announcement or any such statement.

Forward-looking Statements

This announcement includes "forward-looking statements" which include all statements other than statements of historical facts, including, without limitation, those regarding the Company's business strategy, plans and objectives of management for future operations, or any statements proceeded by, followed by or that include the words "targets", "believes", "expects", "aims", "intends", "will", "may", "anticipates", "would", "could" or similar expressions or negatives thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the Company's control that could cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company's present and future business strategies and the environment in which the Company will operate in the future. No undue reliance should be placed upon forward-looking statements. These forward looking statements speak only as at the date of this announcement. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based, unless required to do so by applicable law or regulation.

Toople PLC

("Toople" or the "Company")

Proposed Acquisition of DMS Holding

Conditional Placing of 1,200,000,000 Ordinary Shares at a price of 0.1 pence per share

Issue of Loan Notes

and

Notice of General Meeting

Toople PLC (LSE: TOOP), a provider of bespoke telecom services to UK SMEs, is pleased to announce that it has conditionally agreed to acquire the entire issued share capital of DMS Holding in conjunction with the completion of a book build for the Placing to raise gross proceeds of £1.2 million.  The Company has also agreed to issue £1,625,000 of Loan Notes to HomeSelect Finance pursuant to the Loan Note Instrument.  The net proceeds of the proposed Placing together with the funds raised through the issue of the Loan Notes will be used to provide the initial cash consideration for DMS Holding and to provide general working capital for the Enlarged Group.  DMS Holding is the holding company for DMSL, a company which provides unified communication services in the UK.  The Directors believe that following the Acquisition, the Enlarged Group will deliver faster growth, achieve material cost synergies and benefit from the complementary skill sets of Toople and DMSL. Toople's results for the year ended 30 September 2019 were published earlier today.

The Acquisition and Placing are both conditional on the passing of the Resolutions at a general meeting of the Company to authorise the Directors to allot and issue the New Ordinary Shares and a special resolution to dis-apply statutory pre-emption rights with respect to the allotment and issue of the New Ordinary Shares.  Notice of the General Meeting of the Company will be held at the offices of Fieldfisher at Riverbank House, 2 Swan Lane, London EC4R 3TT at 09:00 a.m. on 17 February 2020 in order to consider and, if thought fit, pass the Resolutions is set out in the Prospectus published by the Company in connection with the Acquisition and Placing, which is being posted to Shareholders today.

Proposed Acquisition of DMS Holding

Introduction

Toople has conditionally agreed to acquire the entire issued share capital of DMS Holding from the current owners, John and Juli Carter, the consideration for which is £1.56 million to be satisfied by a cash payment of £460,000 (subject to an adjustment at Completion for any deficit in working capital at Completion), the issue of 1,050,000 Ordinary Shares in Toople (the "Consideration Shares") and the issue of the Options. The Acquisition is conditional upon, inter alia, approval of the Resolutions at the General Meeting.

The Company has adopted the Loan Note Instrument and has received a commitment letter from HomeSelect Finance to subscribe for all of the Loan Notes constituted by the Loan Note Instrument for a total consideration of approximately £1,235,000 which the Company will draw down immediately prior to completion of the Acquisition.  The funds from the Loan Notes and the Net Proceeds of the Placing will be used to fund the payment of the cash consideration payable by the Company on completion of the Acquisition and for working capital purposes.  The Loan Notes issued by the Company to HomeSelect Finance pursuant to the Loan Note Instrument shall be secured by the Debenture.

On completion of the Acquisition, a new service agreement will be entered into between John Carter and DMS Holding pursuant to which John Carter shall continue to act as a statutory director of the DMSL business. 

On completion of the Acquisition the Company and each of John Carter and Juli Carter will enter into the Option Agreements pursuant to which the Company will grant options to John Carter and Juli Carter to subscribe for (i) 25,000,000 new Ordinary Shares each at 0.01 pence per share which shall vest three years after the date of the Option Agreement; and (ii) 375,000,000 new Ordinary Shares each at 0.01 pence per share which shall vest in three equal tranches three years after completion of the Acquisition subject to certain financial targets for DMSL having been met in each financial year.

The Directors believe that the Acquisition will enable Toople to deliver significant growth at a faster rate than would be achieved organically and provide the opportunity for material cost synergies to be implemented, which the Directors estimate will amount to up to £50,000 per month post integration.  The DMSL team have significant experience of cloud based telephony, sales verification processes and delivering quality customer experience.

In the year ended 30 April 2019, DMSL achieved a profit after tax of approximately £320,000.  

History and Background on DMSL

DMS Holding was incorporated in January 2017 to become the holding company for DMSL, a company which provides unified communication services in the UK.  DMSL commenced trading in 2002 and has over 15 years' experience of providing broadband connectivity, mobile and fixed voice and cloud services.  DMS Holding is owned by its founder John Carter and Juli Carter, wife of John Carter.

DMSL currently offers a portfolio of business services and products, from a single phone line to a multi-site unified comms VoIP platform, delivered via a network of telecoms and IT carriers and content providers across the UK including BT Business, BT Global Services, Gamma , EE, Vonage, Talktalk Business and 02.

DMSL's operations are based in leasehold premises in Bishop's Stortford where it employs 19 staff.  In addition it outsources its sales and support functions to a specialist provider based in Durban, South Africa with a team of circa 30 full time employees and it outsources its IT function to a supplier based in Brisbane, Australia.

Principal Business Activities of DMSL

DMSL offers a portfolio of unified communication services.  It does not own any telecommunications infrastructure itself, but is interconnected with global carriers and contents providers on a wholesale basis;

i)       Broadband for business from BT Business, BT Superfast and Ultrafast, Plusnet, Enterprise and Bonded ADSL;

ii)      Broadband for home from BT offering download speeds of between 10 - 300Mb;

iii)     Traditional calls and lines  -  PSTN, ISDN, Fax to email, Conference Calling and Call Handling;

iv)     Business Connectivity offering a range of services for businesses requiring superior connectivity than broadband including leased lines, private circuits and SIP trunking;

v)      Unified VOIP Telephony services from BT, Gamma and Vonage which combine voice and data using IP phone communications technology to remove the need for a traditional phone and reduce call charges;

vi)     Mobile for Business  -  smart phone, dongle and mobile hotspot solutions from BT and M2M SIM solutions from EE;

vii)    Mobile for Home  -  SIM only plans from BT;

WiFi solutions for the hospitality and retail industries which provide customers with connectivity, capture customer data and enable marketing engagement with customers through a proprietary platform. By offering this extensive range of services, DMSL are able to deliver multiple solutions to its customers enabling them to adopt an integrated communications strategy and to migrate users to cloud based platforms.

Operations

DMSL has two types of customer relationship: 

i)       the customer is owned by BT and DMSL receives upfront and ongoing remuneration from BT, representing approximately 90% of turnover; and

ii)      the customer is owned by DMSL representing approximately 10% of turnover.

The BT relationship has been in existence since the inception of DMSL.  DMSL is currently one of only seven Premier Partners and has an active base of over 250,000 business broadband customers which it manages and for which it receives remuneration each time the user renews its contract and or adds additional services.

DMSL's own customers are acquired from direct marketing and from reseller introductions. This results in DMSL owning the enterprise value of the customer and contract entitlement. The main growth is driven by connectivity orders and orders for DMSL cloud based telephony platforms, typically all customers sign minimum 3 or 5 year contracts.

There are three routes to market for attracting new Revenue Generating Units.  The first is direct marketing which accounts for c.80% of new orders. The Durban based team continually monitor superfast roll out programmes from carriers across the UK, then engage with the customers who will get faster speeds and become eligible for true unified comms solutions, resulting in the current and future growth in DMSL sales.  The second is via a network of over 200 resellers who are local IT businesses supporting LAN and WAN infrastructure for their clients and to whom DMSL provide installation expertise and on-going support, sharing revenues on a 50:50 basis.  The third is additional RGU orders from the existing active base of BT business broadband and leased line customers managed by DMSL.

Market overview

DMSL targets the SME business market that Toople is focused on and in addition has some residential customers.  DMSL has a particular expertise in SME cloud unified communication which is forecast to grow from 16% penetration in 2017 to 40% by 2022.  In companies employing less than 50 staff, this represents a potential target market of over seven million users (Source: Cavell Group).

The telecoms market is in a period of significant change as a result of the transition to a full fibre network with significant focus and investment from the Government to deliver the new gigabit infrastructure by 2025 which will be proceeded by a moratorium on selling new lines using this technology from 2023.  In addition, the impending introduction of 5G and the desire for faster broadband speeds, expected to reach 1 Gbps in the foreseeable future, offer significant market opportunities.

The desire by Ofcom to encourage voluntary switching by users ahead of the end of PSTN services presents a significant opportunity to DMSL to switch both current customers and new users to VOIP services ahead of the deadline.

Placing, Admission and CREST

The Placing will raise approximately £1.2 million before expenses through the issue of 1,200,000,000 Placing Shares at the Placing Price.

Under the terms of the Placing, the Placees will receive 600,000,000 Placing Warrants calculated on the basis of one Placing Warrant for every two Placing Shares acquired.  Each Placing Warrant entitles the holder to subscribe for 1 new Ordinary Share at the Placing Price at any time during the period commencing on Admission and expiring at midnight on the third anniversary thereof.  The Net Proceeds of the Placing of approximately £920,000 together with the funds raised through the issue of the Loan Notes, will be used to:

•              provide funds for the cash consideration payable on completion of the Acquisition; and

•              provide funds for the working capital requirements of the Company.

The expenses of the Placing will be paid by the Company.

The Placing is conditional on the Resolutions being passed at the General Meeting and on Admission occurring on or before 18 February 2020 or such later date as may be agreed by Novum, Turner Pope, Cairn and the Company.  Total expenses in relation to the Placing and Admission are £280,000.  All Placing Shares issued pursuant to the Placing will be issued at the Placing Price which has been determined by the Directors.

The rights attaching to the Placing Shares will be uniform in all respects and all of the Ordinary Shares will form a single class for all purposes.

Completion of the Placing will be announced via a regulatory news service on Admission, which is expected to take place at 8.00 a.m. on 18 February 2020.

Application will be made to the FCA for the New Ordinary Shares to be admitted to the standard listing segment of the Official List and to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on the London Stock Exchange's main market for listed securities.

Warrants

In addition to the issue of the Placing Warrants, the Company has agreed, conditional on Admission, to issue 750,000,000 warrants to acquire new Ordinary Shares at the Placing Price (exercisable any time before 31 December 2022) to HomeSelect Finance in connection with HomeSelect Finance's subscription for Loan Notes under the Loan Note Instrument ("HSF Warrants").  Each such HSF Warrant entitles the holder to subscribe for 1 new Ordinary Share at the Placing Price at any time during the period commencing on Admission and expiring at midnight on 31 December 2022.

The Company has also agreed, conditional on Admission, to issue warrants (i) to Turner Pope and to Novum to subscribe for 74,130,000 new Ordinary Shares and (iii) to Cairn to subscribe for 5,000,000 new Ordinary Shares (the "2020 Warrants").  Each 2020 Warrant entitles the holder to subscribe for 1 new Ordinary Share at the Placing Price at any time during the period commencing on Admission and expiring at midnight on the second anniversary thereof.  The Company has also agreed to issue 63,230,840 Fee Warrants in respect of the Fee Shares issued to certain Directors in lieu of fees and remuneration on the same terms as the Placing Warrants.

Loan Notes

On 30 January 2020 the Company adopted a loan note instrument constituting the zero coupon secured Loan Notes for a face value of £1,625,000 with a maturity date of 31 December 2022.  The Loan Note Instrument contains customary warranties, financial and other covenants and events of default.  On the same date, HomeSelect Finance entered a commitment letter to subscribe for all of the Loan Notes constituted by the Loan Note Instrument pursuant to which the Company will drawdown the total net proceeds of approximately £1,235,000 immediately prior to completion of the Acquisition and shall issue a loan note certificate to HomeSelect Finance with respect to the same.

Fee Shares

In order to conserve the Group's cash balances, certain Directors have agreed for a portion of the fees and remuneration owed to them to be settled through the issue of Ordinary Shares in the Company ("Fee Shares").  Fees of approximately £126,462 in aggregate are to be settled in this way at the Placing Price.  Each of the Fee Shares issued will entitle the holder to receive warrants to acquire new Ordinary Shares on the same terms as the Placing Warrants ("Fee Warrants").  In addition to the Fee Shares, the balance of accrued fees and remuneration owed as set out below is expected to be paid to those Directors in cash following completion of the Placing. Further details of the number of Fee Shares to be issued are set out below:

Copies of the Prospectus to be published by the Company in connection with the Placing will be available on the Company's website at https://www.Toople.com/ and hard copies will also be available at the offices of the Company's financial adviser Cairn Financial Advisers LLP, Cheyne House, Crown Court, 62-63 Cheapside, London, EC2V 6AX. The Prospectus will also be available at the FCA's Document Storage Mechanism at http://www.morningstar.co.uk/uk/NSM.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS OF THE PLACING

These dates and times are indicative only, subject to change and may be brought forward as well as moved back, in which case new dates and times will be announced. The times referred to above are references to the time in London, UK.

ISSUE STATISTICS

DEFINITIONS

In this announcement, unless the context requires otherwise the words and expressions set out below shall bear the following meanings.