The Peoples Operator Regulatory News (TPOP)

The People's Operator PLC

("TPO" or the "Company")

Interim results

for the six months ended 30 June 2016

The People's Operator (AIM: TPOP), the cause-based commercial mobile virtual network operator ("MVNO"), is pleased to announce its half year results for the six month period ended 30 June 2016.

Financial Highlights

· Revenue after donations of £1.703m (H1 2015: £603,000) an increase of 182%

· Loss of £3.95m (H1 2015: £4.36m)

· Cash and cash equivalents as at 30 June 2016 of £3.1m

· Average blended revenue per subscriber in the UK of £12.42 per month

· Average UK customer acquisition costs remain significantly below industry standards at an average of £6.34

· Low monthly subscriber churn rate of 3.1%

· Average revenue per subscriber in the US of $21.88. All US customers are monthly pre-pay

· Average US customer acquisition costs of $12.27, a figure far below that of the competition

Post Balance Sheet Events

· Agreement for £1m loan from Barclays Bank on standard commercial terms, for general working capital purposes, repayable over two years

· Intention of major shareholders to provide further funds for growth

Jimmy Wales, Executive Chairman, commented:

"Over the first half of this year we have seen The People's Operator continue to develop its business and brand in both the UK and the US. Our operations in the US remain encouraging particularly since launching with T-Mobile in April. Since April we have focused on our cost base to ensure that the business can operate in line with the available resources and have concentrated our activities on profitable subscribers and users rather than on absolute subscriber numbers. We are comfortable that we have now proved our ability to attract profitable customers at an acquisition cost far below that of our competitors and I am therefore confident of our future prospects.

I am delighted that on the back of the progress we have made so far Mrs Juliet Rosenfeld, myself and Mark Epstein, all major shareholders in the Company, are prepared to invest further funds to allow us to accelerate the acquisition of profitable customers in both the United States and the UK. This is a significant demonstration of faith in the business model and the Company.

For further information

About The People's Operator

The Company was founded in 2012 and currently offers customers pay monthly ("PAYM") and pay-as-you-go ("PAYG") mobile contracts. These contracts are competitively priced and allow users to direct 10% of their monthly bill to a cause of their choosing at no additional cost to themselves. In addition, The TPO Foundation, a UK registered charity, will receive 25% of the UK trading profits generated by The People's Operator LLP. A similar structure is proposed to be adopted in other countries.

The strategy of the Group is to maintain a low fixed-cost base, small staff numbers and lower levels of advertising and marketing expenditure than its competitors. In addition, as TPO operates as an MVNO, the Group is not expected to be exposed to the high infrastructure costs and large capital investment charges that traditional mobile operators can incur. This strategy is expected to enable the Group to offer customers a highly competitive pricing model with a high quality of service, whilst generating an attractive return to shareholders after donations to causes.

TPO has developed partnerships with community organisations and causes who promote TPO's products to their supporters. Under the direction of Jimmy Wales, the founder of the online encyclopaedia Wikipedia, the Company is also developing an online viral community to expand the global network of mobile phone customers who share in the common belief of supporting causes.

The Directors believe that this strategy is scalable into new markets around the world which offer competitive wholesale mobile network bandwidth prices and where subscriber acquisition and revenue growth can be driven quickly at a low incremental cost once network agreements have been concluded with local network operators. 

For more information, visit: https://www.thepeoplesoperator.com.

Chief Executive Officer's Update

for the six months ended 30 June 2016

Business Review

UK Operations

The UK market has become a challenging one for the Company. During the first half of the year we implemented the capacity for our subscribers to access the Three network in accordance with the agreement announced on 18 April 2016. We are now operational on both Three and EE.

Average Revenue per User (ARPU) remains in line with the market, with average blended monthly revenue stands at £12.42, consistent with previous performance.

Our churn rate remains extremely low, at 3.1%, and customer acquisition costs remain markedly below industry standards at £6.34 reflecting the exceptional low cost of our viral marketing strategy. Both these figures underline the validity and immense potential of our business model.

The UK market continues to be very competitive and we face a number of new entrants which were not present at the time of IPO. Despite some technical problems which arose at the time of the transition to Three, all of which have now been resolved, the Company retains a solid customer base providing significant recurring income, and continues to attract new customers.

US Operations

The launch of our partnership with T-Mobile in April has allowed the business to develop further in the US and we are now operating live with both T-Mobile and Sprint. Subsequent to our original launch, we have also renegotiated new commercial terms with Sprint

Monthly revenues in the US are predicted to rise to $187,000 in September 2016 and for the trend of increase to continue. We are now receiving a very encouraging level of enquiry on our website and a much higher level of conversion of subscribers.

Average Revenue per User (ARPU) is currently running at $21.88, a 10% increase on the beginning of the year. Virtually all our US customers are pre-pay/autopay.

Our CPA in the US has reduced by 35% to $12.27.

TPO Community

We have continued to develop the TPO Community and the attendant social platform. We are pleased to report that 37% of our US customers are now coming via the Community and other viral sources.

Member Get Member/Super Recruiter

Our Member Get Member (MGM) programme continues to expand and at present over 10% of our new US customers are being recruited via this medium. Acquisition costs will consequently remain low.

We have widened our Super Recruiter programme internationally and we are now signing up new customers moving to both the UK and US from a number of overseas territories including the People's Republic of China and the Republic of Singapore.

We continue to test campaigns to drive awareness within key demographics, partnering for example with brands such as Sony Music to address the student market. Each campaign provides valuable data as well as enhancing awareness of our offering. We also continue to build relationships with charity partners, within which they can reward their staff and volunteers with exclusive deals within their unique order links. The community and partner platform remains key to bringing the "ten per cent" to life and builds into our SEO (Search Engine Optimisation), help and support strategies.

Key Performance Indicators and Outlook

The Company has concentrated during the first half of the year on ensuring that each of its customers is able to contribute to the company's journey towards profitability and has focused its resources on the quality of customer rather than simply the number of them. We have implemented review procedures to adapt our existing plans to this effect, including the discontinuance of unprofitable subscription plans, limiting over-usage of data and discouraging tethering. Consequently ARPU is now a far more accurate gauge of margin and profitability levels, whilst the overall number of customers has declined through the policy of discontinuing unprofitable contracts. In the light of this, the Board has concluded that the number of subscribers using industry defined terms is no longer a relevant KPI for the Company. The key metrics that the executive management will now be focused on are customer acquisition costs, which continue to decline and are already at exponentially low industry standards, ARPU (keeping the same definition as before), cash burn and gross margin achieved.

As a result of focusing on cash burn and profitable clients the Company is confident of reporting an EBITDA loss in line with the Board's original expectations although the Board now has lower gross margin and revenue expectations reflecting the cautious approach to subscriber numbers, the limited resources of the Company and the focus on positive gross margin. This cautious approach over the last few months has had the benefit of allowing the executive management team to focus on the US strategy and to identify the most profitable strategies there.

Cash and cash equivalents at 30 June 2016 were £3.1m. The cash burn is forecast to reduce from approximately £260,000 for October 2016 to approximately £115,000 for January 2017. This has been achieved by a rigorous review of costs, including salary reductions for Executive Directors, professional advisors and staff and the elimination of extraneous expenses. The focus on profitable subscribers means that the Company is expected to be gross margin positive for the second half of the year. The Board is confident that tight cost control and increasing subscriber numbers in the US on a daily basis bode well for the future. The Company is also pleased to have available a loan from Barclays Bank of £1m which is repayable over 2 years.

At the time of the Company's IPO in December 2014 it was emphasised that the key growth would come from the US market. The Company is delighted by the added reach in the US offered by our GSM partnership and excited by the demonstrable opportunities being delivered by the MGM and Super Recruiter programmes.

The Company constantly reviews its cash position with respect to its growth aspirations and, given the confidence of the Directors in the current progress in the US, the Board has given some thought to increasing the funds available to the Company. As such the Board is delighted to announce that Mrs Juliet Rosenfeld, Jimmy Wales, Executive Chairman and Mark Epstein, Chief Executive Officer have indicated that they are prepared to subscribe for £1,000,000 of equity at a price of 16.7p per share.

These indications are based on further equity in the amount of £1,000,000 being made available to the Company by other shareholders at the same price. If such an amount cannot be raised then it is the intention of Mrs Rosenfeld, Mr Wales and Mr Epstein to make their pledged funds available as a loan on terms to be agreed with the Board.

Approved by the board and signed on its behalf

M Epstein

Date: 29 September 2016

Consolidated statement of comprehensive income

for the six months ended 30 June 2016

Consolidated statement of cash flows

for the six months ended 30 June 2016

Notes forming part of the financial statements

for the six months ended 30 June 2016

These interim consolidated financial statements have been prepared using accounting policies based on International Financial Reporting Standards (IFRS and IFRIC Interpretations) issued by the International Accounting Standards Board ("IASB") as adopted for use in the EU. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 31st December 2015 Annual Report. The financial information for the half years ended 30th June 2016 and 30th June 2015 does not constitute statutory accounts within the meaning of Section 434 (3) of the Companies Act 2006 and both periods are unaudited. 

The annual financial statements of The People's Operator Plc are prepared in accordance with IFRS as adopted by the European Union. The comparative financial information for the year ended 31st December 2015 included within this report does not constitute the full statutory Annual Report for that period. The independent Auditors' Report on that Annual Report and Financial Statement for the year ended 31st December 2015 was unqualified, and did not draw attention to any matters by way of emphasis and did not contain a statement under 498(2) - (3) of the Companies Act 2006.

After making enquiries, the directors have concluded that the Group has adequate resources to continue operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly consolidated unaudited financial statements.

The same accounting policies, presentation and methods of computation are followed in these interim consolidated financial statements as were applied in the Group's 31st December 2015 annual audited financial statements. In addition, the IASB have issued a number of IFRS and IFRIC amendments or interpretations since the last Annual Report was published. It is not expected that any of these will have a material impact on the Group. The Board of Directors approved this interim report on 29 September 2016.

The Group supplies communication services and products to the UK and US markets, through a mobile virtual network. This is considered to be a single group of services and products provided by a single supplier, to one geographical area. The Group has focused on managing the services provided through this network in a unitary manner.

For customers who choose to nominate a charity or cause, below we break out the relevant 10% of their billings that is passed on by TPO:

The following item has been included in arriving at operating loss:

This document contains certain forward-looking statements relating to the Group. The Group considers any statements that are not historical facts as "forward-looking statements". They relate to events and trends that are subject to risk and uncertainty that may cause actual results and the financial performance of the Group to differ materially from those contained in any forward-looking statement. These statements are made by the directors in good faith based on information available to them and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.