Final Results

RNS Number : 0900P

React Group PLC

07 February 2023

 

7 February 2023

REACT Group plc

("REACT", the "Group" or the "Company")

REACT (AIM: REAT.L), the leading specialist cleaning, hygiene, and decontamination company, is pleased to announce its final results for the year ended 30 September 2022.

Financial Performance

Summary	FY 2022	FY 2021	Change
	'000	'000
Revenue	£13,700	£7,700	+78%
Gross profit	£3,260	£2,370	+37%
Adjusted EBITDA	£953	£795	+20%
Net cash	£979	£567	+73%%

Note: The table above reflects the contribution of LaddersFree since acquisition in May 2022

Highlights

·     Revenue increased by 78% at £13.70m (2021: £7.70m)), including a contribution of c. £1.6m from LaddersFree post acquisition

·     Gross profit up 37% at £3.26m (2021: £2.37m)

·     Adjusted EBITDA up 20% at £953k (2021: £795k) ·     Strong like-for-like organic revenue growth of c.17% ·     Recurring revenue of 83% at year end

·     Successful acquisition of LaddersFree Ltd, an established nationwide commercial window, gutter and cladding cleaning business, for a total consideration of up to £8.5 million on a debt-free and cash-free basis ·     Post period end contract win of c.£800k per year to provide services from all three segments of the business through a coordinated programme to a large fast-service food restaurant across all its sites in the UK

·     Positive outlook for the business following the first quarter delivering a record performance for the Group

Commenting on the results Shaun Doak, Chief Executive Officer of REACT, said:

"We are delighted to report a strong financial performance for the year. The acquisition of LaddersFree has been transformational as it continues to win new blue chip clients. The transaction has not only broadened the Group's offering but has enabled the business to cross sell other business services into existing and new customers. This was evident in the recent new £800k contract win to provide services from all three segments of the business through a coordinated programme to a large fast-service food restaurant across all its sites in the UK. Strong demand for the Group's services has continued into the current year and as a result the Board is confident of the outlook for the business."

For more information:

REACT Group Plc Shaun Doak, Chief Executive Officer Andrea Pankhurst, Chief Financial Officer Mark Braund, Chairman	Tel: [phone]
Singer Capital Markets (Nominated Adviser / Broker) James Moat / Philip Davies	Tel: [phone]
IFC Advisory (Financial PR / IR) Graham Herring / Zach Cohen	Tel: [phone]

Executive Chairman's Statement

For the year ended 30 September 2022

The Board of the REACT Group is pleased to report the Group continues to deliver significant growth in the period under review, both organically and as a result of the acquisition of LaddersFree, thereby continuing to deliver material improvements in operational performance and profit contribution.

The acquisition of LaddersFree in May 2022 creates yet another step-change in the make-up of the Group's business, augmenting the unique strengths of REACT's emergency cleaning services, Fidelis's contract cleaning and facilities management services with LaddersFree, one of the largest commercial window cleaning businesses in the UK.  As a result, the Group has strengthened its capability across a number of important specialist cleaning disciplines and has materially improved its financial operating model through the addition of a high-margin, working capital-light, rich seam of long-term contracted recurring revenues.

Details of the Group's performance is set out in reviews by the Chief Executive and the Chief Financial Officer.

For the year ended 30 September 2022 (FY 22), Adjusted EBITDA1 on a consistent accounting basis was £953,000, up +20% on the prior year, (2021: £795,000), on sales revenue of £13.70 million, up +78% on the prior year (2021: £7.70 million).

The Group performance represents strong like-for-like organic growth of c.17% enhanced by the acquisition of LaddersFree in May 2022, which contributed to the second half of the financial year. 

Each segment of the business provides opportunities and challenges, yet together they provide a unique value proposition; that of a unique business providing a broad spectrum of specialist cleaning services, to a consistently high standard across all locations in the UK.  This creates potential for upsell and cross-sell, providing customers that require a quality solution delivered across multiple locations at a cost-effective price with a solution that is difficult to otherwise solve.  An example of this is demonstrated by the recent contract win announcement of c.£800k per year to provide services from all three segments of the business through a coordinated programme to a large fast-service food chain across all its sites in the UK.

The financial model of the REACT Group has evolved from one of a predominantly project orientated business with high margin but inconsistent revenue flows to one that now has greater than 80% of its revenues contracted and recurring alongside a balanced margin that remains above market average.  To this we add a consistent ability to generate organic growth and with it, scale.

Our strategy for growth is clear; we will continue to build a leading position across our business through fast-paced organic growth and if the right opportunities present themselves, via strategic acquisitions, to support our goal of becoming the country's most trusted name in the provision of specialist cleaning, decontamination, and hygiene services.

Mark Braund

Chairman

7 February 2023

1.- Adjusted EBITDA  represents earnings before separately disclosed acquisition and other restructuring costs (as well as before interest, tax, depreciation and amortisation).  This is a non-IFRS measure.

Chief Executive Officer's Report and Strategic Review

I am pleased to report excellent progress in FY22.

REACT Group has delivered significant growth, both organically and as a result of the acquisition of LaddersFree, whilst continuing to deliver improvements in operational performance and profit contribution.

We have materially improved our value proposition and our go to market strategy.

We have made good progress in the reported period.  Since the acquisition of Fidelis in FY21, we have succeeded in growing the business organically and have been awarded a number of new contracts both large and small.

Organic growth for the Group during the period on a like-for-like basis was 17%.  As we have grown we have added additional sales resource, specifically two senior sales people, one of whom, Sam Haywood, has been recently promoted to Group Sales Director.

The acquisition of LaddersFree has provided a step-change in performance; a profitable, working capital-light business, with an impressive client base, with almost all of its revenue being contracted and recurring.  With LaddersFree we see a material opportunity to improve our go to market model, leveraging the channels it sells and delivers through to provide additional value add services to Customers.

A great example of this is the post period announcement of a multi-year contract awarded to the Group worth £800k per year to provide a twice yearly deep cleaning service to all the UK sites of a well know fast service food chain, announced on 5th January 2023.

Like many others in this business environment, and despite the strong performance, the business has witnessed certain headwinds, which are being addressed.  The reactive business slowed down coming out of the prior year, FY21, which continued through to the beginning of H2 22.  We believe it to have been a post Covid issue, a combination of two factors; opportunistic competition that had temporarily entered the market to deal with demand for decontaminations and, customer budget-fatigue where budgets had been spent and in many cases over-spent during the worst period of the pandemic.  We are pleased to report that much of this disruption has disappeared, demand has risen again as we returned to more normal levels of reactive business towards the end of the year.

Importantly we continue to refine and improve the financial model of our business, focusing sales and acquisitions on the growth of profitable long term recurring revenue contracts.

The business model has advanced significantly form of 3-4 years ago, which was predominantly reactive, less profitable and with little in the way of recurring revenue contracts, to a business where our recurring revenues in FY22 were c83% of total Group revenue.

With a full year of contribution from LaddersFree included in the new financial year we anticipate this to improve further to greater than 86%.

As we develop our unique proposition, we continue to build a number of compelling customer case studies in our most important market sectors.  These help verify the quality of our work and provide reassurance to new customers who place trust in our capability.

I am pleased to report excellent progress in FY22.

Strategy

Our strategy for growth is clear; we will continue to build a leading position across our business through fast-paced organic growth and if the right opportunities present themselves, via strategic acquisitions to support our goal of becoming the country's most trusted name in the provision of specialist cleaning, decontamination, and hygiene services.

Whilst we actively pursue opportunities across each sector of our business, we continue to focus on enhancing our financial operating model by securing recurring revenue from contracted relationships.

We continue to invest in sales and marketing to engage with the large addressable market for our services.  This includes further developing our use of the right sales and marketing tools.

The successful acquisition of LaddersFree presents further opportunities for the Group to grow;

1.    By applying the Group's disciplined outbound sales & marketing engine to the core LaddersFree business, which had previously grown with limited outbound sales & marketing effort prior to acquisition. 

2.    By cross-selling and up-selling within the Group's extended list of customers (including those of LaddersFree) the range of specialist cleaning services that the Group can uniquely deploy on a nationwide basis.

In addition to scaling the business we continue to look at operational efficiencies as a means to improve operating margins.  We see opportunities to add better technology and automation to further simplify operational procedures at the same time as improving scalability and resilience.

Key Performance Indicators (KPIs)

Financial : The key financial indicators are as follows:

		2022		2021
Revenue		£13.67m		£7.70m
Gross margin		23.8%		30.8%
Earnings before Interest, Tax, Depreciation & Amortisation (EBITDA)		£410,000		£378,000
(Loss)/Profit from continuing operations before acquisition and restructuring costs		(£158,000)		£806,000
Acquisition and restructuring costs		£543,000		£417,000
(Loss)/Profit from continuing operations after acquisition and restructuring costs		(£701,000)		£389,000
Cash and cash equivalents		£979,000		£633,000

The Board recognises the importance of KPIs in driving appropriate behaviours and enabling the monitoring of Group performance.

The Group reports three main areas of business; firstly, Contract Maintenance, where the Company delivers regular cleaning regimes, (such as in the healthcare, education, retail and public transport sectors); secondly Contract Reactive, where the Company is the first responder to an on-call emergency response service operating under a formal contract or framework agreement, typically 24-hours a day, 7-days per week, 365-days of the year.  These two areas together are recurring in nature, have continued to grow at pace and represented c83% of revenue in FY22. 

The third area is Ad Hoc, where REACT provides a solution to one-off situations outside a framework agreement, such as for fly tipping, void clearance, and decontaminations.

Contract maintenance represents strong recurring revenue and income streams from typically long-term contracts.  This is a key area of strategic growth for the Group, one from which most of our organic growth during the period has come from.  It remains our focus as we continue to drive long-term value and resilience in our financial operating model.

Non-financial: The Board continues to monitor and improve customer relationships, the motivation and retention of employees as well as service quality and brand awareness.

Outlook

Momentum from the final few months of the previous year has continued into the new financial year, and despite the usual slow down across the festive period, the first quarter has delivered a record performance for the Group.

Our value proposition has materially expanded and improved, as has our access to market.

We are ambitious, aiming to continue our drive towards a high-performance culture placing our colleagues and customers at the heart of our business.  Our go to market model continues to evolve.  We continue to develop a strong data base of prospective customers using highly efficient sales & marketing tools.

Through our focused efforts and competitive service proposition the business remains committed to leveraging both existing relationships and new ones to help underpin our ambitious growth strategy and upward trend of sustainable profitability.  We believe the Group is well placed to deliver another exciting year of growth.

I would like to thank our customers for their continued support and confidence in the Group to deliver the services they need, when and where they are needed.

Finally, and on behalf of the Board, I wish to thank all of my colleagues across the Group, including our new colleagues from LaddersFree, for their dedication, hard work and tenacity.  Our performance as a team is a reflection of their commitment and talent.  I very much look forward to working with them in 2023 and beyond.

Shaun D Doak

Chief Executive Officer

7 February 2023

Chief Financial Officer's Report

Revenue and profitability

Revenue for year ended 30 September 2022 was £13.7m, +78% up on the prior year (2021: £7.7m).  The current year figures include a full 12 months' results from Fidelis, (2021: 6 months) and 4½ months' results from LaddersFree following its acquisition in May 2022.  Taking into account the performance of both trading companies for the full prior year period, this represents like-for-like organic growth of approximately +17%.

These revenues generated a gross profit contribution of £3.3m, up +37% on the prior year (2021: £2.4m). On  a like-for-like basis, there was a reduction in gross profit of approximately (8)% which is due to a change in the mix of work, as the group is focusing more on winning longer term Contract Maintenance work, rather than relying on higher margin (but less predictable) Ad Hoc work.

The financial statements are prepared according to the accounting standards and regulations that apply to the Group.  Some additional measures are also included that are not defined by International Financial Reporting Standards (IFRS).  The directors believe that these measures, together with comparable IFRS measures provide additional meaningful information for communicating the year-on-year underlying performance of the Group. Non-IFRS measures should not be considered as a substitute for the financial information presented in compliance with IFRS.

Adjusted EBITDA on a consistent accounting basis was £953,000, up +20% on the prior year (2021: £795,000).  Adjusted EBITDA is a non-IFRS measure and means operating profit before interest, tax, depreciation and amortisation and excludes separately disclosed acquisition and other costs.  The directors believe that adjusted EBITDA and adjusted measures of earnings per share provide shareholders with a meaningful representation of the underlying earnings arising from the Group's core business.

The acquisition costs include the costs incurred in the acquisition of LaddersFree and write-backs relating to the latest calculation of deferred consideration for the acquisition of Fidelis.  As part of the annual review of goodwill values, it was decided that an impairment of the purchased goodwill of Fidelis would be prudent and this goodwill has been impaired by £567,000.

Reconciliation of Profit before Tax to Adjusted EBITDA

		2022 £'000		2021 £'000
(Loss)/Profit before Interest and Tax		(511)		114
Depreciation & Amortisation		921		264
EBITDA		410		378
Acquisition costs/write backs		(24)		323
Impairment charge		567		-
Restructuring costs		-		94
Adjusted EBITDA		953		795

Cash flow

Net cash at the year end totalled £979,000 (2021: £633,000).  During the year, consideration payments were made relating to both the Fidelis and LaddersFree acquisitions.   In addition to the funds raised from the share issue in May 2022, the group also secured a 5 year £1.0m loan.  Together with the invoice discounting facility that is still in place, the Group now has sufficient flexibility to deal with both normal fluctuations in business working capital and to fund the future deferred consideration payments relating to the two acquisitions.  The terms of both deals include the payment of deferred consideration amounts subject to certain financial performance hurdles being met.

Based on the trading outlook for the next 12 months, it is not anticipated that any further funding will be required.  However, the Board will continue to regularly monitor the Group's performance and its overall cash position.

Cash flow

Net cash at the year end totalled £979,000 (2021: £633,000).  During the year, consideration payments were made relating to both the Fidelis and LaddersFree acquisitions.   In addition to the funds raised from the share issue in May 2022, the Group also secured a 5 year £1.0m loan.  Together with the invoice discounting facility that is still in place, the Group now has sufficient flexibility to deal with both normal fluctuations in business working capital and to fund the future deferred consideration payments relating to the two acquisitions.  The terms of both deals include the payment of deferred consideration amounts subject to certain financial performance hurdles being met.

Based on the trading outlook for the next 12 months, it is not anticipated that any further funding will be required.  However, the Board will continue to regularly monitor the Group's performance and its overall cash position.

Taxation

The Group has reported a taxable loss but, has confidence that there will be sufficient future taxable profits in the foreseeable future to utilise its historic tax losses.  It has retained its deferred tax asset of £0.3m (2021: £0.3m).

Statement of financial position

The Group's balance sheet has strengthened with net assets at the year end of £8,339,000 (2021: £2,788,000).  The net assets of LaddersFree at the point of acquisition totalled £2,655,000.

Andrea Pankhurst

Chief Financial Officer

7 February 2023

Consolidated Statement of Comprehensive Income

For the year ended 30 September 2022

           

		2022 £'000		2021 £'000
Continuing Operations
Revenue		13,671		7,701
Cost of sales		(10,414)		(5,332)
Gross profit		3,257		2,369
Other operating income		-		19
Administrative expenses		(3,768)		(2,274)
Acquisition and restructuring income/costs included in  administrative expenses		(543)		(417)
Operating (loss)/profit		(511)		114
Finance (cost)/income		(56)		16
Corporation tax (charge)/credit		(134)		259
(Loss)/Profit for the year		(701)		389
Other comprehensive Income		-		-
Total comprehensive (loss)/profit for the year attributable to the equity holders of the company		(701)		389
Basic and diluted earnings per share - pence
Basic (loss)/earnings per share		(0.09)p		0.08p
Diluted (loss)/earnings per share		(0.09)p		0.07p

Consolidated Statement of Financial Position

As at 30 September 2022

		2022	2021
ASSETS		£'000	£'000
Non-current assets
Intangible assets - Goodwill		4,209	1,940
Intangible assets - Other		5,680	1,028
Property, plant & equipment		203	176
Right-of-use assets		100	95
Deferred tax asset		244	244
		10,436	3,483
Current assets
Stock		11	12
Trade and other receivables		4,254	2,099
Cash and cash equivalents		979	633
		5,244	2,744
TOTAL ASSETS		15,680	6,227
EQUITY
Shareholders' Equity
Called-up equity share capital		2,624	1,270
Share premium account		10,905	6,028
Reverse acquisition reserve		(5,726)	(5,726)
Capital redemption reserve		3,337	3,337
Merger relief reserve		1,328	1,328
Share-based payments		44	23
Accumulated losses		(4,173)	(3,472)
Total Equity		8,339	2,788
LIABILITIES
Current liabilities
Trade and other payables		4,391	2,598
Lease liabilities within one year		57	54
Corporation tax		271	80
		4,719	2,732
Non-current liabilities
Lease liabilities after one year		53	49
Other creditors after one year		2,569	658
		2,622	707
TOTAL LIABILITIES		7,341	3,439
TOTAL EQUITY AND LIABILITIES		15,680	6,227

These financial statements were approved and authorised for issue by the Board of Directors on 7 February 2023.

.

Consolidated Statement of Changes in Equity

For the year ended 30 September 2022

	Share capital	Share Premium	Merger Relief Reserve	Capital Redemption Reserve	Reverse Acquisition Reserve	Share-Based Payments	Accumulated Deficit	Total Equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 October 2020	1,246	5,852	1,328	3,337	(5,726)	15	(3,861)	2,191
Issue of shares	24	176	-	-	-	-	-	200
Share-based payments	-	-	-	-	-	8	-	8
Effect of adoption of IFRS16	-	-	-	-	-	-	-	-
Profit for the year	-	-	-	-	-	-	389	389
At 30 September 2021	1,270	6,028	1,328	3,337	(5,726)	23	(3,472)	2,788
Issue of shares	1,354	4,877	-	-	-	-	-	6,231
Share-based payments	-	-	-	-	-	21	-	21
Effect of adoption of IFRS16	-	-	-	-	-	-	-	-
(Loss)/Profit for the year	-	-	-	-	-	-	(701)	(701)
At 30 September 2022	2,624	10,905	1,328	3,337	(5,726)	44	(4,173)	8,339

Share capital is the amount subscribed for shares at nominal value. Share premium represents amounts subscribed for share capital in excess of nominal value.

Share premium represents the amount subscribed for shares in excess of the nominal value, net of any directly attributable issue costs.

Merger relief reserve arises from the 100% acquisition of REACT SC Holdings Limited and REACT Specialist Cleaning Limited in August 2015 whereby the excess of the fair value of the issued ordinary share capital issued over the nominal value of these shares is transferred to this reserve in accordance with section 612 of the Companies Act 2006.

Accumulated deficit represents the cumulative losses of the Group attributable to the owners of the company.

Reverse acquisition reserve is the effect on equity of the reverse acquisition of REACT Specialist Cleaning Limited.

The capital redemption reserve represents the value of deferred shares cancelled as a result of a share buyback.

The share-based payments reserve represents the cumulative expense in relation to the fair value of share options and warrants granted.

Consolidated Statement of Cash Flows

For the year ended 30 September 2022

			2022	2021
			£'000	£'000
Cash flows from operating activities
Cash generated by operations			(773)	432
Net cash outflow)/inflow from operating activities			(773)	432
Cash flows from financing activities
Proceeds of share issue			6,500	200
Expenses of share issue			(269)	-
Lease liability payments			(80)	(39)
Bank loans			902	67
Interest paid			(56)	-
Net cash inflow from financing activities			6,997	228
Cash flows from investing activities
Disposal of fixed assets			20	6
Capital expenditure			(115)	(71)
Acquisition of subsidiary			(7,776)	(1,930)
Exceptional acquisition costs paid			(543)	(200)
Net cash outflow from investing activities			(8,414)	(2,195)
(Decrease)/Increase in cash, cash equivalents and overdrafts			(2,190)	(1,535)
Cash, cash equivalents and overdrafts at beginning of year			633	1,783
Cash on acquisition of subsidiaries			2,536	385
Cash, cash equivalents and overdrafts at end of year			979	633

Notes to the Consolidated Statement of Cash Flows

For the year ended 30 September 2022

1.  Reconciliation of profit for the year to cash outflow from operations

		2022 £'000		2021 £'000
(Loss)/Profit after taxation		(701)		389
Decrease/(Increase) in stocks		1		(12)
(Increase) in trade and other receivables		(2,155)		(1,010)
Increase in trade and other payables		374		655
Depreciation and amortisation charges		921		264
Impairment charge		567		-
Finance costs/(income)		56		(16)
Tax charge/(credit)		134		(259)
Acquisition assets acquired (excluding cash)		119		95
Exceptional acquisition costs		(24)		323
Loss/(Profit) on disposal of fixed assets		(6)		(5)
Share based payment		21		8
Tax paid		(80)		-
Net cash (outflow)/inflow from operations		(773)		432

2.  Cash and cash equivalents

	2022 £'000	2021 £'000
Cash at bank and in hand	979	633

Notes to the Financial Statements

For the year ended 30 September 2022

1.  General Information

  Basis of preparation and consolidation

The Company is a public company, limited by shares, based in the United Kingdom and incorporated in England and Wales.  Details of the registered office, the officers and advisors to the Company are presented on the Company Information page at the start of this report.

The consolidated financial statements present the results of the company and its subsidiaries ('the Group') as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full.  Where the company has control over an investee, it is classified as a subsidiary. The company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

The functional and presentational currency of the Group is pounds sterling.  The figures presented have been rounded to the nearest one thousand pounds.

The equity structure appearing in the Group financial statements reflects the equity structure of the legal parent, REACT Group PLC, including the equity instruments issued in order to effect reverse acquisition accounting.  The merger relief reserve represents a premium on the issue of the ordinary shares for the acquisition of subsidiary undertakings. The relief is only available to the issuing company securing at least a 90% equity holding in the acquired undertaking in pursuance of an arrangement providing for the allotment of equity shares in the issuing company on terms that the consideration for the shares allotted is to be provided by the issue of equity shares in the other company.

2.  Accounting Policies

  Statement of compliance

The consolidated financial statements of REACT Group PLC have been prepared in accordance with UK adopted International Financial Reporting Standards (IFRSs), International Accounting Standards (IASs) and International Financial Reporting Interpretations Committee (IFRIC) interpretations (collectively 'IFRSs') and as issued by the International Accounting Standards Board and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

  Basis of preparation

The financial statements have been prepared under the historical cost convention. The principal accounting policies are summarised below.  They have all been applied consistently throughout the year under review.

  Going concern

  Following its review of the Group's financial plans and forecast growth, the cash balance held at the year end and the management team currently in place, the Board has a good expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  Therefore, the financial statements do not include any adjustments that would result if the Group was unable to continue as a going concern.

New , amended standards, interpretations not adopted by the Group

Th e following Adopted IFRSs have been issued but have not been applied by the Group in these Financial Statements. The full impact of their adoption has not yet been fully assessed; however, management do not expect the changes to have a material effect on the Financial Statements unless otherwise indicated:

· IAS37 amendments regarding onerous contracts (1 January 2023)

· IAS16 amendments regarding proceeds before intended use (1 January 2023)

· IFRS17 Insurance contracts (1 January 2023)

· IAS1 amendments on classification (1 January 2023)

· IAS8 amendments on accounting estimates (1 January 2023)

· IAS12 amendments on deferred tax (1 January 2023)

Revenue recognition

Revenue is recognised in accordance with the requirements of IFRS 15 'Revenue from Contracts with Customers'. The Company recognises revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This core principle is delivered in a five-step model framework:

1. Identify the contract(s) with the customer; 

2. Identify the performance obligations in the contract; 

3. Determine the transaction price; 

4. Allocate the transaction price to the performance obligations in the contract; and 

5. Recognise revenue when (or as) the entity satisfy a performance obligation.

The Group recognises revenue in the accounting period in which its services are rendered, by reference to stage of completion of the specific transaction and assessed on the basis of the actual service provided as a proportion of the total services to be provided. Revenues exclude intra-group sales and value added taxes and represent net invoice value less estimated rebates, returns and settlement discounts. The net invoice value is measured by reference to the fair value of consideration received or receivable by the Group for goods supplied.

  3.  Segmental Reporting

In the opinion of the Directors, the Group has one class of business, being that of specialist cleaning and decontamination services, including both contracted commercial cleaning and specialist emergency decontamination work . Although the Group operates in only one geographic segment, which is the UK, it has also analysed the sources of its business into the segments of Contract Maintenance, Contract Reactive or Ad Hoc work

	2022					2021
	Contract Maintenance Work	Contract Reactive Work	Ad Hoc Work	Total		Contract Maintenance Work	Contract Reactive Work	Ad Hoc Work	Total
	£'000	£'000	£'000	£'000		£'000	£'000	£'000	£'000
Revenue	8,939	2,499	2,233	13,671		3,992	1,587	2,122	7,701
Cost of Sales	(6,809)	(2,007)	(1,598)	(10,414)		(3,101)	(1,072)	(1,159)	(5,332)
Gross Profit	2,130	492	635	3,257		891	515	963	2,369
Other Operating Income	-	-	-	-		17	1	1	19
Administrative Expenses	(2,171)	(703)	(894)	(3,768)		(814)	(557)	(903)	(2,274)
Operating (Loss)/Profit for the year	(41)	(211)	(259)	(511)		94	(41)	61	114
Adjusted EBITDA1	866	30	57	953		660	(290)	425	795
Total Assets	14,257	486	938	15,681		2,327	1,366	2,534	6,227
Total Liabilities	(6,767)	(230)	(445)	(7,442)		(1,340)	(707)	(1,392)	(3,439)

1.  Adjusted EBITDA  represents earnings before separately disclosed acquisition and other restructuring costs (as well as before interest, tax, depreciation and amortisation).  This is a non-IFRS measure.

4.  Business Combinations during the period

On 11 May 2022, the Group acquired 100% of the issued share capital and voting rights of LaddersFree Ltd ('LaddersFree'), an established nationwide commercial window, gutter and cladding cleaning business headquartered in Devon providing services to customers across the entire UK.  The acquisition is expected to diversify the group's service offering and reduce costs through economies of scale.

LaddersFree was acquired for an initial consideration of £5.65m, payable as £4.65m cash and £1.0m through the issue of new ordinary shares, with contingent consideration of up to £2.85m payable subject to LaddersFree fulfilling certain profit criteria.  Surplus cash balances on acquisition totalled £2.54m.

The fair value of the acquired customer list and customer contracts has been assessed as at 30 September 2022.  The goodwill that arose on the combination can be attributed to the synergies expected to be derived from the combination and the value of the workforce of LaddersFree which cannot be recognised as an intangible asset.  The fair value of the contingent consideration arrangement was estimated calculating the present value of the future expected cash flows.

Acquisition costs of £455,000 are not included as part of the consideration transferred and have been recognised as an expense in the Consolidated Statement of Comprehensive Income.

a)	Subsidiaries acquired
	Name	LaddersFree Ltd
	Principal activity	Commercial window, gutter and cladding cleaning services
	Date of acquisition	11 May 2022
	Proportion of voting equity interests Acquired	100%
	Consideration transferred	£10,885,584

		£'000
b)	Consideration transferred
	Cash	7,186
	Equity issued	1,000
	Contingent consideration arrangement (included in Other Creditors)	2,700
	Total consideration transferred	10,886
c)	Assets and liabilities recognised on the date of acquisition
	Separately identifiable intangible assets arising on business combination	5,395
	Non-current assets	13
	Current assets	3,308
	Non-current liabilities	-
	Current liabilities	(666)
	Net assets acquired	8,050
d)	Goodwill arising on acquisition
	Consideration transferred	10,886
	Fair value of identifiable net assets acquired	(8,050)
	Goodwill acquired	2,836
e)	Net cash outflow on acquisition
	Consideration paid in cash	7,186
	Less: cash balances acquired	(2,536)
		4,650
f)	Impact of acquisition on the results of the Group
	The acquired business contributed revenues of £1,629,000 and net profit of £585,000 to the group for the period from 11 May 2022 to 30 September 2022. If the acquisition had occurred on 1 October 2021, pro-forma revenue and net profit contributions to the Group for the year ended 30 September 2022 would have been £4,042,000 and £1,075,000 respectively. These amounts have been calculated using the subsidiary's results and adjusting them for differences in the accounting policies between the group and the subsidiary.

5.  Income Tax

			2022		2021
			£'000		£'000
Current tax charge			134		-
Deferred tax credit			-		259
Tax credit/(charge)			134		259

  Analysis of tax expense:

		2022 £'000		2021 £'000
(Loss)/Profit on ordinary activities before income tax		(567)		130
(Loss)/Profit on ordinary activities multiplied by the standard rate of corporation tax in UK of 19% (2021: 19%)		(108)		25
Effects of:
Fixed asset differences		21		(4)
Amortisation and depreciation not deductible for tax		-		-
(Decrease)/Increase in net losses carried forward		221		(280)
Corporation tax charge/(credit)		134		(259)
The Group has estimated excess management expenses carried forward of £1.3m (2021: £1.3m) and trading  losses of approximately £0.9m (2021: £0.6m) available to use against future profits.  The tax losses have resulted in a deferred tax asset of approximately £0.3m (2021: £0.3m) being as the positive trading outlook for the Group means that there is likely to be sufficient future taxable profits to utilise the losses. The remaining losses of £884,000 resulting in a deferred tax asset of £221,000 have not been recognised in order to be prudent.

6.  Earnings per Share (basic and adjusted)

The calculations of earnings per share (basic and adjusted) are based on the net profit and adjusted profit respectively and the ordinary shares in issue during the year.  The adjusted profit represents the EBITDA for the year.  For diluted earnings per share, the weighted average number of shares is adjusted to assume conversion of all dilutive potential ordinary shares.

		2022		2021
		£'000		£'000
Net (loss)/profit for year		(701)		389
Adjustments:
Interest		56		(16)
Depreciation & amortisation		921		264
Tax		134		(259)
Adjusted profit for the year		410		378
		Number		Number
Weighted average shares in issue for basic earnings per share		718,622,464		503,348,752
Weighted average dilutive share options and warrants		62,247,272		62,247,272
Average number of shares used for dilutive earnings per share		780,869,736		565,596,024
		Pence		Pence
Basic (loss)/earnings per share		(0.09)p		0.08p
Diluted (loss)/earnings per share		(0.09)p		0.07p
Adjusted basic earnings per share		0.06p		0.08p
Adjusted diluted earnings per share		0.05p		0.07p

7.  Intangible assets

Group		Goodwill		Customer List		Total
		£'000		£'000		£'000
Cost
At 1 October 2020		1,280		-		1,280
Additions		1,766		1,175		2,941
Disposals		-		-		-
As at 30 September 2021		3,046		1,175		4,221
Additions		2,836		5,395		8,231
Disposals		-		-		-
As at 30 September 2022		5,882		6,570		12,452
Amortisation and impairment
As at 1 October 2020		1,106		-		1,106
Amortisation charge for the year		-		147		147
Disposals		-		-		-
As at 30 September 2021		1,106		147		1,253
Amortisation charge for the year		-		743		743
Impairment charge		567		-		567
Disposals		-		-		-
As at 30 September 2022		1,673		890		2,563
Carrying amount
As at 1 October 2020		174		-		174
As at 30 September 2021		1,940		1,028		2,968
As at 30 September 2022		4,209		5,680		9,889

The goodwill relates to intangible assets that do not qualify for separate recognition on the acquisition of LaddersFree during the year, Fidelis during the prior year and previously, the REACT specialist cleaning services business, an unincorporated division of Autoclenz Limited.

The Group assesses at each reporting date whether there is an indication that an asset may be impaired, by considering the net present value of discounted cash flow forecasts. Goodwill has been allocated for impairment testing purposes to the individual businesses acquired which are also the cash‐generating units ("CGU") identified. The recoverable amount of a CGU is determined based on value in use calculations using cash flow projections based on financial budgets approved by the Directors. The projections are based on the assumption that the company can realise projected sales. A prudent approach has been applied with no residual value being factored into these calculations. If the projected sales do not materialise there is a risk that the total value of the intangible assets shown above would be impaired. A pre-tax discount rate of 15% per annum has been applied to the cashflow projections, taking into consideration the expected rate of return and various risks relating to the CGU.

As at 30 September 2022 management judged that an impairment was required in respect of the goodwill of Fidelis.  A write-down of £567,000 is considered prudent in light of the medium-term growth outlook for this business. 

The key assumptions used in the estimation of the revised value of Purchased Goodwill are set out below.  The values assigned to the key assumptions represent management's assessment of future revenues and cash flows of the CGU.  The most recent financial results and forecast approved by management for the next five years were used and a nil terminal growth rate thereafter.  The projected results were discounted at a rate which is a prudent evaluation of the time value of money and the risks specific to the CGU.

Key assumptions used:

	%
Average revenue growth rate (of next five years)	5
Terminal value growth rate	0
Discount rate	15

8.  Investment in subsidiary undertakings   

Company
Cost
At 1 October 2021		1,560
Additions		-
At 30 September 2022		1,560
Impairment
At 1 October 2021		1,386
Impairment charge for the year		-
At 30 September 2022		1,386
Carrying amount
At 30 September 2021		174
At 30 September 2022		174

9.   Trade and other receivables

Current	Note	Group		Group	Company		Company
		2022		2021		2022		2021
		£'000		£'000		£'000		£'000
Trade receivables		3,522		1,702		-		-
Provision for impairment	15	(5)		(5)		-		-
Net trade receivables		3,517		1,697		-		-
Amounts owed by Group undertakings		-		-		10,138		2,846
Prepayments and accrued income		702		378		9		13
Other debtors		35		24		27		19
		4,254		2,099		10,174		2,878

Trade receivables are amounts due from customers for services performed in the ordinary course of business.  The Group's impairment and other accounting policies for trade and other receivables are outlined in note 2.

10. Provision for impairment of receivables

Provision for impairment of receivables Relating to debt over 3 months past due		Group		Group
		2022		2021
		£'000		£'000
Opening provision		5		42
Amounts released in the year		-		(36)
Amounts utilised in the year		-		(1)
Closing provision		5		5

There are no receivables in the Company, as all are held by the trading subsidiaries, REACT Specialist Cleaning Limited, Fidelis Contract Services Ltd and LaddersFree Ltd.

As at 30 September 2022, excluding balances provided for by the impairment provision, £560,000 (2021: £174,000) of trade receivables were past their due settlement date but not impaired.   The ageing analysis of these trade receivables is as follows:

		2022		2021
		£'000		£'000
Up to 3 months past due		175		87
3 to 6 months past due		96		27
Over 6 months past due		289		60
		560		174

The expected credit loss is respect of debt not due and past due is considered immaterial.

11. Cash and cash equivalents

		Group		Group		Company		Company
		2022		2021		2022		2021
		£'000		£'000		£'000		£'000
Cash and bank balances		979		633		4		22

12.  Trade and other payables

		Group		Group		Company		Company
		2022		2021		2022		2021
		£'000		£'000		£'000		£'000
Current:
Trade payables		1,284		378		34		35
-  Accrued expenses		664		639		39		21
Social security and other taxes		852		523		30		23
Lease liability <12 months		57		54		9		28
Other creditors		1,430		991		-		5
Loans		161		67		161		-
Corporation tax payable		271		80		-		-
		4,719		2,732		273		112
Non-current:
Lease Liability >12 months		53		49		17		26
Loans		808		-		808
Other liabilities >12 months -  Deferred Consideration		1,761		658		-		-
Deferred Tax		-		-		-		-
		2,622		707		825		26
		7,341		3,439		1,098		138

13. Deferred Tax

Deferred tax is provided, using the liability method, on temporary differences at the statement of financial position date between the tax base of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 25% (2021:19%), the movement on the deferred tax liability is as shown below:

	Group		Group		Company		Company
	2022		2021		2022		2021
	£'000		£'000		£'000		£'000
At 1 October	244		-		152		-
Income credit	-		259		-		152
Liability acquired	-		(15)		-		-
At 30 September	244		244		152		152

The deferred taxation asset is made up as follows:

	Group		Group		Company		Company
	2022		2021		2022		2021
	£'000		£'000		£'000		£'000
Accelerated capital allowances	(32)		(5)		-		-
Tax losses carried forward	262		110		-		-
Other short-term timing differences	14		139		152		152
	244		244		152		152

14. Annual Report

The annual report and accounts for the year ended 30 September 2022 will be posted to shareholders in due course.

 

END

 

 

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