Half-year Report

RNS Number : 3960D

React Group PLC

29 June 2021

 

29 June 2021

REACT Group plc

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

Half Year Results FY 2021

REACT Group plc (AIM:REAT.L), the leading specialist cleaning, hygiene and decontamination company announces its unaudited results for the six-month period ended 31 March 2021 ("Interim Report").

Financial Highlights

for the six months ended 31 March 2021

	HY 2021	HY 2020	Change
Revenue (£'000)	2,509	2,091	20%
Gross profit (£'000)	1,018	695	46%
Gross profit margin	40.6%	33.2%	733bps
EBITDA (£'000)	100	85	17%
Adjusted EBITDA (£'000)	369	85	332%
Net profit for the period (£'000)	74	50	48%
Earnings per share (basic) (pence)	0.01	0.01	23%
Earnings per share (adjusted) (pence)	0.07	0.02	260%
Net cash (£'000)	771	306	152%

· Group revenue up 20% to £2,509,000

· Gross profit up 46% to £1,018,000

· Gross profit margins increased by 733 basis points to over 40%

· Adjusted EBITDA is calculated excluding exceptional costs (see note 5 for details)

· Net profit of £74,000 and basic EPS of 0.01p

· Adjusted EPS of 0.07p (see note 6 for details)

· The acquisition of Fidelis Contract Services Ltd ("Fidelis") was completed on 26 March 2021.  No contribution from Fidelis is included in these interim figures, but the assets and liabilities for Fidelis as at 31 March 2021 are included in the Group's Consolidated Statement of Financial Position as at 31 March 2021

· The initial cash consideration of £1.5m was paid from REACT's existing cash resources

· The cash balance at the period end represents the balance for the enlarged Group following the payment of the cash consideration in connection with the acquisition of Fidelis

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

"We are delighted with the results for H1 2021; REACT continues to demonstrate momentum in growth and improvements in operational performance and profitability.

Although COVID-19 continues to present both opportunities and challenges to different aspects of the business we have continued to make strategic progress, investing in sales and marketing, new technology and people to drive growth, increase operational efficiency and improve customer value.

H2 has started well; Fidelis, acquired at the end of March 2021, reported record trading months in April and May to continue their solid track record of growth.  This, together with important post-period customer contract wins for REACT, announced on 20 April 2021, 26 April 2021 and 18 May 2021, support a strong positive outlook for the medium to long term."

For more information:

REACT Group Plc.
Shaun Doak, Chief Executive Officer Andrea Pankhurst, Chief Financial Officer Mark Braund, Chairman	Tel: [phone]
Allenby Capital Limited (Nominated Adviser/Broker)
Nick Athanas / Liz Kirchner (Corporate Finance) Amrit Nahal / Tony Quirke (Sales & Corporate Broking)	Tel: [phone]

RESULTS SUMMARY & STRATEGY

The REACT business performed strongly in the first half of the year, making material improvements in all key financial metrics, and demonstrating the profit potential available to the Company through operational gearing.

Gross profit margins were particularly strong, in part due to strong demand for ad hoc emergency project work during the period, which carries with it a high margin.  We estimate that the underlying blended margin of the REACT business is now in the region of 30-35%, some 1,000 to 1,500 basis points higher than two and half years ago, since when the business has gone through a dramatic improvement in its value proposition and business controls.

Performance remains strong in the healthcare, rail and facilities management sectors with growth beginning to emerge from housing associations as well.

In addition to increased public and commercial expectations for quality hygiene, consolidation of supply chains continues to represent opportunity for growth for the REACT business.  This has been demonstrated by the post-period appointment of REACT as the core vendor for specialist cleaning in mainland Great Britain to one of the world's leading facilities management firms (announced by REACT on 26 April 2021).  This three-year agreement is aimed at consolidating their supply chain from several hundred suppliers to ultimately just one, REACT. 

REACT has also used this period to expand its modest investment in sales and marketing automation tools, improving both the quality of sales engagement and sales productivity.  This is beginning to yield results, opening new opportunities, broadening our engagement with customers, and improving both the size and visibility of our sales pipeline.

Our strategy remains to build a leading position across our business through 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.

IMPACT OF COVID-19

Although COVID-19 has brought continued challenges to the business with renewed national lockdown restrictions during the period, our team responded well to fluctuating demand for deep cleaning and decontamination services as we continued our rapid response to often urgent requirements across mainland Great Britain.

The contracted reactive business was impacted by lockdown restrictions; less economic activity resulted in fewer incidents in this area of our business for our teams to attend to.  This however was more than compensated by COVID-19 related decontaminations and consultancy, which brought with it higher margins.  Whilst we recognise the short to medium term nature of COVID-19, the quality of our work in this area has been recognised, enhancing the REACT brand and resulting in increased engagement with both new and existing customers.  As work on COVID-19 decontaminations slows down, regular emergency cleaning activity returns, and because (in-part) of our response to COVID-19, REACT benefits from incremental opportunities amongst expanded and improved customer relationships.

PEOPLE

The continued dedication and commitment of our people and our network of REACT-approved specialist partners has been exemplary.  Our service delivery is provided by people who are considered experts in their field, supported by our dedicated customer-centric team, who have continued to adapt to the daily challenges while working from home.  The strength of our results is underpinned by the efforts of the entire team and testament to the superb culture the management team have cultivated. On behalf of the Board, I would once again like to thank all my colleagues for their commitment, resilience, and quality of work.

OUTLOOK

H2 has started well. Fidelis (acquired at the end of March 2021) reported record trading months in April and May to continue their solid track record of growth. With long-term contracts of between 3-7 years in length driving strong recurring income, this bodes well for H2 and the year(s) beyond.

H1 for REACT was very strong, however the start of H2 by contrast has experienced some softness in the reactive business as the country stutters towards the end of lockdown. Whilst COVID-19 decontamination work has been reducing, the more typical reactive emergency cleaning work has been slow to pick up.  A similar pattern emerged last year as the country went from full lockdown into a more relaxed period during the summer of 2020.  Then as we believe now, REACT had two soft months, which rapidly returned to some form of normality.  Ironically as we pen this report we have experienced the first few weeks of high demand returning, including a re-emergence of COVID-19 decontaminations.  The contract maintenance business has continued well, with little or no impact from the issues surrounding the pandemic.

We also announced some important post-period customer contract wins for REACT, announced on 20 April 2021, 26 April 2021 and 18 May 2021.  These further underpin a strong positive outlook for the medium to long-term.

Shaun Doak

Chief Executive Officer

29 June 2021

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 31 March 2021

		Unaudited  6 months ended 31 March 2021		Unaudited 6 months ended 31 March 2020		Audited Year ended 30 September 2020
	Note	£'000		£'000		£'000
Continuing Operations
Revenue		2,509		2,091		4,360
Cost of Sales		(1,491)		(1,396)		(2,911)
Gross Profit		1,018		695		1,449
Other operating income		2				70
Administrative expenses		(971)		(632)		(1,308)
Exceptional costs included in administrative expenses	5	(269)		-		-
Operating profit		49		63		211
Income tax credit		-		-		-
Finance cost		25		(13)		(23)
Profit for the period		74		50		188
Other comprehensive Income		-		-		-
Profit for the financial period attributable to equity holders of the company		74		50		188
Basic and diluted profit per share	6
Basic earnings per share		0.01p		0.01p		0.04p
Diluted earnings per share		0.01p		0.01p		0.04p
Adjusted basic earnings per share		0.07p		0.02p		0.06p
Adjusted diluted earnings per share		0.07p		0.02p		0.05p

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 March 2021

		Unaudited As at 31 March 2021		Unaudited As at 31 March 2020		Audited As at 30 September 2020
Assets	Note	£'000		£'000		£'000
Non-current assets
Intangibles - Goodwill	4	2,050		174		174
Intangibles - Other	4	1,756		-		-
Property, plant and equipment		180		71		85
Right-of-use assets		118		34		27
		4,104		279		286
Current assets
Stock		9		-		-
Trade and other receivables		1,781		1,112		1,089
Cash and cash equivalents		771		306		1,783
		2,561		1,418		2,872
Total assets		6,665		1,697		3,158
Equity
Shareholders' Equity
Called-up equity share capital		1,270		1,039		1,246
Share premium account		6,028		4,926		5,852
Reverse acquisition reserve		(5,726)		(5,726)		(5,726)
Capital redemption reserve		3,337		3,337		3,337
Merger relief reserve		1,328		1,328		1,328
Share based payments		12		14		15
Accumulated losses		(3,787)		(3,999)		(3,861)
Total Equity		2,462		919		2,191
Liabilities
Current liabilities
Trade and other payables		2,342		730		924
Lease liabilities within one year		64		11		13
Corporation tax		63		-		-
		2,469		741		937
Non-current liabilities
Lease liabilities after one year		61		37		30
Other creditors		1,673		-		-
		1,734		37		30
Total liabilities		4,203		778		967
Total Liabilities and Equity		6,665		1,697		3,158

CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 31 March 2021

		Unaudited 6 months ended 31 March 2021		Unaudited 6 months ended 31 March 2020		Audited Year ended 30 September 2020
		£'000		£'000		£'000
Net cash generated/(utilised) by operations		408		(112)		281
Cash flows from financing activities
Proceeds of share issue		-		-		1,246
Expenses of share issue		-		-		(113)
Lease liability payments		(15)		(15)		(29)
Net cash (outflow)/inflow from financing activities		(15)		(15)		1,104
Net cash from investing activities Disposal of fixed assets		-		2		2
Capital expenditure		(33)		(9)		(44)
Acquisition of subsidiary	4	(1,345)		-		-
Exceptional acquisition costs paid		(27)		-		-
Net cash outflow from investing activities		(1,405)		(7)		(42)
Net (decrease)/increase in cash, cash equivalents and overdrafts		(1,012)		(134)		1,343
Cash, cash equivalents and overdrafts at beginning of period		1,783		440		440
Cash, cash equivalents and overdrafts at end of period		771		306		1,783

 

Reconciliation of profit for the period to cash outflow from operations
		Unaudited 6 months ended 31 March 2021		Unaudited 6 months ended 31 March 2020		Audited Year ended  30 September 2020
		£'000		£'000		£'000
Profit for the period		74		50		188
Decrease/(increase) in receivables		301		(394)		(371)
(Decrease)/increase in payables		(167)		195		389
Depreciation and amortisation charges		51		22		50
Finance costs		(25)		13		21
Exceptional acquisition costs		177		-		-
Profit on disposal of fixed assets		-		-		1
Share based payment		(3)		2		3
Net cash inflow/(outflow) from operations		408		(112)		281

Consolidated Statement of Changes in Equity

For the six months ended 31 March 2021

	Share Capital	Share Premium	Merger Relief Reserve		Capital Redemption Reserve			Reverse Acquisition Reserve		Share Based Payments Reserve		Accumulated Deficit	Total Equity
	£'000	£'000	£'000		£'000			£'000		£'000		£'000	£'000
At 30 September 2019	1,039	4,926	1,328		3,337			(5,726)		12		(4,038)	878
Share based payments	-	-	-		-			-		2		-	2
Effect of adoption of IFRS 16	-	-	-		-			-		-		(11)	(11)
Profit for the period	-	-	-		-			-		-		50	50
At 31 March 2020	1,039	4,926	1,328		3,337			(5,726)		14		(3,999)	919
Issue of shares	207	926	-		-			-		-		-	1,133
Share based payments	-	-	-		-			-		1		-	1
Effect of adoption of IFRS 16	-	-	-		-			-		-		-	-
Profit for the period	-	-	-		-			-		-		138	138
At 30 September 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	-	-	-		-			-		(3)		-	(3)
Profit for the period	-	-	-		-			-		-		74	74
At 31 March 2021	1,270	6,028	1,328		3,337			(5,726)		12		(3,787)	2,462

Notes to the interim financial statements

1.  Basis of preparation 

These consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and on a historical basis, using the accounting policies which are consistent with those set out in the Group's annual report and accounts for the year ended 30 September 2020. The interim financial information for the six months ended 31 March 2021, which complies with IAS 34 'Interim Financial Reporting' were approved by the Board of Directors on 29 June 2021.

The unaudited interim financial information for the six months ended 31 March 2021 does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. The comparative figures for the year ended 30 September 2020 are extracted from the statutory financial statements which have been filed with the Registrar of Companies and contain an unqualified audit report and did not contain statements under Section 498 to 502 of the Companies Act 2006.

2.  Principal Accounting Policies

The principal accounting policies adopted are consistent with those of the annual financial statements for the year ended 30 September 2020.  The acquisition of Fidelis Contract Services Limited on 26 March 2021 has been accounted for in accordance with IFRS 3 Business Combinations.

3.  Segmental Reporting

In the opinion of the Directors, the Group has one class of business, being that of specialist cleaning and decontamination services. 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.  The assets and liabilities which have generated the revenues and profits for the period are those of the Group excluding Fidelis, therefore the assets and liabilities reported within the segmental analysis differ from those reported in the Consolidated Statement of Financial Position.

	2020/2021				2019/2020
	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	764	802	943	2,509	729	900	462	2,091
Cost of Sales	(492)	(530)	(469)	(1,491)	(500)	(601)	(295)	(1,396)
Gross Profit	272	272	474	1,018	229	299	167	695
Administrative Expenses	(259)	(259)	(451)	(969)	(208)	(272)	(152)	(632)
Operating Profit for the year	13	13	23	49	21	27	15	63
Total Assets	872	873	1,520	3,265	560	729	408	1,697
Total Liabilities	(214)	(215)	(374)	(803)	(257)	(334)	(187)	(778)

4.  Business combinations during the period

On 26 March 2021, the Group acquired 100% of the issued share capital and voting rights of Fidelis Contract Services Ltd ('Fidelis'), a successful commercial cleaning, hygiene and facility support services company headquartered in Birmingham providing services to customers across England and Wales.  The acquisition is expected to increase the group's market share and reduce costs through economies of scale.

Fidelis was acquired for an initial consideration of £1.7m, payable as £1.5m cash and £0.2m through the issue of new ordinary shares, with contingent consideration of up to £3.05m payable subject to Fidelis fulfilling certain profit criteria. 

The fair value of the acquired customer list and customer contracts is provisional pending receipt of the final valuations for those assets because the acquisition was completed late in the period.  The Group is currently obtaining the information necessary to finalise its valuation.  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 Fidelis 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 £177,000 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	Fidelis Contract Services Limited
	Principal activity	Commercial Cleaning, Hygiene & Support Services
	Date of acquisition	26 March 2021
	Proportion of voting equity interests acquired	100%
	Consideration transferred	£4,115,000

		£'000
b)	Consideration transferred
	Cash	1,730
	Equity issued	200
	Loan notes	83
	Contingent consideration arrangement (included in Other Creditors)	2,102
		4,115
c)	Assets and liabilities recognised on the date of acquisition
	Non-current assets	156
	Current assets	1,392
	Non-current liabilities	(37)
	Current liabilities	(1,028)
	Net assets acquired	483
		£'000
d)	Goodwill arising on acquisition
	Consideration transferred	4,115
	Fair value of identifiable net assets acquired	(483)
	Separately identifiable intangible assets arising on business combination	(1,756)
		1,876
e)	Net cash outflow on acquisition
	Consideration paid in cash	1,730
	Less: cash balances acquired	(385)
		1,345
f)	Impact of acquisition on the results of the Group
	No contribution element from Fidelis is included in these interim figures, but the assets and liabilities for Fidelis as at 31 March 2021 are included in the Consolidated Statement of Financial Position. The assets acquired include £385,000 of cash balances.

5.  Exceptional costs included in administrative expenses

Exceptional items are material items of income or expenses which have arisen in the normal course of business but are not expected to re-occur on a regular basis.

		Unaudited 6 months ended 31 March 2021		Unaudited 6 months ended 31 March 2020		Audited Year ended  30 September 2020
		£'000		£'000		£'000
Management restructure costs		92		-		-
Acquisition costs		177		-		-
		269		-		-

 

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 period.  The adjusted profit represents the EBITDA for the period with exceptional costs excluded.

		Unaudited 6 months ended 31 March 2021		Unaudited 6 months ended 31 March 2020		Audited Year ended  30 September 2020
		£'000		£'000		£'000
Net profit for period		74		50		188
Adjustments:
Interest		(25)		13		23
Depreciation		51		22		50
Exceptional costs		269		-		-
Adjusted profit for the period		369		85		261
		Number		Number		Number
Weighted average shares in issue for basic earnings per share		498,665,889		415,407,753		441,291,857
Weighted average dilutive share options and warrants		62,247,272		65,065,130		65,065,130
Average number of shares used for dilutive earnings per share		560,913,161		480,472,883		506,356,987
		pence		pence		pence
Basic earnings per share		0.01p		0.01p		0.04p
Diluted earnings per share		0.01p		0.01p		0.04p
Adjusted basic earnings per share		0.07p		0.02p		0.06p
Adjusted diluted earnings per share		0.07p		0.02p		0.05p

Copies of this Interim Report are available from the Company Secretary, 115 Hearthcote Road, Swadlincote, Derbyshire DE11 9DU and on the Company's website www.reactsc.co.uk/react-group-plc

 

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