Half-year Report

RNS Number : 6915Q

React Group PLC

30 June 2022

 

30 June 2022

REACT Group plc

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

Half Year Results FY 2022

Investor Presentation

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 2022.

Financial Summary

	HY 2022		HY 2021
Revenue (£'000)	5,125		2,509
Gross profit (£'000)	1,156		1,018
Gross profit margin	22.6%		40.6%
EBITDA (£'000)	133		100
Adjusted EBITDA (£'000)*	162		369
Net (loss)/profit for the period (£'000)	(92)		74
(Loss)/earnings per share (basic) (pence)	(0.02)		0.01
Earnings per share (adjusted) (pence)	0.03		0.07
Net cash (£'000)	(43)		771

* Adjusted EBITDA represents earnings before separately disclosed acquisition costs ( as well as before interest, tax, depreciation and amortisation).

Highlights (including post period highlights):

· Revenue increased by 104% to £5,125 (2021: £2,509)

· As anticipated, lower margins to focus on more dependable long-term visibility of recurring revenues and profits, in strong and resilient markets and increased overheads following the acquisition of Fidelis

· Multiple contract wins in the education, hospital, manufacturing and housing sectors, including the £1m per year, 5-year contract in the health sector, announced on 13 January 2022

· Continued growth in the contract maintenance part of the business, which represents 63.8% of H1 revenue

· Reactive work gradually returning to normal following removal of lock down restrictions, particularly in the healthcare sector

· Appointment of two senior sales and marketing professionals

· Placing to raise £5.5m to strengthen the balance sheet and support the Company's stated acquisition growth strategy and general working capital purposes

· 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

· Agreed a 5 year £1.0 million loan to further strengthen the Company's balance sheet and assist with normal business cashflow fluctuations

Investor Presentation

REACT GROUP PLC  is pleased to announce that Mark Braund, Shaun Doak and Andrea Pankhurst will provide a live presentation relating to Interim results via the Investor Meet Company platform on 12 July 2022 at 1:30pm BST.

The presentation is open to all existing and potential shareholders. Questions can be submitted pre-event via your Investor Meet Company dashboard up until 9am the day before the meeting or at any time during the live presentation.

Investors can sign up to Investor Meet Company for free and add to meet REACT GROUP PLC via:

https://www.investormeetcompany.com/react-group-plc/register-investor

Investors who already follow REACT GROUP PLC on the Investor Meet Company platform will automatically be invited.

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

"A strong period of growth specifically in the strategically important contract maintenance segment of our business.  Once a small part of our business, contract maintenance now dominates the landscape.  Whilst margins are more modest than in the reactive component of our business, it provides long-term visibility of recurring revenues and profits, in strong and resilient markets.

The reactive segments of our business were relatively static as the country moved out of lock down during H1, although we are beginning to see signs of these segments returning to pre-pandemic levels during H2.

I am delighted to welcome two new senior sales and marketing professionals to the team; both have already made a positive impact winning incremental new contracts and building a pipeline of sales opportunities stronger than we have seen before.

Whilst mindful of the economic outlook, H2 has had a strong start with the acquisition of LaddersFree, announced on 16 May 2022. The acquisition is of significant strategic importance, and following successful integration, LaddersFree is performing in line with management expectations. LaddersFree's revenues during the months of May and June (post completion of the acquisition) have been strong and they look set for a record period of performance.

Combining all these aspects, the outlook remains positive.

On behalf of the Board, I would once again like to thank all my colleagues for their ongoing support, commitment, tenacity and quality of work."

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)
Will Goode / Amanda Gray (Corporate Finance) Rachel Hayes (Corporate Broking)	Tel: [phone]
IFC Advisory ( Financial PR / IR)
Graham Herring / Zach Cohen	Tel: [phone]

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"). Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

RESULTS SUMMARY & STRATEGY

Strategy

During the six months to 31 March 2022, REACT has continued to grow, especially in the strategically important contract maintenance segment of the business.

The drive towards higher levels of recurring revenues, secured by inflation-linked multi-year contracts in some of the most resilient segments of the market including healthcare, education and rail, began a little over a year ago.

The contract maintenance business represents long-term recurring revenue where customers typically commit to buy our services for a period of between 3 and 7 years, with price increases written into each contract to cover typical wage-inflation pressures. 

In addition to multiple new contract wins, the successful acquisition of Fidelis Contract Services ("Fidelis"), a contract cleaning and facilities maintenance business, in March 2021, has helped to drive revenues strongly during the period.

H1 has been a strong period of winning new contracts, including the £1m per year, 5-year contract in the healthcare sector, as announced on 13 January 2022.  Several of these contracts are set to start in H2 after a period of mobilisation during H1, therefore margins have been temporarily impacted whilst cost preceded revenue.

Contract maintenance

While the contract maintenance segment of our business once generated a small proportion of revenue, it has grown by more than four-times since 31 March 2021, from £764k to £3,268k, and is forecast to increase further.

Contract reactive

Reactive work is broken down into two segments:

· Contract reactive, where REACT is the contracted 'on-call' provider dealing with incidents requiring specialist and/or emergency cleaning; and

· Ad hoc (or one-off projects)

During H1, the Group's higher margin reactive work was less predictable, although since lockdown measures began to lift, we have seen signs of normality returning to this part of the market and we expect this to continue going forward.  This part of the business benefited from an increase in work in the healthcare sector however, this was offset by a reduction in work coming from other sectors, including the judiciary (cells, transportation vehicles, court rooms, etc.). Certain changes to working practices introduced during lockdown (e.g. digital virtual hearings) may continue and may therefore reduce demand for some of these services going forwards.

Ad hoc

By its very nature, the ad hoc or one-off project sector of our business is less predictable.  Although the Group's presence continues to grow in this space, revenues remained at a similar level to the prior year.  Customers, perhaps weary of the high cost of Covid, became more price-sensitive with some choosing to postpone work in the more discretionary areas of operation, e.g. graffiti removal and void clearances.  The combination of these; price sensitivity and postponed demand, placed pressure on margins, although we expect this to be temporary.

People

As an ambitious growing business, we continue to take steps to invest; we have strengthened our sales and marketing capability with two new senior hires during the period. Sam Haywood joined as Head of Group Business Development, overseeing group sales, and Chris Ryan joined as Sales Manager of Fidelis.

Whilst this has increased cost during H1, the contribution of these individuals is already beginning to have an impact, with both recruits achieving success in building a pipeline of over 40 opportunities currently marked as live as well as new contract wins where the Group would previously not have had the capacity to source the opportunity and convert into business.

In addition, the Group operates highly personalised training and development initiatives and, as a result, has been able to evolve the roles of a number of key individuals and promote from within.

REACT's service delivery is provided by people who are considered experts in their field, supported by a dedicated customer-centric team, who have continually adapted to the daily challenges of both lock-down and post-lock down periods.  The strength of the H1 results is underpinned by the efforts of the entire team and is testament to the superb culture everyone has contributed to cultivating.

On behalf of the Board, I would once again like to thank all of our colleagues for their commitment, resilience, and quality of work.

Post period end

On 14 April 2022, REACT raised gross proceeds of approximately £5.5 million (the "Placing") in order to strengthen the Group's balance sheet to support the stated acquisition growth strategy and general working capital purposes. The related resolutions were passed by shareholders at the General Meeting on 5 May 2022.

Following the Placing, on 12 May 2022, REACT announced that it had completed the acquisition of LaddersFree Ltd. ("LaddersFree"), an established nationwide commercial window, gutter and cladding cleaning business, for a total consideration of up to £8.5 million. LaddersFree, the Group's second acquisition, operates a highly attractive business model and represents an important step in REACT's growth strategy.

Post period end, REACT entered into a 5-year £1.0 million loan with Arbuthnot Latham to further strengthen the Company's balance sheet and assist with normal business cashflow fluctuations. The loan is secured over the Company's assets and attracts interest at 5.25% above Base Rate per annum.

Summary and outlook

I am delighted to report that H2 has started well, with the contract maintenance segment of our business continuing to report record trading months. The long-term contracts won and mobilised during H1 are beginning to deliver revenue in H2 as expected. In addition, the following opportunities have been secured post period end:

· three contract wins in the education sector across four sites with a total value of approximately £798k. Of these, 2 contracts have 3 year terms with a combined total value of c. £760k and the third contract is for a total value of c. £38k over 1 year;

· c.£185k of Commercial Office contract maintenance work across two sites, both issued as three year agreements;

· c.£300k of Ad-Hoc (opportunities larger than £45k each) across the Education and Hospitality sectors; and

· c.£310k of Healthcare contract maintenance work across two sites, one issued over three years and the larger over two with the option of an additional year. 

In addition, the Company has seen an increase in the level of reactive work during H2 2022 and following an increase in sales and marketing activity, the opportunity pipeline is steadily growing.

The acquisition of LaddersFree is expected to make a material contribution to the Group's performance in H2 and beyond.  The integration with the Group has been efficient, and the values and work culture of LaddersFree are aligned to those of REACT Group. Therefore, activity across the LaddersFree business has been largely uninterrupted and revenues during the months of May and June have been exceptionally strong.

Combining all of the above, we are trading in line with management expectations and are pleased to report a solid outlook for the remainder of the year.

Shaun Doak

Chief Executive Officer

30 June 2022

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 31 March 2022

		Unaudited  6 months ended 31 March 2022		Unaudited 6 months ended 31 March 2021		Audited Year ended 30 September 2021
	Note	£'000		£'000		£'000
Continuing Operations
Revenue		5,125		2,509		7,701
Cost of Sales		(3,969)		(1,491)		(5,332)
Gross Profit		1,156		1,018		2,369
Other operating income		-		2		19
Administrative expenses		(1,241)		(971)		(2,274)
Acquisition and restructuring costs included in administrative expenses	5	(29)		(269)		(417)
Operating (loss)/profit		(85)		49		114
Finance (cost)/income		(3)		-		16
Corporation tax (charge)/credit		(4)		25		259
(Loss)/profit for the period		(92)		74		389
Other comprehensive Income		-		-		-
(Loss)/profit for the financial period attributable to equity holders of the company		(92)		74		389
Basic and diluted profit per share	6
Basic (loss)/earnings per share		(0.02)p		0.01p		0.08p
Diluted (loss)/earnings per share		(0.02)p		0.01p		0.07p
Adjusted basic earnings per share		0.03p		0.07p		0.08p
Adjusted diluted earnings per share		0.03p		0.07p		0.07p

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 March 2022

		Unaudited As at 31 March 2022		Unaudited As at 31 March 2021		Audited As at 30 September 2021
Assets	Note	£'000		£'000		£'000
Non-current assets
Intangibles - Goodwill	4	1,854		2,050		1,940
Intangibles - Other	4	881		1,756		1,028
Property, plant and equipment		168		180		176
Right-of-use assets		68		118		95
Deferred tax asset		240		-		244
		3,211		4,104		3,483
Current assets
Stock		10		9		12
Trade and other receivables		2,305		1,781		2,099
Cash and cash equivalents		(43)		771		633
		2,272		2,561		2,744
Total assets		5,483		6,665		6,227
Equity
Shareholders' Equity
Called-up equity share capital		1,270		1,270		1,270
Share premium account		6,028		6,028		6,028
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		33		12		23
Accumulated losses		(3,564)		(3,787)		(3,472)
Total Equity		2,706		2,462		2,788
Liabilities
Current liabilities
Trade and other payables		2,309		2,342		2,598
Lease liabilities within one year		46		64		54
Corporation tax		-		63		80
		2,355		2,469		2,732
Non-current liabilities
Lease liabilities after one year		30		61		49
Other creditors		392		1,673		658
		422		1,734		707
Total liabilities		2,777		4,203		3,439
Total Liabilities and Equity		5,483		6,665		6,227

CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 31 March 2022

		Unaudited 6 months ended 31 March 2022		Unaudited 6 months ended 31 March 2021		Audited Year ended 30 September 2021
		£'000		£'000		£'000
Net cash inflow from operations		7		408		432
Cash flows from financing activities
Proceeds of share issue		-		-		200
Expenses of share issue		-		-		-
Lease liability payments		(27)		(15)		(39)
CBIL Loan		(50)		-		67
Net cash (outflow)/inflow from financing activities		(77)		(15)		228
Net cash from investing activities Disposal of fixed assets		-		-		6
Capital expenditure		(64)		(33)		(71)
Acquisition of subsidiary		(525)		(1,345)		(1,930)
Exceptional acquisition costs paid		(17)		(27)		(200)
Net cash outflow from investing activities		(606)		(1,405)		(2,195)
Net decrease in cash, cash equivalents and overdrafts		(676)		(1,012)		(1,535)
Cash, cash equivalents and overdrafts at beginning of period		633		1,783		1,783
Cash on acquisition of subsidiaries		-		-		385
Cash, cash equivalents and overdrafts at end of period		(43)		771		633

Analysis of cash, cash equivalents and overdrafts:
Cash at bank and in hand		214		771		633
Overdrafts		(257)		-		-
		(43)		771		633

Reconciliation of profit for the period to cash outflow from operations
		Unaudited 6 months ended 31 March 2022		Unaudited 6 months ended 31 March 2021		Audited Year ended  30 September 2021
		£'000		£'000		£'000
(Loss)/profit for the period		(92)		74		389
Decrease/(increase) in stocks		2		-		(12)
Decrease/(increase) in receivables		(206)		301		(1,010)
(Decrease)/increase in payables		38		(167)		655
Depreciation and amortisation charges		219		51		264
Finance costs/(income)		3		(25)		(16)
Tax charge/(credit)		4		-		(259)
Acquisition assets acquired (excluding cash)		-		-		95
Exceptional acquisition costs		29		177		323
Profit on disposal of fixed assets		-		-		(5)
Share based payment		10		(3)		8
Net cash inflow from operations		7		408		432

Consolidated Statement of Changes in Equity

For the six months ended 31 March 2022

	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 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
Issue of shares	-	-	-	-		-		-		-	-
Share based payments	-	-	-	-		-		11		-	11
Profit for the period	-	-	-	-		-		-		315	315
At 30 September 2021	1,270	6,028	1,328	3,337		(5,726)		23		(3,472)	2,788
Issue of shares	-	-	-	-		-		-		-	-
Share based payments	-	-	-	-		-		10		-	10
(Loss) for the period	-	-	-	-		-		-		(92)	(92)
At 31 March 2022	1,270	6,028	1,328	3,337		(5,726)		33		(3,564)	2,706

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 2021. The interim financial information for the six months ended 31 March 2022, which complies with IAS 34 'Interim Financial Reporting' were approved by the Board of Directors on 30 June 2022.

The unaudited interim financial information for the six months ended 31 March 2022 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 2021 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 2021.

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 prior period are those of the Group excluding Fidelis, therefore the comparative assets and liabilities reported within the segmental analysis differ from those reported in the Consolidated Statement of Financial Position.

	2021/2022					2020/2021
	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	3,268	933	924	5,125		764	802	943	2,509
Cost of Sales	(2,748)	(652)	(569)	(3,969)		(492)	(530)	(469)	(1,491)
Gross Profit	520	281	355	1,156		272	272	474	1,018
Administrative Expenses	(558)	(302)	(381)	(1,241)		(259)	(259)	(451)	(969)
Operating Loss/(profit) for the year	(38)	(21)	(26)	(85)		13	13	23	49
Total Assets	2,466	1,334	1,683	5,483		872	873	1,520	3,265
Total Liabilities	(1,249)	(675)	(853)	(2,777)		(214)	(215)	(374)	(803)

4.  Business combinations impact

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 was estimated at 31 March 2021 and at 30 September 2021.  The goodwill arising 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.  As at 31 March 2022, the fair value of the contingent consideration arrangement has been recalculated based on the performance of Fidelis since the date of acquisition and the present value of the future expected cash flows.

As a result of the above, costs payable in connection with the acquisition of Fidelis are expected to be £5,000 lower than originally estimated.  This reduction in costs has been credited to administrative expenses as shown in note 5.

The reassessment of the fair value of the final deferred consideration payable has resulted in changes in the total Consideration and Goodwill valuations.

	Unaudited 6 months ended 31 March 2022	Unaudited 6 months ended 31 March 2021	Audited Year ended  30 September 2021
	£'000	£'000	£'000
Fair value of identifiable net assets acquired	480	483	480
Separately identifiable intangible assets arising on business combination	1,175	1,756	1,175
Goodwill	1,680	1,876	1,766
Total Value of Acquisition	3,335	4,115	3,421
Initial consideration	2,014	2,013	2,014
Deferred Consideration	1,321	2,102	1,407
Total Consideration	3,335	4,115	3,421

5.  Acquisition and restructuring costs included in administrative expenses

		Unaudited 6 months ended 31 March 2022		Unaudited 6 months ended 31 March 2021		Audited Year ended  30 September 2021
		£'000		£'000		£'000
Acquisition (income)/costs - Fidelis		(5)		177		323
Acquisition costs - other		34		-		-
Management restructure costs		-		92		94
		29		269		417

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.

		Unaudited 6 months ended 31 March 2022		Unaudited 6 months ended 31 March 2021		Audited Year ended  30 September 2021
		£'000		£'000		£'000
Net (loss)/profit for period		(92)		74		389
Adjustments:
Interest		3		(25)		(16)
Depreciation and amortisation		219		51		264
Tax		4		-		(259)
Adjusted profit for the period		134		100		378
		Number		Number		Number
Weighted average shares in issue for basic earnings per share		508,006,026		498,665,889		503,348,752
Weighted average dilutive share options and warrants		62,247,272		62,247,272		62,247,272
Average number of shares used for dilutive earnings per share		570,253,298		560,913,161		565,596,024
		pence		pence		pence
Basic earnings per share		(0.02)p		0.01p		0.08p
Diluted earnings per share		(0.02)p		0.01p		0.07p
Adjusted basic earnings per share		0.03p		0.02p		0.08p
Adjusted diluted earnings per share		0.02p		0.02p		0.07p

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

 

END

 

 

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