REG - React Group PLC - Half-year Report

ReactAnnouncement

29/06/2021 07:00

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: +44 (0) 1283 550 503




Allenby Capital Limited
(Nominated Adviser/Broker)


 




Nick Athanas / Liz Kirchner (Corporate Finance)
Amrit Nahal / Tony Quirke (Sales & Corporate Broking)


Tel: +44 (0) 203 328 5656




 
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
 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
 
  END
 
 
IR UWRRRASUNUUR