REG - React Group PLC - Final Results
07/02/2023 07:00
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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 Tel: +44 (0) 1283 550 503
Shaun Doak, Chief Executive Officer
Andrea Pankhurst, Chief Financial Officer
Mark Braund, Chairman
Singer Capital Markets Tel: +44 (0) 207 496 3000
(Nominated Adviser / Broker)
James Moat / Philip Davies
IFC Advisory Tel: +44 (0) 20 3934 6630
(Financial PR / IR)
Graham Herring / Zach Cohen
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 (£158,000) £806,000
costs
Acquisition and restructuring costs £543,000 £417,000
(Loss)/Profit from continuing operations after acquisition and restructuring (£701,000) £389,000
costs
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 2021
£'000 £'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 2021
£'000 £'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 (543) (417)
administrative expenses
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 (701) 389
holders of the company
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 Merger Relief Reserve Capital Redemption Reserve Reverse Acquisition Reserve Share-Based Payments Accumulated Deficit Total
Premium 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 2021
£'000 £'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 2021
£'000 £'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
The 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 Ad Hoc Total Contract Maintenance Work Contract Ad Hoc Total
Reactive Work Reactive Work
Work Work
£'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 EBITDA(1) 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 2021
£'000 £'000
(Loss)/Profit on ordinary activities before income tax (567) 130
(108) 25
(Loss)/Profit on ordinary activities multiplied by the standard rate of
corporation tax in UK of 19% (2021: 19%)
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 Group Group
Relating to debt over 3 months past due
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.
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