REG - React Group PLC - Final Results
06/02/2024 07:00
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RNS Number : 0948C React Group PLC 06 February 2024
6 February 2024
REACT Group plc
("REACT", the "Group" or the "Company")
Final results for the year ended 30 September 2023
REACT (AIM: REAT.L), the leading specialist cleaning, hygiene, and
decontamination company, is pleased to announce its audited final results for
the year ended 30 September 2023.
Financial highlights
· Revenue increased by 43% to £19.6m (2022: £13.7m)
- 87% recurring revenue (2022: 83%)
- organic revenue growth of approximately 21% (on a like-for-like
basis)
- Numerous multi-year contracts won via cross-selling across the Group
· Gross profit up 61% to £5.2m (2022: £3.3m)
· Gross profit margin up 300 basis points to 27% (2022: 24%)
· Adjusted EBITDA* up 133% to £2.3m (2022: £1.0m)
· Free cash flow £2.1m (2022: outflow £1.0m)
· Cash as at 30 September 2023 of £2.1m (30 September 2022:
£1.5m)
Operational highlights
· Integration of LaddersFree completed
· Strengthened finance team with the addition of a Group Financial
Controller, and post year end, with the appointment of a seasoned and
experienced Chief Financial Officer, Spencer Dredge
Current trading and outlook
· Good momentum into FY24 following a strong first quarter
reflecting significant growth opportunities for the Group and its essential
services
· Investment in infrastructure to leverage efficiency-enhancing
technology across the Group
*Adjusted EBITDA represents earnings before separately disclosed acquisition,
impairment of intangibles, share-based payments and other restructuring costs
(as well as before interest, tax, depreciation and amortisation). This is a
non-IFRS measure.
Commenting on the results Shaun Doak, Chief Executive Officer of REACT, said:
"I am delighted to announce a strong performance from the REACT Group, marked
by impressive organic growth and improved profitability and cash conversion.
This success underscores the strength of our value proposition and customer
acquisition strategy.
"Following the acquisitions of Fidelis in March 2021 and LaddersFree in May
2022, we have consistently achieved substantial organic growth. This
achievement showcases our proficiency in integrating these offerings into our
core services, unlocking potential across an expanded customer base. Our
success is evident through effective cross-selling and upselling strategies,
as well as our ability to attract new customers.
"Momentum from FY23 has continued into the new financial year, and despite the
usual slow down across the festive period, the first few months of FY24 have
delivered a record trading performance for the Group."
For more information:
REACT Group Tel: +44 (0) 1283 550 503
Shaun Doak, Chief Executive Officer
Spencer Dredge, Chief Financial Officer
Mark Braund, Chairman
Singer Capital Markets - Nominated Adviser & Joint Broker Tel: +44 (0) 20 7496 3000
Philip Davies / Alex Bond / Oliver Platts
Dowgate Capital - Joint Broker Tel: +44 (0) 20 3903 7715
Stephen Norcross / Nicholas Chambers
IFC Advisory - Financial PR & IR Tel: +44 (0) 20 3934 6630
Graham Herring / Zach Cohen
About Us:
REACT Group plc is the UK's leading specialist and contract cleaning business
and operates with three divisions: LaddersFree, one of the largest commercial
window cleaning businesses in the UK; Fidelis Contract Services ("Fidelis"), a
contract cleaning and facilities maintenance business; and REACT business,
which primarily provides a solution to emergency and specialist cleaning
situations, both through long-term framework agreements and on an ad-hoc
basis.
Executive Chairman's Statement
For the year ended 30 September 2023
The Board is pleased to report that the Group has delivered significant growth
in the period under review and continued to deliver material improvements in
operational performance, profit contribution and cash conversion.
Details of the Group's performance are set out in reviews by the Chief
Executive and the Chief Financial Officer.
For the year ended 30 September 2023 ("FY 23"), Adjusted EBITDA* was
£2,272,000, up 133% on the prior year, (2022: £974,000), and sales revenue
was £19,582,000, up 43% on the prior year (2022: £13,671,000).
The Group performance represents strong like-for-like organic growth of
approximately 21%, assuming LaddersFree was owned throughout the comparative
year. Importantly, this is the fourth successive year the Group has reported
double-digit organic growth, delivering an average of approximately 24%
'organic' growth each year. This in turn has materially contributed to
impressive improvements in gross profit and earnings over the same period.
The financial model of the Group has evolved from one of a project-orientated
business with high margin but inconsistent and often unpredictable revenue
flows, to one that now has greater predictability with more than 85% of its
revenues contracted and recurring, alongside a balanced margin that remains
above market average. To this, the Group has added a consistent ability to
generate organic growth and with it, scale.
The evolution of the business is the result of a strong team working hard to
outperform competition, delivering in each division a compelling proposition
that results in high levels of customer satisfaction and long-term commercial
relationships. The opportunity for the business, now that it has reached
this size, is to invest in the next stage of growth and development; to
combine the small group of growing businesses into one unified brand with a
clear and precise proposition aimed at growing the business and enhancing its
value even faster.
The Group will therefore implement a considered programme to invest in people,
processes and systems; much of the immediate plans involve the development of
talent already inside the business. To this end, the Company will phase in
skills and experience aimed at covering any gaps.
There is a tremendous opportunity to develop a digital platform to support and
scale the nationwide commercial window cleaning business and in doing so
enhance the ability to cross-sell other relevant services bought by the same
customers, and potentially delivered by the same membership resource. At the
very least, this will enable the Group to improve operational efficiency and
scale with robust systems. Better still, we will establish a platform on
which our commercial IP can return significant value to shareholders.
Investment will be phased over the course of this current financial year and
into the next, and whilst the Board anticipates that the benefits will be most
evident in future years, we do expect to see some positive effect in the
nearer term.
The contracted soft services facility management business has more than
doubled in size since Fidelis was acquired in March 2021. The aim is to
maintain growth in this sector as it provides robust long-term visibility of
revenue and earnings and a solid base from which to cross-sell other Group
services. The Company will continue to drive organic growth and where
relevant, augment this with M&A activity. With markets challenged, there
is an opportunity to be a consolidator, providing a great home for small
quality 'bolt-on' businesses that share the Group's core values. The Company
has a healthy pipeline of very early-stage opportunities to evaluate, however,
many will not meet the Group's criteria. Those that do will be earnings
enhancing and accretive.
To support the operational effectiveness of the business and its growth
ambitions, the Group is in the process of moving its banking facilities to one
consolidated relationship with HSBC.
The strategy for growth remains clear; the Group will continue to build a
leading position across its business through fast-paced organic growth, margin
enhancement, improvements in operational efficiency and, if quality
opportunities present themselves, through strategic M&A.
Mark Braund
Chairman
6 February 2024
Chief Executive Officer's Report and Strategic Review
REACT Group has delivered a strong performance for the year ended 30 September
2023.
Since acquiring Fidelis (March 2021) and LaddersFree (May 2022), the Group has
achieved impressive organic growth and has integrated these offerings into the
core proposition to unlock the potential across the enlarged customer base,
through successful cross-selling and /or upselling of services and through
success in winning new customers.
Despite challenging market conditions, which have seen supply chain
disruptions, inflation and some customers reduce the frequency of cleaning,
the Group delivered like-for-like organic revenue growth of approximately 21%,
assuming LaddersFree was owned throughout the comparative year.
The acquisitions of Fidelis and Laddersfree have provided a competitive
advantage, bringing a more dependable and profitable business model with an
established and impressive client base. Nearly all of Fidelis's and
LaddersFree's revenue is recurring and contracted, providing a predictable and
stable income stream as the Group continues to grow. With these
acquisitions, particularly LaddersFree, the Group gains access to a broader
customer base and established distribution channels. By leveraging their
expertise and market insights, the Group has developed and delivered a more
comprehensive suite of value-added services. This enhanced value proposition
not only strengthens customer relationships but also drives increased customer
satisfaction and improved margins.
REACT continues to drive growth through cross-selling, showcasing the Group's
success in generating incremental revenue. Evidence of this is underscored
by multiple contract awards, including material contract wins announced during
the year, such as:
· £800k per year, multi-year contract spanning 350 locations in the UK of a
well-known high-street fast-food chain, announced 5 January 2023
· The £1.8m, 3-year contract (c. £600k/year) with a Midland's based shopping
centre group, unlocks new growth opportunities in the region, expanding our
service footprint
· Multiple contract wins totalling over £1.2 million underscore our ability to
deliver impactful solutions across education and healthcare, with a £500k
school award (18 months), a £540k, 3-year school contract, and a £200k
annual NHS contract
Plus the material post-period year-end announcement:
· 3-year contract extension with a major university for £3.8m (c.£1.3m/year)
reflects a near-doubling of previous value, showcasing our positive impact and
a commitment to excellence as we increased our portfolio of services to the
client
The Group's growth journey has been fuelled by a talented team. Key colleagues
have been empowered and promoted to play a pivotal role in evolving and
professionalising the business. Focus has been on customer value-enhancement
measured not least by improvements in margin, which in a continually
competitive and challenging market is not easy, but the team has achieved it
again in the reporting period by improving gross margins to c.27% (2022:
c.24%).
To keep up with our growing business and the inherent complexity, the finance
team has been strengthened by adding a Group Financial Controller, Justin
Fleming and in the post-reporting period, the Board has also appointed a
seasoned and experienced Chief Financial Officer, Spencer Dredge.
A review has commenced to improve workflows and processes to enable the
business to scale even more effectively. This focus has already supported
the underlying improvements in conversion of gross profit to earnings and
helped drive better cash conversion. This process is ongoing with the
purpose of creating better efficiencies within the business.
Strategy
Whilst the business continues to pursue opportunities across all relevant
sectors, the core strategy prioritises a robust financial model fuelled by
recurring revenue from long-term contracts. This provides predictable income
and support for sustainable growth.
Further investment will be undertaken to facilitate the next stage of
development, to consolidate from a small group of growing businesses into a
unified brand with a clear and precise proposition aimed at growing the
business and its value even faster. The Group will therefore implement a
considered programme of investment in people, processes and systems; much of
our immediate plans involve the development of talent already inside the
business. To affect this, the Company will phase-in skills and experience
aimed at covering any gaps.
As highlighted in the Chairman's statement, there is a tremendous opportunity
to develop a digital platform to support and scale the Group's nationwide
commercial window cleaning business and in doing so open a channel to sell
other relevant services bought by the same customers, and potentially
delivered by the same membership resource. This will enable the Group to
improve operational efficiency and scale with robust systems, creating a
platform approach to develop its commercial IP and with it grow an
increasingly attractive enterprise value. Simultaneously, the Company will
continue to invest further in sales and marketing to unlock the huge potential
of its target market. By leveraging the right tools and strategies, it will
increase the opportunity to engage with prospective clients and drive market
expansion.
Key Performance Indicators (KPIs)
Financial: The key financial indicators are as follows:
2023 2022
Revenue £19,582,000 £13,671,000
Recurring revenue 87% 84%
Gross margin 26.8% 23.8%
Operating profit/(loss) £251,000 (£511,000)
Earnings before Interest, Tax, Depreciation & Amortisation (EBITDA) - a £2,060,000 £410,000
non-IFRS measure
Adjusted Earnings before Interest, Tax, Depreciation & Amortisation £2,272,000 £974,000
(EBITDA) - a non-IFRS measure
Acquisition and restructuring costs & Share Based Payments £212,000 £564,000
Profit/(loss) from continuing operations after acquisition and restructuring £50,000 (£701,000)
costs
Basic profit/(loss) per share 0.005p (0.098p)
Adjusted basic earnings per share 0.2p 0.01p
Cash and cash equivalents £2,120,000 £1,525,000
Free cash flow £2,127,000 (£1,004,000)
By emphasising the right KPIs, the Board fosters behaviours that drive value
and ensures clear visibility into Group performance across all levels.
Well-defined KPIs are crucial for motivating behaviours aligned with strategic
goals and monitoring Group performance.
The Group thrives in three core areas:
1. Contract Maintenance: providing scheduled cleaning services across various
sectors, including healthcare, education, retail, industrial, and public
transport.
2. Contract Reactive: as the on-call heroes, we tackle emergencies 24/7/365
under formal contracts or framework agreements.
3. Ad hoc: where REACT provides a solution to one-off situations outside a
framework agreement, such as for fly tipping, void clearance, and
decontaminations
To conclude, and on behalf of the Board, we wish to thank our customers,
colleagues and our members for their openness and willingness to engage and as
a result help us to deliver a compelling solution to many of our customers
challenges. Within this, a heartfelt thanks to all my colleagues across the
Group, your dedication, tireless efforts, and unwavering tenacity are the
bedrock of our success - "thank you!" I am incredibly excited to continue this
journey with you in 2024 and beyond.
Outlook
Momentum from FY23 has continued into the new financial year, and despite the
usual slow down across the festive period, the first few months of FY24 have
delivered a record trading performance for the Group.
Through improvements to our value proposition and strategic market access
initiatives, exciting new growth opportunities have been unlocked, expanding
the Group's reach across diverse markets up and down the country.
Despite the challenging environment and the focus required to invest in
upscaling the infrastructure of the business, the Board remains cautiously
optimistic of another strong performance in this new financial year.
Shaun D Doak
Chief Executive Officer
6 February 2024
Chief Financial Officer's Report
Revenue and profitability
Revenue for year ended 30 September 2023 was £19,582,000, 43% up on the prior
year (2022: £13,671,000). The current year figures include a full 12
months' results from LaddersFree (2022: 5 months). Taking into account the
performance of LaddersFree for a full prior year period, this represents
like-for-like organic growth of approximately 21%.
These revenues generated a gross profit contribution of £5,239,000, up 61% on
the prior year (2022: £3,257,000). On a like-for-like full 12-month basis,
gross profit increased by 19%.
Group overheads of £4,988,000 (2022; £3,768,000) increased during the year
as a result of including LaddersFree throughout the year, whilst the prior
year recorded overheads for only 5-months. Group overheads increased by 22% on
a comparable basis, adjusting for LaddersFree on a full year basis in the
prior year.
The strong trading performance has resulted in an Adjusted EBITDA of
£2,272,000, up 133% on the prior year (2022: £974,000). 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 along with share based-payments. 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.
Reconciliation of Profit before Tax to Adjusted EBITDA
2023 2022
£'000 £'000
Profit/(loss) before Interest and Tax 251 (511)
Depreciation & Amortisation 1,809 921
EBITDA 2,060 410
Acquisition costs/restructuring costs 131 (24)
Impairment charge - 567
Share based payments 81 21
212 564
Adjusted EBITDA 2,272 974
Weighted average shares in issue 1,056,512,226 718,622,464
Adjusted EBITDA earnings per share 0.21p 0.13p
Earnings per share
The basic profit per share from continuing operations 0.005p (FY22: loss per
share 0.098p). The adjusted EBITDA per share which excludes the after-tax
impact of exceptional items, share-based payments and the amortisation of
intangible assets recognised on acquisition was 0.21p (FY22: earnings per
share 0.13p).
Intangible assets and goodwill
The Group has intangible assets of £9,483,000 (2022: £9,889,000) comprising
of Goodwill £5,446,000 (2022: £4,209,000) and intangible assets £4,037,000
(2022: £5,680,000). Goodwill has been tested for impairment and management
believe the current carrying value of goodwill is supported by the current
financial projections, prior year write down £567,000. An amortisation charge
of £1,643,000 (2022: £743,000) was recorded against intangible assets; these
intangible assets acquired through business combinations are amortised over
four years.
Cash flow
Cash and cash equivalents increased in the year by £661,000 (2022: outflow
£2,190,000). As a result of positive operating cash flows in the year,
offset by outflows from financing activities and investment activities, cash
and cash equivalents and overdrafts at the year-end were £1,640,000 (2022:
£979,000) which resulted from cash and cash equivalents including cash held
at bank £2,120,000 (2022: £1,525,000) less the invoice discount balance of
£480,000 (2022: £546,000).
Operating cash inflows in the year £,2,444,000 (2022: outflow £773,000)
resulted from trading, favourable movement in working capital £527,000 (2022:
outflow £1,780,000) off-set by depreciation and amortisation charges
£1,809,000 (2022: £921,000) and after paying corporate taxes of £226,000
(2022: £80,000).
The net cash outflow from financing activities £360,000 (2022: inflow
£6,997,000) resulted from the repayment of the term loan £181,000 (2022:
inflow £902,000) and interest payments £203,000 (2022: £56,000) and a cash
from a share issue £24,000 following an exercise of employee share options
(2022: £6,500,000). The prior year included cash raised to fund the
acquisition of LaddersFree.
Cash outflows from investing activities £1,423,000 (2022: £8,414,000) mainly
resulted from deferred consideration payments made in the year £1,309,000
(2022: £7,776,000) and investments made in fixed assets during the year
£119,000 (2022: £115,000). Deferred consideration payments made during the
year were against acquisitions made in previous years, Fidelis £262,000 and
LaddersFree £1,047,000.
Based on current financial projections, the Group has sufficient available
cash resources to support its current plans, which includes settlement of the
deferred consideration payments £1,969,000 in the year to September 2024 and
other planned capital expenditure. The Group is currently engaged with a
third-party software solution provider to design, build and deploy a new
operating system for LaddersFree. Once operational, the investment will be
recorded as a fixed asset and amortised over a three-year period.
The Group has plans underway to move its banking arrangements to a single
platform provider, this should be completed by May 2024. This arrangement
will be a replacement of existing banking arrangements and will include an
invoice discount facility and the term loan on a comparable basis. This
arrangement will provide greater day-to-day operational efficiency.
Taxation
The Group has reported a small profit which is after a credit for tax £2,000
(2022: charge of £134,000). At the balance sheet date, the Group has a
deferred tax asset of £123,000 (2022: £244,000), and deferred tax liability
associated with the intangible asset recognised on acquisition £908,000
(2022: £Nil). Available historical losses and management fees available to
the Group for tax purposes, that can be off-set against future taxable profits
are approximately £500,000 (2022: £2,100,000).
Statement of financial position
The Group's balance sheet has strengthened with net assets at the year-end of
£8,495,000 (2022: £8,339,000). The Group's balance sheet includes
liabilities for deferred consideration balances for the LaddersFree
acquisition of £1,680,000 and Fidelis £77,000, both of which will be fully
settled in the year ahead. In addition, the Group's balance sheet has a
five-year term loan with an outstanding balance of £826,000 at the year-end.
The loan was drawn down in May 2022, therefore the loan has 3.75 years of the
five-year term to run under the current loan arrangements.
Andrea Pankhurst
Chief Financial Officer
6 February 2024
Consolidated Statement of Comprehensive Income
For the year ended 30 September 2023
Notes 2023 2022
£'000 £'000
Continuing Operations
Revenue 2 19,582 13,671
Cost of sales (14,343) (10,414)
Gross profit 5,239 3,257
Administrative expenses (4,988) (3,768)
Acquisition and restructuring income/costs included in (131) (543)
administrative expenses
Operating profit/(loss) 251 (511)
Finance charge (203) (56)
Taxation 2 (134)
Profit/(loss) for the year 50 (701)
Other comprehensive Income - -
Total comprehensive profit/(loss) for the year attributable to the equity 50 (701)
holders of the company
Basic and diluted earnings per share - pence 3
Basic profit/(loss) per share 0.005p (0.098)p
Diluted profit/(loss) per share 0.004p (0.090)p
The notes form part of these financial statements
Consolidated Statement of Financial Position
As at 30 September 2023
As restated
Notes 2023 2022
ASSETS £'000 £'000
Non-current assets
Intangible assets - Goodwill 4 5,446 4,209
Intangible assets - Other 4 4,037 5,680
Property, plant & equipment 172 203
Right-of-use assets 78 100
Deferred tax asset 123 244
9,856 10,436
Current assets
Stock 7 11
Trade and other receivables 4,425 4,254
Cash and cash equivalents 2,120 1,525
6,552 5,790
TOTAL ASSETS 16,408 16,226
EQUITY
Shareholders' Equity
Called-up equity share capital 2,644 2,624
Share premium account 10,910 10,905
Reverse acquisition reserve (5,726) (5,726)
Capital redemption reserve 3,337 3,337
Merger relief reserve 1,328 1,328
Share-based payments 125 44
Accumulated losses (4,123) (4,173)
Total Equity 8,495 8,339
LIABILITIES
Current liabilities
Trade and other payables 6,000 4,937
Lease liabilities within one year 40 57
Corporation tax 262 271
6,302 5,265
Non-current liabilities
Lease liabilities after one year 38 53
Other creditors after one year 665 2,569
Deferred tax liability 908 -
1,611 2,622
TOTAL LIABILITIES 7,913 7,887
TOTAL EQUITY AND LIABILITIES 16,408 16,226
Consolidated Statement of Changes in Equity
For the year ended 30 September 2023
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 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
Loss for the year - - - - - - (701) (701)
At 30 September 2022 2,624 10,905 1,328 3,337 (5,726) 44 (4,173) 8,339
Issue of shares 20 5 - - - - - 25
Share-based payments - - - - - 81 - 81
Profit for the year - - - - - - 50 50
At 30 September 2023 2,644 10,910 1,328 3,337 (5,726) 125 (4,123) 8,495
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 2023
Notes 2023 2022
£'000 £'000
Cash flows from operating activities
Cash generated by operations 1 2,444 (773)
Net cash inflow/(outflow) from operating activities 2,444 (773)
Cash flows from financing activities
Proceeds of share issue 24 6,500
Expenses of share issue - (269)
Lease liability payments - (80)
Bank loans (181) 902
Interest paid (203) (56)
Net cash(outflow)/inflow from financing activities (360) 6,997
Cash flows from investing activities
Disposal of fixed assets 5 20
Capital expenditure (119) (115)
Acquisition of subsidiary (1,309) (7,776)
Exceptional acquisition costs paid - (543)
Net cash outflow from investing activities (1,423) (8,414)
Increase/(decrease) in cash, cash equivalents and overdrafts 661 (2,190)
Cash, cash equivalents and overdrafts at beginning of year 979 633
Cash on acquisition of subsidiaries - 2,536
Cash, cash equivalents and overdrafts at end of year 2 1,640 979
Notes to the Consolidated Statement of Cash Flows
For the year ended 30 September 2023
1. Reconciliation of profit for the year to cash outflow from operations
2023 2022
£'000 £'000
Profit/(loss) after taxation 50 (701)
Decrease in stocks 4 1
(Increase) in trade and other receivables (50) (2,155)
Increase in trade and other payables 573 374
Depreciation and amortisation charges 1,809 921
Impairment charge - 567
Finance cost 203 56
Tax (credit)/charge (2) 134
Acquisition assets acquired (excluding cash) - 119
Exceptional acquisition costs - (24)
Loss/(profit) on disposal of fixed assets 2 (6)
Share based payment 81 21
Tax paid (226) (80)
Net cash inflow/(outflow) from operations 2,444 (773)
2. Cash and cash equivalents and overdrafts
2023 2022
£'000 £'000
Cash at bank and in hand 2,120 1,525
Invoice Discounting (480) (546)
1,640 979
Notes to the Financial Statements
For the year ended 30 September 2023`
1. General Information
Basis of preparation of financial statements
While the financial information included in this annual financial results
announcement has been prepared in accordance with the recognition and
measurement principles of International Accounting Standards in conformity of
the requirements of the Companies Act 2008, this announcement does not contain
sufficient information to comply therewith.
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 30 September 2023 or 2023 but is
derived from those accounts. Statutory accounts for the year ended 30
September 2022 have been delivered to the Registrar of Companies and those for
the year ended 30 September 2023 will be delivered following the Company's
annual general meeting.
The auditors have reported on those accounts; their reports were unqualified
and did not include references to any matters to which the auditors drew
attention by way of emphasis without qualifying their reports.
Their reports for the year end 30 September 2023 and 30 September 2022 did not
contain statements under s498 (2) or (3) of the Companies Act 2006.
The consolidated financial statements are drawn up in sterling. The functional
currency of REACT Group plc.
The level of rounding for the financial statements is the nearest thousand
pounds.
Changes in accounting policies
These financial statements have been prepared in accordance with International
Accounting Standards in conformity with the requirements of the Companies Act
2006 for periods beginning on or after 1 October 2021 with
no new standards adopted in these financial statements.
Prior year adjustment
In the prior year, the invoice discounting balance of £546,000 was presented
within cash at bank and in hand. The directors have now determined that this
figure is better presented within trade and other payables and have therefore
restated the comparative financial information accordingly. Total assets
previously reported are therefore increased by £546,000. This adjustment
has no impact on previously reported comprehensive income.
2. 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.
2023 2022
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 14,321 2,751 2,510 19,582 8,939 2,499 2,233 13,671
Cost of Sales (10,475) (1,999) (1,869) (14,343) (6,809) (2,007) (1,598) (10,414)
Gross Profit 3,846 752 641 5,239 2,130 492 635 3,257
Other Operating Income - - - - - - - -
Administrative Expenses (3,279) (869) (840) (4,988) (2,171) (703) (894) (3,768)
Operating Profit/(Loss) for the year 567 (117) (199) 251 (41) (211) (259) (511)
Adjusted EBITDA(1) 1,929 218 125 2,272 866 30 57 953
Total Assets 14,919 508 981 16,408 14,754 503 969 16,226
Total Liabilities (7,195) (245) (473) (7,913) (7,171) (244) (472) (7,887)
3. 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.
2023 2022
£'000 £'000
Net profit/(loss) for year 50 (701)
Adjustments:
Interest 203 56
Depreciation & amortisation 1,809 921
Tax (2) 134
Adjusted profit for the year 2,060 410
Number Number
Weighted average shares in issue for basic earnings per share 1,056,512,226 718,622,464
Weighted average dilutive share options and warrants 106,858,613 62,247,272
Average number of shares used for dilutive earnings per share 1,163,370,840 780,869,736
Pence Pence
Basic profit/(loss) per share 0.005p (0.098)p
Diluted profit/(loss) per share 0.004p (0.090)p
Adjusted basic earnings per share 0.19p 0.06p
Adjusted diluted earnings per share 0.18p 0.05p
4. Intangible assets
Group Goodwill Customer List Total
£'000 £'000 £'000
Cost
At 1 October 2021 3,046 1,175 4,221
Additions 2,836 5,395 8,231
As at 30 September 2022 5,882 6,570 12,452
Fair value adjustment 1,237 - 1,237
Additions - - -
As at 30 September 2023 7,119 6,570 13,689
Amortisation and impairment
As at 1 October 2021 1,106 147 1,253
Amortisation charge for the year - 743 743
Impairment charge 567 - 567
As at 30 September 2022 1,673 890 2,563
Amortisation charge for the year - 1,643 1,643
As at 30 September 2023 1,673 2,533 4,206
Carrying amount
As at 1 October 2021 1,940 1,028 2,968
As at 30 September 2022 4,209 5,680 9,889
As at 30 September 2023 5,446 4,037 9,483
The goodwill relates to intangible assets that do not qualify for separate
recognition on the acquisition of LaddersFree during the prior year and
previously, Fidelis and the REACT specialist cleaning services business.
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.
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
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