REG - React Group PLC - Half-year Report
30/06/2022 07:00
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RNS Number : 6915Q React Group PLC 30 June 2022
30 June 2022
REACT Group plc
("REACT", the "Group" or the "Company")
Half Year Results FY 2022
Investor Presentation
REACT Group plc (AIM:REAT.L), the leading specialist cleaning, hygiene and
decontamination company announces its unaudited results for the six-month
period ended 31 March 2022.
Financial Summary
HY 2022 HY 2021
Revenue (£'000) 5,125 2,509
Gross profit (£'000) 1,156 1,018
Gross profit margin 22.6% 40.6%
EBITDA (£'000) 133 100
Adjusted EBITDA (£'000)* 162 369
Net (loss)/profit for the period (£'000) (92) 74
(Loss)/earnings per share (basic) (pence) (0.02) 0.01
Earnings per share (adjusted) (pence) 0.03 0.07
Net cash (£'000) (43) 771
*Adjusted EBITDA represents earnings before separately disclosed acquisition
costs (as well as before interest, tax, depreciation and amortisation).
Highlights (including post period highlights):
· Revenue increased by 104% to £5,125 (2021: £2,509)
· As anticipated, lower margins to focus on more dependable long-term
visibility of recurring revenues and profits, in strong and resilient markets
and increased overheads following the acquisition of Fidelis
· Multiple contract wins in the education, hospital, manufacturing and
housing sectors, including the £1m per year, 5-year contract in the health
sector, announced on 13 January 2022
· Continued growth in the contract maintenance part of the business,
which represents 63.8% of H1 revenue
· Reactive work gradually returning to normal following removal of lock
down restrictions, particularly in the healthcare sector
· Appointment of two senior sales and marketing professionals
· Placing to raise £5.5m to strengthen the balance sheet and support
the Company's stated acquisition growth strategy and general working capital
purposes
· Acquisition of LaddersFree Ltd., an established nationwide commercial
window, gutter and cladding cleaning business, for a total consideration of up
to £8.5 million on a debt-free and cash-free basis
· Agreed a 5 year £1.0 million loan to further strengthen the
Company's balance sheet and assist with normal business cashflow fluctuations
Investor Presentation
REACT GROUP PLC is pleased to announce that Mark Braund, Shaun
Doak and Andrea Pankhurst will provide a live presentation relating
to Interim results via the Investor Meet Company platform on 12 July 2022
at 1:30pm BST.
The presentation is open to all existing and potential shareholders. Questions
can be submitted pre-event via your Investor Meet Company dashboard up until
9am the day before the meeting or at any time during the live presentation.
Investors can sign up to Investor Meet Company for free and add to meet REACT
GROUP PLC via:
https://www.investormeetcompany.com/react-group-plc/register-investor
(https://protect-eu.mimecast.com/s/yFA3CgmlFrWOJHNSy-q?domain=investormeetcompany.com)
Investors who already follow REACT GROUP PLC on the Investor Meet Company
platform will automatically be invited.
Commenting on the results Shaun Doak, Chief Executive Officer of REACT, said:
"A strong period of growth specifically in the strategically important
contract maintenance segment of our business. Once a small part of our
business, contract maintenance now dominates the landscape. Whilst margins
are more modest than in the reactive component of our business, it provides
long-term visibility of recurring revenues and profits, in strong and
resilient markets.
The reactive segments of our business were relatively static as the country
moved out of lock down during H1, although we are beginning to see signs of
these segments returning to pre-pandemic levels during H2.
I am delighted to welcome two new senior sales and marketing professionals to
the team; both have already made a positive impact winning incremental new
contracts and building a pipeline of sales opportunities stronger than we have
seen before.
Whilst mindful of the economic outlook, H2 has had a strong start with the
acquisition of LaddersFree, announced on 16 May 2022. The acquisition is of
significant strategic importance, and following successful integration,
LaddersFree is performing in line with management expectations. LaddersFree's
revenues during the months of May and June (post completion of the
acquisition) have been strong and they look set for a record period of
performance.
Combining all these aspects, the outlook remains positive.
On behalf of the Board, I would once again like to thank all my colleagues for
their ongoing support, commitment, tenacity and quality of work."
For more information:
REACT Group Plc
Shaun Doak, Chief Executive Officer Tel: +44 (0) 1283 550 503
Andrea Pankhurst, Chief Financial Officer
Mark Braund, Chairman
Singer Capital Markets
(Nominated Adviser / Broker)
Will Goode / Amanda Gray (Corporate Finance) Tel: +44 (0) 207 496 3000
Rachel Hayes (Corporate Broking)
IFC Advisory
(Financial PR / IR)
Graham Herring / Zach Cohen Tel: +44 (0) 20 3934 6630
This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law
by virtue of the European Union (Withdrawal) Act 2018 ("MAR"). Upon the
publication of this announcement via the Regulatory Information Service, this
inside information is now considered to be in the public domain.
RESULTS SUMMARY & STRATEGY
Strategy
During the six months to 31 March 2022, REACT has continued to grow,
especially in the strategically important contract maintenance segment of the
business.
The drive towards higher levels of recurring revenues, secured by
inflation-linked multi-year contracts in some of the most resilient segments
of the market including healthcare, education and rail, began a little over a
year ago.
The contract maintenance business represents long-term recurring revenue where
customers typically commit to buy our services for a period of between 3 and 7
years, with price increases written into each contract to cover typical
wage-inflation pressures.
In addition to multiple new contract wins, the successful acquisition of
Fidelis Contract Services ("Fidelis"), a contract cleaning and facilities
maintenance business, in March 2021, has helped to drive revenues strongly
during the period.
H1 has been a strong period of winning new contracts, including the £1m per
year, 5-year contract in the healthcare sector, as announced on 13 January
2022. Several of these contracts are set to start in H2 after a period of
mobilisation during H1, therefore margins have been temporarily impacted
whilst cost preceded revenue.
Contract maintenance
While the contract maintenance segment of our business once generated a small
proportion of revenue, it has grown by more than four-times since 31 March
2021, from £764k to £3,268k, and is forecast to increase further.
Contract reactive
Reactive work is broken down into two segments:
· Contract reactive, where REACT is the contracted 'on-call' provider
dealing with incidents requiring specialist and/or emergency cleaning; and
· Ad hoc (or one-off projects)
During H1, the Group's higher margin reactive work was less predictable,
although since lockdown measures began to lift, we have seen signs of
normality returning to this part of the market and we expect this to continue
going forward. This part of the business benefited from an increase in work
in the healthcare sector however, this was offset by a reduction in work
coming from other sectors, including the judiciary (cells, transportation
vehicles, court rooms, etc.). Certain changes to working practices introduced
during lockdown (e.g. digital virtual hearings) may continue and may therefore
reduce demand for some of these services going forwards.
Ad hoc
By its very nature, the ad hoc or one-off project sector of our business is
less predictable. Although the Group's presence continues to grow in this
space, revenues remained at a similar level to the prior year. Customers,
perhaps weary of the high cost of Covid, became more price-sensitive with some
choosing to postpone work in the more discretionary areas of operation, e.g.
graffiti removal and void clearances. The combination of these; price
sensitivity and postponed demand, placed pressure on margins, although we
expect this to be temporary.
People
As an ambitious growing business, we continue to take steps to invest; we have
strengthened our sales and marketing capability with two new senior hires
during the period. Sam Haywood joined as Head of Group Business Development,
overseeing group sales, and Chris Ryan joined as Sales Manager of Fidelis.
Whilst this has increased cost during H1, the contribution of these
individuals is already beginning to have an impact, with both recruits
achieving success in building a pipeline of over 40 opportunities currently
marked as live as well as new contract wins where the Group would previously
not have had the capacity to source the opportunity and convert into business.
In addition, the Group operates highly personalised training and development
initiatives and, as a result, has been able to evolve the roles of a number of
key individuals and promote from within.
REACT's service delivery is provided by people who are considered experts in
their field, supported by a dedicated customer-centric team, who have
continually adapted to the daily challenges of both lock-down and post-lock
down periods. The strength of the H1 results is underpinned by the efforts
of the entire team and is testament to the superb culture everyone has
contributed to cultivating.
On behalf of the Board, I would once again like to thank all of our colleagues
for their commitment, resilience, and quality of work.
Post period end
On 14 April 2022, REACT raised gross proceeds of approximately £5.5 million
(the "Placing") in order to strengthen the Group's balance sheet to support
the stated acquisition growth strategy and general working capital purposes.
The related resolutions were passed by shareholders at the General Meeting on
5 May 2022.
Following the Placing, on 12 May 2022, REACT announced that it had completed
the acquisition of LaddersFree Ltd. ("LaddersFree"), an established nationwide
commercial window, gutter and cladding cleaning business, for a total
consideration of up to £8.5 million. LaddersFree, the Group's second
acquisition, operates a highly attractive business model and represents an
important step in REACT's growth strategy.
Post period end, REACT entered into a 5-year £1.0 million loan with Arbuthnot
Latham to further strengthen the Company's balance sheet and assist with
normal business cashflow fluctuations. The loan is secured over the Company's
assets and attracts interest at 5.25% above Base Rate per annum.
Summary and outlook
I am delighted to report that H2 has started well, with the contract
maintenance segment of our business continuing to report record trading
months. The long-term contracts won and mobilised during H1 are beginning to
deliver revenue in H2 as expected. In addition, the following opportunities
have been secured post period end:
· three contract wins in the education sector across four sites with a
total value of approximately £798k. Of these, 2 contracts have 3 year terms
with a combined total value of c. £760k and the third contract is for a total
value of c. £38k over 1 year;
· c.£185k of Commercial Office contract maintenance work across two
sites, both issued as three year agreements;
· c.£300k of Ad-Hoc (opportunities larger than £45k each) across the
Education and Hospitality sectors; and
· c.£310k of Healthcare contract maintenance work across two sites,
one issued over three years and the larger over two with the option of an
additional year.
In addition, the Company has seen an increase in the level of reactive work
during H2 2022 and following an increase in sales and marketing activity, the
opportunity pipeline is steadily growing.
The acquisition of LaddersFree is expected to make a material contribution to
the Group's performance in H2 and beyond. The integration with the Group has
been efficient, and the values and work culture of LaddersFree are aligned to
those of REACT Group. Therefore, activity across the LaddersFree business has
been largely uninterrupted and revenues during the months of May and June have
been exceptionally strong.
Combining all of the above, we are trading in line with management
expectations and are pleased to report a solid outlook for the remainder of
the year.
Shaun Doak
Chief Executive Officer
30 June 2022
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 31 March 2022
Unaudited Unaudited Audited
6 months ended 31 March 2022 6 months ended 31 March 2021 Year ended
30 September 2021
Note £'000 £'000 £'000
Continuing Operations
Revenue 5,125 2,509 7,701
Cost of Sales (3,969) (1,491) (5,332)
Gross Profit 1,156 1,018 2,369
Other operating income - 2 19
Administrative expenses (1,241) (971) (2,274)
Acquisition and restructuring costs included in administrative expenses 5 (29) (269) (417)
Operating (loss)/profit (85) 49 114
Finance (cost)/income (3) - 16
Corporation tax (charge)/credit (4) 25 259
(Loss)/profit for the period (92) 74 389
Other comprehensive Income - - -
(Loss)/profit for the financial period attributable to equity holders of the (92) 74 389
company
Basic and diluted profit per share 6
Basic (loss)/earnings per share (0.02)p 0.01p 0.08p
Diluted (loss)/earnings per share (0.02)p 0.01p 0.07p
Adjusted basic earnings per share 0.03p 0.07p 0.08p
Adjusted diluted earnings per share 0.03p 0.07p 0.07p
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 March 2022
Unaudited Unaudited Audited
As at 31 As at 31 March 2021 As at 30
March September 2021
2022
Assets Note £'000 £'000 £'000
Non-current assets
Intangibles - Goodwill 4 1,854 2,050 1,940
Intangibles - Other 4 881 1,756 1,028
Property, plant and equipment 168 180 176
Right-of-use assets 68 118 95
Deferred tax asset 240 - 244
3,211 4,104 3,483
Current assets
Stock 10 9 12
Trade and other receivables 2,305 1,781 2,099
Cash and cash equivalents (43) 771 633
2,272 2,561 2,744
Total assets 5,483 6,665 6,227
Equity
Shareholders' Equity
Called-up equity share capital 1,270 1,270 1,270
Share premium account 6,028 6,028 6,028
Reverse acquisition reserve (5,726) (5,726) (5,726)
Capital redemption reserve 3,337 3,337 3,337
Merger relief reserve 1,328 1,328 1,328
Share based payments 33 12 23
Accumulated losses (3,564) (3,787) (3,472)
Total Equity 2,706 2,462 2,788
Liabilities
Current liabilities
Trade and other payables 2,309 2,342 2,598
Lease liabilities within one year 46 64 54
Corporation tax - 63 80
2,355 2,469 2,732
Non-current liabilities
Lease liabilities after one year 30 61 49
Other creditors 392 1,673 658
422 1,734 707
Total liabilities 2,777 4,203 3,439
Total Liabilities and Equity 5,483 6,665 6,227
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended 31 March 2022
Unaudited Unaudited Audited
6 months ended 6 months ended Year
31 March 2022 31 March 2021 ended
30 September 2021
£'000 £'000 £'000
Net cash inflow from operations 7 408 432
Cash flows from financing activities
Proceeds of share issue - - 200
Expenses of share issue - - -
Lease liability payments (27) (15) (39)
CBIL Loan (50) - 67
Net cash (outflow)/inflow from financing (77) (15) 228
activities
Net cash from investing activities - - 6
Disposal of fixed assets
Capital expenditure (64) (33) (71)
Acquisition of subsidiary (525) (1,345) (1,930)
Exceptional acquisition costs paid (17) (27) (200)
Net cash outflow from investing activities (606) (1,405) (2,195)
Net decrease in cash, cash (676) (1,012) (1,535)
equivalents and overdrafts
Cash, cash equivalents and overdrafts at 633 1,783 1,783
beginning of period
Cash on acquisition of subsidiaries - - 385
Cash, cash equivalents and overdrafts at end of period (43) 771 633
Analysis of cash, cash equivalents and overdrafts:
Cash at bank and in hand 214 771 633
Overdrafts (257) - -
(43) 771 633
Reconciliation of profit for the period to cash outflow from operations
Unaudited Unaudited Audited
6 months 6 months ended Year
ended 31 March 2021 ended
31 March 30 September 2021
2022
£'000 £'000 £'000
(Loss)/profit for the period (92) 74 389
Decrease/(increase) in stocks 2 - (12)
Decrease/(increase) in receivables (206) 301 (1,010)
(Decrease)/increase in payables 38 (167) 655
Depreciation and amortisation charges 219 51 264
Finance costs/(income) 3 (25) (16)
Tax charge/(credit) 4 - (259)
Acquisition assets acquired (excluding cash) - - 95
Exceptional acquisition costs 29 177 323
Profit on disposal of fixed assets - - (5)
Share based payment 10 (3) 8
Net cash inflow from operations 7 408 432
Consolidated Statement of Changes in Equity
For the six months ended 31 March 2022
Share Capital Share Merger Relief Capital Reverse Share Based Payments Accumulated Deficit Total Equity
Premium Reserve Redemption Acquisition Reserve
Reserve Reserve
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 30 September 2020 1,246 5,852 1,328 3,337 (5,726) 15 (3,861) 2,191
Issue of shares 24 176 - - - - - 200
Share based payments - - - - - (3) - (3)
Profit for the period - - - - - - 74 74
At 31 March 2021 1,270 6,028 1,328 3,337 (5,726) 12 (3,787) 2,462
Issue of shares - - - - - - - -
Share based payments - - - - - 11 - 11
Profit for the period - - - - - - 315 315
At 30 September 2021 1,270 6,028 1,328 3,337 (5,726) 23 (3,472) 2,788
Issue of shares - - - - - - - -
Share based payments - - - - - 10 - 10
(Loss) for the period - - - - - - (92) (92)
At 31 March 2022 1,270 6,028 1,328 3,337 (5,726) 33 (3,564) 2,706
Notes to the interim financial statements
1. Basis of preparation
These consolidated interim financial statements have been prepared in
accordance with International Financial Reporting Standards ("IFRS") as
adopted by the European Union and on a historical basis, using the accounting
policies which are consistent with those set out in the Group's annual report
and accounts for the year ended 30 September 2021. The interim financial
information for the six months ended 31 March 2022, which complies with IAS 34
'Interim Financial Reporting' were approved by the Board of Directors on 30
June 2022.
The unaudited interim financial information for the six months ended 31 March
2022 does not constitute statutory accounts within the meaning of Section 435
of the Companies Act 2006. The comparative figures for the year ended 30
September 2021 are extracted from the statutory financial statements which
have been filed with the Registrar of Companies and contain an unqualified
audit report and did not contain statements under Section 498 to 502 of the
Companies Act 2006.
2. Principal Accounting Policies
The principal accounting policies adopted are consistent with those of the
annual financial statements for the year ended 30 September 2021.
3. Segmental Reporting
In the opinion of the Directors, the Group has one class of business, being
that of specialist cleaning and decontamination services. Although the Group
operates in only one geographic segment, which is the UK, it has also analysed
the sources of its business into the segments of Contract Maintenance,
Contract Reactive or Ad Hoc work. The assets and liabilities which have
generated the revenues and profits for the prior period are those of the Group
excluding Fidelis, therefore the comparative assets and liabilities reported
within the segmental analysis differ from those reported in the Consolidated
Statement of Financial Position.
2021/2022 2020/2021
Contract Contract Ad Hoc Total Contract Contract Ad Hoc Total
Maintenance Reactive Work Maintenance Reactive Work
Work Work Work Work
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue 3,268 933 924 5,125 764 802 943 2,509
Cost of Sales (2,748) (652) (569) (3,969) (492) (530) (469) (1,491)
Gross Profit 520 281 355 1,156 272 272 474 1,018
Administrative Expenses (558) (302) (381) (1,241) (259) (259) (451) (969)
Operating Loss/(profit) for the year (38) (21) (26) (85) 13 13 23 49
Total Assets 2,466 1,334 1,683 5,483 872 873 1,520 3,265
Total Liabilities (1,249) (675) (853) (2,777) (214) (215) (374) (803)
4. Business combinations impact
On 26 March 2021, the Group acquired 100% of the issued share capital and
voting rights of Fidelis Contract Services Ltd ('Fidelis'), a successful
commercial cleaning, hygiene and facility support services company
headquartered in Birmingham providing services to customers across England and
Wales. The acquisition is expected to increase the group's market share and
reduce costs through economies of scale.
Fidelis was acquired for an initial consideration of £1.7m, payable as £1.5m
cash and £0.2m through the issue of new ordinary shares, with contingent
consideration of up to £3.05m payable subject to Fidelis fulfilling certain
profit criteria.
The fair value of the acquired customer list and customer contracts was
estimated at 31 March 2021 and at 30 September 2021. The goodwill arising on
the combination can be attributed to the synergies expected to be derived from
the combination and the value of the workforce of Fidelis which cannot be
recognised as an intangible asset. As at 31 March 2022, the fair value of
the contingent consideration arrangement has been recalculated based on the
performance of Fidelis since the date of acquisition and the present value of
the future expected cash flows.
As a result of the above, costs payable in connection with the acquisition of
Fidelis are expected to be £5,000 lower than originally estimated. This
reduction in costs has been credited to administrative expenses as shown in
note 5.
The reassessment of the fair value of the final deferred consideration payable
has resulted in changes in the total Consideration and Goodwill valuations.
Unaudited Unaudited Audited
6 months 6 months ended Year
ended 31 March 2021 ended
31 March 30 September 2021
2022
£'000 £'000 £'000
Fair value of identifiable net assets acquired 480 483 480
Separately identifiable intangible assets 1,175 1,756 1,175
arising on business combination
Goodwill 1,680 1,876 1,766
Total Value of Acquisition 3,335 4,115 3,421
Initial consideration 2,014 2,013 2,014
Deferred Consideration 1,321 2,102 1,407
Total Consideration 3,335 4,115 3,421
5. Acquisition and restructuring costs included in
administrative expenses
Unaudited Unaudited Audited
6 months 6 months ended Year
ended 31 March 2021 ended
31 March 30 September 2021
2022
£'000 £'000 £'000
Acquisition (income)/costs - Fidelis (5) 177 323
Acquisition costs - other 34 - -
Management restructure costs - 92 94
29 269 417
6. Earnings per Share (basic and adjusted)
The calculations of earnings per share (basic and adjusted) are based on the
net profit and adjusted profit respectively and the ordinary shares in issue
during the period. The adjusted profit represents the EBITDA for the period.
Unaudited Unaudited Audited
6 months 6 months ended Year
ended 31 March 2021 ended
31 March 30 September 2021
2022
£'000 £'000 £'000
Net (loss)/profit for period (92) 74 389
Adjustments:
Interest 3 (25) (16)
Depreciation and amortisation 219 51 264
Tax 4 - (259)
Adjusted profit for the period 134 100 378
Number Number Number
Weighted average shares in issue for basic earnings per share 508,006,026 498,665,889 503,348,752
Weighted average dilutive share options and warrants 62,247,272 62,247,272 62,247,272
Average number of shares used for dilutive earnings per share 570,253,298 560,913,161 565,596,024
pence pence pence
Basic earnings per share (0.02)p 0.01p 0.08p
Diluted earnings per share (0.02)p 0.01p 0.07p
Adjusted basic earnings per share 0.03p 0.02p 0.08p
Adjusted diluted earnings per share 0.02p 0.02p 0.07p
Copies of this Interim Report are available from the Company Secretary, 115
Hearthcote Road, Swadlincote, Derbyshire DE11 9DU and on the Company's website
www.reactsc.co.uk/react-group-plc (http://www.reactsc.co.uk/react-group-plc)
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