React Group (LSE:REAT) — Company Update

0:01 Good afternoon ladies and gentlemen and welcome to the REACT GROUP PLC company update investor presentation. Throughout this presentation investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Simply type in your question and press send. The company may not be in a position to answer every question received during the meeting itself. However, company review all questions submitted today and publish responses where appropriate to do so. These will be available via your Investor Week company dashboard and will be notified once they're ready for you to review. I'd also like

0:32 to remind you this presentation is being recorded. Sorry for the slight delay in starting today. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Sean Doakes, CEO Andrea Kirst, CFO and Mark Braun, Chairman. Good morning. Good morning. Thank you. Good morning, Thanks for the introduction. If we just go straight into slide one, Paul. Okay, so I'm not going to spend too much time on this slide because I'm conscious that we've covered it various times on previous presentations on this platform, but I'll just give you a little overview of what we're all about here at REACT. So REACT carry out specialist cleaning and decontamination work that others aren't qualified to do, or they simply don't want to. You'll see some photographs on the slide there just gives you an understanding and a little bit of flavor of some of the sectors that we work within. So we've got the hospital healthcare, we've got the roads, we've got the crime scene and the housing associations and also the rail. And below that, you've got a number of logos just to give you an idea of some of the clients that we work with throughout The UK.

1:40 So obviously the work that we undertake has tangible value. The cost of not being able to operate a train or open a hospital ward or occupy a commercial property is material. And that's the reason why we're valued by our customers and we operate at higher margins than regular office janitorial cleaning. Now the addressable market is huge. It's fragmented supply chain, which they're beginning to consolidate. And we believe that here at REACT, we're beginning to lead that process. So all in all, we're a specialist business. We've got some strong customer relationships, some good margins and high potential

2:19 for growth. I'm going to pass you over to Angie who'll give you an overview of slide two. Thank you, Sean. So I'm just going to cover some highlights of our first half of twenty twenty-twenty twenty one. We've had a very successful first half year and we've got growth across all our sectors, including in both our contracted work and our more one off project streams. We've continued during the half year to have both negative and positive impacts relating to COVID-nineteen. Some of our customers have seen some reductions in their activities and on the other hand there's also been strong demand for COVID-nineteen decontamination and that demand is coming from both our existing customer base and new customers.

3:23 Our margins have been positively impacted by the the mix of work that we've had, and we're showing that we're reporting growth on on margins of 700 basis points.

3:40 As well as the mix of work, we've really focused on maximizing the efficiency of our resourcing for our jobs. So the decisions of whether to use our own staff or our subcontractor staff are really very much based on maximizing the margin as much as we can.

4:05 Again, as we've previously discussed, you know, we've got quite a fixed overhead base, so that increase in our gross margin during the first half has really filtered down to the EBITDA line and we're showing quite a good level of growth there from 85 k last year to 355 k this year. Then in terms of cash, obviously, during this half year, we've, had the acquisition of Fidelis just at the end of the half year, and we funded that with our own cash mainly. Mark will go into some detail on that in a few moments.

4:53 But at the end of the half year, new group had a cash balance of £771,000 so we're pleased that that is a good working capital amount to move into the second half. So continuing on our previous reports about the 2020 full year, we've continued to demonstrate growth generating profits and cash and we feel that that growth is continuing to be sustainable. I'm going to hand over to Mark now, who's going to tell you a bit more about the Fidelis acquisition. Thank you, Andre. If we move on to the next slide, please, brilliant.

5:41 So the summary of this acquisition is that what we've done is we've taken what we think is the best in class in the REACTive space, I. E. REACT, and we've married it up with what we believe is one of the best operators in the contract maintenance space. And as such, it creates a fairly unique nationwide proposition at this scale. Many of you may think of cleaning companies in the likes of Rent A Kill and PHS and OCS. These are sort of hundreds of millions, if not billions of pounds worth of revenue,

6:18 but they don't tend to get involved in the kind of work that we do, as we've described before. They tend to subcontract it to us. In our space, the market is made up of lots and lots of smaller companies, and we believe this acquisition now puts us towards the top of that group of large organizations. Again, just to give you a comparison, if you remember for those of you that saw the last presentation we did with our annual results, we walked you through the segmentation of our business. We talked about the fact that 80% of our business is recurring

6:50 in nature. Of that, about half or 40% of the overall is contract maintenance work, where we're working every day, every week, every month on a specific set of tasks, and it's very predictable in terms of what comes in. Of the other half of recurring revenue, it's REACTED, where we're the one of one supplier reacting to certain circumstances, and there's a regular trend to us. So that's the makeup of our business, with the remaining 20% being project work. With Fidelis, it's got even higher quality earnings than that. 87% of their business is contracted maintenance, so regular maintenance. They know exactly what their revenues and income is going to be every week, every month.

7:38 And what that does is obviously gives us a lot more certainty in terms of the revenue and income profile of the business going forward. The acquisition also pretty much doubles the group size. I'll talk about that in a second. Importantly, it's obviously accretive, and it is immediately earnings enhancing, and we have funded it from within our own resources. So it immediately delivers scale and creates an even stronger platform for our combined management teams now to grow further. Next slide, please. The company itself is a very successful Midlands based contract cleaning business that operates across England and Wales. They've got very strong credentials in two areas of the market that we are particularly interested in, that being education and healthcare.

8:31 Education is about 40% of their revenue. I mentioned 87% recurring revenue. This comes from largely three to five year contracts, and often those contracts come with a further potential of two years extension. So contracts can be up to seven years in length. They have a wide spread of customers, so there's customer concentration here to be concerned about. No one customer is greater than 8% of their revenue, and that's a large education establishment that's been recently won on a long term contract. And the top 10 customers is around 50% of their revenue. The business is also profitable with good cash conversion. I'll quickly pass back to Andrea to just explain to you a little bit about how they invoice and their cash collection cycle.

9:20 Andrea? Yes, thanks Mark. Yes. Fidelis invoice in advance of providing their services to their contract customers, so they'll invoice at the end of April for the May service. They offer their customers a very small settlement discount so a lot of that cash is coming in in the first two weeks of May and then they're obviously not paying their staff until the end of the month.

9:50 So it's an extremely positive debtors profile. There's very little in the older debt and a really good cash flow model. Thanks Mark. Brilliant. Thank you. So all in all, the company is a quality organization focused in a part of the market that REACT is not, and therefore coming together, there's no overlap of customers, and there's very much an opportunity for us to sell the products of each company to each other's customers. The other important thing that's often overlooked, I think, when people do acquisitions is culture fit. There's very, very strong

10:30 value proposition in this business, and the culture itself is very, very similar to our own, very much focused on service excellence and wanting to be the best there is in the business for the sake of the customers and for the sake of what we all tend to refer to as being our second customer, which is our employees and our colleagues. We want to be the best place to work and we want to be delivering the best possible service, and that's exactly what Fidelis has been set up to do over the last ten years. It's a strong market leading proposition focused on service excellence, and with a strong culture very similar to our own. On to the next slide, please. So impact of this acquisition, I've already mentioned about being accretive and immediately earnings enhancing.

11:18 Obviously, it provides us now with a sizable proposition nationwide that we're beginning to move into an area where we're one of very, very few companies that can operate this way. I've mentioned about approximately doubling the size. If you refer to the Allenby Capital's research note that was published with this acquisition, you'll see that the run rate

11:45 of revenues means that we're running at just over £10,000,000 worth of revenue. The blended margins are around 33%. This is a high margin business for what it does, and our earnings are tracking towards $1,150,000 which means that we are reaching that target we said we were aiming for, which is double digits in terms of operating profit margins. We'll be up at around 11. I think the other key thing to mention, this is not about being big for big sake, because obviously we're not This big compared to a rent a is about giving confidence to customers that we can take on larger and larger contracts. We've been quite successful, so as Hodelis, convincing the old customer that we're big enough to do million pound type opportunities.

12:35 As we begin to broach that sort of £10,000,000 turnover size and scope, you look at the employee base now that's getting on for 400 plus resources, it will open the door to larger opportunities and provide us with a much more credible

12:52 proposition to go compete against the big boys for those larger contracts. And as a result, I think this acquisition materially enhances the platform for both organic growth and further acquisitions. So if you can move on to the next slide, please. Terms of the acquisition. So the terms are set at 4.75 times EBITDA. That's what we're going to pay on a cash free, debt free basis. They have this financial year their financial year end is March 31. They've just finished last year, which gave us the confidence to give them some cash upfront. But we are striking the deal based on their performance year ending 03/31/2022.

13:44 Initial consideration of $1,700,000 is well documented, dollars 1,500,000 in cash, which came from our bank account and $200,000 in shares at 2.1p per share. This is for Lloyd Anzamoz, who is the owner or was the owner of Fidelis. He's joined the management team along with the management team from Fidelis. Everybody's carrying on. They see this as an exciting opportunity. That 2.1p per share was set on the basis of the average close price, midpoint price for the five days previous, and it actually represents about a 6% premium on the day. Lloyd is locked in for twenty four months, although I think like me, he sees this being a slightly longer opportunity than twenty four months, but he's locked in.

14:36 There is deferred consideration up to 3,050,000, which will be settled in cash and paid in installments, but that's all based on them achieving a 1,000,000 EBITDA in this coming financial year. Now please, please, that is not a forecast. It's just the technicalities of the deal, and it's the cap on the deal that we are capping the deal at $4,750,000 And in order for them to be paid that, they need to do £1,000,000 worth of EBITDA. So hence, the fact that we've obviously stated transparently what the deferred consideration could be in total if they achieve that £1,000,000 EBITDA. It is paid in installments, and it's paid in installments throughout the period right up to the 03/29/2024.

15:23 And therefore, we have great confidence that this deal can be afforded within this accretive acquisition can be funded through a combination of existing cash and future earnings. That's it in terms of the acquisitions, what I want to say there. I'll pass you back now to Sean. Yes. Thanks, Mark. So in summary, look, we're a specialist business. As I said earlier, we operate in a fragmented market and we are driving to become the market leader. We want to be that 800 pound gorilla within this space. We've got some really good customer relationships, some good margins and high potential for growth. Our strong financial performance continues through into 2021, and we're confident in delivering sustainable growth, profit and cash generation.

16:15 As Mark said, the maiden acquisition of Fidelis, it materially expands the the scope and the scale of the business, and it allows us to tender for much bigger opportunities further downstream. As Mark said, it was accretive, it was immediately earnings enhancing, and more importantly, was funded through our own resources. And we provide even stronger platform for which to grow shareholder value, both organically and through carefully targeted M and A.

16:46 Brilliant, Sean. Now there's a handful of questions, which we're going to attempt to answer. So far, I think we can probably answer all of them. But this is where my colleagues tend to get their own back on me because it's mostly about the acquisition. But probably going to be me doing most of the talking. So apologies if that's not what you thought. But anyway, let me have a go. Let me go through them in order. So a person by the name of Peter D asked the first question, which is there a cost of integrating the IT system of Fidelis with that of REACT? Now actually, might pass this in a second for comment to Andrea, but the fact is that when you're operating a business like REACTZ, we effectively have two types of business models.

17:39 We have the business model that is a bit like Fidelis, where we're doing contracted maintenance, people are turning up on the day they're supposed to be there every week or every month. And that's one type of process. And the other process is about being reactive. You'll know that we pride ourselves as being probably one of very, very few companies, if any, that can deliver a reactive service within four hours of a call, twenty fourseven, three sixty five days a year. For that, you need a different type of workflow. And with that workflow, you therefore need other types of systems. And I think as such, to answer the question very specifically, was there a cost of integrating the IGs? We don't intend to integrate our systems together. They are two very different systems that operate in a different way.

18:29 The maintenance business that sits within REACT may well, at the right time, sit better on the platform that Fidelis is running for that style of business. And that's something that we'll look at. But right now, it's happening and is very operationally effective as it stands. However, the REACTIVE one is not something that's relevant to the Fidelis business. It's something that's very focused on our REACTIVE side. And on operational IT point of view, I'll talk about accounts in a second, that's very much a tool in of itself. From an accounting point of view, that's an integration process. It is very straightforward. And maybe I should just quickly pass to you, Andrea, to talk a little bit about what we're doing on IT systems operationally for the REACTED business and also briefly about the integration of accounting systems.

19:18 Yes, so we've previously had several systems that helped us manage the business, but they weren't particularly integrated.

19:30 We've had a project ongoing for the last few months to, start using a job management system called JobLogic, and we've we've got that up and working now, which is gives us a much more integrated and efficient solution than we had in the past.

19:50 As Mark has said, the Dallas have got their own systems that work well for what they need and we definitely are not going to make changes for change sake. If things are working, I I really don't see a reason to change them. Again, on on the account side, you know, we've got our own account system and so have they, and I just think as time goes on, we will consider whether or not we need to integrate those. But I,

20:22 wouldn't want to be spending money, for the sake of feeling we just need to have one system. If if everything's working quite efficiently, I'm quite happy to carry on with the two systems for now, certainly. Brilliant. Thank you. I think it does also raise a comment from me, which is that

20:45 this is bringing two businesses that have an operational model that are similar in parts, but not in others, together and maximizing our effectiveness and efficiency in the two areas of business. There are lots of our contract maintenance customers that need REACTIVE support, And there are also a lot of our REACTIVE customers that need maintenance support. And that's the thesis here. We've now got what we believe is best in class in both, and both these businesses are going to work together for the customer's benefit. The back office systems are really going to be driven around what kind of work we do for the benefit of the customer rather than anything else. So this is not about trying to create technology synergies. We just don't think our size that is necessary. Doesn't give us the benefit or the gain.

21:32 Where we want to see synergies is in terms of engagement with customers, and that we will see over time. The question from Michael T. Was very similar, asking about what have been the integration challenges.

21:45 There are none, basically. We have two teams that are operating. We've got a team in Fidelis that have obviously got an earn out year, so we need to make sure we're not going to unnecessarily unpick some of the things that they do. But this is very consistent with work we've done, or I've done in the past, where we want to make the bringing together of two businesses about the highest common denominator rather than the lowest common denominator, and it's about making sure that we make one plus one equal more than two through growth opportunities with that combination. So at the moment, all these both businesses have taken this acquisition very, very well. The management teams on both sides are extremely motivated for success, and they see the addition of the two businesses together as being an entirely positive thing, and it's going extremely well so far.

22:44 Another question from Michael T. Is, Do we have a list of other potential acquisitions? If there was a good company available tomorrow, could we buy it? So first half of the question is, we have a potential list, but this is like lifting rocks and finding either frogs or princes. You only find a prince every now and again. So there is a lot of work went into

23:08 picking up rocks and putting them down again before we found Fidelis. And we're continuing that work. And what I will say though, is that the platform that Fidelis now give us means that we can broaden our scope a bit. And what I mean by that is that I think that there are two types of acquisitions we might be tempted to look at. One is if there is a true specialist out there covering an area that we don't today, that our customers that we work with today need, then that might be a target for an acquisition. Otherwise, I see organic growth being the main driver, this consolidation of the market being the main driver for acquisitions in that space. In terms of contract maintenance business, what Fidelis give us, we really scrutinized this hard over the last six months. They have got genuinely a best in class approach. So it does give us the opportunity to take other businesses and buy their customers from them and integrate it underneath the Fidelis banner. So we're not looking at having a group of 25 different logoed companies. We're very much looking at

24:14 having one business with this REACTIVE and contract maintenance business being a driver. And unless we find anything better, I don't think we will, then we're going to be continually modifying our model and integrating things underneath it. If there was a good company available tomorrow, could we buy it?

24:34 This might be that this is part of Michael T's question, but there's also another question here from Nick, Nick Jay, saying, With the great repeat business you have, will you look to self fund further acquisitions and are the banks more forthcoming with debt funding? So let's answer both Michael and Nick's question here.

24:58 We have got cash resources. We have not touched the invoice discounting facility that we have through Skipton Business Finance. And we think that with now the expanded sales ledger that we have and the quality of business and the cash collection profile, that actually we could borrow in a sort of non commented environment using an ID facility, a fair chunk of change. So we could possibly manage a deal of some size, again, with our own cash resources. Have we started to look yet at other forms of finance through the banks? No, we haven't yet. We're only just sort of swallowing this deal, knowing we could do it from our own resources.

25:47 We know we could do another one. If something came up that was bigger that required some form of structured debt, then we would certainly begin to look at that. And it is something that we'll obviously make sure we're prepared for. But I guess to answer the question from Michael, if there was a good company available tomorrow, could we buy it? The answer is probably yes, depending on how big. To answer Nick's question about can we self fund further acquisitions and is there debt available? We've got invoice discounting already. Could we get more? The answer is almost certainly yes, but we're not investigating it just yet. Will do. Aslam L

26:33 asked a question, what was the reason for Fidelis wanting to sell up? I think, again, I'm going to take that because obviously I've been mainly involved in the acquisition. And by the way, Sean and Andrea have been very, very involved operationally, and obviously Andrea with all the due diligence and Sean too with the contractual due diligence, but I'm probably best placed to look at it from the whole. Lloyd has been in the business for ten years, and he is very, very ambitious. He wants to see the Fidelis name and Fidelis business grow, and I think he just felt that he needed a partner to help make that happen. And that would be a stated reason.

27:18 We will get him on the next investor meet, I think, if there's an opportunity, so that he can answer these questions himself. But very much he's been looking for a partner to grow the business, and we've convinced him that we're the right partner,

27:37 and now we're working together. That was his reason. Question from Adrian G. Correctly, question is coming through pick and pass now. And Paul, please keep me honest in terms of timing here. If we need to shut down and answer some of these later, let me know.

27:56 Are you happy to use loan facilities to make further acquisitions in near future? Can you make another one from existing cash resources, even given the deferred consideration to be paid? So I think I've answered that, Adrian. The answer is yes and maybe. It all depends on the deal

28:10 and what it is, but we have got some firepower left to be able to do something, but we also see organic growth as a major player here for both businesses, so we shouldn't forget that. This is not just about M and A. We want to continue to see underlying growth, we've got great operational capability, thanks to Sean and Andrea, that will allow us to do that. So

28:35 yes, we've got the resources to be able do another deal should we find one. How long will this is from Dion S. How long will Lloyd Anzemos remain with the group?

28:45 What were the net assets of Fidelis acquired? Will Fidelis operate separately until the end of the buyback period? Right. I'll answer the first and the last one. Andrew, if you just be thinking about the net assets acquired, and I'll come back to you. So how long will Lloyd Anzemoz remain with the group? He's intent on staying here. Certainly, he's contracted, but has the desire to stay here well on to the 03/31/2024, which is in three years' time. And in the dialogue that I've had with him before, during and now, which is regular Sean has the same dialogue he's keen to keep going.

29:34 Is no it's not a piece of string. How long is a piece of string? He's here, and he's contracted to be here, but he's also committed to be here for at least the next two or three years, and I think it will be longer than that, especially if we can start to use the Fidelis business model that he's developed and created as our platform for that side of the business. Will Fidelis operate separate until the end of the buyback period? Very much there's a flavor that they'll be operating their business under their own control, but with our oversight, as you'd expect. However, and I would also say to you and this isn't just about this deal, is how I think deals should be done, is operating to this highest common denominator, and therefore it should be about pull rather than push. In other words, the opportunities that REACT can bring to help Fidelis grow faster are things that we want to put in front of them and let them pull them in rather than we tell them we're going to push them in. And that's already happening quite well. We're already integrating our management meetings and strategic meetings.

30:37 As I say, Lloyd and I speak twice a week. Sean speaks with Lloyd and the rest of the management team on a regular basis. So they absolutely have to have, as you would imagine, any SPA, which has got an earn out period, the control of their own destiny for the next twelve months. But they're looking at it with the same optics as we are. They want to grow, and they want to grow the group. So I'm actually confident that's a good place to be. Net assets, Andrea, any comments in terms of what net assets were you acquired? Well, I mean, I'm not trying to dodge the question, but we're very much in a process of working on the completion accounts at the moment.

31:23 Of course. And you know there are different accounting policies we need to apply because we are reporting under IFRS and they didn't previously. So I think maybe now is not the moment to answer that question because I just haven't got the final figures just yet, but obviously those accounts will be publishing our interim accounts towards the end of June and the Fidelis balance sheet will be consolidated within that. Got it, brilliant. Yeah, I shouldn't really have asked you a question. I should have known that, shouldn't I? That's where I'm talking so much. Just skipped it, but no, good point. And obviously, when we get to our interims, which we'll be publishing sometime back end of June, we'll probably have a much clearer position to report on at that point.

32:16 Dionne S, how can one as a shareholder get copies of Allenby Capital's reports? On the last meeting where we did the Q and A, and I will on this one, we put the URL or website address for access to the Allenby research. So we'll make sure that happens again here. You'll be able to get that deal. Aslam, is there any change in staff turnover as the business has been scaling up? Is this a concern for the future? What are your plans for mitigation? So, Sean, we have not really had any different in fact, we've got people applying for work all the time, haven't we? Yeah, I mean, ironically, probably in the last year, we've had people approach us on almost a daily basis, wanting to join us regardless of the position. So we don't envisage any problems moving forward with recruitment In terms of staff turnover, since Andrew and I and yourself, Mark, got involved in the business, it's been incredibly low.

33:25 The people have left and there's generally been a valid reason for that. So yeah, no issues moving forward at all, not that we can perceive right now. I think also, it's worth saying about Fidelis, who've got nearly 300 staff, they're a very stable workforce as well. I know that Lloyd is proud that the first person that worked for him when he started the business ten years ago is still working for the company. Yes, Yes, thank very good. Aslam, I'll just also follow it up with another question, which was you've said M and A is not a substitute for organic growth. Does this acquisition lead to any change in underlying organic growth that you are targeting? So this is an operational question, but I think I should answer it because it's talking about this acquisition.

34:19 Our growth at REACT, if you look at it prior to the acquisition, our strategy for growth, if you recall, is all built around the fact we think the market is consolidating, or we think it will look to consolidate when using the REACTIS services that REACT provides. And we demonstrated that with some of our customers already, how they've started to grow their use of us at the expense of using a lot of other businesses like us. And that is very much our strategy going forward. We're targeting the large users of our type of work our type of skill base and focusing on them for our organic growth.

35:05 So nothing's changed there. Fidelis, likewise, but they are very much going after larger contracts or contract maintenance business, much a sort of a bid and tender approach, which they're very competent at. That's not going to change either. It's about bringing the two together and learning from each other. I think there will be the opportunity for scaling up through some cross selling, but we haven't built that into our forecast yet. And I don't really want to distract the debtors from delivering the best possible result over the next six months or so through that, but it's already beginning to happen. So from my point of view, it doesn't change our strategy in terms of underlying organic growth. Shaun, you got anything to add to that?

35:52 No, Ling, I think you covered it. I think quite a good answer, really. Sorry. I've just Is there is a there question is a question here, Mark, from Peter D on how we measure customer satisfaction? Yep. I'd like to say that. Go for it. Great question. So at REACT, we have a blended approach, really. We utilize our new CRM system, which we implemented probably around about a year ago now, just to close the loop. So they sent an automated email after the job's finished on just basically a score matrix with comments so we can capture any issues or again, on the flip side of it, which generally happens, highlights some really good operator skill set on-site so we can make sure that we're following up through with the operator.

36:48 We also do a number of audits. I'm quite, as I said before, I'm very hands on. Dave Rudge, our operations manager. So we carry out audits on a regular basis at sites in London and certainly within the rail sector. And the sales guys under Lee Clark's stewardship, we're very hands on, sales guys are very hands on making sure follow-up calls happen and emails just to make sure that the client's happy. Was there any issues? Is there anything that we could have done better? And I think that just puts us in good stead to cross sell for further opportunities as well. With regard to Fidelis and Mark might want to come in here, but Fidelis certainly have a very robust auditing system in place. They operate very different to us simply because that, as Mark said earlier, that their work is contract maintenance. So it's a set site and a set number of employees and they run with contract managers. So the contract managers are very hands on under Ian's control as head of ops, just to have to say, you know, how the job's going, are they meeting the KPIs, are they meeting the SLAs and so on.

37:54 So, you know, as we get under the covers even more with the strategy meetings that we've got set up over the next couple of weeks, it'll be interesting to see, as Mark said, where the strengths lie, do we incorporate elements of Fidelis' audits or do they incorporate elements of ours? So it'd be interesting to move forward, but that's the way we measure customer satisfaction. Brilliant. Anything to add, Mark? Thank you, Sean. No, no, think you covered it well. Andrea, there's a question from DLS, says examples please of automation to improve operational efficiencies. I think we could be here all day if we covered the whole lot, but you might just want to pick on a couple of examples with the new technology in terms of just how it makes it a little bit more efficient compared to the of knitting we've had to do in the past with the stuff we've had?

38:47 Yes. So previously, our jobs our reactive jobs, as they came in, were logged on a sales order module of our account system, and then they were phoned through to the cleaning operative, and they were told the details. And they were also sent an email with address details and some more details about the work. They would then use another system to create a sort of job sheet that they could get signed off by the customer. And then that job sheet, would get manually attached to our order on the account system. So there was quite a lot of manual intervention needed at different stages.

39:39 The new system, the orders get logged on the new system as they come out come in. A planner can be seen of each engineer's location and what other jobs they've got booked in. So, a job can be allocated to a cleaning operator very easily and then it gets deployed to them on the same within the same system on an app on their phone so they get a notification of of the job they've got to go to. And then again once that job is, is given to them on their app, the job sheet is created. So it's, you know, I'm hoping that gives you a little picture of some of the efficiencies that it's all within one system now rather than multiple systems that we have to manually, you know, attach lots of information together and then hope that it matches and, you know, we haven't missed a digit or something and, you know, different records are getting confused.

40:43 So it, you know, I think once we saw the functionality of how it might work, was really obvious to us that it was really gonna help make things much better and more efficient. I hope that answers the question. I think it does, and I think it's also safe to say that we're just at the beginning of the process of adopting this across the business. Is that right? Yes. We've got it working mostly how we want it to. With any new system, are always little details to resolve. We, you know, there's lots of potential in the system that we can expand, and I've got sort of a list of phase two developments that we want to start using within the coming months as well.

41:32 But I think it's also partly one of the reasons why we've got confidence in being able to sustain the margins that we're working at, because this does make us more operationally efficient, and that greater operational efficiency plays into some of our cost base for jobs. So we've got confidence there. And we shouldn't forget the fact that two and a half years ago, the company was in trouble, not because the operators weren't doing a great job they're doing a great job but because the previous management team had not got to grips with some of these challenges. What you'd done is you'd used all the old systems to knit them together to make them work, and now we've replaced them or are in the process of replacing them with one consistent system. And I think the other question that might be out there has not been asked, but whenever I hear about companies spending on IT systems, I think, okay, how much are they spending? And we're going to see a big increase in capital expenditure.

42:23 You just not necessarily the numbers, but just give an indication in terms of how much this costs and how it's paid for. So know given that we've got multiple old systems and we've got lots of manual efforts keeping them all working together, When we priced up this new system, we're actually going to be spending slightly less on the licenses for this system than we have for for all the other old systems put together. So there isn't, a great cap capital, outgoing. We've had a small amount of training, a couple of days training that we, obviously won't have every year. That's a bit of a one off cost.

43:16 But this system, we're not going to be spending any more in our IT than we have already. Yeah, so there's no capital expenditure. A SaaS based software as a service technology, and it should be costing us less to run our business with this back office than it had been previously, once we're actually through the full process. And that question, I hope, answers a question from Dave R, who said, How do you contact your operatives in the field? Do you use software platforms such as mPro5? Hopefully, we've now answered that. Another question from Dave R is, if you see Lloyd as a partner and expect him to remain with the group, why is the acquisition mainly cash with only a small amount of equity? Is it intended that Lloyd would join the board and or be granted shares under LTIP?

44:08 Early days. At the end of the day, when somebody sells their business, especially when it's the first time they've done it, they clearly want to be able to benefit from some of the wealth they've created for themselves. But I can assure you that Lloyd is no less engaged and involved in, and with some degree of personal pride, in wanting this business to move forward. Hence he's rolled £200,000 which is no small amount of cash into this business. You've got no experience of working in the public company arena, and so we've had to help him understand what that means. And I think power to his elbow in terms of what he's done. Is it intended that he'll join the board and be granted shares under LTIP? No plans for that at the moment.

44:57 Let's just see how we go and let's see what we need as we come through the next twelve months in terms of whether we need to ask Lloyd to join the board or continue to be a great operational exec as he is right now. So I'm happy to answer the question, but the answer is pretty much nondescript at the moment, is let's wait and see. I think that's about it. There was one question here which we didn't answer. Andrea and Sean, you may just want to comment on this in terms of the yin and the yang around COVID. Adrian G. Said you had around $4.40 ks of COVID related revenues to September 30. Is this continuing at a decent run rate given the lockdown easing, or is it falling away? And what are your expectations going forward? And I think we've been here before, haven't we?

45:45 We were here this time last year, so well, not maybe this time last year, maybe six months So do either of you want to comment on the yin and the yang of this? Because we're not dependent on this revenue anyway. No, we're not. No, we're not. Yeah, I'll have a stab at it first. And Andrew, if I'm missing it out, you come in off the top. Clearly with lockdown easing, yes, we've seen the demand for COVID-nineteen decrease. Although saying that we've had quite a lot in the last week. But going back to Mark's point of the yin and the yang, you have to remember that one, we're not a COVID story, but two, and more importantly, the judiciary side, which we have a line of sight on the run rate, declines quite a lot when COVID was high.

46:37 And the reason for that, clearly, when there was a lockdown, a lot less people were getting arrested because the pubs and clubs and everything else were closed. So that work, the work that we do in the cells and the transportation vehicles and indeed the courts, you know, almost dried up. So that, you know, the COVID counteracted that. So we're certainly seeing a bit of a step change again. A lot of jobs that have perhaps been shelved in the past due to COVID have now come back online. So that's more project defined work, know, in particular, like Flytips is a good example. So I think I've covered everything there, Angie, but if you want to come in and fill in any gaps, that'd be great. Yeah, I think you've covered it all. I would just say, you know, we we saw a lot of Covid work particularly in Q1 of this first half and then less in in Q2, but I do feel we're we're really sort of seeing there is some pent up demand for other work that's now coming through jobs that have been put on hold.

47:40 I mean I will in the interim accounts I will put some segmental detail in there so we can compare with last year. But yeah, I think you've covered it all otherwise, Sean. Yeah, brilliant. Just another point on that, Adrian, the COVID piece, you know, and again, this is by no means a forecast, but if there is another spike, which, you know, personally I believe there may be the latter part of this year, and hopefully it will be the last one, you know, throughout COVID over the last year, it's accelerated our relationship piece so much with some huge FM companies. So you have to remember that we are one of the few, if not the only one in the country that can respond to a four hour SLA that's required for COVID-nineteen.

48:27 So if there is another spike, then we are well positioned to maximize that. Good. Well, I think that's the end of the questions. Yeah, thank you. You've all been very generous as always and answered very much single one of them. Thank you very much indeed. Any questions that will get submitted between now and the end of the session, company will be able to view. Sean, I know you have just sort of given a little bit of wrap up, but just any final words just before we redirect investors to give you some feedback? Yeah, just thanks for everyone joining us again on the platform. Thanks to you and Mark for setting that up. I hope you've enjoyed listening to Mark and Andrew talk rather than me this time, that they've been very much involved in this acquisition.

49:13 And as Mark said earlier, interims are expected out in June. So, yeah, I'd like to thank you all for your time. That's fantastic. Thanks again to Mark, Sean and Andrew. Thank you very much indeed for updating investors today. Could I please ask investors not to close the session? It should be automatically redirected for the opportunity to provide your feedback. If you've accessed the meeting from our website, the feedback page will appear in front of you. If you've accessed it, via the link in the email, you'll just be asked to log in. It takes just a few seconds to do so and be greatly appreciated by the company. On behalf of the management team of REACT GROUP PLC, we'd like to thank you for attending today's presentation. That concludes the session.