React Group (LSE:REAT) — Interim Results

0:00 Good afternoon, and welcome to the REACT GROUP PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged, and they can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question or receives during the meeting itself. However, company can review all questions submitted today and publish responses where it is appropriate to do so.

0:27 We begin, I would like to submit the following poll. And I would now like to hand you over to CEO, Sean Doak. Good afternoon to you. Thanks, Alex, and thank you for everyone that's joining us today. Alex, have you just moved to the first page? Thank you. So my name is Sean Doak. I'm the group CEO. I was point CEO back in February 2020. I haven't joined the group earlier in March 2019 as management director. I have a a track track record of growing businesses in the specialist cleaning facilities management and HVAC service sectors, and I have a a background in business management and sales marketing. Up to you, Spencer. As you would expect, I'm a qualified accountant.

1:12 The last twenty years of my career, I've been in or around on public company boards. I've also done a short stitch in corporate finance. Joined the board in February. Very pleased to be here.

1:26 And I'm Mark Braun. I'm the chair. I've been involved with the company for five years. Got involved when it was in a bit of trouble, and we brought together the management team of of Sean who became CEO. And prior to Spencer, it was Andrea Pankhurst. And and clearly, you know, they put in the hard yards to get the company through its first two or three years. In the last couple of years, you know, Sean and Spencer, has been, the driving force behind where we are right now. That's me.

2:02 So interim accounts and performance. So some of you will be familiar with the story here at REACT. You would have seen this before as a management team present, perhaps followed the story, of REACT. But for those who aren't familiar with the story, the background here is of a turnaround, a successful turnaround. And if you just look at the graphs of revenue and EBITDA, you will see that the last four, four years have showed progressive growth. And, really, the profile of the group now is of a a group that's growing. It's got strong recurring revenues, strong margins. It's profitable, and it generates cash. In terms of the interim results, where we are this for the half year ending March 2024 is a continuation of the momentum from last year. We had a a record performance in the year to September 23, and we've seen that same momentum continue over to this year, or this period.

2:59 Diving into the detail, revenue is up 13% on on the half year at 10,600,000. We have over 85% of that revenue is recurring revenue. We've got gross profit, in growth similar, 15% up on the prior period at 2,900,000.

3:18 Gross margin is up a quarter for our sector. It's over 27% from our blended services across the growth the group, which is up. It's up from last period. Adjusted EBITDA, we've got 35% growth at 1,300,000. And aligned to that growth is our growth in free cash flow, again, up 35%, at 900,000 for the period, up from 700,000 the period from last year. Now as as a management team, we do look at adjusted EBITDA and free cash flow. You would have heard us say this before. The relevance of which is for adjusted EBITDA, we, it's a profit measure that is before certain noncash items and certain one off items, the profile of which does, align closer to our free cash flow. Obviously, cash is a key metric for us, as a as a management team and, I guess, for investors as well.

4:16 So basic earnings per share, we were profitable in the period, and we've got an earnings per share of 0.41p, versus a loss this time last half year of a 0.41p. And earnings per share on an EBA or adjusted EBITDA basis were over 6p, up from 4.5p, this time last year. So what we've got here is, in summary, it's a solid strong start to FY '24. Clearly, the momentum has carried over from what was a record year last year, and we've got a strong set of numbers. Brilliant. Thanks, Spencer. Alex, let just move the page. Thank you. Okay. So, REACT Carryout Specialist contract cleaning and soft FM services across The UK.

5:01 We're focused on markets with nondiscretionary requirements, typically complex demands, and quite often, over nationwide fulfillment criteria. As we've continued to scale the business, we've continued to establish

5:14 increasingly unique proposition in terms of our scale, our range of services across the group, and, of course, our geographical delivery. We operate within a very fragmented market. As we've said before, it's very sizable. And so we believe we've got huge scope to continue that expansion, you know, that double digit organic expansion that we've had year on year. And our strategy is focused on building out a business with class leading performance. We have the aim of achieving a minimum of 5,000,000 plus of free cash flow per year within the next three to five years. Now within the the group, we have three divisions. The first division that I'll concentrate on is the core division, which is REACT specialist cleaning. So that was what we had Mark and I got involved in the business. Predominantly looks after the emergency and decontamination side of of the group. So, typically, we can be required to be on-site within four to six hours.

6:05 It can be anything from an unfortunate fatality on on the rail where we've gotta be out, you know, very quickly decontaminate it and get that train back into service, all the way through to some really, specialist deep cleaning of some, hospital sites, specifically within the M 25 Corridor. Second, we got Fidelis. So that's our maiden acquisition completed some three years ago now, and that's our hygiene and maintenance work. So it's contracts, maintenance work. So typical commitments from the customers within this this division are anything from three through to seven years. And we are very strong in the industry, the health care, and also the education. And then the final components to the to the group or the final division is Lattice Freeze. That was our most recent acquisition some two years ago now. Commercial windows and cladding cleans, they've very got very much got a a who's who of customers ranging from well known fast food chains all the way through to some prestigious retail customers.

7:06 And typical commitments from those customers are anything from 12 through to thirty six months. Just moving on to the next slide, please. So looking at our customers, we work with very much at who's who of of customers from blue chip customers through through to large FM businesses here in The UK. Clearly, we operate across a very diverse and resilient range of market sectors, as I said, where the requirements are typically nondiscretionary. We've got a very low customer concentration, some 1,200 customers across the group, 230 of them are material, and our top 10 represents less than 43% of the revenue. So just a few, you know, logos that give you an idea of some of the sectors that we we work with and some of the customers. So it is very much a a who's who of of customers.

7:57 As we move on to the next slide, look at growth. So we've had very strong organic growth, you know, double digit again. This is the fifth year now that we we've had that. It's been underpinned by some large deals and, obviously, a lot of smaller successes that due to the size and scale of the business now, we've not been able to announce them. Now I'm not gonna walk you through every single one of them on the slide because we'll be here for a good twenty minutes, but I'm just gonna tease out some some notable wins. The first is that renewal of that material three year contracts with a large university in The Midlands. That's with UCB. We've almost doubled the scope and the size, given given us us £1,300,000 commitment from the customer per annum. And that really is working with the customer, understanding the concerns, how we can cross and upsell. So now we are doing some cladding cleans, glazing cleans through the the ladders free business, and we're also doing some more reactive kind of work through REACT specialist cleaning as well as the core business being delivered by Fidelis.

9:01 Second one is that two large incremental specialist cleaning contracts, both worth £500,000 per annum. One is with a a large international FM business looking after some some work within the Ministry of Justice, and the other is working with a mid

9:19 sized UK FM business for a well known prestigious sandwich and and and food outlet across The UK. Ladder's free. You know, we've continued with our success of winning new business. We've added three new nationwide customers to the mix, which has been brilliant. We picked up a two year contracts worth £500,000 a year with B and M over 700 locations nationwide. So that's covering internal cleaning of the of the windows, external, and some cladding and some trolley bay cleaning as well. We've also had some material post period wins. We've had three significant multiyear specialist cleaning contracts worth £500,000 renewed in the health care sector with uplifts in scope and revenue again by by cross selling across the group.

10:07 So in summary, we've had our growth underpinned by strong customer retention, contract wins, and cross selling success. I'll hand you back to Spencer. Transitioning to the next phase of growth. So Ladder's free. You're aware that we bought the business in 2022. It's in Exeter, and it takes looks after the national window cleaning for us as a group. Great business, very profitable, generates cash. Financial metrics are very strong. What it needs is automation. Its back office is very manual.

10:39 We're currently mid project to build a a platform, that will enable that business to scale efficiently and effectively. It it is a MVP. We're spending 300,000, investing £300,000 in this platform. It's gonna be built in the Microsoft Azure toolset. The software house that's helping us with this piece of work has done this before. Like I say, we're mid project, and the current timetable, we hope to be we plan to be in user acceptance testing in the summer. And following successful user acceptance testing, we will plan go live later this year. The project, like I say, is just midway through, and we are within budget and within the, you know, the project time frame. It's one example of, investment into the business so that we can grow.

11:26 The immediate need is for Ladder's free and for its current service offering, but we have one eye on other group services and other services with a view of developing that model. There are other initiatives that we have underway. We've just just about to complete the move to HSBC. So that's a single banking supplier. That'll give us access to treasury management facilities.

11:50 But, also importantly, it'll be a single relationship that can support the group going forward. HSBC have been very keen on the call to this for a very long time as a result of the group's recent history, and they're very supportive. We will also continue to look at the rationalization across the group. Effectively, we've got three different divisions, and we'll be bringing those closer together. And and so we'll have some other, you know, discrete projects that we will look to develop for the for the group. Brilliant. Thanks, Spencer. Just continuing on from from where Spencer left there. We we will continue to strengthen our management team, both functional and executive. We have recently promoted two individuals, Dave Roche, who joined the business about four and a half years ago. He initially was the operations manager on REACT Specialist Cleaning. Got a wealth of knowledge in this space, having worked for ISS, Hitachi, Mighty, and so on. He's now heading up the Ladders Free Business as divisional director, working very well with with the team, being very present with our our customers, understanding the challenges and and the opportunities out there with our customer base and, you know, is really driving that business forward.

13:05 We've also got Chris Ryan, doing a fantastic job over at Fidelis. He's been with the business now twenty six months. He originally joined the Fidelis business as sales manager, but has, again, a wealth of of knowledge within this space. Having recently worked for Bix before he he joined Fidelis. He now heads up that that Fidelis business as divisional director. And, again, doing a fantastic job, working very closely with customers and and all stakeholders with throughout the business, really driving that kind of control and measure, putting the right process and procedures in place to give us that headroom capacity to continue the growth trajectory of that business and indeed the group. We said we'd invest further in the sales and marketing, and we we continue to do that. We continue to unlock new opportunities for organic growth.

13:56 We use a an external fractional marketing company, a little bit of AI thrown into the mix. So depending on how customers or potential customers interact with our socials or our email campaigns, triggers different sequences with the with the with the help of AI, and that feeds straight back into our CRM system, HubSpot. And I I sit on and share the

14:20 the the group sales meetings that we have with the entire team and the divisional heads to make sure that we're looking at the right opportunities. We're going after the high margin work. We're not scared to pivot away from perhaps those sectors where margins have been eroded, and we're always looking, you know, to to push the business business forward. Just on the the investment side of the sales and marketing, we've just brought Debbie Flynn into the business. Again, a wealth of knowledge within the sector, having worked for for SAFE Group for some years prior to joining REACT. Prior to that, she worked for Rent A Kill in New Orleans. So, again, you know, a wealth of experience, and she's working incredibly well under Sam here with our group sales director who, again, you know, worked for Who's Who, of Equons, New Orleans, you you name it. And and he's really doing a fantastic job driving

15:11 the right opportunities into the pipeline and improving our conversion rates with the help of marketing, you know, and the activities that they're they're independent. And the final component on there is we reignited the m and a activity, and I'll pass you over to Mark because it's something something that that he's he's leading the charge on. Thank you, Sean. Could you just turn the page, please, Alex? Thank you.

15:38 Basically, it's been the last six or seven weeks we've started to relook at m and a as as potential. And look, we've got a track record. You know, we've we've done two amazing acquisitions that have totally transformed the company from being a £4,000,000 loss making business with recurring revenue of less than 30% to the numbers that the team have talked you through today. We've taken on Fidelis and we've more than doubled the revenue that through cross selling and up selling and taking on new customers. And we're beginning to do the same with ladders free, albeit slightly compressed by the fact that we do need the technology to help us with the back office in order to cope with the same, you know, sort of same degree of growth, but but also deliver the same degree of quality.

16:28 So we have a track record, and we are,

16:32 you know, we are very disciplined in our approach. And we see m and a as a pathway to accelerating growth in shareholder value. That's the reason we wish to do it. No other reason. And we will use a disciplined approach like we have done before, both in terms of selection and

16:51 valuation. The objectives are fairly straightforward. We have a massive opportunity to consolidate in a very fragmented market. That's the specialist soft FM services market. And we believe that we're one of the leaders, if not the leader, and we want to establish that position, you know, as a, you know, from a reinforced point of view of being the leader in the space.

17:17 M and A doesn't only add revenue and profit, we believe it represents a tremendous opportunity for us to create further organic growth. And we've demonstrated that with the acquisitions we've made so far. And we've told you the stories in the past of how we've cross sell and up sell with customers specifically. And we can see us doing the same with anything else that we acquire.

17:40 And we also see, as you've begun to see in the latest set of results that, you know, we can begin to leverage our scale to drive more profit from smaller increments in terms of revenue growth. So that's the objectives. You know, overall underpinning that is the fact that we want to accelerate our pathway to growth, growth in shareholder value.

18:04 In terms of criteria, what do we look for? Well, the first thing I think to say is that we're only looking for things that are relevant to the customers and the buyers that we work with today. We're We're not looking to go off piste and do something weird and wacky. We want to focus on the same customers because they trust the brand, they trust the team, and we believe that's the right way to compound and grow the company moving forward.

18:30 Everything we look at will be accretive and earnings enhancing in the first full year. And we do look, we do spend quite a bit of time looking at cultural fit, because we want to buy businesses that share the same values as us from the get go. We want businesses that are focused on being the very best at what they do.

18:53 And we also want a team of people that are excited to get up in the morning and go to work. So cultural fit is an important factor when we've looked at businesses in the past and will be going forward. Final bit is how we structure, how we fund the deal. And the first thing to say is that every deal we've done so far, and I expect every deal we'll do in the future will be structured. So we don't need all the cash upfront. So structuring a deal is something we've done before. Spencer is

19:27 an experienced person at doing that as well. So structure is important to the funding process. We're also, as Spencer highlighted earlier, not only we had cash generated business, we're now moving to a period where all the cash we generate ends up in our bank account. This Friday, we'll be paying the last payment

19:51 to Jason and Justin Kerenick, who are the founders of Ladders Free. That goes out at the bank on Friday. And after that, every pound then goes into our bank account that we generate. Spencer has also highlighted the improvement we have now with an enthusiastic bank to help us support our growth objectives going forward. And obviously, we'll be looking at that, but I want to reassure people that we will not be looking to over leverage ourselves. You know, to give you a measure, I don't think we'll be looking to go much above one times earnings in terms of what we look for to generate in terms of debt. And then under only under the right circumstances would we look to equity.

20:38 We want to see our equity or our share price higher than it is right now. Think personally that the share price is understating the value of the business. But in the right circumstances and for the right opportunity, we would add in a level of equity should it be required. But the other component were the ones that we would turn to first. So that's it in effect. It's on the agenda alongside the organic growth story that we've delivered and will continue to deliver is trying to find the right opportunity that will secure future growth in shareholder value going forward.

21:18 Brilliant. Thanks, Mark. Just onto the summary and outlook slide then, please. So as Mark just said, we've had a record performance in h one. The momentum continues into the full year. We've had track record of double digit organic growth in what is a highly fragmented market.

21:34 85% recurring revenue. You know, when when Mark and I walked into this business five years ago, that was around about 32% recurring revenue. Lost make in on revenue just over 3,000,000. You know, now we're at just 20,000,000 and and above and, you you know, know, translating into a strong EBITDA, high margin, strong cash conversion. And so, ultimately, we believe we're well positioned to achieve our three to five year goal of that £5,000,000 plus of free cash flow per annum. Thank you. That's great, Mark. Sean, Spencer, thank you very much indeed for your presentation. Ladies and gentlemen, please do continue to submit your questions using the q and a tab situated on the right hand corner of your screen. While the company take a few moments to review those questions submitted today, I would like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. And Mark,

22:26 Sean Spencer, as you can see, we have received a number of questions. And Mark, if I may now hand back to you to share the q and a, read out the questions where appropriate to do so, and I'll pick up from you at the end. Thank you, Alex. Okay. So I'm gonna just do them in order, gentlemen, if that's alright. Hopefully, you can see them written on the right hand side of the screen for us as well. The first one is from Alex C. The strategy includes a shift away from lower margin opportunities towards higher margin segments. Can you elaborate on which specific segments or services are being targeted for higher margins?

23:02 Sean? Yeah. Thanks, Mark. Great question, Alex. Okay. So, yes, we have had a shift away from some lower margin opportunities. Can you elaborate on which segments or services are being targeted? It it it really is job specific, if I'm honest, Alex. We always look at, you know, is there a special specialist element to the specification and and what that entails if it's, you kind of a traditional kind of tender route.

23:31 Conversely, it's usually born out of discussions by being present with our customers and understanding the challenges. So it it's usually something that they're struggling with, whether or not they've had pure service provision in the past or it's an entirely new piece of work. So we'll always look at crafting a detailed specification around that so that it gives our customers the best bang for their buck, but also where we can eke out high margins.

23:55 In terms of what we're going after on the Fidelis business, think I touched on it earlier on the presentation. We're very strong in health care, education, and the industry. Lattice free rate is very much a who's who of customers, so we're you focused know, on just one sector. It is very much broad brush, and that continues to be a focus of of the sales team. And REACT, you know, if you know the story, it's the kind of the the thin edge the wedge, you know, the the the sharp end of the spear. We can do, you know, react to any

24:29 any cleaning need across The UK. It could be an existing customer. It could be a new customer. We can be on-site within four hours, and that often allows us to land and expand. And, you know, you know, due to the nature of that work, you know, reacting within four hours is often high margin. But, also, there's bigger opportunities in that space where sometimes we'll give margin away to to allow us allow us to to cross sell and and land them a more material piece of work. I I think it's also true, Sean, to perhaps highlight the fact that, you won't see us going after huge, huge contracts because they are a race to the bottom in terms of price. We're very much a specialist business, so we want to focus on the specialisms within different sectors.

25:15 So predominantly, you'll see us, although we do have very large customers, we'll be doing discrete pieces of work for them, hopefully at scale across multiple locations. That's where we really do come into our own. You won't see us necessarily doing the work for one large building in one city, because that there are plenty of competitors that can cope with that. What competitors can't cope with is delivering the multiple services that we deliver across The UK anywhere at the same level of standard and for the right price. So that I think is

25:49 where we're strongest. Different segments for different products. There are a couple of segments that maybe we've started to soften our focus on. And we don't want to be too because some of this is a bit commercially sensitive. But I guess one example would probably be the judiciary, isn't it, Sean? Yeah. Prime example. Yeah. Yeah. So so that would be one area. But but yeah, so so so unfortunately, we're not a crisp answer for you. It's this segment, that segment, and the other segment. We it's more a horizontal view, but of some very key customer markets. I think the key thing is where there are non discretionary services, in other words, the work is not done, the customer is unlikely to be able to use their premises or if they do use it, it's unlikely to give them a bad reputation.

26:37 So non discretionary And where it's valued, the quality and speed with which we can operate

26:45 is valued by the customer. That's really where our high margin opportunities are, and the market for that is massive. Yeah. And I I think just on the back of that as well, Mark, it's it's probably good point to to say that we're not scared to to move or pivot away from the customers that we work with for a few years if margins have been eroded. Because at the end of the day, this business is about shareholder value, and we also need to work with customers who value our proposition. And if customers don't, then, you know, there's plenty of work, as you said, out there where customers will value our proposition, and that's where we'll get the high margin. Yep. Second question for you, Spencer. Can you elaborate? It's from Dexter b. Can you elaborate on why the tax payment this half is considerably lower to h one prior year?

27:31 Yeah. Absolutely, Mark. It's a timing issue.

27:34 We clearly, we had a corporation tax liability at the year end of just over a £250,000.262000. As we finalize the tax returns and finalize that those, you know, those pieces of work, we would then be paying tax. So, yeah, it's gonna happen in the second half year. Thank you. Next question is from Jonathan c. Well, things look good compared to H1 twenty twenty three. They seem less rosy in comparison to H2 twenty twenty three. Perhaps unfairly, it might look as though most of the growth being seen now looks to have been one last year and now coming through.

28:15 Do we expect double digit growth for H2 twenty twenty four versus H2 twenty twenty three?

28:20 Or will the growth rate decrease below 10% for the full year? So I want to give some guidance in terms of how we can answer that. We cannot answer the last part of that. We're not going to give you a forecast on H2, I'm afraid that just wouldn't be appropriate. But it is a good question. And I think that this is partly for you, Sean, and partly for you, Spencer. One of the things we need to perhaps make sure people understand is when we win new contracts, some of them can be mobilized really quickly, but some of them do take time. And therefore, there's a lag between us winning stuff and us actually deploying it. Yeah. Yeah. Yeah.

29:00 It inside that mark, I mean, some contracts can mobilize within two to four weeks, but some have a longer period, but it could be three months. It depends if Tube is involved. It depends if there's an incumbent, and they're trying to navigate that. So, you know, obviously, we want to start as quick as we can, but that's that's not how the world works, unfortunately.

29:21 Anything to add to that, Spencer? Only to the extent that the pipeline's strong. Obviously, there's there's there's no there's no promises there, but we've got a, you know, we've got a a strong pipeline, strong as it's ever been, and the business is, is trading nicely. But, yeah, it's difficult to give a forecast. Yes. Brilliant. Thank you. Okay. Next question is from Neil B. Is there any danger of losing key people after the final deferred acquisition payments are made later this year?

29:53 Sean? Yeah. I'll take that one, actually. So the families, Jason, Justin, Mark mentioned them earlier of of Ladder's free. They've been in a part time consultancy agreement or role since we acquired the business. They have agreed that they will be on hand as and when we need them, you know, moving forward. The relationship is fantastic. You know, both I I think I've said it before on this platform, stand up guys, built a fantastic business.

30:21 You know, I had a conversation with them a few weeks ago, and they basically said, you know, they couldn't have asked for a better better acquisition the way that we've treated the team, the way that we've pushed the business forward and put in the the right technology. So, you know, there's a lot of knowledge in their head, but we we've now gone through that, handover period. And, you know, Dave, as I said, is is doing a great job at leading that business. But should he needs, Jason or Justin's comments or help, you know, they're just a phone call away. So Yeah. Indeed. No. Well well answered. And I think the other key thing is is, you know, we do have,

30:56 you know, capability spread quite well across the business. And Justin and Jason, in terms of their full time involvement, pretty much stepped back into that consultative role fairly quickly as soon as we got Dave in place. Yeah. So, yeah, I think I think that, you know, that's the answer. Thank you. Question from Neil b, are there any new sectors that you are targeting? And this will be for the all organic side. New sectors, god. Not off the top of my head. No. I mean, there's there's always incremental growth by adding on additional services, but we are very much focused on where we get our biggest bang for our buck.

31:41 We are constantly reviewing it, of course. And like I said earlier on the presentation, we've got depth in our team where we, you know, we we we've got if we should we want to pivot or go after

31:52 an incremental, you know, sector, we we can do that. But I think we we we need need to to stay true to what we we know we can do and what we're good at doing and not not to be distracted by that.

32:07 Absolutely. Perfect. Okay. Next Next question is from Freddie A. For the three contracts announced on the April 4 that were renewed and or extended with potential value of 1.3 annually, can you break down that 1.3 as to what are continuation revenues and what are incrementally new revenues?

32:28 So, Sean, two of those worth a million quid a year were absolutely brand new to us, weren't they? Yeah. They were. So one was in addition to a call vendor agreement that we got with the Ministry of Justice. And another one was, I think I mentioned it earlier in the presentation, for a prestigious food outlet. So, yeah, completely completely new. And then the the other one, the 800 k over three years, that was a renewal but uplifted, wasn't it? Yeah. Renewal but an uplift, but I can't remember off the top

32:59 of my head what the uplift acquired too. I think it was about 30% from memory. Yeah. I think something like that. Something like that. I'm sorry. Answers your question, Freddie. Neil b, how are you maintaining the quality of your service?

33:16 A number of ways, really. Again, by so we look. This is how we operate. So we like I said, we don't lock people in tender rooms. We we incremental work. We get new contracts simply by being present with our customers. So we understand the challenges, boots on the ground. We have a very inclusive environment where everyone has a voice within the business, you know, even operatives at at ground level. So there's there's those those conversations going on between them and divisional heads. And as I said, we're we have multiple management calls throughout the month, I'd share three or four meetings every single week. We carry out the audits, so the whole business uses the same audit auditing system to ensure that standards are being maintained. That automatically goes back to the client. We always have a client review meeting, capture any issues before, you know, they become a major issue, which is very rare.

34:07 And just by employing the right people, I guess, and having the right culture, you know, no one has the monopoly on being right. I certainly don't. Mark doesn't know the Spencer, and it's about listening to to the enlarged team. Everyone has the strengths, everyone has has their their weaknesses, and, you know, that's why we have a great team. Brilliant. Next one for you, Spencer, is from George s. How much is the final payment this Friday to the latter three founders? You're on mute. 890,000. Perfect. Thank you very much. DSO is still around eighty days. How much scope for improving do you see to improving working capital efficiency?

34:54 That's from Dexter b. Yeah. Absolutely. Sometimes it depends on specific projects for specific reasons, but, we're very focused on that. Clearly, cash receipts are very important to us, so we manage all of it carefully. Yeah. I think there's something else to be added here, and that is when you look at our DSO, it's not really a an accurate reflection of our uses of cash in the sense that all of the ladders free business, no cash goes out the door for the work until we've got cash in. So whilst the actual invoice itself may take time to pay, we've not actually incurred any cost other than the operational head office overhead, which is relatively small by comparison to the overall revenue and margin. So that's one element. We also have a factor of that within the Fidelis business where there is a proportion of the revenue that is paid by the customer either at the same time as we pay the cleaning staff or just before.

36:03 So again, that DSO component, whilst we're not taking our eye off the ball, it's not quite it's not quite telling the full story of cash within the business. And I'd add to that, Mark, sometimes we bid in advance. And and clearly, that has an impact and and a relevance to the the the DSO calculation. Yeah. I think as a final comment is that is that, you know, the bigger the customer, the bigger the project, the longer they sometimes take to pay you. So there are one or two out there that are notorious at this, but we have to manage through those. Yeah. Certain projects are more complex than others, but it's nature of the beast as well. Great. Can you give a feel for the rates of top line growth in h one for Fidelis and LadderSphere?

36:52 At the moment, I'm not sure we're in a position to, you know, you know, show that. Sorry. Apparently, I'm having a few network problems. So apologies if I keep coming in and out. Sorry, what I was going to say. So I'm going to turn my camera off actually. That might help things. So, yeah, I'm not sure whether you want to comment about it either of you, but actually broken down at the divisional level. I'm not sure that that's either A, helpful or B, something that we want to get into detail on because we're very much focused in looking at our business by the segments we do the segmental analysis on. And there is a sense that there will be revenue that belongs in one of the other divisions that may be reported in the other division because it's the cross sale.

37:51 So I'm not sure I think it's gonna confuse matters if we go down to effectively that old divisional level, which we're no longer really running the business by. Yeah. I'll I'll I'll leave that mark below. We we we don't really look at it on divisional level either, as you said, just said. So and then there's there's cross charges because of the way that the way that revenue is is allocated when we when we secure business, but it's cross sell. Okay. Good. Dexter b, what's the what is behind the margin reduction in contract REACTIVE? Quite simply, it's the the mix of of jobs that are coming in at the moment. And some of the contract reactive across the group is is is at slightly lower margins than what it perhaps would have been when we looked at the business in isolation with REACT specialist cleaning. It's as simple as that, really. But it it is you know, the contracts reactive REACT if it's you know, you you kind of in the hands of the gods, so to speak, in terms of what's called off by the customer.

38:55 We have the line of sight in what generally the revenue looks like on a month to month basis, but we don't have any control of what jobs are called in. Some of them are slightly higher margin than others. Okay, great. Thank you. You touched on AI during the presentation, how much and where do you see further opportunity in your categories? Well, the further opportunity, I think there's a significant degree. But do you wanna do you wanna cover that at all, Spencer? Yeah. Absolutely. I mean, we are we're certainly building a platform within Ladders Free that will have some some components that will can lean on that. I think, Sean, you've got some AI in some of your sales models to drive new business, and we're continuing to challenge ourselves where else it's relevant in the group.

39:49 And it may well factor in the back office rationalization as well. Yeah. Yeah. I mean, think in terms of future use, there's a number of different things, but I think it's predominantly in terms of a couple of key things. One is making our operations slicker, quicker, faster, better in terms of the whole workflow processes. I think in terms of pricing, it will come into being a helpful tool. And also I think in terms of reporting, what we're seeing is a desire, not a demand, because I think we're creating the demand for reporting to our customers, because it's just not been available before, where we're actually reporting on the work we've done and the status of their whatever it is we're cleaning, let's say, it's windows or high level or guttering, whatever, we're able to give them a reporting visibility that they otherwise wouldn't have had across their state. And AI will help us deliver some of those things. But that's a little bit further down the line once we get over the sort of minimum viable product that we're focused on right now.

40:57 David s, it is excellent having such high levels of annual recurring revenue. But when you gain new contracts, do they sign for minimum term or a whole year? And what percentage do not renew? Okay. So it depends on the definition where there's cont that would be typically contract maintenance work. Contract maintenance work, I think I said it early on in the presentation. If we're looking at the the window cleaning, it's anything from twelve months to thirty six months commitment from the customer. If we're looking at the the contract maintenance, which is and the hygiene, which is typically the Fidelis model, then it's usually anything from three to five years with the option of plus two. And, obviously, there's a little bit churn, but the churn really has been out of design from us to move away from low margin work.

41:49 And at the end of the day, you know, if if we look at Fidelis in ice in isolation, we've doubled the revenue, you know, since we completed that acquisition. So and we've improved the the margin mix. So we're obviously doing the the right thing, and that feeds, you know, hand and glove back to the operational gear and and also the the sales and marketing activity. So I hope that answers that question. I don't have the exact metrics on what the percentage is on the churn, but it's it's much lower than industry standard. That's for sure. Yeah. I was gonna say we know it's very low, very low. But what I would also say is one of the things that Spencer and his team now bring to us is much greater management information. We were very much bootstrapped over the first three to four years of our existence. We now have the luxury of some management information, we want more and developing some models around that sort of churn component. And I think specifically where the company will actually look very, very, very good is on NRR.

42:50 So I think we want to we do want to measure that consistently across the group. Because I think if you look at the rate at which we retain business, renew business and also upsell and cross sell, I think our NRR ratio is going to be in excess of 100% and some, I think, but we'll see. We're just not there yet in terms of having the resource to throw at providing an accurate and consistent measure reliable on that yet, but we will do. DextroB, how evolved is your pipeline of potential acquisition targets? I guess that's one for me. It's we've had a look at a load in the last six weeks, just IMs, and they're very easy and quick to spot what we don't want.

43:40 90 of it has ended up going in the junk file. And we've got a small handful, I mean, really small handful that we're sort of starting to look at a bit more seriously. So it's not that well evolved. But that's not to say there isn't a potential opportunity sat within the pipeline we have, that we couldn't move very, very quickly on. We just need to go through the gears. We've engaged with one or two, we've got under the covers. And it's about getting to a point where we feel confident that what we think we see is actually what is there. So, you know, not terribly old enough that we we we are starting to see opportunities that are looking very interesting. Hopefully, that answers that question, Dexter. Dexter has asked another one. Any thoughts on the potential impact of a labor government?

44:27 Great question. But but being from the Northeast, no comment. No. Just just joking. No. I think I think we touched on this on on previous presentations. Contracts have uplifts baked into them. So if there are any changes to living wages or, you know, inflationary costs that they're all baked in anywhere. Do I see it being a a negative or a positive? Not really. I don't think it'll impact the the cleaning sector much if if all, if I'm honest. So, no, I don't. I think the only I think the only chatter at the moment is that they would like to take REAL, you know, nationalized again. But, yeah, yeah, we we we don't do as much in that sector as we once did simply because margins have been eroded, you know, coming out of COVID. You know, that's an industry that is, you know, got its challenges at the moment.

45:21 So I don't think it'll have an impact, but, obviously, we'll keep a close eye on it. Good. Good. Okay. And oh, hang on. Just a couple more here. How do nationwide companies find out about you and invite you to tender? Much competition is there, and what percentage do you think you win? Okay. So they find out so we're on all of the portals. So if there's a a a piece of work that they want us to tender, then that will come in that way. But as I said early on in the in the meeting, it's not it's not really our area of focus. You know, if something comes through and we think it's in our sweet spot, then, of course, we'll go through it. I think when we analyze that for the ballpark, I think we were winning about two and three.

46:08 And how much competition is there? In terms of competition, it varies. You know, we we do analyze that as I said earlier on that we'll not not go go for anything where we think it's gonna be single digit margins and there's gonna be 20 people going for it. We just we just we think we can focus our time and attention on something else. But, generally, nationwide companies find out about us because we we go go hunting for it. And I think that's why we're different to to the big boys. We work with the big boys. The the the the big five are our customers, but we go hunting and we go hunting by you know, if it's an existing customer, customer, then we've got a relationship there, and we'll go hunting for incremental work or cross sell. And if it's a new piece of work, then, again, we'll we'll we'll be knocking down the door, utilizing our sales and marketing approach, simple as that. When there is a situation, isn't there, Sean, that we actually have a lot of nationwide customers today that don't use us nationwide for all of our products. So the actual white space in our existing customers is actually huge. Yeah.

47:08 Correct. We've got several great examples of where we've won, and we use those to reference ourselves to the others. Yeah. So, you know, we're not without opportunity. I think your point earlier on is we have to qualify the opportunities to know where we are the most competitive and have the exact proposition, and that's where we've got focus. In the past, companies, you know, we probably wouldn't give it to you three or four years ago, go after things where, actually, they're not really gonna win. So we don't bother. Yeah. Indeed. I think the the the bottom line or the the keyword here, Mark, is sophistication. We're a lot more sophisticated now than we were certainly two years ago. In fact, you could even argue a year ago, you know, bringing in Spencer and Justin and, you know, the the the the promotions of Chris and and Dave and and Sam, we're just in a much better and more professional and sophisticated position than we were, you know, six to twelve months ago. So we're always reviewing it.

48:10 You know, the control measures are there. We know what we need to look at. We know what margin we need to be hitting, and we know what what the right opportunity looks like. Got it. Got it. Last question is from Dexter b. Are you seeing any signs of distress in the market primarily for the subscale operators? Okay. Well, I don't know what he means by subscale operators. Well, so the small the small guys in the market. No. Not at all. Not seeing any real signs of distress if I'm if I'm perfectly honest. We've seen some sectors that three or four years ago were high much higher margin than they are now. But, no, not not not really. We've won as well. Not Not much. We we see a lot of people trying to retire or or want to move out for, you know, for, you know, work life balance reasons, but Yeah. Not really distressed. There are no sort of distressed sales out there for us to look at and pull over. I apologize, by the way, guys. There were a couple of other quick questions. Let me just go through them.

49:20 Neil B, why did the ad hoc division fall in H1? Is there any recovery expected in H2? Margins have remained below contract maintenance. Is there any scope for recovering the premium margin? Can I just again, we don't want to forecast in our response? Yeah. What I will say is one phenomena we've seen is is that ad hoc gets us into a customer because we're dealing with an emergency situation very, very well. And therefore, ad hoc customers can become and sometimes, in fact, more often than not become established contracted business. So you will see this natural ebb away from we have to continually add more in because by its very nature, it's just based on, you know, individual projects.

50:09 But would you add anything to that answer? No. Not really, Mark. I think other than I can think of three examples straight away, three or four examples that would have started last year's ad hoc piece to work, which now fall into the contract mix. So, you know, very much focused on our strategy of, you know, land and expand, getting in, you know, sharpened the spear, as I said earlier on the presentation, that ad hoc piece in it. You know, the the guys are very, very good at converting them into contracted some pieces of work. And And and and don't don't forget, you know, the the the sales team are paid on margin as well, so they pay they pay on GP. So we're not paying them on revenue. So there's there's always that focus on, you know, econ out, one, the contractor piece and also the high margin work. And and what's your view on the margin in ad hoc?

50:59 So question margin remain a question. So it depends on it depends on the mix again. You know, sometimes we get a piece of ad hoc work where we know it could lead a much bigger piece of work very, very early on in that in that kind of relationship period. Whereas, conversely, it can go the other way. It could be a small piece of work, which is a, you know, £34,000 job, work on-site within four hours, but we know that we're only doing it because the incumbents let them down. And then we'll go back and we'll we'll revisit it as part of our strategy for the sales marketing. We'll keep sending those messages until, you know, the incumbent becomes us. So it it is horses for cost, but it's difficult to answer that one. I think I think there's another feature here, Sean, that you and I have discussed in the past.

51:46 And and that is that when there's a small single piece of work, margin can be very high. Yeah. When it's a much larger piece of work, the margins are compressed, a, because it's a bigger piece of work, and b, because we do have to pull in some subcontractors, trusted partners that we've worked with before that does compress our margin. But we want to do the work because we want to deliver the service and turn it into something else. So it's a complicated answer to a simple question, but there are a number of moving parts here. And at the end of the day, the ad hoc business is very much our pointy end of spear as opposed to our what we're relying on for margin and profit. Yeah, exactly that. James C. Asked, what's the potential does the company see for further cross selling opportunities with existing customers? I again, I sorry to paraphrase, but it's big. It's very big. You know, we got we got a lot of customers.

52:43 We do a lot with a with a few of them, in fact, many of them, but we see there being a huge amount of white space. And I think just on the back of that as well, Mark, it's it's a good point to just pause and say that a lot of companies promise and and say that they'll either cross sell or upsell or they can, but in very, very few do it. Whereas we have already got material contracts as a result of cross and upsell it. Yeah. So Absolutely. And then the final question, the genuinely final question now is from Neil b. How advanced are any potential acquisitions? Singles have targeted 26% uplift to earnings from acquisitions in their target price? And again, I answered that earlier by saying, we're at the start of a process. And there's nothing that we have today that we can say is through the final stage of qualification. We are still qualifying, but there's some promise in there.

53:37 Yep. Great, Mark, Sean, Spencer. As always, thank you for addressing all those questions for investors today. Of course, the company can review all questions submitted today, and we'll publish those responses on the investment company platform. But before we direct investors to provide you with their feedback, which I know is particularly important to the company, Sean, could I please ask you for a few closing comments? Yeah. Thanks, Alex. Look. I think we're in a very exciting time here for for shareholders and and everyone involved in the business. You know, we came into this business five years ago, less than 35% recur in revenue on on a a business that was turned over just a little bit more than 3,000,000 and loss making. You know, fast forward five years on, this is the fifth year of double digit growth. 35% earnings growth from 15% uplift in revenue.

54:27 I just think it's an exciting time for for everyone involved, and thank you for joining us today. Fantastic. Sean, Mark, Spencer, thank you once again for updating investors today. Could I please ask investors not to close this session as as we will now be automatically redirected to provide a feedback in order that the board can better understand your views and expectations? This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of REACT GROUP PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all. Thank you. Thank you.