React Group (LSE:REAT) — Interim Results for the six months to 31st March 2020

0:03 Good afternoon, ladies and gentlemen, and welcome to the REACT GROUP PLC Interim Results Presentation for the six months of 03/31/2020. Today, the company will give a short update on results, having recently updated investors via the platform. Before we begin, we'd like to submit the following poll. Also, for your information throughout this presentation, investors will be in listen only mode. Questions could be submitted at any time via the Q and A tab situated on the right hand side of your screen. Simply type the question and press send. The company may not be in a position

0:34 to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where appropriate to do so. These will be available via your Investor Meet company dashboard. Finally, we'd like to remind you that the presentation is being recorded. I'd now like to hand you over to Sean Dope, CEO Andrea Parker, CFO and Mark Braun, operational strategic adviser of REACT GROUP PLC. Sean? Thank you very much for the introduction there, Paul. Okay. Very warm welcome to everyone who's taken the time to join us today. Conscious that we presented a very similar story only a few weeks ago. However, I believe it's important to keep the lines of communication open with all investors. And as a result, we'll spend the next twenty to thirty minutes walking you through the interims.

1:24 So jumping straight in,

1:26 what do we do? So we have to carry out specialist cleaning, hygiene, and decontamination work that others are not qualified to do. We operate across several industries, and we provide services on both a reactive and a regular maintenance basis. We are involved in sectors from the health care, through to roads and rail. The work that we get involved in is is very specialist, often gruesome, and it's worked out, you know, a lot of our competitors, don't particularly want to get involved with or don't have the expertise on how to deal with that. Our customers deeply value our offering, and in turn, that produces some really high margin work. So all in all, we're a specialist business with some strong customer relationships and margins.

2:16 I'm delighted to pass you over to Andrea to give you an overview of the financials. Thank you, Sean, and good afternoon, everyone. I'm just moving on to the next slide. Oops. Sorry about technical difficulty. There we are. Right. So before I talk about the half year results, I just want to highlight that 2019 for REACT represented a year of refocusing the business. There's been a completely new management team, and we've worked very hard in a variety of ways to build a new, more efficient, and focused business platform and really implement a lot of better processes. So looking at the results, we're really starting to see some fruits of our labor from 2019 with some really encouraging year on year improvements.

3:11 Firstly, our revenue is up by 32%. This is specifically in the rail and health care that this improvement has happened. We also have the impact of a few weeks of COVID-nineteen related work that we had during March. Our gross profit margin has increased by over 33%. So the reason for this increase, it's well, it's several reasons. It's a combination of operational efficiencies that we've implemented, better cost control, and more precise analysis of our costs.

3:59 And we've also have a had a strategy of focusing on more profitable work and also the customers who value us most.

4:09 Moving down, our overheads have been kept well under control to produce a net profit of £50,000 which is a significant turnaround on the previous year and prior years before that. Our adjusted EPS of 0.2p is based on EBITDA of $85,000

4:35 So the only negative variance on that table is in the cash balance. And the reason for that is, really, we've been trying to put our cash to good use to help us support our growth.

4:51 We had a significant new contract at the end of January. And in that cash figure at the end of March, just one week's worth of invoicing had been received at that point. The remittances from that contract are now flowing in, and our current cash balance is substantially higher than that figure. And that's obviously aside from the

5:17 proceeds of our recent fundraise. So looking at these figures, all in all, I would say they demonstrate solid growth, operational improvement and our first profit as a group that we're very proud of. Okay. I'm moving on to key announcements now. So I'm conscious that some people have attended our previous presentations, so some of these will already be familiar, but I'll just run through them briefly.

5:48 So at the end of January, we had a new GBP 500,000 contract to provide deep cleaning services for a large customer in the rail sector. At the beginning of February, we had a new contract for GBP 121,000 at a large hospital in Central London. This contract was incremental to work that we do at that hospital on an ongoing basis. Also in February, we agreed a framework agreement with a large housing association in Manchester. So this is for reactive work for that housing association where we get called out as needed. And then in May, there was another rail contract for £400,000 That contract will carry on to the end of this calendar year.

6:45 And then finally, last but not least, we had a very successful and oversubscribed

6:52 fundraising, which brought $1,160,000 net cash into the business on the June 9. So I think with all these announcements really add up to some solid momentum that we can demonstrate during 2020.

7:16 Okay. So talking about current trading, there's a pie chart on on the slide at the moment. And this pie chart is based on our year to date revenue run rates, and the the two biggest slices are rail and health care.

7:36 There's also FM has got quite a small slice, but that really relates to our non rail and health care that that come through customers because some of the some of the rail and healthcare work does also come via FM customers.

7:57 70% sorry, 75% of our revenue comes from contract agreements whether those be regular maintenance contracts or the type of framework agreement that I mentioned for the housing association. We're currently cash generative, which is really positive. And also, we now feel that we're well placed to exceed our expectations for the full year,

8:35 and we're anticipating that there will be a profit to report in the full year. Hi, Andrea. It's it's Mark here. There have been several questions both before and during the the session regarding management expectations and forecast. Maybe now is the right time to to share with everyone, you know, where we are on that. Yes. Thank you, Mark. So up until now, we have been in a position of a lot of change, trying to turn the business round and make improvements in in lots of different ways. It's just been not possible for us to to put to make any forecasts,

9:19 and we've not been ready to do that. Whereas now, we're really ready to work with Allenby, our brokers, and we will be asking them to to help us, and we will be putting a forecast out by the end of July.

9:42 So just all in all, our current trading, I hope we can demonstrate that since the half year end, we're continuing to trade very strongly.

9:56 I'll hand back to you, Sean. Brilliant. Thank you, Andrea. So moving on to strategy. So now that we've successfully completed that fundraise, it's really time for us to get on with the job in hands, really look at driving that organic growth and and scale in the business. Focus remains, you know, heavily on sales and marketing. We want to continue exploiting those opportunities within the rail, the FM, and the the health care sectors. And ultimately, you know, we want to continue strengthening those recurring revenue streams through both incremental and long term contracts.

10:38 And having strengthened the balance sheet will certainly open up doors to to look at those opportunities. Sean, so all in all Yes, Mark. Sorry, Sean. It's Mark Mark again. There's a question here from Paul L, which is what limits your ability to scale over the next couple of years?

10:57 And what would make you READY and able to scale significantly over the next decade? I think this is really a question around, you know, you've sold part of the issue, which is obviously getting the fundraise away very successfully, but but but this is more about, you know, what we do with that money in order to scale both rapidly and, you know, sustainably. Yeah. That's a really good question. So we we want the investment ready for you know, to to spend it, on our marketing and sales strategy. We are really focusing on building out that sales piece. We are in the final, the latter stages, of shortlisting for either a key account manager slash national account manager, someone who, you know, can come in, hit the ground running, who's got exposure to the kind of clients and the and the sectors that that we feel we're strongest in,

11:52 and and really someone who can take hold of those, you know, those other 20 accounts that we've got, that we've established as, you know, being our key key accounts and and key opportunities to really spend some time focusing on, you know, the efforts on those accounts and really building out, you know, what we've done with those, the three companies that we in the sector that we mentioned in the previous presentation. In addition to that, you know, we'll we'll probably not probably, but we are looking to to further strengthen the sales division, potentially one or two new BDMs in coming into the business. We've got a new new recruit starter today who joins the business ultimately, so to basically to strategically and professionalize, you know, that part of the business within the product development and and project management side.

12:50 So she'll look predominantly at our supply chain, our subcontractor network, you know, and then, like, you know, like a lot of positions within this company, she's she'll be able to put on a different hat and take control and command of of some project management. So she's a she's a key, appointment.

13:10 We've also got some industry PR, out there at the moment, which we're getting some really good traction with and some good engagements. And we've got some small LinkedIn campaigns, which we've just, which we've just launched in the in the in the last couple of weeks. So, you know, all in all, that's the that's the sales and marketing. And as I said earlier, you know, we've got a stronger balance sheet now. It gives us more credibility when Quarton larger contracts with some of the tier ones and blue chip companies. So if I can paraphrase, the question centered around what will enable us or what what's holding us back or what's limiting us, and and you've just described what will enable us. Yeah. We've we've we've got the cash now to make the investment in sales and marketing, which you're Correct. You're doing, and you've got the track record of showing what you can do in two or three customers with the resources you've got. Now with more resources, we'll be able to do more. So that's the limitation of people. So it's about bringing more people in. And I think the other key point that you've made before and certainly Andrew made is that the balance sheet needs to be strong enough for the size of customers that you're working with. You're working with some very large customers. You're punching above your weight, and the balance sheet is key. And and now we've got a balance sheet that is not gonna inhibit us signing up the contracts that you aspire to have. Yeah. Exactly.

14:32 Brilliant. Okay. Thank you. Okay. No problem at all. Okay. So just going back to strategy, I'd like just to say in summary, you know, we are well positioned to generate growth in shareholder value. Moving on to summary. Look. A specialist business. We we've got a unique offering out there in the marketplace. And as a result of that, we've got some really strong relationships with with customers, which in turn gives us some really strong margins. As Andrea said earlier, we're trading ahead of management expectations. We've got a strong positive outlook, beyond that, and, we've got high potential for for profitable growth. So again, in summary, well positioned to generate growth and shareholder value.

15:21 Sean, shall I ask you and Andrea a selection of these questions that have come through? There have been others as well. One of the ones for you, Sean, is in relation to COVID. It's from Jake D. Are you seeing cross selling opportunities from new clients that have come to you for COVID related requirements? And I think if I can expand on that question a little bit from other questions I've seen, what has been the impact of COVID? Because it's not just about the business that come through has come through the door, is it? No. It's not. It's a really good question, actually, Jake. So I think in the in the first instance, it's important to remember that, you know, we're not just the COVID's 19 story.

16:09 You know, we we have we have managed to increase revenue in in other in other, sectors. But in terms of, you know, are we seeing cross selling opportunities for new clients? The the answer is yes. Yeah. Yeah. I think I mentioned it in the first presentation that I did. We we do have a CRM system in place now, which has been in place for, well, probably six, seven, eight months, if not a little bit more. Whilst we've you know, everyone's become very conscious of hygiene. So be because of that, you know, we've got our names in front of companies where perhaps it would have taken us a little bit longer to get engagement from them. We've managed to to obviously collect all that data, and now we're we're in the in the position to really push that on and mine that data and and cross sell as a result of it.

16:59 Great. Jake Jake did did actually ask one other question, and that was about acquisitions. Now we've talked about acquisitions much, and I think we positioned it well in the last presentation that you did in terms of where it fits. But we we may we we ought to just answer this. It says, do you see acquisition opportunities to consolidate the market from weaker competition or weaker competitors? So I guess this is about where our priorities are. Yeah. I think yeah. For for now, our priorities do do do lie with pushing that organic piece. But, you know, same I think we covered it in the in the first presentation we did on on this platform. You know, we we will look at acquisitions, you know, as and when we believe there's a there's an opportunity to to to look at.

17:48 But in doing so, you know, it needs to be the right fit for the business, you know, to to move that forward. Great. Another thread of questions is from Mark Jay. And part of this, obviously, you won't be able to answer because I think the answer is, unfortunately, it's yes anyway, but you can't make a forward looking statement. But there's two questions for Mark Jay. One is, does the company continue to see increasing business since the return to work for many companies? So I think that's just about it would be worth you sharing with the audience what you see happening over the next few months. And and, obviously, it's you know, we don't have a crystal ball, but but it would just be interesting to have your comment.

18:34 And then Mark goes on to say, is the company working on on signing any new major contracts? Well, you know, clearly, we can't say anything in detail, but that is our job, isn't it? That is our job. That is what we're doing. Yeah. Of course. I think, you know, two two good questions there for Mark. So first one, in terms of are we looking at working on any new contracts or to sign a new contract? Yeah. Of course. We're looking at opportunities. That's all we can say on that. And do we continue to see increase in business since return to work for many of our companies? So right now, the the shift, certainly, in the last week or so is, you know, certainly within the FM space, they are making their workplaces fit for purpose, I e, you know, partitions, region, workspaces, etcetera.

19:24 I think that for us, you know, I'm I'm in discussions now with a with a number of clients who believe that the next phase will hit us come September, October. But in saying that, you also have to remember my previous point that we are engaged with a lot more customers that, you know, than we were prior to this. And that, you know, we are a go to now as part of their contingency plans. So, you know, no one has a crystal ball at the end of the day. We don't know if or when or how bad that's going to be, but if there is a second wave, then we are well positioned to handle that. Okay. Great. I think the the sort of final question that I can see for now that we can answer for now is it's from Simon Ellis regarding credit control. Obviously, the past was you've managed through Andrea.

20:14 Can you give some perspective on on where cash control is now? Yes. I mean, we've historically had a lot of problems with bad debts and collecting our debtor balances in a reasonable time. We've really worked hard at changing our processes so that we we invoice very promptly now and, you know, we're we're chasing debt when that debt's due. So in last year's accounts, we made a provision of £83,000. As at now, which is more than halfway through the year, the majority of that provision is still there, not not needed.

21:02 And I don't anticipate at the end of the year, given what I know now, that we'll we'll need any additional provision to to carry forward. So just as a as a snapshot of our debtor balances at the end of March, over 90% of our debtor balances are either in the current column or the thirty day column. And so the total of debts we're concerned about is really tiny now compared to how things have been in the past. Brilliant. Thank you. Okay. I think that brings the questions to an end. And I guess the only other point to be made is the point about forecast. That's clearly something that is on everybody's mind.

21:52 What you've clearly stated, just in summary, Andrea, is that you're now working with the broker, Allenby. And broker and Allenby will be planning to publish their forecasts sometime during the month of July? That's correct. Brilliant. Fantastic. Thank you, Sean. Thank you, Andrew. Thank you, Mark. Thanks for running through the questions. And Mark, pull some of those out as we go through, especially some of the more poignant ones around the forecast. Thank you for updating investors today as part of your roadshow. I'd just like to remind everyone that recording the presentation along with a copy of the slides and the published Q and A can be accessed via your Investor Meet company dashboard on the Investor Meet company platform.

22:37 Sean, just before I pass investors on to provide you feedback, which obviously is most important to the company, would you like just to conclude and just wrap up? And then I can just pass the investors through. Yes. Thanks, Paul. Yes. Just wanted to say thanks for taking the time to jump on the platform and for the questions. Thanks, Sean. Can I ask investors not to close the session? You will automatically be redirected for the opportunity to provide your feedback. And as I say, feedback is very much important to the company. If you've accessed the meeting via the website, the feedback page will appear. If you've accessed from the link we sent via an email, you'll be asked to log in and submit your feedback to the company. Many thanks again for attending today. That concludes today's presentation.

23:25 Thank you. Thank you. Thank you.