Business
Half-year Report
Half-year Report.
About this update from React Group Plc
29 June 2023 REACT Group plc ("REACT", the "Group" or the "Company") Half Year Results FY 2023 REACT Group plc (AIM:REAT.L), the leading specialist cleaning, hygiene and decontamination company announces its unaudited results for the six-month period ended 31 March 2023. Financial Summary HY 2023 HY 2022 Revenue (£'000) 9,320 5,125 Gross profit (£'000) 2,484 1,156 Gross profit margin 26.7% 22.6% Adjusted EBITDA (£'000)* 927 162 Adjusted profit before amortisation of acquired intangible assets and exceptional items (£'000) * 773 88 Net loss for the period (£'000) (86) (92) Adjusted earnings per share (basic) (pence) 0.07 0.02 Adjusted earnings per share (diluted) (pence) 0.07 0.01 Net debt (excluding lease liabilities) (£'000) 257 43 *These measures are explained and reconciled in the Alternative Performance Measures section in Note 5 below. Highlights (including post period highlights): · Revenue increased by 82% to £9,320k (2022: £5,125k) · Adjusted EBITDA up materially to £927k (2022: £162k) · Gross margins up at 27% from 23% in H1 2022 · £800k multi-year contract win to provide services, through a coordinated programme from all three segments of the business to a large fast-service restaurant chain across c. 350 sites in the UK · £500k 18-month contract with a sizeable Midlands-based school alongside numerous contract renewals which include another school worth around £540k over three years and an annual contract with an NHS Trust worth almost £200k · Improved mix of recurring revenue as well as higher margins provides the business with greater visibility and a more dependable revenue stream Commenting on the results Shaun Doak, Chief Executive Officer of REACT, said: "We are delighted to report a strong trading performance for the business with revenue and profit at record levels. All three divisions have traded well in the period and this momentum has continued into the second half. "The Group has benefitted from notable customer wins including an £800k contract to provide services, through a coordinated programme from all three segments of the business to a large fast-service food chain across all its sites in the UK. This major contract win illustrates how strategic acquisitions provide significant cross-selling opportunities for the Group once successfully integrated. "The enhanced mix of recurring revenue and increased margins provides the business with greater visibility and a more dependable revenue stream. This combined with the strength of our pipeline for the remainder of the year provides the Board with cautious optimism and reinforces its confidence in achieving full-year results in line with market expectations. "On behalf of the Board, I would once again like to thank all my colleagues for their ongoing support, commitment, tenacity and quality of work." For more information: REACT Group Plc Shaun Doak, Chief Executive Officer Andrea Pankhurst, Chief Financial Officer Mark Braund, Chairman Tel: +44 (0) 1283 550 503 Singer Capital Markets (Nominated Adviser / Broker) Phil Davies / James Moat (Corporate Finance) Tel: +44 (0) 207 496 3000 IFC Advisory ( Financial PR / IR) Graham Herring / Zach Cohen Tel: +44 (0) 20 3934 6630 This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"). Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain. RESULTS SUMMARY & STRATEGY Strategy The REACT business performed strongly during the six months to 31 March 2023, trading in the period has been robust and the positive contract win momentum has continued with good sales growth across all three divisions of the business. The Group achieved record revenue and profit growth during the six-month period. The combination of growing recurring revenue as well as higher margins provides the business with greater visibility and a more dependable revenue stream. Recurring revenue is key to our strategy and the contract maintenance segment of the business typically allows customers to purchase our services over a contracted period of several years. Within these contracts, price increases are implemented at certain points to mitigate wage-inflation pressures. The Group has benefitted from its ability to cross sell other business services into existing and new customers. Evidence of this is the recent contract win, with an estimated value of £800k in the current financial year, to provide services, through a coordinated programme from all three segments of the business to a large fast-service food restaurant across all its sites in the UK. This positive contract win momentum has continued, with good sales growth in all three divisions of the business across the six-month period. In May last year, the Group acquired LaddersFree, one of the largest commercial window cleaning businesses in the UK. The business has been integrated well and its revenues have grown by over 25% in its first year as part of the Group. This has been achieved despite the gloom on the UK high street resulting in customer site closures and economic pressures over the last year. The Board is looking to scale the business whilst professionalising its operating systems. LaddersFree continues to be awarded contracts to provide services for retailers, restaurants, hotels and car dealerships amongst others. The division continues to attract higher margin contracts helping to deliver a considerable contribution to Group profits. It has now been over two years (March 2021) since the Group acquired Fidelis Contract Services ("Fidelis"), a contract cleaning and facilities maintenance business. Fidelis had a slightly slower start to H1, this then improved greatly reporting record revenues over the latter stages of the six-month period. Fidelis has been awarded a £500k 18-month contract with a sizeable Midlands-based school and alongside this, numerous contract renewals which include another school worth around £540k over three years and an annual contract with an NHS Trust worth almost £200k. The Fidelis business is now generating twice as much revenue as it was in the 12-months prior to acquisition, demonstrating not only its strategic value to the Group but also the manner in which the Company has been able to integrate and grow the business, adding a more scalable management team and more sophisticated systems to support its continuing growth ambitions. The REACT business, which primarily provides a solution to emergency and specialist cleaning situations, both through long-term framework agreements and on an ad-hoc basis, has had a buoyant period of business as its bespoke services remain in demand. Margins remain a focus of this division as these continue to rise as a result of a changing mix of business. People The Group performs bespoke training and development projects and, as a consequence, has been able to develop the roles of a number of important personnel and promote internally. As an aspiring expanding Group, it continues to take efforts to invest in its people to promote greater performance and job satisfaction of all employees. Due to the nature of REACT's service delivery department, this is undertaken by people who are considered experts in their field, supported by a dedicated customer-centric team, who have now fully adapted to working conditions since all COVID restrictions have been lifted. The strong financials reported in H1 are bolstered by the efforts of the entire team and each individual has played a crucial role in our collective achievements. I would like to take this opportunity to extend our gratitude and appreciation to our esteemed colleagues for their unwavering dedication and hard work. It is through their collective efforts and commitment that we have achieved our targets during this period and reached new heights. Outlook Trading in the second half of the year has continued well building on the momentum of the first half. The enhanced mix of recurring revenue and increased margins provides the business with greater visibility and a more dependable revenue stream. This combined with the strength of our pipeline for the remainder of the year provides the Board with cautious optimism and reinforces its confidence in achieving full-year results in line with market expectations. Shaun Doak Chief Executive Officer 29 June 2023 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the six months ended 31 March 2023 Unaudited 6 months ended 31 March 2023 Unaudited 6 months ended 31 March 2022 Audited Year ended 30 September 2022 Note £'000 £'000 £'000 Continuing Operations Revenue 9,320 5,125 13,671 Cost of Sales (6,836) (3,969) (10,414) Gross Profit 2,484 1,156 3,257 Administrative expenses (2,499) (1,241) (3,768) Adjusted operating profit before amortisation of acquired intangible assets and exceptional items 844 91 775 Amortisation of acquired intangible assets (821) (147) (743) Exceptional costs (38) (29) (543) Operating loss (15) (85) (511) Finance cost (71) (3) (56) Corporation tax charge - (4) (134) Loss for the period (86) (92) (701) Other comprehensive Income - - - Loss for the financial period attributable to equity holders of the company (86) (92) (701) Basic and diluted profit per share 4 Basic loss per share (0.01)p (0.02)p (0.09)p Diluted loss per share (0.01)p (0.02)p (0.09)p Adjusted basic earnings per share 0.07p 0.02p 0.08p Adjusted diluted earnings per share 0.07p 0.01p 0.07p CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 31 March 2023 Unaudited As at 31 March 2023 Unaudited As at 31 March 2022 Audited As at 30 September 2022 Assets Note £'000 £'000 £'000 Non-current assets Intangibles - Goodwill 4,209 1,854 4,209 Intangibles - Other 4,859 881 5,680 Property, plant and equipment 185 168 203 Right-of-use assets 73 68 100 Deferred tax asset 244 240 244 9,570 3,211 10,436 Current assets Stock 11 10 11 Trade and other receivables 4,301 2,305 4,254 Cash and cash equivalents 650 (43) 979 4,962 2,272 5,244 Total assets 14,532 5,483 15,680 Equity Shareholders' Equity Called-up equity share capital 2,644 1,270 2,624 Share premium account 10,910 6,028 10,905 Reverse acquisition reserve (5,726) (5,726) (5,726) Capital redemption reserve 3,337 3,337 3,337 Merger relief reserve 1,328 1,328 1,328 Share based payments 68 33 44 Accumulated losses (4,259) (3,564) (4,173) Total Equity 8,302 2,706 8,339 Liabilities Current liabilities Trade and other payables 4,176 2,309 4,230 Loans and other borrowings 161 - 161 Lease liabilities within one year 50 46 57 Corporation tax 195 - 271 4,582 2,355 4,719 Non-current liabilities Loans and other borrowings 746 - 808 Lease liabilities after one year 34 30 53 Other creditors 868 392 1,761 1,648 422 2,622 Total liabilities 6,230 2,777 7,341 Total Liabilities and Equity 14,532 5,483 15,680 CONSOLIDATED STATEMENT OF CASH FLOWS For the six months ended 31 March 2023 Unaudited 6 months ended 31 March 2023 Unaudited 6 months ended 31 March 2022 Audited Year ended 30 September 2022 £'000 £'000 £'000 Net cash inflow/(outflow) from operations 829 7 (773) Cash flows from financing activities Proceeds of share issue 25 - 6,500 Expenses of share issue - - (269) Lease liability payments (37) (27) (80) Bank Loans (62) (50) 902 Interest paid (71) - (56) Net cash (outflow)/inflow from financing activities (145) (77) 6,997 Net cash from investing activities Disposal of fixed assets - - 20 Capital expenditure (37) (64) (115) Acquisition of subsidiary (938) (525) (7,776) Exceptional costs paid (38) (17) (543) Net cash outflow from investing activities (1,013) (606) (8,414) Net decrease in cash, cash equivalents and overdrafts (329) (676) (2,190) Cash, cash equivalents and overdrafts at beginning of period 979 633 633 Cash on acquisition of subsidiaries - - 2,536 Cash, cash equivalents and overdrafts at end of period 650 (43) 979 Analysis of cash, cash equivalents and overdrafts: Cash at bank and in hand 1,379 214 1,529 Overdrafts (729) (257) (550) 650 (43) 979 Reconciliation of profit for the period to cash outflow from operations Unaudited 6 months ended 31 March 2023 Unaudited 6 months ended 31 March 2022 Audited Year ended 30 September 2022 £'000 £'000 £'000 Loss for the period (86) (92) (701) Decrease/(increase) in stocks - 2 1 (Increase)/decrease in receivables (47) (206) (2,155) Increase in payables 1 38 374 Depreciation and amortisation charges 904 219 921 Impairment charge - - 567 Finance costs 71 3 56 Tax charge/(credit) - 4 134 Acquisition assets acquired (excluding cash) - - 119 Exceptional acquisition costs 38 29 (24) Profit on disposal of fixed assets - - (6) Share based payment 24 10 21 Tax paid (76) - (80) Net cash inflow from operations 829 7 (773) Consolidated Statement of Changes in Equity For the six months ended 31 March 2023 Share Capital Share Premium Merger Relief Reserve Capital Redemption Reserve Reverse Acquisition Reserve Share Based Payments Reserve Accumulated Deficit Total Equity £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 30 September 2021 1,270 6,028 1,328 3,337 (5,726) 23 (3,472) 2,788 Share based payments - - - - - 10 - 10 Loss for the period - - - - - - (92) (92) At 31 March 2022 1,270 6,028 1,328 3,337 (5,726) 33 (3,564) 2,706 Issue of shares 1,354 4,877 - - - - - 6,231 Share based payments - - - - - 11 - 11 Loss for the period - - - - - - (609) (609) At 30 September 2022 2,624 10,905 1,328 3,337 (5,726) 44 (4,173) 8,339 Issue of shares 20 5 - - - - - 25 Share based payments - - - - - 24 - 24 Loss for the period - - - - - - (86) (86) At 31 March 2023 2,644 10,910 1,328 3,337 (5,726) 68 (4,259) 8,302 Notes to the interim financial statements 1. Basis of preparation These consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and on a historical basis, using the accounting policies which are consistent with those set out in the Group's annual report and accounts for the year ended 30 September 2022. The interim financial information for the six months ended 31 March 2023, which complies with IAS 34 'Interim Financial Reporting' were approved by the Board of Directors on 29 June 2023. The unaudited interim financial information for the six months ended 31 March 2023 does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. The comparative figures for the year ended 30 September 2022 are extracted from the statutory financial statements which have been filed with the Registrar of Companies and contain an unqualified audit report and did not contain statements under Section 498 to 502 of the Companies Act 2006. 2. Principal Accounting Policies The principal accounting policies adopted are consistent with those of the annual financial statements for the year ended 30 September 2022. 3. Segmental Reporting In the opinion of the Directors, the Group has one class of business, being that of specialist cleaning and decontamination services. Although the Group operates in only one geographic segment, which is the UK, it has also analysed the sources of its business into the segments of Contract Maintenance, Contract Reactive or Ad Hoc work. Unaudited 6 months ended 31 March 2023 Unaudited 6 months ended 31 March 2022 Contract Maintenance Work Contract Reactive Work Ad Hoc Work Total Contract Maintenance Work Contract Reactive Work Ad Hoc Work Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Revenue 6,807 1,181 1,332 9,320 3,268 933 924 5,125 Gross profit 1,883 296 305 2,484 520 281 355 1,156 Profit before amortisation and exceptional items 689 36 48 773 38 20 26 84 Total Assets 13,213 450 869 14,532 2,466 1,334 1,683 5,483 Total Liabilities (5,665) (193) (372) (6,230) (1,249) (675) (853) (2,777) 4. Earnings per Share (basic and adjusted) The calculations of earnings per share (basic and adjusted) are based on the net loss and a djusted profit before amortisation of acquired intangible assets and exceptional items * respectively and the ordinary shares in issue during the period. Unaudited 6 months ended 31 March 2023 Unaudited 6 months ended 31 March 2022 Audited Year ended 30 September 2022 £'000 £'000 £'000 Net Loss for period (86) (88) (701) Adjustments: Amortisation on acquired intangible assets 821 147 743 Exceptionals 38 29 543 Adjusted profit before amortisation of acquired intangible assets and exceptional items 773 88 585 Number Number Number Weighted average shares in issue for basic earnings per share 1,055,369,702 508,006,026 718,622,464 Weighted average dilutive share options and warrants 91,750,707 62,247,272 62,247,272 Average number of shares used for dilutive earnings per share 1,147,120,409 570,253,298 780,869,736 pence pence pence Basic loss per share (0.01)p (0.02)p (0.09)p Diluted loss per share (0.01)p (0.02)p (0.09)p Adjusted basic earnings per share 0.07p 0.02p 0.08p Adjusted diluted earnings per share 0.07p 0.02p 0.07p *These measures are explained and reconciled in the Alternative Performance Measures section in Note 5 below. 5. Alternative Performance Measures The Board monitors performance principally through adjusted comparative performance measures. Adjusted profit and earnings per share measures exclude certain items including amortisation of acquired intangible assets and exceptional items. The Board believes that these alternative measures provide a clearer understanding of the Group's underlying trading performance, as they exclude one-off and non-cash items. They key measures used as APMs are reconciled below: HY 2023 £'000 HY 2022 £'000 Loss before tax as per Statement of Comprehensive Income (86) (88) Amortisation of acquired intangible assets 821 147 Exceptional items 38 29 Adjusted profit before amortisation of acquired intangible assets and exceptional items 773 88 Interest 71 2 Depreciation 83 72 Adjusted EBITDA 927 162 Copies of this Interim Report are available from the Company Secretary, Holly House, Shady Lane, Birmingham B44 9ER and on the Company's website www.reactsc.co.uk/react-group-plc