Business
Interim Results
Interim Results.
About this update from React Group Plc
29 May 2024 REACT Group plc ("REACT", the "Group" or the "Company") Interim Results REACT Group plc (AIM:REAT.L), the leading specialist cleaning and soft facilities management services company is pleased to announce its unaudited interim results for the six-month period ended 31 March 2024. Financial highlights · Revenue increased by 13% to £10,566k (H1 2023: £9,320k) o Repeat/recurring revenue greater than 85% · Gross profit increased by 15% to £2,868k (H1 2023: £2,484k) · Gross profit margin strengthened by 40 basis points to 27.1% (H1 2023: 26.7%) · Adjusted EBITDA* increased by 35% to £1,281k (H1 2023: £951k) · Cash and cash equivalents as at 31 March 2024 of £1,490k (H1 2023: £650k) · Free cash flow increased by 35% to £923k (H1 2023: £684k) · Basic earnings per share of 0.41p (H1 2023: loss of 0.41p) · Adjusted EBITDA* earnings per share of 6.02p (H1 2023: 4.51p) Strategic and operational highlights · Secured three significant contracts totaling over £1.3m annually, alongside a continued cadence of small to mid-sized contracts · Successfully renewed a material 3-year contract with a large university, almost doubling the scope and size to £1.3m per year · Additionally, renewed three significant specialist cleaning contracts in the healthcare sector, collectively valued at just over £0.5m per year · LaddersFree digitalisation project is progressing, timetable for user acceptance testing is over the summer - project and system go live subject to user acceptance testing, anticipated for later in the year. · The Group is mostly complete with moving its banking facilities to one consolidated relationship with HSBC to support operational effectiveness of the business and its growth ambitions Current trading and outlook · Maintained strong sales momentum and secured higher margin business underscoring the strength of the Group's value proposition and customer acquisition strategy · Pipeline for the remainder of the year remains robust providing the Board with a high degree of confidence in achieving full year consensus market expectations** *Adjusted EBITDA represents earnings before separately disclosed acquisition, impairment of intangibles, share-based payments and other restructuring costs (as well as before interest, tax, depreciation and amortisation). This is a non-IFRS measure. ** Current consensus FY24 Revenue & Adjusted EBITDA market expectations of £21.25m & £2.5m respectively Commenting on the results Shaun Doak, Chief Executive Officer of REACT, said: "We are delighted with the Group's performance, particularly in a year characterised by significant investments. Despite the challenges, we have maintained strong sales momentum and secured higher margin business, which is a testament to our strategic efforts and operational efficiencies. "In addition to securing new material contracts, the Group has also achieved numerous small and medium-sized wins, whilst simultaneously renewing and enlarging existing contracts. This consistent success across various deal sizes underscores the quality of the Groups value proposition and is testament to our effective selling and cross-selling to drive growth. "Looking ahead, the pipeline for the remainder of the year remains strong. This solid foundation provides the Board with considerable confidence in our ability to meet full year market expectations. We believe that our strategic investments and diversified contract wins position us well for sustained success." For more information: REACT Group Tel: +44 (0) 1283 550 503 Shaun Doak, Chief Executive Officer Spencer Dredge, Chief Financial Officer Mark Braund, Chairman Singer Capital Markets - Nominated Adviser & Joint Broker Tel: +44 (0) 207 496 3000 Philip Davies / Alex Bond / Oliver Platts Dowgate Capital - Joint Broker Tel: +44 (0) 20 3903 7715 Stephen Norcross / Nicholas Chambers IFC Advisory - Financial PR & IR Tel: +44 (0) 20 3934 6630 Graham Herring / Zach Cohen About Us: REACT Group plc, the UK's leading specialist cleaning and soft facilities management services business, operates with three divisions: LaddersFree, one of the largest commercial window cleaning businesses in the UK; Fidelis Contract Services ("Fidelis"), a contract cleaning and facilities maintenance business; and 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. RESULTS SUMMARY & STRATEGY Strategy At the recent trading update in April 2024, REACT announced that the positive trading momentum had continued into the first half of 2024, resulting in a record trading performance for the Group in the initial months of the financial year. The Board is pleased to report that this positive trend has continued with significant sales growth in the period. Consequently, revenues for the six-month period are £10.6 million, up from £9.3 million in 2023. The Group achieved gross profit of £2.9 million, compared to £2.5 million in the previous year, and an Adjusted EBITDA of £1.3 million, a significant increase from £1.0 million in 2023. The Group has generated robust recurring and repeat revenues, representing greater than 85% of revenue generated in the period, with the improved revenue mix reflecting higher margin repeat business and operational synergies across the business. This margin enhancement underscores the Group's strategic focus on sustainable growth and profitability. The Group continues to demonstrate robust performance from its sales and marketing initiatives, consistently securing new business wins that contribute to its overall growth. This success is not only due to effective sales strategies but also follows investment into the Groups marketing capability. Additionally, the business is experiencing strong momentum in renewing existing contracts, providing clear evidence of the quality of the Group's value proposition, along with its ability to forge strong customer relationships which results in high levels of customer satisfaction. The value of these renewals has increased as a result of cross-selling relevant Group service offerings and, providing comprehensive solutions that meet the diverse needs of our customers. In line with the long-term growth objectives, the Group is now strategically shifting away from lower-margin opportunities. This pivot allows REACT to concentrate on higher-margin business segments that offer greater returns and sustainable growth. The strategy moving forward is to leverage the Group's strengths in sales and marketing, capitalise on cross-selling to existing clients, and prioritise high-margin business opportunities to ensure continued success. Examples of the Company's successes during the period include: Maintaining momentum in securing new business, noting the recently announced three significant contracts totaling over £1.3 million annually and the £0.5 million agreement with a leading UK facilities management (FM) business. These contracts sit alongside multiple small and medium-sized contract wins to underscore the commitment to growth and the ability to forge strong and lasting relationships with key partners. The first contract is a substantial £0.8 million three-year renewal and expansion of an FM soft services agreement with an NHS trust in the Midlands. This agreement includes an option to extend the partnership to five years, reflecting the trust's confidence in REACTS's services and consistent delivery of high-quality results. Additionally, the Group has extended its Core Vendor agreement with the UK operations of one of the world's largest FM companies for another two years. Moreover, the Company has secured a new £0.5 million agreement with a leading UK FM business. This contract involves providing a single point of service delivery for emergency decontamination services to its customers, including several well-known and recognisable brands. This new partnership not only expands the Group's service portfolio but also enhances the reputation for delivering critical high-stakes services efficiently and effectively. These recent contract wins continue to evidence the strategic focus on growing the business through valuable partnerships and high-quality service delivery. They also demonstrate the ability to adapt and respond to the needs of clients, ensuring REACT remains at the forefront of the FM sector. The Group also renewed several long-term contracts during the period, including a material 3-year agreement with a large university in the Midlands, where the enlarged contract of £1.3 million per year was almost double the size of the previous period due to strategic increases in the services provided by the Group. Post period end, the Group successfully renewed three significant specialist cleaning contracts in the healthcare sector, collectively valued at just over £0.5 million per year. These contracts include some modest expansions in scope, which will increase revenue. These renewals not only bolster our confidence in this year's performance but also enhance the Company's ongoing recurring revenue profile. At the full year results announced in February 2024, the Group announced its intention to implement a considered programme to invest in people, processes and systems which will enable the Group to improve operational efficiency and scale with robust systems. This investment programme is proceeding to plan on time and on budget and is expected to be fully operational early in the new financial year. Trading performance Following a strong close to the year ended 30 September 2023, trading performance has continued robustly in the period. Revenue increased 13% to £10,566k (H1 2023: £9,320k), generating a gross profit contribution of £2,868k (H1 2023: £2,484k), at a gross margin of 27.1% (H1 2023: 26.7%). Administrative expenses marginally increased by 2% over the prior period to £2,560k (H1 2023: £2,499k). Administrative expenses including non-cash expenses amounted to £917k (H1 2023: £928k) and is made up of £898k of amortisation and depreciation (H1 2023: £904k) and share-based payments of £19k (H1 20233: £24k). Adjusted EBITDA for the Group increased by 35% over the prior period to £1,281k (H1 2023: £951k) , mainly resulting from increased gross margin contribution from stronger sales in the period. Adjusted EBITDA represents a 45% conversion from gross profit (H1 2023: 38%) . The Group reported a profit in the period of £87k (H1 2023: loss of £86k) and basic earnings per share of 0.41p (H1 2023: loss of 0.41p). Adjusted EBITDA earnings per share increased to 6.02p (H1 2023: 4.51p). Earnings per share has been calculated based on the new shares in issue following the share consolidation which occurred on 2 April 2024 for all reported periods. Cash flow Cash generated from continuing operations amounted to £1,147k (H1 2023: £829k). Cash generated in the period benefitted from profitable trading, adjusted for non-cash items and adding back depreciation and amortisation of £898k (H1 2023: £904k) and share-based payments of £19k (H1 2023: £24k). Cash outflows from financing activities amounted to £154k ( H1 2023 : £145k), resulting from the £80k repayment of the term loan ( H1 2023 : £62k), interest payments of £78k ( H1 2023 : £71k) and lease liabilities of £26k ( H1 2023 : £37k), offset by the income from shares issued as a result of the £30k of warrants exercised in the period. In the period the Group paid out £1,023k ( H1 2023 : £938k) in deferred consideration in relation to the acquisition of LaddersFree and Fidelis, contributing to cash used in investment activities in the period of £1,143k ( H1 2023 : £1,013k). The final deferred consideration payments of £983k is payable in the second half of year ended 30 September 2024. The above cash flows resulted in cash and cash equivalents at the period end of £1,490k ( H1 2023 : £650k). Free cash flow generated in the period amounted to £923k ( H1 2023 : £684k) an increase of 35%. Post Balance Sheet events The share consolidation & capital reduction was approved by shareholders at the annual general meeting of the Company 28 March 2024, separate resolutions at the recent AGM held on the 28th March, were overwhelmingly approved by shareholders and have now been implemented. Following the Court hearing on the 30 April 2024, the Company has affected a capital reduction by effectively cancelling both the Share Premium account of £10,909,617 and Capital Redemption Reserves account of £3,336,916 and creating a distributable reserve equal to the balance of both. The share consolidation became effective after the interim period on the 2 April 2024. For the purposes of calculating the earnings per share, these interim accounts and comparative periods have been prepared on the basis that the share consolidation was effective for all reporting periods. People Our focus on fostering a talented and empowered workforce continues to propel us forward. We've leveraged our expanding scale to invest strategically in both people and technology. Bespoke training and development programs have nurtured internal talent, allowing us to promote key personnel and cultivate a culture of continuous learning. This investment translates to a more skilled and engaged workforce, ultimately driving greater performance and employee satisfaction. Alongside our commitment to talent development, we continue to actively expand our sales and marketing capabilities through strategic investments in people and technology. These investments will equip our team with the tools and resources needed to unlock new opportunities and facilitate future growth opportunities. The strong financial performance that we've achieved would not be possible without the unwavering dedication of our incredible team. Each member has played a vital role in our collective success. We extend our deepest gratitude to our colleagues for their continued passion and commitment. It is through their tireless efforts that we continue to succeed and push the boundaries of what's possible. Outlook Trading in the second half of the year has remained robust, continuing the strong momentum from the first half. The improved mix of recurring revenue and higher margins gives the business increased visibility and a more reliable revenue stream. The pipeline for the rest of the year continues to be strong, providing the Board with significant confidence in the ability to meet full year consensus market expectations. The Group is confident that the strategic investments and diversified contract wins position the Business well for continued success. Shaun Doak Chief Executive Officer 29 May 2024 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the six months ended 31 March 2024 Unaudited 6 months ended 31 March 2024 Unaudited 6 months ended 31 March 2023 Audited Year ended 30 September 2023 Note £'000 £'000 £'000 Continuing Operations Revenue 10,566 9,320 19,582 Cost of Sales (7,698) (6,836) (14,343) Gross Profit 2,868 2,484 5,239 Administrative expenses (2,560) (2,499) (4,988) Adjusted EBITDA* 1,281 951 2,272 Depreciation (77) (83) (166) Amortisation (821) (821) (1,643) Exceptional items (56) (38) (131) Share-based payments (19) (24) (81) Operating profit/(loss) 308 (15) 251 Finance cost (78) (71) (203) Taxation (143) - 2 Profit/(loss) for the period 87 (86) 50 Other comprehensive Income - - - Profit/(loss) for the financial period attributable to equity holders of the company 87 (86) 50 Basic, diluted earnings and adjusted EBITDA per share 3 Basic earnings/(loss) per share 0.41p (0.41)p 0.24p Diluted earnings/(loss) per share 0.37p (0.41)p 0.21p Adjusted basic EBITDA per share 6.02p 4.51p 10.75p Adjusted diluted EBITDA per share 5.50p 4.51p 9.76p *Adjusted EBITDA represents earnings before separately disclosed acquisition, impairment of intangibles, share-based payments and other restructuring costs (as well as before interest, tax, depreciation and amortisation). This is a non-IFRS measure. CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 31 March 2024 Unaudited As at 31 March 2024 Unaudited As at 31 March 2023 Audited As at 30 September 2023 Assets £'000 £'000 £'000 Non-current assets Intangibles - Goodwill 5,533 4,209 5,446 Intangibles - Other 3,216 4,859 4,037 Property, plant and equipment 237 185 172 Right-of-use assets 56 73 78 Deferred tax asset 143 244 123 9,185 9,570 9,856 Current assets Stock 3 11 7 Trade and other receivables 4,660 4,301 4,425 Cash and cash equivalents 1,518 1,379 2,120 6,181 5,691 6,552 Total assets 15,366 15,261 16,408 Equity Shareholders' Equity Called-up equity share capital 2,669 2,644 2,644 Share premium account 10,915 10,910 10,910 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 144 68 125 Accumulated losses (4,036) (4,259) (4,123) Total Equity 8,631 8,302 8,495 Liabilities Current liabilities Trade and other payables 3,679 2,861 3,601 Loans and other borrowings 188 890 641 Lease liabilities within one year 30 50 40 Deferred consideration 907 1,315 1,758 Corporation tax 541 195 262 5,345 5,311 6,302 Non-current liabilities Loans and other borrowings 585 746 665 Lease liabilities after one year 23 34 38 Deferred consideration - 851 - Deferred tax liability 782 17 908 1,390 1,648 1,611 Total liabilities 6,735 6,959 7,913 Total Liabilities and Equity 15,366 15,261 16,408 CONSOLIDATED STATEMENT OF CASH FLOWS For the six months ended 31 March 2024 Unaudited 6 months ended 31 March 2024 Unaudited 6 months ended 31 March 2023 Audited Year ended 30 September 2023 £'000 £'000 £'000 Net cash inflow from operations 1,147 829 2,444 Cash flows from financing activities Proceeds of share issue 30 25 24 Lease liability payments (26) (37) - Bank Loans (80) (62) (181) Interest paid (78) (71) (203) Net cash outflow from financing activities (154) (145) (360) Net cash from investing activities Disposal of fixed assets - - 5 Capital expenditure (120) (37) (119) Acquisition of subsidiary (1,023) (938) (1,309) Exceptional costs paid - (38) - Net cash outflow from investing activities (1,143) (1,013) (1,423) Net (decrease)/increase in cash, cash equivalents and overdrafts (150) (329) 661 Cash, cash equivalents and overdrafts at beginning of period 1,640 979 979 Cash, cash equivalents and overdrafts at end of period 1,490 650 1,640 Analysis of cash, cash equivalents and overdrafts: Cash at bank and in hand 1,518 1,379 2,120 Overdrafts (28) (729) (480) 1,490 650 1,640 Reconciliation of profit for the period to cash outflow from operations Unaudited 6 months ended 31 March 2024 Unaudited 6 months ended 31 March 2023 Audited Year ended 30 September 2023 £'000 £'000 £'000 Profit/(loss) for the period 87 (86) 50 Decrease in stocks 4 - 4 Increase in receivables (254) (47) (50) Increase in payables 181 1 573 Depreciation and amortisation charges 898 904 1,809 Finance costs 78 71 203 Tax charge/(credit) 143 - (2) Exceptional acquisition costs - 38 - Profit on disposal of fixed assets - - 2 Share based payment 19 24 81 Tax paid (9) (76) (226) Net cash inflow from operations 1,147 829 2,444 Consolidated Statement of Changes in Equity For the six months ended 31 March 2024 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 1 October 2023 2,644 10,910 1,328 3,337 (5,726) 125 (4,123) 8,495 Issue of shares 25 5 - - - - - 30 Share based payments - - - - - 19 - 19 Profit for the period - - - - - - 87 87 At 31 March 2024 2,669 10,915 1,328 3,337 (5,726) 144 (4,036) 8,631 At 1 October 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 As 1 October 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 - - - - - 81 - 81 Profit for the period - - - - - - 50 50 At 30 September 2023 2,644 10,910 1,328 3,337 (5,726) 125 (4,123) 8,495 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 United Kingdom 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 2023. The interim financial information for the six months ended 31 March 2024, which complies with IAS 34 'Interim Financial Reporting' were approved by the Board of Directors on 29 May 2024. The unaudited interim financial information for the six months ended 31 March 2024 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 2023 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. As disclosed in note 3, for the purposes of calculating earnings per share, these interim accounts and comparative periods are presented on the basis that the share consolidation was effective for all reporting periods. 2. 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, Ad Hoc work and the Group overhead. Unaudited 6 months ended 31-Mar-24 Contract Maintenance Contract Reactive Ad Hoc Work Group Overhead Total £'000 £'000 £'000 £'000 £'000 Revenue 8,031 1,439 1,096 - 10,566 Cost of Sales (5,778) (1,101) (819) - (7,698) Gross Profit 2,253 338 277 - 2,868 Other Operating Income - - - - - Administrative Expenses (1,704) (212) (184) (460) (2,560) Operating profit/(Loss) for the year 549 126 93 (460) 308 Adjusted EBITDA 1,384 144 121 (368) 1,281 Total Assets 8,162 985 775 5,444 15,366 Total Liabilities (1,997) (725) (534) (3,479) (6,735) Unaudited 6 months ended 31-Mar-23 Contract Maintenance Contract Reactive Ad Hoc Work Group Overhead Total £'000 £'000 £'000 £'000 £'000 Revenue 6,807 1,181 1,332 - 9,320 Cost of Sales (4,924) (885) (1,027) - (6,836) Gross Profit 1,883 296 305 - 2,484 Other Operating Income - - - - - Administrative Expenses (1,620) (227) (259) (393) (2,499) Operating profit/(Loss) for the year 263 69 46 (393) (15) Adjusted EBITDA 1,076 94 96 (315) 951 Total Assets 7,840 980 947 5,494 15,261 Total Liabilities (3,166) (878) (749) (2,166) (6,959) Audited 12 months ended 30-Sep-23 Contract Contract Ad Hoc Group Total Maintenance Reactive Work Overhead £'000 £'000 £'000 £'000 Revenue 14,321 2,751 2,510 19,582 Cost of Sales (10,475) (1,999) (1,869) (14,343) Gross Profit 3,846 752 641 5,239 Other Operating Income - - - - Administrative Expenses (3,149) (437) (488) (914) (4,988) Operating Profit/(Loss) for the year 697 315 153 (914) 251 Adjusted EBITDA 2,331 380 255 (694) 2,272 Total Assets 8,850 1,088 1,014 5,456 16,408 Total Liabilities (3,837) (866) (784) (2,426) (7,913) 3. Earnings per Share (basic and adjusted) The calculations of earnings per share (basic and adjusted) are based on the net profit/(loss) and adjusted EBITDA per share before; interest, tax, depreciation, amortisation of acquired intangible assets, exceptional items and share-based payments . Aligned to IFRS reporting standards, the earnings per share calculation is based on the new capital structure post the 50:1 share consolidation, the effective date of the consolidation was 2 April 2024. The comparative periods earnings per share are also based on the new capital structure. Unaudited 6 months ended 31 March 2024 Unaudited 6 months ended 31 March 2023 Audited Year ended 30 September 2023 £'000 £'000 £'000 Profit/Loss for the financial period Finance cost Taxation 87 78 143 (86) 71 - 50 203 (2) Operating profit/(loss) 308 (15) 251 Adjustments: Depreciation 77 83 166 Amortisation 821 821 1,643 Exceptionals 56 38 131 Share based payments 19 24 81 Adjusted EBITDA 1,281 951 2,272 Number Number Number Weighted average shares in issue for basic earnings per share 21,264,446 21,107,394 21,130,245 Weighted average dilutive share options and warrants 2,041,701 1,835,014 2,137,172 Average number of shares used for dilutive earnings per share 23,306,147 22,942,408 23,267,417 pence pence pence Basic profit/(loss) per share 0.41p (0.41)p 0.24p Diluted profit/(loss) per share 0.37p (0.41)p 0.21p Adjusted EBITDA earnings per share 6.02p 4.51p 10.75p Adjusted diluted EBITDA earnings per share 5.50p 4.51p 9.76p 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