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RNS Number : 1574Q React Group PLC 29 May 2024
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 Unaudited Audited
6 months ended 31 March 2024 6 months ended 31 March 2023 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 87 (86) 50
company
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 Unaudited Audited
As at 31 As at 31 March 2023 As at 30
March September 2023
2024
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 Unaudited Audited
6 months ended 6 months ended Year
31 March 2024 31 March 2023 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 (154) (145) (360)
activities
Net cash from investing activities - - 5
Disposal of fixed assets
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 (150) (329) 661
equivalents and overdrafts
Cash, cash equivalents and overdrafts at 1,640 979 979
beginning of period
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 Unaudited Audited
6 months 6 months ended Year
ended 31 March 2023 ended
31 March 30 September 2023
2024
£'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 Merger Relief Capital Reverse Share Based Payments Accumulated Deficit Total Equity
Premium Reserve Redemption Acquisition Reserve
Reserve Reserve
£'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
1,384 144 121 (368) 1,281
Adjusted EBITDA
8,162 985 775 5,444 15,366
Total Assets
(1,997) (725) (534) (3,479) (6,735)
Total Liabilities
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)
1,076 94 96 (315) 951
Adjusted EBITDA
7,840 980 947 5,494 15,261
Total Assets
(3,166) (878) (749) (2,166) (6,959)
Total Liabilities
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 Unaudited Audited
6 months 6 months ended Year
ended 31 March 2023 ended
31 March 30 September 2023
2024
£'000 £'000 £'000
Profit/Loss for the financial period 87 (86) 50
Finance cost 78 71 203
Taxation 143 - (2)
Operating profit/(loss) 308 (15) 251
Adjustments: 77 83 166
Depreciation
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 (http://www.reactsc.co.uk/react-group-plc)
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