TIDMREAT
RNS Number : 1882L
React Group PLC
12 May 2022
This announcement contains inside information for the purposes
of Article 7 of the UK version of Regulation (EU) No 596/2014 which
is part of UK law by virtue of the European Union (Withdrawal) Act
2018, as amended ("MAR"). Upon the publication of this announcement
via a Regulatory Information Service, this inside information is
now considered to be in the public domain.
REACT Group PLC
("REACT" or the "Company")
Acquisition of LaddersFree Ltd.
H1 Trading Update
REACT (AIM: REAT), a leading specialist cleaning, hygiene and
decontamination company, is pleased to announce that it has
completed the acquisition of LaddersFree Ltd. ("LaddersFree"), an
established nationwide commercial window, gutter and cladding
cleaning business, for a total consideration of up to GBP8.5
million on a debt-free and cash-free basis (subject to working
capital adjustments) (the "Acquisition"). This is REACT's second
acquisition and represents a further step in the Company's ambition
to achieve its stated growth strategy. The Initial Cash
Consideration (as defined below) is to be funded from the net
proceeds of the placing announced by the Company on 14 April
2022.
Acquisition highlights
-- Acquisition of LaddersFree, a profitable, cash generative
commercial window cleaning business serving local, regional and
national customers
-- Consistent track record of organic revenue growth and profitability
-- High level of recurring revenue with clients typically
working with LaddersFree on a minimum 12-month rolling term
providing visibility of future revenues and income
-- The business is scalable with a very low working capital
requirement and has potential for strong organic growth
-- LaddersFree has a diverse client base across the commercial
property, retail, hospitality, leisure and automotive sectors
-- L arge competitive national ecosystem of 'local' specialist
subcontractors which the Board believes gives the sector a high
barrier to entry
-- Broadens REACT's customer base and reduces dependence on reactive and ad hoc work
-- In line with REACT's stated strategy of building a leading
industry position through organic growth and via strategic
acquisitions
-- The Directors believe the Acquisition will:
o diversify the service offering of the Company and its
subsidiaries (the "Group") through expansion into complementary
markets;
o provide nationwide partners and cross selling
opportunities;
o provide a highly scalable business model with the opportunity
to increase brand awareness through the application of additional
sales and marketing resource available within the Group ; and
o enhance earnings per share in the first full year of ownership
(FY23), before consideration of potential synergies.
Acquisition terms
-- Total consideration of up to GBP8.5 million on a debt-free
and cash-free basis (subject to working capital adjustments) ,
comprising:
o GBP4.65 million in cash ("Initial Cash Consideration") payable
on completion of the Acquisition ("Completion"), subject to any
adjustment on preparation of completion accounts;
o GBP1.0 million through the issue of 83,333,333 ordinary shares
of 0.25 pence in the capital of the Company ("Consideration
Shares") on Completion to Jason Korinek and Justin Korinek (the
"Founders") at an issue price of 1.2 pence per Consideration Share.
Half of the Consideration Shares will be subject to a 6 month lock
in period and the other half of the Consideration Shares will be
subject to a lock in period of 24 months during which, in each
case, the relevant Consideration Shares cannot be sold or
transferred. This is followed, in each case, by a 12 month orderly
market period;
o deferred cash consideration of GBP1.45 million with a 5 per
cent. coupon, to be paid in four instalments every six months
beginning on 1 December 2022; and
o performance based contingent consideration of up to GBP1.4
million, which will pay six times the increase (only) of EBITDA for
the financial year ending 30 November 2022 over and above GBP1.2
million, in three instalments with the final payment due to be made
on 1 June 2024.
About LaddersFree
Founded in 2002, LaddersFree is a commercial window cleaning
business, serving local, regional and national customers. With an
established network of over 300 approved service partners,
LaddersFree utilises local window cleaning companies to offer its
services to all areas of mainland UK. LaddersFree employs seven
individuals, with one office located in Topsham, near Exeter, in
Devon.
LaddersFree provides window cleaning services using various
methods, including traditional window cleaning, the use of
water-fed poles operated from ground level, and the use of mobile
elevated working platforms, abseiling and rope access. Whilst 90
per cent. of revenue for the financial year ended 30 November 2021
was generated from window cleaning services, LaddersFree also
offers a range of complementary services such as cladding cleaning,
gutter cleaning and jet washing.
Since its inception, LaddersFree has grown organically,
consistently expanding its client base each year. LaddersFree
services its clients both directly and indirectly, either with end
users or working on behalf of facilities management, cleaning and
property management companies. The current client base is diverse
and includes a number of well known companies in the commercial
property, retail, hospitality and leisure and automotive sectors.
Clients typically work with LaddersFree on a minimum 12-month
rolling term and approximately GBP2 million of annual revenue is
identified as being regular or recurring.
Unaudited financials for LaddersFree: For the financial year
ended 30 November 2021, LaddersFree generated revenue of GBP3.0
million (2020: GBP3.0 million) and profit before tax of GBP1.4
million (2020: GBP1.3 million). For the same period, LaddersFree
generated normalised adjusted EBITDA of GBP1.2 million (2020:
GBP1.2 million).
As at 30 November 2021, LaddersFree had unaudited net assets of
GBP2.1 million.
Background to and rationale for the Acquisition
The Acquisition, which is in line with the Group's stated
strategy of building a leading industry position through organic
growth and via strategic acquisitions, is expected to be earnings
enhancing in its first full year of ownership (FY23) , before
consideration of potential synergies.
The Board believes that the terms of the Acquisition, and the
valuation of LaddersFree, are attractive given the opportunities to
diversify the Group's service offering through expansion into
complementary markets, and to leverage existing resources to
accelerate growth. The Board considers the LaddersFree business
model to be highly scalable, and the Directors have identified the
opportunity to increase brand awareness and accelerate organic
growth through the application of additional sales and marketing
resource available within the Group.
The acquisition of a well-established cleaning business has the
advantage of an existing network of service partners and an
established client base, whilst expanding the Group's service
offering and providing opportunities for sustained growth through
marketing efforts, additional nationwide partners and
cross-selling. The Group is gaining a reputable name, a resilient
business model and an opportunity to drive profitable growth.
The Founders will retain roles with LaddersFree after
Completion, initially on a full time basis, to ensure optimum
integration.
In addition to an increased service offering and growth
opportunities, the Acquisition is expected to reduce the Group's
dependence on reactive and ad hoc work going forwards, with an
opportunity to broaden REACT's customer base and generate an
increased proportion of recurring revenue.
H1 trading update and outlook
REACT provides the following update regarding the Company's
trading performance for the six month period ended 31 March 2022
("H1") and outlook following the completion of the Acquisition.
The Company has made good progress during H1 achieving revenue
of approximately GBP5.1 million (unaudited) (six months ended 31
March 2021: GBP2.5 million) and adjusted EBITDA of approximately
GBP130k (unaudited) (six months ended 31 March 2021: GBP369k),
which reflects a higher proportion of contract maintenance work, a
lower level of higher margin reactive work and the cost of
mobilising incremental new contracts. During H1, REACT closed a
number of new customer contracts which have either been mobilised
or are in the process of being mobilised and are expected to add
material incremental revenue and profit within their contracted
revenue business during the six month period ending 30 September
2022 ("H2"). These new contract wins underpin management's
confidence in the outlook for H2 and the full year.
During H1, the Company made further investment in its sales team
which is starting to yield results, with the influence of newly
hired sales resource contributing to the recent contract wins,
including the GBP0.7 million, three year contract announced on 11
April 2022. In addition to smaller contract work that is bid and
won on a regular basis, the team has also closed a number of
additional opportunities over the past two weeks:
-- a second 3-month contract extension, following the success of
an initial pilot, with revenues of c.GBP140k to carry out the
periodic deep cleaning of train carriages serving the rail network,
with the potential to extend this to an annual contract;
-- a separate 1-month pilot with revenues of GBP40k carrying out
similar periodic deep cleaning work on train carriages operating on
another part of the rail network. This too has the potential to
develop into an annual contract;
-- a new annual contract for contract maintenance in the Midlands worth c.GBP40k per year; and
-- two new customers for deep cleaning projects one valued at GBP35k and the other at GBP40k.
As previously stated by the Board, the Company's strategy is to
focus on building out the contract maintenance business, both
organically and through targeted acquisitions. Given the recurring
nature of contract maintenance work, the Board believes this should
lead to a more predictable business going forward. Following the
Acquisition, the Board is proposing to concentrate sales effort on
contracted work, including targeting an increase in revenue
generation within LaddersFree. To achieve this, some of the
existing sales team previously assigned to reactive and ad hoc work
will shift to focus primarily on generating contract maintenance
revenue within both the existing business and LaddersFree. As a
result of the shift in sales focus, the Board expects this to
reduce the proportion of reactive and ad hoc revenue within the
overall Group and, over time, to increase the proportion of
contract maintenance revenue.
Following completion of the Acquisition and the mobilisation of
a number of new contracts won during H1, the Board expects to
deliver adjusted EBITDA for the financial year ending 30 September
2022 of approximately GBP1.3 million.
Notice of half year results
The Company expects to publish its unaudited half year results
for the six month period ended 31 March 2022 in the second half of
June 2022.
Mello 2022
REACT will also be presenting at the Mello 2022 investor forum
on Thursday 26 May 2022. The event will be held at the Clayton
Hotel, Chiswick, London W4. For more information go to:
https://melloevents.com/mello2022exinfo/ .
Admission of Consideration Shares and total voting rights
It is expected that Admission of the 83,333,333 Consideration
Shares to AIM ("Admission") will occur and that dealings will
commence at 8.00 a.m. on 18 May 2022. The Consideration Shares will
rank pari passu with the existing ordinary shares of 0.25 pence
each in the capital of the Company ("Ordinary Shares").
Following Admission of the Consideration Shares, the Company
will have 1,049,672,691 Ordinary Shares in issue and no Ordinary
Shares in treasury. Therefore, the total voting rights in the
Company will be 1,049,672,691.
This figure may be used by shareholders as the denominator for
the calculation by which they may determine if they are required to
notify their interest in, or any change to their interest in, the
Company under the Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority.
Shaun Doak, Chief Executive Officer of REACT, said: " We are
delighted to welcome Jason, Justin and the team at LaddersFree into
the REACT family. Over the last 20 years they have established a
very strong reputation for consistently delivering high-quality
services greatly valued by local, regional and national
customers.
The LaddersFree value proposition to both customers and their
network of specialist service providers is incredibly attractive to
our business. Combined with the team's focus and customer-centric
service culture, they fit perfectly within the Group.
We are excited by the opportunities that lay ahead as we
continue to invest in profitable growth and offer our increasingly
unique brand of services across the broadening customer base of the
business."
For further information:
REACT Group PLC
Shaun Doak, Chief Executive Officer Tel: +44 (0) 12
Andrea Pankhurst, Chief Financial Officer 8355 0503
Mark Braund, Chairman
Singer Capital Markets (Nominated Adviser
and Broker)
Will Goode, Amanda Gray, Oliver Platts Tel: +44 (0) 20
(Investment Banking) 7496 3000
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END
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