6 February
2024
REACT Group
plc
("REACT", the "Group" or the
"Company")
Final results for the year
ended 30 September 2023
REACT (AIM: REAT.L), the leading
specialist cleaning, hygiene, and decontamination company, is
pleased to announce its audited final results for the year ended 30
September 2023.
Financial highlights
· Revenue increased by 43% to £19.6m (2022: £13.7m)
-
87% recurring revenue (2022: 83%)
- organic
revenue growth of approximately 21% (on a like-for-like
basis)
- Numerous
multi-year contracts won via cross-selling across the
Group
· Gross profit up 61% to £5.2m (2022: £3.3m)
· Gross profit margin up 300 basis points to 27% (2022:
24%)
· Adjusted EBITDA* up 133% to £2.3m (2022: £1.0m)
· Free
cash flow £2.1m (2022: outflow £1.0m)
· Cash
as at 30 September 2023 of £2.1m (30 September 2022:
£1.5m)
Operational highlights
· Integration of LaddersFree completed
· Strengthened finance team with the addition of a Group
Financial Controller, and post year end, with the appointment of a
seasoned and experienced Chief Financial Officer, Spencer
Dredge
Current trading and outlook
· Good
momentum into FY24 following a strong first quarter reflecting
significant growth opportunities for the Group and its essential
services
· Investment in infrastructure to leverage efficiency-enhancing
technology across the Group
*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.
Commenting on the results Shaun Doak, Chief Executive Officer
of REACT, said:
"I am
delighted to announce a strong performance from the REACT Group,
marked by impressive organic growth and improved profitability and
cash conversion. This success underscores the strength of our
value proposition and customer acquisition strategy.
"Following the acquisitions of
Fidelis in March 2021 and LaddersFree in May 2022, we have
consistently achieved substantial organic growth. This achievement
showcases our proficiency in integrating these offerings into our
core services, unlocking potential across an expanded customer
base. Our success is evident through effective cross-selling and
upselling strategies, as well as our ability to attract new
customers.
"Momentum from FY23 has continued
into the new financial year, and despite the usual slow down across
the festive period, the first few months of FY24 have delivered a
record trading performance for the Group."
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) 20 7496 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 is the UK's
leading specialist and contract cleaning business and 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.
Executive Chairman's Statement
For the year ended 30 September 2023
The Board is pleased to report
that the Group has delivered significant growth in the period under
review and continued to deliver material improvements in
operational performance, profit contribution and cash
conversion.
Details of the Group's performance
are set out in reviews by the Chief Executive and the Chief
Financial Officer.
For the year ended 30 September
2023 ("FY 23"), Adjusted EBITDA* was
£2,272,000, up 133% on the prior year, (2022: £974,000), and sales
revenue was £19,582,000, up 43% on the prior year (2022:
£13,671,000).
The Group performance represents
strong like-for-like organic growth of approximately 21%, assuming
LaddersFree was owned throughout the comparative year.
Importantly, this is the fourth successive year the Group has
reported double-digit organic growth, delivering an average of
approximately 24% 'organic' growth each year. This in turn
has materially contributed to impressive improvements in gross
profit and earnings over the same period.
The financial model of the Group
has evolved from one of a project-orientated business with high
margin but inconsistent and often unpredictable revenue flows, to
one that now has greater predictability with more than 85% of its
revenues contracted and recurring, alongside a balanced margin that
remains above market average. To this, the Group has added a
consistent ability to generate organic growth and with it,
scale.
The evolution of the business is
the result of a strong team working hard to outperform competition,
delivering in each division a compelling proposition that results
in high levels of customer satisfaction and long-term commercial
relationships. The opportunity for the business, now that it
has reached this size, is to invest in the next stage of growth and
development; to combine the small group of growing businesses into
one unified brand with a clear and precise proposition aimed at
growing the business and enhancing its value even
faster.
The Group will therefore implement
a considered programme to invest in people, processes and systems;
much of the immediate plans involve the development of talent
already inside the business. To this end, the Company will
phase in skills and experience aimed at covering any
gaps.
There is a tremendous opportunity
to develop a digital platform to support and scale the nationwide
commercial window cleaning business and in doing so enhance the
ability to cross-sell other relevant services bought by the same
customers, and potentially delivered by the same membership
resource. At the very least, this will enable the Group to
improve operational efficiency and scale with robust systems.
Better still, we will establish a platform on which our commercial
IP can return significant value to shareholders.
Investment will be phased over the
course of this current financial year and into the next, and whilst
the Board anticipates that the benefits will be most evident in
future years, we do expect to see some positive effect in the
nearer term.
The contracted soft services
facility management business has more than doubled in size since
Fidelis was acquired in March 2021. The aim is to maintain
growth in this sector as it provides robust long-term visibility of
revenue and earnings and a solid base from which to cross-sell
other Group services. The Company will continue to drive
organic growth and where relevant, augment this with M&A
activity. With markets challenged, there is an opportunity to
be a consolidator, providing a great home for small quality
'bolt-on' businesses that share the Group's core values. The
Company has a healthy pipeline of very early-stage opportunities to
evaluate, however, many will not meet the Group's criteria.
Those that do will be earnings enhancing and accretive.
To support the operational
effectiveness of the business and its growth ambitions, the Group
is in the process of moving its banking facilities to one
consolidated relationship with HSBC.
The strategy for growth remains
clear; the Group will continue to build a leading position across
its business through fast-paced organic growth, margin enhancement,
improvements in operational efficiency and, if quality
opportunities present themselves, through strategic
M&A.
Mark Braund
Chairman
6 February 2024
Chief Executive Officer's Report and Strategic
Review
REACT Group has delivered a strong
performance for the year ended 30 September 2023.
Since acquiring Fidelis (March
2021) and LaddersFree (May 2022), the Group has achieved impressive
organic growth and has integrated these offerings into the core
proposition to unlock the potential across the enlarged customer
base, through successful cross-selling and /or upselling of
services and through success in winning new customers.
Despite challenging market
conditions, which have seen supply chain disruptions, inflation and
some customers reduce the frequency of cleaning, the Group
delivered like-for-like organic revenue growth of approximately
21%, assuming LaddersFree was owned throughout the comparative
year.
The acquisitions of Fidelis and
Laddersfree have provided a competitive advantage, bringing a more
dependable and profitable business model with an established and
impressive client base. Nearly all of Fidelis's and
LaddersFree's revenue is recurring and contracted, providing a
predictable and stable income stream as the Group continues to
grow. With these acquisitions, particularly LaddersFree, the
Group gains access to a broader customer base and established
distribution channels. By leveraging their expertise and
market insights, the Group has developed and delivered a more
comprehensive suite of value-added services. This enhanced
value proposition not only strengthens customer relationships but
also drives increased customer satisfaction and improved
margins.
REACT continues to drive growth
through cross-selling, showcasing the Group's success in generating
incremental revenue. Evidence of this is underscored by
multiple contract awards, including material contract wins
announced during the year, such as:
·
|
£800k per year, multi-year contract
spanning 350 locations in the UK of a well-known high-street
fast-food chain, announced 5 January 2023
|
·
|
The £1.8m, 3-year contract (c.
£600k/year) with a Midland's based shopping centre group, unlocks
new growth opportunities in the region, expanding our service
footprint
|
·
|
Multiple contract wins totalling
over £1.2 million underscore our ability to deliver impactful
solutions across education and healthcare, with a £500k school
award (18 months), a £540k, 3-year school contract, and a £200k
annual NHS contract
|
Plus the material post-period
year-end announcement:
·
|
3-year contract extension with a
major university for £3.8m (c.£1.3m/year) reflects a near-doubling
of previous value, showcasing our positive impact and a commitment
to excellence as we increased our portfolio of services to the
client
|
The Group's growth journey has
been fuelled by a talented team. Key colleagues have been empowered
and promoted to play a pivotal role in evolving and
professionalising the business. Focus has been on customer
value-enhancement measured not least by improvements in margin,
which in a continually competitive and challenging market is not
easy, but the team has achieved it again in the reporting period by
improving gross margins to c.27% (2022: c.24%).
To keep up with our growing
business and the inherent complexity, the finance team has been
strengthened by adding a Group Financial Controller, Justin Fleming
and in the post-reporting period, the Board has also appointed a
seasoned and experienced Chief Financial Officer, Spencer
Dredge.
A review has commenced to improve
workflows and processes to enable the business to scale even more
effectively. This focus has already supported the underlying
improvements in conversion of gross profit to earnings and helped
drive better cash conversion. This process is ongoing with
the purpose of creating better efficiencies within the
business.
Strategy
Whilst the business continues to
pursue opportunities across all relevant sectors, the core strategy
prioritises a robust financial model fuelled by recurring revenue
from long-term contracts. This provides predictable income and
support for sustainable growth.
Further investment will be
undertaken to facilitate the next stage of development, to
consolidate from a small group of growing businesses into a unified
brand with a clear and precise proposition aimed at growing the
business and its value even faster. The Group will therefore
implement a considered programme of investment in people, processes
and systems; much of our immediate plans involve the development of
talent already inside the business. To affect this, the
Company will phase-in skills and experience aimed at covering any
gaps.
As highlighted in the Chairman's
statement, there is a tremendous opportunity to develop a digital
platform to support and scale the Group's nationwide commercial
window cleaning business and in doing so open a channel to sell
other relevant services bought by the same customers, and
potentially delivered by the same membership resource. This
will enable the Group to improve operational efficiency and scale
with robust systems, creating a platform approach to develop its
commercial IP and with it grow an increasingly attractive
enterprise value. Simultaneously, the Company will continue
to invest further in sales and marketing to unlock the huge
potential of its target market. By leveraging the right tools
and strategies, it will increase the opportunity to engage with
prospective clients and drive market expansion.
Key Performance Indicators (KPIs)
Financial: The key financial
indicators are as follows:
|
|
2023
|
|
2022
|
Revenue
|
|
£19,582,000
|
|
£13,671,000
|
Recurring revenue
|
|
87%
|
|
84%
|
Gross margin
|
|
26.8%
|
|
23.8%
|
Operating profit/(loss)
|
|
£251,000
|
|
(£511,000)
|
Earnings before Interest, Tax,
Depreciation & Amortisation (EBITDA) - a non-IFRS measure
|
|
£2,060,000
|
|
£410,000
|
Adjusted Earnings before Interest,
Tax, Depreciation & Amortisation (EBITDA) - a non-IFRS measure
|
£2,272,000
|
|
£974,000
|
Acquisition and restructuring costs
& Share Based Payments
|
|
£212,000
|
|
£564,000
|
Profit/(loss) from continuing
operations after acquisition and restructuring costs
|
|
£50,000
|
|
(£701,000)
|
Basic profit/(loss) per
share
|
|
0.005p
|
|
(0.098p)
|
Adjusted basic earnings per
share
|
|
0.2p
|
|
0.01p
|
Cash and cash
equivalents
|
|
£2,120,000
|
|
£1,525,000
|
Free cash flow
|
|
£2,127,000
|
|
(£1,004,000)
|
By emphasising the right KPIs, the
Board fosters behaviours that drive value and ensures clear
visibility into Group performance across all levels. Well-defined
KPIs are crucial for motivating behaviours aligned with strategic
goals and monitoring Group performance.
The Group thrives in three core
areas:
1. Contract Maintenance: providing
scheduled cleaning services across various sectors, including
healthcare, education, retail, industrial, and public
transport.
2. Contract Reactive: as the
on-call heroes, we tackle emergencies 24/7/365 under formal
contracts or framework agreements.
3. Ad hoc: where REACT provides a
solution to one-off situations outside a framework agreement, such
as for fly tipping, void clearance, and decontaminations
To conclude, and on behalf of the
Board, we wish to thank our customers, colleagues and our members
for their openness and willingness to engage and as a result help
us to deliver a compelling solution to many of our customers
challenges. Within this, a heartfelt thanks to all my
colleagues across the Group, your dedication, tireless efforts, and
unwavering tenacity are the bedrock of our success - "thank you!" I
am incredibly excited to continue this journey with you in 2024 and
beyond.
Outlook
Momentum from FY23 has continued
into the new financial year, and despite the usual slow down across
the festive period, the first few months of FY24 have delivered a
record trading performance for the Group.
Through improvements to our value
proposition and strategic market access initiatives, exciting new
growth opportunities have been unlocked, expanding the Group's
reach across diverse markets up and down the country.
Despite the challenging
environment and the focus required to invest in upscaling the
infrastructure of the business, the Board remains cautiously
optimistic of another strong performance in this new financial
year.
Shaun D Doak
Chief Executive Officer
6 February 2024
Chief Financial Officer's Report
Revenue and profitability
Revenue for year ended 30
September 2023 was £19,582,000, 43% up on the prior year (2022:
£13,671,000). The current year figures include a full 12
months' results from LaddersFree (2022: 5 months). Taking
into account the performance of LaddersFree for a full prior year
period, this represents like-for-like organic growth of
approximately 21%.
These revenues generated a gross
profit contribution of £5,239,000, up 61% on the prior year (2022:
£3,257,000). On a like-for-like full 12-month basis, gross profit
increased by 19%.
Group overheads of £4,988,000
(2022; £3,768,000) increased during the year as a result of
including LaddersFree throughout the year, whilst the prior year
recorded overheads for only 5-months. Group overheads increased by
22% on a comparable basis, adjusting for LaddersFree on a full year
basis in the prior year.
The strong trading performance has
resulted in an Adjusted EBITDA of £2,272,000, up 133% on the prior
year (2022: £974,000). Adjusted EBITDA is a non-IFRS measure
and means operating profit before interest, tax, depreciation and
amortisation and excludes separately disclosed acquisition and
other costs along with share based-payments. The directors
believe that Adjusted EBITDA and adjusted measures of earnings per
share provide shareholders with a meaningful representation of the
underlying earnings arising from the Group's core
business.
Reconciliation of Profit before Tax to Adjusted
EBITDA
|
|
2023
£'000
|
|
2022
£'000
|
|
|
|
|
|
Profit/(loss) before Interest and
Tax
|
|
251
|
|
(511)
|
Depreciation &
Amortisation
|
|
1,809
|
|
921
|
EBITDA
|
|
|
|
|
Acquisition costs/restructuring
costs
|
|
131
|
|
(24)
|
Impairment charge
|
|
-
|
|
567
|
Share based payments
|
|
81
|
|
21
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
|
|
Weighted average shares in
issue
|
|
|
|
|
Adjusted EBITDA earnings per
share
|
|
|
|
|
Earnings per share
The basic profit per share from
continuing operations 0.005p (FY22: loss per share 0.098p). The
adjusted EBITDA per share which excludes the after-tax impact of
exceptional items, share-based payments and the amortisation of
intangible assets recognised on acquisition was 0.21p (FY22:
earnings per share 0.13p).
Intangible assets and goodwill
The Group has intangible assets of
£9,483,000 (2022: £9,889,000) comprising of Goodwill £5,446,000
(2022: £4,209,000) and intangible assets £4,037,000 (2022:
£5,680,000). Goodwill has been tested for impairment and management
believe the current carrying value of goodwill is supported by the
current financial projections, prior year write down £567,000. An
amortisation charge of £1,643,000 (2022: £743,000) was recorded
against intangible assets; these intangible assets acquired through
business combinations are amortised over four
years.
Cash flow
Cash and cash equivalents
increased in the year by £661,000 (2022: outflow £2,190,000).
As a result of positive operating cash flows in the year, offset by
outflows from financing activities and investment activities, cash
and cash equivalents and overdrafts at the year-end were £1,640,000
(2022: £979,000) which resulted from cash and cash equivalents
including cash held at bank £2,120,000 (2022: £1,525,000) less the
invoice discount balance of £480,000 (2022: £546,000).
Operating cash inflows in the year
£,2,444,000 (2022: outflow £773,000) resulted from trading,
favourable movement in working capital £527,000 (2022: outflow
£1,780,000) off-set by depreciation and amortisation charges
£1,809,000 (2022: £921,000) and after paying corporate taxes of
£226,000 (2022: £80,000).
The net cash outflow from
financing activities £360,000 (2022: inflow £6,997,000) resulted
from the repayment of the term loan £181,000 (2022: inflow
£902,000) and interest payments £203,000 (2022: £56,000) and a cash
from a share issue £24,000 following an exercise of employee share
options (2022: £6,500,000). The prior year included cash raised to
fund the acquisition of LaddersFree.
Cash outflows from investing
activities £1,423,000 (2022: £8,414,000) mainly resulted from
deferred consideration payments made in the year £1,309,000 (2022:
£7,776,000) and investments made in fixed assets during the year
£119,000 (2022: £115,000). Deferred consideration payments
made during the year were against acquisitions made in previous
years, Fidelis £262,000 and LaddersFree £1,047,000.
Based on current financial
projections, the Group has sufficient available cash resources to
support its current plans, which includes settlement of the
deferred consideration payments £1,969,000 in the year to September
2024 and other planned capital expenditure. The Group is
currently engaged with a third-party software solution provider to
design, build and deploy a new operating system for
LaddersFree. Once operational, the investment will be
recorded as a fixed asset and amortised over a three-year
period.
The Group has plans underway to
move its banking arrangements to a single platform provider, this
should be completed by May 2024. This arrangement will
be a replacement of existing banking arrangements and will include
an invoice discount facility and the term loan on a comparable
basis. This arrangement will provide greater day-to-day
operational efficiency.
Taxation
The Group has reported a small
profit which is after a credit for tax £2,000 (2022: charge of
£134,000). At the balance sheet date, the Group has a
deferred tax asset of £123,000 (2022: £244,000), and deferred tax
liability associated with the intangible asset recognised on
acquisition £908,000 (2022: £Nil). Available historical
losses and management fees available to the Group for tax purposes,
that can be off-set against future taxable profits are
approximately £500,000 (2022: £2,100,000).
Statement of financial position
The Group's balance sheet has
strengthened with net assets at the year-end of £8,495,000 (2022:
£8,339,000). The Group's balance sheet includes liabilities for
deferred consideration balances for the LaddersFree acquisition of
£1,680,000 and Fidelis £77,000, both of which will be fully settled
in the year ahead. In addition, the Group's balance sheet has a
five-year term loan with an outstanding balance of £826,000 at the
year-end.
The loan was drawn down in May
2022, therefore the loan has 3.75 years of the five-year term to
run under the current loan arrangements.
Andrea Pankhurst
Chief Financial Officer
6 February 2024
Consolidated Statement of Comprehensive
Income
For the year ended 30 September 2023
|
Notes
|
|
2023
£'000
|
|
2022
£'000
|
|
|
|
|
|
|
Continuing Operations
|
|
|
|
|
|
Revenue
|
2
|
|
19,582
|
|
13,671
|
Cost of sales
|
|
|
(14,343)
|
|
(10,414)
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
(4,988)
|
|
(3,768)
|
|
|
|
|
|
|
Acquisition and restructuring income/costs included
in
administrative expenses
|
|
|
(131)
|
|
(543)
|
|
|
|
|
|
|
Operating profit/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
Finance charge
|
|
|
(203)
|
|
(56)
|
Taxation
|
|
|
2
|
|
(134)
|
|
|
|
|
|
|
Profit/(loss) for the year
|
|
|
|
|
|
Other comprehensive
Income
|
|
|
-
|
|
-
|
Total comprehensive profit/(loss) for the year attributable
to the equity holders of the company
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share -
pence
|
3
|
|
|
|
|
Basic profit/(loss) per
share
|
|
|
|
|
|
Diluted profit/(loss) per
share
|
|
|
|
|
|
The notes form part of these
financial statements
Consolidated Statement of Financial
Position
As
at 30 September 2023
|
|
|
|
As
restated
|
|
Notes
|
|
2023
|
2022
|
ASSETS
|
|
|
£'000
|
£'000
|
Non-current assets
|
|
|
|
|
Intangible assets -
Goodwill
|
4
|
|
5,446
|
4,209
|
Intangible assets -
Other
|
4
|
|
4,037
|
5,680
|
Property, plant &
equipment
|
|
|
172
|
203
|
Right-of-use assets
|
|
|
78
|
100
|
Deferred tax asset
|
|
|
123
|
244
|
|
|
|
|
|
Current assets
|
|
|
|
|
Stock
|
|
|
7
|
11
|
Trade and other
receivables
|
|
|
4,425
|
4,254
|
Cash and cash
equivalents
|
|
|
2,120
|
1,525
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
|
|
EQUITY
|
|
|
|
|
Shareholders' Equity
|
|
|
|
|
Called-up equity share
capital
|
|
|
2,644
|
2,624
|
Share premium account
|
|
|
10,910
|
10,905
|
Reverse acquisition
reserve
|
|
|
(5,726)
|
(5,726)
|
Capital redemption
reserve
|
|
|
3,337
|
3,337
|
Merger relief reserve
|
|
|
1,328
|
1,328
|
Share-based payments
|
|
|
125
|
44
|
Accumulated losses
|
|
|
(4,123)
|
(4,173)
|
Total Equity
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Current liabilities
|
|
|
|
|
Trade and other
payables
|
|
|
6,000
|
4,937
|
Lease liabilities within one
year
|
|
|
40
|
57
|
Corporation tax
|
|
|
262
|
271
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
Lease liabilities after one
year
|
|
|
38
|
53
|
Other creditors after one
year
|
|
|
665
|
2,569
|
Deferred tax liability
|
|
|
908
|
-
|
|
|
|
|
|
TOTAL LIABILITIES
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TOTAL EQUITY AND LIABILITIES
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