TIDMREAT

RNS Number : 3960D

React Group PLC

29 June 2021

29 June 2021

REACT Group plc

("REACT", the "Group" or the "Company")

Half Year Results FY 2021

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 2021 ("Interim Report").

Financial Highlights

for the six months ended 31 March 2021

 
                                  HY 2021   HY 2020   Change 
-------------------------------  --------  --------  ------- 
 Revenue (GBP'000)                  2,509     2,091      20% 
 Gross profit (GBP'000)             1,018       695      46% 
 Gross profit margin                40.6%     33.2%   733bps 
 EBITDA (GBP'000)                     100        85      17% 
 Adjusted EBITDA (GBP'000)            369        85     332% 
 Net profit for the period 
  (GBP'000)                            74        50      48% 
 Earnings per share (basic) 
  (pence)                            0.01      0.01      23% 
 Earnings per share (adjusted) 
  (pence)                            0.07      0.02     260% 
 Net cash (GBP'000)                   771       306     152% 
 
   --    Group revenue up 20% to GBP2,509,000 
   --    Gross profit up 46% to GBP1,018,000 
   --    Gross profit margins increased by 733 basis points to over 40% 
   --    Adjusted EBITDA is calculated excluding exceptional costs (see note 5 for details) 
   --    Net profit of GBP74,000 and basic EPS of 0.01p 
   --    Adjusted EPS of 0.07p (see note 6 for details) 

-- The acquisition of Fidelis Contract Services Ltd ("Fidelis") was completed on 26 March 2021. No contribution from Fidelis is included in these interim figures, but the assets and liabilities for Fidelis as at 31 March 2021 are included in the Group's Consolidated Statement of Financial Position as at 31 March 2021

   --    The initial cash consideration of GBP1.5m was paid from REACT's existing cash resources 

-- The cash balance at the period end represents the balance for the enlarged Group following the payment of the cash consideration in connection with the acquisition of Fidelis

Commenting on the results Shaun Doak, Chief Executive Officer of REACT, said:

"We are delighted with the results for H1 2021; REACT continues to demonstrate momentum in growth and improvements in operational performance and profitability.

Although COVID-19 continues to present both opportunities and challenges to different aspects of the business we have continued to make strategic progress, investing in sales and marketing, new technology and people to drive growth, increase operational efficiency and improve customer value.

H2 has started well; Fidelis, acquired at the end of March 2021, reported record trading months in April and May to continue their solid track record of growth. This, together with important post-period customer contract wins for REACT, announced on 20 April 2021, 26 April 2021 and 18 May 2021, support a strong positive outlook for the medium to long term."

For more information:

 
REACT Group Plc. 
Shaun Doak, Chief Executive Of cer             Tel: +44 (0) 1283 550 
 Andrea Pankhurst, Chief Financial Officer      503 
 Mark Braund, Chairman 
Allenby Capital Limited 
 (Nominated Adviser/Broker) 
Nick Athanas / Liz Kirchner (Corporate         Tel: +44 (0) 203 328 
 Finance)                                       5656 
 Amrit Nahal / Tony Quirke (Sales & Corporate 
 Broking) 
 

RESULTS SUMMARY & STRATEGY

The REACT business performed strongly in the first half of the year, making material improvements in all key financial metrics, and demonstrating the profit potential available to the Company through operational gearing.

Gross profit margins were particularly strong, in part due to strong demand for ad hoc emergency project work during the period, which carries with it a high margin. We estimate that the underlying blended margin of the REACT business is now in the region of 30-35%, some 1,000 to 1,500 basis points higher than two and half years ago, since when the business has gone through a dramatic improvement in its value proposition and business controls.

Performance remains strong in the healthcare, rail and facilities management sectors with growth beginning to emerge from housing associations as well.

In addition to increased public and commercial expectations for quality hygiene, consolidation of supply chains continues to represent opportunity for growth for the REACT business. This has been demonstrated by the post-period appointment of REACT as the core vendor for specialist cleaning in mainland Great Britain to one of the world's leading facilities management firms (announced by REACT on 26 April 2021). This three-year agreement is aimed at consolidating their supply chain from several hundred suppliers to ultimately just one, REACT.

REACT has also used this period to expand its modest investment in sales and marketing automation tools, improving both the quality of sales engagement and sales productivity. This is beginning to yield results, opening new opportunities, broadening our engagement with customers, and improving both the size and visibility of our sales pipeline.

Our strategy remains to build a leading position across our business through organic growth and, if the right opportunities present themselves, via strategic acquisitions to support our goal of becoming the country's most trusted name in the provision of specialist cleaning, decontamination, and hygiene services.

IMPACT OF COVID-19

Although COVID-19 has brought continued challenges to the business with renewed national lockdown restrictions during the period, our team responded well to fluctuating demand for deep cleaning and decontamination services as we continued our rapid response to often urgent requirements across mainland Great Britain.

The contracted reactive business was impacted by lockdown restrictions; less economic activity resulted in fewer incidents in this area of our business for our teams to attend to. This however was more than compensated by COVID-19 related decontaminations and consultancy, which brought with it higher margins. Whilst we recognise the short to medium term nature of COVID-19, the quality of our work in this area has been recognised, enhancing the REACT brand and resulting in increased engagement with both new and existing customers. As work on COVID-19 decontaminations slows down, regular emergency cleaning activity returns, and because (in-part) of our response to COVID-19, REACT benefits from incremental opportunities amongst expanded and improved customer relationships.

PEOPLE

The continued dedication and commitment of our people and our network of REACT-approved specialist partners has been exemplary. Our service delivery is provided by people who are considered experts in their field, supported by our dedicated customer-centric team, who have continued to adapt to the daily challenges while working from home. The strength of our results is underpinned by the efforts of the entire team and testament to the superb culture the management team have cultivated. On behalf of the Board, I would once again like to thank all my colleagues for their commitment, resilience, and quality of work.

OUTLOOK

H2 has started well. Fidelis (acquired at the end of March 2021) reported record trading months in April and May to continue their solid track record of growth. With long-term contracts of between 3-7 years in length driving strong recurring income, this bodes well for H2 and the year(s) beyond.

H1 for REACT was very strong, however the start of H2 by contrast has experienced some softness in the reactive business as the country stutters towards the end of lockdown. Whilst COVID-19 decontamination work has been reducing, the more typical reactive emergency cleaning work has been slow to pick up. A similar pattern emerged last year as the country went from full lockdown into a more relaxed period during the summer of 2020. Then as we believe now, REACT had two soft months, which rapidly returned to some form of normality. Ironically as we pen this report we have experienced the first few weeks of high demand returning, including a re-emergence of COVID-19 decontaminations. The contract maintenance business has continued well, with little or no impact from the issues surrounding the pandemic.

We also announced some important post-period customer contract wins for REACT, announced on 20 April 2021, 26 April 2021 and 18 May 2021. These further underpin a strong positive outlook for the medium to long-term.

Shaun Doak

Chief Executive Officer

29 June 2021

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 31 March 2021

 
                                           Unaudited   Unaudited         Audited 
                                            6 months    6 months      Year ended 
                                               ended       ended    30 September 
                                            31 March    31 March            2020 
                                                2021        2020 
                                    Note     GBP'000     GBP'000         GBP'000 
 
 Continuing Operations 
 Revenue                                       2,509       2,091           4,360 
 
 Cost of Sales                               (1,491)     (1,396)         (2,911) 
                                          ----------  ----------  -------------- 
 
 Gross Profit                                  1,018         695           1,449 
 
 Other operating income                            2                          70 
 Administrative expenses                       (971)       (632)         (1,308) 
 
 Exceptional costs included 
  in administrative expenses         5         (269)           -               - 
---------------------------------  -----  ----------  ----------  -------------- 
 
 Operating profit                                 49          63             211 
 
 Income tax credit                                 -           -               - 
 Finance cost                                     25        (13)            (23) 
                                          ----------  ----------  -------------- 
 Profit for the period                            74          50             188 
 
 Other comprehensive Income                        -           -               - 
 
 Profit for the financial period 
  attributable to equity holders 
  of the company                                  74          50             188 
                                          ==========  ==========  ============== 
 
 Basic and diluted profit per 
  share                              6 
 Basic earnings per share                      0.01p       0.01p           0.04p 
                                          ==========  ==========  ============== 
 Diluted earnings per share                    0.01p       0.01p           0.04p 
                                          ==========  ==========  ============== 
 Adjusted basic earnings per 
  share                                        0.07p       0.02p           0.06p 
                                          ==========  ==========  ============== 
 Adjusted diluted earnings per 
  share                                        0.07p       0.02p           0.05p 
                                          ==========  ==========  ============== 
 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 March 2021

 
                                          Unaudited     Unaudited      Audited 
                                           As at 31      As at 31     As at 30 
                                              March    March 2020    September 
                                               2021                       2020 
 Assets                            Note     GBP'000       GBP'000      GBP'000 
 Non-current assets 
 Intangibles - Goodwill             4         2,050           174          174 
 Intangibles - Other                4         1,756             -            - 
 Property, plant and equipment                  180            71           85 
 Right-of-use assets                            118            34           27 
                                         ----------  ------------  ----------- 
                                              4,104           279          286 
                                         ----------  ------------  ----------- 
 Current assets 
 Stock                                            9             -            - 
 Trade and other receivables                  1,781         1,112        1,089 
 Cash and cash equivalents                      771           306        1,783 
                                              2,561         1,418        2,872 
 
 Total assets                                 6,665         1,697        3,158 
                                         ==========  ============  =========== 
 
 Equity 
 Shareholders' Equity 
 Called-up equity share capital               1,270         1,039        1,246 
 Share premium account                        6,028         4,926        5,852 
 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                            12            14           15 
 Accumulated losses                         (3,787)       (3,999)      (3,861) 
 
 Total Equity                                 2,462           919        2,191 
                                         ----------  ------------  ----------- 
 
 Liabilities 
 Current liabilities 
 Trade and other payables                     2,342           730          924 
 Lease liabilities within one 
  year                                           64            11           13 
 Corporation tax                                 63             -            - 
                                         ----------  ------------  ----------- 
                                              2,469           741          937 
                                         ----------  ------------  ----------- 
 Non-current liabilities 
 Lease liabilities after one 
  year                                           61            37           30 
 Other creditors                              1,673             -            - 
                                         ----------  ------------  ----------- 
                                              1,734            37           30 
                                         ----------  ------------  ----------- 
 
 Total liabilities                            4,203           778          967 
                                         ----------  ------------  ----------- 
 
 Total Liabilities and Equity                 6,665         1,697        3,158 
                                         ==========  ============  =========== 
 
 

CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 31 March 2021

 
                                             Unaudited   Unaudited         Audited 
                                              6 months    6 months            Year 
                                                 ended       ended           ended 
                                              31 March    31 March    30 September 
                                                  2021        2020            2020 
                                               GBP'000     GBP'000         GBP'000 
 
 Net cash generated/(utilised) 
  by operations                                    408       (112)             281 
 
 Cash flows from financing activities 
 Proceeds of share issue                             -           -           1,246 
 Expenses of share issue                             -           -           (113) 
 Lease liability payments                         (15)        (15)            (29) 
 
 Net cash (outflow)/inflow from 
  financing activities                            (15)        (15)           1,104 
                                            ----------  ----------  -------------- 
 
 Net cash from investing activities 
  Disposal of fixed assets                           -           2               2 
 Capital expenditure                              (33)         (9)            (44) 
 Acquisition of subsidiary               4     (1,345)           -               - 
 Exceptional acquisition costs 
  paid                                            (27)           -               - 
 
 Net cash outflow from investing 
  activities                                   (1,405)         (7)            (42) 
                                            ----------  ----------  -------------- 
 
 Net (decrease)/increase in 
  cash, cash 
  equivalents and overdrafts                   (1,012)       (134)           1,343 
 
 Cash, cash equivalents and 
  overdrafts at 
  beginning of period                            1,783         440             440 
 
 Cash, cash equivalents and 
  overdrafts at end of period                      771         306           1,783 
                                            ==========  ----------  -------------- 
 
 
 
 Reconciliation of profit for the period to cash outflow from operations 
                                                      Unaudited      Unaudited         Audited 
                                                       6 months       6 months            Year 
                                                          ended          ended           ended 
                                                       31 March       31 March    30 September 
                                                           2021           2020            2020 
                                                        GBP'000        GBP'000         GBP'000 
 
 Profit for the period                                       74             50             188 
 Decrease/(increase) in receivables                         301          (394)           (371) 
 (Decrease)/increase in payables                          (167)            195             389 
 Depreciation and amortisation 
  charges                                                    51             22              50 
 Finance costs                                             (25)             13              21 
 Exceptional acquisition costs                              177              -               - 
 Profit on disposal of fixed 
  assets                                                      -              -               1 
 Share based payment                                        (3)              2               3 
                                                  -------------  -------------  -------------- 
 Net cash inflow/(outflow) 
  from operations                                           408          (112)             281 
                                                  =============  =============  ============== 
 
 

Consolidated Statement of Changes in Equity

For the six months ended 31 March 2021

 
                                                                               Share 
                                       Merger      Capital       Reverse       Based 
                  Share      Share     Relief   Redemption   Acquisition    Payments   Accumulated     Total 
                Capital    Premium    Reserve      Reserve       Reserve     Reserve       Deficit    Equity 
 
                GBP'000    GBP'000    GBP'000      GBP'000       GBP'000     GBP'000       GBP'000   GBP'000 
 
 At 30 
  September 
  2019            1,039      4,926      1,328        3,337       (5,726)          12       (4,038)       878 
              ---------  ---------  ---------  -----------  ------------  ----------  ------------  -------- 
 
 Share based 
  payments            -          -          -            -             -           2             -         2 
 Effect of 
  adoption 
  of IFRS 16          -          -          -            -             -           -          (11)      (11) 
 Profit for 
  the 
  period              -          -          -            -             -           -            50        50 
 
 At 31 March 
  2020            1,039      4,926      1,328        3,337       (5,726)          14       (3,999)       919 
              ---------  ---------  ---------  -----------  ------------  ----------  ------------  -------- 
 
 Issue of 
  shares            207        926          -            -             -           -             -     1,133 
 Share based 
  payments            -          -          -            -             -           1             -         1 
 Effect of 
 adoption 
 of IFRS 16           -          -          -            -             -           -             -         - 
 Profit for 
  the 
  period              -          -          -            -             -           -           138       138 
 
 At 30 
  September 
  2020            1,246      5,852      1,328        3,337       (5,726)          15       (3,861)     2,191 
              ---------  ---------  ---------  -----------  ------------  ----------  ------------  -------- 
 
 Issue of 
  shares             24        176          -            -             -           -             -       200 
 Share based 
  payments            -          -          -            -             -         (3)             -       (3) 
 Profit for 
  the 
  period              -          -          -            -             -           -            74        74 
 
 At 31 March 
  2021            1,270      6,028      1,328        3,337       (5,726)          12       (3,787)     2,462 
              ---------  ---------  ---------  -----------  ------------  ----------  ------------  -------- 
 
 
 

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 2020. The interim financial information for the six months ended 31 March 2021, which complies with IAS 34 'Interim Financial Reporting' were approved by the Board of Directors on 29 June 2021.

The unaudited interim financial information for the six months ended 31 March 2021 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 2020 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 2020. The acquisition of Fidelis Contract Services Limited on 26 March 2021 has been accounted for in accordance with IFRS 3 Business Combinations.

   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. The assets and liabilities which have generated the revenues and profits for the period are those of the Group excluding Fidelis, therefore the assets and liabilities reported within the segmental analysis differ from those reported in the Consolidated Statement of Financial Position.

 
                                       2020/2021                                      2019/2020 
                          Contract    Contract    Ad Hoc     Total       Contract    Contract    Ad Hoc     Total 
                       Maintenance    Reactive      Work              Maintenance    Reactive      Work 
                              Work        Work                               Work        Work 
                           GBP'000     GBP'000   GBP'000   GBP'000        GBP'000     GBP'000   GBP'000   GBP'000 
 Revenue                       764         802       943     2,509            729         900       462     2,091 
 Cost of Sales               (492)       (530)     (469)   (1,491)          (500)       (601)     (295)   (1,396) 
 Gross Profit                  272         272       474     1,018            229         299       167       695 
 Administrative 
  Expenses                   (259)       (259)     (451)     (969)          (208)       (272)     (152)     (632) 
 Operating Profit 
  for the year                  13          13        23        49             21          27        15        63 
                     =============  ==========  ========  ========  =============  ==========  ========  ======== 
 Total Assets                  872         873     1,520     3,265            560         729       408     1,697 
                     -------------  ----------  --------  --------  -------------  ----------  --------  -------- 
 Total Liabilities           (214)       (215)     (374)     (803)          (257)       (334)     (187)     (778) 
                     -------------  ----------  --------  --------  -------------  ----------  --------  -------- 
 
 
   4.            Business combinations during the period 

On 26 March 2021, the Group acquired 100% of the issued share capital and voting rights of Fidelis Contract Services Ltd ('Fidelis'), a successful commercial cleaning, hygiene and facility support services company headquartered in Birmingham providing services to customers across England and Wales. The acquisition is expected to increase the group's market share and reduce costs through economies of scale.

Fidelis was acquired for an initial consideration of GBP1.7m, payable as GBP1.5m cash and GBP0.2m through the issue of new ordinary shares, with contingent consideration of up to GBP3.05m payable subject to Fidelis fulfilling certain profit criteria.

The fair value of the acquired customer list and customer contracts is provisional pending receipt of the final valuations for those assets because the acquisition was completed late in the period. The Group is currently obtaining the information necessary to finalise its valuation. The goodwill that arose on the combination can be attributed to the synergies expected to be derived from the combination and the value of the workforce of Fidelis which cannot be recognised as an intangible asset. The fair value of the contingent consideration arrangement was estimated calculating the present value of the future expected cash flows.

Acquisition costs of GBP177,000 are not included as part of the consideration transferred and have been recognised as an expense in the Consolidated Statement of Comprehensive Income.

 
  a)   Subsidiaries acquired 
       Name                                     Fidelis Contract Services 
                                                 Limited 
       Principal activity                       Commercial Cleaning, Hygiene 
                                                 & Support Services 
       Date of acquisition                      26 March 2021 
  Proportion of voting equity interests 
   acquired                                     100% 
  Consideration transferred                     GBP4,115,000 
 
 
                                                                                      GBP'000 
  b)   Consideration transferred 
  Cash                                                                                  1,730 
  Equity issued                                                                           200 
  Loan notes                                                                               83 
  Contingent consideration arrangement (included 
   in Other Creditors)                                                                  2,102 
                                                                                        4,115 
                                                                         -------------------- 
 
 c)    Assets and liabilities recognised on the date 
        of acquisition 
  Non-current assets                                                                      156 
  Current assets                                                                        1,392 
  Non-current liabilities                                                                (37) 
  Current liabilities                                                                 (1,028) 
  Net assets acquired                                                                     483 
                                                                         -------------------- 
                                                                                      GBP'000 
 d)    Goodwill arising on acquisition 
  Consideration transferred                                                             4,115 
  Fair value of identifiable net assets acquired                                        (483) 
  Separately identifiable intangible assets arising 
   on business combination                                                            (1,756) 
                                                                                        1,876 
                                                                         -------------------- 
 
 e)    Net cash outflow on acquisition 
  Consideration paid in cash                                                            1,730 
  Less: cash balances acquired                                                          (385) 
                                                                                        1,345 
                                                                         -------------------- 
 
 f)    Impact of acquisition on the results of the Group 
  No contribution element from Fidelis is included in these 
   interim figures, but the assets and liabilities for Fidelis 
   as at 31 March 2021 are included in the Consolidated Statement 
   of Financial Position. 
   The assets acquired include GBP385,000 of cash balances. 
 
 
   5.            Exceptional costs included in administrative expenses 

Exceptional items are material items of income or expenses which have arisen in the normal course of business but are not expected to re-occur on a regular basis.

 
                                  Unaudited     Unaudited           Audited 
                                   6 months      6 months              Year 
                                      ended         ended             ended 
                                   31 March      31 March      30 September 
                                       2021          2020              2020 
                                    GBP'000       GBP'000           GBP'000 
 
 Management restructure costs            92             -                 - 
 Acquisition costs                      177             -                 - 
                                        269             -                 - 
                                 ==========    ==========    ============== 
 
   6.            Earnings per Share (basic and adjusted) 

The calculations of earnings per share (basic and adjusted) are based on the net profit and adjusted profit respectively and the ordinary shares in issue during the period. The adjusted profit represents the EBITDA for the period with exceptional costs excluded.

 
                                      Unaudited     Unaudited         Audited 
                                       6 months      6 months            Year 
                                          ended         ended           ended 
                                       31 March      31 March    30 September 
                                           2021          2020            2020 
                                        GBP'000       GBP'000         GBP'000 
 
 Net profit for period                       74            50             188 
                                   ============  ============  ============== 
 Adjustments: 
 Interest                                  (25)            13              23 
 Depreciation                                51            22              50 
 Exceptional costs                          269             -               - 
 Adjusted profit for the period             369            85             261 
                                   ============  ============  ============== 
 
                                         Number        Number          Number 
 Weighted average shares in 
  issue for basic earnings 
  per share                         498,665,889   415,407,753     441,291,857 
 Weighted average dilutive 
  share options and warrants         62,247,272    65,065,130      65,065,130 
                                   ------------  ------------  -------------- 
 Average number of shares 
  used for dilutive earnings 
  per share                         560,913,161   480,472,883     506,356,987 
                                   ============  ============  ============== 
 
                                          pence         pence           pence 
 Basic earnings per share                 0.01p         0.01p           0.04p 
                                   ============  ============  ============== 
 Diluted earnings per share               0.01p         0.01p           0.04p 
                                   ============  ============  ============== 
 Adjusted basic earnings per 
  share                                   0.07p         0.02p           0.06p 
                                   ============  ============  ============== 
 Adjusted diluted earnings 
  per share                               0.07p         0.02p           0.05p 
                                   ============  ============  ============== 
 

Copies of this Interim Report are available from the Company Secretary, 115 Hearthcote Road, Swadlincote, Derbyshire DE11 9DU and on the Company's website www.reactsc.co.uk/react-group-plc

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END

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June 29, 2021 02:00 ET (06:00 GMT)

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