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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