REAT React Group Plc

29 May 2024

REACT Group plc

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

Interim Results

REACT Group plc (AIM:REAT.L), the leading specialist cleaning and soft facilities management services company is pleased to announce its unaudited interim results for the six-month period ended 31 March 2024.

Financial highlights

·    Revenue increased by 13% to £10,566k (H1 2023: £9,320k)

o  Repeat/recurring revenue greater than 85%

·    Gross profit increased by 15% to £2,868k (H1 2023: £2,484k)

·    Gross profit margin strengthened by 40 basis points to 27.1% (H1 2023: 26.7%)

·    Adjusted EBITDA* increased by 35% to £1,281k (H1 2023: £951k)

·    Cash and cash equivalents as at 31 March 2024 of £1,490k (H1 2023: £650k)

·    Free cash flow increased by 35% to £923k (H1 2023: £684k)

·    Basic earnings per share of 0.41p (H1 2023:  loss of 0.41p)

·    Adjusted EBITDA* earnings per share of 6.02p (H1 2023: 4.51p)

Strategic and operational highlights

·    Secured three significant contracts totaling over £1.3m annually, alongside a continued cadence of small to mid-sized contracts

·    Successfully renewed a material 3-year contract with a large university, almost doubling the scope and size to £1.3m per year

·    Additionally, renewed three significant specialist cleaning contracts in the healthcare sector, collectively valued at just over £0.5m per year

·    LaddersFree digitalisation project is progressing, timetable for user acceptance testing is over the summer - project and system go live subject to user acceptance testing, anticipated for later in the year.

·    The Group is mostly complete with moving its banking facilities to one consolidated relationship with HSBC to support operational effectiveness of the business and its growth ambitions

Current trading and outlook

·    Maintained strong sales momentum and secured higher margin business underscoring the strength of the Group's value proposition and customer acquisition strategy

·    Pipeline for the remainder of the year remains robust providing the Board with a high degree of confidence in achieving full year consensus market expectations**

*Adjusted EBITDA represents earnings before separately disclosed acquisition, impairment of intangibles, share-based payments and other restructuring costs (as well as before interest, tax, depreciation and amortisation).  This is a non-IFRS measure.

**Current consensus FY24 Revenue & Adjusted EBITDA market expectations of £21.25m & £2.5m respectively

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

"We are delighted with the Group's performance, particularly in a year characterised by significant investments. Despite the challenges, we have maintained strong sales momentum and secured higher margin business, which is a testament to our strategic efforts and operational efficiencies.

"In addition to securing new material contracts, the Group has also achieved numerous small and medium-sized wins, whilst simultaneously renewing and enlarging existing contracts. This consistent success across various deal sizes underscores the quality of the Groups value proposition and is testament to our effective selling and cross-selling to drive growth.

"Looking ahead, the pipeline for the remainder of the year remains strong. This solid foundation provides the Board with considerable confidence in our ability to meet full year market expectations. We believe that our strategic investments and diversified contract wins position us well for sustained success."

For more information:

About Us:

REACT Group plc, the UK's leading specialist cleaning and soft facilities management services business, operates with three divisions: LaddersFree, one of the largest commercial window cleaning businesses in the UK; Fidelis Contract Services ("Fidelis"), a contract cleaning and facilities maintenance business; and REACT business, which primarily provides a solution to emergency and specialist cleaning situations, both through long-term framework agreements and on an ad-hoc basis.

RESULTS SUMMARY & STRATEGY

Strategy

At the recent trading update in April 2024, REACT announced that the positive trading momentum had continued into the first half of 2024, resulting in a record trading performance for the Group in the initial months of the financial year. The Board is pleased to report that this positive trend has continued with significant sales growth in the period. Consequently, revenues for the six-month period are £10.6 million, up from £9.3 million in 2023. The Group achieved gross profit of £2.9 million, compared to £2.5 million in the previous year, and an Adjusted EBITDA of £1.3 million, a significant increase from £1.0 million in 2023.

The Group has generated robust recurring and repeat revenues, representing greater than 85% of revenue generated in the period, with the improved revenue mix reflecting higher margin repeat business and operational synergies across the business. This margin enhancement underscores the Group's strategic focus on sustainable growth and profitability.

The Group continues to demonstrate robust performance from its sales and marketing initiatives, consistently securing new business wins that contribute to its overall growth. This success is not only due to effective sales strategies but also follows investment into the Groups marketing capability.  Additionally, the business is experiencing strong momentum in renewing existing contracts, providing clear evidence of the quality of the Group's value proposition, along with its ability to forge strong customer relationships which results in high levels of customer satisfaction. The value of these renewals has increased as a result of cross-selling relevant Group service offerings and, providing comprehensive solutions that meet the diverse needs of our customers.

In line with the long-term growth objectives, the Group is now strategically shifting away from lower-margin opportunities. This pivot allows REACT to concentrate on higher-margin business segments that offer greater returns and sustainable growth. The strategy moving forward is to leverage the Group's strengths in sales and marketing, capitalise on cross-selling to existing clients, and prioritise high-margin business opportunities to ensure continued success.

Examples of the Company's successes during the period include:

Maintaining momentum in securing new business, noting the recently announced three significant contracts totaling over £1.3 million annually and the £0.5 million agreement with a leading UK facilities management (FM) business. These contracts sit alongside multiple small and medium-sized contract wins to underscore the commitment to growth and the ability to forge strong and lasting relationships with key partners.

The first contract is a substantial £0.8 million three-year renewal and expansion of an FM soft services agreement with an NHS trust in the Midlands. This agreement includes an option to extend the partnership to five years, reflecting the trust's confidence in REACTS's services and consistent delivery of high-quality results. Additionally, the Group has extended its Core Vendor agreement with the UK operations of one of the world's largest FM companies for another two years. Moreover, the Company has secured a new £0.5 million agreement with a leading UK FM business. This contract involves providing a single point of service delivery for emergency decontamination services to its customers, including several well-known and recognisable brands. This new partnership not only expands the Group's service portfolio but also enhances the reputation for delivering critical high-stakes services efficiently and effectively.

These recent contract wins continue to evidence the strategic focus on growing the business through valuable partnerships and high-quality service delivery. They also demonstrate the ability to adapt and respond to the needs of clients, ensuring REACT remains at the forefront of the FM sector.

The Group also renewed several long-term contracts during the period, including a material 3-year agreement with a large university in the Midlands, where the enlarged contract of £1.3 million per year was almost double the size of the previous period due to strategic increases in the services provided by the Group.

Post period end, the Group successfully renewed three significant specialist cleaning contracts in the healthcare sector, collectively valued at just over £0.5 million per year. These contracts include some modest expansions in scope, which will increase revenue. These renewals not only bolster our confidence in this year's performance but also enhance the Company's ongoing recurring revenue profile.

At the full year results announced in February 2024, the Group announced its intention to implement a considered programme to invest in people, processes and systems which will enable the Group to improve operational efficiency and scale with robust systems. This investment programme is proceeding to plan on time and on budget and is expected to be fully operational early in the new financial year.

Trading performance

Following a strong close to the year ended 30 September 2023, trading performance has continued robustly in the period. Revenue increased 13% to £10,566k (H1 2023: £9,320k), generating a gross profit contribution of £2,868k (H1 2023: £2,484k), at a gross margin of 27.1% (H1 2023: 26.7%).

Administrative expenses marginally increased by 2% over the prior period to £2,560k (H1 2023: £2,499k). Administrative expenses including non-cash expenses amounted to £917k (H1 2023: £928k) and is made up of £898k of amortisation and depreciation (H1 2023: £904k) and share-based payments of £19k (H1 20233: £24k).

Adjusted EBITDA for the Group increased by 35% over the prior period to £1,281k (H1 2023: £951k), mainly resulting from increased gross margin contribution from stronger sales in the period. Adjusted EBITDA represents a 45% conversion from gross profit (H1 2023: 38%).

The Group reported a profit in the period of £87k (H1 2023: loss of £86k) and basic earnings per share of 0.41p (H1 2023: loss of 0.41p). Adjusted EBITDA earnings per share increased to 6.02p (H1 2023: 4.51p). Earnings per share has been calculated based on the new shares in issue following the share consolidation which occurred on 2 April 2024 for all reported periods.

Cash flow

Cash generated from continuing operations amounted to £1,147k (H1 2023: £829k). Cash generated in the period benefitted from profitable trading, adjusted for non-cash items and adding back depreciation and amortisation of £898k (H1 2023: £904k) and share-based payments of £19k (H1 2023: £24k).

Cash outflows from financing activities amounted to £154k (H1 2023: £145k), resulting from the £80k repayment of the term loan (H1 2023: £62k), interest payments of £78k (H1 2023: £71k) and lease liabilities of £26k (H1 2023: £37k), offset by the income from shares issued as a result of the £30k of warrants exercised in the period.

In the period the Group paid out £1,023k (H1 2023: £938k) in deferred consideration in relation to the acquisition of LaddersFree and Fidelis, contributing to cash used in investment activities in the period of £1,143k (H1 2023: £1,013k).  The final deferred consideration payments of £983k is payable in the second half of year ended 30 September 2024.

The above cash flows resulted in cash and cash equivalents at the period end of £1,490k (H1 2023: £650k).

Free cash flow generated in the period amounted to £923k (H1 2023: £684k) an increase of 35%.

Post Balance Sheet events

The share consolidation & capital reduction was approved by shareholders at the annual general meeting of the Company 28 March 2024, separate resolutions at the recent AGM held on the 28th March, were overwhelmingly approved by shareholders and have now been implemented. 

Following the Court hearing on the 30 April 2024, the Company has affected a capital reduction by effectively cancelling both the Share Premium account of £10,909,617 and Capital Redemption Reserves account of £3,336,916 and creating a distributable reserve equal to the balance of both.

The share consolidation became effective after the interim period on the 2 April 2024.  For the purposes of calculating the earnings per share, these interim accounts and comparative periods have been prepared on the basis that the share consolidation was effective for all reporting periods. 

People

Our focus on fostering a talented and empowered workforce continues to propel us forward. We've leveraged our expanding scale to invest strategically in both people and technology.

Bespoke training and development programs have nurtured internal talent, allowing us to promote key personnel and cultivate a culture of continuous learning.  This investment translates to a more skilled and engaged workforce, ultimately driving greater performance and employee satisfaction.

Alongside our commitment to talent development, we continue to actively expand our sales and marketing capabilities through strategic investments in people and technology.  These investments will equip our team with the tools and resources needed to unlock new opportunities and facilitate future growth opportunities.

The strong financial performance that we've achieved would not be possible without the unwavering dedication of our incredible team. Each member has played a vital role in our collective success. We extend our deepest gratitude to our colleagues for their continued passion and commitment. It is through their tireless efforts that we continue to succeed and push the boundaries of what's possible.

Outlook

Trading in the second half of the year has remained robust, continuing the strong momentum from the first half. The improved mix of recurring revenue and higher margins gives the business increased visibility and a more reliable revenue stream. The pipeline for the rest of the year continues to be strong, providing the Board with significant confidence in the ability to meet full year consensus market expectations. The Group is confident that the strategic investments and diversified contract wins position the Business well for continued success.

Shaun Doak

Chief Executive Officer

29 May 2024

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 31 March 2024

*Adjusted EBITDA represents earnings before separately disclosed acquisition, impairment of intangibles, share-based payments and other restructuring costs (as well as before interest, tax, depreciation and amortisation).  This is a non-IFRS measure.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 March 2024

CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 31 March 2024

Consolidated Statement of Changes in Equity

For the six months ended 31 March 2024

Notes to the interim financial statements

1.            Basis of preparation 

These consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the United Kingdom and on a historical basis, using the accounting policies which are consistent with those set out in the Group's annual report and accounts for the year ended 30 September 2023. The interim financial information for the six months ended 31 March 2024, which complies with IAS 34 'Interim Financial Reporting' were approved by the Board of Directors on 29 May 2024.

The unaudited interim financial information for the six months ended 31 March 2024 does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. The comparative figures for the year ended 30 September 2023 are extracted from the statutory financial statements which have been filed with the Registrar of Companies and contain an unqualified audit report and did not contain statements under Section 498 to 502 of the Companies Act 2006.  As disclosed in note 3, for the purposes of calculating earnings per share, these interim accounts and comparative periods are presented on the basis that the share consolidation was effective for all reporting periods.

2.            Segmental Reporting

In the opinion of the Directors, the Group has one class of business, being that of specialist cleaning and decontamination services. Although the Group operates in only one geographic segment, which is the UK, it has also analysed the sources of its business into the segments of Contract Maintenance, Contract Reactive, Ad Hoc work and the Group overhead.

3.            Earnings per Share (basic and adjusted)

The calculations of earnings per share (basic and adjusted) are based on the net profit/(loss) and adjusted EBITDA per share before; interest, tax, depreciation, amortisation of acquired intangible assets, exceptional items and share-based payments. Aligned to IFRS reporting standards, the earnings per share calculation is based on the new capital structure post the 50:1 share consolidation, the effective date of the consolidation was 2 April 2024.  The comparative periods earnings per share are also based on the new capital structure.

Copies of this Interim Report are available from the Company Secretary, Holly House, Shady Lane, Birmingham B44 9ER and on the Company's website www.reactsc.co.uk/react-group-plc