Final Results

RNS Number : 0900P
React Group PLC
07 February 2023
 

7 February 2023

 

REACT Group plc

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

 

REACT (AIM: REAT.L), the leading specialist cleaning, hygiene, and decontamination company, is pleased to announce its final results for the year ended 30 September 2022.

 

Financial Performance

 

Summary

FY 2022

FY 2021

Change


'000

'000


Revenue

£13,700

£7,700

+78%

Gross profit

£3,260

£2,370

+37%

Adjusted EBITDA

£953

£795

+20%

Net cash

£979

£567

+73%%

 

Note: The table above reflects the contribution of LaddersFree since acquisition in May 2022

 

Highlights

 

·     Revenue increased by 78% at £13.70m (2021: £7.70m)), including a contribution of c. £1.6m from LaddersFree post acquisition

·     Gross profit up 37% at £3.26m (2021: £2.37m)

·     Adjusted EBITDA up 20% at £953k (2021: £795k)

·     Strong like-for-like organic revenue growth of c.17%

·     Recurring revenue of 83% at year end

·     Successful acquisition of LaddersFree Ltd, an established nationwide commercial window, gutter and cladding cleaning business, for a total consideration of up to £8.5 million on a debt-free and cash-free basis

·     Post period end contract win of c.£800k per year to provide services from all three segments of the business through a coordinated programme to a large fast-service food restaurant across all its sites in the UK

·     Positive outlook for the business following the first quarter delivering a record performance for the Group

 

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

 

"We are delighted to report a strong financial performance for the year. The acquisition of LaddersFree has been transformational as it continues to win new blue chip clients. The transaction has not only broadened the Group's offering but has enabled the business to cross sell other business services into existing and new customers. This was evident in the recent new £800k contract win to provide services from all three segments of the business through a coordinated programme to a large fast-service food restaurant across all its sites in the UK. Strong demand for the Group's services has continued into the current year and as a result the Board is confident of the outlook for the business."

 

For more information:

REACT Group Plc

Shaun Doak, Chief Executive Officer

Andrea Pankhurst, Chief Financial Officer

Mark Braund, Chairman

 

Tel: +44 (0) 1283 550 503

 

Singer Capital Markets

(Nominated Adviser / Broker)

James Moat / Philip Davies

 

 

Tel: +44 (0) 207 496 3000

 

IFC Advisory

(Financial PR / IR)

Graham Herring / Zach Cohen

 

Tel: +44 (0) 20 3934 6630

 

 

Executive Chairman's Statement

For the year ended 30 September 2022

 

The Board of the REACT Group is pleased to report the Group continues to deliver significant growth in the period under review, both organically and as a result of the acquisition of LaddersFree, thereby continuing to deliver material improvements in operational performance and profit contribution.

 

The acquisition of LaddersFree in May 2022 creates yet another step-change in the make-up of the Group's business, augmenting the unique strengths of REACT's emergency cleaning services, Fidelis's contract cleaning and facilities management services with LaddersFree, one of the largest commercial window cleaning businesses in the UK.  As a result, the Group has strengthened its capability across a number of important specialist cleaning disciplines and has materially improved its financial operating model through the addition of a high-margin, working capital-light, rich seam of long-term contracted recurring revenues.

 

Details of the Group's performance is set out in reviews by the Chief Executive and the Chief Financial Officer.

For the year ended 30 September 2022 (FY 22), Adjusted EBITDA1 on a consistent accounting basis was £953,000, up +20% on the prior year, (2021: £795,000), on sales revenue of £13.70 million, up +78% on the prior year (2021: £7.70 million).

 

The Group performance represents strong like-for-like organic growth of c.17% enhanced by the acquisition of LaddersFree in May 2022, which contributed to the second half of the financial year. 

 

Each segment of the business provides opportunities and challenges, yet together they provide a unique value proposition; that of a unique business providing a broad spectrum of specialist cleaning services, to a consistently high standard across all locations in the UK.  This creates potential for upsell and cross-sell, providing customers that require a quality solution delivered across multiple locations at a cost-effective price with a solution that is difficult to otherwise solve.  An example of this is demonstrated by the recent contract win announcement of c.£800k per year to provide services from all three segments of the business through a coordinated programme to a large fast-service food chain across all its sites in the UK.

 

The financial model of the REACT Group has evolved from one of a predominantly project orientated business with high margin but inconsistent revenue flows to one that now has greater than 80% of its revenues contracted and recurring alongside a balanced margin that remains above market average.  To this we add a consistent ability to generate organic growth and with it, scale.

 

Our strategy for growth is clear; we will continue to build a leading position across our business through fast-paced 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.

 

Mark Braund

Chairman

7 February 2023

 

1.- Adjusted EBITDA  represents earnings before separately disclosed acquisition and other restructuring costs (as well as before interest, tax, depreciation and amortisation).  This is a non-IFRS measure.

 

Chief Executive Officer's Report and Strategic Review

 

I am pleased to report excellent progress in FY22.

 

REACT Group has delivered significant growth, both organically and as a result of the acquisition of LaddersFree, whilst continuing to deliver improvements in operational performance and profit contribution.

 

We have materially improved our value proposition and our go to market strategy.

 

We have made good progress in the reported period.  Since the acquisition of Fidelis in FY21, we have succeeded in growing the business organically and have been awarded a number of new contracts both large and small.

 

Organic growth for the Group during the period on a like-for-like basis was 17%.  As we have grown we have added additional sales resource, specifically two senior sales people, one of whom, Sam Haywood, has been recently promoted to Group Sales Director.

 

The acquisition of LaddersFree has provided a step-change in performance; a profitable, working capital-light business, with an impressive client base, with almost all of its revenue being contracted and recurring.  With LaddersFree we see a material opportunity to improve our go to market model, leveraging the channels it sells and delivers through to provide additional value add services to Customers.

 

A great example of this is the post period announcement of a multi-year contract awarded to the Group worth £800k per year to provide a twice yearly deep cleaning service to all the UK sites of a well know fast service food chain, announced on 5th January 2023.

 

Like many others in this business environment, and despite the strong performance, the business has witnessed certain headwinds, which are being addressed.  The reactive business slowed down coming out of the prior year, FY21, which continued through to the beginning of H2 22.  We believe it to have been a post Covid issue, a combination of two factors; opportunistic competition that had temporarily entered the market to deal with demand for decontaminations and, customer budget-fatigue where budgets had been spent and in many cases over-spent during the worst period of the pandemic.  We are pleased to report that much of this disruption has disappeared, demand has risen again as we returned to more normal levels of reactive business towards the end of the year.

 

Importantly we continue to refine and improve the financial model of our business, focusing sales and acquisitions on the growth of profitable long term recurring revenue contracts.

 

The business model has advanced significantly form of 3-4 years ago, which was predominantly reactive, less profitable and with little in the way of recurring revenue contracts, to a business where our recurring revenues in FY22 were c83% of total Group revenue.

 

With a full year of contribution from LaddersFree included in the new financial year we anticipate this to improve further to greater than 86%.

 

As we develop our unique proposition, we continue to build a number of compelling customer case studies in our most important market sectors.  These help verify the quality of our work and provide reassurance to new customers who place trust in our capability.

I am pleased to report excellent progress in FY22.

 

Strategy

 

Our strategy for growth is clear; we will continue to build a leading position across our business through fast-paced 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.

 

Whilst we actively pursue opportunities across each sector of our business, we continue to focus on enhancing our financial operating model by securing recurring revenue from contracted relationships.

 

We continue to invest in sales and marketing to engage with the large addressable market for our services.  This includes further developing our use of the right sales and marketing tools.

 

The successful acquisition of LaddersFree presents further opportunities for the Group to grow;

 

1.    By applying the Group's disciplined outbound sales & marketing engine to the core LaddersFree business, which had previously grown with limited outbound sales & marketing effort prior to acquisition. 

 

2.    By cross-selling and up-selling within the Group's extended list of customers (including those of LaddersFree) the range of specialist cleaning services that the Group can uniquely deploy on a nationwide basis.

 

In addition to scaling the business we continue to look at operational efficiencies as a means to improve operating margins.  We see opportunities to add better technology and automation to further simplify operational procedures at the same time as improving scalability and resilience.

 

Key Performance Indicators (KPIs)

 

Financial : The key financial indicators are as follows:


 

2022


2021

Revenue


£13.67m


£7.70m

Gross margin


23.8%


30.8%

Earnings before Interest, Tax, Depreciation & Amortisation (EBITDA)


£410,000


£378,000

(Loss)/Profit from continuing operations before acquisition and restructuring costs

(£158,000)


£806,000

Acquisition and restructuring costs


£543,000


£417,000

(Loss)/Profit from continuing operations after acquisition and restructuring costs


(£701,000)


£389,000

Cash and cash equivalents


£979,000


£633,000






The Board recognises the importance of KPIs in driving appropriate behaviours and enabling the monitoring of Group performance.

 

The Group reports three main areas of business; firstly, Contract Maintenance, where the Company delivers regular cleaning regimes, (such as in the healthcare, education, retail and public transport sectors); secondly Contract Reactive, where the Company is the first responder to an on-call emergency response service operating under a formal contract or framework agreement, typically 24-hours a day, 7-days per week, 365-days of the year.  These two areas together are recurring in nature, have continued to grow at pace and represented c83% of revenue in FY22. 

 

The third area is Ad Hoc, where REACT provides a solution to one-off situations outside a framework agreement, such as for fly tipping, void clearance, and decontaminations.

 

Contract maintenance represents strong recurring revenue and income streams from typically long-term contracts.  This is a key area of strategic growth for the Group, one from which most of our organic growth during the period has come from.  It remains our focus as we continue to drive long-term value and resilience in our financial operating model.

 

Non-financial: The Board continues to monitor and improve customer relationships, the motivation and retention of employees as well as service quality and brand awareness.

 

Outlook

 

Momentum from the final few months of the previous year has continued into the new financial year, and despite the usual slow down across the festive period, the first quarter has delivered a record performance for the Group.

 

Our value proposition has materially expanded and improved, as has our access to market.

 

We are ambitious, aiming to continue our drive towards a high-performance culture placing our colleagues and customers at the heart of our business.  Our go to market model continues to evolve.  We continue to develop a strong data base of prospective customers using highly efficient sales & marketing tools.

 

Through our focused efforts and competitive service proposition the business remains committed to leveraging both existing relationships and new ones to help underpin our ambitious growth strategy and upward trend of sustainable profitability.  We believe the Group is well placed to deliver another exciting year of growth.

 

I would like to thank our customers for their continued support and confidence in the Group to deliver the services they need, when and where they are needed.

 

Finally, and on behalf of the Board, I wish to thank all of my colleagues across the Group, including our new colleagues from LaddersFree, for their dedication, hard work and tenacity.  Our performance as a team is a reflection of their commitment and talent.  I very much look forward to working with them in 2023 and beyond.

 

Shaun D Doak

Chief Executive Officer

7 February 2023


Chief Financial Officer's Report

 

Revenue and profitability

 

Revenue for year ended 30 September 2022 was £13.7m, +78% up on the prior year (2021: £7.7m).  The current year figures include a full 12 months' results from Fidelis, (2021: 6 months) and 4½ months' results from LaddersFree following its acquisition in May 2022.  Taking into account the performance of both trading companies for the full prior year period, this represents like-for-like organic growth of approximately +17%.

 

These revenues generated a gross profit contribution of £3.3m, up +37% on the prior year (2021: £2.4m). On  a like-for-like basis, there was a reduction in gross profit of approximately (8)% which is due to a change in the mix of work, as the group is focusing more on winning longer term Contract Maintenance work, rather than relying on higher margin (but less predictable) Ad Hoc work.

 

The financial statements are prepared according to the accounting standards and regulations that apply to the Group.  Some additional measures are also included that are not defined by International Financial Reporting Standards (IFRS).  The directors believe that these measures, together with comparable IFRS measures provide additional meaningful information for communicating the year-on-year underlying performance of the Group. Non-IFRS measures should not be considered as a substitute for the financial information presented in compliance with IFRS.

 

Adjusted EBITDA on a consistent accounting basis was £953,000, up +20% on the prior year (2021: £795,000).  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.  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.

 

The acquisition costs include the costs incurred in the acquisition of LaddersFree and write-backs relating to the latest calculation of deferred consideration for the acquisition of Fidelis.  As part of the annual review of goodwill values, it was decided that an impairment of the purchased goodwill of Fidelis would be prudent and this goodwill has been impaired by £567,000.

 

 

Reconciliation of Profit before Tax to Adjusted EBITDA


 

2022

£'000

 

2021

£'000






(Loss)/Profit before Interest and Tax


(511)


114

Depreciation & Amortisation


921


264

EBITDA


410


378

Acquisition costs/write backs


(24)


323

Impairment charge


567


-

Restructuring costs


-


94

Adjusted EBITDA


953


795

 

Cash flow

 

Net cash at the year end totalled £979,000 (2021: £633,000).  During the year, consideration payments were made relating to both the Fidelis and LaddersFree acquisitions.   In addition to the funds raised from the share issue in May 2022, the group also secured a 5 year £1.0m loan.  Together with the invoice discounting facility that is still in place, the Group now has sufficient flexibility to deal with both normal fluctuations in business working capital and to fund the future deferred consideration payments relating to the two acquisitions.  The terms of both deals include the payment of deferred consideration amounts subject to certain financial performance hurdles being met.

 

Based on the trading outlook for the next 12 months, it is not anticipated that any further funding will be required.  However, the Board will continue to regularly monitor the Group's performance and its overall cash position.

 

Cash flow

 

Net cash at the year end totalled £979,000 (2021: £633,000).  During the year, consideration payments were made relating to both the Fidelis and LaddersFree acquisitions.   In addition to the funds raised from the share issue in May 2022, the Group also secured a 5 year £1.0m loan.  Together with the invoice discounting facility that is still in place, the Group now has sufficient flexibility to deal with both normal fluctuations in business working capital and to fund the future deferred consideration payments relating to the two acquisitions.  The terms of both deals include the payment of deferred consideration amounts subject to certain financial performance hurdles being met.

 

Based on the trading outlook for the next 12 months, it is not anticipated that any further funding will be required.  However, the Board will continue to regularly monitor the Group's performance and its overall cash position.

 

Taxation

 

The Group has reported a taxable loss but, has confidence that there will be sufficient future taxable profits in the foreseeable future to utilise its historic tax losses.  It has retained its deferred tax asset of £0.3m (2021: £0.3m).

 

Statement of financial position

 

The Group's balance sheet has strengthened with net assets at the year end of £8,339,000 (2021: £2,788,000).  The net assets of LaddersFree at the point of acquisition totalled £2,655,000.

 

 

Andrea Pankhurst

Chief Financial Officer

7 February 2023



 

Consolidated Statement of Comprehensive Income

For the year ended 30 September 2022

           


 

2022

£'000

 

2021

£'000


 

 

 

 

Continuing Operations





Revenue


13,671


7,701

Cost of sales


(10,414)


(5,332)

Gross profit


3,257


2,369






Other operating income


-


19

Administrative expenses


(3,768)


(2,274)

 





Acquisition and restructuring income/costs included in

 administrative expenses


(543)


(417)

 





Operating (loss)/profit


(511)


114






Finance (cost)/income


(56)


16

Corporation tax (charge)/credit


(134)


259






(Loss)/Profit for the year


(701)


389

Other comprehensive Income


-


-

Total comprehensive (loss)/profit for the year attributable to the equity holders of the company


(701)

 

389






Basic and diluted earnings per share - pence





Basic (loss)/earnings per share


(0.09)p


0.08p

Diluted (loss)/earnings per share


(0.09)p


0.07p



 

 

 



 

Consolidated Statement of Financial Position

As at 30 September 2022

 


 

2022

2021

ASSETS

 

£'000

£'000

Non-current assets




Intangible assets - Goodwill


4,209

1,940

Intangible assets - Other


5,680

1,028

Property, plant & equipment


203

176

Right-of-use assets


100

95

Deferred tax asset


244

244

 


10,436

3,483

Current assets




Stock


11

12

Trade and other receivables


4,254

2,099

Cash and cash equivalents


979

633

 


5,244

2,744

TOTAL ASSETS


15,680

6,227

EQUITY




Shareholders' Equity




Called-up equity share capital


2,624

1,270

Share premium account


10,905

6,028

Reverse acquisition reserve


(5,726)

(5,726)

Capital redemption reserve


3,337

3,337

Merger relief reserve


1,328

1,328

Share-based payments


44

23

Accumulated losses


(4,173)

(3,472)

Total Equity


8,339

2,788

LIABILITIES




Current liabilities




Trade and other payables


4,391

2,598

Lease liabilities within one year


57

54

Corporation tax


271

80



4,719

2,732

Non-current liabilities




Lease liabilities after one year


53

49

Other creditors after one year


2,569

658

 


2,622

707

TOTAL LIABILITIES


7,341

3,439

TOTAL EQUITY AND LIABILITIES


15,680

6,227

 

 

These financial statements were approved and authorised for issue by the Board of Directors on 7 February 2023.

 

.


Consolidated Statement of Changes in Equity

For the year ended 30 September 2022

 

 


 

Share capital

 

Share

Premium

 

Merger Relief Reserve

 

Capital Redemption Reserve

 

Reverse Acquisition Reserve

 

Share-Based Payments

 

Accumulated Deficit

 

Total

Equity


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000










At 1 October 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

-

-

-

-

-

8

-

8

Effect of adoption of IFRS16

-

-

-

-

-

-

-

-

Profit for the year

-

-

-

-

-

-

389

389

At 30 September 2021

1,270

6,028

1,328

3,337

(5,726)

23

(3,472)

2,788

Issue of shares

1,354

4,877

-

-

-

-

-

6,231

Share-based payments

-

-

-

-

-

21

-

21

Effect of adoption of IFRS16

-

-

-

-

-

-

-

-

(Loss)/Profit for the year

-

-

-

-

-

-

(701)

(701)

At 30 September 2022

2,624

10,905

1,328

3,337

(5,726)

44

(4,173)

8,339

 

Share capital is the amount subscribed for shares at nominal value. Share premium represents amounts subscribed for share capital in excess of nominal value.

 

Share premium represents the amount subscribed for shares in excess of the nominal value, net of any directly attributable issue costs.

 

Merger relief reserve arises from the 100% acquisition of REACT SC Holdings Limited and REACT Specialist Cleaning Limited in August 2015 whereby the excess of the fair value of the issued ordinary share capital issued over the nominal value of these shares is transferred to this reserve in accordance with section 612 of the Companies Act 2006.

 

Accumulated deficit represents the cumulative losses of the Group attributable to the owners of the company.

 

Reverse acquisition reserve is the effect on equity of the reverse acquisition of REACT Specialist Cleaning Limited.

 

The capital redemption reserve represents the value of deferred shares cancelled as a result of a share buyback.

 

The share-based payments reserve represents the cumulative expense in relation to the fair value of share options and warrants granted.

Consolidated Statement of Cash Flows

For the year ended 30 September 2022

 

 


 

 

2022

2021

£'000

£'000

 





Cash flows from operating activities

 




Cash generated by operations

 

 

(773)

432

Net cash outflow)/inflow from operating activities



(773)

432

Cash flows from financing activities





Proceeds of share issue



6,500

200

Expenses of share issue



(269)

-

Lease liability payments



(80)

(39)

Bank loans



902

67

Interest paid



(56)

-

Net cash inflow from financing activities



6,997

228






Cash flows from investing activities

 




Disposal of fixed assets



20

6

Capital expenditure



(115)

(71)

Acquisition of subsidiary



(7,776)

(1,930)

Exceptional acquisition costs paid



(543)

(200)

Net cash outflow from investing activities



(8,414)

(2,195)






(Decrease)/Increase in cash, cash equivalents and overdrafts

 


(2,190)

(1,535)






Cash, cash equivalents and overdrafts at beginning of year


633

1,783

Cash on acquisition of subsidiaries


2,536

385

Cash, cash equivalents and overdrafts at end of year

 

 

979

633

 



 

Notes to the Consolidated Statement of Cash Flows

For the year ended 30 September 2022

 

1.  Reconciliation of profit for the year to cash outflow from operations

 

 

 

 

 

 


 

2022

£'000

 

2021

£'000






(Loss)/Profit after taxation


(701)


389

Decrease/(Increase) in stocks


1


(12)

(Increase) in trade and other receivables


(2,155)


(1,010)

Increase in trade and other payables


374


655

Depreciation and amortisation charges


921


264

Impairment charge


567


-

Finance costs/(income)


56


(16)

Tax charge/(credit)


134


(259)

Acquisition assets acquired (excluding cash)


119


95

Exceptional acquisition costs


(24)


323

Loss/(Profit) on disposal of fixed assets


(6)


(5)

Share based payment


21


8

Tax paid


(80)


-

Net cash (outflow)/inflow from operations


(773)


432

 

2.  Cash and cash equivalents

 

 

2022

£'000

 

2021

£'000




Cash at bank and in hand

979

633




 



 

Notes to the Financial Statements

For the year ended 30 September 2022

 

1.  General Information

 

  Basis of preparation and consolidation

 

The Company is a public company, limited by shares, based in the United Kingdom and incorporated in England and Wales.  Details of the registered office, the officers and advisors to the Company are presented on the Company Information page at the start of this report.

 

The consolidated financial statements present the results of the company and its subsidiaries ('the Group') as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full.  Where the company has control over an investee, it is classified as a subsidiary. The company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

 

The functional and presentational currency of the Group is pounds sterling.  The figures presented have been rounded to the nearest one thousand pounds.

 

The equity structure appearing in the Group financial statements reflects the equity structure of the legal parent, REACT Group PLC, including the equity instruments issued in order to effect reverse acquisition accounting.  The merger relief reserve represents a premium on the issue of the ordinary shares for the acquisition of subsidiary undertakings. The relief is only available to the issuing company securing at least a 90% equity holding in the acquired undertaking in pursuance of an arrangement providing for the allotment of equity shares in the issuing company on terms that the consideration for the shares allotted is to be provided by the issue of equity shares in the other company.

 

2.  Accounting Policies

 

  Statement of compliance

The consolidated financial statements of REACT Group PLC have been prepared in accordance with UK adopted International Financial Reporting Standards (IFRSs), International Accounting Standards (IASs) and International Financial Reporting Interpretations Committee (IFRIC) interpretations (collectively 'IFRSs') and as issued by the International Accounting Standards Board and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

 

  Basis of preparation

The financial statements have been prepared under the historical cost convention. The principal accounting policies are summarised below.  They have all been applied consistently throughout the year under review.

 

  Going concern

  Following its review of the Group's financial plans and forecast growth, the cash balance held at the year end and the management team currently in place, the Board has a good expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  Therefore, the financial statements do not include any adjustments that would result if the Group was unable to continue as a going concern.

 

New , amended standards, interpretations not adopted by the Group

Th e following Adopted IFRSs have been issued but have not been applied by the Group in these Financial Statements. The full impact of their adoption has not yet been fully assessed; however, management do not expect the changes to have a material effect on the Financial Statements unless otherwise indicated:

 

· IAS37 amendments regarding onerous contracts (1 January 2023)

· IAS16 amendments regarding proceeds before intended use (1 January 2023)

· IFRS17 Insurance contracts (1 January 2023)

· IAS1 amendments on classification (1 January 2023)

· IAS8 amendments on accounting estimates (1 January 2023)

· IAS12 amendments on deferred tax (1 January 2023)

 

Revenue recognition

Revenue is recognised in accordance with the requirements of IFRS 15 'Revenue from Contracts with Customers'. The Company recognises revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This core principle is delivered in a five-step model framework:

1. Identify the contract(s) with the customer; 

2. Identify the performance obligations in the contract; 

3. Determine the transaction price; 

4. Allocate the transaction price to the performance obligations in the contract; and 

5. Recognise revenue when (or as) the entity satisfy a performance obligation.

 

The Group recognises revenue in the accounting period in which its services are rendered, by reference to stage of completion of the specific transaction and assessed on the basis of the actual service provided as a proportion of the total services to be provided. Revenues exclude intra-group sales and value added taxes and represent net invoice value less estimated rebates, returns and settlement discounts. The net invoice value is measured by reference to the fair value of consideration received or receivable by the Group for goods supplied.

 

  3.  Segmental Reporting

In the opinion of the Directors, the Group has one class of business, being that of specialist cleaning and decontamination services, including both contracted commercial cleaning and specialist emergency decontamination work . 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

 


2022


2021


Contract Maintenance Work

Contract

Reactive

Work

Ad Hoc

Work

Total

 

Contract Maintenance Work

Contract

Reactive

Work

Ad Hoc

Work

Total


£'000

£'000

£'000

£'000

 

£'000

£'000

£'000

£'000

Revenue

8,939

2,499

2,233

13,671


3,992

1,587

2,122

7,701

Cost of Sales

(6,809)

(2,007)

(1,598)

(10,414)


(3,101)

(1,072)

(1,159)

(5,332)

Gross Profit

2,130

492

635

3,257


891

515

963

2,369

Other Operating Income

-

-

-

-


17

1

1

19

Administrative Expenses

(2,171)

(703)

(894)

(3,768)


(814)

(557)

(903)

(2,274)

Operating (Loss)/Profit for the year

(41)

(211)

(259)

(511)


94

(41)

61

114











Adjusted EBITDA1

866

30

57

953


660

(290)

425

795











Total Assets

14,257

486

938

15,681


2,327

1,366

2,534

6,227











Total Liabilities

(6,767)

(230)

(445)

(7,442)


(1,340)

(707)

(1,392)

(3,439)











1.  Adjusted EBITDA  represents earnings before separately disclosed acquisition and other restructuring costs (as well as before interest, tax, depreciation and amortisation).  This is a non-IFRS measure.

 

4.  Business Combinations during the period

 

On 11 May 2022, the Group acquired 100% of the issued share capital and voting rights of LaddersFree Ltd ('LaddersFree'), an established nationwide commercial window, gutter and cladding cleaning business headquartered in Devon providing services to customers across the entire UK.  The acquisition is expected to diversify the group's service offering and reduce costs through economies of scale.

LaddersFree was acquired for an initial consideration of £5.65m, payable as £4.65m cash and £1.0m through the issue of new ordinary shares, with contingent consideration of up to £2.85m payable subject to LaddersFree fulfilling certain profit criteria.  Surplus cash balances on acquisition totalled £2.54m.

The fair value of the acquired customer list and customer contracts has been assessed as at 30 September 2022.  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 LaddersFree 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 £455,000 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

LaddersFree Ltd


Principal activity

Commercial window, gutter and cladding cleaning services


Date of acquisition

11 May 2022


Proportion of voting equity interests Acquired

100%


Consideration transferred

£10,885,584

 

 

 

£'000

b)

Consideration transferred



Cash

7,186


Equity issued

1,000


Contingent consideration arrangement (included in Other Creditors)

2,700


Total consideration transferred

10,886

c)

Assets and liabilities recognised on the date of acquisition



Separately identifiable intangible assets arising on business combination

5,395


Non-current assets

13


Current assets

3,308


Non-current liabilities

-


Current liabilities

(666)


Net assets acquired

8,050

d)

Goodwill arising on acquisition


 

Consideration transferred

10,886

 

Fair value of identifiable net assets acquired

(8,050)

 

Goodwill acquired

2,836

e)

Net cash outflow on acquisition



Consideration paid in cash

  7,186


Less: cash balances acquired

(2,536)



4,650

f)

Impact of acquisition on the results of the Group


The acquired business contributed revenues of £1,629,000 and net profit of £585,000 to the group for the period from 11 May 2022 to 30 September 2022.

 

If the acquisition had occurred on 1 October 2021, pro-forma revenue and net profit contributions to the Group for the year ended 30 September 2022 would have been £4,042,000 and £1,075,000 respectively. These amounts have been calculated using the subsidiary's results and adjusting them for differences in the accounting policies between the group and the subsidiary.

 



 

5.  Income Tax

 

 

 

 

2022

 

2021

 

 

 

£'000

 

£'000







Current tax charge 



134


-

Deferred tax credit



-


259

Tax credit/(charge)



134


259

 

  Analysis of tax expense:

 



2022

£'000

 

 

2021

£'000

 

(Loss)/Profit on ordinary activities before income tax


(567)


130

 

(Loss)/Profit on ordinary activities multiplied by the standard rate of corporation tax in UK of 19% (2021: 19%)


(108)


25






Effects of:





Fixed asset differences


21


(4)

Amortisation and depreciation not deductible for tax


-


-

(Decrease)/Increase in net losses carried forward


221


(280)

Corporation tax charge/(credit)


134


(259)






 

The Group has estimated excess management expenses carried forward of £1.3m (2021: £1.3m) and trading  losses of approximately £0.9m (2021: £0.6m) available to use against future profits.  The tax losses have resulted in a deferred tax asset of approximately £0.3m (2021: £0.3m) being as the positive trading outlook for the Group means that there is likely to be sufficient future taxable profits to utilise the losses. The remaining losses of £884,000 resulting in a deferred tax asset of £221,000 have not been recognised in order to be prudent.

 



 

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 year.  The adjusted profit represents the EBITDA for the year.  For diluted earnings per share, the weighted average number of shares is adjusted to assume conversion of all dilutive potential ordinary shares.

 

 

 

2022

 

2021



£'000


£'000






Net (loss)/profit for year

 

(701)


389

Adjustments:

 




Interest

 

56


(16)

Depreciation & amortisation

 

921


264

Tax

 

134

(259)

Adjusted profit for the year

 

410


378


 





 

Number

 

Number

Weighted average shares in issue for basic earnings per share

 

718,622,464


503,348,752

Weighted average dilutive share options and warrants

 

62,247,272


62,247,272

Average number of shares used for dilutive earnings per share

 

780,869,736


565,596,024


 





 

Pence


Pence

Basic (loss)/earnings per share

 

(0.09)p


0.08p

Diluted (loss)/earnings per share

 

(0.09)p


0.07p

Adjusted basic earnings per share

 

0.06p


0.08p

Adjusted diluted earnings per share

 

0.05p


0.07p

 



 

7.  Intangible assets

 

Group

 

 

Goodwill

 

Customer List

 

Total

 

 

£'000

 

£'000

 

£'000

Cost







At 1 October 2020


1,280


-


1,280

Additions


1,766


1,175


2,941

Disposals


-


-


-

As at 30 September 2021


3,046


1,175


4,221

Additions


2,836


5,395


8,231

Disposals


-


-


-

As at 30 September 2022


5,882

 

6,570

 

12,452

Amortisation and impairment







As at 1 October 2020


1,106


-


1,106

Amortisation charge for the year


-


147


147

Disposals


-


-


-

As at 30 September 2021


1,106


147


1,253

Amortisation charge for the year


-


743


743

Impairment charge


567


-


567

Disposals


-


-


-

As at 30 September 2022


1,673

 

890

 

2,563

Carrying amount







As at 1 October 2020


174


-


174

As at 30 September 2021


1,940


1,028


2,968

As at 30 September 2022


4,209

 

5,680

 

9,889

 

The goodwill relates to intangible assets that do not qualify for separate recognition on the acquisition of LaddersFree during the year, Fidelis during the prior year and previously, the REACT specialist cleaning services business, an unincorporated division of Autoclenz Limited.

 

The Group assesses at each reporting date whether there is an indication that an asset may be impaired, by considering the net present value of discounted cash flow forecasts. Goodwill has been allocated for impairment testing purposes to the individual businesses acquired which are also the cash‐generating units ("CGU") identified. The recoverable amount of a CGU is determined based on value in use calculations using cash flow projections based on financial budgets approved by the Directors. The projections are based on the assumption that the company can realise projected sales. A prudent approach has been applied with no residual value being factored into these calculations. If the projected sales do not materialise there is a risk that the total value of the intangible assets shown above would be impaired. A pre-tax discount rate of 15% per annum has been applied to the cashflow projections, taking into consideration the expected rate of return and various risks relating to the CGU.

 

As at 30 September 2022 management judged that an impairment was required in respect of the goodwill of Fidelis.  A write-down of £567,000 is considered prudent in light of the medium-term growth outlook for this business. 

 

The key assumptions used in the estimation of the revised value of Purchased Goodwill are set out below.  The values assigned to the key assumptions represent management's assessment of future revenues and cash flows of the CGU.  The most recent financial results and forecast approved by management for the next five years were used and a nil terminal growth rate thereafter.  The projected results were discounted at a rate which is a prudent evaluation of the time value of money and the risks specific to the CGU.

 

Key assumptions used:


%

Average revenue growth rate (of next five years)

5

Terminal value growth rate

0

Discount rate

15

 

8.  Investment in subsidiary undertakings   

Company

 

 

Cost

 

 

At 1 October 2021


1,560

Additions


-

At 30 September 2022


1,560

Impairment



At 1 October 2021


1,386

Impairment charge for the year


-

At 30 September 2022


1,386

Carrying amount



At 30 September 2021


174

At 30 September 2022


174

 

 

 

9.   Trade and other receivables

 

Current

Note

Group

 

Group

Company

Company

 

 

2022

 

2021

 

2022

 

2021

 

 

£'000

 

£'000

 

£'000

 

£'000

Trade receivables


3,522


1,702


-


-

Provision for impairment

15

(5)


(5)


-


-

Net trade receivables


3,517


1,697


-


-

Amounts owed by Group undertakings


-


-


10,138


2,846

Prepayments and accrued income


702


378


9


13

Other debtors


35


24


27


19



4,254


2,099


10,174


2,878

Trade receivables are amounts due from customers for services performed in the ordinary course of business.  The Group's impairment and other accounting policies for trade and other receivables are outlined in note 2.

 



 

10. Provision for impairment of receivables

 

Provision for impairment of receivables

Relating to debt over 3 months past due

 

Group

 

Group

 

 

2022

 

2021

Opening provision


5


42

Amounts released in the year


-


(36)

Amounts utilised in the year


-


(1)

Closing provision


5


5

 

There are no receivables in the Company, as all are held by the trading subsidiaries, REACT Specialist Cleaning Limited, Fidelis Contract Services Ltd and LaddersFree Ltd.

 

As at 30 September 2022, excluding balances provided for by the impairment provision, £560,000 (2021: £174,000) of trade receivables were past their due settlement date but not impaired.   The ageing analysis of these trade receivables is as follows:

 

 

2022

 

2021

 

 

  £'000

 

  £'000


 

 

 

 

Up to 3 months past due


175


87

3 to 6 months past due


96


27

Over 6 months past due


289


60



560


174

The expected credit loss is respect of debt not due and past due is considered immaterial.

 

11. Cash and cash equivalents

 

 

Group

 

Group

 

Company

 

Company

 

 

2022

 

2021

 

2022

 

2021

 

 

£'000

 

£'000

 

£'000

 

£'000










Cash and bank balances


979


633


4


22

 

 



 

12.  Trade and other payables

 


 

 

 

 

 

 


 

Group

 

Group

 

Company

 

Company


 

2022

 

2021

 

2022

 

2021


 

£'000

 

£'000

 

£'000

 

£'000

Current:









Trade payables

 

1,284


378


34


35

Accrued expenses

 

664


639


39


21

Social security and other taxes

852


523


30


23

Lease liability <12 months

57


54


9


28

Other creditors

1,430


991


-


5

Loans

161


67


161


-

Corporation tax payable

271


80


-


-

 

4,719


2,732


273


112

 








Non-current:








Lease Liability >12 months

53


49


17


26

Loans

808


-


808



Other liabilities >12 months -  Deferred Consideration

1,761


658


-


-

Deferred Tax

-


-


-


-


2,622


707


825


26

 

7,341


3,439


1,098


138

 

13. Deferred Tax

 

Deferred tax is provided, using the liability method, on temporary differences at the statement of financial position date between the tax base of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 25% (2021:19%), the movement on the deferred tax liability is as shown below:

 

 

Group

 

Group

 

Company

 

Company

 

2022

 

2021

 

2022

 

2021

 

£'000

 

£'000

 

£'000

 

£'000









At 1 October

244


-


152


-

Income credit

-


259


-


152

Liability acquired

-


(15)


-


-

At 30 September

244


244


152


152

 

The deferred taxation asset is made up as follows:

 

 

Group

 

Group

 

Company

 

Company

 

2022

 

2021

 

2022

 

2021

 

£'000

 

£'000

 

£'000

 

£'000









Accelerated capital allowances

(32)


(5)


-


-

Tax losses carried forward

262


110


-


-

Other short-term timing differences

14


139


152


152

 

244


244


152


152

 

 

14. Annual Report

 

The annual report and accounts for the year ended 30 September 2022 will be posted to shareholders in due course.

 

 

 

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