Half-year Report

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 (£'000)

2,509

2,091

20%

Gross profit (£'000)

1,018

695

46%

Gross profit margin

40.6%

33.2%

733bps

EBITDA (£'000)

100

85

17%

Adjusted EBITDA (£'000)

369

85

332%

Net profit for the period (£'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 (£'000)

771

306

152%

 

· Group revenue up 20% to £2,509,000

· Gross profit up 46% to £1,018,000

· 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 £74,000 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 £1.5m 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 Officer

Andrea Pankhurst, Chief Financial Officer

Mark Braund, Chairman

Tel: +44 (0) 1283 550 503

Allenby Capital Limited

(Nominated Adviser/Broker)

 

Nick Athanas / Liz Kirchner (Corporate Finance)

Amrit Nahal / Tony Quirke (Sales & Corporate Broking)

Tel: +44 (0) 203 328 5656

 

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

 6 months ended 31 March 2021

 

Unaudited

6 months ended 31 March 2020

 

Audited

Year ended

30 September 2020

 

Note

£'000

 

£'000

 

£'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

As at 31

March

2021

 

Unaudited

As at 31 March 2020

 

Audited

As at 30

September 2020

Assets

Note

£'000

 

£'000

 

£'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

6 months ended

31 March 2021

 

Unaudited

6 months ended

31 March 2020

 

Audited

Year

ended

30 September 2020

 

 

£'000

 

£'000

 

£'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

6 months

ended

31 March

2021

 

Unaudited

6 months ended

31 March 2020

 

Audited

Year

ended 

30 September 2020

 

 

£'000

 

£'000

 

£'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 Capital

Share Premium

Merger Relief

Reserve

Capital Redemption

Reserve

Reverse

Acquisition

Reserve

Share Based Payments

Reserve

Accumulated Deficit

Total Equity

 

 

 

 

 

 

 

 

 

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'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

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

764

802

943

2,509

729

900

462

2,091

Cost of Sales

(530)

(469)

(1,491)

(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 £1.7m, payable as £1.5m cash and £0.2m through the issue of new ordinary shares, with contingent consideration of up to £3.05m 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 £177,000 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

£4,115,000

 

 

 

 

£'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

 

 

£'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 £385,000 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

6 months

ended

31 March

2021

 

Unaudited

6 months ended

31 March 2020

 

Audited

Year

ended 

30 September 2020

 

 

£'000

 

£'000

 

£'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

6 months

ended

31 March

2021

 

Unaudited

6 months ended

31 March 2020

 

Audited

Year

ended 

30 September 2020

 

 

£'000

 

£'000

 

£'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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