29 June 2023

REACT Group plc

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

Half Year Results FY 2023

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 2023.

Financial Summary

*These measures are explained and reconciled in the Alternative Performance Measures section in Note 5 below.

Highlights (including post period highlights):

·    Revenue increased by 82% to £9,320k (2022: £5,125k)

·    Adjusted EBITDA up materially to £927k (2022: £162k)

·    Gross margins up at 27% from 23% in H1 2022

·    £800k multi-year contract win to provide services, through a coordinated programme from all three segments of the business to a large fast-service restaurant chain across c. 350 sites in the UK

·    £500k 18-month contract with a sizeable Midlands-based school alongside numerous contract renewals which include another school worth around £540k over three years and an annual contract with an NHS Trust worth almost £200k

·    Improved mix of recurring revenue as well as higher margins provides the business with greater visibility and a more dependable revenue stream

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

"We are delighted to report a strong trading performance for the business with revenue and profit at record levels. All three divisions have traded well in the period and this momentum has continued into the second half.

"The Group has benefitted from notable customer wins including an £800k contract to provide services, through a coordinated programme from all three segments of the business to a large fast-service food chain across all its sites in the UK. This major contract win illustrates how strategic acquisitions provide significant cross-selling opportunities for the Group once successfully integrated.

"The enhanced mix of recurring revenue and increased margins provides the business with greater visibility and a more dependable revenue stream. This combined with the strength of our pipeline for the remainder of the year provides the Board with cautious optimism and reinforces its confidence in achieving full-year results in line with market expectations.

"On behalf of the Board, I would once again like to thank all my colleagues for their ongoing support, commitment, tenacity and quality of work."

For more information:

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"). Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

RESULTS SUMMARY & STRATEGY

Strategy

The REACT business performed strongly during the six months to 31 March 2023, trading in the period has been robust and the positive contract win momentum has continued with good sales growth across all three divisions of the business.

The Group achieved record revenue and profit growth during the six-month period. The combination of growing recurring revenue as well as higher margins provides the business with greater visibility and a more dependable revenue stream. Recurring revenue is key to our strategy and the contract maintenance segment of the business typically allows customers to purchase our services over a contracted period of several years. Within these contracts, price increases are implemented at certain points to mitigate wage-inflation pressures. The Group has benefitted from its ability to cross sell other business services into existing and new customers. Evidence of this is the recent contract win, with an estimated value of £800k in the current financial year, to provide services, through a coordinated programme from all three segments of the business to a large fast-service food restaurant across all its sites in the UK. This positive contract win momentum has continued, with good sales growth in all three divisions of the business across the six-month period.

In May last year, the Group acquired LaddersFree, one of the largest commercial window cleaning businesses in the UK. The business has been integrated well and its revenues have grown by over 25% in its first year as part of the Group. This has been achieved despite the gloom on the UK high street resulting in customer site closures and economic pressures over the last year. The Board is looking to scale the business whilst professionalising its operating systems. LaddersFree continues to be awarded contracts to provide services for retailers, restaurants, hotels and car dealerships amongst others. The division continues to attract higher margin contracts helping to deliver a considerable contribution to Group profits.

It has now been over two years (March 2021) since the Group acquired Fidelis Contract Services ("Fidelis"), a contract cleaning and facilities maintenance business. Fidelis had a slightly slower start to H1, this then improved greatly reporting record revenues over the latter stages of the six-month period. Fidelis has been awarded a £500k 18-month contract with a sizeable Midlands-based school and alongside this, numerous contract renewals which include another school worth around £540k over three years and an annual contract with an NHS Trust worth almost £200k.

The Fidelis business is now generating twice as much revenue as it was in the 12-months prior to acquisition, demonstrating not only its strategic value to the Group but also the manner in which the Company has been able to integrate and grow the business, adding a more scalable management team and more sophisticated systems to support its continuing growth ambitions. 

The 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, has had a buoyant period of business as its bespoke services remain in demand. Margins remain a focus of this division as these continue to rise as a result of a changing mix of business.

People

The Group performs bespoke training and development projects and, as a consequence, has been able to develop the roles of a number of important personnel and promote internally. As an aspiring expanding Group, it continues to take efforts to invest in its people to promote greater performance and job satisfaction of all employees.

Due to the nature of REACT's service delivery department, this is undertaken by people who are considered experts in their field, supported by a dedicated customer-centric team, who have now fully adapted to working conditions since all COVID restrictions have been lifted. The strong financials reported in H1 are bolstered by the efforts of the entire team and each individual has played a crucial role in our collective achievements.

I would like to take this opportunity to extend our gratitude and appreciation to our esteemed colleagues for their unwavering dedication and hard work. It is through their collective efforts and commitment that we have achieved our targets during this period and reached new heights.

Outlook

Trading in the second half of the year has continued well building on the momentum of the first half. The enhanced mix of recurring revenue and increased margins provides the business with greater visibility and a more dependable revenue stream. This combined with the strength of our pipeline for the remainder of the year provides the Board with cautious optimism and reinforces its confidence in achieving full-year results in line with market expectations.

Shaun Doak

Chief Executive Officer

29 June 2023

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 31 March 2023

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 March 2023

CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 31 March 2023

Consolidated Statement of Changes in Equity

For the six months ended 31 March 2023

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 2022. The interim financial information for the six months ended 31 March 2023, which complies with IAS 34 'Interim Financial Reporting' were approved by the Board of Directors on 29 June 2023.

The unaudited interim financial information for the six months ended 31 March 2023 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 2022 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 2022.

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. 

4.            Earnings per Share (basic and adjusted)

The calculations of earnings per share (basic and adjusted) are based on the net loss and adjusted profit before amortisation of acquired intangible assets and exceptional items* respectively and the ordinary shares in issue during the period.

*These measures are explained and reconciled in the Alternative Performance Measures section in Note 5 below.

5.            Alternative Performance Measures

The Board monitors performance principally through adjusted comparative performance measures.  Adjusted profit and earnings per share measures exclude certain items including amortisation of acquired intangible assets and exceptional items.  The Board believes that these alternative measures provide a clearer understanding of the Group's underlying trading performance, as they exclude one-off and non-cash items.

They key measures used as APMs are reconciled below:

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