REACT Group plc (LON:REAT) Chairman Mark Braund caught up with DirectorsTalk to discuss the financial highlights from their final results, change in business model, progress of LaddersFree and what investors can expect from the group in the coming months.
Q1: Mark, you released final results for the year ended 30th September 2022, could you talk us through the financial highlights?
A1: Top line numbers, revenue of £13.7 million, that’s growth of 78% so nearly 80%, a good chunk obviously would’ve come from the acquisition we did last year but I’m delighted to report that organic growth continues.
This company is very strong in terms of its sales and marketing engine led by a very sales orientated sales leader Shaun Doak, he’s the CEO. Therefore, our like for like organic growth last year was 17% so good, strong growth whilst at the same time, as a small company, made an acquisition so I think that was very good.
In terms of earnings, just EBITDA was a little tiny bit shy of £1 million, that’s a growth year on year of about 20% in earnings so again, another fairly solid component of the business.
As we look forward, the model of the business is actually changing and we think that the potential for further organic growth is very strong.
Q2: You reported a strong level of recurring revenue and you mentioned the business model changing, how has it changed?
A2: Well, that’s a great question. I think to answer it best, you have to look at how the business has evolved over the last 4 years.
I got involved in the business back at the tail end of 2018, early 2019, it was a £3.5 million a year turnover business losing £600,000 a year, and predominately it’s worth had a great reputation with customers because we did some of the ugliest stuff you can imagine. We had some great operatives but the actually processes were challenged and the management was not at all fit for purpose, and we do a job and we’ve got to go and find another one. It was feast and famine.
What we’ve done is we’ve transitioned the company through both acquisition and through organic development into a business today that you see that last year reported 83% of its revenue being contracted and recurring, with long term sustainable contracts. That’s quite a difference. As I say, we’ve gone from £3.5 million of revenue to £13.7 million, we’ve gone from making a huge loss to making £1 million of EBITDA, and we have largely a cash generating business as well. So, the model has changed beyond almost all recognition.
We still have the qualities of service delivery that customers enjoyed 3-4 years ago in that tough environment but we’ve evolved and developed. We are now a nationwide service, quite unique in that respect, and also, we have a set of service offerings that are very strongly in demand.
We must also recognise that we operate within a very fragmented market where there is no dominant player and certainly, REACT Group is starting to do a good job of trying to become that dominate force in the industry.
Q3: You mentioned the successful acquisition of LaddersFree which took place last year, how is this progressing?
A3: I’m delighted to say, very very well. The two brothers that started the business twenty years ago, Jason and Justin Korinek, they built a wonderful business. One of the things we look at when making any acquisition is there a cultural fit, do the principals and ideals match ours and I have to say they do, in fact in some instances I think they’re actually better than ours. Therefore, now, collectively, we move on a phase to something that is even better than we had before.
Performance wise, it performed extremely well at the end of last year, that momentum has continued this year and I think the real potential is the fact that you have this great business model that they’ve developed, with some great customers and a great network of members who are they’re window cleaners. Into that business, we can also take some of our services and we can take some of their services and put it into the other parts of the company
An example of that was the announcement made earlier in January where we won a contract using all of the services of the group, deployed to provide deep cleaning service twice a year to one of the country’s best fast service food chains. We’re the only company that can bring that capability together, all in-house. It’s an example of how we’ve leveraged the potential that LaddersFree provides us to deliver quite a unique service.
Q4: It was a great contract win, it was circa £800,000 per year wasn’t it?
A4: That’s right, yes. So, deep cleaning windows, fascia, inside the front of the store, out the back of the store, doing that twice a year as part of their hygiene platform.
There are other things we can do for that customer and we’re obviously in talks with them about it, and there are other very very similar customers that are already customers of ours that will be attracted to that kind of service offering. There are obviously lot of other companies that hadn’t even heard of us that we’re now reaching out to, to see if we can provide the same sort of service.
Q5: You stated a positive outlook for the business following the first quarter, delivering a record performance for the group. What can investors expect from REACT Group in the coming months?
A5: So, I think it’s pretty much from our point of view, what we would consider as business as usual.
We have an awful lot of work to do, good work, to get the synergies from the business that we’ve acquired in LaddersFree, by synergies I don’t mean cost cutting because actually it’s a working capital light business, I mean in terms of the positive synergies of bringing the two businesses together and taking that value proposition out to market.
At the same time, we also as a smaller company have two or three different management processes or systems within the business, we’ve got to look and try and unify more of that. That doesn’t mean wholesale change, it just means that work needs to go in to make ourselves even more efficient than we are today.
So, I would say we’re going to continue to execute on the sales and marketing efforts, we have a great capability here. We use a couple of partners, one in particular has been fantastic at getting our customer prospect data together, building out marketing sequences and giving us great clarity when it comes to identifying opportunity which we then point sales resource at. That’s where our organic engine is very strong, as I say, I’m hopeful that we’ll continue to gain momentum.
The only comment I will make is there will be big deals which we will announce but what people don’t often see is how fast the legs are working underneath the surface, all the smaller and mid-sized deals of which there are lots across the whole group. You don’t get to see those because we don’t announce them but that’s happening on a regular basis and that’s basically going to underpin our current forecasts.
