REACT Group plc (LON:REAT), the leading specialist cleaning, hygiene and decontamination company has announced its unaudited results for the six-month period ended 31 March 2023.
Financial Summary
| HY 2023 | HY 2022 | ||
| Revenue (£’000) | 9,320 | 5,125 | |
| Gross profit (£’000) | 2,484 | 1,156 | |
| Gross profit margin | 26.7% | 22.6% | |
| Adjusted EBITDA (£’000)* | 927 | 162 | |
| Adjusted profit before amortisation of acquired intangible assets and exceptional items (£’000)* | 773 | 88 | |
| Net loss for the period (£’000) | (86) | (92) | |
| Adjusted earnings per share (basic) (pence) | 0.07 | 0.02 | |
| Adjusted earnings per share (diluted) (pence) | 0.07 | 0.01 | |
| Net debt (excluding lease liabilities) (£’000) | 257 | 43 |
*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 Group, 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.”
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
