REACT Group plc (LON:REAT), the leading specialist cleaning, hygiene, and decontamination company, has announced 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.”
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
