TIDMREAT
RNS Number : 0900P
React Group PLC
07 February 2023
7 February 2023
REACT Group plc
("REACT", the "Group" or the "Company")
REACT (AIM: REAT.L), the leading specialist cleaning, hygiene,
and decontamination company, is pleased to announce its final
results for the year ended 30 September 2022.
Financial Performance
Summary FY 2022 FY 2021 Change
'000 '000
------------------ ------------ ----------- --------
Revenue GBP13,700 GBP7,700 +78%
Gross profit GBP3,260 GBP2,370 +37%
Adjusted EBITDA GBP953 GBP795 +20%
Net cash GBP979 GBP567 +73%%
Note: The table above reflects the contribution of LaddersFree
since acquisition in May 2022
Highlights
* Revenue increased by 78% at GBP13.70m (2021:
GBP7.70m)), including a contribution of c. GBP1.6m
from LaddersFree post acquisition
* Gross profit up 37% at GBP3.26m (2021: GBP2.37m)
* Adjusted EBITDA up 20% at GBP953k (2021: GBP795k)
* 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 GBP8.5 million on a debt-free and cash-free
basis
* Post period end contract win of c.GBP800k 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 GBP800k 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."
For more information:
REACT Group Plc Tel: +44 (0) 1283 550
Shaun Doak, Chief Executive Of cer 503
Andrea Pankhurst, Chief Financial Officer
Mark Braund, Chairman
Singer Capital Markets Tel: +44 (0) 207 496
(Nominated Adviser / Broker) 3000
James Moat / Philip Davies
IFC Advisory Tel: +44 (0) 20 3934
(Financial PR / IR) 6630
Graham Herring / Zach Cohen
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 GBP953,000, up +20% on the
prior year, (2021: GBP795,000), on sales revenue of GBP13.70
million, up +78% on the prior year (2021: GBP7.70 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.GBP800k 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 GBP800k 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 GBP13.67m GBP7.70m
Gross margin 23.8% 30.8%
Earnings before Interest, Tax, Depreciation GBP410,000 GBP378,000
& Amortisation (EBITDA)
(Loss)/Profit from continuing operations (GBP158,000) GBP806,000
before acquisition and restructuring costs
Acquisition and restructuring costs GBP543,000 GBP417,000
(Loss)/Profit from continuing operations (GBP701,000) GBP389,000
after acquisition and restructuring
costs
Cash and cash equivalents GBP979,000 GBP633,000
============== ============
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
Chief Financial Officer's Report
Revenue and profitability
Revenue for year ended 30 September 2022 was GBP13.7m, +78% up
on the prior year (2021: GBP7.7m). The current year figures include
a full 12 months' results from Fidelis, (2021: 6 months) and 4 1/2
months' results from LaddersFree following its acquisition in May
2022. Taking into account the performance of both trading companies
for the full prior year period, this represents like-for-like
organic growth of approximately +17%.
These revenues generated a gross profit contribution of GBP3.3m,
up +37% on the prior year (2021: GBP2.4m). On a like-for-like
basis, there was a reduction in gross profit of approximately (8)%
which is due to a change in the mix of work, as the group is
focusing more on winning longer term Contract Maintenance work,
rather than relying on higher margin (but less predictable) Ad Hoc
work.
The financial statements are prepared according to the
accounting standards and regulations that apply to the Group. Some
additional measures are also included that are not defined by
International Financial Reporting Standards (IFRS). The directors
believe that these measures, together with comparable IFRS measures
provide additional meaningful information for communicating the
year-on-year underlying performance of the Group. Non-IFRS measures
should not be considered as a substitute for the financial
information presented in compliance with IFRS.
Adjusted EBITDA on a consistent accounting basis was GBP953,000,
up +20% on the prior year (2021: GBP795,000). Adjusted EBITDA is a
non-IFRS measure and means operating profit before interest, tax,
depreciation and amortisation and excludes separately disclosed
acquisition and other costs. The directors believe that adjusted
EBITDA and adjusted measures of earnings per share provide
shareholders with a meaningful representation of the underlying
earnings arising from the Group's core business.
The acquisition costs include the costs incurred in the
acquisition of LaddersFree and write-backs relating to the latest
calculation of deferred consideration for the acquisition of
Fidelis. As part of the annual review of goodwill values, it was
decided that an impairment of the purchased goodwill of Fidelis
would be prudent and this goodwill has been impaired by
GBP567,000.
Reconciliation of Profit before Tax to Adjusted EBITDA
2022 2021
GBP'000 GBP'000
(Loss)/Profit before Interest
and Tax (511) 114
Depreciation & Amortisation 921 264
EBITDA 410 378
Acquisition costs/write backs (24) 323
Impairment charge 567 -
Restructuring costs - 94
Adjusted EBITDA 953 795
========== ==========
Cash flow
Net cash at the year end totalled GBP979,000 (2021: GBP633,000).
During the year, consideration payments were made relating to both
the Fidelis and LaddersFree acquisitions. In addition to the funds
raised from the share issue in May 2022, the group also secured a 5
year GBP1.0m loan. Together with the invoice discounting facility
that is still in place, the Group now has sufficient flexibility to
deal with both normal fluctuations in business working capital and
to fund the future deferred consideration payments relating to the
two acquisitions. The terms of both deals include the payment of
deferred consideration amounts subject to certain financial
performance hurdles being met.
Based on the trading outlook for the next 12 months, it is not
anticipated that any further funding will be required. However, the
Board will continue to regularly monitor the Group's performance
and its overall cash position.
Cash flow
Net cash at the year end totalled GBP979,000 (2021: GBP633,000).
During the year, consideration payments were made relating to both
the Fidelis and LaddersFree acquisitions. In addition to the funds
raised from the share issue in May 2022, the Group also secured a 5
year GBP1.0m loan. Together with the invoice discounting facility
that is still in place, the Group now has sufficient flexibility to
deal with both normal fluctuations in business working capital and
to fund the future deferred consideration payments relating to the
two acquisitions. The terms of both deals include the payment of
deferred consideration amounts subject to certain financial
performance hurdles being met.
Based on the trading outlook for the next 12 months, it is not
anticipated that any further funding will be required. However, the
Board will continue to regularly monitor the Group's performance
and its overall cash position.
Taxation
The Group has reported a taxable loss but, has confidence that
there will be sufficient future taxable profits in the foreseeable
future to utilise its historic tax losses. It has retained its
deferred tax asset of GBP0.3m (2021: GBP0.3m).
Statement of financial position
The Group's balance sheet has strengthened with net assets at
the year end of GBP8,339,000 (2021: GBP2,788,000). The net assets
of LaddersFree at the point of acquisition totalled
GBP2,655,000.
Andrea Pankhurst
Chief Financial Officer
7 February 2023
Consolidated Statement of Comprehensive Income
For the year ended 30 September 2022
2022 2021
GBP'000 GBP'000
Continuing Operations
Revenue 13,671 7,701
Cost of sales (10,414) (5,332)
Gross profit 3,257 2,369
Other operating income - 19
Administrative expenses (3,768) (2,274)
Acquisition and restructuring income/costs
included in
administrative expenses (543) (417)
---------------------------------------------- ---------- ----------------
Operating (loss)/profit (511) 114
Finance (cost)/income (56) 16
Corporation tax (charge)/credit (134) 259
(Loss)/Profit for the year (701) 389
Other comprehensive Income - -
Total comprehensive (loss)/profit
for the year attributable to the equity
holders of the company (701) 389
========== ================
Basic and diluted earnings per share
- pence
Basic (loss)/earnings per share (0.09)p 0.08p
========== ================
Diluted (loss)/earnings per share (0.09)p 0.07p
========== ================
Consolidated Statement of Financial Position
As at 30 September 2022
2022 2021
ASSETS GBP'000 GBP'000
Non-current assets
Intangible assets - Goodwill 4,209 1,940
Intangible assets - Other 5,680 1,028
Property, plant & equipment 203 176
Right-of-use assets 100 95
Deferred tax asset 244 244
10,436 3,483
Current assets
Stock 11 12
Trade and other receivables 4,254 2,099
Cash and cash equivalents 979 633
5,244 2,744
TOTAL ASSETS 15,680 6,227
========= =========
EQUITY
Shareholders' Equity
Called-up equity share capital 2,624 1,270
Share premium account 10,905 6,028
Reverse acquisition reserve (5,726) (5,726)
Capital redemption reserve 3,337 3,337
Merger relief reserve 1,328 1,328
Share-based payments 44 23
Accumulated losses (4,173) (3,472)
Total Equity 8,339 2,788
--------- ---------
LIABILITIES
Current liabilities
Trade and other payables 4,391 2,598
Lease liabilities within one year 57 54
Corporation tax 271 80
4,719 2,732
Non-current liabilities
Lease liabilities after one year 53 49
Other creditors after one year 2,569 658
2,622 707
TOTAL LIABILITIES 7,341 3,439
--------- ---------
TOTAL EQUITY AND LIABILITIES 15,680 6,227
========= =========
These financial statements were approved and authorised for
issue by the Board of Directors on 7 February 2023.
.
Consolidated Statement of Changes in Equity
For the year ended 30 September 2022
Share Share Merger Capital Reverse Share-Based Accumulated Total
capital Premium Relief Redemption Acquisition Payments Deficit Equity
Reserve Reserve Reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 October
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 - - - - - 8 - 8
Effect of - - - - - - - -
adoption
of IFRS16
Profit for the
year - - - - - - 389 389
At 30
September
2021 1,270 6,028 1,328 3,337 (5,726) 23 (3,472) 2,788
========== ========== ========== ============= ============== ============== ============== =========
Issue of
shares 1,354 4,877 - - - - - 6,231
Share-based
payments - - - - - 21 - 21
Effect of - - - - - - - -
adoption
of IFRS16
(Loss)/Profit
for the year - - - - - - (701) (701)
At 30
September
2022 2,624 10,905 1,328 3,337 (5,726) 44 (4,173) 8,339
========== ========== ========== ============= ============== ============== ============== =========
Share capital is the amount subscribed for shares at nominal
value. Share premium represents amounts subscribed for share
capital in excess of nominal value.
Share premium represents the amount subscribed for shares in
excess of the nominal value, net of any directly attributable issue
costs.
Merger relief reserve arises from the 100% acquisition of REACT
SC Holdings Limited and REACT Specialist Cleaning Limited in August
2015 whereby the excess of the fair value of the issued ordinary
share capital issued over the nominal value of these shares is
transferred to this reserve in accordance with section 612 of the
Companies Act 2006.
Accumulated deficit represents the cumulative losses of the
Group attributable to the owners of the company.
Reverse acquisition reserve is the effect on equity of the
reverse acquisition of REACT Specialist Cleaning Limited.
The capital redemption reserve represents the value of deferred
shares cancelled as a result of a share buyback.
The share-based payments reserve represents the cumulative
expense in relation to the fair value of share options and warrants
granted.
Consolidated Statement of Cash Flows
For the year ended 30 September 2022
2022 2021
GBP'000 GBP'000
Cash flows from operating activities
Cash generated by operations (773) 432
Net cash outflow)/inflow from operating
activities (773) 432
--------- ---------
Cash flows from financing activities
Proceeds of share issue 6,500 200
Expenses of share issue (269) -
Lease liability payments (80) (39)
Bank loans 902 67
Interest paid (56) -
Net cash inflow from financing activities 6,997 228
--------- ---------
Cash flows from investing activities
Disposal of fixed assets 20 6
Capital expenditure (115) (71)
Acquisition of subsidiary (7,776) (1,930)
Exceptional acquisition costs paid (543) (200)
Net cash outflow from investing activities (8,414) (2,195)
--------- ---------
(Decrease)/Increase in cash, cash
equivalents and overdrafts (2,190) (1,535)
Cash, cash equivalents and overdrafts
at beginning of year 633 1,783
Cash on acquisition of subsidiaries 2,536 385
Cash, cash equivalents and overdrafts
at end of year 979 633
========= =========
Notes to the Consolidated Statement of Cash Flows
For the year ended 30 September 2022
1. Reconciliation of profit for the year to cash outflow from operations
2022 2021
GBP'000 GBP'000
(Loss)/Profit after taxation (701) 389
Decrease/(Increase) in stocks 1 (12)
(Increase) in trade and other
receivables (2,155) (1,010)
Increase in trade and other payables 374 655
Depreciation and amortisation
charges 921 264
Impairment charge 567 -
Finance costs/(income) 56 (16)
Tax charge/(credit) 134 (259)
Acquisition assets acquired (excluding
cash) 119 95
Exceptional acquisition costs (24) 323
Loss/(Profit) on disposal of
fixed assets (6) (5)
Share based payment 21 8
Tax paid (80) -
Net cash (outflow)/inflow from
operations (773) 432
========== ==========
2. Cash and cash equivalents
2022 2021
GBP'000 GBP'000
Cash at bank and in hand 979 633
=========== ===========
Notes to the Financial Statements
For the year ended 30 September 2022
1. General Information
Basis of preparation and consolidation
The Company is a public company, limited by shares, based in the
United Kingdom and incorporated in England and Wales. Details of
the registered office, the officers and advisors to the Company are
presented on the Company Information page at the start of this
report.
The consolidated financial statements present the results of the
company and its subsidiaries ('the Group') as if they formed a
single entity. Intercompany transactions and balances between Group
companies are therefore eliminated in full. Where the company has
control over an investee, it is classified as a subsidiary. The
company controls an investee if all three of the following elements
are present: power over the investee, exposure to variable returns
from the investee, and the ability of the investor to use its power
to affect those variable returns. Control is reassessed whenever
facts and circumstances indicate that there may be a change in any
of these elements of control.
The functional and presentational currency of the Group is
pounds sterling. The figures presented have been rounded to the
nearest one thousand pounds.
The equity structure appearing in the Group financial statements
reflects the equity structure of the legal parent, REACT Group PLC,
including the equity instruments issued in order to effect reverse
acquisition accounting. The merger relief reserve represents a
premium on the issue of the ordinary shares for the acquisition of
subsidiary undertakings. The relief is only available to the
issuing company securing at least a 90% equity holding in the
acquired undertaking in pursuance of an arrangement providing for
the allotment of equity shares in the issuing company on terms that
the consideration for the shares allotted is to be provided by the
issue of equity shares in the other company.
2. Accounting Policies
Statement of compliance
The consolidated financial statements of REACT Group PLC have
been prepared in accordance with UK adopted International Financial
Reporting Standards (IFRSs), International Accounting Standards
(IASs) and International Financial Reporting Interpretations
Committee (IFRIC) interpretations (collectively 'IFRSs') and as
issued by the International Accounting Standards Board and with
those parts of the Companies Act 2006 applicable to companies
reporting under IFRS.
Basis of preparation
The financial statements have been prepared under the historical
cost convention. The principal accounting policies are summarised
below. They have all been applied consistently throughout the year
under review.
Going concern
Following its review of the Group's financial plans and forecast
growth, the cash balance held at the year end and the management
team currently in place, the Board has a good expectation that the
Group has adequate resources to continue in operational existence
for the foreseeable future. Therefore, the financial statements do
not include any adjustments that would result if the Group was
unable to continue as a going concern.
New , amended standards, interpretations not adopted by the
Group
Th e following Adopted IFRSs have been issued but have not been
applied by the Group in these Financial Statements. The full impact
of their adoption has not yet been fully assesse d; however,
management do not expect the changes to have a material effect on
the Financial Statements unless otherwise indicated:
-- IAS37 amendments regarding onerous contracts (1 January 2023)
-- IAS16 amendments regarding proceeds before intended use (1 January 2023)
-- IFRS17 Insurance contracts (1 January 2023)
-- IAS1 amendments on classification (1 January 2023)
-- IAS8 amendments on accounting estimates (1 January 2023)
-- IAS12 amendments on deferred tax (1 January 2023)
Revenue recognition
Revenue is recognised in accordance with the requirements of
IFRS 15 'Revenue from Contracts with Customers'. The Company
recognises revenue to depict the transfer of promised goods and
services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those
goods or services. This core principle is delivered in a five-step
model framework:
1. Identify the contract(s) with the customer;
2. Identify the performance obligations in the contract;
3. Determine the transaction price;
4. Allocate the transaction price to the performance obligations
in the contract; and
5. Recognise revenue when (or as) the entity satisfy a
performance obligation.
The Group recognises revenue in the accounting period in which
its services are rendered, by reference to stage of completion of
the specific transaction and assessed on the basis of the actual
service provided as a proportion of the total services to be
provided. Revenues exclude intra-group sales and value added taxes
and represent net invoice value less estimated rebates, returns and
settlement discounts. The net invoice value is measured by
reference to the fair value of consideration received or receivable
by the Group for goods supplied.
3. Segmental Reporting
In the opinion of the Directors, the Group has one class of
business, being that of specialist cleaning and decontamination
services, including both contracted commercial cleaning and
specialist emergency decontamination work . 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
2022 2021
Contract Contract Ad Hoc Total Contract Contract Ad Hoc Total
Maintenance Reactive Work Maintenance Reactive Work
Work Work Work Work
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 8,939 2,499 2,233 13,671 3,992 1,587 2,122 7,701
Cost of Sales (6,809) (2,007) (1,598) (10,414) (3,101) (1,072) (1,159) (5,332)
Gross Profit 2,130 492 635 3,257 891 515 963 2,369
Other Operating
Income - - - - 17 1 1 19
Administrative
Expenses (2,171) (703) (894) (3,768) (814) (557) (903) (2,274)
Operating
(Loss)/Profit
for the year (41) (211) (259) (511) 94 (41) 61 114
============= ========== ========= ========== ============= ========== ========= =========
Adjusted EBITDA
(1) 866 30 57 953 660 (290) 425 795
Total Assets 14,257 486 938 15,681 2,327 1,366 2,534 6,227
============= ========== ========= ========== ============= ========== ========= =========
Total
Liabilities (6,767) (230) (445) (7,442) (1,340) (707) (1,392) (3,439)
============= ========== ========= ========== ============= ========== ========= =========
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.
4. Business Combinations during the period
On 11 May 2022, the Group acquired 100% of the issued share
capital and voting rights of LaddersFree Ltd ('LaddersFree'), an
established nationwide commercial window, gutter and cladding
cleaning business headquartered in Devon providing services to
customers across the entire UK. The acquisition is expected to
diversify the group's service offering and reduce costs through
economies of scale.
LaddersFree was acquired for an initial consideration of
GBP5.65m, payable as GBP4.65m cash and GBP1.0m through the issue of
new ordinary shares, with contingent consideration of up to
GBP2.85m payable subject to LaddersFree fulfilling certain profit
criteria. Surplus cash balances on acquisition totalled
GBP2.54m.
The fair value of the acquired customer list and customer
contracts has been assessed as at 30 September 2022. 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 LaddersFree 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 GBP455,000 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 LaddersFree Ltd
Principal activity Commercial window, gutter
and cladding cleaning services
Date of acquisition 11 May 2022
Proportion of voting equity interests
Acquired 100%
Consideration transferred GBP10,885,584
GBP'000
b) Consideration transferred
Cash 7,186
Equity issued 1,000
Contingent consideration arrangement (included
in Other Creditors) 2,700
Total consideration transferred 10,886
--------------------
Assets and liabilities recognised on the date
c) of acquisition
Separately identifiable intangible assets arising
on business combination 5,395
Non-current assets 13
Current assets 3,308
Non-current liabilities -
Current liabilities (666)
Net assets acquired 8,050
--------------------
d) Goodwill arising on acquisition
Consideration transferred 10,886
Fair value of identifiable net assets acquired (8,050)
Goodwill acquired 2,836
--------------------
e) Net cash outflow on acquisition
Consideration paid in cash 7,186
Less: cash balances acquired (2,536)
4,650
--------------------
f) Impact of acquisition on the results of the Group
The acquired business contributed revenues of GBP1,629,000
and net profit of GBP585,000 to the group for the period
from 11 May 2022 to 30 September 2022.
If the acquisition had occurred on 1 October 2021, pro-forma
revenue and net profit contributions to the Group for the
year ended 30 September 2022 would have been GBP4,042,000
and GBP1,075,000 respectively. These amounts have been calculated
using the subsidiary's results and adjusting them for differences
in the accounting policies between the group and the subsidiary.
5. Income Tax
2022 2021
GBP'000 GBP'000
Current tax charge 134 -
Deferred tax credit - 259
Tax credit/(charge) 134 259
========= =========
Analysis of tax expense:
2022 2021
GBP'000 GBP'000
(Loss)/Profit on ordinary activities before income tax (567) 130
========== ==========
(Loss)/Profit on ordinary activities multiplied by the standard rate of corporation
tax in
UK of 19% (2021: 19%) (108) 25
Effects of:
Fixed asset differences 21 (4)
Amortisation and depreciation not deductible for tax - -
(Decrease)/Increase in net losses carried forward 221 (280)
Corporation tax charge/(credit) 134 (259)
========== ==========
The Group has estimated excess management expenses carried forward of GBP1.3m (2021: GBP1.3m)
and trading losses of approximately GBP0.9m (2021: GBP0.6m) available to use against future
profits. The tax losses have resulted in a deferred tax asset of approximately GBP0.3m (2021:
GBP0.3m) being as the positive trading outlook for the Group means that there is likely to
be sufficient future taxable profits to utilise the losses. The remaining losses of GBP884,000
resulting in a deferred tax asset of GBP221,000 have not been recognised in order to be prudent.
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 year. The adjusted profit
represents the EBITDA for the year. For diluted earnings per share,
the weighted average number of shares is adjusted to assume
conversion of all dilutive potential ordinary shares.
2022 2021
GBP'000 GBP'000
Net (loss)/profit for year (701) 389
============= =============
Adjustments:
Interest 56 (16)
Depreciation & amortisation 921 264
Tax 134 (259)
Adjusted profit for the year 410 378
============= =============
Number Number
Weighted average shares in issue
for basic earnings per share 718,622,464 503,348,752
Weighted average dilutive share
options and warrants 62,247,272 62,247,272
Average number of shares used for
dilutive earnings per share 780,869,736 565,596,024
============= =============
Pence Pence
Basic (loss)/earnings per share (0.09)p 0.08p
============= =============
Diluted (loss)/earnings per share (0.09)p 0.07p
============= =============
Adjusted basic earnings per share 0.06p 0.08p
============= =============
Adjusted diluted earnings per share 0.05p 0.07p
============= =============
7. Intangible assets
Group Goodwill Customer List Total
GBP'000 GBP'000 GBP'000
Cost
At 1 October 2020 1,280 - 1,280
Additions 1,766 1,175 2,941
Disposals - - -
As at 30 September 2021 3,046 1,175 4,221
Additions 2,836 5,395 8,231
Disposals - - -
As at 30 September 2022 5,882 6,570 12,452
---------- --------------- ---------
Amortisation and impairment
As at 1 October 2020 1,106 - 1,106
Amortisation charge for the year - 147 147
Disposals - - -
As at 30 September 2021 1,106 147 1,253
Amortisation charge for the year - 743 743
Impairment charge 567 - 567
Disposals - - -
As at 30 September 2022 1,673 890 2,563
---------- --------------- ---------
Carrying amount
As at 1 October 2020 174 - 174
========== =============== =========
As at 30 September 2021 1,940 1,028 2,968
========== =============== =========
As at 30 September 2022 4,209 5,680 9,889
========== =============== =========
The goodwill relates to intangible assets that do not qualify
for separate recognition on the acquisition of LaddersFree during
the year, Fidelis during the prior year and previously, the REACT
specialist cleaning services business, an unincorporated division
of Autoclenz Limited.
The Group assesses at each reporting date whether there is an
indication that an asset may be impaired, by considering the net
present value of discounted cash flow forecasts. Goodwill has been
allocated for impairment testing purposes to the individual
businesses acquired which are also the cash--generating units
("CGU") identified. The recoverable amount of a CGU is determined
based on value in use calculations using cash flow projections
based on financial budgets approved by the Directors. The
projections are based on the assumption that the company can
realise projected sales. A prudent approach has been applied with
no residual value being factored into these calculations. If the
projected sales do not materialise there is a risk that the total
value of the intangible assets shown above would be impaired. A
pre-tax discount rate of 15% per annum has been applied to the
cashflow projections, taking into consideration the expected rate
of return and various risks relating to the CGU.
As at 30 September 2022 management judged that an impairment was
required in respect of the goodwill of Fidelis. A write-down of
GBP567,000 is considered prudent in light of the medium-term growth
outlook for this business.
The key assumptions used in the estimation of the revised value
of Purchased Goodwill are set out below. The values assigned to the
key assumptions represent management's assessment of future
revenues and cash flows of the CGU. The most recent financial
results and forecast approved by management for the next five years
were used and a nil terminal growth rate thereafter. The projected
results were discounted at a rate which is a prudent evaluation of
the time value of money and the risks specific to the CGU.
Key assumptions used:
%
Average revenue growth rate (of next five
years) 5
Terminal value growth rate 0
Discount rate 15
8. Investment in subsidiary undertakings
Company
Cost
At 1 October 2021 1,560
Additions -
At 30 September 2022 1,560
=======
Impairment
At 1 October 2021 1,386
Impairment charge for the year -
At 30 September 2022 1,386
=======
Carrying amount
At 30 September 2021 174
=======
At 30 September 2022 174
=======
9. Trade and other receivables
Current Note Group Group Company Company
2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'000
Trade receivables 3,522 1,702 - -
Provision for impairment 15 (5) (5) - -
Net trade receivables 3,517 1,697 - -
Amounts owed by Group undertakings - - 10,138 2,846
Prepayments and accrued income 702 378 9 13
Other debtors 35 24 27 19
4,254 2,099 10,174 2,878
========= ========= ========= =========
Trade receivables are amounts due from customers for services
performed in the ordinary course of business. The Group's
impairment and other accounting policies for trade and other
receivables are outlined in note 2.
10. Provision for impairment of receivables
Provision for impairment of receivables Group Group
Relating to debt over 3 months past due
2022 2021
GBP'000 GBP'000
Opening provision 5 42
Amounts released in the year - (36)
Amounts utilised in the year - (1)
Closing provision 5 5
========= =========
There are no receivables in the Company, as all are held by the
trading subsidiaries, REACT Specialist Cleaning Limited, Fidelis
Contract Services Ltd and LaddersFree Ltd.
As at 30 September 2022, excluding balances provided for by the
impairment provision, GBP560,000 (2021: GBP174,000) of trade
receivables were past their due settlement date but not
impaired.
The ageing analysis of these trade receivables is as
follows:
2022 2021
GBP'000 GBP'000
Up to 3 months past due 175 87
3 to 6 months past due 96 27
Over 6 months past due 289 60
560 174
=============== ===============
The expected credit loss is respect of debt not due and past due
is considered immaterial.
11. Cash and cash equivalents
Group Group Company Company
2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'000
Cash and bank balances 979 633 4 22
========= ========= ========= =========
12. Trade and other payables
Group Group Company Company
2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'000
Current:
Trade payables 1,284 378 34 35
* Accrued expenses 664 639 39 21
Social security and
other taxes 852 523 30 23
Lease liability <12
months 57 54 9 28
Other creditors 1,430 991 - 5
Loans 161 67 161 -
Corporation tax payable 271 80 - -
4,719 2,732 273 112
Non-current:
Lease Liability >12
months 53 49 17 26
Loans 808 - 808
Other liabilities
>12 months - Deferred
Consideration 1,761 658 - -
Deferred Tax - - - -
2,622 707 825 26
7,341 3,439 1,098 138
========= ========= ========= =========
13. Deferred Tax
Deferred tax is provided, using the liability method, on
temporary differences at the statement of financial position date
between the tax base of assets and liabilities and their carrying
amounts for financial reporting purposes. Deferred tax is
calculated in full on temporary differences under the liability
method using a tax rate of 25% (2021:19%), the movement on the
deferred tax liability is as shown below:
Group Group Company Company
2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'000
At 1 October 244 - 152 -
Income credit - 259 - 152
Liability acquired - (15) - -
At 30 September 244 244 152 152
========= ========= ========= =========
The deferred taxation asset is made up as follows:
Group Group Company Company
2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'000
Accelerated capital
allowances (32) (5) - -
Tax losses carried forward 262 110 - -
Other short-term timing
differences 14 139 152 152
244 244 152 152
========= ========= ========= =========
14. Annual Report
The annual report and accounts for the year ended 30 September
2022 will be posted to shareholders in due course.
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