REACT GROUP PLC

Earnings Release • Jun 29, 2020

National Storage Mechanism | Additional information

RNS Number : 2892R

React Group PLC

29 June 2020

REACT Group plc

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

Half Year Results FY 2020

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 2020 ("Interim Report").

Financial Highlights

for the six months ended 31 March 2020

Continuing operations	HY 2020	HY 2019	Change
Revenue (£'000)	2,091	1,588	32%
Gross profit (£'000)	695	419	66%
Gross profit margin	33.2%	26.4%	+683 bps
EBITDA (£'000)	85	(30)	379%
Net profit/(loss) for the period (£'000)	50	(59)	184%
Earnings/(loss) per share (basic) (pence)	0.01	(0.01)	184%
Earnings/(loss) per share (adjusted) (pence)	0.02	(0.01)	379%
Net cash (£'000)	306	446	(31%)

·    Group revenue up 32% to £2,091,000

·    Gross profit up 66% to £695,000

·    Gross profit margins increased by 683 basis points to over 33%

·    Net profit of £50,000 and basic EPS of 0.01p, the Company's first period of operating profit

·    Adjusted EPS of 0.02p (see Note 4 for details)

·    Net cash decreased in the period as we supported an incremental large contract win with a Tier 1 customer in the rail sector that started in January, with cash collection beginning only in the final week of the half-year period

·    Cash balances have improved since the interim period as the Group has continued to benefit from improved quality of business and disciplined cash collection processes

·    Successful, over-subscribed placing to raise c.£1.25m completed 9 June 2020

·    Several post-period new contract wins announced

Commenting on the results Shaun Doak, CEO said:

"We are delighted to report the Company's first period of operating profit, the culmination of work across the business to redefine the business model, strengthen business processes and engage with customers in a more consistent manner.

As a people-orientated business we have not been immune to the challenges brought about by COVID-19, however the Company has experienced an increase in demand for professional deep cleaning and decontamination services as we strive to help organisations in the UK reduce risk and return their properties to safe commercial use.

The second half of the year has started well, with good trading across key sectors, especially healthcare, rail and facilities management.  We remain confident of delivering a performance ahead of management expectations for the year to 30 September 2020 including a full year maiden profit."

For more information:

REACT Group Plc.
Shaun Doak, Chief Executive Officer Andrea Pankhurst, Chief Financial Officer	Tel: +44 (0) 1283 550 503
SPARK Advisory Partners Limited (Nominated Adviser)
Neil Baldwin / Henry Todd	Tel: +44 (0) 113 370 8974
Allenby Capital Limited (Broker)
Amrit Nahal / Tony Quirke    (Broking) Nick Athanas / Liz Kirchner   (Corporate Finance)	Tel: +44 (0) 203 328 5656
MB Associates (Strategic Adviser)
Mark Braund	Tel: +44 (0) 798 222 0001

RESULTS SUMMARY & STRATEGY

The REACT business performed strongly during the first half of the year, increasing revenue and delivering further improvements to gross margins and operational efficiencies to deliver the Group's maiden operating profit.

Performance was especially strong in the healthcare, rail and facilities management sectors, augmented by one month of COVID-19 related services.

The REACT Group is a specialist cleaning, hygiene and decontamination company that tackles extreme cleaning challenges that non-specialists are unqualified or inexperienced to resolve.  REACT operate across many industries in both the public and private sector, where hygiene and safety are critical components.  We provide our services on both a regular maintenance and project defined basis.

Growth and resilience in our markets is underpinned by regulatory requirements and the associated enforcement burden, alongside an increasing public and commercial expectation for quality hygiene.

Nearly 75% of our revenue comes from contract agreements where REACT is providing regular maintenance or is the first responder to emergencies.  The vast majority of the work we carry out is non-discretionary to our Customers, providing REACT with increasing visibility of future earnings.

Our activities are not capital intensive and, on an underlying basis, are cash generative.  When augmented by the recent £1.25 million fund-raise, REACT has a strong platform to fund continued organic growth from internally generated cash in line with our disciplined approach to cash management and capital allocation.

Our strategy is to grow business in specialist markets that attract higher margins.  We have a number of customers and prospects from both the private and public sectors who value the quality of service REACT Group provides; and they represent an opportunity for greater volumes of business geographically and via the additional services we provide. 

We believe there is opportunity for material growth amongst a number of both large and medium sized organisations, many of whom are already customers.  The sales and business development efforts of REACT are now focused on these opportunities, whilst at the same time we are continuing to improve operational quality and cost control.

IMPACT OF COVID-19

As a people-orientated business we have not been immune to the challenges brought about by COVID-19, however the Company has experienced an increase in demand for professional deep cleaning and decontamination services as we strive to help organisations in the UK reduce risk and return their properties to safe commercial use.

One month (March) of COVID-19 related activity is included in these unaudited half year results.

PEOPLE

The continued dedication of people across the Group, including our network of REACT-approved specialist sub-contractors has been impressive.  Our services are provided by people who are experts in their field, supported by office-based staff who adapted rapidly and effectively to the new working from home arrangements since March.  As we build our business we rely on these people and the strength of our results reflects their contribution.  On behalf of the Board and shareholders, I wish to thank our entire team for their hard work, resilience and dedication.

OUTLOOK

Through restructuring and strategic focus REACT has positioned itself well for future development.  With an experienced management team in place and the funding necessary to properly address the potential, our focus is to deliver growth, produce profits and generate cash.

The second half of the year has started well and, taking into account trading across each sector of our business, we are confident of delivering both a 'maiden profit' and a full year performance ahead of management expectations.

Shaun Doak

Chief Executive Officer

29 June 2020

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 31 March 2020

		Unaudited  6 months ended 31 March 2020		Unaudited 6 months ended 31 March 2019		Audited Year ended 30 September 2019
	## Note	£'000		£'000		£'000
Continuing Operations
Revenue		2,091		1,588		3,103
Cost of Sales		(1,396)		(1,169)		(2,218)
Gross Profit		695		419		885
Administrative expenses		(632)		(478)		(1,068)
Exceptional (costs)/income included in administrative expenses		-		107		(5)
Operating profit/(loss)		63		(59)		(183)
Income tax credit		-		-		-
Finance cost		(13)		-		-
Profit/(Loss) for the period		50		(59)		(183)
Other comprehensive Income		-		-		-
Profit /(Loss) for the financial period attributable to equity holders of the company		50		(59)		(183)
Basic and diluted profit/(loss) per share	4
Basic earnings/(loss) per share		0.01p		(0.01p)		(0.04p)
Diluted earnings/(loss) per share		0.01p		(0.01p)		(0.04p)
Adjusted basic earnings/(loss) per share		0.02p		(0.01p)		(0.03p)
Adjusted diluted earnings/(loss) per share		0.02p		(0.01p)		(0.03p)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 March 2020

		Unaudited As at 31 March 2020		Unaudited As at 31 March 2019		Audited As at 30 September 2019
Assets		£'000		£'000		£'000
Non-current assets
Intangibles		174		174		174
Property, plant and equipment		71		80		81
Right-of-use assets		34		-		-
		279		254		255
Current assets
Trade and other receivables		1,112		994		718
Cash and cash equivalents		306		446		440
		1,418		1,440		1,158
Total assets		1,697		1,694		1,413
Equity
Shareholders' Equity
Called-up equity share capital		1,039		1,039		1,039
Share premium account		4,926		4,926		4,926
Reverse acquisition reserve		(5,726)		(5,726)		(5,726)
Capital redemption reserve		3,337		3,337		3,337
Merger relief reserve		1,328		1,328		1,328
Share based payments		14		20		12
Accumulated losses		(3,999)		(3,922)		(4,038)
Total Equity		919		1,002		878
Liabilities
Current liabilities
Trade and other payables		730		692		535
Lease liabilities within one year		11		-		-
		741		692		535
Non-current liabilities
Lease liabilities after one year		37		-		-
		37		-		-
Total liabilities		778		692		535
Total Liabilities and Equity		1,697		1,694		1,413

CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 31 March 2020

		Unaudited 6 months ended 31 March 2020		Unaudited 6 months ended 31 March 2019		Audited Year ended 30 September 2019
		£'000		£'000		£'000
Net cash (utilised)/generated by operations		(112)		14		34
Cash flows from financing activities		-		-		-
Lease liability payments		(15)		-		-
Net cash outflow from financing activities		(15)		-		-
Net cash from investing activities Disposal of fixed assets		2		-		8
Capital expenditure		(9)		9		(25)
Net cash outflow from investing activities		(7)		9		(17)
Net (decrease)/increase in cash, cash equivalents and overdrafts		(134)		23		17
Cash, cash equivalents and overdrafts at beginning of period		440		423		423
Cash, cash equivalents and overdrafts at end of period		306		446		440

Reconciliation of profit for the period to cash outflow from operations
		Unaudited 6 months ended 31 March 2020		Unaudited 6 months ended 31 March 2019		Audited Year ended  30 September 2019
		£'000		£'000		£'000
Profit/(loss) for the period		50		(59)		(183)
(Increase)/decrease in receivables		(394)		165		441
Increase/(decrease) in payables		195		(118)		(275)
Depreciation and amortisation charges		22		29		52
Finance costs		13		-		-
Profit on disposal of fixed assets		-		(3)		(3)
Share based payment		2		-		2
Net cash (outflow)/inflow from operations		(112)		14		34

Consolidated Statement of Changes in Equity

For the six months ended 31 March 2020

	Share Capital	Share Premium	Merger Relief Reserve		Capital Redemption Reserve			Reverse Acquisition Reserve		Share Based Payments Reserve		Accumulated Deficit	Total Equity
	£'000	£'000	£'000		£'000			£'000		£'000		£'000	£'000
At 30 September 2018	1,039	4,926	1,328		3,337			(5,726)		20		(3,863)	1,061
Loss for the period	-	-	-		-			-		-		(59)	(59)
At 31 March 2019	1,039	4,926	1,328		3,337			(5,726)		20		(3,922)	1,002
Share based payments	-	-	-		-			-		2		(2)	-
On surrender of warrants	-	-	-		-			-		(10)		10	-
Loss for the period	-	-	-		-			-		-		(124)	(124)
At 30 September 2019	1,039	4,926	1,328		3,337			(5,726)		12		(4,038)	878
Share based payments	-	-	-		-			-		2		-	2
Effect of adoption of IFRS 16	-	-	-		-			-		-		(11)	(11)
Profit for the period	-	-	-		-			-		-		50	50
At 31 March 2020	1,039	4,926	1,328		3,337			(5,726)		14		(3,999)	919

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 2019, with the exception of the adoption of IFRS 16 Leases, which is effective for accounting periods beginning on or after 1 January 2019. The interim financial information for the six months ended 31 March 2020, which complies with IAS 34 'Interim Financial Reporting' were approved by the Board of Directors on 29 June 2020.

The unaudited interim financial information for the six months ended 31 March 2020 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 2019 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 2019, with the exception of IFRS 16 Leases, which has been adopted for the first time in these interim statements, and are those expected to be applied for the year ending 30 September 2020.

·    IFRS 16 Leases

The Group has adopted IFRS 16 Leases using the modified retrospective approach with recognition of transitional adjustments on the date of initial application (1 October 2019), without re-statement of comparative figures.  As a lessee, the Group previously classified leases as operating leases or finance leases.  Under IFRS 16, the Group recognises right-of-use assets and lease liabilities for leases that meet the recognition criteria.

3. Segmental Reporting

In the opinion of the directors, the Group has one class of business, being that of specialist cleaning and decontamination services. The Group's primary reporting format is determined by the geographical segment according to the location of its establishments. There is currently only one geographic reporting segment, which is the UK. All costs are derived from the single segment.

4.  Earnings/(Loss) per Share (basic and adjusted)

The calculations of earnings/(loss) per share (basic and adjusted) are based on the net profit/(loss) and adjusted profit/(loss) respectively and the ordinary shares in issue during the period.  The adjusted profit/(loss) represents the EBITDA for the period.

		Unaudited 6 months ended 31 March 2020		Unaudited 6 months ended 31 March 2019		Audited Year ended  30 September 2019
		£'000		£'000		£'000
Net profit/(loss) for period		50		(59)		(183)
Adjustments:
Interest		13		-		-
Depreciation		22		29		52
Adjusted profit/(loss) for the period		85		(30)		(131)
		Number		Number		Number
Weighted average shares in issue for basic earnings/(loss) per share		415,407,753		415,407,753		415,407,753
Weighted average dilutive share options and warrants		65,065,130		*		*
Average number of shares used for dilutive earnings/(loss) per share		480,472,883		415,407,753		415,407,753
		pence		pence		pence
Basic earnings/(loss) per share		0.01p		(0.01p)		(0.04p)
Diluted earnings/(loss) per share		0.01p		(0.01p)		(0.04p)
Adjusted basic earnings/(loss) per share		0.02p		(0.01p)		(0.03p)
Adjusted diluted earnings/(loss) per share		0.02p		(0.01p)		(0.03p)

* Where a loss is incurred, the effect of outstanding share options and warrants is considered anti-dilutive.

Copies of this Interim Report are available from the Company Secretary, 115 Hearthcote Road, Swadlincote, Derbyshire DE11 9DU and on the Company's website www.reactsc.co.uk/react-group-plc

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

IR UBVURRWUNUAR