REACT GROUP PLC

Annual / Quarterly Financial Statement • Jan 31, 2022

National Storage Mechanism | Additional information RNS Number : 0642A React Group PLC 31 January 2022 31 January 2022 REACT Group plc ("REACT" or the "Company") Final Results 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 2021. Financial performance Summary FY 2021 '000 FY 2020 '000 Change Revenue ��7,701 ��4,360 +77% Gross profit ��2,370 ��1,449 +64% Adjusted EBITDA ��795 ��261 +205% Adjusted PBT ��277 ��188 +47% Highlights �� Revenue up 77% at ��7.7 million �� Gross profit up 64% at ��2.37 million �� Adjusted EBITDA�� up 205% at ��795,000 �� Acquisition of Fidelis Contract Services Limited ("Fidelis") completed at end of March 2021 and contributes to second half of the year o Acquisition of Fidelis complements REACT's largely reactive work with recurring revenues from long-term contracts in resilient markets such as education and healthcare �� Strong like-for-like organic growth; Revenue up c.20%; Gross Profit up c.21%; Adjusted EBITDA up c.59% �� Adjusted profit before tax�� up 47% at ��277,000 �� Net cash of ��567,000 �� Outlook is positive following a number of contract wins, some of which are material, providing long-term contracted revenue Commenting on the results Shaun Doak, Chief Executive, said: "We are delighted to report a strong financial performance with improvements across the board on all key metrics alongside a year of substantial progress in developing our business through accelerating organic growth and the acquisition of Fidelis. "The new financial year has begun well and the outlook for the Group remains positive. We believe REACT is well positioned to continue to support its customers' critical requirements. "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. "On behalf of the Board I wish to thank all of my colleagues across the Group, including our new colleagues from Fidelis, for their dedication, hard work and tenacity in a year that continued to be overshadowed by the pandemic. Our performance as a team, is a reflection of their commitment and talent. I very much look forward to working with them in 2022 and beyond." ��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. ��Adjusted profit before tax ("PBT") is PBT before amortisation of Fidelis' customer contracts. For more information: REACT Group plc Shaun Doak, Chief Executive Of���cer Andrea Pankhurst, Chief Financial Officer Mark Braund, Chairman Tel: +44 (0) 798 222 0001 Allenby Capital Limited (Nominated Adviser and Broker) Nick Athanas / Liz Kirchner (Corporate Finance) Amrit Nahal / Tony Quirke (Sales & Corporate Broking) Tel: +44 (0) 203 328 5656 Executive Chairman's Statement For the year ended 30 September 2021 I am delighted to report strong progress in the year to 30th September 2021, the third trading year successfully reported by this management team, the second full year since the business was restructured and the first year in which it made its maiden acquisition, that of Fidelis Contract Services Ltd (Fidelis). The Board of the REACT Group is pleased to report that the Group has delivered significant growth in the period under review, both organically and as a result of the acquisition of Fidelis, thereby continuing to deliver material improvements in operational performance and profit contribution. The acquisition of Fidelis in March 2021 has created a step-change in the make-up of the Group's business, augmenting the unique strengths of REACT's emergency cleaning and decontamination services with greater capability in contract cleaning and facilities management, especially in resilient markets such as education and healthcare. As a result, the Group has materially strengthened its financial operating model through the addition of a 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 2021 (FY 21), Adjusted EBITDA1 on a consistent accounting basis was ��795,000, up +205% on the prior year, (2020: ��261,000), on sales revenue of ��7.70 million, up +77% on the prior year (2019: ��4.36 million). The Group performance represents strong like-for-like organic growth enhanced by the acquisition of Fidelis in March 2021, which contributed to the second half of the financial year. COVID-19 impacted the business throughout the period providing both opportunities and challenges for the management team. The Group delivered a high quality, rapid response to customer demands, whilst at the same time redeployed resources from sectors where activity levels declined due to the changing nature of the economy and the government restrictions put in place. COVID-19 specific business generated a relatively small proportion of the revenue in the period and replaced some of the revenue lost due to the decline in some of our customers' requirements. The Group's response to customer requirements as a result of COVID-19 has helped accelerate the sales engagement process with new customer prospects, and enhanced the Group's reputation with many in the existing customer base. This resulted in incremental new business opportunities for other of the Group's services, some of which were delivered during the period with others flowing into the new financial year. 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 31 January 2022 ��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 FY21, the third year of turnaround for the business and the second year in which it has been a privilege to be the CEO. REACT Group has delivered significant growth, both organically and as a result of the acquisition of Fidelis, whilst continuing to deliver material improvements in operational performance and profit contribution. Having successfully rebuilt and established the emergency response business within REACT to deliver in-demand services, growth and profit, we have set out to improve the quality and resilience of the Group's financial model. We have made good progress in the reported period; alongside the award of new recurring revenue contracts the acquisition of Fidelis has added a number of long-term contracted business. Furthermore, we have successfully integrated two businesses servicing similar markets with different models and customers who often have a need for the services provided by both these businesses. As a result, the REACT Group provides a unique offering; one that combines the professional maintenance of cleaning and hygiene standards in important sectors of our economy with one that can rapidly respond to often distressing and hazardous situations that require an emergency response, anywhere in mainland Great Britain. COVID-19 has brought both opportunities and challenges to the REACT Group. REACT has continued to be well placed to advise and respond to customer requirements to decontaminate their property from SARS-CoV-2, the virus that causes COVID-19. Whilst at times, especially in the first half of the financial year, COVID-19 decontaminations surged, some of our other call-out work shrank as facilities in some sectors were quieter than normal as a result of disruption caused by lockdowns and other COVID-19 restrictions. Much of the work we carry out in the judiciary and policing sector; cleaning cells and transport vehicles, was suspended during periods over the course of the year, as too was much of our work with housing associations. Although the Group responded well to the call for help in dealing with COVID-19, we also worked hard to not allow it to distract us from our strategic goals. At the same time as developing and deploying a rapid response to customer demand for COVID-19 decontaminations we also grew other parts of our business. During the year, the Group won a small number of material contracts, all of which were announced via RNS. We also expanded our services with existing customers, winning a number of smaller projects, none of which alone were material enough to formally announce, however all contributed to this period of success. We were pleased to announce, on 26 April 2021, the award of a 3-year contract with one of the world's leading FM firms, which was already an existing customer, to supply a full range of reactive cleaning and decontamination services. We noted that it would take time for this contract to reach maturity as local and regional suppliers would need to transition from their current suppliers to REACT as 'core vendor'. This transition has taken some time but we've been pleased to see a commitment from senior personnel at the FM firm to supporting the migration from local suppliers to REACT and we have gained traction in this regard. Due to the reactive nature of the work under this contract it is difficult to predict with any certainty the levels and timing of revenues but we have seen some increases in revenues since commencing providing services under this agreement, albeit with some impact from the disruption caused by the Omicron variant of COVID-19 and the seasonal slow-down over the Christmas and New Year period. It has also been pleasing to see the Group announcing a number of contract wins post period end the most significant of which was a material new long-term contract with The ExtraCare Charitable Trust, a leading not-for-profit developer and operator of housing for the over 55s and an existing customer of the business. Through the Fidelis division of REACT, the Group will provide a range of facility management services across multiple sites, including contract cleaning, grounds maintenance, window cleaning and pest control. We have established a number of strong customer case studies across our most important sectors, which continue to help verify the quality of our work and provide reassurance to new customers who place trust in our capability. The speed and commitment with which the whole team has responded to constantly changing parameters during this period has helped build a continuous sense of urgency and resilience into our customer-centric, can-do culture. Key Performance Indicators (KPIs) Financial: The key financial indicators are as follows: 2021 2020 Revenue ��7.70m ��4.36m Gross margin 30.8% 33.2% Profit from continuing operations before acquisition and restructuring costs ��806,000 ��188,000 Acquisition and restructuring costs ��417,000 - Profit from continuing operations after acquisition and restructuring costs ��389,000 ��188,000 Cash and cash equivalents ��633,000 ��1,783,000 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; the first two are Contract Maintenance, where the Company delivers regular cleaning regimes, (such as in the healthcare, education and public transport sectors) and; 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 and represent c.73% of revenue for the year. 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 COVID-19 decontaminations. Because of the relatively short to mid- term nature of COVID-19, the Company has recorded all COVID-19 decontamination work in the Ad Hoc category of business. During this period we saw the greatest growth coming from both contract maintenance and ad hoc business. Contract maintenance represents strong recurring revenue and income streams from typically long-term high value contracts. This is a key area of strategic growth for the Group and one in which we continue to focus to drive long-term value and resilience in our financial operating model. Ad hoc business also grew, in part due to COVID-19 decontaminations, especially in the first half of the year. Ad hoc business generates higher margins due to the often urgent and distressed nature of the work, however by its very nature, is non-recurring. Contract reactive business was impacted by lockdown restrictions and changes in the use and logistics of some of the sectors in which we work. None has been more affected than the judiciary, where physical court appearances and movements of those in custody has been limited through the use of video technology. Margins at a customer level in each segment of the business remained broadly similar to the prior year, however the blend changed as we increased revenues in contract maintenance and ad hoc business at the expense of the contract reactive business. The acquisition of Fidelis at the end of March 2021, introduced incremental high-value, long-term cleaning maintenance and facilities management contracts on slightly lower margins. Therefore, the overall blended margin has, as expected, reduced slightly in return for greater growth and higher value recurring revenue streams. 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 The new financial year has begun well, with a small number of post-period contract awards announced, some of which are material in value. There also remain opportunities for growth from within in the contracts awarded last year, where they have yet to reach expected maturity, including the large 3-year 'core vendor' award made to REACT by one of the world's largest FM companies. We remain ambitious, aiming to drive a high-performance culture placing our colleagues and customers at the heart of our business. 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 Fidelis, for their dedication, hard work and tenacity in a year that continued to be overshadowed by the pandemic. Our performance as a team is a reflection of their commitment and talent. I very much look forward to working with them in 2022 and beyond. Shaun D Doak Chief Executive Officer 31 January 2022 Chief Financial Officer's Report Revenue and profitability Revenue for year ended 30 September 2021 was ��7.7m, +77% up on the prior year (2020: ��4.36m). These figures include 6 months' results from Fidelis following its acquisition at the end of March 2021. Taking into account the performance of both trading companies for the full prior year period, this represents like-for-like organic growth of approximately +20%. These revenues generated a gross profit contribution of ��2.4m, up +64% on the prior year (2020: ��1.5m), representing a like-for-like organic growth in gross profit of approximately 21%. 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 ��795,000, up +205% on the prior year (2020: ��261,000). 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. Reconciliation of Profit before Tax to Adjusted EBITDA 2021 ��'000 2020 ��'000 Profit before Interest and Tax 114 188 Depreciation & Amortisation 264 23 EBITDA 378 261 Acquisition costs 323 - Restructuring costs 94 - Adjusted EBITDA 795 261 Cash flow The Group's financial position and underlying cash generation remained positive during the year with net cash at the year end of ��633,000 (2021: ��1.78 million), with the main factor in the reduction of cash balances being the payment of both the initial consideration and transaction costs of the Fidelis acquisition. The terms of the Fidelis acquisition include the payment of deferred consideration amounts subject to certain financial performance hurdles being met. The first deferred consideration amounting to approximately ��500,000 was paid post period end from the Group's cash reserves. Fidelis had negotiated a CBIL loan prior to the acquisition and as at 30 September 2021, the remaining balance of this loan was ��67,000. Since April 2020, REACT has had an invoice discounting facility in place and this facility provides flexibility for the Group to deal with normal business working capital fluctuations. The Group also took advantage of the Government's COVID-19 initiative permitting the deferral of VAT payments. 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 profit for the second consecutive year and given the ongoing positive trading outlook, has confidence that there will be sufficient future taxable profits in the foreseeable future to utilise its historic tax losses. It has decided to recognise a deferred tax asset of ��0.2m (2020: ��0.4m - unrecognised). Statement of financial position The Group's balance sheet has strengthened with net assets at the year end of ��2,788,000 (2020: ��2,191,000). The net assets of Fidelis at the point of acquisition totalled ��480,000. Andrea Pankhurst Chief Financial Officer 31 January 2022 Consolidated Statement of Comprehensive Income For the year ended 30 September 2021 Notes 2021 ��'000 2020 ��'000 Continuing Operations Revenue 7,701 4,360 Cost of sales (5,332) (2,911) Gross profit 2,369 1,449 Other operating income 19 70 Administrative expenses 6 (2,274) (1,308) Acquisition and restructuring costs included in administrative expenses 6 (417) - Operating profit 114 211 Finance income/(cost) 7 16 (23) Corporation tax credit 8 259 - Profit for the year 389 188 Other comprehensive Income - - Total comprehensive profit for the year attributable to the equity holders of the company 389 188 Basic and diluted earnings per share - pence 9 Basic earnings per share 0.08p 0.04p Diluted earnings per share 0.07p 0.04p Adjusted basic earnings per share 0.08p 0.06p Adjusted diluted earnings per share 0.07p 0.05p Consolidated Statement of Financial Position As at 30 September 2021 Notes 2021 2020 ASSETS ��'000 ��'000 Non-current assets Intangible assets - Goodwill 11 1,940 174 Intangible assets - Other 11 1,028 - Property, plant & equipment 12 176 85 Right-of-use assets 12 95 27 Deferred tax asset 19 244 - 3,483 286 Current assets Stock 12 - Trade and other receivables 14 2,099 1,089 Cash and cash equivalents 16 633 1,783 2,744 2,872 TOTAL ASSETS 6,227 3,158 EQUITY Shareholders' Equity Called-up equity share capital 17 1,270 1,246 Share premium account 6,028 5,852 Reverse acquisition reserve (5,726) (5,726) Capital redemption reserve 3,337 3,337 Merger relief reserve 1,328 1,328 Share-based payments 23 15 Accumulated deficit (3,472) (3,861) Total Equity 2,788 2,191 LIABILITIES Current liabilities 18 Trade and other payables 2,598 924 Lease liabilities within one year 54 13 Corporation tax 80 - 2,732 937 Non-current liabilities 18 Lease liabilities after one year 49 30 Other creditors - Deferred consideration 658 - 707 30 TOTAL LIABILITIES 3,439 967 TOTAL EQUITY AND LIABILITIES 6,227 3,158 These financial statements were approved and authorised for issue by the Board of Directors on 31 January 2022 and were signed on its behalf by: Andrea Pankhurst Director Consolidated Statement of Changes in Equity For the year ended 30 September 2021 Share capital Share Premium Merger Relief Reserve Capital Redemption Reserve Reverse Acquisition Reserve Share-Based Payments Accumulated Deficit Total Equity ��'000 ��'000 ��'000 ��'000 ��'000 ��'000 ��'000 ��'000 At 1 October 2019 1,039 4,926 1,328 3,337 (5,726) 12 (4,038) 878 Issue of shares 207 926 - - - - - - Share-based payments - - - - - 3 - 3 Effect of adoption of IFRS16 - - - - - - (11) (11) Profit for the year - - - - - - 188 188 At 30 September 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 Share capital is the amount subscribed for shares at nominal value. Share premium represents amounts subscribed for share capital in excess of nominal value. 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 2021 Notes 2021 2020 ��'000 ��'000 Cash flows from operating activities Cash generated by operations 1 432 281 Net cash inflow from operating activities 432 281 Cash flows from financing activities Proceeds of share issue 200 1,246 Expenses of share issue - (113) Lease liability payments (39) (29) CBIL Loan 67 - Net cash inflow from financing activities 228 1,104 Cash flows from investing activities Disposal of fixed assets 6 2 Capital expenditure (71) (44) Acquisition of subsidiary (1,930) - Exceptional acquisition costs paid (200) - Net cash outflow from investing activities (2,195) (42) (Decrease)/Increase in cash, cash equivalents and overdrafts (1,535) 1,343 Cash, cash equivalents and overdrafts at beginning of year 1,783 440 Cash on acquisition of subsidiaries 385 - Cash, cash equivalents and overdrafts at end of year 2 633 1,783 Notes to the Consolidated Statement of Cash Flows For the year ended 30 September 2021 1. Reconciliation of profit for the year to cash outflow from operations 2021 ��'000 2020 ��'000 Profit before taxation 389 188 (Increase) in stocks (12) - Increase in trade and other receivables (1,010) (371) Increase in trade and other payables 655 389 Depreciation and amortisation charges 264 50 Finance (income)/costs (16) 21 Tax (credit)/charge (259) - Acquisition assets acquired (excluding cash) 95 - Exceptional acquisition costs 323 - (Profit)/Loss on disposal of fixed assets (5) 1 Share based payment 8 3 Net cash inflow from operations 432 281 2. Cash and cash equivalents 2021 ��'000 2020 ��'000 Cash at bank and in hand 633 1,783 Notes to the Financial Statements For the year ended 30 September 2021 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 end 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 International Financial Reporting Standards (IFRSs), International Accounting Standards (IASs) and International Financial Reporting Interpretations Committee (IFRIC) interpretations (collectively 'IFRSs') as adopted for use in the European Union 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 The 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 assessed; 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 2022) �� IAS16 amendments regarding proceeds before intended use (1 January 2022) �� 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. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. (i) Current tax Current taxes are based on the results shown in the financial statements and are calculated according to local tax rules using tax rates enacted or substantially enacted by the statement of financial position date. Income tax is recognised in the income statement or in equity if it relates to items that are recognised in the same or a different period, directly in equity. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. (ii) 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 liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary difference, and the carrying forward or unused tax assets and unused tax losses can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilised. Conversely, previously unrecognised deferred tax assets are recognised to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on the tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. Investments Investments in subsidiaries are held at cost less any impairment. Financial assets and liabilities The Group classifies its financial assets at inception into three measurement categories; 'amortised cost', 'fair value through other comprehensive income' ('FVOCI') and 'fair value through profit and loss' ('FVTPL'). The Group classifies its financial liabilities, other than financial guarantees and loan commitments, as measured at amortised cost. Management determines the classification of its investments at initial recognition. A financial asset or financial liability is measured initially at fair value. At inception transaction cost that are directly attributable to its acquisition or issue, for an item not at fair value through profit or loss, is added to the fair value of the financial asset and deducted from the fair value of the financial liability. Amortised cost measurement The amortised cost of a financial asset or financial liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal payments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and maturity amount, minus any reduction for impairment. Fair value measurement Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction on the measurement date. The fair value of assets and liabilities in active markets are based on current bid and offer prices respectively. If the market is not active the group establishes fair value by using appropriate valuation techniques. These include the use of recent arm's length transactions, reference to other instruments that are substantially the same for which market observable prices exist, net present value and discounted cash flow analysis. Derecognition Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the group has transferred substantially all of the risks and rewards of ownership. In transaction in which the group neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset and it retains control over the asset, the group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset. There have not been any instances where assets have only been partly derecognised. The group derecognises a financial liability when its contractual obligation is discharged, cancelled or expired. Impairment The Group assesses at each financial position date whether there is objective evidence that a financial asset or group of financial assets is impaired. If there is objective experience (such as significant financial difficulty of obligor, breach of contract, or it becomes probable that debtor will enter bankruptcy), the asset is tested for impairment. The amount of the loss is measured as the difference between the asset's carrying amount and the present value of the estimated future cash flows (excluding future expected credit losses that have not been incurred) discounted at the financial asset's original effective interest rate (that is, the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through use of an allowance account. The amount of loss is recognised in the Statement of Comprehensive Income. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand. Leases The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For short-term and low value leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed. Where a right-of-use-asset is recognised, the lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its asset specific risk adjusted incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise: ��� Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable; ��� Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date; ��� The amount expected to be payable by the lessee under residual value guarantees; ��� The exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and ��� Payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease. The lease liability is presented as a separate line in the consolidated statement of financial position. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses. The right-of-use assets are presented as a separate line in the statement of financial position. Stock Stock is valued at the lower of cost and net realisable value. Cost is determined on a first in first out basis. Net realisable value is the price at which stock can be sold in the normal course of business. Provision is made where necessary for obsolete, slow moving and defective stock. Trade and other receivables Trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to the initial recognition, trade and other receivables are measured at amortised cost less impairment losses for bad and doubtful debts, except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less impairment losses for bad and doubtful debts. Impairment losses for bad and doubtful debts are measured as the difference between the carrying amount of financial asset and the estimated future cash flows, discounted where the effect of discounting is material. Trade and other payables Trade and other payables are initially recognised at fair value and thereafter stated in amortised cost, except where the payables are interest free loans made by related parties without any fixed repayment terms or the effect of discounting would be immaterial, in which case they are stated at cost. Impairment of non-financial assets At each statement of financial position date, the Group reviews the carrying amounts of its investments to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a re-valued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior periods. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. Capital management Capital is made up of stated capital, premium and retained earnings. The objective of the Group's capital management is to ensure that it maintains strong credit ratings and capital ratios. This will ensure that the business is correctly supported and shareholder value is maximised. The Group manages its capital structure through adjustments that are dependent on economic conditions. In order to maintain or adjust the capital structure, the company may choose to change or amend dividend payments to shareholders or issue new share capital to shareholders. There were no changes to the objectives, policies or processes during the year ended 30 September 2021. Equity instruments Equity instruments issued by the company are recorded at the proceeds received. Incremental costs directly attributable to the issuance of new ordinary shares are deducted against share premium. Share-based compensation The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each statement of financial position date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. The fair value of share-based payments recognised in the income statement is measured by use of the Black Scholes model, which takes into account conditions attached to the vesting and exercise of the equity instruments. The expected life used in the model is adjusted; based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The share price volatility percentage factor used in the calculation is based on management's best estimate of future share price behaviour and is selected based on past experience, future expectations and benchmarked against peer companies in the industry. Property, plant and equipment Property, plant and equipment are stated at historical cost less subsequent accumulated depreciation and accumulated impairment losses, if any. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred. Depreciation on property, plant and equipment is calculated using the straight-line method to write off their cost over their estimated useful lives at the following annual rates: Leasehold property 20% Vehicles 20% / 25% Fixtures, fittings & equipment 20% / 33% Useful lives and depreciation methods are reviewed and adjusted if appropriate, at the end of each reporting period. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the relevant asset, and is recognised in profit or loss in the period in which the asset is derecognised. A right-of-use asset is recognised at commencement of the lease and initially measured at the amount of the lease liability, plus any incremental costs of obtaining the lease and any lease payments made at or before the leased asset is available for use by the Group. They are subsequently measured at cost less accumulated depreciation and any accumulated impairment losses. Intangibles Goodwill represents the excess of the cost of acquisition over the company's interest in the fair value of the identifiable assets and liabilities of a business acquired at the date of acquisition. Goodwill is recognised as an asset, reviewed for impairment at least annually and carried at cost less accumulated impairment losses. Any impairment is recognised immediately in profit or loss and is not subsequently reversed. Purchased goodwill is deemed to have an indefinite useful life due to the expectation of the acquired business to operate in perpetuity, so is not amortised. Customer list represents the value placed on the retained customer list at the acquisition date. The value recognises that customers, although contracted to the company are not under an obligation to use the company services. The customer list will be amortised over a period of 4 years. An impairment review will be conducted each year and will look at significant changes in the turnover received from major customers. Employee benefit costs The group operates a defined contribution pension scheme for eligible employees. Contributions payable are charged to the income statement in the period to which they relate. Critical accounting judgments and key sources of estimation uncertainty The preparation of the financial statements requires management to make estimates and assumptions concerning the future that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The resulting accounting estimates will, by definition, differ from the related actual results. �� Estimated impairment of goodwill The Directors have carried out a detailed impairment review in respect of goodwill. The Group assesses at each reporting date whether there is an indication that an asset maybe impaired, by considering the net present value of discounted cashflow forecasts which have been discounted at 15%. The cashflow projections are based on the assumption that the Group can realise projected sales. �� Share-based payments The fair value of share-based payments recognised in the income statement is measured by use of the Black Scholes model, which takes into account conditions attached to the vesting and exercise of the equity instruments. The expected life used in the model is adjusted; based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The share price volatility percentage factor used in the calculation is based on management's best estimate of future share price behaviour and is selected based on past experience, future expectations and benchmarked against peer companies in the industry. �� Goodwill and customer list valuation As part of the annual impairment review on 30 September 2018 and based on the medium-term trading outlook, the Board of Directors decided to write down the purchased goodwill and acquired customer list from ��1,280,000 to ��174,000. As at 30 September 2021 a further review was undertaken of both this figure and the balances relating to Fidelis, and management judged that no additional impairment was required. �� Bad debt provision We perform ongoing credit evaluations of our customers and grant credit based on past payment history and industry conditions. Customer payments are closely monitored and a provision for doubtful debts is established based on management's assessment of the expected collectability of all accounts receivable. 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. 2021 2020 Contract Maintenance Work Contract Reactive Work Ad Hoc Work Total Contract Maintenance Work Contract Reactive Work Ad Hoc Work Total ��'000 ��'000 ��'000 ��'000 ��'000 ��'000 ��'000 ��'000 Revenue 3,992 1,587 2,122 7,701 1,694 1,775 891 4,360 Cost of Sales (3,101) (1,072) (1,159) (5,332) (1,178) (1,214) (519) (2,911) Gross Profit 891 515 963 2,369 516 561 372 1,449 Other Operating Income 17 1 1 19 25 27 18 70 Administrative Expenses (814) (557) (903) (2,274) (466) (506) (336) (1,308) Operating Profit/(Loss) for the year 94 (41) 61 114 75 82 54 211 Adjusted EBITDA1 660 (290) 425 795 93 101 67 261 Total Assets 2,327 1,366 2,534 6,227 1,125 1,221 812 3,158 Total Liabilities (1,340) (707) (1,392) (3,439) (344) (374) (249) (967) 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 26 March 2021, the Group acquired 100% of the issued share capital and voting rights of Fidelis Contract Services Ltd ('Fidelis'), a successful commercial cleaning, hygiene and facility support services company headquartered in Birmingham providing services to customers across England and Wales. The acquisition is expected to increase the group's market share and reduce costs through economies of scale. Fidelis was acquired for an initial consideration of ��1.7m, payable as ��1.5m cash and ��0.2m through the issue of new ordinary shares, with contingent consideration of up to ��3.05m payable subject to Fidelis fulfilling certain profit criteria. The fair value of the acquired customer list and customer contracts has been assessed as at 30 September 2021. 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 Fidelis 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 ��323,000 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 Fidelis Contract Services Ltd Principal activity Commercial Cleaning, Hygiene & Support Services Date of acquisition 26 March 2021 Proportion of voting equity interests Acquired 100% Consideration transferred ��3,421,000 ��'000 b) Consideration transferred Cash 1,730 Equity issued 200 Loan notes 84 Contingent consideration arrangement (included in Other Creditors) 1,407 Total consideration transferred 3,421 c) Assets and liabilities recognised on the date of acquisition Non-current assets 121 Current assets 1,492 Non-current liabilities (53) Current liabilities (1,080) Net assets acquired 480 d) Goodwill arising on acquisition Consideration transferred 3,421 Fair value of identifiable net assets acquired (480) Separately identifiable intangible assets arising on business combination (1,175) Goodwill acquired 1,766 e) Net cash outflow on acquisition Consideration paid in cash 1,730 Less: cash balances acquired (385) 1,345 f) Impact of acquisition on the results of the Group The acquired business contributed revenues of ��3,266,000 and net profit of ��243,000 to the group for the period from 26 March 2021 to 30 September 2021. If the acquisition had occurred on 1 October 2020, pro-forma revenue and net profit contributions to the Group for the year ended 30 September 2021 would have been ��6,088,000 and ��410,000 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. Employees and Directors 2021 2020 ��'000 ��'000 Wages and salaries 4,449 2,258 Social security costs 287 203 Pension contributions 54 37 Share based payments 8 3 4,798 2,501 The average monthly number of employees : No. No. Directors 5 4 Operators and administration staff 281 83 286 87 The number of directors to whom retirement benefits were accruing under money purchase schemes 3 2 The number of directors who exercised share options during the year - - The number of directors who received share options during the year 2 - Details of emoluments received by Directors of the Group for the year ended 30 September 2021 were as follows: Salaries Other Share based payment 2021 2020 ��'000 ��'000 ��'000 ��'000 ��'000 G Leates (resigned 4 December 2020) 43 12 1 56 50 R Gilbert 25 - - 25 24 M Joyce 42 - - 42 30 S Doak 96 - 1 97 120 A Pankhurst 68 - 4 72 75 M Braund (appointed 4 December 2020) 89 - 12 101 - Total 363 12 18 393 299 These amounts include the share-based payments referred to in Note 2. The key management personnel are the Directors and therefore disclosure is the same as the above. 6. Administrative expenses 2021 2020 ��'000 ��'000 Auditor remuneration - audit fees (Company ��4,000; 2020 : ��3,000) 32 16 - other services 23 2 Staff costs (note 4) 4,798 2,498 Less staff costs included in cost of sales (3,559) (1,701) Recruitment 4 5 Legal and professional fees (incl AIM related costs) 107 161 Property costs 119 80 Travel expenses 28 36 Insurance 72 54 Marketing 116 99 Provision against bad debts and accrued income (72) (8) Other expenses 27 44 Depreciation 264 50 Less depreciation included in cost of sales - (28) Acquisition costs (excluding auditor remuneration) 315 - 2,274 1,308 There were ��417,000 acquisition and restructuring costs included in administrative expenses during the year (2020: ��Nil) 2021 2020 ��'000 ��'000 Restructuring costs relating solely to the exit costs of two former senior employees 94 - Acquisition costs 323 - 417 - 7. Finance Income/(Costs) 2021 ��'000 2020 ��'000 Lease liability interest on: - Land and buildings (16) 13 - Other (1) 8 Other interest expense 1 2 (16) 23 8. Income Tax 2021 2020 ��'000 ��'000 Current tax charge - - Deferred tax credit 259 - Tax credit 259 - Analysis of tax expense: 2021 ��'000 2020 ��'000 Profit before income tax 130 188 Profit multiplied by the standard rate of corporation tax in UK of 19% (2019: 19%) 25 36 Effects of: Fixed asset differences (4) 4 Amortisation and depreciation not deductible for tax - - (Decrease)/Increase in net losses carried forward (280) (40) Corporation tax charge/(credit) (259) - The Group has estimated excess management expenses carried forward of ��1.3m (2020: ��1.3m) and trading losses of approximately ��0.6m (2020: ��0.8m) available to use against future profits. The tax losses have resulted in a deferred tax asset of approximately ��0.3m which has been recognised this year (2020: ��0.4m - not recognised) as the positive trading outlook for the Group means that there is likely to be sufficient future taxable profits to utilise the losses. 9. 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. 2021 2020 ��'000 ��'000 Net profit for year 389 188 Adjustments: Interest (16) 23 Depreciation 264 50 Tax (259) - Adjusted profit for the year 378 261 Number Number Weighted average shares in issue for basic earnings per share 503,348,752 441,291,857 Weighted average dilutive share options and warrants 62,247,272 65,065,130 Average number of shares used for dilutive earnings per share 565,596,024 506,356,987 Pence Pence Basic earnings per share 0.08p 0.04p Diluted earnings per share 0.07p 0.04p Adjusted basic earnings per share 0.08p 0.06p Adjusted diluted earnings per share 0.07p 0.05p 10. Company's result for the year The company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the parent company income statement account. The result for the parent company for the year was a profit of ��1,334,000 (2020: profit of ��30,000). 11. Intangible assets Group Goodwill Customer List Total ��'000 ��'000 ��'000 Cost At 1 October 2019 1,280 220 1,500 Disposals (220) (220) As at 30 September 2020 1,280 - 1,280 Additions 1,766 1,175 2,941 Disposals - - - As at 30 September 2021 3,046 1,175 4,221 Amortisation and impairment As at 1 October 2019 1,106 220 1,326 Amortisation charge for the year - - - Disposals - (220) (220) As at 30 September 2020 1,106 - 1,106 Amortisation charge for the year - 147 147 Disposals - - - As at 30 September 2021 1,106 147 1,253 Carrying amount As at 1 October 2019 174 - 174 As at 30 September 2020 174 - 174 As at 30 September 2021 1,940 1,028 2,968 The goodwill relates to intangible assets that do not qualify for separate recognition on the acquisition of Fidelis during the 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 a result of this annual review, it was decided that given the current trading performance of the business and the short/medium term outlook, there was no need to further impair the carrying value of the Goodwill. The key assumptions used in the estimation of the revised value of 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 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) 10 Terminal value growth rate 0 Discount rate 15 12. Property, Plant and equipment Group Leasehold property Vehicles Fixtures, fittings & equipment Right-of-Use Assets Total ��'000 ��'000 ��'000 ��'000 ��'000 Cost At 1 October 2019 21 181 109 - 311 Additions - 28 16 - 44 IFRS16 implementation - - - 40 40 Disposals - (60) (10) - (70) At 30 September 2020 21 149 115 40 325 Acquisition - 56 67 - 123 Additions 2 42 27 37 108 IFRS16 implementation - - - 85 85 Disposals - (55) - - (55) At 30 September 2021 23 192 209 162 586 Depreciation At 1 October 2019 8 153 69 - 230 Depreciation charge for the year 4 18 15 13 50 Disposals - (57) (10) - (67) At 30 September 2020 12 114 74 13 213 Acquisition - 6 34 - 40 Depreciation charge for the year 5 26 32 54 117 Disposals - (54) - - (54) At 30 September 2021 17 92 140 67 316 Net book value At 1 October 2019 13 28 40 - 81 At 30 September 2020 9 35 41 27 112 At 30 September 2021 6 100 69 95 270 13. Investment in subsidiary undertakings Company Cost At 1 October 2020 1,560 Additions - At 30 September 2021 1,560 Impairment At 1 October 2020 1,386 Impairment charge for the year - At 30 September 2021 1,386 Carrying amount At 30 September 2020 174 At 30 September 2021 174 As at 30 September 2021, the company held the following subsidiaries: Name of company Principal activities Country of incorporation and place of business Proportion of equity interest of ordinary shares REACT SC Holdings Limited Holding company United Kingdom 100% REACT Specialist Cleaning Limited (held indirectly by REACT SC Holdings Limited) Specialist cleaning & decontamination services United Kingdom 100% Fidelis Contract Services Ltd (held indirectly by REACT SC Holdings Limited) Commercial Cleaning, Hygiene & Support Services United Kingdom 100% 14. Trade and other receivables Current Note Group Group Company Company 2021 2020 2021 2020 ��'000 ��'000 ��'000 ��'000 Trade receivables 1,702 989 - - Provision for impairment 14 (5) (42) - - Net trade receivables 1,697 947 - - Amounts owed by Group undertakings - - 2,846 1,151 Provision against amounts owed by Group undertakings - - - (1,151) Prepayments and accrued income 378 142 14 4 Other debtors 24 - 19 42 2,099 1,089 2,879 46 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. 15. Provision for impairment of receivables A provision is established for irrecoverable amounts where there is an indication that amounts due under the original payment terms will not be collected. Provision for impairment of receivables Relating to debt over 3 months past due Group Group 2021 2020 ��'000 ��'000 Opening provision 42 83 Impairments in the year - - Amounts released in the year (36) (8) Amounts utilised in the year (1) (33) Closing provision 5 42 There are no receivables in the Company, as all are held by the trading subsidiaries, REACT Specialist Cleaning Limited and Fidelis Contract Services Ltd. As at 30 September 2021, excluding balances provided for by the impairment provision, ��174,000 (2020: ��25,000) of trade receivables were past their due settlement date but not impaired. The ageing analysis of these trade receivables is as follows: 2021 2020 ��'000 ��'000 Up to 3 months past due 87 18 3 to 6 months past due 27 7 Over 6 months past due 60 - 174 25 Trade receivables that are neither past due nor impaired are considered to be fully recoverable. 16. Cash and cash equivalents Group Group Company Company 2021 2020 2021 2020 ��'000 ��'000 ��'000 ��'000 Cash and bank balances 633 1,783 22 1,446 17. Called Up Share Capital 2021 2020 ��'000 ��'000 Issued share capital comprises: 508,006,026 (2020: 498,509,350) Ordinary shares of 0.25p each 1,270 1,246 9,496,676 Ordinary shares of 0.25p were issued on 1 April 2021 at a price of 2.106p per share. This transaction resulted in an increase of ��24,000 to the Company's share capital and an increase of ��176,000 to its share premium. 18. Trade and other payables Group Group Company Company 2021 2020 2021 2020 ��'000 ��'000 ��'000 ��'000 Current: Trade payables 378 402 35 55 - Accrued expenses 639 192 21 3 Social security and other taxes 523 330 23 4 Lease liability <12 months 54 13 28 9 Other creditors 991 - 5 - CBIL loan 67 - - - Corporation tax payable 80 - - - 2,732 937 112 71 Non-current: Lease Liability >12 months 49 30 26 15 Other liabilities >12 months - Deferred Consideration 658 - - - 707 30 26 15 3,439 967 138 86 19. 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 19% (2020:19%), the movement on the deferred tax liability is as shown below: Group Group Company Company 2021 2020 2021 2020 ��'000 ��'000 ��'000 ��'000 At 1 October - - - - Income credit 259 - 152 - Liability acquired (15) - - - At 30 September 244 - 152 - The deferred taxation asset is made up as follows: Group Group Company Company 2021 2020 2021 2020 ��'000 ��'000 ��'000 ��'000 Accelerated capital allowances (5) - - - Tax losses carried forward 110 - - - Other short-term timing differences 139 - 152 - 244 - 152 - 20. Related Party Disclosures Group and company During the year ended 30 September 2021, the Group made purchases of ��26,000 from companies controlled by directors or where the directors have an interest. During the year ended 30 September 2020, there were no related party transactions. 21. Ultimate Controlling Party No one shareholder has control of the company. 22. Warrants There were no movements in the number of share warrants outstanding and their related weighted average exercise prices during the year. Number of warrants Average exercise price 2021 2020 2021 2020 No. No. �� �� Outstanding at the beginning of the year 19,939,537 19,939,537 0.0030 0.0030 Granted during the year - - - - Lapsed during the year - - - - Outstanding at the end of the year 19,939,537 19,939,537 0.0030 0.0030 The fair value of the share warrants issued on 17 May 2019 with an exercise price of 0.30p is ��5,834 and was derived using the Black Scholes model. The following assumptions were used in the calculations: Share price at grant date 0.30p Risk-free rate 0.58% Volatility 25% Expected life 5 years Expected volatility is based on a conservative estimate for the company. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. ��1,167 (2020: ��1,167) has been recognised during the year for the share warrants over the vesting period. 23. Share options The company has implemented a share option programme to grant share options as an incentive for employees. Each share option converts into one ordinary share of the company on exercise. No amounts are paid or payable by the recipient on receipt of the option and the company has no legal obligation to repurchase or settle the options in cash. The options carry neither rights to dividends nor voting rights prior to the date on which the options are exercised. Options may be exercised at any time from the date of vesting to the date of expiry. Movements in the number of share options outstanding and their related weighted average exercise prices are as follows: Number of options Average exercise price 2021 2020 2021 2020 No. No. �� �� Outstanding at the beginning of the year 45,125,593 45,125,593 0.0038 0.0038 Granted during the year 11,900,000 - 0.0025 - Surrendered during the year (11,963,781) - 0.0030 Lapsed during the year (2,754,077) - 0.0168 - Outstanding at the end of the year 42,307,735 45,125,593 0.0029 0.0038 The Options shall vest and become capable of exercise in specified quantities if the mid-market price (as derived from the AIM Appendix of the Daily Official List and as certified in writing by the Company's stockbrokers) equals or exceeds a series of defined Share Hurdle Prices between ��0.004 and ��0.0280 for 5 consecutive business days at any time or times during the vesting period. ��7,752 (2020: ��3,646) has been recognised during the year for the share-based payments over the vesting period. 24. Financial risk management, objectives and policies The Group's financial instruments comprise cash balances and receivables and payables that arise directly from its operations. The main risks the Group faces are liquidity risk and capital risk. The board regularly reviews and agrees policies for managing each of these risks. The Group's policies for managing these risks are summarised below and have been applied throughout the year. The numerical disclosures exclude short-term debtors and their carrying amount is considered to be a reasonable approximation of their fair value. Interest risk The Group is exposed to interest risk in relation to its Invoice Discounting Facility. Its CBIL loan is currently interest-free. The plan is to repay this loan during the interest-free period. Credit risk The Group is exposed to credit risk as services are invoiced on completion. This risk is mitigated as most large customers have been customers for several years and have exemplary credit ratings. The board also ensure robust procedures are in place to ensure all services are invoiced promptly and all payments received in a timely manner. As at the year end, 10% of debtors included in trade receivables are past their due dates. Included in trade receivables are provisions of ��5,000. Liquidity risk Liquidity risk is the risk that Group will encounter difficulty in meeting the obligations associated with financial liabilities. The responsibility for liquidity risks management rest with the Board of Directors, which has established appropriate liquidity risk management framework for the management of the Group's short term and long-term funding risks management requirements. During the year under review, the Group has made use of borrowing in the form of a CBIL loan and its Invoice Discounting facility. The Group manages liquidity risks by maintaining adequate reserves and reserve borrowing facilities by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities. Capital risk The Group's objectives when managing capital are to safeguard the ability to continue as a going concern in order to provide returns for shareholders and benefits to other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. 25. Lease liabilities At 30 September 2021, the maturity of the Group's gross contractual undiscounted cashflows due on the Group's lease liabilities (excluding short-term and low-value leases) is set out below: 2021 2021 2021 2020 Group Land and Buildings ��'000 Other ��'000 Total ��'000 Total ��'000 Discounted future cash flows; Not later than one year (19) (35) (54) (13) Later than one year and not later than five years - (49) (49) (30) Later than five years - - - - Total discounted future cash flows at 30 September (19) (84) (103) (43) Company Land and Buildings ��'000 Other ��'000 Total ��'000 Total ��'000 Discounted future cash flows; Not later than one year (19) (9) (28) (9) Later than one year and not later than five years - (26) (26) (15) Later than five years - - - - Total discounted future cash flows at 30 September (19) (35) (54) (24) This information is provided by RNS, the news service of the London Stock Exchange. 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