REACT Group PLC (REAT) Earnings Call Transcript & Summary

Thanks, Alejandro. Thanks for joining us today, guys. We've got myself on the call, I'm CEO. We've got Mark Braund on the call who's Chairman and Andrea Pankhurst, who's the Group CFO. So I'm just going to dive straight in. If we can move to the next slide, please, Alejandro, the next one. Okay. Just going to start off by giving you a little background of what we do. Now I appreciate some people on this presentation would have seen this before, so I'm going to try and mix it up a little bit. But in essence, the message remains the same. We carry out specialists and contract cleaning work across Mainland Great Britain, 24/7, 365 days a year. We operate both on a regular hygiene maintenance programs and specialist call-out work. The acquisition of Fidelis that we completed in mid -- sorry, March '21, increased the quality of earnings in the long-term contract maintenance space and also added some more recurring revenue opportunities to the business pipeline. So you noticed on the slide there, we've got a number of photographs just gives you an idea of some of these sectors that we operate within. So first of all, we've got the health care setting. It's recurring by nature, generally involves infection control work to ensure that our clients remain compliant with our infection control all year around. Next, we've got the education and the health care. So this is brought into the mix from the acquisition of Fidelis. Again, recurring by nature on site, 365 days a year to carry out contract cleaning and some facilities management aspects to these clients, too. Next, we've got the judiciary and policing, which typically is contract reactive work. So we are on a framework. We tend to be 1 of 1 in most cases. So we could be doing work from a road traffic collisions that can be bodily fluids or debris or oil all the way through to dirty process inside a police holding cell or indeed police vehicle. Alongside that as well, we also get involved in crime scene cleaning. Again, reactive by nature -- reactive contract work. We are typically 1 of 1. Obviously, it's down to the clients to call off that work, but we're on site within 4 to 6 hours to decontaminate a crime scenes like anything from blood to all that through to even suicides. Moving on, we've got the housing association sector, which has also been an area of focus throughout the last 12 months. Typically, it's ad hoc work. So we do everything from void clearances all the way through to some pretty gruesome needle picks and dirty process when people have been evicted from properties. So it is specialist again by nature. And then last but not least, we've got the rail sector. So a bit of a blended mix. We've got contract reactive and some reoccurring revenue streams. The reactive tends to involve suicides, animal strikes. So some real specialists in gruesome activities that our operatives have to clean up. We're typically on site within 4 to 6 hours. It's a really powerful proposition for our clients throughout Mainland GB. And then we've got all the way through to the recurring revenue streams. So typically, that's a periodic heavy-clean of both the internal and the external of rolling stock. And ultimately, is to bring the standards of that train back up to how it once looked when it left the manufacturing plants. And alongside that, we've got high-level cleans, pick cleans and depots and obviously train station deep cleans as well. So just on the back of that, the work that we undertake have plentiful value and that's the reason that we're valued by our customers and the reason that we operate at good margins. This was in summary of that slide, we're a specialist business. We've got some strong customer relationships, reoccurring revenue, and some good margins. So I'm going to hand you over to Andrea now. She will give you an overview of the results ended September '21. Over to you, Andrea.

Thanks, Shaun. Can we move on to slide, please? Thank you. So you can see in the bars on the slide that you can see just now that there's been a significant movement year-on-year across all 3 measures of revenue, gross profit, and EBITDA. First point I want to make, really, we completed our acquisition of Fidelis at the end of March 2021. So these figures include 6 months' worth of Fidelis' results. So that is a significant reason why there is such a movement across all these measures. We did also want to communicate that as well as the impact of the Fidelis acquisition. We did a bit of work to compare year-on-year changes across both companies. So we looked at some historic Fidelis data and compared it to the full year FY '21 as if they've been part of the group for the full financial year. And across both companies, we've had 20% organic growth in revenue and 21% in gross profit, also a big change in EBITDA or organic growth of 59%. We have now in FY '21, we've got 73% approximately of recurring revenue during that period. As Shaun previously mentioned, Fidelis was an attractive target company for us because of its high proportion of recurring contract business. So I predict that a year from now, when we have a full year of Fidelis' figures in the mix, that percentage of recurring revenue should increase. I'm going to send you back to Shaun for a moment just to talk about some of our successful contract wins during the year.

Andrea. Thank you. Yes. So as Andrea has pointed out, we've had some important wins throughout the year. The first one and probably the most important one is a 3-year core vendor, specialist cleaning contracts with one of Europe's leading facility management companies. We believe that maturity that spend could be circa GBP 2 million per annum. So we were rubbing shoulders alongside the big boys on that one, and we managed to secure that very successfully. So we helped that client consolidate their supply chain from a few hundred down to just one core vendor within the specialist division. That was a fantastic result by the team. Next, we had a contract worth just under GBP 600,000 per annum, and that's maintenance contracts. So that's to look after a number of amenity sites, service stations in the southwest of England. It's a relationship that we had with the customer for a number of years, but the spend this year is significantly higher than previous, and that's a direct result really of our operations manager on the reactive side, being hands on and involved within that contract and senior stakeholders within that customer. So again, a great win. And then next, we had a 3-year contract win within school cleaning, obviously, through the Fidelis side of the business and the spend is around about $200,000. So again, a great win within that space. It's certainly an area of focus that Fidelis is very strong within the education sector. And on top of that, we clearly had some smaller wins, which we haven't been able to announce within the rail sector, the facilities management space and also housing associations. So back to you, Andrea.

Okay. Thanks. Could we move on to the next slide, please? Thank you. So I've just broken down our revenue into our 3 main business sectors that Shaun has already referred to. So firstly, contract maintenance. So this represents a regular defined work where we have a traditional contract associated with it. So the contracts might be for a specified period of time or a specific total amount of money. So this could be a whole variety. It could be a contract for cleaning a school for the next 3 to 5 years. Or carrying out a deep clean program in a hospital over the next year. Secondly, our second segment is contract reactive. This is where we have a framework agreement with the customer for certain defined services at agreed prices. So we never know exactly in advance how often the customer is going to call on us for those services. Typically, we have contracts with police forces, facilities management companies and the judiciary section. So we may get called out several times a day by the same customer to a variety of sites or it may be a couple of times a month. So although this revenue is unpredictable in nature, it does recur. And given that we've had many of these contracts for several years, there is a pattern, and the revenue does recur. So both those categories, we count in our recurring revenue category. Thirdly and finally then is ad hoc work. We do ad hoc work for our existing customers who may have a contract with us already, but they want us to do some one-off jobs, or it could be a brand-new customer who contact us. So all these jobs are individually priced depending on the nature and the scale of the work. And we don't count that as recurring revenue. So during FY '21, we had a significant volume of COVID-related work that fell into this category. But similarly, much of our traditional work as well, whether it's clearing void properties or getting rid of fly-tips. So you can see from the graphs, the growth, particularly in the contract maintenance and the ad hoc area. Obviously, much of that growth is due to the impact of the Fidelis acquisition. But again, as I said earlier, there is also organic growth across both companies. We've previously discussed that the contract reactive work has being the sector most affected by lockdown. During lockdown, the courts were sitting virtually rather than in face-to-face and police have been arresting fewer criminals. So there have been fewer prisoners to transport. So that area of the business has been impacted by lockdown. We are now seeing a recovery in that business at the start of the FY '22. So just in summary, really, across the sectors, we've demonstrated that the business is continuing to grow in each sector, and it's a mixture of our acquisition and the organic growth. Shaun, I'm going to pass back to you again, please.

Thanks, Andrea. So just moving on, please, Alejandro to 2021 on the next slide. Okay. So 2021, as you probably picked up, it was a strong year of sales performance. He had some really good key customer wins. And as discussed on this platform before, we're continuing to invest in the sales departments and the sales processes. And that's through our direct market in LinkedIn app back to our CRM system, and that's constantly evolving on a weekly basis, and that pulls and links back into our social media presence. And as a side of that, we've got a PR company, which we've been working with for 2 years now, getting us some fantastic mainstream media coverage, some industry-leading publication coverage and also got some brand exposure on the Ian King show on Sky News back in 2021. The inside sales piece, if we look at the business and the sales landscape today versus what it was before COVID, the whole dynamic change, as I'm sure everyone can appreciate. So the investment is within inside sales. We have just appointed a key recruit who comes into the group to Head of the Sales. So he's Head of Business Development, a guy by the name of [ Sam Haywood ], who's got a wealth of experience within the cleaning and the facilities management space. Recently spent 3 years with ENGIE. So he will work alongside myself in the 2 businesses, both for Fidelis and REACT to help build on that momentum that we've already got there. We've got some fantastic opportunities in the pipeline already. We're keen to leverage the cross-selling opportunities and the exposure that we've already got with the existing clients as well as new. So we're really on a mission now to push that one forward. As I said earlier, the integration of Fidelis has gone very well, very smoothly and successfully. Fantastic business, great culture. They've got some brilliant processes in place. And we've mixed really. We've taken best in practice from elements of the Fidelis side of the business as well as some best in practice processes from the reactive side of the business and we've more of them together. So that's gone very, very well. Just as important, revenue and profit has continued to grow since we completed the acquisition back in March '21. And we had GBP 1 million per annum win within the health care setting that was awarded as a direct result of our increased size and strength as a group. So in summary, we've had some strong organic performance, which is augmented by the successful acquisition of Fidelis. So moving on to post period update. Please Alejandro the next slides. Thank you very much. So post period, you would notice a number of contract wins. First week in October, we had a contract just under GBP 200,000 per annum. It was a 3-year contract within the hygiene maintenance contracts or recurring revenue streams within the education sector with an option of a further 3 years. So that was through the Fidelis side of the business, a fantastic win. A couple of weeks later, mid-October. We had a contract for just under GBP 0.25 million of specialist deep cleaning work within the rail sector. Again, that was initially for a 25-week period, which takes us through to the end of March. However, we are having discussions with that client at the moment what the future has in store for us beyond March, so we're anticipating that hopefully, there'll be some more business there. Next, we secured a specialist cleaning contracts within the housing association sector, anticipated spend to anywhere between [ GBP 200,000 and GBP 0.25 million ] a year. Probably just a good point us to pause and give you a little bit of background as to how we secure that. So it's an existing client for Fidelis deal with and have before we did the acquisition in Birmingham. And since we completed the acquisition, we leveraged that relationship that Fidelis had. And we used through the reactive side of the business, went after another region, which we clearly secured. So a fantastic example of cross selling across the larger group. And then next, in November, mid-November, we had a specialist cleaning contracts clean within the rail sector. Again, a customer that we've dealt with for many years, really value what we bring to the table and our proposition and how quickly we can respond and solve out their issues. And that initial commitment was for GBP 150,000, again, takes us through to the end of March, but we are having discussions now and we have been for the last few weeks at what the future looks like beyond. And last but certainly not least, announced in January this year through the Fidelis side of the business, as I said earlier, GBP 1 million a year contract for 5 years within the facilities contracted in a health care setting, and that's for ongoing contract cleaning work all year round, 365 days a year, 24/7. And that, as I said earlier, that was a direct result of the relationships and the fact that we've now got size and strength for other groups. So in summary, we have had strong progress as a group. We've taken advantage of our growing size. We've cross-sold opportunities, which has been brilliant, and it's added to our brand recognition and our brand exposure. So moving on, please, Alejandro to the next slide. Okay. So we got strategy really, I guess, remains aligned to the previous messages that we've had on this platform. Our aim is very much to become the GBP 800 within this space. Our aim aside to that is clearly to become the leading specialist of both contract maintenance and the specialist reactive cleaning business here in Mainland GB. We've proven as a management team that we can put the gaps; we turn the business around. We've grown organically again this year, which is a great result and testament to the whole team. And we've proven that we can complete and made an acquisition, very -- integrated it very well. And the M&A piece very much remains an important piece of the jigsaw. Mark has been actively built on a qualified pipeline of opportunities. And Mark, do you want to add a little bit of color to that?

I won't yet because there's actually several questions about this, so we can cover on the Q&A.

Brilliant, okay. Thanks, Mark. So yes. So in essence, our strategy is to continue to strengthen the reoccurring revenue streams and to continue our aggressive organic growth strategy. So moving on to the final slide and please, just to summarize. As I said, we aim to become the leader in the specialist cleaning and hygiene, cleaning maintenance space. Yes, we operate within a fragmented market. But as a group, we're driving and we're working with our major clients to help them consolidate their supply chains. And we believe as an industry, we're very much at the forefront of that. We've got some very strong customer relationships. We've got some good margins, as you've seen, and we've got high potential for growth. So 2021, like I said, was a strong year of financial performance, and we delivered both growth and profit. Thank you very much.

[Operator Instructions] Perhaps I can hand over to you, Mark, to read out the questions and give response where it is appropriate to do so, and I'll pick up from you at the end.

Yes. Thank you very much, Alejandro. To make sure the guys are on screen for everybody to see. So, yes, let me start -- I'll just literally go through the questions. The ones that were submitted before, I don't have the names of the contributors, apologies. But I do on the ones on screen, so I'll call those as they come through. So I'm going to handle a few of these and then pass off the others -- of to the others, Shaun and Andrea, the ones that are more operational. So the very first one at the block is, has the company any more plans to make further acquisitions in the near future? The answer to that is yes. As Shaun has said, this management team has been together for nearly 3 years. We turned around a dreadful performing business, but a business that actually had some terrific front operational people, customer-facing people, the customers actually really appreciate their work and effort in. But the business side of it was just not run very well. Andrea, Shaun, and the team have done a fantastic job turning that around. We've taken margins from low teens up to mid-30s in that period. And obviously, we've returned profit and generated cash. So we demonstrated that the team had to grow business organically. Shaun runs a very, very good sales team. And I think hats off to that team that they've been able to cope with the restrictions around sales that COVID and lockdown brought. Obviously, the next step for us to show we could scale this business to become a meaningful business and meaningful size was to demonstrate that we could do the right sort of acquisitions. I'm the one that spends most of the time looking at what's available so that I don't disrupt the team from running the operational business. They get involved as soon as we found something we feel is qualified. And Fidelis took 1 year for us to find, and we looked at over 30 companies before choosing that business. Great business that we found, great deal that we did and not only getting the deal done, but actually then integrating it, culture has been merged, their culture is very similar to ours. And we've got growth there, and long, we believe will it continue. You've also got cross selling, which as a sort of a sales and marketing person myself, I can tell you is never easy, and we've got that working and working very, very well. So a long way around of me saying to you, the time is now right for us to augment our growth strategy with acquisitions. We have been looking harder over the last 3 or 4 months. We've wanted to bed in Fidelis to make sure we could demonstrate our capabilities there. We've employed the help of BDO to help us in our search and we have got a lot of opportunities that we have been running the slide rule over and a small handful of those kind of met the qualification. And the key qualifications to help you understand our strategy here. We do want to be extremely careful. We want to replicate what we've done with Fidelis. So the first one is that they've got to be strategically important, i.e., they're going to help us deliver on our strategy. And Shaun spelled out our strategy, so I won't spell it out again. The second thing is that you need to be earnings enhancing, which I think the sort of deals that we're looking at will be -- and will be handsomely so. And then the third thing, which I think I know is the greatest importance of our investors, and that is that they will be immediately earnings enhancing. And we've demonstrated that with Fidelis that is immediately earnings enhancing. And that's what we will look at. Those 3 qualifiers have to be there before we move forward. And then it's a matter of how do we structure a deal that makes good sense and creates good value. So hopefully, that's a full answer to the question. Yes, is the answer. We do have plans to make further acquisitions in the future. Now I know there are other questions that are associated with that later on, and I'll tackle, or we will tackle some of those as we as we step through. I've kind of given you a little bit of a hint to the answer to the second question, but I would ask Shaun for more comment. Question 2 is, what are your growth plans for the next 3 to 5 years?

So I think we touched on it in the deck, but we've got a momentum now within the sales. We've got a pipeline of the sales. So just to turn on the rate ]. Anything that we've done within the sales processes from CRMP or recruiting to marketing has helped add things into the mix. So from us, really, it's just to continue that aggressive organic growth across the group, both on the Fidelis side and the reactive side and further acquisitions as and when we do them. We've got things. I think we've got slick system in the background that we can port into every piece of acquisition that we do on the sales and market and piecing it works very, very well. And as Mark said, M&A remains an area of focus. We do want to grow accretively and add earnings and handsome deals to the mix.

Absolutely, Brilliant. Thank you, Shaun. One for you here, I think, Andrea, Shaun may be able to add a little bit to it. But I think that we've tackled this sort of question before. What risks to the business do we anticipate over the next 12 months, i.e., supply chain issues due to Brexit? So I think the key -- our business cost is people and a bit of cleaning equipment. What's our answer to the challenges that we're facing, or we will face?

Well, we have a variety of teams in different parts of the country. So the impact of Brexit is different for each of those teams. Where possible and in a lot of our contracts, it's built in that there will be wage increases annually and the contract rate increases in line with those national minimum wage increases. So that allows us to keep up market rates with what we pay our staff. We haven't had issues so far with recruitment. We've carried on being able to provide staff. And I suppose we try and look after our staff and keep communicating with them so that they want to stay with us.

Yes. Shaun?

I think it's important to add as well, Andrea that if we look at the reactive side of the business as opposed to the contract maintenance, we typically pay our operator is a lot higher than industry standards, and retention is brilliant. We've had people who have worked with us for years. But typically, these guys can make anywhere between GBP 30,000 and GBP 40,000 a year, granted they were incredibly hard for it, and they do with some horrific and trying situations multiple times on a daily basis. But we do have a good team culture here. Everyone goes above and beyond, and everyone has a direct line into Andrea or myself and certainly the same with John and everyone on the Fidelis side of the business.

Yes, I'd like to add to that because one of the things we noticed when we were looking at Fidelis was they had a particular saying that resonate with me from work I've done in the past and certainly is true where we are now and that was that they felt they ran the business with 2 customers, the paying customer, and the customer the business paid. So in other words, not just the customer that we service, but also our colleagues that actually do the work. And that in of itself, I mean, it's just words, but do you then see it presented in how they operate and then you recognize why they are a successful business as, indeed, you've managed to make reaction now or the reactive side of the business and why staff stay around, and they deliver the service that they're committed to. Okay. So hopefully, that's answered that one. What I would say is there's a question online today that I think Andrea has just answered, which is from Peter D. It says you must be seeing staff cost inflation. Are you able to pass these extra costs on to customers with multiyear contracts? And you've just summarized that, Andrea, haven't you, that there are in-built into the long-term contracts the ability for us to increase the contract value through increases in employee wages costs.

Yes. That's right.

Brilliant. Perfect. Next question is -- and I'll take this one, Andrea, you might need to help me though. The Fidelis acquisition has been extremely successful. So there's likely to be up to GBP 3.05 million of deferred consideration payable in cash, including GBP 700,000 for the year just finished and GBP 2.26 million for the year to September '22, assuming EBITDA targets are met. Given REACT had only GBP 600,000 net cash at the year-end, when are these amounts payable and how to REACT intend to pay? Are there bank facilities in place or might the vendors accept chairs instead of cash? So let me remind you of the actual deal because this is quite important, not just for this deal, but also, it's a structure that we like for a variety of reasons for future deals. First of all, the deal was done at 4.75x earnings, we should add that one of the attractors that made that price probably just to change a bit higher than we might otherwise have normally paid is the fact that they actually get paid by their clients before they actually pay their staff in most of their contracts. It's a cash-generative model. There's almost negative debtor days in reality, not technically, but in reality. So it's a very cash-generative business. So that's the first thing. We paid GBP 1.5 million upfront and GBP 200,000 worth of equity in the enlarged business. In shares for which the people that took that equity are locked in for a minimum 2 years with a hard lock-in and soft lock in thereafter. We then had an earn-out provision for this year. Oh, sorry, I missed the point that we also paid GBP 0.5 million worth of deferred from that initial consideration, and that was paid in December. So that's been paid. The suggestion that there may be another GBP 3 million to come is technically correct, but practically probably not likely. The way the deal is structured, and it's not for us to judge on how people get their tax advice when selling a business. But at the end of the day, the cap was set for the deal based on what you might call a big audacious goal, the vendors wanted to go for GBP 1 million worth of EBITDA this year in their earnout year. And we may -- we were at pains to say that this was just their goal, not our forecast. They have grown. They will continue to grow, and they will do very well, but we're not going to forecast and we're certainly not going to comment on the forecast of what they will do, but it won't be GBP 1 million worth of EBITDA. Of that, we're pretty certain. So the deferred consideration will be less, and that deferred consideration will be paid then once confirmed with an audit that consideration will then be paid in 4 installments over the following 2 years. We paid the last sum; I think it's in March 2024.

That's right, Mark.

And so we've looked at it. That is correct, Andrea?

Yes.

Yes, brilliant. And therefore, we -- when we were putting the deal together, look at it in terms of cash flows, our own forecast, our own generic forecast, I know we're in the middle of pandemic. And therefore, that was a bit difficult. But we kind of looked at it and felt that it was an element of comfort that we could afford the deal from -- within our own cash resources. And we said as much in the last 2 meetings that we've attended; this will be funded through our own cash resources. Now we do have, and we began publicizing this. We do have invoice discounting facilities in place that are there to mitigate any risks along the way so that if there are challenges, be it short term or not, that we can easily cope with that by dipping into what is a very easy to use pretty much risk-free element of debt with no covenants. So that's the answer, basically. Yes, we've got enough cash. We don't need to use any more shares, not to the vendors or anybody else. And the outlook is looking bright and rosy. So hopefully, that answers that one. Is there anything I missed there, Andrea?

No, I think you've covered everything. Thanks, Mark.

Brilliant. Thank you. We're trading well during the COVID epidemic. You have some -- this is one for either of you actually. You have some large hospital contracts, will any of these contracts be affected with COVID finishing? And are these hospital contract renewable on a yearly basis? What don't you take it Shaun?

Yes, I'll take that one, Mark. So the short answer is no, they will be affected if COVID disappears. They are, as I said earlier in the deck or the presentation that the work very much in the hospital sector is reoccurring, it's a deep clean or a periodically. So it's to ensure that the hospital trusts remain compliant with their infection control. Yes, there has been elements that's fallen into the ad hoc, as Andrea mentioned earlier, where we have done the odd COVID-19 contamination, either of the ward or a vehicle or something like that. So that has had -- some of the revenue has gone into ad hoc and that obviously will go away if COVID disappeared overnight, but it certainly won't affect the contracts that are in place at all. No.

So absolute clarity on that, Andrea, is that the revenue people see in the contract maintenance side is just that any COVID-related work in the hospitals will have been in the ad hoc side.

That's right.

Brilliant. Over the last 6 months or so, you have won and announced about 6 new contract wins, I think it might be 7, but anyway, any of these do you believe will be repeat business and guarantee income over the coming years. Shaun?

Yes. Good question. So as I said again in the presentation, we are having discussions of what the future looks like. So we very much see this as a, I guess, the thin end -- thin edge, sorry, the thin end of the wedge. We are looking at what the future has installed, and we are having in-depth conversations with clients. So I've obviously got to be careful at what forecast they gave. We're confident that we're adding to that pipeline, and we're confident that we're in a good position to extend those beyond the current end date of the contract.

Yes. I mean some of them, like the highways contract and the more recent extra care contract, those are contracts that are already stated 3 years with an option for 2 more, and extra care is 5 years with another option beyond that. So they're already recurring revenues. I think the key thing is that we view and as part of our strategy, we view the REACT part of our business as the sharp end of the spear gets us in with a customer demonstrates our true value. And then it's the relationship we build, that trust and continuity of delivery that brings about the sort of expand into other contract opportunities. So these -- every single one of these contracts are with customers where there's more to be had. And I guess it's also worth adding, something we haven't mentioned more recently, but we certainly did to begin with, and we've demonstrated what we can do here. And that is, in our business, there are probably upwards of 30 now companies that spend over GBP 1 million a year, if not more on the services that we can deliver. Now we have demonstrated with 5 or 6 of those that we can move from having a fraction of that spend to some of most of, if not all, of that spend. And therefore, just within our own customers, there is a massive opportunity to expand our business, which is what we're working on. And these contracts are an example of that. That's before we look at the rest of the opportunity that sits out there. How is your business affected by inflation? Are you able to mitigate these increasing cost of labor for cleaning? I think that was from something who's called Anish. I think we've answered that in the previous question by Andrea. The contracts have got built in protection for us to be able to increase the costs. Andrea, one for you. Gross margin has shrunk year-on-year. Do you foresee challenges in maintaining margins or see the opportunity to expand them going forward? That's again for Anish.

Okay. So in the past 3 years since the current management team has been in place, margins have increased from what they were, which was kind of mid-teens to over 30% on average. We operate with a variety of margins depending on the type of work. Long-term contracted work is lower margins, and our ad hoc work is at the other end with high margin, sometimes very high margins. So our margins -- the overall average margin for the year is very much to do with the mix of the work we have during FY '21, we've obviously integrated Fidelis. The key area it works in is within contract maintenance. So that incorporating that business has brought down the average margin. We want to have recurring revenue. So that comes with associated lower margins, but we will still be pursuing ad hoc work, wherever we can with higher margins. So I think in terms of the future, we anticipate our margins being in the range of 25% to 35%. But until the end of FY '22, I can't really say what that average margin is going to come out at.

Yes. That's a very good point. I think it's also just worth mentioning that we don't want anybody to run away with the thought that we're all of a sudden going to go after lots of low-margin contract cleaning. That's not the case here. Fidelis operate in the upper quartile of what they do, their margins are strong compared to a lot of people operating in that space. Their whole ethos is this is the right price. This is the value we deliver. And if the customer wants to buy something cheaper, they can and sometimes they do and when they do, they don't get what they expect and they come back. And the customer sort of retention for Fidelis is very high as a result. So we're not going into the low-ball market. We're not going back to single-digit margins in that space. We're very much looking at more discerning customers in education, in health care, in the government sort of backed logistics and transport and the rail and so on and so forth, those sorts of markets that we're particularly interested in. Right, we're on the final stretch here now. So coming back to those that have been posted today. So I'm just use my hands on the screen because I'm passing through the question. So William W -- so Bill, sorry, Bill W asked, what is the revenue guidance for the current year, please? Bill, there is a forecast out there. It's issued by our NOMAD broker, which is LMB, it is available on their site. When we post the answers, we will make sure the link to that, that forecast is up there. Just broad brushed though for the benefit of the audience. Andrea, can you remember what the revenue is on their forecast for this year?

Yes. The revenue is just under GBP 12 million for FY '22, and adjusted EBITDA figure of just over GBP 1 million.

Brilliant. Thank you. Okay, Malcom R asks, if the 3-year contract win with the European entities, this is a large GBP 2 million contract and to the -- is U.K.-centric, will it lead to Continental work? We're very clear about our strategy, aren't we? I yes, Mainland GB is where we're focus, yes.

Yes, exactly, yes.

Yes. And there's no requirement from the customer. This is not an industry really where I think the customer sees any value in going cross border in that respect. So the answer to that is no, no European plans. What was your revenue from COVID work? And what is your best estimate of revenue foregone due to COVID on a -- this is from Paul L, on a versus 2020 basis and an estimate of lost opportunity from growth? I think we could analyze this -- analyze this to death, actually, but it is pretty much saying it's sort of [ 6 and 1.5 ] don't we, Andrea?

Yes. I mean we can measure the ad hoc revenue that we've processed from our COVID work and it's in the region of GBP 800,000. To estimate...

That's about 1/3 of our ad hoc work, which is typically what we did last year. So the rest of it is growth, and that's a substantial growth in non-COVID work.

Yes. In terms of what work that was paused or delayed, it's not that dissimilar to that figure as an estimate. So really, there's been ups and downs in the year, but I think overall, the COVID impact has balanced out pretty much.

Yes. Yes. I think that's my sentiment or our sentiment as well. I think the one thing I will say is, look, COVID has been a terrible dreadful block on the landscape for many people and many things. So it's difficult to make positive comments from. The one positive thing I think you and I would agree on Shaun, is that it's accelerated our name into the space with a lot of customers, we probably would have taken years to reach, and now we've reached them. It's about expanding our services with them, isn't it?

Yes, very much so. We've never been a COVID player. But as I said, the main positive to take the -- I guess, one of the few positives to take out over is it's accelerated that relationship fees with customers. They have used us as almost like a consult to this kind of go to, to help deal with their issues. And I know Fidelis has done something similar as well. And that's one of our USPs as a group, we're very different to the big boys out there who just do bids. We build on relationship and the expertise that we've got in book side of the business. So very much so, yes, it's increased that relationship piece without a doubt.

Brilliant. Question from Mark J, are you planning on making any further acquisitions this year? If so, how are they likely to be paid for considering that your cash balance is expected to be lower this year. Hopefully, Mark, what I've done is give you an explanation of how we structure deals. We talked about the fact we've got a pretty much unused invoice discounting facility. We've not got any debt. There's a whole range of things. And I think it just depends on the deal and we're going to have to look at it on a case-by-case basis. But I'll go back to the point that I made earlier, and that is any deal that we bring forward will have been seriously tested and we'll be there to be both accretive, i.e., creating much more value than it costs and earnings enhancing, immediately earnings enhancing. So hopefully, you understand it's not a question we can answer with any precision at this moment in time but can give you that general feel. Rick T, this is one for you, Shaun. Who are your biggest competitors in your markets? What do you think your total addressable market size is? I mean, the last part of that is not easy to answer. But who are the competitors? There's both ends of the spectrum really, aren't we?

Yes, they are. I said it earlier, we operate within a fragmented market. So you've got the big boys who the likes of Mitie and Interserve and obviously, they're part of the same group now. You've got [ ISF ] people that are -- but obviously, we get asked to do work for sometimes all of them because we are at the sharp end for the specialist side on the reactive side of the business. And on the Fidelis side of the business, they can be going up against local companies or larger. It is -- it's so fragmented and the addressable market is huge. It's really hard to put a figure on it.

Yes, because it's everything from mom-and-pop shop, a couple of people -- yes, mom-and-pop shop, who might do something really, really well in a specialist area. There are competition for that particular piece of work in a particular location. But nobody's got the breadth of cover in specialist work and the response times nationwide that we have at the moment. And it's difficult to put together. So there's a few barriers to entry there. On the contract side, again, market is huge. I mean, just to look at the combined value of the cleaning and hygiene work that's done by all the soft services work it was done by some of the largest service providers out there like Sodexo, Serco, Mitie, Rentokil, PHS, OCS, there are huge companies out there. Most of them doing over GBP 1 billion of revenue. So it's a massive market for us to go at. So I guess we should apologize for not having done the desk work to say exactly what that markets were. But to be brutely honest, I don't think our size, we need to, to say that we can grow tenfold, twentyfold quite realistically, the market opportunity is there. It's about how we execute really. So Rick, I hope that's answered the question. Okay. Let me go to we go down here. Trying to look at -- there are a handful of questions here that we're going to have to take offline and decide whether we can answer them or not, they're very detailed. And I don't want us to get into trouble for saying something that we shouldn't. But I will say we're hiding nothing. Everything is in the annual report. So Martin asked us 2 questions here, one of which is that we haven't reached the half year yet. So what's cash balance at half year-end. Well, we're not there yet. Our half year is end of March. Two is, is staff recruitment difficult? Just -- I mean I know we touched on this earlier, but staff recruitment, Shaun, in 2 halves. One is the specialists. The other is the people that work in some of our regular maintenance contracts.

Yes. So if we look at the regular maintenance contracts across the group, we've had isolated issues where it tends to be in geographical, I guess, geographical hotspots where perhaps they're out on a limb. But certainly, nothing like some of the businesses out there like you said Sodexo, the Mitie. We're fairly robust in the hospitals within London. I know Andrea touched on it earlier. And on the reactive side, no, we've had no issues there at all, thankfully. But we do know that some of our competitors, the big boys are having some issues with the boots on the ground, but I can't really comment on them.

Okay. All right. I think we're coming to the pretty much to tail end. I'm going to pull out some of the questions that Dave R has asked, but we're not going to answer them all, unfortunately, on a day because some of them are a bit forward-looking and probably shouldn't be answered in this context and a bit more detail. But let me try to pick out some of the ones that will help, I hope, give a bit more information. The first part is with full year Fidelis, what is the percentage of revenue you expect to be recurring? We answered that earlier to say it will be upwards of 80%, didn't Andrea? Yes. So it will be upwards of 80%.

Yes. So it's 73% for the year we've reported on, and we're expecting that proportion to be higher.

Shaun, we're to tackle this one as well. The major FM contract, the 3-year contract with a very large company, both you and I know well, has been slower to implement than expected. It does say what percentage do you expect to be in place by the end of H1 '22? And will it be fully implemented by the end of 2022? I ask you not to answer that specifically because that would be forward-looking. But I do think it's worth just touching on what were the challenges and why and what is now happening without -- obviously, we can't name the customer.

Yes. So the challenges -- when we secured the contract, as we said or as I said earlier, we've this customers rationalize their supply chain from over 400 down to 1 within the . And some account directors and account managers within our customers have been dealing with threading the sheds or whoever is for, in some instances, up to 10 years. So their embedded relationships, they used to picking up the fraud speaking to these people. So that was the first issue. Now things have moved on a little bit since then. So they've had a change in category managers. A guy who is heading up recruitment, we've had in-depth discussions. And basically, he's put in a system where 75% of their spend this year has to be with the core vendor. So basically what I'm saying is we're holding the account directors and account managers feet to the fire to ensure that the spend is being migrated across to the core vendors across the [ boat to fall off]. So yes, I can't comment on percentages or any because it would be a forward-looking statement, but I hope that answered your question.

Yes. What I would say is we've been very conservative in our guidance to LMB for forecast. Yes. Because we do understand these challenges, but we know the industry is driving at these sorts of changes and to put it into context, over 2,500 locations over 600 different suppliers all being consolidated to 1 can take time unless you're going to be really brutal. And obviously, it's the customer that's driving the process, but they are now getting more serious, which is great. Actually, Dave, I've just been reading your question. There are a couple we've already answered within your question. One was about Fidelis attaining their full revenue target. Can we pay the outstanding contingent consideration of cash flow? If they did, because they're cash generative, the answer would be yes. But we don't see them hitting that target. We're managing it all within our current facilities as we explained earlier. And then there was -- assuming no further COVID variants, what percentage reduction do you anticipate in ad hoc work for full year '22? What we said earlier that COVID was about 1/3 of the number, I think it was 2-point something odd million. And we -- GBP 2.6 million, we did GBP 800,000-ish, it think it might have been just shy of that in COVID. But ad hoc has been growing anyway and will continue to grow. It's more of the fact that we think the contract reactive business where the economy is starting to move again, people are going on trains more. People are ending up in the local jail more. That, that element part of our business is starting to grow back. So there's -- it swings and roundabouts. So Dave, I think we probably answered all of yours.

Mark, just on that -- sorry, just to add a little bit more on the back end of that. Within the ad hoc, we also have to remember that we had some opportunities that have just been put on ice or had been put on ice that are now coming back through as a result of COVID because people's focus was, okay, we've got that fly-tip, we've got this high-level clean to do, but actually, we just focused on COVID. So that's come back online, and that's where the momentum in the sales is coming as well.

Yes. It's a very good point. Just there are a few questions here, which I think we've already answered by answering previous questions. There's a question from Steve W, where do we get our supplies and chemicals locks from? Do these distributors all buy direct from the main manufacturers? Just a general question Shaun, answered. Do we buy wholesale, or do we buy direct from manufacturers?

It varies. On the Fidelis side, they've got a system set up with a supplier. So they've got a part where they go on in order. On the reactive side of the business, it's a mix. Sometimes we're buying direct from the manufacturers, sometimes we're buying from a reseller or a supplier.

Got it. Thank you. There are 2 last questions. And I'll take them, if you don't mind, and then you augment it, guys, if you think I'm missing anything. The 2 last questions actually are really good questions. Roland B, and it's not to say all of them weren't all very good questions. Relatively -- thanks team, very well, sorry, firstly saying -- thank you. Anyway, any views on expanding into adjacencies at this stage? And what it means by are we planning to move into pest control, harder FM services, fire safety, et cetera? Now I'll answer it to a degree. When we talk about strategy, we're focusing on soft services. Some elements of hard services are beginning to be bought by the same category managers. So I guess what we're trying to say is we don't want to go moving too far away from the category managers that buy services within our customers. Now pest control actually is bought from our -- the category managers we address, and we do pest control as part of our services as does Fidelis. And there are some other fire service like -- on fire safety if we don't do full fire safety suite. We do things like duct cleaning and within that, there's fire damper testing and so on and so forth. So we do have some. But I think the key here is that's not spread ourselves too thin. Let's provide all the services, the category managers we tend to work with need to buy, and that's really where there's more than enough growth as we were explaining here. Huge amounts of growth available to us, it's best about executing it. Is that agree, Shaun?

Yes, definitely. I think that was part of the strategy went off we've joined the business was -- we look to the business. So our proposition was probably a mile wide entity. Now it's the converse. We've laid the focused on soft services, the reactive to recur in the contract maintenance work, and that will remain very much an area of focus. Yes, there is some slight crossover with pest and as you said, the duct cleaning and the fire damper testing, but our strategy very much remains focused around those key elements for the short to medium-term.

Brilliant. Well, last question, we're on the hour, so it's 2:00. And so I thank all of those people that have been listening and submitting questions and are still listening, hopefully you still are. But we'll just quickly answer the last one. It's from Robert J. It says as the labor -- sorry, as the industry is labor-intensive. Are there economies of scale in growing the business? Or is it more just a case of having relatively fixed overheads while expanding? I think the fact is, as you can see from the graph we've been presenting over the last few periods, the operational gearing here is significant. Yes, we add a bit of revenue. And as long as it has good gross profit associated with it -- a good chunk of that gross profit drops to the bottom line. So scale is absolutely a feature here. And whilst it is labor intensive, by focusing on the areas where other people don't really want to focus or haven't got the skills to focus. We're making sure that we're being valued by our customers and what customers -- when customers value something, they will pay you the margin for it. When they don't value it, when it's a commodity, they won't. And we're focusing on things that we know make a difference. Anyway, I'll pass now back to Alejandro, and thank you again for your questions and for listening.

That's great. Firstly, thank you to the team for being so generous with your time. I think you actually managed to address all the questions you can from investors. And as Mark has already said, the company will review all questions post today's event, and we will publish those response on the Investment Company platform. [Operator Instructions] Shaun, could I just ask you for a few closing comments.

Yes. Thanks, Alejandro. Yes, I just want to thank everyone for taking an hour out their time on a Thursday afternoon to listen to the presentation. I hope it was informative. If you're an existing holder then thanks to your continued support. If you're not, then hopefully, we've answered the questions, you'll get -- thank you.

Thanks once again to the management team for updating investors today. [Operator Instructions] On behalf of the management team of REACT Group PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.