REACT Group PLC (REAT) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the REACT Group PLC Annual General Meeting. [Operator Instructions]. The company may not be in a position to answer every question received during today's meeting. However, we will review all questions and publish responses where it's appropriate to do so. I'd now like to hand over to Chairman, Mark Braund. Good afternoon.

Thank you, Mark. Good -- yes, it is afternoon, midday. Hello, everybody. As we have done before, AGM is very much a statement you'll have experienced, if you've watched us before that we're very free formed in terms of our normal presentations and Q&A. Today, unfortunately, I have to read. So it's going to be a little bit monotone. Apologies for that. I should also mention that this is a physical meeting as well, and I'm pleased to say we've got 6 other attendees. We have 3 shareholders -- 4 shareholders in the room, which is nice. Nice to see and maybe hopefully next year, we'll have a few more. So I'm going to begin the reading. I say apologies that it's a little bit monotone, but forgive me, that's the process. Okay. Ladies and gentlemen, I'd like to welcome you to -- you today to the company's Annual General Meeting. I'm Mark Braund, your company's Chairman, and I'll be chairing this meeting today. Thank you very much indeed for making the effort to attend today's meeting. The notice of Annual General Meeting was issued on the first of March 2022, and due notice of the meeting has accordingly been issued to the company's members. We have a number of other shareholders in attendance at this meeting via the Investor Meet Company platform. But as set out in the letter from the Chairman of the company, which accompanied the notice of the Annual General Meeting, none of them will be able to vote on the matters to be considered at this general meeting. There's also a number of people, as I mentioned earlier, attending this annual general meeting in person who are not members of the company. There are 2 here, including certain of our advisers, they're both from our advisers, actually. Unless anyone has any objections to the attendance of such nonmembers, I should continue the formal opening of the meeting.

You're okay, you're safe.

No objections yet. Right. Quorum. The quorum for this meeting is 2 members present in person or by proxy. Having checked the number of such persons present, I declare that a quorum is present, and I further declare the meeting open. Voting. Before proceeding to the business of the meeting, I'd like to remind you that methods of voting at this meeting. Resolutions will be decided on a show of hands unless a poll is demanded in accordance with the Articles of Association of the company before or on the declaration of the result of the vote on a show of hands. On a show of hands, every member of -- or corporate representative who is present either in person or by proxy, has one vote and on a poll, every member or corporate representative present in person or by proxy has one vote for every share of which he or she is the holder. A poll may be demanded by me as the Chairman or by at least 5 members or their proxies, having the right to vote at the meeting or by any members present in person or by proxy and representing, in aggregate, not less than 10% of the voting rights of all members having the right to vote at the meeting or a member or members present in person or by proxy holding shares in the company, conferring a right to vote at the meeting, being shares on which the aggregate sum has been paid up equal to, not less than, 10% of the total sum paid up on all the shares conferring that right. With your permission, I propose that we take notice convening -- take the notice convening the meeting as having been read. Is that agreed? Yes, everybody's agreed. Questions. By way of a reminder, questions can be submitted at any time during the Annual General Meeting via the Ask a Question function on the Investor Meet dashboard, but I won't come to answer or begin answering any of them until -- after I finish the complete statement. I'd now like to introduce the Board. You have Shaun Doak, who is sat to my left. He is the CEO of the company. We have Andrea Pankhurst, who, due to a COVID positive test result in the last day or 2 is sat at home, but is on screen. Hopefully, you can all see her, apart from people in the room. And I also have Rob Gilbert here in person, who is one of our nonexecutive directors; and Michael Joyce is joining us via the IMC platform as well. He is the other Non-Executive Director. Before starting the formal proceedings, I'd like to read out a statement on the trading the year that was released to the market by our regulatory information service this morning. That statement read -- thank you, Mark. In the company's results for the year ended 30th of September 2021, published on 31st of January 2022, the company noted that it had entered the 2022 financial year with a positive outlook following a number of contract wins during the first half of the year, some being material with long-term contracted revenue, further strengthening the company's business model. The company expects to see the benefit from these awarded contracts materialize as they continue to be mobilized during the second half of this financial year. In addition to the contracts announced post year-end, the company expects to continue the progress and contract win momentum and has a strong growing pipeline of opportunities with both existing and new customers. The Board is confident that the near term and -- sorry, the near- and long-term outlook for the group remains positive. Okay. So back to the AGM proceedings. I would now like to start the formal proceedings of this Annual General Meeting so that we will proceed to vote on the resolutions, which I formally propose to the meeting. The full text of each of the resolutions is set out in the notice of the meeting, a copy of which you will have received. Okay. [indiscernible] I don't know who, but the number of -- Resolutions to receive and adopt the accounts. The first resolution is to receive and adopt the company accounts for the financial year ended 30th of September 2021, together with the Directors' report and auditor's report thereon. Are there any questions? I now propose Resolution 1, the text of which has been set out in the notice convening the meeting as an ordinary resolution. All those in favor, please raise their hands. [Voting]

We have 1, 2, 3, 4, 5, 6 here, Andrea 7 and Michael 8, and there's no -- nobody voting against. I hold 83,346,911 proxy votes in favor. There are no votes for the Chairman's discretion. There are 623,190 votes against and none withheld. I therefore declare the resolution has been passed. Number two, resolution to reappoint auditors and to determine their remuneration. The second resolution relates to the reappointment of Dains LLP as auditor of the company to hold office from the conclusion of this Annual General Meeting until the conclusion of the next Annual General Meeting, at which the accounts are laid before the company and gives the directors authority to determine their remuneration. Are there any questions? I now propose Resolution 2, the text of which has been set out in the notice convening the meeting as an ordinary resolution. All those in favor, please raise our hands. [Voting]

Yes. Same number 8, assuming you're raising your hand. Yes. Yes. Good. Thank you. I declare that the resolution has been passed. Resolution #3 is to reelect a director. The third resolution relates to the reelection of Rob Gilbert -- Robert Gilbert, who is retiring in accordance with the Articles of Association and being eligible, is offering himself for reelection at this Annual General Meeting. The Board is recommending that Robert Gilbert be reelected as a director. Any questions? Okay. I now propose Resolution 3 for the election of Robert Gilbert, the text of which has been set out in the notice convening the meeting as an ordinary resolution. All those in favor, please raise their hands. [Voting]

And that's everyone -- obviously, Rob's not voting from himself. So that was 7. All those against? There are none here. So I hold 83,345,268 proxy votes in favor, no Chairman's discretion votes, 624,833 against and none withheld. I therefore declare the resolution has been passed. Resolution #4 to authorize allotment of shares. We now come to Resolution 4, which relates to the authority to allot shares and grant rights to subscribe for or to convert any security into shares of the company. Before the directors are able to issue shares or convert any security into shares, they must first be authorized by shareholders to do so. The maximum number of shares that may be allotted under this authority is limited to an aggregate nominal amount of GBP 254,003.0125 being approximately 20% of the nominal value of the company's issued ordinary share capital, excluding treasury shares as at 28th of February 2022. The authority will expire at close of business on the day falling 18 months after the date of the passing of this resolution, if earlier at the end of the next general -- next year's Annual General Meeting. Any questions? No. I now propose Resolution 4, the text of which has been set out in the notes convening the meeting as an ordinary resolution. All those in favor, please raise your hands. [Voting]

That is 8 again. And therefore, there are no votes against. I hold 83,000 -- sorry, 83,340,991 proxy votes in favor. No Chairman's discretion votes. There were 623,190 against and 5,920 withheld. I, therefore, declare this resolution as having been passed. Number five, resolution to disapply preemption provisions. The final resolution will give the directors authority to allot equity securities for cash without first offering them to existing shareholders in proportion to their existing holding of shares. This authority shall be limited to: number one, the allotment of equity securities in connection with the rights issue or other preemptive offer; or secondly, otherwise, the allotment of equity securities or sale of treasury shares to any person up to an aggregated nominal value of GBP 127,001.505, representing approximately 10% of the nominal value of the company's issued ordinary share capital, excluding treasury shares as at 28th of February 2022. The authority will expire at the close of business on the date falling 18 months after the date of the passing of the resolution or if earlier, at the end of next year's Annual General Meeting. Any questions? I now propose to -- I now propose Resolution 5, the text of which has been set out in the notice convening the meeting as a special resolution. All those in favor, please raise your hands. [Voting]

And that is carried by all 8 people again. So no votes. That concludes -- I declare that resolution passed. That concludes the formal proceedings of the meeting. And accordingly, I now declare this Annual General Meeting of the company closed. The results of the meeting will be announced to the markets through our regulatory information service and posted on our website as soon as practical. Thank you very much for attending. So that's the formal business. Let me quickly pause for a second. There are some questions appearing. And what we'll do is, as we have on this platform when we presented before, I'll coordinate the questions, and we'll try and answer all those that we are able to under the watchful eye of our NOMAD. So make sure we do it properly, not that we ever never do. But -- so I'm going to take questions from the audience on the Investor Meet platform first, and then we'll take some questions in the room if there are any.

The first question up is from Dave R. And we've actually got 5 questions from you, Dave. We'll -- I'm going to read them first, so everybody can know what the questions are. In the April 2021 announcement of the contract with a major FM company, you indicated it would take time to mature. How much of the work is now in place? And when do you envisage it will be fully implemented? So that question relates to the very large contract that we signed, which we have indicated will take time to mature. And we are making progress, but we are still nowhere near full implementation. The -- it's got logistical challenges for the customer. And they are trying desperately to consolidate. We know that they had 600 suppliers supporting 2,500 sites, and they've been trying to move to just 1 supplier, which is REACT. The great news for us was that we won an open and competitive tender having got to know the company and having them got to know us through some of the special skills that we deliver. But -- then when it came to them managing that community of managers, which I think there are about 315 downstream managers, it's proven very difficult for them to move on from localized relationships. Making progress, nowhere near where we want it to be, but it's still there. It's a 3-year contract. And the management of the company has changed and the new management that's come in has an even greater commitment to trying to make this work. It's just logistically a challenge for them. And we're working with them. We've invested a lot of time, effort and resource in helping them. We have an online and on-site portal specifically for their managers. We don't have absolutely everything. We're engaged locally trying to move it along as quickly as we can, but it's -- the fact of the matter is we're not anywhere near the GBP 2 million that we had anticipated, and we're holding the customer to account for that. You had previously confirmed that under long-term contracts, increased labor costs are recoverable. Are increased fuel and other costs recoverable? Andrea, you're on mute at the moment. Any comment to answer that in terms of increased fuel and other costs recovery? I know we've taken some action recently, haven't we?

Yes. We -- in the contract, there's a provision built in for annual increases, not really specifying if those are labor or other costs. So it's a matter of us reviewing our underlying costs and negotiating with the customer the exact rate that those are going to be uplifted by in each circumstance. So there's not really a general answer on that one.

I think the only real area where this comes into being an issue is the area we're trying to grow and are growing, which is the contract maintenance side, where we've got a fixed revenue or recurring revenue and obviously, fixed costs. But those are the very contracts we're talking about that have got these provisions within them. And also, I know that we have certainly across the Fidelis contracts, recently had an uplift in all contracts for this very reason. So that's the process, and it works. On the reactive side of the original core business, of course, we're pricing per job. So as prices go up, we price more. So it's going to be factored in. So this is not a big or a material risk issue for us because it's managed in the way we've just described, but I recognize why the question is relevant. Thanks for the AGM statement. And as you are now in the final week of H1, when you envisage you'll be in a position to issue more detailed trading update? Will there be an update broken out at this time? I think that that's just going to happen in due course. Look at the pattern of things in the past. We've made a statement. And I say we've got NOMAD in the room. The advice is that we stay with what we've said and hopefully that you can get comfort from what we've said. We've also announced a number of wins, and you can see exactly where we are from that perspective. So I'm not in a position to give you the precise answer you're asking for there, I apologize. But that is part of the process of operating within the regulations. Regarding yesterday's announcement, assuming satisfactory execution, do you envisage this will become a revolving or long-term contract? Look, again, we've got to be careful how we set expectations here. The answer is, this is a relationship we've had. We have a number of relationships that start off this way, where we get involved in very specialized work, and they open up -- that example I gave you earlier of the FM company that signed us GBP 2 million a year, scoped contract, that come as a result of doing this kind of work. So again, I can't give you a commitment or set an expectation, but I can say to you that's how we win our work by doing a great job on something that's really quite difficult, and they had a need on a regular basis. So obviously, we'll be trying to make sure that we're the ones that are going to continue with that work. Have any contract expiries not been renewed by customers? Again, I know we need to be careful from a regulatory point of view. If anything that was material we hadn't done, we would have announced it. We've got lots of tiny contracts as well as big ones. So I don't think we should be answering about the immaterial tiny ones, but I think we've got very sticky customers. Certainly on the maintenance side, they're long-term contracts, and they've been sticky. I think that -- I can't think of anything. Unless anybody else? Andrea? Yes, nothing material. So the answer to that question is no. So hopefully, Dave, that has helped to answer the questions that you've just asked. Right. message from Deon -- sorry, a message or a question. When you make an announcement about new contracts, it is seldom clear whether they are altogether new customers or perhaps continuation of contracts. Could you please make -- could you please, in the future, make it clearer? I don't think we are doing that deliberately, Deon. But if that's the impression, I will certainly with -- we will certainly, with our support of advisers make sure that we are crystal clear moving forward. We don't really reannounce things that are just a basic continuation. What I can say to you, for example, and it's probably relevant here -- I hope the wording of the announcement made it clear. But we announced earlier in the year the massive new contract that starts next week at one of our customers, ExtraCare. And we said in the contract that this was an existing customer, it had been for about 10 years of Fidelis. But the new element is that, that contract is now 4x larger than it was. So it's incremental. And so hopefully, we are putting the words out there that makes it clear. And apologies if we haven't, but we'll try harder. So thank you, Deon. The next one is from Mark. Mark G. You've announced 8 contract wins in the last year down to a value of GBP 150,000. Have you lost any existing contracts on that scale over the same period? We answered it just now. The answer is no. So that's all the questions from online. Are there any others in the room? And we, of course, will spend some time talking with you, obviously, with our NOMAD in play. But while I've got anybody online, is there anything you think the rest of the audience would like to hear? Or can I close the meeting? No questions. Okay. Well, I'm going to close the meeting. Mark, back to you. I think that's the end of the Annual General Meeting, and we are done.

That's great. Thank you very much to Mark and the rest of the Board from REACT for their time this morning and the AGM. Ladies and gentlemen, please do not close this session as we will now automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it will be highly valued and greatly appreciated by the company. On behalf of the Board of REACT PLC, we would like to thank you for attending today's Annual General Meeting, and good morning to you all.

Thank you. Bye-bye.