REACT Group PLC (REAT) Earnings Call Transcript & Summary

Good afternoon, and welcome to the REACT Group PLC Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question asked during the meeting itself. However, the company can review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Shaun Doak, CEO. Good afternoon, sir.

Thank you very much. Thank you guys for joining us. I'll just turn to the next slide, please. So my name is Shaun Doak. I'm the group CEO. I joined the business back in March 2019. I've been leading the turnaround in the growth story sense. That's enough for me, though, I want to introduce Spencer Dredge, who's just joined the business as CFO. So I'll pass it over to you, Spencer.

Thanks, Shaun. Hi, I'm Spence Dredge. I'm a qualified accountant. I just joined the Board, as Shaun said. I spent the last 20 years operating on or supporting businesses, including 3 years in corporate finance. Very pleased to be at REACT, and I'm looking forward to being involved in the next phase of its growth story.

Brilliant, and I am Mark Braund. Hopefully, the audience -- most of the audience have seen me before. I'm Chair. I've been involved with the company prior to being chair. I was brought in back in late 2018 and started the process of turning the business around by hiring Shaun and his colleague, Andrea Pankhurst. Back to you, Spencer, for the next page.

Thanks, Mark. So the slide here covering key KPIs. Headlines here are strong financial performance. The turnaround is evident by the last 4 years' growth. The profile of the group now is very different. We've got strong recurring revenues, strong margins, we're profitable and we're generating cash. Diving into the detail. Revenue, we've reported GBP 19.6 million for the year, which is 43% up from prior year. 87% is recurring revenue. And we've got a 59% full year average CAGR, which is cumulative average growth rate. On an organic basis, assuming that is free was owned during the comparative period, we've got 21% growth. If you look at the last 4 years' organic growth, we've got an average of 24%. Moving across to gross profit. We've reported GBP 5.2 million for the year, which is 61% up from last year. We have a blended gross margin of 27% across all the group services. And again, on a full year average CAGR, we have 56% growth. Looking at adjusted EBITDA, which is a measure we use internally, which is before acquisition costs, impairment of intangibles, share-based payments and other restructuring costs as well as interest, tax depreciation and amortization, we've reported GBP 2.3 million for the year, which is 133% up from prior year. We have a 43% gross profit conversion, and we've got a 3-year CAGR at 104%. We generated cash in the period. We have free cash flow of GBP 2.1 million, which is up from last year's outflow of GBP 1 million. We have a 0.21p adjusted EPS, which is up from last year's 0.13p. In summary, I would say that we've got good organic growth. We've got -- that's been complemented by strategic acquisitions. We've got robust recurring revenues, solid margins. We're profitable, and we're generating cash. So moving across the next slide. Income statement summary. This provides a little bit more detail than we have on the face of our income statement in the annual report and accounts. As a PLC, we report under IFRS, which is International Financial Reporting Standards. The full annual report has detailed disclosure. But for those who haven't read the full report, this summary might prove useful. As a management team, we track a number of key financial metrics. Adjusted EBITDA and free cash flow are important examples. Adjusted EBITDA includes operating admin expenses at GBP 3 million. The annual report income statement includes admin expenses of GBP 5 million. The difference here is exceptional items, which are typically one-off in nature and are transaction-related; share-based payments, which is an IFRS measure and is noncash; and amortization and depreciation, which are both noncash relating to acquisitions already made and fixed assets previously acquired. The slide also includes free cash flow, as highlighted to the side of our key KPIs of EBITDA. And that's another management KPI that we track regularly. This schedule works down to EBIT, which is the same as our reported operating profit and further down to profit after tax, which is the same as we reported in our annual reporting accounts. Hopefully, this schedule is useful to understanding the cash-based operating expenses and the underlying profitability and cash generation of the group. I'll hand back to you, Shaun.

Yes. Thanks, Spencer. If you move to the next slide. So look, those of you who have seen the story or heard the story before, apologies, I'm going to have to go over this again. There will be some people who are new to this. But equally, those people who have followed the story or have been investors, we thank you for your continued support. So REACT carry out specialist contract cleaning across the U.K., we're focused on markets with nondiscretionary requirements, typically complex demands and quite often over a nationwide fulfillment criteria. We've increasingly established a unique proposition in terms of our scale, our range and our geographic delivery since we got involved in the business some almost 5 years ago. But in essence, the business of the group is split into 3 divisions. So first of all, you've got the emergency decontamination piece, which is typically delivered through the REACT specialist cleaning business. So as the name suggests, it's emergency work, tends to be on site within 4 to 6 hours. It can be anything from a horrible fatality on the train, decontaminating that train to make sure that it gets back out into service before the operator get hit with fines, all the way through to hospital deep cleans, where we're on-site all year around. We start the projects, come to completion, then we restart it again. So that's the emergency and decontamination element of the business. Secondly, we've got the hygiene and maintenance piece. So that's what we call contract maintenance. This is predominantly delivered through the Fidelis business, which was the first acquisition that we did as a team, so almost -- well, almost 3 years ago now, 2.5 years ago. The business, as I said, is predominantly contract maintenance, so it's weaker revenue. Typical commitments from the customers within that business are anything from generally 3 to 5 years or there are some exceptions where we get 7-year commitment from the customer. And if you think standard janitorial cleaning, it's not too dissimilar, but we do operate in the upper quartile of that sector, so margins are higher. And the reason the margins are higher, the specification is a lot more involved. So we're very strong in the health care, NHS. We're strong in education. We're focused on the universities. And we're also strong in industrial as well. And then the third component is the commercial window and clad and clean business. And that's LaddersFree. So that was the acquisition that we completed in mid-'22. And again, similar to Fidelis, that's contract work, so it's recurring revenue. Typical commitments from the customers are 12 months, 3 to 36 months. So those are the 3 divisions within the business as a snapshot. The market that we work within is incredibly large. It's very fragmented, as we've said before. And our strategy remains focused on building out the recurring revenue -- or recurring revenue, sorry, and plus leading margins, and our aim is to have GBP 5 million plus of free cash flow per year within the next 3 to 5 years. So if we move on the slide over to our customers. Look, we work across a very diverse and resilient range of sectors. The requirements for our services, as I said earlier, is not discretionary. We got very, very low customer concentration, some 1,200 customers, 230 of them are deemed to be material. And we work with who is here of your blue chip companies, your large facilities, management companies. And obviously, that's underpinned by some smaller businesses as well. Some logos on the slide, just to give you a very, very brief snapshot of some of the logos that you'll probably be familiar with. So it gives you an idea of the customers that we work with across the all of the U.K. As we move on to look at REACT reporting segments in the next slide. So the business, as I said earlier, is split into 3 segments. So we've got contract maintenance, which I said is typically delivered through the Fidelis and the LaddersFree business; revenue has increased year-on-year 61%, up to GBP 14.3 million revenue. Our gross margin improved from the previous year, from 24% to 27%. And that's a testament really to: one, the work that the operational team have done; and two, the work that the sales team have done as well under Sam here when he was our group sales director. We've looked at the right opportunities. We've got a very robust tender review mechanism in place that we do weekly to ensure that we go after the right opportunities, that we focus on more specialist work, and therefore, we get higher margins as a result. As I said, the commitment in that segment there is typically anything from 1 year to 5 years, and a large proportion of our contracts are cash positive. So we get the cash before we pay it out. The second segment is contract reactive. So contract reactive is, in essence, when we're on a framework. And when I say framework, we're not 1 of 3 or 1 of 5, it is generally 1 of 1. Some of the customers that we're working with in this space, G4S, Circle, do a little bit with Sodexo in this space. So it gives you an idea of some of the customers that we work with. We've increased the revenue slightly by 12% from the previous year, taking that up to GBP 2.8 million revenue. And the margins have increased by 7% versus the 25 -- to 27% versus the 20% from the previous year. Now we've done that really by mixing up our model. So historically, we used to have our own operatives, which we do still have. But bringing LaddersFree into the mix and having that membership platform, it's allowed us to utilize part of the membership and also part of our employee base as well. So that's the reason why we've managed to improve our margins slightly. And the last piece is the ad hoc. So revenue, GBP 2.5 million. That's up 14% from the previous year. And the margins have actually gone down to 28%, to 26%. And that typically is because we've won large pieces of work within that segment. And as we said before, it's the tip of the arrow in terms of the sales, it allows us to land and expand. We're well differentiated in our lead offering, but it gets us in the door. It allows us to sell the Fidelis contract maintenance model and also the LaddersFree model as well. So we have to take a little bit of hit on some of the margins. So in summary, 1 of the same, we've had strong growth in recurring revenues margins once again. Moving on to the next slide with the growth. Again, we've had strong organic growth. We had another record year. So please forget that this isn't a flash in the pan. We've had 4 consecutive years of record years and growth. Yet again, we've delivered organic growth north of 20%. It's 21% this year. I'm not going to go into all of the wins that we announced, but I just want to pause and highlight that this is underpinned by loads and loads of smaller wins. Due to our size now, we've not been able to announce. The one that I'm going to talk about is the multiyear contract award, GBP 800,000 a year, 350 locations across the whole of the U.K. for a prestigious high-street fast-food chain. Just one isolated example of the group's cross-selling success. And this is a high-street fast-food chain that best in any major city in the U.K. If any of you that are based in London, it wouldn't be a surprise if you frequent for a coffee, a salad or a sandwich more than once during the week. Underpinning that, we've also had post-period announcements. We secured a 3-year extension for a big university in Birmingham, which was a customer of Fidelis, originally, when we acquired the business. Again, we've landed and expanded. We've added different services into the mix. So we do window cleans. We do some more high-level cleans. So delivering the services across all of the 3 divisional businesses. And we've almost doubled the revenue versus what it was when we took it over some 3 years ago. With regard to LaddersFree, the integration continues to go incredibly well. Culture very much aligns to the rest of the group. We have had some headwinds in certain sectors, partly retail. But due to the fantastic work that the sales team have done under Sam Haywood, as I mentioned earlier, we've got a strong track record of business retention, which is key, and also some new logo sales. In fact, probably a good point just to highlight some metrics underneath that. So when we acquired the LaddersFree business, we had circa 21, I think it was 21 national companies, our clients. We're around about 20, 27 or 28 now. So the sales team has done a fantastic job going after larger opportunities, large logo wins. But also, as I said earlier, brought in some smaller businesses and some smaller winners that underpin that success. So as I said, our growth is underpinned by customer retention or strong customer retention, so fantastic contract wins and some great cross-sell success. So moving on to our achievements. No, it's always been our aim here to become the leading specialist cleaning business in the U.K. Want to continue delivering -- margins and cash conversion. We said in our interims and at the start of last year that we were building our strategy around 4 key pillars. So that would scale through organic growth and selected acquisitions. We've proven that we can do that. We've had 43% revenue growth, 21% of that is organic. I've talked about the cross-selling success in isolation. We've got loads of stories that we can tell about. Some fantastic contract wins. Increase the recurring revenue stream up to 87% and cross sold. Second one, we strengthened relationships with customers and cross-sell, which I've just touched on that, and we've got some great examples of that across the group. We said we'd focus on markets where we have clear differentiation and access to high margins. Again, I've just talked about that earlier on in the presentation. We've increased our margins. So great work for the guys who have pushed the envelope and have been knocking down those doors with new and existing customers. And the fourth component is strengthen the recurring revenue streams to incremental long-term contracts. If you look in isolation where we've brought this business from to where we are today, when we got involved in the business almost 5 years ago, the recurring revenue was around about 30% on a revenue just over GBP 3 million. Now we're around about GBP 20 million, and we've got recurring revenue of 87%. So that's been an integral part of our strategy, to continuously improve the shareholder value. We'll pass you over to Spencer now, he'll give you a breakdown of the transition to the next phase of growth.

Thanks, Shaun. So in other stream, we've got a great business. It's contracted revenues, strong margins. It's profitable and it generates cash. It's challenged, however, by the manual nature of its operations. This is a transactional business. It's got a heavy paper workload. Basically, it needs systems and automation to scale efficiently. So we have plans underway to build a software platform. The immediate need is in LaddersFree, but we also believe other group services will be relevant to this platform going forward. Turning the slide. We are investing in digitizing workflows at LaddersFree. The plan is to invest GBP 300,000 in an MVP, which is a minimum viable product. It's a platform -- we've engaged a third-party software development house, and the project is underway. What does this give us? It gives us a job management system and a mobile application. The job management system schedules all client activities. It details what we're doing, where we're doing it, when, how. It deals with all the communications around that. And alongside that, we will have a mobile application. Our members are third-party independent cleaners that do deliver the services. The mobile application will help them understand what they need to do, where they need to be, specifics around the job, all the relevant details associated with what they do. And importantly for us, it will also verify the delivery of these services to the standards that the clients expect. Both of these systems will talk to each other, there will be workflows throughout. And ultimately, we will be driving -- billing out to clients and billing -- self-billing inwards from our member activities. Turning the slides. We delivered an NPV because we need to get something live in this business quickly. Where we are with the project is we've gone to the site of the third-party software company, has spent a number of workshops on site with the team. We've defined the technical and functional specifications. We've created the designs, the look and feel of the system, how it will operate. We've built the data models. We've kicked off development in -- for the technical architecture -- effectively, we're developed now. And the next steps being integration planning into Sage, which is our financial system, and into our banking systems, which is going to be HSBC. This is going to be built in Microsoft Azure, in the cloud framework. So we're using best-of-breed tool sets. And we're working to time lines where we hope to have a system, which we can test or go through user acceptance testing, in the early part of summer, with a view of launching it by the end of our financial year in September. So turning the page. Transitioning to the next phase of growth. We will continue to look for further consolidations in the group to achieve efficiencies. We've got an example of that, actually, with HSBC, where the current states of our banking arrangement is disparate. We're on a number of different banks and platforms. And what we're looking to do is consolidate that under HSBC, and we will get the effective treasury management processes that we need. And I guess we will also look for further rationalizations as we continue our growth.

Thanks, Spencer. Yes. So just carrying on from that. We're going to look at continuing to strengthen our management team. So just so everyone is aware. We've promoted within. So we've got David Rudge, who's worked with me for some 4.5 years as ops manager on the REACT Specialist Cleaning side. He's now a divisional head of LaddersFree. He's been brought in and or across to drive the revenue growth and also implement the right process and procedures. And he's working very closely with Spencer on this digitalization piece to make sure that we develop a fit-for-purpose system that gives the team the headroom capacity and, perhaps more importantly, to allow us that headroom to really grow the business as we feel that we can. We've got Chris Ryan. So Chris Ryan joined us almost 2 years ago. He joined the Fidelis business as sales manager, got a wealth of knowledge within the industry, very process- and procedure-driven. He now heads up the contract maintenance business within Fidelis. So he's been integral driver of the improvements, the efficiencies. He's been one of the main drivers of the business, doubling revenue since we completed the acquisition, and continues to work very, very well with the SMT, and we'll continue to do so as we move forward. And then finally, I mentioned it earlier in the presentation, Sam Haywood. He joined the business some 2 years ago, just over 2 years ago. He's now the group sales director and has been for the last year, doing a fantastic job leading the team, making sure that we go after the right opportunities, coaching and developing the team as we bring in new people. And very much aligned across the group so that everyone is not looking in silos in their individual divisions. We're looking at opportunities across the group. So doing a fantastic job leading from the front. In terms of finance, again, professionalized it, we've had some exposure to Spencer now. I think you'll agree that brings a wealth of knowledge to the business. He's been here. We've done it many, many times before in public companies. The level of MI that we've got within the business now is fantastic. Works very well with FMT. And then underneath Spencer, we've got just in Justin Fleming. So Justin Fleming joined us in the last 7 or 8 months as Group Financial Controller, working very well with Spencer and the rest of the finance team and also with the rest of the SMT to give us the information that we need to continue this fiscal story. We're going to continue investing in the sales and marketing. It's a constant evolving piece. We're always looking at ways to automate our marketing, ultimate our touch points, drive that ROI, improve our conversions, go after the right opportunity to really drive organic growth. We will continue to also invest in the sales team. So we will look to bring on the right people into the right division, as and when we see fit. And that's something that Sam is very much geared toward. And then the final component is reignite by M&A activity. We want to focus on accretive, smaller, medium-sized targets. So in summary, our strategic focus is around building out that GBP 5 million free cash flow per year over the next 3 to 5 years. As we move on to the summary outlook. So I'm not going to go through every one of these individually, but again, as I said it earlier on in the presentation. This has been a record year, again. The team have worked fantastically across the last year and continued to do so. We've just had a record Q1 in this year as well. And you've got to remember that Q1 for us is often hit with the festive periods in terms of the slowdown. So we booked a trend there. We've got a track record year-on-year growing aggressively, double-digit organic growth in what is a very fragmented market. If we look at snapshot isolation, as I said earlier on in the presentation, we've grown the recurring revenue from 30% to 87%. We've increased the margins. We've got very, very strong cash flow -- cash conversion, sorry. So we're now creating GBP 2.1 million of cash off an adjusted EBITDA of GBP 2.3 million. And as I said, we've had a record Q1. So we've had a strong year, we want to continue that momentum. It's continued in Q1 and beyond, now we just need to make sure that wily continue what we're doing.

Brilliant. We're on to Q&A.

Mark, Shaun, Spencer, thank you very much for your presentation this afternoon. [Operator Instructions] Mark, as you can see, we have received a number of questions throughout today's presentation. But please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end.

Thank you, Lily. Yes, there's so far, just over a dozen questions. So I'll start from the top. Now the first question, Shaun and Spencer, actually has been asked in different ways, 3 different times. The first one is pre-submitted, so we don't have a name for that one. The other one is question 5 from Frederick J. And question 10 from Paul B. So the question is, and I'm going to read the first one, because it's the same. Can you explain the review you are undertaking of the workflows and processes of the business? What has stood out to the new CFO, you, Spencer, that makes the review necessary?

I guess that one comes to me. Well, look, I think it's -- as we touched on this through the presentation. What we've got here is a very nice business. It's profitable, generates cash. It's got high margins. The ability to scale it efficiently is the challenge. And as I said, it's a transactional heavy business. And so -- and hopefully, that you can see the challenges there. The process we've been through has been quite thorough. Often, when you look at systems, there's decisions to make, whether you build something or you buy something. We've considered both. The problem with buying something is whether or not it's fit for purpose and actually answers the challenges that we've got. We've gone out to market and we spoke to a number of vendors. And in doing that, we've decided that, that's the way to go. We've selected a vendor that's been there and done this before for a similar business, but not necessarily the same as REACT, and we partnered with that business. And we're building a solution in our Microsoft ecosystem. So we're using the best-of-breed tool sets. And that's -- so that's the process and the rationale for it.

I think -- just to expand on that a little bit, I think that the digitization of the LaddersFree business is pretty much no-brainer, and we've said it needed to be done when we acquired it. But I think, just expanding on it a little bit, Spencer, we had a company that we started with one small business 4.5 years ago, turnover of less than GBP 4 million. We've added to it now, 2 businesses. We now have turnover of GBP 20 million. And we've had -- we've done that in a bootstrap way, and therefore, each business has its own processes, procedures. We've modernized a little bit as we've gone. But we've now got an opportunity to look at it more holistically haven't we? And I think that will -- that means that we'll be more efficient, more effective. We sell to our customers all of our product offerings, but we then have to go back and sort of manually manage some of the processes to make that smooth and easy for our customers. And it doesn't help in terms of billings and cash collection. And that's really the essence of this review, is trying to make sure that we've got something that is much more holistic for a business that's now GBP 20 million, that has ambitions to grow substantially again over the next couple of years. The second question, pre-submitted, so no name. Broker Singers have flagged GBP 300,000 to GBP 400,000 per year of higher cost investing in central functions, stroke the mainframe. We don't have a mainframe, but it's the sort of infrastructure of the group. He talked specifically to what this is being spent on. This is basically people guys, isn't it what Shaun's just been talking about. Is that right?

Yes. Yes, it is. Yes, Shaun has covered this, but let me just summarize. We're building out the senior management team. That's the leadership appointments that we've already done at divisional level. Part of that investment also includes finance, so my arrival, I'm your group FC. The previous CFO remains with the group, but on a part-time basis. And then there's been further investment in sales and marketing, whether it's heads or activities, but yes.

Yes, it's all about growing up. As I say, we have been bootstrapped, completely bootstrapped until about 6, 9 months ago. And the ambition for the company is to grow reliably and robustly from where we are now, and that means we have to inject a slightly different pace of both process and the team. So yes, that's the summary there. So that's question two answer. Next one was pre-submitted. The company recorded GBP 1.8 million in depreciation and amortization. And I think these numbers are actually wrong because the question was saying, GBP 409,000 of which was intangible assets. From which assets does the other GBP 1.4 million come from? So I think this is what you're trying to answer with Slide 3, wasn't it?

Yes. And let me provide the detail around it. So the GBP 1.8 million number is right, obviously, it's amortization and depreciation. The split between the 2 balances is GBP 1,643,000 of amortization and GBP 166,000 of depreciation. And I'll point you to bits of -- or the back end of the annual report and accounts, it might be useful. There's a note on -- Note 10, intangible assets note, but it details the amortization of intangible assets, and that's on Page 48. And that will reference that GBP 1.6 million number. And the following note, Note 11 on Page 49, the plant, property and equipment notes has a depreciation of GBP 166,000. And I think there's also a comment in the front end of the CFO report. In the section, it says intangible assets and goodwill that covers the amortization of intangibles.

Brilliant. Thank you very much. On to the next pre-submitted question, one for you, Shaun. On the 26th of April '21, there was a 3-year contract signed with a leading FM company. Consolidation between sites was slow initially. How is it going now? And is it being renewed?

Yes. Good question. Yes. So it's going well. We was slower to come online, as we talked about previously. But again, the work that Sam and his team have done to get some real traction with our customers has been fantastic. That's been underpinned by some clever e-mail marketing, that's been targeted at the senior stakeholders within that business. So we've got very much a 2-pronged approach to that. So very well. They've got a new category management come in, some -- probably 14, 15 months ago. You've got a good relationship with her. We have a regular review. And she's definitely fighting our corner internally as well, which has probably had a positive impact on the traction that we've gained over the last 12 months. And then the final piece of the question, I think it was -- has it been renewed, Mark, is that right?

Yes.

Yes. So we've been given an extension, which will be definitely for the next year, the very least. But we have -- we are in discussions with that client on what the future looks like beyond that already.

Great, thank you. Question 5, Lily has already been answered. That was the one regarding the review. Question 6, I think, gentlemen, it's probably one for me. It's from Paul B. The recent results look good. But since then, Premier Miton and Harwood have both sold a significant percentage. I don't think I'd call it significant, certainly not Harwoods, anyway, of their shareholding. Have they discussed theirselves with REACT? Or do you know if any reason why they might both be selling immediately after the results came out? Okay. So yes, we've met both investors. In fact, we've met all the institutional investors apart from one, which we're meeting this afternoon and we've spoken to everybody. Everybody is actually in a very good place. So I think the first thing to say here is that fund managers have a wide range of reasons for trading in a company's stock. The only time I'm really concerned is if they tell me they've lost confidence in our ability and they're getting out. And I can assure you that's just not happened with any of our institutions. There are other reasons. I mean, examples could be just balancing their own portfolio. It could be that they're helping to let another institution into the share cap table. And we should identify by the way, if -- I'll swing to the share cut table quickly. This is the latest share cut table. We should recognize that there are actually a number of institutions that sit below the reporting criteria. For some, it's 5%, for others, it's 3%. And obviously, we welcome new institutions coming on to that table. So there are a whole different range of reasons why fund managers may trade at any one time. But I can clearly state that having met both the investors that you're referring to and spoken to them, and that they are delighted with the results, and they're fully supportive of both the management team and the strategy going forward. And beyond that, it's not my place to talk or speak. So that's that question, number six. Next one is for me as well, gents, sorry, is, could you explain the reason why you felt the need to appoint a Joint Broker and the costs associated with this, especially as the market cap is only GBP 16 million. Do you think we'll be going back to one broker shortly? The rationale behind this is we moved to Singers from Allenby, oh, crikey, 2.5, 3 years ago. And Singers, we're an unusual stock for Singers. Singers like what we've got, as to all the investors you see on this share cap table and those that you don't, they can see the potential. And so Singers were very pleased to take us on board, and we've been delighted with the support they gave us. And the support they gave us as Russia moved into Ukraine, right at the point where we're acquiring LaddersFree, that support really did show its colors at that time. However, Singers don't cover what I would describe as being some of the high-net-worth communities, not to the same extent as Dowgate do. And for a little while now, we've been recognizing that we've got very strong coverage with your stand -- not with your stand, but your institutional fund managers that invest at this part of the market but probably have not had the reach and range we would like to have with high net worth. We've reached that now through our relationship with Dowgate, which started before they became a broker. And in terms of cost, they know that cost is a question for a company of our size. I'm not going to give details, but we are very satisfied with the offer they made to us to support us. And for the foreseeable future, we feel that it remains right for us to be with two brokers for the reasons I've just given, to give ourselves more exposure to high net worth that are likely to invest for the long term. We already have a good band of institutional investors that are invested for the long term, and we needed to expand that profile. So that answers that one, Paul, I hope, for you, Paul. One for you, Spencer, from Frederick J. What is your expected level of CapEx going forward?

Okay. Well, we talked about the investment we're making into the digital platform for LaddersFree, and that's GBP 300,000. If we look at what we spent on fixed assets taken out in isolation, we spent GBP 119,000 in the year we just reported, and that's across assets for offices, vehicles, fixture and fittings, IT equipment and the like. And I would envisage something similar for this year. All businesses need to invest in assets to run their operations.

But it's fair to say that for the size and scale of our business, we are not an asset-heavy business?

No, we're not. And it's people-related stuff. Obviously, we need vehicles to get do jobs. Everyone needs IT equipment to do their jobs. We have offices that we need to make sure have got sufficient technology in them to work. But you're right, Mark, we're not an asset hungry business. That's right.

Yes. Brilliant. Next question is from Jonathan C. Please excuse some of the emotive language in this question. It's not mine. But Spencer, you and I will probably tackle this one together. EBITDA has been described by Charlie Munger, may he rest in peace, as b******* earnings. Presumably, adjusted EBITDA is even more of the same. I won't say exactly what Jonathan's written. And why then is management so wedded to reporting this rather than the GAAP profit before tax? So of course, we report everything in our income statement. But Spencer, I've got a point to make on this one, but do you want to...

Yes. Look, I guess, I think Charlie invested a lot on the U.S. assets, and we're here to talk about U.S. GAAP and how that works. We talked about it in the present -- our adjusted EBITDA closely aligns to our free cash flow measure. Let me explain why, because we have whole -- we have several noncash or IFRS-type entries that would otherwise be included. And we've covered that in the presentation.

Yes. I mean, my comment on this is, please remember where we come from 4.5, 5 years ago, business turning over less than GBP 4 million. Less than 30% of its revenue being recurring, making a loss of -- I think the year before we took over, it was over GBP 1 million, then it was a loss of GBP 600,000. And we've had to make some investments, including two acquisitions, and that's where a lot of that amortization is coming from. There's a noncash entries. But the other thing that Charlie Munger and -- well, sorry, Charlie Manger -- Charlie Munger commented on is in business, it's all about the cash, which is what you just said. It's all about the cash, and cash is king. And therefore, we will be very transparent with all the measures. We do what we have to for our own reporting standards, but we're also transparent about everything. And our ambition is about building a cash-generative business, and that's what we've been doing, and that's what we're going to continue to do. Frederick J has another question. Is the GBP 5 billion FCF target including or excluding the invoice discount balance? Spencer?

I would like to think it's excluding it. If we've got that much cash in the bank, we probably wouldn't be using the [Technical Difficulty].

Yes. No, agreed. So hopefully, that answered that for you, Frederick. What is the budget for the technology investment plan for LaddersFree, Mark G? We already said that GBP 300,000 is our initial investment. That's for the minimum viable product. We think we can do some other things with this technology, which might mean a small amount of additional expense at a later date. But in terms of getting the meat out of this in terms of benefits for the business, it's GBP 300,000. Next question is from George S. Who is being used to develop the MVP and how long will the development take? Who's being used, it is a top-rated business here in the U.K. that as Spencer said, has done it before for a company that's in an allied industry but not competitive, with the same sort of workforce and business process. They've done it before using the Microsoft ecosystem. They are one of the top-rated Microsoft partners in the U.K. And how long it takes? I think you just said we're UAT by June...

June. That's right. Yes.

Yes, June.

But effectively, we're saying this is going to have an impact fully at the start of next year, yes?

That's right.

That's right.

That's the answer, George. Frederick, apologies for so many questions. No, no apology needed. If it's not clear, we actually do like answering questions, we'll answer them all. How do you plan on financing any M&A going forward? So we've been very clear. We've only just restarted to look at M&A. And the reason for that is having acquired such a fantastic business in LaddersFree, is that we want to make sure that we had integrated it into the company and got our minds around how we were going to grow it quickly. And hence, the plan or the strategy with the technology. So we've not wanted to divert our attention from that core goal. When we did the same when we did Fidelis. We shouldn't forget the fact we've doubled -- more than doubled Fidelis' revenue since we've owned it, 2.5 years. So now is the time for us to look again. And our target focus will be small bolt-on organizations that we can do what we've done with the likes of Fidelis, which is buy into a quality business with a quality geography, upsell and cross-sell and win new logos. And I'd like to think that -- those modest bolt-ons are there in number. We've got -- we've been taking a look at the opportunities that are out there. And I would like to think thematically, the first one or two, we can do from within our own resources. But Spencer, can you just -- I mean, obviously, there's nothing specific right now, but can you just put a bit more color around our optimism there?

Yes, absolutely. I mean, we have cash in the bank as we sit here today. We are moving to a new banking relationship, which will -- initial steps have been taken, we'll complete that process in the next month or 2. I'd like to think that, that relationship will strengthen our ability to have access to capital. And there's always the ability to put some structure into deals, which will enable or will help us fund it through our own resources. So a combination of things, but subject to size and obviously, scale of those acquisitions. But yes, that's your answer.

And look, if something would have come out of the woodwork -- and by the way, we've got nothing like this at the moment. If something would come out the woodwork that looked just so great and outstanding that we had to consider doing it, we would and we talked to people about it. But that's not where our focus is. Our focus is on small bolt-ons that will aid our growth going forward. So thank you for that, Frederick J. David W., really is a question that answers, I think we've just answered, and that is the low share price must be frustrating when looking for acquisitions, how willing are you to take loan finance for accretive acquisitions? Look, we're not going to go hocking ourselves to death, but we do feel we've got some room for maneuver comfortably. So hopefully, that answers that one, David. Nigel B., great question. This gets asked quite regularly. One for you, Shaun, is given the April minimum wage increase, will margins be under thread?

Yes. It's a good question, and has come up quite a bit on the road show as well. The short answer is no. And the reason for that, the contract maintenance well that's delivered through both Fidelis and REACT Specialist Cleaning. We have it baked into the contract. So if there's any uplift in living wage or wherever that may be, then the contract is changed to reflect that. With regard to the ad hoc contract reactive, very much, what we dictate what the price is. So in the LaddersFree business with the members, we drive the price with the members, the members don't dictate what they charge. So we'll just uplift it accordingly if there's any inflationary challenges there. And again, exactly the same on the ad hoc piece.

Thanks, Shaun. Next question from Jonathan C. The business -- so this is a really good question, actually. Not -- your other one wasn't, Jonathan, but this is a good one. Given the business seems to largely require significant labor interaction with the client, are you less susceptible to AI change than some other service business? This is a great question because every business I know and I have interactions with are looking at how's AI affect our business? And it's the first time we've been asked this question in REACT. I have a view, but just off the cuff, guys any comment?

Yes, yes, I have a view. So -- are we less susceptible to AI? Yes, I think we are. So obviously, it's boots on the ground in terms of human touch. Has robotics come into play? Yes, certainly has since COVID. But often, the use of robotics isn't -- it just isn't viable. The customer quite often likes the idea of it, but when we investigate it, it's not a viable option in terms of cost. But in terms of AI in the back-office function, there will be a little bit of that with what -- we haven't developed in LaddersFree. We're using AI in some of the marketing piece. That underpins the sales activity. So we're constantly looking at that and we work with our fractional marketing company to embed that as and when we feel fair. But as a whole, if you compare it to other industries, yes, we're much less susceptible to it.

That's a great answer. Anything to add to that, Spencer?

No, No. I think Shaun did a great job.

Yes. So did I. I'm not going to say anymore. Well done. Thank you. Thanks for the question, Jonathan. Paul L., was Spencer working with you, and I think that's aimed at me, before his official appointment? In what capacity and tasks -- oh actually before his official appointment. So look, actually, I've misread this question, sorry. So what were you doing for the last 3 or 4 months inside the business, Spencer? Yes, he was. We brought Spencer in to specifically look at some opportunities for us. Do you want to describe them, Spencer?

Absolutely. It's -- the LaddersFree digitalization, I came in to support that process and with the sort of reviewing the options, helping the business sort of step through that process and obviously been involved in it as we kicked the engagement of and starting to build that solution.

Yes. And I did misread the question, but I'll answer my own question, have I worked with Spencer before? The answer is yes. About 6, 7 years ago, Spencer and I were landed in a very troubled business called Coms plc. We then turned it into a business called REACT -- sorry not REACT. So this is REACT, RedstoneConnect plc. So I was CEO, Spencer was CFO, and I think we did a very, very important incredible job saving a company from very tough time and turned it around and created an asset that was worth money that was eventually sold. So that's public record as a public company. But yes, Spencer and I worked together before. And I'm delighted that he's here now working with us. It's a tremendous asset for the team to have. So that was Paul's question. Malcolm R. There's lots more questions here. I bet everybody is happy that we carry on. Malcolm R., given the excellent results and outlook for which, oh, we've already answered this one, for which very well done, whole team, thank you. Malcolm, did Harwood and might can give any rationale for recently reducing their holdings? I did cover this earlier. We are -- we do understand it, but it's not for us to provide the precise nature of it. All I can say, Malcolm is what -- I repeat what I said before, they're delighted with the results and they're fully support the management team and the strategy going forward. Martin -- I'm sorry, screens changed. Martin M., is it realistic for the gross profit margins to reach 30% in the future?

I'll take this, Mark.

Go for it.

Yes. Look, I think it depends purely on the mix of work that we bring in. I think that was the answer. Look, we -- Spencer's talked around the whole digitalization piece that we're going through at LaddersFree and the rationale for that. We want to grow that business very, very aggressively. It is a high-margin business, but it will entirely depend on what work the entire sales force bring in. We might have a large piece of ad hoc where we have to give up some margin, but it allows us to land and expand. Or conversely, we may add in 5 or 6 new large logos on LaddersFree, which could be high margin. Unfortunately, I can't look into the future.

Yes. I mean I think that going forward and we did sort of hint at this at the interims last year, that actually top line growth is probably not where our focus is, and it hasn't been for quite some time. It really is on gross profit growth. That grew by 60-odd percent last year, and that's really what we're after. And of course, that can be off of very low revenue businesses like LaddersFree. Or it can be off of high revenue businesses where the margin is lower. So I think the band in which we're comfortable is 25% to 30%. We can do over that. We did do over that. A few years ago during COVID, a bit of a one-off spike. We have been under it as that balance mixes. But our focus is on being in the upper quartile of the industry sector we operate in, which we are well and truly above. We're not a single-digit cleaning -- single-digit margin cleaning business that will be cleaning huge projects across the country. That's not us.

Just on that, Mark, as well, just for Martin and people who have joined us. All of our sales team appeared on GP, they're not paid on revenue. So we're very much focused on trying to eke out a few more percentage in GP.

Yes. Graham R. asked, do you have a 5-year EBIT target? I mean basically, it's whatever will deliver the FCF, isn't it? It's whatever will deliver the cash generation objective that we've got. Spencer, any comment?

I think we'll be careful giving full guidance. I mean I know the brokers go out, they don't go out 5 years, they go out 3 years. And so...

I see from that point of view, yes, yes. I mean -- and we should add that, look, we're talking about a statement of intent when we talk about our GBP 5 million free cash flow. That's the objective and goal set that we've set ourselves, it's not a forecast, just to be absolutely clear. And so yes, Graham. I'm not sure I can give you a complete and proper answer to that question, sorry. Okay. Mark H. is asking one for you, Shaun. Can you give us an idea on either type of adjacent services or existing service areas you may wish to look at bolt-ons in? I mean bolt-ons, we're talking specifically soft services because we know we can grow that customer, aren't we?

Yes. So it's, again, a good question. So we touched on it with regard to our M&A strategy for this year and beyond. I think we've got a business now -- I don't think -- I know we've got a group now that can deliver pretty much anything in terms of any cleaning requirement from windows through to oil spillages, sewage spillages, you name it. So in terms of part of our strategy, as Mark touched on it earlier in the presentation, it will be Fidelis-like businesses with the kind of stake in the ground within set geographical areas, high recurring revenue. Similar kind of size, perhaps to Fidelis and it will just give us those kind of flag in the sand when we're going for work in and around those geographic areas. So I think that will be part of it. The second part of it, look, who knows, what Mark said, we're very early on in reigniting our M&A journey. But something like a LaddersFree might drop on our lap in kind of a different segment of the market, I don't know.

Yes. I mean, yes, I think the answer to the question is strategically, we're looking at the small bolt-ons.

Yes.

If something serendipitously comes to us, we would be silly not to look at it because of our capability to turn that into an accretive and earnings-enhancing acquisition. But the drive is the small bolt-ons at this stage. Okay. Thank you, Mark H. And then the final question is from David W. Hi guys, company is looking good and we're excited with the progress and potential. How do you see the potential competition to the business over the coming years? And do you feel there is enough of a fragmented sector to continue growth at the current level? The second part of the question, which I'll ask in a second. Shaun? Spencer? If you?

Yes, so look. Do I see any potential competition in the business over the coming years? So we rub shoulders with a lot of the bigger boys, right? And Mark touched on it earlier, very low margin work is their focus. And that pretty much, we believe, will remain their focus in terms of strategy. We sell very different. We're not sat in a room, with a whole team in a room working on tenders on a single low digit margins. We sell by being present with the client, and that's how we upsell and cross-sell. And Sam and his team has done a fantastic job on that. We will continue to do that. So we'll continue to gain more traction in terms of revenue and hopefully increase our margins. Do I think we'll have competition? Potentially at some point, but we are the biggest player in this specialist market at the moment, and there's no one we believe that's the same size us. The market is fragmented. As you've said, David, the market is also huge. There's more than enough work to go around here. And there's a -- we've got a real upside in terms of growing. The second part of your question, any thoughts on international growth. So when Mark and I got involved in the business, we've really looked at what was our value proposition, and we had another -- a few kind of bolt-on sectors, and we looked at really focus on. So rather than having a mile-wide inch-deep, we went to converse. And that very much remains our focus. As I said earlier, we've got -- there's a huge potential in this market. In the specialist cleaner market, contracted cleaning market and also the commercial window cleaning market. So right now, I don't think that we need to even look at international growth, if Mark want -- starts down in order to open an office in New York or Dubai, then I'm sure people will be trumping at the bit to get out there.

I was thinking Mauritius or Barbados, but I...

Not very big market out there.

Incredibly would support that. But hopefully, that answers your question. Now well done. Thank you. That is the end of the questions. So back to you, Lily.

Mark, Shaun, Spencer, thank you for answering all those questions you can from investors. And of course, the company can review all questions submitted today, and we'll publish those responses on the Investor Meet Company platform. Just before redirecting our investors to provide you with their feedback, which I mean is particularly important to yourself and the company, Shaun, can I please just ask you for a few closing comments.

Yes. Thanks, Lily. Yes, just thank you for taking the time out in the afternoon to join us. I hope you found it informative. As I said, it's another record year. It's not a flash in the plan, very much part of our strategy is just continue our aggressive organic growth. And as Mark said earlier, looking at those accretive acquisitions. So thanks for your time. And if you've got any questions that you need to fire up to us, feel free to fire them to us off-line.

Mark, Shaun, Spencer, thank you for updating investors today. Can I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will take only a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of REACT Group PLC, we'd like to thank you for attending today's presentation. Good afternoon to you all.