REACT Group PLC (REAT) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the REACT Group plc investor presentation. [Operator Instructions] Before we begin, as usual, we would just like to submit the following poll. And if you could give that your kind attention. I'm sure the company would be most grateful. And I would now like to hand you over to the team from REACT Group plc.

Thank you very much, Jed, and thank you for taking the time over lunch time to view our presentation. So I'll do dive straight . So my name is Shaun Doak. I head up the group who's Group CEO, originally joined the business back in February of '19. So March '19 and then joined the [indiscernible] Board in February 2020. I've been the CEO, and I've been leading alongside the rest of the Board, the charge and the growth ever since I've got a strong track record of growing businesses and specialist cleaning the facilities management and the HVAC service sectors and my background is very much sales marketing and business management.

Thanks, Shaun. Hi, my name is Spencer Dredge. I'm the Chief Financial Officer. I joined the Board of REACT in February last year. As you would expect from a qualified accountant. I spent the last 25 years all or not supporting AIM-Listed businesses during which time I've also done 3 years in a corporate finance environment. And I'm very pleased to be [indiscernible].

Thank you, Spencer. Sean, I'm Mark Brown. I'm the Chair. I've been involved with the company since we began the turnaround just over 5 years ago. Hired in Shaun and one of his colleagues on the finance side and since then, obviously, Spencer is coming as CFO -- and it's been a strong, very positive journey since then.

Thank you, Mark. So just an intro to who we are here at REACT Group. So REACT provides specialist support services to the facilities management sector across the entire U.K. focus on markets with typically nondiscretionary requirements, quite often complex demands and usually on a nationwide fulfillment basis. We continue to establish an increasingly valuable proposition in terms of our scale, our range of services, even more so since our recent acquisition and 24hr Aquaflow which i will touch in a moment. and our geographical delivery. We believe we've got significant score to continue our expansion in what is a very sizable and fragmented specialist support services market here in the U.K. Just going to walk you through the 4 trading businesses within the group. So first of all, you've got the commercial windows and cladding cleaning sector or elements, which is delivered through the LaddersFree business. The LaddersFree business is a membership model. So we've got round about 300 partners across the U.K. Some of them have up to 20 operatives working for them, very, very low working capital in that business. Typical commitments from our customers in that state anything from 12 through to 36 months. And we deliver that entire service across the whole of the U.K. So a fantastic business. Second, we've got our hygiene and maintenance sector. So that's what you probably associate with your standard janitorial cleaning, albeit we operate in the upper quartile of our space. That business -- Fidelis is based in the Midlands, very, very strong within that geographical area. We look after industry, education, NHS and some of the care sectors. And we were on site all year round, typical commitments from customers is usually 5 years, although there are some exceptions where we get a 7-year commitment from the customer. Third component is the core business, which is REACT versus cleaning. As the name suggests, that's emergency and decontamination work, typically on-site within 4 hours, usually looking at some real challenge and nasty jobs. Again, full U.K. coverage. We can be dealing with anything from the unfortunate event of a decontaminate in a train after its hit an animal or unfortunately, a person, all the way through to some real in-depth specification work in the hospital sector. So very specialists, strong margins again. And then the final component is our most recent acquisition, which is the 24-hour Aquaflow business. It's draining and drainage and plumbing, predominantly delivered within the M25 corridor in London and the Southeast. Fantastic business very, very strong mix of contracted revenue, which has been part of our strategy here at the group since we all have involved. And the acquisition has gone incredibly well since getting across the line. So in summary on this page, our strategy is focused on building out a business with market-leading performance, and we want to achieve a minimum of GBP 5 million worth of free cash flow per annum within the next 3 years. So just moving on strategy. It's very much our strategy here to build a market-leading position in what is a specialist support service business for many for our FM customers across the entire U.K., as I said earlier. We want to continue to drive our organic growth and where relevant augmented accretive M&A -- we've got a track record of both. We've delivered strong organic growth for the last 5 years, double digit. And we've now completed our third acquisition, which we believe will be transformational as we continue to push the business forward. We want to continue focusing on improving our already strong financial performance. 80% of our existing or current revenue is recurring. We've got sector high margins as i touched on earlier, and we've got very strong conversions profit and cash -- we'll look at driving operational efficiencies. Spencer will touch on that a little later in the presentation, but he steerhead in the project Sparkle, which will give us synergies and we'll be able to use that across the rest of the businesses once that's fully implemented in life. And ultimately, we want to continue building a business with market leading performance. And as I said earlier, minimum GBP 5 million of free cash flow within the next 3 years. Over to you, Spencer.

Thanks, Shaun. So performance summary. I think many of you would have followed the story before. And for those that want to catch up, I think this is a very successful turnaround. I think -- on this slide, you'll see some KPIs that are presented in graphical representation. And you can see the direction of travel has been very clear over that period of time. And maybe what we've got now here in the group is a group that's growing -- it's got strong recurring revenues and margins. It's profitable and it generates cash. Diving into the detail on this slide. Obviously, our year-end is September. This is a full year set of accounts to September '24. Starting with revenue, we reported GBP 20.7 million revenue in the year, up from GBP 19.6 million in the prior year, 6% revenue growth. And importantly, 87% of that is recurring in nature. We have pivoted away from a rail arrangement with a key material client in the second half of the year. And if you were to strip that arrangement out of the numbers, we would see underlying revenue growth of over 11%. I think it's worth noting that we've had a certainly a more challenging economic environment in the second half of the year. I think it'll be well documented with the physical changes in the U.K. in the budget, et cetera. And in that period of time, we have seen some drop-off in some frequency of services where we've managed the customer -- retention of the customer through that period. That strong revenue performance has contributed to gross profit of GBP 5.7 million for the year, which is up from GBP 5.2 million in the prior year, which represents a 9% year-on-year growth. And importantly, for us, we've got a gross margin of 27.6% across the group's blended services, which is up from 26.8% from the prior year. So whilst the economic environment is slightly more challenging. We have maintained, have not grown our margin performance in that period. And again, if we were to discount the arrangements in the rail sector that we pivoted away from in the period, we would have seen an underlying organic growth of over 14%. So again, it's a strong trading performance. That in turn has contributed to our adjusted EBITDA which is GBP 2.4 million for the year, up from GBP 2.3 million in the prior year, again, 6% growth around that. And importantly, for us, alongside adjusted EBITDA, we look at free cash flow which for the period of which for the year was GBP 2.2 million, up from GBP 2.1 million a year before. Underlying EPS on an adjusted basis is $11.18 pence per share. which is up from $10.75 per share the prior year, which is over 10% up from the prior year. So again, we believe this is strong trading performance. And in a year where the headwinds are more apparent than before and also comparing against what was our record year in the prior period. So underlying, we think that this is a strong trading performance. Just turning the slide to income statement summary. The purpose of this slide is to provide a little bit more detail around our operating expense line. We're a PLC. We report IFRS. There is a full report and disclosure in the annual report and accounts. So these data points are available in the document we've announced. But as a management team, we focus on a number of KPIs, some of which are on this page, adjusted EBITDA we mentioned in the previous slide. Free cash flow is another one that we've also mentioned, but it's apparent on this slide. So what this slide tries to do is get underneath our operating expenses in more detail. We have an operational expense line of GBP 3.3 million as opposed to our admin expense line in our income statement, which is GBP 5.4 million. And the differences are the balances you see on this slide. You've got exceptional items, share-based payments amortization and depreciation of the key balances that difference between those 2 balances. And some of these are noncash IFRS charges, which is why we look at adjusted EBITDA. So I'm hoping that this slide provides some detail which will enable you to see the underlying operational expenses in the business and its profitability and its cash generation. So I'll hand back to you, Shaun.

So yes, just looking at customers. So we've -- we work with a number of blue-chip customers and some large facilities management businesses throughout the U.K., and I touched on earlier. We operate in a diverse and resilient range of market sectors. The group separately seek our customers with a bias towards nondiscretionary service requirements for obvious reasons. It's very much part of our strategy. Got very low customer concentration, some 1,233 customers, 248 of which are material, our top 10 represents circa 43% of revenue. No single customer accounts for more than 8% of revenue. If you've seen this slide before and you'll notice there's a few more logos that we throw into the mix. Just to give you an idea, just a small snapshot into some of the customers that we work with. So, move on to growth. So our growth is very much being characterized in the past ones will be in the future by London expanded. I mean that we're very good at doing here as we act through that strong organic growth is being underpinned by some large deals and a whole host of smaller successes due to the size of the business that we are today. We've not been able to announce. I'm not going to talk about all of these on this slide, but I will tease out a few. So the first one is that GBP 3.8 million over 3 years commitment from a large university in the Midlands. It's almost doubled the value of the original contract size. And quite simply, we managed to test and cross-sell more services into our customer, which give us that incremental growth and commitment from that by client. The next one is the extension of a further 2 years, taking the total to 5 years with a material core vendor agreement with an FM provider who are U.K. wide, actually, one of the largest FM companies out there. That commitment to the customer is testament to the hard work that not only our sales and operational teams do but also our boots on the ground with our operatives delivering that service across the entire U.K. And we've had an upsell of an incremental new contract, around about GBP 0.5 million a year. again, with a large FM customer, where the group now provides additional emergency support services into the mix. So in summary, we've had a solid cadence of small- and medium-sized contract wins through all of the divisions throughout the group throughout the year. and our organic growth continues despite the headwinds, and that's driven by an upsell and cross-sell success. Over to you, Spencer.

Thanks, Shaun. Post-period acquisition. So Shaun touched on this in the opening -- one of his opening slides, but the latest acquisition, 24-hour Aquaflow was acquired on the 25th of October last year. Just to be clear, that acquisition, obviously, is a post year-end acquisition. So it hasn't contributed in any way to the trading performance that we've reported. But it very much so, it's a complementary acquisition for us. It brings with it a new service offering for the group -- it enlarges the group client base we're very actually there the declines of app 24-hour are very similar to some of our clients in many ways, they service the FM market in their particular sector. It's very complementary to the extent that we now have to sell and service those same clients, but there isn't that many clients that we share. So we have a very similar client base, but it's expanded as a result of the acquisition. 24hr Aquaflow growing as a business. They're profitable, and they also generate cash. What they are is a commercial drainage and plumbing business. They are centered and certainly -- their services and their clients are centered around London and the Southeast of England. In terms of some data points around the business, their last full year set of financial results to April '24, recorded revenue of GBP 6.1 million which was up from the prior year at GBP 4.7 million. And they're profitable, generated an EBITDA of GBP 1.2 million, up from GBP 1 million in the prior year. This is a profitable and growing business. In terms of the deal, the corporate transaction, we have bought this business through -- it's a structured deal. We've done this initial consideration of GBP 4.98 million. And then there's an earn-out, a contingent element to consideration that they can earn subject to business performance over 2 years, and that is GBP 2.38 million. Basically, the deal is capped at GBP 7.36 million. We can't earn more than that. Part of the initial consideration, importantly for us is the -- they've taken GBP 0.5 million worth of our equity. So they've taken shares in the REACT group of which they are duty bound to hold those shares for a 3-year period. They are locked in, which will enable them to stay in the business and support us on our journey in addition to the 2-year earn-out. And the way that works is it's ratcheted over 2 years where the performance is in -- year 1, it's GBP 1.6 million EBITDA in year 2 is GBP 1.725 billion. They have to hit those targets to meet their earn-out. So in addition to a little bit of capital and paper that we contributed to the deal. We've taken a new loan from HSBC to help fund the initial consideration. HSBC lends us GBP 3.5 million on a term loan basis over 4 years. And alongside that, it wasn't needed for the consideration for the deal -- but alongside it, we had a small raise, a fresh raise to increase in working capital, so we even got some growth capital for the business. So hopefully, that explains the deal, what we bought and how we funded it. Turning to slide acquisition rationale. Clearly, the group has got a good track record of M&A. And you can see that from the historical acquisitions of Fidelis and LaddersFree both of those acquisitions, Fidelis 2021 and LaddersFree 2022 have grown significantly since acquisition. And this -- the purchase of 24 Aquaflow is the latest of the acquisitions. But it ticks all of our criteria. I mean it fits all of our criteria for M&A. This is a profitable business. It's high margin. It is excellent in its field. It generates cash, and it's growing. We believe it to be earnings enhancing in its first full year and it gives us a better increased foothold in services offered into the FM space. Turning the slide, Project Sparkle. Those that are being familiar with the story will know that our LaddersFree business is a very manual operation. It's in need of transformation and it needs automation. It's transactional heavy and heavy paper workload. There's a plan to build a platform, a digital platform to automate its operations. It started early part of last year. We are now at the point where we are testing the solution. Clearly, the immediate need is for LaddersFree as it's crying out for automation and it has manual processes. We hope to be able to use this platform for other group services once the platform is live. In terms of where we are with it, the capital budget still remains on track. We said that we were going to spend GBP 300,000 on capital investment. And we are now in a testing phase and hope to be completing testing in the coming weeks and then be launching into go live. We plan to be doing that, hopefully, in February, March this year. So yes, project is very much underway and close to being a live solution.

Thank you. So let's move on to the summary outlook. So look, we've had a strong performance in FY '24, especially considering the economic headwinds and comparing that to an exceptionally strong prior year in FY '23. The strategic acquisition post period, I think everyone agrees that will set the scene for continued growth, and then will improve the quality of earnings across the rest of the group. We're all very mindful of the economic -- the macroeconomic uncertainty or we're taking steps to mitigate the risks and the challenges. And despite this, we anticipate continued demand for the group services. 87% of the revenue is recurring, as I said earlier, we've got very strong high effective margins, strong cash conversion in what is a nondiscretionary specialist market. And ultimately, we believe that we're well positioned to achieve our 3-year goal of GBP 5 million plus free cash flow per annum. Thank you.

Perfect. Sure, Mark, Spencer if I may just jump back in the -- thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the Q&A tablet situated on the right-hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already. I'd just like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A can all be accessed by your invested dashboard guys consider we have received a number of questions, and thank you to all of those on the call for taking the time to submit their questions. But Mark, at this point, sir, if I may hand it over to you to chair the Q&A with the team. And if I pick up from you at the end, that would be great. Thank you.

Thank you, Jay, and thank you for the questions. So we've got 2 pre-submitted ones with no names. So I can't say who it's from -- the first question is regarding the bolt-on acquisition strategy. You have stated in the last trading update for full year 2024, the company has a healthy pipeline of early-stage opportunities to evaluate. In a similar meeting a couple of years ago, even or even last year, you have stated that potential targets for M&A are few, given your high standards. Have your standards lowered -- or is the environment more favorable now given the uncertainty over the last few years. Thank you for your work, Bob -- thank you. Yes. Basically, our standards are never going to drop. We have a very strong criteria that we look for. And the fact that there are more businesses coming to market, doesn't mean the standards are any different. It just means that we will qualify them and when we find one that we feel fit, we'll take a strong look at it. So maybe it's in the language we're using, there's certainly more opportunities coming towards us than before. But our criteria doesn't change, does it gents?

No, not at all.

Okay. So I hope that answers that question. The next one was, could you provide some detail on how good the upselling synergies spotted for Aquaflow -- 24hr Aquaflow are -- can we expect to see results as good as the ones obtained with LaddersFree, Shaun, what do you reckon?

Yes. I mean there's 2 components to this. First component is we -- since the date that we completed the acquisition -- we've had the need and we managed to secure and get them across the line decontaminations of the specialist cleaning side of the business. So we've got that cross-sell. And that flows both ways. Second part of that -- I believe is quite fine completing the acquisition of 24hr aquaflow incremental customers. There's customers that sit within that business that we've not had exposure to across domestic group for -- and we've got a track record of london expanding and cross-selling. So I think I hope that answers that question.

Yes. So basically, as good as we've seen with any of our acquisitions before, in fact, this time around, there was an immediate response -- literally within days, we've been on site clearing up after some drainage work. And we've got 2 brand-new -- so we've got 2 customer sets that are quite different to each other in terms of the company. It's not the nature of their business, they're all FM companies. And therefore, we've got the opportunity to introduce 24 Aquaflow to those that are in that geography London and the Southeast that we've got and Vice Versa. And particularly, window-cleaning and the specialist cleaning side of our business is what's relevant to their customers. One for you here, I think, Spencer, this is from Daniel S. Why has the brokers downgraded forecast after the recent trading update? Do you foresee headwinds to profit in '25 and '26? Nothing seems to be flagged in the update. So the disconnect is odd. I think we did indicate those headwinds, but that's by the -- how do you respond to that question, Spencer?

Okay. I think well, first and formost, we have 2 brokers and they both have their own forecast. I think that's the first point to make. These are broker forecasts. We have our own internal projections and -- so that needs to be stated I think the headwinds economically, I think to be very clear and anyone that watches the news or have one eye on the U.K. for some time will know what they are. And I guess as a result of headwinds, and some of which have yet certainly with the NI increases that are pending in the coming months. I think it's difficult to say what these headwinds are going to the -- what changes they may throw up. So I think there's a portion we not, I suspect with the way we're looking at the U.K. market in particular, at the moment. And that's a result, and that's where the brokers are coming in with their projections. So yes, hopefully that answers the question.

I think my sort of summary of it is that we're actually very upbeat. We see strong opportunities in our business. We've got pipelines that are still strong. Decisions have been taking a bit longer. They've shown to get over the line on some of the bigger ones, but we predominantly operate in sort of smaller and more modest-sized contracts, which the cadence remains fairly solid. But looking out beyond the horizon of April, when the -- where the most recent budget is going to have an impact. I think there's just a cautionary note and the headwinds that are relevant to that. So we're upbeat, but the economy and the headwinds are somewhat going against us. So yes, that's basically where we are and the brokers have taken their judgment. Another question from Daniel S. Do you think the low valuation of your shares is a challenge to the acquisition strategy taking out debt in the current environment is surely not -- is not an ideal situation? Well, either of you can comment on this one, but let me say, no, you're right. Low share price means it's a bit more difficult to use paper to create an accretive acquisition and two of our testers are going to be accretive in the first year and it's going to be earnings in half in the first year. [indiscernible] more difficult, but the first and we've been faced with that challenge. And sorry, bear with me for a second. I think the -- sorry just resort resolving a network issue. I think the second thing about debt is also relevant. I mean I'll let Spencer talk about our debt. But what you should recognize is that when we structure deals, we're structuring deals with deferred payments and those deferred payments have no coupons. So we're not at risk of a sailing away interest rate. They're just deferred payments, we're prompting to pay, but after a period of time, and there's no accrued interest. So Spencer, your view in terms of this question, life is a bit more difficult, but we're a cash-generative business.

Yes, very much. So I think we've got a really good, solid platform now with our banking relationships. I mean many of you will be aware that we've moved to HSBC during the year from what was a number of different banking arrangements, some of which were contracted. So we have a more stable banking relationship, and the bank is very interested in what we do, that's part of the story for quite a few years as it happens. So obviously, we've done the acquisition of 24hr Aquaflow and the bank have lent us so we put a new term loan to the bank. I think there is a view that says, if you have a quality business to buy, they will certainly look at it. I think -- but I think things are a little bit tight to perhaps they were now. So I think it's a flight to quality. So I think that would be our underlying message. I think when you look at the REACT group, clearly from the results that we published, you can see that we paid down quite considerable amount of debt last year. So you're right, we are profitable, we do generate cash. The bank can see that. And the bank has -- we've got a strong relationship.

Thank you, Spencer. One for you here, Shaun, again from Daniel S. What is the competition like in your markets? Why is no one trying to roll up cleaning, et cetera, services before.

Okay. Good question. I mean -- rollouts are happening within the cleaning space, but you probably would have seen from the first slide, we've evolved our business somewhat. So we're now with some support services. We're not purely just focused on the cleaning. We're focused on specialist niche markets where the need is largely nondiscretionary as I touched on earlier. -- and it's valued by the customer, it produces attractive margins. So I hope that answers the question.

So again, just to summarize, roll-ups are happening, but there are generic sort of office cleaning companies and the like to know. It's more janitorial by nature. What we're doing is seeking out where the specialist requirements are and that market is very, very fragmented, isn't it? There are literally thousands of companies that do what we do, but they only do one bit rather than all of it or they only do a bit, and it's in one geography, whereas we're broadly speaking, are nationwide, with the exception of, obviously, 24 Aquaflow which is London and the Southeast. So we're a consolidator of those special support services that are really critical. If you've got a flood or you've got a decontamination issue, you can't use your premises until we arrive on site. And we do that. We do it really quickly, therefore, it's valued and the margins are commensurate with that. So yes, people have tried and still are doing roll-ups. If you look at the biggest companies out there, Mitie, obviously Cleaning services and the likes, they've all been in that roll-up game, but they actually buy services from us because the stuff we do, they've not got the ability to deliver in-house. Okay. One for you, Spencer. This is from Alastair C. What sort of CapEx per year do you expect for 24hr Aquaflow given that they've got tankers, et cetera.

Yes, it's a good question. It is a different business model to what we've got in the other 3 divisions of REACT. And you're right, there is -- the business actually has 4 of its own tankers and a whole bunch of vans for engineers with a lot of kitting. So it is a more capital foundry business, it is worth pointing that out. I think it's not -- what I would say is the business has got everything that it needs to meet its current projections. So it's a well-funded business in terms of its fixed asset-register. And you can always get decent lease arrangements for any incremental asset increase growth, and we have growth capital. Just to answer the question, what does it mean for CapEx? I would say that actually, if you look back at the history of the REACT group before the acquisition, it consumes about the same amount of CapEx as the whole of the REACT group. So it's a little bit more hungry. But I think the last additions was certainly about 150,000, I think, for the year for the business. So it's not astronomical, but it is a little bit more asset hungry than remaining react operations.

And of course, those assets are being deployed against even bigger business as of today. with the announcement we made this morning of a genuinely land mark building. We can't say who it is or where it is, but it's a building that everybody would recognize in London, where the team have actually just secured -- the initial contract, 12-month contract to deal with all the drainage maintenance and the likes there. So yes, brilliant. Next question is from Aaron K. 24hr Aquaflow seems to have a much stronger gross margin than the REACT group. Is the competition lower or work much more complicated to enable achievement of this gross margin for Aquaflow. Either of you like to take that?

Yes. I mean I'll start the question and answer for and I think as you can come in over the top. In terms of the margin profile, we've got very strong margins across the group, especially in the reactive services and also the commercial windows. So Aquaflow is in exactly the same, where margin is slightly lower is in the contract cleaner space, albeit we do operate in the upper quartile. So I don't know if you've got any data point or anything to add to that?

No, but I would say that you -- the higher the margin, more technical niche services are where there's been a disruption like say, your nondiscretionary type services, and that's very much what this business is. There is also quite a lot more technical know-how and competence in what people will realize in this service delivery and some of the equipment is quite specialist -- this is a very niche specialty sector, I suppose, and therefore, the margins are attractive as a result.

Absolutely. Thank you. This is from George W. Can you provide more detail on the typical contract size and duration? And how long these contracts are structured to support further up-selling opportunities. Now I don't know whether that's relevant to 24hr Aquaflow or each business. But Shaun, you've got a line on the side of contracts and where they are. I wouldn't necessarily say that we should be talking about specific contracting values, maybe you can give an order of -- we've got lots and lots of small, medium and then a handful of high -- large ones for each of the 4 businesses. Can you give a summary?

Yes, absolutely. I mean we track this on a daily basis with our CRM system book. So yes, absolutely, there's a lot of smaller opportunities that we knock over multiple times a day -- and then we've got kind of midsized -- can I talk around the values of midsize, Mark or not in this forum?

Sort of, yes, just in general, I hope people understand but it is commercially sensitive, but also we're going to recognize that we're a listed business, and therefore, we mustn't be too specific without being specific to the whole market.

Yes. So midsize, it can be anything from 50,000 upwards to say 100,000, 150,000. And then we've got a large opportunities on top of that, so in terms of duration, I think I covered it earlier when I looked at the profile of the business, so the LaddersFree division typically 12 months to 36 months, on the Fidelis for the contract medicines, that's generally 5 years we've got 3 to 7. On the specialist cleaning, that can be anything from a year or a 3 year 3 to 5 depending on whether it's contract reactive or contract maintenance or what the split looks like. If it's an ad hoc piece of work, then the name gives it away, it's a one-off job. In terms of the Aquaflow, again, anything from 12 months commitment from the customers. So in terms of support and further upsell opportunities, what it does because it's a nondiscretionary requirement and our service delivery is very specialist and niche. It gives us -- it's a sharp end of the spear in many of the divisions get to point the door, get us to -- it allows us the opportunity to go in press very, very early on. Sometimes we're on site within 4 hours, and I said earlier, and then we land and expand and we've been very good at doing that over the last 5 years, and we'll continue to do that. And that's backed up by some very intelligent private market and that we've got way in excessive of industry, open rates on our e-mail campaigns and sequences and all that fun stuff.

Yes. I think that just to point to the fact that over the last 5 years, this management team being boot strapped we've been very thin on the ground. I mean, in this last 12 months, we've started to build out a little bit more of our finance function with Spencer and Justin Fleming, who's our controller. Being very boot strapped, we've ended up with 5 years of being hit by external headwinds. First, we started with COVID which we saw some uplift in one part of our business and a complete collapse of another. But it did put us on the map because we were deemed to be the specialist in the area, and we've pulled in by all sorts, including some of the biggest FM companies to sort out problems. But COVID was the first one. Then we had the Russians move into Ukraine, that created a big dip in the market. Then we've had the cost living crisis, more in the Middle East and now government policy that really is hitting the low wage economy, which is we represent and also some of our customers represent. So we've been very resilient throughout that, and we're fighting fit and will continue to be so. In that period, it just -- take away last year for just one second. We grew on average 24% per year organically. Forget the acquisitions, organic growth was 24% on average over 4 years. Last year, underlying growth, the real growth of the business is about 11%. Obviously, we're much bigger. But it should point to the fact there's a massive opportunity amongst those 1,200 or 1,300 customers that we've got for us to cross-sell services. And I would also say to you that our customer churn is really, really, really low. I mean probably count customer churn across the whole group on just my two hands and maybe one of my feet. We keep customers when we get them, and we sell them more. So that's a sort of the thematics behind what Sean has just talked about with detail. Another one from Baron K. What can the investors expect in terms of cadence of acquisitions going forward? And what type of acquisitions will you target? I've got a view on this, but Spencer, do you want to just give a summary of your perspective on this.

Yes. I think when you look at the REACT group, we are a niche service provider often in sectors where there's no discretionary requirements. And as a result, we get higher margins. And I think that's where the success in the DNA of the group is -- so I think that buying complementary assets we're looking to buy complementary assets, let's just call it that for now is something we will continue to do -- in terms of the cadence, it's very difficult to say. We will continue to be active looking at the market and opportunity. But I think it's fair to say that we only pursue the ones that we -- that meet all of our criteria and a very few do, if I'm honest. So it's very difficult to answer that with any precision, I suppose, as a result of that.

Well, I think we're going into an uncertain period where there may be more opportunities. But obviously, the cost of capital is going to become a bit more expensive. And -- but we've got a cash generative business. We want to see some of our debt paid down over the next 12 months. And take a look at where we are then. We also want to improve what we can do with 24 Aquaflow just in the same way as we did with Fidelis and LaddersFree. Fidelis is more than twice the size it was when we bought it 3 years ago. It was GBP 400 million or GBP 4 million turnover business. It's now approaching GBP 12 million. So investors can trust this management team to select very carefully along the lines of our strategy and also then to make 1 plus 1 equal more than 2, more like 3, 4 or maybe even 5. So when it comes to cadence, Spence is right. Right now, we're heading into an uncertain period. We've got one great acquisition that's just landed that we're going to make the most of and we'll continue to keep our eye on the horizon in terms of what might come next. Okay. What's management ownership in the company. Let me give you answers I got it precise for you. I'll give it to you, in general, and we will get -- and I think we need to publish actually what this is because it's a little tiny bit complicated. I own nearly 3%. And the rest of the management team own a fraction of a percent. But when Shaun and I got involved in this company 5 years ago, the company was in a very, very sorry state, a market cap of GBP 400,000, GBP 1.3 million of losses on less than GBP 4 million of revenue. And so the company couldn't afford to pay as much, or pay Shaun very much and pay me nothing. So we actually took options and warrants as part of our compensation. They were all based on share price, nothing for tenure or just being here or working hard. It was all based on what share price we reach. These are all published, by the way, and Shaun has -- I can't get the exact number, but probably it takes you up to about 2% of the enlarged group. Yes. About 2% of the company, should you wish to invest them they're there, they've been awarded and he's taken the company through the share price hurdles. The share price was 0.16 was it, something like that, when we started this journey. And obviously, we've adjusted for the consolidation we've done. So anyway, long story short, what we really own, but we haven't invested because we don't want to necessarily pay the tax man because we probably have to share options probably closer to 5%, 5.5%. And then there is share options on top of that, some of which are in the money and most arm, which is a trying to get our share price to much higher than it is right now, which would add another 3% or more. And this is for people or management team that are on salaries that we're pretty much nonexistent. And certainly for the first 2 or 3 years, we're less than the statistical salaries that are enjoyed by other aimless companies. And that's where we are. The management has got the real question here produces has the management got skin in the game. And absolutely, we've got skin in the game. We care very much right where the share price is, value of the company is, and I really think that a wealth event for Shaun and his colleagues and Spencer too is about getting this company to increase its value -- that answers the question. And we'll provide a bit more color or detail on that later. Second question from Jesus is can you provide -- or can you give more color to the working capital dynamics. We raised -- this is what we said in our -- that we raised GBP 1.1 million. This is when we did the Aquaflow acquisition, 24hr Aquaflow acquisition. How are accounts receivables or payables evolving with regard to revenue growth, Spencer?

Okay. account receivables and account payables. Well look, I think Shaun talked about the 4 divisions of the group, we have slightly different working capital dynamics associated with each -- so I think where we service FM customers, larger FM customers, clearly, they're exactly in terms of the standards that they want. And in terms of getting paid by them, sometimes that can be an admin challenge. Nothing else outside of that. I just make sure the right way to take work in place. But you will know from the report and accounts that have been through the detail. We don't have bad debts as such here. So I think, testaments to the services we deliver and the standards of those operations that we always get paid. It's just look challenging at times, making sure all the paperwork is in place to make that an easy process. On the payable side, majority of our businesses are people-centric. So we're paying payroll as opposed to necessarily third-party suppliers in the large part. Obviously, that is more routinely settled. So I don't see any problems here. What I would say is that it takes a lot of management, and we will continue to focus on the details because that's what's needed to make sure the working capital stays in a healthy pace.

Brilliant, thank you hopefully that answers that for you. Malcolm R -- any idea why such a drop in the share price recently, which is at odds with the positive news and progress. No. I do actually. I mean -- but it's not our place to mention it. Look, what you've got is a share price that is in a market that is quite what adjective to you, is quite volatile at the moment, not our share price, but the market itself and small aim companies are challenged in terms of evaluation. You only need a handful of shares to change hands and the B2B, no buyers that it kind of takes the price down and vice versa. You've seen us go up, and you've seen us come down and then go back up again. What you would have seen from the most recent announcements are that one shareholder has reduced their holding -- we know them extremely well. I've known the principals there for many years, and they are very supportive of the business, but for their own reasons, they had to take a haircut. And that's not too dissimilar to many other fund managers that are out there at the moment. At the same time, you have 2 managers, in fact, 3 managers, but 2 perhaps announced increasing their stake and you've seen those announced as well. So we've got very, very supportive and very healthy relationships with our investors. And the share price at the end of the day, will look after itself. What we've got to do is keep performing operationally. But there is no sort of hidden story here. It is what it is. We're a small cap on a market with some very well-funded fund managers who have taken a great interest in us. And from time to time, the share price fluctuates. I don't think I can add anything to that. Is there anything you feel you can add? No. Okay. Paul L. Good to see you again, Paul -- organic growth has been cumulatively impressive. Thank you. Where are you with working through and evening out of the older sometimes considerable revenue but lower-margin contracts? And how does this weigh prospectively on the top line. I think where Paul is headed with this is obviously not quite the same as what happened recently with that sort of COVID-related contract that came to an end. But sure, let's remind ourselves what our focus is, and of course, we've got some lower margin contracts, but they make a healthy contribution to our overall overheads. It's just we're not growing that kind of business, we're growing the more margin-rich business, aren't we.

Yes, absolutely. I think you covered it in one of your answers earlier talking about it might be expensive. That's probably part of the answer, but, yes, Paul will probably remember that's -- it is Paul who we think about it, remember that we gear all of the sales activity and all of our pricing towards gross profit. So we're very much focused on that. And that borne through. We've seen that again this year in terms of our margin improved slightly, the current revenues up again. and not very much where our focus will remain. Sometimes there is a larger piece of the pie to have. If you think it's the right opportunity, and it gives us a foot in the door, it's slightly lower margin than by all means we will look at it, but it just needs to fit the criteria that all 3 of us step out here for the group.

I think the other point here is that Spence has talked about our working capital profile, which is very healthy. And obviously, carrying a couple of larger contracts that might be at lower margins is not the same issue for us as it might be for others. Okay. So Paul, we're not actively looking to push these out, but we have constantly moved the margins up on our contracts and obviously the new ones. Paul again, how much scope is there to push PBT, profit before tax margin expansion going forward? What sort of medium-term targets are reasonable in brackets, LaddersFree came in as very basic, but good high-margin business. How much can you plump those margins up again prospectively? Let's take the PBT question first.

I'll take that one, Mark. We talked in one of our slides, particularly about breaking down our operating costs, and we do that for reason because KPI metrics, we use adjusted EBITDA for profit primarily removes some of the costs associated with acquisitions and in particular, amortization on the intangible assets. So PBT is after those charges. And as I know the factor in acquisitive business, we will have an increased amortization charge next year as a result of the intangible assets recognized against 24-hour Aquaflow. So without getting into accounting technical answer, I would say adjusted EBITDA is the measure we use because it takes out some of those items and that's what we're about. Adjusted EBITDA reflects our free cash flow quite neatly. They are the 2 track side by side. So really that profit measure is closely aligned with the cash that it generates. So -- and that's about growing the business contribution to the group. What we've done in all the acquisitions to date, and we will continue to do that. And as in other acquisitions, if there are accretive that will have the same impact. It will grow that EBITDA. Nearly certain businesses are more profitable than others, and I think 24-hour Aquaflow and that the good examples of high-margin businesses within the group. So we will certainly focus on those for growth. You'll see it tick up.

Yes. I think one, I mean, I don't mean to assume anything here, Paul. But I think what might be behind your question is are we going to lock down the acquisitions we've made and then grow organically. So we start to work through those amortizations. And I think that right now, we're at the size, scale and with the opportunity ahead of us, where no, I don't think we are. I think we are going to see over the next 2 years or so, another acquisition or 2 at some point. But the equal quality where we can leverage it. because at the moment, I think we are very much focused on trying to drive this consolidation story because it's an opportunity at the moment and it will bear fruits and value for our investors. But we have to balance very carefully with a low share price and leverage in terms of interest, not only on it, we've got a great business, generating great cash and we will preserve that, but take advantage of what's ahead of us. I think that's maybe where we're going but we will see. All right, Daniele S, if most of your business is not discretionary, then why is the macroeconomic backdrop relevant to trading? Because at the end of the day, there is a proportion of our business, which is less discretionary to give you an example, window cleaning, if you got an eating establishment or an establishment like a car showroom or something where looking through the window is quite important to you. You would say cleaning the window is non-discretionary, but you might turn around and say actually, I could not do it this week or do it fortnightly. And that's part of the challenge -- that is part of the challenge. The second thing is that where we have cleaning regular cleaning to do you have the opportunity to actually, again, modify the spec to just reduce it a little bit. So that it's still going to be done, but maybe to be done to a slightly lower standard. And that's where you get that kind of impact. I think it's also worth mentioning. The contract that we referred to being a COVID environment contract was in the rail industry at the height of COVID where the whole industry was very much focused on cleanliness and the fines that were being passed out to the train operators when the trains were not properly cleaned were quite extortionate, and therefore, the value of getting it right was high, and the bulk of the industry was not able to deliver that quality of service to the particular operator that we work for. And therefore, they came to us and they paid the right margin for it. Four years on, we have an industry that actually has got other cost challenges. And while it's still important between the trains, it's maybe just a little bit less important than it was. And therefore, the margin has dropped completely out of that particular cleaning regime, it has been folded into a much more broader generalistic cleaning environment. And therefore, we've chosen to walk away because we did not want to operate at those margins. At the same time, I should say, that same customer who really values what we do gave us an enlarged contract to deal with all the fatalities, oil spillage and whatever else. So that's why it has an impact. At the end of the day, if people get squeezed, they're going to find ways to cut corners. And that's what we're saying there is that impact in the market. Sorry if I stole your thunder there, Shaun, and but this is a question that does get asked and I thought it was worth summarizing the answer. Martin H. Please can you provide more details on the impact of increases in national insurance contributions within and with the national living wage who answer this question. Spencer? Shaun?

I'm going to look at the resources where we are not able to pass it on. We talked a bit about our contracts where we can pass on these cost increases. In terms of the nonfee earning staff in the group where the increase threshold and the increase in NII impact where we can't recover the cost it's going to be in around about GBP 100,000. Outside of that, we've got discretion around contract increases per the commercial arrangements, and we're working through those client discussions now. But that hopefully answers gets to the data point or after.

Yes. I think there's one point that hits part of our industry a little bit more than most, but we operate in a relatively low wage economy. Most of our people operate at living wage, not minimum wage. We are a living wage employer, and we have some that operate above that. But we do employ some part-time people, and therefore, it's not just the national insurance hike. It's actually the change to the threshold from GBP 11,000 a year to GBP 5,000 a year where you start paying employers and I that has actually had a big impact, and it will have a big impact on some of our customers as well. Okay. Two questions left. Rafael G just joined. Sorry if you already asked what level of sustaining CapEx do you expect the business needs with Aquaflow now included? You did answer it, but it was very brief. So could you give it again quickly again Spencer?

Yes, absolutely. I think it's worth saying that Aquaflow has more -- it's more capital intensive than the other REACT divisions. -- in the past the REACT division has spent GBP 150-ish million on CapEx and Aquaflow has managed to do that on their own. This year, from a CapEx point of view in the group, we've got higher CapEx as a result of Project Sparkle, but that won't be continuous unless we continue to develop and build that platform out. But I would say that 24-hour Aquaflow will be similar to what it was last year, which was similar to what the ReACT Group was last year. So it's in the mid hundreds of thousands.

Last question from Jesus. I think we have already answered it, but you might want to provide a little bit of a summary. Do you expect a meaningful raise in labor costs in brackets, higher minimum wage and for us living wage, employers National Insurance. I mean we have answered it, but do you want to just summarize again?

Yes, I think we answered that. I mean, at the end of the day, yes, there's going to be an increase to NLWMs minimum wage, and we've discussed the change in the NII and the NI threshold. But at the end of the day, we can pass most of them on to customers anywhere other than the non-fee generating people that we've got in the head office team that Spencer just touched on.

Yes. William will let that conclude the questions back to you.

Absolutely. Mark, Shaun, Spencer, thank you very much indeed for being so generous of your time then addressing all of those questions that came in from investors this afternoon. But Sean, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments to wrap up with, that would be great.

Yes. Thanks. Yes. Look, thanks for everyone for taking the time at the hour over the lunch time to jump on and watch the presentation. I think the summary here is that we remain upbeat despite some of the headwinds that we're experiencing. And to coin a famous phrase that Henry Ford once said, everything when everything seems to be going against you, remember that an aeroplane takes off against the wind, not with it. So thank you for your time. And if you've got any questions offline, feel free to reach out.

Perfect. Thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of REACT Group plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.