REACT Group PLC (REAT) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the REACT Group PLC Annual General Meeting. [Operator Instructions] I'd now like to hand over to Chairman, Mark Braund. Good morning.

Good morning. Thank you, Mark, and hello. As is the norm, I'm reading from a script. I know it sounds a little bit stilted, but that is the mode that we use for the AGM. We will take questions. We've already got some pre-submitted, and I will try -- or we will try to answer those to our best ability. But let me press on and get through this scripted component. So yes, good morning, ladies and gentlemen. I'd like to welcome you to the company's Annual General Meeting. I am Mark Braund, your company's Chair, and I will be chairing this meeting today. Thank you very much indeed for making the effort to attend. Notice of Annual General Meeting was issued on the 4th of March 2025, and due notice of the meeting has accordingly been issued to the company's members. We have a number of other shareholders in attendance at this meeting via the InvestorMeetCompany platform. But as set out in the letter from me, which accompanied the notice of the Annual General Meeting, none of you will be able to vote on the matters to be considered at this general meeting online. There are also a number of people attending the Annual General Meeting in person who are not members of the company, including certain of our advisers. Unless anyone has any objections to the attendance of such members, I shall continue by formally opening the meeting. No objections? The quorum for this meeting is 2 members present in person or by proxy. Having checked the number of persons present, I declare that a quorum is present, and I further declare the meeting open. Before proceeding to the business of the meeting, I'd like to remind you of the methods of voting at this meeting. Resolutions will be decided on a show of hands unless a poll is demanded in accordance with the Articles of Association of the company before on the declaration of the result of the show of the -- sorry, result of a vote on the show of hands. On a show of hands, every member or corporate representative who is present either in person or by proxy has 1 vote and on a poll, every member or corporate representative present in person or by proxy has 1 vote for every share of which he or she is the holder. A poll may be demanded by me as Chair. At least 5 members or their proxies, having the right to vote at the meeting or any member of the members present in person or by proxy and representing, in aggregate, not less than 10% of the total voting rights of all members having the right to vote at the meeting. So with your permission, I propose that we take the notice convening the meeting as having been read. Is this agreed? Yes. Great. By way of a reminder, questions can be submitted at any time during the Annual General Meeting via the Ask a Question function on the Investor Meet company dashboard. I would now like to introduce those members of the Board that are here. Shaun Doak, opposite me here, our CEO. There's obviously myself. Unfortunately, our other 3 directors are unable to make the meeting. Spencer Dredge, our CFO, is actually quite poorly with the virus. And I have great sympathy for him because I had the same about 8 weeks ago. I'm maybe responsible for giving it to him, and it lay me quite low. So Spencer is not here for that reason. Michael Joyce and Rob Gilbert, unfortunately unavailable to meet as well. I believe that all 3 are actually attending the meeting via the IMC platform. I would now like to start the formal proceedings of this Annual General Meeting. So we will proceed to vote on the resolutions -- sorry, forgive me. I've also got to make the -- read out the AGM statement. I made a statement this morning, and I'll read that quickly now. So in the AGM statement that was issued by our RNS first thing this morning, it says, we are pleased to report that the group is continuing to perform well in challenging market conditions. Sales and marketing initiatives have yielded positive returns across each of the divisions and the ongoing pipeline of new business remains robust as we seek to address reduced customer activity and invest in specific projects to drive growth and operational efficiencies. The Board is particularly pleased with the resilient performance and integration of the newly acquired 24hr Aquaflow Services, which completed at the end of October last year. The demonstrable success of this business was highlighted by the recent announcement of a new 12-month contract to provide contracted commercial drainage services to an FM sector customer on behalf of a landmark site in Central London. The group continues to benefit from the considerable cross-selling and upselling opportunities between each division. Whilst the uncertain macroeconomic backdrop has resulted in reduced frequencies of certain contracts, strong underlying demand remains for the group's offerings, and our customers continue to seek the best-in-class service that we proudly provide. We're also pleased to report that Project Sparkle, the development of a unified digital platform to automate, support and scale our nationwide commercial window cleaning business and our ability to cross-sell other services bought by the same customers, and potentially delivered by the same membership resource throughout the group, is progressing extremely well, and the Board is delighted with the outcomes that are being created. The Board remains mindful of the market headwinds highlighted in its full year 2024 results, but continue to have confidence in the resilience of our divisions. Its focus on mid-market opportunities with shorter decision-making lead times positions the group well to expand into -- its small share of a large, fragmented market. This is demonstrated by the recent award of contracts across the group with well-established, high-profile customers who also value the services we provide. That's the end of the statement. So I'd now start the formal proceedings. The full text of which is set out in the notice of the meeting, a copy of which you will all have received. First one -- first resolution is to receive and adopt the accounts -- sorry, receive and adopt the company's annual accounts for the financial year ending 30th of September 2024, together with the directors' report and auditor's report therein. Are there any questions? I now propose Resolution 1 as an ordinary resolution. All those in favor, please raise their hands. [Voting]

All those against? [Voting]

None. Okay. I hold 27 proxy votes, representing 12,109,499 shares in favor, 2 Chair discretionary votes of 104 shares, which are voted in favor, and no votes against and 1 vote of 14,899 shares withheld. I therefore declare that the resolution has been passed. Number 2 is the resolution to appoint auditors and to determine their remuneration. So we are reappointing Dains LLP as auditor of the company to hold office from the conclusion of this Annual General Meeting until the conclusion of the next Annual General Meeting, which accounts are laid before the company and which the directors authority to determine their remuneration. Are there any questions? No? I now propose Resolution 2 as an ordinary resolution. All those in favor, please raise their hands. [Voting]

Okay. Thank you. And all those against? [Voting]

None. I hold 26 proxy votes representing 12,065,726 shares in favor, 2 Chair discretionary votes of 104 shares, which are also voted in favor and 4 votes representing 58,672 shares against and no votes withheld. I therefore declare that the resolution has been passed. The third resolution relates to the appointment as a Director of Rob Gilbert -- Robert Gilbert, who is retiring in accordance with the Articles of Association and being eligible, is offering himself for reelection at this Annual General Meeting. The Board is recommending that Robert Gilbert be reelected as director. Any questions? No? I now propose Resolution 3 as an ordinary resolution. All those in favor, please raise their hands. [Voting]

Thank you. All those against? [Voting]

None. I hold 27 proxy votes representing 12,085,387 votes in favor, 1 Chair discretionary vote of 27 shares, which were also voted in favor and 2 votes representing 24,189 shares against and 1 vote of 14,899 shares withheld. I therefore declare that the resolution has also been passed. We now come on to Resolution 4, which relates to the authority to allot shares and grant rights to subscribe for or to convert any security into shares of the company. The maximum number of shares that may be allotted under this authority is limited to one, an aggregate nominal amount of GBP 984,858 and two, a further aggregate nominal amount of GBP 1,969,717, reduced by the amount of any allotment under one above. The authority will expire at close of business on the date falling 18 months after the date of the passing of this resolution or if earlier, at the time -- sorry, at the end of the next year's Annual General Meeting. Any questions? No? I now propose Resolution 4 as an ordinary resolution. All those in favor, please raise their hands. [Voting]

Thank you. All those against? [Voting]

None. I hold 23 proxy votes representing 12,082,227 shares in favor, 3 Chair discretionary votes of 187 shares, which also voted in favor; 4 votes representing 24,242 shares against, and 3 votes representing 17,846 shares are withheld. I declare that this resolution has also been passed. Resolution 5 will give the directors authority to allot equity securities for cash without first offering them to existing shareholders in proportion to their existing holding of shares. The authority shall be limited to: one, the allotment of equity securities in connection with a rights issue or other preemptive offer; or two, otherwise, the allotment of equity securities or sale of treasury shares to any person up to an aggregate nominal amount of GBP 295,457. The authority will expire at close of business on the date falling 18 months after the date of passing of this resolution or if earlier, at the end of next year's Annual General Meeting. Are there any questions? No? I now propose Resolution 5 as a special resolution. All those in favor, please raise their hands. [Voting]

All those against? [Voting]

None. I hold 23 proxy votes amounting to 12,048,029 shares in favor, 3 Chair discretionary votes of 187 shares, which are voted also in favor, 4 votes representing 60,186 shares against, and 3 votes representing 16,100 shares are withheld. I therefore declare that this resolution has also been passed. Resolution 6 will give the directors further authority to allot equity securities for cash without first offering them to existing shareholders in proportion to their existing holding of shares. The authority shall be limited to the allotment of equity securities up to an aggregate nominal amount of GBP 295,457, but only in connection with the financing or refinancing of an acquisition or other capital investment. The authority will expire at the close of business on the date falling 18 months after the date of the passing of this resolution or if earlier, at the end of next year's Annual General Meeting. Any questions? No? I now propose Resolution 6 as a special resolution. All those in favor, please raise their hands. [Voting]

All those against? [Voting]

None. I hold 24 proxy votes amounting to 12,068,416 shares in favor, 3 Chairman discretionary votes of 187 shares, 3 votes of 39,799 shares against and 3 votes representing 16,100 shares withheld. I therefore declare that the resolution has been passed. Resolution 7 will give the directors authority to make market purchases of the company's ordinary shares. This authority should be limited to 2,363,661 ordinary shares following the share consolidation becoming effective and will expire at the end of next year's Annual General Meeting. Are there any questions? No? I now propose Resolution 7 as a special resolution. All those in favor, please raise their hands. [Voting]

All those against? [Voting]

None. I hold 26 proxy votes amounting to 12,097,465 shares in favor, 2 Chair discretionary votes of 110 shares, which have also voted in favor, 3 votes of -- sorry, 12,028 shares against and 1 vote of 14,899 shares withheld. I therefore declare that this resolution has been passed. That concludes the formal proceedings of the meeting. And accordingly, I now declare this Annual General Meeting of the company closed. The results of the meeting will be announced to the market through our regulatory information service and posted on our website as soon as practical. Thank you very much. So that's the formality of reading the resolutions, and thank you very much for those who voted. And I now turn to the questions that we have online.

The first one is pre-submitted, so I don't have a name. And it says, good morning. Can you please let us know how the National Insurance tax increases will affect REACT Group. How much these changes in April will cost the company and what the company is doing about the exposure to the increase? Now we have answered this question online several times. So I'm going to give you the same answer as we've given and published and broadcast already. To understand the impact, you have to split our business down into those people that work in our offices and those people that work for our customers and deliver our services. If we look at those people that deliver our services, we have in all of our agreements or certainly the vast majority, I'm pretty sure it's actually in all of them, the ability to increase our charges to the customers based on any statutory uplift in costs. And this is not the first time it's happened. We had an increase last year to minimum wage and national living wage, both of which have gone up in addition to the NI, and we manage that through with our customers. This time around off the back of last year, which saw increases of nearly 10%, I think. This year, it's of the same order plus a little bit because we do employ in our soft FM business, a number of part-time workers and the decrease in threshold for where employers National Insurance impacts has had a major impact. But we have dealt with that with our customers. And if they don't work with us, they have the same problem with another supplier. And I'm pleased to say that the quality of our service and our relationships are such that we've managed to get through those challenges in a very good way. There are 1 or 2 others just to close out, but I think we're in good shape, aren't we, Shaun?

Yes.

So that's the kind of major workforce, if you like. If you think about the people that actually work in our head office, which we don't obviously have the ability to cross-charge to our customers, they're part of our overhead, the cost is around GBP 90,000 which is relatively small compared to our overall cost base. And clearly, what we're having to do is to absorb that both in terms of the growth that we're delivering and also our ability to optimize our operation for which Project Sparkle is one element of that process. So hopefully, that answers the question. We are -- it is a challenge, but one that we are absolutely over the top of and don't have any material exposures to. Second question is also pre-submitted. How significant is the Board management stock ownership? Are you considering buying more shares? So you'll have seen some activity by us buying some shares recently. And what I would say to you is in terms of shares held, I mean, I hold a reasonably substantial number and my colleagues hold some. And I have explained this, and we're very transparent about it. When we -- if we wind the clock back 5 years when we first got involved with the company, the company was in a seriously difficult state. We had revenues of about GBP 3.7 million and losses amounting to GBP 1.3 million and looked like it was going to go out of business. And therefore, my colleagues and I put our shoulder behind the turnaround without getting -- well, I didn't get paid at all and my colleagues got paid a fraction of what they should have been paid and instead took equity options as part payment. Now those options were linked to share price, only share price. So there's nothing for anything else. It's just we would benefit if you as shareholders benefit. And in that first tranche, Shaun, who sat opposite me here, has a significant number of shares that are now available to vest, but clearly doesn't want to crystallize the tax issue, but those are his. And so he has a small holding that he's bought himself, but he also has a number of shares on top of that. And that's true for some of the other directors as well. Overall, I think our shareholding is around 4%, 5%, something of that order. But with the share options that we have, which again are associated with share price, we have the option to actually earn more shares. And again, it's linked very much to you as shareholders. We've got to get the share price up to sort of I think about 2p or 3p isn't? I think it's about 3p, isn't it?

Yes.

Sorry, that's old money. Sorry about that, up to about GBP 2 or GBP 2.50 before we get more material shares flowing through from the option. So I think the key point behind the question is how committed are we to this business. Shaun was working here. I'm not going to publicize it, but I can tell you, we're working for an absolute fraction of a salary and therefore, through salary sacrifice has a material component of shares, likewise myself, likewise, 1 or 2 of the other people that were involved. We're absolutely committed. And our reward, if you like, is absolutely linked to the reward for you as shareholders. So that's that question. Now we've got a couple of questions from [indiscernible]. Although I suspect it's afternoon for you, I'd say, sorry. You said, you mentioned reduced customer activity and frequency of certain contracts. Please can you add more color on the amount and impact of those? Well, I can add more color, and Shaun may wish to add some as well, but we can't be pulled on the amount and impact right now because it's a listed company, and we have not issued any statement to that effect just yet. So we need to be careful how far we go. But very much in the same way in which we described the company at the last set of results and when we did the acquisition of 24hr Aquaflow and before that. So a similar answer to what I've given before, not a lot has changed. It's just continuing to present opportunities and challenges. So we have seen a number of our customers, especially in the low wage economy, those industry sectors which are affected by low wage economy, where this latest round of National Insurance increases, which come into effect next week, they are creating a habit with those companies' businesses. And we have been working to try and help them as we have for the tail end of last year to contain some of their costs. And to do that, there are some companies where we have worked with them to reduce the frequencies that they're cleaning so that we retain the contract, we retain the agreement, but the actual value of those contracts have reduced. And that's been happening and is continuing to happen, and that is sort of a headwind that we are having to cope with. But I will add, as we've said in the statement, that our sales and marketing drive and our pipeline of opportunities that we are bringing into that pipeline, winning and implementing are also the positive from this. We are winning a lot of business in a market that's very fragmented and it's challenged right now. So it's a counterbalance effectively. Do you want to add anything to that, Shaun?

No, I think you summarized it well. I think that the team has done really well to not lose contracts, but to navigate -- to reduce the frequencies. So our customers value what we bring to the table. That hasn't changed. And as we said, the pipeline continues to be added to on a weekly basis, even a daily basis. So we've got some good opportunities there. So the sales engine and the marketing engine is still working very well. But obviously, we've got some headwinds in some of the sectors.

Thank you. The next question from you, [indiscernible] says, given the current share price, do you consider buybacks as the best use of our capital? It's one that we are always looking at, but no conclusions have been reached. It's a very fluid situation. And I think, I can't give any indication as to what our approach will be. We'll continue to listen to our advisers and the thoughts of our shareholders. But right now, sort of can't give you a confirmation either way. That's the last of the questions online. I think if that is it, we will leave you to the rest of your day, and thank you again for joining us.

That's great, Mark, Shaun, thank you very much indeed for updating investors. If I can please ask investors not to close this session as we'll now automatically redirect you in order that you can provide your feedback so the Board can better understand your views and expectations. It's only going to take a couple of moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the Board of REACT Group PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.