REACT Group PLC (REAT) Earnings Call Transcript & Summary

Good afternoon, and welcome to the REACT Group plc investor presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to Shaun Doak, CEO. Good afternoon, sir.

Thank you very much, and thanks for everyone taking the time to jump on and join us today. I'll start by turning the slide, please. So my name is Shaun Doak. I'm the Group CEO. I joined the business originally back in March 2019. I had a spell for 11 months as Managing Director before I was appointed to the main Board as Group CEO. I got a strong track record of growing businesses in the specialist cleaning and HVAC services and also the facilities management sectors.

Hi. My name is Spencer Dredge. I'm the CFO. I joined the Board 2 years ago. As you would expect, I'm an accountant. I spent the last 25 years supporting PLC Boards and also done a 3-year period in corporate finance, mainly working in the service sector.

Brilliant. Thanks, Spencer. I'm Mark Braund, I'm the Chair. I've been involved with the business since late 2018, actually, early 2019 when it was in a much sorrier state than it is now. It's -- and we hired in Shaun initially as our MD, and he very rapidly showed his qualities, and we promoted him to CEO. That's me. So I'll leave you to press on, Shaun.

Thanks, Mark. Just turn the slide, please. Okay. So a little bit of background on REACT Group. We've continued to increase our valuable proposition in terms of the large fragmented market that we operate in. We provide specialty support services mainly to the facilities management sector across the U.K. We typically focus on markets with nondiscretionary requirements, quite often on a nationwide fulfillment basis and quite often also on a complex demand. We've got 4 pillars of the group. The first one is LaddersFree, which is our commercial window and cladding cleaning business. It's an indirect model, like a platform player. We work nationwide within that business. We've got a who's who of customers from B&M all the way down to some regional and local businesses. Typical commitments from customers in that business are anything from 12 months generally through to about 36 months. So a good idea of that business. Second one is Fidelis, which was our maiden acquisition. That's our contract hygiene and maintenance business, very strong in education, industry and NHS. Typical commitments from the customers in that business, anything from 3 years through to 5 years. So a very solid business run by a great leader. We've got the emergency and decontamination business in REACT Specialist Cleaning, which was obviously our core business when we got involved. As the name suggests, it can be anything from the unfortunate clear up and decontamination after a train fatality, all the way through to some real specialist clinical deep cleans within NHS Trusts in and around London. And the fourth and final component is 24hr Aquaflow, which was our most recent acquisition that we completed in October of '24. Predominantly drainage with some plumbing in there. We also have a pump maintenance and replacement capability, which I'll touch on later in the presentation. Again, who's who of customers. Generally on framework agreements, usually 1 of 2 or 1 of 3, very strong within and around the M25 corridor and quite often reacting within 2 to 3 hours of callouts, if not sooner. So we deliver a very valuable proposition to our customers. As I said, we've continued to establish an increasingly valuable proposition in terms of our scale, our geographical delivery and also our range of services, especially with the most recent acquisition of 24hr Aquaflow. Our strategy remains focused on building out a business with market-leading performance, and we want to achieve a minimum of GBP 5 million worth of FCF per annum within the next 3 years. And we'll do that by continuing to expand in what is ultimately a sizable and fragmented support services market in the U.K. Let's move on to the next slide, please. So just looking at our strategy. Our strategy, again, remains mostly unchanged. It has been working. We want to continue to drive our organic growth and where relevant, augment it with accretive M&A, a bit like what we've done in the past acquisitions and more recently with the 24hr Aquaflow business. We want to continue driving operational efficiencies. Project Sparkle for anyone that's followed the journey is fully live and implemented now within the LaddersFree business, and that helps us drive efficiencies and synergies. And also, we've got synergies from the recent acquisition of the 24hr Aquaflow business as well. We want to continue building out our market leader position as a specialist support services provider to mainly the FM sector across the U.K. We've got very strong recurring revenue at 93%, still high sector margins, and we want to look at continuously improving that. And as I said earlier, we want to continue building out that business with class-leading performance. We want to achieve that minimum of GBP 5 million worth of free cash flow per annum within the next 3 years. So moving on to the next page, please. And I'll hand you over to Spencer.

Thanks, Shaun. Performance summary. I think that many of you would have followed the group over recent years, but the history here is of a successful turnaround. And you can see that evidenced by the chart below. And really where the group is today, it's got -- it's continuing to grow. It's strong recurring revenues. It's high industry high margins. It's profitable. It generates cash. And now it's servicing debt following the acquisition of 24hr Aquaflow. In terms of performance for the year ended September '25, on a revenue basis, we've recorded revenue of GBP 24.9 million, which is 20% up from the prior year, of which 93% is recurring in nature. That has contributed to gross profits of GBP 8 million, which are 40% up on the prior year and delivering a blended gross margin across the group of 32.1%, which is 450 basis points higher than the prior year. EBITDA performance, GBP 3.1 million for the year, which is 27% up on the prior year, delivering an EBITDA or EPS of 13.02p per share. So really, what we've got here is continued momentum in the progress of the REACT Group. We've got strong recurring revenues, and we've got improved margins, which courtesy of the acquisition of Aquaflow and the continuation of the group. If you'd like to turn the slide, please. The purpose of this slide is to provide a little bit more detail around the administrative overheads of the group. We often get asked this question, what's in our cost base. In the income statement, we had GBP 7.8 million of overheads, of which we look at them as operational expenses, which are effectively a cash back to GBP 4.9 million. We had some exceptional items, predominantly as a result of doing the transaction for Aquaflow of GBP 267,000 in the year. So GBP 5.2 million of our overheads are cash backed, followed by some noncash items of share-based payments and the largest of the noncash items being the amortization, which we which is the unwind of the recognition of intangible assets on acquisitions. Obviously, the cash is spent in acquiring the businesses. So this is a noncash expense, and then there's depreciation of GBP 433,000. So there is a fair chunk of our operating overhead that is noncash based. Would you like to turn the slide, please?

Thanks, Spencer. So just looking at our customers, those who have seen this slide before will notice there's a few new logos through new customer acquisitions. We clearly work with a number of blue-chip customers and large facilities management companies across the U.K. We operate, as we said before, in a very diverse and resilient range of market sectors. The group typically seek out customers with a bias towards nondiscretionary services. Very low customer concentration. No single customer accounts for more than 7.6% of revenue. And just on that those logos, some of them have come through new customer wins and some of them obviously come as a result of the acquisition of the 24hr Aquaflow business. So move the slide, please. So just looking at growth. We've had strong growth, which has been underpinned by both large deals and lots of smaller successes. I won't go through every single one of them. 24hr Aquaflow is fully integrated. It's broadened our customer base. Smart Managed Solutions is a prime example of that, and there's the upside opportunity to cross-sell. LaddersFree has added a number of nationwide brands, including The Works, BP and so on. REACT Specialist Cleaning, again, secured and renewed contracts within the NHS Trust and also brought on some new logos within that division. Fidelis, done a great job with some multiyear contracts within the industrial and manufacturing sectors. And in essence, we've had a solid cadence of small- and medium-sized contract wins for all divisions throughout the year. So our organic growth continues to provide us a solid platform for continued commercial momentum. On to the next slide, please. So just looking at our strategic progress, as I said earlier in the presentation, Project Sparkle is now fully live and well and truly embedded into the business. It's delivered a step change in our operational efficiencies through just digitalizing multiple workflows and give us real-time visibility of the business. We want to obviously go into develop that into Phase 2, and we will do that as and when we secure larger contracts to give customers even more visibility and to give us the data points that we believe that will help lead the business. As I said, solid growth is underpinned by a mix of large and smaller successes. The acquisition of 24hr Aquaflow has enhanced our technical capability, and it's obviously expanded our breadth of services across the group. We have recently just launched a pump division. So that expands our technical capability, gives us the opportunity to cross-sell more service lines into the same customers, which is great, and that will give us a margin uplift as well. We've strengthened the leadership across the business. LaddersFree has a new leader in that business. She's come on board with a wealth of experience in this sector, very much sales and operational led, and she's already made a material difference to what we're doing in that business. So it will give us the ability to scale growth across the rest of the group and working in partnership with everyone else across the divisions. So Project Sparkle gives us platform advantage, should help us accelerate the growth. We'll continue to look at strategic M&A, and we obviously have done that this year within Aquaflow, which has strengthened our position, made our customers stickier. And as I said, we've strengthened our leadership. So that will allow us to continuously scale nationally and give us further momentum as we move forward. On to the next slide, please. So just a summary and outlook. We've had a strong performance in FY '25, especially considering the economic headwinds and the backdrop of the budget in H1. As I said earlier, 93% of our revenue is recurring. It's sector high margins in what is ultimately nondiscretionary specialist markets. We are mindful of the macroeconomic uncertainty. We are taking further steps to mitigate the challenges. But despite this, we see continued demand for the group services. We want to continue looking at strategic and accretive acquisitions and ultimately improve the quality of earnings and give shareholder value. And in summary, we believe that we're well positioned to achieve that 3-year goal of GBP 5 million minimum free cash flow per annum in the next 3 years. Thank you very much.

[Operator Instructions] And for your reference, a recording of today's presentation will be available on the Investor Meet Company platform shortly after the meeting has ended. As you can see, we received a number of questions during today's presentation. Could I please hand over to Mark Braund to chair the Q&A, and I'll pick up at the end.

Thank you, Alessandro. Alessandro, could you just move the slide deck back to summary? That's probably the best place to leave it. These are just appendix items that's brilliant. Thank you. Okay. So I'll chair this Q&A as I have done before. We've got a number of questions, most of which at the moment have been presubmitted. So I don't have a name to ascribe to the question. So forgive me for not being able to do that. Okay. The first one is what is the range or what is your range when looking at acquisition targets in terms of buying price, Spencer?

I'm going to answer this question. I think we've got quite a mature and developed list of M&A requirements when we look for acquisition targets. I think we always start, first and foremost, with culture. So not necessarily size of businesses, but do they fit? -- are they best-in-class? Are they people-centric? Do we think that they would complement what we've got in the REACT Group? So cultural fit is definitely an aspect. We look for accretive acquisitions where it enhances the group. We look -- ultimately, we're looking to generate shareholder value. So there's a whole bunch of sometimes financial and sometimes nonfinancial aspects that we look for in an acquisition target. In terms of sort of range of value, I think it would have to be meaningful to the group. So anything from sort of GBP 0.5 million EBITDA contribution upwards Obviously, we're not looking to buy something twice our size and create a reverse takeover, et cetera, et cetera. So it has to be consumable from a size point of view as well, a sensible fit.

And I think just on that as well, whatever we do in terms of M&A needs to be accretive and earnings enhanced in the first year, I think that is important to add. And just to continue your point, Spencer, on the cultural fit. We -- this has always been at the heart of everything we've done in terms of the business and acquisitions. We want to buy businesses that have people who are best at what they do, people who enjoy going to work in the morning and take pride in what they do and are the best of what we do. So I think that's important to say as well. And the final bit for me is we want to buy businesses where we can leverage what customers buy. So it does need to be relevant. It does need to be relevant to what we've got across the rest of the group.

And I think that's all evidenced in what we've done. Our first acquisition, Fidelis is now 3x the size -- nearly 4x the size of what it was when we bought it 4 years or so ago. LaddersFree is about 10% or 15% bigger, but we've had the challenge with the economic headwinds we had with the budget. But we also had the challenge in terms of how we could scale that business without digitizing first. Now it's digitized. We can already see the evidence of growth there with Terry at the helm. And of course, 24hr has had a fantastic first year, great people and a business that's growing. So it's not about just saying these things. It is evidenced in the things that we've already done, and that's what we'll do going forward, yes. Brilliant. Okay. Next question is, what debt level e.g. compared to EBITDA, are you comfortable with, Spencer?

Okay. So at the moment, we're about 1x on bank debt, so 1x levered on bank debt. And I think we're all comfortable with that as we sit here today. Obviously, as a business, we generate cash, and we're going to be paying down both the bank debt and the vendor debt. So -- and I guess it comes down to sort of the acquisition target as well and the quality of the asset. But at the moment, we're comfortable with where we are.

Yes. Okay. That's the best way to answer that, I believe. Thank you. One for you here, Shaun, I'm sure Spencer can talk to it as well. But AI, a big feature in business today. I hope it hasn't escaped people that we're a hands-on business. We do things that need hands. I mean there are some robotics. But at the end of the day, AI is important to us, and we are taking advantage of it in what we think are the right areas. But do you just want to share some examples, Shaun?

Yes, absolutely. We've touched on this in previous presentations. So anyone that's followed us for a while would probably know part of this answer. So the answer is yes, obviously. We use it in our sales and marketing. We use it through HubSpot, which is our CRM system. We're also doing a CX piece at the moment. So looking at customer experience, looking at sentiment analysis, looking at how we deal with engagements, how we handle calls with customers. What we do is very good, but we're always looking at incremental improvements and AI overlay gives us that capability. We're looking at how we constantly improve and utilize AI with our workflows, our RAMS, our Risk Assessment and Method Statements is a prime example of how we're doing that. And don't forget, Project Sparkle is in place in the LaddersFree business. Overlaying AI as we mature to use the product will help streamline and further improve the customer journey. But I think it's something that we're always looking at -- I've got a bit of an obsession with AI. I'm constantly looking at how we make incremental improvements. How we cut down mundane tasks, whether that's automated ticket routine or intelligent agent assist, knowledge management, automated summaries and wrap-ups, that kind of thing. So I'm always jumping on seminars and reading about this.

And I think effectively, what we're saying is it is really starting to drive better productivity. but it's also focusing us on the right things, whether it's in a sales environment -- sales and marketing environment, focusing on the customers where we can see there's an obvious need or when it comes to workflow, actually making sure that we're doing the right thing in the right way first time every time.

It allows us to be more targeted in our sales and marketing approach as well because it gives us the data points that we need to proactively and better manage or map the white space and customers and actually where we get our biggest ROI.

Yes. So we are seeing effective use and getting the results. I mean, I'm involved with a number of other businesses. And I have to say that for the size and scale of this business, which is still quite modest, I think that we're making really strong progress with using technology to support what we do with our customers anyway. So thanks for that. Next question. Given the valuation, this is the valuation of the group in terms of market cap, do you think the company is an acquisition target discuss?

I'll start this and I'll let Spencer chip in and you feel free as well. I mean, looking at the current valuation, of course, we're disappointed where the share price is. We believe we're hugely undervalued. Spencer, I don't know if you've got anything to add to that?

I would agree. Just simply on the sum of the parts, I think you could easily get to that conclusion. And I suspect others might be looking, but look, we can't talk for others. All we can do is focus on delivering the fundamental performance of the business, which is what we're trying to do.

That is absolutely right. I mean I was only reflecting on this the other day with somebody to say that what you've got here in the FM sector is a standout business, even though it's a modest in size. And I don't know any other listed business, and I'm not sure there are many private businesses that are not tech-enabled services, not software or IP driven, that have our financial profile, 93% recurring revenue, over 32% gross margins. 12% of our revenue we convert into EBITDA. And although you've got this last year where there are a couple of anomalies, both one-offs and obviously, the acquisition costs, this business is strongly cash generative. So we are undervalued in our personal opinion, which obviously makes you a target. But we've also got extremely supportive group of investors that back this management team and have backed it for the last 6 years. And we've delivered the sort of performance that we've talked about, and we will continue to do so, and I hope begin to accelerate that going forward. So yes, of course, we will be an acquisition target, but that's for other people to evaluate. We're doing the job or you're doing the job that we need to do, which is continuing to grow this business and have successful customer relationships. I didn't even talk about retention there. Our customer retention is off the chart. It's really strong. Anyway, enough of the eulogy, I'll move on. Hopefully, that's answered the question. Could you discuss your long-term ambition for the business? Where could we be in 5 to 10 years' time? Well, I'll start that by saying our immediate horizon is 3 years, get to a 5 million FCF. And we think that, that's eminently achievable by continuing the momentum that we've got. We've overcome the challenges that were put in front of us at the beginning of the financial year last year. Certainly, the second half of the second -- sorry, the last quarter and maybe part of the third quarter started to return to the sort of performance we've seen before. And we talked about the fact that Q1 this year has already started well back into growth mode. And I do believe that we've got at least another acquisition ahead of us. So that's our ambition right now in terms of the next 3 years. And I will make it clear, it's an ambition. It's not a guidance or a forecast. But I think we can carry on going from growth to growth. At the end of the day, we have a fantastic business that I was describing just now. What we lack to become really valuable is scale, and we can only work as hard as we are in terms of creating that scale. That's my view. Shaun, Spencer, you got anything to add?

Not much really. I just wanted to -- just to highlight if anyone is new to this story today, we have an indirect platform player within the LaddersFree business. We want -- now that we've got Project Sparkle in place, we want to continue to really push that. And we also want to look at what other service lines we can put down that indirect model. I think that's important to throw out there. In terms of the drainage capability, we aren't nationwide at the moment. It would -- it's part of our strategy that we do take that nationwide at some point, whether that's through acquisitions or just organic growth. And we want to continue focusing on the niche high-margin soft services provision. So as I said earlier, whatever we do in terms of acquisitions and growth will be relevant.

I just add to that before you mentioned I think, Spencer, it's really important to note that when you talk about wanting to go nationwide with drainage, we're not talking about simple ambition here. We're talking about customers actually saying that's what they want. 24hr is a tremendous business, built and run by some tremendous people who have stayed and are committed to the future with us. And their customers want them to be delivering their services further afield because our customers are nationwide by design. So this is not a naked ambition. This is follow the customer. That's what we're saying. Sorry, Spencer.

What I would just add to it is, as everyone knows from the results and the history, we are a cash-generative business. We are paying down debt as a result of the recent acquisition. In 2, 3 years' time, the vendor debt and the bank debt will be set. And then it's a case of what do we do at that point. And there will be decisions to make. And -- but at that point, we'll have a bigger business with a cleaner balance sheet, and there will be plenty of options.

Yes. Brilliant. Okay. Moving on to the next one. What is your competitive advantage? Why do customers choose you over your competitors? Shaun?

Yes, I'll take that. It comes up quite often, and it's an easy one to answer. It's -- our service excellence is one of our USPs. We're agile. We're present with customers. We don't lock teams, our sales teams in tender writing rooms for weeks and ends. We've got great customer relationships. And ultimately, our customers can rely on what we do and what we deliver, and that's why they put their trust in us to fulfill their work.

Two or three things I'd just pull out of that. And I remember us going through the COVID years where although our revenues were challenged, we still grew. And we didn't grow because of COVID. But the expertise within the business was such that we really put ourselves on the map and gained the relationship with some of those large customers that we showed on Slide 6, I think it was. And so I think we've got expertise that many other people don't have that can be deployed nationwide across a number of different specialist capabilities. There are others out there have got that expertise, but it's pocketed in one region or it's only on one service line. We can deliver services across this piece. And one of the things that I think you as a business have done and you've led this, Shaun, that I see a number of other companies don't do in a number of different industries is we cross-sell. And it's demand generated. Customers want the services that you're offering, and we're successful at doing that. And our what people might describe as being attachment rates, number of services per customer is certainly higher than anybody else I know in this space. So I think that's the key. I think the second thing that you mentioned is we're present. And you said it really quickly, genuinely a difference if we talk to our customers. We're not just there at present when we're selling. We're there after we've sold, and we're making sure the customer is getting the success they need from the product we're delivering. And therefore, your operational management team are field-based as are your sales team, very, very strong, that relationship. It's not just saying it, we're actually -- you're actually doing it. And I think that's really important that people understand that. Okay. Brilliant. Moving on. Here's an interesting one. Could you reassure shareholders that you are not looking at any further acquisitions at this time, which would, of course, further weaken the balance sheet. Well, I think we've already said we are looking, everything is within a balance. Spencer, do you want to comment on that question?

Certainly. I mean, look, obviously, we bought Aquaflow with the bank debt as everyone knows. We position that transaction on a structured basis with bank debt to benefit shareholders in the medium to long term, right? And I think it's been a really good acquisition. I don't think our balance sheet is weak. I think what it is, it reflects the -- our ability to generate cash to service debt. So I look at our balance sheet is strong in that respect. We've got very sticky customers that have been with us very little churn. We've got lots of recurring revenues and predictable cash flow. So I think that and I don't think our balance sheet is weak. Acquisitions come in all shapes and sizes, some of which we might be able to consume relatively out of our own resources, relatively speaking, and obviously, with perhaps a structure to complement. So acquisitions come in all shapes and sizes. But there's plenty of opportunities. As a Board, we will continue to assess those. That's not a commitment at this stage in any regard. It's just what we do as part of our strategy.

I think this team has worked too hard and demonstrated so much of its capability that we're not about to make a mistake on an acquisition. famous last words. But genuinely, we've been extremely careful over what we've done. And when we've done it, we've had the full backing of our shareholders. And one thing that kind of reminds people of this, we've had 2 things, let me mention 2 things. When we acquired LaddersFree, it was 6 weeks after Russia had invaded Ukraine. And we were one of very, very few businesses to actually go out and raise money amongst our shareholders. And by the way, we were materially oversubscribed. The second thing is when we did do the acquisition of 24hr, we did a small raise, really just to be supportive to our overall ambition with the balance sheet, et cetera. It was a very small raise of -- I think it was GBP 1 million. And that was oversubscribed multiple times. So our shareholders are very supportive. I'm not trying to -- by saying that, I don't want to say that we're going to go and raise money, far from it, not at these sort of levels. That's not what I'm saying. My point here is that we're not about to ruin our -- the quality of business we've got or our shareholder value by doing something rash. Everything we do, we're always engaging with shareholders to test the water, test the appetite, and we're doing things that we think are the right things to do. And so far, the evidence is we've done, I think, a very, very good job. Anyway, enough of that, hopefully answers that question. Considering the group is expecting FCF to diverge from adjusted EBITDA in the near future, is the GBP 5 million annual FCF guidance cut? First thing to say, and I'm going to say it before Spencer jumps in, there is no guidance of GBP 5 million. Never ever was it a guidance. It's only ever been on this slide deck saying what our ambition is, and that's all it is. It's not any -- it doesn't appear in any of the forecasts that are authorized. So it's not a guidance. It is an ambition. And I think we explained earlier on how we believe that we'll get there over the next 3 years. But Spencer, do you want to add anything to what I just said?

Yes. I think we are leveraged at the moment. We will be paying down debt. I think we bought very well I do think that our aspirations haven't changed in terms of generating the free cash flow that we've said that we would like to do. I think we're on a path to doing it. I just think at the moment, we are paying down debt, which we will do in the next few years. And then it's a question at that stage whether we go again or whether we can deliver on our aspirations, I suppose.

I think the other thing to be is really important is that you've got the institutional debt, bank debt, and you've got vendor debt. And we have vendor debt in every deal we've done for a reason. It's not just the financial reason, it's to demonstrate that we have bought a business that can deliver future growth and trajectory and that the owners of those businesses are committed that they believe this is the right transaction for their business as well as for ours. So that vendor debt is contingent on performance. It also doesn't carry a coupon. So it's very efficient debt -- but it is debt, nonetheless, when it comes to being viewed on the balance sheet, but it is contingent. Okay. Next one. This is one I think you will like to answer, Spencer, because I think that this one is where people's perception is possibly not considering the kind of business and financial format with which we operate, especially through acquisition. But anyway, the shortest section on your final results notice is 2 lines on earnings per share and over half of it reports and comments on adjusted EBITDA. It is the EPS that needs comment showing a loss of 1.45p versus a profit of 0.08p in 2024. Incidentally, for 2025, Stockopedia shows a forecast for normalized EPS of 6.63p profit. Would you explain the makeup of the loss and whether you expect it to show a profit in the next year. Spencer?

Right. Look, we use adjusted EBITDA and adjusted EBITDA EPS for a reason because it excludes some of the noncash overheads that we explained on Slide 5. And the biggest one is the amortization charge of GBP 2 million that hit the income statement. Now that's a noncash charge. Under IFRS on acquisitions, you recognize intangible assets and then write them off. So that's why the EPS is at a loss because we carry so many or so much materiality in terms of our costs that are noncash. And that's why we use adjusted EBITDA because it takes out some of those items. And when you look at adjusted EBITDA EPS, that's gone from 13.02 from 11.18 last year, it's up 16%. So for us, that shows the momentum at an earnings level clearer than it does at a traditional EPS level. Hopefully, that's clear and revert to Slide 5, some of those balances to make sense of that analysis and that explanation. Coming back to the second part of the question, I can't comment on Stockopedia. I've not -- I don't know what's in that forecast, EPS. There's different approaches to accounting and presentation of financial data. So I really can't comment, I'm sorry.

Okay. So just to be clear, the Stockopedia statement is not a forecast that we've either reviewed or been asked to review and therefore, has nothing to do with us. Okay. Next question. This one is one submitted during the meeting. It's from Jenny L. There's a few questions from Jenny. The first one is, with the recent national living wage increases in the U.K., that's also national minimum wage as well. Have you successfully passed on 100% of these cost inflations to customers without impacting churn? What about the inflation adjustments this calendar year? There you go is a question.

Yes, I'll take this. So I'll let Spencer take the adjustments for this year. But ultimately, yes, we have. So most of our contracts or the majority of our contracts have the ability to pass on the cost, especially in our contracted recurring revenue. When we have framework agreements, we generally have either a clause in the contract where we can uplift every year or we have it like a CPI where we can uplift it in that mechanism. So the answer to your question is yes, we are covered on that basis.

But there is a question here that talks about impacting churn. And we talked about this at the interim results. We did recognize -- and again, I want to make sure everybody understands, this is a business that's grown at a compound rate of over 20% for the first 5 years. And then last year, it's -- that growth stopped. And we've been through in that period, COVID, cost of living issues, Russia invading Ukraine, the Middle East issues and so on and so forth. And it was merely the impact of the change of government, and that's not a political statement that was beginning to impact some of our customers. And our customers -- some of our customers employ a lot of people that are on living wage or minimum wage. And it was the impact to their businesses of that policy change that then got them looking at, well, what do we have that's discretionary. Most of our services are not discretionary. If you have a flood, you've got to deal with it. If you have an incident, you got to deal with it. Window cleaning is actually critically important to how a company presents its brand, but there are some companies that were just facing a decision which says, do I clean the windows or do I pay staff or whatever? And long story short, we decided to go out and engage with the customers and rather than wait for them to tell us, look, we've gone somewhere else, we engage with them and we retain them by reducing the frequency. Instead of cleaning window every 2 weeks, we clean it once a month. But that halved our revenues for that customer -- now some of that's coming back now, but that did have an impact. And as a result, to this point about churn, we saw really, really small degrees of churn. That's really important that people understand that. So we dealt with this very sensitively. And there would have been 1 or 2 -- I remember here in a situation where because of the NI increases on top of -- we pay living wage rather than minimum wage. I only have one customer, Shaun, forgive me if I got this wrong, where we had 6 part-time workers involved in the cleaning, but they've seen their bills go up by 25%. And that's because part-time workers were dragged into employers NI where the credit threshold went from GBP 11,000 a year earnings to GBP 5,000 a year, had a huge impact on that customer. So we went and negotiated. And we gave up a bit of margin. We know that customer wanted to stay with us. But there has been a little bit of tweaking the margin around the edges. And also that business is a strong margin business. And when you go out and engage with some of the customers the way we did, we did see our revenues decline and with our profits decline, but they're now picking back up again. Again, if I've missed anything there.

Yes. No, I think you covered it. I think one thing I will say, yes, retention was a big part of our strategy last year, the year that we're talking about here, simply because of -- again, it's not a political statement, but simply because of the budget and the mess that was -- the economy was going through. The divisional leaders and all the sales team have done a really, really good job in the retention piece. And again, that's, as you said, Mark, is through the relationships that those guys have. I'm very proud and I see it myself. I'm on the weekly sales calls, and we have multiple calls. I know how hard those guys work. So they put in the hours, they care. And again, it goes back to culture. We really have to roll our sleeves over in H1 of this year that we're talking about.

Well, and again, I would also say that you shouldn't miss on yourself here, Shaun. 5 years, 6 years now you've been here, you are ever present yourself with customers. You don't sit behind the desk. So anyway, a bit of an emotional comment from us there. I hope you'll forgive us, but we think we're doing as a team, a very, very strong job, and I think the results actually demonstrate that. Next question from Jenny. Given your nonexistent leverage, this is Jenny's words, not mine, when should we expect next acquisition? Or does the bank prevent it?

I'll take this one. Well, first and foremost, I'm going to answer this by addressing the bank. I mean, obviously, we work with the bank on the Aquaflow transaction, and it's been a great deal for us and the bank have been hugely supportive. Bank relationship is relatively new. It's not been with the group that long, but I've been very impressed with the way HSBC operate and they follow the group. They understand what we are. We spend a lot of time talking to the bank about plans and aspirations, and they are supportive. In terms of next acquisitions, I mean, look, nonexistent leverage, we talked about leverage here. We're currently at effectively roughly 1x on an EBITDA basis. We are looking. We'll always look. We talked about the tick list or the wish list for an acquisition target. So we are difficult to please, right, in an effort to get acquisitions right. We will continue to look. We've said that. I think that's the best way to answer this question.

Okay. Next one from Jenny. Next acquisition will be Aquaflow type of business, I hope, question mark.

I'll start this, Spencer, you chime in. Yes. I mean, look, we're always inquisitive. We're always looking. The ones that we have looked at of late have been Aquaflow type businesses, yes. We recognize that, as I said earlier, we've got the upside opportunity to grow that business organically and through accretive M&A. So yes, but we're always got our ear to the ground. I don't know, not expensive what's going to land in our inbox on a daily basis. There might be something again like a niche soft services business that ticks all the boxes and some. So -- but yes, strategy-wise, yes, it is kind of an Aquaflow type business, absolutely.

Great. Okay. Thank you. Final question from Jenny in this section is, given the ridiculous stock price, I'm assuming ridiculously low is what you mean, Jenny. Any buybacks considered, Spencer?

Look, I think we all recognize the share price is difficult to understand. It should be a lot higher in our eyes. Stock buybacks, yes, it could be use of funds. I think at this stage, I'm not thinking that or as a Board, we're looking to maybe deploy funds elsewhere. But look, your point is well made. The share price is disappointed. And hopefully, it will rise soon with activities that we're planning.

Yes. Thank you. Next one is from George W. The share price has materially underperformed despite operational progress outlined today. What are the specific actions management is taking over the next 12 to 18 months to close the gap between business performance and market valuation? I'm going to start here, and if either of you got anything to add to that, then please do. I -- for my since, I have been in and around the AIM market for many years. And I don't think I've seen sentiment in the AIM market in those years, I mean, maybe before as low as it is right now. So this is a market issue every bit as much as it is a segment or a sector issue. What are we doing as a management team? Well, we've been communicating tirelessly over the last 2 or 3 years to the point that it doesn't seem to have any impact -- we won't stop. We will continue to communicate with the market. We have a solid base of shareholders, institutional shareholders that are supportive, as we've described earlier. I think the only thing that we should be doing -- or certainly, the only thing I think the operational management team should be doing is continuing to deliver operational performance in the way they have. And we will continue to communicate with the outside world and make sure that people recognize the value of this business. But beyond that, it is really down to the market. All we can do is focus on continuing to create shareholder value in terms of the actual asset itself. And what we're going to do now is leverage the quality of the business we have by continuing to scale it. I think that's the only thing that we can focus on over the next 12 to 18 months more than we've done before. I think going spending [ GBP 200,000 or GBP 300,000 ] on Investor Relations is a pointless waste of money. We already spend quite a bit. I don't see us actually spending any more because I don't think a company like ours will have an impact. But we are always talking to investors, and we are adding new investors on a regular basis, interestingly, those that sit below the sort of 3% threshold. So the share price is somewhat out of our control. We can -- the only thing that is in our control really is performance, and that's what we're doing. That's what we have been doing. That's my view. Shaun, do you got any different?

Yes, absolutely. I think you hit the nail on the head. What I will say is there's some things that we can control and some things that we can't and share price to a degree is something that we can't, unfortunately, I wish we could. All we can control is what we do on a day-to-day basis. And as I said earlier, super proud of the work that my entire team do, and that includes these 2 guys who are either side of me on the presentation. We work damn hard. We care about what we do. We want to -- we're doing this not for -- not because we just want to -- we're here to do a job and create shareholder value. So we'll just concentrate on the day job, get our heads down as we continue to do. And we'll push forward. We've got Project Sparkle that's live now. So the upside opportunity within that business and the LaddersFree is exciting. As I said earlier, we've done the acquisition of Aquaflow, great bunch of people, some fantastic founders and leaders in that business who are engaged and committed to really pushing that business on regardless of whether it's through organic growth or a mix of organic growth and M&A. So yes, I mean, H1 was challenging H2. We saw that the sales pipeline started to move, which is great. We didn't lose anything in H1. Q1 has started well, and I hope that continues. So we just need to concentrate on our day job, and that's ultimately where I'm at.

I'd complement that and say, actually, I think we're quite well placed for the future. We've hired well in the year. We've delivered Project Sparkle. We've got new service lines in Aquaflow, aspirations for further new service lines in Aquaflow. I think there's -- I also think we've delivered a decent set of results. I think there's an awful lot under the bonnet here that is there for growth and the benefits of this year to FY '26 and beyond. So I think we're well placed.

Okay. Next one. This is an interesting one for you, Spencer. James W. asked, how do we define recurring revenue?

Yes. Look, I think we talk about 93% recurring revenue. We have a very, very stable client base, whether we deliver contracted revenues to them in a more standard monthly way or whether the framework agreements where we call revenue off as and when we pick up quite a lot of project and ad hoc revenues as a result of the same customers. All of that is recurring revenue.

Yes. So just to be clear, it's what people will classically call recurring. So we're going in each day of the week to go and clean something or maintain something. And it's reoccurring where we're on a framework where we are 1 of 1, where we are the company on call to go and deal with an incident or a drainage problem or whatever else. That is all recurring revenue as we're classifying it, and that's the 93% number. But a large part of our revenue actually is recurring in relation to their maintenance-based contracts. Okay. Next one from Tudor T. I'll answer this one. The 3-year target of 5 million FCF we shared a while ago. Can we get some updates into the time lines for the 3-year target? Is it 3 years from now or from when it was first announced? No, it was first announced a few years back or 2 years back, and it was a 5-year ambition at that point, not a target, an ambition. And we're really talking about we will exit 2028 is our ambition at the GBP 5 million run rate. It's a run rate ambition, always has been. But I hope by that, and it is 3 years from now, it's 2028, actually 2028. Hopefully, that answers that one, Tudor. George W. are there any active acquisitions being reviewed currently? If so, can investors look forward to acquisitions in the next 12 to 18 months? We cannot answer that. That would be a forward-looking statement. And the answer is, I think we've shared enough unless either you guys think we can add any more that we always look at -- and actually, I should say, by the way, this is my job because the guys are very much more focused operationally, and we don't want to be distracted from our operational challenge looking at acquisitions. But it's my job to go look through and sift the acquisitions are out there and then involve Spencer in the first level and then eventually Shaun, if we think we've got something that needs to be looked at seriously. And that's an active process, but cannot -- I hope you understand, George, for market reasons, we cannot be any more specific than that, can we?

Yes, I don't think so. I think you answered that one quite well. And we touched on part of the question earlier on as well.

Yes. Paul L, with greater ongoing capital intensity through Aquaflow acquisition and the interest payments on debt, do we need an improved reported operating metric other than EBITDA, Spencer?

Well, we don't just look at EBITDA. We look at margins, other operating profit measurements, utilization, stuff like that. What I would say is EBITDA is generally accepted in the market for lots of reasons, valuations, comparability, et cetera, et cetera. So we will continue to use that. But we -- and it is a relatively standardized measure, albeit non-GAAP. But we do look at a whole bunch of other things as well, just to reassure you.

Next question from George W. I'll start with this one. Given the importance of retail investors on AIM, are there plans to be more proactive in using platforms such as X and LinkedIn to communicate milestone strategy and execution rather than relying solely on RNS announcements. The answer to that question is yes, not necessarily X, but certainly LinkedIn, and we have been for at least the last 2 years. And in actual fact, we have seen overseas investors who are material, by the way, not just a few quid, material investors coming on board as a result. And we'll continue to do that. I think that we probably aren't doing it as well as we could be. That's an area for us to continue to improve, but we have been doing it for a couple of years, and it does have an impact. But of course, just to be clear, it doesn't replace RNS. RNS is the first port of call when it comes to announcing anything. But the follow-up in terms of our marketing strategy with that information on LinkedIn for the group is certainly in place and will improve. Next question, one to the last two. Kevin C, what is the geographic distribution of the business? Do you want to cover that, Shaun?

Yes, I'll take that. So Aquaflow is -- goes probably north as Peterborough. And then -- but as I said earlier, the majority of their work is concentrated within and around the M25 corridor. That's where the majority of the customers are in London. The LaddersFree business is fully nationwide, as I said earlier. We're also doing work in Ireland as well. And then we've got REACT Specialist Cleaning, that's nationwide. We've done work in Ireland also. And then Fidelis, which is the contracts soft-FM business. We predominantly Midlands-based. We go far as North, West as Manchester, far North, East as -- North East Midlands, so like Mansfield area. And then we go down to London. We've got some NHS trust that Fidelis look after now as well. So I hope that answers the question.

Yes, absolutely. Thank you. Last question, but I will say thank you to your comment, George W. George has just said thank you. So thank you very much, George. But the last question that is a question is from Paul L, which I will take. One of your key shareholders -- we've got another question in a second anyway. One of your key shareholders has criticized you for not focusing enough on essential services that customers can't avoid needing due to urgent call to action. Is this criticism justified? The criticism seems to be directed at LaddersFree and Fidelis. So look, we're always open to criticism and critique. We don't have a monopoly on all the right answers. I'd like to think we get the right answers most of the time, but we learn from any mistakes. I know this particular investor. And what he has stated is actually inaccurate and untrue. But parts of what have been stated is inaccurate and untrue. But I will be very clear that we would always love to and focus on those businesses that are lacking any discretion from the customer at all. And that's where we sit with the Aqua business and it's also where we sit with the REACT business. The challenge with the REACT business is always and why we built the group the way we have because REACT was the initial starting point is that it can be feast and famine. We have a great reputation and a great name, but it comes in peaks and troughs depending on whether those situations occur or not. And when we first got involved with this business 6 years ago, the business had turnover of GBP 3.8 million and was losing GBP 1.3 million a year, primarily because of that. But the customers love what we did. So we built on that and leveraged it. So that's the first thing. The stuff we do in REACT is not discretionary. You actually have to do it in order to make your premises safe and clean, but it comes in ways, yes. So that's the first thing. Fidelis is just a constant business, and you cannot not clean stuff. And Fidelis has not really been under any threat of losing frequencies. I think where this gentleman or this lady or I do know -- I think I know who it was, is referring is in LaddersFree. But I say to you that if you talk to some of the major retailers that are out there, they will tell you it's absolutely essential for the presentation of their brand that they rely on that the windows are clean. Now they might be able to reduce it from -- once every 2 weeks or once every week to once every 2 or 3 weeks, but they still need to do it. Otherwise, they'll start to see attrition of their customers. And there are some brands, I won't name them, but some big brands that actually have it written into their management system that you will clean the windows every week, every week. And that never changed and hasn't changed recently. So at the end of the day, we have a mixed blend of a business -- and I think that, that business has done us extremely well. Each of those components we've got have brought and added something to the table that means we have a mix that's really well balanced and in demand. Would we wish that everything was nondiscretionary? Absolutely. But that's not where we are. And I think we've done very well with what we've got, and we'll continue to do well. But we'll always listen to investors in terms of what their opinions are and see if we can modify. At the end of the day, this team is the team that's at a sharp end and talking to customers in terms of what they want and what they need. And they're the business people running the business operationally as successfully as they are. And sometimes it's easy to criticize that without actually understanding the detail. And I think in this case, I'm very much behind the management team has done some of the right things. And as always, there'll be some things we could have done better and we're listening, and we will continue to learn from that process. Anything to add, gents?

No, I think you've answered that one fairly well. I don't think there's anything else for me to add. We share the same views. We don't have a monopoly on being right all the time. We're always open to comments and constructive criticism, and we'll always listen to them. And if we can improve things, we'll always do it. I think that's where we are really.

Yes. But I will say just on this one point where we think we know where this criticism is coming from, it was to do with our whole approach to LaddersFree. And up until having Sparkle in place, it was financially a real challenge to grow the business, even though we did grow it, we expanded our business because it wasn't digitized. It meant -- and I won't bore this audience with the detail, but it did mean a meaningful amount of challenges while it was always paper-based. Now it's digitized. That took time and the investors knew that. Now it's digitized, -- of course, we can go drive that business extremely strongly. But we did the right thing in terms of, a, making sure that we are satisfying customers and retaining them. And we did the right thing in our opinion, back 12 months ago when the challenges were being faced by our customers around the economy. And the results have demonstrated that in the last 4, 5 months. Anyway, as you can see, we do feel passionately about what this team is doing. And criticism, happy, constructive criticism, very happy. But hopefully, you get the sense that we feel this business has actually been run pretty well. There is an additional last question. There's another one. Oh, there's two. I think we ought to stop it here for the interest of everybody because it is now 1:00. But I'll read the last two. Martin H, can you define what you mean by free cash flow for the 3-year, you say target, I'm going to say ambition. What do we mean when we say free cash flow, Spencer?

Right. This is a financial metric, obviously, financial KPI. It works from cash generated from operations, less the cost of servicing debt instruments and investments in capital items effectively. But there will be other free cash flow measures, no doubt, but that's how we look at it.

Last question. Sam W, this is a very interesting topple question. Are you exploring adding any BTC in brackets Bitcoin on the balance sheet?

No.

We know how to run businesses. We don't know how to make money from things like Bitcoin. So won't be going anywhere near that, unfortunately. So that's the answer. That's the end of the Q&A. Alessandro, should I pass back to you, please?

That's great. Thank you for answering questions from investors today. Before we ask investors to share their feedback, which I know is very important to you and the company, Shaun, could I please just ask you for a few closing comments?

Yes, look, I just want to thank everyone for, first of all, the in-depth questions. We probably have more questions on this presentation than we've ever had before, and there's quite a lot of presubmitted. So thanks for taking the time to send those across. Thanks for taking the time to listen to the presentation. As always, if anyone's got any questions, direct them to our broker, we're always happy to take them. And yes, thanks for the continued support.

Thank you. Once again, could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback, which will help the company better understand your views and expectations. On behalf of the management team of REACT Group plc, we would like to thank you for attending today's presentation, and good afternoon to you all.