REG - Franchise Brands PLC - Final Results
09/03/2023 07:00
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RNS Number : 3715S Franchise Brands PLC 09 March 2023
9 March 2023
FRANCHISE BRANDS PLC
("Franchise Brands", the "Group" or the "Company")
Final results for the year ended 31 December 2022
Another significant and highly successful year for the Group
Record organic growth at Metro Rod and transformational acquisition of Filta
which has performed ahead of expectations
Franchise Brands plc (AIM: FRAN), an international multi-brand franchise
business, is pleased to announce its audited results for the year ended 31
December 2022.
Financial highlights
· Revenue increased by 72% to £99.2m (2021: £57.7m) reflecting record
organic growth from the B2B Division, complemented by the acquisition of
Filta.
· Adjusted EBITDA* increased by 80% to £15.3m (2021: £8.5m).
· Adjusted profit** before tax increased by 98% to £12.8m (2021:
£6.5m).
· Statutory profit before tax increased by 78% to £10.3m (2021:
£5.8m).
· Cash conversion (after adding back acquisition and reorganisation
costs) of 79% (2021: 97%). The decline was due to additional trade debtors at
Metro Rod on increased system sales.
· Net cash*** of £8.0m at 31 December 2022 (2021: £6.5m).
· Adjusted EPS** increased by 51% to 8.38p (2021: 5.55p).
· Basic EPS increased by 54% to 6.81p (2021: 4.42p).
· Final dividend of 1.1p per share proposed (2021: 0.9p per share),
giving a 33% increase in the total dividend for the year to 2.0p per share
(2021: 1.5p per share), 4.2 times covered by adjusted profit after tax (2021:
3.7 times).
Operational highlights
· Completion of the transformational acquisition of Filta in
March, establishing an international footprint, a broader range of
complementary services and considerably enhanced scale.
· Filta International has delivered strong results, ahead of our
expectations, driven by the full recovery in its key commercial customer
sectors and the elevated price of cooking oil.
· Excellent performance of the newly-created B2B division with revenue
growing by 34%.
· Metro Rod and Metro Plumb system sales increased by 19% to a record
£60m.
· Willow Pumps sales increased 14% and accelerated its cross-selling
strategy.
· Significant turnaround in productivity at Filta UK which has been
integrated at pace.
· B2C division franchisee recruitment and retention affected by the
unusual labour market and post-Covid employment trends, nevertheless,
underlying franchisee trading remained robust.
· Continuing to leverage efficiency-enhancing technology across the
Group.
Current trading and outlook
· Good momentum in the B2B businesses continued into 2023 to date,
reflecting defensive growth opportunities for its essential services to
resilient and diversified sectors.
· Filta International maintains excellent progress in North America.
· Strategic review has concluded there are greater opportunities for
the Group for organic, acquisitive and international growth within the B2B
franchise sector. The B2C Division is therefore being offered for sale.
*Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation,
exchange differences, and share-based payment expense and non-recurring items.
**Adjusted profit before tax and Adjusted EPS are before amortisation of
acquired intangibles, share-based payment expense, exchange differences and
non-recurring items.
*** Net Cash is cash less hire purchase obligations and obligations under
leases.
Stephen Hemsley, Executive Chairman, commented:
"2022 was another significant and highly successful year for the Group, with a
strong performance driven by record organic growth in the Group's UK B2B
division complemented by the transformational acquisition of Filta, which has
performed ahead of our expectations.
"The excellent momentum in the B2B businesses has continued in 2023 to date,
as we capture the defensive growth opportunities afforded by the Group's
mostly essential services, strong leadership positions in its chosen markets,
and reputation for high quality, reliable services among its diversified
client base.
"We look forward with confidence to expanding the business organically and by
seeking further earnings-enhancing acquisitions. We have clear opportunities
to grow our franchise businesses through further investment in sales and
marketing, supporting franchisees to expand their services, and leveraging
efficiency-enhancing technology. In addition, our focus on B2B franchise
businesses provides a strong platform from which to seek selective
acquisitions of van-based businesses that provide essential services, as we
seek to expand our international footprint."
Enquiries:
Franchise Brands plc + 44 (0) 1625 813231
Stephen Hemsley, Executive Chairman
Andrew Mallows, Interim Chief Financial Officer
Julia Choudhury, Corporate Development Director
Allenby Capital Limited (Nominated Adviser and Joint Broker) +44 (0) 20 3328 5656
Jeremy Porter / George Payne (Corporate Finance)
Amrit Nahal (Sales & Corporate Broking)
Dowgate Capital Limited (Joint Broker) +44 (0) 20 3903 7715
James Serjeant / Russell Cook / Nicholas Chambers
Stifel Nicolaus Europe Limited (Joint Broker) +44 (0)20 7710 7688
Matthew Blawat / Francis North
MHP Group (Financial PR) +44 (0) 20 3128 8100
Katie Hunt / Catherine Chapman +44 (0) 7884 494112
franchisebrands@mhpgroup.com
About Franchise Brands plc
Franchise Brands is an international, multi-brand franchisor focused on
building market-leading businesses primarily via a franchise model. The Group
currently has a combined network of 586 franchisees across six principal
franchise brands in the UK, North America and Europe.
Franchise Brands' focus is on B2B van-based reactive and planned services.
The Company owns several market-leading brands with a long trading history
which benefit from the Group's central support services, in particular
technology, marketing, management experience and other group resources. At the
centre of Franchise Brands' business building strategy is helping its
franchisees grow their businesses.
Franchise Brands employs 415 people from 5 principal offices in
the UK, Orlando, Florida and the Netherlands.
For further information, visit www.franchisebrands.co.uk
(http://www.franchisebrands.co.uk/)
CHAIRMAN'S STATEMENT
Introduction
I am pleased to report another significant and highly successful year for the
Group. The Group's strong performance was driven by record organic growth at
Metro Rod and the newly formed UK B2B division, complemented by the
transformational acquisition of Filta Group Holdings plc ("Filta") which has
performed ahead of our expectations. This strong performance has been
delivered in challenging macro-economic conditions, highlighting the strength,
resilience and growing diversification of the business model.
These B2B businesses offer substantial potential for future organic growth,
supported by the relatively essential nature of the services they provide and
the strength and quality of our franchise networks. Our businesses have small
shares of their large, yet relatively fragmented markets, where our scale and
ability to serve customers through a one-stop range of services is becoming
more of a competitive advantage. We have identified multiple levers to help to
maximise business potential, underpinned by efficiency-enhancing technology,
which will drive sustainable organic growth and operational leverage.
The acquisition of Filta has taken us from a UK-focused company to one with
an international footprint. Our ambition is to continue to expand
internationally, both organically and by acquisition, with the objective of
generating our income equally from the UK, North America and continental
Europe. Since the IPO of Franchise Brands in 2016, approximately 50% of our
EBITDA growth has been organic and we continue to see this as a key driver for
the business.
Corporate Activity and Strategic Review
On 16 February 2022, we announced the agreed terms of a recommended all-share
offer to acquire Filta. The offer became wholly unconditional on 10 March 2022
and the acquisition was completed on 1 June 2022.
On 25 May 2022, we announced the early settlement of the earn-out
consideration for the 2019 acquisition of Willow Pumps. This has enabled an
accelerated programme of integration and harmonisation across the Group's B2B
division following the acquisition of the Filta business in the UK, and is
facilitating the accelerated expansion of pump services within Metro Rod.
In our year-end trading update on 12 January 2023, we announced a strategic
review of the B2C division. While we consider the factors that depressed
franchise recruitment and retention in 2022 were transitory, there are greater
opportunities for the Group for organic, acquisitive and international growth
within the B2B franchise segment.
Our B2B organic and acquisitive growth focus will be on van-based delivery of
reactive and planned essential services. The attractions of the B2B sector are
that commercial customers typically have a regular recurring need for our
services, coupled with a greater average spend and, therefore, higher lifetime
value. Franchise Brands has a strong competitive advantage in these sectors
given the ability to cross-sell an increasing range of complementary services
and develop marketing synergies.
The Group's operational structure is also best suited to developing B2B
businesses, in particular where we can leverage our scaleable technology to
drive efficiency and operational gearing. Finally, B2B franchise businesses
are more attractive acquisition targets for us as they tend to be larger,
royalty-based, international businesses with greater potential for growth.
In December the Board appointed finnCap Cavendish to seek a buyer for the B2C
division, and as a result, we are required to disclose this division as a
discontinuing activity within these accounts. However, we continue to operate
this division as normal, pending a sale, and indeed expect to see a
significant recovery in franchise recruitment in the current year following
the slowdown in the second half of 2022. As noted below, this division was
16.7% of Group EBITDA in 2022.
B2B Division
The B2B Division, which includes Metro Rod, Willow Pumps, and the UK business
of the newly-acquired Filta group, had an excellent year growing system sales
by 29% to £90.2m. Statutory revenue grew by 34% to £71.4m and Adjusted
EBITDA by 30% to £9.2m.
Metro Rod and Metro Plumb
Metro Rod and Metro Plumb experienced continued strong momentum in 2022, with
system sales growing by 19% to reach £60m in the year. This growth was
underpinned by continued progress on initiatives to widen and deepen the
services offered by franchisees. Pump sales, which have an average order value
nearly five times that of drainage, grew by 80%. This, together with the
continued investment by franchisees in tankers, helped drive tanker and pump
sales to a record 22% of system sales.
Franchisees experienced strong growth in their businesses, with one of the 42
Metro Rod franchisees exceeding £3m in sales for the first time, another five
exceeding £2m in sales (2021: 1), and 27 exceeding £1m in sales (2021: 24).
This growth was spread through almost the entire network, with 48 of the 55
Metro Rod and Metro Plumb franchisees growing their businesses (2021: 47 out
of 49) and 27 franchisees growing by more than 20% year-on-year (2021: 32).
Metro Plumb continued to expand with the recruitment of 6 new stand-alone
franchisees bringing the total to 13 at the year-end. System sales (including
Kemac which operates 5 Metro Plumb territories) grew by 23% in the year. We
continue to focus on the recruitment of more independent Metro Plumb
franchisees and broadening the customer base in both the commercial and
domestic plumbing sectors.
Willow Pumps
Willow Pumps made an increased contribution in 2022, with total sales growing
by 14% to reach £18.2m in the year. This was driven by a strong recovery in
supply and installation work which increased by 43% and an 8% increase in
service work.
The early settlement of the Willow earn-out consideration enabled greater
progress with initiatives between Willow Pumps and Metro Rod to deliver pump
services in an optimum way by utilising the Metro Rod depot network. Of Willow
Pumps' total revenue, 18.4% (2021: 11.5%) was delivered by the Metro Rod
network, demonstrating the acceleration of our cross-selling strategy. It is
our objective to further increase the proportion of pump work undertaken by
Metro Rod franchisees. As this will move margin between the two businesses, we
expect Willow Pumps' profitability to grow more slowly in future years.
Filta UK
The UK business of the Filta group was acquired in March 2022. It delivers a
wide range of complementary services, primarily to commercial kitchens, via a
combination of a direct labour organisation ("DLO") and franchisees. These
services include: fats, oil and grease (FOG) solutions; cooking oil
filtration; fryer management services; extraction vent cleaning and servicing;
pump and drainage servicing; and on-site fridge and freezer seal replacement.
The services can help commercial kitchen owners to address environmental
impact and enforcement; assure health and safety compliance; reduce energy and
other operating costs; and improve food quality.
Filta UK has undergone a period of rapid change as part of the creation of the
B2B division, with the streamlining of the management structure, the sharing
of central services such as health & safety and HR and a refocusing of the
business on improving customer service and optimising service delivery.
This has resulted in a significant turnaround in productivity and
profitability. We see significant potential to grow these franchise and DLO
businesses by expanding their capacity and coverage and enhancing service
delivery through our B2B franchise networks. The quality of Filta UK's
blue-chip customer base also provides an opportunity to cross-sell many of the
other services offered by the B2B division.
Filta International
The North American division of the Filta group, which was acquired in March
2022, has performed strongly and ahead of expectations. This has been driven
by the full recovery of its key hospitality customers and the heightened
demand for the FiltaFry oil filtration service due to the elevated price of
virgin cooking oil, as the FiltaFry technology can double the usable life of
the oil. This has also driven the value of used cooking oil, which is
collected from customers and sold by Filta North America for reprocessing into
biofuel.
As a result, Filta North America system sales increased 51% for the twelve
months of 2022 to reach $92m and exited the year with a record sales
run-rate of $100m per annum (Franchise Brands only owned the business for
approximately ten months in 2022). The additional income generated has been
used by many franchisees to expand their businesses by investing in new mobile
filtration units ("MFU"), which will further drive both sales and used oil
collections in the coming years. Customers are also increasingly valuing the
monthly Environmental Impact Reports we provide. These quantify the farming,
processing and packaging environmental benefits of extending the life of the
oil and detail the additional savings of recycling the oil into biodiesel.
Filta's market penetration is very low and our "maximum potential model"
indicates a potential market size of approaching $1bn based on feasible levels
of market penetration and average customer spend. We have developed an
accelerated expansion plan called "Filta Max" to seek to capture more of this
available market. The key drivers are increased investment in sales and
marketing and the accelerated development of un-franchised areas (one-third of
the US) or under-serviced areas of existing franchised areas. We expect to
start seeing the benefits of this investment in 2023.
The small and currently sub-scale Filta operations in Europe have recovered
more slowly as a result of the slower reopening of the hospitality sector. Due
to the structural differences in the market, with a much lower density of
fryers per location, the economics of the European business are on a reduced
scale to that of North America. Most franchisees offer the core oil filtration
service and limited collection and recycling of used cooking oil, although
some are engaged in the servicing of grease recovery units ("GRUs") in
commercial kitchens, which we see as an area for future development.
B2C Division
The B2C division, which comprises ChipsAway, Ovenclean and Barking Mad, had a
satisfactory level of franchisee recruitment in the first six months of the
year. However, as anticipated in my half-year report, recruitment in the
second half of the year was weak with only 10 new recruits (H2 2021: 28),
bringing the year-end total to 39 recruits (2021: 57), markedly lower than the
5-year average of 55. We attribute this to the high levels of employment and
wages which have made self-employment a less attractive option, combined with
a low level of redundancies during 2022. Since the year-end, there has been a
recovery in enquiry levels which is feeding through in improved recruitment in
Q1 2023.
The reduced level of recruitment has been compounded by slightly higher rates
of attrition, but this abated in the second half of the year. The total number
of leavers in 2022 was 69 (2021: 64), slightly higher than the five-year
average of 65. As a result, the total number of B2C franchisees at the
year-end was 349 (2021: 379). The reasons for the attrition are a combination
of a return to employment by some franchisees, given the high salary levels on
offer in specific sectors, compounded by the post-Covid trends of work-life
balance and the so-called "great resignation" that have seen some opt for
early retirement.
Underlying trading in the franchise communities of all three brands remains
robust, as our generally older and more financially secure customer base is
reasonably resilient to the current cost-of-living pressures. Therefore, we
believe we have a significant degree of resilience before our franchisees'
income would be impacted by any economic downturn.
Azura
In 2021 we acquired Azura, a leading franchise management software system
developer, to secure full ownership of the IP in our Vision works management
software. We also saw an opportunity to help Azura further develop and market
its franchise management software as a service ("SaaS") solution to other
franchise businesses. Whilst Franchise Brands continues to be Azura's largest
customer, we have added a number of new customers during the year and have
refocused the sales effort onto larger brands. We have also been developing a
new flagship franchisee recruitment product and have focused on ensuring that
we deliver the highest levels of customer service.
Digital Transformation
We continued to accelerate our digital transformation of the business. The
acquisition of Azura and its team of embedded developers has helped increase
the pace at which new features can be added to our Vision platform. Additional
functionality in 2022 included a new customer quotations system, additional
self-service features for our "Connect" customer portal, and several invoicing
features. This has allowed us to continue to automate an increasing number of
processes, reduce costs for both us and our franchisees, improve efficiency
and enhance customer service and engineer job satisfaction. Our robotics
automation journey has also progressed as we launched our own platform during
the year which allows us to increase the levels of automation of job logging,
invoicing and email handling. Over the past five years, system sales per
Support Centre employee have more than doubled demonstrating how technology is
driving operational gearing.
We have also made progress in developing technology-enabled solutions which
can help us address business-critical issues. A key focus has been the
development of an advanced scheduling tool to improve engineer utilisation and
efficiency, a vital requirement in the current tight labour market. Trials
have been ongoing during the year and indicate an initial reduction of
unproductive, and therefore unbillable, time of 23 minutes per engineer per
day, improved working conditions/hours for engineers and improved customer
service. This represents a significant amount of additional potential capacity
across the Metro Rod and Metro Plumb resource base of over 550 engineers with
any incremental sales achieved using this time being at a very high margin,
with minimal incremental cost, which will significantly enhance franchisee
profitability.
Our technology team has also been reviewing Filta's IT platforms, particularly
in the UK DLO, to identify opportunities to automate operational processes and
we are looking at areas where Filta's IT platforms might further improve our
existing systems.
Outlook
The excellent momentum created in the B2B businesses in 2022 has continued in
2023 to date without any noticeable impact from slowing economic growth or the
rising cost of living. We provide mostly essential services, have strong
leadership positions in our chosen markets and enduring goodwill from
customers as a result of the continuing high quality, reliable service we have
delivered over recent years. We have multiple levers to grow market share and
maximise growth across our franchise businesses through further investment in
sales and marketing, particularly where we have a unique service with
relatively little competition, as in the case of Filta in North America,
underpinned by efficiency-enhancing technology.
In addition to our organic growth strategy, we are determined to seek to
expand the Group through selective acquisitions of van-based B2B franchise
businesses that provide essential services. We also wish to expand our
international footprint, with the longer-term objective of having a group of
franchise businesses that generate their income equally from the UK, North
America and continental Europe.
Conclusion
We have had another busy year and have been very pleased to welcome our new
Filta colleagues to the Group. There is always something new to learn from the
way another business model is executed, and we are certainly exchanging many
great new ideas with the Filta team that will benefit the enlarged Group.
I would also like to thank both the franchisees and corporate teams for their
hard work and dedication in a year that has seen its challenges, particularly
with a difficult franchise recruitment environment in the B2C division and a
certain amount of change with the creation of the B2B division.
We look forward to the rest of 2023 with great enthusiasm and confidence and
are determined to capitalise on the excellent momentum we have created in 2022
to both continue expanding the business organically and seek further
earnings-enhancing acquisitions.
Stephen Hemsley
Executive Chairman
9 March 2023
FINANCIAL REVIEW
Summary statement of income
2022 Continuing Operations 2022 Discontinuing Operations 2022 2021 Continuing Operations 2021 Discontinuing Operations 2021 Change Change
£'000 £'000 £'000 £'000 £'000 £'000 £'000 %
System sales 160,580 25,773 186,353 69,978 23,593 93,571 92,782 99%
Revenue 92,729 6,423 99,152 51,262 6,427 57,690 41,462 72%
Cost of sales (61,936) (1,251) (63,187) (34,396) (1,368) (35,763) (27,424) -77%
Gross profit 30,793 5,172 35,965 16,867 5,060 21,926 14,039 64%
Administrative expenses (18,066) (2,618) (20,684) (11,031) (2,422) (13,453) (7,231) -54%
Adjusted EBITDA 12,727 2,554 15,281 5,836 2,638 8,474 6,807 80%
Depreciation & amortisation of (2,093) (188) (2,281) (1,555) (162) (1,717) (564) -33%
software
Finance expense (14) (235) (283) (10) (292) 57
(221) 20%
Foreign Exchange 28 28
28 - - - - 100%
Adjusted profit before tax 12,793 3,998 2,466 6,464 6,329
10,441 2,352 98%
Tax expense (409) (2,560) (791) (363) (1,154) (1,406)
(2,151) (122%)
Adjusted profit after tax 10,233 3,207 2,103 5,310 4,923 93%
8,290 1,943
Amortisation of acquired intangibles (1,504) (393) (393) (1,111)
(1,504) - -
Share-based payment expense (510) (25) (535) (302) (32) (334) (201)
Non-recurring items (1,708) (187) (187) (1,521)
(1,708) - -
Other gains and losses 1,232 223 223 1,009
1,232 - -
Tax on adjusting items 600 (391) (387) 987
595 5 4
Statutory profit 6,395 1,923 8,318 2,159 2,075 4,233 4,085 97%
The Group's results include a maiden contribution from Filta for the
approximately ten-month period since the acquisition in March 2022 and the
first full year of Azura which was acquired in November 2021. Following a
strategic review, we are required to disclose this division as a discontinuing
activity within these accounts.
Systems sales, which comprise the underlying sales of our franchisees and the
statutory sales of the DLOs, grew by 99% to £186.4m (2021: £93.6m). System
sales is a KPI of the business as it is considered to be a better indicator of
the operating activity of the business than statutory revenue as it is the
main driver of our MSF income and DLO margin.
Statutory revenue, which is made up of many different types of revenue, some
recorded on a gross basis and others on a net basis from franchisees,
increased by 72% to £99.2m in the period (2021: £57.7m). This also impacts
gross profit as a KPI, as some items included within statutory revenue, such
as National Advertising Fund ("NAF") contributions, have no cost of sales and
therefore have a 100% gross margin even though all costs are included within
overheads and the Group makes no profit on this "income". The relevant KPI is
analysed in detail when considering each business.
Initial cost savings made in the integration of Filta and the continued
efficiency gains arising from the digital enablement of the business has
resulted in overheads increasing by only 54%, approximately half the growth in
system sales, which has, in turn, driven an 80% increase in Adjusted EBITDA,
which is the most important KPI in the business, to a record £15.3m (2021:
£8.5m).
Divisional trading results
Following the acquisition of Filta the decision was taken to consolidate all
the UK B2B businesses into a new division to reflect the management
responsibilities. The divisional trading results may therefore be analysed as
follows:
Year ended 31 December 2021
Year ended 31 December 2022
B2B Filta Intl B2C Azura Inter-co elim 2022 B2B Filta Intl B2C Azura Inter-co elim 2021
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
System sales 90,223 69,560 25,773 797 - 186,353 69,919 - 23,593 59 - 93,571
Statutory revenue 71,376 23,874 6,423 797 (3,318) 99,152 53,309 - 6,428 59 (2,106) 57,690
Cost of sales (49,086) (15,784) (1,251) (1) 2,935 (63,187) (36,501) - (1,368) - 2,106 (35,763)
Gross profit 22,290 8,090 5,172 796 (383) 35,965 16,808 - 5,060 59 - 21,926
GM% 31% 34% 81% 100% 12% 36% 32% 79% 100% 0% 38%
Administrative expenses (13,113) (2,876) (2,618) (625) 383 (18,849) (9,741) - (2,422) (56) - (12,219)
Divisional EBITDA 9,177 5,214 2,554 171 - 17,116 7,067 - 2,638 3 - 9,708
Group Overheads - - - - - (1,835) - - - - - (1,234)
Adjusted EBITDA - - - - - 15,281 - - - - - 8,474
In order to reconcile the Group's statutory revenues, gross profit and
administrative expenses to the underlying entities certain inter-company
revenues and costs are eliminated on consolidation. These include the work
undertaken by Metro Rod on behalf of Willow Pumps and the IT development work
undertaken by Azura on behalf of Metro Rod. The net effect to EBITDA is zero.
B2B Division
The B2B division comprises the franchise activities of Metro Rod, Metro Plumb
and Filta UK together with the DLO operations of Willow Pumps, Filta UK and
Kemac. The organisation of these activities within this division reflects both
management responsibilities and our internal KPIs. The results of the B2B
division may be summarised as follows:
Year ended 31 December 2022
Year ended 31 December 2021
Metro Rod Willow Pumps Filta UK Total Metro Rod Willow Pumps Filta UK Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
System sales 62,917 18,175 9,132 90,223 54,001 15,918 - 69,919
Statutory revenue 44,069 18,175 9,132 71,376 37,391 15,918 - 53,309
Cost of sales (31,247) (12,196) (5,643) (49,086) (26,276) (10,226) - (36,501)
Gross profit 12,822 5,979 3,489 22,290 11,115 5,692 - 16,808
GP% 29% 33% 38% 31% 30% 36% 32%
Administrative expenses (6,557) (4,134) (2,421) (13,112) (5,734) (4,007) - (9,740)
Adjusted EBITDA 6,265 1,845 1,067 9,177 5,381 1,686 - 7,067
Metro Rod
Metro Rod comprises the franchise and direct labour activities of Metro Rod
and Metro Plumb, Kemac and the short term direct labour contract at Peel
Ports, which ended during February 2022. The results may be summarised as
follows:
Metro Rod 2022 2021 Change Change
£'000 £'000 £'000 %
System sales 62,917 54,001 8,916 17%
Statutory revenue 44,069 37,391 6,678 18%
Cost of sales (31,247) (26,276) (4,972) 19%
Gross profit 12,822 11,115 1,707 15%
GP% 29% 30% (1%) (2%)
Administrative expenses (6,557) (5,734) (823) 14%
Adjusted EBITDA 6,265 5,381 884 16%
The statutory revenue of Metro Rod does not reflect the underlying system
sales generated by the franchisees as national sales are accounted for on a
gross basis, as are the sales of Kemac and the direct labour activities,
whereas in respect of the local sales generated by franchisees, only the
management service fee ("MSF") revenue is included. As MSF is the key driver
of profits it is re-analysed and compared to system sales as follows:
Metro Rod Franchisor
2022 2021 Change Change
£'000 £'000 £'000 %
System sales 59,814 50,361 9,430 19%
MSF income 11,085 9,411 1,674 18%
Effective MSF % 18.5% 18.7%
Other gross profit 1,737 1,704 33 2%
Gross profit 12,822 11,115 1,707 15%
Overall, system sales at Metro Rod and Metro Plumb increased by 19% to a
record £59.8m (2021: £50.4m), compared to an 18% increase in MSF as a result
of a decline in the MSF margin from 18.7% to 18.5%. We continue to support
Metro Rod's franchisees in growing their businesses through a series of MSF
incentives designed to encourage sales growth and investment in a broader
range of equipment, services and people. In line with this strategy, as system
sales have grown, especially in tanker and pump work, the effective MSF
percentage rate has continued to fall.
Other gross profit which includes the gross profit from Kemac and Peel Ports
along with the income generated from franchise sales and the revenue generated
from the NAF, increased by 2% to £1.7m (2021: £1.7m) due primarily to an
increase in franchise sales and resales and the increase in the NAF activity,
which was offset by the cessation of the Peel Ports short term contract.
Administration expenses grew by 14% as a result of the business returning to
more typical working practices following the Covid disruption to travel and
conferences and a prudent increase in the bad debt provision. This offset much
of the benefit we continue to generate from the digital transformation of the
Group and as a result, Adjusted EBITDA grew by 16% to £6.3m (2021: £5.4m).
Willow Pumps
Willow Pumps comprises the core DLO pump business and the Metro Rod corporate
franchises in Kent & Sussex and Exeter. The results may be summarised as
follows:
Willow Pumps 2022 2021 Change Change
£'000 £'000 £'000 %
Statutory revenue 18,175 15,918 2,257 14%
Cost of sales (12,196) (10,226) (1,970) 19%
Gross profit 5,979 5,692 287 5%
GP% 33% 36% (3%) (8%)
Administrative expenses (4,134) (4,007) (127) 3%
Adjusted EBITDA 1,845 1,686 159 9%
On 25 May 2022, we announced the early settlement of the earn-out
consideration for the 2019 acquisition of Willow Pumps in order to facilitate
an accelerated programme of integration and harmonisation across the Group's
B2B division. Under the terms of the acquisition agreement, further
consideration of up to a possible £7.5m was payable in respect of the five
years to 31 December 2024 linked to sales and profits growth over the period.
A total of £0.7m was paid in respect of the first two years ended 31 December
2021, and a further £1.3m was paid at the end of May 2022 to settle this
liability, resulting in a total consideration of £7m (including the £5m
initial consideration paid in October 2019).
The Willow Pumps core business has two distinct types of revenue: Service
revenue and Supply & Install revenue ("S&I"). Service revenue is
generated from the routine service and maintenance of pumps and drains.
S&I revenue is generated from the design, supply, and installation of pump
stations, which are typically projects that are performed in discrete phases
over a number of accounting periods, with revenue recognised over time based
on the proportion of the contract which has been completed. The gross profit
generated on S&I projects is lower than service work due to the
significant proportion of the total cost being the supply of the pumps.
Whilst revenue increased by 14% during the period, the gross margin percentage
declined from 36% to 33% predominantly as the result of the post-Brexit
increase in the cost of materials that could not be passed on to customers,
and the sub-contracting of work to Metro Rod franchisees. Whilst this
sub-contracting of work depressed the margin in Willow Pumps, the Group was
compensated for this loss by the additional MSF (at 15% of revenue) generated
in Metro Rod.
Overheads continue to be controlled carefully, increasing by 3% resulting in a
9% increase in Adjusted EBITDA to £1.8m (2021: £1.7m).
Filta UK
Filta UK comprises the DLO services which Filta operated in the UK following a
number of acquisitions they undertook, pre-merger. These services include
fridge and freezer seal replacement; the supply, installation and maintenance
of GRUs; extraction vent cleaning and servicing; and pump and drainage repair
and maintenance. The business also includes the Filta Environmental network of
22 franchisees, which provides the same services as the DLO.
The results for the ten months since acquisition in March 2022 may be
summarised as follows:
2022
£'000
Revenue 9,132
Cost of sales (5,643)
Gross profit 3,489
GP% 38%
Administrative expenses (2,421)
Adjusted EBITDA 1,067
Prior to the merger the Filta UK business had performed poorly as many of the
activities were sub-scale and could not support the independent overhead (most
of the Filta business being in the USA). Following the formation of the B2B
division we undertook a review which resulted in the streamlining of the
management structure, the elimination of duplicated overhead, and other
savings made to better align costs with sales volumes.
With its focus on hospitality, Filta UK was also more affected by the Covid
shutdowns. As this sector fully re-opened in 2022, revenue has slowly
recovered but remains behind our expectations. The principal reason for this
has been a hold-up in the roll-out of the Cyclone GRU due to supply-chain
issues. This market leading GRU, on which Filta has worldwide exclusive
distribution rights, still represents a significant opportunity for the
enlarged B2B customer base, particularly given increasing environmental and
legislative tailwinds relating to fats, oil and grease being discharged into
drains, but until regular supply can be guaranteed, we remain cautious.
Pump service, which accounted for 18.4% of total revenue in the period,
continues to experience a strong pipeline of new business quotes, although
operational delivery has been a challenge owing to delays in sourcing
materials and labour constraints. As this business is highly complementary to
the services offered by Metro Rod, Metro Plumb and Willow Pumps we are
reviewing how the end-to-end processes can best be delivered by the broader
business.
FiltaSeal, which accounted for 17.6% of total revenue, has traded well in the
period. Whilst sales volume has been slightly lower than expected due to
capacity constraints, this has been more than compensated for by considerably
higher margins. We believe there is significant scope to accelerate this
activity and expect an improved contribution going forward.
Finally, administrative expenses are lower than expected due to the savings
made to better align costs with sales volumes. Overall, Filta UK has
contributed well to Group profits, with Adjusted EBITDA at £1.1m.
Filta International
Filta International operates a franchise network that comprises the franchise
activities of Filta in North America and mainland Europe. Filta
International's results for the period represent the approximately ten months
of contribution since acquisition and may be summarised as follows:
Filta International North America Europe 2022
£'000 £'000 £'000
System sales 66,699 2,861 69,560
Statutory revenue 23,273 602 23,874
Cost of sales (15,398) (386) (15,784)
Gross profit 7,875 216 8,091
GP% 34% 36% 34%
Administrative expenses (2,516) (360) (2,877)
Adjusted EBITDA 5,358 (145) 5,214
The table below provides a breakdown of the key revenue streams and gross
profit contributions for the North American operation.
Revenue Gross Profit Gross Margin
£'000 £'000 %
MSF 2,294 2,294 100%
Equipment and Supply 2,500 799 32%
Waste Oil 16,293 2,934 18%
Area Sales 958 753 79%
NCA, Marketing and IT 1,227 1,095 89%
Total 23,273 7,875 34%
MSF revenue consists of the monthly charge paid by the franchisees for each
MFU in operation. The Equipment & Supply revenue consists of revenue from
the sale of new MFUs, replacement parts and supplies sold to franchisees.
These revenue streams have bounced back strongly as the hospitality sector
has recovered from the Covid shutdowns and demand for FiltaFry's services has
increased. The combination of the higher oil price and resurgent demand has
encouraged franchisees to expand their operations with a total of 39 MFUs
being added in the period, which will both increase MSF income and also the
capacity to collect used cooking oil.
Waste oil revenues are derived from the sale of used cooking oil for biodiesel
production. Through national agreements with biodiesel companies, Filta
administers the programme, which involves the franchisees collecting and
storing the oil prior to local pick-up via tankers organised by Filta. Filta
retains an average 18% margin on waste oil sales. Waste oil revenue has
increased by 76% from the comparable prior year period, with approximately
one-third of the increase being volume-related and two-thirds price-related,
and now contributes 37% of gross profit (2021: 29%).
A number of factors have driven the waste oil price, including the higher
price of virgin cooking oil due to supply issues, higher fuel oil prices, and
US Federal and State sustainability incentives to increase the proportion of
biodiesel in vehicle fuel. 2022 was probably an exceptional year for the price
of used oil, although it has only declined slightly in the early weeks of 2023
from the average achieved in 2022. We are confident, however, that the
franchisees' investment in additional MFUs and used oil storage will grow
volumes in 2023 to a level that will allow us to maintain our revenue and
margin from this source in 2023.
Area Sales revenues are derived from the sale and resale of franchise
territories. Of the income derived from the sale of a new franchise, 60% is
recognised as revenue once training is completed, with the balance spread
equally over the 10-year life of the franchise agreement. The revenue from
franchise resales, on which a 5-10% commission is earned, is recognised when
the transaction completes. Five new franchises and 14 resales were completed
during the period, an increase of 50% over the comparable period in 2021.
The national corporate accounts ("NCA"), marketing and IT revenues are the
additional fees charged to franchisees for generating and administrating the
national accounts and providing marketing and IT systems.
Whilst Europe has experienced improved revenue and gross profit growth
post-Covid, the recovery has been slower and has been compounded by hold-ups
in rolling out the GRU, which are an important component of their income.
Additional sales people have been recruited to accelerate growth, but this
additional cost has resulted a small loss in the period.
B2C Division
The B2C division comprises the ChipsAway, Ovenclean and Barking Mad franchise
businesses. The results of the division may be summarised as follows:
B2C 2022 2021 Change Change
£'000 £'000 £'000 %
System sales 25,773 23,593 2,180 9%
Statutory revenue 6,423 6,427 (4) 0%
Cost of sales (1,252) (1,368) 116 (8%)
Gross profit 5,171 5,060 111 2%
GP% 81% 79% 2% 2%
Administrative expenses (2,618) (2,422) (196) 8%
Adjusted EBITDA 2,554 2,638 (85) (3)%
The key revenue streams are MSF and Area Sales income. MSF income is primarily
made up of fixed monthly fees, as this remains the most effective method of
generating income given the large number of franchisees and the lower level of
individual sales. MSF Income increased slightly, principally driven by a
recovery in the holiday market which has increased MSF income form Barking
Mad, offset by the reduced recruitment and higher network churn. Area Sales
income represents the fees generated from the sale (or resale) of franchise
territories, which were lower in the period due to the unusual labour market
conditions resulting in lower franchise recruitment and higher attrition.
Revenue in the period benefited from the one-off sale of the MyHome domain
name for £0.1m.
Cost of sales declined in the period due to a change in the recruitment mix
towards Ovenclean and Barking Mad and away from the higher-cost ChipsAway
franchise. Overheads increased by 8% as a result of the re-introduction of
costs that were suspended during the Covid period, in particular, the annual
franchise conference for ChipsAway. Overall, Adjusted EBITDA in the B2C
division declined by 3% when compared to the buoyant post-Covid recovery
trading in 2021.
As the decision has been made to dispose of the B2C Division and that this
sale is likely within 12 months, we are required to disclose this division as
a discontinuing activity, despite no buyer identified or terms of sale in
discussion. However, the division will continue to be run as part of the Group
until a sale is completed.
Azura
Azura was acquired on 29 November 2021 and therefore this period represents
its first full year trading period as part of the Group. The results of the
business may be summarised as follows:
Azura 2022 2021 Change
£'000 £'000 £'000
Statutory revenue 797 59 738
Cost of sales (1) - (1)
Gross profit 796 59 737
GP% 100% 100% 0%
Administrative expenses (625) (56) (569)
Adjusted EBITDA 171 3 168
Since the acquisition, Azura has focused on improving efficiency in delivering
its software solutions to franchise businesses and building sales. It has also
been building its internal resources to support the further digital enablement
of the Group's businesses by improving the functionality of the Vision
works-management platform. Adjusted EBITDA for the period has exceeded
management expectations, although just under half of revenue is still derived
from intra-group sales on which an inter-company profit of £31,000 is made.
Adjusted & statutory profit
2022 2021 Change Change
£'000 £'000 £'000 %
Adjusted EBITDA 15,281 8,474 6,807 80%
Depreciation & amortisation (2,281) (1,716) (564) 33%
Finance expense (235) (292) 58 (20)%
Foreign exchange 28 - 28 100%
Adjusted profit before tax 12,794 6,465 6,329 98%
Tax expense (2,561) (1,154) (1,406) 122%
Statutory profit after tax 10,233 5,311 4,923 93%
Amortisation of acquired intangibles (1,504) (393) (1,111) 283%
Share-based payment expense (535) (334) (201) 60%
Non-recurring costs (1,708) (187) (1,521) 813%
Other gains and losses 1,232 223 1,009 452%
Tax on adjusting items 599 (387) 986 (255)%
Statutory profit after tax 8,318 4,233 4,085 96%
Depreciation and amortisation of software increased 33% to £2.3m (2021:
£1.7m), primarily as a result of the acquisitions of Filta and Azura and the
subsequent additions to both tangible assets and software enhancements, as the
Group continues to develop technology-based solutions to accelerate
operational gearing.
The finance expense includes interest on hire purchase debt, which has
decreased by 20%, and the notional interest required under IFRS 16 on property
leases. All bank loans, which included those acquired as part of the Filta
acquisition have been re-paid, leaving the Group free of bank debt.
The overall effective tax rate of the Group has been increased from 18% to 20%
as a result of the addition of Filta North America, where the combined state
and federal corporate tax rate is 27%.
The increase in the amortisation of acquired intangibles reflect the
additional intangible assets acquired as a result of the Filta acquisition.
The increase in the share-based payment expense principally reflects the grant
of three million share options and stock appreciation rights, one third of
which were made to Filta employees, to replace their previous options which
lapsed at completion of the acquisition.
The non-recurring costs reflect the Filta acquisition costs and the subsequent
one-off reorganisation costs, as the UK businesses were aligned into the newly
created B2B business division. Other gains and losses reflect the write-back
of the IFRS13 contingent consideration provision made in respect of the Willow
Pumps earn-out following its early settlement. The tax on adjusting items
reflects the tax relief available on the net exceptional costs.
Statutory profit after tax, after exceptional costs and associated tax relief,
increased by 95% to £8.3m (2021: £4.2m).
Earnings per share
During the year the Group issued 33,788,008 new ordinary shares of 0.5p each
("Ordinary Shares") in consideration for the acquisition of Filta. In
addition, the Group issued 657,495 new Ordinary Shares to satisfy the exercise
of share options. This resulted in the total number of Ordinary Shares in
issue increasing to 130,311,112 at the year-end (31 December 2021:
95,865,609).
The Employee Benefit Trust ("EBT") started the year holding 219,240 Ordinary
Shares, purchased 1,852,870 Ordinary Shares during the year at an average
price of £1.43, disposed of 301,427 Ordinary Shares in respect of the
exercise of employee shares options, and therefore ended the year holding
1,770,683 Ordinary Shares. At 31 December 2022 there were 6,567,014 shares
under option of which 1,457,576 were vested and capable of exercise. All
vested options were therefore covered by holdings in the EBT.
The total number of Ordinary Shares in issue at 31 December 2022, net of the
EBT holding, was 128,540,429 (31 December 2021: 95,646,369), and a basic
weighted average number of Ordinary Shares in issue of 122,126,350 (2021:
85,767,863).
Adjusted EPS increased by 51% to 8.38p (2021: 5.55p), and basic earnings per
share increased by 54% to 6.81p (2021: 4.42p), as set out in the table below.
2022 EPS 2021 EPS
£'000 p £'000 p
Adjusted profit after tax/Adjusted EPS 10,233 8.38 5,311 5.55
Amortisation of acquired intangibles (1,504) (1.23) (393) 0.41
Share based payment (535) (0.44) (334) 0.35
Non-recurring costs (1,708) (1.40) (187) 0.20
Other gains and losses 1,232 1.01 223 0.23
Tax on adjusting items 599 0.49 (387) 0.40
Statutory profit after tax/Basic EPS 8,318 6.81 4,233 4.42
Financing and cash flow
A summary of the Group cash flow for the period is set out in the table below:
2022 2021
£'000 £'000
Adjusted EBITDA 15,281 8,474
Acquisition and reorganisation costs (1,708) -
Working capital movements (3,216) (276)
Cash generated from operations 10,357 8,198
Taxes paid (2,629) (924)
Purchases of property, plant and equipment (422) (1,723)
Purchase of software (1,088) (433)
Acquisition of subsidiaries net of cash 4,320 (861)
Bank loans repaid (2,953) (5,309)
Lease payments (1,156) (1,295)
Funds supplied to EBT (2,503) (355)
Dividends paid (2,339) (1,341)
Other net movements 158 (106)
Net cash movement 1,745 (4,149)
Net cash at beginning of year 9,054 13,203
Net cash at end of year 10,799 9,054
The Group generated cash from operating activities of £10.4m (2021: £8.2m)
resulting in a cash conversion rate from Adjusted EBITDA of 68% (2021: 97%).
However, if the cost of the Filta acquisition and reorganisation is added back
the rate of cash conversion in 2022 increases to 79%. The principal reason for
the decline was the additional trade debtors at Metro Rod resulting from a
£9.4m increase in System Sales.
Other cash movements are explained as follows:
· Taxes paid increased as profits increased, and the Group moved onto
quarterly payments.
· Purchases of property plant and equipment declined to more normal
levels, following the increased investment in the Peel Ports contract in 2021.
· Purchase of software increased as the digital transformation
programme was accelerated.
· Acquisition of subsidiaries net of cash represents the cash balance
in Filta on acquisition. In 2021 this was the net the cost of the
acquisition of Azura Group Limited.
· Bank loans repaid represent the repayment of the loans acquired with
Filta in 2022 and the repayment of the loan used to acquire Willow in 2021.
· Funds supplied to EBT represent the contribution to the EBT, which
was increased in the year to ensure that the option dilution was fully
covered.
· Dividends paid represent the combined cash cost of the 2021 final and
the 2022 interim dividends.
After these outflows, the Group finished the period with cash of £10.8m (31
December 2021: £9.1m). Hire purchase debt increased slightly during the year
as a result of the commitments acquired with the Filta acquisition. Overall
net cash after hire purchase and lease debt increased by 23% as set out in the
table below.
2022 2021 Change Change
£'000 £'000 £'000 %
Cash 10,799 9,054 1,745 19%
Hire purchase debt (1,132) (821) (311) 38%
Adjusted net debt 9,667 8,233 1,434 17%
Other Lease debt (1,623) (1,713) 90 (5%)
Net Cash 8,043 6,520 1,523 23%
The Group has an ungeared, £103m balance sheet with gross cash of £10.8m,
and a £5.0m unutilised Revolving Credit Facility, giving the Group £15.8m of
cash and available facilities.
Dividend
The Board is pleased to propose a final dividend of 1.1 pence per share (2021:
0.9 pence per share). This takes the total dividend for the year to 2.0
pence per share (2021: 1.5 pence per share), an increase of 33%. The dividend
is 4.2 times covered by adjusted profits after tax (2021: 3.7 times).
Subject to shareholder approval at the AGM on 11 April 2023, the final
dividend will be paid to those shareholders on the register at the close of
business on 14 April 2023.
Andrew Mallows
Interim Chief Financial Officer
9 March 2023
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2022
2022 Continuing Operations 2022 Discontinuing Operations 2022 Total 2021 Continuing Operations 2021 Discontinuing Operations 2021 Total
£'000 £'000 £'000 £'000 £'000 £'000
Revenue 92,729 6,423 99,152 51,262 6,427 57,690
Cost of sales (61,936) (1,251) (63,187) (34,396) (1,368) (35,763)
Gross profit 30,793 5,172 35,965 16,867 5,060 21,926
Adjusted earnings before interest, tax, depreciation, amortisation, 13,005 2,276 15,281 6,136 2,338 8,474
share-based payments & non-recurring items ("Adjusted EBITDA")
Depreciation (1,594) (187) (1,781) (1,216) (162) (1,378)
Amortisation of software (499) (1) (500) (339) - (339)
Amortisation of acquired intangibles (1,504) - (1,504) (393) - (393)
Share-based payment expense (510) (25) (535) (302) (32) (334)
Non-recurring items (475) - (475) (187) - (187)
Total administrative expenses (22,371) (3,108) (25,479) (13,166) (2,916) (16,082)
Operating profit 8,422 2,064 10,486 3,701 2,144 5,844
Other gains and losses - - - 223 - 223
Finance expense (221) (14) (235) (283) (10) (292)
Profit before tax 8,201 2,050 10,251 3,641 2,134 5,775
Tax expense (1,556) (405) (1,961) (1,182) (359) (1,541)
Profit for the year attributable to equity holders of the Parent Company 6,645 1,645 8,290 2,459 1,775 4,233
Other comprehensive income
Exchange differences on translation of foreign operations 28 - 28 - - -
Total comprehensive income attributable to equity holders of the Parent 28 - 28 - - -
Company
Earnings per share (pence)
Basic 5.46 1.35 6.81 2.57 1.85 4.42
Diluted 5.37 1.33 6.70 2.50 1.80 4.30
Consolidated Statement of Financial Position
At 31 December 2022
2022 2021
£'000 £'000
Assets
Non-current assets
Intangible assets 85,113 35,278
Property, plant and equipment 3,208 2,609
Right-of-use assets 2,568 2,723
Contract acquisition costs 402 -
Trade and other receivables 811 182
Total non-current assets 92,102 40,792
Assets in disposal groups classified as held for sale 5,576 -
Current assets
Inventories 1,989 908
Trade and other receivables 21,660 16,514
Contract acquisition costs 92 -
Current tax asset 220 -
Cash and cash equivalents 10,799 9,054
Total current assets 34,760 26,475
Total assets 132,438 67,267
Liabilities
Current liabilities
Trade and other payables 18,160 12,144
Obligations under leases 831 754
Deferred income 807 -
Current tax liability - 213
Contingent consideration - 345
Total current liabilities 19,798 13,456
Liabilities directly associated with assets in Disposal groups classified as 1,786 -
held for sale
Non-current liabilities
Obligations under leases 1,626 1,780
Deferred income 1,744 -
Contingent consideration - 2,567
Deferred tax liability 4,444 2,139
Total non-current liabilities 7,814 6,486
Total liabilities 29,398 19,942
Total net assets 103,040 47,325
Issued capital and reserves attributable to owners of the Company
Share capital 652 480
Share premium 37,293 36,966
Share-based payment reserve 1,217 789
Merger reserve 52,212 1,390
Translation reserve 155 -
EBT reserve (3,007) (504)
Retained earnings 14,518 8,204
Total equity attributable to equity holders 103,040 47,325
Consolidated Statement of Cash Flows
For the year ended 31 December 2022
2022 Continuing Operations 2022 Discontinuing Operations 2022 Total 2021 Continuing Operations 2021 Discontinuing Operations 2021 Total
£'000 £'000 £'000 £'000 £'000 £'000
Cash flows from operating activities
Profit for the year 6,673 1,645 8,318 2,459 1,775 4,233
Adjustments for:
Depreciation of property, plant and equipment 725 31 756 474 25 499
Depreciation of right-of-use assets 869 156 1,025 743 136 879
Amortisation of software 499 1 500 338 1 339
Amortisation of acquired intangibles 1,504 - 1,504 393 - 393
Non-recurring costs - - - 187 - 187
Share-based payment expense 510 25 535 302 32 334
Willow contingent consideration (1,232) - (1,232) (223) - (223)
Finance expense 221 14 235 283 10 292
Exchange differences on translation of foreign operations (28) - (28) - - -
Tax expense 1,556 405 1,961 1,183 359 1,542
Operating cash flow before movements in working capital 11,297 2,277 13,574 6,136 2,338 8,474
(Increase)/decrease in trade and other receivables (1,997) (2,664) (4,661) (1,505) 113 (1,392)
(Increase) in inventories 85 (486) (401) (218) 23 (195)
Increase/(decrease) in trade and other payables 1,862 (17) 1,845 2,469 (1,159) 1,311
Cash generated from operations 11,247 (890) 10,357 6,882 1,315 8,198
Corporation taxes paid (2,629) - (2,629) (993) 68 (924)
Net cash generated from operating activities 8,618 (890) 7,728 5,890 1,384 7,273
Cash flows from investing activities
Purchases of property, plant and equipment (378) (44) (422) (1,708) (15) (1,723)
Proceeds from the sale of property, plant and equipment 259 - 259 - - -
Purchase of software (1,077) (11) (1,088) (433) - (433)
Loans to Franchisees (1,062) - (1,062) - - -
Franchisee loans repaid 548 - 548 - - -
Acquisition of subsidiaries including costs, net of cash acquired (including 4,320 - 4,320 (861) - (861)
deferred consideration)
Net cash used in investing activities 2,610 (55) 2,555 (3,002) (15) (3,017)
Cash flows from financing activities
Bank loans - repaid (2,953) - (2,953) (5,309) - (5,309)
Other loans - made - - - 2 - 2
Capital element of lease liability repaid (902) (135) (1,037) (900) (206) (1,106)
Interest paid - bank and other loan (111) (5) (116) (107) - (107)
Interest paid - leases (110) (9) (119) (180) (9) (189)
Proceed from issue of shares 330 - 330 - - -
Funds Supplied to Employee Benefit Trust (2,503) - (2,503) (355) - (355)
Dividends paid (2,339) - (2,339) (1,341) - (1,341)
Net cash generated from financing activities (8,588) (149) (8,737) (8,190) (215) (8,404)
Net increase in cash and cash equivalents 2,639 (1,094) 1,546 (5,302) 1,154 (4,148)
Cash and cash equivalents at beginning of year 7,397 1,658 9,054 12,699 504 13,203
Exchange differences on cash and cash equivalents 199 - 199 - - -
Cash and cash equivalents at end of year 10,235 564 10,799 7,397 1,658 9,054
RECONCILIATION OF CASH FLOW TO THE GROUP NET DEBT POSITION
Total liabilities
from financing Total net cash/
Term Loan Loan fees Lease liabilities activities Cash (net debt)
Group £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2021 (5,225) 117 (3,137) (8,245) 13,203 4,958
Financing cash flows 5,309 - 1,295 6,604 - 6,604
Other cash flows - - - - (4,149) (4,149)
Other changes (84) (117) (692) (893) - (893)
At 1 January 2022 - - (2,534) (2,534) 9,054 6,520
Financing cash flows (2,953) - 1,155 (1,798) - (1,798)
Other cash flows - - - - 1,546 1,546
Other changes 2,953 - (1,377) 1,576 199 1,775
At 31 December 2022 - - (2,756) (2,756) 10,799 8,043
Consolidated Statement of Changes in Equity
For the year ended 31 December 2022
Share Share-based
Share premium payment Merger Translation EBT Retained
capital account reserve reserve reserve reserve earnings Total
Group £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2021 479 36,817 455 1,390 - (149) 4,849 43,841
Profit for the year and total comprehensive income - - - - - - 4,233 4,233
Contributions by and distributions to owners
Shares issued 1 149 - - - - - 150
Dividend paid - - - - - - (1,341) (1,341)
Contributions to Employee Benefit Trust - - - - - (355) - (355)
Share-based payment - - 334 - - - 463 797
At 1 January 2022 480 36,966 789 1,390 - (504) 8,205 47,325
Profit for the year - - - - - - 8,318 8,318
Foreign exchange translation differences - - - - 155 - - 155
Profit for the year and total comprehensive income - - - - 155 - 8,318 8,473
Contributions by and distributions to owners
Shares issued 169 - - 50,822 - - - 50,991
Dividend paid - - - - - - (2,339) (2,339)
Contributions to Employee Benefit Trust 3 327 - - - (2,503) - (2,173)
Share-based payment - - 428 - - - 335 763
At 31 December 2022 652 37,293 1,217 52,212 155 (3,007) 14,518 103,040
1. Basis of preparation of financial information
While the financial information included in this annual financial results
announcement has been prepared in accordance with the recognition and
measurement principles of international accounting standards in conformity
with the requirements of Companies Act 2006, this announcement does not
contain sufficient information to comply with IFRSs.
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2022 or 2021 but is derived
from those accounts. Statutory accounts for Franchise Brands plc for the year
ended 31 December 2021 have been delivered to the Registrar of Companies and
those for the year ended 31 December 2022 will be delivered following the
Company's annual general meeting. The auditors have reported on those
accounts; their reports were unqualified and did not include references to any
matters to which the auditors drew attention by way of emphasis without
qualifying their reports. Their reports for the year ended 31 December 2022
and 31 December 2021 did not contain statements under s498 (2) or (3) of the
Companies Act 2006.
The consolidated financial statements present the results of the Company and
its subsidiaries ("the Group") as if they formed a single entity. Intercompany
transactions and balances between Group companies are therefore eliminated in
full. Subsidiaries are fully consolidated from the date on which control is
transferred to the Group and cease to be consolidated from the date on which
control is transferred out of the Group.
2. Operating Segments
The Group's operating segments are determined based on the Group's internal
reporting to the Chief Operating Decision Maker ("CODM"). The CODM has been
determined to be the Executive Chairman, with support from the Board of
Directors, as the function primarily responsible for the allocation of
resources to segments and assessment of performance of the segments. The
business is organised along the lines of our B2B, International and B2C
brands.
· Therefore, the Board has determined that the Group has four
different operating segments:
· B2B, which is made up of Metro Rod and Metro Plumb, Willow Pumps
and Filta UK;
· Filta International which is made up of Filta US, Filta Canada
and Filta Europe;
· B2C, which is made up of ChipsAway, Ovenclean, Barking Mad and
The Handyman Van;
· Azura, which is made up of the software business of Azura; and
· Other operations, which include central administration costs and
non-trading companies.
The CODM uses Adjusted EBITDA, as reviewed at Board meetings and as part of
the Managing Directors' and Chief Financial Officer's weekly report to the
senior management team, as the key measure of segments' results as it reflects
the underlying performance for the financial year under evaluation.
Continuing Discontinuing
Filta-
B2B International Azura Other Total B2C Total
2022 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue 71,376 23,874 797 (3,318) 92,729 6,423 99,152
Gross profit 22,290 8,090 796 (383) 30,793 5,172 35,965
Adjusted EBITDA* 9,177 5,214 171 (1,835) 12,727 2,554 15,281
Depreciation & amortisation of software (1,998) (180) (32) 117 (2,093) (188) (2,281)
Amortisation of acquired intangibles (4,620) (29) - 3,145 (1,504) - (1,504)
Share based payment expense (303) (107) (10) (90) (510) (25) (535)
Non-recurring costs (363) (11) - (101) (475) - (475)
Finance expense (210) 31 (2) (40) (221) (14) (235)
Other gains and losses (118) 146 - - 28 - 28
Profit before tax* 1,565 5,064 127 1,196 7,952 2,327 10,279
Tax expense (77) (1,203) (16) (261) (1,557) (404) (1,961)
Profit after tax* 1,488 3,861 111 935 6,395 1,923 8,318
Additions to non-current assets 1,125 122 212 52,393 53,852 55 53,907
Reportable segment assets 31,535 9,189 328 85,810 126,862 5,576 132,438
Reportable segment liabilities (13,609) (4,871) (9) (9,123) (27,612) (1,786) (29,398)
*Operating segments presented before inter-company management recharges which
eliminate on consolidation
Continuing Discontinuing
Filta-
B2B International Azura Other Total B2Cr Total
2021 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue 53,309 - 59 (2,106) 51,262 6,428 57,690
Gross profit 16,808 - 59 - 16,867 5,060 21,926
Adjusted EBITDA* 7,067 - 3 (1,234) 5,836 2,638 8,474
Depreciation & amortisation of software (1,554) - (1) - (1,555) (162) (1,717)
Amortisation of acquired intangibles - - - (393) (393) - (393)
Share based payment expense (218) - - (84) (302) (32) (334)
Non-recurring costs - - - (187) (187) - (187)
Finance expense (149) - (1) (132) (282) (10) (292)
Other gains and losses - - - 223 223 - 223
Profit before tax* 5,146 - 1 (1,807) 3,340 2,434 5,774
Tax expense (770) - - (412) (1,182) (359) (1,541)
Profit after tax* 4,376 - 1 (2,219) 2,158 2,075 4,233
Additions to non-current assets 2,170 - - 820 2,990 11 3,001
Reportable segment assets 25,813 - 282 37,553 63,648 3,654 67,302
Reportable segment liabilities (13,637) - (6) (4,455) (18,098) (1,879) (19,977)
*Operating segments presented before inter-company management recharges which
eliminate on consolidation
3. Earnings per share
Basic earnings per share amounts are calculated by dividing profit for the
year attributable to Ordinary equity holders of the Parent by the weighted
average number of ordinary shares outstanding during the year.
Diluted earnings per share are calculated by dividing the profit attributable
to Ordinary equity holders of the Parent by the weighted average number of
ordinary shares outstanding during the year plus the weighted average number
of ordinary shares that would have been issued on the conversion of all
dilutive share options at the start of the period or, if later, the date of
issue.
2022 Continuing Operations 2022 Discontinuing Operations 2022 Total 2021 Continuing Operations 2021 Discontinuing Operations 2021 Total
£'000 £'000 £'000 £'000 £'000 £'000
Profit attributable to owners of the Parent Company 6,673 1,645 8,318 2,459 1,775 4,233
Non-recurring costs (Note 5,7) 1,708 - 1,708 187 - 187
Amortisation of acquired intangibles (Note 13) 1,504 - 1,504 393 - 393
Change in the fair value of deferred consideration (Note 20) (1,232) - (1,232) (223) - (223)
Share-based payment expense (Note 9) 510 25 535 302 32 334
Tax on adjusting items (595) (5) (600) 391 (4) 387
Adjusted profit attributable to owners of the Parent Company 8,568 1,665 10,233 3,509 1,803 5,311
Number Number Number Number Number Number
Basic weighted average number of shares 122,126,350 122,126,350 122,126,350 95,767,863 95,767,863 95,767,863
Dilutive effect of share options 2,042,848 2,042,848 2,042,848 2,600,637 2,600,637 2,600,637
Diluted weighted average number of shares 124,169,198 124,169,198 124,169,198 98,368,500 98,368,500 98,368,500
Pence Pence Pence Pence Pence Pence
Basic earnings per share 5.46 1.35 6.81 2.57 1.85 4.42
Diluted earnings per share 5.37 1.33 6.70 2.50 1.80 4.30
Adjusted earnings per share 7.02 1.36 8.38 3.66 1.88 5.55
Adjusted diluted earnings per share 6.90 1.34 8.24 3.57 1.83 5.40
4. Business Combination
ACQUISITION OF FILTA GROUP HOLDINGS PLC
On 10 March, the Company announced that its all share offer for Filta Group
Holdings Plc and its subsidiaries (together, "Filta") became unconditional. On
1 June the Company announced that the compulsory acquisition of the remaining
Filta shares was completed. Accordingly, the Company owns 100 percent of the
entire issued share capital of Filta.
Details of the fair value of the identifiable assets and liabilities acquired,
purchase consideration and goodwill were as follows:
Book value Adjustments Fair value
£'000 £'000 £'000
Intangible assets 6,701 10,598 17,299
Property, plant and equipment 1,191 (44) 1,147
Right of use assets 656 - 656
Inventories 1,466 - 1,466
Trade and other receivables 4,436 (250) 4,186
Cash 4,229 91 4,320
Trade and other payables (7,507) 33 (7,474)
Loans and borrowings (2,953) - (2,953)
Deferred tax asset / (liability) 570 (3,720) (3,150)
Total fair value of the identifiable assets and liabilities acquired 8,789 6,708 15,497
Fair value of consideration 50,991
Goodwill 35,494
On acquisition intangible assets have been reviewed and adjusted to Fair
Value. Adjustments have been made to write off £250,000 of other receivables
which management do not believe to be supported at the acquisition date; to
cash and other payables for pre-acquisition share option exercises that were
not reflected in the financial statements at acquisition; and to PPE to better
reflect the fair value of assets acquired.
A deferred tax liability adjustment has been calculated on the value of
intangible assets using a blended deferred tax corporation rate of 26%
followed by the deduction of the existing deferred tax liability relating to
acquired intangibles.
The fair value of consideration was calculated as the present value of future
expected free cashflows using a discount rate of 18.9%, slightly above our
WACC of 16.6%. The rationale behind this allowed for significant growth and
performance enhancement in the future due to synergies that management believe
can be achieved given the similar business model to current operations.
Goodwill represents the value of the business that does not qualify for
separate recognition. The goodwill recognised includes certain intangible
assets that cannot be separately identified and measured due to their nature
such as the assembled workforce and synergies that are expected to be
achieved. This includes control over the acquired business, and the scale and
the future growth opportunities that it provides to the Group's operations. If
the acquisition had occurred on 1 January 2022 Group revenue would have been
£103.9m and Group profit before tax would have been £10.2m.
As at 9 March 2022 the Company had received acceptances equal to 82% from the
holders of Filta Group Holdings plc shares. As at the 25 March 2022 this had
risen to above 90%. This gave rise to an immaterial non-controlling interest
which has not been disclosed within these accounts.
£'000
Consideration shares 50,991
Fair value of consideration 50,991
The consideration paid was made up of £50,991,000 through the issue of
33,788,008 new Ordinary Shares of 0.5 p each in the Company at 151 pence per
share.
Acquisition costs relating to this transaction amounted to £1,011,000 and
have been disclosed within the consolidated statement of comprehensive income.
5. Dividends
2022 2021
£'000 £'000
Final 2021 dividend of 0.90p per Ordinary Share declared and paid (2021: Final 1,169 766
2020 dividend of 0.80p)
Interim dividend of 0.90p per Ordinary Share declared and paid (2021: 0.60p) 1,170 575
2,339 1,341
A final dividend of 1.1 pence per share is proposed, bringing the total
dividend for the year to 2.0 pence per share (2021: 1.5p).
6. Annual report and accounts
The annual report and accounts for the year ended 31 December 2022 will be
available on the Company's website
at www.franchisebrands.co.uk/investor-relations by 20 March 2023, notice of
which will be sent to shareholders on the register.
7. Annual General Meeting
The Annual General Meeting of Franchise Brands plc will be held on 11 April
2023, notice of which will be sent to shareholders shortly.
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