REG - Franchise Brands PLC - Interim Results
27/07/2023 07:15
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RNS Number : 3338H Franchise Brands PLC 27 July 2023
27 July 2023
FRANCHISE BRANDS PLC
("Franchise Brands", the "Group" or the "Company")
Interim results for the six months ended 30 June 2023
A period of significant progress including the acquisition of Pirtek Europe
Both Pirtek Europe and our existing businesses fully met our expectations,
underpinning confidence in full-year Adjusted* EBITDA at least in line with
expectations**
Franchise Brands plc (AIM: FRAN), an international multi-brand franchise
business, is pleased to announce its unaudited results for the six months
ended 30 June 2023.
Financial highlights
· System sales increased by 81% to £146.0m (H1 2022: £80.6m).
· Statutory revenue increased by 57% to £69.8 million (H1 2022:
£44.5m).
· Adjusted* EBITDA increased by 67% to £12.1m (H1 2022: £7.3m).
· Adjusted profit before tax increased by 45% to £8.6m (H1 2022:
£5.9m).
· Adjusted EPS increased by 4% to 4.24p (H1 2022: 4.07p) and by 10% on
a consistent tax basis.
· Adjusted net debt*** of £79.1m at 30 June 2023 (30 June 2022: net
cash of £6.8m) which represents LTM leverage to 30 June 2023 of 2.48x, and
LTM leverage to 31 December 2023 of 2.36x****.
· Increase of 11% in the interim dividend declared to 1.0p per share
(2022 interim dividend: 0.90p per share) reflecting the Board's confidence in
the growth prospects for the enlarged Group.
Operational highlights
· Completion of the acquisition of Pirtek Europe in April which has
doubled the size of the Group and has expanded operations into ten countries.
· Whilst the Pirtek business is still in the early stages of being
integrated, Pirtek sales and profits reached record levels in most markets,
and the business performed in line with our expectations.
· Short-term focus on optimising effectiveness of the Group's
businesses through utilising shared resources alongside significant strategic
opportunities through leveraging international footprint.
· Strong continued momentum in Metro Rod and Metro Plumb delivering
system sales growth of 24% to £35.3m; Metro Plumb system sales grew by 31%.
· Filta International core business performed well - system sales were
up 16% on a like-for-like basis with strategic growth initiatives gaining
traction; waste oil sales held back by reduced market prices.
· B2C division in line with expectations despite challenging franchise
recruitment environment; no longer being actively marketed for sale.
· Digital transformation progressing well with continuing upgrades to
the Vision works management system.
· Appointment of new CFO with effect from 2 August; announced
separately today.
Outlook
· The outlook for the remainder of the year is positive and we
anticipate full year performance to be at least in line with expectations.
· The deleveraging profile is ahead of schedule and we fully expect the
acquisition facilities to be repaid within 5 years.
* "Adjusted" throughout this report means exclusion of amortisation of
acquired intangibles, exchange differences, share-based payment expense and
non-recurring items.
** Expectations are £29.0m Adjusted EBITDA for the full year to 31 December
2023 (which includes 36 weeks of Pirtek trading) as set out by the Company in
its announcement of 3 April 2023 regarding the acquisition of Pirtek.
*** Adjusted net debt is the key debt measure used for testing bank covenants
and excludes debt on right-of-use assets of £7.2m.
**** This leverage is calculated using Adjusted net debt at 30 June 2023 and
last twelve months ("LTM") pro forma Adjusted EBITDA to 30 June 2023 of
£31.9m and LTM to 31 December 2023 of £33.5m (as set out by the Company in
its announcement of 3 April 2023 regarding the acquisition of Pirtek) which is
one of metrics used for testing bank covenants.
Stephen Hemsley, Executive Chairman, commented:
"The Group has made significant progress in the first half of 2023, including
the acquisition of Pirtek Europe, doubling the size of the group. We now
operate seven franchise brands in ten countries in the UK, Continental Europe
and North America, generating annualised system sales of approximately £400m.
"Our Metro Rod and Metro Plumb brands are growing rapidly, with the potential
for accelerated growth of their small share of very large markets. Filta is an
almost unique business, with virtually no direct competition and a huge
potential market in the US, and Pirtek has a significant opportunity to grow
its existing markets and services and expand its range of services and the
markets it serves.
"With the Pirtek Europe acquisition and existing businesses performing well,
we are confident in a full-year outturn at least in line with expectations and
in the significant potential for growth across our main franchise brands
beyond the current year.
"Further, the acquisitions of Pirtek and Filta have significantly advanced our
ambition of building a market leading international B2B multi-brand franchisor
that generates its income equally from the UK, North America and
Continental Europe."
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 / Joscelin Pinnington (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 7600
Matthew Blawat / Francis North
MHP Group (Financial PR) +44 (0) 20 3128 8100
Katie Hunt / Catherine Chapman / Christian Harte +44 (0) 7884 494112
franchisebrands@mhpgroup.com (mailto: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
has a combined network of 648 franchisees across seven franchise brands in ten
countries covering 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 long trading histories,
including Pirtek in Europe, Filta, Metro Rod and Metro Plumb, all of which
benefit from the Group's central support services, particularly technology,
marketing, and finance. At the heart of Franchise Brands' business-building
strategy is helping its franchisees grow their businesses: "if they grow, we
grow".
Franchise Brands employs some 715 people across the Group.
For further information, visit www.franchisebrands.co.uk
(http://www.franchisebrands.co.uk/)
CHAIRMAN'S STATEMENT
Introduction
I am pleased to report that the first half of 2023 has been another period of
significant progress for the business with the acquisition of Pirtek Europe
Limited ("Pirtek"), which has doubled the size of the Group. The expanded
Group now operates seven franchise brands in ten countries in the UK, Europe
and North America, generating annualised system sales of approximately £400m.
Both Pirtek and our existing businesses fully met our expectations in the
period, generating the anticipated profitability and cashflow required to
service our increased debt and maintain our progressive dividend policy. The
outlook for the remainder of the year is positive, and we anticipate a
full-year performance at least in line with our expectations of £29.0m
adjusted EBITDA.
Pirtek Europe
Pirtek, which was acquired on 21 April 2023, is an established provider of
on-site hydraulic hose replacement and associated services, operating via 217
service centres and 843 mobile service units ("MSUs") in eight counties.
Revenues are primarily derived from franchising, although Pirtek does operate
corporate franchises and two of the smallest markets are corporately operated.
Pirtek is the market leader in most of the countries in which it operates.
System sales are primarily generated by providing an emergency response
service to a wide range of customers who use hydraulic equipment in their
operations. Typically, a hydraulic hose will fail when the equipment is in use
and will need replacing on-site. Pirtek targets a one-hour response time, 24
hours a day, 365 days a year, with the demand for this time-sensitive service
being greatest in sectors with high downtime costs. In most cases, Pirtek's
technicians can assemble and fit a replacement hose from the stock and
equipment held on the MSU. In addition, customers with less urgent needs are
serviced through its network of service centres, which supply parts and hose
assemblies and also provide a base and support for the MSUs.
Customer sectors are diverse with no significant concentration and include
waste treatment and recycling, logistics, manufacturing, plant hire,
construction and marine & rail transport. A number of these sectors have a
high degree of resilience as demonstrated by Pirtek's robust trading
throughout the Covid period.
Pirtek operates in eight European countries being UK, Germany, the
Netherlands, Belgium, France, Sweden, Austria and the Republic of Ireland. The
business in the UK, Germany, the Netherlands, Belgium and the Republic of
Ireland is mainly operated by a total of 70 franchisees, whereas the
operations in the start-up markets of France and Sweden are corporately
operated. These more developed franchise markets, with national coverage, are
highly profitable, whereas the start-up corporate markets in France and Sweden
and the small Austrian franchised operation have yet to reach scale and
therefore currently make a marginal contribution to Pirtek's overall result.
Pirtek has a significant opportunity to expand into a further eight European
countries under the terms of its master license agreement, which gives it
perpetual, royalty-free, use of the brand in all 16 countries.
The integration of Pirtek is progressing well with an immediate focus on
optimising the effectiveness of the business through utilising shared
resources. The business has multiple growth opportunities including: growing
system sales by driving local sales, adding additional MSUs and opening
further service centres; expanding the range of services, including total hose
management and planned services; and leveraging technology to increase
efficiency. We are continuing to deepen our knowledge of the business by
spending time with local management in each country, meeting franchisees and
carrying out site visits.
B2B Division
The B2B Division includes Metro Rod, Metro Plumb, Willow Pumps, the
Filta UK direct labour operations ("DLO") and the UK Filta Environmental
franchise network. The Filta UK businesses are included for the full six
months in this period compared with four months in 2022 following its
acquisition in March 2022. Overall sales grew by over 24% to £52.7m (H1 2022:
£42.4m), with Metro Rod and Metro Plumb being the main drivers of this
increase.
Metro Rod, Metro Plumb and Kemac
Metro Rod and Metro Plumb delivered continued strong momentum, with system
sales growing by 24% in the period to £35.3m (H1: 2022: £28.5m). This
growth was spread through almost the entire network, with 91% or 52 of the 57
Metro Rod and Metro Plumb franchisees growing their businesses in the period
(H1 2022: 87% or 46 out of 53), and 61%, or 35 franchisees, growing by more
than 20% year-on-year (H1 2022: 61% or 28).
The increase in sales was driven by an increase in both job volumes and
average order value. All services continued to grow, with plumbing and
drainage services to national accounts leading the way. Initiatives to widen
and deepen the range of services offered by the franchise network continue to
develop, particularly those with a high average order value such as pump
service and tankering, which now contribute over 21% of total system sales at
an average order value nearly five times that of drainage and plumbing work.
Metro Plumb continued to expand with 15 stand-alone and 19 combined Metro
Plumb/Metro Rod franchisees trading at 30 June. This results from six new
stand-alone franchisees and two leavers over the previous twelve months. Metro
Plumb system sales grew by 31% and now represent 9.5% of total Metro Rod and
Metro Plumb system sales in the first half. We continue to focus on broadening
the customer base in both the commercial and domestic plumbing sectors.
Kemac, the London-based DLO plumbing business, provides specialist services
to several water utilities and operates five Metro Plumb territories. Its
sales increased by 11% on a like-for-like basis, primarily as a result of the
expansion of the specialist services it provides to water utility companies.
Willow Pumps
Willow Pumps had an improved performance in the first six months of the year,
with sales growing by 10% following a management reorganisation and the
expansion of the sales team. The support functions have also been re-organised
to improve customer service and by passing more work to Metro Rod franchisees.
The Metro Rod corporate franchises in Kent & Sussex and Exeter had a
challenging six months. Both these corporate franchises have excellent
territories with huge potential that would be better developed with a
dedicated Metro Rod franchisee. We have therefore decided to re-sell them to
independent franchisees as soon as possible. This will enable divisional
management to focus on its primary role of developing the Willow Pumps core
business and helping Metro Rod franchisees grow their pump sales.
Filta UK
Filta UK has undergone a period of considerable change since being acquired.
Following the initial management reorganisation, which returned the business
to profitability, we have continued to review how best to deliver the wide
range of services offered to the hospitality sector, and this process is
ongoing. Some of these services duplicate existing Metro Rod and Willow Pumps
services or could be more efficiently serviced by our growing network of 24
Filta Environmental franchisees. We therefore continue to review, with our
customers and franchisees, how best to optimise service delivery and deliver
synergies across the B2B division.
Filta International
The management team in North America continued to develop the FiltaMax
strategic growth initiative, based on the maximum potential model that we
announced earlier this year. This plan is now gaining traction with system
sales up 16% on a like-for-like basis.
Whilst the volume of waste oil collected and sold for recycling increased
year-on-year, the price decreased significantly resulting in the gross profit
generated being only slightly ahead, and on a like-for-like basis
significantly behind the four months of the prior year.
One of the FiltaMax development projects is the roll-out of FiltaGold bulk oil
equipment to franchisees. This will enable franchises to buy virgin oil in
bulk, dispense it into 25 litre "jugs", and profitably supply it to customers
at a more competitive price. This new activity will also generate additional
royalty income for the business from January 2024.
A further new royalty stream will also be generated from July this year by the
introduction of a turnover-related royalty on FiltaClean, a steam cleaning
service for commercial kitchens that is now gaining traction with both
franchisees and customers.
B2C Division
The B2C division comprises the ChipsAway, Ovenclean and Barking Mad
franchise businesses. The unusual market conditions that followed Covid saw a
significant increase in the number of people taking early retirement, which
included a number of our franchisees, but a reasonably buoyant recruitment
market as people looked to improve their work/life balance by starting their
own businesses. This had the effect of reducing the franchise population, and
therefore recurring income, but allowed us to maintain our recruitment income.
This environment has been replaced by one where there are record levels of
employment, high wages and elevated inflation, in which people have become
more risk-averse and where the perceived comparative rewards of
self-employment have reduced. This has reduced the number of franchisees
leaving the system but made recruitment more challenging. This was anticipated
in our budget for H1 2023, which I am pleased to report have been fully
achieved, with the recruitment of 24 new franchisees (H1 2022: 30). As a
result, the total number of franchisees in the B2C division at the period end
was 339 (H1 2022: 370) and compares to a five-year average at the half-year of
376 franchisees.
In our year-end trading update on 12 January 2023, we announced a strategic
review of the B2C division and subsequently that we had appointed finnCap
Cavendish to seek a buyer for the B2C division. Consequently, we were required
to disclose this division as a discontinuing operation within the 2022
accounts. Subsequently, the business has been marketed to a range of trade and
franchise buyers, and whilst offers have been received, these have not met our
expectations. The Board has therefore decided to suspend marketing activity
until further notice. As the sale of this division is now not reasonably
foreseeable, we are required to reincorporate the results of this division
into the consolidated results of the Group as a continuing operation.
Digital transformation
The digital transformation of the Group is progressing well, with continuing
upgrades to the Vision works management system to improve functionality and
ease of use. We are particularly focused on enhancing the productivity and
efficiency of both engineers and the corporate functions. These developments
include the continued rollout of our advanced scheduling system and our first
trial of AI, which is "reading" emails and loading jobs onto Vision.
The recent acquisitions of Filta and Pirtek have provided us with new
opportunities to maximise the value our proprietary technology can deliver,
and we are seeking to ensure that all businesses within the Group benefit from
these developments and also have robust cyber security. Over the next six
months we will be developing a comprehensive "vision" for the further
development of all the IT platforms in our seven franchise brands in ten
countries.
Corporate Governance and new CFO
Since the acquisition of Filta and Pirtek, we have been considering the
optimal management and board structures to manage the significantly enlarged
business and operate to high standards of corporate governance. As a result,
we will be introducing a two-tier structure whereby the PLC board will be
streamlined to comprise two executive directors (myself as the Executive
Chairman and the CFO), together with a minimum of three independent
non-executive directors.
We are pleased to announce the appointment of Mark Fryer as CFO, who will join
the Group on 2 August. Mark is an experienced CFO with 25 years of public
company (AIM, FTSE Small Cap and FTSE 250) and private equity experience in
global manufacturing and business service companies. Mark's experience
includes extensive M&A, operational and business improvement experience in
complex international environments across a wide range of sectors. With the
appointment of Mark, Andrew Mallows will step down as a Director of the
Company and return to his role as Group Commercial Director and I would like
to thank him for his hard work as our Interim CFO.
A Management Board will also be created comprised of the divisional CEOs
together with the directors of the key central support functions of finance,
IT, marketing and corporate development. We will also be recruiting a
full-time Company Secretary to help manage the increasing complexity of a
multi-jurisdictional business, who will also join the Management Board. We are
aiming for these changes to be complete by the year-end and look forward to
updating shareholders in due course.
Corporate development and capital allocation
Following the acquisition of Filta, and more recently Pirtek, our strategic
focus will be on integrating these businesses into the Group and repaying the
acquisition debt facilities. The Board does not expect to make any further
significant acquisitions during this time. We will also seek to use our shared
central resources of finance, IT and marketing to enhance the effectiveness of
all our businesses, whilst looking to reduce costs by sharing resources. We
see significant opportunities to leverage the international footprint we have
now created to organically expand our existing brands in markets where the
Group has a presence.
Capital allocation decisions will balance debt reduction, a progressive
dividend policy and organic investment in the Group. Adjusted net debt of
£79.1m at 30 June 2023 (30 June 2022: net cash of £6.8m) represents LTM
leverage to 30 June 2023 of 2.48x, and LTM leverage to 31 December 2023 of
2.36x. The deleveraging profile is ahead of schedule and expected to fall to
1.6x by 31 December 2024 and we therefore fully expect the acquisition
facilities to be repaid within 5 years (which for the avoidance of doubt
excludes any potential future proceeds from a disposal of the B2C
division). The Board has set a target leverage range corridor of 1.0-1.5x
Adjusted EBITDA before it will consider any further acquisitions of scale.
Outlook
System sales at our Metro Rod and Metro Plumb brands are growing rapidly, and
this growth can be accelerated given their small share of very large markets
in which they operate. The other DLOs within the B2B division also have a
significant opportunity to scale up as stand-alone businesses or in support of
the franchise channels.
Filta is an almost unique business, with virtually no direct competition and a
huge potential market in the US, where customers can benefit from both the
cost saving resulting from oil filtration and the environmental benefits
arising from the responsible recycling of used oil and FOG (fats, oils and
grease) management. This business has real traction in the US and is poised
for significant expansion. Filta's European markets are at an earlier stage
and require more work to develop a compelling franchise model, but this is
progressing well in the UK and I am confident it will grow into a business of
scale.
The Pirtek business has a significant opportunity to continue growing in its
existing more developed markets through the development of its reactive
business and by expanding the range of services offered. The earlier-stage
markets of France, Sweden and Austria also have huge potential to reach scale,
particularly where the competition is fragmented. In addition, Pirtek has
the opportunity to expand into a further eight European markets, which will be
developed when the existing early-stage markets become more mature and
profitable.
The acquisitions of Filta and Pirtek have significantly advanced our ambition
of building a market leading international B2B multi-brand franchisor that
generates its income equally from the UK, North America and
Continental Europe. Whilst the Pirtek business is still in the early stages
of being integrated, we are anticipating a full-year performance at least in
line with our expectations of £29.0m Adjusted EBITDA.
Conclusion
The first half of 2023 has been another very productive and successful period
as we build a Group with international reach. I would like to welcome our new
colleagues at Pirtek and say how much we look forward to working with them.
Somewhat unusually, I would also like to single out one person in the
corporate team that has been key to the progress the Group has made over this
period. Julia Choudhury, our Corporate Development Director, worked
extraordinarily hard in bringing the multi-streamed acquisition of Pirtek to a
successful conclusion. On behalf of all shareholders, I would like to thank
her for her efforts.
Of course, none of this would have been possible without our dedicated
franchisees and corporate teams, and so I would also like to thank them for
their hard work and commitment to building our great business.
Stephen Hemsley
Executive Chairman
27 July 2023
FINANCIAL REVIEW
Summary statement of income (unaudited)
H1 2023 H1 2022 Change Change
£'000 £'000 £'000 %
System sales 146,060 80,642 65,418 81%
Revenue 69,751 44,508 25,243 57%
Cost of sales (40,795) (27,891) (12,904) 46%
Gross profit 28,956 16,617 12,339 74%
Administrative expenses (16,839) (9,352) (7,487) 80%
Adjusted EBITDA 12,117 7,265 4,852 67%
Depreciation & amortisation of software (1,840) (1,097) (743) 68%
Finance expense (1,611) (176) (1,435) 814%
Foreign exchange (69) (77) 8 (11)%
Adjusted profit before tax 8,597 5,915 2,682 45%
Tax expense (2,077) (1,193) (884) 74%
Adjusted profit after tax 6,520 4,722 1,797 38%
Amortisation of acquired intangibles (4,476) (669) (3,806)
Share-based payment expense (411) (351) (59)
Non-recurring costs (2,991) (1,282) (1,709)
Other gains and losses - 1,232 (1,232)
Tax on adjusting items 145 (83) 228
Statutory (loss)/profit after tax (1,213) 3,569 (4,782) (134)%
The Group's results for the six months ended 30 June 2023 include the maiden
10-week contribution from Pirtek which was acquired on the 21 April 2023.
They also include six months (2022: four months) of trading from Filta, which
was acquired in March 2022. In the audited accounts for the year ended 31
December, the trading results and balance sheet of the B2C division were
presented as a discontinuing operation as this division was being marketed for
sale, but as this is no longer the case, the results have been re-incorporated
into continuing operations.
System sales, which comprise the underlying sales of our franchisees and the
statutory sales of the DLOs, grew by 81% to £146.0m (H1 2022: £80.6m) in the
period. System sales is a KPI of the business as it is considered a better
indicator of the operating activity of the business than statutory revenue, as
it is the main driver of Management Service Fee ("MSF") income and DLO margin.
Administration expenses are up by 80% to £16.8m (H1 2022: £9.4m), partly as
a result of the inclusion of Pirtek overheads for the first time (£5.1m) and
the full six months of Filta's overheads compared to four months in the prior
period (an additional £1.0m). The underlying increase in overheads was
therefore £1.3m or 13%. The main drivers of this increase were salary cost,
up £0.4m or 6% and professional fees, in particular audit fees, up £0.3m or
67%.
Adjusted EBITDA, which is the main KPI of the business, increased 67% to a
record £12.1m (H1 2022: £7.3m) driven by the maiden contribution from
Pirtek, a full six-month contribution from Filta, and the growing contribution
from the Metro Rod core business.
Depreciation and amortisation of software increased 68% to £1.8m (H1 2022:
£1.1m). The significant increase primarily resulted from the acquisitions of
Pirtek and a full six-month expense from Filta.
The finance charge has increased to £1.6m from £0.2m, primarily as a result
of the interest cost of the Pirtek acquisition debt and the IFRS 16 charge on
their leased assets.
The adjusted tax charge at 24% (H1 2022: 20%) reflects the change in UK rates
from 19% to 25% from April 2023 and the generally higher overseas rates
applicable in the now expanded international operations.
The increase in the amortisation of acquired intangibles charge reflects the
additional charge related to the Pirtek and Filta acquisitions. The increase
in the share-based payment expense principally reflects the grant of
additional share options following the acquisition of Pirtek and the
revaluation of the stock appreciation rights which are remeasured at each
reporting period. Non-recurring costs in the current period reflect part of
the acquisition costs of Pirtek and in the comparative period, similar costs
in respect of the Filta acquisition. The balance of the costs were set against
the premium arising on the issue of new shares to fund the acquisitions or
capitalised into borrowings.
After a credit in respect of tax on adjusting items, the Group incurred a
statutory loss for the period of £1.2m (H1 2022: statutory profit £3.6m).
Divisional trading results
The divisional trading results may be analysed as follows:
Six months to 30 June 2023
B2B Filta Intl Pirtek B2C Azura Inter-co elimination H1 2023
£'000 £'000 £'000 £'000 £'000 £'000 £'000
System sales 52,644 42,998 37,168 12,881 369 - 146,060
Statutory revenue 41,803 13,670 12,352 3,281 369 (1,724) 69,751
Cost of sales (29,345) (8,757) (3,421) (803) - 1,531 (40,795)
Gross profit 12,458 4,913 8,931 2,478 369 (193) 28,956
GP% 30% 36% 72% 76% 100% 11% 42%
Administrative expenses (7,386) (1,807) (5,113) (1,317) (270) 193 (15,700)
Divisional EBITDA 5,072 3,106 3,818 1,161 99 - 13,256
Group overheads - - - - - - (1,139)
Adjusted EBITDA - - - - - - 12,117
Six months to 30 June 2022
B2B Filta Intl Pirtek B2C Azura Inter-co elimination H1 2022
£'000 £'000 £'000 £'000 £'000 £'000 £'000
System sales 42,446 24,885 - 12,900 411 - 80,642
Statutory revenue 33,373 8,823 - 3,432 411 (1,531) 44,508
Cost of sales (22,807) (5,775) - (662) - 1,353 (27,891)
Gross profit 10,566 3,048 - 2,770 411 (178) 16,617
GP% 32% 35% 81% 100% 12% 37%
Administrative expenses (6,199) (1,039) - (1,265) (313) 178 (8,638)
Divisional EBITDA 4,367 2,009 - 1,505 98 - 7,979
Group overheads - - - - - - (714)
Adjusted EBITDA - - - - - - 7,265
In order to reconcile the Group's statutory revenue, gross profit and
administrative expenses to the underlying entitles, 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.
Group overheads increased by 60% as a result of a significant increase in the
audit fee, higher travel costs associated with both the resumption of normal
travel and acquisition due diligence, and increased staff costs as the
salaries and benefits of senior group employees were brought more into line
with the market. However, these have reduced as a percentage of system sales
from 0.9% to 0.8%.
Each of the divisional results are analysed below.
B2B Division
The B2B division comprises the franchise activities of Metro Rod, Metro Plumb
and Filta UK together with the direct labour operations of Willow Pumps,
Filta UK and Kemac. The results of the B2B division may be summarised as
follows:
Six months to 30 June 2023 Six months to 30 June 2022
Metro Rod Willow Pumps Filta UK H1 2023 Metro Rod Willow Pumps Filta UK* H1 2022
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
System sales 37,348 9,683 5,613 52,644 30,110 8,773 3,563 42,446
Statutory revenue 26,507 9,683 5,613 41,803 21,037 8,773 3,563 33,373
Cost of sales (19,117) (6,634) (3,594) (29,345) (14,739) (5,840) (2,228) (22,807)
Gross profit 7,390 3,049 2,019 12,458 6,298 2,933 1,335 10,566
GP% 28% 31% 36% 30% 30% 33% 37% 32%
Administrative expenses (3,804) (2,132) (1,450) (7,386) (3,131) (2,041) (1,027) (6,199)
Adjusted EBITDA 3,586 917 569 5,072 3,167 892 308 4,367
*4 months only since acquisition in March 2022.
Metro Rod
Metro Rod comprises primarily the franchise activities of Metro Rod and Metro
Plumb and the DLO activities of Kemac, which may be summarised as follows:
H1 2023 H1 2022 Change Change
£'000 £'000 £'000 %
System sales 37,348 30,110 7,238 24%
Statutory revenue 26,507 21,037 5,470 26%
Cost of sales (19,117) (14,739) (4,378) 30%
Gross profit 7,390 6,298 1,092 17%
GM% 28% 30% (2)%
Administrative expenses (3,804) (3,131) (673) 21%
Adjusted EBITDA 3,586 3,167 419 13%
The key driver of Adjusted EBITDA is system sales of Metro Rod and Metro Plumb
on which the MSF income is generated, which is re-analysed and reconciled to
gross profit as follows:
H1 2023 H1 2022 Change Change
£'000 £'000 £'000 %
System sales 35,324 28,452 6,873 24%
MSF income 6,589 5,239 1,350 26%
Effective MSF % 18.7% 18.4%
Other gross profit 801 1,059 (258) (24)%
Gross profit 7,390 6,298 1,092 17%
Gross profit as % system sales 21% 22%
(1)%
Metro Rod and Metro Plumb system sales increased by an impressive 24% to a
record £35.3m (H1 2022: £28.5m). The effective rate of MSF, after incentives
provided to franchisees to encourage growth and investment, also increased to
18.7% from 18.4% resulting in a 26% increase in MSF income. The increase in
the MSF percentage resulted from the mix of system sales, with the growth in
the drainage business slightly outperforming the tanker and pump business
which attracts a lower rate of MSF.
Other gross profit declined 24% to £0.8m (H1 2022: £1.0m) a result of a
non-recurring event in each period. In H1 2022 we were completing the
profitable contract for Peel Ports, whereas in H1 2023 losses were incurred
because of the abandonment of a franchisee whose territory we had to continue
to operate, resulting in a £0.2m reversal between the two periods. The
franchise territory, which is fundamentally viable, is expected to be resold
in H2, generating sale proceeds and the elimination of future losses. Were
these items adjusted for, total gross profit would have grown by a more
respectable 21% and more in line with the growth in system sales.
Administrative expenses grew by 21% principally as a result of an elevated
increase in staff salary costs in the face of high inflation and the need to
retain and recruit additional staff. This was combined with a full return to
more typical working practices post Covid, which in particular increased
travel costs. However, administrative expenses as a percentage of system sales
reduced slightly from 10.4% to 10.2%.
Adjusted EBITDA grew by 13% to £3.6m (H1 2022: £3.2m). The absence of any
operational gearing in this period was due to the reduced gross profit and
elevated overheads, the impact of which will be less apparent in H2.
Willow Pumps
Willow Pumps comprises the core DLO pump business and the Metro Rod corporate
franchises in Kent & Sussex and Exeter which are managed by the Willow
Pumps team. The results may be summarised as follows:
H1 2023 H1 2022 Change Change
£'000 £'000 £'000 %
Statutory revenue 9,683 8,773 910 10%
Cost of sales (6,634) (5,840) (794) 14%
Gross profit 3,049 2,933 116 4%
GP% 31% 33% (2)%
Administrative expenses (2,132) (2,041) (91) 4%
Adjusted EBITDA 917 892 25 3%
The statutory revenue at Willow Pumps grew by 10% to £9.7m (H1 2022: £8.8m),
although the gross margin declined from 33% to 31% as more of the work was
sub-contracted, as planned, particularly to Metro Rod franchisees. This
resulted in gross profit increasing by only 4%. However, further streamlining
of the management structure limited the growth in administrative expenses to
just 4%, so a small increase in Adjusted EBITDA was achieved.
While the two Metro Rod franchises incurred small losses, they contributed
significant MSF income to Metro Rod. As already mentioned, we intend to sell
these territories to new franchisees to allow Willow Pumps management to focus
entirely on maximising the opportunities within the pump sector and in helping
Metro Rod franchisees develop their pump expertise.
Filta UK
Filta UK comprises a range of complementary DLO services including pump
& drainage repair and maintenance, fridge & freezer seal replacement,
extraction vent cleaning and the supply, installation and maintenance of
grease recovery units ("GRUs"). The Filta Environmental network of 24
franchisees is also included in this business. The results for the period,
are for a full six months compared to four months in H1 2022 and may
be summarised as follows:
H1 2023 H1 2022* Change Change
£'000 £'000 £'000 %
Statutory revenue 5,613 3,563 2,050 58%
Cost of sales (3,594) (2,228) (1,366) 61%
Gross profit 2,019 1,335 684 51%
GM% 36% 37% (1)%
Administrative expenses (1,450) (1,027) (423) 41%
Adjusted EBITDA 569 308 261 85%
* 4 months only
since acquisition in March 2022
The revenue of Filta UK has grown 58% to £5.6m (H1 2022 four months: £3.6m),
with a like-for-like growth rate of 5%. This slightly disappointing rate of
growth was caused by the disruption in the supply of GRUs caused by the
failure of the supplier. Negotiations with the Administrator of the supplier
are expected to allow a long-term supply arrangement to be re-established in
H2.
Administrative expenses grew by 41% to £1.45m (H1 2022 four months: £1.0m),
a like-for-like decline of 7%, and resulted from the management changes made
in the comparative period in 2022 and the closer integration of this business
with the B2B division. This operational gearing allowed Adjusted EBITDA to
grow by 85% to £0.6m (H1 2022 four months: £0.3m), representing like-of-like
growth of 23%.
Filta International
Filta International operates a franchise network that comprises the franchise
activities of Filta in North America and mainland Europe. The results for
the period are for a full six months compared to four months in H1 2022 and
may be summarised as follows:
North America Europe H1 2023 North America Europe H1 2022*
£'000 £'000 £'000 £'000 £'000 £'000
System sales 41,281 1,717 42,998 23,741 1,144 24,885
Statutory revenue 13,178 492 13,670 8,603 220 8,823
Cost of sales (8,416) (341) (8,757) (5,647) (128) (5,775)
Gross profit 4,762 151 4,913 2,956 92 3,048
GM% 36% 31% 36% 34% 42% 35%
Administrative expenses (1,538) (269) (1,807) (925) (114) (1,039)
Adjusted EBITDA 3,224 (118) 3,106 2,031 (22) 2,009
* 4 months only since acquisition in March 2022
System sales in North America grew by 74% to £41.3m (H1 2022 four months:
£23.7m) and on a like-for-like basis by 16%. In local currency, the
like-for-like system sales increase was 23%. One of the main drivers of the
strong growth in system sales was the acquisition of new national account
customers resulting from the further investment in automated outbound
telesales activity. Many franchisees also continued to expand their businesses
by investing in new equipment, which will further drive used oil revenues in
the future, with 23 mobile filtration units ("MFUs") added by the network (H1
2022: 29).
Waste oil volumes in the first six months of 2023 were up 22% on the
comparative period in 2022, but average pricing was down by 14%, resulting in
an increase in revenue of just 5% (all in local currency). When comparing the
four months post-acquisition period in 2022 with the full six-month period in
2023, in sterling terms, waste oil revenues were up 45% to £8.6m (H1 2022
four months: £5.9m), resulting in a like-for-like gross margin contribution
up 39% to £1.5m (H1 2022 four months: £1.1m). On a like-for-like basis waste
oil revenues were down by 4% and the gross margin contribution down by 7%.
Administrative expenses in North America increased by 66% to £1.5m (H1 2022
four months: £0.90m), a like-for-like increase of 11%. This was driven by
higher staff costs resulting from an expansion of the sales team. Overall
Adjusted EBITDA in North America increased by 59% to £3.2m (H1 2022 four
months: £2.0m), a like-for-like increase of 6%.
The Filta business in Europe has not progressed as hoped following the
expansion of the team, as whilst sales increased to £1.7m (2022 four months:
£1.1m), like-for-like sales were flat. The disruption in the supply of GRUs,
referred to above, has also impacted the development of this business. Given
the substantial platform we now have in Europe following the acquisition of
Pirtek, we are taking steps to optimise the management of this business with
the objective of reducing costs by sharing overheads and developing new
business opportunities.
Pirtek
In the six months to 30 June 2023 the results for Pirtek are included for the
ten weeks following the completion of the acquisition, as follows:
UK & ROI Germany & Austria Benelux Sweden France Other H1 2023
£'000 £'000 £'000 £'000 £'000 £'000 £'000
System sales 17,060 13,237 4,794 541 1,536 - 37,168
Statutory revenue 4,825 3,133 2,340 539 1,536 (21) 12,352
Cost of sales (1,546) (994) (525) (64) (313) 21 (3,421)
Gross profit 3,279 2,139 1,815 475 1,223 0 8,931
GM% 68% 68% 78% 88% 80% - 72%
Administrative expenses (1,426) (962) (1,039) (444) (1,225) (17) (5,113)
Adjusted EBITDA 1,853 1,177 776 31 (2) (17) 3,818
The Pirtek division comprises operations in eight countries but is managed as
five business units with the UK management team being responsible for Ireland,
the German team being responsible for Austria and the Benelux team managing
the operations in the Netherlands and Belgium. France and Sweden also have
their own separate management teams.
The UK business is the largest in the division, contributing 46% (£17.1m) of
total system sales and 49% (£1.9m) of the division's total Adjusted EBITDA,
which were both record results for the period. The UK business has 37
franchisees, 34 in the UK and 3 in Ireland, with one corporately run centre in
York.
Germany and Austria accounted for 36% (£13.2m) of system sales and 31% of the
division's total Adjusted EBITDA (£1.2m), also both record results for the
period. The German business has 22 franchisees, 19 in Germany and 3 in
Austria, which includes the joint venture in Graz.
Benelux contributed 13% (£4.8m) of system sales and 20% (£0.8m) of the
division's total Adjusted EBITDA, again records for the period. The Benelux
business has 10 franchisees, 9 in the Netherlands and 1 in Belgium, with six
corporately run centres.
France is comprised of 8 centres and 44 MSUs, mainly based in
the Île-de-France and Lyon/Grenoble areas at present. This operation has
limited geographical reach and is sub-scale at present, which makes it
challenging to attract national customers. Consequently, this business is just
breaking even at present. However, as new depots and MSUs are rolled out, this
will improve and given the significant market size, which we estimate is
somewhere between that of the UK and Germany; this is an exciting growth
opportunity.
Sweden is comprised of one head office service centre and 22 MSUs located in
the Stockholm, Gothenburg and Malmo areas. As further MSU are rolled out, the
contribution from this market will improve and it will also provide a
bridgehead for the rollout of Pirtek in Scandinavia.
Overall, sales and profits reached record levels in most markets, and the
business performed in line with our expectations at the time of acquisition.
B2C Division
The B2C division comprises the ChipsAway, Ovenclean and Barking Mad
franchise businesses. The results of the division may be summarised as
follows:
H1 2023 H1 2022 Change Change
£'000 £'000 £'000 %
System sales 12,881 12,900 (19) 0%
Revenue 3,281 3,432 (151) (4)%
Cost of sales (803) (662) (141) 21%
Gross profit 2,478 2,770 (292) (11)%
GM% 76% 81% (5)%
Administrative expenses (1,317) (1,265) (52) 4%
Adjusted EBITDA 1,161 1,505 (344) (23)%
The key revenue streams of this division are MSF and area sales income. The
MSF income, which was flat year on year, is primarily made up of fixed monthly
fees charged to franchisees. As the total number of franchisees reduced
year-on-year, maintaining MSF income was a good result. Area sales income
declined year-on-year as the number of new recruits declined, although this
was fully in line with our budget, which anticipated a slowdown in the market.
Chips Away recruited 18 new franchisees in the period (H1 2022: 16), and
attrition was reduced, with 20 leavers (H1 2022: 25), resulting in a
period-end system of 189 franchisees, just 2 down on the year-end. Ovenclean
recruitment was weak in the period, with just 3 new recruits (H1 2022: 8) and
10 leavers (H1 2022: 7), resulting in 93 franchisees at the period end. This
weaker performance, when compared with ChipsAway, reflects the older age
profile of Ovenclean franchisees, who are more likely to retire early and less
likely to seek self-employment in the current environment. Barking Mad, which
was severely impacted by the travel restrictions during Covid, has stabilised
and recruited 3 new franchisees (H1 2022: 5) and had 4 leavers (H1 2022: 8),
resulting in a period-end system of 57 franchisees, just one fewer than at the
year-end.
Overheads were well controlled resulting in administrative expenses increasing
by only 4%. Adjusted EBITDA was 23% below last year's level, although if
adjusted for the £0.1m one-off income generated from the sale of the domain
name for the "MyHome" brand in H1 2022, the decline would be restricted to
17%, which we consider to be a creditable result in the current market.
Azura
Azura, a leading franchise management software system developer, had a
reasonable first half and has been successful in selling its software platform
to a large international franchisor. It is also integral to the development of
the Vision works management system for the Metro Rod businesses. The results
of the division may be summarised as follows:
H1 2023 H1 2022 Change Change
£'000 £'000 £'000 %
Statutory revenue 369 411 (42) (10)%
Cost of sales - - - -
Gross profit 369 411 (42) (10)%
GM% 100% 100%
Administrative expenses (270) (313) 43 14%
Adjusted EBITDA 99 98 1 1%
Adjusted EBITDA was in line with management expectations and included an
intercompany profit of £36,000 on intercompany revenue of £193,000 (which is
eliminated on consolidation). Whilst the Group continues to be Azura's
largest customer, we continue to believe that the software we are jointly
developing for our internal use will have applications in other non-competing
franchise businesses in due course.
Earnings per share
During the period, the Group issued 63,472,968 shares, raising £114.3m to
part-fund the acquisition of Pirtek. This resulted in the total number of
Ordinary Shares in issue increasing to 193,780,080 at 30 June 2023 (31
December 2022: 130,311,112) and a basic weighted average number of shares in
issue increasing to 155,560,028 (H1 2022: 116,061,969).
Adjusted earnings per share increased by 4% to 4.24p (H1 2022: 4.07p). This
modest increase results from a significant increase in the weighted average
number of Ordinary Shares; a 4% increase in the tax rate (at a consistent tax
rate; EPS increased by 10%); the budgeted reduced contribution from the B2C
division, and the reduced like-for-like growth at Filta International due to
the lower waste oil price.
The Group incurred a statutory loss after tax as a result of the amortisation
of intangibles and the expensing of the Pirtek acquisition costs against only
ten weeks of income. On this basis, the loss per share for the period was
0.79p (H1 2022: profit per share 3.08p), as set out in the table below.
H1 2023 EPS H1 2022 EPS
£'000 p £'000 p
Adjusted profit after tax 6,520 4.24 4,722 4.07
Amortisation of acquired intangibles (4,476) (2.91) (669) (0.58)
Share-based payment expense (411) (0.27) (351) (0.30)
Non-recurring costs (2,991) (1.95) (1,282) (1.10)
Other gains and losses - - 1,232 1.06
Tax on adjusting items 145 0.09 (83) (0.07)
Statutory (loss)/profit after tax (1,213) (0.79) 3,569 3.08
Financing and cash flow
On 21 April the Company completed the acquisition of Hydraulic Authority I
Limited, the owner of Pirtek Europe, from PNC Capital Finance, LLC, for a
total consideration of £200m plus a cash and working capital adjustment of
£10.3m. The acquisition was funded by an equity fundraise of 53.7m shares at
£1.80 per share, raising £96.7m, the issue of 9.7m consideration shares to
the vendors, and new debt facilities comprising a £55m Term Loan and
a £55 million Revolving Credit Facility ("RCF") of which £10m remains
unutilised.
In addition, transaction and reorganisation costs of £7.2m were incurred, of
which £3.0m have been expensed and £3.3m set against the share premium
arising on the issue of the new shares, with a further £0.9m amortising over
the term of the bank debt facility.
A summary of the Group cash flow for the period is set out in the table below.
Unaudited 30 June 2023 Unaudited 30 June 2022 Audited 31 December 2022
£'000 £'000 £'000
Adjusted EBITDA 12,117 7,265 15,281
Acquisition and re-organisation costs (6,270) (3,049) (1,708)
Working capital movements (5,296) (2,276) (3,216)
Cash generated from operations 551 1,940 10,357
Taxes paid (605) (1,355) (2,629)
Purchases of property, plant and equipment (482) (626) (422)
Purchase of software (521) (466) (1,088)
Acquisition of subsidiaries net of cash (200,610) 4,320 4,320
Bank loans received / (repaid) 100,012 (3,042) (2,953)
Proceeds from issue of shares 114,251 - -
Lease payments (1,002) (559) (1,156)
Funds supplied to EBT (18) (383) (2,503)
Dividends paid (1,433) (1,169) (2,339)
Other net movements (101) (183) 158
Net cash movement 10,042 (1,523) 1,745
Net cash at beginning of period 10,799 9,054 9,054
Net cash at end of period 20,841 7,531 10,799
After these outflows, the Group finished the period with net debt of £86.3m
(31 December 2022: net cash £6.5m) as set out below.
Unaudited Unaudited Audited
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
Cash 20,841 7,531 9,054
Term loan (55,000) - -
RCF (44,854) - -
Loan fee 843 - -
Hire purchase debt (911) (684) (821)
Adjusted net (debt)/cash (79,081) 6,847 8,233
Other lease debt (7,209) (2,146) (1,713)
Net (debt)/cash (86,290) 4,701 6,520
Adjusted net debt was £79.1m at 30 June 2023 (30 June 2022: net cash of
£4.7m). Adjusted net debt is a measure used for testing covenants for the
term loan and RCF and excludes debt on right-of-use assets of £7.2m. The
other principal covenant measure is finance charges as a multiple of Adjusted
EBITDA. Both covenants were comfortably met at 30 June 2023.
Dividend
We are confident in the growth prospects for the enlarged Group and believe
that our increased scale and enhanced management team will also help drive the
achievement of our ambitious growth targets. This has given the Board the
confidence to declare an 11% increase in the interim dividend to 1.0p per
share (interim 2022: 0.90p). The interim dividend will be paid on 13 October
2023 to shareholders on the register on 15 September 2023.
Andrew Mallows
Interim Chief Financial Officer
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2023
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
Notes 2023 2022 2022
£'000 £'000 £'000
Revenue 69,751 44,508 99,152
Cost of sales (40,795) (27,891) (63,187)
Gross profit 28,956 16,617 35,965
Adjusted EBITDA 15,281
12,117 7,265
Depreciation (1,447) (885) (1,781)
Amortisation of software (393) (212) (500)
Amortisation of acquired intangibles (4,476) (669) (1,504)
Share-based payment expense (411) (351) (535)
Non-recurring items 2 (2,991) (50) (475)
Total administrative expenses (26,557) (11,519) (25,479)
Operating profit 2,399 5,098 10,486
Finance expense (1,611) (176) (235)
Profit before tax 788 4,922 10,251
Tax expense (1,932) (1,276) (1,961)
Profit attributable to equity holders of the Parent Company (1,144) 3,646 8,290
Other comprehensive income
Exchange differences on translation of foreign operations (69) (77) 28
Total comprehensive income attributable to equity holders of the Parent (69) (77) 28
Company
Earnings per share (p)
Basic 1 (0.79) 3.08 6.81
Diluted 1 (0.78) 3.01 6.70
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 30 June 2023
Unaudited
30 June 2023 Audited
31 December
2022
£'000 £'000
Assets
Non-current assets
Intangible assets 305,845 87,207
Property, plant and equipment 5,288 3,303
Right-of-use assets 8,312 2,845
Contract acquisition costs 431 402
Trade and other receivables 695 811
Total non-current assets 320,571 94,568
Current assets
Inventories 7,835 2,753
Trade and other receivables 43,210 22,505
Contract acquisition costs 93 92
Cash and cash equivalents 20,841 10,799
Total current assets 71,979 36,149
Total assets 392,550 130,717
Liabilities
Current liabilities
Trade and other payables 33,570 17,802
Loans and borrowings 54,854 -
Obligations under leases 2,798 966
Deferred income 626 807
Current tax liability 1,937 170
Total current liabilities 93,785 19,745
Non-current liabilities
Loans and borrowings 45,000 -
Obligations under leases 5,320 1,790
Deferred income 1,670 1,744
Deferred tax liability 35,214 4,398
Total non-current liabilities 87,204 7,932
Total liabilities 180,989 27,677
Total net assets 211,561 103,040
Issued capital and reserves attributable to owners of the Parent
Share capital 969 652
Share premium 147,948 37,293
Share-based payment reserve 1,554 1,217
Merger reserve 52,212 52,212
EBT reserve (3,026) (3,007)
Cumulative translation adjustment 32 155
Retained earnings 11,872 14,518
Total equity attributable to equity holders 211,561 103,040
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended 30 June 2023
Unaudited Unaudited Audited
6 months ended 6 months Year
30 June ended ended
2023 30 June 31 December
2022 2022
£'000 £'000 £'000
Cash flows from operating activities
8,318
Profit for the period (1,213) 3,570
Adjustments for: 756
Depreciation of property, plant and equipment 619 885
Depreciation of right-of-use assets 906 - 1,025
Amortisation of software 315 - 500
Amortisation of acquired intangibles 4,476 881 1,504
Non-recurring charges - 1,282 -
Share-based payment expense 411 351 535
Other gains and losses - (1,232) (1,232)
Finance expense 1,611 253 235
Exchange differences on translation of foreign operations 69 - (28)
Income tax expense 1,932 1,276 1,961
Operating cash flow before movements in working capital 9,126 7,266 13,574
Decrease/(increase) in trade and other receivables (17,395) (7,914) (4,661)
(Increase)/decrease in inventories (5,083) (1,132) (401)
(Decrease)/increase in trade and other payables 17,182 6,769 1,845
Cash generated from operations 3,830 4,989 10,357
Income taxes (paid)/received (605) (1,355) (2,629)
Net cash generated from operating activities 3,225 3,634 7,728
Cash flows from investing activities (422)
Purchases of property, plant and equipment (482) (626)
Purchase of software (521) (466) 259
Proceeds from the sale of property, plant and equipment - 202 (1,088)
Loans to franchisees / franchise loans repaid 134 (491) (514)
Acquisition of subsidiary including costs, net of cash acquired (63,715) 2,951 4,320
Payment of contingent consideration - (1,680) -
Net cash used in investing activities (64,584) (110) 2,555
Cash flows from financing activities (2,953)
Bank loans- received / (repaid) 100,012 (3,042)
Preference shares acquired (58,593) - -
Repayment of loan notes and bank debt (78,302) - -
Capital element of lease obligations repaid (1,002) (559) (1,037)
Interest paid - bank and other loan (8) (42) (116)
Interest paid - finance leases (104) (33) (119)
Proceed from issue of shares, net of costs 110,972 180 330
Funds supplied to Employee Benefit Trust (18) (383) (2,503)
Dividends paid (1,433) (1,169) (2,339)
Net cash generated from/used in financing activities 71,524 (5,048) (8,737)
Net increase/decrease in cash and cash equivalents 10,165 (1,524) 1,546
Cash and cash equivalents at beginning of period 10,799 9,054 9,054
Exchange differences on cash and cash equivalents (123) - 199
Cash and cash equivalents at end of period 20,841 7,530 10,799
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2023
Share capital Share premium account Share-based payment reserve Merger reserve EBT Retained earnings Total
reserve Foreign exchange reserve
Group £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2022 480 36,966 789 1,390 (504) - 8,204 47,325
Profit for the period - - - - - - 3,570 3,570
Foreign exchange translation differences - - - - - 289 - 289
Total comprehensive income - - - - - 289 3,570 3,860
Contributions by and distributions to owners:
Shares issued 169 - - 50,822 - - - 50,991
Dividend paid - - - - - - (1,169) (1,169)
Contributions to Employee Benefit Trust - - - - (383) - - (383)
Share-based payment - - 285 - - - - 285
At 30 June 2022 649 36,966 1,074 52,212 (887) 289 10,606 100,909
Profit for the period - - - - - - 4,748 4,748
Foreign exchange translation differences - - - - - (134) - (134)
Total comprehensive income - - - - - (134) 4,748 4,615
Contributions by and distributions to owners:
Shares issued - - - - - - - -
Dividend paid - - - - - - (1,170) (1,170)
Contributions to Employee Benefit Trust 3 327 - - (2,120) - - (1,790)
Share-based payment - - 143 - - - 334 477
At 31 December 2022 652 37,293 1,217 52,212 (3,007) 155 14,518 103,040
Profit for the period - - - - - (1,213) (1,213)
Foreign exchange translation differences - - - - - (123) - (123)
Total comprehensive income - - - - - (123) (1,213) (1,336)
Contributions by and distributions to owners:
Shares issued 317 110,655 - - - - - 110,972
Dividend paid - - - - - - (1,433) (1,433)
Contributions to Employee Benefit Trust - - - - (19) - - (19)
Share-based payment - - 337 - - - - 337
At 30 June 2023 969 147,948 1,554 52,212 (3,026) 32 11,872 211,561
ACCOUNTING POLICIES
Basis of preparation
The consolidated financial statements for the six months ended 30 June 2023
and 2022 are unaudited and were approved by the Directors on 26 July 2023.
They do not constitute statutory accounts as defined in section 434 of the
Companies Act 2006. The financial statements for the year ended 31 December
2022 were prepared in accordance with IFRS and have been delivered to the
Registrar of Companies. The report of the auditor on those financial
statements was unqualified and did not draw attention to any matters by way of
emphasis of matter. The Group's financial statements consolidate the financial
statements of Franchise Brands plc and its subsidiaries.
Applicable standards
These unaudited consolidated interim financial statements have been prepared
in accordance with International Financial Reporting Standards as adopted by
the European Union, under the historical cost convention. They have not been
prepared in accordance with IAS 34, the application of which is not required
to the interim financial statements of AIM companies. The interim financial
statements have been prepared in accordance with the accounting policies set
out in the Group's Annual Report and Accounts for the year ended 31 December
2022.
Going concern
The condensed financial statements have been prepared on a going concern
basis. The Group has generated profits both during the period covered by these
financial statements and in previous years. These profits have resulted in
operating cash inflows into the Group, and the Group has sufficient current
financial assets to meet its current liabilities as they fall due.
NOTES TO THE UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2023
1. Earnings per share
Basic earnings per share amounts are calculated by dividing profit for the
period attributable to equity holders of the Parent by the weighted average
number of ordinary shares outstanding during the period. Diluted earnings per
share are calculated by dividing the profit attributable to Ordinary equity
holders of the Parent Company by the weighted average number of Ordinary
Shares outstanding during the period 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.
Earnings per share
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
Profit attributable to owners of the Parent (1,213) 3,570 8,318
Adjusting items, net of tax 7,733 1,153 1,915
Adjusted profit attributable to owners of the Parent 6,520 4,722 10,233
Number Number Number
Basic weighted average number of shares 153,781,948 116,061,969 122,126,350
Dilutive effect of share options 2,452,633 2,363,754 2,042,848
Diluted weighted average number of shares 156,234,581 118,425,723 124,169,198
Pence Pence Pence
Basic earnings per share (0.79) 3.08 6.81
Diluted earnings per share (0.78) 3.01 6.70
Adjusted earnings per share 4.24 4.07 8.38
Adjusted diluted earnings per share 4.17 3.99 8.24
2. Non-recurring items
The Company incurred costs associated with the acquisition of Pirtek. An
amount of £3.0 million has been charged in arriving at statutory profit.
£'000
Pirtek acquisition costs 2,824
Reorganisation costs 167
Total 2,991
3. Business Combination
On 21 April, the Company acquired the entire issued share capital of Hydraulic
Authority I Limited and its subsidiaries (together, "Pirtek" or "Pirtek
Europe") for gross consideration of £73.4m, and net consideration of £63.7m
(with £9.7m of cash purchased).
The total consideration for Pirtek of £210.3m includes repayments of acquired
debt of £78.3m, redemption of acquired preference shares of £58.6m and the
gross consideration, detailed below, of £73.4m.
Details of the fair value of the identifiable assets and liabilities
acquired, purchase consideration and goodwill are as follows:
Book value Adjustments Fair Value
£'000 £'000 £'000
Intangible assets - 119,518 119,518
Property, plant and equipment 2,104 - 2,104
Inventories 5,174 - 5,174
Trade and other receivables 14,621 - 14,621
Current asset investment 179 - 179
Cash 9,669 - 9,669
Trade and other payables (149,654) - (149,654)
Deferred tax liability (11,466) (20,491) (31,957)
Total fair value of the identifiable assets and liabilities acquired (129,373) 99,027 (30,346)
Total consideration paid 73,384
Goodwill 103,730
The deferred tax liability has been calculated on the value of the intangible
assets acquired at a blended corporation tax rate of 26%. A corresponding
amount has been recognised as goodwill. The amount recognised as goodwill will
not be deductible for tax purposes.
The values of the intangibles acquired are currently provisional and will be
finalised at the year-end. All of the intangible assets have a useful economic
life of 10 years, with the exception of the brands and goodwill, which both
have indefinite lives.
4. Availability of this report
This half-year results report will not be sent to shareholders but is
available on the Company's website
at https://www.franchisebrands.co.uk/key-documents/
(https://www.franchisebrands.co.uk/key-documents/) .
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