REG - Franchise Brands PLC - Q3 Trading Update

Franchise BrandsAnnouncement

25/10/2023 07:00

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RNS Number : 1663R  Franchise Brands PLC  25 October 2023

25 October 2023

FRANCHISE BRANDS PLC

("Franchise Brands", the "Group" or the "Company")

 

Q3 Trading Update

 

All B2B business trading at record levels, with Pirtek meeting expectations
and integrating well

 

Confident in delivering adjusted EBITDA for the full year in line with market
expectation with debt levels reducing

 

Franchise Brands plc (AIM: FRAN), an international multi-brand franchise
business, provides the following trading update for the three months to 30
September 2023 ("Q3").

 

Following the acquisition of Pirtek Europe in April 2023, the Group now
operates seven franchise brands in ten countries in the UK, Continental
Europe and North America, resulting in a more diversified international
footprint and a broad range of resilient business services.

 

Divisional performance

 

The B2B businesses, which are engaged primarily in providing essential
reactive services and includes Metro Rod and Metro Plumb in the UK and Pirtek
in eight European countries, are all trading at record levels despite some
softening in demand over the summer period.  Whilst the type of reactive
services provided have resilient underlying demand whatever the macroeconomic
conditions, demand naturally reduces when customers' equipment or facilities
are not being used as intensively. Consequently, Q3 was a little softer than
in H1, but we saw a modest increase in activity at the start of Q4.

 

Pirtek is integrating well and has met our expectations at the time of its
acquisition. We continue to work on expanding the range of services and
growing the customer base by identifying cross-selling opportunities within
the Group. As a result of the significant opportunities to build a much larger
business, the Group has decided to accelerate the integration process. We have
optimised the management structure for cost and operating efficiencies, and
the new leadership team has settled in well and is developing strong
relationships across the Group. We have also launched several initiatives to
integrate technology, finance and marketing into our central functions, with
the initial focus being on technology.

 

Metro Rod has experienced continued strong momentum in the year-to-date in the
growth of system sales due to the continuing initiatives to widen and deepen
the services offered, particularly in the area of pump service and
maintenance. Metro Plumb continues to grow strongly as new independent
franchisees are recruited and the range of services offered improves. Good
progress has been made in Willow Pumps, where the special project department
is gathering momentum. The transition from a direct labour operation to a
franchise model at Filta Environmental has accelerated with additional
franchisees recruited, resulting in over 70% of the grease recovery unit
maintenance work being delivered by the franchisees. Whilst this has reduced
the Filta UK  gross margin, it is helping us build a stronger, more
sustainable franchise model in the longer term.

Filta's North American business has benefited from robust activity across
all key customer sectors, with used oil volumes and revenues up strongly. The
range of services being offered to its commercial kitchen customer base is
also being expanded with the addition of new bulk oil sales and a steam
cleaning service, which will drive the management service fee income in future
periods. However, some of this underlying growth has been offset by a
reduction in the price achieved from the sale of used cooking oil.

The B2C division continues to operate in a challenging environment, although
profitability is being maintained in line with expectations.

 

Balance Sheet

 

Group net debt (excluding leases) on 30 September 2023 reduced to £76.0m (30
June 2023: £79.1m), comprised of gross debt of £92.4m and net cash of
£16.4m. The Group is trading comfortably within key banking covenants. The
Group's interest charge is averaging c.8% on the gross debt, which is higher
than projected at the time of the Pirtek acquisition due to increases in the
Sterling Overnight Interest Average (SONIA).

 

Management Team

 

During Q3 the Group has continued strengthening the senior management team
with Mark Fryer joining as Chief Financial Officer and Rob Bellhouse appointed
as Company Secretary. We have also developed our corporate governance
structure, in line with the expansion of the Group and our ambition for the
future, by reorganising the board structure. We now have a smaller plc board
comprising two executive directors and three non-executive directors,
including Peter Kear, who has been appointed as Senior Independent
Non-executive Director. The plc board is supported by a Management Board
comprising the divisional CEOs and heads of the support functions.

 

Outlook

 

Despite challenging macro-economic conditions, the resilient nature of our
services means that the Group continues to perform well and expand. As a
result, the Board expects the Group's adjusted EBITDA for the year
ending 31 December 2023 to be in line with current consensus market
expectations*.

 

Stephen Hemsley, Executive Chairman, commented:

 

"The integration of Pirtek is progressing well, and the new senior leadership
appointments are allowing us to accelerate the process of integrating this
business into the Group and achieve more cross-functional and cross-geographic
co-operation, particularly where we can leverage our shared resources.

 

"We see significant potential for growth across our principal franchise
brands, which have a small share of large markets, by broadening the range of
services offered, increasing the geographical penetration and cross-selling to
the larger customer base. This scale, and our continued investment in IT
infrastructure, will accelerate our operational gearing in future years and be
a further driver of adjusted EBITDA.

 

"Whilst the trading environment has become more challenging as the year has
progressed, the resilient nature of the business services we provide gives us
confidence in delivering adjusted EBITDA for the full year in line with
consensus market expectations."

 

* Consensus market expectations for the financial year ending 31 December
2023 is adjusted EBITDA of £29.3m.

 

 

Enquiries:

 

 Franchise Brands plc                                                         + 44 (0) 1625 813231
 Stephen Hemsley, Executive Chairman
 Mark Fryer, Chief Financial Officer
 Julia Choudhury, Corporate Development Director

 Allenby Capital Limited (Nominated Adviser and Joint Broker)                 +44 (0) 20 3328 5656
 Jeremy Porter / Liz Kirchner / 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

                                                                  +44 (0) 20 7710 7600

 Stifel Nicolaus Europe Limited (Joint Broker)
 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
has a combined network of over 625 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 over 700 people across the Group.

 

For further information, visit www.franchisebrands.co.uk
(http://www.franchisebrands.co.uk/)

 

 

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