REG - Franchise Brands PLC - Trading Update

Franchise BrandsAnnouncement

18/01/2024 07:00

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RNS Number : 0746A  Franchise Brands PLC  18 January 2024

18 January 2024

FRANCHISE BRANDS PLC

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

 

Year End Trading Update

 

Another year of strong growth; key divisions trading at record levels and

 

Adjusted EBITDA in line with market expectations

 

Franchise Brands plc (AIM: FRAN), an international multi-brand franchise
business, provides the following trading update for the financial year
ended 31 December 2023.

 

Following the acquisition of Pirtek Europe in April 2023, the Group now has
over 625 franchisees across seven franchise brands in ten countries covering
the UK, Continental Europe and North America, resulting in a diversified
international footprint.

 

Divisional performance

 

The divisions serving business customers (Pirtek, Metro Rod, Willow Pumps,
Filta UK and Filta International) are trading at record levels, demonstrating
the resilient underlying demand for their primarily essential reactive
services in challenging macro-economic conditions.

 

Pirtek traded at record levels, contributing as expected to the Group results
in the eight months of ownership, despite a softening in sales in the
construction and hire fleet sectors during Q4, particularly in the UK and
Germany. Integration of Pirtek into the Group is progressing well, and the
Group continues to identify efficiencies, particularly in IT, where the Board
foresees significant synergies over the next few years. Work has also started
on expanding the range of services and cross-selling across the Group's
significantly enlarged customer base.

Metro Rod also delivered a record year with strong momentum, resulting in
system sales growth of almost 20%. This growth has been driven by the
continuing initiatives to widen and deepen the services offered, particularly
in pump service and maintenance. Metro Plumb's system sales increased by over
20%, with this strong growth reflecting the recruitment of new independent
franchisees and the broadening of its range of services.

Particularly good progress has also been made in Willow Pumps, assisted by
several planned management team changes. The special project department is
gathering momentum and with a more extensive sales pipeline, the Board expects
further progress in 2024.

At Filta UK, the transition from a direct labour operation to a franchise
model has accelerated and, whilst this reduces the gross margin, it is helping
the Group to build a more robust and sustainable long-term business model. The
previously reported supply issues with the Cyclone grease recovery unit have
been resolved by the acquisition of all the intellectual property rights
associated with this unit. While this disruption has impacted sales for the
year, the Board is confident that full control of the supply chain will enable
accelerated growth in 2024.

Filta International's North American business had a record year, with system
sales increasing by over 15% and robust levels of activity across all key
customer sectors. Used oil volumes increased by 25% but this was mostly offset
by a c.20% reduction in the average sale price achieved. The range of services
offered to Filta International's commercial kitchen customer base is being
expanded with the addition of new bulk virgin oil sales and a kitchen cleaning
service, which will drive the management service fee income in future periods.

The B2C division delivered a creditable performance in a challenging
recruitment environment, and whilst its contribution to the Group results will
be below the prior year, it will exceed the Group's more cautious
expectations.

 

 

Balance Sheet

 

The Group's adjusted net debt on 31 December 2023 was reduced
to £74.8m (30 June 2023: £79.1m), comprised of gross debt
of £86.8m and cash of £12.0m. Adjusted net debt excludes debt on
right-of-use assets and is the debt measure used for testing bank covenants.
The Group is trading comfortably within all banking covenants.

 

The strategic focus of the Group remains on integrating Pirtek, promoting
operational synergies, organic expansion of the range of services and repaying
acquisition debt. As a result, capital allocation decisions will balance debt
reduction, a progressive dividend policy and organic investment. The Board has
set a target leverage range of 1.0-1.5 times Adjusted EBITDA before it will
consider any further acquisitions of scale.

 

Outlook

 

Despite challenging macro-economic conditions, the resilient underlying demand
for the Group's essential reactive services means that the business continues
to perform well and grow, with its key divisions all achieving record results
in 2023. As a result, and subject to audit, the Board expects the Group's
adjusted EBITDA for the year ended 31 December 2023 to be within the range
of current market expectations of £29.2m to £30.1m.

 

Stephen Hemsley, Executive Chairman, commented:

 

"In 2023 we once again doubled the size of the Group with the acquisition of
Pirtek, having doubled in size in 2022 following the merger with Filta. These
acquisitions have transformed the Group from a UK domestic business to a
sizeable international business with seven franchise brands in ten countries,
and from adjusted EBITDA of £8.5m in 2021 to c. £30m in 2023.

"The integration of these businesses into a single group focused on providing
essential business services primarily via a franchised model is progressing
well and at pace. We are beginning to share resources internationally,
particularly in the area of IT, which will accelerate our operational gearing
in the coming years for both us and our franchisees.

"We also see significant potential for growth across our principal franchise
brands of Pirtek, Metro Rod and Filta, which have small shares of large
markets. As we continue to deliver on our ambition by broadening the range of
services offered, increasing the geographical penetration and cross-selling to
the larger customer base, I am very confident in the future prospects of the
Group."

 

Capital Markets Day

 

The Group will be hosting a Capital Markets Day for institutional investors on
20 February 2024, where it will set out its medium-term strategic model and
outline the growth potential of the business. The event will be hosted by
Stephen Hemsley, Executive Chairman, and will include presentations from the
Group's leadership team. Further details of the Capital Markets Day will be
announced shortly.

 

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 (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 (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 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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