RE: Franchise Package Revenue8 Oct 2024 16:29
From Note 2.7 to the accounts:
The franchise packages consist of revenues which relate to pre- and post-opening costs mainly for store fit-out; and initial set up costs for pre-opening support, and franchisee and staff training.
The pre- and post-opening costs are required to get the new franchisee trading and are therefore recognised at a point in time which is at the end of the month in which trading commences. Each package is tailored to a specific franchisee’s needs and elements can be added or removed as appropriate which will affect the price. The performance obligation of the Group is met, when the store is handed over to the franchisee and he/she accepts it and commences trading. The franchisee is then obligated to settle the invoices raised by the Group for the costs incurred by the Group in getting the store in a position where it can start trading. Included in the franchise packages, is a franchise fee, the amount of which will depend on whether it is a new or existing franchisee opening the new store.
Holding deposits received from franchisees for new stores are not treated as revenue when received. The deposits are held under ‘Other Payables’ in the Group’s financial statements. If the new store is completed and the franchisee accepts it and commences trading, the deposit is allocated against the costs associated with the new store and recognised as revenue at this point. If the new store does not proceed, the deposit is refunded to the franchisee.
Given the tailored nature of each franchise package referred to in the note above, it's not unreasonable that the amounts might fluctuate from year to year, even if the number of openings is the same. Apart from the franchise fee (from the tone of the note I suspect that the fee charged to an existing franchisee is likely to be less than the fee charged to a new franchisee), most of the revenue relates to a reimbursement of up front costs, including training where appropriate, incurred by CBOX which are likely expensed through staff costs, supplies and professional fees. It's unclear what mark-up, if any, CBOX would make on these recharged expenses e.g. fit out costs may be recharged at cost.