FLTA.L Regulatory News (FLTA)

15 September 2020

Filta Group Holdings plc

("Filta" or the "Company" or the "Group")

Interim Results for the 6 months ended 30 June 2020

Filta Group Holdings plc (AIM: FLTA), a market-leading commercial kitchen services provider, is pleased to announce its unaudited Interim Results for the 6 months ended 30 June 2020.

Financial Summary

· Revenues of £8.3m (2019:  £12.2m) substantially impacted by COVID-19 lockdowns and social distancing restrictions

· Gross profit of £3.4m (2019: £5.0m) at a gross margin of 41% (2019: 41%)

· Overhead costs in Q2 reduced by 23% in response to impact of COVID-19

· Adjusted EBITDA of £0.2m (2019: £1.7m) which includes £0.3m COVID-19 related provision

· Cash inflow from operations of £0.5m (2019: outflow £0.2m)

· Cash balance of £3.2m versus £2.9m at 31 December, up 11% on strong cash management

· Net debt (including IFRS 16), declined 9% to £1.9m (2019: £2.1m)

· Basic loss per share of 3.11p (2019: EPS 1.24p)

· Dividend suspended until visibility of the pace and scale of market recovery has improved

Operational Highlights

· Strong Q1, followed by reduction in trading due to COVID-19 lockdown and then good month on month growth in May, June, and July

· 6 new franchise sales in the period

· Following the outbreak of COVID-19 in March 2020, the Group has been focused on supporting our franchisees and customers by reducing franchise fees and working with customers to prepare for re-openings in Q3

· Cost reductions achieved through the lockdown period by making use of government schemes, wage cuts and reduced discretionary spending

· FiltaShield launched in May and recently secured exclusive licensing agreement with NHS Trust owned support services group, NTH Solutions

· Encouraging progress in North America and Europe as continued interest from potential franchisees has resulted in four new H2 franchise sales and a healthy pipeline

*Adjusted EBITDA represents earnings before interest, taxes, depreciation, amortisation, acquisition related costs and share based payment expense.

This announcement contains inside information.

Jason Sayers, CEO of Filta, commented:

"While the COVID-19 pandemic had a material impact during the first half, our results demonstrate the resilience of our businesses and the fundamental strength of Filta. I am extremely proud of the way that Filta staff have stepped up to challenges we faced in each of our markets, and I thank all our employees and franchisees who have worked tirelessly to support our customers throughout these challenging times."We entered the year with good momentum, but with the pandemic causing lower demand for our services and widespread closures across our customer base from mid-March, we quickly adapted, placing emphasis on supporting our employees, franchisees and customers and protecting the long-term health of our business. Despite the disruption, we remained committed to operational excellence whilst developing new and creative ways of working; all of which will ensure that the Company-owned activities in the UK, in particular, remain ideally positioned for future success. The strength of our North American business model has been evidenced by the continued profitable trading that we have enjoyed throughout the COVID-19 affected period."With customer demand now coming back, we can focus on leveraging our solid capabilities to drive revenues back up. We are well-prepared for the resumption of trading by our ongoing end customers and believe that there will be growth opportunities as businesses have to become more innovative and efficient.

"Moreover, with the appointment of a new and industry experienced managing director in the UK to drive the business forward, we are confident that we are well placed to achieve strong revenue growth.""

For further information please contact:

Filta Group Holdings plc Tel: +1 407 996 5550

Jason Sayers, Chief Executive Officer

Brian Hogan, Finance Director

Cenkos Securities (Nomad and Broker) Tel: +44 (0)20 7397 8900

Stephen Keys

Harry Hargreaves

Yellow Jersey PR Tel: +44(0)7747 788 221

Charles Goodwin

Joe Burgess

Henry Wilkinson

Chief Executive's and Chairman's Statement

Overview

The first 6 months of the year comprised two periods of greatly contrasting fortunes and performance. In the first 3 months we saw the rationalisation to the UK business, that we had largely completed by the end of last year, deliver significantly improved margins and profitability. In the subsequent 3 months, the effect of COVID-19 reduced our revenue by 64% and gross profit by 48%.

The resulting revenue for the 6 months was £8.3 million (2019: £12.2 million) and a gross profit of £3.4 million (2019: £5.0m), giving an adjusted EBITDA of £0.2m (2019: £1.7m). The reported loss before tax of £0.8m (2019: profit £0.5m) is after incurring £0.9m of non-cash charges (2019: £1.0m).

We enjoyed strong operating performances across all our business platforms during the period prior to COVID-19, with revenues from Fryer Management continuing to grow and with gross margins from Site Services approaching the levels achieved before the acquisition of Watbio. There was also a healthy pipeline of new franchisees and a growing amount of recurring income.

Following the implementation of the social distancing lockdowns around the world and the consequent impact to our revenues, we took immediate steps to preserve cash and to protect the long-term future by agreeing to salary reductions for employees and the board, eliminating discretionary spending and taking advantage of the available government support schemes including VAT/PAYE deferrals and the Coronavirus Job Retention Scheme ("Scheme") in the UK and the Payroll Protection Program ("PPP") in the US. During this time, the Group received £0.7m in funding through the Scheme and £0.2m in PPP funds.

During the lockdown periods, we worked with our franchisees and major customers to help them prepare for the recommencement of normal trading by carrying out maintenance work and upgrading existing installations. We also helped our franchisees mitigate their own lower revenues by agreeing to reduced or deferred franchise royalty arrangements as we continued to implement procedures and practices to enhance our own operational efficiency. One of the outcomes from the pandemic was the launch in May 2020 of FiltaShield, a new service aimed specifically at helping businesses protect their customers, staff, and premises from COVID-19.

As a result of the actions described above, we enjoyed operating cash flow of £0.5m (2019: £0.2m outflow) and overall cash inflow of £0.2m (2019: £3.1m outflow, which included cash consideration for Watbio). The Group's gross cash at 30 June 2020 was £3.2m (31 December 2019: £2.9m) and net debt, including lease liabilities, was £1.9m (31 December 2019: £2.1m).

Operating Review

We continue to present and comment on our trading results according to the nature of the business, namely:

· Fryer Management, the original core business, which includes recurring franchise royalties, national accounts income, waste oil sales and other continuing income derived through our franchise network;

· Franchise Development, which includes the sales and resales of franchises as well as the additional territory sales to existing franchisees, drives increasing Fryer Management revenues;

· Site Services is comprised of the recurring maintenance fees, either under contract or otherwise, from FOG, Pump, Drain and Seal services;

· Equipment Sales & Installation, which is the entry point to new customers, drives increasing revenues from Site Services.

Fryer Management

Royalties and other revenue including from national accounts and waste oil sales, all of which is recurring in nature, from fryer management services provided through our franchise network were £4.1m (2019: £5.5m) and gross profit was £1.8m (2018: £2.4 million), an outcome which, given the almost complete closedown of the end customers for almost half the period, demonstrates the robust nature of our franchise model. We added 10 MFUs during the period, of which 9 were in Q1, and these will add to revenue over the second half and into future periods. Network revenue, which represents the total revenue of our North American franchisees for all services provided to customers, was up 10% in Q1 over prior year and before the impacts of COVID-19 were fully realised. Following a decline in Q2, we are beginning to see improvement in the first half of Q3. Many of the major customers, including sporting and events venues and educational establishments, have not yet re-opened and there will, therefore, be further revenue uplift when they do.

Franchise Development

Six new franchise agreements, two in Europe and four in North America, were all secured in Q1 and represented a strong start to the year. Throughout the second quarter we maintained our recruitment initiative, in many cases virtually, and continued to see interest from prospective franchisees. Whilst we did not realise any new agreements in Q2, we were successful in laying the groundwork for the resumption of trading. Since the end of June, we have secured two new franchises in Europe and one in North America with both locations experiencing growing pipelines.

Site Services

Site Services comprise Seal, FOG, Pump and Drain services, all of which are currently provided directly by our own operatives. We derived £2.9m or 35% of the Group's total revenue from Site Services. However, it should be noted that £2.3m of the revenue was achieved in Q1. Revenue in April was minimal, but we saw significant month on month improvement in May and June, a trend which has continued into the second half of the year. Importantly, as the business has returned, and our technicians come off furlough, the operational efficiencies are trending in line with expectations.

As more sites are opened or added, there is further improvement anticipated in operational efficiency and we will continue to proactively manage our need for additional resource to manage the growth.

Equipment Sales and Installation

This activity comprises FiltaFOG and FiltaPump Equipment Sales and Installation and delivered £0.8m or just under 10% of Group revenue which reflects prior performance. We anticipate a slower recovery here as our customers remain more focused on preventative maintenance and less inclined to incur larger one-time outlays during this initial resumption phase of trading. However, like our other offerings, we are seeing better month on month growth in the second half, albeit at a lower total volume.

New products

The Company has continued to innovate and seek additional products and services to add to its portfolio. One such service is FiltaShield, which was launched in May, to help customers to combat coronavirus. This offering comprises bacterial cleaning services using an anti-virus product, which can be taken as a one-off service or as a planned regular maintenance service. In addition, we now supply a temperature monitoring device for identifying potentially infected persons entering a customer's premises. These services are being offered as a Company-owned service and, in North America, through the franchise network.

We announced earlier this month that we have secured an exclusive licensing agreement with NTH Solutions, which is owned by North Tees and Hartlepool NHS Trust, to utilise an NHS approved disinfectant along with NHS accredited training as part of our Sanitation Service. This means that we will be considered as an NHS partner in the provision of such services.

People

We announced on 10 September that we have appointed Brian Riordan as Managing Director of our UK operations, effective 5 October 2020. Brian brings to Filta over 25 years' experience of working across food services and facilities management, sales and marketing, retail, and hotels. Most recently Brian was a Divisional Managing Director at Aramark UK, a leading food and facilities services provider. Brian will lead the growth and development of the existing UK business and will oversee the roll out and expansion of Filta's new partnership with NTH Solutions.

Dividends

Having regard to the ongoing uncertainty arising from the COVID-19 pandemic, and as part of a balanced approach to ensure that the Group maintains sufficient levels of liquidity throughout this period of uncertainty, the Board considers that it would not be appropriate to pay an interim dividend for 2020. However, the Board is conscious of the importance of income to shareholders and as performance progresses and visibility increases, it will keep future dividends, including the final dividend for 2020, under review.

Outlook

We have seen an improving sales trend in recent months with month on month revenues growing 40% in each of June and July. As we look to the remainder of the second half we are mindful of the ongoing wider macro-economic uncertainty caused by COVID-19 and whilst we cannot assume continued growth at these levels we will continue to support our customers as they reopen and believe that we are well placed to benefit from the acceleration in demand and to emerge as a stronger business once COVID-19 passes.

The Group is in a strong financial position and is a market leader in both of our major operating territories. We will continue to support our near-term financial performance with mitigating cost and cash actions where necessary or prudent, whilst continuing to pursue attractive investment opportunities as they become available, in order to position ourselves to take full advantage of future growth opportunities.

It is not possible to accurately predict how long the pandemic will last, nor how long or how severe the resulting financial impact will be on business globally. However, whilst we do not underestimate the challenges and uncertainties that remain, we believe that our business model, our multiple sources of revenue, many of which are long-term and recurring in nature, and our ability to adapt to changing circumstances, means that Filta is well placed to continue to expand and prosper.

Tim Worlledge Jason Sayers

Non-executive Chairman Chief Executive Officer

15 September 2020 15 September 2020

Condensed consolidated statement of comprehensive income

for the six months ended 30 June 2020

Filta Group Holdings plc

Condensed consolidated statement of financial position

As at 30 June 2020

Filta Group Holdings plc

Condensed consolidated statement of changes in equity

for the six months ended 30 June 2020

Filta Group Holdings plc

Condensed consolidated statement of cash flows

for the six months ended 30 June 2020

Filta Group Holdings plc

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2020

1. Accounting Policies

Basis of preparation

The condensed consolidated financial statements for the six months ended 30 June 2020 and 2019 are unaudited and were approved by the Directors on 14 September 2020. 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 2019 were prepared in accordance with International Financial Reporting Standards as adopted by the EU 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.

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 2019.

Basis of consolidation

The Group's financial statements consolidate the financial statements of Filta Group Holdings plc and its subsidiaries.

Going concern

Like many companies, the Group is being affected by the unprecedented events of COVID-19 and the associated impacts on our franchisees and customers so forecasting future activity levels in an uncertain economic environment is more challenging. The Directors have undertaken an assessment of going concern and liquidity, including financial forecasts up to the end of 2021, a period which extends beyond 12 months from the date of approval of these condensed consolidated financial statements, to reflect reasonably possible downsides. Within each scenario, the Group continues to have significant liquidity headroom with available cash on hand and unused overdraft facilities. In addition, current forecasts either meet bank covenant requirements or the Group has negotiated appropriate amendments to its covenants. Having reviewed the forecasts to the end of 2021 and taking account of its current cash and available facilities, the Directors consider that the Group has adequate financial resources to satisfy its working capital needs. Accordingly, they consider it appropriate to adopt the going concern basis of accounting in preparing the financial statements.

2. Earnings per share

The calculation of earnings per share is based on the following earnings and number of shares:

3. Segmental Analysis

In January 2019, following the acquisition of Watbio Holdings, the Company began to make a number of changes to its organisational structure and management system consistent with its integration of the Watbio. With these changes, the Company has updated its reportable segments. The Company continues to have four reportable segments as follows:

The Site Service's segment includes our legacy Seal replacement service as well as capabilities in providing preventive maintenance and reactive services in the markets we serve. The Equipment Sales & Installation segment represents the provision of design, sale and installation solutions. The Franchise Development and Fryer Management segments remain unchanged. The Group also has three geographic segments: United Kingdom, North America and Europe.

The segments represent components of the Company for which separate financial information is available that is utilised on a regular basis by the chief operating decision maker (which takes the form of the Board of Directors), in determining how to allocate resources and evaluate performance. The segments are determined based on several factors, including client base, homogeneity of products, technology, delivery channels and similar economic characteristics.

Revenue and non-current assets by origin of geographical segment for all entities in the Group is as follows:

Product and services revenue analysis

No customer has accounted for more than 10% of total revenue during the periods presented.

4. Trade and other receivables

Trade and other receivables consist of the following:

COVID-19 has also impacted our customers. Certain accounts have seen their sales ledger ageing profile deteriorate. We therefore assessed the level of credit risk to have increased in H1 2020 and, as a result, have taken a charge in the period of £239,767 to increase our provision.

Accounts receivable include amounts that the Filta Group has agreed may be settled over extended repayment terms.

5. Trade and other payables

Analysis of trade and other payables

These are classified as short term and are expected to be settled within 12 months from the reporting date.

6. Share option scheme

The Company maintains an EMI Share Option Scheme to incentivise executives and employees of Filta Group Holdings and its subsidiaries. For U.K. employees, Options have been awarded over a total of 1,985,000 ordinary shares, equivalent to 6.8% of the Company's current issued share capital. The options vest, subject to the satisfaction of certain conditions, over a period of 4 years from the date of grant. All options issued will meet the vesting conditions between 2019 and 2024 and are exercisable at any time after vesting and within 10 years from the grant date.

Additionally, all qualifying U.S. employees have been awarded share acquisition rights (SARs). The SARs are conditional bonuses whose value will be calculated by reference to the amount by which the price of the Company's ordinary shares has risen above the base price at the date of exercise, thus providing holders of SARs the same reward value as if the SARs were share options. The qualifying conditions and timing of vesting are identical to those within the share option scheme for UK employees. All SARs are settled in cash when exercised. A total of 667,500 SARs have been awarded.

In the ordinary course of business, an option will normally only be exercisable to the extent it has fully vested, and any applicable non-market performance conditions have been satisfied or waived. Options shall lapse to the extent unexercised on the tenth anniversary of the date of grant or such earlier date as specified by the Board at the date of grant.

As at 30 June 2020, a total of 1,550,000 (2019: 1,792,500) were outstanding, having a range of exercise prices from 0.97p to 2.30p (2019: 0.97p to 2.30p) and a weighted average exercise price of 1.81p (2019:1.54p). These outstanding awards have a weighted average contractual life of 7.73 years (2019: 8.69 years).

Movement in the number of share options and SARs outstanding during the year, including grants, exercises and forfeitures were as follows:

During the period ended 30 June 2020 the Company recognised total expense; net of cash settled awards of £198,845 (2019: £303,360) related to the fair value of the share-based payment arrangements. This included £149,905 (2019: £187,152) related to equity-settled share options and £48,940 (2019: £116,208) from cash-settled SARs.

These amounts were determined using the Black Scholes model, with the following assumptions for each type of award granted:

7. Dividends

As a part of the Group's ongoing efforts to conserve cash, the Board is not recommending the payment of an interim dividend in respect of the period ended 30 June 2020.

8. Date of approval of interim financial statements

The unaudited consolidated interim financial statements were approved by the Board on 14 September 2020. Electronic copies are available on the Filta Group Holdings plc website, www.filtaplc.com.