Franchise Brands Regulatory News (FRAN)

29 November 2021

FRANCHISE BRANDS PLC

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

Acquisition of Azura Group Limited and change to total voting rights

Franchise Brands (AIM: FRAN), a multi-brand franchisor, is pleased to announce that it has acquired the entire issued share capital of Azura Group Ltd ("Azura"), a leading franchise management software system developer (the "Acquisition").

Having worked in partnership with Azura in recent years, the Acquisition enables the Group to consolidate its software development and secure ownership of the related intellectual property ("IP") created to date, as well as bring Azura's skilled team in-house. The Board also believes there is an opportunity to use Franchise Brands' experience and expertise to grow Azura's business, by improved development of its end-to-end franchise management Software as a Service ("SaaS") platform, to enhance sales to other franchise businesses in the UK and overseas.

Key highlights

· Established in 1990, Azura is a leading franchise management software system developer. Franchise Brands has partnered with Azura since 2018 to develop and customise the "Vision" works management system for Metro Rod and Metro Plumb which is built on Azura's core system.

· The Acquisition consolidates and secures Franchise Brands' technology development and IP at a time when the Group is embarking on a further, still more ambitious digital journey. The Acquisition is in addition to the Group's announcement earlier in 2021 that an additional £1.5m would be invested in systems development over the next three years to automate as many processes and interactions as possible.

· A key part of the Group's strategy is to develop a common technology platform across all its businesses that will enhance the end-to-end customer experience and improve the efficiency and productivity of its business, and franchisees. Azura will play a key part in delivering this platform, which will result in enhanced operational gearing.

· The Board also believes that there is considerable scope to develop and grow Azura's business through combining the Group's expertise and experience in technology and marketing with Azura's pre-eminent franchise management platform, to increase annual revenue run-rate by marketing to new customers.

· The gross consideration for the Acquisition is £1,000,000, payable as £850,000 in cash and £150,000 in Franchise Brands shares. It is warranted by the vendors that the cash in Azura's balance sheet at completion will not be less than £175,000 resulting in a net consideration of £825,000.

· Simon Pullum has agreed to continue as a Director, and Sean McAree will continue as Software Architect. Azura will operate on an arms-length basis within the Group.

· The Board believes the Acquisition will be earnings enhancing in the first full year following acquisition.

Stephen Hemsley, Executive Chairman of Franchise Brands, said:

"I am delighted to announce the acquisition of Azura, which represents an important step in the Group's digital journey. Given the ever-increasing importance of technology to the Group and the role Azura has played in the development of our "Vision" works management system at Metro Rod and Metro Plumb, the acquisition of Azura has a strong strategic and commercial rationale in that it consolidates and secures our software development and key IP, as well as bringing an excellent team."

"We also see an opportunity to grow Azura through combining Franchise Brands' resources, expertise and experience with Azura's pre-eminent franchise management SaaS platform to enhance sales to other franchise businesses both in the UK and overseas."

Background to and further details of the Acquisition

Franchise Brands has partnered with Azura since 2018 to develop and customise the "Vision" works management system for Metro Rod and Metro Plumb which is built on Azura's core system. "Vision" was successfully rolled out to the franchise network in 2020. "Vision" and the associated customer portal "Connect", are currently being optimised with a series of upgrades to further enhance functionality. The next stage is to develop an enhanced engineer interface and scheduling capability to further improve productivity.

It is our ambition to develop a common technology platform across all our businesses that will enhance the end-to-end customer experience and improve the efficiency and productivity of our business and our franchisees. In a time of labour supply constraints, we are focused on improving the productivity of all our people, and particularly our engineers, which will help ensure our future growth is not held back by labour supply issues. This improved productivity will also help insulate our business and that of our franchisees from inflationary cost pressures. Azura will play a key part in delivering the digital infrastructure that will provide these benefits.

Details of Azura's business

Established in 1990, and originally a provider of mobile workforce solutions, Azura is now focused almost exclusively on the UK franchise sector. Since 2007, it has developed a proprietary fully integrated, cloud-based, franchise management software system specifically tailored and designed to the needs of franchise businesses. Azura has a deep understanding of the franchise sector, and its end-to-end solutions enable franchisors to focus more exclusively on managing and growing their businesses.

Its core functionality includes a customer web portal, a full CRM system, a franchise recruitment CRM, an integrated invoicing and bookkeeping system, and intranet and mobile applications. Franchisors benefit from improved efficiencies, reliability, accessibility and compliance, flexibility and scaleability.

Azura has positioned itself as the partner of choice within the franchising sector and works with more than 35 franchise networks. Azura serves customers across a broad cross-section of franchise categories, and has particular experience in the service-based, van-based, domiciliary care and children's activity sectors. Solutions are customised to the needs of each network. The system is multi-lingual and can be used by franchisors in a number of international markets.

Based on unaudited accounts, Azura's revenue for the year ended 30 April 2021 was £501,000 (2020: £526,000) and profit before tax was £106,000 (2020: £65,000). Azura had net assets of £265,000 as at 30 April 2021. Azura generates a significant level of recurring revenue. Over 80% of revenues were from monthly recurring fees.

The gross consideration will be satisfied by £850,000 in cash from the Group's existing cash resources and £150,000 in Franchise Brands shares, with a cash adjustment through completion accounts resulting in a net consideration of £825,000. As a result, 107,139 new ordinary shares of 0.5 pence each have been issued ("Consideration Shares") at 140p per share, being the 5-day volume-weighted average price of an ordinary share prior to completion of the Acquisition. These shares will be issued equally to Azura's founder and Managing Director, Simon Pullum, and his wife, and Software Architect, Sean McAree, and will be subject to a two-year selling restriction followed by an orderly market arrangement for a further twelve months thereafter.

Issue of Equity and Total Voting Rights

Application has been made for the Consideration Shares to be admitted to trading on AIM ("Admission"). Admission is expected to occur on or around 2 December 2021. Following Admission, the total number of ordinary shares of 0.5p each in the Company in issue will be 95,865,609. The Consideration Shares will rank pari passu in all respects with the existing ordinary shares and on Admission will represent approximately 0.1 per cent. of the Company's issued share capital.

There are no ordinary shares held in treasury and therefore the total number of voting rights in the Company from Admission will be 95,865,609. This figure may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the Company under the FCA's Disclosure Guidance and Transparency Rules.

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