Franchise Brands Regulatory News (FRAN)

25 May 2022

FRANCHISE BRANDS PLC

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

Integration across UK direct labour organisations and

agreement to complete earn-out of Willow Pumps

The Board of Franchise Brands plc (AIM: FRAN), an international multi-brand franchise business, is pleased to provide details of its plans to integrate the Group's direct labour organisations ("DLOs") in the UK following the acquisition of Filta Group Holdings plc ("Filta") in March 2022.

The acquisition of Filta allows the Group to offer a wider range of drainage, pump, plumbing and fats, oils and grease management services to commercial customers. In order to maximise the opportunity to grow, the Board believes it is important to streamline the way the Group's businesses operate and collaborate. As such, the Board has identified advantages to harmonising some of Filta UK's DLO business with Willow Pumps in order to unlock further market opportunities in the B2B division.

There are considerable synergies and opportunities in the range of core services of the two DLO businesses, as well as with the Metro Rod franchise network, in particular pump servicing, drainage and fats oils and grease management. These services are very complementary in terms of the customer base, with significant opportunities to cross-sell the now extended range of services to all existing and new customers. These synergies will provide a number of opportunities to enhance performance and customer service and grow revenue and profits for the enlarged group.

In order to realise the efficiencies as quickly and efficiently as possible, without constraints or impediments, the Board has determined that the best course of action is to now buy out the earn-out consideration for the acquisition of Willow Pumps that was agreed in October 2019, rather than wait until the earn-out period ends on 31 December 2024. The Board believes this will facilitate an accelerated programme of integration and harmonisation across the B2B division of the Group. This includes building on recent initiatives between Willow Pumps and Metro Rod to deliver pump services in an optimum way and accelerate the expansion of pump expertise and resources in the Metro Rod network.

Franchise Brands acquired Willow Pumps in October 2019 from Ian Lawrence, Managing Director of Willow Pumps, and his wife for an initial consideration of £5.0 million (net of non-trading cash of £700,000) and a performance-based potential deferred consideration of up to £7.5 million ("Deferred Consideration") payable over five years. The Deferred Consideration was structured to be conditional on the achievement of targets for profits and increases in pump work undertaken by Metro Rod franchisees for each of the five financial years ending 31 December 2024. As previously reported, Willow Pumps has been impacted by the disruption caused by COVID-19 in the past two years, particularly in the house-building sector, which has resulted in a total of £664,530 in Deferred Consideration paid to date for the first two years ending 31 December 2021 out of a possible £3 million. Further details of the Deferred Consideration were set out in the Company's announcement on 7 October 2019.

The Board has reached agreement with Ian Lawrence and his wife whereby they will receive a cash payment of £1,335,470 for the termination of the remainder of the earn-out element of the Willow Pumps acquisition agreement. This means that no further consideration payments will be due and the total payment under the Deferred Consideration will be £2 million (out of a possible £7.5 million). This final payment to terminate the earn-out is expected to result in an exceptional profit of £1.6 million for Franchise Brands in the year ending 31 December 2022, against the IFRS13 fair value of the contingent consideration provision in the 2021 accounts of £2.9 million. 

Ian Lawrence will now become Non-Executive Chairman of Willow Pumps and the Company has appointed Kevin Perry, previously Head of Sales and Marketing at Willow Pumps, as Managing Director of Willow Pumps. Kevin Perry will report to Peter Molloy who was recently appointed Managing Director of the Group's B2B Division in the UK.

This agreement with Ian Lawrence and his wife to vary the deferred consideration for the Acquisition is a related party transaction pursuant to rule 13 of the AIM Rules for Companies, due to Mr Lawrence being a director of a Group company. The Directors of the Company consider, having consulted with the Company's Nominated Adviser, that the terms of the transaction are fair and reasonable insofar as the Company's shareholders are concerned.

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About Franchise Brands plc

Franchise Brands is focused on building market-leading businesses in selected customer segments, primarily via a franchise model. The Group currently has a combined network of over 600 franchisees across six principal franchise brands in the UK, North America and Europe. Our focus is on established brands which can benefit from our shared support services, specialist sector expertise, management experience and group resources.

Our B2B brands are Metro Rod, Metro Plumb, Filta, Willow Pumps and Azura, and our principle B2C brands are ChipsAway, Ovenclean and Barking Mad. Each of our brands are leaders in their respective markets. The combined trading history of all the Group's brands is over 190 years. Franchise Brands employs over 430 people from 5 principal offices in the UK as well as Orlando, Florida and the Netherlands.

For further information, visit www.franchisebrands.co.uk .