Franchise Brands Regulatory News (FRAN)

25 October 2023

FRANCHISE BRANDS PLC

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

Q3 Trading Update

All B2B business trading at record levels, with Pirtek meeting expectations and integrating well

Confident in delivering adjusted EBITDA for the full year in line with market expectation with debt levels reducing

Franchise Brands plc (AIM: FRAN), an international multi-brand franchise business, provides the following trading update for the three months to 30 September 2023 ("Q3").

Following the acquisition of Pirtek Europe in April 2023, the Group now operates seven franchise brands in ten countries in the UK, Continental Europe and North America, resulting in a more diversified international footprint and a broad range of resilient business services.

Divisional performance

The B2B businesses, which are engaged primarily in providing essential reactive services and includes Metro Rod and Metro Plumb in the UK and Pirtek in eight European countries, are all trading at record levels despite some softening in demand over the summer period. Whilst the type of reactive services provided have resilient underlying demand whatever the macroeconomic conditions, demand naturally reduces when customers' equipment or facilities are not being used as intensively. Consequently, Q3 was a little softer than in H1, but we saw a modest increase in activity at the start of Q4.

Pirtek is integrating well and has met our expectations at the time of its acquisition. We continue to work on expanding the range of services and growing the customer base by identifying cross-selling opportunities within the Group. As a result of the significant opportunities to build a much larger business, the Group has decided to accelerate the integration process. We have optimised the management structure for cost and operating efficiencies, and the new leadership team has settled in well and is developing strong relationships across the Group. We have also launched several initiatives to integrate technology, finance and marketing into our central functions, with the initial focus being on technology.

Metro Rod has experienced continued strong momentum in the year-to-date in the growth of system sales due to the continuing initiatives to widen and deepen the services offered, particularly in the area of pump service and maintenance. Metro Plumb continues to grow strongly as new independent franchisees are recruited and the range of services offered improves. Good progress has been made in Willow Pumps, where the special project department is gathering momentum. The transition from a direct labour operation to a franchise model at Filta Environmental has accelerated with additional franchisees recruited, resulting in over 70% of the grease recovery unit maintenance work being delivered by the franchisees. Whilst this has reduced the Filta UK gross margin, it is helping us build a stronger, more sustainable franchise model in the longer term.

Filta's North American business has benefited from robust activity across all key customer sectors, with used oil volumes and revenues up strongly. The range of services being offered to its commercial kitchen customer base is also being expanded with the addition of new bulk oil sales and a steam cleaning service, which will drive the management service fee income in future periods. However, some of this underlying growth has been offset by a reduction in the price achieved from the sale of used cooking oil.

The B2C division continues to operate in a challenging environment, although profitability is being maintained in line with expectations.

Balance Sheet

Group net debt (excluding leases) on 30 September 2023 reduced to £76.0m (30 June 2023: £79.1m), comprised of gross debt of £92.4m and net cash of £16.4m. The Group is trading comfortably within key banking covenants. The Group's interest charge is averaging c.8% on the gross debt, which is higher than projected at the time of the Pirtek acquisition due to increases in the Sterling Overnight Interest Average (SONIA).

Management Team

During Q3 the Group has continued strengthening the senior management team with Mark Fryer joining as Chief Financial Officer and Rob Bellhouse appointed as Company Secretary. We have also developed our corporate governance structure, in line with the expansion of the Group and our ambition for the future, by reorganising the board structure. We now have a smaller plc board comprising two executive directors and three non-executive directors, including Peter Kear, who has been appointed as Senior Independent Non-executive Director. The plc board is supported by a Management Board comprising the divisional CEOs and heads of the support functions.

Outlook

Despite challenging macro-economic conditions, the resilient nature of our services means that the Group continues to perform well and expand. As a result, the Board expects the Group's adjusted EBITDA for the year ending 31 December 2023 to be in line with current consensus market expectations*.

Stephen Hemsley, Executive Chairman, commented:

"The integration of Pirtek is progressing well, and the new senior leadership appointments are allowing us to accelerate the process of integrating this business into the Group and achieve more cross-functional and cross-geographic co-operation, particularly where we can leverage our shared resources.

"We see significant potential for growth across our principal franchise brands, which have a small share of large markets, by broadening the range of services offered, increasing the geographical penetration and cross-selling to the larger customer base. This scale, and our continued investment in IT infrastructure, will accelerate our operational gearing in future years and be a further driver of adjusted EBITDA.

"Whilst the trading environment has become more challenging as the year has progressed, the resilient nature of the business services we provide gives us confidence in delivering adjusted EBITDA for the full year in line with consensus market expectations."

* Consensus market expectations for the financial year ending 31 December 2023 is adjusted EBITDA of £29.3m.

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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