Franchise Brands Regulatory News (FRAN)

30 March 2020

Franchise Brands plc

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

Trading update, posting of Annual Report, notice of AGM and dividend update

Franchise Brands plc (AIM: FRAN), a multi-brand franchise business, provides an update on trading and the final dividend, and announces that it has posted to shareholders its annual report and accounts for the year ended 31 December 2019 and notice of the Annual General Meeting ("AGM").

Trading update

Franchise Brands started the year with strong underlying trading from each of our divisions and, despite the Covid-19 disruption which started in the second half of March, the business has traded in-line with management's expectations for the first quarter as a whole.

However, like many others, our business has been impacted by the effects of the COVID-19 pandemic, and the evolving Government guidelines and interventions. We are continuing to model a range of scenarios and mitigating actions to understand the potential impact on sales, profit and cashflow. Whilst we are confident that the post-pandemic future of the business remains strong, trading in the near term is likely to be impacted by the effects of the pandemic.

In this context, the Board's objective is to ensure that the Group is as well placed as possible to resume normal trading once the Covid-19 situation has abated, and we have taken a number of proactive steps to ensure the business remains resilient during this period, as set out in the divisional commentary below.

B2B Division

Our B2B division, which comprises Metro Rod, Metro Plumb and Willow Pumps, provides a "Water in. Waste out" range of national drainage, plumbing and pump services to the commercial market. On a pro-forma basis, had Willow Pumps been part of the Group for a full twelve months in 2019, this division would have contributed 67% of Adjusted EBITDA (excluding group overheads).

Most of the services provided by this division have been designated by the Government as essential services to ensure the smooth running of public utilities and other key businesses. Therefore, we and our franchisees have the legal flexibility to remain trading as normal. However, the health and safety of our people, our customers and the public remains our top priority. This is particularly the case in respect of our engineers who continue to be active in the community, and the priority to keep them safe and well may limit the scope of work we are able to undertake in the current environment, particularly if personal protection equipment ("PPE") becomes difficult to source.

As it currently stands, all three B2B businesses are operating as usual and we are focused on serving critical establishments so they can continue to deliver vital public services. Our B2B division has nearly 450 engineers across almost 50 depots nationwide, so the wide geographical spread and large workforce provides a high degree of resilience to the impact of the pandemic in one particular area.

On the basis of current Government guidelines, the Board expects that Metro Rod, Metro Plumb and Willow Pumps will continue to operate and serve our customers throughout the course of the Covid-19 crisis. However, volumes will be lower than normal as a result of the disruption to the businesses of a number of our commercial customers, particularly in the hospitality and retail sectors. We are, therefore, reducing our overheads in line with the expected revenue reduction by furloughing staff, agreeing pay cuts and reducing other overheads. This has allowed us to reduce some of the fees charged to franchisees to help ensure their viability through this crisis. We expect these measures to result in the B2B division continuing to trade profitably, albeit at a lower level than originally anticipated.

B2C Division

Our B2C division, which comprises ChipsAway, Ovenclean and Barking Mad, has seen a recent severe contraction in demand from consumers and in franchise recruitment. As a result, we have significantly reduced or eliminated fees to franchisees to help ensure their survival. Consequently, we will be furloughing most of the staff and agreeing pay-cuts for the few that remain, with the aim of matching overhead costs to the reduced revenue. Our objective for this division is to operate at a cash break-even level during the crisis.

Additional cost saving measures and outlook

Both our B2B and B2C divisions intend to make use of the Government's Coronavirus Job Retention Scheme. Remaining higher paid staff (with the exception of our engineers) will be asked to take a pay-cut of up to 20%. In addition, the Board has collectively reduced their salaries by around 50%, which will account for two-thirds of the overall savings being achieved by pay cuts. Other key cost saving measures include a significant reduction in marketing spend and the temporary suspension of IT developments not directly related to working capital management.

Following strong trading in the first quarter, continued profitable operation of the B2B division, albeit at a lower level than originally anticipated, and cash-flow breakeven trading of the B2C division is expected to enable the Group to remain profitable over the year as a whole. This further assumes that Government regulations do not become even tighter, key staff remain fit and healthy, it remains safe for our engineers to continue working and we do not suffer from an abnormal level of bad debts. We will provide a further Trading Update at the forthcoming AGM.

Posting of Annual Report, Notice of AGM and dividend update

The Company has posted to shareholders its annual report and accounts for the year ended 31 December 2019 and notice of the AGM which is to be held on 28 April. Copies of these documents are available on the Company's website at www.franchisebrands.co.uk/investor-relations.

The Company has also written to its shareholders regarding the proposed final dividend of 0.65 pence per share which is subject to shareholder approval at the forthcoming AGM. A copy of this letter is available on the Company's website. Given the current extraordinary environment as a result of the Covid-19 pandemic and the resulting economic and business uncertainties, the Board considers it necessary for the Company to adopt a very prudent approach and preserve the strength of its balance sheet by retaining cash. Therefore, shareholders are being given the option to receive the final dividend as a scrip dividend. The Board strongly recommends that the scrip dividend option is taken by shareholders, as they intend to take this option in respect of their personal shareholdings, which collectively account for 61.5% of total voting rights in the Company.

A scrip dividend is a dividend which is payable to shareholders in the form of new ordinary shares in the Company ("Scrip Shares") rather than in cash. The number of new ordinary shares which will be issued instead of the cash dividend will be calculated according to the following formula:

(Number of ordinary shares held at the dividend record date X 0.65p) ÷ Scrip Reference Price

The Scrip Reference Price is 100.6 pence, which is equal to the average closing middle-market price of the Company's ordinary shares over the five business days immediately preceding (and excluding) the date of the AGM notice, being 26 March 2020.

A circular setting out full details of the scrip dividend will be posted to shareholders later this week and will be available immediately thereafter on the Company's website www.franchisebrands.co.uk/investor-relations/.

Further, the revised dividend timetable is set out below:

Stephen Hemsley, Executive Chairman, commented:

"Like all business, Franchise Brands has been, and will continue to be affected by the on-going Covid-19 pandemic and it is difficult at present to estimate the impact this will have on the year as a whole.

"We do expect to remain profitable overall, albeit at lower levels than originally anticipated. We have a robust balance sheet, which, in combination with the utilisation of the various government schemes, will enable us to support our people and franchisees during this challenging period. Once the current necessary restrictions are lifted, we hope this will also position our business well to recommence its previous growth path."

"Metro Rod, Metro Plumb and Willow Pumps, with almost 450 engineers operating from nearly 50 depots around the UK, continue to provide essential services to ensure that the country's drains and water run smoothly throughout this crisis. I would personally like to thank all of our teams, franchisees, and in particular our engineers, for their continued hard work and commitment in very difficult circumstances and to reiterate that our priority is their health and wellbeing."

Enquiries:

About Franchise Brands plc

Franchise Brands is focused on building market-leading businesses in selected customer segments using primarily a franchise model. The Group currently has a combined network of over 450 franchisees across five franchise brands. Our focus is on established brands which can benefit from our shared support services, specialist sector expertise, management experience and group resources.

Franchise Brands' portfolio of market-leading service businesses grew in 2019 with the acquisition of Willow Pumps. The addition of Willow Pumps, a direct labour organisation, represented an important step in expanding Metro Rod and Metro Plumb's range of services to the commercial market.

The Group is organised into a B2B division comprised of Metro Rod, Metro Plumb and Willow Pumps, and a B2C division incorporates ChipsAway, Ovenclean and Barking Mad. This divisional organisation of our brands is designed to provide a greater focus and structure to support the strategic development of our B2B and B2C brands.

Each of our brands are leaders in their respective markets and each brand has a long trading history. The combined trading history of all the Group's brands is over 125 years.

Franchise Brands plc employs some 250 people across three principal locations in Macclesfield, Kidderminster and Aylesford.

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