TIDMFRAN
RNS Number : 3338H
Franchise Brands PLC
27 July 2023
27 July 2023
FRANCHISE BRANDS PLC
("Franchise Brands", the "Group" or the "Company")
Interim results for the six months ended 30 June 2023
A period of significant progress including the acquisition of
Pirtek Europe
Both Pirtek Europe and our existing businesses fully met our
expectations, underpinning confidence in full-year Adjusted* EBITDA
at least in line with expectations**
Franchise Brands plc (AIM: FRAN), an international multi-brand
franchise business, is pleased to announce its unaudited results
for the six months ended 30 June 2023.
Financial highlights
-- System sales increased by 81% to GBP146.0m (H1 2022: GBP80.6m).
-- Statutory revenue increased by 57% to GBP69.8 million (H1 2022: GBP44.5m).
-- Adjusted* EBITDA increased by 67% to GBP12.1m (H1 2022: GBP7.3m).
-- Adjusted profit before tax increased by 45% to GBP8.6m (H1 2022: GBP5.9m).
-- Adjusted EPS increased by 4% to 4.24p (H1 2022: 4.07p) and by 10% on a consistent tax basis.
-- Adjusted net debt*** of GBP79.1m at 30 June 2023 (30 June
2022: net cash of GBP6.8m) which represents LTM leverage to 30 June
2023 of 2.48x, and LTM leverage to 31 December 2023 of
2.36x****.
-- Increase of 11% in the interim dividend declared to 1.0p per
share (2022 interim dividend: 0.90p per share) reflecting the
Board's confidence in the growth prospects for the enlarged
Group.
Operational highlights
-- Completion of the acquisition of Pirtek Europe in April which
has doubled the size of the Group and has expanded operations into
ten countries.
-- Whilst the Pirtek business is still in the early stages of
being integrated, Pirtek sales and profits reached record levels in
most markets, and the business performed in line with our
expectations.
-- Short-term focus on optimising effectiveness of the Group's
businesses through utilising shared resources alongside significant
strategic opportunities through leveraging international
footprint.
-- Strong continued momentum in Metro Rod and Metro Plumb
delivering system sales growth of 24% to GBP35.3m; Metro Plumb
system sales grew by 31%.
-- Filta International core business performed well - system
sales were up 16% on a like-for-like basis with strategic growth
initiatives gaining traction; waste oil sales held back by reduced
market prices.
-- B2C division in line with expectations despite challenging
franchise recruitment environment; no longer being actively
marketed for sale.
-- Digital transformation progressing well with continuing
upgrades to the Vision works management system.
-- Appointment of new CFO with effect from 2 August; announced separately today.
Outlook
-- The outlook for the remainder of the year is positive and we
anticipate full year performance to be at least in line with
expectations .
-- The deleveraging profile is ahead of schedule and we fully
expect the acquisition facilities to be repaid within 5 years.
* "Adjusted" throughout this report means exclusion of
amortisation of acquired intangibles, exchange differences,
share-based payment expense and non-recurring items.
** Expectations are GBP29.0m Adjusted EBITDA for the full year
to 31 December 2023 (which includes 36 weeks of Pirtek trading) as
set out by the Company in its announcement of 3 April 2023
regarding the acquisition of Pirtek.
*** Adjusted net debt is the key debt measure used for testing
bank covenants and excludes debt on right-of-use assets of
GBP7.2m.
**** This leverage is calculated using Adjusted net debt at 30
June 2023 and last twelve months ("LTM") pro forma Adjusted EBITDA
to 30 June 2023 of GBP31.9m and LTM to 31 December 2023 of GBP33.5m
( as set out by the Company in its announcement of 3 April 2023
regarding the acquisition of Pirtek) which is one of metrics used
for testing bank covenants.
Stephen Hemsley, Executive Chairman, commented:
"The Group has made significant progress in the first half of
2023, including the acquisition of Pirtek Europe, doubling the size
of the group. We now operate seven franchise brands in ten
countries in the UK, Continental Europe and North America,
generating annualised system sales of approximately GBP400m.
"Our Metro Rod and Metro Plumb brands are growing rapidly, with
the potential for accelerated growth of their small share of very
large markets. Filta is an almost unique business, with virtually
no direct competition and a huge potential market in the US, and
Pirtek has a significant opportunity to grow its existing markets
and services and expand its range of services and the markets it
serves.
" With the Pirtek Europe acquisition and existing businesses
performing well, we are confident in a full-year outturn at least
in line with expectations and in the significant potential for
growth across our main franchise brands beyond the current
year.
"Further, the acquisitions of Pirtek and Filta have
significantly advanced our ambition of building a market leading
international B2B multi-brand franchisor that generates its income
equally from the UK, North America and Continental Europe."
Enquiries:
Franchise Brands plc + 44 (0) 1625 813231
Stephen Hemsley, Executive Chairman
Andrew Mallows, Interim Chief Financial
Officer
Julia Choudhury, Corporate Development
Director
Allenby Capital Limited (Nominated Adviser
and Joint Broker) +44 (0) 20 3328 5656
Jeremy Porter / George Payne (Corporate
Finance)
Amrit Nahal / Joscelin Pinnington (Sales
& Corporate Broking)
Dowgate Capital Limited (Joint Broker) +44 (0) 20 3903 7715
James Serjeant / Russell Cook / Nicholas
Chambers
Stifel Nicolaus Europe Limited (Joint Broker) +44 (0) 20 7710 7600
Matthew Blawat / Francis North
MHP Group (Financial PR) +44 (0) 20 3128 8100
Katie Hunt / Catherine Chapman / Christian
Harte +44 (0) 7884 494112
franchisebrands@mhpgroup.com
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 648
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 some 715 people across the Group.
For further information, visit www.franchisebrands.co.uk
CHAIRMAN'S STATEMENT
Introduction
I am pleased to report that the first half of 2023 has been
another period of significant progress for the business with the
acquisition of Pirtek Europe Limited ("Pirtek"), which has doubled
the size of the Group. The expanded Group now operates seven
franchise brands in ten countries in the UK, Europe and North
America, generating annualised system sales of approximately
GBP400m.
Both Pirtek and our existing businesses fully met our
expectations in the period, generating the anticipated
profitability and cashflow required to service our increased debt
and maintain our progressive dividend policy. The outlook for the
remainder of the year is positive, and we anticipate a full-year
performance at least in line with our expectations of GBP29.0m
adjusted EBITDA .
Pirtek Europe
Pirtek, which was acquired on 21 April 2023, is an established
provider of on-site hydraulic hose replacement and associated
services, operating via 217 service centres and 843 mobile service
units ("MSUs") in eight counties. Revenues are primarily derived
from franchising, although Pirtek does operate corporate franchises
and two of the smallest markets are corporately operated. Pirtek is
the market leader in most of the countries in which it
operates.
System sales are primarily generated by providing an emergency
response service to a wide range of customers who use hydraulic
equipment in their operations. Typically, a hydraulic hose will
fail when the equipment is in use and will need replacing on-site.
Pirtek targets a one-hour response time, 24 hours a day, 365 days a
year, with the demand for this time-sensitive service being
greatest in sectors with high downtime costs. In most cases,
Pirtek's technicians can assemble and fit a replacement hose from
the stock and equipment held on the MSU. In addition, customers
with less urgent needs are serviced through its network of service
centres, which supply parts and hose assemblies and also provide a
base and support for the MSUs.
Customer sectors are diverse with no significant concentration
and include waste treatment and recycling, logistics,
manufacturing, plant hire, construction and marine & rail
transport. A number of these sectors have a high degree of
resilience as demonstrated by Pirtek's robust trading throughout
the Covid period.
Pirtek operates in eight European countries being UK, Germany,
the Netherlands, Belgium, France, Sweden, Austria and the Republic
of Ireland. The business in the UK, Germany, the Netherlands,
Belgium and the Republic of Ireland is mainly operated by a total
of 70 franchisees, whereas the operations in the start-up markets
of France and Sweden are corporately operated. These more developed
franchise markets, with national coverage, are highly profitable,
whereas the start-up corporate markets in France and Sweden and the
small Austrian franchised operation have yet to reach scale and
therefore currently make a marginal contribution to Pirtek's
overall result. Pirtek has a significant opportunity to expand into
a further eight European countries under the terms of its master
license agreement, which gives it perpetual, royalty-free, use of
the brand in all 16 countries.
The integration of Pirtek is progressing well with an immediate
focus on optimising the effectiveness of the business through
utilising shared resources. The business has multiple growth
opportunities including: growing system sales by driving local
sales, adding additional MSUs and opening further service centres;
expanding the range of services, including total hose management
and planned services; and leveraging technology to increase
efficiency. We are continuing to deepen our knowledge of the
business by spending time with local management in each country,
meeting franchisees and carrying out site visits.
B2B Division
The B2B Division includes Metro Rod, Metro Plumb, Willow Pumps,
the Filta UK direct labour operations ("DLO") and the UK Filta
Environmental franchise network. The Filta UK businesses are
included for the full six months in this period compared with four
months in 2022 following its acquisition in March 2022. Overall
sales grew by over 24% to GBP52.7m (H1 2022: GBP42.4m), with Metro
Rod and Metro Plumb being the main drivers of this increase.
Metro Rod, Metro Plumb and Kemac
Metro Rod and Metro Plumb delivered continued strong momentum,
with system sales growing by 24% in the period to GBP35.3m (H1:
2022: GBP28.5m). This growth was spread through almost the entire
network, with 91% or 52 of the 57 Metro Rod and Metro Plumb
franchisees growing their businesses in the period (H1 2022: 87% or
46 out of 53), and 61%, or 35 franchisees, growing by more than 20%
year-on-year (H1 2022: 61% or 28).
The increase in sales was driven by an increase in both job
volumes and average order value. All services continued to grow,
with plumbing and drainage services to national accounts leading
the way. Initiatives to widen and deepen the range of services
offered by the franchise network continue to develop, particularly
those with a high average order value such as pump service and
tankering, which now contribute over 21% of total system sales at
an average order value nearly five times that of drainage and
plumbing work.
Metro Plumb continued to expand with 15 stand-alone and 19
combined Metro Plumb/Metro Rod franchisees trading at 30 June. This
results from six new stand-alone franchisees and two leavers over
the previous twelve months. Metro Plumb system sales grew by 31%
and now represent 9.5% of total Metro Rod and Metro Plumb system
sales in the first half. We continue to focus on broadening the
customer base in both the commercial and domestic plumbing
sectors.
Kemac, the London-based DLO plumbing business, provides
specialist services to several water utilities and operates five
Metro Plumb territories. Its sales increased by 11% on a
like-for-like basis, primarily as a result of the expansion of the
specialist services it provides to water utility companies.
Willow Pumps
Willow Pumps had an improved performance in the first six months
of the year, with sales growing by 10% following a management
reorganisation and the expansion of the sales team. The support
functions have also been re-organised to improve customer service
and by passing more work to Metro Rod franchisees.
The Metro Rod corporate franchises in Kent & Sussex and
Exeter had a challenging six months. Both these corporate
franchises have excellent territories with huge potential that
would be better developed with a dedicated Metro Rod franchisee. We
have therefore decided to re-sell them to independent franchisees
as soon as possible. This will enable divisional management to
focus on its primary role of developing the Willow Pumps core
business and helping Metro Rod franchisees grow their pump
sales.
Filta UK
Filta UK has undergone a period of considerable change since
being acquired. Following the initial management reorganisation,
which returned the business to profitability, we have continued to
review how best to deliver the wide range of services offered to
the hospitality sector, and this process is ongoing. Some of these
services duplicate existing Metro Rod and Willow Pumps services or
could be more efficiently serviced by our growing network of 24
Filta Environmental franchisees. We therefore continue to review,
with our customers and franchisees, how best to optimise service
delivery and deliver synergies across the B2B division.
Filta International
The management team in North America continued to develop the
FiltaMax strategic growth initiative, based on the maximum
potential model that we announced earlier this year. This plan is
now gaining traction with system sales up 16% on a like-for-like
basis.
Whilst the volume of waste oil collected and sold for recycling
increased year-on-year, the price decreased significantly resulting
in the gross profit generated being only slightly ahead, and on a
like-for-like basis significantly behind the four months of the
prior year.
One of the FiltaMax development projects is the roll-out of
FiltaGold bulk oil equipment to franchisees. This will enable
franchises to buy virgin oil in bulk, dispense it into 25 litre
"jugs", and profitably supply it to customers at a more competitive
price. This new activity will also generate additional royalty
income for the business from January 2024.
A further new royalty stream will also be generated from July
this year by the introduction of a turnover-related royalty on
FiltaClean, a steam cleaning service for commercial kitchens that
is now gaining traction with both franchisees and customers.
B2C Division
The B2C division comprises the ChipsAway, Ovenclean and Barking
Mad franchise businesses. The unusual market conditions that
followed Covid saw a significant increase in the number of people
taking early retirement, which included a number of our
franchisees, but a reasonably buoyant recruitment market as people
looked to improve their work/life balance by starting their own
businesses. This had the effect of reducing the franchise
population, and therefore recurring income, but allowed us to
maintain our recruitment income.
This environment has been replaced by one where there are record
levels of employment, high wages and elevated inflation, in which
people have become more risk-averse and where the perceived
comparative rewards of self-employment have reduced. This has
reduced the number of franchisees leaving the system but made
recruitment more challenging. This was anticipated in our budget
for H1 2023, which I am pleased to report have been fully achieved,
with the recruitment of 24 new franchisees (H1 2022: 30). As a
result, the total number of franchisees in the B2C division at the
period end was 339 ( H1 2022: 370 ) and compares to a five-year
average at the half-year of 376 franchisees.
In our year-end trading update on 12 January 2023, we announced
a strategic review of the B2C division and subsequently that we had
appointed finnCap Cavendish to seek a buyer for the B2C division.
Consequently, we were required to disclose this division as a
discontinuing operation within the 2022 accounts. Subsequently, the
business has been marketed to a range of trade and franchise
buyers, and whilst offers have been received, these have not met
our expectations. The Board has therefore decided to suspend
marketing activity until further notice. As the sale of this
division is now not reasonably foreseeable, we are required to
reincorporate the results of this division into the consolidated
results of the Group as a continuing operation.
Digital transformation
The digital transformation of the Group is progressing well,
with continuing upgrades to the Vision works management system to
improve functionality and ease of use. We are particularly focused
on enhancing the productivity and efficiency of both engineers and
the corporate functions. These developments include the continued
rollout of our advanced scheduling system and our first trial of
AI, which is "reading" emails and loading jobs onto Vision.
The recent acquisitions of Filta and Pirtek have provided us
with new opportunities to maximise the value our proprietary
technology can deliver, and we are seeking to ensure that all
businesses within the Group benefit from these developments and
also have robust cyber security. Over the next six months we will
be developing a comprehensive "vision" for the further development
of all the IT platforms in our seven franchise brands in ten
countries.
Corporate Governance and new CFO
Since the acquisition of Filta and Pirtek, we have been
considering the optimal management and board structures to manage
the significantly enlarged business and operate to high standards
of corporate governance. As a result, we will be introducing a
two-tier structure whereby the PLC board will be streamlined to
comprise two executive directors (myself as the Executive Chairman
and the CFO), together with a minimum of three independent
non-executive directors.
We are pleased to announce the appointment of Mark Fryer as CFO,
who will join the Group on 2 August. Mark is an experienced CFO
with 25 years of public company (AIM, FTSE Small Cap and FTSE 250)
and private equity experience in global manufacturing and business
service companies. Mark's experience includes extensive M&A,
operational and business improvement experience in complex
international environments across a wide range of sectors. With the
appointment of Mark, Andrew Mallows will step down as a Director of
the Company and return to his role as Group Commercial Director and
I would like to thank him for his hard work as our Interim CFO.
A Management Board will also be created comprised of the
divisional CEOs together with the directors of the key central
support functions of finance, IT, marketing and corporate
development. We will also be recruiting a full-time Company
Secretary to help manage the increasing complexity of a
multi-jurisdictional business, who will also join the Management
Board. We are aiming for these changes to be complete by the
year-end and look forward to updating shareholders in due
course.
Corporate development and capital allocation
Following the acquisition of Filta, and more recently Pirtek,
our strategic focus will be on integrating these businesses into
the Group and repaying the acquisition debt facilities. The Board
does not expect to make any further significant acquisitions during
this time. We will also seek to use our shared central resources of
finance, IT and marketing to enhance the effectiveness of all our
businesses, whilst looking to reduce costs by sharing resources. We
see significant opportunities to leverage the international
footprint we have now created to organically expand our existing
brands in markets where the Group has a presence.
Capital allocation decisions will balance debt reduction, a
progressive dividend policy and organic investment in the Group.
Adjusted net debt of GBP79.1m at 30 June 2023 (30 June 2022: net
cash of GBP6.8m) represents LTM leverage to 30 June 2023 of 2.48x,
and LTM leverage to 31 December 2023 of 2.36x. The deleveraging
profile is ahead of schedule and expected to fall to 1.6x by 31
December 2024 and we therefore fully expect the acquisition
facilities to be repaid within 5 years (which for the avoidance of
doubt excludes any potential future proceeds from a disposal of the
B2C division). The Board has set a target leverage range corridor
of 1.0-1.5x Adjusted EBITDA before it will consider any further
acquisitions of scale.
Outlook
System sales at our Metro Rod and Metro Plumb brands are growing
rapidly, and this growth can be accelerated given their small share
of very large markets in which they operate. The other DLOs within
the B2B division also have a significant opportunity to scale up as
stand-alone businesses or in support of the franchise channels.
Filta is an almost unique business, with virtually no direct
competition and a huge potential market in the US, where customers
can benefit from both the cost saving resulting from oil filtration
and the environmental benefits arising from the responsible
recycling of used oil and FOG (fats, oils and grease) management.
This business has real traction in the US and is poised for
significant expansion. Filta's European markets are at an earlier
stage and require more work to develop a compelling franchise
model, but this is progressing well in the UK and I am confident it
will grow into a business of scale.
The Pirtek business has a significant opportunity to continue
growing in its existing more developed markets through the
development of its reactive business and by expanding the range of
services offered. The earlier-stage markets of France, Sweden and
Austria also have huge potential to reach scale, particularly where
the competition is fragmented. In addition, Pirtek has the
opportunity to expand into a further eight European markets, which
will be developed when the existing early-stage markets become more
mature and profitable.
The acquisitions of Filta and Pirtek have significantly advanced
our ambition of building a market leading international B2B
multi-brand franchisor that generates its income equally from the
UK, North America and Continental Europe. Whilst the Pirtek
business is still in the early stages of being integrated, we are
anticipating a full-year performance at least in line with our
expectations of GBP29.0m Adjusted EBITDA .
Conclusion
The first half of 2023 has been another very productive and
successful period as we build a Group with international reach. I
would like to welcome our new colleagues at Pirtek and say how much
we look forward to working with them.
Somewhat unusually, I would also like to single out one person
in the corporate team that has been key to the progress the Group
has made over this period. Julia Choudhury, our Corporate
Development Director, worked extraordinarily hard in bringing the
multi-streamed acquisition of Pirtek to a successful conclusion. On
behalf of all shareholders, I would like to thank her for her
efforts.
Of course, none of this would have been possible without our
dedicated franchisees and corporate teams, and so I would also like
to thank them for their hard work and commitment to building our
great business.
Stephen Hemsley
Executive Chairman
27 July 2023
FINANCIAL REVIEW
Summary statement of income (unaudited)
H1 2023 H1 2022 Change Change
GBP'000 GBP'000 GBP'000 %
-------------------------------------- ----------------- -------------------- ------------------- -------
System sales 146,060 80,642 65,418 81%
-------------------------------------- ----------------- -------------------- ------------------- -------
Revenue 69,751 44,508 25,243 57%
Cost of sales (40,795) (27,891) (12,904) 46%
-------------------------------------- ----------------- -------------------- ------------------- -------
Gross profit 28,956 16,617 12,339 74%
Administrative expenses (16,839) (9,352) (7,487) 80%
----------------- -------------------- -------------------
Adjusted EBITDA 12,117 7,265 4,852 67%
-------------------------------------- ----------------- -------------------- ------------------- -------
Depreciation & amortisation
of software (1,840) (1,097) (743) 68%
Finance expense (1,611) (176) (1,435) 814%
Foreign exchange (69) (77) 8 (11)%
----------------- -------------------- -------------------
Adjusted profit before tax 8,597 5,915 2,682 45%
-------------------------------------- ----------------- -------------------- ------------------- -------
Tax expense (2,077) (1,193) (884) 74%
----------------- -------------------- -------------------
Adjusted profit after tax 6,520 4,722 1,797 38%
-------------------------------------- ----------------- -------------------- ------------------- -------
Amortisation of acquired intangibles (4,476) (669) (3,806)
Share-based payment expense (411) (351) (59)
Non-recurring costs (2,991) (1,282) (1,709)
Other gains and losses - 1,232 (1,232)
Tax on adjusting items 145 (83) 228
----------------- --------------------
Statutory (loss)/profit after
tax (1,213) 3,569 (4,782) (134)%
-------------------------------------- ----------------- -------------------- ------------------- -------
The Group's results for the six months ended 30 June 2023
include the maiden 10-week contribution from Pirtek which was
acquired on the 21 April 2023. They also include six months (2022:
four months) of trading from Filta, which was acquired in March
2022. In the audited accounts for the year ended 31 December, the
trading results and balance sheet of the B2C division were
presented as a discontinuing operation as this division was being
marketed for sale, but as this is no longer the case, the results
have been re-incorporated into continuing operations.
System sales, which comprise the underlying sales of our
franchisees and the statutory sales of the DLOs, grew by 81% to
GBP146.0m (H1 2022: GBP80.6m) in the period. System sales is a KPI
of the business as it is considered a better indicator of the
operating activity of the business than statutory revenue, as it is
the main driver of Management Service Fee ("MSF") income and DLO
margin.
Administration expenses are up by 80% to GBP16.8m (H1 2022:
GBP9.4m), partly as a result of the inclusion of Pirtek overheads
for the first time (GBP5.1m) and the full six months of Filta's
overheads compared to four months in the prior period (an
additional GBP1.0m). The underlying increase in overheads was
therefore GBP1.3m or 13%. The main drivers of this increase were
salary cost, up GBP0.4m or 6% and professional fees, in particular
audit fees, up GBP0.3m or 67%.
Adjusted EBITDA, which is the main KPI of the business,
increased 67% to a record GBP12.1m (H1 2022: GBP7.3m) driven by the
maiden contribution from Pirtek, a full six-month contribution from
Filta, and the growing contribution from the Metro Rod core
business.
Depreciation and amortisation of software increased 68% to
GBP1.8m (H1 2022: GBP1.1m). The significant increase primarily
resulted from the acquisitions of Pirtek and a full six-month
expense from Filta.
The finance charge has increased to GBP1.6m from GBP0.2m,
primarily as a result of the interest cost of the Pirtek
acquisition debt and the IFRS 16 charge on their leased assets.
The adjusted tax charge at 24% (H1 2022: 20%) reflects the
change in UK rates from 19% to 25% from April 2023 and the
generally higher overseas rates applicable in the now expanded
international operations.
The increase in the amortisation of acquired intangibles charge
reflects the additional charge related to the Pirtek and Filta
acquisitions. The increase in the s hare-based payment expense
principally reflects the grant of additional share options
following the acquisition of Pirtek and the revaluation of the
stock appreciation rights which are remeasured at each reporting
period. Non-recurring costs in the current period reflect part of
the acquisition costs of Pirtek and in the comparative period,
similar costs in respect of the Filta acquisition. The balance of
the costs were set against the premium arising on the issue of new
shares to fund the acquisitions or capitalised into borrowings.
After a credit in respect of tax on adjusting items, the Group
incurred a statutory loss for the period of GBP1.2m (H1 2022:
statutory profit GBP3.6m).
Divisional trading results
The divisional trading results may be analysed as follows:
Six months to 30 June 2023
Filta Inter-co
B2B Intl Pirtek B2C Azura elimination H1 2023
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------- --------- -------- -------- -------- -------- ------------- ---------
System sales 52,644 42,998 37,168 12,881 369 - 146,060
------------------- --------- -------- -------- -------- -------- ------------- ---------
Statutory revenue 41,803 13,670 12,352 3,281 369 (1,724) 69,751
------------------- --------- -------- -------- -------- -------- ------------- ---------
Cost of sales (29,345) (8,757) (3,421) (803) - 1,531 (40,795)
------------------- --------- -------- -------- -------- -------- ------------- ---------
Gross profit 12,458 4,913 8,931 2,478 369 (193) 28,956
------------------- --------- -------- -------- -------- -------- ------------- ---------
GP% 30% 36% 72% 76% 100% 11% 42%
Administrative
expenses (7,386) (1,807) (5,113) (1,317) (270) 193 (15,700)
------------------- --------- -------- -------- -------- -------- ------------- ---------
Divisional
EBITDA 5,072 3,106 3,818 1,161 99 - 13,256
------------------- --------- -------- -------- -------- -------- ------------- ---------
Group overheads - - - - - - (1,139)
------------------- --------- -------- -------- -------- -------- ------------- ---------
Adjusted EBITDA - - - - - - 12,117
------------------- --------- -------- -------- -------- -------- ------------- ---------
Six months to 30
June 2022
---------
Filta Inter-co
B2B Intl Pirtek B2C Azura elimination H1 2022
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------- --------- -------- -------- -------- -------- ------------- ---------
System sales 42,446 24,885 - 12,900 411 - 80,642
------------------- --------- -------- -------- -------- -------- ------------- ---------
Statutory revenue 33,373 8,823 - 3,432 411 (1,531) 44,508
------------------- --------- -------- -------- -------- -------- ------------- ---------
Cost of sales (22,807) (5,775) - (662) - 1,353 (27,891)
------------------- --------- -------- -------- -------- -------- ------------- ---------
Gross profit 10,566 3,048 - 2,770 411 (178) 16,617
------------------- --------- -------- -------- -------- -------- ------------- ---------
GP% 32% 35% 81% 100% 12% 37%
Administrative
expenses (6,199) (1,039) - (1,265) (313) 178 (8,638)
------------------- --------- -------- -------- -------- -------- ------------- ---------
Divisional
EBITDA 4,367 2,009 - 1,505 98 - 7,979
------------------- --------- -------- -------- -------- -------- ------------- ---------
Group overheads - - - - - - (714)
------------------- --------- -------- -------- -------- -------- ------------- ---------
Adjusted EBITDA - - - - - - 7,265
------------------- --------- -------- -------- -------- -------- ------------- ---------
In order to reconcile the Group's statutory revenue, gross
profit and administrative expenses to the underlying entitles,
certain inter-company revenues and costs are eliminated on
consolidation. These include the work undertaken by Metro Rod on
behalf of Willow Pumps and the IT development work undertaken by
Azura on behalf of Metro Rod.
Group overheads increased by 60% as a result of a significant
increase in the audit fee, higher travel costs associated with both
the resumption of normal travel and acquisition due diligence, and
increased staff costs as the salaries and benefits of senior group
employees were brought more into line with the market. However,
these have reduced as a percentage of system sales from 0.9% to
0.8%.
Each of the divisional results are analysed below.
B2B Division
The B2B division comprises the franchise activities of Metro
Rod, Metro Plumb and Filta UK together with the direct labour
operations of Willow Pumps, Filta UK and Kemac. The results of the
B2B division may be summarised as follows:
Six months to 30 Six months to 30
June 2023 June 2022
Metro Willow Filta Metro Willow Filta
Rod Pumps UK H1 2023 Rod Pumps UK* H1 2022
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- --------- -------- -------- --------- -------- --------
System sales 37,348 9,683 5,613 52,644 30,110 8,773 3,563 42,446
----------------- --------- -------- -------- --------- -------- --------
Statutory
revenue 26,507 9,683 5,613 41,803 21,037 8,773 3,563 33,373
----------------- --------- -------- -------- --------- -------- --------
Cost of sales (19,117) (6,634) (3,594) (29,345) (14,739) (5,840) (2,228) (22,807)
--------- -------- -------- --------- -------- --------
Gross profit 7,390 3,049 2,019 12,458 6,298 2,933 1,335 10,566
----------------- --------- -------- -------- --------- -------- --------
GP% 28% 31% 36% 30% 30% 33% 37% 32%
Administrative
expenses (3,804) (2,132) (1,450) (7,386) (3,131) (2,041) (1,027) (6,199)
Adjusted EBITDA 3,586 917 569 5,072 3,167 892 308 4,367
----------------- --------- -------- -------- --------- -------- --------
*4 months only since acquisition in March 2022.
Metro Rod
Metro Rod comprises primarily the franchise activities of Metro
Rod and Metro Plumb and the DLO activities of Kemac, which may be
summarised as follows:
H1 2023 H1 2022 Change Change
GBP'000 GBP'000 GBP'000 %
------------------- -------- -------- ------- -------
System sales 37,348 30,110 7,238 24%
Statutory revenue 26,507 21,037 5,470 26%
------------------- -------- -------- ------- -------
Cost of sales (19,117) (14,739) (4,378) 30%
Gross profit 7,390 6,298 1,092 17%
------------------- -------- -------- ------- -------
GM% 28% 30% (2)%
Administrative
expenses (3,804) (3,131) (673) 21%
Adjusted EBITDA 3,586 3,167 419 13%
------------------- -------- -------- ------- -------
The key driver of Adjusted EBITDA is system sales of Metro Rod
and Metro Plumb on which the MSF income is generated, which is
re-analysed and reconciled to gross profit as follows:
H1 2023 H1 2022 Change Change
GBP'000 GBP'000 GBP'000 %
-------------------- ---------- ---------- --------- ---------
System sales 35,324 28,452 6,873 24%
-------------------- ---------- ---------- --------- ---------
MSF income 6,589 5,239 1,350 26%
Effective MSF
% 18.7% 18.4%
Other gross profit 801 1,059 (258) (24)%
Gross profit 7,390 6,298 1,092 17%
-------------------- ---------- ---------- --------- ---------
Gross profit as
% system sales 21% 22% (1)%
-------------------- ---------- ---------- --------- ---------
Metro Rod and Metro Plumb system sales increased by an
impressive 24% to a record GBP35.3m (H1 2022: GBP28.5m). The
effective rate of MSF, after incentives provided to franchisees to
encourage growth and investment, also increased to 18.7% from 18.4%
resulting in a 26% increase in MSF income. The increase in the MSF
percentage resulted from the mix of system sales, with the growth
in the drainage business slightly outperforming the tanker and pump
business which attracts a lower rate of MSF.
Other gross profit declined 24% to GBP0.8m (H1 2022: GBP1.0m) a
result of a non-recurring event in each period. In H1 2022 we were
completing the profitable contract for Peel Ports, whereas in H1
2023 losses were incurred because of the abandonment of a
franchisee whose territory we had to continue to operate, resulting
in a GBP0.2m reversal between the two periods. The franchise
territory, which is fundamentally viable, is expected to be resold
in H2, generating sale proceeds and the elimination of future
losses. Were these items adjusted for, total gross profit would
have grown by a more respectable 21% and more in line with the
growth in system sales.
Administrative expenses grew by 21% principally as a result of
an elevated increase in staff salary costs in the face of high
inflation and the need to retain and recruit additional staff. This
was combined with a full return to more typical working practices
post Covid, which in particular increased travel costs. However,
administrative expenses as a percentage of system sales reduced
slightly from 10.4% to 10.2%.
Adjusted EBITDA grew by 13% to GBP3.6m (H1 2022: GBP3.2m). The
absence of any operational gearing in this period was due to the
reduced gross profit and elevated overheads, the impact of which
will be less apparent in H2.
Willow Pumps
Willow Pumps comprises the core DLO pump business and the Metro
Rod corporate franchises in Kent & Sussex and Exeter which are
managed by the Willow Pumps team. The results may be summarised as
follows:
H1 2023 H1 2022 Change Change
GBP'000 GBP'000 GBP'000 %
Statutory revenue 9,683 8,773 910 10%
------------------- ------- ------- ------- -------
Cost of sales (6,634) (5,840) (794) 14%
Gross profit 3,049 2,933 116 4%
------------------- ------- ------- ------- -------
GP% 31% 33% (2)%
Administrative
expenses (2,132) (2,041) (91) 4%
Adjusted EBITDA 917 892 25 3%
------------------- ------- ------- ------- -------
The statutory revenue at Willow Pumps grew by 10% to GBP9.7m (H1
2022: GBP8.8m), although the gross margin declined from 33% to 31%
as more of the work was sub-contracted, as planned, particularly to
Metro Rod franchisees. This resulted in gross profit increasing by
only 4%. However, further streamlining of the management structure
limited the growth in administrative expenses to just 4%, so a
small increase in Adjusted EBITDA was achieved.
While the two Metro Rod franchises incurred small losses, they
contributed significant MSF income to Metro Rod. As already
mentioned, we intend to sell these territories to new franchisees
to allow Willow Pumps management to focus entirely on maximising
the opportunities within the pump sector and in helping Metro Rod
franchisees develop their pump expertise.
Filta UK
Filta UK comprises a range of complementary DLO services
including pump & drainage repair and maintenance, fridge &
freezer seal replacement, extraction vent cleaning and the supply,
installation and maintenance of grease recovery units ("GRUs"). The
Filta Environmental network of 24 franchisees is also included in
this business. The results for the period, are for a full six
months compared to four months in H1 2022 and may be summarised as
follows:
H1 2023 H1 2022* Change Change
GBP'000 GBP'000 GBP'000 %
Statutory revenue 5,613 3,563 2,050 58%
------------------- ------- -------- ------- -------
Cost of sales (3,594) (2,228) (1,366) 61%
Gross profit 2,019 1,335 684 51%
------------------- ------- -------- ------- -------
GM% 36% 37% (1)%
Administrative
expenses (1,450) (1,027) (423) 41%
Adjusted EBITDA 569 308 261 85%
------------------- ------- -------- ------- -------
* 4 months only since acquisition in March 2022
The revenue of Filta UK has grown 58% to GBP5.6m (H1 2022 four
months: GBP3.6m), with a like-for-like growth rate of 5%. This
slightly disappointing rate of growth was caused by the disruption
in the supply of GRUs caused by the failure of the supplier.
Negotiations with the Administrator of the supplier are expected to
allow a long-term supply arrangement to be re-established in
H2.
Administrative expenses grew by 41% to GBP1.45m (H1 2022 four
months: GBP1.0m), a like-for-like decline of 7%, and resulted from
the management changes made in the comparative period in 2022 and
the closer integration of this business with the B2B division. This
operational gearing allowed Adjusted EBITDA to grow by 85% to
GBP0.6m (H1 2022 four months: GBP0.3m), representing like-of-like
growth of 23%.
Filta International
Filta International operates a franchise network that comprises
the franchise activities of Filta in North America and mainland
Europe. The results for the period are for a full six months
compared to four months in H1 2022 and may be summarised as
follows:
North North
America Europe H1 2023 America Europe H1 2022*
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
System sales 41,281 1,717 42,998 23,741 1,144 24,885
------------------- --------- --------
Statutory revenue 13,178 492 13,670 8,603 220 8,823
------------------- --------- -------- ------- -------- ------- ---------
Cost of sales (8,416) (341) (8,757) (5,647) (128) (5,775)
--------- --------
Gross profit 4,762 151 4,913 2,956 92 3,048
------------------- --------- -------- --------
GM% 36% 31% 36% 34% 42% 35%
Administrative
expenses (1,538) (269) (1,807) (925) (114) (1,039)
Adjusted EBITDA 3,224 (118) 3,106 2,031 (22) 2,009
------------------- --------- --------
* 4 months only since acquisition in March 2022
System sales in North America grew by 74% to GBP41.3m ( H1 2022
four months : GBP23.7m) and on a like-for-like basis by 16%. In
local currency, the like-for-like system sales increase was 23%.
One of the main drivers of the strong growth in system sales was
the acquisition of new national account customers resulting from
the further investment in automated outbound telesales activity.
Many franchisees also continued to expand their businesses by
investing in new equipment, which will further drive used oil
revenues in the future, with 23 mobile filtration units ("MFUs")
added by the network (H1 2022: 29).
Waste oil volumes in the first six months of 2023 were up 22% on
the comparative period in 2022, but average pricing was down by
14%, resulting in an increase in revenue of just 5% (all in local
currency). When comparing the four months post-acquisition period
in 2022 with the full six-month period in 2023, in sterling terms,
waste oil revenues were up 45% to GBP8.6m ( H1 2022 four months :
GBP5.9m), resulting in a like-for-like gross margin contribution up
39% to GBP1.5m ( H1 2022 four months : GBP1.1m). On a like-for-like
basis waste oil revenues were down by 4% and the gross margin
contribution down by 7%.
Administrative expenses in North America increased by 66% to
GBP1.5m ( H1 2022 four months : GBP0.90m), a like-for-like increase
of 11%. This was driven by higher staff costs resulting from an
expansion of the sales team. Overall Adjusted EBITDA in North
America increased by 59% to GBP3.2m ( H1 2022 four months :
GBP2.0m), a like-for-like increase of 6%.
The Filta business in Europe has not progressed as hoped
following the expansion of the team, as whilst sales increased to
GBP1.7m (2022 four months: GBP1.1m), like-for-like sales were flat.
The disruption in the supply of GRUs, referred to above, has also
impacted the development of this business. Given the substantial
platform we now have in Europe following the acquisition of Pirtek,
we are taking steps to optimise the management of this business
with the objective of reducing costs by sharing overheads and
developing new business opportunities.
Pirtek
In the six months to 30 June 2023 the results for Pirtek are
included for the ten weeks following the completion of the
acquisition, as follows:
UK Germany Benelux Sweden France Other H1
& ROI & Austria 2023
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
System sales 17,060 13,237 4,794 541 1,536 - 37,168
----------------- -------- ----------- -------- -------- -------- --------
Statutory
revenue 4,825 3,133 2,340 539 1,536 (21) 12,352
----------------- -------- ----------- -------- -------- -------- --------
Cost of sales (1,546) (994) (525) (64) (313) 21 (3,421)
Gross profit 3,279 2,139 1,815 475 1,223 0 8,931
----------------- -------- ----------- -------- -------- -------- --------
GM% 68% 68% 78% 88% 80% - 72%
Administrative
expenses (1,426) (962) (1,039) (444) (1,225) (17) (5,113)
Adjusted EBITDA 1,853 1,177 776 31 (2) (17) 3,818
----------------- -------- ----------- -------- -------- -------- --------
The Pirtek division comprises operations in eight countries but
is managed as five business units with the UK management team being
responsible for Ireland, the German team being responsible for
Austria and the Benelux team managing the operations in the
Netherlands and Belgium. France and Sweden also have their own
separate management teams.
The UK business is the largest in the division, contributing 46%
(GBP17.1m) of total system sales and 49% (GBP1.9m) of the
division's total Adjusted EBITDA, which were both record results
for the period. The UK business has 37 franchisees, 34 in the UK
and 3 in Ireland, with one corporately run centre in York.
Germany and Austria accounted for 36% (GBP13.2m) of system sales
and 31% of the division's total Adjusted EBITDA (GBP1.2m), also
both record results for the period. The German business has 22
franchisees, 19 in Germany and 3 in Austria, which includes the
joint venture in Graz.
Benelux contributed 13% (GBP4.8m) of system sales and 20%
(GBP0.8m) of the division's total Adjusted EBITDA, again records
for the period. The Benelux business has 10 franchisees, 9 in the
Netherlands and 1 in Belgium, with six corporately run centres.
France is comprised of 8 centres and 44 MSUs, mainly based in
the Île- de - France and Lyon/Grenoble areas at present. This
operation has limited geographical reach and is sub-scale at
present, which makes it challenging to attract national customers.
Consequently, this business is just breaking even at present.
However, as new depots and MSUs are rolled out, this will improve
and given the significant market size, which we estimate is
somewhere between that of the UK and Germany; this is an exciting
growth opportunity.
Sweden is comprised of one head office service centre and 22
MSUs located in the Stockholm, Gothenburg and Malmo areas. As
further MSU are rolled out, the contribution from this market will
improve and it will also provide a bridgehead for the rollout of
Pirtek in Scandinavia.
Overall, sales and profits reached record levels in most
markets, and the business performed in line with our expectations
at the time of acquisition.
B2C Division
The B2C division comprises the ChipsAway, Ovenclean and Barking
Mad franchise businesses. The results of the division may be
summarised as follows:
H1 2023 H1 2022 Change Change
GBP'000 GBP'000 GBP'000 %
----------------- -------- -------- -------- -------
System sales 12,881 12,900 (19) 0%
------------------ -------- -------- -------- -------
Revenue 3,281 3,432 (151) (4)%
------------------ -------- -------- -------- -------
Cost of sales (803) (662) (141) 21%
------------------ -------- --------
Gross profit 2,478 2,770 (292) (11)%
------------------ -------- -------- -------- -------
GM% 76% 81% (5)%
Administrative
expenses (1,317) (1,265) (52) 4%
------------------ -------- --------
Adjusted EBITDA 1,161 1,505 (344) (23)%
------------------ -------- -------- -------- -------
The key revenue streams of this division are MSF and area sales
income. The MSF income, which was flat year on year, is primarily
made up of fixed monthly fees charged to franchisees. As the total
number of franchisees reduced year-on-year, maintaining MSF income
was a good result. Area sales income declined year-on-year as the
number of new recruits declined, although this was fully in line
with our budget, which anticipated a slowdown in the market.
Chips Away recruited 18 new franchisees in the period (H1 2022:
16), and attrition was reduced, with 20 leavers (H1 2022: 25),
resulting in a period-end system of 189 franchisees, just 2 down on
the year-end. Ovenclean recruitment was weak in the period, with
just 3 new recruits (H1 2022: 8) and 10 leavers (H1 2022: 7),
resulting in 93 franchisees at the period end. This weaker
performance, when compared with ChipsAway, reflects the older age
profile of Ovenclean franchisees, who are more likely to retire
early and less likely to seek self-employment in the current
environment. Barking Mad, which was severely impacted by the travel
restrictions during Covid, has stabilised and recruited 3 new
franchisees (H1 2022: 5) and had 4 leavers (H1 2022: 8), resulting
in a period-end system of 57 franchisees, just one fewer than at
the year-end.
Overheads were well controlled resulting in administrative
expenses increasing by only 4%. Adjusted EBITDA was 23% below last
year's level, although if adjusted for the GBP0.1m one-off income
generated from the sale of the domain name for the "MyHome" brand
in H1 2022, the decline would be restricted to 17%, which we
consider to be a creditable result in the current market.
Azura
Azura, a leading franchise management software system developer,
had a reasonable first half and has been successful in selling its
software platform to a large international franchisor. It is also
integral to the development of the Vision works management system
for the Metro Rod businesses. The results of the division may be
summarised as follows:
H1 2023 H1 2022 Change Change
GBP'000 GBP'000 GBP'000 %
------------------- -------- ------- ------- -------
Statutory revenue 369 411 (42) (10)%
------------------- -------- ------- ------- -------
Cost of sales - - - -
------------------- --------
Gross profit 369 411 (42) (10)%
------------------- -------- ------- ------- -------
GM% 100% 100%
Administrative
expenses (270) (313) 43 14%
------------------- --------
Adjusted EBITDA 99 98 1 1%
------------------- -------- ------- ------- -------
Adjusted EBITDA was in line with management expectations and
included an intercompany profit of GBP36,000 on intercompany
revenue of GBP193,000 (which is eliminated on consolidation).
Whilst the Group continues to be Azura's largest customer, we
continue to believe that the software we are jointly developing for
our internal use will have applications in other non-competing
franchise businesses in due course.
Earnings per share
During the period, the Group issued 63,472,968 shares, raising
GBP114.3m to part-fund the acquisition of Pirtek. This resulted in
the total number of Ordinary Shares in issue increasing to
193,780,080 at 30 June 2023 (31 December 2022: 130,311,112) and a
basic weighted average number of shares in issue increasing to
155,560,028 (H1 2022: 116,061,969).
Adjusted earnings per share increased by 4% to 4.24p (H1 2022:
4.07p). This modest increase results from a significant increase in
the weighted average number of Ordinary Shares; a 4% increase in
the tax rate (at a consistent tax rate; EPS increased by 10%); the
budgeted reduced contribution from the B2C division, and the
reduced like-for-like growth at Filta International due to the
lower waste oil price.
The Group incurred a statutory loss after tax as a result of the
amortisation of intangibles and the expensing of the Pirtek
acquisition costs against only ten weeks of income. On this basis,
the loss per share for the period was 0.79p (H1 2022: profit per
share 3.08p), as set out in the table below.
H1 2023 EPS H1 2022 EPS
GBP'000 p GBP'000 p
-------------------------------------- ----------------------------- ------------ ----------------- --------
Adjusted profit after tax 6,520 4.24 4,722 4.07
-------------------------------------- ----------------------------- ------------ ----------------- --------
Amortisation of acquired intangibles (4,476) (2.91) (669) (0.58)
Share-based payment expense (411) (0.27) (351) (0.30)
Non-recurring costs (2,991) (1.95) (1,282) (1.10)
Other gains and losses - - 1,232 1.06
Tax on adjusting items 145 0.09 (83) (0.07)
-------------------------------------- -----------------------------
Statutory ( loss)/ profit after
tax (1,213) (0.79) 3,569 3.08
-------------------------------------- ----------------------------- ------------ ----------------- --------
Financing and cash flow
On 21 April the Company completed the acquisition of Hydraulic
Authority I Limited , the owner of Pirtek Europe, from PNC Capital
Finance, LLC, for a total consideration of GBP200m plus a cash and
working capital adjustment of GBP10.3m. The acquisition was funded
by an equity fundraise of 53.7m shares at GBP1.80 per share,
raising GBP96.7m, the issue of 9.7m consideration shares to the
vendors, and new debt facilities comprising a GBP55m Term Loan and
a GBP55 million Revolving Credit Facility ("RCF") of which GBP10m
remains unutilised.
In addition, transaction and reorganisation costs of GBP7.2m
were incurred, of which GBP3.0m have been expensed and GBP3.3m set
against the share premium arising on the issue of the new shares,
with a further GBP0.9m amortising over the term of the bank debt
facility.
A summary of the Group cash flow for the period is set out in
the table below.
Unaudited U naudited Audited
30 June 30 June 31 December
2023 2022 2022
GBP'000 GBP'000 GBP'000
--------------------------------- ---------- ----------- -------------
Adjusted EBITDA 12,117 7,265 15,281
--------------------------------- ---------- ----------- -------------
Acquisition and re-organisation
costs (6,270) (3,049) (1,708)
Working capital movements (5,296) (2,276) (3,216)
Cash generated from operations 551 1,940 10,357
--------------------------------- ---------- ----------- -------------
Taxes paid (605) (1,355) (2,629)
Purchases of property, plant
and equipment (482) (626) (422)
Purchase of software (521) (466) (1,088)
Acquisition of subsidiaries
net of cash (200,610) 4,320 4,320
Bank loans received / (repaid) 100,012 (3,042) (2,953)
Proceeds from issue of shares 114,251 - -
Lease payments (1,002) (559) (1,156)
Funds supplied to EBT (18) (383) (2,503)
Dividends paid (1,433) (1,169) (2,339)
Other net movements (101) (183) 158
Net cash movement 10,042 (1,523) 1,745
--------------------------------- ---------- ----------- -------------
Net cash at beginning of period 10,799 9,054 9,054
Net cash at end of period 20,841 7,531 10,799
--------------------------------- ---------- ----------- -------------
After these outflows, the Group finished the period with net
debt of GBP86.3m (31 December 2022: net cash GBP6.5m) as set out
below.
Unaudited Unaudited Audited
30 June 2023 30 June 2022 31 December
2022
GBP'000 GBP '000 GBP'000
--------------------------- ------------- ------------ ------------
Cash 20,841 7 ,531 9,054
Term loan (55,000) - -
RCF (44,854) - -
Loan fee 843 - -
Hire purchase debt (911) (684) (821)
Adjusted net ( debt)/cash (79,081) 6,847 8,233
--------------------------- ------------- ------------ ------------
Other lease debt (7,209) (2,146) (1,713)
Net (debt)/cash (86,290) 4,701 6,520
--------------------------- ------------- ------------ ------------
Adjusted net debt was GBP79.1m at 30 June 2023 (30 June 2022:
net cash of GBP4.7m). Adjusted net debt is a measure used for
testing covenants for the term loan and RCF and excludes debt on
right-of-use assets of GBP7.2m. The other principal covenant
measure is finance charges as a multiple of Adjusted EBITDA. Both
covenants were comfortably met at 30 June 2023.
Dividend
We are confident in the growth prospects for the enlarged Group
and believe that our increased scale and enhanced management team
will also help drive the achievement of our ambitious growth
targets. This has given the Board the confidence to declare an 11%
increase in the interim dividend to 1.0p per share (interim 2022:
0.90p). The interim dividend will be paid on 13 October 2023 to
shareholders on the register on 15 September 2023.
Andrew Mallows
Interim Chief Financial Officer
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2023
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
Notes 2023 2022 2022
GBP'000 GBP'000 GBP'000
Revenue 69,751 44,508 99,152
Cost of sales (40,795) (27,891) (63,187)
----------------------------------------- ------- ----------- ----------- -------------
Gross profit 28,956 16,617 35,965
----------------------------------------- ------- ----------- ----------- -------------
Adjusted EBITDA 12,117 7,265 15,281
Depreciation (1,447) (885) (1,781)
Amortisation of software (393) (212) (500)
Amortisation of acquired intangibles (4,476) (669) (1,504)
Share-based payment expense (411) (351) (535)
Non-recurring items 2 (2,991) (50) (475)
----------- ----------- -------------
Total administrative expenses (26,557) (11,519) (25,479)
----------------------------------------- ------- ----------- ----------- -------------
Operating profit 2,399 5,098 10,486
Finance expense (1,611) (176) (235)
----------------------------------------- ------- ----------- ----------- -------------
Profit before tax 788 4,922 10,251
Tax expense (1,932) (1,276) (1,961)
----------------------------------------- ------- ----------- ----------- -------------
Profit attributable to equity holders
of the Parent Company (1,144) 3,646 8,290
----------------------------------------- ------- ----------- ----------- -------------
Other comprehensive income
Exchange differences on translation
of foreign operations (69) (77) 28
----------------------------------------- ------- ----------- ----------- -------------
Total comprehensive income attributable
to equity holders of the Parent Company (69) (77) 28
----------------------------------------- ------- ----------- ----------- -------------
Earnings per share (p)
Basic 1 (0.79) 3.08 6.81
Diluted 1 (0.78) 3.01 6.70
----------------------------------------- ------- ----------- ----------- -------------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 30 June 2023
Unaudited Audited
30 June 31 December
2023 2022
GBP'000 GBP'000
-------------------------------------------- --------- -------------
Assets
Non-current assets
Intangible assets 305,845 87,207
Property, plant and equipment 5,288 3,303
Right-of-use assets 8,312 2,845
Contract acquisition costs 431 402
Trade and other receivables 695 811
--------------------------------------------- --------- -------------
Total non-current assets 320,571 94,568
--------------------------------------------- --------- -------------
Current assets
Inventories 7,835 2,753
Trade and other receivables 43,210 22,505
Contract acquisition costs 93 92
Cash and cash equivalents 20,841 10,799
--------------------------------------------- --------- -------------
Total current assets 71,979 36,149
--------------------------------------------- --------- -------------
Total assets 392,550 130,717
--------------------------------------------- --------- -------------
Liabilities
Current liabilities
Trade and other payables 33,570 17,802
Loans and borrowings 54,854 -
Obligations under leases 2,798 966
Deferred income 626 807
Current tax liability 1,937 170
--------------------------------------------- --------- -------------
Total current liabilities 93,785 19,745
--------------------------------------------- --------- -------------
Non-current liabilities
Loans and borrowings 45,000 -
Obligations under leases 5,320 1,790
Deferred income 1,670 1,744
Deferred tax liability 35,214 4,398
--------------------------------------------- --------- -------------
Total non-current liabilities 87,204 7,932
--------------------------------------------- --------- -------------
Total liabilities 180,989 27,677
--------------------------------------------- --------- -------------
Total net assets 211,561 103,040
--------------------------------------------- --------- -------------
Issued capital and reserves attributable to
owners of the Parent
Share capital 969 652
Share premium 147,948 37,293
Share-based payment reserve 1,554 1,217
Merger reserve 52,212 52,212
EBT reserve (3,026) (3,007)
Cumulative translation adjustment 32 155
Retained earnings 11,872 14,518
--------------------------------------------- --------- -------------
Total equity attributable to equity holders 211,561 103,040
--------------------------------------------- --------- -------------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended 30 June 2023
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
GBP'000 GBP'000 GBP'000
---------------------------------------------- --------- --------- -------------
Cash flows from operating activities
Profit for the period (1,213) 3,570 8,318
Adjustments for:
Depreciation of property, plant and equipment 619 885 756
Depreciation of right-of-use assets 906 - 1,025
Amortisation of software 315 - 500
Amortisation of acquired intangibles 4,476 881 1,504
Non-recurring charges - 1,282 -
Share-based payment expense 411 351 535
Other gains and losses - (1,232) (1,232)
Finance expense 1,611 253 235
Exchange differences on translation of
foreign operations 69 - (28)
Income tax expense 1,932 1,276 1,961
---------------------------------------------- --------- --------- -------------
Operating cash flow before movements in
working capital 9,126 7,266 13,574
Decrease/(increase) in trade and other
receivables (17,395) (7,914) (4,661)
(Increase)/decrease in inventories (5,083) (1,132) (401)
(Decrease)/increase in trade and other
payables 17,182 6,769 1,845
---------------------------------------------- --------- --------- -------------
Cash generated from operations 3,830 4,989 10,357
Income taxes (paid)/received (605) (1,355) (2,629)
---------------------------------------------- --------- --------- -------------
Net cash generated from operating activities 3,225 3,634 7,728
Cash flows from investing activities
Purchases of property, plant and equipment (482) (626) (422)
Purchase of software (521) (466) 259
Proceeds from the sale of property, plant
and equipment - 202 (1,088)
Loans to franchisees / franchise loans
repaid 134 (491) (514)
Acquisition of subsidiary including costs,
net of cash acquired (63,715) 2,951 4,320
Payment of contingent consideration - (1,680) -
Net cash used in investing activities (64,584) (110) 2,555
Cash flows from financing activities
Bank loans- received / (repaid) 100,012 (3,042) (2,953)
Preference shares acquired (58,593) - -
Repayment of loan notes and bank debt (78,302) - -
Capital element of lease obligations repaid (1,002) (559) (1,037)
Interest paid - bank and other loan (8) (42) (116)
Interest paid - finance leases (104) (33) (119)
Proceed from issue of shares, net of costs 110,972 180 330
Funds supplied to Employee Benefit Trust (18) (383) (2,503)
Dividends paid (1,433) (1,169) (2,339)
---------------------------------------------- --------- --------- -------------
Net cash generated from/used in financing
activities 71,524 (5,048) (8,737)
Net increase/decrease in cash and cash
equivalents 10,165 (1,524) 1,546
---------------------------------------------- --------- --------- -------------
Cash and cash equivalents at beginning
of period 10,799 9,054 9,054
Exchange differences on cash and cash
equivalents (123) - 199
---------------------------------------------- --------- --------- -------------
Cash and cash equivalents at end of period 20,841 7,530 10,799
---------------------------------------------- --------- --------- -------------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2023
Share Share-based Foreign
Share premium payment Merger EBT exchange Retained
capital account reserve reserve reserve reserve earnings Total
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- -------- -------- ----------- -------- -------- ---------- --------- --------
At 1 January 2022 480 36,966 789 1,390 (504) - 8,204 47,325
-------------------- -------- -------- ----------- -------- -------- ---------- --------- --------
Profit for the
period - - - - - - 3,570 3,570
Foreign exchange
translation
differences - - - - - 289 - 289
-------------------- -------- -------- ----------- -------- -------- ---------- --------- --------
Total comprehensive
income - - - - - 289 3,570 3,860
-------------------- -------- -------- ----------- -------- -------- ---------- --------- --------
Contributions by and
distributions
to owners:
Shares issued 169 - - 50,822 - - - 50,991
Dividend paid - - - - - - (1,169) (1,169)
Contributions to
Employee
Benefit Trust - - - - (383) - - (383)
Share-based payment - - 285 - - - - 285
-------------------- -------- -------- ----------- -------- -------- ---------- --------- --------
At 30 June 2022 649 36,966 1,074 52,212 (887) 289 10,606 100,909
-------------------- -------- -------- ----------- -------- -------- ---------- --------- --------
Profit for the
period - - - - - - 4,748 4,748
Foreign exchange
translation
differences - - - - - (134) - (134)
-------------------- -------- -------- ----------- -------- -------- ---------- --------- --------
Total comprehensive
income - - - - - (134) 4,748 4,615
-------------------- -------- -------- ----------- -------- -------- ---------- --------- --------
Contributions by and
distributions
to owners:
Shares issued - - - - - - - -
Dividend paid - - - - - - (1,170) (1,170)
Contributions to
Employee
Benefit Trust 3 327 - - (2,120) - - (1,790)
Share-based payment - - 143 - - - 334 477
-------------------- -------- -------- ----------- -------- -------- ---------- --------- --------
At 31 December 2022 652 37,293 1,217 52,212 (3,007) 155 14,518 103,040
-------------------- -------- -------- ----------- -------- -------- ---------- --------- --------
Profit for the
period - - - - - (1,213) (1,213)
Foreign exchange
translation
differences - - - - - (123) - (123)
-------------------- -------- -------- ----------- -------- -------- ---------- --------- --------
Total comprehensive
income - - - - - (123) (1,213) (1,336)
-------------------- -------- -------- ----------- -------- -------- ---------- --------- --------
Contributions by and
distributions
to owners:
Shares issued 317 110,655 - - - - - 110,972
Dividend paid - - - - - - (1,433) (1,433)
Contributions to
Employee
Benefit Trust - - - - (19) - - (19)
Share-based payment - - 337 - - - - 337
-------------------- -------- -------- ----------- -------- -------- ---------- --------- --------
At 30 June 2023 969 147,948 1,554 52,212 (3,026) 32 11,872 211,561
-------------------- -------- -------- ----------- -------- -------- ---------- --------- --------
ACCOUNTING POLICIES
Basis of preparation
The consolidated financial statements for the six months ended
30 June 2023 and 2022 are unaudited and were approved by the
Directors on 26 July 2023. 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 2022 were
prepared in accordance with IFRS 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. The Group's financial
statements consolidate the financial statements of Franchise Brands
plc and its subsidiaries.
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 2022.
Going concern
The condensed financial statements have been prepared on a going
concern basis. The Group has generated profits both during the
period covered by these financial statements and in previous years.
These profits have resulted in operating cash inflows into the
Group, and the Group has sufficient current financial assets to
meet its current liabilities as they fall due.
NOTES TO THE UNAUDITED RESULTS FOR THE SIX MONTHSED 30 JUNE
2023
1. Earnings per share
Basic earnings per share amounts are calculated by dividing
profit for the period attributable to equity holders of the Parent
by the weighted average number of ordinary shares outstanding
during the period. Diluted earnings per share are calculated by
dividing the profit attributable to Ordinary equity holders of the
Parent Company by the weighted average number of Ordinary Shares
outstanding during the period plus the weighted average number of
Ordinary Shares that would have been issued on the conversion of
all dilutive share options at the start of the period or, if later,
the date of issue.
Earnings per share
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022 2022
GBP'000 GBP'000 GBP'000
----------------------------------- -------------- --------------- -------------
Profit attributable to owners of
the Parent (1,213) 3,570 8,318
Adjusting items, net of tax 7,733 1,153 1,915
----------------------------------- -------------- --------------- -------------
Adjusted profit attributable to
owners of the Parent 6,520 4,722 10,233
----------------------------------- -------------- --------------- -------------
Number Number Number
----------------------------------- -------------- --------------- -------------
Basic weighted average number
of shares 153,781,948 116,061,969 122,126,350
Dilutive effect of share options 2,452,633 2,363,754 2,042,848
----------------------------------- -------------- --------------- -------------
Diluted weighted average number
of shares 156,234,581 118,425,723 124,169,198
----------------------------------- -------------- --------------- -------------
Pence Pence Pence
----------------------------------- -------------- --------------- -------------
Basic earnings per share (0.79) 3.08 6.81
Diluted earnings per share (0.78) 3.01 6.70
Adjusted earnings per share 4.24 4.07 8.38
Adjusted diluted earnings per
share 4.17 3.99 8.24
----------------------------------- -------------- --------------- -------------
2. Non-recurring items
The Company incurred costs associated with the acquisition of
Pirtek. An amount of GBP3.0 million has been charged in arriving at
statutory profit.
GBP'000
Pirtek acquisition costs 2,824
Reorganisation costs 1 67
--------------------------- -----------------
T otal 2,991
--------------------------- -----------------
3. Business Combination
On 21 April, the Company acquired the entire issued share
capital of Hydraulic Authority I Limited and its subsidiaries
(together, "Pirtek" or "Pirtek Europe") for gross consideration of
GBP73.4m, and net consideration of GBP63.7m (with GBP9.7m of cash
purchased).
The total consideration for Pirtek of GBP210.3m includes
repayments of acquired debt of GBP78.3m, redemption of acquired
preference shares of GBP58.6m and the gross consideration, detailed
below, of GBP73.4m.
Details of the fair value of the identifiable assets and
liabilities acquired, purchase consideration and goodwill are as
follows:
Book value Adjustments Fair Value
GBP'000 GBP'000 GBP'000
Intangible assets - 119,518 119,518
Property, plant and equipment 2,104 - 2,104
Inventories 5,174 - 5,174
Trade and other receivables 14,621 - 14,621
Current asset investment 179 - 179
Cash 9,669 - 9,669
Trade and other payables (149,654) - (149,654)
Deferred tax liability (11,466) (20,491) (31,957)
Total fair value of the
identifiable assets and
liabilities acquired (129,373) 99,027 (30,346)
------------------------------- ----------- ------------ -----------
Total consideration paid 73,384
------------------------------- ----------- ------------ -----------
Goodwill 103,730
------------------------------- ----------- ------------ -----------
The deferred tax liability has been calculated on the value of
the intangible assets acquired at a blended corporation tax rate of
26%. A corresponding amount has been recognised as goodwill. The
amount recognised as goodwill will not be deductible for tax
purposes.
The values of the intangibles acquired are currently provisional
and will be finalised at the year-end. All of the intangible assets
have a useful economic life of 10 years, with the exception of the
brands and goodwill, which both have indefinite lives.
4. Availability of this report
This half-year results report will not be sent to shareholders
but is available on the Company's website at
https://www.franchisebrands.co.uk/key-documents/ .
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END
IR DBGDRRGDDGXL
(END) Dow Jones Newswires
July 27, 2023 02:00 ET (06:00 GMT)
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