AI assistant
FRANCHISE BRANDS PLC Earnings Release 2021
7650_er_2022-03-03_780ab0cf-4a1e-4ddd-89ab-9b21f094a630.html
Earnings Release
Open in viewerOpens in your device viewer
National Storage Mechanism | Additional information 
RNS Number : 4632D
Franchise Brands PLC
03 March 2022
3 March 2022
FRANCHISE BRANDS PLC
("Franchise Brands", the "Group" or the "Company")
Final results for the year ended 31 December 2021
Strong revenue recovery and record profits
Announcement of a recommended all-share offer for Filta Group Holdings plc
Franchise Brands plc (AIM: FRAN), a multi-brand franchise business, is pleased to announce its audited results for the year ended 31 December 2021.
Financial highlights
· Revenue increased by 17% to £57.7m (2020: £49.3m).
· Adjusted EBITDA* increased by 28% to £8.5m (2020: £6.6m).
· Adjusted profit** before tax increased by 34% to £6.5m (2020: £4.8m).
· Statutory profit before tax increased by 57% to £5.8m (2020: £3.7m).
· Strong cash conversion of 97% (2020: 90%).
· Net cash of £6.5m at 31 December 2021 (2020: £4.9m).
· Adjusted EPS** increased by 27% to 5.55p (2020: 4.35p).
· Basic EPS increased by 43% to 4.42p (2020: 3.09p).
· Final dividend of 0.9p per share proposed (2020: 0.8p per share), giving a 36% increase in the total dividend for the year to 1.5p per share (2020: 1.1p per share), 3.7 times covered by adjusted profit after tax (2020: 4.0 times).
Operational highlights
· A strong recovery across the Group, despite the Q1 lockdown.
· Metro Rod and Metro Plumb system sales increased by 24% to a record £50.4m.
· Metro Rod won a significant £1m contract with Peel Ports, delivered directly.
· Pump sales by Metro Rod franchisees increased 103% to £1.5m, facilitated by Willow Pumps.
· Acquisition of Azura Group, a leading franchise management software system developer, which gives the Group ownership of its core IT systems.
· Willow Pumps' sales growth of 7% driven by a 33% rise in the higher-margin service work and the development of the Metro Rod corporate franchise areas.
· A strong recovery by the B2C division, underpinned by franchisees returning to full fees for the year and a steady level of recruitment with 57 new franchisees (2020: 58).
Current trading and outlook
· Announced, on 16 February 2022, a recommended all-share offer for Filta Group Holdings plc, a transformational acquisition that takes the Group into North America and Europe.
· Trading has started strongly in 2022, with continuing sales growth in the B2B division and steady recruitment in the B2C division.
· Strong balance sheet, with £14m of cash and available undrawn facilities; strong position to support franchisees, invest in the business, support a progressive dividend policy, and take advantage of earnings-enhancing acquisition opportunities.
*Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation and share-based payment expense and non-recurring items.
**Adjusted profit before tax and Adjusted EPS are before amortisation of acquired intangibles, share-based payment expense and non-recurring items.
*** Net cash is cash less loans, borrowings and obligations under leases.
Stephen Hemsley, Executive Chairman, commented:
"I have been extremely pleased with the performance of Franchise Brands during 2021. The record-breaking result has been driven by the strong performance of our Metro Rod franchise network. However, all our businesses have shown themselves to be resilient and demonstrate the overall strength of our portfolio of franchise networks."
"The acquisition of Filta will be transformational for the business, taking us from a UK focused business to one with international scale and an expanded management team capable of developing the group in North America, UK and Europe and enabling us to provide a broader range of complementary services to a larger combined client base. I look forward to welcoming Jason Sayers and Brian Hogan to our board and all of the Filta team to the Group once the merger is declared unconditional."
"We look forward to an exciting and busy 2022 with confidence."
Enquiries:
| Franchise Brands plc | + 44 (0) 1625 813231 |
| Stephen Hemsley, Executive Chairman | |
| Chris Dent, Chief Financial Officer | |
| Julia Choudhury, Corporate Development Director | |
| Allenby Capital Limited (Nominated Adviser and Joint Broker) | +44 (0) 20 3328 5656 |
| Jeremy Porter / Liz Kirchner (Corporate Finance) Amrit Nahal (Sales and Corporate Broking) |
|
| Dowgate Capital Limited (Joint Broker) | +44 (0) 20 3903 7715 |
| James Serjeant / Russell Cook / Nicholas Chambers | |
| MHP Communications (Financial PR) | +44 (0) 20 3128 8100 |
| Katie Hunt | +44 (0) 7884 494112 |
| [email protected] |
CHAIRMAN'S STATEMENT
Introduction
2021 saw a strong recovery in our business as the continued lifting of the Covid-19 restrictions led to an increase in the demand for the Group's services, particularly at Metro Rod. Our B2C franchisees also operated for the full year in 2021, after the three-month shutdown in 2020. New ways of working became further embedded in the business, as a result of lessons learnt during the lockdowns and our ongoing digital investment, which will enhance our operational gearing in the years to come.
During the year we acquired Azura Group Ltd ("Azura"), a leading franchise management software system developer. This has enabled the Group to consolidate its software development and secure full ownership of the intellectual property ("IP") created in partnership with Azura. It also provides the opportunity to use Franchise Brands' experience and expertise to grow Azura's business by offering a Software as a Service ("SaaS") platform to other franchise businesses in the UK and overseas.
On 16 February 2022, we announced that we had reached agreement on the terms of a recommended all-share offer for Filta Group Holdings plc ("Filta"), a market-leading commercial kitchen services provider. The business specialises in fryer management and fat, oils & grease ("FOG") services. Filta's core business operations are within North America, the UK and mainland Europe. The North America and mainland Europe operations are exclusively operated as a franchise network, whilst the UK activities are operated under both franchise and direct labour ("DLO") business models. The business is complementary to our B2B franchise and DLOs in the UK and will significantly expand our "Water In, Waste Out" offering. Filta's franchise businesses in North America and Europe will provide accelerated growth prospects for the enlarged Group through both organic growth and complementary acquisitions.
B2B Franchise Division
Metro Rod and Metro Plumb recovered strongly in 2021, with system sales growing by 24% (2020: -2%) to £50.4m (2020: £40.6m) as we successfully won new contracts with a wide range of local and national customers. This, in part, resulted from the investment made by our franchisees in tankers and a pump maintenance capability which allows us to provide a "one-stop-shop" to customers with a greater diversity of requirements. The tanker fleet has grown from 24 vehicles in 2018 to 57 by the year-end. We also saw the pump servicing undertaken by franchisees grow by 103% to £1.5m, as the lifting of Covid-19 restrictions allowed more face-to-face training of the franchisees' engineers.
There are now a total of 49 Metro Rod and Metro Plumb franchisees in the system and of these, 47 grew their sales in 2021, with 32 growing by over 20%. 24 franchisees now have sales of over £1m (2020:17).
In line with our objective to develop Metro Plumb as a stand-alone franchise, 2 new franchisees were recruited in the year, bringing the total to seven. In addition, 23 Metro Rod franchisees also operate a Metro Plumb franchise and three territories in the South-East are operated corporately as DLOs. Metro Plumb sales totalled £6.9m, a 26% increase over the previous year. We are focused on accelerating the recruitment of stand-alone Metro Plumb franchisees in the coming year as the remaining Covid-19 restrictions are lifted.
During the year the B2B division completed a £1m contract for Peel Ports on a direct labour basis. This was delivered directly as we felt that the speed with which it had to be mobilised, and the investment in equipment required, was beyond the labour and financial resources of our franchises. The contract was successfully concluded in February 2022 and we anticipate that most of the labour and equipment will be absorbed into the franchise network. The division's other direct labour activity, Kemac, which is a specialist plumbing business and operates three Metro Plumb territories, traded well. It is currently working on broadening its customer base to improve resilience and increase the range of services offered.
The investment in the digital transformation of the B2B franchise business is driving significant operational gearing. Whilst system sales increased 24%, administration expenses increased by only 10% and headcount grew by less than 1%. Since we acquired Metro Rod in 2017, almost every business function has benefited from some level of digital automation. As a result, the headcount at Metro Rod and Metro Plumb is now 15% lower and system sales per Support Centre employee increased 75% over the period to £450,000 per employee (2017: £257,000). We anticipate the digital transformation accelerating in the future following the acquisition of Azura.
As a result of the strong growth in system sales, a robust performance by the DLOs, Covid-related overhead efficiencies and the continuing benefits resulting from our investment in IT systems, adjusted EBITDA increased by 45%. This was another excellent performance by the business, led by Peter Molloy, Managing Director of Metro Rod and Metro Plumb, and his team.
Willow Pumps
Willow Pumps, which is a DLO, had a mixed year. The pump and drainage service side of the business, which accounts for 78% of total sales (excluding the two Metro Rod corporate franchises), continued to grow strongly. However, the supply and installation ("S&I") business suffered from depressed sales volumes due to the slow and patchy recovery of the house-building sector.
Service revenue from the reactive and planned maintenance of pumps and drains grew by 33% due to new contracts and the developing relationship with the Metro Rod depots which helps the combined business provide customers with a truly national and cost-effective service. The growth in sales resulted in an increased gross profit contribution; however, the percentage gross margin declined slightly due to the tighter margin on work sub-contracted to Metro Rod.
S&I sales declined 30% during the year as this activity relies on new starts in the house-building sector which were disrupted by labour and material shortages. This was compounded by a reduction in gross margin due to much of the work being lower-margin, early-stage material supply. Action has been taken to address these more challenging market conditions by reducing overheads and seeking to broaden the customer base and product mix.
The Metro Rod corporate franchises of Kent & Sussex and Exeter which were transferred to Willow Pumps in 2020, grew sales by 12% and showed strong growth in profitability, albeit from a small base.
Overall, the EBITDA contribution from Willow Pumps declined by 9% in 2021, which was disappointing. However, it was entirely attributable to the decline in S&I activity, and we anticipate that the changes made in this area will result in a rebound in sales and EBITDA in 2022.
B2C Franchise Division
The B2C Franchise Division is comprised of the consumer-facing franchise businesses ChipsAway, Ovenclean and Barking Mad. This division recovered strongly in 2021 from the three-month shutdown of the business at the start of the Covid 19 pandemic in 2020. Almost all franchisees paid full fees in 2021 resulting in a recovery in sales, which, combined with the careful reintroduction of overhead costs following the reductions that the furlough payments in 2020 allowed, resulted in strong growth in EBITDA of 24%.
Franchise recruitment at ChipsAway, the leading brand in this division accounting for 84% of EBITDA, declined in the year to 38 new recruits (2020: 45). Whilst this was disappointing it was still the second-highest level of recruitment achieved over the last five years. Ovenclean, by contrast, had a particularly strong year with 13 new recruits (2020: 8). Barking Mad also increased recruitment to 6 franchisees (2020: 5) in a challenging year for this brand given the low demand for overseas holidays. Overall, the B2C division recruited 57 new franchisees (2020: 58), but lost 62, resulting in a total number of B2C franchisees at the year-end of 381. This is considered an excellent result given the uncertain environment that has existed since the start of the Covid pandemic.
Digital transformation
The digital transformation of the business has progressed at pace during the year, culminating in the acquisition of Azura in November 2021. Prior to the acquisition, and in response to franchisee feedback, our in-house team of software developers and the team embedded at Azura, developed a series of further upgrades to the Vision works management system. The additional functionality has automated an increasing number of processes, reducing costs for both us and our franchisees, improved efficiency and enhanced our customer service.
The use of the Connect portal, which provides customers with real-time visibility of every job, has rapidly grown in popularity since being launched. Connect provides customers with faster and more comprehensive information on a job, on a self-serve basis, and has reduced contact centre telephone traffic by 14%. The functionality of Connect is being extended to allow customers to both place jobs and review the invoices on closed jobs, which we anticipate will further enhance customer service and reduce contact-centre traffic. We will continue to shape our development journey around customer needs and will further encourage them to use Connect as their primary source of information.
The acquisition of Azura represents an important step in the Group's digital journey and I would like to welcome their leadership team of Simon Pullman (Managing Director), Sean McAree (Software Architect) and Mark Scott (Operations Director). The acquisition has a strong strategic and commercial rationale in that it consolidates and secures our software development and key IP, as well as providing a potential source of future income.
We believe that there is considerable scope to develop and grow Azura's business through combining the Group's expertise and experience in franchising, technology and marketing with Azura's pre-eminent franchise management platform. This will allow us to develop the existing software, using some of our Vision and Connect developments, and offering the enhanced package as a SaaS platform to other franchise businesses in the UK and overseas.
Filta Acquisition
On 16 February 2022, the Boards of Franchise Brands and Filta announced that they had reached agreement on the terms of a recommended all-share offer for the entire share capital of Filta.
This offer is conditional on, amongst other things, Franchise Brands receiving acceptances in respect of at least 75% of the Filta voting rights. Franchise Brands has received irrevocable undertakings to accept the offer from 82% of the Filta shareholders. The offer is also subject to the passing of an ordinary resolution at the Franchise Brands general meeting to be held on 7 March 2022 giving the directors the authority to create and issue the consideration shares. The Board of Franchise Brands has unanimously approved the offer and each director of Franchise Brands together with Gresham House, who together hold 60% of the voting rights of Franchise Brands, have irrevocably undertaken to vote in favour of the resolution. The Board of Franchise Brands is therefore confident that the offer will be declared wholly unconditional soon after the irrevocable undertakings are fulfilled.
We believe that the merging of the two companies will establish a franchise business with a robust international footprint that will allow overseas development of the existing brands and facilitate the acquisition of new brands in North America, UK and Europe. The merged management team has significant franchising experience and expertise, which combined with the shared support services and resources will drive the future growth of the enlarged Group.
The complementary nature of the services provided, and the breadth of the customer base of the combined direct labour businesses in the UK, is expected to also provide significant opportunities for growth. The acquisition will significantly progress our ambition of offering a "Water In. Waste Out" service to the commercial sector.
Outlook
Trading has started strongly in 2022, with continuing sales growth in the B2B division and steady recruitment in the B2C division. Profitability continues to be enhanced by the improved operational gearing that our digital investment enables, which has been enhanced by the acquisition of Azura.
The acquisition of Filta will be transformational for the business, taking us from a UK-focused business to one with international scale and an expanded management team capable of developing the group in North America, UK and Europe and enabling us to provide a broader range of complementary services to a larger combined client base. I look forward to welcoming Jason Sayers and Brian Hogan to our board and all of the Filta team to the Group once the merger is declared unconditional. We also remain keen to increase the scale of our B2C franchise business and continue to search for complementary acquisitions which will leverage our existing infrastructure.
It has been an extremely active and challenging twelve months for our corporate team dealing with both the disruptive effects of Covid-19 and expanding the group both organically and by acquisition. This applies equally to our franchisees who have weathered the storm and come out stronger and with better businesses. I would like to thank them all for their contribution in 2021. We therefore look forward with confidence to the year ahead.
Stephen Hemsley
Executive Chairman
3 March 2022
CHIEF FINANCIAL OFFICER'S REVIEW
Summary statement of income
| 2021 | 2020 | Change | Change | |||
| £'000 | £'000 | £'000 | % | |||
| Revenue | 57,690 | 49,287 | 8,403 | 17% | ||
| Cost of sales | (35,764) | (30,307) | (5,457) | 18% | ||
| Gross profit | 21,926 | 18,980 | 2,946 | 16% | ||
| Administrative expenses | (13,452) | (12,341) | (1,112) | 9% | ||
| Adjusted EBITDA | 8,474 | 6,640 | 1,834 | 28% | ||
| Depreciation & amortisation of software | (1,717) | (1,357) | (360) | 26% | ||
| Finance expense | (292) | (446) | 154 | (34%) | ||
| Adjusted profit before tax | 6,465 | 4,836 | 1,629 | 34% | ||
| Tax expense | (1,154) | (899) | (255) | 28% | ||
| Adjusted profit after tax | 5,311 | 3,937 | 1,374 | 35% | ||
| Amortisation of acquired intangibles | (393) | (393) | - | |||
| Share-based payment expense | (334) | (205) | (129) | |||
| Non-recurring costs | (187) | (706) | 520 | |||
| Other gains and losses | 223 | 151 | 72 | |||
| Tax on adjusting items | (387) | 9 | (397) | |||
| Statutory profit after tax | 4,233 | 2,793 | 1,440 | 52% | ||
Overall, consolidated Group revenue has increased by 17% to £57.7m in the period (2020: £49.9m). This has been driven by the increase in demand for the Group's services following the continued lifting of COVID-19 lockdown restrictions. Gross profit has increased by 16% to £21.9m (2020: £18.9m), reflecting a slight decrease in the gross margin from 39% to 38%. This resulted from the strong growth in revenues at Metro Rod, which has a gross margin of 31%. Overheads increased by only 9%, resulting in a 28% increase in Group EBITDA to a record £8.5m (2020: £6.6m).
Divisional trading results
The adjusted EBITDA of the operational business divisions of the Group may be analysed as follows:
| Metro Rod | Willow Pumps | B2C | Total 2021 |
Metro Rod | Willow Pumps | B2C | Total 2020 |
|||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
| Statutory revenue | 36,201 | 15,061 | 6,428 | 57,690 | 29,324 | 14,128 | 5,835 | 49,287 | ||
| Cost of sales | (25,027) | (9,369) | (1,368) | (35,764) | (20,326) | (8,636) | (1,345) | (30,307) | ||
| Gross profit | 11,174 | 5,692 | 5,060 | 21,926 | 8,998 | 5,492 | 4,490 | 18,980 | ||
| GM% | 31% | 38% | 79% | 38% | 31% | 39% | 77% | 39% | ||
| Admin expenses | (5,790) | (4,007) | (2,422) | (12,218) | (5,276) | (3,648) | (2,359) | (11,283) | ||
| Divisional EBITDA | 5,385 | 1,686 | 2,638 | 9,708 | 3,722 | 1,844 | 2,131 | 7,697 | ||
| Group overheads | (1,234) | (1,058) | ||||||||
| Adjusted EBITDA | 8,474 | 6,640 |
Metro Rod
Metro Rod comprises the franchise activities of Metro Rod and Metro Plumb, the direct labour contract at Peel Ports and Kemac, the London-based plumbing business operated as a DLO. The results of the division may be summarised as follows:
| 2021 | 2020 | Change | Change | ||
| £'000 | £'000 | £'000 | % | ||
| Revenue | 36,201 | 29,324 | 6,876 | 23% | |
| Cost of sales | (25,027) | (20,326) | (4,700) | 23% | |
| Gross profit | 11,174 | 8,998 | 2,176 | 24% | |
| GM% | 31% | 31% | |||
| Admin expenses | (5,790) | (5,276) | (514) | 10% | |
| Adjusted EBITDA | 5,385 | 3,722 | 1,662 | 45% |
The statutory revenue of Metro Rod does not reflect the underlying system sales generated by the franchisees as national sales are accounted for on a gross basis, as are the sales of Kemac and the direct labour activities, whereas in respect of the local sales generated by franchisees, only the management service fee ("MSF") revenue is reflected. Therefore, it is re-analysed below to reconcile system sales to gross profit.
| 2021 | 2020 | Change | Change | ||
| £'000 | £'000 | £'000 | % | ||
| System sales | 50,361 | 40,631 | 9,730 | 24% | |
| MSF income | 9,411 | 7,807 | 1,604 | 21% | |
| Effective MSF % | 18.7% | 19.2% | |||
| Other gross profit | 1,763 | 1,192 | 572 | 48% | |
| Gross profit | 11,174 | 8,998 | 2,176 | 24% |
Overall, system sales at Metro Rod and Metro Plumb increased by 24% to a record £50.4m in the period (2020: £40.6m). Our net MSF income at Metro Rod increased by 21% to £9.4m (2020: £7.8m), which represented an effective MSF of 18.7% (2020: 19.2%). We continue to incentivise Metro Rod's franchisees to grow their businesses through a series of MSF discount schemes designed to encourage sales growth and investment in a broader range of equipment and people. In line with this strategy, as system sales have grown, especially in tanker and pump work, the effective MSF percentage rate has fallen.
Other gross profit represents the gross profit from Metro Rod's DLOs. This profit increased 48% to £1.8m (2020: £1.2m) due to a good performance by Kemac and the contribution from Metro Rod's centrally managed contract with Peel Ports.
The 45% increase in the adjusted EBITDA to £5.4m (2020: £3.7m) has been driven by the increase in system sales and the strong performance by direct labour operations. In addition, the division continues to benefit from some permanent cost savings through the efficiencies developed during lockdowns and the growing benefits resulting from the investment in IT systems.
Willow Pumps
Willow Pumps comprises the core DLO pump business and the Metro Rod corporate franchises in Kent & Sussex and Exeter. The results of the division may be summarised as follows:
| 2021 | 2020 | Change | Change | ||
| £'000 | £'000 | £'000 | % | ||
| Revenue | 15,061 | 14,128 | 934 | 7% | |
| Cost of sales | (9,369) | (8,636) | (733) | 8% | |
| Gross profit | 5,692 | 5,492 | 201 | 4% | |
| GM% | 38% | 39% | (1%) | ||
| Admin expenses | (4,007) | (3,648) | (359) | 10% | |
| Adjusted EBITDA | 1,686 | 1,844 | (158) | (9%) |
The Willow Pumps core business has two distinct types of revenue: Service revenue and S&I. Service revenue is generated from the reactive and planned maintenance of pumps and drains. S&I revenue is generated from the design, supply and installation of pump stations, which are typically projects that are performed in discrete phases over a number of accounting periods. As a result, revenue is recognised over time based on the proportion of the contract which has been completed in the accounting period. The gross profit generated on S&I projects is lower than Service work due to the significant proportion of the total cost being the supply of the pumps.
Whilst total revenue increased by 7%, the components have performed differently, with Service seeing 33% revenue growth, the corporate franchises growing by 13%, but S&I being 30% lower than last year. In addition, the S&I work performed during the year has been weighted towards the supply element of the work, meaning that the S&I revenue only generated a gross margin of 16% compared to 30% during 2020. This weighting has resulted in the overall gross margin of the business falling to 38%.
By their nature, DLOs have less operational gearing than franchise businesses, as the increase in income needs to be matched by increased labour costs. As a result, there was a 10% increase in administrative expenses when compared with the prior period, as the temporary cost savings achieved during the 2020 Spring lock-down reversed.
Overall, this meant that whilst adjusted EBITDA increased on the Service work and at the corporate franchises, the reduced gross profit and fixed administrative costs relating to the S&I work weighed heavily on the profitability of this business, resulting in a 9% decrease in the divisional EBITDA to £1.7m (2020: £1.8m).
B2C Division
The B2C division comprises the ChipsAway, Ovenclean and Barking Mad franchise businesses. The results of the division may be summarised as follows:
| 2021 | 2020 | Change | Change | ||
| £'000 | £'000 | £'000 | % | ||
| Revenue | 6,428 | 5,835 | 592 | 10% | |
| Cost of sales | (1,368) | (1,345) | (23) | 2% | |
| Gross profit | 5,060 | 4,490 | 570 | 13% | |
| GM% | 79% | 77% | 2% | ||
| Admin expenses | (2,422) | (2,359) | (63) | 3% | |
| Adjusted EBITDA | 2,638 | 2,131 | 507 | 24% |
The key revenue streams are MSF and Area Sales income. MSF income is mostly made up of fixed monthly fees as this remains the most effective method of generating income from a large number of franchisees with lower individual sales. Area Sales are the fees generated from the sale (or resale) of franchise territories.
The B2C division was the most impacted by the 2020 Spring lockdown as the franchisees were unable to trade. To help ensure their survival, the majority of fees charged to the networks were suspended or greatly reduced during this period. During 2021, franchisees were back to paying full monthly fees and, as a result, revenue increased by 10%.
The cost base of this business was very strictly controlled particularly when compared with a significant reduction in salary costs in H1 2020 resulting from the furlough scheme. In the current period we have seen the benefit of our decision to close the Barking Mad head office and consolidate all B2C operations in Kidderminster.
Overall, the 13% increase in gross profit, together with a stable cost base, resulted in a 24% increase in adjusted EBITDA to £2.6m (2020: £2.1m).
Adjusted & statutory profit
| 2021 | 2020 | Change | Change | |
| £'000 | £'000 | £'000 | % | |
| Adjusted EBITDA | 8,474 | 6,640 | 1,834 | 28% |
| Depreciation & amortisation of software | (1,716) | (1,357) | (359) | 26% |
| Finance expense | (292) | (446) | 154 | (34%) |
| Adjusted profit before tax | 6,465 | 4,836 | 1,629 | 34% |
| Tax expense | (1,154) | (899) | (255) | 28% |
| Adjusted profit after tax | 5,311 | 3,937 | 1,374 | 35% |
| Amortisation of acquired intangibles | (393) | (393) | - | |
| Share-based payment expense | (334) | (205) | (129) | |
| Non-recurring costs | (187) | (706) | 520 | |
| Other gains and losses | 223 | 151 | 72 | |
| Tax on adjusting items | (387) | 9 | (397) | |
| Statutory profit after tax | 4,233 | 2,793 | 1,440 | 52% |
Depreciation and amortisation of software increased 26% to £1.7m (2020: £1.4m) as a result of the increase in the amortisation charge in respect of software development and the purchase of £0.8m of tangible assets to support the Peel Ports contract at Metro Rod.
The finance charge has reduced by 34% due to the lower net debt position over the year as bank facilities have been paid back, leaving the Group free of bank debt at the end of the year. The finance charge also includes interest on capitalised leases as required by IRFS 16.
During the year the Group had £0.2m of non-recurring charges, which include the professional fees related to the purchase of Azura (£47,000), professional fees related to an aborted acquisition (£67,000), and the write-off of capitalised bank fees following the early repayment of our term loan (£66,000).
During 2020 we increased our bad debt provision by £0.5m as we believed it was prudent to anticipate that a number of customers would fail as the various Government support schemes begin to unwind. During the period the level of actual credit losses were £0.3m, with a further £0.2m being provided for within underlying results taking the provision to £0.7m (2020: £0.8m).
The other gain of £0.2m (2020: £0.2m) represents the movement in the fair value of the deferred consideration in relation to the acquisition of Willow Pumps which is provided in accordance with IFRS9.
The tax charge for the period at 27% (2020: 24%) was higher than the statutory rate of 19% due to the revaluation of the deferred tax liability on acquired intangibles resulting from the increase in the future corporation tax rate to 25% in 2023.
As a result, the statutory profit after tax increased by 52% to £4.2m (2020: £2.8m).
Earnings per share
During the year the Group issued 107,139 new Ordinary Shares as part of the purchase consideration for Azura, meaning that the total number of Ordinary Shares at the end of the period was 95,865,609 (31 December 2020: 95,758,470), with the average number of Ordinary Shares being 95,767,863.
On 30 April 2020 the Group completed a Placing of 15,555,556 new Ordinary Shares. Although this represented a 20% dilution, the basic weighted average number of Ordinary Shares in issue in 2020 was 90,462,594, resulting in 6% effective dilution in the current period.
| 2021 | EPS | 2020 | EPS | |
| £'000 | p | £'000 | p | |
| Adjusted profit after tax / Adjusted EPS | 5,311 | 5.55 | 3,937 | 4.35 |
| Amortisation of acquired intangibles | (393) | (0.41) | (393) | (0.43) |
| Share-based payment expense | (334) | (0.35) | (205) | (0.23) |
| Non-recurring costs | (187) | (0.19) | (706) | (0.78) |
| Other gains and losses | 223 | 0.23 | 151 | 0.17 |
| Tax on adjusting items | (387) | (0.40) | 9 | 0.01 |
| Statutory profit after tax / Basic EPS | 4,233 | 4.42 | 2,793 | 3.09 |
As a result, whilst adjusted profit after tax grew by 37% to £5.3m (2020: £3.9m), adjusted earnings per share increased by 27% to 5.55p (2020: 4.35p). Basic earnings per share increased by 43% to 4.42p (2020: 3.09p).
Financing and cash flow
The strong cash generative nature of the Group's business has allowed the early full repayment of its term loan. At the year-end, the Group had cash of £9m and an additional £5m unutilised Revolving Credit Facility ("RCF") giving the Group £14m of cash and available facilities. Overall, the Group continues to be substantially ungeared, being in a net cash position of £6.5m (2020: £4.9m).Other lease debt represents the current value of future operating lease payments, as required to be recognised by IFRS 16.
| 31 Dec 2021 | 31 Dec 2020 | Change | Change | |
| £'000 | £'000 | £'000 | % | |
| Cash | 9,054 | 13,203 | (4,149) | (31%) |
| Term loan | - | (5,225) | 5,225 | (100%) |
| RCF | - | - | - | - |
| Loan fee | - | 96 | (96) | (100%) |
| Hire purchase debt | (821) | (1,408) | 587 | (42%) |
| Adjusted net cash | 8,233 | 6,666 | 1,567 | 24% |
| Other lease debt | (1,713) | (1,729) | 16 | 1% |
| Net cash | 6,520 | 4,937 | 1,583 | 32% |
The Group generated cash from operating activities of £8.2m (2020: £5.9m) resulting in a cash conversion rate from adjusted EBITDA of 97% (2020: 90%). The cash generated in the period has been partially absorbed by the investment required in plant and machinery needed for the Peel Ports contract and our continued investment in our IT infrastructure to enable our digital journey.
Dividend
The strength of the deleveraged balance sheet and high level of liquidity puts the Group in a strong position to support a progressive dividend policy. Therefore, the Board is pleased to propose a final dividend of 0.9 pence per share (2020: 0.8 pence per share). This takes the total dividend for the year to 1.5 pence per share (2020: 1.1 pence per share), an increase of 36%, which is covered 3.0 times by statutory profit after tax, and 3.7 times by adjusted profit after tax.
Subject to shareholder approval at the AGM on 26 April 2022, the final dividend will be paid on 27 May 2022 to shareholders on the register at the close of business on 13 May 2022.
Chris Dent
Chief Financial Officer
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2021
| 2021 | 2020 | ||
| £'000 | £'000 | ||
| Revenue | 57,690 | 49,287 | |
| Cost of sales | (35,764) | (28,362) | |
| Gross profit | 21,926 | 20,925 | |
| Adjusted earnings before interest, tax, depreciation, amortisation, share-based payments & non‑recurring items ("Adjusted EBITDA") | 8,474 | 6,640 | |
| Depreciation | (1,377) | (1,149) | |
| Amortisation of software | (339) | (209) | |
| Amortisation of acquired intangibles | (393) | (393) | |
| Share-based payment expense | (334) | (205) | |
| Non-recurring items | (187) | (707) | |
| Total administrative expenses | (16,082) | (16,948) | |
| Operating profit | 5,844 | 3,977 | |
| Other gains and losses | 223 | 151 | |
| Finance expense | (292) | (446) | |
| Profit before tax | 5,775 | 3,682 | |
| Tax expense | (1,542) | (889) | |
| Profit for the year and total comprehensive income attributable to equity holders of the Parent Company | 4,233 | 2,793 | |
| All amounts relate to continuing operations | |||
| Earnings per share | |||
| Basic | 4.42 | 3.09 | |
| Diluted | 4.30 | 3.03 |
Consolidated Statement of Financial Position
At 31 December 2021
| 2021 | 2020 | ||
| £'000 | £'000 | ||
| Assets | |||
| Non-current assets | |||
| Intangible assets | 35,278 | 34,754 | |
| Property, plant and equipment | 2,609 | 1,274 | |
| Right-of-use assets | 2,723 | 3,377 | |
| Trade and other receivables | 182 | 155 | |
| Total non-current assets | 40,792 | 39,560 | |
| Current assets | |||
| Inventories | 908 | 712 | |
| Trade and other receivables | 16,514 | 15,072 | |
| Cash and cash equivalents | 9,054 | 13,203 | |
| Total current assets | 26,476 | 28,987 | |
| Total assets | 67,268 | 68,547 | |
| Liabilities | |||
| Current liabilities | |||
| Trade and other payables | 12,144 | 10,808 | |
| Loans and borrowings | - | 1,908 | |
| Obligations under leases | 754 | 897 | |
| Current tax liability | 213 | 445 | |
| Contingent consideration | 345 | 320 | |
| Total current liabilities | 13,456 | 14,378 | |
| Non-current liabilities | |||
| Loans and borrowings | - | 3,200 | |
| Obligations under leases | 1,780 | 2,240 | |
| Contingent consideration | 2,568 | 3,136 | |
| Deferred tax liability | 2,139 | 1,752 | |
| Total non-current liabilities | 6,487 | 10,328 | |
| Total liabilities | 19,943 | 24,706 | |
| Total net assets | 47,325 | 43,841 | |
| Issued capital and reserves attributable to owners of the Company | |||
| Share capital | 480 | 479 | |
| Share premium | 36,966 | 36,817 | |
| Share-based payment reserve | 789 | 455 | |
| Merger reserve | 1,390 | 1,390 | |
| Treasury reserve | - | - | |
| EBT reserve | (504) | (149) | |
| Retained earnings | 8,204 | 4,849 | |
| Total equity attributable to equity holders | 47,325 | 43,841 |
Consolidated Statement of Cash Flows
For the year ended 31 December 2021
| 2021 | 2020 | ||
| £'000 | £'000 | ||
| Cash flows from operating activities | |||
| Profit for the year | 4,233 | 2,793 | |
| Adjustments for: | |||
| Depreciation of property, plant and equipment | 499 | 327 | |
| Depreciation of right-of-use assets | 879 | 822 | |
| Amortisation of software | 339 | 209 | |
| Amortisation of acquired intangibles | 393 | 393 | |
| Non-recurring costs | 187 | 707 | |
| Share-based payment expense | 334 | 205 | |
| Other gains and losses | (223) | (151) | |
| Finance expense | 292 | 446 | |
| Tax expense | 1,542 | 889 | |
| Operating cash flow before movements in working capital | 8,474 | 6,640 | |
| (Increase)/decrease in trade and other receivables | (1,392) | 1,345 | |
| (Increase) in inventories | (195) | (119) | |
| Increase/(decrease) in trade and other payables | 1,311 | (1,878) | |
| Cash generated from operations | 8,198 | 5,988 | |
| Corporation taxes paid | (924) | (745) | |
| Net cash generated from operating activities | 7,273 | 5,243 | |
| Cash flows from investing activities | |||
| Purchases of property, plant and equipment | (1,723) | (460) | |
| Purchase of software | (433) | (319) | |
| Acquisition of subsidiary including costs, net of cash acquired | (861) | - | |
| Net cash used in investing activities | (3,017) | (779) | |
| Cash flows from financing activities | |||
| Bank loans - repaid | (5,309) | (4,200) | |
| Other loans - made | 2 | (163) | |
| Capital element of lease obligations repaid | (1,106) | (1,100) | |
| Interest paid - bank and other loan | (107) | (257) | |
| Interest paid - leases | (189) | (189) | |
| Proceed from issue of shares | - | 13,696 | |
| Purchase of shares by Employee Benefit Trust | (355) | (214) | |
| Dividends paid | (1,341) | (516) | |
| Net cash generated from financing activities | (8,405) | 7,057 | |
| Net (decrease)/ increase in cash and cash equivalents | (4,149) | 11,521 | |
| Cash and cash equivalents at beginning of year | 13,203 | 1,682 | |
| Cash and cash equivalents at end of year | 9,054 | 13,203 |
Reconciliation of cash flow to the Group net debt position
| Term Loan | Revolving credit facility | Loan fees | Obligations under leases | Total liabilities from financing activities | Cash | Total net cash/(net debt) | |
| Group | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| At 1 January 2020 | (6,401) | (3,002) | 129 | (3,487) | (12,761) | 1,682 | (11,079) |
| Financing cash flows | 1,200 | 3,000 | - | 1,258 | 5,458 | - | 5,458 |
| Other cash flows | - | - | - | - | - | 11,521 | 11,521 |
| Other changes | (24) | 2 | (13) | (908) | (943) | - | (943) |
| At 31 December 2020 | (5,225) | - | 117 | (3,137) | (8247) | 13,203 | 4,957 |
| Financing cash flows | 5,309 | - | - | 1,295 | 6,604 | - | 6,604 |
| Other cash flows | - | - | - | - | - | (4,149) | (4,149) |
| Other changes | (84) | - | (117) | (692) | (893) | - | (893) |
| At 31 December 2021 | - | - | - | (2,534) | (2534) | 9,054 | 6,520 |
Consolidated Statement of Changes in Equity
For the year ended 31 December 2021
| Share | Share premium | Share-based payment | Merger | Treasury | EBT | Retained | |||
| capital | account | reserve | reserve | reserve | reserve | earnings | Total | ||
| Group | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| At 1 January 2020 | 398 | 22,806 | 316 | 1,390 | (21) | - | 2,970 | 27,859 | |
| Profit for the year and total comprehensive income | - | - | - | - | - | - | 2,793 | 2,793 | |
| Contributions by and distributions to owners | |||||||||
| Shares issued | 79 | 13,623 | (66) | - | 12 | 65 | 66 | 13,779 | |
| Dividend paid | 2 | 389 | - | - | - | - | (906) | (515) | |
| Treasury shares | - | - | - | - | 9 | - | (9) | - | |
| Contributions to Employee Benefit Trust | - | - | - | - | - | (214) | (65) | (279) | |
| Share-based payment | - | - | 205 | - | - | - | - | 205 | |
| At 1 January 2021 | 479 | 36,817 | 455 | 1,390 | - | (149) | 4,849 | 43,841 | |
| Profit for the year and total comprehensive income | - | - | - | - | - | - | 4,233 | 4,233 | |
| Contributions by and distributions to owners | |||||||||
| Shares issued | 1 | 149 | - | - | - | - | - | 150 | |
| Dividend paid | - | - | - | - | - | - | (1,341) | (1,341) | |
| Contributions to Employee Benefit Trust | - | - | - | - | - | (355) | - | (355) | |
| Share-based payment | - | - | 334 | - | - | - | 464 | 796 | |
| At 31 December 2021 | 480 | 36,966 | 789 | 1,390 | - | (504) | 8,204 | 47,325 | |
1. Basis of preparation of financial information
While the financial information included in this annual financial results announcement has been prepared in accordance with the recognition and measurement principles of international accounting standards in conformity with the requirements of Companies Act 2006, this announcement does not contain sufficient information to comply with IFRSs.
The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2021 or 2020 but is derived from those accounts. Statutory accounts for Franchise Brands plc for the year ended 31 December 2020 have been delivered to the Registrar of Companies and those for the year ended 31 December 2021 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified and did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports. Their reports for the year ended 31 December 2021 and 31 December 2020 did not contain statements under s498 (2) or (3) of the Companies Act 2006.
The consolidated financial statements present the results of the Company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group.
2. Operating Segments
The Group's operating segments are determined based on the Group's internal reporting to the Chief Operating Decision Maker (CODM). The CODM has been determined to be the Executive Chairman, with support from the Board of Directors, as the function primarily responsible for the allocation of resources to segments and assessment of performance of the segments. During the prior year the business reorganised itself along the lines of our B2B and B2C brands. Within the B2B division we have two different principal activities: Franchisor - management of franchisees who trade with businesses and consumers; and Direct labour organisations - trading directly with businesses and consumers. Therefore, the Board has determined that we have three different operating segments:
● B2B- Franchisor, which is made up of Metro Rod and Metro Plumb;
● B2B- DLO, which is made up of Willow Pumps, and other B2B DLOs; and
● B2C- which is made up of ChipsAway, Ovenclean and Barking Mad.
Other operations include central administration costs and non-trading companies. The CODM uses Adjusted EBITDA, as reviewed at Board meetings and as part of the Managing Directors' and Chief Financial Officer's weekly report to the senior management team, as the key measure of segments' results as it reflects the underlying performance for the financial year under evaluation.
| B2B- Franchisor | B2B- DLO | B2C | Other | Total | |
| 2021 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Continuing operations | |||||
| Revenue | 36,201 | 15,061 | 6,428 | - | 57,690 |
| Gross profit | 11,174 | 5,692 | 5,060 | - | 21,926 |
| Adjusted EBITDA | 5,385 | 1,686 | 2,638 | (1,234) | 8,474 |
| Depreciation & amortisation of software | (645) | (909) | (162) | - | (1,716) |
| Amortisation of acquired intangibles | - | - | - | (393) | (393) |
| Share based payment expense | (117) | (101) | (32) | (84) | (334) |
| Non-recurring costs | - | - | - | (187) | (187) |
| Finance expense | (16) | (134) | (10) | (132) | (292) |
| Other gains and losses | - | - | - | 223 | 223 |
| Profit before tax | 4,606 | 541 | 2,434 | (1,807) | 5,775 |
| Tax expense | (670) | (100) | (359) | (412) | (1,542) |
| Profit after tax | 3,936 | 441 | 2,075 | (2,219) | 4,233 |
| B2B- Franchisor | B2B- DLO | B2C | Other | Total | |
| 2020 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Continuing operations | |||||
| Revenue | 29,324 | 14,128 | 5,835 | - | 49,287 |
| Gross profit | 8,998 | 7,437 | 4,490 | - | 20,925 |
| Adjusted EBITDA | 3,722 | 1,844 | 2,131 | (1,058) | 6,640 |
| Depreciation & amortisation of software | (445) | (743) | (168) | - | (1,358) |
| Amortisation of acquired intangibles | - | - | - | (393) | (393) |
| Share based payment expense | (92) | (45) | (15) | (53) | (205) |
| Non-recurring costs | (599) | - | (108) | - | (707) |
| Finance expense | (34) | (159) | (11) | (242) | (446) |
| Other gains and losses | - | - | - | 151 | 151 |
| Profit before tax | 2,552 | 897 | 1,829 | (1,596) | 3,682 |
| Tax expense | (372) | (129) | (328) | (62) | (889) |
| Profit after tax | 2,180 | 768 | 1,501 | (1,656) | 2,793 |
3. Earnings per share
Basic earnings per share amounts are calculated by dividing profit for the year attributable to Ordinary equity holders of the Parent by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share are calculated by dividing the profit attributable to Ordinary equity holders of the Parent by the weighted average number of ordinary shares outstanding during the year 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.
| 2021 | 2020 | |
| £'000 | £'000 | |
| Profit attributable to owners of the Parent Company | 4,233 | 2,793 |
| Non-recurring costs | 187 | 707 |
| Amortisation of acquired intangibles | 393 | 393 |
| Change in the fair value of deferred consideration | (223) | (151) |
| Share-based payment expense | 334 | 205 |
| Tax on adjusting items | 387 | (9) |
| Adjusted profit attributable to owners of the Parent Company | 5,311 | 3,937 |
| Number | Number | |
| Basic weighted average number of shares | 95,767,863 | 90,462,594 |
| Dilutive effect of share options | 2,600,637 | 1,649,029 |
| Diluted weighted average number of shares | 98,368,500 | 92,111,623 |
| Pence | Pence | |
| Basic earnings per share | 4.42 | 3.09 |
| Diluted earnings per share | 4.30 | 3.03 |
| Adjusted earnings per share | 5.55 | 4.35 |
| Adjusted diluted earnings per share | 5.40 | 4.27 |
4. Dividends
| 2021 | 2020 | |
| £'000 | £'000 | |
| Final 2020 dividend of 0.8p per Ordinary Share paid and declared (2020: Final 2019 dividend of 0.65p) | 766 | 619 |
| Interim dividend of 0.6p per Ordinary Share paid and declared (2020: 0.3p) | 575 | 287 |
| 1,341 | 906 |
A final dividend of 0.9 pence per share is proposed, bringing the total dividend for the year to 1.5 pence per share (2020:1.1p).
5. Annual report and accounts
The annual report and accounts for the year ended 31 December 2021 will be posted to shareholders in the week commencing 14 March 2022 and will be available immediately thereafter on the Company's website at www.franchisebrands.co.uk/investor-relations.
6. Annual General Meeting
The Annual General Meeting of Franchise Brands plc will be held on 26 April 2022, notice of which will be sent to shareholders with the annual report and accounts in the week commencing 14 March 2022.
7. Publication on website
A copy of this announcement and an investor presentation of these results are available on Franchise Brands' website at www.franchisebrands.co.uk/investor-information.
8. Requesting hard copy documents
Pursuant to Rule 30.3 of the Takeover Code, a person so entitled may request a copy of this announcement by writing to Chris Dent at Franchise Brands plc, Ashwood Court, Springwood Close, Tytherington Business Park, Macclesfield SK10 2XF. A person may also request that all future documents, announcements and information to be sent to that person in relation to the offer for Filta should be in hard copy form.
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 425 franchisees across five principal franchise brands. Our focus is on established brands which can benefit from our shared support services, specialist sector expertise, management experience and group resources.
The Group is organised into a B2B division comprised of Metro Rod, Metro Plumb, and Willow Pumps, and a B2C division that 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.
In November 2021, we acquired Azura Group, a leading franchise management software system developer which represents an important step in the Group's digital journey.
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 165 years.
Franchise Brands plc employs some 300 people across three principal locations in Macclesfield, Kidderminster and Aylesford.
For further information, visit www.franchisebrands.co.uk.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
END
FR SSISSDEESEED