Franchise Brands PLC Final Results (2615A)

TIDMFRAN

RNS Number : 2615A

Franchise Brands PLC

23 March 2017

23 March 2017

FRANCHISE BRANDS PLC

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

Final results for the year ended 31 December 2016

Franchise Brands plc, a multi-brand international franchisor, is pleased to announce its full year results for the year ended 31 December 2016.

Financial highlights:

   --     Total revenue up 11% to GBP4.87m (2015: GBP4.38m) 

-- Underlying profit before tax, after adjusting for non-recurring IPO and acquisition costs, increased by 11% to GBP1.24m (2015: GBP1.12m)

   --     Profit before tax was GBP784,000 (2015: GBP1.12m) 
   --     Adjusted earnings per share of 2.40p (2015: 2.44p)* 
   --     Basic earnings per share of 1.28p (2015: 2.44p)* 
   --     Cash generated from operations  of GBP1.11m (2015: GBP1.25m) 
   --     Cash balance at 31 December 2016 of GBP3.00m (2015: GBP0.50m) 

-- Maiden final dividend of 0.17p per share recommended (2015: nil) - payable on 28 April 2017 to shareholders on the register on 7 April 2017; the ex dividend date is 6 April 2017

* calculated on the basis of the weighted number of shares outstanding during the year

Operational highlights:

   --     Admission of Franchise Brands to AIM on 5 August 2016 raising a net GBP2.9m 

-- Acquisition of Barking Mad on 31 October 2016 which marked the Group's first acquisition since IPO

   --     Appointed David Poutney and Rob Bellhouse as independent non-executive directors 
   --     Total number of UK franchisees across all brands increased from 364 to 389 in the year** 
   --     69 franchises were sold in the period (2015: 58) 

** including Barking Mad on a pro-forma basis

Proposed c.GBP28m acquisition of Metro Rod announced separately today:

   --     A leading provider of drain clearance and maintenance services with 40 Franchisees 

-- Reported profit before tax and exceptional items of GBP3.2m in the year to 30 April 2016, a circa 52% increase compared to the year ended 30 April 2014

o Profit before tax was GBP2.4m after exceptional items***

   --     Directors believe it will be significantly earnings enhancing 
   --     To be funded by an intended GBP20m share placing and new bank facilities of up to GBP17m 
   --     Constitutes a reverse takeover and is subject to shareholder approval 

*** exceptional items included GBP639,000 related to the impairment of intangible fixed assets, a GBP127,000 loss incurred on franchisee closure and redundancy costs GBP11,000

Current trading and outlook:

   --     Trading is in line with management expectations at the start of 2017 
   --     The integration of Barking Mad is progressing well 
   --     2017 promises to be a year of further transformation and growth 

Stephen Hemsley, Executive Chairman, commented

"2016 has been a successful and eventful year with the Group's IPO putting the Company in a position to make selective, complementary acquisitions of franchise businesses that could benefit from our central services, including marketing expertise and franchising experience.

"Our first acquisition of Barking Mad, the leading franchise provider of professionally-organised dog sitting services in the UK, is already starting to benefit from our shared support services and our Ovenclean and ChipsAway businesses have performed well. As a result, we are pleased to be able to recommend a maiden dividend in recognition of our confidence in the business model.

"We have announced separately today the proposed acquisition of Metro Rod, a leading provider of drain clearance and maintenance services, which represents a transformational step in implementing the Group's buy and build strategy and an attractive opportunity to enter the B2B franchising market at a size, scale and price that we believe will be significantly earnings enhancing.

"These acquisitions, our strengthened management team and Board and the entrepreneurial skill of our franchisees mean we are in a strong position to further develop this great business and we look forward to 2017 which promises to be a further year of further transformation and growth."

- Ends -

For further information, please contact:

Franchise Brands plc + 44 (0) 800 012 6462

Stephen Hemsley, Executive Chairman

Tim Harris, Chief Executive Officer

Julia Choudhury, Corporate Development Director

MHP Communications [phone]

(Financial PR)

[e-mail]

Katie Hunt / Hannah Winter

Allenby Capital Limited [phone]

(Nominated Adviser and Joint Broker)

Jeremy Porter/ James Thomas / Liz Kirchner

Dowgate Capital Stockbrokers [phone]

(Joint Broker)

James Serjeant / Neil Badger

Chairman's statement

In my first Chairman's Statement since our IPO in August 2016 I would like to welcome our new shareholders. I would also like to recognise our original shareholders from the formation of the Company in 2008, who have not only all stayed with us, but in many cases added to their investment in the Company at the IPO. Thank you all for your support.

The main purpose of the IPO was to put the Company in a position to make complementary acquisitions of other franchise businesses using a combination of cash and, most importantly, quoted paper. The management team at Franchise Brands, whilst very experienced, is small and it was therefore vital that any acquisition brought with it talented and committed management. I believe that such management would only be attracted to the opportunity offered by joining Franchise Brands if part of the consideration was paid in marketable equity that allowed them to share in the rewards of further growing their businesses.

Another key-objective of the IPO was to allow our long-serving team members and franchisees, who are vital to our future growth, the opportunity to participate in the ownership of the Company. As a result all Franchise Brands team members employed at the time of the IPO are now shareholders or option holders. This is an opportunity we will be offering to team members of the businesses we acquire in the future. I am also pleased to report that a number of franchisees subscribed for shares in the offer made to them.

Overall, the IPO raised GBP2.87 million (net of expenses) which, combined with the highly cash generative nature of our business, gave us the capability to pursue a number of acquisition opportunities we had been considering. The first was completed in October 2016, with the acquisition of Barking Mad, the leading franchise provider of professionally-organised dog sitting services in the UK.

As part of this acquisition, we are delighted to welcome Lee Dancy, Barking Mad's founder and Managing Director, to our senior management team. Lee and her husband received a consideration of GBP900,000 for their business, of which GBP400,000 was paid in Franchise Brands shares at the price prevailing at completion.

Our second proposed acquisition has just been announced. We have agreed, subject to shareholder approval, to acquire Metro Rod Limited, a leading provider of drain clearance and maintenance services, which are delivered on a predominately reactive basis by 40 regional franchisees. The total consideration for this acquisition will be GBP28 million (subject to adjustment based on the financial position of Metro Rod Limited at completion), which together with estimated costs of GBP1.8 million, will be satisfied in cash at completion.

It is proposed that the consideration, associated costs and additional working capital will be funded by the issue of new Ordinary Shares to raise GBP20 million and bank facilities of up to GBP17 million. Given the scale of the proposed acquisition when compared to the existing Group, the transaction is considered under the AIM Rules to be a Reverse Takeover and therefore requires us to issue a new Admission Document and seek Shareholders approval at a General Meeting scheduled for 10 April 2017.

I am pleased to confirm that the new equity fund raising will once again be well supported by your Board, with approximately GBP12 million of the GBP20 million required being committed by Board members and their associates. As part of the fund raising, Nigel Wray, my founding partner, and I will each be subscribing GBP5 million. I am also pleased to confirm that the existing senior management of Metro Rod Limited will be staying with the business, joining the Franchise Brands leadership team and will be investing in the fund raising. Full details are presented in the new AIM Admission Document which will be sent to shareholders today.

The Directors believe the acquisition represents a transformational step in respect of implementing the Group's stated buy and build strategy. In particular, the Directors believe the Acquisition represents an opportunity to enter the B2B franchising market at a size and scale that is attractive strategically and at an acquisition price that the Directors consider is significantly accretive to Shareholders. Furthermore, the Directors believe the range of potential future acquisition opportunities for the Group is likely to be increased as a result of the Acquisition, as both the B2B and B2C franchise sectors would be within its scope. The Directors also believe the Acquisition is likely to lead to an enhanced range of shared services within the Group which have the capability to be leveraged across its range of brands and furthermore, will potentially allow the Group to optimise some activities that were previously sub-scale.

The Directors propose a dividend of 0.17 pence in respect of the year ended 31 December 2016. We recognise the importance of dividend income to Shareholders and, subject to the availability of distributable reserves, the retention of funds required to finance future growth of the Enlarged Group, both organically and by acquisition, and such other factors which the Directors may from time-to-time deem relevant, anticipate paying a regular dividend. Our results, trading and outlook are detailed within the Financial Review. At the same time, the Directors consider the social, ethical and environmental impact of Group activities in line with its Corporate Social Responsibilities.

2016 has seen a strengthening of the Group's Board. I would like to welcome David Poutney and Rob Bellhouse as independent Non-Executive Directors. David brings with him a wealth of experience in capital markets, having until recently been Head of Corporate Broking at Numis Securities.

Rob is a very experienced corporate governance professional, having been Company Secretary at several FTSE 100 and 250 companies.

The wisdom and experience they bring to our Board will be of tremendous value as we grow the Group.

Andrew Mallows joined the Board prior to the IPO as Finance Director of the Group. Following a short break, he has now returned as part-time Finance Director of the ChipsAway, Ovenclean and Barking Mad brands. I would also like to welcome Paul Below, an experienced interim CFO, who has recently joined us in the Group role to assist with the current acquisition and reverse takeover. We will be recruiting his permanent replacement in due course.

Finally, I would like to thank and pay tribute to our franchisees who are the backbone of our business.

Their entrepreneurial skill and application in delivering the Group's brands to our customers each and every day is what sets us apart from our competition. I would also like to recognise and thank our team members for the great job they do in supporting our franchisees. It is this teamwork and mutual support that is allowing us to further develop this great business.

Stephen Hemsley

Executive Chairman

Financial review

The year ended 31 December 2016 has been both a successful and eventful year for your Company. We have become a publicly quoted company, made our first acquisition since the IPO, repaid all the original shareholders' loans and embarked on a further transformational acquisition that we hope to complete in April 2017. We are also proposing to pay a small dividend in recognition of our confidence in the business model.

Sales

In the year ended 31 December 2016 statutory revenue increased 11 per cent to GBP4,870,000 (2015: GBP4,379,000). Statutory revenue includes management service fees ("MSF") received from franchisees on a monthly basis (41 per cent of Franchise Brand's revenues); fees generated from the sale of franchise territories (30 per cent of revenue); and income from the sale of products to franchisees, mainly to ChipsAway franchisees used in the repair of vehicles (19 per cent of revenue) and other income including national accounts sales (9 per cent of revenue). The ChipsAway brand currently generates approximately 80 per cent of total revenue with most of the balance generated by Ovenclean in 2016, although this will obviously change in 2017 following the acquisition of Barking Mad.

The MSF income and that generated from the sale of product to the franchisees, which represents 61 per cent of our income, is dependent on the number of franchisees in the system and the sales revenue they generate. In the year to 31 December 2016, the number of UK franchisees in the Group (excluding Barking Mad) grew from 307 to 320. Including Barking Mad on a pro-forma basis the number grew from 364 to 389. Whilst the improvement may seem small, it represents good progress in stabilising the system after an extended period of decline that resulted from our efforts to improve the quality (rather than quantity) of the franchisees that operate our brands.

The revenue generated from the sale of franchise territories is primarily driven by the recruitment of new franchisees into new virgin territories. However, an important part of this activity is also re-selling the territories of franchisees who leave the system and selling additional franchise territories to existing franchisees who wish to expand their businesses.

In 2016, 69 franchises were sold of which 62 were new territories sold to new franchises, 7 were new territories sold to existing franchisees. We consider that the mix of the franchise sales to both new and existing franchisees to be a good indication of the health and viability of the system.

Cost of Sales and Gross Profit

The rate of growth of gross profit exceeded the growth in revenue as a result of lower cost of sales achieved through efficiency in franchisee launches. This resulted in gross profit increasing in the year by 14 per cent to GBP3,298,000 (2015: GBP2,892,000). Cost of sales includes the cost of product sold to franchisees and the launch cost of new franchisees.

Trading Results

Administrative expenses increased by GBP737,000 from GBP1,770,000 to GBP2,507,000. These included GBP455,000 of non-recurring costs. Other costs increased by GBP282,000. Overheads included staff costs (42 per cent), sales and marketing costs incurred in recruiting new franchisees (17 per cent) and establishment expenses (6 per cent). Operating profit was GBP791,000 (2015: GBP1,122,000).

During 2016 the Group continued to trial the MyHome brand to establish if a full relaunch would be economically worthwhile. The total costs incurred in 2016 were GBP92,000. We concluded that a full re-launch of the domestic cleaning business would not be in our shareholders long-term interest and these costs will therefore not recur in future years. Our research did however, highlight other opportunities in the domestic services sector, particularly for small repairs and maintenance. To test this opportunity we have a single franchisee operating under the brand "The Handyman Van" using similar branding to MyHome. This test will be cost neutral for the Group.

Barking Mad was acquired on 31 October 2016 and the results for the two months to 31 December 2016 are included within the consolidated accounts. Barking Mad incurred a small loss of GBP12,000 in this period due to the seasonality of its recruitment income.

Non-Recurring Items

Non-recurring costs include the element of the costs incurred in the IPO that were written off against profits of GBP397,000. A further GBP233,000 was set off against the share premium arising on the issue of the new shares, bringing the total IPO costs to GBP630,000. The balance of the non-recurring costs related to costs of GBP58,000 incurred in the acquisition of Barking Mad.

Earnings and Dividend

Profit before tax in the year was GBP784,000 (2015: GBP1,115,000). The tax charge in 2016 represented 33.2 per cent (2015: 20.4 per cent) of profit before tax, which is greater than the statutory rate of 20 per cent because of certain costs being disallowable for tax, in particular, the non-recurring costs of the IPO and the acquisition. If adjustment is made for these non-recurring costs, underlying profit before tax would have increased by 11 per cent to GBP1,239,000 (2015: GBP1,115,000) and the tax charged would have fallen to 21 per cent.

Profit for the year was GBP524,000 (2015: GBP888,000), and the average number of shares in issue during the year were 40,837,885 (2015: 36,324,429), resulting in basic earnings per share of 1.28 pence (2015: 2.44 pence). Based on adjusted profit after tax of GBP979,000, earnings per share in 2016 would have been 2.40 pence per share (2015: 2.44 pence).

The Board is pleased to propose a dividend of 0.17 pence per share (2015: Nil). This represents a pro-rata dividend in respect of the five month period since the IPO. Had the Company been a public company for the whole year the dividend recommendation would have been 0.41 pence per share.

The cost of the proposed dividend of GBP81,000 is 12.1 times covered by adjusted profit after tax of GBP979,000. Subject to the needs of the business and compliance with any future banking covenants, it is the intention of the Directors to adopt a progressive dividend policy with the cost of any dividend being approximately five times covered by profit after tax.

Balance Sheet

The balance sheet of the Group has strengthened significantly over the last twelve months following another year of successful and cash generative trading, the fund raising at the IPO and the subsequent acquisition of Barking Mad.

The Group started the year with net liabilities of GBP380,000, funded by interest-free shareholder loans totalling GBP1,764,000. The cash generation of the business and a structured interest bearing loan of GBP500,000 from companies owned by Nigel Wray and me, allowed the shareholders loans that were originally put in place to fund the acquisition of the original businesses, to be repaid in full immediately prior to the IPO.

Cash generated from operations in the year was GBP1,112,000 (2015: GBP1,246,000).

The IPO raised gross proceeds of GBP3,500,000, which after expenses of GBP630,000 netted the Company GBP2,870,000. In October 2016 the Company acquired Barking Mad for a total consideration of GBP900,000, of which GBP500,000 was settled in cash and the remainder by the issue of 761,193 shares at the then market price of 52.5 pence per share.

At 31 December 2016 the Group was in a very strong position, with net assets of GBP3,903,000 (2015: net liabilities GBP380,000) of which cash in hand totalled GBP2,999,000 (2015: GBP496,000) and debt of GBP519,000 (2015: GBP1,905,000).

Current Trading and Prospects

Trading at the start of 2017 has been in line with management expectations. The integration of Barking Mad into the Group is progressing well and the business is beginning to benefit from our shared support services particularly in the areas of marketing and IT. The proposed acquisition of Metro Rod Limited will significantly increase the size and scale of the Group and we are looking forward to integrating this business into the Group. 2017 promises to be a further year of transformation and growth which we are very much looking forward to.

Consolidated statement of comprehensive income

For the year ended 31 December 2016

 
                                                                 2016          2015 
                                                  Note        GBP'000       GBP'000 
Revenue                                              3          4,870         4,379 
Cost of sales                                                 (1,572)       (1,487) 
==============================================  ======  =============  ============ 
 
 
Gross Profit                                                    3,298         2,892 
                                                        -------------  ------------ 
Administrative expenses before exceptional 
 costs                                                        (2,052)       (1,770) 
Costs of acquisition of subsidiary                   4           (58)             - 
IPO costs                                            4          (397)             - 
                                                        -------------  ------------ 
Total administrative expenses                                 (2,507)       (1,770) 
Operating Profit                                     4            791         1,122 
Finance income                                                      2             1 
Finance expense                                                   (9)           (8) 
==============================================  ======  =============  ============ 
Profit before tax                                                 784         1,115 
Tax expense                                                     (260)         (227) 
==============================================  ======  =============  ============ 
Profit for the year and comprehensive 
 income attributable to equity holders 
 of the parent company                                            524           888 
------------------------------------------------------  -------------  ------------ 
 
  All amounts relate to continuing operations 
Earnings per share                                   5 
Basic                                                            1.28          2.44 
Adjusted basic                                                   2.40          2.44 
Diluted                                                          1.28          2.44 
Adjusted 
  diluted                                                        2.39          2.44 
----------------------------------------------  ------  -------------  ------------ 
 

Consolidated statement of financial position

As at 31 December 2016

 
                                                             2016            2015 
                                                            GBP'000       GBP'000 
==============================================   ==================  ============ 
Assets 
Non-current assets 
Intangible assets                                     2,142                1,260 
Property, plant and equipment                           121                  162 
Trade and other receivables                             112                  115 
===============================================  ==================  ============ 
Total non-current assets                              2,375                1,537 
===============================================  ==================  ============ 
Current assets 
Inventories                                             193                  170 
Trade and other receivables                             307                  249 
Cash and cash equivalents                             2,999                  496 
===============================================  ==================  ============ 
Total current assets                                  3,499                  915 
===============================================  ==================  ============ 
Total assets                                          5,874                2,452 
===============================================  ==================  ============ 
Liabilities 
Current liabilities 
Trade and other payables                              1,078                  785 
Loans and borrowings                                    167                1,764 
Obligations under finance leases                          29                   35 
Current tax liability                                   211                  111 
===============================================  ==================  ============ 
Total current liabilities                             1,485                2,695 
===============================================  ==================  ============ 
Non-current liabilities 
Loans and borrowings                                    250                     - 
Obligations under finance leases                          73                 106 
Deferred tax liability                                  163                    31 
===============================================  ==================  ============ 
Total non-current liabilities                           486                  137 
===============================================  ==================  ============ 
Total liabilities                                     1,971                2,832 
===============================================  ==================  ============ 
Total net assets/(liabilities)                        3,903                 (380) 
===============================================  ==================  ============ 
Issued capital and reserves attributable 
 to owners of the parent 
Share capital                                           239                  120 
Share premium                                         3,214                     - 
Share-based payment reserve                               30                    - 
Merger reserve                                          396                     - 
Retained earnings/(deficit)                               24                (500) 
===============================================  ==================  ============ 
Total equity/(deficit) attributable to equity 
 holders                                              3,903                 (380) 
===============================================  ==================  ============ 
 
 

Consolidated statement of cash flows

For the year ended 31 December 2016

 
                                                                   2016          2015 
                                                                GBP'000       GBP'000 
=====================================================  ================  ============ 
Cash flows from operating activities 
Profit for the year                                           524                888 
Adjustments for: 
Depreciation of property, plant and equipment                   66                 63 
Amortisation of intangible fixed assets                         10                  - 
Share-based payment expense                                     30                  - 
Finance income                                                      (2)           (1) 
Finance expense                                                       9             8 
Profit on sale of property, plant and equipment                       -           (8) 
Income tax expense                                            260                 226 
=====================================================  ================  ============ 
                                                              897               1,176 
(Increase)/decrease in trade and other receivables                (31)             87 
Increase in inventories                                           (15)           (61) 
Increase in trade and other payables                          261                  44 
=====================================================  ================  ============ 
Cash generated from operations                               1,112             1,246 
Income taxes paid                                            (203)              (206) 
=====================================================  ================  ============ 
Net cash generated from operating activities                  909              1,040 
Cash flows from investing activities 
Purchases of property, plant and equipment                     (10)              (16) 
Proceeds from sale of property, plant and 
 equipment                                                            -            11 
Interest received                                                     2             1 
Acquisition of subsidiary, net of cash acquired              (333)               (83) 
=====================================================  ================  ============ 
Net cash used in investing activities                        (341)               (87) 
Cash flows from financing activities 
Other loans - repaid                                       (1,847)            (1,470) 
Other loans - received                                        500                   - 
Interest paid - other loan                                         (6)              - 
Interest paid - finance leases                                     (3)            (8) 
Share capital issued at IPO                                 3,500                   - 
Share capital issued on incorporation                           62                  - 
Share issue expenses and other costs of IPO                  (233)                  - 
Capital element of finance lease repaid                        (38)              (31) 

=====================================================  ================  ============ 
Net cash generated from/(used in) financing 
 activities                                                 1,935             (1,509) 
Net increase/(decrease) in cash and cash equivalents        2,503               (556) 
Cash and cash equivalents at beginning of 
 year                                                         496              1,052 
=====================================================  ================  ============ 
Cash and cash equivalents at end of year                    2,999                496 
=====================================================  ================  ============ 
 
 

Consolidated statement of changes in equity

 
Group                 Share               Share             Share-based         Merger     Retained       Total 
                    capital             premium                 payment        reserve    earnings/       Equity 
                    GBP'000             GBP'000                 reserve        GBP'000    (deficit)      GBP'000 
                                                                GBP'000                     GBP'000 
--------------  -----------  ------------------  ----------------------  -------------  -----------  --------------- 
1 January 2015          120                   -                       -              -      (1,388)      (1,268) 
Profit and 
 total 
 comprehensive 
 income 
 for the year             -                   -             -                        -          888         888 
==============  ===========  ==================  ======================  =============  ===========  =============== 
                                                                                                888        888 
31 December 
 2015 
 and 1 January 
 2016                   120                   -                       -              -        (500)       (380) 
Profit and 
 total 
 comprehensive 
 income 
 for the year             -                   -                  -                   -          524           524 
==============  ===========  ==================  ======================  =============  ===========  =============== 
Contributions 
 by 
 and 
 distributions 
 to owners                -                   -                    -                 -          524        524 
Exercise of 
 Share 
 Options in FB 
 Holdings 
 Limited                  1                   -                     -                -            -          1 
Issue of 
 shares 
 on 
 incorporation           61                   -                    -                 -            -              61 
Issue of 
 shares 
 on 
 acquisition 
 of 
 Barking Mad 
 Limited                  4                   -                  -                 396            -           400 
Costs of issue 
 of 
 new equity               -               (233)                    -                 -            -           (233) 
Issue of 
 shares 
 at IPO                  53               3,447                    -                 -            -           3,500 
Share-based 
 payment 
 expense                  -                   -                      30              -            -               30 
==============  ===========  ==================  ======================  =============  ===========  =============== 
Total 
 contributions 
 by and 
 distributions 
 to owners              119               3,214                      30            396            -        3,759 
==============  ===========  ==================  ======================  =============  ===========  =============== 
31 December 
 2016                   239               3,214                      30            396           24        3,903 
==============  ===========  ==================  ======================  =============  ===========  =============== 
 

2015 comparatives are based on the capital structure of the previous holding company, FB Holdings Limited.

Notes forming part of the financial statements

For the year ended 31 December 2016

   1.    Basis of preparation of financial statements 

While the financial information included in the annual financial results announcement has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards as endorsed for use in the European Union (IFRSs), 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 2016 or 2015, but is derived from those accounts. Statutory accounts for F B Holdings Limited for the year ended 31 December 2015 have been delivered to the Registrar of Companies and those of Franchise Brands plc for the year ended 31 December 2016 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 end 31 December 2016 and 31 December 2015 did not contain statements under s498 (2) or (3) of the Companies Act 2006.

With the exception of the group reorganisation undertaken immediately prior to the Group listing on AIM, which has been accounted for as a group reconstruction, the consolidated financial statements incorporate the results of business combinations using the acquisition method. In the statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date.

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.    Segmental reporting 

Management has determined that the Group has one operating segment. This is based on the operating reports reviewed by the Chief Executive Officer that are used to assess both performance and strategic decisions. Management has identified that the Chief Executive Officer is the chief operating decision maker in accordance with the requirements of IFRS 8 'Operating segments'.

Whilst the Group operates multiple franchise brands, across various business sectors, the Board has concluded that the key management and financial data used to manage them is the same, as the key drivers are attributable to them being franchises rather than the activity of the franchise.

All segment revenue and profit before taxation are attributable to the principal activity of the Group.

   3.    Revenue 
 
                         2016          2015 
                      GBP'000       GBP'000 
------------------  ---------  ------------ 
 Sale of services       3,861         3,508 
  Sale of goods         1,009           871 
------------------  ---------  ------------ 
                        4,870         4,379 
------------------  ---------  ------------ 
 

The 2015 comparatives have been adjusted to correct a misallocation of GBP710,000 between the sale of goods and sale of services.

An analysis of revenue by geographical market is given below:

 
 United Kingdom        4,821      4,332 
  Europe                  19         19 
  Rest of the World       30         28 
--------------------  ------  --------- 
                       4,870      4,379 
--------------------  ------  --------- 
 
   4.     Operating profit 
 
                                                 2016      2015 
                                              GBP'000   GBP'000 
-------------------------------------------  --------  -------- 
Operating profit is stated after charging: 
Depreciation                                       66        63 
Amortisation                                       10         - 
Share-based payment expense                        30         - 
IPO costs                                         397         - 
Costs of acquisition of subsidiary                 58         - 
Operating lease rentals                           124        91 
Auditor's remuneration: 
Fees for audit of the Company and the 
 Group                                             15        10 
Fees for the audit of subsidiaries                 33        23 
Other taxation services                            15        10 
-------------------------------------------  --------  -------- 
 

In addition to the amount disclosed above, auditor's remuneration of GBP75,000 in respect of corporate finance activities and GBP22,000 in respect of other assurance services has been included within share issue costs and has been allocated between the share premium and IPO costs.

During the year, the Company incurred significant costs associated with both its admission to the Alternative Investment Market (AIM) and its acquisition of Barking Mad Limited which are not part of the usual course of business of Franchise Brands plc. Costs charged in arriving at profit from operations amounted to GBP397,000 and GBP58,000 respectively.

   5.    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 or Ordinary Shares that would have been issued on the conversion of all dilutive potential Ordinary Shares into Ordinary Shares at the start of the period or, if later, the date of issue.

Adjusted Earnings per share

During the year, the Group incurred significant exceptional costs associated with the flotation of the Company and the acquisition costs of Barking Mad. If these costs, of GBP397,000 and GBP58,000 respectively, which were not deductible for corporation tax, were added back and the resultant profit taxed at 20.5 per cent being the Group's underlying tax rate, the profit attributable would be GBP979,000.

Comparative earnings per share are calculated on the share capital of Franchise Brands plc of 36,324,729 as if it had been the parent company throughout 2015 and the share for share exchange for 12,171,344 shares of 1 pence each of the former holding company had taken place as at 1 January 2015.

Earnings per share

 
                                                              2016      2015 
                                                           GBP'000   GBP'000 
--------------------------------------------  --------------------  -------- 
Profit attributable to owners of the parent 
 Exceptional Items                                        524            888 
                                                           455             - 
============================================  ====================  ======== 
Adjusted profit attributable to owners 
 of the parent                                            979            888 
============================================  ====================  ======== 
 
 
                                                       Number          Number 
------------------------------------------  -----------------  -------------- 
Basic weighted average number of shares 
 Dilutive effective of share options               40,837,885      36,324,429 
                                                    147,654                 - 
==========================================  =================  ============== 
Diluted weighted average number of shares      40,985,539          36,324,429 
==========================================  =================  ============== 
 
 
                                                 Pence              Pence 
Basic earnings per share                         1.28               2.44 
Diluted earnings per share                       1.28               2.44 
Adjusted Earnings per share                      2.40                2.44 
Adjusted diluted earnings per share              2.39                2.44 
====================================  ================  ================= 
 

6. Annual report and accounts

The annual report and accounts will be posted to shareholders shortly and will be available to members of the public at the Company's registered office at 5 Edwin Avenue, Hoo Farm Industrial Estate, Kidderminster, Worcestershire, DY11 7RA and on the Company's website today at www.franchisebrands.co.uk/investor-relations.

7. Annual General Meeting

The first Annual General Meeting of Franchise Brands plc will be held on 27 April 2017, notice of which will be sent to shareholders with the annual report and accounts.

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR SELEFEFWSEDD

(END) Dow Jones Newswires

March 23, 2017 03:01 ET (07:01 GMT)