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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Franchise Brands Plc | LSE:FRAN | London | Ordinary Share | GB00BD6P7Y24 | ORD 0.5P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 197.50 | 195.00 | 200.00 | 197.50 | 197.50 | 197.50 | 51,627 | 08:00:22 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Offices-holdng Companies,nec | 99.15M | 8.29M | 0.0636 | 31.05 | 257.36M |
From Apr 2019 to Apr 2024
TIDMFRAN
RNS Number : 1061R
Franchise Brands PLC
04 March 2021
4 March 2021
FRANCHISE BRANDS PLC
("Franchise Brands", the "Group" or the "Company")
Final results for the year ended 31 December 2020
A strong Q1, resilient performance through lockdowns and a robust recovery in H2
New strategic financial targets set
Franchise Brands plc (AIM: FRAN), a multi-brand franchise business , is pleased to announce its audited results for the year ended 31 December 2020.
Financial highlights
-- Revenue increased by 12% to GBP49.3m ( 2019 : GBP44.0m) including the first full year contribution from Willow Pumps.
-- Adjusted EBITDA* increased by 28% to GBP6.6m ( 2019 : GBP5.2m).
-- B2B Franchisor adjusted EBITDA increased by 17%, despite a system sales fall of 2% year-on-year, due to sales mix and cost savings.
-- Adjusted profit before tax** increased by 19% to GBP4.8m (2019: GBP4.0m).
-- Statutory profit before tax increased by 12% to GBP3.7m ( 2019 : GBP3.3m) after COVID-19 non-recurring items.
-- A 16% increase in the average number of shares following the successful equity placing in April raising GBP14m (GBP13.6m net of expenses) from new and existing investors.
-- Adjusted EPS** was up by 0.2% to 4.35p (2019: 4.34p) despite the equity dilution. -- Basic EPS decreased by 11% to 3.09p ( 2019 : 3.48p) due to COVID-19 non-recurring items. -- Net cash of GBP4.9m at 31 December 2020 (2019: Net debt GBP11.1m).
-- Final dividend of 0.80p per share proposed (2019: 0.65p per share), giving a 16% increase in the total dividend for the year to 1.1p per share (2017: 0.95p per share), 4.0 times covered by adjusted profit after tax (2019: 4.6x).
Operational highlights
-- Resilient performance following strong growth in Q1, early and decisive action taken during the Spring lockdown to reduce costs, and a strong recovery across the majority of businesses during the second half of the year.
-- Willow Pumps fully integrated into the Group, and assumed management responsibility for the two Metro Rod corporate franchises, with positive results.
-- B2C division closed during the Spring lockdown, but resumed trading in June 2020, with a strong restart at both ChipsAway and Ovenclean.
-- Robust B2C franchise recruitment of 58 (2019: 61), with 31 new franchisees in H2 (H2 2019: 27).
-- Barking Mad fully integrated into the B2C support centre in Kidderminster. -- Roll-out of "Vision" works management system completed on-time and on-budget.
Outlook
-- Strategic objective to expand organically and by acquisition with the target of achieving run-rate revenues of GBP100m and adjusted EBITDA of GBP15m by the end of 2023.
-- More ambitious three-year digital transformation programme launched targeted at enhancing run-rate EBITDA.
-- Trading has started strongly in 2021, with resilient sales in the B2B division and robust recruitment in the B2C division.
-- Strong balance sheet, with GBP20m of cash and available undrawn facilities.
*Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation and share-based payment expense and non-recurring items (COVID-19 related restructuring charge and bad debt provision).
**Adjusted profit before tax and Adjusted EPS are earnings per share before amortisation of acquired intangibles, share-based payment expense and non-recurring items (COVID-19 related restructuring charge and bad debt provision).
Stephen Hemsley, Executive Chairman, commented:
"Against the backdrop of a challenging year, I am pleased with the resilient performance of the business in 2020 and our achievements across the Group. I am extremely proud of our franchisees, our team members and particularly our engineers. Without their commitment, dedication and determination we would not have been able to achieve all that we have in 2020.
"Since being admitted to AIM in August 2016, we have developed a market-leading portfolio of brands through organic growth and targeted acquisitions and have generated compound annual growth in adjusted EBITDA of 47% and a 59% compound growth in dividends. We now set out for the first time our strategic financial targets of run-rate revenues of GBP100m and adjusted EBITDA of GBP15m by the end of 2023.
"W e have made a strong start to 2021 as a result of resilient sales in the B2B division, robust recruitment in the B2C division and the enduring legacy of some of the cost saving measures implemented at the start of the pandemic. We therefore look forward to the remainder of 2021 with confidence."
Enquiries:
Hot Features
Premium
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 / Colin Climie / Nicholas
Chambers
MHP Communications (Financial PR) +44 (0) 20 3128 8100
Katie Hunt +44 (0) 7884 494112
franchisebrands@mhpc.com
CHAIRMAN'S STATEMENT
I am pleased to report that trading in 2020 has been considerably better than might have been anticipated in a year of multiple disruptions as a result of the COVID-19 pandemic. This resilient performance has been driven by strong trading across the Group in the first quarter; early and decisive action taken at the start of the Spring lockdown to reduce costs, and a strong recovery across most of our businesses in the second half of the year.
B2B division
Our B2B division, which comprises Metro Rod, Metro Plumb, and Willow Pumps, provides a "Water In. Waste Out." range of drainage, plumbing and pumps services to commercial and domestic customers across the whole of the UK. Most of these services have been designated by the Government as essential and continued to operate throughout the lockdowns.
Metro Rod and Metro Plumb started the year strongly with system sales in Q1 up by 19% year-on-year. As a result of the Spring lockdown, system sales declined by 29% in April, before recovering slightly to end Q2 down 23%. The business then steadily recovered for the remainder of the year with system sales down 5% in Q3 and up 5% in Q4, despite the November lockdown. For the full year, system sales were down just 2% against 2019, which we consider to be a strong performance given the challenging circumstances.
Although system sales were slightly lower than 2019, the mix of business was such that our effective rate of Management Service Fee ("MSF") charged to the franchisees favoured the higher rate services. In addition to the reduced staffing costs resulting from use of the Government Job Retention Scheme ("furlough scheme"), other overhead costs, such as conferences and travel, were not incurred due to the lockdown restrictions and home working. As a result, adjusted EBITDA from the core Metro Rod business increased by 24% from 2019, an excellent performance in a challenging year and a credit to Peter Molloy, the Managing Director of Metro Rod and Metro Plumb.
We have also assisted our franchisees in planning for the anticipated downturn by providing advice on the furlough scheme, the various loan support schemes and assisting with cashflow where necessary. In the event, our franchisees proved remarkably resilient. There have been no franchisee failures and most of the assistance we have provided has funded expansion of their businesses, for example, helping to purchase new equipment. This resilience has resulted in 17 of our franchisees growing their business on a like-for-like basis during 2020 (2019: 33) and all franchisees generating a positive EBITDA for the year.
The initiatives taken towards the end of 2019 to develop Metro Plumb as a separate franchise have started to bear fruit, with two new franchisees joining in the year, bringing the total number of independent territories to five. In addition, there are 25 Metro Rod franchisees operating Metro Plumb territories, and three territories in the South East operated corporately. Metro Plumb system sales exceeded GBP5m in the year and grew by 3% on a like-for-like basis. In a difficult environment, this growth resulted from the efforts of the excellent new management team in our corporate operation and the enthusiasm of our new independent franchisees. We will be focusing significant additional resources in sales, marketing and recruitment to develop Metro Plumb in the coming year.
Willow Pumps, which was acquired in October 2019, started its first full year as part of the Group with excellent year-on-year sales growth of 15% in Q1. The inevitable impact of the Spring lockdown, in particular from the closure of construction sites, led to more reliance being placed on lower revenue/higher-margin emergency pump work rather than the higher revenue/lower margin supply and installation ("S&I") work. As a result, turnover declined 56% in Q2, however, due to the change in business mix, gross margin was more resilient falling by only 37%. This pattern of work continued to characterise the remainder of the year, as whilst building sites reopened after the Spring lockdown and S&I work recovered, volumes were lower and routine service and emergency work predominated. As a result, sales were 23% lower, but gross profit declined by only 4% for the full year.
During 2020, Willow Pumps assumed responsibility for the Metro Rod corporate franchises in Kent & Sussex and Exeter resulting in a significant increase in both revenue and profitability. Progress was also made in rolling out pump maintenance expertise to the Metro Rod engineers. However, the speed of this was held back by the various restrictions and their disruptive effect on the required face-to-face training. Notwithstanding this, Metro Rod franchisees have embraced the pump opportunity enthusiastically and remain keen to add this higher margin service to their businesses.
Part of the Willow Pumps acquisition deal structure was the payment of further consideration based on increased profits and the increase in pump work undertaken by Metro Rod franchisees over five years. The COVID-19 crisis has impacted on the ability of the management team to deliver these demanding targets, and whilst there will be a modest cash payment made in respect of 2020, the balance of the 2020 targets have been rolled over into the targets for the remaining four years. This will provide our team at Willow Pumps with an even greater incentive to grow the business over the remaining term of the earn-out.
B2C division
The B2C division which comprises ChipsAway, Ovenclean and Barking Mad, started the year strongly, with robust recruitment levels and strong consumer demand in Q1. However, the restrictions in the Spring lockdown meant that all the brands in this division had to suspend trading for most of Q2, as they were not considered to be essential services. To mitigate the impact on franchisees, MSF fees were reduced, and almost all other charges suspended. In response, 85% of the B2C support centre team were furloughed and other non-essential costs curtailed or otherwise not incurred. These measures helped ensure the division traded at a small surplus throughout this period.
With the reopening of most businesses in Q3, the B2C brands began to recover, albeit at different speeds. ChipsAway, which contributes 88% of the division's EBITDA, led the way with robust consumer demand allowing it to quickly re-establish pre-lockdown levels of activity. Ovenclean also recovered quickly from early summer onwards, however, Barking Mad continued to suffer very low demand as people were unable to take holidays that generated demand for dog boarding.
Considering the background, franchise recruitment in the B2C division in 2020 was robust resulting in 58 recruits (2019: 61). Recruitment started the year well with 18 new franchisees in Q1 (Q1 2019: 20). Q2 was, unsurprisingly, slower with 9 recruits (Q2 2019: 15) but accelerated strongly in the second half of the year with 31 new franchisees joining (H2 2019: 27). However, given the loss of income experienced by franchisees, which was particularly severe in the Barking Mad network, there has been a 4% reduction in the total number of franchisees in the B2C network to 386 from 404 at the end of 2019.
Most of the income generated in the B2C division is based on franchisees paying a fixed monthly fee (rather than a turnover-related fee as in our B2B franchise businesses). We were able to reinstate full fees once franchisees recommenced trading and consumer leads recovered. As a result of this robust business model, and the overhead cost savings, a djusted EBITDA decreased by only 16% in the year which we consider to be a resilient performance.
Our digital journey
A crucial part of the Group's strategy for developing all our brands, but particularly Metro Rod and Metro Plumb, is the automation of as many of our processes and interactions as possible. We believe that this will not only enhance customer service and thereby increase sales, but also improve corporate and franchisee efficiency and thereby reduce costs. Together, these will allow us to grow profits, improve productivity, and maintain competitiveness in an ever more demanding environment.
Since we acquired Metro Rod and Metro Plumb in 2017, we have been developing and improving the systems, with the initial objective of introducing a works management system that will form the bedrock from which we can develop more advanced customer facing functionality. I am therefore delighted to report that despite the disruption during the year, our excellent IT team successfully completed the roll-out of our new works management system, "Vision", to all Metro Rod and Metro Plumb franchisees, on-time and on-budget.
With this core infrastructure in place, we are now embarking on a further, more ambitious three-year journey that will eventually see jobs booked on-line, deployed to an engineer, reported to our customer, and billed with the minimum of human intervention. We will also have the facility to integrate all this information and functionality directly into our customers' systems. The first element of these enhancements, a customer portal branded "Connect", has just been launched. This provides customers with near real-time, online visibility of every job, including status, costs, and photographs. We are one of the first drainage companies in the UK to offer this functionality to customers.
The increased investment we are making in the accelerated digital transformation of our business is projected to be an additional GBP1.5m over the next three years. This additional investment will lead to increased sales, overhead savings and operational efficiencies that will enhance run-rate EBITDA.
Expansion and strategic targets
In April 2020 we successfully raised GBP14m (GBP13.6m net of expenses) via an equity placing from new and existing investors. The primary purpose of this was to ensure the Group was financially secure through the COVID-19 crisis and able to support our franchisees where necessary and financially prudent to do so. As we reach an end to the crisis, our strengthened balance sheet will allow us to focus on expanding the business and take advantage of the considerable opportunities we see in the recovery.
At Metro Rod, our organic growth priorities include the acceleration of existing initiatives to widen and deepen the services offered by the franchise network, particularly in the area of pump service and maintenance. At Willow Pumps our focus will be the acceleration of design-led S&I work which has enormous potential as the country invests more in new infrastructure and housing. In addition, our digital transformation plan is a key strategic imperative to meet our customers' needs and enhance our operational gearing and profitability.
We continue to selectively seek earnings-enhancing acquisitions of complementary B2C franchise businesses where we can leverage our existing divisional structure and high-quality shared support services. Having visibility of both franchisees' and franchisors' longer-term viability following the COVID-19 crisis is a key factor and we are taking a cautious approach. We also remain interested in the acquisition of complementary B2B businesses that will assist in expanding the range of services offered by our B2B franchisees. Finally, we continue to search for additional franchise businesses of scale that could create a third division of the Group.
Since being admitted to AIM in August 2016, we have developed a market-leading portfolio of brands through organic growth and targeted acquisitions and have generated compound annual growth in adjusted EBITDA of 47% and a 59% compound growth in dividends.
We now set out for the first time our strategic financial targets of run-rate revenues of GBP100m and adjusted EBITDA of GBP15m by the end of 2023. This will be achieved through organic growth and complementary acquisitions largely funded from existing facilities, without the need for additional equity capital other than to incentivise the management of acquired businesses. In addition, we will continue to evaluate the acquisition of franchise businesses of scale that may require additional shareholder support and would be additive to these targets.
Outlook
W e have made a strong start to 2021 as a result of resilient sales in the B2B division, robust recruitment in the B2C division and the enduring legacy of some of the cost saving measures implemented at the start of the pandemic. We therefore look forward to the remainder of 2021 with confidence.
I usually conclude my statement by thanking our team and our franchisees for their hard work and commitment during the year, and this year is no exception in what has been one of the most challenging years for business (and health) that anyone can remember. I would, however, like to extend a special thank you to our exceptional engineers at Metro Rod and Willow Pumps and our plumbers at Metro Plumb for the dedication they have shown attending jobs in everything from supermarkets and offices to COVID-19 wards. They are a huge credit to our business, and their commitment and dedication is truly appreciated by all of us.
Stephen Hemsley
Executive Chairman
CHIEF FINANCIAL OFFICER'S REVIEW
2020 2019 Change Change
GBP'000 GBP'000 GBP'000 %
--------------------------- --------------------------- ------------------------ ------------------------ -------
Statutory revenue 49,287 44,013 5,274 12%
Franchisee payments (19,898) (19,612) (286) 1%
--------------------------- --------------------------- ------------------------ ------------------------ -------
Fee income 29,389 24,401 4,988 20%
Other cost of sales (8,464) (8,019) (444) 6%
--------------------------- --------------------------- ------------------------ ------------------------ -------
Gross profit 20,925 16,382 4,543 28% Other administrative expenses (14,285) (11,200) (3,085) 28% Adjusted EBITDA 6,640 5,182 1,458 28% --------------------------- --------------------------- ------------------------ ------------------------ ------- Depreciation & amortisation of software (1,358) (755) (602) 80% Finance expense (446) (357) (89) 25% Adjusted profit before tax 4,836 4,069 767 19% --------------------------- --------------------------- ------------------------ ------------------------ ------- Adjusted tax expense (899) (687) (212) 31% Adjusted profit after tax 3,937 3,382 555 16% --------------------------- --------------------------- ------------------------ ------------------------ ------- Amortisation of acquired intangibles (393) (260) (133) 51% Share based payment (205) (238) 33 -14% Non-recurring costs (707) (270) (437) 162% Other gains and losses 151 (26) 177 -679% Tax on adjusting items 10 121 (111) -92% Statutory profit 2,793 2,710 83 3% --------------------------- --------------------------- ------------------------ ------------------------ -------
The results for the year ended 31 December 2020 include all of our businesses for the full year, whereas the results for the year ended 31 December 2019 included Willow Pumps for the almost three months following the acquisition on 7 October 2019.
Statutory revenue
Statutory consolidated revenue increased 13% to GBP49.3m (2019: GBP44.0m) with the increase due to our full-year ownership of Willow Pumps which added GBP12.4m of revenue (2019: GBP3.8m). Like-for-like revenue declined by 8% to GBP36.9m (2019: GBP40.2m) due to the effects of the COVID-19 lockdowns, albeit it grew in H2 compared to H1.
System sales, which are the gross sales made by our Metro Rod and Metro Plumb franchisees, decreased by 2% to GBP40.6m in the year (2019: GBP41.3m). The decrease of 2% masks the significant changes which we saw quarter-by-quarter, from an increase of 19% year-on-year in Q1 to a decrease of 23% in Q2 and progressive recovery from June onwards. The recovery resulted in Q4 being 4% ahead year-on-year, and just GBP219,000 below the level of system sales achieved in Q1, despite the November lockdown, as shown below.
2020 2019 Change Change
GBP'000 GBP'000 GBP'000 %
-------------- -------- -------- -------- -------
Q1 11,385 9,566 1,819 19%
Q2 8,215 10,679 (2,465) -23%
Q3 9,879 10,374 (495) -5%
Q4 11,166 10,688 478 4%
-------------- -------- -------- -------- -------
System sales 40,645 41,307 (662) -2%
-------------- -------- -------- -------- -------
Our most engaged franchisees continued to grow throughout the year, with 11 franchisees achieving year-on-year growth of over 10% and 17 franchisees achieving sales of over GBP1m.
Fee and direct labour income
Fee and direct labour income ("fee income") is one of the KPIs used by management to track the business, and, as shown in the table below, this increased 20% to GBP29.4m in 2020 (2019: GBP24.4m), due to the full-year contribution from Willow Pumps. The table below analyses fee income by division.
2020 2019 Change Change
GBP'000 GBP'000 GBP'000 %
------------------ -------- -------- -------- -------
B2B - Franchisor 10,282 12,186 -1,903 -16%
B2B - DLO 13,274 5,454 7,820 143%
B2C Division 5,833 6,761 -928 -14%
Fee income 29,389 24,401 4,988 20%
------------------ -------- -------- -------- -------
The decreases in B2B-Franchisor and B2C Division of 16% and 14% respectively, reflect the impact of the lockdown restrictions on our income. The table below analyses fee income by type.
2020 2019 Change Change
GBP'000 GBP'000 GBP'000 %
---------------------------- -------- -------- -------- -------
MSF income 10,694 11,207 (513) -5%
Area sales 1,607 2,006 (399) -20%
Product sales 758 912 (154) -17%
Direct labour income 15,547 9,097 6,450 71%
National advertising funds 783 1,179 (396) -34%
Fee Income 29,389 24,401 4,988 20%
---------------------------- -------- -------- -------- -------
MSF income received from our franchisees is based on fixed monthly fees or a percentage of the franchisees' sales. We continue to incentivise Metro Rod's franchisees to grow their businesses through a series of MSF discounts and schemes designed to encourage sales growth and investment in a broader range of equipment and people. In the B2C division, fixed monthly fees remain the most effective method of generating income given the large number of franchisees and the lower level of individual sales.
Overall MSF income was 5% lower than in 2019. MSF at Metro Rod remained steady at GBP7.8m despite the 2% fall in system sales due to a change in mix towards sales which attract the full rate of MSF . In the B2C division, we reduced the fees charged to franchisees during the Spring lockdown to ensure the continuing viability of our networks, resulting in a 14% reduction in B2C fee income for the year as a whole.
Fees generated from the sale (or resale) of franchise territories were 20% lower than in 2019. Considering the background, franchise recruitment in the B2C division was robust, with 58 recruits in 2020 (2019: 61). Most of the reduction in recruitment income resulted from fewer Metro Rod franchises changing hands which generated income of GBP73,000 compared to GBP328,000 in the prior year.
Our direct labour income increased by 71% in 2020 to GBP15.5m (2019: GBP9.1m) principally as a result of the full-year contribution from Willow Pumps.
Franchisees pay a monthly contribution into their respective national advertising funds. These funds are used exclusively to promote the system sales of those brands. The Group does not make any profit from these activities. Any surplus or shortfall within an accounting period is carried forward on our balance sheet. The Group reduced spending and suspended collection of these funds during the lockdowns to support the cashflow of the franchise networks.
Trading results - adjusted EBITDA
2020 2019 Change Change
GBP'000 GBP'000 GBP'000 %
------------------ -------- -------- -------- -------
B2B - Franchisor 3,722 3,184 538 17%
B2B - DLO 1,844 492 1,352 275%
B2C Division 2,132 2,531 (400) -16%
Group Overheads (1,058) (1,026) (31) -3%
Adjusted EBITDA 6,640 5,182 1,458 28%
------------------ -------- -------- -------- -------
Despite the 16% decrease in fee and direct labour income, tight cost control throughout the year has resulted in adjusted EBITDA from B2B-Franchisor rising by 17% to GBP3.7m. This represented an increase in operating margin from 28% to 36%. As the business returned to pre-COVID-19 levels, we were cautious in re-introducing costs and have realised permanent cost savings through new ways of working. In addition, although system sales were lower, our effective rate of MSF was higher due to the sales mix, meaning that overall adjusted EBITDA from the core Metro Rod business (excluding area sales and Kemac) rose by 24% to GBP3.3m. This exceptional performance at the core business was partially off-set by the lower area sales, and a drop in profitability at Kemac (down 9% to GBP0.4m), where the 2019 result had been bolstered by a significant one-off event.
At B2B-DLO, the significant increase in income and adjusted EBITDA has been as a result of the ownership of Willow Pumps for the full year. However, we have also seen an increase in B2B-DLO adjusted EBITDA due to Willow Pumps taking over the day-to-day responsibility of the two previously Group-operated Metro Rod franchise areas, Kent & Sussex and Exeter, which traded poorly during 2019.
Adjusted EBITDA at our B2C division (ChipsAway, Ovenclean and Barking Mad) decreased 16% in the year to GBP2.1m (2018: GBP2.5m) due to the 14% fall in fee income and lower recruitment income, partly offset by overhead savings as a result of furloughing staff. The B2C division continues to be strongly cash generative, supporting the Group's debt-servicing capacity.
During the year the Group made use of the furlough scheme. At the height of the Spring lockdown, the Group furloughed a total of 118 people which represented 42% of the workforce. During the Autumn lockdown the Group made limited use of the scheme with only six people furloughed. In total we claimed GBP653,000 during the year.
Group overheads remained steady at GBP1.1m (2019: GBP1.0m) and, as a result, adjusted EBITDA for the Group increased by 28% to GBP6.6m (2019: GBP5.2m).
Adjusted & statutory profit
2020 2019 Change Change
GBP'000 GBP'000 GBP'000 %
----------------------------- --------- ----------- ------------- -------
Adjusted EBITDA 6,640 5,182 1,458 28%
----------------------------- --------- ----------- ------------- -------
Depreciation & amortisation (1,358) (755) (603) 80%
Finance charge (446) (357) (89) 25%
----------------------------- --------- ----------- ------------- -------
Adjusted profit before
tax 4,836 4,070 766 19%
----------------------------- --------- ----------- ------------- -------
Amortisation of acquired
intangibles (393) (260) (133) 51%
Share-based payment charge (205) (238) 33 -14%
Non-recurring costs (707) (270) (437) 162%
Other gains and losses 151 (26) 177 -681%
-----------------------------
Statutory profit before
tax 3,682 3,276 406 12%
----------------------------- --------- ----------- ------------- -------
Tax (889) (566) (323) 57%
----------------------------- --------- ----------- ------------- -------
Statutory profit after
tax 2,793 2,710 83 3%
----------------------------- --------- ----------- ------------- -------
Depreciation and amortisation of software increased 80% to GBP1.4m (2019: GBP0.8m), as a result of the inclusion of the Willow Pumps charge for the full year and an increase in the amortisation charge in respect of software development at Metro Rod.
The finance charge increased 25% to GBP0.4m as a result of the higher level of lease-related finance costs following the acquisition of Willow Pumps. Bank interest fell 18% to GBP257,000 from GBP313,000 following the repayment of GBP3m of our Revolving Credit Facility ("RCF") following the April equity placing.
Amortisation of acquired intangibles increased 51% to GBP0.4m (2019: GBP0.3m) following the acquisition of Willow Pumps. The share-based payment expense has remained steady at GBP0.2m as no new share options were granted until the second half of the year, and the IPO related options had fully vested during 2019.
The Group has taken a total GBP0.7m charge in respect of events related to the COVID-19 pandemic. In light of the impact that the trading restrictions are having on a number of our commercial customers, we believe it is appropriate to make a provision against our accounts receivable. A detailed analysis of debtors has been completed on a risk-weighted basis according to the business sector and the financial position of each of our customers, resulting in a charge of GBP0.5m to provide for these potential future credit losses. During the full year the Group utilised just GBP0.2m (2019: GBP0.1m) of the provision as no significant credit losses have yet occurred, leaving a total provision for expected credit loss at the year-end of GBP0.8m (2019: GBP0.4m). The Group has also taken a charge of GBP0.2m in relation to the closure of our Barking Mad office and redundancy costs.
Statutory profit before tax increased 12% to GBP3.7m (2019: GBP3.3m). The tax charge for the year at 24% (2019: 17%) was higher than the statutory rate of 19% due to the change in the deferred tax liabilities in relation to acquired intangibles. This change resulted from the Government's decision to reverse the reduction in the corporation tax rate from 19% to 17%. As a result, the statutory profit after tax increased by 3% to GBP2.8m (2019: GBP2.7m).
Earnings per share
During the year the Group completed a placing of 15,555,556 new ordinary shares at a price of 90p per share raising GBP13.6m (net of expenses). In addition, the Group issued 388,199 new ordinary shares as part of the final 2019 dividend which had a scrip option, and 300,928 new ordinary shares to satisfy the exercise of share options. The Group also used 25,000 shares held in Treasury to satisfy the exercise of share options. These transactions resulted in the total number of ordinary shares in issue increasing by c.20% to 95,758,470 at 31 December 2020 (2019: 79,513,787) and a basic weighted average number of ordinary shares in issue and not in Treasury of 90,462,594.
Earnings per share are analysed in the table below.
2020 EPS 2019 EPS
GBP'000 p GBP'000 p
Statutory profit after tax 2,793 3.09 2,710 3.48
-------------------------------------- -------- ------- -------- ------
Amortisation of acquired intangibles 393 0.43 260 0.33
Share-based payment charge 205 0.23 238 0.31
Non-recurring costs 707 0.78 270 0.35
Other gains and losses (151) (0.17) 26 0.03
Tax on adjusting items (10) (0.01) (121) (0.2)
Adjusted profit after tax 3,937 4.35 3,382 4.34
-------------------------------------- -------- ------- -------- ------
Adjusted profit after tax increased by 16% to GBP3.9m (2019: GBP3.4m). However, as a result of the dilution resulting from the share issues referred to above, adjusted earnings per share increased by only 0.01p to 4.35p (2019: 4.34p). Basic earnings per share decreased by 11% to 3.09p (2019: 3.48p) and diluted earnings per share decreased by 11% to 3.03p (2019: 3.42p).
Financing and cash flow
The GBP13.6m net proceeds from the April equity placing have significantly strengthened our balance sheet and allowed us to pay down the RCF in full. We decided not to repay the Term Loan (which stood at GBP5.2m at the year-end) in order to maximise the Group's immediately-available liquidity. At 31 December 2020, the Group had cash of GBP13.2m, and undrawn bank facilities of GBP7.0m (comprised of the GBP5.0m RCF and a GBP2.0m overdraft), giving the Group over GBP20m of cash and available facilities.
31 December 31 December Change GBP'000 Change
2020 GBP'000 2019 %
GBP'000
-------------------------- -------------- ------------ ------------------------ -------
Cash 13,203 1,682 11,521 685%
Term loan (5,225) (6,401) 1,176 -18%
RCF - (3,002) 3,002 -100%
Loan fee 116 129 (13) -10%
Hire purchase debt (1,408) (1,588) 180 -11%
Adjusted net cash/(debt) 6,686 (9,180) 15,866 -173%
-------------------------- -------------- ------------ ------------------------ -------
Other lease debt (1,729) (1,899) 170 -9%
Net cash/(debt) 4,957 (11,079) 16,036 -145%
-------------------------- -------------- ------------ ------------------------ -------
Overall, the Group has moved from an adjusted net debt position to an adjusted net cash position of GBP6.7m (2019: adjusted net debt of GBP9.2m). Statutory net cash, including capitalised leases, was GBP4.9m (2019: net debt of GBP11.1m).
The Group generated cash from operations of GBP6.0m (2019: GBP4.7m) resulting in a cash conversion rate from adjusted EBITDA of 90% (2019: 90%). As a result of the April equity placing and the strong cash generation of the Group, we have been able to continue to pay all our creditors within terms and also take a pragmatic approach with our debtors, particularly those in the hospitality sector who have been unable to trade during the lockdowns. Our ability to extend payment terms to them has, we anticipate, deepened our commercial relationship.
Dividend
Given the improved trading in the second half of the year, and the healthy level of cash as a result of shareholder support in the April equity placing, the Board is pleased to continue its progressive dividend strategy and proposes a final dividend of 0.8 pence per share (2019: 0.65 pence per share). This takes the total dividend for the year to 1.1 pence per share (2019: 0.95 pence per share), an increase of 16%, which is covered 2.8 times by statutory profit after tax, and 4.0 times by adjusted profit after tax. The cost of the proposed final dividend is GBP766,000.
Subject to shareholder approval at the AGM on 20 April 2021, the final dividend will be paid on 28 May 2021 to shareholders on the register at the close of business on 14 May 2021.
Chris Dent
Chief Financial Officer
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2020
2020 2019
GBP'000 GBP'000
----------------------------------------------------------------------------------------------- -------- --------
Revenue 49,287 44,013
Cost of sales (28,362) (27,631)
------------------------------------------------------------------------------------------------ -------- --------
Gross profit 20,925 16,382
-------- --------
Adjusted earnings before interest, tax, depreciation, amortisation, share-based payments &
non -- recurring items ("Adjusted EBITDA") 6,640 5,182
Depreciation (1,149) (635)
Amortisation of software (209) (120)
Amortisation of acquired intangibles (393) (260)
Share-based payment expense (205) (238)
Non-recurring items (707) (270)
-------- --------
Total administrative expenses (16,948) (12,723)
------------------------------------------------------------------------------------------------ -------- --------
Operating profit 3,977 3,659
Other gains and losses 151 (26)
Finance expense (446) (357)
------------------------------------------------------------------------------------------------ -------- --------
Profit before tax 3,682 3,276
Tax expense (889) (566)
------------------------------------------------------------------------------------------------ -------- --------
Profit for the year and total comprehensive income attributable to equity holders of the Parent
Company 2,793 2,710
------------------------------------------------------------------------------------------------ -------- --------
All amounts relate to continuing operations
Earnings per share Basic 3.09 3.48 Diluted 3.03 3.42 -------------------- ---- ----
Consolidated Statement of Financial Position
At 31 December 2020
2020 2019
GBP'000 GBP'000
----------------------------------------------------------------- ---------------- ----------------
Assets
Non-current assets
Intangible assets 34,754 35,057
Property, plant and equipment 1,274 1,242
Right-of-use assets 3,377 3,538
Trade and other receivables 155 -
------------------------------------------------------------------ ---------------- ----------------
Total non-current assets 39,560 39,837
------------------------------------------------------------------ ---------------- ----------------
Current assets
Inventories 712 594
Trade and other receivables 15,072 16,935
Cash and cash equivalents 13,203 1,682
------------------------------------------------------------------ ---------------- ----------------
Total current assets 28,987 19,211
------------------------------------------------------------------ ---------------- ----------------
Total assets 68,547 59,048
------------------------------------------------------------------ ---------------- ----------------
Liabilities
Current liabilities
Trade and other payables 10,808 12,684
Loans and borrowings 1,908 4,074
Obligations under leases 897 924
Current tax liability 445 594
Contingent consideration 320 -
------------------------------------------------------------------ ---------------- ----------------
Total current liabilities 14,378 18,276
------------------------------------------------------------------ ---------------- ----------------
Non-current liabilities
Loans and borrowings 3,200 5,200
Obligations under leases 2,240 2,563
Contingent consideration 3,136 3,606
Deferred tax liability 1,752 1,544
------------------------------------------------------------------ ---------------- ----------------
Total non-current liabilities 10,328 12,913
------------------------------------------------------------------ ---------------- ----------------
Total liabilities 24,706 31,189
------------------------------------------------------------------ ---------------- ----------------
Total net assets 43,841 27,859
------------------------------------------------------------------ ---------------- ----------------
Issued capital and reserves attributable to owners of the Parent
Share capital 479 398
Share premium 36,817 22,806
Share-based payment reserve 455 316
Merger reserve 1,390 1,390
Treasury reserve - (21)
EBT reserve (149) -
Retained earnings 4,849 2,970
------------------------------------------------------------------ ---------------- ----------------
Total equity attributable to equity holders 43,841 27,859
------------------------------------------------------------------ ---------------- ----------------
Consolidated Statement of Cash Flows
For the year ended 31 December 2020
2020 2019
GBP'000 GBP'000
---------------------------------------------------------------- ------- -------
Cash flows from operating activities
Profit for the year 2,793 2,710
Adjustments for:
Depreciation of property, plant and equipment 822 183
Depreciation of right-of-use assets 327 452
Amortisation of software 209 120
Amortisation of acquired intangibles 393 260
Non-recurring costs 707 270
Share-based payment expense 205 238
Other gains and losses (151) 26
Finance expense 446 357
Income tax expense 889 566
----------------------------------------------------------------- ------- -------
Operating cash flow before movements in working capital 6,640 5,182
Decrease/(increase) in trade and other receivables 1,708 (1,523)
( Increase)/ decrease in inventories ( 119) 5
(Decrease)/increase in trade and other payables (2,241) 999 ----------------------------------------------------------------- ------- ------- Cash generated from operations 5,988 4,663 Income taxes paid (745) (147) ----------------------------------------------------------------- ------- ------- Net cash generated from operating activities 5,243 4,516 Cash flows from investing activities Purchases of property, plant and equipment (460) (865) Purchase of software (319) (837) Acquisition of subsidiary including costs, net of cash acquired - (3,958) ----------------------------------------------------------------- ------- ------- Net cash used in investing activities (779) (5,660) Cash flows from financing activities Bank loans - repaid (4,200) (2,506) Bank loans - received - 4,000 Other loans - made (163) (5) Capital element of lease obligations repaid (1,100) (716) Interest paid - bank and other loan (257) (343) Interest paid - leases (189) (44) Proceed from issue of shares 13,696 358 Funds supplied to Employee Benefit Trust (214) - Purchase of Treasury shares - (266) Dividends paid (516) (592) ----------------------------------------------------------------- ------- ------- Net cash used in financing activities 7,057 (114) Net increase/(decrease) in cash and cash equivalents 11,521 (1,258) ----------------------------------------------------------------- ------- ------- Cash and cash equivalents at beginning of year 1,682 2,940 ----------------------------------------------------------------- ------- ------- Cash and cash equivalents at end of year 13,203 1,682 ----------------------------------------------------------------- ------- -------
Consolidated and Company Statement of Changes in Equity
For the year ended 31 December 2020
Share Share-based
Share premium payment Merger Treasury EBT Retained
capital account reserve reserve shares reserve earnings Total
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- ---------- --------- ----------- ---------- ---------- -------- ---------- -------
At 1 January
2019 388 22,621 226 396 (151) - 931 24,411
--------------- ---------- --------- ----------- ---------- ---------- -------- ---------- -------
Profit for the
year and total
comprehensive
income - - - - - - 2,710 2,710
Contributions
by and
distributions
to owners
Shares issued 10 185 (148) 994 396 - (79) 1,358
Dividend paid - - - - - - (592) (592)
Treasury shares - - - - (266) - - (266)
Share-based
payment - - 238 - - - - 238
--------------- ---------- --------- ----------- ---------- ---------- -------- ---------- -------
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 31 December
2020 479 36,817 455 1,390 - (149) 4,849 43,841
--------------- ---------- --------- ----------- ---------- ---------- -------- ---------- -------
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 2020 or 2019, but is derived from those accounts. Statutory accounts for Franchise Brands plc for the year ended 31 December 2019 have been delivered to the Registrar of Companies and those for the year ended 31 December 2020 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 2020 and 31 December 2019 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 use 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.
2020 B2B- Franchisor B2B- B2C Other Total
DLO
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- --------------- ------- ------- ------- -------
Continuing operations
Revenue 30,177 14,342 5,835 (1,068) 49,287
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
---------------------------------------- --------------- ------- ------- ------- -------
Income tax expense (372) (129) (328) (62) (889)
---------------------------------------- --------------- ------- ------- ------- -------
Profit after tax 2,180 768 1,501 (1,656) 2,793
---------------------------------------- --------------- ------- ------- ------- -------
2019 B2B- Franchisor B2B- B2C Other Total
DLO
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- --------------- ------- ------- ------- -------
Continuing operations
Revenue 33,405 3,842 6,766 - 44,013
Adjusted EBITDA 3,184 492 2,533 (1,027) 5,182
---------------------------------------- --------------- ------- ------- ------- -------
Depreciation & amortisation of software (435) (138) (182) - (755)
Amortisation of acquired intangibles - - - (260) (260)
Share based payment expense (101) (6) (47) (84) (238)
Non-recurring costs - - - (270) (270)
Finance expense (13) (43) (12) (289) (383)
Other gains and losses - - - (26) (26)
---------------------------------------- --------------- ------- ------- ------- -------
Profit before tax 2,634 305 2,292 (1,956) 3,276
---------------------------------------- --------------- ------- ------- ------- -------
Income tax expense (403) (50) (346) 233 (566)
---------------------------------------- --------------- ------- ------- ------- -------
Profit after tax 2,231 255 1,946 (1,723) 2,710
---------------------------------------- --------------- ------- ------- ------- -------
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.
2020 2019
GBP'000 GBP'000
----------------------------------------------------- ------- -------
Profit attributable to owners of the Parent 2,793 2,710
----------------------------------------------------- ------- -------
Non-recurring costs 707 270
Amortisation of acquired intangibles 393 260
Change in the fair value of deferred consideration (151) 26
Share-based payment expense 205 238
Tax on adjusting items (10) (121)
----------------------------------------------------- ------- -------
Adjusted profit attributable to owners of the Parent 3,937 3,382
----------------------------------------------------- ------- -------
Number Number
------------------------------------------ ---------------- ----------
Basic weighted average number of shares 90,462,594 77,948,178
Dilutive effect of share options 1,649,029 1,190,696
------------------------------------------ ---------------- ----------
Diluted weighted average number of shares 92,111,623 79,138,874
------------------------------------------ ---------------- ----------
Pence Pence
------------------------------------ ----- -----
Basic earnings per share 3.09 3.48
Diluted earnings per share 3.03 3.42
Adjusted earnings per share 4.35 4.34
Adjusted diluted earnings per share 4.27 4.27
------------------------------------ ----- -----
4. Dividends
2020 2019
GBP'000 GBP'000
-------------------------------------------------------------------------------- ------- -------
Final 2019 dividend of 0.65p per ordinary share paid and declared (2018: 0.46p) 619 358
Interim dividend of 0.30p per ordinary share paid and declared (2019: 0.30p) 287 234
-------------------------------------------------------------------------------- ------- -------
Total distributed in the year 906 592
-------------------------------------------------------------------------------- ------- -------
In the period before our April equity placing, the Board considered it necessary, given the economic and business uncertainties due to COVID-19 for the Group to adopt a prudent approach and preserve the strength of its balance sheet by retaining cash. Therefore, shareholders were given the option to receive the final 2019 dividend as a scrip dividend. Approximately 63% of shareholders elected to take a scrip dividend. This resulted in the issue of 388,199 new ordinary shares of 0.5 pence each in the Company and reduced the final 2019 dividend cash payment to GBP229,000.
A final dividend of 0.80 pence per share is proposed, bringing the total dividend for the year to 1.1 pence per share (2019:0.95p).
5. Annual report and accounts
The annual report and accounts for the year ended 31 December 2020 will be posted to shareholders in the week commencing 22 March 2021 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 20 April 2021, notice of which will be sent to shareholders with the annual report and accounts in the week commencing 22 March 2021.
About Franchise Brands plc
Franchise Brands is focused on building market-leading businesses in selected customer segments, primarily via 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 is designed to provide a greater focus and structure to support the strategic development of our B2B and B2C brands. Each of our brands are leaders in their respective markets and each brand has a long trading history. The combined trading history of all the Group's brands is over 135 years.
Franchise Brands plc employs 265 people across three principal locations in Macclesfield, Kidderminster and Aylesford.
For further information, visit www.franchisebrands.co.uk .
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