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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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| 11.50 | 6.18% | 197.50 | 195.00 | 200.00 | 197.50 | 192.00 | 192.00 | 99,019 | 15:09:50 |
| 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 : 5336U
Franchise Brands PLC
30 July 2020
30 July 2020
FRANCHISE BRANDS PLC
("Franchise Brands", the "Group" or the "Company")
Interim results for the six months ended 30 June 2020
Strong Q1 followed by resilient performance through lockdown and recovery in June
Franchise Brands plc (AIM: FRAN), a multi-brand franchise business , is pleased to announce its unaudited results for the six months ended 30 June 2020.
Financial highlights
-- Revenue increased by 21% to GBP24.2m ( H1 2019 : GBP20.1m) including contribution from Willow Pumps acquisition ( like-for-like revenue was GBP18.0m (H1 2019: GBP20.1m) due to the effects of the COVID-19 lockdown) .
-- Fee and direct labour income increased by 39% to GBP14.7m ( H1 2019: GBP10.6m). -- Adjusted EBITDA* increased by 13% to GBP2.8m ( H1 2019 : GBP2.5m).
-- Statutory profit before tax decreased by 50% to GBP0.9m ( H1 2019 : GBP1.8m), reflecting COVID-19 related charge of GBP0.6m (reduced from the GBP1.3m announced at the time of the April Placing).
-- Adjusted net cash** of GBP4.2m at 30 June 2020 (31 December 2019: Adjusted net debt GBP9.2m**) following the April Placing which raised GBP13.6m net of expenses.
-- Adjusted EPS*** decreased by 10% to 1.84p (H1 2019: 2.06p).
-- Basic EPS decreased by 64% to 0.67p ( H1 2019 : 1.84p), reflecting COVID-19 related charge of GBP0.6m compounded by the increased number of shares following the Placing.
-- An interim dividend of 0.30p per share declared (interim 2019: 0.30p per share), 2.0 times covered by profit after tax (interim 2019: 6.1x).
Operational highlights
-- Strong Q1, followed by decreased trading during the COVID-19 lockdown, with some recovery in June.
-- B2B division provides key workers to essential services, and therefore continued trading through the period with increased activity in June as businesses re-opened.
-- Metro Rod system sales grew by 16% year-on-year in Q1; resilient performance with 3% decline in H1 overall (H1 2019: growth of 15%).
-- 28 of our 43 Metro Rod franchisees achieved year-on-year growth in sales in H1.
-- Successful start to the rollout of our new Metro Rod works management system, a key part of our Vision 2023 strategy.
-- Metro Plumb was resilient in H1.
-- Willow Pumps was effectively right-sized for temporarily reduced volumes from certain sectors.
-- B2C division resumed trading in June 2020, with a strong restart at ChipsAway. -- B2C franchise recruitment of 18 in Q1 and 9 in June 2020 (H1 2019: 34). -- Barking Mad fully integrated into our B2C support centre in Kidderminster.
*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 net cash and debt are before capitalised leases under IFRS16.
*** Adjusted EPS is 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:
"I am pleased with our robust H1 performance which featured a strong first quarter followed by a period of tight cost control during the lockdown period. This highlights the underlying resilience of our business model, underpinned by our network of 435 franchisees supporting a broad range of commercial and domestic customers, and is thanks to the hard work and adaptability of my colleagues, our franchisees and particularly our engineers during this challenging period .
"Following a successful Placing, our strengthened balance sheet will allow us to take advantage of both organic growth opportunities and earnings-enhancing acquisitions as the lockdown eases."
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)
Dowgate Capital Limited (Joint Broker) +44 (0) 20 3903 7715
James Serjeant / Colin Climie
MHP Communications (Financial PR) +44 (0) 20 3128 8100
Katie Hunt +44 (0) 7884 494112
franchisebrands@mhpc.com
CHAIRMAN'S STATEMENT
Introduction
We started the year full of confidence and, as anticipated, 2020 got off to a strong start across the Group. However, as the impact of the COVID-19 crisis and the subsequent lockdown measures became apparent, activity slowed, particularly in the B2C division. We moved quickly and decisively to right-size the business to match anticipated levels of income with strict costs controls to enable the Group to trade profitability through the crisis.
In our B2B division, we worked with our Metro Rod and Metro Plumb franchisees and the team at Willow Pumps to implement safe working practices which allowed our engineers, as key workers, to continue to provide support to essential services. Trading in April and May was challenging as volumes were significantly reduced, but we have seen a progressive month on month improvement as the economy remobilised. Whilst our B2C division was more severely impacted with no trading during the lockdown period, our actions enabled it to operate at cash break-even during this period and it has since recovered strongly.
Based on the current trajectory of reduced Government restrictions and business re-openings, we anticipate a continuing strong recovery in the second half of the year. Overall, our resilient performance through what has been a challenging first half has demonstrated the strength of our businesses and management team, which leaves us well placed to take advantage of opportunities to grow our business organically and by acquisition in the post-pandemic recovery.
B2B Division
Our B2B division, which comprises Metro Rod, Metro Plumb, Willow Pumps and Kemac, provides a "Water In. Waste Out" range of national drainage, plumbing and pumps services. On a pro-forma basis (including Willow Pumps for a full year) this division would have contributed 67% of the Group's 2019 Adjusted EBITDA (excluding group overheads). The majority of its services were designated by the Government as essential to ensure the smooth running of the health service, public utilities and other key businesses during the lockdown. As the majority of the work is reactive, there has been continuing demand, and the business has continued to operate and serve customers, albeit at considerably lower volumes. We are proud of the role our front-line key workers have played during the crisis in keeping Britain's drains and water flowing.
At all times our key priority has been the safety of our team members, engineers, customers and the public whilst continuing to provide the best possible customer service in a challenging environment. This has resulted in the development of a number of different ways of working, some of which have added to our and our franchisees' costs in the short term whilst others, which have proved to be more efficient than our previous practice, are expected to be adopted on an ongoing basis.
B2B Franchise activities
Metro Rod and Metro Plumb started the year strongly with system sales in the first quarter 16% ahead year-on-year. Following the lockdown, around 40% of the Support Centre staff were furloughed under the Government's Job Retention Scheme ( " furlough scheme") and the rest of the team were asked to work from home. This transition was achieved with minimal disruption thanks to the preparedness and hard work of our IT team, the investment we had previously made in our IT systems and the excellent leadership of the Metro Rod Managing Director, Peter Molloy.
During the early days of the lockdown we were restricted to primarily servicing critical establishments such as hospitals and supermarkets, resulting in Metro Rod's system sales in April and May being only 70% of 2019 levels. More recently, invoiced sales have been largely correlated with the sectors and businesses allowed to resume trading, allowing them to recover in June to 88% of 2019 levels and job lead intake to recover to 93% of 2019 levels in July to date.
We have provided considerable support and guidance to our franchisees throughout the crisis. They have responded with real entrepreneurial spirit and have right-sized their businesses by using the furlough scheme, raising additional capital where necessary, and have been very effective in attracting new customers where the competition has not provided an on-going service. This is demonstrated by the fact that 28 of our 43 Metro Rod franchisees achieved year-on-year growth in sales in the first half of the year.
Our IT systems have proven to be robust in the crisis and our drive for ever more efficient systems that link with our customers' systems has continued with the completion of the development of our new works management system, "Vision". This is an important part of Metro Rod's Vision 2023 strategy. The new system has now been successfully rolled-out to 42% of the B2B franchise system and we are optimistic of achieving our target of a full roll-out by the end of 2020, with the improvements in efficiency and productivity expected to become increasingly apparent as we move into 2021. Our IT business systems have also allowed us to be more data driven during the crisis which has led to faster and better decision making.
Metro Plumb has traded well throughout the period due to the resilient nature of its principal activity of emergency plumbing work. Whilst most Metro Plumb franchisees are also Metro Rod franchisees, we are focused on recruiting more independent franchisees that can offer a broader range of plumbing services. This will eventually allow us to broaden the customer base and grow the Metro Plumb brand.
B2B Direct Labour Organisations ("DLOs") activities
Willow Pumps, which was acquired in October 2019, made an inaugural contribution to profits in the period. The business had a strong start to the year, and Q1 also saw it assume responsibility for the Metro Rod corporate franchise servicing Kent and Sussex, which was subsequently integrated into the Willow Pumps operation. The resultant more focused management and reduced overhead delivered a significant turnaround of this business. Another highlight was the establishment of a new design capability which allows Willow Pumps to design adoptable and non-adoptable pump stations in-house, providing a competitive advantage. Previously it had to either outsource this work or work as a subcontractor for the designers. This activity has gained good traction and is likely to contribute to profits in the second half of the year.
At the start of the lockdown Willow Pumps' management, led by Ian Lawrence, took swift action to right-size the business in anticipation of a reduction in volumes resulting in 36% of the staff being furloughed. Two key customer sectors are hotels and construction and whilst these were closed entirely during the lockdown, pump service and repair work for essential service providers such as supermarkets remained resilient. Following the successful transfer of Metro Rod Kent & Sussex to Willow Pumps, the last remaining corporate franchise in Exeter was transferred to Willow Pumps management in May. It is now the intention to expand this operation and establish a joint Metro Rod/Willow Pumps depot in the South West.
Kemac, which operates 6 Metro Plumb territories and provides specialist services to several water utilities, traded well during the period. However, profits declined when compared to the first half of 2019, during which Kemac benefited from a sizeable one-off emergency contract with a water utility which was not replicated in the current period. Underlying trading, however, improved year-on-year mainly as a result of a management reorganisation that has given this business improved operational focus and efficiencies. We anticipate that this will now provide the foundation for longer term growth.
B2C Division
The B2C division, comprising ChipsAway, Ovenclean and Barking Mad, had a good start to the year with recruitment particularly strong at ChipsAway. However, as this division does not provide essential services, the COVID-19 crisis and the lockdown significantly impacted the business. During this period 85% of the team were furloughed and franchisee fees and charges, other than those necessary to maintain skeleton operations, were reduced or suspended. Notwithstanding the significant drop in income, the B2C division traded at break-even during the lockdown, which was a credit to the Managing Director, Tim Harris, and his team.
The B2C brands are recovering at different speeds. ChipsAway, our largest network which generated 83% of the divisional income last year, recommenced trading in June with both franchisee trading and franchise recruitment recovering strongly. Ovenclean is recovering more slowly, with trading still below normal levels while consumers have been cautious in allowing non-essential tradesmen to work in their homes. At Barking Mad, our smallest network, trading is still well below pre-COVID-19 levels given its heavy dependency on the foreign holiday market. We have restructured Barking Mad, integrating all its operations into the B2C overhead at Kidderminster, which should allow it to continue to make a positive contribution to group profitability in the future.
Financial position of the Group
The Group started 2020 in a sound financial position with net debt (excluding leasing) of GBP9.2m, representing 1.8 times adjusted EBITDA in 2019, and with interest covered 14.5 times. However, the uncertain outcome and duration of the COVID-19 crisis and the related decline in EBITDA meant that a number of decisive actions had to be taken to reduce costs and enhance liquidity.
Accordingly, we reassessed our liquidity position and the options available and concluded that it would be prudent to strengthen the balance sheet by an equity Placing at an early stage in the crisis rather than increase our borrowings or defer payments to creditors, landlords or the Government. We also wanted to be well placed for opportunities we believe are likely to arise during the recovery. As a result, on 20 April 2020 we completed the Placing of 15,555,556 new Ordinary Shares at the price of 90p, raising GBP13.6m (net of expenses). These new shares represented 19.6% of the previous equity capital. The Placing proceeds have allowed us to eliminate the Group's overall net debt and provided additional working capital. The Placing shares were subscribed for by the Directors, senior management and most of our institutional shareholders. We also had the opportunity to welcome some new institutional shareholders to the register and we thank all the investors in the Placing for their support.
Outlook
The second half of the year has started well. In particular, with the opening up of the hospitality and retail sectors, we have continued to see a return to levels of trading in the B2B division similar to 2019. In the B2C division, ChipsAway is leading the recovery both in terms of franchise activity and recruitment. The other B2C brands, which make a far smaller contribution, are expected to be slower to recover. As activity levels improve further, we will bring back from furlough more of our people and return people to full pay, a process we anticipate will be completed across the business by the end of August.
The outlook for the rest of the year is dependent on how quickly the remaining restrictions are eased by the Government and the pace and shape of the economic recovery. Although parts of the Group have historically proved to be resilient in a recessionary environment as a provider of essential services, and given the diversified customer base and increased interest in franchising as an alternative to employment, the demand for our services would still be impacted by an overall reduction in economic activity. We have, therefore, made a very small number of redundancies, primarily as a result of combining Barking Mad with our other shared services, to maintain the improved efficiency which was realised during the lockdown.
The short-term focus of the Group will be the resumption of the organic growth achieved prior to the lockdown, which will be significantly assisted by the strengthened capital structure provided by the recent Placing. We also remain receptive to earnings-enhancing acquisitions that expand the range of services offered by Metro Rod and Willow Pumps in pursuit of our ambition to offer a full "Water In. Waste Out" range of drainage, pumps and plumbing services. In the B2C division, acquisitions that allow the Group to leverage its existing divisional infrastructure are in scope. However, we are cautious about acquiring smaller B2C franchise businesses until we have visibility of both franchisees' and franchisors' longer-term viability following the COVID-19 crisis.
Conclusion
I would like to thank all my colleagues, our franchisees and particularly our engineers, for their continued hard work and commitment in what has been a very challenging time, certainly the most challenging of my business career. The dedication, determination, and adaptability of everyone in the Group during the last few months has been incredible and somewhat humbling as we have embraced new ways of working and the opportunities this has created.
In conclusion, we remain cautiously optimistic for the full year. The Group has a robust balance sheet, strong underlying brands, motivated franchisees, and dedicated team members. This gives us both the opportunity and resources to grow both organically and through acquisition. As such, we are well placed to take advantage of the post-pandemic recovery.
Stephen Hemsley
Executive Chairman
FINANCIAL REVIEW
Summary statement of income (unaudited)
H1 2020 H1 2019 Change Change
GBP'000 GBP'000 GBP'000 %
-------------------------------------- ---------------- ---------------- ----------------- -------
Statutory revenue 24,209 20,084 4,125 21%
Franchisee payments (9,488) (9,493) 5 0%
-------------------------------------- ---------------- ---------------- ----------------- -------
Fee & direct labour income 14,721 10,591 4,130 39%
Other cost of sales (5,146) (3,147) (1,999) 64%
-------------------------------------- ---------------- ---------------- ----------------- -------
Gross profit 9,576 7,444 2,132 29%
Administrative expenses (6,793) (4,984) (1,809) 36%
---------------- ---------------- -----------------
Adjusted EBITDA 2,782 2,460 322 13%
-------------------------------------- ---------------- ---------------- ----------------- -------
Depreciation & amortisation of
software (666) (317) (349) 110%
Finance expense (262) (159) (103) 65%
---------------- ---------------- -----------------
Adjusted profit before tax 1,854 1,984 (130) -7%
-------------------------------------- ---------------- ---------------- ----------------- -------
Tax expense (286) (389) 103 -27%
---------------- ---------------- -----------------
Adjusted profit after tax 1,568 1,595 (27) -2%
-------------------------------------- ---------------- ---------------- ----------------- -------
Amortisation of acquired intangibles (196) (108) (88) 82%
Share-based payment expense (102) (100) (2) 2%
COVID-19 related costs (620) - (620) 100%
Other gains and losses (54) - (54) 100%
Tax on adjusting items (26) 40 (66) -165%
---------------- ----------------
Statutory profit 570 1,427 -857 -60%
-------------------------------------- ---------------- ---------------- ----------------- -------
The results for the six months ended 30 June 2020 contain six months of trading from Willow Pumps (acquired on 7 October 2019), whereas the comparative results do not.
Statutory revenue
Statutory consolidated revenue has increased by 21% to GBP24.2m in the period (H1 2019: GBP20.1m). This has been driven by our acquisition of Willow Pumps which contributed revenue of GBP6.2m during the period. Like-for-like revenue declined by 10% to GBP18.0m (H1 2019: GBP20.1) due to the effects of the COVID-19 lockdown during Q2.
System sales at Metro Rod, which are the gross sales made by our franchisees, declined by 3% to GBP19.6m in the period (H1 2019: GBP20.2m). 2020 started strongly with Q1 growth of 16% year-on-year representing continued momentum on the back of a 14% increase last year. However, system sales during Q2 were substantially impacted by the Government restrictions and declined by 24% year-on-year. During the height of the lockdown in April and May, system sales declined by 29% year-on-year but recovered strongly when the restrictions began to be lifted in June resulting in only a 12% year-on-year decline in June.
Fee and direct labour income
The principal KPI used by management is fee and direct labour income, which increased by 39% to GBP14.7m in H1 2020 (H1 2019: GBP10.6m).
H1 2020 % of H1 2019 % of Change Change
GBP'000 Total GBP'000 Total GBP'000 %
--------------------------------------------- ------- -------------- -------- ----------------- -------
MSF income 5,323 36% 5,401 51% (78) -1%
Area sales 723 5% 908 9% (185) -20%
Product sales 324 2% 460 4% (136) -30%
Direct labour 7,966 54% 3,202 30% 4,764 149%
National advertising
funds 384 3% 620 6% (236) -38%
Fee & direct labour
income 14,721 10,591 4,130 39%
----------------------- --------------------- ------- -------------- -------- ----------------- -------
Management Service Fee ("MSF") income received from our franchisees is based on fixed monthly fees or a percentage of the franchisees' sales. Our strategy is to increase sales-related MSF income to improve the quality of our earnings and align ourselves with the interests of our franchisee communities so that both parties benefit from the growth in system sales. We continue to incentivise Metro Rod franchisees to grow their businesses through a series of MSF discounts and schemes designed to encourage sales growth and investment in a wider range of equipment and people.
Despite the 3% decrease in system sales at Metro Rod, MSF income from this brand was up by 7% year-on-year due to a change in mix towards sales which attract the full rate of MSF. However, our B2C brands (which accounted for 30% of MSF in 2019) all experienced declines in MSF income as a result of the lockdown. ChipsAway and Ovenclean MSF income predominantly comprises fixed monthly fees, but as these brands paused trading during the lockdown, we took the strategic decision to significantly reduce these fixed fees in order to help ensure the financial viability of our franchisees. The MSF income at Barking Mad is calculated as a percentage of franchisees' turnover, but as this business also did not trade during the lockdown, no MSF income was generated. Overall MSF income was down 1% year-on-year.
Fees generated from the sale (or resale) of franchises fell by 20% year-on-year as a result of a virtual cessation of new franchisee recruitment during the lockdown period. In our B2C division we recruited 27 new franchisees (1H 2019: 34). 18 of these occurred in Q1 and a further 9 in June following the lifting of lockdown. 23 of these were for ChipsAway, a 21% improvement year-on-year. We have seen a higher level of leavers from the B2C brands than in previous years with 42 franchisees leaving (H1 2019: 27) due to the crisis, resulting in a reduction of the total number of B2C franchisees from 404 to 389, a fall of 3%. At Metro Rod we had two new joiners, one of which was a sale of a previously vacant territory and at Metro Plumb we sold one territory and had one leaver.
Income from the sale of products to franchisees fell 30% as ChipsAway and Ovenclean franchisees paused trading during the lockdown.
Sales at our DLOs arise from four principal business areas: Willow Pumps; the Metro Rod and Metro Plumb corporate businesses; Kemac; and the ChipsAway Car Care Centre. DLO sales increased by 149% to GBP8.0m (H1 2019: GBP3.2m) principally as a result of the inclusion of Willow Pumps for the first time. Whilst Willow Pumps contributed sales of GBP6.2m, Kemac saw a decline in sales of GBP1.5m year-on-year due to the inclusion of a large one-off contract in H1 2019 that was not matched in the current period.
The franchisees of every brand pay a monthly contribution into their respective national advertising funds. These funds are used exclusively to promote system sales through marketing of those brands. The Group does not make any profit from these activities. During the lockdown most of these marketing contributions were paused and marketing activity reduced.
Trading results
H1 2020 H12019 Change Change
GBP'000 GBP'000 GBP'000 %
B2B Division
Franchisor 1,452 1,379 72 5%
DLO 888 345 543 157%
B2C division 893 1,225 (332) -27%
Group overheads (451) (489) 39 -8%
------------------ --------------- --------------- ------------------ -------
Adjusted EBITDA 2,782 2,460 322 13%
------------------ --------------- --------------- ------------------ -------
All parts of the B2B division continued to trade throughout the period of the lockdown, as our engineers are key workers providing support to essential services. During this period, we reduced our costs to match the estimated decrease in revenues, meaning that the division continued to trade profitably, albeit at a significantly lower level than previously.
The B2B franchise operations generated a 5% increase in adjusted EBITDA to GBP1.5m (HI 2019: GBP1.4m) as a result of a strong trading performance in Q1 followed by strict cost control in Q2. The B2B DLO operations have seen an increase in adjusted EBITDA from GBP0.3m to GBP0.9m, substantially as a result of the inclusion of Willow Pumps for the first time, but the result was negatively impacted by a significant fall in profitability at Kemac as a result of the previously mentioned fall in turnover.
The B2C division also had a good first quarter, particularly recruitment income at ChipsAway, but then had to pause all activities during the lockdown. Costs were minimised by the use of the furlough scheme which allowed the division to operate at a cash break-even basis during the lockdown. ChipsAway and Ovenclean both resumed trading in June and ChipsAway, in particular, experienced high levels of both consumer activity and recruitment. Barking Mad, which depends heavily on the foreign holiday market, has not yet seen trading volumes return in any meaningful way. Overall, the B2C division generated adjusted EBITDA of GBP0.9m, a 27% decline from the GBP1.2m generated in H1 2019.
As mentioned above, the Group has made use of the furlough scheme to manage costs during the lockdown and to subsequently help ensure that we could keep the team together once volumes increased and the business recovered. On 1 April we utilised the scheme for 118 of our 290 employees. This decreased to 89 during June and will be 16 by the end of July. It is the Group's current plan to bring all staff back from furlough by the end of August. During the period, the Group received GBP0.5m of funding through the scheme. In addition, the Group also agreed temporary pay-cuts with a number of higher paid employees, including the Board of Directors, which resulted in savings of GBP0.2m during the period. These pay-cuts began to return to normal levels in June, and all employees, including the Board, will be back onto their contracted salaries by the end of August.
The period of lockdown has allowed us to review the optimal operational structure of the Group. As more of the shared services were being provided out of the Support Centres at Macclesfield and Kidderminster, we have decided to close the Barking Mad office . In addition, we have made a number of redundancies at our other divisions as a result of the efficiency gains which were realised during lockdown. This will see total staff numbers for the Group fall from 290 to around 270.
Adjusted & statutory profit
H1 2020 H1 2019 Change Change
GBP'000 GBP'000 GBP'000 %
-------------------------------------- -------- ----------------- ----------------- -----------------
Adjusted EBITDA 2,782 2,460 322 13%
-------------------------------------- -------- ----------------- ----------------- -----------------
Depreciation & amortisation (666) (317) (349) 110%
Finance cost (262) (159) (103) 65%
-------------------------------------- -------- ----------------- ----------------- -----------------
Adjusted profit before tax 1,854 1,984 (130) -7%
-------------------------------------- -------- ----------------- ----------------- -----------------
Amortisation of acquired intangibles (196) (108) (88) 81%
Share-based payment expense (102) (100) (2) 2%
COVID-19 related costs (620) - - -
Other gains and losses (54) - - -
-------------------------------------- ----------------- -----------------
Statutory profit before tax 882 1,776 (894) -50%
-------------------------------------- -------- ----------------- ----------------- -----------------
Tax (312) (349) 37 -11%
-------------------------------------- -------- ----------------- ----------------- -----------------
Statutory profit after tax 570 1,427 (857) -60%
-------------------------------------- -------- ----------------- ----------------- -----------------
Depreciation and amortisation of software increased 110% to GBP0.7m (H1 2019: GBP0.3m) as a result of the inclusion of the Willow Pumps charge for the first time and an increase in the amortisation charge in respect of software development at Metro Rod.
The finance charge of GBP0.3m increased 65% in the year (H1 2019: GBP0.2m) as a result of the higher net debt position following the largely debt-funded acquisition of Willow Pumps. The finance charge does not solely represent bank interest, but also includes interest on leases.
Amortisation of acquired intangibles has increased 82% to GBP0.2m (H1 2019: GBP0.1m) following the acquisition of Willow Pumps. The share-based payment expense has remained steady at GBP0.1m as no new options were granted in the period.
During the period we have taken a GBP0.6m charge in respect of events related to the COVID-19 crisis. In the light of the impact the crisis has had on a number of our customers, we believe it is prudent to anticipate that a number of them will fail as the various Government support schemes begin to unwind. A detailed internal analysis of debtors has been completed on a risk-weighted basis according to the business sectors they operate in and their financial position. At the time of our Placing we announced we would take a COVID-19 related charge of GBP1.3m to provide for these potential credit losses. Since then, our absolute level of debtors has fallen due both to customer payments and lower system sales at Metro Rod, and the level of credit losses experienced to date has been only GBP30,000. Therefore, we have been able to reduce the provision in respect of expected credit losses to GBP0.5m for the period. We have also taken a charge of GBP0.1m in relation to the closure of our Barking Mad office and Group redundancy costs.
Statutory profit before tax decreased 50% to GBP0.9m (H1 2019: GBP1.8m). The tax charge for the year at 35% (H1 2019: 20%) was higher than the statutory rate of 19% due to the change in the deferred tax liabilities in relation to acquired intangibles resulting 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 decreased by 60% to GBP0.6m (H1 2019: GBP1.4m).
Earnings per share
During the period the Group completed the Placing of 15,555,556 new Ordinary Shares. In addition, the Group issued 388,199 new Ordinary Shares as part of the final 2019 dividend which had a scrip option and 651,032 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. This resulted in the total number of Ordinary Shares in issue increasing to 95,720,375 at 30 June 2020 (31 December 2019: 79,513,787) and a basic weighted average number of Ordinary Shares in issue and not in Treasury of 85,067,691.
H1 2020 EPS H1 2019 EPS
GBP'000 p GBP'000 p
-------------------------------------- ----------------- ---------------- ----------------- ---------
Adjusted profit after tax 1,568 1.84 1,595 2.06
-------------------------------------- ----------------- ---------------- ----------------- ---------
Amortisation of acquired intangibles (196) (0.23) (108) (0.14)
Share-based payment expense (102) (0.12) (100) (0.13)
COVID-19 related costs (620) (0.73) - -
Other gains and losses (53) (0.06) - -
Tax on adjusting items (26) (0.03) 40 0.05
--------------------------------------
Statutory profit after tax 570 0.67 1,427 1.84
-------------------------------------- ----------------- ---------------- ----------------- ---------
Adjusted profit after tax has declined by just 2% to GBP1.6m (H1 2019: GBP1.6m), but as a result of the dilution resulting from the various share issues, adjusted earnings per share decreased by 10% to 1.84p (H1 2019: 2.06p). Basic earnings per share decreased by 64% to 0.67p (H1 2019: 1.84p) and diluted earnings per share decreased by 64% to 0.66p (H1 2019: 1.81p).
Financing and cash flow
The proceeds from the Placing have significantly strengthened our balance sheet and allowed us to pay down the Revolving Credit Facility in full. We have not repaid the Term Loan (which currently stands at GBP6.1m) to maximise the Group's immediately available liquidity. At 30 June 2020, the Group had cash of GBP11.8m, and undrawn bank facilities of GBP11.0m (comprised of the GBP5m RCF and GBP6m overdraft), giving the Group GBP22.8m of cash and available facilities. Having conducted an analysis of a full range of potential scenarios for the performance of the Group, the Directors are confident that this provides more than sufficient liquidity to trade through all outcomes, even those significantly worse than anticipated by the Directors, as well as to review potential acquisition opportunities as they arise.
30 June 2020 31 Dec 2019 Change Change
GBP'000 GBP'000 GBP'000 %
--------------------------- ------------- ------------ ----------------- ------------
Cash 11,820 1,682 10,138 603%
Term Loan (6,140) (6,401) 261 -4%
Revolving Credit Facility - (3,002) 3,002 -100%
Loan Fee 103 129 (26) -20%
Hire Purchase debt (1,544) (1,588) 44 -3%
Adjusted net cash/(debt) 4,239 (9,180) 13,419 -146%
--------------------------- ------------- ------------ ----------------- ------------
Other Lease debt (1,683) (1,899) 216 -11%
Net cash/(debt) 2,556 (11,079) 13,635 -123%
--------------------------- ------------- ------------ ----------------- ------------
Overall, the Group has substantially de-leveraged, moving to an adjusted net cash position of GBP4.2m (31 December 2019: adjusted net debt of GBP9.2m), and a statutory net cash position (including our capitalised leases) of GBP2.6m (31 December 2019: net debt of GBP11.1m).
The Group generated cash from operating activities of GBP1.1m (H1 2019: GBP1.8m) resulting in a cash conversion rate from Adjusted EBITDA of 38% (H1 2019: 75%). As a result of the Placing, the Group has been able to reverse the deferrals in payments which we had accepted from some of our suppliers, providers of finance and HMRC. In addition, we have been able to take a pragmatic approach with our commercial customers, particularly in the hospitality sector, some of whom have been unable to make timely payments due to their lack of revenues. Our ability to extend payment terms to them has, we hope, deepened our commercial relationship with these customers.
Dividend
The Board is cautiously optimistic for the full year and given the strong cash position following the Placing has declared an interim dividend at the same level as 2019 of 0.30 pence per share. The interim dividend will be paid on 19 October 2020 to shareholders on the register on 2 October 2020.
Chris Dent
Chief Financial Officer
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2020
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
GBP'000 GBP'000 GBP'000
-------------------------------------------------------------------- ----------- ----------- -------------
Revenue 24,209 20,084 44,013
Cost of sales (14,634) (12,641) (27,631)
-------------------------------------------------------------------- ----------- ----------- -------------
Gross profit 9,576 7,443 16,382
Adjusted earnings before interest, tax, depreciation, amortisation,
share-based payments & non-recurring items ("Adjusted EBITDA") 2,782 2,460 5,182
Depreciation (577) (257) (635)
Amortisation of software (89) (60) (120)
Amortisation of acquired intangibles (196) (108) (260)
Share-based payment expense (102) (100) (238)
Costs of acquisition of subsidiaries - - (270)
COVID-19 related charges (620) - -
-----------
Total administrative expenses (8,378) (5,509) (12,723)
-------------------------------------------------------------------- ----------- ----------- -------------
Operating profit 1,198 1,935 3,659
Other gains and losses (53) - (26)
Finance expense (262) (159) (357)
-------------------------------------------------------------------- ----------- ----------- -------------
Profit before tax 882 1,776 3,276
Tax expense (312) (349) (566)
-------------------------------------------------------------------- ----------- ----------- -------------
Profit for the period and total comprehensive income attributable
to equity holders of the Parent Company 570 1,428 2,710
-------------------------------------------------------------------- ----------- ----------- -------------
All amounts relate to continuing operations.
Earnings per share (p)
Basic 0.67 1.84 3.48
Diluted 0.66 1.82 3.42
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 30 June 2020
Audited
Unaudited 31 December
30 June 2020 2019
GBP'000 GBP'000
------------------------------------------------------------------ ------------- -------------
Assets
Non-current assets
Intangible assets 34,444 35,057
Property, plant and equipment 1,192 1,242
Right-of-use assets 3,294 3,538
------------------------------------------------------------------ ------------- -------------
Total non-current assets 38,930 39,837
------------------------------------------------------------------ ------------- -------------
Current assets
Inventories 692 594
Trade and other receivables 13,442 16,935
Cash and cash equivalents 11,820 1,682
------------------------------------------------------------------ ------------- -------------
Total current assets 25,953 19,211
------------------------------------------------------------------ ------------- -------------
Total assets 64,883 59,048
------------------------------------------------------------------ ------------- -------------
Liabilities
Current liabilities
Trade and other payables 8,109 12,684
Loans and borrowings 1,702 4,074
Obligations under leases 924 924
Current tax liability 722 594
------------------------------------------------------------------ ------------- -------------
Total current liabilities 11,457 18,276
------------------------------------------------------------------ ------------- -------------
Non-current liabilities
Loans and borrowings 4,335 5,200
Obligations under leases 2,304 2,563
Contingent consideration 3,659 3,606
Deferred tax liability 1,139 1,544
------------------------------------------------------------------ ------------- -------------
Total non-current liabilities 11,437 12,913
------------------------------------------------------------------ ------------- -------------
Total liabilities 22,893 31,189
------------------------------------------------------------------ ------------- -------------
Total net assets 41,989 27,859
------------------------------------------------------------------ ------------- -------------
Issued capital and reserves attributable to owners of the Parent
Share capital 479 398
Share premium 36,457 22,806
Share-based payment reserve 345 316
Merger reserve 1,390 1,390
Treasury reserve - (21)
Retained earnings 3,318 2,970
------------------------------------------------------------------ ------------- -------------
Total equity attributable to equity holders 41,989 27,859
------------------------------------------------------------------ ------------- -------------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended 30 June 2020
Unaudited Unaudited Audited
6 months ended 6 months Year
30 June ended ended
2020 30 June 31 December
2019 2019
GBP'000 GBP'000 GBP'000
---------------------------------------------------------------- ---------------- --------- -------------
Cash flows from operating activities
Profit for the period 570 1,428 2,710
Adjustments for:
Depreciation of property, plant and equipment 666 317 635
Amortisation of intangible fixed assets 196 108 380
Acquisition-related costs - - 270
COVID-19 related charges 620 - -
Share-based payment expense 102 100 238
Other gains and losses 53 - 26
Finance expense 262 159 357
Income tax expense 312 348 566
---------------------------------------------------------------- ---------------- --------- -------------
Operating cash flow before movements in working capital 2,782 2,460 5,182
Decrease/(increase) in trade and other receivables 3,493 (1,198) (1,523)
(Increase)/decrease in inventories (94) (36) 5
(Decrease)/increase in trade and other payables (5,118) 587 999
---------------------------------------------------------------- ---------------- --------- -------------
Cash generated from operations 1,064 1,813 4,663
Income taxes (paid)/received (127) 20 (147)
---------------------------------------------------------------- ---------------- --------- -------------
Net cash generated from operating activities 836 1,833 4,516
Cash flows from investing activities
Purchases of property, plant and equipment (178) (503) (865)
Purchase of software - (245) (837)
Acquisition of subsidiary including costs, net of cash acquired - - (3,958)
Net cash used in investing activities (178) (748) (5,660)
Cash flows from financing activities
Bank loans- repaid (3,300) (500) (2,506)
Bank loans- received - - 4,000
Other loans- repaid/(made) 26 61 (5)
Capital element of lease obligations repaid (447) - (716)
Interest paid - bank and other loan (157) (139) (343)
Interest paid - finance leases (109) (12) (44)
Proceeds from issue of shares 13,677 - 358
Purchase of treasury shares - (120) (266)
Dividends paid (229) (358) (592)
Net cash generated from/used in financing activities 9,461 (1,266) (114)
Net increase/decrease in cash and cash equivalents 10,138 (181) (1,258)
Cash and cash equivalents at beginning of year 1,682 2,940 2,940
---------------------------------------------------------------- ---------------- --------- -------------
Cash and cash equivalents at end of year 11,820 2,759 1,682
---------------------------------------------------------------- ---------------- --------- -------------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2020 Share-
Share based
Share premium payment Merger Treasury Retained
capital account reserve reserve shares earnings Total
Group 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 period and total comprehensive expense - - - - - 1,428 1,428
Contributions by and distributions to owners
Dividend paid - - - - - (358) (358)
Treasury shares - - - - (119) - (119)
Share-based payment - - 100 - - - 100
----------------------------------------------------- ------- ------- ------- ------- -------- -------- -------
At 30 June 2019 388 22,621 326 396 (270) 2,000 25,462
----------------------------------------------------- ------- ------- ------- ------- -------- -------- -------
Profit for the year and total comprehensive income - - - - - 1,282 1,282
Contributions by and distributions to owners
Shares issued 10 185 (148) 994 396 (79) 1,358
Dividend paid - - - - - (234) (234)
Treasury shares - - - - (147) - (147)
Share-based payment - - 138 - - - 138
----------------------------------------------------- ------- ------- ------- ------- -------- -------- -------
At 31 December 2019 398 22,806 316 1,390 (21) 2,970 27,859
----------------------------------------------------- ------- ------- ------- ------- -------- -------- -------
Profit for the year and total comprehensive income - - - - - 570 570
Contributions by and distributions to owners
Shares issued 81 13,651 (51) - 21 7 13,709
Dividend paid - - - - (229) (229)
Share-based payment - - 80 - - - 80
----------------------------------------------------- ------- ------- ------- ------- -------- -------- -------
At 30 June 2020 479 36,457 345 1,390 - 3,318 41,989
----------------------------------------------------- ------- ------- ------- ------- -------- -------- -------
1. Accounting policies
Basis of preparation
The consolidated financial statements for the six months ended 30 June 2020 and 2019 are unaudited and were approved by the Directors on 29 July 2020. They do not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The financial statements for the year ended 31 December 2019 were prepared in accordance with IFRS and have been delivered to the Registrar of Companies. The report of the auditor on those financial statements was unqualified and did not draw attention to any matters by way of emphasis of matter. The Group's financial statements consolidate the financial statements of Franchise Brands plc and its subsidiaries.
Applicable standards
These unaudited consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union, under the historical cost convention. They have not been prepared in accordance with IAS 34, the application of which is not required to the interim financial statements of AIM companies. The interim financial statements have been prepared in accordance with the accounting policies set out in the Group's Annual Report and Accounts for the year ended 31 December 2019.
Going concern
The condensed financial statements have been prepared on a going concern basis. The Group has generated profits both during the period covered by these financial statements and in previous years. These profits have resulted in operating cash inflows into the Group, and the Group has sufficient current financial assets to meet its current liabilities as they fall due.
During the period the Group has been impacted by the lockdown which was imposed by the Government as a result of the COVID-19 crisis. In response to this crisis the Group reduced costs to reflect the reduction in the level of revenues. This included the use of the Government's Job Retention Scheme ("furlough") scheme, which was an excellent tool during the height of lockdown to ensure that we could continue to employ our people in the face of a sharp fall in revenues. In addition, pay-cuts were agreed with the remaining employees, and other operational cost savings were achieved. Since the lockdown has begun to be eased the Company has seen a nascent recovery in its revenues and has consequently begun to return staff from furlough.
These actions meant that the operating divisions of the Group all continued to either generate profits or break-even on a month-by-month basis during the height of the lockdown.
The Company, and the overall Group, have re-forecast its anticipated financial performance over the balance of 2020, and throughout the whole of 2021. These financial forecasts include detailed income statement and cash flow budgets. These forecasts have been subject to review and approval by the Board of Directors.
On 20 April 2020 Franchise Brands completed a fundraise by which 15,555,556 new ordinary shares were issued at the price of 90p raising GBP13.6m (net of expenses). This fundraise has significantly strengthened our balance sheet at a time of heightened uncertainty. The Group has used the Placing funds to pay down its borrowings on the Group's Revolving Credit Facility ("RCF"). The Group has not, currently, used the funds to pay down our Term Loan (which currently stands at GBP6.1m) to continue to maximise the Group's accessible funding lines.
At the 30 June 2020 the Group had cash of GBP11.8m, and undrawn bank facilities of GBP11.0m (comprised of GBP5m RCF and GBP6m overdraft), giving the Group GBP22.8m of cash and available facilities. Overall the Group has de-leveraged, moving to an adjusted net cash position of GBP4.2m (31 December 2019: adjusted net debt of GBP9.2m), and a statutory net cash position (including our capitalised operating leases) of GBP2.6m (31 December 2019: net debt of GBP11.1m). Having conducted an analysis of a full range of potential scenarios for the performance of the Group, the Directors are confident that this provides more than sufficient liquidity to trade through all outcomes, even those significantly worse than anticipated by the Directors, as well as to review potential acquisition opportunities as they arise
The Directors have made appropriate enquiries and consider that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the interim financial statements.
2. Earnings per share
Basic earnings per share amounts are calculated by dividing profit for the period attributable to equity holders of the Parent by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share is 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 potential ordinary shares into ordinary shares at the start of the period or, if later, the date of issue.
During the current and comparative periods, the Group has not incurred any exceptional costs which the Directors believe should be separately identified.
Earnings per share
Six months ended Six months Year ended
30 June 2020 ended 31 December
30 June 2019 2019
GBP'000 GBP'000 GBP'000
----------------------------------- ----------------- -------------- -------------
Profit attributable to owners
of the Parent 570 1,427 2,710
Adjusting items, net of tax 997 168 672
----------------------------------- ----------------- -------------- -------------
Adjusted profit attributable
to owners of the Parent 1,568 1,595 3,382
----------------------------------- ----------------- -------------- -------------
Number Number Number
----------------------------------- ----------------- -------------- -------------
Basic weighted average number
of shares 85,067,691 77,447,500 77,948,178
Dilutive effect of share options 1,755,549 1,173,070 1,190,697
----------------------------------- ----------------- -------------- -------------
Diluted weighted average number
of shares 86,823,240 78,620,570 79,138,875
----------------------------------- ----------------- -------------- -------------
Pence Pence Pence
----------------------------------- ----------------- -------------- -------------
Basic earnings per share 0.67 1.84 3.48
Diluted earnings per share 0.66 1.81 3.42
Adjusted earnings per share 1.84 2.06 4.34
Adjusted diluted earnings per
share 1.81 2.03 4.27
----------------------------------- ----------------- -------------- ---------------
3. Availability of this report
This half year results report will not be sent to shareholders but is available on the Company's website at https://www.franchisebrands.co.uk/key-documents/ .
4. Directors' Shareholdings
During the period, Directors took part in the Placing and elected for the scrip dividend. The beneficial shareholdings of the Directors of the Company at today's date are as follows:
Total interest in ordinary % of total voting
shares rights
Stephen Hemsley 22,156,644 23.15
----------------------------------------- ------------------
Chris Dent 26,206 0.03
----------------------------------------- ------------------
Peter Molloy 33,861 0.04
----------------------------------------- ------------------
Tim Harris 1,370,731 1.43
----------------------------------------- ------------------
Julia Choudhury 1,529,365 1.60
----------------------------------------- ------------------
Colin Rees 353,375 0.37
----------------------------------------- ------------------
Nigel Wray 22,366,303 23.37
----------------------------------------- ------------------
David Poutney 3,644,845 3.81
----------------------------------------- ------------------
Rob Bellhouse 111,260 0.12
----------------------------------------- ------------------
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
IR DKLFLBDLZBBE
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July 30, 2020 02:00 ET (06:00 GMT)
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