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:
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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