City round-up: Franchise Brands confident; Ashley increases boohoo stake

Macclesfield-based multi-brand franchise business, Franchise Brands, said it is confident of delivering adjusted EBITDA for the full year in line with market expectation, with debt levels reducing, it said in a third quarter update this morning.

The update for the three months to September 30, says consensus market expectations for the financial year ending December 31, 2023, is adjusted EBITDA of £29.3m.

Following the acquisition of Pirtek Europe in April 2023, the group now operates seven franchise brands in 10 countries, in the UK, Continental Europe and North America, resulting in a more diversified international footprint and a broad range of resilient business services.

Reporting progress across its divisions, the group said the B2B businesses, which are engaged primarily in providing essential reactive services and includes Metro Rod and Metro Plumb in the UK and Pirtek in eight European countries, are all trading at record levels, despite some softening in demand over the summer period.

While the type of reactive services provided have resilient underlying demand whatever the macroeconomic conditions, demand naturally reduces when customers’ equipment or facilities are not being used as intensively. Consequently, Q3 was a little softer than in the first half, but the group saw a modest increase in activity at the start of the fourth quarter.

Pirtek is integrating well and has met expectations at the time of its acquisition.

As a result of the significant opportunities to build a much larger business, the group has decided to accelerate the integration process. It has optimised the management structure for cost and operating efficiencies, and the new leadership team has settled in well and is developing strong relationships across the group.

Metro Rod has experienced continued strong momentum in the year-to-date in the growth of system sales due to the continuing initiatives to widen and deepen the services offered, particularly in the area of pump service and maintenance. Metro Plumb continues to grow strongly as new independent franchisees are recruited and the range of services offered improves.

Good progress has been made in Willow Pumps, where the special project department is gathering momentum. The transition from a direct labour operation to a franchise model at Filta Environmental has accelerated with additional franchisees recruited, resulting in more than 70% of the grease recovery unit maintenance work being delivered by the franchisees. While this has reduced the Filta UK gross margin, it is helping us build a stronger, more sustainable franchise model in the longer term.

Filta’s North American business has benefited from robust activity across all key customer sectors, with used oil volumes and revenues up strongly. The range of services being offered to its commercial kitchen customer base is also being expanded with the addition of new bulk oil sales and a steam cleaning service, which will drive the management service fee income in future periods. However, some of this underlying growth has been offset by a reduction in the price achieved from the sale of used cooking oil.

The B2C division continues to operate in a challenging environment, although profitability is being maintained in line with expectations.

The group said its net debt (excluding leases) on September 30, 2023 reduced to £76m (June 30, 2023: £79.1m), comprised of gross debt of £92.4m and net cash of £16.4m.

The group is trading comfortably within key banking covenants. Its interest charge is averaging circa eight per cent on the gross debt, which is higher than projected at the time of the Pirtek acquisition due to increases in the Sterling Overnight Interest Average (SONIA).

During the third quarter the group has continued strengthening the senior management team with Mark Fryer joining as chief financial officer and Rob Bellhouse appointed as company secretary. It has also developed its corporate governance structure, in line with the expansion of the group and its ambition for the future, by reorganising the board structure

It now has a smaller plc board comprising two executive directors and three non-executive directors, including Peter Kear, who has been appointed as senior independent non-executive director. The plc board is supported by a management board comprising the divisional CEOs and heads of the support functions.

Despite challenging macro-economic conditions, the resilient nature of our services means that the group continues to perform well and expand.

Chairman, Stephen Hemsley, said: “The integration of Pirtek is progressing well, and the new senior leadership appointments are allowing us to accelerate the process of integrating this business into the group and achieve more cross-functional and cross-geographic co-operation, particularly where we can leverage our shared resources.

“We see significant potential for growth across our principal franchise brands, which have a small share of large markets, by broadening the range of services offered, increasing the geographical penetration and cross-selling to the larger customer base. This scale, and our continued investment in IT infrastructure, will accelerate our operational gearing in future years and be a further driver of adjusted EBITDA.”

He added: “Whilst the trading environment has become more challenging as the year has progressed, the resilient nature of the business services we provide gives us confidence in delivering adjusted EBITDA for the full year in line with consensus market expectations.”

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Fast fashion retailer boohoo

Mike Ashley’s Frasers Group has once again increased its shareholding in Manchester-based online retailer, boohoo.

Last week it upped its stake in the business to 15.12%, worth £56.6m at the time. Its latest investment will give it a 16.502% share of boohoo.

Frasers is bolstering its holdings in a range of retailers, including boohoo, such as electrical retailer Currys, Bolton-based online electrical firm AO World, and online fashion group Asos.

The former Sports Direct group began building a stake in boohoo in June this year, saying it it saw “potential synergies” for two of its brands, I Saw It First and Missguided, claiming a closer relationship could lead to collaborations.

When Frasers upped its stake in boohoo last week, Russ Mould, investment director at Manchester investment platform, AJ Bell, said: “Frasers loves a bargain and clearly sees an opportunity to have influence over boohoo’s strategy, possibly as another avenue to sell its range of athleisure brands.

“But equally, Frasers might be viewing this simply as a way to make a quick buck – a chance to buy shares on the cheap and then flip them should the online retailer be successful in its turnaround efforts.”