Franchise Brands doubles in scale, again, following latest acquisition

Filta franchise

Stephen Hemsley, executive chairman of Macclesfield-based multi-brand franchise business, Franchise Brands, says he has “great confidence in the tremendous opportunity ahead” after announcing annual results for the year ended December 31, 2023.

It follows the acquisition of Pirtex Europe for £210.8m in April last year, which has helped almost double annual revenues. The business achieved a similar doubling in scale the previous year with the acquisition of Filta, in March 2022.

Today’s announcement revealed that revenues soared from £69.839m to £121.265m, boosted by the acquisition of Pirtek, although pre-tax profits slumped from £10.038m in 2022, to £5.016m. Adjusted EBITDA increased by 97% to £30.1m (2022: £15.3m).

The cash conversion rate increased to 100% (2022: 90%) demonstrating the strong cashflow performance of the group’s franchise businesses.

A final dividend for 2023 of 1.2p per share has been proposed, compared with 1.1p in 2022, giving a 10% increase in the total dividend for the year of 10% to 2.2p per share (2022: 2p).

The group said the enlarged business performed strongly in the period, generating both the profitability and the cashflow required to service and reduce the debt taken on to fund the Pirtek acquisition. The acquisition price comprised £100m of bank debt and £114.3m of equity.

During just over eight months of ownership in 2023, Pirtek traded at record levels, contributing as expected to the group’s results.

The integration of Pirtek is progressing well, with an immediate focus on optimising the effectiveness of the business through utilising shared resources, in particular technology.

In the newly named Water & Waste Services division, system sales grew by 18.2% to £106.7m, with Metro Rod and Metro Plumb being the main drivers of this increase.

The group has also created a new centralised international IT function that will manage every aspect of the digital landscape for the whole business. The centralised international IT function will accelerate growth and new developments that can positively impact the group, although it will increase IT expenditure in the short term.

Looking ahead, Franchise Brands said the resilient underlying demand for its essential reactive services means that the business continues to perform well and grow. Its key divisions all achieved record results in 2023, despite some softening in demand in the second half of the year in the construction and hire-fleet customer sectors which has continued into the current year.

The fall in the price for used oil in the US also impacted profits in 2023, and while volumes continue to grow, the price continues to soften, which will impact income in 2024, it warned.

The change in the accounting treatment of sale of franchise territories income from taking revenue upfront to spreading it over the life of the franchise agreement may also impact profit in 2024, it added.

The short term operational focus is continuing the integration of all the group’s businesses and repaying the Pirtek acquisition debt, which is progressing well.

Franchise Brands said capital allocation decisions will balance debt reduction, a progressive dividend policy and organic investment in the group. The board does not expect to make any further acquisitions of scale until the acquisition debt is substantially repaid, it said.

Stephen Hemsley

Stephen Hemsley said: “The group has delivered Adjusted EBITDA at the top end of the range of market expectations in a year when we once again doubled the size of the group with the acquisition of Pirtek, having doubled in size in 2022 as a result of the acquisition of Filta.

“The group now operates seven brands in 10 countries in the UK, Continental Europe and North America, giving it a more diversified international footprint and range of resilient business services.

“The resilient underlying demand for the group’s essential reactive services enabled all of its key divisions to achieve record results in 2023, despite some softening in demand in the construction and hire-fleet customer sectors and in used oil prices which has continued into the current year.

“We see significant growth potential for our principal franchise brands of Pirtek, Metro Rod and Filta, which have small shares of large markets, as we extend their range of services, geographical penetration and cross-selling to our larger customer base. This growth potential is supported by our Maximum Potential Model which we use to estimate the potential size of our markets.”

He added: “We are progressing well with integrating the group’s businesses and beginning to share resources internationally, enabled by technology, which will accelerate operational gearing for both us and our franchisees in the coming years.

“This progress will support our medium term ambitions of growing system sales to c.£600m and Adjusted EBITDA of c.£60m in 2027, and given the group is highly cash generative, we will continue to de-gear as previously guided, giving me great confidence in the tremendous opportunity ahead.”

Franchise Brands also announced some boardroom changes this morning, involving the immediate departure of Mark Fryer as chief financial officer and company director.

He joined the business on August 2, 2023. A search for a permanent replacement has commence shortly.

In the meantime, Andrew Mallows has been appointed as a director of the company and as interim chief financial officer with immediate effect. Andrew originally joined Franchise Brands in 2016 as finance director, and since 2017, has been the group’s commercial director over which time he has made a significant contribution to the development of the business.

He served as interim chief financial officer of the group between July 26, 2022 and August 2, 2023. He was finance director of Domino’s Pizza UK & IRL from 2001 to 2004 before being appointed as its business development director.

Mark Boxall has also been appointed as chief operating officer, a newly created position on the group’s management board. Mark was chief operating officer at D4t4 Solutions (now Celebrus Technologies), a software and data platform provider, between 2015 and 2022, with responsibility for business operations in the UK and internationally.

He has proven experience in operations, strategy implementation, acquisition integration, business development, financial planning and analysis, systems, business process engineering and programme management across a wide range of sectors.

Mark will join the group’s management board but is not being appointed as a director of the company.

Stephen Hemsley said: “These changes have been made to both strengthen the leadership of our finance team and provide more focus on the integration of the recently acquired businesses. This will help ensure we meet the operational gearing targets set out in our strategic plan and deliver our results in a timely manner.

“Andrew Mallows has been a key part of the Franchise Brands team for a number of years, making a significant contribution to driving the commercial and strategic focus of the group. His extensive knowledge of the business and strong relationships with the team will be invaluable as we strengthen the finance team.

“I am very pleased to welcome Mark Boxall to the group. The key strategic priority for the group over the next three years is to continue integrating the businesses we have acquired, which will allow us to repay the acquisition debt as quickly as possible.

“Mark has substantial operational and commercial experience and will assist with all aspects of integration, collaborating closely with the group’s CEOs and management board team.”

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