Franchise Brands plc (AIM: FRAN), a multi-brand franchise business, provides the following trading update for the three months to 30 September 2020 ("Q3").
The Group saw a steady recovery in trading in Q3 from the previous quarter's lockdown-impacted performance, which had followed a strong Q1. Whilst the environment is still uncertain, the Board is confident of meeting current consensus market expectations* for revenue and adjusted EBITDA for the year to 31 December 2020.
The 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. Most of these services have been designated by the Government as essential to ensure the smooth running of the health service, public utilities and other key businesses.
At the height of the lockdown in April and May, system sales at Metro Rod and Metro Plumb were down by nearly 30% against the comparative period in 2019. From June onwards, system sales have grown by an average of 8% per month as the economy has emerged from the lockdown. By September, system sales for the month were 9% higher than in the comparative month in the prior year. As a result, system sales in Q3 were down only 6% against the same quarter in the prior year.
Revenues at Willow Pumps (which was acquired in October 2019) and Kemac grew by 48% in Q3 compared to Q2, but are still 20% down on Q1. However, Q3 revenues have been weighted towards higher margin service work resulting in gross profit in Q3 being down by only 10% on Q1.
The B2C brands have recovered at different speeds, driven by new franchisee recruitment. ChipsAway and Ovenclean, which in aggregate generated 89% of divisional income in 2019, are trading at pre-COVID-19 levels. Trading at Barking Mad, the Group's smallest network, continues to be well below pre-COVID-19 levels given its heavy dependency on the foreign holiday market.
Recruitment during Q3 was robust, with 21 new franchisees joining the B2C brands (Q3 2019: 20), meaning that for the year-to-date the division has recruited 48 new franchises (Q3 YTD 2019: 54). However, given the lower levels of trading in the underlying networks, especially at Barking Mad, there has been a slight increase in the level of franchisees leaving the brands, meaning that at the end of September there were 394 franchisees in the B2C division (31 December 2019: 404).
Q3 saw a welcome recovery from the reduced levels of activity in Q2 and trading in October has continued to follow that trend. If the "second wave" COVID-19 restrictions persist for any length of time, or become tighter, or more widespread, this could have an impact on the Group and reduce activity levels. The Board is confident of meeting current consensus market expectations* for revenue and adjusted EBITDA for the year to 31 December 2020.
The Group's balance sheet and liquidity position remain strong as a result of the underlying profitability of the Group and the cash generative nature of its businesses, combined with the proceeds from the April share placing. This puts Franchise Brands in a strong position to support its franchisees and continue to invest in the business, and also provides the Group with the ability to take advantage of any external growth opportunities that may arise.
Stephen Hemsley, Executive Chairman, commented:
"I am very pleased that the Group saw a return to more normal levels of trading during Q3. Our key priority remains the safety of our team members, particularly our engineers, customers and the public whilst continuing to provide the best possible service we can in a challenging environment.
"The resilience and resourcefulness of our people and franchisees is allowing us to navigate through these difficult times. The strength of the Group provides a platform fororganic and acquisitive growth as the economic environment recovers from the pandemic. I remain optimistic for the future growth and prosperity of Franchise Brands."
*Consensus market expectations for the financial year ending 31 December 2020 are as follows:
· Revenue £48.6m
· Adjusted EBITDA £6.1m
· Adjusted EPS 3.87p