Franchise Brands confident of meeting full year expectations as trading recovers

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Franchise Brands PLC (LON:FRAN) has said it is confident of meeting current market expectations for its current year as the group highlighted a “steady recovery in trading” in its third-quarter from a second-quarter impacted by lockdown measures.

In a trading update for the three months to September 30, 2020, the owner of the multi-brand business said its B2B division, which includes its Metro Rod, Metro Plumb, Willow Pumps and Kemac portfolio of drainage, plumbing and pump brands, said sales grew by an average of 8% per month from June onwards as the UK economy emerged from lockdown, and by September system sales were 9% higher than a year ago.

As a result, the division’s sales in the third quarter were down only 6% year-on-year, compared to a 30% decline for the division at the height of lockdown in April and May.

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Revenues at Willow Pumps, which was acquired in October 2019, and Kemac grew by 48% in in the third quarter compared to the second quarter, but are still 20% down on the first. However, Franchise Brands noted that third-quarter revenues have been weighted towards higher-margin service work resulting in gross profit in the third quarter being down by only 10% on the first quarter.

Meanwhile, the firm’s B2C division saw different brands recover at different speeds, driven by new franchisee recruitment. Its ChipsAway and Ovenclean brands, which generated 89% of the division’s income in 2019, are trading at pre-coronavirus levels, while the group’s smallest network, Barking Mad, was “well below” pre-pandemic levels given a heavy dependency on the foreign holiday market.

However, the company said franchisee recruitment in the third quarter had been “robust” with 21 new franchisees joining the B2C brands in the period, taking the year to date number to 48. The company did add that given the lower levels of trading in the underlying networks there had been a slight increase in franchisees leaving the brands, meaning that at the end of September the B2C division had a total of 394 franchisees compared to 404 at the end of 2019.

Looking ahead, Franchise Brands said the “welcome recovery” in the third quarter has continued to follow the same trend in October. While it said new coronavirus pandemic restrictions could impact the group and reduce activity levels, the company said it is confident of meeting market forecasts for the full year, which currently stand at adjusted earnings (EBITDA) of £6.1mln and revenues of £48.6mln.

The company also said its liquidity position remained strong and that it is in a position to support its franchisees and continue to invest in the business, as well as provide an ability to “take advantage of any external growth opportunities that may arise”.

“I am very pleased that the group saw a return to more normal levels of trading during [the third quarter]. 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”, Franchise Brands executive chairman Stephen Hemsley said in a statement.

“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 for organic and acquisitive growth as the economic environment recovers from the pandemic. I remain optimistic for the future growth and prosperity of Franchise Brands”, he added.

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