Franchise Brands confident after solid first-half sales

Multi-brand franchise business Franchise Brands announced robust interim results for the six months ended 30 June on Tuesday, with a 42% increase in system sales to £206m, marking a record performance across its key divisions despite anticipated moderation in certain sectors.

The AIM-traded company said statutory revenue grew 35% to £69.8m, while adjusted EBITDA rose 45% to £17.8m, and adjusted profit before tax increased 21% to £10.6m.

Its cash conversion rate improved significantly to 72%, demonstrating strong cash generation and aiding in the reduction of debt incurred from the acquisition of Pirtek Europe.

Adjusted earnings per share decreased 7% to 4.04p, impacted by higher interest costs related to the Pirtek Europe acquisition debt, a 2.7% increase in the tax rate, and a 25% rise in the average number of shares in issue.

Adjusted net debt stood at £69.9m as of 30 June, down from £74.7m a year earlier, representing a leverage ratio of 1.9x.

Reflecting confidence in the company's performance, the board declared a 10% increase in the interim dividend to 1.1p per share.

Operationally, all key divisions achieved record system sales.

The Pirtek Europe division generated sales of £92.8m - a 2% like-for-like increase, despite subdued market conditions, with integration into the group progressing well, particularly in IT systems.

Metro Rod delivered record sales of £39.3m, up 5% from £37.4m in the first half of 2023, while Willow Pumps reported significant improvements in profitability.

Filta International saw system sales increase by 5% to a record £45m, despite weaker used cooking oil prices.

The division's FiltaMax strategic growth initiatives were reportedly gaining traction.

Franchise Brands said the business-to-consumer division meanwhile delivered a solid performance despite a challenging environment.

Looking ahead, the firm said it expected full-year adjusted EBITDA to align with current market expectations.

The company noted resilient underlying demand for its essential reactive services, even amid macroeconomic headwinds.

Management said it was focused on driving organic growth through cross-selling and integrating businesses onto common IT platforms while maintaining tight cost controls.

The company said it had seen early signs of improving macroeconomic sentiment, believing that its pipeline of opportunities should support increased demand.

“Underlying demand for the group's essential reactive services resulted in a resilient performance in the first half of 2024, with all our key divisions achieving record system sales, despite some anticipated moderation in demand across certain sectors,” said executive chairman Stephen Hemsley.

“This is enabling us to generate both the profitability and cash flow required to reduce the debt taken on to fund the Pirtek Europe acquisition.

“We have made solid progress, with the integration of Pirtek Europe progressing well, as we look to drive organic growth through cross selling across the Group, enabled by common IT platforms in place.”

Hemsley said the company also believed technology would be key to unlocking the benefits of operational gearing, and would play a significant part in underpinning future margin expansion.

“Whilst mindful of continued uncertainty in some markets, early signs of improving macroeconomic sentiment and our pipeline of opportunities should support an improvement in demand and a full year performance in line with the current range of market expectations for adjusted EBITDA.

“We are confident in the significant growth potential of our principal franchise brands as they grow their small shares of large, fragmented markets, expand their range of services and geographical penetration, and cross-sell to our large customer base.

“The platform for growth we are building as we focus on integrating our recent acquisitions supports the strategic ambitions set out at our capital markets day held earlier this year.”

At 1255 BST, shares in Franchise Brands were up 0.76% at 161.21p.

Reporting by Josh White for Sharecast.com.