Franchise Brands reports strong B2B divisional growth

Franchise Brands said in a trading update on Tuesday that its business-to-business (B2B) division experienced strong growth in system sales, particularly in Metro Rod, achieving record levels in the first quarter.

The AIM-traded firm, which was holding its annual general meeting, said the integration of Filta UK into the division was set to improve customer service and reduce costs in the medium term.

It said the division's defensive, primarily essential, services had proven resilient despite current macroeconomic uncertainties.

In North America, Filta continued to perform robustly in the first quarter, with franchise and equipment sales driving growth.

Revenue from the sale of used cooking oil for biodiesel production was in line with expectations, with increased volumes compensating for the expected lower price of used oil.

The outlook for used oil revenues remained unchanged, the firm told shareholders, while the FiltaMax expansion strategy was gathering momentum, underpinning the board’s confidence in continued growth for Filta in North America.

Franchisee recruitment in the business-to-consumer (B2C) division improved in the first quarter compared to the fourth quarter of 2022, the board said, with ChipsAway - the largest brand in the division - achieving the same level as the first three months of last year.

The company’s level of attrition had also reduced below the five-year average, although the loss of franchisees in 2022 and increased overheads generally impacted income in the first quarter of 2023.

On 3 April, Franchise Brands announced the proposed acquisition of Hydraulic Authority I, the owner of Pirtek Europe - a leading European provider of on-site hydraulic hose replacement and associated services, for £200m, plus a working capital adjustment of £12.2m.

Subject to shareholder approval, the acquisition was set to complete on 21 April.

Franchise Brands said Pirtek Europe would provide an emergency response service to a diverse portfolio of customers, primarily via a network of 70 franchisees.

The business consisted of 213 service centres and 838 mobile service vehicles in eight countries, with opportunities for expansion given its royalty-free, indefinite master franchise licence agreement over 16 European countries.

Its board said the acquisition of Pirtek Europe, which would expand Franchise Brands' operations into 10 countries, would advance its ambition of creating a market-leading international B2B multi-brand franchisor generating income equally from the UK, North America and continental Europe.

The acquisition would also provide a low-cost platform to launch its current brands into new markets, and the opportunity to further leverage central services efficiently, particularly in technology, marketing, and finance.

It added that the acquisition was expected to be immediately earnings accretive.

"The existing group has had a good start to 2023,” said executive chairman Stephen Hemsley.

“The acquisition of Pirtek Europe will further transform the group by diversifying the range of emergency response services provided and our geographical reach and customer base.

“This will provide greater resilience to earnings and provide a platform for the acceleration in the growth of our business.”

At 1210 BST, shares in Franchise Brands were up 1.74% at 190.77p.

Reporting by Josh White for Sharecast.com.