Multi-brand international franchiser, Franchise Brands (FRAN:AIM) has reported strong interim results that comfortably beat broker expectations.
The Macclesfield-head quartered company runs several businesses in the emergency repairs and maintenance space, providing centralised administration, marketing support and other services to individual franchisee operators.
Plumbing and unblocking drains is its biggest line of work, although interests extent to things like paint work repairs to vehicles.
STRONG MOMENTUM
Revenues in the half jumped 19% to £20.1m, driven by strong momentum in the Metro Rod franchisee base, by far the biggest revenue and profits generator. System sales here rose 15%, while 39% of its franchisee network managed to post sales increases of 20% or better year-on-year.
This resulted in a 44% increase in earnings before interest, depreciation and amortisation to £1.7m Metro Rod, which contributed to a 25% increase at group level to £2.5m.
A key performance indicator for the company is management service fees and direct labour income, which increased by 25% to £10.6m.
That sparked a share price jump of more than 5% to 89p.
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Executive chairman and former Domino’s Pizza boss, Stephen Hemsley said, ‘we have made significant progress with our strategy at Metro Rod and have begun to realise the benefits of our investment in infrastructure - in particular IT - that is starting to unlock sales growth, efficiencies and improved customer service, enhancing both corporate and franchisee profitability.’
UNBLOCKING GROWTH POTENTIAL
One of the growth initiatives in the Metro Rod and Metro Plumb businesses that seems to paying-off is the move to enable franchisees more control over their day-to-day operations.
This is beginning to shine through with locally sourced sales growth of 19% compared with 8% last year. In other words, franchisee operators are doing more marketing for themselves, such as driving word of mouth recommendations, rather than relying on new leads from central office.
Locally sourced sales now represent 42% of overall system sales, up from 40% in 2018.
The company has built its own software tools such as pre-formatted templates, which has had a significant impact on the time taken to respond to quotes, cutting response times to four days from over 10, improving conversion rates.
A move to Sage (SGE) accounting has improved the company’s ability to manage credit and debtor days and puts it on course to reduce the debtor days outstanding from 67 days closer to 60 days, improving cash generation, a key characteristic of a franchised business model.
Car paintwork and repair specialist ChipsAway saw a strong recovery with 19 franchises recruited compared with six in the first half of 2018. Progress has been made to train the network to handle electric and hybrid vehicles, including the ability to re-calibrate cars fitted with Advanced Driver Assistance Systems (ADAS).
EYES ON ACQUISITIONS
The company sees room to make further bolt-on acquisitions aimed at complementing existing franchises, rather than purchasing new networks.
Management has given a very positive outlook statement, saying that accelerating organic growth and increasing connectivity within the group along with ‘prudently financed, earnings-enhancing acquisitions’ will provide significant and sustainable growth in earnings and dividends.
To underline the direction of travel the board is recommending an interim dividend of 0.3p, up 43% on last year and covered 6.1-times by earnings.
