Franchise Brands (LSE:FRAN) — Final Results

0:00 Good morning, and welcome to the FRANCHISE BRANDS PLC final results investor presentation. Throughout this quarter presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the Q and A tab situated in the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives in the meeting itself. However, company can review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to select the following poll. I'd now like to hand you over to Stephen Hemsley, Executive Chairman. Good morning to you, sir.

0:31 Good morning. Welcome to the Franchise Brands presentation. We have a fair bit to go through today, I'd like to start by introducing the team. As has been said, Steven Hemsley, executive chairman. My background goes back sort of thirty odd years in in in franchising to Domino's Pizza where I was CFO, CEO, chairman, and then on executive chairman. But I retired from that a number of years ago now to work exclusively on franchise brands, which I founded with my partner, Nigel Ray. I'd like to introduce Chris Stuckey, who's CEO of Pertech, which is a business we acquired in April last year.

1:24 And also Beth Pierce, finance director of our water and waste division.

1:34 Let's just start by giving you an overview of franchise brands, who we are, the sort of size we are, the focus of the business, and how we grow it. FRANCHISE BRANDS is a multi brand franchisor based on b to b van based service with a presence in 10 countries in The UK, North America, and Europe. Pertech, MetroRob, MetroPlum provide essential services to b to b customers on a mostly reactive basis. We have some planned work, but most of the business we do is reactive. So people call us out when they have an emergency situation. Fuel to the business required in, '22, provides a more planned service to the hospitality sector in The US, UK, and Mainland Europe.

2:25 The b to c brands, Chips Away, Oven Clean, and Barking Mad, are mostly single van, operations. Demand for most of our services is pretty resilient because it's an emergency type situation. Although, I would say it is not recession proof. In the financial year, to December 23, we had system sales, which are the sales of all the underlying franchisees and the direct labor businesses we operate. They totaled 350,000,000, and adjusted EBITDA was just over 30,000,000. We have 625 franchisees across seven franchise brands, employing over 3,000 people and using over 2,000 service vans.

3:12 We also have 700 direct employees in our franchise and direct labor businesses. Focus franchise brands is to build market leading businesses primarily via a franchise model. We don't do start ups. What we tend to do is build existing businesses from good to great, and our preferred model is is franchising. But we will use direct labor businesses where they enhance their franchise channel, particularly where we don't have we don't believe we can grow the skills that we need to grow the franchise businesses internally. And and Willow Pumps is an example of

3:49 where we have acquired a a direct labor business. Our strategy is to grow our franchisees business as we believe that if our franchisees grow, we grow. We grow the business by using something called the maximum potential model, which was a a a a business planning model that was introduced to me by Ben Capital when I was running, Domino's Pizza. And what it allows you to do is estimate the market size and identify where there are opportunities to grow the business, really doing what we do at the moment. So it's not blue skies thinking. It's just looking at what the best franchisees are doing within their territories and extrapolating that across all the territories to all the franchisees. We use a series of growth tools then to realize this potential.

4:38 One of the other key focuses of franchise brands is to leverage shared services because you don't need to duplicate certain services across all the businesses in all the countries. And particularly, technology, marketing, and finance are are susceptible to centralization and economies of scale. So this gives you some idea of what franchise brands looks like. As I said before, adjusted EBITDA of 30,000,000 in 2023, of which 13 just over 13,000,000 came from Pertech, just under 11,000,000 from the water and waste division, Filter International, which is the business in The US and Europe, 6,000,000.

5:25 The b to c brands, just over 2,000,000. And our dedicated software company, about 2,000,000. Financial highlights of the year. As I said before, 350,000,000 in system sales, adjusted EBITDA of 30,000,000, earnings per share, adjusted earnings per share of 4.2p per share, and we ended the year with net debt of 70 just under 75,000,000, having taken on about a 100,000,000 to acquire Perto. We declared a dividend of 2.2p a share subject to shareholders' approval at the upcoming AGM.

6:16 Now I'd like to hand over to Chris who'll go through the Pertech division. Over to you, Chris. Thank you. You, Steven. So the Pertech business joined the franchise brands family on the April 21. So all of the figures presented here represent the ownership period. If you look at the slide, the 126,000,000 in reality was a 180, which was a 10% growth on the prior year. Vertec is basically two main parts at the moment. We have three mature businesses, The UK and Ireland, Germany and Austria, and Belgium and The Netherlands. Each of these have been in existence for an extended period of time, and all of them operate as franchise operations.

7:08 Though we do have some corporate Lyon centers in each of these territories. We have two newer operations, Sweden and France, which are not yet mature, and we're growing those businesses geographically. They're operated as direct labor organizations. So the key strategic initiative that we've had for the last four or five years in Pertech has been transitioning all of our franchisees over to a royalty model. So, basically, a charge on the sales that they make to their customers. This allows us to drive the business forward and also expand away from core breakdown services into more labor heavy activities of preventative and predictive maintenance and technical sales.

8:01 The transition to the royalty model was achieved with the last of the Dutch franchisees transitioning over on the December 31. The other main focus that we've had since the acquisition has been our integration into franchise brands, and I believe that this is going very well. We streamlined the Pertek overhead, removing the holding company structure and also downsize the Pertek Europe overhead. We're also now looking to streamline the IT services, which we'll talk about later on. And we've incorporated the maximum potential model that Steven mentioned into Pertech, which we're now starting to operationalize, and this is identifying significant opportunities for growth.

8:56 So the Pertech business, as I said, we grew in line with expectations 10% year on year. If you look at the underlying EBITDA, we grew by 13.8% in constant currency terms and 10% in sterling terms over that period. Obviously, significant portion of the revenues are in euros and a small amount in insect from Sweden, which had a negative exchange rate, but we still grew by the expected 10% level. The central reactive services that we provide are robust and, you know, people, if they have equipment breaking down, they need to have it fixed irrespective of what their current financial situation is.

9:42 We're seeing activity levels remaining strong across most sectors. However, we have seen some softening in construction and the plant hire sector, principally in The UK and Benelux. And we've also seen a little bit of a contraction in the manufacturing business in Germany,

10:02 but this is really affecting our rate of growth as opposed to actually impacting the the headline sales. We've had a real look at the underlying business sectors that we operate in in the our exposure to the construction and rental sector is now significantly smaller than it was ten, twenty years ago, and we've diversified into more resilient industries, waste, utilities, food and beverages, and this has insulated us from some of the downturn that we've seen in the construction area. In addition to that, we have the opportunity to continue to grow in these sectors. We are well below our maximum potential across all of the market sectors and enormous opportunity to drive growth there. In addition to that, we have opportunities to extend the range of services that we provide.

11:00 The royalty models allowed us to move, as I said, more into predictive and preventative maintenance. This activity has been successfully applied in Germany and in The UK. Now in Benelux, we can now introduce that as we're on the royalty model. IT is a principal focus for us. So in Pertek, under our previous private equity ownership, obviously, the long term investment in IT systems was less of a priority. We're now looking at consolidating our systems. At the moment, we have service management systems that our technicians use to book jobs that are different across each of our territories.

11:45 We're looking to consolidate those into a single system based on Azure Vision platform to allow us to provide a better service to our customers, And we see this as a way of providing competitive advantage in the marketplace. In addition to that, we have opportunities to cross sell between the Pertek businesses and the franchise brands businesses. So we have some overlapping customers, but there's still some gaps where we have opportunities to cross sell. Network Rail is a large customer of Pertek. We do a lot of maintenance work for them and their track maintenance equipment. We've introduced Metro Rod into their procurement function, and they've quoted so far on a couple of of contracts for drainage across the network rail estate.

12:37 Another Pertech customer, FRANCHISE Group, who are a civil engineering company, we've introduced them to Willow Pumps, and they're utilizing Willow Pumps to provide their services there. And then with Willow Willow historically used one of Pertek's competitors for their hydraulic requirements. We've now transitioned over to utilizing Pertek to provide these services, and we're also working with the Willow Pumps project division to allow them to incorporate Pertek's engineers into those services to give us an opportunity to to sell into those businesses. So I think it's a a very good opportunity for Pertek to continue to grow under franchise brands ownership.

13:27 If we look across the business, as I said, we saw, you know, good growth in top line sales and strong growth in EBITDA over the period of ownership, and it was pretty much in line with the growth that we saw over the full year. The royalty model, as I said, allows us to diversify our activity. It gives us growth drivers for the future. We need to obviously continue focusing on growing the business. As Steven said, the max potential model identifies opportunities. We're now using that with our existing growth tools to try and drive that forward. So we have an extensive use of outbound CRM in each one of our European countries where we develop relationships with our customers utilizing in house agents.

14:21 We build the relationships up and also allow us to do contact call visits to to drive sales growth. We've invested in technical sales resource in each of the countries that allows us to upscale the franchisees' abilities to sell to customers. So rather than just doing a hose repair, we can look at extending the range of hydraulic activities that we do, and this is provided to the franchisees and then paid for through the quality model. We've worked in The UK on a brand new process with the franchisees where we manage the local sales resource using our experienced sales team, and they, the franchisees, pay for this sales resource. What we found since the introduction of this is that we're driving a lot more local sales growth, and we believe that this successful initiative in The UK can be moved into the other franchise markets, Germany, Benelux, to drive local sales growth there.

15:23 So as I said, good sales growth, and we're looking to continue driving the top line sales.

15:36 If you look at the contribution across the countries, you can see UK is the largest business. Germany and Austria is about the same size in euro terms as The UK is in pounds. German population is about 50% larger than The UK, and so we would expect this business to continue to grow to be about 50% larger than The UK business. We're working with the franchisees on going through center splits, so taking their existing territories and carving them up, putting additional service centers and additional technicians. The Benelux business is growing very well. We have introduced a large increase in the number of corporate centers into Belgium, which has successfully driven that business forward. We're now going through a cycle of looking to sell those businesses onto franchisees.

16:31 And then we're going for large geographic expansion in France and Sweden to drive those businesses forward, and we're looking to potentially move through a joint venture or franchise organization in those territories at a later date. So, again, as we said, such strong sales growth, strong EBITDA growth in line with the expectations from the purchase of the business.

17:01 So I'll hand over to Beth to talk about water and waste. Perfect. Thanks, Chris. So the water and waste division is made up of our four key brands here. The group was created through acquisition, but it's grown really strongly organically over the period. Metro Rod makes up the significant proportion of the group at 62%. But what we identified within these businesses is that they all hold quite a small share of very large fragmented markets, and there's an opportunity for us to be the one stop shop for water in waste out services. So in order to achieve that, there was three main objectives last year. The first was integration, utilizing shared resources and shared services, particularly surrounding finance, health and safety, HR, and franchise recruitment.

17:50 Also looking at cross selling, as Chris mentioned, with a massive customer base across the four groups or the four brands utilizing that to cross sell and share our share our services. And then the final one is optimizing our service delivery, looking at expanding our franchise network and enhancing our franchise network, particularly with Willow Pumps and utilizing that area of expertise to to grow the other businesses, particularly within Metro Rod. So looking at the businesses individually. Metro Rod, as I mentioned before, is the largest part of the water and waste division. We saw really strong growth last year in Metro Rod, up 20% system sales. The rate of growth slowed slightly in the second half of the year, and that was due to a plan to move away from these smaller value contracts with home emergency that have little room for growth and focusing more on our expanding our services, particularly around tankering and pumps, which attract a much higher average order value.

18:50 And this allows us to grow faster, but also allows the franchisees to grow more profitably and expand their range of services as well.

18:59 Metro Plum, we continue to expand our Metro Plum network. We took on seven additional standalone franchisees last year. There is no national one stop shop for plumbing in The UK, and so there's a real opportunity there. We now have almost full coverage in England, and we're expanding that into Wales and Scotland as well. And similarly to Metro Rod, we're continuing to expand those services. So we with the standalone franchisees, we're able to get in better skill sets and better knowledge. So we're now moving into gas leak detection and renewables with air source heat pumps. And that has again allowed us to expand our customer base away from these lower value insurance contracts. Looking at Willow Pumps, Willow Pumps growth was limited to 3% in the year.

19:51 However, we've seen a significant change in the management organization last year, which has then better growth in h two. And we continue to utilize Willow to enhance our franchise network. We undertook a job within Metro Rod last year for about £400,000. It was the type of job we would never have done without the support and guidance from Willow and their expertise. So that was a really really great example of where we continue to use that skill set in the franchise business. We also launched our special projects division within Willow last year, and that was an investment, but it's utilizing skill sets outside of our franchise network and entering into a different market using an external well established subcontractor or supply chain. And we've got a really strong pipeline for 2024 with that.

20:44 And then finally, FILTER. So FILTER looks at look after fat oils and grease management, and they've got a great advantage with due to the legislative regulations around fat oils and grease in The UK. We are moving filter from a DLO organization into a franchising model, and we've seen great progress with that. So in q four last year, 74% of all of our FOG servicing was completed by our franchise network. And as of today, that's over 80%, and we're looking to get to up over 90% by the end of the year. We had some supply chain challenges within FILTER last year, and what we've now done is acquired the IP for our grease recovery unit. This has allowed us to secure that supply chain for the future and set up a much more robust base to allow us to grow.

21:34 The other area that we're continuing to expand on is our filter seal services. This this it looks at seals in commercial kitchens for fridges and other units, and it's highly profitable for us. And it's delivered by our DLO and our our own in house technicians, but it is an area that we're continuing to invest in and continue to grow. So combined across the group then, we've seen 18% system sales growth in the year with Metrowood again being a large driver of that up 20%.

22:06 We've seen a slight reduction in terms of gross profit at percentage within the within the division, and that's driven by Metro Rod. We took back in house our North Scotland territory as a franchise back into the Metro Rod business at the end of twenty twenty two, and that's caused a reduction in our GP percentage. However, that area has been up for sale. We've already sold one third of it with the other third due to be hopefully sold soon. We continue to focus on operational gearing, and we're really encouraged by the fact that administrative expenses grew by only 12% compared to the 18% system sales growth. And again, that's around sharing those resources within across the group to manage, manage that. We did see some inflationary increases and some cost pressures, particularly around recruitment.

22:54 Our aim is to recruit and retain the best in the industry, and we've recognized that in order to do that, we need our recruitment needs to be the best. So we've now brought our recruitment in house, and we now provide that service across the group, but also to our franchise network. As of today, we we estimate that we place about 97 roles within both the group and the franchisees, saving around about £300,000 between both franchisor and franchisee. So it's been a really strong year for 2023 across the group and set us up well for 2024. And I'll hand back over to Steven. K. Thanks, Beth. Now I'd like to run through Filter in North America. This is the core business of Filter that we acquired in in in '22.

23:51 A very strong business run by Jason Sayers, the founder of the business, and his and his team. The core business there is the filtration of cooking oil on-site. The benefit of this is that it removes all the impurities from the oil and and can effectively double the life of cooking oil, which more or less makes the service free for any restaurateur or hospitality venue provider. So very attractive service. Virtually no competition. And and funnily enough, that in itself makes selling this a little more challenging because people don't understand the benefit they can get from the filtration of oil. So the way we sell it is to do a free trial.

24:38 People get to try it. And once they use the service, we never lose a customer. What we've gotta do now is roll it out across the whole of The US. The the other side of that business is is when the cooking oil eventually does reach the end of its useful life, we take that away, and we sell it for recycling. And that is a a very important part of the franchising franchisee's income. What we've bolted on more recently is the sale of virgin olive oil olive oil cooking oil to these restaurants. Historically, we have not been competitive in that. Customers like Compass or Sobekso could buy better than we could. So what we've done now is we've installed tanks in the franchisees' depots that they can now decant the oil into reusable jugs, as they're called, containers.

25:38 And this is then taken to the kitchens that we are servicing, decanted into the fryers after we've removed the the the used oil. And this is an attractive and price competitive service now for customers. Particularly attractive for those customers that are concerned about their ESG credentials because the historic way of doing it is is that they buy oil in 25 liter containers, which are plastic containers wrapped up in cardboard that they decant into their fryers and then gotta get rid of the the waste. By using reusable jugs, it's far more eco friendly. And, indeed, we we provide all our customers with an ESG certificate every month, telling them how much they've saved by recycling or cleaning and recycling their oil and also the waste they save in using the filter gold service.

26:37 Final service we offer, which again was introduced last year, is filter clean, which again is a an eco friendly cleaning system that just uses steam, and and that's being adopted now by more and more of our our franchisees. As I said, waste oil is an important part of our our franchisee income and indeed ours. Come under a bit of pressure last year, and that pressure continues this year. So whilst the volume of oil we're collecting is growing up significantly from 37,000,000 pounds in weight of oil in '22 to 47,000,000 in in '23.

27:22 The price came down from 58¢ a pound to 46¢ a pound on average over '23. Now by the end of the year, that price was down to about 35¢ a pound, and that's where it's more or less stayed so far this year. So so last year, income from the sale of waste oil was flat at about 22.5 at at $21,500,000. Our income from that fell slightly from 3.9 to $3,700,000. This year, volume is up again by 15%, but price on average from that 46¢ a pound last year is down 30%. So that is impacting our income this year, down 15% on on on '23.

28:10 Some of that was anticipated in our budgeting, but some not. And that you may have seen that there's been a slight revision in the analyst forecast for this year to take account of that weakened price. Outlook on that is uncertain. We subscribed to a forecasting service, but it's been hopelessly inaccurate. I guess our best guess is that it stays where it is for for the rest of the year. But interestingly, the US election at the end of the year may change the outlook probably positively for for '25.

28:56 Business as a whole increased profits by 17% last year. Obviously, the North American business is is is the key driver of that. Europe is a subscale embryonic market. We have still got work to do in in in Europe, creating an economic model for our franchisee, and that's probably gonna be more driven by some of the initiatives that we're developing with FILTER in The UK, rolling out the grease recovery unit where there is a a significant demand for that service in in in Continental Europe.

29:43 B2C division. Some of you may be aware that we put the B2C division on the market last year. It was on the market for four months, and we received an offer for the chips away business, but it was not

30:02 how much that is unsettling and disruptive for the staff in in in that division, we decided to take it off the market. So we're no longer actively marketing. We are still receiving approaches to buy that business, and and were we to receive an acceptable offer, we we would we we would consider that. As a business, it's more or less carrying on doing what it's done for the last five years. It's a business that contributes between 2 and £2,500,000 worth of profit all in cash every year. Recruitment levels were were okay last year. Attrition levels are still higher than we'd like them really because of the high employment and high salaries being paid in in the current tight labor market makes the opportunity of of running your own business less attractive than it has been in the past.

31:05 But, you know, that business currently pays around half our interest bill on on on the Pertek acquisition. So it still forms a valuable part of the group overall. As we've all touched on, the digital transformation of the the business is a very important part of how we will drive operational gearing. And as our scale has increased with the acquisition of Filter and and now Pertek, we have even more opportunities to be still more innovative, roll out our existing products, and develop the Azure business so that that can sell our software developments to third parties. And indeed, has 30 other franchise businesses as customers and is increasingly signing up larger international businesses now. So I I see quite an interesting future for Azure as as a key contributor to the group.

32:12 I'll hand over to Beth now, who's just gonna do the first few slides on financial performance. Thank you, Steven. So following our recent acquisition of Pertech, we have looked to align our comp our group financial and accounting policies. And following this review, it has resulted in a restatement of our 2022 accounts. There has been no change to the EBITDA in 2022 accounts, but it has resulted in a £29,000,000 reduction of revenue. And the there's a couple of primary restatements. The first being how we account for our national account revenue. Historically, we've always treated this as gross, which is the value that we invoice to the end customer with a corresponding charge in our cost of sales for the franchisee payment.

33:04 However, following this review, we are now recognizing that net, which has meant a reduction in revenue of 29,000,000, but a corresponding reduction in our cost of sales. So as I say, no change at EBIT level. This now aligns us with both our local account treatment within the preexisting group and with Pertex accounting treatment. The other one that's had an impact is the recognition of sale from franchisee territories. Historically, we recognize that in full at the point of inception of the franchise agreement. However, for a new territory not previously occupied, we will be recognizing that over the lifetime of the franchise agreement. There have been a few other adjustments mainly to improve disclosures.

33:52 These are all detailed out in note one of our financial statements, which are found on pages a 127 and a 128. So looking looking then at the the group results, as we've mentioned, system sales reached 350,000,000 in the year, growth of 88%. Our statutory revenue, which contains both our m our management service fee from franchisees, but also our statutory revenue of our DLOs, also increased by 74% to a 121,000,000. There was a strong trading performance with adjusted EBITDA growing 97%, and this came from integrating our filter and protect businesses throughout the year to achieve 30,100,000 adjusted EBITDA level.

34:39 Our adjusted EBITDA to system sales has grown to 8.6. And again, this is through operational gearing and also the continued digitization of the business that we've spoken about. Our adjusted tax charge has increased to 26 percent, and this reflects the changes in The UK in April moving to 25% and also the higher rates in The US at 27% and also across Europe with the likes of Germany at 30%.

35:07 So if we look then at adjusted and statutory profit, software depreciation and amortization increased 80% due primarily to the acquisition of Pertech. Our finance expenses also increased, and this reflects the additional cost of debt and the base rate and the increase in the base rate over the year. As I've already mentioned about the tax rate, that change in the year, and then we've also seen some nonrecurring costs of 5,600,000. These primarily include the Pertech acquisition costs at $3,600,000 and then some subsequent one off reorganization costs at 1,500,000 And I will hand back over to Steven to talk through the EPS. Thanks, Beth.

35:57 Now let's talk about earnings per share and dividend. What I've tried to do in this slide, which is stretching the alternative performance measures to the limit. But what I've presented here is the adjusted profit before interest and after tax. So in 2023, this increased by 28%. And what I'm trying to demonstrate here is the effect of the after tax interest charge on EPS. The the the adjusted profit after tax increase in EPS was only 1%, but that was largely driven by the increase in the interest charge because we chose to fund the Protec acquisition by 50% debt and and equity.

36:47 And that debt will unwind from our cash flow, and it will also reduce as a result of the, hopefully, shortly to start reduction in in interest rates. So by the time we degeared, which we think will achieve by 2027, all that benefit will accrue to shareholders. Dividend, as I mentioned earlier, increasing by 10% to 2.2p per share, covered four times by profit after tax. I've I've actually seen I've already got a question on what is our dividend policy going forward, and that is that it will continue to be progressive. So we will continue to increase our dividend consistent with, obviously, the investment requirements of the business, which in a franchise business are are reasonably modest, but most particularly degearing.

37:43 Our forecast is to be back into net cash by the end of twenty twenty seven, and and and the dividend at a progressive rate of increase can be accommodated within that. Cash flow. One of the key features of the cash flow in in in in '23 was the very high level of cash generation from operations. 100% cash generation from operations. Very little additional working capital was absorbed in in in '23. Some capital expenditure, 2,800,000 of capital expenditure. A lot of that on the software developments, interest as I've mentioned, taxes as best mentions, which have gone up quite considerably. I mean, with The UK tax rate going up from 19% to 25%, not helpful for for cash flow and and and the dividend.

38:42 Here, you'll see the acquisition of Pertek at 205,000,000. That was net of the cash we acquired with that business funded by debt and equity. During the year, we repaid 15,000,000 of the the the the debt resulting in modest cash increase in the year and year end cash of of just over 12,000,000. Net debt, as I said, the end of the year, 75,000,000, 2.5 times covered by adjusted net debt. The the adjusted net debt excluding other lease debt is our preferred measure because that is the ratio that our banks use for testing out our bank covenants.

39:31 Capital allocation policies are fairly straightforward for the next three years. We are focused on, integrating Pertek and Filtra into the group, repaying our acquisition debt so that we end up net cash in 2027, ready to go for another acquisition of of scale. And and we won't really be considering any acquisitions before that. In the longer term, we wanna make an acquisition of another sizable franchise business, and we will consider bolt on direct labor businesses where they drive the franchise channels. We will consider disposing of noncore businesses, b to c being amongst them, but also potentially direct labor businesses where they no longer drive franchise channels.

40:20 We will look at share buybacks, particularly where we can do that most effectively to cover the share option dilution. And as I've mentioned before, we will continue with our progressive dividend policy. So summary and outlook. Record results in 2023. A good year. The Protech acquisition performed as we expected, but some softening towards the end of the year in construction and fleet hire. Used oil impacted results at the end of last year, and that continues into the current year. And some changes in accounting policy, which may affect income this year. I say may because the accounting policy now taking the income from the sale of franchise territories spread over five or ten years depending on the length of the franchise agreement cannot be determined until we know the makeup of what we sell. And and the makeup there critically depends on whether we sell new franchisees to new franchisees or their resales of existing territories.

41:37 Centralization of IT on an international basis has started, and that will accelerate the rollout of new developments. As I mentioned, short term operational focus is integrating the the businesses we've acquired and repaying debt. Maximum potential model shows great opportunity for all our businesses, both in our existing territories and potentially in in in new territories. This underscores the group's medium term ambition of generating system sales of 600,000,000 and adjusted EBITDA of 60,000,000 by 2027. In conclusion, the group's in very good shape with tremendous growth opportunities.

42:25 So I'll now move on to the questions we have here. Perfect. Steve and Chris, Beth, if I could just thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab, which is situated on the top right hand corner of your I'd like to remind you that the recording of the presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboard. As you can see we have received a number of questions throughout today's presentation. And Stephen if I could just hand back to you to read out the questions and give responses that's appropriate to do so, I'll pick up from you at the end. Okay. Right. First question from Stefan is a rather long one, but I'll read it out. Franchise companies are very interested very interesting business models because they can grow with limited capital requirements resulting in very high returns.

43:19 However, in the case of franchise brands, return on capital has gone backwards and, in general, much lower than that of other franchise organizations. Why is this? Is profitability too low, or have you just overpaid for acquisitions? What will change going forward? I think when you're measuring returns shortly after a series of acquisitions, it's likely to distort these figures. I think we've gotta be given a chance to demonstrate the organic growth we can generate in the business we we acquire. And we've done that very successfully with Metro Rod, with with Willow.

44:08 I think those of you that have seen the CMD presentation, we we we put up a slide there showing what we the multiple we paid for the business and the current multiple. And we expect to do that I mean, I think we've achieved it with with FRANCHISE. We pay 50,000,000 for FRANCHISE all in equity that contribute in around the world 7 or 8,000,000 last year. So I don't think that can be considered an expensive acquisition. At Protect, we pay more or less 200,000,000. I mean, the balance over that was the working capital and cash adjustment. This year, it will make over 20,000,000. First full year that we've owned it, we'll make over 20,000,000.

44:53 So that will be a an EBITDA multiple of less than 10 times. So a full price, but but but but not excessive. And, you know, the real opportunity is what we can do with that in the future. You know, this business has been owned by private equity for twenty years. We think as knowledgeable franchise operators, we can do a lot better than that. And we can then roll it out into the remaining eight European countries where they have the light rights to trade. So I I think if you ask that question in a couple of years' time I don't think you'd be asking that question in a couple of years' time. I I think I think the returns will come through.

45:42 Next question is, you are planning a cash settled bonus plan that pays out based on the percentage of adjusted EBITDA achieved beyond budget or this cons city consensus expectation. And the people setting the budget and guiding the analysts will be the recipients of any bonus. Won't this create a speed incentive to set unambitious budgets and to guide the analysts to make low forecast? Absolutely not. Now they're gonna get past me first. The the the the way it works is that the the the the business managers from each of the individual countries has their the MDs in each country produce a budget. That thing goes up to the CEO of of that division.

46:29 That is then considered by our management board, and that is then considered by the PLC board. And, really, I would say everyone in the biz everyone in the business is a significant equity shareholder. And I think they're driven by growing the the share price and and to some extent, the dividend more than they are by annual cash bonuses. So I I I don't really see that as an issue. Historically, franchise brands does not pay cash bonuses. We paid reasonable salaries and high equity compensation, including incentivization for people to buy equity with their own money.

47:19 If I see this happening, we will change the rules. So I I don't think we will be lowballing the forecast to make high cash bonuses. Next question. Do you think you overpaid for Pertek? Think I've answered that. We paid a full price To buy for PLC to buy a business off private equity is tough. Private equity usually sells to private equity in a very rapid process. As I said, Pertech was had has four had four private equity owners. We bid for it in 2018 when it sold from what was it? Halifax, Chris? Halifax to PNC. To PNC.

48:13 And we got outbid. The other problem was we couldn't move fast enough. So I've been talking to PNC ever since 2018 about when they come to sell it, can we get ourselves in prime position to buy? And and at the end of twenty two, we got exclusivity on that deal. But we needed four months to do our due diligence and and and and raise the money. And that does tend to drive the price up a bit, but we're very happy with the deal. And as I say, this year, it would look like less than 10 times EBITDA. And and going forward, I think it would look even better than that. So a full price, but I don't think overpaid.

49:03 Next question. With significant growth potential in existing and new markets, what are the primary geographical and service areas that FRANCHISE BRANDS is targeting for future expansion? Also, that is in two parts, really. The first three years is is is gonna be in our current markets. It's expanding in our current markets and integrating the businesses into one. Chris mentioned the cross selling. Beth has mentioned the IT. This integration can really drive our operational gearing, and that is gonna be our focus. The cross selling is important. I mean, it's a fact that every single protect customer buys plumbing and drainage. The reality is they don't buy it from us yet, and and that's one of our our our challenges.

49:52 Interestingly, a lot of our, for example, facilities management companies that water and waste division service also buy hydraulic repair services. So, again, we're introducing the Pertech sales team to those customers. But I don't think you'll see us in the next three years expand into new territories. Thereafter, we own all our brands so we can expand them anywhere in the world. We think there is an opportunity. But it's gotta be remembered that expanding a franchise business into a new territory is loss making for a long period of time because you just don't have enough franchisees to cover the central overhead. Eventually, when you get that crossover, the returns grow very quickly.

50:38 But I don't really wanna embark on any loss making activities while we're still paying down the debt. And that one, John m. Thank you for allowing us retail investors to join us. Well, that's a pleasure, John. Can I ask you your dividend policy going forward? Also, what trajectory do you anticipate for net debt? I think I've covered that. At at the moment, we're four time progressive dividend policy. I think while we're geared, we'll probably stick around four times cover. As that unwinds, we then got choices. I mean, I think I've got the dividend cover at Domino's down to two times cover.

51:29 I think probably we've got better things to do with our money. I mean, my wife particularly loves a a decent dividend payout, but I think whilst we've got investment opportunities out there, I think shareholders would probably prefer us to invest in acquisitions consistent with a reasonable dividend. So I think that's probably the best guidance I can give you on there. Gerardo, for filter in The US, with eight and a half thousand customers per week, what is your TAM total addressable market, assume you mean? To to to estimate the total addressable market, we use the maximum potential model.

52:18 So we've got eight and a half thousand customers. There are just over a million hospitality premises in The US that we can identify, and it's not an exact science. Our penetration, therefore, is is less than 1%. Our best franchisee has got penetration of the restaurants in the area of about five or 6%. If all our franchisees achieve five or 6%, we would be doing 500,000,000 a year. And that's how we use the maximum potential model to identify the opportunities. Now those you know, that 5%, we know who they are and where they are, and we know which franchise territories they come in. So those franchisees that are not exploiting the opportunities in their territories as well as the best, we work with and and and use the example of the best franchisee to show them how to do it, and that's how we grow the business.

53:19 Next question from Michael r. Will you be able to hedge oil sales in future and hence reduce risk? That's an interesting one. We did we did have a deal on offer from an oil company about forward buying our oil, but the franchisees weren't interested. They wanna they wanted to roll the dice on the the high prices. And given that 82% of the income accrues to them, We didn't do that. I suspect they're sorry now, but they're always optimistic about what happened in the future. It's also you can't there is no derivative to hedge used oil. And there are proxies for it, but but but no actual derivative for used oil.

54:08 So I think the answer to that is no. We won't be. And that piece of our income, which is, you know, quite small, but that piece of our income will remain quite volatile. Roger l, why is the price of used cooking oil dropping? That's a good question. I think you've gotta start by asking whether it got too high. And I think post COVID, for three years on I don't know why that is worth going back to that grant if I can find it. Here we go. As you can see for three years, '18, '19, and '20, it was around 20 averaging, say, 22¢ a barrel. Then it shot up as a result of the post COVID situation, but also the, interestingly, the war in, Ukraine.

55:06 Ukraine apparently grows 40% of the world's sunflowers, and the their inability to export that really disrupted the world market. So it really shot up. What started happening last year is that the Chinese started exporting used oil to The US. And the federal government support for recycling used oil into diesel became tougher to access. So if something happened that it used to be available to the producer and then it was available to the supplier, I can't really quite recall what the complication was, but it came the federal government support came more difficult to access.

55:57 What any of those things now can unwind. The the the the Ukrainian thing is unwinding. I mean, they are now exporting sunflower oil again. The Chinese imports are very controversial because there is a suspicion that the Chinese are adding new palm oil to the used oil they are selling into The US, which is not good for the rainforests and and and and and sort of cheating the market, really. And and, I guess, were Trump to get back in in November, there may be huge tariffs put on that or would be banned. In the alternative, federal government support for reprocessing used oil is likely to increase.

56:47 I think that will probably increase the price in the long term. But it's very much as, you know, as you can see from that answer, which probably doesn't lead you to too many conclusions, It's volatile. There are all sorts of things happening in that market, and, you know, we're a price taker. We can't drive that market. Next question, Bob. Group debt has increased significantly. What rate are you paying down, and what is your plan to get that down? Will it increase significant only because we we borrowed a £100,000,000 to buy per tech? That was down 25 oh, probably not 25,000,000, but from net cash. We probably repay through 15 or 20,000,000 of that in '23, and we will eliminate it completely and be net cash by the end of twenty seven.

57:47 The the requirement the the the debt repayments on the term loan are, I think, 10,000,000 a year. I think it's 2,500,000 a quarter. And then the balance of it is a month on RCF. Lee a, will share repurchases after net cash has been achieved be considered on an opportunistic basis? Yes. They will, as I mentioned, particularly to cover option dilution. We may even dip our toe in the water prior to a full debt repayment. But we need bank consent to do that in any significant degree. Lee, a, again, have you got any updates covering the 2024 performance?

58:38 Three analysts have put out revised forecast following the results. Consensus prior to the results coming out was 38,000,000,000 adjusted EBITDA for the current year. Current consensus, I think, is 36.6, but and and the the reduction on that is a million pound in used oil and about 500,000 on the accounting adjustment for the sale of new franchises. Is. Lee, hey. Oh, you might be busy, Lee. If an offer for the whole business was presented by a private equity group, would this be considered?

59:24 UK assets are in demand for private equity groups due to lower returns versus The US markets. Lee, we're a public company. The board has to consider any offer for the business. But I've gotta say, I didn't found this business in 2008 to sell it to private equity. My ambition is to build another billion pound plus business as I did with Donald's. So but I guess in the end, there's a price for everything. Final one from Lee. Would a US listing be considered as we generate a third of EBITDA from this region? Top part of third, that's our ambition. We actually currently generate 20% of our our profits in The US, but we will be very receptive to further acquisitions in The US.

1:00:17 We would consider a US listing. I mean, I I think careful what you wish for. It's it's it's it's a tough market to operate in. I mean, complying with just fills me with horror. We think the rules and regulations on the the London market are bad enough, but would just bring a whole new level to it. So it's something that's out there. I I I visit The US and present to US investors every year. They would be delighted should we make that move, but I don't think making a third year profit or 20% that is is now is enough to justify that move.

1:01:04 Mark s, you mentioned a significant slowdown in the pump business in h two. Have you seen improvement since then, or are you expecting an improvement later in the year? There wasn't really a slowdown. It was a strategic change of direction. We we stopped doing so much high value, relatively low margin work, particularly in what's called adoptable pumps where we design and build pump stations for things like new housing developments. These are projects that take three years. The income is spread over that period of time. It's long term contracting. Cash flow is pretty poor. We have more or less withdrawn from that market in favor of more short term works. And now our pump installation business is based on GRP pump stations, which we can dig a whole drop into the ground, finish, all done in three months, and we get paid.

1:02:06 Lower value, higher gross profit, better cash flow business. And that really was what underlies that. Anything to add to that, Faye? No. Yeah. We we actually saw an improvement in h two in terms of profitability of the business because we made that change in terms of the revenue and the the revenue streams that we're pursuing. Okay. Leah's back again. How much do you spend on maintenance CapEx currently compared with depreciation and amortization? What is the net cash saving from this? Haven't got the answer to that from the top of my head. Maintenance CapEx can't be very high.

1:02:54 And and to the extent to most of the maintenance CapEx in the direct labor business, because there's hardly any in the franchise businesses, is is leased. So that would be reflected in the movement in in right to use assets debt. Not a great answer to that, but best I've got. Leaguer gang. Is Berkshire Hathaway a model or an inspiration being used to build franchise brands? Well, I mean, parts of Hashware is definitely an inspiration. I I I don't recall they've got many franchise businesses, though. But I I I I would definitely always listen to anything Warren Buffett had to say, and I've got here on my desk, you know, 50 wise things that Charlie Munger once said, which is which is great reading.

1:03:58 Thomas Kay, why do you pay a dividend? Why not using pay down debt at a faster pace for potential m and a? I'll have to ask missus Hemsley that, but I I I I I think there's a balance in running a a public company. You know, we're not private equity. We we try to attract a range of shareholders. Dividends are, you know, always debated. I mean, when I go to The US, they said, well, why do you pay a dividend? We don't want a dividend. We would rather you pay down the debt and make another acquisitions. Talk to UK institutions. They said, well, we're not buying shares unless you unless you pay a dividend. Think a dividend four times covered is a reasonable balance between, you know, the competing aspirations of of different shareholder groups you wanna make the business attractive to.

1:04:54 But I don't think actually paying down all the debt and going for another big acquisition post '27 is particularly slow. Lee, Yeah. Thanks, Steven, for answering a lot of my questions. A big part of my portfolio. Love the business. Well, thanks, Lee. Thanks for your support. Pleasure to answer your questions. Elliot a, is Steven committed to staying as his role for the foreseeable future for at least five years? Yes. Yeah. Now I love this business. I founded it in in 2008. I really enjoy what I'm doing. You know, we've got a great team here.

1:05:39 We've got some fabulous businesses with tons of potential. So, yes, I I am here for as long as I'm able. And that's it. Yes, Steve. You have a run? I'm sorry. Perfect. Yeah. Was just going to jump in then. Thank you for answering those questions. And just before we redirect investors, provide you their feedback, which I know is particularly important to to you at the company. Steven, could I just ask you for a few closing comments? Yeah. Very few. I mean, I I I I've probably told you a lot about the business. I I I I think we have a a a cracking business here with a wonderful portfolio of of of businesses. The thing I particularly like about I love this fan based service, which is relatively easy for our franchisees to roll out.

1:06:30 They're not making huge investment in expanding their business. They go buy a van. They gotta find a man to do it. Occasionally, they have to open new depots, but it but it's an easy business to expand with a huge addressable market. Maximum potential model shows us what that market is, what are the opportunities are, and and we can help our franchisees exploit them. We have a great management team here, some of whom have been with me twenty five, thirty years. So we know what we're doing in franchising, and and and we know how to motivate, help, encourage franchisees to grow the business. So I I commend it to you, and thank you for listening to us.

1:07:16 Perfect. Steven, Chris, Beth, thank you for updating investors today. Could I please ask investors not to close this session? I should now be automatically redirected to provide your feedback so that the management team can better understand your views and expectations. This will then take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team at FRANCHISE BRANDS PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all. Thank you, everybody. Thank you. Thank you.