Franchise Brands (LSE:FRAN) — Interim Results

0:00 Good afternoon, and welcome to the FRANCHISE BRANDS PLC interim results investor presentation. Throughout this quarter presentation, investors will be in listen only mode. Questions are encouraged, they 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 open a position to answer every question it receives during the meeting itself, and the 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 split the following poll. And I'd now like to hand you over to Steven Hemsley, executive chairman. Good afternoon to you, sir.

0:32 Good morning, everybody. Welcome to the franchise brands presentation for the interim accounts for 2024. I'd like to start with giving you an overview of, franchise brands. We're a multi brand franchise focused b to b van delivery business. We have a presence in 10 countries with seven brands. Protect, Metro Rod and Metro Plum provide essential services on a mostly reactive basis, which means that we are emergency suppliers. And and this makes the business quite resilient in in more difficult economic times, although not recession proof as as some of my colleagues will be explaining to you later on today.

1:24 Filter provides a more planned service to the hospitality sector, and our b to c brands, consumer facing brands of Chips Away, Oven Clean and Barking Mad are mostly single van franchise operators. The business generates system sales on an annualized basis of about $400,000,000 And this year, we guiding the market towards adjusted EBITDA between 35,000,000 and 37,000,000. We have over six twenty five franchisees who employ over 3,000 people using 2,000 service vans in 10 countries. We ourselves have 650 direct employees in our franchise business and also in some direct labor businesses.

2:15 We're focused on building market leading businesses primarily by our franchise model, but we will use what we call DLOs, direct labor businesses, direct direct labor operations, where we see the opportunity to enhance the franchise channel doing that. And that usually means enabling us to extend the range of services the franchisees are able to offer by training them up. Our strategy is to grow our franchise businesses as we believe if they grow, we grow. We use something called the maximum potential model to identify the total addressable market. And and using that model and analyzing our businesses, we think the total addressable market for our businesses at present supplying the services we do is is 1,800,000,000.

3:04 Now as we expand the range of services, obviously, that market opportunity increases. But as you see from our current run rate of 400,000,000 system sales to 1,800,000,000, there's plenty of room for expansion. We then use our growth tools to exploit that market. A key part of the strategy of the business is to leverage shared central services because we believe we can use that to drive our operational gearing. And those key areas are really technology, marketing and finance, and we'll talk about those a little later. Next slide, please. This slide gives you some idea of the contribution each of the businesses makes to to the whole. So if we look at adjusted EBITDA before central overheads, around half the contribution now comes from Pertek, which we acquired in April 23.

4:02 The water and waste division, which is comprised of Metro Rod, Metro Plum, Willow Pumps, and several other businesses, which Peter will talk about shortly, contributes just over a quarter of the business. Filter International, which we acquired in '22, contributes about 15%. The b to c division, which was the original foundation of of of the group, now only 5% of the total. And our own in house software company, Azure, a a a very small percentage at present, although huge opportunities to to to grow that business. Next slide, please. I'm gonna let my colleague, Andrew Manners, our CFO, go through the numbers.

4:54 So I really, what I wanna do here is just give you an overview of the a feel for the the first half of the year, which I would regard as a sort of satisfactory performance. We we definitely didn't shoot the lights out. The economic background we're trading in at the moment is is quite subdued in certain sectors and in certain countries, which my colleagues will talk about later. But in view of the essential emergency services we provide, I think we delivered a pretty resilient performance. There are fortunately now some signs that that reduced trading in certain areas is improving. So we think the outlook for the second half may be a little brighter than it was in the more difficult conditions in the first half. And hopefully, beyond that, we can get back to our normal double digit rates of system sales growth.

5:51 So I'd like now to hand over to one of my colleagues, Chris, who will go through the Pertech business. Okay. The next slide. And the next slide again, please. Thank you. So Pertech, still relatively new in the franchise brands business. We have European coverage across a number of countries, but it can really be considered as two distinct businesses. We have UK and Ireland, Germany and Austria, Belgium and The Netherlands, which are all mature markets. So each of these provides national coverage, and we're also the premier supplier of van based breakdown services in each of these markets.

6:38 They're principally franchised, though we do have some direct labor organizations in each of the countries. And we operate under a royalty model as a percentage of franchise sales. In each of these markets, have expanded the product range and the range of services. So we've moved away from the traditional breakdown service to provide preventative and predictive maintenance activities, and we've also extended the range of products and services away from hydraulic hoses into an expanded range of hoses for other So do do that. Spend we have with each customer.

7:31 This represents 94 percent of the system sales and 92% of the technicians. We have two newer markets, Sweden and France. These are both operated as direct labor organizations where we manage the technicians. In Sweden, we operate in the populated southern portion of the country. And in France, we operate in the Greater Paris area and in Lyon and Grenoble. So So in both of these countries, the focus is on expanding the geographic reach so that we can provide services to a wider range of customers and also utilize the experience gained in our other more mature markets to extend the range of services and the range of products. And as we're moving forward, hopefully, we can then eventually move to a national coverage in both of these countries to become the premier supplier of van services in both of the countries.

8:29 We move on to the next slide, please. So the results that we've achieved in the first half really show the resilience of Pertek. So top line growth has been achieved even though our principal construction and plant high markets have been subdued across most of the countries. As we've seen with the increase in interest rates post COVID, that's really had a negative impact on the construction activity in most of the countries with the exception of Germany. And so this has obviously restricted the activity level in those markets. In Germany, we have a slightly different experience. The construction activity there that we've worked in is principally focused on infrastructure, which is supported by the government. So the significant amount of money being put into motorways, bridges, and rail has enabled the construction activity to remain very strong in that particular market. However, in Germany, we're also quite heavily exposed to the manufacturing business, principally the tier two and tier three supply base into the car industry and other major manufacturers.

9:45 This activity level is reduced, obviously impacting the amount of preventative maintenance work that we're doing in those factories. However, the good news is that the diversification strategy that we've been following for the last ten or so years has really allowed us to grow into other sectors, which have not been as negatively impacted. So the logistics market, so rail, marine and materials handling, also utilities and food and beverage have allowed us to continue to grow our retail sales despite the contraction in this important market. Our key focus for the rest of this year is to continue to drive system sales and to improve our operational efficiency.

10:34 So operational efficiency is being driven by adoption of improved IT systems. So unifying our business systems around the franchise brands standard products. The works management system that we utilize in Pertech is being replaced in each of the countries, and we're moving to the vision system, which is utilized by Metro Rod and FILTER in The UK.

11:02 The vision system is built by Azure, so it allows us to adopt and adapt this to the specific requirements of Pertek. We're already rolling this system out in Pertek France, and we're building the system to be able to replace the current system utilized in The UK, in Germany, and in Benelux to meet our current customers' requirements, and this system should be ready for rolling out next year. The system has improved automation functionality that will enable our franchisees to improve their operational efficiency, streamline their operations and focus themselves more on sales. As we look to sales, we have the maximum potential model that we spoke about on the last call, which has been adopted across all of the franchise brands businesses, and we're starting to roll that out within the Pertek mature markets.

12:01 We've utilized the max potential model to identify identify what a Pertek customer looks like in each of these countries. We've then purchased the data on all of those companies that exist within the mature markets, and we're now going through a trial process of how we convert those from potential customers into spending customers. We've started to achieve some success, and we're rolling that out and improving the efficiency of that operation over time. I think at our next meeting, I'll be able to give you more of an update on how successful we have been. Finally, we have cross selling opportunities. So we have a great list of customers in each of the franchise brands businesses.

12:48 However, there's a significant opportunity to cross sell the services that we operate within the business to some of those customers. A good example of this is that we have completed for the work for a major utility company in The UK recently. Utilized the tendering expertise of Metro Rod to allow us to successfully apply for that tender and win that work. That work is commencing in the fourth quarter of this year. When When we we start work on-site, we'll be able to introduce Willow Pumps and Metro Rod to obtain services for this customer. As we work together, we'll be able to continue to build up these cross selling opportunities. Move on to the next slide.

13:36 So record sales achieved in the first half, £92,000,000 94% of these sales came from franchisees. The year on year comparison isn't fully reflective due to the limited ownership period in the first half of last year, but this is a 2.2% increase in like for like sales over the first half. Again, the subdued conditions restricted the sales growth below what we would normally expect, but believe that this is a decent performance in subdued conditions. EBITDA growth was strong, 168 year on year. However, the comparison is not ideal. We're very encouraged, though, by our measure of efficiency, which is the EBITDA system sales.

14:27 We saw an 80 basis point improvement up to 11.2% first half this year versus first half last year. This was delivered through the ability to streamline our overhead following following the integration with FRANCHISE BRANDS and the work that we're doing on operation efficiency. We believe that this will continue to improve over the next few years as as we work on the integration and further implement the integration of systems. So in summary, a decent performance and hopefully building the foundations for growth.

15:14 We see a subdued outlook for the rest of this year and into next year in the construction and plant higher sectors. However, continuing lowering of interest rates and government intervention in The UK with the planning regulations will boost

15:33 domestic construction, and Germany will continue to focus on their infrastructure development, which should lead to an increase in construction activity. This will allow us to grow that portion of the business and will require us to expand our network, put more technicians on to meet the additional requirement for construction and maintain the hard win customers in these allied industry sectors. Continuing integration will allow us to improve operational efficiency. And finally, we're building the foundations for growth through the max potential model. So I'll hand over to Peter. Thanks, Chris. Peter Malloy, the CEO of the water and waste services division.

16:21 Change slide. Yeah. Change slide, please. I got my name right, but didn't change the slide. In as this slide illustrates, though, all of the businesses have been acquired by FRANCHISE BRANDS since 2017, but all of the business equal have been long established prior to the acquisition. And I think it's also fair to say that the most successful period for each of the businesses have been since acquisition. Metro was the the most significant acquisition back in 2017, and the contrary view, 2% of the division's sales. You can see from the slide the split between the other businesses in Willow and Metroplum and Filter. With the exception of Willow, the division is essentially franchised, and there there are no plans to change the Willow direct labor model.

17:14 So 93 franchisees delivering the vast majority of the sales, and the franchisees vary in size from sub £250,000 per annum sales to probably just about £4,000,000 in in in Metabron. So a wide range of franchisees operating in in effectively complementary sectors. And Chris touched on it in terms of the customer base and the opportunity for cross selling. Clearly, there are opportunities for cross selling within the water and waste division in terms of the services we deliver. But Chris is phenomenal customer base. Each one of those customers at some point has a need for plumbing or drainage or some service from the water division.

18:00 And that's gonna be one of the key focuses going forward for us. We've had some successes. Chris talked about the utility company success. There are others where a leading coffee shop is now being serviced by two or three parts of the division, whereas previously, that was only done by one. Integration, I think you'll hear a little bit more about that as we move forward. It's it's moving at a pace within the water division, particularly in filter. Chris touched on the fact that vision, the works management system, is now used in filter and in part of that, which is filter seal, and that's these pretty unique refrigeration seal replacement business.

18:47 And we would we will continue to do so, harmonize some of the services in terms of finance, HR, health and safety, etcetera, and we will share some of those services. Next slide, please. Just going through each of the individual businesses, Metro Rod increased system sales by just under £2,000,000 year on year, and not our traditional 20% growth, but against the backdrop of some fairly tough trading conditions in our core markets. If I look at the facilities management market, for example, where we probably about 40% of our business come from that sector, That sector's 5% down year on year. The food service establishments are down between 510% based on the research that we've done.

19:41 Despite some softer job volumes, our average order value increased pretty significantly in, both Metro Road and Metro Plot. And that's really a result of two strategic, plans that we had in place. The first one being in 2018, we wanted to expand our range of services, and that's enabled them to do much more sophisticated drainage work using tankers and pumps and higher ticket items and getting better bang for our book for our franchisees. And then the other side was reducing our dependency on the low value insurance work that we used to undertake. We still do some of it, but

20:24 that's reduced as a proportion of our overall sales. One of the things that we're all conscious of is in terms of the economy is resisting or avoiding any bad debt. We are much more aggressive in terms of our stance with delinquent debtors. Now since you've got a customer on stock, clearly, they're not gonna spend any money with you. There's actually a longer term impact where once they come off stock and they start trading with you again, they derisk their own business by going to get an alternative supplier. I'm very seldom you get back to the pre on stop levels of sales. Think you do over time, but over a period of months, that remains depressed. And importantly, the vast majority of our franchisees and the executive set of the franchisees grew their businesses year on year. And that's really important to us because that's the bedrock of our business as a franchise business.

21:22 In terms of Metroplum, a net increase of two additional franchisees now at 21, and that's in addition to the 18 combined businesses where the same owner has a Metro Rod and a Metro Plum franchise business. A very encouraging 14% increase in system sales in part because this is a still a relatively modest business, in part because of the increased brand awareness, in part because of a couple of very nice contract wins that we've managed to secure at the start of the year. Kymak is a direct labor plumbing business based in and around London. And on the face of it, their 8% reduction in sales looks a bit disappointing. But if you take that as a backdrop of we took about a third of their operating territory away from from them and franchised it, actually, it's a pretty strong performance in the key mine business.

22:19 Willow Pumps, in my view, the the standout business in water and waste in the first half of the year. Although a modest increase in sales is pretty significant increase in profit. And you may recall if you've been on this meeting previously that we had a change in management probably fourteen, fifteen months ago now, and some of the management actions that have taken have resulted in that increase in profit. So reduces the level of subcontracted works, better labor utilization using our own labor, certainly better control of all the rents. On our supply and install part of the business, it is focusing on maybe lower volume contracts, but higher margin contracts with a quicker gestation period, and that's certainly paying dividends for us.

23:11 Filter is probably where the most activities happen in the first part of the year. If you recall when we bought Filter, it was primarily a direct labor organization, and we committed to transitioning that to a franchise model all the time. And I'm pleased to say that by the end of this year, the available work that can be carried out by franchisees will be a 100% franchise. The only exception being filter seal, which we've got no plans to franchise currently. So 94% of the work that we do today is franchised, and that compares to 74% of the same period last year. One of the important factors we've got is it gives us a real foundation to improve our customer service, which is starting to come through with franchising.

24:01 That enables us to be able to use that foundation to develop ourselves, delivering much better service to our customers.

24:10 One of the other elements of the filter business was we had a it was very akin to the Willow business in terms of filter pumps. We're now transitioning that across to Willow. So the highly skilled labor that we have in filter is being chipped into Willow. Willow are going to manage the pump element of the filter business without incurring any additional overhead costs. And, again, I think delivering better support to the engineers on the ground, more efficient service to our customers, and certainly driving efficiencies in terms of margin. Next slide, please. So in summary, the water and waste division, a challenging first half of the year with a modest increase of of 3% in terms profit.

25:01 Metro percentage EBIT adjusted EBIT of system sales was down from 10% to 9.4, and that's primarily just due to inflationary pressures. The head count has remained fairly static, but we have incurred increased employment costs. And equally, Metro will pick up some of the shared services cost for the rest of the businesses in the division. Willow, as I alluded to, a very pleasing performance with a percentage increase from 9.5 to 11.9%, as I said, as a result of the management action that was taken there. And I think that margin is all sustainable, and it's now really the the benchmark that we want to move forward with. And filter, we we always anticipate that there will be a reduction in the percentage of EBIT against system sales as we transition to a franchise business.

25:56 In essence, we've been carrying the cost of a direct labor organization in a franchise business. We're addressing that, and and certainly by the end of the year, I think that will be much more akin to a cost base reflecting the business that we operate. So overall, against a backdrop of some challenging conditions, a pretty satisfactory performance in terms of a 3% increase in profit. And some of the actions that we're taking in terms of efficiencies through integration, trying to generate additional sales and cost management gives me optimism for me for the second half of the year and into the future. So thank you. Steve, I wanna hand over to you. Got Brad. Thanks very much. Next slide, please.

26:44 That was 80% of the EBITDA generation of the business. I wanna spin through FRANCHISE PLC division quite quickly. FRANCHISE BRANDS BRANDS PLC, This is a business we acquired in the first half of of of twenty two and have since made it or in are in the process of making a number of changes there, which is really moving the business now onto a a royalty, an MSF model rather than a fixed fee of the mobile filtration units, which the franchise needs to use to filter the oil.

27:31 To to allow that to happen, we've gotta file documents in every state in which we operate. That is all now done. The franchisees now are being transferred onto the royalty basis. By the end of the half year, about 14% we're on a on a royalty basis. By the end of the year, we think we might get to 40%. And what we're also doing in in the North American business is expanding the range of services. So now 70% of our franchisees offer the supply of virgin cooking oil to our customers. 40% now are offering the environmentally friendly filter clean kitchen cleaning service. And and and those franchisees payroll to from from day one.

28:19 So the business is expanding both in terms of the range of services it's offering and also in a way that we generate our income, which is now far more linked to the turnover the franchisees generate. Next slide, please. I'm gonna skip over that one. Next slide. The headwind in The US in the first half of this year has been the revenue we generate from the sale of Waste Oil, which the franchisees collect from the kitchens where they're filtering the oil. The good news was that the volumes of waste oil increased by 15% in the first half. The bad news is that the price declined by about 30%.

29:08 Number of issues there, the import of used waste oil from China, fairly abundant soybean and palm oil crops, and also the way in which the federal government are subsidizing waste oil recycling. That meant that our income from that activity declined from $1,800,000 to 1,400,000 and the franchisee's income declined from 10,400,000 to $8,700,000 So that has been a headwind in The US business. But nevertheless, a good performance in the first half of this year and setting up the foundations for some very strong growth in The U. S. Because they really only have a tiny share of a very large market in North America.

30:04 Skip on a couple of slides, please, to the b to c division. B to c division, which was the original core of franchise brands when I set it up back in 2008, is now only 5% of the business. This business is quite challenging at the moment because with high employment and and very high wages at the moment, where, for example, can earn £50,000 a year working in a body shop, Why would they wanna buy a chips away franchise for £30,000 when they can make maybe 60,000 a year working for themselves? So quite challenging on on the recruitment side. Also quite challenging in retaining franchisees because a lot of franchisees buy a franchise as their last career move before they retire.

30:53 And a number of those franchisees now retire. An awful lot left the business during the COVID period, but apparently, people didn't want to work anymore. But now we're we're we're we're onto the more natural retirement of of of these franchisees. So the net number of franchisees also declined during the year, which, again, impacts our income. Nevertheless, the underlying trading of the franchisees themselves was very good. I mean, chips away, their turnover was up 9% during the period. And this is partly to do with a very resilient customer base we have there. We call them the waitrose customer. They they they they are older people who are prepared to spend money on repairing small damage to their cars, having their ovens professionally cleaned, sending their dogs to home sitting locations.

31:46 So these customers are quite resilient. So so the underlying trading of franchisees is good. This business generated £1,000,000 in in in the first half of the year. It will generate over 2,000,000 for the full year. This is a business that generates 100% cash generation, which is an important part of the mix in our business, particularly when we are as fully borrowed as we are at the moment. So whilst that business is passively for sale, we will not sell it until we get an acceptable offer. In view of time and and to be able to answer your questions, I'm gonna skip over the next couple of slides and pass over to Andrew to go through the financial results.

32:38 Thank you. Next slide. Next slide. I'll run through very quickly the first half results. What what I first need to bring your attention to is the first half contains a full six month contribution from Vertex, whereas last year contains just ten weeks. As such, system sales rose by 42% to 206,000,000. And if we run down to adjusted EBITDA, with system sales and adjusted EBITDA being our key internal measures of the success of the business, adjusted EBITDA rose by 45% to £17,800,000. If you drop down to the very last line on this spreadsheet, what that shows us is that we are increasing our percentage of adjusted EBITDA to system sales from 8.4% to 8.6%, in line with our long term strategy to increase towards 10% as the as the businesses grow.

33:37 Cash conversion, which I'll discuss in slight more detail, grew to 72% in the first half of the year from 57% in 2023. And a lot of the numbers change by the end of the Pertek acquisition. Depreciation and amortization of software is, again, based on the comparable difference between the two periods in Pertek. The finance expense grew significantly as a result of the debt we we took out to acquire Pertek. And taxes rose for two principal reasons. Corporation tax changed in early twenty twenty three to 25% in The UK, and the European operations and US operations incur slightly higher tax tax rates in the country.

34:25 Next slide. Adjusted and statutory profit. Again, the majority of the difference between our adjusted profit and our statutory profit relates to the amortization of the acquired intangibles from both the filter acquisition in 2022 and the Vertec acquisition last year. We also incentivized our employees through share options, and the cost of those showed a small increase in share based payment charge as we welcomed our colleagues from both Vertec and new colleagues into the wider group. Next slide. Earnings per share. Earnings per share fell slightly, again, for the for the reasons I've I've just given.

35:12 The cost of the debt sorry, the interest cost of the debt year on year and also the raise rising tax rate have meant that our EPS has fallen slightly. However, as we deleverage, the cost of interest will obviously reduce. Therefore, our earnings will increase, and we are proposing, we'll pay a 10% increase in the interim dividend to 1.1p. Next slide. Cash flow. As I discussed, cash conversion from operations rose from 57 to 72 percent, but still used £5,000,000,000 of working capital.

36:00 The focus through the second half of the year would be to reduce this this use of working capital still further. And but as Peter alluded to, taking a stronger stance on, slower payers occasionally affects our our profit results. Bank loan and lease repayments is the most significant other item within the cash flow and relates to paying down the bank debt, which we paid £3,500,000,000 and also the lease debt, some of which we acquired through the acquisition of Vertec. Next slide. Net debt for bank covenant purposes fell below 70,000,000 with £13,600,000 worth of cash.

36:53 If you test this on a historic basis, our leverage is 2.19. And as you can see, we are firmly within our bank covenants. As we move forward, on a full year basis, this leverage should drop to below 2% sorry, two times. And as such, we will receive, as part of our banking arrangement, a further reduction in the interest margin. And I'll hand back to Stephen for a summary. Slide, please. And the final slide before we move into questions. So in conclusion, really, a satisfactory performance in the first half of the year. Growth rate is slightly below which those which we've enjoyed in the past and to which we intend to return in the future.

37:42 But a resilient performance. As I say, our our emergency fan based service is an emergency service that that that people can't really avoid buying. You know, when they have a digger stuck in a ditch or the drains are overflowing, they need someone in to repair it. And and that makes our business resilient up to a point. Equally, when they're not using machinery or they're not using the buildings, they don't need repairs. And that, at the margin, does impact our volumes. Highly cash generative business brought the debt down now to under 2x the forecast full year leverage. So we're on track to de gear completely by 2027.

38:36 Our focus at the moment and until we are more or less completely degeared will be the integration of the acquisitions and the driving out of the synergies of this now quite significant scale of business. As I said, we're mindful of the continued uncertainty in the market, but we are seeing some signs of an uptick. So are optimistic for the rest of the year and have reconfirmed the market forecast. So I think that probably concludes the presentation. We've got quite a number of questions here. And as you may have seen, I've been working on those whilst everyone else has been talking. So I shall now move on to the questions and some of are really quite interesting.

39:29 So the first one, a presubmitted question, was that given you grew Domino's Pizza to a market cap of greater than £1,000,000,000 do you think the opportunity for franchise brands can exceed this within the next ten years without share dilution? I I've very much believed that we can drive the the market cap of franchise brands for over £1,000,000,000 I don't think we can do that without share dilution, though, because for those of you who've seen the presentation of the Capital Markets Day we did in February this year, we think the organic growth of the existing business over the next three years before we make the next major acquisition, we can probably double profits to around 60,000,000 Not to say that's the end of the story for the existing business, they'll carry on growing then. But the what we will then do is another large acquisition of scale, and that will require more equity to be issued.

40:40 The name of the game is to continue to drive earnings per share, but I couldn't promise that we will not dilute. I think the other dynamic, which is going on, we use Domino's is is is how we use the excess cash flow once we degear, and and there we can then buy in shares if it makes sense for shareholders to do so and its earnings enhancing. And we also wanna buy in shares to protect shareholders from the dilution of the share options. I'd like to see gearing a little bit lower than it is at the moment before we start doing that again, but I think you could see us starting to buy in shares probably next year at a low level as the debt comes down.

41:31 Next question. This is from is from John, John S. Are there any new geographies or services you plan to explore in the coming years? Yes and yes. The in terms of geography, we have the license for the Pertek name in 16 European countries. We trade in eight at the moment. Two of those are early stage. Sweden and France are pretty early stage. So I think we're gonna spend most of the next two or three years making sure they get up to a critical mass with national coverage. And it's quite important in any of our businesses to have national coverage because in that way, we can get national businesses.

42:24 Businesses don't really wanna us servicing them in part of the country or if they're or a per tech or metro or metro plan. They want us to give they they want a national service. So so expanding those geographies within a country is very important. Thereafter, we are looking at where the next best opportunity is for Pertek, for example, in Europe, and we have some ideas on that. But we I mean, as a clue, we are in Scandinavia. We're in Sweden. The rest of Scandinavia looks pretty attractive as well. And there are other markets. Although when you go into a new market with a franchise business, you've got to start out with a direct label organization. So you could possibly see us buying an existing hose repair business in another country and using that as a and then rebranding it into Pertek and then using that as a launch pad to initially expand direct labor operation and then start franchising.

43:25 And that you may see that in in in Sweden and Scandinavia, probably less in France because the the law there is pretty hostile to franchise businesses. Another big geography we want better representation in is The US. At the moment, that is underrepresented our total business. My ambition is to have our income generated third, third, third from North America, The UK, and and Europe. So you can see that at the moment, America and and Europe are underweight. Another one from John S. The interim dividend increased by 10 to 1.1p per share. What factors influence this decision?

44:16 And what is your outlook on dividend growth for the full year? Whilst we're well, our capital allocation policy is is is is to balance debt repayment with dividends with investment in the organic growth of the business. Debt repayment at the moment is the top priority, but we also wish to maintain a progressive dividend policy. So and what we mean by that is that you will see year on year growth in the dividend consistent with the earnings of the company. We are at the moment running at a dividend cover of just under 4x, and I think that probably will be where we'll save for the next year or so until debt comes down a bit. So I think from that, you can probably work out what the final dividend might be.

45:11 Next question from David S is, Perfect Europe generated £92,800,000 in system sales. Can you provide more details on how the acquisition has impacted your overall portfolio and what growth opportunities you see for Protect Europe in the near term. Well, as you can see, it was a massive acquisition for us. It doubled the size of the business. As Pertek as Filter did when we acquired that in 'twenty two, we think Protect is a superb business with with with great customer base, great stickiness of customers. I mean, they once they use the Protect business, they they stay within the service. It's so great. And the service is quite incredible, actually, in that they they guarantee to turn up to customer's site or building within one hour. I mean, quite unbelievable that they can achieve that across their entire business. And that is so market leading. We think that is a great opportunity for the future and in new territories. But, Chris, have you anything to add to that?

46:24 Growth opportunities. As we said, max model, I think when we presented at the Capital Markets Day, we're talking many multiples of our current sales. It's the it's the potential. How long it takes us to get there is just the question. So I think we are working on ways to operationalize those potential customers into spending customers. I think that in all of our markets from The UK, our our oldest market through to France, our newest market, we've got enormous potential with new customers and also expanding the range of services and products with our existing customers. Thank you. Right. Next question from Angus Tee.

47:10 Please, can you discuss volume versus pricing dynamics within like for like growth and how this fits in with the midterm system sales ambition? First half of this year, let me define our terms first. Two things we talk about is average order value. And because we're not selling widgets, we're selling a service, average order value depends on the size of the job. So, you know, if it it takes two hours to unblock a drain, they get charged for two hours labor. If it's a a big hose, hydraulic hose, it's more expensive than a little one. So so average order value is what we look at in in in in terms of exposed volume.

48:00 Underlying pricing of the hourly rate or the hose in in per tech, what's the price increase for us? It varies from from from region to region, but we gone through a very inflationary climate a couple of years before, so we saw significant multiple price increases in each one of those years. Last year, pricing for products products was very stable, so we saw limited inflationary increases in product prices. And labor rate, we saw increases depending on the local market. So in The Netherlands, there was recently a 7% increase in the labor rates related to the union agreement.

48:51 Obviously, we increased that based on the union agreements in The Netherlands. UK, we try to increase the labor rates in line with the the local inflation figures. Obviously, FRANDS services are a slightly higher increase than in our services. So So it depends on the individual markets to what those are, but it was nowhere near the sort of very high levels that we've been seeing in in the very in the past few years. And bigger and more and more? Yeah. I mean, slightly different dynamic in terms of passing on to national accounts where we got contracts over a two years or a three year period would be much more difficult. Where we've managed to secure better prices is locally with the franchisees.

49:40 And, encouragingly, the the number of jobs that we've received from that part of our business increased by 2% last year, whereas there was a decline in the number of jobs we received from our national account customers. In part, some of that because we talked about customers being on stock. We decided we didn't wanna trade with particular customers. So, overall, if you alluded to, Steve, that average order value is a really key measure in the water and waste division. And that increased pretty significantly, particularly in Metro Plot where we what we we started to reduce the dependency on that fixed price insurance work. And you touched on it earlier in terms of the labor being a valuable resource, and we get a better bang for our buck by making the right decisions. So that's sort of the strategy that we've adopted so far, and that's that's the result of the first half of the year. Thank you.

50:37 Next question from Angus Tee again. Please, can you provide a few more details on the CFO search and why you've passed away to VDO? CFO search has started. Andrew is doing an admirable job for us. In the meantime, for for the fourth time, he was my CFO. He was my CFO when we floated Domino's and when we floated Franchise Brands. So he's back in harness at the moment, but we will be looking for well, we are looking for a permanent replacement. Why we parted with BDO? Well, given that I was only presenting to you a couple of weeks ago with our full year numbers at the end of June, we've received some pretty poor service, we think, from BDO.

51:28 So we have appointed PKF as our new auditors and expect to report to you in a final timely way in early 'twenty five. Michael R. Has asked, can you comment briefly on Filter Europe? Clearly, small currently, but what is the future strategy? Michael, that's work in progress. It is a small business. It's sort of been somewhat unloved for a a number of years. The actions we've taken over the last sort of twelve, eighteen months is really to stem the losses. I mean, it was a business which had an overhead structure targeted on growth. The growth did not come through in the way that we anticipated.

52:21 So we've cut back the overhead now to generating about $35,000,004,000,000 pounds a year in system sales with an overhead sufficient to operate that. We do need a new strategy for that. We're talking to our colleagues in Pertek in Europe, in Germany, and Holland about whether we somehow share premises or merge with with those businesses. But at at the moment, that strategy is still work in progress. But, hopefully, next time I report to you, we'll have a bit more to say about that. Javier, I how does Filter complete with restaurant technologies in The US given they are 4x larger and their solution seems to be more efficient as it's more automated and installed on-site?

53:14 They also have a big presence with most of the QSR chains. Can't really answer that. Don't really know understand FRANCHISE BRANDS PLC's business. We're aware of the companies out there that replace the cooking oil. Don't filter it. They they come in and collect the old cooking oil and and and redeliver virgin oil. Ours has a different proposition to that because we can extend the life of the existing oil. I guess, by the sounds of things, restaurant managers must install some sort of filtration plant on premises. But I will look into it. And next time we meet, I shall give you a better answer.

54:03 Angus Chi, please, can you expand on your comments on working capital? What are your typical payment terms for franchisees? And do these different material across the product lines? What percentage of AR has been outstanding longer than thirty, sixty days? And has this increased materially in the weaker environment? Andrew, can you answer? No. I don't think it's increased materially over the the weaker environment. And our guesses are made up of of many different in water and waste business. Our guesses relates to the FRAN companies in the end customer. In our per tech business, it relates to the franchisees.

54:49 So there are many different strands with some resilience put in by the fact that that we are collecting, like I say, in Pertech from our franchisees, and Peter is taking a more aggressive approach in water and waste. But we don't see a material shift, although, obviously, in the in the presentation, we did still use £5,000,000,000 of additional working capital. Thank you. The the excited future. Cross selling is really a central function. Franchisees don't necessarily have sort of visibility of all the national accounts in all the different businesses. So we do this centrally for national accounts.

55:44 But we have encouraged the franchisees to meet each other locally to talk about the local customers. Yep. So per sector, Metro, etcetera, Metro, and we're all meeting locally as well. Next question from Lee A. How competitive are the markets we operate in? And which markets are we number one or number two player? And which businesses do we plan to grow to number one or number two? I Well, Pertek is definitely number one in Europe. Yeah. And Sweden, we are obviously growing become the number one or number two, the rest of our mature markets. Depending on how you classify the industry, we are number one or number two in all of those markets for the the majority of our services.

56:42 Peter, where are you? It's really difficult to tell. Chris alluded, how did you find the market? I mean, there are certain things that we can't do and certain things that we can't do. We're certainly in the top five or six UK plays in drainage, however you classify it. You know? And certainly, one of the leading two franchise businesses. And in filter, the the market is such a dis it's a discrete market that is really tiny and lots of regards lots of small players. I would suspect that we're probably in the top one or two there. Willow, but difficult to tell in that market. But we've got ambitions to be number one in all of them. We still got a small share of all the markets in which we operate. I think that's the point. The the you know, when we look at the maximum potential model of the the addressable market, they're huge.

57:42 Now how we identify all the competitors and and and and do we overfocus on what other people are doing that we don't. I mean, we we run our own business to grow that as rapidly as we can, we encourage our franchisees to do the same. Probably what we can say on that. Lee, what are the long term trend organic growth rates for the businesses divisions over the next five years, stripping out the effect of acquisitions? The if you saw the Capital Markets Day presentation, you'll have seen we set out a strategic plan there, which called for compound growth rates in system sales, organic growth of 10% to 12%.

58:38 And we think that, notwithstanding that we didn't achieve that in the first half of this year, we think long term, that is a reasonable target for us. We're definitely looking for double digit system sales growth as as we develop more ways of of of helping our franchisees grow their business. One of the key drivers will be the expansion of services. I mean, if you look at Metro Rod, for example, when we bought that business, it was a drain clearing company. First thing we did was introduce tank room. Then we bought Willow Pumps to help the franchisees train up in in in in pump servicing. So that business has expanded both through better penetration of the customers in the market, but more particularly by taking a bigger share of the customer spend because, you know, we know what our customers spend their money on.

59:34 It's just that we're not supplying it. So what we're trying to do is where it's complementary to the core service, we expand the range. So I think double digit organic growth is is is achievable. Lee a, what are the main differences between the maximum potential model and industry sales? Industry sales is not very interesting for us because of the businesses we're in. So if you look at, say, for example, drainage, I would say there's a lot more money spent on infrastructure drainage than there is on reactive repair, and that's not a market that we want to tackle. So so we ignore that.

1:00:24 What we look at is what the market opportunity is in the services we provide. And as I just said in the last answer, that is ever expanding. So now pump repairs and our tank room to support pump repairs and drainage repairs does expand our our our market. But excuse me. I mean, if you looked at plumbing sales, for example, that would be an absolute huge market because of new building. I mean, I I think we think it's 5,000,000,000, don't we? Well, I think it's more than that. Yeah. Yeah. It's huge. But but but we don't tackle most of that market. So we don't look at that. We use the maximum potential in an out addressable market.

1:01:12 Lee, a, do we engage in debt factoring at the DLO businesses to release working capital? No. We don't. I don't think debt factoring is is value for money when we can access traditional banking sources. Lee a, what valuation metrics and growth projections are used when considering potential acquisitions, EV to EBITDA, growth rates and potential synergies? What I'm looking for in acquisitions is the market opportunity. Is this a business with the skill sets we have within franchise brands that were we to acquire it? Can we grow it? What is the policy of the franchisees?

1:02:00 What is the profitability, viability of the franchisees? What is the mindset of franchisees, all the things that can contribute to future growth. We're then looking for sort of EVs to EBITDAs that are hopefully earnings enhancing for our shareholders. But even if they're not on day one, if I think we can grow them with the with the skills we have, they would then be potential targets. I'm also increasingly looking at geography. I think in years to come out, our international footprint and our diversification of geographies and business is gonna be what's contributed to the resilience of the business longer term.

1:02:54 Potential synergies. I think synergies are always way overdone when people talk about acquisitions. There are synergies. We are working hard at the moment on the integration of these businesses, but I think cost savings in themselves are are sort of like a bit of a sugar rush, really. I mean, you you get them on in in year one. Very nice. But what happens thereafter? What you gotta do is integrate the businesses and help your franchisees grow. Did I miss a question there? I can't move. Are you able to? Oh, am I out of time? Okay. Perfect. Thank you very much for answering all those questions from investors. Of course, company can review the questions for today, and we'll publish our response on the Investor Meet company platform.

1:03:43 Just before redirecting investors, provide you with their feedback, which is particularly important to the company. Stephen, I was wondering if I could just ask you for a few closing comments. Well, thank you very much for everyone attending. I hope we've given you insight into the business. It's great to do this for the second time and get the hang of the questions we're being asked. I hope it's been useful. And we will be back again, hopefully, late March, early April next year rather than June with our full year 'twenty four results. So thank you very much, everybody. Thank you once again for updating investors today. Could I please ask investors not to close the session? As you know, we automatically redirected to provide your feedback in order the management team can better understand your views and expectations.

1:04:31 Only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of management team of FRANCHISE BRANDS PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.