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Franchise Brands reports solid progress at recent acquisitions

(Sharecast News) - Franchise Brands said in an update on Thursday that, since the acquisition of Pirtek Europe in April, it had expanded its presence to over 625 franchisees operating across seven brands in ten countries, including the UK, continental Europe and North America. The AIM-traded firm said that in terms of divisional performance, the business-focused divisions of Pirtek, Metro Rod, Willow Pumps, Filta UK and Filta International showed strong resilience in challenging macroeconomic conditions, with record levels of trading.

Pirtek, despite experiencing softening sales in the construction and hire fleet sectors during the fourth quarter, particularly in the UK and Germany, traded at record levels and contributed as expected to the group's results.

The board said the integration of Pirtek into the group was progressing well, with a focus on identifying efficiencies, particularly in IT, which was expected to yield significant synergies in the coming years.

Metro Rod also delivered a record year with nearly 20% growth in system sales.

The growth was attributed to ongoing initiatives to broaden and deepen the services offered, especially in pump service and maintenance.

Its subsidiary Metro Plumb experienced similar growth driven by the recruitment of new independent franchisees and an expanded range of services.

Willow Pumps meanwhile made substantial progress, aided by planned management team changes.

The special project department was gaining momentum, and with an increased sales pipeline, further progress was anticipated in 2024.

Filta UK was transitioning from a direct labour operation to a franchise model, which, while reducing gross margin, was expected to create a more sustainable long-term business model.

Supply chain issues related to the Cyclone grease recovery unit had been resolved through the acquisition of intellectual property rights, positioning it for accelerated growth in 2024.

Filta International's North American business had a record year, achieving a system sales increase of over 15%, with robust activity across all key customer sectors.

The company was expanding its services to commercial kitchen customers, including bulk virgin oil sales and a kitchen cleaning service, which would drive management service fee income in the future.

In the business-to-consumer (B2C) division, performance was commendable despite a challenging recruitment environment, exceeding the group's cautious expectations, though it would fall below the prior year's contribution to the group results.

Looking at the balance sheet, the group's adjusted net debt as of 31 December had narrowed to £74.8m from £79.1m on 30 June.

Subject to audit, Franchise Brands expected adjusted EBITDA for the year ended 31 December to be within the range of current market expectations of between £29.2m and £30.1m.

"In 2023 we once again doubled the size of the group with the acquisition of Pirtek, having doubled in size in 2022 following the merger with Filta," said executive chairman Stephen Hemsley.

"These acquisitions have transformed the group from a UK domestic business to a sizable international business with seven franchise brands in ten countries, and from adjusted EBITDA of £8.5m in 2021 to about £30m in 2023.

"The integration of these businesses into a single group focused on providing essential business services primarily via a franchised model is progressing well and at pace."

Hemsley said the firm was starting to share resources internationally, particularly in the area of IT, which would accelerate its operational gearing in the coming years for both the company and its franchisees.

"We also see significant potential for growth across our principal franchise brands of Pirtek, Metro Rod and Filta, which have small shares of large markets.

"As we continue to deliver on our ambition by broadening the range of services offered, increasing the geographical penetration and cross-selling to the larger customer base, I am very confident in the future prospects of the group."

At 1439 GMT, shares in Franchise Brands were up 0.63% at 159p.

Reporting by Josh White for Sharecast.com.

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