Franchise Brands (LSE:FRAN) — Final results for the year ended 31 December 2020

0:04 Good morning, ladies and gentlemen, and welcome to the FRANCHISE BRANDS PLC final results investor presentation, and apologies for our momentary delay. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Just simply type in your question and press send. Company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. These will be available via your Investor Meet company dashboard, and we'll send you an email to notify you when they are ready for you to review. I'd also like to remind you that this presentation is being recorded. Before we begin, we would like to submit the following poll. And if you could give that your attention, that will remove that from your screen. We'll be most grateful.

0:53 I'd now like to hand over to Stephen Hensley, Non Executive Chairman Chris Stent, CFO and Colin Rees, CIO from FRANCHISE BRANDS. Good morning to you all. Good morning. You very much for the introduction, and we're very pleased to be here presenting on Investors Meet Company for the first time. Mentioned, this presentation will be on our website, so

1:18 imagine that the details of that will come up at some point. Right. Without further ado, the disclaimer. Take that as read. Introduce the presenters today. So I am actually executive chairman, not nonexecutive chairman. I founded FRANCHISE BRANDS in 2008. At the time, I was on executive chairman of of of Domino's Pizza, but I I retired from Domino's at the end of twenty nine to focus exclusively on building FRANCHISE BRANDS. Joining me today is Chris Dent, our CFO, and Colin Rees, our CIO. As I said, I I founded, Franchise Brands in 2008 with my colleague, Nigel Ray. We've worked together for a number of years, at Domino's Pizza and built a business from a private company to a forty two fifty, over a twenty year period.

2:18 The the objective of franchise brands is to build a group of market leading franchise businesses across different customer segments. We're we're currently divided into two divisions, b to b and b to c. We have over 425 franchisees across five principal brands. We're admitted to AIM in August 2016, a capitalization of just under 16,000,000, and we're currently somewhat ahead of a 100,000,000. We're very keen on all team members having skin in the game. The entire board has invested their own money in this, company along with most senior management. And indeed, 240 of our 260 employees also have share options.

3:09 We have a significant opportunity to hear to to grow organically. We have cash on the balance sheet and are actively looking for acquisitions as we become clear as we go through. This year, for the first time, we've published a strategic target to grow the business to a run rate revenues of 100,000,000 and adjusted EBITDA of 15,000,000 by 2023.

3:36 A few financial highlights. Chris will go through these in a lot more detail, later on. But to give you some idea of the the scale of the business, we have revenues of just under 50,000,000. In the year two December 2020, we generated adjusted EBITDA of 6,600,000, profit before tax of 3.7. Earnings per share were flat on the year at three point sorry, 4.35 because whilst adjusted profit grew by 16%, we did a fundraising in April 2020, really as an insurance policy against the potential effects of the COVID crisis, and that diluted the equity by 16%. So EPS on 2020 was flat. We pay a dividend.

4:24 We have a progressive dividend policy, and we're paying a dividend of 1.1 p in total for the current year. And at the moment, we have net cash on the balance sheet of £5,000,000 although we have facilities available of £20,000,000 for acquisitions. Since we IPO ed, adjusted EBITDA has grown at a compound rate of 47%, and the dividend has grown at a compound rate of 59%.

4:54 So a little more detail about the businesses, in the group. In the b to b division, the the the principal brands are Metro Rod and Metroplan. Metro Rod is a business engaged in the commercial drainage market. It's been going for over thirty five years, and it provides a sort of one stop solution for commercial customers in that sector. So our our principal customer groups are people like facilities management companies, but they range from a nuclear power station to an Amazon depot through to hospitals, anything commercial. We don't really focus on industrial locations, and, I mean, a very small part of the business is is is domestic. So it's that piece in the middle that we're focused on.

5:42 And we do that from 50 depots around the country. And, statistically, we are within one hour's drive time of 90% of the commercial addresses in The UK. And that's a very important USP for the business because when a commercial user wants instant service, they need our depot to be close by. That business generated system sales of of £40,000,000 in in 2020 and is a is organized as a management franchise. We provide a very, very high level of service to our our franchisees from sourcing about 60% of their business from our central sales force. We invoice everything on behalf of the franchisees to all the credit control.

6:30 We pay them as soon as they close a job. We provide all the IT systems, all the training. What the franchisees do is they hire the drainage engineers, provide the kit, and deploy the engineers to the job. In return, we generate a a a very high royalty rate of between 1522% of their turnover. And notwithstanding that, our franchisees generate an EBITDA return of about 15% on their turnover. So it's a profitable business for both the franchisor and franchisees. That business generated adjusted EBITDA in 2020 of 3,700,000. And as I say, we have 47 franchisees, of which five are Metroplum and 42 are are Metro. I'll talk some more about Metroplum a little later when we get to it.

7:31 One of the ways in which we grow, Metro Rod is to extend the range of services we offer to our customers. When we bought the business, the services were were fairly limited. And one area, was was particularly apparent was that we didn't have a tanker capacity. So we incentivized the franchisees through providing a funding scheme and a reduced rate of of royalty to invest in tankers. We now have 50 tankers, which is probably the second or third largest, tanker fleet in The UK. Another area that became apparent that was missing from the services we could offer our commercial customers was pumps. Now pumps are quite a technical installation, and and we felt that it would be difficult to grow that organically.

8:20 So we acquired one of the leading pump companies in The UK, Willow Pumps. And the idea there is that we will cross train from Willow Pumps into Metro Rod so that we can offer the pump service nationwide. Willow Pumps is is what we call a DLO, a direct labor organization. So that will continue to trade as a separate business. And as you can see, in 2020 generated generated revenues of 13,000,000 and adjusted EBITDA of 1,800,000. The other division of the group is the b to c division, and this is a very different sort of business. This is a basically, one man in a van providing a range of services. So we have Chips Away, which repairs small damage on cars, really scuffs and chips rather than panel repairs.

9:12 We have Oven Clean, which is a service cleaning domestic ovens, and we have Barkin Man, which provides dog sitting service for when people go on holiday, particularly overseas holidays. So as you can imagine, that one has struggled a bit, for the last year. Those almost all of those businesses pay us a fixed monthly fee rather than a percentage of of turnover. We provide a more modest level of support to those franchisees. We train them. We do all the marketing. We provide them leads, but then it's up to the franchisee to develop their business based on the leads we serve send them. Those three businesses combined had a turnover of just under 19,000,000.

9:59 We had 386 franchisees at the end of the year. Just 20 people run that business, and and it generated an EBITDA of 2,100,000 in the year. Another key part of that business is recruitment. And in 2020, we recruited 58 new franchisees, which was nearly as many as we recruited in 2019, which was, an exceptional performance from that team.

10:29 So I'm just gonna go now into setting out the challenges, we faced in, 2020 as a result of the, COVID crisis. We came into the year with very strong tailwinds. We had bought the Willow business in October 2019 to extend the range of services at Metro Road. We'd introduced the Metro Road franchisees to the management team at Willow, and they were pretty enthusiastic about developing their business with this higher margin service they could offer our existing customer base. We started the training in the first quarter of twenty twenty, and this needed to be face to face because there's quite a lot involved in pumps, including making sure our engineers were safe on the electrical side of things.

11:29 However, COVID struck, and we've been looking at what the impact might be of COVID lockdowns. I have been looking at what was happening in Italy in January and February, and we determined that this was gonna have a pretty serious impact on our on our business. So we looked through our customer base and thought which of those would be shut down if the economy was shut down. We thought that our business probably wouldn't be because we provide reactive services, and we thought they will be classed as an emergency service. But we came came to the conclusion that probably we would lose about 40% of our business in in the first lockdown. So we furloughed 40% of the staff and cut back the overheads to ensure that we could trade profitably through the lockdown.

12:21 As it turned out, the, declining business wasn't quite as bad as as we imagined. And in April, we were down about 30%. And for q two overall, we were about down 23%. So we managed to trade profitably through q two. The business then began to recover quite quickly. And by q three, we were down only 5%. And in q four, we were actually up on 2019. This is really all due to the the the resilience of of our franchisees. I'm so pleased I I had 42 franchisees running the business on the ground rather than 42 depot managers.

13:06 And as you can see, 17 of them actually achieved sales of over £1,000,000, and 11 of them actually managed to grow their business by more than 10% in 2020. All the franchisees remain profitable, and we had no franchise failures. A key part of developing this business, which Colin will come to talk about, later, is the IT infrastructure. And and a key part of that was the new works management system that we introduced. And despite the lockdown, that was rolled out on time and on budget in 2020. That's Conor will be pleased. So here is the last of his lines I'm going to pinch. The organic priority for the the growth priorities for the business are organic growth by deepening and widening the systems we offered. And in 2021 and beyond, that will be focused on pump maintenance.

14:05 Although there are other areas that we may potentially expand the business into in years beyond that.

14:18 Metroplum. Metroplum was started in 2017 just before we acquired the business. This is a business which has a huge opportunity. But the way it was originally structured, which was as a sort of bolt on to Metro Rod, such that all the initial Metro Plum franchisees were the Metro Rod franchisees, and they were servicing, the needs of insurance company, providers. We believe that that is not the way to grow, the the plumbing business, and we believe that it should be independently franchised. So starting last year or actually back end of the year before, we started independently franchising Metroplum.

15:07 We now have five independent franchisees. And although we still have 25 Metro Road franchisees running that business, they are being asked to actually commit to that business as a stand alone business and grow it separately from the MetroRob business. We also operate three territories corporately just North Of London. That business has now grown to sales of 5,000,000 and actually grew by 3% in 2019, which was, again, a very good effort. To expand that business, we need to increase the number of qualified plumbers we have so we can increase the range and depth of services we can offer our customers. But there is no national plumber in The UK other than Dynarod, and Dynarod services mostly domestic work and the needs of the British Gas Insurance

16:01 offering. So we think there's a huge opportunity here. The plumbing market is pro well, the piece of the plumbing market that we can service is probably four times the size of of the drainage market. So we think we can grow this business potentially to be bigger than Metro Rod. So a lot of resources and commitment is gonna go into building that in in 2021.

16:29 Willow Pumps. Willow Pumps started the year in a similar way to MetroRob with a with a really good head of steam coming off the back of the introduction to the MetroRob franchisees. However, part of its work is what we call supply and installation, and this is fitting pump systems to new developments, whether it be commercial developments or or housing developments. And in 2020, a lot of those building sites were either shut down or working more slowly than they would have done before. And and the s and I business generates very significant turnover for us, albeit at a lower margin than our reactive emergency and maintenance work.

17:18 So in q one sorry. Q two, turnover was down 56% at Willow Pumps, although gross margin was only down 37% because of that change in mix. And that was really the way the year then progressed. We s and I volumes were were low throughout the year, but the labor that we had was redeployed into the reactive work, which is, as I say, higher margin work. So overall for the year, sales were 23% lower, but gross profit was only 4% down. Willow Pumps also assume responsibility for the two Metro Rod corporate territories we have in Kent and Sussex and in Exeter and made a very good job turning those around from previous poor performance by the Exeter franchisees.

18:19 Despite the lockdown and the the, disruption of the face to face training, approximately 25% of the Metro franchisees now have some sort of, pump capability, and it will be a key priority in '21 to roll that out to a 100%. Focus for 2021 is going to be the expansion of the s and I work. We designed a lot of pump systems or pump installations in 2020, and it now remains to install those in in in '21. So we've got a good pipeline of work. We think the investment that the government's making in infrastructure and housing will also boost that work. We purchased Willow Pumps on a five year earn out, and it was difficult for the management team there to achieve their earn out targets in 2020.

19:15 So we have now rolled those targets on to the the remaining four years, which will give them even greater incentive to build that business, both in conjunction with Metro Rod and as a stand alone business.

19:33 As mentioned previously, the the b to c division is very different from b to b. When we were appraising what the impact of the COVID lockdown would be on the business, we we we felt that given that these weren't emergency services, the business would be closed down during the first lockdown. And as a result of that, we furloughed 85% of the staff and reduced our charges to franchisees to ensure that they were viable, but equally to ensure that we could run the business at tick over through q two. And we achieved that, or we generated a small surplus through q two. And then coming the end of the lockdown in the end of June, the businesses then recovered at different rates.

20:23 Chips away recovered very, very quickly. A bit of a mystery. We we weren't meant to be driving our cars during the first lockdown, but it appears that maybe people were polishing their car and found all sorts of scratches on them, which they wanted repaired as soon as the lockdown ended. So chips away, which is by far the biggest business, 90% of this division, came back very strongly. And once franchisees are trading again, we can charge them the full, monthly fixed fee. So income in b two c recovered quite quickly after the first lockdown, but, nevertheless, did effectively lose most of the quarter's revenue. Oven Clean recovered a little less quickly because our technicians needed to visit people in their homes, and they were initially reluctant to allow that.

21:15 And Barking Man hasn't recovered at all because we people haven't been able to take overseas holidays, which require their dogs looking after. Recruitment in 2020 was was was pretty strong. We almost achieved the same levels as we did in 2019. But that in itself is not a surprise because franchise businesses do well when there are periods of unemployment and redundancies. People decide they don't wanna go back into employment. They wanna become self employed, and by far, the safest way of doing that is is is to take a franchise. So we expect that strong recruitment to continue in in 2021 and and maybe beyond. And indeed, at the start of this year, recruitment has indeed been strong.

22:05 Because of the loss of income, particularly in the Barky Mad brand, we have lost some franchisees this year. So we've seen a 4% reduction in the overall number of franchisees from four zero four to three eighty six.

22:23 Nevertheless, EBITDA in this business, despite losing effectively quarters trading, was only 16% down, which we think is a a pretty resilient performance. So how do we build our business? Well, there are four pillars, really, of of how we build our business. The first is supporting our franchisees with the training and specialist tools they need to develop their business. We do the r and d on behalf of of franchisees to make sure that they're providing their customers with the best products they can in the most efficient way. We help them to grow their business because we understand, particularly in the royalty based businesses, that if they grow, we grow.

23:11 We we take a percentage of their turnover, so we are motivated to help them grow their business. And we see a huge potential to do that in both the drainage and particularly the plumbing market going forward. The markets that we serve is looking for national providers that can give them a one stop shop across the whole country. There's very, very few people that do that. So so we see there a great opportunity to expand.

23:41 We also build the business by expanding the range of services, and you would have seen that in the Willow Pumps acquisition. And there may be other specialist acquisitions or DLO businesses to help us achieve that. We develop our our our business by helping our franchisees grow by providing management expertise and also resources. So for example, in the to develop the tanker business in Metro Road, we provided a loan facility through HSBC, which we guaranteed certain and cheap access to finance. We also, for example, collect their management accounts on a monthly basis, and we advise them how they could possibly improve the efficiency of their business, how they compare with other franchisees in their different systems, and this helps them grow their business.

24:40 We also think fundamental to the growth of the business is technology. And, again, I'm not gonna steal Colin's lines. I'll let him talk about that actually from next slide onwards. The final leg of our growth is acquisitions, and they really come in two forms. There are acquisitions that are complementary to what we have at the moment in metro Rob, metroplum, or the b to c divisions. And most of those we can finance from our own resources without recourse to fur further shareholder funding. There are also acquisitions of scale, which would create a a third division of the group. And these will be very significant, almost certainly b to c businesses, which we would have to come back to shareholders to help in the funding. And you'll see the implications of this when I come up to talk about our three year strategic plan.

25:41 So that's it for me for a while. I'll hand over now to Colin who will take you through our digital transformation plan. Thank you, Steve. Thanks, mate, Colin. We're in the right place. Yep. Thanks, Steven, and and thanks, everybody, for letting me talk to you about our plans, to become the first fully digitally enabled drainage pump and plumbing business. Before I get into that, just give you a little bit of context. I joined FRANCHISE BRANDS just just after the acquisition of Metro Rod. And before that, I spent seven and a half years as the IT director for Domino's. And before that, I spent over ten years at EasyJet. Now with that acquisition, we inherited a whole load of legacy systems.

26:31 And over the last three years, we've been very much focused on sorting that out. So we moved everything to the cloud, which has been fantastic during the various lockdowns. We replaced the finance system. We replaced the telephone systems, and we introduced a whole host of systems to support the business with various activities. For example, creating quotations for new work and then chasing and following up the responses. But our real focus during this time has been the rollout of a new core works management system. And as we came into 2020, we were just about to start that rollout when that first lockdown hit us. And I guess like many companies, our first reaction was to pause everything. But actually, we realized that it gave us a bit of an opportunity, you know, remote working, working from home was going very well. And actually, the slightly lower job volumes going through the system meant, in some ways, it was an ideal time to roll out a new system.

27:33 So we pushed ahead and completed that, as Steven said, on time and on on budget towards the tail end of last year, which as we came into this year, puts us in this really great position. You know, we replaced all of our legacy technology. And for the first time with our new works management system, we're able to influence a customer's job right from the very beginning all the way through to the end. And at the same time, we've developed some capability and skills in a whole host host of complementary technologies. For example, robotic process automation, reporting, and data analysis. And we've learned a lot about our customers during this period as well.

28:17 And in terms of our customers, you know, we've we've seen a general trend in the market towards digitalization, you know, you know, either driven by their customers asking for it or by the need to be more efficient. So when you take all those things together, what it told us was that we needed to accelerate. And so what we've done is build a more ambitious plan, but still very much focused on using technology to improve customer experience, drive efficiency, and improve sales. So how are gonna do that? Well, our approach is driven by some key principles. Now some of those we've learned along the way and some we've brought from past lives. But it it's important to realize that for us, service, efficiency, and sales are all intrinsically linked. When we get this right, it's a virtuous circle.

29:13 If we make fewer errors, then we deliver a better customer experience, but we're also more efficient because we don't have to fix those problems. The second important thing to realize is that we have very few problems with the actual technical task of fixing a drain or installing a pump. Our customers don't leave us because we don't do a good job there. They leave us because we don't follow their processes well enough before, during, and after that.

29:42 And we've learned over the last three years that technology can help. So for example, in the new year, we launched our own customer portal called Vision Connect. And from those customers who are using that portal already, we're seeing a 66% reduction in the number of emails being sent into our contact center. So this tells us that our customers want to self serve. They want to do this for themselves. Another example might be using robots to automate repetitive tasks. You know, using these robots, you know, which by the way work twenty four seven, three hundred and sixty five days a year. They don't take holidays. They don't go sick, And they have incredible levels of accuracy. Using these robots, we've been able to automate over 80% of the admin work relating to one of our biggest customers. So from logging the job to keeping the customer updated all the way through to creating the invoice and then reconciling the payment.

30:41 And this is a fantastic driver of operational gearing. We can handle many many more jobs from that from that customer without adding any more admin staff. And it's probably worth mentioning that for every hour an engineer spends on a customer site, we're currently spending fifty five minutes in admin work. So there's a huge opportunity for for us to go after this and make the business more efficient. We also believe that if we integrate our systems with our customer systems, then not only do both organizations get an efficiency benefit, but it creates a really sticky relationship. You know, both parties become invested. And that makes it harder for,

31:25 harder for them to switch suppliers and also harder for any competition to take the business away from us. So what does the digital transformation look like? Well, rather than go through a long list of projects, I thought I'd just give you some examples. Today, customers log jobs via the telephone, emails, or by putting it on their own customer portal. Now for us, this is highly manual. Now we receive something like 8,000 contacts into our contact center on a busy week, either logging new jobs or asking for updates. In the future, we want to extend the functionality of our customer portal so that our customers could log jobs, approve quotations, download photos, all the things that they need to do.

32:16 But really importantly, we want to give them the ability to track the engineer on their way to their site. If you've got a drainage problem, whether you're a store manager or a domestic customer, it's a pretty stressful time. And the more that we can do to give our customers confidence that we're on our way, the better. Another example would be today, you know, we pride ourselves on our ability to deliver on the really unique requirements of our customers. But this is really difficult, you know, it's constant training, it's creating training materials, it's coaching, it's reporting on the results, and we don't get it right often enough. You know, I think I said earlier, we don't lose customers because we don't do a good job fixing drains.

33:01 It's only where we don't follow their processes before, during, and after well enough. In the future, we're gonna record all of these customer steps in our system and we're gonna have it play them back to us in step by step process along the way. So we'd be can we be confident that we've done the right thing at the right time?

33:23 Now this is gonna be a big benefit for our franchisees and for our customers. There's some more examples on the slide, but another way of thinking about digital transformation is to consider those brands in the middle. I'm lucky enough to have been involved in the digital transformation of both EasyJet and Domino's. You know, for all of these companies, the actual product doesn't change.

33:49 You know, a taxi ride with Uber is still the same taxi ride. A TV delivered by Amazon is the same TV. What changes is that customer experience before, during, and after. And because of that, we think digital transformation applies every bit as much to those brands as it does as to us, as every bit as much it does to those brands.

34:16 Now we've set ourselves some targets, which are on the slide. And I guess I wanted to give you a little bit of color as to where those targets have come from. Some of them are based on the work that we've done already. Things that we've, developed and proven over the past three years. So for example, with our new works management system vision, we're already seeing about a 50% reduction in invoicing errors. I talked about using robots to automate admin work, and we're already seeing a 10% reduction in contacts to our our contact center using those robots. And, of course, the robots pass those jobs through to our engineers much faster, which then helps us hit service levels easier.

35:05 And we're already working on technology to integrate our systems with our customer systems, and we're gonna be trialing that very soon. But these targets are also based on our previous experiences. We're planning to introduce CRM functionality to help us build a better picture of our customers, and then we're gonna use that to directly market to them with with appropriate appropriate communications. This is something that Domino's has done over many years to fantastic success. And again, something like 50% of our customers currently only use us once. So there's a huge opportunity to to improve on that. I think the final point I'd like to make, which isn't on the slide, is about our competition.

35:52 Now we have a couple of large competitors who could do what we're planning to do, but the vast bulk of our competition is something like 1,600 to 1,800 small drainage companies just don't have the resources or the capability to do what we've done with technology, let alone what we're planning to do.

36:12 That's really all I wanted to go through. If I pass you back to Steven. Thank you. Right. Thank you very much for that. And and I think that gives the background to some of the the factors that will contribute to the achievement of our our strategic targets. So for the first time, we are putting out into the market a a three year forecast, which is generate run rate revenues of 100,000,000 and adjusted EBITDA of 15,000,000 by 2023. And that compares with the 6,600,000 we reported for 2020. We're gonna achieve that through some of the things I've I've I've already spoken about and acquisitions.

36:58 So acceleration of the initiatives at Metro Road to widen and deepen the services, we offer, the build out of the Metro Plan business and the recruitment of further independent franchisees, the acceleration of the s and I work at Willow Pumps as the country invested more infrastructure, the digital transformation, which Colin has just outlined, and complementary acquisitions. The acquisitions that will be complementary to our existing business can be funded from existing resources

37:37 and are included in our 15,000,000 target. However, the larger businesses that I spoke about earlier would be additive to that target and would require further funding from shareholders. So would now pass you over to Chris who will go through the financial target financial results for 2020. Good morning, everybody. So here you can see the statutory numbers for the group. I want to give you a bit of background into those. We purchased Willow pumps at the back end of 2019. So the 2019 figures include three months of Willow pumps, whereas the 2020 include a full year contribution from Willow, which is driving many of those increases.

38:28 The second bit of context is, at the beginning of 2020, the city expectations for our adjusted EBITDA was for 7,500,000 compared to the GBP 6,600,000 we achieved. At the height of the spring lockdown, the city expectations reduced down to GBP 6,000,000. So the end result of GBP 6,600,000 is higher than that, which shows the strength of the comeback that we had during H2 of the year. In terms of where our income is generated, you can see that our B2B DLO division, which is mainly Willow Pumps increased to GBP 13,300,000.

39:16 So that's being driven by the full year ownership of Willow Pumps. B2B franchisor is mainly Metro Rod and that declined slightly due to the reduction in trading during the spring lockdown. And then the B2C division is also down slightly by 14%, again, to the effects of the lockdown. If we look at the type of income that we have, again, the direct labor income has increased significantly due to the addition of Willow Pumps to the group. Core income that we see as our most important is our MSF income. That's the monthly fees which we get from our franchisees every single month.

40:03 At Metro, Rob, this is a percentage of their turnover. And in our B2C division, that is a set monthly fee. In terms of how this has dropped down to the profits for the group, we can see that the B2B DLO, so Willow Pumps, has a full year contribution of GBP 1,800,000. Our B2C division dropped by 16% due to the closure of that division during the spring lockdown, so decreased from the GBP 2,500,000 to the 2,100,000. However, the real star performer of the group has been Metro Rod, where despite the lockdowns we saw last year, we've seen an increase in adjusted EBITDA of 17% despite a 2% fall in sales.

40:55 So that's been driven by two different things. The first of these is the effective MSF. So our MSF rate is a percentage of our franchisees' income, and it ranges between 15% to 22.5% depending on the type of sale. This was weighted more towards, the 22.5% last year, meaning our effective income from them was increased despite the fact that their sales fell by 2%. This, in addition to very tight cost control during the period, was what caused that 17% increase in adjusted EBITDA. So just moving down to the bottom end of the income statement. The one line item I'd like to bring to your attention are the nonrecurring costs of the business.

41:45 So within that, we provided an extra $05,000,000 during the year, for a bad debt, well, for bad debt. We expect that as the year progresses and we see, the government support unwinding, particularly, the furlough scheme ending, we will see a growing proportion of corporate bankruptcies. We are exposed to retail and hospitality. So we would be expecting some of our customers not to make it through the whole of the crisis. The provision that we make though is sufficient, we believe, for covering any of that exposure. The other 200,000 of that nonrecurring cost is in relation to reorganization.

42:30 We decided to close down our Barking Math standalone office during the year and merged that fully with our B2C head office down in Kitimiksta. So there was a loss of 10 jobs there from that, and we have 10 other redundancies around the group as we have found efficiencies during the COVID crisis. So moving on to our earnings and our EPS and dividend. So our adjusted earnings were up 16% to GBP 3,700,000. However, due to our placing, the number of shares in the business also increased by 16%, which means that our adjusted EPS moved sideways going from 4.34% to 4.35%.

43:16 However, we decided to increase the dividend in line with the increase in adjusted earnings to 1.1p. In terms of our balance sheet, you can see the increase in balance sheet strength due to the placing that we did earlier on the year, so $16,000,000 increase. We continue to have the money that came in from that placing on the balance sheet. So cash at the end of the year was $13,200,000 We then have an extra $7,000,000 of unutilized facilities with HSBC, leaving us with just over 20,000,000 available for corporate activity. This then flows through to the cash flow from the year. So you can see that big increase due to the proceeds from the placing of GBP 13,600,000.

44:05 In addition, we are a very cash generative business from our underlying operations. So the EUR 6,600,000 of EBITDA, we saw a 90% cash conversion, which was very similar to the previous year. So that's all from the finance. So I hand over to Stephen to conclude. Thank you very much, Chris. So in summary, 2020 started the year very strongly. We then took early and decisive action to limit cost to match what we thought would be the, expected volumes, and then we recovered quite strongly in the second half of the year. We strengthened our balance sheet with a successful placing, and that now gives us the opportunity to expand by acquisition.

44:56 We, for the first time, have set out our strategic financial targets for the year of revenues of GBP 100,000,000 and EBITDA of 15,000,000 by the end of twenty twenty three. These targets will be achieved through organic growth as well as use of our existing facilities for acquisition. We started 2021 very well with resilient sales growth, which are actually ahead of the record quarter we achieved in q one of twenty twenty. So we look forward to the the rest of '21 2021 and beyond with with confidence.

45:41 So thank you very much, and we'd be happy to answer any of your questions. Stephen, thank you very much indeed, and to Colin and also to Chris. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. Just want the company to take a few moments to review those investor questions submitted already. I'd just like to remind you that a recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via your Investor Meet company dashboard. And like we said earlier, you'll receive an email notifying you when that's ready for you to review. I'd also like to remind you that your feedback is important to the company. And immediately after the presentation has ended, you will be redirected for the opportunity to provide feedback in order that the company can better understand your views and expectations.

46:27 Stephen, obviously, investors have the ability to submit questions ahead of the event. And obviously, if you click on the Q and A tab to the right hand side of the slide, you'll see the investor questions that have come in. But perhaps I could start off by just asking you a couple of questions that were presubmitted. The first being, how do you determine what to pay for acquisitions? Do you have a hurdle rate or a maximum payback period? I mean, think the first thing to say about acquisitions is it's a competitive market, and we have to pay what the market dictates. But we do indeed have internal targets. Any acquisition must be earnings enhancing, and that is to some extent driven by the share price and the cost of funding.

47:19 Acquisitions broadly fall into two parts. There are smaller b to c acquisitions, which are are are commonly less expensive but have more limited growth opportunities. And then large b to b businesses where they have far greater market potential but tend to be owned by private equity, which really does drive the price up. So so we we have to operate within in that environment. And and I think in the sort of acquisitions we'll be doing for the the short term using the cash we currently have, you'll see those more on the on the b to c side.

48:11 We will use the synergies that they will have with our existing b to c overhead. I think the the third division of the group is likely to be a a large b to b acquisition, which I I I I slightly fear we'll be buying from private equity. Thank you very much, James. No. Thank you very much indeed, Steven. The other presubmitted question, if I may, is what are the most attractive m and a targets for you, and what is your post bill post deal playbook? The the the most attractive targets for us are large b to b businesses, particularly ones that have a international dimension. We own all our brands. We don't have any master licenses.

48:59 I'm not holding to anyone else in how we develop our our brands. And I would love to develop them outside The UK, but the cost of starting up a franchise business in a new overseas market is very high indeed. You you lose money for an extended period of time. Indeed, Domino's Pizza in The UK lost money for eight years before it broke even. And the reason is that you have to put in the infrastructure to support franchisees before you recruit enough franchisees paying the royalty to cover that overhead. If we could find a an acquisition that already had an overseas footprint, we could bolt on our brands and and actually create a return very much quicker. Thank you very much indeed.

49:46 Perhaps, Steven, as I said, if you could just click on that q and a tab on the right hand side of your screen, your speed questions. If I could ask you possibly to read out the questions and give a response where it's appropriate to do so. I will follow you down, and I'll pick back up from you at the bottom, at which point we'll look to conclude and direct investors to feedback. So over to you, FRANDS PLC. Okay. The first question is from Simon Sea. What validation checks do you undertake on franchisees to protect the brand reputation? And what steps do you take to review these on an ongoing basis? Very much depends on the brand. So if it was Metro Rod and Metro Plum, we undertake regular audits for all sorts of different aspects of the business. I mean, probably the most important are health and safety.

50:40 We're working for the biggest commercial customers in The UK. They expect us to have a very robust health and safety regime. So we audit franchisees to ensure that they comply with that. We collect management accounts from the the b to b franchisees every month so we can check their financial health and how they're trading and give them advice on on maybe how they could do things better or differently or where their fellow franchisees have a different approach to it that's being more successful. In the b to c brands, it's a a a lot lighter touch. The franchisees there are contacted probably monthly, certainly every quarter to see how they're getting on. And we there rely more on customer feedback and the the rating websites.

51:41 Where that identifies a problem, we will address that reactively rather than proactively. But where we do have a problem, we we have a pretty rapid escalation process to make sure that that any potential damage to the brand is is is contained. Next question from Scott m. What appeal do you hold for independent plumbers to join Metropom? What are your targets for Metropom this year? I mean, the the the real attraction to Metropom for an independent plumber is the type of business we undertake. I mean, we have 500 to a thousand national customers providing us with commercial business.

52:32 A a plumber working independently is probably gonna be working mainly on on on domestic work. So the attraction we hold is if they want to get into that commercial work, we would be a a route into that. I think the other point to make is that MetroRoller, MetroPlump are management franchises. So it may not be suitable in any event for a man in a van that just wants to get into commercial. We wouldn't really expect our franchisees to be on the tools. We would expect them to be managing a a a group of tradespeople in in building a a a bigger business. As regards targets for the current year, I would rather not put those out of the market this time.

53:25 Quentin b, impressive to hear the amount of automation you are intending to introduce to your systems. Are you building these applications in house, or are make you're making use of third party integrations and workflows? Certainly think that's one for Colin. Thanks, Steven. Thanks, Quentin. The answer is it's a mixture, really. I mean, we certainly don't believe in reinventing the wheel. So where there are suitable third party applications or integrations, we will use them. But some of the things that we are doing and trying to do, we do need that sort of extra level of control that you only get from doing it yourself. So we we take an approach of of what's right for the job.

54:15 Thank you. Scott m, could future acquisitions be DLOs only if they complement or extend the range of services that our b two b brands offer. We are a franchise led organization, and DLOs only form part of that if if they enhance the franchise business. So it's not impossible. There are areas of of of plumbing and drainage where we will need expertise, and that may involve a DLO. A But I think it's fair to say that certainly in the drainage business, we have our hands full rolling out the pump expertise at the moment.

55:08 So other than one small potential acquisition that would take us into a new area, I I I think that's unlikely in the short term. I think the expansion of the business to the twenty twenty three targets will be franchise businesses. Amrit, what do you think is the maximum potential size of the MetroRod business? I really do think it's it's it's very significant. I mean, the the the market we're servicing is is is pretty large. It's it's difficult to get a a read on it. The research on the commercial drainage and plumbing market is is is not vast, but we have a business that turns over 40,000,000.

55:55 We we have a model we use, which is the maximum potential model, which says that if all our franchisees did as well as the best and had the same penetration as the best, our current business would be turning over around 200,000,000, and and it currently turns over 40,000,000. If we extended the range of services to fully address the needs of our commercial customers, we're probably looking at a market that is probably close to 1,000,000,000. So we have a very tiny share of it, and the competition is is is very diverse. I mean, there are really only three big players in the drainage market, which is a company called Vanes for Drains, Diner Rod and Diner Plum, and and ourselves.

56:48 But I would have thought that those three companies probably still have less than 25% of the overall market. So there's lots to go for for the independents. And one of our USPs in that is our national coverage. There really is nobody else that has such a complete depot network that can service the needs of of commercial customers so quickly. And I think, actually, Metro Plum could be even bigger than than than the Metro Rod. You know, there's a lot of things we've gotta get right and to develop that business, but we're on the journey. Ruben v. What type of EBITDA multiples the large b two b currently have in the market?

57:39 And and to what multiples would you aim to reduce that via synergies? That's a great question. I'll give you an example. Couple of years ago, we came across a business that was generating EBITDA of about £8,000,000. I I bid 65,000,000 for it, which was eight times. It went for a 100,000,000, which is 12 times. We are seeing other franchise businesses. I mean, one changed hands recently in The US for 15 times EBITDA. And another business we looked at was on its fourth private equity owner. And when it changed hands last time, it had what's called a staple finance package.

58:28 That was a finance package that the the the vendor had put together, which was seven times EBITDA. We would struggle as a public company to pay those sort of multiples, and we certainly wouldn't tolerate that level of gearing. The synergies that we would create with the existing group are would would take several years to develop. So I I think we've still gotta pay the right price up front. The synergies will mean that over the following two or three years, you know, those multiples will reduce. But, you know, I take the view that those are the benefits that should accrue to us, and I'm not going to pay a price to the vendors that reflect what I can do with the business.

59:19 So so I hope that gives you some idea of the framework, but but naming numbers is is very difficult. We won't set a a fixed multiple beyond which we will not go because it depends on on the business and how we think we can develop it. Paul s, what would you target as a maximum market share for Metro Road business? I remember hearing a target market of 1,000,000,000 covered by mainly small operators. Yeah. Again, a great question. I I I I had this dilemma once at Domino's where people said, well, how big a market share do you think you could get?

1:00:06 And and and the problem with answering that question was the the estimates of the size of the market kept on changing in in in in as you can imagine, in in food home delivery, that market is maybe five times bigger than it was when I first started at Domino's. And I think to some extent, it's the same. I mean, whilst, clearly, the drainage market is not gonna grow as fast as home delivery food, as you extend the range of services you're offering, the market size increases. But I think for a a player like Metro Rod or indeed Metro Plum, if you sort of thought that you could get sort of 15 to 20% of any market, that would be a a a very healthy share. You'll never go but I I I think it's very, very rare that you ever see a business taking more than 50% of the market because, actually, the barriers to entry at the bottom level in servicing domestic plumbing or or domestic drainage are are very modest.

1:01:08 What we capture, particularly through the use of technology, is those bigger customers that want a one stop shop, and they want a an IT led solution to their problems. They take cleaning the drains or fixing the plumbing as as an absolute given. They want is the services around them. As as as Colin alluded to when he he spoke about sort of Uber and and Amazon, the TV or the taxi rides the same, it's all the bits that go around it that that larger customers are looking for. Next question. Damien c. What are the constraints to growth? Is growth possible in b to c without acquisitions? Growth in b to c is possible without acquisitions, but it's modest.

1:02:02 The sort of franchisees that you're commonly report recruiting in b to c, this is a huge generalization, but they tend to be lifestyle. These are it's a it's a man in a van or maybe with one or two employees, and and they they they tend to be lifestyle businesses, where the real dynamic growth is is in the b to c franchise businesses. Now all of that excludes food. Obviously, the b to c food businesses like Domino's or McDonald's or Burger King or KFC, they all have huge scope to expand. But we're not currently targeting franchise models in the food sector, notwithstanding the extensive Domino's background of a lot of people in my team.

1:02:57 Stephen, perfect. I I think you have addressed half year. Then then to wrap start up, and and then then I'll take the floor back with from you, if I may. Well, thank you very much for listening to us. I hope we haven't gone too long. We've tried to give you a a good understanding of of the underlying businesses, the way they work, and the way we're we're gonna grow them. We have a a great team here at at FRANCHISE BRANDS capable of taking on and and growing a a far bigger business, which we intend to do over the coming years. So I commend the investment to you.

1:03:46 Thank you very much indeed to Steven, Colin and to Chris. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide feedback? Please do, take the time to give, the company your views and expectations post the meeting on the business and the opportunity it provides. If you access this meeting via our website, then the page feedback page will automatically appear. If you access this via the link we sent you by email, you'll simply be asked to log back in. But as I've said, if you could take the time to present the company your feedback, that would be great. On behalf of the management team at, Franchise Brands, we'd like to thank you for attending today's presentation. That now concludes today's session. Thank you very much indeed for your time, and good afternoon to you all.