Franchise Brands (LSE:FRAN) — Interim Results

0:00 Good afternoon, and welcome to the FRANCHISE BRANDS PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged, can be submitted anytime via the Q and A tab situated in the right hand corner of your screen. Just click Q and A, scroll to the bottom, type your question, and press send. Company may not be in a position to answer every question received during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll.

0:26 And now let's hand you over to Stephen Hemley, Executive Chairman. Good afternoon. My name is Stephen Hemsley. I'm Executive Chairman of FRANCHISE BRANDS. Welcome to this podcast where we're presenting the interim results for the first half of twenty twenty three.

0:48 I'd like to introduce my colleagues who will be presenting today, Peter Malloy, the CEO of our B2B division, Jason Sayers, CEO of Filtra International, and Alex McNutt, CEO of Pertech Europe. We've a lot to get through today, so we will be running through these slides fairly quickly, but I'd like to give you first an overview of franchise brands. Our purpose is to build market leading business primarily via a franchise model. And our philosophy is that if our franchisees grow, we grow. To that end, we have six fifty franchisees across seven brands in 10 countries across UK, Europe, North America.

1:34 They operate over 2,200 service vehicles and employ around 5,000 people in the franchise network. We employ seven fifteen people in the support centers and the direct labor businesses. These businesses generate system sales which is the underlying sales of our franchisees rather than our corporate sales and on an annualized basis they're generating 400,000,000 a year. Just like to move on now to talk about the progress in the period. This was a period of significant progress for us with the acquisition of Pertech Europe, which doubled the size of the group. Pertek has traded well in the ten weeks of this year that we've owned it, reaching record levels in most markets and fully meeting our expectations at the time of the acquisition.

2:31 We've also had strong momentum from Metro Rod and Metro Plum, which grew system sales by 24% to 35,000,000. Filter International, the business in The US and Continental Europe also grew system sales very well in the period by 16%. The B2C division, which has had a challenging time since COVID in recruiting and retaining B2C C franchisees, most of whom are one man in one van.

3:03 But it performed in line with our reduced expectations in the current year. So overall the group generated system sales of 146,000,000 in the first half of this year, up 81%. Saturated revenues were just under 70,000,000, up 57 percent although this is not a KPI of the business because it's made up of a number of different income streams which don't necessarily contribute to EBITDA. EBITDA itself was up 12,100,000 or 67% in the first half of the year, driving adjusted profit before tax of 8,600,000 up 45%. Adjusted EPS was up a more modest 4% for reasons I'll come on to talk about later on in the presentation.

3:50 Because of the board's confidence in the remainder of the year, dividend is up 11% to 1p per share. Just now I'd like to talk about the main strategic development in the first half of the year, which was the acquisition of Pertech Europe, which is the leading provider of on-site hydraulic hose replacement services operating in eight countries, mainly through a franchise model. We acquired the business on April 21 by the acquisition of Pertex Holding Company from a US private equity owner. Total consideration was 200,000,000 plus a cash and working capital adjustment of 10,300,000.

4:38 This was financed by an equity placing of 114,000,000 of which 97,000,000 came from a fundraise from institutions and franchise brands management and 17 point five percent 17,500,000 from the vendors including the Protect management who have joined the FRANCHISE BRANDS team. We also raised a debt facility of £100,000,000 The reasons for this acquisition were really around advancing our strategic objective of building an international b to b multi brand franchisor, which generates its profits equally in North America, UK and Europe.

5:28 The reason for that is that we feel that a wider spread of geography and currencies will enhance the diversification and resilience of the business. We're also looking to extend the range of customers that we service to again enhance the resilience of the business. An additional reason was the operational leverage that we can gain from a wider range of businesses from our central services, particularly technology, marketing and finance. The wider international footprint also gives us the opportunity to expand our existing brands into new markets where we now have an established overhead base.

6:16 I'd now like to hand over to Peter Malloy, who will talk us through the B2B division. Good afternoon everybody, thank you Stephen. Just really to give you a flavour of the construct of the B2B division. The division was effectively created in the middle of twenty twenty two to provide a more cohesive management structure. And as you can see from the slide it consists of four businesses. Metro Rod which is primarily a franchise business delivering drainage and pump services. Metro Plum again a franchise business and the clue being in the name in terms of a plumbing business. That business is delivered by 15 independent franchisees and 19 combined Metro and Metro Plum franchisees.

7:05 You got Willow Pumps which is a direct labour organisation special in specialising in pumps and Filter UK which again is a combination of direct labour and franchisees operating in the commercial kitchen environment. Just to give you a little bit more of a flavor in terms of the H1 position. As the slide says continuing strong momentum at both Metro and Metro Plum. In Metro Rod system sales increased by 24% on the back of a strong performance also in 2022, resulting in 35,300,000 year to date. Job volumes and average order value are two key elements of our business. And the jobs in the first half of the year are up over 15% and the average order value up over 6%.

7:55 And that's really been driven by an increase in the pump and tanker sales which attract better prices than just the drainage business. And both of these elements grew by grew by over 20% in the first half of the year. To maintain this, we continue to invest in our training and upskilling of our engineers. We now have 72 pump engineers in the Metro Network compared to 58 at this time last year. And in the period as well, we've opened our second training center in Macclesfield to accelerate the training of our engineers on the pump discipline.

8:29 Very pleased with the franchisees performance and their growth. 61% are growing more than 20%. And this is on the back of their continued investment. And indeed over the last month they've invested a further £750,000 in additional tankers to support the business that we do. Moving to Metroplum. Metroplum as I said is a combined business of independent franchisees and combined Metroplum and Metroplum franchisees. The strategy is to build that out as independent plumbing businesses. And we've got 15 now compared to I think it was 11 at this point last year. The business has grown at 31% and this is faster than the drainage growth. And I think it illustrates the size of the opportunity and the requirement for a national plumbing service.

9:22 A pleasing aspect within Metroplum is our reduced dependency on the low value insurance work that we carried out. And that's had a positive impact on the business by increasing the average order value with a better mix of customers and business and the average order value increased by 13% year on year. Within Metroplum, we have Kymac, our direct labour specialist plumbing division, and that performed well in the period as well, with an 11% increase on a like for like basis in terms of sales. And as the skill set and the geography geographical coverage improves within Metroplum, it enables us to much more aggressively to market the Metroplum business, which we plan to do in H two.

10:10 In terms of Willow Pumps, a pleasing performance in the first half of the year with sales growing by 10% on the back of significant reorganization of the management. The management has been restructured and the founding partner of the business, Ian Lawrence now takes a much more peripheral role as a non exec chairman. The change in management, I think has resulted in a much more focused and determined management team. Under the Willow banner, we have two of our corporate franchisees and they performed think disappointingly in the period. Although they both made a greater contribution in terms of the management service fee we receive, with those sales growing from 1.1 to 1,200,000.

10:59 That said, we've decided to sell these businesses and refranchise them. And this allows the franchisees to do what they're good at. And equally the Willow management team to focus on growing the pump business not only in Willow but in the broader Metro network. Filter UK, a challenging first half of the year with market sorry with modest sales growth of about 5%. In part to address this the Sales and Marketing Director has been changed and Filter will now sit under the responsibility of the Metrod sales and marketing director. I think that that will open some doors for us and certainly enhance our cross sell opportunities.

11:45 Within the fat soles and grease element of the business, we're transitioning to a franchise model, with now two thirds of the business delivered by franchisees compared to one third when we acquired the business. And we're continuing to review how we can best optimise the service delivery to expand and grow the attractive parts of the Filter UK business.

12:14 Running through quickly the financial performance. Metro Rod the largest part of the division with over 71% of the adjusted EBITDA. Very pleased with the sales increase at 24% taking us to 37,300,000 at the half year. Margin was impacted by non recurring events, primarily two. The upside in 2022 of a special project we did with Peel Ports, and then the negative impact of us stepping into an abandoned franchisee in North Scotland this year, which was unforeseen.

12:48 Admin expenses increased significantly but for several reasons. Mainly salary increases. We believe that by looking after our staff in the cost of living crisis was important and equally we believe it will pay dividends back to us in the longer term. Equally, Metro Rod have taken on some of the costs and absorbed some of the costs that we've taken out of filter. All that said, a satisfying increase in the adjusted EBITDA of 13% was achieved. Willow, 11% increase in sales, but a 2% reduction in gross margin. And although on the face of it, that looks like a negative, there are positive aspects. The increase in the amount of work passed to the Metro network, albeit a lower margin out of Willow, makes a positive contribution to the division.

13:40 The admin expense increase in Willow was entirely by design. We've increased and recruited invested in industry leading staff to develop and expand our range of services. And we're optimistic that that will show benefits in H2. Excuse me. In terms of filter, revenue grew by 56% on a full year comparison to 5,600,000. But disappointingly, we're only 5% on a like for like basis. One of our largest business streams, which is the installation of grease removal units, was impacted by the failure of our supplier of the GRUs. And we're optimistic that that will be resolved fairly early in H2.

14:29 More encouragingly within Filter UK, as a result of streamlining the business and improving some of the operational gearing, EBITDA grew by 23% on a like for like basis to five and sixty nine thousand. In summary for B2B, overall growth of 24% with admin expenses growing by 19%. Admin expenses now a percentage of our system sales reduced from 10.4% to 10.2%. And the formation of the B2B division has enabled us to build a much more cohesive division, with a greater levels of integration and cross selling opportunities. So I remain optimistic on the back of a strong first half of the year, optimistic for the second. That's the B2B division and what I'd like to do is to hand you over to Jason who will take you through Filter International.

15:20 Thanks Peter. So Filter International is the North American and EU business within Filter. We provide cooking oil filtration and fire management services to commercial kitchens through a network of around 160 franchise owners operating over 500 vehicles. So you see on the top here it says FilterMax gaining traction. FilterMax is the next phase of Filter's growth. So in the first ten years of us being in The US, we had the single unit franchise model, where a guy bought himself a job. And we built the business there from a start up to about $13,000,000 a year. The second ten years was the multi van model, where guys own multi vans and grew businesses, and our network revenue grew from £13,000,000 a year to £92,000,000 last year.

16:10 So we're now in the third phase, this is FILTER MAX. Using the maximum potential model introduced by franchise brands, we've identified 55 key metro markets in The US that can have businesses of scale, basically copying the top five franchise owners that we have. Some of them are touching on $10,000,000 revenue. So these are bigger guys. We just had our franchise conference last week and it was quite energetic, a lot of people there. We've introduced the Viltemax model before, but the whole conference was around Viltemax. And we had, one of the sessions, we had the larger franchise owners, four of them on stage, and it was great. I was telling how they scaled their businesses. They've got sales directors, sales team, operations directors, operational teams, accounts departments.

16:56 It's all about their growing fast. It's all about how do you scale the business in the key metros. So in the medium term, FilterMax helps drive system sales to 500,000,000 by scaling the 55 metros to emulate the better franchise owners, on our way to reaching a potential market value of over $1,000,000,000 in time. It's all quite exciting. Part of that is the bulk oil supply. So national accounts, we do a lot of national account work in The US, but they obviously buy their oil from elsewhere at the moment because it's a commodity on the market. They're very interested in us for one reason, it's the environmental side. So the bulk oil system we have, we have five systems out there right now. It's like the waste oil with 6,000 gallons set up, except we buy 6,000 gallons of new oil at a time.

17:43 It's filled up into reusable jugs which are

17:45 then delivered to customer and reused. So the customers don't have boxes or plastic to put in the bin every time. So there's a real environmental benefit for the national account. That's why they're interested in this, it's green. Five locations doing this right now, looking to expand that to the 55 key metros in the next five years. That's introducing one new depot per month doing that. Big benefit for the franchisees, selling at the same price fuel but buying it in bulk, their margins increase from 18% to 38%. Big win for them. Another service we just rolled over, layered on top is FilterClean. Again, national account driven. This is cleaning commercial kitchens. We're only doing about $2,000,000 this year in it and we launched it at conference.

18:30 And it's expected to go pretty quickly. One franchise owner who was on the stage actually said last month he has one job worth $38,000 in the kitchen. This is something we're looking to layer over and roll out through the franchise network now. And lastly on Europe, currently is a subscale business, has to grow before it can really contribute to the network. Pertech acquisition has helped in this regard and we've been working closely with the German management team there, Pertech German management team, utilising the resources to see how we can scale the business there. Let's move on a slide. There you go. So waste oil. The selling of waste oil is an important part of filters business in The US, albeit it's reducing in overall percentage terms as we diversify. The bars there show the volume in US gallons that we collected over the last eighteen months. Volume was up 22% year on year, H1 last year versus H1 this year, hitting record volume. So our volumes are up. To put this into perspective, it's the equivalent of over 80 petrol tankers a month full of waste oil we're selling to biodiesel plants.

19:35 The line there shows the market price, the Jacobson index, and you can see from the chart that the price of waste oil rose in February last year, remained high and then dipped again in February this year, bringing the price down. Comparing the two periods, the pricing has dropped 13%. So the six months of 2023 had GP of £1,400,000 versus 1,000,000 in the four months of last year, despite the record volumes which grew at 22% year on year. Pleased to say the price has been going up a little bit right now and the jackets from forecasting service has it moving up during the remainder of this year. Moving on, one more slide. Here we're comparing the four months of 2022 against the full six months from this year. System sales increased by 74% to £41,000,000 and 16 percent on a like for like basis.

20:26 The two biggest points I'd like to make: waste oil sales, despite the record volumes, decreased 7% on last year, completely down to the market price of waste oil. Secondly, royalties and NCA revenue. We consider that the core repeat revenue and lifeblood of Filter going forward, rose 21% top line and 18% at the gross profit level, as extrapolating the four months out to full six months. This is a key number for us, reflecting the growth of the business. US overhead was up slightly, mainly due to our investment in the sales team, is currently paying dividends. But admin expenses as a percentage of system sales dropped slightly from 3.9% to 3.7%. Franchise owners continue to invest in new MFUs, that's the machines we have, and equipment to grow their businesses.

21:15 In Europe, we increased the infrastructure in Europe but haven't yet seen the growth in revenue there yet, partially due to the supply chain issues that Peter mentioned earlier. As I mentioned, we're reviewing the models in Europe and we can now help to integrate it a bit more further with Pertech in Europe. As a summary, overall, the message is that everything is growing well. Network revenue filters core repeat revenues up. It really is waste oil market pricing that muddies the message in the short term. But as we continue to grow and add further services like Filter Gold, Filter Clean, we should see accelerated growth in the coming years, particularly once the impact of Filter Max starts to be seen. So that's a summary of Filter International. Just hand you over to Alex to talk about Pertek.

22:02 Thank you, Jason. Yeah, I'd like to just give everyone a quick overview. Clearly, this is the first meeting we've all had since the integration. Essentially Protect, our core business is on-site hose replacement. We believe we are the largest provider of on-site hose replacement throughout Europe. Indeed, in our top countries, The UK, Germany, Austria, Netherlands and Belgium, we're number one in these areas. As you can see, we operate some 69 franchise groups. We have two seventeen centers with eight forty three mobile units. And over 200 of these centers are actually owned and operated by our franchisees.

22:48 And since the acquisition on the April 21 by FB, we have now opened a further two centres in Antwerp Harbour and Trier in Germany. The revenues are primarily derived from The UK and Ireland, Germany and Benelux, where we hold leadership positions with national coverage allowing us to be highly profitable. Sweden and France are corporately owned, subscale startup markets making marginal contributions, but both with great potential. Our business continues to offer multiple growth opportunities across all countries. And we currently own the perpetual royalty free master franchise agreement for future expansion into eight further European countries.

23:40 It should be noted that over 60 of these 69 franchisees are already on our new royalty model. Thus, when they grow, we grow. And we support this through the use of business plans and growth tools. Essentially, we're emergency response. We operate in multiple industrial sectors, waste management, construction, plant tire, industrial, wind generation, automotive, maritime, forestry, and many more. We target one hour response twenty fourseven, three sixty five days a year. And that's one of our key attributes.

24:26 And having these centers around the various countries gives us the opportunity

24:31 to deliver this service. The demand for our service is mostly time critical. Generally, a host fails whilst the machinery or the system is in operation, making response times more important. Our prime task is to reduce the downtime of our clients.

24:53 We have a diverse portfolio of thousands of customers across multiple sectors, with our largest customer less than 1% of our revenues. The sales consist of national accounts, regional accounts, and local accounts. And in our larger countries, three main areas, we have typically 35% plus in The UK, our largest single area is 44% of national accounts business. And currently, we're operating 500,000 jobs per year. Our growth opportunities as well as core includes THM, total hose management. And on the right hand side, it gives you a flavor, an idea of some of the examples we do.

25:45 In terms of hose flushing, testing, fluid analysis, and a number of customers would replace and clean out the hydraulic oil, thus being able to use it a second or third time. We offer ram repair, planned maintenance and servicing and replacing of hoses, such as the Bosch automotive plant in Germany. We will replace all hoses over a five year period, working with their maintenance department on the shutting down of the robotic plant. We also replace all hoses on Carnival Cruise Lines over a five year period, so they don't have the problem of hoses failing. Some other areas, wind turbines, wind turbines, we have some major contracts with wind turbine companies, replacing the hydraulics and some of the length of the hoses from the base to the top of a wind turbine can be in excess of 50 meters long.

26:47 If we move on to the next slide. Unfortunately, we're not able to give comparators, because obviously we've just joined the company on the twenty first. But this is, protects ten weeks into this business. The integration is going extremely well. The chart shows us the figures from each of the main centers. We essentially have eight countries that operate them as five business units. The UK and Ireland, as I mentioned, largest is business. 46% of revenues at 17,100,000 of system sales, and 49% of adjusted EBITDA. The opportunity, even though it's our largest area in The UK is still incredible, both in core business and on THM.

27:39 Since the introduction of the royalty system a few years ago, we've taken on board systems expertise to support the franchisees, and that's already proving very beneficial. In Germany and Austria, they now do 36% of our group sales, 13,200,000 with

28:01 31% of our adjusted EBITDA. In Germany, in the last two months since the acquisition, we've opened up Entrea. Again, another franchisee splitting a center, opening up another center close by. The Benelux 13% of our system sales, 4,800,000 and twenty percent of adjusted EBITDA.

28:25 Again, the last couple of months, we've opened up Antwerp Harbour from one of our Belgian franchisees. In Sweden, the growth will come from rolling out additional MSUs mobile service units. And in the last twelve months, some of last year, we've opened up the Gothenburg Centre. And that will continue and give us a platform potentially in other Scandinavian countries. In France, we've got into France in the last year or two. Our presence is mainly in the Ile De France area, which is the Paris region, and Lyon in Grenoble. And in beginning of May this year, we've opened up in the Collegen area.

29:12 Again, we will continue to grow in France by putting in additional MSUs. And it's still early stages, but we believe there's a tremendous opportunity to continue the growth. The 3,800,000 delivered over the ten weeks has resulted in a number of countries having record sales in these last two months, record sales and record EBITDA. And our business going forward, from our point of view, we're very comfortable and confident in terms of our budgets.

29:45 And our expectations were reached in these last ten weeks. So we're very confident going forward for the future. I'll also see that the integration process, working with FRANCHISE BRANDS, finance, marketing and IT departments, we also believe will lead to further success.

30:07 Each of these senior heads of departments have been in all of the protect centers, on all of the protect head offices over the last few months. And we believe we've got much more to come from this, but it's still early days yet. So overall, it's a case of sharing best practise within the organisations. And we believe we've got a very bright future. So I'd like to pass over to Stephen now to discuss the B2C. Thanks Alex. Let me just move on the slide. BCA as I mentioned earlier faces a number of challenges in the franchise recruitment market at the moment.

30:54 After the COVID period a lot of people retired early, work life balance became an issue,

31:05 so the number of franchisees we had in the system reduced. At the same time though, quite a few people decided they wanted to go self employed rather than carry on employment, so our recruitment levels remain reasonably buoyant. First six months of this year it's changed somewhat. In the first six months of this year we've had high employment, high wages, elevated inflation, people I think becoming more risk averse, banks are being more cautious in lending to new franchisees, so in general self employment has become less attractive. That's been a bit of a challenge for the side of the B2C business. However, retention has improved because this risk averse nature has meant that people actually are sticking with what they've got and haven't

31:55 left in the volumes they did post COVID. So the recurring income from the franchise community has been maintained quite well. We're pretty pleased with the 24 franchisees we've recruited in the first half compared with 30 in the more buoyant period last year. As I said earlier, this has led to a reduction in profit

32:19 headline rate by 23%, but last year we also sold the domain name of My Home for a 100,000. So if you eliminate that sort of one off income, underlying it's down 17%. Now earlier in the year we announced that we weren't taking a strategic review of B2C and subsequently put it up for sale. We've received some offers for the business but none that we consider satisfactory. So we've taken decisions to stop marketing this business and as a result reincorporated the results of the division within the group.

33:03 Just looking now more generally at the overall group results. As I mentioned before, system sales is the sales of the underlying franchisees and following the acquisition of Pertech, this has grown by 81%. Now system sales is a key KPI of the business because this is what drives our MSF or royalty income and the margin on our direct labor businesses. So we're pretty pleased with that result. Admin expenses up 80% in the period, just a little bit shy of what system sales were up by. But the main reason for that very high level of growth was the acquisition of Pertek which added about 5,000,000 of additional overheads and the annualization of the filter deal that we did last year, whereas in the first six months of last year they were included for only four months whereas in this period for a full six months. So the underlying increase in overheads across the group was 1,300,000 or 13% and the main drivers of that were salary costs with the inflationary rises needed to retain and recruit the people we need and also professional costs particularly audit costs which I think were up a 100 and something odd percent.

34:24 Adjusted EBITDA which is the key KPI of the business increased by 67% to a record 12,100,000 driven by the Pertek acquisition, the Filter acquisition annualising and the strong contribution from Metro or Metroplum slightly offset by the reduction at B2C. Depreciation, amortization of software and finance charges all rose in line with the acquisition of FILTR and the annualization of sorry acquisition of Pertek and the annualization of the filter numbers. The tax charge in the year increased from 20 to 24%. And part of that related to the increase in The UK tax rate from 19% to 25, but also the broadening international aspects of the business where a lot of the overseas tax rates are higher than they are in The UK.

35:22 And I'll talk about the impact that had on EPS in a later slide. Below the adjusted profit line, amortization of intangibles, share based payments, all impacted by the acquisition of Pertek. The non recurring costs were the acquisition costs of Pertek in the current year and a filter in the prior year. As a result of the taking all this expense within the first half of the year and only ten weeks contribution from Pertech, we actually incurred a statutory loss during the period but that'll be ironed out by the time we get to the year end and we have a full six months contribution from Pertech.

36:13 Adjusted EPS and dividend. The EPS for the year increased by a relatively modest 4% and the reasons for that were the shares issued for the acquisition of Pertek raising £114,000,000 and come back to this tax rate, the tax rate increased by 4% and if you eliminated that and the charge of consistent rate of tax, EPS would have grown by a more respectable 10%. EPS was also reduced by the reduction in profits of B2C and to some extent by the fact that the oil price movement that Jason mentioned earlier on. Notwithstanding that the board is confident with the outlook for the year and reconfirms the 29,000,000 forecast that we put out at the time of the Pertic acquisition and as a result has increased the dividend by 11% to 1p per share.

37:15 Cash flow and leverage. Now I've tried to simplify what is in the six months a very complicated cash flow statement in the RNS. So what I've done here is try to analyze out the cost of the Pertek acquisition, how we funded it. So Pertek acquisition 200,000,000 acquisition costs just over 6,000,000 funded by the share issue of 114 raising the term loan of 100 and the net cash flow from operations which looks like a fairly modest number but but there were lots and lots of different things happening within that number in the year. But that combined generated cash in the period of 10,000,000 which together with the 10,800,000 we had at the last year end, meant that we finished the half year with net cash of 20,800,000.

38:11 Now if you set that against the term loan and the RCF and a little bit of higher purchase debt, we ended up with adjusted net debt of 79,000,000. Now that's not our total debt because to that you need to add the 7.2 FRA 16 right to use assets debt number. So in total we had about 86,000,000 but the reason I focus on the 79,000,000 is that's the number the banks use to test our covenants. So just going over to the right hand side of this slide, covenants are tested against the last twelve months results. So in the last twelve months to June 30, assuming we owned all the businesses for the whole period, the group achieved profits of 31,900,000.

39:00 And the forecast to the end of the year is for LTM to be 33,500,000. Now if you applied that against the 79,100,000 of adjusted debt, you end up with a debt multiple of 2.48 times at June against a bank covenant limit of 3.4 times, so very comfortably within that. And we're forecasting 2.36 times at the end of the year, which again is comfortably within both bank covenants and what we forecast at the time of acquisition. I think it's fair to say we're very pleased with the rate at which the company has de geared in the very short period since the acquisition and look forward to that continuing.

39:49 Just a few words on corporate governance. We've had, as the business has grown quite a large board and every time we've made an acquisition, the CEO of that business has tended to join the main board. We've got to the stage now where the size of the board and our corporate governance profile needs to be addressed. So we are going for a two stay, a two tier governance system. We're going to significantly reduce the size of the PLC board to just myself and our newly appointed CFO and three independent non exec directors plus Nigel Ray, my founding partner. The CEOs and the leaders of all the central services will then join a management board and that board will meet at least quarterly in the various locations we have around the world now. So all the CEOs and the central service leaders can see how the business actually operates on the ground.

40:55 Pleased to announce today the appointment of Mark Freyer as our new CFO. He joins us next Tuesday. Very experienced guy been through AIM companies, fully listed companies, right up to a FTSE two fifty companies. So we're looking forward to the experience that that that Mark will bring to the group. We're aiming to get all these changes done by the year end and we'll make announcements in due course. Corporate development and capital allocation. Having geared up to quite some extent to undertake the Pertek acquisition, our priority now is repaying that acquisition debt and reducing the gearing.

41:42 Our capital allocation policy will however still balance debt reduction with a progressive dividend policy and the needs for organic investment to expand business, but we won't be looking to make significant acquisitions. We expect our leverage profile to fall to a debt to EBITDA multiple of 1.6 by the end of next year and fully expect the whole of the acquisition facilities to be repaid within five years. Although we probably won't do that because think it will be sensible for maximum efficiency to retain some gearing on the balance sheet. But our target leverage is one to 1.5 times adjusted EBITDA before we will consider another acquisition of scale.

42:37 So in summary, another very productive and successful period for the group building a business of international scale and generating our profits on a worldwide basis. We also I see great opportunities to grow the Metro Rod and Metro Plum business, which still have very small shares of a very large market in The UK. Huge potential for filter in North America given the unique nature of its business and the absence of any real competition. Pertech has a lot of exciting opportunities in growing their existing mature markets with new product ranges, scaling up their early stage markets in France and Sweden and then longer term as as debt reduces expanding the business into the new markets because as Alex said we have the right to use the Protect brand in a further eight European markets.

43:41 We once again have confirmed our forecast for the full year of 29,000,000 of adjusted EBITDA, at least 29,000,000 of adjusted EBITDA. So thank you very much for listening to the presentation. I think I now go to questions. Absolutely, Stephen, thank you very much indeed and thank you and the team for your presentation today. Ladies and gentlemen, do continue to please submit your questions using the Q and A tab just situated in the right hand corner of your screen. But just while the team take a few moments to review those questions submitted already, I'd like to remind you the recording of the presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboard. Stephen, as you can see, we've had a number of questions come through from investors throughout today's presentation. If I may just ask you just to click on that Q and A tab, start at the top, just read out the question where appropriate to do so or pass it to one of the members of the team and I'll pick up from you at the Well definitely be passing to the members of the team especially this first one. Think Peter has probably answered which is has the disruption in the supply of GRUs impacted the Filter UK ops?

44:51 Has it been resolved and what do you think the size of scale of that is? Do you want me to take that Steven? Yes please. I think it's fair to say isn't it fully resolved? It is almost resolved and we certainly anticipate it being brought to an end within probably the next four to six weeks. I think it's also fair to say clearly it had a disruption on the first half of the business, but out of every problem comes an opportunity. What it's enabled us to is to reestablish some other broader supply chains to deliver a wider range of solutions to our customers. So we will ideally be in a place where we maintain the GRU that we've been working with. As I say, we we can provide alternative solutions and importantly, in the first half of the year, we fulfilled all of our obligations.

45:40 All of our customers got what they needed to do. I guess the impact was the slowing down of our sales development to promote the product where we had to go out of the supply chain. In terms of the financial impact, circa £200,000 in terms of any direct impact on the sales in the first half of the year. Thanks Peter. Next question is, what are the key benefits you see of your scale now? Do you have a central operating system and how is your digital transformation impacting the business overall? I'll take that one. We don't have a central operating system as such, but we do have our vision system, our works management system that we use in our UK B2B businesses.

46:31 Now, what we're now doing is looking at whether that is applicable to the business of Pertech. We're currently undertaking a gap analysis. The team at Pertech are looking at a vision to see if it works for them but we're reasonably optimistic it will have applications in the Pertech business. Filter in The US has its own operation system which works very well for them, recently been updated. So I think in terms of one central system, no, because all the businesses are different and they have different requirements. How is the digital transformation coming on? That is an area where we do share expertise.

47:18 There are a lot of projects going on at the moment using AI. There are a lot of things being learned in different markets in different applications around the group that we think we can apply more generally. Long term, we think one of the keys to generating operational leverage within the franchise business is the use of technology. And we are currently in the process of doing a sort of a blue skies thinking project of what it could look like in five years time. What we would need to do and what the road map will be to get there and and and we may well be talking about that by the by the end of the year. So I hope that answers your question Mark.

48:06 Questions from Damien. What reasons did other parties give for making unacceptable offers for the B2C business? I think all of the reasons that the business is underperforming at the moment, the difficulty with recruitment, the attrition of the franchise system, high interest rates, uncertainty out there in the consumer market. Some of the people that did bid bid at modest multiples of profit. This is business that makes 2,200,000 a year. It's highly highly cash generative. So it is an attractive business.

48:51 I just think that the market background at the moment is not conducive to pursuing a sale. So what we've said is that we're no longer going to market it. Hope that answers that. Damon's got another one here. Is the filter business in Europe really viable given the lower density of frying type restaurants? I'll start with that one and then hand over to Peter. The franchise model in The UK and in Europe based on just filtering frying oil is not compelling. And one of the things we're doing in The UK is extending the range of services that the franchisees offer into such things as servicing GRUs.

49:43 I think we'll probably be doing the same in Europe. Alex and his team are also looking at that business at the moment to see what opportunities there are. Do you want to expand on that Peter? I I think you're right and I'll come to Jason in a moment because Jason I think has got more knowledge than either of us in terms of the European setup. But but essentially you're right in terms of the breadth of services to make it a viable franchise. And you know I accept the argument in terms of the friars and and Jason may counteract that argument. But the installation servicing of GRUs the regulatory pressures to stop people polluting the drains certainly an opportunity in Europe for us on that side of the business.

50:28 Jason, do you want to add anything on the fry side? Yeah and and it differs. It's a great question actually because it also differs country to country. So you look at Germany. Germany is somewhere between The UK and The US in terms of market. Whereas there's a lot less there's loads of fries per site in The States. People have heard of it before. So even the hospitals we serve have eight fries in them. So it's ridiculous over there. In The UK has, you know, it's a lot healthier, less fries per site. Germany in particular has less places that fry but those that do fry have quite a lot of fryers sometimes, brewhouses, that type of thing. So there is a market there but to really fully expand, you're absolutely right, we're looking at adding the other products and services to that to make it a more compelling franchise.

51:16 Thank you, Jason. Right, third one up for Damien here. Why do corporate franchisees seem to perform more poorly than independent franchisees? Well that's very easy, we're not very good at running and and and that's similar in most franchise businesses. I think the the other bit Steven is is the skin in the game element? Yes. You know, the franchisees have invested in the business. They've got a vested interest to make that succeed. Now, I'm not saying our management's poor and not committed but there is a completely different mindset in a franchise business than a DLO. And and you're right, you know, we, you know, we are franchise expertise, sorry, experts, we're not necessarily experts in DLO businesses.

52:04 Now, now, Pertech, Alex's team at Pertech are putting a different spin on that because they are proving quite successful in running some of the corporate franchises. So what's your secret sauce, Alex? Yeah. Well, listen, I think what Peter said is probably in terms of the local franchisee having skin in the game is is very, very important. So you've got a local person, an owner there. He puts in more than his of his tuppence worth. However, when one looks at the centres that are given back through mismanagement or franchisee going bust, you're usually picking up The corporate are usually picking up a problem center. It could be problem with staff, problem with customers, poor service and so on.

52:49 The reality, it needs some TLC, tender loving care. Now we've been fortunate, we have had some issues historically per tech, but the last four that we've taken back, we've actually turned them around and sold them for more than what we picked them up for actually. And the reality is we have a model in terms of putting things in right. And what we wouldn't do is ask a franchisee to do something that we wouldn't do. So I do agree with Peter. Having a good franchisee who's got skin in the game is always great. But if you've got a problem franchisee running a problem area and you do take over, you need to go in and clear out, make sure that the processes are working like the best franchisee out there. And as I say, Stephen's right, we've got now some history behind this of a number of franchisees that have the areas have been turned around and we've actually sold them on for substantially more than what we've taken them on for.

53:43 So it's all about depends what you take on. Well, we'll be trying to learn from you, Alex, that's for sure. Thank you. George has got a question here. What is the plan now with the B2C business? To carry on running it. Tim does a great job running it day to day. The market will recover. What we're seeing at the moment is temporary. And the other somewhat exciting thing is that Alex has had a look at these businesses and has introduced them to his team in Europe. And there is some interest. Alex, would you like to?

54:28 Yes. I mean, we've had dialogue with Tim who runs the B2C on Chips Away, And it's an area we think there may be some possibility in Germany. As such, we have a meeting lined up at the end of next month with the German management team coming both to see Peter regarding Filter and what they've done in The UK, and also to meet with Tim and myself till we see if we feel there's an opportunity. We certainly have got a number of franchisees in Germany. We've got 92 centers and some of them have expressed some interest in it. So it's too early for any green shoots, but we would like to look at it a bit deeper actually. So the fact that it's not been not for sale at this moment time or it's not up for sale at this moment time, we're quite happy with that. It will give us a chance to see because if we believe there's an opportunity for some of our bigger franchisees who we don't want to grow within our current network to have another business, then we'd be comfortable with that as well actually.

55:31 Thank you. I hope that answers the question and at the moment I have no more questions. No, just a thank you from Damian. So, you very much indeed Damian and thank you from everyone for submitting your questions. Of course, any further questions that do come through, the team will be able to review those and we'll be able to publish those back out to you and we're appropriate to do so on the investor meet company platform. Perhaps just before redirecting the attendees to give you their feedback, Stephen, if I could just ask you just for a few closing comments please. Well firstly thank you very much everyone for attending and listening to us. I hope we've managed to give you a good idea of what FRANCHISE BRANDS is all about. We're a very rapidly growing company in diversified markets with international diversity now.

56:20 So we're very resilient. Franchising is a great business. It generates a huge amount of cash and we support our franchisees in growing the business. And as I said at the top, if our franchisees grow, we grow. And that's something we do know how to do. We might not be great at running corporate franchises, but we know how to grow franchise systems and we collectively have a lot of experience in that industry. So I commend the story to you, thank you for listening, have a good afternoon. That's fantastic Stephen, thank you very much indeed and thank you to Alex, Jason and Peter as well for updating Investors' ACO. Please ask investors not to close this session. You're now automatically be redirected to provide your feedback in order the team can better understand your views and expectations.

57:13 This will only take a moment to complete. It's greatly valued by the company. On behalf of the management team of FRANCHISE BRANDS PLC, we'd like to thank you for attending today's presentation. That concludes today's session, and good afternoon to you all. Thank you. Thank you. Goodbye, everybody.