Franchise Brands Annual Report 2017

FY2017 Annual Report · Franchise Brands

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Franchise Brands plc
Annual Report and Accounts 2017

At Franchise Brands we are passionate
about helping our franchisees succeed
and grow. This is at the very heart of
our success as a franchisor.

We focus on the things that make a

DIFFERENCE

OUR STRATEGY

OUR MODEL

Strategic report
Highlights
At a glance
Our strategy
Our model
Meet the marketing director
Our brands
Chairman’s statement
Financial review
Key performance indicators
Principal risks and uncertainties

Corporate governance
Our experience
Chairman’s introduction to governance
Corporate governance
Directors’ remuneration report
Directors’ report

Financial statements
Independent auditor’s report
Consolidated statement of
comprehensive income
Consolidated statement of
financial position
Company statement of
financial position
Consolidated statement of cash flows
Company statement of cash flows
Consolidated and company
statement of changes in equity
Notes forming part of the
financial statements
Company information

01
02
04
10
12
14
22
24
26
28

30
34
35
38
40

49
50
51

53
70

For more information
see pages 4-9

For more information
see pages 10-11

OUR BRANDS

OUR EXPERIENCE

For more information
see pages 14-21

For more information
see pages 30-33

Front cover image:
Ian Williams, Metro Rod franchisee, Swansea

Strategic report

0.50p
0.17p
nil

£(6.3)m
£2.5m
£0.4m

Financial highlights

Revenue

£24.3m +399%

Dividend per share

0.5p +194%

2017
2016
2015

£24.3m
£4.9m
£4.4m

2017
2016
2015

Adjusted EBITDA

£2.7m +101%

2017
2016
2015

(Loss)/Profit before tax

£(0.1)m –151%

2017
2016
2015

Adjusted earnings per share

2.5p +4%

2017
2016
2015

(Net debt)/Cash

£(6.3)m -352%

£2.7m
£1.4m
£1.2m

2017
2016
2015

Operational highlights

›Acquisition of Metro Rod on 11 April 2017.
›Size and scale of the Group significantly
increased.
›New strategy formulated for Metro Rod
delivered through investment in sales,
marketing and IT systems.
›Strengthening of the senior management
team and the Board.
›Shared support services expanded
and extended.

£(0.1)m
£0.8m
£1.1m

2.50p
2.40p
2.44p

Franchise Brands plc Annual Report and Accounts 2017

02 Strategic report

AT A GLANCE

Franchise Brands plc is an international
multi-brand franchisor with a combined
network of over 450 franchisees in
12 countries across four brands.

Portfolio split by Adjusted EBITDA
(excluding central costs)

BM MR

Franchise Brands’ vision is to create a group of market-
leading franchise businesses that benefit from sharing
the same support services. This model allows the
management of our individual brands to focus on
expanding their networks, and supporting their
franchisees to grow their businesses. We believe
this can really make a difference.

Currently the Group has four brands;
Metro Rod, ChipsAway, Ovenclean and Barking Mad.

Our guiding principles

At Franchise Brands we have five guiding principles that inform the way we
work with each other, support our franchisees and serve our customers:

We demand integrity:
We are professional in everything we do and
treat people with respect. Nothing is more
important to us than acting with integrity at
all times.

We are fair:
We consider that fairness and transparency
are essential to creating high trust working
relationships with each other, and with our
franchisees, partners and suppliers.

We empower our people:
We empower our people and expect them to
take ownership of a situation and to be
accountable for their actions and the results
they generate.

We are challenging of ourselves:
We set high standards, are demanding of
ourselves, are prepared to challenge the norm
and have a relentless focus on continual
improvement.

We work as a team:
We place a huge amount of importance on
teamwork between our colleagues and our
franchisees in creating a dynamic business
which delivers impressive results. We are
inclusive, encourage ideas and innovation
and welcome diversity.

MR Metro Rod
CA ChipsAway
OC Ovenclean
BM Barking Mad

36%
51%
08%
05%

“In a relatively short space
of time, we have created
a high-quality portfolio of
businesses with significant
critical mass in the franchising
sector. We plan to continue
our growth both organically and
by acquisition.”

Stephen Hemsley
Executive Chairman

Franchise Brands plc Annual Report and Accounts 2017

Strategic report

Our brands

Founded in 1983, Metro Rod is a leading provider of drain
clearance and maintenance services to the commercial market.
These services are provided by 41 franchisees on a 24/7/365
basis with geographical coverage across the majority of the UK.
In 2016, Metro Rod expanded its service offering with the
launch of Metro Plumb. Franchise Brands acquired Metro Rod in
April 2017.

ChipsAway is the UK’s leading and longest established mobile car
paintwork repair specialist focusing on SMART (“Small to Medium
Area Repair Technology”) repairs. ChipsAway was established in
1994 and has 214 franchisees in the UK. It also has a presence
in ten countries outside the UK through master franchise
arrangements. ChipsAway franchisees primarily serve consumers,
and operate from branded vehicles which are mobile workshops
or Car Care Centres, which are small workshop facilities.

Number of franchisees

Years of operation

Number of franchisees

Years of operation

214

Adjusted EBITDA (£m)

2017*
2016
2015

For more information
see pages 8, 9, 14, 15

* From 11 April 2017

£1.3m
n/a
n/a

2017
2016
2015

For more information
see pages 6, 7, 16, 17

£1.9m
£1.6m
£1.4m

Established in 1994, Ovenclean is the leading and longest
established oven cleaning business in the UK and has a network
of 106 franchisees. Ovenclean franchisees are able to clean all
domestic oven brands and models, including electric ovens,
gas ovens, range-style ovens, microwaves, and also hobs,
extractor fans, and barbecues. Ovenclean employs an
environmentally friendly system which helps ensure
customers benefit from a safe and hygienic environment.

Established in 2000, Barking Mad is a leading provider of dog
home boarding services (dog holidays) and has 77 franchisees
nationwide. As well as marketing to dog owners, the franchisees
recruit dog-loving host families who can take in and look after
a dog when the owners are away from home. Customers enjoy
peace of mind with a professional service which focuses on the
individual needs of every dog. Franchise Brands acquired
Barking Mad in 2016.

Number of franchisees

Years of operation

Number of franchisees

Years of operation

106

Adjusted EBITDA (£m)

2017
2016
2015

For more information
see pages 6, 7, 18, 19

£0.3m
£0.3m
£0.2m

2017
2016
2015

For more information
see pages 6, 7, 20, 21

£0.2m
£(0.01)m
n/a

Franchise Brands plc Annual Report and Accounts 2017

04 Strategic report

OUR STRATEGY

Our strategy is to develop franchise
businesses which have market-leading
positions that primarily provide services to
individuals and businesses. Our focus is on
established brands which can benefit from
our shared support services as well as our
management expertise and experience.

We aim to take franchise businesses
from ‘good to great’, rather than focus on
developing early stage businesses.

The execution of this strategy is achieved through a combination
of organic growth and growth through acquisition. The focus of future
acquisitions will be on market-leading B2B and B2C franchise
businesses of scale and where we believe our management
and financial resources can significantly enhance an already
profitable business.

Franchise Brands plc Annual Report and Accounts 2017

Growing organically

Growing by acquisition

Strategic report

Our strategy is to continue to actively expand the ChipsAway,
Ovenclean and Barking Mad franchise systems through recruiting
new franchisees, improving franchisee quality and assisting
franchisees to grow their businesses. We believe this will improve the
quality of earnings by increasing the contribution from recurring
Management Service Fee (“MSF”) income and reducing the Group’s
reliance on recruitment income.

In 2017 we acquired Metro Rod. The central objective of Metro Rod’s
new strategy is to grow franchisee sales (“system sales”) and their
profitability whilst also building our MSF income. In order for the
strategy to succeed, a significant investment is being made in
information technology and business systems, and also in
sales and marketing.

recruitment of 80 new franchisees and 74 leavers.

2017 progress
›Growth of total number of franchisees from 391 to 397 following the
›Improvement of the quality of the earnings with an increasing
›Continued strong cash flow generation from each brand.

number of franchisees now paying a turnover-related MSF.

strategy of growing system sales.

2017 progress
›Launch of a number of operational changes to support the new
›Initial restructuring of business processes and systems to improve
›Launch of new marketing and branding strategy.

efficiency and provide our customers with a first class service.

Shared support services

Growing each brand

All the Group’s brands are supported by our shared support services.
These services allow the management of our individual brands to
focus on expanding their networks and helping their franchisees to
grow their businesses. In 2017 we developed Group capabilities in IT
and finance to add to our well established marketing, franchise
recruitment and franchise support capabilities. We now consider
the range of capabilities we offer to our franchisee businesses
to be substantially complete.

Each brand has a Managing Director who is responsible for achieving
the budget set by the Board. A Management Board was established in
2017 to ensure each brand is making full use of our shared support
services, as well as facilitating the sharing of expertise, experience
and learnings across all the Group’s brands. We believe this will really
make a difference to the way the Group operates.

2017 progress
›Creation of a Group IT function based in Macclesfield, and

migration of Metro Rod’s existing IT systems onto a Cloud-based
platform. Development of Group IT vision.

›Integration of Group finance function, based in Macclesfield.
›Expansion of the marketing team based in Kidderminster and

introduction of a National Advertising Fund (“NAF”) for Metro Rod.

a result of a full range of support services now established.

2017 progress
›Managing Directors now more focused on business building as
›Overhead functions centralised which has created cost and
›Separate Key Performance Indicators (“KPIs”) established for all

operational efficiencies.

brands, which provides greater focus.

Franchise Brands plc Annual Report and Accounts 2017

06 Strategic report

GROWING
ORGANICALLY

Franchise Brands continues to place a strong focus on
generating organic growth from its existing brands
ChipsAway, Ovenclean, and Barking Mad.

Overview
ChipsAway, Ovenclean, and Barking Mad are all well-established B2C
service brands with long trading histories. The Group believes that
the market for the services of these brands is substantial and that
all brands benefit through their market-leading positions in their
respective sectors and the quality of the services they provide.

ChipsAway
A key priority at ChipsAway is to support existing franchisees who
wish to grow their businesses through the development of Car Care
Centres, and the purchase of additional vans and postcodes to
increase capacity and territory size. 67 ChipsAway franchisees
(31% of the network), now have operations which are either
multi-van, multi-territory or include Car Care Centres.

Of this group, 32 franchisees now operate a Car Care Centre which
represents a 20% increase since 2016. The move to Car Care Centres
in the network has been accelerated by our development of more
compact unit sizes which now start at 1,000 square foot. In addition,
30 franchisees now operate more than one territory.

An increased number of ChipsAway franchisees are now paying an
MSF rather than the lower minimum monthly fee. We believe this
will improve the quality of earnings by increasing the contribution
from recurring turnover-related MSF income.

In 2017, the ChipsAway franchise network reduced in size slightly
from 218 to 214 as 33 franchisees were recruited and 37 franchisees
left the network. The slight reduction in size reflects an increase in
quality including the shift to multi-operations as outlined above.

Statutory revenue breakdown

M MSF
S Sales of franchise territories
P Product sales
O Other income

50%
29%
16%
05%

Franchise Brands plc Annual Report and Accounts 2017

Ovenclean
The primary strategic objective at Ovenclean remains the growth of
the number of franchisees in the system. This will be achieved by
the recruitment of new franchisees and a reduction in the number
of franchisees leaving the system.

The effectiveness of our marketing resulted in an increase in the
average franchisee turnover which, in turn, allowed us to increase
the monthly fee from £300 to £335.

In 2017, the Ovenclean franchise network increased in size from
102 to 106 as 23 franchisees were recruited and 19 franchisees left
the network.

Barking Mad
The Group believes there is the potential for 250 viable franchise
territories in the UK compared to the 80 territories currently
operated by 77 franchisees. Using the Group’s resource and
expertise in franchise recruitment will enable us to accelerate
growth, and expansion of the Barking Mad franchise community
will continue to be an important Key Performance Indicator.

We also intend to continue Barking Mad’s system sales growth
by supporting individual franchisees’ expansion through leveraging
the well-established franchisee support capability at Barking Mad,
together with the Group’s shared support services, in particular
marketing.

Strategic report

Focus for 2018

›Actively expand the ChipsAway, Ovenclean and Barking Mad

franchise systems through recruiting new franchisees as well
as improving franchisee retention rates.

›Support existing franchisees in growing their businesses,

in particular, ChipsAway franchisees who wish to develop
Car Care Centres.

›Continue to leverage the Group’s increased range of shared

support services across all our brands.

Tim Harris
Managing Director, ChipsAway and Ovenclean

For more information
see pages 16-21

In 2017, the Barking Mad franchise network increased in size from
71 to 77 as 24 franchisees were recruited and 18 franchisees left
the network.

The Group’s shared support services
All our existing brands benefit from the Group’s high quality and
well established shared support services. As we grow both
organically and by acquisition, we will be able to use this additional
scale to optimise these functions by combining resources and
further streamline proven processes.

By way of example, the marketing team now manages national
marketing and advertising campaigns on behalf of four brands
and can thereby leverage our agency relationships, which include
Universal McCann, enabling budgets and effectiveness
to be optimised.

A Group IT capability was created during the course of 2017
following the acquisition of Metro Rod and the recruitment of Colin
Rees as our Chief Information Officer. This has enabled us to start
streamlining the provision of IT and management information (MI)
services across the Group, with significant further progress
expected in 2018.

We have also integrated the Group finance capability across the
different businesses following the appointment of Chris Dent as
Chief Financial Officer.

Franchise Brands plc Annual Report and Accounts 2017

08 Strategic report

GROWING BY
ACQUISITION

Franchise Brands acquired Metro Rod in April 2017
for £28.4m which was a transformational
step in our buy and build strategy.

How we both benefit

Franchise Brands

that is attractive strategically.

›Opportunity to enter the B2B franchising market at a size and scale
›Potential for an enhanced range of Group shared support services.
›Opportunity to optimise certain activities that were previously

sub scale.

franchise recruitment and IT.

Metro Rod
›Leverage the Group’s shared support services notably in marketing,
›Benefit from the substantial experience and expertise of the Group’s
›First time in the Company’s history that Metro Rod is part of a Group

management team, the Board and the Group’s resources.

entirely focused on franchising.

Why Metro Rod
Founded in 1983, Metro Rod is a leading provider of drain clearance
and maintenance services. The services are provided by 41
franchisees with geographical coverage across the whole of the UK
(excluding Northern Ireland). Metro Rod was an attractive acquisition
for the Group in that it was a leader in its market, had significant
scale and would benefit from our expertise in marketing.

Growth potential
Franchise Brands sees considerable potential to grow the core
Metro Rod drainage business and position the brand as the market
leader in commercial drainage. The market is large but very
fragmented, with approximately 1,500 providers, and there is
a substantial opportunity to increase sales from business customers
in the franchisee’s local territories. Sales from these customers
currently account for just under 40% of total sales and the strategy
is to increase these to 60% of sales

We have recruited a new team of Regional Sales Managers to work
with franchisees to grow sales locally. A substantial investment
in marketing is also underway, underpinned by the recent
introduction of a NAF at 1% of franchisee turnover. A key objective
of the marketing strategy is to raise the brand profile and improve
brand awareness among key decision makers.

Launched in February 2016, we also see potential to grow Metro
Plumb on a national basis. Metro Plumb offers a focused range of
plumbing services mainly to the emergency insurance market and
is operated by most of our franchisees. Sales volumes have been
growing and we continue to actively pursue new opportunities to
further develop this early-stage business.

Operational efficiencies
There is significant scope to improve the efficiency of Metro Rod’s
highly manual operational processes and systems. Through
automating and upgrading a number of these processes and
systems, we will be able to provide a superior service to our
customers and franchisees. We are also re-designing the core
business processes to drive further automation, improve efficiency
and improve service to our franchisees and customers. A key part of
this activity will be the introduction of a management information
suite which will provide us with greater insight into our business to
inform the changes required.

The substantial investment in IT that is being made will ultimately
enable Metro Rod to grow more rapidly and will allow central
overheads to become a reducing percentage of income, thereby
enhancing our operational gearing.

Franchise Brands plc Annual Report and Accounts 2017

Strategic report

Focus for 2018

“The new vision I have set out for Metro Rod since being
appointed Managing Director is to become the undisputed
market leader in commercial drainage. We have set an
ambitious target to grow system sales and have
commenced investments in sales, marketing and IT
systems to support the achievement of this strategy.

I have also introduced a number of operational changes
which are designed to encourage franchisees to take more
responsibility for their businesses, grow their sales and
reward that growth.”

territories by:

›Increase brand awareness of Metro Rod as the leading solution for

commercial drainage clearance and maintenance by targeting
specific customer sectors on a national basis. This will help provide
access to customers who are previously unaware of Metro Rod and
its range of services.

›Drive local sales from business customers in franchisee’s

› leveraging the capability of the newly created Regional Sales
› providing our franchisees with new marketing assets and

Team; and

training in order for them to be highly efficient at creating
and converting potential customers.

›Automate and deliver incremental improvements to the IT systems

to provide our franchisees and customers with a better level of
service as well as to enable more efficient resource optimisation in
the Support Centre.

Peter Molloy
Managing Director, Metro Rod

For more information
see pages 14-15

Franchise Brands plc Annual Report and Accounts 2017

10 Strategic report

OUR MODEL

Shared support services

DRAWING ON
OUR KEY STRENGTHS…
Inputs

EXPERTISE
›Our very well established franchise recruitment capability

delivers new franchisees to the Group’s brands. In 2017 we
recruited a total of 82 new franchisees across the four brands.

›Our experienced marketing team is responsible for growing

the profile and awareness of the Group’s brands, enhancing
the impact and effectiveness of brand messaging and for
measuring and tracking all marketing activity.

›Our franchise support teams work with our franchisees to help

them create and grow profitable, sustainable businesses over
the long term.

›Our IT team ensures our franchisees and our Support Centre

teams have the systems they need to operate their businesses
effectively and efficiently.

EXPERIENCE AND
BOARD ACUMEN
›Our Board and senior management team have, between

them, substantial experience of franchising and of
operating and growing profitable businesses.

›Our Chairman, Chief Information Officer and Marketing

Director have, or have had, experience with FTSE250
companies in these roles.

of the business where this is required.

RESOURCES
›Our cash-generative model allows us to invest in areas
›We have good access to the equity and debt capital
›Our major shareholders are long-term investors which
›We are able to work with high quality partners

gives certainty and stability.

markets.

and suppliers.

The Franchise Brands business model
enables all our brands to benefit from
our high quality shared support
services, allowing the management of
these brands to focus on expanding
their networks and supporting their
franchisees to grow their businesses.

In 2017 we added to our original shared support services
of marketing, franchise recruitment and franchise
support by developing new Group IT and finance
capabilities to service all the Group’s brands. We now
consider the range of capabilities we offer to our
franchisee businesses to be complete.

Julia Choudhury
Corporate Development Director

“Our business model is highly scaleable. The
same shared services will be able to support
multiple brands as our business grows. This will
allow overhead savings to accrue quickly from
future acquisitions and give better operational
gearing as the Group expands.”

Franchise Brands plc Annual Report and Accounts 2017

Strategic report

…AND APPLYING OUR
SKILLS AND EXPERTISE…

Value added

…WE HELP OUR
FRANCHISEES SUCCEED
Who benefits

1. RECOGNISED BRANDS

›ChipsAway, Ovenclean and Barking Mad are market

leaders in their sectors and enjoy a high level of
brand awareness.

›ChipsAway has a level of brand awareness which is
›We are investing heavily to position the Metro Rod brand

10 times higher than its nearest competitor.

as the market leader in commercial drainage.

2. ESTABLISHED

BUSINESS MODELS
›Each of our brands has a long trading history and the

combined trading history of all the Group’s brands is
97 years.

›Our business model has proven franchisee unit level

economics which are critical to the success and growth
of any franchise system.

›Our franchisee networks are well established. The

combined number of years our franchisees have traded
for is nearly 2,500.

3. NEW BUSINESS
GENERATION
›In 2017 our marketing team delivered 288,000 new
›Metro Rod achieved system sales of £26.1m in the period
›Barking Mad achieved system sales of £3.6m in 2017.

consumer leads to ChipsAway and Ovenclean franchisees.

under our ownership.

4. SUPPORT

›We provide business management support with the

objective of enabling our franchisees to build efficient,
profitable and sustainable businesses.

›We provide sales and marketing support focused on local
›We provide the right IT systems, which are right sized for

business development.

each brand, and provide day-to-day IT support.

5. INVESTMENT

›A substantial investment in Metro Rod’s IT systems is

now underway to help automate processes, improve
efficiency and reduce costs over the long term.

›A NAF has been introduced at Metro Rod to fund brand
›An investment has been made in a new regional sales

development and national marketing initiatives.

team at Metro Rod to help franchisees win business in
their territories.

CUSTOMERS
›Delivering a first class service at
›Developing brand loyalty.
›Building long-term relationships.

all times.

Total system sales

£50m

range of support.

FRANCHISEES
›Providing a comprehensive
›Tailoring our support to each
›Helping our franchisees to grow

brand.

their businesses and profits.

EMPLOYEES
›Strengthening our ownership

culture (share option scheme
and equity ownership).

›Attracting and retaining high
›Training and development

quality people.

opportunities.

Total number of
UK franchisees

438

Total number
of employees

187

SHAREHOLDERS
›Plan to deliver long-term
›Progressive dividend policy.

sustainable growth.

Dividend per share

0.5p

Franchise Brands plc Annual Report and Accounts 2017

12 Strategic report

MEET THE MARKETING
DIRECTOR

Q&A with Robin Auld

Following our interview last year with the co-founders of Franchise Brands,
Stephen Hemsley and Nigel Wray, we asked Robin Auld to comment on
his approach to marketing the Group’s brands and helping our franchisees
to grow sales.

Robin Auld
Marketing Director

How would you best describe
Franchise Brand’s marketing
philosophy?
Our overall philosophy is that marketing
is a science and not an art. We are
investing not only ours but also our
franchisees’ money to grow the Group’s
brands. We are acutely aware of the huge
responsibility this brings, which means
we invest wisely and effectively to get
the best possible return on our marketing
investment. My team, which is headed
by Ella Pugh, spend a considerable
amount of time carefully analysing
where we are spending money, what
messages we are communicating, who
we are communicating to and what
results we are generating.

What is the key focus of this
scientific analysis?
The critical path is to understand what
behavioural change is being triggered.
For example, are we seeing an increase in
customer enquiries? Are we seeing a lower
cost per lead or a higher click through
rate? Whatever the metric is, it’s about
really trying to understand what results
are being generated, what the return on
the investment is and whether that money
could be more effectively spent elsewhere.

What is your approach to
growing the awareness of the
Group’s brands in a sustainable
and manageable way over the
long term?
The key element is to identify very
clearly who the target customers are.
At Franchise Brands we are targeting
everyone from B2B decision makers in
the case of Metro Rod, to consumers who
may be interested in the services of
ChipsAway, Ovenclean and Barking Mad.
It always comes down to understanding
as much as we can about those
customers, the media sources they may
use and really examining what it is they
are looking for in the services we provide.
In particular, what is it that offers
reassurance to them that we will provide
not only a great service but also real
value for money.

Then it’s about communicating those
brand messages succinctly and powerfully,
including identifying the most effective
media channels to use. Finally, growing
brand awareness over time is about
measuring and tracking the effectiveness
of all of our communications.

Ella Pugh, Head of Marketing

The new Barking Mad
TV advert

Franchise Brands plc Annual Report and Accounts 2017

Strategic report

TV advertising

Social media

Content management

Mystery shopping

PPC & SEO

Franchise
Brands
Marketing

Affiliates

Tracking & analytics

Market research

Robin Auld presenting at
the annual Metro Rod
franchisee conference

Email marketing

Design & print

Conversion Rate Optimisation

“Marketing is every single touch
point that the customers have with
the brand. It’s therefore vital that our
franchisees and our Support Centre
teams understand the importance of
exceptional customer service and
the positive impact this can have on
our customer’s impressions of the
brand. That’s what really makes a
difference.”

Another key marketing
philosophy of Franchise Brands is
that everyone is responsible for
marketing. Can you elaborate on
what this means in practice?
What’s vital in all the marketing
communications that we develop is our
ability to engage with the customer,
introduce the services that we offer and
make them aware of the features and
benefits of our offering. Once they have
engaged, it’s then essential that we meet,
and preferably exceed, their
expectations.

Marketing is so much more than just the
production of marketing materials or
adverts. Marketing is every single touch
point that our customers have with the
brand. For example, if franchisees are
engaging and personable,
communicative, keep the customer
informed, and really delight the
customer, that has a far bigger impact
on the brand than marketing materials.
The same is true of our teams in the
Support Centres. It’s therefore vital that
our franchisees and our Support Centre
teams understand the importance of
exceptional customer service and the
positive impact this can have on our
customers’ impressions of the brand.

How do you work with
franchisees at a local level to
maximise the value of their
local marketing?
One of the key things my team
encourage all our franchisees to do
locally is to really understand what’s
working for them, and conversely what
isn’t working. We recommend they speak
to their customers to get as much
feedback as they can to find out, for
example, what local media they use and
how they first heard about the brand.
We also encourage our franchisees to
work directly with the Franchise Brands’
marketing team to develop bespoke
marketing plans to meet their needs.
The reason this is so important is that
different franchisees have different needs.

The other essential piece of advice we
give franchisees is to be consistent with
their local marketing. Consistency is
almost the pulse of a marketing
campaign. The temptation is for
franchisees to ease off on marketing
when they are really busy, or to suddenly
become very active if business is quiet.
For all our brands there is a cyclical
nature to demand, so we encourage our
franchisees to be consistent with
marketing, especially when they have
identified marketing that is productive
and effective for them.

Franchise Brands plc Annual Report and Accounts 2017

14 Strategic report

OUR BRANDS

Founded in 1983, Metro Rod is a leading provider of drain
clearance and maintenance services to the commercial
market. The services are provided on a 24/7/365 basis by
41 franchisees with geographical coverage across the
entire UK (excluding Northern Ireland). In 2016, Metro Rod
expanded its service offering with the launch of Metro Plumb.

Introduction
Metro Rod’s specialist drain clearance and
maintenance services include high pressure water
jetting, CCTV surveys, drain or sewer lining,
excavation, electro mechanical cleaning and fat
and grease management. Metro Plumb offers a
focused range of plumbing services mainly to the
emergency insurance market. Metro Rod also
operates a division, Kemac, which provides
plumbing and plumbing related services to water
companies and other customers as well as
operating six Metro Plumb franchise territory
areas, predominantly in the Greater London area.

Focused on our customers
Metro Rod serves national business customers
across multiple sectors including facilities
management, retail, water utilities, social housing,
hospitality, and insurance, as well as local
businesses and other customers in the private and
public sectors. Metro Rod’s 300-plus engineers
completed nearly 110,000 individual jobs since
11 April 2017.

Metro Rod makes a difference to its customers
by providing a first class and efficient service to
ensure blockages are cleared quickly and with
minimum disruption to the customer’s facility or
business. Having addressed the initial problem,
Metro Rod is able to recommend any further work
that is required to prevent a recurrence of the
problem. This further work can be carried out
on a scheduled return visit.

Focused on franchisee support
Metro Rod’s Support Centre, based in Macclesfield,
provides a very wide range of support services to
our franchisees. An important service is new
business generation and Metro Rod currently
secures approximately 60% of sales for franchisees
in the form of local servicing of national accounts.
A newly established regional sales team are now
providing additional support to franchisees to win
business in their local territories. Other services
provided to franchisees include the call centre, IT,
invoicing and credit control, health and safety
systems and processes, technical training and
business management and support.

Going forward, we will right size and focus the
Support Centre services to include only those
services that we can best provide as franchisor, and
then allow our franchisees to provide the services
they do best locally. This re-assigning of
responsibilities between franchisor and franchisee
is one of the key drivers for growing this business.

Franchisee business model
Metro Rod is a management franchise in that the
franchisee manages individuals who provide
the service. On average, franchisees employ
nine engineers and operate seven vans.

The average sales of a Metro Rod franchisee is
approximately £830,000 with a number achieving
a sales of over £1m.

Sources of revenue for
Franchise Brands
Virtually all the revenue to the Group derives from
MSF income. The standard rate of MSF for drainage
is 22.5% of franchisee sales (although in practice
this amount is slightly lower as a result of some
special incentives and allowable expenses).

Metro Rod typically resells two to three franchises
every year when franchisees retire and/or are
replaced, and these area sales currently represent
a small additional source of revenue for Metro Rod.
Area sales may increase going forward as a result
of the recent operational changes that we have
announced and our ambitions for growth in
system sales.

System sales*

£26.1m

* From 11 April to 31 December 2017

Franchise Brands plc Annual Report and Accounts 2017

Strategic report

Number of jobs completed*

108,750

“I enjoy owning my own business
which I can build to secure my future.
Metro Rod’s proven business model
gives me the freedom to be an
entrepreneur within my local area
whilst having the benefit of central
support and expertise when I require
it. I particularly value Metro Rod’s
national account relationships many
of whom are with household names.
I am very confident about the
future and am excited about
Franchise Brand’s growth aspirations
for Metro Rod”.

Andrew Gilroy-Smith
Metro Rod franchisee for Reading

Franchise Brands plc Annual Report and Accounts 2017

16 Strategic report

OUR BRANDS

ChipsAway is the UK’s leading mobile car paintwork
repair specialist focusing on SMART (“Small to Medium
Area Repair Technology”) repairs. We have been
operating successfully for over 20 years and currently
have 214 UK franchisees.

Introduction
ChipsAway franchisees repair small scale damage
on vehicles such as bumper scuffs, paintwork
scratches, minor dents and kerbed alloy wheels. Our
mobile franchisees conveniently come to the
customer’s house or office, working from branded
vehicles which serve as mobile workshops. Pricing
can be competitive when compared to a typical
body shop.

Focused on consumer demand
Our marketing team works very hard to provide our
franchisees with a constant source of high quality
customer leads and in 2017, ChipsAway franchisees
benefited from 246,000 enquiries (2016: 248,000).

Focused on franchisee support
We are passionate about providing our franchisees
with first class training and day-to-day support to
help them grow their businesses. All new
franchisees complete four weeks of initial training
at the Group’s facility which is accredited by the
Institute of the Motor Industry, and this includes
sales and marketing training. We support all
franchisees to successfully launch their
businesses. Post launch, franchisees are provided
with on-going support and development to help
them build successful and profitable businesses.
67 ChipsAway franchisees now have operations
which are either multi-van, multi-territory or
include Car Care Centres.

ChipsAway franchisees contribute to a NAF which
collectively invests in TV advertising, Search
Engine Optimisation, Pay Per Click campaigns,
point of sale materials, public relations and other
national and local marketing initiatives.

In 2017 we re-designed and re-launched the
ChipsAway website (www.chipsaway.co.uk) and the
number of visits to the website increased by
7%. ChipsAway is the only franchise of its type to
use regular national television advertising
campaigns, having done so since 2009.

Focused on franchisee recruitment
ChipsAway has a proven track record in franchisee
recruitment and 33 new franchisees joined the
network in 2017. A key focus of the marketing team
is to ensure that the franchise recruitment budget
is employed as efficiently as possible across a wide
range of media to generate a steady stream of
enquiries from prospective franchisees. These
enquiries are necessary to fill currently vacant
territories as well as the re-selling of territories
of franchisees who leave the system. In 2017,
37 franchisees left the system. In recent years we
have placed much more of an emphasis on quality
rather than quantity of leads, aiming to attract
franchisees who want to build larger businesses,
including investing in Car Care Centres.

Franchisee business model
The business model provided by the Group to
prospective new franchisees demonstrates how
turnover of £75,000 per annum and operating
profits of £45,000 per annum can be achieved by
the second year of trading. The business model
assumes 2.2 jobs per day are carried out, 20 days
per month (which allows for seasonality) and an
average repair value of £140. These figures can be
exceeded by working longer hours, carrying out
additional jobs per day and by developing
multi-van and Car Care Centre operations.

Sources of revenue for
Franchise Brands
Each new franchisee pays an initial fee to
ChipsAway, currently £29,995. The franchise
agreement provides for a number of ongoing
monthly fees, the combined effect of which results
in franchisees making a monthly payment to the
Group equivalent to 10% of their sales. Additional
revenue is generated from the sale of products
used in the repair process such as paints, lacquer
and consumables.

Number of Car Care Centres in the network

Franchise Brands plc Annual Report and Accounts 2017

Strategic report

“ChipsAway is a great business with
a really strong brand, a great identity
and a fantastic business model. The
support I receive is second to none,
and I’m so pleased I went down the
franchising route with ChipsAway
instead of going it alone. Thank you!”

Luke Hall
ChipsAway franchisee for Esher

Consumer leads generated for
our franchisees

246,000

Franchise Brands plc Annual Report and Accounts 2017

18 Strategic report

OUR BRANDS

Ovenclean is the longest established and leading
oven cleaning business in the UK, and has been
successfully operating for over 20 years. There are
currently 106 franchisees in the network who clean
a wide variety of domestic appliances using our
specialist process and equipment.

Introduction
Ovenclean franchisees are able to clean all
domestic oven brands and models, including
electric ovens, gas ovens, range-style ovens,
microwaves, hobs and extractor fans, and also
barbecues. All removable components such as
racks and other removable parts are cleaned using
specialist equipment in the fully equipped
Ovenclean liveried vans. Ovenclean employs a
no added caustic system which has been assessed
and approved to ISO 14001 standards. This helps
ensure customers benefit from a safe and
hygienic environment.

Focused on consumer demand
Our franchisees profit from a regular stream of
high quality consumer leads which they can then
convert into customers. Ovenclean is a “milk round”
business where the aim is to establish a stable base
of individual customers who have, on average,
two cleans per annum. A regular Ovenclean is of
benefit to both the customers and the franchisees
and they can be conveniently diarised ahead
of time.

Franchisees contribute to a Central Advertising
Fund. This operates on the same basis as the
Group’s NAFs but on a more regional basis.
Consumer demand for our services received a
huge boost from the launch of the new Ovenclean
website (www.ovenclean.com) and in 2017 the
number of visits to the website increased by 12%.
Television advertising continues to work hard for
our franchisees and is a clear point of difference
with other oven-cleaning brands.

In 2017 our franchisees benefitted from 42,000
consumer leads which we generated (2016: 45,000).
Ovenclean continues to receive consistently good
customer reviews and is ranked 9.7 out of 10 on
Trustpilot.

Focused on franchisee recruitment
Similar to ChipsAway, it is important that the brand
continues to recruit good quality new franchisees
to the network. The marketing team ensures that
Ovenclean franchise opportunity is seen across
a wide range of media and constantly measures,
tracks and optimises the response rate to ensure

the optimum deployment of the budget. In 2017,
23 franchisees joined the system and 19 left.

Focused on franchisee support
New Ovenclean franchisees benefit from a
comprehensive training programme in the field
with established Ovenclean trainers. The Ovenclean
trainers are experienced franchisees appointed by
the Group to provide new starters with intensive
in-field training on all aspects of the oven cleaning
process, operational set up and customer and
business management. This practical in-field
experience is supplemented by a programme
which includes a tailored sales and marketing
course and a health and safety induction. Post
launch, franchisees are provided with a full range
of comprehensive support from a dedicated team.

Franchisee business model
The business model provided by the Group to
prospective new franchisees demonstrates how
turnover of £50,000 per annum and operating
profits of £32,000 per annum can be achieved by
operating one van, carrying out two-to-four cleans
per day (which reflects seasonality) and charging
the average £65 rate per clean. These figures can
be exceeded by up-selling additional services,
carrying out additional cleans and by adding
additional vans and staff.

Sources of revenue for
Franchise Brands
Each new franchisee pays an initial franchise fee
to Ovenclean, currently £14,995 and an ongoing
monthly license fee currently of £195 in the
first year, followed by £335 in the second and
subsequent years and £350 at renewal.
These monthly fees are increased from time
to time. A small amount of additional revenue
is generated from the sale of products used
in the cleaning process.

Consumer leads generated
for our franchisees

42,000

Franchise Brands plc Annual Report and Accounts 2017

Strategic report

Trustpilot ranking

9.7 out of 10

“I was so impressed with the
professionalism of the team on the
Open Day that I knew investing in an
Ovenclean franchise was the right
decision. My training and launch was
first class and my business has
continued to go from strength to
strength. My only regret is that I didn’t
join the Ovenclean network sooner!”

James Arthur
Ovenclean franchisee for Macclesfield

Franchise Brands plc Annual Report and Accounts 2017

20 Strategic report

OUR BRANDS

Established in 2000, Barking Mad has successfully grown
to become one of the most trusted dog care providers in
the UK. Barking Mad provides customers with peace of
mind while they are away by delivering a professional,
tailor made service.

Introduction
Barking Mad currently has 77 franchisees
operating across the UK. Barking Mad’s franchisees
market to individual customers and also recruit
dog loving “host” families who look after the
customers’ dogs in their own homes. This is
described to customers as a “dog holiday”.

Hosts range from people who are retired and have
plenty of free time, to families who enjoy having
a dog to stay during school holiday periods. The
franchisee organises all aspects of this service,
including matching the dogs to the appropriate
hosts, collection and delivery of the dogs, and
customer communications.

Focused on consumer demand
Following a rebrand in May 2017, Barking Mad
started advertising on TV for the first time on
national ITV and Sky channels. TV advertising
brings a number of important benefits in that it is
a great way to reach people who perhaps might not
have been aware of the brand previously and it is
a very economical way to reach a large number of
potential consumers very quickly. The advert was
seen more times by viewers than originally
projected and led to a significant increase in
website traffic during the periods the campaign
was live. We are building on this success in 2018.

We also built on the success of the Trustpilot
initiative which commenced in 2016. Barking Mad
is now ranked first out of 188 providers in the
Pets category and number one in a further three
categories.Barking Mad is ranked 9.9 out of 10,
and 96% of customers have rated the brand
5-star, or excellent.

Focused on franchisee recruitment
Barking Mad recruited 24 new franchisees in 2017,
more than any year in the Company’s history.
The marketing department works hard to ensure
we generate a steady stream of enquiries from
prospective franchisees for currently vacant
territories and the re-selling of territories for
franchisees who leave the system. In 2017 we
expanded the scope of our franchise recruitment
budget and media sources to attract a higher
proportion of quality franchisees to the brand.

Focused on franchisee support
Franchisees undergo a comprehensive training
programme at Barking Mad’s head office prior to
launch. Post-launch, Barking Mad provide a regular
programme of support and development for
franchisees. An important element of the support
is the customer contact centre that Barking Mad
operates on behalf of all of its franchisees.
The customer contact centre takes calls from
customers and potential customers, explains
the Barking Mad service, facilitates bookings
and deals with general enquiries. Over the past
three years it has helped to support more than
50,000 customer bookings and registrations on
behalf of its franchisees.

Franchisee business model
The average sales of a Barking Mad franchisee
is £50,000 with a number achieving sales of close
to £100,000. The profit before tax that franchisees
are able to achieve varies according to how they
have chosen to structure and resource their
businesses locally.

Sources of revenue for
Franchise Brands
Each new franchisee pays an initial franchise fee to
Barking Mad, currently £15,110. Barking Mad also
receives revenues from the resale of franchises.
Franchisees pay a MSF of 10% each month based
on the prior month’s sales.

Trustpilot ranking

9.9 out of 10

Franchise Brands plc Annual Report and Accounts 2017

Strategic report

“The Barking Mad business model
really appealed to me, as it allowed
me to have the flexibility of running
my own business and still be part of
a franchise organisation that would
support and guide me. Having never
run my own business, I felt this would
work really well and in 2005 I launched
Barking Mad, Northumberland. To me,
the definition of franchising is working
together, growing together and
supporting each other. Barking Mad
doesn’t stand still and that is why
we remain the brand leader.”

Tina Young (and Max)
Barking Mad franchisee for Northumberland

System sales

£3.6m

Franchise Brands plc Annual Report and Accounts 2017

22 Strategic report

CHAIRMAN’S
STATEMENT

When we were admitted to AIM in August 2016 our strategy was to
build a multi-brand franchisor group through organic growth and
acquisition. I am pleased to report that our existing brands continue
to deliver strong organic growth and the acquisition of Metro Rod in
April 2017 has propelled the Group into becoming one of the largest
franchise groups in the country.

Metro Rod
Following completion of the acquisition of Metro Rod, we launched
a wide-reaching and detailed feedback exercise designed to improve
our understanding of the business. Together with our Corporate
Development Director, Julia Choudhury, I toured the country to
meet all our franchisees in their offices and depots to hear
first-hand the opportunities and challenges presented by Metro Rod
and Metro Plumb. We were impressed by the market opportunity
and the ambition of many of our franchisees. We also met a large
cross-section of the Support Centre teams and listened to their
views and recommendations. The feedback from both groups
reaffirmed our view that Metro Rod has a market-leading national
offering in the commercial drainage market which has never been
fully exploited. We also felt that Metro Plumb, whilst an early stage
business, had real potential but that the strategic direction was
unclear. Work is continuing to establish the right strategy for Metro
Plumb, including how it should operate with the Metro Rod
drainage business.

Taking account of the feedback we formulated a new strategy for
Metro Rod, the central objective of which is to grow franchisee sales
(“system sales”) and their profitability whilst also building our
Management Service Fee (“MSF”) income. In particular, we have
identified a significant opportunity to grow sales won by
franchisees in their territories. These locally-won sales currently
represent only 40% of total system sales. The market for drainage
services is extremely fragmented with approximately 1,500
providers, most of whom are small local firms. This presents a clear
opportunity for Metro Rod, with a strong brand and good quality IT
systems, to take market share from these smaller firms. I would like
to see these locally-won sales representing 60% of total system
sales in the future whilst still increasing the level of national
account sales which are secured centrally on behalf of the
franchisees. To help achieve this strategic aim, we have created a
regional sales team whose objective is to work with franchisees and
win this local work.

We also felt that the franchisees’ entrepreneurial flair had been
stifled by too many of the business processes being undertaken
by the Macclesfield Support Centre. This, in part, resulted from the
poor IT systems available to franchisees. A further key part of the
strategy therefore is to improve these systems so we can devolve
more responsibility to the franchise community. This will allow
them to be more autonomous and provide their customers with a
superior and more responsive service.

The IT investment required to fully develop the opportunity at Metro
Rod is therefore greater than originally anticipated, but it is now
factored into the Group’s budget. I am confident that the additional
investment in IT will enable us to build a significantly larger and
more efficient business than we originally projected and to reduce
the cost base at the Macclesfield Support Centre. The scale of the

Stephen Hemsley
Executive Chairman

“2017 has been a year of
substantial progress in
the development of
your Company.”

Adjusted EBITDA

Total no. of UK franchisees

£2.7m 438

Franchise Brands plc Annual Report and Accounts 2017

Strategic report

investment has required us to create an in-house capability and I was
pleased to welcome Colin Rees as Chief Information Officer. Prior to
joining us, Colin held a similar role at Domino’s Pizza Group plc. The
systems being developed are initially designed to enhance and
automate the business systems and management information at Metro
Rod but will have applications for all current and future Group brands.

Ovenclean remains a fundamentally “man-in-a van” franchise, however,
the effectiveness of our consumer marketing is resulting in an increase
in the average franchisee turnover, which, in turn, allowed us to
increase the monthly fee to approximately 10% of the expected sales.
Given the fixed cost nature of this operation, this significantly
enhances profitability.

A further key element of the strategy is to significantly improve the
profile and awareness of the Metro Rod brand amongst key decision
makers. The investment in sales and marketing is being partly funded
through the introduction of a National Advertising Fund (“NAF”) at
Metro Rod. The franchisees are making a contribution of 1% of sales
and Metro Rod is also contributing an initial share equivalent to our
MSF contribution of 22.5%. The NAF will allow us to expand the Group’s
central marketing team, which manages the marketing funds for all the
brands. We believe that the economies of scale and shared expertise
this affords us is of huge benefit to each of the underlying brands in
growing system sales and thereby our MSF.

It was clear that this change of strategy could only be achieved with a
change of leadership at Metro Rod and we were pleased to appoint
Peter Molloy as Managing Director (previously Commercial Director at
Metro Rod). After consultation with representatives of the franchise
community, the new strategy and associated operational changes were
introduced by Peter at Metro Rod’s annual conference in November
2017 and implementation of most of the strategic and operational
changes started in January 2018. The early signs are that these
initiatives are having the desired effect and will give us a platform from
which to significantly build this business. However, there is much work
still to do and we anticipate some additional churn in the franchise
community before we establish a group of franchisees aligned with our
ambition for the business.

We are also in the process of developing a new strategy for the direct
labour plumbing business, Kemac, which we acquired as part of the
Metro Rod acquisition, as well as continuing with the restructuring
process. Kemac’s very disappointing results in 2017 were the reason for
the shortfall in our earnings compared to market expectations at the
time of the Metro Rod acquisition.

As a result of our continued emphasis on developing the significant
opportunities within the Metro Rod business, our focus during 2018 is
likely to be on organic expansion rather than external growth.

ChipsAway, Ovenclean and Barking Mad
ChipsAway and Ovenclean reported strong adjusted EBITDA growth of
15% during the period and exceeded budget. Under the experienced
direction of Tim Harris, ChipsAway continues to recruit new
franchisees, however, the real opportunity lies in helping franchisees
grow their businesses and profits so that they can develop from being
“man-in-a van” operators to management franchisees who operate
from premises (“Car Care Centres”). At present, 32 of our 214
franchisees operate from Car Care Centres and a further 35 operate
multiple vans or multiple territories. Once they reach this stage of
development our MSF income becomes turnover-related rather than
a fixed monthly fee and therefore provides us with a real incentive to
help them grow.

Barking Mad, which was acquired in October 2016, made a good
contribution under the continued leadership of Lee Dancy and also
exceeded budget. We accelerated the recruitment of new franchisees
by leveraging the Group’s franchise recruitment capability and we
estimate that there is the potential for up to 250 viable Barking Mad
territories in the UK. System sales, on which we collect a 10% MSF,
continued to grow at a satisfactory rate, although the VAT threshold
does represent a challenge for franchisees in growing sales beyond
this level.

Board changes
I am pleased to report we have strengthened the plc Board with the
appointment of Peter Molloy, Managing Director of Metro Rod, and
Colin Rees, Chief Information Officer as Directors of the Company.
Both Peter and Colin are key members of the senior management
team and have made a valuable contribution to the business since
their appointments. We also welcomed Chris Dent to the Board in 2017
as Chief Financial Officer. Chris has prior experience with AIM-quoted
companies and spent the earlier part of his career with Deloitte. In view
of Peter’s role as Managing Director of Metro Rod and my role as
Executive Chairman, we are re-aligning the Board titles and Tim Harris
is now the Managing Director of ChipsAway and Ovenclean.

Regrettably, I also have to report that Robin Auld, our well-respected
Marketing Director, will be stepping down from the Board at the AGM
on health grounds. Fortunately, Robin will continue to oversee our
marketing strategy during his recovery, and the Board and I wish him
a speedy recovery.

Conclusion
It remains for me to thank our franchisees for their continuing hard
work and dedication to our brands. As I have often said, our franchisees
are the backbone of the business and it is their passion and
entrepreneurial flair that allows us to grow. I would also like to thank
the “home team” who have continued to support our franchisees
and grow our business through a year of significant change and
development. Finally, I would like to express my gratitude to our
shareholders for their support in the fundraising that financed the
Metro Rod acquisition and for their continuing support in what has
been an eventful year.

2018 will be a year in which we continue to build on the foundations we
have created. I am pleased to report that the year has started in line
with our expectations and we look forward to the remainder of the year
and beyond with confidence.

Stephen Hemsley
Executive Chairman

Franchise Brands plc Annual Report and Accounts 2017

24 Strategic report

FINANCIAL REVIEW

Our first full year as an AIM-quoted company has been
transformational. The acquisition of Metro Rod has significantly
increased the scale of the business and whilst there have been
challenges there are also opportunities. The results represent solid
progress in the delivery of the Company’s strategy and lay the
foundation for an exciting future.

The 2017 numbers contain a full year of ChipsAway, Ovenclean and
Barking Mad and almost nine months of Metro Rod, following the
completion of our acquisition of the business in April 2017. The 2016
numbers contain the full year for ChipsAway and Ovenclean, two
months of Barking Mad and nearly five months of being a quoted
company following our IPO in August 2016. During this period,
the capital structure and financial position of the Company have
also changed significantly.

Statutory revenue & fee income
Statutory consolidated revenue has increased five-fold from £4.9m
to £24.3m with virtually all the additional revenue coming from
Metro Rod. Statutory revenue is made up of a number of different
income streams that have differing accounting policies and
therefore is not a KPI that management track on a consolidated
basis. It is, however relevant to the individual brands as in most
cases it drives our MSF income.

The Group has three main fee income streams: MSF received
from our franchisees either based on fixed monthly fees or as a
percentage of system sales; fees generated from the sale or resale
of franchise territories; and income from the sale of products to
franchisees. During 2017 MSF income increased to 62% of total fee
income, from 42% in the previous year. The increase in recurring
MSF income reflects our focus on improving the quality of our
income stream to one which is more aligned to the growth in
franchisees sales, rather than recruitment income.

2017
£'000

2016
£'000

Change
£'000

24,292
(12,131)

12,161
(3,067)

9,094
(6,378)

4,870
–

4,870
(1,572)

3,298
(1,946)

19,422
(12,131)

7,291
(1,495)

5,796
(4,432)

2,715

1,352

1,363

(96)
(156)
(58)
(277)

(66)
(10)
(30)
(7)

2,128

1,239

(392)

1,737

(1,849)

(260)

979

(30)
(146)
(28)
(270)

889

(132)

758

(455)

(1,394)

(112)

524

(636)

Chris Dent
Chief Financial Officer

“I am pleased to present my
first Financial Review since
becoming Chief Financial
Officer in July 2017.”

Dividend per share

Adjusted earnings per share

0.5p

2.5p

Statutory revenue
Franchisee payments

Fee income
Other cost of sales

Gross profit
Administrative expenses

Adjusted EBITDA

Depreciation
Amortisation of intangibles
Share-based payment
Finance expense

Adjusted profit before tax

Tax expense

Adjusted profit after tax

Non-recurring items (net of tax)

Statutory (loss)/profit

Note: “Adjusted” items are before costs of acquisitions of subsidiaries, costs of transition of subsidiaries, bad debt provision and IPO expenses and, in relation to EBITDA only,
share-based payment expense.

Franchise Brands plc Annual Report and Accounts 2017

Strategic report

Trading results
Adjusted EBITDA for the Group increased by 101% to £2.7m from £1.4m
in the previous year.

The original brands ChipsAway and Ovenclean grew strongly, increasing
their EBITDA contribution by 15% to £2.2m from £1.9m in the previous
year. This resulted from a significant improvement in MSF income,
as an increasing number of franchisees began paying turnover-related
fees, rather than a fixed monthly fee. A total of 56 new franchisees
were recruited during the year which maintained the size of the
franchise community for these two brands at 320.

Barking Mad, in its first full twelve months as part of the Group,
contributed £0.2m, as a result of both increasing MSF income from
growing system sales and strong recruitment income. A total of 24
franchise territories were sold during the year bringing the total
franchise community to 77 at the year-end.

Metro Rod, which includes Metro Plumb, made an initial contribution
of £1.3m in the nearly nine months since acquisition. This was derived
almost entirely from MSF income on system sales from our national
network of 41 franchisees. System sales grow through both increases
in operational capacity, as franchisees invest in capital equipment such
as new tankers and vans, and through the demand for drainage and
plumbing services, which is driven by external factors such as adverse
weather conditions. In addition to driving profits through growth in
system sales we have also reviewed the cost base of the business to
maximise the synergies from the acquisition, which has resulted in a
reduction in headcount from 132 to 103. This process has continued
in the current year with a further reduction, however, the resulting
cost savings have been re-invested in areas such as IT and the regional
sales team.

Trading at the direct-labour division Kemac, which formed part of the
Metro Rod acquisition, was very disappointing, contributing only
£34,000 of EBITDA in the period. It is the reason that profits for the
Group were below the level anticipated at the time of the acquisition.
This resulted from a significant and rapid reduction in work from water
utility companies. The contribution from this business has now
stabilised but at a lower level than originally planned. This direct-labour
business is under strategic review at present, with a view to franchising
the Metro Plumb element of its activities.

Group overheads, increased from £0.5m to £1.0m mostly as a result of
the annualisation of our first full year cost of being a quoted company.

Non-recurring items
2017 has seen a high level of non-recurring items totalling £1.8m
(2016: £0.5m), with the majority of these relating to the acquisition of
Metro Rod which constituted a Reverse Takeover under the AIM Rules
and resulted in a readmission to AIM. £1.1m of acquisition costs were
recognised as non-recurring items in the income statement, with a
further £0.4m set-off against the share premium arising on the issue
of new shares. In addition, £0.7m of transitional costs related to the
set-up of a standalone IT environment for Metro Rod and a post-
acquisition restructuring of the business. A further £0.3m provision
was established following the liquidation of Carillion plc in January
2018 to provide for the monies which were owed to Metro Rod on
31 December 2017.

Earnings and dividend
Underlying profit before tax increased by 72% to £2.1m (2016: £1.2m).
The Group made a statutory loss before tax of £65,000 (2016: profit of
£784,000) as a result of the acquisition-related non-recurring items.
The tax charge of £47,000 (2016: £260,000) arose due to certain
acquisition costs being disallowable for tax.

As a result of the shares issued to finance the Metro Rod acquisition,
the average number of shares in issue during the year increased
substantially to 69,553,746 (2016: 40,837,885), resulting in a basic loss
per share of 0.16p (2016 profit per share of 1.28p). Based on adjusted
profit after tax of £1.7m (2016: £1.0m), adjusted earnings per share in
2016 are 2.50p (2016: 2.40p), an increase of 4%.

The Board is pleased to propose a final dividend of 0.33 pence per share
(2016: 0.17 pence per share), taking the total dividends for the year
to 0.50 pence per share (2016: 0.17 pence per share). The cost of the
proposed final dividend is £257,000. The total dividend for the year is
five times covered by adjusted profit after tax.

Subject to shareholder approval at the AGM on 25 April 2018, the final
dividend will be paid on 15 May 2018 to shareholders on the register at
the close of business on 27 April 2018.

Financing and cash flow
The Group generated cash from operations of £2.6m (2016: £1.6m)
before the post-taxation exceptional acquisition costs of £1.9m. After
those costs, the Group generated net cash from operations of £0.7m
(2016: £0.9m).

The Group raised proceeds of £19.6m by placing 29,850,746 shares
at 67p each, net of expenses of £0.44m. The Group also negotiated a
five-year term loan of £12m with HSBC, raising £11.8m after expenses.
The proceeds of the equity placing and debt financing were used
to acquire Metro Rod for £28.4m, net of cash acquired of £0.47m.
The outstanding shareholder loans of £0.42m at 30 June 2016 were
repaid from existing cash resources in anticipation of the transaction,
enabling HSBC to be the sole lender to the enlarged Group. The Group
also entered into a £5m revolving credit facility (“RCF”) with HSBC to
provide additional headroom.

On 8 December 2017, the Group used excess cash to make an early
repayment of £5.6m of the five-year term loan, and at the same time
drew down £3.5m of the RCF, in order to reduce our on-going financing
costs. Therefore, at 31 December 2017 the Group’s gross debt (including
accrued interest and finance lease debt) stood at £9.4m, compared
to the £11.8m originally arranged. Cash balances were £3.2m
(2016: £3.0m), resulting in net debt of £6.3m (2016: net cash £2.5m).

The acquisition of Metro Rod has led to a significant increase in the
size of our balance sheet, especially in relation to acquired intangible
assets in the Group. Shareholders’ funds at 31 December 2017 were
£23.2m (2016: £3.9m) against net debt of £6.3m, giving modest
gearing of 27% (2016: nil).

Chris Dent
Chief Financial Officer

Franchise Brands plc Annual Report and Accounts 2017

26 Strategic report

KEY PERFORMANCE
INDICATORS

Financial and non-financial measures used by management

Metro Rod

ChipsAway

Adjusted EBITDA (£m)

£1.3m

2017
2016
2015

Adjusted EBITDA (£m)

£1.9m +18%

£1.3m
n/a
n/a

2017
2016
2015

£1.9m
£1.6m
£1.4m

Description
Adjusted EBITDA (profit before interest, tax, depreciation,
amortisation, share-based payments, non-recurring items and
excluding central costs) is the KPI which the Group uses to
measure the underlying performance of its brands.

Performance in 2017
Metro Rod contributed £1.3m in the first nine months of
ownership by the Group.

Performance in 2017
EBITDA increased by 18% in 2017 as a result of an increase in
recurring MSF revenue.

Total number of jobs completed

Number of franchisees recruited

108,750

2017
2016
2015

33 –3%

108,750
n/a
n/a

2017
2016
2015

33
34
38

Description
This is the total number of drainage and plumbing jobs
completed and is a useful measure of activity levels within
the business.

Performance in 2017
In the first nine months of ownership by the Group,
108,750 jobs were completed.

System sales (£m)

£26.1m

2017
2016
2015

Description
The number of franchisees recruited is an indicator of the
interest in the brand from a franchise sales perspective.
However, it is not measured in isolation as the Group also
assesses the quality of new franchisees.

Performance in 2017
Over the past three years, ChipsAway has recruited over
30 franchisees annually. While one fewer franchisee was
recruited in 2017 compared to 2016, the Group is placing more
emphasis on quality rather than quantity.

Total number of franchisees

214 –2%

£26.1m
n/a
n/a

2017
2016
2015

214
218
213

Description
System sales are the total aggregate sales of franchisees and
Metro Rod owned operations of services to third party
customers.

Performance in 2017
In the first nine months of ownership by the Group,
system sales were £26.1m.

Description
The total number of franchisees is an indicator of the overall
health of the franchise system however, the Group is placing
more emphasis on the quality of franchisees and their ability
to grow their businesses.

Performance in 2017
While the number of franchisees in the system in 2017 was
2% lower in 2017 than 2016, the quality of the franchisees
has increased and over 30% of the network now operate
multi-operations.

Franchise Brands plc Annual Report and Accounts 2017

Strategic report

In order to continue to implement, develop and measure
the Group’s strategic performance, we monitor a number
of financial and non-financial KPIs which are specifically
tailored to each brand. These KPIs are monitored closely
by the Directors of the Group and corrective action is taken
where necessary.

Ovenclean

Barking Mad

Adjusted EBITDA (£m)

£0.3m

2017
2016
2015

Adjusted EBITDA (£m)

£0.2m

£0.3m
£0.3m
£0.2m

2017
2016
2015

£0.2m
£(0.01)m
n/a

Performance in 2017
EBITDA was flat between 2016 and 2017 as fewer franchisees
were recruited in 2017 than 2016.

Performance in 2017
In the first full year of ownership by the Group, Barking Mad
contributed £0.2m of EBITDA. In November and December 2016,
Barking Mad contributed EBITDA of £(0.01m).

Number of franchisees recruited

23 –18%

2017
2016
2015

23
28
19

24
0
n/a

Performance in 2017
While five fewer franchisees were recruited in 2017 compared
to 2016, this partly reflects a very strong performance in 2016,
whereas the 23 new joiners in 2017 is 23% higher than 2015.

Performance in 2017
24 franchisees were recruited in 2017. In November and
December 2016, no franchisees were recruited.

Total number of franchisees

106 +4%

2017
2016
2015

System sales (£m)

£3.6m

106
102
94

2017
2016
2015

£3.6m
£0.4m
n/a

Description
The total number of franchisees is an indicator of the overall
health of the franchise system, however, the Group is placing
more emphasis on quality of franchisees and their ability to
grow their businesses.

Performance in 2017
The number of franchisees in the system grew by 4% as a result
of 23 new joiners and 19 franchisees leaving the system. While
franchise recruitment was lower in 2017, the number of leavers
improved slightly resulting in growth in the system.

Description
System sales are the total aggregate sales of franchisees
of services to third party customers.

Performance in 2017
System sales in 2017 were £3.6m. In November and December
2016, system sales were £0.4m.

Franchise Brands plc Annual Report and Accounts 2017

28 Strategic report

PRINCIPAL RISKS
AND UNCERTAINTIES

The Directors confirm that, so far as they are each aware, the Board regularly reviews the process for identifying, assessing
and mitigating any significant risks faced by the Group, and regularly reviews the impact of any significant risks faced by
the Group on the prospects of the Group. Below is a summary of current principal risks and uncertainties which may be
subject to change following any review.

Strategic risks

Market risks

Impact

Mitigation

Trend

Franchisees

Customers

›The ability of the Group to attract and retain

franchisees with the appropriate attitude,
expertise and skills, in available and suitable
locations, cannot be guaranteed. This may have
a detrimental effect on trading performance
and growth.

›Franchisees could default on their obligations

under their respective franchise agreements
or underperform, or affect the integrity of the
brand, all of which could negatively impact the
Group’s performance, reputation and prospects.

›Metro Rod has a number of large customer

relationships, in particular in the facilities
management sector, where reactive services are
being provided nationally through framework
agreements. The loss of a number of these large
customers, and/or a significant reduction in the
amount of reactive work that is provided to
Metro Rod, could have a detrimental impact on
system sales and hence profits.

›The Group has an experienced franchise marketing

and recruitment capability. KPIs are monitored on
regular basis for all Group businesses in order to
ensure a suitable number of new enquiries are being
received to achieve the recruitment targets.

›The Group provides a comprehensive range of

training and support services to its franchisees
with the objective of achieving high standards.
It monitors performance and compliance where
required through the franchise support and
operations teams and through regular inspections
and audits.

›No one customer accounts for a significant

proportion of sales. With the large investment that is
being made in the Metro Rod brand and sales team,
the ability of the business to replace lost sales
should increase.

›Metro Rod has long-standing relationships with

many of these customers, and also their end-
customers, and is able to be very responsive to
changing requirements and customer feedback.

Financial risks

Impact

Mitigation

Trend

Ability to generate
revenues & profit

›Failure of the Group to grow sales may result in

Group MSF revenues increasing more slowly than
anticipated. Due to the fixed nature of the
Group’s central overhead, the ability of the Group
to reduce this in the short term is limited which
may affect profits.

›The Group relies on the receipt/collection of

ongoing monthly payments from ChipsAway
and Ovenclean franchisees.

›The Group has well positioned brands and will

continue to invest and develop its sales and
marketing strategies to further drive sales.

›Factors likely to affect a ChipsAway or Ovenclean

franchisee’s ability to make payments are monitored
by our Franchise Support teams on a daily basis and
by Finance on a monthly basis. Any material
concerns are raised with the department manager
who will investigate and direct appropriate help and
assistance to individual franchisees.

Operational risks

Legal risks

Impact

Mitigation

Trend

Changes in
legislation

›Legislation and regulations that impact the

business may change and/or new legislation and
regulation may come into effect which could have
an adverse effect on the Group’s franchise model
and business.

›In particular, the Group could be impacted by

changes in health and safety regulations,
franchising legislation, employment law, data
protection and other legislative areas.

›The Group closely monitors regulatory and legal

developments to determine its response and to ensure
ongoing compliance with its obligations.

›The Group works closely with third parties to ensure

that it meets its obligations, including independent
environmental and health and safety consultants as
well as legal advisers.

Increasing

Decreasing

No movement

Franchise Brands plc Annual Report and Accounts 2017

Strategic report

Operational risks (cont.)

Operational risks

Impact

Mitigation

Trend

Dependence on
key personnel

Health and
Safety

Information
Technology

External
suppliers
(excluding IT)

›Loss of key personnel, either at Executive level, or

in relation to key skills, could have adverse
consequences for the Group.

›The inability to recruit additional skilled and

experienced personnel in a competitive market for
suitably qualified candidates may impact the
performance of the business.

key personnel are shareholders in the Company.

›Each of the Executive Directors and a number of other
›All employees in key positions are participants in the
›In 2017 the Group appointed a Group HR Manager
›The Group encourages and supports employees to

Company’s Long-Term Incentive Plan.

covering all brands.

undertake training to expand existing skills where
necessary.

›Metro Rod operates in sectors where the health

and safety risk is higher than the Group’s other
brands due to the nature of the equipment used
and the locations in which the services are carried
out. Metro Rod has a good long-term health and
safety record; however, a serious incident could
have adverse consequences to the business.

›The chemical compounds used to carry out

ChipsAway repairs and Ovenclean process are
compliant with current health and safety
regulations, however, should regulations change,
compliance with new regulations could result in
increased costs for the Group’s franchisees which
may impact their viability.

›The Group’s business is dependent on network and

information systems, the internet and other
technologies. Shutdowns or service disruptions
could adversely affect the Group.

›The Group is dependent on products, technologies

and services provided by third parties in order for
customers to use its services, as well as to deliver,
measure and report advertising.

›Metro Rod has developed health and safety systems

and processes for its franchisees and company owned
operations, the objective of which is the creation of a
safe environment.

›A point of work risk assessment is inbuilt into our

works management system and must be completed
prior to work commencing.

›Franchisees are provided with health and safety

training and are audited for compliance through a
number of inspections. Metro Rod’s processes are the
subject of independent review and accreditation. All
health and safety KPIs are carefully monitored and
assessed on a regular basis.

›The Group closely monitors industry developments

that may result in a change to the regulation of
products used in the ChipsAway repair and Ovenclean
process. In such an event the Group will work with key
suppliers with the objective of ensuring compliance
and managing cost.

›All brands hold ISO certification.
›The architecture of the Metro Rod systems has

recently been restructured and the systems are now
hosted using the Microsoft Cloud. They are backed up
regularly and there are standard processes in place to
restore critical services. However, Metro Rod’s business
is very reliant on these systems.

›For the other Group brands, the most critical systems

are also externally hosted and regularly backed up.
Their operation is monitored closely by a third party
professional services company. Annual penetration
tests are conducted.

›The IT department continually reviews the suitability

of the Group’s systems and identifies any legacy or
aging systems that need to be replaced.

›The Group relies on certain other suppliers,

without whom the Group’s revenue generation,
efficiency of operations and cash flow may not be
optimised.

›The Group cannot guarantee that service and

products delivered from third parties will remain
of a high quality in the future and be provided
without interruption.

›The Group maintains good working relationships with

its key suppliers to ensure the supply of the highest
quality products and services at all times.

›The Group continually assesses the quality and value

of the products and services supplied and have
identified alternative suppliers for all key products and
services should alternatives be required at any time.

›Metro Rod’s reliance on sub-contractors has reduced

substantially following the establishment of a new
franchisee in Scotland.

This Strategic Report (which includes all of the content from pages 1 to 29 inclusive) was approved by the Board on 21 March 2018
and signed on its behalf by

Stephen Hemsley / Executive Chairman

Franchise Brands plc Annual Report and Accounts 2017

Corporate governance

OUR EXPERIENCE

Our team has considerable experience of operating
and growing profitable franchise businesses.

Board of Directors

Stephen Hemsley | Executive Chairman

For our senior management
see page 32

Audit Committee

Remuneration Committee

AIM Rules Compliance Committee

Chris Dent | Chief Financial Officer

Stephen co-founded Franchise Brands in 2008. He has long-standing experience in
franchising and currently holds the position of Non-executive Chairman, Domino’s
Pizza. Having originally joined the then private company Domino’s Pizza as Finance
Director in 1998, he led Domino’s to an IPO on AIM in 1999, and subsequently as CEO,
he led the business through a period of growth. During his nearly 20-year association
with Domino’s Pizza, Stephen has taken Domino’s from a market capitalisation of
£25m to around £1.6 billion and membership of the FTSE 250 Index and from around
100 to over 1,000 stores across the UK, Ireland and Europe. He was appointed as
a Director of the Company on 15 July 2016.

Chris has substantial accounting and financial experience from his time in the
profession and as a Finance Director of private and publicly quoted companies. Chris
spent 4 years as Finance Director of AIM-quoted 7digital Group plc (formerly UBC
Media Group plc) and began his career at Deloitte LLP where he spent 10 years within
audit, corporate finance and transactional accounting services. Chris is a Fellow of
the Institute of Chartered Accountants of England and Wales. Chris was appointed as
Chief Financial Officer of Franchise Brands on 17 July 2017.

Tim Harris | Managing Director, ChipsAway and Ovenclean

Tim is a seasoned franchise professional with 20 years’ experience of successfully
developing automotive, commercial and domestic franchise businesses in both
international and UK markets. Tim joined the Group in 2008. Formerly Sales Director,
Tim was appointed CEO in 2012 and has led the brands through a period of increased
profitability and international reach, with Master franchises opened in the Americas
and across Europe. Prior to joining the Group, Tim held senior sales positions at a
number of franchisor companies including Autosheen, Pitman Training and Jani-King.
He was appointed as a Director of the Company on 15 July 2016.

Peter is a seasoned sales professional with over 35 years of management and
commercial experience. Peter joined Metro Rod in 2003 and was promoted to the
position of Commercial Director in 2005. In this role, he was responsible for national
account sales and support. Prior to joining Metro Rod, Peter was Managing Director
of Solaglas Replacement Glazing, part of the Saint-Gobain Group, with national
responsibility for the network branches, field engineers, call centre and sales and
marketing. Peter was appointed Managing Director of Metro Rod on 4 September 2017,
and a Director of the Company on 21 March, 2018.

Peter Molloy | Managing Director, Metro Rod

Franchise Brands plc Annual Report and Accounts 2017

Julia Choudhury | Corporate Development Director

Corporate governance

Colin Rees | Chief Information Officer

Nigel Wray | Non-executive Director

David Poutney | Independent Non-executive Director

Julia has over 25 years of commercial, finance and investment experience. Julia
joined the Group in 2008 and has a particular focus on corporate development,
which includes acquisitions. Between 1997 and 2005, Julia held a number of senior
management roles with AXA Investment Managers including Strategic Development
Director, Head of Marketing, Head of Retail, and latterly Managing Director of AXA
Investment Manager’s UK operation. Her early career was spent in Corporate Finance
at BZW predominantly in mergers and acquisitions and equity financing. Between
1993 and 1997 she was Product Development Manager and subsequently Assistant
Director at BZW Investment Management. She was appointed as a Director
of the Company on 15 July 2016.

Colin is a highly experienced IT professional. He was appointed to the new position
of Chief Information Officer on 1 April 2017. Colin was until recently Director of IT at
Domino’s Pizza where he was responsible for all IT systems of the business from the
point-of-sale system in over 1,000 stores, via the mobile and Web ordering system,
through to the recently launched ERP system. He previously held a number of senior IT
roles at EasyJet including Head of Software Delivery. Colin started his career at Argos
plc and held a number of positions over a 10-year period. He was appointed
a Director of the Company on 21 March 2018.

Nigel co-founded Franchise Brands in 2008. He is an entrepreneurial investor in both
public and private companies. Currently he is a substantial shareholder and Director
at Prestbury Investment Holdings Ltd and many other companies. He is also the
Chairman and co-owner of Saracens Rugby Club. He is a significant investor in a wide-
ranging number of AIM quoted companies including Avingtrans Plc, Rotala plc, Hunters
plc, Tekcapital plc, Reach4Entertainment Enterprises plc and MXC Capital plc, as well
as a number of private companies in the domiciliary care, computer network solutions,
hotel and restaurant sectors. He is a former director and former significant shareholder
in Domino’s Pizza. He was appointed as a Director of the Company on 15 July 2016.

David has over 40 years of finance and investment experience. David is
Executive Chairman of Dowgate Capital Stockbrokers Ltd and a Non-executive Director
of Be Heard Group plc. From 2001 to January 2016 he was Director and Head of
Corporate Broking at Numis Securities Limited during which time he helped establish
Numis as a leading institutional stockbroker and corporate adviser to companies on
both AIM and the main market. Between May 2014 and February 2016, he was an
Executive Director of Numis Corporation plc. In his 20 years as a corporate broker,
David was involved in the listings of over 30 companies and advised many through
extended periods of growth. In particular, he advised Domino’s Pizza from 2002 to
January 2016. He was appointed as a Director of the Company on 15 July 2016.

Rob Bellhouse | Independent Non-executive Director

Chairman

Rob is an experienced company secretary with strong commercial experience gained
over a period of over 30 years, working mainly in listed companies with a strong focus
on governance, compliance and risk management activities. He is currently deputy
secretary of a FTSE15 natural resources business, having previously been the company
secretary of a number of listed companies including Domino’s Pizza (2015-2016,
on an interim basis), Lonmin (2003-2015) and Greene King (1998-2003). Rob was
interim company secretary of AIM-quoted Alliance Pharma in 2016-17. He was voted
ICSA Company Secretary of the Year in 2014. Rob was appointed as a Director of the
Company on 15 July 2016.

Chairman Chairman

Franchise Brands plc Annual Report and Accounts 2017

Corporate governance

Senior management

Lee Dancy | Managing Director, Barking Mad

Robin Auld | Marketing Director

Andrew Mallows | Commercial Director

Franchise Brands plc Annual Report and Accounts 2017

Lee is an experienced franchise professional with over 25 years of
commercial experience, primarily in sales and marketing. In 2000,
Lee founded Barking Mad and successfully franchised the business in
2002. As Managing Director, Lee led the business through a period of
considerable expansion from 2002 to 2016. She has continued in her
role as Managing Director following the acquisition of Barking Mad
by Franchise Brands. Prior to establishing Barking Mad, Lee was an
independent marketing consultant.

Robin joined Franchise Brands as Group Marketing Director in 2010 and
established consumer marketing campaigns for the brands, generating
increases in demand and raising brand awareness. Robin has a successful
track record of consumer marketing success over nearly 20 years. He is best
known for his work at Domino’s Pizza. As Head of Marketing, and then Sales
and Marketing Director, working closely with Stephen Hemsley, Robin guided
the brand through a period of growth during the period 2004 to 2010. Prior
to joining Domino’s Pizza, Robin had a senior role at a WPP Group agency
working with a range of blue-chip clients. More recently Robin has also
worked as Head of Marketing for Topps Tiles helping to reposition and re-
launch the brand. He was appointed as a Director of the Company on 15 July
2016, and will step down from the Board at the AGM on 25 April 2018.

Andrew has spent his career in the consumer sector and has particular
experience in franchising. He rejoined Franchise Brands on 31 March
2017 having originally assisted the Group prepare for and complete the
IPO. Andrew works on a part-time basis as Commercial Director for all the
Group’s brands. Andrew was Finance Director of Domino’s Pizza during the
period 2001 to 2004, having taken over that role from Stephen Hemsley
when he was promoted to CEO. In 2004 he was appointed Business
Development Director at Domino’s with responsibility for the property,
franchise sales and food service Division of the business.

Tim Roberts | Head of IT

Ella Pugh | Head of Marketing

Mark Peters | Company Secretary

Corporate governance

Tim has over 20 years’ experience as a freelance IT consultant and project
manager in a wide range of business sectors. His career has included
secondments at Dell, NatWest, Argos, EasyJet, Freshfields and Telefonica.
Prior to joining Franchise Brands, Tim was Head of Corporate Systems at
Domino’s Pizza where he responsible for all head office IT systems. In
particular, he was responsible for implementing Domino’s franchisee CRM
email solution and GPS real-time delivery tracking system for its delivery
drivers. Tim joined Franchise Brands in 2017.

Ella spent five years working in the consumer goods sector prior to joining
Franchise Brands. Her focus was product marketing and development
and she was responsible for developing innovative product ranges for
new markets and for online re-branding. From Franchise Brand’s Marketing
Centre of Excellence based in Kidderminster, Ella works across all of the
Group’s brands. She is passionate about building brand awareness and
delivering results-orientated multi-channel campaigns. Ella joined
Franchise Brands in 2016.

Mark is a pragmatic and entrepreneurial lawyer of more than 30 years’
standing. He is currently a senior consultant to Sherrards Solicitors LLP,
having previously been Senior Partner, and was instrumental in successfully
establishing the firm’s London office. During his 17 year association with
Sherrards, Mark carried out a wide variety of work for clients, primarily
in the field of real estate and investment, as well carrying out business
development, management, and certain regulatory and compliance duties.
Mark has performed Company secretarial duties for Franchise Brands
since 2008.

Franchise Brands plc Annual Report and Accounts 2017

Corporate governance

CHAIRMAN’S INTRODUCTION TO GOVERNANCE

Adoption of this Code is not mandatory and therefore this report
does not need to follow the “comply or explain” approach with
respect to any departures from the Code. However, the Company
remains committed to high standards of corporate governance and
seeks to comply with the Code to the extent practicable for a quoted
company of our size.

The Code invites me to introduce this section of the annual report
and I am very happy to do so. Corporate governance plays a crucial
role in helping to preserve value for shareholders by providing a
process for decision-making which should ensure that all major
decisions are considered in good time, that the Board is provided
with good quality briefing materials which cover all relevant factors
and that our deliberations consider the risks, as well as the
opportunities, in the issues before us. Having directors drawn from a
range of backgrounds, with a cumulatively wide range of relevant
skills and experiences, helps us to take decisions in the interests of
all shareholders and which take into account the interests of a wide
range of stakeholders. It is for these reasons that the Board is
committed to achieving high standards of corporate governance.

As a result, good corporate governance is vital in supporting the
Company’s growth strategy and in turn its long-term success.
The remainder of this report explains how we have applied the Code
during 2017.

Stephen Hemsley
Executive Chairman

“Franchise Brands is an AIM-
quoted company and we
have chosen to follow the
QCA’s Corporate Governance
Code for small and mid-size
quoted companies (the
‘Code’) as we believe that this
provides an appropriate
governance framework for a
group of our size.”

Franchise Brands plc Annual Report and Accounts 2017

CORPORATE GOVERNANCE

Corporate governance

Board composition and support
The Board currently comprises eight Directors, being an Executive
Chairman, four Executive Directors and three Non-executive Directors.
As explained in the Chairman’s Statement on page 22, reflecting the
development of the Group’s business during 2017 we have appointed
two further Executive Directors to the Board but one of the long-serving
Executive Directors, Robin Auld, is not seeking re-election at the AGM.
The Board believes that its revised composition will provide a
sufficiently wide range of skills and experience to enable it to pursue
its strategic goals following the acquisition of Metro Rod and to address
anticipated issues in the foreseeable future. Its deliberations are not
dominated by one person or a group of people.

The Board regards David Poutney and Rob Bellhouse as being
independent. While Nigel Wray fulfils his duties to the Company in an
exemplary way and demonstrates independence of character and
judgment, the Board does not regard him as independent as he is a
significant shareholder.

During the year the Board had an Executive Chairman and a CEO.
While the respective responsibilities of the Chairman and CEO are not
recorded in writing, the division has always been very clearly
understood. The Chairman is responsible for leading the Board,
facilitating the effective contribution of all members and ensuring that
it operates effectively in the interests of the shareholders. As an
Executive Chairman, he is also responsible for the development and
implementation of the Group’s strategy. The CEO’s responsibility related
to the operational leadership of the business on a day-to-day basis,
with particular focus on the ChipsAway and Ovenclean businesses.
Following the year end, the Board reorganisation referred to above
means that there is no longer a CEO. The Executive Chairman continues
to perform the same function, but the Managing Directors will provide
operational leadership to their respective businesses.

The Board has not felt that the appointment of a senior independent
director was necessary but keeps this issue under review.

The Company Secretary is responsible, on behalf of the Executive
Chairman, for ensuring that all Board and Committee meetings are
conducted properly, that the Directors receive the appropriate
information prior to the meeting, for ensuring that governance
requirements are considered and implemented and for accurately
recording each meeting. The Directors may have access to independent
professional advice where needed at the Group’s expense.

The Directors are provided with good quality information on a timely
basis including monthly management accounts, regular updates on
operational, business development and marketing and IT issues and
detailed briefing papers on all substantive matters to be discussed at
Board meetings.

“Across the Group we are
committed to high standards of
corporate governance.”

Responsibilities of the Board
The Board is responsible to the Company’s shareholders for:
›Setting the Group’s strategy;
›Maintaining the policy and decision-making process through which
the strategy is implemented;
›Checking that necessary financial and human resources are in place
to meet the strategic aims of the Group;
›Providing entrepreneurial leadership within a framework of good
governance and sound risk management;
›Monitoring performance against key financial and non-financial
indicators;
›Overseeing the systems of risk management and internal control; and
›Setting values and standards in corporate governance matters.
Non-executive Directors
The role of the Non-executive Directors is to:
›Challenge constructively and help develop proposals on strategy;
›Satisfy themselves as to the integrity of the financial reporting
systems and the information they provide;
›Satisfy themselves as to the robustness of the internal controls;
›Ensure that the systems of risk management are robust and
defensible; and
›Review management performance and the reporting of such
performance to shareholders.

Each of the independent Non-executive Directors sits on the
Remuneration Committee, enabling them to have a role in determining
the pay and benefits of the Executive Directors and to oversee Board
and management succession plans.

Board meetings
The Board meets on scheduled dates, typically six times per annum,
with ad hoc meetings when necessary. The Board met seven times
in 2017.

Committees
The Board has delegated and empowered an Audit Committee, an AIM
Rules Compliance Committee and a Remuneration Committee, each of
which is accountable to the Board on all matters within its remit and
has a written terms of reference. A summary of the responsibilities of
each committee and their work during the year is given below. There is
no Nominations Committee as the matters it would consider have been
retained as a Board responsibility.

Attendance records
The participation of the individual Directors at the meetings of the
Board and its committees they were eligible to attend during 2017 was
as follows:

Director

Stephen Hemsley
Tim Harris
Chris Dent
Julia Choudhury
Robin Auld
Nigel Wray
David Poutney
Rob Bellhouse

Audit
Committee

Remuneration
Committee

AIM Rules
Compliance
Committee

–
–
–
–
–
–
2 of 2
2 of 2

–
–
–
–
–
1 of 1
1 of 1
1 of 1

–
–
–
–
–
–
1 of 1
1 of 1

Board

7 of 7
7 of 7
4 of 4
7 of 7
6 of 7
4 of 7
7 of 7
7 of 7

Franchise Brands plc Annual Report and Accounts 2017

Corporate governance

CORPORATE GOVERNANCE continued

Board effectiveness review
The Company is at an early stage of its life as a quoted company.
Following the acquisition of Metro Rod, a new Chief Financial Officer
was recruited to support the Group’s accounting and reporting needs
and, as noted above, Board composition continues to evolve in line with
the business challenges and opportunities facing the Group. While
recognising the value that a properly structured effectiveness review
could add, the timing of such a process has yet to be determined.

Diversity
The Board is aware of the current focus on diversity in relation to Board
and Senior Management appointments, which tends to focus on gender
and race. The Company and the Board always seeks to search for,
recruit and appoint the best available person regardless of any personal
or background factors.

Legislation
The Company is committed to meeting the requirements of applicable
legislation, and particularly values and adheres to the principles of both
the Bribery Act and the Modern Slavery Act.

Corporate social responsibilities
All companies have broader social responsibilities and obligations.
In fulfilling their duties, the Directors take into account the short- and
long-term consequences of their decisions on employees, franchisees,
suppliers, customers and others, as well as the ethical, environmental
and reputational impacts that these could create.

Relations with shareholders
The Executive Chairman, the Chief Financial Officer, and the Corporate
Development Director meet with the institutional shareholders from
time to time and provide the Board with feedback from those meetings
and other communications with shareholders. The Board is provided
with research notes from sell-side analysts plus insight into
shareholders’ views from the Company’s nominated advisors.

The Group welcomes the personal investment in its equity that many
employees and franchisees have made, as well as our retail investors.
We regularly update the Investor Relations section of the Group’s
website with the aim of providing useful information for all investors,
but particularly our retail shareholders.

All Directors are invited to attend the AGM at which there is an
opportunity for shareholders to ask questions formally, and the
Directors are available following the meeting for informal discussions.
While voting at the AGM is on a show of hands, the proxy voting results
(including any votes withheld) are announced at the meeting, and
subsequently to the market and published on the website.

Board Committees
As noted above, the Board has delegated certain of its responsibilities
to Board committees:

Audit Committee
The role of the Audit Committee is to monitor the quality of internal
controls and check that the financial performance of the Group is
properly assessed and reported on. It receives and reviews reports from
the Chief Financial Officer, other members of management and
external auditors relating to the interim and annual accounts and the
accounting and internal control systems in use throughout the Group.

The members of the Audit Committee are:
›David Poutney (Chairman)
›Rob Bellhouse

The Company Secretary acts as secretary to the Audit Committee.
The Executive Chairman and Chief Financial Officer are invited to
attend all meetings, with other senior financial managers required to
attend when necessary. The external auditors attend meetings to
discuss the planning and conclusions of their work and meet with the
members of the Committee without any members of the executive
team present after each meeting. The Committee is able to call for
information from management and consults with the external auditors
directly as required.

The objectivity and independence of the external auditors is
safeguarded by reviewing the auditors’ formal declarations, monitoring
relationships between key audit staff and the Company and tracking
the level of non-audit fees payable to the auditors.

The Committee met twice during the year, to review the 2016 annual
accounts and the interim accounts to 30 June 2017, and to note the
auditors’ views on those accounts.

The Company received a letter during the year from the Financial
Reporting Council’s (FRC) Corporate Reporting Review Team on 27 July
2017, which raised questions on certain aspects of our annual report for
the year ended 31 December 2016. The Company responded fully to the
matters raised in the FRC’s letter, enabling it to conclude its enquiry.
As a result of the FRC’s enquiry, the Company has made improvements
to the disclosures in this annual report in the following areas:
›Note 1 Accounting policies: Segmental Reporting.
›Note 1 Accounting policies: National Advertising Fund and Central
Advertising Fund accounting.
›Note 2 Critical accounting estimates and judgements: Revenue
recognition; Deferred payments.

The FRC’s enquiry did not result in any change to reported profit or
net assets.

Scope and limitations of the FRC’s review
We recognise that the FRC’s review was based on a review of our annual
report for the year ended 31 December 2016 and did not benefit from
detailed knowledge of the Company’s business or an understanding of
the underlying transactions entered into. Its review did not provide any
assurance that the Company’s annual report and financial statements
are correct in all material respects. It is not the FRC’s role to verify the
information provided to it; it considers compliance with reporting
requirements. The FRC (which includes its officers, employees and
agents) accepts no liability for reliance on them by the Company or any
third party, including but not limited to investors and shareholders.

Franchise Brands plc Annual Report and Accounts 2017

Audit tender
An audit tender process was undertaken in 2017, led by the Audit
Committee. The Group’s auditors, BDO LLP, have held office for a
number of years, while Metro Rod has used PricewaterhouseCoopers
LLP as its auditors in recent years. A tender process was undertaken
involving four audit firms, managed by the Chief Financial Officer on
behalf of the Committee. Two firms were selected to take part in the
final round, being BDO and PwC. While the Birmingham office of BDO
historically led the Group audit, recognising the significance of Metro
Rod to the Group, BDO’s Manchester office participated in the tender
process. The Committee unanimously recommended that BDO be
appointed as auditors to the enlarged group, and the recommendation
was accepted by the Board. A resolution for the reappointment of BDO
as the Group’s auditors will be tabled at the Annual General Meeting.

Remuneration Committee
The role of the Remuneration Committee is to review the performance
of the Executive Directors and make recommendations to the Board on
matters relating to their remuneration and terms of employment. The
Committee also makes recommendations to the Board on proposals for
the granting of share awards and other equity incentives pursuant to
any share award scheme or equity incentive scheme in operation from
time to time.

The members of the Remuneration Committee are:
›Rob Bellhouse (Chairman)
›David Poutney

The Company Secretary acts as secretary to the Remuneration
Committee. The Executive Chairman is invited to attend meetings of
the Remuneration Committee, but does not participate when his own
remuneration is being discussed. All members of the committee are
independent Non-executive Directors.

The Company’s remuneration policy and details of the amounts due to
the Directors of the Company in or in respect of the year are set out in
the Remuneration Report on pages 38 and 39. As the Company is not
listed, it is not required to produce a formal remuneration policy or
seek shareholder approval of that policy.

The Committee met once during the year, to approve the award of
options under the Long-Term Incentive Plan (“LTIP”). A further meeting
was held in early 2018 to review the basis of the performance condition
to which the vesting of options is subject, and to grant options to
an employee.

AIM Rules Compliance Committee
The role of the AIM Rules Compliance Committee is to ensure that the
Company has in place sufficient procedures, resources and controls to
enable it to comply with the AIM Rules for Companies. The Committee
makes recommendations to the Board and proactively liaise with the
Company’s nominated adviser on compliance with the AIM Rules. The
Committee also monitors the Company’s procedures to approve any
share dealings by Directors or employees in accordance with the
Company’s share dealing code and the requirements of the Market
Abuse Regulation.

The members of the Committee are:
›Rob Bellhouse (Chairman)
›David Poutney

Corporate governance

The Company Secretary acts as secretary to the AIM Rules Compliance
Committee. In addition, all other Directors of the Company are invited
to attend its meetings.

The Committee met once during the year, at the time of our last annual
report, to discuss compliance with certain aspects of the AIM Rules for
Companies and to receive assurances from the other Directors that
there were no matters they should be disclosing to the Company under
AIM Rule 17.

Franchise Brands plc Annual Report and Accounts 2017

Corporate governance

DIRECTORS’ REMUNERATION REPORT

Directors’ service contracts
All Executive Directors are employed under service contracts.
The services of the Executive Directors may be terminated by the
Company, on the expiry of six months’ notice (nine months, in the
case of Tim Harris).

The Non-executive Directors are employed under letters of engagement
which may be terminated by the Company (i) giving three months’
notice or (ii) immediately, in the event that the Director is not
re-elected by shareholders at an AGM.

Directors’ remuneration
Remuneration Policy
The objective of the Company’s remuneration policy is to facilitate the
recruitment and retention of executives of an appropriate calibre, to
ensure that the senior executives of the Company are provided with
appropriate incentives to encourage enhanced performance and are, in
a fair and responsible manner, rewarded for their individual
contributions to the success of the Company.

Strategic alignment
The Remuneration Committee is satisfied that the pay that can be
earned is appropriate for a company of comparable size and
complexity, at each level of performance. All of the Executive Directors
have significant exposure to the company’s share price: Stephen
Hemsley has a significant personal shareholding in the Company and
the other Executive Directors have material personal investments in our
shares, supplemented by options granted under our LTIP. The vesting of
LTIP options is subject to a performance condition requiring a
pre-determined and challenging rate of compound annual growth in
adjusted earnings per share, which the Board regards as the key
performance metric. As a result, there is a clear incentive to drive
earnings per share growth over the longer term and also to mitigate
downside risks that could affect the Company’s profitability.
Reputational risks could reasonably be expected to affect the share
price, so the Executive Directors are further incentivised to mitigate
these exposures to maximise the potential value of their options.

Remuneration in practice
The remuneration that the Company offers to its Executive Directors
has three principal components:
1. Basic salaries and benefits in kind – Basic salaries are determined
by the Remuneration Committee bearing in mind the salaries paid
in AIM-quoted companies of similar size and complexity. Benefits in
kind include a car allowance and health care.

2. Pensions – The Company operates a defined contribution scheme
for all Executive Directors and employees. Only basic salaries are
pensionable.

3. Equity exposure – The Company operates a share option scheme
covering permanent employees (including the Executive Directors,
other than Stephen Hemsley) under which share options have
typically been granted once to each individual. Subject to achieving
compound EPS growth targets, options can vest no earlier than the
third anniversary of the date of grant and, once vested, may be
exercised until the tenth anniversary. The exercise price of the
options is set at the market value of the Company’s shares at the
time of grant, so that the individual only benefits if there has been
share price growth. The share option scheme is overseen by the
Remuneration Committee which determines the terms under which
eligible individuals may be invited to participate, including the level
of awards. The scheme utilises HMRC-approved EMI options to the
extent possible and non-tax advantaged options thereafter.

Franchise Brands plc Annual Report and Accounts 2017

Corporate governance

Directors’ remuneration (audited)
The aggregate remuneration payable to the Directors for the year ended 31 December 2017 was as follows:

Director

Stephen Hemsley
Tim Harris
Andrew Mallows1
Chris Dent2
Julia Choudhury
Robin Auld
Nigel Wray
David Poutney
Rob Bellhouse

Salary or fees
(£)

Benefits in
kind (£)

Pension
contributions
(£)

59,812
116,416
–
45,897
120,000
70,000
16,667
21,667
21,667

–
8,400
–
3,580
–
–
–
–
–

–
385
–
–
–
98
–
–
–

2016
comparison
(£)3

39,000
125,000
38,000
–
57,000
47,000
10,000
6,000
6,000

Total (£)

59,812
125,201
–
49,477
120,000
70,098
16,667
21,667
21,667

Notes:
1 Andrew Mallows served as a Director of the Company from 15 July 2016 to 13 October 2016.
2 Chris Dent serves as a Director of the Company from 17 July 2017.
3 2016 comparison is from 15 July 2016 to 31 December 2016.

No Director made any gains on exercise of a share option during the year or received any remuneration from a third party in respect of their
service as a Director of the Company.

As seen from the table above, two Directors are currently accruing retirement benefits, and do so through defined contribution schemes. The
Company does not operate a defined benefits scheme. No Director or former Director received any benefits from a retirement benefits scheme
that were not otherwise available to all members of the scheme.

Directors’ share options (audited)
Details of options held under the Company’s LTIP by the Directors who served during the year are as follows:

Director

Tim Harris
Chris Dent
Julia Choudhury
Robin Auld

Date of grant

01-Aug-16
12-Dec-17
01-Aug-16
01-Aug-16

Exercise price
(pence)

Performance
condition

2016 Number
of shares

Granted

Exercised

Lapsed

2017 Number
of shares

Exercisable

from Exercisable to

33 EPS growth
49.5 EPS growth
33 EPS growth
33 EPS growth

303,030
–
303,030
303,030

–
303,030
–
–

–
–
–
–

303,030 01-Aug-19
01-Jul-26
303,030 12-Dec-20 12-Dec-27
01-Jul-26
303,030 01-Aug-19
01-Jul-26
303,030 01-Aug-19

Changes in the remainder of the year

Franchise Brands plc Annual Report and Accounts 2017

Corporate governance

DIRECTORS’ REPORT

Scope of this report
The Directors’ biographies on pages 30, 31, and 32, the discussion of
corporate governance matters on pages 34 to 37 and the Remuneration
report on pages 38 and 39 are hereby incorporated by reference to form
part of this Directors’ report.

In addition, Tim Harris, Chris Dent, Julia Choudhury and Robin Auld
held or hold options over shares of the Company through their
participation in the Company’s LTIP, which are detailed in the
Remuneration report on pages 38 and 39.

As permitted under the Companies Act, certain matters which would
otherwise need to be included in this Directors’ report have instead
been discussed in the Strategic Report. These matters are the
discussion of the performance and likely future developments in the
business of the Company and its subsidiaries. Disclosures relating
to financial risk management are included in Note 3 to the
financial statements.

Principal activities
The principal activity of the Group is the acquisition, development and
brand marketing of multiple franchised businesses. The principal
activity of the Company is to act as a holding company and to provide
management services to its subsidiary companies.

Research and development
The Group did not have any material activities in the field of research
and development during the year.

Directors
Names, biographical details and appointment dates of the Directors of
the Company at the date of this report are shown on pages 30, 31 and
32. In addition, Andrew Mallows served as an Executive Director until
13 October 2016.

Directors’ interests
The following table shows the interests of the Directors (and their
spouses and minor children) in the shares of the Company.

Director

Stephen Hemsley1
Tim Harris2
Chris Dent
Julia Choudhury3
Robin Auld4
Nigel Wray5
David Poutney6
Rob Bellhouse

At
31 December 2017

At
31 December 2016

20,640,117
1,059,284
15,000
1,204,258
846,195
21,720,120
2,260,791
82,768

13,000,431
999,762
–
1,010,229
908,882
14,080,434
606,060
45,455

Notes:
1.

Included in the holding of Stephen Hemsley are 1,616,431 Ordinary Shares held by
his wife, 7,477,612 Ordinary shares held by CTG Investment Limited, a company
owned by a discretionary trust of which Mr Hemsley and his family are potential
beneficiaries, and 1,492,537 Ordinary shares held by his Self-Invested Personal
Pension (SIPP).
Included in the holding of Tim Harris are 59,522 shares held by his SIPP.
Included in the holding of Julia Choudhury are 381,819 Ordinary Shares held jointly
with her husband, 411,985 Ordinary shares held by her SIPP and 37,313 Ordinary
Shares held by Winsham Capital Partners Ltd, a Company controlled by Julia
Choudhury and her husband.
Included in the holding of Robin Auld are 113,071 Ordinary shares held by his SIPP.
Included in the holding of Nigel Wray are 14,026,380 Ordinary shares held by
Damor Investments Limited, acting as nominee for RBC Trustees (Jersey) Limited
as trustee of Mr Wray’s family trust. Also included are 3,731,343 Ordinary Shares
and 3,684,463 Ordinary shares held by Euroblue Investments Limited and
Glengrace Limited, respectively, companies wholly owned by Nigel Wray. Also
included in Nigel Wray’s interest are 223,880 Ordinary shares owned by The Priory
Foundation, a charitable trust of which he is the settlor and a trustee. Nigel Wray
controls this interest but is not the beneficial owner of these shares.
Included in the holding of David Poutney are 1,584,627 Ordinary shares held by his
SIPP and an interest in 676,164 Ordinary shares held by his wife and adult
daughters. David Poutney controls the interest held by his wife and adult
daughters but is not the beneficial owner of these shares.

2.
3.

4.
5.

Franchise Brands plc Annual Report and Accounts 2017

Major shareholders
Insofar as is known to the Company and in addition to the holdings of
the Directors above, the following persons hold, as at the date of this
document, and are expected (based on the information available as at
the date of this document), to hold directly or indirectly 3% or more of
the enlarged Share Capital:

Shareholder

Netcap Limited
Hargreave Hale

Current

Number of
Ordinary
shares

Percentage of
existing share
capital

3,373,134
3,351,033

4.3%
4.3%

Directors’ responsibilities statement
The Directors are responsible for preparing the Strategic Report and the
Directors’ Report and the financial statements in accordance with
applicable law and regulations.

Company Law requires the Directors to prepare financial statements for
each financial year. Under that Law the Directors have elected to
prepare the Group and Company financial statements in accordance
with International Financial Reporting Standards (IFRS) as adopted by
the European Union. Under Company Law the Directors must not
approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Company and the
Group and of the Group’s profit or loss for that period. The Directors are
also required to prepare financial statements in accordance with the
rules of the London Stock Exchange for companies trading securities
on AIM.

In preparing these financial statements, the Directors are required to:
›select suitable accounting policies and then apply them consistently;
›make judgments and accounting estimates that are reasonable
and prudent;
›state whether applicable IFRSs have been followed, subject to any
material departures disclosed and explained in the financial
statements; and
›prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Company will continue
in business.

The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Company’s transactions and
disclose with reasonable accuracy at any time the financial position of
the Group and the Company and enable them to ensure that the
financial statements comply with the Companies Act 2006. They are
also responsible for safeguarding the assets of the Group and the
Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company’s
website. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from legislation
in other jurisdictions. The maintenance and integrity of the Company’s
website is the responsibility of the Directors, as is the ongoing integrity
of the financial statements contained therein.

Corporate governance

Going concern
The Directors have made appropriate enquiries and consider that the
Group has adequate resources to continue in operational existence for
the foreseeable future. Accordingly, the Directors continue to adopt the
going concern basis in preparing the financial statements.

Directors’ and Officers’ liability insurance and
indemnification of Directors
The Company maintains Directors’ and Officers’ liability insurance
which gives appropriate cover for any legal action brought against
its Directors.

The Company has also granted indemnities to each of its Directors
to the extent permitted by law. Qualifying third party indemnity
provisions (as defined in Section 324 of the Companies Act 2006) were
adopted for those Directors on the Board at that time and have been
agreed by all Directors joining the Board since that date. These
indemnities remain in force in relation to certain losses and liabilities
which the Directors may incur to third parties in the course of acting
as Directors of the Company.

Directors’ obligations to the auditors
The Directors confirm that:
›so far as each of the Directors is aware, there is no relevant audit
information of which the company’s auditor is unaware; and
›they have each taken all the steps that they ought to have taken as
directors to make themselves aware of any relevant audit information
and to establish that the auditors are aware of that information.

Statutory disclosures
In accordance with The Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations 2008 the Directors disclose
the following information:
›The Company’s capital structure and voting rights are detailed on
page 41. There are no restrictions on voting rights nor any agreement
between holders of securities that result in restrictions on the transfer
of securities or on voting rights;
›There exist no securities carrying special rights with regard to the
control of the Company;
›Details of the substantial shareholders and their shareholdings in the
Company are detailed on page 40;
›The rules concerning the appointment and replacement of Directors,
amendment to the Articles of Association and powers to issue or buy
back the Company’s shares are contained in the Articles of
Association of the Company and the Companies Act 2006;
›There exist no agreements to which the Company is party that may
affect its control following a takeover bid; and
›There exist no agreements between the Company and its Directors
providing for compensation for loss of office that may occur because
of a takeover bid.

Branches
There are no branches of the Company outside the UK.

Political and charitable donations
No political or charitable donations were made or political expenditure
incurred during the period.

Dividends
A final dividend of 0.17p per share was paid on 28 April 2017 in respect
of the 2016 financial year.

Auditor
A resolution to reappoint BDO LLP as auditor will be proposed at
the AGM.

An interim dividend of 0.17p per share in respect of the 2017 financial
year was paid on 22 September 2017. The Directors are recommending
a final dividend of 0.33p per share which, subject to shareholders’
approval at the AGM, will be paid on 15 May 2018 to shareholders on
the register at the close of business on 27 April 2018.

Post-balance sheet events
On 15 January 2018 a customer of Metro Rod Limited, Carillion plc,
went into liquidation. The Directors determined that this was an
adjustable post-balance sheet event and accordingly made a bad-debt
provision for the amounts owing at the balance sheet date of £316,000.

Share capital
The Company’s entire issued share capital comprises Ordinary Shares
of 0.5 pence each. Note 23 to the financial statements summarises the
number issued during 2017.

Financial instruments and risk management
The Company’s use of financial instruments and its financial risk
management objectives and policies are set out in Note 3 of the
financial statements.

Voting rights
Subject to any rights or restrictions attached to any class of shares, on
a show of hands every member who (being an individual) is present in
person or by proxy or (being a corporation) is present by a duly
authorised representative and is entitled to vote shall upon a show of
hands have one vote and on a poll every member who is present in
person or by proxy or corporate representative and entitled to vote shall
have one vote for every share of which he is the holder. Where a
registered holder or any other person appearing to be interested in
such shares fails to comply with any notice given by the Company
under section 793 of the Act, then not earlier than 14 days after service
of such notice the shares in question may be disenfranchised.

Annual general meeting
The 2018 Annual General Meeting of the Company will be held on
25 April 2018, the business of which is set out in the notice of meeting.
A circular containing the notice of meeting and an explanatory letter
from the Chairman is being posted to shareholders and is also available
on the Company’s website.

Approved by the Board.

Mark Peters
Company Secretary
21 March 2018

Franchise Brands plc Annual Report and Accounts 2017

Financial statements
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
FRANCHISE BRANDS PLC
For the year ended 31 December 2017

Opinion
We have audited the financial statements of Franchise Brands plc (the “Parent Company”) and its subsidiaries (the “Group”) for the year ended 31
December 2017 which comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated and
company statement of financial position, the consolidated and company statement of cash flows, the consolidated and company statement of
changes in equity and notes to the financial statements, including a summary of significant accounting policies.

The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the Parent Company financial statements, as applied in
accordance with the provisions of the Companies Act 2006.

In our opinion:

the Group’s loss for the year then ended;

›the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2017 and of
›the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
›the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as ap-
›the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

plied in accordance with the provisions of the Companies Act 2006; and

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are
independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.

Use of our report
This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the Parent Company’s members those matters we are required to state to them in an
auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than
the Parent Company and the Parent Company’s members as a body for our audit work, for this report, or for the opinions we have formed.

Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

›the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
›the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the

Group’s or the Parent Company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the
date when the financial statements are authorised for issue.

Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the
current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including
those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.

Franchise Brands plc Annual Report and Accounts 2017

Financial statements

Risk of fraud/misstatement in revenue

How We Addressed the Key Audit Matter in the Audit

Refer to the Accounting Policies (page 53), Note 2 (pages 56-57) and
Note 4 (page 59)

Total Group revenue is £24.3m (2016: £4.9m). The Group’s significant
revenue streams include franchise fees, licence fees and the sale of
goods.

The acquisition of Metro Rod Limited in the year has given rise to a
significant increase in revenue recognised, as well as additional
management judgement in assessing principal vs agent
considerations, as disclosed in note 2 of the financial statements.

In addition, the accounting treatment for deferred franchise fees (see
note 2) requires the use of judgement by management in determining
the quantum of expected future receipts.

In accordance with the auditing standards and in view of the
judgements involved above, as well as management being in a
position to be able to override controls, we have presumed a risk of
fraud within this area.

Our audit work over the recognition of the deferred franchise fees
included a review of historic recoveries and comparison to current
year estimates in support of the Directors’ assessment of the timing
and quantum of amounts the group ultimately expects to receive.

In respect of Metro Rod Limited, we reviewed Franchisee agreements
and customer contracts to verify management’s judgement with
regard to principal vs agent considerations. We further ensured that
the accounting policy for the arrangements has been appropriately
applied.

In addition, we undertook the following audit procedures in relation
to revenue:

›We interrogated the system to identify any manual journals made to

revenue to ascertain if any were outside the normal course of busi-
ness, as well as reviewing the nominal ledger revenue accounts for
unusual activity and corroborated evidence to ensure appropriate.

›We performed detailed testing, on a sample basis, of sales transac-

tions across the year and across each significant revenue stream to
provide evidence for the completeness, existence and accuracy of
recorded transactions.

›We performed detailed cut off procedures to test transactions

around the year end and verified a sample of sales to originating
documentation to provide evidence that transactions were recorded
in the correct period.

Based on the work performed we consider that revenue has been
recognised appropriately and is in accordance with the Group’s
revenue recognition accounting policy.

National Advertising Fund and Central Advertising Fund

How We Addressed the Key Audit Matter in the Audit

Refer to the Accounting Policies (page 53) and Note 2 (page 56)

Franchisees pay contributions which are collected by the Group for
specific use within the National Advertising Fund (NAF) for ChipsAway
International Limited and the Central Advertising Fund (CAF) for Oven
Clean Domestic Limited. The funds are operated by the Group on
behalf of franchisees with the objective of driving revenues for
franchisees.

The costs allocated to the funds require judgement to determine the
appropriateness of and extent of costs to be recharged from the
Group to the fund. The recharging of expenditure incurred by the
Group on behalf of the NAF and CAF is susceptible to management
override through inappropriate expenditure being charged to the NAF
and CAF.

We inspected the franchise framework agreements to determine the
extent of influence that the Group has over the use of the resources
held by the NAF and CAF and to determine whether it should be
consolidated with the Group’s accounts.

We performed testing of a sample of costs allocated to the funds to
confirm that they were permitted costs under the fund rules,
corroborating these with supporting documentation.

We identified and tested manual journals posted to the NAF and CAF
funds, obtaining an understanding of the rationale for significant
journals and agreeing them to relevant supporting documentation.

We performed a proof in total of franchisee contributions to the NAF
and CAF based on the number of franchisees and expected
contribution rates.

The franchisee contributions allocated to the funds are also
susceptible to the risk of amounts being included in revenue.

We noted no exceptions through performing these procedures.

Franchise Brands plc Annual Report and Accounts 2017

Financial statements
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
FRANCHISE BRANDS PLC continued
For the year ended 31 December 2017

Acquisition Accounting

How We Addressed the Key Audit Matter in the Audit

As described in Note 22, on 11 April 2017 the Group acquired the entire
share capital of Metro Rod Limited.

We reviewed the sale and purchase agreement entered into on 22
March 2017 and considered management’s accounting treatment.

We focused on this area because the accounting treatment for the
provisional opening balance sheet is inherently judgemental and
requires the Directors to exercise many judgements, including in
respect of the fair values of intangible assets and the calculation of
associated goodwill.

We tested the acquisition balance sheet to assess the fair value
adjustments made by management and to assess if other
adjustments or alignment of accounting policies were required. In
particular, we tested the fair values ascribed to intangible assets by
understanding the assumptions adopted in the valuation model,
which critically include the royalty rate applied to the brand
valuation, the forecast attrition rate in relation to existing customers,
the expected longevity of the brand name and the customer
relationships, and the sales and margin forecasts.

We engaged specialists to assist us in validating those underlying
assumptions and enabled us to confirm that the Directors had
adopted reasonable assumptions in each circumstance.

We reviewed the disclosures within the financial statements to ensure
the completeness and accuracy of management’s disclosure of the
transaction.

Based on the evidence obtained, we did not identify any indications
that the fair value adjustments identified by management were
inappropriate. We read the disclosures in the financial statements and
found them to be consistent with the information we obtained during
the course of our audit.

Impairment of goodwill and intangible assets

How We Addressed the Key Audit Matter in the Audit

Refer to the Accounting Policies (page 53) and Note 11 (page 62)

We obtained the impairment analysis performed by management for
each CGU.

The Group has goodwill and indefinite life intangible assets, which
requires management to test these balances for impairment at least
annually.

There is a high degree of management judgement in assessing the
value in use of the Cash Generating Units (“CGU”) to which the
Goodwill and Intangible assets are allocated and therefore
determining any potential impairments.

We performed testing over the impairment analysis for logical and
arithmetic accuracy and to ensure that it has been undertaken in
accordance with IAS 36.

We performed procedures to obtain an understanding of the
underlying assumptions made by management. The key assumptions
included:

›Future trading projections;
›The discount rate applied; and
›The long term growth rate.

The reasonableness of these key assumptions was tested through
reviewing the group’s detailed calculations and challenging the
methodology applied in preparing the trading and cash flow
forecasts. We engaged specialists to assist us in validating those
underlying assumptions and enabled us to confirm that the Directors
had adopted reasonable assumptions in each circumstance.

We also performed sensitivity analysis to understand the relative
impact of changes in the key assumptions within the impairment
models, as well as to confirm that management’s disclosure of
sensitivities in respect of the impairment review are complete and
balanced.

Based on our procedures we noted no exceptions and found
management’s key assumptions to be within a reasonable range. We
read the disclosures in the financial statements and found them to be
consistent with the information we obtained during the course of our
audit.

Franchise Brands plc Annual Report and Accounts 2017

Financial statements

Our application of materiality
We consider materiality to be the magnitude by which misstatements, individually or in the aggregate, could reasonably be expected to influence
the economic decisions of the users of the financial statements. We use materiality both in planning the scope of our audit work and in evaluating
the results of our work.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Group materiality

Basis for materiality

Rationale for the benchmark adopted

£104,000 (2016: £49,000)

5% of profit before tax, after adjusting for non-recurring items (inclusive of costs of
acquisition of subsidiaries, costs of transition of subsidiaries and bad debt expense)
(2016: 1% of revenue).

Pre-tax profit after adjusting for non-recurring items is determined to be a stable
basis of assessing business performance and is considered to be a significant
determinant of performance used by shareholders.

In considering individual account balances and classes of transactions we apply a lower level of materiality (performance materiality) in order to
reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
Performance materiality was set at £78,000 (2016: £36,750), representing 75% of materiality. The performance materiality threshold was selected
based on the expected low level of misstatements and the relatively low number of accounts that are subject to management estimation.

We agreed with the audit committee that we would report to the committee all individual audit differences identified during the course of our
audit in excess of £2,000 (2016: £2,000). We also agreed to report differences below these thresholds that, in our view, warranted reporting on
qualitative grounds.

Our audit work on each component was executed at levels of materiality applicable to each individual entity which was lower than Group
materiality. Component materiality ranged from £94,000 to £1,000 (2016: £46,500 to £1,000). Parent Company materiality was £94,000.

An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and assessing the
risks of material misstatement at the Group level.

The Group manages its operations from two principal locations in the UK. The acquisition of Metro Rod Limited has meant that the Group has two
financial systems, and has different processes and controls covering this significant component compared to the other significant components
and wider Group. The audit of all significant components was performed by the same audit team.

In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage of
significant accounts in the financial statements, of the ten reporting components of the Group, we determined that four components represented
the principal business units within the Group.

For the ten reporting components, we performed a full scope audit of the complete financial information.

As a consequence of the audit scope determined, we achieved coverage of 100% (2016: 96%) of revenue, 100% (2016: 97%) of profit before tax and
100% (2016: 99%) of net assets.

Other information
The Directors are responsible for the other information. The other information comprises the information included in the annual report other than
the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and,
except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be
materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there
is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have
performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to
report in this regard.

Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:

›the information given in the strategic report and the Directors’ report for the financial year for which the financial statements are prepared is
›the strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements.

consistent with the financial statements; and

Franchise Brands plc Annual Report and Accounts 2017

Financial statements
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
FRANCHISE BRANDS PLC continued
For the year ended 31 December 2017

Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the audit, we
have not identified material misstatements in the strategic report or the Directors’ report.

not visited by us; or

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our
opinion:

›adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches
›the Parent Company financial statements are not in agreement with the accounting records and returns; or
›certain disclosures of Directors’ remuneration specified by law are not made; or
›we have not received all the information and explanations we require for our audit.

Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement set out on page 40, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors
either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Gary Harding
(Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
Manchester, UK
21 March 2018

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

Franchise Brands plc Annual Report and Accounts 2017

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2017

Financial statements

Revenue
Cost of sales

Gross profit
Adjusted earnings before interest, tax, depreciation, amortisation,
share-based payments & non-recurring items (“Adjusted EBITDA”)

Depreciation
Amortisation
Share-based payment expense
Costs of acquisition of subsidiaries
Costs of transition of subsidiary
Bad debt provision
IPO expenses

Total administrative expenses
Operating profit
Finance income
Finance expense

(Loss)/profit before tax
Tax expense

(Loss)/profit for the year and comprehensive income attributable

to equity holders of the Parent Company

All amounts relate to continuing operations

Earnings per share
Basic
Adjusted basic
Diluted
Adjusted diluted

The notes on pages 53 to 69 form part of these financial statements.

Note

2017
£'000

24,292
(15,198)

2016
£'000

4,870
(1,572)

9,094

3,298

5
5
5
5
5
5
5

5
8
8

2,715
(96)
(156)
(58)
(1,144)
(734)
(316)
–

(8,882)
212
–
(277)

(65)
(47)

1,352
(66)
(10)
(30)
(58)
–
–
(397)

(2,507)
791
2
(9)

784
(260)

(112)

524

(0.16)
2.50
(0.16)
2.47

1.28
2.40
1.28
2.38

Franchise Brands plc Annual Report and Accounts 2017

Financial statements
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 December 2017
Company Number: 10281033

Assets
Non-current assets
Intangible assets
Property, plant and equipment
Trade and other receivables

Total non-current assets

Current assets
Inventories
Trade and other receivables
Cash and cash equivalents

Total current assets

Total assets

Liabilities
Current liabilities
Trade and other payables
Loans and borrowings
Obligations under finance leases
Current tax liability

Total current liabilities

Non-current liabilities
Loans and borrowings
Obligations under finance leases
Deferred tax liability

Total non-current liabilities

Total liabilities

Total net assets

Issued capital and reserves attributable to owners of the Parent
Share capital
Share premium
Share-based payment reserve
Merger reserve
Retained earnings

Total equity attributable to equity holders

Note

2017
£’000

2016
£’000

11
12
14

13
15
16

17
18
19

18
19
20

23
24
24
24

27,025
162
–

27,187

252
9,670
3,245

13,167

40,354

7,132
4,164
21
–

11,317

5,255
65
526

5,846

17,163

23,191

388
22,621
88
396
(301)

23,191

2,142
121
112

2,375

193
307
2,999

3,499

5,874

1,078
167
29
211

1,485

250
73
163

486

1,971

3,903

239
3,214
30
396
24

3,903

The financial statements on pages 47 to 69 were approved and authorised for issue by the Board of Directors on 21 March 2018 and were signed on
its behalf by:

Chris Dent
Director

Franchise Brands plc Annual Report and Accounts 2017

COMPANY STATEMENT OF FINANCIAL POSITION
At 31 December 2017
Company Number: 10281033

Financial statements

Note

2017
£'000

2016
£'000

Assets
Non-current assets
Fixed asset investments

Total non-current assets

Current assets
Trade and other receivables
Cash and cash equivalents

Total current assets

Total assets

Liabilities
Current liabilities
Trade and other payables
Loans and borrowings

Total current liabilities
Non-current liabilities
Loans and borrowings

Total liabilities

Net assets

Issued capital and reserves attributable to owners of the Parent
Share capital
Share premium
Share-based payment reserve
Merger reserve
Retained earnings

Total equity attributable to equity holders

30,097

3,212
232

3,444

33,541

191
4,164

4,355

5,255

9,610

972

2,823
750

3,573

4,545

1
167

168

250

418

23,931

4,127

388
22,621
88
276
558

23,931

239
3,214
30
276
368

4,127

15
16

17
18

23
24
24
24

No statement of comprehensive income is presented by the Company as permitted by section 408 of the Companies Act. Franchise Brands plc
reported a profit for the financial period ended 31 December 2017 of £403,000 (2016: £368,000).

The financial statements on pages 47 to 69 were approved and authorised for issue by the Board of Directors on 21 March 2018 and were signed on
its behalf by:

Chris Dent
Director

Franchise Brands plc Annual Report and Accounts 2017

Financial statements
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2017

Cash flows from operating activities
(Loss)/profit for the year
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of intangible fixed assets
Share-based payment expense
Finance income
Finance expense
Income tax expense

Increase in trade and other receivables
Increase in inventories
Increase in trade and other payables

Cash generated from operations
Income taxes paid

Net cash generated from operating activities

Cash flows from investing activities
Purchases of property, plant and equipment
Purchase of software
Gain on disposal of assets
Interest received
Acquisition of subsidiary including costs, net of cash acquired

Net cash used in investing activities

Cash flows from financing activities
Bank and other loans – repaid
Bank loans – received
Interest paid – bank and other loan
Interest paid – finance leases
Proceed from issue of shares
Share issue expenses and other expenses of IPO
Dividends paid
Capital element of finance lease repaid

Net cash generated from financing activities

Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Franchise Brands plc Annual Report and Accounts 2017

Note

2017
£'000

2016
£'000

(112)

524

12
11
7

8
9

15
13
17

12
11

8
22

96
156
58
–
277
47

522
(1,229)
(17)
1,629

905
(204)

701

(98)
(21)
13
–
(28,403)

(28,509)

(6,417)
15,330
(186)
(10)
20,000
(444)
(213)
(6)

66
10
30
(2)
9
260

897
(31)
(15)
261

1,112
(203)

909

(10)
–
–
2
(333)

(341)

(1,847)
500
(6)
(3)
3,562
(233)
–
(38)

28,054

1,935

246
2,999

3,245

2,503
496

2,999

COMPANY STATEMENT OF CASH FLOWS
For the year ended 31 December 2017

Financial statements

Cash flows from operating activities
Profit for the year
Adjustments for:
Finance expenses
Income tax expense
Share-based payment expense

Cash generated from operations
Increase in trade and other receivables
Increase in trade and other payables

Net cash generated from/(used in) operating activities

Cash flows from investing activities
Acquisition of subsidiary including costs

Net cash used in investing activities

Cash flows from financing activities
Bank loans – repaid
Bank loans – received
Interest paid – bank and other loans
Proceed from issue of shares
Share issue expenses and other expenses of IPO
Dividends paid

Net cash flows generated by financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Note

2017
£'000

2016
£'000

15
17

403

368

273
(202)
24

498
(151)
190

537

6
(17)
16

373
(2,805)
–

(2,432)

(29,125)

(558)

(6,417)
15,330
(186)
20,000
(444)
(213)

28,070
(518)
750

232

(83)
500
(6)
3,562
(233)
–

3,740
750
–

750

Franchise Brands plc Annual Report and Accounts 2017

Financial statements
CONSOLIDATED AND COMPANY STATEMENT OF
CHANGES IN EQUITY
For the year ended 31 December 2017

Share
capital
£'000

Share
premium
account
£'000

Share-
based
payment
reserve
£'000

Merger
reserve
£'000

Retained
earnings
£'000

120
–
4
114
1

239

–
–
149
–

388

–
–
–
3,214
–

3,214

–
–
19,407
–

22,621

–
–
–
–
30

–
–
–
58

–
–
396
–
–

396

–
–
–
–

Share
capital
£'000

Share
premium
account
£'000

Share-
based
payment
reserve
£'000

Merger
reserve
£'000

Retained
earnings
£'000

Total
£'000

(380)
524
400
3,328
31

(500)
524
–
–
–

3,903

(112)
(213)
–
–

(112)
(213)
19,556
58

396

(301)

23,191

–
–
(120)
396
–
–

276

–
–
–
–

–
368
–
–
–
–

368

403
(213)
–
–

Total
£'000

–
368
–
400
3,328
31

4,127

403
(213)
19,556
58

276

558

23,931

–
–
120
4
114
1

239

–
–
149
–

388

–
–
–
–
3,214
–

3,214

–
–
19,407
–

22,621

–
–
–
–
–
30

–
–
–
58

Group

At 1 January 2016
Profit for the period
Acquisition of subsidiary
Issue of shares
Share-based payment

At 1 January 2017

Loss for the year
Dividend paid
Placing in relation to acquisition
Share-based payment

At 31 December 2017

Company
(from incorporation 15 July 2016)

At 15 July 2016
Profit for the period
Issue of share capital
Acquisition of subsidiary
Issue of shares
Share-based payment

At 1 January 2017

Profit for the year
Dividend paid
Placing in relation to acquisition
Share-based payment

At 31 December 2017

Franchise Brands plc Annual Report and Accounts 2017

NOTES FORMING PART OF THE FINANCIAL STATEMENTS
For year ended 31 December 2017

Financial statements

1 Accounting policies
General Information
Franchise Brands plc (the “Company”, and together with its subsidiaries, the “Group”), is a public company incorporated in England and Wales
under the Companies Act 2006 with Company Number 10281033.

On 11 April 2017 the Group acquired the entire issued share capital of Metro Rod Limited (“Metro Rod”). Although the acquisition of Metro Rod by
Franchise Brands plc was a reverse acquisition under the Alternative Investment Market (“AIM”) Rules, the transaction was an acquisition under
IFRS3. Therefore, Franchise Brands plc continues to be the legal and accounting parent.

The comparative period was accounted for under merger accounting principles, following the introduction of a new holding company on 15 July 2016, and
is presented as if Franchise Brands plc has always been the holding company for the Group. Merger accounting principles were followed since the
Directors concluded that the introduction of a new holding company was a group reconstruction, and was outside the scope of IFRS3 Business
Combinations. Under merger accounting, the carrying values of the assets and liabilities of the parties to the combination are not adjusted to fair value on
consolidation. The difference between the cost of investment and the nominal value of the share capital acquired was taken to a merger reserve.

The Company’s registered office and principal place of business is at 5 Edwin Avenue, Hoo Farm Industrial Estate, Kidderminster, Worcestershire,
DY11 7RA.

The principal activities of the Group is franchising and related activities. The principal activity of the Company is that of a holding company of a
group of companies engaged in franchising and related activities.

Basis of consolidation
The consolidated financial statements incorporate the results and net assets of the Company and its subsidiary undertakings. Subsidiaries are
consolidated from the date of their acquisition, being the date on which the Group obtains control and continue to be consolidated until the date
control ceases. All inter-company transactions and balances between Group entities are eliminated upon consolidation. Acquisitions during the
year have been consolidated using the acquisition method.

Basis of preparation
The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the
European Union as they apply to the financial statements of the Group for the year ended 31 December 2017 and applied in accordance with the
Companies Act 2006. The Group’s consolidated financial statements are prepared under the historical cost convention. The principal accounting
policies adopted are set out below and have been consistently applied to all the years presented. The Group’s financial statements are presented in
sterling and all values are rounded to the nearest thousand pounds (£’000s) except where indicated.

The Group’s financial statements have been prepared on a going concern basis as the Directors have a reasonable expectation that the Group has
adequate resources to continue in existence for the foreseeable future. Please refer to the Directors Report for further details.

There were no impacts from new standards adopted in the period. At the time of publication of these financial statements, the following standards
and interpretations, which have not been applied in these financial statements, were in issue but not yet effective:

IFRS 16 Leases
IFRS 9 Financial Instruments: Classification and Measurement
IFRS 15 Revenue from Contracts with Customers

01/01/2019
01/01/2018
01/01/2018

The full impact of these standards is currently being assessed. However, IFRS 15 and IFRS 16 may have an impact on these financial statements.

IFRS 15 Revenues from Contract with Customers, effective for periods commencing on or after 1 January 2018. The Directors have completed their initial
assessment to the potential impacts of this standard. The Directors believe that there will be two key changes derived from the adoption of the standard:

›Metro Rod revenue recognition: The Directors believe that the introduction of IFRS15 will result in a minor shift of the revenue recognition point

based on the assessment of control being transferred and when the Company has a legal and enforceable right for payment. Given the nature of
the work performed at Metro Rod – being a large number of small value jobs – the shift will not have a significant impact in terms of the financial
statements, as the Company will see approximately the same number of jobs being reported into the relevant period as previously. The impact on
profit is anticipated to be negligible.

›National advertising funds: As disclosed below, the national advertising funds for our different networks have not been recognised as revenue

under IAS18. The Directors do not believe that the Group met the criteria for recognising revenue due to the fact that the Group is not exposed
to the risks and rewards of the transactions. The management of the funds does not result in any profit or loss for the Group as they are run on a
break-even basis. With the adoption of the precepts of IFRS15 with its control based approach, the Directors conclude that the Group will recognise
the costs expended by the funds in the year within the costs of the business, and will recognise an equal amount as revenue, with any difference
from the amount of cash received from our franchisees as accrued or deferred revenue within the balance sheet. Therefore, there will be no effect
on profit. If this change had been effective in 2017, a further £640,000 would have been recognised in both revenue and costs.

IFRS 9 Financial Instruments, effective for periods commencing on or after 1 January 2018. The Directors have completed their initial assessment
to the potential impacts of this standard. Given the low level of financial instrument use by the Group we do not believe that there will be a
significant impact on our accounts. The Directors have considered the impairment considerations within IFRS9, particularly given the trade debtor
book within Metro Rod. Whilst the publicised situation at Carillion has contributed to a significant provision at 31 December 2017, the Directors do
not believe the application of IFRS9 will have a significant impact on the financial statements.

IFRS 16 Leases, effective for periods commencing on or after 1 January 2019. The impact of this standard is being assessed but is yet to be
fully investigated.

Franchise Brands plc Annual Report and Accounts 2017

Financial statements
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
continued
For year ended 31 December 2017

1 Accounting policies continued
Segmental reporting
Management has determined that the Group has one reportable segment.

IFRS 8 Operating Segments requires operating segments to be identified on the same basis as is used internally for the review of performance and
allocation of resources by the “chief operating decision maker”, who has been identified as the Executive Chairman. IFRS 8 permits the
aggregation of these components into reportable segments for the purpose of disclosure in the Group’s financial statements. In assessing the
Group’s reportable segments, the Directors have had regard to the similar economic characteristics of the operating segments (all the operating
segments have the same sources of revenue, costs and processes), the similar nature of their business (all the operating segments are franchise
networks with franchisees as their customers) and their long-term margins. Therefore, whilst the Group operates multiple franchise brands, across
various business sectors, the Board has concluded that the key management and financial data used to manage them is the same, as the key
drivers are attributable to them being franchises rather than the activity of the franchise. It is the strategy of Franchise Brands to generate revenue
as a franchisor from MSF and licence fees, regardless of the underlying businesses and performance obligations of our franchisees.

All segment revenue and profit before taxation are attributable to the principal activity of the Group.

Business combinations
Other than for the introduction of the new holding company in 2016 the Group applies the acquisition method to account for business
combinations. The consideration or the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former
owners of the acquiree and the equity issued by the Group, plus if the business combination is acquired in stages the fair value of the existing
interest in the acquiree. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration
arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at
their fair values at the acquisition date. Investments in subsidiaries are measured at cost in the parent company.

Intangible Assets
Intangible assets comprise goodwill, certain acquired separable corporate brand names, acquired customer relationships, and capitalised
computer software not integral to a related item of hardware.

Goodwill represents the excess of fair value attributed to investments in businesses or subsidiary undertakings over the fair value of the underlying
net assets, including intangible assets, at the date of their acquisition. Goodwill impairment reviews are undertaken annually or more frequently if
events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the net present value of future
cash flows derived from the underlying assets using a projection period of up to five years for each cash-generating unit. After the projection
period a steady growth rate representing an appropriate long-term growth rate for the industry is applied. Any impairment is recognised
immediately as an expense and is not subsequently reversed.

Corporate brand names, trade-marks, customer relationships and other intangibles acquired as part of acquisitions of businesses are capitalised
separately from goodwill as intangible assets if their value can be measured reliably on initial recognition and it is probable that the expected
future economic benefits that are attributable to the asset will flow to the Group. Certain corporate brands of the Group are considered to have an
indefinite economic life because of the institutional nature of the corporate brand names, their proven ability to maintain market leadership and
profitable operations over long periods of time and the Group’s commitment to develop and enhance their value.

The carrying value of these intangible assets is reviewed at least annually for impairment and adjusted to the recoverable amount if required.
Recoverable amount is the higher of fair value less costs to sell and its value in use. Where the carrying amount of an asset or cash generating unit
exceeds its recoverable amount the asset or cash generating unit is considered impaired and written down to its recoverable amount. Any
impairment is charged to the profit and loss in the period concerned.

Amortisation is provided at rates calculated to write-off the cost less estimated residual value of each asset on a straight-line basis over its
estimated useful life as follows:

›Customer-related intangibles – 10 years.
›Other (including capitalised computer software) – 3-5 years.

Exceptional costs
Exceptional items are those significant items which are separately disclosed by virtue of the size or incidence to enable a full understanding of the
Group’s financial performance.

Revenue
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.
Revenue is measured at the fair value of consideration received or receivable, net of returns, rebates and value-added taxes. The following criteria
must also be met before revenue is recognised:

›Management service fees: Management service fees are charged for the continuing use of the rights and continuing services provided during the
›Sales of franchise territories: Sales of franchise territories represent the charges for packages which include training, other start-up support and

franchise agreements term. They are recognised as the service is provided and the rights are used.

equipment. No element of these charges relate to subsequent services. Revenue from franchise fees is recognised when a franchisee completes
the relevant training. Where deferred payment terms are offered the revenue is recognised to the extent that there is not considered to be signifi-
cant doubt over the eventual recovery (see note 2).

›Product sales: Revenue from sales of products is recognised on delivery to customers.

Franchise Brands plc Annual Report and Accounts 2017

Financial statements

Adjusted EBITDA
Adjusted EBITDA is utilised as a key performance indicator for the Group and is calculated utilising profit before before tax, adjusted for finance
income and costs, amortisation and depreciation on non-current assets, share-based payments and non-recurring items. It allows stakeholders to
better evaluate the performance of the business.

National advertising fund and central advertising fund accounting
In addition to franchise fees, franchisees pay contributions which are collected by the Group for specific use within the national and central
advertising funds. The Group operates the funds on behalf of the franchisees with the objective of driving revenues for the franchisees. The fund is
planned to break even with any short-term surplus or deficit carried in the consolidated statement of financial position within working capital. As
all fund contributions are designated for specific purposes and do not result in a profit or loss for the Group, revenue recognition criteria are not
met and therefore the income and expense of the fund are not included in the consolidated statement of comprehensive income. During the year
the funds spent a total of £640,000, and at the end of the year there was a short-term surplus in the scheme of £20,000, which was recognised as a
liability within the accounts. As noted above the Directors believe that the adoption of IFRS15 will change the accounting for the funds.

Inventories
Inventories are valued at the lower of cost and net realisable value, after making due allowances for obsolete and slow moving items. Cost is
determined on a first in, first out basis. Net realisable value is based on estimated selling price less any further costs expected to be incurred
to disposal.

Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any
difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the term of the
borrowings using the effective interest method.

Property, plant and equipment
Property, plant and equipment assets are carried at cost less accumulated depreciation and any recognised impairment in value. Cost comprises
the aggregate amount paid and the fair value of any other consideration given to acquire the asset and includes cost directly attributable to
making the asset capable of operating as intended.

The Group adds to the carrying amount of an item of fixed assets the cost of replacing part of such item when that cost is incurred, if the
replacement part is expected to provide incremental future benefits to the Group. The carrying amount of the replaced part is derecognised.
Repairs and maintenance are charged to the statement of comprehensive income in the period they are incurred.

Depreciation is provided to write-off the cost, less the estimated residual values, of all tangible fixed assets evenly over their expected useful lives.

It is calculated at the following rates:

Leasehold property improvements
Short-term leasehold improvements
Motor vehicles
Long-term fixtures and fittings
Short-term fixtures and fittings
Computer equipment

– 7% straight line
– 33% straight line
– 25% straight line
– 10% straight line
– 33% straight line
– 33% straight line

The assets’ residual values, useful lives and methods of depreciation are reviewed and adjusted, if appropriate on an annual basis. Any gain or loss
arising on recognition of an asset is included in the statement of comprehensive income in the year that the asset is derecognised.

Share-based payment
When share options are awarded to employees, the fair value of the options at the date of grant is charged to the statement of comprehensive
income over the vesting period. When the terms and conditions of options are modified before they vest, the increase in fair value of the options,
measured immediately before and after the modification, is also charged to the statement of comprehensive income over the remaining
vesting period.

Where share options vesting is contingent on a future event a charge is recognised only if the future event is considered probable.

Fair value is measured by the use of an appropriate valuation model, which takes into account conditions attached to the vesting and exercise of
the equity instruments. The expected life used in the model is adjusted, based on management’s best estimate, for the effects of
non-transferability, exercise restrictions and behavioural considerations. The volatility in the model is calculated by reference to an implied
volatility of a group of listed entities that have similar characteristics and are in the same industry sector.

Income taxes
Current tax assets and liabilities are measured at the amount expected to be received or paid to the taxation authorities. Income tax is charged or
credited to the income statement, except when it relates to items charged directly to other comprehensive income or to equity, in which case the
income tax is also dealt with in other comprehensive income or equity respectively.

Franchise Brands plc Annual Report and Accounts 2017

Financial statements
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
continued
For year ended 31 December 2017

1 Accounting policies continued
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the statement of financial position differs
from its tax base, except for differences arising on:

›the initial recognition of goodwill;
›the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects nei-
›investments in subsidiaries where the Company is able to control the timing of the reversal of the difference and it is probable that the difference

ther accounting nor taxable profit; and

will not reverse in the foreseeable future.

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the
difference can be utilised.

The amount of the asset or liability is determined using tax rates that have been enacted or substantially enacted by the balance sheet date and
are expected to apply when the deferred tax liabilities or assets are settled or recovered.

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities.

Leased assets
Where assets are financed by leasing agreements that give rights approximating to ownership (finance leases) the assets are treated as if they had
been purchased outright. The amount capitalised is the present value of the minimum lease payments payable over the term of the lease. The
corresponding leasing commitments are shown as amounts payable to the lessor. Depreciation on the relevant assets is charged to the statement
of comprehensive income over the shorter of estimated useful economic life and the period of the lease.

Lease payments are analysed between capital and interest components so that the interest element of the payment is charged to the statement of
comprehensive income over the period of the lease and is calculated so that it represents a constant proportion of the balance of capital
repayments outstanding. The capital part reduces the amounts payable to the lessor.

All other leases are treated as operating leases. Their annual rentals are charged to the statement of comprehensive income on a straight-line basis
over the term of the lease.

2 Critical accounting estimates and judgements
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported
for assets and liabilities as at the balance sheet date and the amounts reported for revenues and expenses during the period. The nature of
estimation means that actual outcomes could differ from those estimates.

The following judgements and estimates have had the most significant effect on amounts recognised in the financial statements.

Revenue recognition
Deferred payments
The Group offers deferred payment terms in relation to some of the franchisee fees payable. The Group assesses the level of doubt over the
ultimate recovery of the deferred fees based on historic experience. If there is significant doubt over the recovery of the franchisee fee the balance
is not recognised until the level of risk associated reduces to an acceptable level. As at 31 December 2017 £147,000 (2016: £124,000) had been
recognised as a debtor, and £132,000 (2016: £134,000) was not recognised.

Advertising funds
Franchisees within the Group pay a fee into a central fund designed to build sales. The fund is managed for the benefit of franchisees in the system
with the objective of driving revenues. The fund is used to pay for national and local marketing strategies and promotional plans. The fund is
planned to operate at break even with any short-term surplus or deficit carried in the consolidated statement of financial position. As all fund
income is designated for specific purposes and does not result in a profit or loss for the Group, the revenue recognition criteria as outlined in our
accounting policy are not met and therefore the income and expenses of the fund are not included in the consolidated statement of
comprehensive income as the Directors consider this to be an agency arrangement. The cash flows relating to the fund are included within the
cash generated from operations in the consolidated statement of cash flows due to the close interrelationship between the fund and the trading
operations of the Group. During the year the funds expended a total of £640,000 (2016: £559,000), which resulted in a surplus of £20,000 (2016: a
deficit of £11,000), which has been recognised within Other Creditors (2016: Other Debtors) within the Group balance sheet.

Metro Rod revenue recognition
In line with our other networks Metro Rod charges its franchisees a management service fee at the rate of 22.5% of their underlying system sales. The
franchise network has two types of system sales: Key Accounts and Commercial. Key Account sales are derived from Metro Rod and the work is
serviced by franchisees. Commercial sales are derived from the franchisees themselves. In both cases the underling service is provided by the
franchisee. However, in the case of Key Accounts Metro Rod bears the credit risk in relation to the sale. Therefore, for Key Accounts, the Directors
believe that we are acting as a principal and recognise the whole of the system sales as revenue, with a cost of 77.5% to leave a gross margin of 22.5%.
In relation to Commercial sales the Directors believe that we are acting as an agent, and we only recognise our 22.5% management fee as revenue.

Franchise Brands plc Annual Report and Accounts 2017

Financial statements

Business combinations
Determining a value for assets acquired
Determining the fair value of acquired intangible assets and goodwill acquired in business combinations requires the use of estimates regarding
the value of intangible assets. The values are determined using discounted cash flows and based upon latest approved budgets which include
estimates concerning factors such as new franchise sales and timing of such sales.

Performing impairment tests
Subsequent impairment reviews also require the use of estimates to value the cash generating units to which goodwill and indefinite life
intangibles has been allocated. The value in use calculations, which are run on an annual basis for goodwill and indefinite life intangibles, or when
there is an indicator of impairment for tangible and finite life intangible fixed assets, determine whether there is any impairment to the carrying
value of assets arising from business combinations. More details of these estimated can be found in note 11.

Indefinite life assessment
Management has determined that the brands and trademarks acquired with Barking Mad Limited (“Barking Mad”) and Metro Rod are to be treated
as an indefinite life asset. Management has determined that there is nothing to suggest the future economic benefits will have a finite life.
Management further believes the sectors Barking Mad and Metro Rod operate in are sufficiently large and contain sufficient opportunity to
support these assumptions. As with all tangible and intangible assets the brands and trademarks will be reviewed at the end of each reporting
period to determine whether there is any indication that they have suffered an impairment loss.

3 Financial instruments – risk management
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to meet their financial obligations as they arise while maximising
the return to stakeholders.

The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the Parent, comprising issued
capital, reserves and retained earnings, and long- and medium-term debt facilities. Term Loans are used to finance long-term investment such as
acquisitions. Revolving credit facilities are used to manage short-term cash requirements. The Group’s financing facilities contain the usual
financial covenants including maximum gearing, minimum interest cover and minimum operating cash flow. The Group met these requirements
throughout the year.

The Group’s dividend policy is to provide sustainable dividends to shareholders, consistent with the Group’s earnings growth, to attract long-term
investors and to enable shareholders to enjoy returns on their investment in tandem with the Group’s growth. The payment and amount of any
dividends or distributions to shareholders is at the discretion of the Board.

Categories of financial instruments

Group

Financial assets
Cash and cash equivalents
Receivables
Financial liabilities at amortised cost
Trade and other payables
Loans and borrowings including finance leases

Company

Financial assets
Cash and cash equivalents
Receivables
Financial liabilities at amortised cost
Trade and other payables
Loans and borrowings

2017
£’000

2016
£’000

3,245
9,413

2,999
170

(6,762)
(9,505)

(918)
(519)

2017
£’000

2016
£’000

232
2,950

750
2,823

(191)
(9,419)

(1)
(417)

Financial instruments not measured at fair value include cash and cash equivalents, trade and other receivables, trade and other payables, and
loans and borrowings. Due to their short-term nature, the carrying value of cash and cash equivalents, trade and other receivables, trade and other
payables approximates to their fair value.

Financial and market risk management objectives
It is, and has been throughout the year under review, the Group’s policy not to use or trade in derivative financial instruments. The Group’s
financial instruments comprise its cash and cash equivalents and various items such as trade debtors and trade creditors that arise directly from
its operations. The main purpose of the financial assets and liabilities is to provide finance for the Group’s operations in the year. The Group is
exposed to interest rate risk as the Group borrows funds at variable interest rates

Franchise Brands plc Annual Report and Accounts 2017

Financial statements
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
continued
For year ended 31 December 2017

3 Financial instruments – risk management continued
Interest rate sensitivity
The effect on both income and equity, based on exposure to non-derivative floating rate instruments at the balance sheet date, is shown in the
table below. The Group arranged a £12m term loan during 2017 in order to fund the acquisition of Metro Rod. At 31 December 2017 £6.1m of this
term loan was outstanding, offset in the financial statements by £0.1m of loan arrangement fee. The loan carries a variable interest rate of 2.72%
and is repayable in instalments until 2022. The Group had also utilised £3.5m of its £5m Revolving Credit Facility, which carries a variable interest
rate of 2.72% and is due on the 8 March 2018.

0.25% increase in interest rates
0.25% decrease in interest rates

Sensitivity
income
2017
£’000

Sensitivity
equity
2017
£’000

Sensitivity
income
2016
£’000

Sensitivity
equity
2016
£’000

(22)
22

–
–

Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has
adopted a policy of only dealing with creditworthy counterparties, as a means of mitigating the risk of financial loss from defaults. The Group only
transacts with entities after assessing credit quality using independent rating agencies and if not available, the Group uses other publicly available
financial information and its own trading records to rate its major customers. The Group’s exposure is continuously monitored and the aggregate
value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits.

Ongoing credit evaluation is performed on the financial condition of accounts receivable. The credit risk on liquid funds is limited because the
counterparties are banks with high credit-rating assigned by international credit-rating agencies. The carrying amount of financial assets recorded
in the financial statements, which is net impairment losses, represents the Group’s maximum exposure to credit risk.

Liquidity risk management
The Group’s policy throughout the year has been to ensure continuity of funds. The Group manages liquidity risk by maintaining adequate reserves
and banking facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

Group

On demand
Within one year
More than one year and less than two years
More than two years and less than five years
In more than five years

Total

Company

On demand
Within one year
More than one year and less than two years
More than two year and less than five years
In more than five years

Total

–
191
–
–
–

191

Trade and
other
payables
2017
£’000

Loans and
borrowings
2017
£’000

–
6,762
–
–
–

6,762

10,094

16,856

Trade and
other
payables
2017
£’000

Loans and
borrowings
2017
£’000

Total
2017
£’000

–
11,115
1,155
4,586
–

Total
2017
£’000

–
4,509
1,131
4,559
–

Trade and
other
payables
2016
£’000

Loans and
borrowings
2016
£’000

–
918
–
–
–

918

–
221
279
19
–

519

Trade and
other
payables
2016
£’000

Loans and
borrowings
2016
£’000

–
1
–
–
–

–
167
250
–
–

417

Total
2016
£’000

–
1,139
279
19
–

1,437

Total
2016
£’000

–
168
250
–
–

418

–
4,353
1,155
4,586
–

–
4,318
1,131
4,559
–

10,008

10,199

Fair value of financial instruments
The fair value of other non-derivative financial assets and financial liabilities are determined in accordance with generally accepted pricing
models based on discounted cash flow analysis using prices from observable current market transactions.

Franchise Brands plc Annual Report and Accounts 2017

Financial statements

2017
£’000

23,346
946

24,292

2016
£’000

3,861
1,009

4,870

2017
£’000

2016
£’000

96
156
58
236

15
37

15
155
17

66
10
30
124

15
33

15
75
22

4 Revenue

Sale of services
Sale of goods

5 Operating profit

Operating profit is stated after charging:
Depreciation
Amortisation
Share-based payment expense
Operating lease rentals
Auditors’ remuneration:
Fees for audit of the Company
Fees for the audit of the Company’s subsidiaries
Fees for non-audit services:
Taxation services
Corporate finance services
Other assurance services

No non-audit services were provided on a contingent fee basis.

In 2016, fees payable to the Auditor for corporate finance services were in respect of work required for the Group to complete its IPO. As a result of
the readmission to AIM in 2017 further corporate finance fees were incurred. BDO were selected to undertake this work after consideration of the
impact this may have on their independence, which it was concluded would not be impinged by undertaking the work. Fees of this type are ad hoc
in nature and occur in respect of major events. Any such further occurrence will require Audit Committee approval.

During the year, the Company incurred significant costs which management believe due to both their one-off nature and magnitude should be
brought to the attention of users of the accounts as non-recurring items. In the current year these costs included the costs of acquiring Metro Rod,
the transitional costs related to the set-up of a standalone IT environment for Metro Rod and the post-acquisition restructuring of the business,
and a provision which was established following the liquidation of Carillion plc in January 2018 to provide for the monies which were owed to Metro
Rod at 31 December 2017. In the prior year the Company incurred significant costs associated with both its admission to AIM and its acquisition of
Barking Mad.

Cost of acquisition of subsidiaries
Cost of transitioning acquisitions
Provision for bad debt of Carillion plc
IPO expenses

2017
£’000

1,144
734
316
–

2,194

2016
£’000

58
–
–
397

455

Franchise Brands plc Annual Report and Accounts 2017

Financial statements
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
continued
For year ended 31 December 2017

6 Staff costs

Wages and salaries
Social security costs
Pension costs
Share-based payment expense

The average monthly number of persons (including Directors) employed by the Group was:
Administration
Sales
Training
Warehouse
Operations
Directors

Directors’ remuneration

Directors’ emoluments
Share-based payment expense
Company contributions to money purchase pension schemes

Information regarding the highest paid Director is as follows

Highest paid Director

2017
£’000

3,628
343
47
58

4,076

139
13
3
2
18
12

187

2017
£’000

484
31
–

515

2017
£’000

125

2016
£’000

731
76
8
30

845

11
2
2
2
1
7

2016
£’000

321
16
7

344

2016
£’000

125

The Board of Directors are considered to be the key management personnel. Their cost to the Group is £565,000 (2016: £372,000), after including
employer’s National Insurance. The Company had no employees (other than the Directors) or staff costs. Directors’ emoluments include
£77,000 (2016: £90,000) paid to companies controlled by Directors (see note 26).

7 Share-based payments
The Company has established a LTIP in the form of a share option scheme. Awards are granted and approved at the discretion of the Remuneration
Committee. Awards vest on or after the third anniversary of their issue, based on compound growth in the underlying earnings per share of the Group
for the three-year period. If the compound annual growth rate is below 8%, then none of these options will vest. Between 8% and 15% growth then a
proportion of these options will vest on a straight-line basis. Currently, 47 members of staff hold options for shares in the Company under the scheme.
The share-based payments expense recognised in respect of employee services received during the year ended 31 December 2017 was £58,000
(2016: £30,000). This all arises on equity-settled share-based payment transactions.

Outstanding at the beginning of the period
Granted during the period
Forfeited during the period
Exercised during the period
Outstanding at the end of the period

Exercisable at the end of the period

Weighted
average
exercise price

–
57p
77p
–
51p

–

2016 Options

1,628,788
–
(121,213)
–
1,507,575

–

Weighted
average
exercise price

33p
–
33p
–
33p

–

2017 Options

–
2,545,172
(585,000)
–
1,960,172

–

The fair value of the options granted is estimated at the date of grant using a Black-Scholes model, after taking into account the terms and
conditions upon which they were granted.

Franchise Brands plc Annual Report and Accounts 2017

Financial statements

The following table lists the inputs to the model used for the options granted in 2017 and 2016.

Black-Scholes option pricing model

Closing stock price, £
Exercise price, £
Risk-free interest rate
Expected life of option (years)
Volatility
Dividend yield

8 Finance income

Bank interest

Finance expense

Interest element of hire purchase agreements
Loan interest

9 Income tax

Current tax expense
Current tax on profits for the period
Adjustment for prior period
Deferred tax expense
Origination and reversal

Total tax expense

Accounting profit multiplied by the UK statutory rate of corporation tax
Expense not deductible for tax purposes
Adjustment for prior period

Total tax expense

Effective tax rate

5 August
2016

31 March
2017

11 April
2017

12 December
2017

0.35
0.33
0.46%
6.5
37.8%
0%

0.88
0.88
0.46%
6.5
37.8%
1%

0.94
0.67
0.46%
6.5
37.8%
1%

0.50
0.50
0.46%
6.5
37.8%
1%

2017
£’000

–

2017
£’000

4
273

277

2016
£’000

3
6

2017
£’000

2016
£’000

(10)
(34)

(13)
94
(34)

251
9

–

260

157
94
9

260

(70.7%)

33.2%

The current rate of UK corporation tax is 19%. A reduction in the UK corporation tax rate from 20% to 19% (effective from 1 April 2017) and to 17%
(effective from 1 April 2020) was substantively enacted in October 2015 and has therefore been considered when calculating deferred tax at the
reporting date.

Franchise Brands plc Annual Report and Accounts 2017

Financial statements
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
continued
For year ended 31 December 2017

10 Earnings per share
Basic earnings per share amounts are calculated by dividing profit for the year attributable to Ordinary equity holders of the Parent by the
weighted average number of Ordinary shares outstanding during the year.

Diluted earnings per share are calculated by dividing the profit attributable to Ordinary equity holders of the Parent by the weighted average
number of Ordinary shares outstanding during the year plus the weighted average number of Ordinary shares that would have been issued on the
conversion of all dilutive potential Ordinary shares into Ordinary shares at the start of the period or, if later, the date of issue.

Earnings per share

(Loss)/Profit attributable to owners of the Parent
Non-recurring items gross (note 5)
Tax on non-recurring

Adjusted profit attributable to owners of the Parent

Basic weighted average number of shares
Dilutive effective of share options

Diluted weighted average number of shares

Basic earnings per share
Diluted earnings per share
Adjusted earnings per share

Adjusted diluted earnings per share

11 Intangible assets

Cost
At 1 January 2016
Additions

At 31 December 2016
Additions

At 31 December 2017

Amortisation
At 1 January 2016
Charge for year

At 31 December 2016
Charge for year

At 31 December 2017

Net book value
At 31 December 2017

At 31 December 2016

At 1 January 2016

Franchise Brands plc Annual Report and Accounts 2017

2017
£’000

(112)
2,194
(345)

1,737

2016
£’000

524
455
–

979

Number

69,553,746
741,726

40,837,885
147,654

70,295,472

40,985,539

Pence

(0.16)
(0.16)
2.50

2.47

Pence

1.28
1.28
2.40

2.38

Brands,
trade marks
& other
intangibles
£’000

1,856
763

2,619
4,685

7,304

(1,781)
(10)

(1,791)
–

(1,791)

Goodwill
£’000

1,185
129

1,314
18,174

19,488

–
–

–

Customer
relations
£’000

Software
£’000

Total
£’000

–
–

–
2,159

2,159

–
–

–
(156)

(156)

–
–

–
21

–
–

–

3,041
892

3,933
25,039

28,972

(1,781)
(10)

(1,791)
(156)

(1,947)

19,488

5,513

2,003

27,025

1,314

1,185

828

–

2,142

1,260

Financial statements

On 11 April the Group acquired 100% of the share capital of Metro Rod. Full details of this transaction are contained within note 22.
This transaction resulted in the creation of £25.0m of new intangible assets.

Metro Rod
ChipsAway
MyHome
Barking Mad

Goodwill
£’000

18,174
1,171
14
129

19,488

Indefinite life
intangibles
£’000

4,685
–
–
763

5,448

2017
£’000

22,859
1,171
14
892

24,936

Goodwill
£’000

Indefinite life
intangibles
£’000

–
1,171
14
129

1,314

–
–
–
763

763

2016
£’000

–
1,171
14
892

2,077

The key assumptions for the value in use calculations are those regarding the discount rates and expected changes to operating results and cash flows
during the period of five years from the statement of position dates. Management estimate discount rates using pre-tax rates that reflect current
market assessments of the time value of money and the risks in relation to the Cash Generating Unit (“CGU”). In the current year a rate of 9.3% was
used. The Directors believe that the risk profiles of the divisions are broadly similar given their similar operational and geographic natures. Changes in
operating results and cash flows including the sales of franchises and the level of sales of the franchisees, are based on past results and expectations
of future performance. The Group prepares cash flow forecasts for the next two to five years derived from the most recent budgets and long-term
business plans which have been approved by the Board of Directors. The key assumptions used for estimating cash flow projections are those relating
to revenue growth and operating margin. No increase in growth has been assumed when extrapolating cash flow projections beyond the five-year
period used in the long-term business plans. Based on the calculations prepared the recoverable amount for all CGUs exceed their carrying amount.

The recoverable amounts are not considered to be sensitive to reasonably possible changes in the discount rate. The recoverable amounts for
ChipsAway and Barking Mad are not considered to be sensitive to reasonably possible changes in the growth rates. The recoverable amount for
Metro Rod is more sensitive to movements in the growth assumptions within the forecasts, but the Directors do not believe that there is currently
a reasonably possible change of key assumptions that would cause the units carrying amount to exceed its recoverable amount.

In the previous year the Group used different categorisation for the intangibles. The Franchise Network Asset identified in the previous year is now
seen as being akin to the Brands due to similar economic characteristics. Following the acquisition of Metro Rod the Directors have realigned the
categorisations of the balances to better reflect the ongoing nature of the balances.

12 Property, plant and equipment

Cost
At 1 January 2016
Additions on acquisition
Additions

At 31 December 2016

Additions on acquisition
Additions
Disposals

At 31 December 2017

Amortisation
At 1 January 2016
Additions on acquisition
Charge for year

At 31 December 2016

Additions on acquisition
Charge for year
Disposals

At 31 December 2017

Net book value
At 31 December 2017

At 31 December 2016

At 1 January 2016

Leasehold
improvements
£’000

Fixtures and
fittings
£’000

Computer
equipment
£’000

Motor
vehicles
£’000

Plant and
equipment
£’000

111
–
–

111

–
11
–

122

(86)
–
(7)

(93)

–
(7)
–

75
35
–

110

15
4
–

129

(68)
(21)
(7)

(96)

–
(13)
–

(100)

(109)

85
57
6

148

33
31
(2)

210

(80)
(55)
(6)

(141)

–
(20)
3

(158)

238
–
4

242

–
40
(130)

152

(122)
–
(45)

(167)

–
(46)
115

(98)

116

20
4
–

5
12
(9)

(10)
(3)
(4)

(17)

–
(10)
9

(18)

Total
£’000

529
96
10

635

53
98
(141)

645

(366)
(79)
(69)

(514)

–
(96)
127

(483)

162

121

163

Franchise Brands plc Annual Report and Accounts 2017

Financial statements
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
continued
For year ended 31 December 2017

12 Property, plant and equipment continued
The Group acquired two vans under hire purchase agreements in the year at a cost of £38,794. The net book value of assets held under hire
purchase agreements under Group property, plant and equipment include an amount of £51,941 (2016: £35,821). The related depreciation charge
on these assets for the year was £38,595 (2016: £27,410).

The Company has no fixed assets at 31 December 2017 or 31 December 2016.

13 Inventories

Group

Finished goods and goods for resale

2017
£’000

252

2016
£’000

193

All amounts are carried at cost and therefore no amounts are carried at fair value less cost to sell.

There are no material stock provisions at either period end. No material amounts have been written-off in either year ended 31 December 2017 or
31 December 2016 within the income statement of the Company. A fair value adjustment of £104,000 was made to the acquisition balance sheet of
Metro Rod upon acquisition, as disclosed in note 22.

14 Trade and other receivables, due in more than one year

Group

Total trade and other receivables, due in more than one year

15 Trade and other receivables

Group

Trade receivables
Provision in the year
Other receivables

Total financial assets other than cash and cash equivalents
Prepayments

Total current trade and other receivables

Bad debt provision:
Brought forward
Additions on acquisition
Provision for the year (£316,000 relates to Carillion)
Utilised

Carried forward

The ageing of the trade receivables is as follows:
Due
Past due
0-30 days
31-60 days
61-90 days
91-120 days
Past due and impaired
Due
0-30 days
31-60 days
61-90 days
91-120 days
121+ days

Total

Franchise Brands plc Annual Report and Accounts 2017

2017
£’000

–

2017
£’000

7,693
(646)
2,366

9,413
257

9,670

2017
£’000

(204)
(231)
(415)
204

(646)

2017
£’000

2016
£’000

112

2016
£’000

358
(204)
16

170
137

307

2016
£’000

(177)
–
(57)
30

(204)

2016
£’000

5,494

138

760
449
317
27

189
3
75
50
93
236

7,693

16
–
–
–

204
–
–
–
–
–

358

Company

Amounts owed by Group undertakings
Other debtors
Prepayments
Social security and other taxes

Total current trade and other receivables

16 Cash and cash equivalents

Group

Cash at bank and in hand

Company

Cash at bank and in hand

17 Trade and other payables

Group

Current
Trade payables
Accruals
Other creditors
Social security and other taxes

Total trade and other payables

Company

Trade payables
Accruals

Total trade and other payables

Financial statements

2017
£’000

2,940
10
67
195

3,212

2016
£’000

2,803
20
–
–

2,823

2017
£’000

2016
£’000

3,245

2,999

2017
£’000

232

2016
£’000

750

2017
£’000

2016
£’000

3,485
3,006
271
370

7,132

21
170

191

296
268
354
160

1,078

1
–

Carrying values approximate to fair value. Included within other creditors is an amount of £20,000 (2016 : £11,000 deficit included in debtors)
which represents the net payable in relation to the National advertising funds.

18 Loans and borrowings

Group and Company

Current
Other loans

Non-current
Other loans

2017
£’000

2016
£’000

4,164

167

5,255

250

The loans are comprised of a £5,919,084 term loan, which carries a 2.72% interest rate and is repayable in instalments until 2022; and £3,500,000
revolving credit facility, due on the 8 March 2018, and carries a 2.72% interest rate.

Franchise Brands plc Annual Report and Accounts 2017

Financial statements
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
continued
For year ended 31 December 2017

19 Obligations for finance leases ageing

Group

Current
Non-current (between 1 and 5 years)

Total obligation for finance lease

Finance leases are secured on the assets to which they relate.

20 Deferred tax liability
Group
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 17% (2017: 17%).

2017
£’000

21
65

2016
£’000

29
73

102

Cost
At 1 January 2016
Charge in the year
Acquisition of subsidiaries

At 31 December 2016
Credit in the year
Acquisition of subsidiaries

At 31 December 2017

Tax losses
and credits
£’000

Intangibles
£’000

Accelerated
capital
allowances
£’000

–
–
–

–

(14)
–
(118)

(132)
27
(1,164)

(1,269)

(17)
(14)
–

(31)
–
774

743

Other
£’000

–
–
–

–

Total
£’000

(31)
(14)
(118)

(163)
27
(390)

(526)

The deferred tax asset acquired relates to the capital allowances pool within Metro Rod, against which a deferred tax liability is netted against,
recognised in relation to intangible assets recognised on the acquisition (see note 22).

21 Subsidiaries
The fixed asset investments held by the Company are as follows:

Cost
At 1 January 2016
Additions in year
Share based payment

At 31 December 2016
Additions in year

At 31 December 2017

£’000

–
958
14

972
29,125

30,097

The subsidiaries of the Company, all of which are 100% owned, which have been included in the consolidated financial statements, are as follows:

Name

Principal activity

FB Holdings Limited
Metro Rod Limited
ChipsAway International Limited
Edwin Investments Limited
Oven Clean Domestic Limited
MyHome Marketing Limited
Oven Clean (Ontario) Limited
Barking Mad Limited
Alloy Rescue Limited
DentsAway Limited
Oven Clean Limited

Intermediate Holding Company
Operation and Management of a Franchise Business
Operation and Management of a Franchise Business
Intermediate Holding Company
Operation and Management of a Franchise Business
Operation and Management of a Franchise Business
Operation and Management of a Franchise Business
Operation and Management of a Franchise Business
Operation and Management of a Franchise Business
Dormant
Dormant

2017
%

100
100
100
100
100
100
100
100
100
100
100

2016
%

100
–
100
100
100
100
100
100
100
100
100

The Company acquired Metro Rod on 11 April 2017 (note 22). Metro Rod previously had a financial year end of 30 April. This has been changed to
31 December to fall in line with the Group. The principal country and place of business of all the above companies is England and Wales. The
registered office and principal place of business is 5 Edwin Avenue, Hoo Farm Industrial Estate, Kidderminster, Worcestershire, DY11 7RA.

Franchise Brands plc Annual Report and Accounts 2017

Financial statements

22 Business combinations
Acquisition of Metro Rod Limited
On 11 April 2017, the Group acquired 100% of the voting equity interests of Metro Rod, a company whose principal activity is that of a franchisor of
drain care and environmental services. The acquisition was made as part of Group’s stated strategy to expand its group of franchise businesses.

Details of the fair value of the identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:

Book value
£’000

Adjustments
£’000

Fair value
£’000

Intangible assets
Property, plant and equipment
Deferred tax asset
Current tax asset
Inventories
Trade and other receivables
Cash
Trade and other payables
Deferred tax liability

Total

Consideration paid in cash
Goodwill

Intangible asset adjustments comprise:

Write off goodwill from previous acquisition (subsumed in Group goodwill)
Write off software costs
Recognise brand
Recognise customer relationships

429
53
774
4
145
9,009
469
(4,523)
–

6,360

6,415
–
–
(4)
(104)
(805)
–
–
(1,164)

4,338

6,844
53
774
–
41
8,204
469
(4,523)
(1,164)

10,698

28,872
18,174

£’000

(121)
(308)
4,685
2,159

6,415

An adjustment has been made to write off £805,000 of trade and other receivables which management did not believe to be supported at the
acquisition date. £494,000 related to support payments to franchisees for capital expenditure, which were previously recognised as receivables
and written off as a deduction from revenue over seven years. The remaining amount related to trade debtors which management believed should
have been provided for. A further adjustment of £104,000 was made to inventories to provide for obsolete stock.

The deferred tax liability has been calculated on the value of the intangible assets acquired at a corporation tax rate of 17% and a corresponding
amount has been recognised as goodwill. The amount recognised as goodwill will not be deductible for tax purposes.

Customer relationships have a useful economic life of ten years, whereas the brand and goodwill both have indefinite lives. Goodwill represents the
value of the business that does not qualify for separate recognition. The goodwill recognised includes certain intangible assets that cannot be
separately identified and measured due to their nature. This includes control over the acquired business, and the scale and the future growth
opportunities that it provides to the Group’s operations.

The fair value of consideration paid and net cash paid comprised:

Cash
Payment of vendor liabilities (warranty insurance, accounting)

Fair value of consideration paid
Less: cash acquired on acquisition

Net cash paid

£’000

28,701
171

28,872
(469)

28,403

Acquisition costs relating to this transaction amounted to £1,140,000 and have been disclosed within the statement of comprehensive income in
the Group, of which £253,000 have been included within investments in the Company.

Since the acquisition date, Metro Rod has contributed £18.5m to Group revenue and £855,000 to adjusted Group profit before tax. If the acquisition
had occurred on 1 January 2017, Group revenue would have been £30.3m, Group profit before tax would have been £0.7m and adjusted Group profit
before tax would have been £2.4m.

Franchise Brands plc Annual Report and Accounts 2017

Financial statements
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
continued
For year ended 31 December 2017

22 Business combinations continued
Acquisition of Barking Mad Limited.
On 31 October 2016, the Group acquired 100% of the voting equity instruments of Barking Mad, a Company whose principal activity is that of a
management and operation of a franchise business. This acquisition was made as part of Franchise Brands’ stated acquisition plan to expand its
group of franchise businesses. The Group anticipated the close relationship between the franchised businesses will be mutually beneficial
including shared resources in franchise sales, marketing and accounting.

Details of the fair value of the identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:

Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Cash
Trade and other payables
Current tax liability
Deferred tax liability

Total

Consideration
Goodwill

Book value
£’000

Adjustments
£’000

Fair value
£’000

–
14
8
27
167
(34)
(42)
(3)

137

763
–
–
–
–
–
–
(129)

634

763
14
8
27
167
(34)
(42)
(132)

771

900
129

The fair values reflect the recognition of the intangibles being acquired. Based upon analysis of all of the relevant factors, the Board have
concluded that there is no foreseeable limit to the period over which the asset is expected to generate net cash flows for the entity and accordingly
the brand was determined to have an indefinite life.

Deferred tax has been calculated on the value of the intangibles acquired at a corporation tax rate of 17% and a corresponding amount recognised
as goodwill. The amount recognised as goodwill will not be deductible for tax purposes.

The fair value of consideration paid and net cash paid comprised:

Cash
Shares 761,193 at 52.55 pence per share

Fair value of consideration paid
Less: cash acquired on acquisition

Net cash paid

£’000

500
400

900
(167)

733

Acquisition costs relating to this transaction amounted to £58,000 and have been disclosed within the statement of comprehensive income.

On acquisition shares to the value of £400,000 were issued as part of the consideration. The number of shares issued was based on the volume
weighted average price for a share in Franchise Brands plc for the period of five days preceding completion of this transaction and resulted in a
total of 761,193 new shares being issued by the Company.

During the course of 2016, Barking Mad contributed £74,000 to Group revenues and a loss of £12,000 to Group profit before tax. If the acquisition
had occurred on 1 January 2016, Group revenue would have increased by £568,000 and Group profit before tax for the period would have increased
by £151,000.

23 Share capital

Allotted, called up and fully paid

At 1 January
On incorporation
On admission to AIM
Acquisition consideration shares for Barking Mad
Shares issued in exchange for entire issued share capital of FB Holdings Limited
Placing in relation to acquisition of Metro Rod
At 31 December

Share capital comprises the nominal value of the Company’s Ordinary shares of 0.5 pence each.

Franchise Brands plc Annual Report and Accounts 2017

2017
No. of shares

2016
No. of shares

47,881,286
–
–
–
–
29,850,746
77,732,032

–
12,171,344
10,606,061
761,193
24,342,688
–
47,881,286

Financial statements

24 Other Reserves
Share premium
The share premium reserve is the premium paid on the Company’s 0.5 pence Ordinary shares.

Share-based payment reserve
The share-based payment reserve represents the movement in cost of equity-settled transactions in relation to the long-term incentive plan.

Merger reserve
The merger reserve represents the premium above the nominal value of the equity issued to the owners of Barking Mad in relation to its acquisition
by the Company on 31 October 2017.

Movements on these reserves are set out in the consolidated statement of changes in equity.

25 Operating leases
The Group leases its office premises and holds contract hire agreements on vehicles. The total value of minimum lease payments due until the end
of the lease is payable as follows:

Less than one year
More than one year but not less than five years
More than five years

The Group maintains a number of leased properties over varying terms. The Company has no operating leases.

26 Related party transactions
The following are payments to entities controlled by Directors of the Company.

Mark Peters (Miserden Ltd)
Julia Choudhury (Winsham Capital Partners Limited)
Julia Choudhury (Winsham Capital Partners Limited)
Robin Auld (Auld Associates Limited)
Robin Auld (Auld Associates Limited)
Nigel Wray (Brendon Street Investments Limited)

Related party transactions

Company Secretary Fee
Director’s Fee
Consultancy Service
Director’s Fee
Consultancy Service
Director’s Fee

2017
£’000

302
871
56

1,229

2016
£’000

74
240
173

487

2017
£’000

2016
£’000

10
–
50
–
–
17

10
5
35
5
25
10

From 5 August 2016 Julia Choudhury and Robin Auld were remunerated directly through the payroll and their remuneration is contained within the
figures in note 6.

During the previous year, the Group had the following transactions and balances relating to shareholder loans with Solent Capital Partners Limited
(a Company controlled by Stephen Hemsley) and Glengrace Limited (a Company controlled by Nigel Wray). Loans of £250,000 were granted by
both Solent Capital Partners Limited and Glengrace Limited on 1 August 2016. Loan repayments £42,000 were made to each company and interest
paid on shareholder’s loans amounted to £6,000 in total. These loans were repaid in full following the entry of the Company into the facilities
agreement with HSBC in the year.

27 Dividends

Final 2016 dividend of 0.17p per Ordinary share paid and declared (2015: nil)
Interim dividend of 0.17p per Ordinary share paid and declared (2016: nil)

2017
£’000

81
132

213

2016
£’000

–
–

–

A final dividend of 0.33p per share is proposed.

28 Post balance sheet event
On 15 January 2018 a customer of Metro Rod, Carillion plc, went into liquidation. The Directors determined that this was an adjustable post-balance
sheet event and accordingly made a bad-debt provision for the amounts owing at the balance sheet date of £316,000 (please see note 5).

Franchise Brands plc Annual Report and Accounts 2017

Auditor to the Company
BDO LLP
3 Hardman Street
Manchester
M3 3AT

Legal Advisers to the Company
Gateley Plc
One Eleven
Edmund Street
Birmingham
B3 2HJ

Financial Public Relations Advisers to the
Company
MHP
6 Agar Street
London
WC2N 4HN

Registrars
SLC Registrars
Thames House
Portsmouth Road
Esher
Surrey
KT10 9AD

Financial statements
COMPANY INFORMATION

Country of incorporation of parent company
United Kingdom

Legal form
Public limited company

Executive Chairman
Chief Financial Officer
Managing Director,
ChipsAway and Ovenclean
Managing Director, Metro Rod
Corporate Development Director
Chief Information Officer
Non-executive Director
Non-executive Director
Non-executive Director

Directors
Stephen Glen Hemsley
John Christopher (“Chris”) Stewart Dent
Timothy (“Tim“) John Harris

Peter John Molloy
Julia Rosalind Choudhury
Colin David Rees
Nigel William Wray
David John Poutney
Robin (“Rob“) Christian Bellhouse

all of:

5 Edwin Avenue
Hoo Farm Industrial Estate
Kidderminster
Worcestershire
DY11 7RA

Company Secretary
Mark Andrew Peters

Registered Office and Principal Place of Business
5 Edwin Avenue
Hoo Farm Industrial Estate
Kidderminster
Worcestershire
DY11 7RA

Nominated Adviser & Joint Broker
Allenby Capital Limited
5 St. Helen’s Place
London
EC3A 6AB

Joint Broker
Dowgate Capital Stockbrokers Limited
Talisman House
Jubilee Walk
Three Bridges
Crawley
West Sussex
RH10 1LQ

Franchise Brands plc Annual Report and Accounts 2017

NOTES

Financial statements

Franchise Brands plc Annual Report and Accounts 2017

72 Financial statements

NOTES

Franchise Brands plc Annual Report and Accounts 2017

www.franchisebrands.co.uk

Franchise Brands plc

Franchise Brands plc
5 Edwin Avenue
Hoo Farm Industrial Estate
Kidderminster
DY11 7RA