Franchise Brands Annual Report 2018

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FY2018 Annual Report · Franchise Brands

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Franchise Brands plc
Annual Report
& Accounts 2018

FOCUSED ON

WHAT MAKES
A DIFFERENCE

MARKET-LEADING
FRANCHISE BUSINESSES

At Franchise Brands we are
FOCUSED ON developing
established franchise
businesses into market leaders.

We give our franchisees the
support and tools they need
to grow their business.

www.franchisebrands.co.uk

Front cover images:

Top: Jamie Harrison, engineer at Metro Rod Mid Lancs
Bottom: Sandip Kalkat, ChipsAway franchisee for Walsall
Photographer: Ben Wood - Island Images

Strategic Report

Highlights

At a glance

The franchising industry

Chairman’s statement

Our strategy and business model

Strategy in action

Meet the Metro Rod
Managing Director

Brand reviews

Financial review

2018 Group achievements

Key performance indicators

Principal risks and uncertainties

Governance

Board of Directors

Senior management

Chairman’s introduction
to governance

Corporate governance

Directors’ remuneration report

Directors’ report

Directors’ responsibilities statement 43

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

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FINANCIAL HIGHLIGHTS

Revenue

£35.5m +43%

2018
2017
2016

Adjusted EBITDA*

£3.7m +37%

2018
2017
2016

Profit/(loss) before tax

£2.9m

2018
2017
2016

Adjusted earnings per share*

3.0p +21%

2018
2017
2016

Dividend per share

0.67p +34%

£35.5m
£24.9m
£4.9m

2018
2017
2016

(Net debt)/Cash

£(5.0)m -21%

£3.7m
£2.7m
£1.4m

2018
2017
2016

0.67p
0.50p
0.17p

£(5.0)m
£(6.3)m
£2.5m

OPERATIONAL HIGHLIGHTS

• Metro Rod's Vision 2023 strategy
greeted with real engagement
from the franchise network.
• Double-digit like-for-like sales
growth for half the Metro Rod
network.

• Development of new business
systems is progressing well.
• Metro Plumb grew rapidly with

system sales up 27%.

• ChipsAway continues to improve

the quality of income.

£2.9m
£(0.1)m
£0.8m

3.00p
2.47p
2.40p

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

Franchise Brands plc Annual Report and Accounts 2018

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.

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 principal brands;
Metro Rod, ChipsAway, Ovenclean and Barking Mad.

Portfolio split by EBITDA
(excluding central costs)

Metro Rod
ChipsAway
Ovenclean
Barking Mad

51%
39%
6%
4%

To read more about each of
our brands see pages 16-23

Founded in 1983, Metro Rod is a leading provider of
drain clearance and maintenance services to the
commercial market. These services are provided by
40 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.

We serve 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.

Number of drainage franchisees

Years of operation

Franchise Brands plc Annual Report and Accounts 2018

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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 201 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 fixed workshop facilities.

Number of UK franchisees

201

Years of operation

“Franchise Brands has recently
celebrated its ten-year
anniversary and the vision,
business model and core
principles we established in
2008 have underpinned the
tremendous growth in
the business.”

Stephen Hemsley
Executive Chairman

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 80 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

106

Years of operation

THE FRANCHISING INDUSTRY

Franchising industry turnover (£bn)
Franchising industry turnover (£bn)

The market for franchising
in the UK is significant.
In 2018 it contributed in
excess of £17bn to the
UK economy according
to the most recent
bfa/NatWest survey.

17.2

15.1

11.8

8.9

9.1

4.7

5.3

0.9

1984

1989

1994

1999

2004

2009

2015

2018

* Rolling for past 3 data points used in 2016 and 2018

OVERVIEW

Turnover generated

£17.2bn

(2015: £15.1bn)

People employed in franchising

Franchised units in the UK

710,000

(2015: 621,000)

48,600

(2015: 44,200)

Franchising has been a great success
story over the past 35 years. In 1984,
when the size of the industry was first
measured by the bfa/NatWest, the
franchising industry was only £1bn in
size and a relatively small number of
sectors (such as automotive, food
and hotels) had embraced
franchising as a means to expand
their businesses.

services. It's sometimes the case
that customers are unaware that
franchising is the means of delivery
of their holiday, property sale,
business accountancy service,
children’s after-school activity,
mobile phone, gym experience,
babies’ swimming lesson,
domiciliary care or car rental to
name a few.

Fast forward to 2018, and franchising
is now a thriving industry with
franchised businesses in a large
variety of sectors, including
household services, business and
commercial services, retailing,
fitness, transportation and vehicle
services, children’s services and pet

The impact franchising has had on
certain sectors, in particular quick-
service restaurants, is well
documented. A number of leading
food and coffee shop brands such
as: McDonalds, Subway, KFC,
Domino’s, Starbucks and Costa
Coffee are among the very largest
franchise brands in the market.

The bfa/NatWest 2018 survey also
pointed to a number of additional
metrics which demonstrate the
successful evolution of franchising,
in particular:

• There has been a significant

increase in the estimated number
of people working in franchising
over the past ten years, with
710,000 now employed in the
sector compared to only 467,000
in 2008.

• There are an estimated 48,600
franchised units in the UK –
the highest number on record –
with the number of franchisees
estimated to be around 20,000.
• There are 935 franchise systems,
a nearly four-fold increase since
1988.

“Franchising has been a tremendous
success story over the past 35 years. In the
UK, there are 935 franchise systems with
around 20,000 franchisees employing over
700,000 people.”

Julia Choudhury
Corporate Development Director

Franchise Brands plc Annual Report and Accounts 2018

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One of the factors underpinning
the success of franchising is that the
failure rate for a franchise business
remains very low. According to the
2018 bfa/NatWest survey, fewer than
1% per year of all franchise businesses
closed due to commercial failure in
the first five years.

The high success rate for franchises
across the industry is a result of the
number of well-established brands,
proven business models and the
wide range of support provided by
the franchisors. In addition, the 2018
survey pointed to record levels of

profitability with 93% of franchisees
claiming they were profitable.

The 2018 bfa/NatWest survey also
showed an increasing proportion
of franchisees are now managing
sizeable businesses. 40% of
franchisees surveyed had sales
of more than £500,000 and
61% of franchisees surveyed had sales
in excess of £250,000. Three quarters
of all franchisees employ staff and
30% employ six or more staff.

While around 70% of franchisees
are male, the indications are that

around 65% of those employed
within franchise units are female.
Furthermore, more females are
becoming franchisees, with a 20%
increase since the 2015 bfa/NatWest
survey. In addition, more people
under the age 30 are also getting
into franchising with 18% of all
franchisees now under 30.

Finally, the survey also showed that
multi-unit franchising is on the
increase, with 36% of franchisees
now owning more than one unit.
This compared to only 25% in 2013
and 29% in 2015.

SCALE

PROFITABILITY

Franchisees with
multiple units

36%

(2015: 29%)

Turnover of six out of ten
franchised units

£250,000+

Franchisees claiming
profitability in 2018

93%

DEMOGRAPHIC

New franchisees
who are female

Women employed
in franchise businesses

37%

(2015: 17%)

Franchisees
under 30 years old

18%

65%

The proportion of female
franchisees in 2018 is the
highest since the bfa/
NatWest survey began,
with 30% of all franchisees
being female.

Franchise Brands plc Annual Report and Accounts 2018

CHAIRMAN’S STATEMENT

Adjusted EBITDA

£3.7m

(2017: £2.7m)

Total no. of UK franchisees

428

(2017: 438)

Stephen Hemsley
Executive Chairman

Our stated strategy has been to invest in our business
systems, team members and franchisees to ensure that
we can capitalise on the opportunities presented by the
sectors in which we operate and provide a first-class
customer experience. I am therefore pleased to report
that this investment is beginning to deliver tangible
benefits that I expect to become increasingly more visible
in the current year and beyond.

Metro Rod
As set out in my 2017 statement, following many years of
corporate and private equity ownership, Metro Rod
required a new strategy centred on the development of
the franchisees as entrepreneurs and the corresponding
systems that they needed to grow their businesses.
The essence of this was to return the franchisee to the
centre of the business and to help them grow local sales,
reduce their reliance on over-complicated manual
systems and lessen the intervention from Head Office
(now renamed the Support Centre). The strategy
necessitated creating new systems and ways of working
that passed back to the franchisees far greater
responsibility for looking after customers and indeed
their own businesses.

This new strategy was originally presented at a conference
in November 2017, as a five-year growth plan which we
entitled Vision 2023. Implementation of most of the
proposed strategic and operational changes commenced
in January 2018 and I am very pleased to report that they
have been greeted with real engagement from a
re-invigorated franchise community. This is evidenced by
the fact that half the network recorded double-digit
like-for-like sales growth in 2018. This “freeing up” of the
system under Vision 2023 was not without its risks, but our
faith in our franchisees has been well rewarded, with
improvements also being delivered in customer service
and the operational efficiency of the Support Centre.

2018 has been a year
of consolidation and
development following
the April 2017 acquisition
of Metro Rod.

Franchise Brands plc Annual Report and Accounts 2018

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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 and the communities
in which we operate:

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 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 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 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.

Development of these new business systems is
progressing well and several have been rolled out to the
franchisees. Others such as the works management
system (“WMS”) and linked CRM are still under
development. The existing WMS originated from a legacy
system developed by a previous corporate owner. It is
over-complicated and too slow for our current business
volumes. In addition, it neither links with other systems
nor allows us to adequately update our customers on the
status of their jobs. The new WMS, which is being
developed in close co-operation with our franchisees, is
on trial in our directly-owned operation in Exeter and we
expect to start rolling it out to a wider group of
franchisees in the second half of 2019. Whilst most of the
technology development activity is currently focused on
Metro Rod, these systems will also have direct applications
in other Group businesses and future acquisitions.

The other key element of Vision 2023 is to grow sales,
which had increased relatively slowly in previous years.
One of the contributing factors was the very low level of
awareness of the Metro Rod brand and the focus on a
limited number of national accounts which were won by a
central sales team. We launched the National Advertising
Fund (“NAF”) in January 2018 with the objective of
growing brand awareness and promoting local sales and
marketing activity. This has allowed the creation of a
dedicated marketing team. We have also put in place an
initiative to encourage franchisees to employ their own
direct sales force and are now supporting this with
dedicated central resource.

The transfer of increased responsibility from the Support
Centre to the franchisees, together with the local sales
and marketing initiatives, will increase the franchisees’
cost base whilst allowing the Support Centre to reduce its
headcount and become more efficient. This transfer of
responsibility and cost can only be equitably achieved if
we progressively reduce the Management Service Fee
(“MSF”) charged to franchisees. Therefore, a sales-based
incentive scheme was launched which, together with
allowable expenses, has resulted in the average MSF
reducing to 18.6% in 2018, compared with the contracted
rate of 22.5%. It is our ultimate aim to gradually reduce the
MSF to 15%. As well as being a fair level in a rebalanced
business, a 15% MSF will have the additional advantage of
significantly improving our competitiveness. Whilst this
MSF reduction will erode our percentage margin, our
overall cash profitability will increase as sales increase and
our cost percentage declines and eventually becomes
semi-fixed in cash terms.

The drainage market, which we estimate to be
approximately £1bn in size, is extremely fragmented
with 1,500-1,800 providers, most of which are local firms.
This presents a clear consolidation opportunity for
Metro Rod, with a strong brand and best-in-class IT
systems. Strategic acquisitions that can assist in
expanding the scope of services that we can offer will
also assist us in growing market share from our current
modest level of 4%.

Franchise Brands plc Annual Report and Accounts 2018

CHAIRMAN'S STATEMENT
continued

Kemac & Metro Plumb
In contrast to 2017, Kemac had an excellent year in 2018
as a result of a number of large one-off jobs. As it will be
difficult to anticipate such work recurring, we have taken
the opportunity to place the business onto a more
sustainable and predictable footing to assist in the
development of Metro Plumb. Kemac was responsible
for generating the interest that led to the launch of our
first stand-alone Metro Plumb franchise, when two of its
employed plumbers became franchisees of the London
South-East territory. We are hopeful that this will be the
first of many independent Metro Plumb franchises in
the future.

Metro Plumb has continued to grow rapidly with sales
27% up on 2017. We continue to seek new ways to
diversify the customer base and expand the range of
services offered. However, as most of the Metro Plumb
franchisees are also Metro Rod franchisees – and we
have been very demanding of them in 2018 – the limited
number of initiatives to grow Metro Plumb have not yet
won the full attention of the franchise community.
As more Metro Plumb franchise territories are sold to
independent franchisees, we expect Metro Plumb to
gain additional traction.

The drainage market presents a
clear consolidation opportunity for
Metro Rod, with a strong brand and
best-in-class IT systems.

Franchise Brands plc Annual Report and Accounts 2018

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ChipsAway, Ovenclean & Barking Mad
Franchisee recruitment at ChipsAway, Ovenclean and
Barking Mad was disappointing in 2018, with 57 territories
sold (2017: 80) across the three brands. We believe that this
level of recruitment might have been the result of the high
levels of employment in the UK, the absence of
redundancies and uncertainty over Brexit. Encouragingly,
some of this shortfall was made up through existing
franchisees buying additional territories to expand their
businesses, which demonstrates their confidence in the
brands.

ChipsAway is in a transition from a van-based operation
undertaking SMART repairs where the franchisees pay a
fixed monthly fee, to Car Care Centres which undertake
larger repairs and where the franchisees pay a turnover-
related MSF of 10%. As a result of this transition and the
relative decline in recruitment income, MSF income now
represents 62% of ChipsAway income (2017: 57%) and
30% of MSF income is turnover related rather than a fixed
monthly fee. This represents a significant improvement in
the quality of our income. To encourage franchisees to
invest in Car Care Centres (of which we already have 33)
and the specialist equipment needed to deal with driver-
assist technology and electric vehicles, we will shortly be
opening a new model facility in Kidderminster. This will
give us the ability to test the effectiveness of new
equipment and to train our franchisees in its use.

Ovenclean franchisees continue to trade well in a business
that is predominantly based on one man in one van,
servicing a “milk-round” of customers on a six-monthly
cycle. Franchisees pay us a fixed monthly fee that
increases with both inflation and the length of time they
have been in the system, approximating to 10% of their
turnover.

Barking Mad, which was acquired in 2016 and continues to
be run semi-autonomously by its founder, has benefited
from the adoption of some Group systems and practices,
particularly in the areas of IT and finance. Income is
generated from a 10% MSF on system sales, which grew by
6%, and mitigated the disappointing franchisee
recruitment income noted above.

Outlook
2018 has been a period of significant change for the team
at Franchise Brands as we have integrated Metro Rod and
further developed our shared support services of IT,
finance, marketing and franchisee recruitment. I want to
thank all of our team for their unfailing enthusiasm and
dedication. I would also like to recognise the hard work and
commitment of all our franchisees who are the backbone
of our business.

2019 has started encouragingly, with a good trading
performance across the networks in the first two months
of the year and order intake at Metro Rod ahead of 2018.
The level of franchise enquiries at ChipsAway, Ovenclean
and Barking Mad is also significantly ahead of last year.
We therefore look forward to the year ahead with
confidence.

With the integration of Metro Rod now complete we can
begin to turn our attention to acquisition opportunities.
We will consider the selective acquisition of reasonably
valued and earnings enhancing franchise businesses that
can leverage our core functions and complementary
drainage and plumbing businesses which expand our
scope of works.

Conclusion
2018 has been a year of significant evolution and progress
for Franchise Brands. We have a high-quality portfolio of
businesses with significant potential, as well as a first-class
entrepreneurial team that can successfully take on still
more challenges and is highly committed, with the Board
and senior management team owning 68.3% of the equity.
I look forward with optimism to our continued progress in
the next phase of our development to become a
substantial force in franchising.

Stephen Hemsley
Executive Chairman

12 March 2019

Franchise Brands plc Annual Report and Accounts 2018

OUR STRATEGY AND BUSINESS MODEL

Our strategy is to
develop established
franchise businesses
into market leaders.

FOCUSED ON

GROWTH

Our focus is on established brands which can
benefit from our shared support services as
well as our management expertise, experience,
and group resources.

The execution of this strategy is achieved through a
combination of organic growth and growth through
acquisition. We will consider the acquisition of B2B
and B2C franchise businesses of scale, where we
believe our management and financial resources can
significantly enhance an already profitable business.
We will also consider the acquisition of complementary
businesses where these expand our scope of works at
the individual brand level.

SHARED SUPPORT SERVICES
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.
Our principal shared support services are: technology,
marketing, finance and franchise recruitment.
In 2018 we strengthened these capabilities,
in particular, technology.

F R A NCHISEES

O R O D

CHIPS

S
N
O
I
T
I
S
I
U
Q
C
A

E
R
U

SHARED
SUPPORT SERVICES
TECHNOLOGY

MARKETING

FINANCE

FRANCHISE
RECRUITMENT

O
V
E
N
C
L
E
A
N

O PLUMB

G M

B A R K I N

FRANCHI S E E S

Franchise Brands plc Annual Report and Accounts 2018

Strategic priority
System sales is our primary growth driver.
A key part of our strategy is to help our
franchisees grow their businesses through
increasing sales in their local territories.
If they grow, we grow.

Progress in 2018
• Appointment of Metro Rod Sales and

Marketing Director.

• Establishment of NAF, appointment of

new marketing team and implementation
of new marketing strategy at Metro Rod.
• Roll-out of field-based marketing training

for Metro Rod franchisees.

• Launch of sales-based incentive scheme
for Metro Rod franchisees to encourage
and reward growth.

• Establishment of new sales support team

for Metro Rod franchisees.

• Generation of record numbers of consumer

leads for ChipsAway and Ovenclean franchisees.

• Launch of new, better optimised, Barking Mad
website focused on the customer journey and
driving leads.

Focus for 2019
•

Implementation of sales recruitment, sales
training and sales management support for
Metro Rod franchisees.

• Launch of new Metro Rod website to improve

commercial customer acquisition.

• Support ChipsAway franchisees to develop
expanded operations including Car Care
Centres.

• Refresh the ChipsAway brand to emphasise

the development of Car Care Centres,
including new website and TV campaign.
• Engage with cleaning sector social media

“influencers” to increase Ovenclean
brand awareness.

• Launch PR campaigns to benefit all brands.

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FOCUSED ON

DEVELOPMENT

SUPPORT

Strategic priority
As franchisor we play an important role in
developing, testing and piloting new ideas,
strategies, systems and technologies so that our
franchisees may benefit from these in the future.

Strategic priority
Our shared support services allow the
management of our individual brands to help
their franchisees to grow their businesses.

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Progress in 2018
• Development of ITOL-accredited Metro Rod
apprenticeship scheme to develop new
engineering talent.

• Roll-out of ITOL-accredited training programme

to "train the trainer" in franchisee's depots.

• Development of ChipsAway Car Care Centre to
introduce franchsees to the latest technology.
• Establishment of company-owned Metro Rod

franchise in Exeter which trialled the new
quotations system and WMS.

• Recruitment of first independent Metro Plumb

franchisee.

• Roll-out of hybrid and electric vehicle training

to ChipsAway franchisees.

• Assisted Barking Mad franchisees in securing

local authority licences following new
commercial dog boarding regulations.

Progress in 2018
•

Identification of, and commencement of trial,
of new Metro Rod WMS.

• Successful use of robotics to log and monitor
an increasing proportion of Metro Rod jobs.

• Development and launch of Management

Information ("MI") and reporting dashboard,
balanced scorecards and intranet to Metro Rod
franchisees to aid productivity, profitability
and share best practice.
Investment in new Metro Rod telephone
system and technology to improve the
customer call handling experience.

•

• Launch of new finance scheme to assist
Metro Rod franchisees to buy additional
equipment.

• Supported Metro Rod franchisees in the

production and analysis of monthly
management accounts.

Focus for 2019
• Launch new ChipsAway model Car Care Centre

at the Kidderminster Head Office.
• Launch of apprenticeship scheme and

recruitment of first apprentices.

Focus for 2019
• Develop and commence roll-out of new

Metro Rod WMS in 2H 2019.

• Launch new quotations system for all

Metro Rod franchisees in 1H 2019.

• Continue to roll-out the Metro Rod "train the

• Develop and implement new CRM system

trainer" programme.

• Open our first Metro Rod Vision 2023 depot.
• Broaden the scope and capability of drainage
and plumbing services, possibly by acquisitions.

• Complete the licencing of Barking Mad

franchisees and promote this to customers as
a badge of quality and compliance.

at Metro Rod.

• Further automate job acquisition and

monitoring at Metro Rod.

• Update and relaunch franchise recruitment
process for ChipsAway, Ovenclean and
Barking Mad.

• Establish franchise recruitment process

for Metro Rod.

Franchise Brands plc Annual Report and Accounts 2018

STRATEGY IN ACTION

FOCUSED ON

FIRST-CLASS
CUSTOMER EXPERIENCES

Group system sales

£60m

We provide support,
training and development
to our franchisees so they
can deliver a first class
customer experience.

Franchise Brands plc Annual Report and Accounts 2018

Number of Metro Rod jobs
carried out in 2018

174,000

Metro Rod:
Visibility and trust
As a leading provider of drainage
services, our customers expect: a
rapid response, technically competent
engineers and a solution which is
delivered first time, safely and
professionally 365 days a year.

Providing updates to customers
throughout the life-cycle of a job
ensures that our customer experience
is first class. It is vital our customers
have visibility of the work we
complete and trust us to manage
their budget as well as their drainage
assets. Providing digital images or
CCTV surveys of the work we
complete is critical in gaining and
retaining their trust, as most of what
we do is invisible or unseen.

Compliance with customer systems,
processes and policies is also essential,
whether these are health and safety
related such as obtaining a permit to
work, or digitally logging on and off
site.

ChipsAway:
Like it never happened
At ChipsAway, we recognise our
customers want convenient, high-
quality and cost-effective repairs.
Our local specialists provide a free,
no obligation repair estimate upon
inspecting the damage. We always
tailor our service around times and
locations which suit our customers.
Our mobile specialists can complete
repairs at our customer’s home or
office. By performing small and
localised repairs we can provide
high-quality repairs at the fraction of
the cost and time of a garage or body
shop, and we always pride ourselves in
being honest, respectful and easy to
deal with.

Ovenclean:
As good as new
Many of our customers say that their
oven looks “as good as new” after a
visit from Ovenclean. Our no added
caustic system ensures a safe and
hygienic environment and ovens can
be used immediately after we have
cleaned them. Our specialists take
great pride in being personable, clean
and tidy, as well as efficient. At an
average price of £65, an Ovenclean
also represents great value for
money. Many of our customers
request a regular Ovenclean and we
diarise these ahead of time for
additional convenience.

Barking Mad:
Happy Dog, Happy Holiday,
Happy You
Barking Mad gives customers
complete peace of mind when they
are away by delivering a professional,
tailor-made service. Our franchisees
meet customers and their dogs in
person to establish all their needs,
so they can deliver completely
bespoke pet care. Dogs are lovingly
looked after in our carefully chosen
host family homes. For additional
convenience, all dogs are collected
and delivered at the beginning and
end of the dog holiday. Regular
updates are provided to customers
while they are away for a truly
worry-free experience.

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"Our networks of exceptional franchisees take
enormous pride in delivering an outstanding overall
customer service. It is our responsibility to provide
all the support and development they need."

Tim Harris
Managing Director, ChipsAway and Ovenclean

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Market-leading established brands:

102 years

combined trading history

All of our B2C brands
have five star ratings
on Trustpilot and
customers are quick
to recommend us.

All our brands have a
strong web presence.
Customers are easily
able to find our
websites and request
estimates or get
in touch.

ChipsAway

9.5/10

Ovenclean

9.8/10

Barking Mad

9.9/10

Franchise Brands plc Annual Report and Accounts 2018

STRATEGY IN ACTION

FOCUSED ON

OUR INVESTMENT
IN TECHNOLOGY

The dashboard allows franchisees
to drill down into particular
metrics such as engineer
productivity, SLAs, work
completed and job mapping.

MI and reporting
A key system we have rolled out at
Metro Rod is a digital MI and reporting
tool for our franchisees and the
Support Centre. This dashboard,
accessible from any PC or mobile
device, provides our franchisees with
a suite of financial, operational and
productivity metrics. These metrics
can also be compared to other
Metro Rod franchise businesses which
helps with sharing best practice.
The system incorporates Artificial
Intelligence, meaning that in future
we will be able to identify previously
unseen patterns in the data.

% of jobs logged automatically

40%

Total Group IT spend in 2018

£1.5m

Approximately 40% of jobs are now
logged automatically, resulting in jobs
being logged more quickly and
accurately. Engineers, as well as the
right equipment, can be deployed
more rapidly, enhancing our ability to
meet customer Service Level
Agreements (“SLAs”) .

We are also using robotics to monitor
and update the status of jobs in
real time, which, again, is helping us
improve performance on customer
SLAs and customer reporting. We are
currently monitoring our largest
ten customer portals in this way.
Robots also assist our franchisees as
they are notified automatically via
SMS if an engineer fails to log onto
a customer portal when on site.
95% of jobs that are logged via a
portal are now monitored and
tracked using robotics.

Enhancing efficiency and
customer experience
We are digitally-enabling our business
to enhance our customer experience
and help us and our franchisees
become more efficient. As customers
digitise their end-to-end business
processes, it is vital that we develop
systems that can efficiently and
accurately integrate with theirs. As a
key strategic enabler, technology will
reduce the time spent on repetitive
tasks and free up our people to focus
on activities where they can add real
value.

Investment in Metro Rod systems
At Metro Rod, our starting point in
late 2017 was to migrate our systems
onto a cloud-based platform which
has significantly improved reliability
and performance.

In 2018 we rolled out several
technology developments that
generated efficiencies by automating
repetitive, manual tasks. For example,
we are using robotics to log jobs
onto our system from emails.

Franchise Brands plc Annual Report and Accounts 2018

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Quotations system
The latest significant roll-out to our
franchisees is a new system that
allows them to provide a quote to
our customers for any further work
identified during the initial reactive
job. As there is a direct correlation
between the speed of submission
of a quote and the conversion rate,
this should significantly increase
our sales.

Previously, most quotes for further
works were prepared and submitted
by a team in the Support Centre
based on information supplied by
the franchisee. This was an
inefficient, manual process which
took as long as 10 to 12 days. The new
system, launched in early 2019,
allows franchisees to submit the
quote directly to the customer
using professionally-designed,
prepopulated templates. We are
achieving an 80% improvement in
the speed of submission of a quote
and are already seeing the benefit
in conversion rates.

Contact centre solution
and technology
The investment we have made in a
state-of-the-art, cloud-based
telephone system for Metro Rod's
customer contact centre has
resulted in significantly better data
and reporting. The Interactive Voice
Response technology has resulted
in over 30% fewer calls to the
Support Centre as these are now
routed directly to the franchisee.
The customer experience is thereby
improved by allowing them to speak
directly to our franchisees and
receive updates on their jobs.

WMS
The priority for 2019 is the
commencement of the roll-out
of our new WMS for Metro Rod.
Our vision for this system is that it
will allow us to acquire a job, deploy
it to the engineer, process the
invoice and update our customers
in real time, with minimal manual
intervention. We carry out
approximately 4,000 jobs per week,
with an average order value of £200
to £250. Each of these jobs needs
to be individually reported on and
invoiced. The new WMS will help us
keep our customers better updated
on the status of each job and
improve the accuracy of invoicing.

The franchisees will benefit from a
faster, simpler and more intuitive
system that will additionally allow
them to schedule labour more
effectively. In due course they will
also be able to track their engineers
in real time and provide even more
accurate ETAs for customers,
thereby improving our SLA
compliance.

The new system will also provide the
Support Centre with a higher level
of visibility, and hence control, over
franchisee efficiency and available
capacity.

CRM
The CRM that is being rolled out in
early 2019 will be populated with
customer data as well as sales
opportunities. We utilise the concept
of a “hot-spot” map whereby we map
where we are doing work across the
UK and where we are not.
The “not-spots” represent the sales
opportunities and the CRM will
help our franchisees target and
track these. The CRM will be linked to
the WMS once the latter has been
fully rolled out, allowing the seamless
transfer of data on new customers.

Group-wide applications for
technology investment
While our investment in technology
is currently centered on Metro Rod,
the systems and functionality we are
developing have applications across
the Group. Our vision is to have a
standard core operating platform
(to include email, office applications,
support, and key systems such as
finance and telephony), together
with applications such as the WMS,
CRM and performance dashboards,
which can be customised for each
brand. Our core design principle is
simplicity. We want to be easy to
do business with and have systems
that are simple to operate for our
franchisees, engineers and Support
Centre teams.

“We want to be at the very forefront of technology
development and believe it will provide us with
considerable competitive advantage.
The increasing size and scale of Franchise Brands
means that our technology investment is
increasingly spread over a larger business.”

Colin Rees
Chief Information Officer

MEET THE METRO ROD MANAGING DIRECTOR

Peter Molloy
Managing Director
Metro Rod

“I am delighted that
20 franchisees enjoyed
double digit sales
growth in 2018 and
14 franchisees now have
sales in excess of £1m.”

The key to achieving
Vision 2023 is to have
everyone in the business,
from engineers to contact
centre staff, focused on
delivering exceptional
customer service.

Franchise Brands plc Annual Report and Accounts 2018

Franchise Brands plc acquired Metro Rod
in April 2017. How would you describe the
journey so far?

What are the key success factors to
achieving the Vision 2023 strategy?

The pace of change has been phenomenal and the
business is already transformed from two years
ago, with so much more to come. I’ve been with
Metro Rod since 2003 as Commercial Director
before being asked by Franchise Brands to take
over as MD. It was a frustrating time as Metro Rod
was run by previous owners as a drainage, rather
than a franchise business, and the franchisees were
treated as sub-contractors rather than our business
partners. This created friction between the
franchisee and the franchisor and certainly stalled
the growth. All that has completely changed under
Franchise Brands' ownership.

The experience the Franchise Brands leadership
team has in growing franchise businesses has been
instrumental in transforming the relationship we
have with our franchisees. Fundamental to that is if
you treat franchisees as mature, intelligent business
people who are taking responsibility for their
business, and then set out what you expect from
them, they respond positively. My proudest
achievement since I became MD has been the
change in the relationship between the franchisees
and the Support Centre which is far stronger, more
respectful and collaborative than it has ever been.
The result of that has been increased ambition,
investment and sales.

Metro Rod’s Vision 2023
strategy sets out how we
can build a significantly
larger business.

What was the initial reaction of
the franchisees to Vision 2023?

The initial reaction was one of apprehension and
scepticism. They couldn’t see how such an ambitious
goal could be achieved. However, through illustrating
the market size and potential in their own territories
and through our commitment to invest and develop
key areas of the business such as IT, marketing and
sales, the apprehension soon turned to enthusiasm.
We now have a high-powered support package to
give franchisees everything they need to grow
their businesses, including for example, new
training initiatives in marketing, technical, and more
recently sales. Importantly we are sharing the
success with franchisees through a number of
schemes and incentives to encourage and
reward growth.

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Vision 2023 is really ambitious and targets a

business with system sales several multiples of
today’s level. But it's not unrealistic given the
£1bn market size, the small 4% share we have
currently and the very fragmented nature of the
market which lends itself to consolidation. We are
in the unique position of having of 40 depots
nationwide which are close to our customers.
More importantly, Metro Rod is now a nimble,
fast-paced business, not encumbered by tedious
corporate decision-making processes, and this
allows us to react quickly to both market and
customer demands and take advantage of the
sales opportunities.

The key to achieving Vision 2023 is to have everyone
in the business, from engineers to contact centre
staff, focused on delivering exceptional customer
experience. I want all our people to feel part of
the business and valued. We have a real focus on
elevating the status of our engineers, or as we like
to call them "our Heroes". For example, we have
increased and improved the level of training,
we have introduced newly designed uniforms
and, being a 24/7/365 business, we are working
hard to facilitate a better work-life balance.
Equally the Support Centre teams need to feel that
they are part of the journey towards Vision 2023.
I was very pleased to issue share options to the
majority of the staff at the end of 2018 which will
see them rewarded for their efforts in helping us
grow the business.

What factors do you see potentially

impacting progress?

The market opportunity is sizeable and we’ve

certainly got the capability to take advantage of
it. However, a key challenge will be having the right
people, not just in terms of their technical expertise,
but more importantly their culture, so we can
deliver industry-leading customer service. We want
to be the employer of choice and attract and retain
the best people we possibly can. In addition, we
have recently launched an apprenticeship scheme.
We will take unskilled youngsters, and put them
through a two-year accredited programme, after
which they will be fully qualified and have had
some fantastic work, as well as life, experience.

Finally, what are the prospects for
the newer Metro Plumb business?

Metro Plumb is really exciting. It is still a relatively
embryonic business but with huge potential.
One of the priorities for 2019 is to develop the
equivalent Vision 2023 strategy for Metro Plumb.
The market opportunity we have in plumbing is five
times larger than in drainage and we’ve established
the platform to market this business actively and
attract new customers and franchisees.

Franchise Brands plc Annual Report and Accounts 2018

BRAND REVIEWS

Number of drainage engineers

370

Increase in franchisees’
local sales

14%

Leading provider
Metro Rod is a leading provider of drain
clearance and maintenance solutions to
the commercial market. Our full range of
services are provided on a 24/7/365 basis
by 40 franchisees from regional depots
across the UK. We have 370 engineers
who are highly skilled and trained to the
highest industry standards. They use the
latest equipment and technology to
deliver permanent drainage solutions to
our customers.

We serve 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. We are trusted by national brand
names such as AXA, Mitie, Bupa Healthcare
and the National Trust. We work to
exacting service level agreements day and
night and 20% of our work is completed
outside of normal working hours.

Our vision is for Metro Rod to be the
most respected company in the
commercial drainage market. We will
achieve this by always providing our
customers with a safe, honest and
professional service day and night.

System sales

£37.4m

Franchise Brands plc Annual Report and Accounts 2018

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MEET A FRANCHISEE

Graeme and
Avril Stevenson
Metro Rod,
Manchester
South & Central

Business overview
• Metro Rod franchisee

since 1994.

• Sales of £1.8m in 2018,
an increase of 35%
on 2017.

• 19 engineers, nine

dedicated office staff,
20 vans and two tankers.
• Provides high-pressure
water jetting, CCTV
surveys, drain or sewer
lining, excavation, electro
mechanical cleaning, fat
and grease management
and tankering services.

• Serves a wide range
of national and local
customers across
multiple sectors,
including some of
Manchester’s best-
known institutions and
businesses.

Accolades
• Recipients of the highly
coveted Metro Rod
“Franchisee of the year
award” 2018.
• Nick Broadbent,

Metro Rod Manchester
engineer won the
Metro Rod “Engineer of
the Year” award for 2018.

For more information
visit metrorod.co.uk

Customer case study
“We use Metro Rod for planned
maintenance on all our schools across
Liverpool and Knowsley, and they also
complete reactive works once a year on
a large proportion of our Liverpool
schools. We trust Metro Rod to get
the job done quickly and that is why
they receive so much work from us.
The communication is also second to
none, and we know we can count on
Metro Rod to ensure we comply with
the very strict Service Level Agreements
on all our contracts.”

Engie Facilities Management

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 eight vans. The average sales of a
Metro Rod franchisee are approximately
£900,000 with 35% of franchisees now
achieving sales of over £1m, and several
achieving sales of over £1.5m.

Sources of revenue for Franchise Brands
Virtually all the revenue to the Group
derives from MSF income. While the
standard rate of MSF for drainage is 22.5%
of franchisee sales, in practice this amount
is lower as a result of a number of special
incentives and allowable expenses, and in
2018 was 18.6%.

Metro Rod’s highly
skilled and trained
engineers carried out
174,000 jobs in 2018.

Franchise Brands plc Annual Report and Accounts 2018

Number of Car Care Centres

Franchisees with expanded
operations

45%

Franchisee expansion
to Car Care Centres
ChipsAway is the UK’s leading mobile car
paintwork repair specialist focusing on
SMART repairs. We have been operating
successfully for over 20 years and have
201 UK franchisees.

All our repair specialists carry out bumper
scuffs, minor dents, paintwork scratches
and alloy wheel repairs. In addition to
mobile franchisees, we now have
33 Car Care Centres, which are workshops
with additional capacity and more
advanced equipment than mobile units
and can complete larger and more
specialist repairs.

The average Car Care Centre turnover
is £200,000 per annum compared to an
average of £70,000 for a mobile unit after
three years. A further 18 franchisees are
transitioning into a Car Care Centre by
trading from fixed units where the average
turnover is £120,000. In total, 11% of
ChipsAway franchisees expanded their
operations in this way in 2018.

Developing expanded operations
Some 45% of the network have expanded
their businesses to include multiple
vehicles, multiple geographic areas,
Car Care Centres or fixed units.

ChipsAway’s mission is to provide
outstanding customer service
and excellent value for money
to car owners.

Jobs carried out in 2018

75,000

Franchise Brands plc Annual Report and Accounts 2018

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MEET A FRANCHISEE

Ali Hoy
ChipsAway,
Cardiff

• 60% repeat business.
• Team of six including
Ali’s wife and son.

• Four courtesy cars for
customers, providing
extra convenience.

Accolades
• Recipient of the highly
coveted ChipsAway
“Franchisee of the year
award” 2015.

Business overview
• ChipsAway franchisee

since 2010.

• Opened Car Care Centre
five months after joining
the network.
• Sales in excess of

£300,000 for the past
three years.

For more information
visit chipsaway.co.uk

Customer case study
“We truly couldn’t recommend
ChipsAway highly enough!
The repairs to the scratches on our
car were completed to an excellent
standard with no inconvenience
whatsoever. Plus, the cost was so
reasonable. Thank you very much
ChipsAway".

Mrs B
Teeside South

Sources of revenue
for Franchise Brands
Each new franchisee pays an initial fee,
currently £29,995. The franchise agreement
provides for a number of ongoing monthly
fees (fixed and variable), the combined
effect of which results in franchisees
making a monthly payment to the Group
equivalent to 10% of their sales.

ChipsAway continues to grow MSF income
with 30% of the network now paying
turnover related, as opposed to fixed, fees.

Additional revenue is generated from
the sale to franchisees of products used
in the repair process such as paints, lacquer
and consumables.

Our Car Care Centres
have additional capacity
and more advanced
equipment than our
mobile units and can
complete larger and
more specialist repairs.

Franchise Brands plc Annual Report and Accounts 2018

Longest established brand
Ovenclean is the longest established and
leading oven cleaning business in the UK,
and has been successfully operating for
over 20 years.

Trustpilot ranking

9.8/10

Franchisee business model
Ovenclean is a “milk round” business where
the aim is to establish a stable base of
400 to 500 individual customers who
have, on average, two cleans per annum.
The business model provided 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 and
charging the average £65 rate per clean.

Sources of revenue for
Franchise Brands
Each new franchisee pays an initial
franchise fee to Ovenclean, currently
£14,995 and an ongoing monthly licence
fee currently of £195 in the first year,
followed by £335 in the second and
subsequent years and £350 at renewal.

For more information
visit ovenclean.com

Ovenclean’s mission is to save our
customers the time and effort of
cleaning their oven by providing a
professional, bespoke service.

Jobs carried out in 2018

76,000

Franchise Brands plc Annual Report and Accounts 2018

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Professional, tailor-made service
Established in 2000, Barking Mad is a local
dog home-boarding service which gives
customers complete peace of mind when
they are away by delivering a professional,
tailor-made service.

Trustpilot ranking

9.9/10

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”.

The average sales of a Barking Mad
franchisee are £50,000.

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

For more information

visit BarkingMad.uk.com

Franchise Brands plc Annual Report and Accounts 2018

Barking Mad's mission is to be the
UK's most devoted and trusted dog
care provider through our network
of local communities.

For more information

visit ovenclean.com

System sales

£3.8m

FINANCIAL REVIEW

Adjusted earnings per share

3.00p

(2017: 2.47p )

Proposed dividend per share

0.67p

(2017: 0.5p)

Chris Dent
Chief Financial Officer

In 2018 we continued to
feel the transformational
effect of the acquisition
of Metro Rod in April 2017.

The figures for 2018 contain a full year for all our brands,
whereas the comparative figures for 2017 contain
almost nine months of trading of Metro Rod, and a
full year for ChipsAway, Ovenclean and Barking Mad.
The 2017 numbers have also been restated following
accounting changes to revenue recognition as a result
of our adoption of IFRS15, details of which can be
found in the notes to the Financial Statements.

Statutory revenue
Franchisee payments

Fee income
Other cost of sales

Gross profit
GM on Fee income
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 profit/(loss)

2018
£'000

35,470
(17,604)

17,866
(4,737)

13,129
73%
(9,429)

3,700

(131)
(253)
(138)
(310)

2,868

(536)

2,332

–

2,332

2017
Restated
£'000

24,867
(12,166)

12,701
(2,986)

9,715
76%
(7,018)

2,697

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

2,110

(389)

1,721

(1,849)

(128)

Change
£'000

10,603
(5,438)

5,165
(1,751)

3,414

(2,411)

1,003

(35)
(97)
(80)
(32)

758

(147)

611

1,849

2,460

Change
%

43%
45%

41%
59%

35%

34%

37%

37%
62%
138%
12%

36%

38%

36%

100%

1,926%

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

Franchise Brands plc Annual Report and Accounts 2018

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Statutory revenue and fee & direct labour income
Statutory consolidated revenue has increased 43% from
£24.9m to £35.5m with 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 is not, therefore, a KPI that
management track on a consolidated basis.

The Group as a franchisor has three main fee income
streams: MSF received from our existing 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. The Group, through Metro Rod,
also has two direct labour divisions, Kemac, a plumbing
operation based in London, and our new Metro Rod
corporate franchise in Exeter, which comprise a separate
category of direct labour income.

2018

2017 Restated

Change

£'000

MSF Income

10,894 61% 8,235 65% 2,659

32%

Area Sales

1,513

8% 1,829 14% (316)

-17%

Product Sales

895

946

(51)

-5%

Direct Labour

4,564 26% 1,690 13% 2,874 170%

Fee Income

17,866

12,701

5,165

41%

Overall fee and direct labour income has increased 41%
from £12.7m to £17.9m.

The 32% 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 from the sale and
resale of franchise territories.

On a pro forma basis, System Sales at Metro Rod grew
10.2% from £33.9m to £37.4m. As part of the Vision 2023
strategy, we have introduced a variety of schemes and
incentives to better enable our franchisees to grow their
businesses. These include rebates relating to growing their
System Sales, and a financing scheme with HSBC to give
them access to funds to increase their capacity. As a result
of these initiatives we have seen some really outstanding
performances: 20 franchisees have seen double-digit
like-for-like sales growth, with 7 growing by above 30%.
We now have 14 franchisees with sales larger than £1m
(2017: 12). Within the overall increase, the local sales made
by franchisees in their territories and Metro Plumb sales
drove the growth, increasing by 14% and 27% respectively.

Income from area sales has fallen in both absolute terms
and relative to other income streams. ChipsAway,
Ovenclean and Barking Mad have all suffered a slow-down
in relation to franchisee recruitment, due to the external
environment. Although we have seen a fall in the number
of new franchisees entering our networks, we have seen
an increase in the level of existing franchisees investing in
additional territories or buying extra postcodes to
increase the size of their existing territories.

We have seen direct labour income increase strongly from
£1.7m to £4.6m with the inclusion of Kemac for a full year,
and the addition of the Exeter region as a corporately
owned and run franchise for 10 months. In particular,
Kemac has benefitted during 2018 from several large
one-off contracts.

Our fee and direct labour income generates a high level
of gross margin; in the current period this has reduced
marginally to 73% (2017: 76%) due to the change in our
income mix, as our direct labour income achieves lower
margins at around 25% than our core business as a
franchisor at around 90%. Overall, gross profit increased
by 35% from £9.7m to £13.1m.

Trading results – EBITDA

Metro Rod

ChipsAway

Ovenclean

Barking Mad

Head Office

2018
£'000

2,498

1,920

304

160

2017
Restated
£'000

1,306

1,912

297

187

(1,182)

(1,005)

Group EBITDA

3,700

2,697

Change
£'000

1,192

Change
%

91%

(27)

-14%

(177)

1,003

18%

37%

Metro Rod, which includes Metro Plumb, Kemac and
Exeter, made an EBITDA contribution of £2.5m in the
period, up from £1.3m for the almost nine months of
ownership in FY 2017. On a pro forma basis Metro Rod
would have contributed around £1.8m in 2017 if it had
been owned for the full year, which gives an implied
organic EBITDA growth of 38%. This growth has been
driven by the increase in our MSF income on system sales
from our national network of 40 Metro Rod franchisees,
and our one new standalone Metro Plumb franchise.

Given the decrease in recruitment, it is encouraging
to report that the EBITDA contribution for ChipsAway,
Ovenclean and Barking Mad has been flat at £2.4m
(2017: £2.4m), as lower recruitment income has been
offset by higher levels of MSF income, including a
higher proportion of ChipsAway franchisees paying
supplemental licence fees based on their sales,
rather than flat monthly fees.

Group overheads increased from £1.0m to £1.2m,
principally as a result of the annualisation of the cost
increases which took place following the acquisition
of Metro Rod.

Adjusted EBITDA for the Group has increased by 37%
from £2.7m to £3.7m.

Franchise Brands plc Annual Report and Accounts 2018

FINANCIAL REVIEW
continued

Earnings
Depreciation and amortisation costs have increased to
£0.4m, due to a full year’s amortisation of the intangible
assets arising from the acquisition of Metro Rod;
the acquisition of new equipment at our Exeter corporate
franchise; and new software at the Metro Rod support
centre. The share based payment charge has increased by
138% to £0.1m as we see the full year effect of new options
granted at the end of 2017. The finance charge of £0.3m
is up 12%, as the benefit of lower average debt was more
than offset by the full year effect of the debt facilities
that were taken out in April 2017 to finance the acquisition
of Metro Rod, and an increase in the base rate in
August 2018.

Adjusted profit before tax was £2.9m which is a 36%
increase when compared to the adjusted profit before
tax in 2017 of £2.1m. In 2018, the Group had no items which
we considered to be ‘non-recurring’, whereas in the prior
year there were a number of these items, primarily in
relation to the acquisition of Metro Rod.

The tax charge for the period at 18.7% (2017: adjusted tax
charge 18.4%) was lower than the statutory rate of 19%
owing to a small adjustment in respect of previous years.
As a result, the Group made a statutory profit after tax in
the period of £2.3m compared to a loss of £0.1m in 2017.

Although the number of shares in issue during the period
was 77,732,033, the Group has undertaken a programme
to purchase shares into Treasury in order to mitigate the
dilutive effect of the share options we have issued to our
team. In 2018, we repurchased 200,000 shares (2017: nil)
for a consideration of £151,000 (2017: £nil), which, tied to
the full year effect of the shares issued in relation to the
Metro Rod purchase, resulted in a weighted average
number of shares of 77,687,101 (2017: 69,553,746).
Therefore, this 12% increase in the weighted average
number of shares means that, whilst adjusted earnings
increased 36%, adjusted earnings per share increased by
21% or 0.53p to 3.00p per share (2017: 2.47p). As there have
been no non-recurring items in 2018, statutory EPS was
the same at 3.00p (2017: loss of 0.18p).

Financing and cash flow
The Group generated cash from operating activities of
£2.9m (2017: £0.7m). During the period we repaid £1.6m of
debt, reducing the gross level of debt from £9.5m to
£7.9m. Of the £1.6m repayment, £0.6m was scheduled and
£1.0m was a reduction in the drawing on the revolving
credit facility (“RCF”).

At 31 December 2018, we had utilised £2.5m of our
£5.0m RCF (2017: £3.5m) and had cash-in-hand of
£2.9m (2017: £3.2m), meaning that we had available
cash and facilities of £5.4m (2017: £4.7m).

Shareholders’ funds at 31 December were £24.4m
(2017: £22.5m) against net debt of £5.0m
(31 December 2017: £6.3m), giving modest gearing
of 20% (31 December 2017: 28%).

Dividend
The Board is pleased to propose a final dividend of
0.46 pence per share (2017: 0.33 pence per share),
taking the total dividends for the year to 0.67 pence
per share (2017: 0.50 pence per share). The cost of the
proposed final dividend is £358,000. The total dividend for
the year is 4.4 times covered by adjusted profit after tax.

Subject to shareholder approval at the AGM on 23 April
2019, the final dividend will be paid on 20 May 2019 to
shareholders on the register at the close of business on
3 May 2019.

The Strategic Report (which includes all of the content
from pages 1 to 31 inclusive) was approved by the Board
on 12 March 2019 and signed on its behalf by:

Chris Dent
Chief Financial Officer

12 March 2019

Franchise Brands plc Annual Report and Accounts 2018

2018 GROUP ACHIEVEMENTS
We regularly engage with our franchisees.
Here's a selection of highlights from 2018.

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Franchise Brands plc Annual Report and Accounts 2018

KEY PERFORMANCE INDICATORS
Financial and non-financial measures used by management

Metro Rod

EBITDA (£m)

£2.5m +91%

2018
2017
2016

ChipsAway

EBITDA (£m)

£1.9m 0%

£2.5m
£1.3m
n/a

2018
2017
2016

£1.9m
£1.9m
£1.6m

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.

Metro Rod – Performance in 2018
Metro Rod, which includes Metro Plumb, Kemac and Exeter,
made an EBITDA contribution of £2.5m in 2018, up from the
£1.3m for the almost nine months of ownership in 2017. On a
pro forma basis, Metro Rod would have contributed around
£1.8m if it had been owned for the full year, which gives an
implied organic EBITDA growth of 38%.

ChipsAway – Performance in 2018
EBITDA was flat in 2018 due to a slowdown in franchise
recruitment. However, lower recruitment income was
compensated for by higher levels of MSF income, including a
higher proportion of ChipsAway franchisees paying
supplemental licence fees, rather than purely fixed monthly
fees.

Total number of jobs completed

Number of franchisees recruited

174,000 +60%

23 -30%

2018
2017
2016

174,000
108,750
n/a

2018
2017
2016

23
33
34

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

Description
The number of franchisees recruited is a driver of franchise
recruitment income in the current year and MSF in both the
current and future years. It is not measured in isolation as the
Group also assesses the quality of new franchisees.

Metro Rod – Performance in 2018
The total number of jobs completed was 174,000, up from
108,750 during the period of almost nine months of ownership
in 2017. On a pro forma basis job numbers would have
increased 14% comparing 2018 with the full year 2017,
when 152,000 jobs were completed.

ChipsAway – Performance in 2018
The number of franchisees recruited in 2018 was less than in
recent years due, we believe, to the UK macroeconomic
climate of record high employment and uncertainty around
Brexit. However, 30 franchises invested in additional territories
or extra postcodes to increase the size of their businesses.

System sales (£m)

£37.4m +43%

2018
2017
2016

Total number of UK franchisees

201 -6%

£37.4m
£26.1m
n/a

2018
2017
2016

201
214
218

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

Description
The total number of UK 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.

Metro Rod – Performance in 2018
System sales were £37.4m compared to £26.1m in the almost
nine months of ownership in 2017. On a pro forma basis,
system sales would have increased 10% from £33.9m in 2017
to £37.4m in 2018. Of these, local sales by franchisees grew
14% in 2018.

ChipsAway – Performance in 2018
While the number of franchisees in the system in 2018 was 6%
lower than in 2017, this was mainly due to the reduction in new
franchisees recruited, as one fewer franchisee left the system
than in 2017. The quality of franchisees has continued to
increase with 45% now operating expanded operations.

Franchise Brands plc Annual Report and Accounts 2018

Ovenclean

EBITDA (£m)

£0.3m +2%

2018
2017
2016

Barking Mad

EBITDA (£m)

£0.2m -14%

£0.3m
£0.3m
£0.3m

2018
2017
2016

£0.2m
£0.2m
£(0.01)m

Ovenclean – Performance in 2018
EBITDA was essentially flat in 2018 as a result of a slowdown in
relation to franchise recruitment, however, this was
compensated for by an increase in MSF.

Barking Mad – Performance in 2018
EBITDA declined 14% in 2018 as a result of a slowdown in
relation to franchise recruitment.

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Number of franchisees recruited

19 -17%

2018
2017
2016

15 -38%

19
23
28

2018
2017
2016

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24
0

Ovenclean – Performance in 2018
Recruitment at Ovenlean declined in 2018 as we believe
interest in such a franchising opportunity is linked to levels of
employment/redundancy in the wider economy. Virtually
none of the new recruits come from a related background and
are franchising is their first step into self employment.

Barking Mad – Performance in 2018
The reduction in new franchisees in 2018 was for similar
reasons to that set out for Ovenclean. Barking Mad is primarily
a lifestyle business that is purchased at a point of change in
people's lives and the high levels of employment and
uncertainty over Brexit meant that less people were making
lifestyle changes.

Total number of franchisees

106 0%

2018
2017
2016

System sales (£m)

£3.8m +6%

106
106
102

2018
2017
2016

£3.8m
£3.6m
£0.4m

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.

Ovenclean – Performance in 2018
The number of franchisees in the system in 2018 was the same
as 2017 as a result of 19 new joiners and 19 leavers. However,
the number of leavers was in line with 2017 and 2016.

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

Barking Mad – Performance in 2018
System sales were 6% higher in 2018 than 2017 as the number
of franchisees in the system grew from 77 to 80. However,
sales may have been impacted by the long hot summer and
more people holidaying in the UK with their dogs.

Franchise Brands plc Annual Report and Accounts 2018

PRINCIPAL RISKS AND UNCERTAINTIES

The Directors confirm that 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

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.

Increasing

Decreasing

No movement

Mitigation

• The Group has an experienced franchise

marketing and recruitment capability. KPIs are
monitored on a 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.

• 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.

• 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

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

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.

• In the current year Barking Mad has seen changes in
the licensing regulations relating to providing home
boarding for dogs.

• 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.

• In the current year we worked closely with our
barking Mad franchisees and legal advisors to
ensure that we met all the requirements of the
change in legislation introduced in the current year.

Franchise Brands plc Annual Report and Accounts 2018

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Operational risks (continued)

Operational risks

Impact

Mitigation

Dependence on
key personnel

• Loss of key personnel, either at Executive level, or in

• Each of the Executive Directors and a number of

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

other key personnel are shareholders in the
Company.

• The inability to recruit additional skilled and

• All employees in key positions are participants in the

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

Company’s Long-Term Incentive Plan.

• The Group encourages and supports employees to
undertake training to expand existing skills where
necessary.

Health and
Safety

Information
Technology

• 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.

• 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.

• The chemical compounds used to carry out

• Franchisees are provided with health and safety

ChipsAway repairs and Ovenclean processes 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.

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 Group’s business is dependent on network and

• The architecture of the Metro Rod systems has

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.

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.

External
suppliers
(excluding IT)

• 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 maintains good working relationships
with its key suppliers to ensure the supply of the
highest quality products and services at all times.

• The Group cannot guarantee that service and

• The Group continually assesses the quality and

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

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.

Franchise Brands plc Annual Report and Accounts 2018

BOARD OF DIRECTORS

Stephen Hemsley

Chris Dent

Peter Molloy

Executive Chairman

Chief Financial Officer

Managing Director, Metro Rod

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 Group plc.
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 20-year association
with Domino’s Pizza, Stephen has taken
Domino’s from a market capitalisation
of £25m to over £1bn 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 four years as
Finance Director of AIM-quoted 7digital
Group plc and began his career at
Deloitte LLP where he spent ten 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.

Peter has 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.

Tim Harris

Julia Choudhury

Colin Rees

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. He was appointed as a
Director of the Company on 15 July
2016.

Corporate Development Director

Chief Information Officer

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 Head
of Retail, and latterly Managing
Director of AXA Investment Manager’s
UK operation. Her early career was
spent in corporate finance and
investment management with BZW.
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
previously 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 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 ten year period. He
was appointed a Director of the
Company on 21 March 2018.

Franchise Brands plc Annual Report and Accounts 2018

Nigel Wray

David Poutney

Non-executive Director

Independent Non-executive Director

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
owner of Saracens Rugby Club. He is a
significant investor in a wide-ranging
number of AIM quoted companies, as
well as a number of private companies.
He is a former Director and was a
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
CEO of Dowgate Capital Ltd. From 2001
to 2016 he was Director and Head of
Corporate Broking at Numis Securities
Limited. Between 2014 and 2016, he
was an Executive Director of Numis
Corporation plc. In his 20 years as a
corporate broker, David has been
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 2016. He was appointed as
a Director of the Company on 15 July
2016.

Rob Bellhouse

Independent Non-executive Director

Rob is an experienced Company
Secretary with strong commercial
experience gained over 30 years
working in listed companies with a
strong focus on governance,
compliance and risk management
activities. He was recently appointed
Company Secretary of a Royal Charter
body which delivers a major publicly-
funded programme for young people.
He has previously been Company
Secretary of a number of listed
companies including Domino’s Pizza
(on an interim basis), Lonmin and
Greene King. He was voted ICSA
Company Secretary of the Year in 2014.
Rob was appointed as a Director of the
Company on 15 July 2016.

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Committee membership

Audit Committee

Remuneration Committee

AIM Rules Compliance Committee

Denotes Committee Chair

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Franchise Brands plc Annual Report and Accounts 2018

SENIOR MANAGEMENT

Lee Dancy

Robin Auld

Andrew Mallows

Managing Director, Barking Mad

Group Marketing Director

Group Commercial Director

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 and grew the business over
the next 16 years. She has continued in
her role as Managing Director following
the acquisition of Barking Mad by
Franchise Brands in 2016.

Robin oversees consumer, trade and
franchise recruitment marketing activity
ensuring continual evolution of strategy
and best practice in execution. He
joined Franchise Brands in 2010 and has
a successful track record of marketing
success over 25 years. He is best known
for his work at Domino’s Pizza as Sales &
Marketing Director.

Andrew has spent his career in the
consumer sector and has particular
experience in franchising. Andrew joined
Franchise Brands in 2016 and works as
Commercial Director for all the Group’s
brands. He was Finance Director of
Domino’s Pizza during the period 2001
to 2004, before being appointed
Business Development Director.

Tim Roberts

Craig Henthorn

Chris Hirst

IT Director,
Metro Rod

Sales and Marketing Director,
Metro Rod

Franchise Director,
Metro Rod

Tim has over 20 years IT and project
management experience with a
number of blue-chip companies in
a wide range of business sectors.
He joined the Group in 2017. Prior to
joining Franchise Brands, Tim spent
time at Domino’s Pizza where he
helped manage the corporate systems.

Craig has spent his career in commercial
roles and has nearly 20 years franchising
experience. He re-joined Metro Rod
in 2018 having worked for the business
under previous management.
Most recently he was Managing
Director of Expense Reduction
Analysis’s European operations
which had over 300 franchisees.

Chris joined Metro Rod in 2008 as
Franchise Director, and has particular
technical, operations, compliance and
health and safety expertise. Prior to
that he spent 21 years in the
manufacturing sector in a number of
production and purchasing
management roles. His early career was
spent in the Police force.

Julian Mason

Ella Pugh

Mark Peters

Group HR Business Partner

Julian joined Franchise Brands as Group
HR Business Partner in 2017. He has over
20 years senior practitioner level
strategic and operational HR
experience. Julian has successfully
managed large scale change projects
within the NHS and has specialist
knowledge of organisational
development and culture change
gained at The Guinness Partnership Ltd.

Head of Marketing,
ChipsAway and Ovenclean

Ella’s background is in consumer goods
marketing, in particular product
marketing and development.
Ella joined Franchise Brands in 2016
and is responsible for ChipsAway and
Ovenclean consumer marketing as well
as franchise recruitment marketing.
She is passionate about building brand
awareness and delivering results-
orientated multi-channel campaigns.

Company Secretary

Mark spent over 30 years in the legal
profession, which included 17 years
with Sherrards Solicitors LLP where he
was Senior Partner. Mark has particular
expertise in real estate, investment,
business development and
management and has performed
Company secretarial duties for
Franchise Brands since 2008.

Franchise Brands plc Annual Report and Accounts 2018

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CHAIRMAN’S INTRODUCTION TO GOVERNANCE

We believe that good corporate governance is vital in
supporting our Company’s growth strategy and in turn
its long-term success. The Board of Directors has
chosen to apply the Quoted Companies Alliance
(the “QCA") Corporate Governance Code (the “Code”)
as it believes that this provides an appropriate
governance framework for a Group of our size and
should help support our growth and success. We seek
to comply with the Code’s principles and application
wherever possible, but there can be circumstances
where the interests of the Company and its
shareholders are better served by departing from the
Code’s requirements. In these circumstances we will
seek to explain the divergence.

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. It is for these reasons that the Board is
committed to achieving high standards of corporate
governance.

The QCA published a new edition of its Code on 25 April
2018, which was after the date on which the Company’s
last Annual Report and Accounts was published.
This edition of the Code requires us to provide an
explanation for any departures from the principles or
application of the Code. As a result, the remainder of
this report explains how we have applied the Code
during 2018. Further information on the Group’s
governance practices, the business model and strategy
can be found in the Company Overview, Strategic
Report and Governance sections of this Annual Report
and Accounts.

In addition to choosing to apply the new edition of the
QCA Code, I am delighted to announce that in the
current year we have become members of the QCA in
order to support the work it does in promoting good
corporate governance.

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 2018

CORPORATE GOVERNANCE

QCA PRINCIPLE 1
Strategy and business model

Our vision and business model is to create a group of
market-leading franchise businesses that benefit from
sharing the same support services. Our strategy to deliver
shareholder value is to acquire and 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. 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
enhance an already profitable business.

Our shared support services underpin our business
model. These include franchise recruitment, IT, finance
and marketing. The shared support services allow the
management of the individual brands to focus on
expanding their networks and helping their franchisees
to grow their businesses.

Further information around our strategy and business
model can be found in the Strategic Report.

QCA PRINCIPLE 2
Meeting shareholder needs

The Executive Chairman, the Chief Financial Officer, and
the Corporate Development Director regularly meet
with the institutional shareholders, 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
brokers and nominated adviser. 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. We use our Annual Report to provide
shareholders with details of the Group, operations,
performance, strategy and policies. The Group also
exhibits and presents at events attended by retail
investors and subscribes, and provides content to, retail
financial news websites.

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. Voting at the AGM is by
poll, with the results being announced in the meeting.

QCA PRINCIPLE 3
Manage our responsibilities to wider stakeholders

The Board has a clear understanding of the Group’s key
stakeholders (which includes our employees, franchisees,
customers, suppliers, shareholders, regulators, and
banks) and understands that the success of the
Company depends on maintaining a positive relationship
with each of these groups, particularly its franchisees.

There are good relations with all of the stakeholder
groups. The Group’s core business as a franchisor has
minimal direct impact on society or communities in
general terms, but the Board understands the
importance of these issues. Management actively
solicits feedback from employees and franchisees
(both formally and informally) and maintains strong
relationships with suppliers. In the current year this has
included management visits to franchisees, one-to-one
meetings by the senior executive with employees
(“speed date the boss”), as well as more formal surveys
carried out by independent firms. Customer reviews,
ratings and feedback for all our consumer brands are
received regularly and action taken where required.

Each of our underlying franchise networks have potential
environmental impacts which have been considered and
minimised. For example, ChipsAway uses water-based
paints and lacquers while Ovenclean uses
environmentally-friendly cleaning chemicals. Metro Rod
has highly developed health and safety systems and
processes which take into account the potential health
and safety risk from the nature of the equipment used
and the public locations in which the services are
carried out.

QCA PRINCIPLE 4
Risk management

The Risk Management section on pages 30 and 31 details
the key risks to the business, how these are mitigated
and the change in the identified risk over the last
reporting period. The Board is embedding risk
management principles to drive proactive management
of, to better enable us to execute and deliver our
strategy. As such, the Board implemented a new risk
management framework during the year, which
determines the extent of exposure to the identified risks
that the Company is able to bear and willing to take.
Any changes to the risk profile of the group will be
discussed at Board meetings, and the risk management
framework updated. The Board formally reviews the risk
framework bi-annually. The Group does not currently
have an internal audit function, but will consider the
introduction of this as the Group grows.

QCA PRINCIPLE 5
Maintain a well-functioning Board

The Company is controlled by the Board of Directors.
The Board comprises six Executive Directors and three
Non-executive Directors, two of whom (Rob Bellhouse
and David Poutney) are considered to be independent.
Peter Molloy and Tim Harris are the Managing Directors
of the two largest operating components of the Group
and sit on the Board of Directors, and they are
responsible for the operational leadership of their
respective businesses.
The Group holds Board meetings at least six times each
financial year and at other times as and when required.
During the current year the board met eight times.
All directors (or their proxy) attended all meetings with
the exception of Nigel Wray being unable to attend one
meeting. Stephen Hemsley, the Executive Chairman,
is responsible for the running of the Board.

Franchise Brands plc Annual Report and Accounts 2018

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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.

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.

All Directors receive regular and timely information on
the Group’s operational and financial performance.
Detailed strategic Board papers are sent out in advance
of Board meetings, and the Board receive the monthly
management accounts detailing the performance of our
brands. The Directors’ contracts provide that they must
each devote such time to the Company as is required to
fulfil their duties.

QCA PRINCIPLE 6
Ensure Directors have necessary, up-to-date skills

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. Details of the
skills and experience of the Board, which cover sector,
financial and public markets skills and experience, can be
found on pages 32 and 33. Where new Board
appointments are considered the search for candidates
is conducted, and appointments are made, on merit,
against objective criteria and with due regard for the
benefits of diversity on the Board, including gender.

The Board recognises that as the Group evolves, the mix
of skills and experience required on the Board will
change, and Board composition will need to evolve to
reflect this change, with due regard for the benefits of
diversity on the Board, including gender.

Directors are provided with access to the Company’s
Nominated Advisor who provide briefings on necessary
legislation and regulations from time to time. Directors
are supported to ensure their skills remain up to date,
including training courses and continuing professional
development.

QCA PRINCIPLE 7
Evaluate Board Performance

A Board performance self-evaluation was undertaken
in November 2018, the results of which have been
discussed by the Board. Each Director was invited to
complete a questionnaire providing a quantitative rating
and justifying narrative on ten strategically aligned
questions, with two further questions to identify any
improvement opportunities. Overall, the Board felt that
it was functioning effectively, with a good balance and
blend of skills and experience around the Board table
and meetings that were held in a constructive spirit.
The evaluation identified two opportunities to enhance
the Board’s effectiveness. One was to ensure that its
meeting agendas and discussions focussed on strategic
considerations, with operational outcomes reported by
exception. The second was to have specific ‘deep dives’
into key strategic issues, including both risks and
opportunities. Both have been adopted by the Board.

Since the Company joined the AIM market in August
2016, there has been an evolution in the Board’s
composition, with the most recent changes to the
directorate being in April 2018. While there is no formal
succession plan in place, three Managing Directors run
the Group’s brands and two of these individuals sit on
the parent company Board. All three are experienced
operators of franchised businesses and whilst it is not our
plan to consolidate these businesses any further, we have
significant resilience in our senior management team.

QCA PRINCIPLE 8
Promote a value-based corporate culture

Franchise Brands has five guiding principles that inform
the way we work with each other, support our franchisees
and serve our customers and the communities in which
we operate:

• 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 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 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 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.

An externally conducted survey has been undertaken
to ascertain the views and attitudes of the franchisees
of Metro Rod, the Group’s largest business. This included
a number of questions providing insights into the culture
within that business and the Board has discussed the
survey’s findings.

Franchise Brands plc Annual Report and Accounts 2018

CORPORATE GOVERNANCE
continued

QCA PRINCIPLE 9
Maintain fit-for-purpose governance structures

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)
and Rob Bellhouse.

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 2017 annual accounts and the interim accounts to
30 June 2018. The Committee reviewed with the
independent auditor its judgements as to the
acceptability of the Company’s accounting principles.
In particular, the Committee discussed the application
of the new accounting standards, IFRS9 and IFRS15,
and the future application of IFRS16. The Committee
reviewed and discussed the auditor’s comments on
improvements which could be made to the internal
controls. In addition, the Committee has discussed
with the auditor the firm’s independence from
Company management and the Company, and
considered the compatibility of non-audit services
with the auditor’s independence.

Remuneration Committee

AIM Rules Compliance 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) and David Poutney.

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 39 and 40. As the
Company is not fully 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”).

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 and this
role is set out in its terms of reference available on
the Group’s website. 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) and David Poutney. In
addition, all other Directors of the Company are
invited to attend its meetings. The Committee has
not met during the year, as the relevant matters were
discussed at meetings of the full Board.

QCA PRINCIPLE 10
Communicate governance and performance
with shareholders

The Board communicates regularly with shareholders
providing updated on Group performance to
shareholders via interim and annual financial reports,
trading updates issued via RNS, investor presentations
and meetings with institutional shareholders. The Board
also ensures that the corporate website is kept up to
date with all the latest information about the
governance and performance of the business.

Franchise Brands plc Annual Report and Accounts 2018

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DIRECTORS’ REMUNERATION REPORT

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 available 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). 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.

We believe that the mix between fixed and variable pay
creates a powerful, but appropriate, incentive and that
our approach ensures that pay and performance are
directly linked.

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.

Franchise Brands plc Annual Report and Accounts 2018

DIRECTORS’ REMUNERATION REPORT
continued

Directors’ remuneration (audited)
The aggregate remuneration payable to the Directors for the year ended 31 December 2018 was as follows:

Director

Stephen Hemsley
Chris Dent1
Julia Choudhury
Tim Harris
Peter Molloy2
Colin Rees2
Robin Auld3
Nigel Wray
David Poutney
Rob Bellhouse

Salary
or fees
(£)

Benefits
in kind
(£)

Pension
contributions
(£)

100,000
100,000
85,000
120,345
90,000
63,750
28,333
20,000
25,000
25,000

–
7,800
–
8,400
10,306
–
–
–
–
–

–
2,000
–
683
1,800
509
228
–
–
–

Total
(£)

100,000
109,800
85,000
129,428
102,106
64,259
28,561
20,000
25,000
25,000

2017
comparison
(£)3

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

Notes:
1 Chris Dent served as a Director of the Company from 17 July 2017.
2 Peter Molloy and Colin Rees served as a Director of the Company from 21 March 2018.
3 Robin Auld ceased to serve as a Director of the Company from 25 April 2018.

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, five 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

Chris Dent

Date of grant

12-Dec-17
11-Dec-18

Julia
Choudhury

01-Aug-16
11-Dec-18

Tim Harris

Peter Molloy

Colin Rees

01-Aug-16
11-Dec-18

11-Apr-17
12-Dec-17
11-Dec-18

12-Dec-17
11-Dec-18

Exercise
price
(pence)

Performance
condition

49.5 EPS growth
69 EPS growth

33 EPS growth
69 EPS growth

2017
Number
of shares

303,030
–

–
21,970

–
71,970

67 EPS growth
49.5 EPS growth
69 EPS growth

150,000
153,030

–
–
– 106,000

49.5 EPS growth
69 EPS growth

303,030
–

–
71,970

Changes in the year

Granted

Exercised

Lapsed

2018
Number
of shares

Exercisable
from

Exercisable
to

–
–

–
–
–

–
–

– 303,030 12-Dec-20 12-Dec-27
21,970 11-Dec-21 11-Dec-28
–

– 303,030 01-Aug-20
–

01-Jul-26
71,970 11-Dec-21 11-Dec-28

– 303,030 01-Aug-20
–

01-Jul-26
71,970 11-Dec-21 11-Dec-28

– 150,000 11-Apr-20 11-Apr-27
– 153,030 12-Dec-20 12-Dec-27
– 106,000 11-Dec-21 11-Dec-28

– 303,030 12-Dec-20 12-Dec-27
71,970 11-Dec-21 11-Dec-28
–

During 2018 the closing mid-market quote for the Company’s shares ranged from a low of 53.6p to a high of 89.5p.
As seen from the table above, no Director exercised an option over the Company’s shares during the year.

Franchise Brands plc Annual Report and Accounts 2018

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DIRECTORS’ REPORT

Scope of this report
The Directors’ biographies on pages 32 and 33, the
discussion of corporate governance matters on pages
35 to 37 and the Remuneration report on pages 39 and
40 are hereby incorporated by reference to form part
of this Directors’ Report.

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 32 and 33. In addition,
Robin Auld served as an Executive Director until
25 April 2018.

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
Chris Dent
Julia Choudhury2
Tim Harris3
Peter Molloy
Colin Rees
Nigel Wray4
David Poutney5
Rob Bellhouse

At
31 December
2018

At
31 December
2017

20,640,117
15,000
1,204,258
1,059,284
33,582
298,507
21,720,120
3,310,791
82,768

20,640,117
15,000
1,204,258
1,059,284
33,582
298,507
21,720,120
2,260,791
82,768

In addition, Chris Dent, Julia Choudhury, Tim Harris,
Peter Molloy and Colin Rees 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 39 and 40.

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 Share Capital:

Shareholder

Netcap Limited
Hargreave Hale

Current

Number of
Ordinary shares

3,373,134
3,351,033

Percentage of
existing share
capital

4.3%
4.3%

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) have been given in
favour of all Directors on the Board. These indemnities
remain in force and relate 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.

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 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 Tim Harris are 59,522 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 2,574,627 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.

3.
4.

Franchise Brands plc Annual Report and Accounts 2018

DIRECTORS’ REPORT
continued

Dividends
A final dividend of 0.33p per share was paid on 15 May
2018 in respect of the 2017 financial year.

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.

Auditor
A resolution to reappoint BDO LLP as auditor will be
proposed at the AGM. A tender in respect of the
external audit of the Company and Group was last
conducted in 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.

Annual General Meeting
The 2019 Annual General Meeting of the Company will
be held on 23 April 2019, 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.

Chris Dent
Chief Financial Officer

12 March 2019

An interim dividend of 0.21p per share in respect of
the 2018 financial year was paid on 13 September 2018.
The Directors are recommending a final dividend of
0.46p per share which, subject to shareholders’ approval
at the AGM, will be paid on 20 May 2019 to shareholders
on the register at the close of business on 3 May 2019.

Share capital
The Company’s entire issued share capital comprises
Ordinary shares of 0.5 pence each. Note 20 to the
financial statements summarises the number in issue
during 2018.

Voting rights
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.

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 42. 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 41;

• 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.

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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 judgements 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.

Approved by the Board.

Chris Dent
Chief Financial Officer

12 March 2019

Franchise Brands plc Annual Report and Accounts 2018

INDEPENDENT AUDITOR’S REPORT TO
THE MEMBERS OF FRANCHISE BRANDS PLC
For the year ended 31 December 2018

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 2018 which comprise 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 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 2018 and of the group’s profit for the year then ended;

• 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 applied in accordance with the provisions of the Companies Act 2006; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

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.

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 judgement, 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.

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Risk of misstatement in revenue recognition

How We Addressed the Key Audit Matter in the Audit

We have addressed the matter as follows:

• We reviewed the group’s revenue recognition
policies for all revenue streams. We evaluated
Management’s assessment of the performance
obligations in relation to IFRS 15 criteria and
challenged the key judgements made by
Management.

• We corroborated the key points to contracts and

•

have held meetings with management to challenge
the assumptions and judgements made.
In respect of Metro Rod Limited, we reviewed a
sample of Franchisee agreements and customer
contracts and considered the key terms against
the principal vs agent considerations as noted
within IFRS 15 to verify management’s judgement.
We further ensured that the accounting policy for
the arrangements has been appropriately applied.

• We reviewed the accuracy and completeness of
the transitional adjustments as set out in note 1.

• We tested a sample of the contract assets

recognised to ensure that appropriate audit
evidence was in place to support the assets and
that these met the definition of a contract asset
in accordance with IFRS 15.

• We reviewed the accounting policies established
by the Group by reference to the requirements of
IFRS 15 and have reviewed the adequacy of the
disclosures within the financial statements.

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.

As detailed in note 1 to the Group financial statements
the Group has adopted IFRS 15 Revenue from contracts
with customers during the financial period.

The adoption of IFRS 15 has resulted in changes to the
revenue recognition policies applied by the Group.

There are a number of judgements involved in the
application of this new standard. In view of the
judgements involved, as well as management being
in a position to be able to override controls,
we presumed a risk of fraud within this area.

Management service revenue
The application of IFRS 15 has resulted in a change
to the timing of revenue recognition based on
management’s assessment of when control has
transferred and the Group has an enforceable right
to payment. A key part of the franchisee arrangement
is invoicing to the end customer and therefore
management consider it appropriate to recognise
revenue once this invoicing service has been
performed.

Agent vs principal
Significant management judgement is also required
in assessing principal vs agent considerations, as
disclosed in note 2 of the financial statements and
in the Financial Review section of the Strategic
Report in respect of Key Account and Commercial
customers.

National advertising fund and central
advertising funds
As a result of the application of IFRS 15 there has
been a change in the presentation of the income
and expenditure relating to these advertising funds.
As the funds are controlled by the group the income
and expenditure are now presented gross. Under IAS 18
the income and expenditure were presented net.

There is a risk that the adjustments to the opening
reserves are misstated or incomplete and also that
the disclosures made to the Group financial statements
do not adequately explain the impact
of the adoption of IFRS 15.

Franchise Brands plc Annual Report and Accounts 2018

INDEPENDENT AUDITOR’S REPORT TO
THE MEMBERS OF FRANCHISE BRANDS PLC continued
For the year ended 31 December 2018

Key audit matters continued

Impairment of goodwill and intangible assets

How We Addressed the Key Audit Matter in the Audit

Refer to the Accounting Policies on page 55 and Note 11
on page 65.

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
annually for impairment.

We challenged this impairment analysis and
considered the reasonableness of management’s key
judgements, Our work included;

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. There is therefore a significant risk that
impairment of these assets is not appropriately
recognised in accordance with applicable Financial
Reporting Standards.

• Challenging the future trading projections by

reference to current performance and the accuracy
of prior year forecasting;

• Challenging the discount rate applied;
• Checking the impairment analysis for logical and

arithmetic accuracy and to ensure that it has been
undertaken in accordance with IAS 36;
• Challenging the long term growth rate;
• Assessing whether the forecasts adopted in the

impairment review were Board approved and are
consistent with those used in the going concern
assessment;

• Performing sensitivity analysis to understand the
relative impact of changes in the key assumptions
within the impairment models, as well as to confirm
the appropriateness of Management’s disclosure of
sensitivities in respect of the impairment review.

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.

Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of
misstatements. For planning, we consider materiality to be the magnitude by which misstatements, individually
or in aggregate and including omissions, could reasonably be expected to influence the economic decisions of
reasonable users that are taken on the basis of the financial statements.

The materiality for the Group financial statements as a whole was set at £140,000 (2017: £104,000). This was
determined with reference to a benchmark of profit before tax, of which this represents 5%, which we consider
to be one of the principal considerations for members of the Group in assessing the financial performance of
the business.

The materiality for the Parent Company financial statements was set at £90,000 (2017: £94,000). This was
determined with reference to a benchmark of 3% of net assets limited to the component materiality set for
the audit of the Group.

In order to reduce to an appropriately low level the probability that any misstatements exceed materiality we
use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly,
misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the
nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole. Performance materiality for the group financial statements was set
at £105,000 (2017: £78,000) and for the parent company £67,500 (2017: £71,000), 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.

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The Group operates through a number of legal entities, which form reporting components. Audits have been
performed over all components of the Group by the group audit team. Significant components were defined
as those reporting components contributing more than 15% towards group assets, turnover or profits.
Component materiality on those significant components was set at levels between £64,000 and £130,000
(2017: £52,000 to £94,000).

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 £3,000 (2017: £2,000). We also agreed to report differences
below this threshold that, in our view, warranted reporting on qualitative grounds.

An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding of the group and its environment, including the
group’s system of internal control, and assessing the risks of material misstatement in the financial statements.

We also addressed the risk of management override of internal controls, including assessing whether there was
evidence of bias by the Directors that may have represented a risk of material misstatement due to fraud.

The group manages its operations from two principal locations in the UK and the financial information relating
to the parent company and all other components of the group were subject to full scope audit by the group
audit team.

As a consequence of the audit scope determined, we achieved coverage of 100% (2017: 100%) of revenue,
100% (2017: 100%) of profit before tax and 100% (2017: 100%) 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 consistent with the financial statements; and

• the strategic report and the directors’ report have been prepared in accordance with applicable legal

requirements.

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.

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 not visited by us; or

• 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.

Franchise Brands plc Annual Report and Accounts 2018

INDEPENDENT AUDITOR’S REPORT TO
THE MEMBERS OF FRANCHISE BRANDS PLC continued
For the year ended 31 December 2018

Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, 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.

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.

Gary Harding
(Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
Manchester, United Kingdom
12 March 2019

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

Franchise Brands plc Annual Report and Accounts 2018

CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
For the year ended 31 December 2018

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

Total administrative expenses

Operating profit
Finance expense

Profit/(loss) before tax
Tax expense

Note

5
5
5
5
5
5

5
8

2018
£'000

35,470
(22,341)

13,129

3,700
(131)
(253)
(138)
–
–
–

(9,951)

3,178
(310)

2,868
(536)

2017
Restated
£'000

24,867
(15,152)

9,715

2,697
(96)
(156)
(58)
(1,144)
(734)
(316)

(9,522)

193
(277)

(84)
(43)

Profit/(loss) for the year and total comprehensive income attributable to

equity holders of the Parent Company

2,332

(128)

All amounts relate to continuing operations

Earnings per share
Basic
Diluted

The notes on pages 55 to 70 form part of these financial statements.

10
10

3.00
2.96

(0.18)
(0.18)

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Franchise Brands plc Annual Report and Accounts 2018

CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
At 31 December 2018

Note

2018
£’000

Assets
Non-current assets
Intangible assets
Property, plant and equipment

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
Treasury reserve
Retained earnings

Total equity attributable to equity holders

11
12

13
14

15
16
17

16
17
18

20
20
20
20
20

2017
Restated
£’000

27,025
162

27,187

252
8,144
3,245

11,641

38,828

6,406
4,164
21
–

10,591

5,255
65
374

5,694

16,285

22,543

27,232
382

27,614

245
11,048
2,940

14,233

41,847

8,596
3,439
21
196

12,252

4,400
51
702

5,153

17,405

24,442

388
22,621
226
396
(151)
962

388
22,621
88
396
–
(950)

24,442

22,543

The consolidated financial statements of Franchise Brand plc (Company number: 10281033) on pages 49 to 70 were
approved and authorised for issue by the Board of Directors on 12 March 2019 and were signed on its behalf by:

Chris Dent
Director

Franchise Brands plc Annual Report and Accounts 2018

COMPANY STATEMENT
OF FINANCIAL POSITION
At 31 December 2018

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
Treasury reserve
Retained earnings

Total equity attributable to equity holders

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Note

15
16

20
20
20
20
20

2018
£'000

2017
£'000

31,703

2,860
6

2,866

34,569

247
3,439

3,686

4,400

8,086

26,483

388
22,621
226
276
(151)
3,123

26,483

30,097

3,212
232

3,444

33,541

191
4,164

4,355

5,255

9,610

23,931

388
22,621
88
276
–
558

23,931

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 and total comprehensive income for the financial period
ended 31 December 2018 of £3.0m (2017: £0.4m).

The Company financial statements of Franchise Brand plc (Company number: 10281033) on pages 51 to 70 were
approved and authorised for issue by the Board of Directors on 12 March 2019 and were signed on its behalf by:

Chris Dent
Director

Franchise Brands plc Annual Report and Accounts 2018

CONSOLIDATED STATEMENT
OF CASH FLOWS
For the year ended 31 December 2018

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

Operating cash flow before movements in working capital
Increase in trade and other receivables
Decrease/(increase) in inventories
Increase in trade and other payables

Cash generated from operations
Income taxes received/(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
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
Other loans – made
Interest paid – bank and other loan
Interest paid – finance leases
Proceed from issue of shares
Share issue expenses and other expenses of IPO
Purchase of Treasury shares
Dividends paid
Capital element of finance lease repaid

Net cash (used in)/generated from 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

Reconciliation of cash flow to the Group net debt position

Note

2018
£'000

2017
Restated
£'000

2,332

(128)

12
11
7
8
9

14
13
15

12
11

131
253
138
310
536

3,700
(2,952)
7
2,107

2,862
48

2,910

(222)
(348)
–
–

(570)

(1,600)
–
(138)
(279)
(4)
–
–
(151)
(420)
(53)

(2,645)
(305)
3,245

2,940

96
156
58
277
43

502
(1,213)
(17)
1,633

905
(204)

701

(98)
(21)
13
(28,403)

(28,509)

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

28,054
246
2,999

3,245

Revolving
credit
facility
£'000

Term Loan
£'000

Loan fees
£'000

Finance
lease debt
£'000

Total
liabilities
from
financing
activities
£'000

Total net
cash/(net
debt)
£'000

Cash
£'000

(417)

–

(102)

(519)

2,999

2,480

(5,583)

(3,500)

–
(58)

–
(6)

(6,058)

(3,506)

600
–
23

1,000
–
(8)

(5,435)

(2,514)

170

–
(25)

145

–
–
(35)

110

(8,897)

–

(8,897)

–
–

–
(89)

246
–

246
(89)

(86)

(9,505)

3,245

(6,261)

53
–
(38)

1,653
–
(58)

–
(305)
–

1,653
(305)
(58)

(72)

(7,911)

2,940

(4,971)

Group

At 1 January 2017

Financing cash flows

Other cash flows
Other changes

At 31 December 2017

Financing cash flows
Other cash flows
Other changes

At 31 December 2018

Franchise Brands plc Annual Report and Accounts 2018

COMPANY STATEMENT
OF CASH FLOWS
For the year ended 31 December 2018

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

Cash generated from operations
Decrease/(increase) in trade and other receivables
Increase in trade and other payables

Net cash generated from 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
Purchase of Treasury shares
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

Reconciliation of cash flow to the Company net debt position

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Note

14
15

2018
£'000

2,986

305
(44)
50

3,297
503
31

3,831

(1,607)

(1,600)
–
(279)
–
–
(151)
(420)

(2,450)
(226)
232

2017
£'000

403

273
(202)
24

498
(151)
190

537

(29,125)

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

28,070
(518)
750

232

Group

At 1 January 2017

Financing cash flows
Other cash flows
Other changes

At 1 January 2018

Financing cash flows
Other cash flows
Other changes

At 31 December 2018

Revolving
credit
facility
£'000

Loan fees
£'000

Total
liabilities
from
financing
activities
£'000

–

(417)

Term Loan
£'000

(417)

(5,583)
–
(58)

(3,500)
–
(6)

(6,058)

(3,506)

600
–
23

1,000
–
(8)

170
–
(25)

145

–
–
(35)

(8,913)
–
(89)

(9,419)

1,600
–
(21)

Total net
cash/(net
debt)
£'000

333

(8,913)
(518)
(89)

Cash
£'000

750

–
(518)
–

232

(9,187)

–
(226)
–

1,600
(226)
(21)

(5,435)

(2,514)

110

(7,840)

(7,834)

Franchise Brands plc Annual Report and Accounts 2018

CONSOLIDATED AND COMPANY STATEMENT
OF CHANGES IN EQUITY
For the year ended 31 December 2018

Treasury
shares
£'000

Retained
earnings
£'000

Total
£'000

–

–
–
–

–

3,903

(128)

(633)

(213)
–
–

(213)
19,556
58

(950) 22,543

2,332

–
(151)
–

(151)

(420)
–
–

(420)
(151)
138

962

24,442

Treasury
shares
£'000

Retained
earnings
£'000

Total
£'000

4,127

403

368

403

(213)
–
–

(213)
19,556
58

558

23,931

2,985

–
(151)
–

(151)

(420)
–
–

(420)
(151)
138

3,123

26,483

–

–
–
–

–

Group

At 1 January 2017

Loss for the year and total comprehensive income

Effect of change in accounting policy (IFRS15)

Contributions by and distributions to owners
Dividend paid
Placing in relation to acquisition
Share-based payment

At 1 January 2018 (Restated)

Profit for the year and total comprehensive income

Contributions by and distributions to owners
Dividend paid
Treasury shares
Share-based payment

Share
capital
£'000

239

–

Share
premium
account
£'000

3,214

–

–
149
–

–
19,407
–

388

22,621

–

–
–
–

–

–
–
–

At 31 December 2018

388

22,621

Company

At 1 January 2017

Share
capital
£'000

239

Share
premium
account
£'000

3,214

Profit for the year and total comprehensive income

–

Contributions by and distributions to owners
Dividend paid
Placing in relation to acquisition
Share-based payment

At 1 January 2018

–
149
–

–
19,407
–

388

22,621

Profit for the year and total comprehensive income

Contributions by and distributions to owners
Dividend paid
Treasury shares
Share-based payment

–

–
–
–

–

–
–
–

At 31 December 2018

388

22,621

Share-
based
payment
reserve
£'000

–

–
–
58

–

–
–
138

226

Share-
based
payment
reserve
£'000

–

–
–
58

–

–
–
138

226

Merger
reserve
£'000

396

–

–
–
–

396

–

–
–
–

396

Merger
reserve
£'000

276

–

–
–
–

276

–

–
–
–

276

Franchise Brands plc Annual Report and Accounts 2018

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NOTES FORMING PART
OF THE FINANCIAL STATEMENTS
For year ended 31 December 2018

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. The principal
activity 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.

Basis of preparation
The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS") and interpretations as adopted by the European Union as they apply to the financial statements of the
Group for the year ended 31 December 2018 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.

Adoption of New Standards
At the beginning of the period the Group adopted IFRS9 Financial Instruments: Classification and Measurement, the
new accounting standard on Financial Instruments and IFRS15 Revenues from Contracts with Customers, the new
accounting standard on revenue.

In respect of IFRS9 this has changed the way in which we account for our provision against trade receivables.
Under the IFRS9 “expected credit loss” model, a credit event no longer has to occur before credit losses are
recognised. Having re-reviewed the provision which existed at 31 December 2017 under the new methodology, the
Directors have concluded that no adjustment would have been made under the forward-looking expected default
rates; the expected default rates were materially the same as the historical default rates with the major exception of
Carillion, where the forward-looking expected default would have been higher at 31 December 2017 than the
historical default rate. However, the Carillion debt was fully provided for in the 2017 accounts as a post balance sheet
event. Therefore no restatement has taken place with respect to the adoption of IFRS9.

In respect of IFRS15 we have applied a fully retrospective approach. We have restated our previous period figures to
show the effect of the new standard. There have been two changes derived from the adoption of the standard.

• Adjustment One (Metro Rod): IFRS15 has resulted in a timing shift of the revenue recognition point based on
the assessment of control being transferred and when we have a legal and enforceable right for payment.
The Directors believe that invoicing is a key performance obligation, which we undertake on behalf of our franchise
network and customers. Given the requirements of our Facilities Management customers, the Directors believe
that revenue will only be received once invoicing has been completed in accordance with these requirements.
Therefore, our revenues should only be recognised at the point at which the invoice has been raised, rather than
the point at which the underlying job is completed (as under IAS18). The shift has not had a significant impact in
terms of the financial statements as the Company sees approximately the same number of jobs being reported
into the relevant period as previously. However, it has a larger effect on the statement of financial position as it
reduces down the level of accrued income by £1.8m (2017: £2.1m) and the related accrued costs of £0.9m
(2017: £0.7m) and creates a contract asset balance of £0.8m (2017: £0.6m) where franchisees have been paid
for work in advance of the work being invoiced to third party customers. The change also created a deferred
tax asset of £0.2m which was utilised during the year to decrease the current tax liability.

Franchise Brands plc Annual Report and Accounts 2018

NOTES FORMING PART
OF THE FINANCIAL STATEMENTS continued
For year ended 31 December 2018

1 Accounting policies continued
• Adjustment Two (National Advertising Funds): National Advertising Funds are collected from franchisees under
their agreements and then spent on their behalf on advertising which benefits the underlying franchise networks.
These funds have not previously been recognised as revenue under IAS18. The Directors did 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 all
funds received are expended on behalf of the networks. With the adoption of IFRS15 the Directors have
concluded that the Group will recognise the costs expended by the funds in the year, 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. This is because it is the Group which controls the expenditure of the
funds, rather than the franchisees. Overall, there is no effect on profit. In the current period the inclusion of the
fund expenditure as income has increased revenue by £1.1m (2017: £0.6m) and has increased administration
expenses by the same amount of £1.1m (2017: £0.6m). The revenue which we are recognising in respect of the
national advertising fund is included in the total of MSF for the purposes of income categorisation.

In line with the transitional arrangements within IFRS15 we have restated our previous period figures to show the
effect of the new standard.

Year ended 31 December 2017

Revenue
Cost of sales
Total administrative expenses
Finance expense
Tax expense

Profit after tax

Basic Earnings per share (p)
Diluted Earnings per share (p)

Assets

Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Cash
Trade and other payables
Loans and borrowings
Obligations under finance leases
Deferred tax liability

Total net assets

Original
numbers
£'000

24,292
(15,198)
(8,882)
(277)
(47)

(112)

(0.16)
(0.16)

Original
numbers
£'000

27,025
162
252
9,670
3,245
(7,132)
(9,419)
(86)
(526)

23,191

Adjustment One
£'000

Adjustment Two
£’000

(65)
46
–
–
4

(15)

(0.02)
(0.02)

640
–
(640)
–
–

–

–
–

Adjustment One
£'000

Adjustment Two
£’000

–
–
–
(1,526)
–
726
–
–
152

(648)

–
–
–
–
–
–
–
–
–

–

Final
numbers
£'000

24,867
(15,152)
(9,522)
(277)
(43)

(127)

(0.18)
(0.18)

Final
numbers
£'000

27,025
162
252
8,144
3,245
(6,406)
(9,419)
(86)
(374)

22,543

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:

IFRS16 Leases (effective 1 January 2019)
IFRS16 replaces IAS17 ‘Leases’ and substantively changes the accounting for operating leases. Where a contract meets
IFRS16’s definition of a lease, lease agreements will give rise to the recognition of a non-current asset representing the
right to use the leased item, and a loan obligation for future lease payables. Lease costs will be recognised in the form
of depreciation of the right to use asset and interest on the lease liability, which may impact the phasing of operating
profit and profit before tax, compared to existing cost profiles and presentation in the income statement, and will
also impact the classification of associated cash flows. The detailed assessment of the impact on the Group is
ongoing, with the current focus being on assessing the completeness of lease contracts. The adoption is expected to
have a significant impact on the presentation of the Group’s assets and liabilities, mainly relating to property and
vehicle leases. Our initial assessment is that the standard will increase lease assets by £1.2m, and increase lease
liabilities by a similar value, but will have an immaterial overall effect on profit and earnings.

Franchise Brands plc Annual Report and Accounts 2018

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Segmental reporting
Management has determined that the Group has one reportable segment.

IFRS8 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. IFRS8 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 the Group 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
The consideration of 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, based on the latest approved
budgets, 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 and trademarks 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 have a useful life of 10 years.
Others (including capitalised computer software) have a useful life of 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.

Franchise Brands plc Annual Report and Accounts 2018

NOTES FORMING PART
OF THE FINANCIAL STATEMENTS continued
For year ended 31 December 2018

1 Accounting policies continued
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. All revenue is recognised at a point in time. With the exception of the
IFRS15 adjustments noted above, there have been no changes to the accounting for revenue in the year. The following
criteria must also be met before revenue is recognised:
• Management service fees (“MSF”): MSF is charged for the continuing use of the rights and continuing services

provided during the franchise agreements term. They are recognised as the service is provided and the rights are
used. These are charged on a monthly basis and the values recognised are based on the performance obligations in
the relevant contracts with our franchisees.

• Sales of franchise territories: Sales of franchise territories represent the charges for packages which include
training, other start-up support and equipment. No element of these charges relate to subsequent services.
Revenue from franchise fees is recognised when a franchisee completes the relevant training, as this is when we
have delivered our performance obligation under the franchise contract. Where deferred payment terms are
offered the revenue is recognised to the extent that there is not considered to be significant doubt over the
eventual recovery (see Note 2).

• Product sales: Revenue from sales of products is recognised on delivery to customers, as this is when control is

deemed to have transferred.

• Direct labour income: Revenue from our direct labour organisations is recognised when all our performance
obligations are met in relation to an individual job. Due to the nature of the contracts we have with our end
customers, this point is when the invoice is raised.

Adjusted EBITDA
Adjusted EBITDA is utilised as a key performance indicator by the Directors Group and is calculated utilising profit
before tax, adjusted for finance income and costs, amortisation and depreciation on non-current assets, share-based
payments and non-recurring items.

Financial liabilities
Bank borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of
the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective
interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on
the balance of the liability carried in the consolidated statement of financial position. For the purposes of each
financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as
any interest or coupon payable while the liability is outstanding. Trade payables and other short-term monetary
liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective
interest method.

Financial assets
All of the Groups financial assets are classified and held at amortised cost. These assets arise principally from the
provision of goods and services to customers (eg trade receivables), but also incorporate other types of financial
assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash
flows are solely payments of principal and interest. They are initially recognised at fair value plus transaction costs that
are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the
effective interest rate method, less provision for impairment. Impairment provisions for current and non-current
trade receivables are recognised based on the simplified approach within IFRS 9 using a provision matrix in the
determination of the lifetime expected credit losses. During this process the probability of the non-payment of the
trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from
default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are
reported net, such provisions are recorded in a separate provision account with the loss being recognised within cost
of sales in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not
be collectable, the gross carrying value of the asset is written off against the associated provision. Cash and cash
equivalents includes cash in hand.

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.

Franchise Brands plc Annual Report and Accounts 2018

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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
Plant & equipment
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.

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.
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.

System Sales
System Sales are the total aggregate sales of our franchisees of services to third party customers. It is a measure used
by management to understand the underlying health and size of our individual brands. For some, but not all, of our
brands it is an amount which directly drives our turnover, with the Group collecting a percentage of System Sales as
our MSF. System Sales are not, therefore, a component of the financial performance of the Goup, but are a KPI used
by management, and it is therefore disclosed to provide more insight into the franchise networks which we operate.

Franchise Brands plc Annual Report and Accounts 2018

NOTES FORMING PART
OF THE FINANCIAL STATEMENTS continued
For year ended 31 December 2018

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. Each of the following items contain judgements and significant estimates and have 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. The deferred payment terms do not include any financing impact due to their short-term
nature. As at 31 December 2018 £147,000 (2017: £147,000) had been recognised as a debtor, and £132,000
(2017: £132,000) was not recognised.

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: National Accounts and
Commercial. In the case of National Accounts Metro Rod bears the credit risk, whereas for Commercial the franchisee
bears the risk. Therefore, for National 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.

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 have 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 estimates 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 and minimise interest costs. 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, and subject to shareholder approval.

Franchise Brands plc Annual Report and Accounts 2018

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Categories of financial instruments

Group

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

Company

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

2018
£’000

2,940
9,950

(7,777)
(7,911)

2018
£’000

6
2,601

2017
Restated
£’000

3,245
7,276

(6,036)
(9,505)

2017
£’000

232
2,950

(247)
(7,839)

(191)
(9,419)

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 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.

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 2018 £5.4m of this term loan was outstanding, offset in the financial
statements by £0.1m of loan arrangement fee. The loan currently carries a variable interest rate of 2.95%, based on
both LIBOR and a margin based on leverage, and is repayable in instalments until 2022. The Group had also utilised
£2.5m of its £5m Revolving Credit Facility, which runs until April 2023 and carries the same interest rate as the term
loan, and currently matures on the 8 March 2019. Note that in the table below the 2017 sensitivity relates to the nearly
nine months which the Group had a term loan.

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

Sensitivity
income
2018
£’000

(22)
22

Sensitivity
equity
2018
£’000

(22)
22

Sensitivity
income
2017
£’000

(22)
22

Sensitivity
equity
2017
£’000

(22)
22

Credit risk management
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 of expected credit
risk 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. The following table sets out the contractual maturities
(representing undiscounted contractual cash flows) of financial liabilities.

Franchise Brands plc Annual Report and Accounts 2018

NOTES FORMING PART
OF THE FINANCIAL STATEMENTS continued
For year ended 31 December 2018

3 Financial instruments – risk management continued

Trade and
other payables
2018
£’000

Loans and
borrowings
2018
£’000

–
7,777
–
–
–

7,777

Trade and
other
payables
2018
£’000

–
247
–
–
–

247

–
3,571
1,251
3,200
–

8,022

Loans and
borrowings
2018
£’000

–
3,550
1,200
3,200
–

7,950

Total
2018
£’000

–
11,348
1,251
3,200
–

15,799

Total
2018
£’000

–
3,797
1,200
3,200
–

8,197

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

4 Revenue

Management service fees
Sale of franchise territories
Product sales
Direct labour income

Trade and
other
payables
2017
£’000

–
6,036
–
–
–

6,036

Trade and
other
payables
2017
£’000

–
191
–
–
–

191

Loans and
borrowings
2017
£’000

–
4,353
1,155
4,586
–

10,094

Loans and
borrowings
2017
£’000

–
4,318
1,131
4,559
–

Total
2017
£’000

–
10,389
1,155
4,586
–

16,130

Total
2017
£’000

–
4,509
1,131
4,559
–

10,008

10,199

2018
£’000

28,498
1,513
894
4,565

35,470

2017
£’000

20,402
1,829
946
1,690

24,867

The table shows revenue from contracts disaggregated into major classes of revenue and reconciled to the Group
revenue reported.

Contract Assets

At 1 January
Cash paid to franchisees in advance of revenue recognised
Acquisition balance

At 31 December

2018
£’000

611
209
–

820

2017
£’000

–
405
206

611

Contract assets are included within trade and other receivables. They arise from payments made to our franchisees as
per their contracts in advance of when we are able to recognise revenue under IFRS15.

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

Franchise Brands plc Annual Report and Accounts 2018

2018
£’000

131
253
138
481

15
49

16
–
–

2017
£’000

96
156
58
236

15
37

15
155
17

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No non-audit services were provided on a contingent fee basis. In 2017, the Group incurred significant costs which
management believed due to both their one-off nature and magnitude should be brought to the attention of users
of the accounts as non-recurring items; these included the costs of acquiring Metro Rod, the transitional costs related
to the set-up of a standalone IT environment for Metro Rod, and a provision which was established following the
liquidation of Carillion plc. There have been no such items during the course of 2018.

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

6 Staff costs

Wages and salaries
Social security costs
Defined contribution pension cost
Share-based payment expense

The average monthly number of persons (including Directors) employed by the Group

was:

Administration
Sales
Operations
Directors

Directors’ remuneration

Directors’ emoluments
Share-based payment expense

2018
£’000

–
–
–

–

2018
£’000

4,789
429
70
138

5,426

110
12
24
10

156

2018
£’000

690
92

782

2017
£’000

1,144
734
316

2,194

2017
£’000

3,628
343
47
58

4,076

139
13
23
12

187

2017
£’000

484
31

515

The highest paid Director’s remuneration was £129,000 (2017: £125,000). The Board of Directors are considered to
be the key management personnel. Their cost to the Group is £835,000 (2017: £565,000), after including employer’s
National Insurance. The Company had no employees (other than the Directors) or staff costs in either year.
Directors’ emoluments include £30,000 (2017: £77,000) paid to companies controlled by Directors (see Note 22).

7 Share-based payments
The Company has established a LTIP in the form of an equity settled 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, 128 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 2018 was £138,000 (2017: £58,000). 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

2018

3,467,747
1,308,132
(242,349)
–

4,533,530

–

2017

1,628,788
2,545,172
(706,213)
–

3,467,747

–

43p
69p
45p
–

51p

–

33p
57p
41p
–

43p

–

Weighted
average
exercise price

Franchise Brands plc Annual Report and Accounts 2018

NOTES FORMING PART
OF THE FINANCIAL STATEMENTS continued
For year ended 31 December 2018

7 Share-based payments continued
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. For options outstanding at the end of the period
the range of exercise prices was 33p-69p (2017: 33p-67p), and the weighted average remaining contractual life was
8.8 years (2017: 9.3 years)

Black-Scholes option pricing model

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

8 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 (see Note 18)

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

11 December
2018

12 December
2017

0.69
0.69
0.75%
6.5
33.2%
1%

0.50
0.50
0.46%
6.5
37.8%
1%

2018
£’000

5
305

310

2018
£’000

215
(7)

328

536

544
(1)
(7)

536

19%

31 March
2017

0.88
0.88
0.46%
6.5
37.8%
1%

2017
£’000

4
273

277

2017
Restated
£’000

(14)
(34)

(17)
94
(34)

(51%)

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 2018) 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.

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.

Profit/(loss) 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

Franchise Brands plc Annual Report and Accounts 2018

2018
£’000

2,332
–
–

2,332

2017
Restated
£’000

(128)
2,194
(345)

1,721

Number

77,687,101
1,100,364

69,553,746
741,726

78,787,465

70,295,472

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

11 Intangible assets

Cost
At 1 January 2017
Additions

At 31 December 2017
Additions

At 31 December 2018

Amortisation
At 1 January 2017
Charge for year

At 31 December 2017
Charge for year

At 31 December 2018

Net book value
At 31 December 2018

At 31 December 2017

At 1 January 2017

Goodwill
£’000

1,314
18,174

19,488
–

19,488

–
–

–

19,488

1,314

Carrying amount of assets with indefinite useful lives

Metro Rod
ChipsAway
MyHome
Barking Mad

Goodwill
£’000

18,174
1,171
14
129

19,488

Indefinite life
intangibles
£’000

4,750
–
–
763

5,513

Pence

3.00
2.96
3.00
2.96

Pence

(0.18)
(0.18)
2.47
2.45

Brands,
trade marks
& other
intangibles
£’000

2,619
4,685

7,304
–

7,304

(1,791)
–

(1,791)

5,513

828

2018
£’000

22,924
1,171
14
892

25,001

Customer
relationships
£’000

Software
£’000

Total
£’000

–
2,159

2,159
–

2,159

–
(156)

(156)
(216)

(372)

1,787

2,003

–

–
21

21
460

481

–
–

–
(37)

(37)

444

–

Goodwill
£’000

18,174
1,171
14
129

19,488

Indefinite life
intangibles
£’000

4,750
–
–
763

5,513

3,933
25,039

28,972
460

29,432

(1,791)
(156)

(1,947)
(253)

(2,200)

27,232

27,025

2,142

2017
£’000

22,924
1,171
14
892

25,001

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 9.9% (2017: 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. A 2% perpetual growth rate 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.

Franchise Brands plc Annual Report and Accounts 2018

NOTES FORMING PART
OF THE FINANCIAL STATEMENTS continued
For year ended 31 December 2018

12 Property, plant and equipment

Leasehold
improvements
£’000

Fixtures and
fittings
£’000

Computer
equipment
£’000

Motor
vehicles
£’000

Plant and
equipment
£’000

Cost
At 1 January 2017
Additions on acquisition
Additions
Disposals

At 31 December 2017

Additions

At 31 December 2018

Depreciation
At 1 January 2017
Additions on acquisition
Charge for year
Disposals

At 31 December 2017

Charge for year

At 31 December 2018

Net book value
At 31 December 2018

At 31 December 2017

At 1 January 2017

111
–
11
–

122

125

(93)
–
(7)
–

(100)

(10)

(110)

110
15
4
–

129

136

(96)
–
(13)
–

(109)

(14)

(123)

148
33
31
(2)

210

244

(141)
–
(20)
3

(158)

(32)

(190)

243
–
40
(130)

153

177

(165)
–
(46)
115

(96)

(36)

(132)

24
5
12
(9)

282

313

(17)
–
(10)
9

(18)

(40)

(58)

255

Total
£’000

635
53
98
(141)

645

350

995

(512)
–
(96)
127

(481)

(131)

(613)

382

162

121

The net book value of assets held under hire purchase agreements under Group property, plant and equipment
include an amount of £13,000 (2017: £52,000). The related depreciation charge on these assets for the year was
£39,000 (2017: £39,000).

The Company has no fixed assets at 31 December 2018 or 31 December 2017.

13 Inventories

Group

Finished goods and goods for resale

2018
£’000

245

2017
£’000

252

All amounts are carried at cost and therefore no amounts are carried at fair value less costs 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 2018 or 31 December 2017 within the income statement of the Company. £835,000 of inventories
were recognised as an expense within the year (2017: £936,000).

14 Trade and other receivables
The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected
credit loss provision for trade receivables and contract assets. To measure expected credit losses on a collective
basis, trade receivables and contract assets are grouped separately. Our contract assets represent assets with our
franchise network, therefore the assets are reviewed on the basis of the health of individual franchisees.

The expected loss rates are based on the Group’s historical credit losses experienced over the three year period
prior to the period end. The historical loss rates are then adjusted for current and forward-looking information on
macroeconomic factors affecting the Group’s customers. In particular we look at the differing segmental risks to
which we are exposed in respect of Metro Rod’s customer base, with water utilities (for example) carrying much
lower risks than our exposure to the Facilities Management segment.

In relation to the Company, the credit risk for amounts owed by Group undertakings has not increased significantly
since their initial recognition. No expected credit loss provision has been recognised on the basis of the significant
net assets and positive cash flows of subsidiaries.

Franchise Brands plc Annual Report and Accounts 2018

Group

Trade receivables
Provision at the year end
Other receivables

Total financial assets other than cash and cash equivalents
Contract assets
Prepayments

Total current trade and other receivables

Bad debt provision:
Brought forward
Additions on acquisition
Provision for the year
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
121+ days

Past due and impaired
Due

0-30 days
31-60 days
61-90 days
91-120 days
121+ days

Total

Company

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

Total current trade and other receivables

15 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

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2017
Restated
£’000

7,693
(646)
229

7,276
611
257

8,144

2017
Restated
£’000

(204)
(231)
(415)
204

(646)

2017
Restated
£’000

5,305

757
374
267
344
–

189
3
75
50
93
236

7,693

2017
£’000

2,940
10
67
195

3,212

2017
Restated
£’000

3,485
2,280
271
370

6,406

21
170

191

2018
£’000

9,971
(268)
247

9,950
820
278

11,048

2018
£’000

(646)
–
(97)
476

(268)

2018
£’000

6,641

1,070
627
392
423
550

18
14
19
10
133
74

9,971

2018
£’000

2,599
2
125
134

2,860

2018
£’000

3,940
3,302
535
819

8,596

39
208

247

Carrying values approximate to fair value. Included within other creditors is an amount of £98,000 (2017: £20,000)
which represents the net payable in relation to the national advertising funds.

Franchise Brands plc Annual Report and Accounts 2018

NOTES FORMING PART
OF THE FINANCIAL STATEMENTS continued
For year ended 31 December 2018

16 Loans and borrowings

Group and Company

Current
Revolving credit facility
Term loan
Amortised loan fees

Total current loans and borrowings

Non-current
Term loan

2018
£’000

2017
£’000

2,514
1,035
(110)

3,439

3,506
803
(145)

4,164

4,400

5,255

The loans are comprised of a £5,400,000 term loan, which carries a 2.95% interest rate and is repayable in
instalments until 2022; and a £2,500,000 revolving credit facility, which runs until April 2023, and carries a 2.95%
interest rate. Included above are the amortised value of loan fees of £110,000 (2017: £145,000), which are the
difference between the book value and fair value of the loans. The bank loans are secured by a floating charge
over the assets of the Group. During the year the Group set up an asset financing scheme with HSBC plc for the
use of Metro Rod franchisees, primarily for the purchase of vans and tankers. The Group participates in this
scheme, on a step-in basis, up to a total value of £1m. In the event of a default of a franchisee, the Group would
step-in and have the rights of the financed asset, and the obligation on the liability. At the year end, £0.9m had
been lent through this scheme. There are no expected credit losses to recognise in respect of the asset
financing scheme.

17 Obligations for finance leases ageing

Group

Current
Non-current (between 1 and 5 years)

Total obligation for finance lease

2018
£’000

21
51

2017
£’000

21
65

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

18 Deferred tax liability
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 17%
(2018: 17%).

Group

Cost
At 1 January 2017
Credit in the year
Acquisition of subsidiaries

At 31 December 2017
Credit/ (charge) in the year

At 31 December 2018

Intangibles
£’000

Accelerated
allowances
£’000

IFRS15
adjustment
£’000

Share based
payment
£’000

(132)
27
(1,164)

(1,269)
39

(1,230)

(31)
–
774

743
(253)

490

–
–
152

152
(152)

–

–
–
–

–
38

Total
£’000

(163)
27
(238)

(374)
(328)

(702)

Franchise Brands plc Annual Report and Accounts 2018

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

Cost
At 1 January 2017
Additions in year

At 31 December 2017
Additions in year

At 31 December 2018

£’000

972
29,125

30,097
1,606

31,703

During the year the Group underwent a corporate simplification process, by which the Company became the
holding company of all the main trading entities, and two previously intermediate holding companies became
dormant. This resulted in an increase in the level of fixed asset investments held by the Company. 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

Dormant
Operation and management of a franchise business
Operator of drainage franchise

FB Holdings Limited
Metro Rod Limited
MRE Drainage Limited
ChipsAway International Limited Operation and management of a franchise business
Edwin Investments Limited
Oven Clean Domestic Limited
MyHome Marketing Limited
Oven Clean (Ontario) Limited
Barking Mad Limited
Kemac Services Limited
DentsAway Limited
MRB Drainage Limited

Dormant
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
Dormant

2018
%

100
100
100
100
100
100
100
100
100
100
100
100

2017
%

100
100
–
100
100
100
100
100
100
100
100
100

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 Ashwood Court, Tytherington Business Park, Macclesfield, SK10 2XF.

20 Share capital and other reserves

Allotted, called up and fully paid

At 1 January
Placing in relation to acquisition of Metro Rod

At 31 December

2018
No. of shares

2017
No. of shares

77,732,033
–

47,881,286
29,850,747

77,732,033

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

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 2018.

Treasury reserve: This represents the amount that the Company paid on its own shares held in Treasury. At the
year end the Group held 200,000 shares (2017: nil shares) in treasury for the purpose of the future settlement of
equity settled share based compensation.

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

Franchise Brands plc Annual Report and Accounts 2018

NOTES FORMING PART
OF THE FINANCIAL STATEMENTS continued
For year ended 31 December 2018

21 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 less than five years
More than five years

2018
£’000

329
857
–

2017
£’000

302
871
56

1,186

1,229

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

22 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)
Nigel Wray (Brendon Street Investments Limited)

Company secretary fee
Consultancy service
Director’s fee

Related party transactions

2018
£’000

10
–
20

2017
£’000

10
50
17

During the year the Group employed a family member of one of the directors. The total remuneration paid was
the same as other employees at an equivalent level in the organisation. There were no outstanding balances in
regards to related party transactions at the year end (2017: £nil).

23 Dividends

Final 2017 dividend of 0.33p per Ordinary share paid and declared (2016: 0.17p)
Interim dividend of 0.21p per Ordinary share paid and declared (2017: 0.17p)

2018
£’000

257
163

420

2017
£’000

81
132

213

A final dividend of 0.46 pence per share is proposed.

24 Post balance sheet events
On 1 March 2019 the Group moved its Registered Office from 5 Edwin Avenue, Hoo Farm Industrial Estate,
Kidderminster, DY11 7RA (the principal place of business of ChipsAway and Ovenclean) to Ashwood Court,
Tytherington Business Park, Macclesfield, SK10 2XF (the principal place of business of Metro Rod).

Franchise Brands plc Annual Report and Accounts 2018

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