Franchise Brands Annual Report 2020

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FY2020 Annual Report · Franchise Brands

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BUILDING OUR

BUSINESS

ANNUAL REPORT AND ACCOUNTS 2020

OUR PURPOSE

We build market-leading
businesses primarily via
a franchise model.

prOGressinG MeTrO rOd’s VisiOn 2023 sTraTeGY

Harnessing technology to benefit our
customers.

See pages 12 and 13.

expanding our ‘Water In. Waste out.’ proposition.

See pages 14 and 15.

We support our franchisees to
successfully grow their businesses
and achieve their goals:
• unity behind our purpose; when

they grow, we grow.

• Building market-leading brands
that support the success of our
franchisees.

• providing specialist expertise,
tools and development to our
franchisees so they can deliver
a first-class customer experience.
• All the benefits of passionate and
knowledgeable support teams for
each brand.

WhY inVesT in Franchise Brands

Market-leading brands in selected customer
segments.

proven track record of developing our
businesses.

demonstrable track record of shareholder
value creation. Five-year cAGR:

Adjusted eBItdA
47%
significant potential to grow our portfolio of
brands.

dividend
59%

Highly experienced Board and senior
management team who are significant
shareholders (57%).

potential to accelerate our growth through
targeted earnings-enhancing acquisitions.

See pages 16 to 21.

See pages 12 to 21.

See pages 34 to 36.

See pages 14, 15, 18
and 19.

cOnTenTs

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

1 Highlights
2 At a Glance
4 COVID-19: Crisis Response, Recovery

and Protection

6 Chairman’s Statement
10 Strategy and Business Model
12 Strategy in Action
16 B2B Review
20 B2C Review
22 Financial Review
26 Working Responsibly
32 Principal Risks and Uncertainties

34 Board of Directors
36 Senior Leadership Team
37 Our Locations
38 Chairman’s Introduction to

Governance

39 Corporate Governance
41 Directors’ Remuneration Report
43 Directors’ Report
46 Directors’ Responsibilities Statement

47 Independent Auditor’s Report to the
Members of Franchise Brands plc

52 Consolidated Statement of
Comprehensive Income
53 Consolidated Statement of

Financial Position

54 Company Statement of Financial Position
55 Consolidated Statement of Cash Flows
56 Company Statement of Cash Flows
57 Consolidated and Company

Statement of Changes in Equity
58 Notes forming part of the Financial

Statements

80 Five-Year Financial Summary (Unaudited)
81 Company Information

Front cover image:

GeoRGe cApel
senior Field engineer
Willow pumps

Strategic Report

Governance

Financial Statements

FINANCIAL HIGHLIGHTS

OPERATIONAL HIGHLIGHTS

REVENUE
+12%

ADJUSTED EBITDA*
+28%

£49.3m

2019: £44.0m

£6.6m

2019: £5.2m

PROFIT BEFORE TAX

+12%

£3.7m

2019: £3.3m

ADJUSTED EARNINGS
PER SHARE**

+0%

4.35p

2019: 4.34p

DIVIDEND PER SHARE
+16%

NET CASH/(NET DEBT)

1.10p

2019: 0.95p

£4.9m

2019: £(11.1)m

A resilient performance following
strong growth in Q1, early and
decisive action taken during the
spring lockdown to reduce costs,
and a strong recovery across the
majority of businesses during the
second half of the year.

Willow pumps fully integrated into
the Group, and assumed
management responsibility for
the two Metro Rod corporate
franchises, with positive results.

B2c division closed during the
spring lockdown, but resumed
trading in June 2020, with a strong
restart at both chipsAway and
ovenclean.

Robust B2c franchise recruitment
of 58 (2019: 61), with 31 new
franchisees in H2 (H2 2019: 27).

Roll-out of “Vision” works
management system completed
on-time and on-budget.

* Adjusted eBItdA is earnings before interest, tax, depreciation, amortisation and share-based payment expense and non-recurring items

(coVId-19 related restructuring charge and bad debt provision).

** Adjusted eps is earnings per share before amortisation of acquired intangibles, share-based payment expense and non-recurring items

(coVId-19 related restructuring charge and bad debt provision).

Franchise Brands plc Annual Report and Accounts 2020

At a Glance

OUR LEADING

BRANDS

B2B

The Group currently has a
combined network of over
425 franchisees across five
principal franchise brands in
the UK.

the Group is organised into a B2B division
comprised of Metro Rod, Metro plumb, and
Willow pumps, and a B2c division that
incorporates chipsAway, ovenclean and Barking
Mad. this divisional organisation is designed
to provide a greater focus and structure to
support the strategic development of our
B2B and B2c brands.

each of our brands are leaders in their respective
markets and each brand has a long trading
history. the combined trading history of all the
Group’s brands is over 135 years. the Group
employs 265 people across three principal
locations in Macclesfield, Kidderminster
and Aylesford.

Franchise Brands plc Annual Report and Accounts 2020

METRO ROD
• the uK’s commercial drainage experts with over

35 years’ experience.

• provides one-stop solutions to a range of commercial

customers, including facilities management,
construction, manufacturing, education, retail,
insurance, water utilities and the public sector.

• Full national coverage through the B2B divisions
network of 50 depots and 425 highly trained
engineers.

METRO PLUMB
• specialist plumbing franchise built on providing
emergency services to insurance customers.

• Range of services is expanding and moving to service

domestic as well as commercial customers.

• 30 franchisees of which 5 are independent.

SYSTEM SALES

£40.6m

ADJUSTED EBITDA*

£3.7m

METRO ROD AND METRO
PLUMB FRANCHISEES

See pages 16 and 17.

* Adjusted eBItdA is earnings before interest, tax, depreciation,

amortisation and share-based payment expense and non-recurring
items (coVId-19 related restructuring charge and bad debt provision).

Strategic Report

Governance

Financial Statements

B2c

WILLOW PUMPS
• Founded in 1997, a leading pump design,

installation and maintenance business, with
a below-ground and above-ground
capability.

• one-stop shop for design, installation and

maintenance of adoptable and non-
adoptable pump stations.

• servicing, reactive and extra works for a

wide range of commercial customers across
different sectors.

• Acquired by Franchise Brands in 2019 to

help expand Metro Rod and Metro plumb’s
range of services.

CHIPSAWAY
• the uK’s leading mobile car paintwork repair

specialist established in 1994.

• chipsAway has 215 franchisees in the uK.

• 33 car care centres can complete larger

and more specialist repairs.

OVENCLEAN
• the leading and longest established oven
cleaning business in the uK since 1994.

• ovenclean has a network of 100 franchisees.

BARKING MAD
• A leading provider of dog home boarding

services (dog holidays) since 2000.

• services provided by 71 franchisees.

REVENUE

ADJUSTED EBITDA*

£13.2m

£1.8m

SYSTEM SALES

£18.8m

ADJUSTED EBITDA*

£2.1m

ENGINEERS

UK FRANCHISEES

386

See pages 14 to 15 and 18 to 19.

See pages 20 and 21.

Franchise Brands plc Annual Report and Accounts 2020

COVID-19: Crisis Response, Recovery and Protection

PROTECTING OUR

BUSINESS

We moved swiftly and
decisively to right-size
the business to trade
profitably through
the crisis.

the actions we took very early in the crisis
to right-size the business to match
anticipated levels of income enabled the
Group to trade profitably through the crisis.
We also worked with our teams and
franchisees to develop and implement safe
working practices. At all times our key
priority has been the safety of our team
members, franchisees, engineers,
customers and the public whilst continuing
to provide the best possible customer
service in a challenging environment.

our businesses were impacted in
different ways by the crisis. the majority
of the services of our B2B division were
designated by the Government as
essential to ensure the smooth running
of the health service, public utilities and
other key businesses during the first
lockdown. the business therefore
continued to operate and serve
customers, albeit at significantly lower
volumes in the spring lockdown.

We protected our cost base by
furloughing approximately 40% of our
staff. We also supported our franchisees
to right-size their businesses.

We are proud of the role our front-line
key workers have played during the
crisis in keeping Britain’s drains and
water flowing.

our B2c division was impacted more
significantly by the spring lockdown
as it does not provide essential services.
during this period, it was effectively shut
down. We furloughed 85% of the team
and supported our franchisees by
reducing or suspending fees and
charges, other than those necessary
to maintain skeleton operations.

Given the uncertain outcome and
duration of the crisis we reassessed our
liquidity position and the options
available and concluded that it would be
prudent to strengthen the balance sheet
by an equity placing. this has allowed
us to provide valuable support to our
franchisees and commercial customers.

We became increasingly well practiced
through the crisis at how to mitigate the
impact of the restrictions by protecting
our people, controlling costs and
continuing to serve our customers
where it was safe to do so.

FRANCHISE BRANDS HEROES

our 425 engineers have played
a vital role in keeping hospitals,
and other key establishments
such as supermarkets and
distribution centres, operational
throughout the crisis.

In the spring lockdown several
of our engineers attended a
coVId-19 ward in a major city
centre hospital. their job was to
clear the drains in the intensive
care unit into which the patient’s
ventilators drained.

their story was really quite
harrowing. they needed the full
range of personal protective
equipment (“ppe"), including a
hazmat suit. the engineers then
had to crawl between beds to
unblock pipes and drains. they
received amazing support from
the hospital staff before and after
the work.

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

RESPONSE TO COVID-19

prOTecTinG OUr
cOsT Base

• utilised the Government Job Retention

scheme (“furlough scheme”) by
furloughing 40% of B2B staff and 85%
of B2c staff in the spring lockdown.
• the Board volunteered temporary pay

cuts of up to 100% of salary.

• Agreed temporary pay cuts with higher

paid employees.

• Achieved other operational cost

savings.

sUppOrTinG OUr Franchisees:
healTh and saFeTY

• developed and helped implement safe
working practices to keep our people,
customers and members of the public
safe.

• provided regular guidance regarding
Government health and safety advice.

• provided regular guidance on the

impact of the Government restrictions.

• sourced and distributed ppe,

particularly in the spring lockdown.

sTrenGTheninG OUr
Balance sheeT

MOVinG TO reMOTe
WOrKinG

• Raised £13.6m (net) in April through an
equity placing with existing and new
shareholders.

• placing allowed us to support our

commercial customers by extending
payment terms for those in challenged
sectors such as hospitality.
It also allowed us to support our
franchisees by providing funds for
investment in additional equipment.
• positioned the Group for opportunities

•

post-pandemic.

• seamless and efficient enablement via

cloud-based It systems.

• Moved to being very data driven to

make key decisions.

• utilised communications platforms for
day-to-day operations, teamwork and
larger initiatives such as the training
needed for the successful roll-out of
new works management system.
• established new permanent ways of
working such as remote out-of-hours
contact centre.

sUppOrTinG OUr
Franchisees: BUsiness

KeepinG peOple saFe
and Well

• Helped our franchisees right-size their
businesses to put them in an optimum
financial position.

• provided regular guidance on changing

coVId-19 restrictions and how to
access the Government support that
was available.

• Reduced or suspended franchisee fees
and charges at the height of the crisis
to ensure their survival.

• delivered active marketing campaigns

and support to drive customer
enquiries.

• established safe working practices for

company premises.

• provided proactive support through

our 20 Mental Health First Aiders and
made counselling services available to
all staff.

• organised regular employee

engagement and wellbeing initiatives.

• our franchisees provided free or

discounted services to nHs staff and
other Key Workers.

• provided support in the community.

Franchise Brands plc Annual Report and Accounts 2020

Chairman’s Statement

CONTINUING

MOMENTUM

this resilient performance has been
driven by strong trading across the Group
in the first quarter; early and decisive
action taken at the start of the spring
lockdown to reduce costs, and a strong
recovery across most of our businesses
in the second half of the year.

B2B diVisiOn
our B2B division, which comprises Metro
Rod, Metro plumb, and Willow pumps,
provides a “Water In. Waste out.” range
of drainage, plumbing and pumps
services to commercial and domestic
customers across the whole of the uK.
Most of these services have been
designated by the Government as
essential and continued to operate
throughout the lockdowns.

Metro Rod and Metro plumb started the
year strongly with system sales in Q1 up
by 19% year-on-year. As a result of the
spring lockdown, system sales declined
by 29% in April, before recovering slightly
to end Q2 down 23%. the business then
steadily recovered for the remainder
of the year with system sales down 5%
in Q3 and up 5% in Q4, despite the
november lockdown. For the full year,
system sales were down just 2% against
2019, which we consider to be a strong
performance given the challenging
circumstances.

I am pleased to report that trading in
2020 has been considerably better than
might have been anticipated in a year
of multiple disruptions as a result of the
COVID-19 pandemic.

STEPHEN HEMSLEY
Executive Chairman

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

“I would like to extend a special thank you
to our exceptional engineers at Metro Rod
and Willow Pumps and our plumbers at
Metro Plumb.”

ADJUSTED EBITDA

£6.6m

2019: £5.2m

Although system sales were slightly
lower than 2019, the mix of business
was such that our effective rate of
Management service Fee (“MsF”)
charged to the franchisees favoured the
higher rate services. In addition to the
reduced staffing costs resulting from use
of the Government Job Retention
scheme (“furlough scheme”), other
overhead costs, such as conferences
and travel, were not incurred due to the
lockdown restrictions and home working.
As a result, adjusted eBItdA from the
core Metro Rod business increased by
24% from 2019, an excellent performance
in a challenging year and a credit to peter
Molloy, the Managing director of Metro
Rod and Metro plumb.

We have also assisted our franchisees in
planning for the anticipated downturn by
providing advice on the furlough scheme,
the various loan support schemes and
assisting with cashflow where necessary.
In the event, our franchisees proved
remarkably resilient. there have been
no franchisee failures and most of the
assistance we have provided has funded
expansion of their businesses, for
example, helping to purchase new
equipment. this resilience has resulted
in 17 of our franchisees growing their
business on a like-for-like basis during
2020 (2019: 33) and all franchisees
generating a positive eBItdA for
the year.

the initiatives taken towards the end
of 2019 to develop Metro plumb as a
separate franchise have started to bear
fruit, with two new franchisees joining in
the year, bringing the total number of
independent territories to five. In
addition, there are 25 Metro Rod
franchisees operating Metro plumb
territories, and three territories in the
south east operated corporately. Metro
plumb system sales exceeded £5m in the
year and grew by 3% on a like-for-like
basis. In a difficult environment, this
growth resulted from the efforts of the
excellent new management team in our
corporate operation and the enthusiasm
of our new independent franchisees.
We will be focusing significant additional
resources in sales, marketing and
recruitment to develop Metro plumb in
the coming year.

Willow pumps, which was acquired in
october 2019, started its first full year as
part of the Group with excellent year-on-
year sales growth of 15% in Q1. the
inevitable impact of the spring lockdown,
in particular from the closure of
construction sites, led to more reliance
being placed on lower revenue/higher-
margin emergency pump work rather
than the higher revenue/lower margin
supply and installation (“s&I”) work. As
a result, turnover declined 56% in Q2,
however, due to the change in business
mix, gross margin was more resilient
falling by only 37%. this pattern of work
continued to characterise the remainder
of the year, as whilst building sites
reopened after the spring lockdown and
s&I work recovered, volumes were lower
and routine service and emergency work
predominated. As a result, sales were
23% lower, but gross profit declined by
only 4% for the full year.

Franchise Brands plc Annual Report and Accounts 2020

Chairman’s Statement continued

during 2020, Willow pumps assumed
responsibility for the Metro Rod corporate
franchises in Kent & sussex and exeter
resulting in a significant increase in both
revenue and profitability. progress was also
made in rolling out pump maintenance
expertise to the Metro Rod engineers.
However, the speed of this was held back
by the various restrictions and their
disruptive effect on the required face-to-
face training. notwithstanding this, Metro
Rod franchisees have embraced the pump
opportunity enthusiastically and remain
keen to add this higher margin service to
their businesses.

part of the Willow pumps acquisition deal
structure was the payment of further
consideration based on increased profits
and the increase in pump work undertaken
by Metro Rod franchisees over five years.
the coVId-19 crisis has impacted on the
ability of the management team to deliver
these demanding targets, and whilst there
will be a modest cash payment made in
respect of 2020, the balance of the 2020
targets have been rolled over into the
targets for the remaining four years. this
will provide our team at Willow pumps with
an even greater incentive to grow the
business over the remaining term of
the earn-out.

B2c diVisiOn
the B2c division which comprises
chipsAway, ovenclean and Barking Mad,
started the year strongly, with robust
recruitment levels and strong consumer
demand in Q1. However, the restrictions
in the spring lockdown meant that all the
brands in this division had to suspend
trading for most of Q2, as they were not
considered to be essential services. to
mitigate the impact on franchisees, MsF
fees were reduced, and almost all other
charges suspended. In response, 85%
of the B2c support centre team were
furloughed and other non-essential costs
curtailed or otherwise not incurred.
these measures helped ensure the
division traded at a small surplus
throughout this period.

With the reopening of most businesses
in Q3, the B2c brands began to recover,
albeit at different speeds. chipsAway,
which contributes 88% of the division’s
eBItdA, led the way with robust
consumer demand allowing it to quickly
re-establish pre-lockdown levels of
activity. ovenclean also recovered
quickly from early summer onwards,
however, Barking Mad continued to suffer
very low demand as people were unable
to take holidays that generated demand
for dog boarding.

considering the background, franchise
recruitment in the B2c division in 2020
was robust resulting in 58 recruits (2019:
61). Recruitment started the year well with
18 new franchisees in Q1 (Q1 2019: 20).
Q2 was, unsurprisingly, slower with 9
recruits (Q2 2019: 15) but accelerated
strongly in the second half of the year
with 31 new franchisees joining (H2 2019:
27). However, given the loss of income
experienced by franchisees, which was
particularly severe in the Barking Mad
network, there has been a 4% reduction
in the total number of franchisees in the
B2c network to 386 from 404 at the
end of 2019.

Most of the income generated in the B2c
division is based on franchisees paying a
fixed monthly fee (rather than a turnover-
related fee as in our B2B franchise
businesses). We were able to reinstate
full fees once franchisees recommenced
trading and consumer leads recovered.
As a result of this robust business model,
and the overhead cost savings, adjusted
eBItdA decreased by only 16% in the
year which we consider to be a resilient
performance.

OUr diGiTal JOUrneY
A crucial part of the Group’s strategy for
developing all our brands, but particularly
Metro Rod and Metro plumb, is the
automation of as many of our processes
and interactions as possible. We believe
that this will not only enhance customer
service and thereby increase sales, but
also improve corporate and franchisee
efficiency and thereby reduce costs.
together, these will allow us to grow
profits, improve productivity, and
maintain competitiveness in an ever
more demanding environment.

Franchise Brands plc Annual Report and Accounts 2020

METRO ROD SYSTEM SALES

£40.6m

2019: £41.3m

since we acquired Metro Rod and Metro
plumb in 2017, we have been developing
and improving the systems, with the
initial objective of introducing a works
management system that will form the
bedrock from which we can develop more
advanced customer facing functionality.
I am therefore delighted to report that
despite the disruption during the year, our
excellent It team successfully completed
the roll-out of our new works management
system, “Vision”, to all Metro Rod and
Metro plumb franchisees, on-time and
on-budget.

With this core infrastructure in place, we
are now embarking on a further, more
ambitious three-year journey that will
eventually see jobs booked on-line,
deployed to an engineer, reported to our
customer, and billed with the minimum
of human intervention. We will also have
the facility to integrate all this information
and functionality directly into our
customers’ systems. the first element
of these enhancements, a customer
portal branded “connect”, has just been
launched. this provides customers with
near real-time, online visibility of every
job, including status, costs, and
photographs. We are one of the first
drainage companies in the uK to offer
this functionality to customers.

the increased investment we are making
in the accelerated digital transformation
of our business is projected to be an
additional £1.5m over the next three
years. this additional investment will lead
to increased sales, overhead savings and
operational efficiencies that will enhance
run-rate eBItdA.

Strategic Report

Governance

Financial Statements

eXpansiOn and sTraTeGic TarGeTs
In April 2020 we successfully raised £14m
(£13.6m net of expenses) via an equity
placing from new and existing investors.
the primary purpose of this was to
ensure the Group was financially secure
through the coVId-19 crisis and able to
support our franchisees where necessary
and financially prudent to do so. As we
reach an end to the crisis, our
strengthened balance sheet will allow us
to focus on expanding the business and
take advantage of the considerable
opportunities we see in the recovery.

We now set out for the first time our
strategic financial targets of run-rate
revenues of £100m and adjusted eBItdA
of £15m by the end of 2023. this will be
achieved through organic growth and
complementary acquisitions largely
funded from existing facilities, without the
need for additional equity capital other
than to incentivise the management of
acquired businesses. In addition, we will
continue to evaluate the acquisition of
franchise businesses of scale that may
require additional shareholder support
and would be additive to these targets.

METRO ROD FRANCHISEES IN
GROWTH IN 2020

172019: 33

OUTlOOK
We have made a strong start to 2021
as a result of resilient sales in the B2B
division, robust recruitment in the B2c
division and the enduring legacy of some
of the cost saving measures implemented
at the start of the pandemic. We therefore
look forward to the remainder of 2021
with confidence.

I usually conclude my statement by
thanking our team and our franchisees
for their hard work and commitment
during the year, and this year is no
exception in what has been one of the
most challenging years for business
(and health) that anyone can remember.
I would, however, like to extend a special
thank you to our exceptional engineers
at Metro Rod and Willow pumps and
our plumbers at Metro plumb for the
dedication they have shown attending
jobs in everything from supermarkets and
offices to coVId-19 wards. they are a
huge credit to our business, and their
commitment and dedication is truly
appreciated by all of us.

Stephen Hemsley
Executive Chairman

At Metro Rod, our organic growth
priorities include the acceleration of
existing initiatives to widen and deepen
the services offered by the franchise
network, particularly in the area of pump
service and maintenance. At Willow
pumps our focus will be the acceleration
of design-led s&I work which has
enormous potential as the country
invests more in new infrastructure and
housing. In addition, our digital
transformation plan is a key strategic
imperative to meet our customers’ needs
and enhance our operational gearing
and profitability.

We continue to selectively seek
earnings-enhancing acquisitions of
complementary B2c franchise
businesses where we can leverage our
existing divisional structure and high-
quality shared support services. Having
visibility of both franchisees’ and
franchisors’ longer-term viability following
the coVId-19 crisis is a key factor and we
are taking a cautious approach. We also
remain interested in the acquisition of
complementary B2B businesses that will
assist in expanding the range of services
offered by our B2B franchisees. Finally,
we continue to search for additional
franchise businesses of scale that could
create a third division of the Group.

since being admitted to AIM in August
2016, we have developed a market-
leading portfolio of brands through
organic growth and targeted acquisitions
and have generated compound annual
growth in adjusted eBItdA of 47% and
a 59% compound growth in dividends.

Franchise Brands plc Annual Report and Accounts 2020

Strategy and Business Model

BUSINESS BUILDING

STRATEGY

Franchise Brands is focused on
building market-leading businesses
in selected customer segments,
primarily via a franchise model.

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

underpinning our strategy are 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.

suppoRtInG
FRAncHIsees

We provide our franchisees
with the support, training
and specialist tools they
need to successfully grow
their businesses and
achieve their goals. this
includes: providing customer
leads; sales and marketing
support; systems to manage
their business; and specialist
finance, health & safety and
technical support.

ouR stRAteGY Is
undeRpInned BY
OUR GUIDING
PRINCIPLES

We deMand
inTeGriTY

We eMpOWer
OUr peOple

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
and expect them to take
ownership of a situation and
to be accountable for their
actions and the results they
generate.

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

seRVIce
eXpAnsIon

deVelopInG
BusInesses

GRoWInG
ouR poRtFolIo

We actively look for
opportunities to help our
franchisees expand their
range of services. to help
Metro Rod and Metro plumb
franchisees benefit from the
considerable opportunities
available in the specialist
pump sector, we acquired
Willow pumps. their expert
team is helping franchisees
build a pump capability.

We develop our
businesses through our
shared support services
such as technology,
marketing, franchise
recruitment and finance.
our management
expertise and experience
and Group resources also
play a key role in helping
grow our businesses from
“good to great”.

Acquisitions are a central part of
our growth strategy. these
include complementary B2c
franchise businesses where we
can leverage our divisional
structure, and complementary
B2B businesses that assist in
expanding the range of services
offered by Metro Rod and Metro
plumb. Also in scope are
additional franchise businesses
of scale which could create a
third division of the Group.

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
continuous improvement.

We are
Fair

We WOrK
as a TeaM

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

We place a huge amount
of importance on teamwork
between our colleagues
and our franchisees to
create a dynamic business.
We are inclusive, encourage
ideas and innovation and
welcome diversity.

Franchise Brands plc Annual Report and Accounts 2020

Created by Richafrom the Noun ProjectStrategy in Action

HARNESSING

TECHNOLOGY

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

“As a digitally enabled company, we are able to
provide near real-time visibility of any work in progress
and can integrate directly with our customers’ internal
systems to ensure they are always kept up to date.”

COLIN REES
Chief Information Officer

neW WOrKs ManaGeMenT sYsTeM
A crucial part of the Group’s brand
development strategy, in particular for Metro
Rod and Metro plumb, is to use technology
to automate as many of our processes and
interactions as possible. We believe this will
not only enhance customer service and
thereby sales and but also improve corporate
and franchisee efficiency.

We made considerable progress in digitising
our business in 2020 with the roll-out to Metro
Rod and Metro plumb franchisees of “Vision”,
our new works management system. As a
cloud and web-based system, “Vision” allows
our franchisees and support centre teams to
connect remotely via any device, which was
of particular benefit during the crisis.

A key benefit of “Vision” is its simplicity of use.
this reduces mistakes and hence improves
accuracy, as the quality of data and
information is so high. Invoicing is one area
where we have already experienced a
substantial improvement in accuracy. the
speed at which tasks, such as job logging, can
be performed has also increased. Additionally,
the system design is leading to better
compliance with our customers’ “on-the-job”
processes as the system provides more
checks and balances.

“Vision’s” modern technology helps us collect
and analyse specific data, for example, on
engineer productivity. this will help our
franchisees be more efficient and profitable
by showing them how they can improve labour
scheduling, utilisation and customer service.

the crisis has increased the speed at which
our customers are digitising their businesses.
the roll-out of “Vision” allows us to accelerate
our digital journey that will eventually see jobs
booked online, deployed to an engineer,
reported to our customer, and billed with the
minimum of human intervention.

neW cUsTOMer pOrTal
We have fast-tracked the development
of “connect”, a new portal which provides
customers with instant, online visibility of
every job. “connect” has the potential to
transform the customer experience as well
as significantly reduce unproductive contact
with the support centre and franchisee
offices. We anticipate that “connect” will be
expanded to become the front end for a large
proportion of our customers who don’t have
their own systems but need access to
real-time information. For our larger
customers, we will look to seamlessly
integrate our systems with theirs, improving
accuracy and increasing efficiency.

OperaTiOnal GearinG
the next phase in our digital journey is to
upgrade other systems so that they integrate
more tightly with “Vision” and its in-built cRM.
this will allow us to track in one system the entire
customer journey. By digitising the business
end-to-end, we can enhance customer service
and thereby increase sales, improve corporate
and franchisee efficiency and thereby reduce
costs. ultimately, this will generate operational
gearing whereby we have a very scalable
platform able to support a significantly larger
business at modest incremental cost which allows
us to improve profitability and maintain
competitiveness.

Franchise Brands plc Annual Report and Accounts 2020

HARNESSING

TECHNOLOGY

Strategy in Action continued

EXPANDING OUR

PROPOSITION

PLUMBING

PRE-PLANNED
MAINTENANCE

Our ambition is to offer a ‘Water In.
Waste Out.’ service to the
commercial sector. Pumps are an
integral service as the majority of
drainage customers have a pump
requirement and would benefit from
a single-source solution.

WATER IN.
WASTE OUT.

pumps are an engineered solution,
involving a mechanical and electrical
element. In 2019 we acquired market-
leading brand Willow pumps to help
upskill franchisees so they could develop
a pump capability. this activity has
gained traction with 25% of Metro Rod
franchisees now being able to offer pump
maintenance services.

Franchise Brands plc Annual Report and Accounts 2020

CLEANING
BLOCKED
DRAINS

DRAIN
SURVEYS
AND SEWER
INSPECTION

DRAIN REPAIR

PRIVATE
SEWERS AND
SEPTIC TANK
MANAGEMENT

Strategic Report

Governance

Financial Statements

WINNING
PUMP WORK

there is a natural relationship between drainage and pumps
as every drain eventually leads to a pump station. Metro Rod
visits some 150,000 commercial premises a year and our
research shows 60% of them have a pump station. there
is a tremendous opportunity for franchisees who have
developed a pump capability to benefit from additional work
from their existing customers. customers appreciate the
benefits of a one-stop drainage and pumps solution. Having
full knowledge of all the issues and being able to self-deliver
enables the job to be carried out faster and more efficiently.

TYpes OF WOrK and KeY sUccess FacTOrs
the starting point in pumps for franchisees is generally
regular maintenance work. pumps require an interim service
at three or six-monthly intervals and a major annual service.
these services often generate further scheduled extra
works to keep the pump station operating at its highest level
of reliability. customers also require emergency call-outs
from time to time.

pump work is higher margin for franchisees compared
to drainage work. pump work can also generate the
requirement for additional drainage services, principally
tankering, as pump chambers often need to be emptied and
cleaned prior to work being carried out. Franchisees need
suitably qualified engineers and also a tanker capability in
order to perform pump work.

sUppOrT FrOM WillOW pUMps
Willow pumps has helped a number of franchisees hire
experienced pump engineers who can perform a wide range
of work and train up higher-calibre drainage engineers to
carry out basic pump maintenance. through Itol-accredited
training courses at the Willow pumps depot, engineers are
given exposure to a wide range of pump issues, including
the ability to test their knowledge in a safe environment and
then experience live jobs with Willow pumps engineers.

Willow pumps also provides technical and practical advice
on quotations, equipment and pricing. the team is available
to provide support and advice to Metro Rod engineers when
they are out in the field. spending time at the Willow pumps
depot allows franchisees and their engineers to build
valuable relationships as well as develop confidence.

Franchise Brands plc Annual Report and Accounts 2020

ASSET
MAPPING

GUTTER
CLEARANCE

BOILER
INSPECTIONS

FATS, OILS
AND GREASE
MANAGEMENT

ROBOTIC
CUTTING

TANKER
SERVICES

FRANCHISEES WITH A
PUMP CAPABILITY

METRO ROD SITES
WITH A PUMP STATION

25%

60%

“Pumps represent a fantastic
opportunity for Metro Rod
franchisees to expand their
range of services, deliver
single-source solutions to their
customers and build a more
profitable business.”

IAN LAWRENCE
Managing Director
Willow Pumps

ABOVE-GROUND
PUMPS
(FResH WAteR)

BELOW-GROUND
PUMPS
(WAste WAteR)

ADOPTABLE AND
NON ADOPTABLE
PUMP STATIONS

Strategic Report

Governance

Financial Statements

ABOVE-GROUND
PUMPS
(FResH WAteR)

BELOW-GROUND
PUMPS
(WAste WAteR)

ADOPTABLE AND
NON ADOPTABLE
PUMP STATIONS

B2B Review

GROWING OUR

NETWORK

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

“The strength and resilience of our business has
helped us attract new, ambitious franchisees.”

PETER MOLLOY
Managing Director
Metro Rod and Metro Plumb

MeTrO rOd
We have attracted a number of high-quality
new franchisees over the past couple of years,
from a range of different backgrounds. they
have purchased existing businesses from
franchisees who wanted to retire or focus
on other opportunities. In order to deliver on
our commitment to full national coverage, we
have also sold territories to new franchisees
that were previously subcontracted.

new franchisees join with the ambition and
drive to build a much larger business and
several have already developed their
businesses by purchasing new equipment
such as tankers and adding to their teams.
one new franchisee joined in 2020 in the
middle of the spring lockdown having been
trained remotely and went on to have a
successful year.

the resilient way in which the Metro Rod and
Metro plumb franchisees have traded through
the crisis, with the relatively defensive nature
of the business and a supportive franchisor,
bodes well for franchise recruitment as we
look to continue to attract new, ambitious
franchisees.

existing franchisees have also continued to
invest in their businesses and several
franchisees now have three or more tankers.
the proportion of monthly sales accounted for
by tanker sales has more than doubled since
the first half of 2019.

MeTrO plUMB
We are making good progress to grow the
Metro plumb network. By the end of 2020 we
had five independent Metro plumb franchisees
having attracted two new franchisees during
the year. We are increasingly attracting
experienced, ambitious, plumbers who want
to own their own business. one of our early
recruits has successfully expanded his
territory, workforce and scope of works
and is already on track to build a sizeable
business. In addition, there are 25 Metro Rod
franchisees operating Metro plumb territories,
plus three Metro plumb territories in the
south east operated corporately.

plumbing is a large market and the sector has
been very resilient during the crisis as more
people have been at home. Metro plumb
system sales exceeded £5m in the year
and grew by 3% on a like-for-like basis.

We have expanded our expertise and now
have over 60 nVQ-qualified plumbers in the
network. this improved capability allows us
to promote a wider range of plumbing services
to more customers. over 500 commercial
customers placed orders for plumbing works
in 2020. We are also diversifying the customer
base to include domestic customers and are
successfully driving enquiries for Metro plumb
franchisees through our targeted digital
marketing.

NUMBER OF TANKERS IN THE GROUP

NUMBER OF NVQ-QUALIFIED PLUMBERS

Franchise Brands plc Annual Report and Accounts 2020

B2B Review continued

EXTENDING OUR

CAPABILITY

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

“Willow Pumps provides a one-stop shop for full
design, installation and maintenance requirements.”

IAN LAWRENCE
Managing Director
Willow Pumps

esTaBlishMenT OF FUll desiGn serVice
Willow pumps extended its range of
capabilities in 2020 by providing customers
with a full mechanical and electrical design
service for all types and sizes of installations,
including adoptable and non-adoptable pump
stations. previously Willow pumps had to
either outsource this work or work as a
subcontractor for the designers.

Willow pumps works with customers to
produce a site-specific design ensuring the
solution not only meets their pumping needs
but is efficient, cost-effective, reliable, and
durable. the designs are offered at no extra
charge when we carry out the installation and
maintenance.

eXpansiOn inTO MeTrO rOd
early in 2020, Willow pumps assumed
responsibility for the Metro Rod corporate
franchise servicing Kent & sussex,
which was subsequently integrated into the
Willow pumps operation. the resultant more
focused management and reduced overhead
delivered a significant turnaround of the
business. Willow pumps subsequently
assumed responsibility for the Metro Rod
exeter franchise which had also been
operated corporately, working closely with
Metro Rod to offer a drainage and pump
service to the area and applying the same
turnaround principles. Both areas increased
their sales by over 10% in 2020 and increased
profitability.

With the inclusion of the full design service,
we are able to provide customers with an
end-to-end offering of design, installation
and maintenance, providing a competitive
advantage. In 2020, Willow pumps worked
with leading house builders and construction
companies and their teams to carry out supply
and installation (“s&I”) work on 250 pump
stations. We also carried out over 3,000
servicing and maintenance visits, and played
a key role working with leading supermarkets
and other key establishments to ensure they
could remain operational during the crisis.

inTeGraTiOn inTO The GrOUp
We have integrated Willow pumps into the
Group during 2020, its first full year of
operation. the management team works
closely with the Metro Rod leadership team,
and Willow pumps is increasingly benefitting
from the Group’s shared support services. the
team at Willow pumps is also actively working
with Metro Rod franchisees to help them build
a pump capability and to generate sales.
A specialist business development manager
was appointed to drive this process.

NUMBER OF PUMP STATIONS WHERE S&I
WORK WAS CARRIED OUT IN 2020

NUMBER OF SERVICING & MAINTENANCE
VISITS CARRIED OUT IN 2020

250

3,000

Franchise Brands plc Annual Report and Accounts 2020

B2C Review

SUPPORTING OUR

FRANCHISEES

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

“We were delighted that franchise recruitment
continued to be robust in 2020 despite the crisis.”

Tim Harris
Managing Director
B2C Division

chipsAway performed well in
2020. After a strong Q1, franchise
recruitment recovered quickly post
the spring lockdown and 45 new
franchisees joined the network
during the year. this helped us grow
the network size from 205 to 215.

All our B2c brands were shut-down
during the spring lockdown as they
do not provide essential services.
We supported our franchisees
during this challenging period by
reducing or suspending fees and
charges other than those necessary
to maintain skeleton operations.

post the lifting of restrictions, the
support centre teams worked to
help franchisees recommence
trading. We distributed ppe using

our supplier contacts and helped
franchisees develop safe working
practices.

our marketing team ensured
franchisees had a plentiful supply
of consumer leads so they could
restart trading with confidence.
Q3 leads were 12% higher than the
same period in 2019, which was
a record quarter. We were also
pleased to make further progress
developing the car care centre
operation we established in 2019
which had a profitable year.

chipsAway continues to be our
largest B2c brand generating 88%
of the division’s eBItdA.

ovenclean recovered more slowly
than chipsAway as consumers have
been cautious in allowing non-
essential tradesmen to work in their
homes. However, we did welcome
eight new joiners to the network in
2020. With 20 franchisees leaving
the network, the size of the network
reduced from 112 to 100 franchisees
over the year.

post lockdown, franchisees
benefitted from a plentiful supply of
leads, particularly towards the end
of the year which is their busiest
trading period. despite the impact
of the Autumn lockdown, november
was a record month with over 7,000
leads generated. over 2020 as a
whole, leads were down only 3%,
a fantastic result given the crisis.

Barking Mad was hardest hit by the
crisis given its heavy dependency
on the foreign holiday market.
We have continued to support
franchisees and have restructured
Barking Mad, integrating all its
operations into our Kidderminster
office. this move should allow

it to continue to make a positive
contribution to Group profitability in
the future. Five new franchisees
joined in 2020. However, 21
franchisees left the network and
the size of the network therefore
reduced from 87 to 71 franchisees.

TOTAL FRANCHISEES RECRUITED

TOTAL SYSTEM SALES

582019: 61

£18.8m

2019: £26.4m

Franchise Brands plc Annual Report and Accounts 2020

SUPPORTING OUR

FRANCHISEES

Financial Review

The resilience of our trading
highlights the underlying strength
of our business model.

Our strengthened balance sheet will
allow us to swiftly take advantage of
post-COVID opportunities.

CHRIS DENT
Chief Financial Officer

sUMMarY sTaTeMenT OF incOMe

Statutory revenue
Franchisee payments

Fee income
other cost of sales

Gross profit
other administrative expenses

Adjusted EBITDA

depreciation & amortisation of software
Finance expense

Adjusted profit before tax

Adjusted tax expense

Adjusted profit after tax

Amortisation of acquired intangibles
share based payment
non-recurring costs
other gains and losses
tax on adjusting items

Statutory profit

2020
£’000

49,287
(19,898)

29,389
(8,464)

20,925
(14,285)

6,640

(1,358)
(446)

4,836

(899)

3,937

(393)
(205)
(707)
151
10

2019
£’000

44,013
(19,612)

24,401
(8,019)

16,382
(11,200)

5,182

(755)
(357)

4,069

(687)

3,382

(260)
(238)
(270)
(26)
121

2,793

2,710

change
£’000

5,274
(286)

4,988
(444)

4,543
(3,085)

1,458

(602)
(89)

767

(212)

555

(133)
33
(437)
177
(111)

change
%

12%
1%

20%
6%

28%
28%

28%

80%
25%

19%

31%

16%

51%
(14%)
162%
(679%)
(92%)

the results for the year ended 31 december 2020 include all of our businesses for the full year, whereas the results for the year
ended 31 december 2019 included Willow pumps for the almost three months following the acquisition on 7 october 2019.

sTaTUTOrY reVenUe
statutory consolidated revenue increased 13% to £49.3m (2019: £44.0m) with the increase due to our full-year ownership of Willow
pumps which added £12.4m of revenue (2019: £3.8m). like-for-like revenue declined by 8% to £36.9m (2019: £40.2m) due to the
effects of the coVId-19 lockdowns, albeit it grew in H2 compared to H1.

Franchise Brands plc Annual Report and Accounts 2020

system sales, which are the gross sales made by our Metro Rod
and Metro plumb franchisees, decreased by 2% to £40.6m in
the year (2019: £41.3m). the decrease of 2% masks the
significant changes which we saw quarter-by-quarter, from an
increase of 19% year-on-year in Q1 to a decrease of 23% in Q2
and progressive recovery from June onwards. the recovery
resulted in Q4 being 4% ahead year-on-year, and just £219,000
below the level of system sales achieved in Q1, despite the
november lockdown, as shown below.

Q1
Q2
Q3
Q4

System Sales

2020
£’000

11,385
8,215
9,879
11,166

40,645

2019
£’000

9,566
10,679
10,374
10,688

41,307

change
£’000

1,819
(2,465)
(495)
478

(662)

change
%

19%
(23%)
(5%)
4%

(2%)

our most engaged franchisees continued to grow throughout
the year, with 11 franchisees achieving year-on-year growth of
over 10% and 17 franchisees achieving sales of over £1m.

Fee and direcT laBOUr incOMe
Fee and direct labour income (“fee income”) is one of the KpIs
used by management to track the business, and, as shown in
the table below, this increased 20% to £29.4m in 2020 (2019:
£24.4m), due to the full-year contribution from Willow pumps.
the table below analyses fee income by division.

B2B – Franchisor
B2B – dlo
B2c division

Fee income

2020
£’000

10,282
13,274
5,833

29,389

2019
£’000

12,186
5,454
6,761

24,401

change
£’000

(1,903)
7,820
(928)

4,988

change
%

(16%)
143%
(14%)

20%

the decreases in B2B-Franchisor and B2c division of 16% and
14% respectively, reflect the impact of the lockdown restrictions
on our income. the table below analyses fee income by type.

2020
£’000

10,694
1,607
758

2019
£’000

11,207
2,006
912

change
£’000

(513)
(399)
(154)

change
%

(5%)
(20%)
(17%)

15,547

9,097

6,450

71%

MsF income
Area sales
product sales
direct labour

income

national advertising

funds

Fee Income

29,389

24,401

4,988

783

1,179

(396)

(34%)

20%

MsF income received from our franchisees is based on fixed
monthly fees or a percentage of the franchisees’ sales. We
continue to incentivise Metro Rod’s franchisees to grow their
businesses through a series of MsF discounts and schemes
designed to encourage sales growth and investment in a
broader range of equipment and people. In the B2c division,
fixed monthly fees remain the most effective method of
generating income given the large number of franchisees
and the lower level of individual sales.

Strategic Report

Governance

Financial Statements

overall MsF income was 5% lower than in 2019. MsF at Metro
Rod remained steady at £7.8m despite the 2% fall in system
sales due to a change in mix towards sales which attract the full
rate of MsF. In the B2c division, we reduced the fees charged
to franchisees during the spring lockdown to ensure the
continuing viability of our networks, resulting in a 14% reduction
in B2c fee income for the year as a whole.

Fees generated from the sale (or resale) of franchise territories
were 20% lower than in 2019. considering the background,
franchise recruitment in the B2c division was robust, with 58
recruits in 2020 (2019: 61). Most of the reduction in recruitment
income resulted from fewer Metro Rod franchises changing
hands which generated income of £73,000 compared to
£328,000 in the prior year.

our direct labour income increased by 71% in 2020 to £15.5m
(2019: £9.1m) principally as a result of the full-year contribution
from Willow pumps.

Franchisees pay a monthly contribution into their respective
national advertising funds. these funds are used exclusively to
promote the system sales of those brands. the Group does not
make any profit from these activities. Any surplus or shortfall
within an accounting period is carried forward on our balance
sheet. the Group reduced spending and suspended collection
of these funds during the lockdowns to support the cashflow of
the franchise networks.

TradinG resUlTs – adJUsTed eBiTda

B2B – Franchisor
B2B – dlo
B2c division
Group overheads

Adjusted EBITDA

2020
£’000

3,722
1,844
2,132
(1,058)

6,640

2019
£’000

3,184
492
2,531
(1,026)

5,182

change
£’000

538
1,352
(400)
(31)

1,458

change
%

17%
275%
(16%)
(3%)

28%

despite the 16% decrease in fee and direct labour income,
tight cost control throughout the year has resulted in adjusted
eBItdA from B2B-Franchisor rising by 17% to £3.7m. this
represented an increase in operating margin from 28% to 36%.
As the business returned to pre-coVId-19 levels, we were
cautious in re-introducing costs and have realised permanent
cost savings through new ways of working. In addition,
although system sales were lower, our effective rate of MsF
was higher due to the sales mix, meaning that overall adjusted
eBItdA from the core Metro Rod business (excluding area
sales and Kemac) rose by 24% to £3.3m. this exceptional
performance at the core business was partially off-set by the
lower area sales, and a drop in profitability at Kemac (down 9%
to £0.4m), where the 2019 result had been bolstered by a
significant one-off event.

At B2B-dlo, the significant increase in income and adjusted
eBItdA has been as a result of the ownership of Willow pumps
for the full year. However, we have also seen an increase in
B2B-dlo adjusted eBItdA due to Willow pumps taking over
the day-to-day responsibility of the two previously Group-
operated Metro Rod franchise areas, Kent & sussex and exeter,
which traded poorly during 2019.

Franchise Brands plc Annual Report and Accounts 2020

Financial Review continued

Adjusted eBItdA at our B2c division (chipsAway, ovenclean and Barking Mad) decreased 16% in the year to £2.1m (2019: £2.5m)
due to the 14% fall in fee income and lower recruitment income, partly offset by overhead savings as a result of furloughing staff.
the B2c division continues to be strongly cash generative, supporting the Group’s debt-servicing capacity.

during the year the Group made use of the furlough scheme. At the height of the spring lockdown, the Group furloughed a total
of 118 people which represented 42% of the workforce. during the Autumn lockdown the Group made limited use of the scheme
with only six people furloughed. In total we claimed £653,000 during the year.

Group overheads remained steady at £1.1m (2019: £1.0m) and, as a result, adjusted eBItdA for the Group increased by 28% to
£6.6m (2019: £5.2m).

adJUsTed & sTaTUTOrY prOFiT

Adjusted EBITDA

depreciation & amortisation
Finance charge

Adjusted profit before tax

Amortisation of acquired intangibles
share-based payment charge
non-recurring costs
other gains and losses

Statutory profit before tax

tax

Statutory profit after tax

2020
£’000

2019
£’000

change
£’000

6,640

5,182

1,458

(1,358)
(446)

(755)
(357)

4,836

4,070

(393)
(205)
(707)
151

(260)
(238)
(270)
(26)

3,682

3,276

(889)

(566)

2,793

2,710

(603)
(89)

766

(133)
33
(437)
177

406

(323)

change
%

28%

80%
25%

19%

51%
(14%)
162%
(681%)

12%

57%

depreciation and amortisation of software increased 80% to £1.4m (2019: £0.8m), as a result of the inclusion of the Willow pumps
charge for the full year and an increase in the amortisation charge in respect of software development at Metro Rod.

the finance charge increased 25% to £0.4m as a result of the higher level of lease-related finance costs following the acquisition
of Willow pumps. Bank interest fell 18% to £257,000 from £313,000 following the repayment of £3m of our Revolving credit Facility
(“RcF”) following the April equity placing.

Amortisation of acquired intangibles increased 51% to £0.4m (2019: £0.3m) following the acquisition of Willow pumps. the
share-based payment expense has remained steady at £0.2m as no new share options were granted until the second half of the
year, and the Ipo related options had fully vested during 2019.

the Group has taken a total £0.7m charge in respect of events related to the coVId-19 pandemic. In light of the impact that the
trading restrictions are having on a number of our commercial customers, we believe it is appropriate to make a provision against
our accounts receivable. A detailed analysis of debtors has been completed on a risk-weighted basis according to the business
sector and the financial position of each of our customers, resulting in a charge of £0.5m to provide for these potential future
credit losses. during the full year the Group utilised just £0.2m (2019: £0.1m) of the provision as no significant credit losses have
yet occurred, leaving a total provision for expected credit loss at the year-end of £0.8m (2019: £0.4m). the Group has also taken
a charge of £0.2m in relation to the closure of our Barking Mad office and redundancy costs.

statutory profit before tax increased 12% to £3.7m (2019: £3.3m). the tax charge for the year at 24% (2019: 17%) was higher than
the statutory rate of 19% due to the change in the deferred tax liabilities in relation to acquired intangibles. this change resulted
from the Government’s decision to reverse the reduction in the corporation tax rate from 19% to 17%. As a result, the statutory
profit after tax increased by 3% to £2.8m (2019: £2.7m).

earninGs per share
during the year the Group completed a placing of 15,555,556 new ordinary shares at a price of 90p per share raising £13.6m
(net of expenses). In addition, the Group issued 388,199 new ordinary shares as part of the final 2019 dividend which had a scrip
option, and 300,928 new ordinary shares to satisfy the exercise of share options. the Group also used 25,000 shares held in
treasury to satisfy the exercise of share options. these transactions resulted in the total number of ordinary shares in issue
increasing by c.20% to 95,758,470 at 31 december 2020 (2019: 79,513,787) and a basic weighted average number of ordinary
shares in issue and not in treasury of 90,462,594.

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

earnings per share are analysed in the table below.

Statutory profit after tax

Amortisation of acquired intangibles
share-based payment charge
non-recurring costs
other gains and losses
tax on adjusting items

Adjusted profit after tax

2020
£’000

2,793

393
205
707
(151)
(10)

3,937

eps
p

3.09

0.43
0.23
0.78
(0.17)
(0.01)

4.35

2019
£’000

2,710

260
238
270
26
(121)

3,382

eps
p

3.48

0.33
0.31
0.35
0.03
(0.2)

4.34

Adjusted profit after tax increased by 16% to £3.9m (2019: £3.4m). However, as a result of the dilution resulting from the share
issues referred to above, adjusted earnings per share increased by only 0.01p to 4.35p (2019: 4.34p). Basic earnings per share
decreased by 11% to 3.09p (2019: 3.48p) and diluted earnings per share decreased by 11% to 3.03p (2019: 3.42p).

FinancinG and cash FlOW
the £13.6m net proceeds from the April equity placing have significantly strengthened our balance sheet and allowed us to pay
down the RcF in full. We decided not to repay the term loan (which stood at £5.2m at the year-end) in order to maximise the
Group’s immediately-available liquidity. At 31 december 2020, the Group had cash of £13.2m, and undrawn bank facilities of
£7.0m (comprised of the £5.0m RcF and a £2.0m overdraft), giving the Group over £20m of cash and available facilities.

cash
term loan
RcF
loan fee
Hire purchase debt

Adjusted net cash/(debt)

other lease debt

Net cash/(debt)

31 December
2020
£’000

31 december
2019
£’000

13,203
(5,225)
–
116
(1,408)

1,682
(6,401)
(3,002)
129
(1,588)

change
£’000

11,521
1,176
3,002
(13)
180

change
%

685%
(18%)
(100%)
(10%)
(11%)

6,686

(9,180)

15,866

(173%)

(1,729)

(1,899)

170

(9%)

4,957

(11,079) 16,036

(145%)

overall, the Group has moved from an adjusted net debt position to an adjusted net cash position of £6.7m (2019: adjusted net
debt of £9.2m). statutory net cash, including capitalised leases, was £4.9m (2019: net debt of £11.1m).

the Group generated cash from operations of £6.0m (2019: £4.7m) resulting in a cash conversion rate from adjusted eBItdA
of 90% (2019: 90%). As a result of the April equity placing and the strong cash generation of the Group, we have been able to
continue to pay all our creditors within terms and also take a pragmatic approach with our debtors, particularly those in the
hospitality sector who have been unable to trade during the lockdowns. our ability to extend payment terms to them has, we
anticipate, deepened our commercial relationship.

diVidend
Given the improved trading in the second half of the year, and the healthy level of cash as a result of shareholder support in the
April equity placing, the Board is pleased to continue its progressive dividend strategy and proposes a final dividend of 0.8
pence per share (2019: 0.65 pence per share). this takes the total dividend for the year to 1.1 pence per share (2019: 0.95 pence
per share), an increase of 16%, which is covered 2.8 times by statutory profit after tax, and 4.0 times by adjusted profit after tax.
the cost of the proposed final dividend is £766,000.

subject to shareholder approval at the AGM on 20 April 2021, the final dividend will be paid on 28 May 2021 to shareholders on
the register at the close of business on 14 May 2021.

sTraTeGic repOrT
the strategic Report (which includes all of the content from pages 1 to 33, and the section 172 reporting on pages 38 to 40) was
approved by the Board on 3 March 2021 and was signed on its behalf by:

Chris Dent
Chief Financial Officer

Franchise Brands plc Annual Report and Accounts 2020

Working Responsibly

WORKING

RESPONSIBLY

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

our sustainability commitments and esG ambitions underpin our actions
across the Group. We are committed to adopting responsible business
practices, delivering sustainable growth, positively supporting employees
and empowering our franchisees.

ENVIRONMENTAL

SOCIAL

GOVERNANCE

We are committed to reducing
our environmental impact,
continually improving our
environmental performance
and supporting our customers
in reaching their environmental
goals.

Our people are our most
important resource and we
want to provide a great
working environment which
is underpinned by strong
cultural values.

We believe that good corporate
governance is vital in
supporting our Company’s
growth strategy and in turn
its long-term success.

Material topic 1
national delivery through locally
based engineers reduces travel
time. With 50 depots nationally,
we are able to access 85% of
the uK’s commercial properties
within one hour.

Material topic 1
We appreciate the benefits of
diversity and inclusion. 42% of
our senior management team is
female and one out of four of
our Managing directors is
female.

Material topic 1
compliance with the ten key
principles in the QcA corporate
Governance code for small and
mid-sized companies.

Material topic 2
Metro Rod, Willow pumps,
chipsAway and ovenclean
have an environmental
Management system that is
externally audited and
accredited to Bs en Iso 14001.

Material topic 2
We proactively support
employee wellbeing and mental
health. We currently have 20
Mental Health First Aiders who
provide support. counselling
services are also available to all
staff.

Material topic 2
A Board performance review
was undertaken in 2020 led
by an independent non-
executive director, the results
of which have been implemented
by the Board.

Material topic 3
the total co2e emissions for
a chipsAway smart repair can
vary between 12.3kg and 16.1kg
per repair. this compares to
approximately 29kg for a
traditional body shop repair.

Material topic 3
We now have 12 apprentices
on the Metro Rod Itol-
accredited Apprenticeship
scheme. they complete a
two-year level 3 Advanced
Apprenticeship while working.

Material topic 3
Following the lifting of
restrictions, more engagement
with QcA and further guideline
development.

Focus in 2021
target setting for reducing
energy consumption and carbon
emissions for company
operations.

Focus in 2021
development of It tools to
improve lone worker health and
safety.

Focus in 2021
leadership development for
senior management team
including succession planning.

See page 45.

See pages 30 and 31.

See page 39.

Franchise Brands plc Annual Report and Accounts 2020

WORKING

RESPONSIBLY

Working Responsibly continued

STAKEHOLDER ENGAGEMENT

As a progressive, principle-led Group, we place huge importance on working constructively and in
partnership with all our stakeholders to create value which benefits everyone. We place particular
importance on directly engaging and communicating with our employees, franchisees, customers,
suppliers and shareholders.

Importance of stakeholder to the Group

How we engaged and topics discussed in 2020

eMploYees

FRAncHIsees

sHAReHoldeRs

our committed and dedicated employees are our most important
resource. they play a key role in supporting our franchisees and
helping provide them with the tools they need to grow their businesses.
We recognise the importance of cultivating and maintaining a positive
working environment and providing a range of learning and
development opportunities for individuals to broaden their range
of skills and to enable them to fulfil their potential.

our franchisees are the very backbone of the Group and it is their
commitment, hard work and entrepreneurialism that helps us grow
our business. Across our portfolio of brands, our franchisees and their
teams take enormous pride in delivering a first-class experience to all
our customers. It is our responsibility to provide all the support and
development they need to grow their businesses and to maintain the
highest brand and operational standards.

our shareholders support the long-term growth of the Group. We
rely on them to finance our development and growth plans. engaging
with them regularly to communicate progress, understand their
perspectives, discuss long-term issues and ensure feedback is taken
into account in our decision-making is critical to the success of the
Group over the long term.

custoMeRs And
locAl coMMunItIes

We are passionate about providing the highest possible customer
service across all of our brands. understanding the needs of our
customers, evaluating our performance delivery against KpIs and
receiving feedback on our service delivery helps us to continually
improve. We recognise the importance of making a positive
contribution to the communities in which we operate by providing
employment and supporting local activities and causes.

supplIeRs

our suppliers provide us and our franchisees with the highest possible
quality of products, equipment and services. this allows us to deliver
a first class service to our customers. Regular reviews take place to
ensure a supply chain free of slavery and human trafficking.

• presentations, forums, events, webinars, communications bulletins,

videos and online events, with a greater focus on digital

communications due to the crisis.

• Keeping our employees updated with how the business was

responding to the crisis and performing and providing support

for working from home and for wellbeing.

• share options granted and exercised.

• the focus of our engagement in 2020 was digital, online and

telephone-based due to the crisis, facilitated by better It systems.

• We reduced or suspended franchisee fees and charges at the height

of the crisis to ensure their survival.

• We kept our franchisees updated on health and safety, new

coVId-19 ways of working, the implications of the restrictions

and what help was available to them.

• Annual Report & Accounts, Interim Report, trading updates, regular

meetings with institutional investors and AGM.

• updating our shareholders on how the Group was trading throughout

the crisis and the April placing.

• engagement with retail digital platforms including proactive

Investors.

• online meetings, reviews, customer surveys, performance ratings

and direct feedback.

• We communicated how we were delivering our services in a safe

and responsible way. At all times our key priority has been the

safety of our customers and the public.

• We supported our commercial customers by extending payment

terms for those operating in challenging sectors such as hospitality.

• online meetings and demonstrations, reviews and direct feedback.

• our suppliers played an important role in sourcing and providing

ppe during the crisis as well as continuing to make sure franchisees

could access equipment and products.

• during the crisis, we continued to pay all our suppliers on time.

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

Importance of stakeholder to the Group

How we engaged and topics discussed in 2020

eMploYees

FRAncHIsees

sHAReHoldeRs

our committed and dedicated employees are our most important

resource. they play a key role in supporting our franchisees and

helping provide them with the tools they need to grow their businesses.

We recognise the importance of cultivating and maintaining a positive

working environment and providing a range of learning and

development opportunities for individuals to broaden their range

of skills and to enable them to fulfil their potential.

our franchisees are the very backbone of the Group and it is their

commitment, hard work and entrepreneurialism that helps us grow

our business. Across our portfolio of brands, our franchisees and their

teams take enormous pride in delivering a first-class experience to all

our customers. It is our responsibility to provide all the support and

development they need to grow their businesses and to maintain the

highest brand and operational standards.

our shareholders support the long-term growth of the Group. We

rely on them to finance our development and growth plans. engaging

with them regularly to communicate progress, understand their

perspectives, discuss long-term issues and ensure feedback is taken

into account in our decision-making is critical to the success of the

Group over the long term.

custoMeRs And

locAl coMMunItIes

We are passionate about providing the highest possible customer

service across all of our brands. understanding the needs of our

customers, evaluating our performance delivery against KpIs and

receiving feedback on our service delivery helps us to continually

improve. We recognise the importance of making a positive

contribution to the communities in which we operate by providing

employment and supporting local activities and causes.

supplIeRs

our suppliers provide us and our franchisees with the highest possible

quality of products, equipment and services. this allows us to deliver

a first class service to our customers. Regular reviews take place to

ensure a supply chain free of slavery and human trafficking.

• presentations, forums, events, webinars, communications bulletins,

videos and online events, with a greater focus on digital
communications due to the crisis.

• Keeping our employees updated with how the business was

responding to the crisis and performing and providing support
for working from home and for wellbeing.

• share options granted and exercised.

• the focus of our engagement in 2020 was digital, online and

telephone-based due to the crisis, facilitated by better It systems.
• We reduced or suspended franchisee fees and charges at the height

of the crisis to ensure their survival.

• We kept our franchisees updated on health and safety, new

coVId-19 ways of working, the implications of the restrictions
and what help was available to them.

• Annual Report & Accounts, Interim Report, trading updates, regular

meetings with institutional investors and AGM.

• updating our shareholders on how the Group was trading throughout

the crisis and the April placing.

• engagement with retail digital platforms including proactive

Investors.

• online meetings, reviews, customer surveys, performance ratings

and direct feedback.

• We communicated how we were delivering our services in a safe
and responsible way. At all times our key priority has been the
safety of our customers and the public.

• We supported our commercial customers by extending payment

terms for those operating in challenging sectors such as hospitality.

• online meetings and demonstrations, reviews and direct feedback.
• our suppliers played an important role in sourcing and providing

ppe during the crisis as well as continuing to make sure franchisees
could access equipment and products.

• during the crisis, we continued to pay all our suppliers on time.

s172 sTaTeMenT

liKelY cOnseQUences OF anY decisiOn
in The lOnG TerM
our 2019 acquisition of Willow pumps has enabled
us to expand our range of services for B2B
franchisees which benefits our customers and
provides opportunities for our employees.

See pages 10, and 16 to 19.

inTeresTs OF The
cOMpanY’s eMplOYees
our employees are our most valuable resource as
they play a key role in supporting our franchisees.
Investing in, and rewarding our employees helps
create a positive working environment.

See pages 30, 31 and 37.

FOsTer The cOMpanY’s BUsiness
relaTiOnships
We put our franchisees at the centre of what we do
and develop relationships with our customers and
suppliers to understand how we can best achieve
mutual goals.

See pages 10, 11, 16 to 21 and 39.

iMpacT OF The cOMpanY’s acTiOns
We are committed to delivering services to our
customers in a responsible manner. As such, we
make every effort to understand and effectively
manage impact of our activities on the community
and environment.

See pages 30 to 33.

MainTaininG a repUTaTiOn FOr hiGh
sTandards OF BUsiness
our guiding principles inform the way we work with
each other, support our franchisees and service our
customers. We set high standards, are challenging of
ourselves and demand integrity and fairness.

See pages 10, 11, 32, 33 and 39.

need TO acT FairlY BeTWeen MeMBers
OF The cOMpanY
our shareholders benefit from our success through
the returns we generate for them. As most
employees are share option holders or shareholders,
they also benefit from the Group’s success.

See pages 1, 22 to 25, 30 and 31.

Franchise Brands plc Annual Report and Accounts 2020

Working Responsibly continued

ENCOURAGING AN

OWNERSHIP
CULTURE

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

“Our strong ownership culture is one of the keys to
our success.”

Julia Choudhury
Corporate Development Director

sOcial
our committed and dedicated employees are
our most valuable resource. We recognise the
importance of cultivating and maintaining a
positive working environment and providing
a range of development opportunities for
individuals to broaden their range of skills, take
on new challenges and fulfil their potential.

OUr lOnG-TerM incenTiVe plan
one of the keys to our success is our strong
ownership culture. All the senior management
team have invested in the business and still
own 57% of the equity. this ownership culture
extends more widely to all Franchise Brands
staff in the form of share options, which are
awarded to all employees with more than
six months of service. When we acquire a
new business, our principle is to award all
employees with qualifying service share
options within the first year of ownership.
aTTracTinG TalenTed and

enVirOnMenT
and sUsTainaBiliTY
We are committed to delivering services to
our customers in a responsible manner. As
such, we make every effort to understand
and effectively manage the potential
environmental impact of our activities. We aim
to continually improve our environmental
performance and support our customers in
reaching their environmental goals. our key
environmental commitments are to:

diVerse peOple
We believe in the importance of creating a
diverse and inclusive working environment,
where team members feel welcome, can be
themselves and are able to fulfil their potential.
We are particularly proud of the fact 42% of
our senior management team is female.

We look for people with a wide range of skills,
backgrounds and perspectives. We also provide
leadership development and mentoring to help
our high-potential managers successfully take
on new roles and responsibilities.

• comply with, and where possible exceed,

applicable requirements;

• promote improved fuel and energy

efficiency;

• Reduce waste and actively promote reuse

and recycling across our business;

• Monitor our environmental performance

•

and set objectives and targets;
Integrate environmental innovation and
efficiency in project design, construction
and the services we provide; and

• Work with our franchisees, suppliers and
contractors to support our efforts and to
promote sustainability in everything we do.

PERCENTAGE OF SENIOR MANAGEMENT
TEAM WHICH IS FEMALE

MEMBERS OF STAFF HOLDING SHARE
OPTIONS (31 DEC 2020)

42%

243

Franchise Brands plc Annual Report and Accounts 2020

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 on the
prospects of the Group. Below is a summary of current principal risks
and uncertainties identified, which may be subject to change following
any review.

sTraTeGic risKs

Increasing

decreasing

no movement

MARKET RISKS

IMPACT

MITIGATION

FRANCHISEES

CUSTOMERS

AGGREGATE
DEMAND

ABILITY TO
CONVERT
PROFITS TO
CASH AND
LIQUIDITY

• the ability of the Group to attract and retain
franchisees with the appropriate attitude,
expertise and skills, in available and suitable
locations, cannot be guaranteed. this may have
a detrimental effect on trading performance
and growth.

• Franchisees could default on their obligations

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

• Metro Rod, Metro plumb and Willow pumps have
a number of large customer relationships 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, could have a detrimental
impact on system sales and hence profits.

• during the current year, coVId-19 related
Government restrictions have meant that
underlying demand for our services has been
periodically reduced due to the requirement for
our customers to temporarily close premises and
suspend trading.

• the Group has an experienced franchise

marketing and recruitment capability. KpIs are
monitored on a regular basis 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 through
the franchise support and regular inspections
and audit.
In light of coVId-19 we have provided additional
support to our franchise network to ensure their
continuing financial viability. see page 5.

•

• no one customer accounts for a significant

proportion of total Group sales.

• Both brands have long-standing relationships with

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

• the Group has made use of Government schemes

such as the Job Retention scheme which has allowed
the Group to temporarily reduce payroll costs without
needing to use redundancy.

• the Group has become adept during the year in

rapidly changing the level of aggregate costs within
the business to match the fall in aggregate demand
which reduces the impact to profitability.

• the B2B division has customers within the

• the Group continually monitors the financial position

hospitality, retail and leisure sectors, which have
been adversely affected by the coVId-related
restrictions. It Is expected that corporate
bankruptcy rates will increase during the year
as Government support draws to a close.
there is a risk that we will be unable to collect
amounts due.

• the B2B division has a positive working capital
requirement that grows as our sales increase,
which could limit our ability to grow.

• the B2c division relies on the receipt/collection
of ongoing monthly payments from franchisees.

of its key customers. In addition, the Group has
significantly increased the level of the expected credit
loss provision in the current year to anticipate the
level of losses expected during future periods.
In response to coVId-19 the Group raised £13.6m to
ensure a strong balance sheet. see page 5.

•

• Factors likely to affect a franchisee’s ability to make
payments are monitored by the finance team on a
monthly basis. Although the risk of an individual
franchisee failing is high, our overall risk is reduced
due to the large overall number of franchisees.

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

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 which are
introduced to reduce the spread of coVId-19.

•

• 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.

DEPENDENCE
ON KEY
PERSONNEL

• loss of key personnel, either at executive level, or in

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

• each of the executive directors and a number of
other key personnel are shareholders in the
company.

• the inability to recruit additional skilled and

• All employees in key positions are participants in the

HEALTH AND
SAFETY

INFORMATION
TECHNOLOGY

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

company’s long-term Incentive plan (“ltIp”).
• the Group encourages and supports employees
to undertake training to expand existing skills
where necessary.

• the B2B division operates in sectors where the

• the B2B division has developed health and safety

health and safety risks are 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, Metro plumb and Willow
pumps have good long-term health and safety
records; however, a serious incident could have
adverse consequences to their businesses.
• the chemical compounds used to carry out

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.

• during the current year, the Government introduced
health and safety measures to reduce the spread of
coVId-19. the restrictions in the spring lockdown
meant that our B2c divisions were unable to trade.
In order to continue to monitor health and safety
risks, the Board considers the result of the health and
safety reports at each Board meeting.

•

• the current coVId-19 restrictions means that

many of our people are required to work from home,
with resultant raised home-working and mental
health risks.

• the Group’s business is dependent on network and

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

• the Group is dependent on products, technologies
and services provided by third parties in order for
customers to use its services.

systems and processes to create a safe environment.
A point of work risk assessment is inbuilt into our
works management systems and must be completed
prior to work commencing.

• Franchisees and employees are provided with health
and safety training and are audited for compliance
through a number of inspections. the Group’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 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.
• Where Government restrictions require us to

temporarily restrict trading, the Group endeavours to
reduce its cost base to match the fall in anticipated
revenue in order to mitigate the overall effect on
profitability.

• during home working we have ensured that our
people have access to both the correct working
equipment and mental health support through our
20 trained Mental Health First Aiders.

• the architecture of the Metro Rod systems has
recently been restructured and the systems are
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/or 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
ageing systems that need to be replaced.

Franchise Brands plc Annual Report and Accounts 2020

Board of Directors

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

cOMMiTTee MeMBership

Audit Committee

Remuneration Committee

AIM Rules Compliance Committee

Denotes Committee Chair

Franchise Brands plc Annual Report and Accounts 2020

STEPHEN HEMSLEY
executive chairman

CHRIS DENT
chief Financial Officer

stephen co-founded Franchise
Brands in 2008 and has led the
development of the business,
including the Ipo and external
growth. He is a chartered
Accountant by training and
spent nearly ten years with 3i as
Investment director. He then joined
domino’s pizza as Finance director
progressing to ceo, executive
chairman and non-executive
chairman before retiring in 2019
after 21 years with the business to
focus exclusively on Franchise
Brands. during this time, he took
domino’s from private ownership to
a market capitalisation of almost
£1.5bn. stephen 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
began his career at deloitte llp
where he spent ten years within
audit, corporate finance and
transactional accounting services.
He subsequently spent four years
as Finance director of AIM-quoted
7digital Group plc. chris is a Fellow
of the Institute of chartered
Accountants of england and Wales.
He was appointed as chief
Financial officer of the company
on 17 July 2017.

PETER MOLLOY
Managing director,
Metro rod and Metro plumb

TIM HARRIS
Managing director,
B2c division

peter has over 35 years of
management and commercial
experience. peter joined Metro Rod
in 2003 and was promoted to
commercial director in 2005 and
to Managing director in 2017.
prior to joining Metro Rod, he 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 a director of
the company on 21 March 2018.

tim is a seasoned franchise
professional with over 25 years’
experience of successfully
developing automotive, commercial
and domestic franchise businesses
in both international and uK
markets. tim joined the Group in
2008. He led the brands through
a period of increased profitability
and international reach and is now
Managing director of the B2c
division. 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.

Strategic Report

Governance

Financial Statements

JULIA CHOUDHURY
corporate development director

COLIN REES
chief information Officer

MARK PETERS
company secretary

Julia has over 30 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 at AXA
Investment Managers including
Managing director of the 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 in April 2017.
colin was previously director of It
at domino’s pizza where he was
responsible for all It systems.
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.

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.

NIGEL WRAY
non-executive director

DAVID POUTNEY
independent non-executive
director

ROB BELLHOUSE
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 chapel down Group plc and is
a significant investor in a wide-
ranging number of AIM quoted
companies, as well as a number
of private companies, including
saracens Rugby club. 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 is ceo of dowgate capital
limited and has over 45 years of
finance and investment experience.
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. He was
appointed as a director of the
company on 15 July 2016.

Rob is an experienced company
secretary with commercial
experience gained over 30 years
in listed companies, with a strong
focus on governance, compliance
and risk management activities.
Rob has been company secretary
of a number of listed companies
including domino’s pizza (on an
interim basis), lonmin and Greene
King and was voted 2014 IcsA
company secretary of the Year.
He was appointed as a director of
the company on 15 July 2016.

Franchise Brands plc Annual Report and Accounts 2020

Senior Leadership Team

The Group’s senior
management team also
includes the following
individuals:

Franchise Brands plc Annual Report and Accounts 2020

IAN LAWRENCE
Managing director, Willow pumps

RACHEL STEWART
Managing director, Barking Mad

Ian founded Willow pumps in 1992.
over the past 28 years he has built
it into a leading pump design,
installation and servicing business
with a below-ground and above-
ground capability. Franchise Brands
acquired Willow pumps in 2019 to
help expand Metro Rod and Metro
plumb’s range of services.

Rachel was appointed as Managing
director of Barking Mad in 2019.
she was previously a Business
development consultant with the
company for almost 4 years.
Rachel comes from a commercial
background, and previously
commercial director at trinity Mirror
plc and held a Board position at
clear channel outdoor.

ROBIN AULD
Group Marketing director

ANDREW MALLOWS
Group commercial director

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.

Our locations

Strategic Report

Governance

Financial Statements

MACCLESFIELD
102 team members support our Metro Rod
and Metro plumb franchisees from the
support centre in Macclesfield, cheshire.
A further 22 employees are based at the
Metro plumb depot in Hertfordshire.

TOTAL NUMBER OF EMPLOYEES

124

AYLESFORD
Willow pumps has 91 team members who are
based at the depots in Aylesford, Kent and
West Yorkshire. A further 21 employees work
in the two Metro Rod corporate franchises
operated by Willow pumps.

TOTAL NUMBER OF EMPLOYEES

112

KIDDERMINSTER
20 team members support our chipsAway,
ovenclean and Barking Mad franchisees
predominantly from our support centre in
Kidderminster, Worcestershire.

TOTAL NUMBER OF EMPLOYEES

An additional 9 people work across all locations and from home. this includes most of the plc Board.

Franchise Brands plc Annual Report and Accounts 2020

Chairman’s Introduction
to Governance

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.

STEPHEN HEMSLEY
Executive Chairman

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 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 2020. Further information on the
Group’s governance practices, the business model and
strategy can be found in the strategic Report and Governance
sections of this Annual Report and Accounts.

In addition to choosing to apply the new edition of the QcA
code, Franchise Brands is a member of the QcA in order to
support the work it does in promoting good corporate
governance.

OUr cOMMiTMenT TO secTiOn 172
As a Board we continue to uphold the highest standards
of conduct and make decisions for the long-term success
of the business.

the disclosures set out on page 40 demonstrate how the
Board has arrived at five principal decisions for the year. We
define principal decisions as both those that are material to the
Group, but also those that are significant to any of our key
stakeholder groups: employees, franchisees, shareholders,
customers and local communities and suppliers.

In making these principal decisions the Board considered the
outcome for its stakeholder engagement, as set out on page
29, as well as the need to maintain a reputation for high
standards of business conduct and the need to act fairly
between the members of the company.

this statement of commitment to section 172 forms part of the
strategic Report.

Stephen Hemsley
Executive Chairman

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

Corporate Governance
Set out below is how we currently comply with
the key principles set out in the QCA code.

Qca principle

cOMplianT

eXplanaTiOn

FUrTher readinG

ESTABLISH A STRATEGY AND
BUSINESS MODEL WHICH
PROMOTE LONG-TERM VALUE
FOR SHAREHOLDERS.

2 SEEK TO UNDERSTAND AND
MEET SHAREHOLDER NEEDS
AND EXPECTATIONS.

3 TAKE INTO ACCOUNT WIDER
STAKEHOLDER AND SOCIAL
RESPONSIBILITIES AND THEIR
IMPLICATIONS FOR LONG-
TERM SUCCESS.

4 EMBED EFFECTIVE RISK

MANAGEMENT, CONSIDERING
BOTH OPPORTUNITIES AND
THREATS, THROUGHOUT THE
ORGANISATION.

5 MAINTAIN THE BOARD AS
A WELL-FUNCTIONING,
BALANCED TEAM LED BY
THE CHAIR.

6 ENSURE THAT BETWEEN

THEM THE DIRECTORS HAVE
THE NECESSARY UP-TO-DATE
EXPERIENCE, SKILLS AND
CAPABILITIES.

7 EVALUATE BOARD

PERFORMANCE BASED ON
CLEAR AND RELEVANT
OBJECTIVES, SEEKING
CONTINUOUS IMPROVEMENT.

8 PROMOTE A CORPORATE

CULTURE THAT IS BASED ON
ETHICAL VALUES AND
BEHAVIOURS.

9 MAINTAIN GOVERNANCE

STRUCTURES AND
PROCESSES THAT ARE FIT
FOR PURPOSE AND SUPPORT
GOOD DECISION-MAKING BY
THE BOARD.

10 COMMUNICATE HOW THE

COMPANY IS GOVERNED AND
IS PERFORMING BY
MAINTAINING A DIALOGUE
WITH SHAREHOLDERS AND
OTHER RELEVANT
STAKEHOLDERS.

Focused on building market-leading businesses
using primarily a franchise model. Focus is on
established brands which can benefit from our shared
support services and Group expertise and resources.

the executive chairman, chief Financial officer and
corporate development director meet regularly with
institutional shareholders and provide feedback.
Retail shareholders benefit from presentations and
website updates.

the Board has a clear understanding of the factors
important to all its stakeholders and maintains strong
relationships, solicits feedback and fosters
responsible working practices.

the Board reviews its risk management framework
biannually to detail the key risks, their potential
impact and mitigation and embeds risk management
principles to drive proactive management.

the Board comprises six executive directors, two of
which are the Managing directors of the two largest
businesses, and three non-executive directors of
which two are considered to be independent.

directors are drawn from a range of backgrounds,
skills and experiences. new appointments will be
considered against objective criteria and with due
regard for the benefits of diversity.

A performance self-evaluation was undertaken in
december 2020 led by an independent non-
executive director, the results of which have
been implemented by the Board.

Franchise Brands has five well established guiding
principles that inform the way we work with each
other, support our franchisees and serve our
customers and communities.

Franchise Brands has properly constituted Audit,
Remuneration and AIM compliance committees of
the Board with formally delegated duties and
responsibilities, comprised of independent directors.

See pages 10 to 25.
See www.franchisebrands.co.uk

See pages 28 and 29.
See www.franchisebrands.co.uk

See pages 32 and 33.
See www.franchisebrands.co.uk

See pages 34, 35, 38, and 40.
See www.franchisebrands.co.uk

See pages 34 and 35.
See www.franchisebrands.co.uk

See page 27.
See www.franchisebrands.co.uk

See pages 10 and 11.
See www.franchisebrands.co.uk

See pages 35, 38, and 40.
See www.franchisebrands.co.uk

Regular shareholder communications on performance
via interim and annual financial reports, trading
updates issued via Rns, investor presentations, retail
digital platforms including proactive Investors and
shareholder meetings.

See pages 28 and 29.
See www.franchisebrands.co.uk

Franchise Brands plc Annual Report and Accounts 2020

Corporate Governance continued

Set out below is our commitment to Section 172.

In making decisions, the company’s directors are
cognisant of all their legal duties, including their duty
under section 172(1) of the companies Act 2006 to act in
the way that is most likely to promote the success of the
company for the benefit of its members as a whole and
to have regard (among other matters) to the factors set
out in section 172(1)(a) to (f) of the companies Act 2006.

KeY OF FacTOrs cOnsidered:

examples of some of the principal decisions taken
by the Board during the year and an explanation of which
factors the directors had regard to when reaching such
decisions, including those set out in section 172(1)(a) to (f)
of the companies Act 2006, are set out in the table below.

Financial impact

long-term impact

Reputation

employees

Acting fairly between members

Fostering business relationships

BOard decisiOn-MaKinG
Given the uncertain outcome and duration of the crisis, the Board took a number of swift and decisive actions to reduce
costs, enhance liquidity and protect the business.

BOard decisiOns KeY

direcTOrs’ cOnsideraTiOn OF FacTOrs in accOrdance WiTh s.172(1)

APRIL PLACING OF
£13.6M

the strengthening of the balance sheet allowed us to repay borrowings, extend credit
terms to commercial customers who were required to close during lockdown, continue to
support B2B franchisees with capital expansion and make all our supplier payments and
HMRc payments on a timely basis. the strengthened balance sheet provided a greater
level of security to management and employees. It also positions Franchise Brands for
earnings-enhancing opportunities that may arise which will benefit all shareholders.

SUSPENSION OF B2C
FRANCHISEE FEES
DURING SPRING
LOCKDOWN

our chipsAway, ovenclean and Barking Mad franchisees were unable to operate during
the spring lockdown because they were not performing essential services. they benefitted
from the suspension of franchisee fees and charges other than those necessary to maintain
skeleton operations. While the reduction in fees reduced income in the short term, the
action safeguarded their survival and supported the long-term growth of the networks.

AGREEING PAY CUTS

the Board took the early decision to reduce costs through agreeing temporary pay cuts
with a number of higher paid employees. the Board itself agreed temporary pay cuts of up
to 100% of salary. As activity levels improved, these pay cuts were reversed.

UTILISING THE JOB
RETENTION SCHEME

CONTINUATION OF
DIVIDEND
PAYMENTS

the Board took the early decision in March to furlough approximately 40% of the staff in the
B2B division and approximately 85% of the staff in the B2c division in anticipation of the
reduction in activity and income. this safeguarded the jobs of employees during the peak
of the crisis and allowed us to bring people back to the business as activity levels
improved.

the continuation of our dividend payments reflects the Board’s future confidence in the
business which is beneficial for all stakeholders. Importantly, it acknowledges the support
provided by our shareholders with the April placing which raised £13.6m. As most
employees are share option holders, or shareholders, the dividend payments were
beneficial to them. shareholders were given the option to receive the 2019 final dividend,
which was declared before the placing had taken place, as a scrip dividend. Given the
uncertainties due to coVId-19 the Board considered it necessary for the Group to adopt
a prudent approach and preserve the strength of its balance sheet by retaining cash.

Franchise Brands plc Annual Report and Accounts 2020

Directors’ Remuneration Report

Strategic Report

Governance

Financial Statements

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 may 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. Variable pay – 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 generally 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 exception to this is for matching schemes, where director are required to an
equal number of shares to those being granted. 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 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 corporate 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 retained under letters of engagement which may be terminated by the company
(i) giving three months’ notice or (ii) immediately, in the event that the director is not re-elected by shareholders at an AGM.

Directors’ remuneration (audited)
the aggregate remuneration payable to the directors for the year ended 31 december 2020 was as follows:

director

stephen Hemsley

chris dent

Julia choudhury

tim Harris

peter Molloy

colin Rees

nigel Wray

david poutney

Rob Bellhouse

total

salary
or fees
(£)

Benefits
in kind
(£)

pension
contributions
(£)

2019
comparison
(£)

total
(£)

110,000

–

– 110,000 107,500

105,000

7,800

2,193

114,994

112,830

100,000

–

– 100,000 96,250

125,000

8,400

2,454 135,854 133,760

130,000

16,984

4,092

151,077

147,208

97,087

27,500

–

2,077

99,164

95,243

–

27,500

25,625

27,500

26,875

27,500

26,875

749,587

33,184

10,817 793,589 772,166

Franchise Brands plc Annual Report and Accounts 2020

Directors’ Remuneration Report continued

no director received any remuneration from a third party in respect of their service as a director of the company.

As seen from the table above, four directors are currently accruing retirement benefits, and do so through defined contribution
schemes. the company has never operated 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

Julia choudhury

tim Harris

peter Molloy

colin Rees

date of grant

12-dec-17
11-dec-18
15-sept-20
15-sept-20

11-dec-18
15-sept-20

11-Apr-17
12-dec-17
11-dec-18
15-sept-20
15-sept-20

12-dec-17
11-dec-18
15-sept-20
15-sept-20

exercise
price
(pence)

performance
condition

2019
number
of shares

changes in the year

Granted

exercised

lapsed

2020
number of
shares

exercisable
from

exercisable
to

49.5 eps growth 303,030
21,970

69 eps growth
88 eps growth
0.5 eps growth

—
—
— 34,091
17,045
—

69 eps growth
88 eps growth

71,970

—
— 34,091

69 eps growth
88 eps growth

71,970

—
— 34,091

67 eps growth 150,000
49.5 eps growth 153,030
69 eps growth 106,000
88 eps growth
0.5 eps growth

—
—
—
— 34,091
— 28,409

49.5 eps growth 303,030
71,970

69 eps growth
88 eps growth
0.5 eps growth

—
—
— 34,091
— 39,773

—
—
—
—

—
—

—
—
—
—
—

—
—
—
—

— 303,030 12-dec-20
— 21,970
11-dec-21
— 34,091
—

12-dec-27
11-dec-28
15-sept-23 15-sept-30
17,045 15-sept-23 15-sept-30

— 71,970
— 34,091

11-dec-21

11-dec-28
15-sept-23 15-sept-30

— 71,970
— 34,091

11-dec-21

11-dec-28
15-sept-23 15-sept-30

11-Apr-20
— 150,000
— 153,030 12-dec-20
— 106,000
11-dec-21
— 34,091
—

11-Apr-27
12-dec-27
11-dec-28
15-sept-23 15-sept-30
17,045 15-sept-23 15-sept-30

— 303,030 12-dec-20
— 71,970
11-dec-21
— 34,091
—

12-dec-27
11-dec-28
15-sept-23 15-sept-30
17,045 15-sept-23 15-sept-30

during 2020 the closing mid-market quote for the company’s shares ranged from a low of 83.5p to a high of 151.5p. no director
exercised an option over the company’s shares during the year.

during 2020 the Remuneration committee approved the grant of options to employees and directors under two new incentive
schemes, a company share option plan (“csop”) and a Management share option scheme (“Management scheme”). unlike the
majority of options granted to employees, options granted to the executive directors and certain members of the senior
leadership team are “matching” options. this means that these employees are required to purchase shares in the company
at the prevailing market price before any option grants are effective.

cOMpanY share OpTiOn plan
the company established a new csop for employees and directors, which will enable them to acquire new ordinary shares of
0.5 pence each in the company subject to certain company performance criteria being met. similar to the company’s existing
share option schemes, employees and directors are only able to exercise their options under the csop as follows:

1) 20% after reported adjusted eps achieves compound annual growth of 8% over each of the next three financial years;
2) 100% after reported adjusted eps achieves compound annual growth of 15% over each of the next three financial years; and
3) between 20% to 100% of their options on a sliding scale basis on eps growth between the targets in 1) and 2) above.

In respect of the directors and certain members of the senior leadership team, this plan is a matching plan, requiring these
participants to purchase shares in the company at the prevailing market price before the grant is effective. the company
awarded a total of 170,455 options to five executive directors. the number of matching share options granted to each director
has been determined as being two times the number of ordinary shares they have each purchased in the company, subject to
a maximum of £30,000 of csop options each.

ManaGeMenT share OpTiOn scheMe
In addition to the above, the company has awarded 85,227 options to three executive directors under a new unapproved “nil
cost” Management scheme, which will enable them to acquire new ordinary shares at their nominal value of 0.5 pence each
based on the number of ordinary shares they have purchased in the company. the number of matching shares options granted
to each director under the Management scheme has been determined as being equal to the number of ordinary shares they
have purchased in the company, at the then prevailing share price. options granted under the Management scheme have the
same eps conditions of exercise as the csop as set out above.

Franchise Brands plc Annual Report and Accounts 2020

Directors’ Report

scOpe OF This repOrT
the directors’ biographies on pages 34 and 35, the discussion
of corporate governance matters on pages 38 to 40 and the
Remuneration Report on pages 41 and 42 are hereby
incorporated by reference to form part of this directors’ Report.

As permitted under the companies Act 2006, 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 building market-leading
businesses in selected customer segments, primarily via a
franchise model. our focus is on established brands which can
benefit from our shared support services, specialist sector
expertise, management experience and Group resources. the
principal activity of the company is to act as a holding company
and to provide management services to its subsidiary
companies.

direcTOrs
names, biographical details and appointment dates of the
directors of the company at the date of this report are shown
on pages 34 and 35.

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 dent2
Julia choudhury3
tim Harris4
peter Molloy5
colin Rees
nigel Wray6
david poutney7
Rob Bellhouse

At
31 December
2020

22,156,644
60,603
1,544,671
1,385,365
71,956
403,009
22,366,303
3,696,495
111,260

At
31 december
2019

20,515,117
15,000
1,507,288
1,362,314
33,582
298,507
21,720,120
3,438,881
82,768

notes:
1.

2.
3.

4.
5.

Included in the holding of stephen Hemsley are 1,626,875 ordinary shares held
by his wife, 7,525,927 ordinary shares held by ctG Investment limited, a
company owned by a discretionary trust of which Mr Hemsley and his family are
potential beneficiaries, 1,397,862 by the stephen Hemsley no.5 trust, a trust
settled by stephen Hemsley of which his family are potential beneficiaries, and
1,613,292 ordinary shares held by his self-Invested personal pension (“sIpp").
Included in the holding of chris dent are 60,603 ordinary shares held by his sIpp.
Included in the holding of Julia choudhury are 384,286 ordinary shares held
jointly with her husband, 421,140 ordinary shares held by her sIpp and 37,554
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 74,156 ordinary shares held by his sIpp.
Included in the holding of peter Molloy are 38,095 ordinary shares held by his
sIpp.
Included in the holding of nigel Wray are 14,117,007 ordinary shares held by
Vidacos nominees limited, acting as nominee for RBc trustees (Jersey) limited
as trustee of nigel 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 is not the beneficial owner of these shares.

Strategic Report

Governance

Financial Statements

Included in the holding of david poutney are 2,800,109 ordinary shares held by
his sIpp and an interest in 761,386 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.

In addition, chris dent, Julia choudhury, tim Harris, peter
Molloy and colin Rees hold options over shares of the
company through their participation in the company’s
ltIp, which are detailed in the Remuneration Report on
pages 41 and 42.

research and deVelOpMenT
the Group continues to invest in the development of its It
platforms, particularly at Metro Rod. In the current year, the
Group claimed £371,655 of qualifying R&d expenditure
(2019: £430,828).

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

canaccord Genuity Group Inc
Gresham House Asset
Management limited

current

number of
ordinary shares

6,728,524

5,444,699

percentage of
existing share
capital

7.0%

5.7%

GOinG cOncern
the Group has generated significant profits both during the
years covered by these financial statements, and in previous
years. the Group has sufficient current financial assets to meet
its current liabilities as they fall due.

during the year the Group has been impacted by the
lockdowns which were imposed by the Government as a result
of the coVId-19 crisis. In response to this crisis the Group
reduced costs to reflect the reduction in the level of revenues.
this included the use of the furlough scheme, which was an
excellent tool during the height of lockdown to ensure that we
could continue to employ our people in the face of a sharp fall
in revenues. In addition, paycuts were agreed with the
remaining employees, and other operational cost savings were
achieved. this meant that the Group continued to generate
profits on a month-by-month basis during the height of the
lockdown and continued to be able to pay all its liabilities as
they fell due. during the second half of the year the Group saw
a recovery in its revenues and has consequently returned all
staff from furlough.

the Group has budgeted its anticipated financial performance
over the balance of 2021, and throughout the whole of 2022.
these financial forecasts include detailed income statement
and cash flow budgets. these forecasts have been subject to
review by the Board of directors.

on 20 April 2020 the company completed a fundraise by
which 15,555,556 new ordinary shares were issued at the
price of 90p raising £13.6m (net of expenses). this fundraise
significantly strengthened the Group’s balance sheet at a time
of heightened uncertainty, providing significant liquidity. the

Franchise Brands plc Annual Report and Accounts 2020

Directors’ Report continued

Group has used part of the placing funds to pay down its
borrowings on the Group’s Revolving credit Facility. the Group
has not, currently, used the funds to pay down the term loan
(which currently stands at £5.2m) to continue to maximise the
Group’s accessible funding lines. At the 31 december 2020 the
Group had cash of £13.2m, and undrawn bank facilities of 7.0m
(comprised of £5m RcF and £2m overdraft), giving the Group
over £20m of cash and available facilities. overall, the Group
has deleveraged, moving to an adjusted net cash position of
£6.7m, and a statutory net cash position (including our
capitalised operating leases) of £5.1m.

Given the fact that the Group and the company continues to be
profitable, continues to have net assets and has access to cash
and funding, the directors have made appropriate enquiries
and consider that the company 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.

Branches
there are no branches of the company outside the uK.

share capiTal
the company’s entire issued share capital comprises ordinary
shares of 0.5 pence each. note 24 to the financial statements
summarises the number in issue during 2020.

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 78. 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 43;
• 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.

pOliTical and chariTaBle dOnaTiOns
no political or charitable donations were made or political
expenditure incurred during the period.

diVidends
A final dividend of 0.65 pence per share was paid on 8 June
2020 in respect of the 2019 financial year. the final 2019
dividend had a scrip dividend alternative. the scrip dividend
alternative was taken up by approximately 63% of the
company’s issued shares. therefore, the dividend was satisfied
with a cash payment of £228,695 and the issue of 388,199 new
ordinary shares of 0.5 pence.

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.

An interim dividend of 0.30 pence per share in respect of the
2020 financial year was paid on 19 october 2020.

the directors are recommending a final dividend of 0.8 pence
per share which, subject to shareholders’ approval at the AGM,
will be paid on 28 May 2021 to shareholders on the register at
the close of business on 14 May 2021.

annUal General MeeTinG
the 2020 Annual General Meeting of the company will be held
on 20 April 2021, 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.

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

2019-2020 enerGY and carBOn repOrTinG
Franchise Brands plc has reported scope 1, 2 and 3 greenhouse gas (GhG) emissions in accordance with the requirements
of streamlined energy and carbon reporting (secr). This includes Franchise Brands plc’s stated emissions for one reporting
year – the 12 months starting 1 January 2020 and ending 31 december 2020.

MeThOdOlOGY
Responsibilities of Franchise Brands plc and Green Element
Franchise Brands plc was responsible for the internal
management controls governing the data collection process.
Green element was responsible for the data aggregation,
any estimations and extrapolations applied (as required) and
GHG calculations performed and the emissions statements.
emissions were calculated according to the Greenhouse
Gas protocol corporate Greenhouse Gas Accounting and
Reporting standard.

scOpe and sUBJecT MaTTer
the report includes sources of environmental impacts
under the operational control of Franchise Brands plc.

GhG sOUrces inclUded in The prOcess
Scope 1: company cars, natural gas, diesel for electricity
generation, other fuels.
Scope 2: purchased electricity.
Scope 3: Business travel in employee-owned or hired vehicles.
Types of GHG included, as applicable: co2, n2o, cH4, HFcs,
pFcs, sF6, and nF3. the figures were calculated using deFRA
conversion factors, expressed as tonnes of carbon dioxide
equivalent (“tco2e”).

enerGY eFFiciencY acTiOn
the following energy efficiency action has been taken:
• calculation of 2020 carbon footprint;
• switching to led lights with timers and sensors;
• use of video conferencing instead of travel (where possible);
• switch to e.on for greener energy, trialling use of part

electric fleet and movement towards hybrid vehicles; and

• behaviour change promotion.

cOMpanY GhG sTaTeMenT (in tcO2e), as FOllOWs:
streamlined energy and carbon Reporting

Energy consumption: (kWh)
electricity
Gas
transport fuel
Fuel for electricity generation
Total energy consumption

Emissions: (tCO2e)
Scope 1
emissions from combustion of gas in buildings
emissions from combustion of fuel for transport purposes
Scope 2
emissions from purchased electricity
Scope 1 & 2
Total Scope 1+2 emissions
Scope 3
emissions from business travel in rental cars or employee vehicles where company

is responsible for purchasing the fuel

emissions from upstream transport and distribution losses and excavation and transport of fuels
Total emissions for mandatory reporting

Intensity: (tCO2e / EBITDA)
eBItdA
Intensity ratio: tco2e from scope 1, 2, and 3

(fuel for business travel only) / eBItdA

Methodology

certification and external verification

Approved by the Board.

Chris Dent
Chief Financial Officer
3 March 2021

2020

4,925.5
965
5,045,390.4
–
5,055,107.9

2.0
929.1

107.5

931.2

340.3

0.18264
1,404.5

£6,640,000

0.23

GHG protocol corporate Accounting and Reporting standard
calculated and verified as accurate by
Green element limited and compare Your Footprint limited, uK.

Franchise Brands plc Annual Report and Accounts 2020

Directors’ Responsibilities Statement

the directors are responsible for preparing the Annual 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 accounting standards in
conformity with the requirements of the companies Act 2006. 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
3 March 2021

Franchise Brands plc Annual Report and Accounts 2020

Independent auditor’s report
to the members of Franchise Brands plc

Strategic Report

Governance

Financial Statements

OpiniOn On The Financial sTaTeMenTs
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 2020 and of the Group’s profit for the year
then ended;
the Group financial statements have been properly prepared
in accordance with international accounting standards in
conformity with the requirements of the companies Act
2006;
the parent company financial statements have been
properly prepared in accordance with international
accounting standards in conformity with the requirements of
the companies Act 2006 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.

•

We have audited the financial statements of Franchise Brands
plc (the ‘parent company’) and its subsidiaries (the ‘Group’) for
the year ended 31 december 2020 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 their preparation is
applicable law and international accounting standards in
conformity with the requirements of the companies Act 2006
and, as regards the parent company financial statements, as
applied in accordance with the provisions 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 believe that the
audit evidence we have obtained is sufficient and appropriate
to provide a basis for our opinion.

Independence
We remain 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.

cOnclUsiOns relaTinG TO GOinG cOncern
In auditing the financial statements, we have concluded that the
directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. our
evaluation of the directors’ assessment of the Group and the
parent company’s ability to continue to adopt the going
concern basis of accounting included:
•

reviewing and challenging the going concern paper
prepared by management by verifying the numerical inputs,
accuracy of calculations and obtaining evidence to support
management’s estimates;

•

• a comparison of the best estimate forecasts prepared by
management to the actual results in the financial period
being audited along with an assessment of the assumptions
used to substantiate the potential impact of covid-19
through the use of sensitivity analysis on these key
assumptions and an overall comparison to actual post year
end results;
reviewing the forward looking forecasts prepared by
management, challenging the inputs and assumptions used
within these models and evaluating sensitivities performed
to understand the available headroom on all financing
facilities, cash and loan covenants. We have challenged the
assumptions within the stress test scenarios to understand
the headroom impact of reductions in revenue, eBItdA and
profit, and any delays in receipts of cash from customers;
and

• confirming the accuracy of the management forward looking
covenant calculations on the banking facilities based on the
forecast figures.

Based on the work we have performed, we have not identified
any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
entity’s ability to continue as a going concern for a period of at
least twelve months from when the financial statements are
authorised for issue.

our responsibilities and the responsibilities of the directors
with respect to going concern are described in the relevant
sections of this report.

Franchise Brands plc Annual Report and Accounts 2020

Independent auditor’s report
to the members of Franchise Brands plc

OVerVieW

Coverage

Key audit matters

99% (2019: 84%) of Group profit before tax
99% (2019:85%) of Group revenue
99% (2019: 88%) of Group total assets

Impairment of goodwill and intangible assets
Recoverability of trade receivables
Acquisition of Wpl Group Holdings limited

2020


–

2019

–


the acquisition of Wpl Group Holdings limited is no longer considered to be a key audit matter as
the entity was acquired in the prior year and there have been no new acquisitions in the current
financial year.

Materiality

Group financial statements as a whole
£180,000 (2019: £160,000) based on 5% (2019: 5%) of profit before tax.

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.

the group operates solely in the united Kingdom through a number of legal entities, which form reporting components.
significant components were defined as those reporting components contributing more than 15% towards Group profit before
tax, or if judgementally considered to be significant by nature. the financial information relating to the parent company and all
other significant components of the Group were subject to full scope audits by the Group audit team. the Group audit team also
performed full scope statutory audits on the trading non-significant components.

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) that 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.

Key audit matter

Impairment of goodwill
and intangible assets

Refer to the accounting
policies on pages 59
and 62 and note 13 on
page 70

the group has goodwill
and indefinite life
intangible assets, which
require management to
test these annually for
impairment.

there is a high degree of
management judgement in
assessing the value in use
of the cash Generating
unit (“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.

How the scope of our audit addressed the key audit matter

We obtained the impairment analysis performed by management for
each cGu.
We challenged this impairment analysis and considered the
reasonableness of management’s key judgements. our work included;
• challenging the future trading projections by reference to current

performance and the accuracy of prior year forecasting;

• challenging the discount rate applied using a range of sensitivities;
• using our internal specialists to determine the appropriateness of

the discount rate applied;

• checking the impairment analysis for logical and arithmetic

accuracy and to ensure that it has been undertaken in accordance
with financial reporting standards;

• Verifying the long term growth rate using historical performance to

compare to budgeted rates used;

• determining 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.

Key observations:
Based on our procedures we noted no material exceptions and found
management’s key assumptions underlying the impairment reviews to
be within a reasonable range.

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

How the scope of our audit addressed the key audit matter

We obtained assurance over management’s judgements applied in
calculating the amount of receivables provisions by:
• Reviewing management’s calculation of the expected credit loss
provision, including agreeing the inputs to source ledgers and
assessing management’s judgement on the forward-looking
assessment by comparison to our understanding of the business.
In order to assess whether any specific additional provisions were
required, we reviewed a sample of balances for the level of cash
received post year end against the year-end receivables in each entity,
or other supporting documentation where this was still outstanding,
to verify the recoverability of these balances post year end.

•

Key observations:
Based on the audit procedures performed we considered that
management’s judgements in relation to the recoverability of trade
receivables were reasonable.

Independent auditor’s report
to the members of Franchise Brands plc

Key audit matter

Recoverability of
trade receivables

Refer to the accounting
policies in note 1 on
page 60 and note 17
on page 74

Material amounts of trade
debtors remain outstanding
and the aged nature of
certain balances along
with the impact of
covid-19 increases the
risk of recoverability.

there is significant
management judgement
involved in assessing
the recoverability of
these balances.

such judgements include
management’s
expectations of future
payments, based on the
forward looking assessment
and exercising judgement
in determining whether
any specific additional
provisions are required.

OUr applicaTiOn OF MaTerialiTY
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements.
We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic
decisions of reasonable users that are taken on the basis of the financial statements.

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.

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

Materiality

Basis for determining
materiality

Rationale for the
benchmark applied

Group financial statements

Parent company financial statements

2020
£m

180,000

2019
£m

160,000

2020
£m

110,000

2019
£m

110,000

5% of profit Before tax

60% (2019: 70%) of group materiality

profit Before tax is one of the principal
considerations for users of the financial
statements in assessing the financial
performance of the business.

this company exists as a parent company and has
no trade during the year. As an investment holding
company net Assets were deemed the most
appropriate benchmark, but this was limited to
component materiality for group purposes

Performance materiality

135,000

120,000

82,500

Basis for determining
performance materiality

75% selected based on the expected low level
of misstatements and the relatively low number
of accounts that are subject to management
estimation.

Franchise Brands plc Annual Report and Accounts 2020

Independent auditor’s report
to the members of Franchise Brands plc

Component materiality
We set materiality for each component of the Group between £70,000 and £145,000 (2019: £70,000 and £140,000) dependent
on the size and our assessment of the risk of material misstatement of that component. In the audit of each component, we
further applied performance materiality levels of 75% of the component materiality to our testing to ensure that the risk of errors
exceeding component materiality was appropriately mitigated.

Reporting threshold
We agreed with the Audit committee that we would report to them all individual audit differences in excess of £3,600 (2019:
£3,200). We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.

OTher inFOrMaTiOn
the directors are responsible for the other information. the other information comprises the information included in the annual
report and accounts, 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. 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 course of 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 this gives rise to a material misstatement in the financial statements themselves. 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.

OTher cOMpanies acT 2006 repOrTinG
Based on the responsibilities described below and our work performed during the course of the audit, we are required by the
companies Act 2006 and IsAs (uK) to report on certain opinions and matters as described below.

Key audit matter

How the scope of our audit addressed the key audit matter

Strategic report and
Directors’ report

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.

•

In the light of the knowledge and understanding of the Group and 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.

Matters on which we
are required to report
by exception

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 and the part of the directors’ remuneration report
to be audited are not in agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.

respOnsiBiliTies OF direcTOrs
As explained more fully in the directors’ Responsibilities statement, 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.

Franchise Brands plc Annual Report and Accounts 2020

Independent auditor’s report
to the members of Franchise Brands plc

Strategic Report

Governance

Financial Statements

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.

Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud.

• We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and determined that
the most significant frameworks which are directly relevant to specific assertions in the financial statements are those that
relate to the reporting framework (IFRs and the companies Act 2006) and the relevant tax compliance regulations.
In addition, we concluded that there are certain significant laws and regulations which may have an effect on the determination
of the amounts and disclosures in the financial statements being those laws and regulations relating to environmental,
occupational health and safety and data protection.

•

• We understood how the group is complying with those frameworks by making enquiries of management and those

responsible for legal and compliance procedures. We corroborated our enquiries through our review of Board minutes, papers
provided to the Audit committee and any correspondence received from regulatory bodies.

• We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud might occur

by meeting with management to understand where it considered there was susceptibility to fraud. We also considered
performance targets and their influence on efforts made by management to manage earnings or influence the perceptions
of analysts. We considered the programs and controls that the group has established to address risks identified, or that
otherwise prevent, deter and detect fraud; and how senior management monitors those programs and controls. Where the risk
was considered to be higher, we performed audit procedures to address each identified fraud risk. these procedures included
testing manual journals and challenging the assumptions made by management in their significant accounting estimates in
particular in relation to the impairment of goodwill and intangible assets and the recognition and measurement of revenue
where the performance obligation is satisfied over time. our audit procedures were designed to provide reasonable
assurance that the financial statements were free from fraud or error.

• Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations
identified in the paragraphs above. our procedures involved: journal entry testing, with a focus on manual journals and
journals indicating large or unusual transactions based on our understanding of the business; enquiries of those responsible
for legal and compliance procedures; and focused testing on laws and regulations that could give rise to a material
misstatement in the Group financial statements.

our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the
risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud
may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. there are inherent limitations
in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and
transactions reflected in the financial statements, the less likely we are to become aware of it.

A further description of our responsibilities is available 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
3 March 2021

Bdo llp is a limited liability partnership registered in england and Wales (with registered number oc305127).

Franchise Brands plc Annual Report and Accounts 2020

Consolidated Statement of Comprehensive Income
For the year ended 31 December 2020

Revenue
cost of sales

Gross profit
Adjusted earnings before interest, tax, depreciation, amortisation, share-based

payments & non-recurring items (“Adjusted eBItdA”)

depreciation
Amortisation of software
Amortisation of acquired intangibles
share-based payment expense
non-recurring items
total administrative expenses

Operating profit
other gains and losses
Finance expense

Profit before tax
tax expense

Profit for the year and total comprehensive income attributable to equity holders

of the Parent Company

All amounts relate to continuing operations

Earnings per share
Basic
diluted

the notes on pages 58 to 79 form part of these financial statements.

note

7,14,15
7,13
7,13
7,9
5,7

20
10

12
12

2020
£’000

49,287
(28,362)

20,925

6,640
(1,149)
(209)
(393)
(205)
(707)
(16,948)

3,977
151
(446)

3,682
(889)

2019
£’000

44,013
(27,631)

16,382

5,182
(635)
(120)
(260)
(238)
(270)
(12,723)

3,659
(26)
(357)

3,276
(566)

2,793

2,710

3.09
3.03

3.48
3.42

Franchise Brands plc Annual Report and Accounts 2020

Consolidated Statement of Financial Position
At 31 December 2020

Strategic Report

Governance

Financial Statements

Assets
Non-current assets
Intangible assets
property, plant and equipment
Right-of-use assets
trade and other receivables

Total non-current assets

Current assets
Inventories
trade and other receivables
cash and cash equivalents

Total current assets

Total assets

Liabilities
Current liabilities
trade and other payables
loans and borrowings
obligations under leases
current tax liability
contingent consideration

Total current liabilities

Non-current liabilities
loans and borrowings
obligations under leases
contingent consideration
deferred tax liability

Total non-current liabilities

Total liabilities

Total net assets

Issued capital and reserves attributable to owners of the Company
share capital
share premium
share-based payment reserve
Merger reserve
treasury reserve
eBt reserve
Retained earnings

Total equity attributable to equity holders

note

13
14
15
17

16
17

18
19
21

19
21
20
22

24
24
24
24
24
24

2020
£’000

2019
£’000

34,754
1,274
3,377
155

39,560

712
15,072
13,203

28,987

68,547

10,808
1,908
897
445
320

14,378

3,200
2,240
3,136
1,752

10,328

24,706

43,841

479
36,817
455
1,390
–
(149)
4,849

43,841

35,057
1,242
3,538
–

39,837

594
16,935
1,682

19,211

59,048

12,684
4,074
924
594
–

18,276

5,200
2,563
3,606
1,544

12,913

31,189

27,859

398
22,806
316
1,390
(21)
–
2,970

27,859

the consolidated financial statements of Franchise Brands plc (company number: 10281033) on pages 52 to 79 were approved
and authorised for issue by the Board of directors on 3 March 2021 and were signed on its behalf by:

Chris Dent
Director

Franchise Brands plc Annual Report and Accounts 2020

Company Statement of Financial Position
At 31 December 2020

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
contingent consideration

Total current liabilities

Non-current liabilities
loans and borrowings
contingent consideration

Total non-current liabilities

Total liabilities

Net assets

Issued capital and reserves attributable to owners of the Company
share capital
share premium
share-based payment reserve
Merger reserve
treasury reserve
eBt reserve
Retained earnings

Total equity attributable to equity holders

note

18
19
20

19
20

24
24
24
24
24
24

2020
£’000

2019
£’000

41,049

2,242
8,997

11,239

52,288

292
1,908
320

2,520

3,200
3,136

6,336

8,856

43,432

479
36,817
455
1,270
–
(149)
4,560

43,432

41,049

–
25

41,074

923
4,074
–

4,997

5,200
3,606

8,806

13,803

27,271

398
22,806
316
1,270
(21)
–
2,502

27,271

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 2020 of
£2.97m (2019: £0.05m).

the company financial statements of Franchise Brands plc (company number: 10281033) on pages 52 to 79 were approved and
authorised for issue by the Board of directors on 3 March 2021 and were signed on its behalf by:

Chris Dent
Director

Franchise Brands plc Annual Report and Accounts 2020

Consolidated Statement of Cash Flows
For the year ended 31 December 2020

Cash flows from operating activities
profit for the year
Adjustments for:
depreciation of property, plant and equipment
depreciation of right-of-use assets
Amortisation of software
Amortisation of acquired intangibles
non-recurring costs
share-based payment expense
other gains and losses
Finance expense
tax expense

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

Cash generated from operations
corporation taxes paid

Net cash generated from operating activities
Cash flows from investing activities
purchases of property, plant and equipment
purchase of software
Acquisition of subsidiary including costs, net of cash acquired

Net cash used in investing activities
Cash flows from financing activities
Bank loans – repaid
Bank loans – received
other loans – made
capital element of lease obligations repaid
Interest paid – bank and other loan
Interest paid – leases
proceed from issue of shares
purchase of shares by employee Benefit trust
purchase of treasury shares
dividends paid

Net cash generated from/(used in) financing activities
Net increase/(decrease) 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

Strategic Report

Governance

Financial Statements

note

2020
£’000

2019
£’000

2,793

2,710

14
15
13
13

9
20
10
11

17
16
18

14
13
5

327
822
209
393
707
205
(151)
446
889

6,640
1,345
(119)
(1,878)

5,988
(745)

5,243

(460)
(319)
–

(779)

(4,200)
–
(163)
(1,100)
(257)
(189)
13,696
(214)
–
(516)

7,057
11,521

1,682

13,203

Cash
£’000

2,940

–
(1,258)
–

1,682

–
11,521
–

13,203

183
452
120
260
270
238
26
357
566

5,182
(1,523)
5
999

4,663
(147)

4,516

(865)
(837)
(3,958)

(5,660)

(2,506)
4,000
(5)
(716)
(343)
(44)
358
–
(266)
(592)

(114)
(1,258)

2,940

1,682

Total net cash/
(net debt)
£’000

(5,907)

(740)
(1,258)
(3,174)

(11,079)

5,458
11,521
(756)

5,164

Franchise Brands plc Annual Report and Accounts 2020

Group

At 1 January 2019

Financing cash flows
other cash flows
other changes

At 31 December 2019

Financing cash flows
other cash flows
other changes

At 31 December 2020

Term Loan
£’000

(5,435)

(1,000)
–
34

(6,401)

1,200
–
(24)

(5,225)

Revolving
credit facility
£’000

Loan fees
£’000

(2,514)

(500)
–
12

(3,002)

3,000
–
2

–

110

–
–
19

129

–
–
(13)

117

Obligations
under leases
£’000

(1,008)

760
–
(3,239)

Total liabilities
from financing
activities
£’000

(8,847)

(740)
–
(3,174)

(3,487)

(12,761)

1,258
–
(701)

(2,930)

5,458
–
(736)

(8,039)

Company Statement of Cash Flows
For the year ended 31 December 2020

Cash flows from operating activities
profit for the year
Adjustments for:
other gains and losses
Finance expenses
tax expense
share-based payment expense

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

Cash generated from operations

corporation taxes paid

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
Funds supplied to employee Benefit trust
purchase of treasury shares
dividends paid

Net cash flows generated by/(used in) financing activities
Net increase/(decrease) 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

note

17
18

2020
£’000

2,973

(151)
242
(89)
53

3,027
(1,998)
(394)

635

(172)

463

–

(4,200)
–
(257)
13,696
(214)
–
(516)

8,509
8,972

8,997

2019
£’000

26
287
(236)
84

210
2,920
776

3,906

–

3,906

(4,538)

(2,506)
4,000
(343)
358
–
(266)
(592)

651
19

Group

At 1 January 2019

Financing cash flows
other cash flows
other changes

At 1 January 2020

Financing cash flows
other cash flows
other changes

At 31 December 2020

Term
Loan
£’000

(5,435)

(1,000)
–
34

(6,401)

1,200
–
(24)

(5,225)

Revolving
credit facility
£’000

(2,514)

(500)
–
12

(3,002)

3,000
–
2

–

Loan
fees
£’000

110

–
–
19

129

–
–
(13)

117

Total liabilities
from financing
activities
£’000

(7,840)

(1,500)
–
65

(9,275)

4,200
–
(53)

(5,108)

Cash
£’000

–
19
–

–
8,972
–

8,997

Total net cash/
(net debt)
£’000

(7,834)

(1,500)
19
65

(9,250)

4,200
8,972
(55)

3,889

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

Consolidated and Company Statement of Changes in Equity
For the year ended 31 December 2020

Group

Share
capital
£’000

Share premium
account
£’000

Share-based
payment
reserve
£’000

At 1 January 2019

388

22,621

226

Merger
reserve
£’000

396

Treasury
shares
£’000

(151)

–

185
–
–
–

(148)
–
–
238

316

994
–
–
–

1,390

–

At 1 January 2020

398

22,806

profit for the year and total
comprehensive income

Contributions by and

distributions to owners

shares issued
dividend paid
treasury shares
share-based payment

–

10
–
–
–

profit for the year and total
comprehensive income

Contributions by and

distributions to owners

shares issued
dividend paid
treasury shares
contributions to employee

Benefit trust

share-based payment

–

79
2
–

–
–

At 31 December 2020

479

36,817

13,623
389
–

–
–

(66)
–
–

–
205

455

Share
capital
£’000

388

Share premium
account
£’000

Share-based
payment
reserve
£’000

22,621

226

–

Company

At 1 January 2019

profit for the year and total
comprehensive income

Contributions by and

distributions to owners

shares issued
dividend paid
treasury shares
share-based payment

–

10
–
–
–

profit for the year and total
comprehensive income

Contributions by and

distributions to owners

shares issued
dividend paid
treasury shares
contributions to employee

Benefit trust

share-based payment

–

79
2
–

–
–

At 1 January 2020

398

22,806

At 31 December 2020

479

36,817

185
–
–
–

(148)
–
–
238

316

994
–
–
–

1,270

–

13,623
389
–

–
–

(66)
–
–

–
205

455

–

–
–
–

–
–

1,390

Merger
reserve
£’000

276

–

–
–
–

–
–

1,270

EBT reserve
£’000

Retained
earnings
£’000

Total
£’000

–

–
–
–
–

–

65
–
–

(214)
–

(149)

EBT reserve
£’000

–

–
–
–
–

–

65
–
–

(214)
–

(149)

931

24,411

2,710

(79)
(592)
–
–

1,358
(592)
(266)
238

2,970

27,859

2,793

66
(906)
(9)

(65)
–

–
13,779
(515)
–

(279)
205

4,849

43,841

Retained
earnings
£’000

3,123

Total
£’000

26,483

(79)
(592)
–
–

1,358
(592)
(266)
238

2,502

27,271

2,972

66
(906)
(9)

(65)
–

–
13,779
(515)
–

(279)
205

4,560

43,432

396
–
(266)
–

(21)

–

12
–
9

–
–

–

Treasury
shares
£’000

(151)

396
–
(266)
–

(21)

–

12
–
9

–
–

–

Franchise Brands plc Annual Report and Accounts 2020

Notes forming part of the Financial Statements
For the year ended 31 December 2020

1 siGniFicanT 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
focused on building market-leading businesses in selected customer segments, using primarily a franchise model. our focus is
on established brands which can benefit from our shared support services, specialist sector expertise, management experience
and Group resources. 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 accounting standards in conformity with
the requirements of companies Act 2006 as they apply to the financial statements of the Group for the year ended 31 december
2020. 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.

Segmental reporting
IFRs 8 operating segments requires operating segments to be identified on the same basis as is used internally for the review
of performance and allocation of resources by the “chief operating decision maker”, who has been identified as the executive
chairman. IFRs 8 permits the aggregation of these components into reportable segments for the purpose of disclosure in the
Group’s financial statements.

the directors have determined that the Group currently has two reportable types of operations: Franchise networks and direct
labour organisations (“dlos”). In this assessment the directors have had regard to the economic characteristics of the operating
segments, the nature of their business and their long-term margins. In addition, the directors believe that there are two
operational divisions within the Group. therefore, in both the previous and the current period the directors have chosen to report
three segments:

• B2B - Franchisor, which is made up of Metro Rod and Metro plumb;
• B2B - dlo, which is made up of Willow pumps, and other B2B dlos; and
• B2c, which is made up of chipsAway, ovenclean and Barking Mad.

In the current year management responsibility for the 2 Metro Rod corporate franchise areas has moved from Metro Rod to Willow
pumps. therefore, these entities now form part of the B2B-dlo division, and are reported as such internally. the prior year has
not been restated for this change.

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 (see note 2). 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.

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

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, trademarks, 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 3-10 years.

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. 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. For chipsAway and ovenclean a set monthly fee is charged. For Metro Rod and Barking Mad a variable
percentage is charged based on the invoiced revenue of the 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 our performance obligations are met
in relation to an individual job. Where performance obligations are met over a number of accounting periods, revenue is
recognised over time and is based on the proportion of the level of service performed (see note 2). the performance
obligations are defined in our underlying contracts with customers. At Willow pumps this will be the supply and install
of a pump; at Metro Rod and Metro plumb, this will be on attendance and completion of an individual customer’s visit.

• 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. 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. 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.

Franchise Brands plc Annual Report and Accounts 2020

Notes forming part of the Financial Statements continued
For the year ended 31 December 2020

1 siGniFicanT accOUnTinG pOlicies contInued

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 are initially recognised at fair value and subsequently
carried at amortised cost using the effective interest method.

Financial assets
All of the Group’s financial assets are classified and held at amortised cost. these assets arise principally from the provision of
goods and services to customers, 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 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 based on customer type, history of payment as well as by the number of days that debt is past due.
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.

contract assets primarily relate to balances which Metro Rod franchisees have been paid in advance of the related revenue being
taken. these balances are at all times less than the overall balances that are owed to the franchise network. the contractual right
of set-off exists on amounts owed from our franchisees. therefore, they do not present an impairment risk.

contract assets include outlays incurred on behalf of clients, including third-party costs that have not yet been billed and are
considered receivables under IFRs 15 Revenue from contracts with customers.

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. 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 & fittings
computer equipment

– over period of lease
– over period of lease
– 10%-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 derecognition 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.

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

Corporation tax
current tax assets and liabilities are measured at the amount expected to be received or paid to the taxation authorities.
corporation 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 corporation 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.

Leases
Where a contract meets IFRs 16’s definition of a lease, lease agreements 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 are recognised in the
form of depreciation of the right to use asset and interest on the lease liability.

Employee Benefit Trust
In order to facilitate its employee share option scheme, on 1 July 2020 the Group established an onshore discretionary employee
benefit trust (the “eBt”), which is expected to conduct market purchases of ordinary shares to satisfy potential future option
exercises by employees (but not directors). When the Group funds the eBt the cash value is debited to a separate eBt reserve
of the parent company. during the period 1 July 2020 to 31 december 2020, the eBt purchased 264,848 ordinary shares at an
average price of 96 pence per share. 109,223 ordinary shares have been used to satisfy the exercise of options over ordinary
shares. Accordingly, at the year end the eBt held 155,625 ordinary shares which represents 0.16% of the company’s current
issued share capital.

Government Grants
Government Grants are set against the relevant cost. In the current year the Group made use of two different Government Grants:
R&d tax credits and the Job Retention scheme.

Adjusted Performance Measures (“APMs”)
ApMs are utilised as key performance indicators by the Group and are calculated by adjusting the relevant IFRs measurement by
acquisition related costs, amortisation of acquired intangibles, share-based payments and non-recurring items. the two main
ApMs which are used are Adjusted eBItdA and Adjusted eps. the reconciliation of these items to IFRs measurements can be
found in the chief Financial officer’s Review on page 22. ApMs are non-GAAp measures and are not intended to replace those
measurements, but are the measures used by the directors in their management of the business, and are, therefore, important
key performance indicators (“KpIs").

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 Group, but are a KpI used by management, and it is therefore
disclosed to provide more insight into the franchise networks which we operate.

Adoption of new standards
the new amended standards and interpretations issued by the IAsB that apply to the financial statements do not impact the
Group as they are either not relevant to the Group’s activities or require accounting which is consistent with the Group’s current
accounting policies.

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 franchise 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 franchise 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 2020 £206,000 (2019:
£144,000) had been recognised as a debtor, and £151,000 (2019: £141,000) was not recognised.

Franchise Brands plc Annual Report and Accounts 2020

Notes forming part of the Financial Statements continued
For the year ended 31 December 2020

2 criTical accOUnTinG esTiMaTes and JUdGeMenTs contInued

Metro Rod revenue recognition
In line with our other networks Metro Rod charges its franchisees a management service fee at the rate of up to 22.5% of their
underlying system sales. the incentive schemes designed to increase system sales will reduce the headline rate down from the
contractual rate of 22.5%. the franchise network has two types of system sales: national and local accounts. In the case of
national accounts Metro Rod bears the credit risk, whereas for local 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 at least 77.5% to leave a gross margin of up to 22.5%. In relation to local account sales the directors believe that we
are acting as an agent, and we only recognise our 22.5% management fee as revenue.

Willow pumps revenue recognition
As part of its range of services, Willow pumps undertakes the supply and install of pumps in adoptable pump stations. these are
typically projects which are performed over a number of accounting periods. Revenue recognised over time is based on the
proportion of the contract completed. either an input method or an output method, depending on the particular arrangement, is
used to measure progress for each performance obligation. For most contractual fee arrangements, costs incurred are used as
an objective input measure of performance. the primary input of substantially all work performed under these arrangements is
labour. there is normally a direct relationship between costs incurred and the proportion of the contract performed to date. In
other circumstances relevant output measures, such as the achievement of any project milestones stipulated in the contract, are
used to assess proportional performance. Judgement is required regarding the timing of recognition, particularly in assessing
progress on performance obligations where revenue is recognised over time. At the end of the year there were £6.0m (2019:
£7.6m) of supply and install contracts in progress, on which £3.7m (2019: £3.1m) of revenue has been taken.

Business combinations
determining a value for consideration paid
determining the fair value of the consideration paid in business combinations requires the use of estimates regarding the expected
future payments of deferred consideration. the values are determined using discounted cash flows and based upon latest approved
budgets and longer-term forecasts which include estimates concerning factors which affect the level of deferred consideration to be
paid including revenues expected to be generated, and profits forecast to be earned. the level of deferred consideration expected
to be paid is re-evaluated at each balance sheet date, with any change being taken to the income statement. the current provision
is a discounted value of the expected cash payments, and the unwind of the discount on the deferred contingent consideration is
included within other gains and losses. More details of these estimates can be found in notes 5 and 20.

determining a value and life for assets acquired
determining the fair value, and the life, 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.
Management has determined that acquired brands and trademarks acquired 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. 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. More details of these estimates can be found in
note 5.

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 13.

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 and overdrafts 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.

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

the Group’s dividend policy is to provide sustainable dividends to shareholders, consistent with the Group’s earnings growth and
debt gearing levels, 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.

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
Financial liabilities at fair value through profit and loss (“FVtpl”)

Company

2020
£’000

2019
£’000

13,203
14,499

(9,642)
(8,245)
3,456

2020
£’000

8,997
2,240

(249)
(5,108)
3,456

1,682
15,595

(11,092)
(12,761)
3,606

2019
£’000

25
–

(901)
(9,275)
3,606

due to their short-term nature, the carrying value of cash and cash equivalents, trade and other receivables, and trade and other
payables approximates to their fair value. the only financial liability at FVtpl is the provision in relation to the contingent deferred
consideration. For details in relation to this, please see note 20.

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.

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

Sensitivity
income
2020
£’000

(13)
13

Sensitivity
equity
2020
£’000

(13)
13

sensitivity
income
2019
£’000

(24)
24

sensitivity
equity
2019
£’000

(24)
24

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.

Franchise Brands plc Annual Report and Accounts 2020

Notes forming part of the Financial Statements continued
For the year ended 31 December 2020

3 Financial insTrUMenTs – risK ManaGeMenT contInued

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.

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

Trade and
other
payables
2020
£’000

Loans and
borrowings
2020
£’000

FVTPL
2020
£’000

Total
2020
£’000

–
9,643

–
3,045

–

–
319 13,007

trade and
other
payables
2019
£’000

–
11,092

loans and
borrowings
2019
£’000

–
5,252

FVtpl
2019
£’000

total
2019
£’000

–
–

–
16,344

–

–
–

2,729

284

3,013

2,377
448

4,050
–

6,427
448

–

–
–

2,924

266

3,190

4,413
652

203
3,585

4,616
4,237

9,643

8,599

4,653 22,895

11,092

13,241

4,054

28,387

Trade and
other
payables
2020
£’000

Loans and
borrowings
2020
£’000

–
274

–
2,099

FVTPL
2020
£’000

–
319

Total
2020
£’000

–
2,692

trade and
other
payables
2019
£’000

loans and
borrowings
2019
£’000

–
901

–
4,367

FVtpl
2019
£’000

–
–

total
2019
£’000

–
5,268

–

–
–

2,035

284

2,319

1,204
–

4,050
–

5,254
–

–

–
–

274

5,338

4,653 10,265

901

2,117

266

2,383

3,270
–

9,754

203
3,586

3,473
3,586

4,055

14,710

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

4 OperaTinG seGMenTs

the Group’s operating segments are determined based on the Group’s internal reporting to the chief operating decision Maker
(“codM"). the codM has been determined to be the executive chairman, with support from the Board of directors, as the
function primarily responsible for the allocation of resources to segments and assessment of performance of the segments.
during the prior year the business reorganised itself along the lines of our B2B and B2c brands. Within the B2B division there are
two different principal activities: Franchisor – management of franchisees who trade with businesses and consumers; and direct
labour organisations – trading directly with businesses and consumers.

therefore, the Board has determined that we have three different operating segments:
• B2B - Franchisor, which is made up of Metro Rod and Metro plumb;
• B2B - dlo, which is made up of Willow pumps, and other B2B dlos; and
• B2c, which is made up of chipsAway, ovenclean and Barking Mad.

other operations include central administration costs and non-trading companies. In the current year management responsibility
for the 2 Metro Rod corporate franchise areas has moved from Metro Rod to Willow pumps. therefore, these entities now form
part of the B2B-dlo division, and are reported as such internally. the prior year has not been restated for this change.

the codM uses Adjusted eBItdA, as reviewed at Board meetings and as part of the Managing directors’ and chief Financial
officer’s weekly report to the senior management team, as the key measure of segments’ results as it reflects the underlying
performance for the financial year under evaluation.

2020

Continuing operations
Revenue
Gross profit

Adjusted EBITDA

depreciation & amortisation of software
Amortisation of acquired intangibles

share based payment expense
non-recurring costs
Finance expense
other gains and losses

Profit before tax

tax expense

Profit after tax

2019

Continuing operations
Revenue
Gross profit

Adjusted EBITDA

depreciation & amortisation of software
Amortisation of acquired intangibles
share based payment expense
non-recurring costs
Finance expense
other gains and losses

Profit before tax

tax expense

Profit after tax

B2B- Franchisor
£’000

B2B- DLO
£’000

30,177
8,998

3,722

(445)
–

(92)
(599)
(34)
–

2,552

(372)

2,180

14,342
7,437

1,844

(743)
–

(45)
–
(159)
–

897

(129)

768

B2B- Franchisor
£’000

B2B- dlo
£’000

33,405
9,625

3,184

(435)
–
(101)
–
(13)
–

2,634

(403)

2,231

3,842
1,252

492

(138)
–
(6)
–
(43)
–

305

(50)

255

B2C
£’000

5,835
4,490

2,131

(168)
–

(15)
(108)
(11)
–

1,829

(328)

1,501

B2c
£’000

6,766
5,505

2,533

(182)
–
(47)
–
(12)
–

2,292

(346)

1,946

Other
£’000

Total
£’000

(1,068)
653

(1,058)

–
(393)

(53)
–
(242)
151

(1,596)

(62)

(1,656)

other
£’000

–
–

(1,027)

–
(260)
(84)
(270)
(289)
(26)

(1,956)

233

(1,723)

49,287
21,579

6,640

(1,358)
(393)

(205)
(707)
(446)
151

3,682

(889)

2,793

total
£’000

44,013
16,382

5,182

(755)
(260)
(238)
(270)
(357)
(26)

3,276

(566)

2,710

Franchise Brands plc Annual Report and Accounts 2020

Notes forming part of the Financial Statements continued
For the year ended 31 December 2020

5 BUsiness cOMBinaTiOn

Acquisition of WPL Group Holdings Limited (Willow Pumps)
on 7 october 2019, the Group acquired the entire issued share capital of Wpl Group Holdings limited and its subsidiaries,
Willow pumps limited and Willow drainage limited (together, “Willow pumps”) for an initial consideration of £5.0m (net of non-
trading cash of £700,000 in Wpl Group Holdings limited) and a performance-based deferred consideration of up to £7.5m
payable over the next four years.

the initial consideration was paid as £4.7m (gross of non-trading cash of £700,000 in Wpl Group Holdings limited) in cash
and £1.0 million through the issue of 1,212,121 new ordinary shares of 0.5p each in the company at 82.5 pence per share.
the deferred consideration will be payable in cash, subject to the company having the right to settle 20% of the amount
due in new ordinary shares at the then prevailing share price. the fair value of consideration originally comprised:

cash
consideration shares
Fair value of deferred consideration

Fair value of consideration

£’000

4,700
1,000
3,580

9,280

performance related deferred consideration of up to £7.5m is payable under the sale and purchase agreement. details of this
contingent deferred consideration and its movement in the current year can be found in note 20.

Acquisition costs relating to this transaction amounted to £270,000 and have been disclosed within the statement of comprehensive
income in the Group.

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

Intangible assets
property, plant and equipment
Right of use assets
Inventories
trade and other receivables
cash
trade and other payables
deferred tax liability

Total fair value of the identifiable assets and liabilities acquired

Fair value of consideration

Goodwill

Intangible asset adjustments comprise:

Recognised brand
Recognised customer relationships

Book value
£’000

Adjustments
£’000

–
374
1,595
490
3,942
585
(4,420)
(109)

2,457

3,640
–
1,167
–
–
–
(1,178)
(618)

3,011

Fair value
£’000

3,640
374
2,762
490
3,942
585
(5,598)
(728)

5,468

9,280

3,812

£’000

2,777
863

3,640

An adjustment has been made to align Willow pumps with the requirements of IFRs 16. during the current period, a further fair
value adjustment of £207,000 has been made to increase both the right of use assets and the related liability.

the deferred tax liability was originally calculated on the value of the intangible assets acquired at a corporation tax rate of 17%
and a corresponding amount has been recognised as goodwill. the deferred tax liability was revalued in the current year on the
change in the future corporation tax rate to 19% (see note 22). the amount recognised as goodwill will not be deductible for
tax purposes.

customer relationships have a useful economic life of five years, whereas the brand and goodwill both have indefinite lives.
Goodwill represents the value of the business that does not qualify for separate recognition. the goodwill recognised includes
certain intangible assets that cannot be separately identified and measured due to their nature. this includes control over the
acquired business, and the scale and the future growth opportunities that it provides to the Group’s operations. If the acquisition
had occurred on 1 January 2019, Group revenue would have been £56.3m and Group profit before tax would have been £3.6m.

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

6 reVenUe

Management service fees
sale of franchise territories
product sales
direct labour income
national advertising funds

2020
£’000

30,592
1,607
758
15,547
783

49,287

2019
£’000

30,819
2,006
912
9,097
1,179

44,013

the table shows revenue from contracts disaggregated into major classes of revenue and reconciled to the Group revenue
reported. All revenue was generated in the uK.

Contract assets

At 1 January
change in the measurement of progress

At 31 December

2020
£’000

589
(212)

377

2019
£’000

820
(231)

589

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 IFRs 15.

7 OperaTinG prOFiT

Operating profit is stated after charging/(crediting):

depreciation
Amortisation
share-based payment expense
Receipts from Government Job Retention scheme (“furlough”)
Auditors’ remuneration:
Fees for audit of the company
Fees for the audit of the company’s subsidiaries
Fees for non-audit services:
taxation services
corporate finance services
other assurance services

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

2020
£’000

1,149
602
205
(653)

15
80

25
–
26

2019
£’000

635
380
238
–

15
82

21
80
5

the following costs have been drawn to the attention of the users of the accounts due to their nature and materiality within the
accounts.

Acquisition related-costs
expected credit loss provision (see note 17)
Reorganisation expense

2020
£’000

–
526
181

707

2019
£’000

270
–
–

270

during the year the Group has taken a £707,000 charge in respect of events related to coVId-19. In the light of the impact on a
number customers, it is appropriate to anticipate that a number of them will fail as the various Government support schemes
begin to unwind. A detailed internal analysis of debtors has been completed on a risk-weighted basis according to the business
sectors they operate in and their financial position. therefore, we have taken a coVId-19 related charge of £526,000 to provide
for these potential credit losses. please see note 17. the Group has also taken a charge of £181,000 in relation to the closure of
the Barking Mad office and redundancy costs, which includes disposal of £2,000 of property, plant & equipment and £21,000
of software.

In 2019, the Group incurred professional costs of £270,000 in relation to the acquisition of Willow pumps.

Franchise Brands plc Annual Report and Accounts 2020

Notes forming part of the Financial Statements continued
For the year ended 31 December 2020

8 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

2020
£’000

9,626
935
212
205

10,978

170
19
83
10

282

2020
£’000

797
25

822

2019
£’000

7,031
692
154
238

8,115

144
16
61
8

229

2019
£’000

772
98

870

the highest paid director’s remuneration was £151,000 (2019: £147,000). the Board of directors are considered to be the key
management personnel. their cost to the Group is £887,000 (2019: £983,000), after including employer’s national Insurance.
the company had one employee (other than the directors) incurring staff costs of £103,000 (2019: £101,000). directors’
emoluments include £7,000 (2019: £38,000) paid to companies controlled by directors (see note 25).

9 share-Based paYMenTs

the company has established an 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; if the compound annual growth rate is above 15%, then all of these options will vest;
between 8% and 15% then a proportion of these options will vest on a straight-line basis. currently, 243 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 was £205,000 (2019: £238,000). this all arises on equity-settled share-based payment
transactions.

outstanding at the beginning of the period
Granted during the period
lapsed during the period
exercised during the period

Outstanding at the end of the period

Exercisable at the end of the period

2020

4,501,317
1,807,955
(178,349)
(416,621)

5,714,302

1,621,215

Weighted
average
exercise price

64p
81p
76p
39p

70p

51p

2019

4,533,530
1,317,925
(266,805)
(1,083,333)

4,501,317

310,606

Weighted
average
exercise price

51p
83p
63p
33p

64p

33p

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-88p (2019: 33p-84p), and the weighted average remaining contractual life was 8.3 years (2019: 8.2 years).

In order to facilitate the programme, the company established an onshore discretionary employee benefit trust (the “eBt”), which
is conducts market purchases of ordinary shares to satisfy potential future option exercises by employees (but not directors).

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

Black-Scholes option pricing model

closing share price, £
exercise price, £
Risk-free interest rate
expected life of option (years)
Volatility
dividend yield

14 September
2020

0.88
0.005
0.13%
6.5
50.8%
1%

0.88
0.88
0.13%
6.5
50.8%
1%

7 october
2019

0.83
0.83
0.75%
6.5
26.1%
1%

7 August
2019

0.84
0.84
0.75%
6.5
26.1%
1%

the Black-scholes pricing model is applied on the granting dates of options. options have been issued on three dates in the past
two years as shown above.

10 Finance eXpense

Interest element on lease agreements
loan interest

11 cOrpOraTiOn TaX

Current tax expense
current tax on profits for the period
Adjustment for prior period
Deferred tax expense
origination and reversal (see note 22)

Total tax expense

Accounting profit multiplied by the uK statutory rate of corporation tax
Income not taxable in determining taxable profits
expense not deductible for tax purposes
effect of change in deferred tax rate
Adjustment for prior period

Total tax expense

effective tax rate

2020
£’000

189
257

446

2020
£’000

685
(4)

208

889

700
(82)
69
206
(4)

889

24%

2019
£’000

44
313

357

2019
£’000

439
13

114

566

622
(97)
28
–
13

566

17%

the current rate of uK corporation tax is 19%. In the prior year, a reduction in the uK corporation tax rate from 19% to 17%
(effective from 1 April 2020) was substantively enacted in october 2015 and was considered when calculating deferred tax
at the prior year reporting date. during the current year, the Finance Act 2020, which was substantively enacted in July 2020,
effectively cancelled the previous reduction. therefore, the current rate of uK corporation tax of 19% has been used when
calculating deferred tax at the reporting date.

Franchise Brands plc Annual Report and Accounts 2020

Notes forming part of the Financial Statements continued
For the year ended 31 December 2020

12 earninGs per share

Basic earnings per share amounts are calculated by dividing profit for the year attributable to ordinary equity holders of the
parent company 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 company
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 share options at the start of the period or, if later, the date
of issue.

2020
£’000

2,793
707
393
(151)
205
(9)

3,937

2019
£’000

2,710
270
260
26
238
(121)

3,382

Number

number

90,462,594
1,649,029

77,948,178
1,190,696

92,111,623

79,138,874

Pence

3.09
3.03
4.35
4.27

pence

3.48
3.42
4.34
4.27

Brands,
trademarks &
other intangibles
£’000

Customer
relationships
£’000

7,304
2,777
–

10,081
–

10,081

(1,791)
–

(1,791)
–
–

2,159
863
–

3,022
–

3,022

(372)
(260)

(632)
–
(393)

(1,791)

(1,025)

Goodwill
£’000

19,488
3,812
–

23,301
–

23,301

–
–

–
–
–

–

23,301

19,488

8,290

5,513

1,995

2,390

1,787

Software
£’000

481
–
752

1,232
318

1,550

(37)
(120)

(157)
(16)
(209)

(382)

1,168

1,076

444

Total
£’000

29,432
7,452
752

37,636
318

37,954

(2,200)
(380)

(2,580)
(16)
(602)

(3,198)

34,754

35,057

27,232

profit attributable to owners of the parent company
non-recurring costs (note 5,7)
Amortisation of acquired intangibles (note 13)
change in the fair value of deferred consideration (note 20)
share-based payment expense (note 9)
tax on adjusting items

Adjusted profit attributable to owners of the parent company

Basic weighted average number of shares
dilutive effect of share options

diluted weighted average number of shares

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

13 inTanGiBle asseTs

Cost
At 1 January 2019
Acquisition
Additions

At 31 december 2019
Additions

At 31 December 2020

Amortisation
At 1 January 2019
charge for year

At 31 december 2019
Impairment
charge for year

At 31 December 2020

Net book value
At 31 December 2020

At 31 december 2019

At 1 January 2019

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

Carrying amount of assets with indefinite useful lives

Metro Rod
Willow pumps
B2c
chipsAway
MyHome
Barking Mad

Goodwill
£’000

18,174
3,812
1,315
–
–
–

23,301

Indefinite life
intangibles
£’000

4,750
2,777
763
–
–
–

8,290

2020
£’000

22,924
6,589
2,077
–
–
–

31,591

Goodwill
£’000

18,174
3,812
–
1,171
14
129

23,301

Indefinite life
intangibles
£’000

4,750
2,777
–
–
–
763

8,290

2019
£’000

22,924
6,589
–
1,171
14
892

31,591

In the current year the Group made the decision to operationally merge the support functions for the B2c franchise networks,
which include chipsAway, ovenclean, Barking Mad, MyHome and MyHandymanVan. these five franchise networks are centrally
managed together using the same team based at our offices in Kidderminster. In the previous years each brand formed its own
separate cash generating unit (“cGu”). In the current year the operational changes enacted means that these five brands have
become one cGu, and are identified as “B2c”.

Metro Rod, which forms part of our B2B-Franchisor operating segment, and Willow pumps, which forms part of our B2B-dlo
operating segment, continue to have separate management, and are run out of separate premises. therefore, they continue to
be separate cGus.

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 financial 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 cGu. In the current year a rate of 10.6% (2019: 10.3%) 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 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.

For our B2B businesses revenue growth rates have been set at between 5% and 10%. For our B2c brands franchisee recruitment
and churn is consistent with historical averages, with the revenue growth being driven by the net new franchisees being
introduced to the networks. the operating margins are based on the current operational margins, with the exception of Metro
Rod, where we have forecast changes in operating margins based on our rebate schemes. 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, on the
basis that this is a reasonable long-term growth rate for the uK economy. 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 or growth rates.
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 2020

Total
£’000

851
563
711

2,125

49
459
(215)

2,418

(512)
(189)
(183)

(883)

(148)
(327)
214

313
150
212

675

(107)
90
(8)

650

(58)
(41)
(100)

(199)

32
(122)
8

(282)

(1,144)

368

476

255

1,274

1,242

339

Notes forming part of the Financial Statements continued
For the year ended 31 December 2020

14 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 2019
Additions on acquisition
Additions

At 31 december 2019

Reclassified (to)/from Rou
Additions
disposals

At 31 December 2020

Depreciation
At 1 January 2019
Additions on acquisition
charge for year

At 31 december 2019

Reclassified (to)/from Rou
charge for year
disposals

At 31 December 2020

Net book value
At 31 December 2020

At 31 december 2019

At 1 January 2019

125
296
7

428

–
16
(113)

331

(110)
(126)
(13)

(249)

–
(28)
114

(163)

168

179

136
44
8

188

–
9
(12)

185

(123)
(18)
(11)

(151)

–
(16)
8

(159)

244
73
68

385

(65)
70
0

390

(190)
(4)
(39)

(233)

19
(56)
2

(268)

122

152

33
–
416

449

221
275
(82)

863

(31)
–
(20)

(51)

(199)
(104)
82

(272)

591

398

the company has no fixed assets at 31 december 2020 or 31 december 2019.

“Rou" assets are those categorised as Right of use. please see note 15.

Franchise Brands plc Annual Report and Accounts 2020

15 riGhT OF Use asseTs

Cost
At 1 January 2019
Additions on acquisition
Additions
disposals

At 31 december 2019

Reclassified (to)/from ppe
Additions
disposals

At 31 December 2020

Depreciation
At 1 January 2019
Additions on acquisition
charge for year
disposals

At 31 december 2019

Reclassified (to)/from ppe
charge for year
disposals

At 31 December 2020

Net book value
At 31 December 2020

At 31 december 2019

At 1 January 2019

Strategic Report

Governance

Financial Statements

Land
and buildings
£’000

1,267
1,250
–
–

2,517

–
–
(111)

Motor
vehicles
£’000

579
2,316
353
(130)

3,118

(221)
379
(272)

2,406

3,004

(549)
(83)
(257)
–

(890)

–
(340)
111

(375)
(721)
(189)
58

(1,227)

199
(447)
213

Plant and
equipment
£’000

32
–
–
–

172
251
–

455

(6)
–
(6)
–

(12)

(51)
(45)
–

Total
£’000

1,878
3,566
353
(130)

5,667

(49)
630
(383)

5,865

(930)
(804)
(452)
58

(2,129)

148
(832)
324

(1,119)

(1,262)

(108)

(2,488)

1,287

1,627

718

1,743

1,891

204

347

2020
£’000

832
189
92
–
–
–

2020
£’000

712

3,377

3,538

947

2019
£’000

452
44
33
1
–
–

2019
£’000

594

“ppe” assets are those categorised as property, plant & equipment. please see note 14.

Amounts recognised in profit and loss

depreciation expense on right-of-use assets
Interest expense on lease liabilities
expense relating to short-term leases
expense relating to leases of low value assets
expense relating to variable lease payments not included in the measurement of the lease liability
Income from sub-leasing right of use assets

16 inVenTOries

Group

Finished goods and goods for resale

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 2020 or
31 december 2019 within the income statement of the company. £6.1m of inventories were recognised as an expense within
the year (2019: £2.7m).

Franchise Brands plc Annual Report and Accounts 2020

Notes forming part of the Financial Statements continued
For the year ended 31 December 2020

17 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. the differing segmental risks to which the Group is exposed in respect of the customer base
have been considered. the Group has taken a £0.5m charge in respect of events related to the coVId-19 pandemic. In the light
of the impact that the trading restrictions are having on a number of commercial customers, it is appropriate to make a provision
against the accounts receivable. A detailed analysis of debtors has been completed on a risk-weighted basis according to the
business sector and the financial position of customers, resulting in a charge of £0.5m to provide for these potential credit losses.

no provision
low risk
Medium risk
High risk

Total

2020
£’000

Gross

5,956
5,366
2,431
168

13,920

2020
%

0%
7%
12%
69%

2020
£’000

Provision

–
(389)
(303)
(116)

(807)

2020
£’000

Net

5,956
4,977
2,128
52

13,113

2019
£’000

Gross

12,088
1,407
931
251

14,677

2019
%

0%
4%
17%
77%

2019
£’000

provision

–
(57)
(155)
(194)

(406)

2019
£’000

net

12,088
1,350
776
57

14,040

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.

Group

non-current other receivables

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

2020
£’000

155

13,920
(807)
1,231

14,344
377
351

15,072

2019
£’000

–

14,677
(406)
1,605

15,876
725
334

16,935

Total trade and other receivables

15,227

16,935

2020
£’000

(406)
–
(617)
216

(807)

2019
£’000

(267)
(165)
(77)
104

(406)

Bad debt provision:
Brought forward
Additions on acquisition
provision for the year
utilised

Carried forward

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

2020
£’000

8,009

1,400
729
326
335
2,394

16
18
11
69
41
574

2019
£’000

8,645

1,730
748
572
371
2,051

34
43
25
13
27
418

13,920

14,677

2020
£’000

1,998
2
242

2,242

2020
£’000

4,870
4,209
583
1,146

2019
£’000

–
–
–

–

2019
£’000

6,520
4,142
713
1,309

10,808

12,684

20
229
–
43
–

292

61
157
3
5
697

923

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
prepayments
corporation tax

Total current trade and other receivables

18 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
other creditors
social security and other taxes
Amounts owed to Group undertakings

Total trade and other payables

carrying values approximate to fair value. Included within other creditors is an amount of £91,000 (2019: £70,000) which
represents the net payable in relation to the national Advertising Funds.

Franchise Brands plc Annual Report and Accounts 2020

Notes forming part of the Financial Statements continued
For the year ended 31 December 2020

19 lOans and BOrrOWinGs

Group and Company

Current
Revolving credit facility
term loan
Amortised loan fees

total current loans and borrowings

Non-current
term loan

2020
£’000

–
2,025
(117)

1,908

2019
£’000

3,002
1,201
(129)

4,074

3,200

5,200

the loans are comprised of a £5.2m term loan, which carries a 1.81% interest rate (2019: 2.95%) and is repayable in instalments
until 2023; and a £5m RcF, of which £nil (2019: £3m) is utilised, which runs until April 2024, and carries a 1.81% interest rate (2019:
2.95%). the Group also has a £2m overdraft facility, which was unused at the year end. Included above are the amortised value of
loan fees of £116,000 (2019: £129,000), 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. the Group has 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, £0.7m (2019: £0.8m) had been lent through this scheme.
there are no expected credit losses to recognise in respect of the asset financing scheme.

20 cOnTinGenT cOnsideraTiOn

Group and Company

contingent deferred consideration

2020
£’000

3,456

2019
£’000

3,606

on 7 october 2019, the Group acquired Willow pumps for an initial consideration of £5.0m and a performance-based deferred
contingent consideration of up to £7.5m payable over five years. up to 20% of the deferred contingent consideration can be
settled in new ordinary shares at the discretion of the company. A £3.58m provision, representing the net present value of the
expected payments was initially established. the deferred contingent consideration of up to £7.5m will be paid based on
business generated for the Group and profits of Willow pumps over the next five years as follows:

I. up to £3.75m would be paid at the rate of up to £750,000 per annum on a pro-rata basis for every £3.0m per annum or more
of incremental pump and related drainage business that Willow pumps generates for Metro Rod (“Relevant sales”) for each of the
five financial years ending 31 december 2020 to 2024 (inclusive). this element was capped at £750,000 per annum and £3.75m
in total.

II. up to £3.75m would be paid at the rate of up to £750,000 per annum on a pro-rata basis for every £250,000 by which
additional maintainable profit after tax (“pAt”) of Willow pumps exceed £1.0m in each of the five financial years ending
31 december 2020 to 2024 (inclusive). therefore, to achieve payment in full, pAt would have had to grow to £2.25m by the year
ending 31 december 2024.

during 2020 it became apparent that it would be difficult to hit these targets due to the coVId-19 crisis which reduced the
short-term profits of Willow pumps and reduced the level of pump work being done by the Metro Rod network. Although the
network has embraced the concept of pumps, the practical steps necessary the engineers have been disrupted in the current
year. As a result, only approximately £1.3m of applicable revenue was generated, leading to a 2020 earn-out of £300,000 out
of a maximum of £750,000 and none of the profit target was achieved as pAt at Willow pumps in 2020 was less than £1.0m.
therefore, out of the total liability of £3.5m, £320,000 is payable within one year, and £3.1m payable after one year.

to continue to motivate the vendor and his management team, whose share options have performance conditions linked to the
deferred consideration paid, the future maximum targets will be raised to allow the first year earn-out not realised to be
recovered during the subsequent four years.

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

As a result, the deferred contingent consideration for the four years ending 31 december 2024 is to be amended as follows:

I. For the revenue component, the rebased maximum consideration for the next four years will be raised from £750,000 to
£862,500. to achieve this, incremental Relevant sales of £3.4m per annum will have to be achieved in each of the next four
years, resulting in additional sales of £15.0m or more in the year ending 31 december 2024. this payment will be calculated and
paid annually in arrears.this element is capped at £862,500 per annum for the next four years (compared to £750,000 previously)
and will therefore continue to be £3.75m in total after taking account of the payment made for 2020.

II. For the profit component, as pAt in the current year fell below £1m, the whole of the target rolls over for the next four years, and
so to achieve the payment in full, pAt will still have to grow to £2.25m by the year ending 31 december 2024. However, the
maximum payment in each of the next four years will increase from £750,000 to £938,000 and will be based on an increase in
pAt of £312,500 per annum. this will be calculated and agreed annually and will be payable on finalisation of the consolidated
accounts of Willow pumps for the year ending 31 december 2022 in respect of the first three years (capped at £1.87m) and on the
finalisation of those accounts for the year ending 31 december 2024 in respect of the fourth and fifth years (capped at £1.87m).

under IFRs 13 Fair Value, the fair value of the contingent consideration in a business combination falls as a level 3 item in terms
of the fair value hierarchy, as the inputs for calculating the fair value are unobservable. the initial deferred consideration was
established at £3.58m at the time of the acquisition. during the current year this has been decreased to £3.46m based on the
current long-term forecasts produced by management. the change in value is a gain of £151,000 (2019: loss of £26,000) and has
been taken to the income statement as an ‘other Gain or loss’. the deferred consideration has then been discounted using an
estimate of 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.

21 OBliGaTiOns FOr leases

Group

current
non-current (between 1 and 5 years)

total obligations for leases

At 1 January 2019
Additions on acquisition
Additions
Interest expense
lease payments

At 31 december 2019

Additions
Interest expense
lease payments

At 31 December 2020

2020
£’000

897
2,240

3,137

Plant and
equipment
£’000

26
87
–
4
(22)

252
6
(48)

304

Land &
Buildings
£’000

740
1,177
–
27
(280)

1,665

–
44
(378)

Motor
vehicles
£’000

242
1,420
353
13
(300)

1,728

343
140
(708)

1,330

1,503

22 deFerred TaX liaBiliTY

deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 19% (2019: 17%).

Group

At 1 January 2019
Acquisition of subsidiaries
credit/(charge) in the year

At 31 december 2019
credit/(charge) in the year

At 31 December 2020

Intangibles
£’000

(1,230)
(631)
57

(1,804)
(150)

(1,955)

Accelerated
allowances
£’000

Provisions
£’000

Share-based
payment
£’000

490
(109)
(192)

186
(74)

112

–
13
–

13
(10)

38
–
21

59
26

2019
£’000

924
2,563

3,487

Total
£’000

1,008
2,684
353
44
(602)

3,487

595
189
(1,134)

3,137

Total
£’000

(702)
(727)
(114)

(1,544)
(208)

(1,752)

Franchise Brands plc Annual Report and Accounts 2020

Notes forming part of the Financial Statements continued
For the year ended 31 December 2020

23 sUBsidiaries

the fixed asset investments held by the company are as follows:

Cost
At 1 January 2019
Additions in year

At 31 december 2019
Additions in year

At 31 December 2020

Name

Principal activity

Metro Rod limited
operation and management of a franchise business
chipsAway International limited operation and management of a franchise business
oven clean domestic limited operation and management of a franchise business
operation and management of a franchise business
My HandymanVan limited
operation and management of a franchise business
Barking Mad limited
operation and management of a pump services business
Willow pumps limited
operator of drainage franchise
MRe drainage limited
operator of drainage franchise
MRB drainage limited
Intermediate holding company
Wpl Group Holdings limited
dormant
oven clean (ontario) limited
dormant
Kemac services limited
dormant
FB Holdings limited
dormant
dentsAway limited
dormant
edwin Investments limited
dormant
Willow drainage limited

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

£’000

31,703
9,346

41,049
–

41,049

2019
%

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

2020
%

100
100
100
100
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.

24 share capiTal and OTher reserVes

Allotted, called up and fully paid

At 1 January
placing
scrip dividend
Acquisition of Willow pumps
exercise of share options

At 31 December

2020
£’000

398
78
2
–
1

479

2019
£’000

2020
No. of shares

2019
no. of shares

388 79,513,787
– 15,555,556
–
388,199
6
–
4
300,928
398 95,758,470

77,732,033
–
–
1,212,121
569,633

79,513,787

share capital comprises the nominal value of the company’s ordinary shares of 0.5 pence each. during the year the Group
completed the placing of 15,555,556 new ordinary shares at a price of 90p per share raising £13.6m (net of expenses). In
addition, the Group issued 388,199 new ordinary shares as part of the final 2019 dividend which had a scrip option, and 300,928
new ordinary shares to satisfy the exercise of share options.

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 as part of the
consideration in relation to acquisitions.

Franchise Brands plc Annual Report and Accounts 2020

Strategic Report

Governance

Financial Statements

Treasury reserve: this represents the amount that the company paid for its own shares held in treasury. At the year end the
Group held nil shares (2019: 25,000 shares) in treasury for the purpose of the future settlement of equity-settled share-based
compensation.

EBT reserve: this represents the amount that the company paid for its own shares held in the eBt. during the period 1 July 2020
to 31 december 2020, the eBt purchased 264,848 ordinary shares at an average price of 96 pence per share. 109,223 ordinary
shares have been used to satisfy the exercise of options over ordinary shares. Accordingly, at the year end the eBt held 155,625
ordinary shares which represents 0.16% of the company’s current issued share capital.

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

25 relaTed parTY TransacTiOns

the following are payments to entities controlled by related parties of the company.

Mark peters (Miserden ltd)
nigel Wray (Brendon street Investments limited) director’s fee

company secretary fee

Related party transactions

2020
£’000

12
7

2019
£’000

12
26

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 (2019: £nil).

26 diVidends

Final 2019 dividend of 0.65p per ordinary share paid and declared (2018: 0.46p)
Interim dividend of 0.30p per ordinary share paid and declared (2019: 0.30p)

2020
£’000

619
287

906

2019
£’000

358
234

592

In the period before our April placing, the Board considered it necessary, given the economic and business uncertainties due to
coVId-19 for the Group to adopt a prudent approach and preserve the strength of its balance sheet by retaining cash. therefore,
shareholders were given the option to receive the final dividend 2019 as a scrip dividend. Approximately 63% of shareholders
elected to take a scrip dividend. this resulted in the issue of 388,199 new ordinary shares of 0.5 pence each in the company
and reduced the final 2019 dividend cash payment to £229,000. therefore, total cash dividend was £516,000.

A final dividend of 0.80 pence per share is proposed.

Franchise Brands plc Annual Report and Accounts 2020

Five Year Financial Summary (Unaudited)
For the year ended 31 December 2020

Five year financial summary

Statutory revenue

Fee income

Adjusted EBITDA

depreciation & Amortisation of software

Finance expense

Adjusted profit before tax

tax expense

Adjusted profit after tax

Amortisation of acquired intangibles

other gains & losses

share-based payment

non-recurring items

tax on adjusting items

Statutory profit

Basic eps

Adjusted basic eps

dividend

2020
£’000

49,940

30,042

6,640

(1,357)

(446)

4,836

(899)

3,937

(393)

151

(205)

(707)

2019
£’000

44,013

24,401

5,182

(755)

(357)

4,069

(687)

3,382

(260)

(26)

(238)

(270)

121

2018
Restated
£’000

35,470

18,140

4,003

(447)

(340)

3,216

(603)

2,612

(216)

–

(138)

–

2,793

2,710

2,325

3.09p

4.35p

1.10p

3.48p

4.34p

0.95p

2.99p

3.36p

0.67p

2017
Restated
£’000

24,867

12,701

2,972

(349)

(312)

2,311

(426)

1,886

(156)

–

(58)

(2,194)

383

(140)

(0.20p)

2.71p

0.50p

2016
Restated
£’000

5,430

1,429

(144)

(21)

1,264

(260)

1,004

–

(30)

(455)

–

519

1.27p

2.46p

0.17p

Franchise Brands plc Annual Report and Accounts 2020