Franchise Brands : Annual Report for the year ended 31 December 2023

Delivering on our ambitions

Franchise Brands plc

Annual Report and Accounts 2023

Strategic Report Governance Financial Statements

Our purpose

If they grow, we grow.

Contents

We are focused on building, developing and growing market-leading franchise businesses.

Build

Our purpose is to build market- leading businesses primarily via a franchise model.

Develop

We support our franchisees to successfully develop their businesses and achieve their goals.

Grow

This provides unity behind our purpose and theirs - if they grow, we grow.

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Franchise Brands plc

Annual Report and Accounts 2023

Strategic Report

01 Financial & Operational Highlights

02 At a Glance

04 Investment Case

1. Chairman's Statement

1. Strategy

1. Strategy in Action

1. Pirtek Review

1. Water & Waste Services Review

1. Filta International Review

1. B2C Review

1. Working Responsibly

1. Engaging with our stakeholders

1. Financial Review

1. Risk Management

Governance

1. Chairman's Introduction to Governance
2. Board of Directors

84 Management Board

1. Our Governance Framework

1. Corporate Governance in Action

1. Audit Committee Report

1. Remuneration Committee Report

1. Directors' Report

1. Directors' Responsibilities Statement

Financial Statements

110 Independent Auditor's Report to the members of Franchise Brands plc

1. Consolidated Statement of Comprehensive Income
2. Consolidated Statement of Financial Position
3. Company Statement of Financial Position
4. Consolidated Statement of Cash Flows

1. Company Statement of Cash Flows
2. Consolidated Statement of Changes in Equity
3. Company Statement of Changes in Equity
4. Notes forming part of the Financial Statements

Strategic Report Governance Financial Statements

Financial Highlights

£350.1m	£121.3m
System sales ●	Revenue
+88% 2022: £186.4m ●●	+74% 2022: £69.8m ●●
£30.1m	£5.0m
Adjusted EBITDA* ●	Profit before tax
+97% 2022: £15.3m ●●	-50% 2022: £10.0m ●●
8.42p	1.75p
Adjusted basic earnings per share** ●	Basic earnings per share
+1% 2022: 8.34p ●●	-74% 2022: 6.65p ●●
8.31p	1.73p
Adjusted diluted earnings per share** ●	Diluted earnings per share
+1% 2022: 8.20p ●●	-74% 2022: 6.54p ●●

£74.7m

Net debt***

2022: Net cash £9.8m ●●

2.20p

Dividend per share +10% 2022: 2.00p

• Alternative Performance Measures (see Note 2) ●● Prior Year Adjustment

Note: The results include, for the first time, several prior year adjustments which are set out in Note 1. These impact all of the above measures with the exception of dividends.

• Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation, exchange differences, share-based payment expense and non-recurring items.
• Adjusted EPS is earnings per share before amortisation of acquired intangibles, share- based payment expense, exchange differences and non-recurring items.
• Adjusted net debt excludes debt on right-of-use assets and is the debt measure used for testing bank covenants.

Operational Highlights

Another year of momentous change for the business with the acquisition of Pirtek which has again doubled the size of the Group.

The enlarged Group performed strongly in the period generating both the profitability and the cash flow required to service and reduce the debt taken on to fund the Pirtek acquisition.

During just over eight months of ownership in 2023, Pirtek traded at record levels, contributing as expected to the Group's results.

The integration of Pirtek is progressing well, with an immediate focus on optimising the effectiveness of the business through utilising shared resources, in particular technology.

In the newly named Water & Waste Services division, system sales grew by over 18.2% to £106.7m (statutory revenue: £48.9m), with Metro Rod and Metro Plumb being the main drivers of this increase.

Creation of new centralised international IT function that will manage every aspect of the digital landscape for the whole business.

01	Franchise Brands plc
Annual Report and Accounts 2023

Strategic Report Governance Financial Statements

At a Glance

Building our businesses

We are a multi-brand franchisor, focused on B2B van-based service, with a presence in ten countries across the UK, North America and Europe. We are focused on building market-leading businesses primarily via a franchise model and have over 625 franchisees across seven franchise brands and System sales of £350m, of which 88% is as a franchisor.

The underlying demand for our mostly essential services is resilient. Our strategy is to grow our franchisees' businesses as we believe "if they grow, we grow".

Group total

£30.1m

Adjusted EBITDA**

£5.0m

644Profit before tax

Total franchisees

33%

41%

Proportion of Adjusted EBITDA before Group overheads of £2.7m

7%	19%
1%	See our Business Building
Our leading brands	Strategy for more detail on
pages 12 and 13.

Pirtek*	Water &	Filta	B2C	Azura
	Waste Services	International
Leading European	Drainage, plumbing,	Cooking oil filtration,	Leading home	Leading franchise
provider of on-site	pump maintenance and	biodiesel recycling, bulk	service brands.	software systems
hydraulic hose	installation, and services	new oil delivery and		developer with over
replacement services.	to commercial kitchens.	cleaning services for		30 franchise customers.
		commercial kitchens.
See our divisional review	See our divisional review	See our divisional review	See our divisional review
on pages 20-25.	on pages 26-29.	on pages 30-33.	on pages 34 and 35.	£0.2m
£13.3m	£10.9m	£6.1m	£2.3m
Adjusted EBITDA**	Adjusted EBITDA**	Adjusted EBITDA**	Adjusted EBITDA**	Adjusted EBITDA**
73	85	159	327
Total franchisees	Total franchisees	Total franchisees	Total franchisees

• Contribution in period of ownership from 21 April 2023.
• Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation, exchange differences, share-based payment expense, non-recurring items.

02	Franchise Brands plc
Annual Report and Accounts 2023

Strategic Report Governance Financial Statements

At a Glance continued

Increasing geographical footprint

North America

United Kingdom & Ireland

Continental Europe

How the services are delivered

The Filta International services of cooking oil filtration, biodiesel recycling, bulk new oil delivery and cleaning services for commercial kitchens are provided by

127 franchisees.

Filta has 124 franchisees in the US and three franchisees in Canada.

£87m

System sales*

£26.5m

Revenue**

£6.3m

Adjusted EBITDA***

127

Franchisees

How the services are delivered

The Water & Waste division's range of services are delivered by a combination of franchisees and direct labour. 85 franchisees across Metro Rod, Metro Plumb and Filta Environmental provide drainage, plumbing, fryer management and related services. Willow Pumps is a direct labour organisation ("DLO").

The Pirtek services in the UK and Ireland are delivered by 40 franchisees.

The B2C division's services are delivered by 327 franchisees.

£189m

System sales*

£68.3m

Revenue**

£17.9m

Adjusted EBITDA***

452

Franchisees

How the services are delivered

Pirtek's services in Germany, Austria, the Netherlands and Belgium are mostly delivered by a total of 33 franchisees.

Six centres in Benelux are corporately owned.

Pirtek's operations in the start-up markets of France and Sweden are DLOs.

The FiltaFry service is delivered by 32 franchisees.

£74m

System sales*

£26.4m

Revenue**

£5.9m

Adjusted EBITDA***

65

Franchisees

• Sales to customers by franchisees, corporate and DLOs.
• Revenue is before intercompany eliminations.
• Earnings before interest, tax, depreciation, amortisation, exchange differences, share-based payment expense and non-recurring items.

03	Franchise Brands plc
Annual Report and Accounts 2023

Strategic Report Governance Financial Statements

Investment Case

We build market- leading businesses

We have a strong track record of growth and have built market leading franchise businesses where the underlying demand for our services is highly resilient. We have a small share of large, fragmented markets with significant opportunities for growth.

04	Franchise Brands plc
Annual Report and Accounts 2023

Our ambition is to build a market leading international B2B multi- brand franchisor that generates its income equally from the UK, North America and Continental Europe."

Stephen Hemsley

Executive Chairman

Strategic Report Governance Financial Statements

Investment Case continued

Provider of essential reactive services

Provider of B2B van-based essential reactive services, with resilient underlying demand. Diversification through seven market leading franchise businesses in 10 countries.

Long-established brands with a successful trading history.

7

Franchise brands in ten countries

For further reading, see pages 14, 15 and 20-35

Significant opportunities	Experienced team,
for growth	strong track record
Small share of all key markets with "manageable" competition.	Proven track record of successfully acquiring and
Our Maximum Potential Model shows the potential for system	integrating businesses to unlock growth. Management
sales of £1.8bn for Pirtek, Metro Rod and Filta International	team and Board are substantial shareholders, with an
compared to current System sales of £332m for these	over 30% shareholding.
businesses (on an annualised basis).	>30%
£1.8bn
The Group's Maximum Potential Model	Shareholding of Management & Board
For further reading, see pages 16 & 17	For further reading, see pages 7-11,18-23

Highly cash generative business

Capital light as franchisees make investments to expand their capacity and grow system sales. Cash generation supports deleveraging. Anticipate a net cash position in 2027 through only organic growth.

Operational gearing

Operational gearing is a significant driver of organic growth in franchise businesses. Accelerated by the continued consolidation of functions which are common to all businesses.

Progressive dividend policy

The cash generative nature of the business supports deleveraging and a progressive dividend policy.

97%

Average cash conversion* 2021-2023

For further reading, see pages 62-75

05	Franchise Brands plc
Annual Report and Accounts 2023

13%	47%
Sales per head, Water & Waste Services	Dividend growth 2021-2023
division franchise Support Centre staff CAGR	For further reading, see pages 10, 62-75
2017-2023
	* Cash from operations + costs of acquisition and re-organisation /
	Adjusted EBITDA.

Strategic Report Governance Financial Statements

Chairman's Statement

Scan to see what Stephen has to say on our website

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Annual Report and Accounts 2023

Strong performance in another year of momentous change

£30.1m

Adjusted EBITDA

• Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation, exchange differences, share-based payment expense and non-recurring items.

Strategic Report Governance Financial Statements

Chairman's Statement continued

The enlarged Group performed strongly in the period, generating both the anticipated profitability and the cash flow required to service and reduce the debt taken on to fund the Pirtek acquisition."

Maximum Potential Model and medium-term target

We have applied our Maximum Potential Model to the Group as a whole, including Pirtek for the first time, and have updated the model for Metro

Introduction

2023 has been another year of momentous change for the business with the acquisition of Pirtek, which has again doubled the size of the Group, following the doubling in size in 2022 as a result of the acquisition of Filta Group Holdings plc. The expanded Group now operates seven brands in ten countries in the UK, Continental Europe and North America, giving it a more diversified international footprint and a broader range of resilient business services. The Group generated System sales of £350m in 2023 (statutory

revenue: £121.3m).

The enlarged Group performed strongly in the period, generating both the anticipated profitability and the cashflow required to service and reduce the debt taken on to fund the Pirtek acquisition. The Group will use the cash flow from its highly cash-generative, mainly franchised businesses to de-gear and anticipates being in a net cash position in 2027, with this enhanced value accruing to shareholders.

Pirtek Europe

On 20 April 2023, we acquired the entire share capital of Hydraulic Authority I Limited and its subsidiaries, (together "Pirtek"). Pirtek is an established provider of on-site hydraulic hose replacement and associated services. The service is provided via 73 franchises that operate through 217 service centres with over 850 mobile service units ("MSUs"). Its revenues are primarily derived from franchising.

Pirtek operates in eight European countries: the UK, Germany, the Netherlands, Belgium, France, Sweden, Austria and the Republic of Ireland. In the UK, Germany, the Netherlands, Belgium and the Republic of Ireland, the business is mostly franchised, whereas the operations in the start-up markets of France and Sweden are corporately operated. Pirtek has a significant opportunity to expand into eight additional European countries under the terms of its master licence agreement, which gives it perpetual, royalty- free use of the brand in 16 European countries. However, our priority is to achieve profitability in all existing countries before venturing into new markets.

Rod. This shows the maximum potential for System sales based on our current range of services is £1.8bn compared to £332m currently for the businesses that have been modelled.

We have incorporated this methodology into a medium-term strategic model potential for the Group as we integrate our portfolio of businesses and grow them organically. The model shows the potential for Adjusted EBITDA to reach £60m in 2027.

The Group's Maximum Potential Model analysis is on pages 16 and 17

£60m

Medium-term target of adjusted EBITDA in 2027

Financial targets set out herein are the aspirations of the Group and are not provided as forecasts or formal guidance. Actual results may differ.

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Annual Report and Accounts 2023

Strategic Report Governance Financial Statements

Chairman's Statement continued

The Pirtek division generated total System sales of £126.0m (statutory revenue: £42.0m). The more developed franchise markets have national coverage and are highly profitable, whereas the start-up corporate markets in France and Sweden and the small Austrian operation have yet to reach scale and only make a small profit.

The resilient underlying demand for Pirtek's essential reactive services resulted in the division trading at record levels during our eight months of ownership in 2023, despite some softening in demand in the second half of the year in the construction and hire-fleet customer sectors that particularly impacted Pirtek in the UK and Germany. These sectors have remained subdued in the year to date, but other Pirtek customer sectors are growing strongly, including waste management, logistics and rail.

Following the completion of the acquisition, we reviewed Pirtek's management structure and concluded that the previous holding company management structure, which was needed as an independent private equity- owned business, was unnecessary as part of a larger group. The objective was to integrate the Pirtek business into Franchise Brands and share as many resources as possible. This integration is being led by Chris Stuckey, previously Managing Director of Pirtek UK, who was promoted to CEO of Pirtek Europe.

An area of particular focus is IT, where Pirtek has a variety of both works management and financial systems, and we have the objective of unifying these, and other systems around the Group, onto common platforms.

With only a modest amount of adaptation, our in-house works management system, Vision, will be an ideal replacement for the Pirtek works management system, and thereby save third party licensing costs. This will result in improved functionality, cost savings and sharing of information for both the franchisees and at corporate level.

We are also working on the closer integration of the Pirtek businesses in the various countries, which, under previous private equity ownership, have historically operated on a more stand-alone basis. We also see a significant opportunity for co-operation with the Metro Rod and Filta businesses at both the franchisee and corporate levels. By sharing resources, knowledge and particularly customers, we believe that growth in System sales for the whole Group will be accelerated and overhead costs reduced.

The Pirtek business has a significant opportunity to continue growing in its existing more developed markets through the expansion of its reactive business and by extending the range of services offered. The earlier-stage markets of France, Sweden, and Austria also have huge potential to reach scale and national coverage, particularly where the competition is fragmented. In addition, Pirtek has the opportunity to expand into eight more European markets, which will be developed when the existing early-stage markets become more mature and profitable.

Water & Waste Services division

As most of the Group's businesses now operate in the B2B environment, we have renamed the B2B division the Water & Waste Services division, which more accurately describes its activities.

This division includes the UK-based businesses Metro Rod, Metro Plumb, Kemac, Willow Pumps, the Filta UK direct labour operations ("DLO") and the Filta Environmental franchise network. The Filta businesses are included for the full 12 months in this period compared with ten months in 2022 following the acquisition in March 2022. Overall, System sales grew by 18.2% to £106.7m (statutory revenue: £48.9m), with Metro Rod and Metro Plumb being the main drivers of this increase.

Metro Rod, Metro Plumb and Kemac Metro Rod and Metro Plumb delivered continued strong momentum, with System sales growing by 19.7% in the period to £71.6m (statutory revenue: £15.2m). The rate of growth, however, slowed in H2 to 16% compared with 24% in H1. This resulted from a planned reduction in our dependency on fixed price, high volume, emergency work that provides no potential upside for further work. The valuable labour resources that have been freed up are driving our average order value, which increased by 12% during the year on a 7% increase in jobs completed.

This growth was spread throughout almost the entire network, with 86% of our 42 Metro Rod franchisees growing their businesses in the period (2022: 91%) and 48% growing by more than 20% year-on-year (2022: 61%).

Metro Plumb continued to expand with 18 stand- alone and 19 combined Metro Plumb/Metro Rod franchisees, and six territories operated by Kemac. This results from seven new stand- alone franchisees and two leavers over the previous 12 months. Metro Plumb System sales grew by 22% and now represent 9.6% of total Metro Rod and Metro Plumb System sales in 2023. We continue to focus on increasing the number of stand-alone franchisees and broadening the customer base in both the commercial and domestic plumbing sectors.

Kemac, the London-based DLO plumbing business that operates Metro Plumb corporate franchises and provides specialist services to several water utilities increased its revenues by 10.5% in 2023.

Willow Pumps

Willow Pumps revenue grew by 2.7% to £18.7m (2022: £18.2m), following a significant slowdown in H2. However, this can be attributed to the new management team, which assumed control of the business towards the end of H1, and shifted it away from activities that produced significant sales but little profit, such as above-ground installations and adoptable pump stations. A "special projects" division was also launched during the year focused on work that would be beyond the scope of the Metro Rod franchise network. We expect this new activity to make a significant contribution in future years.

The Metro Rod corporate franchises in Kent & Sussex operated by Willow Pumps were successfully split up and sold to two neighbouring Metro Rod franchisees in H2.

08	Franchise Brands plc
Annual Report and Accounts 2023