Stephen Hemsley, executive chairman of Franchise Brands PLC (AIM:FRAN), recently sat down with Proactive's Stephen Gunnion to discuss the company's record trading levels, the strategic acquisition of Pirtek, and the group’s forward-looking financial strategies.
Hemsley's insights painted a picture of resilience, innovation, and a clear roadmap for the future.
Stephen Gunnion: Your recent third-quarter trading update indicates that your B2B businesses are hitting record levels. However, there was a dip during the summer. Can you shed some light on this?
Stephen Hemsley: Certainly. We began the year on a strong note, especially with the acquisition of Pirtek in April. But the summer months saw a slight softening in demand. The unusually poor UK weather in July and August affected the demand for Pirtek services.
Additionally, the general economic slowdown in Europe played a role. However, the impact was marginal. The fourth quarter has shown promise with October and November being particularly strong for us. In fact, the current weather conditions are driving demand for drainage and plumbing services. Analysts have also upgraded the EBITDA forecast for this year, which is encouraging.
SG: Speaking of Pirtek, how has its integration into the Franchise Brands business been progressing?
SH: The integration has progressed faster than we anticipated. Acquisitions can be challenging, but we're quite satisfied with how things are shaping up. The restructured management team at Pirtek is now seamlessly integrating with the broader Franchise Brands business.
Our focus now is on IT integration, which is crucial for operational efficiency. We're also hosting a "growth summit" in Amsterdam this November. Representatives from our seven brands across 10 countries will be attending. The aim is to exchange ideas and strategies to grow the top line of our business. Pirtek's team will be there in full force, and we're looking forward to a productive dialogue.
SG: Analysts seem optimistic about Franchise Brands' EBITDA. Are you confident about meeting these market expectations for the year?
SH: Yes, we are. There have been some adjustments due to accounting practices. Pirtek, for instance, didn't previously account on an IFRS 16 basis. Now that they do, EBITDA has seen an increase. However, there's also been a rise in interest and depreciation charges
A significant factor here is the higher-than-budgeted interest costs. We had initially budgeted for around 7.5% interest, but it's currently slightly over 8%. This is mainly because the Sanyo rate, our base rate, has risen faster than we anticipated.
SG: Your third-quarter report also mentions a reduction in debts. Is this a trend we can expect to continue?
SH: Absolutely. Our focus has shifted significantly towards managing working capital. Before the Pirtek acquisition, the group was richly geared, and there wasn't a pronounced focus on debt management.
However, post the acquisition and the £100 million debt we took on for it, this has become a priority. We're on track, possibly even slightly ahead by the end of Q3. The current higher interest rates have made this a key focus area for us. We anticipate the debt to unwind as per our predictions, and with Pirtek's full integration by 2024, we expect to make significant progress in this regard.