LONDON (ShareCast) - (Sharecast News) - Franchise Brands said in a trading update on Wednesday that it saw a steady recovery in the third quarter from the previous quarter's lockdown-impacted performance, which had followed a strong first quarter.
The AIM-traded firm said that, while the environment was still uncertain, its board was confident of meeting current consensus market expectations for revenue and adjusted EBITDA for the year ending 31 December.

In the B2B division, which comprises Metro Rod, Metro Plumb, Willow Pumps and Kemac, most of its services were designated as 'essential' by the government to ensure the smooth running of the health service, public utilities and other key businesses.

At the height of the lockdown in April and May, system sales at Metro Rod and Metro Plumb were down by almost 30% year-on-year, although from June onwards, system sales had grown by about 8% per month as the economy emerged from lockdown.

By September, system sales for the month were 9% higher than at the same time in 2019, and as a result, system sales in the third quarter ended 30 September were down 6% year-on-year.

Revenues at Willow Pumps, which was acquired in October 2019, and Kemac were up 48% in the third quarter when compared to the second, but were still 20% down on the first quarter.

However, third quarter revenues had been weighted towards higher-margin service work, resulting in gross profit in the third quarter being down 10% on the first quarter.

In its B2C division, Franchise Brands said the various operations had recovered at different speeds, driven by new franchisee recruitment.

ChipsAway and Ovenclean, which generated 89% of divisional income in 2019, were now trading at pre-pandemic levels, while trading at its smallest network, Barking Mad, was still "well below" pre-Covid-19 levels, given its heavy dependency on the foreign holiday market.

Recruitment during the third quarter was described as "robust", with 21 new franchisees joining the B2C brands, compared to 20 in the same period a year earlier, meaning that for the year-to-date, the division had recruited 48 new franchises, down from 54 year-on-year.

However, given the lower levels of trading in the underlying networks, especially at Barking Mad, there had been a slight increase in the level of franchisees leaving the brands, meaning that at the end of September there were 394 franchisees in the B2C division, down from 404 at the end of 2019.

Looking ahead, Franchise Brands said the third quarter saw a "welcome recovery" from the reduced levels of activity in the second quarter, with trading in October continuing to follow that trend.

The board did note, however, that if 'second wave' Covid-19 restrictions persisted for any length of time, or became tighter or more widespread, it could have an impact on the group and reduce activity levels.

It did say it was confident of meeting current consensus market expectations for revenue and adjusted EBITDA for the year ending 31 December, however.

The group's balance sheet and liquidity position remained "strong", the directors said, as a result of its underlying profitability and the cash-generative nature of its businesses, combined with the proceeds from the April share placing.

That put Franchise Brands in a strong position to support its franchisees, they said, and continue to invest in the business, and also provides the company with the ability to take advantage of any external growth opportunities that may arise.

"I am very pleased that the group saw a return to more normal levels of trading during the third quarter," said executive chairman Stephen Hemsley.

"Our key priority remains the safety of our team members, particularly our engineers, customers and the public whilst continuing to provide the best possible service we can in a challenging environment."

Hemsley said the "resilience and resourcefulness" of the company's people and franchisees was allowing it to navigate through the pandemic.

"The strength of the group provides a platform for organic and acquisitive growth as the economic environment recovers from the pandemic.

"I remain optimistic for the future growth and prosperity of Franchise Brands."

At 1016 GMT, shares in Franchise Brands were up 1.09% at 93p.

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