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Franchise Brand PLC’s (LON:FRAN) drain specialist businesses, Metro Rod, Metro Plumb and Willow Pumps, have seen ‘continuing demand” for a majority of their services, which have been designated as essential under the UK government’s pandemic rules.

In a trading update released after the close on Monday, the franchise business said it expected the B2B division, which includes Metro Rod, Metro Plumb and Willow, to continue to trade profitably during the coronavirus lockdown, adding that in the first quarter of the year, underlying earnings (EBITDA) for the division were 42% higher year-on-year, while growth in Metro Rod system sales accelerated to 19% from 14%.

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Meanwhile, the company’s B2C division, which includes its brands ChipsAway, Ovenclean and Barking Mad, was 5% ahead of the prior year in the first quarter, although the company said it had “significantly reduced or eliminate” franchise fees as the pandemic impacted customer demand for the franchisee’s products from early March.

Franchise Brands added that it has taken a number of actions to preserve cash and strengthen liquidity, including staff furloughs and salary cuts for its board and senior management.

Looking ahead, the company said its first-quarter EBITDA was up 27% on the prior year, and that this added to its cost-saving measures meant it should be able to generate a positive but reduced adjusted EBITDA through the period, with a “strong recovery” anticipated in the key B2B division as business premises were re-occupied.

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The B2C arm is expected to mount a slower recovery, with the firm estimating a full quarter for activity levels and income to be fully restored.

Share placing

Franchise Brands also unveiled plans for a share placing to issue up to 19.9% of its current issued share capital, with certain directors and senior management to participate to raise a minimum of £2mln.

The placing will be conducted through an accelerated bookbuild by Dowgate Capital and Allenby Capital and began immediately following the announcement on Monday.

The company said the placing will provide additional working capital funding, improve its liquidity and eliminate its overall net debt as part of efforts to ensure it has “a strong balance sheet and is well placed for the recovery once the [coronavirus] crisis subsides”.

Related: Metro Rod Franchise

Franchise Brands added that the placing will help position it to take advantage of “earnings-enhancing external growth opportunities”, saying it had “considerable interest” in acquisitions to expand the range of services offered by Metro Rod, Metro Plumb and Willow Pumps.

“The group had strong momentum ahead of the [coronavirus] crisis, with Q1 trading showing significant growth on the prior year and a continuation of the accelerating rate of sales growth in its B2B division in particular. We have taken all the necessary actions to enable us to trade through this current uncertain period profitably, albeit at a significantly lower level”, Franchise Brands’ executive chairman Stephen Hemsley said in a statement.

“We see considerable opportunity across our businesses and this Placing will ensure that we are very well-positioned to capitalise on external growth opportunities as we emerge from the [coronavirus] crisis”, he added.

The company’s shares rose 1.1% to 93p in early trading on Tuesday.

By Calum Muirhead

Source: Proactive Investors

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