Franchise Brands plc Annual Report and Accounts 2018 09 Financial Statements Strategic Report Governance ChipsAway, Ovenclean & Barking Mad Franchisee recruitment at ChipsAway, Ovenclean and Barking Mad was disappointing in 2018, with 57 territories sold (2017: 80) across the three brands. We believe that this level of recruitment might have been the result of the high levels of employment in the UK, the absence of redundancies and uncertainty over Brexit. Encouragingly, some of this shortfall was made up through existing franchisees buying additional territories to expand their businesses, which demonstrates their confidence in the brands. ChipsAway is in a transition from a van-based operation undertaking SMART repairs where the franchisees pay a fixed monthly fee, to Car Care Centres which undertake larger repairs and where the franchisees pay a turnover- related MSF of 10%. As a result of this transition and the relative decline in recruitment income, MSF income now represents 62% of ChipsAway income (2017: 57%) and 30% of MSF income is turnover related rather than a fixed monthly fee. This represents a significant improvement in the quality of our income. To encourage franchisees to invest in Car Care Centres (of which we already have 33) and the specialist equipment needed to deal with driver- assist technology and electric vehicles, we will shortly be opening a new model facility in Kidderminster. This will give us the ability to test the effectiveness of new equipment and to train our franchisees in its use. Ovenclean franchisees continue to trade well in a business that is predominantly based on one man in one van, servicing a “milk-round” of customers on a six-monthly cycle. Franchisees pay us a fixed monthly fee that increases with both inflation and the length of time they have been in the system, approximating to 10% of their turnover. Barking Mad, which was acquired in 2016 and continues to be run semi-autonomously by its founder, has benefited from the adoption of some Group systems and practices, particularly in the areas of IT and finance. Income is generated from a 10% MSF on system sales, which grew by 6%, and mitigated the disappointing franchisee recruitment income noted above. Outlook 2018 has been a period of significant change for the team at Franchise Brands as we have integrated Metro Rod and further developed our shared support services of IT, finance, marketing and franchisee recruitment. I want to thank all of our team for their unfailing enthusiasm and dedication. I would also like to recognise the hard work and commitment of all our franchisees who are the backbone of our business. 2019 has started encouragingly, with a good trading performance across the networks in the first two months of the year and order intake at Metro Rod ahead of 2018. The level of franchise enquiries at ChipsAway, Ovenclean and Barking Mad is also significantly ahead of last year. We therefore look forward to the year ahead with confidence. With the integration of Metro Rod now complete we can begin to turn our attention to acquisition opportunities. We will consider the selective acquisition of reasonably valued and earnings enhancing franchise businesses that can leverage our core functions and complementary drainage and plumbing businesses which expand our scope of works. Conclusion 2018 has been a year of significant evolution and progress for Franchise Brands. We have a high-quality portfolio of businesses with significant potential, as well as a first-class entrepreneurial team that can successfully take on still more challenges and is highly committed, with the Board and senior management team owning 68.3% of the equity. I look forward with optimism to our continued progress in the next phase of our development to become a substantial force in franchising. Stephen Hemsley Executive Chairman 12 March 2019