20th Apr 2020 18:42
(Alliance News) - Franchise Brands PLC on Monday said it intends to conduct a placing in which it will issue up to 19.9% of its share capital so that it is positioned for recovery once the Covid-19 crisis abates.
Shares in the multi-brand franchise business closed down 1.0% at 91.04 pence. The placing price or value of the placing have not been disclosed.
Franchise Brands has been granted authority by shareholder to issue up to 15% of its share capital, around 11.7 million shares. The issue of more than this number of shares will be subject to the passing of resolutions.
Executive Chair Stephen Hemsley said: "The group had strong momentum ahead of the Covid-19 crisis, with first quarter 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.
"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 Covid-19 crisis."
The company explained that such a placing will also strengthen its balance sheet, as well as providing further working capital. Dowgate Capital and Allenby Capital are to act as joint bookrunners for the placing.
Franchise Brands directors and senior management team members are to participate in the placing to the tune of at least GBP2 million.
Having started 2020 with strong underlying trading, the final two to three weeks of March were hit by Covid-19. Despite this, first quarter revenue grew year-on-year with a 27% rise in adjusted earnings before interest, tax, depreciation, and amortisation compared to 2019.
As a result of the pandemic and its associated containment measures, Franchise Brands is expecting some of its business-to-business customers to become insolvent, with its potential exposure up to GBP1.6 million. Including an existing GBP300,000 provision, a further exceptional GBP1.3 million Covid-19 related charge will be incurred in the first half of 2020 to reflect possible credit losses.
In its business-to-customer businesses, the goal is "to operate at a cash break-even level during the crisis" after weaker customer demand. It has reduced or eliminated all of its franchise fees as there has been almost not activity for its B2C franchisees under the lockdown.
Franchsie Brands has also deferred payments to its landlords and to HMRC, and agreed in principle an extension of its bank overdraft with HSBC to GBP6 million from GBP2 million. The firm met its banking covenants in the first quarter and is set to meet them again in the second.
As at March 31, its adjusted net debt was GBP10.4 million, a GBP1.2 million rise from the end of 2019.
By Anna Farley; [email protected]
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