All right. Good morning, everybody. Welcome to the 2025 year-end results for Franchise Brands. Presentation team today is pretty full. Peter Molloy, our CEO, and Andrew Mallows, our CFO. By way of background, which of course you all know, Franchise Brands are a leading multi-franchise business with seven brands in 10 countries, 600 franchisees, generating system sales, which the underlying sales of all the businesses, whether they're franchised or DLOs, of GBP 435 million, making GBP 35 million a year. Our business enjoys resilient demand for its services because they're near essential services. If drains block or hydraulic hoses burst, they must be repaired then. It's not a job that can wait. While those job sizes are relatively small, they must be done, which makes demand for the service pretty resilient.
We have an attractive franchise profile, franchise model, whereby we try to help the franchisees grow, because if they grow, we grow. That is based on the source of our income, which is a royalty based on their system sales. We're capital light and cash generative because once again, the franchisees are making the investment in growing the underlying business. We have small shares of highly fragmented markets, as demonstrated by the Maximum Potential Model, which is what we use to judge the potential of the markets we're in, and indeed, how to help the franchisees grow and diversify their businesses. Like most franchise businesses, we're operationally geared in as much as our central overhead is relatively fixed. As we can grow system sales, and therefore our royalty income, our EBITDA grows disproportionately quickly.
We are creating reasonable shareholder value in the way in which we run the business. The thing we're doing at the moment, we borrowed a lot of money to buy Pirtek. We borrowed GBP 100 million to buy Pirtek. Indeed, with some of the other acquisitions we've made, we've ended up with businesses which are non-core. We're actively now looking at those businesses with a view to disposal to accelerate the debt repayment. We've also relaunched our share repurchase program, both for the employee benefit trust to cover the option dilution and also for the company for cancellation. Now, we've announced a GBP 10 million plan. The plan isn't to spend GBP 10 million in short order. The plan is to do that opportunistically over the next couple of years.
Indeed, the last plan was GBP 5 million announced in 2024. We only spent GBP 2.6 million of that. From a cash flow point of view, the priority remains de-gearing, but we will use the share buy-in facility now for opportunistic repurchasing. The de-leveraging is also supporting rapid EPS growth now. You'll see over the next couple of years that earnings per share will grow faster than EBITDA as we de-gear and that interest cost reduces. Finally, we have a progressive dividend policy which has increased every year since the IPO. Looking at 2025 in isolation and at the risk of stealing all of Peter's best lines, system sales growing with strong underlying demand for the non-discretionary services.
The One Franchise Brands initiative, which I will let Peter talk about, and indeed our international diversification, again, makes the business resilient. Filta International in the U.S. was a particularly strong performer, with systems sales increasing by 13% and adjusted EBITDA by 21% in local currency. Willow Pumps, our DLO pump business, also grew strongly on the back of the development of the Special Projects division there. The other highlights without, again, I'm conscious of not pinching too many of Peter's lines, but I think the other standout feature of 2025 was the cash generation and the de-gearing that allowed us.
That was particularly apparent in our interest cost, which reduced as a result of both the reduction in base rates and a renegotiation of our facilities, which I'll let Andrew talk about. The track record for the last five years has been to grow system sales. As I say, if they grow, we grow. That's grown by 47%. Adjusted EBITDA by 43%. Adjusted earnings per share by a more modest 13% and looks reasonably flat since FY 2023, and that really is a result of the gearing we took on to buy Pirtek, the interest cost there. As I said before, progressive dividend policy, which has grown in line with our earnings per share.
The group as it now stands is moving towards our objective of generating our income equally in North America, the U.K., and Europe. Sales by geography now are 50% in the U.K. and roughly a quarter each in North America and Europe. EBITDA reflects the royalty margin we can generate in each country. Royalties tend to be higher in Europe and higher in the U.K. While you'll see 50% of system sales generated in the U.K., it's 52% of EBITDA. At the other extreme, in North America, where royalty rates are a lot lower commercially as a market, 20% of profits are coming from there on 24% of the income.
Quickly look at each of the individual businesses which Peter will go through in a lot more detail. As you can see, Pirtek is the largest part of the group, generating GBP 19 million of profits. Then Water & Waste, which includes the Willow, DLO, just under GBP 12 million, and then Filta International in the U.S., GBP 7 million, and the B2C business at GBP 2 million. I have a bit to say about capital allocation this year. Our capital allocation policy is to balance deleverage with a progressive dividend policy and the investment needed in the business. Interestingly, a lot of that investment goes into the DLOs, which are more non-core than the franchise businesses. You may well see that investment reducing over the coming years.
Although it's fair to say that we are spending a fair bit on the One Franchise Brands IT initiatives at the moment, which Peter will talk about. As I said earlier, we are now looking at the strategic fit of the businesses that do not drive the B2B franchise networks. The proceeds from disposal of those businesses will be used to accelerate the repayment of the debt. We started the share buyback program, and I've described how we will be using that in a very conservative way because of the priority of debt repayment. In terms of acquisitions, we will not be looking to make any further acquisitions until the debt is substantially repaid.
Indeed, the One Franchise Brands initiatives, which we're spending a lot of time and money on at the moment to build a platform, until they are completed and delivering. Because what we want to do is put ourselves in a position where the next acquisition is on a platform which we can integrate that business a lot quicker than we have, for example, Filta and Pirtek. So we don't really think that the next significant acquisition will take place until 2028. Over to you, I think.
Do you wanna cover off the AIM to Main?
AIM to Main?
Yeah.
Yeah. Okay. Important one. We have been considering going back to 2023, 2024, whether the AIM market was the right venue for the company. We've looked with interest at what the experience of other companies that have made that move is and talking a lot to our shareholders about the venue they think our shares should be traded on. We've come to the conclusion that AIM is the right home for us for the foreseeable future, and therefore made announcement to that effect today.
I think you know the balance of the size of the company, the market capitalization of the company, which puts us a long way from being in the FTSE 250 Index, and also the cost and additional regulation of being on the Main Market has meant that we've come to the conclusion that AIM is the right home for us.
Okay.
Thank you.
Thank you. Good morning, everybody. What I wanna talk about on this particular slide is, I think it's telling us two things. Our track record for growing businesses, but probably more importantly, the headroom for growth using the Maximum Potential Model as the barometer for that. Stephen touched on the Maximum Potential Model a moment ago, and it can be seen as being really theoretical. It's just a mathematical calculation. Actually, it's based on reality. It's based on the best of the best that the franchisees are doing within that brand. So who's got the best penetration, who's got the best average order value within a sector or a brand. Now, once you've demonstrated that's much easier to get other franchisees to buy into the possibility of improving their penetration or value per postcode. So, it's a really important tool for the business.
It's used right the way across the group. It's in slightly different ways in each of the brands. What it's showing is we've got a GBP 2.1 billion opportunity across the group using that methodology. I think what it also shows is that once we get our strategy and our playbook implemented in the businesses, as demonstrated through Metro Rod, Filta U.K., sorry, Filta International particularly, once they start to get embedded, that compound growth rate starts to increase. We're still in the fairly early days in Pirtek, and there's a number of reasons why we're only at 5.6%. Nonetheless, the playbook that we have has been successfully deployed historically and is continuing to be deployed throughout the businesses. I will talk about some of the growth levers, as we go through this presentation.
One of the things I just wanted to briefly touch on was cross-selling, 'cause cross-selling was a topic of conversation last year. Despite the fact that we've only just launched our CRM system, which I think is gonna make that, well, I know that's gonna make it much easier, I'm pleased with some of the progress that we're making. Still a long way to go on cross-selling. Recently, you know, I've seen Greene King, for example, cross-sold across Water & W aste. Rock Compliance again within Water & W aste. Delkia across the Water & W aste business. Then within Pirtek, I'm seeing things like Seaworld Shipping, which is the replacement and inspection of hoses on cable laying vessels, Boels Rental, Cramo, IPR Scholer, and again, all across the European businesses.
One of the things I think we've recognized is that cross-selling inter-division is much more challenging than it is within a division. It's much easier within Pirtek, and it's much easier within Water & Waste. I just wanted to touch on that because I know we referenced it last time we spoke. I guess it's important to understand how businesses make money, and working in the business, it's a really complicated system if you're looking from the outside. What I'm gonna try and do is try and simplify it. You know, we do GBP 435 million of system sales, of which the EBITDA, 86% of that EBITDA is generated from franchisee sales, so from the royalty on franchisee sales. What does that look like in reality?
That looks like a lot of men in a lot of vans going out and doing a lot of work where we take a blended 15%, roughly, of that sale value. The second element is through the DLO businesses which generate, what is it, 9% of the group EBITDA, against GBP 47.4 million in system sales. Stephen touched on it earlier. The distinction between those two elements of the business is the capital light element of the franchise business and more capital heavy in the DLO businesses. It can be complex, but if you take a step back and say, "Actually, we generate our money as a percentage of sales in the main through the franchise network," yeah, that's a really simplistic way of looking at it.
Which is why we look and say, you know, if the franchisees grow, we grow. You know, so that's where proportionally the amount of effort goes in. This is working extremely well. Amazing. Can you be my glamorous assistant? I'll take the word glamorous back. So system sales grew by 2% overall. The standout performance clearly was Filta International, particularly in America. And a number of things happened there. They took advantage of a stronger economy. It'd be lovely if that economy was all over the countries in which we operate, but nonetheless, you've still gotta be in a good position to take advantage of it. In the depressed markets in Europe, I think.
Well, sorry, I know one of the things that we did in terms of sector diversification and introducing new services mitigated some of the impact that those depressed markets had for us. Filta International, 9% up, including used cooking oil, and 7% up, excluding the used cooking oil. As I say, some of the actions that we took, particularly in Water & W aste, in integrating some of the businesses, making sure we got the most economic delivery, enabled us to mitigate some of the market impact. Would I love it to be more than 2%? Clearly, I would, but I think some of the actions that we took meant that we didn't go backwards. Adjusted EBITDA overall flat, but two standout performances.
Unsurprisingly, Filta in the U.S., as Stephen said, up by 21% and 18% in sterling. The other one that stands out is Willow. Willow grew their EBITDA by 15%. That's if I go back to 2024, we introduced a Special Projects division within Willow, and that result is the maturity of that strategy coming to fruition, where the introduction of now we can do the infrastructure type projects, the bigger projects, using our Special Projects division, has really started to manifest itself in terms of the results. Two years in gestation period to really see the benefits coming through, and I'm optimistic that will continue. Pirtek, I think well, I know it suffered in the U.K. and the Benelux particularly, but we had a very strong performance in Germany.
Germany was, I think it was 4% up in local currency, again, against the backdrop of expanding the range of services and into new sectors as well. Water & W aste grew by 7% overall, and as I touched on a moment ago, really through integration and efficiencies. I look at what we've done with Filta in the U.K. and integrated some of that now into Metro Rod. I look at the way we deliver the pump work that was in Filta UK, and that's now delivered out of Willow Pumps because that's the most economical and profitable way of delivering that service. A lot of work has gone on to enable us to come out with best at flat, but mitigating some of the issues that we faced. Just a little bit more detail in terms of Pirtek.
I'm not gonna read through all of the slide, but again, what you can see, system sales with modest growth and EBITDA going slightly backwards. Let me remind you of what our strategy is in terms of sales, because it goes across all of these slides. It's expanding to the new sectors or underrepresented sectors, it's expand the range of services, but it's also retain our existing customers. Because I'm absolutely convinced that where we're depressed markets in construction and plant hire, for example, they will come back. Can't tell you when, but I'm pretty confident that they will. You can see some of that strategy coming to fruition where the, you know, in the U.K., mining, quarrying and rail are our strongest growing sectors. They weren't core sectors two and a half years ago.
You know, the work that the sales guys have done on penetrating those sectors is starting to pay off. Germany, on the industrial side, particularly with the growth in the Total Hose Management program that they really lead the Pirtek business on. What's really encouraging about that Total Hose Management is now the adoption across the rest of Europe, where it's growing in all of our geographies, not just in Germany. Benelux waste, agriculture and marine are starting to grow. Marine's a really exciting prospect for us, where I touched on earlier cable laying vessels. I think we've now got three that are ready to be inspected. The beauty of those is that they have to have those hoses replaced every three years on a cycle. You do the inspection, you replace the hoses. It's that long-term overall value of that customer.
I guess it's a frustration and an excitement for me. You know, not all of our franchisees delivering all of our services. The frustration is that they don't. The excitement is that if they do, then we will have a much better business with greater opportunities. One of the things that we're working in all of the businesses is ensuring that everybody deliver the services that we market and sell. Water & Waste, again, without reading all of the slide out, a couple of interesting phenomena particularly in Metro Rod, where although the job numbers were down, the average order value increased by 9%. I go back again to two to three to four years ago where we started to change from being a perceived rodding company.
We just do a GBP 60 pop and go to having a much more holistic service that we can deliver, including pumps, tankers and the additional service that they're now working on, which is lining and excavation. More complicated work where we're owning the entire wallet for the customer. It does a couple of things for us. Obviously, it increases the average order value, but we get bigger bang for buck from our scarce resource, which is our labor. We're not running around like fools just doing GBP 60 pop and goes. Willow, as I say, a very solid performance.
Alongside the infrastructure project work that we're doing, we also changed tack on the supply and install business, where we've gone for the much quicker gestation period, smaller sewage treatment plants than we did previously, which took maybe two to three years to come to fruition. We're starting to see that pay off as well, and we're seeing the benefits of that coming through very quickly. As I say, the benefits of the integration in Water & Waste are clearly as seen in the slide. Filta International, and Stephen and I were in America two weeks ago. Just touching on that, the level of optimism and the level of enthusiasm is palpably different than we're seeing across Europe at the moment.
I wish I could bring some of that energy into Europe, not just into our business, but into the economy as well. As I said earlier, they perform really strongly, but it isn't a fluke. You know, it isn't just on the back of the economy being strong. It's the evolution of that FiltaMax strategy, where we've got the right franchisee in the right place. It's expanding that now into the tier two franchisees, where we start to see our underrepresented territory starting to be taken up. It's the maturity of the royalty model where 45% are now on the royalty representing 68% of system sales. The exciting thing about the States is the direction that we're moving into. Only 6% of sales come out from Filta Clean.
One of the big things that we did in just starting March, wasn't it? Was launch Filta Clean Pro, which then includes the ceiling cleaning element that we've now signed a deal with the distributor in the U.S. I think as of yesterday, 24 of the franchisees had signed up to deliver Filta Clean Pro because they see the opportunity, yeah, to attack markets that we can't currently get into just doing fry. The tactical sale is to go in and sell Filta Clean. On the back of that, you might get fry. Because again, fascinatingly, we don't do any of the quick service restaurants in the U.S. because oil filtration isn't attractive to them, but clean is very attractive. Very excited about what's happening there and a fantastic result during 2025.
I think it's just worth touching because of what's going on in the world at the moment. Used cooking oil is obviously a topic that we talk about. Our view is that the price of used cooking oil will remain stable for the time being. It may actually firm up because as crude starts to come under pressure in terms of the price, soybean and used cooking oil and biofuels will become more valuable in the States. We don't see any immediate issue with the problems that are going on in the world at the moment. This is one of my favorite questions is so what? Somebody says something, so what difference is it gonna make?
This is a so-what slide because we've talked about the One Franchise Brands strategies and the group-wide platforms and, you know, everybody can read in terms of where we're at. You know, One Finance is now out in the business. I caveat this by saying they've been out there since January. We're still in the implementation phase. One CRM, again, same timeline. One Works Management System. It's out in pockets, but we made the economic decision to say we weren't going to incur dual running costs during 2026. That's been phased through 2026. One Reporting has started to be used across the group. Why are we doing this? The architecture allows us to be fully integrated and create a platform that we can overlay right the way across the business.
As Stephen touched on earlier, any future acquisitions, I'm gonna insult our IT friends here by saying it's plug and play. I'm guessing it's a bit more complicated than that. Essentially, the platform exists for us to be able to integrate businesses. The phase that we're now in of having put these in the businesses is the learning and enhancing. You know, we've put in standard systems in some cases. How can we enhance them? How can we identify the efficiencies? What you will see coming through is a reduction in spend in third-party licenses as we start to roll some of these products out, particularly in the works management systems that will be rolled out through this year. It enables us to deploy AI across the architecture, and we're seeing some of that come through.
We've always used AI, you know, describe it as a robot or anything you want to describe it as. We've now got a much more holistic approach, whereas instead of doing it in pockets, how can we, from cradle to grave, to customer relationship, from placing a job through to invoicing? This architecture allows us to be able to do that and overlay that AI. What you will see, I think, and the question that I always get asked is, when are we gonna see the benefits? I think you'll start to see some benefit realization towards the end of 2026, and certainly into 2027. I think what you'll see proportionately is our IT spend as a proportion of our overall system sales reducing slightly as we go forward, as we change emphasis. That's me done.
I'm gonna introduce Andrew, who's gonna take you through the group results.
Thank you very much. I'm gonna concentrate, if I may, on everything below adjusted EBITDA. Peter's spoken about where we got to. I prefer the term modestly ahead rather than flat because we'll take a win where a win is. Going through, there's a couple of things to pick out. Finance expense, as Stephen said earlier, is down 25%. That's as a result of three main things. Our debt repayment obviously reduces the cost. Base rate changes last year, where there were 4 base rate reductions, and as Stephen said earlier, our renegotiation of our bank facility. That gave us a 55 basis point cut in our margin, and also our de-leveraging gave us a further 25 basis point reduction in our margin, which over the year reduced our interest cost by 1.2%.
I can't talk about what base rate's going to do from here on in, because when we came into the year, we were going to have two cuts or three cuts. Now we're gonna have two, three, four rises. What we have done is everything that is within our control by refinancing. Then going down to tax expense. Tax expense looks like a very significant increase and, on the face of it absolutely is. At a 27.5% adjusted tax rate, given our international operations in both, you know, Germany, which has a higher tax rate, and the U.S., 27.5% is effectively on the money and will be on the money.
The prior year was affected by an overprovision in the 2023 results, which gave a credit, and also the reenactment of a corporate interest relief asset in 2023, which again took our charge down. Last year's effective rate of 22.3% was flattering, shall we say. Next slide.
Sorry.
Sorry, I can't-
It's all right. Slower now.
Thank you very much. This is a very simple slide that takes the cash at the beginning, based on our EBITDA, tells you how we spent it and where we ended up. Obviously the big news is GBP 15.8 million of debt repayment. Going back to what Peter just said about the capital light model, even with the DLOs, purchases of PPE of GBP 1 million a year, GBP 2 million investment in software, capitalized labor and external. We have to pay a dividend because our shareholders like them, some in particular. That really brings us down to. If you look at the RNS, the RNS shows us this gross cash of GBP 15.3 million. I think it's a fair representation to give us the net cash. Sorry.
One thing I didn't mention on our interest rate saving is a group pooling arrangement, which is relevant in this. We have an overdraft. Previously, all of our cash earned us no interest. We worked with HSBC to give a group pooling arrangement to effectively. It's like an offset mortgage that reduces the interest charge. That's a strong thing. Going through the year, this year we will introduce this into the U.S. and Europe to offset euros and dollars, which will be another enhancement. I think that takes us to the next one. The last one is, it will come as no surprise to you that our adjusted net debt is going very much the right way, leverage down to 1.6x. I think that's pretty much me.
Yes, you are.
Excellent.
Yes. I, as I say, I alluded to earlier, we're making good progress in pockets in the business. I'd love it to be going faster, and I'd love us to be doing much better. I'm not going to go through this entire slide. I'm just gonna bring your attention to or draw your attention to a couple of points. One of the things I'm really excited about is the launch of the Man-in-a- Van franchise. And we've now piloted that in Pirtek U.K. What that enables us to do, you heard us talk in the past of utilizing franchise territories. We now have a plan B and a model that we think where franchisees don't want to or are unable to maximize their territory.
We have a different entry level to be able to maximize that territory for the benefit of the group. Early days, but really pleased with that's going at the moment, and we're certainly looking at that now across our European portfolio. One of the things that it also illustrates that is the creation of additional territory within Metro Rod. Again, sending messages to franchisees that if you're not utilizing all of this, then there is a different methodology of making sure that we get the sales that those territories we think should be delivering. The most valuable asset for Franchise Brands are the territories we own, and they're in the hands of our franchisees. If we can get them to maximize them, then everybody's happy. We've got a couple of plan Bs to be able to deal with that.
Use it or lose it.
Yeah, I was trying to resist your phrase of use it or lose it. You know, I was being more encouraging of, you know, look at what it could do for you, as opposed to look what it'd look like if you didn't have it. I think the other thing, and I touched on it earlier, the franchisees delivering all of the services within their brand. You know, we've got the matrix as to who does what. There are some gaps in that matrix that we think we can fill for the benefit of the franchisees, for the benefit of the business. Now, that's easy to say and difficult to do, you know.
Again, if you have a look at Germany, where we're enhancing the level of training that we're delivering to the franchisees to be able to enable them to go and deliver those services. So we're not just throwing them to the wolves and saying, "Go and do this." We're being a really supportive franchisor to be able to do it. I think the other bit now is where we're starting to deploy AI both in a analytical approach, but also in an agent and generic approach as well, where you know I talked about earlier getting agents to be able to take jobs from cradle to grave. I think the other last point I'd like to bring your attention to is the progression of the procurement exercise across Pirtek in Europe.
When we embarked on this, it seemed like a really simple exercise to me. Let's just go and buy some things cheaper. The amount of testing that you've got to do, the amount of process you've got to go through, we're getting there. I think in the middle of 2026, we'll start to see some of that benefit coming through. Now, it's important to remember that material benefit really doesn't come to us directly. It goes to the franchisees. It goes to the franchisees to enable them to be more competitive on some of the project work where we find it difficult to compete with the OEM manufacturers. You won't see it flow directly through, but I think it will increase our system sales. Good momentum.
We're continuing to push wherever we can push, and hopefully, we can deliver some of these in 2026.
Lovely. The trading outlook is that demand for our services continues to be resilient. Progress in the first part of this year is an improvement on last year and a continuing very strong performance in the U.S., buoyed by, as Peter says, fantastic franchisee enthusiasm over there. The new Ceiling Pro development, which is a franchise that they're actually having to pay for, I think about $15,000 to upgrade to Filta Clean Pro to have access to the ceiling cleaning technology, has been taken up. It was only launched at the franchise conference a couple of weeks ago, and 24 of our 120 franchisees have already paid up and signed up for it. I think that's gonna be a strong driver.
As Peter says, that also gets us into the QSRs, which is, I mean, the biggest part of the food industry in the U.S., and something we haven't yet been able to penetrate because they change their cooking oil every day and send it off for reprocessing, so they don't use the filtration service. Very optimistic about trading in the U.S. this year. We also think that growth rates in Europe will improve, particularly in the sectors we're servicing, because of, for example, the infrastructure spend in Germany and the house building in the U.K.
I mean, if the government are to be believed with these now seven new towns to build these 1.5 million new homes by the next general election, which looks pretty impossible. Nevertheless, that will drive demand for our services pretty significantly. You know, at the moment, I would characterize the business as being short on demand. Compare that with maybe three years ago, and we were short on capacity. I wouldn't be surprised by the end of this year if we don't move back into a capacity constraint, and it's something that we're looking at quite closely at the moment to make sure that the franchisees are geared up to deal with increased volumes as and when they come through. Optimistic for 2026.
I think the other thing that is going to drive results in 2026 is the integration. As Pete's touched on the One Franchise Brands initiatives, they are really beginning to come through now. The IT we've broken the back of the IT integration. We're now in a rollout phase, slightly delayed at Pirtek because we've taken the economic decision not to have dual running costs there 'cause we've got the legacy software that all the Pirtek franchisees are using at the moment. The option we had was to roll out Vision and pay up until those contracts ended. We've decided not to do that. We've decided that we need to segue in the rollout of Vision, so we're not paying dual running costs.
When they move over to Vision, of course, that income, rather than going to third parties, comes to us for the Vision software which, where we own the IP. I think that's going well. The benefit of the cross-selling and indeed just the understanding of our business at the CRM and the MI system that sits on top of that, I think again will be powerful 'cause we don't know what we don't know. You know, in acquiring businesses, it takes a while to understand what's really happening in that business, and these new systems will give us that transparency. Finally, as Pete says, you know, the next acquisition will be a plug-and-play apparently. You know, that is really something to look forward to.
Finally, why should you invest? I think the reasons are set out here, the market-leading franchise brands we have, where we have commanding positions in all the markets we operate in, and we're internationally diversified, which I think gives an underlying strength to our earnings stream. We have resilient demand for essential services. Not much of what we do is discretionary. Even Filta, for example, in the U.S., where customers buy the oil filtration service, they never leave us because effectively they're getting that service for nothing because the cost they save in buying new cooking oil is more or less equal to the cost of the service. They never leave us, and then they get the added benefits of improved health and safety and improved food quality.
That then gives us the opportunity of cross-selling in these other services, which, you know, Peter's gone through and, you know, the most recent addition being the ceiling cleaning service, which is a statutory requirement in the U.S. The Maximum Potential Model shows us where the growth opportunities are and how to help our franchisees take advantage of those. We have a capital light, highly cash generative model that does allow us to gear up and reduce equity dilution when we do make an acquisition. We're operationally geared. We've managed to keep very good control of our overheads through these more challenging trading times, and I think there's more of that to do. There's more integration we're working on where we can have central services.
I mean, the most recent one, for example, in the U.K. is we're combining all the HR functions of all the businesses in the U.K. Again, that will make a saving in all the underlying businesses, and there are lots more opportunities like that. Finance will, the efficiency there will be improved with the rollout of NetSuite. So there's still more opportunities to integrate and make our costs, central costs, relatively fixed so that as the contribution from additional system sales comes in, it drops more or less straight to the bottom line. You've got a team in Franchise Brands that's done a bit of this before. You know, it is an experienced team across the world. You know, parts of it founder-led in the U.S.
I think that, you know, that contributes to their growth, that, you know, Jason Sayers, who founded Filta, is still actively involved in the business, and that is very helpful. We sort of know what we're doing in this franchising world. I commend the proposition to you, ladies and gentlemen. I think we now move on to questions. Is there a mic? Yeah. Wherever.
Hi. [Marc Helsen] from [Singers]. Firstly, I've got a range of questions. Just on total IT spend, I see obviously in the cash flow GBP 2.1 million was there for, you know, purchase and software. The total figure is quite a lot is going through the P&L as well. Can you give us a figure for what the total figure for IT spend was in 2025? Will it be the same in 2026, and could it fall in 2027?
The total is GBP 8 million. The GBP 2.1 million is not purchased. That's effectively own labor that's been capitalized in the development. There's virtually no purchase of third-party software. Although might be NetSuite or HubSpot, the setup of that.
No. It's mostly.
No?
Mostly capitalized labor.
Okay.
In the set up of the new systems.
I would love to say that IT spend is gonna reduce. My experience at Domino's and so far at Franchise Brands is it never does 'cause there's always something new to spend money on, and you know, the next big spend will be obviously AI. It will not increase, and therefore it will reduce as a percentage of system sales. I think that's the promise we can make, but we're still working on the other plan to reduce it.
Just on Filta International, you said 45% of the franchise partners are on the royalty system now. Where could that be by the end of 2027? Can you give us a feel?
We don't know because.
It depends on how many people are up for renewal in that period. I just haven't got that number.
Well, I haven't swayed it.
Well, I mean, there are a couple that we can persuade currently.
Yes.
Yeah. The short answer is it'll be more than it is now, but I cannot tell you how many.
I think we've probably got about seven years left before everyone must be, because obviously every franchise renewal, they move on to royalty. You know, next couple of years, we'll be into the fag end of small franchisees in small territoriesm, who double shift their MFU, who don't wanna move on to a royalty, but we'll get 'em in the end. Sanjay?
Morning. It's Sanjay Vidyarthi here, Panmure Liberum. Another question on cost, please. Just looking at the kind of puts and takes in FY 2025 and, you know, 4% down in Water & W aste, but 3% up in Pirtek, 17% up in Filta. I think in Filta there was a shift to DLO, which I guess is temporary. How do we explain some of those puts and takes, and how do we think about that for 2026? Presumably in terms of the DLO in Filta, that will at some point shift back to franchise.
Almost has done, hasn't it?
Yeah, I think it's done now. Yeah, you're right. It was a temporary measure.
No, sorry. The DLO in Filta International, two territories are still running as a DLO operation will transition through the year.
Yeah.
Well, the big element of it.
The third territory has been sold at the end of the year to an existing franchisee.
It is definitely a temporary.
Yeah.
Phenomenon. We'd taken back a territory, and now we're splitting it up.
If we think about that in terms of cost benefit potentially in 2026.
Not really, 'cause it's in the top line, it's in the bottom line. We don't make much money on it. We'll make some money on the resale of it. It's.
You'll spread the money on the resale over the life of the new franchise.
Yeah.
It's modestly enhancing. If it, you know, makes decent money, it's
The upside for us is that we'll have great franchisees in underperforming territories that will grow the business going forward. The, you know, the transaction costs. I mean, actually, there was a transaction cost. I mean, there was probably about $300,000 of legals.
Yeah
Expense this year, which, you know, hopefully we won't have that cost next year, but we're running franchise businesses, so who knows?
If we think about the cost up in Pirtek, but down in Water & Waste, what kinda drove that dynamic?
Integration, wasn't it?
Integration of Water & W aste, for sure.
Yeah.
Yeah.
Yeah.
I think also, how did you account for the profit on the sale of the property? There was that in overheads.
I've seen there's a-
Yeah. That was a sort of one-off benefit.
Again, as a result of the integration strategy.
Yeah
We could realize that benefit. Going through 2026, you'll see a further enhancement with the elimination of Pirtek Europe as a Pirtek Europe Ltd head count. You know, there's 800,000-
We've taken out one layer of management almost completely now in Pirtek Europe, and all the country MDs now report directly to Peter.
All of that cost was taken to P&L.
The exit cost was taken to P&L during 2025, yeah.
Yes.
Yeah.
There's modest legacy IT that will roll through 2026, but the majority of that cost will be eliminated in Pirtek for 2026. Sam. Sorry, now from here on the front row. I haven't forgotten you.
Morning. Two questions from me, please. Firstly, on Filta Clean, obviously only 6% of system sales and really good momentum with the Filta Clean Pro. Do you have a sense of how big that could be in the medium term, in terms of it's pretty hard-
The clean part?
Yeah. In terms of the overall Filta business in the U.S. Could that be, you know, get to 20% of system sales or anything like that? And then secondly, on Pirtek, just any sign on the ground from your franchisees if the German infrastructure spend is coming through yet, or do they have any sense at all of when that's going to sort of be a tailwind? Thank you.
It's difficult to quantify exactly where Filta Clean Pro will end up, but the encouraging thing with 24 franchisees seeing the opportunity and signing up to that, it will certainly increase as a proportion of what they're doing.
The bit that I didn't say earlier was actually we have a national account sales manager out in America, funnily enough, with an American name, Chip, who is doing an immense job in lining up these customers to be able to take the Filta Clean business. Yeah. So at that, in the short to medium term, personally I'll be really disappointed if it didn't represent 15%-20% of system sales, you know. I think they're looking for more than that.
Some of the franchisees think it'll be bigger than Filta-
All the time.
the filtration business.
Yeah. Interesting question on Germany, because I was there last week. Huge opportunities with infrastructure projects that are in the future. Not all of them contracted and certainly not contracted to us at the moment. There was an interesting discussion because, think if you'd have asked me the question three weeks ago, I would have still been in the position that says, I think it's gonna be end of 2026, 2027, 2028. I think my understanding is that some of the regional bodies are sat on projects that are ready to go and waiting to tap into the federal funding as opposed to using the local money. It may come a little bit quicker in certain pockets.
The level of optimism from the franchisees is certainly more than it was when I was there before Christmas. You touched on, you know, supply and demand. In Germany, labor is becoming a little bit more difficult to get at the moment. You know, Stephen touched on some of the things that we're doing. We've completely revitalized the recruitment process out in Germany. In the first two months of this year, they had 400 applicants for roles within Pirtek. You know, it's a problem on one hand, but I think we've got the solution coming through to make sure that we've got enough labor to fulfill the demand that will come.
Sorry. It'll get to you next.
Thanks.
Yeah.
Toby Thorrington from Equity Development. I've got four unrelateds, I think. Plenty of references throughout the presentation on broadening the service offer, I think particularly in Pirtek, but also Filta International as well. Should we be expecting an increase in the Maximum Potential Model?
Yes.
Figure at some point?
That's the way it works, because what that'll drive is penetration and average spend, which then we extrapolate across the whole of the market. Yes, the maximum potential grows as you expand the range of services.
Would you like to sort of put an indicative number on that? Sort of 10% or?
Well, you see, cleaning in Filta U.S., I mean, if we start penetrating the QSRs, I mean, goodness knows what that number could grow to.
That would materially change.
Yeah.
Yeah.
I mean, when we introduced tankers and pumps into Metro Rod, again, you know, that was a new leg to the business. That's now 24% of Water & W aste, which didn't exist when we bought the business or barely existed. It's difficult to say what it would do. I mean, it's ever upwards, though. Interestingly, what might happen, I mean, this is the arithmetic of the way it works. If you got into the QSRs, which we don't count as potential market, you might reduce the penetration until we start penetrating those. Yeah, the arithmetic of it is that as you expand the range of services, it will grow.
Okay. One to come back to then, thank you.
Sorry?
One to come back to, then, in that case.
Yeah.
Thank you.
I mean, it's quite a complicated and time-consuming model to produce, because what you have to do is identify what the potential market is. In some businesses, that's easy. In home delivery pizza, it was very easy. It was every home in the country. Didn't change very much year to year. In Water & W aste, it's relatively easy because it's every commercial property in the country. In Pirtek, it's quite difficult because you're servicing items of machinery. The fact that you know there are X construction companies in a territory doesn't tell you how much machinery they've got or where it is. We have to modify the model to make it work for Pirtek.
Okay. All right. Thank you. Not much reference throughout the presentation on churn of franchisees across the business. Has that been a feature? Pirtek in particular, maybe.
You can see it is. We've given you the numbers there. In B2B-
Remains relatively modest all the way across B2B.
Mm-hmm.
Probably no material change year-on-year.
Okay. Great. Thank you. A couple of financials, please. Could you give us a sort of broad brush indication of where you think leverage might be at the year-end?
Andrew, do you wanna take that?
Depends what we do with disposals.
Yeah.
Well, ex disposals and ex the share buyback.
We generate GBP 15 million-GBP 20 million of debt repayment, won't we?
Yeah, GBP 15 million is a good number for debt repayment.
Okay. Thank you. Final question. They're getting smaller and easier now, I think. Disposal of Filta Europe, any financials around that? Proceeds, profitability, anything like that?
They'd be roundings.
Okay. Let's make sure we get the time.
Thank you. Tom Frame from Shore Cap. On the subject of H1, H2 splits, mainly from a system sales and EBITDA perspective, it's been roughly 50/50 in the past two years. Would it be sensible to assume it would probably be more weighted towards H2 this year? Just conscious of obviously the impact of the weather, the macro uncertainty in H1, you know, the German infrastructure spend H2, the U.K. house building and other catalysts in H2, along with potentially the benefit from One Franchise Brands and increased cross-selling, if that's gonna come materially in H2, at this early stage.
Yeah, I think that would be a fair assumption, based on where we've come into the year with some of the plans that we've got through the year. I mean, historically, it's been flat, H1 to H2. If all of those things happen with the German infrastructure, house building and everything else that kicks off, clearly, there will be more momentum into H2.
April, May are good months for us, particularly in Water & Waste. You know, you've always got the possibility of poor weather at the end of the year again. I wouldn't depart too much from 50/50. Some of the things we've done and are doing will flow through later in the year.
Brilliant. Could those catalysts potentially, I know it's, obviously it's early at this stage, present some form of upgrade potential?
We hope. Yeah. Well, we made the mistake last year of going into the year a little too optimistic and had to downgrade through the year. We start the year in a place we're very comfortable with.
Mm-hmm. Yeah. When you say-
End of sentence.
When you say not too far from 50/50, that would maybe I mean, I haven't gone back further than the past two years in terms of H1, H2 splits. What is kind of the normal range for you, H1, H2 splits? What would be the upper end?
52/ 48, something like that. Yeah.
Are you able to comment at all on Q1? Conscious last year in the AGM statement, there wasn't too much color, but I think you reported progress. Are you up against a relatively tough comp for Q1 this year?
I mean, we'll talk more about it at an AGM statement. Suffice to say, we're ahead of last year.
Yeah.
Thanks very much.
Sorry, gents. Just a quick question again on the MPM. The GBP 2.1 billion, does that exclude the DLOs or include the DLOs in terms of-
I think-
Maximum Potential Models include or exclude the DLOs?
Yeah.
Includes.
It includes them, yeah, because we take the overall market, yeah.
If there were to be disposals of them, the MPM would come down a bit?
In-
No, because you replace.
No, 'ca-
you replace the system sales from a direct labor operation to a franchisee. If you disposed of
The system sales would stay the same.
Yeah, yeah.
Depending on-
Yeah. The owner.
For example, we franchised out Metro Rod completely now, but the system sales still are system sales.
Okay. If you were to sell Willow Pumps, for instance, obviously Metro Rod sells pumps.
Yeah.
Willow Pumps is not actually in the Maximum Potential Model. It's just Metro Rod.
Sorry, the distinction between DLO, 'cause there's two distinctions. There's what we describe as a franchise DLO, so it's a territory that we run ourselves, and then there is the exclusive DLO businesses like Willow, et cetera.
Yeah.
Yeah. Within the franchise model, those DLO businesses are in the maximum potential, and Willow are outside of it.
Thank you.
Morning, gents.
Morning.
James Fletcher from Berenberg. Just one outstanding from me. Just if I could ask about the strategic review you referenced in the statement today. Just in those markets, and without saying too much, kind of is there healthy conditions to divest businesses into? And, you know, should we be expecting such event to make a material dent on the de-leveraging process?
Yes and yes. The infrastructure market, there's a lot of investment going into that at the moment, which is making that sector quite buoyant. Less so in B2C franchising. You know, you can see the numbers those sort of businesses generate, GBP 55 million of net debt. It would make a significant impact on the remaining leverage.
Thank you. Cheers.
No more questions from the webcast at the moment. Stephen, maybe back to yourselves for closing remarks.
Nothing online?
No.
Oh, right. Well, thank you very much for coming today. I mean, I think 2026, we're far more optimistic about 2026 and both the markets and the work we've done to create a platform within the business that we're pretty optimistic about 2026 now. We remain at this stage comfortable with the market expectations and won't be commenting very much further on that at this stage. I think as the year progresses, hopefully we'll have more exciting news. Thank you very much for your attendance and support, and look forward to seeing you next time.
Thank you.