Everything in the kitchen was looking peachy back in March 2020 for kitchen services provider, Filta Group Holdings PLC (LON:FTA).
Then the pandemic hit most of its customers – restaurants, stadia and sports arena, hotels, amusement parks and universities – and the business landscape changed virtually overnight.
Even so, the company used the lockdown period to step up its sales efforts and signed up hundreds of new customers, which means that when all of the lockdown restrictions are finally lifted in the US, UK and Germany – Filta’s areas of operation – the company will have a significantly larger customer base.
As it is, “the US is coming back like a train,” according to Jason Sayers, the chief executive officer and co-founder.
Last month, the company announced that annualised revenues in North America were back to the pre-COVID run rate, and that’s with a significant proportion of its customer base yet to reopen.
Meanwhile, in the UK, where the group focused on supermarkets and fast-food chains during the lockdown, things are starting to look up, notwithstanding the delay to lockdown restrictions announced in mid-June.
The company services commercial kitchens. It has two primary businesses; FiltaFry is the fryer management (ie maintenance) business while the other main operation is focused on cleaning.
It is a compliance-based, high margin recurring revenue business where often the only competition is some in-house employee who probably does not want to do the job anyway.
The company operates its own operations in the UK, augmented by franchisees, while North America is exclusively a franchise model.
Filta receives one-off fees from new franchisees as well as recurring revenues from existing franchisees.
The group also receives one-off revenues from equipment sales, from which it subsequently looks to earn repeat revenues from servicing the equipment.
Established in the UK in 1996 and listed on AIM in 2016, the bulk of the workforce is based in the UK but North America, with its superabundance of dining establishments, looks to be the place that will deliver the explosive growth the company is hoping for.
At the moment, the group has just 14 employees in the US & Canada supporting its franchisees, compared to 98 in the UK (and just three in mainland Europe).
The European operations contribute just 2% of group revenues and are seen as a medium-term expansion opportunity.
The rest of the revenues are fairly evenly split between North America and the UK, with the UK currently providing a slightly larger slice of the revenues.
UK customers include McDonald’s, Costa Coffee, KFC, Tesco, Asda, and Compass, while two of its biggest customers, pubs groups Greene King and Mitchells & Butlers have reopened but are not yet operating at full steam.
“The best thing about our business [is] we have regular repeat revenues from those customers.
“The downside? Our industry was hit pretty hard by COVID. What was in our control was how we reacted to it. We’re still profitable at the EBITDA [underlying earnings] line and cash positive,” Sayers told an online forum recently.
In the first quarter of last year, which is to say pre-COVID, Filta saw 20% year-on-year revenue growth in North America while margins in the UK had bounced back to expected levels after the 2018 acquisition of grease management services specialist Watbio.
The pandemic upset the applecart and 2020 saw revenues decline by 31% and 38% in North America and the UK respectively while the total overall reduced to GBP16.4mln (GBP24.9mln).
The group posted a loss of GBP0.9mln (profit: GBP0.9mln) though gross margins improved.
In North America, prior to the pandemic, it had 5,975 customers; during the year, it added 935 customers.
Currently, 1,520 have yet to reopen and these are some of Filta’s bigger customers, such as stadia and university, so – fingers crossed – if North America emerges from lockdown on the expected schedule, the company should see the top-line head north at an acute angle.
Similarly, in the UK, the group had 4,07 customers before the pandemic; it added 750 customers but about half of its expanded customer base is yet to reopen. Filta says it expects to be back to its full servicing annualised run rate in the UK in the third quarter.
Regarding the share price, it would be fair to say the recovery scenario has not escaped the market’s attention, with the shares rising from around 94p at the start of the year to 155p presently.
Clearly, the major threat to Filta’s short-term prospects is a resurgence of COVID-19 cases and a return to a more stringent lockdown regimen but the company has proved it can stay profitable and cash positive in one severe lockdown so there’s little reason to suppose it could not repeat the trick in another one.