RNS Number : 4311J
Coffee Republic PLC
03 December 2008
Coffee Republic plc
("Coffee Republic" or "the Company")
3 December 2008
INTERIM RESULTS FOR THE PERIOD ENDED 28 SEPTEMBER 2008
CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S STATEMENT
When Stephen Bartlett and I joined the Board two years ago we said that we wanted Coffee Republic to be free of bank borrowings. At that
time, bank borrowings amounted to *3.3m. We progressively reduced those borrowings to *1.5m at the end of this half year (28 September).
As of yesterday (Tuesday 2 December) I'm pleased to be able to say the company became free of bank debt.
This position was arrived at following agreement with our bank for the elimination of our borrowings provided they were paid a reduced
amount promptly. With the benefit of a share placing and the approval of resolutions at an Extraordinary General Meeting on 1 December the
Company has complied with the terms of the agreement and hence has now redeemed in full its bank obligations. The placing comprised
2,272,665 ordinary shares at 30 pence each which amounted to �681,799.50.
Stephen and I both through related parties participated in the placing and (with connected parties) now own 30.37%. This has been
cleared by the Takeover Panel and was ratified at an EGM on Tuesday 2 December.
The repayment results in the elimination of interest and charges approaching *200,000 a year and that effect, combined with a steadily
improving trading position across the broad portfolio, gives me confidence that the Company is likely to be operationally cash flow
positive, and may indeed be earnings positive, by the end of the current financial year - I believe for the first time in the Company's
history.
For the six months ended 28 September 2008, the loss reported on an IFRS basis was *527,000 a reduction of 40 percent on the same period
last year (2007: *895,000). On an adjusted basis the loss was *296,000 (2007: *550,000).
A material factor in this loss was the cost associated with the return to company ownership of a number of poorly trading franchise
stores. The possibility of more stores being returned must remain an area of concern for all franchise businesses in the current economic
environment but the raising of standards required of franchise proposals should reduce this problem in future.
Sales at UK coffeeshops, including Coffee Republic, are currently showing resilience in the face of the generally depressed retail
environment. Like for like network sales are flat although after taking account of new openings sales are up by 33 percent compared with a
year ago. Also, store expansion continues satisfactorily but, nonetheless, we intend to proceed warily.
I am pleased to report that there are now 200 Coffee Republic outlets worldwide (see Note 4) compared with 42 (in the UK only) two years
ago when Stephen and I organised the shareholders' revolt to rescue the company by taking control of the management.
I look forward to announcing results for the full year to 29 March 2009. Unforeseen circumstances excepted, and taking account of the
continuing uncertainty of the current economic circumstances, I believe that those results will justify the confidence of shareholders and
underpin your Board's faith in the future of our Brand and our Company.
Peter J F Breach
Chairman and Chief Executive Officer
3 December 2008
For further information:
Coffee Republic Plc: 020 7033 0600
Peter Breach, Chairman and Chief Executive Officer
James Muirhead, Finance Director 020 7033 0639
Teathers:
Jeff Keating / Simon Brown / Phil Drake 020 7131 3000
Note re: Adjusted Earnings:
Under the International Financial Reporting Standards (IFRS) Coffee Republic is obliged not to include non-refundable upfront franchise
fees received except for the element of those fees attributed to the reporting period as proportion of the total franchise agreement term.
For example if a fee of �20,000 is received for a ten year term then �2,000 of revenue is recognized in the income statement each full
year.
Likewise, these non-refundable franchise fees are not shown as a net asset on the Balance Sheet except so far as they are released over
the period of the franchise agreement.
The adjusted basis shows the full amount of non-refundable fees received in the period of receipt.
Particularly in the early years of writing franchise business the IFRS basis understates the value of work done, possibly
significantly.
Shown below are Earnings presented on an adjusted basis which takes account of receipts not admitted under IFRS standards so that
shareholders have the benefit of being able to make a more broad assessment:
For the 6 months For the 6 months For the year ended
ended 28 September ended 23 September 30 March 2008
2008 2007
Net loss attributable to �(527,000) �(895,000) �(2,497,000)
ordinary equity holders
Franchise premiums not �231,000 �345,000 �690,000
released to the income
statement in the year
Adjusted Earnings �(296,000) �(550,000) (�1,807,000)
Non-refundable upfront franchise fees received excluded from the Balance Sheet under the IFRS basis at 28 September amounts to �1.4m.
UNAUDITED CONSOLIDATED INCOME STATEMENT
For the period ended 28 September 2008
26 weeks to 28 Sept 26 weeks to 23 Sept 53 Weeks to
2008 2007 25 March 2008
�'000s �'000s �'000s
Notes
Revenue 2,990 2,884 5,849
Cost of sales (3,115) (3,333) (6,539)
Gross loss (125) (449) (690)
Administrative expenses (325) (362) (1,601)
Operating loss before (450) (811) (1,580)
exceptional items
Exceptional items 1.12 - - (711)
Operating loss (450) (811) (2,291)
Finance costs (77) (84) (206)
Finance income - - -
Net loss for the period before (527) (895) (2,497)
and after tax
Net loss attributable to (527) (895) (2,497)
equity holders of the parent
Earnings per share
Basic and diluted 3 (0.08p) (0.14p) (0.40p)
UNAUDITED CONSOLIDATED BALANCE SHEET
As at 28 September 2008
As at As at As at
28 Sept 2008 23 Sept 2007 25 March 2008
�'000s �'000s �'000s
Assets
Non-current
Goodwill 152 133 152
Property, plant and equipment 1,546 2,536 1,547
Prepaid operating lease 235 293 264
expenses
1,933 2,962 1,963
Current
Inventories 40 63 19
Prepaid operating lease 295 367 321
expenses
Trade and other receivables 1,601 926 1,247
Cash and cash equivalents - - 9
Assets classified as held for 190 - 190
sale
2,126 1,356 1,786
Total assets 4,059 4,318 3,749
Equity
Equity attributable to equity
holders of the parent
Share capital 626 571 626
Share premium reserve 7,014 7,005 7,014
Share option reserve 33 84 22
Retained earnings (10.008) (7,908) (9,481)
Total equity (2,335) (248) (1,819)
Liabilities
Non-current
Trade and other payables 1,418 1,018 1,230
Provisions and other 14 14
liabilities
Loans and borrowings 852 1,050 902
Convertible Loan stock 780 - -
3,064 2,068 2,146
Current
Trade and other payables 2,386 1,299 2,727
Provisions and other 35 95 21
liabilities
Loans and borrowings 909 1,104 674
3,330 2,498 3,422
Total liabilities 6,394 4,566 5,568
Total equity and liabilities 4,059 4,318 3,749
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period ended 28 September 2008
Called up share Share premium Share option reserve Retained losses Total equity
capital account
(all amounts presented in
�'000s)
Balance at 25 March 2007 566 5,696 43 (7,027) (722)
Loss for the period - - - (895) (895)
Shares issued (net of cost) 5 1,309 - - 1,314
Share option charges - - 41 - 41
Balance at 23 Sept 2007 571 7,005 84 (7,922) (248)
Loss for the period (1,602) (1,602)
Share option Charges (19) (19)
Share options Exercised and (43) 43
Forfeited
Shares issues net of costs 55 9 64
Balance at 30 March 2008 626 7,014 22 (9,481) (1,819)
Loss for the period - - - (527) (527)
Share option charges 11 - 11
Balance at 28 Sept 2008 626 7,014 33 (10,008) (2,335)
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
For the period ended 28 September 2008
26 weeks to 28 Sept 26 Weeks to 23 Sept 53 weeks to 30 March
2008 2007 2008
�'000s �'000s �'000s
Cash flows from operating
activities
Loss for the period before and (527) (895) (2,497)
after tax
Finance income - - -
Finance costs 77 84 206
Loss on disposal of fixed - 2 272
assets
Impairment of Property plant - - 439
and Equipment
Depreciation of non-current 132 202 454
assets
Non-cash share option charge 11 41 22
Amortisation of intangibles 29 29 60
and lease premiums
Operating loss before change (278) (537) (1,044)
in working capital and
provisions
Movements in working capital
(Increase)/decrease in trade (328) 255 87
and other receivables
(Increase)/decrease in (21) (16) 28
inventories
(Decrease)/Increase in trade 117 (574) 1,363
and other payables
Increase/(Decrease) in 14 (11) (71)
provision
Net cash used in operations (496) (883) 363
Cash flows from investing
activities
Interest Received - - -
Payments for property, plant (131) (184) (628)
and equipment
Proceeds from disposal of - 78
property plant and equipment - - 90
(71)
Payments for intangible assets
Net cash from investing (131) (106) (609)
activities
Cash flows from financing
activities
Repayment of secured loan (300) (500) (620)
Proceeds from issue of 1,314 1,428
ordinary shares (Gross)
Payment for share issue costs - - (50)
Proceeds for issue of 510 - -
Convertible loan notes
Loan proceeds received 100 - 100
Payments of capital element of - - (40)
finance leases
Finance expense (77) (84) (206)
Net cash used in financing 233 730 612
activities
Increase/(decrease) in cash (394) (259) 366
and cash equivalents in the
period
Reconciliation of net cash
flow to movement in net debt
Net cash and Cash equivalents (29) (395) (395)
at the beginning of the period
Net Cash and Cash equivalents (423) (654) (29)
at the end of the period
NOTES TO THE CONSOLIDATED INTERIM STATEMENTS FOR THE PERIOD ENDED 28 SEPTEMBER 2008
* Summary of significant accounting policies
1.1. Reporting entity
Coffee Republic PLC ("The Company") is a public limited Company incorporated and domiciled in the United Kingdom. The address of the
registered office is 50 Lothian Road Festival Square, Edinburgh, EH3 9WJ. The Company's ordinary shares are traded on the Alternative
Investment Market (AiM).
Basis of preparation
The consolidated interim financial statements of the Company for the 26 weeks ended 28 September 2008 comprise the Company and its
subsidiaries (together referred to as the "Group").
The financial information for the 26 weeks ended 28 September 2008 is unaudited and has been prepared in accordance with the Group's
accounting policies based on IFRS standards that are expected to apply for the financial year 2009. The Group has not applied IAS 34 -
Interim Financial Reporting in the preparation of these interim financial statements.
The financial statements are prepared under the historical cost convention. The Group's financial statements are presented in sterling
and all values are rounded to the nearest thousand pounds (�'000), except where indicated.
This statement does not comprise statutory accounts as defined in Section 240 of the Companies Act 1985. The statutory financial
statements for the year ended 30 March 2008, prepared in accordance with IFRS, have been filed with the Registrar of Companies. The auditors
have reported on those accounts; their report was unqualified, did not include statements under section 237(2) or (3) of the Companies Act
1985, but did include references to matters to which the auditors drew attention by way of emphasis without qualifying their report. The
matter of emphasis referred to going concern. The results for the 26 weeks to 28 September 2008 and 23 September 2007 are unaudited.
1.2. Consolidation
The consolidated accounts incorporate the financial statements of Coffee Republic PLC and its subsidiary undertakings (the Group).
Subsidiaries are those entities controlled by the Company. Control exists when the Company has the power to govern the financial and
operating policies of an enterprise. The financial statements of subsidiaries are included in the consolidated financial statements from the
date that control commences until the date that control ceases.
The Group uses the acquisition method of accounting to consolidate the results of subsidiary undertakings. The results of subsidiary
undertakings are included from the date of acquisition.
1.3. Foreign Currency translation
Items included in the financial statements of each Group's entities are measured using the currency of the primary economic environment
in which the Company operates (the functional currency). The functional currency of Coffee Republic PLC is Sterling ("GBP").
Foreign currency transactions are initially recorded at the exchange rate ruling at the date of the transaction. Foreign exchange gains
and losses resulting from the settlement of such transactions and from the translation at exchange rates ruling at the balance sheet date of
monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as
qualifying net investment hedges.
1.4. Property, plant and equipment
Property, plant and equipment are shown in the balance sheet at historical cost less accumulated depreciation and impairment. Historical
cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the assets'
carrying amounts or recognised as a separate asset as appropriate only when it is probable that future economic benefits associated with
them will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income
statement as incurred.
Depreciation is provided so as to write off the cost of each asset to their residual values over their estimated useful lives on the
straight line basis as follows:
Short term leasehold and improvements - over the period of the lease
Fixtures, fittings and equipment - 5 years
Motor vehicles - 5 years
An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its
estimated recoverable amount. See note 1.6.
Gains and losses on disposal are determined by comparing proceeds with carrying amount. These are included in the income statement.
1.5. Intangible assets - goodwill
Goodwill arising on an acquisition of a subsidiary undertaking is the difference between the fair value of the consideration paid and
the fair value of the assets and liabilities acquired.
Goodwill arising on acquisitions prior to 27 March 2006 is stated in accordance with UK GAAP and has not been re-measured on transition
to IFRS as permitted by IFRS 1. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Any
impairment is recognised immediately in the income statement and cannot be subsequently reversed. Goodwill is allocated to cash-generating
units for the purpose of impairment testing. Gains or losses on the disposal of an entity include the carrying amount of goodwill relating
to an entity sold.
1.6. Impairment of assets
Assets that have an indefinite useful life (goodwill) are not subject to amortisation and are tested at least annually for impairment
Assets that are subject to amortisation are reviewed for impairment when events or changes in circumstances indicate that the carrying
amounts may not be recoverable. An impairment loss is recognised in the income statement for the amount by which the asset's carrying amount
exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For
purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows
(cash-generating units).
1.7. Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable
that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of
the amount of the obligation.
1.8. Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method.
Net realisable value is based on the estimated selling price less the cost of disposal.
1.9. Revenue Recognition
Revenue from wholly owned continuing operations comprises the fair value of the sale of goods and services, net of value-added tax.
Revenue from franchised operations represents recurring royalties receivable from franchises of the Group, commission receivable from
third parties on supplies to franchises, together with franchise fees and regional development fees.
Franchise fees and regional development fees are recognised over the life of the agreement.
1.10. Share Capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new share or options are shown in
equity as a deduction, net of tax, from the proceeds.
1.11. Leases
Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as
finance leases.
The present value of the minimum lease payments during the lease term is capitalised as a tangible asset and the corresponding leasing
commitments is included as a liability. Rental payables are apportioned between interest, which is charged to the income statement and
equity, which reduces the outstanding commitment.
Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Payments made
under operating leases are charged to the income statement on a straight-line basis over the period of the lease.
1.12. Exceptional Items
The exceptional charges represent losses on disposals of assets which have arisen as a direct result of the directors' decision to move
from a Company owned operation to a franchised operation and the impairment of tangible fixed assets. The directors believe it is
appropriate to treat these costs as exceptional.
1.13. Loss per share
(a) Basic - Loss per share is calculated by dividing the loss for the year attributable to ordinary equity holders of the parent entity
by the weighted average number of ordinary shares.
(b) Diluted - Diluted earnings per share is calculated by adjusting earnings and weighted average number of ordinary shares outstanding
to assume conversion of dilutive potential ordinary shares. Potential ordinary shares shall be treated as dilutive when, and only when,
their conversion to ordinary shares would decrease earnings per share or increase loss per share from continuing operations.
1.14 New accounting policies and future requirements
The following new standards, amendments and interpretations have been published and are mandatory for the Group's accounting period on
or after 1 January 2007. None have had a material impact on the financial statements.
2. Critical accounting estimates and key judgments
The preparation of financial statements in conformity with IFRS requires the use of accounting estimates and assumptions. It also
requires management to exercise its judgment in the process of applying the Group's accounting policies. Estimates and judgments are
continually evaluated and are based on historical experience, available information, and other factors including expectations of future
events that are believed to be reasonable under the circumstances. As the use of estimates is inherent in financial reporting, actual
results could differ from these estimates. The areas involving a higher degree of judgment or complexity are described below:
(a) Impairment of goodwill and other intangibles
The Group is required to test, on an annual basis, whether goodwill has suffered any impairment. The recoverable amount is determined
based on value in use calculations. The use of this method requires the estimation of future cash flows and the choice of a discount rate in
order to calculate the present value of the cash flows. Actual outcomes may vary. More information concerning carrying values is included in
note 10.
(b) Useful lives of property, plant and equipment
Property, plant and equipment are depreciated over their useful lives. Useful lives are based on management's estimates of the period
that the assets will generate revenue, which are periodically reviewed for continued appropriateness. Changes to estimates can result in
significant variations in the carrying value and amounts charged to the consolidated income statement in specific periods.
(c) Share based payment
The Group has a equity-settled share-based remuneration schemes for employees (including directors). Employee services received, and the
corresponding increase in equity, are measured by reference to the fair value of the equity instruments at the date of grant, excluding the
impact of any non-market vesting conditions. The fair value of share options is estimated by using the Black-Scholes model on the date of
grant based on certain assumptions. Those assumptions are described in note 23 and include, among others, the dividend growth rate, expected
volatility, expected life of the options and number of options expected to vest.
3. Earnings per share calculation
Basic earnings per share are calculated by dividing the earnings attributable to ordinary shareholders by the weighted average of
ordinary shares outstanding during the year. The basic and diluted loss per share is the same in 2008 and 2007 as the effect of the share
options was anti-dilutive, and was therefore excluded.
For the 6 months For the 6 months For the year ended
ended 28 September ended 23 September 30 March 2008
2008 2007
Net loss attributable to �(527,000) �(895,000) �(2,497,000)
ordinary equity holders
Weighted Average Number of 625,893,569 617,535,949 623,486,780
Shares
Net loss attributable to the (0.08)p (0.14)p (0.48)p
ordinary equity holders per
share - Basic
Restated for Share (4.8)p (8.4)p (28.8)p
consolidation (1:60) on 17
October 2008*
* at the Annual General Meeting on 17 October 2008 a resolution was passed to consolidate the ordinary shares of the business on a 1:60
basis. The number of share in issue as at the balance sheet date on this consolidated basis was 10,439,5
4. Number of outlets
As at 25 March 2007 As at 30 March 2008 As at 28 August 2008 As of 1 December
2008
Company Operated Bars 16 7 16 19
Franchise Operated Bars 25 53 53 57
Co-branded CR locations/"CR 2 109 114 110
Served Here"
Total CR locations in the UK 43 169 183 186
International Bars - 5 9 14
Total CR Locations Worldwide 43 174 192 200
Regional Development 6 10 4 3
Franchises
Number of outlets as at 1 December 2008
5. Financial Information
Copies of the Annual Report and Accounts and Interim Report are available at the group's head office at Ground Floor, 109-123 Clifton
Street, London, EC2A 4LD and the registered office at 50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ. In addition, copies of the
Interim Report can be downloaded from our website address: www.coffeerepublic.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
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