Home > Investor Relations > Financial News & Reports > Interim Results

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:Peter Breach, Chairman and Chief Executive Officer	020 7033 0600
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 ended 28 September 2008	For the 6 months ended 23 September 2007	For the year ended 30 March 2008
Net loss attributable to ordinary equity holders	£(527,000)	£(895,000)	£(2,497,000)
Franchise premiums not released to the income statement in the year	£231,000	£345,000	£690,000
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

	Notes	26 weeks to 28 Sept  2008 £’000s		26 weeks to 23 Sept  2007 £’000s		53 Weeks to 25 March 2008 £’000s
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 exceptional items		(450)		(811)		(1,580)
Exceptional items	1.12	-		-		(711)
Operating loss		(450)		(811)		(2,291)
Finance costs		(77)		(84)		(206)
Finance income		-		-		-
Net loss for the period before and after tax		(527)		(895)		(2,497)
Net loss attributable to equity holders of the parent		(527)		(895)		(2,497)
Earnings per share
Basic and diluted	3	(0.08p)		(0.14p)		(0.40p)

UNAUDITED CONSOLIDATED BALANCE SHEET

As at 28 September 2008

		As at 28 Sept   2008 £’000s	As at 23 Sept   2007 £’000s	As at 25 March 2008 £’000s
Assets
Non-current
Goodwill		152	133	152
Property, plant and equipment		1,546	2,536	1,547
Prepaid operating lease expenses		235	293	264
		1,933	2,962	1,963
Current
Inventories		40	63	19
Prepaid operating lease expenses		295	367	321
Trade and other receivables		1,601	926	1,247
Cash and cash equivalents Assets classified as held for sale		- 190	- -	9 190
		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 liabilities		14		14
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 liabilities		35	95	21
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

(all amounts presented in £’000s)	Called up share capital	Share premium account	Share option reserve	Retained losses	Total equity
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 Forfeited			(43)	43
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

NOTES TO THE CONSOLIDATED INTERIM STATEMENTS FOR THE PERIOD ENDED 28 SEPTEMBER 2008

1.     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 ended 28 September 2008	For the 6 months ended 23 September 2007	For the year ended 30 March 2008
Net loss attributable to ordinary equity holders	£(527,000)	£(895,000)	£(2,497,000)
Weighted Average Number of Shares	625,893,569	617,535,949	623,486,780
Net loss attributable to the ordinary equity holders per share – Basic	(0.08)p	(0.14)p	(0.48)p
Restated for Share consolidation (1:60) on 17 October 2008*	(4.8)p	(8.4)p	(28.8)p

* 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 Served Here”	2	109	114	110
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 Franchises	6	10	4	3

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