London, Sept. 26 - Coffee Republic chairman Peter Breach told Wednesday's annual general meeting the company has been receiving 75 enquiries a week from potential franchisees.
"It has taken time to build the machinery and culture to process franchise applications at the speed we wished but now, in addition to the seven franchises opened in the U.K. since the financial year end, we have a further 29 franchises in process that we expect to open before the financial year end. This accords with my statement in the published accounts for 2007 and is likely to increase as new franchisees are routinely signing-up.
"We have signed five regional development franchisees in the first six months of the year further adding to our ability to roll out the CR brand quickly and effectively across the U.K. By the end of October a further seven operated outlets will have been transferred to franchisee control leaving nine under company operation.
"Interest from overseas has also been encouraging. Territorial franchise agreements have been signed for Bulgaria, Turkey, Romania, the island of Ireland, UAE, Bahrain, Qatar and Muscat with outlets already operating in the first two of these and a further three outlets expected to open over the next few months.
"Our disappointment, such as it is, has been the time taken to secure good locations within the U.K. and this has delayed the time when we become cash positive. Determining when this occurs is not straightforward because although receipts from the granting of franchises, particularly overseas franchises, can be substantial, these are not received on a regular basis. Even so, the growth in our number of franchises is consistently improving our cash position.
"Royalty receipts, which represent the best quality of our earnings, are building steadily, in line with the growth in number of franchises. These receipts contribute in full towards our published revenues but it is a source of frustration that the non-returnable fees received from the granting of franchise agreements are, under accounting regulations, only credited to published revenues by equal annual instalments over the life of the agreement which may be ten or more years. The effect of this will be to dampen considerably our reported earnings in the early years of our expansion although our cash inflow should be substantial. I shall be sure to keep shareholders informed of the amounts concerned as they are a key indicator of our growth.
"I am particularly pleased to report three significant trials which have taken place. In order of commencement, Greene King PLC, one of Britain's largest pub operators, have installed over 26 'Coffee Republic Served Here' outlets. Also RoadChef Motorways Limited, one of the largest Motorway Service Station operators, has converted their Taunton Southbound Coffee Bar offering to Coffee Republic. Early indications are that these are trading well in line with our expectations. In addition, Cineworld plc, the UK's second largest cinema chain, is now starting to roll out the 'Coffee Republic Served Here' outlets in their multiplexes. Other roll-outs with large operators are under discussion."