London, Dec. 19 - Coffee Republic said Wednesday that for the six months to 23 September pretax losses stood at GBP895,000 versus a previous loss of GBP1,257,000.
Peter Breach, Chairman, commented: "The strategy adopted by the Board over the last year has resulted in a marked improvement in the operational and financial performance although there is still much work to do.
"Coffee Republic has won a contract with Cineworld U.K. to introduce its' 'Coffee Republic Served Here' concept into all its 73 U.K. sites, continuing the growth of brand exposure across the U.K. These concessions are being rolled out from early 2008 and the benefits of this achievement will be seen in next year's financial statements.
"James Cameron Muirhead has been appointes to the board of directors as finance director. James, qualified as a Chartered Accountant with PricewaterhouseCoopers in 1998 and has worked with a number of high growth multi-site, leisure businesses including Novus Leisure Ltd (the operator of the Tiger Tiger nightclub brand) and Esporta Plc (Health Club operator).
"Over the 6 months to 23rd September 2007 the business achieved like for like growth of 4.2% compared with a 1.0% decline in the 6 months to Sep. 24 2006 and 0.8% growth in the 12 months to Mar. 27.
"This is a notable improvement and is a validation of our franchise strategy. New outlets do not have figures for last year and are thus excluded from like for like comparison; comparison figures therefore understate true growth.
"Reported turnover has fallen as Company owned bars are converted to franchise operation because account is taken only of the franchise fee received and not total bar sales. However our operating deficit has reduced by GBP189,000 or 30% to GBP449,000 for the 6 months to Sep. 23, 2007.
"Within this figure there is a charge of GBP70,000 relating to a lease assigned by the Company several years ago where the tenant has failed and Coffee Republic is obliged to pay the defaulting tenant's shortfall. The Company has a new lease on the property and it may be possible to recoup a part of this deficit but prudence demands we recognise this potential cost fully in these interim statements.
"Administrative expenses (when adjusted for exceptional items) have grown year on year by GBP114,000 or 46%. The reason for this increase is that prospects for new business have exceeded expectation and a decision had to be made whether to increase the cost base to service this increased business or to control costs and grow at a slower rate. It was decided to accommodate a higher level of business at a higher, but limited, cost. Amongst these costs is expenditure on various trials (including for example Cineworld) and the employment of a Head of International Development.
"Even with these increased costs we have reduced the overall loss for the six months by GBP362,000 to GBP895,000 which is 29% down when compared to the 6 months to Sep. 24, 2006. I hope you will agree with your Board that this is acceptable in view of growth for which we are preparing.
"As may be seen progress in opening bars has been considerable and given our opening programme in December we are expecting to achieve 100 outlets by the end of this calendar year and we are on track to have 80 bars (franchise and Company owned) at the end of this financial year.
"Thirteen new regional development franchises (RDFs) have been signed bringing the total to nineteen. These RDFs have driven the growth of the business in the U.K. and, with this growth now under way, it has been decided to pause and review policy for future rollout.
Eight International Master Franchisees have been finalised and opening of international bars should be accelerating over the next year. I find this aspect of Coffee Republics' expansion particularly exciting and, having recently returned from the Asia Franchise Show in Delhi, I continue to be encouraged at the power of our Brand internationally.
"Despite the modest size of our Company I believe the potential for growth in certain Asian markets may, assuming global economic and political stability, soon exceed that of European and American markets. No one should underestimate the competence and motivation prevalent in territories in the Eastern Hemisphere where, it may be noted, economic expansion does not suffer from the high level of regulation which applies in the West. Your Company intends to engage in, and benefit from, these Asian markets.
"The issue of ordinary shares earlier this year raised GBP1,314,000 for the Company. This allowed the bank loan to be reduced by GBP500,000 and the overdraft facility was reduced from GBP750,000 to GBP500,000 at the current date.
"The rate at which new stores are being opened brings the Company closer to a cash flow positive position.
"Although we continue to show negative net equity the deficit has been reduced by GBP460,000 since March. As I have previously said this does not take into account the value of the brand or the value of tax losses carried forward and we have yet to recognise over GBP800,000 of cash receivable from RDF or IMF agreements at the interim date.
"Despite the negative asset position the directors consider that is appropriate for the accounts to be prepared on a going concern basis given the rapid rate at which new bars are opening, the strength of the franchisee pipeline, the improvement in the net asset position since March and the continued support of the Group's bank", Breach.