3 December 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.