RNS Number:3264Q
Coffee Republic PLC
30 September 2003
30 September 2003
PRELIMINARY RESULTS
'Restructuring objectives met'
Coffee Republic plc, the independent coffee bar operator, announces its
preliminary results for the year to 30 March 2003.
Key Points
* Estate rationalisation progressing well, with the estate reduced by
more than 30% from 107 to 72 bars today and a final target of 50 core continuing
bars, resulting in a smaller, but healthy and profitable estate.
* The core continuing bar estate delivered an encouraging performance
through the year and trading has remained stable since fiscal year end.
* New 'US style' Deli format exceeding management expectations with
aggregate sales improving by more than 20%, predominantly due to increase in
average spend per customer.
* In order to fund the planned roll-out of the 'US style' Deli format we
are in the advanced stages of raising additional equity finance.
* New Finance Director in place, Simon Drysdale, formerly of Ernst &
Young.
Preliminary Results - Financial
* Sales up 9% to #30.3 million (2002 - #27.8m).
* The 50 core continuing bars generated more than 100% of aggregate bar
cash profit.
* Operating loss before exceptional charges of #3.8 million (2002: loss
of #1.9m).
Commenting, Bobby Hashemi, Chairman, said: "We believe our strategy of evolving
the business towards the food-led Republic Deli concept will fully exploit the
existing 50 bar estate, the customer base and Coffee Republic's brand
recognition and operational infrastructure, which will provide a solid platform
for restoring shareholder value."
Further information
Coffee Republic
Bobby Hashemi / Simon Drysdale 020 7033 0600
Buchanan Communications
Tim Thompson / Nicola Cronk 020 7466 5000
Teather & Greenwood
Jeff Keating/David Galan 020 7426 9000
Chairman's statement
Introduction
The past year has been challenging for Coffee Republic. However, we achieved
important objectives within the restructuring plan outlined in last year's
Annual Report, including the introduction of a more profitable customer
proposition. In addition, the performance of our core estate during the year
has been encouraging in a competitive market. The results for the year to 30
March 2003 cover the full implementation costs of the recovery plan, including
the final one-off restructuring costs and related non-cash asset write downs.
Current trading
The estate has been divided into two groups; a core of 50 continuing bars and
those bars previously identified for disposal. Trading has remained stable
since the fiscal year end with flat like-for-like sales from continuing bars.
Positive same store sales growth from regional bars is offsetting the decline in
London which remains a difficult market.
Final Results
Sales grew by 9% to #30.3 million (2002: #27.8 million) reflecting new bar
openings in the prior year. As reported in December like-for-like sales for the
first half were negative, however, this trend improved in the second half of the
year with continuing bars generating like-for-like sales growth of 4%. During
the second half, out of London regional bars saw positive like-for-like sales of
6% whilst London bars experienced negative like-for-like sales of 1%. As a
result full year like-for-like sales from continuing bars were flat.
The operating loss before exceptional charges was #3.8 million (2002: Loss #1.9
million). The steps taken to restructure the business resulted in one-off costs
of #5.8 million (2002: #5.7 million). These exceptional costs, primarily
relating to non-cash asset write downs, take account of all costs in relation to
rationalising the estate from 82 trading bars at the year end to the target of
50. The loss after exceptional charges was #9.8 million (2002: Loss #7.5
million).
Annual sales from continuing bars were #16.8 million, whilst accounting for 55%
of total sales, these bars generated more than 100% of aggregate bar cash profit
by contributing #2.4 million.
Restructuring
Our estate rationalisation is moving forward on plan. We disposed of 25 bars
during the fiscal year, ending with 82 trading bars. Since then, we have
disposed of a further 10, and currently have 72 bars. Based on our target of 50
core continuing bars, we have 22 disposal bars remaining, 12 of which are under
offer or have been exchanged. This rationalisation program will result in a
smaller, but healthy and profitable, estate.
The rationalisation programme has resulted in significant restructuring costs
being charged to the profit and loss account but has already contributed
substantial ongoing savings. We have also negotiated cost of goods reductions
resulting in a 1.5% improvement in the ongoing gross margin percentage, and
achieved ongoing central head office cost savings of 30%. These actions have
resulted in annualized cash flow improvements in excess of #1.0 million, the
full impact of which will be seen in the current financial year.
Chairman's statement (continued)
Cashflow and Financing
Net cash outflow for the period was #1.0 million (2002: #9.4 million outflow)
including a #0.8 million operating cash outflow from disposal bars resulting in
an increase in net debt from #2.5 million to #3.5 million at the year end.
In order to fund the rollout of the Republic Deli concept, as set out below, we
are in the advanced stages of raising additional equity finance and rescheduling
debt finance. Raising additional funds will enable the Group to continue as a
going concern. The proposed fundraising and shareholder approval have yet to be
completed. Whilst there can be no certainty regarding the outcome of the
fundraising at this time, the Directors consider that additional funds will be
raised in the near future.
Board
I am pleased to announce that Simon Drysdale, formerly of Ernst & Young has
joined the Board as Finance Director, and that Richard Bingham, our previous
interim Finance Director, will continue on our Board as a non-executive
director.
Outlook
Our objective is to complete the estate rationalisation whilst improving
earnings and cash flow from the core continuing bars. Our strategic review
concluded that the core estate is profitable, well located and in good
condition. Moreover, we have high quality, well-trained operational teams
supported by robust infrastructure. This provides an ideal platform to evolve
towards a more food-led proposition to raise average transaction values and
profit per bar.
Since the year-end, we have successfully developed two deli bars following a "
US-style deli" format, offering a range of fresh-made sandwiches and hot food
counter in addition to our strong coffee offer. The first trial, in Baker
Street, London, opened in April 2003, successfully tested the processes and
practices necessary to deliver the new proposition. The second opened in
Exchange Square in the City of London in August under the new Republic Deli
brand name. The results from these delis have exceeded management expectations,
with aggregate sales improving by more than 20% predominately due to increased
average spend per customer.
Republic Deli differentiates itself from the major sandwich brands, which mainly
offer pre-packed "wedge" take-away sandwiches, by focussing on fresh-made and
made-to-order sandwiches, including hot breakfast and lunch offers, in addition
to the Coffee Republic coffee favoured by our customers, for both eat-in or
take-away. Based on our experience to date the strength of this "Eat, Drink, &
Meet" offer that spans across all the day-parts significantly improves average
spend per customer, leading to increased overall sales and profitability. This
is an opportunity to create a consistent and high quality branded offer in the
#3.5 billion UK retail sandwich market, a substantial proportion of which has
been traditionally dominated by locally operated sandwich bars mostly focussed
on take-away trade.
This proposed evolution of our offering will provide the opportunity to roll-out
the Republic Deli brand throughout our estate by refurbishing our core coffee
bars at a fraction of the cost of a new deli which we propose to fund through
the raising of new share capital.
The Board believes its strategy of evolving the business towards the food-led
Republic Deli concept, fully exploits the existing 50 bar estate, customer base
and Coffee Republic brand recognition, and operational infrastructure, providing
a solid platform for restoring shareholder value.
Bobby Hashemi
Chairman
30 September 2003
Consolidated Profit and Loss Account
for the year ended 30 March 2003
Note 2003 2002
#000 #000
Turnover 30,302 27,817
Cost of sales (32,736) (28,873)
Gross loss (2,434) (1,056)
Administrative expenses (1,797) (1,280)
Operating loss before exceptional items (3,854) (1,894)
Exceptional items 2 (377) (442)
Operating loss (4,231) (2,336)
Exceptional items 2 (5,386) (5,254)
- loss on disposal of fixed assets
Loss on ordinary activities (9,617) (7,590)
Interest receivable 8 184
Interest payable and similar charges (211) (81)
Loss on ordinary activities before and after taxation (9,820) (7,487)
Loss per ordinary share:
Basic and Diluted 3 (4.37p) (3.43p)
Loss per ordinary share before exceptional items:
Basic and Diluted 3 (1.80p) (0.82p)
All recognised gains and losses are included in the profit and loss account.
All amounts relate to continuing operations.
Consolidated Balance Sheet
at 30 March 2003
2003 2002
#000 #000 #000 #000
Fixed assets
Intangible assets 205 229
Tangible assets 9,201 18,083
Current assets
Stocks 156 302
Debtors 1,672 2,237
Cash at bank and in hand 102 692
1,930 3,231
Creditors: amounts falling due within one year (4,621) (5,460)
Net current liabilities (2,691) (2,229)
Total assets less current liabilities 6,715 16,083
Creditors: amounts falling due after more than one (2,898) (2,568)
year
Provision for liabilities and charges (1,200) (1,078)
Net assets 2,617 12,437
Capital and reserves
Called up share capital 11,228 11,228
Share premium account 17,799 17,799
Profit and loss account (26,410) (16,590)
Shareholders' funds - equity 2,617 12,437
Consolidated Cashflow Statement
for the year ended 30 March 2003
2003 2002
#000 #000
Net cash outflow from operating activities (2,337) (2,045)
Returns on investments and servicing of finance (203) 147
Capital expenditure 1,522 (7,238)
Acquisition - (225)
Cash outflow before liquid resources and financing (1,018) (9,361)
Management of liquid resources - 6,837
Financing (154) 2,891
(Decrease)/increase in cash in the period (1,172) 367
2003 2002
#000 #000
Reconciliation of net cashflow to movement in net
funds
(Decrease)/increase in cash in the period (1,172) 367
Cash outflow/(inflow) from decrease/(increase) in 154 (2,747)
debt and lease financing
Cash outflow from decrease in liquid resources - (6,837)
Change in net debt arising from cash flow (1,018) (9,217)
Finance lease acquired with subsidiary - (113)
Movement in net funds in the year (1,018) (9,330)
Opening net (debt)/funds (2,503) 6,827
Closing net debt (3,521) (2,503)
1 Basis of Preparation
The preliminary results do not constitute full accounts within the meaning of
section 240 of the Companies Act 1985. The financial information for the year
ended 30 March 2003 is extracted from the Group's financial statements to that
date which received an unqualified auditors' report and will be sent to the
shareholders and filed with the Registrar of Companies.
The results, cash flows and balance sheet incorporate the audited results of
Coffee Republic PLC and all of its subsidiary undertakings made up to 30 March
2003 and have been prepared on a basis consistent with the audited financial
statements for the year ended 31 March 2002.
The financial statements have been prepared on the going concern basis. As
referred to in the Chairman's Statement, the company is in the advanced stages
of raising additional equity finance and rescheduling debt finance in order to
fund the rollout of its deli bar concept across the estate. Raising additional
funds will enable the Group to continue to trade as a going concern. The
proposed fundraising and shareholder approval have yet to be completed. Whilst
there can be no certainty regarding the outcome of the fundraising at this time,
the Directors consider that additional funds will be raised in the near future
and therefore it is appropriate for the accounts to be prepared on a going
concern basis. Accordingly, the financial statements do not include any
adjustments that would result from a withdrawal of facilities by the Group's
bankers or from the failure to raise additional funds.
2 Exceptional items
2003 2002
#000 #000
Operating
Restructuring costs 377 442
The restructuring costs of #377,000 relate to the costs of moving the head
office and include the salary costs of the former Chief Executive. As the
restructuring did not represent a fundamental reorganisation of the Group, these
costs have been charged against operating results.
Non Operating
Loss on disposal of bars less premiums received 5,386 5,254
The loss on disposal of fixed assets comprises #2,902,000 for bars planned for
disposal at the year end, #1,770,000 relating to losses on disposals during the
year and a #714,000 provision for onerous leases and dilapidations.
3 Loss per ordinary share
The basic loss per ordinary share is based on losses after taxation of
#9,820,000 (2002: loss #7,487,000) and a weighted average number of shares in
issue of 224,565,304 (2002: 218,339,870).
The loss per ordinary share, before exceptional items of #5,763,000 (2002:
#5,696,000), is based on losses of #4,057,000 (2002: #1,791,000), and a weighted
average number of shares of 224,565,304 (2002: 218,339,870). This additional
disclosure has been provided as the Directors believe it provides a better
indication of the Groups' performance. There was no difference between basic
and diluted earnings per share in 2003 and 2002.
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