26 September 2007
Coffee Republic PLC ('Coffee Republic' or the 'Company')At the AGM of the Company held today, the Chairman made the following statement:
'It has been an action packed year since Steven Bartlett and I were appointed to
your Board at this time last year when I said that we believed strongly in the
franchise concept; our experience since has confirmed that view. I also said
that we knew Coffee Republic was a strong brand and I am pleased to say that
belief has also been confirmed. Since early in 2007 the Company has been
receiving around 75 enquiries a week from potential franchisees and this rate of
interest continues to date.
At the same time we have been improving both the range and quality of our food
offer and also the visual appearance of the outlets improving the ambience and
experience for customers.
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 UK 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 UK. 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.
Last year I told shareholders that we would focus on four key areas:
1. widening the customer base across the UK and overseas;
2. the roll-out of the deli concept;
3. expanding the use of the Coffee Republic Express machine; and
4. promoting the new 'Coffee Republic Served Here' concept.
These concepts, with the exception of the Express machine, have been and are
being well achieved. As regards the 'Express' concept we are in discussions
with a significant coffee vending operator, with a view to launching nationally
with a more sophisticated machine than was previously available.
Our disappointment, such as it is, has been the time taken to secure good
locations within the UK 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.
As reported last year, Steven Bartlett and I said we would obtain our reward by
sharing in the results of our efforts by accepting share incentives and said we
would draw no salary. We have, indeed, drawn no salary to date but it has taken
time to structure a share incentive plan based on a share price of 2.5p as
previously advised which is tax efficient and suitable. Such a proposal is near
finalisation and it is intended to call an EGM for shareholders to approve the
proposals and the waiver of the obligation under rule 9 of the Takeover Code to
require Steven and myself and various parties connected with us to make a
general offer for the Company which would otherwise arise on the implementation
of the proposals.'
Peter J F Breach
Chairman
