RNS Number:0431I
Caffe Nero Group PLC
27 February 2003
CAFFE NERO GROUP PLC
Interim Results for the Six Months to 30 November 2002
Caffe Nero Group plc, the leading independent UK coffee house operator of 111
stores which has been voted the top rated brand by consumers for the last three
consecutive years, announces interim results for the six months to 30 November
2002.
HIGHLIGHTS
* Turnover up 70% to #19.2m (2001: #11.3m)
* Store profit increased 85% to #3.46m (2001: #1.9m)
* EBITDA rose 486% to #1.9m (2001: #325k)
* Group moved into profit reporting a pre-tax profit* of #450k (2001:
pre-tax loss of #578k)
* Positive like-for-like sales of 3.0%
* Consolidated position as one of the three largest UK coffee groups with
111 stores in 38 UK towns and cities
* Successfully integrated Aroma stores resulting in strong profitability
(over #1m expected annually) and revenue up 10% post conversion
* Cash balances of #5m at the half year end with a further #5m of banking
facilities available for expansion
* 4 new stores have opened since the half year end, including a further
partnership venture with Easyinternet cafe (Glasgow); 3 new openings per
month planned for the remainder of the current year
* Encouraging start to the second half with like for like sales up 5.5%
during the initial weeks of trading
* Pre-amortisation & Exceptionals
Gerry Ford, Chairman of Caffe Nero Group plc, commented:
"This is an outstanding performance against a backdrop of difficult trading
conditions and we are particularly delighted that the Group has achieved pre-tax
profitability earlier than anticipated. Clearly, the Caffe Nero business model
is starting to deliver promising results.
"The coffee bar market continues to grow in the UK and trading in the third
quarter has got off to an encouraging start. The Directors remain confident
that Caffe Nero is well placed to continue to gain market share in this fast
growing sector."
27 February 2003
ENQUIRIES:
Caffe Nero Group Plc Tel: 020 7457 2020 (Today)
Gerry Ford Tel: 020 7520 5150 (Thereafter)
College Hill Tel: 020 7457 2020
Justine Warren
Crawford Burden
CHAIRMAN'S STATEMENT
Introduction
Caffe Nero Group Plc ("Caffe Nero") had a very strong and encouraging first half
of the year (June-Nov 2002); and I am particularly pleased because this was
achieved against a backdrop of difficult trading conditions for many UK
retailers and most restaurateurs. Our revenue growth was substantial, our
same-store increases were higher than the average on the high street, and our
increases in profit were significant. Most importantly we turned pre-tax
profitable for the first time.
Clearly the Caffe Nero business model is starting to deliver promising results.
Financial Performance
Caffe Nero's revenue performance for the first half was very strong. In the six
months to 30 November 2002, revenue was #19.2m (2001: #11.3m), an increase of
70% over the first-half of 2001.
Like-for-like store sales rose by 3%, while turnover from the integrated Aroma
stores surged by 10%.
Store Profit grew by 85% to #3.46m (2001: #1.9m), or 18% of sales. Overheads
reduced by more than 2% of sales. Consequently, Caffe Nero had a sharp increase
in cash profit (EBITDA), which rose by 486% to #1.9m (2001: #325k) for the first
half.
The period under review also marks a watershed for Caffe Nero: the Company
turned Profit Before Tax (PBT) positive. The pre-tax profit, before
amortisation of goodwill and exceptionals, rose significantly to a profit of
#450k (2001: a loss of #578k) and was ahead of expectations, turning positive
six months ahead of market forecast. Pre-tax profit, post-amortisation of
goodwill, was also positive at #155k (2001: a loss of #760k), recording another
significant movement forward for the Company.
Cash balances and funding
Caffe Nero changed banks in July 2002 moving to Bank of Scotland (HBOS). This
new relationship combined with Caffe Nero's own internal cash generation gives
the Company access to considerable funds for expansion.
Caffe Nero's cash position at the half-year was healthy, with approximately #5m
in cash and another #5m available via bank facility. Net debt stood at #6m
(conservative when compared to a market forecast of #3.5m in annual cash profit
- EBITDA).
The Company does not anticipate requiring any further funds in the second half
of the year, despite its ambitious expansion programme.
Stores
Caffe Nero is rapidly becoming a national brand, with approximately half of its
sites outside London. The Company currently has 111 stores in 38 different UK
towns and cities. In the first half, Caffe Nero temporarily slowed its new
store openings during discussions over the potential acquisition of Coffee
Republic (CR). But after concluding that a price could not be agreed with the
CR board, Caffe Nero has resumed its roll-out programme and is now pushing
forward with further national expansion.
Current Trading & Future Prospects
Trading in December, January and February has been stronger than in the first
half. Like-for-like store sales in the second half have been growing by 5.5%,
as Caffe Nero continues to perform well on the high street.
Not only is our current trading pattern encouraging, but we believe it is a good
time to expand. Rents are softening, site availability is opening up and we are
inundated with exciting potential new locations. As a consequence, we are
aggressively pursuing our expansion programme. In recent weeks, we have opened
two stores in London, both profitable in the first week of operation, as well as
having promising starts in Southport and Glasgow, the latter in partnership with
Easyinternet cafe. Further openings are expected in London, Glasgow Airport,
Edinburgh and Ipswich in the next month, and we anticipate opening approximately
three cafes per month throughout our second half.
Summary
In the face of general retail pessimism, Caffe Nero's future looks bright for at
least three reasons:
1. The Caffe Nero brand remains strong - for three years running it is been the
top rated coffee house brand by UK consumers (see Allegra Research Reports).
2. Our business model is coming through. We have already become PBT positive,
and profits from new stores are now immediately dropping down to the bottom
line.
3. Growth prospects for the retail coffee sector are very good as demand
continues to expand. Furthermore, rents are softening and sites are
plentiful, especially outside the M25.
Gerry Ford
Chairman & Chief Executive
27 February 2003
* Allegra Research Reports. Allegra Strategies Ltd is an independent consumer
research firm which has published several comprehensive studies of the UK Coffee
Bar market.
Caffe Nero Group Plc
Group Profit & Loss Account for the six months ended 30 November 2002
Six Months Year Ended 31 Six Months
Ended 30 May Ended 30
November 2002 2002 November 2001
Notes
Total
#'000 #'000 #'000
(unaudited) (audited) (unaudited)
Turnover 19,222 26,581 11,336
Cost of Sales (15,766) (22,451) (9,466)
Gross Profit 3,456 4,130 1,870
Administrative Expenses before depreciation, amortisation and (1,570) (3,022) (1,545)
exceptional items
EBITDA Profit 1,886 1,108 325
Administrative Expenses - Depreciation and impairment (1,159) (1,906) (816)
provision
Operating Profit /(Loss) after Depreciation but before 727 (798) (491)
amortisation and exceptional items
Administrative Expenses - Amortisation (248) (386) (182)
Administrative Expenses - Exceptional Items - (1,103) -
Total Administrative Expenses (2,977) (6,417) (2,543)
Operating Profit / (Loss) (after depreciation, amortisation 479 (2,287) (673)
and exceptional items)
Bank Interest Receivable 55 133 109
Interest Payable and Similar Charges
- Interest Payable (332) (452) (196)
- Exceptional item: release of issue costs and other 4 (47) (71) -
fees of debt restructuring
(379) (523) (196)
Profit / (Loss) on Ordinary Activities before exceptionals & 202 (1,503) (760)
taxation
Profit / (Loss) on ordinary activities before taxation 155 (2,677) (760)
Tax on loss on ordinary activities - - -
Profit / (Loss) for the Financial Period 155 (2,677) (760)
Earnings / (Loss) per Share - basic (pence) 2 0.23p (3.96p) (1.12p)
Earnings / (Loss) per Share - diluted (pence) 2 0.23p (3.96p) (1.12p)
There are no recognised gains or losses other than as shown above
Group Balance Sheet
At 30 November 2002
At 30 November At 31 May 2002 At 30 November
2002 2001
# # #
(unaudited) (audited) (unaudited)
#'000 #'000 #'000
Fixed assets
Intangible assets 3,468 3,716 1,273
Tangible assets 14,662 14,900 13,275
Investments 849 - -
18,979 18,616 14,548
Current assets
Stocks 289 298 203
Debtors 1,515 1,736 733
Cash at bank and in hand 4,969 4,113 3,845
6,773 6,147 4,781
Creditors: amounts falling due within one year 6,600 11,309 6,110
Net current assets/(liabilities) 173 (5,162) (1,329)
Total assets less current liabilities 19,152 13,454 13,219
Creditors: amounts falling due after more than one year 10,817 4,972 3,578
Provisions For Liabilities and Charges 451 758 -
7,884 7,724 9,641
Capital and reserves
Called up share capital 341 338 338
Share premium 9,390 9,388 9,388
Other reserve 6,249 6,249 6,249
Profit and loss account (8,096) (8,251) (6,334)
Shareholders' funds: Equity 7,884 7,724 9,641
Group Statement of Cash Flows
For the six months ended 30 November 2002
Six months ended Year ended 31 Six months ended
30 November 2002 May 2002 30 November 2001
#'000 #'000 #'000
(unaudited) (audited) (unaudited)
Net cash inflow from operating activities 1,453 2,413 891
Returns on investments and servicing of finance
Interest received 55 133 109
Interest paid (302) (443) (189)
Issue costs of new long-term loans (133) (93) -
(380) (403) (80)
Capital expenditure and financial investment
Payments to acquire tangible fixed assets (1,337) (6,152) (3,394)
Payments to acquire Coffee Republic Shares (849) - -
(2,186) (6,152) (3,394)
Acquisitions & Disposals
Purchase of the Business of Aroma Limited (118) (755) -
Net Overdraft acquired with Aroma Limited - (1,785) -
(118) (2,540)
Net cash outflow before financing (1,231) (6,682) (2,583)
Financing
Issue of ordinary share capital - 2 2
Share issue costs - (224) (224)
New long-term loans 11,200 4,500 -
Repayment of long-term loans (9,113) (452) (320)
2,087 3,826 (542)
(Decrease) / increase in cash 856 (2,856) (3,125)
Group Statement of Cash Flows (cont.)
For the six months ended 30 November 2001
Reconciliation of net cash flow to movement in net (debt) / funds
Six months ended Year ended 31 Six months ended
30 November 2002 May 2002 30 November 2001
#'000 #'000 #'000
(unaudited) (audited) (unaudited)
(Decrease) / increase in cash 856 (2,856) (3,125)
Cash inflow from increase in loans (11,200) (4,500) -
Repayment of loans 9,113 452 321
Issue costs of long-term loans 133 93 -
Change in net (debt) / funds resulting from cash flows (1,098) (6,811) (2,804)
Other non-cash movements (50) (135) (6)
Movement in net (debt) / funds (1,148) (6,946) (2,810)
At beginning of the period (4,950) 1,996 1,996
At end of the period (6,098) (4,950) (814)
Reconciliation of operating profit / (loss) to net cash inflow from operating
activities:
Six months ended Year ended 31 Six months ended
30 November 2002 May 2002 30 November 2001
#'000 #'000 #'000
(unaudited) (audited) (unaudited)
Operating Profit/(loss) 479 (2,287) (673)
Amortisation 248 386 182
Depreciation 1,159 1,828 816
Impairment Provision - 78 -
Exceptional - write off of fixed assets of Aroma Limited - 265 -
Decrease / (Increase) in stocks 9 (131) (36)
Increase in operating debtors and prepayments (210) (862) (321)
Increase in operating creditors and accruals 75 2,445 923
(Decrease )/ Increase in provisions for liabilities and charges (307) 758 -
Other non-cash movements - (67) -
1,453 2,413 891
Notes to the Interim Financial Report
1. The un-audited interim financial information has been prepared on the basis
of the accounting policies set out in the Group's financial statements for the
year ended 31 May 2002.
2. The basic loss per ordinary share for the six months ended 30 November 2002
is based upon a profit before taxation of #155k (30 November 2001: loss of
#760k) and the weighted average number of ordinary shares in issue of
68,110,775 (30 November 2001: 67,562,442).
For the six months ended 30 November 2002, the diluted earnings per share is
based on 68,192,075 ordinary shares , which is calculated by including the
weighted average number of shares 81,300 relating to potential dilution from
share options.
For the six months ended 30 November 2001 and the year ended 31 May 2002, the
loss attributable to ordinary shareholders and the weighted average number of
ordinary shares for the purpose of calculating the diluted loss per ordinary
share are identical to those used for the basic loss per ordinary share. This
is because the exercise of share options and the dilutive effect of convertible
loan notes would have no effect of reducing the loss per ordinary share and is
therefore not dilutive under the terms of FRS 14.
3. The financial information herein does not constitute statutory accounts as
defined in Section 240 of the Companies Act 1985. The financial information for
the year ended 31 May 2002 is based on the statutory accounts for that year.
Those accounts, upon which the auditors issued an unqualified opinion, have been
delivered to the Registrar of Companies.
4. Exceptional costs of #47k relate to the release of issue costs and other
fees on the restructuring of the debt facility from Natwest to the Bank of
Scotland.
Report of the auditors to Caffe Nero Group Plc.
We have been instructed by the company to review the financial information for
the six months ended 30 November 2002 which comprises the group Profit and Loss
account, the group Balance Sheet, the group Cash Flow statement, and the group
statement of total recognised gains and losses and related notes 1 to 3. We
have read the other information contained in the interim report and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.
This report is made solely to the company in accordance with guidance contained
in Bulletin 1999/4 'Review of interim financial information' issued by the
Auditing Practices Board. To the fullest extent required by the law, we do not
accept or assume responsibility to anyone other than the company, for our work,
for this report, or for the conclusions we have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors
are responsible for preparing the Interim Report in accordance with the listing
rules of the Financial Services Authority which requires that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied to the preceding annual accounts except where any changes,
and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
"Review of Interim Financial Information" issued by the Auditing Practices Board
for use in the United Kingdom. A review consists principally of making
enquiries of group management and applying analytical procedures to the
financial information and underlying financial data and based thereon, assessing
whether the accounting policies and presentation have been consistently applied
unless otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with Auditing
Standards and therefore provides a lower level of assurance than an audit.
Accordingly we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 November 2002.
Ernst & Young LLP
London
26 February 2003
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