Interim Results
Cooks Coffee Company Limited
30 November 2023
Cooks Coffee Company Limited
("Cooks Coffee", or the "Company" or the "Group")
Interim Results
Cooks Coffee Company (NZX:CCC; AQUIS:COOK), the international coffee focused café chain, is pleased to announce its interim results for the six months ended 30 September 2023.
Period Highlights
Store sales in the UK increased by 22% to NZ$17.8m compared to last year and by 58% compared to 2019 pre Covid trading as the development in suburban areas and smaller market towns rather than the larger cities gained further momentum.
Store sales in Ireland increased 12% to $9.9m. Sales were impacted by a devastating fire in the Longford store in September 2022. The store will fully re-open in early 2024 and in the interim the store operates from a temporary site that was opened six weeks after the fire.
Profit from continuing operations for UK & Ireland at $0.8m were up 40% on H1 FY23 of $0.6m.
Net positive cash generation provided from operating activities of $0.3m for the six months compared to a cash outflow from operating activities of $0.5m for the same period last year.
Post Period Events
Pipeline of store openings robust and underpinned by strong consumer demand
The Company has entered into an agreement to establish a Regional Developer ("RD") in the UK for the Southwest, South Wales & West Midlands. The RD will focus on store growth and build on the success of this model in the Southeast, London, East England & East Midlands regions, which has proved very successful to date.
Further discussions are underway to secure agreements for the remaining regions, and we are confident of securing suitable partners before the end of the financial year.
New store locations have focused on suburban areas and market towns where the ongoing impact of the permanent post Covid changes in consumer behaviour have led to positive store performance.
The Company appointed RSM UK Restructuring Advisory LLP as liquidators to its Triple Two coffee franchise business, comprising Triple Two Holdings Limited and its subsidiaries. The Esquires business is not affected by the Triple Two process however the company has fully impaired the investment in the September group accounts.
Chairman's Statement
We are delighted by the strong trading performance in the first half with store revenues up in the core markets of UK & Ireland up 18% compared to last year and overall store numbers at the end of September 2023 were 68 (not including Triple Two), a net gain of six stores (10% for the 6 months).
The Directors believe the prospects for the business for the remainder of the financial year and beyond are strong. The Company is committed to building the business based on ethical principles and community values. Store sales trends have been very positive in recent times, with the Company benefiting from the 'working from home' trend, which we are confident will remain in one form or another as a permanent change in consumer behaviour in the post Covid environment. There is a solid pipeline of new stores in both core markets of UK & Ireland that will build upon the growth for FY24 to date. As a result, the Board is confident about the prospects of the business.
Overall store numbers at the end of September 2023 were 94, a net gain of six stores during the six-month period, with the number of stores in the UK and Ireland growing to 68 and the total of 26 stores in the franchised regions outside of the UK and Ireland remaining unchanged.
The Company added seven outlets and closed one to the franchised network in the UK and Ireland during the period. The number of stores is expected to grow in the second half of the year, with eight store openings planned in the UK and two in Ireland which we anticipate will take the store numbers to 78 in the UK and Ireland by the end of March 2023 with the total store numbers expected to reach 105 across the system internationally.
The positive operating cash flow of $0.330m compared to an operating cash outflow of $0.484m in the same period last year confirms the positive direction of travel for the Company.
Business Performance
Esquires United Kingdom
UK store numbers were 53 at the end of September 2023, up from 49 as of 31 March 2023. Sales from the Esquires outlets for the six months were up 58% on the pre covid period from April to September 2019 and up 22% on the same period in FY23. Record sales per store have been recorded in September and again, post period end, in October.
The average store sales for the first six months rose 16% compared to FY23 and 25% compared to FY20 as the strategy of enhancing store locations is being implemented.
With a new Regional Developer joining the group after acquiring the Franchise rights to the Southwest, South Wales & West Midlands, the company expects the rate of store sales growth to accelerate.
The UK branded café market as of January 2023 is reported by Allegra to have 9,885 stores and is projected to grow at 3.4% CAGR to 2028 when the numbers are branded stores are estimated to be 11,696. The Esquires current share of stores is 0.5% and the company is planning to grow this to at least 1.0% by 2028.
Esquires Ireland
Store sales in Ireland for the period were up 12% compared to 2022. The excellent Longford café suffered a devastating fire in September 2022. The building and café were destroyed but are being rebuilt and are planned to reopen in early 2024. However, in the short term, the franchisees and staff after just six weeks established a temporary outlet on the site and leased a vacant warehouse to enable seating for customers to continue to be served during the rebuilding phase.
Two new stores opened during the period, with 15 trading stores operating at the end of September 2023. During the period the Irish company achieved its record sales week in August and growth in the second quarter (July to September) averaged 14% compared to 4% for the first quarter of FY24.
Our Galway store was nominated for inclusion in the Top 10 best breakfasts in Ireland and it has received a further accolade by recently being awarded the number three spot in the 'Top 10 coffee spots in Ireland'. In addition, the Company is proud of the fact that the Galway store, for the last seven years, has also been the number one for cafes on Trip Advisor for best loved coffee shop in Galway.
The Irish branded café market is reported by Allegra to have 680 as at March 2023 stores and is projected to grow at 3.9% CAGR to 2028 when the numbers are branded stores are estimated to be 821. The Esquires current share of stores is 2.2% and the company is confident of increasing this in the future.
International
A recent Allegra Project Café Middle East report concluded that the Saudi Arabian coffee shop market was driving wider Middle East growth and that Saudi Arabia had invested heavily in coffee production, developing local brands, and encouraging foreign investment to elevate international out-of-home coffee culture. The country has added 556 outlets in the last year to reach 3,556 in total, representing growth of 18.5% over the period.
Consumers are becoming more knowledgeable and more willing to embrace the specialty coffee experience and are highly receptive to out-of-home Western coffee concepts. Optimism across the Middle East for the future of the branded coffee shop market is high, with long-term growth anticipated. Allegra predicts the total Middle Eastern branded coffee shop industry will grow at 5.9% CAGR for the period to 2027.
The Company is well positioned via our Middle Eastern Master Franchise partners in Saudi Arabia, Bahrain, Kuwait & Jordan to share in this projected growth.
In Pakistan the Esquires business is growing under a new Master Franchisee with store sales for the 6 months to September at double the levels of 12 months ago.
ESG
The Company's contract coffee roastery is believed to be the first roastery in the world to be certified carbon neutral and has achieved the carbon neutral Gold Standard.
The Company's coffee is 100% Fairtrade and organic.
Eco friendly thermal mugs & Keep Cups on sale with reduction in menu pricing when refilling.
100% recyclable disposable take out cups, paper bags and serviettes.
Still water introduction of paper-based bottles to replace plastic.
Bio Ferma plant-based cleaning products with a view to replacing toxic chemicals.
Biodegradable paper-based straws to replace plastic.
Wooden cutlery and paper-based plates to replace plastic in certain locations.
Digital menu screens to save on having to change paper-based menus.
The Company's Directors and management appreciate the importance of environmental issues and the way its business can contribute to reducing its carbon footprint. As a result, it will continue to prioritise its environmental focus highlighted by the Company's contract coffee roastery believed to be the first roastery in the world to be certified carbon neutral and has achieved the carbon neutral Gold Standard.
Esquires is committed to maintaining its premier coffee quality status and is at the forefront of technology adoption to enhance the quality of its drinks. To achieve this, Esquires is installing the BIBE Coffee IoT devices inside the coffee machines across its network. These world leading devices pair with the coffee machines, connect to the Cloud in order and provide analytics on the quality of each coffee cup. This enables the Company and franchisees to standardise the quality of espresso beverages, reduce coffee waste and streamline coffee machine maintenance.
Furthermore, to better recognise the importance of loyalty and repeat custom Esquires has developed and recently introduced an APP and loyalty scheme which has received very encouraging customer responses.
Corporate - Transition to UK
The Company is continuing its planned transition to relocate the business to the UK where most of the business operates. This will enable efficient working practices and focus the business on its growth strategy in the UK and Ireland.
Triple Two
The Triple Two business, which consisted of 11 operating franchised stores at the end of September 2023, was placed into voluntary administration on 23 October 2023. The growth potential of this business was evident prior to the Covid pandemic; however, this could not be maintained and it was unable to recover from the store closures and changing market dynamic that followed. The resulting market conditions did not assist the Triple Two business model because of the very different trading environment. Whilst growth had been evident in the first half of FY23 the factors referred to above led to store closures in the second half and reduced overall sales. The Directors were left with no option than to place this business into voluntary administration to protect the position of the Cooks Coffee business.
As a result of this action the company fully impaired the Triple Two investment of $4.8m and this has led to reporting a negative equity position for the group of $3.6m at the end of September 2023. The investment into Triple Two was made in shares issued in June 2020. Directors note that the remaining write down as per above was in addition to the impairment of Goodwill reported in the March 2023 full year report of $2.5m.
In accordance with the above, under IFRS5 the Triple Two subsidiaries have been included under discontinued operations in September 2023 and the September 2022 results have been restated accordingly. The Group results have been consolidated Under IFRS10 which means that the Triple Two entities have not been included as at 30 September 2023 due to loss of control on 29th September 2023.
The Directors recognise that the full impairment of the Triple Two investment has resulted in the balance sheet showing a negative equity position. The company is confident that the operational profit and cash generation projections for the balance of FY24 and into FY25 and beyond that will build on the positive cash generation in the 6 months to September 2023 will provide adequate cash for the company as it continues its growth based on the core Esquires businesses in UK & Ireland that both have more than 20 years of experience in the markets.
Summary and Outlook
The Directors believe the prospects for the business in the balance of the financial year and beyond are strong. The Company is committed to building the business based on ethical principles and community values. Store sales trends have been very positive in recent times, with the Company benefiting from the 'working from home' trend, which we are confident will remain in one form or another as a permanent change in consumer behaviour in the post covid environment. There is a solid pipeline of new stores in both core markets of UK & Ireland.
Esquires UK achieved record daily sales per store in October 2023 and following a strong performance in the first six months, the Directors are confident that the business models are well suited to the current consumer market and these positive results are being achieved despite the concerns being expressed regarding the general economic outlook. The expansion of the successful Regional Development model will assist in accelerating growth in the network.
The Cooks Coffee model is based on a locally focused franchised network and is very scalable in a capital light manner. With the focus on core markets, we believe that we have critical mass with an ability to grow rapidly in an exciting growth market.
In Ireland the Longford store will reopen in the early part of 2024 and there is a solid pipeline of new store opportunities despite the cost of funding.
The Company expects to have up to 80 Esquires outlets operating in UK & Ireland by the end of March 2024 with more than 100 operating in total internationally and is confident of the growth potential for all markets in the future.
Keith Jackson
Executive Chairman
Note: The Company's reporting currency is New Zealand Dollars ("$")
Enquiries:
Cooks Coffee Company Limited
+64 21 702 509 (New Zealand)
+44 (0) 20 3934 6630 (UK)
Keith Jackson (Executive Chairman)
keith.jackson@cookscoffeecompany.com
ukinvestorrelations@cookscoffeecompany.com
IFC Advisory Limited (Financial PR & IR)
+44 (0) 20 3934 6630
Tim Metcalfe, Graham Herring, Florence Chandler
cookscoffee@investor-focus.co.uk
Oberon Capital
+44 (0) 20 3179 5300
Nick Lovering, Adam Pollock, Mike Seabrook
Please check the attached statement HERE