Monday, June 14, 2010

Burger Fuel 2010 Full Year Profit Analysis

I pointed out last week that Burger Fuel Worldwide [BFW.NZ] 2010 full year profit should be better than the 2009 result because of the surge in the growth of the fast food sector over the last couple of years and they have done better, with a narrower loss of just over half a million.

The vast bulk of revenue for this franchising company still comes via direct sales from company owned stores rather than royalties from franchisees but these royalties should rise as the company expands in the Middle East where it has done exceptionally well.

In New Zealand same stores sales for franchisee/company owned stores increased by just over 5%. When a new store in Mission Bay is included this increase amounts to over 12%. A good result but on a par with the likes of Restaurant Brands Ltd [RBD.NZ] which increased sales in the 2010 year by just under 5% (see 2010 Annual report for details)

No stores were opened in New Zealand during 2010 and it appears saturation point may have been reached with 27 stores a reasonable number given the size of the premium end of the fast food market that BFW operates in.

A big worry for Burger Fuel management will be its two beach-head stores in Sydney, Australia one of which is situated in Kings Cross.

There was much fanfare about the Kings Cross store being a hugely visible entry into OZ, with big expansion plans, with an emphasis by management on the marketing possibilities that the high exposure site had for foreign visitors to the "Cross" spreading the Burger Fuel word on a global scale.

Well that hasn't happened and as I pointed out in 2007 the store operating costs would be a huge burden on sustainable profitability and that, unfortunately, has turned out to be the case.

Looking at the 2011 year the company is set to grow in the Middle East but just get by in New Zealand.

Australia will be a big burden on such a small company and management will need to focus on costs or consider picking up sticks across the ditch. There is more and slicker competition in the gourmet burger business in Sydney than back on home turf.

Expansion of the company will be further hamstrung by its ever decreasing cash in the bank and as management have said they are relying on expansion of units rather than same store sales to get to profitability.

Shareholders can only hope.


Key Points from BFW 2010 Full Year

1. $552,983 loss - 22% better than last year.

2. $8,722,000 up 17% on 2009

3. Cash reserves down 25% to 1,159,000

4. Earnings per share -1.04c VS -$1.34 last year

5. 2 new stores in Dubai & Saudi Arabia doing well.

6. Australia failing to fire and with significant overheads mounting.

7. 210,000 shares issued to directors during the year.


Burger Fuel Worldwide @ Share Investor

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