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I took a look at the Burger Fuel Worldwide [BFW.NZ] profit for the Full Year to 31 March 2009 last week and one of the concerns for me was that the cash position was more than halved over the year to just over NZ$1.5 million.
Chris Mason, Burger Fuel CEO noted in the release in the "BFW Outlook" part of the document that:
The board of directors have advised that the BFW strategy remains consistent with the previous year. The group is focused on three main areas:
1) Continued growth of the total system sales in NZ, by way of increased store sales as well as an increased number of stores. However, the board is mindful of the current economic climate.
2) Continuing to build up trading in both Australian stores to ensure future profitable expansion can ultimately occur in Australia.
3) Negotiating Area Development or Master Franchise agreements in other identified countries to earn royalties and other revenue by licensing the BurgerFuel system.
Given the global and local economic situation, a key focus has been on reducing costs to ensure that the group can preserve cash and eventually reach profitability. In the last six months to 31 March 2009 the company was close to breaking even. Costs will continue to be managed in accordance with board policy, however further losses are expected in the 6 months to 30 September 2009, due to the requirement to support international markets and also continue to expand NZ. Chris Mason, Burger Fuel CEO.
With cost cutting and wise capital management a primary issue for BF management, I thought a few questions to Josef Roberts, a Burger Fuel Executive director, were warranted, concerning the subject of dwindling cash reserves and the possibility that extra capital could be warranted to continue IPO flagged expansion.
I had the following brief email exchange with Josef on the topic of capital raising.
Share Investor Could BF investors learn how the company will expand as cash reserves are half what they were last year and getting very low as of 31/3/09.
Will the company have to borrow or ask for money from shareholders to grow?
Josef Roberts As you aware I am not in a position to answer any questions like that. These are matters for public announcement if and when deemed appropriate by the board of directors.
S.I. That is fair enough but can you tell shareholders what expectations there are for growth given the rapidly dwindling cash position of BFW and therefore the possibility of a halt because of capital restraints?
J.R. Darren – like many company’s right now capital is scarce. We are no different and lack of capital affects growth – that’s for real, however, we have no debt and as you can see by our losses over the last 6 months, we can stem these by reducing investment. We would like more capital – of course we would – and it is certainly on our radar, we always wanted to raise $15M and we know that additional capital would speed up results. However, there are ways we can still grow on less capital and that’s what we are focusing on for now.
S.I. I am sure shareholders wouldn't mind investing more if there was a rights issue or some such capital raising. Now is a good opportunity to expand given cheaper leases and real estate costs.
J.R. You are right for sure – now is the time to invest in expansion. I will be sure to let you know if we decide to look at a capital raise and if this was done at a good price - well maybe we would get the uptake. Anyway - as I say these things are on the radar Darren.
Take it as you may readers but Josef is dead right, his company is in a position that many others are in and that some have faced already.
In my own portfolio for example 4 of my companies have already raised a total of more than $NZ 600 million in new capital and I have participated in 3 of them (1 2 3) to the tune of $7000.00.
Burger Fuel is no different.
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c Share Investor 2009
Burger Fuel Worldwide [BFW.NZ] had their profit for the year to 31 March 2009 out today and I expected a poor performance but on the surface it looks like things are getting better. It is difficult to compare this years result to last years as operations for 2008 are for less than 12 months of operations.
Lets have a look at the results in a bit more detail.
Key Points
1. Revenue for the franchisor up 70% to just over NZ$ 8 million.
2. More than half of franchisor income derived from food & beverage sales of company owned stores.
3. Losses pegged back 67% to just over 700K.
4. Revenue for franchisee & company owned stores up by over 15% to nearly $26 million. (Food and Beverage sales)
5. 3 more stores added to take total to 28.
6. International agreements for 3 territories signed.
7. losses slowing in the last half year.
8. No "material" borrowings.
9. Cash on hand substantially lower from $3.5 million last year to just over $1.5 million.
There is good indication of improved sales and slowing losses at both the franchisor and at store level but it isn't clear as to how much of the slowing losses are due to the logical response of management to cut back on costs due to the global recession. These costs were higher in the last period and would have contributed to the higher losses.
Much of the excitement around the Burger Fuel IPO 2 years ago was in the growth for the company and spectacular growth was needed to achieve good profit for the franchisor. As this appears to have slowed in the last half, expectations would be that this growth and profit are going to be delayed somewhat until economic conditions make growth a good business proposition again. This is pointed out by an executive director of the company Josef Roberts, who has indicated that expansion has been slowed considerably in new territories in the Middle East and in Australia where consolidation and more branding will be done before any more expansion there.
High growth and profit is needed to justify the high capital value that is currently put on the company, in comparison to its profit and future prospects, and shareholders are unlikely to see any concrete sustained profit until economies of scale are reached and unfortunately that means more money being spent on building up the business.
A big worry is that more than half of company revenue is from food and beverage sales from company owned stores, the rest comes from royalties, licensing and franchise fees and advertising charges to franchisees, originally forecast to be the bulk of income for the company during pre-IPO publicity.
With just over $1.5 million of cash at hand, which is substantially lower than for the last comparable period , the company is going to have to either borrow money or go to shareholders when it wants to start expanding again.
Until then they are just marking time.
Please Note
It must be noted that 2009 figures are difficult to accurately compare to last years because the 2008 period was only for 9.5 months and management haven't indicated whether adjustments have been made to reflect that in their own figures -it looks likely not to be the case so the large increases in sales and lower losses must reflect the two different reporting periods. In addition there are many accuracies in comparisons made because of less than two years in business and one off IPO costs other costs and other revenue included previously, making current year results look better than they should at first glance.
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c Share Investor 2009
Listed Franchisor Burger Fuel Worldwide [BFW.NZ] results out yesterday were disappointing for shareholders.
Back in September 2007 directors anticipated NZ$50,000.00 in losses per month but losses of NZ$669,000 in the six months to 30 September 2008 were more than double that figure.
Even more worrying, losses have mounted as 2008 continued. If you strip out 2007 IPO costs the losses for the 9.5 months to 31 March 2008 were $83,578.00 per month. This compares to $111,500.00 per month for this latest reporting period.
Hardly a positive trend.
Lets look at revenue for the company to see if that changes the picture.
Surely if losses are more than double company estimates then revenue should be sharply up when we compare the 30 September 2008 revenue with the previous 3.5 month period in 2007?
Yes it is but sadly not more than double.
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With revenue of $3,518,000 in the six months to 30 September 2008 and $ 2,336,000 for the 6 months to 30 September 2007, it is quite a good lift but hardly the stellar stuff that was shouted from Burger Fuel's advertising pre IPO, because it shows costs have far outstripped income and as I pointed out above these costs appear to be increasing rather than abating.
These revenue figures are based on 4 more stores since listing so this makes income figures look even worse.
Burger Fuel management say the next six months will be about cost containment and they will not anticipate opening any new outlets until well into 2009.
This will clearly be important to stem the franchisors already increasing operating expenses as their franchisees come under pressure from increasing business costs such as labour, ingredients and energy.
Like its bigger listed cousin Restaurant Brands Ltd [RBD.NZ] who had a recent poor last quarter sales, Burger Fuel will continue to struggle in the face of increasing competition, fickle consumer tastes and demands for better service and quality fast food.
Its short company history as a listed vehicle have been wildly disappointing and it looks even further away from any tangible success than it was when it listed mid 2007.
As least there is still their bastard Burger.
Burger Fuel shares were at 38c at close of the NZX at 5.00pm Tuesday 9 December 2008.
c Share Investor 2008
Further to the story about Burger Fuel Worldwide[BFW] signing a master franchise deal with a business in Dubai, I mentioned I was going to ask Josef Roberts, Executive director of the company a couple of questions to flesh out the details of the deal to the market and his investors.
He was very accommodating before the July IPO, granting me an email interview about where the company was going, in some detail.
Here were the questions I put to him yesterday
Hi Josef, I hope you are well.
Interesting announcement today re the Dubai franchise deal. It took me by surprise.
On that note, I wonder if you could inform my readers as to some of the finer points of the deal and some of the reasons why you took the business across the other side of the planet.
Assuming you could answer some questions because the market is speculating.
1: why are you going to develop a new overseas market before establishing the current Australian one?
2: Did the Dubai company approach BF or you them?
3: Are the terms of the master franchise similar to that of individual franchisee agreements in New Zealand?
4: What number of outlets do you see in Dubai?
5: Are customers likely to be locals or expat kiwis/Aussies/Brits etc?
6: How will the BF menu be different in such a unique country?
7: What experience does the Dubai company have being a food franchisor?
8 How is Burger Fuel Worldwide going in terms of revenue created for the Franchise company as a whole and are you on track?
9: How has your experience of your company now differ from what you thought it would be when you initially planned this listed franchising model, have things changed considerably?
10: Is Australia proving difficult to crack, given the amount of competition in Sydney?
11: How has the current credit crises affected your business expansion, if at all, and is the associated economic slow down having any affect on store sales?
12: Finally, where do you see Burger Fuel being in 12 months?
I would appreciate your assistance in informing my readers. There is much google interest on our blog every time you guys have a press release and we have had a handful of Dubai hits today, just as a matter of interest.
Regards, Darren
Josef's answer to my questions
Hello Darren
To paraphrase your own comments about BurgerFuel and me – “Go Figure”.
All the best.
All I can say is it would have been nice to hear some detail about the Dubai deal and where his company might be heading and how it was doing.
My questions were really stimulated by the company and its big leap right across to the other side of the world before being properly established outside New Zealand, in their first overseas market, Australia.
I felt that his investors might like to know the finer points of this move.
As I said above, Josef was very accommodating before the Burger Fuel IPO and I was expecting the same sort of candidness as the company progressed.
I realise his curt response maybe motivated by some of my criticism but after all it is only my opinion and therefore his side of the story would at least balance things.
Nevertheless I still wish him and his company well and hope his lovely burgers(minus the bacon) take off in Dubai.
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c Share Investor 2008
They will be eating Burger Fuel burgers in Dubai soon, thanks to Burger Fuel Worldwide[BFW] management signing a Master franchise agreement with Dubai based Al Khayyat Investment Group Investments LLC - a holding group with diverse business interests ranging from multinational companies, automotive, retail, schooling, leasing and real estate interests.
Related links
Al Khayyat Group
NZX Announcement NBR: Burger Fuel signs franchise deal in Dubai YAHOO:Burger Fuel moves to Dubai
Burgerfuel website
It will be interesting to see the terms of the agreement, presumably it will be similar to the individual franchise agreements operated in New Zealand, Burger Fuel's home. If the Arab franchisees plunck their oil money down and really go for it, then possible investors in Burger Fuel here may get a better picture on how successful the Burger Fuel Franchise operator will fare.
Since the listed company will derive its income from ongoing royalties, currently too small to make any profit on overheads, the development of a larger group of stores will be a good indicator of the company and its long term future.
Personally, I'm still a little skeptical as to why Josef Roberts, executive director of Burger Fuel, and his fellow directors may have leaped so far across the world with their concept before developing it more fully and profitably in Australia.
Two company owned stores in Sydney just isn't a good indicator for future success outside the Australasian market.
I have so many questions about this move I have made a request to Josef ,via email , to flesh out some of the detail of today's announcement. I'm curious as to whether the Dubai company made the first move or if it was Burger Fuel's initiative.
I know there is plenty of interest about this company because every bit of news about Burger Fuel is googled incessantly, this site got alot of BF related traffic today, including a handful from Dubai, possibly kiwi ex pats.
Save for more positive concrete numbers or an indicator that things are improving financially and that the Franchisor business model will work with this type of high end food business, I clearly remain negative on the company when it comes to its present valuation of just under NZ $30 million.
Some questions need to be answered to reassure investors that management are heading in the right direction, given today's surprise announcement.
Hopefully, even though I have been critical of his baby, Josef will return my email. He has been great so far.
Burger Fuel shares were untraded at closing today, which isn't unusual. They last traded April 29 @ 45c.
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c Share Investor 2008
BFW
12/12/2007
HALFYR
REL: 1419 HRS Burger Fuel Worldwide Limited
HALFYR: BFW: Burger Fuel Worldwide Ltd Preliminary Half Year Results
Burger Fuel Worldwide Limited
Results for announcement to the market
Reporting Period 3 and a half months to 30 September 2007
Previous Half-year Reporting Period N/A
Amount (000's) Percentage change
Revenue from ordinary activities 1,400
Profit (loss) from ordinary activities after tax attributable to security
holders (1,355)
Net profit (loss) attributable to security holder (1,355)
Interim/Final Dividend Amount per security Imputed amount
per security
Record Date -
Dividend Payment Date -
Comments: See attached Directors commentary and following
To be followed by the balance of the information required in the report
pursuant to Appendix 1.
BURGERFUEL WORLDWIDE RESULTS TO 30 SEPTEMBER 2007
The directors of BurgerFuel Worldwide Limited (BFW) today reported an
un-audited loss of $1.35 million for the three-and-a-half month period to 30
September 2007, of which $991,000 represented costs associated with the
company's Initial Public Offering (IPO).
Of the remaining loss, the amount of $203,000 related to BFW's investment in
Australia, where the company opened its Kings Cross store on 7 October 2007.
BFW results for period 14 June to 30 September 2007
$(000's)
Operating Revenue 1,400
Operating Expenses * (2,755)
Loss (1,355)
* includes $991,000 of non-recurring costs associated with the IPO.
Directors say the loss is in line with the Boards' expectations after costs
associated with the IPO, as outlined in the company's prospectus.
They say continued losses of $50,000 per month are anticipated, but expect
these will progressively reduce as additional stores are opened.
Four additional BurgerFuel stores have opened since the incorporation of BFW
on June 14, one of which is company-owned. Total stores now number 24, of
which two are in Sydney, Australia. Of the 24 stores two are company owned
and the remaining 22 are franchised.
A further four new BurgerFuel stores are planned to open in this financial
year, at sites currently under negotiation.
BFW has four main areas of revenue: up-front franchise fees, on-going royalty
fees, sales of certain proprietary goods and store income from company-owned
stores.
System sales up 40%
For the 6 month period 1 April to 30 September 2007 (which included
pre-listing trading)
BurgerFuel's total system sales for all stores, from which BFW derived
franchise royalties were up 40% from $7.8 million to $10.9 million compared
with the previous corresponding period. Comparative results for same store
sales for the 6 month period were up 4%.
Following the company's NZAX listing, management has been firmly focused on
new store development and continued sales improvements and that in accordance
with the prospectus, BFW will continue to invest and expand the chain in New
Zealand as well as other potential markets.
To obtain an understanding of the overall consolidated trading results of the
BurgerFuel group of companies pre and post IPO for the 6 month period to 30
September 2007 the results are set out below:
Combined results pre and post IPO for the 6 month period, 1 April to 30
September 2007
($000's)
Revenue 2,336
Expenses * (4,284)
Loss (1,948)
* These results include non-recurring expenses of $1,321,000 for the
IPO.
A further amount of $298,000 relates to the costs associated with entry into
Australia.
BFW was incorporated on June 14, 2007. It raised $8M in its IPO. Funds have
been used for IPO costs, repayment of all loans and further capital
investment, such as the Kings Cross store.
BFW's cash reserves as at 30 September were $3,987,000. The company has no
borrowings.
For further information contact:
Josef Roberts
Director
021 444-786
