Analysis - Burger Fuel Worldwide: FY profit to 31/03/09

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.


Burger Fuel Worldwide @ Share Investor 


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c Share Investor 2009

Banks not participating in Recession

Bill English wants customers to "take banks to task" a nice attention grabbing headline and politically expedient but as I have found, my bank just isn't listening.

I mused a few months back as to why banks were not participating in the current recession, coming to the party and giving New Zealanders a break, considering taxpayers are now guaranteeing their own banks.

Lets face it, gone are the days when your bank manager knew your name and cared about the service they gave you and it seems even when it counts the most, in dire economic circumstances not seen for 70 years, they simply bury their heads in your money.

My bank's approach to the recession and what effect it might be having on me is to sack its staff, to make we wait longer in a line of other disgruntled sheep, falsely ask me at the counter what will I be doing in the weekend, ask if I want to buy insurance and then continue to punish me 25 bucks a time if I forget to have sufficient funds in my account when an auto payment is due. Its kinda like Robin Hood with a smile, except the taxpayer is paying for the arrows.

Short of forcing banks to play their part, and we don't want that, it seems the only pressure that might work is pressure from every bank customer on their bank manager.

The likelihood of that happening from the average passive Kiwi consumer is less than Lynda Carter coming back and playing the lead role in the new Wonder Woman movie.

It is worth a try though.

*Cartoon from Emmerson


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c Share Investor 2009

Air New Zealand wants another taxpayer bailout

Rob Fyfe has decided that having more than NZ $1 billion of taxpayer money in the Air NZ bank isn't enough.

Proving once again that he is the evil socialist I initially pegged him as he now wants more taxpayer money to subsidise his failing airline, Air New Zealand [AIR.NZ] for "marginal routes."

Jeez Rob, I thought in the real world if something is marginal you simply either cut your costs to regain profitability or if you cant make a decent return simply stop operating.

How bad are things at the national, taxpayer owned carrier then?

Well, the pressure is coming from a number of sides.

Yet another tourist downturn, and these happen frequently for a number of reasons and is why I would rather burn my money than "invest" in an airline, means that bums on seats are down.

This doesn't look like it is going to get better anytime soon. In fact it could get allot worse.

More competition from the likes of Virgin Pacific/Blue and Jetstar mean those margins that Fyfe talks about are getting thinner than the air in a depressurised 747 before a crash landing.

The cost of jet fuel is rising quicker than you can say the Arabs have got me by the family jewels. Every buck of extra cost on aviation fuel means millions off Air New Zealand's bottomline.

To be fair, everyone is being affected by this global pandemic ("swine flu" included) of economic circumstances and every airline is getting it up the tailpipe but having said that, why, with little money left in the taxpayer pocket, should we now be stumping up more borrowed money from China to keep a failing business in the air?

If you are a Air NZ shareholder (apart from the taxpayer) you should be very worried.


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Michael Hill TV3 60 Minutes Interview

I just watched the Michael Hill interview on TV3's 60 Minutes.

I know little about the man but the usual stuff: he bought his first Jewelry shop in the late 1970s when his house burned down. He was 43.

Along the way he wrote down his goals that he would have x number of Michael Hill International [MHI.NZX] stores by a particular date. He has achieved every goal he set in that respect and now has well over 200 stores in New Zealand, Australia, Canada and from late last year the USA.

His future goal is to have 1000 stores by 2020, with the bulk of them being in the United States.

His recipe to get there is to brand himself and his company as "desirable" brand that everyone would want -a tough proposition in these tough times considering that other luxury brands are floundering with sales drops of up to 50%.

The image change has started in Australasia, with flash new stores that sell cut price jewelry as they traditionally have but alongside that higher end bling and Michael Hill branded watches and his own perfume line.

He seems very excited about current economic conditions, seeing it a an opportunity rather than a curse. The opportunity is, as he sees it, is that these dire conditions will allow him to reach his goal of 1000 stores just that much sooner, and cheaper.

I think he is going to get there.




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c Share Investor 2009