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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