Burger Fuel 2010 Full Year Profit Preview

Burger Fuel Worldwide [BFW.NZ] should be releasing its 2010 full year results soon, if not this week and BFW investors and the market as a whole will be looking for a vast improvement on the 2009 result.

A $700,000.00 loss on revenue of $8 million for last year should be pared back markedly given the fortunes of other fast food companies operating in New Zealand. McDonalds, Restaurant Brands Ltd [RBD.NZ], Subway and a whole host of other quick service restaurant icons have done well during the current recession as consumers have moved downmarket from eating out at more expensive food offers as wallets and budgets have been squeezed.

Look though for an impact on the bottomline because of expansion costs in the Middle East and a subsequent evaporation of cash in the bank as a result.

More capital could be needed for any further significant expansion and the 2007 prospectus indicated that most of the growth would come from growing store numbers rather than sales per unit.

BFW gets its revenue from a percentage cut (around 8%) of sales per store and on current form the company would need to at least double revenue from the current $8 million to start making a decent profit in the low seven figure range.

That sort of result depends on opening more stores and that means more capital needed to expand, even though it is a franchisee/franchisor model.

The company is coming up to its 3 year anniversary of being listed on the NZAX board and has yet to turn a profit or show any of the overwhelmingly positive promise for results that management shouted from the rooftops pre IPO.

The 2010 result will show us whether the company is closer to achieving that and it will give investors an opportunity to compare 3 years of financials to help get a more accurate view as to whether BFW is moving in that direction or in fact has the potential to do that sometime in the future.

BFW shares are currently priced at 39c and are rarely traded.


Footnote  BFW are releasing their 2010 full year results Monday 14 June.



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c Share Investor 2010

Michael Hill Downsizes USA Operation

I had an uneasy feeling about Michael Hill International [MHI.NZ] moving into the United States in 2008. Not because of the move to the USA but the price paid for the distressed assets that they bought to get a foothold there.

From my piece at the end of 2008:

"I'm worried because this type of expansion activity veers slightly away from the tried and tested way that the company entered Australia then Canada.

The company set up a handful of stores when they entered their two overseas markets just to test the water".

It has been announced this morning that MHI are closing 8 of the 17 stores they bought from Whitehall Jewelers Holdings to consolidate and grow from this position:

"After a full review of the business, including results achieved to date as well as operational and real estate issues, the company has made the decision to consolidate to a smaller platform of 9 stores, all of which are within the greater Chicago area. These stores will immediately be refurbished to bring all of them up to the company's latest global concept. This group of stores will then give the company the best possible platform and opportunity to position the brand in the US. The remaining 8 stores will be closed at the end of June 2010 with exit terms having been negotiated with the various landlords." Michael Hill Business Review 8/6/10

To be sure MHI bought the stores at a time when retailing in the US was a dead dog and it hasn't improved much since then but the company made a mistake getting into the US so soon and even Michael Hill himself said in a June 2009 interview that he had tripped up in his quest to expand.

A mistake made but good to see the company making a decision to quit and Hill fronting up.

I still feel uneasy about the US and Canadian businesses in the short to medium term but like MHI management remain very optimistic that the model that has made them such a success in Australasia will work in the land of bling and endless shopping malls.

I would have started to business off in Texas though, my favourite State and the home of serious jewelry buyers.


Disclosure I own Michael Hill International shares in the Share Investor Portfolio.


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c Share Investor 2010

Kathmandu's 2011 Results Under Pressure from Jan Cameron

I have given Kathmandu Holdings Ltd [KMD.NZ] alot of criticism since its IPO and float back in November 2009 and its result 2010 interim result out in March doesn't really change much for me.

Its results for this period are largely academic because they cannot be accurately compared to last years figures with were calculated using pro-forma figures. Pro-forma accounting is calculated by removing "irregular" business transactions and smoothing out the balance sheet to make things look better to investors - a great way to hide bad news. Pro-forma is generally accepted as misleading.

The increases in revenue and profit for the 2010 half year look spectacular at first glance but the comparison to last year means little as I have outlined above and the headline figures of the NZX release omit significant IPO costs - $21.3 million, $6.3 million more than budgeted. The profit result then is a $13.3 million dollar loss not an $8 million profit.

Of particular interest to shareholders should be the figure tucked away in the 2010 Interim Report of the net tangible asset backing per share. It is 12c.

A better comparison on how well Kathmandu is going will be able to be made this time next year when we can accurately compare like for like figures (we still have to add the IPO costs to get a good comparison) and then perhaps I will stop my criticism if it is a good result.

Of further concern to Kathmandu shareholders will be the possible re-entry of the former owner of the Company, Jan Cameron, back into the same retail sector sometime in 2011.

She is currently in talks with Macpac, an outdoor equipment and clothing retailer, to establish some kind of competition against the former brand that she built up and as I have said before she is one smart cookie whose business acumen in retailing should never be underestimated by her competitors.

Kathmandu as a strong in your face brand have the outdoor sector mostly to themselves in New Zealand and Cameron's expertise and contacts in retail will be a formidable challenge to Kathmandu if she decides to make a move back into this area of retailing.

Kathmandu shares have traded as high as NZ$2.56 earlier in 2010 but finished trading last Friday at $1.90.

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c Share Investor 2010

Moodys Corp: Warren Buffett Defends the Indefensible

I am a big fan of Warren Buffett and his investing prowess - I run a blog called Everything Warren Buffett - and long-term approach to the stockmarket that he has built up over generations but recent comments and actions from the man have left me wondering whether my admiration for him has been rather blinded by his image as a folksy, no nonsense kind of guy who wont put up with, and dispense, to put it bluntly, bullshit.

Much of that has changed for me over his comments on the Moody's ratings fiasco.

With that in mind I just have to join the chorus of commentators who have roundly criticized Warren Buffett over his recent testimony to the Financial Crisis Inquiry Commission (FCIC) over the defense of rating Agency Moodys Corp [MCO.NYSE], a company in which the once great man is the largest shareholder in.

While Moodys isn't completely to blame for the 2008 financial meltdown (the lenders, borrowers politicians - principally Bill Clinton's administration - mortgage back securities businesses and a whole host of other characters in this drama share the ignominy) and what has happened subsequently, it did rate subprime mortgages as good loans and a prize moron could figure out even before the September meltdown these loans were always in danger of defaulting, it was just a matter of when not if.

Warren Buffett's defense of Moody's part, is ,well, indefensible. Buffett, known for his principled stance on matters of business, investing and commentary on such things has ruined his reputation by not coming out and roundly criticizing Moodys, which he would have been expected to do given his past history on such matters of business ethics and the like. Moodys business practices have effectively endorsed short term risky derivatives and short term gain over a long-term outlook for business, something that Mr Buffett has been yelling from the rooftops for the last 60 years.

In Buffett's testimony to the FCIC he gave a lame excuse for Moody's part in the 2008 crash:

On Wednesday, though, Mr. Buffett testified that he did not know all that much about the credit rating market, even though the holding company he controls, Berkshire Hathaway, is the largest shareholder in Moody’s Investors Service, one of the three companies that dominate the business.
“I’ve never been to Moody’s,” he said at a hearing of the Financial Crisis Inquiry Commission, which is investigating the causes of the global crisis that led to the government bailout of big banks. “I don’t even know where they’re located. I just know that their business model is extraordinary.” New York Times
Feigning ignorance of a company that Buffett has such a large stake in just doesn't stack up. We know he doesn't have "intimate" knowledge of every minutia of the way businesses he has shareholdings in do business, he has a vast portfolio and little time to spread around, but he is however aware of the basic way all his businesses run. His solid reputation as an investor has been built on knowing the businesses he invests in. it is part of his investment mantra that comes out of his mouth to any investor or business interviewer who will listen or ask questions of him.
The past would have seen Buffett own up and take responsibility for mistakes that he has made and he has owned up to plenty. The inconsistency of his approach over the Moody's fiasco has dented a reputation that he has built up over a very long time .
"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently". Warren Buffett
Personally, I will find it difficult now to take what Warren Buffet says seriously. He has time to redeem himself but he is 80 years old this year and probably doesn't have another 20 years.
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c Share Investor 2010