BurgerFuel starts full strategic review of business

Tuesday 11th December 2018

BurgerFuel Worldwide continues to face challenges after the loss of its international partner and has called on KPMG Corporate Finance to undertake a full strategic review of the business.

"The reality of global expansion and development has become an expensive and risky proposition" since the loss of partner Franchise Brands, it said. That firm, which is backed by the founders of the Subway franchise chain, bought 10 percent of BurgerFuel for $5.9 million in 2014, with the option to increase that holding to 50 percent over eight years.

NZAX-listed BurgerFuel ended that collaboration agreement in August 2016 and Franchise Brands currently holds a 2.59 percent stake according to the Company's Office.

During the past six months, BurgerFuel sought input from KPMG on potential opportunities and options that could help accelerate the business. As a result of that input, the board has now requested that KPMG "undertake a full strategic options review."

The process is underway and BurgerFuel will update the market on any material developments, it said.

The company's total system sales, which are store sales including franchised stores, were down 4.5 percent to $50.3 million in the six months to Sept 30. Net profit grew nearly 10-fold to $646,373 versus $65,071 in the same period a year earlier.

The firm said the brand has continued to perform well in New Zealand. In Australia, however, "reasonable operating margins proved too difficult to achieve, despite every effort to move toward profit." It completed its exit from the Australian market earlier this financial year, closing all franchised stores.

In the United Arab Emirates, it is seeing a "significant slowdown in the retail sector" and the competitive market is becoming tougher. It is also facing "disproportionately high retail rent costs," especially in Dubai.

"Our master franchisees in the Middle East, who have already closed a number of sites, are planning to close more sites that are no longer financially viable," it said. It noted that partners in Dubai have also been pushing forward with the development of a home delivery service.

BurgerFuel said its partners in Saudi Arabia are also facing high retail rents, increasing labour costs and staff shortages. They are also optimizing locations.

In Iraq, the "political and economic climate is experiencing some volatility, and this is having an impact on trade."

Overall, it remains cautious about the future of the Middle East for BurgerFuel.

"These countries remain uncertain and we anticipate further declines in our revenue from this market."

In the US, it said it's one licensed store has also experienced a decline in sales in the 12 months since opening. However, the licensee remains focused on his search for an established US partner.

The stock last traded at 68 cents, valuing BurgerFuel at $37.8 million, and is down 26.1 percent during the past 12 months.

(BusinessDesk)

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