Burger Fuel Group Ltd Half Year Results – 30 September 2020

Burger Fuel Group Ltd Half Year Results for the 6 months ended 30 September 2020 OVERVIEW The Directors of Burger Fuel Group Limited (BFG) present the unaudited results for the 6 months to 30 September 2020. Net Profit after tax for the period was $358,901 compared to $548,092 in the same period last year. This represents a decline of (34.5%). Group Operating Revenue (excluding IFRS 16 and the wage subsidy income) decreased by (22.7%) on the same period last year to $8.2M. This is mainly due to reduced sales and reduced royalties due to the Covid-19 pandemic which includes support provided to our MENA Licensees who have been heavily impacted by Covid-19. The Group has no debt and as at 30 September 2020 had cash reserves of $6.8M. GROUP PERFORMANCE Total system sales were $40.9m, for the period representing a decrease of (18.64%) over the same period last year. The decrease is mainly due to the Covid-19 restrictions, not reopening the USA store after the March 2020 lockdown, and the closure of the Iraq store. Total store numbers decreased from 79 to 78 as at 30 September 2020. The UAE region did however have several dark kitchens (delivery only kitchens) operating instead of bricks and mortar stores. The new brands Winner Winner and Shake Out, accounted for 6% of the total systems sales and international sales accounted for 14.4%. Group Net Profit After Tax was down $189K (34.5%) on the same period last year. This was partly due to the additional costs associated with establishing our new brands (Winner Winner and Shake Out), additional legal costs for the USA settlement transaction, the partial impairment of goodwill on the company owned BurgerFuel Takapuna store, and the reduced revenue due to Covid-19. These costs were however largely offset with rent relief provided by landlords and the Government wage subsidy received. OPERATING RESULTS BurgerFuel New Zealand Total sales for the period were down (15.6%) on the previous year. This was due to the nationwide lockdown in April and May and the Auckland Level 3 restrictions in August. Due to Covid-19 induced social changes such as working from home, sales have been redistributed from the city centres to the suburban stores and we expect this trend to continue for the foreseeable future. A new BurgerFuel store opened at Point Chevalier, Auckland, in May 2020. BurgerFuel New Zealand tested home delivery during the Alert Level 3 restrictions but maintained its position of not using aggregated delivery services such as Uber Eats. The BurgerFuel store network is mostly made up of suburban locations and their sales performance has been very good during Alert Levels 1 and 2. BurgerFuel in New Zealand is now on a recruitment campaign for franchisees in the regional areas that it doesn't currently serve and over time we see opportunity for modest additional BurgerFuel outlet expansion. BurgerFuel Middle East (ME) The Middle East business has been hit hard by the Covid-19 crisis. The total sales comparison for the first half of this year records a decrease of (40.3%) due also to the closure of multiple retail stores across each of the countries in which we operate. The UAE has been facing a challenging trading environment for many years and the effects of high rents and an over-supply of retail space was further exacerbated by Covid-19 related lockdowns and restrictions. The future viability of high rent locations motivated our UAE Licensee to make some difficult decisions and close some of its retail locations and open some hidden (also known as ghost or dark) kitchens that provide home delivery services only. Saudi Arabia faced Covid-19 restrictions and the government tripled its new GST tax from 5% to 15% as it prepares for an economy that is less dependent on oil. The BurgerFuel store locations in Saudi are good but the overall trading environment will be difficult for some time yet. We expect conditions in the Middle East to remain challenging for the foreseeable future. BurgerFuel USA The BurgerFuel store in Indianapolis was closed due to Covid-19 restrictions. It did not re-open within this financial year and the decision to permanently close the store and exit the USA market was implemented in November. Winner Winner & Shake Out New Zealand During this 6-month financial period Shake Out opened two more stores and permanently closed the Browns Bay location when the Covid-19 Alert Level 4 restrictions began. The new locations in Palmerston North and Hamilton are trading reasonably. The company owned Smales Farm store in Takapuna is in an office complex and as such it has faced difficult trading conditions due to the Covid-19 working from home requirements. Shake Out has been a "contactless & cashless" brand since its inception, so the Covid-19 restrictions were relatively easy to implement. The Winner Winner brand now has 3 stores and has had a year of large peaks and troughs since then. Of our three brands, Winner Winner has a larger dine-in focus, so the Covid-19 Alert Level 2 & 3 physical distancing requirements had a significant impact on the trading performance of the stores. All Winner Winner stores have been performing reasonably well at Alert Level 1. It is envisaged that Winner Winner will eventually deliver sustainable growth for the Group in the future, but once again growth remains subdued in the current Covid-19 environment. GROUP OUTLOOK At this point the ongoing effects of Covid-19 are still unknown however with the Group's healthy cash position, lower operating costs and no debt we are well positioned for moderate growth of all brands in New Zealand. In summary, BFG is in a sound position with its finances, talent, intellectual property and future opportunities well in place. We believe that the cautious opening of new locations in New Zealand is well within the capabilities and financial position of the Group, however franchise opportunities remain limited for now. We would like to thank all shareholders, staff, franchisees, suppliers and of course our valued customers for their support. Best regards Peter Brook Chairman Josef Roberts Group CEO End CA:00364120 For:BFG Type:INTERIM Time:2020-11-27 15:16:13