Burger King NZ reports $7.5m loss on rising finance costs; sales rise

Blackstone Group's Burger King chain in New Zealand continues to lose money as sales growth is swallowed up by finance costs and other expenses.

The net loss for Tango Holdings NZ widened to $7.5 million in 2014, from a loss of $4.4 million a year earlier, according to its financial statements. As a result, income tax credits were $385,528, down from $1.4 million in 2013. Sales rose 1% to $177.6 million.

The stand-out expense was finance costs at $18.6 million, up from $14 million a year earlier, which mainly reflected an increased payment on preference shares at $2.4 million and a fair-value charge of $447,366 compared to a $1.9 million gain a year earlier. The burger chain's biggest finance cost, interest on bank facilities, fell to about $7.5 million from $7.9 million.

Burger King has 83 outlets nationwide and employs 2800 people. It competes with the 164 McDonald's branded fastfood outlets, which generate a profit of about $31 million a year for McDonald's Restaurants (New Zealand) on sales of $221 million – a combination of franchise fees and own-store sales.

The local fastfood market is increasingly competitive, with the 2012 arrival of US chain Carl's Jr, brought over by Restaurant Brands, the NZX-listed KFC, Starbucks and Pizza Hut operator, to better compete against McDonald's and Burger King.

BurgerFuel Worldwide, which listed on the NZAX in 2007, also operates a franchise model.

McDonald's has run promotions such as dollar deals and added espresso to its drive-through menu, while Burger King has dollar specials on frozen drinks, a Winter Warmers seasonal range and limited-time offers such as its Butcher's Stack Triple.

The 2014 loss was the third since Tango was incorporated in October 2011, the month private equity firm Blackstone acquired burger chain operator Antares Restaurant Group from Australian buyout firm Anchorage Capital Partners. Chief executive John Hunter wasn't immediately available to discuss the results but provided an emailed statement to BusinessDesk.

"In 2014, Burger King New Zealand continued to make steady progress and results were in line with expectations," Hunter said. "We remain committed to growing revenue and market share through business strategies of menu innovation, new restaurant development, reinvestment in restaurant refurbishments and relocating restaurants into more vibrant retail trade areas."

Tango's accounts show most other expenses were kept under control. Its wage bill edged up to about $52 million in 2014, from $51.4 million a year earlier. Promotional costs were little changed at about $8 million and raw material costs rose about $800,000 to $57.8 million. Royalty payments were little changed at $8.8 million.

There were total liabilities of $200.6 million versus total assets of $187 million. Debt rose to $149 million from $141 million. Notes to the accounts say it restructured its bank facilities in 2013, after talks with its lenders, to avoid a potential breach of one of its lending covenants. The restructure included the issue of $16 million of redeemable preference shares, paying a 10% annual dividend, bringing total preference shares to $22.8 million.

As at Dec. 31, it had $89 million of unused borrowing facilities and about $4.8 million of cash.

(BusinessDesk)