Professional Documents
Culture Documents
April 4, 2012
Table of Contents
Transaction Details
Company Overview
Justice Holdings Ltd.
Best-in-Class Management Team Strategic Refranchising Initiative Turnaround Opportunity International Growth Potential Valuation Conclusion
2
Transaction Overview
Transaction Overview
Justice Holdings will pay $1.4bn to partner with the owners of Burger King Holdings Justice Holdings and Burger King Holdings will dissolve and form a new publicly listed entity, Burger King Worldwide Holdings, Inc. (BKWH)
Justice Shareholders Justice Class A Shares Justice Class B Shares 3G Capital & Management BKWH Management Shares Basic Shares (1)
All Justice Founder Securities (Class B Shares) will be cancelled Justice Founder Shares (Class A Shares) reduced from 6.67% to 3.0% 3Gs principal and executive partners and BKWH management will retain 70%+ equity ownership
(1) Excludes 0.15 ordinary shares issued to Non-Founder Directors and management options.
Investor Conference Call T + 1 US HSR Filing T + 2 File Registration Statement with US SEC and Listing Application with NYSE T + 7-9 Receive HSR Clearance T + 16 Complete Registration Process with US SEC T + 60 Effect Dividend of Stock of Justice US Sub to Justice Shareholders T +61 Close Transaction T + 62 Commence Trading on NYSE T + 62 Dissolve Justice T + 65
5
Company Overview
Approximately 92% of systemwide restaurants are franchised (1) $15.3bn in systemwide sales for 2011 (2) Hundreds of millions of dollars of annual marketing spend on the brand
Key brand equities include WHOPPER, HAVE IT YOUR WAY, and Flame Broiled $503mm of Adjusted EBITDA - Capex in 2011 Net Debt / Adjusted EBITDA of 4.5x (3)
1) 2) 3)
After giving effect to the previously-announced Carrols refranchising. Systemwide sales include sales at company-owned and franchise restaurants. Adj. EBITDA is as of 12/31/11; Net Debt is as of 2/29/12 and includes $432mm of 11% PIK notes currently held at Burger King Capital Holdings and Burger King Capital Finance.
What is BKWH?
Brand BKWH
Franchise
11,4951 restaurants where BKWH receives ~4.1% of unit sales ~85% of EBITDA
Real Estate
Owns nearly $1bn of real estate assets
~7% of EBITDA
~8% of EBITDA
1)
At 12/31/11, after giving effect to the previously-announced Carrols refranchising. Note: Assumes that company-owned stores pay rent and royalties. 9
10
EMEA 2,882
23%
APAC 908
7%
Best-in-Class Management
13
14
International Initiatives
Creation of Brazilian Master Franchise joint venture with commitment to open hundreds of restaurants in 5 years and establishing framework for similar structures in other countries MCD currently has 664 restaurants Potential for BK to eventually have more restaurants than MCD In process of refranchising UK, Germany and China operations
1) 2)
Adjusted EBITDA is as of 12/31/11. Net debt is as of 2/29/12 and includes $432mm of 11% PIK notes currently held at Burger King Capital Holdings and Burger King Capital Finance. Per managements SG&A disclosure in the 10-K. 15
Franchisee #1
Prior to 3G, corporate relationship w/ franchisees was disastrous; today: much improved Bernardo is brilliant, very numbers-oriented. 3G has moved extremely fast [Out of ten,] I give them an 8 for effort, an 8 for results, and an 8 on communication
Franchisee #2
Thinks 3G has a great track record w/ operational turnarounds at other companies New management team is doing a whole lot right; likes the move to bring in Steve Wiborg Many of the changes management is implementing were desperately needed
Franchisee #3
Has met with management and thinks highly of the new team, especially Bernardo Thinks it was smart to put Steve Wiborg in charge of operations Is bullish about the future under the new team
Positive on Steve Wiborg Has seen more changes by management in the past year (relating to new products / equipment) than Burger King has implemented over the past 20 years; believes 95% to 98% of these decisions are for the best Very smart people, going in the right directions Shaking the tree is good. Changing the management / change in general was needed 3G has a history of success and hopefully their approach will be successful at BK as well
16
Refranchising Initiative
Refranchising Logic
Burger King has decided to strategically refranchise its companyowned restaurant portfolio over the near-term, which is expected to:
Make the business less capital intensive and enhance margins Increase the stability of BKWHs profits because brand royalty streams are a percentage of revenue as opposed to operating cash flow Reduce the companys exposure to commodity cost pressures Increase systemwide sales because franchise restaurants are typically better operated than company-owned restaurants It is typical in refranchising transactions for sales to increase in the first year of ownership by substantial amounts Franchisees have a better knowledge of the local market, are entrepreneurial, and have skin in the game Reduce corporate overhead Allow management to focus on strategic issues such as brand development, international expansion, marketing and capital allocation
18
1) Based on June fiscal year, unless otherwise noted. Effective November 5, 2010 the Company changed its fiscal year end to December 31. 2) After giving effect to previously-announced Carrols refranchising 19
91.9%
89.6%
Approach 100%
87.7%
2008a
2009a
2010a
2011a
20
PF 2011a
Transaction Highlights
BKWH will refranchise 278 restaurants to Carrols, making Carrols its largest franchisee. BKWH will retain the land and buildings Carrols has committed to reimage 450 of its 575 BKs over the next 3.5 years Carrols will be pre-approved to grow to 1,000 restaurants and will serve as the consolidator for a 20-state region in which it will have a ROFR on franchisee to franchisee sales. This should further accelerate the BKWH reimaging initiative by allowing a best-in-class franchisee to acquire underperforming stores In return, BKWH receives (i) $16mm cash consideration, (ii) a 29% equity interest in Pro Forma Carrols, and (iii) two board seats The transaction is EBITDA - Capex accretive to BKWH
1) 21 2)
Financial Impact
2011Proforma WithOne Without time Onetime Franchise Franchise Fee Fee Company $ (297) $ (297) Franchise&PropertyRevenues(1) 44 38 RevenueImpact $ (253) $ (259) RestaurantExpenses G&A EBITDAImpact Capex(2) EBITDACapexImpact 250 7 $4 10 $ 14 250 7 $(2) 10 $8 $ in millions
Includes $7.0MM of one-time franchise fees. Does not include onetime expenses associated with the transaction in 2012. Assumes capex is 3.5% of revenues.
Turnaround Initiative
Four Pillars
Management has identified four key initiatives to improve North American average revenues per unit (ARPU)
Strategy
FourPillars
Menu Menu
Marketing Marketing
Increase average unit sales with Four Increase average unit sales with Four Pillars plan Pillars plan
Image Image Operations Operations
NORTH AMERICA
23
Menu Menu
Marketing Marketing
Burger Kings historical Big Burger-Focused menu and its advertising / communication were targeting the male 18-35 year old segment, which represents only 17% of the QSR market
By effectively communicating and offering products that appeal to more than just 17% of the market, BK has the opportunity to meaningfully increase sales
24
Menu Menu
BKWH launched a new menu task force with substantial franchisee input and overseen by Steve Wiborg. The new menu and product offerings are focused on expanding BKWHs demographic and strengthening the quality of its core offerings
New Platforms
Menu Menu
Over 94% of Burger Kings North American franchisees have rolled out digital menu boards over the past six months. This initiative is already bearing fruit. The menu boards are driving sales, increasing the consistency of the BK experience, and reducing costs associated with the distribution of menu board materials
26
Menu Menu
Rollout of the digital menu was phenomenal; only QSR to do it; it wasnt cheap and they sold it to the system; I applaud them for it; will save BK $12mm+ per year because they dont have to send out new menu board materials Very positive on the new menu items; the new fries were the absolute perfect decision
Franchisee #2 Franchisee #3
Loves the new chicken strips, especially the sauces that go with the chicken; not Me Too stuff Likes the new salads and wraps; the new fries are excellent The new menu board is already driving sales Very bullish about the new product line; new smoothies / salads will drive new customers into the stores; likes that the new fries last longer Best salad in the industry
Franchisee #4
Thinks the quality of the new items is terrific; the new salads are fantastic New frappes / smoothies will allow BK to compete w/ MCD on snacks The new menu board has been great (a lot of work [to install] but you definitely get a pop)
Franchisee #5
Mgmt has made all the right decisions w/ the new menu; the fries are much better Product quality is much improved: better bacon, better croissant; likes the new salads / wraps The digital menu boards are spectacular; sundae sales quadrupled because of the picture
Franchisee #6
27
Marketing Marketing
Burger Kings old marketing approach was focused on males, with edgy and humorous narrative messages featuring the King. This approach alienated a large percentage of Burger Kings target demographic. Burger Kings new marketing approach is food-focused and targets a broader audience
This month, Burger King will roll out its new ad campaign, which will feature its new marketing approach and highlight its new menu and product offering
28
Image Image
Including the Carrols transaction, Burger King has approximately 1,500 franchise stores with binding commitments to reimage restaurants. Burger Kings goal is to reimage 40% of the U.S. system in 3 years. This represents the fastest reimaging of any major system in the U.S.
Today
ThreeYearGoal
Note:NewimageconsidersbothROCand20/20designs.Allreimagingtodayis20/20image
29
Image Image
Standard
Vertical Roof Facade Bold Black Towers Eyebrow Element Metal Colored Awnings Grill Accents Brick Base Red Flamed Parapet Includes Interior
High
20/20 Colors Standing Seam Metal Roof Archons Drive Thru surround bump and archon Includes Interior
$525,000
$250,000
Low
1)
As of March 2012.
30
Image Image
High $300 $1.15 17.5% $201 40.0% $56 19% $52 87%
Incr. Revenue Contribution Margin Incr. Taxed EBITDA Unlevered ROC Incr. FCF
(3)
Levered ROC
Based on discussions with franchisees, we believe low-cost remodels generate sales uplift of 10 to 20%
1) 2) 3) Based on discussions with franchisees. Assumes a 30% tax rate. Assumes 6% interest rate and 80% loan-to-value financing. Reimaging investment depreciated straight-line over 15 years.
31
Image Image
Will consider reimaging boxes if the new marketing approach / new menu are successful (optimistic they will be) Confirmed the reimaging cost was ~$250k Saw a 20% to 25% sales uplift on the one $250k 20/20 reimaging he did in Milwaukee Has reimaged a few locations but not enough time has passed to determine uplift Sees no structural reason BK shouldnt be able to achieve Wendys revenue per box Looking to reimage 2 to 3 projects currently (of 26 total) Confirmed 12% to 15% sales uplift just from the reimaging; noted he just opened a new 20/20 box that is doing $1.3mm vs $1.1mm for other locations in same market (only difference is the box; and the new box is slightly under-managed) Confirmed 30% contribution margin on sales uplift Confirmed Rabobank financing; recently got an 80% LTV loan on a $400k project at 6% interest
Franchisee #6
Believes the reimaging initiative will pay dividends since most of the American assets are of age Reimage should by itself increase revenues to Wendys level per box ($1.4mm) Recently renovated 10 stores plus 50 minor upgrades; will continue to renovate his stores because its essential to stay competitive
32
Operational Initiatives
Operations Operations
In an effort to improve the guest experience (i.e. cleaner restaurants, more consistent product offering), BKWH restructured its U.S. field teams to almost double the number of representatives and changed the incentive structure to better align their interests with franchisee profitability
Previous Structure
1BKWHperson/90restaurants Nospanbreakbetweenfield supportandVP Limitedinrestaurantsupport Objectiveslackedconnectionto franchiseeobjectives
Current Structure
1BKWHperson/40restaurants Newmidlevelmanagementfunction created Significantincreaseoffieldsupport BKWHSales,Profit,andOperations Coach worksshouldertoshoulderwith restaurantteam Objectivesarealignedwithfranchisee objectives todriveSales&Profits
33
Menu Menu
Marketing Marketing
Closing the sales gap to Wendys would increase EBITDA Capex ~$200mm, or ~40% of 2011a EBITDA - Capex (1)
Image Image
Operations Operations
Closing half the sales gap to MCD would increase EBITDA Capex ~$400mm, or ~80% of 2011a EBITDA - Capex (1)
(1) Assumes pass through margins of 35% for incremental company-owned restaurant sales and 100% for incremental franchise royalty revenue. Incremental EBITDA opportunity only applies to North America.
34
Inflection Point
Although many of the Four Pillar initiatives have only just begun (e.g., the new marketing initiative just launched on April 1st), BKWH North America systemwide sales have improved over the past four months
8.0% 6.0% 4.0% 2.0% 0.0% (2.0%) (4.0%) (6.0%) (8.0%) (10.0%) (12.0%)
Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar10 10 10 10 10 10 10 10 10 10 10 10 11 11 11 11 11 11 11 11 11 11 11 11 12 12 12e
Note: March 2012 same store sales growth data not yet finalized. An estimate is used here based on the most current data.
35
Virtuous Cycle
Corporate initiatives that drive same store sales performance will help fuel future net restaurant growth at home and abroad
Start Here
SSS Growth
International Growth
6.0%
4.0%
2.0%
0.0%
(2.0%)
(4.0%)
(6.0%)
(8.0%) Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11
North America
38
International
Gap to McDonalds(3)
19,412
14,400
At 12/31/11. Potential estimated based on BKWH penetration in the United States: 1 restaurant per every $2.0 billion in Nominal GDP. Gap to McDonalds calculated by subtracting BKWHs current restaurant count from McDonalds current restaurant count. 39
The JV is a Master Franchisee and has exclusivity for the country Partner equity and 3rd-party financing sufficient to fund aggressive committed development plan Burger King holds a large minority stake in the JV, the profits for which are not included in EBITDA1 Since July 2011, 35 restaurants have been opened in Brazil
1) Results are reflected as income from minority interest and are not consolidated. 41
Delta
Sales / Store Units System Sales Royalty Rate Royalty Stream (1) EBITDA - Capex Mult. (2)
521
McDonalds Brazil is worth $3.4bn2 today, and if Burger King Brazil achieves its goals it has the potential to be worth a similar amount
(1) Excludes additional one-time franchise fees BKWH will receive from unit growth. BKWH Today Royalty Stream based on avg Brazil units in 2011 of 113. (2) McDonald's Brazil value is estimated based on assumed EBITDA - Capex of $200mm for Arcos Dorados Brazil and a 17x EBITDA - Capex multiple. EBIT is used as a proxy for EBITDA - Capex given the large growth capex component. Allocates 60% of Arcos Dorados overhead to Brazil. As of April 3rd, Arcos Dorados trades at approximately 17x 2011 EBIT.
42
Replicating Brazil
Using the Brazil JV as a template, there are numerous other markets where Burger King can expand its presence
New Markets
Country
Country
Current Restaurants2
Country
Current Restaurants2
1) 2)
Potential estimated based on BKWH penetration in the United States: 1 restaurant per every $2.0billion in Nominal GDP. At 12/31/11. 43
+6% CAGR
3,967
17,000
521
12,000 10,000 8,000 6,000 4,000 2,000 0 2011a Units Plus: Brazil Plus: Other 2016e Target
Note: Assumes Burger King can achieve MCDs unit level in Brazil.
Valuation
2010
Adj. EBITDA - Capex Trailing 3 month NA SSS (2) Net Debt / Adj. EBITDA (3) Net Restaurant Growth G&A (4) $320 (4%)
Improved Business Performance
2011
Menu Menu
Marketing Marketing
$503 4% 4.5x
6.6x
Image Image
Operations Operations
173 $356
Zero Based Budgeting
261 $249
% Franchised
89%
Carrols Transaction
92%
Brazil JV?
(1) Includes transaction costs. Source: 2011 10-K page 77. (2) As of September 30, 2010 and March 31, 2012 (estimated). (4) Per management SG&A disclosure in the 10-K,.
No
Yes
(3) Pro forma for $401.5mm PIK notes and return of capital, as if issued 12/31/10. Adj EBITDA as of 12/31/11. Net debt as of 2/29/12.
46
47
Company
YUM THI DNKN MCD Dom
% Franch
Units % Int'l
4% 4% 3% 4% 3% 3% 2%
4% 7% 4% 2% 4% 1% 1%
Based on how BKWH stacks up on these metrics, we believe a 13x to 16x EBITDA Capex multiple is reasonable
JACK WEN
Median
BK
15.6x
13x-16x
81%
92%
43%
40%
3%
3%-5%
4%
3%-5%
16%
26-30%
Note: Comparable data is as of April 2nd and is based on sell-side equity research. 48
Sensitivity Analysis
$1.4 26% $5.5 2.6 $8.1 350 $16 $580 $590 $600 $610 $620 $630 2012e EBITDA Capex 13.5x $14.91 $15.30 $15.69 $16.07 $16.46 $16.84
Justice Consideration Justice Shareholder % common Implied Equity Value Plus: Net Debt (2-29-12) Implied TEV Memo: Basic Shares (1) Memo: Deal-Implied Share Price
EBITDA - Capex Multiple 14.0x $15.74 $16.14 $16.54 $16.94 $17.34 $17.74 14.5x $16.57 $16.99 $17.40 $17.82 $18.23 $18.64 15.0x $17.40 $17.83 $18.26 $18.69 $19.12 $19.54 15.5x $18.23 $18.67 $19.12 $19.56 $20.00 $20.44
(1) Excludes 0.15 ordinary shares issued to Non-Founder Directors and management options.
49
Adj. Net Income: ~$725MM Adj. Net Income: ~$450MM Adj. Net Income: $179MM ~2.5x 2011a Adj. Net Income Targets Partially Achieved
$1.31mm 14,500 ~20%
2011a
North America ARPU Systemwide Units Adj. Net Income Growth $1.15mm 12,512 NA
Targets Achieved
$1.46mm 17,000 ~30%
Note: Adds back non-cash franchise amortization and non-cash interest expense. Adj. Net Income reduced by interest on 11% PIK note. Assumes free cash flow is used to pay down debt. 50
Current
Year North America ARPU Systemwide Units Adj. Net Income ($mm) P / E Multiple 2011 $1.15mm 12,512 $179 NM
Targets Achieved
2016 $1.46mm 17,000 ~$725 20x
Conclusion
Management is doing all of the right things
Strategically refranchising company-owned restaurants Pursuing Four Pillar plan to turnaround North American operations Strengthening relations with franchisees Growing international units with minimal capital investment
If management can achieve its strategic objectives at home and abroad, the stock price could triple by 2016 The most valuable businesses in the world are brand royalty businesses that can grow without capital investment
52