Exclusive Interview with Josef Roberts, a director of Burger Fuel Worldwide [BFW.NZ] pre IPO and listing on the NZAX board of the New Zealand Stockmarket.
Burger Fuel IPO
New Zealand's fastest-growing gourmet burger chain BurgerFuel is putting its customers first as it plans to list on the NZAX after raising $15 million with an issue of 15 million shares at $1 each, with a one-for-five option to buy additional shares at the same price in 18-months' time. Minimum subscription is for $1000 worth of shares and options.
Funds raised from the issue will be used to fund the company's national and international growth aspirations, primarily in New Zealand, Australia, Europe and the United States. BurgerFuel currently has 19 outlets in New Zealand and one in Sydney.
This interview was conducted via email.
The Q & A
What exactly is the money raised to be used for?
Primarily securing and constructing new stores and expanding infrastructure to support growth. Although the construction costs of a franchisee owned store are paid for by the franchisee; capital is required to secure leases, make construction commitments and secure prime sites as they become available.
The stores built are then on-sold to franchisees. In this way capital can be recycled. In addition, however, it is possible that BFW could operate some stores until the appropriate franchisees are selected. In this case BFW would collect the revenue from those stores and could also elect to sell those stores on an earnings multiple, as opposed to a set franchise fee – so there are benefits – if a store is held and operated for a period of time by BFW.
Sometimes we have franchisees already signed and no site available and sometimes the other way around. Additional capital allows us to speed up store development by being able to proceed with immediately securing top locations as they become available and even operating them in the short term if necessary. However, we are primarily about franchising; this allows us to achieve much faster growth.
S.I. How was the value of the company at $60m arrived at?
J.R. Firstly, we have to remember that the $60 million valuation assumes a further $15 million in cash is raised in the IPO.
A company like ours is not so easy to value, as you know. A number of factors have to be taken into account such as the company investment to date, future earnings, growth capabilities, scalability, personnel and intellectual property - amongst other factors. The company has been extensively modeled under different scenarios to determine a valuation. Grant Samuel, the independent corporate advisory firm, analyzed the various scenarios and settled on a value that they considered to be achievable, based on our future growth potential and associated earnings.
Valuation ties into forecasts and as you know we are not providing those. Why? Well for a growth company like ours it is very difficult to confirm exactly where we will be in 12-months from now. As outlined on page 15 of the prospectus – there are 3 possible scenarios for expansion. Each would provide different financial outputs. If we were to make early predictions now and not achieve those predictions this could seriously impact on the company’s future share price. Accordingly, it is the most responsible approach to gain investment on the clear understanding that no projections are being provided.
Whilst we knew that this could make it harder for us to raise capital, we also believe in the fairness it gives investors up-front in accepting the terms we offer. We want them to assess the value and potential for themselves; which is what you guys are doing – even if this means they say “no thanks”.
The company intends to rely on continuous disclosure reporting to keep the market informed of key developments – such as yesterday’s announcement about our growth - already up 41%. Imagine what that would have done for our share price had we been listed?
We will have plenty of announcements to make in the future – because we are a high growth company and we operate very visibly. People can see progress and performance and this is what drives a share price – right?
To those who say the company is over-valued – they are entitled to their opinion. We know the value of what we have and we are confident in our ability to not only grow the company but also its share price. We have come to the market with an offer. If our offer is not acceptable – so be it – we stay private.
S.I. If you are opening company stores initially, how long do you intend to keep those stores?
J.R. As explained in question 1. However, in general only until the appropriate franchisee is appointed
S.I. The market is confused about what sort of company they might be investing in. Is it principally a franchisor or an owner of actual stores?
J.R. Principally a franchisor as explained in question 1, however, it is our view at this stage, that we should always own and operate at least one store long-term, in each country like we do in New Zealand and will do in Australia. This keeps us in touch with the reality of operations as well as providing a valuable training ground to personnel and franchisees in each local market.
S.I. Will stores be leased or owned outright?
S.I. Long-term, is the bulk of company revenue going to be based on royalty fees or revenue from store sales?
J.R. Answered in Q1. Also, please refer to page 54 of the prospectus – this sets out our revenue income. Clearly, you can see that royalty fees are the major on-going component, but up-fronts, transfer fees and income from our satellite kitchens also make substantial contributions.
S.I. There is similar competition from such outlets world-wide, most notably GPK in the UK, how well do you think you and/or your franchisees will do against this competition?
J.R. GPK is essentially a Wisconsin model. We think our track record in NZ in competing against Wisconsin speaks for itself. But we do not underestimate competition here or in other countries. In the end we are confident in our ability to compete with any gourmet burger offering.
What you have to understand with BurgerFuel is that we have strong operating systems that are scalable. We also have a strong brand that represents more than the sum of its parts. That is to say we have a defined culture – we don’t just make burgers – people eat BurgerFuel for the experience as well as the product and our culture. Once again, that’s either understood by investors or it isn’t.
S.I. It is nice to see owners retaining a stake in the business, so firstly why not float a larger stake if your intention is to expand quickly, wouldn’t it have been better borrow from banks, keep the company for yourselves if it is only a small 25% of the company going public?
J.R. We think that being listed will greatly assist us in expanding overseas as well as attracting franchisees – it’s as simple as that. Credibility toward securing leases, supply lines, staff, franchisees and other associated stake holders becomes easier if we are publically listed.
If people don’t want us listed here in NZ – I think you can work out for yourself what will happen. We will most likely continue as a private company and list further down the track in a different country or we may never list.
In respect of the 25% for $15 million, we have the ability to re-cycle capital (as explained in Q1). The options also provide for some future capital, as well as giving investors an incentive to invest now. If we asked for more now we would just be sitting on your cash – and you wouldn’t like that either Darren!
S.I. A related question to the above, why is the sunset clause on directors and founder owners for selling their shares such a brief one?
J.R. Yes, it could have been longer. Having said that, our aspirations are all about building a global brand. We are committed to doing that – I am personally doing this because I enjoy it and am passionate about growing BurgerFuel, just as I did with Red Bull in NZ and Australia. However, unlike Red Bull, this is a NZ brand. We feel it too can go global. It is my intention to be there when we open stores in the US, whether its next to the Viper room in LA, on the strip in Las Vegas or in Times Square I can’t say, but I want to be there for it. Chris is also a very passionate guy – he created this company and he loves it – it’s his life. We have everything to gain by building this up to be a huge company and increasing our own value as well as those of our partners (shareholders).
S.I. The decision to list on the NZAX instead of the NZX, why was that made when the disclosure rules of the NZX would give possible investors more confidence in their investments because as we know knowledge in investing is what it is all about?
J.R. The NZAX is designed for companies with high growth potential like us. They are not required to publish forecasts due to the fact that they are in a high growth phase and actual results could vary considerably.
We have come to the market with an offer on terms that we knew would not appeal to all investors – but they are our terms. We could have made grand projections now to attract investors (like other companies you know have) – but that is not how we do things.
As already outlined there are a range of scenarios for the way we can roll out and this goes to the heart of any projections we would have committed to. We want to be upfront about that. “Invest if you believe in us” – that is what our message is. People don’t have to invest. We would rather know that we have a certain style of investor. Like the franchisees that we select to become our partners – we want to attract investors who are there for the same reasons we are – because they are passionate about the company and believe that we can do it – (I can hear some of you laughing!!).
We’ve been criticised for targeting so called “naïve” investors. This is not the case at all. We want a big spread of investors including those who eat at our stores and take part in the ownership. Although these people may not be seasoned investors like yourselves, they should not be underestimated. They are the opinion leaders, they understand what makes a brand.
Our IPO advertisements are all about light hearted communication, boosting awareness and a bit of fun. This is who we are and this is how we do things. We polarize and we think that is important to build any strong brand or culture. It’s a mistake to try and be all things to all people.
We want a base of NZ investors who will review our business on a daily basis and tell us where we can improve. We think this is very important to our future. In this way, we have a constant R & D base assisting our international development. However, this offer is also for other serious investors who may not yet eat in our stores. We can see that by some of the larger amounts that are being applied for that also carry CSN numbers, that clearly, our growth potential and ability to drive the share price by announcements of progress and performance, is understood by some seasoned investors.
S.I. Finally, what or who was your inspiration to start the Burger Fuel company and did you intend to "go global" initially and where do you see your company in 10 years?
J.R. Chris knew he could make the world’s best burger and he knew he could come up with a scalable business model that could grow fast. He always wanted to take BurgerFuel global. For me; I invested for this reason. If you read the prospectus thoroughly you should get a strong sense of this. Just look at our trademark protection programme. This alone, demonstrates our vision in thinking global and acting to secure our intellectual property over the years.
Page 67 of the prospectus – clearly sums up where we see our company in the future.
S.I. Thanks for your time Josef and good luck for the future of Burger Fuel .
Burger Fuel Background
BurgerFuel started in 1995 when Chris Mason opened the company's first store in Auckland's Ponsonby Rd. It is the brainchild of founder and director Chris Mason, who met Josef Roberts when Roberts owned the Red Bull brand in New Zealand, and wanted to sell his drinks through Burger Fuel shops.
Roberts took Red Bull to Australia, and after selling the Australasian Red Bull franchise back to its original European owners, decided to join Mason and work to expand the business. He said both businesses were brand-driven. "But with Burger Fuel there is the prospect of exporting a Kiwi product globally."
Roberts said Burger Fuel eschewed private equity raising in favour of public listing because that would add to its credibility as it sought to roll out overseas.
Currently BurgerFuel serves over 35,000 burgers a week and has 20 outlets, with three more scheduled to open soon in New Zealand, including one in Queen St Auckland, and one planned for Kings Cross in Sydney.
Additional info from Josef Roberts unrelated to questions posed by Share Investor but furnished to us by him
This whole process reminds me of when I started Red Bull in NZ in 1996 and then Australia in 1999. When many laughed and mocked us for trying to sell a small, unusual tasting can of drink for an “outrageous” wholesale price of over $2.00! I was told “only Coca Cola can do something like this. Red Bull will never make it, it’s a fad drink that anyone can produce. This is destined to fail.”
Investors should look at the strong corporate governance and the people behind BurgerFuel. The advisors, the independent directors on the board – these are highly respected and experienced individuals who have chosen to join BurgerFuel. They did not need to. They have assessed the company’s prospects for themselves. Investors should take this into account.
We respect your community. We know that you guys carry huge influence. I bring you back to the fact that we have come to the market with an offer. Saying “here’s our price and terms”. If they are accepted – great we know we have the kind of partners (in the shareholders that buy in) that we want. If not – we will continue as a private company and still be successful.
Take a look at the total system sales growth figures from yesterday’s press release. Last year’s first quarter was a weekly average of $276,403, same period this year $390,379. Last week - $445,011.
We are growing anyway, but the IPO process alone has totally enhanced the value of the company even more. No one in New Zealand has not heard of BurgerFuel as a result of it. Remember, we’re a marketing company. Our campaign is all about growing the brand and selling burgers, as well as shares - and that’s what we’re doing.
Darren, best regards and thanks again for the time you have given us. We know this may not be everyone’s kind of investment and we respect that. We also respect you and your community’s views.
I would like to say one last thing though – if NZ continues to criticise companies and publish material so quickly before thoroughly assessing the offer – aren’t we somehow killing our own country? It’s amazing what gets published in the media without the prospectus even being read. There is in fact a lot of information in our prospectus for potential investors - it’s not just a pretty document.
New Zealand needs higher risk growth stocks (which is what we are) just as it needs the kinds of stocks that are like “watching paint dry”.
Would the last entrepreneur in NZ please turn the lights off when you leave? Australia, UK, USA – here we come!
BurgerFuel Worldwide Limited
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c Share Investor 2007
Friday, July 6, 2007
Exclusive Interview with Josef Roberts, a director of Burger Fuel Worldwide [BFW.NZ] pre IPO and listing on the NZAX board of the New Zealand Stockmarket.