A&W Revenue Royalties Income Fund Announces First Quarter 2014 Results

A&W POSTS STRONG FIRST QUARTER

  • Same store sales up 4.6% for the quarter
  • Royalty income increased 8.1% for the quarter

TRADING SYMBOL: The Toronto Stock Exchange - AW.UN

VANCOUVER, April 29, 2014 /CNW/ - A&W Revenue Royalties Income Fund (the Fund) and A&W Food Services of Canada Inc. (A&W Food Services) reported today results for the first quarter ended March 23, 2014.  The Fund will hold a conference call to discuss the results on Tuesday, April 29, 2014 at 1:00 p.m. Pacific Time (4:00 p.m. Eastern Time).  The call can be accessed by dialling toll-free 1-800-814-4860 or (416) 644-3416.  A replay will be available until May 16, 2014, by dialling toll-free 1-877-289-8525 or (416) 640-1917 Passcode: 4680562#.

Same store sales growth for the first quarter of 2014 was +4.6% and built on a strong 4th quarter of 2013.  These strong same store sales combined with sales from new restaurants contributed to an overall 6.9% increase in distributable cash, compared to a year ago.  The same store sales growth reflects the guest response to A&W Food Services' strategic initiatives aimed at repositioning and differentiating A&W as a "better burger" quick service restaurant.  This work began in 2013 with innovations in menu and packaging to deliver better tasting burgers, and accelerated with the launch last fall of A&W's new beef which is raised without the use of hormones and steroids.  Menu innovation continued in the first quarter of 2014 with the introduction of the limited time Spicy Blue Cheese Teen Burger. 

Same store sales growth has been positive for the last four consecutive quarters. 

"Our advertising campaign promoting our move to hormone-free and steroid-free beef that is sustainably raised continued to be successful in building guest traffic and increasing sales," said Paul Hollands, President and CEO of A&W Food Services of Canada Inc. (A&W Food Services).  "We are pleased that these strong results were achieved despite a long winter with poor weather in most of Canada."

Total sales reported by A&W restaurants in the Royalty Pool increased by 8.1% to $183.6 million in the first quarter of 2014 compared to $169.9 million in the first quarter of 2013.  Royalty income was $5,507,000 for the quarter compared to $5,096,000 for the same quarter of 2013.  The increase in sales and royalty income resulted from the increase in the number of A&W restaurants in the Royalty Pool from 760 to 790 effective January 5, 2014 and the same store sales growth.

Distributable cash of $3,807,000 was generated in the quarter compared to $3,560,000 in the same quarter of 2013.  Distributable cash per equivalent unit for the quarter increased by 0.6 cents to 26.8 cents per unit compared to 26.2 cents for the same quarter of 2013. 

Total distributions of 23.4¢ per unit were declared in the first quarter of 2014, the same as in 2013. The cumulative surplus of distributable cash at the end of the quarter was $750,000, compared to a cumulative surplus of $1,393,000 at the beginning of the year.  Surplus distributable cash historically decreases in the first half of the year due to the seasonality of sales in A&W restaurants.

Financial Highlights

(dollars in thousands except per unit amounts)

Period from

Jan 1, 2014 to

Mar 23, 2014

Period from

Jan 1, 2013 to

Mar 24, 2013

Same store sales growth(1)

+4.6%

-3.7%

Number of restaurants in the Royalty Pool

790

760

Sales reported by the restaurants in the Royalty Pool

$183,584

$169,864

Royalty income

$5,507

$5,096

General and administrative expenses

239

245

Net third party interest expense

543

547

Current income taxes

918

744

Total distributable cash generated for distributions and dividends(2)

$3,807

$3,560

Distributable cash per equivalent unit (2014 – 14,233,553 units; 2013 – 13,581,106 units)(2)(3)  

$0.268

$0.262

Distributions and dividends declared per equivalent unit

$0.234

$0.234




Net income, excluding non-cash gains and losses on interest rate swaps(4)

$4,144

$3,714

Net income(4)

$2,440

$3,942

(1) 

Same store sales growth is not an earnings measure recognized by International Financial Reporting Standards (IFRS) and therefore may not be comparable to similar measures presented by other issuers.  This information is provided as it is a key driver of growth in the Fund.    

(2)  

Distributable cash is not an earnings measure recognized by IFRS and therefore may not be comparable to similar measures presented by other issuers.  This information is provided as it identifies the amount of actual cash available to pay distributions to unitholders and dividends to Food Services.  

(3)  

The number of equivalent units and distributable cash per equivalent unit in 2014 includes the 124,335 LP units exchangeable for 248,670 common shares of Trade Marks representing the remaining 20% of the consideration for the January 5, 2014 adjustment to the Royalty Pool which is held back until December 2014 when the actual annual sales are reported by the new restaurants.  The number of equivalent units and distributable cash per equivalent unit in 2013 includes the 131,650 LP units exchanged for 263,300 common shares of Trade Marks representing the final consideration paid in December 2013 for the January 5, 2013 adjustment to the Royalty Pool.

(4) 

Net income in 2014 and 2013 includes non-cash gains and losses on interest rate swaps.  These non-cash items have no impact on the Fund's ability to pay distributions to unitholders.  The Fund's net income excluding these non-cash items is presented for information purposes only. 

About the Fund
The Fund is a limited purpose trust established to invest in Trade Marks, which through its interest in A&W Trade Marks Limited Partnership (the Partnership), owns the A&W trade-marks used in the A&W quick service restaurant business in Canada.  The A&W trade-marks comprise some of the best-known brand names in the Canadian foodservice industry.  In return for licensing A&W Food Services to use its trade-marks, Trade Marks (through the Partnership) receives royalties equal to 3% of the sales of the 790 A&W restaurants in the Royalty Pool.  A&W is the second largest quick-service hamburger restaurant chain in Canada.  Operating coast-to-coast, A&W restaurants feature famous trade-marked menu items such as The Burger Family®, Chubby Chicken® and A&W Root Beer®.

The Royalty Pool is adjusted annually to reflect sales from new A&W restaurants, net of the sales of any A&W restaurants that have permanently closed.  Additional limited partnership units (LP units) are issued to A&W Food Services to reflect the annual adjustment.  A&W Food Services' additional LP units are exchanged for additional shares of Trade Marks which are exchangeable for units of the Fund.  A&W Food Services owns 14% of the common shares of Trade Marks, and therefore owns the equivalent of 14% of the units of the Fund on a fully-diluted basis.   

Trade Marks' dividends to A&W Food Services and the Fund, and the Fund's distributions to unitholders are based on top-line revenues of the A&W restaurants in the Royalty Pool, less interest, general and administrative expenses and current income taxes of Trade Marks, and are thereby isolated from many of the factors that impact an operating business.

Certain statements in this press release may contain forward-looking information within the meaning of applicable securities laws in Canada (forward-looking information). The words "anticipates", "believes", "budgets", "could", "estimates", "expects", "forecasts", "intends", "may", "might", "plans", "projects", "schedule", "should", "will", "would" and similar expressions are often intended to identify forward-looking information, although not all forward-looking information contains these identifying words.  The forward-looking information is based on assumptions that management considered reasonable at the time it was prepared.  The forward-looking information is subject to risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated by the forward-looking information.  The factors which could cause results to differ from current expectations are described in the Fund's most recent Management Discussion and Analysis under the heading "Risks and Uncertainties" and the Fund's Annual Information Form under the heading "Risk Factors", available on SEDAR at www.sedar.com.    

Additional information relating to the Fund is available at www.awincomefund.ca

SOURCE A&W Revenue Royalties Income Fund

For further information: Don Leslie, Chief Financial Officer: (604) 988-2141 or investorrelations@aw.ca