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

A&W POSTS STRONG SECOND QUARTER

  • Same store sales up 7.0% for the quarter
  • Royalty income increased 11.9% for the quarter
  • Distributable cash per unit increased by 5.0% year to date

TRADING SYMBOL:  The Toronto Stock Exchange - AW.UN

VANCOUVER, July 22, 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 second quarter ended June 15, 2014. The Fund will hold a conference call to discuss the results on Tuesday, July 22, 2014 at 1:00 p.m. Pacific Time (4:00 p.m. Eastern Time).  The call can be accessed by dialling toll-free 1-866-323-9095 or (416) 849-3996 Passcode 634471.  A replay will be available until July 29, 2014, by dialling toll-free 1-888-203-1112 or (647) 436-0148 Passcode: 5250738.

Building on the strength of the first quarter, same store sales growth for the second quarter of 2014 was +7.0% and year to date same store sales growth is now 5.9%.  Coupled with the sales from new restaurants added to the Fund's Royalty Pool in January, total royalty income increased by 11.9% for the quarter.

"Our move to beef raised without the use of hormones and steroids continues to generate excellent consumer response," said Paul Hollands, President and CEO of A&W Food Services of Canada Inc. (A&W Food Services).  "Overall, we are pleased with the success of our strategic initiatives to reposition, strengthen and expand the A&W brand.  Our guests love the changes we are making."

Total sales reported by A&W restaurants in the Royalty Pool for the second quarter of 2014 were $220,867,000, an increase of 11.9% from sales of $197,300,000 for the second quarter of 2013.  Year to date sales were $404,451,000, an increase of 10.2% from sales of $367,164,000 for 2013 year to date.  The increase in sales was due to the increase in sales from the 30 net new restaurants added to the Royalty Pool on January 5, 2014 and the same store sales growth.

Distributable cash generated in the second quarter of 2014 to pay distributions to unitholders and dividends to Food Services was $4,806,000 compared to $4,278,000 in the second quarter of 2013.  Distributable cash generated in 2014 year to date was $8,613,000 compared to $7,838,000 in 2013 year to date.

Distributable cash generated per equivalent unit increased by 2.3¢ to 33.7¢ per unit in the second quarter of 2014 from 31.4¢ for the second quarter of 2013.  Year to date distributable cash generated per unit increased by 2.9¢ to 60.5¢ per unit in 2014 year to date from 57.6¢ for 2013 year to date.  The increase in distributable cash per equivalent unit was due to the increase in royalty income flowing from the same store sales growth less the higher income tax expense resulting from the increase in income tax rates.

Three monthly distributions totalling 35.1¢ per unit were declared in the second quarter of 2014, the same as 2013.  2014 year to date distributions were 58.5¢ per unit, the same as 2012.  The payout ratio improved to 96.1% for the second quarter of 2014 from 102.9% for the second quarter of 2013.  The year to date payout ratio improved to 105.6% for 2014 as compared to 111.5% for 2013 year to date.

The Fund's objective is to maintain an annual payout ratio at or below 100%.  During 2013, progress was made in moving the payout ratio to that level.  The Fund's annual payout ratio for 2013 was 104.1%, compared to 107.0% for 2012.  On a trailing four quarter basis as at Q2, 2014, the payout ratio now stands at 101.9%.  While the payout ratio is currently greater than 100%, there is a surplus of distributable cash on hand to fund the distributions that exceed the distributable cash generated.

Financial Highlights

         
(dollars in thousands except per unit amounts) 12 week
period ended
Jun 15, 2014
12 week
period ended
Jun 16, 2013
Period from
Jan 1, 2014 to
Jun 15, 2014
Period from
Jan 1, 2013 to
Jun 16, 2013
Same store sales growth(1) +7.0% +0.4% +5.9% -1.5%
Number of restaurants in the Royalty Pool 790 760 790 760
Sales reported by the restaurants in the Royalty Pool $220,867 $197,300 $404,451 $367,164
Royalty income $6,627 $5,919 $12,134 $11,015
General and administrative expenses 104 89 343 334
Net third party interest expense 559 556 1,102 1,103
Current income taxes 1,158 996 2,076 1,740
Total distributable cash generated for distributions and dividends(2) $4,806 $4,278 $8,613 $7,838
Distributable cash per equivalent unit (2014 - 14,233,553 units; 2013 - 13,611,878 units)(2)(3) $0.337 $0.314 $0.605 $0.576
Distributions and dividends declared per equivalent unit $0.351 $0.351 $0.585 $0.585
Net income, excluding non-cash gains and losses on interest rate swaps(4) $4,983 $4,193 $9,127 $7,899
Net income(4) $4,153 $5,598 $6,593 $9,540

(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