A&W Revenue Royalties Income Fund Announces First Quarter 2017 Results

TRADING SYMBOL:  The Toronto Stock Exchange – AW.UN

VANCOUVER, May 2, 2017 /CNW/ -

  • Q1 same store sales hold flat despite difficult winter weather
  • Two year stacked same store sales strong +8.3% for Q1
  • Both distributable cash and net income grow

A&W Revenue Royalties Income Fund (the Fund) reported today results for the first quarter ended March 26, 2017.  The Fund will hold a conference call to discuss the results on Tuesday, May 2, 2017 at 1:00 p.m. Pacific Time (4:00 p.m. Eastern Time).  The call can be accessed by dialling toll-free 1-800-274-0251 or (416) 642-5209 Passcode 3632680.  A replay will be available until May 9, 2017, by dialling toll-free 1-888-203-1112 or (647) 436-0148 Passcode 3632680. 

Same store sales for the first quarter of 2017 were essentially flat at -0.3% as compared to the first quarter of 2016.  There was poor winter weather in most regions in the quarter and this plus the continuing weak foodservice industry in Canada, especially in Alberta and Saskatchewan, negatively impacted sales in the quarter.   Same store sales growth for the first quarter of 2016 was +8.6% and this combined with the -0.3% for the first quarter of 2017 results in a two year stacked quarterly same store sales growth of +8.3%.     

Total sales reported by restaurants in the Royalty Pool were $245.2 million, an increase of 0.6% from sales of $243.8 million in the first quarter of 2016.  The increase in sales resulted primarily from the additional net 23 restaurants added to the Royalty Pool on January 5, 2017 and was offset by two fewer of days of sales in the quarter due to the timing of the fiscal quarter end.  Same store sales growth is based on an equal number of days in each quarter.    

"We continue to see economic challenges in the important Alberta and Saskatchewan markets that impact our overall results.  The adverse impact of weather also contributed to the soft sales in the quarter" said Paul Hollands, Chairman and CEO of A&W Food Services of Canada Inc. (A&W Food Services).  "We are aggressively pursuing growth opportunities in the business.  An example of this is the launch of all-day breakfast sandwiches and wraps to our menu effective February 27, 2017.  The response to the launch has been exciting."

Financial Highlights




(dollars in thousands except per unit amounts)

Period from
Jan 1, 2017
to Mar 26,
2017

Period from

Jan 1, 2016
to Mar 27,
2016

Same store sales growth(1)

-0.3%

+8.6%

Number of restaurants in the Royalty Pool

861

838

Sales reported by the restaurants in the Royalty Pool

$245,157

$243,796

Royalty income

$7,355

$7,314

General and administrative expenses

271

256

Net third party interest expense

604

611

Current income tax provision

1,193

1,403

Total distributable cash generated for distributions and

$5,287

$5,044


dividends(2)



Distributable cash per equivalent unit (2017 –

$0.331

$0.325


15,950,970 units; 2016 – 15,517,988 units)(2)(3)



Distributions and dividends declared per equivalent unit

$0.266

$0.250

Net income(4)

$5,424

$3,329

Net income, excluding non-cash items(4)

$5,437

$4,035



(1)

Same store sales growth does not have a standardized meaning prescribed by 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. Same store sales growth is based on an equal number of days in each quarter and year.

(2)

Distributable cash and distributable cash per equivalent unit do not have a standardized meaning prescribed 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 generated to pay distributions to unitholders and dividends to Food Services.

(3)

The number of equivalent units and distributable cash per equivalent unit in 2017 includes the 86,596 LP units (as hereinafter defined) exchangeable for 173,192 common shares of Trade Marks representing the remaining 20% of the consideration for the January 5, 2017 adjustment to the Royalty Pool which is held back until December 2017 when the actual annual sales are reported by the new restaurants. The number of equivalent units and distributable cash per equivalent unit in 2016 includes the 157,774 LP units exchanged for 315,548 common shares of Trade Marks representing the final consideration paid in December 2016 for the January 5, 2016 adjustment to the Royalty Pool.

(4)

Net income in 2017 and 2016 includes non-cash gains and losses on interest rate swaps, amortization of deferred financing fees and deferred income taxes. 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. Net income excluding non-cash items does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers.

 

FINANCIAL RESULTS
Royalty income increased by $41,000 to $7,355,000 for the first quarter of 2017 compared to $7,314,000 for the same quarter of 2016.  Combined general and administrative expenses and interest increased by $8,000 in the quarter.  Current income taxes payable decreased by $210,000 as there is no longer any transitional partnership tax payable.  Distributable cash of $5,287,000 was generated in the first quarter of 2017, an increase of $243,000 compared to $5,044,000 in the same quarter of 2016.  Distributable cash per equivalent unit increased by 0.6¢ per unit to 33.1¢ per unit for the quarter compared to 32.5¢ per unit in the same quarter in 2016.  

Two monthly distributions totalling 26.6¢ per unit were declared in the quarter, compared to 25.0¢ in the first quarter of 2016.  The cumulative surplus of distributable cash at the end of the quarter was $1,926,000, compared to a cumulative surplus of $2,417,000 at the beginning of the year.  Surplus distributable cash historically decreases in the first quarter due to the seasonality of the business, and the soft sales in the quarter contributed to the seasonal decrease.  The trailing four quarter payout ratio is 99.4%.

The Fund's net income under International Financial Reporting Standards (IFRS) includes non-cash items, such as the fair value adjustment of the interest rate swap, that have no impact on the Fund's ability to pay distributions to unitholders.  Therefore, net income is not the only or most meaningful measure of the Fund's ability to pay distributions and consequently, non-IFRS measures of distributable cash, distributable cash per unit and payout ratios are reported to provide investors with more meaningful information.  The Fund's net income for the first quarter of 2017 was $5,424,000 compared to $3,329,000 for the first quarter of 2016.  The increase in net income was a result of the increase in royalty income noted above, plus a non-cash gain on the interest rate swap versus a loss in the first quarter of 2016, and lower income taxes.  Total income tax including current tax, non-cash deferred income tax and refundable income tax decreased by $940,000 in the quarter as compared to the same quarter in 2016.  

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 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.  The 15th annual adjustment to the Royalty Pool took place on January 5, 2017 at which time the number of restaurants in the Royalty Pool increased from 838 to 861.

A&W Food Services owns 21.2% of the common shares of Trade Marks, and therefore owns the equivalent of 21.2% 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.

Follow A&W on Facebook (www.facebook.com/AWCanada) and Twitter @AWCanada or visit www.awincomefund.ca.

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.

SOURCE A&W Revenue Royalties Income Fund

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


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