TRADING SYMBOL: TSX: AW.UN
VANCOUVER, BC, May 9, 2022
/CNW/ -
- Royalty income increased by 13.5% in Q1 2022 as compared to Q1
2021.
- Royalty Pool Same Store Sales Growth(i) was +11.5%
for Q1 2022 as compared to Q1 2021.
FIRST QUARTER 2022
RESULTS
A&W Revenue Royalties Income Fund (the "Fund") and A&W
Food Services of Canada Inc. ("A&W Food Services") today
reported the Fund's results for the first quarter ended
March 27, 2022. The Fund will
hold a conference call to discuss the results on Monday, May 9, 2022 at 1:00 p.m. Pacific Time (4:00 p.m. Eastern Time). The call can be
accessed by dialling toll-free 1-888-394-8218 or 647-484-0475 and
by using the passcode 7571702#. A replay will be available until
May 16, 2022 by dialling toll-free
1-888-203-1112 or 647-436-0148 and by using the passcode
7571702#.
Royalty income for the first quarter of 2022 was $10,578,000 based on Gross sales reported by
restaurants in the Royalty Pool(i) of $352,614,000, compared to royalty income of
$9,322,000 and Gross sales reported
by A&W restaurants in the Royalty Pool(i) of
$310,726,000 for the first quarter of
2021.
The increase in royalty income for the quarter is driven by
Royalty Pool Same Store Sales Growth(i), which was
+11.5%, and the gross sales from the 21 net new restaurants added
to the Royalty Pool on January 5,
2022. The increase in royalty income for the quarter was
partially offset by there being one less day in the first quarter
of 2022 as compared to the first quarter of 2021. Royalty Pool Same
Store Sales Growth is based on an equal number of days in the
quarter.
The +11.5% Royalty Pool Same Store Sales Growth(i)
was primarily due to there being fewer public health restrictions
related to COVID-19 in place across Canada during the first quarter of 2022 as
compared to the first quarter of 2021. In Q1 2021 there were a
number of A&W restaurants that were temporarily closed or were
not able to offer dine-in services due restrictions. There were no
temporary closures of A&W restaurants due to COVID-19
restrictions in Q1 2022, however, many A&W restaurants were
still required to operate with reduced operating hours and capacity
limits on dine-in guests for all, or a portion, of the quarter.
Since March 2020, COVID-19 has
adversely impacted A&W restaurant operations across
Canada, particularly for those
restaurants located on urban street fronts and in shopping centres.
However, since the second quarter of 2020 when COVID-19 impacts on
A&W were at their peak, the impact of COVID-19 on Royalty Pool
Same Store Sales Growth has steadily declined. There does,
however, continue to be uncertainty related to COVID-19 and its
impact on our business. It is possible that there will be
restaurants that are required to temporarily close or that other
restrictions or requirements are introduced affecting operations,
guest counts and/or sales.
"We are pleased to report that A&W is off to a strong start
in 2022 and that we achieved 11.5% Royalty Pool Same Store Sales
Growth(i) in the first quarter", said Susan Senecal, President and CEO of A&W Food
Services. "The partnerships that Food Services has built with
franchisees and its supply chain over A&W's 65 year history
have allowed us to navigate the challenging and ever-changing
circumstances and conditions that businesses across Canada continue to face."
FINANCIAL RESULTS
(dollars in thousands
except per unit amounts)
|
Period
from
Jan 1, 2022 to
Mar 27, 2022
|
Period from
Jan 1, 2021 to
Mar 28, 2021
|
Royalty Pool Same Store
Sales Growth(i)
|
11.5%
|
-5.6%
|
Number of restaurants
in the Royalty Pool
|
1,015
|
994
|
Gross sales reported by
A&W restaurants in the Royalty Pool(i)
|
$352,614
|
$ 310,726
|
Royalty
income
|
$10,578
|
$ 9,322
|
General and
administrative expenses
|
$266
|
$206
|
Term loan and other
interest (net)
|
$574
|
$606
|
Current income tax
provision
|
$3,755
|
$2,032
|
Distributable cash
generated(ii)
|
$5,983
|
$6,478
|
Number of equivalent
units(iii)
|
19,813,593
|
19,132,830
|
Distributable cash per
equivalent unit(iv)
|
$0.302
|
$0.339
|
Distributions and
dividends declared per equivalent unit(iv)
|
$0.310
|
$0.235
|
Payout
ratio(iv)
|
145.0%
|
111.5%
|
Net cash generated from
operating activities
|
$7,942
|
$4,818
|
Net
income(v)
|
$9,688
|
$6,739
|
(i)
"Royalty Pool Same Store Sales Growth" and "Gross sales reported by
A&W restaurants in the Royalty Pool" are non-IFRS supplementary
financial measures. See the "Non-IFRS Measures" section of this
news release.
|
(ii)
"Distributable cash generated" is a non-IFRS financial
measure. Refer to the table below for a reconciliation of this
measure to the most comparable IFRS measure and the "Non-IFRS
Measures" section of this news release.
|
(iii) Equivalent units include Units
of the Fund ("Units") and Limited Voting Units of the Fund
("Limited Voting Units" and together with the Units, the "Trust
Units") and common shares of A&W Trade Marks Inc. ("Trade
Marks) that are exchangeable for Trust Units. The number of
equivalent units in 2022 is calculated on a fully-diluted basis and
includes the 111,082 limited partnership units ("LP Units") that
are exchangeable for 222,164 common shares of Trade Marks
representing the remaining 20% of the initial consideration for the
January 5, 2022 adjustment to the Royalty Pool, which LP units are
held back until the number of LP units is determined in December
2022 based on the actual annual sales reported by the new
restaurants. The number of equivalent units in 2021 is calculated
on a fully-diluted basis and includes 116,329 LP units,
exchangeable for 232,658 common shares of Trade Marks representing
the remaining 20% of the initial consideration for the January 5,
2021 adjustment to the Royalty Pool but does not include the
adjustment to increase the final consideration by 125,354 LP units,
equivalent to 250,708 common shares of Trade Marks, made in
December 2021 based on the actual system sales for the A&W
Restaurants added to the Royalty Pool as part of the January 5,
2021 adjustment to the Royalty Pool.
|
(iv)
"Distributable cash per equivalent unit", "Distributions and
dividends declared per equivalent unit" and "Payout Ratio" are
non-IFRS ratios. See the "Non-IFRS Measures" section of this news
release.
|
(v) Net
income includes unrealized gains and losses on interest rate swaps,
amortization of financing fees and deferred income taxes.
These non-cash items have no impact on the Fund's ability to pay
distributions to unitholders.
|
The following table provides a reconciliation of "Distributable
cash generated" to "Net cash generated from operating activities",
the most comparable IFRS measure, for the periods
indicated.
(dollars in
thousands)
|
Period
from
Jan 1, 2022 to
Mar 27, 2022
|
Period from
Jan 1, 2021 to
Mar 28, 2021
|
Net cash generated from
operating activities
|
$7,942
|
$4,818
|
Interest
expense
|
(574)
|
(606)
|
Current income tax
provision
|
(3,755)
|
(2,032)
|
Net changes in items of
non-cash working capital
|
346
|
(119)
|
Interest
paid
|
684
|
661
|
Income tax
paid
|
1,340
|
3,756
|
Distributable cash
generated
|
$5,983
|
$6,478
|
Two monthly distributions totaling 31.0¢ per Unit were declared
in the first quarter of 2022 compared to two monthly distributions
totaling 23.5¢ per Unit in the first quarter of 2021.
The quarterly Payout ratio reported by the Fund is impacted by
seasonality of sales of the A&W restaurants and the timing of
current income taxes, which can vary by quarter, and the
distribution rate in effect at the time. During the first
quarter of 2022, the Payout ratio(iv) was 145.0%, which
is higher than the trailing four quarter Payout ratio of 92.5%, due
primarily to the timing impact of current income taxes.
(iv)
"Payout Ratio" is a non-IFRS ratio. See the "Non-IFRS Measures"
section of this news release.
|
NON-IFRS MEASURES
This news release makes references to the following non-IFRS
measures: "Gross sales reported by A&W restaurants in the
Royalty Pool", "Royalty Pool Same Store Sales Growth",
"Distributable cash generated", "Distributable cash per equivalent
unit", "Distributions and dividends declared per equivalent unit"
and "Payout ratio". The Fund believes that disclosing these
non-IFRS measures provides readers of this news release with
important information regarding the Fund's financial performance
and its ability to pay distributions to unitholders. By
considering these measures in combination with IFRS measures, the
Fund believes that readers are provided with additional and more
useful information about the Fund than readers would have if they
simply considered IFRS measures alone. The non-IFRS measures
reported by the Fund do not have a standardized meaning prescribed
by IFRS and the Fund's method of calculating these measures may
differ from those of other issuers or companies and may not be
comparable to similar measures used by other issuers or
companies.
Refer to the "Financial Results" section of this news release
for a reconciliation of Distributable cash generated to net cash
generated from operating activities, the most comparable IFRS
measure and the "Non-IFRS Measures" section of the Fund's MD&A
for the first quarter ended March 27,
2022, for further details on how these measures are
calculated and used to assess the Fund's performance which will be
filed on SEDAR at www.sedar.com in due course.
SERVICES AGREEMENT
Trade Marks' general and administrative expenses include the
expenses of the Fund as the Fund has entered into an administration
agreement with Trade Marks whereby Trade Marks, at its expense,
provides or arranges for the provision of services required in the
administration of the Fund. On April
8, 2022, subsequent to the end of Q1 2022, Trade Marks and
Food Services entered into an agreement for Food Services to
provide administrative services to Trade Marks (the "Services
Agreement"). Under the terms of the Services Agreement, Food
Services is entitled to be paid an annual fee, on a quarterly
basis, for the services provided in each fiscal year in an amount
approved by the board of directors of Trade Marks that is based on
a prescribed time and effort computation. The Services Agreement
will remain in effect for the duration of the Administration
Agreement dated February 15, 2002
between Trade Marks and the Fund, unless terminated by either party
by giving 5 years advance written notice to the other party.
ABOUT THE FUND
The Fund is a limited purpose trust established to invest in
Trade Marks, which through its interest in the 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) is entitled to
royalties equal to 3% of the gross sales reported by A&W
restaurants in the Royalty Pool.
The Royalty Pool is adjusted annually to reflect gross sales
from new A&W restaurants, net of the gross sales of any A&W
restaurants that have permanently closed. Additional 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 common shares of Trade Marks which are
exchangeable for Trust Units. The 20th annual
adjustment to the Royalty Pool took place on January 5, 2022 at which time the number of
restaurants in the Royalty Pool increased from 994 to
1,015.
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.
ABOUT A&W FOOD
SERVICES
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®.
Follow A&W on Facebook (www.facebook.com/AWCanada) and
Twitter @AWCanada or visit www.awincomefund.ca.
Forward-Looking
Information
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. Specific
forward-looking statements include statements with respect to: the
impact of COVID-19, including its impact on store closures, on the
global economy in general and on the businesses of A&W Food
Services and the A&W franchisees in particular. The
forward-looking information is based on assumptions that management
considered reasonable at the time it was prepared, which
assumptions include: restaurant performance will continue to
improve; the Fund will receive sufficient revenue in the future (in
the form of royalty payments from A&W Food Services) to
maintain monthly distributions; the projections for the A&W
business and the Fund provided by A&W Food Services are
accurate; no material changes will occur in the quick service
restaurant burger market including as a result of changes in
consumer taste or health concerns or changes in economic conditions
or unemployment, the COVID-19 pandemic or a disease outbreak; and
the impacts of COVID-19 on the A&W system will not
significantly worsen. 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. Those risks and uncertainties
include, among other things, risks related to: the impacts of
COVID-19 on the Canadian economy, the QSR industry, the willingness
of the general public to dine outside their homes and travel, all
of which have negatively impacted A&W Food Services and the
Fund and have or may, as applicable, adversely affect each of
A&W Food Services', their franchisees' and the Fund's
respective investments, results of operations, and financial
condition; A&W Food Services may become liable for the lease
obligations of certain of its franchisees, if such franchisees
default on their leases, and such obligations may be significant
and A&W Food Services may be unsuccessful in seeking recovery
from such franchisees, all of which may adversely affect A&W
Food Services' investments, results of operations and financial
condition; A&W Food Services' projections may be inaccurate,
and do not represent a financial forecast and actual results may
differ materially from those anticipated by the projections;
monthly distributions are not guaranteed and may be reduced,
suspended or terminated at any time; the current sales improvement
trends of the A&W restaurants in the Royalty Pool may not
continue and may slow or regress; the A&W restaurant that is
currently temporarily closed may not reopen; government
restrictions related to COVID-19 may have their durations extended,
or may be reinstated, in the case of those that have recently been
lifted, which measures may restrict the ability of A&W
restaurants to operate, or result in forced closures, further
reduced guest traffic, supply interruptions or staff shortages;
and, government programs expected to be helpful to A&W
Franchisees may not be available to some franchisees, and may not
be available in amounts expected for those franchisees for which
such programs are available and may be terminated at any time, and
following the termination of such programs, or the reduction of
amounts available under such programs, franchisees currently
receiving support under those programs may need to find alternative
sources of financial support and may make requests for such support
from, among other parties, A&W Food Services. Additional
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. The
forward-looking information contained in this news release
represents the Fund's expectations as of the date of this news
release, and are subject to change after this date. The Fund
assumes no obligation to update or revise any forward-looking
information, except as required by applicable law.
SOURCE A&W Revenue Royalties Income Fund