TRADING SYMBOL: The Toronto Stock Exchange – AW.UN
VANCOUVER, May 3, 2019 /CNW/ -
A&W Revenue Royalties Income Fund (the Fund) and A&W Food Services of Canada Inc. (A&W Food Services) today reported results for the first quarter ended March 24, 2019. The Fund will hold a conference call to discuss the results on Friday, May 3, 2019 at 1:00 p.m. Pacific Time (4:00 p.m. Eastern Time). The call can be accessed by dialling toll-free 1-866-254-3590 or (647) 794-4605 Passcode 1087438#. A replay will be available until May 10, 2019, by dialling toll-free 1-888-203-1112 or (647) 436-0148 Passcode 1087438#.
A&W reported same store sales growth of +10.0% for the first quarter of 2019, another very strong quarter.
Total sales reported by restaurants in the Royalty Pool were $308.8 million, an increase of 15.4% from sales of $267.7 million in the first quarter of 2017. The increase in sales resulted primarily from same store sales growth and the additional net 38 restaurants added to the Royalty Pool on January 5, 2019 and was partially offset by one less day 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.
As a result of the performance of the Fund and the underlying A&W restaurants in the Royalty Pool, the Fund is pleased to announce that it is increasing the monthly cash distributions by 4.8% from 14.7¢ per unit to 15.4¢ per unit beginning with the April 2019 distribution. On an annualized basis this represents a distribution rate of $1.848 per unit. The April distribution of 15.4¢ per unit will be payable to unitholders of record on May 15, 2019 and will be paid on May 31, 2019.
"We are very pleased by the sales performance achieved in the first quarter. Our continued focus on great tasting food made with high quality natural ingredients has delivered strong results and a new high for market share," said Susan Senecal, President and CEO of A&W Food Services. "I am delighted that the success of our efforts has allowed the Fund to increase distributions to the unitholders."
(dollars in thousands except per unit amounts)
Same store sales growth(1)
Number of restaurants in the Royalty Pool
Sales reported by the restaurants in the Royalty Pool
General and administrative expenses
Net third party interest expense
Current income tax provision
Total distributable cash generated for distributions and dividends(2)
Distributable cash per equivalent unit (2019 – 17,659,154 units; 2018 – 16,874,762 units)(2)(3)
Distributions and dividends declared per equivalent unit
Net income, excluding non-cash items(4)
(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 2019 is calculated on a fully-diluted basis and includes the 156,878 LP units (as hereinafter defined) representing the remaining 20% of the consideration for the January 5, 2019 adjustment to the Royalty Pool which is held back until December 2019 when the actual annual sales are reported by the new restaurants. The number of equivalent units and distributable cash per equivalent unit in 2018 is calculated on a fully-diluted basis and includes the 149,063 LP units exchanged for 298,126 common shares of Trade Marks representing the final consideration paid in December 2018 for the January 5, 2018 adjustment to the Royalty Pool.
(4) Net income in 2019 and 2018 includes non-cash gains and losses on an interest rate swap, 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.
Royalty income increased by $1,234,000 to $9,265,000 for the first quarter of 2019 compared to $8,031,000 for the same quarter of 2018. Combined general and administrative expenses and interest decreased by $48,000 in the quarter. Current income taxes payable increased by $345,000 due to an increase in earnings before income tax. Distributable cash of $6,707,000 was generated in the first quarter of 2019, an increase of $937,000 compared to $5,770,000 in the same quarter of 2018. Distributable cash per equivalent unit increased by 3.6¢ per unit to 38.0¢ per unit for the quarter compared to 34.4¢ per unit in the same quarter in 2018.
Two monthly distributions totalling 29.0¢ per unit were declared in the quarter, compared to 27.2¢ in the first quarter of 2018. The cumulative surplus of distributable cash at the end of the quarter was $6,889,000, compared to a cumulative surplus of $7,660,000 at the beginning of the year. Surplus distributable cash historically decreases in the first quarter due to the seasonality of the business. The trailing four quarter payout ratio is 89.8%.
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 2019 was $5,666,000 compared to $6,305,000 for the first quarter of 2018. The $1.2 million increase in royalty income noted above was offset by a non-cash loss on the interest rate swap of $809,000 vs a non-cash gain of $659,000 last year, and increased income taxes, resulting in a $639,000 decrease in net income. Total income tax including current tax, non-cash deferred income tax and refundable income tax increased by $453,000 in the quarter as compared to the same quarter in 2018.
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 17th annual adjustment to the Royalty Pool took place on January 5, 2019 at which time the number of restaurants in the Royalty Pool increased from 896 to 934.
A&W Food Services owns 28.6% of the common shares of Trade Marks, and therefore owns the equivalent of 28.6% 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.
SOURCE A&W Revenue Royalties Income Fund