TRADING SYMBOL: TSX: AW.UN
VANCOUVER, BC, May 9, 2022 /CNW/ -
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."
(dollars in thousands except per unit amounts)
Jan 1, 2022 to
Jan 1, 2021 to
Royalty Pool Same Store Sales Growth(i)
Number of restaurants in the Royalty Pool
Gross sales reported by A&W restaurants in the Royalty Pool(i)
General and administrative expenses
Term loan and other interest (net)
Current income tax provision
Distributable cash generated(ii)
Number of equivalent units(iii)
Distributable cash per equivalent unit(iv)
Distributions and dividends declared per equivalent unit(iv)
Net cash generated from operating activities
(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)
Jan 1, 2022 to
Jan 1, 2021 to
Net cash generated from operating activities
Current income tax provision
Net changes in items of non-cash working capital
Income tax paid
Distributable cash generated
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.
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.
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.
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.
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®.
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