Press Releases
TRADING SYMBOL: The Toronto Stock Exchange – AW.UN
HIGHLIGHTS
- Q3 same store sales growth accelerated to +3.7%
- Royalty income up 6.6%
- Twenty-two new restaurants open year to date
- Distributions to be increased by 2.3%
VANCOUVER, Oct. 16, 2017 /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 third quarter ended September 10, 2017. The Fund will hold a conference call to discuss the results on Monday, October 16, 2017 at 1:00 p.m. Pacific Time (4:00 p.m. Eastern Time). The call can be accessed by dialling toll-free 1-800-263-0877 or (416) 640-5944 Passcode 7773607. A replay will be available until October 23, 2017, by dialling toll-free 1-888-203-1112 or (647) 436-0148 Passcode 7773607.
A&W posted an acceleration in same store sales for the third quarter of 2017 to +3.7%, gaining momentum from marketing initiatives in connection with the successful launch of natural root beer on July 17th and continued focus on the strategy of using "better ingredients". Year to date same store sales growth now stands at +1.5%.
The same store sales growth, along with the sales from 23 net new restaurants added to the Fund's Royalty Pool in January 2017, resulted in a 6.6% increase in royalty income for the quarter and a 3.8% increase in royalty income year to date. Year to date distributable cash increased by 7.4% and year to date distributable cash per unit increased from $1.092 per unit to $1.138 per unit.
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 2.3% from 13.3¢ per unit to 13.6¢ per unit beginning with the November 2017 distribution. On an annualized basis this represents a distribution rate of $1.632 per unit. The November distribution of 13.6¢ per unit will be payable to unitholders of record on November 15, 2017 and will be paid on November 30, 2017.
"We are pleased with the sales performance in Q3, and are encouraged by the strong results that have been delivered despite some continuing challenges in the food service industry," said Paul Hollands, Chairman and CEO of A&W Food Services. "We are particularly pleased with the response to the introduction of root beer with natural cane sugar and natural flavours. This builds on the on-going success of all of our 'better ingredients', including beef, pork, eggs and chicken. We are also pleased with the recent opening of our 900th restaurant as we expand A&W to every market across the country."
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FINANCIAL HIGHLIGHTS |
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(dollars in thousands except per unit amounts) |
Period from |
Period from |
Period from |
Period from |
|
Same store sales growth(1) |
+3.7% |
+2.3% |
+1.5% |
+4.3% |
|
Number of restaurants in the Royalty Pool |
861 |
838 |
861 |
838 |
|
Sales reported by the restaurants in the Royalty Pool |
$296,842 |
$278,473 |
$816,139 |
$786,326 |
|
Royalty income |
$8,905 |
$8,354 |
$24,484 |
$23,590 |
|
General and administrative expenses |
75 |
56 |
424 |
372 |
|
Net third party interest expense |
593 |
593 |
1,794 |
1,793 |
|
Current income tax provision |
1,457 |
1,596 |
4,106 |
4,518 |
|
Total distributable cash generated for distributions and dividends(2) |
$6,779 |
$6,109 |
$18,160 |
$16,907 |
|
Distributable cash per equivalent unit (2017 – 15,950,970 units; |
$0.425 |
$0.395 |
$1.138 |
$1.092 |
|
Distributions and dividends declared per equivalent unit |
$0.399 |
$0.396 |
$1.064 |
$1.026 |
|
Net income(4) |
$8,241 |
$5,856 |
$20,060 |
$14,943 |
|
Net income, excluding non-cash items(4) |
$6,780 |
$5,709 |
$18,386 |
$15,241 |
|
(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. |
|
(2) |
Distributable cash 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 identifies the amount of actual cash available to pay distributions to unitholders and dividends to Food Services. |
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(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 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 for the third quarter of 2017 was $8,905,000 based on sales of $296,842,000. This was an increase of 6.6% from royalty income of $8,354,000 and sales of $278,473,000 for the third quarter of 2016. Year to date royalty income was $24,484,000 based on sales of $816,139,000, an increase of 3.8% from royalty income of $23,590,000 and sales of $786,326,000 for 2016 year to date. The increase in sales and royalty income was due to the combined impact of the additional net 23 new restaurants in the Royalty Pool and the same store sales growth of 3.7% for the quarter and 1.5% year to date as compared to 2016.
Combined general and administrative expenses and interest increased by $19,000 in the quarter and $53,000 year to date. Interest expense did not change significantly in 2017 year to date as compared to 2016. General and administrative expenses were higher due to increased filing and professional fees.
Distributable cash generated in the third quarter of 2017 to pay distributions to unitholders and dividends to Food Services was $6,779,000 compared to $6,109,000 in the third quarter of 2016. Distributable cash generated year to date in 2017 was $18,160,000 compared to $16,907,000 in 2016 year to date. The $1,253,000 year to date increase in distributable cash was comprised of the $894,000 increase in royalty income, less the $53,000 increase in combined general and administrative and interest expenses and a $412,000 decrease in the current income tax provision. The current income tax provision for the prior year to date period included transitional partnership tax of $633,000. 2016 was the last year that this tax was payable.
Distributable cash generated per equivalent unit increased by 3.0¢ to 42.5¢ per unit in the third quarter of 2017 from 39.5¢ for the third quarter of 2016. Distributable cash generated per equivalent unit increased by 4.6¢ to $1.138 per unit in 2017 year to date from $1.092 for 2016 year to date. The increase in distributable cash per equivalent unit was due to the increase in royalty income less the increase in cash expenses and taxes as discussed above.
Three monthly distributions totalling 39.9¢ per unit were declared in the third quarter of 2017 compared to 39.6¢ per unit in the same quarter of 2016. 2017 year to date distributions were $1.064 per unit compared to $1.026 per unit in 2016 year to date. The payout ratio for the third quarter of 2017 was 86.4% compared to 92.4% for the third quarter of 2016 and the year to date payout ratio was 97.2% compared to 99.4% for 2016 year to date.
The cumulative surplus of distributable cash at the end of the third quarter of 2017 was $3,157,000, compared to a cumulative surplus of $2,417,000 at the beginning of the year. Surplus distributable cash historically increases in the last half of the year due to the seasonality of sales in A&W restaurants.
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.
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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
