Press Releases
TRADING SYMBOL: TSX: AW.UN
VANCOUVER, BC, Feb. 16, 2022 /CNW/ -
- Royalty income increased by 16.5% year over year and by 12.0% in Q4 2021.
- Royalty Pool Same Store Sales Growth(i) was +14.0% for the year and +13.8% for Q4 2021.
- Including the 5¢ per Unit special distribution that was paid to unitholders on December 31, 2021, the distributions declared by the Fund in 2021 increased by 14.6% from 2020. The current distribution rate translates to an annualized distribution rate of $1.86 per Unit.
FOURTH QUARTER 2021 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 fourth quarter and year ended December 31, 2021. The Fund will hold a conference call to discuss the results on Wednesday, February 16, 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 6229672#. A replay will be available until February 23, 2022 by dialling toll-free 1-888-203-1112 or 647-436-0148 and by using the passcode 6229672#.
Royalty income for the fourth quarter of 2021 was $14,956,000 based on Gross sales reported by restaurants in the Royalty Pool(i) of $498,558,000, compared to royalty income of $13,350,000 and Gross sales reported by A&W restaurants in the Royalty Pool(i) of $444,977,000 for the fourth quarter of 2020. Annual royalty income for 2021 was $47,081,000 based on Gross sales reported by restaurants in the Royalty Pool(i) of $1,569,377,000, compared to royalty income of $40,422,000 and Gross sales reported by A&W restaurants in the Royalty Pool(i) of $1,347,387,000 for 2020.
The increase in royalty income for the quarter and year is driven by Royalty Pool Same Store Sales Growth(i), which was +13.8% for the quarter and +14.0% for the year, and the gross sales from the 23 net new restaurants added to the Royalty Pool on January 5, 2021. The increase in royalty income for the quarter was partially offset by there being six fewer days in the fourth quarter of 2021 as compared to the fourth quarter of 2020. The increase in royalty income for the year was partially offset by there being one less day in 2021 than in 2020. Royalty Pool Same Store Sales Growth is based on an equal number of days in the quarter and year.
The +13.8% Royalty Pool Same Store Sales Growth(i) in the quarter was primarily driven by there being fewer COVID-19 related restrictions in place which led to a reduction in the number of A&W restaurants that were temporarily closed or were not able to offer dine-in services, as compared to the fourth quarter of 2020. As of today and December 31, 2021 all of the A&W restaurants that had been temporarily closed due to COVID-19 related restrictions had reopened.
The actions required in 2020 and 2021 in response to COVID-19 have adversely impacted A&W restaurant operations across Canada, particularly for those restaurants located on urban street fronts and in shopping centres. 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 has lessened. 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 another quarter of strong results and are delighted that all of our restaurants that were temporarily closed due to COVID-19 restrictions are back open", said Susan Senecal, President and CEO of A&W Food Services. "Our successes in 2021 are a testament to the loyalty of our guests, the resilience of our franchisee network and the strength of the partnerships that Food Services has with its franchisees and suppliers."
FINANCIAL RESULTS
(dollars in thousands except per unit | Period from Sep 13, 2021 to | Period from Sep 7, 2020 to | Period from Jan 1, 2021 to | Period from Jan 1, 2020 to |
Royalty Pool Same Store Sales | 13.8% | -9.3% | 14.0% | -14.3% |
Number of restaurants in the | 994 | 971 | 994 | 971 |
Gross sales reported by A&W | $498,558 | $444,977 | $1,569,377 | $1,347,387 |
Royalty income | $14,956 | $13,350 | $47,081 | $40,422 |
General and administrative expenses | $412 | $463 | $817 | $994 |
Term loan and other interest (net) | $717 | $681 | $2,514 | $2,177 |
Current income tax provision | $1,265 | $2,798 | $7,277 | $7,242 |
Distributable cash generated(ii) | $12,387 | $9,408 | $36,298 | $30,009 |
Number of equivalent units(iii) | 19,258,184 | 18,551,185 | 19,258,184 | 18,551,185 |
Distributable cash per equivalent | $0.643 | $0.508 | $1.885 | $1.618 |
Distributions and dividends declared | $0.665 | $0.900 | $1.740 | $1.518 |
Payout ratio(iv) | 81.5% | 162.0% | 92.3% | 93.8% |
Net cash generated from operating | $11,713 | $14,629 | $34,113 | $30,409 |
Net income(v) | $14,124 | $11,194 | $37,854 | $28,374 |
(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 and Distributable cash per equivalent unit in 2021 are calculated on a fully-diluted basis and include the 241,683 limited partnership units ("LP Units") exchanged for 483,366 common shares of Trade Marks representing the remaining consideration paid in December 2021 for the January 5, 2021 adjustment to the Royalty Pool (as defined below). The number of equivalent units and Distributable cash per equivalent unit in 2020 are calculated on a fully-diluted basis and include 147,772 LP Units exchanged for 295,544 common shares of Trade Marks representing the remaining consideration paid in December 2020 for the January 5, 2020 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 Sep 13, 2021 to | Period from Sep 7, 2020 to | Period from Jan 1, 2021 to | Period from Jan 1, 2020 to |
Net cash generated from operating | $11,713 | $14,629 | $34,113 | $30,409 |
Interest expense | (717) | (681) | (2,514) | (2,177) |
Current income tax provision | (1,265) | (2,798) | (7,277) | (7,242) |
Net changes in items of non-cash | (1,045) | (7,881) | (159) | 35 |
Financing fees paid | (175) | - | (175) | - |
Interest paid | 1,195 | 1,099 | 2,520 | 1,933 |
Income tax paid | 2,681 | 5,040 | 9,790 | 7,051 |
Distributable cash generated | $12,387 | $9,408 | $36,298 | $30,009 |
Four monthly distributions totaling 61.5¢ per Unit and one special distribution of 5.0¢ per Unit were declared in the fourth quarter of 2021 compared to four monthly distributions totaling 40.0¢ per Unit and two special distributions totaling 50.0¢ per Unit in the fourth quarter of 2020. Twelve monthly distributions totaling $1.690 per Unit and one special distribution of 5.0¢ per Unit were declared in 2021 compared to nine monthly distributions totaling $1.018 per Unit and two special distributions totaling 50.0¢ per Unit in 2020. No monthly distributions were declared in the second quarter of 2020 as the Trustees had temporarily suspended monthly distributions on the Units commencing with the March 2020 distribution that would ordinarily have been declared in April 2020. The Trustees approved the resumption of monthly distributions on July 7, 2020 commencing with the June distribution of 10¢ per Unit that was paid on July 31, 2020 to unitholders of record as of the close of business on July 15, 2020. Total monthly distributions and special distributions declared in 2021 were $1.740 per Unit as compared to total monthly distributions and special distributions of $1.518 per Unit in 2020.
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 fourth quarter ended December 31, 2021, 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.
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
