TRADING SYMBOL: TSX: AW.UN
VANCOUVER, BC, Oct. 19, 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 third quarter and year to date period ended September 11, 2022. The Fund will hold a conference call to discuss the results on Wednesday, October 19, 2022 at 1:00 p.m. Pacific Time (4:00 p.m. Eastern Time). The call can be accessed by dialling toll-free 1-866-580-3963 or 786-697-3501 and by quoting "A&W Revenue Royalties" when prompted by the operator. A replay will be available until October 26, 2022 by dialling toll-free 1-888-889-0604 and by using the passcode 2655261.
"A&W is pleased to see the number of guests visiting our restaurants continue to grow and drive Royalty Pool Same Store Sales Growth", said Susan Senecal, President and CEO of A&W Food Services and CEO of the Fund. "We are also pleased that the strong performance of the restaurants in the royalty pool has allowed the Fund to increase its distribution rate."
Royalty income for the third quarter of 2022 was $13,198,000 based on Gross sales reported by restaurants in the Royalty Pool(i) of $439,950,000, compared to royalty income of $12,284,000 and Gross sales reported by A&W restaurants in the Royalty Pool(i) of $409,452,000 for the third quarter of 2021. Year to date royalty income was $35,963,000 based on gross sales reported by restaurants in the Royalty Pool(i) of $1,198,779,000, compared to royalty income of $32,125,000 and gross sales reported by A&W restaurants in the Royalty Pool(i) of $1,070,819,000 for the comparable period in 2021.
The increase in royalty income for the quarter and year to date period was driven by Royalty Pool Same Store Sales Growth(i), which was +4.0% for the quarter and +8.9% year to date, 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 year to date period 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.
Royalty Pool Same Store Sales Growth is a function of changes in guest counts and check size, both of which are impacted by sales mix and menu price changes. The Q3 2022 Royalty Pool Same Store Sales Growth(i) of +4.0% was a product of an increase in both guest counts and average check size. The growth in average check size was partly attributable to menu prices which have modestly increased in response to industry-wide inflation on goods, services, and labour. The year to date Royalty Pool Same Store Sales Growth(i) of +8.9% was primarily driven by an increase in guest counts, due to there being fewer public health restrictions related to COVID-19 in place across Canada in 2022 as compared to the comparable period in 2021. During the first three quarters of 2021 there were a number of A&W restaurants that were temporarily closed and many of the restaurants that were open were negatively impacted by COVID-19 restrictions. There were no temporary closures of A&W restaurants due to COVID-19 restrictions in 2022 and by end of Q2 2022 most restrictions, such as capacity limits on dine-in guests, reduced hours of operation and requirements for dine-in guests to show proof of vaccination, had been lifted.
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.
(dollars in thousands except per unit
Jun 20, 2022 to
Jun 21, 2021 to
Jan 1, 2022 to
Jan 1, 2021 to
Royalty Pool Same Store Sales Growth(i)
Number of restaurants in the Royalty
Gross sales reported by A&W restaurants
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
Net cash generated from operating
"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.
"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.
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.
"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.
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)
Jun 20, 2022 to
Jun 21, 2021 to
Jan 1, 2022 to
Jan 1, 2021 to
Net cash generated from operating activities
Term loan and other interest (net)
Current income tax provision
Net changes in items of non-cash working capital
Income tax paid
Distributable cash generated
Three monthly distributions totaling 46.5¢ per Unit were declared in the third quarter of 2022 compared to three monthly distributions totaling 43.5¢ per Unit in the third quarter of 2021. Eight monthly distributions totaling $1.240 per Unit were declared in the 2022 year to date period compared to eight monthly distributions totaling $1.075 per Unit for the comparable period in 2021. Total distributions declared and accrued per equivalent unit year to date were $1.294 for 2022 compared to $1.170 for the comparable period in 2021.
The current monthly distribution rate of 15.5¢ per Unit translates to an annualized distribution of $1.86 per Unit. Due to the performance by restaurants in the Royalty Pool, the monthly distribution to unitholders will increase from 15.5¢ per Unit to 16.0¢ per Unit beginning with the October distribution which is payable on November 30, 2022. The new distribution rate translates into a go-forward annualized distribution rate of $1.92 per Unit, an increase of 3.2% from the prior level of $1.86 per Unit.
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. The Payout ratio(iv) for the third quarter of 2022 was 80.3% compared to 77.5% for the third quarter of 2021. The year to date Payout ratio(iv) for 2022 was 98.4% compared to 93.6% for the comparable period in 2021. The Payout ratio(iv) of 98.4% for the year to date period in 2022 is higher than the trailing four quarter Payout ratio of 92.8% due primarily to the timing impact of current income taxes.
"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 third quarter ended September 11, 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.
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; and the expectation that the monthly distribution rate will be increased from 15.5¢ per Unit to 16.0¢ per Unit beginning with the October 2022 distribution that is payable November 30, 2022. 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; government restrictions related to COVID-19 may be reinstated, 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 changes in economic conditions, including economic recession or changes in the rate of inflation or deflation, employment rates and household debt, political uncertainty, interest rates, currency exchange rates or derivative and commodity prices. 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