Press Releases
TRADING SYMBOL: TSX: AW.UN
VANCOUVER, BC, Feb. 28, 2023 /CNW/ -
- Royalty income increased by 10.8% year over year and by 8.4% in Q4 2022.
- Royalty Pool Same Store Sales Growth(i) was +7.4% for the year and +4.3% for Q4 2022.
- The distributions declared by the Fund in 2022 increased by 7.8% from 2021. The current distribution rate translates to an annualized distribution rate of $1.92 per Unit.
FOURTH QUARTER 2022 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, 2022 which will be filed on SEDAR at www.sedar.com on March 3, 2023. The Fund will hold a conference call to discuss the results on Wednesday, March 1, 2023 at 1:00 p.m. Pacific Time (4:00 p.m. Eastern Time).
The call will be webcast live and may be accessed at https://events.q4inc.com/attendee/384598351. Participants who wish to ask questions or are unable to join via webcast may dial-in by calling toll-free 1-888-886-7786 or 1-416-764-8658 and by using the conference ID 56638373 or quoting "A&W Revenue Royalties" when prompted by the operator. For those unable to participate in the live call, a replay will be made available for one year at https://events.q4inc.com/attendee/384598351.
"While 2022 continued to be a year of recovery for many of our operators, the A&W system came together to focus on its key initiatives of increasing the speed of service for drive-thru and continuing to evolve the technology we need to be highly convenient for our guests. This resulted in another quarter of strong results" said Susan Senecal, President and CEO of A&W Food Services and CEO of the Fund. "The COVID-19 pandemic had a significant adverse impact on restaurants, particularly those located on urban street fronts and in shopping centers. A&W is pleased to report that through the efforts of our franchisees, all concepts and regions have demonstrated both recovery and growth over 2021."
Royalty income for the fourth quarter of 2022 was $16,218,000 based on Gross sales reported by restaurants in the Royalty Pool(i) of $540,598,000, compared to royalty income of $14,956,000 and Gross sales reported by A&W restaurants in the Royalty Pool(i) of $498,558,000 for the fourth quarter of 2021. Annual royalty income for 2022 was $52,181,000 based on Gross sales reported by restaurants in the Royalty Pool(i) of $1,739,377,000, compared to royalty income of $47,081,000 and Gross sales reported by A&W restaurants in the Royalty Pool(i) of $1,569,377,000 for 2021.
The increase in royalty income for the quarter and year is driven by Royalty Pool Same Store Sales Growth(i), which was +4.3% for the quarter and +7.4% for the year, and the gross sales from the 21 net new restaurants added to the Royalty Pool on January 5, 2022. The increase in the quarter was also impacted by there being one additional day in the fourth quarter of 2022 as compared to the fourth quarter of 2021. Royalty Pool Same Store Sales Growth is based on an equal number of days in the quarter and year.
Royalty Pool Same Store Sales Growth(i) is a function of changes in guest counts and check size, both of which are impacted by sales mix and menu price changes. The Q4 2022 Royalty Pool Same Store Sales Growth(i) of +4.3% 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 annual Royalty Pool Same Store Sales Growth(i) of +7.4% 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 2021. During 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(i) has steadily declined.
FINANCIAL RESULTS
(dollars in thousands except per unit amounts) | Period from Sep 12, 2022 to | Period from Sep 13, 2021 to | Period from Jan 1, 2022 to | Period from Jan 1, 2021 to |
Royalty Pool Same Store Sales Growth(i) | 4.3 % | 13.8 % | 7.4 % | 14.0 % |
Number of restaurants in the Royalty Pool | 1,015 | 994 | 1,015 | 994 |
Gross sales reported by A&W restaurants in the Royalty Pool(i) | $540,598 | $498,558 | $1,739,377 | $1,569,377 |
Royalty income | $16,218 | $14,956 | $52,181 | $47,081 |
General and administrative expenses | $476 | $412 | $983 | $817 |
Term loan and other interest (net) | $530 | $717 | $2,113 | $2,514 |
Current income tax provision | $2,650 | $1,265 | $10,471 | $7,277 |
Distributable cash generated(ii) | $12,562 | $12,387 | $38,614 | $36,298 |
Number of equivalent units(iii) | 19,893,414 | 19,258,184 | 19,893,414 | 19,258,184 |
Distributable cash per equivalent unit(iv) | $0.631 | $0.643 | $1.941 | $1.885 |
Distributions and dividends declared per equivalent unit(iv) | $0.635 | $0.665 | $1.875 | $1.740 |
Payout Ratio(iv) | 90.3 % | 81.5 % | 96.6 % | 92.3 % |
Net cash generated from operating activities | $13,185 | $11,713 | $44,264 | $34,113 |
Net income(v) | $11,861 | $14,124 | $41,389 | $37,854 |
(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 2022 are calculated on a fully-diluted basis and include the 190,903 limited partnership units ("LP Units") exchanged for 381,806 common shares of Trade Marks representing the remaining consideration paid in December 2022 for the January 5, 2022 adjustment to the Royalty Pool (as defined below). The number of equivalent units and Distributable cash per equivalent unit in 2021 are calculated on a fully-diluted basis and include 241,683 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. |
(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 12, 2022 to | Period from Sep 13, 2021 to | Period from Jan 1, 2022 to | Period from Jan 1, 2021 to |
Net cash generated from operating activities | $13,185 | $11,713 | $44,264 | $34,113 |
Interest expense | (530) | (717) | (2,113) | (2,514) |
Current income tax provision | (2,650) | (1,265) | (10,471) | (7,277) |
Net changes in items of non-cash working capital | (774) | (1,045) | 508 | (159) |
Financing fees paid | - | (175) | - | (175) |
Interest paid | 1,332 | 1,195 | 2,763 | 2,520 |
Income tax paid | 1,999 | 2,681 | 3,663 | 9,790 |
Distributable cash generated | $12,562 | $12,387 | $38,614 | $36,298 |
Four monthly distributions totaling 63.5¢ per Unit were declared in the fourth quarter of 2022 compared to four monthly distributions totaling 61.5¢ per Unit and one special distribution totaling 5.0¢ per Unit in the fourth quarter of 2021. Twelve monthly distributions totaling $1.875 per Unit were declared in 2022 compared to twelve monthly distributions totaling $1.690 per Unit and one special distribution totaling 5.0¢ per Unit in 2021.
The monthly distribution rate was 15.5¢ per Unit from January to September 2022 and was increased to the current rate of 16.0¢ per Unit beginning with the October distribution that that was paid 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 fourth quarter of 2022 was 90.3% compared to 81.5% for the fourth quarter of 2022. The year to date Payout ratio(iv) for 2022 was 96.6% compared to 92.3% for the comparable period in 2021.
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 year ended December 31, 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 on March 3, 2023.
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 21st annual adjustment to the Royalty Pool took place on January 5, 2023 at which time the number of restaurants in the Royalty Pool increased from 1,015 to 1,037.
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; 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
