TRADING SYMBOL: TSX:
AW.UN
VANCOUVER, BC, July 27,
2022 /CNW/ -
- Royalty income increased by 15.9% in Q2 2022 and 14.7% year to
date, as compared to the comparable periods in 2021.
- Royalty Pool Same Store Sales Growth(i) was +12.2%
for Q2 2022 and +12.0% year to date
SECOND 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 second quarter and year to date
period ended June 19, 2022. The
Fund will hold a conference call to discuss the results on
Wednesday, July 27, 2022 at
1:00 p.m. Pacific Time (4:00 p.m. Eastern Time). The call can be
accessed by dialling toll-free 1-888-220-8451 or 647-484-0475 and
by using the passcode 7213820#. A replay will be available until
August 3, 2022 by dialling toll-free
1-888-203-1112 or 647-436-0148 and by using the passcode
7213820#.
"A&W is pleased to report strong results for the first half
of 2022, with our year to date Royalty Pool Same Store Sales
Growth(i) coming in at +12.0%", said Susan Senecal, President and CEO of A&W Food
Services. "We are delighted to see a steady increase in the number
of guests visiting our restaurants, especially those restaurants
that are located in shopping centres and on urban street fronts, as
those locations were hit particularly hard by COVID-19 and the
related restrictions."
Royalty income for the second quarter of 2022 was $12,187,000 based on Gross sales reported by
restaurants in the Royalty Pool(i) of $406,215,000, compared to royalty income of
$10,519,000 and Gross sales reported
by A&W restaurants in the Royalty Pool(i) of
$350,641,000 for the second quarter
of 2021. Year to date royalty income was $22,765,000 based on gross sales reported by
restaurants in the Royalty Pool(i) of $758,829,000, compared to royalty income of
$19,841,000 and gross sales reported
by A&W restaurants in the Royalty Pool(i) of
$661,367,000 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 +12.2% for the quarter and +12.0%
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.
The Royalty Pool Same Store Sales Growth in both the quarter and
year to date period was primarily driven by an increase in guest
counts across all restaurant concepts and all provinces due to
there being fewer public health restrictions related to COVID-19 in
place across Canada in 2022 as
compared to the comparable periods in 2021. During the first two
quarters of 2021 there were a number of A&W restaurants that
were temporarily closed and many of the restaurants that were open
were not able to offer dine-in services due to restrictions. There
were no temporary closures of A&W restaurants due to COVID-19
restrictions in 2022 and by June 19,
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.
FINANCIAL RESULTS
(dollars in thousands
except per unit
amounts)
|
Period
from
Mar 28, 2022 to
Jun 19, 2022
|
Period from
Mar 29, 2021 to
Jun 20, 2021
|
Period
from
Jan 1, 2022 to
Jun 19, 2022
|
Period from
Jan 1, 2021 to
Jun 20, 2021
|
Royalty Pool Same Store
Sales Growth(i)
|
12.2 %
|
33.5 %
|
12.0 %
|
12.2 %
|
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)
|
$406,215
|
$350,641
|
$758,829
|
$661,367
|
Royalty
income
|
$12,187
|
$10,519
|
$22,765
|
$19,841
|
General and
administrative expenses
|
120
|
96
|
386
|
302
|
Term loan and other
interest (net)
|
520
|
611
|
1,094
|
1,217
|
Current income tax
provision
|
2,030
|
1,893
|
5,785
|
3,925
|
Distributable cash
generated(ii)
|
$9,517
|
$7,919
|
$15,500
|
$14,397
|
Number of equivalent
units(iii)
|
19,813,593
|
19,132,830
|
19,813,593
|
19,132,830
|
Distributable cash per
equivalent unit(iv)
|
$0.480
|
$0.414
|
$0.782
|
$0.752
|
Distributions and
dividends declared per
equivalent unit(iv)
|
$0.465
|
$0.405
|
$0.775
|
$0.640
|
Payout
Ratio(iv)
|
89.2 %
|
88.2 %
|
110.7 %
|
98.8 %
|
Net cash generated from
operating
activities
|
$12,459
|
$8,540
|
$20,401
|
$13,358
|
Net
income(v)
|
$10,272
|
$8,095
|
$19,960
|
$14,834
|
(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)
|
Period
from
Mar 28, 2022 to
Jun 19, 2022
|
Period from
Mar 29, 2021 to
Jun 20, 2021
|
Period
from
Jan 1, 2022 to
Jun 19, 2022
|
Period from
Jan 1, 2021 to
Jun 20, 2021
|
Net cash generated from
operating activities
|
$12,459
|
$8,540
|
$20,401
|
$13,358
|
Interest
expense
|
(520)
|
(611)
|
(1,094)
|
(1,217)
|
Current income tax
provision
|
(2,030)
|
(1,893)
|
(5,785)
|
(3,925)
|
Net changes in items of
non-cash working capital
|
800
|
516
|
1,146
|
397
|
Interest paid
(received)
|
(15)
|
26
|
669
|
687
|
Income tax paid
(refunded)
|
(1,177)
|
1,341
|
163
|
5,097
|
Distributable cash
generated
|
$9,517
|
$7,919
|
$15,500
|
$14,397
|
Three monthly distributions totaling 46.5¢ per Unit were
declared in the second quarter of 2022 compared to three monthly
distributions totaling 40.5¢ per Unit in the second quarter of
2021. Five monthly distributions totaling 77.5¢ per Unit were
declared in the 2022 year to date period compared to five monthly
distributions totaling 64.0¢ per Unit for the comparable period in
2021. Total distributions declared and accrued per equivalent unit
year to date were 86.6¢ cents for 2022 compared to 74.3¢ for the
comparable period in 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. The Payout
ratio(iv) for the second quarter of 2022 was 89.2%
compared to 88.2% for the second quarter of 2021. The year to date
Payout ratio(iv) for 2022 was 110.7% compared to 98.8%
for the comparable period in 2021. The Payout
ratio(iv) of 110.7% for the year to date period in
2022 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.
|
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 second quarter ended June 19,
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.
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.
PRET A MANGER
On June 2, 2022 Food Services
announced that it had signed a Country Agreement (the "Country
Agreement") with UK-based Pret A Manger (Europe) Limited ("Pret"), which sets forth the
general terms and conditions granting Food Services master
franchisor rights to Canada for
Pret A Manger.
Pursuant to the Country Agreement, Food Services has the
exclusive right to use the Pret brand in Canada for a two-year pilot (the "Trial
Phase") during which Food Services will introduce the Pret brand
within A&W restaurants in select markets in Canada. If the Trial Phase is successful, Food
Services will have the exclusive right to expand the Pret brand
across Canada pursuant to an
agreed development plan.
The royalty payable to the Fund will apply to Pret products sold
within A&W restaurants during the Trial Phase to the extent
that such restaurants are in the Royalty Pool. Should the
Trial Phase prove successful, the Royalty will also be earned by
the Fund on the sales of any Pret products made within A&W
restaurants thereafter.
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 expectation
that Food Services will open Pret locations and that the Fund will
earn royalty income from the sale of Pret products; the expectation
that the Trial Phase will be successful and that Food Services will
expand the Pret brand across Canada. 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