TRADING SYMBOL: TSX: AW.UN
VANCOUVER, BC, May 9, 2024
/CNW/ -
- Royalty income increased by 1.0% in Q1 2024 as compared to Q1
2023.
- Royalty Pool Same Store Sales Growth(i) was +0.6%
for Q1 2024 as compared to Q1 2023.
FIRST QUARTER 2024 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
first quarter ended March 24, 2024
which are expected to be filed today on SEDAR+ at www.sedarplus.ca.
The Fund will hold a conference call to discuss the results today,
Thursday, May 9, 2024 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/811596509. Participants who wish
to ask questions or are unable to join via webcast may dial-in by
calling toll-free 1-800-579-2543 or 1-785-424-1789 and by quoting
the conference ID "AWRRIF" 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/811596509.
"We are pleased to report that the Fund has achieved positive
growth for the first quarter of 2024", said Susan Senecal, President and CEO of A&W Food
Services. "A&W is excited about the marketing campaigns and
promotions it is running this year which will offer guests
innovative, wallet friendly options at a time when consumers are
feeling increased pressure to monitor their discretionary
spending."
Royalty income for the first quarter of 2024 was $11,553,000 based on Gross sales reported by
restaurants in the Royalty Pool(i) of $385,097,000, compared to royalty income of
$11,439,000 and Gross sales reported
by A&W restaurants in the Royalty Pool(i) of
$381,298,000 for the first quarter of
2023.
The increase in royalty income for the quarter is driven by
Royalty Pool Same Store Sales Growth(i), which was +0.6%
for the quarter, and the gross sales from the 10 net new
restaurants added to the Royalty Pool on January 5, 2024. The increase was partially
offset by there being one less day in the first quarter of 2024 as
compared to the first quarter of 2023. 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 is a function of changes in
guest counts and check size, both of which are impacted by sales
mix and menu price changes. The Q1 2024 Royalty Pool Same Store
Sales Growth(i) of +0.6% was a product of an increase in
average check size due to industry-wide inflation on goods,
services, and labour, partially offset by a decline in guest
traffic. A&W Food Services believes that the decline in guest
traffic is primarily attributable to increased interest rates and
inflation, which have impacted consumer discretionary spending. In
response to these economic conditions, A&W Food Services
continues to seek new and innovative ways to offer A&W's guests
a delicious and affordable experience and in turn increase guest
traffic.
FINANCIAL RESULTS
|
(dollars in
thousands except per unit amounts)
|
Period
from
Jan 1, 2024
to
Mar 24, 2024
|
Period
from
Jan 1, 2023
to
Mar 26, 2023
|
|
Royalty Pool Same Store
Sales Growth(i)
|
0.6 %
|
6.1 %
|
|
Number of restaurants
in the Royalty Pool
|
1,047
|
1,037
|
|
Gross sales reported by
A&W restaurants in the Royalty Pool(i)
|
$385,097
|
$381,298
|
|
Royalty
income
|
$11,553
|
$11,439
|
|
General and
administrative expenses
|
$237
|
$249
|
|
Term loan and other
interest (net)
|
$301
|
$305
|
|
Current income tax
provision
|
$3,028
|
$2,813
|
|
Distributable cash
generated(ii)
|
$7,987
|
$8,072
|
|
Number of equivalent
units(iii)
|
20,655,650
|
20,368,874
|
|
Distributable cash per
equivalent unit(iv)
|
$0.387
|
$0.396
|
|
Distributions and
dividends declared per equivalent
unit(iv)
|
$0.320
|
$0.320
|
|
Distributions and
dividends declared and accrued per equivalent
unit(iv)
|
$0.441
|
$0.447
|
|
Payout
ratio(iv)
|
114.0 %
|
112.9 %
|
|
Net cash generated from
operating activities
|
$9,161
|
$2,298
|
|
Net
income(v)
|
$8,835
|
$7,573
|
|
(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 ("Units") and limited voting units
of the Fund (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
2024 is calculated on a fully-diluted basis and includes the 54,507
limited partnership units (the "LP units") that are exchangeable
for 109,014 common shares of Trade Marks representing the remaining
20% of the initial consideration for the January 5, 2024 adjustment
to the Royalty Pool, which LP units are held back until the number
of LP units is determined in December 2024 based on the actual
annual sales reported by the new restaurants. The number of
equivalent units in 2023 is calculated on a fully-diluted basis and
includes 95,092 LP units, exchangeable for 190,184 common shares of
Trade Marks representing the remaining 20% of the initial
consideration for the January 5, 2023 adjustment to the Royalty
Pool but does not include the adjustment to increase the final
consideration by 14,240 LP units, equivalent to 28,480 common
shares of Trade Marks, made in December 2023 based on the actual
system sales for the A&W Restaurants added to the Royalty Pool
as part of the January 5, 2023 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
Jan 1, 2024 to
Mar 24, 2024
|
Period
from
Jan 1, 2023 to
Mar 26, 2023
|
|
Net cash generated from
operating activities
|
$9,161
|
$2,298
|
|
Term loan and other
interest (net)
|
(301)
|
(305)
|
|
Current income tax
provision
|
(3,028)
|
(2,813)
|
|
Net changes in items of
non-cash working capital
|
(190)
|
330
|
|
Interest
paid
|
443
|
475
|
|
Interest
received
|
(98)
|
(101)
|
|
Income tax
paid
|
2,000
|
8,188
|
|
Distributable cash
generated
|
$7,987
|
$8,072
|
Two monthly distributions totaling 32.0¢ per Unit were declared
in the first quarter of both 2024 and 2023.
The Payout ratio(iv) for the first quarter of 2024
was 114.0% compared to 112.9% for the first quarter of 2023.
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 first quarter of 2024 of 114.0% is
higher than the trailing four quarter Payout ratio(iv)
of 91.9% is due to both the seasonality of sales and the timing
impact of current income taxes.
NON-IFRS MEASURES
This news release references 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
management discussion and analysis ("MD&A") for the first
quarter ended March 24, 2024, for
further details on how these measures are calculated and used to
assess the Fund's performance which are expected to be filed on
SEDAR+ at www.sedarplus.ca today.
AMENDMENTS TO CREDIT FACILITIES
Subsequent to quarter end, on May 8, 2024, A&W Food
Services received approval from its Board of Directors and reached
an agreement with its existing lender (the "Bank") to extend its
$40,000,000 demand operating loan
facility for a period of one year. Under the amended agreement
account overdrafts will bear interest at the Bank's prime rate plus
0.75% (previously the Bank's prime rate plus 1%). As part of the
amendment, and in response to the pending cessation of Canadian
Dollar Offered Rate which is the benchmark interest rate on bankers
acceptances ("BAs"), the existing credit facility was also amended
to transition from BAs to CORRA loans, in which the interest rate
benchmark is Canadian Overnight Repo Rate Average ("CORRA"). The
remaining terms and conditions are consistent with those of A&W
Food Services' previous credit facility in place with the Bank.
On May 8, 2024, Trade Marks also
received approval from its Board of Directors to amend its credit
facility to transition the $60,000,000 term loan from BAs to CORRA loans.
The remaining terms and conditions are consistent with those of the
existing credit facility in place with the Bank. The fixed interest
rate on the interest rate swap remains unchanged as a result of the
amendment.
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 22nd annual adjustment to the Royalty
Pool took place on January 5, 2024 at
which time the number of restaurants in the Royalty Pool increased
from 1,037 to 1,047.
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®.
® trademark of A&W Trade Marks Limited
Partnership, used under license.
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: timing for filing the Fund's
results for the first quarter ended March
24, 2024 on SEDAR+; the replay of the call being made
available; the timing for holding the conference call; upcoming
marketing campaigns and promotions; and offering guests innovative,
wallet friendly options.. 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, changes in economic conditions or
unemployment, or a disease outbreak. 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:
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; 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, seasonality of sales,
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 MD&A under the heading "Risks and
Uncertainties" and the Fund's Annual Information Form under the
heading "Risk Factors", available on SEDAR+ at www.sedarplus.ca.
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