TORONTO, March 2, 2022 /CNW/
- Pizza Pizza Royalty Corp. ("PZA", the
"Company"), which indirectly owns the Pizza Pizza and Pizza 73
Rights and Marks, released financial results today for the three
months ("Quarter") and year ended December
31, 2021.
Fourth Quarter highlights:
- Royalty Pool sales increased 11.4%
- Same store sales increased 12.4%
- Adjusted earnings per share(5) increased 10.3%
- Working capital(5) reserve increased $0.7 million during the quarter to $6.5 million at December
31, 2021
- Payout ratio(5) was 87%
Year-to-Date highlights:
- Royalty Pool sales increased 1.1%
- Same store sales increased 0.5%
- Adjusted earnings per share(5) decreased 0.1%
- Working capital(5) reserve increased $1.1 million for the year
- Payout ratio(5) was 94%
Paul Goddard, CEO, Pizza Pizza
Limited ("PPL") said, "We're pleased with the 12.4% same store
sales growth as our customer traffic continues to improve
significantly. With the easing of restrictions across Canada during the Quarter, we immediately
experienced an increase in our many sales channels, but especially
at several key non-traditional store locations and in our catering
and walk-in business. This positive momentum continued the trend we
experienced when pandemic restrictions were eased early in the
second half of 2021. As a result, our Board was pleased to announce
an 8.3% increase in the shareholder dividend effective February 2022."
SALES
For the three months ended December 31, 2021, System Sales from the 725
restaurants in the Royalty Pool increased 11.4% to $137.7 million from $123.7
million in the same quarter last year when there were 749
restaurants in the Royalty Pool. By brand, sales from the 622 Pizza
Pizza restaurants in the Royalty Pool increased 12.9% to
$116.7 million and sales from the 103
Pizza 73 restaurants increased 3.5% to $21.0
million for the Quarter.
For the year ended December 31,
2021, System Sales increased 1.1% to $493.6 million from $488.3
million in the prior year. For the year, sales from the 622
Pizza Pizza restaurants in the Royalty Pool increased 2.9% to
$416.9 million and sales from the 103
Pizza 73 restaurants decreased 7.6% to $76.7
million.
For the Quarter and year, the increase in Royalty Pool System
Sales is largely due to lapping the initial impact of COVID-19, and
the re-opening of the economy and many non-traditional locations as
the year progressed. The overall decrease in Royalty Pool System
Sales for Pizza 73 restaurants for the year is largely due to the
negative impact COVID-19 had for the first nine months of 2021.
Additionally, while the number of stores in the Royalty Pool are
less than the comparative periods, the negative impact on Royalty
Pool System Sales has been mitigated by the Make-Whole Carryover
Amount. The Make-Whole Carryover Amount added $4.1 million to System Sales for the Quarter, and
$16.6 million for the year.
SAME STORE SALES GROWTH ("SSSG")
SSSG, the key driver
of yield growth for shareholders of the Company, increased 12.4%
(2020 – decreased 17.6%) for the Quarter and increased 0.5% (2020 –
decreased 12.5%) for the year.
When comparing the results of 2021 to 2020, it is important to
remember that the COVID-19 pandemic began impacting business in
mid-March 2020. While the impact of
COVID-19 was significant in 2020 and early 2021, the impact of the
pandemic lessened as 2021 progressed.
SSSG
|
Fourth
Quarter
(%)
|
Year
(%)
|
|
2021
|
2020
|
2021
|
2020
|
Pizza
Pizza
|
13.9
|
-17.6
|
2.1
|
-13.4
|
Pizza 73
|
5.0
|
-17.6
|
-7.1
|
-8.1
|
Combined
|
12.4
|
-17.6
|
0.5
|
-12.5
|
SSSG is normally driven by the change in the customer check and
customer traffic, both of which are affected by changes in
pricing and sales mix. For the Quarter, the increase in SSSG was
largely driven by the lifting of COVID-19 related public health
restrictions, which led to increased walk-in traffic, plus many of
PPL's non-traditional locations reopened.
MONTHLY DIVIDEND AND WORKING CAPITAL RESERVE
For the
Quarter, the Company declared shareholder dividends of $4.4 million, or $0.18 per share, compared to $3.9 million, or $0.16 per share, for the prior year comparable
quarter. The payout ratio was 87% for the Quarter and was 84% in
the prior year, comparable quarter.
For the year, the Company declared shareholder dividends of
$16.9 million, or $0.6850 per share, compared to $16.6 million, or $0.6739 per share in 2020. The payout ratio was
94% for the Year and was 90% in the prior year.
When COVID-19 first impacted System Sales in March 2020, the Company reduced its monthly
dividend from $0.0713 per share to
$0.05 per share beginning with the
April 2020 dividend. In November 2020, as system sales began to partially
recover, the monthly dividend was increased 10% to $0.055 per share. In the third quarter of 2021,
the monthly dividend increased another 9%, to $0.06 per share, effective August 2021. Subsequent to the year end, after
careful consideration and taking into account the working capital
reserve, the Board of Directors announced another 8.3% increase in
the monthly dividend, from $0.06 to
$0.065 per share, effective
February 2022.
With government-mandated pandemic restrictions scheduled to ease
in most provinces in the near future, the Company will continue
closely monitor sales and royalty income to determine when
additional dividend adjustments may be warranted.
Dividends were funded entirely by cash flow from operations and
the working capital reserve. No debt was incurred during the year
to fund dividends.
EARNINGS PER SHARE ("EPS")
Fully-diluted basic EPS
increased 11.3% to $0.207 for the
Quarter compared to the prior year comparable quarter, and
decreased 2.4% to $0.743 for the
year.
As compared to basic EPS, the Company considers Adjusted
EPS(5) to be a more meaningful indicator of the
Company's operating performance and, therefore, presents
fully-diluted, adjusted EPS. Adjusted EPS for the Quarter increased
10.3% to $0.214 when compared to the
same period in 2020, and decreased 0.1% to $0.772 for the year.
CURRENT INCOME TAX EXPENSE
Current income tax expense
for the Quarter increased to $1.5
million from $1.3 million. For
the year, current income tax increased slightly from $5.1 million to $5.2
million. The increase for the Quarter and year are a result
of the increase in the Company's earnings before income taxes.
Of particular note is that the Company's earnings from
operations before income taxes, calculated under International
Financial Reporting Standards ("IFRS"), can differ significantly
from its taxable income, largely due to the tax amortization of the
Pizza Pizza and Pizza 73 Rights and Marks, as well as the taxable
income allocated to PPL. The amount of the tax amortization
deducted is based on a declining basis and will decrease
annually.
RESTAURANT DEVELOPMENT
The number of restaurants in
the Company's Royalty Pool decreased by 24 locations to 725 on the
January 1, 2021 Adjustment Date. The
number of restaurants in the Royalty Pool remained unchanged
through December 31, 2021.
When PPL reports closed restaurants, an amount reflecting the
reduction in the Royalty resulting from the decrease in System
Sales will be paid by PPL to the Pizza Pizza Royalty Limited
Partnership (the "Partnership"), monthly (the "Make-Whole
Payment"), commencing from the date of permanent closure of a
restaurant and paid until the following Adjustment Date
(January 1). On the subsequent
Adjustment Date, the calculated lost System Sales from the closed
restaurants will be offset against forecasted System Sales of the
new restaurants added to the Royalty Pool. The details of the full
calculation can be found in the Company's Annual Information
Form.
During the Quarter, PPL opened seven traditional restaurants and
seven non-traditional Pizza Pizza locations; 15 non-traditional
Pizza Pizza and two non-traditional Pizza 73 restaurants were
permanently closed. During the year, PPL opened 22 traditional
restaurants and 12 non-traditional Pizza Pizza locations; two
traditional and 30 non-traditional Pizza Pizza restaurants were
closed. The majority of the non-traditional restaurant closures
were in smaller movie theatre venues. Additionally, at the Pizza 73
brand, two traditional restaurants opened and three non-traditional
locations closed. As previously announced, the Royalty Pool
was adjusted to include these restaurants on January 1, 2022.
New restaurant construction continued across Canada as government mandated restrictions on
commercial construction lifted in all provinces. PPL management
expects to accelerate its restaurant network expansion to 5%
traditional restaurant growth and continue its renovation program
in 2022.
Paul Goddard said, "We are very
proud of our traditional store growth with new restaurant
construction continuing right across Canada, particularly in British Columbia and Quebec, as part of Pizza Pizza's national
expansion strategy. Despite the pandemic, we have successfully
accelerated our pace of growth and innovation and are well
positioned for further success. Our pipeline of future openings and
franchisees is strong and supports our growth plans."
Readers should note that the number of restaurants added to the
Royalty Pool each year may differ from the number of restaurant
openings and closings reported by PPL on an annual basis as the
periods for which they are reported differ slightly.
SELECTED FINANCIAL HIGHLIGHTS
The following table sets
out selected financial information and other data of the Company
and should be read in conjunction with the consolidated financial
statements of the Company. Readers should note that the 2021
results are not directly comparable to the 2020 results because of
the fact that there are 725 restaurants in the 2021 Royalty Pool
compared to 749 restaurants in the 2020 Royalty Pool.
(in thousands of
dollars, except number of restaurants, days in the year, per share
amounts, and noted otherwise)
|
Three months
ended
December 31,
2021
|
Three months
ended
December 31,
2020
|
Year
ended
December
31,
2021
|
Year
ended
December
31,
2020
|
|
|
|
|
|
|
Restaurants in
Royalty Pool(1)
|
725
|
749
|
725
|
749
|
Same store sales
growth(2)
|
12.4%
|
-17.6%
|
1.5%
|
-12.5%
|
Days in the
Period
|
92
|
92
|
365
|
366
|
|
|
|
|
|
System Sales reported
by Pizza Pizza restaurants in the Royalty
Pool(6)
|
$
|
116,729
|
$
|
103,399
|
$
|
416,904
|
$
|
405,335
|
System Sales reported
by Pizza 73 restaurants in the Royalty
Pool(6)
|
20,997
|
20,283
|
76,718
|
82,987
|
Total System
Sales
|
$
|
137,726
|
$
|
123,682
|
$
|
493,622
|
$
|
488,322
|
|
|
|
|
|
Royalty – 6% on Pizza
Pizza System Sales
|
7,004
|
6,204
|
25,014
|
$
24,320
|
Royalty – 9% on Pizza
73 System Sales
|
1,890
|
1,826
|
6,905
|
7,469
|
Royalty
income
|
$
|
8,894
|
$
|
8,030
|
$
|
31,919
|
$
|
31,789
|
Interest paid on
borrowings(3) (5)
|
(350)
|
(319)
|
(1,355)
|
(1,222)
|
Administrative
expenses
|
(179)
|
(183)
|
(559)
|
(636)
|
Adjusted earnings
available for distribution to the Company and Pizza Pizza
Limited(5)
|
$
|
8,365
|
$
|
7,528
|
$
|
30,005
|
$
|
29,931
|
Distribution on Class
B and Class D Exchangeable Shares(4)
|
(1,779)
|
(1,572)
|
(6,856)
|
(6,481)
|
Current income tax
expense
|
(1,463)
|
(1,277)
|
(5,154)
|
(5,069)
|
Adjusted earnings
available for shareholder dividends(5)
|
$
|
5,123
|
$
|
4,679
|
$
|
17,995
|
$
|
18,381
|
Add back:
|
|
|
|
|
Distribution on Class
B and Class D Exchangeable Shares(4)
|
1,779
|
1,572
|
6,856
|
6,481
|
Adjusted earnings
from operations(5)
|
$
|
6,902
|
$
|
6,251
|
$
|
24,851
|
$
|
24,862
|
|
|
|
|
|
Adjusted earnings per
share(5)
|
$
|
0.214
|
$
|
0.194
|
$
|
0.772
|
$
|
0.773
|
Basic earnings per
share
|
$
|
0.207
|
$
|
0.186
|
$
|
0.743
|
$
|
0.761
|
|
|
|
|
|
Dividends declared by
the Company
|
$
|
4,431
|
$
3,938
|
$
|
16,864
|
$
|
16,590
|
Dividend per
share
|
$
|
0.180
|
$
|
0.160
|
$
|
0.685
|
$
|
0.6739
|
Payout
ratio(5)
|
87%
|
84%
|
94%
|
90%
|
|
|
|
|
|
|
|
|
December 31,
2021
|
December 31,
2020
|
Working
capital(5)
|
|
|
$
|
6,537
|
$
|
5,388
|
|
|
|
|
|
|
|
(1)
|
The number of
restaurants for which the Pizza Pizza Royalty Limited Partnership
(the "Partnership") earns a royalty ("Royalty Pool"), as defined in
the amended and restated Pizza Pizza license and royalty agreement
(the "Pizza Pizza License and Royalty Agreement") and the amended
and restated Pizza 73 license and royalty agreement (the "Pizza 73
License and Royalty Agreement") (together, the "License and Royalty
Agreements"). For the 2021 fiscal year, the Royalty Pool includes
622 Pizza Pizza restaurants and 103 Pizza 73 restaurants. The
number of restaurants added to the Royalty Pool each year may
differ from the number of restaurant openings and closings reported
by Pizza Pizza Limited ("PPL") on an annual basis as the periods
for which they are reported differ slightly (see "Royalty Pool
Adjustments").
|
(2)
|
Same store
sales growth ("SSSG") is a supplementary financial measure
under NI 52-112 and therefore may not be comparable to similar
measures presented by other issuers. SSSG means the change in
Period's gross revenue of a particular Pizza Pizza or Pizza 73
restaurant as compared to sales in the previous comparative Period,
where the restaurant has been open at least 13 months.
Additionally, for a Pizza 73 restaurant whose restaurant
territory was adjusted due to an additional restaurant, the sales
used to derive the Step-Out Payment (calculated as the difference
between the average monthly Pizza 73 Royalty payment attributable
to that Adjusted Restaurant in the 12 months immediately preceding
the month in which the territory reduction occurs, less the Pizza
73 Royalty payment attributable to the restaurant in the current
month) may be added to sales to arrive at SSSG. SSSG does not have
any standardized meaning under International Financial Reporting
Standards ("IFRS"). See "Exhibit One: Reconciliation of Non-IFRS
Measures".
|
(3)
|
The Company,
indirectly through the Partnership, incurs interest expense on the
$47 million outstanding bank loan. Interest expense also includes
amortization of loan fees
|
(4)
|
Represents the
distribution to PPL from the Partnership on Class B and Class D
Units of the Partnership. The Class B and D Units are exchangeable
into common shares of the Company ("Shares") based on the value of
the Class B Exchange Multiplier and the Class D Exchange Multiplier
at the time of exchange as defined in the License and Royalty
Agreements, respectively, and represent 23.5% of the fully diluted
Shares at December 31, 2021 (December 31, 2020 – 23.5%). During the
quarter ended March 31, 2021, as a result of the final calculation
of the equivalent Class B and Class D Share entitlements related to
the January 1, 2020 Adjustment to the Royalty Pool, PPL was not
paid a distribution on additional equivalent Shares as if such
Shares were outstanding as of January 1, 2020. Included in the
three months ended March 31, 2021, is the payment of $nil in
distributions to PPL pursuant to the true-up calculation (March 31,
2020 - PPL was paid
$164).
|
(5)
|
"Adjusted earnings
available for distribution to the Company and Pizza Pizza Limited",
"Adjusted earnings from operations", "Adjusted earnings available
for shareholder dividends", "Adjusted earnings per Share",
"Interest paid on borrowings", "Payout Ratio", and "Working
Capital" are non-GAAP financial measures under NI 52-112. They do
not have any standardized meaning under IFRS and therefore may not
be comparable to similar figures presented by other companies. See
"Exhibit One: Reconciliation of Non-IFRS Measures".
|
(6)
|
System Sales (as
defined in the License and Royalty Agreements) reported by Pizza
Pizza and Pizza 73 restaurants include the gross sales of Pizza
Pizza company-owned, jointly-controlled and franchised restaurants,
and the monthly Make-Whole Payment, excluding sales and goods and
service tax or similar amounts levied by any governmental or
administrative authority. System Sales do not represent the
consolidated operating results of the Company but are used to
calculate the royalties payable to the Partnership as presented
above.
|
A copy of the Company's audited consolidated financial
statements and related MD&A will be available at www.sedar.com
and www.pizzapizza.ca after the market closes on March 2, 2022.
As previously announced, the Company will host a conference call
to discuss the results. The details of the conference call are as
follows:
Date:
|
Wednesday, March 2,
2022
|
Time:
|
5:30 p.m.
ET
|
Call-in
number:
|
416-764-8650 /
888-664-6383
|
Recording call in number:
|
416-764-8677 /
888-390-0541
|
|
Available until
midnight, March 16, 2022
|
|
|
Conference
ID:
|
762293
|
A recording of the call will also be available on the Company's
website at www.pizzapizza.ca.
FORWARD-LOOKING STATEMENTS
Certain statements in this report, including information
regarding the Company's dividend policy, its ability to meet
covenants and other financial obligations, and the potential
business and financial impacts of the COVID-19 pandemic on the
Company, PPL and its franchisees and restaurant operators and their
ability to achieve their business objectives, constitute
"forward-looking" statements, which involve known and unknown
risks, uncertainties and other factors that may cause the actual
results, performance or achievements to be materially different
from any future results, performance or achievements expressed or
implied by such forward-looking statements. When used in
this report, such statements include such words as "may",
"will", "expect", "believe", "plan", and other similar terminology
in conjunction with a discussion of future events or operating or
financial performance. These statements reflect management's
current expectations regarding future events and operating and
financial performance and speak only as of the date of
this MD&A. The Company does not intend to or assume any
obligation to update any such forward looking statements, whether
as a result of new information, future events or otherwise, except
as required by applicable securities laws. These
forward-looking statements involve a number of risks and
uncertainties. The following are some factors that could cause
actual results to differ materially from those expressed in or
underlying such forward-looking statements: changes in
national and local business and economic conditions including
those resulting from the COVID-19 pandemic (such as restrictions on
restaurant operations, customers' ability and willingness to visit
restaurants and their perception of health and food safety issues,
discretionary spending patterns and supply chain limitations, and
the related financial impact on PPL and its franchisees and
restaurant operators and their ability to meet debt and lease
obligations), impacts of legislation and governmental
regulation, accounting policies and practices, competition, changes
in demographic trends and changing consumer
preferences, and the results of operations and financial
condition of PPL. The foregoing list of factors is not
exhaustive and should be read in conjunction with the
other information included in the foregoing MD&A, the PPL
financial statements for the period ended January 2, 2022 and the related MD&A
and the Company's Annual Information Form.
Exhibit One: Reconciliation of Non-IFRS Measures
The Company's earnings, as presented under IFRS includes
non-cash items, such as deferred tax, that do not affect the
Company's business operations or its ability to pay dividends to
shareholders. The Company believes its earnings are not the only,
or most meaningful, measurement of the Company's ability to pay
dividends or measure the rate at which the Company is paying out
its earnings. Therefore, the Company reports the following non-IFRS
measures:
- Adjusted earnings available for distribution to the Company and
PPL;
- Adjusted earnings from operations;
- Adjusted earnings available for shareholder dividends;
- Adjusted earnings per share ("EPS");
- Payout Ratio; and
- Working Capital.
The Company believes that the above noted measures provide
investors with more meaningful information regarding the amount of
cash that the Company has generated to pay dividends, and, together
with Interest Paid on Borrowings and SSSG, help illustrate the
Company's operating performance and highlight trends in the
Company's business. The adjustments to net earnings as recorded
under IFRS relate to non-cash items included in earnings and cash
payments accounted for on the statement of financial position.
Investors are cautioned, however, that this should not be construed
as an alternative to net earnings as a measure of
profitability.
The table below reconciles the following to "Earnings for the
period before income taxes" which is the most directly comparable
measure calculated in accordance with IFRS:
- Adjusted earnings available for distribution to the Company and
Pizza Pizza Limited;
- Adjusted earnings from operations; and
- Adjusted earnings available for shareholder dividends.
|
Three months
ended
|
Year ended
|
(in thousands of
dollars, except number of shares)
|
December 31,
2021
|
December 31,
2020
|
December 31,
2021
|
December 31,
2020
|
Earnings for the
period before income taxes
|
8,365
|
7,528
|
30,005
|
30,433
|
Non-cash swap
expiry
|
-
|
-
|
-
|
(502)
|
Adjusted earnings
available for distribution to the Company and Pizza Pizza
Limited
|
8,365
|
7,528
|
30,005
|
29,931
|
Current income tax
expense
|
(1,463)
|
(1,277)
|
(5,154)
|
(5,069)
|
Adjusted earnings
from operations
|
6,902
|
6,251
|
24,851
|
24,862
|
Less:
Distribution on Class B and Class D Exchangeable Shares
|
(1,779)
|
(1,572)
|
(6,856)
|
(6,481)
|
Adjusted earnings
available for shareholder dividends
|
5,123
|
4,679
|
17,995
|
18,381
|
Weighted average
Shares – diluted
|
32,177,276
|
32,177,276
|
32,177,276
|
32,177,276
|
Adjusted EPS is calculated by dividing Adjusted
earnings from operations, as explained above, by the fully diluted
weighted average shares. Adjusted EPS for the Quarter increased
10.3% to $0.214 when compared to the
same period of 2020, and for the Year was relatively flat when
compared to 2020.
Basic EPS is adjusted as follows:
|
Three months
ended
|
Year ended
|
|
December 31,
2021
|
December 31,
2020
|
December 31,
2021
|
December 31,
2020
|
Basic
EPS
|
$
|
0.207
|
$
|
0.186
|
$
|
0.743
|
$
|
0.761
|
Adjustments:
|
|
|
|
|
Non-cash swap
expiry
|
-
|
-
|
-
|
(0.016)
|
Deferred tax
expense
|
0.007
|
0.008
|
0.029
|
0.028
|
Adjusted
EPS
|
$
|
0.214
|
$
|
0.194
|
$
|
0.772
|
$
|
0.773
|
The Company presents the Payout Ratio to illustrate the
earnings being returned to shareholders. The Company's Payout Ratio
is calculated by dividing the dividends declared to shareholders by
the adjusted earnings from operations, after paying the
distribution on Class B and Class D Exchangeable Shares, in that
same period.
|
Three months
ended
|
Year ended
|
(in thousands of
dollars, except as noted otherwise)
|
December 31,
2021
|
December 31,
2020
|
December 31,
2021
|
December 31,
2020
|
Dividends declared to
shareholders
|
4,432
|
3,938
|
16,864
|
16,590
|
Adjusted earnings
available for shareholder dividends
|
5,123
|
4,679
|
17,995
|
18,381
|
Payout
Ratio
|
94%
|
84%
|
94%
|
90%
|
Working Capital is defined as total current assets
less total current liabilities. The Company views working capital
as a measure for assessing overall liquidity and its ability to
stabilize dividends and fund unusual expenditures in the event of
short- to medium-term variability in Royalty Pool System Sales.
(in thousands of
dollars)
|
December 31,
2021
|
December 31,
2020
|
Total current
assets
|
9,341
|
7,829
|
Less: Total current
liabilities
|
2,804
|
2,441
|
Working
Capital
|
6,537
|
5,388
|
SOURCE Pizza Pizza Royalty Corp.