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
Dec 31, 2022
|
Period from
Sep 13, 2021 to
Dec 31, 2021
|
Period
from
Jan 1, 2022 to
Dec 31, 2022
|
Period from
Jan 1, 2021 to
Dec 31, 2021
|
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
Dec 31, 2022
|
Period from
Sep 13, 2021 to
Dec 31, 2021
|
Period
from
Jan 1, 2022 to
Dec 31, 2022
|
Period from
Jan 1, 2021 to
Dec 31, 2021
|
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