TRADING SYMBOL: TSX: AW.UN
VANCOUVER,
BC, July 22, 2024
- Royalty income increased by 1.5% in Q2 2024 and 1.3% year to
date, as compared to the comparable periods in 2023.
- Royalty Pool Same Store Sales Growth(i) was +0.3%
for Q2 2024 and +0.5% year to date.
- The Fund and A&W Food Services agreed to a strategic
combination that will create a new publicly-traded company
combining the Fund, A&W Food Services and certain holding
companies, subject to customary closing conditions, including
approval of the Fund's unitholders.
SECOND QUARTER 2024 RESULTS
A&W Revenue Royalties Income Fund (the "Fund") and A&W
Food Services of Canada Inc. ("A&W Food Services or "A&W")
today reported the Fund's results for the second quarter ended
June 16, 2024.
"We are pleased to report that the Fund has achieved positive
growth for the first half of 2024," said Susan Senecal, President and CEO of A&W Food
Services. "A&W is energized by the nine new A&W restaurants
opened in the first two quarters and excited by the traction it is
gaining from the marketing campaigns and promotions it is running.
This is an industry leading pace of restaurant growth across the
country and builds on our momentum as the fastest growing
large-scale quick service burger brand in Canada."
Royalty income for the second quarter of 2024 was $12,965,000 based on Gross sales reported by
restaurants in the Royalty Pool(i) of $432,173,000, compared to royalty income of
$12,773,000 and Gross sales reported
by A&W restaurants in the Royalty Pool(i) of
$425,768,000 for the second quarter
of 2023. Year to date royalty income was $24,518,000 based on gross sales reported by
restaurants in the Royalty Pool(i) of $817,270,000, compared to royalty income of
$24,212,000 and gross sales reported
by restaurants in the Royalty Pool(i) of $807,066,000 for the comparable period in
2023.
The increase in royalty income is driven by the Royalty Pool
Same Store Sales Growth and the gross sales from the 10 net new
restaurants added to the Royalty Pool on January 5, 2024. The increase in the year to date
period was partially offset by there being one less day in Q1 2024
than in Q1 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, which are impacted by party size, menu
prices and menu mix and changes in consumers discretionary
spending. The Royalty Pool Same Store Sales Growth(i) of
+0.3% for the second quarter and +0.5% for the year to date period
was a product of an increase in average check size due in part to
industry-wide inflation on goods, services, and labour, partially
offset by a decline in guest traffic which A&W Food Services
believes is attributable to increased interest rates and inflation,
along with market uncertainty, 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.
Full quarterly results are expected to be filed today on SEDAR+
at www.sedarplus.ca.
Strategic Combination of the Fund and A&W Food
Services
The Fund also today announced that it has agreed to combine with
A&W Food Services to create a new publicly traded corporation.
Under the terms of the proposed transaction, the Fund's unitholders
can elect to exchange each unit of the Fund for $37.00 in cash or one common share in the new
company, subject to proration in the event that unitholders elect,
in the aggregate, to receive more or less than approximately
$175.6 million in cash consideration,
such that in all cases, the existing common shares of Food Services
will represent approximately 59% of the common shares of the new
public company. The proposed transaction is expected to close in
October and is subject to customary closing conditions, including
court approval, the approval of the Fund's unitholders, approval of
the Toronto Stock Exchange and regulatory approval under the
Competition Act (Canada).
Details of this combination are included in a news release
issued today by the Fund and A&W Food Services, and in
presentations available on the Fund's website at
www.awincomefund.ca.
Conference Call
The Fund will hold a conference call to discuss the results and
the combination with A&W Food Services on Monday, July 22, 2024 at 7:30 a.m. Pacific Time (10:30 a.m. Eastern Time).
The call will be webcast live and may be accessed at
https://events.q4inc.com/attendee/905085111. Participants who wish
to ask questions or are unable to join via webcast may dial-in by
calling toll-free 1-800-225-9448 or 1-203-518-9708 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/905085111.
FINANCIAL RESULTS
|
(dollars in
thousands except per unit
amounts)
|
Period
from
Mar 25, 2024 to
Jun 16, 2024
|
Period from
Mar 27, 2023 to
Jun 18, 2023
|
Period
from
Jan 1, 2024 to
Jun 16, 2024
|
Period from
Jan 1, 2023 to
Jun 18, 2023
|
|
Royalty Pool Same Store
Sales Growth(i)
|
0.3 %
|
2.5 %
|
0.5 %
|
4.1 %
|
|
Number of restaurants
in the Royalty
Pool
|
1,047
|
1,037
|
1,047
|
1,037
|
|
Gross sales reported by
A&W restaurants
in the Royalty Pool(i)
|
$432,173
|
$425,768
|
$817,270
|
$807,066
|
|
Royalty
income
|
$12,965
|
$12,773
|
$24,518
|
$24,212
|
|
General and
administrative expenses
|
$152
|
$126
|
$389
|
$375
|
|
Term loan and other
interest (net)
|
$254
|
$295
|
$555
|
$600
|
|
Current income tax
provision
|
$2,341
|
$2,220
|
$5,369
|
$5,032
|
|
Distributable cash
generated(ii)
|
$10,218
|
$10,132
|
$18,205
|
$18,205
|
|
Number of equivalent
units(iii)
|
20,655,650
|
20,368,874
|
20,655,650
|
20,368,874
|
|
Distributable cash per
equivalent unit(iv)
|
$0.495
|
$0.497
|
$0.881
|
$0.894
|
|
Distributions and
dividends declared per
equivalent unit(iv)
|
$0.480
|
$0.480
|
$0.800
|
$0.800
|
|
Distributions and
dividends declared and
accrued per equivalent
unit(iv)
|
$0.441
|
$0.442
|
$0.881
|
$0.889
|
|
Payout
ratio(iv)
|
89.1 %
|
88.9 %
|
100.0 %
|
99.4 %
|
|
Net cash generated from
operating
activities
|
$10,413
|
$9,253
|
$19,574
|
$11,551
|
|
Net
income(v)
|
$9,815
|
$11,293
|
$18,650
|
$18,866
|
|
(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
Mar 25, 2024 to
Jun 16, 2024
|
Period from
Mar 27, 2023 to
Jun 18, 2023
|
Period
from
Jan 1, 2024 to
Jun 16, 2024
|
Period from
Jan 1, 2023 to
Jun 18, 2023
|
|
Net cash generated from
operating
activities
|
$10,413
|
$9,253
|
$19,574
|
$11,551
|
|
Term loan and other
interest (net)
|
(254)
|
(295)
|
(555)
|
(600)
|
|
Current income tax
provision
|
(2,341)
|
(2,220)
|
(5,369)
|
(5,032)
|
|
Net changes in items of
non-cash
working capital
|
792
|
498
|
602
|
828
|
|
Interest
paid
|
-
|
-
|
442
|
474
|
|
Interest
received
|
(145)
|
(104)
|
(242)
|
(204)
|
|
Income tax
paid
|
1,753
|
3,000
|
3,753
|
11,188
|
|
Distributable cash
generated
|
$10,218
|
$10,132
|
$18,205
|
$18,205
|
Three monthly distributions totaling 48.0¢ per Unit were
declared in the second quarter of both 2024 and 2023. Five monthly
distributions totaling 80.0¢ per Unit were declared in both the
2024 and 2023 year to date periods.
The Payout ratio(iv) for the second quarter of 2024
was 89.1% compared to 88.9% for the second quarter of 2023. The
year to date Payout ratio(iv) for 2024 was 100.0%
compared to 99.4% for the comparable period in 2023. The Fund's
long-term objective is to maintain an annual Payout ratio at or
below 100%; however, as the Fund strives to provide unitholders
with regular monthly distributions, and as a result of fluctuations
in sales and the timing of current income taxes, the Fund can
experience fluctuations in its Payout ratio. The Payout
ratio(iv) for the year to date period in 2024 of 100.0%
is higher than the trailing four quarter Payout
ratio(iv) of 91.9% due mainly to 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 second
quarter ended June 16, 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.
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: expectations relating to the timing and completion
of the proposed strategic combination of Food Services and the
Fund; timing for filing the Fund's results for the second quarter
ended June 16, 2024 on SEDAR+; the
replay of the call being made available; the timing for holding the
conference call and; the traction it is gaining from the marketing
campaigns and promotions it is running. The forward-looking
information is based on assumptions that management considered
reasonable at the time it was prepared, which assumptions include:
the Fund's ability to obtain unitholder approval and consummate the
proposed transaction with A&W Food Services on the terms and
conditions and timing currently contemplated; 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: the completion of the proposed combination with A&W Food
Services which may not occur on the anticipated terms and timing or
at all; failure to complete the proposed combination with A&W
Food Services could negatively impact the market price of the units
of the Fund; 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 is 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