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 |
Period from |
|
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 |
Period from |
|
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
Featured image: I stock © Luza studios
