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April 28, 2015

A&W Revenue Royalties Income Fund Announces First Quarter 2015 Results

A&W POSTS STRONG FIRST QUARTER RESULTS

  • Same store sales up 9.1% for the quarter
  • Royalty income increased 10.3% for the quarter
  • Distributable cash increased by 1.0¢ per unit

TRADING SYMBOL: The Toronto Stock Exchange – AW.UN 

VANCOUVERApril 28, 2015 /CNW/ - A&W Revenue Royalties Income Fund (the Fund) and A&W Food Services of Canada Inc. (A&W Food Services) reported today results for the first quarter ended March 22, 2015.  The Fund will hold a conference call to discuss the results on Tuesday, April 28, 2015 at 1:00 p.m. Pacific Time (4:00 p.m. Eastern Time).  The call can be accessed by dialling toll-free 1-800-524-8950 or (416) 260-0113 Passcode 7773770.  A replay will be available until May 5, 2015, by dialling toll-free 1-888-203-1112 or (647) 436-0148 Passcode 7773770. 

A&W restaurants in the Royalty Pool posted the strongest quarterly same store sales growth in seven years, with same store sales for the first quarter of 2015 growing by 9.1% over the same quarter of 2014.  The impressive same store sales growth along with the sales from 24 net new restaurants added to the Fund's Royalty Pool in January 2015, boosted the Fund's sales and royalty income to a 10.3% increase for the quarter.

A&W Food Services' system sales growth for all A&W restaurants across Canada (which includes restaurants that have not yet been added to the Royalty Pool) was 12.5% for the quarter.  These strong quarterly sales pushed A&W Food Services' total system sales on a trailing four quarter basis to over $1 Billion.

The amount of cash generated by the Fund in the quarter for distributions and dividends increased by 7.2% to$4,083,000.  Distributable cash per unit increased by 1.0¢ to 27.6¢ per unit compared to 26.6¢ per unit for the same quarter of 2014.  The trailing four quarters payout ratio is 95.9% and surplus distributable cash on hand is $1.9 million.    

"We are very pleased to report that our strong trend of positive same store sales growth dating back to 2013 has continued into 2015", said Paul Hollands, President and CEO of A&W Food Services.  "Over the last two years, we have introduced simple, great-tasting ingredients, farmed with care, to reposition and differentiate A&W as a "better burger" QSR restaurant.  Our guests have been delighted with this change and I am pleased to report that A&W Food Services has broken the $1 Billion sales threshold." 

In 2013, A&W Food Services was the first major QSR chain to use only beef raised without the use of hormones and steroids.  Chicken is one of the fastest growing segments of the QSR industry, and A&W Food Services' move in 2014 to serve only chicken raised without the use of antibiotics was a key element in its strategy to accelerate growth.  A&W Food Services also enhanced its breakfast menu by moving to eggs from hens fed only a vegetarian diet without animal by-products.  Breakfast was further supported by the launch in January 2015 of organic and Fair Trade coffee, another first for a major chain.

Another major strategic initiative of A&W Food Services is the extensive re-imaging program to modernize and enhance the appeal of existing A&W restaurants.  The new design has been developed to create high visibility and instant recognition of the Home of The Burger Family®.  Over half of A&W's existing restaurants have completed the re-image to the new design.  Including the new restaurants opened in the new design since the beginning of the re-image program, 500 restaurants in the A&W chain now have the new design.  "With our updated image as well as our "better ingredients", we're attracting many new guests to our restaurants," Hollands said. 

A&W Food Services is continuing to grow the number of restaurants across Canada, concentrating its growth inOntario and Quebec.  Three new A&W restaurants were opened in the first quarter of 2015. 

Financial Highlights



(dollars in thousands except per unit amounts)

Period from

Jan 1, 2015 to

Mar 22, 2015

Period from

Jan 1, 2014 to

Mar 23, 2014

Same store sales growth(1)

+9.1%

+4.6%

Number of restaurants in the Royalty Pool

814

790

Sales reported by the restaurants in the Royalty Pool

$202,448

$183,584

Royalty income

$6,073

$5,507

General and administrative expenses

259

239

Net third party interest expense

535

543

Current income taxes

1,196

918

Total distributable cash generated for distributions and

dividends(2)

$4,083

$3,807

Distributable cash per equivalent unit (2015 – 14,781,656 units;

2014 – 14,319,708 units)(2)(3)  

$0.276

$0.266

Distributions and dividends declared per equivalent unit

$0.234

$0.234

Net income(4)

$2,030

$2,440

Net income, excluding non-cash items(4)

$4,083

$3,807

 

(1) 

Same store sales growth is not an earnings measure recognized by IFRS and therefore may not be comparable to similar measures presented by other issuers.  This information is provided as it is a key driver of growth in the Fund.

(2)  

Distributable cash is not an earnings measure recognized by IFRS and therefore may not be comparable to similar measures presented by other issuers.  This information is provided as it identifies the amount of actual cash available to pay distributions to unitholders and dividends to A&W Food Services. 

(3)     

The number of equivalent units and distributable cash per equivalent unit in 2015 includes the 92,390 LP units exchangeable for 184,780 common shares of Trade Marks representing the remaining 20% of the consideration for the January 5, 2015 adjustment to the Royalty Pool which is held back until December 2015 when the actual annual sales are reported by the new restaurants.  The number of equivalent units and distributable cash per equivalent unit in 2014 includes the 210,490 LP units exchanged for 420,980 common shares of Trade Marks representing the final consideration paid in December 2014 for the January 5, 2014 adjustment to the Royalty Pool. 

(4)  

Net income in 2015 and 2014 includes non-cash losses on interest rate swaps, amortization of deferred financing fees and deferred income taxes.  These non-cash items have no impact on the Fund's ability to pay distributions to unitholders.  The Fund's net income excluding these non-cash items is presented for information purposes only. 

 

The Fund's royalty income for the first quarter of 2015 was $6,073,000 based on sales of $202,448,000.  This was an increase of 10.3% from royalty income of $5,507,000 and sales of $183,584,000 for the first quarter of 2014.  The increase in sales and royalty income was due to the same store sales growth of 9.1% for the quarter as compared to the same quarter of 2014, and from the additional sales from the 24 net new A&W restaurants added to the Royalty Pool on January 5, 2015.

Distributable cash generated in the first quarter of 2015 to pay distributions to unitholders and dividends to A&W Food Services was $4,083,000 compared to $3,807,000 in the first quarter of 2014.  Distributable cash generated per equivalent unit increased by 1.0¢ to 27.6¢ per unit in the first quarter of 2015 from 26.6¢ for the first quarter of 2014. 

The Fund's net income for the first quarter of 2015 was $2,030,000 compared to $2,440,000 for the first quarter of 2014.  The decrease in net income was due to non-cash losses on interest rate swaps which are required to be recorded in net income under International Financial Reporting Standards.  These non-cash items have no impact on the Fund's ability to pay distributions to unitholders.  Of more interest to unitholders is the distributable cash calculation which identifies the amount of actual cash available to pay distributions to unitholders and dividends to A&W Food Services.  As noted above, distributable cash for the quarter increased by 7.2% and the Fund has a cumulative surplus of distributable cash on hand of $1,871,000.  "Our strong financial results reflect the continued strength and growth of our business", said Paul Hollands.      

Two monthly distributions totalling 23.4¢ per unit were declared in the first quarter of 2015, the same as in the first quarter of 2014.  The Fund's annual distribution rate is $1.404 per unit, the same as 2014. 

On January 5, 2015, the annual adjustment to the Fund's Royalty Pool took place.  On that date, the number of A&W restaurants for which royalties are paid to the Fund increased by 32 new restaurants that opened between October 2013 and September 2014 less eight restaurants that permanently closed during this period. The addition of these 24 net new A&W restaurants brings the total number of A&W restaurants in the Royalty Pool to 814. 

A&W Food Services also announced today that it has declared and paid dividends in the amount of $3.5 million to its shareholders.  These dividends were paid out of A&W Food Services' available working capital and are separate and distinct from distributions declared by the Fund to unitholders of the Fund.

About the Fund
The Fund is a limited purpose trust established to invest in Trade Marks, which through its interest in 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) receives royalties equal to 3% of the sales of  A&W restaurants in the Royalty Pool.  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®.

The Royalty Pool is adjusted annually to reflect sales from new A&W restaurants, net of the sales of any A&W restaurants that have permanently closed.  Additional limited partnership units (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 shares of Trade Marks which are exchangeable for units of the Fund.  A&W Food Services owns 17.4% of the common shares of Trade Marks, and therefore owns the equivalent of 17.4% of the units of the Fund on a fully-diluted basis.   

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, and are thereby isolated from many of the factors that impact an operating business.

Follow A&W on Facebook (www.facebook.com/AWCanada) and Twitter @AWCanada or visit www.awincomefund.ca.

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.  The forward-looking information is based on assumptions that management considered reasonable at the time it was prepared.  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.  The 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.   

SOURCE A&W Revenue Royalties Income Fund

 For further information: Don Leslie, Chief Financial Officer: (604) 988-2141 or investorrelati...@aw.ca

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