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August 05, 2015

A&W Revenue Royalties Income Fund Reports Strong Second Quarter 2015 Results and Announces Distribution Increase

TRADING SYMBOL:  The Toronto Stock Exchange – AW.UN   

HIGHLIGHTS

  • A&W reports another superb quarter
  • Same store sales up 8.9% for the quarter
  • Income up 12.8% for the quarter
  • Distributions to be increased by 3.4%

VANCOUVER, July 21, 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 second quarter ended June 14, 2015.  The Fund will hold a conference call to discuss the results on Tuesday, July 21, 2015 at 1:00 p.m. Pacific Time (4:00 p.m. Eastern Time).  The call can be accessed by dialling toll-free 1-800-505-9587 or (416) 204-9524 Passcode 9363339.  A replay will be available until July 28, 2015, by dialling toll-free 1-888-203-1112 or (647) 436-0148 Passcode 9363339. 

A&W restaurants in the Royalty Pool posted another strong quarter, with same store sales for the second quarter of 2015 growing by 8.9% over the same quarter of 2014.  The continuing strong same store sales growth, along with the sales from 24 net new restaurants added to the Fund's Royalty Pool in January 2015, resulted in the Fund's sales and royalty income in the quarter increasing by 12.8% over the same quarter of the prior year.  On a year to date basis, same store sales growth is 9.0% as compared to last year.  Sales reported by restaurants in the Royalty Pool and royalty income increased by 11.6% year to date.  

Distributable cash per unit increased by 4.2¢ to 37.8¢ per unit for the second quarter of 2015 compared to 33.6¢ per unit for the same quarter of 2014.  Year to date distributable cash per unit increased by 5.2¢ to 65.4¢ per unit compared to 60.2¢ per unit for 2014.  The trailing four quarters payout ratio is 93.2%.

As a result of the strong performance of the Fund and the underlying A&W restaurants, the Fund is pleased to announce that it is increasing monthly cash distributions by 3.4%, from 11.7¢ per unit to 12.1¢ per unit beginning with the July 2015 distribution. On an annualized basis this represents a distribution rate of $1.452 per unit.  The July distribution of 12.1¢ per unit will be payable to unitholders of record on August 15, 2015and will be paid on August 31, 2015.

"We are very pleased with our continued strong sales and financial performance", said Paul Hollands, President and CEO of A&W Food Services.  "Our results are especially noteworthy given our strong results from the same quarter last year.  Our strategy to reposition and differentiate A&W as a "better burger" QSR restaurant continues to be very well received by our guests.  We are pleased that our success can be passed on to the Fund's unitholders in the form of increased distributions." 

Beginning in 2013, A&W Food Services embarked on a journey to source simple, great-tasting ingredients, farmed with care.  The journey began with the introduction of beef raised without the use of hormones and steroids in 2013, and continued in 2014 with the launch of chicken raised without the use of antibiotics and eggs from hens fed only a vegetarian diet without animal by-products.  In 2015, A&W Food Services introduced organic and Fair Trade coffee.  "We are proud to have raised the bar when it comes to sourcing better ingredients," said Hollands.  "We are committed to continuing to bring this quality to our guests." 

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 50% of A&W's existing restaurants have completed the re-image to the new design and including the new restaurants which opened in the new design, over 500 restaurants in the A&W chain now have the new design. 

A&W Food Services is continuing to grow the number of restaurants across Canada, concentrating its growth in Ontario and Quebec.  Eight new A&W restaurants have opened in 2015 year to date.   

Financial Highlights

       

(dollars in thousands except per unit amounts)

Period from

Mar 23, 2015 to 
Jun 14, 2015

Period from

Mar 24, 2014 to 
Jun 15, 2014

Period from

Jan 1, 2015 to 
Jun 14, 2015

Period from

Jan 1, 2014 to 
Jun 15, 2014

Same store sales growth(1)

+8.9%

+7.0%

+9.0%

+5.9%

Number of restaurants in the Royalty Pool

814

790

814

790

Sales reported by the restaurants in the Royalty Pool

$249,110

$220,867

$451,558

$404,451

Royalty income

$7,474

$6,627

$13,547

$12,134

General and administrative expenses

82

104

341

343

Net third party interest expense

554

559

1,089

1,102

Current income taxes

1,261

1,158

2,457

2,076

Total distributable cash generated for distributions and dividends(2)

$5,577

$4,806

$9,660

$8,613

Distributable cash per equivalent unit (2015 – 14,781,656 units; 2014 – 14,319,708 units)(2)(3)  

$0.378

$0.336

$0.654

$0.602

Distributions and dividends declared per equivalent unit

$0.351

$0.351

$0.585

$0.585

Net income(4)

$7,197

$4,153

$9,227

$6,593

Net income, excluding non-cash items(4)

$5,577

$4,806

$9,660

$8,613

 

(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 gains or 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 second quarter of 2015 was $7,474,000 based on sales of $249,110,000.  This was an increase of 12.8% from royalty income of $6,627,000 and sales of $220,867,000 for the second quarter of 2014.  Year to date royalty income was $13,547,000 based on sales of $451,558,000.  This was an increase of 11.6% from royalty income of $12,134,000 and sales of $404,451,000 for 2014 year to date.  The increase in sales and royalty income was due to the same store sales growth of 8.9% for the quarter and 9.0% year to date as compared to 2014, and from the additional sales from the 24 net new A&W restaurants added to the Royalty Pool on January 5, 2015.

The amount of cash generated by the Fund in the quarter for distributions and dividends increased by 16.0% to $5,577,000.  Distributable cash per unit increased by 4.2¢ to 37.8¢ per unit compared to 33.6¢ per unit for the same quarter of 2014.  The amount of distributable cash generated by the Fund in the year to date period increased by 12.2% to $9,660,000.  Distributable cash per unit increased by 5.2¢ to 65.4¢ per unit compared to 60.2¢ per unit for 2014 year to date. 

Three monthly distributions totaling 35.1¢ per unit were declared in the second quarter of 2015, the same as 2014.  2015 year to date distributions were 58.5¢ per unit, the same as 2014.  The payout ratio dropped from 96.3% for the second quarter of 2014 to 85.4% for the second quarter of 2015.  The year to date payout ratio decreased from 106.1% for 2014 year to date to 97.1% for 2015 year to date. The trailing four quarters payout ratio is 93.2%.       

The Fund's net income for the second quarter of 2015 was $7,197,000 compared to $4,153,000 for the second quarter of 2014.  Year to date net income was $9,227,000 compared to $6,593,000 for the prior year.  Net income in both years includes non-cash gains and 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.  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 increased by 16.0% for the quarter and 12.2% year to date and the Fund has a cumulative surplus of distributable cash on hand of $2,704,000.        

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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