A&W Revenue Royalties Income Fund announces fourth quarter 2011 results

TRADING SYMBOL:  The Toronto Stock Exchange - AW.UN

VANCOUVER, Feb. 7, 2012 /CNW/ -

• Same store sales up for 9^th consecutive year
• Royalty income up 2.3% compared to 2010
• Distributions of $1.404 per unit declared in 2011

A&W Revenue Royalties Income Fund (the Fund) reported today results for the fourth quarter period from September 12, 2011 to December 31, 2011 and the full year results from January 1, 2011 to December 31, 2011.  The Fund will hold a conference call to discuss the results on Tuesday, February 7, 2012 at 1:00 p.m. Pacific Time (4:00 p.m. Eastern Time).  The call can be accessed by dialling toll-free 1-877-974-0446 or [phone].  A replay will be available until February 21, 2012, by dialling toll-free 1-877-289-8525 or [phone] Passcode: 4510772#.

Same store sales growth for 2011 was 0.04% compared to 2010.  Total sales reported by restaurants in the Royalty Pool increased by 2.3% to $794.5 million compared to $776.7 million in 2010.  The increase in sales resulted from the increase in the number of restaurants in the Royalty Pool from 700 to 715 and the same store sales growth. Royalty income also increased by 2.3% for the year to $23,836,000.

Same store sales decreased by 0.4% in the fourth quarter compared to the same quarter in the previous year.  Total sales reported by restaurants in the Royalty Pool increased by 2.4% to $244.6 million in the fourth quarter of 2011 compared to $238.9 million in the same quarter of 2010.  Royalty income increased by 2.4% for the quarter to $7,338,000.

"We are pleased to report that in 2011 A&W recorded its 9th consecutive year of same store sales growth, even though the fourth quarter saw a slight decrease in same store sales.  Since the launch of the Fund 10 years ago, we have consistently focussed on managing the Fund in a fiscally conservative fashion resulting in increased distributions for unitholders.  To that end we are also pleased that regular monthly distributions per unit were up 10% for the quarter and the year despite the imposition of the SIFT tax."  said Paul Hollands, President and CEO of A&W Food Services of Canada Inc. "With the foodservice industry continuing to face uncertain economic conditions and a weak foodservice market in British Columbia, we will be launching new tactical and strategic initiatives in 2012 to counter these conditions.  Finally, the opening of our 750^th restaurant in January is an important milestone as we continue to pursue our strategy of rapid expansion across the country."

Financial Highlights

(dollars in thousands except per unit amounts)	Period from Sep 12, 2011 to Dec 31, 2011	Period from Sep 13, 2010 to Dec 31, 2010	Period from Jan 1, 2011 to Dec 31, 2011	Period from Jan 1, 2010 to Dec 31, 2010
Same store sales growth^(1)	-0.4%	1.1%	0.04%	2.2%
Number of restaurants in the Royalty Pool	715	700	715	700
Sales reported by the restaurants in the Royalty Pool	$244,605	$238,900	$794,523	$776,701
Royalty income	$7,338	$7,167	$23,836	$23,301
General and administrative expenses	257	237	745	601
Recapitalization and reorganization costs	-	661	-	775
Financing fees	-	449	-	449
Net third party interest expense	902	269	2,984	670
Current income taxes	883	-	2,504	-
Partnership distributions to Food Services	-	7	2	23
Total distributable cash generated for distributions and dividends^(2)	$5,296	$5,544	$17,601	$20,783
Distributable cash^(2)per weighted average equivalent unit (2011 - 12,588,605^(3)units; 2010 - 14,661,257 units)	$0.421	$0.382	$1.398	$1.418
Regular monthly distributions and dividends declared per equivalent unit	$0.468	$0.424	$1.404	$1.272
Special distributions declared per equivalent unit	-	$0.100	-	$0.200

^(1)	Same store sales growth is not an earnings measure recognized by International Financial Reporting Standards (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 Food Services.
^(3)	The number of weighted average equivalent units and distributable cash per weighted average equivalent unit in 2011 includes the 86,873 LP units exchanged for 173,746 common shares of Trade Marks representing the final consideration paid in December 2011 for the January 5, 2011 adjustment to the Royalty Pool.

Financial Results
The financial results for the quarter and year reflect two important changes from previous years.  The first is the payment of taxes for the first time since the inception of the Fund in 2002.  The second change is the interest cost associated with the debt introduced for the substantial issuer bid.  This second initative was undertaken to enhance distributable cash per unit, and maximize cash returns to our unitholders.

Royalty income for the fourth quarter was $7,338,000, representing an increase of $171,000 or 2.4% compared to the same quarter in 2010.  Total royalty income in 2011 was $23,836,000, an increase of $535,000 or 2.3% compared to 2010.  The increase in royalty income was driven by the same store sales growth and the impact of the increase in the number of restaurants in the Royalty Pool to 715 in 2011 from 700 in 2010.

Total cash expenses, including interest, taxes and financing fees, increased by $419,000 for the quarter and $3,717,000 for the year, compared to last year.  Interest expense increased by $633,000 in the quarter and $2,314,000 for the year due to the increase in A&W Trade Marks Inc.'s (Trade Marks) term loan from $10 million to $60 million to buy back Fund units for cancellation under the Fund's substantial issuer bid in December last year.  Trade Marks' earnings are now subject to income taxes at 18%, and therefore income tax expense was $883,000 for the quarter and $2,504,000 for 2011, compared to no taxes payable in 2010. In 2010, one-time costs for the substantial issuer bid and reorganization of the capital structure of Trade Marks totalled $1,224,000.       

Distributable cash generated to pay distributions to unitholders and dividends to A&W Food Services of Canada Inc. (A&W Food Services) decreased to $5,296,000 compared to $5,544,000 for the fourth quarter of 2010 due to the higher interest and tax expenses as noted above.  Total distributable cash generated in 2011 decreased to $17,601,000 compared to $20,783,000 in 2010.  However, the number of weighted average equivalent units also decreased, from 14,661,257 in 2010 to 12,588,605 units in 2011, due to the substantial issuer bid in December 2010 which resulted in the Fund purchasing for cancellation 2,500,000 units.  As a result, distributable cash per weighted average equivalent unit increased by 3.9¢ to 42.1¢ per unit for the quarter, and decreased by only 2.0¢ to $1.398 per unit for the year compared to the prior year.  The decrease in distributable cash per weighted average equivalent unit for the year is due to the income tax expense in 2011 which was 19.9¢ per unit. 

The monthly distribution rate was increased to 11.7¢ per unit from 10.6¢ per unit effective with the distribution for the month of January 2011 and payable as and from February 28, 2011.  Total distributions of 46.8¢ per unit were declared in the quarter and $1.404 per unit was declared in 2011.  The cumulative surplus of distributable cash at the end of the year was $3,009,000, compared to a cumulative surplus of $2,971,000 at the end of 2010. 

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 will be exchanged for additional shares of Trade Marks which are exchangeable for units of the Fund.  A&W Food Services currently owns 10.6% of the common shares of Trade Marks, and therefore currently owns the equivalent of 10.6% 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.

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 and on the Fund's website at www.awincomefund.ca.

Additional information relating to the Fund is available at www.sedar.com and www.awincomefund.ca.

 

 

Don Leslie, Chief Financial Officer:  [phone] or [email protected]