A&W Revenue Royalties Income Fund announces fourth quarter 2012 results

TRADING SYMBOL:  The Toronto Stock Exchange - AW.UN

• Same store sales growth improves from the third quarter to +0.5% for the fourth quarter
• Total system sales and royalty income up 5.7% for the quarter; 3.6% for the year
• 31 new restaurants opened by A&W Food Services of Canada Inc. during 2012

VANCOUVER, Feb. 12, 2013 /CNW/ - A&W Revenue Royalties Income Fund (the Fund) reported today results for the fourth quarter and year ended December 31, 2012. The Fund will hold a conference call to discuss the results on Tuesday, February 12, 2013 at 1:00 p.m. Pacific Time (4:00 p.m. Eastern Time).  The call can be accessed by dialling toll-free 1-877-974-0445 or [phone].  A replay will be available until February 26, 2013, by dialling toll-free 1-877-289-8525 or [phone] Passcode: 4595010#.

Total sales reported by restaurants in the Royalty Pool increased by 5.7% to $258.4 million in the fourth quarter of 2012 compared to $244.6 million in the fourth quarter of 2011.  2012 sales increased by 3.6% to $823.4 million compared to $794.5 million in 2011.  Royalty income was $7,752,000 for the fourth quarter of 2012 compared to $7,338,000 for the same quarter of 2011.  Royalty income in 2012 was $24,700,000 compared to $23,836,000 in 2011.  The increase in sales and royalty income resulted from the increase in the number of restaurants in the Royalty Pool from 715 to 737 in January 2012 .

Same store sales growth for the fourth quarter of 2012 was 0.5% as compared to the fourth quarter of 2011, and up from -0.2% in the third quarter of 2012.  Same store sales in 2012 were -0.7% compared to 2011.

"We are pleased to report positive same store sales growth in the fourth quarter.  The current economic climate continues to affect sales in A&W restaurants, particularly in Ontario and British Columbia," said Paul Hollands, President and CEO of A&W Food Services of Canada Inc. (A&W Food Services).  "The launch of our Value Deals in the fourth quarter, anchored by the new Buddy Burgers, was an important step in responding to the market conditions.  We are pleased with the success of this new initiative.  Our 31 new restaurant openings in 2012 is the greatest number of new openings since the inception of the Fund.  Sixteen of the new restaurants are in Ontario, our most important growth market."

"The Fund's move to improve the terms of its term loan and thus distributable cash per equivalent unit in 2013 is an important one for unitholders.  We have also locked in a portion of the interest rate for ten years to provide certainty and protection against future interest rate increases."

As previously announced, on December 17, 2012, the Fund's subsidiary, A&W Trade Marks Inc. (Trade Marks) entered into an agreement with its existing lender to significantly improve the terms of its term loan. The existing $60,000,000 term loan was to mature on December 22, 2015 and had a fixed interest rate of 5.03% (through an interest rate swap agreement). The amended term loan matures on December 22, 2017 and has an effective interest rate of 4.03% for the first three years, and 4.26% for the last two years of the agreement through a new interest rate swap.  This lower interest rate on the term loan will reduce interest expense by $600,000 per year starting in 2013, resulting in an after-tax improvement in distributable cash per equivalent unit of 3.8 cents annually. In addition, Trade Marks has locked in lower rates until December 22, 2022 through the new interest rate swap, to minimize cash flow variances against future interest rate increases.

Distributable cash of $5,328,000 was generated in the fourth quarter of 2012 compared to $5,296,000 in the same quarter of 2011.  Distributable cash generated in 2012 was $17,163,000 compared to $17,601,000 in 2011.  Distributable cash per equivalent unit was 40.7 cents per unit for the quarter compared to 42.1 cents per unit in the same quarter in 2011.  2012 distributable cash per unit was $1.312 per unit compared to $1.398 in 2011.  Distributable cash was impacted by income taxes which were 8.2 cents per unit higher in 2012 as compared to 2011.  The increase in income taxes was due to changes in partnership tax rules, no tax loss carry forward available to Trade Marks in 2012, and higher taxable income in 2012 due to increased royalty income. 

Total distributions of 46.8¢ per unit were declared in the quarter and $1.404 per unit in 2012, the same as in 2011. The cumulative surplus of distributable cash at the end of the year was $1,974,000, compared to a cumulative surplus of $3,009,000 at the beginning of the year.

Net income was $3,026,000 for the fourth quarter of 2012 and $14,303,000 for the year compared to $5,047,000 for the fourth quarter of 2011 and $25,301,000 for 2011. Excluding non-cash items which do not affect the Fund's ability to pay distributions to unitholders, net income for 2012 was $17,004,000 compared to $16,503,000 for 2011, an increase of $501,000.

On January 5, 2013, the number of A&W restaurants for which royalties are paid to the Fund increased by 29 new restaurants that opened between October 2011 and September 2012 less six restaurants that permanently closed during this period. The addition of these 23 net new restaurants brings the total number of A&W restaurants in the Royalty Pool to 760.  This is the 11th increase in the number of restaurants in the Royalty Pool since the inception of the Fund in 2002.  Since that time, the number of restaurants for which royalties are paid to the Fund has increased by 175 restaurants, from 585 to 760.

Financial Highlights
(dollars in thousands except per unit amounts)	Period from Sep 10, 2012  to Dec 31, 2012	Period from Sep 12, 2011 to Dec 31, 2011	Period from Jan 1, 2012 to Dec 31, 2012	Period from Jan 1, 2011 to Dec 31, 2011
Same store sales growth^(1)	+0.5%	-0.4%	-0.7%	0.04%
Number of restaurants   in the Royalty Pool	737	715	737	715
Sales reported by the restaurants   in the Royalty Pool	$258,427	$244,605	$823,350	$794,523
Royalty income	$7,752	$7,338	$24,700	$23,836
General and administrative   expenses	258	257	709	745
Net third party interest expense	918	902	2,993	2,984
Current income taxes	1,082	883	3,669	2,504
Partnership distributions to Food   Services	-	-	-	2
Financing fees	166	-	166	-
Total distributable cash generated   for distributions and dividends^(2)	$5,328	$5,296	$17,163	$17,601
Distributable cashper equivalent   unit (2012 - 13,076,718 units;   2011 - 12,588,605units)^(2)(3)	$0.407	$0.421	$1.312	$1.398
Distributions and dividends   declared per equivalent unit	$0.468	$0.468	$1.404	$1.404
The Fund's net income, excluding   non-cash items ^(4)	$5,668	$5,072	$17,004	$16,503
The Fund's net income	$3,026	$5,047	$14,303	$25,301

^(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 equivalent units and distributable cash per equivalent unit in 2012 includes the 125,975 LP units exchanged for 251,950 common shares of Trade Marks representing the final consideration paid in December 2012 for the January 5, 2012 adjustment to the Royalty Pool. The number of equivalent units 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.
^(4)	The Fund's net income in 2012 and 2011 was impacted by non-cash items that did not affect 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.

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 owns 16.5% of the common shares of Trade Marks, and therefore owns the equivalent of 16.5% 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. 

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

 

 

SOURCE: A&W Revenue Royalties Income Fund

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