A&W Revenue Royalties Income Fund announces fourth quarter 2014 results

TRADING SYMBOL:  The Toronto Stock Exchange – AW.UN

A&W POSTS STRONG FOURTH QUARTER

• Same store sales up 7.9% for the quarter
• Annual same store sales growth 6.3%
• Royalty income increased 14.5% for the quarter and 11.8% for the year
• Distributable cash increased by $2.5 million
• Payout ratio improved to 96.6%

VANCOUVER, Feb. 11, 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 fourth quarter and year ended December 31, 2014.  The Fund will hold a conference call to discuss the results on Wednesday, February 11, 2015 at 1:00 p.m. Pacific Time (4:00 p.m. Eastern Time).  The call can be accessed by dialling toll-free 1-866-530-1553 or [phone] Passcode 7601126.  A replay will be available until February 17, 2015, by dialling toll-free 1-888-203-1112 or [phone] Passcode 7601126. 

A&W restaurants enjoyed excellent results in the fourth quarter with same store sales growth of +7.9%.   This raised the same store sales growth for the full year 2014 to 6.3% as compared to 2013.  The strong same store sales growth along with the sales from 30 net new restaurants added to the Fund's Royalty Pool in January 2014 led to a 14.5% increase in both sales and royalty income for the quarter and 11.8% for the year. 

The amount of cash generated in 2014 for distributions and dividends increased by 13.4% to $20,813,000.  Distributable cash per unit increased by 10.5¢ to $1.454 per unit compared to $1.349 per unit in 2013.  The annual payout ratio is 96.6% and surplus distributable cash on hand is $2.4 million.    

"We are very pleased to report that our same store sales growth accelerated in the fourth quarter resulting in a very strong year.  Our strategic initiatives aimed at growing market share in the quick service restaurant burger market have been extremely successful," said Paul Hollands, President and CEO of A&W Food Services.  "Over the last two years, we have introduced beef raised without the use of hormones or steroids, eggs from hens fed a vegetarian diet without animal by-products, and chicken raised without the use of antibiotics.  I am pleased that in January this year we were the first major chain to launch organic and Fair Trade coffee.  All of these "better ingredients" have been very positively received by our guests."

A&W Food Services' strategy also includes accelerating the pace of growth of new restaurants.  Thirty seven new A&W restaurants were opened across the country in 2014 with 26 of these in Ontario and Quebec, both important growth markets for A&W. 

Financial Highlights

(dollars in thousands except per unit amounts)	16 week period ended Dec 31, 2014	16 week period ended Dec 31, 2013	Period from Jan 1, 2014 to Dec 31, 2014	Period from Jan 1, 2013 to Dec 31, 2013
Same store sales growth^(1)	+7.9%	+3.1%	+6.3%	+0.4%
Number of restaurants in the Royalty Pool	790	760	790	760
Sales reported by the restaurants in the Royalty Pool	$318,365	$278,097	$957,194	$856,379
Royalty income	$9,551	$8,343	$28,716	$25,691
General and administrative expenses	337	252	779	676
Net third party interest expense	760	754	2,421	2,413
Current income taxes	1,387	1,290	4,703	4,242
Total distributable cash generated for distributions and dividends^(2)	$7,067	$6,047	$20,813	$18,360
Distributable cash per equivalent unit (2014 – 14,319,708 units; 2013 – 13,611,878 units)^(2)(3)	$0.494	$0.444	$1.454	$1.349
Distributions and dividends declared per equivalent unit	$0.468	$0.468	$1.404	$1.404
Net income^(4)	$5,844	$5,621	$16,987	$21,626
Net income, excluding non-cash items ^(4)	$7,067	$6,047	$20,813	$18,360

^(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 Food Services.
^(3)	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.  The number of equivalent units and distributable cash per equivalent unit in 2013 includes the 131,650 LP units exchanged for 263,300 common shares of Trade Marks representing the final consideration paid in December 2013 for the January 5, 2013 adjustment to the Royalty Pool.
^(4)	Net income in 2014 and 2013 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.  The Fund's net income excluding these non-cash items is presented for information purposes only.

Royalty income for the fourth quarter of 2014 was $9,551,000 based on sales of $318,365,000.  This was an increase of 14.5% from royalty income of $8,343,000 and sales of $278,097,000 for the fourth quarter of 2013.  Annual royalty income for 2014 was $28,716,000 based on sales of $957,194,000, an increase of 11.8% from royalty income of $25,691,000 and sales of $856,379,000 in 2013. 

Distributable cash generated in the fourth quarter of 2014 to pay distributions to unitholders and dividends to Food Services was $7,067,000 compared to $6,047,000 in the fourth quarter of 2013, an increase of 16.9%.  Distributable cash generated in 2014 was $20,813,000 compared to $18,360,000 in 2013, an increase of 13.4%.

Distributable cash generated per equivalent unit increased by 5.0¢ to 49.4¢ per unit in the fourth quarter of 2014 from 44.4¢ for the fourth quarter of 2013.  Annual distributable cash generated per unit in 2014 increased by 10.5¢ to $1.454 per unit from $1.349 per unit for 2013.  The increase in distributable cash per equivalent unit was due to the increase in royalty income flowing from the same store sales growth less higher income tax expense.

Net income for 2014 was $16,987,000 compared to $21,626,000 for 2013.  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 Food Services.  As noted above, annual distributable cash increased by 13.4% or $2,453,000 and the cumulative surplus of distributable cash at the end of 2014 was $2,372,000 compared to a cumulative surplus of $1,393,000 at the beginning of the year.   

Four monthly distributions totalling 46.8¢ per unit were declared in the fourth quarter of 2014, the same as 2013.  2014 annual distributions were $1.404 per unit, the same as 2013.  The annual payout ratio improved to 96.6% for 2014 from 104.1% for 2013.  The Fund's objective is to maintain an annual payout ratio at or below 100%, and this objective was met in 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. 

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.

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]