A&W Revenue Royalties Income Fund announces second quarter 2010 results
TRADING SYMBOL: The Toronto Stock Exchange - AW.UN
VANCOUVER, July 27 /CNW/ -
Highlights
- Same store sales growth(1) 1.1% for the second quarter, 3.4% year to
date
- Royalty income increased to $5.3 million, up 4.2%
- Year to date royalty income increased to $10.5 million, up 10.4%
- Year to date distributable cash(2) increased to $9.8 million, up 10.3%
A&W Revenue Royalties Income Fund (the Fund) reported today its results for the second quarter ended June 20, 2010. The Fund will hold a conference call to discuss second quarter results on Tuesday, July 27, 2010 at 1:00 p.m. Pacific Time (4:00 p.m. Eastern Time). The call can be accessed by dialling toll-free 1-866-250-4877 or (416) 644-3419. A replay will be available until August 10, 2010, by dialling toll-free 1-877-289-8525 or (416) 640-1917 Passcode: 4333081 followed by the number sign.
The second quarter same store sales growth of 1.1% marks A&W's 29th consecutive quarter of same store sales growth. Year to date same store sales growth is 3.4%. Growth in same store sales is the most important driver of growth in the Fund.
Total sales reported by restaurants in the Royalty Pool increased by 4.2% over the same quarter of 2009 and by 10.4% year to date compared to 2009. The sales increase was due to the same store sales growth and the increase in the number of restaurants in the Royalty Pool from 685 to 700. In addition, the first quarter of 2010 had six more days of sales compared to the first quarter of 2009. There were 84 days in the second quarter of both years. Year to date same store sales growth is reported based on an equal number of days in each quarter.
The increase in sales resulted in royalty income increasing by 4.2% for the quarter and distributable cash per equivalent unit increasing to 34.9 cents for the quarter.
"As a strategy driven company we continue to build our relationship with our core baby boomer customers, by focusing on the increasing demand for premium hamburgers like the Sirloin Uncle Burger and also accelerating the pace of growth of new restaurants," said Paul Hollands, President and Chief Executive Officer of A&W Food Services of Canada Inc. (A&W Food Services). "Despite continuing bumpy economic conditions, we are pleased that the A&W business demonstrated solid growth in the second quarter. Looking forward, we will continue to focus on implementing our strategy, but we will also tactically adjust advertising and promotional programs to respond to economic conditions as well as any negative impact that the implementation of the Harmonized Sales Tax may have on sales of the overall restaurant industry in British Columbia."
The Fund also today declared the regular monthly distribution of 10.6 cents per unit for the period July 1 to July 31, 2010. This distribution will be paid on August 31, 2010 to unitholders of record as at August 15, 2010. For tax purposes, 8.958 cents per unit of this distribution will be other taxable income and 1.642 cents will be non-eligible dividends. A&W Food Services will also receive the regular monthly dividend of 10.6 cents per share from A&W Trade Marks Inc. (Trade Marks) on its investment in Trade Marks.
FINANCIAL HIGHLIGHTS
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(dollars in thousands except Period Period
per unit amounts) 12 week 12 week from from
period period Jan 1, Jan 1,
ending ending 2010 to 2009 to
Jun 20, Jun 14, Jun 20, Jun 14,
2010 2009 2010 2009
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Same store sales growth(1) 1.1% 1.3% 3.4% 3.8%
Number of restaurants in the
Royalty Pool 700 685 700 685
Sales reported by the
restaurants in the
Royalty Pool $177,690 $170,506 $349,348 $316,571
Royalty income $5,330 $5,115 $10,480 $9,497
General and administrative
expenses $65 $85 $426 $423
Net third party interest expense $132 $131 $271 $254
Recovery of current income taxes - - - ($43)
Partnership distributions to
Food Services $5 - $10 -
Total distributable cash
generated for distributions
and dividends(2) $5,128 $4,899 $9,773 $8,863
Distributable cash(2) per
equivalent unit
(2010 - 14,705,897 units;
2009 - 14,289,993 units)(3) $0.349 $0.343 $0.665 $0.620
Distributions and dividends
declared per equivalent unit $0.318 $0.318 $0.530 $0.530
Special distribution per
equivalent unit $0.100 $0.100 $0.100 $0.100
Trade Marks' net earnings $921 $825 $1,422 $959
The Fund's net earnings $2,585 $2,546 $5,608 $4,916
The Fund's basic and diluted
earnings per unit
(8,340,000 units) $0.310 $0.305 $0.672 $0.589
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(1) Same store sales growth is not an earnings measure recognized by
generally accepted accounting principles (GAAP) 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.
See "Same Store Sales Growth".
(2) Distributable cash is not an earnings measure recognized by generally
accepted accounting principles ("GAAP") 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. See "Distributable Cash".
(3) For purposes of calculating distributable cash per equivalent unit,
the number of equivalent units for 2010 includes 83,181 equivalent
units representing the remaining 20% of the consideration for the
January 5, 2010 adjustment to the Royalty Pool which is held back
until December 2010 when the actual annual sales are reported by the
new restaurants.
Financial Results
Royalty income for the second quarter increased by $215,000 or 4.2% to $5,330,000 compared to the same quarter in 2009. Year to date royalty income increased by $983,000 or 10.4% to $10,480,000 compared to 2009. These increases in royalty income were driven by the same store sales growth of 1.1% for the quarter and 3.4% year to date, the increase in the number of restaurants in the Royalty Pool to 700 in 2010 from 685 in 2009, and more days of sales in the first quarter compared to 2009.
Cash expenses, interest and taxes decreased by $14,000 in the quarter and increased by $73,000 year to date. The year to date increase was due to higher interest expense due to the longer first quarter compared to 2009 and an income tax recovery of $43,000 in 2009.
Distributable cash generated to pay distributions to unitholders and dividends to A&W Food Services increased by $229,000 or 4.7% to $5,128,000 for the second quarter of 2010 compared to the same quarter in 2009. Year to date distributable cash increased by $910,000 or 10.3% to $9,773,000 for 2010 compared to 2009 year to date. Distributable cash per fully diluted unit and equivalents increased to 34.9 cents from 34.3 cents for the quarter and to 66.5 cents from 62.0 cents for the year to date period.
Distributions of 31.8 cents per equivalent unit were declared in the second quarter. Year to date monthly distributions total 53.0 cents per equivalent unit, and in addition, in May 2010 a Special Distribution of 10.0 cents per equivalent unit was paid, bringing the total amount of cash distributed year to date to 63.0 cents per equivalent unit. The current monthly distribution rate of 10.6 cents per unit translates into an annualized distribution of $1.272 per unit.
A copy of the Fund's management discussion and analysis and the financial statements of the Fund, Trade Marks and A&W Food Services for the second quarter will be available on www.sedar.com and www.awincomefund.ca on or before July 30, 2010.
Overview
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 43% of the common shares of Trade Marks, and therefore currently owns the equivalent of 43% 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 report may be forward-looking in nature. These include references to liquidity, subordinated dividends, earnings and anticipated earnings from growth in same store sales and new restaurant openings, A&W Food Services' strategy to "make A&W the number one national burger choice for baby boomers and the fastest growing and most successful burger businesses in Canada:, A&W Food Services' plans to respond tactically to market conditions; A&W Food Services' plans to build the A&W brand through advertising and marketing campaigns, menu innovation, facilities design and expanding to serve customers in new markets; and A&W Food Services' plans to modernize and enhance the appeal of its restaurants. Actual results may differ materially from those expressed or implied in these forward-looking statements. The forward-looking statements are based on assumptions that management considered reasonable at the time they were prepared. These forward-looking statements are subject to a number of risk factors, including the ability of A&W Food Services to implement its marketing strategies and opening new A&W restaurants, general economic and business conditions, unemployment, harmonization of sales taxes, financial and political instability, and other factors disclosed previously and from time to time in the Fund's public filings.
Additional information relating to the Fund is on SEDAR at www.sedar.com and on the Fund's website at www.awincomefund.ca.
For further information: Don Leslie, Chief Financial Officer: (604) 988-2141 or [email protected]
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