A&W Revenue Royalties Income Fund announces third quarter 2013 results

CNW Group

TRADING SYMBOL:  The Toronto Stock Exchange - AW.UN

VANCOUVER , Oct. 11, 2013 /CNW/ -

  • Same store sales up 0.8% for the quarter
  • Royalty income increased 4.4% for the quarter

A&W Revenue Royalties Income Fund (the Fund) reported today results for the third quarter ended September 8, 2013 . The Fund will hold a conference call to discuss the results on Friday, October 11, 2013 at 1:00 p.m. Pacific Time (4:00 p.m. Eastern Time).  The call can be accessed by dialling toll-free 1-800-814-4859 or (416) 644-3414.  A replay will be available until October 25, 2013 , by dialling toll-free 1-877-289-8525 or (416) 640-1917 Passcode: 4644571#.

Same stores sales growth for the third quarter of 2013 was +0.8%, building on the stronger second quarter.  Year to date same store sales have improved to -0.7%.

"After a soft first quarter, which was impacted by difficult weather, the last two quarters have shown steadily improving performance," said Paul Hollands , President and CEO of A&W Food Services of Canada Inc. (A&W Food Services).  "While economic conditions remain unsettled, we are powerfully focussed on our strategy to reposition and differentiate the A&W brand as a "better burger" quick service restaurant.  With the launch of our new beef specifications last month, A&W became the first national quick service restaurant to serve beef with no added hormones or steroids and that has been raised on ranches that are at the leading edge of sustainable and ethical practices."

A&W's strategy also includes accelerating the pace of growth of new restaurants.  Twenty three new A&W restaurants were opened across the country in the first three quarters of 2013 and 14 of these are in Ontario and Quebec , important growth markets for A&W.  These new restaurants, along with the restaurants opened in the fourth quarter of 2012, less restaurants closed in 2013, will be added to the Royalty Pool on January 5, 2014.  

Total sales reported by restaurants in the Royalty Pool increased by 4.4% to $211.1 million in the third quarter of 2013 compared to $202.1 million in the third quarter of 2012.  2013 year to date sales increased by 2.4% to $578.3 million compared to $564.9 million in 2012 year to date.  Royalty income was $6,333,000 for the quarter compared to $6,064,000 for the same quarter of 2012.  Year to date royalty income was $17,348,000 compared to $16,948,000 for 2012 year to date.  The increase in sales and royalty income resulted from the increase in the number of restaurants in the Royalty Pool from 737 to 760 effective January 5, 2013 .

Distributable cash of $4,475,000 was generated in the quarter compared to $4,434,000 in the same quarter of 2012.  Year to date distributable cash was $12,313,000 compared to $11,835,000 in 2012 year to date.  Distributable cash per equivalent unit for the quarter decreased by 0.9 cents to 33.0 cents per unit compared to 33.9 cents for the same quarter of 2012.  Year to date distributable cash per unit has increased by 0.2 cents to 90.7 cents per unit compared to 90.5 cents in 2012 year to date. The year to date increase in distributable cash per unit was a result of lower interest costs on the term loan which was refinanced in December last year, less the impact of higher income tax expense which resulted from an increase in corporate income tax rates.

Total distributions of 35.1¢ per unit were declared in the third quarter of 2013 and 93.6¢ per unit year to date, the same as in 2012. The cumulative surplus of distributable cash at the end of the third quarter of 2013 was $1,271,000 , compared to a cumulative surplus of $1,974,000 at the beginning of the year.  Soft sales in the first quarter of 2013 and the income tax rate increase contributed to the decrease in the cumulative surplus of distributable cash. 

Financial Highlights

         
(dollars in thousands except per
unit amounts)
12 week
period ended
Sep 8, 2013
12 week
period ended
Sep 9, 2012
Period from
Jan 1, 2013 to
Sep 8, 2013
Period from
Jan 1, 2012 to
Sep 9, 2012
Same store sales growth(1) +0.8% -0.2% -0.7% -1.0%
Number of restaurants in the
  Royalty Pool
760 737 760 737
Sales reported by the restaurants
  in the Royalty Pool
$211,118 $202,106 $578,282 $564,923
Royalty income $6,333 $6,064 $17,348 $16,948
General and administrative
  expenses
90 87 424 451
Net third party interest expense 556 689 1,659 2,075
Current income taxes 1,212 854 2,952 2,587
Total distributable cash generated
  for distributions and dividends(2)
$4,475 $4,434 $12,313 $11,835
Distributable cashper equivalent
  unit (2013 - 13,581,106 units;
  2012 - 13,076,718units)(2)(3)
$0.330 $0.339 $0.907 $0.905
Distributions and dividends
  declared per equivalent unit
$0.351 $0.351 $0.936 $0.936
The Fund's net income(4) $6,465 $4,170 $16,005 $11,277

(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 2013 includes the 100,878
LP units exchangeable for 201,756 common shares of Trade Marks representing the remaining 20%
of the consideration for the January 5, 2013 adjustment to the Royalty Pool which is held back until
December 2013 when the actual annual sales are reported by the new restaurants.  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.
(4)  The Fund's net income in 2013 includes non-cash gains on interest rate swaps which have no impact
on the Fund's ability to pay distributions to unitholders.

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.  The 11th annual adjustment to the Royalty Pool took place on January 5, 2013 at which time the number of restaurants in the Royalty Pool increased from 737 to 760.

A&W Food Services owns 10% of the common shares of Trade Marks, and therefore owns the equivalent of 10% 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

Contact:

Contact
Don Leslie, Chief Financial Officer:  (604) 988-2141 or investorrelations@aw.ca

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