TORONTO, ONTARIO--(Marketwired - May 2, 2013) - Pizza Pizza Royalty Corp. (the "Company") (PZA.TO), which owns the Pizza Pizza and Pizza 73 Rights and Marks, released financial results today for the first quarter ended March 31, 2013.
The Company also announced a 4% increase to its monthly shareholder dividend. The increase will be effective beginning with the June 2013 dividend payable July 15, 2013 to shareholders of record at the close of business on June 28, 2013.
First Quarter highlights:
- Same store sales increased 3.5%
- Monthly dividend increased 4.2% in January and 4% for June 2013
- Working capital reserve increased $172,000
- Payout ratio was 96%
In the first quarter, System Sales from the 694 restaurants in the Royalty Pool increased 2.7% to $121.1 million from $117.9 million in the same quarter last year, which had an extra day of sales due to 2012 being a leap year. The extra day of sales is estimated by management to be $1.2 million.
Same store sales growth, the key driver of yield growth for shareholders, increased by 3.5% (2012 - 2.9%) for the quarter compared to the same period in 2012. The Company is reporting its eleventh consecutive quarter of positive same store sales growth.
|First Quarter |
|Same Store Sales Growth||2013||2012|
The Pizza Pizza restaurants reported same store sales growth of 3.1% and the Pizza 73 restaurants reported 5.1% (2012 - 3.2% and 1.4%, respectively). Restaurant sales at both brands benefited from an increase in the average customer cheque and an increase in guest traffic for the quarter compared to the same quarter last year.
Paul Goddard, CEO, Pizza Pizza Limited said: "Both brands have established consistent quarter-over-quarter sales growth for the past two years even in an unsteady economy. Our restaurants are executing very well which is driving our customer frequency. Also, we were especially pleased to see the hockey lockout end this quarter which boosted our delivery sales and also was responsible for sales increases at non-traditional sites within the hockey arenas."
MONTHLY DIVIDENDS AND WORKING CAPITAL RESERVE
The Company declared shareholder dividends of $4.1 million for the quarter, or $0.1875 per share, compared to $3.8 million, or $0.1752 per unit, for the same quarter last year. This is a 7% increase on a quarter-over-quarter basis. The payout ratio was 96% for the Quarter and was 88% for last year's comparable quarter.
Effective with the January 2013 dividend, the Company increased the monthly shareholder dividend by 4.2% to $0.0625 per share and, as announced today, the dividend was increased again by 4% to $0.065 per share, effective with the June 2013 dividend. On an annualized basis, the dividend increased in January from $0.72 to $0.75 per share; with today's increase, the annualized dividend will increase in June from $0.75 to $0.78 annually per share. In 2012 the dividend increased in the second quarter, when the monthly distribution increased 2.7% to $0.06 per unit from $0.0584.
The Company's working capital reserve increased $172,000 during the quarter to $4.7 million. The reserve is available to stabilize dividends and fund other expenditures in the event of short- to medium-term variability in System Sales and, thus, the Company's royalty income. With this reserve now in place, going forward, the Company will target a payout ratio closer to 100%. The Company does not have capital expenditure requirements or employees.
CURRENT INCOME TAX EXPENSE
Current income tax expense for the quarter was $1,006,000 and was $927,000 for the prior year's comparable quarter. The increase is due to increased taxable income and a decline in the tax amortization. Of particular note is that the current quarter's reported earnings before income taxes differs significantly from its taxable income due largely to the tax amortization of the Pizza Pizza and Pizza 73 Rights and Marks. The amount of the tax amortization deducted is based on a declining basis and will decrease yearly.
This tax amortization deduction and certain other minor deductions resulted in an effective tax rate of 19.6% compared to the Company's applicable statutory tax rate of 26.5% (2012 - 26.5%).
As previously announced, the number of restaurants in the Company's Royalty Pool increased to 694 from 690 on the January 1, 2013 Adjustment Date.
During the quarter Pizza Pizza Limited ("PPL") opened a net, three additional restaurants, increasing the number of restaurants to 697 as at March 31, 2013. During the current quarter, PPL opened two non-traditional Pizza Pizza locations and closed one non-traditional location, bringing the total number of Pizza Pizza restaurants to 606. Pizza 73 opened one traditional and one non-traditional location, bringing the total number of Pizza 73 restaurants to 91.
PPL anticipates increasing the number of restaurants in its portfolio by approximately 3% in 2013.
CHANGE IN FILING REQUIREMENT FOR PPL
As permitted by the Ontario Securities Commission ("OSC") beginning this quarter, PPL's financial statements and management's discussion and analysis are no longer required to be filed publicly. Instead, PPL has chosen to voluntarily file an interim and annual report of selected financial highlights along with a report on business developments. This report will be filed under the Company's SEDAR profile at www.sedar.com as an "Other" document.
The reasoning for the change relates to an original OSC requirement from 2005. In early 2005, just prior to the Company's initial public offering, the Canadian Institute of Chartered Accountants, using generally accepted accounting principles, adopted an accounting principle which considered the Pizza Pizza Royalty Limited Partnership (the "Partnership") to be a "variable interest entity" and, under this principle, PPL was considered to be the primary beneficiary of the Partnership. Accordingly, as primary beneficiary, PPL was required to consolidate the Partnership within its financial statements.
At the time, within the Company's financial statements, its majority interest in the Partnership was reported as a non-controlling interest. Since the Company's financial statements would not include the results of the Partnership, but PPL's financial statements would, the OSC previously required PPL to publicly file its financial statements.
Following the Company's adoption of International Financial Reporting Standards ("IFRS") on January 1, 2011, and consistent with the adoption of IFRS 10, PPL is no longer required to consolidate the Partnership; instead, the Company now consolidates the Partnership. Since the Company's financial statements now consolidate the results of its operating subsidiaries, PPL independently petitioned the OSC to waive the requirement that PPL publicly file its financial statements and related management's discussion & analysis. On, February 8, 2013, the OSC approved PPL's request.
The Company and PPL will provide supplemental information regarding the operations of PPL, in conjunction with the release of the Company's financial statements. In addition, PPL will continue to provide business plans, financial statements and other information to the directors of the Company as required by the principal agreements between those companies, to allow the directors to monitor the performance of the Pizza Pizza and Pizza 73 businesses and the use of the intellectual property owned by the Partnership.
SELECTED FINANCIAL HIGHLIGHTS
The following tables set out selected financial information and other data of Pizza Pizza Royalty Corp. ("PPRC" or the "Company"), formerly Pizza Pizza Royalty Income Fund (the "Fund"), and should be read in conjunction with the Company's unaudited interim condensed consolidated financial statements. For this discussion, references to the Company for the periods prior to December 31, 2012 are references to the Fund. Readers should note that the 2013 results are not directly comparable to the 2012 results because of an extra day of royalty revenue received from Pizza Pizza Limited ("PPL") in 2012 due to the leap year and the fact that there are 694 restaurants in the 2013 Royalty Pool compared to 690 restaurants in the 2012 Royalty Pool.
To review selected financial highlights of PPL, the private operating company, the reader is directed to a report filed by PPL under the Company's SEDAR profile at www.sedar.com as an "Other" document.
|(in thousands of dollars, except number of restaurants and per Share amounts)||3 months ended March 31, 2013||3 months ended March 31, 2012|
|Restaurants in Royalty Pool||694||690|
|Same store sales growth(1)||3.5||%||2.9||%|
|Days in Period||90||91|
|System Sales reported by Pizza Pizza restaurants in the Royalty Pool(7)||$||100,616||$||98,221|
|System Sales reported by Pizza 73 restaurants in the Royalty Pool(7)||20,466||19,715|
|Royalty - 6% on Pizza Pizza System Sales||$||6,037||$||5,893|
|Royalty - 9% on Pizza 73 System Sales||1,842||1,775|
|Partnership interest expense and administrative expenses(2)||(642||)||(679||)|
|Adjusted earnings available for distribution to the Company and Pizza Pizza Limited||$||7,237||$||6,989|
|Pizza Pizza Limited's distribution(4)||(1,976||)||(2,156||)|
|Adjusted earnings available for distribution to the Company||$||5,261||$||4,833|
|Adjusted earnings before current income tax expense||$||5,261||$||5,283|
|Provision for current income taxes||(1,006||)||(927||)|
|Pizza Pizza Limited's distribution on Class B and Class D Exchangeable Units(6)||$||1,976||$||1,706|
|Adjusted earnings from operations(6)||$||6,231||$||6,062|
|Adjusted earnings per Share(6)||$||0.208||$||0.204|
|Basic earnings (loss) per Share||$||0.20||$||(0.13||)|
|Dividends/Distributions declared by the Company||$||4,091||$||3,823|
|Dividend/Distribution per Share||$||0.1875||$||0.1752|
|March 31, 2013||March 31, 2012|
- Same store sales growth ("SSSG") means the change in annual gross revenue of a particular Pizza Pizza or Pizza 73 restaurant as compared to sales in the previous period, where the restaurant has been open at least 13 months. Additionally, for a Pizza 73 restaurant whose restaurant territory was adjusted due to an additional restaurant, a Step-Out Payment may be added to sales to arrive at SSSG.
- The Company, indirectly through the Pizza Pizza Royalty Limited Partnership (the "Partnership"), incurs administrative expenses and interest expense on the $47,000 outstanding bank loan. Interest paid on the bank loan, including $8 of loan fee amortization and $61 of cash paid to draw down the termination cost for the three months ended March 31, 2013, was $514. (2012 - $519).
- (Left blank intentionally.)
- Represents the distribution to PPL from the Partnership on Class B, Class C and Class D Units of the Partnership. The Class B and D units are exchangeable into common shares of the Company ("Shares") based on the value of the Class B Exchange Multiplier and the Class D Exchange Multiplier at the time of exchange as defined in the amended and restated Pizza Pizza license and royalty agreement (the "Pizza Pizza License and Royalty Agreement") and the amended and restated Pizza 73 license and royalty agreement (the "Pizza 73 License and Royalty Agreement"), respectively, and represents 27.1% of the fully diluted Shares at March 31, 2013 (March 31, 2012 - 26.5%). As a result of the final calculation of the equivalent Class B and Class D Share entitlements related to the January 1, 2012 Adjustment to the Royalty Pool, PPL was paid a distribution on additional equivalent Shares as if such Shares were outstanding as of January 1, 2012. Included in the three months ended March 31, 2013, is a dividend amount of $57 paid pursuant to the true-up calculation (2012 - PPL returned $50).
- In 2012, the Company indirectly earned interest income on the $30,000 loan to PPL, with interest income accruing at 6% per annum, payable monthly. The loan was paid in full at December 31, 2012 as a result of PPL delivering 3,000,000 Class C units of the Partnership to the Pizza Pizza Holdings Trust (the "Trust) in accordance with the amended and restated exchange agreement (the "Exchange Agreement").
- "Adjusted earnings from operations" and "Adjusted basic earnings per Share" are not recognized measures under International Financial Reporting Standards ("IFRS"). See "Reconciliation of Non-IFRS Measures" in the Company's management's discussion & analysis for current quarter.
- System Sales (as defined in the License and Royalty Agreements) reported by Pizza Pizza and Pizza 73 restaurants include the gross sales of Pizza Pizza company-owned, jointly-controlled and franchised restaurants, excluding sales and goods and service tax or similar amounts levied by any governmental or administrative authority. System Sales do not represent the consolidated operating results of the Company but are used to calculate the royalties payable to the Partnership as presented above.
- As a result of the Conversion, the exchangeable Class B and Class D units are no longer considered liabilities as they are no longer convertible into puttable Fund units. Therefore, at December 31, 2012 the exchangeable Shares were reclassified to equity based on their conversion date fair value.
A copy of management's discussion and analysis and unaudited interim condensed consolidated financial statements of the Company for the quarter will be available at www.sedar.com and www.pizzapizza.ca after the market closes on May 2, 2013.
The Company will host a conference call to discuss the results. The details of the conference call are as follows:
|Date:||Friday, May 3, 2013|
|Time:||9:00 a.m. ET|
|Call-in number:||416-640-5925 or 1-800-711-9538|
|Recording call in number:||647-436-0148 or 1-888-203-1112|
|available until midnight, May 17, 2013|
Certain statements in this report may constitute "forward-looking" statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. When used in this report, such statements include such words as "may", "will", "expect", "believe", "plan", and other similar terminology. These statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this report. These forward-looking statements involve a number of risks and uncertainties. The following are some factors that could cause actual results to differ materially from those expressed in or underlying such forward-looking statements: competition; changes in demographic trends; changing consumer preferences and discretionary spending patterns; changes in national and local business and economic conditions; legislation and governmental regulation; accounting policies and practices; changes in the Company's distribution policy, tax position and availability and use of deductions and related structuring decisions; and the results of operations and financial condition of the Company. The foregoing list of factors is not exhaustive and should be considered in conjunction with the other risks and uncertainties described in the Company's 2012 Annual Information Form. The Company assumes no obligation to update these forward looking statements, except as required by applicable securities laws.