TORONTO, May 1 /CNW/ - Pizza Pizza Royalty Income Fund (the "Fund") today reported its financial results for the quarter ended March 31, 2008.
2008 Quarterly Highlights compared to 2007: - Earnings per unit, before non-cash future income tax, increased 9.0% - Distributions per unit increased 4.1% - Same store sales grew 3.7% - Royalty Pool system sales increased 26.8%
The Fund's two brands continue to report positive sales growth. As previously announced, the Fund's same store sales growth (SSSG) increased 3.7% when compared to the same period last year. By brand, Pizza Pizza's SSSG was 2.1% and Pizza 73 SSSG was 11.7%.
The system sales of the restaurants in the Royalty Pool on which the Fund earns royalties increased by 26.8% for the quarter to $113.5 million from $89.5 million in the comparative period in 2007. Sales for the quarter from the 559 Pizza Pizza restaurants were $94 million and sales from the 50 Pizza 73 restaurants were $19.5 million. The increase in system sales and the corresponding royalty income was the result of the positive SSSG plus the 37, net new restaurants added to the Royalty Pool on January 1, 2008, and the 41 Pizza 73 restaurants added to the Royalty Pool on July 24, 2007.
Net earnings after non-cash future income taxes
As a result of the increase in Royalty Pool sales earnings per unit, before non-cash future income tax, increased 9% for the quarter over that in the first quarter of 2007, growing to $0.241 from $0.221 per unit
Earnings before future income tax of $5.3 million, or $0.241 per unit, were reduced to $4.4 million, or $0.202 per unit, as a result of recording a non-cash, future tax expense of $0.039 per unit. Net earnings for the first quarter in 2007 were $4.0 million or $0.221 per unit and federal tax legislation requiring a provision for future income tax expense had not yet been substantively enacted.
Distributions
The Fund declared distributions of $5.0 million or $0.228 per unit for the quarter compared to $3.9 million or $0.219 per unit for the same period last year, or a 4.1% increase per unit. The payout ratio for the quarter was 95%.
As of March 31, 2008, working capital of the Pizza Pizza Royalty Limited Partnership (the "Partnership") increased 21% during the quarter to $2.3 million (December 31, 2007 - $1.9 million) and is accumulated as a reserve to cover seasonality and any unusual administrative expenditures.
Restaurants
During the quarter, the Pizza Pizza brand opened one traditional and one non-traditional location and closed three non-traditional locations. This brings the total number of Pizza Pizza restaurants to 558, of which 368 are traditional restaurants and 190 are non-traditional locations. Four non-traditional Pizza 73 locations were opened during the quarter, bringing the total number of Pizza 73 restaurants to 61 of which 50 are in the Fund's 2008 Royalty Pool.
Effective January 1, 2008, the Royalty Pool was increased to include the royalties from 36 new Pizza Pizza restaurants and nine new Pizza 73 restaurants. The Royalty Pool was decreased by eight non-traditional Pizza Pizza locations which were closed during 2007. With the addition of the 37 net, new restaurants, the Fund will receive royalties on system sales from 609 restaurants that are in the Royalty Pool during 2008.
FINANCIAL HIGHLIGHTS
The following table sets out selected financial highlights of the Fund and the Partnership:
3 months 3 months
ended March ended March
31, 2008 31, 2007
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(in thousands of dollars, except number
of restaurants and per unit amounts)
Restaurants in Royalty Pool(1) 609 531
Same store sales growth 3.7% 5.5%
System sales reported by Pizza Pizza restaurants
in the Royalty Pool $ 93,970 $ 89,518
System sales reported by Pizza 73 restaurants
in the Royalty Pool(1) 19,550 -
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$ 113,520 $ 89,518
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Royalty - 6% on Pizza Pizza system sales $ 5,638 $ 5,371
Royalty - 9% on Pizza 73 system sales 1,760 -
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Total Royalty on System Sales 7,398 5,371
Partnership expenses(2) (825) (338)
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Earnings available for distribution to the
Fund and Pizza Pizza 6,573 5,033
Pizza Pizza's interest(3) (1,769) (1,509)
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Equity income 4,804 3,524
Interest income(4) 450 450
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Net earnings before non-cash future
income tax expense $ 5,254 $ 3,974
Provision for future income taxes 856 -
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Net earnings $ 4,398 $ 3,974
Basic earnings per Fund unit excluding
the impact of non-cash future income
tax expense $ 0.241 $ 0.221
Basic earnings per Fund unit $ 0.202 $ 0.221
Diluted earnings per Fund unit $ 0.202 $ 0.215
Distributions declared $ 4,975 $ 3,931
Distributions per Fund unit $ 0.228 $ 0.219
Payout ratio 95% 99%
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March 31, March 31,
2008 2007
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Total assets $ 220,612 $ 177,529
Total liabilities $ 10,722 $ 1,310
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(1) Pizza 73 trademarks were acquired on July 24, 2007 and resulted in
the addition of 41 restaurants to the Royalty for the balance of
2007. Effective January 1, 2008, there are 50 Pizza 73 restaurants in
the Royalty Pool.
(2) The Fund, indirectly through the Partnership, incurs administrative
expenses and interest expense on the $47 million outstanding bank
loan. Interest expense on the bank loan for the current quarter was
$687 (2007 - $262).
(3) Represents the interest of Pizza Pizza in the earnings of the
Partnership from Class B, Class C, and Class D Partnership units. The
Class B and Class D units are exchangeable into Fund units based on
value of the Class B Exchange Multiplier and the Class D Exchange
Multiplier at the time of exchange as defined in the Pizza Pizza
Licence and Royalty Agreement and the Pizza 73 Licence and Royalty
Agreement, respectively, and represents 21.5% of the fully diluted
units of the Fund at March 31, 2008.
(4) The Fund indirectly earns interest income on the $30 million loan to
Pizza Pizza, with interest income accruing at 6% per annum, payable
monthly.
The unaudited, consolidated financial statements of the Fund, together with its Management's Discussion and Analysis, will be available at www.sedar.com and on the Fund's website at www.pizzzapizzaroyaltyincomefund.com on or before May 2, 2008.
The Fund will host a conference call to discuss the results on May 2, 2008 at 9:00 a.m. EST. The call can be accessed by dialing 416-642-5212 of 1-866-321-6651. A replay will be available until May 16, 2008 by dialing 647-436-0148 or 1-888-203-1112 and entering the reservation number: 5461687.
Forward Looking Statements
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; and the results of operations and financial condition of Pizza Pizza. The foregoing list of factors is not exhaustive and should be considered in conjunction with the other risks and uncertainties described in the Fund's Annual Information Form. The Fund assumes no obligation to update these forward looking statements, except as required by applicable securities laws.
About the Fund, a publicly-traded entity
The Fund is a limited purpose, open-ended trust established under the laws of Ontario. The Fund, indirectly through the Partnership, has acquired the trademarks and trade names used by Pizza Pizza Limited ("the Company") in its Pizza Pizza and Pizza 73 restaurants. The Pizza Pizza trademarks were licensed to the Company in 2005 for 99 years, for which the Company pays the Fund a royalty equal to 6% of the system sales of its Pizza Pizza restaurants in the Royalty Pool. There are 559 Pizza Pizza restaurants in the Royalty Pool for 2008. On July 24, 2007, the Partnership acquired the trademarks and other intellectual property of Pizza 73 (the "Pizza 73 Rights") and licensed them to the Company for 99 years, for which the Company pays the Fund a royalty equal to 9% of the 50 Pizza 73 restaurants in the Royalty Pool for 2008. The 2008 Royalty Pool has 609 total restaurants.
A key attribute of the Fund is that revenues are based on top-line, system sales of the Royalty Pool restaurants and not on the profitability of either the Company or the restaurants in the Royalty Pool. Moreover, the Fund is not subject to the variability of earnings or expenses of the operating companies. The Fund's only expenses are administration expenses and the interest on debt. Thus, the success of the Fund depends primarily on the ability of Pizza Pizza to maintain and increase system sales of the Royalty Pool restaurants and to meet its royalty obligations.
The Fund's trust units are listed on the Toronto Stock Exchange under the symbol PZA.UN.
About Pizza Pizza Limited, the privately-owned operating company
The Company, a privately-held Canadian corporation, is one of Canada's most successful operators in the QSR industry. It operates franchised, owner/operator and corporate restaurants under the brand names Pizza Pizza and Pizza 73. The Pizza Pizza brand celebrated its 40th anniversary in 2007 and dominates the Ontario pizza QSR. The Pizza 73 brand celebrated its 22nd anniversary and was awarded the distinction of being named one of Canada's "50 Best Managed" companies for 2006. The Company is guided by a mission to provide the "best food, made especially for you" and a focus on quality ingredients, customer service, community contribution and continual innovation, especially in offering health-conscious menu choices.
%SEDAR: 00022262EF