Pizza Pizza Royalty Income Fund

Pizza Pizza Royalty Income Fund

May 07, 2009 17:00 ET

Pizza Pizza Royalty Income Fund Announces First Quarter Financial Results

TORONTO, ONTARIO--(Marketwire - May 7, 2009) -

Attention Business Editors:

Pizza Pizza Royalty Income Fund (the "Fund") (TSX:PZA.UN) and Pizza Pizza Limited (the "Company") today announced results for the quarter ended March 31, 2009.

The Fund's 2009 First Quarter Summary:

---Royalty Pool system sales decreased 3.6%

---Same store sales decreased 4.3%

---Pre-tax earnings decreased 8.3%


System sales of the 637 restaurants in the Royalty Pool decreased 3.6% to $109.4 million for the quarter compared with $113.5 million in system sales during the comparable quarter in 2008 which had 609 restaurants in the Royalty Pool. About $1.2 million of the decline was due to the fact that the current quarter contained one less day than the prior year quarter.

Same store sales (SSS) decreased 4.3% for the quarter compared to the same quarter last year. SSS is the key driver of yield growth for Fund unitholders and includes results of Pizza 73 restaurants for the periods after July 24, 2007.

Deteriorating economic conditions in the Company's core markets have impacted the Fund's and the Company's first quarter results. The majority of the Pizza Pizza restaurants operate in Ontario, which continues to experience a decline in employment and tourism. For the Pizza 73 brand, the majority of the restaurants operate in Alberta, whose economy is being affected by the decrease in the price of oil. In addition to the economic impact, 18 traditional stores have opened in Alberta in the last 20 months, of which 16 have reduced territories of previously existing stores. Although these openings are driven by a strategy to grow and protect the brand, improve service, and increase market share, they have also negatively impacted SSS.

"While we are disappointed with our first quarter SSS results, Pizza Pizza continues to maintain a 50% and 30% market share in Ontario and Alberta, respectively. This dominant market share well positions Pizza Pizza in its consumer discretionary segment to return to historical performance levels once the overall economy improves," said Curt Feltner, Chief Financial Officer for Pizza Pizza Limited.

Pizza Pizza and Pizza 73 restaurants sales are subject to seasonal variations. System sales for the quarter ended March 31 have generally been the softest of the four quarters and the December 31 quarterly system sales have been the strongest.


For the first quarter of 2009, earnings before taxes decreased 8.3% to $4.8 million, or $0.221 per unit, compared to pre-tax net earnings of $5.3 million, or $0.241 per unit, for the first quarter of 2008.


During the quarter, the Fund declared distributions of $5.1 million or $0.233 per unit, equating to a 105% payout ratio; for the 2008 comparable quarter, the Fund declared distributions of $5.0 million or $0.228 per unit for a payout ratio of 95%.

The Fund has had a relatively conservative distribution policy which has produced a $3 million working capital reserve at the Pizza Pizza Royalty Limited Partnership (the "Partnership"). This reserve is available for use at the Trustees' discretion in the event of short- to medium-term reductions in system sales and, thus, the Fund's royalty income. As a royalty income fund, the Fund does not have any capital expenditure requirements or significant cash commitments other than interest expense.


The following table sets out selected financial highlights of the Fund and the Partnership:

3 months ended 3 months ended
March 31, 2009 March 31, 2008
(in thousands of dollars, except number of restaurants and per unit amounts)

Restaurants in Royalty Pool 637 609
Same store sales -4.3% 3.7%
Days in the Quarter 90 91
System sales reported by Pizza Pizza
restaurants in the Royalty Pool $ 88,033 $ 93,970
System sales reported by Pizza 73
restaurants in the Royalty Pool 21,352 19,550
$ 109,385 $ 113,520
Royalty - 6% on Pizza Pizza system
sales $ 5,282 $ 5,638
Royalty - 9% on Pizza 73 system sales 1,922 1,760
Total Royalty on System Sales 7,204 7,398
Partnership expenses (788) (825)
Earnings available for distribution to
the Fund and Pizza Pizza Limited 6,416 6,573
Pizza Pizza Limited's interest (2,043) (1,769)
Equity income 4,373 4,804
Interest income 450 450
Net earnings before non-cash future
income tax expense(4) $ 4,823 $ 5,254
Provision for (recovery of) future
income taxes (293) 856
Net earnings $ 5,116 $ 4,398

Basic earnings per Fund unit excluding
the impact of non-cash future income
tax expense $ 0.221 $ 0.241
Basic earnings per Fund unit $ 0.234 $ 0.202
Diluted earnings per Fund unit $ 0.231 $ 0.202

Distributions declared $ 5,072 $ 4,975
Distributions per Fund unit $ 0.233 $ 0.228
Payout ratio 105% 95%

March 31, 2009 March 31, 2008
Positive working capital of Partnership $ 2,965 $ 2,142
Total assets $ 225,923 $ 220,612
Total liabilities $ 7,371 $ 10,722

The unaudited, consolidated financial statements of the Fund, together with its Management's Discussion and Analysis, will be available at and on the Fund's website at on or before May 8, 2009.

The Fund will host a conference call to discuss the results on May 8, 2009 at 9:00 a.m. EDT. The call can be accessed by dialing 416-640-3405 or 1-866-322-2356. A replay will be available until May 21, 2009 by dialing 647-436-0148 or 1-888-203-1112 and entering the reservation number: 1258416.

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 Limited. 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 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 568 Pizza Pizza restaurants in the Royalty Pool for 2009. 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 69 Pizza 73 restaurants in the Royalty Pool for 2009. The 2009 Royalty Pool has 637 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 the Company 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, a privately-owned, operating company

The Company, a privately-held Canadian corporation, is one of Canada's most successful operators in the quick service restaurant 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 quick service industry and is expanding nationally. The Pizza 73 brand is celebrating its 24th anniversary in 2009 and operates largely in Alberta. 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.

Contact Information