Press release from CNW Group
Parkland Fuel Corporation Reports Second Quarter 2011 Results
Thursday, August 04, 2011
Parkland Fuel Corporation Reports Second Quarter 2011 Results07:30 EDT Thursday, August 04, 2011The highlights for the second quarter of 2011 are as follows:Q2 fuel sales volumes increased 13% to 903 million litres compared with 802 million litres in Q2 2010 on organic growth and acquired volumes;EBITDA decreased $2.9 million to $25.4 million compared with $28.3 million in Q2 2010 partially as a result of $3.3 million in one-time expenses relating to previously announced management changes and Cango acquisition costs;A net loss in Q2 2011 of $9.3 million compared with net income of $12.7 million in Q2 2010 principally from lower EBITDA, a $4.3 million increase in depreciation and amortization expenses and $12.8 million in higher income tax expenses;On June 2nd Parkland closed an $86.3 million bought deal equity financing to fund acquisitions and to optimize the balance sheet in preparation for future growth;On June 22nd Parkland completed the acquisition of Cango Inc. ("Cango"), a large independent retail operator that distributes more than 400 million litres of petroleum products annually through a network of 155 independent dealers and company operated locations in Ontario; andOn June 30th Parkland entered into a new three year $450 million revolving credit facility, replacing its previous $400 million 364 day extendible credit facility at superior terms and with more flexible conditions.RED DEER, AB, Aug. 4, 2011 /CNW/ - Parkland Fuel Corporation ("Parkland" or the "Corporation") (TSX: PKI), Canada's largest independent fuel distributor and marketer, today announced the financial and operating results for the three months ended June 30, 2011. All dollar amounts are stated in Canadian dollars."While EBITDA was below our expectations for the quarter, if we factor out one-time costs, we would have achieved an EBITDA of $28.7 million for the quarter," said Bob Espey, President and Chief Executive Officer of Parkland. "That said, we recognize there are still opportunities to improve the integration of our acquisitions and realize additional savings. Our new enterprise resource planning system has begun to provide the data required to reduce working capital and provide a better overview of our costs and enable us to drive further efficiencies into the business."Distributable Cash FlowThe dividend/distribution payout ratio prior to proceeds from the dividend reinvestment plan for the second quarter of 2011 was 94% compared with 85% in the second quarter of 2010. The increase in the payout ratio in the second quarter of 2011 compared with the second quarter of 2010 was the result of a $2.5 million decrease in distributable cash flow partially offset by a $0.7 million decrease in total declared dividends.CONSOLIDATED HIGHLIGHTS (in millions of Canadian dollars except volume and per Share/Unit amounts)For the three months ended June 30, Six months ended June 30, 20112010% Change20112010% ChangeFuel volume (millions of litres)903.0802.0131,927.0 1,618.019Sales and operating revenues950.3600.6581,905.4 1,275.849Gross profit89.177.914202.8148.337Operating costs40.632.62588.264.038Marketing, general and administrative23.917.23943.937.517Depreciation and amortization expense20.015.72737.429.626 4.712.4(62)33.317.294 Customer finance income(0.7)(0.1)600(1.3)(0.6)117Finance costs8.48.5(1)17.310.466(Gain) loss on disposal of property, plant and equipment0.4(1.6)(125)(0.5)(1.3)(62)(Loss) earnings before income taxes(3.5)5.7(161)17.88.7105Income tax expense (recovery)5.8(7.0)(183)10.8(7.7) Net (loss) earnings(9.3)12.7(173)7.016.4(57)EBITDA (1)25.428.3(10)71.947.452 Distributable cash flow (1)(2)15.417.9(14)47.430.953Dividends/distributions14.515.2(4)28.229.7(5)Dividends/distributions, net of dividend re-investment plan5.114.3(64)13.028.3(54)Dividend/distribution to distributable cash flow payout ratio94%85% 60%96% Dividend/distribution (net of dividend re-investment plan) todistributable cash flow payout ratio33%80% 28%91% Cents per Litre Sales and operating revenues105.2474.894198.8878.8525Gross margin9.879.71210.529.1715Operating costs4.504.06114.583.9616Marketing, general and administrative2.652.14232.282.32(2)Depreciation and amortization expense2.211.96131.941.836 (Loss) earnings before income taxes(0.38)0.71(154)0.920.5472Income tax (recovery) expense0.64(0.87) 0.56(0.48) Net (loss) earnings(1.02)1.58(165)0.361.01(64)EBITDA(1)2.813.53(20)3.732.9327(1) Please refer to the Non-GAAP Measures section in the MD&A for definitions. (2) Please see Distributable Cash Flow reconciliation table in the MD&A.EBITDA InformationEBITDA, as referenced herein, refers to earnings before finance costs (accretion on refinery remediation, accretion on asset retirement obligation, interest on long-term debt, interest and accretion on convertible debentures), income tax expense (recovery), depreciation and amortization, and (gain) loss on disposal of property, plant and equipment.EBITDA is a non-GAAP measure and Parkland's definition of EBITDA may not be consistent with other providers of financial information and therefore may not be comparable. Parkland believes, however, that EBITDA is a relevant measure to users of its financial information as it provides an indication of pre-tax earnings available to distribute to Parkland's debt and equity holders. The reconciliation of EBITDA to net earnings is set out in Management's Discussion and Analysis for the first quarter of 2011.Second Quarter 2011 ReviewFuel VolumesFuel volumes increased 101 million litres or 13% to 903 million litres in the second quarter of 2011 from 802 million litres in the prior year. This was the result of strong Commercial Fuels volumes, that increased 77 million litres or 26% in Q2 2011 compared with Q2 2010.Commercial Fuel VolumesFor the three months ended June 30, 2011 commercial fuel volumes increased 26% or 77 million litres to 377 million litres compared with 300 million litres for the same period in 2010 primarily due to improved organic growth, an increase in large volume or wholesale transactions within the Commercial Fuels Division, and the acquisition of Island Petroleum effective December 30, 2010.Retail Fuel VolumesFor the three months ended June 30, 2011 retail fuel volumes increased 3% or 10 million litres to 374 million litres compared with 364 million litres for the same period in 2010 due primarily to the acquisition of Cango and seven Save-on-Food sites.Segmented InformationFuel Marketing SegmentFuel marketing consists of the sale and delivery of gasoline, diesel and to a lesser extent propane through the Corporation's commercial, retail, and wholesale distribution channels. It is the Corporation's most important segment and the focus of its operations.For the three months ended June 30, 2011, Parkland's fuel marketing segment accounted for approximately 90% of sales and operating revenue compared with 92% in Q2 2010; and approximately 73% of gross profit compared with 75% in Q2 2010.Fuel marketing sales increased 55% to $857.0 million in the quarter ended June 30, 2011 from $551.7 million in the second quarter of 2010. The increase in fuel marketing sales was primarily driven by higher volumes and prices for the reasons described above.Q2 2011 fuel gross profit increased 12% to $65.2 million compared with $58.4 million in Q2 2010.Please refer to the operational reviews of Parkland's commercial and retail operations found at the beginning of Q2 2011's Management's Discussion and Analysis for an in-depth discussion on fuel margins and volumes for the quarter.Parkland Supply & Wholesale and Refiners' MarginsParkland Supply & Wholesale, a part of the Fuel Marketing Segment, includes profits from Parkland's participation in refiners' profit margins and modest profits from wholesale fuel sales. Parkland participates in refiners' margins for a portion of its supply volumes. Refiners' margins are driven by supply and demand, over which the Corporation has no control. Parkland continues to execute its strategy to build fuel marketing profits to offset fluctuations in refinery margins that are expected to continue until the termination of the Suncor contract on December 31, 2013.Gross profit in the Parkland Supply & Wholesale Division increased by 6% or $0.8 million to $14.1 million for the three months ended June 30, 2011, compared with $13.3 million for the same period in 2010.Product supplies appear to be adequate to meet forecasted commitments.Non-Fuel Commercial SegmentParkland's Non-Fuel Commercial Segment consists of agricultural inputs, lubricants, and other products that do not fall into the fuel category.For the three months ended June 30, 2011, this segment accounted for approximately 7% of sales and operating revenue compared with 6% in Q2 2010; and approximately 19% of gross profit compared with 14% in Q2 2010.Non-Fuel Commercial revenue increased to $69.4 million in the second quarter of 2011 from $35.5 million in the second quarter of 2010 due to additional lubricant business and improved agricultural sales. While wet conditions delayed sales in the agricultural portion of Parkland's business in April, vigorous activity in May and June made up for the lost ground.Other Non-Fuel SegmentParkland's Other Non-Fuel Segment consists of convenience store revenue, lottery revenue, externally charged freight revenue, retail variable rents received from Parkland's Retailers, and vendor rebates.For the three months ended June 30, 2011, this segment accounted for approximately 3% of sales and operating revenue compared with 2% in Q2 2010; and approximately 8% of gross profit compared with 11% in Q2 2010.While sales in this segment increased 78% to $23.9 million in Q2 2011 compared with $13.4 million in Q2 2010, Other Non-Fuel gross profit decreased by 20% or $1.8 million to $6.9 million in Q2 2011 compared with $8.7 million in Q2 2010. The decrease is partly due the conversion of Parkland's retail fuel sites to a commission operated model combined with a number of lower margin annual renewals with commissioned operators compared to 2010. Parkland has implemented an enhanced process to monitor and ensure renewals provide earnings improvements on average.Consolidated Financial PerformanceRevenueSales and operating revenue for the three month period ended June 30, 2011 increased by 58% to $950.3 million compared with $600.6 million during the second quarter of 2010. This was due to a 13% increase in fuel volumes as previously discussed, and an increase in the cost of crude oil and refined product. Revenue per litre increased by 41% or 30 cents per litre in Q2 2011 compared with Q2 2010.Gross Profit Gross profit for the three months ended June 30, 2011 increased 14% or $11.2 million to $89.1 million compared with $77.9 million for the same period in 2010. On a product segment basis:Fuel gross profit increased 12% or $6.8 million to $65.2 million in Q2 2011 compared with $58.4 million in Q2 2010. The increase is due to higher volumes through organic growth and acquired business as well as higher fuel marketing margins. In addition, refiners' margins remained robust through Q2 2011.Commercial non-fuel gross profit increased by 57% or $6.2 million to $17.0 million in Q2 2011 compared with $10.8 million in Q2 2010. The increase in commercial non-fuel gross profit is due to a strong agricultural season, as well as increased lubricant sales, primarily from the Shell lubricant business acquired in Q3 2010 which is a high margin business.Other revenue gross profit decreased 20% or $1.8 million to $6.9 million in Q2 2011 compared with $8.7 million in Q2 2010.Operating and Direct ExpensesOperating and direct costs increased by 25% to $40.6 million (4.5 cpl) for the three months ended June 30, 2011, compared with $32.6 million (4.1 cpl) in Q2 2010. The $8.0 million increase in Parkland's operating and direct costs for the three month period can be attributed to increased sales activity during the quarter, higher commercial fleet costs due to higher fuel prices, and an increase in Commercial Fuels volumes from 37% of fuel sold in the second quarter of 2010 to 43% of fuel sold in the second quarter of 2011 with associated delivery costs.Marketing, General and Administrative ExpensesMarketing, general and administrative expenses increased 39% or $6.7 million to $23.9 million (2.7 cpl) for Q2 2011 compared with $17.2 million (2.1 cpl) in Q2 2010. While part of this increase is activity related, $3.3 million is the result of one-time expenses relating to previously announced management changes and Cango acquisition costs. Furthermore, additional costs were borne at the corporate level for IFRS and C-Sox consultants, as well as additional auditing services to support IFRS conversion.Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA)EBITDA for the second quarter of 2011 decreased by 10% to $25.4 million compared with $28.3 million in Q2 2010. The decrease in EBITDA is the result higher variable costs combined with higher marketing, general and administrative expenses partially offset by fuel sales volume increases.Depreciation and AmortizationDepreciation and amortization expenses in Q2 2011 increased 27% or $4.3 million to $20.0 million compared with $15.7 million in Q2 2010. The increase for the quarter was partly due to $3.2 million in deferred finance fees related to the previous credit facility as a result of Parkland's transition to the new revolving extendible credit facility executed on June 30, 2011. The remaining increase is a function of Parkland's continuing strategy to acquire fuel marketing assets which include both tangible assets and intangible assets that are generally amortized over a five to ten year period.Finance CostsFinance costs were $8.4 million in the second quarter compared with $8.5 million for the same period in 2010. Finance costs relate to interest on long-term debt and interest and accretion on convertible debentures.Interest on long-term debt for the second quarter of 2011 was $5.4 million versus $6.6 million in the second quarter of 2010. Interest and accretion on convertible debentures for the second quarter of 2011 was $2.4 million versus $1.8 million in the second quarter of 2010.Long-term debt including the current portion has decreased to $280.7 million as at June 30, 2011, down $47.4 from $328.1 million at June 30, 2010 due to a portion of the proceeds from the June 2, 2011 $86 million equity raise being used to reduce the amount outstanding on Parkland's credit facility during Q2 2011.Income TaxAn income tax expense of $5.8 million was incurred in the second quarter compared with a recovery of $7.0 million for the same period in 2010.The increase in income tax expense in the second quarter resulted from the impact of the conversion from an income trust to a corporation. This was partially due to the Corporation's inability to continue to reduce taxable income by distributions to unitholders and the impact of changes in the effective income tax rate used in the process of conversion from the Trust to the Corporation.EarningsParkland incurred a net loss in the second quarter of 2011 of $9.3 million, compared with net earnings of $12.7 million for the same period in 2010. The decrease in net earnings in Q2 was directly attributable to decreased EBITDA, increased depreciation and amortization, and increased income tax.Cash Balances and Cash Flow ActivityParkland's cash position increased by $15.6 million in the second quarter of 2011 compared to an increase of $32.3 million in the second quarter of 2010. For the three month period ended June 30, 2011, operating activities generated $53.9 million of cash versus $18.2 million in cash flow in the second quarter of 2010. Cash generated from a decrease in non-cash working capital of $37.0 million in the second quarter of 2011 compared to cash generated of $0.5 million in the second quarter of 2010. Accounts receivable decreased by $60.2 million in the second quarter of 2011. Accounts payable and accrued liabilities decreased $32.4 million in the second quarter of 2011.Financing activities in the second quarter of 2011 used $11.8 million of cash flow, which included a total use of cash flow of $90.2 million from long-term debt repayments, repayments of bank indebtedness less proceeds from long-term debt. The June 2nd bought deal equity financing arrangement resulted in net proceeds of $83.5 million for the new share issue. Financing activities generated $20.8 million in cash flow in the second quarter of 2010.Investing activities in the second quarter of 2011 used $26.5 million in cash flow, which included $17.8 million in net cash expenditures related to the Cango Inc. acquisition. Investing activities used $6.7 million in cash flow in the second quarter of 2010.MD&A and Financial StatementsThe MD&A as well as the unaudited Consolidated Financial Statements and Notes to Consolidated Financial Statements for the three months and year ended June 30, 2011, are available online at www.parkland.ca.Conference Call InformationParkland will host its results conference call at 7:00 a.m. Mountain Time (9:00 a.m. Eastern Time) on Thursday August 4, 2011.President and CEO Bob Espey and Interim CFO Andrew Cruickshank will discuss Parkland's financial results for the quarter and then take questions from securities analysts, brokers and investors.To access the conference call by telephone, dial (888) 241-0394 or (647) 427-3413 (Conference ID: 8703 5792). Please connect approximately 10 minutes prior to the beginning of the call. The conference call will be available for replay two hours after the conference call ends until 9:59 p.m. Mountain Time (11:59 p.m. Eastern Time), August 18, 2011. To access the archived conference call, dial (855) 859-2056 and enter the reservation number: 8703 5792 followed by the number sign.A live audio webcast of the conference call will be available at: http://www.snwebcastcenter.com/event/?event_id=2014#Please connect at least 10 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. The webcast will be archived at the above website for 90 days.Forward Looking InformationCertain information included herein is forward-looking. Forward-looking statements include, without limitation, statements regarding the future financial position, business strategy, budgets, projected costs, capital expenditures, financial results, taxes, effectiveness of internal controls, sources of funding of growth capital expenditures and plans and objectives of or involving Parkland. Many of these statements can be identified by looking for words such as "believe", "expects", "expected", "will", "intends", "projects", "projected", "anticipates", "estimates", "continues", or similar words and include, but are not limited to, statements regarding the accretive effects of the acquisition and the anticipated benefits of the acquisition. Parkland believes the expectations reflected in such forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties some of which are described in the Corporation's annual report, annual information form and other continuous disclosure documents. Such forward-looking statements necessarily involve known and unknown risks and uncertainties and other factors, which may cause the Corporation's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Such factors include, but are not limited to: general economic, market and business conditions; industry capacity; competitive action by other companies; refining and marketing margins; the ability of suppliers to meet commitments; actions by governmental authorities including increases in taxes; changes in environmental and other regulations; and other factors, many of which are beyond the control of Parkland. Any forward-looking statements are made as of the date hereof and the Corporation does not undertake any obligation, except as required under applicable law, to publicly update or revise such statements to reflect new information, subsequent or otherwise.About Parkland Fuel CorporationParkland Fuel Corporation is Canada's largest independent marketer and distributor of petroleum products, managing a nationwide network of sales channels. We are Canada's local fuel company, delivering gasoline, diesel fuel, lubricants, heating oil and other products to businesses, consumers and wholesale customers by community based operators who care. For further information: For investor and media inquiries please contact Tom McMillan, Investor Relations Manager at firstname.lastname@example.org or 1-800-662-7177 ext 6722.