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Press release from CNW Group

Parkland Fuel Corporation Reports Strong Third Quarter 2011 Results

Wednesday, November 02, 2011

Parkland Fuel Corporation Reports Strong Third Quarter 2011 Results08:00 EDT Wednesday, November 02, 2011The highlights for the third quarter of 2011 are as follows:Third quarter fuel sales volumes increased 20% to 1,078 million litres compared with 901 million litres in the third quarter of 2010 on the strength of organic growth and acquisitions;EBITDA more than doubled, increasing by 134% to $42.9 million compared with $18.3 million in the third quarter of 2010;Net income of $24.5 million compared with a net loss of $1.2 million in the third quarter of 2010 principally from higher EBITDA, a $12.8 million gain on the sale of the long-haul trucking assets, partially offset by $13.4 million in higher income tax expenses;Cango operations are on target, contributing more than 100 million litres in volume in the third quarter;Commercial fuel volumes increased by 14% to 403 million litres compared with 354 million litres in the third quarter of 2010 due to increased economic activity in Western Canada and successful sales efforts;Combined expenses for operating costs and marketing, general and administration dropped by 0.44 cents per litre ("cpl") to 5.61 cpl compared with 6.05 cpl in the third quarter of 2010 despite a $5.0 million charge that included aging receivables and other provisions; andMike Lambert appointed to Senior Vice President and Chief Financial Officer, effective September 1, 2011.RED DEER, AB, Nov. 2, 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 September 30, 2011. All dollar amounts are stated in Canadian dollars."In the third quarter of 2011, Parkland grew year-over-year earnings by $25.7 million on the strength of Supply and Wholesale profits, sales in our commercial and lubricants business that exceeded expectations, and our continued success in growing the fuel marketing business," said Bob Espey, President and Chief Executive Officer of Parkland. "At the same time, we are continuing to focus on reducing costs across the organization, a concerted effort that enabled us to achieve 0.44 cents per litre in cost savings in the third quarter and improve our bottom line performance.""In our retail fuel division, we expect the combination of continued robust economic activity in our western markets and stable economic activity in the east to contribute to volume growth for the balance of 2011.  Refiners' margins remained strong in October, and our supply team continues to be particularly effective at capturing additional profits through better management of our supply portfolio. In our commercial fuel division, the outlook for growth also appears positive as major customers in oilfield operations and other segments in Northern Alberta and British Columbia continue to expand their operations.""We are continuing to achieve solid organic growth in our commercial and retail fuel divisions by leveraging our superior customer service to secure new business from competitors while maintaining a very active strategic acquisition pipeline. In all, Parkland is on track to finish 2011 and enter 2012 as a leaner and more efficient national enterprise that is well positioned to support a strong dividend through disciplined future growth," added Mr. Espey.Consolidated Highlights        (in millions of Canadian dollars except volume and per Share/Unit amounts)For the three months endedSeptember 30,For the nine months endedSeptember 30,  2011 2010 % Change 2011 2010 % Change              Fuel volume (millions of litres)1,078.0  901.0 20 3,005.0  2,519.0 19 Sales and operating revenues1,060.8  790.8 34 2,966.2  2,066.6 44 Gross profit102.6  72.6 41 305.3  220.9 38 Operating costs39.9  33.8 18 128.1  97.8 31 Marketing, general and administrative20.6  20.7 (0) 64.5  58.2 11 Depreciation and amortization expense14.3  16.6 (14) 51.7  46.1 12  27.7  1.5 1,747 61.0  18.7 226              Customer finance income(0.9) (0.3) 200 (2.2) (0.9) 144 Finance costs8.9  8.2 9 26.2  18.6 41 Gain on disposal of property, plant and equipment(14.4) (1.3) 1,008 (14.8) (2.6) 469 Earnings (loss) before income taxes34.1  (5.0) N/A 51.8  3.7 1,300 Income tax expense (recovery)9.6  (3.8) N/A 15.3  (11.5) N/A Net earnings (loss)24.5  (1.2) N/A 36.5  15.1 142 EBITDA (1)42.9  18.3 134 114.9  65.8 75              Distributable cash flow (1)(2)52.7  9.7 443 100.1  40.7 146 Dividends/distributions16.0  14.9 7 44.2  44.6 (1) Dividend/distribution to distributable cash flow payout ratio30% 154%   44% 110%                Cents per Litre            Sales and operating revenues98.40  87.77 12 98.71  82.04 20 Gross margin9.52  8.06 18 10.16  8.77 16 Operating costs3.70  3.75 (1) 4.26  3.88 10 Marketing, general and administrative1.91  2.30 (17) 2.15  2.31 (7) Depreciation and amortization expense1.33  1.84 (28) 1.72  1.83 (6)              Earnings (loss) before income taxes3.16  (0.55) N/A 1.72  0.15 1,074 Income tax expense (recovery)0.89  (0.42) N/A 0.51  (0.46) N/A Net earnings (loss)2.27  (0.13) N/A 1.21  0.60 103 EBITDA(1)3.98  2.03 96 3.82  2.61 46  Non-GAAP MeasuresEBITDA, 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 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 quarter.Distributable Cash means cash flows from operating activities that are adjusted for but are not limited to, the impact of the seasonality of Parkland's businesses by adjusting for non-cash working capital items thereby eliminating the impact of the timing between the recognition and collection/payment of Parkland's revenues and expenses, which can from quarter to quarter differ significantly. Parkland's calculation also distinguishes between capital expenditures that are maintenance related and those that are growth related including expenditures on intangible assets, in addition to allowing for the proceeds received from the sale of capital items.  Please see the Distributable Cash Flow reconciliation table in Management's Discussion and Analysis for this quarter.Third Quarter 2011 ReviewDistributable Cash FlowThe dividend/distribution payout ratio for the third quarter of 2011 was 30% compared with 153% in the third quarter of 2010.  Distributable cash flow has increased by $43.0 million to $52.7 million from $9.7 million, and is attributable to increased earnings due to improved refiners' margins, strong commercial margins and volumes, and the proceeds on sale of the long-haul trucking assets of $25.2 million. Movements in non-cash working capital are excluded from distributable cash flow.   Fuel VolumesFuel volumes increased 177 million litres or 20% to 1,078 million litres in the third quarter of 2011 from 901 million litres in the prior year. This increase was attributable to the acquisition of Cango Inc. on June 22, 2011, and strong commercial fuel volumes.Commercial Fuel VolumesFor the three months ended September 30, 2011 commercial fuel volumes increased 14% or 49 million litres to 403 million litres compared with 354 million litres for the same period in 2010 primarily due to organic growth, an increase in large volume or wholesale transactions within the Commercial Fuel Division and the acquisition of Island Petroleum effective December 30, 2010.Retail Fuel VolumesFor the three months ended September 30, 2011 retail fuel volumes increased 26% or 105 million litres to 508 million litres compared with 403 million litres for the same period in 2010.  The increase is directly attributable to the acquisition of Cango, which added 100.5 million litres to retail volumes for the quarter.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 September 30, 2011, Parkland's fuel marketing segment accounted for approximately 93% of sales and operating revenue compared with 94% in the third quarter of 2010; and approximately 79% of gross profit compared with 71% in the third quarter of 2010.Fuel marketing sales increased 33% to $984.2 million in the quarter ended September 30, 2011 from $742.5 million in the third quarter of 2010.  The increase in fuel marketing sales was primarily driven by higher volumes as well as significantly higher wholesale prices at refineries across the country compared to the same quarter in 2010.Third quarter 2011 fuel gross profit increased 58% to $81.2 million compared with $51.5 million in the third quarter of 2010, due to higher volumes as well as higher refiners' margins.Please refer to the operational reviews of Parkland's commercial and retail operations found at the front of this quarter's MD&A 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 316% or $22.1 million to $29.1 million for the three months ended September 30, 2011, compared with $7.0 million for the same period in 2010 primarily due to strong refiners' margins and profits from supply management.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 September 30, 2011, this segment accounted for approximately 5% of sales and operating revenue compared with 4% in the third quarter of 2010 and approximately 16% of gross profit compared with 14% in the third quarter of 2010.Non-Fuel Commercial revenue increased to $58.2 million in the third quarter of 2011 from $32.0 million in the third quarter of 2010 principally due to additional lubricant business.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 September 30, 2011, this segment accounted for approximately 2% of sales and operating revenue compared with 2% in the third quarter of 2010 and approximately 5% of gross profit compared with 15% in the third quarter of 2010.While sales in this segment increased 13% to $18.4 million in the third quarter of 2011 compared with $16.3 million in the third quarter of 2010, Other Non-Fuel gross profit decreased by 52% or $5.9 million to $5.3 million in the third quarter of 2011 compared with $11.2 million in the third quarter of 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 September 30, 2011 increased by 34% to $1.1 billion compared with $0.8 billion during the third quarter of 2010.  This is due to the 20% increase in fuel volumes previously discussed, as well as a result of the increase in the cost of crude oil and refined product.  Revenue per litre increased 11 cents, or 12% per litre from Q3 2010 to Q3 2011.Gross Profit Gross profit for the three months ended September 30, 2011 increased 41% or $30.0 million to $102.6 million compared with $72.6 million for the same period in 2010.  Parkland's fuel volumes increased 20% in the third quarter of 2011 compared with the same period in 2010.  On a product segment basis:Fuel gross profit increased 58% or $30.0 million to $81.2 million in the third quarter of 2011 compared with $51.5 million in the third quarter of 2010.  The increase is due to higher volumes through acquisition and organic growth, and strong refiners' margins throughout the quarter.Commercial non-fuel gross profit increased by 63% or $6.2 million to $16.0 million in the third quarter of 2011 compared with $9.8 million in the third quarter of 2010.  The increase in commercial non-fuel gross profit is principally due to increased lubricant sales, primarily from the Shell lubricant business acquired in the third quarter of 2010 which is a high margin business.Other revenue gross profit decreased 52% or $5.9 million to $5.3 million in the third quarter of 2011 compared with $11.2 million in the third quarter of 2010.Operating CostsOperating costs increased by 18% to $39.9 million (3.7 cpl) for the three months ended September 30, 2011, compared with $33.8 million (3.8 cpl) in the third quarter of 2010.  Operating costs were comparable on a cpl basis in the third quarter of 2011 to the prior year despite a $5.0 million charge in the third quarter of 2011 that included aging receivables and other provisions.Marketing, General and Administrative ExpensesMarketing, general and administrative expenses decreased 0.5% or $0.1 million to $20.6 million (1.9 cpl) for the third quarter of 2011 compared with $20.7 million (2.3 cpl) in the third quarter of 2010.Earnings Before Interest, Tax, Depreciation and Amortization ("EBITDA")EBITDA for the third quarter of 2011 increased by 134% to $42.9 million compared with $18.3 million in the third quarter of 2010. The $24.6 million increase in EBITDA is the result of increased volumes in the Retail and Commercial Fuel divisions and strong refiners' margins.Depreciation and AmortizationDepreciation and amortization expenses in the third quarter of 2011 decreased 13% or $2.3 million to $14.3 million compared with $16.6 million in Q3 2010.  Effective July 1, 2011 the amortization period for customer relationships included in intangible assets has changed.  Previous to the start of the third quarter of 2011, Parkland amortized all customer relationships included in intangible assets acquired through acquisition over a 5 year period.  With this change in estimate effective July 1, 2011 onwards customer relationships are prospectively amortized over a 5 to 13 year period. The impact commencing July 1, 2011 is to decrease amortization expense by approximately $3.5 million a quarter or $14.1 million a year.Finance CostsFinance costs were $8.9 million in the third quarter compared with $8.2 million for the same period in 2010.  Finance costs relate to interest on long-term debt, interest and accretion on convertible debentures, and accretion on refinery remediation and asset retirement obligations.Interest on long-term debt for the third quarter of 2011 was $2.9 million versus $6.5 million in the third quarter of 2010.  Interest and accretion on convertible debentures for the third quarter of 2011 was $3.0 million versus $1.8 million in the third quarter of 2010.Long-term debt including the current portion has decreased to $218.1 million as at September 30, 2011, down $106.8 from $324.8 million as at September 30, 2010 due in part to the $82.6 million net proceeds from the June 2, 2011 equity raise.Accretion on the asset retirement obligation increased $3.2 million to $2.9 million from $(0.2) million, due to a 1.75% decrease in the discount rate used to determine the present value of future costs.Income TaxAn income tax expense of $9.6 million was incurred in the third quarter compared with a recovery of $3.8 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 had net earnings in the third quarter of 2011 of $24.5 million, compared with a net loss of $1.2 million for the same period in 2010.  The increase in net earnings in the third quarter of 2011 compared to the prior year was principally the result of $24.6 million in higher EBITDA, the $12.8 million gain on sale of the long-haul trucking assets, partially offset by $13.4 million in higher income tax expenses compared to the same quarter in 2010.Cash Balances and Cash Flow ActivityParkland's cash position increased by $0.6 million in the third quarter of 2011 compared to a decrease of $12.5 million in the third quarter of 2010.  For the three month period ended September 30, 2011, operating activities generated $55.8 million of cash versus $10.6 million in cash flow in the third quarter of 2010.  Cash was generated from a decrease in non-cash working capital of $26.3 million in the third quarter of 2011 compared to cash outflow of $0.4 million in the third quarter of 2010.Financing activities in the third quarter of 2011 used $68.3 million of cash flow, which included $62.8 million in long-term debt repayments net of proceeds from long-term debt.  Financing activities used $18.2 million in cash flow in the third quarter of 2010.Investing activities in the third quarter of 2011 generated $13.1 million in cash flow, which included $25.2 million in proceeds received on the sale of the long-haul trucking assets .  Investing activities used $4.8 million in cash flow in the third quarter of 2010.MD&A and Financial StatementsThe MD&A as well as the unaudited Consolidated Financial Statements and Notes to the Consolidated Financial Statements for the three months ended September 30, 2011 are available online at www.parkland.ca.Conference Call InformationPresident and CEO Bob Espey and Senior Vice President and CFO Mike Lambert will host a webcast and conference call at 7:00 a.m. Mountain Standard Time ("MST") (9:00 a.m. Eastern Standard Time) to discuss the third quarter results and then take questions from securities analysts, brokers and investors.Please note that the format of the conference call has changed and will now include a slide presentation.  Please log into the slide presentation 10 minutes before the webcast start time at:http://www.snwebcastcenter.com/custom_events/parkland-20111102-0900/site/To access the conference call by telephone from within Canada dial toll free 888-241-0394.  International callers or callers from the Toronto area should use 647-427-3413.  Please connect approximately 10 minutes prior to the beginning of the call and quote the conference ID: 1683 6991. The conference call will be available for replay two hours after the conference call ends until 9:59 p.m. MT (11:59 p.m. Eastern Time), November 16, 2011. To access the archived conference call, dial toll free 855-859-2056 and enter the reservation number 1683 6991 followed by the number sign.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. 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 tom.mcmillan@parkland.ca 800-662-7177 ext. 6722