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Press release from Marketwire

Parkland Fuel Corporation Remains on Track With First Quarter 2013 Results

Elbow River Marketing and Lower Costs Offset Lower Commercial Business Activity to Deliver $61.3 Million in Adjusted EBITDA(1)

Tuesday, May 07, 2013

Parkland Fuel Corporation Remains on Track With First Quarter 2013 Results

18:00 EDT Tuesday, May 07, 2013

RED DEER, ALBERTA--(Marketwired - May 7, 2013) - Parkland Fuel Corporation ("Parkland" or the "Corporation") (TSX:PKI), Canada's largest independent supplier and reseller of fuels and petroleum products, today announced the financial and operating results for the three months ended March 31, 2013.

Q1 2013 Operational Highlights:
For the three months ended March 31,
2013 2012 % Change
(in millions of litres)
Total fuel volume 1,400 1,085 29
Retail fuel volume 400 415 (3.6 )
Commercial fuel volume 433 462 (6.4 )
(in millions of Canadian dollars)
Net earnings 30.5 17.5 74
Adjusted EBITDA (1) 61.3 43.1 42
Distributable cash flow (2) 44.9 26.0 73
Dividend to distributable cash flow payout ratio 39 % 64 %
(1) Please see Adjusted EBITDA in the Non-GAAP Measures section in the MD&A and the reconciliation later in this press release.
(2) Please see Distributable Cash Flow reconciliation table and definition in Non-GAAP Measures, both of which can be found in the MD&A.

Grow

  • Volumes increased 29% or 314.6 million litres year over year primarily due to the acquisition of Elbow River Marketing;
  • Base volumes (volumes prior to acquisitions) decreased by 12.7 million litres or 1% year over year due to planned retail site closures, lower Commercial volumes, partially offset by increased wholesale volumes;

Supply

  • Acquisition of Elbow River Marketing enhances Parkland's ability to take advantage of North American supply and demand imbalances and extends relationships with refiners, fuel suppliers, and fuel customers; and
  • Strong refiners' margins continued into the first quarter of 2013.

Operate

  • Reduced costs help offset challenging Commercial Fuels business environment in Western Canada;
  • MG&A costs increase due to $1.5 million in acquisition and restructuring costs and the addition of Elbow River Marketing;
  • All strategic cost reduction programs remain on track; and
  • Operating costs on base business decrease $3.8 million or 8% year over year due to savings from the simplified operating model in retail and the response in Commercial Fuels to lower volumes. Operating costs decreased $2.1 million or 5% year over year despite the addition of Elbow River Marketing.

"Refiners margins were strong year over year and Elbow River Marketing's earnings surpassed our expectations in the first quarter with a stronger than expected Adjusted EBITDA of $5.2 million," said Bob Espey, President and Chief Executive Officer of Parkland. "Lower costs throughout our business also helped to offset continued weakness in Parkland Commercial Fuels' business environment during the first quarter, which was especially pronounced in the West as drilling completions for natural gas were down 50% compared to a year ago. We have responded appropriately to these conditions, and continue to position ourselves to consolidate our share of the commercial marketplace through concerted sales efforts and business diversification to offset diminished consumption in the oil and gas sector."

Consolidated Highlights:
Three months ended March 31,
(in millions of Canadian dollars, except volume and per Share amounts) 2013 2012 % Change
Income Statement Summary:
Sales and operating revenues 1,212.8 1,064.4 14
Adjusted gross profit 127.6 111.0 15
Operating costs 42.2 44.4 5
Marketing, general and administrative 24.9 19.8 (26 )
Depreciation and amortization expense 13.2 13.5 2
47.3 33.3 42
Customer finance income (0.5 ) (0.5 ) -
Finance costs 5.3 5.4 2
Loss on disposal of property, plant and equipment 0.3 0.6 50
Loss on risk management activities 2.7 4.2 36
Earnings before income taxes 39.5 23.6 67
Income tax expense 9.0 6.1 (48 )
Net earnings 30.5 17.5 74
Net earnings per share
- Basic 0.44 0.27 64
- Diluted (1) 0.42 0.26 62
Non-GAAP Financial Measures:
Adjusted EBITDA (2)(3) 61.3 43.1 42
Distributable cash flow (2)(4) 44.9 26.0 73
Distributable cash flow per share (2)(4) 0.65 0.41 59
Dividends 17.7 16.6 7
Dividend to distributable cash flow payout ratio (2)(4) 39 % 64 %
Key Metrics:
Fuel volume (millions of litres) 1,400.0 1,085.0 29
Return on capital employed (ROCE) (2)(5) 27.0 % 13.5 %
Employees 1,167 1,226 (5 )
Fuel Key Metrics - Cents per litre:
Average Retail fuel adjusted gross profit (6) 4.53 4.46 2
Average Commercial fuel adjusted gross profit (6) 11.69 11.23 4
Operating costs 3.01 4.09 26
Marketing, general and administrative 1.78 1.82 3
Depreciation and amortization expense 0.94 1.24 24
Liquidity and bank ratios:
Net debt:adjusted EBITDA (2)(7) 1.41 1.93
Senior debt:adjusted EBITDA (2)(7) 0.83 0.99
Interest coverage (2)(6) 8.86 3.67
(1) Diluted earnings (loss) per share can be impacted by an anti-dilutive impact of conversion of the debentures. Quarterly diluted earnings (loss) per share may therefore not accumulate to the same per share value as the year-to-date calculation.
(2) Please refer to the Non-GAAP Measures section in the MD&A for definitions.
(3) Please see Adjusted EBITDA discussion in the MD&A.
(4) Please see Distributable Cash Flow reconciliation table in the MD&A.
(5) Please see ROCE discussion in the MD&A.
(6) Please see Segmented Results discussion in the MD&A
(7) Please refer to the Non-GAAP Measures section in the MD&A for reconciliations.

Parkland Penny Plan Update

The Parkland Penny Plan, announced on May 15, 2012, is targeting:

  • Growth to seven billion litres in fuel volumes by 2016 through organic growth and acquisitions; and
  • 1 cent per litre in additional EBITDA margin by 2016 through economies of scale, better supply options, and efficiencies.

Penny Plan Scorecard Summary:

Area Commitment Analysis 2016
Target
Q1 2013 2012
Grow Organic growth Gaining Market Share Amid Lower Consumption
Base volumes, excluding Elbow River Marketing, continue to be down due to softness across several commercial sectors partially offset by strong sales efforts.
0.5
billion litres
(12.7) YTD
million litres
(29.7) YTD
million litres
Major acquisitions $27 million in Adjusted EBITDA Added
The acquisition of Elbow River Marketing, Sparling's Propane, and TransMontaigne will contribute towards the $55 million in Adjusted EBITDA Parkland is targeting by 2016. The mergers and acquisitions environment remains very active. The Q1 2013 results exclude 327 million litres of fuel and propane volume from Elbow River Marketing.
2.5
billion litres
620 million litres -
Supply Supply Margins On Track
Parkland continues to extend its progress on replacing the average normalized profit(ii) of its refiners' margin contract through the negotiation of supply contracts, supply management, terminals, and the addition of Elbow River Marketing. No problems are foreseen in replacing the volume.
100%
Normalized profit plus 1/3 cent
On Track On Track
Operate Operating costs Significant Progress
Elbow River Marketing's volumes and operating costs have been excluded in the calculations this quarter. Lower costs in Commercial and Retail drove operating costs on a cpl basis down.
3.60 cpl 3.52 cpl
TTM
3.61 cpl
TTM
Marketing, General and Administration ("MGA") costs MGA Decreases on Base Business
Elbow River Marketing's volumes and MG&A costs have been excluded in the calculations this quarter. Acquisition and restructuring costs of approximately $1.5 million in the first quarter of 2013 have also been excluded to present a fair portrayal of the ongoing MGA costs in Parkland's base business.
1.59 cpl 1.85 cpl
TTM
1.87 cpl
TTM
Total Recordable Injury Frequency Safety Continues to Improve
Lost time injury frequency improved to 0.55 during the first quarter compared with 2.03 in Q1 2012. Total recordable injury frequency improved to 2.53 compared with 3.66 in Q1 2012.
Less than 2 2.53
TTM
2.33
TTM
(i) Normalized for Cango and one-time costs; (ii)The average annualized benefit under this contract excluding performance from outlier years
Note: 2016 cost targets will be updated in the event of a significant change to Parkland's business mix.
Abbreviations: CPL = Cents per litre
YTD = Year-to-date
TTM = Trailing twelve months

This five year strategic plan aims to double 2011 normalized EBITDA of $125 million by the end of 2016. (Normalized EBITDA ignores one-time costs and irregular profits). $70 million is expected to be derived through a one cent increase in EBITDA margin, $55 million is expected to be derived through acquisitions.

A more detailed explanation of the Parkland Penny Plan and the full scorecard can be found in this quarter's Management's Discussion and Analysis.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA)

Due to the acquisition of Elbow River Marketing and ongoing mergers and acquisition activities Parkland will utilize "Adjusted EBITDA". Adjusted EBITDA represents earnings before finance costs (accretion on refinery remediation, accretion on asset retirement obligation, interest on long-term debt, interest and accretion on convertible debentures and loss on interest rate swaps), income tax expense (recovery), depreciation and amortization, unrealized loss (gain) on commodities forward contracts and US dollar forward exchange contracts, acquisition related costs and gain on disposal of property, plant and equipment. Adjusted EBITDA differs from the previously disclosed EBITDA due to the exclusion of acquisition related costs in the calculation. See the Adjusted EBITDA discussion of the MD&A for a reconciliation of Adjusted EBITDA.

Three Months Ended March 31,
(in thousands of Canadian dollars)
2013 2012
Net earnings 30,525 17,505
Finance costs (1) 5,276 5,518
Loss/(gain) on disposal of property, plant and equipment 275 560
Income tax expense 8,984 6,068
Unrealized (gain) loss from the change in fair value of risk commodities forward contracts and US dollar forward exchange contracts 1,537 -
Acquisition related costs 1,525 -
Amortization and depreciation 13,211 13,481
Adjusted EBITDA (2)(3) 61,333
43,132
(1) Includes realized and unrealized (gain) loss on the interest rate swap
(2) Includes the realized and unrealized (gain) loss on put options
(3) Please refer to the Non-GAAP Measures section in the MD&A for definitions.

Pay Out Ratio Driven Down to 39% As Result of an $18 million Increase in Adjusted EBITDA

Q1 2013 vs. Q1 2012

The dividend payout ratio for the first quarter of 2013 was 39% compared with 64% in the first quarter of 2012.

Distributable cash flow increased $18.9 million or 73% to $44.9 million in the first quarter of 2013 compared with $26.0 million in the first quarter of 2012.

The increase in distributable cash flow and decrease in the dividend payout ratio are primarily due to the $18.2 million increase in Adjusted EBITDA and a $2.6 million decrease in maintenance capital partially offset by a $3.0 million decrease in proceeds on disposal of property, plant and equipment and a $1.5 million increase in acquisition related costs.

Parkland Responds to Headwinds in Commercial Fuels

Q1 2013 vs. Q1 2012

For the three months ended March 31, 2013, Parkland Commercial Fuels' volumes decreased 6% to 433 million litres compared with 462 million litres in 2012 principally as a result of lower year over year industrial activity in key sectors including oil and gas and the discontinuation of low margin marketer agreements in Northern Alberta.

Strong sales activities with a focus on diversifying Parkland's customer mix helped to offset the impact of the foregoing challenges in the quarter.

For the three months ended March 31, 2013, the Canadian Association of Oilwell Drilling Contractors (CAODC) reported an average monthly drilling rig count of 496 per month, an 8 percent decrease compared with 540 per month for the same period in 2012. This drop continues to be attributed to the impact of decreased commodity pricing in the Western Canadian Sedimentary Basin.

Average net fuel adjusted gross profit on a cents per litre basis for the first quarter of 2013 was 11.69 cpl, an increase of 4% or 0.46 cpl compared with 11.23 cpl in the first quarter of 2012 due to the discontinuation of low margin marketer agreements in Northern Alberta.

Divisional Outlook

Given lower activity within the oil and gas sector, Parkland has made appropriate adjustments to its variable cost structure to reflect current economic conditions. Initial evidence indicates that Parkland Commercial Fuels' on going sales efforts and strategy to diversify into other markets has helped to offset diminished consumption and has consolidated market share in the commercial fuels marketplace.

Oil and gas activity will be contingent on the approval of pipelines to increase access to international markets.

Management expects that the operational changes made in the Commercial Division in 2012 to simplify and standardize the business will drive savings, better customer service, and better performance going forward. These changes include the consolidation of branches, changes in branded distribution agreements, the roll out of Parkland's multi-product commercial offering at additional branches and the simplification and standardization of procedures and process.

Retail Gross Profit Decreases by 2% on Lower Volumes Due to Cango Site Rationalizations

Q1 2013 vs. Q1 2012

For the three months ended March 31, 2013, Parkland Retail Fuels' volumes decreased 4% to 400 million litres compared with 415 million litres for the same period in 2012. The decrease was primarily the result of a 9 million litre reduction in volume contribution from the Cango network due to site rationalization, temporary closures for the purpose of upgrades, competitive pressures in certain markets partially offset by network growth in Parkland's company owned and dealer network.

The first quarter of 2013 financial results for Parkland Retail Fuels continued to benefit from lower costs that helped offset the contraction in volumes described above. Disciplined management of repair, maintenance, travel, advertising and other costs, reductions in staffing, and a refined approach to commission and dealer agreements continued to drive significant savings in operating and marketing, general and administrative costs in the quarter.

Average adjusted gross profit on a cents per litre basis increased by 2% to 4.53 cpl in the first quarter of 2013 compared with 4.46 cpl in the first quarter of 2012 due to strong company store margins partially offset by an increase in the proportion of dealer operated sites versus company owned.

Divisional Outlook

Management expects the 2013 retail fuel market to be comparable to 2012, subject to unforeseen movements in retail margins and will continue to focus on managing prudently to maintain operating efficiencies, growing same store sales, site acquisitions and signing additional dealer business.

Refiners' Margins and Elbow River Marketing Drive Strong First Quarter

Parkland Wholesale, Supply and Distribution is responsible for managing Parkland's fuel supply contracts, purchasing fuel from refiners, distribution through third party long-haul carriers, and serving wholesale and reseller customers.

Q1 2013 vs. Q1 2012

For the three months ended March 31, 2013 Parkland Wholesale, Supply and Distribution fuel volumes (factoring out intersegment sales) increased 173% to 567 million litres compared with 208 million litres for the same period in 2012 primarily due to 327 million litres added from the acquisition of Elbow River Marketing and strong sales in both Western and Eastern Canada.

Fuel adjusted gross profits for the three months ended March 31, 2013 increased 81% to $37.8 million compared with $20.9 million for the same period in 2012 primarily due to $10.0 million in adjusted gross profits from the acquisition of Elbow River Marketing and increased refiners' margins.

Parkland recorded a $0.5 million expense related to put option contracts in place to hedge and secure a portion of the future economic benefit that Parkland receives on its refiners' margins based contract.

Divisional Outlook

Planned shut downs are coming this year to a number of refinery operators in Canada. While it is expected that these refiners have the ability to cover product demand during their shut down, Parkland has contingencies in place to provide supply options during these periods. In addition, Parkland is working closely with refinery operators to ensure that they have access to additional terminal and distribution options such as the Bowden terminal. Fuel supplies are therefore expected to be sufficient in all Canadian markets for 2013.

Weak Canadian crude prices relative to Brent crude prices drove record high refiners' margins in 2012. Refiners' margins for gasoline contracted significantly in January and remained at the low end of the five year range until March, when they returned to the high end of the five year range. In the first quarter of 2013, refiners' margins for gasoline were consistently lower than the levels seen during the same period in 2012. Diesel margins remained at the high end of the five year range during the first quarter of 2013 and exceeded diesel margins compared to January and February of 2012 before decreasing year over year in the month of March.

As at April 16, 2013, Refiners' margins for gasoline and diesel were above the median of the five year range for the month of April, but trending below 2012 levels.

Simplification and Standardization Continues to Drive Down Costs

Q1 2013 vs. Q1 2012

Operating and direct costs decreased by 5% to $42.2 million (3.0 cpl) for the three months ended March 31, 2013, compared with $44.4 million (4.1 cpl) in the three months ended March 31, 2012, primarily due to business simplification and standardization in Parkland's Retail Fuels Division, reduced volumes and cost initiatives within the Commercial Fuels Division, partially offset by the acquisition of Elbow River Marketing.

Marketing, General and Administrative Costs Higher on Elbow River Marketing and Ongoing Mergers and Acquisition Activities

Q1 2013 vs. Q1 2012

Marketing, general and administrative expenses ("MGA") increased 26% to $24.9 million (1.8 cpl) in the first quarter of 2013 compared with $19.8 million (1.8 cpl) in the first quarter of 2012. Marketing, general and administrative costs increased primarily due to the acquisition of Elbow River Marketing effective February 15, 2013, which increased marketing, general and administrative expenses by $3.6 million. There were $1.5 million in acquisition related costs in the first quarter of 2013 and none in the prior year.

EBITDA Grows by 42 Percent

Q1 2013 vs. Q1 2012

Adjusted EBITDA for the first quarter of 2013 increased by 42% to $61.3 million compared with $43.1 million in the first quarter of 2012. The increase in Adjusted EBITDA is the result of the acquisition of Elbow River Marketing with Adjusted EBITDA of $5.2 million, higher refiner's margins and operating cost reductions in the first quarter of 2013, partially offset by lower adjusted gross profit in Commercial and Retail.

Net Earnings Increase 74%

Q1 2013 vs. Q1 2012

Parkland's net earnings in the first quarter of 2013 were $30.5 million, an increase of $13.0 million compared with net earnings of $17.5 million in the first quarter of 2012. The increase in net earnings in the first quarter of 2013 compared with the prior year was due to a $18.2 million increase in Adjusted EBITDA, a $0.3 million decrease in depreciation and amortization expense and a $0.2 million decrease in finance costs, partially offset by a $2.9 million increase in income taxes, $1.5M increase in acquisition related costs and an increase of $1.5 million in unrealized loss from the change in fair value of commodity forward contracts and US dollar forward exchange contracts.

MD&A and Financial Statements

Management's Discussion and Analysis, the audited Consolidated Financial Statements, and the Notes to the Consolidated Financial Statements for the three months ended March 31, 2013 are available online at http://bit.ly/PKI-Results.

Conference Call Information

On Wednesday, May 8, 2013 Parkland Fuel Corporation will host a webcast and conference call at 7:30 a.m. Mountain Time (9:30 a.m. Eastern Time) to discuss the results for the three months ended March 31, 2012.

President and CEO Bob Espey and Senior Vice President and CFO Mike Lambert will discuss Parkland's financial results for the quarter and then take questions from securities analysts, brokers and investors.

Please log into the webcast slide presentation 10 minutes before the start time at:

http://www.snwebcastcenter.com/custom_events/parkland-20130508-q1/site/

To access the conference call by telephone from within Canada dial toll free 1-888-241-0394. 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: 5573 4785.

The webcast will be available for replay within 24 hours of the end of the conference call.

Annual and Special Meeting

The holders of common shares of Parkland are invited to the Annual and Special Meeting of Shareholders taking place Wednesday, May 8, 2013 at 9:00 a.m. MT (11:00 a.m. ET) at the Calgary Marriott Downtown Hotel.

Calgary Marriott Downtown Hotel
Kensington Room
110 9th Ave SE
Calgary, Alberta, Canada

Parkland will also simultaneously video webcast the meeting and presentation at the following URL:

www.snwebcastcenter.com/custom_events/parkland-20130508/site/

The formal business of the meeting will be conducted by Jim Pantelidis, Chairman of Parkland's Board of Directors. Following the conclusion of formal business at the meeting, President and CEO Bob Espey will review Parkland's operations and strategy for investors.

To access the conference call by telephone from within Canada dial toll free 1-877-419-3674. Please connect approximately 10 minutes prior to the beginning of the call and quote the conference ID: 5724 3823.

Forward Looking Information

Certain information included herein is forward-looking. Forward-looking statements include, without limitation, statements regarding Parkland's future financial position, business and growth strategies, including the manner in which such strategies will be implemented, budgets, projected costs, sources of growth, capital expenditures, financial results, taxes, future acquisitions and the efficiencies to be derived therefrom, effectiveness of internal controls, sources of funding for growth capital expenditures, anticipated dividends and the amount thereof, if any, to be declared by Parkland Fuel Corporation, 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 acquisitions and the anticipated benefits of acquisitions. 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 Parkland's 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 Parkland'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 Parkland 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 Corporation

Parkland Fuel Corporation is Canada's largest independent supplier and reseller 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 through community based operators who care.

FOR FURTHER INFORMATION PLEASE CONTACT:

Contact Information:
Parkland Fuel Corporation
Tom McMillan
Director of Corporate Communications
1-800-662-7177 ext 2533
http://bit.ly/PKIContact
www.parkland.ca

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