Parkland Fuel earns $30.5-million in Q1
Parkland Fuel Corp
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Close 2013-05-07 C$ 16.30
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Parkland Fuel earns $30.5-million in Q1
2013-05-07 18:42 ET - News Release
Mr. Tom McMillan reports
PARKLAND FUEL CORPORATION REMAINS ON TRACK WITH FIRST QUARTER 2013 RESULTS
Parkland Fuel Corp. has released its financial and operating results for the three months ended March 31, 2013.
Grow:
Volumes increased 29 per cent, 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 per cent, year over year due to planned retail site closures and lower commercial volumes, partially offset by increased wholesale volumes.
Supply:
The 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.
Strong refiners' margins continued into the first quarter of 2013.
Operate:
Reduced costs helped offset the challenging commercial fuels business environment in Western Canada.
Marketing, general and administrative costs increased 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.
Operating costs on the base business decreased $3.8-million, or 8 per cent, 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 per cent, 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 [earnings before interest, taxes, depreciation and amortization] 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 per cent 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
(in millions of dollars, except volume and per-share amounts)
Three months ended
March 31,
2013 2012
Income statement summary
Sales and operating revenues $ 1,212.8 $ 1,064.4
Adjusted gross profit 127.6 111.0
Operating costs 42.2 44.4
Marketing, general and administrative 24.9 19.8
Depreciation and amortization expense 13.2 13.5
--------- ---------
47.3 33.3
Customer finance income (0.5) (0.5)
Finance costs 5.3 5.4
Loss on disposal of property, plant
and equipment 0.3 0.6
Loss on risk-management activities 2.7 4.2
Earnings before income taxes 39.5 23.6
Income tax expense 9.0 6.1
--------- ---------
Net earnings $ 30.5 $ 17.5
Net earnings per share
Basic $ 0.44 $ 0.27
Diluted (1) $ 0.42 $ 0.26
Non-GAAP financial measures (2)
Adjusted EBITDA $ 61.3 $ 43.1
Distributable cash flow 44.9 26.0
Distributable cash flow per share 0.65 0.41
Dividends $ 17.7 $ 16.6
Dividend to distributable cash
flow payout ratio 39% 64%
Key metrics
Fuel volume (millions of litres) 1,400.0 1,085.0
Return on capital employed 27.0% 13.5%
Employees 1,167 1,226
Fuel key metrics -- cents per litre
Average retail fuel-adjusted
gross profit 4.53 4.46
Average commercial fuel adjusted
gross profit 11.69 11.23
Operating costs 3.01 4.09
Marketing, general and administrative 1.78 1.82
Depreciation and amortization expense 0.94 1.24
Liquidity and bank ratios
Net debt to adjusted EBITDA 1.41 1.93
Senior debt to adjusted EBITDA 0.83 0.99
Interest coverage 8.86 3.67
Notes:
(1) Diluted earnings per share can be impacted by an
anti-dilutive impact of conversion of the debentures.
Quarterly diluted earnings per share may therefore not
accumulate to the same per-share value as the
year-to-date calculation.
(2) GAAP stands for generally accepted accounting principles.
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;
One cent per litre in additional EBITDA margin by 2016 through economies of scale, better supply options and efficiencies.
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.) Parkland expects to derive $70-million through a one-cent increase in EBITDA margin and $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 EBITDA
Due to the acquisition of Elbow River Marketing, and continuing merger 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 U.S.-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.
Payout ratio driven down to 39 per cent as result of an $18-million increase in adjusted EBITDA
First quarter of 2013 versus the first quarter of 2012
The dividend payout ratio for the first quarter of 2013 was 39 per cent, compared with 64 per cent in the first quarter of 2012.
Distributable cash flow increased $18.9-million, or 73 per cent, to $44.9-million in the first quarter of 2013, compared with $26-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-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
First quarter of 2013 versus the first quarter of 2012
For the three months ended March 31, 2013, Parkland commercial fuels' volumes decreased 6 per cent 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 reported an average monthly drilling rig count of 496 per month, an 8-per-cent 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 cents per litre, an increase of 4 per cent, or 0.46 cent per litre, compared with 11.23 cents per litre 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' continuing 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 rollout of Parkland's multiproduct commercial offering at additional branches, and the simplification and standardization of procedures and processes.
Retail gross profit decreases by 2 per cent on lower volumes due to Cango site rationalizations
First quarter of 2013 versus the first quarter of 2012
For the three months ended March 31, 2013, Parkland retail fuels' volumes decreased 4 per cent to 400 million litres, compared with 415 million litres for the same period in 2012. The decrease was primarily the result of a nine-million-litre reduction in volume contribution from the Cango network due to site rationalization, temporary closures for the purpose of upgrades and competitive pressures in certain markets, partially offset by network growth in Parkland's company-owned and dealer networks.
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, and general and administrative costs in the quarter.
Average adjusted gross profit on a cents-per-litre basis increased by 2 per cent to 4.53 cents per litre in the first quarter of 2013, compared with 4.46 cents per litre 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 with 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.
First quarter of 2013 versus the first quarter of 2012
For the three months ended March 31, 2013, Parkland wholesale, supply and distribution fuel volumes (factoring out intersegment sales) increased 173 per cent 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 per cent to $37.8-million, compared with $20.9-million for the same period in 2012, primarily due to $10-million in adjusted gross profits from the acquisition of Elbow River Marketing and increased refiners' margins.
Parkland recorded a $500,000 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 shutdowns 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 shutdown, 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 with 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
First quarter of 2013 versus the first quarter of 2012
Operating and direct costs decreased by 5 per cent to $42.2-million (three cents per litre) for the three months ended March 31, 2013, compared with $44.4 million (4.1 cents per litre) in the three months ended March 31, 2012, primarily due to business simplification and standardization in Parkland's retail fuels division, and 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 continuing mergers and acquisition activities
First quarter of 2013 versus the first quarter of 2012
Marketing, general and administrative expenses increased 26 per cent to $24.9-million (1.8 cents per litre) in the first quarter of 2013, compared with $19.8-million (1.8 cents per litre) in the first quarter of 2012. Marketing, general and administrative costs increased primarily due to the acquisition of Elbow River Marketing, effective Feb. 15, 2013, which increased marketing, general and administrative expenses by $3.6-million. There was $1.5-million in acquisition-related costs in the first quarter of 2013 and none in the prior year.
EBITDA grows by 42 per cent
First quarter of 2013 versus the first quarter of 2012
Adjusted EBITDA for the first quarter of 2013 increased by 42 per cent 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 refiners' 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 per cent
First quarter of 2013 versus the first quarter of 2012
Parkland's net earnings in the first quarter of 2013 were $30.5-million, an increase of $13-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 an $18.2-million increase in adjusted EBITDA, a $300,000 decrease in depreciation and amortization expense, and a $200,000 decrease in finance costs, partially offset by a $2.9-million increase in income taxes, a $1.5-million 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 U.S.-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 on-line.
Conference call information
On Wednesday, May 8, 2013, Parkland Fuel 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.
Mr. Espey, president and CEO, and Mike Lambert, senior vice-president and chief financial officer, will discuss Parkland's financial results for the quarter, and will then take questions from securities analysts, brokers and investors.
Please log-in to the webcast slide presentation 10 minutes before the start time.
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 No. 55734785.
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 on Wednesday, May 8, 2013, at 9 a.m. MT (11:00 a.m. (ET)) at the Calgary Marriott Downtown Hotel, Kensington room, 110 9th Ave. SE., Calgary, Alta., Canada.
Parkland will also simultaneously video webcast the meeting and presentation.
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 Mr. 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 No. 57243823.
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