Parkland Fuel Corporation Posts Record EBITDA in Second Quarter

- Strong Retail Results, Refining Margins and Traction on Cost Saving Initiatives Position Parkland for Further Growth -

Financial Highlights:	For the three months ended June 30,			For the six months ended June 30,
	2012	2011	% Change	2012	2011	% Change
(in millions of litres)
Total fuel volume	1,003	923	9	2,088	1,967	6
Retail fuel volume	458	374	22	873	715	22
Commercial fuel volume	315	377	(16)	777	905	(14)
(in millions of Canadian dollars)
Net earnings	25.9	(4.2)	-	43.3	12.1	258
EBITDA ^(1)	54.2	25.3	114	97.3	71.9	35
Distributable cash flow ^(1)(2)	38.1	15.4	147	64.8	47.4	37
Dividend to distributable cash flow payout ratio	44%	94%		52%	60%

Q2 2012 Operational Highlights:
Grow

• Cango and organic growth contribute to 22% increase in retail fuel volumes; and
• 105 million litres of annualized new business signed in commercial since the beginning of the year helps to offset softer demand in commercial business.

Supply

• Continued positive cash flow from refiners' margins pays down debt and positions the balance sheet for growth; and
• Bowden Terminal expected to be operational in September with project costs less than forecast.

Operate

• 35% year-over-year reduction in net unit operating costs due to business mix and cost initiatives;
• 11% year-over-year reduction in second quarter days sales outstanding for receivables;
• Give me Five! cost initiative enters phase three to achieve quick wins in 2012 and full savings in 2013; and
• Credit facility extended with improved terms subsequent to the quarter.

RED DEER, AB, Aug. 9, 2012 /CNW/ - Parkland Fuel Corporation ("Parkland" or the "Corporation") (TSX: PKI), Canada's largest independent distributor and marketer of fuels and lubricants, today announced the financial and operating results for the three and six months ended June 30, 2011. All financial figures are stated in Canadian dollars.

"It's great to follow up the launch of our Parkland Penny Plan in May with the outstanding results this quarter.  Our success not only reflects a strong contribution from refiners' margins but, more importantly, demonstrates traction on our cost saving initiatives and the success of our fuel marketing businesses," said Bob Espey, President and Chief Executive Officer of Parkland. "We have used the proceeds from historically high refiners' margins prudently, paying down debt and strengthening our balance sheet in preparation for potential acquisitions."

"Our diversified business model paid off again this quarter," added Mr. Espey.  "With the commercial division impacted by adverse weather in the first half of 2012, our retail division was firing on all cylinders with increased volumes, higher margins, and lower costs.  Our commercial division continues to manage costs and win new sales to help offset the impact of a warm winter, early break-up, wet spring and volatile commodity pricing environment." 

CONSOLIDATED HIGHLIGHTS
	For the three months ended June 30,			For the six months ended June 30,
(in millions of Canadian dollars, except volume and per Share amounts)
	2012	2011	% Change	2012	2011	% Change
Income Statement Summary:
Sales and operating revenues	1,015.0	950.3	7	2,079.3	1,905.4	9
Gross profit	109.6	89.1	23	220.6	202.8	9
Operating costs	35.4	40.6	13	79.9	88.2	9
Marketing, general and administrative	19.7	23.9	18	39.4	43.9	10
Depreciation and amortization expense	13.0	20.0	35	26.5	37.4	29
	41.5	4.6	802	74.8	33.3	125
Customer finance income	(1.1)	(0.7)	57	(1.7)	(1.3)	31
Finance costs	5.9	8.4	30	11.5	17.3	34
Loss (gain) on disposal of property, plant and equipment	0.1	0.4	75	0.7	(0.5)
Realized risk management loss	4.1	-		4.5	-
Unrealized risk management loss	(2.7)	-		1.2	-
Earnings before income taxes	35.2	(3.5)		58.6	17.8	229
Income tax expense	9.2	0.7	(1,214)	15.3	5.7	(168)
Net earnings	26.0	(4.2)		43.3	12.1	258
Net earnings per share
- Basic	0.39	(0.09)		0.66	0.21	223
- Diluted (3)	0.37	(0.09)		0.62	0.21	204
Non-GAAP Financial Measures:
EBITDA (1)	54.2	25.3	114	97.3	71.9	35
Distributable cash flow (1)(2)	38.1	15.4	147	64.8	47.4	37
Distributable cash flow per share (1)(2)	0.57	0.25	131	0.98	0.76	29
Dividends	16.8	14.5	16	33.4	28.2	19
Dividend to distributable cash flow payout ratio	44%	94%		52%	60%
Key Metrics:
Fuel volume (millions of litres)	1,003.0	923.0	9	2,088.0	1,967.0	6
Return on capital employed (ROCE)(1)	20.1%	9.2%
Net unit operating cost (NUOC)(1)	2.85	4.39	35	3.24	4.12	(21)
Employees	1,177	1,393	(16)
Fuel Key Metrics - Cents per litre:
Average Retail fuel gross profit	5.48	5.51	(1)	4.99	5.38	(7)
Average Commercial fuel gross profit	8.19	8.04	2	10.00	9.01	11
Operating costs	3.53	4.40	20	3.83	4.48	15
Marketing, general and administrative	1.96	2.59	24	1.89	2.23	15
Depreciation and amortization expense	1.30	2.17	40	1.27	1.90	33
Liquidity and bank ratios:
Net Debt:EBITDA (1)	1.34	3.08
Senior Debt:EBITDA (1)	0.56	1.95
Interest coverage (1)	5.91	0.71

(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.
(3)	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.

The Parkland Penny Plan

Parkland's five year strategic plan, announced on May 15, 2012, aims to double 2011 normalized EBITDA of $125 million through acquisitions and efficiencies by the end of 2016.  (Normalized EBITDA ignores one-time costs and irregular profits to reflect the economics that are anticipated for Parkland in 2014).  By the end of 2016, the Penny Plan targets one cent per litre in savings, efficiencies and economies of scale over seven billion litres of fuel for an incremental gain of $70 million in EBITDA.  Acquisitions are targeted to contribute an additional $55 million in EBITDA for total aspirational increase of $125 million in EBITDA.

Please refer to the Parkland Penny Plan Scorecard in Management's Discussion and Analysis for the three and six months ended June 30, 2012 for an update on Parkland's progress towards its five year objectives.

147% Increase in Distributable Cash Flow Improves Dividend Payout Ratio

Q2 2012 vs. Q2 2011

Distributable cash flow exceeded dividends in the second quarter by $21.3 million compared with $0.9 million in the second quarter of 2011.  The dividend payout ratio for the second quarter of 2012 was 44% compared with 94% in the second quarter of 2011.  Distributable cash flow increased to $38.1 million in the second quarter of 2012 compared with $15.4 million in the second quarter of 2011. Movements in non-cash working capital are excluded from distributable cash flow.  The increase in distributable cash flow and decrease in the dividend payout ratio are primarily due to increased EBITDA and lower finance costs, partially offset by higher income taxes paid.

Year-to-Date ("YTD") 2012 vs. YTD 2011

Distributable cash flow for the six months ended June 30, 2012 exceeded dividends by $31.3 million compared with $19.1 million for the six months ended June 30, 2011.  The dividend payout ratio for the six months ended June 30, 2012 was 52% compared with 60% for the six months ended June 30, 2012. The increase in distributable cash flow and the decrease in the dividend payout ratio are for the same reasons described above.

Commercial Team Manages Costs Prudently and Focuses on Signing New Business

Q2 2012 vs. Q2 2011

For the three months ended June 30, 2012, Parkland Commercial Fuels' volumes decreased 16% to 315 million litres compared with 377 million litres for the same period in 2011 principally as a result of the reallocation of 48 million litres of high volume low margin accounts to the Wholesale, Supply and Distribution division.  In addition, wet conditions in some regions of the Western Canadian Sedimentary Basin combined with volatile commodity prices for natural gas led to a draw back in oil field activity in the second quarter of 2012 that has led to shrinkage in same client sales.  This shrinkage is quantified in the year-to-date analysis.

Fuel volumes from Parkland Commercial Fuels for the three months ended June 30, 2012 accounted for 31% of the Corporation's total volumes compared with 41% for the same period in 2011.  Commercial fuel revenue decreased by 17% to $290.8 million in the second quarter of 2012 compared with $349.0 million in 2011.

The average rig utilization rate for the three months ended June 30, 2012 dropped to 22% compared with 24% for the same period in 2011 according to the Canadian Association of Oilwell Drilling Contractors.

Sales and operating revenue will fluctuate on a cents per litre (cpl) basis and on a gross basis with the price of crude oil, the primary input for fuel.  Net fuel gross profit on a cents per litre basis drives the profitability of the Commercial Fuels division, and is the metric that management monitors when reviewing the division's performance and profitability.

Average net fuel gross profit on a cents per litre basis for the second quarter of 2012 was 8.19 cpl, an increase of 2% or 0.15 cpl compared with 8.04 cpl in the second quarter of 2011 due to the re-allocation of high-volume, low-margin accounts to the Wholesale, Supply, and Distribution division.

YTD 2012 vs. 2011

For the six months ended June 30, 2012, Parkland Commercial Fuels' volumes decreased 14% to 777 million litres compared with 905 million litres for the same period in 2011 due to the reallocation of 97 million litres of high volume low margin accounts to the Wholesale, Supply and Distribution division and a pullback in oil and gas activity that has led to a shrinkage in same client sales of approximately 26 million litres.

Average net fuel gross profit on a cents per litre basis for the six months ended June 30, 2012 was 10.0 cpl, an increase of 11% or 1.0 cpl compared with 9.0 cpl for the same period of 2011.

Divisional Outlook

To date, lower realized pricing for natural gas and crude oil in the Western Canadian Sedimentary Basin has drawn a mixed reaction from the exploration and production community with respect to capital expenditure plans for the remainder of 2012. While some companies have publicly stated they will pull back on spending, others have stated their spending will increase. Overall, management expects drilling activities to be slightly below 2011 levels for the remainder of 2012.

Strong sales efforts in other areas across Canada, and in other industries, are expected to offset further reductions. More than 105 million litres in annualized new business have been added across Canada year-to-date which is expected to help offset the impacts of the warm winter, early break-up, and wet spring during the first half of 2012.

Subsequent to the end of the second quarter of 2012, Parkland purchased Price Rite Fuels in Weyburn Saskatchewan.  This new branch will provide the commercial division a Southeast Saskatchewan storage and service point to serve oil exploration in the Bakken formation.  This is already an area of growing sales for the Corporation, and this single site acquisition will add net new annual volume in addition to the volumes that were acquired.  Management expects further growth from this branch as Parkland increases its penetration into the Bakken.

During the second quarter, Parkland also invested capital into expanding the commercial offerings and capabilities of existing sites including the addition of a new bulk plant in Slave Lake, Alberta, a cardlock in Red Earth, Alberta, and propane capability in Yellowknife, Northwest Territories.  These investments will help support Parkland's ongoing multi-product cross-selling strategy.

The simplification and standardization of the commercial business continues with the sale of the Lube and Wash business in Grande Prairie subsequent to the end of the quarter.  Business simplification is expected to help reduce operating costs on a cents per litre basis.  With fuel volumes under pressure, the focus will remain on cost management, strong sales activity, and superior customer service.  In parallel, Parkland's strategic cost initiative continues to be on-plan within the Commercial Fuels Division.

Retail Team Delivers On All Fronts

Q2 2012 vs. Q2 2011

For the three months ended June 30, 2012, Parkland Retail Fuels' volumes increased 22% to 458 million litres compared with 374 million litres for the same period in 2011.  The increase was the result of additional fuel volumes attributable to the Cango acquisition, network growth in Parkland's company-owned and dealer network, partially offset by temporary closures for the purpose of upgrades.

Fuel volumes from Parkland Retail Fuels for the three months ended June 30, 2012 accounted for 46% of the Corporation's total volume compared with 41% for the same period of 2011.  Retail fuel revenue increased 20% to $435.2 million in the second quarter of 2012 compared with $362.5 million in the second quarter of 2011.

The second quarter of 2012 was profitable for Parkland Retail Fuels as a result of strong retail margins in the Corporation's owned network coupled with traction on cost control measures that were conceived and initiated in 2011.  Disciplined management of repair, maintenance, travel, advertising and other costs, reductions in staffing, and a refined approach to commission and dealer agreements led to significant savings in operating and marketing, general and administrative costs for the quarter.

Sales and operating revenue will fluctuate on a cents per litre (cpl) basis and on a gross basis with the price of crude oil, the primary input for fuel.  Net fuel gross profit on a cents per litre basis drives the profitability of the Retail Fuels Division and is the metric that management monitors when reviewing the division's performance and profitability.

Parkland Retail Fuels' average gross profit in the second quarter of 2012 decreased by 0.5% to 5.48 cpl compared with 5.51 cpl in the second quarter of 2011 reflecting the higher proportion of dealer operated sites in Parkland's retail network following the Cango acquisition, partially offset by strong margins in Parkland's corporate owned network.

YTD 2012 vs. 2011

For the six month period ended June 30, 2012, Parkland Retail Fuels' volumes increased 22% to 873 million litres compared with 715 million litres in 2011.  The increase was the result of additional fuel volumes attributable to the acquisition of Cango.

Retail Fuels' gross profit decreased by 7% to 4.99 cpl for the six months ended June 30, 2012 compared with 5.38 cpl for the same period of 2011 reflecting the higher proportion of dealer operated sites in Parkland's retail network following the Cango acquisition, partially offset by strong margins in Parkland's corporate owned network.

Divisional Outlook

Margins, volumes, and cost management will dictate the performance of Parkland's retail division.  The retail management team will continue to manage prudently, and will work towards signing additional business over the remainder of 2012.

Refiners' Margins Remain at Historic Highs

Parkland Wholesale, Supply and Distribution ("WS&D") 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.  This division includes profits from Parkland's participation in refiners' margins, profits derived through superior supply management, and profits from wholesale fuel sales.

Q2 2012 vs. Q2 2011

For the six months ended June 30, 2012 Parkland Wholesale, Supply and Distribution fuel volumes (factoring out intersegment sales) increased 34% to 230 million litres compared with 172 million litres for the same period in 2011 primarily due to the reallocation of 48 million litres of high-volume low-margin accounts from Commercial Fuels and wholesale volume growth due to the division's sales activities.

Fuel gross profits for the three months ended June 30, 2012 increased 124% to $32.1 million compared with $14.3 million for the same period in 2011 primarily due to increased refiners' margins.

Parkland recorded a $1.4 million expense related to put option contracts put in place to hedge and secure a portion of the future economic benefit that Parkland receives on its refiners' margins based contract.  This is expected to protect against the potential earnings volatility that would be caused by a normalization of refiners' margins from their current highs.  Refiners' margins refer to the profit made between the cost of the crude oil required to produce fuel and the wholesale price received by refiners for the fuel they sell.

The Wholesale Division continues the process of optimizing the entire wholesale portfolio to achieve an optimal mix between volume, margin, and capital employed.  By tightening trade terms on certain accounts, Parkland is targeting improved return on capital employed.

YTD 2012 vs. 2011

Fuel gross profits from WS&D for the six month period ended 2011 increased 50% to $47.6 million compared with $31.8 million in 2011 primarily due to historically high refiners' margins in 2012.

Divisional Outlook

Fuel supplies are expected to be sufficient in all Canadian markets for the remainder of 2012.

Refiners' margins in 2012 continue to be unusually strong primarily due to weak mid-continent and Canadian crude prices relative to Brent Crude prices.  The differential between Brent and Edmonton Par continues due to an abundance of sweet crude in the mid-continent from the Bakken area and from production in Alberta's Oil Sands coupled with a lack of pipeline and transport capacity to other markets and refining centres.  While the reversal of the Seaway Pipeline between Cushing and the Gulf Coast was expected to alleviate to a certain extent the bottle neck in crude transportation out of the Western Canadian Sedimentary Basin, increased production in the Bakken has more than soaked up the additional capacity.

Future pipeline capacity is expected to mitigate the current supply imbalance and return mid-continent refiners' margins to normal levels.  However, timing of the approval and subsequent construction on pipelines remains a matter of speculation. For now, the cash flow from current refiners' margins is being used by Parkland to pay down debt, and prepare the balance sheet for future acquisitions.

Parkland will continue to optimize a number of key supply agreements in 2012 that will improve Parkland's supply economics, diversify the supply portfolio, and provide further supply security and flexibility for customers.  Parkland will not announce new contracts due to the confidential and sensitive nature of the volume and pricing information of these supply agreements.

Operating Costs Decrease by $5.2 Million

Q2 2012 vs. Q2 2011

Operating and direct costs decreased by 13% to $35.4 million (3.5 cpl) for the three months ended June 30, 2012, compared with $40.6 million (4.4 cpl) for the three months ended June 30, 2011.  Operating and direct costs decreased principally due to Retail Fuels cost control and the sale of the long-haul trucking assets, as Parkland no longer incurs additional costs of maintaining a long-haul fleet.

YTD 2012 vs.2011

Operating and direct costs decreased by 9% to $79.9 million (3.8 cpl) in the six months ended June 30, 2012, compared with $88.2 million (4.5 cpl) for the same period in 2011.  As indicated above, operating and direct expenses decreased primarily due to the sale of the long-haul trucking assets.

Marketing, General and Administrative Costs Decrease by $4.2 Million

Q2 2012 vs. Q2 2011

Marketing, general and administrative expenses ("MGA") decreased 18% or $4.2 million to $19.7 million (2.0 cpl) in the second quarter of 2012 compared with $23.9 million (2.6 cpl) in the second quarter of 2011.  Marketing, general and administrative costs decreased due in part to one-time expenses in 2011 of $3.3 million related to management changes, Cango acquisition costs, and reduction of the cost for additional audit and consulting services to support the IFRS conversion.

YTD 2012 vs. 2011

Marketing, general and administrative expenses decreased 10% or $4.5 million to $39.4 million (2.0 cpl) in the six months ended June 30, 2012, compared with $43.9 million (2.2 cpl) for the six months ended June 30, 2011.  The decrease in marketing, general and administrative expense was driven by the same reasons described above.

EBITDA More Than Doubles to $54.2 Million

Q2 2012 vs. Q2 2011

EBITDA for the second quarter of 2012 increased by 114% to $54.2 million compared with $25.3 million in the second quarter of 2011. The $28.9 million increase in EBITDA is the result of the increase in fuel volumes by 80.0 million litres or 9%, cost reductions and higher refiner's margins in the second quarter of 2012, compared with the second quarter of 2011.

YTD 2012 vs. 2011

EBITDA for the six month period ended, June 30, 2012 was $97.3 million, an increase of 35% compared with $71.9 million for the six month period ended, June 30, 2011, mainly due to cost reductions, strong Retail Fuels' earnings and improved refiners' margins, partially offset by weather related weakness in Commercial Fuels compared with the prior year.

Net earnings increase to $25.9 million

Q2 2012 vs. Q2 2011

Parkland had net earnings in the second quarter of 2012 of $25.9 million, compared with a net loss of $4.2 million in the second quarter of 2011.  The increase in net earnings in the second quarter of 2012 compared with the prior year was principally the result $28.9 million in higher EBITDA, $2.5 million decrease in finance costs, and a $7.0 million decrease in depreciation and amortization, partially offset by an $8.5 million increase in income taxes.

YTD 2012 vs. 2011 

Net earnings for the six months ended June 30, 2012 were $43.5 million, an increase of $31.4 million from $12.1 million in 2011.  The increase in net earnings was primarily from $25.4 million in increased EBITDA, $5.8 million in decreased finance costs, $11.0 million in lower depreciation and amortization, partially offset by a $9.6 million increase in income taxes.

Credit Facility Extended with Improved Terms

A revolving extendible credit facility (the "Credit Facility") agreement was executed on June 30, 2011 initially for a period of three years.  Subsequent to June 30, 2012, on August 7, 2012, the Credit Facility was amended to extend the maturity date an additional two years to June 30, 2016.  Under the revised terms of the Credit Facility, Parkland has obtained a 0.25% reduction in interest rates.

The Credit Facility is for a maximum amount of $450 million with interest only payable at the bank's prime lending rate plus 0.75% to 2.0% per annum (reduced from the bank's prime lending rate plus 1% to 2.5% per annum prior to the August 7, 2012 amendment). The Credit Facility includes a revolving operating loan to a maximum of $450 million less the value of letters of credit issued.  The letter of credit facility is to a maximum of $60 million. The Credit Facility also includes a $100 million accordion feature that could potentially increase the total lending capacity to $550 million.

The facility is extendible each year for a rolling three-year period at the option of Parkland.

MD&A and Financial Statements

The MD&A as well as the audited Consolidated Financial Statements and Notes to the Consolidated Financial Statements for the three and six months ended June 30, 2012 are available online at www.parkland.ca.

Conference Call Information

Parkland Fuel Corporation will host a webcast and conference call Thursday August 9th, 2012 at 2:30 p.m. MST (4:30 p.m. EST) to discuss the results.

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://w.on24.com/r.htm?e=495487&s=1&k=2ABA9D7582761E6A7C168D5FCDA26EF3

To access the conference call by telephone from within Canada dial toll free 1-888-231-8191.  International callers or callers from the Toronto area should use [phone].  Please connect approximately 10 minutes prior to the beginning of the call and quote the conference ID: 9948 5549.

The webcast will be available for replay two hours after the conference call ends.  It will remain available at the link above for 90 days.

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 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 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 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 through community based operators who care.

 

 

 

 

SOURCE: Parkland Fuel Corporation

For investor and media inquiries please contact Tom McMillan, Director of Corporate Communications at [email protected] or 1-800-662-7177 ext 2533.  To sign up for Parkland's investor information services, please go to http://bit.ly/PKI-Info or visit www.parkland.ca.