Parkland Reports Second Quarter 2010 Financial Results
Performance Highlights for the Three Months Ended June 30, 2010:
- Fuel sales volumes increased 28% to 802 million litres compared with
628 million litres in Q2 2009;
- Fuel marketing segment gross profit increased 28% to $57.6 million
compared with $45.1 million in Q2 2009;
- EBITDA increased 19% to $27.9 million compared with $23.4 million in
Q2 2009;
- Bluewave Energy integration with Parkland's Commercial Business Group
on target;
- Enterprise Resource Planning (ERP) system implementation moving into
"sustainment" phase after substantial stabilization achieved in Q2;
- Unitholders approved trust conversion to Parkland Fuel Corporation, a
balanced yield and growth company, with such conversion to occur no
later than January 2011; and
- $400 million syndicated credit facilities successfully renewed to
June 6, 2011.
RED DEER, AB, Aug. 13 /CNW/ - Parkland Income Fund (TSX: PKI.UN), Canada's largest independent fuel distributer and marketer, today announced the financial and operating results for the three and six months ended June 30, 2010. All dollar amounts are stated in Canadian dollars.
"Parkland's performance in the second quarter was solid and there are a number of positive developments to report," said Mike Chorlton, President and CEO of Parkland Income Fund. "We saw strong results from our fuel distribution and marketing business this quarter as fuel sales volumes grew due to the companies we've acquired. In addition, our ERP system has substantially stabilized and our financial processes and receivables collections are returning to normal through the dedicated efforts of our employees."
"While refiners' margins improved compared to the first quarter, they continue to be at the low end of their normal range and were lower than they were for the same quarter in 2009. During the quarter, Parkland also made significant progress integrating Bluewave and we're projecting we'll exceed our year-end target for cost savings of $2 million through a combination of insurance savings, resource rationalization, fuel supply optimization and office amalgamation."
Distributable cash exceeded cash distributions in the second quarter by 14%, and by 11% for the six months ended June 30, 2010. The distribution payout ratio for the three months ended June 30, 2010 was 88% compared with 73% for the same period in 2009. For the six months ended June 30, 2010, the payout ratio was 90% compared with 65% for the same period in the prior year. The increase in the distribution payout ratios were primarily caused by earnings reductions from 2009, and changes in working capital caused by the 2010 ERP implementation.
Parkland has maintained a monthly distribution rate of $0.105 per unit for the quarter, and believes this is sustainable.
Consolidated Highlights
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(in millions of Canadian Three months Three months
dollars except volume ended ended
and per Unit amounts) June 30, 2010 June 30, 2009 % Change
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Fuel volume (millions of litres) 802 628 28
Net sales and operating revenues 605.8 479.5 26
Gross profit 83.2 60.1 38
Gross margin 14% 13%
Operating and direct costs 37.5 24.9 51
Marketing, general and
administrative 17.8 11.8 51
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Earnings before income taxes 6.9 14.3 (52)
Income tax (recovery) expense (6.6) -
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Net earnings 13.5 14.3 (6)
EBITDA(1) 27.9 23.4 19
Earnings per Unit - basic $0.25 $0.28
Earnings per Unit - diluted $0.25 $0.28
Distributable cash flow(2) 18.9 21.6 (13)
Distributions 16.5 15.7 5
Distribution payout ratio 88% 73%
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(in millions of Canadian Six months Six months
dollars except volume ended ended
and per Unit amounts) June 30, 2010 June 30, 2009 % Change
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Fuel volume (millions of litres) 1,618 1,301 24
Net sales and operating revenues 1,286.0 934.5 38
Gross profit 158.6 132.0 20
Gross margin 12.3% 14.1%
Operating and direct costs 73.7 52.2 41
Marketing, general and
administrative 35.2 24.1 46
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Earnings before income taxes 9.3 36.8 (75)
Income tax (recovery) expense (9.7) 2.7
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Net earnings 18.9 34.1 (45)
EBITDA(1) 49.8 55.7 (11)
Earnings per Unit - basic $0.36 $0.68
Earnings per Unit - diluted $0.36 $0.68
Distributable cash flow(2) 36.2 48.4 (25)
Distributions 32.6 31.4 4
Distribution payout ratio 90% 65%
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(1) Please refer to the Non-GAAP Measures section in the MD&A for a
definition of EBITDA.
(2) Please see Distributable Cash Flow reconciliation table in the MD&A.
Second Quarter 2010 Review
Fuel Marketing Segment
Parkland is actively growing the fuel marketing and distribution business downstream from the refiner. This part of the business had a strong quarter as fuel sales volumes increased due to the acquisitions of Columbia Fuels, Anmart Fuels, and Bluewave Energy.
Fuel sales volumes increased 28% to 802 million litres for the three months ended June 30, 2010, compared with 628 million litres for the same period in 2009. For the six months ended June 30, 2010, fuel sales volumes increased 24% to 1,618 million litres compared with 1,301 million litres for the same period the previous year.
Net sales in the fuel marketing segment increased by 28% to $550.8 million (68.7 cents per litre (cpl)) for the three months ended June 30, 2010, compared with $430.2 million (68.5 cpl) for the same period in 2009. For the six months ended June 30, 2010, net sales in the fuel marketing segment increased by 40% to $1,179.8 million (72.9 cpl) compared with $844.6 million (64.9 cpl) for the same period the previous year.
Gross profit in the fuel marketing segment increased 28% to $57.6 million (7.2 cpl) for the three months ended June 30, compared with $45.1 million (7.2 cpl) for the same period in 2009 as fuel sales volumes increased. For the six months ended June 30, 2010, increased volumes offset by slightly lower average margins in the first quarter led to a 13% increase in gross profit in the fuel marketing segment to $113.0 million (7.0 cpl) compared with $100.4 million (7.7 cpl) for the same period the previous year.
Parkland's retail fuel marketing segment continued to deliver a strong performance in a relatively flat market. Volume growth in Ontario was offset by some weakness in Northern Alberta over the quarter.
The outlook for commercial fuel sales volumes is improving as a result of increased activity in the forestry, trucking and oil and gas drilling industries. For the three months ended June 30, 2010, the Canadian Association of Oilwell Drilling Contractors (CAODC) reported an average rig utilization rate of 19.7% compared with 10.7% for the same period in 2009. For the first half of 2010, the CAODC reported an average rig utilization rate of 36.7% compared with 23.8% in the first half of 2009. Parkland has also observed increased competition in hiring truck drivers, which is also a signal that economic activity on the commercial front is improving.
Convenience Store Merchandise Segment
Net sales in the convenience store merchandise segment decreased by 54% to $6.4 million for the three months ended June 30, 2010, compared with $13.8 million for the same period in 2009 as corporate operated sites were converted to commission based sites which are dealer operated. For the six months ended June 30, 2010, net sales in the convenience store merchandise segment decreased by 55% to $12.2 million compared with $27.3 million for the same period the previous year. As more stations are converted to a commissioned operator model, variable rent will increase Other Segment revenues.
Gross profit in the convenience store merchandise segment decreased by 53% to $1.7 million for the three months ended June 30, 2010, compared with $3.6 million for the same period in 2009, once again due to stations converting to a commissioned operator model. For the six months ended June 30, 2010, gross profit in the convenience store merchandise segment decreased by 56% to $3.1 million compared with $7.1 million for the same period the previous year.
Commercial Segment (Non-Fuel)
Parkland's Commercial Segment consists of agricultural, lubricant, and other products that do not fall into the fuel category. Net sales in the commercial segment increased by 15% to $35.5 million for the three months ended June 30, 2010, compared with $30.9 million for the same period in 2009. For the six months ended June 30, 2010, net sales in the commercial segment increased by 38% to $73.3 million compared with $53.0 million for the same period the previous year. The increase over both periods was primarily due to the Columbia Fuels and Bluewave Energy acquisitions
On increased net sales, gross profit in the commercial segment increased by 57% to $10.8 million for the three months ended June 30, 2010, compared with $6.9 million for the same period in 2009. For the six months ended June 30, 2010, gross profit in the commercial segment increased by 46% to $21.8 million compared with $14.9 million for the same period the previous year.
Other Segment
Parkland's Other Segment consists of lottery revenue, delivery charges, variable rent, and vendor rebates for which no cost of sales is recognized. Gross profit in the Other Segment increased by 191% to $13.1 million for the three months ended June 30, 2010, compared with $4.5 million for the same period in 2009 as more stations became commissioned operator based. For the six months ended June 30, 2010, gross profit in the Other Segment increased by 113% to $20.7 million compared with $9.7 million for the same period the previous year.
Supply and Wholesale - Refiners' Margins
The Supply and Wholesale segment of Parkland's business includes the Company's share of refiners' margins and modest profits from wholesale fuel sales. While the Company participates in refiners' profit margins for a significant portion of its supply volumes, refiners' margins are driven by supply and demand, over which the Company has little control. Parkland continues to execute its strategy to build fuel marketing profits to offset fluctuations in refiners' margins.
Gross profit in the Supply and Wholesale segment decreased 33% to $7.2 million for the three months ended June 30, compared with $10.7 million for the same period in 2009 as refiners' margins remained at the low end of seasonal norms. For the six months ended June 30, 2010, Supply and Wholesale gross profit decreased 73% to $6.1 million compared with $23.0 million for the same period the previous year.
Refiners' margins for gasoline declined after reaching a peak in the first quarter of 2009 and are recovering from lower than seasonal norms that were seen between the fourth quarter of 2009 and the first quarter of 2010. While refiners' margins for diesel continue to be impacted by excess supply, increased activity across the forestry, trucking and oil and gas drilling industries may have a positive impact in subsequent quarters.
Consolidated Results
Net sales and operating revenue increased by 26% to $605.8 million for the three months ended June 30, 2010, compared with $479.5 million for the same period in 2009. For the six months ended June 30, 2010, net sales and operating revenue increased by 38% to $1,286.0 million compared with $934.5 million for the same period the previous year.
Gross profit increased by 38% to $83.2 million for the three months ended June 30, 2010, compared with $60.1 million for the same period in 2009. For the six months ended June 30, 2010, gross profit increased by 20% to $158.6 million compared with $132.0 million for the same period the previous year.
Operating and direct costs increased by 51% to $37.5 million (4.7 cpl) for the three months ended June 30, 2010, compared with $24.9 million (4.0 cpl) for the same quarter in 2009. The $12.6 million increase in operating and direct costs for the three month period resulted from $12.9 million in additional operating costs directly related to the acquired businesses of Columbia Fuels, Anmart Fuels and Bluewave Energy, partially offset by a reduction in retail operating costs due to the conversion of corporate retail stations to a commissioned operator model. The increase in operating costs on a cents per litre basis reflects the change in business mix following the Bluewave acquisition that increased Parkland's proportion of delivered fuel products which involves higher operating costs (due to delivery) offset by higher fuel margins.
For the six months ended June 30, 2010, operating and direct costs increased by 41% to $73.7 million (4.6 cpl) compared with $52.2 million (4.0 cpl) for the same period in 2009. The $21.4 million increase in operating and direct costs for the six month period resulted from $23.9 million in additional operating costs directly related to the acquired companies, once again partially offset by a reduction in retail operating costs as retail stations were converted to a commissioned operator business model.
Marketing, general and administrative expenses increased by 51% to $17.8 million (2.2 cpl) for the three months ended June 30, 2010, compared with $11.8 million (1.9 cpl) for the same quarter in 2009. Of the $6.0 million increase in marketing, general and administrative expenses during the three month period, $3.9 million was related to the acquired businesses of Columbia Fuels and Bluewave Energy, and $0.4 million was related to preparations for conversion to a corporation in 2011. The remaining increase was generally the result of year-over-year cost increases and one time ERP implementation expenses.
For the six months ended June 30, 2010, marketing, general and administrative expenses increased by 46% to $35.2 million (2.2 cpl) compared with $24.1 million (1.9 cpl) for the same period in 2009. Of the $11.0 million increase during the six month period, $7.4 million was related to the acquired companies, $0.6 million was related to one time conversion costs, with the remaining increase generally attributable to year-over-year cost increases and one time ERP implementation expenses.
Parkland's inventory of fuel volumes are subject to revaluation as underlying crude oil prices rise and fall. In the second quarter of 2010 this resulted in a gain of $1.3 million compared to a gain of $2.3 million for the same period in 2009. For the six months ended June 30, 2010, this resulted in a gain of $2.4 million compared to a gain of $7.0 million for the same period in the prior year.
EBITDA increased 19% to $27.9 million (3.5 cpl) for the three months ended June 30, 2010, compared with $23.4 million (3.7 cpl) for the same quarter in 2009. The increase in EBITDA from the same period in 2009 is attributed to the Columbia Fuels, Anmart Fuels and Bluewave Energy acquisitions, offsetting the $3.5 million decrease in contributions from the Supply and Wholesale segment for the quarter due to low refiners' margins. The increase in EBITDA for the quarter, despite lower refiners' margins, demonstrates the progress Parkland has made growing the fuel marketing side of its business.
For the six months ended June 30, 2010, EBITDA decreased 11% to $49.8 million (3.1 cpl) compared with $55.7 million (4.3 cpl) for the same period in 2009 due to a $16.9 million decrease in contributions from the Supply and Wholesale segment, which includes Parkland's share of refiners' margins, offset by profits from the companies acquired.
Net earnings decreased by 6% to $13.5 million (1.7 cpl) for the three months ended June 30, 2010, compared with $14.3 million (2.3 cpl) for the same quarter in 2009. On a per unit basis, net earnings for this quarter were $0.25 per unit basic and $0.25 per unit diluted, compared with $0.28 per unit basic and $0.28 per unit diluted for the same quarter in 2009. For the six months ended June 30, 2010, net earnings decreased 45% to $18.9 million (1.2 cpl) compared with $34.1 million (2.6 cpl) for the same period in 2009. On a per unit basis, net earnings for the six months ended June 30, 2010, were $0.36 basic and $0.36 diluted compared with $0.68 basic and $0.68 diluted for the same period in 2009.
Enterprise Resource Planning System
On March 1, 2010 Parkland launched the upgrade of its ERP system designed to integrate onto a single platform the supply-chain and accounting transaction streams from the core Parkland business with the business acquisitions made since 2006 (other than Columbia Fuels and Bluewave).
The benefits to having a company-wide ERP system are expected to include enhanced operational scalability, easier integration of newly acquired companies, strategic insight and enhanced operational efficiency. Once fully implemented, the ERP system will provide Parkland with a comprehensive fuel management system that will help support and optimize Parkland's fuel supply chain.
The March 2010 implementation experienced complications with processing certain sales transactions which resulted in invoicing delays, delayed customer collections and increased working capital requirements. Through Q2 2010, Parkland continued in the implementation phase of the ERP project and focused on managing and solving the implementation complications that started in Q1 2010, including extensive efforts to reconcile and settle customer accounts. These efforts will continue through Q3 2010.
By the end of Q2 2010, Parkland substantially stabilized the primary ERP transaction streams and customer-facing processes. In Q3 2010, Parkland will move into the sustainment phase of the project with continued effort on "low risk" enhancements. Through Q3 and Q4 of 2010 Parkland will analyse and prepare for the migration of Columbia Fuels and Bluewave onto the ERP system in 2011 and implementation of additional modules to expand functionality of the system.
Corporate Conversion Plan
On May 3, 2010, Parkland received Unitholder approval to convert back to a corporation by way of a trust unit for corporate share tax-deferred exchange no later than January 2011. Parkland previously announced that after conversion, provided there are no material adverse changes in our outlook for business conditions, Parkland Fuel Corporation (the corporate entity to result from the conversion) plans to become a balanced yield and growth company with an expected dividend presently anticipated to be between 75% and 110% of the current level of the Fund's annual distribution ($1.26 per unit).
Post conversion, it is expected that Parkland's 2011 dividends will qualify as "eligible dividends" for Canadian income tax purposes and thus qualify for the enhanced gross-up and tax credit regime for certain individual Shareholders that receive the dividends outside of a registered account.
The final 2011 dividend decision is expected to be made after the end of the third quarter of 2010 after fully considering the business outlook, the cash requirements of the business and the Company's desired capital structure as a corporation.
MD&A and Financial Statements
The MD&A as well as the unaudited Consolidated Financial Statements and Notes to Consolidated Financial Statements for the three and six months ended June 30, 2010, are available online at http://files.newswire.ca/714/Q2_MDA_FS_Supplementary.pdf.
Conference Call
Parkland will host its second quarter results conference call on Monday, August 16, 2010, at 9:00 a.m. Mountain Daylight Time (MDT) (11:00 a.m. EDT).
The conference call will be hosted by President and CEO Mike Chorlton and Senior Vice President and CFO Ken Grondin who will discuss Parkland's financial results for the quarter and then take questions from analysts, brokers and investors.
To access the conference call by telephone, dial (647) 427-7450 or 888-231-8191. Please connect approximately 10 minutes prior to the beginning of the call. The conference call will be archived for replay until 9:59 p.m. MDT (11:59 p.m. EDT), Monday, August 30, 2010. To access the archived conference call, dial (416) 849-0833 or 800-642-1687 and enter the passcode: 9143 3244 followed by the pound sign.
To access the live audio webcast of the conference call please navigate your internet browser to: http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3172840.
Please connect to the webcast at least 10 minutes prior to the beginning of the call to ensure adequate time for any software download that may be required to join the webcast. The webcast will be archived at the above website for 90 days.
Forward-Looking Information
Certain 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, conversion of Parkland to a corporate structure, anticipated dividends and the amount thereof, if any, to be declared by Parkland Fuel Corporation, expectations regarding the implementation of Parkland's new ERP system and plans and objectives of or involving Parkland. Many of these statements can be identified by looking for words such as "believe", "expects", "expected", "will", "intends", "projects", "projected", "anticipates", "estimates", "continues", or similar words and include but are not limited to, statements regarding the accretive effects of the acquisition and the anticipated benefits of the acquisition. Parkland believes the expectations reflected in such forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties some of which are described in the Fund'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 Fund'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 Fund 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 Income Fund
Parkland Income Fund is Canada's largest independent fuel distribution and marketing company, delivering fuel products from regional refineries to retail, commercial and reseller customers coast-to-coast. Through its network of 620 retail locations, 77 commercial branches, 70 cardlock locations and through wholesale agreements, the Company distributes 3.4 billion litres of fuel annually, representing 4.1% of the total Canadian fuel market (market share in some regions of operation is higher).
Parkland currently distributes fuel to retail customers under its Fas Gas Plus, Fas Gas and Race Trac brands as well as through distribution agreements with 290 Esso locations. Parkland also supplies propane, bulk fuel, heating oil, lubricants, industrial fluids and associated services to commercial and industrial customers across Canada under the Neufeld, United Petroleum, Columbia Fuels, Bluewave Energy and Great Northern Oil brands.
Parkland is a high-yield, growth-oriented company that is committed to providing income-oriented investors with a cash yield as well as upside growth. The Company is delivering value to unitholders by growing fuel volumes through carefully selected acquisitions, working closely with suppliers to achieve a material cost advantage and achieving greater efficiency through operational excellence. Parkland units and convertible debentures trade on the Toronto Stock Exchange (TSX) under the symbols PKI.UN and PKI.DB. For more information visit www.parkland.ca.
For further information: For investor and media inquiries please contact Mike W. Chorlton, President and CEO; Ken J. Grondin, Senior Vice President and CFO; or Tom McMillan, Investor Relations Manager at (403) 357-6400 or [email protected]
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