Parkland Fuel Corporation Announces Record 2018 Adjusted EBITDA of $887 million & Dividend Increase
Exceptional 2018 Driven by Full Year Contributions From Acquisitions, Strong Supply Performance and Integration Synergies
CaribPR Wire, CALGARY, Alberta, Feb. 28, 2019: Parkland Fuel Corporation, (”Parkland”, “We”, the “Company”, or “Our”) (TSX:PKI) announced today the financial and operating results for the three months and year ended December 31, 2018. All financial figures are expressed in Canadian dollars unless otherwise noted.
“Parkland continues to deliver strong performance across the enterprise,” said Bob Espey, President and Chief Executive Officer. “A standout fourth quarter in the supply segment underpinned our record results, while continued synergy realization and underlying organic growth initiatives positively contributed. While Parkland benefited from higher than normal refining margins in the fourth quarter, we are focused on driving sustainable and long-term cash flow growth within the ratable portions of our business. I would like to thank the entire Parkland team for their hard work and continued focus on safety to deliver another record year.”
Parkland’s annualized common share dividend will increase two cents per share, from $1.174 to $1.194, effective with the monthly dividend payable on April 15, 2019 to shareholders of record at the close of business on March 22, 2019.
Q4 & Full-Year 2018 Highlights
- Fourth quarter Adjusted EBITDA of $285 million and net earnings of $77 million ($0.58 per share, basic) was driven by strong refining crack spreads, continued efforts in executing Parkland’s supply strategy and synergy realization.
- Full-year Adjusted EBITDA of $887 million and net earnings of $206 million ($1.56 per share, basic). As the acquisition of the majority of the Canadian business and assets of CST Brands, Inc. (the “Ultramar Acquisition”) closed on June 28, 2017, and the acquisition of all outstanding shares of Chevron Canada R & M ULC (the “Chevron Acquisition”) closed on October 1, 2017 (collectively, the “Acquisitions”), the increase in full-year Adjusted EBITDA and net earnings was driven by full year contributions from the Acquisitions in addition to the factors outlined above. See Section 3 of the Management’s Discussion and Analysis for further discussion.
- Fourth quarter fuel and petroleum product volume was 4.4 billion litres, relatively flat compared to the fourth quarter of 2017 (”Q4 2017″). On a full-year basis, fuel and petroleum product volume was 17.0 billion litres, up 27% year-over year, primarily driven by incremental business from the Acquisitions.
- Fourth quarter Adjusted distributable cash flow increased by $73 million to $175 million, resulting in an Adjusted dividend payout ratio of 23%. Full-year Adjusted distributable cash flow increased by $317 million to $568 million, resulting in an Adjusted dividend payout ratio of 28%.
- Total Funded Debt to Credit Facility EBITDA ratio of 2.5 times as at December 31, 2018.
- Completed 2018 initiatives that are expected to result in run-rate annual synergies on the Acquisitions of approximately $100 million. We continue to expect that annual run-rate synergies on the Acquisitions will reach approximately $180 million by the end of 2020.
- Announced during the fourth quarter a new strategic initiative to bring Filld’s mobile fuelling service to consumers across Canada, starting in Vancouver, British Columbia. Parkland co-led a $15 million investment into Series B Preferred Shares in the capital of Filld in October 2018. As part of Parkland’s investment, Parkland will be the exclusive supplier of fuel to Filld in Canada.
- Fourth quarter Adjusted EBITDA of $78 million, a decrease of $16 million relative to Q4 2017 due to very strong comparable gasoline and diesel margins in Q4 2017 and softer fourth quarter 2018 margins in some markets. Our underlying Retail business is performing well, with consistent execution in the field resulting in strong key performance indicators. Full-year Adjusted EBITDA was $316 million, an increase of $85 million relative to 2017 primarily due to the Acquisitions.
- Fourth quarter Company C-Store SSSG was 10.3%, our 12th consecutive quarter of positive Company C-Store SSSG, while full-year Company C-Store SSSG was 7.6%. Growth was attributable to the successful implementation of the new On the Run / Marché Express Flagship and Retrofit store concepts, the successful roll-out of Parkland’s proprietary private label brand 59th Street Food Co., and continued backcourt convenience store optimization that resulted in higher forecourt to backcourt conversion rates.
- Fourth quarter Company Volume SSSG was 3.5%, while full-year Company Volume SSSG was 0.7%. The increases were primarily due to strategic efforts to increase same-store volume at Company sites.
- We retrofitted 78 existing On the Run / Marché Express locations and constructed twelve Flagship locations in 2018. Our development initiatives will see the brand rolled out across our Canadian network in the coming years. In 2018, we expanded our private label brand, “59th Street Food Co.”, and are now offering 20 products at select Parkland locations. We are planning to launch an additional 20 private label products in 2019. In addition, we are currently testing our “Journie” loyalty program in two Canadian markets, and expect to expand the program across our network in 2019.
- Fourth quarter Adjusted EBITDA of $27 million, approximately flat compared to Q4 2017. Full-year Adjusted EBITDA was $93 million, an increase of $23 million relative to 2017 primarily due to the Acquisitions and strong first half 2018 propane organic growth and customer wins.
- Fourth quarter Fuel and petroleum product volume decreased 4% relative to Q4 2017, primarily due to softer volumes in Western Canada. This was partially offset by a 4% decrease in operating costs as Parkland continues to maintain a strong emphasis on cost management.
- Ongoing optimization of our Commercial brand portfolio in various geographies has seen certain legacy operations, particularly in Eastern Canada, successfully rebranded to Ultramar. This enables Parkland to drive future growth and sustained profitability under one aligned customer value proposition.
- Fourth quarter Adjusted EBITDA of $199 million, an increase of $105 million relative to Q4 2017. These exceptional results were primarily driven by profitable supply sourcing initiatives, improved supply economics, continued efforts in executing Parkland’s supply advantage strategy and strong refining crack spreads. Due to the rapid price decrease of both crude feedstock and refined products in the fourth quarter, Parkland also realized a $49 million benefit from its working capital funding agreement at the Burnaby Refinery which flows through cost of purchases. On a full-year basis, this benefit totalled $20 million.
- Full-year Adjusted EBITDA of $561 million, an increase of $401 million relative to 2017. The increase was driven by full year contributions from the Acquisitions and the factors outlined above.
- Refinery utilization, which measures the amount of crude oil processed and converted to products in the Burnaby Refinery, was 87.8% for the fourth quarter, compared to 94.4% for Q4 2017. The Burnaby Refinery processed intermediary products and bio-fuels such as canola and tallow which are not reflected in crude throughput, and therefore not included in refinery utilization.
Parkland USA Highlights
- Completed three acquisitions in 2018, the largest of which was the acquisition of all of the issued and outstanding equity interests of Rhinehart Oil Co., LLC and its affiliates (the “Rhinehart Acquisition”). The Rhinehart Acquisition closed on August 27, 2018, and added 10 distribution facilities, 9 retail sites, and 4 cardlock facilities across Utah, Colorado, Wyoming and New Mexico.
- Fourth quarter Adjusted EBITDA of $11 million, an increase of $7 million relative to Q4 2017. Full-year Adjusted EBITDA was $28 million, an increase of $12 million relative to 2017. The increases are primarily due to the Rhinehart Acquisition and Parkland’s continued focus on its strategy to drive new business, grow organically and manage costs.
- Fuel and petroleum product volume increased 92 million litres in the fourth quarter and 119 million litres on a full-year basis, relative to Q4 2017 and full-year 2017, respectively. The increase was primarily due to the Rhinehart Acquisition and organic growth initiatives.
- Subsequent to the quarter, Parkland opened a Houston office that will support its growing supply and trading business in the U.S. and Caribbean markets.
- Parkland will continue to look for acquisition opportunities in the U.S., including tuck-in opportunities in and around its existing regional operations centers and new regional operations centers in areas where we can establish a supply advantage.
Corporate Segment Highlights
- Marketing, general and administrative expenses were $32 million in the fourth quarter and $111 million on a full-year basis. As expected, these expenses increased primarily due to additional corporate costs to support the larger integrated business and execute future growth strategies. In particular, additional costs were incurred for technological innovation initiatives and employee costs to support Parkland’s growth.
|($ millions, unless otherwise noted)||Three months ended December 31,||Year ended December 31,|
|Sales and operating revenue(6)||3,526||3,429||1,740||14,442||9,560||6,266|
|Adjusted gross profit(1)||587||469||197||1,995||1,094||708|
|Per share – basic||0.58||0.37||0.03||1.56||0.70||0.50|
|Per share – diluted||0.57||0.37||0.03||1.53||0.69||0.49|
|Distributable cash flow(2)||151||45||29||416||151||120|
|Adjusted distributable cash flow(2)||175||102||43||568||251||153|
|Dividends declared per share outstanding||0.2934||0.2886||0.2835||1.1704||1.1510||1.1250|
|Dividend payout ratio(2)||27||%||89||%||94||%||38||%||91||%||91||%|
|Adjusted dividend payout ratio(2)||23||%||38||%||64||%||28||%||55||%||71||%|
|Total long-term liabilities||2,750||2,469||692||2,750||2,469||692|
|Shares outstanding (millions)||134||131||96||134||131||96|
|Weighted average number of common shares (millions)||133||131||96||132||117||95|
|Fuel and petroleum product volume (million litres)(4)||4,354||4,432||2,783||16,978||13,333||10,415|
|Fuel and petroleum product adjusted gross profit(1) (cpl)(5):|
(1) Measure of segment profit. See Section 13 of the MD&A.
(2) Non-GAAP financial measure. See Section 13 of the MD&A.
(3) Calculated using the weighted average number of common shares.
(4) Fuel and petroleum product volume represents external volumes only. Intersegment volumes, including volumes produced by the Burnaby Refinery and transferred to the Retail and Commercial segments, are excluded from this reported volume.
(5) “cpl” stands for cents-per-litre and is a key performance indicator. See Section 13 of the MD&A.
(6) For comparative purposes, sales and operating revenue and fuel and petroleum product adjusted gross profit (cpl) for the three months ended December 31, 2017 was restated for a reclassification from Commercial to Supply, reflecting a change in customer service delivery structure in 2018.
2019 Outlook & Guidance Range
Parkland will remain focused on its key strategies of organic growth, building a strong supply advantage and acquiring prudently. We will focus our efforts across three areas of operation (Canada, US & International):
- Canada: Network development, optimize operations, increase customer loyalty and penetration, leverage scale
- United States: Continued organic growth, target acquisitions with potential to enhance our supply advantage
- International: Business continuity, asset optimization and growth
Enabled by integrated supply and marketing:
- Supply: Leverage market inefficiencies and expand our supply advantage
- Marketing: Enhanced customer value proposition across our entire portfolio
Our 2019 Guidance for Adjusted EBITDA attributable to Parkland is $960 million, with anticipated variance of up to 5 percent (”2019 Guidance Range”). In addition, the Company expects to spend approximately $200 million of maintenance capital expenditures. Our 2019 Guidance Range includes the expected contribution from Parkland’s 75% interest in SOL Investments Limited (”SOL”) and excludes the impact of adopting IFRS 16 – Leases. Parkland is in the process of assessing the impact of adopting IFRS 16 – Leases, which will be completed and disclosed in the March 31, 2019 Interim Condensed Consolidated Financial Statements and MD&A.
The 2019 Guidance Range includes some key assumptions highlighted below:
- Burnaby refining margins forecast in line with the 5-year historical average
- The performance of recently acquired businesses, general market conditions, including but not limited to fuel margins and weather, will remain substantially consistent in 2019
- The low end of our 2019 Guidance Range accounts for potential adverse market conditions across our areas of operations, as well as the potential for lower refining margins than currently observable, while the high end of our 2019 Guidance Range accounts for greater than expected contributions from acquisition synergies, refining margins and organic growth
In addition, the factors and assumptions which contribute to Parkland’s assessment of the 2019 Guidance Range are consistent with existing Parkland disclosure and such guidance range is subject to risks and uncertainties inherent in Parkland’s business. Readers are directed to the “Risk Factors” section in the Annual MD&A and the Annual Information Form for a description of such factors, assumptions, risks and uncertainties.
Conference Call and Webcast Details: Q4 2018 & Year-end Results
Parkland will host a webcast and conference call on Friday, March 1, 2019 at 6:30am MST (8:30am EST) to discuss the results.
To listen to the live webcast and watch the presentation, please use the following link:
Analysts and institutional investors interested in participating in the question and answer session of the conference call may do so by calling 1-888-390-0605 (toll-free) (Conference ID: 46696156).
Please connect and log in approximately 10 minutes before the beginning of the call.
The webcast will be available for replay two hours after the conference call ends. It will remain available at the link above for one year and will also be posted to www.parkland.ca.
MD&A and Consolidated Financial Statements
The Q4 2018 Management’s Discussion and Analysis (”MD&A”) and the 2018 Consolidated Financial Statements provide a detailed explanation of Parkland’s operating results for the year ended December 31, 2018. An English version of these documents will be available online at www.parkland.ca and SEDAR immediately after the results are released by newswire under Parkland’s profile at www.sedar.com. French Financial Statements and MD&A will be posted to www.parkland.ca and SEDAR as soon as they become available.
Certain statements contained in this news release constitute forward-looking information and statements (collectively, “forward-looking statements”). When used in this news release the words “expect”, “will”, “could”, “would”, “believe”, “continue”, “pursue” and similar expressions are intended to identify forward-looking statements. In particular, this news release contains forward-looking statements with respect to, among other things, cash flow growth, run-rate synergies, private label program expansion, fuel volume growth, new business objectives, organic growth initiatives; Adjusted EBITDA Guidance; capital expenditure forecasts, contribution of the SOL business and 2018 U.S. acquisitions, forecast crack spreads and refining margins; supply improvement and optimization and plans and objectives of or involving Parkland.
These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. No assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this news release should not be unduly relied upon. These forward-looking statements speak only as of the date of this news release. Parkland does not undertake any obligations to publicly update or revise any forward-looking statements except as required by securities law. Actual results could differ materially from those anticipated in these forward-looking statements as a result of numerous risks and uncertainties including, but 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 and other regulators including but not limited to increases in taxes or restricted access to markets; changes and developments in environmental and other regulations; and other factors, many of which are beyond the control of Parkland. See also the risks and uncertainties described in “Forward-Looking Information” and “Risk Factors” included in Parkland’s Annual Information Form dated March 9, 2018 and in “Forward-Looking Information” and “Risk Factors” in the Q4 2018 MD&A, each as filed on SEDAR and available on the Parkland website at www.parkland.ca.
Non-GAAP Financial Measures
This news release refers to certain non-GAAP financial measures that are not determined in accordance with International Financial Reporting Standards (”IFRS”). Distributable cash flow, distributable cash flow per share, adjusted distributable cash flow, adjusted distributable cash flow per share, dividend payout ratio and adjusted dividend payout ratio are not measures recognized under IFRS and do not have standardized meanings prescribed by IFRS. Management considers these to be important supplemental measures of Parkland’s performance and believes these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in its industries. See Section 13 of the Q4 2018 MD&A for a discussion of non-GAAP measures and their reconciliations to the nearest applicable IFRS measure.
Adjusted EBITDA and adjusted gross profit are measures of segment profit. See Section 13 of the Q4 2018 MD&A and Note 24 of the 2018 Consolidated Financial Statements for a reconciliation of these measures of segment profit. Annual Synergies is an annualized measure and is considered to be forward-looking information. See Section 10 of the Q4 2018 MD&A. Investors are encouraged to evaluate each measure and the reasons Parkland considers it appropriate for supplemental analysis.
Investors are cautioned, however, that these measures should not be construed as an alternative to net earnings determined in accordance with IFRS as an indication of Parkland’s performance. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.
ABOUT PARKLAND FUEL CORPORATION
Parkland is Canada and the Caribbean’s largest, and one of America’s fastest growing, independent suppliers and marketers of fuel and petroleum products and a leading convenience store operator. Parkland services customers in 25 countries through three channels: Retail, Commercial and Wholesale. Parkland optimizes its fuel supply across these three channels by operating and leveraging a growing portfolio of supply relationships and storage infrastructure. Parkland provides trusted and locally relevant fuel brands and convenience store offerings in the communities it serves.
Parkland creates value for shareholders by focusing on its proven strategy of growing organically, realizing a supply advantage and acquiring prudently and integrating successfully. At the core of our strategy are our people, as well as our values of safety, integrity, community and respect, which are embraced across our organization.