CANADA: Acquisitions drive Couche-Tard H1
By Michelle Russell | 28 November 2012
- Net profit up 9.9%
- Operating profit climbs 40.9%
- Net sales grow 48.8%
"During the quarter, our recent acquisitions contributed nicely to our results," said Alain Bouchard, president and CEO
Canadian c-store chain Couche-Tard has booked an increase in first-half profits boosted by acquisitions.
In the 24 weeks ended 14 October, earnings amounted to C$278.1m (US$279.7m), a 9.9% increase on the prior year period. The group said the growth was mainly attributable to the contribution from acquisitions, to the growing contribution of merchandise and service sales, to Couche-Tard's "sound management" of its expenses as well as to a lower income tax rate.
Operating profit climbed 40.9% in the period to C$466.4m, while sales grew 48.8% to C$15.34bn.
"During the quarter, our recent acquisitions contributed nicely to our results," said Alain Bouchard, president and CEO. "On the organic side, the uncertain economic conditions, the competitive tobacco category landscape in the US as well as the relatively high fuel prices continue to be a challenge."
Couche-Tard purchased Norway's Statoil Fuel and Retail earlier this year in a NOK53 (US$8.87) per share all-cash offer. In August, the retailer also acquired 29 company-operated stores from Florida Holding.
Alimentation Couche-Tard announces its results for the second quarter of fiscal 2013
Diluted net earnings per share are US$0.94 compared to US$0.61 last year, a 54.1% increase.
Same-store merchandise revenues up 0.4% in both the United States and Canada. In the United States, excluding tobacco products, the increase is 2.7%.
Consolidated merchandise and service gross margin up US$134.1 million or 26.0%, posting at 34.2%. Margin increased by 0.5% in the U.S., posting at 33.2% and it decreased by 0.2% in Canada, posting at 33.7%. In Europe, the gross margin stood at 38.6%.
Same-store road transportation fuel volume down 0.5% in the U.S. and up 0.2% in Canada while total volume is up 16.2% and 6.1%, respectively.
Road transportation fuel gross margin in the United States stood at US15.20¢ per gallon compared to US17.04¢ per gallon for the corresponding period of the previous fiscal year. Gross margin in Europe was US10.67¢ per litre.
Once adjusted for the usual items, expenses are down 1.0%.
On November 1, 2012, issuance of CA$1.0 billion of Canadian dollar denominated senior unsecured notes for net proceeds of approximately CA$995.0 million.
LAVAL, QC, Nov. 27, 2012 /CNW Telbec/ - For its second quarter, Alimentation Couche-Tard Inc. (TSX: ATD.A ATD.B) announces adjusted net earnings of $167.6 million, up $53.3 million or 46.6%, which equals $0.90 per share on a diluted basis, an increase of $0.28 per share or 45.2% over the second quarter of fiscal 2012 adjusted net earnings per share. Actual net earnings of $175.2 million ($0.94 per share on a diluted basis) have been adjusted to exclude certain pre-tax non-recurring items, mainly in relation with the acquisition of Statoil Fuel & Retail, namely a $10.6 million gain on foreign exchange forward contracts, a $0.7 million foreign exchange gain on NOK cash held by the Corporation's U.S. subsidiaries and acquisition costs of $0.9 million. The increase in adjusted net earnings is mainly attributable to the contribution from acquisitions, to the growing contribution of merchandise and service sales, to Couche-Tard's sound management of its expenses as well as to a lower income tax rate. These items, which contributed to the growth in net earnings, were partially offset by the increase in financial expenses attributable to the additional debt that Couche-Tard incurred to finance the acquisition of Statoil Fuel & Retail as well as to the lower road transportation fuel gross margins in the U.S. All financial information is in US dollars unless stated otherwise.
"During the quarter, our recent acquisitions contributed nicely to our results" declared Alain Bouchard, President and Chief Executive Officer. "On the organic side, the uncertain economic conditions, the competitive tobacco category landscape in the U.S. as well as the relatively high fuel prices continue to be a challenge. As we did for the previous quarters, we were nonetheless able to grow merchandise and service sales while improving our margins through our various initiatives, including our increased fresh food offering. As for Europe, progress is going as planned. Our various initiatives across the ocean have already allowed us to identify promising opportunities, both in terms of synergies and growth. But we want to take our time to make sure we do things right and that each opportunity is implemented in the most appropriate way" Mr. Bouchard concluded.
As for Raymond Paré, Vice-President and Chief Financial Officer, he indicated: "Subsequent to the end of the quarter, we were able to increase our financial flexibility by spreading the maturities on a portion of our debt over a period of ten years through the issuance of CA$1.0 billion of Canadian dollar denominated senior unsecured notes. The notes bear interest at a weighted average rate of 3.33%, which we view as favorable compared to the market conditions for similar debt instruments that were prevailing at the date of the issuance. Then, to better manage our currency risk, we entered into cross-currency swap agreements to synthetically convert our Canadian dollar denominated senior unsecured notes into US dollars. Through the same agreements, we also swapped the interest payment on our senior unsecured notes. Thus, taking into account the swap agreements, the effective interest rate on our senior unsecured notes will be approximately 2.72%. With respect to our balance sheet, it remains strong despite the additional debt attributable to the acquisition of Statoil Fuel & Retail. As at October 14, 2012, on a pro forma basis for the acquisition of Statoil Fuel & Retail, our adjusted net interest-bearing debt to EBITDAR ratio of 3.31 as well as our net interest-bearing debt to total capitalization ratio of 0.53 remain comfortable and are improving, even before the positive impact from forthcoming synergies".
Mr. Paré continued: "As explained last quarter, our strategy for the remainder of fiscal year 2013 and the upcoming fiscal years is to favor a reduction of our indebtedness level to allow us the flexibility to seize opportunities that lie ahead. Likewise, we remain determined to maintain the quality of our credit profile by keeping focused on organic growth as well as growth through acquisitions. Standard & Poor's and Moody's seem to acknowledge the quality of our plan as they both have attributed an Investment Grade credit profile to our senior unsecured notes".
Highlights of the Second Quarter of fiscal 2013
Statoil Fuel & Retail ASA ("Statoil Fuel & Retail")
Acquisition of Statoil Fuel & Retail
On June 19, 2012, the Corporation acquired 81.2% of the 300,000,000 issued and outstanding shares of Statoil Fuel & Retail for a cash consideration of 51.20 Norwegian Kroners ("NOK") per share for a total amount of NOK 12.47 billion or approximately $2.10 billion through a voluntary public offer (the "offer"). From June 22, 2012 to June 29, 2012, the Corporation acquired 53,238,857 additional shares of Statoil Fuel & Retail for a cash consideration of NOK 51.20 per share, totaling NOK 2.73 billion or approximately $0.45 billion, increasing its participation to 98.9%. Having reached a shareholding of more than 90%, on June 29, 2012, in accordance with Norwegian laws, Couche-Tard initiated the compulsory acquisition of all of the remaining Statoil Fuel & Retail shares not deposited under the offer from the holders thereof and, as a result, since such date, the Corporation owns 100% of the issued and outstanding shares of Statoil Fuel & Retail. The NOK 51.20 per share cash consideration for the compulsory acquisition of all of the remaining shares of Statoil Fuel & Retail not deposited under the offer was paid on July 11, 2012. The Oslo Børs Stock Exchange confirmed the delisting of the Statoil Fuel & Retail shares effective as of the close of markets in Norway on July 12, 2012. The acquisition of the 300,000,000 issued and outstanding shares of Statoil Fuel & Retail was therefore made for a total cash consideration of NOK 15.36 billion, or $2.58 billion. During the 12 and 24-week periods ended October 14, 2012, the Corporation recorded transaction costs of $0.3 million and $1.5 million, respectively, to earnings in connection with this acquisition.
Statoil Fuel & Retail is a leading Scandinavian road transport fuel retailer with over 100 years of operations in the region. Statoil Fuel & Retail operates a broad retail network across Scandinavia (Norway, Sweden, Denmark), Poland, the Baltics (Estonia, Latvia, Lithuania), and Russia with approximately 2,300 sites, the majority of which offer road transportation fuel and convenience products while the others are unmanned automated service-stations (road transportation fuel only). Statoil Fuel & Retail has a leading position in several countries where it does business and owns the land for over 900 sites and buildings for over 1,700 sites.
Statoil Fuel & Retail offers other products including stationary energy, marine fuel, aviation fuel, lubricants and chemicals. In Europe, Statoil Fuel & Retail operates 12 key fuel terminals as well as 38 fuel depots in eight countries as well as approximately 400 road tankers.
During its fiscal year ended December 31, 2011, Statoil Fuel & Retail recorded sales of NOK 73,691 million and gross profits of NOK 10,035 million, of which NOK 5,103 million were from the sale of road transportation fuel and NOK 2,815 million were from the sale of convenience products. EBITDA stood at NOK 3,017 million, of which over 90% were generated by operations in Scandinavia, an economically very strong region. Net earnings of Statoil Fuel & Retail amounted to NOK 1,060 million while its assets totaled NOK 22,825 million as at December 31, 2011. During this same period, Statoil Fuel & Retail sold 8,416 million litres of road transportation fuel with a related gross margin of NOK 0.606 per litre.
Including employees at Statoil branded franchise stations, about 18,500 people work in Statoil Fuel & Retail's retail network across Europe, in its corporate headquarters, in its eight regional offices, in its terminals and in its depots.
More information about Statoil Fuel & Retail is available on its website at www.statoilfuelretail.com.
This transaction has been financed using the Corporation's acquisition facility. For more information on the Corporation's acquisition facility, refer to Couche-Tard's 2012 Annual Report.
Results for the 12 and 24-week periods ended October 14, 2012 include those of Statoil Fuel & Retail for the period beginning July 1st, 2012 and ending September 30, 2012 and for the period beginning June 20, 2012 and ending September 30, 2012, respectively. The consolidated balance sheet as of October 14, 2012 includes the balance sheet of Statoil Fuel & Retail as of September 30, 2012, as adjusted for the preliminary purchase price allocation.
The following table provides an overview of Statoil Fuel & Retail's accounting periods that will be incorporated into Couche-Tard's upcoming consolidated financial statements:
Couche-Tard quarters Statoil Fuel & Retail equivalent accounting periods
16-week period that will end February 3, 2013 (3rd quarter of fiscal 2013) October, November, December 2012 and January 2013
12-week period that will end April 28, 2013 (4th quarter of fiscal 2013) February, March and April 2013
The alignment of Statoil Fuel & Retail's accounting periods with those of Couche-Tard will be made once the replacement of Statoil Fuel & Retail's financial systems is finalized.
Foreign exchange forward contracts
As described above, the acquisition of Statoil Fuel & Retail was denominated in NOK whereas Couche-Tard's acquisition facility is denominated in US dollars. The Corporation had therefore determined that there was a risk related to fluctuations in the exchange rate between the US dollar and the NOK as the hypothetical weakening of the US dollar against the NOK would have increased the US dollars cash requirements in order to close the acquisition of Statoil Fuel & Retail. To mitigate this risk and because of the lack of liquidity in the currency market for the NOK, Couche-Tard entered into foreign exchange forward contracts (hereinafter, "forwards") with reputable financial institutions allowing it to predetermine a significant portion of the disbursement it planned to make in US dollars for the acquisition of Statoil Fuel & Retail.
In total, from April 10, 2012 to June 12, 2012, the Corporation had entered into forwards requiring it to deliver US$3.47 billion in exchange for NOK 20.14 billion, representing a weighted average rate of NOK 5.8114 per US dollar which was a favorable rate compared to the rate of 5.75 in effect as at April 18, 2012, the date the offer was announced and comparable to the average exchange rate for the last three years as demonstrated by the following graph
Subsequently, Couche-Tard modified the original maturity dates of certain forwards to make them coincide with the actual disbursement dates for the payment of Statoil Fuel & Retail shares and the repayment of certain of Statoil Fuel & Retail debts. Thus, from June 15, 2012 to August 24, 2012, the Corporation settled all of the forwards to pay for Statoil Fuel & Retail shares and certain of its debts (see details below).
Based on accounting standards, since Couche-Tard could not apply hedge accounting, the Corporation recorded its investment in Statoil Fuel & Retail in its consolidated balance sheet based on the exchange rates prevailing on the settlement dates of the acquisition transaction while the changes in fair value of forwards were recorded to earnings. Cash flow wise, the sum of these two amounts is equivalent, in all material respect, to the U.S. dollars amount the Corporation would have paid, had the transaction taken place on April 18, 2012, the date the offer was announced, or more specifically, at the average rate of NOK 5.8114 that the Corporation secured with this strategy. The impact on cash is therefore the one Couche-Tard had predetermined by securing the exchange rate at a favorable level compared to its modeling of the acquisition and compared to the rate at the time the offer was announced.
During the 12 and 24-week periods ended October 14, 2012, the Corporation recorded to earnings gains of $ 10.6 million and losses of $102.9 million, respectively, in relation with these forwards.
Taking into consideration the $17.0 million gain recorded in the fourth quarter of fiscal 2012 and the $102.9 million loss recorded in the first half-year of fiscal 2013, in total, Couche-Tard realized a net loss of $85.9 million on forwards.
Foreign exchange gain
During the 12 and 24-week periods ended October 14, 2012, in connection with the financing of the acquisition transaction of Statoil Fuel & Retail, Couche-Tard recorded non-recurring foreign exchange gains of $0.7 million and $7.4 million, respectively, due to NOK cash held by its U.S. operations in anticipation of the settlement of the acquisition transaction and repayment of debts of Statoil Fuel & Retail.
Statoil Fuel & Retail Debt
Change of control impact on Statoil Fuel & Retail's bonds
According to Statoil Fuel & Retail's bond agreements dated February 21, 2012, the bondholders had an option to require pre-payment at par plus accrued interest upon occurrence of a change of control event, for a period of two months. This condition was met on June 19, 2012, when Couche-Tard gained control of more than 50% of Statoil Fuel & Retail. In case bondholders exercised the option to require pre-payment, the settlement of the pre-payment had to occur within 30 business days following the date when the option was exercised. The exercise period for the options to require pre-payment expired on August 20, 2012. Couche-Tard has subsequently extended the option to require pre-payment until September 25, 2012.
As of September 25, 2012, options for pre-payment for bonds with a face value of NOK 1,355.5 million (approximately $237.0 million) had been exercised under the bond agreements while an additional tranche of NOK 100.0 million (approximately $17.0 million) was repaid on October 4, 2012, leaving NOK 44.5 million (approximately $8.0 million) not exercised. Out of the total NOK 1,455.5 million (approximately $254.0 million) pre-payment options exercised, NOK 1,326.6 million (approximately $231.0 million) had been settled as of September 30, 2012. The settlement of the pre-payment options has been made using Couche-Tard's acquisition facility, revolving unsecured operating credit and available cash.
Change of control impact on Statoil Fuel & Retail's bank facilities
According to Statoil Fuel & Retail's bank facility agreement dated August 26, 2010, majority lenders had the right to cancel their total commitments and declare all outstanding loans, together with accrued interest, immediately due and payable upon occurrence of a change of control event. The cancellation had to be given by not less than 30 days' notice to Statoil Fuel & Retail. Majority lenders requested to have the total commitments cancelled as of August 7, 2012. Following this notification, Couche-Tard had to repay the NOK 300.0 million (approximately $50.0 million) then outstanding under the revolving credit facility at its maturity, on July 30, 2012 and had to repay the NOK 2,650.0 million (approximately $448.0 million) then outstanding under the term loan at the cancellation date on August 7, 2012. No additional drawdowns can be made under Statoil Fuel & Retail's bank facility. Repayments have been made using the acquisition facility and available cash.
Disposal of the liquefied petroleum gas sales ("LPG") operations
On September 3, 2012, Couche-Tard entered into an agreement to sell Statoil Fuel & Retail's LPG operations for NOK 130.0 million (approximately $22.0 million) before working capital adjustments. The Corporation's purchase price allocation for the acquisition of Statoil Fuel & Retail having not yet been finalized, Couche-Tard has not yet determined the gain or loss that was generated from this disposal. Couche-Tard expects the transaction to close in late calendar year 2012 or in early calendar year 2013. The transaction is subject to standard regulatory approvals and closing conditions.
In August 2012, Couche-Tard acquired, from Florida Holding LLC, 29 company-operated stores operating in Florida, United States. The Corporation owns the land and building for 24 sites while it leases the land and owns the buildings for the other sites. In addition, one road transportation fuel supply agreement for a store owned and operated by an independent operator was transferred to the Corporation.
In November 2012, subsequent to the end of the second quarter of fiscal 2013, Couche-Tard acquired, from Sun Pacific Energy, 27 company-operated stores operating in Washington State, United States. The Corporation owns the land and building for 26 sites while it leases these assets for the other site.
In addition, during the second quarter of fiscal 2013, Couche-Tard acquired 13 additional company-operated stores through distinct transactions.
Internal available cash was used for these acquisitions.
Couche-Tard completed the construction of 14 new stores during the 12-week period ended October 14, 2012 for a cumulated total of 23 stores since the beginning of fiscal 2013.
Evolution of the store network
The following table presents certain information regarding changes in Couche-Tard's network over the 12-week period ended October 14, 2012(1):
Original source: Couche-Tard
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