ALIMENTATION COUCHE-TARD INC. Net earnings of $286.4 million ($0.50 per share on a diluted basis) for the second quarter of fiscal 2015. Excluding non- recurring items for both comparable periods, net earnings for the quarter would have been $313.0 million ($0.55 per share on a diluted basis) compared to $249.0 million ($0.44 per share on a diluted basis) for the second quarter of fiscal 2014, an increase of 25.7%.
Same-store merchandise revenues up 2.8% in the U.S., 2.1% in Europe and 3.0% in Canada.
Merchandise and service gross margin stood at 32.7% in the U.S., at 41.2% in Europe and at 33.5% in Canada, for a consolidated margin of 34.0%, an increase of 0.2%.
Same-store road transportation fuel volume up 2.1% in the U.S., 2.2% in Europe and in slight decrease of 1.1% in Canada.
Road transportation fuel gross margin at US24.17¢ per gallon in the U.S., at US11.48¢ per litre in Europe and at CA6.69¢ per litre in Canada.
Return on capital employed continues to improve, reaching 14.9% while return on equity still solid at 22.6%.
Standard and Poor's increased the Corporation's credit rating to BBB.
'We are very pleased with the results of the second quarter which are consistent with our previous quarters' excellent performance. We continue to innovate in our stores improving our offer. A current example is the rollout of our Simply Great Coffee program in Europe, which is generating strong results. This is the type of innovation, along with the hard work of our teams, that allow us, quarter after quarter, to present great organic growth in our merchandises and services sales' declared Brian Hannasch, who was appointed to the position of President and Chief Executive Officer in September. 'Our performance
this quarter is also the result of strong fuel margins combined with solid volume growth driven by our 'milesTM' brand in Europe, our consistent retail execution, our initiatives to improve our operational efficiency, our consistency in reducing our debt and our improvements to our network. Our ability to influence our results at all these levels allows us to look forward to the future with enthusiasm' concluded Mr. Hannasch.
Raymond Paré, Vice President and Chief Financial Officer, indicated: 'We continue to use the strong cash flows resulting from our excellent results to repay another portion of our debt. Due to the rapid decrease of our indebtedness and to our solid performance, our leverage ratios continue to decline significantly while our return on capital employed continues to improve, reaching 14.9%. Following the acquisition of Statoil Fuel & Retail, the synergies, which we expect to generate by December 2015, should, all things being equal, continue to positively impact this key indicator. Our excellent financial health gives us the means to continue to expand our network as well as to be on the lookout for interesting acquisitions'.
Net earnings amounted to $286.4 million for the second quarter of fiscal 2015, up 24.6% over the corresponding period of fiscal 2014. Results for the second quarter of fiscal 2015 include a non-recurring tax expense of $25.7 million as well as a net
foreign exchange loss of $0.9 million while results for the second quarter of fiscal 2014 included a net foreign exchange loss of
$25.0 million before income taxes.
Excluding these items as well as acquisition costs from both comparable quarters, net earnings for the second quarter of fiscal 2015 would have been approximately $313.0 million ($0.55 per share on a diluted basis) compared to $249.0 million ($0.44 per share on a diluted basis) for the second quarter of fiscal 2014, an increase of $64.0 million, or 25.7%. A large portion of this significant increase is attributable to continuous strong organic growth from merchandises and services and from transportation fuel supported by the contribution from acquisitions as well as by the decrease in financial expenses following the repayment by the Corporation of a significant portion of its debt. These items, which contributed to the growth in net earnings, were partially offset by the negative net impact from the translation of revenues and expenses from our Canadian and European operations into the US dollar.
We continued to improve our return on capital employed which was 14.9% for the 52-week period ended October 12, 2014 as well as our adjusted net interest bearing debt to adjusted EBITDAR ratio which stood at 2.01 as at October 12, 2014 compared to 3.6 shortly after the acquisition of Statoil Fuel & Retail.
Quarterly results
Our results for the 12 and 24-week periods ended October 12, 2014 include those of Statoil Fuel & Retail for the periods beginning July 21, 2014 and May 1st, 2014, respectively and ending October 12, 2014, resulting in periods of 84 and 165 days, respectively. Our results for the 12 and 24-week periods ended October 13, 2013 include those of Statoil Fuel & Retail for the periods beginning July 22, 2013 and May 1st, 2013, respectively and ending October 13, 2013, resulting in periods of 84 and 166 days, respectively.
Our consolidated balance sheet and store count as at October 12, 2014 include Statoil Fuel & Retail's balance sheet and store count as at September 30, 2014, as adjusted for significant transactions, if any, between those two dates.
The following table provides an overview of Statoil Fuel & Retail's accounting periods that will be incorporated in our upcoming consolidated financial statements:
Couche-Tard Quarters | Statoil Fuel & Retail Equivalent Accounting Periods | Statoil Fuel & Retail Balance Sheet Date (1) |
16-week period ending February 1st, 2015 (3rd quarter of fiscal 2015) | From October 13th, 2014 to January 31st, 2015 | January 31st, 2015 |
12-week period ending April 26th, 2015 (4th quarter of fiscal 2015) | From February 1st, 2015 to April 30th, 2015 | April 30th, 2015 |
12-week period ending July 19th, 2015 (1st quarter of fiscal 2016) | From May 1st, 2015 to July 19th, 2015 | June 30th, 2015 |
12-week period ending October 11th, 2015 | From July 20th, 2015 to October 11th, 2015 | September 30th, 2015 |
(2nd quarter of fiscal 2016) |
The consolidated balance sheet will be adjusted for significant transactions, if any, occurring between Statoil Fuel & Retail balance sheet date and Couche-Tard balance sheet date.
We expect the work toward the alignment of Statoil Fuel & Retail's accounting periods with those of Couche-Tard should start once we have finalized the optimization of Statoil Fuel & Retail financial systems, which should be done during fiscal 2015.
Synergies and cost reduction initiatives
Since the acquisition of Statoil Fuel & Retail, we have been actively working on identifying and implementing available synergies and cost reduction opportunities. Our analysis show that opportunities are numerous and promising. Some can be implemented immediately while others may take more time to implement since they require rigorous analysis and planning. The optimization of our new ERP system in Europe will also be required before we can put in place some of the identified opportunities. The goal is to find the right balance in order not to jeopardize ongoing activities and projects already underway.
During the 12-week period ended October 12, 2014, we recorded synergies and cost savings estimated at approximately
$22.0 million, before income taxes. These synergies and cost reductions mainly impacted operating, selling, administrative and general expenses as well as cost of sales. Since the acquisition, we estimate that total realized annual synergies and cost savings amount to approximately $119.0 million, before income taxes. We believe these amounts do not necessarily represent the full annual impact of all of our initiatives.
These synergies and cost reductions came from a variety of sources including cost reductions following the delisting of Statoil Fuel & Retail, the renegotiation of certain agreements with our suppliers, the reduction of in-store costs and the restructuring of certain departments.
Our work for the identification and implementation of available synergies and cost reduction opportunities is far from over. Our teams continue to work actively on various projects that seem promising and which, along with the implementation and optimization of new information systems, should allow us to achieve our objectives. We therefore maintain our goal of annual synergies ranging from $150.0 million to $200.0 million before the end of December 2015.
As our goal previously stated is considered a forward looking statement, we are required, pursuant to securities laws, to clarify that our synergies and cost reductions estimate is based on a number of important factors and assumptions. Among other things, our synergies and cost savings objective is based on our comparative analysis of organizational structures and current level of spending across our network as well as on our ability to bridge the gap, where relevant. Our synergies and cost reduction objective is also based on our assessment of current contracts in Europe and North America and how we expect to be able to renegotiate these contracts to take advantage of our increased purchasing power. In addition, our synergies and cost reduction objective assumes that we will be able to establish and maintain an effective process for sharing best practices across our network. Finally, our objective is also based on our ability to optimize our newly implemented ERP system. An important change in these facts and assumptions could significantly impact our synergies and cost reductions estimate as well as the timing of the implementation of our different initiatives.
Network growthCompleted transactions
On October 8, 2014, we acquired 54 company-operated stores and one store operated by an independent operator in the U.S. states of Illinois and Indiana from Tri Star Marketing Inc. We own the land and buildings for 54 sites and lease the land and own the building for the remaining site. With this acquisition, we also acquired three biodiesel blending facilities.
In addition, during the second quarter of fiscal 2015, we acquired eight additional company-operated stores through distinct transactions.
Available cash was used for these acquisitions.
Store construction
We completed the construction of 6 new stores and razed and rebuilt one store during the second quarter of fiscal 2015. During the first semester of fiscal 2015, we completed the construction of 18 new stores and razed and rebuilt one store. We should be able to complete the construction or raze and rebuild a total of 80 to 100 stores during fiscal year 2015, which would represent a significant increase compared to the previous fiscal year.
Summary of changes in our stores network during the second quarter and first half-year of fiscal 2015
The following table presents certain information regarding changes in our stores network over the 12-week period ended October 12, 2014 (1):
12-week period ended October 12, 2014
Type of site
Company- operated (2)
CODO (3)
DODO (4)
Franchised and other affiliated (5)
Total
Number of sites, beginning of period
6,236
592
538
1,127
8,493
Acquisitions
62
-
1
-
63
Openings / constructions / additions
6
-
2
31
39
Closures / disposals / withdrawals
(19)
(4)
(5)
(25)
(53)
Store conversion
5
(8)
3
-
-
Number of sites, end of period
6,290
580
539
1,133
8,542
Number of automated service stations included in the period end figures (6)
904
-
26
-
930
The following table presents certain information regarding changes in our stores network over the 24-week period ended October 12, 2014 (1):
24-week period ended October 12, 2014
Type of site
Company- operated (2)
CODO (3)
DODO (4)
Franchised and other affiliated (5)
Total
Number of sites, beginning of period
6,236
609
529
1,125
8,499
Acquisitions
80
-
1
-
81
Openings / constructions / additions
18
-
9
55
82
Closures / disposals / withdrawals
(54)
(10)
(9)
(47)
(120)
Store conversion
10
(19)
9
-
-
Number of sites, end of period
6,290
580
539
1,133
8,542
These figures include 50% of the stores operated through RDK, a joint venture.
Sites for which the real estate is controlled by Couche-Tard (through ownership or lease agreements) and for which the stores (and/or the service-stations) are operated by Couche-Tard or one of its commission agent.
Sites for which the real estate is controlled by Couche-Tard (through ownership or lease agreements) and for which the stores (and/or the service-stations) are operated by an independent operator in exchange for rent and to which Couche-Tard supplies road transportation fuel through supply contracts. Some of these sites are subject to a franchising, licensing or other similar agreement under one of our main or secondary banners.
Sites controlled and operated by independent operators to which Couche-Tard supplies road transportation fuel through supply contracts. Some of these sites are subject to a franchising, licensing or other similar agreement under one of our main or secondary banners.
Stores operated by an independent operator through a franchising, licensing or other similar agreement under one of our main or secondary banners.
These sites sell road transportation fuel only.
In addition, under licensing agreements, about 4,600 stores are operated under the Circle K banner in 12 other countries worldwide (China, Guam, Honduras, Hong Kong, Indonesia, Japan, Macau, Malaysia, Mexico, the Philippines, Vietnam and the United Arab Emirates) which brings to more than 13,100 the number of sites in our network.
On September 3rd, 2014, we reached an agreement to sell our aviation fuel business to BP Global Investments Ltd. The sale would be done through a share purchase agreement pursuant to which BP Global Investments Ltd. would acquire 100% of all issued and outstanding shares of Statoil Fuel & Retail Aviation AS. This transaction which is subject to standard regulatory approvals and closing conditions is expected to be completed by the end of December 2014.
During its November 25, 2014 meeting, the Corporation's Board of Directors declared a quarterly dividend of CA4.5¢ per share for the second quarter of fiscal 2015 to shareholders on record as at December 4, 2014 and approved its payment for December 18, 2014. This is an eligible dividend within the meaning of the Income Tax Act of Canada.
As at November 21, 2014, Couche-Tard had 148,101,840 Class A multiple voting shares and 417,776,623 Class B subordinate voting shares issued and outstanding. In addition, as at the same date, Couche-Tard had 4,097,530 outstanding stock options for the purchase of Class B subordinate voting shares.
We use the US dollar as our reporting currency which provides more relevant information given the predominance of our operations in the United States and the significant portion of our debt denominated in US dollars, taking into account our cross currency interest rate swaps.
The following table sets forth information about exchange rates based upon closing rates expressed as US dollars per comparative currency unit:
|
distributed by
|
