Mr. Raymond Pare reports
ALIMENTATION COUCHE-TARD ANNOUNCES ITS RESULTS FOR ITS FOURTH QUARTER AND FISCAL YEAR 2014
Alimentation
Couche-Tard Inc. has released its results for its fourth quarter and fiscal year 2014 ended April 27, 2014.
Fiscal year 2014
-
For fiscal 2014, diluted net earnings per share adjusted for
non-recurring items of $1.35 compared with $1.11 for fiscal 2013,
up 21.6 per cent;
-
Three-for-one split of all of the corporation's issued and outstanding
Class A and B shares, effective April 14, 2014; consequently, all
per-share amounts in the present document are presented on a comparable
basis;
-
Results of fiscal year 2014 and 2013 include those of Statoil Fuel &
Retail for a period of 365 and 315 days, respectively.
Quarter
-
Net earnings of $145.1-million for the fourth quarter of fiscal 2014; excluding non-recurring items for both comparable periods, the diluted
net earnings per share would have been approximately 22 cents for the
fourth quarter of fiscal 2014 compared with 20 cents for the fourth
quarter of fiscal 2013, an increase of 10 per cent;
-
Same-store merchandise revenues up 4.4 per cent in the United States, 2.5 per cent in Europe and
1.6 per cent in Canada;
-
Merchandise and service gross margin stood at 33.1 per cent in the United States, at
42.9 per cent in Europe and at 32.5 per cent in Canada, a consolidated margin increase
of 0.1 at 34.4 per cent;
-
Same-store road transportation fuel volume up 2.8 per cent in the United States, 3.2 per cent in
Europe and 1.7 per cent in Canada, which are solid considering the market trends;
-
Road transportation fuel gross margin at 14.85 cents per gallon in the
United States, at 10.54 cents per litre in Europe and at 5.86 Canadian cents per litre in
Canada;
-
Quarterly dividend increase of 20 per cent to four Canadian cents considering the company's strong
balance sheet and of its dividends distribution practices.
For its fiscal 2014, Alimentation
Couche-Tard had net earnings of
$812.2-million, up 41.8 per cent over fiscal year 2013 and representing $1.43
per share on a diluted basis (all financial information is in U.S. dollars unless otherwise stated). Adjusted for non-recurring items, net
earnings for fiscal year 2014 would have been approximately $766-million, an increase of $145-million, or 23.3 per cent, while adjusted diluted
net earnings per share were approximately $1.35, an increase of 21.6 per cent.
For its fourth quarter of fiscal 2014, Couche-Tard had net
earnings of $145.1-million, down $1.3-million, or 0.9 per cent, representing
25 cents per share on a diluted basis. The results for the fourth quarter
of fiscal 2014 include a net foreign exchange loss of $8.7-million, as
well as a non-recurring income tax recovery of $28.2-million resulting
from a foreign exchange loss and from the decrease of the income tax
rates in Norway and Denmark. On the other hand, the results from the
fourth quarter of fiscal 2013 included restructuring costs of $34-million, a $19.4-million curtailment gain related to certain pension
plans, a net foreign exchange gain of $6.8-million, as well as an income
tax recovery of $34.7-million related to the decrease in the income tax
rate in Sweden. Excluding these items, as well as the negative goodwill
from both comparable quarter results and acquisition costs from results
of the fourth quarter of fiscal 2013, the diluted net earnings per
share would have been 22 cents for the fourth quarter of fiscal 2014,
compared with 20 cents for the fourth quarter of fiscal 2013, an increase
of 10 per cent. This increase is mainly attributable to organic growth in both
merchandise and services revenues and road transportation fuel volumes,
to the contribution from acquisitions, as well as to the decrease in
financial expenses following repayments, by the corporation, of a
significant portion of its debt. These items, which contributed to the
growth in net earnings, were partly offset by a lower margin on road
transportation fuel sales in the United States, by expenses incurred to
support the organic growth as well as by the weakening of the Canadian
dollar and the Norwegian krone against the U.S. dollar.
"We are pleased to close fiscal 2014 with net earnings showing a
significant growth for a sixth consecutive year. The results for the
quarter, adjusted for the non-recurring items, show another solid
performance despite the lower fuel margin in the United States. The
success of our strategies is clearly reflected in both North America
and Europe by our same-store performance," declared Alain Bouchard,
president and chief executive officer. "In July, 2013, I said that
fiscal 2014 would be a year of execution and achievement in Europe.
Today, I am proud to say that we delivered. Indeed, we are very
satisfied with the efforts deployed to boost sales and to realize
synergies. Many steps have been completed, but our job is far from over,
and we are working on several exciting projects that should help us
achieve the goals we have set for ourselves and deliver value for our
shareholders and other stakeholders. I would like to thank all of our
employees for another extraordinary year," concluded Mr. Bouchard.
Raymond Pare, vice-president and chief financial officer, indicated: "I
am very pleased with the results of our fiscal year and especially with
the improvement of our balance sheet. With our strong cash flows, we
were able to reduce our debt significantly and increase our dividend
for the third time this year. This was made possible by our ability to
continue to integrate successfully our European operations while
continuously looking to improve our North American performance. We are
excited by the prospects for continued organic growth from our current
network of sites. The growth of the food, the improvement of the topline with 'miles' and our new loyalty program in Europe, the realization of synergies
identified, as well as the acceleration of building new sites are some
of the pillars for the years to come. Also, we continue to believe that
great opportunities exist to expand our network organically and by
disciplined acquisitions."
Fiscal 2014 overview
On March 11, 2014, the corporation's board of directors approved a
three-for-one split of all of the corporation's issued and outstanding
Class A and B shares. This share split has been approved by
regulatory authorities and was effective on April 14, 2014.
Accordingly, all per-share amounts in this document are presented on a
comparable basis.
Net earnings amounted to $812.2-million for fiscal 2014, up 41.8 per cent over
fiscal 2013. Some items affected the results of fiscal 2014, mainly
negative goodwill of $48.4-million, a non-recurring income tax recovery
of $21.6-million over a foreign exchange loss only deductible and
recognized for tax purposes, a net foreign exchange loss of $10.1-million, a $6.8-million impairment charge over a non-operational
lubricant plant in Poland, an income tax recovery of $6.6-million over
the decrease in the income tax rate in Norway and Denmark, as well as a
curtailment gain on pension plans obligation. On the other hand, the
results of fiscal 2013 included a non-recurring loss of $102.9-million
on foreign exchange forward contracts, a non-recurring income tax
recovery of $34.7-million, restructuring expenses of $34-million, a
curtailment gain on pension plans obligation of $19.4-million, negative
goodwill of $4.4-million, as well as a net foreign exchange gain of $3.2-million.
Excluding these items, as well as acquisition costs from both periods,
fiscal 2014 net earnings would have been approximately $766-million
($1.35 per share on a diluted basis) compared with $621-million
($1.11 per share on a diluted basis) for fiscal 2013, an increase of
$145-million, or 23.3 per cent. This strong increase is mainly attributable
to the contribution from acquisitions, to the growth in both same-store
merchandise revenues and road transportation fuel volumes, to higher
road transportation fuel margins in Europe and in Canada, as well as to
the company's continuous focus on its costs. These items, which contributed to
the growth in net earnings, were partially offset by a lower road
transportation fuel margin in the United States, the negative net
impact from the translation of revenues and expenses from the company's Canadian
and European operations into the U.S. dollar following the
appreciation of the U.S. dollar, namely against the Canadian
dollar and the Norwegian krone, as well as by lower revenues following
the divesture of the company's liquid petroleum gas (LPG) business in December,
2012.
Statoil Fuel & Retail
Period results
Couche-Tard's results for the 12-week and 52-week periods ended April 27, 2014, include
those of Statoil Fuel & Retail for the period beginning Feb. 1, 2014, and ending April 30, 2014, and for the period beginning May 1, 2013, and ending April 30, 2014, respectively. Couche-Tard's results for the 12-week
and 52-week periods ended April 28, 2013, include those of Statoil Fuel
& Retail for the period beginning Feb. 1, 2013, and ending April 30, 2013, and for the period beginning
June 20, 2012, and ending April 30, 2013, respectively. Thus, Couche-Tard's results of the 52-week periods ended April 27, 2014, and April 28, 2013,
include those of Statoil Fuel & Retail for a period of 365 and 315
days, respectively.
Couche-Tard's consolidated balance sheet and store count as of April 27, 2014,
include Statoil Fuel & Retail's balance sheet and store count as of
April 30, 2014, as adjusted for significant transactions, if any, which
occurred between those two dates.
Couche-Tard expects that the work toward the alignment of Statoil Fuel & Retail's
accounting periods with those of Couche-Tard should start once the company has finalized replacing Statoil Fuel & Retail financial systems, which is
now scheduled to be completed at the beginning of fiscal 2015.
Synergies and cost-reduction initiatives
Since the acquisition of Statoil Fuel & Retail, Couche-Tard has been actively
working on identifying and implementing available synergies and cost-reduction opportunities. The company's analysis shows 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 Couche-Tard's new ERP (enterprise resource planning) system in Europe
will also be required before the company can put in place some of the identified
opportunities. The goal is to find the right balance in order not to
jeopardize continuing activities and projects already under way.
During the 12-week period ended April 27, 2014, Couche-Tard recorded synergies
and cost savings it estimated at approximately $21-million, before
income taxes. These synergies and cost reductions mainly impacted
operating, selling, administrative and general expenses, as well as the
cost of sales. Since the acquisition, Couche-Tard estimates that total realized
annual synergies and cost savings amount to approximately
$85-million, before income taxes. The company believes these amounts do not
necessarily represent the full annual impact of all of its 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 the company's suppliers, the
reduction of in-store costs and the restructuring of certain
departments.
Couche-Tard's work for the identification and implementation of available
synergies and cost-reduction opportunities is far from over. Couche-Tard's teams
continue to work actively on various projects that seem promising and
that, along with the implementation of new systems, should allow the company to
achieve its objectives. The company therefore maintains its goal of annual
synergies ranging from $150-million to $200-million before the end
of December, 2015.
As the company's goal previously stated is considered a forward-looking statement,
Couche-Tard is required pursuant to securities laws, to clarify that its synergies and cost-reduction estimate is based on a number of
important factors and assumptions. Among other things, Couche-Tard's synergies
and cost-savings objective is based on the company's comparative analysis of
organizational structures and current level of spending across its network, as well as on the company's ability to bridge the gap, where relevant.
Couche-Tard's synergies and cost-reduction objective is also based on the company's assessment of current contracts in Europe and North America and how the company expects to be able to renegotiate these contracts to take advantage of
its increased purchasing power. In addition, Couche-Tard's synergies and cost-reduction objective assumes that we will be able to establish and
maintain an effective process for sharing best practices across its network. Finally, the company's objective is also based on its ability to
implement effectively and timely a new ERP system. A significant change
in these facts and assumptions could significantly impact Couche-Tard's synergies
and cost-reduction estimate.
Issuance of Canadian-dollar-denominated senior unsecured notes
On Aug. 21, 2013, Couche-Tard issued Canadian-dollar-denominated senior
unsecured notes totalling $300-million (Canadian), maturing Aug. 21, 2020, and bearing interest at a rate of 4.214 per cent. Interest is payable
semi-annually on Aug. 21 and Feb. 21 of each year, and notional amount will be repaid at maturity.
In addition to allowing the company to spread the maturities of a portion of its long-term debt, this issuance allows Couche-Tard to secure the interest rate of
a portion of its long-term debt at favourable rates. The net proceeds
from the issuance, which were approximately $298.3-million (Canadian) ($285.6-million), were used to repay a portion of the company's acquisition facility.
Impairment
During fiscal 2014, Couche-Tard recorded an impairment charge of $6.8-million for
a non-operational lubricant production plant located in Ostroweic,
Poland, due to challenging market conditions for this type of asset.
Network growth
Completed transactions
In June, 2013, under the June, 2011, agreement with ExxonMobil, Couche-Tard acquired
60 stores operated by independent operators, along with the related road
transportation fuel supply agreements, and for which Couche-Tard owns the land and
building for all sites. Additionally, Couche-Tard was transferred 53 road
transportation fuel supply agreements in connection with this same
agreement. This transaction consisted of the last stage to close the
June, 2011, agreement with ExxonMobil. A negative goodwill of $41.6-million was recorded in relation with this transaction during fiscal
2014. Historically, those sites sold annually approximately 162
million gallons of road transportation fuel.
In September, 2013, Couche-Tard acquired nine stores operating in Illinois, United
States, from Baron-Huot Oil Company. Eight of these stores are
company operated, and one is operated by an independent operator. Couche-Tard owns
the land and building for eight sites while it leases these assets for
the other site.
In December, 2013, Couche-Tard completed the acquisition, from Publix Super
Markets Inc., of 11 company-operated stores, nine of which are located
in Florida and the other two in Georgia, United States. Couche-Tard owns the land
and buildings for eight sites and leases these assets for the other
three sites.
In December, 2013, Couche-Tard also completed the acquisition of 23
company-operated stores operating in New Mexico, United States, from
Albuquerque Convenience and Retail LLC. Couche-Tard owns the land and buildings
for all sites.
In June, 2014, subsequent to fiscal year 2014, Couche-Tard acquired 15 company
operated-stores operating in South Carolina, United States, from Garvin
Oil Company. Couche-Tard owns the land and buildings for all sites.
In addition, during fiscal 2014, Couche-Tard acquired 10 additional
company-operated stores through distinct transactions.
Available cash was used for these acquisitions.
Store construction
Couche-Tard completed the construction of 25 new stores and razed and rebuilt 14
stores during fiscal 2014. As of April 27, 2014, 14 stores were under
constructions and should open in the coming quarters.
Additional changes to Couche-Tard's network
During the first quarter of fiscal 2014, Couche-Tard, along with a third party,
formed a new corporation, Circle K Asia LLC, in which
both parties hold a 50-per-cent interest. During the 12-week period ended July
21, 2013, each party made a capital contribution of $13.2-million. The
total contribution was used to purchase a portion of Circle K's
international franchise agreements, as well as a master franchise in
Asia. Under the contract signed between the parties, Couche-Tard, under certain
circumstances, may repurchase all of the other party's shares in Circle
K Asia. Consequently, the new corporation was fully consolidated in Couche-Tard's consolidated financial statements and the third party's interest was
recorded under "non-controlling interest" in the consolidated
statements of earnings, changes in equity and consolidated balance
sheet. Furthermore, Couche-Tard must, under certain circumstances, repurchase
all of the third party's shares in Circle K Asia. Consequently, a
redemption liability was recorded in Couche-Tard's consolidated balance sheet.
Circle K Asia should contribute to the expansion of Couche-Tard's licensee
network in Asia. Couche-Tard does not expect this transaction to have a
significant impact on its financial performance.
In February, 2014, Couche-Tard's Mexican operator, Circulo K, under its licensing
agreement, has reached an agreement to acquire 878 stores in Mexico. Couche-Tard does not expect that this transaction will have a significant impact on
its consolidated financial statements. As of April 27, 2014, this
transaction has not been completed.
In May, 2014, subsequent to fiscal 2014, Couche-Tard has completed, through
Circle K Asia, a Circle K master licence agreement in India with RJ
Corp. for 25 years. The Circle K master licence addresses the four major
regions of India, including the major cities of Delhi, Mumbai, Goa,
Gujarat, Bangalore and Madras.
In addition, under licensing agreements, about 4,600 stores are operated
under the Circle K banner in 12 other countries around the world (China, Guam,
Honduras, Hong Kong, Indonesia, Japan, Macau, Malaysia, Mexico,
Philippines, Vietnam and United Arab Emirates), which brings to more
than 13,100 the number of sites in Couche-Tard's network.
Dividends
The board of directors decided to increase the quarterly
dividend by 0.67 Canadian cent per share to four Canadian cents per share, an increase of
20 per cent.
During its July 7, 2014, meeting, the board of directors declared a
quarterly dividend of four cents per share for the fourth quarter of
fiscal 2014 to shareholders on record as at July 16, 2014, and approved
its payment for July 30, 2014. This is an eligible dividend within the
meaning of the Income Tax Act of Canada.
During fiscal 2014, the board declared total dividends 13.6 Canadian cents per
share.
Outstanding shares and stock options
As at July 4, 2014, Couche-Tard had 148,101,840 Class A multiple voting
shares and 417,655,558 Class B subordinate voting shares issued and
outstanding. In addition, as at the same date, Couche-Tard had
3,505,905 outstanding stock options for the purchase of Class B
subordinate voting shares.
Exchange rate data
Couche-Tard uses the U.S. dollar as its reporting currency, which provides more relevant information given the predominance of its operations in the United States and the significant portion of its debt denominated in U.S. dollars.
On Jan. 1, 2014, Latvia changed its official currency from the lats
to euro. Results from the Latvian operations prior to the conversion
date were converted using lats exchange rates while results from the Latvian operations following
this date were converted using euro exchange rates. Balance sheet items
from Latvian operations as at April 27, 2014, were converted using the
euro exchange rate. This change in currency did not materially affect
Couche-Tard's consolidated financial statements.
Considering Couche-Tard uses the U.S. dollar as its reporting currency, in its consolidated financial statements and in the present document, unless
indicated otherwise, results from the company's Canadian, European and corporate
operations are translated into U.S. dollars using the average rate for
the period. Unless otherwise indicated, variances and explanations
related to variations in the foreign exchange rate and the volatility
of the Canadian dollar and European currencies that the company discusses in the
present document are therefore related to the translation in U.S. dollars
of Couche-Tard's Canadian, European and corporate operations results.
Summary analysis of consolidated results for the fourth quarter of fiscal 2014
Revenues
Couche-Tard's revenues were $9-billion in the fourth quarter of fiscal 2014, up
$176.3-million, an increase of 2 per cent, mainly attributable to the
contribution from acquisitions, as well as by the nice growth in
same-store merchandise revenues and road transportation fuel volume in
both North America and Europe. These items contributing to the growth
in revenues were partly offset by lower road transportation fuel
average retail prices in the United States, by the negative net impact
from the translation of revenues from the company's Canadian and European
operations into U.S. dollars, as well as by the divestiture and closure of
stores as part of the company's continuous work to improve the quality of its network.
More specifically, the growth of merchandise and service revenues for
the fourth quarter of fiscal 2014 was $26.3-million, or 1.5 per cent. Excluding
the negative impact from the translation of Couche-Tard's European and Canadian
operations into U.S. dollars, which was approximately $32-million,
consolidated merchandise and service sales increased by $58.3-million.
This increase is attributable to the contribution from acquisitions,
which amounted to approximately $10-million, as well as to strong
organic growth. Same-store merchandise revenues increased by 4.4 per cent in
the United States and by 1.6 per cent in Canada. Couche-Tard's performance in the United
States is noteworthy when compared with the performance of the
convenience store industry and is attributable to the company's dynamic
merchandising strategies, as well as to the investments the company made to
enhance service and the offering of products in its stores. Couche-Tard's performance in the United States is even more impressive considering the company was able to increase store traffic without investing as much in its margins as in previous quarters. In Europe, the exchange of best
practices, the implementation of new and sustainable merchandising
strategies, as well as the investments, made through extensive marketing
campaigns to promote in-store offering, allowing the company to turn around the
negative sales trend that existed when it acquired Statoil Fuel &
Retail. Consequently, for a sixth consecutive quarter, same-store
merchandise revenues in Europe posted a growth, which was of 2.5 per cent for
the fourth quarter, driven by strong fresh food services and coffee
sales.
Road transportation fuel revenues increased by $145.9-million, or 2.3 per cent, in
the fourth quarter of fiscal 2014. Excluding the negative net impact
from the translation of revenues from Couche-Tard's Canadian and European
operations into U.S. dollars, which amounted to approximately $59-million, road transportation fuel revenues increased by $204.9-million,
or 3.2 per cent. This increase was mainly attributable to the contribution from
acquisitions of approximately $156-million and to organic growth. In
the United States and in Canada, same-store road transportation fuel
volume increased by 2.8 per cent and 1.7 per cent, respectively. This was also the
sixth consecutive quarter during which same-store road transportation
fuel volume showed positive development in Europe, where same-store road
transportation fuel volume increased by 3.2 per cent, which represents a strong
improvement over the trend that the company's European network was posting before
Couche-Tard acquired Statoil Fuel & Retail. Couche-Tard's new fuel brand, miles, which the company launched in some of its European markets, is delivering
encouraging results and was again a nice contributor to this quarter
performance. Organic growth and the contribution from acquisitions were
partly offset by lower average road transportation fuel retail price in
the United States.
On a consolidated basis, the variations in average road transportation
fuel prices had a negative impact on revenues of approximately
$100-million. The impact of the lower average retail price of road
transportation fuel in the United States was partly offset by the
impact of the higher average price in Europe and in Canada.
Other revenues were quite stable with a slight increase of $4.1-million
in the fourth quarter of fiscal 2014.
Gross profit
In the fourth quarter of fiscal 2014, the consolidated merchandise and
service gross margin was $616-million, an increase of $10.1-million,
or 1.7 per cent, compared with the corresponding quarter of fiscal 2013.
Excluding the negative impact from the translation of Couche-Tard's European and
Canadian operations into U.S. dollars, which was approximately $11-million, consolidated merchandise and service gross margin increased by
$21.1-million, or 3.5 per cent. This increase is attributable, in part, to the
contribution from acquisitions, which amounted to approximately $3-million. In the United States, the gross margin was up 0.4 per cent from 32.7 per cent
to 33.1 per cent, while it decreased by 0.6 per cent in Canada to 32.5 per cent and by 0.8 per cent in
Europe to 42.9 per cent. Over all, this performance reflects changes in the
product mix, the modifications Couche-Tard brought to its supply terms, as well
as the company's merchandising strategy in line with market competitiveness and
economic conditions within each market. More specifically, in the
United States, the increase in gross margin as a percentage of sales
mainly reflects the impact of the shift of revenues toward higher-margin categories, including a strong growth in fresh food. In Canada,
in addition to the impact of Couche-Tard's pricing strategies aimed at increasing
store traffic, the decrease in margin as a percentage of sales was
caused by changes in the company's product mix. In Europe, the margin as a
percentage of sales was negatively impacted by lower car wash sales due
to challenging weather in Scandinavia, compared with the previous year, to
changes in the company's product mix, as well as to the impact of Couche-Tard's pricing
strategies to improve the value perception by its customers.
In the fourth quarter of fiscal 2014, the road transportation fuel gross
margin for Couche-Tard's company-operated stores in the United States decreased
by 4.45 cents per gallon, from 19.3 cents per gallon last year to 14.85 cents per
gallon this year. In Canada, the gross margin slightly decreased to
5.86 Canadian cents per litre compared with 6.01 Canadian cents per litre for the fourth
quarter of fiscal 2013. In Europe, the total road transportation fuel
gross margin was 10.54 cents per litre for the fourth quarter of
fiscal 2014, an increase of 0.71 cent per litre compared with 9.83 cents per
litre for the fourth quarter of fiscal 2013. The road transportation
fuel gross margin of Couche-Tard's company-operated stores in the United States,
as well as the impact of expenses related to electronic payment modes
for the last eight quarters, starting with the first quarter of fiscal
year ended April 28, 2013.
Operating, selling, administrative and general expenses
For the fourth quarter of fiscal 2014, operating, selling,
administrative and general expenses increased by 0.8 per cent, compared with the
fourth quarter of fiscal 2013, and increased by 1.5 per cent if the company excludes
certain items.
The variance for the fourth quarter of fiscal 2014 is mainly due higher
expenses to support Couche-Tard's organic growth and normal inflation. The company continues to favour a tight control of its costs throughout the
organization while making sure to maintain the quality of the service
the company offers its clients.
In Europe, expense level is still affected by the implementation of a
new IT (information technology) infrastructure and the rollout of an ERP system. Couche-Tard's IT costs
should continue to go down progressively over the course of the next
quarters.
Earnings before interests, taxes, depreciation, amortization and
impairment (EBITDA) and adjusted EBITDA
During the fourth quarter of fiscal 2014, EBITDA increased by 1.5 per cent,
compared with the corresponding period of the previous fiscal year,
reaching $300.2-million. Net of acquisition costs recorded to earnings,
acquisitions contributed approximately $7-million to EBITDA, while
the variation in exchange rates had a negative impact of approximately
$5-million.
Excluding the restructuring expenses, the curtailment gain on certain
defined-benefit pension plans obligation, as well as the negative
goodwill from both comparable periods, the fourth quarter of fiscal
2014 adjusted EBITDA decreased by $7.5-million, or 2.4 per cent, compared with the
corresponding period of the previous fiscal year, totalling
$300-million.
It should be noted that EBITDA and adjusted EBITDA are not performance
measures defined by IFRS (international financial reporting standards), but Couche-Tard, as well as investors and analysts,
uses these measures to evaluate the corporation's financial and
operating performance. Note that Couche-Tard's definition of these measures may
differ from the one used by other public corporations.
Depreciation, amortization and impairment of property and equipment and
other assets
For the fourth quarter of fiscal 2014, depreciation, amortization and
impairment expense increased due to investments made through
acquisitions, replacement of equipment, addition of new stores and
continuing improvement of Couche-Tard's network.
Net financial expenses
The fourth quarter of fiscal 2014 shows net financial expenses of
$26.9-million, an increase of $6.2-million, compared with the fourth
quarter of fiscal 2013. Excluding the net foreign exchange loss of
$8.7-million and the net foreign exchange gain of $6.8-million recorded
respectively in the fourth quarter of fiscal 2014 and in the fourth
quarter of fiscal 2013, the decrease in net financial expenses is
$9.3-million. The decrease is mainly attributable to the reduction of
Couche-Tard's long-term debt following repayments the company made on its revolving and
acquisition facilities, partly offset by the higher average effective
interest rate of the company's senior unsecured notes, compared with the average
effective rate of its acquisition facility. With respect to the net
foreign exchange loss of $8.7-million, it is mainly due to the impact
of the exchange-rate fluctuations on certain intercompany balances and
external long-term debt, as well as to the impact of exchange rates
fluctuations on U.S.-dollar-denominated sales made by Couche-Tard's European
operations.
Income taxes
The fourth quarter of fiscal 2014 shows an income tax recovery of $13.8-million, compared with an income tax recovery of $9.5-million for the
corresponding quarter of the previous year. The income tax recovery in
the fourth quarter of fiscal 2014 emanated mainly from a foreign loss
only deductible and recognized for tax purposes, as well as from the
effect on deferred income taxes of a decrease in the company's statutory income
tax rate in Norway and in Denmark. The income tax recovery in the
fourth quarter of fiscal 2013 emanated mainly from the effect on
deferred income taxes of a decrease in Couche-Tard's statutory income tax rate in
Sweden.
Excluding those items, the income tax rate for the fourth quarter of
fiscal 2014 would have been 11 per cent, compared with a rate of 18.4 per cent for the
fourth quarter of the previous fiscal year.
Net earnings
Couche-Tard closed the fourth quarter of fiscal 2014 with net earnings of
$145.1-million, compared with $146.4-million for the fourth quarter of
the previous fiscal year. Diluted net earnings per share stood at
25 cents, compared with 26 cents for the previous year. The translation of
revenues from Couche-Tard's Canadian and European operations into U.S. dollars
had a negative impact of approximately $3-million on net earnings of
the fourth quarter of fiscal 2014.
Excluding from the fourth quarter of fiscal 2014 earnings the
non-recurring income tax recovery on a foreign loss only deductible and
recognized for tax purposes and from the decrease in Couche-Tard's statutory tax
rate in Norway and in Denmark, the net foreign exchange loss, the
negative goodwill, as well as acquisition costs, and excluding from the
fourth quarter of fiscal 2013 earnings the restructuring costs, the
curtailment gain on defined-benefit pension plans obligation,
acquisition costs, the non-recurring income tax recovery from the
decrease in Couche-Tard's statutory income tax rate in Sweden, the negative
goodwill as well as the net foreign exchange gain, the fourth quarter
of fiscal 2014 net earnings would have been approximately
$123-million, compared with $116-million, an increase of
$7-million. Adjusted diluted net earnings per share were 22 cents for
the fourth quarter of fiscal 2014 compared with 20 cents for the
corresponding period of fiscal 2013, an increase of 10 per cent.
Summary analysis of consolidated results for fiscal 2014
Revenues
Couche-Tard's revenues were $38-billion in fiscal 2014, up $2.4-billion, an
increase of 6.8 per cent, mainly attributable to the contribution from
acquisitions, as well as by the growth in same-store merchandise
revenues and road transportation fuel volume in both North America and
Europe. These items contributing to the growth in revenues were partly
offset by the divestiture of Couche-Tard's European liquefied petroleum gas
(LPG) business in December, 2012, to lower average road transportation
fuel retail prices in the United States, as well as to the negative net
impact from the translation of revenues from Couche-Tard's Canadian and European
operations into U.S. dollars.
More specifically, the growth of merchandise and service revenues for
fiscal 2014 was $350.8-million, or 4.6 per cent. Excluding the negative impact
from the translation of Couche-Tard's European and Canadian operations into U.S.
dollars, which was approximately $91-million, consolidated
merchandise and service sales increased by $441.8-million. This
increase is attributable to the contribution from acquisitions, which
amounted to approximately $309-million, as well as to organic growth.
Same-store merchandise revenues increased by 3.8 per cent in the United States
and 1.9 per cent in Canada. Those increases in same-store merchandise sales are
attributable to Couche-Tard's merchandising strategies, to the economic
conditions in each of these two markets, as well as to the investments
the company made to enhance service and the offering of products in its stores.
For a large part of the fiscal year, Couche-Tard favoured pricing strategies
aimed at boosting in-store traffic, which helped the company gain momentum in
terms of transactions count while the fresh food category continued to
post a nice growth in several of Couche-Tard's markets. In Europe, the exchange
of best practices, the implementation of new and sustainable
merchandising strategies, as well as the investments made through
extensive marketing campaigns to promote in-store offering, allowed the company to turn around the negative sales trend that existed when it acquired
Statoil Fuel & Retail. As a consequence, same-store merchandise
revenues in Europe posted a growth of 1.6 per cent for fiscal 2014, driven by
strong fresh food and coffee sales.
Road transportation fuel revenues increased by $1.9-billion, or 7.7 per cent, in
fiscal 2014. Excluding the negative net impact from the translation of
revenues from Couche-Tard's Canadian and European operations into U.S. dollars,
which amounted to approximately $110-million, road transportation
fuel revenues increased by $2-billion, or 8.1 per cent. Acquisitions
contributed to an increase in revenues of approximately
$2,563-million, while same-store road transportation fuel volume
increased by 1.7 per cent in the United States, by 2.5 per cent in Europe and by 1.3 per cent
in Canada. In Europe, this same-store road transportation fuel volume
increase is a strong improvement over the trend Couche-Tard's European network
was posting before it acquired Statoil Fuel & Retail. Couche-Tard's new fuel
brand, miles, which the company launched in some of its European markets, is delivering
encouraging results and was a nice contributor to this fiscal year's
performance. Items that contributed to the increase were partly offset
by the lower average retail price of road transportation fuel in the
United States, as well as by the divestiture and closure of stores as part
of Couche-Tard's continuous work to improve the quality of its network. Over all,
the variations in road transportation fuel average prices had a
negative impact on revenues of approximately $372-million. The impact
of the lower average retail price of road transportation fuel in the
United States was partly offset by the impact of the higher average
price in Europe and in Canada.
Other revenues increased by $124.9-million in fiscal 2014, mostly attributable to the contribution from acquisitions, partially offset by the divesture of Couche-Tard's European LPG business in December, 2012.
Gross profit
In fiscal 2014, the consolidated merchandise and service gross margin
was $2,702.5-million, an increase of $104-million, or 4 per cent, compared
with fiscal 2013. Excluding the negative impact from the translation of
Couche-Tard's European and Canadian operations into U.S. dollars, which was
approximately $11-million, consolidated merchandise and service gross
margin increased by $115-million. This increase is attributable to
the contribution from acquisitions, which amounted to approximately
$118-million, partly offset by the impact of Couche-Tard's pricing strategies.
In the United States, the gross margin was down 0.4 per cent to 32.7 per cent, while it
decreased by 0.5 per cent in Canada to 33.1 per cent. Gross margin increased by 0.3 per cent
in Europe to 41.8 per cent. Over all, this performance reflects changes in the
product mix, the modifications Couche-Tard brought to its supply terms, as well
as the company's merchandising strategy in line with market competitiveness and
economic conditions within each market. In North America, the decrease
in the margin as a percentage of sales mainly reflects the impact of
Couche-Tard's pricing strategies aimed at increasing store traffic, which had a
favourable impact on revenues but brought the margin percentage down.
However, on a net basis, this strategy had an overall positive impact
since the merchandise and service gross profit shows a healthy
increase. In Europe, the increase in margin as a percentage of sales is
the result of changes in Couche-Tard's product mix, as well as to the impact of
the company's pricing strategies to improve the value perception by its customers.
The road transportation fuel gross margin for Couche-Tard's company-operated
stores in the United States decreased by 0.66 cent per gallon from 18.77
cents per gallon during fiscal 2013 to 18.11 cents per gallon in fiscal 2014.
In Canada, the gross margin was 5.98 Canadian cents per litre for fiscal 2014,
compared with 5.84 Canadian cents per litre for fiscal 2013. In Europe, the total
road transportation fuel gross margin was 10.94 cents per litre for
fiscal 2014, a strong increase of 1.07 cents per litre, compared with
9.88 cents per litre for fiscal 2013.
Although road transportation fuel margins can be volatile from a quarter to another, they tend to normalize on an annual basis.
Operating, selling, administrative and general expenses
For fiscal 2014, operating, selling, administrative and general expenses
increased by 5.7 per cent compared with fiscal 2013, but increased by only 0.2 per cent
if the company exclude certain items.
The remaining variance for fiscal 2014 comes from higher expenses to
support Couche-Tard's organic growth and normal inflation, partly offset by sound
management of the company's expenses across its operations, as well as from the
impact of synergies. Couche-Tard continues to favour a tight control of its costs
throughout the organization while making sure to maintain the quality
of the service the company offers its clients.
In Europe, expense level is still affected by the implementation of a
new IT infrastructure and the rollout of an ERP system. Couche-Tard's IT costs
should continue to go down progressively over the course of the next
quarters.
EBITDA and adjusted EBITDA
During fiscal 2014, EBITDA increased by 19.2 per cent compared with the previous
fiscal year, reaching $1,640.2-million. Net of acquisition costs
recorded to earnings, acquisitions contributed approximately
$153-million to EBITDA, while the variation in exchange rates had a
negative impact of approximately $11-million.
Excluding the restructuring expenses, the curtailment gain on certain
defined-benefit pension plans obligations, as well as the negative
goodwill from both comparable periods, fiscal 2014 adjusted EBITDA
increased by $205.1-million, or 14.8 per cent, compared with the corresponding
period of the previous fiscal year, reaching $1,590.9-million.
It should be noted that EBITDA and adjusted EBITDA are not performance
measures defined by IFRS, but we, as well as investors and analysts,
use these measures to evaluate the corporation's financial and
operating performance. Note that Couche-Tard's definition of these measures may
differ from the one used by other public corporations.
Depreciation, amortization and impairment of property and equipment and
other assets
For fiscal 2014, depreciation, amortization and impairment expense
increased due to an impairment charge of $6.8-million on a
non-operational lubricant production plant, as well as to investments
made through acquisitions, replacement of equipment, addition of new
stores and continuing improvement of Couche-Tard's network.
During fiscal 2014, the company completed the analysis of the remaining
useful lives of Statoil Fuel & Retail property and equipment in order
to modify the depreciation periods accordingly. Based on Couche-Tard's analysis,
the company concluded that the modification of depreciation periods would reduce
the depreciation expense, but the final results are not significantly
different from the preliminary estimates reflected in the depreciation
expense of the previous year.
Net financial expenses
For fiscal 2014, Couche-Tard recorded net financial expenses of $110.6-million,
compared with $207.8-million for the comparable period of fiscal 2013.
Excluding the net foreign exchange loss of $10.1-million and the net
foreign gain of $3.2-million recorded respectively in fiscal 2014 and
in fiscal 2013, as well as the $102.9-million non-recurring loss on
foreign exchange forward contracts recorded in fiscal 2013, fiscal 2014
posted net financial expenses of $100.5-million, down $7.6-million
compared with fiscal 2013. The decrease is mainly due to the reduction in
Couche-Tard's long-term debt following repayments the company made on its acquisition
facility, partly offset by the higher average effective interest rate of
the company's senior unsecured notes compared with the average effective rate of
its acquisition facility, as well as by the fact that fiscal 2013 did
not include a complete year of the financing costs related to the
acquisition of Statoil Fuel & Retail.
Income taxes
The income tax rate for fiscal 2014 was 14.2 per cent, compared with 11.4 per cent for the
previous fiscal year. The income tax rate for fiscal 2014 was impacted
by the effect on deferred taxes of a foreign loss only deductible and
recognized for tax purposes, as well as by a decrease in Couche-Tard's statutory
income tax rates in Norway and in Denmark. The income tax rate for
fiscal 2013 was impacted by the effect on deferred income taxes of a
decrease in Couche-Tard's statutory income tax rate in Sweden. Excluding those
non-recurring items, as well as the negative goodwill recorded in the
first quarter of fiscal 2014, the income tax rate for fiscal 2014 would
have been 15.5 per cent, compared with an income tax rate of 16.8 per cent for fiscal
2013.
Net earnings
Couche-Tard closed fiscal 2014 with net earnings of $812.2-million, compared with $572.8-million for the previous fiscal year, an increase of
$239.4-million or 41.8 per cent. Diluted net earnings per share stood at $1.43
compared with $1.02 the previous year, an increase of 40.2 per cent. The
translation of revenues from Couche-Tard's Canadian and European operations into
U.S. dollars had a negative impact of approximately $8-million on
net earnings of fiscal 2014.
Excluding from net earnings of fiscal 2014 the negative goodwill, the
net foreign exchange loss, the non-recurring income tax recovery on a
foreign exchange loss only deductible and recognized for tax purposes,
and from the decrease in income tax rate in Norway and Denmark, the
impairment charge on a non-operational lubricant plant in Poland, the
curtailment gain on pension plans obligation, as well as acquisition
costs and excluding from net earnings of fiscal 2013 the non-recurring
loss on forward, the non-recurring income tax recovery over the
decrease in income tax rate in Sweden, the restructuring expense, the
curtailment gain on pension plans obligation, the net foreign exchange
gain, the negative goodwill, as well as acquisition costs, net earnings
would have stood at approximately $766-million, up $145-million, or
23.3 per cent, while diluted earnings per share would have stood at
approximately $1.35, an increase of 21.6 per cent.
Financial position as at April 27, 2014
Couche-Tard's total consolidated assets amounted to $10.5-billion as at April 27,
2014, a decrease of $1.2-million over the balance as at April 28, 2013.
This decrease stems primarily from the negative impact of the net
appreciation of the U.S. dollar compared with the functional currencies of
the company's operations in Canada and Europe at the balance sheet date, partly
offset by the overall rise in assets resulting from the acquisitions Couche-Tard made during fiscal 2014, as well as from the increase in accounts
receivable.
During the 52-week period ended April 27, 2014, Couche-Tard recorded a return
on capital employed of 13.3 per cent.
Significant balance sheet variations are explained as follows.
Accounts receivable
Accounts receivable increased by $110.4-million from $1,616-million
as at April 28, 2013, to $1,726.4-million as at April 27, 2014. The
increase mainly stems from timing effects and increased road
transportation fuel sales to third parties.
Long-term debt and current portion of long-term debt
Long-term debt decreased by $998.7-million from $3,605.1-million as at
April 28, 2013, to $2,606.4-million as at April 27, 2014, partly as a
result of the impact of the weakening of the Canadian dollar against
the U.S. dollar, which was approximately $92-million.
Excluding the foreign exchange impact, Couche-Tard's long-term debt decreased by
approximately $906.7-million. In August, 2013, the company issued $300-million (Canadian) of Canadian-dollar-denominated senior unsecured notes for net
proceeds of $285.6-million. Subsequently, Couche-Tard repaid approximately
$1,200-million of its acquisition and revolving facilities from the
net proceeds of this issuance, as well as from available cash. As a
result, Couche-Tard's debt, net of cash and cash equivalents, amounted to
$2,095.3-million as at April 27, 2014, a reduction of $851.5-million
compared with the balance as at April 28, 2013.
Other financial liabilities
Other financial liabilities increased by $53.5-million, from
$20.4-million as at April 28, 2013, to $73.9-million as at April 27,
2014. The increase stems from the change in fair value of Couche-Tard's cross-currency interest rate swaps, which is determined based on market
rates obtained from the company's financial institutions for similar financial
instruments. Change in fair value of this financial instrument is
recorded in other comprehensive income and partly offsets the impact of
the conversion of Couche-Tard's Canadian-dollar-denominated long-term debt.
Shareholder equity
Shareholder equity amounted to $4-billion as at April 27, 2014, up
$745.7-million compared with April 28, 2013, mainly reflecting net
earnings of fiscal 2014, partly offset by dividends declared and other
comprehensive loss. For the 52-week period ended April 27, 2014, Couche-Tard recorded a return on equity of 22.6 per cent.
Liquidity and capital resources
Couche-Tard's principal sources of liquidity are its net cash provided by
operating activities and its credit facilities. The company's principal uses of
cash are to reimburse its debt, finance its acquisitions and capital
expenditures, pay dividends, as well as provide for working capital. Couche-Tard expects that cash generated from operations and borrowings available
under its revolving unsecured credit facilities will be adequate to
meet its liquidity needs in the foreseeable future.
Couche-Tard's revolving credit facilities are detailed as follows.
U.S.-dollar term revolving unsecured operating credit D, maturing in
December, 2017
This credit agreement consists of a revolving unsecured facility of a
maximum amount of $1,275-million, with an initial term of five years. On
Nov. 4, 2013, Couche-Tard extended the term of this agreement by one year.
As at April 27, 2014, $793.5-million of the company's revolving unsecured
operating credit D had been used. As at the same date, the effective
interest rate was 1.19 per cent, and standby letters of credit in the amount of
$2.3-million (Canadian) and $29.4-million were outstanding.
On May 16, 2014, subsequent to the end of the year, Couche-Tard amended its term
revolving unsecured operating credit D to increase the maximum amount
available from $1,275-million to $1,525-million, an increase of
$250-million, without incurring additional fees. All other terms
remain unchanged.
Term revolving unsecured operating credit E, maturing in December, 2016
This credit agreement consists of a revolving unsecured facility of an
initial maximum amount of $50-million with an initial term of 50 months. The
credit facility is available in the form of a revolving unsecured
operating credit, available in U.S. dollars. The amounts borrowed bear
interest at variable rates based on the U.S. base rate or the LIBOR rate (London interbank offered rate) plus a variable margin. As at April 27, 2014, the term revolving
unsecured operating credit E was unused.
Available liquidities
As at July 4, 2014, following the amended to Couche-Tard's term revolving
unsecured operating credit D, a total of approximately $750-million
were available under the company's revolving unsecured credit facilities, and the company was in compliance with the restrictive covenants and ratios imposed by
the credit agreements at that date. Thus, at the same date, Couche-Tard had
access to approximately $1.3-billion through its available cash and
revolving unsecured operating credit agreements.
Operating activities
During fiscal 2014, net cash from Couche-Tard's operations reached
$1,429.3-million, up $267.9-million compared with fiscal year 2013,
mainly due to higher net earnings, not taking into account non-cash
items, including depreciation, amortization and impairment of property
and equipment and other assets, as well as negative goodwill.
Investing activities
During fiscal 2014, investing activities were primarily for net
investment in property and equipment and other assets, which amounted to
$459-million and for acquisitions for an amount of $159.6-million.
Following the closing of the business acquisition transaction with
ExxonMobil, an amount of $20.6-million placed in escrow was repaid to
Couche-Tard during fiscal 2014.
Net investments in property and equipment and other assets were
primarily for the replacement of equipment in some of Couche-Tard's stores in
order to enhance the company's offering of products and services, the addition of
new stores, the continuing improvement of the company's network as well as for
information technology.
Financing activities
During fiscal 2014, Couche-Tard repaid an amount of $1,648-million under its acquisition facility using amounts drawn from its operating credits,
the net proceeds from the issuance of Canadian-dollar-denominated
senior unsecured notes, as well as available cash. During fiscal year 2014,
an amount of $903-million was drawn from the company's operating credit, of
which $455-million was repaid using available cash, for a net
increase of $448-million. During the same period, Couche-Tard paid $64.6-million in dividends.
The volatility of road transportation fuel gross margin and seasonality
both have an impact on the variability of Couche-Tard's quarterly net earnings.
Given acquisitions made in recent years and higher retail prices at the
pump, road transportation fuel revenues have become a more significant
segment of Couche-Tard's business, and, therefore, the company's quarterly results are more
sensitive to the volatility of road transportation fuel gross margins.
However, road transportation fuel margins tend to be less volatile when
considered on an annual basis or a longer term. With that said, the
majority of Couche-Tard's operating income is still derived from merchandise and
service sales.
Outlook
During fiscal year 2015, Couche-Tard expects to pursue its investments with
caution in order to, amongst other things, improve its network and
build additional stores. Couche-Tard also intends to keep a continuing focus on its sales, supply terms and operating expenses, while keeping an eye on
growth opportunities that may be available.
The company will continue to pay special attention to the realization of Statoil
Fuel & Retail's synergies and to the reduction of Couche-Tard's debt level in
order to improve its financial flexibility and hopefully improve the
quality of its credit rating.
Finally, in line with the company's business model, Couche-Tard intends to continue
focusing on the sale of fresh products and on innovation, including
the introduction of new products and services, in order to satisfy the
needs of the company's large clientele.
Webcast on July 7, 2014, at 2:30 p.m. (ET)
Couche-Tard invites analysts known to the corporation to send two
questions in advance to its management before 11 a.m. (ET) on July
7, 2014.
Financial analysts and investors who wish to listen to the webcast on
Couche-Tard's results, which will take place on-line on July 7, 2014, at
2:30 p.m. (ET), can do so by accessing the corporation's website and by clicking on the corporate
presentations link of the investor relations section. For those who
will not be able to listen to the live presentation, the recording of
the webcast will be available on the corporation's website for a period
of 90 days.
CONSOLIDATED STATEMENTS OF EARNINGS
(in millions of U.S. dollars, except per-share amounts)
12 weeks ended 52 weeks ended
April 27, April 28, April 27, April 28,
2014 2013 2014 2013
Revenues $ 8,952.3 $ 8,776.0 $ 37,956.6 $ 35,543.4
Cost of sales 7,834.2 7,655.7 32,965.3 30,933.8
Gross profit 1,118.1 1,120.3 4,991.3 4,609.6
Operating, selling, administrative
and general expenses 822.0 815.8 3,423.1 3,239.6
Negative goodwill (0.2) (2.8) (48.4) (4.4)
Restructuring costs - 34.0 - 34.0
Curtailment gain on defined-benefit
pension plans obligation - (19.4) (0.9) (19.4)
Depreciation, amortization and impairment
of property and equipment,
intangibles and other assets 142.0 138.1 583.2 521.1
963.8 965.7 3,957.0 3,770.9
Operating income 154.3 154.6 1,034.3 838.7
Share of earnings of joint ventures
and associated companies accounted
for using the equity method 3.9 3.0 22.7 15.8
Financial expenses 20.7 29.5 111.4 118.0
Financial revenues (2.5) (2.0) (10.9) (9.9)
(Loss) on foreign exchange forward contracts - - - 102.9
Foreign exchange loss (gain) 8.7 (6.8) 10.1 (3.2)
Net financial expenses 26.9 20.7 110.6 207.8
Earnings before income taxes 131.3 136.9 946.4 646.7
Income taxes (13.8) (9.5) 134.2 73.9
Net earnings 145.1 146.4 812.2 572.8
Net earnings attributable to
Shareholders of the corporation 144.8 146.4 811.2 572.8
Non-controlling interest 0.3 - 1.0 -
Net earnings 145.1 146.4 812.2 572.8
Net earnings per share
Basic 0.26 0.26 1.44 1.03
Diluted 0.25 0.26 1.43 1.02
We seek Safe Harbor.
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