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Alimentation Couche-Tard Inc
Symbol ATD
Shares Issued 417,655,558
Close 2014-07-04 C$ 29.35
Market Cap C$ 12,258,190,627
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Couche-Tard earns $812.2-million (U.S.) in fiscal 2014

2014-07-07 09:18 ET - News Release

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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