ALIMENTATION COUCHE-TARD INC.
INVESTORS PRESENTATION October 2016
FORWARD-LOOKING INFORMATION AND CAUTIONARY LANGUAGE This presentation and the accompanying oral presentation contain forward-looking statements within the meaning of applicable securities legislation. Forward-looking statements are typically identified by words such as “projected”, “estimate”, “may”, “anticipate”, “believe”, “expect”, “plan”, “intend” or similar words suggesting future outcomes or statements regarding an outlook. All statements other than statements of historical fact contained in these slides are forward-looking statements. Forward-looking statements involve numerous assumptions, risks and uncertainties. A variety of factors, many of which are beyond Alimentation Couche-Tard Inc.’s (“Couche-Tard”) control, may cause actual results to differ materially from the expectations expressed in its forward-looking statements. These factors include, but are not limited to, the effects of the integration of acquired businesses and the ability to achieve projected synergies, fluctuations in margins on motor fuel sales, competition in the convenience store and retail motor fuel industries, foreign exchange rate fluctuations, and such other risks as described in detail from time to time in documents filed by Couche-Tard with securities regulatory authorities in Canada, including those risks described in Couche-Tard’s management’s discussion and analysis (MD&A) for the year ended April 24, 2016. Couche-Tard’s MD&A and other publicly filed documents are available on SEDAR at www.sedar.com. Unless otherwise required by law, Couche-Tard does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by it or on its behalf. No financial information presented in this presentation as of a date more recent than April 24, 2016 has been audited. While the information contained in this presentation is believed to be accurate, Couche-Tard expressly disclaims any and all liability for any losses, claims or damages of whatsoever kind based upon the information contained in, or omissions from, this presentation or any oral communication transmitted in connection therewith. In addition, none of the statements contained in this presentation are intended to be, nor shall be deemed to be, representations or warranties of Couche-Tard and its affiliates. Where the information is from third-party sources, the information is from sources believed to be reliable, but Couche-Tard has not independently verified any of such information contained herein. This presentation is not, and under no circumstances is to be construed as, a prospectus, an offering memorandum, an advertisement or a public offering of securities. Under no circumstances should the information contained herein be considered an offer to sell or a solicitation of an offer to buy any securities.
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COMPANY REPRESENTATIVES
Brian Hannasch President and Chief Executive Officer Claude Tessier Chief Financial Officer Mathieu Descheneaux Vice President Finance
3
AGENDA
1. Company Highlights 2. Ambitions & Strategy 3. Network Development 4. Value Creation & Financial Review 5. CST Case Study
4
KEY DATA •
Listed on the Toronto Stock Exchange
ATD.B
•
Market Cap1
Approx. CA$36B
•
Revenue
US$34.1B Fiscal Year 20162 US$8.4B Q1 2017 YTD2
•
Gross Profit
US$6.0B Fiscal Year 20162 US$1.5B Q1 2017 YTD2 (+7.1%)
•
EBITDA
US$2.3B Fiscal Year 20162 US$0.6B Q1 2017 YTD2 (+12.2%)
•
Number of stores3
•
Europe
2,708
International
1,510
FY2016
US$2.3B / 0.97x
Q1 2017
US$2.2B / 0.94x
S&P
BBB (Stable outlook)
Moody’s
Baa2 (Stable outlook)
Ratings
5
7,863
Net Debt / Leverage4
•
12,081
North America
1. As of September 30, 2016. 2. Fiscal Year ended 24/04/2016 and Q1 2017 YTD being 12 weeks to 17/07/2016. 3. Includes Couche-Tard’s Company-Owned/Dealer-Operated and Dealer-Owned-Dealer-Operated sites as of July 17, 2016. 4. Long term interest-bearing debt, net of cash and cash equivalents and temporary investments divided by EBITDA adjusted for non-recurring items. Refer to the Corporation’s MD&As for more details.
ALIMENTATION COUCHE-TARD INC.
COMPANY HIGHLIGHTS
WHO WE ARE Couche-Tard is a Canadian based group and a world leader in the convenience store and road transportation fuel retail sector • In North America, Couche-Tard is the largest independent convenience store operator in terms of number of company-operated stores. • In Europe, Couche-Tard is a leader in convenience store and road transportation fuel retail in Scandinavia, Ireland and the Baltic countries, with a significant presence in Poland and Russia.
North America
• 7,863 convenience stores throughout North America, including 6,474 stores offering road transportation fuel in all 10 Canadian provinces and 41 U.S. States, and employing about 80,000 people
Europe
• 2,708 stores, comprising a broad retail network across Scandinavia (Norway, Sweden and Denmark), Ireland, the Baltics (Estonia, Latvia and Lithuania), Poland and Russia. Including employees at its branded franchise stations, about 25,000 people work in its retail network, terminals and service offices across Europe.
International
(1) As of July 17, 2016.
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• Over 1,500 stores operated by independent operators under the Circle K banner in 13 other countries or regions worldwide which brings the number of sites in Couche-Tard’s network to almost 12,100 .
COMPANY HISTORY •
1980
Start of operations with the opening of a first convenience store located in Laval, Québec.
•
80’s-90’s
Consolidation of the Canadian market.
•
2001
First breakthrough of Couche-Tard in the United States : acquisition of the assets of Johnson Oil Company, Inc., owner of 225 Bigfoot stores, all located in the U.S. Midwest.
•
2003
Acquisition of The Circle K Corporation from ConocoPhillips Company that operates 1,663 Circle K corporate stores located in 16 States and has a franchising or licensing relationship with 627 additional stores in the U.S. and worldwide.
•
2004
Couche-Tard becomes an active player in the US market consolidation.
•
2012
Acquisition of Statoil Fuel & Retail, a leading Scandinavian road transport fuel retailer. Statoil Fuel & Retail operates a broad retail network across Scandinavia (Norway, Sweden, Denmark), Poland, the Baltics (Estonia, Latvia, Lithuania) and Russia with approximately 2,300 stores, the majority of which offer fuel and convenience products while the others are automated (fuel only) stations.
•
2015
Acquisition of The Pantry Inc., a leading convenience store operator in the southeastern United States and one of the largest independently operated convenience store chains in the United States. The Pantry operates approximately 1,500 stores in 13 States under select banners, including Kangaroo Express®, its primary operating banner.
•
2015
Couche-Tard launches its global Circle K brand, the world’s preferred destination for convenience and fuel.
•
2016
Acquisition of Topaz, the leading convenience and fuel retailer in Ireland, made up of 444 stores. All the Topaz stores will be rebranded with the new global brand Circle K.
•
2016
Couche-Tard signs an agreement with Imperial Oil to acquire 279 Esso-branded Canadian fuel and convenience sites. These sites are located in the provinces of Ontario and Québec.
•
2017
Couche-Tard enters into a merger agreement to acquire 100% of the outstanding shares of CST Brands, Inc. (NYSE:CST) which stands as the 4th largest chain in North America with 1,146 locations in the US due to a strong presence in Texas and 873 locations in Canada.
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A DISCIPLINED CONVENIENCE STORE OPERATOR AND INTEGRATOR Broad Geographic Footprint with Leading Market Positions
Superior Product Offerings
Track Record of Highly Disciplined Growth and Debt Reduction
• Increasing focus on private label, fresh food products and famous for concepts • Industry leading merchandise gross margin • Proven integrator • Well positioned to lead further consolidation in fragmented industry • Committed to remain investment grade post acquisition
Attractive Sector Dynamics
•Steady industry performance throughout downturns with strong projected growth •C-store sector well positioned to gain share from traditional food retail •Industry-leading returns in recessions
Powerful Financial Results
•Strong and consistent financial performance throughout all economic cycles •Prolific history of positive same-store comps and 27% Return on equity •Significant FCF generation (2011-2016) CAGR of 23%
Attractive Synergy Potential
Disciplined Management Culture
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• Leading C-store operator in North America, Scandinavia, Ireland and Baltics • Strong banners • World class retailer with geographically diversified footprint
•Proven ability to extract significant synergies from acquisitions •Transferring best practices across entire platform •Management team with strong track record and founders have 23% equity ownership as of April 24, 2016 •Management and Board need to hold a multiple of their salary in Shares •Decentralized operating model
EXPERIENCED MANAGEMENT TEAM Alain Bouchard Founder and Executive Chairman of the Board On September 24, 2014, Mr. Bouchard stepped down as President and Chief Executive Officer and took on a new role as Founder and Executive Chairman of the Board of Directors.
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Brian P. Hannasch President and Chief Executive Officer President and Chief Executive Officer since 2014. Previously Chief Operating Officer since 2010 and Senior Vice-President, U.S. Operations from 2008 to 2010.
Jean Bernier Group President Global Fuels and North-East Appointed Group President Operations Global Fuels and North-East Operations on July 30, 2012. He has over 25 years of experience in the convenience store, fuel and grocery store sectors of the retail industry.
Geoffrey C. Haxel Senior Vice-President, Operations Appointed Senior VicePresident, Operations in January 2011. He was formerly Vice-President, Operations, U.S. Arizona Region since December 2003.
Alex Miller Senior Vice President, Global Fuels Appointed Senior VicePresident Global Fuels on February 16, 2016. Previously, he had been Vice-President North American Fuels since October 2012. He joined Couche-Tard in January 2012 as Director of Operations Midwest.
Jacob Schram Group President, European Operations Appointed Group President, European Operations in June, 2012. He was formerly Chief Executive Officer for Statoil Fuel & Retail from October 1st, 2010. He joined Statoil in 1996.
Dennis Tewell Senior Vice-President, Operations Appointed Senior VicePresident, Operations in June 2013. Prior to his current appointment, He held the position of VicePresident, Worldwide Franchise as he joined Couche-Tard in January 2011. Jørn Madsen Executive Vice-President, Central & Eastern Europe Appointed Executive VicePresident, Central & Eastern Europe on October 1, 2010. He was formerly Vice President for country operations in Statoil Energy & Retail since 2007. He joined Statoil in 1990.
Claude Tessier Chief Financial Officer Claude Tessier, CPA, CA, is Couche-Tard’s Chief Financial Officer since January 2016. Beforehand, Mr. Tessier was President of the IGA Operations Business Unit part of Sobeys since 2012.
Darrell Davis Senior Vice-President, Operations Appointed Senior VicePresident, Operations in May 2012. Previously, he had been Vice-President Operations, Florida since March 2011.
Hans-Olav Høidahl Executive Vice-President, Scandinavia Appointed Executive VicePresident, Scandinavia on October 1, 2010. He was formerly Vice President for Energy Europe in the Statoil Group since 2006.
Leader in the Canadian convenience store industry
NORTH AMERICAN NETWORK
• In Canada, the convenience store sector is dominated by a few major players including Couche-Tard and integrated oil companies. Some of the later are selling, or expected to sell their retail assets.
• In 2016, Couche-Tard signed an agreement with Imperial Oil to acquire 279 sites in Ontario and Quebec. These store are currently being integrated. Largest independent convenience store operator in the US in terms of number of company operated stores
• In the US, the convenience sector is fragmented and in a consolidation phase
• Couche-Tard acquired The Pantry in March 2015, one of the largest independently operated convenience stores in the US
• The Corporation has recently entered into a merger agreement to acquire 100% of the outstanding shares of CST Brands, the 4th largest chain in North America. The transaction is expected to close early calendar year 2017. Canada
US
Couche-Tard
Circle K
Circle K Mac’s (will be rebranded to Circle K)
Kangaroo Express (will be rebranded to Circle K)
Total network of 7,863 stores in North America As of July 17, 2016.
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EUROPEAN NETWORK Leader in convenience store and road transportation fuel retail in the Scandinavian and Baltic countries and Ireland (which was acquired on February 1st, 2016)
• The European convenience store sector is often dominated by a few major players, including integrated oil companies. Some of these are in the process of selling, or are expected to sell their retail assets
• In Q1, 50 stores were transferred to our Danish network in relation to the Shell Denmark acquisition(1). The remaining 77 sites will be transferred by the end of third quarter FY2017.
• Key brands: Circle K
Being rebranded from Statoil
Ingo
Unmanned Scandinavian stations
Topaz
Will be rebranded to Circle K
2,708 stores in 9 countries or regions in Europe
12
As of July 17, 2016. (1) In May 2016, Couche-Tard completed the acquisition of Shell Denmark. As per the requirements of the European commission, the Corporation will retain 127 sites and divest 24 of its legacy sites. An agreement has been reached to convert all retained sites to company-operated stores. The stores are added to the Danish network as they are transferred from Dansk Fuel.
INTERNATIONAL PRESENCE Central / South America Mexico 297
Asia China
United Arab Emirates
•
License agreement to use the brandname Circle K
•
Agreement to convert over 700 « Extra » branded convenience stores to Circle K in Mexico by August 2017 and a minimum of 2,400 by 2030
30
Guam 13
18
Hong Kong
Egypt 1
Convenience stores operated by independent operators under the Circle K brand
94
Honduras
Costa Rica
•
330
4
Macau 28
Vietnam 169
Malaysia 6
Philippine s 6
Indonesia 514
More than 1,500 licensed Circle K stores in Asia, Costa Rica, Egypt, Honduras, Mexico and U.A.E
As of July 17, 2016.
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CONSOLIDATED NETWORK RECAP
Canada
U.S.
Europe
International presence
Total
COCO(1)
1,440
4,661
1,864
-
7,965
CODO(2)
-
145
375
-
520
DODO(3)
-
551
469
-
1,020
390
676
-
-
1,066
-
-
-
1,510
1,510
1,830
6,033
2,708
1,510
12,081
-
-
969
-
969
# With fuel
749
5,725
2,705
-
9,179
% With fuel
41%
95%
100%
-
76%
Franchise/Affiliated(4) Licensed(5) Total Of which: Automats
(1) Sites for which the real estate is controlled by Couche-Tard (through ownership or lease agreements) and for which the stores (and/or the service stations) are operated by Couche-Tard or one of its commission agents. (2) Sites for which the real estate is controlled by Couche-Tard (through ownership or lease agreements) and for which the stores (and/or the service stations) are operated by an independent operator in exchange for rent and to which Couche-Tard supplies road transportation fuel through supply contracts. Some of these sites are subject to a franchise agreement, licensing or other similar agreement under one of our main or secondary banners. (3) Sites controlled and operated by independent operators to which Couche-Tard supplies road transportation fuel through supply contracts. Some of these sites are subject to a franchise agreement, licensing or other similar agreement under one of our main or secondary banners. (4) Stores operated by an independent operator through a franchising, licensing or another similar agreement under one of our main or secondary banners. (5) Stores operated by independent operators under the Circle K banner in other countries or regions worldwide. As of July 17, 2016.
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COUCHE-TARD – WORLD LEADER Couche-Tard is a leading global convenience store operator with EBITDA of $2.4 billion(1) • • •
Well diversified Merchandise and services represent 56% of gross profits Focus on growing high margin categories
(1) 2017 Q1 LTM, Pro forma Topaz
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REVENUE & GROSS PROFIT Gross Profit is the more accurate reflection of our business operations •
Revenue includes road transportation fuel revenues which is the dollar amount of sales
•
Revenue can therefore change with movements in the average selling price of road transportation fuel
•
In fiscal 2016, road transportation fuel revenue represented about : 53% of total revenue in Canada 68% of total revenue in the US, and 76% of total revenue in Europe
CAG: Five-year compounded annual growth - fiscal 2016 over fiscal 2011
16
•
Yet, road transportation fuel gross margins represented only about 40% of Couche-Tard’s overall gross profit
•
Gross profit represents our income after cost of sales
ACT - HISTORY OF STRONG FINANCIAL PERFORMANCE Gross Profit
(in millions of US Dollars)
Same Store Sales
16% CAGR 6 082 4 988
4 610 2 553
2 746
2010
2011
2010
2011
2012
2013
2014
Merchandise Sales US 2.9%
2015
2016
4.2%
2.7%
1.0%
3.8%
3.9%
4.6%
Europe
-
-
-
-
1.6%
2.0%
2.8%
Canada
4.8%
1.8%
2.8%
2.0%
1.9%
3.4%
2.9%
Motor Fuel Volume US 1.0%
0.7%
0.1%
0.6%
1.7%
3.4%
6.6%
-
-
-
2.5%
2.4%
2.6%
1.3%
(0.1%)
0.9%
5 268
2 975
2012
2013
2014
2015
2016
Europe
-
Canada
3.0%
Free Cash Flow (1)
EBITDA (in millions of US Dollars)
3.9% (0.9%) 0.0%
(in millions of US Dollars)
24% CAGR
25% CAGR 2 332
1 376 647
734
841
2010
2011
2012
2013
1 640
1 876
865
17
1 067
614
2014
2015
2016
278
378
404
2010
2011
2012
2013
Proven track record of significant growth (1)
979
Free Cash Flow defined as: EBITDA minus total CAPEX (excluding price paid for acquisitions), net dividends paid, net interests paid and net income taxes paid plus proceeds from disposal.
2014
2015
2016
STOCK PERFORMANCE – COMPARED TO PUBLIC COMPETITORS AND RETAIL INDUSTRY
Source: Reuters. As of August 26, 2016.
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ALIMENTATION COUCHE-TARD INC.
AMBITIONS & STRATEGY
OUR VISION
TO BECOME THE WORLD’S PREFERED DESTINATION FOR CONVENIENCE AND FUEL
20
OUR GLOBAL BRAND
21
GET HIGH DEF
GLOBAL CIRCLE K BRAND • On September 22, 2015, Couche-Tard announced the creation of a new, global convenience brand, “Circle KTM” • The existing Circle K is already Couche-Tard’s largest and most international brand. It can be seen today serving the needs of customers in 16 countries around the world • The new Circle K brand will replace the existing brands • Circle K® • Statoil® • Mac’s® • Kangaroo Express® • Topaz® • Couche-Tard has chosen to retain the company’s founding Couche-Tard retail brand in the province of Québec, Canada • The rollout will take place progressively across the US, Scandinavia, Central and Eastern Europe and Canada • The new Circle K brand will also appear on licensed stores worldwide • The Company’s goal in the coming years is to have a single convenience retail brand across our worldwide network • Very pragmatic approach: Couche-Tard will be rebranding stores as part of its normal cycle of store refreshes • Prioritization of recent acquisitions, such as The Pantry, as well as those for which Couche-Tard is under contractual obligations to rebrand, such as the Statoil sites in Europe • A total of 247 stores in Europe and 477 stores in North America are now proudly displaying our new global convenience brand Circle K. Before
22
After
Before
After
REBRANDING STATUS
As of Q1 2016, 477 stores in North America and 247 stores in Europe had been rebranded with our new global convenience brand Circle K.
23
NEW GLOBAL BRAND – SAME APPROACH TO SERVING OUR CUSTOMERS
SUPER GLOBAL SUPER LOCAL
24
THE PROMISE BEHIND THE BRAND
25
MAKING IT EASY BRAND PILLARS SUPPORTING OUR PROMISE
26
BRAND PILLARS – FAST & FRIENDLY SERVICE
Recruitment & Hiring
27
Employee engagement
Employee turnover
Service standards
Training
Physical appearance
BRAND PILLARS – EASY VISTS
Predictable in-store and forecourt experience
Clean #2 reason impacting shoppers’ decision of which c-store to visit (after location)
Source
28
Convenience store news
In-stock Out-of-stock is #1 reason for missed sale in cstores
Fast transaction 88% of US adults want their store checkout experience to be faster
BRAND PILLARS – PRODUCTS FOR PEOPLE ON THE GO
Food
29
Hot Dispensed Beverages
Cold Dispensed Beverages
Car Wash
Private Label
Fuel
CONVENIENCE KEY CATEGORIES
30
PRIVATE LABEL
Better value proposition to customers
Increased Circle K brand awarness
Higher penny profit
31
FUEL
Consumer experience
Payment & Loyalty
Pillars Product Differentiation
32
Pricing
ALIMENTATION COUCHE-TARD INC.
NETWORK DEVELOPMENT
NEW FORMAT DEVELOPMENT
Larger fuel offering Food service expansion High traffic locations Focus on site layouts & critical dimensions Circle K Branded store & customized fuel branding Standardization of building, interior layout & image
34
NEW SITES
35
We completed the construction, relocation or reconstruction of 93 stores during fiscal 2016
ALIMENTATION COUCHE-TARD INC.
VALUE CREATION AND FINANCIAL REVIEW
OUR FOUR PILLARS OF VALUE CREATION – THE EQUATION
Value Drivers
Organic Growth
37
Acquisitions
Protect Value & Enable Growth
Cost Discipline
Capital Structure & Financial Discipline
Value Creation
ORGANIC GROWTH
Focus on customers’ needs and respond to market trends
Construction, relocation or reconstruction of stores
Organic Growth
Branding
Private label
Innovation and technology
Execution
Continuous improvement
38
Emphasize on key categories – Food, coffee, cold beverages, fuel and car wash
ORGANIC – FISCAL 2016 TOP-LINE GROWTH THROUGHOUT
Europe SSS +2.8% Canada SSV +0.9%
Europe SSV +2.6%
Organic Growth Canada SSS +2.9%
SSV: Same-store volume SSS: Same-store merchandise sales
39
US SSS +4.6% US SSV +6.6%
ORGANIC – SUSTAINABLE TOP-LINE GROWTH Merchandise & Service Sales (millions of US dollars)
Road Transportation Fuel Volume (millions of gallons)
20% CAG
10% CAG
10,502
10,072 6,222
6,599
7,596
7,953
8,276
6,945 4,195
2011
5%
2012
2013
2014
2015
2016
Same-store Merchandise Revenues
2011
7,626
8,135
2014
2015
4,613 2012
2013
2016
Road Transportation Fuel Same-Store Volume 10% 0% 2011 2012 2013 2014 2015 2016
0% 2011
US
2012
2013
Europe
CAG: Compounded Annual Growth
40
2014
2015
2016
Canada
-10% US
Europe
Canada
ORGANIC GROWTH – FISCAL 2016 MERCHANDISE & SERVICE MARGIN IMPROVEMENTS
Europe 42.5% +1.3%
Organic Growth
Canada 32.8% -0.1%
41
United States 33.3% +0.4%
NO CLEAR CORRELATION BETWEEN FUEL PRICES & MARGINS U.S. Market (1)
U.S. Fuel Margins (CPG) (1)
42
No clear correlation between fuel selling price and margins
•
Our margins are not directly impacted by lower fuel selling prices
•
Lower fuel prices leave customers more money in their pockets for their in-store shopping
Canadian Fuel Margins (CPL) (1)
Swedish Fuel Margins (SEK PL) (2)
(1) For company-operated stores only. (2) For total network
•
Norwegian Fuel Margins (NOK PL) (2)
Danish Fuel Margins (DKK PL) (2)
US FUEL MARGINS TRENDS
Year-over-year volatility – Long term trend is up US Industry Historical Fuel Margins (CPG)
ACT Historical US Fuel Margins (CPG) 24,00 22,00 20,00
+2.9 CAG
24,00 22,00 20,00
18,00
18,00
16,00
16,00
14,00
14,00
12,00
12,00
10,00
10,00 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
•
Large integrated oil companies out of retail. Market dominated by pure play retailers who need to maintain and grow margins in order to maintain profitability
•
Large integrated oil companies out of retail. Market dominated by pure play retailers who need to maintain and grow margins in order to maintain profitability
•
Higher premium fuel penetration
•
Higher premium fuel penetration
•
Improved, more sophisticated pricing strategies
•
Improved, more sophisticated execution
•
Improved supply conditions
ACT: Fiscal Year / Industry: Calendar Year Sources: ACT reporting documents and NACS SOI Annual Report. 43
ACQUISITIONS
Smart, disciplined acquisition strategy – Spotting the right opportunities and striking the right deals at the right price
Spot the right opportunities
Deleveraging
Acquisitions
Realization of available synergies
Strike the right deal at the right price
Swift and efficient integration
44
PROVEN TRACK RECORD OF SUCCESSFUL ACQUISITIONS
Garvin oil
Revenue ($)
Compac Food Stores
Winners Sterling Stores Pump N Shop
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Debt/ Adjusted EBITDA (1)
3.1
1.5
1.2
1.8
1.7
1.3
1.1
0.7
0.8
2.4 (2) (3)
Stores Acquired
1,706
45
75
421
46
107
70
47
326
2,506
2014 1.6 (3) 166
Agreement signed for additional stores acquisition in 2017
2015 1.5 (3) (4) 1,660 77 279 23
45
(1) (2) (3) (4)
Represents Total Debt/ Adjusted EBITDA. Presented on a pro forma basis. Including full-year results for SFR. Refer to the Corporation’s MD&As for more details. Adjusted for non-recurring items. Refer to the Corporation’s MD&As for more details. Pro forma The Pantry for 2015 and Topaz for 2016.
2016 1.2 515
(3) (4)
2017 Q1 YTD 1.2 (3) (4) 51
EXCEPTIONAL DELEVERAGING TRACK RECORD
• ACT committed to maintaining a strong balance sheet and sustaining its investment grade credit rating • Track record of rapid deleveraging after landmark acquisitions
Circle K Acquisition
Adj. Net Debt / Adj. EBITDAR
2,453 Stores Acquired
46
Strong credit metrics for several years
$3.6B Acquisition
3,0
Pro forma The Pantry Pro forma Topaz.
F2005
3,2
3,2
2,5
F2006
F2007
F2008
1,547 Stores Acquired
$1.7B Acquisition
4,2
F2004
(1) (2)
2,299 Stores Acquired Leverage post SFR acquisition lower than Circle K
1,017 Stores Acquired
Rapid deleveraging $804M after Acquisition transformational acquisition
The Pantry Acquisition
SFR Acquisition
No Transformational Acquisition
3,6 2,9
F2009
3,1
2,7
F2010
2,1
2,1
F2011
F2012
2,4
Pro Forma
F2013
F2014
2,2
2,0
F2015 (1)
F2016 (2)
ACQUISITIONS AT FULL SPEED Topaz 444 sites
Small Acquisitions 295 sites
Shell Danemark 127 sites
Synergies Statoil Fuel and Retail •Target: $150M - $200M •Realized: >$200M
Synergies The Pantry •Target for the first 24 months: $125M •Current run-rate $111M for the first 18 months
Acquisitions
CST Brands 1,296 sites
The Pantry 1,559 sites
Imperial Oil Canada 277 sites
Synergies CST Brands •Initial target of $150M –$200M
47
Nearly 4,000 sites added to our network through acquisitions over the last 18 months (announced or completed)
COST CONTROL – PART OF OUR DNA
Disciplined Culture
Year-over-year expense growth 1,7%
1,9% 1,5%
Scalable Organization, Systems & Processes
0,8%
Continuous Benchmarking
Cost Control
0,2% 2011 2012 2013 2014 2015 2016
-0,9% 5-year Average : +0.9%
48
Sharing of Best Practices
Economies of Scale
Cost Efficient Systems
CAPITAL STRUCTURE & FINANCIAL DISCIPLINE Competitive cost of debt Rapid deleveraging after acquisitions
Well spread maturities
Cost Discipline
Access to liquidities – Cash and credit facilities
Disposal of non-core assets
Dividend growth
49
Careful Allocation of Capital
STRONG EBITDA TO FCF CONVERSION
23% CAG
Capital Investment primarily consists of the investment in property and equipment net of disposals and the ongoing improvement of our network:
• •
Construction of new stores
• • •
Replacement of equipment
Relocation and construction of existing stores
Information technology Rebranding
2016 increased significantly because of the integration of more than 1,500 Pantry stores.
Capex spend has averaged about 30% of EBITDA since 2011
•
Year after year, Couche-Tard generates strong cash flow from its operations, which allows rapid deleveraging and leads to a strong credit profile
•
This enables Couche-Tard to be in a strong financial position to consider opportunities for business acquisitions
CAG: Five-year compounded annual growth - fiscal 2016 over fiscal 2011. (1) 2015 Free cash flow includes the proceeds from the disposal of the aviation fuel business. (2) 2016 Free cash flow includes the proceeds from the disposal of the lubricants business.
50
Stay in business capital represents less than 10% of EBITDA. Large majority of capex spend is income producing.
STRONG CAPITAL STRUCTURE & FINANCIAL DISCIPLINE Adjusted Leverage Ratio 1.90:1
Free Cash Flow (in million dollars US)
5-year compounded annual growth +23 %
979
1 067
1 089
865 614 378
Free Cash Flow ~$1 Billion
404
2011 2012 2013 2014 2015 2016 LTM
Standard&Poors: BBB (Stable)
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Investment Grade Credit Profile
Average Cost of Debt 2.4 %
Moody’s: Baa2 (Stable)
Capital Structure & Financial Discipline
~$2.5 Billion available under credit facilities
€750M of senior unsecured notes
$621M in Cash
RESULT OF THE VALUE CREATION EQUATION : ADJUSTED DILUTED EARNINGS PER SHARE AND RETURN ON EQUITY GROWTH
Adjusted Diluted Earnings per Share Diluted (USD) 5-year compounded annual growth +26 %
Return on Equity Value Creation
2.09 1.79 20.3%
22.0% 21.5% 22.6%
24.9%
27.0%
1.35 1.11 0.67
0.81
2011 2012 2013 2014 2015 2016
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2011 2012 2013 2014 2015 2016
RESULT OF THE VALUE CREATION EQUATION : DIVIDEND GROWTH Dividends Paid – US Millions 5-year compounded annual growth
104
+26%
87 50
56
65
33 2011 2012 2013 2014 2015 2016
Quarterly dividend increased twice during fiscal 2016, from CA5.50¢ per share to CA7.75¢ per share, an increase of 41%
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Value Creation
RESULT OF THE VALUE CREATION EQUATION : STOCK VALUE GROWTH
Value Creation
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Value Creation
Q1 SNAPSHOT – CONTINUED GROWTH
Q1-2016 Merchandise same-store revenues United States
+2.4 %
Europe
+4.9 %
Canada
+0.9 %
Road transportation fuel same-store volume United States
+2.5 %
Europe
+0.9 %
Canada
+0.6 %
Adjusted EBITDA Adjusted Diluted Earnings per Share Declared dividend per share
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$616M / +12 % $0.58 / +14 % 7.75 ¢ CA / +41 %
ALIMENTATION COUCHE-TARD INC.
ACQUISITIONS
Value Creation
SHELL DENMARK SNAPSHOT
• In March 2015, Couche-Tard announced an agreement to acquire 315 service stations in Denmark • The agreement also included Shell’s commercial fuel business and Shell’s aviation fuel business in Denmark • Great strategic fit for Couche-Tard’s business in Denmark • On May 1, 2016, Couche-Tard completed the acquisition of all the shares of Dansk Fuel A/S (“Dansk Fuel”) from A/S Dansk Shell, comprising 315 service stations, a commercial fuel business and an aviation fuel business all located in Denmark. As per the requirements of the European commission, Couche-Tard will retain 127 sites, of which 82 are owned and 45 are leased from third parties and will divest the remaining of the Dansk Fuel business in addition to 24 of its legacy sites • The stores are added to Couche-Tard’s Danish network as they are transferred from Dansk Fuel AS. In Q1 2017, 50 stores were transferred to our Danish network and the remaining 77 sites will be transferred by the end of third quarter FY2017 • Dealers store to be converted into company-operated stores (COCO)
57
TOPAZ SNAPSHOT
• Acquisition closed February 1, 2016 • Topaz is the leading convenience and fuel retailer in Ireland, made up of 444 stations including its recently acquired Esso station network • 158 sites are operated by Topaz and 286 by dealers. Topaz owns underlying real estate for about 100 sites • Also includes commercial fuels operation, with two owned terminals and over 30 depots • Extensive and attractive convenience and fuel network, with good locations, quality forecourts and stores, an excellent food offering and very professional teams • Allows Couche-Tard to expand its geographic footprint into what, today, is one of Europe’s best performing economies • Great strategic fit for Couche-Tard, strengthening its position in Western Europe • Superior growth anticipated in in-store sales and fuel volume through the improvement of operations; sharing of business awareness and each company’s best practices; and better supply conditions • Expected cost reduction synergies from integration into existing European platform
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ESSO CANADA SNAPSHOT
• On March 8, 2016, Couche-Tard announced an agreement to acquire 279 Esso-branded fuel and convenience sites in Canada • 229 sites are located in the province of Ontario, the majority of which in the Greater Toronto Area • 50 sites are located in the province of Québec, in the Greater Montréal Area • The agreement also includes 13 land banks and two dealer sites, as well as a long-term supply agreement for Esso branded fuel • Allows Couche-Tard to expand it’s geographic footprint into the Greater Toronto Area and the Montréal Area • Great strategic fit for Couche-Tard and it would strengthen its position in Canada • Strong underlying real estate value • Transaction has been approved by the Canadian Competition Bureau for 277 sites. 2 sites will need to be sold • The stores are currently in the process of being integrated
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ALIMENTATION COUCHE-TARD INC.
CST CASE STUDY
TRANSACTION SUMMARY • Alimentation Couche-Tard Inc. (“ACT”) has entered into a merger agreement to acquire 100% of the outstanding shares of CST Brands Inc. (“CST”) by merger, representing a total enterprise value of US$4.43 billion or approximately US$4.28 billion excluding the value of CST’s equity participation in CrossAmerica Partners LP (“CAPL”) • CST shareholders to receive a cash consideration of US$48.53 per share • Implied CST EBITDA multiple of 10.4x pre-synergies (1), 7.0X to 7.6x post-synergies (1) • Transaction is expected to generate between US$150M and US$200M in pre-tax annual cost synergies to be realized 24-36 months after closing • Merger expected to be accretive to earnings within the first year post closing – 40-50 cents EPS accretion expected within third year post closing • Couche-Tard expects to finance the purchase of CST, including the refinancing of a portion of CST’s existing indebtedness through: • Capacity under existing revolving credit facilities • New acquisition debt financing consisting of term loans of which a portion will be termed-out over time • Provides ACT control over CAPL’s General Partner, ownership of associated Incentive Distribution Rights and equity stake of ~20% in CAPL • CAPL is a distributor of branded and unbranded petroleum for motor vehicles in the United States • Following acquisition of CST, ACT will sell a majority of CST’s Canadian assets to Parkland Fuel Corporation for approximately US$750M • Strong value creation through: • Significant EPS accretion • Strong free cash flow generation • Continued capacity to invest in existing business • ACT’s usual discipline which will allow for rapid deleveraging and adequate positioning to seize future investment opportunities • The transaction is subject to CST shareholders approval, to customary regulatory approvals and to closing conditions. We anticipate that the CST transaction will close early calendar year 2017 (1) (2) (3)
61
Pro forma the Flash Foods acquisition, the California and Wyoming sale of assets and adjusted for non-recurring expenses. Excluding CrossAmerica Partners LP. All financial information in this presentation is in US dollars, except if otherwise indicated All information in this presentation exclude CrossAmerica Partners LP, except if otherwise indicated
CST OVERVIEW •
•
• • • • •
CST operates as an independent retailer of motor fuel and convenience in the United States and Eastern Canada • US public company (NYSE ticker: CST) with a market capitalization of ~ $3.4B • Fuel offer mainly branded Valero in the US and Ultramar in Canada • Convenience offer mainly branded Corner Store in the US and Dépanneur du Coin/Corner Store in Canada 4th largest chain in North America, with • 1,146 locations in the US (1) • 873 locations in Canada + Commercial & Home Heat business Owns underlying real estate for approximately 1,000 sites (800 in the US and 200 in Canada) (1) Last-twelve month period ended June 30, 2016 reported EBITDA of US$433M In February 2016, CST acquired Flash Foods for $425M: • 165 stores in Georgia and Florida In July 2016, CST sold 79 stores in California and Wyoming for $408M CST owns an investment in CrossAmerica Partners LP, an MLP focused on fuel wholesale and property rental • CST controls the general partner of CrossAmerica Partners LP and owns 100% of the Incentive Distribution Rights • CST holds a 19% equity/economic stake worth ~ $150 million
(1) (2)
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Gross Profits (2)
4% 27% 45%
51%
73%
Merch. & Serv. Fuel
US
Motor fuel gallons (2) Merchandise sales
As of June 30, 2016, Pro forma sale of 79 California and Wyoming sites. Excludes CrossAmerica Parners LP. LTM June 30, 2016, Pro forma sale of 79 California and Wyoming sites and acquisition of Flash Foods. Excludes CrossAmerica Parners LP.
(2)
Canada
Total
Per Site
3.0 billion
~1.5 million
$2.0 billion
~$1.3 million
HIGHLIGHTS OF THE TRANSACTION
Strategic Importance
• Unique opportunity to acquire one of few remaining potential North American public targets exceeding 1,000 stores • ACT to exceed 10,000 North American stores (including Esso Canada) • Increased scale and leverage to create brand awareness and take advantage of merchandise and fuel procurement opportunities
Acquisition Rationale
• Operating model alignment
• Top-line upside
• Strong geographic
• Sharing of business awareness and best practices
• Entry in Texas • Void fill in US Southeast • Strenghtening of existing network • Talent acquisition and crosslearning potential • Valuable real estate portfolio • MLP structure
63
Significant Synergies Potential
• Cost optimization • Optimization of supply conditions • Optimization of distribution strategy • Elimination of redundant costs
CST RETAIL NETWORK
US Network
1,146 company operated sites
Canadian Network
-305 company operated sites -72 cardlock sites -496 commission agents sites
As of June 30, 2016. US Network pro forma sale of 79 sites in California and Wyoming.
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PRO FORMA NORTH AMERICA FOOTPRINT
• COUCHE-TARD US: 6,052 Canada: 1,836 • CST (1) US: 1,140 Canada: 873 (2) • Esso Canada Ontario: 229 Quebec: 50 • Total US: 7,192 Canada: 2,988 North America: 10,180
53 6 15 4
13 7 17 9 32
57
15 0
37 26
648
2 31
65
15
(1) (2) (3)
CST acquisition will allow ACT to further diversify its operations and cash flow with a stronger presence in Texas, a fast growing and business friendly state.
As of June 30, 2016, pro forma sale of California and Wyoming sites. Excludes CrossAmerica Parners LP Not taking into account subsequent sale of certain Canadian assets CST site count on map is as of December 31, 2015 , pro forma sale of California and Wyoming sites. Does not take into account subsequent sale of certain Canadian assets
PRO FORMA PROFILE - FINANCIAL
Couche-Tard to strengthen its leadership position as a global convenience store operator with pro forma EBITDA of $2.9B
(2) (billions of US Dollars)
Revenues
(1)
38.4
9.3
Pre-synergies EBITDA Contribution
At Closing Pro Forma
47.7 5%
% of total GP % of total Adj. EBITDA Store network
(1) (2) (3)
66
81%
19%
100%
6.5
1.3
7.8
83%
17%
100%
2.5
0.4
2.9
(3)
2,013
14,466
12,453
Couche-Tard Fiscal 2016 results pro forma the acquisition of Shell Denmark, Topaz and Esso Canada. CST LTM financial results as at June 30, 2016 pro forma the acquisition of Flash Foods and divesture of 79 sites in California and Wyoming. Excludes CrossAmerica Partners LP and the anticipated effect of the sale of certain Canadian assets. Includes Couche-Tard’s Company-Owned/Dealer-Operated and Dealer-Owned/Dealer-Operated sites.
3% 14% 83%
PRO FORMA PROFILE – GROSS PROFITS BREAKDOWN (1)
Canada 12%
Europe 25%
By Geography
United States 63%
Others 3%
By Products
(2)
Canada 27%
Canada 100%
Europe 20%
United States 73%
Fuel 42% Fuel 45%
Others 31%
Others 4%
Merch. & Services 1% Fuel 44%
Merch. & Services 51% Fuel 68%
Couche-Tard to strengthen presence in Canada and United States markets
(1) (2)
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Canada 17%
United States 63%
Others 4%
Merch. & Services 55%
Pro Forma
FY 2016 pro forma Topaz and Shell Denmark. CST LTM June 30, 2016, pro forma Flash Foods acquisition and sale of California/Wyoming sites. Excludes CrossAmerica Partners LP and the anticipated effect of the sale of certain Canadian assets.
Merch. & Services 52%
EXCEPTIONAL SYNERGIES POTENTIAL
TOP-LINE SYNERGIES
COST SYNERGIES
Merchandise Supply Costs Increased brand penetration and awareness
Value drivers, e.g. loyalty, digital marketing, etc
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Leveraging key consumer
Leveraging best practices and crosslearning opportunities
$150M$200M in pre-tax cost synergies Operating Expenses and Overhead
Fuel Sourcing & Distribution Costs
INTEGRATION STRATEGY
Evaluate talent pool and secure key employees
Sale of CST Canadian assets
Integrate operations & eliminate redundant costs
Integrate support functions, technology and systems & eliminate redundant costs
Roll-out key programs– Polar Pop, Simply Great Coffee, ATMs, etc.
Rebrand to Circle K/ CoucheTard
Transfer CST to existing ACT nonfuel agreements to unlock procurement synergies
Renegotiate ACT existing agreements to leverage increased scale
Build optimal strategy for CrossAmerica Partners LP
Well planned and efficient integration strategy – Similar to The Pantry
69
Review distribution strategy
FORECASTS
Leverage (2)(3)
Adj. Free cash flow (1)(3)
9% CAGR 3,5
986
1 208
1 437
3,1 2,6
1 489 1 544 2,0
2,2
1,8 1,4
798
FY16 Y1
Y2
Y3
Y4
Y5
FY16 PF
Y1
Y2
Y3
Y4
Y5
Strong cash flow coupled with disciplined capital allocation and debt repayment to provide financial flexibility and ample room for continued growth
ACT anticipates EPS accretion to reach 40 to 50 cents during the third year following the acquisition
(1)
70
(2) (3)
Adjusted EBITDA minus total CAPEX (excluding price paid for acquisitions), net dividends paid, net interests paid and net income taxes paid plus proceeds from disposal. Adjusted net debt / EBITDAR. Adjusted net debt defined as total debt plus 8 times net rent expense less cash. Before the anticipated effect of the sale of certain Canadian assets.
PROVEN RECORD OF DISCIPLINED DEBT PAYDOWN • At close, pro forma leverage expected to stand at 3.5x(3) (Adjusted Net Debt / Adjusted EBITDAR) • Combined company expected to benefit from strong free cash flow generation & robust EBITDA growth • Scalable capital expenditure allows flexibility to achieve deleveraging plan • Management targets reaching an Adjusted Net Debt/EBITDAR ratio of 2.6x within 18-24 months after closing Circle K Acquisition
No Transformational Acquisition
Adj. Net Debt / Adj. EBITDAR
2,453 Stores Acquired
2,299 Stores Acquired
1,017 Stores Acquired
Rapid deleveraging $804 M after Acquisition transformational acquisition
The Pantry Acquisition
SFR Acquisition
F2004
F2005
3,2
3,2
2,5
F2006
2,298 Stores Acquired $6.0 B Acquisitions
$1.7 B Acquisition
4,2 3,0
1,547 Stores Acquired
$3.6 B Leverage post SFR Acquisition acquisition lower than Circle K
Strong credit metrics for several years
CST & Esso Acquisitions
F2007
F2008
3,6 2,9
F2009
2,7
F2010
2,1
2,1
F2011
F2012
3,5
3,1 2,4
Pro Forma
F2013
F2014
2,2
2,0
F2015 (1)
F2016 (2)
2,6
Pro Forma (4)
Couche-Tard is committed to reducing its Adj. Net Debt / EBITDAR below 3.0x within 24 months
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(1) (2) (3) (4)
Pro forma The Pantry Pro forma Topaz. Rent capitalized at 8.0x.EBITDAR adjusted for non-recurring items. Refer to Couche-Tard’s MDA for more details. Assuming transaction closed April 24 2016. Including the annualized contribution of FY2016/FY2017 Couche-Tard acquisitions. Before the anticipated effect of the sale of certain Canadian assets.
18-24 months
STRONG FINANCING PLAN Transaction financing needs of ~$4.8 billion (including acquisition costs), funded through Capacity under ACT’s existing credit facilities New acquisition financing consisting of term loans – three tranches with 1, 2 and 3 years terms
ACT expects to repay for the term loans through Proceeds from the sale of Canadian assets Proceeds from sale of other non-core assets Term out to the bonds market Free cash flow
Financing strategy will allow Access to capital at competitive conditions Flexibility to repay debt rapidly Capacity to modulate debt maturities
Competitive, well balanced and flexible financing structure
72
CROSS AMERICA
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CROSS AMERICA • •
ACT brings CrossAmerica: Continuity with a sponsor whose management culture is aligned with CrossAmerica – – – – –
•
Disciplined operator with best practices in acquisitions and integration Strong and consistent financial performance throughout all economic cycles Heightened focus on growing Free Cash Flow, with particular expertise in cost management Well capitalized with solid balance sheet Well positioned to lead further consolidation in fragmented industry
Scale and global reach provides additional operational benefits – –
•
Further strengthens relationship with many of our key suppliers Many turnkey branding and franchise programs that can complement dealer offerings • Supports dealer health, which impacts fuel volume growth and additional rental income potential
Wholesale operations with complementary geographic reach
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CONCLUSION Broad Geographic Footprint with Leading Market Positions Superior Product Offerings Track Record of Highly Disciplined Growth and Debt Reduction Attractive Sector Dynamics Powerful Financial Results Attractive Synergy Potential Disciplined Management Culture
Poised for growth: Store network growth of more than 40% through closed and annouced acquisitions over the last 18 months 75
