Parkland Corporation

Q1 2021 Earnings Conference Call

5/4/2021

spk00: Good morning, ladies and gentlemen, and welcome to Parkland Corporation's 2021 Q1 Results Analyst Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require assistance, please press star zero for the operator. This call is being recorded on Tuesday, May 4, 2021. I'd now like to turn the conference over to Brad Monaco, Director of Capital Markets for Parkland. Please go ahead.
spk13: Thank you. With me today on the call are Bob Espy, President and CEO, Marcel Tunison, Chief Financial Officer, and Ian White, Senior Vice President, Strategic Marketing and Innovation. This call is webcast, and I encourage listeners to follow along with the supportive slides. We will go through our prepared remarks and then open it up for questions from the investment community. Please limit yourself to one question and a follow-up as necessary, and if you have other questions, re-enter the queue. We'd ask analysts to follow up directly with the capital markets team afterwards for any detailed modeling-type questions. During our call today, we may make forward-looking statements related to expected future performance. These statements are based on current views and assumptions and are subject to uncertainties which are difficult to predict. These uncertainties include, but are not limited to, expected operating results and industry conditions, among other factors. Risk factors applicable to our business are set out in our annual information form and management's discussion and analysis. We will also be discussing non-GAAP measures, which do not have any standardized meanings prescribed by GAAP. These measures are identified and defined in Parkland's continuous disclosure documents, which are available on our website or CDAR. Please refer to these documents as they identify factors which may cause actual results to differ materially from any forward-looking statements. Dollar amounts discussed in today's call are expressed in Canadian dollars unless otherwise noted. I'll now turn the call over to Bob.
spk03: Thank you, Brad, and good morning, everyone. We appreciate you taking the time to join us and trust you are staying safe and healthy. I would also like to welcome Ian White to today's call to provide an update on some of our ongoing organic growth initiatives, which continue to strengthen our existing business. The photo on today's cover slide showcases one of our proprietary pioneer branded locations with an on the run convenience store. Together, these illustrate our compelling value proposition, which fulfills our purpose of powering journeys and energizing communities and plays a critical role driving continued organic growth. Many of our markets are still dealing with various levels of COVID-19 restrictions. I'm exceptionally proud of our team's to safely and reliably providing the essential fuels and services customers need. In particular, I want to thank our frontline teams for their continued dedication to this effort. We are off to a great start in 2021. Our strong business performance through the first three months has reinforced our confidence in the continued strength of our business model. Our geographic and product diversity continues to provide a layer of insulation from economic volatility. Despite ongoing COVID-19 impacts, the resilience of our business continues to be remarkable. This was a fantastic quarter and we're on track for a full year guidance. For those of you who follow us closely, know how much we focus on maintaining a strong balance sheet. Through the quarter, we enhanced our financial flexibility through the completion of over $3 billion of refinancing. This will deliver approximately $20 million of annual interest savings. It means we have no senior notes maturities until 2027 and are well positioned to fund our growth. Built on a foundation of great brands, great assets, great service, and a great team, we are seeing tremendous underlying strength across the business. In addition, the investments we are making in our marketing capabilities further support our growth. Ian will talk to this shortly. So far this year, we have completed or announced five acquisitions across our US and international segments. This includes another small international acquisition in April, where we will expand our regional aviation portfolio through operations at two international airports in Puerto Rico. As you know, we set a high bar for any acquisition. Each must advance our strategy, provide integration, and organic growth opportunities and strengthen our supply advantage. Looking forward, each of our geographies offers a rich pipeline of consolidation targets to support our growth ambitions, including our international business, which we are seeing increased opportunity. Moving on to slide four, I'd like to talk briefly about our sustainability journey, which is integral to our culture and strategy. We included updates on this important strategic area in our news release. However, I would like to highlight a few key areas of focus for us. Firstly, we are making solid progress building our enterprise sustainability strategy. We're working towards our second annual sustainability report, which will include commitments around our emissions. We look forward to sharing the report in the fourth quarter and discussing details at our November Investor Day. More broadly, we see big opportunity to play an ongoing and expanded leadership role through the energy transition. This extends well beyond our existing manufacturing of renewable fuels at the Burnaby Refinery, which in 2021 will have the equivalent environmental effect of removing 80,000 passenger vehicles from the road. We expect continued growth in this area of our business and will also harness our existing retail network to support our customers' mobility needs, including electric vehicle charging options. We have been pragmatic and disciplined in accessing this opportunity and will focus in markets which already have encouraging electric vehicle penetration. We expect to share more on our energy transition strategy transition strategy as we move throughout 2021. I'll now pass over to Marcel to go through the corporate financial results.
spk09: Thank you, Bob, and good morning, everyone. Turning to slide five and a summary of our financial results. We delivered a Q1 adjusted EBITDA of $314 million, which is up more than 60% from 2020. And while COVID continues to impact the broader economy, Each area of our business delivered underlying growth compared to last year, and this is an excellent result which reflects the quality and the resilience of our business through challenging market conditions. As you can see on the chart on the left, our supply segment had a great quarter. Adjusted EBITDA was up materially from last year, driven by strong utilization at our Burnaby refinery, and while prior year's quarter had the impact of the scheduled turnaround we spoke about before. Our marketing business also delivered growth with lower cost and robust margins, offsetting softer volumes. As you know, we have natural variability in our cost base. However, the teams continue to do a great job exercising financial discipline and proactive cost control. We're off to a great start to the year and are firmly on track for a full year guidance of 1.2 billion for adjusted EBITDA plus or minus 5% as guided previously. Moving to the segment overview on slide six, I'll start with Canada, where we delivered $116 million of adjusted EBITDA in quarter one, which was 14 million higher than the prior year. Although many Canadian markets are experiencing a COVID third wave and have implemented tough restrictions, these are having far less material impact than we saw during the early phases of the pandemic. And it is clear that our customers have adapted. As an example, While Canada retail volumes are still behind the pre-COVID levels, since mid-March, they were over 40% higher than the same period in 2020, which were the first two weeks of COVID. Through the combination of strong fuel margins, lower cost, and 21 consecutive quarters of same-store sales growth, we delivered higher EBITDA on lower volumes. Our international segment delivered 67 million of adjusted EBITDA which is consistent with prior year. Importantly, our underlying business improved from 2020 on a US dollar basis, but the headline results were reduced by 4 million due to foreign exchange translation rate impacts. International continued to benefit from cost control initiatives, enhanced logistics and shipping optimization. Even though we did not benefit from what would normally be our busy tourist season, we delivered strong performance from a wholesale channel and had pockets of strength in aviation. This was slightly offset by isolated COVID restrictions. Overall, we are extremely pleased with the international business. To be in line with last year despite COVID and affect impacts is a remarkable outcome. And we remain optimistic for continued economic recovery through the second half of the year and have an even stronger base business from which to grow. Our US segment delivered 20 million of adjusted EBITDA in quarter one. This is up 25% from 2020, driven by prior year acquisitions, our growth supply advantage, and national accounts growth. This growth was dampened by continued slowdown in the oil and gas and cruise ship industries in the northern and southeast regional operating centers. During the quarter, we reached a significant organic growth milestone by surpassing 350 million liters of annualized national account fuel volume, partnering with local regional operating centers to service large, complex commercial customers. And we are pleased that our sales reach is extending into areas beyond our existing regional operating centers as well. This incremental volume highlights our growing supply advantage and enhanced overall margins. Our supply business delivered excellent results in the first quarter, With $136 million of adjusted EBITDA, this is up to $94 million from 2020. We continue to operate safely and reliably at our Burnaby refinery with a composite utilization of 91%. This includes crude processing and 1,700 barrels per day or 25 million liters of biofeedstock coprocessing, which was a new record for the Burnaby refinery. In addition to putting us firmly back on track with our 100-million-litre full-year target for 2021, coprocessing helped us meet our carbon compliance requirements in British Columbia and lowered our high-cost HDRD blending requirements. Our integrated logistics business also performed well under challenging market conditions, which improved supply cost, offsetting lower volumes. Turning to slide seven, As Bob already mentioned, we have a track record of financial discipline, and for those who follow us closely will know that maintaining a strong balance sheet and financial flexibility to fund growth is a strategic imperative. We took several steps through the quarter in this regard, including over $3 billion of refinancing transactions. So what do we do, and what does that mean? We increased the amount available under our credit facility from approximately $1.7 to $1.9 billion. The agreement has a five-year term and highlights our banking group's confidence in our ability to do what we do best, which is grow organically and buy high-quality companies and create value. We also took the opportunity to refinance our 2024, 2025, and 2026 senior note maturities, which had a weighted average interest rate of nearly 6%, and through the issuance of a $600 million Canadian bond at 4.375%, and a US dollar $800 million bond at 4.5% in late March, we lowered our annual interest costs by approximately $20 million and pushed out our senior note maturities to between 2027 and 2029. Our Canadian bond was the second lowest coupon and third largest deal on record in the Canadian high-yield markets, demonstrating the market support and confidence in our strategy. Both bonds were well oversubscribed. We fully funded our capital expenditures, acquisition and net dividends in quarter one and maintained a leverage ratio well within our comfort range. The three times debt to EBITDA ratio includes a 0.1 increase due to the acquisition activity over the last 12 months and also reflects the retirement of our intermediation facility in February. The facility was in place to fund and hedge working capital at the Burnaby Refinery, which we have now moved in-house. Built on a foundation of strong operational performance and a long runway of growth opportunities, we have lowered our interest costs, have no senior note maturities for the next six years, and plenty of liquidity. And we are committed to our capital allocation policy and our primary objective of growing the business. I would like to pass over to Ian now to refresh everyone on our enterprise-wide organic growth initiatives.
spk05: Ian? Thanks, Marcel, and thank you, Bob, for inviting me to join today's call, and good morning, everyone. I want to take a few minutes to highlight some of our customer-centric organic growth initiatives that we began to outline at our 2019 Investor Day. Collectively, these helped us manage and grow through COVID, have underpinned our success year-to-date, and will play an integral role in our continued success. Over the past few years, through targeted and purposeful investments, we have developed a unique and compelling customer value proposition. Underpinned by our high-quality network of regionally relevant B2C and B2B brands, our portfolio includes exclusive fuel, T-store, fresh fruit offerings, and a variety of branded partnerships. These brands' strong regional connections have earned the trust and confidence of our customers over many years. By staying focused on our customers, we believe we have the right formula that leverages our enterprise capabilities and generates a superior customer value proposition. Scale matters in this business, and we have a meaningful density, particularly in Canada, where 85% of the population live within a 15-minute drive of a Parkland retail location. As we continue to increase the penetration of these brands across our retail and commercial businesses, we improve brand awareness and efficiency. Ultramar is a great example of a brand we have extended beyond retail to our commercial business across Ontario and Eastern Canada to bolster its profile. With convenience retailing specifically, each region is at a different stage of maturity. In many regards, Canada has been an incubator for our retail initiatives. The skills and capabilities we have built and refined are now being scaled across our U.S. and international businesses. This includes the unification of our convenience store brand across North America and advancing our Journey Rewards loyalty program across all geographies. Moving to slide nine, On the Run, or OTR, is our North American convenience store brand. We have continued to evolve and refine this offer over the past few years, in Canada. Based on its outperformance versus non-branded locations, we continue to have high confidence in what OTR can do for our non-fuel convenience store growth strategy. Some of the factors which underpin OTR's success include larger footprints, food offer, greater visibility from the forecourt, and locally relevant customer offerings. These characteristics have been important for years in our retail business, but even more so through COVID, when we saw a shift in customer preferences and shopping habits. During the past 12 months, the C-Store has emerged as a fill-in shopping destination, supplementing customers' grocery trips. In addition to great branding, products, and customer service, the hallmark of a leading C-Store business is having the operational agility to adapt to changing customer needs in real time. I couldn't be prouder of our team's quick response during COVID to make the required shifts in our product mix, adding new items, and shoring up our supply chain to remain in stock, all while continuing to serve our customers safely. When you bring this all together, on-the-run sites in 2020 delivered 20% more in point-of-sale dollars versus non-branded locations. Furthermore, we are encouraged by the shift we are seeing in the product mix to higher margin categories such as beverage, confectionery, food, and snack items leading to improved gross margin dollar contribution across our network. Our investment in OTR is clearly paying off. This gives us confidence to accelerate our role at Across Canada and introduce this great brand and capabilities across our US network. We will stand up five pilot locations of varying scopes in the first half of 2021. Once we've collected learnings from these pilots, we will determine the right pace of further rollouts over the following 24 months. If you are a customer of ours, you know that our promise is to help you make the most of every stop. The combination of our leading fuel, on-the-run convenience store, plus exclusive food partnerships like Triple O's do just that. They help create true convenience destinations. Our exclusive agreement with Triple O's harnesses the success we have experienced at our 25 high-performing locations in British Columbia and allows us to enter new, high-priority markets including Alberta and Ontario. Although COVID has made the immediate expansion more challenging, we are progressing as planned, with one location in Alberta and two recent openings in Ontario, all connected to the on-the-run brand. Each site opening has been strong out of the gate and is exceeding our expectations despite the ongoing pandemic. The one way for our partnership with Triple O's is long, given the quality of the offer in limited penetration outside of BC. For those dialing in from BC, Alberta, or Ontario, I encourage you to stop by one of our OTR and OOO locations to try one of their signature burgers, shakes, and fries, and earn two times the journey points while stocking up on convenience items at On The Run. Turning to slide 10, while our brands and exclusive partnerships form the foundation of our customer proposition, our loyalty program strengthens the connections to our customers and enables us to deliver highly personalized, timely, relevant offers. As you can see in the chart on the left, through a challenging market environment where passenger traffic has been impacted by COVID, we have exceeded our own expectations and have grown the Journey Rewards Program to around 1.9 million members. Journey is now available at approximately 1,000 sites across Canada, and we plan to convert our fast gas locations to Journey by the end of the year. This will make Journey one of Canada's top three fuel and convenience store reward programs by site count. Membership is not the only statistic we are proud of. There are many underlying trends that speak to the quality of the program and the way it drives customer engagement. For example, approximately 70% of new members have opted in for communication. This is substantially higher than the industry average and allows us two-way dialogue with our members leading to more personalized offers. Supported by our strong communication opt-in, recent promotional campaign results demonstrate our ability to drive member engagement and improve our share of wallet. For example, a recent campaign offered members an additional benefit when purchasing higher margin premium fuel and drove a 9% lift in premium leaders sold and a 5% lift in average fill versus the pre-promotional run rate. These improvements were experienced across all fuel brands. Similarly, offering members an additional vendor-funded benefit when purchasing specific C-Store items led to 80% of members purchasing one of those products for the first time and 70% adding an additional item to their basket. The results of these promotional campaigns demonstrate why we are seeing higher fuel average fills and convenience store basket sizes for Journey members. So where does Journey go from here? We're focused on three near-term steps to evolve and expand our reward program. First is about refinement and personalization. Having teamed up with Amazon Web Services, we are progressing our personalization engine at an enterprise level to become more targeted and efficient with our marketing investments. Secondly, given the success of our partnership with CIBC, we intend to look at additional partnership opportunities to raise the program's profile and reach while enhancing choice and its value to our customers. Finally, Journey will become the branded rewards program across all of our geographies. While the program design will be adapted for local markets, the fundamentals of the program will remain the same and the benefits we are already capturing in Canada will be scaled across the enterprise. New program launches are scheduled for select U.S. and international markets in the back half of this year. Loyalty is just one way we are accelerating the connection to our customers, and it's only one example of how we are embracing innovation. I look forward to speaking with you again on our November Investor Day, where I'll provide more details on the initiatives that underpin and enable our digital and innovation strategy. With that, I'll turn it back to Bob.
spk03: Thanks, Ian. That was a great overview, and it sets the tone for a year of continued organic growth across Parkland. To wrap things up, before we invite your questions, I'd summarize by saying that I am delighted with our first quarter performance. Adjusted EBITDA of $314 million puts us firmly on track to hit full year 2021 guidance. Our growth platform is stronger than ever, not only just for acquisitions, but also to consistently deliver organic growth. We have a proven track record of disciplined value creation. We are confident in our ability to hit our our ambition for $2 billion of run rate adjusted EBITDA by the end of 2025, driven by the key strategic pillars that have made us successful for a long time. Building on our investment in sales and marketing, we have a strong pipeline of opportunities which support our ability to grow organically across all regions. The results we have seen to date give us confidence to invest further. Ian gave some great examples of this, and we will continue to innovate to improve our customer experience and become more efficient, allowing us to build on our track record of driving growth. We have a depth of high-quality consolidation opportunities alongside a proven track record of synergy capture, which supports our ability to acquire prudently and integrate effectively. We have announced or closed five transactions to date this year, which demonstrates that capability and we see opportunity in Canada, the U.S., and our international business. Importantly, we have the financial toolkit and discipline required to execute. We are fortifying our supply advantage by leveraging our scale and infrastructure to enhance margins, and we continue to invest in our Burnaby refinery. The strong results and co-processing record we set at Burnaby in Q1 underpin the attractiveness of that asset. I also want to highlight that our supply advantage supports organic and acquisition growth in multiple product lines. Diesel and LPG are great examples of what differentiates our business model and where we see growth potential. Finally, thank you to Marcel and Ian for their comments on today's call. Their insight is representative of our One Parkland team, which has the experience, diversity, capability, and high performance mindset to deliver our goals. These attributes are what have made us successful over the past decade. Coupled with significant opportunity for Parkland to participate and lead through the energy transition, I am extremely excited for our future. I look forward to outlining this opportunity set in detail at our November Investor Day. Thanks to the entire Parkland team for all their efforts to deliver a great first quarter and setting ourselves up for a successful year. I would now like to turn the call back to the moderator for questions.
spk00: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by one on your touchtone phone. You will hear a three-tone prompt acknowledging your request and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star followed by two. If you're using a speakerphone, please lift your handset before pressing any keys. One moment for your first question. Your first question comes from Neil Mehta with Goldman Sachs. Please go ahead.
spk16: Good morning, team. Thanks for doing this. My first question is on the quarter, you guys put up $314 million of adjusted EBITDA. The guide here for the year is $1.2 billion. So in what's typically a seasonally weaker quarter, the first quarter, you guys are annualizing above the midpoint of the adjusted EBITDA range. So can you talk about how you're thinking about the moving pieces that go into the 2021 earnings power? Fuel prices obviously rising. Canada continues to have lockdowns. Volumes seem to be performing very well in the US, and merchandise feels like it's working for you guys really well. So talk about those moving pieces and your conviction level in terms of potentially even beating the $1.2 billion.
spk03: Great. Thanks, Neil, and thanks for the question. You know, in terms of our guidance, you know, look, we had a great first quarter, and I'm really pleased with the results. You know, the scorecard was green across the board, which is great to see. You know, as we look forward, I mean, the business environment is similar. You know, we do see volatility in volumes across various markets because of COVID. But we do expect that as vaccines continue to roll out in key markets, that that will stabilize and we'll see volumes come back to 2019 levels. You know, something that we're seeing in our U.S. business, that volume is coming back as people, as public health measures kick in, vaccinations are delivered and people feel confident to travel again. You know, I would say, you know, when you look, again, given the underlying performance here at the beginning of the year, you know, certainly a back-end recovery will bode very well for Parkland and should certainly ensure that we meet or beat that guidance number that we've put forward.
spk16: Thanks, Bob. And the follow-up is just bridging between the $1.2 billion and the $2 billion target that you laid out here. in the release for 2025, recognizing we're going to have an analyst day, we're going to put more meat on the bones, but just provide a sort of high-level framework about that bridge and how much of it you see coming organically versus inorganically.
spk03: Sure. The $2 billion really builds on top of the investor day we did in 2019. where we outlined the pillars for growth across all three regions of our business, plus our supply and wholesale business. And what we're doing is confirming that. And also, what we've seen over the last couple of years is a lot of investment in our underlying capability to ensure that we can deliver that. and Ian provided some great examples of the organic growth initiatives that we've put in place, you know, that we were investing in over the last couple years, and now we see really starting to drive performance, and we will continue to roll those out, not only in Canada, but across our other jurisdictions. You know, the other piece that we now have is our M&A opportunity, which we've talked about in the past. You know, we have lots of small to medium opportunities that enable us to hit that target. And as we look forward, the composition of that is roughly 50% M&A and 50% energies and organic growth. So, you know, again, a target that feels very comfortable. And given our geographic and product breadth, we have a lot of opportunities that we can pursue to fulfill that.
spk08: Thanks, guys. Appreciate it.
spk00: Your next question comes from David Newman with Desjardins. Please go ahead.
spk01: Good morning, folks. Congrats on the great set of results. My first question of the two is just on digging down in Burnaby a little bit. I mean, it's really impressive the outperformance that you've had in, you know, defying COVID, I would call it. The elements of the outperformance, what elements are sustainable between optimizing sales, channels mix, HDRD? And do you expect that posting these kind of numbers in terms of utilization, is that sustainable? And how do you frame this on a recovery? I mean, it looks like you could almost run up against capacity constraints. So maybe just digging down on What elements are sustainable with the biofuel and the ACRD benefits and then longer term on utilization?
spk03: Great. Thanks for the question, Dave. You know, look, our team, you know, the Parkland team has really done a stellar job in optimizing the Burnaby asset, you know, among many facets, which has allowed us to maintain an industry-leading utilization And also the introduction of biofeedstocks, which, again, is an industry first, has really helped us make sure that we can meet our compliance obligations in the most cost-effective manner. I'll turn it over to Dirk, and Dirk will give some more detail on the optimization activities at the refinery.
spk14: Yeah, thanks very much, Bob, and good morning, David. When we're looking at the refinery, Yes, we were able to hit a high utilization rate. Fundamental to that means that we're able to clear the inventory. That would be gasoline, diesel, and jet. And we're fortunate to have some good contracts at that Vancouver International Airport because jet has been the difficult item to clear for most refiners. With the expected turnaround, we're expecting those volumes to pick back up, and that would be across the board for all types of flights. So as we're looking forward, we see that we can be able to maintain that utilization rate. Keep in mind that in Q4, we've already announced that we've got like a mini turnaround pit stop. That would be two to three weeks. So that's why we have that utilization of 85% for this year. But as we look forward to the other parts of this year and into next year, We think we can get right back to the normal utilization rates, which would be taking us to that 92% to 95%. Couple that with the benefits that we get from the biorefining, which helps us meet the stringent British Columbia low-carbon fuel requirements. For us, this is a cheaper way to meet the pathways to those regulatory requirements. So we're feeling quite positive. Again, a lot will be driven by the crack spreads, but the cracks have been pretty good, relatively speaking. When we look at it, it's just a little bit below the running three- to five-year average. We'd expect that to normalize. So we're feeling pretty positive what we see at the refinery. And as Bob has mentioned, the team at the refinery has done an incredible job of being able to feed in the biofeed along with the crude, and run it safely and consistently. And as we went past through the last year's turnaround, part of what we were looking for with the work we were doing, it was to increase our efficiency at the refinery and keep the refinery up and running at a higher utilization rate. So those benefits are starting to reap through to us and we'll be able to enjoy those for the rest of this year and next year as well.
spk01: Excellent. Thanks, Dirk. And then my second question is, I'm sure we all feel a little bit like caged animals with this COVID staying in and we're all ready to go out there in the world then again. And if you look at it in terms of like cruise lines, airline traffic, driving, maybe an elevated level of staycations this summer, I think things are getting booked up in Canada across the board. Any KPIs that you can point out that you think that maybe there's a possibility that we could actually overshoot coming out of this in the second half of this year? Are you seeing any telltale signs at all in the horizon that gives you more confidence?
spk03: Yeah, David, you know, a number of items that we're seeing across the board. Again, in the U.S., we've seen gasoline demand pick up quite robustly in the markets that we're operating in. And we'd expect to see that in Canada as things start to come back. On the international side, markets are starting to open up. And anecdotally, we are seeing activity pick up on the – you know, on the tourism side, we are seeing our jet fuel start to come back in key markets. And, you know, again, expect that there is pent-up demand for travel. And we'll see that, you know, not only locally, but also through, you know, hopefully some air travel into down south, you know, particularly as we get into the back end of the year and the weather starts to get colder. You know, again, on the... On the crew side, again, we're certainly hearing and what we've heard from our customers is that they have bookings, record bookings going into the back end of the year. And presumably as restrictions get lifted, we'll see a rise in demand. So overall, presuming that... vaccinations continue to roll out and people feel confident to travel. We're feeling quite bullish around the back end of the year.
spk01: Excellent, gents. We'll see you down on the beach. Thank you very much.
spk03: Thanks, David.
spk00: Your next question comes from Ben Isaacson with Scotiabank. Please go ahead.
spk04: Thank you, and good morning, everyone. First question is on rumors that I'm hearing about a gasoline shortage. in the U S and Canada due to, um, limited number of truck drivers. I can see a path how that could be negative and a path that could be positive for you. Can you talk about your own fleet first of all, and then what, what kind of impact do you think that could have in your business from a margin point of view and from a volume point of view?
spk03: Yeah. Thanks for the question, Ben. And, and, you know, look, uh, um, You know, we are seeing that in the U.S. business. I mean, drivers are in short supply. You know, I would say it's not something that is new to us. I mean, we've always prided ourselves on being able to recruit and retain the best drivers in the industry. But we're fortunate in most jurisdictions we run our own fleets, so that gives us some flexibility. to compensate for potential shortages in drivers. We can work a bit of overtime. And again, we do focus on retaining and making sure that we keep our drivers at parkland. In terms of the impact, again, costs tend to run through into the market, extra costs. And also... You know, if we do see a shortage, it does tend to work its way through on the volume margin side of the business.
spk04: Great. And then just a quick one on COVID. So your volume in Canada looks like it was down around 10%, 11% year over year. How did you enter the quarter and how did you exit the quarter? Are you back towards kind of sub 5% yearly? year over year, even though I guess Q2 was the start of COVID last year?
spk03: Yeah, you know, it's interesting. I mean, it's been kind of flat through the quarter at that number that we published. And again, we've seen markets, there's been volatility across our markets. You know, the one thing that we haven't seen that we saw last year as markets go into more severe lockdowns we're not seeing the level of decline in demand so people are still moving they're still going to work and we're seeing demand actually hold in quite well given particularly in Canada given some of the lockdowns that are in place great thanks so much great thanks Ben
spk00: Your next question comes from Kevin Chang with CIBC. Please go ahead.
spk11: Thanks for taking my question this morning, everyone. Maybe I've got to ask about Canadian fuel margins. Just looking at my own model, this looks to be at least the second highest I have going back a few years here. And it seems like part of this, outside of just kind of a volume margin, you know, mix that you talk about is maybe the opportunity to leverage some of that big data or data mining to kind of maybe increase the efficiency of the quality of your revenue. And just wondering, you know, what inning are you in terms of maybe harvesting that data to kind of maximize profitability? And then when you think about leveraging that into your U.S. and international markets, segments, how should we think about that as well as how should we think about this capability as you think about the synergy capture when it comes to your M&A pipeline?
spk03: Yeah. So let me talk about volumes and margins. And again, I'll ask Ian here to assist me, but I would say Again, across our business, what we've seen through the pandemic and certainly in the last quarter is the resilience of the platform. We've seen volume margin and costs, and the team has been able to manage that quite effectively to make sure that we preserve our cash flows. In terms of the digital work we've done around our pricing and how we're rolling that out. I'll turn that over to Ian, and Ian can comment on it. Ian does lead our digital group at Parkland.
spk05: Sure. Thanks, Bob. Yeah, and Kevin, appreciate the question. As Bob said, I would suggest that there's two factors at play. One is there is a market condition, and given the role we play in the market, it's important that we And we know we have an impact on that. So a big part of that is ensuring we're making the right decisions. And I would say we are much better at pricing at a micro market level from a fuel perspective, but also want to deploy those capabilities more around dynamic pricing into the convenience store and also across other jurisdictions, including our B2B business. So I would say what we're experiencing right now is a combination what we're seeing in the market, but also our ability to read the market, react, and utilize some of the digital capabilities that we have developed and will continue to progress.
spk11: Okay, that's helpful, Collar. And then I know we'll get more details on this, on the $2 billion target that you reiterated on the press release yesterday. But I'd be interested in knowing, when you initially talked about $2 billion at your investor day versus maybe how you see the path forward, Post-pandemic, just wondering if there's any changes in the moving parts in terms of how you think you get there. How does energy transition play a role today maybe versus what you would have contemplated, I guess, two years ago? Just be interested to know, are there things you could point to that are different now versus the investor day back in 2019 when you initially laid out this $2 billion target?
spk03: Kevin, I'll take that one. In terms of the $2 billion target, I would say, again, as we look at our business, we have a number of advantages that help us get to that target. Again, the first is our geographic diversity and the fact that we're in a lot of markets and markets that are still very fragmented. The second thing is our product diversity, which we're you know, gasoline convenience and then also in our diesel and propane businesses. You know, as we look forward and start to take into account potential impacts of energy transition, you know, how has that changed? I mean, I would say consistent with what we've talked about in the past, first and foremost is a focus on good, strong non-fuel and convenience revenue. and looking for good assets. And I think the recent transaction we announced in the U.S. CNB is a great example of that because it really brought some top-tier convenience sites to us that are destinations that have a good, strong food and convenience offer. The second thing is continuing to grow our diesel and our propane businesses. you know, we've seen, and we can do that across all of our jurisdictions, both organically and through M&A. You know, our diesel business, again, I'll point to CMB, which has a strong commercial element and also some good infrastructure to enable import into the market. And again, we see that as a good basis on which to build and grow that business in that jurisdiction. The third is in our propane business. And we see opportunities in our international business to add propane volume. We've made investments there in our propane distribution capability, which have extended our supply advantage beyond gasoline and diesel into propane. And then we recently announced the or closed in the quarter, the acquisition of two LPG terminals in the Midwest, which further cements our wholesale position in those markets. So those are some of the typical assets that we're buying that we see as long-term assets. And certainly, you know, we see a good pipeline of those going forward, and those will persist through the pending energy transition here.
spk11: That's very great, Collin. Thank you very much.
spk00: Your next question comes from Vishal Sridhar with National Bank. Please go ahead.
spk02: Hi. Thanks for taking my questions. You've referenced points about this throughout the call, but everyone is talking about inflation and wondering what the impact is on your business We're already seeing a little bit of pressure on working cap associated with rising commodity prices. And I know it's not a massive part of your business, but U.S. fuel margins are starting to fade a little bit here. I'm wondering if there's other things I should consider, maybe wages, what you see there, pressure from some store product margins or other attributes. How's management thinking about that?
spk03: You know, look, I would say... You know, when it comes to the underlying commodity, I mean, the price where it's at, it's been there before. So our business is, you know, well, it's used to and from a working capital perspective, you know, we can certainly accommodate that. And again, you know, our business is a fixed margin business or is a margin business on top of the underlying commodity. commodity price. So we're really not that sensitive to where the price is in terms of our ability to, in terms of the impact on our margins. You know, in terms of base inflation in the business, yes, you know, we have been seeing costs escalate, which we've been seeing here for quite a while. You know, even in certain jurisdictions mandated increases in minimum wages have been something we've been dealing with over the last several years. And, you know, we tend to be able to pass that through to the customer base. And, you know, that's something that we've seen consistently over the years and wouldn't expect that to change.
spk02: Okay. Thank you for that, Collar. Just switching gears here, and I recognize it's early days, but management referenced electrical vehicle charging issues. and wondering how, at this point, management sees that initiative. Is this an initiative that you see meeting the typical target threshold that PKI aims to achieve, or is this more of a test and learn initiative, and then as you learn more about the initiative, then you'll deploy it potentially in scale at your typical return targets?
spk03: Yeah, it's... I mean, look, our... Initial forays here are on a very small basis, and we've gone into various markets and tested with charging alongside our convenience. We are evolving our thinking here, and particularly in markets where we're starting to see higher adoption rates in EVs, we think there's a good opportunity to start to roll out an EV charging proposition. that we can meet the energy needs of our customers independent of the type of vehicle that they're driving. We do think that the pillar of that is a good, strong destination food and convenience offer. We're well positioned, particularly in BC, where we are seeing increases in, certainly in the new vehicles sold on the EV side, to start to play in that market. Certainly when we look at certain European countries that are ahead in terms of adoption, there are some encouraging statistics around dwell time and the amount that consumers are spending once they get to a site and are waiting for their cars to charge. So stay tuned. We are doing a lot of work, and we'll be keeping our investors updated on these initiatives as they roll out here in the back half of the year.
spk02: Okay. And management earlier referenced the 2019 Analyst Day and it laid out a variety of initiatives to help achieve the ambitious goals that were set. I'm just wondering, like, In terms of the progress made, there's some initiatives which may have been delayed because of COVID. I think one of the initiatives that was talked about was improving interprovincial and U.S. to Canada commercial volumes, making it easier for your customers to cross boundaries and increase volume that way. Is that initiative still a key initiative for Parkland and has it been able to make progress since that analyst day.
spk03: Yeah, I think you're talking to our NFN platform, and you're right. We did idle that last year due to COVID and just reprioritizing. It is something we've reinvigorated this year and expect to be in market with that proposition in the back half of the year.
spk08: Thanks for the comment.
spk00: Your next question comes from John Royal with JP Morgan. Please go ahead.
spk10: Hey, good morning. Thanks for taking my question. I was wondering on the relative strength of the Canadian dollar, the types of levels we're seeing now were contemplated in your guidance for the year, and what kind of sensitivity does your overall business have to movements in the currency?
spk03: Thanks, John. I'll turn that question over to Marcel, who can talk about the impacts of FX on our business.
spk09: Yeah, no, thank you for the question there, John. So maybe just as a basis, most of our markets, whether it's in Canada or the US or, of course, the international business, the US dollar plays a very important part just because the base pricing is like that. And so we generally see a natural hedge when the dollar is moving all the way up to the consumer pricing, of course. A couple of effects, and we talk about it in our results. So when I talked about the international business being impacted by a $4 million kind of FX effect, that's just a translation. They did better in US dollars, but when you then translate that back to CAD with the stronger Canadian dollar, you know, that has a $4 million impact. So that's a translation effect on the accounts, if you say. Then on our balance sheet, you know, if you look at our balance sheet, we talk about, you know, the OCI and the way that our balance sheet overall is positioned. And what we're trying to do there is match our US dollar assets on the balance sheet with US dollar debt. So those two kind of offset each other. And we're looking at that. And beyond that, from a kind of operational perspective, we clearly monitor our currencies, particularly those in the international business. We monitor that closely. We don't have a very active hedging program. We would only do that if we have material exposures to a currency we normally don't deal with. But even in those markets that aren't US dollar price, we typically see that FX movements, you know, get passed on to the end consumer relatively quickly. So I hope that answers your question there, John.
spk10: Yeah, it does. That's really helpful. Thank you. And then second one might be sticking with Marcel. Just on the CapEx, it came in pretty light this quarter relative to, you know, just thinking of an even allocation to your guidance. And I see the guidance is unchanged. So just wondering if you can discuss the cadence of CapEx a little bit for the rest of the year and where some of that lumpiness may be coming from?
spk09: Yeah, no, that's, do you want to take that, Bob?
spk03: No, no, no, Marcel, you go ahead. I was going to push it your way. Thank you.
spk09: No, the, so John, so in, as Dirk already mentioned, the second half of the year, of course, we have the turnarounds at Burnery or the shorter turnaround there. So that will take up some capex. So that's going to be a bit more, you know, backloaded. Also, as you recall, last year, we, you know, we took quite, we stopped quite a bit of activity or we paused that. And so we just, you know, kind of getting up to speed with some of that activity. So while quarter one, you know, was relatively, you know, kind of relatively slow. There's a lot of work that's being done on the line, and so we still feel that the guidance that we've given for CapEx will be there by the end of the year.
spk08: Great. Thank you.
spk00: Your next question comes from Michael Van Elst with TD Securities. Please go ahead. Hi, thanks.
spk06: I guess this question's for Ian. Regarding your Canadian same-store sales, we've seen some... some meaningful changes in the customer shopping habits. And, of course, you've also had some pretty strong company-specific improvements with your loyalty, the on-the-run, and the private label. I'm wondering if you have a sense as to how much of the improvement you've seen over the last four quarters is more driven by company specifics and, therefore...
spk07: whether or not you think you can continue to show some growth as you allow these really strong comps.
spk08: Yeah, Michael.
spk05: Yeah, sorry, Bob. You okay?
spk03: Yep.
spk05: Great, thanks. So, yeah, I think certainly we've had a strong 2020, as you pointed out, and part of that was seeing that shift in consumer demand and behavior I would say more broadly, though, the channel as a whole is playing a bigger role in consumers lives. And the big I think the important component to consider is that the investments we've made in in in in upgrading our locations, but also in, you know, in the brand and in the capabilities like loyalty that by the way, we did launch in the middle of a pandemic. We're really starting to see that getting closer to the consumer. is paying off. So I've got a lot of confidence in the team's ability to continue to drive strong comps. We're lapping strong comps as well on a year-over-year basis, but we certainly, as Bob pointed out earlier, we see a good sort of long road of organic growth ahead of us in this area.
spk06: What are you seeing or what are you thinking of from either a promotional standpoint or other strategic initiatives that you'll do to try and keep that customer from going back to old habits and shopping more at grocery stores rather than kind of mixing it up with closer to home C-stores?
spk05: I think it's a couple of things. One is we were fortunate enough to remain an essential service to remain open during consumers' times of need and to do it really well. So I think the connection that Our brands and our local teams made in our communities, in my view, withstand the test of time. And that's something I think that will resonate for many, many years. And every survey and consumer perspective, you know, I read and hear about indicates that consumers will continue to reward brands that did the right thing for them in times of need. So I think we've got a very good halo there. Secondly, what you'll start to see us do, and that's the reason we gave some color around our early impressions of the rewards program, is we'll be able to become more targeted and more personal. Today, it's largely a mass message that reaches everybody, and there's a bit of a lack of efficiency around that from a marketing spend perspective, which you'll start seeing us do as membership in our programs grow And the stickiness with our consumer base grows as you'll see more targeted, you know, personal offers and more choice for consumers. So I think, you know, the combination, as Bob alluded to earlier, of us investing in the business, you know, both from a physical attribute perspective, meaning, you know, more sites, you know, better locations, but also the investments we're making in these programs, you know, we think, again, is an important growth engine for us.
spk08: Great. Thank you.
spk00: Your next question comes from Eric DeLay with Canaccord Genuity. Go ahead.
spk15: Yeah, thanks, guys. Just a question on the $2 billion ambition. I think you mentioned in your remarks that roughly 50% of that would come of the incremental would come from acquisitions. And if I recall back to 2019, that number was 75%. So can you just talk about what you're seeing or where the improvements that you've you know, you've seen on the organic side that have kind of brought up the organics part of that equation?
spk03: Just to clarify, Derek, it is about the same. You know, it's about 75% M&A plus synergies and 25% organic. You know, we've split it. It depends how you split it. It can also be 50% acquired and then 50% organic plus synergies. So just to roughly, it's just a different way of slicing it. Again, you know, look, when we do look at it, we do have a proven track record of being able to buy great assets that we can add value to our underlying and, you know, can demonstrate that we can deliver anywhere between 20 and 50% synergies with each acquisition. So quite confident that we can hit those numbers on top of our continued organic growth commitments. So.
spk15: That makes sense. Yep, that makes sense. That helps clarify what I thought was the difference there. And then can you just comment on what you're seeing in terms of the increase here that we've seen in oil prices? How has that affected the business? I'd imagine it's led to some incremental activity in the U.S., but what about crack spreads in the refinery as well?
spk03: Yeah, in terms of activity, you know, again, in certain jurisdictions, it does help, you know, particularly Alberta and our northern U.S. business, you know, as exploration activity kicks back in, that will help those jurisdictions. I mean, on an overall corporate basis, they're not really material, but it is always nice to have the incremental volume. Dirk, do you want to comment on what we're seeing in terms of the crack spreads?
spk14: Sure, and thanks very much, Bob, and good morning, Derek. Yeah, when you're looking at the crack spread, remember the crack spread is comparing two items. One is the cost of the underlying commodity, so in our case crude and biofeed, and then the other part of it, which is the revenue side of it, is what the price that we get for gasoline and diesel and jet And so the crack spread sometimes will vary as the commodity price moves up. Sometimes it will hold steady. What we have seen over the last little while is a small improvement on that crack spread. But just remember that the two are interlinked, i.e. the feed input costs and the revenue of the finished products. And so even in a high commodity price environment, you can get periods where there's high and or low crack spreads, the same with when the prices go down. It's really the interplay between the inputs and the outputs. But as we have seen, we've had some pretty decent crack spreads even during a downturn. And as we look through the last few months, we've seen a steady but small increases to the crack spreads.
spk08: Okay, great. Thank you very much.
spk00: Your final question comes from Steve Hansen with Raymond James. Please go ahead.
spk12: Oh, yes. Thanks for the time here. I'll be quick with a single. First of all, glad to see the Triple O's franchise extending beyond BC as a resident. It's a fantastic offer. But my question is really around the journey program extension into other geographies, the U.S. in particular. CIBC has been obviously one of the important key pillars or partnerships around your journey success thus far. How should we think about partnership opportunities as you extend the brand into the U.S., and what kind of partners do you feel you need to ultimately make sure it's successful down there? Thanks.
spk03: Great. Thanks, Steve. And I'll turn that over to Ian.
spk05: Great. Thanks, Bob. Steve, great question. And you're right, we've had a very successful partnership with CABC to this point. It's brought profile to the program. It's brought a tremendous share of wallet opportunity for Parkland. And as I referenced in my comments, we do believe that there are natural partnership extensions. So I would say certainly financial services is an area we see being a key role, but other areas such as grocery, travel, et cetera, um uh we think would be natural um uh natural sort of partnerships that we should we could be pursuing so i would look to you know over time as we progress uh this capability in the new geographies to see you know a similar partnership um a pursuit of similar partnerships with some tweaks again subject to um to the local markets and and and to the brands and and and various um
spk08: services that those markets require. Okay, great. Well, thanks.
spk03: That concludes our Q&A period today. Would really like to thank everybody for participating and look forward to chatting in August when we announce our Q2 results.
spk00: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.
Disclaimer

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