Parkland Corporation

Good morning. My name is Marcella and I'll be the operator assisting you today. At this time, I'd like to welcome everyone to the Parkland 2022 third quarter results analyst conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press star, then two. Thank you. I would now like to turn the conference over to Valerie Roberts, Director, Investor Relations for Parkland. Please go ahead.

Thank you, Operator. With me today on the call are Bob Espy, President and CEO, and Marcel Tunison, Chief Financial Officer. This call is webcast and I encourage listeners to follow along with the supporting 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 if necessary. And if you have other questions, re-enter the queue. We would ask analysts to follow up directly with the investor relations team afterwards for any detailed modeling 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 revised annual information form and management's discussion and analysis. We will also be discussing non-GAAP and other financial measures, which do not have any standardized meanings described by IFRS. These measures are identified and defined in Parkland's continuous disclosure documents, which are available on our website or on 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 today are expressed in Canadian dollars unless otherwise noted. I will now turn the call over to Bob.

Great. Thank you, Val. And good morning. We appreciate you joining us today. I'm pleased to lead off by highlighting that we completed our consolidation of Sol in mid-October. We also closed our acquisitions of Husky and GB Group's Jamaican business during the quarter. With all previously announced deals behind us, we remain focused on integration and capturing synergies to grow cash flow, while lowering our leverage ratio and increasing distributions to shareholders. Our recently closed transactions include our acquisition of 163 Husky retail sites. These sites are located in the following markets, Vancouver Island, Vancouver, Calgary, and Toronto, where we already have a supply advantage. These sites help to fill in some of the white space in our Canadian retail network and create more opportunities for us to engage with customers and better serve their needs. Our teams are excited to welcome this network to Parkland. In integrating these Husky sites, we will leverage our industry-leading controlled fuel brands of Chevron, Pioneer, and Ultramar, as well as our on-the-run convenience brand. We will also enhance our food offerings and introduce journey rewards. Similar to the Calgary Chevron location you see on the Once these rebrands are complete, we expect a significant uplift in performance and customer traffic. With that, let's dive into the quarter. As followers of Parkland, you know that over many years we have demonstrated our resilience, building a durable business, delivering consistent operating performance, and exceeding the ambitious targets we set for ourselves. Through the quarter, commodity prices experienced unprecedented volatility. The net result was a 27% fall in WTI, 33% fall in U.S. gasoline, and a 17% fall in U.S. diesel. In some local markets, this volatility was amplified, creating significant local imbalances. Parkland is not alone in experiencing these market dynamics. This impacted our USA segment. where volatility led to losses. Excluding these, Parkland USA performed in line with expectations. We have taken definitive steps to ensure this is not repeated. We have curtailed our USA business and have contained the impacts to the third quarter. We expect our USA segment will return to normal run rate in Q4. It is important to note that in the first nine months of 2022, Parkland has generated approximately $1.2 billion of adjusted EBITDA. This is a record for our company, which highlights the underlying strength and resilience of our business. It also provides us with confidence to deliver our 2022 guidance range of $1.6 to $1.7 billion. Let me touch briefly on our balance sheet, shareholder distributions and growth. Until now, we've been primarily focused on growth. However, with the completion of our acquisitions, we will now focus on deleveraging, enhancing, and enhancing shareholder distributions. I remain confident we can achieve our mid-decade growth target. I'll now turn the call over to Marcel to speak in more detail about the financial results on slide four.

Thank you, Bob, and good morning, everyone. I'll start with our Canadian segment, which delivered an adjusted EBITDA of $140 million, which is up 4% year over year. This was driven by higher fuel unit margins the M&M, Volpec, Husky, and Cravier acquisitions, and growth in our card lock businesses. And as prices at the pump retreated during the quarter, we saw average fill rates increase, and we continue to see good backcourt conversions supported by our merchandising strategy. Same-store food and company C-store sales, excluding cigarettes, grew over 5% compared to Q3 2021. Center of store continues to perform well, reflecting the higher volumes and our pricing strategy. Quarter over quarter, candy was up 9%, salty snacks were up 14%, and packaged beverages were up 11%. We continue to grow our journey loyalty program, adding 300,000 new members in the quarter. This brings our total membership to approximately 3.8 million. Loyalty members shop in our stores more often, buy more products, and buy more fuel compared to non-journey members. We completed 17 on-the-run conversions in the quarter and now have about 400 in our network. We continue to roll out a refreshed store design to enhance the customer experience and create convenience destinations that our customers actively seek out. Our international segment delivered an adjusted EBITDA of $104 million, up from $83 million in the prior year. These results include 100% of the sole business from August 4th when we signed the deal. Excluding this contribution in the third quarter, international was up 5% year over year. Volumes increased nearly 30%, primarily due to returning tourism, and we expect increased aviation traffic to provide a meaningful tailwind heading into Q4. In our USA segment, we recorded an adjusted EBITDA loss of $18 million. Excluding the wholesale losses, which we previously spoke about, our underlying operations delivered an adjusted EBITDA of $47 million. This is up 9% year-over-year and is in line with our expectations. In the USA, our retail and commercial volumes grew 14% year-over-year, driven by our acquisitions. We continue to see strength in fuel margins, particularly on the retail side of the business. And also during the quarter, several new major account wins helped triple the size of our marine business. Moving to the refinery, reliable operations resulted in a composite utilization of 94% during the quarter. We generated an adjusted EBITDA of $135 million. This is a top five quarter for the refinery. And these results reflect higher operating and compliance costs, as well as higher trailing crew prices in a declining market. Some of these items are transitory in nature. As a rule of thumb, we expect to capture approximately 70% of crack margins over time, but volatility impacts this number quarter over quarter. As a reminder, we have a six to eight week planned turnaround in the first quarter of 2023. In total, Parkland delivered $328 million of adjusted EBITDA in the third quarter. While parts of our business performed well during the quarter, some fell below our expectations. We do see the benefits of our strategically diversified business, which provide resilience through volatile times. With that, let's turn to slide five. During the quarter, our leverage ratio increased 0.3, turns to 3.5. Lower adjusted EBITDA in the third quarter compared to Q3 2021 increased our leverage by 0.2 times. Payments for the Jamaican Husky acquisitions increased our level ratio by 0.1 time in the quarter. These were the last of our previously announced deals. We have started to see some working capital release with declining commodity prices, and this is reversing part of the increased experience in the first half of the year and lowered our ratio by 0.1 times. And higher foreign exchange rates immediately increased the Canadian dollar value of our US dollar denominated debt And while we do expect foreign exchange benefits in our international and U.S. business results, the trading 12-month impact will take time to work through our leverage ratio calculation. We continue to target a leverage ratio of less than three turns by 2023. Our leverage ratio may continue to be impacted by commodity price and foreign exchange volatility, but we are focused on the things that we can control, including operational execution to generate strong cash flow, and maintaining liquidity. Moving to slide six. We have a track record of disciplined capital allocation, and over the past two years, we have prioritized growth and completed about $2.9 billion of acquisitions, double the originally planned rate. Approximately 25% of these were funded by equity. We have now paused acquisitions and are focused on integrating and capturing synergies from the businesses we acquired. The economic environment has also changed, with higher interest rates driving higher cost of capital. And therefore, we have reviewed our capital allocation framework. We continue to be focused on lowering our leverage ratio to maintain a strong balance sheet and financial flexibility. Last year, we locked in lower interest rates and extended our maturities with the earliest bond due in 2026. In addition, we have $1.3 billion of liquidity at the end of the quarter, and Parkland is well-positioned to navigate an uncertain macroeconomic environment. Going forward, as part of rebalancing our capital allocation framework, we expect to allocate more of our cash flow towards shareholder distributions. For the last decade, we have delivered consistent annual dividend growth, and earlier this year, we increased our annual dividend by 5% to $1.30 per share. We believe our shares are currently undervalued, And as a result, we have decided to spend our dividend reinvestment program immediately. Using our existing NCIB, we expect to allocate some of our cash flow to buy back shares. This is the most attractive way to allocate capital at the moment. We also focus on high grading our portfolio, which is to be expected after the acquisitions we have done. This will include divesting assets and businesses that no longer fit our strategy or do not generate sufficient returns. Proceeds from this activity will be deployed within our capital allocation framework. In addition, we have a large pool of high return organic growth opportunities that will generate new cash flow and advance our strategy. We will invest capital at an appropriate pace. We remain disciplined in our new capital investment opportunities, such as the renewable diesel facility at the Burnaby refinery. We continue to advance the design and engineering of the project, but note that the environment has changed with higher inflation and changed government policy in Canada and the US, particularly the recently announced Inflation Reduction Act. We do believe that the project provides great economic and environmental benefits to Canada. However, we will review the economics of this project carefully before proceeding to a final investment decision next year. And with that, I'll turn it back to Bob for his final comments.

Great. Thank you, Marcel, for a great overview of the quarter. Before we open the line for questions, I will update you on some of the strategic initiatives which will contribute to our future success. Our business is resilient, and we have one of the most talented teams in the industry. The combination of our capabilities and strategic position allow us to seize the opportunities that lie ahead. You are familiar with the slide on the screen. We shared it in our 2021 Investor Day, and it has been a constant in each of our disclosures since. In our developed pillar, we have now completed all our previously announced acquisitions, as well as the consolidation of our international segment. These have added scale to our business and a platform for growth. and we see evidence of synergy capture, particularly with our recent BOPRAC acquisition, which is tracking ahead of plan. Our teams continue to drive organic growth, effective merchandising and new concepts in our sea stores, such as our food program, our driving center of store performance, and advancing our convenience destination model. In our commercial business, we are leveraging our capabilities and scale to win large accounts. We saw this during the third quarter in our U.S. Marine Division, which grew threefold. In our diversified pillar, M&M plays a central role in our food and convenience destination strategies. By the end of the year, we will have doubled M&M's presence with our on-the-run network from 150 locations to around 300. These doors within stores or M&M Express locations expand our proposition for providing customers with quality take-home meal options. Looking toward 2023, we are progressing a new store pipeline, including standalone and combined on-the-run stores across Canada. We also expect to launch a fresh food concept in the second half of 2023, which will expand our M&M brand into the takeout and dine-in segments. In our decarbonized pillar, we have upgraded the electric vehicle charging experience for our customers through the latest upgrade to our Journey app. I encourage you to download it and take a look. Our EV customers can now start, stop, and monitor their charging sessions directly from the Journey app. This eliminates the need for multiple applications and is a first in North America. It will provide us with insights on customer behaviors and enable us to deliver relevant cross-promotional offers. Let me wrap up by saying how proud I am of the Parkland team. We have the best in the industry. I would like to thank them for safely meeting our customers' needs. The senior team and I have tremendous confidence in the trajectory of each of our operating segments. In the USA, our retail and commercial businesses are strong and will continue to grow. In Canada, our retail business is resilient and growing, and the commercial business is entering the traditionally strong winter season. Our international business has delivered steady growth and is positioned to benefit from a strong natural resource sector and a resurging tourism industry. and the refinery consistently delivers safe and reliable operation and continues to deliver strong financial performance. These are just some of the reasons we are confident in delivering our 2022 guidance and meeting our $2 billion run rate ambition by 2025. With that, I'll now invite the moderator to open the line for questions.

Thank you. Ladies and gentlemen, we'll now begin the question and answer session. Should you have a question, please press star followed by one on your touch tone phone. You will hear a three tone prompt acknowledging your request. If you'd like to withdraw your request, please press star followed by two. If you're using a speaker phone, please lift your handset before pressing any keys. Your first question comes from Michael Vanlis from TD Securities. Please go ahead.

Hi, guys. First part of the question is just on the 2025 target of $2 billion in EBITDA, do you need more acquisitions to get to this level, or do you expect to see the organic growth pick up?

Yeah, look, we do have some good tailwinds in the business right now in terms of synergy capture. We're continuing to invest in our organic activities, and those – push us a long way to hitting that $2 billion target by mid-decade. Okay, so do you require any new acquisitions to get there? You know, look, it's something we'll update the street on next quarter.

Okay, and then I guess when you look at that, you talked about, I guess the second part of the question was going to do with your free cash flow allocation, because you I was wondering how you're going to balance that you're deleveraging targets to get below three times in 2023 while also returning capital to shareholders in the NCIB. So how active are you going to be on the NCIB and what's your confidence level of getting leverage below three over that time next 12 months?

Yeah, look again, and I'll pass it over to Marcel, but the business cash flow is incredibly strong. You know, we now have completed all of our acquisitions that were in our pipeline, which we stated that we would do previously. And as a result, that cash flow is now available to both DeLever and increased distributions to shareholders. But I'll let Marcel get some more color.

Yeah, Michael, for us, this is a balanced allocation of capital and free cash as we go in. And so our first commitment continues to be on deleveraging. We believe now that it will be, you know, somewhere during 2023 that we hit that three level that we talked about before. But also within that, we see sufficient room to start buying back shares. And we will do that in moderation, and we'll balance that also with having available liquidity and continue to have available liquidity just to manage the uncertain macroeconomic times, particularly in working capital calls if oil prices run up, and we continue to be focused on that. So it will be measured, and it will be balanced, trying to hit all of those.

All right. Thank you.

Your next question comes from the line of Ben Isaacson from Scotiabank. Please go ahead.

Good morning, everyone. Maybe just a follow-up on the last question, or maybe I'll just phrase it differently. So you've got $1.6 billion today, which only includes a little piece of the 25% of SOL. So perhaps your run rate EBITDA is maybe closer to 1.7 right now, and of course you're going to $2 billion by 2025-2026. Can you just bridge that gap of 300 million for us in terms of what kind of pockets should we expect that 300 million to come from? And then just as a follow up to that question, when we get to that 2 billion of EBITDA, what kind of free cash flow per share does that translate to? And does that include growth capex or not? Thank you.

Hey, Ben, thanks for the question. Lots in there. You know, look, So if you are, our run rate, so next year you're directionally correct on the EBITDA, and that is with the turnaround. So our run rate is, you know, indicatively about 100 million higher than that. And so that's the, and then to close the gap, look, the bulk of that can be done with organic growth. You know, and the team continues to work those opportunities and push them, so. You know, as as with respect to the couple of things around free cash flow, I mean, the growth is primarily in our marketing businesses, which are high cash conversion businesses. So it is very strong cash flow with low maintenance capex to maintain it. So now, however, to get to that 2 billion target, you know, we will be deploying organic cash flow, organic capital to achieve that.

And maybe also to add, Ben, we don't have a target out there for free cash flow per share, but it's something that as we continue to look forward to 2025, we may update the street on as well and give a number specifically in the future.

Okay. And if I could just sneak in one more, you did talk about getting leverage down to three or below in 23. Can you just give us, if you can, a little bit narrower goalposts? I mean, is that kind of early, late? And what is the risk to that? I mean, obviously we didn't expect to see this movement in Q3. Is there a risk that we could see that deteriorate a little bit further just because things are going the wrong direction?

No, look, let's just, we're not going in the wrong direction. You know, we did have this incident. I mean, look, I think if you step back and look at the, the strength of the balance sheet and the cash flow of the business, you know, you can chart a pretty clear path here to deleveraging. I mean, the other thing that Marcel did allude to in our discussion here was some divestitures, which we're looking at in some parts of the business, which will help us get there. We're confident we can get there next year.

Yeah, that's a fair point. Thank you very much. Appreciate it.

Your next question comes from the line of Neil Mehta from Goldman Sachs. Please go ahead.

Hey, good morning. This is Carly on for Neil. Thanks for taking the questions. You made some references to divestments in the prepared remarks. Can you just flesh that out a little bit? How are you thinking about what's core versus non-core in the portfolio, and are there any processes that have kind of started that we should be keeping in mind? And then I guess as you think about proceeds from any type of

transaction how would you think about allocating those to debt pay down versus buybacks yeah why don't I kick off with what's for sale and Marcel will talk about how we use that cash you know first part of it is focused on our Canadian business and our network planning you know which is something we always do but you know, with the recent growth we've had, you know, particularly in adding some of the more recent acquisitions, you know, we are, we will continue to push our network planning, and there are some sites that, you know, we'll potentially be divesting here. Now, that'll be primarily used to fund continued organic growth in that business. And then, you know, we do have some pieces of the business in, you know, as we've grown, that we've accumulated, that we can particularly in some of our commercial product lines.

Yeah, and then in terms of, you know, some of the larger chunks of divestments, as we look at it, of course, we run carefully through a process, and we currently don't have anything yet underway, but in preparation there, make sure that we understand the market as well. And as those come to fruition, We'll just look at our capital allocation framework with the priorities and the balancing that we laid out before and how we do that. But for the larger pieces, the majority of that will go to those first two priorities, which is, you know, bring the leverage down and number two, kind of additional shareholder distributions.

Great. Thanks. That's helpful. And then just wanted to follow up on the refining side. 4Q started off quite strong from a margin perspective on the West Coast. Can you just talk about how you're thinking about the moving pieces impacting capture rates for 4Q? And then are there any hedges in place at that business that we should be keeping in mind?

Yeah, no, let me, let me comment on that. So, you know, similar to, you know, some of the headwinds that we saw on the third quarter in terms of prices coming down, we've of course seen absolute prices come up a bit in the fourth quarter. So that will be helpful. And while the, while the, you know, the crack spreads are high, I would just point out again that when diesel cracks are high, typically compliance cost is higher as well, because that's driven by the, by the diesel prices themselves. So that's the piece that will kind of impact that particular number. You know, we're still early in the quarter. We only got the first quarter, you know, the first month done. So kind of November, December, we need to see, we just see kind of continued volatility overall on the spread. And that's not driven by our business, but just a lot more by the broader geopolitical situation, as well as just refinery performance in other parts, particularly in North America, particularly on the West Coast. So we'll continue to see those kind of impacting that. Refinery is running well. And so as we kind of laid out in terms of our expectation to hit that guidance or to stay within the guidance that we've given before, we anticipate that our refinery continues to run well during the fourth quarter.

Great, thank you.

Your next question comes from the line of Steve Hansen from Raymond James. Please go ahead.

Yeah, thanks, Ed. Just two small ones, actually. One was just would like some additional clarity on, I think you referenced tripling of the marine business or some reference to that effect with adding a bunch of new customers. I'm curious about the magnitude of something like that relative to the U.S. position. And then just secondarily on the international side, I think you referenced some tailwinds into Q4 around the tourism season, which I'm encouraging. Just curious to hear any more around what that could mean ultimately for the balance of the year. Thanks.

Yeah, look, our marine team has done a great job growing market share. In on itself is not massively material to parkland, but it is a good indication of organic growth and just the ability of our team to go into a sector and grow based on our ability to provide fuel in different jurisdictions and the service that we provide. So it is also, to your point, a leading indicator in the activity that we expect in the Caribbean with the cruise related traffic, which drives more than just marine demand. It drives demand throughout you know, a lot of different sectors in these tourist sensitive markets. So, you know, look, we're quite bullish on that business and the prospects for it going into the final quarter and into 2023.

Yeah, and maybe also just as a reminder, the tourism season in the Caribbean really starts at the end of November into the first quarter. And if you recall last year, fourth quarter, there was still all sorts of COVID restrictions going on. which we don't foresee this fourth quarter. So we'll see a full tourism season kind of this year. And that will provide some good tailwinds relative to last year. That's very helpful.

Thanks. And just to follow up on the free cash flow question, I don't know if it's too early as just yet, but any comments on CapEx for next year and how that might relate to the recent pattern would be helpful.

Yeah, no, for next year, we'll update, you know, we'll update the market as usual with our fourth quarter in terms of CapEx. We're still in the middle of, you know, going to our own budget exercise and, you know, making sure that we scrutinize it and that, you know, we balance the capital allocation framework as laid out. So we'll come with that with our Q4 results.

Okay, thank you.

Your next question comes from the line of Matthew Weeks from IA Capital Markets. Please go ahead.

Good morning. Thanks for taking my question. You talked about sort of putting the renewable diesel project on pause for a little bit, sort of evaluating the economics in light of changing market conditions. Is that mostly to do with kind of rising rates and sort of looking at the capital allocation framework or other factors? And I'm just wondering if you could touch on that a little bit more. Thanks.

Yeah, no, let me take that question there, Matthew. I didn't say that we were putting the project on pause, right? We are in the engineering phase of the project. There's a lot of work actually going on as those large projects usually require. But, you know, as we also look just at the environment, which has to do a lot with legislation in Canada as well as in the US, which while supportive, things have changed. So that's the first bit that we look at. And then the second bit is mostly general inflation, which we have seen let's say from the first announcement that we made. And we need to factor all of that in before we kind of decide to proceed. That doesn't mean that we don't proceeding now to the work, but before we kind of take FID, which we expect to be later in 2023, we'll have to take a good look at whether it's an economic project. I know, Bob, did you want to?

Yeah, no, look, and just to add to that, I mean, specifically, we've seen the legislative environment in the U.S. change and get more preferential with the producer tax credit. And we just have to make sure that the competitive landscape is the same in Canada and that the economics for a project like this makes sense in Canada. Okay, thanks.

I appreciate that. And then I was wondering if you had any update now on sort of the amount of standalone convenience on the run stores you have right now and if you're sort of on track for your expectations for the number of those you wanted to deploy by this time. Thanks.

I look quite excited about the progress the team's making in this area. We do have locations identified, and next year we'll be in market with about half a dozen or so. You know, these initially are concept stores that we'll test the concept. We're also quite excited, and we alluded to it in the call, on... taking M&M and migrating that into a fresh offer, which we would also combine in these sites. So stay tuned. And look, as soon as we're up and running, we'd love to welcome you to come and test our new offer.

That'd be great. Thanks. And I've had some of the products before at one of the on-the-run locations, and they're quite good. So I appreciate the commentary on that. Thanks. I'll turn it back.

Ladies and gentlemen, as a reminder, should you have a question, please press star followed by one. Your next question comes from the line of Peter Schuyler from BMO. Your line is open.

Thank you. So this emphasis you keep talking about on discipline capital allocation, which is something you've been talking about for a few months now, what is the underlying objective of this You know, is it you're trying to achieve investment grade rating or you think it'll be positive for the stock price? What are you trying to achieve here?

Yes, sorry. Look, just to clarify that. I mean, look, you know, we've completed our M&A, which we've always said we would do. So that's consistent with what we've said. We closed our last two deals in the quarter. This business cash flows tremendously well. And as we look forward here, we can continue to deleverage and also start to increase disbursements to our shareholders, right? So maybe you want to. Yeah, I know.

And Peter, I think it's actually quite, you know, it's consistent for us. So, you know, our goal is to grow shareholder value over time. And that's been always our goal. you know, when, you know, different circumstances, perhaps, but that was through growth and acquisitions. And we've demonstrated that we can do that to the acquisitions. And firstly, we have a lot of those acquisitions that we actually need to integrate and swallow. So that in itself drives that. But if you look at our current share price, and let's be honest, it's undervalued. And if, you know, I would say if Parkland was for sale, that would be an M&A target for ourselves. So we buy back our own shares as the best way to kind of generate that sustainable shareholder value growth. And so it's within the same kind of capital allocation or capital discipline that we've demonstrated before that we now think our own shares are the best way to generate that value. And we will do that while kind of bringing our leverage down as well. And of course, to continue integrating the businesses that we already bought.

Thank you. I have two other questions, if I may. So I believe during the third quarter, the the margins in your Canadian business, in your distribution business, refined product would have been suppressed because of inventory losses, that abrupt decline in energy prices you talked about. But do you expect, are margins going to bounce back to the levels they were in Q1, Q2? I think you like to talk about margin in terms of fuel gross profit per litre. I think that's That's kind of the benchmark you use.

Yeah, look, you know, if you look at our core marketing businesses, you know, margins tend to be relatively stable and tend to trend upwards to compensate for price increase or cost increases. So that's consistent and consistent with what we're seeing. We do get some volatility at times because of inventory and others see that as well in our various competitors that would be in similar segments. You know, on the wholesale side, again, you know, other than in the US, we've seen that business hanging quite nicely. And in fact, you know, certainly in Canada and the US, we're as a key contributor in the quarter and, you know, helped the margins on both sides. You know, one of the things that you do see in our businesses is the mix at times changes. As we grow wholesale at a quicker rate than some of our other marketing channels, you will see margins come down, but ultimately, it's still very good business and it doesn't mean that there's any margin headwind in the business. And again, I would say, while we do see at times volatility, It tends to be driven by revaluation of inventory. The actual underlying margins are fairly consistent quarter to quarter.

Okay, thanks. And just my last question. On the refinery, can you explain how the high diesel price negatively impacted the capture rate? I thought that you're producing your own renewable diesel, and so maybe you're incorporating your own diesel and you're buying from outside as well. Can you Go through the mechanics of that.

Yeah, look, when we look at the economics of the facility, I mean there's many factors in place and and you know, ultimately a high diesel crack is very good for the facility. What we're always looking at, though, is that diesel price compared to the import of alternative of renewables. And you know that differential has has come in so. Now, you know, maybe Marcel can provide more color on that, but it's net a benefit for us. It's just shifting some of the economics around.

Yeah, and maybe this will help in a way to look at it. So, of course, renewable diesel prices will typically go up with diesel prices, so they're well correlated. And I think we previously said that's around three times the price of diesel. So, you know, and I don't, we haven't looked at whether that's actually for the third quarter was exactly the case, but that will help. But also the feedstocks for renewables, they're also correlated with that as well. So even when diesel prices go up, even our own co-processed, you know, kind of renewable diesel that comes out, that will also go up within that. So it compresses. And we were referring to that as the capture. So while the overall growth crack spreads go up, the net crack spreads don't go up to the same extent. And that then results in that lower capture when you just simply take a percentage of that crack spread to kind of predict where the refinery margin is. It doesn't mean that we don't capture what we are entitled to. It's just that the rule of thumb that we have laid out will work slightly different when we see those volatile periods where certain cracks move wider than others. I hope that helps.

But Marcel, I thought you're producing your own renewable diesel.

We do, but we need to buy the feedstock for that, and those feedstocks are also correlated with the price as well, right? So, you know, prices would have gone up in the period. Okay, got it. Thank you.

Your next question comes from the line of Michael Vanlis from TD Securities. Please go ahead.

Thanks. I just wanted to follow up on that. Regarding the turnaround coming up in Q1, can you comment on the timing when it's starting, how long you expect it to go? I know these are planned well in advance and they can't be delayed, but the crack spreads are really high right now and I'm wondering if there are other ways that you might be able to replace some of that refinery profits while it's down through the trading arm or imports or whatnot.

Yeah, you know, typically those turnarounds are in the area of eight weeks, plus or minus, and this would be consistent with that. You know, the exact start date I'm not aware of, but it will be in Q1. Yeah, no, in terms of timing and postponing those. Yeah, yeah, look, you know, these can't be postponed. But, you know, on the flip side is we've demonstrated in the past that we can import product, which we will do to offset part of the shortfall.

Thank you. There are no further questions at this time. Please proceed.

Great. Well, thanks very much for joining in. I look forward to touching base in the new year. Thank you.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.