Q3 2019 Earnings Call
Good morning, ladies and gentlemen, and welcome to Park Winfield Corporation Q3, 2019 conference call at this time alliance in listen only mode.
The presentation, we will conduct a question and answer session.
But anytime during this call you require assistance. Please press star I feel for the operator.
That's causing recorded on Tuesday November 2018.
I will now, let's turn the conference over to spend money director Investor Relations. Please go ahead.
Thank you.
With me today on the call or Bob SP, President and Chief Executive Officer, Mike Mcmillan, Chief Financial Officer, and Dirk lever VP finance capital markets.
This call is when I say encourage listeners to follow along with the supporting slides we are targeting the call to be approximately one hour will go through our prepared remarks, and then open it up for questions from the investment community. If you're a member of the media ceased connect with their communications team will be happy to respond directly.
Please limit yourself to one question and a follow up as necessary. This allows us to gets more questions from our growing analyst community.
He'll free to reenter the queue. After your question.
Our Investor Relations team is available afterwards for more specific follow up items.
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 an industry conditions among other factors.
We will also be discussing non-GAAP measures, which do not have any standardize meanings prescribed.
These measures are identified and defined in parklands continuous disclosure documents, which are available on our website or SEDAR.
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 on todays call or expressed in Canadian dollars unless otherwise noted.
Now I'll turn the call over to bother us.
Great. Thank you Brad good morning, and welcome everyone to the third quarter earnings call for 2019.
We had a strong record third quarter and I'm pleased to speak with everyone. Today on our opening slide we had a photo of our first chevron branded corporate site in Calgary.
Which we opened during the quarter on Mcknight Boulevard near the Calgary International Airport dislocation hasn't on the run convenient store integrated with the main W. quick serve restaurant and of selling 94 octane fuel. This is a great example of our retail strategy at work and we are looking to expand this premium but.
And going forward [noise].
Let me touch briefly on some key milestones from the quarter Corporately, we are increasing our adjusted EBITDA guidance to 1.24 billion.
Our business is performing well and the increase reflects our strong third quarter and confidence for Q4, We also announced the launch of journey rewards last month with C.I.B.C. as our strategic banking partner.
Partnership immediately bolsters, our customer value proposition and reach and it's something we're very excited about to remind you journey connects our coast to coast fuel network and the on the run marshy Express brands under one proprietary reward program with nation wide scale.
We continue to track well against our hundred 80 million dollar target for synergies, resulting from the CST and Chevron acquisitions.
We made great progress through the third quarter and are now running at 160 million.
We also acquired Florida based Tropic oil.
Which we announced in early September and closed on October 1st.
This deal continues on our U.S. growth strategy and will be synergistic with our Caribbean business. We are laser focused on delivering against our growth targets driving value from acquisitions and the associated integration benefits.
All underpinned by a differentiated supply platform that increases our integrated margins and factors in to all our growth decisions.
I'll now pass over to Mike to go through corporate results after which I will walk through the same segment details.
Great. Thanks, Bob Good morning, everyone. Thanks for joining us this morning.
Parkland team delivered a strong third quarter financially with adjusted EBITDA of 302 million net to parkland or 268 million on a pre IDE for 16 basis relative to the 200 million reported in Q3 of 2018.
Year to date, we have delivered adjusted EBITDA of 963 million net to parkland or 871 million on a pre IRS basis relative to the 602 million reported last year.
We were up materially compared to the prior year give is driven by the contribution from so strong refining margins and synergy capture over the past year. We've also highlighted are adjusted distributable cash flow year to date, which we used to monitor normalized cash flows of the business adjusted distributable.
Cash flow increased by 25 million, reflecting strong operational performance in contributions from acquisitions, but offset by higher interest and tax expense this year.
Moving on to the next slide.
The waterfall chart on the left walks through the year to date segment changes to third quarter adjusted EBITDA.
While the turned on the right [noise] chose the same comparison, but based on our pre hire for a 16 amounts.
Which is more comparable to prior year results of course.
The total Q3 impact of higher for 16 on adjusted EBITDA was 34 million in the quarter.
As you can see the year over year increase was across the board, including a large lift from our new International segment, a growing U.S. business and strong performance in supply.
As we mentioned last quarter as well the benefit of our of our diverse portfolio is evident.
We are pleased with how our business is evolving.
On slide six I'll run through some of the corporate Capesize starting on the top left our total funded debt to credit facility EBITDA continues to be well within our comfort range at 2.6 times on a trailing 12 month basis.
This goes hand in hand, with or adjusted dividend payout ratio of 36% on the bottom left affording us a lot of flexibility to fund our growth initiatives and the tuck in activity in the U.S., while maintaining a conservative balance sheet.
Trailing 12 month fuel and petroleum product volume has increased to approximately 20.8 billion liters, which includes three quarters of international operations and confirms our trend toward pro forma.
Pro forma 22 billion liters annually.
On a consolidated basis, corporate marketing and general administrative expenses as a percentage of Parklands. Adjusted gross profit was 4.3% versus 5.6% in Q3 of 2018, our goal remains to drive efficiency and reduce corporate overhead relative to the gross margin as the business grows and in scale.
Scope.
I'll now so the Dr. Bob to discuss the segment performance.
Thanks, Mike I'll start with the Canadian retail segment, which delivered adjusted EBITDA of 91 million in the quarter our ability to deliver this result through an overall challenging Canadian margin environment underscores our resilience and success in growing Nonfuel gross profit, which increased by 8%.
Over here, our retail initiatives, which include on the run conversions new to industry locations existing cited for improvements some private label products.
Our designed to support sticky customer relationships. We are on track for over 200 corporate on the run locations by year end and continue to see favorable responses from consumers vendors and our retailers. We also announced the launch of our journey rewards program with C.I.B.C. as our.
Our strategic banking partner journey will offer Canadians compelling fuel savings and merchandise offers and will launch in select Ontario, British Columbia in Quebec markets. This fall with a full full national rollout in early 2020.
This is a major milestone for parkland for the first time, we're connecting our network of approximately 1300, Chevron ultramar pioneer and fast gas sites along with the on the run Marsh Express under a single proprietary rewards program, we're continuing to enhance our customer value proposition and.
See upside from the journey program in Canada retail.
Our same store sales comp softened a little this quarter, but company C store same store sales growth was around 1%, marking the 15th consecutive quarter of growth.
We have been tracking against some tough year over year comparable results, but had strong performance in snacks beverage and carwash.
On company volume same store sales, we implemented new digital capabilities to inform our pricing decisions and tried to write outcomes our market share properly.
Position remains constant for the quarter [noise].
Our Canadian commercial segment delivered adjusted EBITDA up 12 million for the quarter does seem and commercial continues to be business optimization and building for growth in card luck and our integrated propane offerings.
In Western Canada, Forestry, and upstream oil and gas industries have witnessed continued weakness, but we've optimized our Canadian margins through the strategic reduction of some low margin customers. We continue to transition to our regional operations center structure and strengthening our results strip.
And culture at the local level with the heightened focus on growth. We continue to put our customers first by focusing on new technologies like tank monitoring and telephone system consolidations to continuously improve efficiency and deliver a great customer experience.
Our trailing 12 months operating ratio has been relatively consistent through our brand consolidation efforts and we can we continue our push to drive this down.
[noise] our U.S.
Segment delivered third quarter, adjusted EBITDA of 17 million and outstanding results. The business is performing extremely well and we are capturing synergies from recent acquisitions, winning new customers with bearing create scale and our successfully integrating businesses quickly and efficiently into our platform.
The increase relative to last year is driven by M&A activity with Reinhart being added in late Q3 2018 KBR ill also had its first full quarterly impact.
Mm.
We like how that business is performing we have benefited from strong retail margins across the U.S. specifically in the Rocky Regional operating center.
Wholesale prices dropped us retail margins remained strong and we see continued strength in diesel margin and lubricants growth.
Importantly.
Our trailing 12 months operating ratio continues to come down improving by three percentage points, 69% and reflecting our commitment to cost control, while simultaneously driving business growth [noise].
As mentioned earlier, we recently bought Tropic oil based in Miami, Florida, which became the new hub for our new southeast Regional operating center.
Florida is a market with exciting growth prospects and is an attractive region for us to build on our supply advantage. This initial toehold in Florida also complements our Caribbean business by providing supply and distribution synergy potential.
We're excited about the runway in the U.S. and I'm very pleased with the team's ability to grow our business integrate quickly and generate strong overall results.
And our international segment.
Heartlands third quarter adjusted EBITDA was 53.
We had some good operational wins, while focusing on business continuity, we successfully launched a loyalty program in Barbados called more miles journey and initial results have been positive.
We already have attempt.
Have over 10% of the driver population signed up and have achieved the swipe rate of 20%, they're looking to move this loyalty program to other islands in 2020 and overtime it to tie it together with the journey program in North America.
We've also had success winning some key aviation contracts an area of focus for the international team. We believe we have lots of opportunity and LPG aviation retail commercial and wholesale operations within so [noise].
Thanks to our new international team as well as our sole partners.
Finally, turning to the supply segment, which delivered 147 million of adjusted EBITDA in the quarter. The team at the Burnaby refinery continues to operate efficiently safely and reliably.
Strong refining margin environment means nothing if your team can capture the opportunity and the team delivered a utilization rate of over 96% crack spreads were relatively strong in the quarter, owing to west Cote supply disruptions and were slightly above the trailing three year average we also had.
The lower crude transportation costs in the quarter.
Our quarterly numbers also reflects the ongoing synergy capture.
Imports and blending opportunities in crude oil and diesel exports into the U.S., our supply and distribution teams and Delaware River marketing are working closely in are finding value opportunities in the integrated nature of their logistics business.
We also continued to co pros canola, and tallow, which helps offset high cost biodiesel blending to meet BC low carbon fuel requirements. Our supply advantage is a key tenant of parkland strategy and we will continue to build and integrate this capability across the company looking forward plans continue for.
For our eight week turnaround at the burner be refinery in Q1 2020.
Wrapping up now on slide 12.
We are increasing our adjusted EBITDA guidance for the year to 1.24 billion plus or minus 5% an increase of 75 million from 1.165 billion earlier and reflects the strong year to date numbers and confidence in our Q4 outlook, we mentioned last quarter that we identified some additional capital.
All in the Caribbean business to accelerate our growth keeping in mind, our rigorous capital allocation process and strong results. This year, we've allocated an additional 20 million to our 2019 gross capital program. This is focused on retail sites and tankage and other infrastructure and Diana to support the large and growing offshore drilling activity.
We are at a total of 420 million, which includes 200 million of maintenance [noise].
[noise] I'd like to ends by once again thinking the parkland team for their hard work and dedication to provide yet another great quarter for parkland shareholders and further on going focus on safety.
I'd also like to thank Mike Mcmillan this will be mikes last call with parkland.
Mike has been a great partner for me in the past decade, as we've guided parkland through its remarkable growth I want to thank him for his service and contribution to parkland success, we wish Mike all the best in future.
This concludes the formal portion of the call. We will now take questions from our analysts and institutional shareholders.
Operator, please open the call for questions.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session should you have to question. Please press the star followed by the one on your Touchtone phone you will hear lets say, Tom pump technology request and your questions I pulled in the order we seek should you wish to close on the planning process. Please press star followed by two.
If you are using speakerphone, please let the handset before passing any Keith one moment. Please my first question.
Your first question comes from Steve Hansen from Vancouver. Please go ahead.
Oh, yes, good morning.
Thanks for the time, just a quick question relating to Tropic.
It's exceeded its designation as a new operating center or region. Just curious what additional capabilities are looking for in that broader reach and whether its U.S. specific or whether you would it be additional assets would also tie the Caribbean platform.
Yeah, Hi, Steve It's Bob SP. Thanks for the question.
Yeah, we we like the area, Florida, because it does tie in nicely with the Caribbean you will operate separately as part of the U.S. business.
And the opportunity in that market is that is to grow through organic growth and then also through.
Other acquisitions in the region, we like the fundamentals of Florida from a gross.
Perspective, and then the tie into the Caribbean is predominantly through supply.
On the fuel side, but also supporting the lubricants business in the Caribbean.
Understood how would it developed on that if I may that you've allocated some additional growth capital.
To support the Diana business I believe you mentioned is if you had the chance they have a full sort of perspective or observation around these opportunities now you gave some color on the previous call.
Turning in a sense, where there is new opportunities still servicing there and or whether you've got the targets sort of directly to find at this point.
Well so in Guyana, specifically, we are seeing that market grow quite quite rapidly and the capital there is positioned us well to take advantage of that growth.
And.
In the broader Caribbean, we continue to identify organic growth opportunities.
Primarily into areas one is in retail where.
Similar to our Canadian business, where.
Looking at the network and have built a network plan are starting to execute against that and then the second is upgrading infrastructure and adding infrastructure into key markets, where we see growth opportunities.
We will provide.
A view of that early next year in terms of.
How we see that.
Going forward.
Very helpful. That's it for me thanks.
Thank you. Your next question is from David Neumann from Toronto. Please go ahead.
Hi, good morning, guys.
Turning to.
Congrats on the on the beat and raise.
Just wanted to dig into the retail side on the same store sales growth as to.
Some of the some of the attribution there in terms of where where you're seeing the weakness I know, it's a tough comp, but how are you doing let's say in the cigarette category.
Acts that how would you have been doing and how into the mix is sort of VVIP products and any impacts that you might see long winded question any impact you might see from cigarettes moving to standard packaging.
Yes.
Yes. Thanks, Thanks, David appreciate the question and.
Let me start off with the the same store growth number and the impact of tobacco. So we did see tobacco decline in the quarter.
It was off 2.4% our other categories were up 5.2%. So how much was the other categories.
Sorry, the other categories <unk> 5.25, 0.2%. So really you know really pleased to see that's it does it does still indicates that our focus on our non fuel initiatives is yielding.
Great results and the team there is continuing to to really service, our consumer base quite effectively.
In terms of tobacco demands.
Yes, I think there is a lot of change in that segment right now as you say the packaging the.
We are seeing some cannibalization of tobacco into vapor.
Which is a much higher margin product.
And then again that's key point to is some relative margins on tobacco are very low so growing our other.
Categories is much more.
Helpful to the bottom line business.
Yes, the non fuel a non fuel margins were pretty decent otherwise I think.
Yeah. It was quite pleased with them we saw some good year over year gross and there are nonfuel gross profit despite the ongoing.
Conversions to from cocoa to chloro, which which hits that number. So overall very pleased with the results in our retail business this quarter.
And second one for me and last one just heading into one Q next year before you go dark on their refinery.
Beyond the costs what actions are you guys taking to ensure customers are served I think last time you had to go dark actually made pretty decent profit from some inventory moves that you made and are you at all concerned I guess about last on the retail pump prices spike given the political climate and everything else. So maybe just how you're.
Repositioning or for that go dark period in terms of away can do.
Hi, David Storch lever. Thanks for the question Yeah. As you can imagine we have a fair amount of planning to do.
Dealing with other refineries in order to source supply as were down.
As we are operating now we are building up inventory, but that will not be enough to carry us through.
So we have.
Reached out and we have Oh organized supply for the period.
Refinery is down so that when you call when were dark.
Theres no disruption of supply to our customers or the impact of us going down.
It's hard to estimate what that would do for a pump prices.
Since we are organized and will help full supply we don't expect it will have a material impact at the pump.
More material.
To pump prices on the west coast or.
Unplanned outages rather than planned outages.
So the fact that this is a planned outage and has been orchestrated ahead of time.
Should not.
Have a material impact at the pump.
Okay very good thanks, guys I'll jump back in Q.
Thanks, Greg Thanks, David.
Your next question is from Michael Van <unk> from Munchau. Please go ahead.
Hi, Thank you. So I just wanted to follow up on the retail side of it the nonfuel gross profit being up 8%. So that was the biggest year over year growth, you're seeing and at least last four quarters can you explain or use where youre seeing the biggest gains despite the drop in tobacco not just in the categories, but in terms.
Comes in.
What's having the biggest impact on profitability from why there is on the run or your or your private label or or other areas.
Yeah.
Hi, Michael It's it's Bob SP and thanks for the question.
The.
I don't have an exact breakdown you know I would say, we're seeing you know at a high level.
Two impacts one is the.
Is the ongoing success in the marketing programs and and Im sure. We can provide some more detail in a follow up question offline.
The other item is.
Our.
Capital, that's coming into the markets a lot a new sites. Its new we're we're refurbishing sites and as you recall from our Investor day, and we had a commitment to spend roughly a 100 million a year in growth Capex in retail and that's the some of the early benefit of that coming through as new sites stream and as we get the panel.
That's the some of our retrofits.
Okay and can you talk to us. So I think you said, yes to 200.
On the runs by the end of this year, what's the raw pace of rollout you expect for 2020 and can you remind us what the ultimate counted.
Ultimate potential is.
Yeah. So we'll do 75 to 100 next year.
And again the team there has been.
Yes fairly very disciplined in the way that they've been doing this we tend to do a group and do we'll look back and make sure that we're getting the benefits and then we we tweak.
Based on consumer feedback.
We would expect that in our our legacy network will get somewhere up to about 400 sites and then we'll continue to grow beyond that organically with the ultimate goal of getting to a thousand sites within the next five years.
Okay, and I don't know if you have the data with year or do you have any anecdotal evidence or or.
Data points I can say that you can point to with respect to like the performance of your stores. Once you once you convert them.
Yeah.
On an aggregate basis, we're seeing about a 4% lift in sales.
In those sites and it's interesting I mean, it does vary by region and also by brand.
That's the on the run on PPI fuel brand that the on the run supports.
So we've seen.
We've seen higher.
Numbers and some of our eastern locations, but in the prairie's with our fast gas networks spend a little less.
But overall, we're pleased with the results that we see and and again part of it is the OTI our conversion, which is let provides positive lift but then the subsequent programs that we're rolling out around that.
Including our private label on the Ron.
We expect to continue to be able to see that growth here certainly for the for the next Wow.
Okay and I think.
A few quarters back one year about a year ago. When you started the conversions of coal goes to call rose.
You said that.
Initially it's somewhat neutral.
The profitability, but eventually but over time, you start to see better returns from a better execution at store level and things like that and.
With the growth rate that picking up and.
Non fuel retail are we starting to see some of those benefits already.
Yeah. It generally takes takes 12 to 24 months start to see that so we're seeing that on some of the initial conversions as as the team works with the retailers.
To fine tune the model.
Alright, thank you.
Thank you. The next question is from John Royal from New York. Please go ahead.
Hey, good morning, guys. Thanks for taking my question.
So just wanted to talk through the EBIT guidance raises a little bit you're now over 15% higher.
On your full year guidance when you rolled it out back in March so.
So I was hoping you could walk us through 'em, each business and how chickened out compared to what you are thinking that I imagine supply, it's probably been a big driver of the increases, but just curious on the different people.
Yes, Hi, John It's Bob SP and thanks for the question why don't I kick it off and then I'll pass it over to sure to so Mike here to pick it up but I would say.
In general the guidance is consistent with the story that we've been telling through the year and you know a key contributor has been the supply, but I would say generally all of our businesses have tracked at or ahead of plan with the exception or retail which has seen some some headwinds from a margin perspective.
From my perspective, I'm really pleased with the performance of the business generally our operators are hitting their targets.
They are key performance indicators for the year and the increase in guidance reflects that continued.
Success in our execution on the operational business, but I'll, let Mike So Phil and shared at more detailed yes. That's great. Thanks, John So maybe just a couple of quick comments by segment just to give us some color I think if you look at the retail business.
We did see some softness there, but we are seeing benefits as we took commented on the call earlier about some of the network development impacts whether it's on the run some of the new to industry builds and just things that we're doing.
With technology, and so forth as well, helping us to monitor.
Yeah.
Engage productivity by site. So that's that's starting to show some some very positive impacts.
Canada commercial again with the re reorganization or rather rock model and a lot of focus on on accounts card lock volumes and so forth is starting to show some continued strength and managing you know margin and and cost structure within that business. So the team is really.
Turning the corner on some of those things and we see some positives.
Direction going into the end of the year and into next year, if we talk quite a bit about the U.S. and outside of the tuck ins and the obvious things around acquisitions. The business is performing very well on the base business organically.
And again managing their cost very very effectively so we see some we see it in on the organic side based performance as well as.
The acquisitions and some synergy capture there which is performing well.
We talked about you know if I look at supply again keep in mind last early part of the year, we did benefit from.
Some of the.
Some of the outages and that sort of thing on the west coast and so.
But what we do see is continued positive.
Formants there.
Hi utilization rates and.
And good allocations on the line and so the team is doing well, but in behind that.
Hello Rivers also part of that segment that business is performing very well as well in behind it so the number of areas within supply.
Showing some good performance leading into the back into the year and we did touch lastly on international I would say again synergies are tracking nicely, we do see some growth in those areas in that and the team is doing an exceptionally good job managing cost.
When taking some cost out and very selectively adding capability. So.
Well done and not in that market no maybe as a final point on our corporate cost structure, we're really mindful of.
Where we're investing and and consolidating some of our.
Efforts here in Calgary, and just trying to manage that cost structure as we scale. The business. So hopefully that gives us some color I mean, I think really hitting on all cylinders in managing our forecast into the later latter part of this year.
Great. Thank you that's really helpful. And then just one more quick one on the refinery turnaround.
We.
Will there be any effect on fourq, you from a utilization or the cost standpoint, I'm just thinking about any.
Kind of pre work you might be doing ahead or should we be positive purely a one Q.
Yeah, Hi, John Dirk lever here.
Obviously, we are doing pre work scaffolding has gone up for a long lead time items have been ordered.
But these will not be interrupting the operations at the refinery there will be working around it so it will not.
Those that pre work will not be impacting Q4 results.
It will be business as normal were.
Yeah, it's smooth sailing as far as.
Day to day operations go a more to the point is just planning around it. This is this is not something thats new to them they've done turnarounds before they're very adept at working.
The the operations at the refinery well.
Setting up for the turnaround so don't expect an impact.
From the pre work to impact the day to day operations.
Sorry, just to clarify before I go.
Good should we see any incremental costs from that understood the utilization.
The other costs, yes, we will be incurring some cost as we lead up to the turnaround, but its reflected there yes.
It is reflected in our guidance so.
Okay understood.
Yeah.
Thanks, John .
Thank you.
Thank you. The next question is from Peter Sklar from Toronto. Please go ahead.
I bought back on the the Canadian merchandise Comped at were you surprised that the tobacco category had a negative comp notwithstanding that the the E vapor category still has momentum I was a bit surprised by that.
Yeah. Thanks.
Thanks, Thanks Peter.
So are we don't include.
The vape sales in the tobacco category. So it is pure tobacco.
Where we surprised I look at its it does seem like there is a trend for consumers to switch from tobacco too vague. So we were expecting that category to soften somewhat.
Okay, and do you have any kind of.
Loyalty.
Program or.
Tobacco club or.
Or anything.
Oh.
Ill.
No no we don't timing you can.
Insights, where we do have loyalty you can get.
Your your contribution to your loyalty program.
Which is independent of the category.
But now we don't we yeah.
And the other thing I wanted to ask you about.
With Keystone being down and.
Differentials really widened out in Alberta.
Like wind like I'm not sure how forward you purchase your crude like when would you start to benefit from that is there a lead time or are you buying crude spot.
Hey.
Peter its Dirk lever here no.
We don't buy crude on the spot market. In fact this nominations are usually two months in advance so.
The impact it could have those differentials decided if they did widen out.
It would be independent of what our purchasing is or purchasing has done well in advance.
But if the differentials do widen out that tends to hit in particular.
You know the marketplace and pricing of products.
I wouldn't say immediately but shortly thereafter and it certainly does impact the dog bid price for the pipeline.
But we haven't seen that come into effect yet.
But if we do see the differentials widened out because of this Keystone outage.
It will work its way through the marketplace, but we'll have already purchased or crude.
So you're purchasing on average two months in advance I think as.
Yes, that's denomination is around that.
Okay. Thank you.
Yes.
Thanks.
Thank you. The next question is from Kevin Chiang from Toronto. Please go ahead.
Hi, Thanks for taking my question here, maybe my first one just on your fuel gross margins within your Canadian retail segment.
At a nice sequential lift your call slot Youre, just wondering what you're seeing from a competitive perspective.
In that market you talked of it being pretty competitive on your Q2 call is is that sequential improvement assign them, maybe some of some more rational behavior is returning to the market or or any explanation would be helpful.
Hey, Kevin it's Bob and thanks for the question.
Good luck, it's always difficult to comment on pricing.
The market is very dynamic and always very competitive.
And also.
I would say where.
Again, where the team focuses on.
Operating our sites to cost effectively so we less sensitive to fuel margins team continues to do that we did see new luck come down quarter over quarter.
Which is an indication that we're pushing the business in the right direction.
Yeah, the we have.
You know worked on our we've centralized our pricing and I think thats helped us.
Oh I understand the.
The competitive environment, better and also be able to react to it in a more timely manner.
No. That's helpful and then maybe just turning to.
Maybe the long term capital intensity of your business, so you're going to.
Regarding to 1.2 billion of EBITDA.
Your your Capex. This year is now for 20, so both 35% of EBITDA is going to.
Going to to Capex, when we get into 2020 <unk> and beyond.
How should I think about the capital intensity for your business. It sounds like it should roll off as as maybe the there's a deceleration in the kokoda coral conversions, but just trying to get a sense of what how you see the normalized run rate for Capex on that if it gets split up between maintenance and growth don't be helpful.
Yes, so we we do guides maintenance, that's a 200% expects expects the base business to be in that.
In that area, plus all right and.
That will add another 20 to 30 million annually to that number.
And then growth is really dependent on the opportunity set.
In our Investor day, we did outline a number of opportunities. So we do expect growth capital to continue here for the foreseeable future as we continue to invest in our retail networks.
In.
In expansion in our commercial business, both in Canada, and the U.S. and.
And then.
In the Caribbean in a combination of retail and infrastructure projects.
As always we have a very robust process to identify growth opportunities and make sure that we're getting value for for our shareholders out of that's an improving our returns over the long run.
But again the beauty of parkland is we do have lots of opportunity and we want to make sure that we continue to.
Two.
Capitalize on that as as we go forward and drive a lot of the base organic base growth in the business organically.
You know rather than through M&A.
That's helpful. Thanks for taking my questions.
Thank you. The next question is from Michelle Shreedhar from Toronto. Please go ahead.
Hi, Thanks for taking my questions.
Just on the international operations I think you noted that.
We're closing some retail operations in Haiti and off the top you indicated.
View of fee.
Business. So just wondering should we expect large changes in the international business over the next little debtors are these more of a one off kind of decisions.
No I wouldn't expect large changes this was actually.
Divestiture that would be plans when we purchased the business.
We're uncomfortable with the operating environment in Haiti.
And we're able to divest that too.
Another operator in the region, which was comfortable with with that jurisdiction.
So, but there isn't a larger plan to divest.
Out of markets within the region, we like the region, we like the fundamentals of the region and we'll continue to invest and grow our business there.
Okay and on the retail fuel margins and volume just that dynamic there I think I was indicated that market share was maintained but the volumes were or maybe a.
Bit more tepid Tonight at least I had anticipated.
Wondering if these centralized pricing initiatives that you referred to are maybe resulting in a little bit of volume sacrifice in favour of margin and if so where are we on that.
On that trend are we starting this initiatives should we expect more of this.
How should we now look scar our objective is to maintain or grow our market share.
And you know when in fact, our.
Our benchmarking, which shows that we slightly increased our market share.
In the quarter.
The.
In terms of our.
Our strategy is to.
From a pricing perspective is to give the best value to the consumer and as a result.
I will focus on making sure we're competitive relative to others in the marketplace. So that we continue to grow our business in a reliable manner.
So how how significant is essential pricing initiative.
Is there large opportunity there or is that more of incremental tweaking.
Yes.
As as with our supply you know our fuel volume as one of our biggest assets and also our biggest opportunities. So we need to make sure we manage it on both sides.
It's part of the integration that we've undertaken where weve.
Basically it's part of integrating the.
The three businesses are the three businesses the legacy parkland said like his see Chevron and the legacy CST business into one business and make sure that we've got to a common methodology and pricing methodology across the business and a common way if monitoring.
Based on the competitive environment. So we do expect that to produce benefit always difficult to quantify because.
You'll pricing is one of the most dynamic and.
You know pricing that you'll see in consumer products anywhere.
Okay, and just lastly.
Just just looking back to the organic growth targets that management refers to.
How would I wouldn't investor determine kind of if management is hitting those organic growth targets should we is there a metric that you'd point, just two or several metrics that you'd pointed to it to help us understand if we're hitting that said that range that you you're targeting.
I know in the past you cannot be I'll I'll start off and then.
Ill hand, it over to Mr., who can add some color as well.
No I would say first of all first and foremost organic the organic growth target is a long term target and it'll bump around from quarter to quarter, it's not a linear.
Type.
Gross.
But overall our experience has been that we can hit that 3% to 5% over the long term and or over the short the intermediate term the and and that's a combination of the Kate <unk> that we reported against as well as.
The and and those KP eyes are cascaded through the business right down to our operating people. So that we're all aligned with.
The shareholders and and its combination of revenue growth fans and cost right and I would say in general and again it bumped around but in general we've been successful and delivering that yeah.
I would also pointed out that in some but does not include the refineries. So we back the refinery out from that.
Refinery has effectively.
A utilization rate that we look at as it moves a little bit but that should not be included in the 3% to 5% also it has a somewhat of a variable.
Our refining margin, it's driven by market dynamics and we excludes out. So if you look at the business and think of it as a marketing and other aspects of our supply division, that's where we look for that 3% to 5% growth.
Did you hit it this quarter.
I know its longer term, but.
Yes, generally the shouts maker, we do look at it on an annualized basis, not not specific to quarters, because it can move around based on initiatives and programs, but generally speaking we're quite pleased with how it's trending across the businesses that we covered here I think you would look at it on a trailing 12 month.
You a better indicator of it rather than the noise from one quarter to the next because we will have seasonality et cetera, it's much better to look at it on a trailing 12 month et cetera, but I would say, it's fair to say on a trailing 12, we're confident that we're doubling that that's.
Metric and again it varies across the business, but generally we're hitting it.
Okay. Thanks for the colors.
Yeah.
Thank you. The next question is from directly from Toronto. Please go ahead.
Hi, guys just circling back on the on the on the run conversions.
I appreciate your comment that you're getting about a 4% sales lift you're staying on on the conversions and I would assume thats in the first year, but can we talk a little bit of budget sort of the IR that you're targeting on these conversions is still in that neighborhood of sort of I think it was 50% to 20% is where you've seen in the past.
Yeah, that's that's about right yeah.
And you're still seeing those type of returns going forward or targeting those types of returns at the 75 to 100, you're going to do next year. We're dogmatic around those returns so everything gets filtered before we approve and then there's a very rigorous look back process to make sure.
And we're getting the benefit but also allowing us to tweak the offer so that we're continuing to make sure that connects and resonates with the consumer.
Okay great.
And then the second question and.
Yes, Bob I Echo your comments with with Mike in my congratulations on the success you've had.
Parkland over the last 10 years, but can you just provide us with an update on the CFO search and where you stand in that process.
Yeah.
So.
Theres, some big shoes to fill here with Mike leaving.
And.
And we'll be announcing an interim.
Here before Mike departs as we continue our search for a replacement for Mike.
And.
You're welcome Mike and what sort of what are the timing Mike It at the end of November .
I would say ended December I'll be around end of December Bob and I will work together on.
On what's required there.
Okay, great. Thank you very much.
Thanks Dark.
Thank you. The next question is from Steve Hansen from Vancouver. Please go ahead.
Oh, Hey, guys just a quick one as it relates to the growth opportunities as a follow up it really wasn't commented on thus far.
To provide some commentary around your current M&A pipeline I, perhaps give us a flavor for either the quality or the quantity of opportunities you're seeing and how quickly you might be able to execute thanks.
Yeah, that's a that's a good question.
As as you know as we've talked about in the past.
Our focus is on Brett the pipeline, which we continue to work.
And worked with prospective vendors to make parkland the fire of choice in the areas that we operate.
We we are seeing a broad pipeline.
As always we'll be disciplined around value and making sure that.
We can price assets, effectively and and get the synergies that we.
Look for when we do M&A.
Okay very helpful. Thanks.
The next question is from David Neumann from Toronto. Please go ahead.
Hi, just a quick one guys I'm just on the Investor Day, you noted that your card locked businesses very intra provincial and you want to make it more interprovincial and cross border, maybe maybe obviously laying off the last that last question from Steve.
M&A versus organic and what are you guys doing to kind of build out the network of card locks.
Yeah. That's thanks. Thanks, Dave Good question, we continue to develop that's a and they're sort of two key components to that one is the IP platform, we've talked about and FM.
Which is.
A payment platform that we can roll outs.
Across our business to link our brands together and also to keep partners of ours and we're working on on building that networks both.
Through capital, which is a second lever.
A number of the new retail sites that we've approved have our integrated with card locks and you'll start to see those roll into the market to continue to two X broaden our network and then looking for partners, where we can.
Connect them into our network through to the Ns and F.
Platform.
Okay, and where would you guys are being that evolution I guess in terms of Flushing out a full.
Offering that you can really do you know trans con and and Dan or south moves.
Yes, so were worse, we still have a ways to go and it's really a 2020 initiative that will be pushing the focus in the short term has been.
To get to technology platform built and then some growth capital in Canada, but that next is really over the next 20.
2020, 2021 will start to see that all materialize.
Excellent thanks, guys.
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Okay, Great School a.
Thank you very much for dialing and we appreciate your continued support and look forward to talking to on our yearend call. Thanks.
Ladies and gentlemen, this concludes your conference call today, we thank you for participating and we ask that you. Please disconnect your lines.