Q4 2019 Earnings Call
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Let's turn the conference over to broad Monocles. Please go ahead.
Thank you.
With me today in the color, Bob SP, President and Chief Executive Officer.
During smart senior Vice President corporate development, and interim Chief Financial Officer, and Dirk lever B piece capital markets.
Cause webcast and encourage listeners to follow along with the supporting slides.
Targeting the call to be approximately one hour will go through her prepared remarks, then open it up for questions from the investment community. If you remember the media. Please connect with their communications team will be happy to respond directly.
Please limit yourself to one question and a follow up as necessary and reenter the queue if needed.
Our capital markets 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 and industry conditions among other factors.
We will also be discussing non-GAAP measures, which do not have any standardized meanings prescribed I guess these measures are identified and defined in part class continues disclosure documents, which are available on our website or on SEDAR.
Please refer to those documents as identify soccer's, which may cause actual results to differ materially from any forward looking statements.
Dollar amounts discussed in today's call or expressed in Canadian dollars, unless otherwise noted I'll now turn the call over double.
Great. Thanks, Brad welcome everyone to the fourth quarter earnings call for 29 team, we had a record year and I'm pleased to speak with everyone today.
On our opening slide we have some examples of our journey rewards marketing assets, which you are starting to see across Canada journey with C.I.B.C. as a strategic banking partner is on track to be rolled out nationally by the end of Q1 initial customer reaction has been very positive. Please.
Currently have over 400000 total members and it is growing daily after just six weeks and around 400 sites.
You'll be hearing more about journey rewards with media support from parkland and see Ibcs starting in Q2, we will talk more about this within our retail segment results I'm very proud of our teams accomplishments. This year, let me touch briefly on some key milestones [noise].
That we achieved based on our performance through the year, we had to confidence to rais adjusted EBITDA guidance twice and exceeded the midpoint of that guidance.
Geographic and product diversity of our business was on full display with all with all our segments contributing to our overall success throughout the year.
Our balance sheet is strong and the business generates significant cash flow in 29 team, we completely funded our Capex program and U.S. M&A within cash flow, which underpins our ability to grow our business sustainably.
Both organically and through tuck in M&A.
We can we continue to add.
To our track record of integration success, hitting over 180 million synergy targets for the CST and Chevron acquisitions. One year ahead of schedule. This represents over 50% synergies based on our initial EBITDA assumption and well above our original estimate of approximately 70 million.
We have a track record to find great businesses and extracting additional value for shareholders through or integration capability. We continue to look for asset some businesses for which we can add value [noise].
We're pleased to announce another two cents increase to our annual dividend, our eight straight year of dividend increases.
We will continue to grow this at a modest pace given the runway for organic and M&A growth in front of US right now the opportunity set for park and has never been greater than it is today I'll now pass over to Darrin to go through the corporate financial results after which I will walk through the segment details.
Great. Thanks, Bob and good morning, everyone.
Parkland team delivered strong fourth quarter performance with adjusted EBITDA of 302 million and 1.265 billion for the year.
We are up materially compared to 2018, driven by the contribution from our new international operations strong refining margins and synergy capture.
We have significant momentum with organic growth initiatives and have carried that into the start of 2020.
We have highlighted adjusted distributable cash flow, which we used to monitor normalized cash flows of the business.
Adjusted distributable cash flow was essentially flat year over year is higher maintenance capital in cash taxes offsets are higher EBITDA [noise].
On maintenance capital, we completed Hs any upgrades within our international operations, which was taken into account in our original purchase price.
We also elected to accelerate spending for both the 2020 Burnaby refinery turnaround and some additional work we are completing at the facility while the refinery is down.
Finally, we invested maintenance capex as part of the on the run conversion program in Q4.
Moving onto the next slide waterfall chart on the left walks through the year over year segment changes to adjusted EBITDA, while the church on the right shows the same comparison, but based on pre I FRS 16 amounts.
Please note that starting with our Q1 2020 results, we will no longer need to reconcile for pre I FRS 16.
As you can see solid supply international in USA operations, offset softer Canadian retail margins.
We have seen strong performance in our international in U.S. segments, driven by organic growth.
Bob will talk in more detail about these dynamics when we get into the segments.
[noise] onto slide six I will run through some of our corporate keep you guys.
Total funded debt to credit facility EBITDA continues to be well within our target range at 2.8 times on a trailing 12 month basis.
So is ahead of where we thought we would be a year after the sole acquisition.
Cash flow generating ability of our business supports our ability to grow while maintaining balance sheet strength and financial flexibility.
This is also reflected in our adjusted dividend payout ratio, which was just over 30% for the year.
[noise] trailing 12 month fuel in petroleum product volume was approximately 22.4 billion liters again ahead of our original expectations post the sole acquisition.
Specifically in the last year parkland team has demonstrated an ability to not only by great businesses, but to grow them as well.
It doesn't make sense to do acquisitions, we can't grow businesses once they're part of our portfolio.
On a consolidated basis, corporate marketing and general administrative expenses as a percentage of Parklands adjusted gross profit was 3.8%.
We will continue to drive efficiency and build a platform that is easy to scale.
I'll now hand, it back to Bob to discuss the segment performance.
Thanks, Darren I'll start with the Canadian retail segment, which delivered adjusted EBITDA of 60 56 million in the quarter.
We maintain market share for the year and grew our corporate store volumes by nearly 3% lower EBITDA was driven by the continued bumpy margin environment.
Mainly in the West and Ontario.
We also had some onetime cost for the investments in journey rewards develop Vince.
Which lower lowered EBITDA up by 3 million.
I'm extremely proud of the fact that we have delivered 16 straight positive quarters of positive C store same store sales growth Q4.
I was up approximately 1% and to up over 7% when removing the impact of cigarettes. This is an outstanding accomplishment versus a strong set of comparable.
Numbers in 2018.
We have rapidly grown our presence in Canada, where we have some ambitious goals and continue to deliver on them. We launched our much anticipated journey rewards loyalty program and brought on a leading Canadian financial institutions as their strategic banking partner, we added 27 new site.
And convert at 65 existing sites tour on the run convenience store back courts, we exceeded our private label penetration targets and had 49 skews in market at the end at 29 team, including our new non food brand cargo.
[noise], we are testing innovative new concepts to dry C store traffic such as Amazon hub and dedicated freezers from Eminem food market Express we are expanding our enterprise digital capabilities and have built team responsible for putting their customers first and improving our efficiency now and to analytics capability.
Which will add value to the entire organization, we signed an exclusive agreement with triple owes to bring the brand into Albert in Ontario markets and offer high quality made to order meal options to cover all day parts.
We grew corporate volumes by nearly 100 million liters this year, which demonstrates our growth programs are working we're delivering on all fronts and we believe we're still in the early innings of our growth initiatives returning to journey rewards for a moment, we are seeing encouraging results on key revenue and margin areas such as higher average.
Leaders filled and C store basket size for participating members.
Yeah, I'd be see credits and debit card customers links are gaining traction and those linked members are buying more fuel and C store items, which demonstrates the power of our partnership we expect this momentum to continue as part tendency LPC begin to promote the program to various forms of media, including branded.
Phil onsite and that out of home deployment as we enter the key driving season in Q2 stay tuned for more updates on this exciting new program and we encourage you to download the app and start earning rewards.
All in all I am pleased with the underlying performance of our retail business and excited for 2020 [noise].
Our Canadian commercial segment delivered adjusted EBITDA up 33 million for the quarter and 99 million for the year, we continue to improve our operating efficiency through regional operating center transition cost management initiatives and strategic focus on higher margin business.
We repositioned our portfolio to reduce customer churn and ensure we remain focused on our highest value customers specifically in our card lock business.
And you see that reflected in gross profit. These successes were enough to overcome the continued weakness in the forestry and upstream oil and gas industries in Western Canada.
The fourth street sector, particularly NBC has been challenged and rig counts in Western Canada were down 30% year over year, our trailing 12 months operating ratio improved through these efforts and we continue our push to drive our operating ratio down over time going forward. We are excited to launch our national fuel network.
Or an f. fan in mid 2020, it is a unifying commercial brand for servicing national and cross regional customers and the capital light structure more on this as we progress through the year.
In our international segment Parklands fourth quarter, adjusted EBIT that was 73 million and 281 million for the year I'm extremely pleased with our decision to enter the market and with the performance in our first year of operations. Thanks to our new entered national team as well as our Salt partners as Darren mentioned earlier.
It doesn't make sense to buy businesses unless you can grow them.
We did just that taking advantage of retail and commercial opportunities thing expanding LPG aviation and Bunkering operations, resulting in an 8% year over year growth in our volumes, we received a new LPG vessels in late 2019, which started to benefit us in 2020, we gain traction.
More miles journey program in Barbados, now used by 18% of Barbados drivers.
We plan to roll this out in other international markets in 2020, and we're fine tuning our supply operation expect to start benefiting from it in 2020.
We also recognized and immediate benefit of having synergistic operations in Florida to the U.S.
You asked is Tropic oil acquisition.
We're working together to service Tropic customers in the Caribbean and sold customers in Florida. This is a perfect example of our growing supply platform and working together as one part plant team [noise].
Our U.S. segment delivered fourth quarter, adjusted EBITDA of 15 million and 56 million for the year, which is double our 2018 result, we bought three businesses and 2019 and another subsequent to year end and we are starting to see the benefits of local scale in our northern Chairman Rockies regional operating centers.
Importantly, we are also driving strong organic growth securing new commercial volume and growing our national accounts business.
We have had a lot of cross functional success, where our regional operating center team partners with our national accounts and supply teams to win new business spurred by providing a differentiated offer.
We recently acquired Keller Stross oil in early 2020.
Came with high quality physical assets, such as 17 car rail spur our supply chain.
Was already utilizing and adds significant optionality to our portfolio, we had a great year in the U.S. and are pleased with the underlying performance or mechanic growth runway with additional toward through accretive acquisitions.
Finally, turning to the supply segment, which delivered 152 million of adjusted EBITDA in the quarter and 658 million for the year. The team at the Burnaby refinery continues to operate efficiently safely and reliably we did have a third party electrical outage in October which lasted for 60.
Base.
Which slightly lowered our utilization rate to 92% overall refining margins were strong and we also benefited from synergies and optimizing our pipeline space.
We're highly focused on the current turnaround at the Burnaby refinery along with some other work we're doing to take advantage of the downtime we are investing capital to upgrade our toll processing ability and hope to exit the turnaround with additional capability to produce renewable gasoline and to test production of renewable diesel and jet fuel.
Our rail logistics business had a record year capitalizing on a robust arbitrage environment and growing third party LPG refined products and carbon trade operations. Our supply vantage is a key tenant apartments strategy, and we will invest capital and 2020 to enhance our capabilities.
Wrapping up now on slide 12, or 2020 guidance is 1.13 billion for adjusted EBITDA and 575 million for total capital expenditures, both with the variance of 5%.
As we did and 29 team we are targeting to fund our capital program at a cash flow and maintain financial flexibility to capitalize on tuck in opportunities. The strategic pillars remain the same grow organically built to supply advantage.
Acquire prudently and integrate effectively.
Keep in mind.
Our adjusted EBITDA guidance range. This accounts for our turnaround at the Burnaby refinery, we've provided an approximate breakdown of our capital expenditures. This year to give an idea of were investing is going on maintenance capital is tilted towards supply because of the turnaround, but I will give some more color on the gross.
Slide organic growth is focused on some key items for 2020 network development.
Improving our customer value propositions supply and logistics capabilities building, our enterprise digital capabilities and accelerating low power.
I'd like to end by once again thinking the parkland team for their hard work and dedication to produce yet another great year for our shareholders and for their ongoing focus on safety. This concludes the formal portion of the call. We will now take questions from our analysts and institutional shareholders.
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 us reach on prompt acknowledging request and your questions will be pulled any order their received should you wish to decline from nickel in process. Please press star followed by.
He using a speakerphone. Please let your hands that before passing any keep one moment for your first question.
Your first question comes from David Neumann days, our debt. Please go ahead.
Good morning folks.
Hi, David how are.
Very good how are you.
Good.
That's just as you look at your guidance I, just you know a high levels for thought process as to the setting in the guidance and you know the conservatism that you may have taken a couple of things I mean first of all meeting try to quantify what you get the thought process was I'm thinking more krona virus in what potential.
We'll impacts that could have on either servicing the Vancouver airport with jet fuel or tropical oil on the cruise ships may be Caribbean tourism vehicle miles traveled what was your thoughts when you are kind of setting the guidance on that front.
Yes, so look we've.
In terms of the virus.
So first of all our guidance this sets taking into account so, particularly the impact of the turnaround. This year and then our our forward view of the crack spread those are the two big drivers on a year over year basis.
In terms of the Corona virus center, we have a diverse business and to date nothing has impacted us material. We're continuing to monitor the situation very closely but at this point, it's hard to to tell what the potential impact will be.
We're quite confident that's at this point, where are our forward view and the potential impact is within the.
Tolerance that we providing got in our guidance and if that were to change than we would.
Renew our guidance numbers, Okay, and then just and supply chain in retail in particular Bob.
When you're thinking about this year I know on supplies pretty simple I you know he kind of look at the three year average in and whatnot, but do you guys implicitly bake in.
Physical arbitrage and then on the retail what are sort of your assumptions on.
Volume growth and organic growth because that's been a challenging market in terms of retail.
Yes, so on a supply business.
We certainly.
Have a budget that anticipates, a certain amount of arbitrage within that business and.
And that's what we would bake into our projection going forwards.
Last year was particularly strong.
We tend to moderate that in our inner forward view, okay and.
With regard to retail.
We do recall, we do report retail is one segments I would say.
When we appeal it apart you know the volume growth, particularly in our corporate network, where we really control the proposition was.
On target at a roughly 3%.
We've seen some goods growth in our non fuel.
Gross margin.
Oh that supports our continued.
Capital program around news, new sites and conversions.
We're also seeing is as a percentage of gross profit.
The non fuel volume, we're hitting our targets that we set out in our in our new builds and we're also getting the returns that we'd anticipated one of the one of the.
As we transition the network can put new newer larger sites and with our large format OTDR and a QSR and at what we're seeing is we're less and less sensitive to retail margins because most of the gross profit is driven out of non fuel.
Okay and last last one from me and then I'll give up line just overall in terms of what you're doing in Burnaby on the turnaround.
Just thinking that you are scrambling to sort of penal.
Build your bio diesel capability and I know that day in the past that you've had the process some higher cost inputs like tallow oil.
Is there potential here that when you accept the turnaround that you could actually see better margins because you can internalized some that rather than getting cheap getting expensive imports.
Well first of all we never scramble at the refinery, reducing its very deliberately and safely.
Yeah.
In terms of the turnaround one of the one of the items that were investing is is in is to be able to.
Increase the proportion of bio inputs and.
I think we've talked about.
Exiting the refinery or exiting that turnarounds and certainly this year being able to.
Increase that in the area of three to 5000 barrels a day.
In terms of the inputs I mean, our team one of the focus is on the turnarounds and the technology that we're developing is to make sure. We have maximum flexibility around a number of different bio feedstocks and that ensures that we can always get the best economics for the facility as as we go for.
Forward.
Excellent Thanks, Bob [noise].
[noise]. Your next question comes from Michael Van.
Securities. Please go ahead.
Thank you I just wanted to start off on the retail side, yet and moderate modest same store sales but.
The non tobacco is actually quite strong and ups 7.1, and not accelerated compared to what we saw the last couple of quarters. So can you talk about what's working for you and and what are the key drivers of that same store sales growth.
Hi, Mike It's Bob SB.
Yes in terms of a the key drivers there.
The [noise].
You know, there's a number of things one is a again the continued.
Focus on on our merchandising and also on our our private label.
The second thing is a the OTDR refresh program where you.
We do see that a benefit there as we pull new customers into sites.
And the third is.
[noise], we're seeing the impact of our organic growth investments on new sites as they can as they start to grow.
We do see some good same store comps year over year as as they start to take off so those would be sort of the three key drivers in that number.
And we'll start to see the impact of loyalty here in 2020, so expect that number to continue to be quite robust year throughout.
2020.
You talked about.
What some of the learnings was were from the soft launch in Q4.
Yeah, you know.
I would say.
So first of all I think the the soft launch.
Demonstrated that.
We can get good traction on the program, we're seeing average basket size go up.
Quite quite nicely.
And ill be interesting to see how that translates through into the broader rollout.
I think our team's been focus certainly through the pilots and the soft launch on making sure that the technology.
Ken.
Is easy to access and that our customers.
Ken can use it effectively so theres been some tweaks there.
The other thing is the partnership with CBC, we tested that in NBC and again gods that there was some working there on how to make sure that we encourage.
Customers to join cards and again, we'll start to see that hearing Q2 was we do some promotion around that and encourage folks to link their cards. So what we do see is one we do get someone to link cards. The impact is even greater than just a happy.
Okay.
The loyalty program.
Okay and then thank you Bob and then.
If I look at Saul.
It's definitely been a good first year I think there's some question marks as to how you guys are manager business outside your North American market, but it's obviously been a very good year. So can you talk about some of the areas.
Where you've been able to get them early wins and improving that business.
Whereas a growth coming from water right as some of the efficiencies and synergies that you've been able to generate early on.
Yeah our are.
Our growth there that we've seen compared to business compared to what we announced has been.
Merrily organic growth in the business and some early wins on the synergy side again that business.
We certainly didn't see or anticipate a lot of cost synergies with our with our our parkland business. It was more about sharing best practices.
And where weve, where the team there has been able to make improvements is one is starting to push more aggressively into the LPG business.
The other is in the retail business.
Lot of a lot of tactical items that led to.
Volume increases and market share increases in certain markets, where we.
We just for a bit more aggressive in terms of our offer.
And ER and then finally on the supply.
You know a will more to come but we did see some early wins there on.
The distribution side, specifically so [noise].
So again look we're quite excited about the business as we look forward we're still.
Bullish around the synergies that we had projected when we bought the business and continue to see some really good organic growth opportunities as we rollout LPG into.
Markets that were in but don't offer it and also our aviation offer.
Okay, and just to clarify on install how sensitive is it tourism and the cruise industry.
Well it depends it depends on the market right. So the other sort of three types core markets says that the ones that are.
Tourists sensitive.
The second would be the.
The.
Natural resource dependent economies, which are still very robust and growing well and then a third if you don't the third or more.
Don't have either of those and they tend to be quite steady steady performers.
In terms of.
The potential impact.
Again early to tell we havent seen that's I mean, we are getting close here to the end of the tourist season. So.
Hopefully the impact is minor.
Yes, one again a lot of the tourists that we haven't seen any flight cancellations. So that would be a driver fuel on the jet side and then also were.
You know on the.
On the cruise sides.
Where would impact us more as in the business, we bought in Florida.
Where we're doing a lot of.
Into ship, but again at this point, we havent seen a drop off in that business to any sort of material.
In any sort of material way.
Excellent Thanks, Bob.
Your next question comes from John Rajala JP Morgan. Please go ahead.
Hey, good morning, guys. Thanks for taking my question.
So just thinking about your 300 million.
Okay.
Pretty big step up from what you did.
I appreciate your business is growing up.
So I guess my question is what level of growth Capex.
Your your.
3% to 5% organic growth target.
Should we think about it.
Hi, great. It's it's geron smart here so thanks for the question.
So so yes, so in on the growth side.
We see.
Approximately 300 million of of growth Capex.
And if you think about some of the elements of that.
Certainly there is some of this year related to the refinery as we.
Invest into co processing and things of that nature.
And.
And then as we continue to scale the business.
That that growth number will change as well, but that's that's kind of how we think about it.
Great and then.
Sure.
Got.
You are above.
Going forward from a turnaround.
But if I look at 20, you're still doing 85 million.
On the turnaround.
Incremental.
<unk>.
Yes, there there is and as we've said there is.
There's there's about 60 million included in maintenance Capex for the turnaround in 2020 and as you noted in in 2019, we did have the chance to accelerate some of our.
Hs any related spend in international.
Exactly.
Your next question comes from Steve Hansen, Raymond James. Please go ahead.
Yeah. Good luck guys.
Just firstly on the on the front quarter here the crack spread has been fairly robust through Q1.
Resilient gasoline prices, presumably that had somebody with refinery downtime I'm just trying to get a sense for how much inventory you had done in advance.
Prior to the turnaround and whether or not we should think about that in.
Our first quarter estimates.
Yes, so we are.
We're limited by storage facilities. So the we would have built inventory, but we predominantly.
Move to a program, we're we're importing or buying up refining partners in the year to meet our demand.
Through.
Through the turnaround.
Okay. Appreciate it and then just on the on the M&A side, So we get speak to the.
Pipeline that you've been seeing your commentary suggests that you continue to look for any targets in the U.S. into to leverage the or you've got trying to get a sense for how we should think about that pattern through 2020, and whether you think you could be more active than last year or were similarly active or just any sort of context for we've got a in the pipeline.
Great. Its during smart again, thanks for the question.
Our M&A pipeline remains very strong so we're very excited about.
The opportunities that we see in the us.
And.
And across all of our rocks.
It's hard to predict.
Exactly when we'll be able to.
Sign and closed transactions.
But we do have a.
Diverse pipeline across regions and different types of of businesses.
That that fit our our operating model quite well so.
We we continue to focus on on finding good value and when those opportunities come up.
Then we.
We focus on on closing them.
Hey, good for you guys. Thanks.
[noise]. Your next question comes from Ben Isaacson Scotiabank. Please go ahead.
Thank you very much just a question on commercial the card luck strategy. So it looks like you've been giving up volume to raise margins how much of that volume that you. Initially give up actually comes back and pays higher prices and is that strategy has that no played out and should we look for growth.
Going forward.
So again talking about the year over year volume decline again, a portion of that is due to.
The card lock business. We also saw demand come off and forestry, NBC, which has been a large.
Segment for US and also in the continued decline in Alberta, and Ansys catch one in the rig count. So you know I would say, it's not just due to.
Recalibrating our card luck portfolio, you know I would say on that side.
We are we are at a point where.
I think we've got the value proposition.
To a point, where it can start to grow.
You know the other component is with the NFL and that will be launching in the back half of the year it'll give us a.
A much more robust payment platform, but also the opportunity to link other partners into the program and increase the available traffic to the site. So we do expect to start to see that's turned around and see some growth here as we go through the year.
Great. Thank you and then second question back to M&A opportunities in the U.S.
You had some nice bolt ons at the end of last year and when you look at the opportunity sets are there some medium sized businesses that you're seeing some value such that it's more kind of needle moving transactions or is it the same type of size as we saw in Q4 last year.
Hi, its during smart.
As for the question.
Yeah, So our pipeline.
It has.
Really the full continuum of opportunities and that from the smaller tuck in transactions that you noted we we've done in the last year.
As well as medium sized in larger transactions.
So so it really is in a diverse and again, we look for opportunities that fit well with our business and our strategy and look for situations, where we can find good value.
So that's that's how we.
We evaluate them.
Great. Thank you.
Your next question comes from Peter Sklar, BMO capital markets. Please go ahead.
Bob on the.
The synergies from the Chevron and the ultramar businesses like you're indicating that.
The synergies or that you've realized are significantly larger than what you originally anticipated. So two parts to the question as.
One like where are you finding these extra synergies.
Shoe like are they fall like if you do the math or they fall when you look the math or they falling to the bottom line or are you investing some of that back in the business.
Yeah. So in terms of where did the synergies come from its pretty pretty standards to what we've seen in the past. So we would look in three areas one is.
In supply and.
For this particular acquisition, there where there was a large part in supply than.
The second thing is in operating improvements and we were able to make substantial operational improvements in the marketing business and also in the.
There's been a lot of.
Operating improvements in the refinery as well so impacting both.
The reliability positively and also the Opex.
And then third thing is on the M. DNA and so there we've made.
We announced earlier in 2019 that we had everybody on and common platform for systems. That's enabled us to to go after efficiencies across a across the business and.
And we've also done some consolidation of our office Uh Huh.
Prince we were into offices in Vancouver, we've moved that into one.
We've done that in Alberta, where we've been able to move into one corporate office and also in Montreal, We're in the process coming down to one corporate office. There. So so again those are the ongoing improvements that we've seen and you know I would say, we out delivered or delivered well beyond our expectations across.
So all of those.
In terms of.
Where do you see that I mean.
The.
Yeah, you know at some point the businesses get integrated and it is hard to pick out. So you know where things are coming from I would say on an aggregate basis, we have been investing in the business and you know certainly.
We've seen that in our retail business, where we've been investing in marketing programs and.
It's hard to say exactly where that's come from but certainly the the synergies would contribute to that.
And then we've also seen an increase in our capital program, which is largely funded through.
You know the EBITDA across the business of which the synergies are key contributor to that.
Okay.
Switching topics on a journey.
You're going to be getting a lot of data on your customers.
So I'm just curious like do you get.
There.
Male and their cell phone or it's either or potentially both and.
I'm just wondering.
Have you developed yet the company strategy with what you're going to do with all this data and how you recruiting the team that's going to work you know work with the date so really.
So you're right I mean, one of our key assets as the business as our transaction counts, which no across our business now the million customers as they.
You know our focus here on the program is to push people to digital so we do get customer information and the bulk of that does tend to be an E mail address or phone number.
Yeah, what that allow us to do is track are.
The consumers behaviors, and how they're buying and how they're interacting with the site and ultimately get to a point, where we can push promotions to them on a one on one basis.
We're not there yet that's to come we need to get the program launched the other area that we've been investing in is our digital capability.
We're currently.
Last year, we brought in a head of digital into parkland and that's not just on the consumer side, but we have a lot of data across the business our commercial business, but also in our supply side that we can.
Continue to extract and.
And.
You don't get digital insights into on a on a quicker basis. We're growing that team you know from I think it was three or four people coming out of the year to about 20 people. This year and that's a combination of of technical people, but also.
Data data analysts that can extract the data and again given sites to the business in which we can.
Generate further value so quite excited about building that capability Im really look forward to seeing it gain traction and 2020.
Okay and then just lastly, a question on the Canadian retail business the.
The fuel comp I think it was 3.1% in terms of volume.
Were you surprised that the strength that you talked about you holding your market share I would think that would be above and beyond.
The growth that Canada as a whole is experiencing in terms of retail volumes.
Yeah, I think look I think the.
Same store was down on an aggregate basis.
And now few slice out our.
Our.
Our corporate business grew and our dealer business declined.
We did see we do compare against markers and it would show that we maintained our market share.
But I would say.
We grew relative to market in our corporate business and.
You know were slightly behind in our in our dealer business.
Okay. Thank you.
Your next question comes from Michelle shut our National Bank. Please go ahead.
Hi, Thanks for taking my questions.
Looking at 2018, as a whole and I know management. So I was pleased with the year.
And you know these questions have been touched on in various ways already but the volumes in the key segments retail commercial supply kind of a little bit down year over year.
So just wondering in context of your your your three to five.
Adjusted EBITDA growth was that.
Was that in line with your expectations the volumes or.
And how should we think about in 2020 of what are your expectations for the yes.
I would say are certainly if you look at retail you know our.
We maintained our volume on a year over year basis, again, I would say, where we can control the proposition.
We grew and grew quite well within expectation.
And again, you know our growth when we talk our organic growth. It is EBITDA growth, it's not necessarily volume growth. So.
So we did see good growth in our corporate network both on the fuel in the non fuel side in the year. So it was quite pleased with that in the comps that we were able to produce.
On the commercial side, you know we talk through the volume picture there.
We certainly made operational improvements and.
Again, adjusted our customer portfolio to offset that.
I would like to see some volume growth in that business as we go into 2020.
And then in our supply business, we had a very robust year.
In terms of certainly on the wholesale side, we grew our volumes significantly.
On our wholesale in our rail distribution business.
So I expect that to continue here as we go into the next year.
Okay and on the competitiveness in Canada for the fuel margins do you.
Looks like the fuel margins getting a little bit more challenged.
On at least on a sequential basis.
Do you see that abating that competitiveness or is it status quo for now.
[laughter] can I can't project, where the market is going to go.
No I would say.
Our focus is to focus on growing non fuel, making sure that our costs are coming down one of the metrics that we talk about as net unit operating cost and that.
Should go down on a year over year basis and.
So thats key focus of ours to make sure that we continue to drive that fit to get the returns set of our growth capital, which we continue to see as we grow our non fuel in the sites and ultimately make us less sensitive to to the fuel margins and make sure that were.
Were the lowest cost operator income when in any.
Any margin environment.
Okay.
And just on the yet.
Given the competitiveness like.
This parkland.
Help its dealers and certainly with corporate stores have any analytic <unk> kind of software to figure out what the ideal fuel margin is to maximize gross profit or is it done in a more traditional kind of market by market manager I figured out the best price kind of way.
No. We do we didn't we invested in our digital capability, which has allowed us to gets better insights into pricing at the local level and help our our territory managers managers managed their respective areas by making sure that they are.
Pricing that specific market competitively and appropriately.
Okay I appreciate that and just switching gears here, a little bit and its already been touched on a little bit with us all that.
If the economy does psych experienced a little bit of weakness here I'm wondering.
Just given that your business has changed so much over the years and grown so quickly just wondering your thoughts on how the various businesses perform in weaker economic cap here yet.
Yeah, you know look I would say first of all we've got this this diverse platform, which made it which is a great mitigator against uncertainty. So if you look at the breadth of the markets that were in the different products that we carry you know there are good offsets.
Certainly as we seen and gone through in the past.
Slowdowns in the economy, we've been able to see that our business is robust and can pull through that.
If you look at our various segments.
Retail yeah.
Driven by primarily population growth.
You know there there is some sensitivity to economy, but less sensitive our commercial and diesel demand tends to track GDP.
And you know I think projections are globally that's.
The virus could impact growth by two or three percentage points.
And you know that would translate through into our volume.
And then ultimately.
You know within each each area again, various markets or have have more or less sensitivity to its and again it speaks to the diverse nature of the business and the fact that.
On an aggregate basis, we would expect to be able to.
Push through you know should should the impact of the virus b.
More substantial we would expect that our business can push through that.
Okay, and so certainly that that kind of thinking was reflected as you contemplate your guidance.
You know certainly it's within the tolerance over guidance and if we were to see that.
We if our expectations there would change we would adjust accordingly.
Got it okay and similarly that just a question was I think kind of touched on as well, but in the last turnaround.
Benefited substantially from I guess optimization initiatives selling line time et cetera.
And so I think as a 30 million dollar benefit, but I am I correct, two to kind of things that level of magnitude of benefit yes, not repeatable.
You know we are importing and.
And at this point.
It's it's a.
It looks like we're on track in terms of being able to supply the markets.
And.
We will update in terms of any economic benefits above what we've projected so when we're done the the turnarounds at the end of Q1.
Okay, and what was that reflect was that contemplating your guidance as quality.
Yes optimization initiatives that you potentially may be able to engaging.
Yes, certainly we've we've budgeted the impact of the tar in the guidance and any ancillary benefit from importing you know would've been in an initial projection.
Okay wonderful thanks for your time.
Your next question comes from Derrick delay Canaccord. Please go ahead.
Hi, guys.
Just a quick one for me I was surprised to see that Delta between your same store sales growth with and without tobacco. So just wondering can you give us some color just on on what is the revenue or gross profit mix within your.
Non fuel side.
Well, so so I mean cigarettes are our lowest margin item, so and certainly our.
On.
Our in store non tobacco non lottery.
Adams are much higher margin. So you know they tend to be.
Three or four times the margin of selling cigarettes. So so.
Were what more than offsetting any decline in gross profit on the tobacco with the growth.
On the inside sales.
But but in terms of sales mix I mean, when your competitors discloses tobacco makes up roughly like 40% of their sales with the split be similar for you guys.
Yeah, we'd be slightly higher.
And what what else would what are some other major categories for you.
[noise] well so.
Well cigarettes is our largest category and then.
You know after that we get into the.
Into the non you know in terms of those those those categories. You know the exact order right I can't give you off the top of my head, but we've seen good growth across all of those.
The other area that's growing is our food.
Offer as we continue to roll rollout more QSR as we'll start to see the impact of that roll through our.
Our non fuel gross profit.
Okay. Thank you very much.
Great. Thanks Derek.
Your next question comes from Amir Alright.
Cormark Securities. Please go ahead.
Good morning, guys. Just a quick question on the growth capital I was just hoping you can just give us a rough breakdown of how much of that capital is for top line revenue are falling growth at how much of it is in terms of gaining EBITDA from improving your margins are lowering it costs.
Sorry, that's a can you just clarify that.
Yeah. So just on the growth capital of 300 million how much of that is actually to add on the revenue side or the volume growth side and how much of that is adding EBITDA by by improving your cost structure is just given the commentary you gave in terms of where some of that growth capital is going.
Yes, it's terrence merger, it's really difficult to breakout.
The growth capex on on that basis.
Are you know projects there do you do span both of them and you know just as a as a general philosophy. We are focused on ensuring we we get great returns from the from the growth capital, we invest but it's it's on both fronts.
Okay Fair enough and then just a follow up question. There then as you set your growth capital in any given year or are you looking at a return thresholds of payouts or is it a percentage of EBITDA because im sure you have a lot of opportunities to put capital to work.
Yes, we do and very focused on ensuring we're getting the return on capital.
And focused on the high returning projects.
Okay. So just percentage of EBITDA come in as a cap in terms of how much you wish to put in any given year.
You don't don't think about it as a percentage of EBITDA.
But you know do focus on ensuring that we're spending within our means and and.
Focusing on the the best projects.
Terrific. Thank you.
Your next question comes from.
These.
If I schools with Industrial Alliance Securities. Please go ahead.
Good morning, most of my questions almost all of them have been asked but I just want to focus on the Burnaby refinery and some of the enhancements that you're trying to make in terms of blending.
I guess the way I kind of look at it in theory within like being fixed and blending capability increasing.
Margins based on on crude throughput could go up but is that kind of micrometer into brick something we can't see because.
No 3000 barrels a day at a kind of a dollar a barrel is a million dollars year any comments.
Yeah, I realize it's Dirk here, yeah, the what you're referring to is the bio feed part of the business and on the bio feed.
What we do get the benefit of from the bio feed is it does help us achieve our.
Carbon fuel requirements in the province of British Columbia, and a better rate than the alternative which would be to blend into bio fuel.
So from that perspective, there is a benefit but the economics of it certainly exceed our hurdle rates.
But it's going to be something that's going to that will be very hard to actually see when you're actually looking at the results. We just know that the results are there.
Got it and those results of course are built into your.
Guidance.
That is correct, yeah, and then what will be hoping to do is ramp up the proportion of bio feed that we have each year as we get better at this.
Great. That's it for me thank you very much.
There are no further questions at this time. Please proceed.
Great.
I'd like to thank everybody for dialing in appreciate your ongoing supports and look forward to connecting after Q1.
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. Thanks.