Q2 2020 Parkland Corp Earnings Call

These uncertainties include but are not limited to expected operating results and Industry conditions among other factors risk factors applicable to our business are set out in our annual Information Form Management's discussion and Analysis. We will also be discussing non-gaap measures which not have any standardized meetings prescribed by Gap. These measures are identified and defined and Parklands continuous disclosure of documents, which are available on our website or see our please refer to these documents as they identify factors, which may cause actual results to differ materially from any forward-looking statements dollar amounts discussed in today's call log expressing Canadian dollars unless otherwise noted I will now turn the call over to Bob

Thank you, Brad and good morning. I hope everyone is staying safe and healthy and we appreciate you taking the time to join us today to discuss our strong second-quarter results.

Our opening slide we showcased a great picture of a brand new retail location in Calgary Alberta. We open this site in early July which features are Chevron on the run and triple oberg all which are proprietary to Parkland in Canada. This is our first co-located triple o sight outside of British Columbia and the initial customer response has exceeded expectations with the best opening results in the company to dates these results reinforce the strength of a retail value propositioning including are regionally relevant for corporations and commitment to Growing our non-fuel gross profit are On The Run convenience store and branded food partner supported by our journey Rewards program representing a compelling customer proposition. We will continue to advance this concept in new geographies as we ramp up our future network development and activities and allowing our customers to age.

The most of every stop we last spoke in early may as we were exiting the trough in covid-19 demand destruction as we seen towards the learning session. It has been a tough second quarter for a lot of businesses and in some regards ours was no different. However, I believe we set ourselves apart with our quick imprudent reduction of capital spend in our ability to drastically lower our cost base. We are very pleased with our results as our financial and operating performance for the second quarter demonstrate the resilience and flexibility of our business. I'd like to congratulate the Parkland team, especially our drivers and stores staff for their commitment hard work and dedication to provide our communities with the essential products or Services. They rely on for delivering strong results for a shareholders during the most challenging quarter on record.

Despite the challenging environment. We continue to advance our growth strategy and delivered on many key Milestones. Let me touch briefly on some key highlights from the quarter. We maintained and enhanced odd balance sheet strength by securing additional liquidity and refinancing to maturing Bond issues, totaling 400 million dollars, which is now do not which is now not dead until 2028 parts and is well-positioned to manage through any further uncertainty and capitalize on growth opportunities in late June. We delivered on our own National roll-out of Journey rewards and launch the program at over nine hundred sites across Canada. I will speak in more detail when we get to to the retail segment, but we are often dream journey and are excited with the early results. We we safely completed the Burnaby turn around and while we were delayed and and adversely affected by wage.

I'm contractor productivity challenges and covid-19. We were up and running in late April and did not have a single case of covid-19 during the turnaround time. We closed our economy Superstores acquisition in mid-may. And as is typical with our us team, we have fully integrated and have added value quickly to this acquisition. Thanks to both the Parkland. Ancona Martins for working hard to close the transaction in the middle of the pandemic.

We proudly supported our Canadian US and the International Community through the pandemic by donating over four million dollars of fuel and premium food items to front-line health-care workers and Canada's truck driving Community now pass over to Darren to go through the corporate Financial results, Darren.

Great. Thanks, Bob and and good morning, everyone.

We delivered adjusted ebit of $191 for the quarter as you can see in the chart on slide for our combined marketing segments in Canada USA wage an international increased relative to last year driven by strong fuel margins Acquisitions organic growth and operating and mg and a cost-saving these accomplishments help us set volume declines do to covid-19 as you would expect our supply segment was lower year-over-year due to the turnaround which way just ended into April and strong comparable refining margins in Q2 2019 work all that. There were unplanned outages along the west coast of the wage in Q2 2019, which supported our refining margins last year.

I alluded to operating and mgna cost savings and you can see the magnitude of these on the right-hand chart total Optics and md&a was 282 million in the quarter, which is 22% lower than our $362 million in Q2 2019.

Our ability to deliver these efficiencies highlights the flexibility and adaptability of our business model and teams and we are extremely pleased with how operations adjusted.

Savings were driven by the variable nature of some costs and proactive cost control measures supported by some benefit from the Canadian government's emergency wage subsidy program when considering the strong operating performance and actions to reduce spend in late March. We were again able to self-fund our capex acquisition activity and I paid in the quarter.

On to slide five our original capital expenditure guidance was $575 million for the year, which we quickly reduced to $275 million in late March in response to the impact of the pandemic that prudent decision along with our strong operating performance help generate significant cash flow in the quarter.

Strong cash generation and business resiliency gives us confidence to increase growth Capital by Twenty million dollars. We have also added back some maintenance Capital to True up our wages around costs to reflect the delays. We had in cute, too.

All in all we expect a fifty million dollar increase to our Capital forecast to around $325 million. This is well supported by our results year-to-date as well as our balance sheet strength. You said at one point six billion of liquidity at the end of Q2 plenty of cushion and capacity for growth.

I'm going to page six. Our bank credit agreements allow us to normalize for the impacts of the Burnaby Refinery turn around and Computing. Our total funded debt to credit facility ratio, which came in under three times and provides us with significant Headroom relative to our five times Covenant banking group continues to be supportive.

We've also highlighted our debt maturity ladder pro forma, the bond financing executed in June. We closed on a 400 million 2028 maturity bond issue in the quarter month and in July redeemed two bonds maturing in 2021 and 2022 totaling 400 million. We now have no senior note maturities until 2024 wage provides additional Financial flexibility for us to execute on our strategy. We will continue to ensure that our balance sheet remains strong and that we're well-positioned to navigate any challenging Market environment. I'll now turn it back to Bob to discuss the segment forms.

Thank you, Deron.

I'll start with Canada on slide seven adjusted ebitda was $93 million up by 30% relative to last year while volumes were down due to lack stay-at-home orders implemented across the country and the economic slowdown fuel margins strengthens, which helped compensate retailers for lost volume and we benefited from our enhanced digital capabilities, which strengthened our Dynamic pricing capability cost in Canada adjusted to reflect volume declines and our combined operating and md&a expenses were proximately flat on a per liter basis compared to last year are strong results were supported by the convenience store Channel. I couldn't be happier with the resilience of our convenience stores offer which further demonstrated the strength of our customer value proposition during the quarter. We sought customers alter their habits and frequent our stores to purchase grocery items off.

Told Essentials take home formats tobacco and alcohol the team recognized this shift in behavior and immediately adjusted our merchandising plan to accommodate the change. We would remain focused on evolving our customer value proposition tailoring our assortment keeping shells fully merchandise with relevant offers in a safe customer environment App Store. Same store sales growth was 12.1% are 18th consecutive positive quarter. The journey program was in its initial rollout phase when we paused in March. However, we completed the National Rollout in late. June membership Trends are encouraging with improved average fill out a store baskets eyes and visit frequency from CIBC cardholders. We are excited about our planned marketing launch program with CIBC in the coming months membership wage.

and up in the key area of

Focus for the upcoming campaign, if you have not signed up go to go to the journey app and join it is free and you can start to save you can even win a thousand dollars for fueling up with us.

Our commercial operations performed well and continue to win new business in the quarter. It speaks to the quality of our team being able to sign up several multi-million customers during the pandemic off in terms of the recovery the chart on the right of slide seven represents Fuel and petroleum product volume since the start of March as you can see the recovery and volume down not been linear but has been clear retail volumes have increased 40% from April Lowe's commercial has recovered more slowly, but did not expect the same initial drop both are sitting around 15% lower in July relative to 2019 margins have moderated slightly from 2020 but remains strong.

For international operations, we delivered adjusted ebit of $54 million a decrease of twenty million compared to last year considering the more extensive covid-19 packs in the region compared to our own Canadian and US operations. We are extremely happy with the results the geographic diversity within the region and the ability of the team to continue to win new business was evident in a quarter as an example. We secured a five-year Supply agreement in Guyana to service Excellence offshore operations. The team has grown our commercial and wholesale volumes in the construction power and natural resource sectors across the region.

You can see the volume trend for international on the left-hand chart on flight eight are our retail line of business was hit hard in April due to strict curfew laws with many likes closed early in the pandemic. We are in a seasonal low for tourism and you can see how our robust base business has recovered with retail volumes off 10% relative to 2019 commercial volumes were strong in the natural resource sector and benefited early on from higher-than-expected Marine bunkering business. These volumes have fallen off slightly as some of our commercial driven markets have recently shut down due to covid-19 and the aviation business remains down. We have we expect this to be afraid to be fluid for the remainder of twenty-twenty but are happy with how overall operations have responded. We we have also made significant progress on costs and integration activities during the month.

Second-quarter with combined operating and md&a cost reductions of 18 million relative to Prior year.

Are you a segment delivered second quarter adjusted ebitda up twenty two million reflecting organic growth and the impact of Acquisitions strong per unit fuel margins wage increase national accounts sale and marine fuel sales. The US was not immune to covid-19 with the largest volume declines in the Northern Tier, we're back and energy activity was down retail phones also declined. However, the natural however the rule in Suburban nature of our operations supported volumes relative to other areas of the country in a strong back to retail margins offset that decline excluding acquisition growth. We grew in a very difficult quarter through our ability to add customers a stem. The tide of new customers is the like blood of any healthy business and we added over 300 new commercial customers in the quarter was seven several multi-million liter wins.

finally turning

To supply we delivered forty million of adjusted ebitda significantly lower than 2019 primarily due to comparable quarter having 95% off binary utilisation and strong refining margins tight unplanned outages along the west coast of the US I'm proud to say the refinery team successfully managed through the covid-19 challenges while remaining healthy and safe. It was a large and complex scope of work. We had additional covid-19 safety measures and issues related to whether power failures and contractor productivity gains. We mitigated as best as we could the pandemic but didn't occur roughly 15 million of additional Capital relative to our sixty million dollar Guidance. The refinery is was up and running late April and we have tempered utilization.

To the underlying market demand it May in June utilisation was between 75 and 80% and is currently running between 80 and 85% through July. We will Optimum utilisation as market conditions change. We continue to progress our overall Supply strategy evaluating optionality for product import into Quebec and Ontario negotiations with suppliers and building our processing capability. The refinery has demonstrated optionality by switching from tablet to Canola off due to product availability.

On flight eleven. I wanted to reiterate some of the opportunities in front of us for growth. This quarter has demonstrated the actual nature of our operations and ability to flex our business model quickly in a volatile economic environment. Just as we can pull back on growth early in the pandemic we can ramp it back up. We have numerous options most requiring small capital investment and you can see some examples on on the page. We are not getting ahead of ourselves. However, we will continue to be prudent Stuart sub Capitol and look for high-return projects this includes Acquisitions where we will look to continue our disciplined activity in the on the back of our strong cash flow generation, ample Financial flexibility and improving mom backdrop the extent and duration of the pandemic remains hard to predict but our growth capabilities remain intact and the team is ready to opportune opportunistically execute our strategies.

As I said with our q1 results called in challenging times the resilience and flexibility of our business shines through we have a diverse product of geographic footprint. When you combine this with our entrepreneurial culture strict strict Financial discipline and organic growth initiatives. I believe we are well-positioned in the second half of 2020 Dodge Neon. Thanks to the entire Parkland team for a great quarter and a continued focus on safely supporting our customers and communities. Thanks to those on the line for your support and we'll now open the line for questions.

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 touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order. They are received. Should you wish to decline from the polling process, please press star followed by two if you using a speakerphone, please lift your handset before pressing any Keys one moment for your first question.

Your first question comes from David Newman, please go ahead. Good morning gentlemen.

Hi David, how are you? Very good. How are you? Not very good good. Congratulations on a very good quarter and obviously very quick reaction. I guess my first question would be the you know, Ninety Six Million off backs and their savings if you exclude the you know, sometimes these these situations are an opportunity to kind of look in the mirror and and and and and dig down deep and look for in efficiencies in the organization of the eighty million Bob. I mean, how much do you think would be more permanent in nature that as we look up the next year you'll be able to join enjoy the benefits of this as volumes return.

Yeah, thanks. Thanks David. Good question. You know, I would say the quarter really demonstrated the flexibility and resilience of the business from a cost perspective. We do have a lot of of costs which naturally on lined with volume. So what you saw was a large Readjustment in the cost in our variable cost space that happens naturally within the business. So it was very pleased to see that and certainly never got to test it to the extent that we saw in the quarter there certainly are some permanent cost savings that we have achieved. We've also continued to push on our systems and process improvements which give us long-term productivity improvements that you'll see in a lower cost base in terms of the the exact number, you know, we're dead.

I'll be looking in the fifty to seventy million dollars on an annual basis across both the variable and and fixed costs on a permanent basis.

That's that's excellent. And second question Bob just on the I just noticed across the board. It seems like you're you're hitting your stride on on winning new accounts, you know, Canada and Diesel your your fixed price offers. Looks like Canada propane a little bit as well your marine fuel contract and the Caribbean and some of the national accounts on a high level. You know, what are your thoughts about the teams across the board and why they're now sort of hitting their stride. I know a lot of groundwork goes into it and and maybe some specifics on each geography as you age of looked at as as you're winning all the accounts 300 in the US would just a remarkable.

Yeah.

Again, you know, I'm I'm really pleased with what the team was able to achieve in the quarter, you know, and and I think what the winds do is speak to the commercial intensity of our team and and and also our ability to continue to service our customers throughout through, you know through through throughout the pandemic and I'm under any conditions and you know that that ability to continually serve is certainly the foundation of our of our success as a business office. Um, and um, it allows the sales team to go out and and win new business, you know, I would say some of the items that the commercial business across each of the region has been able to do is we we've spent a lot of time last year implementing a new sales generation process a lead generation process called storm.

We successfully implemented that across the business and that's helped us tracked and and also help the teams in terms of winning and Landing new business. You know, the other thing is, the RR we've been able to leverage national accounts now across multiple jurisdictions that's helped the fact that we're in multiple regions and then you know, finally our risk management has enabled us to improve our customer value proposition and often offer fixed-price contracts to customers so they could take advantage of lower commodity prices. So, you know there there's a number of things that have come together, you know, certainly a lot of hard work that was done last year. We're seeing the benefits of that in 2020.

And the the system you pronounce call Storm if I'm not mistaken is that we said, yeah, it's it's a sales leads generation and management process would like to squeeze them on one more Bob on in the u s is a growing awareness of your National as you've gathered together your your rocks down in the US. There's a growing awareness of of your National exposure. Is that is that kind of getting hitting critical mass?

You know, look we're we're still in the rocks that were in. I mean, we we do have great businesses there and great teams, you know overall relative to the our presence is very small in life and, you know enhance the opportunity on the m&a side to continue to be the acquirer of choice in those regions, you know by great businesses and fold them into our our business like we recently did with conomart. Excellent. Thanks guys great results.

Great. Thank you, David. Thanks for your support.

Your next question comes from John Royale with JPMorgan, please go ahead.

Hey, good morning guys. Thanks for taking my question. So the C store, obviously came in really strong despite some of the headwinds you called out, but I was just hoping to pull out the the fresh food and beverage piece curious as to whether you're seeing consumers become more comfortable with that type of activity or if you think maybe there's a longer-term kind of impairment there.

Yeah. Hi John. It's it's Bob SB. We do have RSVP marketing here today and I'll turn that question over to him white Johnny. Thanks to see him. I would say Thursday through the through the the worst of the pandemic certainly into the spring. We saw that business come right off and you know for safety reasons we had you know, we made some changes excites wage stopped a majority of the defense beverage programmed what we have seen as new Protocols of coming to place as consumers have become more comfortable. So the living in the current environment off as a team is put a lot of good preventive measures in place and made customers feel more comfortable. We've seen that business come back particularly in the summer months with you know, Frozen dispensed beverages et cetera. So we are seeing that business come back and we're we're pleased with the trend to this point.

Great. Thank you. And then working capital with a a four hundred million dollar Tailwinds in cash for this quarter. Can you talk about the Dynamics driving that it looks like it's it's mostly compatible than receivables, but not sure if it's a way to the commodity price or activity level or something else and should we expect some sort of a reversal of that draw in the second half

Yeah, for sure John. I'll turn that over to Darren and he can provide some color on our on our balance sheet. Sure. I John it's during smart here. So yeah, you know, you're right. We should see a working capital release in the quarter and as you've noted driven by a couple things, you know first, um higher payables, uh due to some extension in payment deadlines for some government taxes and duties, uh, also, uh lower accounts receivable and inventory and again as you've noted some of that is due to lower commodity prices and lower volumes. Uh, so that would change with activity levels and pricing levels, but I'd also note that we did have very focused efforts in the quarter on RAR collection and you're seeing some of the benefit of that as well.

Okay. Thank you very much.

Thanks Shawn.

Your next question comes from Michael vin with TD Securities, please go ahead.

Thank you and congrats on some strong execution in the quarter guys David stole a lot of my questions, but I do have a few things that I wanted to clarify and then touch on so the the 50 to 70 million and and that you mentioned Bob in terms of I guess savings that are more sustainable on an annual basis. So that was so that's even once the variable, uh, even one wants the volumes recover to normal levels. You're comfortable that that that's fifty to seventy million of annual costs that are off the system.

yeah, you know there there's certainly

We we will be able to retain some of those cost savings again, you know in in the background the team's doing a lot of work on our systems and processes that's enabling us to get some productivity improvements on a permanent basis. And is it more geared to one of the divisions that you're able to get more permanent savings?

You know at at at at this point, you know, we're I would take that number across the business, you know, certainly some businesses are are going to retain more than others. But, you know, I'd encourage you to follow up its present or after the call on that.

Okay, great. As far as the On The Run Rollo, can you update us as to where you are in terms of the number of stores now with that batter where you see that go in the next few years.

Hi, Michael, and white the exact number would have to come back to you on cuz I don't have that handy, but I can tell you around the rollout. So we did we were aggressively as you know, pursuing, um that roll it across Canada. We did pause the rollout as a result of of covid-19.

Is it getting anywhere near the nine hundred sites that you have to Journey that?

I would say we're we're we're probably a little less than halfway halfway there at this point, you know, a big part of the transition is taking existing wage, um, the Ultramar Network and the Chevron Network and shifting that to to OTR so our Focus up until the pandemic for 20 21 was to begin to adjust the uh, the western Canada business. So the the Legacy Chevron Business too on the run, so that's our next area of focus. Those are some of our highest and most productive locations part of the reason we've held off point is we wanted to make sure we felt really good about the concept of productivity metrics. We were seeing the results and you know, we're at a point now where we want to start to push quite aggressively, uh to complete that so often, you know, a big part of it as you said is really the the value of the ecosystem to tie in our forecourt and backcourt Brands. So that's going to be a an important area of focus for us as we ramp capital.

so does it make it more challenging than to roll out the the journey program when you know, you have multiple banners that this is tied to

Part of the reason we created. Yeah, I mean it's it's very fair question. I've heard of the reason we created Journey as an independent brand was to allow us to have multiple Brands associated with a particularly given our our strength of having regionally relevant for court Brands across the country in different geographies. So, you know is it is certainly optimal for us to have all of our Brands connected. We believe that having now Journey rolled out to these sites will just accelerate the productivity of on the run. So I think the short answer is you know, we're we're quite pleased what wage in with with journey irrespective of On The Run branded back courts in in a number of these locations, but feel that as soon as we do that it'll just accelerate and already successful program.

Okay. Thanks guys.

Your next question comes from Steve Hansen with Raymond James, please go ahead. Yes. Good morning. Everyone. First question is the possible office environment. I apologize if I missed it in your opening remarks, you did refer to some additional Capital spend, uh coming forth and I was just curious whether or not you reassessed the m&a landscape, which you you know, previously said you were going to pause on

Yeah. Hi Steve. It's Bob SB. So we we are spending some more capital on growth Capital which is on sort of small smaller projects within the business where we can get a quick payback in terms of the m&a environment. You know, our intent is we are seeing activity again in that market, you know, as people pull out of the pandemic and you know, we have ample capacity on our balance sheet to pursue m&a and will certainly be in the market looking at opportunities as they come back to us.

Okay, helpful. And this one falls in the May on the on the journey rollout. I'm just curious having already signed up myself and finding the offering of compelling relative to your peers Market. I'm just curious whether you you've had any learnings as far, you know, really around the incentives that you're offering and whether or not uh, they need to be adjusted whether they're compelling enough Etc. She would have been the key learnings as far as you contemplate the broader marketing roll out into the fall.

Yeah, it's within white. Yeah, I'd say a few a few things. First of all, I would say the biggest learning is that when we get people into that program and if if you're part of it, you know the way through a cycle and the end of the cycle. There's a reward of a large field discount that is incredibly compelling and people when they move through that cycle our retention rate is is quite good. So we are we are seeing a lot of stickiness to the program once we get folks registered and it's become really quite appealing given the sort of value-conscious sort of life is simply through through Covent from a learning perspective in terms of you know offers. We are testing a number of accelerator sort of scenarios. We bought some programs as Bob alluded to in his opening remarks hitting a marketing program sitting with the bank. We're seeing very good, uh penetration with CIBC customers. So we're seeing the appeal of dead.

Our Brands and our offers there so that that that partnership is is working well for for both parties and we're also testing the number of backcourt off

First from you know, different single-serve items to profiling our our 59th Street Brands and I would say for the most part what we're seeing is and it's interesting to watch people gravitate towards certain types of snacks. So whether it's a a healthy snack versus an Indulgence snack and those are the items that as we start to, you know, understand consumer Behavior were able to start to personalize, you know directly with consumers. So I think the shorter answer is lots of sort of early learnings were were throwing a number of sort of offers and ideas out there assessing customer reaction and then continuing to build the program and the and the in the program attributes accordingly.

Must reach you guys think wind up to my favorite by the way. Got it. Thanks. Your next question comes from please. Go ahead. Yeah. Hi guys. Thanks and congratulations on a strong quarter. You guys mentioned that you you saw more customers coming into the convenience store this quarter, you know without sort of purchasing Fuel and then coming in. Can you talk about your plans to sort of capitalize on this customer base? And is this going to be something you're going to continue to focus on going forward?

Yeah. Hi Derek, Bob. I speak. Yeah, you know one of the one of the strengths in the quarter was the convenience Channel and our our our c-store business Health incredibly. Well, we did see a change in consumer behavior of became an alternative for um, um, you know for some of the basics that that people need and you know, the beauty of the convenience channel is you can get in and out quickly and certainly in the early days of the pandemic, you know that was important to Consumers, you know, it's interesting at a time where volumes were off significantly RC store sales were up. So we were getting a lot of visits and a lot of visits directly to the c-store, you know hard to predict the way that that will will continue. You know, I am encouraged by what we've seen, you know, certainly through the tail end of the quarter when we did see volumes recover. We have seen that steamer.

Same-store hold so so, you know as we're getting people to the forecourt, you know, we we should continue to see good strength in our backcourt business and and certainly, you know, that's the trend that we're seeing right now.

Great, and then just on the international segment with the commercial business in particular, you mentioned you've seen it sort of come back a little bit. How is what is the address for us as analysts or you know by setting the street to start track that businesses? Is there any metrics you can point us do to help it sort of gain some confidence in visibility and what's happening there?

You know, you know get well we'll separate into two parts. I'll talk about the you know, the the business and how it's performing and then you know, Brad can walk in around, you know, what to look at externally as a guidepost, you know, I would say the, you know, again our commercial business has held in well and and surprisingly well, you know part of that is the markets that we're in and particularly the natural resource intensive markets where we saw where we saw increased divorce and in in Guyana and surname driven through the oil finds in in Guyana and gold mining answer now. We also on the commercial South Supply a lot of energy into the utilities so for power generation, and and that was robust through the. And in fact, we won some new accounts they're dead.

So that helped that volume continue.

Through the pandemic and our marine bunkering business held in well as an alternative to to selling fuel to to the Marine sector within within the Caribbean so so that's strength offset some of the local on Shore weaknesses that we saw due to the lock Downs off, you know, again, it speaks to the strength of the team and their ability to win business and a tough environment. We do expect that to continue and and certainly be a good a good backbone for for diesel demanding in the region brand. Did you Brad? Did you want to comment on specific indicators that we look at in those markets?

I think you got most of it Bob from a tourism perspective. They're you know, folks will look at flight traffic in and out talk to travel agencies cruise ship booking things like that. But as this court, I think the the base business tourism is performing pretty strong as well. We do have some economies there that are quite Diversified. Um, Puerto Rico is a good example and those areas kind of ebb and flow of GDP and have been tracking more closely to North America's or relate specifically to the pandemic.

Very helpful. Thank you very much.

Your next question comes from Ben Isaacson with Scotiabank, please go ahead.

Hi, this is Don for been. Thanks for taking my question. This is more of a just kind of higher-level understanding of of the the integration of that Refinery and how it impacts those margins and you know, God has happened to turn around, you know, the beginning of this quarter is also started with you know, lower utilization rates just because of how the market has evolved and I just keep kind of talk a bit about how we can kind of think that should if at all impacts margins and the other segments to with respect to how its applies to the through there.

Yeah, let me let me you know, I think there's there's two parts to that question. So there's the the, you know, margin that were experiencing sort of rack to Street and then there's the the

They were fining March and and and why don't I start off now, I'll talk about the rack discreet margin which was favorable in the quarter and certainly favorable year-over-year, you know, as as we talked about, I mean they, you know, the the the rack to retail is made up of many players in the markets and and you know, it appears that age, you know, the market was able to um, make up for some of the volume shortfall with enhanced margins, you know, on top of that, you know, Parkland has done a lot of work on our customer value proposition to make sure that we're pricing markets competitively throughout the country. So we seen some of the benefit of that in our home in our you know, for example, our retail margins in Canada and and throughout the business again, the team's done a great job job managing that you know, specifically

with the refining margin

You know, why don't why don't I turn that over to Brad and he can provide some comments on that.

I think short answer is the ad you got a separate the refining margin from the rack to retail if you take that out. I think our retail margins would have been pretty consistent. We do the research group will buy at a competitive price in the market from the refining group. So it's you do have to separate those.

perfect exercise

your next question comes from Michelle with National Bank, please go ahead. Hi. Thanks for taking my questions on the data analytics off chatted about a recently wondering if that had a factor in the strong field margins. We saw in Canada. But if if at all I know it's early days and what opportunities seen them as an issues on and analytics in terms of fuel Merchants expansion. Yeah, you know as we as we've indicated one of our pushes in 2019 was to suck it up and start to build a digital analytics capability, you know, one of the things that our business is is is has is a lot of data. We're very easy to rich company, you know, we we weren't necessarily very good at utilizing that data are are

Data platform that we're building and and you would have seen a a release around a partnership with Amazon web services has really allowed us to get better visibility in the business on a micromarket basis, you know and and and just make sure that we're managing our customer value proposition appropriately for that local market and it's enabled us to really look at pricing, you know, right down to the individual sites and and making sure that we're you know pricing appropriately for the market conditions. So that's that's been really beneficial. You know, I would say, you know, and that's just just one initiative that we've had with our our digital capability again, we we're now able to look at our data across the business and make real-time decisions that help us both on the the the value proposition side, but also on the side and make sure that we're optimizing in a real-time manner wage.

Uh work early days into this. Um, you know again, we just just really stood up the team late last year and you know, the the the the dynamic package really helped us make sure that we focus and gets gets to the information and allowed us to accelerate some of those initiatives.

Okay, thank you. Thank you for the fuel volumes improvements through the quarter. It's still down year-over-year. And there's so many factors impacting the consumer on on top of their retail feel boring. Let's take you there. There's work from home Dynamix is perhaps vacationing and driving positions within the country and and other factors as well. Wondering as you look out. Is this a situation where Parkland Envision retail volumes permanently impaired or do you see this gradually offsetting of the time, you know hard to predict where it's going to go. I mean, I would say our observations so far are you know are are accurate to what you've said. I mean, we have six the commute volume come off. We have seen, you know, some of our our non-urban sites that are a gain volume down.

Because of the phenomenon of people staying in Canada.

And and and driving so, you know there has been an offset there, you know be interesting to see through July and August. Those are the big the big months were folks take holidays how that persists and then you know on the on the commute side where we seen as commute volume come back outside of the urban centers, you know, those people have been returned to work in industrial environments and so non-urban offices, you know, obviously as it, you know, there will be some dependency there on on how safe people feel to go back to work and and the rate at which offices start to open, you know from an administrative perspective so hard to tell the way that'll pan out. I mean, it's certainly there is a a portion of that the commute side which is tied to people feeling comfortable going into work and and and and Ed.

I'm doing that work.

Okay, thank you for that taking a few steps back and has coded cause you to re-evaluate any strategic pillars or business focus areas for you off maybe International expansion outside of North America the way we were just carried on the balance sheet. Have you had any thoughts on what this business how it may change as a result of covet wage? That's a good question and it's you know, it's early days in terms of you know, what is the long-term impact as we talked about, you know, I would say what's what the recent quarter the last quarter and half of have allowed us to see is the resilience and flexibility of our model, you know, certainly what we've seen in the past the convenience segment has been encouraging in terms of the strength of that, you know, and I would say in other areas where we have seen volume declines the ability of the business too long.

To scale, you know quite dynamically around that has been encouraging, you know, you also have to keep in mind we were in a turnaround through that. So I you know of of our first half of the Year 3 months of earnings have been lost because the refinery was in turn around which was a plan turn around but you know that needs to be taken into account when you do look at the business, you know, and and you know, if we were to sort of normalize that that would have had a large impact on our earnings through a positive impact through the course, so, you know, so as we step back, you know, the business has proven to be dynamic and flexible and and you know, all segments have shown that they can be profitable throughout. You know, what has been a very tumultuous time in the macroeconomy.

Thank you for the call.

Your next question comes from Elias foscolo with Industrial Alliance Security, please go ahead. Good morning. I've got a question focused on Supply or the refinery given, you know that the refineries seem to operate to the weakest link and the weakest link. I think at the moment is jet fuel. Is there something that you can that you're doing short-term and maybe something that you can do long-term if you see something sort of structural with just not coming back that can help refine a utilization increase further and I'm actually pretty shocked that its operating as as high as it is. Yeah. It's it's a good question and and certainly with our refinery in Burnaby. We do have flexibility there to adjust the amount of jet that we produce and you know, and that has enabled us to increase the the refining rates, you know. Yep.

Did you want to comment specifically on the the refinery and it's it's flexibility around that area sure and thanks very much. Thank you a lot. As our team utilization rate was had gone down. We had a better ability to take the distillate. So the heavy end of the barrel and shifted away from home in into into diesel production. But as our production level our utilization rate comes up, then we're going to have to shift more towards the jet side. So if you see us running at 85 versus 750 that that should be an indication that we're starting to see some jet demand come back. We are one of the largest suppliers to that Vancouver International Airport. We are connected directly either way of a pipeline to that airport and as they are building out their C Port facility will be able to also send it by way of barge so that Vancouver airport as volume starts off.

Pick up Elias. We will be able to be picking up some of that volume and we'll be able to increase our utilization and switch some of that disc production away from Diesel and into a jet in order to provide jet to the airlines. Um, you know, we're about a third of the activity at that Vancouver airport and we have some long-term contracts with both domestic and foreign Airlines and we'll be looking to solidify those contracts as we go forward.

Okay, and just one final thing. Are we going to see some what I would call a short-term tracking error in our sort of formulaic approach to to refining margins because of this shift.

Eliza actually probably not in that if you look at the price of diesel and the price of jet there's not a big difference. So really it's a matter of what is the optic up the demand there for the product and because we are fortunate to be working in a in an in an orbit, that's an area of service that is quite unique and there's a fair amount of marine activity. There's other industrial uses for the diesel. This Refinery was built in nineteen thirty-five and was designed to fulfill the needs of the marketplace. And so the configuration of the refinery actually works very well for the demands that come out of that Marketplace wage. I think that when you know, when you're looking at the crack, I would suggest to you that the ability for us to shift back into the jet side. It does help us.

balance that the refinery

But the economics don't change all that drastic. Okay. Okay, that's it for me. Thank you very much.

Your next question comes from Luke Davis with RBC, please go ahead.

Hey, thanks the morning guys. Just wondering if you can quantify your expectations for any impact that you expect them to 3 from the federal wage subsidy.

It's right Luke you broke up there. I couldn't fully follow the question. Yeah, sorry. I apologize to you, but just wondering if you could quantify the impact of the federal wage subsidy that you said he was free.

In in in Q3 the we did benefit from a Canadian wage subsidy in Q2 in Q3.

We will you know again we we we on a monthly basis we submit and again, it depends how the business is doing. And and you know, what the criteria are there have been some changes in the criteria and you know difficult at this point to predict exactly what the benefits going to be from that program again, you know, we are thankful for the government for their assistance and certainly through the pandemic the programme helped us keep some of our sites open and and you know, as you're aware we are we're designated an essential service and and that certainly allowed us to keep the sites open and service local communities across Canada.

Thanks a lot.

Your next question comes from is a follow-up from David Newman with these are dead, please go ahead. Yeah, just a quick one guys on the sustainability the margins in Canada one of your competitors did remark that they were dead or buying a low-cost fuel in the spot market and selling physical inventory board. So I'm just wondering is there anything that you did through the two q. That might allow margins to purchase that these pretty decent levels into the third quarter.

You know again our our our Supply Group was very active making sure that we found the best value for Parkland, you know, we certainly worked with a guy refining Partners across all of our jurisdictions to make sure that we you know left from them in in the most effective manner possible, you know in terms of projecting forward Again difficult to do at this point, but you know, certainly our our teams, you know both on the marketing side and the supply side are keyed in on that and we'll make sure that we we we take you know, our our fair share of what the market gives us.

Excellent. Thanks, Bob.

There are no further questions at this time, please proceed.

Great. Well, thank you. Thanks for listening in and look forward to connecting with folks after our our Q3. Have a great summer.

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