Q4 2020 Parkland Corp Earnings Call
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Good morning, ladies and gentlemen, and welcome to the Parkland Corporation Q4 and year end results analyst call. At this time all lines are in listen only mode. Following the presentation, we'll conduct the question and answer session. If at any time. During this call you require of immediate assistance. Please press star zero.
The operator this call's being recorded on Friday March 5th 2021, I would now like to turn the conference of over to Brad Monaco and the director of capital markets for Parkland. Please go ahead.
Thank you.
With me today on the call are Bob Espey, President and CEO, Marcel Tunis, and senior Vice President and CFO, and Doug Haugh President of parkland USA.
This call is webcast and I encourage listeners to follow along with the supporting slides. We will go through our prepared remarks, then we'll open it up for questions from the investment community.
Please limit yourself to one question and a follow up as necessary and if you have other questions reenter the queue.
We would ask analysts to follow up directly with the capital markets team afterwards for any detailed modeling type questions.
During our call today, we may make forward looking statements related to expected future performance. These statements are based on current views and assumptions are subject to uncertainties, which are difficult to predict. These uncertainties include but are not limited to expected operating results and industry conditions among other factors.
Risk factors the applicable to our business are set out and our annual information form and management's discussion and analysis.
We will also be discussing non-GAAP measures, which do not have any standardized meanings prescribed by GAAP.
These measures are identified and defined and parkland continuous disclosure documents, which are available on our website or SEDAR.
Please refer to these documents as they identify factors, which may cause actual results to differ materially from any forward looking statements.
The dollar amounts discussed in today's call are expressed in Canadian dollars, unless otherwise noted I will now turn it over to Bob.
Great. 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.
Given it is his first quarterly conference call with parkland I would like to officially welcome myself we are at.
And excited to have him as part of our senior leadership team.
We also have Doug haugh, joining us today.
Who leads our U S business to talk about our recent U S acquisition and provide insights into our U S growth strategy.
On slide three we have highlighted many some of the many successes we have had as the business over the last year.
We believe the two test of the company's resilience is how it performs over a prolonged period and while we experienced some COVID-19 and volatility through Q4 and the impacts of one off items, our underlying operations, we're right on track and we delivered excellent performance through a challenging year.
When I look back at 'twenty, and 'twenty, and particularly to the start of the COVID-19 pandemic I'm exceptionally proud of our team our full year results exceeded our initial expectations and highlights our ability to manage any ongoing uncertainty through our diverse geographic platform product line.
And customer segments I'll start with safety, we ended 2020 with a record low trip of 112.
This is of more than 20% improvement from 2019, and a testament to our relentless focus on continuous improvement and the commitment of our teams who safely and reliably provided the essential fuels and services customers needs through COVID-19, safe businesses, our well performing businesses and.
And I'd like to thank the parkland team for their accomplishments.
As always we remain highly disciplined and advancing our strategy through 2020, we drove organic growth acquired prudently integrated effectively and leveraged our supply advantage. We fully funded all of these initiatives across all geographies and are positioned to deliver significant growth through 2020.
And one.
After a brief pause in the first half of 2020, we resumed our acquisition growth and the second half of the year, Doug will touch on the recent U S acquisition activity later in the call I also want to highlight that it's not just been the U S segment doing acquisitions are international and supply.
<unk> continued to find accretive opportunities and in the first quarter of 2021 completed and LPG marketing acquisition and St Maarten and two LPG rail terminals and the U S Midwest respectively.
Okay.
Turning to slide for 2020 marked the launch of our inaugural sustainability report sustainability practices are deeply embedded at parkland and we intend to share key milestones and exciting developments as we move through the year. We are highlighting a few great. Examples on this page the first activity I.
I want to highlight is our bio feedstock co processing efforts at the Burnaby refinery.
We have spoken about this and the past, but I want to emphasize how proud we are that our Burnaby refinery was the first facility in Canada to use the existing infrastructure and equipment to co probes Canadian bio feedstocks, such as canola oil and tallow alongside crude oil to produce low carbon fuels.
And.
This includes gasoline and diesel with the renewable component and progressing towards commercialization of our low carbon and aviation fuel or bio jet.
This is a highly capital efficient way of producing lower carbon fuels that give our customers the mobility they depend on but with far less carbon intensity. For example, since 2017, we have invested approximately $30 million in total on these efforts and addition to the stacking up extremely well.
Relative to other projects out there our low carbon fuels have less of one eighth of the carbon intensity of conventional fuels, making them a critical element of candidates transition toward a lower carbon future.
We co process 44 million liters of bio feedstocks and 2020 up of 140% from the prior year, we of we have high confidence and our capability and expect to increase this by 125% in 2020 one.
This equates to a 100 million liters of bio feedstocks or the equivalent of removing the impact of 80000 passenger vehicles emissions.
As you can tell we are excited about this and look forward to talking more about it as the year progresses.
The second example, and want to highlight relates to our journey rewards program as part of our commitment to offer our customers Greater choice. We have made and exciting addition to the way our journey members can deploy their rewards points beginning on March one and addition to the option.
And to collect the items from within our convenience stores customers may now use their loyalty points to collect the carbon credit offset this is a great example of our commitment to help customers lower their carbon emissions.
I will now pass over to Marcel to go through the corporate financial results.
Thank you Barbara and thank you for a warm welcome at parkland and good morning, everyone I'm really thrilled to be here this morning and to be able to speak to you.
And when we're talking to the Q4 results into context of our overall 2020 financials, and then I will touch on the capital allocation and the balance sheet as well.
If you just turn to slide five we delivered adjusted EBITDA of 967 million for the year and 247 million of for the quarter.
This is down compared to 2019, but of course under very different circumstances, we did see the COVID-19 impacts and parts of our business and Q4 and as we hit we were hit with a second wave and associated lockdown and different parts of our business. However, these were not as pronounced as the initial impacts and quarter two two.
And in 'twenty, and we saw plenty of green shoots operationally.
This gives us great confidence and how the business kind of depth and how customers react as we work our way through the end of the pandemic.
Given the circumstances, we were very pleased with our performance in 2020 year full year and when.
And when we demonstrated the flexibility and resilience and as you can see from our chart of our overall marketing operations grew both in quarter four and for the full year and I think this is a testament of our compelling customer value proposition our growth initiatives deliberate actions taken to remove costs and the natural cost variability of our operating model.
And strong per unit margins on the fuel side.
Those of you that are full of parkland closely will remember that our supply segment had a very strong 2019 and the results in 2020 reflects of three months of turnaround earlier and the year as well as lower refining margins. Although they have remained relatively strong compared to the broad of refining complex in North America.
Our focus on balance sheet meant we exited the year with ample flexibility and liquidity and we're well set up for 2020, one and I will touch and Thats again shortly.
Moving to the operational segment highlights on slide six I'll start with the Canadian segment we.
We delivered $112 million of EBITDA in quarter, four and 435 million for the year into kind of the segments, a great year and of great quarter.
Fuel margins and lower cost and our 20th consecutive quarter of positive C store same store sales growth contributed to a $24 million increase relative to quarter. Four 2019, despite the reduced retail volumes due to COVID-19, and also warmer weather affecting your home heat business.
We continued to benefit from purposefully purposeful investment and our digital capabilities, which underpin our ability to price on a micro market level.
And optimize gross margins.
As you'll recall, we successfully completed the Canadian rollout last year of journey and grew our membership to around one and a half million and we're really pleased with this level of participation and delighted to see debt continued to grow early 2020 one of them.
Our teams remain focused on driving organic growth and successfully capturing the retail market share and Canada, driven by ongoing enhancement to customer offerings and in particularly the strength of the on the run brands through.
Through the pandemic, we continue to see the value of on the run with Brendan on the run sides of outperforming the non on the run sides throughout 2020.
For the full year 2020, our international segment delivered $270 million through an extremely challenging marketing market environment and for quarter, four strong shipping logistics and storage optimization and cost control supported and and adjusted EBITDA of $72 million and offset the COVID-19 impacts and lower tourism.
Relative to 2019.
We have reduced our chartered shipping fleet from 13 ships to 11 recaptured supply margin uplifts and are on track with delivering our synergy targets. When the sole transaction was announced and so we are extremely pleased with the underlying base business and the organic growth and international and.
And we continued to benefit from the geographic and product diversification of our operations wherever you have about a third depending on tourism of search.
And diversified economies and about a third is and the resources sector and these are all different respond differently to the pandemic. So as an example, and Guyana, we sold the volume fuel volumes grow by approximately 15% and 2020, which was on the back of the growth and the oil and gas sector. There.
Our U S segment delivered $74 million of adjusted EBITDA in 2020, which is up $20 million from 2019, driven by acquisitions organic growth and strong fuel margins.
We believe that this is a good marker for where we see the base business prior to the impact of the most recent acquisition activity and Doug will speak to that and a bit.
And quarter four of the U S. The U S. Adjusted EBITDA of 11 million was lowered and prior year. This was driven by a few abnormal items, which do not impact the long term growth strategy.
Of the U S. Specifically, we saw very high COVID-19 levels and restrictions and some U S States like North Dakota, where we have our business alongside reduced oil and gas activity.
The cruise line industry fleet, and Florida, which was largely the idled also had an impact as well as some onetime costs.
The full 2020 results and supply were impacted by scheduled turnaround early in the year, where we were offline for almost three months.
And once up and running burn of be achieved actual utilization rates, averaging around 90% and delivered record amounts of bio feedstock progressing processing as Bob already mentioned.
And got no debt 2019 of it was an exceptional year in terms of refinery margins and 2020, we have seen the effects of lower margins due to COVID-19, underpinned by the location advantage of Burnaby, We've continued to place diesel and particularly jet fuel jet fuel locally and into the U S, allowing the refinery to run more efficiently.
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We delivered $78 million of adjusted EBITDA and supply for quarter, four which was down compared to 2019 due to the impact of prior period adjustments intermediation facility inventory losses, which we expect to reverse once commodity prices stabilize and finally of third party power outage, which tucows offline for four days in the.
Denver the total of these one time impacts and quarter four was around $35 million are.
Weighted logistics business had its second best year on record despite the pandemic, having success moving diesel via rail into eastern Ontario market and a strong crop drying season, offsetting the tire tighter crude and propane spreads.
In summary, 2020 of us really great given the circumstances and quarter four we saw the impacts of Covid on our supply and the U S segment, including a few one offs the softened the headline results. However, the underlying performance was structurally solids.
<unk> market share increased fuel margin of shop sales and improve the refinery utilization and our underlying cost performance were all strong so that gives us lots of confidence as we enter into the recovery in 2021.
So this being my first quarterly conference as the CFO of I do want to spend some time on the looking at our capital allocation priorities and view and my view on leverage.
Our primary objective is the company is to grow both organically and through acquisition and we have a deep pipeline of opportunities to do that build on the strength of our balance sheet and the quality of our assets and sheer volume of growth opportunity in front of US, we don't expect changes to our dividend or leverage policies and as always we remain disciplined and our.
Approach and most of your clear path to value creation.
And we will evaluate our capital allocation choices regularly as you recall, we have indicated our desire to maintain the leverage range between two and three times for normal course of operations rising to around three and a half of the right acquisition opportunities that advance our strategy and off of meaningful synergy potential and as long as we have been.
The line of sight to Delever back to the normal range between in the next 12 to 24 months.
Remain committed to this range and I'm comfortable with the amount of debt and our business at this point and our ability to finance at competitive rates. We have of ratable business model that has proven its resilience to COVID-19, and we have ample room to execute on our growth agenda and revert to our posture. Dr talk about recent activities and the U S.
Thanks, Marcel and good morning, everyone.
And I didn't have the opportunity to talk to you about our U S growth strategy and particular, our latest acquisition.
Of a material on slide eight.
The last week, we announced the acquisition of Conrad and Vishal.
The acquisitions form fitting for parkland and our U S strategy overall.
<unk> establishes the new regional operating center for Us and Idaho and provides the supply and distribution foundation, we can use as a springboard for growth throughout the Pacific northwest.
Equally important and CMV provides us with the large retail format.
Diverse portfolio of gasoline diesel and lubricants non everyone has the expertise to acquire and extract value from these integrated portfolios of parkland to us. It's a critical component of our strategy and I'll talk a bit more about it on slide 10.
<unk> brings us multi line and distribution capabilities and existing infrastructure and Idaho from which we can expand further in the western Montana, Oregon and Washington.
These markets and strong underlying growth.
Idaho is the population and GDP growth rate among the highest in the U S. And this was a key criteria, we look at and when expanding our platform and the U S and I'm looking at markets, we wanted to enter.
Contract comes to US with 19 large format and company owned retail sites.
Nearly 50% non fuel earnings and 39 dealer sites. This is an attractive retail network and the market was 891 stores overall that gives us a lot of room to grow into this.
The snakes provides us the reliable ratable seats of our margin should benefit from our merchandising and purchasing power and the adjacent regions.
Critically this acquisition of <unk> 30 million liters of storage capacity and the scalable rail supply capability and will drive our supply security and Optionality and the reach.
Got it and this flagship Jerry and surrounding markets are difficult to supply and infrastructure scares. Some of these terminal operations will significantly strengthen our supply of advantaged and position us to expand and invest in this market with confidence and an advantage the positioned us and is the logical buyer of other assets and the SaaS growing market that's difficult to service well.
Continuing to expand synergies do you expect synergies ranging anywhere from 20% to 50% of our U S acquisitions. This transaction falls well within that range and we expect to capture synergies from CMV within the next few years.
The C and becomes a great brands great assets, the most important and great people.
All of which complement our existing business and team.
We'll move on to slide nine real quick will talk a little bit of dollar about.
And how these assets fit with our other three transactions that we announced since we last night with you and the third quarter the.
After pausing for Covid, we've ramped up our acquisition activity. We've added nearly 40 company retail sites and 100 dealers significantly extended our supply of advantage throughout the Rockies and northern tier and across the U S. Now and we have approximately 100 company retail locations and serves nearly 400 dealers.
We're beginning to see the benefits of scale and fuel supply merchandize procurement and are validated by our national account wins across the region.
This progress plants was well within the top 100 U S C store retailers by company size store count.
And the result of these four transactions as the pro forma 2020, adjusted EBIT of approximately 70% higher than our reported results sooner.
So we're well on our way to doubling the run rate EBITDA of this business yet again after doing so and both the 18 and 19.
And of the map highlights our recent acquisitions and how they fit in and you can see the Conrad acquisitions and light Blue and the combined Spo story, and Carter acquisitions and Green.
Everything part of those and Gray you can see the beginning we're really beginning to fill in the areas nicely. The CMV transaction connects the Rockies and northern tier regional operating centers very nicely and and all.
Is this the opportunity to optimize the delivery routes and local logistics synergies.
And the area between Salt Lake City, and Montana refining centers as difficult to the supply as I mentioned, which is why we believe we of the logical buyers and this area. There are a few public terminals and pipelines and the region and the marginal barrel into the areas typically supplied by rail.
And often from Canada, which suits us very well.
Local refining capacity is not sufficient for the local demand and terminal operations acquired allow us to take advantage of supply and efficiencies source of lowest cost product and a market the.
The supports the C and the assets and further optionality parkland and increases our ability to compete and win new business.
And so what's next if we look at slide 10 real quickly.
Where do we go from here.
And I'd just like to reiterate what we're looking for and evaluating when we look at acquisitions and highlight some of the depth of the opportunity we see.
While having consolidated a lot over the past two decades. The U S market is highly fragmented and the rate of acquisitions and consolidation has increased.
It's important to note that approximately 65% of the C stores in the U S lie within change between one and 10 stores.
As evidence of that fragmentation to increased size and scale and this market you have to have the capability to do multiple tuck ins regulus.
Any of the retail opportunities and this fragmented market come with commercial and wholesale business units as well as transportation.
And so execute on the strategy of consolidation and this market you have to of a reputation for treating people fairly and with respect and <unk>.
You have to have expertise across the entire value chain to be able to integrate quickly.
And this is squarely in our wheelhouse.
And do not believe it makes sense to buy and business for the sake of doing so you must be able to grow it and deliver value to shareholders through our national accounts growth supply capabilities and now the cohesive on the run backward offering we offer the opportunity to do just that.
We won't line of business, unless we have a clear line of sight into growing it and improving.
And our opportunities for growth and never been greater and our existing rocks.
Sales service sites and other areas that meet our key criteria with strong underlying economic growth and demographics and markets that our supply of indication and today's mark.
All in all and extremely excited about the runway ahead of us and the pipeline, we have available to us and with that I'll pass it back to Bob and look forward to answer your questions and later on thanks guys.
Yes.
Thanks, Doug that was of great overview and it sets the tone for a year of continued growth across parkland.
On slide 11, we have noted the key highlights of our 2021 guidance, we have high confidence and our business model and ability to navigate residual uncertainty as a result, we expect 2021 adjusted EBITDA guidance of around $1 2 billion, which is approximately 25.
Percent greater than 2020.
Yeah.
And we come into 2021 with great confidence and our team and businesses ability to deliver but are paying close attention to the broader economy and evolving COVID-19 situation.
And as was the case in 2020, we have ample flexibility and our growth and maintenance capital programs and the ability to react quickly our growth initiatives are made up of primarily small projects, which we can which can be moved around depending on available cash flow our maintenance capital includes some catch.
Yes.
Work from 2020, with some flexibility embedded as well in total we expect to spend between 400 and $550 million and total capital expenditures with no major turnaround and we anticipate refinery utilization of around 85%.
On slide 12.
We've put some more detail around our strategic initiatives important to note. Our strategy has not changed if anything COVID-19 has reinforced that we are consistent disciplined and focused we plan to grow organically by strengthening our focus on customers innovating towards the experience of the future.
And by providing our customers with greater low carbon and choice.
Mentioned, it earlier, making progress on low carbon initiatives, specifically is the big focus for parkland and 2021 of.
And on the run will also feature in 2021, particularly as we rolled the brand out across the U S supported by the outperformance of OTR versus non OTR sites through 2020, there is a compelling business case to accelerate our on the run conversion plan.
Now half.
We now plan to have most company sites in Canada, and the U S. On the OTR platform over the next two years as always and extending our supply advantage and sourcing the most economical product for our marketing business is paramount to our strategy.
And we'll continue to build our capital light infrastructure projects, such as trans loading facilities to increase import capability into eastern Canada as mentioned earlier, our 2021 efforts will focus on co processing at the Burnaby refinery and hitting our 2021 target of 100 million liters of bio feedstocks and <unk>.
Test.
And to potential U S expansion, new markets that complement our international footprint and being opportunistic and our existing areas of operation. We will continue to progress our long term growth ambition to double the business.
I'd like to thank the entire parkland team for the effort to deliver a solid 2020 and a continued focus on safely supporting our customers and communities. We are well positioned for a strong 2021.
We will now open the line for questions.
Thank you ladies and gentlemen should you have a question. Please press star followed by one on your Touchtone phone, you'll hear of three tone prompt acknowledging your request and your questions will be pulled and the order of the of received a should you wish the decline from the polling process. Please press star followed by two if you're using a <unk>.
<unk> phone please lift the handset before pressing any keys for today's conference. It's limited to one question and one follow up should you have a further question after that please come back to the queue.
And your first question comes from David Newman from Day short day, David. Please go ahead.
Good morning folks.
Good morning, David.
Hi, how are you guys doing.
Yes good.
Did the here and.
So two questions one for Doug.
And then one on international some of my first question is you guys continue to rock and roll and the U S pardon the pun pull.
Pulling together, a really decent patchwork with the fourth rock, maybe just a few thoughts Doug on your on your rock strategy, what considerations go into establishing a new area of what do you look at and how do you effectively service it through the supply of that and so basically what considerations go into your thought process in terms of deciding.
Where you go next.
Yes, I think the.
Great question the.
I'd say the first and.
Most important criteria as a market debt.
<unk> has strong underlying growth rates, which.
You can find and several parts of the U S and not also we've had lots of folks ask us why why were and the market's brand and do you think about that demographically and from the GDP population and underlying demographic trends perspective.
Part of what drives our first screening criteria.
And we've talked about the second being patchy inefficient supply systems, because we think we can that gives us the natural way to leverage our supply of expertise, which many other pure retail companies don't enjoy so it gives us the competitive advantage in terms of both the acquisitions and improving and capturing synergies.
And.
Also markets, where we can acquire like we've done with Conrad.
Core operating capabilities and each of part of the value chain that we need to be able to build upon as we grow and then do tuck ins on top of the rock so.
Contract gives us that and AR and AR.
Of highly rapidly growing market, but also of market that is tough to supply. The you need some proprietary infrastructure there the Conrad and parts of the table and also sufficient scale and the commercial side of the business transfer.
Transportation side, and lubricants side as well as the operating and leadership capabilities that go along with that so once we have that in place, we're able to execute as you've seen us do and the Utah market.
After we acquired the Reinhart business, we've been able to layer on consistent tuck ins quarter over quarter, and you don't have space and these markets to do so for many many years to come.
We'd like to keep the rocks.
Big enough to have advantage and their market in terms of the quality of our leadership the.
And the capacity of supply and procurement and merchandising.
<unk> small enough and local enough to know their market intimately know their customers well, none of the right product and and.
The category of selection that's optimized for their market. So its finding the balance of that scale and capability with with community connection.
And we think it's really required to be successful and retail.
Excellent Thanks, Doug and congrats on the on the deal and and all of the all your efforts going forward and.
And then the second question from me interest on the International you guys have done a great job.
Diversifying the business down there of reducing costs, maybe just kind of elaborate a little bit on the supply and logistics initiatives.
Your path towards greater LPG, gross and and actual reserves economy. So I mean coming out of this you're going to be on a on a new level.
A new normal in the Caribbean and how does that play into early 2022, when youre looking to buy and the other 25%.
Yes.
Thanks for the question, David we're very excited about how the the international businesses performed and the team did an admirable job and optimizing the business under and.
Independent of the volume shortfall that we experienced across some of our channels and the market.
Say as as we look forward I mean, certainly we will see.
Some good performance on the on a robust recovery and the backend of the year. So we're quite excited about that and to your point of lot of the improvements that have been made are structural and the.
And not only and the organic sales side, but also on our supply side and as a result, when we do see the full business come back we should see some good performance in that channel.
Excellent, Thanks, gentlemen, and thanks for the guidance good to see putting putting it out.
And we're selling COVID-19, but the great to see that you're putting out some guidance there. Thank you very much great.
Great. Thanks, David.
Your next question comes from Ben Isaacson.
From Scotiabank. Please go ahead.
Good morning, everyone. Thank you for taking my question and congrats on getting through a really tough year.
So yes on the guidance of.
$1 2 billion.
When you think about the 50 to 70 million of cost savings that youre looking to achieve.
Organic growth of I think.
Two or three or 4% the M&A that you've already achieved over the last couple of years I was a little surprised to see the guidance.
Coming in a little light of where 2019 was so can you describe how you came up with that guidance either on a segment basis or maybe you can just add some color in terms of how much of that guidance has been impacted by COVID-19.
What should run rate be without COVID-19.
Yeah.
Again.
Putting a putting.
Putting guidance out for 'twenty, one does speak to the resilience of of the business and our ability to navigate.
Through 2020, the big swing item between.
2019, and 2020 was the refinery and.
And and.
And as we look forwards the crack spreads arent as robust as we would have seen in 2019 and 21 and that's the big Delta and in the guidance, but I can assure you that.
The the forward plan.
Includes the M&A that we've achieved and also.
The the organic growth of the team has continued to deliver.
Throughout the last few years.
And my follow up is just on how Q1 has been going your thoughts a little bit of margin compression.
And the U S and the solid business because of Lockdowns and so as those start to ease how have you seen things playing out in January and February.
Yes.
And I would say.
And in different <unk> and different markets certainly in Canada.
We have seen.
The markets.
Again, we are we are and lockdowns and emerging and were seeing a positive impact of that.
And the U S things are coming back a little quicker I mean, they're further ahead in there and theyre vaccination programs and.
And.
Of the Caribbean again, we are seeing some more air travel, which is lifting our aviation business and.
And.
Again expect those markets to recover here in the back half of the year as restrictions start to get east So.
So again I would say, we're seeing green shoots across the business and are quite optimistic for the back end of the year.
Great. Thanks, so much.
Your next question comes from Derek <unk> from Canaccord Genuity to annuity of Derek. Please go ahead.
Yeah, Hi, guys. Thanks, just just wondering quickly in terms of acquisition opportunities and the U S. Obviously, you highlighted it seemed like a big pipeline can you just talk about the the multiples that youre seeing in the space and.
And were you able to get those multiples post.
Post synergies like you mentioned Doug.
Yeah, Thanks, Thanks, Derek and the.
Great to hear you.
Yes look we're quite quite excited about the prospects and the U S. So I'll turn it over to Doug and he can fill you and specifically on what he's seeing in the marketplace.
Yes.
And we're.
<unk> got a.
Clear range of multiples that we're comfortable with and we're continuing to see those.
Latest these last four transactions, we've announced and.
And completed here kind of squarely in that in that range that we've historically enjoyed which is.
And really speaks to the value of being able to buy these diversified businesses and add value and synergies and growth to each product line and not just retail.
While we it is important to note the like the Conrad acquisition, which is of great illustration and we'd like to get the the supply capabilities the distribution capabilities.
And the logistics capabilities in place so that we can and many many more additional stores and outlets and great corners to those platforms.
And which is what we've done and we've been able to do that.
Substantially better multiples than the and the retail consolidators, so and we like hunting and that part of the market.
Less competition, because there's far fewer companies that.
Have the capability of operating those other those other parts of the value chain successfully.
And it's also where the greatest population of opportunities lives.
You get when you get past the top.
Again, the stores was 100 and changed with 100 stores or more of and Theres not very many but there are.
Tens of thousands of stores available and the smaller chains and the smaller outlets. So.
But those are the most typically bundled with these distribution businesses.
Which again is right and our strike zone, and that's our sweet spot and we continue to see tremendous opportunities there and I would like to say that it's pretty darn strategy and one way, it's simple to understand we want to make money on the product three times and we want to make money supplying and distributing it and retailing and we think that gives us a unique advantage and <unk>.
And as part of the market.
Okay. No that's really helpful and then Bob just sort of.
A bigger picture question for you and I'm just wondering if you could provide.
And your views longer term on the state of the the fuel retailing business.
As a whole obviously of competitor of yours evaluated and.
And what we thought was a pretty meaningful strategic shift about a month ago and I'm just wondering what your thoughts on some of the longer term trends are around sustainability of electrification and things like that.
Yes, no happy to happy to to comment on that and look.
And I would say.
Couche tard.
A lot of respect for their team and their management and the strategy that they've pursued and.
And can comment specifically on where they're taking the business going forward I.
I would say when you look at parkland, we see lots of opportunity and two spaces. One is in our traditional operating space and thats across all three segments. That's across our retail segment, where we continue to see opportunity to grow our convenience business.
And our commercial business, where we need to.
Continue to see opportunities to grow both of our diesel and propane and then also in our wholesale and supply by continuing to build our supply capabilities.
And on top of that and when you do look at the energy transition and the potential impact on the business.
Again, we see more opportunities and threats.
And and it varies by channel for example in our supply business, we are the <unk>.
First refiner as we talked about in our and.
And.
And our presentation here to co pro Cess, bio feedstocks and Canada and.
And the.
And with with very little capital of had a big impact on tht emissions in BC and can see of real pathway to expanding that and we'll be talking about that more as we go through the year and the team and Burnaby gets more confidence around their ability to to increase.
And that capacity and that's just one area, we're very active in the.
Renewable space and the liquid renewable space we have.
Significant opportunities in the Caribbean that were pursuing.
Very pleased with the opportunity set there when you look at our our retail business specifically.
And certainly gasoline is projected to decline over the longer term.
Our view is it will take a long time to do that and there are some goods offset snow again, the strength of our retail business and focusing on.
Larger.
A destination oriented offer with.
With both food and and really leading convenience we saw in the pandemic the fuel cell decoupled from convenience and the macro trends really do support the convenience channel is a viable.
Channel for the consumer and again, we saw that and the pandemic, where fuel sales went down and convenience sales went up and again it speaks to the strength of our offer and our continued commitment to investing in that space and then on top of that.
We are continuing to explore and experiment with EV charging and markets where there are.
Sufficient vehicles to warranted so again, when we look at it.
Base business.
As a long runway and we will continue to invest and on top of that the opportunities provided through low carbon or of men's and we're really happy to be able to participate in that.
Okay.
And I appreciate the color. Thanks.
Okay.
Your next question comes from Neil Mehta from Goldman Sachs. Neil. Please go ahead.
Thank you and good morning team.
And the the first question I had was around.
The retail margin outlook, we've had a big move and the flat price of Brent here.
Post OPEC, but it's been the steady move over the course.
Of 2021.
And as we think about retail margins and.
How are you thinking about managing potential compression and embedded and that $1 $2 billion of EBITDA guidance did.
Did you assume of backward dated oil curve or a steady recovery and the commodity price.
Okay, Great Neil and thanks for the question and I guess, we'll answered and three parts. So I'll lead off and talk about the benefits of having a.
A large diversified business across multiple jurisdictions, because pricing does behave different and different geographies.
And then I will pass it over to Doug and he can talk specifically about the U S market and and Marcel can talk about how we budgeted cash.
Crude into our forward view.
In terms of the again.
Again, the benefit of our business I mean, we're in many different markets.
I would say and pricing dynamics are different and various markets. The Canadian market tends to be much more dynamic and responsive to changes and the underlying commodity price.
We have some markets that have.
Legislated margins.
And then Canada and down in the Caribbean, where we're less sensitive to again changes and the underlying commodity price.
And the U S, probably a bit more sensitive and and Doug why don't you comment on that specifically.
Yes.
Great point and in terms of the.
Just the steady.
And dramatic rise and the flat price I mean was crude up as much as it is and always results in retail and compression on the margin side side, we certainly saw that.
Most of the in the fourth quarter of 2020, we have seen it abate.
Certainly and February January was kind of more of the same that we didn't get the normal January kind of swimming and pricing and occupancy so that net.
GAAP margins.
Challenging and compared to our typical run rates, but I think we're through the worst of that.
Given the shape of the curve and the and the opportunities for traditional production can be brought back in and I mean, I know the saudis.
Stuck with it for another month.
You can see the pressure that's on that system to increase.
And production rates, which is going on and.
And I think get us back to a.
And a normal recovery in terms of fuel margins.
Not unexpected certainly.
And our markets, what we enjoy as a.
Bids.
And of a more favorable margin structure than much of the U S and I think if you look and how those crude price impacts.
Land and markets like Texas, and the South east of it.
And much more dramatic impact than we have to deal with the neuropathy. So we're fortunate in that regard.
And maybe just to pick up on the door of RF on your final comment on all of a question on the how we looked at the market. So we actually looked at the market basically on the <unk>.
Our coordinated basis, so we see debt going forward and clearly if we hit contango there might be some opportunities for us to trade around so debt. That's how we've looked at it and I think of course received volatility and the crack spreads going forward as you know and Bob talked about it as well that is one of the main.
Things that move around and so with a plus and minus 5% of the $1 2 billion is February of tried to capture debt.
No.
That's great. Thank you guys, yeah, it'll be very interesting and CFO.
And the markets play out over the course of the summer that the.
The follow up is just on the capital spend levels.
Called out the $175 million to $275 million and and the release you talked a little bit about what they are but can you unpack what the cap.
And is.
And and how do you think about the rates of return on those investments.
Any more detail as we evaluate the growth projects that meet your hurdle rate.
Yes.
When the.
And basically it falls into three buckets the spend so the first would be and our retail business, we talked about accelerating our OTR rollout both in Canada and the U S. And then also predominantly in Canada.
Upgrading the network, so new sites rebuilds, where we have an ongoing program to do that and.
And when you look at the amount it will probably be 2019 would be an index.
Indicative of what we would spend.
In 'twenty one.
The other than is in our our delivered business, where we are.
And again, we would do network enhancements across the business, but again, primarily in Canada is where youll see that.
The the.
And our in our delivered businesses or our commercial business. We are investing in growth and that has two forms its.
Customer storage, so tanks could be propane cylinders that are on customer sites or oil tanks for larger customers and trucks to deliver that I mean, those of the what you see growth capital and.
And then in our supply area.
It's the refinery and continuing to invest and some.
Logistics there to support our.
Our co processing.
And our.
And the ability to move.
And to the plant.
And then also on <unk>.
Some of our storage and distribution at the refinery.
And then within our broader supply.
We do continue to invest in.
And distribution storage and key markets across all regions.
Canada, the U S and the Caribbean and that would be captured and that amount.
And in terms of returns.
And we talk about.
And.
Targeting five to eight times and our M&A and our returns are comfortably within that sort of.
Range.
Okay.
Thanks, guys.
Your next question comes from Kevin Chiang from CIBC, Kevin. Please go ahead.
Hi, good morning, everybody. Thanks, Thanks for taking my question here.
And maybe I could just.
To ensure cash conversion.
If I look at 2020, your cash flow from operations and backing out of La.
Lot of the noise from the working capital.
And it looks like a high watermark of at least over the past 10 years in terms of your CFO conversion from EBITDA of close to 80%.
Just wondering how we should be thinking about this conversion moving forward if I think back to last year I suspect the the weaker crack spreads were probably a drag on on cash conversion and despite that you did hit this high watermark. So do you think you've hit a new level here for conversion and and.
So just what do you think is driving that.
Do you think is driving that.
Moving forward.
Look there was a lot of noise last year.
On the one hand, we did cut back we did react quickly and the team responded very aggressively and the early days of the pandemic to protect Quebec, and the business and the balance sheet and you saw the impact of that.
Pulling back on both the growth capital and maintenance Capex.
And.
One of the things that we've talked about in 'twenty. One is there will be some catch up on the maintenance Capex, we have to make sure that our assets are well maintained the.
The other tailwind we had in 'twenty was the underlying commodity price. So we did see commodity prices come off quite dramatically, which results in an unwind of working capital and in our business.
On the flip side and 'twenty, one we'll see the reverse of that as as the underlying commodity has come up.
Are there any other comments there and Marshall no I think the the only thing I would add is of course during the year, we had some benefits of the.
The lay and tax payments, which we caught up with since since then but that's of course, not structural and so alright, so hard to use the overall hard <unk> 'twenty is the.
As a guide I think we will hit our sort of normal cash conversion you would have seen and 19.
This year.
Okay. That's helpful.
And then.
Not to belabor the point on on I guess, the the shift towards electrification and and I think some of the comments you made Bob or I think primarily around some of the initiatives and your.
And your retail network in terms of charging stations, but just wondering what youre thinking within your commercial operations just seems like daily.
And as we're talking about converting the commercial fleets to full electric over some period of time.
Is that an area of opportunity for you.
As you think about that transition with the customer base you have today.
Yes.
The.
And when you look at forward diesel demand.
Even under renewed.
Substitution into electricity or other forms of energy I mean still the the predominant fuel will be diesel here going forward over the next couple of decades. So again, we're pretty confident and diesel demand and now that being said as opportunities to arise to hedge.
<unk> customers.
Through a number of different forms one is reducing carbon emissions and when we can do that.
And we have some great examples now and PC werth through the co processing and blending and we can reduce the carbon content of diesel.
By roughly 15%.
So that's something that we can bring to our customers to help them reduce their emissions and take some of the pressure of Repurposing capital.
The other thing is again similar to and the Eden and Mark as we see opportunities to support our companies with <unk>.
Electric solutions will be looking at those quite quite aggressively and see if we can help them.
That's it for me. Thank you very much of a great weekend everybody.
Okay.
Your next question comes from the shell <unk> from National Bank. Please go ahead.
Hi, Thanks for taking my questions.
The the biopsy stock that youre using that.
And making them.
A lot of progress and.
And I understand that a lot of the feedstock prices are increasing and I am wondering how management thinks about not not just for 2021, but over the long term the impact of this transition on profitability kind of pass price into a comedy and pressure and with the margin profile comparable to your traditional products.
Yeah.
It's a great question and and I would say a couple of things certainly initially our two primary feedstocks or tallow and canola oil.
Both readily available in Canada.
You are right to ask will there be upward pressure and those and we have seen some of that certainly going into the year as others.
Start to draw on those feedstocks.
Theres a few mitigate Ars one is flexibility and feedstocks. So we are working.
On with the number of of technologies around second generation feedstocks that would include.
Byproducts from from Wood as an example of MVC.
To alleviate some of that and.
The second thing is we do expect there to be of response, particularly on the canola side too.
More and more production, so or more and more kind of low oil will help offset some of that.
But again certainly something our supply team is on.
And they've been very good at securing supply for us and again the.
From a technical perspective, one of the key things that our refinery team is focusing on is flexibility and making sure that we can use multiple feedstocks.
As this part of the business starts to evolve and grow.
Okay. Thank you for that and switching gears here a little bit.
On the 17 billion period prior period adjustment and the supply segment.
Wondering if Bob.
And the review of that debt.
The impact if management would be changing or implementing any new financial accrual controls.
Associated with how they bring bring acquisitions and or is that more of the transient kind of one time item.
Yes, good question, Michele and I'll turn that over to Marcel.
Yeah, no and it is of Great question, So clearly coming in either the lot of attention of the balance sheet and what sits and the balance sheet and make sure that everything is there and that the controls are working and we just went through our sea Sox attestation of which I spent considerable amount of time, just making sure that all of those controls work.
So this is Ron debt rediscovered ourselves so our controls picked it up a.
A bit late and so we went through debt and.
No the only kind of proof of our own internal audit function, but for you of some external help to make sure that first of all are completed and there was nothing left there and of course, that's freed and looked into some of the root causes.
One of those had to do with integration and you will appreciate that some of these are quite complicated and so we went through debt and.
And we have made sure that those are reflected in our kind of audit programs going forward, so that we prevent and the.
The future.
Okay. Thank you very much.
Yes.
Your next question comes from Michael Ben.
Els from TD Securities Michael Please go ahead.
Hi, Good morning, I wanted to follow up on a few things.
First of all.
It's my understanding that the soul.
Option to buy the remaining 25%.
What would be available to you starting this year. The January of this year is that still the case and if so.
Hum.
What is the argument.
And in favor of waiting rather than doing the triggering that now.
So that call is the.
Is available in 'twenty, one not in 'twenty, two sorry 'twenty two.
Yes.
So is it now.
Okay because of the original document and said that it was available on the two year anniversary.
No it was.
Three years.
So.
The clarify that.
Oh, okay.
Alright, and Thats clear then.
And don't need cycle of that anymore.
And then the.
As far as the U S.
Concern are there other areas within the U S. It makes sense to set up of rock or is the opportunity now more and to focus on filling in the form of platforms that are already established.
Yes, Doug why don't you take that one.
Thanks, Michael.
And just say our near term focus is certainly going to be on building out the floor. We have now that we've got the supply capabilities to do so.
That being said there are there and.
A number of other active tributaries that we'd look at.
Adjacent to our current rocks, but.
You know distinct tributary markets in and of themselves I would point you to the kind of the moving east from our from our current northern tier.
And markets that are sure some of the Adjacencies to both Canada, where we have dynamic capabilities as well as our current U S rocks as well so that's probably where you would see us focus next but I would say the vast majority of our efforts for the next 24 months in particular are going to be on really harvesting the the opportunities.
And that are quite attractive and the rocks we have.
Okay and is it is there any reason to believe that the synergies and wouldn't be better when you're building when youre, adding to existing platforms rather than starting nuance.
Yes, certainly.
And certainly are.
Incrementally.
And although like we saw with our entry into Florida, and it's not just the synergy creation and that's from the existing U S. Rocks that are our adjacent businesses as well. So if you look at some of those other border markets.
And then have dynamic trade flows and supply flows with Canada.
Those offer different kinds of synergies debt.
That we can generate and addition to the gist.
And in country scale synergies that we have with the current rocks.
Okay and then just finally on the supply side you you talked about some good volume growth coming from the U S and then.
And it's not unclear as to whether Thats you are referring to volume coming from Canada going into the U S or is this the is.
And just coming out of the Houston office and with that can you give us.
And update on the Houston trading office and how.
How that's helping your business at this point.
Yes.
So first of all.
Oh, I'm, sorry and home.
No I was just yet.
Again look I think the one thing is our supply system is one.
We do of offices and people and certain markets to to make sure that we're optimizing across the whole system and.
And to your point, there are times, where it does make sense to supply.
Our business in the in the northern part of the U S out of Canada by rail and which we have a really good capability, so but with that I'll turn it over to Doug and he can talk specifically about some of the work we're doing in that area to optimize.
Yes, thanks, Bob the big.
Michael the.
The key flows has been I think the Houston team is mature and a lot and the last 12 to 18 months, we're seeing our ability to support.
And coordinate with the Caribbean business, very dynamically as well as with the.
The refinery and Burnaby and the.
And the rail supply network.
And our supply team.
Implemented by all the reverse capabilities really hasnt and unique way for for movements codes.
Exports from the U S and imports into the U S and we're.
Dynamically engaged the boat and having the Houston supply and trading offices helped a lot with.
And of centralizing, our our risk management capabilities for those inventory movements.
And the worlds biggest energy center. So it's really the synergistic for us the continue to build out that team and those capabilities, which have been very pleased with and the past year.
Alright, thank you.
Your next question comes from Steve Hansen from Raymond James Steve. Please go ahead.
Yes, good morning, gentlemen.
And I'll stick to the two question request here to be respectful of everyone's time.
First one day is just on.
The operating leverage I think one of the big surprises. We saw in 2020 was your ability to flex your retail cost structure down the volumes.
And that's certainly provided a welcome degree of resilience here I'm just curious how we should expect to see those operating costs to return and the volume start to flex higher with the pen.
And that make relief, specifically on the operating and marketing cost.
Yeah.
The.
So we did guide that we had of structural <unk>.
Costs.
Advantages as we've gone through the pandemic and made some changes. So you will see that it will manifest itself in different areas of the business. So to your point retail our retail business has the very variable cost structure and and that that debt.
Kick in and the nicely as volumes came off.
But in terms of the costs they need to be looked at across the business. So we certainly saw improvements in our and our Canadian commercial business.
And also in our.
U S and the international businesses.
And then and in our corporate overhead as well now we do we do on the other hand, we have added some costs back in to support some of our growth initiatives on the corporate side.
And then also as.
As we grow various areas of the business, we do end up bringing cost and so the key thing is the focus on cost on a per unit basis and.
You should be able to see that improvement as we go forward in the business.
Okay. That's helpful. Thanks, and just a quick follow up on some earlier themes. Just curious how you think the the draft clean fuel standards.
That were released late in the December might.
It might impact or benefit your current positioning and burnaby, and whether or not the existing plan contemplates that.
Going forward. Thanks.
Yes, it's a good question I mean in in B C.
BC is ahead of the rest of the Canada.
And I would say Fortunately for us with the refinery there.
The we've we've worked.
Well with the BC government to make sure that.
And we can implement changes and co processing is certainly one of them.
To meet.
And the low carbon and requirements.
The again being in BC, where the the.
The low carbon regs are more stringent has helped and certainly with CFS coming we're well positioned as an organization to.
Two.
Comply with those regulations.
Okay. Thanks for the time I appreciate it.
Your next question comes from Luke Davis from RBC. Please.
Please go ahead.
Hey, good morning, Thanks for taking my question guys.
Just on the U S expansion, you know things are clearly going well down there and you've seen some material growth and the last year.
But given that it's becoming a much more material piece of the corporate equation can you just comment on weather.
And we plan to start providing a little bit more of granularity in terms of the transaction data just to give us the.
And our understanding of pricing and performance.
Yes.
It's interesting because once was what now.
Small was once big so as we grow as a business.
These transactions on their own arent material and.
And.
It's.
It's.
We've we've avoided giving specifics around the EBITDA and capital because of the.
The fact that we're in the market buying businesses and we want to make sure that we protect the <unk>.
Confidentiality requests of buyers in many cases and also it helps us.
As we negotiate with the other buyers, but again you will see that in the guidance as we as we put guidance together youll see the net impact of those acquisitions on a year over year basis.
Got it yeah that makes sense.
Just one more quick one on refinery utilization and some of it you've been running a pretty strong here because of using a more conservative figure of 85% and 2021 can you just outlined kind of key drivers.
And what Youre seeing there.
So in and when it when it comes to next year and.
We are this year.
We are planning a small turnarounds late in Q4, and then we do have some other maintenance on the facility, which has reduced our our utilization to the 85% level.
Got it makes sense thanks, guys.
Your next question comes from Peter Sklar from BMO capital markets. Peter. Please go ahead.
First I have a question on the supply division like when you talked about.
35 million of and.
Unusual cost surcharges, you incurred in the quarter.
You talked about.
Realized mismanage, sorry realized the risk management losses, intermediation, and I have to admit I don't quite understand.
Can you explain what that is and what happened there.
Yeah. Thanks, Thanks, Peter I'll pass that over to Marcel to talk about those one time items, yes. So the 35 million of the breakdown of the 35 million there was about $7 million, which was the prior period adjustment and so debt related, particularly true the excise tax calculations debt reduce where 70.
And related to prior year periods, not and this quarter 14 million, whilst the intermediation loss and then the power outage, which I mentioned is about $4 million.
So the intermediation of those really relates to the crude and finished product inventories and it flows to the cost of goods sold and.
So it's essentially when the crude price moves up rapidly we are of a loss on the intermediation hedged that we've put in place.
And it will also mean that our lower cost of the inventory we will have a gain when we sell it so it's really a timing impact.
And in this quarter, particularly debt was a loss and debt that will flow back some of that will flow back.
As the price is stabilized.
Okay.
And then Bob I wanted to ask you.
All of the stuff that's going on with the Michigan.
Politically where the.
The governor she is threatening to revoke the line five easement.
I would assume that something youre thinking about and the unlikely event that it does occur and like what can you speculate a little bit on like how would that impact your eastern Canada operations.
I would think of what happened.
Quite an impact on your supply business.
And give us your thoughts and whatnot.
Yeah. So it is the situation that we're monitoring quite actively and also working on contingency plans to make sure that our customers continue to have fuel.
I would say our.
Our ability to imported into that market is certainly a key mitigate or should that happen and.
We're quite confident we can continue to supply our customers in and the unlikely event that that does happen.
I mean, how would you import into the region would you bring it in by rail.
So we do have multiple rail terminals in the market that we can access.
And there are importers in the market that we can buy from and.
And you know and.
And again, our are our suppliers and those markets are also working to put contingency plans in place so again.
We do feel where we are.
Sure.
We can maneuver through it and the unlikely event that it does happen.
Okay. Thanks very much.
Your next question comes from John Royall from J P. Morgan John Please go ahead.
Hey, good morning, guys. Thanks for squeezing me in.
And so on the <unk> acquisition and you guys push your U S business West to places like Idaho do you start to see more synergies with your business and BC and you're kind of in our business in general or the synergies more.
The rest of the U S platform.
And I'll, let Doug take that one.
Yes. Thanks.
And I would say.
Idaho in particular.
So it's a combination of both.
The Canadian supply position, we have and particular.
The elbow river capabilities too.
The accurate products from Western Canada into other markets, both eastern Canada, and the northern Rockies.
It's particularly influential and Idaho distributor so.
And there has been periods historically were.
And as the speeds as much as the 50% of the supply from Canada and Israel.
And we're obviously.
Uniquely positions you.
The advantage of that and steeper than any other operating expenses.
Really good situations I'm getting some back to you and the guys and onwards.
Okay.
Great. Thank you and I apologize and with me can you hear me okay.
Yeah, I hope you can hear me sorry about that.
Yes, yes, okay.
Thanks for that and some of my second question.
We've spoken a lot and been very clear and the tourism impact and the Caribbean.
In the past and so I'm not trying to dwell on that point, but just wondering if you're seeing any early signs of life and that business towards.
Looking towards the back half of the year I don't know what the data there would be and even some of the deaths total bookings or something like that but is there anything youre seeing in general of the can give you some sort of optimism on the next one or is it really too early to tell.
Yeah.
I think again that team has done a tremendous job and offsetting that.
In terms of activity I mean, we are seeing.
Some aviation come back so our aviation fuel is starting to climb.
In terms of.
Our bookings in May and again anecdotally, we're hearing the throughput of our books and implications and planning to come once restrictions are lifted.
And that's both directly.
Two into the region and.
And staying on the islands or.
On the cruise ships as well so again optimistic we will see that in the back half of the year here.
Great. Thank you guys.
Great. Thank you.
There are no further questions at this time. Please proceed.
Great well, thank you for joining the call today and look forward to connecting.
In may at our AGM.
And.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.
Yes.