Q1 2021 Parkland Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to Parkland Corporation 2021, Q1 results analyst call. At this time all lines are in a listen only mode. Following the presentation. We will conduct a question and answer session. If at any time during the call you require assistance. Please press star zero for the operator this call is being recorded on Tuesday.
The may 4th 2021.
I'd now like to turn the conference over to Brad Monaco Director of capital markets for Parkland. Please go ahead.
Thank you with me today on the call are Bob Espey, President and CEO, Marcel Tunison, Chief Financial Officer, and Ian White, Senior Vice President of strategic marketing and innovation.
This call is webcast and I encourage listeners to follow along with the supporting slides. We will go through our prepared remarks, and then open it up for questions from the investment community.
Please limit yourself to one question and a follow up that was necessary and if you have other questions reenter the queue.
The 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 and are subject to uncertainties, which are difficult to predict. These uncertainties include but are not limited to expected operating results and the industry conditions among other factors risks.
The risk factors applicable to our business are set out in our annual information form and management's discussion and analysis.
We will also be discussing non-GAAP measures, which should not have any standardized meanings prescribed by GAAP. These measures are identified and defined in 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 to the discussed in today's call are expressed in Canadian dollars unless otherwise noted I will now turn the call over to Bob.
Thank you Brad and good morning, everyone. We appreciate you taking the time to join US and trust you are staying safe and healthy I.
I would also like to welcome Ian White to today's call to provide.
An update on some of our ongoing organic growth initiatives, which continue to strengthen our existing business.
The photo on today's cover slide showcases one of our proprietary pioneer branded locations within on the run convenience store together. These illustrate our compelling value proposition, which fulfills our purpose of powering journeys and energizing communities and plays a critical role driving continued organic growth.
Many of our markets are still dealing with various levels of COVID-19 restrictions I am exceptionally proud of our team's commitment to safely and reliably providing the essential fuels and services customers need and particularly in particular I want to thank our frontline teams for their continued dedication to this effort.
We are off to a great start in 2021, our strong business performance through the first three months has reinforced our confidence in the continued strength of our business model.
Our geographic and product diversity continues to provide a layer of insulation from economic volatility despite.
Despite ongoing COVID-19 impacts the resilience of our business continues to be remarkable this was the fantastic quarter and we're on track for our full year guidance.
For those of you who follow us closely.
No how much we focus on maintaining a strong balance sheet through the quarter, we enhanced our financial flexibility through the completion of over $3 billion of refinancing this will deliver approximately $20 million.
Of annual interest savings.
It means we have no senior notes maturities until 2027 and are well positioned to fund our growth built on the foundation of Great brands, Great assets, Great service and a great team, we are seeing tremendous underlying strength across the business. In addition, the investments we are making in our <unk>.
Getting capabilities further support our growth and we'll talk to the shortly so far this year, we have completed or announced five acquisitions across our U S and international segments. This includes another small international acquisition in April where we will expand our regional aviation portfolio through.
<unk> at two international airports in Puerto Rico, as you know, we set a high bar for any acquisition each must advance our strategy provide integration and organic growth opportunities and strengthen our supply advantage looking forward each of our geographies offers a rich pipeline of consolidation targets to support our growth amp.
Patients, including our international business, which we are seeing increased opportunity.
Moving onto slide for I'd like to talk briefly about our sustainability journey, which is integral to our culture and strategy. We included updates on this important strategic area in our news release, However, I would like to highlight a few key areas of focus for us for firstly, we are making.
All of progress building, our enterprise sustainability strategy, we are working towards our second annual sustainability report, which will include commitment surround our emissions. We look forward to sharing the report in the fourth quarter and discussing details at our November Investor day more broad.
Lee, we see big opportunity to play an ongoing expanded leadership role through the energy transition. These this extends well beyond our existing manufacturing of renewable fuels at the Burnaby refinery.
Is which in 2021 will have the equivalent of environmental effect of removing 80000 passenger vehicles from the road.
We expect continued growth in this area of our business and we'll also harness our existing retail network to support our customers' mobility needs, including electric vehicle charging options.
We have been pragmatic and disciplined in assessing this opportunity and we'll focus in markets, which already have encouraging electric vehicle penetration, we expect to share more on our energy transition G transition strategy as we move throughout 2021.
I will now pass over to Marcel to go through the corporate financial results.
Thank you Bob and good morning, everyone.
Turning to slide five and the summary of our financial results.
We delivered.
Q1, adjusted EBITDA of $314 million, which is up more than 60% from 2020, and while COVID-19 continues to impact the broader economy. Each area of our business delivered underlying growth compared to last year and this is an excellent results, which reflects the quality and the resilience of our business through.
Challenging market conditions.
As you can see on the chart on the left our supply of <unk> had a great quarter. Adjusted EBITDA was up materially from last year, driven by strong utilization of the Burnaby refinery and oil.
Prior years quarter had the impact of the scheduled turnaround we spoke about before.
The marketing business also delivered growth with lower cost and robust margins offsetting softer volumes as you know we are from natural variability in our cost base. However, the teams continue to do a great job of exercising financial discipline and proactive cost control.
Two of great stocks for the year end of affirmative on track for our full year guidance of $1 2 billion for adjusted EBITDA, plus or minus 5% of sky that previously.
Moving to the segment overview on slide six I'll start with Canada, where we delivered $160 million of adjusted EBITDA in quarter, one, which was $14 million higher than the prior year.
Although many Canadian marks our experience of.
COVID-19 search Ralph and I think to make the tough restrictions these of.
These are having far less material impact than we saw during the early phases of the pandemic and of its clear that our customers have adapted as an example, while Canada retail volumes are still behind the pre COVID-19 levels since mid March day.
They were over 40% higher than the same periods in 2020, which for the first two weeks of COVID-19.
Through the combination of strong fuel margins lower cost and 21 consecutive quarters of C store same store sales growth, we delivered the highest EBITDA on lower for Williams.
Our international segment delivered $67 million of adjusted EBITDA, which is consistent with prior year importantly, our underlying business improved from 2020 on the U S dollar basis, but the headline results for reduced by $4 million due to foreign exchange translation rate.
Thanks.
International continued to benefit from cost control initiatives in house logistics and shipping optimization.
Even though we did not benefit from what would normally be our busy tourist season, we delivered strong performance from our wholesale channel and had pockets of strength in the aviation. This was slightly offset by isolated COVID-19 restrictions.
Overall, we are extremely pleased with the international business to be in line with last year. Despite the COVID-19 and FX impacts is a remarkable outcome and we remain optimistic for continued economic recovery through the second half of the year and an even stronger base business from which to grow.
Our U S segment delivered $20 million of adjusted EBITDA in quarter one day.
This is up 25 per cent from 'twenty to 'twenty driven by prior year acquisition.
The acquisitions are growth supply advantage and national accounts growth. This growth was benefited by continued slowdown in the oil and gas and cruise ship industries in the northern and south of the southeast regional operating centers.
During the quarter, we reached a significant organic growth milestone by surpassing three of them 50 million liters of annualized national accounts fuel volume boccherini with local regional operating centers to service large complex commercial customers and.
And we are pleased that our sales for each of us extending into areas beyond our existing regional operating centers as well.
This incremental for you guys are growing supply of advantage enhanced overall marches margins.
Our supply business delivered excellent results in the first quarter with $136 million of adjusted EBITDA. This is up $94 million from 2020 the.
The continued to operate safely and reliably at our Burnaby refinery with the compensate for utilization of 91%. This includes crude crude processing and 1700 barrels per day or $25 million of by your feedstock co processing interest the new record for the Burnaby refinery.
In addition to putting us firmly back on track crude of 100 million liters of full year target for 2021 co protesting helped us meet our carbon compliance requirements in British Columbia, and lowered our high cost HDR the blending requirements.
Our integrated logistics business also performed well under challenging market conditions, which improved supply costs offsetting lower for Williams.
Okay.
Turning to slide seven.
As already mentioned, we have a track record of financial discipline and for those who follow US closely will know that maintaining a strong balance sheet and financial flexibility to fund growth is of strategic imperative we.
We took several steps through the quarter in this regard, including over $3 billion of refinancing transactions.
So while the redo everyone's does that mean.
The increase the amount available under our credit facility from approximately the bumper seven to $1 $9 billion. The agreement as of five year term and highlights of bank of groups confidence and our ability to do what we do best which is grow organically and by high quality companies and create value.
We also took the opportunity to refinance our training of 24, 25, and 26 senior note maturities, which had a weighted average interest rates are from nearly 6% and through the issuance of over 600 million Canadian bonds for $3, 75% and the USD 800 million dollar bonds.
<unk> for 5% in late March we lowered our annual interest cost by approximately $20 million and pushed out our CTG of senior note maturities due between 2027 and 20 trailing earnings.
Our Canadian bond was the second lowest coupon and third largest steel oil and record in the Canadian high yield markets of demonstrating to the market support and confidence in our strategy and both both bonds for well oversubscribed.
The fully funded our capital expenditures acquisition and net dividends in quarter, one and maintained the leverage ratio well within our comfort range the three times.
The debt to EBITDA ratio includes supporting volume increased due to the acquisition activity over the last 12 months and also reflects the retirement of our intermediation facility in February the facility was in place to fund and hedge working capital at the Burnaby refinery, which we've now moved in house.
Building the foundation of strong operational performance and the long runway of growth opportunities, we have lowered our interest cost if no senior note maturities for the next six years and plenty of liquidity and we are committed to our capital allocation policy and our primary objective of growing the business.
So I'd like to pass over to Ian now to refresh everyone all of our enterprise wide organic growth initiatives.
Thanks, Marcel and thank you Bob for inviting me to join todays call and good morning, everyone.
I wanted to take a few minutes to highlight some of our customer centric organic growth initiatives that we began to outline at our 2019 of Investor day.
Collectively these helped us manage and growth for COVID-19 of underpinned our success year to date and will play an integral role in our continued success.
Over the past few years.
Through targeted and purposeful investments, we have developed a unique and compelling customer value proposition.
Underpinned by our high quality network of regionally relevant BTC and <unk> brands. Our portfolio includes exclusive fuel C store fresh food offerings and a variety of branded partnerships.
These brands strong regional connections have earned the trust and confidence of our customers over many years.
By staying focused on our customers. We believe we of the right formula that Leverages, our enterprise capabilities and generate a superior customer value proposition.
Scale matters in this business and we are of meaningful density, particularly in Canada, where 85% of the population live within a 15 minute drive of of parkland retail location.
As we continue to increase the penetration of these brands across our retail and commercial businesses, we improved brand awareness and efficiency.
Ultramar is of Great example of the brand we have extended beyond retail to our commercial business across Ontario, and eastern Canada to bolster its profile.
With convenience retailing, specifically each region is at a different stage of maturity.
In many regards Canada has been an incubator for our retail initiatives.
The skills and capabilities, we have built and refined our now being scaled across our U S and international businesses.
This includes the unification of our convenience store brand across North America, and having a band and advancing our journey rewards loyalty program across all geographies.
Moving to slide nine.
On the run or OTR.
As our North American convenience store brand we.
We have continued to evolve and refine this offer over the past few years in Canada.
Based on its outperformance versus non branded locations. We continue to have high confidence of what OTR can do for our non fuel convenience store growth strategy.
Some of the factors, which underpin OTR success include larger footprints.
Our food offer greater visibility from the for court and locally relevant customer offerings.
These characteristics have been important for years in our retail business, but even more so through COVID-19. When we saw a shift in customer preferences and shopping habits.
During the past 12 months the C store has emerged as the fill in shopping destination supplementing customers of grocery trips.
In addition to great branding products and customer service the hallmark of of leading C store business is having the operational agility to adapt to changing customer needs in real time.
I couldnt be proud of our team's quick response during the COVID-19 to make the required shifts in our product mix, adding new items and shoring up our supply chain to remain in stock.
All while continuing to serve our customers safely.
When you bring this all together on the run sites in 2020 delivered 20% more and point of sale dollars versus non branded locations.
Furthermore, we are encouraged by the shift we're seeing in the product mix to higher margin categories, such as beverage confectionery food and snack items, leading to improved gross margin dollar contribution across our network.
Our investment in OTR is clearly paying off.
This gives us confidence to accelerate our roll it across Canada and introduced this great brand and capabilities across our U S network.
We'll stand up five pilot locations of varying scopes in the first half of 2021.
Once we've collected learnings from these pilots we will determine the right pace of further rollouts over the following 24 months.
If you are customers of ours.
Note that our promise is to help you make the most of every stop.
The combination of our leading fuel on the run convenience store plus exclusive food partnerships like triple those do just that the <unk>.
Create true convenience destination.
Our exclusive agreement with Triple those harnesses. The success, we have experienced at our 25 high performing locations in British Columbia, and allows us to enter new high priority markets, including Alberta and Ontario.
Although COVID-19 has made the immediate expansion more challenging we are progressing as planned with one location in Alberta and two recent openings in Ontario, all connected to the on the run brand.
Each site opening has been strong out of the gate and is exceeding our expectations. Despite the ongoing pandemic.
The one way for our partnership with Triple those as long given the quality of the offer and limited penetration outside of BC.
For those dialing in from BC, Alberta or Ontario.
Average you to stop by one of our OTR and triple of locations to try one other signature Burger shakes and fries and our two times the journey points, while stocking up on convenience items and on the run.
Turning to slide 10.
All of our brands and exclusive partnerships from form the foundation of our customer proposition our loyalty program strengthen the connections to our customers and enables us to deliver highly personalized timely relevant offers.
As you can see in the chart on the left through a challenging market environment for passenger traffic has been impacted by COVID-19, we have exceeded our own expectations of growing the journey rewards program to around $1 9 million members.
Journey is now available in approximately 1000 sites across Canada, and we plan to convert our fast gas locations. The journey by the end of the year.
This will make journey one of Canada's top III convenience.
Fuel and convenience store reward programs by site count.
Membership is not the only statistic we are proud of their.
There are many underlying trends that speak to the quality of the program in a way of drives customer engagement.
For example, approximately 70% of new members have opted in for communication the.
The substantially higher than the industry average and allows us two way dialogue with our members leading to more personalized offers.
Supported by our strong communication often recent promotional campaign results demonstrate our ability to drive member engagement and improve our share of wallet.
For example, our recent campaign offered members an additional benefit when purchasing higher margin premium fuel and drove a 9% lift in premium leaders sold and a 5% lift in average fill versus the pre promotional run rate.
These improvements were experienced across all fuel band brands.
Similarly, offering members and additional vendor funded benefit when purchasing specific C store items led to 80% of members purchasing one of those products for the first time in 70%, adding an additional items to their basket.
The results of these promotional campaigns demonstrate why we are seeing higher fuel average sales and convenience store basket sizes for journey members.
So where does journey go from here.
We're focused on three near term steps to evolve and expand our reward program.
First is about refinement and personalization.
Having teamed up with Amazon Web services, we are progressing our personalization engine at an enterprise level to become more targeted and efficient with our marketing investments.
Secondly, given the success of our partnership with CIBC, we intend to look at additional partnership opportunities to raise the program's profile and reach while enhancing choice and its value to our customers.
Finally journey will become the brand of rewards program across all of our geographies.
While the program design will be adapted for local markets. The fundamentals of the program will remain the same and the benefits. We are already capturing of Canada will be scaled across the enterprise.
New program launches are scheduled for select in the U S and international markets in the back half of this year.
Loyalty is just one way we are accelerating the connection to our customers and it is only one example of how we're embracing innovation.
I look forward to speaking with you again at our November Investor Day, where I'll provide more details on these on the initiatives that underpin and enable our digital and innovation strategy.
With that I'll turn it back to Bob.
Thanks, Ian that was of great overview and it sets the tone for a year of continued organic growth across parkland drop things up before we invite your questions.
I'd summarize by saying that I am delighted with our first quarter performance adjusted EBITDA of $314 million puts us firmly on track to hit full year 2021 guidance.
Our growth platform is stronger than ever not only just for acquisitions, but also to consistently deliver organic growth.
We have a proven track record of disciplined value creation, we are confident in our ability to hit our our ambition for $2 billion of run rate adjusted EBITDA by the end of 2025, driven by the key strategic pillars that have made us successful for a long time.
Building on our investment in sales and marketing, we have a strong pipeline of opportunities, which support our ability to grow organically across all regions. The results. We've seen to date give us confidence to invest further Ian gave some great. Examples of this and we will continue to innovate to improve our customer experience and become more of.
Fishing, allowing us to build on our track record of driving growth.
We have a depth of high quality consolidation opportunities alongside of proven track record of synergy capture which supports our ability to acquire prudently and integrate effectively.
We have announced or closed five transactions to date, this year, which demonstrates that capability and we see opportunity in Canada. The U S and our international business Importantly, we of the financial toolkit and discipline required to execute.
We are fortifying our supply advantage by leveraging our scale and infrastructure to enhance margins and we continue to invest in our Burnaby refinery the strong results and co processing record, we set at Burnaby in Q1, underpin the attractiveness of that asset.
I want to highlight that our supply advantage supports organic and acquisition growth and multiple product lines diesel and LPG are great. Examples of what differentiates our business model and where we see growth potential finally, thank you to Marcellus and for their comments on today's call. Their insights is representative of our <unk>.
Parkland team, which has the experience diversity capability and high performance mindset to deliver our goals. These attributes are what have made us successful over the past decade, coupled with significant opportunity for parkland to participate and lead through the energy transition I am extremely excited for our fuel.
<unk> I look forward to outlining this opportunity set in detail at our November Investor day, Thanks to the entire parkland team for all of their efforts to deliver a great first quarter and setting ourselves up for a successful year.
I would now like to turn the call back to the moderator 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 Touchtone phone, you'll hear three tonnes per day acknowledging your request and your questions will be pulled in the order the or received should you wish to decline from the polling process. Please press star followed by two of using.
Using a speaker phone please lift your handset before pressing any keys one moment for your first question.
Your first question comes from Neil Mehta with Goldman Sachs. Please go ahead.
Good morning team. Thanks, Thanks for doing this my first question is on.
On the quarter, you guys put up three years of $14 million of adjusted EBITDA. The guide here for the year is $1 $2 billion. So in what's typically a seasonally weaker quarter of the first quarter you guys had our annualized <unk> above the midpoint of the adjusted EBITDA range. So so so can you talk about.
How youre thinking about the moving pieces that go into the 2021 earnings power and fuel prices, obviously rising Canada continues to have lockdowns volume seem to be performing very well in the U S and merchandize feels like it's working for you guys really well so talking about those moving pieces and your conviction level in terms of potentially.
<unk> been beating the $1 2 billion.
Great. Thanks, Neil and thanks for the question.
In terms of our.
Our guidance look we had a great first quarter and I'm really pleased with the results.
The scar scorecard was green across the board, which is great to see.
We look forward I mean, the business environment as is similar.
We do see volatility in volumes across various markets because of COVID-19, but we do expect debt as vaccines continue to rollout in key markets. That's a that will stabilize and we will see volumes come back to 2019 levels.
It's something that we're seeing in our U S business that volume is coming back as people as public health measures.
Kick in vaccinations are are delivered and people feel confident to travel again I.
I would say.
When you look.
Given the underlying performance here at the beginning of the year, certainly backend recovery will bode very well for parkland and should certainly ensure that we meet or beat that guidance number that we put forward.
Thanks, Bob and the follow up is just bridging between the $1 $2 billion, but the $2 billion target that you laid out here in the release for 2025.
Recognizing were going to of an analyst day, we're going to provide and put more meat on the bones, but just provide the sort of high level of frameworks of about that bridge and how much of that you see coming organically versus inorganically.
Sure.
The $2 billion really builds on top of the the.
The Investor Day, we did in 2019, where we outlined the pillars for growth across all three regions of our business plus our supply.
And wholesale business.
And what what we're doing is confirming that and also what.
What we've seen over the last couple of years is a lot of investment in our underlying capability to ensure that we can deliver that and Ian provided some great. Examples of the organic growth initiatives that we've put in place.
We were investing in over the last couple of years and now we see really starting to drive performance.
And we will continue to roll those out not only in Canada, but across our other jurisdictions. The other piece that we now have is our M&A opportunity, which we've we've talked about in the past we have lots of small to medium opportunities that enable us to hit that target and as we look for.
Forward the composition of that is roughly 50% of M&A and 50% synergies and organic growth. So again of target that feels very comfortable and given our geographic and product breadth we have.
We have a lot of opportunities that we can pursuit of fulfill that.
Thanks, guys I appreciate it.
Your next question comes from David Newman with Desjardin. Please go ahead.
Good morning folks congrats on the great set of results.
My first question of the two.
It's just on just digging down in Burnaby of little bit I mean, it's really impressive.
The outperformance and that you've had in.
The defying COVID-19 I would call it.
The elements of the outperformance.
What elements are sustainable between optimizing sales channels mix HDR D and do you expect debt posting these kind of numbers in terms of utilization is that sustainable and how does the how do you frame. This on a recovery I mean, it looks like you could almost run up against capacity constraints. So maybe just.
Digging down on what elements of our sustainable with the with the biofuel any CRD benefits and then longer term on utilization.
Great. Thanks for the question Dave.
Look the.
Our team the.
The parkland team has really done a stellar job in optimizing the burden of B asset.
Many facets, which has allowed us to maintain an industry you to the industry leader <unk> and also the.
The introduction of.
Bio feedstocks, which again is an industry first.
Really helped us make sure that we can meet our compliance obligations in the most cost effective manner.
I'll turn it over to Dirk and Dirk will give some more detail on the optimization activities at the refinery, yes, thanks, very much Bob and good morning, David.
When we're looking at the refinery.
Yes, we were able to hit a high utilization rate.
Fundamental to that means that we're able to clear the inventory that would be gasoline diesel and jet.
And we're fortunate to have some good contracts at Vancouver International Airport, because jet has been the difficult item to clear for most refiners.
With the expected turnaround, we're expecting those volumes to pick back up and that would be across the board for all types of flights. So as we're looking forward. We see that we can be able to maintain net to utilization rate keep in mind that in Q4, we've already announced that we've got like a mini turnaround pitstop that's of B.
Two to three weeks so that that's why we have that utilization of 85% for for this year.
But as we look forward to the other parts of this year and into next year.
We think we can get right back to the normal utilization rates, which would be taking us to that 92% to 95%.
Couple that with the benefits that we get from the buy of refining which helps us meet the low.
The stringent from.
Krish Columbia of low carbon fuel requirements for us this is a cheaper way to meet the.
The pathways to.
Two of those regulatory requirements.
So we're feeling quite positive again.
A lot will be driven by the crack spreads, but the cracks have been pretty good relatively speaking when we look at it it's just a little bit below the running three to five year average.
We'd expect that to normalize so we're feeling pretty positive what we see at the refinery and as Bob has mentioned the team at the refinery has done an incredible job of.
Being able to feed in the bio feed along with the crude and run it safely and consistently and as we went pass through the last years of turnaround.
Part of what we're looking for with the work we were doing it was to increase our.
Efficiency at the refinery and keep the refinery up and running at a higher utilization rate. So those benefits are starting to reap through to us and we'll be able to.
Enjoy those.
For the rest of this year and next year as well excellent. Thanks, Derik and then my second question is.
Well I'm sure, we all feel a little bit like caged animals with this COVID-19 thing and we're already the growth there in the World then again and if you look at it in terms of like cruise lines airline traffic driving maybe an elevated level of Staycations. This summer I think things are getting booked up in Canada across the board any cash.
J P is that you can point out debt.
But you think that maybe there is a possibility that we could actually overshoot coming out of this in the second half of the share are you seeing any telltale signs at all in the horizon that gives you more confidence.
Yes, David.
A number of items that were seeing across the board.
In again in the U S. We've seen gasoline demand pick up quite robustly in the markets that we're operating in.
And the.
We would expect to see that in Canada as as things start to come back on the.
International side.
Markets are starting to open up and anecdotally we are seeing.
Activity pick up on the.
On the tourism side, we are seeing our jet fuel start to come back in key markets.
And the.
Again expect that there is pent up demand for for.
For travel and we will see that not only locally but also through hopefully some air travel into <unk>.
Down south.
As we get into the back end of the year and the weather starts to get get colder.
Again on the.
On the crude side again, there, we're certainly hearing and the.
What we've heard from our customers is that they have the bookings record bookings going into the back end of the year and presumably as restrictions get lifted we will see a rise in demand.
So overall.
Presuming that the.
Vaccinations continued rollout and people feel confident to travel for feeling quite bullish around the back end of the year.
Excellent Jets will see down the beach. Thanks for the thank you very much.
David.
Your next question comes from Ben Isaacson with Scotiabank. Please go ahead.
Thank you and good morning, everyone.
The first question is on rumors that I'm hearing about the gasoline shortage.
In the U S and Canada due to.
Limited number of truck drivers I can see a path for that could be negative in the path of that could be positive for you can you talk about your own fleet first of all and then what kind of impact do you think that could have on your business from a margin point of view and from a volume point of view.
Okay.
Yeah. Thanks for the question Ben and look.
We are seeing that in the U S business I mean drivers are in short supply.
I would say, it's not something that is new to us I mean, we've always prided ourselves on being able to.
<unk>.
Recruit and retain the best drivers in the industry and we're fortunate in most jurisdictions, we run our own fleets. So that gives us some flexibility to compensate for potential shortages in drivers we can.
Work, we can work a bit of over time.
And again, we do focus on retaining and making sure that we keep our drivers at parkland.
In terms of the impact.
<unk> costs tend to run through into the market to extra costs and also.
If we do see of shortage it does tend to.
Work its way through on the volume margin side of the business.
Great and then just a quick one on.
On COVID-19. So your volume in Canada, It looks like it was down around 10 of 11% year over year.
How did you enter the quarter and how did you exit the quarter are you back towards kind of sub 5% year over year, even though I guess Q2 was.
What's the sort of COVID-19 last year.
Yeah.
<unk>.
It's interesting I mean, it's been kind of flat through the quarter.
At that number that we published and again, we've seen we've seen markets, there's been volatility across our markets. The one thing that we havent seen that we saw last year as markets go into more.
Severe lockdowns were not seeing the level of decline in demand. So people are still moving.
Still going to work and the.
We're seeing we're seeing demand actually hold in quite well given particularly in Canada, given some of the lockdowns that are in place.
Great. Thanks, so much.
Great.
Thanks Brent.
Your next question comes from Kevin Chiang with CIBC. Please go ahead.
Okay.
Thanks for taking my question this morning.
Maybe I could ask about Canadian fuel margins, just looking on my own model this looks to be at least the second highest.
I have going back a few years here and it seems like it seems like part of this outside of just kind of the volume margin mix. When you talk about as maybe the opportunity to leverage some of the big data or data mining to kind of maybe increase the efficiency of of of the.
The quality of your revenue.
Wondering.
What inning are you in terms of maybe harvesting that data to kind of maximize profitability and then and then when you think about leveraging that into your U S and international.
The segments, how should we how should we think about that as well as how should we think about those capability as we think about the synergy capture when it comes to comes to your M&A pipeline.
Yeah.
Let me talk about.
Volumes and margins and again I'll ask Ian here to assist me, but.
I would say again across across our business, what we've seen through the pandemic and.
Certainly.
In the last quarter is the resilience of the platform, we've seen volume margin and costs and.
The team has been able to to manage that quite effectively to make sure that.
We.
Preserve our cash flows.
In terms of the digital.
Work, we've done around our pricing and.
And how we're rolling that out I'll turn that over to Ian and Ian can comment on it it is.
Ian does lead our digital group at parkland.
Sure Thanks, Bob and Kevin appreciate the question.
As Bob said I would suggest there is two factors of play one is there is a market condition and given the role we play in the market it's important that we.
We know we have an impact on that so a big part of that is ensuring we're making the right decisions and I.
I would say it.
We are much better at pricing out of micro market level.
From a fuel perspective, but also want to deploy those capabilities.
More around on the net dynamic pricing.
For the convenience store and also across other jurisdictions, including our.
<unk> business so.
I would say what we're experiencing right now with the combination of what we're seeing in the market, but also our ability to read the market react.
And utilize some of the digital capabilities that we have we have developed and we will continue to progress.
Okay. That's helpful color.
And then I know, we'll get more details on this on the $2 billion.
Target you reiterated on the press release yesterday, but I'd be interested in knowing when you. When you initially talked about $2 billion at your Investor day versus maybe how you see the path forward.
Post pandemic.
Wondering.
If theres any changes of the moving parts in terms of how you think you get there.
And how does the energy transition play a role.
Today, maybe versus what you would have contemplated I guess two years ago. Just the interesting interest that didn't know are the are there are there are there things you could point to that.
Of that are different now versus the Investor day back in 2019, we initially laid out this hub.
Of this $2 billion target.
Yes, Kevin.
Take that one.
In terms of the 2 billion target I would say are.
Again as as as we look at our business, we have a number of advantages that help us get to that target again. The first is our geographic diversity and the fact that we're in a lot of markets. The markets that are still very fragmented.
The second thing is our product diversity, which where gasoline convenience and then also in our.
The diesel and propane businesses.
As we as we look forward and start to take into account potential impacts of energy transition.
How has that changed I mean, I would say.
Consistent with what we've talked about in the past first and foremost as of <unk>.
Focus on good strong non fuel and convenience revenue and looking for good assets and I think the recent transaction, we announced in the EU and in the U S. CMV is a great example of that because it it really brought some some top tier convenience sites to us that our.
<unk> that have a good good strong food and convenience offer.
The second thing is continuing to grow our diesel and our propane businesses.
We've seen and we can do that across <unk> across all of our jurisdictions.
Both organically and through M&A.
Our diesel business again, I'll point to CMV, which has a strong commercial element and also.
Some good.
The infrastructure to enable imported into the market.
And again, we see the as a good.
Basis on which to build and grow that business in that jurisdiction.
The third is in our propane business and.
We see opportunities in our international business tape to add propane volume we've made investments there.
Our propane distribution capability, which have extended our supply advantage beyond gasoline and diesel into propane and then we recently.
Announced the oil.
Or closed in the quarter of the acquisition of two <unk>.
LPG terminals in the Midwest, which further cements our wholesale position in those markets. So those of some of the typical assets that we're buying that we see as long term assets and certainly.
We see a good pipeline of those going forward and those will persist.
Through the pending energy transition here.
That's very good color. Thank you very much.
Your next question comes from Vishal <unk> with National Bank. Please go ahead.
Hi, Thanks for taking my questions.
You've referenced.
Points about this throughout the call.
Everyone is talking about inflation and I'm wondering what the impact is on your business for <unk>.
Already seen a little bit of pressure on working cap associated with the rising commodity prices.
I know, it's not a mass of part of the business that youll use fuel margins starting to fade a little bit here I'm wondering if there's other things I should consider wages, what you see there pressure from the store product margins or other attribute how is management thinking about that.
Look I would say.
When it comes to the underlying commodity I mean, the price where its at its been there before so our business as well.
It's used to and from a working capital perspective, we can certainly accommodate that.
And and again, our business is of fixed margin business or is the margin business on top of the on top of the underlying.
The commodity price, so we're really not that sensitive to where the prices in terms of our ability to.
In terms of the impact on our margins.
In terms of.
Base inflation in the business, yes, we have been seeing costs escalate, which we've been seeing here for quite a while leaving.
Even in certain jurisdictions mandated.
Increases in minimum wages have been something we've been dealing with over the last several years and we tend to be able to pass that through to the customer base.
And that's something that we've seen consistently over the years and we wouldn't expect that to change.
Okay. Thank you for that color.
Switching gears here.
And I recognize it's early days, but management of restaurant referenced electrical vehicle charging.
And wondering how at this point management sees that initiatives.
And the initiative that you see meeting the typical target thresholds at PKI.
<unk> aims to achieve or is this more of a test and learn initiatives and then as you learn more about the initiatives.
Potentially in scale at your typical return targets.
Yeah, It's I mean look our.
Initial forays here are on a very small basis, when we've gone into various markets.
And to test it with the charging alongside our convenience.
We are evolving our thinking here and particularly in markets, where we're starting to see higher adoption rates in evs.
Think there's a good opportunity to start to.
Rollout.
And EV charging per.
Proposition.
We can meet the needs of the energy needs of our customers independent of the type of vehicles that they're driving we.
We do think that the the pillar of that is a good strong destination food and convenience offer.
We are well positioned particularly in BC, where we are seeing.
Increases in certainly in the new vehicles sold on the EV side.
To start to play in that market and.
Certainly when we look at certain European countries.
And that are ahead in terms of adoption.
There are some encouraging statistics around dwell time.
And.
The amount of consumers are spending once they get to a site and are waiting for their cars to charge. So.
Stay tuned we are doing a lot of work and the.
We will be keeping our investors updated on these initiatives as they rollout here in the back half of the year.
Okay.
Management or the reference of the 2019 analyst day and the.
Yeah.
It laid out of varieties.
A variety of initiatives to help achieve.
The the ambitious goals that were set.
I'm just wondering like.
In terms of the progress made there are some initiatives, which may have been delayed because of COVID-19 I think one of the initiatives that was talked about was.
Improving interprovincial and.
The U S, Canada commercial volumes, making it easier for your customers to to cross the boundaries and increase the volume that way is that initiatives still.
Is that still a key initiatives for the parkland and hasnt been able to make progress since that analyst day.
I think you're talking to our <unk> platform.
And Youre right, we did the idle that last year.
Due to COVID-19 and the re prioritizing.
It is something we have reinvigorated this year and expect to be in market with that proposition.
In the back half of the year.
Thanks for the color.
Your next question comes from John Royall with J P. Morgan. Please go ahead.
Hey, good morning, Thanks for taking my question.
So I was wondering on the relative strength of the Canadian dollar.
For the types of levels were seeing now were contemplated in your guidance for the year end.
The kind of sensitivity of your overall business have to movements in the currency.
Thanks, John I'll turn that question over to Marcel who can talk about the impacts of FX on our business.
Yes, no. Thank you for the question there Joe.
So maybe just as the basis most of our markets, whether it's in Canada or the U S. Oil of course of the international versus U S. Dollar plays a very important part just because of the base pricing like debt and so we generally see a net.
<unk> had trend of dollar of its moving all the way up to the consumer pricing of course.
A couple of effects and we talk about it in our in our results.
So when I talked about the international business being impacted by a 4 million dollar kind of for FX effect. That's just a translation the day did better in U S dollars, but range, you had and translate that back to pads with the right.
The stronger Canadian dollar.
So that is kind of a that has a $4 million extra bits of translation effects on the accounts 60 per se.
Then all of our balance sheets.
If you look at our balance sheet retort for Bart.
Of the OCI and the weighted debt our balance sheet. Overall this is positioned and what we're trying to do there is to match our U S dollar assets on the balance sheet.
All of that so that those two kind of offset each other and we're looking at debt and beyond debt from a.
From a kind of operational perspective.
We clearly monitor our currencies, particularly the dosing the international business from all of that is closely.
Don't have a very active hedging program for you would only do that the free have material exposure to a currency, we normally don't deal with but even in those markets that the Dol.
The result of price, we typically see net FX movements.
Part of stone to the to the end consumer of relatively quickly.
The answer to your question there Joe.
Yes, that's really helpful. Thank you and then.
Second one might be sticking with Marcello.
On the Capex, we came in pretty light this quarter relative to speaking of uneven allocations of your guidance.
And I see the guidance is unchanged, but just wondering if you can discuss the cadence of capex a little bit from the rest of the year and where some of that lumpiness maybe from a growth.
Yeah, Yeah no debt.
Do you want to take that Paul.
Marcella you go ahead I was kind of course of your way.
Okay.
So Joe.
As <unk> already mentioned the second half of the year of course, we have the turnarounds at the at burden of Reorders of the shorter turnaround there.
So that will take up some capex, so that's going to be a bit more.
Backloaded also as you recall last year we.
We took quite a bit we stopped quite of bit of activity are we'd call steps and so we're just kind of for getting up to speed for some of that activity so while quarter one.
What's the relatively.
Of relatively slow there is a lots of work is being done on the line and so we still feel that the guidance that we've given for capex for will be there by the.
By the end of the year.
Great. Thank you.
Your next question comes from Michael Van <unk> with TD Securities. Please go ahead.
Thanks, I guess the questions for Ian.
Regarding your Canadian same store sales.
We've seen some.
Yes, some meaningful changes in the customer shopping habits.
Of course, you've also had some pretty strong company specific improvements with the ear loyalty the on the run and the private label I'm wondering if you have a sense of two <unk>.
How much of the improvement you've seen over the last four quarters.
Is more driven by company specifics.
And therefore.
Whether or not you think you can continue to show some growth as you lap these really strong comps.
Yes, Michael.
Yes, sorry, Bob.
Yep.
Great. Thanks.
So yes, I think I think it was certainly we had.
Had a strong 2020 as you pointed out and part of that was seeing that shift in consumer demand and behavior.
I'd say more broadly, though the channel as a whole is playing a bigger role in consumers' lives and the big.
I think the important component to consider is that the investments we've made in.
And upgrading our locations, but also in.
And the brand.
And the capabilities like loyalty that by the way we did launch in the middle of the pandemic, we're really starting to see that getting closer to the consumer is paying off. So so so I've got a lot of confidence in the team's ability to continue to drive strong strong comps, we're lapping strong comps as well on a year over year basis, but but we.
Certainly as Bob pointed out earlier, we see of good sort of long road of of organic growth ahead of us in this area.
What are you seeing.
Or what are you what are you thinking up from either of promotional.
Standpoint or other.
The strategic initiatives that for you.
That youll do to try and keep that customer from going back to old habits, and shopping more grocery stores, rather than kind of mixing it up with the closer to home stores.
Yes, I think it's a couple of things. One is we we were fortunate enough to remain an essential service to remain open during consumer's times of need and to do it really well so I think the connection debt.
Our brands and our local teams made in our communities.
In my view withstand the test of time and that's.
That's something I think debt that will resonate for many many years in every survey and <unk>.
Consumer perspective.
Read and hear about indicates that consumers will continue to reward brands. The did the right thing for them in times of need. So I think we've got a very good halo there.
Secondly, what youll start to see us do and that's the reason we gave some color around the early sort of early impressions of the rewards program. It will be able to come more targeted for more personal.
Today, it's largely of mass message that reaches everybody.
And there is bit of of lack of efficiency around that from a marketing spend perspective, but you'll start seeing us do is membership in our programs grow and the stickiness with our consumer base growth as Youll see more and more targeted personal offers and more choice for for consumers. So think.
The combination as Bob alluded to earlier of us investing in the business both from a.
Our physical attribute perspective, meaning more sites.
Better locations, but also the vessels for making these programs.
We think again is an important growth engine for us.
Great. Thank you.
Your next question comes from Eric <unk> with Canaccord Genuity. Please go ahead.
Yes, hi, Thanks, guys. Just a question on the the 2 billion ambition I think you mentioned on.
In your remarks that roughly 50% of that would come of the incremental income from acquisitions and if I recall back to 2019 that number was was 75%. So can you just talk about what youre seeing or what are the improvements that you've seen on the organic side that are kind of brought up the organic.
Part of that equation.
Just to clarify Derrick it is about the same it's about 75% M&A plus synergies and 25% organic.
We've split it depends how you split it it can also be 50% acquired and then 50% organic plus synergies. So just two.
It's roughly it's just a different way of slicing it.
Again look when we do look at it we do have a proven track record of being able to buy.
By great assets that we can add value to.
Our underlying and.
<unk>.
Demonstrated that we can deliver anywhere between.
20% and 50% synergies with each acquisition, so quite confident that we can hit those numbers.
On top of our continued organic growth commitments.
That makes sense of it yet.
Yes, no that makes that makes sense.
To clarify.
What I thought was the difference there and then just the can you just comment on what Youre seeing in terms of the increased share that we've seen in oil prices how has that affected the business I'd imagine it's led to some incremental activity in the U S, but what about crack spread in the refinery as well.
Yes.
In terms of activity again in certain jurisdictions, it does help, particularly Alberta, and our northern U S business.
You know as as.
Exploration activity kicks back in that will help those jurisdictions I mean on an overall corporate basis, they're not really material, but it is always nice to have the incremental volume.
Dirk do you want to comment on what we're seeing in terms of the crack spreads sure and thanks very much Bob and good morning, Derrick Yes.
When youre looking at the crack spread remember the crack spread reserves is comparing two items. One is the cost of the underlying commodity so in our case crude.
And <unk> and then the other part of it is which is the revenue side of it is what the price that we get for gasoline and diesel and jet and so the the crack spread sometimes.
We will vary as the commodity price moves up sometimes it will hold steady.
What we have seen over the last little while is a small improvement on that crack spread.
But just remember that the tour interlinked I E. The the feed input costs and the revenue.
Of the of finished products.
And so even in the high commodity price environment, you can get periods, where there is high end or low.
The.
Crack spreads and the same with one of the prices go down it's really the interplay between the inputs and the outputs.
As we have seen.
We've had some pretty decent crack spreads even during a downturn and as we look through.
The last few months, we've seen of steady.
But small increases to the to the crack spread.
Okay, great. Thank you very much.
Your final question comes from Steve Hansen with Raymond James. Please go ahead.
Oh, yes. Good morning, guys. Thanks for the time here I'll be quick with the single.
The first of all glad to see the trickle of those franchise extending beyond <unk> as the resident it's a it's a fantastic offer but my question is really around the journey program extension.
Into other geographies the U S in particular.
<unk> been obviously one of the important key pillars of partnerships around your journey success, thus far how should we think about partnership opportunities as you extend the brand into the U S and what kind of partners do you feel you need to ultimately make sure it's successful down there.
Great. Thanks, Steve and I will turn that over to Ian.
Great. Thanks, Bob Steve Great question.
And you're right. We've had we've had a very successful partnership with CIBC to this point it's broad.
Profiles of the program, it's brought a tremendous share of wallet opportunity for parkland.
And as I referenced in my comments.
We do believe that there are natural partnership extension so.
I would say certainly of financial services is an area, we see being a key role but other other areas.
Such as grocery travel et cetera.
We think it would be natural.
Natural sort of partnerships that we should we could be pursuing so.
I would look to over time as we progress this capability in the new geographies to see.
The similar partnership.
The pursuit of similar partnerships with some tweaks again subject to.
To the local markets and to the brands and various.
Services that those markets require.
Okay, great well thanks.
That concludes our Q&A period today.
We'd really like to thank everybody for participating and look forward to chatting in August when we announce our Q2 results.
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.